By Ian Fraser
Published: Sunday Herald
Date: 16 September 2012
High-profile figures say banker Peter Cummings has been made a scapegoat (Note: This is a longer version of an article published as the lead business story in the Sunday Herald on September 16th, 2012)
Jim McColl, Scotland’s highest-profile business figure, has added his weight to a growing backlash against the Financial Services Authority’s perceived attempt to blame HBOS’s collapse on the bank’s former head of corporate, Peter Cummings.
McColl, chairman and chief executive of Clyde Blowers Capital, described the FSA’s investigation of HBOS as “an absolute disgrace” and accused the regulator of structuring its investigation to ensure that “establishment” figures like former HBOS chairman Lord Stevenson and chief executive Sir James Crosby were “let off the hook”.
Between 2004 and 2009, Crosby was also a director and deputy chair of the FSA.
The FSA on Wednesday published a 92-page ‘final notice’ accusing Cummings, 57, of failing “to take reasonable steps to assess, manage or mitigate the risks involved in the aggressive growth strategy, which the corporate division, under his direction, was pursuing”. In the most draconian penalty handed out since the crisis, the former “banker to the stars”, was fined £500,000 and banned from working in financial roles for life.
However, even critics of Cummings have attacked the FSA for appearing to ignore the roles of other former HBOS directors – including Andy Hornby, Sir James Crosby and Lord Stevenson – in the bank’s collapse, and for omitting to question either of the group’s former finance directors, Phil Hodkinson or Mike Ellis, or the former finance director of its corporate arm Alistair Webster.
Cummings’ co-directors Sir James Crosby and Lord Stevenson are known to have actively encouraged Cummings to lend more riskily to corporate borrowers even after the credit crisis commenced in July 2007 in order to compensate for a downturn in retail lending.
The FSA report confirms allegations made in a new book, Hubris: How HBOS wrecked the best bank in Britain, by former Financial Times correspondent Ray Perman, which details how HBOS’s former chief executive Andy Hornby and the bank’s management team put “heavy pressure on [Cummings’] corporate [banking division] to make up the slack” when mortgage and credit card lending became less profitable.
McColl, one of Scotland’s most successful entrepreneurs, and a recent convert to Scottish independence, told the Sunday Herald: “Crosby and Stevenson are establishment insiders, and the whole thing has been structured to let them off the hook. They have a lot to answer for. I think it is absolute disgrace, and the government or the Treasury Select Committee should do something about it. [The system] is so incestuous you cannot get a proper result, and that’s why a lot people don’t speak out.”
The entrepreneur, whose takeover of Weir pumps in 2007 was part financed by HBOS, added: “The way that the FSA has singled out Peter is disgraceful. There was a whole board overseeing it. It is ludicrous to say he was acting alone.”
Paul Moore, former head of group regulatory risk at HBOS-turned-whistleblower, a strong critic of Cummings’ strategy and methods, said: “The FSA final notice is a spiteful attempt to draw fire away from the really big players, including Andy Hornby, Crosby and Stevenson, onto someone who the regulator believes can be used as a fall guy. It smells of a cover up”.
“Cummings was not a rogue trader. He could not have done what he did without the authority of a whole superstructure of risk committees, audit committees and the board itself. Everybody within that structure was fully aware of the levels of risk that were being taken on.”
On Friday, the Treasury Select Committee told the FSA it will appoint independent advisers to oversee the regulator’s final report into the HBOS debacle, with parallels to the work undertaken by Sir David Walker and Bill Knight on the Royal Bank of Scotland report.
The committee’s chairman Andrew Tyrie said the committee will require the FSA to conduct a “comprehensive assessment” of the reasons for HBOS’s collapse and of the FSA’s conduct in relation to the bank.
Moore said he does not believe this goes far enough. With or without independent supervisors, he said the FSA is an inappropriate body to investigate HBOS’s failure.
“Andrew Tyrie’s idea is a farce. We need an independent judicial public inquiry into HBOS, it needs to be led by three judges who understand how to get the bottom of the evidence – and nobody from the FSA should have any involvement whatsoever.”
McColl added: “It is very surprising that no one from the regulator has been held to account”.
In a further development, entrepreneur Sir Tom Hunter, also a former client of Cummings, stepped up his criticism of the ruling against Cummings last night saying: “How can the FSA, who are 100% conflicted, conduct a review objectively when they were complicit in HBOS’s failure? Parliament should instruct an independent review. The FSA acts as judge, jury and executioner and that cannot possibly be fair.”
Donald Macdonald, executive chairman of Macdonald Hotels, whose business was also funded by Cummings, said: “I find it contemptible and grossly unfair that Peter Cummings is the sole individual targeted by the FSA; those in HBOS responsible at the time should hang their heads in shame for letting Peter carry their can.”
Other retail, property and hotel entrepreneurs bankrolled by Cummings included Sir Philip Green, Robert Tchenguiz, the Barclay brothers, Sir Rocco Forte, the Reuben Brothers, John Kennedy and Nick Leslau.
Having built up a toxic £119 billion corporate loan book, Cummings “retired” from the bank he helped destroy with a £352,000-a-year pension in January 2009. He now works part-time as a consultant and lives as a semi-recluse in Dumbarton.
Crosby stepped down as HBOS’s chief executive in July 2006 and was forced to resign as FSA deputy chairman in February 2009. He remains a non-executive director of Misys and Compass Group and a member of the European advisory board of private equity group Bridgepoint. Stevenson walked away after the HBOS wreckage after it was rescued by Lloyds TSB in January 2009. He is a non-executive director of booksellers Waterstone’s and venture capitalists Loudwater.