By Ian Fraser
Published: Sunday Herald
Date: 15 February 2009
This charade of apology is a diversion from bankers’ role in financial destruction
EDITH Piaf’s “Non, Je Ne Regrette Rien” seems to be the theme tune for Britain’s banking fraternity right now.
The unfab four – Lord Stevenson, Andy Hornby, Sir Tom McKillop and Sir Fred Goodwin – who appeared in Portcullis House on Tuesday were, despite the theatre of apology, desperate to latch onto any blame-object as they were lightly sautéed by the fumbling chefs of the Treasury Select Committee.
One minute it was the collapse of Lehman Brothers (for causing “market disruption”), the next it was their institutional investors (for egging them on to take more and bigger risks.) However, amid the scapegoating, the four disgraced bankers seemed incapable of acknowledging that they might just have played a teenie-weenie part in driving their centuries-old institutions into the ground.
Maybe coaching from the spin doctors like Phil Hall was what persuaded the four of them to get their apologies in straight away? If so, it worked, fooling some of the sleepier MPs into thinking they could put their feet up.
However, attentive listeners will have noticed that the queasy quartet did not, in fact, apologize for anything that they had done. The “unreserved” apologies they offered were for things like “the turn of events” and “the anxiety the financial crisis might have caused to shareholders, customers, and staff”. Not once did the bankers actually acknowledge that they might personally be culpable.
‘Banquo’s Ghost’ at the feast was, of course, Sir James Crosby, who, having set HBOS on a dangerous and ultimately self-destructive course, managed to jump ship and hand over the helm to the hapless Andy Hornby in July 2006. Until the testimony of whistleblower Paul Moore, this escape artist must have thought that he’d never be held to account for piloting the vessel towards the rocks.
When HBOS was formed it initially seemed to have good intentions. Having styled itself a “consumer champion”, it said that it would woo customers – both individuals and businesses – from the ‘big four’ banks with higher interest rates on their current accounts and racier deals on their loans and mortgages.
However under Crosby and Dennis, Lord Stevenson (who was ultimately responsible, as the bank’s chairman from 2001-09) an “anything goes” culture prevailed. Staff were incentivised to sell more and bigger loans, seemingly irrespective of the customers’ creditworthiness — while their less fortunate colleagues who were tasked with getting in more deposits were paid a relative pittance.
Meanwhile HBOS’s corporate banking arm, led by the impressionable Peter Cummings, provided an open cheque-book to retail and property tycoons, as one former senior insider has told me. Despite the imminence of the property market crash Cummings’s division lent over £40 billion to the construction and commercial property sectors. In one year alone it issued some £5bn of new loans to this sector, more than Lloyds TSB’ entire exposure to property and construction.
Moore’s claims do not come in isolation. In 2004 the Financial Times’s Lex column warned that “Bling” Crosby was “lending money at a breakneck pace” and that “a severe housing crisis would, of course, take its toll.” It does seem extraordinary that the bank more or less doubled its balance sheet to £666bn in the three years to 2007. The insider said: “They went beserk … The bonus system they introduced had the effect of encouraging reckless lending.”
Even the FSA woke up from its long lunch-induced coma and become somewhat fretful in 2002-03 – less than a year after HBOS was formed. Three years later, Moore confirmed to the bank’s board that implosion could be only a short time off. Of course, Crosby fired him.
Moore’s testimony has also shone a harsh spotlight on some of the unsavoury practices that had become commonplace within the bank. Another whistleblower, writing on the Sky News website, said: “You’d go into work to find out that more of the old BoS staff had been sacked with big payouts and gagging orders. The chap I replaced was not made redundant; he was paid and pushed off. He had made one small, cheeky comment to the wrong executive and a campaign to discredit him was away.”
Reporting on the bank between 2003 and 2006 gradually convinced me that something was rotten in the state of HBOS. It was obvious that the “pile it high and sell it cheap” approach to banking shared with other former building societies like Northern Rock, must be incompatible with prudential banking culture. The extraordinary merry-go-round of board level changes at HBOS and those hallucinogenic adverts featuring singing goggle-eyed bank managers astride flying swans only helped to confirm the impression that something was awry. However, I hadn’t yet realised that the bank’s dependence on wholesale funding to fuel its growth would turn out to be its Achilles heel.
Although official reports suggest that he resigned of his own volition, it is more likely that Crosby was effectively “hung out to dry” by Gordon Brown and Alistair Darling just in time for Prime Minister’s Question Time on Wednesday morning. One wonders if Moore’s revelations had somehow opened their eyes to the fact that their trusted friend and adviser on matters financial was not such a great banker after all.
Crosby’s response to Moore’s allegations – to downplay them and indirectly seek to rubbish Moore — is actually rather telling. Rather than ‘fess up and accept that he might have been responsible for having set HBOS on a suicidal course, the former actuary once again sought to “shoot” the messenger.
It is worth asking whether the so-called “independent report” that HBOS produced via accountants KPMG may not be quite as independent as it seems. Remember that the “big four” firm received some £90m (yes £90,000,000) for services rendered to HBOS between 2001 and 2008.
However, attempted cover-ups by top bankers are starting to wear a bit thin and some day soon, Crosby is going to have to face the music. Being doorstepped in his Harrogate home and departing the Canary Wharf-based regulator might be uncomfortable for him, but it is not enough. The Edith Piaf chorus must be reclaimed for worthier singers.
This was the main business comment in the Sunday Herald on 15th February 2009.
To read Magnus Linklater in The Times on the “unfab four’s” appearance before the Treasury Select Committee, click here.