Barings Files for Bankruptcy in $789-Million Investment Loss : Finance: Asian markets plunge after England’s oldest investment bank says its capital was wiped out by derivatives.

Asian stock markets plummeted early today and markets worldwide braced for a shock after Barings, parent of Britain’s oldest investment bank and a major global stock trader, filed for bankruptcy protection late Sunday.

The venerable bank disclosed that it has lost more than $789 million in “massive, unauthorized” trading of Asian derivative securities, wiping out its capital.

A last-ditch bailout effort by the Bank of England failed Sunday when the central bank found that Barings was still open to hundreds of millions of dollars in additional losses. Immediately afterward, Barings applied for an administration, a form of receivership.

Markets worldwide are likely to feel the impact of Barings’ fall, because the investment bank will probably have to sell stocks and bonds to cover its losses. For now, however, Barings has suspended trading.

The first ripples hit Asian markets this morning. Tokyo’s 225-issue Nikkei stock index plunged 802.80 points, or 4.6%, to finish the morning session at 16,670.14, a 14-month low.

Other Asian markets dove at the opening, though many were trading above the day’s lows by late morning. In Singapore, the key stock index was off 1.3%, Taipei’s weighted index was down 4.1%, South Korea’s composite lost 2% and Bangkok’s SET index was off 2.2%.

The British pound also sank, falling to an all-time low against the German mark in Asian trading.

The failure of Barings may also add to the woes of stock markets in Mexico and other Latin American countries. Barings owns Baring Securities, a worldwide investment network that is the largest trader of emerging-market securities.

Emerging-market stocks have grabbed an increasing share of worldwide investment in recent years, but Barings’ problems may make it more difficult for investors to buy or sell certain stocks in the near term. If Baring Securities is forced to unload its investment portfolio, prices in already floundering emerging markets could plummet further.

“People would have a harder time buying or selling many of the securities, especially those that Baring Securities promoted. It would make the market less liquid,” said Darryl McLeod, an economist for Lehman Bros.

The potential effect on U.S. markets, meanwhile, is unclear. Money could flow into the United States in search of a safe haven, but some foreigners may also choose to sell liquid U.S. securities to cover Barings-related losses.

“Barings has been the victim of losses caused by massive, unauthorized dealings by one of its traders in Southeast Asia,” the Bank of England said in a statement. “The contracts concerned are still open, exposing Barings to unquantifiable further losses until the contracts expire or are otherwise closed out.”

The central bank said British banks had committed to supporting Barings, but only if it was possible to cap the liability they faced.

“As a result, Barings cannot continue trading and is applying for administration,” it said. Administration is roughly equivalent to bankruptcy protection in the U.S.

Barings is a blue-blooded aristocrat of British finance. Founded in 1762, it helped finance Britain’s 19th-Century wars against Napoleon I of France. Barings also owns 40% of the Wall Street brokerage firm Dillon Read & Co., which said Sunday that it will suffer no effect from the British firm’s huge loss.

“This is the stuff novels are made of,” said Gerry Grimstone, deputy chairman of Schroders Asia Ltd. “This isn’t some boutique firm that’s gone under.”

Barings was taken down by a trader, apparently in Singapore, who ran up a massive losing position in derivatives, including ones linked to Tokyo stocks.

London bankers said the Barings dealer bought between 15,000 and 20,000 derivative contracts worth almost $200,000 each, betting that the Tokyo stock market would rise this year. It has tumbled instead.

Barings employees in Asia identified the trader as Nick Leeson, general manager of futures at Baring Futures (Singapore) Private Ltd., a trading arm of Barings. Leeson, 28, was not available for comment.

Derivatives--including futures, options and swaps--are contracts linked to movements in the values of commodities, currencies, shares or bonds. Designed for hedging, they also attract speculators. Profits from speculative trades can be huge, but losses can be devastating if a trader bets one way and a market swings the other.

Securities firms, corporations and municipalities around the world have had combined losses of $3.5 billion since 1993 from speculating in the controversial financial products, according to Bloomberg Financial Markets.

Losers include Orange County, which lost $1.7 billion in part from derivative bond investments that went sour when interest rates rose sharply. Germany’s Metallgesellschaft lost $1.5 billion in 1993 on oil derivatives deals at a U.S. unit.