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British Bank's Fall Reveals a Persistent Clash of Class : Finance: Trader blamed for Barings' collapse was no aristocrat. His 'humble origins' are now being cited.

March 09, 1995|MARJORIE MILLER | TIMES STAFF WRITER

LONDON — There was poetic symmetry in a move by Parliament to outlaw the English gentleman's sport of fox hunting last week just as authorities hunted down the fugitive who reputedly outfoxed the ultimate English gentleman's bank.

These otherwise unrelated events provided a sterling reminder of how, despite the leveling effects of two world wars, the issue of class still thoroughly permeates British life, from country sports to the City--London's equivalent of Wall Street.

When it was discovered that 28-year-old Nicholas W. Leeson had brought down the 2-centuries-old Barings Bank with $1.4 billion in trading losses, newspapers zeroed in on the "Humble Origins of Man Who Toppled Aristocrats." That is what the Independent newspaper here wrote under a picture of a garbage-strewn back yard in the public housing project where Leeson grew up and a 1920s portrait of four gentlemen in the Barings boardroom.

Stunned by his family bank's sudden ruin, Chairman Peter Baring suggested to the Financial Times newspaper that Leeson had deliberately set out to wreck the bank, which counts Queen Elizabeth II and the Church of England among its clients, and to profit from its demise.

Leeson's 18-year-old sister, Sarah, responded in suburban Watford's newspaper that the banking Establishment was "playing on his background, making him the scapegoat because of his upbringing."

By week's end, the Times of London agreed that the case had pitted the "vulgar and arrogant" lad against the elegant brass of Barings, "with their royal connections, their rounded vowels and their hints of moral inferiority in the lower social ranks."

In fact, the blueblood world of banking has long been infiltrated by the so-called lower social ranks of outsiders and self-made men--much as fox hunting has been taken up by mere professionals--and their class background seems to be an issue only when they fail.

During the years Leeson was earning a fortune for Barings, he was an admired risk-taker in the banking world, a successful maestro of the global financial markets.

Bad bets turned him into a gambling "barrow boy," the upper crust's word for a worker in the market stalls.

"If his big trades had worked out," City historian Andrew St. George said wryly, "it wouldn't have been interpreted as an attack on the aristocracy."

By some measures, the Barings themselves could be considered Johnny-come-latelys to a British nobility that traces its roots to William the Conqueror.

The British Baring family was founded by a German Lutheran who made his way north from Bremen in 1717 and whose son, John, formed the Baring Bros. merchant bank 45 years later.

They were soon joined in the financial world by a German Jewish family, the Rothschilds.

Nathan Rothschild, who moved to England in 1799, founded N. M. Rothschild & Sons, which quickly became one of Barings' biggest competitors.

The families were "both immigrants," said St. George. They arrived with some money of their own and set about handling the dirty work of finance and commerce for the "landed interests who were here already with money to invest in projects around the empire."

As merchant bankers, they made loans to big business and governments, netting great fortunes for themselves and for the British Empire.

The Barings helped the British government fund the Napoleonic Wars and financed the United States' Louisiana Purchase, while the Rothschilds came up with an eleventh-hour loan for Britain to buy the Suez Canal.

With their growing wealth, the Barings collected a string of peerages, or noble titles, throughout the 19th Century.

Nathan Rothschild's son, Lionel, became the first Jewish member of Parliament in 1858 as members of the Baring family became colonial rulers in Egypt, India and Kenya.

A century after their landing in England, the Duc de Richelieu called the Baring family "the sixth great power of Europe."

In effect, English merchant banking has always been open to a newcomer with a good idea, St. George said. Such a man nearly broke Barings once before, in 1890.

The Barings were investing heavily in South America and doing well until "an American quack," as St. George calls him, lured them into jointly financing a waterworks company in Argentina and the multimillion-dollar deal went bust.

The British banking community, including the Rothschilds, the Hambros (another "immigrant" family, from Denmark) and the Bank of England, closed ranks to bail them out--something it could not do this time.

Barings remained a traditional merchant bank, relying on traditional business and old-boy ties for much of the 20th Century, until Prime Minister Margaret Thatcher's "Big Bang" in 1986--the dramatic deregulation of banking that allowed mergers among banks, brokerage houses and other financial institutions.

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