Lloyds TSB chair Sir Victor Blank: “I think we’re creating a Great British bank”

Was Lloyds TSB kept in the dark about the parlous state of HBOS’s corporate loan book? Should Lloyds TSB have done more thorough due diligence?

One of the great unanswered questions about Lloyds TSB’s rescue takeover of HBOS is the extent to which the Lloyds board was ‘hoodwinked’ by the board of HBOS.

During the heated talks in the Halifax company flat in St James on 16-18 September 2008, how candid were HBOS’s chairman Lord Stevenson (who is sitting in the audience alongside former HBOS spin meister Shane O’Riordain in the above video, taken at the press conference at which Lloyds TSB confirmed its acquisition of HBOS on 18 September 2008, which initially valued the failed Scottish/Yorkshire banking and insurance group at £12.2 billion), former HBOS chief executive Andy Hornby (shell-shocked after three days of high anxiety) and former HBOS finance director Mike Ellis (a man with a predilection for burying bad news)?

For example: did the HBOS directors bother to inform Lloyds TSB’s chairman Sir Victor Blank and chief executive Eric Daniels about hideous state of the £116bn loan book built up by Bank ofScotland’s head of corporate lending Peter Cummings?

I hope that the FSA’s current investigation into the “accuracy and completeness” of information provided by HBOS to investors during the Scottish bank’s 2008 capital-raisings (which I revealed in a “scoop” published by the Independent on Sunday last weekend), which is focused on disclosures about the state of HBOS’s corporate book, will stretch to examining whether the Lloyds TSB’s board was kept in the dark about Cummings’ radioactive legacy.

One also wonders whether the estimated £70 billion of bad debts in Cummings’s £116 billion loan book, together with the existence of alleged internal frauds including that at BoS Reading were mentioned in the “secret dossier”, whose existence first emerged during the Lloyds TSB/HBOS Competition Appeal Tribunal last November?

At a court hearing to rubber-stamp the ‘scheme of arrangement’ by which Lloyds TSB acquired HBOS, heard before Lord Glennie in he Court of Session on 12 January 2009, counsel for Lloyds TSB James McNeill, QC became agitated and even puce in the face when the economist Robert McDowell, acting as an “intervenor” in the court proceedings, started speculating as to the contents of this dossier. David Sellar, QC for HBOS subsequently claimed that all copies of the dossier had been “destroyed”.

If Gordon Brown’s government failed to disclose the facts it knew about HBOS to the Lloyds TSB board or to Lloyds’s shareholders at the time of the deal in September 2008, wouldn’t the government be guilty of prioritising “financial stability” over mandatory stock market disclosures and respect for shareholder rights? Or have I missed something? And what about Victor Blank? Did he do the same?

An article by Peter Oborne published in February 2009 suggested that Victor Blank deliberately downplayed the noxious state of HBOS loan book. Instead Blank — a crony of Brown’s who allegedly had his eye on a peerage — saw his priority as being to do the prime minister’s bidding.

The evidence points to the notion that Blank agreed to acquire HBOS simply in order to relieve the Labour government of the embarrassment of having to nationalise it.

• For more on Lloyds TSB / HBOS, click here
• To read FT Aphaville’s endorsement of Ian Fraser’s coverage of HBOS click here