A damning report into the near-demise of HBOS has laid the blame on the bank’s former board and called for formal investigations into the management team, seven years after the lender was bailed out with £20bn of taxpayer money.
As a 400-page report was published into the country’s biggest mortgage lender and savings institution, the prospect of investigations and banning orders into as many as 10 former executives was raised.
These include former chairman Lord Stevenson, former chief executives Andy Hornby and James Crosby, as well other former-executives such as Mike Ellis, former finance director and current chairman of Skipton building society, Colin Matthew who ran the international division, and Lindsay Mackay who ran the Treasury operation.
“Ultimately responsibility for the failure of HBOS rests with its board,” the long-awaited and much-delayed report said, which also criticises the former heads of the now-defunct Financial Services Authority, adding that the FSA’s initial investigation into whether executives should be punished was too narrow and mistakes were made.
The official report – published two years later than expected – describes a boardroom that lacked banking experience and a management team which drove a culture of growth at all costs. It is published by the FSA successor bodies, the Bank of England’s Prudential Regulation Authority and the Financial Conduct Authority.
It is published alongside a highly critical assessment of the FSA’s decision to only investigate one former HBOS executive, Peter Cummings, despite concluding that there were grounds for an investigation into Hornby, now the chief operating officer of Gala Coral.
There is no formal record of the decisions inside an over-stretched and under-resourced FSA about the decision to focus on Cummings, who was banned and fined £500,000 in 2012. He complained of “tokenism” at the time.
“It is my view appropriate that the FCA and/or the PRA should now take the opportunity to give proper consideration to the investigation of individuals other than Mr Cummings and thereby do that which their predecessor failed to do. There is plainly a public interest in the FCA and/or the PRA giving proper consideration as to whether to investigate any other former members of HBOS’s senior management in the light of the failure of this systemically important bank,” said Andrew Green QC, who conducted the review of the FSA’s decisions.
But a decision on whether to heed his advice has not yet been taken as regulators will conduct a review into whether enforcement action should be taken “as early as possible next year”.
The report quotes Clive Adamson, the former FSA director of enforcement, saying that “the people most culpable were let off” and in his view those people were Hornby and Stevenson.
Green has left the door open for a wide investigation into former executives, although the report concludes that the FSA was right not to investigate Crosby, who gave up his knighthood in 2013 along with 30% of his pension. Green said that it was not unreasonable for the FSA not to have investigated Crosby – who left in mid- 2006 - from early 2009.
Lack of communication between Margaret Cole, the then-head of enforcement at the FSA, and Sir Hector Sants, the chief executive, is among the reasons cited for the mistakes over the initial investigation into who was culpable. Sants was never told that the threshold for an investigation into Hornby was reached.
“It appears that because enforcement could not be certain of winning disciplinary proceedings against Mr Hornby, the decision was taken not to investigate him. This was a misguided approach in that placed excessive weight on a view of the prospects of success formed at such an early stage,” said Green.
The official report also criticised their predecessors at the FSA, the chairman Sir Callum McCarthy and John Tiner, now at insurer Towergate and a non-executive at Credit Suisse. “The FSA’s approach was too trusting of firms’ management and insufficiently challenging. The FSA executives management, led by chief executive John Tiner, designed (and failed to redesign) this deficient approach to supervision. Further the oversight of the executive by the FSA board, led by the chairman Sir Callum McCarthy, was insufficient,” the report said.
It also acknowledges that the regulatory regime at the time was one of “light touch” which had been accepted in the City.
The most stinging criticism is aimed at the ability of the board to devise a clear strategy and focus on growth – which is denied by both Crosby and Hornby – and its lack of banking experience.
There was a flawed strategy and it was too late and too impossible to change course as the crisis hit because of:
• inappropriate risk taking
• the management of credit in the corporate division
• expansion into Ireland and Australia
• the reliance of the bank on wholesale markets
Andrew Bailey, head of the PRA, said: “The story of the failure of HBOS is important both to provide a record of an event which required a major contribution by the public pursue, and because it is a story of the failure of a bank that did not undertake complicated activity or so-called racy investment banking. HBOS was at root a simple bank that nonetheless that managed to a create a big problem”.
This article was written by Jill Treanor, for theguardian.com on Thursday 19th November 2015 12.54 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010