The titans’ inability to say sorry


It would be consoling to believe that the titans of finance know in their hearts they are at fault, but are advised not to admit it. However, mostly they do not express regret because they do not feel it.

I have been listening to the supermum Nicola Horlick on the BBC’s Today programme. She was discussing the investments made by Bramdean Alternatives, the company she manages, in the allegedly fraudulent hedge funds of Bernard Madoff. I was hoping to hear some word of regret or apology or acknowledgment of error. There was none. The tone was of anger.

Bramdean had invested with Mr Madoff alongside some of the world’s leading financial institutions. Ms Horlick thought that the involvement of the Man Group – which has lost far more money than her fund did – was particularly relevant because that company undertakes extensive research into hedge funds. Her ground of complaint seemed to be that she was being unjustly criticised for making the same decision as others whose due diligence had been more extensive. But the primary target of Ms Horlick’s fury was, of course, the Securities and Exchange Commission, whose investigators had failed to detect any wrongdoing.

These observations should be viewed in the light of Bramdean Alternatives’ annual management fee of 1½ per cent of assets. This fee is not for management of the underlying investments. Additional fees are payable to the selected managers for that. The fee is for the expertise of Bramdean and Ms Horlick in selecting managers such as Mr Madoff.

Ms Horlick went on to explain that her investors had nevertheless done well. This view may not be shared by the investors themselves, whose shares have fallen steadily in value from £1 at launch in 2007 to 44p on Tuesday. The reported net asset value of the fund remains little changed, but the market takes a more sceptical view of Bramdean’s portfolio of private equity participation and hedge funds than does the manager. In the case of Madoff’s funds, at least, the market seems to have been right.

Birmingham was the venue last week for the last general meeting of the shareholders of HBOS before its absorption by Lloyds TSB. The latest management statement described the “challenging environment”, which lovers of corporate speak will know means “the business is in dire straits”. There was a need for further writedowns, they said, not – as one might have thought – because of poor investments and bad lending, but as a result of market turbulence.

At an earlier meeting the chairman of the rival Royal Bank of Scotland did manage to express regret. But he could not bring himself to say that the takeover a year ago of ABN Amro – at a price that would today buy the whole European banking industry – had been an error. And to be sorry for what has happened is not the same as to be sorry for what one has done. Still, Sir Tom McKillop was a model of contrition compared with Dick Fuld, former chairman of the defunct Lehman Brothers.

It would be consoling to believe that these individuals know in their hearts they are at fault, but are advised not to admit it. If you are in a road accident, every decent human instinct is to say “sorry” but the small print of your insurance policy dictates otherwise. However, mostly these titans of finance do not express regret because they do not feel it. They truly believe they were victims not villains, that if the world does not allow them to make large profits the fault lies with the world, and that government agencies should protect them from the consequences of their own actions. They prattle about free markets and the evils of government but deny personal responsibility.

In a column in September, I described how as a director of the Halifax Building Society I was part of the decision to convert to a public limited company – a decision whose consequences led directly to the sad denouement in Birmingham. With hindsight, this was a mistake that damaged a fine business. Several people have told me I am the only person publicly to have acknowledged error in the events that led to the credit crunch. There is some exaggeration in that statement, although not much. But I do not think I am solely responsible for the global financial crisis.

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