Barings was warned twice about disaster two warnings of disaster

Bank of England and Singapore investigators into Barings are focussed on the crucial weeks leading up to the merchant bank's collapse and how management apparently failed to heed two clear warnings.

Beyond weaknesses in Barings' risk control systems underscored in the inquiries, questions are now being raised about how far some executives may have tried discreetly to respond to the warnings without alerting normal managerial channels.

Both warnings of grave irregularities in Barings' derivatives operation in Singapore, run by Nick Leeson, were given in January. The first came just seven weeks before the merchant bank collapsed under nearly pounds 900m of debts.

The Singapore exchange, Simex, contacted Barings' futures operation on 5 January 1995 to seek clarification about a $100m discrepancy in margin payments on a specific customer account: 88888. When he did not get an appropriate explanation, a senior Simex official wrote on 11 January to Simon Jones, the chief operating officer in Asia for Barings Securities.

Account 88888 was the clandestine, fictitious customer account through which Mr Leeson allegedly conducted his ruinous derivatives speculation.

The second alert came in the second or third week of January when the auditors Coopers & Lybrand uncovered a $75m shortfall in Barings' futures operations in Singapore which could not be accounted for in trading losses. The $75m appeared to be owed to Barings by Spears, Lees and Kellogg, a US investment firm. The Singapore authorities, as part of their request to have Mr Leeson extradited from Germany, have alleged the documentation for the SLK transaction was forged.

Coopers' concerns were transmitted to Geoffrey Broadhurst, Barings' group finance director, as well as James Bax, the head of Barings' operations in Singapore, and Peter Norris, chief executive of the investment bank.

On 6 February, Mr Norris told Ron Baker, head of Barings' derivatives trading, that the problem uncovered by Coopers was only an "operational error", an explanation repeated two days later at Barings' central risk control committee.

Spears, Lees Kellogg had done a deal with Banque Nationale de Paris and Barings had become involved in the middle, mistakenly paying $75m to BNP, the committee was told.

On 13 February at a meeting of Barings' management committee, the $75m discrepancy was again dismissed, this time by Ian Hopkins, the head of group risk control, as an "operational error". Just 13 days later Barings collapsed. Evidence provided to investigators suggests Barings was already technically bankrupt by the end of 1994.

The two warnings point to grave irregularities indicative of the rapidly unfolding disaster. In his letter of 11 January, Soo Yu Chuan, senior vice-president for audit and compliance at Simex, said it was unacceptable that he could not get adequate explanations from Barings about the $100m margin shortfall in account 88888 just because Mr Leeson was away.

He also said it appeared Barings itself had financed positions held in account 88888. "If this really is the case, your client has violated Simex rule 822, which prohibits members from financing the trading requirements of customers."