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KOBE EARTHQUAKE Jan.17.1995. 7.2 Scale earthquake Cost more than 70 billion pounds to repair Nekkei 225 index fall only 400 points -Leeson to bet on price.

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Presentation on theme: "KOBE EARTHQUAKE Jan.17.1995. 7.2 Scale earthquake Cost more than 70 billion pounds to repair Nekkei 225 index fall only 400 points -Leeson to bet on price."— Presentation transcript:

1 KOBE EARTHQUAKE Jan Scale earthquake Cost more than 70 billion pounds to repair Nekkei 225 index fall only 400 points -Leeson to bet on price would go up -jan. 20 bought short Japanese Government Bonds

2 AFTER KOBE EARTHQUAKE Jan.23 Nikkei 225, dropped 1,175 points Jan.27 Leeson bought more on long holding in the Nikkei 225 had risen to 27,158 contracts The Bank of England’s investigators start to question on Leeson’s motives -Leeson could hold up the share market -losses on jan.23 was future position lost 34mil pounds and for the options portfolio lost was 69mil pounds Accounting to 27 Jan revenue 5 mil pounds however, it was 47 mill pounds lost

3 ASSET AND LIABILITY COMMITTEE(ALCO) Cross-purposes -Miscommunication -Raised margin-call limit at Citibank by $100 mill Rumors about margin-call -Not trusted it but worry about harmed on Barings’ good name -Not to increase the positions, and reduce share in Nikkei -On report Baring held a 29% of market share in the Nikkei and a 26% of market share in the Japanese Government Bond Far Bigger More pressure

4 FRAUD, FRAUD, FRAUD!!! Forgeries to create $50 mill premium -Letter,Photocopy, Fax message Used account convince Seet that the 50 mill pounds had been received from SLK Create Citibank transaction between two Baring accounts Use input error on date -30/12 to be 03/12

5 KINGS RETURN? 30.Jan Leeson had 6,500 contract -Nikkei was up 700 points Long Nikkei position psotion had shot up to 30,600 -by Feb Nikkei option point pit in a big way “I was not offsetting the risk. I was looking for return” –Leeson-

6 FALLING A PART After first week of Feb Nikkei start to dropped -for every 100 points the Nikkei index dropped Leeson loss 144 mil pounds 30 Jan Top-up was 150mil pounds, by 24 Feb Top-up was 306 mil pounds Loss on the account 8888 from July 1992 to 6 Feb was 253 mil pounds Baring bankrupt on 26 Feb ING bought Baring for a 1 pound - Real cost was 660 mil pounds


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