There will be a lot of analysis and debate about HBOS and the findings of the Banking Standards Commission – mostly by journos with economics degress who will produce excellent but very technical (and sometimes incomprehensible) remedies and causes for the collapse of what used to be the UK’s 5th largest bank. I was managing a Building Society Head Office is my twenties and have been observing the gradual mutation of the Building Society/Banks for over 30 years. (both from the inside and the outside). I have also spoken to several ex-HBOS managers. Here is it in plain English:
The Banking Standards Commission wants the three men responsible for the demise of HBOS to be prevented from ever again working in the financial services industry and it has told them off! What a punishment! These incompetents should be standing shoulder-to shoulder in the dock and made to answer questions.
Terminal stupidity is not a defense in Law, so they should be prosecuted.
Here are the three main players:
Sir James Crosby is a mathematician and Actuary who landed at the Halifax to run its insurance arm – a business in which many would argue, they should not have been participating in the first place. Five years later, in 1999, he became CEO of Halifax plc. Ironically, in 2008, the then Chancellor, Alistair Darling appointed Sir James to head up a Working Group of mortgage industry experts to advise the Government on how to improve the functioning of the mortgage market.
Andy Hornby was appointed Chief Executive of Halifax Retail in 1999 and finally HBOS Group CEO in 2006 – after the merger wit the Bank of Scotland. He was not a banker as most of his training was at Asda. Currently (and appropriately) he is Chief Executive of Coral, the bookies.
Lord Stevenson was appointed Chairman of HBOS in 2001 – the time of the Halifax/Bank of Scotland merger. He was yet another non-banker who clearly demonstrated at his appearance before the Treasury Select Committee of the House of Commons in February 2009, that he had absolutely no idea of what had happened and the best that he could offer was “Sorry.”
Before its collapse, HBOS was lending at such a ridiculous rate that some of us could already see what was going to happen three years before the final implosion.
For instance, they were using their own valuers to value-up properties so that they could lend 100% (and above). “Lend, lend, lend” and “Sell, sell, sell” were their slogans. If a mortgage case was not up to scratch, the application would be fiddled-with until it was. If a mortgage did not meet in-branch criteria, the prospective borrower was often sent (by the branch) to a mortgage broker whose lending criteria were more generous…..and so on. At the time, you could also walk into a branch, open a current account and be granted an immediate £10,000 overdraft!
In the final weeks of the lending orgy, when management finally realised that the whole house of cards was about to collapse, Halifax branches were being phoned on almost an hourly basis, in order to see how much money was coming in through the front door in deposits! That’s how desperate management became.
They were out of cash.
At the other end of the business – incompetent HBOS “bankers” were making increasingly risky investment decisions with HBOS investors’ cash until they lost most of their bets.
This was a fine old Building Society playing at being a bank!
But why was all this going on? It has been pretty-well established that the management was technically incompetent…but there is another factor which contributed to all this silliness. It was the Government’s promise to safeguard investors’ cash. These executives thought that they were operating in a totally risk-free environment! They could not lose! If they screwed-up (which they did), the government would step in and bail-out HBOS and its depositors out with a pile of taxpayers’ cash – and that is exactly what happened.
The present Coalition government has clearly demonstrated its “Do Nothing” policy in respect of anything at all to do with banking. The odd fine here and there, is purely cosmetic and hardly makes a difference to the operation of either the institution of banking or of its individual members.
It will be interesting to see whether this report by the Banking Standards Commission will generate any government action or whether it will join all the other reports in the poubelle of soon-forgotten examples of banking-industry fraud and monumental incompetence.