Barings Failure Spotlights Big Gulf Between Classes

LONDON - There was poetic irony 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 the issue of class still thoroughly permeates British life.

When it was discovered that 28-year-old Nicholas Leeson had brought down the two-centuries-old Barings bank with $1 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 photographs 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 that counts Queen Elizabeth II and the Church of England among its clients, and to profit from its demise.

Leeson's sister Sarah, 18, responded in the 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."

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.

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 the N.M. Rothschild & Sons, which quickly became one of Barings' biggest competitors.

They made loans to big business and governments, netting great fortunes for themselves and for the British Empire.

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.

Unlike other small and midsize banks, Barings did not seek a merger with larger banks or try to become a Jack-of-all-trades. But Barings did move into the Far East and, when Peter Baring took over in 1989, into high-risk, potentially high-yield futures trading.

The British press has duly noted that Baring had 200 years of banking in his blood, a Cambridge education and a love of hunting - all the right stuff to manage his family's marble-interiored bank.

The bespectacled Baring is described as reserved, adhering to a family tradition of discretion and public service.

Baring's old-line bank needed new talent for the rough-and-tumble futures market. For that, management turned to a new generation of macho, nervy people like Leeson with a different attitude toward money: They didn't have it and they wanted it.

Leeson is the son of a plasterer (father Leeson has a "stomach hanging out of his shirt," sniffs the Daily Telegraph) who failed math in school but went on to become a financial whiz on the Singapore exchange.

He lived in a fancy company-paid apartment, drove an expensive company car, earned a salary of more than $300,000 a year plus million-dollar bonuses - and broke the bank. Then he had the bad taste to appear in the custody of German police wearing a baseball cap and carrying a Tom Clancy paperback.

In 1992, Leeson was put in charge of the Barings futures trading operation on the Singapore International Monetary Exchange, where he dove into the growing derivatives market.