How a 28-year-old trader in Singapore playing the Japanese futures market could single-handedly level what its biographer called "perhaps the greatest of all banking dynasties" is a mystery that may never receive a rational explanation. In the meantime, what was the nature of the colossus that fell, Baring Brothers & Co., Ltd.?
I was probably one of the few outsiders of modest means who ever got a peek into the command center at Baring Brothers, purveyors of financial services to the Queen. In London three years ago researching a project, I made a cold call on Barings in its modern 20-story office building at 8 Bishopsgate, City of London. It had replaced an 1880 structure designed by R. Norman Shaw; the Barings had been at the same location since about 1805 in what was, then as now, one of the world's great capital markets.
I was armed with the name of an archivist, John Orbell, scribbled on the letterhead of the Guildhall Library, where some of Barings' records were kept. It seemed to do the trick. The guard called Mr. Orbell who at first tried to put me off, but finally descended and observed that if I gave them a little notice next time, "We can receive you more fulsomely."
No matter, I said, it was a thrill just to stand in the same spot where George Peabody and Louis McLane had appeared more than 150 years ago to market $6 million worth of bonds issued by the State of Maryland to build the Baltimore and Ohio Railroad and the Chesapeake and Ohio Canal.
"Anyway, we're still here," Mr. Orbell said at last. "Well, come on, we'll just take a few minutes and look around." So up we went up to the 20th floor, down narrow hallways past wheeled carts loaded with empty bottles of Perrier and stronger potables (early morning evidence of the previous day's cogitations), and into a succession of three boardrooms. In one, high-backed chairs, upholstered in red velvet, were lined up precisely along one wall as if awaiting a delegation of gnomic Swiss bankers. In another was the largest wood-veneered table I had ever seen, with the possible exception of the one in the Philadelphia headquarters of the Penn Central Railroad.
Mr. Orbell introduced me to several of the Barings (Francis, Thomas, etc.), staring out from their frames on the walls, and we strolled the perimeter of the offices where the descendants and their wealthy clientele could look down on the dome of St. Paul's, the Bank of England, the Stock Exchange, Lloyd's of London -- proper perspective, I gathered, at the House of Baring.
The Barings were "Princes of the City;" no similar firm is more venerable than Barings, founded by a German immigrant in 1763. It raised the funds for the Louisiana Purchase and the French reparations following the Napoleonic Wars. The grateful Duc de Richelieu is reported to have said, "There are six great powers in Europe: England, France, Prussia, Austria, Russia, and the Baring Brothers." The Barings were involved in everything that was bought and sold worldwide, from United States wheat and flour to Chinese opium.
They financed American public works, and their favorite U. S. investment was the Baltimore and Ohio Railroad. Barings had a direct connection to the State of Maryland. After it acquired the state bonds issued for the canal and railroad, Maryland in 1841 suspended interest payment on its debt, due to overinvestment in internal improvements, particularly the unprofitable canal.
Barings spent $15,000 on a lobbying campaign to persuade the Maryland legislature to honor its financial commitments; in 1847, the state resumed interest payments. George Peabody speculated heavily in depreciated American state bonds during this period and greatly profited when they rebounded. These bonds were the foundation of his fortune and of his philanthropic works -- including Baltimore's Peabody Institute -- that are being celebrated this year on the 200th anniversary of Peabody's birth.
Barings went broke once before, a century ago, when they arranged the loans and guaranteed the interest for large amounts of English capital invested in Argentina, whose government defaulted. The malefactor that time was Cecil Baring, the third Baron Revelstoke, and the comments of the then governor of the Bank of England, William Lidderdale, are revealing.
According to author Philip Ziegler in "The Sixth Great Power," Lidderdale thought that even without Argentina the Barings would have foundered sooner or later, "because the business was entirely managed by Revelstoke and he did not seem in the least to know how he stood; it was haphazard management, certain to bring any firm to grief." On that occasion, the Bank of England rescued the Barings; reorganized as a limited company, they carried on.
But not this time; Barings' debt was too heavy for even a consortium of banks to pick up. "It was a failure to control a rogue trader," Eddie George, the Bank of England's present governor, told reporters. "Perhaps he [the Singapore broker] did a little business he shouldn't have. I don't know." So ends the once-great House of Baring, hardly with a bang.
James D. Dilts is a Baltimore writer.