Bank hopes for Dutch dream ticket

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The Independent Online
If it works, this could be the Bank of England's dream ticket, the deal that will allow the Barings nightmare to fade from public and political memory faster than seemed possible 24 hours ago. If the Dutch bank ING is prepared to buy substantially the whole of Barings in a single transaction, it will mean it has to treat the whole business as a going concern and act in an even-handed way towards the competing interest groups - depoistors, investors and clients - who have been waiting nervously to see who will get what from the wreckage of the once-famous bank.

Such an outcome would avoid the horrible consequences of a long and drawn- out administration. The adminstrator's task has been complicated in this case by what is bound to be a rising volume of complaints from aggrieved pension funds, whose cash has been inadvertently caught up in the freeze on the bank's assets. The Maxwell affair has shown how huge the costs of a long drawn out administration can be. So a "quick and dirty" deal, if it can be done, has a lot to be said for it.

Such thoughts, coupled with the need to keep staff from walking out of the door, are presumably what prompted the administrators to give the Dutch an exclusive negotiating position - something that makes practical sense, but is bound to raise accusations of harsh treatment from other potential bidders. The price to be paid is the inability to drive the best possible bargain, but most creditors and depositors will - if they are wise - prefer a fair deal today to a perfect one at some distant and unknown date in the future.

Even so, keeping the business together will be no mean feat for the Dutchmen if the deal does go through as planned. Despite the blanket publicity it is getting for its intervention to save Barings, ING is not that well known in the UK, except perhaps through its ownership of Hoare Govett, the brokers. It will need to move fast to establish its credentials as both a creditor and an employer.

The banking and insurance community is familiar with the company, as the Netherlands' third-largest bank, a fast-growing organisation that is following the same successful bancassurance route as Lloyds Bank and TSB. It also has a wide international spread of business, historic links of its own with the Far East and a pivotal role in the Dutch payment system - every bit as important there as it is to the biggest clearing banks in the UK.

Nevertheless, ING will have to move fast to establish its credentials as an employer, or else embittered Barings staff, deprived this week of large bonuses, will simply defect. Directors and senior staff must be kept on board, but there must be a rapid move to evict those responsible for control and surveillance within the bank. Having missed the emerging disaster in the Far East, heads are bound to roll right at the top.

At the same time, ING wil need to build instant confidence with customers. They will have to be convinced that the new owner has the expertise to revive an organisation that has just gone through an extraordinary shock. By last night, Barings was on life-support and the patient will not survive the weekend in one piece without an injection of new ownership.

In fact, the transition problems of a takeover make it surprising that ING can actually see its way to taking Barings off the administrators' hands for £1. What in the property trade would be called a reverse premium (ie, paying the new owner to take it away.) might seem a more likely bet, given the scale of its potential losses from the Far East trading debacle.

A week ago the bank had shareholders funds of more than £350m. Now it could be minus that amount, depending on how much its realised losses from its futures trading turn out to be. It may still require a large capital injection to keep it going. The worry must be that ING's ambition to be a big international player may be outweighing its natural caution as a banker.

The key to the arithmetic is the administrators' statement that some of the assets and liabilities may be excluded from the deal. That was one reason why competing buyers, all of whom were planning a dismemberment, not a full purchase, reacted with scepticism to the announcement. Even with an outline agreement, experience shows it takes an awful lot to make a deal of this sort stick.

As next Wednesday's deadline looms it is becoming increasingly difficult to fathom Wellcome's gnomic hints about its search for a white knight. Either the company has one in the bag and is teasing the market and Glaxo, or it is covering up a growing desperation.

Whatever the case, speculation has become feverish this week and yesterday's fall in Zeneca's shares and rise in Wellcome's showed that gossip in the papers is finally percolating through to the dealing floor where it might actually mean something serious.

It is not at all clear, however, that a bid from Zeneca would make any sense for anyone. Unlike Glaxo, Zeneca is not desperate to buy in a stream of drugs to replace the ones its own pipeline is failing to produce. While Glaxo's problem is that it has too few new drugs to replace Zantac, which chips in 40 per cent of Glaxo's sales, the loss of patent on Tenormin, Zeneca's heart treatment, is less of a problem.

Tenormin represents about a fifth of Zeneca's sales, and in the US is in pretty sharp decline. But the new drugs are filling the gap with ease - not only are the three leading products growing fast, they are already generating turnover well in excess of Tenormin's.

Another reason to disregard an approach from Zeneca, is the success of its move, via the acquisition of Salick, into managed healthcare, the other way, apart from ensuring a steady stream of new drugs, to combat the relentless pressure on prices from increasingly powerful buyers.

It would be wrong to dismiss the possibility of a higher offer before next Wednesday but the market's message is clear - don't hold your breath. The value of Glaxo's offer on the basis of its 663p closing price yesterday is 1,047p. Wellcome's shares, putting a price on the wait for Glaxo's cash, closed at 1,035p. The market makes mistakes, but not often.