was a Britishmerchant bankbased inLondon, and the worldssecond oldest merchant bank(afterBerenberg Bank). It was founded in 1762 byFrancis Baring, a British-born member of the German-BritishBaring familyof merchants and bankers.
The bank collapsed in 1995 after suffering losses of 827 million (1.6 billion today) resulting from fraudulent investments, primarily infutures contracts, conducted by its employeeNick Leeson, working at its office inSingapore.
Barings Bank was founded in 1762 as the John and Francis Baring Company byFrancis Baring, with his older brotherJohn Baringas a mostly silent partner.2They were sons ofJohn (n Johann) Baring, wool trader ofExeter, born inBremenGermany. The company began in offices offCheapsidein London, and within a few years moved to larger quarters inMincing Lane.3Barings gradually diversified from wool into many other commodities, providing financial services for the rapid growth of international trade, including the lucrative slave trade which enriched the family and the business considerably and allowed significant expansion of the banks activities and prestige.4In 1774, Barings started business in the US.5By 1790, Barings had greatly expanded its resources, both through Francis efforts in London and by association with leading Amsterdam bankersHope & 1793, the increased business necessitated a move to larger quarters in Devonshire Square. Francis and his family lived upstairs, above the offices.citation neededIn 1796, the bank helped to finance the purchase of about 1 million acres (4000 km2) of remote land that would become part of the state of Maine.5
In 1800, John retired and the company was reorganized as Francis Baring and Co. Francis new partners were his eldest son Thomas (later to beSir Thomas Baring, 2nd Baronet) and son-in-law, Charles Wall. Then, in 1802, Barings and Hope & Co. were called on to facilitate the largest land purchase in history: theLouisiana Purchase, which doubled the area of the USA.5It is regarded as one of the most historically significant trades of all time.5This was accomplished even thoughBritainwas at war with France, and the sale helped to financeNapoleons war effort. Technically, the United States purchased Louisiana from Barings and Hope, not from Napoleon.6Baring was willing to help Napoleon in the short term because he, and British politicians who backed him, predicted that American expansion into Louisiana would, as elsewhere in the USA, result in the extermination of native populations, the importation of Africans as slaves, and the production and export of cotton to the whirring British mills around Manchester. In other words, American slavery would ensure Barings profits in Britain.7After a $3 million down payment in gold, the remainder of the purchase was made in United States bonds, which Napoleon sold to Barings through Hope & Co. of Amsterdam8at a price of $87.50 per $100 face value (a discount of one-eighth). Francis second sonAlexander, working for Hope & Co., made the arrangements in Paris withFrançois Barb-Marbois, Director of the Public Treasury. Alexander then sailed to the United States and back to pick up the bonds and deliver them to France.
In 1803, Francis began to withdraw from active management, bringing in Thomas younger brothers Alexander and Henry to become partners in 1804. The new partnership was called Baring Brothers & Co., which it remained until 1890. The offspring of these three brothers became the future generations of Barings leadership. In 1806, the company relocated to 8Bishopsgate, where they stayed for the remaining life of the company. The building underwent several expansions and refurbishments,3and was finally replaced with a new high-rise building in 1981.
Barings helped to finance the United States government during theWar of 1812.9By 1818, Barings was called the sixth great European power, after England, France, Prussia, Austria and Russia.5A fall off in business and some poor leadership in 1820s caused Barings to cede its dominance in the City of London to the rival firm ofN M Rothschild & Sons. Barings remained a powerful firm, however, and in the 1830s the leadership of new American partnerJoshua Bates, together withThomas Baring, son ofSir Thomas Baring, 2nd Baronet, began a turnaround. Bates advocated a shift in Barings efforts from Europe to the Americas, believing that greater opportunity lay in the West. In 1832, a Barings office was established in Liverpool specifically to capitalize on new North American opportunities. In 1843, Barings became exclusive agent to the US government, a position they held until 1871.
Barings was next appointed bySir Robert Peelto supply Indian corn (maize) to Ireland for famine relief between November 1845 and July 1846, after the staple potato crop failed. The company declined to act beyond 1846, when the government instructed them to restrict purchases to within theUnited Kingdom. Baring Brothers refused any commission for work performed in the cause of famine relief. Their position as prime purchasers of Indian corn was assumed by Erichson, a corn factor of Fenchurch St, London.10
In 1851, Baring and Bates brought in another American,Russell Sturgisas partner. Despite the embarrassment to his partners caused by his sympathies for the South in theAmerican Civil War, Sturgis proved a capable banker. After the death of Bates in 1864, he gradually assumed a leadership role in the firm. In the 1850s and 1860s, commercial credit business provided the firm with its bread and butter income. Thomas Barings nephew Edward, son ofHenry Baring, became a partner in 1856. By the 1870s, under the emerging leadership of Ned Baring, later the 1stBaron Revelstoke, Barings were increasingly involved in international securities, especially from the United States, Canada, and Argentina. Barings cautiously and successfully ventured into the North American railroad boom following the Civil War. A new railroad town in British Columbia was renamedRevelstoke, in honor of the leading partner of the bank that enabled the completion of theCanadian-Pacific Railway. Barings also helped to finance major railways includingAtchison, Topeka and Santa Fe Railway.5
In 1886, the bank helped broker the listing of theGuinnessbrewery.11Later in the 1880s, daring efforts inunderwritinggot the firm into serious trouble through overexposure to Argentine and Uruguayan debt. In 1890, Argentine presidentMiguel Jurez Celmanwas forced to resign following theRevolucin del Parque, and the country was close to defaulting on its debt payments. This crisis finally exposed the vulnerability of Barings, who lacked sufficient reserves to support the Argentine bonds until they got theirwhose?house in order. Through the organisational skills of the governor of theBank of EnglandWilliam Lidderdale, a consortium of banks was arranged, headed by former governorHenry Hucks Gibbsand his family firm ofAntony Gibbs & Sons, to bail Barings out and support a bank restructuring. The resulting turmoil in financial markets became known as thePanic of 1890.
Although the rescue avoided what could have been a worldwide financial collapse, Barings never regained its dominant position. Alimited liability company- Baring Brothers & Co., Ltd. – was formed, to which the viable business of the old partnership was transferred. The assets of the old house and several partners were taken over and liquidated to repay the rescue consortium, with guarantees provided by the Bank of England. Lord Revelstoke and others lost their partnerships along with their personal fortunes, which were pledged to support the bank. It was almost ten years before the debts were paid off. Revelstoke did not live to see this accomplished, dying in 1892.2
Barings did not return to issuance on a substantial scale until 1900, concentrating on securities in the United States and Argentina. Its new, restrained policy, under the leadership of Edwards sonJohn, was considered to have made Barings a more appropriate representative of the British establishment.clarification neededThe company established ties with KingGeorge V, thus beginning a close relationship with theBritish monarchythat would endure until Barings collapse in 1995.Diana, Princess of Waleswas a great-granddaughter of a Baring. Descendants of five of the branches of the Baring family tree have been elevated to thepeerageBaron Revelstoke, theEarl of NorthbrookBaron AshburtonBaron Howick of Glendaleand theEarl of Cromer. The companys restraint during this period cost it its pre-eminence in the world of finance, but later paid dividends when its refusal to take a chance on financing Germanys recovery from World War I saved it some of the most painful losses incurred by other British banks at the onset of theGreat Depression.2
During the Second World War, the British government used Barings to liquidate assets in the United States and elsewhere to help finance the war effort. After the war, Barings was overtaken in size and influence by other banking houses, but remained an important player in the market until 1995.12
Barings was brought down in 1995 by a massive trading loss caused by fraudulent trading by its headderivativestrader inSingaporeNick Leeson. Leeson was supposed to bearbitraging, seeking to profit from differences in the prices ofNikkei 225futures contracts listed on theOsaka Securities Exchangein Japan and on theSingapore International Monetary Exchange. However, instead of buying on one market and immediately selling on another market for a small profit, the strategy approved by his superiors, Leeson bought on one market then held on to the contract, gambling on the future direction of the Japanese markets.
According toEddie George, Governor of theBank of England, Leeson began doing this at the end of January 1992. Due to a series of internal and external events, his unhedged losses escalated rapidly.13
Under Barings Futures Singapores management structure through 1995, Leeson was not only floor manager for Barings trading on theSingapore International Monetary Exchange, but also the units head of settlement operations. In the latter role, he was charged with ensuring accurate accounting for the unit. These positions would normally have been held by two different employees. By allowing Leeson, as trading floor manager, to settle his own trades, Barings short-circuited normal accounting and internal control/audit safeguards. In effect, Leeson was able to operate with no supervision from Londonan arrangement that made it easier for him to hide his losses.14After the collapse, several observers, including Leeson himself, placed much of the blame on the banks own deficient internal control andrisk managementpractices. A number of people had raised concerns over Leesons activities but were ignored.15
Because of the absence of oversight, Leeson was able to make seemingly small gambles in the futuresarbitragemarket at Barings Futures Singapore and cover for his shortfalls by reporting losses as gains to Barings in London. Specifically, Leeson altered the branchs error account, subsequently known by its account number 88888 as the five-eights account, to prevent the London office from receiving the standard daily reports on trading, price, and status. Leeson claims the losses started when one of his colleagues bought 20 contracts when she should have sold them, costing Barings 20,000.
By December 1994, Leeson had cost Barings 200 million. He reported toBritish tax authoritiesa 102 million profit. If the company had uncovered his true financial dealings then, collapse might have been avoided as Barings still had 350 million of capital.16
Using the hidden five-eights account, Leeson began to trade aggressively in futures and options on the Singapore International Monetary Exchange. His decisions routinely resulted in losses of substantial sums, and he used money entrusted to the bank by subsidiaries for use in their own accounts. He falsified trading records in the banks computer systems, and used money intended for margin payments on other trading. As a result, he appeared to be making substantial profits. However, his luck ran out when theKobe earthquakesent the Asian financial marketsand with them, Leesons investmentsinto a tailspin. Leeson bet on a rapid recovery by the Nikkei, which failed to materialise.17
On 23 February 1995, Leeson left Singapore to fly toKuala Lumpur. Barings Bank auditors finally discovered the fraud around the same time that Barings chairman, Peter Baring, received a confession note from Leeson. Leesons activities had generated losses totalling827 million (US$1.3 billion), twice the banks available trading capital. The collapse cost another 100 million.16The Bank of England attempted an unsuccessful weekend bailout.18Employees around the world did not receive their bonuses. Barings was declared insolvent on 26 February 1995, and appointed administrators began managing the finances of Barings Group and its subsidiaries. The same day, the Board of Banking Supervision of the Bank of England launched an investigation led by BritainsChancellor of the Exchequer; their report was released on 18 July 1995.Lord Bruce of Donington, in theHouse of Lordsdebate on the report, said:19
Even the provisional conclusions of the report are interesting. I should like to give them to the House so that we may be reminded what the supervisory body itself decided at the end of such investigation as it was able to make. It stated on page 250:
Barings collapse was due to the unauthorised and ultimately catastrophic activities of, it appears, one individual (Leeson) that went undetected as a consequence of a failure of management and other internal controls of the most basic kind.
The words I venture to emphasise to your Lordships are these:
Noble Lords who have read through paragraph 14.2 of the report will be aware that it specifies these deficiencies. The report states:
Really! They really have to understand the businesses! I would have thought that it was an elementary assumption to make that the controllers should understand the nature of the businesses they are trying to control. The next requirement is this:
Hooray for that! I wonder how businesses in this country manage in their generality to continue without that qualification. The third requirement is:
Tut, tut! We are now treating the real elementum of the whole art and science of management, and it needs to be repeated here. The report continues:
Hooray for that! These are matters of plain, ordinary common sense. One does not need to be an accountant or a management consultant to be aware of that. Finally:
Top management and the Audit Committee have to ensure that significant weaknesses, identified to them by internal audit or otherwise, are resolved quickly.
Well, well, well! These are all respects which this control body finds were absent from Barings. Do noble Lords really know what is being said? It is being said that Barings ought not to have been authorised bankers from the beginning, because any business I do not care whether it is awhelkstall (one must not insult whelk stall owners in the context of this catastrophe) or what knows that these are the basic conditions for the continuance of the business. It seems to me that the Bank of England ought never to have authorised this concern without verifying that all these conditions were in place.
ING, a Dutch bank, purchased Barings Bank in 1995 for the nominal sum of 117and assumed all of Baringsliabilities, forming the subsidiary ING Barings. In 2001, ING sold the U.S.-based operations toABN Amrofor $275 million, and folded the rest of ING Barings into its European banking division.20This left only the asset management division,Baring Asset Management. In March 2005, BAM was split and sold by ING toMassMutual, which acquired BAMs investment management activities and the rights to use the Baring Asset Management name, andNorthern Trust, which acquired BAMs Financial Services Group.2122Barings Bank therefore no longer has a separate corporate existence, although theBaringsname still lived on as the MassMutual subsidiary, Baring Asset Management.23In March 2016, a merger was announced with other asset management subsidiaries of MassMutual, creating a new Barings headquartered in Charlotte, NC.24Baring Private Equity International, which included investment teams in Asia, India, Russia and Latin America was acquired by its respective management teams, which today includeBaring Vostok Capital Partnersin Russia,GP Investmentsin Brazil as well as Baring Private Equity Asia,25and Baring Private Equity Partners India.26
With the failure of Barings,N M Rothschild & Sonsis the only name remaining from the glory days of 19th-century British merchant banking.
After learning of Barings collapse (and realising he was certain to be jailed for his actions), Leeson booked a flight to London where he intended to surrender to British police in hopes of serving prison time in the United Kingdom as opposed to Singapore. However, he was apprehended byGermanauthorities when he landed inFrankfurt. Leeson spent the next several months in German custody unsuccessfully fighting extradition back to Singapore. British authorities declined to pursue extradition of Leeson back to the United Kingdom. Leeson was eventually sentenced to six and a half years in prison in Singapore, but was released early in 1999 after being diagnosed with colon cancer. Despite grim forecasts at the time, he did not succumb to the disease.
On 5 April 2007,The Guardiannewspaper reported thatKPMG, the liquidators of Barings PLC, had sold atrading jacketthought to have been worn by Nick Leeson while trading on SIMEX in Singapore. The jacket was offered for sale oneBaybut it failed to reach its reserve price despite a highest bid of 16,100. It was subsequently sold for 21,000.27In October 2007 a similar jacket used by Leesons team but not thought to have been worn by Leeson himself sold at auction for 4,000.28
The 1999 filmRogue Traderis a fictionalized account of the banks downfall based upon Leesons autobiographyRogue Trader: How I Brought Down Barings Bank and Shook the Financial World.29In the film, the bank is repeatedly described as the oldest merchant bank and private bank in the world; this is however inaccurate, as the oldest merchant bank and private bank isBerenberg Bank.
In the historical novelStones Fall(2009) byIain Pears, Barings and its role in thePanic of 1890play a significant part in the storys structure.30
In the novelAround the World in Eighty DaysbyJules VernePhileas Foggs bet is guaranteed by a cheque for 20,000 drawn on Barings Bank:
As today is Wednesday, the 2nd of October, I shall be due in London in this very room of the Reform Club, on Saturday, the 21st of December, at a quarter before nine p.m.; or else the twenty thousand pounds, now deposited in my name at Barings, will belong to you, in fact and in right, gentlemen. Here is a cheque for the amount.31
Leonard Ingrams, formerManaging Directorand founder ofGarsington Opera.
Jrôme Kerviel, trader withSocit Gnralewho lost approximately€4.9 billion.
Kweku Adoboli, trader withUBSwho lost over USD 2 billion in 2011.
Galway United F.C., by whomNick Leeson, instrumental in Barings collapse, was subsequently employed.
CITIC Pacific2008 foreign exchange losses controversy
Managing the Risks of Organizational Accidents
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Aguilera, Kristin.The British Bank That Forever Altered the U.S. Economy (22 Jan, 2013).
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Wayne T. De Cesar and Susan Page (Spring 2003).Jefferson Buys Louisiana Territory, and the Nation Moves WestwardNational Archives and Records Administration.
Hickey, Donald R. (November 2012).Small War, Big Consequences: Why 1812 Still Matters.
A Dictionary of Irish History, D.J.Hickey & J.E.Doherty, Gill and Macmillan, Dublin, 1980. Pp. page 24.
Titcomb, James (23 February 2015).Barings: the collapse that erased 232 years of history.
Case Study: Barings. Sungard Bancware Erisk. Archived fromthe originalon 17 October 2007
Barings debacle. Risk Encyclopedia. Archived fromthe originalon 2014-07-03.
Implications of the Barings Collapse for Bank Supervisors
. Reserve Bank of Australia. 1995. Archived fromthe original
Howard Chua-Eoan (2007).The Collapse of Barings Bank, 1995. TIME magazine. Archived fromthe originalon November 16, 2007
Managing the Risks of Organizational Accidents
. Ashgate Publishing Limited. pp.2834.
Kapner, Suzanne (2001-01-31).WORLD BUSINESS BRIEFING: EUROPE; MORE RESTRUCTURING BY ING GROUP.
ING Group agrees to sell Baring Asset Management. ING Group. 2004-11-22.Archivedfrom the original on 10 December 2007
ING ends link with Baring nameBBC News. 2004-11-22.Archivedfrom the original on 23 October 2007
Mass Mutual Asset Management Affiliates Announce Plans to Combine. March 2016.
India, Baring Private Equity Partners.Baring Private Equity Partners India.
Wearden, Graeme (2007-04-05).Nick Leesons jacket raises 21,000.
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The Dynamics of Organizational Collapse: The Case of Barings Bank
Barings Lost: Nick Leeson and the Collapse of Barings Plc
. Singapore: Butterworth-Heinemann Asia.ISBN
Global Derivative Debacles: From Theory to Malpractice
Leeson, Nicholas William; Whitley, Edward (1996).
Rogue Trader: How I Brought down Barings Bank and Shook the Financial World
Mezrich, Ben (2004). Ugly Americans. New York: HarperCollins.
Rawnsley, Judith H.; Leeson, Nicholas William (1995).
Total Risk: Nick Leeson and the Fall of Barings Bank
Documents and clippings about Barings Bankin the20th Century Press Archivesof theGerman National Library of Economics(ZBW)
Articles with unsourced statements from January 2017
Wikipedia articles needing clarification from February 2018
This page was last edited on 16 March 2019, at 04:57