Rescue that went wrong

THE big complaint about the audit and governance enforcer, the Financial Reporting Council (FRC), is that when crises happen it is slow to investigate and even more tortoise-like to discipline wrongdoers.

So it is encouraging to see it springing out of the starting gates to probe what went wrong at Thomas Cook.

If the FRC had been as alert in the past it would not be facing abolition.

It is easy to look at Thomas Cook’s financial reporting and accuse it of creative accounting. The company carried goodwill on acquisitions, such as My Travel, on its balance sheet for too long.

It had the misleading habit of classifying one-offs as ‘separately disclosed items’, so as to provide investors with clarity on underlying performance.

That this had the effect of inflating bonuses is unhelpful now that senior managers, including chief executive Peter Fankhauser, are in the firing line.

But we shouldn’t be naive about this. We live in a confusing world of accounting when it is almost impossible to know when a profit isn’t a profit. Engineer Rolls-Royce directs us to cash flow because big hedging contracts make it look like a loss maker. Industrial holding group Melrose uses acquisition accounting which miraculously turns a loss into an underlying profit.

John Lewis recently reported a loss of £25.9m before a raft of charges such as partnership bonuses. We are befuddled by accounting and presentational sleight of hand, which shields the real truth.

Among the most contentious issues surrounding Thomas Cook is the failure of the company to disclose the £200m shortfall in its funding to the stock market in late August, when it first emerged.

At that stage it was more of contingency than a reality. The potential black hole did not become public until late last week.

The information was withheld because the travel firm seriously believed it could fill the gap with the Spanish and Turkish governments among those ready to chip in with loans. In Germany the authorities are stepping in to keep the Thomas Cook-owned carrier Condor in the air.

Britain cannot be asked to rescue every corporate supplicant that comes along. But with £900m in the bag from Fosun and other investors there was a chance to avoid the disruption to the lives of citizens and the damage to the reputation of UK plc which the collapse has produced.

A UK bridging loan would have allowed Thomas Cook to follow United Airlines and other American carriers placed into Chapter 11 bankruptcy. Costs could have been slashed, disposals made and the balance sheet stabilised – a more practical and less damaging outcome.

It would have saved Business Secretary Andrea Leadsom the embarrassment of writing to insurers, banks and travel agents, demanding kindness to strangers.

Up-Hill task

IN THE run-up to the financial crisis the best early guide to the calamity was collapsing share prices.

The stock market story could not be any gloomier for Metro Bank. Launched at 2000p per share and trading at 4000p at their peak, the shares have imploded. Four months have passed since Metro raised £375m of new capital through a £5-a-share rights issue. Subscribers, including founderchairman Vernon Hill, are nursing huge losses with shares at 175p last night.

The bank’s efforts to comply with regulators by issuing a £250m bond to protect itself in an existential crisis is creating what it was meant to prevent. The best way out of the current cul-de-sac would be for Metro’s board to find a white knight. Trouble is that, although customers love Metro’s superior service, taking on 70 expensive-torun outlets – when bank branches are being closed – would not make a lot of sense.

When he had problems with US regulators Hill was able to sell his Commerce Bancorp to Canada’s Toronto-Dominion.

The chances of repeating that favourable outcome here are looking more remote by the day.

Lascivious Lloyd’s

THE revelation that 500 people in the Lloyds’s of London insurance market have either suffered or seen sexual harassment in the last 12 months is horrific.

It makes the goings-on at the notorious Presidents Club look minor league.

Chief executive John Neal describes the findings of the survey as ‘totally unacceptable’ and is pledging accelerated change.

He has no other choice.