BY JOHN EISENHAMMER
Financial Editor
The City of London, led by the Bank of England, was frantically engaged yesterday evening in an operation to save something from the calamity at Barings, Britain’s oldest merchant bank, which was facing losses of some £600m, run up by a single dealer at its Singapore ofice.With the deadline of midnight London time looming, when the Tokyo stock exchange opened and the full force of the financial markets was expected to tear into the gaping wounds caused by the disastrous foray into derivatives speculation by the rogue trader, the Bank of England was desperately searching for a holding position.As City grandees warned of the potentially disastrous consequences to London’s reputation as a financial centre should Barings be left to its fate, and the Labour Party called for a review of the controls on derivatives trading, Eddie George, the Governor of the Bank of England tried to win support from Britain’s biggest clearing banks and a host of establishment investment banking houses for a collective show of support for Barings.Before the Tokyo market opened, Barings was already facing losses of some £600mn, run up Nick Leeson, whose whereabouts were unknown last night, who had lost control of unauthorised speculation on the Nikkei index of the Tokyo stock exchange. A not very senior trader, only authorised to carry out simple deals, Mr Leeson had become heavily involved in three weeks, in complex financial futures in the expectation that the Nikkei index in Tokyo would rise. Instead, it fell, but by the time Barings’ executives became aware of what was going on last Friday, it was too late.The unparalleled potential of derivatives to magnify potential gains – and losses – out of all proportion to the initial investment had engulfed Mr Leeson, and the controversy about the dangers of derivatives exploded once again in international financial markets.While Baring’s role as an independent house was generally accepted last night to be over, yesterday’s efforts were directed at finding a buyer, or at least putting together a holding consortium that would stabilise the situation until a more odered disposal could be arranged.The problem facing the Bank of England and interested buyers, of which there were said to be many, was that no one had a clear idea of potential extent of the derivatives losses. Throughout yesterday, a derivatives crisis team assembled by the Bank of England from experts from several City houses was trying to ascertain Barings’ exposure, while derivatives professionals were dispatched to Tokyo, Hong Kong and Singapore.With fears that the crisis at Barings would send the London Stock Exchange and the pound reeling today if it was not contained, Michael Marks, chairman of Smith, New Court, the brokers, warned yesterday that the demise of Barings would put into question the whole fabric of the City of London. “For the credit rating of the City, it will disastrous if Barings goes to the wall,” he said.Alastair Darling, Labour’s spokesman on the City and financial services, said his party would today urge the Goverment to review the derivatives supervisory structure. “Even if this was a rogue trade, a rogue trader should never be in a position to ruin an entire bank,” he said.The intense debate about derivatives trading, opened at regular intervals by new scandals, the latest of which centred on the huge losses at Orange County in California, the United States, has led in recent years to a great deal being done to improve supervision and control. Central Banks, among them the Bank of England, have taken a relatively relaxed view of derivatives, saying that it is up to the insitutions themselves to get a grip on the risks of their actions.Colin Munro, director of IBCA, the bank credit rating agency, said yesterday that this new disaster will make it very difficult for the Bank of England to continue its calm stance.”You cannot have faith in a financial system when an important bank such as Barings can so rapidly run into problems on this sort of colossal scale,” he said.Leading article, page 14Further reports, page 24.
BY PATRICIA WYNN DAVIES
Political Correspondent
The whipless Tory Euro-rebels could support John Major in Wednesday night’s crucial Commons debate as a precursor to their restoration to the party fold.The move appears more likely after Sir Teddy Taylor, the MP for Southend East and unofficial spokesman for eight of the nine rebels, dramatically scaled down their demands on Mr Major in the Labour-initiated vote.Sir Teddy accepted that their call for a referendum on a single currency was not going to be met and put forward two “suggestions” – a commitment for border controls to be included in the next EU treaty and for a Commons vote on any move to put sterling back on fixed rates with other European currencies.As if to confirm rumours that party managers had started an “operation” to bridge the Euro gulf, Jeremy Hanley, Conservative Party Chairman, held out the olive branch, telling Sky News that the rebels’ support would be a “step in the right direction”.Mr Major has already indicated that he would take a robust stance on border controls. He may not agree to the rebels’ second suggestion, but an upbeat response is expected. “The rebels are pushing at an open door,” the source said.Although Sir Patrick Mayhew, Secretary of State for Northern Ireland, tried to reassure the nine Ulster Unionist MPs by yesterday declaring that Sinn Fein could not be brought into substantive negotiations on the province without “seriously addressing” the issue of arms decommissioning, William Ross, their chief whip, said it would be “very difficult” to vote with the Government.Lord Lawson, the former Chancellor, joined the European debate, telling LWT’s Dimbleby programme that Kenneth Clarke was “wrong” to claim that a single currency would not lead to a European super-state.Those Tory Euro-sceptics who have been pressing for a manifesto commitment to rule out a single currency for the lifetime of the next Parliament face almost certain disappointment. One Whitehall source said: “The single currency opt-out at Maastricht was a massive negotiating coup for John Major. We cannot have a manifesto commitment admitting that a significant part of Government policy was not sustainable after all.”In another move that could threaten John Major’s fragile majority, two Tory MPs face censure by the Commons Committee of Privileges over the “cash for questions” affair. But the committee is divided along party lines over whether they should be recommended for suspension.. BY ALAN MURDOCH and
DAVID McKITTRICK
Sinn Fein leaders said last night they still expected talks to begin with British ministers “within weeks” despite the reimposition of Britain’s condition requiring “substantial progress” on decommissioning of IRA weapons before ministerial contacts with Republicans can begin.On television yesterday, Sir Patrick Mayhew, Secretary of State for Northern Ireland, reasserted his stipulation that Sinn Fein “was not yet qualified” to meet British ministers because of the arms issue.
Sinn Fein’s president, Gerry Adams, said last night he was not surprised by Mr Mayhew’s intervention, given Unionist rejection of the Framework Document and Wednesday’s critical Commons vote on Europe.Mr Adams said Sinn Fein was already engaged in dialogue with other governments and he was confident talks with ministers would begin soon. “It’s only a matter of when, not if, that finally comes about.”Pressed on the arms issue on Irish radio, Mr Adams said: “The Irish have a tradition of putting the pike in the thatch after periods of conflict.” In other conflicts there was no evidence of insurgents giving up weapons until after a peace settlement, he said.Martin McGuinness, leader of Sinn Fein’s delegation in talks with British civil servants at Stormont, said discussions on the party’s response to the Framework Document could only be conducted at the highest level with British Cabinet members. “The time for hiding behind civil servants has gone.”Earlier, the Sinn Fein Ard Fheis, or annual conference, reflected the party leadership’s satisfaction with the Framework Document as a basis for negotiations. But the outgoing party chairman, Tom Hartley, said Britain was “contradicting the tone” of the document by refusing to talk directly to Sinn Fein.In his keynote address, Mr Adams said “decisive challenges” lay ahead that would require the holding of a special conference before next year’s Ard Fheis.”Our principles have not and must not change, but our strategic objectives. must be rooted in objective reality,” he advised.A senior ally of Mr Adams indicated privately the strategy reappraisal would address how Sinn Fein might accommodate Unionists in a period of transition.Addressing Unionists, Mr Adams said: “I too am an Ulsterman We don’t need British ministers to rule us We are well able to agree on our own future. I appeal to Unionists to bring your hopes and dreams, your concerns, your fears to the conference table.”Mr McGuinness said republicans would not involve themselves in any body which denied Irish people the right of self-determination. But they would “consider transitional arrangements which are linked to a clear commitment by Britain to end British jurisdiction in our country”.Pamela Kane, given early release three weeks ago from Limerick prison after serving nearly five years for her part in an IRA bank robbery, was given a standing ovation after she insisted early release of republican prisoners was an essential part of any overall settlement.
“If anyone thinks we will abandon the prisoners, they had better think again,” she said.Sinn Fein is organising a national campaign to win support for early releases.. Gerry Adams used the symbolism of “the road from Tallaght back to the Mansion House” to illustrate Sinn Fein’s changing political fortunes at their Ard Fheis at the weekend, writes Stephen Goodwin. But the contrast between last year’s conference, held in a fortified concrete community centre on a council estate west of Dublin, and the return, after four years, to the 18th-century Mansion House in the city centre, went much further.
In Tallaght, Sinn Fein was and looked a party pushed to the margin. It had been barred from the Mansion House by Dublin Corporation since 1991. As the site of the 1919 first Dail Eireann, the building is rich in historical significance for the party, but public disgust at IRA killings forced its eviction.Past conferences provoked noisy demonstrations. On Saturday there was a small picket by Families Against Intimidation and Terror, protesting against IRA punishment beatings, and an elderly woman handing out Miraculous Medals from the Daughters of Charity.Gone, too, were the garda Special Branch cars and the frisking by Sinn Fein stewards on entering the conference The Ard Fheis had taken on a soft-focus image.
On the platform, crisply dressed men and women of the executive sat below a dove bearing a tricolour streamer.Some 1,000 members and supporters filled the hall and its balcony for the Adams speech – easily twice the number at Tallaght. Then, gatherings had a hard edge with poster-size photographs of the latest dead IRA volunteers on the walls. Though Mr Adams paid tribute to the past year’s dead and the IRA, the grim photo gallery had gone.Instead the hall was decked in suffragette colours of purple and green. Boards displayed the photographs and words of Irish nationalist heroes from Wolfe Tone to Bobby Sands.Keen to portray itself as not just a “Brits Out” party, its two days of debate brought votes against decriminalising cannabis, for divorce in the Republic and, without irony, for a ban on blood sports.
