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Will FSA take action against HBOS?

Robert Peston | 14:31 UK time, Tuesday, 4 January 2011

There were two huge British banking casualties of the great crash of 2008: Royal Bank of Scotland, rescued by taxpayers, and HBOS, rescued by Lloyds' shareholders and taxpayers.

The destruction of wealth - that of investors, including more-or-less anyone saving for a pension - has been savage, running to tens of billions of pounds in each case.

But for RBS, the Financial Services Authority as watchdog has already ruled - just before Christmas - that there was no wrongdoing.

The calamitous takeover of the rump of ABN in 2007, which did for RBS, was the consequence of misjudgements by the banks' directors that were appalling but within the rules. Or at least that is what the FSA has concluded.

And the FSA concedes that its own regulatory oversight of the risks being run by RBS was woeful.

We should learn more about all of this in the spring, when the FSA is to publish (after politicians and press screamed for a document) a bowdlerised account of its investigations into whether RBS and its directors deserved to be punished.

I should point out that one of the gaps in this report will be the absence of testimony from directors of Barclays.

This is not a trivial obstacle to understanding why RBS's directors drove their bank towards the edge of the cliff - in that some would argue that Barclays' board was doing something similar in 2007.

You'll recall that Barclays was bidding in a competition with the consortium led by RBS to buy ABN. To the great good fortune of Barclays and its owners, Barclays lost the bidding war.

But it would certainly be instructive to have a sense of why Barclays' directors were - like RBS's - apparently so desperate to overpay for a bank, ABN, that turned out to be something more poisonous than the curate's egg.

If banks are to avoid this kind of takeover debacle in future, insights from the boardrooms of both RBS and Barclays would be helpful.

However the FSA has neither the time nor the powers to extract the relevant testimony from Barclays. So we won't get it.

What of HBOS? What will we learn about how and why it made such mind-bogglingly poor loans to businesses, especially to property companies?

Here's the measure of the disaster at HBOS. Between the beginning of 2008 and the end of 2009, the losses on loans made by Lloyds and HBOS combined were £39bn - of which the vast bulk was contributed by HBOS (which became a part of Lloyds two years ago).

Now, much of what went wrong at HBOS was old-fashioned lethal exuberance about lending to property developers. It's not dissimilar to the madness that infected and harmed all of Ireland's major banks.

There have been a couple of decent official reports into the Irish banking meltdown. Something similar for HBOS - given that taxpayers have lent and invested over £100bn in keeping its new owner, Lloyds, afloat - would be seen by many as wholly appropriate.

But what detail the FSA can disclose about HBOS's near demise will depend on whether it finds strong evidence that HBOS and its directors broke the rules - and whether, to use the jargon, the FSA decides to take enforcement action against HBOS.

The former directors of HBOS will be concerned that - unlike what has happened at RBS - they haven't yet been given a clean bill of health by the FSA.

They will also be aware that what went wrong at HBOS was qualitatively different from what went wrong at RBS.

At RBS, its doom was sealed by the reckless decision of its directors to carry out a takeover (of the rump of ABN) that shrunk its stocks of loss-absorbing capital and liquid resources to the regulatory minima, and also made the huge bank far too dependent on unreliable short-term wholesale funding.

RBS went down (or rather it would have collapsed had it not been for taxpayers' financial support) because it made a strategic misjudgement at the highest level of the organisation that there would not be a serious economic downturn and that other banks and financial institutions would not stop lending to it.

So, for example, it allowed its equity capital to shrink to one fiftieth of its loans and investments - which may well have been crazily dangerous, but was consistent with the global Basel rules on capital adequacy.

Which is why the FSA would say the imperative has been to reform and mend the Basel rules, but that there is no basis for prosecuting RBS's directors.

At HBOS, something different happened. It lent tens of billions of pounds to companies - especially those with property interests - which have proved unable to keep up the payments and honour their debts.

The big question prompted by the sheer scale of the losses disclosed by Lloyds (as HBOS's new owner) from the beginning of 2009 onwards is whether HBOS could and should have revealed more and at an earlier stage about the problems being experience by those to whom it had lent.

Apart from anything else, the UK commercial property market was already in a dire state many months before Lloyds agreed to buy HBOS in the autumn of 2008.

For the avoidance of doubt, it is too early to say whether the FSA will find that HBOS breached important rules on the disclosure to investors of material financial information.

But the conspicuous fact that the FSA has not yet given HBOS a clean bill of health is not trivial.

Update 16.30: Here is the crux of what the FSA is looking at.

In the accounting period from the beginning of July 2008 to the end of June 2009, impairment losses for HBOS (losses on loans it had made) were around £21bn.

So that's £21bn of loan losses in a single year, of which the vast bulk came from poor quality loans to property-related businesses.

How credible is it that £21bn of losses can crystallise as fast as that?

Does that show failure of the accounting rules - which is what Tim Bush, the former Hermes fund manager, argues.

Or should HBOS have told its shareholders before the end of 2008 that a good portion of its corporate loans were looking a bit sick.

This is what Lloyds said about £7bn of loan impairments that Lloyds disclosed in a trading update on February 13 2009:

"The impairments are, principally as a result of applying a more conservative provisioning methodology consistent with that used by Lloyds TSB, and reflecting the acceleration in the deterioration in the economy, some £1.6bn higher than our expectations when we issued our shareholder circular at the beginning of November last year."

Does that reference to a "more conservative provisioning methodology" imply that HBOS should have disclosed at least some of the loan losses rather earlier than it in fact did?

The FSA will adjudicate on all this.

PS. Barclays (no surprise here) is keen for me to point out that the value of its offer for ABN was significantly lower than that made by the RBS consortium. And Barclays was mainly offering shares, rather than precious cash. So its board behaved less recklessly than RBS's.

But Barclays does not dispute that it should probably say a little prayer of thanks more-or-less every waking minute that it did not end up as the owner of ABN.

Comments

Page 1 of 2

  • Comment number 1.

    I wonder if LLoyds takeover of HBOS had anything to do with the $350million fine they received in Jan 2009 ?

  • Comment number 2.

    Yet another banking story (well more like a non story)

    Did you miss the increase in VAT? Now the 14% increase in the rate of VAT is a real business story which will impact on jobs, spending, levels of production etc. I wonder why the BBC's Business Editor hasn't covered it!!!!

  • Comment number 3.

    I think that you will find that Barclays withdrew from the bidding for ABN, stating that the price was too high. They did not lose a bidding war - but then why let the truth get in the way of your story?

  • Comment number 4.

    It's easy , everyone got greedy and pushed themselves into positions of no return....

  • Comment number 5.

    RP: The calamitous takeover of the rump of ABN in 2007, which did for RBS, was the consequence of misjudgements by the banks' directors that were appalling but within the rules.
    ________________________

    The reason it was calamitous was that the AAA rated derivatives were in fact poison. The directors did not know (possibly could not) and neither the internal auditors, the BoE, the FSA, the credit rating agencies nor the people doing due diligence knew.

    What is appalling is that these derivatives continue and are bound to cause more grief, possibly an even worse calamity.

    TYIW


    M

  • Comment number 6.

    It would be instructive if the directors would explain their actions in terms of the explicit and implicit fiduciary duties in running both these companies. It is extraordinary given the time scales and the calamitous effects of decisions that there has been no conclusions of formal investigations published. The FSA is almost certainly compromised by its own failure to regulate so should there be some form of authoritative public or even judicial enquiry. Banks need to be supervised and not regulated but even if the latter is the chosen means it will not be until bankers are pushed into police cars handcuffed when a serious failing or misdemeanour is discovered will they take more responsible attitude to the effects of their decisions.

  • Comment number 7.

    Happy New year to you Robert - and all you bloggers out there!

    HBOS - run by Andy Hornby who came top of his class doing a Harvard MBA.

    Maybe we should reconsider some of the free-market ideology that comes out of Harvard etc.

    Andy has since joined Boots - owned by a private equity firm. They have slashed their employees pensions, relocated to switzerland for tax purposes.

    This is the so called 'free market' for you.

    Just read "23 Things they don't tell you about capitalism" by Ha Joon-Chang - got it as a christmas present.

    Its a good read, I highly recommend it :)

    http://www.guardian.co.uk/books/2010/aug/29/ha-joon-chang-23-things

  • Comment number 8.

    Ah, if only we all had 20/20 hindsight! The real problem was that like (almost) everyone else these great banking institutions thought we were in a 'new paradigm' and the old well-proven rules were only for saddoes. That is the nature of all the great financial crises - in fact, they are all the same crisis. It is like a flu-germ: pandemic occurs, antidote is found, DNA mutates, another 'new paradigm' is promulgated, new pandemic occurs.

  • Comment number 9.

    Robert wrote:

    "What of HBOS? What will we learn about how and why it made such mind-bogglingly poor loans to businesses, especially to property companies?"

    But was HBOS not doing precisely what it was being encouraged and urged to by the Bank of England, the FSA and the Treasury?

    Further are not all of the banks not being urged and bullied to do exactly the same thing NOW?!

    There is a deep-seated hypocrisy at the heart of political economics. Suggesting that banks should not support property business when the (idiots!) at the Bank of England and the FSA were managing money and predential regulation precisely to encourage and explode a property bubble does not seem at all rational - but there again these idiots are not rational.

    The Fools of Threadneedle street should have known, and indeed were warned that their idiotic policies would inevitably lead to a totally unsustainable property bubble but they just ignored all sound advice. I suppose they will conveniently forget their part in the catastrophe and try to blame HBOS - it will not wash the cretinous regulators must all be sacked PDQ!

    I have set out previously why astronomic property prices cripple the competitiveness of the British economy but as in the past I suspect that only when there is the inevitably mass exiguous of all real economic activity will the idiots in the City wake up to having killed the golden goose.

    The appallingly bad economic education of King, Adair, O'Donnell and Macpherson (and Bennanke) got us into this dire mess and we don't have the guts to do the rational thing - sack them all! We cannot wait till they die or retire - they are the problem NOT the solution!

    We must as a priority get our house prices (and property prices) to internationally competitive levels so that we can again thrive as a vibrant economy (competitive with China that is!!!) one way or another and the sooner we do then the sooner we can once again hope to productively employ the talents of our people.

  • Comment number 10.

    #7. danj180 wrote:

    "Andy Hornby who came top of his class doing a Harvard MBA"

    Mervyn King's and Ben Bernanke's alma mater - objectively and rationally Harvard must be duff-est economic education institution as at every turn the whole global economic crisis seems to be full of people who went to Harvard!

  • Comment number 11.

  • Comment number 12.

    Robert,

    A good differentiation between RBS and HBOS. You can see that Goodwin and Hornby were completely different animals and I can quite believe Goodwin impaled himself on hubris and Hornby wasted his career by letting his middle managers believe the property story.

    Oh the property story, how it blights us all. The coalition housing minister has said that he want to create a stable housing market and hints that houses are to be lived in not speculated upon. A bit of commonsense's crept in there..

    Interesting that the Office for Tax Simplification is now looking at Private residence relief from capital gains tax. Maybe there is light at the end of the tunnel for young wannabe homebuyers.

    Mr Hornby, quite by accident - and not in the way your bank intended - you might be helping the next generation get a home.

    BTW, did you like the quote given by Nicholas Taleb? When asked when he was going to be a bit nicer to bankers, he replied to the effect that it would be when we go soft on the Mafia. Now his is a brain you don't want to upset!




  • Comment number 13.

    The FSA need only talk to one man. Peter Cummings was responsible for business development AND credit standards in BoS Corporate. Perhaps they should also talk to George Mitchell who was also stoking the fires before Cummings took over.

  • Comment number 14.

    Re 2: the VAT increase is a side show because far greater discounts have been offered to encourage sales. Drop in the ocean. It will, however, push up prices by about 1% to 2%, adding directly to inflation and bringing closer the day when interest rates will reach sensible levels (bank rate of about 5%).

  • Comment number 15.

    The big story (which no-one wants to tell) is the way derivatives (such as credit default swops) are driving very poor decisions aimed at short term issues. This way the day of reckoning for Irish and Portugese debt is being pushed into the future, at great cost, to avoid triggering CDS payouts. This buys time but solves nothing.

    It turns the euro-crisis into a slow motion drama, allowing everyone involved to make even bigger profits as the soverign debt of the poor countries is increased drawing support from the richer countries. Even very simple mathematices shows that this is a disastrous approach: once a large country seeks support the whole house of cards will shudder...

  • Comment number 16.

    Afternoon Robert, and a prosperous New Year to you too.
    Will FSA take action against HBOS- not a chance?
    It strikes me as odd when peoples call for more regulation. What does this mean?
    Does it mean that every banking contract will be scrutinised by someone outside of the business? Clearly this is a nonsense and we should stop being diverted by this political ploy.
    End all banking regulation -I say, it doesn't work and it can never be made to work except AFTER the damage has been done so why bother?
    The real answer must be to split the banks sources of capital, the retail depositors who need to be protected from these sharks, and the people who wish to gamble with their capital who do not deserve to be protected from losses by the taxpayer.

    It's about time the BOE looked at what the USA is doing to protect their country from having to bail out "too big to fail" enterprises. After all it's now been three years and NOTHING has been done -apart from setting up a new enquiry.

  • Comment number 17.

    Why was Lloyds allowed (or coerced) to buy HBOS without the monopolies commission getting in the way?
    Why is it that if I muck up in my low paid public sector job, I would get the sack but these over paid board members of the big financial institutions can bring the country to it's knees, bring hardship to everyone on average or below wages, yet walk away with a golden parachute and a lovely big pension.
    I will lose my job between September this year and March next year because I'm told that only by sacrificing 'my' livlihood, will the Govt. be able to save the country.
    After 22 years service, I would have had a reasonable redundancy payment but the Govt. have rushed in new laws to rob me of around 70% of what I would have had.
    Perhaps they like to steal everything from my bank account and then come around and urinate in my drinking water too, just to remind me about how this financial problem is somehow of MY making.

  • Comment number 18.

    Just shows that when money is cheap and plentiful, capital gets allocated to places that in the cold light of day don't seem to be ideal. Inevitably, reality dawns, and then the process of capital destruction weeds out the deals that shouldn't have been done and punishes the investors involved by sending them to the bankruptcy courts. A new day begins with better qualified investors picking over the bones, giving rise to stronger and better capital allocation that hopefully can sustain itself this time. But hang on a minute, maybe a better idea would be to make money even cheaper and for taxpayers to bail out the the investors so that they can........

  • Comment number 19.

    Banks, including the central bank, increasingly came to be run by non-bankers in the mid 2000s. HBOS was run by a retailer and the RBS was chaired by a chemist who bid for ABN/AMRO simply to spite Barclays. Northern Rock was run by someone who had been in the job since the ark so thought he could walk on air. The Bank of England morphed into an economics research house stuffed with Treasury minders with no banking experience. Note also, the banks which failed all had HQs out of the City and, however you regard it, were not around town to be challenged.

  • Comment number 20.

    interesting that the HBOS demise came from old fashioned banking gone wrong NOT 'casino' banking at all. Equally interesting is the fact that the derivatives market and CDS in particular played no part in the HBOS story. Of RBS, well pride before a fall and all that but the FSA should take all the regulatory blame - and how Sants gets a new job is beyond belief. However the hidsight point made about unreliable short term funding is just poor - building societies and banks have ALWAYS been in the position where short term deposits have funded long term lending, encouraged by Governments as social policy in the housing market and by investors in the commercial market. No-one wrote about unreliable markets for 100 years beforehand so Mr Peston is trying to look clever when he's just not so.

  • Comment number 21.

    Here's the measure of the disaster at HBOS. Between the beginning of 2008 and the end of 2009, the losses on loans made by Lloyds and HBOS combined were £39bn - of which the vast bulk was contributed by HBOS (which became a part of Lloyds two years ago).

    Now, much of what went wrong at HBOS was old-fashioned lethal exuberance about lending to property developers. It's not dissimilar to the madness that infected and harmed all of Ireland's major banks.

    I'm sorry Robert. You've gone right off script there. For three years Labour and the BBC has been telling us that our banks were brought down by weird acronyms from America. A global banking crisis no less. And now you're telling us it was nothing more than bad loans to property companies - just like in Ireland.

    It really is hard to know what to believe any more.

  • Comment number 22.

    To Lord Turner

    We, the people, paid for this report and paid for the bail out of these otherwise bankrupt organisations. This is OUR report, so it MUST be be published IN FULL, without any redactions.

    If you cannot do this simple task, then there is obviously no point in the FSA. We will accept your resignation forthwith Mr Turner.

  • Comment number 23.

    If it looks like a rat, smells like a rat and acts like a rat it is probably a rat.

    This whole sorry saga looks and smells like corporate fraud.

  • Comment number 24.

    John # 17 The public service union did just that to me 14 years ago , taking a way my long service in differing departments rights and eventually depriving me of a third of my expected (and indeed once confirmed ) pension. As a, lower than male increment/promotion opportunities, female, that has made my life difficult. If one lot don't get you another lot will!

  • Comment number 25.

    Robert, I thought Barclays have always insisted that they chose not to buy ABN and that they did not "lose the bidding war" as you put it?

  • Comment number 26.

    Let us not forget that the Government of the time virtually forced Lloyds and HBOS together. They probably don't want anyone looking too closely at that as the shareholders may have a case against even more people who may not have disclosed everything that shareholders needed to know.

  • Comment number 27.

    But I thought that given the amount written about "casino banks", derivatives, gambling by "guys in the city" and the rest, meant that there was no other problems and the Investment banks were the only ones ever causing problems.

    Surely you ave not saying that the biggest collapses in the UK - B&B, NR, HBOS & RBS had nothing to do with this!!

    I am in shock.

    Next thing you know, we will have regualtions that will actually tackle the causes of these problems not politically desired ones.

  • Comment number 28.

    And why was Bradford and Bingley buying rubbish Loans from GMAC ?

    And if the Loans weren't rubbish, why weren't the Bradford and Bingley Shareholders compensated for the residual asset value ?

    Shameful...........

  • Comment number 29.

    The proximate cause of these errors was poor judgement in the board rooms of several major banks but clearly the underlying villain was free market ideology. Back in the pre-Thatcher era the banking authorities monitored, by institution, the volume of loans to financial as opposed to industrail (i.e. real economy) organisations. They would never have permitted a bust-the-bank volume of capital to be risked in such a way, whatever the odds of success apparent at the time.

    One obvious reform would be to reintroduce some such supervision rather than fiddling with the smokescreen of capital adequacy rules.

    "It is after all puzzling that so much effort should be devoted to an activity (the Basel agreements) which is futile in principle and has manifestly failed in practice." (John Kay, "Narrow Banking).

  • Comment number 30.

    @ 9 JfH

    +1

    It seems the primary objective of the men in grey suits is to protect all the other men in grey suits. From Freddie Mac to Freddie Goodwin, they may all be different stories, even in different lands, they may lend and spend recklessly, buy and sell financial instruments they don't understand etc etc., safe in the knowledge that they will never be held truly accountable (after all, incompetence isn't a crime!) and the taxpayers, shareholders and small savers will pick up the bill.
    It's a global scandal beyond belief.

    Any other profession would have been run out of town long ago for causing such carnage.

  • Comment number 31.

    The destruction of RBS was a clear failure of fiduciary duty and to my simple mind that is a case that has to be answered in a court of law. Whereas the directors may not have broken any of a weak set of regulations, the very idea that the directors of a public company can embark on such a risky enterprise which contributed directly to the destruction of their business and the wealth of many others without being answerable for the dereliction of their duty suggests to me that there is some massvie discrepancy in our legal system. I do not accept that such a discrepancy exists and I would suggest that our learned friends try a bit harder and have a good look through their books again.

    With regard to HBOS a detailed audit of the criteria used to grant loans which were quite obviously speculative is long overdue. It is hard to understand how that many commercial loans can go bad in so short a time when even an utter incompetent could score greater success. This needs a lot of explaining and a full judicial enquiry is quite appropriate under the circumstances.

    At the Nuremburg Trials it was established that obeying orders is not a justification for war crimes. It is time to establish another legal standard that applies within the financial markets; namely, that to engage in risky commercial activity that contributes to such an extensive loss of value that the taxpayer has to be conscripted to prop up the banking system needs to be thoroughly and publicly investigated under the full duress of the law.

    It would seem that the regulators are happy with the letter of the law. This is not good enough. The public are far more concerned about the moral and intellectual standards that underpin the entire principle of those laws. We are now having to pay so there has to be a full and thorough enquiry conducted using the full censure of legal authority leading to imprisonment and the confiscation of property of any convicted person.

    The simple fact is that so much damage has been done to our country and the welfare of the nation by the continuing banking crisis, which remains largely unresolved, that no stone must be left unturned to bring as many of those culpable to answer before the courts.

  • Comment number 32.

    splendidhashbrowns wrote # 16 :

    "The real answer must be to split the banks sources of capital, the retail depositors who need to be protected from these sharks, and the people who wish to gamble with their capital who do not deserve to be protected from losses by the taxpayer."

    I could not agree more. Ordinary depositors expect their money to be completely safe. It should be covered 100% by easily liquidated assets like deposits at the BoE.

    Of course this would severely reduce the amount that banks have to lend to businesses and consumers. It would put a spanner in the interbank lending system. This is essentially a credit generating machine available to the members of an exclusive club of financial institutions. It was the former building society, Northern Rock's, admission to this club which enabled it to lend so rashly.

    Does not almost everybody say that the UK economy should be adjusted so that we can manage with less credit. To achieve this it is necessary for the BoE to create more money to replace credit, and for the government to use fiscal means to ensure that this money reaches the places where it is needed. So that businesses and individuals can accumulate their own capital to replace the credit they formerly used.

    There is little chance of this happening, while austerity is the government's watch word.


  • Comment number 33.

    Small point. But isn't a 'curate's egg' supposed to be good in parts, rather than actually toxic?

  • Comment number 34.

    I have to agree with no.30... any other profession would be up in the criminal courts, I post on previous blogs that I consider the abject personal greed of the city financiers treasonous behaviour. Incompetence is not an excuse and if it is the excuse then the boards and directors should have been replaced. So the choice should have been dismissal (without benefits) or criminal charges. Nothing. A disgrace and fuel for disorder.

  • Comment number 35.

    Will FSA take action against HBOS?
    Only if forced.
    Lord Adair Turner, Chair of the Financial Services Authority (FSA), announced that he would publish a report on the events that led to the collapse of the Royal Bank of Scotland (RBS).
    When did this decision come?
    The decision came after the release of US embassy cables by WikiLeaks, and published in the Guardian, which made Turner’s position untenable.
    In 2008, RBS posted a £24B loss and, facing collapse, was rescued with a £45B taxpayer bailout (Britain’s largest ever corporate rescue).
    In April 2009 an investigation was launched, which found no evidence of wrongdoing at the bank. The decision to allow RBS and its directors to slide was met with incredulity. Turner simply refused to publish the investigation.
    The events surrounding this report (???) confirm that the financial institutions have become a law onto themselves; the FSA is too cozy with the cheats and swindlers.
    Apparently, the role of the FSA is not to “regulate” the financial institutions but to protect them, cover their criminal activities, and make sure financial deficits land on the lowly taxpayers.
    Tunrer said that “a series of bad decisions” but never: dishonesty, fraud, regulation breach or lack of governance. There had been “no lack of integrity” at RBS.
    According to the FSA, RBS’s collapse was solely due to its decision to pay, along with its European partners Fortis and Santander, the sum of £71B to buy the Dutch bank, ABN Amro.
    With just a "bad decision", neither the bank nor its directors, including former chief executive Sir Fred Goodwin (whose decision it was to go ahead with the takeover) will face prosecution. Turner has closed the investigation into RBS’s takeover of the Dutch bank, without making any assessment of the role of the hedge funds, the advisors, or who held ultimate responsibility for RBS risk management.
    There is an indifference to any notion of public accountability. It appears that no one will examine how the board came to its “bad decision”.
    Even more preposterously, it later transpired that there was no report - just a hodge-podge of memos and statements. How did Turner arrive at his conclusion that no rules or statutes had been breached?
    Turner said that publishing a report would not add much to the public’s understanding of what went wrong. He simply dismissed calls to publish a report as “misguided” and said, “It would reveal the same deficiencies of regulatory philosophy already identified.” (Identified where?)
    The FSA chief said that the authority was required by statute to keep its investigation confidential and that publication would require the consent of RBS and all its directors. Really? Since when does an investigation into potential wrongdoing require the assent of those being investigated?
    Apparently, it is the FSA’s normal practice not to publish a report of or even summarise the evidence leading to its decisions. He went onto argue that for the banks to be punished would require a stricter set of rules than for other corporations. What is he talking about?
    Turner was completely silent about the regulators, including the FSA’s own role in sanctioning the takeover, despite the fact that it left RBS was undercapitalised.
    The picture that emerges: FSA tells its investigators, PwC what conclusions that it wants PwC to reach.
    When RBS, along with Lloyds Bank and HBoS, faced bankruptcy in October 2008, Alistair Darling, the then Labour chancellor, organised a massive rescue. It came after "secret talks" over a weekend, no discussion in parliament, much less any public consultation.
    Later Mervyn King, the Governor of the Bank of England, revealed that the BoE had provided £36.6B in secret loans to RBS and the government had agreed to underwrite RBS’s debts should it default on its loans. As well as providing the ultimate backstop for the banks, the government is currently providing £512B of public support: And the National Audit Office warned in its report last week, more may be needed.
    No proper examination of the banks’ activities has been forthcoming.
    The FSA’s investigation was never more than a complete sham.
    George Osborne, the Chancellor of the Exchequer, expressed concern. Vince Cable demanded that the FSA publish its report. He reminded the FSA that in March 2009, when he was in opposition, he had provided Turner with evidence. He had also raised questions about whether the banks’ non-executive directors were “fit and proper” to oversee Goodwin’s activities.
    Some of the loudest calls for the publication of the report came from shareholder groups in the US who lost money in the shares they purchased between March 2007 and January 2009 and are pursuing class action suits against RBS. They are seeking to take advantage of the fact that RBS is essentially government-owned to seek full disclosure.
    The Wikileaks' cables show that no less a person than RBS’s new chairman, Sir Philip Hampton, flatly contradicted the FSA. According to cables sent from the US embassy in London, Hampton told visiting Congressmen that the former directors were in breach of their fiduciary responsibilities. Hampton said RBS had made “several enormous” mistakes. Top among them was its heavy exposure in the US subprime market and the bank’s purchase of ABN Amro, which occurred at the height of the market and without RBS doing proper diligence prior to the purchase.
    It was only after the publication of the cables that Turner said he would commission a special report for public release. The FSA will publish a summary, not a full, detailed report of its investigation, but only next March and after RBS’s current and former executive and non-executive directors have approved it.
    This, however, was enough to provide the necessary political cover for the business secretary, who said that the “new report will provide a clear description of any key failings whether by the FSA or decisions by the RBS board and executives”. Really? We get the culprits to audit themselves and this is deemed satisfactory.
    There are SYSTEMIC PROBLEMS SO BLATENT AMONG THE FSA, THE REGULATORS, RBS and the HBOS and the beds they share that unless the entire system is over-hauled, the corruption and the swindling will just get fed more and more money.

  • Comment number 36.

    I cannot understand why these people have not been held to account. These "masters of the universe" are paid fortunes to have hindsight and act responsibly.

    At the very least they have been proved incompetent and should be stripped of all their assets, bar none, put in social housing (apologies to their neighbours) and be signing on the dole.

    In the case of criminal wrong doing they should be slung in prison to encourager les autres. In China they would have been shot.

    It is as simple as that.

  • Comment number 37.

    I had understood that since the failure of the City of Glasgow Bank in October 1878 the golden rule imposed by the Bank of England for ever more was that bankers should never borrow short to lend long - as a result of which the U.K. did not have industrial banks (cf. Germany and France). If that was the case, why do the directors of both RBS and HBOS seem to have enjoyed immunity from this rule?

    Adam Smith warned against the risk of the market and the government representing the taxpayrs falling prey to the speculators in the shadows, traders for whom ethics and the rule of law are mere obstacles in their path to pillage. Is this not what has happened and, like as not, will happen again sooner rather than later unless those responsible are thrown into the outer darkness as they richly deserve?

  • Comment number 38.

    This presumably is the very scenario that Mervyn King was warning about when he railed against FRB in his talk to the great and good.
    “Banking: From Bagehot to Basel, and Back Again”
    The Second Bagehot Lecture Buttonwood Gathering, New York City on Monday 25 October 2010

    All with the benefit hindsight of course.
    But nobody can say now that they haven't been warned.
    Not that anybody should have needed a warning because to state the bleedin obvious it was bleedin obvious. Just not to the bankers obviously.

    Similarly it is obvious that bankers bonuses are non sustainable and are extracted from the rest of us. The bankers must know this.
    Presumably our elected representatives also know this.
    It just goes to show what they all think about the rest of us.

  • Comment number 39.

    Come on Robert the FSA will whinge and whine a bit but we all know they are not going to do anything.

    One of the great advantages of the Us system is that they have regulators who actually believe in and are capable of taking enforcement proceedings.

    In my view the FSA leadership is a retirement home for political flunkeys.





  • Comment number 40.

    31. At 17:54pm on 4th Jan 2011, stanilic wrote:

    "The simple fact is that so much damage has been done to our country and the welfare of the nation by the continuing banking crisis, which remains largely unresolved, that no stone must be left unturned to bring as many of those culpable to answer before the courts."

    ====================================================

    It will not happen.

    Like it or not, that is how modern capitalism works. Until a better system is invented, we have to accept it's flaws and move on.

  • Comment number 41.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 42.

    Why on earth were RBS and Lloyds not allowed to die like Lehmans?

    Lehamns proved that a major failure was NOT fatal to the system, and the taxpayers money could have been directed towards damage limitation rather than saving the errant. There would be no crazy bonuses galling the public from these companies and plenty of more deserving cases to fill the gaps.

    The failure would have fallen on shareholders, where it deserves to fall. Don't blame regulators for this failure, it was the shareholders failure to control ther own company that did for it......Shareholders are the owners and can set policy by control and removal of the board.

  • Comment number 43.

    31 I agree with Stanilic in my view there are clearly actions against RBS for breach of common law and statutory duties.

    Of course none of the shareholders - in particular the pension funds - who lost money are going to take any action. They all went to the same public schools, the same elite universities, live in the same suburbs etc. etc.

    If the Unions had any brains they would be spending some of their campaign funds on some hot shot (US) lawyers out to make a name for themselves. They could commence proceedings against the RBS' directors and senior officers and/or against the pension funds for refusing to take action to recover lost monies. There may well be a series of negligence actions against their respective advisers.

    That would be a form of protest that would be legal, popular and effective. It would keep the whole issue of the bank's culpability for the bubble and the bailout on the front pages of the newspapers for weeks or months.

    Can you imagine the days of fun that could be had cross examining Fred the Shred and many many others. Of course we would rely on the BBC to show the proceedings live on television.

  • Comment number 44.

    Brutal - but correct ... and a little verbose as usual - maybe a twitter?

  • Comment number 45.

    Hello all

    I'd like to focus my attention on HBOS and whether it failed in its duty to disclose the level of impairments on its books. As I understand it the Bank complied with regulation around the disclosure of its financial position but the issue is whether management should have come clean about its impairments earlier than it was legally required to do so. It did not - but why was that?

    I propose that the reason for non-disclosure of what was clearly material information to investors was to avoid the potentially explosive impact such a disclosure would have on the Bank. Recall the public reaction to the revelation that Northern Rock had gone cap in hand to the Bank of England - it is hard to see a different outcome facing HBOS had management revealed their true numbers as soon as the bad news had started filtering in. And in that situation would investors and creditors have had the opportunity to take their dollars out of the bank without being financially scarred? - I think not.

    So is it possible that the management team was opportunistically sticking rigidly to the regulatory rules imposed on them, not for the sake of hiding the truth but in order to buy more time in an attempt to preserve the Bank as an ongoing concern? And had it succeeded (albeit the chances were slim), would investors and creditors not be praising management's decision instead of cursing it?

    I have to confess that I do not know at what stage it became clear to management that HBOS would have to be rescued.

  • Comment number 46.

    AS usual the F.S.A are missing the point, to prosecute ,they assume, (an "ass out of U and ME" ) that all the banks were following the rules!
    I and a few freinds knew in late 2006, that to make money from paper/ether driven derivitives, that did'nt actually EXIST , and had no tangible physical state, had only one result.
    They will not prosecute, bacause this is precisely what the Grvmt are useing , to promote a "recovery" .er...
    Oh dear,oh dear.......

  • Comment number 47.

    Maybe Lloyds are more like RBS than HBOS and thats where the comparison is e.g. -
    RBS shareholder value and destruction of pension funds was caused by a shambolic takeover at the height of the market of a bank that turned out to be a shambles

    Lloyds shareholder and pension fund destruction were caused by er...... a shambolic takeover of a bank that was already a known shambles. Please don't say they were forced as they had been trying to take over HBOS for years! I am pretty sure Gordon Brown wasn't encouraging them for years.

    So Robert, maybe your first line should ahve been, there were 3 main casualties. Lloyds board were potentially the worst, not only did they know HBOS was a shambles, they went ahead and bought it anyway.

  • Comment number 48.

    @ 31 and 43

    There seems to be a growing consensus on this forum to bring ex-directors of these two great institutions to account in the courts of law. Proponents of this stance argue that these directors failed in their fiduciary duties by adopting strategies that brought their companies to their knees.

    However such a view comes to me as being naive. Even experts make mistakes and unless the FSA finds that there was gross negligence or recklessness on the part of the ex-directors of HBOS and RBS, where is the justification for bringing them in front of our judges? The consequences of their actions does not serve as justification. It serves to identify the failures of our banking system and the regulatory framework within it operates, but does not warrant personal accountability of the directors in itself.

  • Comment number 49.

    @ 48. At 19:49pm on 4th Jan 2011, awyc24 wrote:

    > gross negligence or recklessness

    The difference between negligence and gross negligence is merely one of degree. And no-one in their right mind would exonerate the directors of those banks of negligence, would they?

    Would you suggest they had been just a "tad" negligent in letting the biggest banks in the world go broke? Or maybe they were just "somewhat" negligent?

    Pull the other one, chum. It's got bells on it!

  • Comment number 50.

    Its not the legality that bothers me its the ethics. Whilst not condoning violence, illegal acts or unacceptable behaviour I dont understand why the politicians are vociferously condeming some of our younger generation for smashing a few cars and buildings whilst the silence about the banks smashing the financial well being of countless peoples lives is deafening.

  • Comment number 51.

    @ 50. At 21:11pm on 4th Jan 2011, Jenny Jones wrote:

    > the silence about the banks smashing the financial well being
    > of countless peoples lives is deafening.

    Indeed. If there is no law that can be used to incarcerate those louts, then
    we need to invent one. At the very least, they must be stipped of their assets.
    Hit them where it hurts _them_ the most - in their pockets!

  • Comment number 52.

    @ 40. At 18:59pm on 4th Jan 2011, TonyH wrote:

    > Like it or not, that is how modern capitalism works. Until a
    > better system is invented, we have to accept it's flaws and move on.

    There is no choice - the public require see justice. Like it or lump it, that's how democracy works. Until a better system is invented, bankers must accept their fate.

  • Comment number 53.

    The governance of corporations (including banks) in this country is kept under the guise of democracy, and this gives the benefit of the doubt to those in control, and due to the British tendency in law and life to observe the saying "Why Assume Malice when Incompetence Will Do?", the regulatory structure is still always THIRTY YEARS behind the intelligent plotting of those who can plot.

    It does not take a genius to plot a coup in the Banking System that resulted in the 2007/2008 Collapse. It need not be just one person, but the complicity and tacit contrivance of many in parallel or not.

    In Africa, notice how easy it is for leaders to be corrupt. In Mature Democracies, it is harder, but they have had generations to develop sophistication and duplicity beyond the imagination of the masses of the simple-minded.

    I wouldn't waste time on hoping that the FSA would ever discover culpability - they would need brains to match the morality that stopped them from going over to the Dark Side when they had the chance to Get Rich Quick in the Banking Sector.

  • Comment number 54.

    @ 36. At 18:30pm on 4th Jan 2011, bill40 wrote:

    > I cannot understand why these people have not been held to account.
    > These "masters of the universe" are paid fortunes to have hindsight
    > and act responsibly.

    They have worked against the public interest. I can't see what they are
    offering us, so there is no motivation for the public to tolerate their
    nonsense. It's time to flush them clean.


  • Comment number 55.

    There will be no prosecutions of anyone at a senior level in the UK banking sector, unless someone has the money and the stamina to launch private prosecutions. The state will, of course, put every possible obstacle in the way of any private prosecutions, so make sure you have access to lots and lots of money before you start. It is, of course, a national scandal that our prosecuting authorities, whose sole task is to ensure that those who break the law are prosecuted, simply watch and do nothing, but this is the land we live in. Just never, ever feel smug when corruption in other countries is mentioned. The good old UK is still the world leader at something.

  • Comment number 56.

    49. At 20:51pm on 4th Jan 2011, Jacques Cartier

    Remember that my original post addressed the notion that these individuals should be brought before the court on the basis of their ill-fated strategic decisions. One must precisely ascertain the degree of negligence that they are culpable for before anybody, including the FSA, can determine the next course of action. As Mr Peston pointed out, Barclays went for the same deal as AMN Amro - must those directors also be brought before the courts? Or not, because the deal didn't go through - but is that just when they committed the same negligence albeit (fortunately for them) without the disastrous ending as seen by RBS? These problems emphasis the significance of establishing that 'degree' you speak of.

    The truth is you could argue that everyone showed some negligence over this episode - but you focus on the bankers merely because the consequences of their faults are far more significant than those of others, such as the individual consumer who took out a credit card knowing full well he/she would struggle to pay the balance off.

    Moreover, these financial institutions did not fail solely because of the negligence of bankers. if you believe that then you've really bought into what The Sun has to say.

  • Comment number 57.

    RBS were paying cash and only getting a small part of the bank. Paying cash shrunk their reserves.

    Barclays were offering an all share deal, so would not have eaten into their reserves

    TCF - the prime instigator of the selling of ABN - and the other shareholders took the cash.

    Mr Varley at Barclays always made it clear that he would not enter a bidding war and use cash reserves - I think shareholder value was his term

    Comparing the two bids is like comparing apples and pears

  • Comment number 58.

    Do you remember Victor Blank saying he was so surprised by the losses as the normal provisions were in the accounts. The fool did not realise that all the banks' accounts were full of lies.

    Another point - Grant Shapps - drowning not waving - prices too high but he wants stability - how does that add up?

  • Comment number 59.

    11-errornose
    I can remember reading in the papers that most journalists thought buying ABM Amro was an accident waiting to happen and was widely reported as thus. Then after reading Roberts report that you provided a link to and the reaction of the first few bloggers to the report it seems that there was only the board members of RBS and Barclays who thought it was worth buying. To say that this was mistake in 'hindsight' does not actually reflect the reality, this was mistake that everyone could see coming long before any deal was struck. Did not the board members not look at all that was written about the perspective deal at the time and think to themselves that maybe what they were doing was preposterous and worth a second thought. To me this is far more than bad decision making it strikes me as nothing more than theft. I wonder how much their chums in the city made from fees and consultations surrounding this disaster. Heads should roll.

  • Comment number 60.

    56. At 21:57pm on 4th Jan 2011, awyc24 wrote:


    you focus on the bankers merely because the consequences of their faults are far more significant than those of others, such as the individual consumer who took out a credit card knowing full well he/she would struggle to pay the balance off.

    ===============================================================
    If a consumer has applied honestly for a loan, and been granted it by a bank, what crime do you suggest they should be prosecuted for? Consumers have no fiduciary responsibility to anyone other than themselves. If they lie to obtain a loan, they can be, and regularly are, prosecuted.

    The director of a bank has,in law, a fiduciary responsibility to others, particularly the shareholders. It is at least a tenable view that many bank directors failed in that duty, but none of them will even be considered for prosecution.

    Do you see the difference? Quite striking, isn't it?

  • Comment number 61.

    @ 57

    The comparison was merely to emphasise the importance of establishing 'degree' of negligence and the complexity of doing so. Perhaps you would comment on my underlying point(s).

  • Comment number 62.

    AWYC @ 45. Not so fast. Your analysis is just wishful thinking.

    In my view there are likely to be a range of possible actions at both common law and under relevant legislation. It would be sufficient to show simple negligence (i.e. a lack of reasonable care) or breach of a relevant duty on the balance of probabilities. At the very least any such action would expose the cosy world of the City to some much needed sunlight - the best disinfectant.

    The problems with any legal actions are not legal - they are political and/or practical.

    1. The regulators will do nothing because any legal action would simply highlight their failure to take pre-emptive action.

    2. The big law firms will be reluctant to act because a vast proportion of their work comes from the banks. That is why I would suggest using some of the big plaintiff law firms in America instructing good UK counsel.

    3. Any litigation will be costly because the banks, the directors, the big pension funds and their advisers would have little option but to fight to the death - it is their entire world at stake. It was for that reason I suggested the Unions provide some financial support. They could even set up a web site where people could donate to a fighting fund.

    4. A lot of 'very important people' would be forced to give evidence in public under oath and answer a lot of very difficult questions. Even if the action(s) was not finally succesful a lot of reputations would be destroyed.

    It really is scandalous that there has been absolutely no detailed and public examination of what went wrong and why. If this government was serious about improving banking regulation they would have set up a Commission of Inquiry to consider what went wrong. Any such inquiry should have broad terms of reference, the power to compel the production of documents and witnesses to appear and be in a position to offer amnesties to whistleblowers.

    If Ed M was serious about learning the lessons from the New Labour years he would be calling for just such an inquiry.

    If our polliticians won't act it means private litigation is the only way to get to the truth and to learns the lessons from the past. If we do not do learn those lessons we are doomed to repeat them. It will also demonstrate once and for all that our democracy has been captured by the money men of the City. That is truly a very dangerous development because it undermines the legitimacy of the entire system.

  • Comment number 63.

    awyc24 - are you Fred the Shred in disguise?

  • Comment number 64.

    52. At 21:31pm on 4th Jan 2011, Jacques Cartier wrote:
    @ 40. At 18:59pm on 4th Jan 2011, TonyH wrote:

    'There is no choice - the public require see justice. Like it or lump it, that's how democracy works. Until a better system is invented, bankers must accept their fate.'

    ===================================================

    'Democracy' or 'Reality' - that's the issue.

    I've traipsed this gradually warming piece of rock long enough to realize that one is a dream and the other is the application of power.

    'Money Talks' is a snappy phrase that unfortunately cannot be disputed.

  • Comment number 65.

    #62 Cassandra. You doin it all wrong.

    Banks became insolvent because they were operating a ponzi scheme. Oh sure there are thousands of nuances regarding what they were actually up to but it all sums to a ponzi scheme, which by definition requires fraud and corruption. Not only the fraud and corruption of the big players but the fraud and corruption of regulators and associated agencies.

    Once their insolvency could no longer be postponed they merely put a gun to the head of the general population and said give us all your money or we will blow the entire system up. For some strange reason the general population succumbed to such basic and blatent threats.

    No-one is going to be investigated much less prosecuted because it is all too much fun to round up the mass of the people for a return to bona fide serfdom.

    People can whine about VAT rises, student tuition fees, fuel price rises and cuts to services all they want - nothing will change and you are slated to be on the receiving end of more of the same.

    If you don´t like it ask why you did nothing to prevent the ruling kleptocracy from assuming absolute power.

  • Comment number 66.

    #42

    Perhaps because they were not based in London?

  • Comment number 67.

    Capitalism is born from the premise that greed is good.
    So you shouldn't be surprised that greedy banks resorted to taking risks that were basically gambling.
    Shame the directors of these insititutions are being let off the hook, but not a surprise really, considering they and those charged with supervising and overseeing them are all part of the same old boys network of capitalists.
    Shame they haven't got the brains to see that the green movement is destroying Western capitalism by using global warming.
    The Chinese must be laughing the length of the great wall.
    Bye bye US of A and Western Europe

  • Comment number 68.

    Tony H @ 64 - you sound just like an old fashioned Marxist. Has that always been your view or is it only since the onset of the great recession?

  • Comment number 69.

    #60: "If a consumer has applied honestly for a loan, and been granted it by a bank, what crime do you suggest they should be prosecuted for? Consumers have no fiduciary responsibility to anyone other than themselves. If they lie to obtain a loan, they can be, and regularly are, prosecuted.

    The director of a bank has,in law, a fiduciary responsibility to others, particularly the shareholders. It is at least a tenable view that many bank directors failed in that duty, but none of them will even be considered for prosecution.

    Do you see the difference? Quite striking, isn't it?"


    What about if a local lendings agent sells a mortgage to a consumer, then passes that on to his local retail bank in the form of a bank guarantee, who then package that up in the form of a MBS (rated AAA by an independent ratings agency) and sell it on to an investment bank, who then sell it on to another investment bank, say Lehman Bros.

    Presumably you're saying that as most of the people in this chain bought it in good faith, with an independent assessment of quality, they bear no fault? Or is it double standards from you? Or are you saying that the local lenders and the ratings agencies are the primary culprits here? Or perhaps you're saying that every participant in the trade should have independently checked the details of the security (isn't that the POINT of a rating?) ? Or perhaps you're saying that maybe a bunch of consumers actually got too greedy and did whatever it took to get on the latest bandwagon in search of a fast buck, and are now looking to find a way to blame anybody other than themselves. Oh wait, of course, you wouldn't be making that last point would you.

  • Comment number 70.

    @ 62 Cassandra

    Ha if only I have the mountain of gold Fred has to sit on.

    I made a couple of points, the first proposing a commercial reason as to why the directors chose not to disclose the extent of their losses at the onset of the financial crisis (and suggesting that such reason might carry some logic) and secondly, I argue that the mere adverse consequences of their strategic decisions is insufficient evidence to necessarily bring the directors to the scrutiny of our judges.

    I'm not sure whether your 'wishful thinking' comment relates to one or the other (perhaps both) but your analysis seems to relate to my second point - I would like to get your insight into my first.

    Re point 2: I don't know what the test is in common law so won't comment too much on what you perceive the legal principles that govern directors' fiduciary duties to be - however it seems we agree on something, which is that in order to make any headway on this we need to know what ACTUALLY happened so an investigation of sort is required.

    This supports my initial argument which is that crying about the mess leftover by the RBS/HBOS directors cannot be enough to drag them to court - speaking as a layman, we must understand the reasoning behind their decisions, put this in the context of what the directors of other companies and institutions (not restricted to financial) would do and then determine whether these particular directors were so negligent that they should be brought to justice in the courts.

    Aside from that, I had some issues with your list:

    1. regulators - no regulations were breached so, all political/practical issues aside, why would they bring legal action against the banks???

    2. law firms - why would they bring legal action forward? They didn't lose much if any money. In fact they made money because of all the litigation and bankruptcy that followed the crisis.

    Finally your paragraph in which you state "it really is scandalous that there has been absolutely no detailed and public examination of what went wrong and why" - is this about RBS/HBOS are about the financial system as a whole? because if it's the latter, then there's a fair amount of analysis available and it all points to a debt culture that we all played a part in :)

  • Comment number 71.

    I will be amazed if anyone at HBOS at the time is prosecuted. Reason, the FSA & BOE were complicit in the colapse due to a failure of regulation and oversight. Even as HBOS was going under they were publicly claiming that all was rosey in the HBOS garden.

    March 2008: The Financial Services Authority yesterday launched an unprecedented investigation into dealings in the shares of major financial companies amid suspicion that speculators have been spreading false rumours to force down shares in HBOS. The BOE described the stories as "fantasy". The market knew that HBOS was in trouble, but the FSA & BOE were either incompetent or misleading the market with their denials.




  • Comment number 72.

    @ 69 - in understanding why the financial crisis came about, LePlonk highlights a vital piece of the jigsaw which is the globalisation of financial services. Anyone heard of the US sub-prime market?

    But this goes slightly off topic because the article is strictly about the directors of RBS/HBOS, in particular their rubbings with the FSA in relation to the takeover of AMN and failure to disclose prospective impairments at the earliest opportunity.

  • Comment number 73.

    80 years ago some of these men in grey suits jumped to their death when they screwed things up... How times have changed.

    As Cassandra points out (post 62) the men in grey suits now own the developed world. They fear China more than they fear the scrutiny of the Great British public.

    The best we can hope for is that Robert and/or Stephanie will publicly expose these shenanigans in a way that cannot be avoided by the FSA - or anyone else.

    Some hope! C'mon guys! It's my BBC and I'd like to see you start shooting from the hip.

  • Comment number 74.

    What do you mean by "Destruction of wealth" please?
    I see no destruction, just transference.

  • Comment number 75.

    69. At 23:13pm on 4th Jan 2011, LePlonk wrote:Or perhaps you're saying that maybe a bunch of consumers actually got too greedy and did whatever it took to get on the latest bandwagon in search of a fast buck, and are now looking to find a way to blame anybody other than themselves. Oh wait, of course, you wouldn't be making that last point would you.
    ===============================================================
    You are completely misrepresenting the point I made. If a consumer dishonestly applies for a loan, for instance by falsifying their income details, and the loan then fails to perform, then they have committed a crime. They are liable to be prosecuted, and often are prosecuted. That is entirely as it should be.

    I was trying to contrast that situation with the directors of a bank, who may have failed in their legal duty to the shareholders, but who will never, ever be prosecuted, or even considered for prosecution.

    My point, which I clearly failed to make clear, is that those responsible for the banking collapse should be held accountable, at whatever level the blame lies. Borrowers who lied to get a loan are regularly prosecuted, as they should be.

    Nobody else in the chain seems to be held accountable for their actions, especially those at the top, despite being very well remunerated, presumably because they are in positions of responsibility. Why not?


  • Comment number 76.

    awyc24@ 70 - we are not going to agree because for your own reasons you have decided that everyone is to blame - the basis for that conclusion is unclear.

    A couple of points by way of clarification.

    1. As I understand it both bankers (to their customers) and directors (to their shareholders) owe fiduciuary duties. These include duties to act in the best interests of the the customer/shareholders and of 'utmost good faith - i.e. not to put their interests before the customer/shareholder. Happy for an expert to clarify - perhaps Robert could do an action on potential actions against the banks.

    2. Many of the big law firms will not act for those bringing actions against the banks/bankers/pension funds/advisers because they will have a conflict and/or will not want to destroy their cash cows.

    As to whether anyone is criminally (jail) or civilly (money) liable for the bust and the bailout the truth is we do not know because our politicians and regulators have not allowed ANY wide ranging and public inquiry. Given the impact of the bust and bailout on society would anyone seriously suggest that a Royal Commission of Inquiry is not justified. What is the position of the Tories, the LibDems and Labour on a public inquiry? What about the Unions - why are they not calling for it?

    With no inquiry private litigation (perhaps funded by the Unions) is our only hope of ensuring accountability.

  • Comment number 77.

    62. At 22:28pm on 4th Jan 2011, Cassandra wrote:

    “If Ed M was serious about learning the lessons from the New Labour years he would be calling for just such an inquiry.”

    How can he? In a single word ‘complicity’ he would be shooting himself and his party in the foot!


    I would agree that action needs to be taken because at present there is no fear factor. Even if that action failed it would introduce a fear factor.

    Regulation’s or law’s are not fear factors, the chance of a regulation or law being used against you is!

    As some have pointed out there seems to be some confusion in what was the cause of the crisis and this blog like others flick at a whim from one explanation to another some times with startling contradiction. Maybe it is to confuse and devide or just acclaim seeking?

  • Comment number 78.

    56. At 21:57pm on 4th Jan 2011, awyc24 wrote:
    > their ill-fated strategic decisions.

    Are you referring to their negligent strategic decisions?

    > As Mr Peston pointed out, Barclays went for the same deal as AMN
    > Amro - must those directors also be brought before the courts?

    No. Negligence is far easier to show when the risk you have taken actually results in a catastrophe, rather than a close shave. You may think that is unfair, but such is life – I couldn't give a hoot as long as bonkers-bankers suffer.

    > everyone showed some negligence over this episode - but you focus on
    > the bankers merely because the consequences of their faults are far
    > more significant than those of others,

    Naturally we punish significant crimes more severely than insignificant ones. It's far more efficient to apply the moral hazard where it has the greatest effect. Your ideas about “fairness” for bankers are absurd and unimplementable. They destroyed the economy and the public hold them to account for that, whatever bias you feel personally.

  • Comment number 79.

    @ 72. At 00:24am on 5th Jan 2011, awyc24 wrote:

    > But this goes slightly off topic because the article is strictly about the directors of
    > RBS/HBOS, in particular their rubbings with the FSA in relation to the
    > takeover of AMN and failure to disclose prospective impairments at the
    > earliest opportunity.

    Why do you come to the site saying nonsense? The article also criticizes the bosses of RBS for failing to provide sufficient capital and for ignoring the risk of external funding problems related to issues such as sub-prime! Did you read it all, or do you wear blinkers all the time?

    Do us all a favour and read it before you pipe up again.

  • Comment number 80.

    69. At 23:13pm on 4th Jan 2011, LePlonk wrote:

    'Or perhaps you're saying that maybe a bunch of consumers actually got too greedy and did whatever it took to get on the latest bandwagon in search of a fast buck, and are now looking to find a way to blame anybody other than themselves.'

    Is this another attempt to blame the health of a bank's balance sheet on its customers?

  • Comment number 81.

    40 TonyH

    There was no ideological basis for the banking crash at all. At best it was incompetence because any proper management would be stress testing their business. At worse it was something else; an issue which only due and proper enquiry can resolve. In my view the best place to resolve such an issue is within a court of law where a full inquisition can be conducted.

    It is quite possible that the defendants will be found not guilty, but rigourous enquiry has to be applied to these events as a matter of principle otherwise they will happen again and again and again.

    48 awyc24

    Such arguments are not naive. This is due and proper process. If say a business sells safety equipment which did not do what it says on the tin, it would expect to appear as a defendant in a court of law. This would be only right and proper so the business will take every measure to ensure that this cannot happen. Why should a banker be any different to a merchant?

    I just don't accept the system arguments. I would agree that the system was being very loosely managed but individuals working within that system have to use their own judgement. The logic of a personal moral duty was established at Nuremberg and should be applied today and applied with rigour.

    To argue otherwise reminds me of the employee I caught thieving. I asked him why he did it as a good name is all that a working man possesses. He replied that everyone was at it. I asked him who else was thieving. He was unable to provide a reply as nobody else was. The system argument is the get out employed by guilty parties seeking to avoid their obligations to the majority whom they have let down.

    I will repeat that last point: there is an obligation by the bankers and the politicians to explain themselves to the rest of us who are suffering due their utter failure. I expect that obligation to be fulfilled whether it be voluntary or not. Since there appears to be a reluctance to volunteer themselves then they should all be hauled into No 1 Court at the Old Bailey for cross-examination. Let justice be served!

  • Comment number 82.

    By way of clarification;

    1. I appreciate the government has already set up a banking inquiry but as I understand it that is considering how the banking sector should be regulated in the future.

    2. There is no public commission of inquiry looking at why the bust and bailout took place and whether any person (individual or company) is either criminally (jail), civilly (monetary damages) or morally (reputation damage) responsible.

    3. If we do not understand and how the bust and bailout took place how is it that we can learn the lessons of the past and design a better system for the future.

    4. The standard line of the bankers and their intellectual catamites in government is either

    - the US were mostly to blame

    - we all got carried away and we are all to blame

    Both of those explanations are superficial in the extreme and in my view intellectually dishonest. They are the product of corporate and political spin doctors.

  • Comment number 83.

    Jacque Cartier wrote "'There is no choice - the public require see justice. Like it or lump it, that's how democracy works. Until a better system is invented, bankers must accept their fate."

    ============

    You are confusing the rule of law and democracy or maybe you are a fan of Harriet Harman who also believed in the court of public opinion.

    Democracy is the system under which we elect politicians to pass laws. The rule of law is that everyone (bankers and politicians included) obey the laws (mostly) and there is a separate enforcement system to ensure politicians cannot get too involved in enforcing.

    We do not pass laws that act retrospectively (generally there are one or two exceptions over the last 30 years mostly for tax). So either the bank directors have broken the law or they have not. If they have not then whatever public opinion may think there is nothing we can do about past behavior.

    Personally I think it highly doubtful that the bank directors have broken any law. Generally directors duties in the UK are relatively simple (except in insolvency - I will come on to that later): act in good faith in best interests of company and do not have conflicts of interest. There is no evidence that there were any conflicts of interest and even if there were I have no doubt that they were fully disclosed at the time (which avoids the problem). As for acting in good faith that allows for negligence as long as it is honest negligence - directors can be totally incompetent, but as long as they are honest, the law does not intervene. The reason for that is very simple, as far as the law is concerned, if a director is incompetent then that is a matter for shareholders.

    In insolvency the rules change. The change occurs when a reasonable man would conclude the company has no reasonable possibility of avoiding insolvency. In those circumstances the director now also owes duties to creditors not to make the position worse, or more accurately to take all reasonable steps available not to make the position worse. The directors of both RBS and HBOS have clearly complied with the law because once it was clear the hole the bank was in they got the govt to bail the creditors out.

    The only realistic possibility of breach of law is probably to do with whether the accounts were properly compiled... but of course Al Capone was sent down for tax evasion due to improper accounts !

  • Comment number 84.

    @ 82. At 10:06am on 5th Jan 2011, Cassandra wrote:

    > There is no public commission of inquiry looking at why the bust and
    > bailout took place and whether any person (individual or company) is
    > either criminally (jail), civilly (monetary damages) or morally
    > (reputation damage) responsible.

    We need to find the perps and punish them hard. So far, all I have heard
    are excuses, while the perps sneak off hauling away their loot!

    This Will happen again unless we hit them hard. Let's quickly give
    them all the short, sharp shock treatment and leave them impoverished.
    The sooner we can get that business out of the way, the sooner we can
    all move on.

  • Comment number 85.

    @ 83. At 10:13am on 5th Jan 2011, Justin150 wrote:

    > The rule of law is that everyone (bankers and politicians included)
    > obey the laws (mostly) and there is a separate enforcement system
    > to ensure politicians cannot get too involved in enforcing.

    The choices are:
    1) Status quo, which lets the greedy perps haul off their loot while we watch.
    2) Change the status quo.

    You may not like option 2, but that is what the public now require before this matter can be put to rest.

    Sorry to disappoint you, Justin150, but you are wrong again (as you are on so many things).

  • Comment number 86.

    83. At 10:13am on 5th Jan 2011, Justin150 wrote:

    The directors of both RBS and HBOS have clearly complied with the law because once it was clear the hole the bank was in they got the govt to bail the creditors out.
    ==============================================================

    I'm glad it's all clear to you, but it certainly is not clear to me that both RBS and HBOS were not trading while insolvent. If the directors of a UK company knowingly allow it to trade while insolvent, that is a criminal offence under the Companies Acts. Did not Mr Goodwin contend, right up to the last, that RBS needed no government help, and yet days later billions had to be injected? Was RBS in fact insolvent? Was RBS trading while insolvent? Same questions for HBOS? As one of the ultimate suppliers of those billions, these are questions that I would like answered. Yet nobody in the political class is prepared to even ask the questions. Why has there been no independent investigation? (and by independent, I don't mean the FSA)

  • Comment number 87.

    #86

    It is not that they were trading whilst insolvent.

    The FSA stress tests at the end of 2008 showed that should things get even worse than they were at the time, then they would become insolvent. That is the point that the government stepped in.

    The pivotal factors at that time were, therefore, the lack of credit available on the market and the FSA testing if that did not resolve itself soon and also stressing the factors of further contraction of the residential and commercial propert sectors, bad debt increasing and also an increase in personal and commerciale bankruptcies. There were other tests as well as a demand to increase the amount of Tier 1 capital.

    This showed that some organisations were on a dangerous level and so the govt stepped in so confidence could be maintained - albeit limited confidence as shown by the dramatic fall in share prices

    As Justin150 says, no laws were broken by the directors

  • Comment number 88.

    @ 87. At 11:06am on 5th Jan 2011, yam yzf wrote:

    > As Justin150 says, no laws were broken by the directors

    That would be the worst conclusion we could make at this time. To avoid repetition, we need grounds to punish the perps. Work from that point backwards, then find a way. If that means retroactive legislation, that is a small price for us to pay to make totally sure these louts get what's coming to them.

    What's the big delay? It's been years, and they are still on the loose?

  • Comment number 89.

    The danger for the UK is the assumption that the bad lending that presaged the collapse of HBOS in 2008 was a new species of recklessness and dishonesty that emerged in the 21st century. I'm afraid things started going wrong for HBOS (by which I mean for its customers) back in the days when it wasn't even HBOS ie when it was the No.1 building society in the country - Halifax Building Society.

    As early as 1980 Halifax had started recommending the purchase of endowment backed mortgages as the best way of securing house purchase. What the branch adviser often failed to disclose was that the branch (and perhaps the staff, if only indirectly) received a 50% share of the commission paid out by the endowment provider (ostensibly paid to the broker) on the sale of the policy(s). Not to disclose this secret profit to the customer (to whom it was recommending the product) was a breach of fiduciary duty, as confirmed in Lister v Stubbs and subsequent cases. As an agent they were under a duty to declare such a profit to their principal, the customer.

    Not content with this breach of duty Halifax advisers (I believe routinely) then later set about churning the endowment(s) they had sold ["churning": recommending the purchase of a new endowment(s) to replace a perfectly adequate existing endowment solely to generate a new commission] Because the branches receipt of commission on the initial sale had been carefully concealed they could, and did, appear as a professional disinterested outsider, commenting on a poor product(s) ostensibly sold by the third party endowment provider through a third party broker some years earlier-"We can do better than this". The churn usually cost the luckless customer thousands of pounds, most of whom never even knew that they had been duped simply and solely to provide the adviser and his/her branch with a fresh commission. US jurisdictions characterise "churning" as fraud. There is a deafening silence in this country on its juridical nature. It was/is characterized as a breach of FSA rules, and has also been described as "appalling advice", but there has been, so far as I am aware, no determination that it is also fraud. The remedy provided by the Financial Ombudsman Service does not get close to providing appropriate compensation in most cases, and certainly not in ours. All this, of course, pales into what, allegedly, happened at HBOS Reading Corporate with small and medium sized businesses. However, fraud is fraud, and lots of little frauds add up. Of course the Serious Fraud Office is not interested unless each individual fraud is worth £1.m. Further the FSA are not, apparently, interested in proceeding against institutions like HBOS for what I believe was the widespread, routine, defrauding of thousands of customers as endowments were churned. I find myself in total agreement with BlueBerry. Until the scale of the problem with UK banks and building societies is properly identified, we will never set in place appropriate safeguards.

  • Comment number 90.

    87. At 11:06am on 5th Jan 2011, yam yzf wrote:
    It is not that they were trading whilst insolvent.

    The FSA stress tests at the end of 2008 showed that should things get even worse than they were at the time, then they would become insolvent. That is the point that the government stepped in.
    ==============================================================

    RBS was in effect nationalised on 13 October 2008. So what relevance does a stress test at the end of 2008 have? I can't find any reference to the FSA "stress-testing" RBS before the bailout on 13 October 2008. I am asking for an independent inquiry into the solvency of RBS immediately before 13 October 2008. Is that unreasonable, in your view?

    And on what evidence do you (and Justin150) base your unequivocal statement that "no laws were broken by the directors" ?

  • Comment number 91.

    88. At 11:32am on 5th Jan 2011, Jacques Cartier wrote:

    "To avoid repetition, we need grounds to punish the perps. Work from that point backwards, then find a way."

    Quite clearly you adopt the mob mentality and everything else the tabloids feed to you. I do hope your views are for the purpose of stoking emotion and perhaps some humour in this discussion - because they achieve little else.

  • Comment number 92.

    #90

    The key factor in October was the fall of Lehmans and the freeze of the credit markets.

    The directors could not foresee that and so their decisions made earlier were not made illegal.

    In the same way that if a car crashes into the back of yours then you will not be held responsible for it as it was out of your control

  • Comment number 93.

    92. At 12:15pm on 5th Jan 2011, yam yzf wrote:

    You simply refuse to deal with my point. Was RBS solvent immediately before 13/10/2008? The only evidence I have is that on that day, the government felt the need to pump in many billions of our money. You seem to have no evidence whatsoever regarding the solvency of RBS at that point. If it was insolvent, and still trading, the directors should be answering some pointed questions. So I repeat my question- do you feel it is unreasonable to ask for an independent inquiry into the solvency of RBS prior to 13/10/2008?

    And to repeat my other question:on what evidence do you (and Justin150) base your unequivocal statement that "no laws were broken by the directors" ?

  • Comment number 94.

    I enjoy reading this blog and its very uplifting how many people veer towards commonsense when commenting but their is always some proportion of entries that cling to the nonsense that got us into this mess in the first place.

    No system works without the appropriate negative feedback loops. Transparency is required to allow anyone to judge whether the running of an organisation and the behaviour and competency of those in charge is adequate.

    The boards of the banks and other organisations mentioned are paid extremely well to accept responsibility for the effective running of their organisations.

    The only way that has any meaning is if they seriously suffer if they screw up! Suffering could range from no bonus, being fired, losing their pension, confiscation of all assets, jail or in some more realistic countries, being shot!

    That this is not happening indicates that our existing legal and political system isn't working.

    So I agree with 84.

  • Comment number 95.

    #86 wrote "I'm glad it's all clear to you, but it certainly is not clear to me that both RBS and HBOS were not trading while insolvent. If the directors of a UK company knowingly allow it to trade while insolvent, that is a criminal offence under the Companies Acts"

    No it is not. Lots of companies trade whilst technically insolvent - indeed at one time or other the vast majority of companies in the UK are technically insolvent (on basis that assets are less than liabilities which is one of the statutory definitions).

    Trading whilst insolvent is dealt with under the Insolvency Act 1986. There are 2 sections which are specifically relevant: fraudulent trading (section 213) and wrongful trading (section 214).

    Fraudulent trading applies where a company is wound up and it appears that it has been trading with a view to defrauding creditors. It is very difficult to prove so hardly ever relied upon.

    Wrongful trading is the offence which is much more common. This allows a liquidator to claim back some of the losses of a company from directors. It only applies if a company has gone into liquidation and directors are only liable if, after the time they should have concluded that the company was inevitably going to go into liquidation, they did not take all steps available to minimise loss.

  • Comment number 96.

    The FSA take action? Dream on. It has shown itself to be pathetically weak and indecisive and has not had any major success story to tell of its regulation. And yes, I for one am very interested in what happens with 'our' banks. As soon as the financial situation approaches something like pre-crash, then they should be split into their component parts, remembering that these 'shot-gun' marriages were waved through on the nod by the competition authorities simply because of the liquidity crisis. With that apparently receding normal competion rules should now apply. If that means that the Halifax is remutualised as a proper building society then that's all to the good.
    Regards, etc.

  • Comment number 97.

    From reading the posts I can see that I am not the only person who is concerned about the silences regarding the unacceptable behaviour in the banking sector. As well as the politicians the other silence is from the banking sector itself.
    I think the rest of us need to put the subject firmly centre stage and open the conversation. Now that the danger of national bankruptcy is receeding I donot think that sweeping this banking crisis under the carpet using the excuse of the common good is valid. No one individual can bring this subject to the forefront of the political agenda. I think that a collective considered response rather than an angry reaction is called for. I suggest that all interested parties email their MP asking for an indepth inquiry or whatever you think is required to get the discussion going. Having done that ask your freinds to do the same and ask them to ask their freinds to do likewise. Think pebble into pond. Younger readers eg students if you like the idea you are requested not to flood the MPs emails with repeat emails otherwise you will loose the moral high ground and therby the argument. Simply make your point and leave think pebble not boulder.
    Once the issue of the banking system is raised it is up to each individual to make their point. Each of us has experienced this crisis from a different veiwpoint i am a small business owner whilst others may be having trouble with the mortgage market.

    So 2 simple actions firstly email your MP, secondly post up any changes you think could be made to prevent a repeat of this cock up aka the banking crisis. jenny

  • Comment number 98.

    #93

    If laws were broken, then the SFO, or whatever they are called now, would be crawling all over the place. They are not, so they clearly accept that no laws were being broken. Likewise, as Justin150 points out in #95, the law on trading whilst insolvent are clearly spelt out.

    Also, if the directors identified on the weekend of the 11/12th October 2008 that the crash of Lehmans had dire consequences for them and they notified the FSA/BoE and the govt stepped in to bail them out then by the time the doors opened on the 13th October 2008 the directors had again fulfilled their duties. Whee some call in administrators to wind the company down - which would have happened if they were allowed to go bust - the government instead stepped in and supported them

    There is no need, as far as I can see, for an enquiry here

  • Comment number 99.

    69. At 23:13pm on 4th Jan 2011, LePlonk wrote:
    ...What about if a local lendings agent sells a mortgage to a consumer, then passes that on to his local retail bank in the form of a bank guarantee...
    ++++++++++++++++++++++++++++++++++++++++++
    This is what appears so murky to me and many others. A mortgage is an interest in land giving its owner similar rights to those he would have if he had a 3,000 year lease in it. It is taken as security for the loan and has mutual obligations attached. As such a legal land interest it can only be transferred by deed or equivalent, and I can't see how these various obscure instruments could amount to this in any proper form. The alternative is that only an equitable interest has been transferred, and this is highly risky, for the seller as much as the buyer. The former can be left with an obligation that does not pass to the buyer if the buyer were unaware of it, for instance.

    These apparent issues alone, on the face of it, in my view give rise to a cause of action, in many instances, for failure of due diligence.

  • Comment number 100.

    #99

    When you take out a mortgage the bank owns the property until the mortgage is paid. What they wish to do with that mortgage is up to them so if the terms and conditions under which it was made allow them to either use it as collateral in a funding transaction or sell it to a third party then they may do so. If they sell the mortgage, then this must be registered on the deeds otherwise you get the problems that the US have at the moment.

 

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