A century before Nick Leeson's fall from grace, flamboyant Barings director Baron Revelstoke presided over a similarly dramatic collapse in the bank's fortunes.
In February 1994, just over 100 years after it first fell, Barings collapsed for the second time. The similarities between the two may have been forgotten but there are striking parallels between Barings I (1890, starring Baron Revelstoke) and Barings II (1994, Nick Leeson). In both cases the bank was dabbling in faraway markets; in both cases it left itself massively overexposed; and in both cases the catastrophe was largely one man's doing. The only difference is that Barings I had what might be considered a happy ending.
Barings I centres largely on the bank's then pre-eminent director, Baron Revelstoke (born Edward Baring). In an era when bankers were all dapper, clubbable fellows with the stiffest of upper lips, Revelstoke was something of a maverick. He cut an unashamedly flamboyant figure, spending prodigiously on property, living lavishly and giving unstintingly to charity. He could afford to do what he liked - a forerunner of today's fatcats, Revelstoke earned £100,000 per year, or about £5 million today.
Revelstoke dominated the bank from the 1870s, and in his early years at Barings, much of the 'old school' restraint remained. This, coupled with Revelstoke's voracious appetite for risk, made the bank a force to be reckoned with in the City. Come the mid-1880s, however, all the makings of a financial catastrophe were in place. At the time, South America, especially Argentina, was considered terrifically au courant among investors.
Barings had huge holdings there, was in cahoots with numerous government ministers and had strong links with Hales, a mediocre local bank. Meanwhile, on the back of an astonishingly lucrative share underwriting for Guinness, Revelstoke's temerity had taken a turn for the worse: he couldn't believe that anything he touched wouldn't turn to gold.
In late 1888, Salford, director of Hales, dropped in for lunch at Barings' Bishopsgate premises. He had, he explained, managed to secure the concession to take over and extend the Buenos Aires waterworks at a cost of $21 million, payable to the Argentinian government in three instalments. For this sum, Hales would receive £10 million worth of company stock. This being back when the pound was at close to five dollars in value, big profits stood to be made? Although Barings already had significant exposure to Argentina, Revelstoke took the plunge and entered into the deal on joint liability with Hales, although the relative sizes of the two banks meant that Barings was the senior partner.
Argentina, blessed as it was with natural wealth, had never really had any problems raising funds from overseas investors; none-theless, by the late 1880s concerns were being voiced. The country was, warned Bankers Magazine 'piling up debts after much too wholesale a fashion'. Moreover, its debts were beginning to cause political instability.
By 1889, even Revelstoke was a little worried. He dispatched his son, John Baring, to Buenos Aires to assess the extent of the mess. He reported back that (rather like the British Library) the waterworks were impressive but hopelessly over budget; furthermore, the company's customers owed it $1.65 million. But most troubling of all was that Barings had planned to finance its instalment payments by selling the company's shares as they were allocated. Argentina's troubles were now such that the bank didn't dare offer any more shares to the public - of the £2 million allocated thus far, a mere £150,000 worth had been successfully placed with the public. The remainder hung like an albatross around Baring's neck, at a time when its other Argentinian assets were crumbling.
Barings' end of month statement in October 1889 showed liabilities of more than twice its assets. The Baring family rallied round, but their wealth was not enough. Potential City saviours, meanwhile, remained skittish, each waiting to see what the next would do, with the Rothschild's refusal to lead a major stumbling block. At the 11th hour, the Bank of England, stepped in and the City followed. A rescue package was put together, Revelstoke resigned and the hitherto wealthy partners received asset strippagrams.
Though the collapse was down to the combination of Revelstoke's recklessness and bad luck, in those days it was fashionable to blame 'the Jews' (the Rothschilds and other Jewish money men). When such anti-Semitic carping had faded, those involved buckled down. By the mid-1890s, the company had more or less paid off its debts and, in 1896, the bank was reconstituted as Baring Brothers & Co, the only real differences being its limited status and a new-found caution. A century hence, of course, there were no second chances: one can only assume that the Bank of England has a longer memory than the bank of Barings.