ING may save depositor funds

The Queen, pension funds, county councils and others with money deposited at Barings' banking subsidiary could get all of their money back if the deal to sell the failed bank to ING goes through.

With a single buyer for the group, estimates that lenders will get less than 70p in the pound are likely to prove far too pessimistic and hopes were rising that the payout could be more than 90p or even full repayment for many creditors.

Among the uncertainties is how many of the Barings debts will be excluded from any sale to ING, which is likely to buy Barings for a nominal amount but spend a large amount of money recapitalising it. The administrators refused to give any indication of the likely payment to creditors. The banking offshoot, Baring Brothers, is one of eight subsidiaries which are individually in administration.

It will be most valuable as a going concern, so there would be a commercial incentive to honour all deposits and carry on banking. This would be particularly important in the case of cash deposited by the fund management arm on behalf of clients and frozen in the bank.

If part of the money is lost, the fund management arm would probably lose clients and be worthless to ING.

As significantly, a sale of the whole group could lead to a far quicker repayment to bank depositors, who rank as unsecured creditors, so the amount of lost interest would be smaller.

The Queen is thought to have several million pounds deposited at Barings, while pension funds are estimated to have up to £650m of cash invested in the bank through the fund managers Baring Asset Management.

More than £1.5bn of customer deposits are frozen at Barings. In addition there is well over £1bn of deposits at Barings from other banks. At the last count there were over £500m of loans to customers and another £1.5bn of money market loan to banks, most of it repayable within three months.

After record 1994 profits, shareholders' capital was thought to have reached at least £350m before the Far East losses of nearly £700m came to light, wiping out more than the entire value of the bank to shareholders. However, the critical calculation for depositors is how far the group's assets of around £6bn fall short of its liabilities.

The Baring disaster has sent private and public sector pension fund managers scrambling to assess the impact on their funds. The potentially worst hit include London Regional transport, which has nearly £2.3bn of staff pensions invested by three advisers, including Barings.

Most of the funds managed by Barings on behalf of pensioners are thought to be safe, having been invested in stocks and shares at the time of the crash. These investments are not held directly by the fund manager, but by nominee companies.

The part that is at risk is that kept in cash - typically 5 per cent - and which has been kept on deposit at Barings' bank subsidiary.

Most pension fund managers were calm about the effect of the crash on their funds. If local authority pensioners lose out as a result of the crash the funds will have to be topped up by the local authority.

A spokesman for the Department of Environment said they would not be bailing out the local authorities hit.