Why bash the HBOS three?

 
Sir James Crosby, Andy Hornby and chairman Lord Dennis Stevenson Sir James Crosby and Andy Hornby, with Lord Stevenson (centre)

It is perhaps a bit odd that lords and MPs on the banking standards commission have chosen to chastise and publicly humiliate two former chief executives of HBOS and the erstwhile chairman - and to ask the regulator whether the three of them should be banned from working in the City.

To be clear, it is not the fact of censure that is odd. It is the timing, and that it's just these three rather than the great gang of bosses of failed British banks.

One relevant point is that the colossal losses generated by HBOS from its reckless lending have been public knowledge for four years.

It is true that the commission has tried to supply a bit more granular detail on the hideous red ink spilled by this owner of Halifax and Bank of Scotland.

It estimates that HBOS's aggregate pre-tax losses between 2008 and 2011 - for most of which it was owned by Lloyds - totalled £30bn, as a result of impairments on loans and investments of a staggering £50bn.

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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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And it calculates that on a proportionate basis, HBOS's losses on loans were twice that even of Royal Bank of Scotland.

As I understand it, the accused former HBOS directors - Sir James Crosby, Andy Hornby and Lord Stevenson - feel these numbers may be an over-statement.

That said, the chairman of the commission, Andrew Tyrie, told me that all these calculations had been passed to the Financial Services Authority, which - he says - indicated they were in the right ballpark.

Also, Messrs Crosby, Hornby and Stevenson would presumably not dispute that HBOS would have gone bust had it not received a massive bailout from the taxpayer and been merged with Lloyds.

And although they are not commenting in public, the scale of the losses generated in two of HBOS's divisions, corporate and international, represent a special kind of incompetence - or at least that charge from the MPs and lords is the hardest for the accused HBOS troika to bat away.

In international, HBOS's Irish and Australian banks were particularly duff, and the bank's strategy of trying to become a leading player in Ireland and Australia looks especially ill-advised. The commission estimates that losses on Irish loans between 2008-11 were £10.9bn, representing a write-off of more than a third of the value of Irish loans. The Australian write-offs were 28% of loans, or £3.6bn.

And in corporate, HBOS was what the Americans would call the "go to bank" for property and high risk companies wanting to load up on debt. The commission estimates loan impairments in this division were £25bn between 2008-11, rather more than the total GDP of Cyprus.

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If the HBOS troika are to be blacklisted from the City, why not ban those who ran the other failed banks?”

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This was not harmless and victimless incompetence, some would say, but a tragedy for the British people and economy.

HBOS, created by the merger of Halifax and Bank of Scotland in 2001, hoped to become a powerful new competitive force in British banking, offering superior prices and services to households and businesses.

But its collapse and rescue by Lloyds actually led to greater concentration in the banking market, and was therefore anti-competitive - and the wounded Lloyds has been struggling to provide the credit needed for British economic recovery.

That said, a large degree of what went wrong at HBOS was - to coin the phrase - systemic. This was a global banking crisis, and banks all over the world with big exposure to property - banks in Ireland, Spain, the US and elsewhere - incurred life-threatening losses.

But not all banks and lenders had to be propped up by taxpayers. In the UK, for example, Nationwide and HSBC weathered the storm, because their foundations were stronger.

Probably the single biggest error at HBOS, exposed by standards commission, was that those who tried to control risk-taking at the centre of the bank did not have the mandate or power to rein in over-exuberant divisional bosses.

All that said, there is a potential danger in this attempt by parliamentarians at ritual blood-letting so many years after the great crash of 2007-8.

Had the punishments been meted out in 2009 or so, there might have been a great national sense of justice having been done. And then morale in the banking industry - not unimportant to our prosperity - could have been rebuilt.

Here's the thing: if the HBOS troika are to be blacklisted from the City, why not ban those who ran the other failed banks, RBS, Bradford & Bingley and Northern Rock?

And if a new season of banker-bashing has been opened, is that the important catharsis that will allow reconciliation between people and banks, or an economically damaging postponement of the rehabilitation of this vital industry?

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    0

    Comment number 698.

    UKL@694
    "no school of thought"
    Welcome back to the schoolman!

    Falling at every hurdle, ever game, finding fabulous (Wiki Henry Hazlitt) "perspective of American conservatism & libertarianism", Bastiaman's side-kick of countless books, fault only with non-libertarian?

    "In the bones of Christ" etc, maybe not to blame, but needing spectrum 'correction' to enjoy accommodation to a shareable reality?

  • rate this
    -1

    Comment number 697.

    694. UKL_UK Libertarian 696. HOOFHEARTED

    Are you 2 married, you've been arguing all day. Was it Rice Crispes over Cornflakes before you got on here.

  • Comment number 696.

    All this user's posts have been removed.Why?

  • rate this
    0

    Comment number 695.

    #692. purple

    Define "modestly".

    At issue however is allowing others to gamble using the revenue stream as collateral.

    The others, presumably not direct contributors to the exchequer's revenue stream, will get a free lunch.

    We would end up being a nation of spivs. Which we are.

  • rate this
    +1

    Comment number 694.

    691.HOOF
    I take it, you have no school of thought to base your assumptions on. I don't mean to belittle you. If I may, try Henry Hazlitt's "Economics in 1 Lesson". It's a fabulous primer, and even after reading countless books from intellects like Hayek - Hazlitt's book is by far the best. Almost all of your grievances are covered by it. It's a great read and you can make your own mind :)

  • rate this
    +1

    Comment number 693.

    purple @692
    "Why
    AAA not
    leveraged modestly"

    Patient might wake-up, mid-operation?

    And realising Plan B to be working

    Think ill of the last 3 years?

  • rate this
    +2

    Comment number 692.

    If anyone would care to explain why, a AAA asset such as the exchequers revenue stream, should not be leveraged modestly, l am all ears.

    Fire away.....

  • Comment number 691.

    All this user's posts have been removed.Why?

  • rate this
    +1

    Comment number 690.

    I'm lucky, don't owe anyone anything. 1 thing I do owe is thanks to whatever stopped me from buying into the Politicians no more boom & bust, anyone remember that. Or media as well as banks, economists saying great time to invest in everything. Now it's all laid at the bankers door, the others involved play act shock & disgust. You can't kill a cancer by cutting out a little bit, it's all of it

  • rate this
    0

    Comment number 689.

    4 years after

    March 2008, HBOS shares fell 17 percent amid rumours. FSA investigation of short selling concluded there was no deliberate attempt to drive share price.

    17 Sept 2008, shortly after demise of Lehman Brothers, HBOS's share price suffered wild fluctuations between 88p and 220p per share.

    The truth is out there and probly sat in a purring Bentley or two.

    This is a sad story.

  • rate this
    +1

    Comment number 688.

    They failed in there job.. its as simple as that..if I fail in my job I'm out... no questions ask, why should lords and sirs be treated different? you can comment all you like but they have to pay a price for there failure which cost us all a lot of hard earned tax money.....they had there mega bonuses and they should pay it all back

  • rate this
    0

    Comment number 687.

    661.HOOFHEARTED
    Pray-tell. What do you feel they are? Where do you get your information that led to your conclusions, so that I may understand the school of thought that has been studied and written upon.

  • rate this
    0

    Comment number 686.

    641. jesters-wand " why target these ? - Because you have to start somewhere. "

    Seems a very late selected start, usual scapegoats fed to mass opinion by politicians. Who never ever had anything to do with the whole pack of cards that came tumbling down. The City banks are still untouched, QE paid their fines & re liquidated them. This is damage limitation, give up a few, they'll forget the rest.

  • rate this
    +1

    Comment number 685.

    October 9, 2008

    When the SEC and FASB issued proposed fair-value accounting guidance, they may have eased the minds of many conservative, honest accountants wary of basing estimates largely on assumptions. Under pressure from lawmakers and angry bankers to loosen the rules, the standard-setter acknowledged that "significant judgment" is required for marking financial instruments to market.

  • rate this
    +1

    Comment number 684.

    October 17, 2007

    FAS 157

    Under the standard, companies will be required to measure fair value based on the exit price of an asset and a hypothetical third party's (or market participant's) value placed on that asset. That will force companies to report an asset's value based on the many possibilities of what could happen to it, rather than what they truly intend to do with the asset.

  • rate this
    +2

    Comment number 683.

    Treason via economic terrorism is what these men have done as have all the bankers and financiers making them selves incredibly wealthy on the way they should be locked in the tower then maybe somthing medieval and send the bits to all banks headquarters as a reminder and their heads in the city

  • rate this
    +1

    Comment number 682.

    I blame successive governments who have bought in to the ethos of"hands off or "light touch" regulation" this is a mantra which currently constrains every overseeing body in the UK from the FSA to the EA...indeed the Meat Hygiene Service was criticised for not implementing the policy fast enough... the result is banks in meltdown or that you literally get horses for "main" courses

  • rate this
    +3

    Comment number 681.

    Former HBOS directors 'face City ban'
    http://www.bbc.co.uk/news/business-22056275
    Wow, their pay-offs were more than most people's net worth and more than many will earn in their lives - they can afford to be "retired".
    If they have done something wrong they should make reparations; if they have not done anything wrong - why ban them?

  • Comment number 680.

    All this user's posts have been removed.Why?

  • rate this
    +1

    Comment number 679.

    675.HOOFHEARTED
    "Now you're moving into the realms of fantasy."
    =
    Well if dreaming of freedom is a fantasy, I am a dreamer.

    You're good at attacking my philosophy. I hope I've made a good case for freedom. What would you do to cure our banking environment - if you were King for a day with power to do it?

 

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