Barings May Be Headed For The History Books
When ING Group, the Dutch banking and insurance behemoth, bought London's Barings investment bank five years ago for one British pound, it thought it was getting a great deal. Barings, banker to the British monarchy, including Queen Elizabeth II, had been nearly bankrupted by a rogue trader in its Singapore office named Nick Leeson. ING wanted to use Barings' extensive international network to expand its own investment-banking business.
Yet on Nov. 19, ING admitted that the entire enterprise was effectively a disaster. ING bosses announced they were "exploring options" for selling off or closing down the U.S. operations of ING Barings, as its global investment bank is now known.
ING's decision to give up on its investment banking venture, which includes the U.S. brokerage firm Furman Selz, surprised some analysts because it comes just as Barings seemed to have turned a corner. Under Chief Executive David Robins, ING Barings earned $286 million in 1999 and will do better this year.
"BETRAYAL." Still, its return on capital for the first nine months of this year was a paltry 5%--vs. 40% for ING's asset management activities. And improving profits and market share promise to be hard, given the fierce competition from big investment banks in the U.S. and Europe. Plus, Barings' Amsterdam bosses were appalled at the ever-spiraling salaries and bonuses required to attract and keep top talent.
Finding a buyer for the U.S. business, which employs around 2,000 people, won't be easy. Most European banks with global ambitions have already made big U.S. acquisitions. Switzerland's Credit Suisse Group bought Donaldson, Lufkin & Jenrette Inc., while another Swiss bank, UBS, acquired PaineWebber Inc. The investment-banking arm of Germany's Dresdner Bank just bought Wasserstein Perella & Co.
In London, ING Barings' staff is demoralized. "There's a great sense of betrayal here," says one Barings senior executive. CEO Robins argues that the London office has a future. But Barings staffers point out that without distribution power in the U.S., the European branch has few prospects. ING Barings sells much of its high-yield debt, for instance, through Furman Selz. "Now that that's on the block it's hard to believe our high-yield business can survive," says the executive.
Goldman, Sachs & Co. has been retained to find a buyer for the U.S. operations. Though it has started shopping them around to potential buyers such as Bear, Stearns & Co. and Lehman Brothers Inc., Goldman may find it tough to clinch a deal. Barings is very much a third-tier operation. According to Thomson Financial Securities Data, Barings ranks 17th in mergers and acquisitions and 36th among equities and bond underwriters.
What will happen if Goldman can't find a U.S. buyer? The joke among depressed Barings staffers is that ING might sell it for a dollar--and even then it might not be much of a bargain.