Investors blast credit crunch knowledge gap

Audit committees don’t understand the off-balance sheet structures that are blowing holes in company balance sheets, investors have insisted.

The comments, from the Association of British Insurers, are some of the strongest criticisms of the profession’s role during the credit crunch.

Investment banks have been forced to bring tens of billions of pounds back onto balance sheets as the so-called structured investment vehicles have creaked under the strain of the sub-prime collapse.

Peter Montagnon, director of investment affairs of the Association of British Insurers, said that people were not sufficiently aware that some of the vehicles existed.

‘Investors tell me frequently that they [audit committees] don’t know enough about what is going on. This relates to the committees’ knowledge and also to the accounting standards and what has to be reported,’ said Montagnon. We need to make it clear to committees that they need to be on top of what is going on and on top of how this is being reported,’ he added.

Montagnon did not name specific committee members, but his comments come amid moves to bring SIVs on balance sheet. Citigroup announced in December that it was bringing $49bn (£25bn) worth on balance sheet. HSBC has also brought several SIVs onto its books.

The concerns will worry investors as they prepare to digest banks’ full year numbers. He also raised questions about the role of auditors during the credit crunch. ‘They probably should have questioned some of the business models in light of what was clearly a developing bubble. But they shouldn’t be held responsible for what happened,’ he said.

One Big Four source said: ‘There are certain writedowns that you can’t do much about, but in other cases it seems boards of audit committees don’t seem to know the full position of assets and liabilities.’

Barclays Bank audit committee member Sir Andrew Liekerman said: ‘If an audit committee finds itself surprised, then the message is pretty clear. It should not have been surprised.’