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HBOS: Strong men will weep

Robert Peston | 10:51 UK time, Friday, 27 February 2009

If you're of a nervous disposition don't turn to page 20 of HBOS's 2008 results, published early this morning.

HBOS logoThese are the last ever financial results for HBOS as a discrete entity: it was recently swallowed by Lloyds - which now has a bad case of indigestion.

The horror story that's told under the heading "corporate" from page 20 onwards is of a bank that appears to have had a death wish.

For all the criticism of the alleged excessive risks taken by HBOS's mortgage department - as per the charges levelled at the bank by its former head of regulatory risk, Paul Moore - the most reckless lending and investments were made by the bit of the bank that provides services to companies.

This corporate division generated losses of £6.8bn in 2008 from loans and advances to businesses of £116bn.

It has had to write off an average of 47% of those loans in this area that have gone bad. Almost 12% of all its corporate loans are now classified as impaired or damaged. And as a percentage of the total corporate lending book, the impairment charge is just under 6%.

On the basis of those statistics, HBOS appears to have left a big bag of money open on the pavement with a sign saying "borrow what you want".

HBOS was too exposed to the property sector; it was too exposed to housebuilders; it was too involved in relatively low-quality private equity; and it made the classic mistake of doing what bankers used to call "pig-on-pork", or taking equity stakes in creditor companies.

As I've said before, it is amazing that the Financial Services Authority, the City watchdog, didn't feel it was appropriate to rein in HBOS's corporate lending department.

In particular, it's odd that the FSA didn't apparently appreciate that the ability of a lender to properly assess credit risk can be dangerously damaged when that lender thinks it's going to make massive returns on equity investments (the notorious "pig-on-pork").

So poor old Lloyds now owns what can be seen as one of the worst-quality loan books on the planet.

Which means that the big message of HBOS's shockingly bad results is that Lloyds lacks the resources to cope with potential future losses.

That's why Lloyds has been in talks with the Treasury on a deal that would see taxpayers taking on the liability for much of the future losses on around £250bn of loans and investments.

These insured assets would include almost the whole of HBOS's corporate loan book, a load of HBOS's mortgages (where the impairment charge has also risen significantly) and a bunch of silly investments made by HBOS's treasury operation.

This insurance deal would be the equivalent of the protection taxpayers yesterday gave to Royal Bank of Scotland - though on terms that may look worse for Lloyds, since HBOS's portfolio of loans to companies is viewed by the government as exceptionally high risk.

To state the obvious but frightening point, HBOS's £10.8bn overall loss was generated last year, before the recession really bit on the ability of personal and corporate customers to keep up the payments.

As of last night, it looked as though agreement was near - which mattered, since the City was aware that both sides had set a deadline of this morning to announce the deal.

However, it's almost elevenses and no deal has been announced.

Is this a matter of grave concern? Probably not.

As I understand it, there is no major difference of principle between Lloyds and the Treasury on the bailout terms.

There's been a technical hitch, the equivalent of what goes wrong when you type the wrong numbers into a mathematical formula.

The point is that the Treasury and its advisers have constructed a model that generates a price for the insurance that we as taxpayers are selling to the banks on the basis of various different measures of the quality of assets to be insured.

So if the data that goes into the model isn't quite right, the wrong answer will be generated on material issues like how much of the loss on loans should stay with Lloyds' current shareholders and how much Lloyds should pay for insurance in the form of new non-voting shares.

The glitch can be solved. And it will be solved, though possibly not till Monday or so.

Because what HBOS's stupendous losses demonstrate is that Lloyds will not thrive again without a fairly substantial financial prop being provided by taxpayers, by you and me.


Page 1 of 6

  • Comment number 1.

    I tell you what Robert your blog is making me even gloomier.

  • Comment number 2.

    Zombie banks, and a zombie economy.

    What a mess.

  • Comment number 3.

    Yet the government want banks to lend to businesses! Madness. If a business needs money they are broke already and a loan is just madness cos you will never get it back. Hang on it's a bit like Brown lending to banks........... except it's US who will never get it back!

  • Comment number 4.

    The next question Robert is: are you responsible for all of this?

  • Comment number 5.

    Why is Crash Gordon's mate Sir Victor Blank still in charge? It is abundantly clear that the stitch up between Blank and Brown last year, which saw the well run Lloyds TSB takeover the basket case HBOS, was a monumentally bad deal for the existing shareholders of LTSB.

    Blank must go and go quickly! (With Crash not far behind).

  • Comment number 6.

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

  • Comment number 7.

    What alarms me about all of this is the simply lack of any checking having occurred

    Will we have to wait for the 30 year rule before we discover whether Lloyds was a willing partner or the whole of HBOS was foisted on them by the government because they had already taken on NR and B&B?

    If it is possible to actually get these kinds of figures out in such a sort time, are we to believe that the former management of both RBS and HBOS were completely unaware of the risks that their strategies and operations were actually taking?

    With the scale of these "risks" does this not hammer further nails into the coffin of the FSA?

    If we also take this along with the evidence from the Governor of the Bank of England to the Treasury committee yesterday then there does appear to be a huge pile of compost appearing in Downing Street.

    At what point will someone from the government actually take accountability?

  • Comment number 8.

    How could Lloyds have possibly done any real kind of due diligence on HBOS before making a takeover offer?

    It seems that GB gave this deal a nod and a wink to the Parties with guarrantees of Knighthoods etc and other goodies and no one even bothered to "Look under the bonnet"

    These people are amoral and worse than used car salesmen at their best. Why does Brown hate the people of this Country so much, to wreck it in the way he has?

  • Comment number 9.

    Trust me on this Robert. I worked with two of HBOS's much senior executives for several years in the late 80s early 90s and I can't tell you what a kicking was given to me when I dared to suggest that the Scottish property marked was about to tank as had already happened in England. overnight I lost my senior management status and got treated like a pariah. I had only made the observation because I hoped that it would save someone I felt had also become a friend (we had a client/consultant relationship) from making a big financial mistake (trading up at the top of the market. What a fool I was. Neither of these two guys are at HBOS anymore. But I certainly hope that they will read this post and recognise that I am talking about them. HBOS was an accident long in the making.

  • Comment number 10.

    Gordon Brown broke Lloyds TSB. Certainly it was "helpful" of them to oblige and buy a dying bank and avoid yet another part-nationalisation. But they were half the size. The government clearly had no idea how bad things were at HBOS and how diluted Lloyds TSB's quality would be. All his wannabe-powerbroking achieved was a breaking down of firewalls and further contagion.

  • Comment number 11.

    Surely, these corporate losses can only get worse. This bank is effectively dead.

  • Comment number 12.

    Stupendous incompetence.

    What bothers me is the insurance scheme.

    As soon as the banks have taken out the insurance, they can forget about recovering the debts. The Taxpayer will pay it. The Banks simply won't care now. They'll write it off a.s.a.p so that the State has the burden of what seems to be at least another half-a-trillion quid. It's the easy way out for them. The commercial world always takes the easy way out. Every time. Always. Without fail. It's the way they think...

    So I'd rather the Bank of England or a new State Bank took the debts onto their books and actively tried to recover the debt. They can restructure the debt and help those struggling by all means, but the lesson of life is that if you borrow money you should expect to have to pay it back and you'll be hounded until you do...

  • Comment number 13.

    Oh well

    Now the bad news is out, at least the Government will put guarantees in place and the markets can now move on.

    Yes there is more immense debt on the Government and Taxpayer's 'balance sheet', but hey, life has to go on and this is the way those that are the 'powers that be' have chosen to go.

    Inevitably, there will be some more pain to come, because Government, Treasury, BOE inactivityand Bank unwillingness to 'fess up' sooner, now mean that property portfolio's have crashed somewhat in value.

    We need to move on, Lloyds price will rise again, provided that banking activity now resumes as normally as it can and no more huge losses are announced in 2009.

    Perhaps now is also the time to address the need to break out the old building societies from the banks and revert to traditional profitable mutual societies, owned and run by those that understand the property markets.
    Banks can be left to the 'rocket scientists'

  • Comment number 14.

    Again StrongholdBarricades slips through to post low-level dissatisfaction whilst the rest sit in moderator purgatory. Infiltrator in our midst, albeit with not particularly pro the status quo. Confused

  • Comment number 15.

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

  • Comment number 16.

    OK, sure thing in a modern market economy a thriving banking system is required.....but....

    - would it not have /STILL BE been cheaper for the Government simply to have nationalized it and whiped out all the private shareholders.

    - also just because all deposits are guaranteed up to ??? why don't the banks default on larger and especially larger foreign loans/ deposits ??? (hardly desirable but surely preferable to taxpayers footing the bill forever and a day.

    - why does RP and others persistently perpetuate the myth that the senior management and directors of banks and city firms are so talented and deserve bonuses and huge rewards - clearly they are any but talented. It is difficult to know how they could have run their businesses any worse. Banking is NOT rocket science.

  • Comment number 17.

    Gordon Brown, is it correct
    to bury the British taxpayer under a mountain of debt?

    Gordon Brown, do you regret
    luring the British consumer into a life of debt?

  • Comment number 18.

    "and it made the classic mistake of doing what bankers used to call "pig-on-pork", or taking equity stakes in creditor companies."

    Hmm... I wonder who else has just done that in a massive way?

  • Comment number 19.


  • Comment number 20.

    So the house of cards is still falling all be it with a gov safety net!

    So we will not see and end to this until we know the depth of the damage with with this will be at least another 12 months probably 24.

    In the words of our dear departed freddie 'and another one down another one bites the dust'

  • Comment number 21.

    just a thought - there is a lot riding on this formula - what are the chances of them getting it right this time?

  • Comment number 22.

    As an ex HBOS employee (I got out the week the takeover was announced - very lucky!), I'm shocked out how bad these results are...and how badly the bank has clearly been run...

    What with the ruckus over Sir Fred's pension, someone else is being overlooked! I understand that Andy Hornby, the ex CEO of HBOS who 'stood down' is still employed as a 'consultant' by Lloyds to the tune of £700,000 per year!! offence (actually please take offence Andy, you directly put my livelihood at stake!) but I think it's fair to say that this man should be considered a liability, and as we (the tax payer) own 43%, and by the sounds of it are going to be insuring 100's of Billions of £'s of his bad debt can we please apply a bit of pressure and stop paying these fools obscene amounts of money!

  • Comment number 23.

    It is quite apparent then that HBOS lent money to businesses which every other bank had refused.

    Also Llyods' management in their greed to take over HBOS purchased a pig in a poke from Mr. Brown.

    It doesn't look very good, does it?

    I think some resignations are in order in both the City and Whitehall.

    What on earth made these foolish people think they were being clever? Is there something in the water? Or is it air pollution?

    I hope they all have big pots in which to hold their pensions otherwise they might spill some money on the peasants and that will never do!

  • Comment number 24.

    I have a friend who is a very senior banker in London who was telling me that the government are placing a great deal pressure (as the major shareholders) that the assets right down valuations are greater than what they should be thus making the losses / position of the banks look much worse this year. Why would that be? Could it be that when they revalue the assets next year (I presume the bank accounts will be published at a similar time of year i.e. just before the election??) they will be valued at much higher ration and thus make it look to the general public that the government can say “look how we’ve improved the banking position sorry the World”!!!!

  • Comment number 25.

    Think we need to get David Blain over here on that plinth to magic way these banks bankers and bonuses. That would be worth while art.

  • Comment number 26.

    just seeing if I too can slip past the moderator pphssst...

  • Comment number 27.

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

  • Comment number 28.

    Frankly I am not surprised by this mess. My wife worked at IMRO then at the FSA after its creation in one of its high risk monitoring teams.

    The FSA had a practice of not asking hard questions, making visits or looking into the firms being monitored. Most monitoring was desk based apparently and based on reviewing information that companies sent in.

    The FSA had, well known to its staff, a policy of not recruiting the best and brightest as it feared they would stay a couple of years, get trained, learn the process and then leave for the private sector. The result was a lack of relevant expertise in accounting, banking and auditing across the organisation.

    My wife left out of frustration.

  • Comment number 29.

    A trillion minutes ago is 31,688 years ago, close to the beginning of human history (Source. In other words, if you spent a dollar per minute, you could barely spend a trillion dollars during all of known human history

    I wanted to try and get a perspective on these huge numbers and google came up with the above. So a pound is worth about $1.40 ergo a pound a minute could NOT be spent in 40% longer time than humans have existed on earth!
    We are now talking about a UK debt of TWO Trillion pounds. Twice the number of minutes of £1 spend in the whole of human existence.
    Must give it to Labour, some achievement in 11 years or so.

  • Comment number 30.

    Robert, good morning

    According to Gillian Tett in the Ft this morning, it would appear that the 'toxic assets' or 'debts' announced by the banks might benefit from public auctions of the CDO ABS.

    Read the article, an interesting point of view.

    at least the Banks might finally get closure on the debts issue.

  • Comment number 31.

    Of the four principle UK clearers, RBS and Lloyds are now Zombie Banks - dead but still walking with taxpayer social security payments. HSBC has been a little off-colour but is relatively healthy. An interesting case is Barclays.

    Put into intensive care by the markets it has been pronounced as still alive (if not well).

    Question: does Barclays think it is a strong position in any negotiations with HMG concerning its own toxicity?

    Recent noises from them suggest that they think so, but how much of this is posturing and bluff before the game? The reckoning for Barclays may soon arrive. The ducking and diving over the past year seems to have served them well, but if the HMG team are of any use at all, we shall soon see how much toxicity they have concealed.

  • Comment number 32.

    One can only presume that Mr Daniels was in no way expecting these figures.

    On the Takeover document issued to Lloyds TSB shareholders he explained that whilest no dividend, as such would be paid this year, it was the intention of The Board to pay this in the form of shares.
    Also the first action would be to repay the Government Preference Shares which cause this restriction.

    Now call me picky if you wish, but won't a profit be needed first.
    And the price of insuring these toxic 'assets' looks like it is going to swallow much of/all of that, if in fact a profit can be made in this rescession year.

    And yet around 94% of Lloyds TSB Shareholders voted in favour of this deal.

    Leemings comes to mind.

  • Comment number 33.

    Even Graham Taylor never had results this embarrassing !

    But at least he resigned

    When will Brown & Darling do the decent thing.

  • Comment number 34.

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

  • Comment number 35.

    discrete not discreet (sadly anything but!)

  • Comment number 36.

    Is there any scope for shareholders or the taxpayer who has to provide the baillout, sueing the incompetent directors of these banks for negligence and taking away their ludicrously overgenerous pensions?

  • Comment number 37.

    Why no riots?

  • Comment number 38.

    Robert wrote:

    "the worst-quality loan books on the planet"

    How do you know?

    Let's face facts. No bank in the World keeps accounts in a way that can ever let us know what is going on. For generations the method of producing accounts has been to obscure the facts. This has led the management of banks to adopt the attitude of 'stick their heads in the sand and hope it goes away'.

    It is quite probable than when the history of this gigantic financial collapse is written that blame will be placed upon the methods of accounting and supervision that let the managements get away with hiding the facts - even encouraged it. Please start heaping blame upon the accounting profession and legislatures for knowingly allowing this to continue and not qualifying the accounts of the banks.

    As an aside my guess is also that the move to mark-to-market will be seen as one of the causes of the collapse.

  • Comment number 39.

    I have always banked with Lloyd's, and from my own personal view they have always come across as a quite a sensible bank. But surely buying HBOS is one gift horse that they should of looked in the mouth at.

    The shareholders in Lloyd's must be absolutely livid. Does anyone buy a business without looking at the books first ?

    I know Mr Brown loves his country, but I think we all know by now that when the name 'Scotland' is attached to any financial institution at the moment it means it's time to tip your hat and say good day to any business dealings with that company. God, what have Lloyd's done ?

  • Comment number 40.

    “These are the last ever financial results for HBOS as a discreet entity: “

    It was so discreet it was almost retiring!

    Perhaps the credit crunch is due to using discreet numbers for accounting rather than discrete ones?

  • Comment number 41.

    It really makes one wonder when they're going to stop drip-feeding bad news to the markets. Is this the last of it? Probably not.

    And on a slightly pedantic point Robert, HBOS was a 'discrete' entity, not a 'discreet' one.

    They've plainly shown no discretion whatsoever.

  • Comment number 42.

    If the government is going to take on the risk for the HBOS bad debt anyway, wouldn't it have made more sense to rescue HBOS directly rather than saddling Lloyds with it?

    This was a deal that was encouraged (at least) by the PM himself and has clearly poisoned Lloyds, which was a relatively healthy bank before. This matters, because it might potentially be grounds for Lloyds shareholders to sue.

  • Comment number 43.

    Actually my comment is about Robert Peston's pdf document just to the right of this blog - The New Capitalism.... My comment is he could do with getting out more, prise open his mind a bit , because his document is mostly just an analysis of what went wrong with banking and living on debt.

    What is really under scrutiny now is the structure of society, the so-called market economy, scenarios where local councils, and county councils routinely routinely refer to themselves as 'the business'. Local people are 'customers'. And people who complain have 'issues' , and if they keep complaining they are a social nuisance.

    Something deeply adrift in this country, like for example the leader of the Parliamentary opposition, David Matthhews, only a few weeks ago....."Every benefit claimant is a potential Karen Matthews (child abuser). So much for a leading politician's deep understanding of society outside his range of banker friends.

    As I said Peston could do with getting out more.

  • Comment number 44.

    Robert, you have a talent for determining the facts, bringing them to light and are not afraid to put noses out of joint.

    This in stark contrast with Brown and Darling who are, at best, ineffective.

    Any chance you could stand in the next general election and replace them both?

  • Comment number 45.

    As a practising accountant, I have a number of clients who are property developers or investors. It was very noticeable that in the last 3 or 4 years before the credit crunch, as soon as existing bankers to these clients became difficult over facilities or costs, the client would change bankers to either Bank of Scotland or the Irish banks, Anglo Irish and Allied Irish. With the benefit of hindsight, it is easy to see why and demonstrates that the lending criteria of these banks were much looser than the main clearers or other traditional banks, so risk controls were presumably more lax. The FSA was simply asleep on the job.

  • Comment number 46.

    Your point about a death wish is probably spot on, Robert. There's no other explanation. A collective death wish by homo sapiens at this time in history.

    There isn't any other excuse, is there?

    Looking at the massive destruction of trust which is now a direct result of the mismanagement of banking, all one can say is it has been insane.

    Strong men will weep, and women too. We have been plundering a world as though there's no tomorrow, making damn sure of it in the process!

    I pity the poor souls who have to crunch the numbers and get them right, though who can tell if it's possible when we're talking of numbers with so many zeros after them?

    The devil's in the detail and the glitches are the devil in disguise.

  • Comment number 47.

    The government MUST guarantee corporate loans if the market is going to work correctly and the economy is to be stopped from collapsing.

    The existence of 'positive externalities' creates the following paradox: the only way the free market can run without artificial distortion is through government subsidy. Sounds bizarre? Yes, but it's still true. Here is why:

  • Comment number 48.

    Vincent Cable for PM

  • Comment number 49.


    What appears to me as the most glaring weakness in the RBS (and presumably soon to be announced LBG) insurance bailout is the following:

    Is there any real likelyhood of the banks who receive the bailout will actual show any real and effective effort at recovering the highest possible value on the melage of flawed assets when the 'default event' occurs on the majority of them, as it surely will?

    Brown is not expecting the taxpayer to believe he is going to set up the world's most successful international debt collecting agency is he?

    The scheme announced yesterday gives the incumbent bank executives at RBS and LBG seven years of growing their million(s) pound pension pots and the taxpayer to pick up the inflated tab rather than letting 'brain dead' banks fail at the earliest opportunity whilst cherry-picking the assets from administration to form 'Newbank 2009 ltd' that could have 100% protected retail savers nad minimised the ongoing bill for the taxpayer.

    Someday soon Brown will realise we can only spend money once and there is not an infinite amount of it.

    Brown and his cronies in the main have never had to produce anything other then words and spend other peoples hard earned money.

    QE is not going to help 'UK plc' now or in the future.

    Devaluation and inflation will put further self inflicted nails in the coffin of our childrens future.

  • Comment number 50.

    There must be a legal basis for investigating the internal decision-making processes within these banks. Betting or gambling with other people's money or with corporate finance for bonus payments must constitute a legally definable conflict of interest and, therefore, a form of fraud. Surely, even the threat of a police investigation and prison sentences will force somebody to break ranks and reveal who made the decisions to buy or take on toxic loans, mortgages, investments - for bonuses - and it had to be a decision. It didn't just happen.
    That instruction would constitute a conspiracy to defraud. Even an act of ommission (turning a blind eye) is prosecutable as negligence under English Criminal Law and there must be a case to answer, even if the eventual outcome is a 'Not Guilty' verdict. Charges or the threat of investigation and prosecution would force the maggots out of the rotten apple. Or are the Treasury Ministers and Civil Servants, or even the ex-Chancellor, afraid that the muck might actually land at their door?

  • Comment number 51.

    What a supprise,

    G.Brown has been on the radio stating that it wasnt his idea that the banks merged he just relaxed the rules....

    His statement is at odds with the statements last year when he was pivotal in the discussions of the merger.

  • Comment number 52.

    The £40 billion of lost Lloyds shareholder value i.e. mainly our pension funds value, as a result of the takeover of HBOS is effectively Lloyds' shareholders bailing out the Government, which would have to have borne the whole of HBOS' losses otherwise.

    Even this incompetent Government, despite the looney left likes of Mr McFall, realises it cannot let a major bank go under or be fully nationalised due to the impact on international investors, equity and bond markets, our pension funds, not to mention the 3 million (or say about 6 million households) of private investors in Lloyds.

    So it is not the taxpayer bailing out Lloyds but Lloyds shareholders bailing out the taxpayer.

    Particularly as the taxpayer is largely the same group as pension savers (except of course for government guaranteed public sector pensions such as those to Gordon, Mr McFall and Merv the Swerve), it is somewhat disingenuous to say the taxpayer is bailing out Lloyds.

    I notice Merv is up to his swerving tricks again - if he was so powerless to act why did he not broadcast his concerns years ago, first privately then from the rooftops, and if nothing were done, why did he not resign and make a stink, instead of sitting there doing nothing, except collecting his huge salary and accruing his huge pension?

  • Comment number 53.

    why am i not allowed to post anymore?

  • Comment number 54.

    Having read through this article again, I really do believe that we require an election, during which the respective political parties put forward competing manifestos dominated by how, precisely, they would approach this economic crisis.

    The breathtaking sums of money offloaded onto taxpayers not only defy imagination: they seem to increase daily.

    A government, elected by less than 21 per cent of those eligible to vote, and now headed by a different Prime Minister, seems to be running ever faster to stay where it thinks it is - and, all the while, gives the impression that it has lost the plot. What authority do these people think that they possess?

    We're paying for all of this, in any number of ways, and will be doing so for many years to come. Yet we have no effective say in decisions being made which many of us view as folly.

    Politicians: it's the stupid economy.

  • Comment number 55.

    Why can't I post at the moment?

  • Comment number 56.

    I can not post anything with the name of the bank in it!!

  • Comment number 57.

    Surely there is a case for Lloyds/Hbos pursuing past directors and senior managers to return bonuses that clearly rewarded negligence and the Government should assist in this as they have a major stake in the company.

    However it is unlikely this will happen given the near religious fervour Brown and Darling for private enterprise and its luminaries like Lord Myner

    GOAT's - Government of all the tainted!

  • Comment number 58.

    Well, Lloyds TSB like to say that they're there "for the journey", which seems to be a long walk off a short pier, after drinking from a poisoned chalice...

  • Comment number 59.

    Why are we bailing these morons out?


    Why? They've failed, utterly and miserably. There should be no bonuses, no bailout, no debt insurance, nothing for them. These are private organisations, failed (as we can see more clearly than ever) private organisations, and the government is falling over itself to hand them as much cash as it can.

    it's sick.

  • Comment number 60.

    why is the BBC not accepting my comment properly?

  • Comment number 61.

    Everything will be ok because gordons got it all under control.

  • Comment number 62.

    HBOS seem to have been incredibly short-sighted.

    Was that why they had a bloke with big thick glasses to advertise themselves?

  • Comment number 63.

    I am member of an investment group who purchased some commercial properties. We put in 10% and borrowed 90% from HBOS. All properties are let to blue chip companies and all interest payments are made on time. Our loan is due for renewal soon and HBOS have indicated that they will probably not roll the loan over which will result in the properties being sold at a loss. This makes no sense for HBOS who will take an absolute loss on a performing asset, I wonder how much of the commercial loan losses that HBOS have are really necessary.

  • Comment number 64.

    "Money is the barometer of a society's virtue. When you see that trading is done, not by consent, but by compulsion - when you see that in order to produce, you need to obtain permission from men who produce nothing - when you see that money is flowing to those who deal, not in goods, but in favours - when you see that men get richer by graft and by pull than by work, and when your laws do not protect you against them, but protect them against you - when you see corruption being rewarded and honesty becoming a self sacrifice - you may know that your society is doomed."

    Ayn Rand - Atlas Shrugged

  • Comment number 65.

    Is it time to make Sir Fred Badloss a Mr?

  • Comment number 66.

    Oh let me guess - Lloyds Group will still be paying bonuses. What a surprise. They buy a pup and still reward themselves for failure. Now didn't that idiot Gordo say something about not rewarding failure. Who's listening eh?

  • Comment number 67.

    These are the last ever financial results for HBOS as a discreet entity-

    I am sure Robert meant discrete entity .

  • Comment number 68.

    why am i not allowed to post a full comment, only that I can't post a comment??

  • Comment number 69.


    I reiterate my point that this is not simply "another recession". It is the beginning of a domestic economic catastrophe. We are sliding into a debt vortex.

    Government assumption of bank liabilities has now far more than maxed out the conceivable resources of future taxpayers. The only solution would appear to be printing money.

    This is being pre-spun by the government. It has a shiny new name ("quantitative easing"). It is necessary and prudent to print money (sorry, "ease quantitatively"), we will be told, because inflation is about to turn negative (which in underlying terms is simply not true).

    Global markets will not fall for this sophistry. If the UK starts printing money, sterling will be toast. Interest rates will rise to double-digit rates, as they have in Russia and Iceland. At least these countries have, respectively, energy resources and fish. We are increasingly looking like a banana republic that has run out of bananas.

    The blame for this, we are told, can be placed on the bankers. This is yet another example of the government's "blame anyone but us" spin.

    Interest rates were far too low for far too long because the MPC was instructed to ignore asset inflation. The tri-partite regulatory system has been a disaster.

    Labour has certainly abolished "boom and bust". Unfortunately, it is the "boom" bit that has been abolished.

  • Comment number 70.

    Did Brown take the initiative to the merger of Lloyds and HBoS? This could well have have been the course of events since Criosby may have told him about the precarious state of the HBoS balance sheet.

  • Comment number 71.

    dear robert,
    a question unrelated to the banking fiasco. i am not a conspiracy theorist but...
    how come the price of items in the shops have come down, house prices are down, interest rates have come down etc YET the price of motor vehicles have not come down to encourage customers to purchase new vehicles!!!!! i am getting a sneaking suspicion the motor companies must be in cahoots and agreed to not start a price war as not a single company offers reductions on the cost of its vehicles, only some gestures of free insurance etc.
    i am wondering whether the motor companies are using this as a opportune time to get rid of large parts of its workforce under the guise of recession so that they can restructure. less outcries now about redundancies as we are all used to it now and less likely to protest successfully.
    why is the government planning on bailing out motor companies when it does not seem that the motor companies are prepared to help themselves in any ways. cyanical views yes, but until i see a new car discounted significantly, i maintain that i smell a rat in the motor trade.

  • Comment number 72.

    Lloyds did not need HBoS, while Lloyds very conveniently for the government prevented another No-Alliance and Leicester, Bradford and Bang-ly or Northern hole in Sock.

  • Comment number 73.

    Aren't people in the UK angry about what I can only describe as corporate fraud?

    Why should the tax payer be liable for current and (even more importantly) any future losses by British banks?

    They now have cart blanche to do what they like with their businesses, knowing full well that whatever goes wrong, the good old tax payer will stump up the cash to make good their mistakes!

    Why can't the accounts from the badly managed banks be moved to the better managed banks and the bad banks allowed to go to the wall - just like any 'real' business would.

  • Comment number 74.

    Paragraph 2: 'discrete entity', surely?

  • Comment number 75.

    Apologies everyone, including the beeb even, for polluting the website above commenting that I didn't seem allowed to comment.

    My educated guess now is that an ampersand character prevents posts going through. Not sure, but when I omitted the ampersands in Britain's illustrious bank names my posts seemed to make it into the bbc-sphere!

  • Comment number 76.

    #8 JohnnyZero66

    "Why does Brown hate the people of this Country so much, to wreck it in the way he has?"

    It is because he is part of a global elite who see all ordinary people as debt slaves - nothing more. The New World Order is global - GB has contempt for all ordinary people, not just those in Britain. He has taken his oaths and his loyalties are not to the people of Britain - he just does not think in those terms.

    We are seeing the return to serfdom.

  • Comment number 77.

    So we are talking at least 30billion to Lloyds/HBOS for 2008/9. And if the economy doesn't turn soon, even more.

    This is going end very badly for britain. It reminds me of 2005/6 when telling people house prices were going to have a big fall was like banging my head against a wall.

    So for the last time. Insolvent banks are limited liability companies and should be allowed to fail. The government can pick up the pieces afterwards. The bank's creditors should have been more careful about who they lent to. End of story.

    So now I'm going to sit and wait for the ? to plummet, for a run on treasuries, for the govt to default, and for us to be reliant on food aid from europe. Think i'm exagerating. Fine, buy share in RBS and Lloyds then.

  • Comment number 78.

    I think competition is partly responsible for this and I'm wondering if we won't all drive ourselves out of business eventually.

    We raise targets, cut costs, cut people... Then we turn around in astonishment when someone lifts the rock and finds a whole lot worms underneath.

    The lessons may be:
    1. Everyone may need to lower their growth expectations of companies. The growth of the last few years sounded too good to be true and it turns out it was.
    2. Productivity isn't advancing as fast as we think it is. At the end of the day an employee can only do so much. We gave our guys too many balls and now they have dropped them.

  • Comment number 79.


    "Dear Robert - we've discussed these to death - change the record."

    Unfortunately the banks have broken all previous records, there are no other record to play and no one has the money to make any more!

  • Comment number 80.

    I'm getting to feel dizzy every time I check the business news these days.

    Thank God the BBC keeps spewing out trivia in its mainstream news reporting. If the proverbial man on the Clapham omnibus gets to think through where all this is heading, there'll be riots.

    Here's me in stuck record mode again ...

    Anyone who thinks we'll be pulling out of this nosedive anytime soon is living in cloud cuckoo land.

    Take a quick canter through the usual websites and blogs offering objective, apolitical analyses of what's going on in the world, what potentially lies ahead, and the implications of all this and you quickly realise that "train crash" barely begins to describe the situation.

    We're talking more like a collision of galaxies here, and the sooner a politician or political party starts telling it as it is, the better. The Tories remain as clueless as ever, whilst Vince Cable seems to be a one-man political party these days (albeit the only sensible, straight-talking guy in politics). Can we not make Vince a member of the Royal Family and have him lead a Royalist uprising against the incompetent, thieving politicos that have screwed us ordinary people into the deck this past decade, whilst setting us up for a generation or two of austerity from here?

    Meantime, we'll continue to be spun half to death by Brown's Government until the British people wake up and make the pressure for political change unbearable.

    And finally ...

    To the Met Police

    Dear Superintendent Hartshorn

    Many thanks for your kind invitation to join a 'Summer of Middle-Class Rage on British Streets'. I look forward to taking part in what promises to be an exciting and enjoyable event, and seeing your own colleagues on the same side of the fence as me, so to speak. Let's hope it does the trick eh? All the normal democratic means of regime change seem to have failed, so this is our last hope. Can you lend me a 'Brown Out' (or similar) placard please, and an umbrella in case it rains? Many thanks.



  • Comment number 81.

    I remember a photo of a snake which had swallowed a crocodile (I think it was). The crocodile was too big to digest and the snake died of indigestion. Its eye was bigger than its stomach.

    Same image I have of Lloyds board at the time they sized up HBoS........... if they are really really lucky they might survive.

    I also remember that HBoS had all the lower football league clubs accounts with their associated (basically unsecured) unwieldy and doomed overdrafts. They were the only bank daft enough to see an upside to football as a business. I wouldn't be surprised if HBoS had carried that basket-case business model to all their other business loans, and that there is a bucket-load of bad debt that Lloyds are going to have to write off on their behalf in the next few years.

    None of them could run a sweety shop.


  • Comment number 82.

    Does anyone read the Daily Mail?

  • Comment number 83.

    Do these losses and the details of how they were run up now put the lie to "It all started in America".

  • Comment number 84.

    With the subject of bonuses in the air why are they being paid to FSA staff when the FSA have hardly covered themselves in glory (although they insist that Advisers show that they Treat Customers Fairly and then charge them for the administration!!!)

  • Comment number 85.

    Not all of HBOS divisions made a loss nor can they be tarred with the same brush.

    The insurance division was operated with sound financial management and increased profits 15% to £739m.
    Unfortunately other divisions appeared to be out of control with wide spread cronyism and zero governance.
    The auditors appeared to be in the companies pocket and the FSA - well the lights were on but there was no
    one at home

  • Comment number 86.

    Pig on Pork, isnt that what the government are doing when asking Lloyds to pay for the insurance in (non voting) shares.

    Perhaps I am being stupid...the sounds crazy, If the loans go bad ( and they will - just a case of when and by how much) then the Government will pay out the insurance, and have a set of pretty much worthless shares...Double wammy?

    Can someone clarify this..

  • Comment number 87.


    "Will we have to wait for the 30 year rule before we discover whether Lloyds was a willing partner or the whole of HBOS was foisted on them by the government because they had already taken on NR and B&B?"

    I suspect not, just as the true bill for Bush's presidency is starting emerge in the USA, if/when Brown/Nu-Labour are replaced by 'the in order' - which ever political flavour that is.

  • Comment number 88.

    Discrete entity. Unless you meant it was no longer 'careful and circumspect in ... speech or actions, esp. in order to avoid causing offense'.

  • Comment number 89.

    Whilst I am no great fan of the FSA, which I have long regarded as an apologist organisation for all the various types of Financial Services Industry cess-pit inhabitants anyway, we should not allow criticism of the FSA to divert any real shred of blame away from the kamikazes in charge of the banks & other institutions - I don't drive my car at full speed at a cliff edge and hope that someone else is watching out for when to apply the brakes!

  • Comment number 90.

    Can anyone tell me why it would be so disastrous to let a bank go to the wall? We should have let Northern Rock fail as the US did with Lehmans. This would have sent a number of messages;

    • No organisation is above market forces.
    • Failure will not be rewarded.
    • Governance, Risk & Compliance must always be paramount in any business.
    • Shareholders and customers must take an active role in ensuring that any business is run ethically and that the relevant individuals are rewarded appropriately.

    If this had happened all that would have transpired is that the other financial institutions would have clawed over the bones and pick them clean. However it may have also made them think about how they conducted themselves and their attitude to risk. Risk in itself in not bad, not understanding and managing risk is bad.

  • Comment number 91.

    Trying to pass off the destruction of HBOS as the product of mere reckless stupidy just doesn't wash. Are we really meant to believe that a massive, long-etablished, pivotal business, supposedly highly regulated and tightly controlled internally has by accident suddenly gone off the rails and begun wantonly smashing every simple, basic, known rule of sound business.
    People will not be taken for such fools. Things don't happen that way. No presumption of innocence therefore can possibly be allowed to the banking perpetrators. We must start by assuming massive collusion amongst lenders and borrowers to defraud the system, with all those third world loans in the 70s.
    The individuals responsible for authorising the worst loans should be dragged before some kind of court of Star Chamber and compelled to account for their actions - fully & candidly under pain of the severest penalties (upto and including death) for any deliberate concealment or attempt to mislead.
    Of course this is just another ranting demand for the kind of extra-legal action which (as in the case of SFG's pension) all the legally minded wiseacres will tell us is just stupid and impossible. But it may be the wiseacres who just don't get it. There is probably less danger in adapting ther law to the reality of the new situation than allowing it function as instrument that effectively upholds gross and catastrophic acts of immorality. If the legal system proves useless or worse it may find itself swept away in the coming emergency.

  • Comment number 92.

    "These are the last ever financial results for HBOS as a discreet entity:"
    Do you really mean discreet (prudent, cautious) or is this a mis spelling of discrete (separate)? Somehow I doubt you would describe HBOS as prudent or cautious.

  • Comment number 93.

    Am I alone in thinking that it might have been better if the government had just allowed one of the big banks - maybe HBOS - to fail? That would obviously have been pretty harsh on retail depositors if there weren't sufficient assets for them to get their money back, but the government could have compensated them. Wouldn't that have been cheaper than all the billions that have now been spent trying to keep these failed banks going?

    And more importantly, it would have sent the right messages about moral hazard.

  • Comment number 94.

    Please can I sue the government for having failed and yet still receiving massive pensions a la Prescott?

  • Comment number 95.

    Well, there's the 'devolved model for ya. Nobody was asking what Corporate and Treasury were up to. Indeed they were actively discouraged from doing so. Each part of the business operating in its own 'silo'. The irony is that the 'Little Scotlanders' will be blaming the hated English of Crosby and Hornby for laying the bank low when it was the (Scottish) Ex-Co BoS executives in Corporate and Treasury who took their eye off the ball and wrecked the company. Oh, and the Scottish chancellor/PM who failed to ensure effective oversight.

    Poor old Halifax Building Society. Their employees and head office sacrificed to appease the Scottish vote even though it wasn't their business that wrecked the company. Still, the folk of the North of England can be relied on to vote Labour whereas the Scots are flirting with the SNP. No question where the government will be 'influencing' the major cuts to take place.

  • Comment number 96.

    I think Gordon should deduct this pension from the salaries of those board members who allowed it to stand in the first place. That should see some sense being knocked into these trough sniffers over the entire financial system - including the Treasury and the FSA.


  • Comment number 97.

    Keep this quiet.

    There is a new company starting up in business with a new slant on family finance.

    The business plan has been carefully worked out and has been passed as fit for purpose and its just about ready to go.

    The main plan is to appeal to all those clever people who kept the wheels of industy (especially China) turning buying whatever they wanted by borrowing lots of money at high interest rates.

    These clever people will be invited to put all their credit card debts ( minimum £10,000)
    into a new "SUPER BIG D" company.

    There will be a fee of course ( 10 % of their debt) but the main rule is:


    Applications are limited to the first 4 million out of a job.

    Please send all applications to NuLab at No 10 Downing Street

  • Comment number 98.

    PS tip-top chaff there removing my comment at number 3 from the Fred Pensions thread. The one that questioned whether bringing this up might be a bit of convenient misdirection to keep Merv et a's comments on Brown's inadequate regulation out of the news. And the 300bn extra quid we were now on the hook for.

    Post number 3 it was. Now lost and replaced by a universally 'outraged' first page.

    Job done. Y'all must be so proud at the BBC covering up for your masters like that. Jump, Robert, jump. Good boy.

  • Comment number 99.

    Never mind pig on pork, more like pig in a poke.

  • Comment number 100.

    I still don't understand why Nick Leeson got a six year sentence for losing £700 million, but the HBOS lenders got bonuses for losing £11 BILLION.


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