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How could such an illustrious institution come to such an ignominious end? Was it mismanagement or conspiracy? Was it fraud or simply more proof of the treacherousness of those chimerical financial instruments called derivatives? At the moment Leeson, detained in Germany after a week on the run, is the only one who knows the answer to those questions, and last week he wasn't talking. Still, what is already known of his strategy and what could be teased out through interviews with far-flung friends and colleagues suggest a tale of arrogance and greed on a grand scale.
HAD BARINGS ONLY KNOWN ... TIME has learned that at one point late last year, another bank was thinking of hiring Nick Leeson away, but a corporate headhunter contracted to analyze Leeson's abilities recommended against it. There was nothing wrong with his background or performance. The headhunter just "didn't trust him." His report went on to describe Leeson as "very bright but it might be quickness without any underlying depth ... After you have Leeson for six months he might hold you up for a bigger package."
Leeson certainly had the quickness to rise at Barings at a time when a "bite the ass of a bull-every day" attitude-as a British securities executive describes it-was beginning to infect the bank's stiff and cautious culture. In the early '90s, the London headquarters of Barings was struggling with the division that championed derivatives-financial instruments that use the public's massive bet on securities to create a parallel universe of side bets, some straightforward (like futures) and others arcane (like swaptions). Derivatives helped the Tokyo unit make huge amounts of money-the kind of money that made Christopher Heath, the head of Baring Securities who was pushing these instruments, Britain's highest paid executive. The Tokyo team, says a former Barings manager there, "was a loose group having a really exciting time. We'd laugh if someone had had only an hour of sleep a night. There were days when you'd see someone walk in looking like death, then they'd go into the men's room and come out bouncing around like a new man." Barings in Tokyo was the place to be. "There was much more freedom and a lot less compliance," says a former Barings analyst. That kind of volatility, however, flustered the old-line Baring executives who wanted to put the derivatives business under the watchful eye of one of their risk-averse sales experts. "There was no one in Barings top management who understood derivatives," says a former Barings manager. The top brass was weary, but the money being made kept the bank from pulling out of the game altogether. "Barings' problem was that they wanted to be just a little bit pregnant," says an equity manager in Hong Kong. By 1993 Heath had resigned and the Tokyo operation had been through four top managers in three years. "They were a wreck," says a former Barings trader. "No one was really running the show." In time Leeson would take full advantage of that power vacuum.