The Fall of Barings Bank
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Case Code : FINC025
Case Length : 11 Pages
Period : 1992 - 2003
Pub. Date : 2004
Teaching Note :Not Available
Organization : Barings Bank
Industry : Banking and Financial Services
Countries : UK
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
Barings was founded in 1762, by Francis Baring who set up a merchant banking business in Mincing Lane in London, UK. The business grew rapidly during the period 1798 to 1814.
It became one of the most influential financial houses during the 1830s and 1840s. The British government paid Barings commissions to raise money to finance wars against the US and France during the mid 1800s.
During 1860-1890, Barings raised $500 mn for the US and Canadian governments and was regarded as London's biggest 'American House.' Barings was also involved in providing loans to Argentina during this period. In 1890, Barings was on the verge of bankruptcy when Argentina defaulted on bond payments. However, the Bank of England and several other major banks in London came forward to bail out the bank.
This crisis had a major impact on Barings and led the bank to withdraw all its business on the North American continent. Barings then took up the business of providing consultancy to small firms and wealthy people, including the British royal family.
Barings advised the royal family on the management of their assets, and also gave advice to small British firms on investing in stocks and bonds. For the next several decades, the bank grew well and earned significant profits. In the 1980s, the bank started operating in the US again. In 1984, Barings acquired the stock broking arm of Henderson Crosthwaite,5 which later became BSL.
Prior to its merger with the banking business (Baring Brothers & Company) in 1993, BSL was run as a separate company (Refer Exhibit I & II for Barings' Organization Chart Pre- and Post-Merger). Incorporated in September 1986, BFS held a non-clearing membership6 of SIMEX. In February 1992, BFS applied for clearing membership7 of SIMEX...