HBOS: too little, too late

It is seven years since the collapse of HBOS – the second largest collapse in British banking history (after RBS) and one which cost the UK taxpayer £20 billion, Lloyds and former HBOS shareholders £54 billion and 40,000 bank employees their jobs.

At long last we have some official account of what went wrong, why the regulator at the time (the now defunct Financial Services Authority) failed to spot what was going wrong and who was to blame. The Financial Conduct Authority and the Prudential Regulation Authority took over the report which the FSA failed to complete and have published nearly 400 pages, together with a forensic analysis by Andrew Green QC of the sorry saga of misjudgements which led to “the most culpable people being let off.”

The report cost £7 million. Was it worth it? It doesn’t tell us much that we didn’t already know. HBOS went bust because it followed a reckless strategy of sales (lending) at any cost. In doing so it ignored the two most basic rules of banking: don’t lend money to people who cannot pay it back; and, don’t run out of cash.

The FSA, which investigated HBOS on several occasions, failed to recognise the scale of the risks the bank was running and failed to ensure that its dangerous policies were reined in. The new report tells us that the FSA was stretched thin (again not new) and that it was relatively junior staff who were given responsibility for supervising the bank. It is hardy surprising that they did not stand up to a bank which believed itself cleverer than anyone else and which was certainly more arrogant than anyone else.

No indication that lessons have been learned.

What is missing from the FCA/PRA report is any indication that the lessons have been learned. Where is the list of actions which will now be taken to make certain this will not happen again? Are the systemically important big banks now supervised by staff with sufficient experience and authority to make their presence felt and, frankly, to instil a little fear?

Fear of what? Judging by what has happened to the men responsible for the HBOS collapse, not a lot. Only one man has been fined and censured (Peter Cummings, head of corporate banking) and he was not the boss. The report is mild to the point of blandness on the role that the chairman Lord Stevenson, the chief executive Andy Hornby and the finance director Mike Ellis played in the bank’s demise.

Is this the result of “Maxwellisation,” by which anyone named in the investigation has the right, not only to reply, but to allow their lawyers to challenge any conclusions which might be damaging? It is time parliament outlawed this particular process (which is also holding up the Chilcot report into the Iraq war) and gave anyone named in an official report the right to a fair hearing and to publish a challenging version of events, but no more – certainly not the right to have the conclusions watered down.

Questions unanswered – in fact unasked

Andrew Green’s report is more direct, but he has concluded that all is now legally possible is that new investigations are opened against senior HBOS managers and directors with a view to banning them from taking new jobs in financial services. They cannot be fined because of the statute of limitations.

It was left – as in the past – to the formidable Andrew Tyrie MP, chair of the Commons Treasury Committee, to ask some of the unanswered – in fact unasked – questions, such as why have KPMG, auditors to HBOS and supposedly working for the shareholders, not been held to account?

He might also have asked why none of the non-executive directors, such as the chair of the audit committee and the senior independent director (both paid in excess of £250,000 a year) have not been censured?

This blog first appeared on the author’s personal site and is reproduced here with permission

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