A sense of crisis gripped financial markets early today after the abrupt collapse late on Sunday of a venerable British investment bank threatened to set off a chain reaction of losses in markets around the world.
The bank, Barings PLC, the oldest investment firm in Britain and one of the most illustrious, was left with no choice but to seek bankruptcy protection after a frantic weekend effort to rescue it by the Bank of England, the nation’s central bank, came up short.
The extraordinary and fast-breaking series of events was set off when Barings discovered late Friday that a trader in its Singapore office had made and lost, to the tune of at least $750 million, an unauthorized financial gamble on the direction of Japanese stock prices.
By late Sunday, Barings, which was founded in 1767, financed the Louisiana Purchase and served as investment advisers to Queen Elizabeth II, was in ruins, its legacy a meltdown that had the potential to unnerve investors worldwide.
The affair raised questions about the adequacy of the oversight of complex financial instruments that allow investment firms to make huge bets without putting up much money in advance. And it highlighted the global nature of finance today, with market turbulence spreading across time zones as fast as the rising sun.
Within hours after dejected Barings employees began trooping out of the firm’s headquarters in London’s financial district Sunday night and bankruptcy administrators swarmed in, the effects of the firm’s collapse were roiling Asia as markets there opened for business.
Share prices in Tokyo fell from the start, At midmorning in Tokyo, the Nikkei 225 stock index was at 16752.78, a decline of 720.16 points, or 4.12 percent, in active trading.