CITY AND SUBURBAN

Second time unlucky for the lordly Barings a great Nemesis overtakes Croesus

CHRISTOPHER FILDES

This, I thought, must be a time-slip. `Barings crashes — speculation blamed': had I taken a wrong turning in the space- time continuum and come out in 1890? Or had some sub-editor returning from a heavy lunch reached for the '105 years ago' column and put it on the front page? The story of the Baring crisis is a City classic. The lordly family bank wakes up to find that its sanguine view of foreign markets could mean ruin. Rumours run through the City as senior bankers come in on a Satur- day — a Hambro observed with a Roth- schild in St Swithin's Lane at 8 o'clock in the morning . . . The Governor of the Bank of England asks the Chancellor for help, is turned down, and instead brings Barings' rivals to its rescue and, so they believe, their own. A Baring uncle rallies round, turning up with all his money in bulging Gladstone bags, one of which bursts while he is arguing with his cab-driv- er about an overcharge of sixpence. A great Nemesis, he says, has overtaken Croesus. The family has to retrench, selling its pic- tures and sacking its under-butlers, but the Barings and their bank survive. The only scar to be seen a century later is the telltale comma in 'Baring Brothers and Co., Limit- ed.' Well, I thought, if this is the story I know how it ends. I was wrong about that. This time there was to be no saving Bar- ings. The creditors' men are in, to put it up or break it up for sale. In the agony of the moment, Peter Baring, the bank's chairman and great-great-great grandson of its founder, blamed conspiracy. Barings, so he and his partners thought, must have been sabotaged. Persons unspecified hoped to make money out of the crash in markets that would follow if they brought the bank down. If that was their plan, it did not work, for the markets this week seemed to take the failure in their stride. The damage will go deeper.

Spiralling downwards

I SUPPOSE that Mr Baring finds himself in the first phase of grief, which is denial. He can scarcely accept that his bank's sys- tems of control and supervision could not catch a rogue trader (the Chancellor's phrase) before his dealings broke the bank. The trader may well have had friends, inside or outside. (The City buzzes with- names.) People steal from banks, as the

bank robber Willie Sutton said, because that is where the money is. People in banks can and do defraud them to cover up their own mistakes and save their jobs. They take a wrong view in a market, they go for dou- ble or quits, they desperately double up again. Bankers know these frauds as 'down- ward spirals' and guard against them, if they can. Twenty years ago a downward spi- ral in Lugano, of all places — a foreign exchange dealer trying to make his position good — cost Lloyds Bank £28 million in the big pounds of those days. That was before the invention of derivatives, the ingenious financial confections which Barings' man traded in Singapore. Now as then, the diffi- culty of managing anything (as Robert Townsend taught us in Up The Organisation) varies with the square of the distance involved, unless it involves cross- ing water, in which case cube it.

Bet on a black hole

THE BANKERS who trooped into the City last weekend found themselves staring into a black hole. They knew that Barings' loss- es, at the close of business on Friday, totted up to £600 million. They could relate to that. The Governor had them lined up in a syndicate which would replace Barings' lost capital and stabilise the bank until a new foundation could be built, marked with a comma of its own: 'and Co.„ Limited'. They knew that the losses might grow when the markets reopened, and they could relate to that too, if they could see a limit. They needed someone to take the risk off them, at a price: a financial bookmaker. That began to look possible (a 50-50 chance, the Governor reckoned) but the bookie had second thoughts. The Bank was never going to put its own capital into a black hole, and Kenneth Clarke agreed with his predeces- sor Edward Goschen that rescuing Barings was not a thing to do with public money. So time and Barings' luck ran out.

Free to fail

THE BANK has rules about these things. It is there to protect the financial system, and from that point of view, though no bank is too big to fail, some might be too important to fail. They would set the dominoes-falling. A century ago that was true of Barings.

the catastrophe came,' said Lord Roth- schild, through clenched teeth, 'it would put an end to the commercial habit of transacting all the business of the world by bills on London.') It does not seem to have been true of Barings now. That may be a hard test but it is a hard world. In a free economy, says Hilmar Kopper, who heads Deutsche Bank, a bank must be free to fail. That does not make the loss any less hurt- ful. The senior merchant bank was a remarkable historical survival but not at all a museum piece. It made a virtue of family capital and family control: they helped, you would be told, to concentrate its mind. It had strong businesses, and first-class con- nections all over the world. Looking at Warburgs' ambitions and misfortunes, I began to think that, Barings was doing what British merchant banks might do best. Its greatest asset, though, was a famous and undoubted City name, even if that name included a comma. Barings' default deval- ues the City.

Memento mori

BYRON IN Don Juan yoked the Barings together with their hereditary rivals:

Who hold the balance of the world? Who reign O'er congress, whether royalist or liberal?

. . The shade of Buonaparte's noble daring? Jew Rothschild, and his fellow-Christian, Baring.

To the Barings, the Rothschilds were par- venus. When Nathan Mayer Rothschild was still on his way to Manchester (London came later) Sir Francis Baring was being accused of putting his own park fence round Hampshire. The plethora of peer- ages followed, matched only by the Cecils. Lord Derby, Queen Victoria's prime minis- ter, offered Thomas Baring the Exchequer, but he thought the bank counted for more: `Half my pleasure is to work for a house which we intend to be perpetual.' He would have done better to have • echoed Samuel Johnson, hoping to give longevity to that which nature itself forbids to be immortal.