$300m Singapore rescue plan

THE BARINGS COLLAPSE

BY JOHN EISENHAMMER

and STEVE VINES

A US$300m rescue of some financial institutions hit by the Baring collapse was launched yesterday in Singapore.

The Singapore Finance Minister, Richard Hu, said a special $300m credit fund, drawn from local financial institutions, had been set up. But he hoped this would not need to be drawn on, as the Singapore International Monetary Exchange is believed to have sufficent margin deposits to offset Baring Futures Singapore's unrealised losses.

But Barings' losses widened further yesterday as Tokyo shares dropped again. Uncertainty about potential further losses will continue as long as any contracts remain open. If the entire portfolio remains open, each 1 per cent fall in the Nikkei index will raise losses by an estimated $70m.

Exchange authorities in Japan and Singapore are racing to close down the derivative positions left behind by the fugitive Barings trader, Nick Leeson. To end this haemorrhage, banks acting on behalf of the exchanges in Osaka and Singapore moved yesterday to dispose of as many of these open futures contracts as possible. Unconfimred reports said that Daiwa, acting on behalf the Osaka exchange, had closed out half of Barings' 16,000 contracts.

The Nikkei 225 index, on which Mr Leeson's derivative instruments were based, dropped to its lowest level since December 1993 yesterday.

Ending the uncertainty over further losses by closing down the contracts was seen as the key element in clearing the path of administrators, who were last night continuing urgent negotiations on several fronts with British and foreign banks interested in buying parts of Barings.

The 38 corporate members of the Singapore International Monetary Exchange (Simex) expected to be called on to raise a special levy to settle outstanding debts left in the wake of the Barings collapse. Simex officials refused to say how much money will be needed, but futures trading companies believe they could be asked for up to US$5m each.

This is an unwelcome burden but relatively modest in comparison with Singapore's share of the total losses incurred by Barings, which have broken through $1bn. This assumes that the loss is more or less equally divided between Singapore and Osaka, the two markets in which the fatal futures contracts and options were traded.

Simex is unhappy with talk of a bail-out but there is no other way to describe the money required to keep the exchange on a firm financial footing once the Baring debris settles.

Simex has contingency funds but they will not be adequate to cover this collapse.

All corporate members of Simex are required to leave a $250,000 security deposit with the exchange. There is also a compensation fund, believed to contain some $50m, derived from a levy on member's profits.

However the exchange is also said to be holding up to $550m in margin deposits advanced by Barings on the contracts that turned sour.

The list of members is largely blue-chip, including local subsidiaries of NM Rothschild & Sons and HSBC Holdings, from Britain; Chase Manhattan, Citicorp, Merrill Lynch, Shearson Lemahn Brothers from the United States, and main Japanese finance houses including Nomura and Daiwa.

The Singapore authorities say they plan to toughen supervision in the light of the Barings debacle. They say they were never told of any problems with Mr Leeson's positions because he was meeting his margin calls until Thursday last week, when he disappeared.