HBOS’s former bosses wait to learn their fate

hbos collapse

Former HBOS executives will learn whether they face fresh investigations into their conduct in the run up to the bank’s near collapse in 2008, reports The Guardian.

Thursday’s publication of the much-delayed and long-anticipated report into what went wrong at the bank will be published alongside an opinion commissioned by the regulators into the decision in 2012 to only punish one former executive.

There were reports that the review will say there are grounds to reconsider the scope of the original investigation and that the regulators will assess whether to embark on a fresh wave of investigations. Individuals are not expected to be singled out.

Peter Cummings, the former head of commercial arm of HBOS, is the only bank executive to have been censured over the affair. He was investigated by the now defunct Financial Services Authority (FSA) following the takeover of HBOS by Lloyds TSB in September 2008 and the subsequent £20bn taxpayer bailout of the enlarged bank. Cummings was fined £500,000 and banned from the City in September 2012.

He accused the regulator of “tokenism” when the fine was handed out, and argued it was “inherently unfair” that he was only the only individual facing disciplinary action.

That decision has been the subject of a review by Alan Green QC, who has been asked to consider the “reasonableness” of the FSA’s decision, and whether “the regulators should consider afresh whether any other former members of HBOS’s senior management should be subject to an investigation with a view to prohibition proceedings”.

Green’s review is being published alongside an offcial report, which runs to at least 500 pages and was first scheduled for publication in 2013 – when the FSA will still in existence. It is being published by the FSA’s successor bodies: the Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority.

Its publication comes two years after a parliamentary commission accused former HBOS chief executives James Crosby and Andy Hornby, and the bank’s former chairman Lord Stevenson, of a “colossal failure of management”. That report, by the parliamentary commission on banking standards, also criticised the FSA – which was disbanded in 2013 – for a series of regulatory failures.

In addition to Cummings, the FSA also censured the Bank of Scotland arm of HBOS for not have having risk controls that could keep up with its pace of growth in the face of a deteriorating economy.

One of the key findings of the censure in 2012 was that “the culture of optimism impeded the effective management of transactions as they became stressed”. It also said that the bank had been told by auditors KPMG that it would be prudent to start setting aside far bigger provisions to cover looming bad debts.

At the time of its takeover by Lloyds, HBOS operated a federated structure with six divisions. Each division had its own chief executive, who had autonomy in managing their businesses.

Crosby was group chief executive until 2006 when Hornby took over after running the high-street operations. Hornby’s current employer, Gala Coral, is expected to back him when the report is published.

While Hornby did not receive a payoff, executive members of the board received payments worth around £1m in total through “change of control” clauses in their contracts which paid out through the Lloyds takeover. They have also amassed pension pots which will pay out when they retire – although in 2013 Crosby gave back 30% of his £580,000-a-year pension and his knighthood.

If new investigations do lead any enforcement action, the former executives will not face financial penalties. This is because fines cannot be imposed for any wrongdoing unless there is significant new information as regulators needed to warn executives of enforcement action before a six-year statute of limitations ran out last year.

Regulators have dealt with more than 1,500 representations from 35 individuals in a process known as Maxwellisation, which requires individuals in the report to see information about themselves.