There was practically no reason for Leeson to co here.
Let’s break it down step by step.
Where’s Nick Leeson based again? He’s the head of the Singapore branch of the British Barings Bank.
His unusual investnt thods—most people would just call it fraud—weren’t possible without his direct involvent, which is why he spent almost all his ti in Singapore.
aning there was no logical reason for him to fly to the USSR, get a visa, and co here.
But... Leeson dealt in CDS and Nikkei futures. Both were sectors Daehwa Securities and Daehwa Investnt Bank operated in.
So it wasn’t that strange for him to co into contact with Daehwa Group. I clung to that tiny reason with relentless persistence and eventually succeeded in getting Nick Leeson to et in Moscow.
‘Here, at least, I can relax a little.’
eting in Singapore would’ve been too close to Korea. Too many eyes.
“That’s surprising. I thought I was pretty young, but you’re not far behind. Ahaha, is this what they call a talent gap? Anyway, it’s an honor to et the head of Barings Bank’s Singapore office.”
“Hmm, I feel the sa. It’s been a while since I’ve t soone younger than —at this level, I an.”
“Ahaha! I’m older than I look, so no need to lay on the gold leaf.”
“...You look young.”
After a few polite greetings, we got straight to business.
“You’re looking to sign a CDS contract on Soviet corporations and bonds?”
“Yes, there was so talk internally at Daehwa Securities about managing risk. As you know... this place is unstable, right? Now that I’ve seen it in person, that feeling’s grown stronger. Nothing gets done unless you bribe so corrupt official...”
“Hmm, interesting. I thought your firm was quite bold. Haven’t you mostly taken short CDS positions rather than long ones?”
“That would be Daehwa Investnt Bank, right? Ahaha, yeah, there’s a bit of a situation. We talk like the USSR’s corrupt, but Korea isn’t exactly the pinnacle of modern governance either... And since this ca from the top of the group—not my money or anyone under —I’ve got to manage it properly.”
“Ah, I get it. I used to have those kinds of... misunderstandings too, before I saw the light.”
That made almost laugh.
‘What—like the “enlightennt” that nobody cares if you gamble away money from upstairs?”
Barely suppressing a grin, I nodded.
“Well... the world’s full of all sorts of things.”
Yeah.
After chatting a while, it beca clear—unlike that Yuri Chebrikov guy, Nick Leeson was actually pretty charming. He had a way of making even smug bullshit sound amusing.
Which he’d need, since he didn’t have much else going for him.
Lousy background poor education no experience—and yet he was appointed head of Barings Bank Singapore at a young age. It just shows what a legendary con artist he really was.
He’d committed multiple financial cris that would get him thrown in prison on the spot if caught, and here he was, chatting with like nothing was wrong.
‘He must be sweating bullets inside.’
Sure enough, despite the laid-back tone, his stance on the contract stayed sharp the entire ti.
“Wouldn’t you consider taking on a bit more of this contract?”
“Oh my, I don’t have that kind of discretion. Sorry.”
He was clearly trying to squeeze more out of the deal.
“And the premium paynt... shall we do it in dollars?”
“Huh? No. Let’s use yen. I’m dealing with the Nikkei index.”
He preferred yen.
And the biggest tell...
“You understand, of course, Miss...”
“That it’s a secret? Yes, yes, don’t worry. No one would expect soone to co all the way to the USSR for a deal like this.”
He was trying to keep the position hidden.
***
After closing the deal with Nick Leeson, I lay back in my hotel room, carefully reading over the contract.
‘I’ll need to pay roughly $10 million for this contract...’
A pretty hefty amount to use as a hedge. Leeson might be thinking I’m pulling sothing shady for Daehwa Group’s slush fund.
The thod behind Leeson’s scam, as ntioned, involved account 88888.
He’d move losses from futures trading into this special account and only report the gains to upper managent.
Now, here’s a question. Wouldn’t the Singapore rcantile Exchange (SIX), which managed that account, catch on?
Of course not.
SIX demanded margin calls every day, and Leeson had to pay them in yen. That margin had to co from a source unknown to Barings’ headquarters.
In history, Leeson sold option straddles—selling call and put options at the sa strike price—and deposited the collected premium into account 88888.
So what happened?
On the balance sheet, gains and losses canceled out. Losses were fully offset.
It was genius. If you only looked at the ledger, SIX and Barings HQ would never notice.
Sure, relying entirely on ledger printouts is a dumb system, but hey—what can you do?
Even divine beings couldn’t catch him—Leeson fooled onsite auditors too.
How did I know? I looked at how many options he sold and reverse-calculated the losses. If the losses equaled the premiums, then Leeson’s sold options were the cause. Simple.
But here’s the core ~Nоvеl𝕚ght~ issue.
-Then if he’d never done the futures trades and only sold options, wouldn’t he just have a loss equal to the premiums?
Right. If the balance-sheet deception had kept working, Leeson wouldn’t be a fraudster—he’d be a legendary investor with a flawless hedge.
But there’s a reason option straddle sells are known as high-risk: when it goes bad, you’re fucked.
Especially because the straddle position offers zero protection—if the index rises, you lose; if it drops, you also lose.
And for whatever reason, Leeson had been using insane leverage. The losses in account 88888 eventually ballooned beyond what the premiums could cover.
‘Though things are a bit different now.’
Now he had another tool: CDS contracts.
aning... he had a new way to dial up his risk.
Unlike the straddle position, CDS was safer (relatively speaking) and in a different asset class. Less chance of getting caught. And more importantly, the option sells had beco too heavy.
Market demand had dried up. In other words—low liquidity. Like trying to spend $10 billion when no one will take your money.
So... Leeson had to take shady contracts like this.
“Yeon-ha, do you know how much this contract is worth?”
-Flutter.
I smiled brightly and waved the contract. Choi Yeon-ha stared at it like she could burn a hole through the page.
“...Didn’t you say it was $10 million?”
That’s what I had to pay in premium.
But... I’ve seen the future, and the USSR collapses.
A bit early.
“Nope. It’s worth $200 million. The premium’s 5%, so... that ans our dear Mr. Leeson is on the hook for $200 million.”
[In the event the Soviet Union dissolves, with no successor entity liable for its debts, it will be treated as a default. Deadline: December 31, 1991.]
That clause was clearly written in small text at the bottom corner of the contract.
***
After my little rendezvous with Nick Leeson, I paid another visit to Mr. Chebrikov.
“...First of all, though I share the Chebrikov na, I’m not really related to him. Please understand that.”
“So your uncle being in the KGB...”
“Oh, that’s soone else. My uncle is still active in the KGB—he’s a colonel now.”
Ah, I see.
“Then who is the person I’m eting with...? I’m not very familiar with Soviet personnel.”
“Oh, I assud you knew. Then again, if you’re not tied to the KGB, you might not. Does Viktor Mikhailovich Chebrikov ring a bell?”
...Ah.
A big na.
Wasn’t he the forr chairman of the KGB, forced out two years ago after clashing with the General Secretary? I’d seen him on the news a few tis, but Russian nas are complicated. The pronunciation threw off.
Lately, all the focus has been on Vladimir, so I sotis mix up my priorities.
In any case, being connected to a forr KGB chairman—even distantly—is a huge deal.
-Click.
I stepped into the small but clearly luxurious mansion.
“Woof! Woof!”
‘Ooh, a dog.’
A big, Russian-looking dog greeted Yuri Chebrikov. It was probably an Alaskan Malamute or sothing like that.
He patted the dog, then looked at standing behind and smiled.
“He’s used to people. He’s safe.”
“Hmm... He’s cute. Belkaya, co here.”
Yuri chid in, slightly displeased.
“...That’s not his na.”
I ignored him and played with Belka’s head for a bit.
Mmhmm, very cute.
Maybe I’ll raise a dog later.
One that listens well.
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