After God-knows how many years, we can finally read the report into the squalid collapse of HBOS!
Lest we forget, this bank collapsed because it was run by a bunch of unqualified chancers who were allowed to take over the asylum!
Much of what follows is taken directly from the report.
The main report, from the Prudential Regulation Authority and the Financial Conduct Authority, the FSA's successors, blames the bank's executives for its failure, as well as being critical of the FSA.
At the same time, a parallel report, from Andrew Green QC, is the most damning, suggesting the two regulators should consider banning as many as 10 former HBOS executives from the City.
Andy Hornby in particular should be re-investigated by the authorities, the report found, alongside the entire senior management team.
"HBOS's weak risk culture meant that controls could be overridden when convenient"
Too much time has elapsed (very conveniently) for regulators to fine those responsible, though they could still be banned from the industry, Mr Green says.
In addition the Department for Business, Innovation and Skills could bar them from being a director in any company. “Once the FCA and PRA have conducted their review into enforcement action, we will establish whether there is any new information to consider," said a spokesman at the Insolvency Service.
The study from the Bank of England and the Financial Conduct Authority also found then-regulator the Financial Services Authority failed to identify the risks that the bank was running, and that when it did spot problems, it failed to act.
That was partly because of "a sustained political emphasis on the need for the FSA to be 'light touch' in it's approach," said the report, pointing the finger at the government of the day.
Lord Stevenson was responsible for running a board with little banking experience and little ability to challenge the bank's executives, the report said.
Meanwhile chief executives James Crosby and Andy Hornby pushed the bank's staff to grow lending constantly with little regard for risk.
They "played a fundamental role in reinforcing a culture within the firm which leaned heavily towards growth", the report said, and placed only "a low priority... on risk."
When bosses did worry about growing risks it was "purely as a threat to growth" rather than as a threat to the bank's survival or the wider economy.
"HBOS's weak risk culture meant that controls could be overridden when convenient," the report said, adding that even when the bank's bosses wanted to slow lending 2007 and 2008, the culture was such that staff continued to smash lending targets.
There was a repeated failure to appoint directors with experience of risk management, the report said.
Combined with a lack of board experience in the industry - only one non-executive had experience in banking, and he joined in May 2007 - this led to a culture in which external auditors were "kept under pressure" and their most dire warnings on bad loan levels ignored.
As a result, former FCA enforcement boss Clive Adamson told the new report's authors that the bosses who were most "culpable" for the crash had yet to be punished.
The joint PRA/FCA report said HBOS collapsed due to a lack of liquidity, with the failure explained by a number of reasons including:
- the board failed to instil a culture within the firm that balanced risk and return appropriately, and lacked sufficient experience and knowledge of banking;
- a flawed and unbalanced strategy and a business model with inherent vulnerabilities arising from an excessive focus on market share, asset growth and short-term profitability;
- the firm’s executive management pursued rapid and uncontrolled growth of the Group’s balance sheet, and led to an over-exposure to highly cyclical commercial real estate (CRE) at the peak of the economic cycle;
- a failure by the Board and control functions to challenge effectively executive management in pursuing this course or to ensure adequate mitigating actions;
- and the fact that HBOS’s underlying balance sheet weaknesses made the Group extremely vulnerable to market shocks and ultimately failure as the crisis of the financial system intensified.
The authorities have asked accounting regulator the Financial Reporting Council to investigate HBOS' auditor KPMG. To date the FRC has declined, awaiting the publication of this report, reiterating that stance in a statement today, following another review of its own.
First of all, the collapse of this banking edifice was the result of gross incompetence, negligence, reckless lending policies, coupled always with a culture of taking ever bigger and bigger risks.
That a famous British banking institution could have been served in this way says much about the way in which the banking industry was allowed to develop during this period of unrestricted growth and massive greed.
It demonstrates what can happen when the regulators fall down on the job of regulating the institution properly, as in this case. This failing was amplified by the Government policy of ‘light touch’ regulation, in which the regulators knew that Gordon Brown did not wish to see anything that might impede the climate of entrepreneurialism which he so blindly believed existed, so a hands-off approach was adopted.
This was such a stupid policy, particularly at this time, but it reflected the awesome combination of arrogance, greed, and stupidity, coupled with political support.
No one among any of those responsible for the prudent workings of the bank seems to have give a moment’s thought to the fact that the money with which they were playing, was entrusted to them by members of the public.
But none of this surprises me!
For years, the City has been staffed by venal and dishonest men and women who rely on each other not to grass when the sticky brown smelly stuff meets the air conditioning.
You can be as thick and stupid as you want, but as long as you play by the rules of the club, you will be protected.
Now, these stupid people are being protected yet again. It has taken years for this report to see the light of day, and as a result, more reports and enquiries are being called for. The City Establishment knows that if you let enough time elapse between the egregious events and the final reckoning, the greater the chance of walking away from the mess Scot free!
That is what is happening here. More and more reports will take more and more time. Will it never end?
None of us are served well by reports which do not recommend direct action against those responsible for creating the losses. Sadly, it seems no-one will be going to prison (yet again) over these huge failings.
It was ever thus!