Fifteen months ago, Hessel Lindenbergh got a hero's welcome from employees of Barings PLC. In early March of 1995, the now chairman of ING Barings strode into Barings' London trading floor to announce that the Dutch insurance and banking giant had won approval to buy Barings for $1.02 billion. That meant Britain's oldest merchant bank, which had gone bust a few weeks earlier after huge losses rung up by Singapore trader Nicholas Leeson, would be saved from near-certain breakup. With enormous relief, hundreds of Barings stockbrokers and analysts gave Lindenbergh a standing ovation.
But neither Lindenbergh nor Aad G. Jacobs, chairman of ING Group, is getting much applause these days. A more noticeable sound at ING Barings is the swoosh of the revolving door. In the last month, Deutsche Morgan Grenfell poached at least 60 members of Barings' top-rated but money-losing Latin American equities team, leaving in places skeleton crews. ING Barings' Americas unit chairman, Lane Grijns, is now searching for an experienced equities hand to become his president, after having two ING people go through the job since last November. ING Barings' well-respected global equities strategist in London, Michael Howell, is starting his own consulting firm, taking the global head of equity sales and three others. A few members of the Asian equity team, including former Asian equities head Andrew Fraser, have already left, and larger numbers may be set to bolt, too.
Lindenbergh calls the defections so far "everyday" occurrences, and Grijns says they're "not a disaster." It's true that escalating salaries in global banking are prompting a frenzy of job-hopping everywhere. But ING's staff losses also suggest that its high-profile acquisition of Barings, which just a few months ago seemed to be a big success, may be having problems. By most accounts, the asset-management and corporate-finance businesses of the old Barings are doing fine. But the equities unit is struggling. Since research and stockbroking are crucial to cementing relationships with corporate clients, the risk is that the equity side's troubles could sidetrack ING's ambitions to build a global investment-banking leader in the emerging markets.
ING intends, among other steps, to rebuild its key Latin American equity operation. But new hires won't solve the management problem that's contributed to the gutting of one of the industry's top equity crews. "You don't get a team to move unless there's a serious malaise," argues Richard Watkins, CEO of LatInvest Securities in London. Indeed, former high-level Barings executives say the equities unit is suffering from tangled reporting lines, a low priority placed on research and stockbroking by the Dutch parent, and a clash between Barings' high-flying equities culture and ING's commercial-banking and insurance roots.
TURF BATTLES. Nowhere has that been clearer than in Latin America, where Barings had built up a formidable presence. Jonathan Beatson-Hird, 36, the former managing director of Latin American equities, says his group "suffered hugely from structural and cost problems" associated with integrating ING and Barings' businesses. His team, he says, was hobbled by frequent turf battles and confused reporting lines.
In April, Beatson-Hird began talking seriously about joining Deutsche Morgan Grenfell. When ING Barings learned of this, Beatson-Hird was fired, says Lindenbergh. Within weeks, many of Beatson-Hird's colleagues followed him. ING insists that just 60 or so people left--not 73 as Beatson-Hird claims--after DMG offered to boost their salaries by up to 100% and guarantee bigger bonuses for two years. But the lure of fatter paychecks was not the only draw. "Morale was horrible," explains a Mexico staffer who joined the exodus.
"It was a blow, but it's not something we won't recover from," says Walter "Rocky" C. Butler, general director of the ING Barings Mexican operations. "By and large, investors are being patient," he says. Although ING plans to begin hiring soon, it may only replace half the Latin America people who left. And Grijns says it will not pay the inflated prices Deutsche has been shelling out to lure away Barings' people. To stem further defections, ING two weeks ago set up a new global pay plan with stock options and higher bonuses.
The threat of a further talent drain raises a troubling question: What did ING get for the guilders it spent on Barings? To be sure, it nabbed some strong businesses. Baring Brothers, the group's investment banking arm, vaulted to the top of the Europe league's M&A tables last year, completing deals worth nearly $35 billion. As well, Barings has helped transform ING into a major asset manager, more than doubling its external funds under management to $65 billion.
"GREAT KNOCK." But the trouble spot remains equities. In part due to slow trading in emerging markets for much of last year, ING has been forced to inject nearly $300 million to meet capital requirements. Lindenbergh says there could be further recapitalizations ahead.
Clearly, the high-profile defections and the mounting signs of unrest aren't what this quiet Dutch insurer bargained on when it bid for Barings. "They've taken a bloody great knock," says Alexander T. Murray, a Barings Securities founder who left the firm in March. "But don't underestimate ING. It's got the financial resources and the will to make this work." That may be, but it's likely to be some time before Lindenbergh or ING hear any applause from the Barings trading floor.