Barings May Be Headed For The History Books

With ING giving up, the royal banker is damaged goods

When ING Group, the Dutch banking and insurance behemoth, bought London's Barings investment bank five years ago for a single British pound, it thought it was getting a great bargain. Barings had been nearly bankrupted by a rogue trader in its Singapore office named Nick Leeson. ING wanted to use Barings' extensive international network as a base for the global expansion of its own investment-banking business.

Yet on Nov. 19, ING in effect admitted that the entire enterprise had been effectively a disaster. The Amsterdam head office announced that it was "exploring options" for selling off or closing down the U.S. operations of ING Barings, as its global investment bank is now known, and that it planned to fold most of Barings' London-based European operation into the parent group's wholesale-banking division.

As the reorganization is put into effect, it is likely that Barings will disappear as a banking name, turning into dusty history a 238-year-old institution that has served as chief banker for several British monarchs, including Queen Elizabeth II.

"BETRAYAL." 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 at a time when Barings had seemed to turn a corner. Under Chief Executive David Robins, ING Barings earned $286 million in 1999 and will do better this year.

Still, its return on capital for the first nine months of this year was a paltry 5%--compared with 22% for ING's banking and insurance operations in Europe and 40% for ING asset management. And improving profits and market share promise to be a hard slog, given the fierce competition from ever-bigger investment banks both in the U.S. and Europe. At the same time, Barings' overseers in Amsterdam were appalled at the ever-spiraling salaries and bonuses required to attract and keep top investment-banking talent.

Whether group CEO Ewald Kist will be able to salvage much from the wreckage of ING Barings is a question mark. Finding a buyer for the U.S. business, which employs around 2,000 people, won't be easy. Most European banks with global investment-banking ambitions have already made big acquisitions in New York. Earlier this year, Switzerland's Credit Suisse Group bought Donaldson, Lufkin & Jenrette Inc., while compatriot UBS acquired PaineWebber Inc. Dresdner Kleinwort Benson, the investment banking subsidiary of Germany's Dresdner Bank, has just bought Wasserstein Perella & Co.

In London, ING Barings' staff is demoralized and angry. Just four months ago, Barings bought British stockbroker Charterhouse Securities in a move to propel it further up the league tables. "Now the cloggies [the London staff's nickname for their Dutch masters] have suddenly changed strategy," says one Barings senior executive. "There's a great sense of betrayal here." And doubt about the competence of the Dutch: "Five years ago I thought ING could turn us into a global investment bank," says another senior London staffer. "Now I look back, I see they had no idea what they were doing."

CEO Robins has spent much of his time since Nov. 19 arguing 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.

The hope among London staff is that ING's Dutch archrival, ABN Amro Holding, or Germany's Commerzbank might buy the London operation. But neither has expressed any interest, publicly or privately. And although Goldman, Sachs & Co., which has been retained to find a buyer for the U.S. unit, has started shopping it around to potential buyers in the U.S.--including Bear, Stearns & Co. and Lehman Brothers Inc.--they'll find it tough to clinch a deal.

One reason is that 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 might happen if Goldman Sachs can't find a U.S. buyer? The grimly humorous speculation among depressed Barings staff is that ING might sell it for a dollar. Even then it might not be a bargain.

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