The Barings bank management was to blame for its spectacular collapse earlier this year, the Singapore government said Tuesday.
"Institutional incompetence" and a general lack of understanding of the futures trading business along with a total failure of internal bank controls helped wreck the venerable investment bank, the Ministry of Finance said.Certain senior executives at Barings tried to hinder investigators, said the report compiled by Price Waterhouse accountants, who were assigned by the government to reconstruct the events that led to the bank's fall, the ministry said.
Barings went bust on Feb. 27 after Singapore-based trader Nick Leeson piled up $1.89 billion in losses by betting incorrectly on the direction of Tokyo stocks.
He kept pumping in more and more of the bank's reserve cash to cover his losing bets until there was no money left.
"By placing him in charge of both trading and settlement operations, the Baring Group had breached a fundamental principle of proper internal control, namely that responsibility should be separated," the report said.
The report singled out Peter Norris, chief executive officer of Barings' investment arm, and James Bax, Leeson's boss, accusing them of inefficiency, incompetence and trying to cover up the debacle.
The government accused Leeson of using "various devices" to conceal his disastrous trades, which were done through a secret account named 88888.
The Price Waterhouse report said an initial discrepancy in the 88888 account "was not uncovered because of Mr. Norris' efforts to downplay its significance and divert attention."
Norris also failed to investigate Leeson, approved a sizeable 1994 bonus for him, and even allowed him to place more bets on the futures market, the report said.
Although Norris and Bax denied any involvement, "we are unable to accept their denial," the investigators said.
In London, a spokeswoman for Barings Securities said the company could not comment because it had not seen the report.
The 28-year-old British-born Leeson is in jail in Hoechst, Germany, preparing an appeal against a German court order on Oct. 4 in favor of his extradition to Singapore. He was arrested at Frankfurt Airport on March 2 after fleeing Singapore.
Leeson faces three charges of forgery and eight of fraud - two against Barings Futures (Singapore) Pte. Ltd., and six against the Singapore International Monetary Exchange. He could face 14 years behind bars if convicted.
A final decision on his extradition is not expected for several weeks.
*****
ADDITIONAL INFORMATION
Aiding Japan's banks
The Federal Reserve, concerned that the troubled Japanese banking system might cause financial shock waves beyond Tokyo, has agreed to purchase billions of U.S. Treasury bonds held by Japan's central bank if that country suffers a cash crunch, a source said Tuesday. That plan is only one feature of a broader package of technical assistance to help Japanese regulators resolve a financial crisis, the source said. Japan's banks are suffering severely due to a rapid decline in the Japanese real estate market and a broad drop in the Tokyo stock market, which has lost one-third of its value since 1990.