Slap in face for Equitable policyholders

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THE crass insensitivity of accountants Ernst & Young brought shame to the entire financial community last week when it gloated over the collapse of the Equitable court case. Could there ever be better evidence that those who earn six-figure salaries from managing, administering and safeguarding our investments care not one iota or feel any sense of responsibility about the outcomes?

The quote from E&Y chairman Nick Land, as the 700m claim - which started at 2bn - was dropped, read like a callous slap in the face for the thousands of policyholders whose retirement dreams have been ruined.

Land went out of his way to give a ringing endorsement to the former board which presided over the destruction of what was once Britain's finest insurance company. He said: "The claim against the former directors has caused considerable and unwarranted distress and cost to a group of individuals who were seeking to discharge their responsibilities in a conscientious and responsible way."

I was so shocked at this statement that I rang to make sure they really understood what they were saying. Perhaps it had been an off-the-cuff remark they would retract with further thought. "No," said Will White, head of media relations. "I heard the chairman give the same quote several times. It is something he strongly feels."

Does he realise, I asked, that former chief executive and actuary Chris Headdon was the subject of serious disciplinary action by the Financial Services Authority and has been banned for six years? And what about Roy Ranson, who led the company when the guaranteed pension problem first arose, and was branded "autocratic", "domineering" and "manipulative" by Scottish judge Lord Penrose? He only escaped because he was in his early 70s and the watchdog decided it would be pointless to pursue him further.

But the ebullient E&Y spokesman would not be cowed. White continued: "The chairman watched Chris Headdon in the witness box on several occasions and was very impressed with what he had to say."

Now, I have heard Headdon speak on a number of occasions - not least before MPs in Westminster - and have found him about as stimulating and exhilarating as a pallbearer. So I asked if E&Y's Nick Land had ever spoken to any victims of Equitable's collapse and whether he found them similarly impressive?

Had he spent the past five years, as some of us have, listening to distraught elderly people, whose health has been ruined with the worry of it all, or who have been forced to sell their homes?

Would he like, I wondered, to spend a few hours in a room of annuitants, many of whom have already lost 60% of their pensions and are facing the terrifying prospect that the money will run out before they die? Would he still think the former board so upstanding?

White laughed, and no doubt the former directors will also smile in relief when the 1.7bn case against them collapses, as is now widely expected. But however they seek to cut the cards, nothing can ever change the fact that these were the individuals standing on the bridge of Equitable when it sailed straight into an iceberg.

The insurance business is supposed to be all about risk management. Yet the former board, just like those steering the Titanic to its doom, were oblivious to the risks ahead, and sorely short on lifeboats.

Regrettably, as the French say, plus a change, the more things stay the same. It is deeply perturbing that the current board allowed itself to sleepwalk down the blind alley of litigation, squandering 30m of badly needed policyholders' money on its way.

It is particularly breathtaking, some would argue, since betting the ranch on an earlier court case resulted in a House of Lords judgment which all but bankrupted the society.

Packed as the current board has been with lawyers, including former High Court judge Phillip Otten and chairman Vanni Treves, how could they have allowed the case to be so poorly presented? It was painful to watch, even from a distance.

And why was a joint action brought against the former board and auditors, thereby giving them an automatic interest in shoring up each other's positions?

The case is said to have turned on Headdon's statement that had E&Y presented the accounts differently, it would have made no difference to the bonus decisions he recommended to the board.

In a nutshell, this seems to imply that whether the auditors were right or wrong, the management would have paid them no heed anyway. How reassuring for investors. And no wonder all these highly paid accountants and actuaries feel so clever and pleased with themselves.

But while they are cracking open the champagne, elderly people watch aghast as their hopes of improving their position through compensation disintegrate. The fight will go on, no doubt. Next week the company will boast a slightly improved financial position. But it will be yet another smoke and mirrors exercise.

It can release some of the money set aside to pay compensation because it has kept a tight rein on redress. Next year, Parliamentary Ombudsman Ann Abraham will deliver her report into the debacle. Even if she does find maladministration, what will Prime Minister Tony Blair and Chancellor Gordon Brown do about it?

We will get a pretty good clue when her report into the pensions crisis about company schemes is published later this year. Again, the big question is: even if she finds fault and recommends redress, will the government pay up?

The signs are not good. The government is short of cash and will likely brazen it out. Victims of both scandals predict uproar in Parliament, but I wouldn't hold your breath. Few Labour MPs will risk the ire of incoming prime minister Brown.

The Equitable Members Action Group is having more success in Europe, where it won the right for an investigation. But there, as here, the wheels of justice turn slowly.

The most shocking aspect of the entire affair is that five years after the safest investment house in Britain closed its doors, no one has been held responsible. This is what sticks in ordinary investors' throats.

Like the Titanic, it was thought Equitable could never sink. When it did, how could you possibly blame the captain and crew for not slowing down, just because of iceberg warnings? After all, whoever hit an iceberg in the North Atlantic?