Hard to Say I’m Sorry

Some companies are explaining sudden shifts in strategy better than others.

In May, when Crédit Agricole chief executive Georges Pauget admitted to reporters that the French bank had “paid the price” for decisions it made before the credit crunch, it was a relatively straightforward mea culpa. Swiss bank UBS was similarly forthcoming when it published a 50-page document in April describing the various mistakes that won it the dubious honour of coming top of the subprime-mortgage write-off league table.

Of course, they are not the only banks to come clean to analysts and investors. But judging by the market’s reaction to the announcements, some executives are better at delivering the message than others.

In April, UK bank HBOS launched a £4 billion (€5 billion) rights issue and cut its dividend. In a presentation shortly after the announcement, CEO Andy Hornby and CFO Mike Ellis fielded multiple questions from analysts about the timing of the disclosure. One said it was “hard to see how the board could have been so wrong last summer” when it increased the dividend, and asked whether the perceived U-turn had led to any “soul-searching on the board about their stewardship.” Hornby acknowledged that it was a change in strategy, but tried to emphasise the benefits he thought the rights issue would bring, repeatedly using the words “simple” and “straightforward.”

Around the same time, Bradford & Bingley, another UK bank, also found itself in damage-control mode. Having denied press reports in mid-April that the board was planning an emergency rights issue, it confirmed a £300m rights issue to “strengthen its capital position” only weeks later. In another testy conference call, chief executive Steven Crawshaw accused angry analysts of “looking for communists under every bed.” However, he later offered some semblance of regret over what one analyst called a “dramatic U-turn,” telling the Times, “I’m sorry if [the earlier denial] statement was too firm, if that’s the way you look at it.”

Shareholders appear unconvinced — in late May the bank’s share price was languishing at record lows. Sometimes “sorry” just isn’t good enough.

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