ABSTRACT
The firm was a private bank owned and managed by its founding family. Its balance sheet in 1914 totalled some £16 million at a time when the balance sheet of a major British retail bank commonly totalled ten times as much. Barings was not a deposit taker of significant size and most of its resources derived from its share and loan capital – largely provided by its directors and their families – and from its accumulated reserves. Despite these relatively modest resources, the firm arranged both long-and short-term finance well in excess of what its balance sheet suggested was possible. On the one hand, it provided long-term finance largely through the issue
of securities for sovereign, quasi-sovereign and corporate clients and, on the other, short-term finance for international trade and currency transactions through guaranteeing – or ‘accepting’ – the bills of exchange of international traders and financial institutions. In other words, for the most part Barings arranged and managed finance while others provided the necessary funds. The dynamic of Barings’ business – and, indeed, of the whole constituency
of London’s family-owned and managed merchant banks – rested on two
principles. First, Barings’ business was underpinned by first-class reputation. This meant that the debt and equity it issued and the bills of exchange it accepted were readily taken up by investors in the security and bill markets and, consequently, on highly competitive terms beneficial for the firm and for its clients. Second, the firm deployed its own private capital in a range of products (loans, bills, bonds, shares, gilts, property, and so on) in a way that was both cautious yet sometimes distinctly entrepreneurial. In terms of both banking business and prestige, the Russian government
had been a highly important client of Barings since the 1850s. The firm had then been appointed the government’s Financial Agent in London operating its bank accounts, holding deposits, providing overdrafts, making advances and arranging payments and collections. The latter could be in respect of a vast range of transactions, at the most basic paying the ambassador’s salary and, at the most complex, arranging instalment payments in connection with the construction of a battleship. There was nothing unusual in this. It was common practice for overseas governments to appoint agents in the major centres of economic and political activity – especially London, Paris and Berlin – to handle their financial affairs. At different times in the hundred years prior to 1914, Barings represented governments as diverse as those of the United States and Argentina, Canada and Chile, and Venezuela and Portugal. This work was quite distinct from bond issuance. Acting as a government’s
financial agent did not imply a monopoly of bond issuance or of the associated work of paying agent which involved payment of coupon interest to bondholders. The Russian government neatly illustrates this point. Whereas Barings lead-managed numerous bond issues for the government, and also for entities in Russia which benefited from government guarantees, such as railway companies, it had no monopoly of the business. Amongst others between the 1850s and 1914, Rothschilds handled several issues. Notwithstanding the importance of Barings in Russian government
finance in the London market, before 1914 London had a relatively small role to play in Russian government affairs. For example, in the ten years before the outbreak of war in 1914, Russian government issues took the form of international offerings spread between Paris and London, Amsterdam and Berlin, most especially the former. Of these issues, only a modest proportion found a home in the portfolios of British investors. Out of the last issue of £55.5 million Imperial Government Bonds offered on the international markets in 1909, only £6 million, or around 10 per cent, was offered for sale in London and much of this probably found its way across the Atlantic to New York.
