December 1st, 2012
In a comment piece in Saturday’s Times, financial editor Patrick Hosking gave ten reasons why the Parliamentary Commission on Banking Standards must show absolutely no mercy to the former HBOS chief executive James Crosby when he appears before it at 3.30pm on Monday afternoon.
This is no time for faux deference, taking mendacious spin at face value, letting self-serving and misleading claptrap go unchallenged. No, this is the time to go for the jugular.
Hosking writes that the Macavity-like Crosby, who quit while the going still seemed to be good at HBOS on June 30th, 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 urged members of the Parliamentary Commission to ‘stiffen their sinews’ ahead of Monday’s session Here are his ten reasons for showing no mercy to James Crosby (full article is behind the paywall at thetimes.co.uk)
1. It has become ever more apparent that the seeds of HBOS’s self-destruction go back to the 1999-2006 period when he was in charge. The commission now has mountains of evidence that the fatal decision to rely more on wholesale funding was taken in the early years of the Crosby era, in spite of warnings about the dangers. When wholesale markets froze in the summer of 2007, HBOS was toast. Sir James was 18 months gone by then, but his strategic blunder years earlier had sealed HBOS’s fate.
2. It was Sir James who also sanctioned the breakneck pace of expansion of the corporate lending arm, the other misjudgment that sank the bank when tens of billions in loans to entrepreneurs soured. The commission has heard how the division was given a target to ramp up its loan book from £35 billion to £66 billion in the space of just two years as early as 2001. Sir James and other directors were told in January 2004 by the finance director Mike Ellis that the fast pace of growth was “an accident waiting to happen”. Nothing was done to apply the brakes.
3. The aggressive sales culture at HBOS was nurtured during the Crosby years — according to the former head of risk, Paul Moore, a plausible and sincere-sounding witness. He describes how under Crosby HBOS changed from a fuddy-duddy bank to a supermarket-style culture where staff were pressured into selling and customers were force-fed products they didn’t need. Sir James has denied this — but the £5.3 billion that HBOS’s new owner Lloyds has since set aside to compensate for mis-sold payment protection insurance alone suggests that Mr Moore was dead right.
4. Sir James also fostered a head office culture in which those trying to make sure the rules were obeyed were humiliated and ridiculed, according to Mr Moore. Sir James personally dismissed Mr Moore in 2004 after he blew the whistle.
5. HBOS is a special case, deserving of particular scrutiny by Parliament because of the huge number of small investors damaged by its collapse. The three million or so who became shareholders through the demutualisation of the old Halifax Building Society are relying on the commission to put some very awkward questions to Sir James. So do millions more who, as Lloyds shareholders, inherited the mess left behind.
6. Sir James has never apologised, as far as I can tell. His successor, Andy Hornby, and his chairman, Lord Stevenson, at least said sorry.
7. He was happy to be a public figure before the crisis and is therefore even more accountable now. He chaired two inquiries for Gordon Brown (on identity fraud and mortgages), as well as taking on the deputy chairmanship of the Financial Services Authority from 2007 to 2009.
8. He is an actuary, for goodness sake. He has less excuse than most for miscalculating the multiple risks he so carelessly allowed the bank to take on.
9. He spent a decade in the gravy boat and, unlike Fred Goodwin, has — as far as we know — paid nothing back. His spin doctors once tried to convince me that he was seriously underpaid compared with his peers. That was in 2004, when he received £4.06 million in pay and pension contributions. He left in 2006 with a pension, index-linked, of £572,000 a year, underwritten by Lloyds shareholders and taxpayers. By comparison, Fred gets by on £342,500.
10. It’s not 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 loss on the Government’s Lloyds stake is currently £7 billion, but that’s a rounding error compared with the wider damage to confidence and lending. The Bank of England reckons the cumulative loss because of the crisis is now “now fast approaching one year’s output in the UK” — which is £1.5 trillion, or £24,000 per person.
People like to belittle parliamentary committees as circuses for grandstanding MPs and peers. But in the mother of democracies, there is something grotesque in the fact that Sir James has at no time had to account for his actions publicly (an FSA investigation slowly grinds on behind closed doors).
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. Commission members, including the future Archbishop of Canterbury, have the chance to put that right on Monday. They 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 will be followed by a ‘grilling’ of his no less disastrous successor, Andy Hornby, at 5.30pm on Monday. HBOS’s former chairman, the deeply culpable Lord 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 2008, HBOS said 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.
Here’s a selection of earlier blogs and articles about the HBOS fiasco
- This could turn out to be no laughing matter for Sir James Crosby
- Hornby and Cummings fought in the boardroom as they led HBOS to disaster
- FSA bombshell changes everything for Crosby
- Revealed: The hornet and the sting which are stopping us from learning the truth about HBOS
- Corruption allegations, major fraud inquiries, links to pornographic magazines … and a luxury yacht. Welcome to the world of banking 2012
- Going for broke [A review of Ray Perman’s Hubris: How HBOS wrecked the best bank in Britain]
- The worst bank in the world: HBOS’s calamitous seven-year life