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| Why were HBOS auditors cleared? We need a full explanation | Why were HBOS auditors cleared? We need a full explanation |
| (11 days later) | |
| In its annual report and accounts for the year ending 31 December 2007, HBOS reported a profit before tax of £5.5bn. Those accounts were issued in February 2008. Eight months later, the bank was bust. HBOS was the second biggest failure in the British banking history. When the accounts for 2008 were published they showed a thumping loss of £11bn, including an impairment charge of £12bn. | In its annual report and accounts for the year ending 31 December 2007, HBOS reported a profit before tax of £5.5bn. Those accounts were issued in February 2008. Eight months later, the bank was bust. HBOS was the second biggest failure in the British banking history. When the accounts for 2008 were published they showed a thumping loss of £11bn, including an impairment charge of £12bn. |
| As the official report into the collapse noted dryly: “The deterioration in the quality of HBOS’s loan book, and the speed with which it all happened, are a notable part of the HBOS story.” It was therefore not surprising that parliament – like everybody else – wanted a good explanation of what the auditors, KPMG, were thinking when they deemed HBOS to be a going concern in February 2008. It was a question for the Financial Reporting Council. | As the official report into the collapse noted dryly: “The deterioration in the quality of HBOS’s loan book, and the speed with which it all happened, are a notable part of the HBOS story.” It was therefore not surprising that parliament – like everybody else – wanted a good explanation of what the auditors, KPMG, were thinking when they deemed HBOS to be a going concern in February 2008. It was a question for the Financial Reporting Council. |
| And here it is, the FRC’s definitive judgment: KPMG did nothing wrong. HBOS had not expected market conditions to deteriorate and thought it would be able to fund itself. KPMG considered and accepted that view. The auditor’s assessment was not unreasonable “at the time”. That, more or less, is the entirety of the FRC’s brief summary on its investigation. | And here it is, the FRC’s definitive judgment: KPMG did nothing wrong. HBOS had not expected market conditions to deteriorate and thought it would be able to fund itself. KPMG considered and accepted that view. The auditor’s assessment was not unreasonable “at the time”. That, more or less, is the entirety of the FRC’s brief summary on its investigation. |
| Hold on, though, didn’t the FRC, under pressure from Andrew Tyrie, chair of the Treasury select committee in the last parliament, promise a full report on the auditing on HBOS? Well, yes, it did. Tyrie announced the fact in March last year and published the supporting letter from Stephen Haddrill, head of the FRC. It stated: “We will publish a full report drawn from all our work in relation to HBOS and bank auditing.” | Hold on, though, didn’t the FRC, under pressure from Andrew Tyrie, chair of the Treasury select committee in the last parliament, promise a full report on the auditing on HBOS? Well, yes, it did. Tyrie announced the fact in March last year and published the supporting letter from Stephen Haddrill, head of the FRC. It stated: “We will publish a full report drawn from all our work in relation to HBOS and bank auditing.” |
| A report will still follow next month, says the FRC, but its description of the contents is now more watery. The glaring omission in Tuesday’s version was a specific mention of HBOS. Instead, the FRC plans to talk about its actions “in audit and corporate reporting developments since the financial crisis, including on the audits of banks”. One fears HBOS will get lost in a wash of generalities. | A report will still follow next month, says the FRC, but its description of the contents is now more watery. The glaring omission in Tuesday’s version was a specific mention of HBOS. Instead, the FRC plans to talk about its actions “in audit and corporate reporting developments since the financial crisis, including on the audits of banks”. One fears HBOS will get lost in a wash of generalities. |
| The FRC’s decision to close its investigation into KPMG may be entirely fair and proper but a full explanation is still required. Tyrie, when he was on the warfare over HBOS, accused the FRC of lacking “curiosity and diligence”. Nicky Morgan, his successor, needs to take a similarly robust approach. A proper report on HBOS was promised. An extended boast from the FRC about the splendid work it does these days would not fit the bill. | The FRC’s decision to close its investigation into KPMG may be entirely fair and proper but a full explanation is still required. Tyrie, when he was on the warfare over HBOS, accused the FRC of lacking “curiosity and diligence”. Nicky Morgan, his successor, needs to take a similarly robust approach. A proper report on HBOS was promised. An extended boast from the FRC about the splendid work it does these days would not fit the bill. |
| Re-levelling the playing field on takeovers | Re-levelling the playing field on takeovers |
| One could call it the Unilever amendment to the takeover code. The consumer goods giant managed to see off Kraft Heinz’s £115bn bid proposal over a weekend, but the saga revealed to many minds – not least Unilever chief executive Paul Polman’s – the uneven state of the playing field on which takeover games are played. A re-jig or two will follow to promote the interests of companies, and employees, on the receiving end. | One could call it the Unilever amendment to the takeover code. The consumer goods giant managed to see off Kraft Heinz’s £115bn bid proposal over a weekend, but the saga revealed to many minds – not least Unilever chief executive Paul Polman’s – the uneven state of the playing field on which takeover games are played. A re-jig or two will follow to promote the interests of companies, and employees, on the receiving end. |
| To be fair to the Takeover Panel, the City watchdog, other contests, notably last year’s messy three-way battle for FTSE 250 private equity investor SVG Capital, will also have influenced its thinking. Yet the changes could almost have been written to address Polman’s stinging criticisms. | To be fair to the Takeover Panel, the City watchdog, other contests, notably last year’s messy three-way battle for FTSE 250 private equity investor SVG Capital, will also have influenced its thinking. Yet the changes could almost have been written to address Polman’s stinging criticisms. |
| One of his complaints was about the UK’s shortened bid timetables. A mere 28 days, he argued, is not long enough for defending companies to audit cost-savings that might help the case for independence. | One of his complaints was about the UK’s shortened bid timetables. A mere 28 days, he argued, is not long enough for defending companies to audit cost-savings that might help the case for independence. |
| On that front, the target company will be able to demand that a bidder pauses for 14 days between announcing a plan to bid and actually tabling the offer that starts the clock. That seems sensible. Rushed bids should not have a greater chance of success by virtue of acquiring unstoppable momentum in the first few days. | On that front, the target company will be able to demand that a bidder pauses for 14 days between announcing a plan to bid and actually tabling the offer that starts the clock. That seems sensible. Rushed bids should not have a greater chance of success by virtue of acquiring unstoppable momentum in the first few days. |
| The effort to oblige bidders to set out details of how they propose to run a company is also welcome. The panel wants to know about research and development plans, where the headquarters will be, and the make-up of the workforce. That, in theory, will give pension fund trustees and trade unions more power to air any protests. They will still have to convince the shareholders, of course, but more transparency helps. | The effort to oblige bidders to set out details of how they propose to run a company is also welcome. The panel wants to know about research and development plans, where the headquarters will be, and the make-up of the workforce. That, in theory, will give pension fund trustees and trade unions more power to air any protests. They will still have to convince the shareholders, of course, but more transparency helps. |
| We are not, though, in the territory of major reform. These proposals are miles away from radical ideas such as re-setting voting rights to favour long-term investors. And business secretary Greg Clark’s policies to address “national security concerns that can arise from foreign investment” are awaited. | We are not, though, in the territory of major reform. These proposals are miles away from radical ideas such as re-setting voting rights to favour long-term investors. And business secretary Greg Clark’s policies to address “national security concerns that can arise from foreign investment” are awaited. |
| But, within the panel’s narrow parameters, the ideas represent a move in the right direction. Bidders should have to explain themselves more fully; and defending companies should be able to construct a proper defence. | But, within the panel’s narrow parameters, the ideas represent a move in the right direction. Bidders should have to explain themselves more fully; and defending companies should be able to construct a proper defence. |
| One hopes Polman is impressed. By the end of this year, Unilever will unveil its new corporate structure, as UK ministers are keenly aware. It would embarrassing if Unilever decides it prefers the Dutch approach to stakeholder capitalism. | One hopes Polman is impressed. By the end of this year, Unilever will unveil its new corporate structure, as UK ministers are keenly aware. It would embarrassing if Unilever decides it prefers the Dutch approach to stakeholder capitalism. |
| Reputational damage could still ground Ryanair | Reputational damage could still ground Ryanair |
| The City is sticking to its breezy view of the chaos at Ryanair over cancelled flights. The shares rose 1%. Why? Presumably because the airline put the comforting figure of €20m on the compensation bill for customers. But that figure doesn’t pretend to calculate the reputational damage, which is surely still rising. | The City is sticking to its breezy view of the chaos at Ryanair over cancelled flights. The shares rose 1%. Why? Presumably because the airline put the comforting figure of €20m on the compensation bill for customers. But that figure doesn’t pretend to calculate the reputational damage, which is surely still rising. |
| HBOS | HBOS |
| Banking | Banking |
| Financial sector | Financial sector |
| Unilever | Unilever |
| Mergers and acquisitions | Mergers and acquisitions |
| Ryanair | Ryanair |
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