High-risk boss who put bank on road to disaster

Sir James headed an executive board which “sowed the seeds” of HBOS’s destruction when it embarked on an “aggressive” growth strategy following the bank’s formation in 2001.

The Leeds-born executive was a high-flyer in Yorkshire’s banking world for many years, joining the Halifax in 1994 and being made chief executive in 1999.

After becoming the chief executive at HBOS following the Halifax’s merger with Bank of Scotland two years later, he set hugely ambitious growth targets in a bid to compete with the “Big Four” established high street banks.

The commission found that while high street customers may have continued to receive the service they were used to, in the “higher echelons” of the bank a “brash” new culture quickly developed.

Huge risks were taken as the bank’s lending and operations grew at an extraordinary rate – leaving it badly exposed when the bubble finally burst.

“The strategy set by the board from the creation of the new group sowed the seeds of its destruction,” the report said.

“HBOS set a strategy for aggressive, asset-led growth across divisions over a sustained period. This involved accepting more risk across all divisions of the group.

“Although many of the strengths of the two brands within HBOS largely persisted at branch level, the strategy created a new culture in the higher echelons of the bank.

“This culture was brash, underpinned by a belief that the growing market share was due to a special set of skills which HBOS possessed and which its competitors lacked.”

The commission found Sir James and his team had no real understanding of the risks they were taking.

“The weaknesses of group risk in HBOS were a matter of design, not accident,” the report said.

“Responsibility for this lies with Sir James Crosby, who as chief executive until 2005 was responsible for that design.”

It also pointed the finger at Sir James’s successor, Andy Hornby, and Lord Stevenson, who chaired HBOS throughout its lifespan.

Indeed, the commission is brutal in its assessment of the entire management team headed up by Sir James.

“There was insufficient banking expertise among HBOS’s top management,” the commission said. “In consequence, they were incapable of even understanding the risks that some elements of the business were running, let alone managing them.”

Sir James, who lives in Harrogate, was unavailable for comment yesterday. But in his appearance before the commission in December, he apologised for his part in HBOS’s collapse.

“I was horrified and deeply upset by the catastrophe,” he said. ”It was hugely distressing to see the impact on shareholders, former colleagues and the consequences for the taxpayers.

“I am apologising for the fact I played a major part in building a business that subsequently failed.”

Nonetheless, the multi-millionaire has so far escaped without any financial penalty.

His total remuneration from HBOS is estimated at around £8m and he receives a pension of £570,000 a year.

Having built up a large portfolio of HBOS shares during his time in charge, he sold around two-thirds of them when he left in 2006 – a year before the financial crash, when share prices plunged.

He told the commission this decision was taken to “balance his portfolio” of assets.

But chairman Andrew Tyrie told him: “You got out before the crash. You can understand that when the public hear you talking about balancing your portfolio of assets, they will not be impressed.

Astonishingly, Sir James went on to become a regulator of the banking sector after leaving HBOS.

Having been knighted for his services to banking, he joined the Financial Service Authority board and eventually became its deputy chairman. He resigned in 2009.