Why ex-HBOS chief executive James Crosby deserves no mercy

In a comment piece in Saturday’s Times, financial editor Patrick Hosking gave ten reasons why the Parliamentary Commission on Banking Standards must show no mercy to ex HBOS chief executive James Crosby when he appears before it on Monday.

This is no time for deference, taking mendacious spin at face value or letting self-serving and misleading claptrap go unchallenged. This is the time to go for the jugular.

Hosking writes that the Macavity-like Crosby, who quit while the going still seemed good at HBOS on 30 June 2006, two years ahead of its collapse, “is perhaps as culpable for the financial catastrophe of the past five years as anyone, Fred Goodwin included.”

Hosking is urging members of the Parliamentary Commission to “stiffen their sinews” ahead of Monday’s session. Here are his ten reasons for showing no mercy to Crosby (full article is behind the paywall at thetimes.co.uk)

1. The seeds of HBOS’s self-destruction go back to the 1999-2006 period when he was in charge.

2. It was Sir James Crosby who sanctioned the breakneck growth of the corporate lending arm, which sank the bank when tens of billions in loans to entrepreneurs soured.

3. The aggressive sales culture at HBOS was nurtured during the Crosby years. Under him HBOS embraced supermarket-style culture where staff were pressurised into selling and customers were force-fed products they didn’t need.

4. Sir James Crosby also fostered a head office culture in which those trying to make sure the rules were obeyed were humiliated and ridiculed.

5. HBOS deserves particular scrutiny by Parliament because of the huge number of small investors damaged by its collapse.

6. Sir James Crosby has never apologise, unlike his successor, Andy Hornby, and his chairman, Lord Stevenson.

7.Crosby was happy to be a public figure before the crisis, and should therefore be even more accountable now. He chaired two inquiries for Gordon Brown and took on the deputy chairmanship of the FSA in 2007-9.

8. He is an actuary, with less excuse than most for miscalculating the risks he so carelessly allowed the bank to take.

9. He spent a decade in the gravy boat and has paid nothing back.

10. It’s not yet over. We have still to learn the final bill left by the near-kleptocracy that ran Britain’s banks in the decade to 2007. Many people, even now, haven’t quite grasped the enormity of their financial crimes, nor how much their venal, negligent, reckless decisions have damaged the economy.

Hosking then concludes:

The Bank of England reckons the cumulative loss because of the UK’s banking crisis is now “now fast approaching one year’s output in the UK” — £1.5 trillion, or £24,000 per person.

People like to belittle parliamentary committees as circuses for grandstanding… But in the mother of democracies, there’s something grotesque in the fact Sir James has at no time had to account for his actions publicly…

If, as seems possible, we remain mired in this same downturn for years to come, voters will marvel that Parliament did not do more to hold those responsible to account…. [Members of the PCBS] must harden their hearts — and subject Sir James to an Old Testament-style grilling. If he has a defence, it’s high time he shared it with the rest of us.

The session with Crosby is to be followed by a grilling of his no less disastrous successor, Andy Hornby, at 5.30pm on Monday. HBOS’s former chairman, ord Stevenson, is to be questioned on Tuesday.

I sincerely hope that, given how well briefed it has been by ex insiders and others with a close knowledge of the shocking and disgraceful misdeeds of the Edinburgh-based bank  under Crosby’s, Hornby’s and Stevenson’s stewardship  (including the allegedly criminal acts being investigated by Thames Valley Police’s ‘Operation Hornet’ probe — on which charges are said to be imminent), the commission’s HBOS panel won’t pull its punches on Monday.

One other thing the Commission may wish to consider examining is the role of John Ormerod, former UK managing partner of failed accountancy firm Athur Andersen.

Ormerod was drafted in as a supposedly “independent” member of the HBOS audit committee (he was never a non-executive director or employee of the bank’s). In a rights issue prospectus published in June 2008, HBOS said that Ormerod brought: “an entirely independent and experienced additional resource to the Audit Committee’s deliberations which, it is believed, exceeds the spirit of the Combined Code, and is entirely consistent with the Combined Code’s aim of protecting the independence of the Audit Committee.

Yet Ormerod had no experience of financial audits — and, like Gordon Brown, was a close friend of Crosby‘s. It is interesting to note that Ormerod followed Crosby, or was followed by Crosby, onto numerous other boards including those of ITV and Misys.

The Commission must also fully examine the role of HBOS’s auditors KPMG. Specifically, it needs to examine the role of KPMG audit partner Guy Bainbridge.

According to senior ex insiders, when Bainbridge was audit partner on HBOS, “KPMG failed to challenge Peter Cummings’s corporate division and let them get away with a lax provisioning policy”.

The ex-senior insiders insist KPMG only started getting to grips with things after Mike Peck from KPMG assumed responsibility for the audit of the notorious corporate division in early 2008.

This blog was posted on 1 December 2012