Dutch clinch Barings deal

Buyers promise to pay £95m bonuses to keep staff loyal as Leeson is accused of forgery
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In a forceful appeal to staff and clients to stay loyal to Barings, the bank's new Dutch owner yesterday guaranteed to pay bonuses to most employees and to meet all creditor, customer and depositor obligations.

But Aad Jacobs, the chairman of the Dutch bank ING, which fought off a furious revolt by bondholders to win court approval yesterday for the £660m purchase of the fallen bank, noted that the six directors of Barings and those responsible for the disastrous Far Eastern speculation will be excluded from the payout: "I can tell you definitely Mr Leeson will not be getting his bonus, and there will probably be some others."

Going out of his way to assure Barings staff that ING will treat them well, Mr Jacobs pointedly left the fate of the bank's senior directors hanging on the investigation by the Bank of England into how derivatives speculation in the Far East by Nick Leeson was allowed to break Barings. "The directors are to stay in place for the moment, we are not going to fire anybody, but wait for the Bank of England's findings," he said.

It became clear last night that there were at least five contacts between the financial authorities and Barings in January, because of concern over the risks involved in the bank's unusally large derivatives trading exposure in Singapore and Japan. Senior officials within the Singapore International Monetary Exchange repeatedly drew Barings' attention to the fact that it was facing margin calls well in excess of anything the market was used to.

Concerns inside Barings as far back as last year that too much power was being given Mr Leeson, general manager and star trader in the Singapore office, were overriden by unwillingness to to upset his profitable activities, it was confirmed yesterday. A 24-page internal audit of the Singapore operation conducted last summer, which pointed to a "significant general risk" in allowing Mr Leeson both to deal and settle the accounts, said: "Barings profitability could be maintained if Nick Leeson is retained as long as possible." The report, by Barings' group auditor, James Baker, concluded: "Although there is some strength in depth in the trading team, the loss of his [Leeson's] services to a competitor would speed erosion of Barings Futures Singapore's profitability." The internal report, which removes all doubt that Barings' management was aware of the risks of Mr Leeson's unusual dual role, was printed in full in the Singapore Business Times yesterday.

Letting Mr Leeson, general manager in Barings Singapore, both trade in the front office and settle accounts in the back office flouted basic banking controls. But the audit went on to say: "Given the lack of experienced and senior staff in the back [administrative] office, we recognise that the general manager must continue to take an active role in the detailed operation of both the front [dealing] and the back office."

In Frankfurt, the prosecutors handling Singapore's extradition demand for Mr Leeson said a forgery charge levelled against the trader was based on a document that allegedly came from the Wall Street stock trading firm Spear, Leeds and Kellogg. Mr Leeson is said to have forged the signature of one of the firm's directors on the document, which purported to authorise a money transfer from the Wall Street firm to Barings in Singapore. He is then said to have used the letter to raise money from Citibank.

Peter Norris, the head of Barings securities, has formally accepted responsibility for the Far Eastern disaster. There was mounting speculation inside Barings yesterday that he will soon depart, and that Peter Baring, the chairman, will also have to step down. They and the other four directors on the main board have waived their bonuses for 1994.

The bonuses, which are considered essential to retain the loyalty of staff, will cost some £95m. In the only slip revealing ING's lack of respect for some of Barings top management, Mr Jacobs said: "The lower you are in the staff, the quicker you will get your bonus."

ING fought off a furious revolt in the courts yesterday from owners of bonds in Barings plc, the holding company. Apart from the Baring family, they are the only people who risk losing most of their investment, because the holding company, whose bonds they had bought, was being excluded from the sale. ING was only interested in buying the active Barings businesses. At the end of a dramatic day's hearings, the judge gave the go-ahead for the deal, which was approved by the Bank of England. Later, Mr Jacobs revealed that ING had already approached Barings in November with a view to buying, or co-operating, with the merchant bank.

ING has bought the three main businesses of Barings - the corporate deal- making arm, the securities trading part, and the asset management group, paying £660m. But the deal excludes the holding company, Barings plc, in which investors, mostly large institutions, hold bonds worth £100m.

Mr Jacobs said they will be getting an immediate £5m, and possibly a further £20m. Because the bondholders are professional investors who understand the risks of the market, Mr Jacobs intimated they were lucky to be getting anything.

Mr Jacobs said he had "every intention" of preserving the Barings name and that it would remain largely independent in its operations. There will, however, be a Dutch overseer, Hessel Lindenbergh, an expert in derivatives. In a further gesture of goodwill, ING is to make an immediate payment of £10m to the charitable Barings foundation.

Further charges, page 2

Business, page 28