Senior managers at Barings can be found wanting in all these areas. For example, while they were happy to enjoy the fruits of the success of the Singapore branch, they were not so keen on providing adequate resources to ensure a sound risk management system for a unit that alone ostensibly accounted for one-fifth of its 1993 profits and almost half of its 1994-profits. The senior management's response to the internal auditor's report for a suitably experienced person to run Singapore's back office was that there was not enough work for a full-time treasury and risk manager even if the role incorporated some compliance duties. No senior managers in London checked on whether key internal audit recommendations on the Singapore backoffice had been followed up.

Barings' senior management had a very superficial knowledge of derivatives and did not want to probe too deeply into an area that was bringing in the profits. Arbitraging the price differences between two futures contracts is a low-risk strategy. How could it then generate such high profits if the central axiom of modern finance theory is low risk-low return, high risk-high return? And if such a low-risk and relatively simple arbitrage could yield so much profits, why were Barings' better-capitalised rivals (all with much larger proprietary trading teams) not pursuing the same strategy?

The profitability of the business was marvelled at by all senior managers, but never analysed or properly assessed at Management Committee meetings. Senior managers did not even know the breakdown of Leeson's reported profits. They erroneously assumed that most of the switching profit came from Nikkei 225 arbitrage, which actually only generated profits of US$7.36 million for 1994, compared with US$37.5 million for JGB arbitrage. No wonder Peter Baring, ex-chairman of Barings, told the bobs that he found the earnings "pleasantly surprising" since he did not even know the breakdown. Andrew Tuckey, ex-deputy chairman, when asked whether there had ever been any discussion about the long term sustainability of the business, told the same investigation, "Yes...in very general terms. We seemed to be making money out of this business and if we can do it, can't somebody else do it? How can we protect our position?...." Senior management naively accepted that this business was a goldmine with little risk.

Of Ron Baker (head of the Financial Products Group) and Mary Walz (Global head of Equity Financial Products), two of Barings' most senior derivatives staff and Leeson's bosses, the BoBS report concluded, "Neither were familiar with the operations of the SIMEX floor. Both claim that they thought that the significant and large profits were possible from a competitive advantage that BFS had arising out of its good inter-office communications and its large client order flow. As the exchanges were open and competitive markets, this suggests a lack of understanding of the nature of the business and the risks (including compliance risks) inherent in combining agency and proprietary trading."

Given the huge amounts of cash that Barings had to borrow to meet the margin demands of SIMEX, senior managers were almost negligent in their duties when they did not press Leeson for more details of his positions or/and the Credit department for client details. Members of the Asset and Liability Committee (ALCO), which monitored the bank's market risk, expressed concern at the size of the position, but took comfort in the thought that the firm's exposure to directional moves in the Nikkei was negligible since they were arbitrage (and hedged) positions. This same misplaced belief led management to ignore market concerns about Barings' large positions, even when queries came from high level and reputable sources including a query on January 27 1995 from the Bank for International Settlements in Basle.

The bank was haemorrhaging cash and still London took no steps to investigate Singapore's requests for funds - partly because senior management assumed that a proportion of these funds represented advances to clients. Even then the complacency is still baffling. BFS had only one third-party client of its own - Banque Nationale de Paris in Tokyo. The rest were clients of the London and Tokyo offices. Either London or Tokyo's existing customers had suddenly become very active or Leeson had recently gone out and won some very lucrative accounts or Tokyo or London had a new supersalesman who had brought new business with him. Yet no enquiries were made on this front, which displays a blasé attitude about a potentially important source of revenue.