The 233-year-old Barings bank incurred losses of £827 million ($1.4 billion at the exchange rate of that time). The sum amounted to twice the bank’s trading capital and reserves, and led to its immediate collapse.
Investors lost their savings and 1,200 employees lost their jobs. ING, a Dutch bank, agreed to assume the majority of Baring’s debt and acquired the bank for £1.
When questioned, Leeson claimed to have opened the (88888) error account to hide a £20,000 trade, made by one of his subordinates, which had been incorrectly recorded. In fact, over time, he used the account to cover numerous bad trades of his own. Leeson claimed never to have used the account for his gain but lawyers for Barings eventually found several bank accounts linked to Leeson, with a total worth in the region of $35 million.
Barings was not entirely without blame. Leeson had been able to conduct his dealings in secret and hide his losses from the bank due to an administrative abnormality. Barings management had allowed him to perform functions usually done by two people. That is, in an unethical move, Leeson had acted both as Chief Trader whilst also settling his own trades.
It was discovered during the investigation that in 1993, an internal memo had been written, warning London head office of this very problem. It read: “We are in danger of setting up a system that will prove disastrous” but nothing was done to resolve the issue. In January 1995, SIMEX communicated their concern with Leeson’s activities to Barings, but to no avail.
When Leeson and his wife went on the run, they first fled to Malaysia, then to Brunei and finally on to Germany. It was here that the law caught up with him and Leeson was arrested in Frankfurt airport on 2 March 1995, just less than two months after his first short straddle. After nearly nine months in Germany, spent trying to avoid it, Leeson was finally extradited to Singapore for trial and sentencing.