TWO of Yorkshire’s most highly-paid bankers were to blame for the “catastrophic” failures behind the collapse of HBOS and the £20bn bail-out it required from British taxpayers, a blistering report finds today.
The Parliamentary Commission on Banking Standards, set up by David Cameron last year to investigate what went wrong in Britain’s banking system, has concluded that high-flying Yorkshire executives Sir James Crosby and Andy Hornby made a series of “toxic” misjudgments while in charge of HBOS which ultimately led to the bank’s downfall.
Today, as the fallout continued from the report, Sir James resigned as an advisor to private equity firm Bridgepoint, owner of Leeds Bradford Airport.
The commission claimed Sir James was the “architect of the strategy that set the course for disaster” and held primary responsibility for the collapse along with former chairman Lord Stevenson and fellow chief executive Mr Hornby.
A spokesman for Bridgepoint said: “Following a discussion with Sir James this morning he has decided to resign from the advisory board.”
The commission blamed their “toxic” misjudgments for the bank’s downfall and £20.5 billion taxpayer bailout at the height of the financial crisis, and said they should not be allowed to work in the financial sector again.
It found the former HBOS bosses also failed to admit their mistakes and should apologise for their “incompetent and reckless board strategy”.
Sir James was chief executive of HBOS from 2001 to 2006 and also former deputy chairman of the Financial Services Authority.
He was a member of the European Advisory Board at Bridgepoint and is also a senior independent director of catering firm Compass.
Mr Hornby’s current employers, Gala Coral, today said he had their “complete backing”.
Simon Clare, Coral spokesman, said: “Coral as a business is performing extremely well and that coincides with Andy’s tenure as chief executive.
“He’s doing a great job and we’re delighted with the job he is doing. He has the complete backing of the business.”
Sir James and Lord Stevenson have so far retained their titles, though the Royal Bank of Scotland’s disgraced former boss Fred Goodwin was stripped of his knighthood.
Andrew Tyrie, the Conservative MP who chairs the commission, refused to say whether he would like to see Sir James or Lord Stevenson lose their titles, saying the public were not concerned about knighthoods.
“That is not our jobs, we were not set up as a Banking Commission to strip people of their titles,” he told BBC Radio 4’s Today programme.
“I don’t think the public are so concerned about knighthoods, what they want is reassurance that they won’t get hit by this again, that people who do such damage are identified and are prevented from practising and that people should not be allowed to gamble with our money and then walk away with huge bonuses.”
The cross-party commission today calls on regulators to consider whether Sir James, Mr Hornby and Lord Stevenson should be banned for life from working in the financial sector.
Commission chairman Andrew Tyrie suggested this should be only the first step, calling for those responsible to be held “directly accountable” and to “face sanction accordingly”.
HBOS collapsed under the weight of its debts at the start of 2009, eight years after the bank was formed in a merger between Yorkshire’s own Halifax Building Society and the Bank of Scotland. Taxpayers were forced to bail it out to the tune of £20.5bn, and it became part of the Lloyds TSB group in a hasty Government-arranged takeover.
Only one HBOS executive, corporate division boss Peter Cummings, has so far faced sanction for the mistakes that were made, having been fined £500,000 and banned for life from working in the City last year.
By contrast, Leeds-born Sir James, who was chief executive of the Halifax Building Society during the 1990s before taking charge of HBOS following the merger, walked away in 2006 after earning an estimated £8m, along with a pension worth a reported £570,000 a year. He sold the majority of his HBOS shares before the financial collapse, and remains a knight of the realm.
His protégée and successor as HBOS chief executive, Scarborough-born Andy Hornby, resigned in 2009 following the takeover and became chief executive of Alliance Boots. He received a £2.4m pay-off from that post in 2011 and is now chief executive of bookmaker Coral.
When they gave evidence before the commission in December, both men apologised for the mistakes that were made at HBOS, but insisted the financial crash and consequent credit crunch were key factors in the losses the bank incurred.
Neither man has received any sanction whatsoever.
But the report published this morning makes abundantly clear that HBOS was set on the path to disaster by the “aggressive” and “reckless” approach to lending it adopted under Sir James’s leadership, which continued when Mr Hornby took charge.
“The primary responsibility for the downfall of HBOS should rest with Sir James Crosby, architect of the strategy that set the course for disaster, with Andy Hornby, who proved unable or unwilling to change course, and Lord Stevenson, who presided over the bank’s board from its birth to its death,” the report states.
Mr Tyrie – a senior Conservative backbencher who also chairs the Commons treasury committee – was scathing in his verdict of the way the executives behaved.
“The HBOS story is one of catastrophic failures of management, governance and regulatory oversight,” he said.
Mr Tyrie said pointedly his commission was “surprised” that only Mr Cummings has so far faced sanction over the collapse, and described it as “unsatisfactory” that regulators have failed to assess whether other executives should be banned from working in the financial sector.
“The commission has asked the regulator to consider whether these individuals should be barred from undertaking any future role in the sector,” Mr Tyrie said.
“For the future, more needs to be done. Those responsible for bank failures should be held more directly accountable for their actions and face sanction accordingly.”
Lord Stevenson in particular came under heavy fire, having infuriated the commission by claiming reckless lending at HBOS was not his fault because he was “only there part time”.
It said he had shown himself “incapable of facing the realities of what placed the bank in jeopardy from that time until now”.
The commission found the former HBOS bosses also failed to admit their mistakes and should apologise for their “incompetent and reckless board strategy”.
Last night the Treasury said the failure of the light-touch banking regulation of past decades was ultimately to blame for the HBOS collapse, and said a new system currently being introduced would ensure such a catastrophe does not occur again in the future.
A spokesman said: “The failure of HBOS was a symptom of the financial crisis and the regulatory system in place at that time.
“The Government is committed to learning the lessons of the past and protecting taxpayers from bank failures in the future. That is why it has fundamentally reformed the way financial services are regulated in this country.
“The launch of the new regulatory system is the start of resetting the system of financial regulation in our country. The new system represents a fundamental change in how financial services will be regulated in the future.
“The Government has done away with the discredited system that failed to sound the alarm as the financial system went wrong.”