Barings trial to grill auditors

ING bought up parts of the Barings business after the bank collapsed

Ernst & Young, the liquidators of the now defunct Barings Bank, is suing two other firms of accountants for £1bn over the collapse of Barings six years ago.

The case, which takes place in the High Court , promises to dredge up old grievances. The BBC's business correspondent Greg Wood reports.

Barings Bank went bust in February 1995 with losses of more than £800m.

Nick Leeson returns to the UK after four years in a Singapore prison

The losses were run up in Singapore by the Barings trader Nick Leeson who subsequently spent more than four years in prison.

Barings' figures in Singapore were checked - or audited - by two firms of accountants, Deloitte & Touche and Coopers & Lybrand Singapore, now part of PricewaterhouseCoopers.

For two years those figures showed a profit when in fact Nick Leeson had already run up big losses.

Seeking compensation

Barings' liquidators Ernst & Young will argue in court that the auditors were negligent in not spotting this and will seek £1bn in compensation.

Prem Sikka, Professor of Accounting at Essex University, says that in many other cases auditors generally have not had a good record in uncovering fraud.

Ewan McGregor starred as Nick Leeson in a film of the events

"The auditors were the last people to learn that there was something irregular," said Professor Sikka.

"So that raises questions not only about the efficiency with which audit work is done and the processes but also how close they are to the management, the very people they're supposed to be auditing."

The auditors in this case will argue that Barings' own management was to blame for failing to stop Mr Leeson.

The hearing will last until next spring and the legal costs are expected to exceed £100m.

The trial is going ahead after the parties involved failed to reach a last-minute settlement.

Notorious

Mr Leeson's expensive bet on Singapore futures made him one of the most notorious figures in international banking and earned him a six-and-half-year sentence in prison.

His losses were the catalyst for the collapse of Barings, once a prestigious British merchant bank.

In 1995 the bank was sold to the Dutch financial group ING for a symbolic £1.

ING tried to resuscitate the Barings business, but has since been forced to scale back itself.

It has retrenched its investment banking operations and sold off its US arm.

Released

Mr Leeson was released early from his prison in Singapore for good behaviour and to recover from colon cancer.

A film, called Rogue Trader, has since been made of the Barings collapse.

Ewan McGregor starred as Nick Leeson, while Anna Friel played his then wife, Lisa.