Barings like `Mad Hatter's tea party'

Senior managers at Barings knew for more than 18 months that Nick Leeson was running up big losses, according to the bank's former chief executive.

They did nothing because they were blinded by the staggering profits he appeared to be making. The result, according to Peter Norris, was a "Mad Hatter's tea party".

Mr Norris, who is due to be questioned by the Treasury Select Committee on Monday, has spoken for the first time about the meetings held inside the bank to discuss Leeson, whose trading on the Singapore market (Simex) led to the collapse of Britain's oldest merchant bank with losses of pounds 830m.

In a BBC Inside Story documentary to be shown next week, Mr Norris, who was not told about the problems, describes such meetings as "bizarre".

"In retrospect one has to admit virtually everything about that discussion was absolutely mad," he said. "We were living in a world through the looking glass where logic was apparent but was completely perverted. It seems completely bizarre that a group of rational intelligent, experienced competent people were dealing with this matter in a way totally at variance with reality."

Since 1992 Nick Leeson had been covering up his losses on Simex by concealing them in a secret account known as 88888. As his losses mounted he increasingly asked the London office to send him more money for downpayments on futures bought for fictitious clients. The bank complied - sending pounds 700m by the time he finished trading.

From September 1993, managers noticed that there was a discrepancy in Leeson's demands for money and the clients he was supposedly buying for. "There was clearly an appreciation of the seriousness of what had happened because there was a history of concern in this area," Mr Norris said. "Basically it wasn't acted upon until January, February 1995 which was much too late."

Mr Norris, who has been banned by the Securities and Futures Authority [SFA] from working in the City for three years and fined pounds 10,000, says that he was never told by senior managers about the losses.

Instead, managers were blinded by the Leeson's fictitious profits - once pounds 10m in one week. "Critical faculties were less engaged than they might have been . . . because there were profits," Mr Norris said.

Ron Baker, the former head of financial products group at Barings International Bank between 1993 and 1995, agrees: "People sent in to fix the controls were seduced by the commercial success and lost their way."

In contrast to the "pristine controls" which governed the way the merchant bank operated, the trading arm was run "on a very different basis . . . they let it rock and roll".

Nick Leeson describes Barings as "tacky. I can't describe it any other way. The futures and options department was operating on a PC [personal computer] and a software programme written by a person I worked with. It was very much a back of the matchbox type thing".

The lack of controls was a "significant error of judgement", Mr Norris said, but added: "I think [Leeson] conducted a determined and completely unscrupulous and ultimately extremely successful campaign to avert discovery ... He's like a virus that gets into the workings of something that does work and perverts it utterly. He is an agent of destruction."