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As a barrage of criticism forces banking watchdog Sir James Crosby to resign, the Evening Standard's City Editor reveals how even the Government encouraged the money-men to carry on unabated...
Sir James Crosby, say those who have worked with him, is an honourable man. Yesterday morning, the deputy chairman of the Financial Services Authority and former chief executive of HBOS did the decent thing and walked out of public life.
He wasn't pushed, according to a source closely involved in his departure. He was, though, mindful of the forthcoming Prime Minister's Questions, due soon after noon, and as the clock neared 12, announced his decision to go.
"He'd decided to go the previous night," said the source. "He thought 'what's the point?' He also knew that while Gordon Brown was not telling him to go, the Prime Minister was unlikely to defend him at PMQs."
It doesn't pay politicians to support bankers in the present climate. If this was medieval England, said one City sage yesterday, they would be dragged from their homes, loaded into carts and driven to the gallows.
Instead, they've been subjected to ritual humiliation by select committee - made to sit, squirming and blinking, as questions laced with bile rain down upon them.
Thanks to copious rehearsing by PRs, the bankers who assembled before the Treasury Select Committee on Tuesday kept their nerve. But that didn't stop MPs hammering home point after point. And securing the head of Crosby, 52, once seen as the favourite to become chairman of the FSA watchdog.
A bluff Yorkshireman, Crosby was undone by the evidence of a former HBOS employee, Paul Moore. When they interrogated Andy Hornby, Crosby's successor at HBOS, and Lord Stevenson, the bank's recently-departed chairman, they had in front of them claims from Moore, the head of regulatory risk at the bank from 2002 to 2005, that Crosby had led an organisation which had a "cultural indisposition to challenge" which was growing so fast that it was "a serious risk to financial stability".
For the braying mob, Moore's assertions were manna from heaven. In the current crisis, HBOS had been brought to its knees, kept alive by taxpayers' money and forced to succumb to take-over by Lloyds. This was all the proof that was needed. Mindful that he had become the story, Crosby took the honourable course and quit.
There is no doubt that he has much to answer for. If the Halifax Building Society had not merged with Bank of Scotland, as he had proposed, then it's likely that the dear old Halifax would be brimming with health today, not requiring injections of public cash, able to function independently and successfully, same as surviving mutuals like the Nationwide.
It's also the case that Crosby presided over a culture of aggressive expansion. On his watch, the BoS part of the newly-created behemoth piled into corporate lending. Peter Cummings, the head of that division, backed a whole series of buccaneering entrepreneurs, many of them involved in the property sector.
In the gung-ho real estate boom, when values were soaring, HBOS swept all before it. In just one year, 2002, HBOS loaned £5.5 billion to commercial property alone - more than the entire annual loan book of the more conservative Lloyds TSB.
The old days when the Halifax would advance only what it had obtained in deposits were forgotten - the bank was lending 180 per cent more than it was taking in. Same as Northern Rock, another former building society that grew rapidly on the wider stage, it gathered the rest from the world money markets.
Cummings' section was the most profitable arm of the bank, netting sums undreamt of by his predecessors in the building society or, indeed, at BoS's own offices in historically cautious and solid Edinburgh.
With that success, it is also true, came arrogance. HBOS, like the other banks that rode this credit wave, became divorced from its roots. Its bosses not only made colossal amounts for the firm; they were paid them as well.
Moore was right to be alarmed. And, given what has occurred to HBOS, his misgivings would seem to have been well-placed. Crosby, it was assumed, must have been an idiot for ignoring him.
But Moore was worrying over the bank's exposure to property. He was asking what would happen if the borrowers could not afford to repay.
It was also the same question that hovered over Northern Rock. The Newcastle bank had become one of the most free and easy lenders of mortgages, extending loans, often on the back of a certificate signed by the borrower and for several times their declared income.
Moore's allegations were fully investigated by KPMG, the accountants, on behalf of HBOS and the FSA. Again, it is definitely correct that the FSA was concerned by HBOS. In 2002, it conducted a "full risk assessment" of HBOS. Weaknesses were identified. This was followed by other studies and again, further risks were highlighted. Then Moore lost his job under a management restructuring and contacted the authority.
KPMG were called in and undertook around 80 hours of interviews and meetings with 28 of the bank's most senior and key individuals. A charge by Moore that he was fired because he had been highlighting fears about the bank's risk controls was dismissed. Likewise, his accusation that his successor, the new group risk regulator, was not up to the task, was also rejected.
The FSA continued to monitor HBOS and in the summer of 2006, it wrote again to the bank saying there were "still control issues" and "the growth strategy of the group posed risks to the whole group and that these risks must be managed and mitigated." HBOS's subsequent trauma would suggest game, set and match to the bank's critics, to those MPs and others who are demanding blood. That victory was further rammed home by Hornby's admission on Tuesday at the select committee that "from HBOS's inception in 2001 we were too reliant on wholesale funding".
Crosby, it would appear, was guilty as charged. It isn't, however, that simple. By investigating HBOS, the FSA was doing its job. Apart from devoting time to Moore's claims, which were found to have no merit, there was nothing out of the ordinary in its scrutiny of the bank. It's the watchdog's brief to look into the banks - and as one of the biggest players, HBOS fell under its gaze.
And while there were concerns raised over the bank's property lending, at no stage, as with Northern Rock, did anyone stop and ask the killer question: what would happen if the money markets dried up?
When Hornby made his statement on Tuesday, he did so with hindsight. Now, it is obvious that HBOS was too reliant on the international wholesale markets for its cash. The credit crunch has seen banks stop lending to each other, reducing what had been a flood of funding on to the markets to a trickle.
Nobody, but nobody, thought such an event was probable. Not the FSA, not the bankers, not their many advisers - the accountants, lawyers, PRs, management consultants - not their institutional shareholders, not the credit-rating agencies, not the media, not the Bank of England, not the Government.
It never crossed anyone's minds that this supply would cease. Yes, bankers behaved appallingly and irresponsibly in some cases. Yes, they were paid vast amounts and lorded it over the rest of society. But it is also lost in this modern day witch-hunt that few people objected.
They were aided and abetted by solicitors, accountants and others. Their shareholders enjoyed the ride. When Royal Bank of Scotland agreed to buy ABN-Amro, Sir Fred Goodwin, the bank's now discredited chief, didn't act on his own. He was assisted by his non-executive directors. His advisers told him what they thought; his shareholders gave him their overwhelming approval. The Bank of England, FSA and Treasury did not intervene.
It's too easy to line up the bankers and execute them one by one. If they are to face the music, then the queue to join them should be a long one. We all enjoyed what one leading retailer said yesterday had been "one huge party".
There was unease. There was a concern that the boom could not last, that at some stageit had to halt. Siren voices were raised about the continuing rise in property prices, the explosion of credit fuelled by Brown as Chancellor and the ability of borrowers to repay. In that regard, Paul Moore was not alone.
However, what was not foreseen was the crash of the money markets and the breakdown of trust between the banks. The failure was systemic and while it's convenient to embarrass the bankers and haul their lifestyles and bonuses over the coals, it doesn't get to the heart of the matter. An event occurred that no one ever imagined.
Yes, it's right that the behaviour of Crosby, Hornby, Goodwin and their colleagues in the banking industry contributed to that occurrence. They embarked upon reckless lending. In some cases they allowed their traders to package up dodgy mortgages in North America and treat them as another form of investment. But the system enabled them to do so.
The Government, Bank of England, FSA and in the US, the authorities there as well, did not block their progress. Gordon Brown and Mervyn King, the Bank of England governor, did not man the barricades. Quite the reverse: they put in place the means for them to carry on their sweet way.
Indeed, when, at one stage, the FSA looked as though it might be getting too heavy-handed, the then Prime Minister, Tony Blair, complained. He was fearful that London's rise to the top of the financial world rankings could be undermined.
Little of this is reflected in the deeds of the Treasury Select Committee and the demands of the banks' opponents. Their bonuses are to blame, apparently. So, too, are their lack of paper qualifications. Those things didn't help - yes, the bankers were greedy and rapacious; yes, they and their boards did not fully understand what some of their employees were doing in the company name.
To say that's where the fault entirely lies is palpable nonsense. It may suit politicians to pass the buck, to single out the bankers for the recession but it ignores the truth: the system failed.
George Osborne, the shadow Chancellor is seizing the moment, seeking to ridicule Brown's reliance on Crosby (the former HBOS chief was also the Prime Minister's mortgage industry adviser). This, though, is the same Osborne who wants more bankers and professionals to come into public service. He can't have it both ways.
What the Crosby case reinforces is an overall weakness. Moore was in his rights to complain and history shows he was on the right lines; Crosby should not have bolted a building society and bank together; Cummings went out on a limb; the FSA investigated only so far; the Government and Bank of England sat on their hands.
By all means persecute the bankers but others, many others, are guilty, too.
Reader views (34)
Blair saw the that the UK was about to run out of luck. He knows that he inherited policies from the Conservatives that somehow kept the UK looking good for many years. He jumped ship and voted with his feet by moving to the USA and banking jobs, leaving the UK in the Crapper. Browns failing, is that he wanted to be Prime Minister so badly, and believed somehow that the previous years werent just luck but his skill. Unfortuneatly, he isnt the sophisticated Chancer that Blair was. So Blair exited, and left Brown to take the heat. Thatcher nurtured the greed society (she also voted with her feet and moved to the USA), Blair exploited it and Brown is the mug left with the results.
Truth is that the bankers who exploited the economy and the politicians will all leave these shores when they have stolen all that they can.
In years to come, some forensic accountant, possibly some enterprising newspaper reporter, possibly the Serious Fraud Squad, will investigate the current events and be able to demonstrate that what is in fact happening is the biggest fraud that could possibly be imagined. The banks, politicians and business are defrauding the taxpayers in a manner that is beyond the avarice and understanding of society. Trouble is that so many powerful people are involved, it will have to be a future generation that will be able to uncover the truth. We worry that Global Warming will have a negative impact on the future generations, this theft will be as bad.
- John, London UK, 14/02/2009 23:24
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Brown sold of our Gold according to your posters from Tory Central Office. However Thatcher sold off our oil, gas, Power and water companies to foreign buyers who are now holiding us to ransome. I'm sure you are convinced that Saint Margaret got a wonderful deal to pay for tax cuts to win elections. However her brilliance now looks like rank stupidity.
- B Bristow, Andover England, 14/02/2009 15:50
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As you well know Mr Blackhurst, some people have been trying for a very long time to expose what was happening at HBOS. It has not proved to be easy and I can only hope that now, the allegations Paul and I made (and 12 other Company Directors) will be taken seriously. You said some months ago, you wonder what other dark secrets there are at HBOS and now it seems we will all find out!
As for who else is to blame (other than the bankers themselves)? Sadly I have to believe now that the Government is very much to blame. I sent Gordon Brown a total of 4 letters enclosing substantive evidence that HBOS had lost a fortune via Mr Cummings office. His office replied to two of the letters saying the info had been sent to the Treasury. Last week I had a letter saying:
"I have spoken with HM Treasury and can confirm your correspondence is currently receiving attention." But what ever attention that is, is a bit to late as, in my second letter (3 Nov 08), I specifically asked for a meeting or a direct contact with someone at the Treasury to present more evidence prior to the Lloyds Shareholders voting on the Merger. I cannot help but wonder if they would have sanctioned a merger with a Company that lost at least £500M (15% of Cummings losses) via just one office and some very dodgy people!
So yes, other people are to blame - not least, the people who think the public are not worth listening to.
- Nikki Turner, Cambridge, 14/02/2009 13:30
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McMitty is, at last, in the spotlight for causing the housing bubble and credit binge which has almost done for us.
Keep saying it you media people, and count the times this "one-eyed Scottish idiot" uses the word GLOBAL to deflect criticism of his and Blair's part in the financial debacle.
- Ted, London, 14/02/2009 10:42
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We elect a government to oversee institutions like banks to ensure their actions are not damaging to society. Blair and Brown did not have a clue what was going on and they rode a wave of debt claiming the good times were of their making, its now clear they are both guilty of negligence on a massive scale.
- Les, London, 14/02/2009 10:39
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so much for the gold standard.
brown sold off the uk gold reserves to his friends in the city at rock bottom prices.
losing us 10s of billions.
and even now his banker friends say sorry through clenched teeth.
then driving home to 3 million pound houses,with homes abroad and multi million pound pensions.
looks like the 10 years of fiscal prudence was a lie or incompetence mr brown.
- Alan Doyle, london, 14/02/2009 00:50
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"My god, are the labour lovers still trying to blame the tories after 12 years, I knew there was a reason I never vote labour.
- Jw, London"
Yes, Jw, they ARE equally to blame. The Tories passed the 1986 Building Societies Act allowing Halifax, Bradford & Bingley and Northern Rock to demutualise and become greedy, rapacious banks. So they started the whole thing.
- Robert C, London UK, 13/02/2009 19:07
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My god, are the labour lovers still trying to blame the tories after 12 years, I knew there was a reason I never vote labour.
- Jw, London, 13/02/2009 17:17
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To all those blaming the Tories for the current crisis:
We all have to option to gamble or to play safe. If we gamble and lose we cant blame it on the rules, it was our choice. Labour has had 11 years to stop the bankers gambling and has encouraged it. This is not the Tories fault. The problem with all you Tory haters is you assume instead of looking at the facts. In any case the crisis is a scam with banks packaging up debt abs selling it back and forth to each other for commission, how else could they have earned over 100 billion in a short time. Actual trading accounted for not even 1% and was just there as a red herring to divert attention from what was really going on. A scam in any language.
- Lemar, LONDON uk, 13/02/2009 15:58
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No one is talking about the catalyst for the entire credit crunch - House Prices. If property prices had been tied to wage inflation, none of this would have happened, toxic morgages would hardly exist and people would have not been able to borrow against silly paper money.
Instead of bailing out the banks GB should have revalued the entire property stock of the UK down 50% and adjusted everybodys morgage. Then the banks would have still got their money, and people would have been much better off, also no more Property crisis. But of couse this would be too much trouble for any government.
- Mark Burton, St. Ives. Cambs, 13/02/2009 14:52
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It is funny that the person who started all this nonsense is immune from criticism. Surely Mrs Thatcher deregulated the financial markets and allowed the Building Societies to become Banks. However she doesn't get a mention in your article and neither does John Major who was brought in by the Tories to correct Thatcher's mistakes and sadly stopped after repealing the Poll Tax.
- B Bristow, Andover England, 13/02/2009 14:01
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Robert, London UK. Labour have been in charge for the last 12 years. If the Tories did something they didn't like they have had ample opportunities to change things. Your argument as so thin it's as seethrough as Emperor Broon's new clothes. Trying to blame the mess we are in on the Tories just won't wash anymore.
- Keith, UK, 13/02/2009 13:59
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Before the Banks went cap in hand to the Government to be bailed out with Taxpayers money after totally messing everything up, they were privately owned and did as they pleased. Even now after they have grabbed our money they are behaving like the Board of Railtrack, who got a bail out and immediately paid their shareholders. The problem is with salaries like their the Bankers believe that they are infallible and above the law.
- R Pitts, Dulwich England, 13/02/2009 13:17
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Halifax, Bradford & Bingley, Northern Rock: all were mutuals until the Conservatives' allowed them to become Plcs with the 1986 Building Societies Act in a fit of short-termist greed. Brown allowed the bankers to play for big stakes in the casino of UK finance and end up losing taxpayers money, but the Tories were the ones who set up the casino.
- Robert, London UK, 13/02/2009 11:43
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It was not that the bankers, accountantants, lawyers and polititians did not think that the gravy train would never stop, they chose to ignore it. They did not have to look that far back in history (1988) to see what happens when greed takes over from sound business practice.
- Rosie Llewellyn, Barbados, West Indies, 13/02/2009 11:01
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"He should have never been made PM, there should have been a popular election instead!"
Had Brown gone to the polls in 2007, he'd almost certainly have won, and probably pretty comfortably. At the time, there was no realistic alternative on the Labour benches (there still isn't), and the Tories simply weren't ready, as they privately admitted.
So I'm not quite sure what an election would have achieved, aside from guaranteeing that Brown would remain in power until 2012 rather than 2010!
Also, even if the polls had been confounded and the Tories had won in 2007, what would have changed? Do you seriously believe they'd have started keeping the banks on a tighter leash?
- Michael, London, 13/02/2009 10:51
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Not Only is Brown [And Labour, and Blair] to blame for this disaster. I have been priced out of the housing market for ten years. [http://Small 2 bed bungalows on my street were sold for 78k in 2000. They are now on the market for £240k.|http://Small 2 bed bungalows on my street were sold for 78k in 2000. They are now on the market for £240k.]Ive lost tens of thousands paying rent. I have some savings. Ive been prudent. Which are gaining no interest at all. My parents pension is now paying out next to nothing. they worked their whole lives. My Employer went bust. I lost my job, and I cannot 'sign on', because I have scrimped and saved for ten years for a downpayment on a house. So I have above £12k savings. My taxes are being used to Bail out the icompetent Bankers, and people who borrowed too much money to buy their houses. My utility bills have increased threefold, [supposedly because of rising wholesale costs, but if thats true why do BG announce a 600% !! increase in profits last year?] Im sinking fast. I will be back at square one. The last ten years prudence for nothing.
And every time Brown appears on the news he makes it worse for me and my family. I never had much interest in politics. But now I truly absolutely HATE labour with a passion.
When and if the recession eases Ill be back at square one facing huge tax increases to pay off the trillions in debt we now all owe, for the rest of my life.
And what does Brown do? Just denies its anything to do with him. God I hate them
- Daniel, Watford, 13/02/2009 09:44
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Erm. The Halifax Building Society didn't merge with the Bank of Scotland. It had already been a bank for several years at the time of the merger.
So there's not much chance that the Halifax would be "brimming with health today [http://...|http://...] same as surviving mutuals like the Nationwide" without the merger. It would probably be about as healthy as Bradford & Bingley or Northern Rock.You DO know that they are no longer mutuals, don't you, Chris?
- Raphael, London, 13/02/2009 09:38
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The HBOS “whistleblower” Mr Paul Moore got it right.
- Penny, Salisbury UK, 13/02/2009 01:06
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"His advisers told him what they thought; his shareholders gave him their overwhelming approval."
His shareholders were sheep. His advisers were paid to be sheep.
- Paul, Reigate, UK, 12/02/2009 23:50
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Thank you.
At last some sense
- Jamie Brooks, Wyton, Cambs, 12/02/2009 22:07
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Brown said he was "at the wheel". He drove Britain down disaster way. He should have never been made PM, there should have been a popular election instead!
- Jacqueline, Hampstead, London, 12/02/2009 18:58
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Well done Chris Blackhurst. You got there in the end.
- Dave Davies, Basingstoke, 12/02/2009 17:30
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What do you think the Government is? It's a body that governs, and in that, it is supposed to regulate. What regulating of the financial industry did Boredom 'Boom & Bust' Clown do exactly? This gutless PM was the Chancer, sorry, Chancellor in charge of the Treasury, the buck stops with him.
To say this crisis couldn't have been foreseen is absolute rubbish: the signs were there, even as far back as 1997 as I can personally attest, when I applied for a mortgage and was encouraged even then to self certify my earnings.
Of course, many people who should have known better simply closed their eyes to the looming problem, hoping to continue to party like there was no tomorrow, making as much money as they could before the crash occurred.
- Ralph, GB, 12/02/2009 17:24
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Very fair. 'The system failed': I too lost money (twice) in RBS. Hindsight is splendid. Now, will those experts who specialise in hindsight next kindly advertise their names and tell us all what to do next. This time there's no bonus available - just pride in the job.
- Steve, London, England, 12/02/2009 17:09
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The guys who have got away without being questioned so far are the guys who check the banks' accounts every year and say 'is good' or 'is bad.' The auditors. What did they have to say at the end of each bank's financial year? 'A lovely clean set of accounts, your Lordship.' Or 'Looks a bit risky, your Lordship.' To which his Lordship might have replied. 'You want to keep the bank's business or not?' Something odd going on here. (BTW - have you noticed the way all these big bankers are Sirs or Lords? Amazing, ain't it?)
- John Problem, Hackney Wick, London, UK, 12/02/2009 17:01
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All roads lead to Brown, BOE and FSA - the rest were displaying a trait of human nature - greed.
- Tony Gee, London, 12/02/2009 15:47
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As a sneering Daily Mirror editor hissed of Brown today,
'if you lie down with dogs you get fleas'!
- Dave, cumbria, 12/02/2009 14:57
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So when it gets too hot in the kitchen the Knight is off. So much for his service to banking now. Of course Brown is involved. So is the rest of his crew. It's got guilt written all over it.
- Enuff, London, 12/02/2009 14:37
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Never mind the details... the title is rubbish!
The blame for the financial crisis is down to the de-regulation of the banking and financial industry - back in the 80's I think - So who was prime Minister then?
If not for that de-regulation then the GREED inherent in the maximisation of shareholder profit and the individual greed of the Fat Cats syndrome would have been better restricted.
In the past British Banks were called "as safe as the Bank of England" because of the prudent regulations .. without regulations it took only 20 years before this financial crisis affected the real economy
The government's mistake was to bail out the banks and their 'current' directors. It should have let the banks go bust first before picking up the pieces. This would have prevented shareholders whining about the fair value of their shares at 'nationalisation' (I speak as a bank shareholder) and would have prevented bankers whining about their rights to contractual bonuses.
I suggest that the government immediately withdraw all loans, let the failing institutions go bust, then promptly buy up the bust business. Then it could immediately reemploy necessary staff to continue the business according to Govenrment objectives.
I would suggest splitting retail banking from mortgates, business loans, insurance/assurance and from speculative financial instruments. Let each type of busines compete within its own industry ... failure in one sector would not affect the others
- Mark, b'ham, 12/02/2009 14:13
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The credit bubble was caused by bankers lending too much money (which made them rich), companies and consumers borrowing too much money (which made them feel rich), and Labour politicians who cheered everyone on because it was popular (which got them elected).
It's not rational to blame one of the three guilty parties without also considering the role of the others in this disaster.
- Ian, London, 12/02/2009 14:09
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Everything you say Mr Blackhurset is true. HOWEVER the person claiming all the credit for the good times was GB himself. Now he is dodging and weaving; doing and saying anything rather than even hint that he accepts even a small measure of the responsibility.
- Sandy, Ealing, UK, 12/02/2009 14:03
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Why is it that people cant just stop blaming everyone else and try and sort out the mess that this country and lets face it just about every other country in world has got themselves into. I am sick of hearing about who caused it I would rather hear about who is going to sort it out and sooner rather than later!
- Adele, Wales, 12/02/2009 13:41
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It is very odd to defend Crosby by saying that those who work with Crosby say he is honourable, they are hardly going to say the opposite. Lets have a proper public inquiry and let the people make up their own mind rather than second hand comments from a few close people. Wake up and smell the coffee
- Val Keller, London UK, 12/02/2009 13:07
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