HBOS bosses ultimately responsible for bank's collapse, delayed report finds


Former bosses at HBOS in the lead up to its collapse were "ultimately responsible" for its failure and could face being struck off from working in financial services following the much-delayed publication of damning reports into the bank's demise.

City watchdogs will now look at taking potential further action against former HBOS senior management after a report by Andrew Green QC blasted past regulator the Financial Services Authority (FSA) for its failure to investigate a raft of top bosses.

Only one former HBOS executive, Peter Cummings, has so far been formally investigated and fined.

In a scathing assessment of the FSA's handling of the original inquiries into HBOS, Mr Green said the regulator should have considered investigating ex-chief executives Andy Hornby and James Crosby, as well as past chairman Lord Stevenson.

Current regulators, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), will now review whether to take any enforcement action against the trio of bankers, as well as other managers holding key positions at the lender before its collapse and subsequent taxpayer bailout.

The report named former senior managers at the bank that the FSA should have looked into investigating as Mike Ellis, former finance director, Colin Matthew, ex-head of the international division and Lindsay Mackay, former boss of the treasury division.

But any decision into whether to take action against managers will not come until next year and it could be another 18 months to two years before regulators can enforce bans.


The Green report, which is published alongside the long-awaited FCA and PRA review into HBOS, said the FSA's failure not to investigate senior management more broadly was "not reasonable".

Regulators are now left powerless to levy fines against any managers deemed responsible due to the length of time that has passed.

But the potential for bans could have implications for some of the senior managers who still work in the financial services industry.

In particular, Mr Ellis is currently chairman of Skipton Building Society, while Mr Mackay is a director of Alpha Bank.

Mr Hornby is chief operating officer of Gala Coral - which is being taken over by rival Ladbrokes to create a £2.3 billion gambling giant - but would not be affected by a ban from financial services, and the group has so far been supportive of him.

Lord Stevenson has a number of positions, but not in the industry, while James Crosby is also largely retired.

Mr Crosby was stripped of his knighthood at his own request following a report by MPs and peers into HBOS in 2013, which said he was the ''architect of the strategy that set the course for disaster''.

He also gave up 30% of his £580,000-a-year pension and stood down from roles at catering giant Compass and private equity firm Bridgepoint.

So far Mr Cummings - who ran the commercial arm at HBOS - is the only former director at the bank to have been penalised by the FSA, after being fined £500,000 and banned for life from working in the City.

Mr Green's report reveals the FSA held a crunch meeting to discuss Mr Cummings and enforcement action, but found no minutes or record of the discussions.

"None of the people who attended that meeting could remember anything about (the meeting) in their report interviews," according to the Green report.

The FCA and PRA's report also sheds further light on the mismanagement of HBOS before it had to be rescued by Lloyds in 2008.

It also found that auditor KPMG was effectively leant on by HBOS directors to sign off lower bad loan write-offs in 2008 to ease concerns about its finances.

But KPMG is not set to face enforcement action, as its role in the HBOS crisis is not in the scope of the reviews.

The report found the managers of HBOS "failed to set an appropriate strategy for the firm's business" and "failed to challenge a flawed business model".

Andrew Bailey, deputy governor of the Bank of England and chief executive of the PRA, said: "The story of the failure of HBOS is important both to provide a record of an event which required a major contribution by the public purse and because it is a story of the failure of a bank that did not undertake complicated activity or so-called racy investment banking.

"HBOS was at root a simple bank that nonetheless managed to create a big problem."

The more than 400-page report, which has been delayed by more than a year due to lengthy legal wrangling, was published with the separate 100-page document by Mr Green looking at why only Mr Cummings was formally investigated and fined.

In the Green report, it said that one senior FSA employee interviewed believed "the people most culpable were let off", adding he believed these were the Mr Hornby and Lord Stevenson.

HBOS, which was formed from the merger of Halifax and Bank of Scotland in 2001, expanded too rapidly and lent recklessly before the credit crunch and financial crisis struck.

It agreed to a rescue takeover by Lloyds in September 2008, but the enlarged bank needed a £20.5 billion taxpayer bailout just weeks later.

A highly critical report by the Parliamentary Commission on Banking Standards in April 2013 accused the trio of bankers of a "colossal failure of management''.

Their ''toxic'' misjudgments led to the bank's downfall at the height of the financial crisis, the commission found.

Today's reports will also put former executives at the FSA, which was disbanded in 2013, under pressure, as well as KPMG chairman John Griffith-Jones, given his current role chairing the FCA.

Treasury select committee chairman Andrew Tyrie was critical of the role played by KPMG, the bank's auditor from 2001 to 2008.

"It is clear from this report that the audit process was an important part of the story of HBOS's failure," he said.

"Parliament's specialist advisers have concluded that the circumstances surrounding the audit process certainly bear thorough scrutiny by the Financial Reporting Council (FRC).

"They will need to consider afresh their original conclusion that there were no grounds for an investigation of KPMG, relevant senior KPMG people, and relevant senior HBOS management in relation to the audits of HBOS's financial statements for 2007 and 2008."