In the early hours of 15 September 2008, as the US bank Lehman Brothers was collapsing, many feared the worst, and they were proved correct: markets crumbled and, in the coming days and weeks, so did some 30 banks around the world.
But few would have guessed that, five years on, the fallout from that crisis would still be front-page news.
Last week, two reports into two banks that fared very differently after the crisis – Barclays and HBOS – were published, shedding light once more on a furious fight for survival in the dark days of 2008. Barclays succeeded and HBOS failed spectacularly.
What both banks had in common was that their problems were rooted in the phenomenal race for growth during the go-go years of the early 2000s. The traditional caution of bankers was thrown aside and a dash for expansion, fuelled by lending and financial engineering, took hold. Barclays moved into tax avoidance – its structured capital markets division generated more than £1bn in revenue in the four years to 2010 – and failed to stop its traders rigging the Libor interest rate, which eventually resulted in a £290m fine.
The two reports could not be more different. The 244 pages detailing the cultural crisis inside Barclays were commissioned by the bank itself, as a demonstration of its determination to clean up its act. It employed a lawyer – City grandee Anthony Salz, a director of the Scott Trust, which owns the Observer – to investigate how and why standards had hit rock bottom. Salz interviewed 600 individuals in nine months, although none is quoted even anonymously in the analysis.
On its way to making 34 recommendations, the report concludes that the bank overpaid its staff, chased an ambition to become a top five player at all cost and failed to make its 140,000 staff understand they worked for the same organisation. Barclays' new chairman, Sir David Walker, who is writing a cheque for £17m to cover the costs of the review, described its contents as "uncomfortable reading at times".
In contrast, the 96 pages on HBOS produced by the parliamentary commission on banking standards, whose members include MPs and peers and the new archbishop of Canterbury, was an excoriating attack on the incompetence of the three men at the bank's helm. It pulled no punches and called for City regulators to conduct an investigation into whether the three – long-standing chairman Lord Stevenson, and chief executives Sir James Crosby and Andy Hornby – should be banned from the City for life. None has commented on the scathing attack on their "toxic" mistakes. Just how much the HBOS report has cost the taxpayer is unclear, but it will be a fraction of the Barclays bill.
HBOS did not survive the Lehman fallout: within three days it had been rescued by Lloyds TSB. A month later, it was bailed out with £20bn of taxpayers' cash. Barclays did scrape through, but only by going cap in hand to Middle Eastern investors; the circumstances of that venture are now being investigated by the Serious Fraud Office. Salz describes this desperate battle to avoid a bailout as making Barclays look "too clever by half", damaging its relationship with overstretched regulators and its own investors.
While HBOS was being rescued, Barclays was still chasing growth, snapping up the Wall Street operations of the collapsed Lehman Brothers – a move that Salz said added to the management challenges facing a bank that was already stretched.
Stories had circulated for years about splits inside Barclays. The high street tellers felt no link to Bob Diamond's casino operations, which the report said had a win-at-all-costs attitude that came to dominate the organisation. Diamond's chief operating officer, Paul Idzik, was infamous for his behaviour, which included cutting off people's ties and snapping pens that did not bear the company logo.
But the Salz report shows the retail bank was not blameless either. Salz details a culture of fear that pervaded the division when it was run by the Dutchman Frits Seegers, who left suddenly in 2009. Sales targets were tough, and staff incentivised to push loans with profitable payment protection insurance (PPI) attached.
Diamond and Seegers were put in charge of the two big businesses inside Barclays by the then chief executive John Varley, who failed to prevent them running the two divisions as separate silos. Salz said that while this was not Varley's intention, he had failed to create a "cohesive" top team.
Barclays's new boss, Antony Jenkins, who is trying to reinvent the bank, is not entirely spared criticism either. It is not levelled directly at him, but Jenkins ran the Barclaycard operation that sold millions of pounds of useless PPI to cardholders.
At HBOS, there was no hope of surviving the Lehman fallout. In fact, the parliamentary report makes it clear that it would have gone bust even if there had been no financial crisis because of the £47bn of losses racked up in just three of its divisions.
Only one person – Peter Cummings, who ran the HBOS corporate lending arm – has so far faced any official sanction. At Barclays, the SFO continues to investigate former and current executives. But at HBOS, the chances of action seem slim. Crosby quit as an adviser to private equity group Bridgepoint after the report was published and is under pressure to relinquish his seat on the board at caterer Compass. Hornby has a top job at bookmaker Coral and Stevenson continues to hold directorships at the Tate and Glyndebourne. A three-year rule makes it difficult for City regulators to take any action against the trio.
In addition, the Financial Services Authority closed its enforcement investigation last year when Cummings was fined – even though it is yet to publish its own report into the catastrophe.
guardian.co.uk © Guardian News and Media Limited 2010
image: © Elliot Brown