and STEVE BOGGAN
Top United States law firms are preparing to sue Barings over hundreds of millions of pounds of cash invested in the failed bank's fund management side, which they claim should have been independently held.
The litigation on behalf of the US clients will go ahead whether the administrators succeed in selling Baring Asset Management (BAM) or not, according to legal sources. But the threat of such litigation could complicate the already difficult sales talks now being held by the administrators Ernst & Young to dispose of Barings in whole or in part.
"The Americans are leading the charge," one leading British lawyer said last night.
Litigation against Barings would fall on the administrators, led by the E&Y partner Nigel Hamilton, as they are legally in control of the crashed bank. Similar litigation at British & Commonwealth, the financial group that went into administration, took years to settle.
Most large City law firms have been instructed by clients to look carefully at possible action against Barings. But the British "are holding their fire until they see what kind of sales are achieved by the administrators", according to one City source.
When the storm first broke, most people assumed that investments worth £30bn in BAM were completely safe, and that any assets not invested in securities but held in cash would be secured in client accounts.
But BAM held significant amounts of investment funds in cash and deposited it with Baring Brothers, the bank - thereby raising the question of who has first call on the cash. The danger is that the administrators will treat the cash as assets of the bank rather than of BAM.
In the sale currently being negotiated by the administrators, the buyer will probably take the assets but not the massive liabilities, said the lawyer, leaving a rump which would be put into liquidation and worked out over a number of years.
About 5 per cent of the United Kingdom pension funds invested in BAM are held in cash at Barings. BAM has about 4 per cent of total British pension fund assets. Among the growing list of pension funds with money at risk, London Regional Transport said about £23m of its money was caught up. Others facing losses include those run for staff at Kent and Hampshire county councils.
The chairman of the LRT Pension Fund trustees, Tony Sheppeck, has written to staff after meeting with a Barings director on Tuesday. His letter said: "We are advised that the vast majority of the assets of the fund are safe, but there's a risk relating to cash sums the investment manager deposited with Barings."
The fund provides an income for almost 30,000 pensioners but managers said last night that money involved represented only1 per cent of its £2.33bn and would not result in a shortfall of income to pensioners.
Robin Pulford, a spokesman for LT, said the fund had £50.5m in liquid cash at any one time so that its three separate fund managers, including Baring Asset Management (BAM), could benefit from advantageous market positions. That money was split between the three, with BAM holding about £23m.
When BAM was put in the hands of Ernst & Young on Monday, nothing changed in relation to the fund's investments - they can be realised at any time - but its cash deposits at Baring Brothers & Co, the bank, were frozen.
"We don't know how long that will be frozen or how long it will be before we get any of it back," Mr Pulford said. "However, under the 1984 London Regional Transport Act, which set up the fund, any shortfall has to be made up by the company. So, whatever happens, pensions will be honoured."
Among the potential losers so far - those with cash deposits at the bank - are the Queen, the Prince's Trust (£1m), the Baring charitable foundation (£16m), Trafford Borough Council ((£2m), Manchester Airport (£3m) and, with unspecified amounts, the Academy of Music and Dramatic Art, the English National Opera, and Lincolnshire, Thurrock and Penwith councils. Ernst & Young made efforts yesterday to explain who was most likely to lose from the collapse. A spokesman said individuals and organisations who had engaged the services of Barings' asset management and investment companies would retain all the shares and investments purchased on their behalf. They could be realised at any time; indeed, Baring Investment Management was not in administration and was continuing to manage pension funds.
Problems arose, he said, with liquid assets, cash that had not been spent on stocks and shares. Most appears to have been deposited with Baring Brothers & Co bank, whose assets have been frozen. The cash is likely to be used to pay creditors and is unlikely to be returned.Reuse content