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

‘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.’

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