The highly critical account of the events that led to HBOS being rescued by Lloyds in September 2008 said the responsibility for the management failings rested with the former chairman Lord Stevenson, and the former chief executives Sir James Crosby and Andy Hornby, and says the bank would have gone bust even if the global financial meltdown of that year had not happened. The bank, formed out of Bank of Scotland and Halifax in 2001, racked up £47bn of losses on bad loans.
In a report entitled An Accident Waiting to Happen, the parliamentary commission on banking standards calls on the trio to apologise for their "toxic" mistakes which caused the downfall of the bank and prompted a £20bn taxpayer bailout.
The HBOS report comes in another torrid week for the banking industry after a report commissioned by Barclays found its bankers "seemed to lose a sense of proportion and humility" in their race for big bonuses. The regulation of HBOS by the Financial Services Authority – which was shut down last weekend – is described as "thoroughly inadequate", but the responsibility for the management failures is placed squarely on the three men.
The report by the commission, set up in the wake of the Libor scandal, said: "The primary responsibility for the downfall of HBOS should rest with Sir James Crosby, architect of the strategy that set the course for disaster, with Andy Hornby, who proved unable or unwilling to change course, and Lord Stevenson, who presided over the bank's board from its birth to its death."
Crosby sold two-thirds of his shares just before the banking crisis hit and the bottom fell out of share prices.
Unlike former Royal Bank of Scotland boss Fred Goodwin, Crosby has retained his knighthood and his £570,000 annual pension. Under pressure from parliament Goodwin's pension was halved to £340,000.
The commission expressed "profound regret" that in the aftermath of the banking crisis the FSA had not imposed "fitting sanctions for those most responsible in a manner which might serve as a suitable deterrent for the next crisis". Only one HBOS executive, Peter Cummings, who used to run the corporate division of the bank, has faced sanctions. He has been banned from the City and fined £500,000.
In the first detailed account of what went wrong at HBOS – valued at £30bn when it was created in 2001 – the commission concludes that the bad loans alone would have pushed HBOS into bankruptcy. That view contrasts with those who used to run the bank, who blamed the seizure in the financial markets for its downfall.
"The sums would never have added up," said Andrew Tyrie, the Conservative MP who chairs the commission.
While the bankers have apologised for failing to spot the crisis, their words "ring hollow" and "an apology is due for the incompetent and reckless board strategy", the report said. The commission's report calls for City regulators to conduct a review of whether the three former bankers are "fit and proper" to ever work in the City again. Another report into HBOS by the successor bodies to the FSA is still under way and Tyrie asked them to consider whether the three should be barred from working in finance in the future.
"Those responsible for bank failures should be held more directly accountable for their actions and face sanction," he added. Crosby is now an adviser to Bridgepoint, a private equity business, but that role does not require authorisation.
The commission published its report after taking evidence from 16 former HBOS bankers and those who regulated the bank. Stevenson, a crossbench peer who has been employed by governments to conduct a series of high-profile reports, now works for a number of charities.
Hornby, who took over as chief executive from Crosby and was regarded as the business wunderkind of his generation, is now boss of bookmakers Coral.
The report is scathing about Stevenson, who in his evidence had insisted he was not to blame because he was only "part time", despite earning £735,000 a year and insisting to regulators at the time that he was fully engaged at the bank.
Stevenson was "incapable of facing the realities of what placed the bank in jeopardy from that time until now".
The report added: "We are shocked and surprised that, even after the ship has run aground, so many of those who were on the bridge still seem so keen to congratulate themselves on their collective navigational skills."
In other evidence, HBOS board members had described the board as the best they had ever sat on, which sparked the commission to conclude: "The model of corporate governance at HBOS at board level serves as a model for the future but not in the way in which Lord Stevenson and other former board members appear to see it. It represents a model of self-delusion, or the triumph of process over purpose."
The three bankers declined to comment, while the Financial Conduct Authority, one of the bodies replacing the FSA, said it was considering the report's findings. "The FCA will be publishing its report on the failure, that was started under the FSA, at a later date," the FCA said.
A year ago the FSA decided not to hit the Bank of Scotland arm of Lloyds with a "very substantial" fine because it would have been picked up by the taxpayer, but lambasted the division for "very serious misconduct" in following an aggressive, high-risk growth strategy.
Original Article
Source: guardian.co.uk
Author: Jill Treanor
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