23 August 2009
Sir Victor Blank, who has been forced out as Lloyds Banking Group chairman by investors, has spent the weekend trying to exorcise some ghosts and salvage some of his reputation.
Blank went on a PR offensive, granting interviews to BBC business editor Robert Peston and Andrew Davidson of the Sunday Times. In both, Blank sought to gloss over past errors.
He was given too an easy ride by both interviewers. Blank was not asked whether Lloyds Banking Group — the merged Lloyds / HBOS — is becoming increasingly unmanageable, with warring factions from Lloyds TSB and HBOS apparently seeking to scupper the integration of their erstwhile institutions. Nor was he asked about the true reasons for Halifax Bank of Scotland’s failure, which include the alleged corruption and fraud recently highlighted in a programme that I helped to produce for BBC Radio 4’s ‘File on 4‘.
Where unmanageability is concerned, I’ve been told by Lloyds insiders that that London-based managers within the former Lloyds TSB want make former HBOS staff in Halifax and Edinburgh “pay” for their employer’s former recklessness, they are singling them out for special treatment, including starving them of resources and indiscriminate sackings.
Managers in Halifax and Edinburgh are, perhaps unsurprisingly, seeking to thwart these plans. The managers, mainly in systems and IT, are said to be in open revolt; refusing to obey orders and deliberately throwing the odd spanner into the financial works. As a result of this, Lloyds’ Gresham Street HQ is said to be finding it impossible to obtain reliable numbers from its northern outposts. That got me thinking about the validity and reliability of the interim figures — including a £4bn loss — the bank released on August 5th.
Neither Peston nor Davidson asked Blank about any of this. To be charitable, it’s possible neither of them were even aware of it. Or it may be that Blank only agreed to be interviewed on condition that he was not asked about such matters.
In the Davidson interview the cricket-mad knight, whose office in Lloyds’s Gresham Street building is plastered with photographs of himself in the company of dignitaries — insisted that Lloyds’s decision to acquire HBOS was not influenced by the prime minister, Gordon Brown. He told Davidson: “There is a perception that the government was involved, but let me say very clearly: this was not Gordon Brown’s deal. It was the Lloyds board’s deal, done with the right investigation, right process, right discussion — and the board made a decision.” (Note: I asked a City friend about this, and he said Blank is so desperate to get a peerage, he would do anything to avoid landing the current prime minister in the soup!).
Talking to Peston, for BBC News channel’s Leading Questions slot, Blank said Lloyds had been stalking HBOS for some time before last September (this echoes remarks made to the Guardian’s Jill Treanor last September, in which Blank revealed that HBOS’s former chief executive Andy Hornby first came to see him about a possible merger in May 2006). However competition issues always got in the way. When Brown decided to waive competition law and facilitate a deal, in a desperate bid to avoid having to nationalise HBOS last September, Blank insisted the deal was no salvage job. “When we announced the deal in the middle of September, it did not feel like a rescue of HBOS. It felt like a wonderful opportunity that was available and would only have been available in adversity. We knew there were issues within the HBOS book, we knew there were concerns about their corporate book, the buy-to-let portfolio, the self-certified portfolio — we knew all that when we went into it.”
I’d love to know how far these “concerns” actually stretched.
Did they stretch to recognising that 69% of HBOS’s corporate book was “outside Lloyds TSB’s risk appetite”? Did they extend to knowledge of the flawed approach to credit approvals which enabled Peter Cummings’s to destroy Bank of Scotland Corporate (see The extraordinary lapses that caused HBOS’s collapse and The recklessness of Cummings). Did they stretch to any knowledge of alleged corruption in the BoS Reading branch, which forced its own customers appoint known embezzlers onto their boards, who then crippled their businesses and expropriated their assets (see Examining HBOS)?
Overall it seems that, even after the record-breaking £20bn of write-downs on HBOS’s corporate loan book over the past 18 months, Blank remains denial about the deadly poison that his “fantastic” deal brought. Speaking to Peston, Blank claimed he was neither surprised nor disappointed at the “issues” in the HBOS loan book. Instead, he claimed the only thing that surprised him was the speed with which they materialised. He blamed sharp falls in UK GDP in the final quarter of 2008 and the first quarter of 2009 — and the effect these had on the commercial property market. He conceded however that the write-downs were at “the worst end of expectations”.
At the end of the BBC interview, Blank claimed that, with HBOS under its belt, Lloyds Banking Group “will be a great British financial institution”. “The opportunities financially are considerable. All the things we envisaged a year ago that would be right, good, effective and would give value to shareholders, opportunities to employees, opportunities and service to customers — all of that will be fulfilled.”
One wonders what sort of psychotropic drugs Blank is on?
Additional points from the interviews:-
- Blank contradicted his chief executive, Eric Daniels, by saying he believed that Lloyds had done sufficient due diligence on the HBOS deal.
- Peston revealed that, in mid October 2008, the FSA informed Blank that Lloyds TSB would have been entitled to walk away from the HBOS deal if it so chose.
- Blank also confirmed that Lloyds would have had to participate in the government’s recapitalisation programme irrespective of whether it had bought HBOS. (This tallies with claims made by Sir Peter Burt and Sir George Mathewson last November).
The BBC Leading Questions interview can be viewed in full here To read a March 6th 2009 post, in which I predicted both Blank and Daniels would have to go because of their ill-judged HBOS acquisition, click here