BARING Brothers, one of Britain's oldest and most respected banks, has been forced to hunt for a buyer or face bankruptcy after revealing shocking losses in derivatives trading totalling GBP400 million (HK$5 billion). The employee responsible for the losses was reported to have disappeared from Singapore and was now believed to be in Malaysia. Speaking in Tokyo, William Daniel, one of two Tokyo branch managers of Baring Securities (Asia) Ltd, said: 'There could be some sort of fraud on a very significant scale.' The City of London was reported to be in shock yesterday after it was revealed the Bank of England had stepped in to handle the crisis. The losses incurred in the trading of derivatives at Barings' Singapore division exceed the group's capital base. The merchant bank will not be allowed to begin trading in Hong Kong stocks and futures until it makes a declaration that it is solvent. Securities and Futures Commission executive director Robert Gilmor said: 'The broker has been asked to make a declaration whether the company will be able to meet its obligations.' A 'yes' will not guarantee the regulator will let the brokerage carry on its business, he said. 'The guideline for our actions will be the protection of the local marketplace and the investor,' said Mr Gilmor. There was no official comment from Barings' office in Hong Kong. But an employee at the Hong Kong branch said: 'A trader came in at noon yesterday [Friday] and said, 'On Monday you may find yourself working for someone else'.' The Bank of England in London has until midnight (8 am today in Hong Kong) to find a new buyer or more money for Barings, otherwise it is curtains for this esteemed name. It is believed that Barings bought 20,000 derivative contracts based on the price movements of Tokyo's key Nikkei 225 index, for GBP120,000 each, hoping for big profits. The Singapore trader had had a 'leveraged deal in a falling [Tokyo] market', the Hong Kong employee said. The bet did not pay off and margin calls for money to cover the expected losses are due to drive the bank out of business today if nothing comes of rescue talks in London. A leveraged purchase is when a security is bought with borrowed money. 'It has something to do with the Tokyo index,' the employee said. Mr Daniel said: 'It was accumulated on Simex [the Singapore Monetary Exchange] but basically we were not in the picture on that position.' 'As you know our bread-and-butter business is a form of arbitrage between the Singapore and Osaka exchanges.' A derivative is an instrument that entitles the holder to sell or buy an underlying investment at a fixed price over a fixed period in the future. In return for this right the investor pays a fee. These instruments can be used to enhance returns and limit losses. If things do not go as expected, however, losses can get worse and gains can be cut or wiped out. Barings' chief regulatory authority, the Bank of England, has been holding round-the-clock talks since Friday to try to resolve the situation while officials from the Bank of England have flown to Singapore to question management. Officials from the Monetary Authority of Singapore were already said to be in Barings' office there.
