The broken bank and the Square Mile of shame

On May 31 1940, towards the end of the Dunkirk evacuation, three journalists, under the collective title of Cato, decided to write a book in which the root causes of the events that had brought Britain to the verge of defeat would be explored and made public. The journalists were Michael Foot, Frank Owen and Peter Howard. The book, 40,000 words long, was given the title Guilty Men and it was written in four days. Cato was not backward in naming and shaming the guilty and the slim volume became a best seller.

Fast forward to 2007, when the Northern Rock bank got itself into difficulties, to be followed soon after by many of the largest financial businesses in the United Kingdom. It has taken rather longer than four days to establish who had done what and who was responsible for what and who exactly were the guilty men. Indeed was anyone guilty? It is worth noting that Cato was not hampered by considerations such as Maxwellisation (the procedure in current UK legal practice where those due to be criticised in an official report are sent details of the criticism in advance and permitted to respond prior to publication) when it came to pointing the finger.

The failures of 2008 should be revisited with a view to getting answers about who did what. In the event that guilty men are flushed out, serious personal consequences should follow.

“More senior executives should have been punished over the collapse of HBOS… Ross McEwan, the CE of Royal Bank of Scotland, said that it was neither fair nor prudent that Peter Cummings, the former head of corporate lending at HBOS, was the only person banned over the failure of the high street bank in 2008. A report into the demise of HBOS by Andrew Green QC, published on November 19 called on regulators to consider banning up to 10 former directors from working in the city. “

Times report, November 21 2015

“Taxpayers and regulators rightly have been highly critical of banker pay, given the misery the financial crisis delivered to the rest of us… The FCA seems to have reached the conclusion that the £8.6 billion the asset managers collect in fees is too much.”

Alex Brummer, City Editor, Daily Mail November 19, 2015

“Andrew Green, the independent QC appointed to consider whether the FSA had acted appropriately and whether more action could be taken, said the FSA’s enforcement investigations in relation to the failure of HBOS was not reasonable. The decision making process was materially flawed. Mr Green’s report names 10 former HBOS executives but does not spell out exactly who he believes should face investigation.”

Katherine Griffiths, The Times November 20, 2015

“One might have thought that any association with a bank as deeply flawed as HBOS would have disqualified directors and executives from working in the city, if not the whole world of commerce ever again. Remarkably, several of the key players are back in banking”

Alex Brummer, Daily Mail, November 20, 2015

“Chancellor George Osborne stressed that both the former executives of HBOS and regulators were to blame for its downfall in 2008. He said this report clearly shows that the collapse of HBOS was caused by those running the bank and those regulating it. It demonstrates that the system of regulation created by the last labour Government failed. In the end, this led to a £20 million bailout of Lloyds Banking Group funded by the tax payer”

Daily Mail, November 20, 2015

November 19, 2015 was an important day for all those interested in the causes and consequences of the failure of Halifax Bank of Scotland in 2008. On this day, the Prudential Regulation Authority and the Financial Conduct Authority published a review into the failure of HBOS. The review required 400 pages to set out the results of its work. Sir Brian Pomeroy, senior independent director at the FCA and chairman of the HBOS review steering committee noted: “The review into HBOS has involved a dedicated team sourcing and considering a huge amount of material including reviewing around a quarter of a million documents and interviews with 80 key individuals.”

The news about the consideration of 250,000 documents struck a gloomy note at the outset. To most of us, the key point was that back in 2008 HBOS had belatedly discovered that it was bankrupt and had gone cap (a pretty large cap) in hand to Her Majesty’s Government begging assistance.

The sought for help was duly provided on the basis that HBOS was too big to fail. However, it did not and does not follow that those responsible for the collapse were too important or, too indispensable to sack. Indeed some thought that one precondition for the bailout should have been the departure of the senior managers who were in charge at the time. Before the crisis, the public had been regularly assured that the huge reward packages collected by senior managers in the financial sector were in recognition of their talent to prevent precisely the outcome that had come to pass.

Also on November 19 last year, as part of the PRA/FCA review and coming in at a mere 100 pages a separate report by Andrew Green QC was published. He had been appointed in July 2014 to review the Financial Service Authority’s enforcement actions following the failure of HBOS. By the standards of recent independent enquiries, Green had worked at a startlingly brisk pace to produce his report which was critical of the performance of the FSA.

An extract from PRA/FCA review will help to shed light on the issue of the alacrity or the lack of it on the part of the members of the review team.

“Although HBOS failed in October 2008, work did not begin on the FCA/PRA report until the end of 2012. It has therefore taken three years to produce the FCA/PRA Report. Both these reports have been subject to the so-called Maxwellisation process to allow parties to comment on the relevant sections… the processes of Maxwellisation and consent are legal requirements to which the regulatory authorities must adhere. They must be done thoroughly and fairly.”

So we must allow these City chaps who had the misfortune to experience one or two difficulties in their stewardship of their various businesses sufficient time to prepare their defence of what had gone wrong and why. But to those outside that magic circle, seven years does seem to hint at a degree of time wasting, including the fact that it took four years to get some sort of show on the road.

When is something going to be done about the posthumous curse of Robert Maxwell? Didn’t he do enough damage when he was alive without bequeathing to a reluctant nation the farce of Maxwellisation?

When is something going to be done about the Chilcot syndrome in which work expands to fill the time available for its completion – and, where the taxpayer is footing the bill, we are talking in many years. The suspicion is Chilcot will be finally be published just in time for Sir John to launch Chilcot Two, an enquiry into the whys and wherefores of launching air strikes on Syria with predictably dire consequences.

The media charged with reporting on the two reports had some fun at the expense of those named and shamed in them. They had fulminated for more than seven years about the greed and incompetence of the top brass in the UK financial sector.

Even here the reporting was not unanimous and one item by Ian King in The Times raised eyebrows. “Andy Hornby has suffered enough. To disqualify him now would be vindictive, Mr Hornby is, at 48, comparatively young. Moreover, he needs to work.”

Another quote is apposite here.

“When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill done.”

JM Keynes – General Theory, 1936

The case of Andy Hornby warrants further comment. Let’s begin with his CV. 1999 – Joined Halifax as CE of Retail; 2005 – Chief Operating Officer of Halifax; 2006 – Group CE of Halifax up to the takeover by Lloyds; July, 2009 – appointed Group CE of Boots; July 2011 – appointed CE of Coral (betting shops, plus betting via internet, telephone and mobile. Hornby had arrived at his true vocation – a wholly appropriate final occupational resting place, given his track record as a compulsive gambler during his time at HBOS.

The time was when high street banks were just that – banks with branches on our high streets with staff to assist us in our various financial arrangements. That was then. Now, thanks to the cupidity and irresponsibility of Hornby and others from the same dubious mould, the number of branches have dwindled and their places taken by bookies and payday lenders and the like.

Has Hornby suffered enough? Ian King thinks that he has. Others may be less sure and may think the Augean stables that comprise the UK financial sector have been cleansed only when effective action is taken to curtail the more acquisitive propensities of senior financial managers. It is ironic that the Wall Street, said by many to be the safest of safe houses for rogue financiers, is not as reluctant as British authorities to adopt draconian measures when the evidence to do so is sufficiently strong.

The UK is awash with bookies and moneylenders and corner shop lotteries. Is this what David Cameron and George Osborne have in mind when they speak of the great Tory revival of the economy? The Chancellor should translate his commendable stricture about errant bankers into practice by arranging for some prominent collars to be felt.

Action taken to clean up the UK financial sector would need to extend far beyond the inquiries into what went wrong at HBOS.

What, exactly, did Barclays’ Fred Goodwin, later honoured as Sir Fred and later still demoted back to square one as Mr Fred, do or not do to acquire such obloquy? Ditto the chairman and CE of Northern Rock, Adam Applegarth and Matt Ridley, the latter now gracing the benches of the House of Lords.

A sound if sluggish start has been made with regard to HBOS, and there is a chance that Hornby and some of his HBOS colleagues will receive belated raps over their knuckles. But what plans does HMG have to close off one of the most squalid eras in British business history? For that matter what plans do Jeremy Corbyn and the Labour Party have, if any? It would be helpful if a truce could be called in the battle for the future of Labour and instead for the party to get down to some detailed policymaking.

We may as well be realistic and accept that the prospects of criminal charges being brought are close to zero. We are not talking about dead paedophiles to be pursued beyond the grave. So what actions are open to those in authority with the will to do so to put the squeeze on the suspected guilty men in banking?

“One might have thought that any association with a bank as deeply flawed as HBOS would have disqualified directors and executives from working in the city, if not the whole world of commerce ever again. Remarkably, several of the key players are back in banking.”

Alex Brummer, Daily Mail, November 20

To the best of my knowledge, Alex Brummer is not a member of any even mildly left-wing group. However, he has seen the recurring scandals generated by senior finance managers and he has not been impressed. HMG should do everything in its power to spread alarm and despondency among the guilty men, and, crucially, to discourage would-be looters from following the example of the instigators of the 2008 crisis.

This will be a good test of the declared intention of the Government to reward hard-working people. This commendable policy would require cracking down on City spivs. While there is no great confidence that Conservative ministers will act, punitive steps to be considered against those judged to be the guilty men might include:

* The Brummer penalty of lifetime bans.

* Forfeiting of at least some pension rights.

* The enquiry to consider actions to be taken against the guilty from 2008 to 2015.

* The taxing of all pensions to be on a steeply regressive scale,

* A key feature of any plan to name and penalise the guilty men to be a rigid time scale for the enquiry, a time scale closer the Cato four days than to the languid PRA/FCA/Green time scale of seven years.

* Another key feature of any enquiry to be that it would focus on people rather than businesses. HBOS was not guilty of anything, but its managers were. Businesses do not engage in sharp practices but managers can and occasionally do. Jeremy Corbyn is well placed to lead the drive for such an enquiry, given that he was not one of the New Labour politicians from the Tony Blair and Gordon Brown era who turned blind eye to the excesses taking place in the Square Mile.

* Ensure that those doing the enquiring are not connected to those  to be investigated.

* Widen the net to include senior managers from all the financial sector businesses judged to have failed.

* Question the assertion by some senior financial managers that some of their fellow managers would take their acquisitive habits abroad if we did not indulge them.

I should like to say why I feel personally aggrieved at the activities of the City slickers. When the financial crisis first surfaced in 2007 with the collapse of Northern Rock, there was alarm in some quarters that even savings previously deemed ultra safe might now be at risk.

Accordingly, I moved a proportion of our modest life savings out of HBOS and into the Co-op – into the care of Paul Flowers and his colleagues. Not very good thinking?

Shortly afterwards and acting on the advice of a financial advisor, I invested a modest amount in bonds said to be cautious and conservative and marketed by CRU/Capita. The bonds were suspended just six weeks after my cheque was cashed.

Thanks to the tireless efforts of financial journalists such as Jeff Prestridge, I have recouped the bulk of the original outlay but some seven years later Capita /CRU still owe me £2,000. I have been given to understand that the remaining amount is tied up in Jersey.

I confess that my record of financial judgement is on the shaky side. However, I contend that what I lack in financial acumen – a characteristic I share with most financial managers – I can compensate for with a dislike and suspicion of the top brass in the Square Mile.

It never ceases to amaze how David Cameron has the gall to lecture other leaders about the alleged corruption in their countries, given that as Prime Minister he is responsible for a country in which corruption flourishes on an epic scale and that he could, were he so minded, actually do something to curtail it.

Some closing pleas.

* Bury the Maxwellisation rule alongside the remains of the portly pilferer.

* Get after the responsible senior managers. They are not going to hand themselves in to the nearest police station.

Remove honours doled out in the easy days.

* Put the issues raised in these notes into the in tray of the anti corruption tsar – currently Sir Eric Pickles.

* Once the case for man overboard is clear – P45 issued promptly.

* Why not arrange for at least some of the banks to revert to the mutual business model – surely the change is reversible? Such a change would not appeal to management because it would curtail their sharp practice opportunities, but the rest of us could live with their tears.

Postscript. I recently received a letter from Halifax – the people who give you extra – to tell me that in the forthcoming Halifax prize draw there are to be three prizes of £250,000, 50 prizes of £10,000, 150 prizes of £1,000 and 1,000 prizes of £100.

At around the same time, I received a separate letter from Halifax – the people who give you extra – to tell me that the bonus period on my Everyday saver ends on January 5 2016 at which point my account will automatically change to an instant saver account currently paying a variable rate of 0.25 per cent gross – that is, before tax.

What on earth is a bank doing running a lottery – did 2008 and its aftermath change anything? Evidently, the spirit of Andy Hornby still prevails at Halifax. But in the event that I am tempted to participate in lotteries and games of chance, I would prefer to do via Corals (Andy Hornby’s present employer) rather than via my bank.

This article first appeared in Tribune on January 12, 2016

Image courtesy of BBC


Author: holdenforth

50 years in management - mostly as a sharp-end man. Occasional contributor to Tribune.

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