Barings suspends trading

Barings suspends trading

JAKARTA (JP): Barings Securities Indonesia (BSI), a major brokerage company on the Jakarta Stock Exchange (JSX), suspended trading activities yesterday in the wake of the derivatives dealing scandal involving its London-based principal company.

Achmad Daniri, a JSX director, said that BSI was voluntarily suspending its trading activities until the financial scandal of its parent firm settles down.

"BSI told us in the morning about its voluntary suspension. It also promised to settle all its financial responsibilities for all its transactions made until Friday," Achmad told The Jakarta Post about the position of Baring Bank's Indonesian affiliate.

Barings Bank, a London-based merchant bank, was placed in administration by London's financial authorities after losing more than $750 million in unauthorized derivatives trading in Singapore.

BSI, an affiliate of the British bank, topped the list of the most active brokerage companies in Indonesia last year, with total transactions of around Rp 2.84 trillion (US$1.32 billion).

Last week, the brokerage firm took the fourth position among the most active dealers on JSX, with total turnovers of over Rp 54.56 billion (US$25.37 million).

Richard Fischer, an executive of BSI, refused to comment on the trading suspension and said only that his company would try to do its best for its clients.

"I have no comments right now...I will tell you later," he told the Post about the financial crisis of BSI's parent company.

BSI's president, John Marshall, said in a statement here last night that BSI is a separate legal entity and is not subject to the British administration order, which has been imposed on other parts of the Barings group.

"The unauthorized activity did not involve PT Baring Securities Indonesia in any way and the company's balance sheet reflects the strength of its underlying securities trading and corporate finance business," Marshall said.

He said BSI intends to continue operations and to meet all obligations entered into at present. However, no new transactions will be entered into pending completion of discussion with various parties.

Markets

Share prices on major Asian markets including Tokyo, Taiwan, Singapore and Malaysia as well as Sydney were battered by panic selling yesterday in a domino reaction to the Barings crisis.

The fragile pound sterling crashed to a record low against the German mark and stocks fell worldwide yesterday.

Investors absorbed the uncomfortable news that a 28-year-old Barings trader in Singapore had apparently lost more than the bank's worth through investments in stock futures contracts in Japan.

The Tokyo stock market plummeted 3.8 percent, with the Nikkei average tumbling 664.24 points to close at 16,808.70, its lowest since December 8, 1993. Sterling sank to a fresh record low of 2.2950 marks in early European trading after dropping to 2.2993 marks in Asia and it continued weak in European trading. By 1130 GMT it was trading at 2.3055 marks in London.

"The pound just stepped off a cliff this morning," said a dealer at a British bank in Sydney.

The London stock market opened nearly 1.3 percent weaker, but later regained some of its composure. At 1130 GMT the Financial Times-Stock Exchange index of 100 leading shares was down 23.7 points at 3,014.0. The Paris bourse retreated about one percent. In several countries, bank shares bore the brunt of the day's falls.

The one bright spot among major world stock markets has been Wall Street, which on Friday closed at a record high, but it too is likely to be nervous about the new blow to world confidence.

Analysts in London were quoted by Reuter as saying money was heading into safe havens, particularly the German and Swiss currencies.

"The mark is gaining in strength as a European safe-haven currency," said Eric Fishwick, senior analyst at Japanese bank IBJ International. "We're seeing massive movement into the mark," said Ian Francis, foreign exchange manager at Commerzbank in London. "Uncertainty in other markets is causing it -- there are problems and political worries across the board."

Securities analysts in Jakarta, however, played down the impact of the futures dealing scandal on the local market despite the leading position of Baring's operation in Indonesia.

"The people are, of course, afraid about the possible sell-off of Baring's holdings. But I don't think there will a big impact on the local exchange," said FT Chong, a senior capital market analyst at Bank Dagang Nasional Indonesia.

Securities dealers said that trading activities on the JSX were normal, with the JSX Composite Index declining only slightly to 452.56 yesterday from 454.69 last Friday.

Daniri, the JSX director, also saw no significant impact of the futures trading scandal on the local market, saying that the British brokerage company's own portfolio investment on the local market is too small to affect the market.

"Baring's own portfolio investment is not so significant and I think the impact will be also minimal," Daniri said when he was questioned about Baring's possible sell-off on the JSX. (hen)