Tag Archives: HBOS

HBOS: An accident waiting to happen.

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.

Cherie Antoinette.

“Let them eat a lorra lorra cake, chuck.”

Tony Blair has not yet broken cover and declared an interest in becoming President of Europe. The post will be created once the Czechs have ratified the Treaty of Lisbon. Gordon Brown has made a decision (!) and declared that he will be lobbying on Blair’s behalf, should Blair decide to put his name forward. Continue reading Cherie Antoinette.

I’m a real FRIC.

 A Valuer FRICS

Gordon Brown continues to speak with the conviction of a condemned man reading from a hurriedly-conceived briefing paper  This time it is mortgages (again).

No more 100% mortgages? I think that it is about time that the Prime Minister carried out a simple calculation as follows:  Suppose that the Government (sorry, Northern Rock) lends 80% on a £100,000 property – that is an £80,000 mortgage. Then let’s suppose that the property falls in value by 20%. That means that there is an £80,000 mortgage on an £80,000 property. That is what they call a 100% mortgage. When a householder has  no equity in his property – that is also a 100% mortgage. Negative equity just means that the mortgage is over 100%.
That brings one rather neatly to one organisation which has kept its head down throughout the whole sorry mortgage  mess. The Royal Institution of Chartered Surveyors. They should have come out with their hands up many months ago. Why? Because their members have been the ones who have been valuing properties. The most deflationary thing that the Government can do as far as property prices are concerned is to ignore the sulking banks for a while and have a serious chat with the RICS.
There was a time when the RICS was a leader – an organisation whose valuations were sacrosanct. The RICS has now become a follower which does exactly what the banking industry tells it and has contributed more than any other organisation to the ridiculous house price rises of the last 10 years. But wait – their blind slavishness to the banks is far worse than merely following orders.
Imagine that you are a Bank and you want to lend and you also want to make sure that the properties that you lend on have the benefit of  a high-enough valuation. How do ensure that there will be no problems with house valuations? How do you make 100% sure that  the valuation will be exactly the one that you need?

For example, Halifax  valuations are carried out by Colleys. Who owns Colleys? The Halifax. One is not suggesting naughtiness but when valuation fees are a function of the valuation and the value of  properties in-mortgage represents a lender’s assets, the temptations do not have to be spelled out.
The RICS should assert itself – otherwise there is a real danger of the property inflationary spiral replicating itself in a few years time. Independent property valuations and a return to more objective valuations will have an immediate impact. Currently, there is far too much reliance on the “supply and demand” argument and incidentally, the “drive-by” valuation – but that’s another story.
In the last few years, the pressure on valuers has been to “value up”. The valuers value up and then the accountants come along later and value down. Not an ideal system.
Time for the RICS to make a stand – if that’s all right with the banks.

Sorry?……..Er….Yes, all right then.

I would have asked only the one question:
Sir Tom and Lord Stevenson……..”I sincerely and unreservedly apologise for this question but can you please describe the differences between a Credit Default Swap, a Total Return Swap and a Credit Listed Note?”
“Phone a friend?……….Oops, sorry, I forgot!! You don’t have any.”
Thankfully, this morning’s Treasury Select Committee Cringefest is over and there have been apologies. They were on a par-with and as pointless-as the Australian Government apologising to the aboriginals about nicking their land, the US Government’s apology to Native Americans about killing their buffalo or perhaps the Germans apologising for the Holocaust. ” Sorry about that”.
Go to any good PR man and he will show you the anatomy of a good apology. This what it should contain:
1. A detailed account of  what happened
2. Acknowledgement of the damage done
3. Accepting responsibility
4. A statement of regret
5. Asking for forgiveness
6. A promise that it will not happen again
7. Some offer of restitution
Some of the elements were missing but there is never any harm in a bit of well-placed management sincero-talk.
When the s*** hits the fan, don’t bother pretending to eat it because it is your audience that experiences the bad taste.

City Slickers


The primary reason for the outrageously high payments to the designer-labelled barrow-boy City slickers is the over-simple reward system. The City rewards the “ups” but does not penalise the “downs”. That encourages risk-taking. A trader can make a large bonus from the profit on a deal but when that deal or the share price falls, there are no sanctions.

In the good old days when life was simple, every day was sunny and back doors were left unlocked, a life-assurance salesman would be paid what was known as “indemnity commission” on any contracts that he sold. If the salesman sold a £100-per-month policy to a client , he earned say £1,000 in up-front commission. Over the next twelve months, the client paid his £100 per month and at the end of the year, the salesman’s commission had been paid for. However, if the policy lapsed in the meantime, the commission was “clawed back” pro rata. That discouraged selling policies to high-risk clients.

With systems that all financial services companies operate, it would be simple to create a payment system which took into account the often negative consequences of trading. Bonuses could be paid but with a “claw-back” period . That would have the added effect of stabilising share prices because it would not be to anyone’s advantage to, say, dump shares in order to depress a price. Such actions would affect bonuses.

It is now time for those nice people at the Financial Services Authority to bare their teeth and take control.

The argument of having to pay obscene bonuses in order to hire “the best” has been used before. “The best” used to mean the most aggressive and most ambitious and the most likely to take shortcuts. We now have the opportunity to enter an era where “the best” means the best-qualified, the most knowledgeable and the most professional.

Is there “naughtiness with intent”?

” Mr Banker, would you please move your head just a little bit to the side. It appears to be blocking your backside.”

One of the conditions of the Government’s bailout of the banks was that no dividends were to be paid until any loans (the debts to the taxpayer) had been repaid.

It was that condition which caused the participating banks’ shares to be dumped this week. That caused quite striking drops in share prices. In fact, they all nose-dived.

HBOS shares fell so much that it is pretty definite that Lloyds-TSB will want to renegotiate the terms of their proposed takeover. At those prices – so would you! It also begs the question – does HBOS need to be taken over. I know that it’s a small price to pay to wipe the smile off Alex Salmond’s face  but as long as Gordon Brown is in the mood to over-mortgage the country (the United Kingdom – not the Caledonian “republic”), perhaps HBOS is best left alone. Otherwise  Scottish bank notes may have Eric Daniels’ mugshot on the front.  Eeek!!

Currently, the majority of bank shares are being sold by petulant institutional investors in  the full knowledge  that their actions will cause  prices to drop – and it looks like a coordinated effort which is designed to persuade the government to cave-in and agree to some sort of dividend payment.

Once the government has clarified what it intends to do and (inevitably) agrees to postpone the taxpayers “charge” over dividends – watch bank prices increase as institutional buyers pile back into the market.

Financial institutions know that the government’s biggest fear is what is currently shaping up to happen on the stock markets  and that is the inevitable mega-fall. Financial institutions  are not-only still manipulating the market but treating the Treasury and the Bank of England like idiots.

Incidentally,  has the Treasury or the BoE carried out detailed audits of the banks? Do they know the exact extent of their “losses”?

There is still a total lack of numbers – probably because no-one has asked for them.

Black Friday tomorrow?  I’m only asking because it’s about time we had the romance of something black. Unfortunately, the markets are so volatile that closing prices nowadays are a matter of timing and a reflection of current confusion. For instance, yesterdays Dow was rattling up and down at such a rate that the closing-bell value could have ended anywhere between 3800 and 4050, It just happened to end on a high. Of course the high finish will influence the Asian markets which will show the inevitable initial gains – and so it will go on.

Whatever happens, it will be interesting to watch shares belonging to the “silent” banking institutions (those which been keeping a low profile over the last month).

And prepare for an assault on insurance companies.

Even Mr Peston might mess himself.

The bank that likes to say “Help!!”

There is euphoria, Gordon Brown is the saviour of the Western economy, there have been a couple of “dead cat bounces” and all decent metaphors have been used up. Life is great! Happy sunny days!

But in reality….. it is still raining.

The FTSE 100 index is limping soggily either side of 4500 . Last week’s red screens seem to have been forgotten – as has the fact that twelve months ago, the FTSE 100 was standing at a healthy 6500. Today, the Dow rallied and finished at about 9300. Economists are smiling. One year ago it was at 14000.

The banking diversions and shenanigans of the last two weeks will slowly be giving way to harsh economic reality as final quarter company profits loom, with the sobering prologue of unemployment and inflation figures.

Some commentators are saying that  here in the United Kingdom, Margaret Thatcher’s policies and the 20 year-old deregulation of the markets have finally unravelled. It is not policies or rules that cause catastrophes – it is people. In this case it is the ineptitude of those running the banks and building societies.

Guess what? Apart from the four sacrificial lambs that have been offered up today, the same senior executives are still running the banks. We have been regaled by the rather fatuous argument that the executives who are still in place are the ones who understand how the business works and if we trashed them then we would be in even more trouble. That is nonsense.

Spygun has worked for a Building society, several large insurance companies and a large (the largest) American bank. The root cause of what has been happening in the last year-or-two is the total lack of technical and managerial talent within the industry.

In the good old days, the lending of money  to an individual had never been a profession – it was more of a “trade” because it was simple. Consequently, the money-lending business (nowadays it is called “banking”) was run by ordinary honest folk who could gradually work their way to the top of their organisation.

The directors would make sure that they kept the bank or building society well within the liquidity rules, they would vary interest rates when instructed  to do so by the Bank of England and they NEVER went bust because it was nigh on impossible to go bust. I recall just one occasion many years ago when the Chelsea Building Society was forced to revalue its assets but otherwise – no problems.

There were no executive bonuses because the word “profit” was not in their dictionary – but they would strive to make a small surplus. Likewise, there were no golf days, coventions or any other executive freebies.

Then laws were changed and the “suits” came.

Directors of lending institutions used to be a crustily venerable lot and  tended to be unqualified businessmen who strangely enough, were more entrepreneurial than the MBAs that are running the show these days. Typically, they were senior partners in accountancy companies, estate agencies or solicitors. They were men in their 50s and 60s who were REAL businessmen and who had created their own wealth.

That is where the seeds of destruction were planted – in the panelled boardrooms of provincial England. The Old met the New and were dazzled by the following: (perm any two from six) MBA, Oxford, Cambridge, Harvard, Degree and Insead.

The flatulently pipe-smoking unqualified old duffers were dazzled and seduced by the shiny new boys with MBAs and incomprehensible management jive talk. They all wanted one!

It was in 80s  USA that the cult of the “corporate entrepreneur” had been born and transplanted rather uncomfortably into the gut of the UK’s financial industry.

The phrase CORPORATE ENTREPRENEUR is like “Police Intelligence”, ” Microsoft Works” and “Friendly Fire”. It is an Oxymoron.

A corporate entrepreneur is a man who takes risks with other peoples’ money and is rewarded for his “bravery”. (Incidentally, one is not being sexist when referring to entrepreneurs as “him”. There  are few REAL female entrepreneurs because most girlie entrepreneurs had a flying start with either inherited or gifted money.)

Plus, one of the vital ingredients of REAL entrepreneurship is testosterone. Most women don’t have it – although there are a few who act as if they have. We digress.

A proper entrepreneur takes risks with his own hard-earned cash whereas the boys who run our banks are just overpaid bluffers with a shelf life and a permanent hard-on.

As a result of their corporate games, our Government is now forced  to take a shortcut which is the reciprocal of what  happened in China and the old USSR.

The Russians and Chinese have flipped from state control to capitalism but we appear to be heading  in the opposite direction. If the government takes on any more banks, they will  be reported to the Competition Commission.

For the time being, the markets will bounce along, floating on the short-term  wave of faux-euphoria. We are all whistling in the dark.

Soon we will all wake up and realise that if we are really seeking a new banking direction – it is the drivers and not the cars that have to be changed. The government is the short-term relief driver but new drivers need to be found from within the banking industry.

There are scores of very talented “solid citizen”  gems within banking who are dependable and honest but who do not have the need  to constantly spray testosterone. We need service-driven bank managers and directors and not self-serving ego-driven scalp-hunting prima donnas with over-funded pensions.

These corporate hidden gems have all the knowledge and experience needed to reawaken the banking system from its torpor.

They are also the ones who know where some of the bodies are buried.

(If you are not familiar with the phrase CORPORATE ENTREPRENEUR, please enter the phrase in Google, see the various Management Models, the smug mugshots………………and weep)

The fires of capitalism


A twisted  fusion of capitalism and socialism is being forged in the white-hot heat of political panic.


No-one should  complain because we  are all being forced to run  blindfold towards  a world where profits are privatised and losses are nationalised. We cannot lose.


Competition will be a quaint throwback to the last century because both the US and UK governments have now demonstrated that if a company is big enough, it will have Federal and Treasury support. It is the smaller companies who will be allowed to go to the wall because it is only then that they can become financial fodder for their fat hungry cousins.


The new financial conglomerates now know that they cannot fail because the State will bail them out.


The lesson that has not been learned  is that the sheer size of companies is what  makes them difficult to govern. The only way to manage these fiscal behemoths is to impose rules that are so draconian that eventually, the spirit of capitalism will be totally expunged. The State will be calling all the shots.


There has been debate as to who is to blame for the current chaos. The bankers know very well what has happened but  they mutter vague generalisations, citing worthless  sub-prime bonds and a general lack of confidence.


There is no way that sub-prime (the greatest euphemism ever?) lending is to blame for the entire financial house of cards tumbling down. The real issue is that  the banks DID NOT HAVE THE MONEY that they were lending. They have behaved like a banana republic which prints more money in order to pull itself out of  the financial quicksand.


Yes, they have been using “pretend” money. Mugabe is doing it now, the Wiemar republic did it  70 years ago and  the entire banking system is still doing it.


The banking system has relied on “electronic money” for years. It was not real money and they have probably known for years that they were sprinting towards meltdown. George Soros knew.


The regulators are not to blame because 90% of their efforts are designed to control the “little man”.  The big picture eludes them . A few days ago the FSA was still issuing statements as to the solidity of HBOS – that’s in spite of the “investigation” that it carried our six months ago on the possible manipulation of HBOS shares.


If the current chaos eventually does go from “boil” to “simmer”, the Government must take the opportunity not only to take a close look at the regulatory regime but also think about a complete restructure of the financial services industry.


The FSA grew out of a need to control mis-selling in the Pensions and Life Assurance industry. That is still its main thrust.


In spite of the increasingly bureaucratic Pensions and Life industry, the bandits are still out there and always one step ahead – they can never be eradicated.


A new global authority must be formed that specifically carries out high-level audits and ensures the implementation of  proper business controls within the banking sector.


However, we do have to accept that the ratcatcher can never catch all the rats.

A Grimm tale

HBOS and Lloyds

The Republic of Mancunia’s football team (the American one , not the Arab one) appears to have a new shirt sponsor by proxy.
The AIG logo currently on the front of Manchester United’s shirts may soon be replaced. AIG is now 80% owned by the US Treasury which neatly completes the Americanisation of the team.
So what about the new logo? The Statue of Liberty? The Stars and Stripes? Uncle Sam? Or perhaps, more appropriately, a $-sign?

Will they now be known as the Manchester United States?
AIG  was very much involved in the once possibly toxic and now definitely lethal sub-prime mortgage market and had been drawn into substantial dealing with the now-collapsed Lehman Brothers.
Just to illustrate the incestuous nature of the financial services market, you may be surprised to learn that AIG owns Ocean Finance. Perhaps they can help AIG to consolidate all of their debts into one easy monthly payment. Below the belt? I don’t think so.

Most financial services institutions are nervously awaiting the  tap on the shoulder – although many will argue that death by  sadistic accounting is not fair.
Yesterday,  HBOS shares began their short journey down the financial toilet amid claims that they were in good shape and did not deserve the negative speculation. However, just to be on the safe side, Halifax branches were circulated with a memo asking them to monitor cash withdrawals.
One day later they have announced that they are in advanced talks with Lloyds-TSB with a view to a merger. Their shares are now in recovery mode but the proposed merger has all the characteristics of desperation and is the equivalent of two institutions hugging each other in a time of self-induced strife.

Who is saving who? But have you noticed how Lloyds-TSB have kept very quiet during the last couple of weeks? They must have been in discussion for some time now – but whatever happened to due diligence?
HBOS and Lloyds are clutching each other like Hansel and Gretel in the dark forest; comforting each other just before the Evil Witch eats them up.
Mind you, nowadays the Evil Witch is spoilt for choice. Many have lost their way in the forest.