December 15th, 2012
In his testimony to the Parliamentary Commission on Banking Standards taken, taken in private in his Dumbartonshire bungalow on November 27th, the former HBOS corporate chief executive Peter Cummings railed against the FSA and criticised his boardroom colleagues but seemed to be as much in denial as ever. There was no contrition, no remorse, no acceptance of any blame for his role in the catastrophic failure of HBOS.
Some of the claims made by Cummings in his testimony are truly remarkable. Let me start with just two.
The first is the pugnacious Glaswegian’s claim that his famed “optimism” deserted him (meaning his crazed desire to fund private equity and commercial property deals at virtually any price, even after everyone else knew a major crash was on the cards) after “the events of February 2008”. Here is the relevant exchange:-
Rory Phillips QC: As far as you can recall—and of course it won’t be precise—you were aware that you were in different territory roughly when?
Mr Cummings: Probably at the time of the events of February 2008.
This doesn’t seem to stack up at all. If Cummings had, albeit belatedly, woken up to the fact he “was in different territory” in February 2008, why did he plough ahead with the purchase of a large chunk of the equity in the troubled Edinburgh-based housebuilder Miller Group — to which HBOS was already a significant lender — at a pre-crisis valuation two months later? News of the deal was published in The Herald on Monday April 7th, 2008.
Insiders who used to work for Bank of Scotland Integrated Finance and Uberior Investments, both part of HBOS, have assured me that they strongly advised Cummings against this particular deal. They told him that, in view of the then market turmoil, it might be unwise to buy a 60 per cent stake in Miller, one of the UK’s largest housebuilders, at a pre-crisis valuations at that particular point in the cycle. They claim that, largely because of misplaced desire not to let down Noble Grossart chairman Sir Angus Grossart, who was acting for Miller Group, Cummings rode roughshod over their concerns and ploughed ahead anyway. One former insider has told me this was:-
“the final straw for [BoS Corporate head of credit risk] Hugh McMillan. It was pushed through credit and I wouldn’t be surprised if that sparked Hugh’s departure.”
McMillan left Bank of Scotland Corporate on April 30th, 2008.
Another deal that suggests Cummings failed to adapt his stride, despite the different terrain, came on April 10th, 2008. On that day Cummings bought a 40% equity stake in Inverness-based Tulloch Homes Group for £27.5m, an investment he claimed “fits perfectly with our ambition to invest in the North of Scotland housing market.” This was on the same day the bank had to start borrowing stealth emergency funding from the Federal Reserve — with the Fed reporting an initial $5 billion loan on April 10, 2008. As far as I’m aware, the Tulloch Homes stake is now worthless.
In the cross-examination by Rory Phillips QC — from which Cummings had to take repeated breaks owing to his illness — the former HBOS banker also disputed the timing of one of his most memorable quotes.
He denied having said “Some people look as though they are losing their nerve – beginning to panic, even – in today’s testing real estate environment. Not us. Our many partners in the property sector know that we are through the-cycle lenders and investors … The current turbulent conditions offer a new range of opportunities” in February 2008 as has been widely reported.
Instead Cummings claimed to have used these words in an “interview in October 2007”, implying they were not published until February 2008. I am sorry but this sounds like utter baloney.
A trawl through the internet and examination of internal HBOS documents suggests the quote was first published in an article headlined “£30m up for grabs – search for property entrepreneurs starts here”, which appeared in Property Week on February 13th, 2008 (the quote re-appeared in a piece by Nick Mathiason headlined Cummings keeps his nerve in the face of property downturn published, published in the Observer on June 29th, 2008 and again in Architects of Doom, published in Property Week, on September 10th, 2010).
To be fair to Cummings, the “£30m up for grabs” piece of February 13th, 2008 — which is effectively publicising some awards — does read more like promotional puffery than journalism. However I find it impossible to believe that Cummings would have provided his quotes to the award organisers five months ahead of the time of the formal launch, especially given the way the UK commercial property market was moving at that time.
Cummings was reluctant to point the finger of blame at anyone else at HBOS, telling Rory Phillips QC that:
“I have been through three and a half years of things. I have not rubbished, bad-mouthed, or anything like that, my colleagues to the FSA, and I am certainly not going to do it to a parliamentary commission. I say to you, these were people who turned up every day, worked hard, genuinely believed that they were doing the right thing, working for an institution that we believed in. It is not down to me to point fingers at anyone. I am absolutely heartbroken about what happened, and I live with it every day, but it would be inappropriate of me to point the finger at any colleague. I have not done it to the FSA, and I am certainly not going to do it to a parliamentary commission.”
Not long afterwards, however, Cummings said that, during the first half of 2007, HBOS chief executive Andy Hornby and finance director Philip Hodkinson were ‘pressuring’ him to increase his targets. He also claimed he had misgivings and was unhappy about this. He told Butler and Phillips that: “There was a point where the retail bank was not performing and not delivering on the expectation, and I was asked to step in.”
I haven’t had the chance to read all of Cummings’ testimony yet — it is 21,308 words long — so this is just the first part of my analysis.
Read Peter Cummings’s 27 November 2012 testimony to the Parliamentary Commission on Banking Standards in full. It was given to Lord Turnbull and Rory Phillips QC