Darling in ‘whiff of death’ attack on bank leadership

FORMER Chancellor Alistair Darling says there was a “whiff of death” hanging over Halifax Bank of Scotland in the weeks before it was rescued at the height of the banking crisis.

In a strong attack on the way the bank was run in the years before it headed towards collapse, he said that unlike “conservative, well-run” Lloyds TSB – which ultimately rescued it in a controversial takeover – HBOS was “neither of those things”.

And he has revealed that “until very late in the day” of the takeover by Lloyds being finalised, the Government still had a draft announcement ready to say that HBOS would be nationalised.

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Mr Darling tells the drama of his time as Chancellor during the banking crisis in his new book Back from the Brink, in which he has been critical of Gordon Brown’s time as Prime Minister.

He also reveals that just months before its own near-collapse, HBOS had been keen to buy the deposits of Northern Rock as it was “increasingly desperate” for cash, but the idea was blocked because it would have led to heavy job losses.

The book offers a fresh insight into the Government’s response to the banking crisis which led to the rescue of HBOS and the part-nationalisation of another historic Yorkshire institution, Bradford & Bingley in 2008. Hundreds of jobs in Yorkshire have been lost after the Government’s dramatic moves to stop a repeat of the run on Northern Rock a year earlier.

It also comes at a time of fresh concern over the global economy, and as the Government prepares to receive a report on the future of the banking industry in an attempt to avoid a repeat of the crisis.

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Although HBOS – created from the merger of Halifax Building Society and the Bank of Scotland in the 1990s – was put on a Treasury “watch list” in 2007 when Northern Rock had to be nationalised, Mr Darling says it was in July 2008 that “alarm bells really began to ring” because of the bank’s exposure to the housing market.

“HBOS was becoming increasingly desperate and needed to raise capital, which is started to do that summer through a rights issue,” he said. “But it experienced real difficulty in raising money by issuing these new shares, for it was evident that investors – rightly – took the view that the bank was in deep trouble.

“At the end of July, HBOS profits had halved. Bad debts, as more customers failed to repay loans, were up by a third. There was a whiff of death surrounding the whole operation. Two once solid institutions, the Halifax Building Society and the Bank of Scotland, were heading for the rocks.”

When Lehman Brothers collapsed in September, Mr Darling reveals he thought HBOS “had the look of Northern Rock about it”.

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Explaining just how much he feared having to nationalise HBOS, he said: “There was a grave risk that we would end up having to take on another, much larger and more complex, wreck of a bank. I was increasingly concerned that if we ended up acquiring bank after bank without any grand plan, people would lose confidence in us.”

Ultimately, Lloyds TSB came to the rescue and although Mr Darling accepted it made job losses “inevitable” - acknowledging the “considerable trepidation” in Halifax - he said more would have gone if the bank collapsed.

Mr Darling said “old-fashioned bad judgement calls” led to the downfall of HBOS, offering “mortgage deals that made no sense”.

He has also revealed how he paced the Downing Street garden as the fate of Bradford & Bingley, which had gone heavily into risky buy to let lending, was resolved.

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Monitoring its plummeting share price in the preceding weeks “reminded me of the flat-lining heart monitor of a dying patient”, he said.

After a weekend of negotiations with bankers and lawyers to agree that Santander would buy Bradford & Bingley’s branches with the rest being nationalised, Mr Darling said: “Sadly, jobs did go, particularly in Yorkshire. But had the bank collapsed, many more would have been lost.”