HBOS executives face City ban

Ten former executives from Halifax Bank of Scotland (HBOS) could be banned from working in the City following the publication of two scathing reports into the collapse of the bank in 2008.

The rise and fall of HBOS came to symbolise the pre-crash banking excess – and the pain that followed. At the height of the financial crisis following the collapse of the US investment bank Lehman Brothers, the high street lender behind the Halifax and Bank of Scotland brands was propped up with government loans totalling £25.4bn, which it later repaid.

HBOS was later controversially merged with Lloyds TSB in a government-brokered deal that saw competition laws waived. The combined Lloyds Banking Group was subsequently bailed out with taxpayer cash totalling £21bn after the scale of its 'toxic' loans became apparent. The government is only now closing in on a final exit of its investment – at a modest cash profit.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

Yesterday's reports released by the Prudential Regulation Authority and the Financial Conduct Authority said it was the bank's senior executives who were "ultimately responsible" for HBOS's failure.

The two reports were also highly critical of the Financial Services Authority, saying that the now-defunct financial regulator should have investigated HBOS's former chief executive, Andy Hornby. "The failure to do so was not reasonable," the reports said.

"Regulators may look to ban ex-HBOS chief executives Hornby and James Crosby, as well as past chairman Lord Stevenson, from working in financial services," says the Press Association. But the decision on whether to impose penalties is not expected until after fresh investigations are undertaken next year – and there are unlikely to be any financial penalties because the case falls under the old statute of limitations.

Kamal Ahmed, the BBC's business editor, says the reports will play into the hands of those seeking to tighten rules for the financial sector. "As some argue that regulation has gone too far," he says, "it is worth remembering the content of these two reports on the collapse of HBOS, the failure of the policing system and the ultimate cost that was paid by the public."

But Allister Heath says in the Daily Telegraph that the reports miss one crucial factor behind the bank's collapse that's key to ensuring regulation is effective in the future: they do not mention "moral hazard". Heath says it was the underlying assumption that a rescue would be forthcoming – and was indeed necessary – that lay behind the failures in the sector.

"Because normal companies have investors with money at stake and which they know they will lose if things go wrong, the corporate world is full of checks and balances: fear balances out greed," he says. "It’s a crucial mechanism, and yet one that was dramatically diluted in the run-up to the crisis."

HBOS executives to face criticism, but not fines

16 November

Executives whose actions allegedly led to the downfall of HBOS, the banking group that was rescued with a controversial buyout and then bailout at the height of the financial crisis, will escape financial penalty.

A report into the collapse will finally be published this week, seven years after the last Labour government engineered a buyout by Lloyds and then bailed out the combined bank to the tune of £20bn. It is expected to be highly critical.

Sky News says it will claim that executives "leant" on auditors at KPMG to "approve their own analysis of impairment charges", effectively seeking to make the bank's financial position appear better than it was in reality.

Lawyers for the former senior managers, including successive chief executives James Crosby and Andy Hornby and chairman Lord Stevenson, had argued there is no contemporaneous evidence to support the allegations, but they are expected to appear in the final report nonetheless.

These are serious charges that could lead to the Financial Conduct Authority prohibiting the trio from working in financial services again.

But it will be powerless to issue fines. This is because, The Guardian says, the six-year statute of limitations elapsed last year without any warning from the regulator that fines would be forthcoming.

This will refocus attention onto questions around delays to the report, which was originally due for publication in 2013 and was finished in draft form 18 months ago. It has been held up by the 'Maxwellisation' process which allows individuals criticised in a public report to review and respond to allegations before findings are published.

The inquiry was only commissioned in 2012, four years after HBOS collapsed, once an appeals process relating to a fine of £500,000 handed down to former finance director Peter Cummings had been completed. He is likely to remain the only executive to face such action.

In response to an earlier report by a panel of Mps, Crosby relinquished his knighthood and part of his £580,000-a-year pension.