The Worst Bank in the World? HBOS’s Calamitous Seven Year Life

Editorial note: June 22nd, 2012
A revised and updated version of this blog is now available via the following link:-
The Worst Bank in the World? HBOS’s Calamitous Seven Year Life

Short URL: https://www.ianfraser.org/?p=645

Posted by on May 13 2012. Filed under Blog. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

23 Comments for “The Worst Bank in the World? HBOS’s Calamitous Seven Year Life”

  1. Pretty astonishing tale. The trouble, it seems to me, with reporting of this affair is that there is a kind of righteous misinformation going on about Lloyds-HBOS. Everyone is supposed to report ‘responsibly’ about the affairs of these companies, which means drawing a veil over their activities, histories and the financial viability of HBOS – a basket case as everyone who has looked at its books seems to accept.

    This ‘white lying’ has even infected Robert Peston, the usually robust BBC business editor. His blog has turned into a desperate appeal for the Lloyds-HBOS merger to go through under any circumstances and at any cost. He has stopped looking objectively at HBOS, and has been uncritical of the increasingly bizarre behaviour of the government.

    Since when has the Prime Minister been a player in company mergers? How can it be right to suspend competition rules on a plane trip with Sir Victor Blank? What purpose is served by creating an unlawful superbank which will almost certainly have to be broken up in future because it has an anti-competitive thrity percent stake in he mortgage business? By what right does the chairman of a private bank give assurances to the government that it will suspend its commercial judgement and give cheap loans to first time buyers to lure them into a falling market? Why did the government wait until after the merger was sealed to introduce a ban on short selling and extend the Bank of England’s liquidity scheme?

    The tone is set by the Financial Services Authority, which seems to regard its role as being a cheerleader/propagandist for big banks. Right up until the day they go under, the FSA insists that collapsing banks are “well-capitalised with sound business models”. I think shareholders who invested on the strength of these assessments from the regulator should have a word with their lawyers … As it is, Lloyds shareholders seem to be voting with their feet.

  2. Quite an indictment of HBoS which shows it to be in just as bad shape, or worse, than those banks which have already been nationalised.

    On the basis of what I read from your article, Ian, I would venture to say LloydsTSB are not getting any kind of a good deal at all, and their shareholders should take the initiative and prevent it going through, although I have to wonder if the Government, who are obviously aware the deal isn’t much of a sound financial proposition for LloydsTSB shareholders, are promising some as yet unreported sweeteners down the line to ensure the deal does go through … Say, for instance, if six months or a year on from now, such information comes to light, it wont have the impact it might have now …

    Of course, if it doesn’t go through, Gordon Brown will have to pull out the nationalisation card once again but then he may have had it as PM if he has to do that, and perhaps a few more times as other smaller banks inevitably come to the same crisis point.

    I wonder what effect it will have on certain Scottish politicians who have recently criticised the deal, where a banking symbol they see of a financially robust Scotland may end up having to be saved by the Westminster Government … More “spivs” from the First Minister ? I hope not ….

  3. Very interesting interesting observation from Iain MacWhirter about the insufferable Robert Peston. He’s close to the Brown camp so will of course cheer the Lloyds-HBOS deal on. Eric Daniels is the kind of risk averse character who is quite capable of re-negotiating, or even pulling out of, a deal, like this. On the other hand, as a Cornell-educated historian Daniels will want to be able to retire to Montana leaving a legacy in “England”. A strategically transforming acquisition is just what Lloyds TSB has been looking for these 7 years.

  4. I can only speak as one who has known and dealt with Bank of Scotland and its managers over 25 years on behalf of my clients and myself.

    Until about 2001 I was in touch with a number of senior business managers, experienced men who knew their clients well. A number of them took early retirement packages and were not replaced by men of experience.

    Since 2002, with one or two notable exceptions, I have found the bank to be hopelessly ineffective in delivering even the barest of essential services to business clients. This has been replicated in the bank’s dealings with me personally.

    Bank of Scotland is not alone among the banks in its failure to focus on client service rather than the sale of financial products to customers, but it is among the worst offenders. It is not the Bank of Scotland that we knew of old and no special case should be made for it.

    For those of a sentimental disposition it may be attractive to see Bank of Scotland being acquired and survive as a result. If the brand is to mean anything then the focus of the bank will have to be turned away from the sale of financial products to the service of those customers for whom it was originally formed.

  5. […] A brief history of Halifax Bank of Scotland […]

  6. Mohammed, Abu Dhabi

    I have a real issue with the lack of ethics running through global investment banks and their pandering to certain hedge funds who seem to drive a large part of their profits these days. This continues.

    Many seem comfortable with the notion of effectively destroying markets as a herd and creating volatility so as to drive short term profits. One example in recent weeks has been the abuse of ‘inventory’ of shares that banks use to issue derivatives against (eg so called P Notes and Swaps). Investment banks effectively hold shares on behalf of their clients in really what should be a custodian capacity. Many investors use these instruments to legitimately access markets but hedge funds and the investment banks have been using these shares inappropriately to short and create volatility, clearly against the ultimate client’s interests. Their lending of securities to hedge fund operators is clearlu also antipathetic to long only clients’ interests. These sort of things are very profitable businesses for the investment banks.

    I have seen that many emerging markets have particularly been exposed to this even though ‘shorting’ is illegal in many markets (another example of their absence of ethics and the failures of regulation). This has become so difficult to regulate and police as much of the activity takes place ‘offshore’.

    Everyone knows that hedge funds are de-stabilising markets and creating irrational pricing but governments and regulators appear to be super-sensitive to changing practises and shouting about this sort of thing, perhaps for fear of losing business offshore.

    A year ago we were told one of the main merits of hedge funds was to create ‘stability’. I guess that PR manager has already been able to after the last bonus!

    (Mohammed filed this note via email and it was added by Ian Fraser)

  7. When a bank’s history, such as HBOS, is documented so well, it not only makes for very interesting reading but makes one feel, err – us – feel quite depressed!

    Hindsight is indeed a wonderful thing but who in their right mind wants to stop something, or raise a serious cause for concern, when theirs is the vested interest at stake. Let’s be honest about this, who wants to leave the poker table when on a winning streak? HBOS shareholders are no different in this respect, and it was also, or appeared to be the case, for alot of other financial institutions and their respective shareholders aswell.

    Anyway, when all is said and done and we find ourselves yet again wishing each other another Happy, Peaceful and Prosperous New Year, we wonder will there be any system in place to stop such a mess from ever happening again. Human nature being what it is, we very much doubt it. Despite our own woes and losses, our own ‘just- cause’ seems ever so much smaller, in the greater events taking place at present.

    In our efforts to achieve ‘social justice’ from Crest Nicholson, a housebuilder owned by Sir Tom Hunter’s West Coast Capital (Castle Bidco) and HBOS’s, Bank of Scotland Corporate, we have read so much about, and proposed our just case, along the lines of, ‘Corporate Social Responsibility’ (CSR). We have not seen that being mentioned too much about recent events, but we suppose, as in the current crises of the financial market place, nothing yet has been proved to done, which is illegal, but nevertheless, everyone believes it to be ‘wrong’. Nobody gets to carry the ‘blame’ because there is obviously saftey in numbers?

    Our HBOS supported and/or sponsored Houseboat Eviction was wrong. Lloyds TSB Group Plc and Legal and General (both formerly listed as ‘major shareholders’ in Crest Nicholson) are fully aware, and we say, still morally accountable to our Family Campaign too. Perhaps they each believe in CSR, about as much as we believe in Father Christmas?

    Perhaps the inevitable new world order of international banking that will come from this awful experience should consider a new ethos or mantra along the lines of, ‘who cares wins’, as for sure, that is the only truth that seems palitable to look forward to at present. We are not looking for a Victor Blank cheque, but integrity and human compassion would be a good place to start?

    Kind Regards,

    The Shalom Family

  8. Interesting account, Ian.

    I don’t think that a merger with LloydsTSB will save HBOS; it will merely bring down LloydsTSB with it that much sooner.

    I do not see any major US or UK bank surviving without massive infusions of government capital. IMHO we are still only at the “End of the Beginning” of the Credit Crunch. The second round effects are now kicking in as the real economy goes into recession, and the merged bank will not survive this process.

    I believe that we reached a point of “Peak Credit” last year

    see my article in Asia Times


    and that the solution cannot lie within a system of credit intermediaries, but rather in direct “Peer to peer” investment by reinventing “Equity” within Partnership and Trust frameworks ie “Unitisation”.

    Strangely enough, it was HBOS who pioneered the partnership model a few years ago. Pity they didn’t develop it.

  9. […] A  slightly different version of this article was published on the BBC News website on Wednesday, May 27th, 200. To read a short history of HBOS’s calamitous seven year life, click here […]

  10. […] read a piece on HBOS’s calamitous seven year life click here. […]

  11. well written, and very well said, Ian. Don’t forget to mention, too, the disingenuous “FSA investigation” into the funny-business going on at HBOS, in 2008, with Crosby pulling strings from the inside, followed by the FSA giving HBOS the “all clear” !

    I have also only just realised the significance from this article that Clerical Medical were one of the Bank of Scotland’s “assets” as well as being their insurer, and it was Clerical Medical who sent the proceeds of my daughter’s savings plan to one of the Vavasseur Fraud’s ‘collecting accounts’ at Bank of Ireland – never to be seen again ! I am challenging them on this at this very time, and conveniently, they do not seem to have any audit record, and were clearly in breach of the FSMA Markets Act. They have already tried to argue that the Money Laundering regs. didn’t come in until 2003 !

    HBOS have tentacles everyhwere, and the majority of financial institutions and accounting practices are IN THEIR BACK POCKET – thus, disgracefully stacking the odds in their favour.

    It begs the question: when Paul Moore warned Crosby that the Bank was “growing too fast”, did he really mean “growth” or was it because he felt uncomfortable admitting that, in fact, he saw – staring him in the face – all the hallmarks of FRAUD ?

    Is there even any provision in Chancery Law to ‘say it how it is’ and for the Head of Risk to alert the Authorities that the bank’s CEO refused to allow him to report SUSPICIOUS ACTIVITY or even to politely caution him that “if it looks too good to be true, it probably is” ? It remains an anathema that Paul Moore did not end up reporting suspicious activity over that which he conveniently termed “fast growth, posing risk to capital” ? More than that Paul baby, much much more…..

    Let it not be overlooked that the quarter billion USD collected and STOLEN by the Banking Cartel and the Authorities aiding and abetting them through highly sophisticated organised Crime Rings in the Vavasseur fraud was worth at least $3 Billion dollars in the issuance of ‘new notes’ or MTN’s through the fraudulent Fractional Reserve Banking System of issuing derivatives out of collateral bonds ! No doubt the original collateral then ended up in the banksters pockets to pay them their UNEARNED ‘bonuses’ ? THESE GUYS ON THE BOARD OF HBOS ARE CRIMINALS AND SHOULD BE JAILED IMMEDIATELY. THEY ARE FINANCIAL MUGGERS OF THE WORST TYPE.

    Lying euphemisms like “toxic debt” and “quantitative easing” are a play on words and should be regarded as ‘obstruction of Justice’ and stripped bare to expose their true context. Why is there so much pussy-footing around ?

  12. […] get more of an idea of what I meam, you should read my blog post HBOS: When did the rot set in? And were shareholders asleep at the wheel? and / or Banking’s Abu […]

  13. […] bid to deceive regulators and investors in the period 2003-08. And we all know what happened to HBOS and by extension the UK […]

  14. […] Re: walton v rbos Paul, Sparkie, Patrick et al I think you should all bear one important thing in mind. You are talking about a possible fraud involving a large bank and some of its senior management and perhaps Directors too. This Country is in the middle of a huge financial crisis thanks mainly to the actions of certain banks so the last thing the Government needs is for this to come out as well. It could set RBS into freefall and bring down other banks into the bargain and make our financial institutions the laughing stock in World affairs. You only have to look at how probably a far bigger scandal involving HBOS was handled back in 2008 where amounts of losses there amounted anywhere between

  15. […] For an in-depth analysis of HBOS’s calamitous seven-year life, click HBOS: When did the rot set in? And were investors asleep at the wheel? […]

  16. The Elephant in the Room – which has yet to be properly investigated and prosecuted – is that HBOS played a MAJOR, MAJOR role in fraudulently pumping up the UK Property “Market”.

    Mortgage customers ‘urged to lie’ [All this was way back in 2003 by the way!!]

    Housebuyers are being encouraged to break the law in order to obtain huge mortgages, the BBC has discovered. Brokers, and even banking staff, have been telling buyers to lie about their incomes to get bigger and bigger loans. And these underhand tactics could also be the reason why house prices have gone on rising for so long. CLICK HERE


    The press release – BBC Money Programme uncovers massive mortgage fraud
    BBC TWO’s The Money Programme has revealed a huge mortgage fraud with brokers from some of Britain’s biggest estate agents and financial advice groups advising customers to break the law and lie about their incomes to get massively bigger mortgages. And it shows how the illicit cash raised by this method has been pouring into the housing market, boosting prices and leaving many people risking financial ruin.

    “Could you believe that a bank would invite customers to defraud it? It may sound incredible, but that is what some of Britain’s biggest mortgage lenders have in effect been doing.” CLICK HERE

  17. lifeafterdebt

    I wholeheartedly agree with this article as I have had first hand experience of their irresponsible banking policies and practices. After two and a half years I am still being bludgeoned by their henchmen to make a payment arrangement on a mortgage shortfall of £217,000 which they created. I am repeatedly told they never write off shortfall debts of this kind regardless of income status and vulnerabilty, yet, in the Irish Times (Feb 2011) they, the Bank of Scotland, are doing just that for people in Ireland with but-to-let mortgages on second homes and investment properties.
    They took a commercial risk, my husband and my three young children lost their home.

  18. […] To read a comprehensive analysis of why HBOS is the UK’s most toxic bank click here […]

  19. […] links: The Worst Bank in the World? HBOS’s Calamitous Seven Year Life — Ian Fraser’s […]

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