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Quote of the Day

“my sincere apologies for the predicament that I’ve left you in. It was neither my intention were aim for this to happen but the pressures, both business and personal, have become too much to bear and after receiving medical advice, have affected my health to the extent that a breakdown is imminent…apologies, Nick”

-Fax received by Barings Bank from fugitive trader Nick Leeson apologizing for his trading losses that ultimately would bring down the bank.

February 24th – This Day in Stock Market History

February 24th, 1995 – Baring’s bank receives a fax from fugitive trader Nick Leeson apologizing for his trading losses that would ultimately bring down the 223 year old bank, and offering his resignation.

Leeson was a derivatives trader for the bank. When the Kobe Earthquake struck Japan on January 17th, 1995, the stock market violently sold off, resulting in deep losses for Leeson’s positions. Leeson hid the losses from the bank in a secret account, and it was not discovered until it was too late.

Over the next week, the bank would fail. It would be sold to ING for £ 1 on March 6th, 1995.

Nick Leeson was later captured in Frankfurt Germany and would serve 4 years in prison.

Nick Leeson has since written several books;
Rogue Trader
and, Back From the Brink: Coping With Stress

and his story has been made into a film:

Source: Eyewitness to Wall Street: 400 Years of Dreamers, Schemers, Busts and Booms

Best February 24th in Dow Jones Industrial Average History

1933 – Up 3.66%, 1.90 points.

 

Worst February 24th in Dow Jones Industrial Average History

1898 – Down 3.23%, 1.09 points.

Read of the Day

The Guardian has a good summary of the events that got Leeson in trouble at Barrings bank, and his subsequent legal trouble.

Also:

Nick Leeson primarily got in trouble using derivatives, highly leveraged bets, that turned against him. Warren Buffett warms of these securities in his 2002 shareholder letter:

Charlie and I believe Berkshire should be a fortress of financial strength – for the sake of our owners, creditors, policyholders and employees. We try to be alert to any sort of megacatastrophe risk, and that posture may make us unduly apprehensive about  the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.
You can read the entire letter here: Berkshire 2002 letter to shareholders.

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