LISA BUCKINGHAM: Duffield and a hard lesson we can learn

By LISA BUCKINGHAM, MAIL ON SUNDAY FINANCIAL EDITOR
Updated: 18:13 EST, 27 December 2008

John Duffield once said he could not imagine life without work, but has been forced to give up on his beleaguered New Star business

Rather like watching a prizefighter hanging on to the ropes who is forced, bloody-faced, to accept he is no longer invincible, the City has held its breath as one of its own undoubted heavyweights has struggled to stay in the ring.

As we report right, John Duffield, whose celebrity-studded investment firm New Star is in its death throes, has never lacked self-belief, never been shy of taking the big gambles, has relished controversy and been determined to be a winner.

In the heyday of New Star, when it floated in 2005, Duffield turned more than 50 of his employees into millionaires.

Dangerously, he tried to give even greater joy to staff and outside investors when he took a top-of-the-market loan of £240million in 2007 to pay a windfall dividend to shareholders worth £383million.

It was, as it turned out, the step that was to sound the death knell for New Star and leave it in the hands of its bankers.

Though now approaching his 70th birthday, and a veteran of a number of recessions , Duffield and his asset management group are surely an allegory for all that has gone so terribly wrong in the wider financial market and the havoc that implosion has created for most of us.

Like so many bankers, he always seems to think he knows better than others - perhaps that is one of the reasons he came so late to the notion of boardroom corporate governance and nonexecutive director supervision.

But let us not forget that a number of our major High Street lenders sought shareholder approval to dodge corporate governance rules on the basis that their industry was so complex no mere outside mortal could possibly understand.

As it turned out, no insider knew better and they would have done a darned sight better with aggressive questioning from people with their feet on the ground, as the Government now condescendingly appears to be trying to address with the suggestion that women 'terriers' should become bank directors.

Having been forced to look into the financial abyss, what most ordinary people will find so unutterably inconceivable is that their savings could now be wiped out, their pensions may fall short of paying for a happy old age and their houses may be repossessed while those who perpetuated the myth of oneway money fiddled unchallenged at lap dancing clubs.

There were, of course, the odd whistle-blowers - among them the occasional soul at the Bank of England - warning that borrowing had become dangerously out of kilter and that banks had become precariously dependent on wholesale rather than retail money, but no one wanted to listen.

It suited the Government for the population to buy into the 'go-go borrow til you drop' strategy that so well served the banks' bottom line.

Why bother asking where the odd offshore billions might be or why a straightforward mortgage looked better as a synthetic collaterised debt obligation?

Anyone can make a mistake. What was so rottenly duplicitous about the latest bubble was that so many people simply abnegated any morality in business.

The scale of corrupt profligacy now emerging is quite astonishing - so highly paid fund managers thought nothing about ploughing billions into Bernie Madoff's organisation with scant due diligence.

We are now heading into a dreadful recession with the banks - possibly other sectors to come - partly nationalised.

Regulation will be more heavy-handed for a while. Possibly correctly, industry should be bent rather more to the political will.

It is not the end of capitalism, but it is certainly an opportunity to look again at how markets operate.

And as the sensible folk who have done what was asked and saved for their treats and their old ages are about to be wiped out, it is time to address how we reward the prudent rather than bail out the feckless.

All of us at Financial Mail wish you as happy a New Year as possible in the circumstances.