| Activity | In banking terms, the family history begins in 1762, when Francis Baring set up a merchant's business in Mincing Lane, in the City of London. Francis was the son of Johann or John Baring, who came from Bremen to Exeter to learn the wool and linen trade. His family, originally from Groningen in Friesland, had produced a solid line of pastors, civil servants and professors.
Johann proved to be good at trading. He decided to stay in Exeter, changed his name to John and married well, into a local merchant family. When he died in 1748 he was one of the richest merchants in the West Country, and one of only three men in Exeter who kept a carriage, the others being the bishop and the recorder.
Francis Baring was John's third son. In London, he soon realised that there was more to a merchant's life than serge cloth and linen. He traded exotic commodities like cochineal, copper and diamonds. He had an original mind, and was one of the first bankers to appreciate that financing trade could be a more reliable way of making money than trading itself. By guaranteeing that the supplier would be paid by the buyer, he provided the credit that oiled international trade. Banks involved in this business were called `acceptance houses', and Barings was one of the first in London. This mixture of trading and banking later became known as merchant banking.
Being paid commission to raise money to finance war and peace proved a better risk. Barings helped the British government to fight first the Unites States, then France. When the United States wanted to buy Louisiana in 1802 it turned to Barings. Despite the fact that Britain was at war with France, and the sale would help Napoleon to finance his war, Barings obliged. Francis's second loyalty was to his country; his first was to international finance.
By the time Francis died in 1810 his bank was the most splendid in Europe. Alexander Baring, Francis's second son, outlined the philosophy that was to propel Baring's banking business through the nineteenth century: The basic business was still financing trade. Barings was easily London's biggest `American house', raising $500,000,000 for United States and Canadian government loans between 1860 and 1890.
The family accumulated peerages steadily throughout the nineteenth century. Alexander was created Lord Ashburton in 1835. The second Sir Francis, a former chancellor of the exchequer, became Lord Northbrook in 1866, and Evelyn Baring, the great Egyptian pro-consul, became Earl of Cromer in 1892.
Only one Baring received a peerage principally because he was a banker: Edmund, otherwise known as Ned. The others had been politicians or public servants. Ned became Lord Revelstoke in 1885, when London was the undisputed financial capital of the world. Revelstoke father and son ran Barings for fifty years.
Because the stakes were so high, Barings was bailed out in November 1890 by a consortium organised by the governor of the Bank of England, William Lidderdale. The consortium drew on money from the bank itself and from the government of the day. Once the government was committed, Rothschilds joined in, the rest of the City followed, and a fund finally amounting to 17,326,000[pounds sterling] - worth more than a billion pounds 100 years later - met Barings' commitments. But it had been a close-run thing.
Although it was the end of Lord Revelstoke's career and the partnership was wound up, the bank survived as Baring Brothers & Co. Ltd, with a paid-up capital of 1 million [pounds sterling]. Since the individual partners were responsible for all its debts, everything had to go: lands, houses, pictures, horses. Revelstoke's country estate at Membland in Devon (which had a special larder big enough for 2,000 head of game) and his Mayfair mansion at 37 Charles Street both had to be sold, along with the French furniture and objets d'art. Even the children's nanny went.
The episode was known to later generations of Barings as the `Deca-Dance'. It could be treated fairly lightly because the recovery from the debacle was quick and complete: by 1896, the bank had been repossessed by the family. One of the inherited characteristics that had made the family so special had been lost. Barings remained reliable and honest, arrogant and contained, but they were no longer risk-takers. As bankers they had lost their nerve. An advantage of this new demeanour was that it made Barings the perfect City representative of the British establishment. John Baring, the second Lord Revelstoke, soon took his place on the court of the Bank of England - its board of non-executive directors - and became the closest financial adviser to George V, a link between the bank and the monarchy that remains unbroken.
Because Barings never regained its earlier entrepreneurial drive, it slipped from the first rank of City merchant banks to the second. It was not at the cutting edge of finance before or after the First World War. Conservatism, though, did have some blessings: other London merchant banks plunged into Germany to finance the economic recovery in the late 1920s, and were badly burned when the great Depression began. Barings did not take that risk.
When the second Lord Revelstoke died in 1928, the succession at the bank was divided between an outsider, a Canadian named Edwin Peacock, and Edward Reid, a Revelstoke nephew. They were utterly responsible, perfectly reliable, but deeply conventional in their attitude to investment. Caution by now had become a way of life. Some clients who were getting a poor return would have preferred a less reverential approach to their money.
Reid and Peacock were both knighted for their loyalty to the City and to Barings, and the family still turned out City grandees. Rowland, known as Rowley, the third Earl of Cromer, was the first Baring to become governor of the Bank of England. He was appointed in 1961 at the age of forty-three by Harold Macmillan.
When Labour won the General Election in 1964, Cromer saw it as his patriotic duty to save sterling from Harold Wilson. He got no thanks from the prime minister for that, and did not seek re-appointment at the end of his first term in 1966. Returning to Barings, he finally took over the bank as senior partner from his distant cousin, now Sir Edward Reid.
Once in charge, Cromer set about securing the future of the partnership. There are two views of Cromer's motives. One is held by outsiders: that Cromer was in a funk about socialism, and took desperate measures to avoid a wealth tax. The second, held by the Barings, is that he was sensibly protecting his fellow directors from death duties. Ever since 1891, the bank's equity capital had been held by a partnership of the bank's directors. When a director retired, his share passed to his successor. But if a partner were to die suddenly in office, his liability for death duties would mean a value had to be put on the shares, and ruinous death duties might force the dead director's estate to put his Barings shares on the market. Anyone might then buy them.
Cromer's solution was to give the directors voting shares that paid no dividends, and to transfer 74 per cent of the equity to the Baring Foundation, set up to carry out good works. (In 1986 the remaining 26 per cent of the shares was also transferred to the foundation, which, in 1994, gave grants of, or spent, 14,041,751[pounds sterling] to aid welfare, health and the arts in Britain and abroad.) Whatever Cromer's real motive, the directors' income from Barings shares was much reduced after 1969. After 1985, when there was no longer any share income, they relied on their bonuses to bolster their salaries. The way the directors got rich after 1985 was by awarding themselves spectacular bonuses.
The firm grew, and by 1986 Sir John had to stop making his Christmas tour round the office because he found he could no longer address every employee by name. Barings was probably best known for being banker to the Queen, although Sir John never said a word about that, even to senior colleagues. It was good at issuing sterling loans; it was building a strong investment business; and it had not ignored corporate finance, organising new issues of stocks and bonds for British business. Indeed, it had advised the winner in the seminal City takeover battle in 1962, when Courtaulds fought off a bid by ICI. Barings celebrated, but first it went to St Michael's, Cornhill, to give thanks.
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