Incompetence brought down HBOS, Crosby admits

What is the significance of the aggression with which the Parliamentary Commission on Banking Standards went for ex-HBOS chief executive James Crosby?

From the off, Commission chairman Andrew Tyrie MP forced Crosby onto the defensive, demanding he apologise for his part in the collapse of the bank and drawing attention to the £8 million he was paid by HBOS in five years and the £572,000 index-linked pension he walked away with when he resigned in 2006.


James Crosby under questioning
James Crosby


“Fred Goodwin waived part of his pension. You have shown no inclination to waive any part of your remuneration,” Tyrie stated.

Crosby left the bank with 300,000 shares – worth then around £3 million – and the same number of options. Tyrie wrung out of him an admission that he had sold two-thirds of them well in advance of the collapse in 2008, which reduced the share value to practically nothing. Three million small shareholders, many of them also HBOS employees who were made redundant, were not so fortunate and held their shares and their faith in the bank until too late.

Later, after a sustained Paxman-like grilling over the cause of the bad lending, Crosby was pushed into a corner.

Tyrie: “It was incompetence which brought this bank down – correct or not correct.”

Crosby: “Correct.”

The importance of this marked change of style and pace from the Commission – all other hearings so far have been gentlemanly – was underlined by Rory Phillips, the QC brought in especially for the Crosby interrogation: “The suggestion I am going to put to you is that the seeds of what went wrong at HBOS were sown during your time.”



So far Crosby has escaped most of the scrutiny. He was not called before the Treasury Select Committee for the ritual humiliation handed out to his successor Andy Hornby and chairman Lord Stevenson and he was not named in the highly critical FSA report on the HBOS corporate banking division, which was responsible for £26 billion of the £45 billion lost.

The Commission plans to report before Christmas and it now seems likely that it will seek to pin at least part of the blame on Crosby, as the architect of the rapid sales-led growth which made HBOS particularly vulnerable when the credit crunch hit. That raises the question of whether the FSA should be forced to reopen its investigation to what was one of the biggest total failures in British history.

By contrast the grilling of Hornby, who followed Crosby, was almost leisurely. Tyrie handed him a lifeline when he talked of his “inheritance,” i.e. the bad hand he was left holding when Crosby quit the game early. Hornby clung doggedly to his belief that it was the closure of the markets which ultimately brought HBOS down, rather than the lending – not only in corporate, but also in the international division where £15 billion went bad. Incredibly £3.6 billion was lost in Australia, which was hardly hit by the credit crunch and did not go into recession.


Andy Hornby answering questions
Andy Hornby

Justin Welby, former City trader, now Bishop of Durham, shortly to be Archbishop of Canterbury, showed his form. Revealing that he had tried to borrow substantial sums from Bank of Scotland in the 1980s, he said it was hard to get them to part with their money – like squeezing blood from a stone.

Banks should be boring, he said, and the old Bank of Scotland was boring, but HBOS promising the market 20% growth was not boring. After the retirement of Gordon McQueen, HBOS ceased to have the head of Treasury on the main board: “that was another mark of the sales-driven culture.”

Should we expect the money lenders to be expelled from the temple?