Letters from London (27 page)

You could say that Lamont’s short-circuiting of the committee was the sort of thing Ministers, whether of left or right, are often tempted to do, and perhaps the more tempted when relentlessly criticized for feebleness in their main sphere of activity. You could say that the natural condition of any committee is that of the Mad Hatter’s Tea Party. You could say that Ms. Warner’s experience was almost predictable: the Adventures and Misfortunes of a Female Liberal in a Male, Conservative, Royalist World. Even so, the question she left the committee with in her letter of resignation, about “the central problem of U.K. coinage today,” is a proper, living one: “The political changes since the Middle Ages mean that the iconographic language of heraldry, rich and beautiful as it is, has to be pulled and pushed until it is out of shape in order to convey today’s reality. Unicorns, dragons, etc., no longer meet the full needs of representation Some other image store has to be dug into in order to communicate the historical condition of the U.K.” Or, as she put it more pungently to me: “It’s a question of how we see ourselves.
Do we want to live in a Laura Ashley, potpourri, National Trust, olde-worlde land, or do we want to present ourselves as a forward-looking nation, on the threshold of a new world, a new Europe?” The answer is for the moment depressingly clear. Place your bets that the next time Britannia is refurbished, with her bust size rejigged to a 36C, she will appear swathed in Laura Ashley.

APRIL 1993

10
The Deficit Millionaires

Y
ou don’t often meet someone who has lost a million pounds. Even more rarely, someone who will mention the fact to a stranger—worse, a journalist—over the telephone. But this was almost the first thing Fernanda Herford said to me when I called her. “I hit a million this morning. They asked for another three hundred and nineteen thousand pounds. They are absolutely ruthless. Well, of course, they won’t get it.” This was all spoken in an even, slightly ironical tone of voice. The “they” of her complaint—East End mafia? specialty-drug doctors?—turn out to be the Lloyd’s of London insurance market. Fernanda Herford is a Lloyd’s investor, or Name, who despite the belief that her money was working at the low-risk end of the market, has been faced over three successive years with grotesque, parodic losses. The fact that she is so open about such losses—here in Britain, where furious secrecy and quasi-lavatorial shame still cling to money—is an indicator that for a small slice of society something has gone terribly, unprecedentedly wrong. One of the pillars of British society has turned out to be made of Styrofoam. Speaking out is a direct indicator of incredulity, betrayal, and rage.

A few days later, I met Mrs. Herford at her Chelsea house just off the Fulham Road. We sat in a sunlit backyard with a brimming Cafetière between us; her husband, an accountant, was working upstairs; in the kitchen, a student daughter was dragging a feed-the-village sack of Elephant chapati flour across the floor toward the stove. Amid this upper-middle-class English normality sat a woman in trim middle age who until two years ago was, by all outside criteria, somewhere between comfortably off and rich, who implicitly trusted what was held to be one of the world’s great financial institutions, and who today is seriously insolvent. “Now they control every penny—and they will take it. They are
ruthless,”
she repeats. And yet, compared with others, her case is not so bad: “I’m not a sob story in Lloyd’s terms.”

Asked to specify how and why she went into Lloyd’s back in 1977, she insists that “I didn’t do it for the money.” This may seem an odd reply at first, yet money, after all, comes both to those who are fascinated by its working and to those who are not. She also didn’t do it “to educate the children,” that traditional explanation of the Lloyd’s investor, who does not, of course, send his or her children to state schools. She did it “because my father was already a Name—I sort of slid into it.” You “slide” into such things because of the assumptions of your social circle. Fernanda Herford had a brother and two sisters-in-law who were in Lloyd’s; she also knew a Lloyd’s agent named Anthony Gooda. “I did it because I knew the Gooda setup, because women were allowed into Lloyd’s, and I thought it was a very English thing to do.” Her first foray into the market—underwriting business up to £150,000—came the following year. Given the normal haggling time it takes to settle most insurance claims, the accounting period at Lloyd’s is three years. So in 1981 Mrs, Herford received a check for £4,100, representing a 2.73 percent return for the year 1978. That may sound rather unimpressive but the point—one of the main points for those privileged enough to have been Lloyd’s Names over the three centuries of its existence—is that the money invested is not actually handed over. The, principle of the market is that a Name “shows” a certain amount of wealth, so that Lloyd’s knows that if
things go wrong—if, classically, the ship fails to reach port—it will have that wealth to call upon. The investor is free, while awaiting this postulated call, to invest his or her money, that same money, in something else. Lloyd’s enables you, in this very precise way, to double your money. And it allowed Fernanda Herford to slightly more than double her money in a different sense, since the investor was allowed to underwrite business to a premium limit approximately two and a half times that of the wealth shown. In her first year, then, Mrs. Herford showed wealth of £75,000, insured business of £150,000, used her basic £75,000 elsewhere, and three years later received £4,100, which, though on one reading is a 2.73 percent return on investment, could also be seen as a 5.46 percent return on wealth shown; or, to put it another way, could be seen as money for jam.

This agreeable situation continued for eight more years. The traditional optimistic profit figure that is whispered enticingly to Lloyd’s Names is a rather useful 10.00 percent on business insured. In nine years’ trading, Fernanda Herford only once hit that figure. Her returns varied from a low of 0.78 percent for 1979 to a high of 11.18 percent for 1982. On the other hand, she was able to increase her wealth shown to £200,000 for 1984–1986. By 1989, when the results for 1986 came in, she had made a cumulative total profit of £82,665, or 5.51 percent on the amount of business underwritten. A way short of the fabled 10.0 percent, but then Mrs. Herford had been assured that she was not at the risky end of the market. This seemed logical. “I never had big gains, and never thought I was big risk.” Indeed, her agent, Anthony Gooda, told her, in a phrase that not surprisingly lingered in her mind, that her investment was “so safe you could mortgage the cat.”

In 1987, she increased her underwriting limit to £300,000, and in 1990 received news of her first loss: £13,391, which just about wiped out the previous year’s gain of £14, 199. Meanwhile, on the advice of her agent, she had increased her premium limit yet again: to £375,000 for the years 1988 and 1989, then to £500,000 for 1990. In late June of 1991, she received a letter from Anthony Gooda: “I am afraid you have sustained an overall loss [for 1988] of £219,985.27. I should be
pleased if you would forward a cheque for this amount… by the 12th July. We have been advised by Managing Agents any amounts outstanding after the 15th July will attract interest.” Was she tempted to resign at this point, when the overall result of her eleven years in the market stood at a loss of £150,711? “In 1991, Anthony Gooda told me the worst was over. He told me another ninety thousand pounds was all I could lose. I still thought it was worth it.” And in any case, she was already committed to the gains or losses on business she had underwritten for the years 1989 and 1990. When those results arrived, it was clear that cat-mortgaging time had come. In 1992 she got a call for £527,348.03 for 1989; and this year calls amounting to £319,000. There is now a new select breed of people in Britain who might be called deficit millionaires. Fernanda Herford, with an admirable lack of self-pity, reflects that “I have to say I was the sitting target—I trusted, which was my fault.” By the time she became a deficit millionairess, her underwriting agents, Gooda Walker, had ceased trading, and Anthony Gooda, from being a sociable, wide-trawling agent, had become one of the most reviled figures in the market. There are three current options open to Mrs. Herford: file for bankruptcy, put herself into the hands of the Lloyd’s Members’ Hardship Committee, or sue those with whom she dealt for professional negligence. For the moment, she is suing. And one other thing as well: “We’re now doing bed-and-breakfast.”

T
HE MONTH OF
J
UNE
1993 was a good one for those who scrutinize the
faits divers
for clues to the nation’s moral state. There was the luxury clifftop hotel in Scarborough which over a few much photographed days slowly collapsed into the sea; as a mud slide gobbled the building, prospectors lined the shore in the hope of plundering an intact bidet. Then there was the English soccer team’s seismic defeat by the supposed ragamuffins of the USA, a result that provoked pert comparisons between team manager Graham Taylor and national manager John Major. And there was the survey of domestic consumer habits which concluded that Britons were Europe’s scruffiest dressers. But who needed symbolic indicators of the state’s welfare
when the real indicators were so particular? On June 22. Lloyd’s of London announced overall losses for 1990 of £2.91 billion, the worst losses in the market’s history. The previous year, it had also an nounced the worst losses in its history. And the year before that it had done the same. Almost £5.50 billion over those three years, and with losses of more than a billion already anticipated for 1991. Nor was the monstrous figure of £2.91 billion necessarily the final low point: two-fifths of the insurance syndicates (157 out of a total of 385) had left 1990 “open”—that is to say, with their accounts unfinalized, since the full extent of the damage could not yet be properly judged. To view it historically: since 1955 the market’s many felicitous years have brought cumulative profits of £3.7487 billion, while its few woeful years have brought cumulative losses of £5.3243 billion. Or to put it at the crudest, individual level: if the losses for the four years 1988–1991 were spread evenly among all the Names, each would be asked to fork out roughly a quarter of a million pounds.

The estimated £2.1991 billion was the biggest annual loss achieved by a single British institution since the Coal Board set the national record at £3.90 billion in 1984. But the resonance of Lloyd’s cumulative catastrophe is wider than that comparison implies. Most citizens of this country don’t know what goes on in the City of London but have a loyal idea of it as “the financial capital of the world.” Asked to specify, the Briton might mention as its most famous institutions first the Bank of England and secondly Lloyd’s. “As safe as the Bank of England,” we like to quote, though after the Bank’s inept failure to regulate BCCI in the time up to its collapse the catchphrase should perhaps be altered to “as sleepy as the Bank of England.” As for Lloyd’s of London, the popular perception of it has always been as a rather mysterious, Masonic place that began in a Coffee House, that nobody outside understands, but that is obviously very good at whatever it is it might do. And what might it do? Oh, something sui generis, and therefore inexplicable to the unwashed; something very English, rather upper-class, and poshly efficient—say, the financial equivalent of Savile Row or Rolls-Royce. (Savile Row, of course, is not as flush as it used to be, while Rolls-Royce had to be rescued
from receivership in the early seventies.) Furthermore, Lloyd’s has managed to present itself as an institution that is both very old and very modern: established before the Bank of England, yet capable of flourishing athletically in Mrs. Thatcher’s world; richly enshrining all manner of quaint traditions, yet working out of a spanking modern building at No. 1 Lime Street designed by Richard Rogers, architect of the Beaubourg in Paris.

Lloyd’s is different from other insurers in two key respects. First, membership is individual; and second, the liability of that membership is unlimited: in other words, you risk not just your agreed investment but everything you own. You do not buy shares in Lloyd’s; you are elected to it on the basis of your wealth, and the accumulated wealth of the individual members makes up the funds that allow Lloyd’s to trade. This nexus of exclusivity and money meant that until recent years the identity of the few thousand Names was unknown to the wider public; membership in Lloyd’s was a badge of status murmured about rather than confirmed. But
TOP PEOPLE LOSE MONEY
is always a page-filling story, and nowadays high-profile Names are widely named: the Duchess of Kent, Prince and Princess Michael of Kent, Princess Alexandra and her husband, Sir Angus Ogilvy; Maj. Ronald Ferguson, father of the Duchess of York, and Maj. Peter Phillips, father of Princess Anne’s first husband; Camilla Parker-Bowles, the confidante of Prince Charles; forty-seven Tory MPs, including former Prime Minister Edward Heath, Scottish Secretary Ian Lang, Heritage Minister Peter Brooke, Party Chairman Sir Norman Fowler, and Attorney General Sir Nicholas Lyell; various peers, such as Lord Wakeham, the Leader of the Lords, and Lord Hausham of St. Marylebone; eleven judges and at least fifty-four Queen’s Counsel; Sir Peter de la Billière, commander of the British forces in the Gulf War, and Nick Mason, of Pink Floyd; writers Frederick Forsyth, Melvyn Bragg, Edward de Bono, and Jeffrey Archer; the publisher Lord Weidenfeld and the champion jockey John Francome; former British tennis No. is Virginia Wade, Mark Cox, and Buster Mottram; various earls and viscounts, marquesses and baronesses, lords and ladies, squires and squiresses. Recently deceased members include Robert Maxwell;
recently resigned members include boxer Henry Cooper, golfer Tony Jacklin, actress Susan Hampshire, jockey Lester Piggott. James Hunt, the former world motor-racing champion, known on the track in his early days as Hunt the Shunt, had a series of terrible shunts at Lloyd’s; he died of a heart attack as the news was still emerging that he was on many of the worst-performing syndicates.