ALEX BRUMMER: No regret for gilts bedlam

ALEX BRUMMER: No one involved in the £20bn LDI scandal has shown even the slightest remorse

The Parliamentary probes into responsibility for the September meltdown in the gilts market and its impact on the pensions of millions is drawing blanks.

No one involved in this enormous scandal, which required a £20billion intervention from the Bank of England to prevent a cascade of insolvencies, has shown the slightest remorse.

Witnesses are playing pass the parcel with the blame. The notion that the use of liability driven investments (LDIs) was a victimless strategy needs to be aggressively challenged. UK government bonds are meant to be the safest asset around.

September’s meltdown in the gilts market required a £20bn intervention from the Bank of England to prevent a cascade of insolvencies

So leveraging them up with borrowing and exposing the pension funds to complex derivatives should never have happened.

Pension funds, insurers and banks are required to hold large quantities of gilt-edged stock to de-risk their balance sheets not to turn them into a time bomb that exploded when the interest rate yields on bonds moved out of the expected range.

These events have left some defined benefit pensions funds with gaping black holes. The BT pension scheme, one of the biggest in the nation, found itself with an £11billion shortfall and is warning that its sponsoring company may have to contribute more cash to make the scheme safe. 

Green-friendly packaging group DS Smith has revealed that it has had to tip £100m of company reserves into its pension fund to shore it up.

Lloyds Bank’s pension fund had to sell billions of pounds of assets during the turmoil to meet demands for collateral. The bank itself was up to its neck in providing the credit to LDI schemes.

The most recent witnesses before the House of Commons inquiry into the crisis declined to endorse a Bank of England suggestion that the leverage in the schemes was badly managed.

Insight, which manages £680billion of assets, only ‘partially agreed’ that the leverage was the cause of the disruption. 

Another manager, Cardano, put the mayhem down to a complete lack of confidence in the gilts market. Schroder said regulatory oversight needs to be improved.

As the hearings have played out, no one so far has said they are sorry for what happened or that mistakes were made. L&G blamed the turbulence engendered by the Truss government. 

The Bank of England seems satisfied that it played a blinder by picking up the pieces and calming the market.

But the reality is that the Bank’s stress testing of LDIs was wholly inadequate, with the Pensions Regulator missing in action and millions of ordinary future and present retirees let down. 

The belief in the City is that, because markets are now becalmed, it is water under the bridge.

Not for pension fund trustees sitting on big deficits and having to rely upon sponsoring companies to come to the rescue.

Down Hill

The Daily Mail is moving premises and as I was clearing files a yellowing copy of a spring 2019 Hargreaves Lansdown Wealth 50 buy list tumbled off the shelf.

There, in plain view, was the investment platform enthusiastically recommending its clients buy into Neil Woodford’s Equity Income fund in spite of an abysmal performance. Just a few weeks later the fund was put into wind-up because it could not meet redemptions.

It turned out that, either directly or through Hargreaves’ fund of funds, 291,520 people, or a quarter of the broker’s clients (including this writer), were exposed to Woodford’s high-risk investments.

Some three years on Chris Hill, the chief executive at helm of Hargreaves, is falling on his sword. In the year following Woodford’s downfall Hill voluntarily eschewed his bonus but his remuneration has been repaired, reaching £2.7million in 2020-21.

A Financial Conduct Authority investigation has yet to complete so any culpability by Hargreaves for the debacle is so far unproven.

Hill’s successor, digital whizz Dan Olley, is being left with the doubtful privilege of picking up any pieces.

Gray day

The New York Times is renowned for merciless criticism of foodbank, recession-ridden and strike-prone post-Brexit Britain.

So forgive a touch of schadenfreude on learning that the ‘Gray Lady’ itself was hit by a one day walk-out yesterday when 1,100 journalists and other union workers went on strike, claiming the paper was failing to bargain over pay in ‘good faith’.

Fancy that!