Moving Into The House That Barings Built

For Adrianus G. Jacobs, the implosion of Barings PLC was an incredible stroke of luck. During a year spent trying to land a major acquisition, the chairman of Internationale Nederlanden Groep (ING) had approached the Baring family last fall with an offer to acquire the august British securities house--only to be rebuffed because he wouldn't ante up the rich price the Barings demanded. So in late February, as the rest of the world focused on Barings' derivatives-induced bankruptcy, Jacobs pounced. After five days of bargaining, he cut a deal to buy the company for $1.1 billion. That's less than half the price the family had demanded three months before.

ON HOLD. Jacobs, 59, may not be done shopping. Even after recapitalizing Barings and paying $160 million in 1994 bonuses to keep its staff happy, ING has $1.5 billion in surplus cash. Speculation about other potential targets centers on privately owned New York brokerage Oppenheimer & Co., whose 600 brokers would fill a big gap for ING. Neither firm will comment for the record, but sources close to Barings say the talks are on hold until the Barings deal is further along. Oppenheimer's appeal to ING is clear: The Netherlands company lacks a U.S. distribution network to sell the securities of emerging-market companies. At home, ING is a major player in other products: It holds about 25% of the country's domestic life insurance, consumer credit, and home-mortgage markets.

Until Jacobs turns his attention to his next deal, he has his hands full stabilizing Barings. A 33-year veteran of ING and its predecessor companies, Jacobs says he's satisfied with Barings' risk-management systems. Indeed, he contends the $1.4 billion in trading losses run up by Singapore trader Nicholas Leeson were probably an aberrationrather than the result of pervasive problems in Barings' controls. Still, he's sending a team of ING experts from New York, London, and Amsterdam to Barings' trading offices to recommend procedural improvements.

The main danger to ING's successful swallowing of Barings is major client and staff defections. On Mar. 7, a team of 11 equity researchers specializing in the Japanese market bolted to rival Smith New Court PLC. If many more Barings employees leave, ING's $1.1 billion purchase may not look like a bargain. Jacobs plans to keep Barings as a separate legal entity. But to justify the price, he needs to figure out quickly how to sell ING's banking products and fee-based services to Barings' clients. Some clients are justifiably nervous about sticking with Barings--especially now that Leeson claims he can help British authorities trace the bank's failure to higher-ups in exchange for assistance in fighting extradition to Singapore.

If Jacobs can keep clients and staff from defecting, the synergies between ING and Barings should yield results. Both companies have an extensive presence in Asian and Latin American emerging markets. ING's emphasis has been on debt trading, while Barings' specialty is in researching and trading emerging-market equities. Both have raced to open offices in far-flung locales, but ING can claim to have the farthest reach: Its 76 offices include outposts everywhere from Pyongyang to Beirut to Vladivostok to Havana.

ING may be a powerhouse in emerging markets, but its record closer to home is far from perfect. Like Barings, it has moved aggressively into proprietary trading. It has avoided financial meltdowns, but its trading arm lost money in the first half of last year--though it is expected to show a profit for the year when results are unveiled on Mar. 30. And last October, ING's Orion Insurance Co. subsidiary, also in Britain, was placed in liquidation after running up $1.5 billion in liabilities from environmental claims.

Another ING acquisition also proved a bust. In 1990, the company bought Britain's Victory Reinsurance at what it thought was a bargain-basement price of $200 million. Three months later, it had to put in an additional $320 million after learning of Victory's liability exposure to a string of earlier disasters. Frets analyst Jaap Koelewyn with Amsterdam brokerage MeesPierson: "I'm concerned there will be more mistakes."

So for Jacobs, Barings could turn out to be more than just a big deal--it's an opportunity to prove that ING can make a risky British acquisition pay off. And it's a chance for Jacobs, having tiptoed into every emerging market in the world, to use the Barings flag to raise ING's profile a lot higher.

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