The Tesco crisis, and other scandals that really shocked me

I've heard of few financial announcements that have astonished me on this scale

Click to follow
The Independent Online

Once a financial journalist, always one. So when I learnt that Tesco had owned up to a £250m shortfall in its estimated profits for the six months to 23 August, it registered on my private Richter scale as a financial earthquake. I had never heard anything like it before – at least not on this scale, or by such a prestigious company.

Going back over previous occasions when a financial announcement had astonished me, I realised how rarely this had happened. For instance, none of the developments in the 2007 to 2009 banking crisis caught me completely by surprise. It had started in August 2007 with a small German bank announcing that it had solvency problems – which happens. Then there were the queues of anxious depositors waiting in line outside Northern Rock’s offices and other small banks which had converted from building societies. On that occasion I thought: yes, very interesting, but this sort of thing used to happen a lot in the 19th century.

In fact, I have to go back to 2002 to find an announcement that surprised me as much as Tesco’s woes. That was the sudden demise of one of the big five accounting firms, Arthur Andersen. It went out of business after having been found guilty of criminal charges relating to the firm’s handling of the accounts of a controversial energy company, Enron.

Even greater was my astonishment when one of the City’s oldest, most proper (as I thought) and most prestigious merchant banks vanished one fine afternoon. I refer to the collapse of Barings Bank in February 1995. Barings was Britain’s oldest merchant bank. It had financed the Napoleonic wars. It was the Queen’s bank. But it had suffered losses of £827m as a result of speculative investments in futures contracts, conducted by an employee working at its office in Singapore, one Nick Leeson.

That was a wake-up call. I had completely failed to take on board the essential fragility of merchant banks. And it brought back to mind the rule that I had learnt more than 20 years earlier in my first job, which I did before becoming a financial journalist. It was with Rothschild. “Lend your name rather than your money,” it said.