A History Of Barings Bank
Barings bank was the oldest and perhaps most renowned of all merchant banks in London. Home of the worlds finance, Barings for years maintained a sterling reputation as one of the most trusted and largest trading organisations. This was all brought crashing down after a high profile collapse in 1995.
Barings bank’s illustrious history began back in 1792 when it was engineered by the enterprising figure – Sir Francis Baring. Baring was born to German parents, whom had emigrated to England shortly before his birth. His father, a talented businessman himself, had become a successful textile merchant in Exeter. However, after his premature death in 1748, the business was left in the capable hands of Francis, and his business savvy mother. Francis was sent to London to gather an invaluable education and serve an apprenticeship in business to best prepare him for undertaking the ownership of his father’s company. In 1972, he opened the Francis and John Barings Bank, which grew to become one of the largest merchant banks in London.
Where Barings Bank gains its healthy reputation from, if not the extreme revenue it gained during the 19th century, was its presence it some of history’s most prevalent events. It was in fact Barings, who loaned the US the money to fund the Louisiana Purchase in 1802. This not only showed the banks international calibre but unreserved ruthless business instincts. At the time of the purchase, Britain were embroiled in the Napoleonic wars with France, and by lending The States the resources to buy land from the French, they were effectively funding the dictators siege.
The trend of international trade continued through the 1800’s and Barings extended their network to South America, where they began relationships with both Argentina and Uruguay, with mixed results. Although they became established as a market in leader in commerce, they suffered huge losses and required the sanctuary nationally owned institutions for loans to help survive them. Although other major banks surpassed them in terms of revenue and income during the 20th century, Barings still remained a firm fixture in merchant banking, until the appointment of an individual who changed the face of the organisation forever.
In 1995, after surviving two world wars, feuds with the British government and overseeing some of the most historic transactions of the last 500 years, Barings Bank was finally closed for business. This was due to an acquisition of an insurmountable amount of debt, form which they could not recover. At the start of 1995 they owed over £800 million, and it was down to the callous actions of one employee.
Barings Bank hired Nick Leeson in 1989 after showing remarkable aptitude in the field with other organisations. Born in Watford in 1967, Leeson was a star pupil at his local school, quickly establishing himself as a student earmarked for a bright future. He was intrigued by the banking industry from an early age, and shunned the opportunity of university, favouring instead to take up a position as a clerk with the privately owned Coutts bank. Taking to the position like a fish to water, he was snapped up by multi-billion dollar turning company – Morgan Stanley. It was here, where Leeson gained his reputation as a shrewd businessman and a figure capable of rejuvenating a failing departments fortune. A contract with Barings soon followed and he enjoyed three successful years before being reassigned to a more high profile position.
Leeson moved to Singapore in 1992, where he was charged with overseeing the Barings small occupation in the country as well as partaking in relatively low key trading that would help to increase the profitability of the branch. Leeson was entrusted with the responsibility of arbitraging trading – a process of taking advantage of the discrepancy between markets to increase profit. Comparable with placing a bet on a sure thing, this is pointless with a small amount of money as you would see minuscule returns, however when using millions of pounds it becomes worthwhile. Due to the tiny variations in markets, this is a relatively low risk procedure, even if you are using extravagant amounts of capital. However, Leeson managed to accrue a sizeable amount of debt, which he was unable to explain.
This juncture is where Leeson moved from being a man who would receive a severe slap on the wrist, or possibly a demotion, to a man capable of ruining the oldest bank in existence. Instead of declaring the loss, he moved it to an account designed to harbour minor clerical errors in the company, the famous ‘88888’ account. Leeson then used money from the company to try and gamble his way back into the green. He tried, unsuccessfully, to predict the direction of markets, specifically the Japanese. By the time he left Singapore, Leeson had amassed over £200 million of debt in the five eights account and when he finally admitted to this in-discrepancy it was way beyond an internal matter, and the worlds press were all over it. The bank had no option but to be closed. For his involvement, Leeson was jailed for 6 years, for which he escaped most due to an aggressive form of colon cancer.
By the time Barings Bank were able to process the actions of Leeson, they had losses totalling £827 million, a figure that bankrupted the company a few times over. Salaries went unpaid, bonuses went unclaimed and thousands of people were left out of pocket. In February 1995, an independent legal authority declared the bank closed for business.
After the judgement, Dutch organisation IMG bought Barings Bank for the lowly sum of £1. They eventually restored the bank to a stage of profitability and sold it for $273 million to US company ABN.
The story of Barings Bank is one of the most intriguing in the history of British finance. One mans actions causing the collapse of one of the most renowned institutions in London.