Bailed-out British banking and insurance company HBOS was so badly run it would have failed even without the 2008 financial crisis and the regulator should consider banning its former bosses from the industry, UK MPs said in a damning report.
The Parliamentary Commission on Banking Standards, which was tasked with finding ways to reform UK banks, said HBOS was an “accident waiting to happen”, with bad lending and losses across the business likely to have led to its insolvency, even without the funding and liquidity problems of the financial crisis.
In the report published on Friday, the committee said regulators bore some of the blame, but primary responsibility lay with Dennis Stevenson, the chairman of HBOS from 2001 until its collapse, and former chief executives James Crosby and Andy Hornby.
There was a “colossal failure of senior management and the board”, said commission chairman Andrew Tyrie, a Conservative Party MP who expressed surprise that only Peter Cummings, who was the head of corporate lending at HBOS, had so far been punished.
Tyrie said: “The commission has asked the regulator to consider whether these individuals should be barred from undertaking any future role in the sector.”
Crosby was the chief executive of HBOS between 2001 and 2006, before being succeeded by Hornby.
Following the report, Crosby promptly resigned as an adviser to private equity firm Bridgepoint. He is also a senior independent director at the world’s biggest catering company, Compass, which declined to comment on whether he would keep his £125 000 (R2 million) a year position.
The trio earned millions of pounds during their time at the bank and in subsequent roles. Crosby was paid close to £8m during his tenure as chief executive.
Hornby was earning £1.9m a year before leaving the bank, while Stevenson’s package was worth over £800 000 a year.
Cummings was fined £500 000 by Britain’s financial services regulator in September and banned for life from the industry.
HBOS, Britain’s biggest mortgage lender, had to be rescued with a government-engineered takeover by rival Lloyds, which subsequently needed a £20 billion bailout to survive.
Hornby declined to comment on the report. After leaving HBOS, Hornby worked as chief executive of health-care group Alliance Boots, earning more than £2m a year.
He currently runs Coral, a chain of betting shops.
Coral had nothing but praise for Hornby, and a spokesman said his position was safe. “Coral is performing extremely well, and we are really pleased with the great job Andy is doing.”
Stevenson, who sits in the House of Lords, could not be reached for comment.
HBOS was created in 2001 by a merger between Halifax, a former mutually owned savings and loans firm, and the 300-year-old Bank of Scotland. It ramped up lending using cheap funding on the wholesale markets rather than safer customer deposits, and its high-risk strategy was exposed when that funding dried up following the collapse of US investment bank Lehman Brothers in 2008.
HBOS’s managers blamed the financial crisis for the collapse, but the commission said the bank’s business model was inherently flawed and its board was a “model of self-delusion”.
“The sums would never have added up,” Tyrie said.
“The commission has estimated that, taken together, the losses incurred by the corporate, international and treasury divisions would have led to insolvency, regardless of funding and liquidity problems, had HBOS not been bailed out by both Lloyds and the taxpayer.”
The commission said £25bn was lost on bad corporate loans. There were losses of £15bn at its international business and £7bn at its treasury unit.
The report said the role played by Britain’s financial regulator had been “thoroughly inadequate”.
Britain’s Finance Ministry said the failure of HBOS was a “symptom of the financial crisis and the regulatory system in place at that time”.
The ministry said the introduction of a tighter regulatory regime would help prevent future failures.
The responsibilities of the Financial Services Authority have been passed to two new bodies, the Financial Conduct Authority and the Prudential Regulation Authority. – Matt Scuffham from Reuters