Banking and Charitable Institutions (Hansard, 23 March 1995)

§ The Minister of State, Home Office (Baroness Blatch)
My Lords, the Government share the wide regret at the financial difficulties of Barings and will study any views from the inquiry which has been commissioned by my right honourable friend the Chancellor of the Exchequer. Charity trustees are already under important duties of care in relation to the safe custody of their charities' property. The Government are not persuaded that new legislation to prohibit a charity from owning a bank would be appropriate.

§ Viscount Chandos
My Lords, I thank the Minister for her Answer. However, does she agree that day-to-day banking supervision can and should only be the protection of last resort, with proper accountability 1316 to shareholders being the primary discipline? Should not the Bank of England have recognised that the interrelationship between the trustees of the Barings Foundation and the past and present directors of the Barings group blunted that discipline and at the same time allowed a disproportionate share of profits to be paid to senior employees?

§ Baroness Blatch
My Lords, it would be quite inappropriate for me to speculate on any of the noble Viscount's points. As he knows, a review of all such matters is taking place at present. It is absolutely certain that the trustees do have a duty of care in such matters. As regards the underlying premise of the Question, Barings started off as a bank and set up a foundation over 200 years after its establishment as a bank. The idea of putting legislation in place which would prevent a bank from setting up a charitable foundation would simply not be sensible.

Viscount St. Davids
My Lords, does my noble friend agree that the matter that needs to be addressed is whether it is desirable for a bank to be owned by any single shareholder or group of shareholders who may not be able to increase the capital of the bank in a manner which is commensurate with the risks that the bank enters into? In the case of Barings, the risk was probably entered into involuntarily.

§ Baroness Blatch
My Lords, I am not able to say how Barings entered into that risk. All I know is that the trustees of the charitable foundation acted properly and were wholly unaware of the tragedy that was about to befall them. However, the relationship as regards the charitable foundation, the bank, the proper management of the bank—which I believe is what is at stake—and the proper relationships and line management that operate at any given time is really what is at issue, I hope that that will be looked at during the course of the investigations.

§ Lord Ashburton
My Lords, I declare an interest. I am the current chairman of the council of the Baring Foundation, which has indeed been grievously wounded by the collapse of Barings. I was also chairman of Barings plc up until 1989 and a non-executive director of Barings until last year. Do the Government agree that to lead a Question on shareholder responsibilities with an apparent assertion that the trustees of a charity are less capable than others of keeping pressure on management to do what they should do—to produce income by managing the asset well—and, furthermore, to use the Baring Foundation as an example, when several of us on the council have had, and have, intimate knowledge of Barings business and management, is less than convincing?

§ Baroness Blatch
My Lords, first of all, I note the noble Lord's involvement in these matters. I think the whole House will share the regret that this generous charitable foundation should have fallen so tragically. There is a criticism of the Baring trustees implicit in this Question. I would like to think that we could distance ourselves from that and say that the trustees of any charity have a duty to maximise income, to invest 1317 responsibly and to carry out their duties responsibly. It is those duties of care which would apply to any trustees of any charity.

§ Lord McIntosh of Haringey
My Lords, without in any way wishing to comment further on the efficacy or otherwise of the actions of the trustees of the Baring Foundation, does not the Minister agree that, as regards the public, the real scandal in recent weeks has been that the senior management of Barings have paid themselves £105 million in bonuses for profits in 1994 which are not there, whereas the Baring Foundation has had to notify its recipient charities that the money is not available for them?

§ Baroness Blatch
My Lords, I shall make no comment on the point that was made by the noble Lord. I do not wish to speculate on any outcome of any inquiry about the behaviour of Barings in this matter.

§ Lord Jenkins of Putney
My Lords, is the noble Baroness aware that nothing that has been said so far has removed the need for the Question that was originally raised by the noble Viscount, Lord Chandos?

§ Baroness Blatch
My Lords, I remind the House of the Question, which invites the Government to consider the possibility of introducing legislation, to prohibit charities from owning banking institutions".
As it relates to Barings, I am simply saying that Barings was a bank for 200 years before it set up a charitable foundation. It has been extremely generous to the charitable sector. We all regret the downfall of Barings Bank, but that is not an argument for putting in place legislation to prevent any bank from setting up a charitable foundation.

§ Lord Dubs
My Lords, does the Minister agree that, whatever the unfortunate sequence of events that overtook Barings Bank, the Baring Foundation has over the years played a first-class role in supporting many charities and much valuable work? Perhaps one of the other oblique lessons of this is that other merchant banks might be similarly generous in a charitable sense.

§ Baroness Blatch
My Lords, I can only agree with the noble Lord on that. However, I believe that there are two lessons which we can learn while we await the outcome of any review, and one is for charities not to become over-dependent on one source of income. That is important. The other lesson concerns diversification. The charitable foundation had begun to diversify, and it is because of that decision to diversify that £50 million has been saved, is invested and will be available to honour existing commitments. I must put on record that the new company which has taken over Barings has made an ex gratia payment to the Baring Foundation of £10 million, which will also help enormously.

§ Lord Burnham
My Lords, I am sure the whole House must have heard with great interest the comments of someone so intimately concerned with Barings Bank. But is it not the case that in spite of the Charities Acts of 1992 and 1993 there is still a real danger that trustees 1318 of charities may not be aggressive enough in their financial expertise and knowledge to own or in any way control the ownership of financial institutions?

§ Baroness Blatch
My Lords, I am not sure whether I agree with the word "aggressive". Certainly it is responsibility that we want in managing the aims and objectives of the charity, taking proper advice on investment policy, noting the whole issue of not becoming over-dependent and watching out for the proper relationship between a foundation and an institution.

§ Lord McIntosh of Haringey
My Lords, I hope that the House will allow me to say that I was puzzled by what the Minister said about charities not relying on a single source of funds. What does she suggest, for example, that the Rowntree Trust or the Gulbenkian Foundation should do?

§ Baroness Blatch
My Lords, what I was saying was that Barings appeared safe but nonetheless, when it went down, many charitable organisations that were so dependent on that one source of income were badly let down. If it is possible to diversify sources of income, I believe that should be considered.