HBOS collapse: Ex-bosses face calls for City bans

James Crosby, Andy Hornby and Lord Stevenson

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Financial regulators should consider banning three top HBOS bankers from senior roles in the financial sector, an influential committee has said.

The Banking Standards Commission said former bosses Sir James Crosby, Andy Hornby and Lord Stevenson were guilty of a "colossal failure" of management.

HBOS collapsed in 2008, wiping out shareholders, costing thousands of jobs and forcing a £20.5bn taxpayer bailout.

On Friday, Sir James resigned as an adviser to investment firm Bridgepoint.

The BBC understands that he was asked to resign by the board of the private equity firm following the publication of the HBOS report.

So far, there has been no response from the three men to the findings.

Banking Standards Commission chair Andrew Tyrie says there had been "a colossal failure of leadership"

The Banking Standards Commission was set up to improve the UK's banking system following the 2008 financial crisis.

Its members are MPs, members of the House of Lords and the Archbishop of Canterbury.

Its report criticised the now-defunct City regulator the Financial Services Authority (FSA), saying the watchdog appeared "to have taken no steps to establish whether the former leaders of HBOS are fit and proper persons to hold the approved persons status elsewhere in the UK financial sector".

The Chief Secretary to the Treasury, Danny Alexander, said the government would consider whether more should be done to hold those responsible for HBOS's demise to account.

"Unfortunately, the regulatory regime that was in place at the time was nowhere near tough enough," he said.

"We're just taking action this week as a government to put in place a tougher, new regulatory regime to try and make sure that some of the mistakes that were made can't happen again."

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This report stands out as a cracking page-turner. It's because its authors have a cracking turn of phrase and because they have made it about the people at the top of HBOS, and their individual and collective roles in driving it spectacularly over a cliff ”

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The report, called An Accident Waiting to Happen, paints a damning picture of the management failures leading up to the collapse of the bank at the height of the UK's banking crisis.

It estimates that 96% of shareholder value was wiped out when the bank collapsed, costing taxpayers £20.5bn.

Lloyds Banking Group, formed from the merger of Lloyds TSB and HBOS in 2009, has since cut tens of thousands of jobs and remains 39% state-owned.

The banking crisis also precipitated the economic slump from which the UK is still struggling to recover.

The commission accused the bank of "reckless" lending policies that resulted in losses of £46bn.

Such losses would have led to insolvency, had the bank not been bailed out by the taxpayer and Lloyds TSB, the commission claimed.

'Too much risk'

The commission concluded that two former chief executives, Sir James Crosby and Andy Hornby, were mainly to blame for the collapse of the bank, together with its former chairman, Lord Stevenson.

"The primary responsibility for the downfall of HBOS should rest with Sir James Crosby, architect of the strategy that set the course for disaster, with Andy Hornby, who proved unable or unwilling to change course, and Lord Stevenson, who presided over the bank's board from its birth to its death," said the report.

"Lord Stevenson, in particular, has shown himself incapable of facing the realities of what placed the bank in jeopardy from that time until now."

In written evidence to the commission last December, Lord Stevenson admitted that the bank took on too much risk in the run-up to the 2008 financial crisis.

Who are the HBOS three?

Andy Hornby, chief executive of HBOS from 2006

  • Degree in English from Oxford University and MBA from Harvard Business School
  • 1996 - 1999: Senior roles at Asda, including managing director of the George clothing brand
  • 1999 - 2008: Senior roles at Halifax and later HBOS, becoming chief executive in 2006
  • 2009 - 2011: Chief executive of Alliance Boots
  • 2011 - Present: Chief executive of bookmakers Coral

Sir James Crosby, chief executive, HBOS chief executive from 2001 to 2006

  • 1994: Joins Halifax bank as managing director of Halifax Life after 20 years in financial services
  • 1999: Becomes chief executive of Halifax, and first chief executive of HBOS in 2001
  • 2004: Appointed a non-executive director of the Financial Services Authority (FSA), while still head of HBOS
  • 2007: Becomes deputy chairman of the FSA following resignation from HBOS in 2006
  • 2009: Resigns from FSA
  • 2006 - Present: takes on various roles including non-executive director of Compass Group, chairman of Mysis, a trustee of Cancer Research UK, and an advisory role at private equity firm Bridgepoint
  • 2013 - asked to resign by board of Bridgepoint

Lord Stevenson, chairman of HBOS from 2001 to 2008

  • Begins business career in the 1960s after leaving university
  • 1979 - Present: Takes on several non-executive directorships at companies including BskyB, Pearson, Manpower and Western Union.
  • 1997 - 1999: Knighted and later made a peer for life, taking a seat in the House of Lords
  • 1999: Appointed chairman of Halifax, and later HBOS after its formation in 2001
  • 2008: Stands down as chairman of HBOS
  • Presently director of Cloaca Maxima, a consultancy, and non-executive director of Waterstone's

The former head of wholesale banking at HBOS, Peter Cummings, was fined £500,000 and banned from working in senior financial roles by the FSA last year.

But the Commission expressed surprise that no-one else had been punished.

While the three executives saw their "Approved Person" status at HBOS lapsing, they did not face any further sanctions.

An Approved Person is someone who is permitted to carry out particular financial functions by the FSA.

"The FSA appears to have taken no steps to establish whether they are fit and proper persons to hold Approved Person status elsewhere in the UK financial sector," said the report.

Flawed strategy

The report said the strategy set by the board after 2001 "sowed the seeds of its destruction".

That was the year in which the Halifax and the Bank of Scotland agreed to merge, forming HBOS.

Its losses of £46bn included losses of £25bn in its corporate division, and £14.5bn in Australia and Ireland.

Senior executives of HBOS tried to blame the losses on the temporary closure of wholesale markets.

During the financial crisis, banks stopped lending to each other, resulting in their short-term supplies of funding drying up.

But members of the commission said they were disappointed by such explanations, as it was the lending approach that was to blame.

"This culture was brash, underpinned by a belief that the growing market share was due to a special set of skills, which HBOS possessed and which its competitors lacked," said the report.

"This was a traditional bank failure, pure and simple. It was a case of a bank pursuing traditional banking activities and pursuing them badly."

Lloyds Banking Group stressed that the relevant events happened before it owned HBOS.

"We continue to focus our efforts on rebuilding the group for the benefit of our customers, employees and shareholders," its spokesperson said.

Ray Perman, the author of Hubris: How HBOS Wrecked the Best Bank in Britain, said the commission's criticism was unusual in singling out individuals.

"For the first time, blame is squarely pinned on the people who deserve it - the chairman, the two chief executives," he said.

"What they did was to pursue a very fast growth strategy, regardless of the risk and they fooled themselves into thinking that their initial success was [because] they were better than everybody else, but eventually those risks caught up with them."

Failure of regulation

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It is unprecedented for MPs and peers to suggest that a group of senior bankers should be banned from working in the City”

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The commission said the FSA's regulation of HBOS was "thoroughly inadequate".

In the three years following the merger, it said, the regulator managed to identify some of the issues that would contribute to the group's downfall, such as its aggressive pace of growth and its reliance on wholesale funding, as opposed to using its own savers' deposits.

But it failed to follow through on these concerns and was too easily satisfied that they had been resolved.

From 2004 to 2007, the FSA was "not so much the dog that did not bark, as a dog barking up the wrong tree", claimed the report.

There was too much supervision at a low level and too much box-ticking, it said.

The report requires the FSA to answer nine questions about its failures. But since the FSA was abolished five days ago, on 1 April, it will not be able to do so.

Instead, its replacement, the Prudential Regulation Authority, said it would be studying the report, "to ensure that the lessons from the failings at HBOS have been fully learned".

A further report into the collapse of HBOS, started by the now disbanded FSA, will be completed by a new regulator, the Financial Conduct Authority.


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  • Comment number 413.

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

  • rate this

    Comment number 412.

    I told the Treasury team at HBOS in front of the FSA in July 2005 that they needed to stress test their models. Their response was that 'the models are correct'. This is basic risk management which they totally ignored. They were also warned about PPI misselling and my colleague was pushed out of Group Risk for pointing this out. They must be held to account.

  • Comment number 411.

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

  • rate this

    Comment number 410.

    Out of control bonuses and salaries is a part of the problem. They give the recipients overinflated ideas of their own self worth and abilities. Noone should have two, three, four or more times what the average person earns in a lifetime - EVERY YEAR. Noone is indispensible. Lots of people could and would have done a far better job than these 3 for much less money.

  • rate this

    Comment number 409.

    4 Minutes ago

    Apparently this UK company under UK oversight and responsibility it is a Scottish issue according to the BBC.

    Why? Propaganda - maybe. Bias - probably. Agenda - likely?


    They are headquartered in Edinburgh. It would be the same for Iron Bru or Whiskey even though they operate UK wide. I think you may be a bit paranoid. lol

  • rate this

    Comment number 408.

    The tribal left is alive and well on HYS I see. If a Tory told a lefty to not play with matches he'd set himself alight just to argue, and then blame Thatcher for not banning matches in the eighties.

    A certain Sir Mervyn King seems to be getting off very lightly here? He was the Governor of the Bank of England at the time. Appointed by his mate Tony.

    Stop playing with those matches..

  • rate this

    Comment number 407.

    One is a Lord and one is a Sir - just about covers everything that is wrong with this country.

  • rate this

    Comment number 406.

    I think it's a bit pointless now trying to bolt the gate now the horses have long since gone. The two main problems with all people in such jobs is that they are never held accountable and they never see the devastating outcome of their incompetence, their position and salary are far too important for them to see the bigger picture.

  • rate this

    Comment number 405.

    When will the scales drop from peoples' eyes?
    The financial crisis was engineered and encouraged by the governments then in power on both sides of the Atlantic. They believed that by encouraging banks to lend profligately they could create a "feel good" environment which would ensure re-election. The bankers were stupid enough to believe the plaudits from Brown and Bush.

  • rate this

    Comment number 404.

    Watriler's post was so brilliant it deserves repeating:

    "The general law governing director responsibilities needs to be amended so that due diligence & methodical & professional scrutiny of the organisation is presumed. There will, therefore, no longer be a defence of ignorance or ‘bad luck’ or employee fault open to a director of a large organisation..."

  • rate this

    Comment number 403.

    I agree that the politicians of various governments are to blame for this as much as the bankers. But it suits them to point the finger at these guys and slink away unnoticed. Best thing to do with 90% of politicians, put them on a boat and sink it !

  • rate this

    Comment number 402.

    We had the perfect opportunity to let this current banking system hit the wall, but without a vote, the government decided it was in the publics best interest to save them.
    What I dont quite understand, is why the money that was used to bail out the banks wasnt used to secure peoples savings and investments ?
    Which tells us that the government gave the banks more means to gamble with!

  • rate this

    Comment number 401.

    Can we not just have their heads and be done with it, the sliver platter would be a nice optional touch, but it is not necessary.

    Being serious though there are lots of professions that require licensing and when people commit gross negligence in these professions they loose those licenses and are either suspended or banned from the profession, why should bankers be any different?

  • Comment number 400.

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

  • rate this

    Comment number 399.

    The fundamental issue that riles people is one of risk and reward. An entrepreneur risking everything to run a business is rightly rewarded if successful. However, in the board room of most large companies are people (admittedly well educated and trained) who are receiving excessive reward when personal risk is minimised. The operational risk is therefore played down.

  • rate this

    Comment number 398.

    Doesn't legislation already exist to deal with this? If these guys are 'Directors' causing or allowing a company to trade to the disadvantage of the crown then surely the Secretary of State can require that they are disqualified from acting as Directors. It happens frequently in the SME sector even to non-execs. Obviously the disadvantage is proven by the bail out so why not disqualification?

  • rate this

    Comment number 397.

    Ermm - An obvious fact not often stated is "Westminsters" clear conflict of interest. An outrageously buoyant financial sector equals a very very attractive tax rake off to HM treasury. It is unsurprising that a light touch regulatory system was eased into place. In my experience a UK recession typically occurs from peak to trough approximately every 9 years. A 15 year period should have warned.

  • rate this

    Comment number 396.

    Osborne has explained why we can't limit bankers bonuses because we would lose their "talent" to competitor countries.
    At a rough estimate the loss of these jokers and the equally useless band of money grubbers at RBS before 2008 would have left the UK economy approximately £130 Billion Better off.

    Nice One George glad to see you maintaining your 100% record of always being wrong.

  • rate this

    Comment number 395.

    As well as banning them Lets also stripe them of they Titles.

  • rate this

    Comment number 394.

    I note that Cyprus have called in their higher legal experts to investigate their banking problems as soon as possible.

    In the UK, we take 6 years, and release a report four days after the FSA is disbanded and so can't respond.

    I lost a lot of money in HBOS, that money was supposed to be a good part of my pension, and these guys keep their money, and receive a ban?



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