The long-awaited report into the 2008 collapse of HBOS is set to be released later in the day.
The report has been carried out by the PRA (Prudential Regulation Authority) and the FCA (Financial Conduct Authority) with the aim of investigating the circumstances that led to the bank needing a bail out.
Lloyds TSB, which needed a bail out of £20bn, eventually ended up taking control of HBOS’ operations.
Back in 2013, Andrew Tyrie, the chair of the Banking Standards Commission said that “a colossal failure of leadership” had led to the troubles that had plagued HBOS.
James Crosby and Andy Hornby, two previous CEOs, and Lord Stevenson, the previous chairman, were among some of the people that the Commission wanted regulators to look into. Specifically the Commission said that the regulators should consider whether or not they “should be prohibited from holding a position at any regulated entity in the financial sector”.
The report will examine the supposed causes behind the bank’s collapse, including factors such as the level of supervision provided by the disbanded FSA (Financial Services Authority).
The bank’s strategy has been described as “growth at all costs, stack ’em high, sell ’em cheap, go at breakneck speed”, by its previous head of regulatory risk, Paul Moore.
Wholesale credit was the fuel that fed the fire, he said:
“They borrowed at the apex £278bn, 60% of that they had to refinance within one year. That meant they had to borrow more than one and two-thirds the cost of the National Health Service every year.”
He was also highly critical of the regulators:
“It doesn’t take a genius, or even a child if you’re a regulator, to add up on the back of a fag packet what the wholesale funding requirements were of all the banks and to prevent a crisis taking place and take away the punch bowl.”
Banking Standards Commission report also criticised the FSA. It said that the regulator seemed “to have taken no steps to establish whether the former leaders of HBOS are fit and proper persons to hold the approved persons status elsewhere in the UK financial sector”.
Keith Abercrombie, an HBOS shareholder, said:
“As a shareholder, you take the profits and the losses and it is the shareholders who were wiped out when HBOS was rescued by Lloyds – not the taxpayers who have got their money back. The shareholders at the time never will. Despite personally having shares in HBOS at the time, I still believe that that is fair. I invested in shares, I received the dividends in the good times and I paid the price in the bad times. If you don’t want risk, put your money in a deposit account where it earns much less but is guaranteed by the Financial Services Compensation Scheme.”
Peter Cummings, the former head of wholesale banking, is the one director to have already been sanctioned. He was banned from working in senior positions within the financial industry and fined £500,000 by FSA.
The Prudential Regulation Authority and the Financial Conduct Authority replaced the Financial Services Authority, which was abolished on 1 April 2013.
The credit crunch represented a slowdown in the level of wholesale lending across financial markets. Lehman’s was the first bank to fall, back in 2008, HBOS’ collapse followed soon after.
Lloyds TSB rescued HBOS but then had to surrender a 41% stake to government in return for a bailout of its own.
Since that happened Lloyds have had to cut huge numbers of jobs. The government share in the company now sits at 11%, following £15.5bn worth of stake being sold off.