BHS collapse: Goldman Sachs is left looking foolish

Big Ben

It is a remarkable thing to say about Goldman Sachs but, to judge by vice chairman Michael Sherwood’s shrunken and apologetic demeanour in front of MPs, he knows it himself: the investment bank was a naive fool in the BHS debacle.

And that’s the generous interpretation of events.

Sherwood arrived in Westminster repeating colleague Anthony Gutman’s previous line that Goldman had only a walk-on role in Sir Philip Green’s disastrous sale of BHS to thrice-bankrupt Dominic Chappell. The bank wasn’t engaged formally by Green as an adviser and had declined to be so. It didn’t earn a penny in fees. Its job was merely to provide informal observations. And – most importantly – Goldman never told Green it was OK to proceed with Chappell, said Sherwood.

Contrast that account with the version told by Green and his band of loyal Arcadia executives who have emphasised Goldman’s role as “gatekeeper” and “adviser” on the deal. Green said a couple of weeks ago that “one million per cent” he would have ditched Chappell if he had failed Goldman’s “sniff test.”

There was no sniff-test, said Sherwood. There is no reason to doubt his word: there is not a single email to suggest Goldman gave formal approval to Chappell. Most of the exchanges were indeed equivocal.

But, come on, the Goldmanites were gullible in the extreme if they couldn’t spot the danger that their qualified “observations” about risks might be over-interpreted as approval in principle. Green, remember, was trying to ditch a loss-making company with a large hole in its pension fund. An association with the Goldman name tends to get wheels turning.

In this case, the bank had previously given advice to the BHS pension fund. It also managed money for Green and his family. And, as Sherwood put it, it had been “hanging around the goalmouth” for a decade hoping to act on a Green deal. Goldman may have retreated to the stands when BHS popped up, but it should not be surprised if others portrayed it as chief playmaker, or even referee. If you’re “half in, half out,” as one MP put it, there is confusion.

Sherwood is a streetwise operator, we used to think – to get to the top of Goldman, you have to be. On this occasion, when he wasn’t apologising for forgetting about Green’s request for a £40m loan to support the BHS transaction, he found himself regretting that Goldman’s “extremely limited” role had not been put in writing.

That is one hell of a regret. If Goldman’s role was indeed so limited, Sherwood was played for a fool by his old mate Green.

Don’t blame the regulators

Whatever Goldman’s failings, the buck stops at the top, a point made forcefully by Frank Field MP later in the session. He’s right, of course. We should not be overly distracted by the parade of advisers making their excuses in front of the committee – notable others include Chappell’s crew, Olswang and Grant Thornton. In the end, it will be Sir Philip Green and his wife – principal owner of BHS for 15 years – who will have to honour his pledge to “sort” the pension deficit.

Field called for Green to get on with it. The fury was understandable if Paul Budge, Green’s lieutenant at Arcadia, is going to continue to bleat about “the way pension regulation is set up” to explain the failure to tackle the deficit earlier.

The rules may indeed be cumbersome but a competent pension regulator would also need to understand the blizzard of related-party property deals taking place within BHS and the greater Green empire. Since the committee had just spent an hour being baffled by complexity, blaming the regulations is not going to wash.

Let’s get back to first principles. BHS should have addressed the deficit when it first started to appear. Instead, a small problem became a very big problem. It was silly for Field to appear to imply the Green family was “nicking” money from BHS. But the MP is right to say the Topshop tycoon still needs to write “a very large cheque”.

Brexit: a problem for another day

Was the referendum only a week ago? It was, so time to assess the damage to the stock market. What’s this? After its biggest one-day gain since October 2011, the FTSE 100 index is higher than it was last Thursday. The FTSE 250 index – a better measure of UK plc – is 7.6% lower, it should be added. But even that scoreline looks respectable against the gloom of Friday and Monday.

The outbreak of semi-confidence seems to have two sources. First, there are no signs of Brexit-induced strains in the financial system. The Bank of England hasn’t had to invoke emergency measures, a point governor Mark Carney will probably make in his speech on Thursday. A crisis in the Italian banking sector is close to boiling point but that can’t be blamed on Brexit.

The other factor is the City’s belief that the a new prime minister will play for time and that article 50 will not be triggered for a while. Brexit is suddenly a problem for another day. Angela Merkel could spoil the mood at any moment, of course, but she hasn’t yet. City short-termism is alive and well.

Powered by article was written by Nils Pratley, for The Guardian on Wednesday 29th June 2016 19.03 Europe/London © Guardian News and Media Limited 2010


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