Any other business

We must play the blame game over HBOS. How else will bankers learn?

Plus: the Viagra-Botox merger, and memories of Jim Slater

28 November 2015

9:00 AM

28 November 2015

9:00 AM

‘Everyone remembers the names of Applegarth of Northern Rock and Goodwin of RBS, but history may judge the HBOS men to have been the worst of the lot,’ I wrote four years ago. Judgment has arrived at last in a Bank of England report on the 2008 HBOS collapse — plus a second report, by Andrew Green QC, on the adequacy of investigations by the now-defunct Financial Services Authority.

The Bank does not go as far as I did with ‘worst of the lot’. But there’s a hint that way in deputy governor Andrew Bailey’s foreword, which calls this ‘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…’ By that he means a bank built, both in the former Halifax building society and in the Bank of Scotland, on age-old principles of prudent lending against bricks and mortar.

HBOS didn’t go bust doing new things, but doing old things recklessly. The Bank’s report says executives embarked on ‘rapid and uncontrolled growth’ based on ‘over-exposure to highly cyclical commercial real estate at the peak of the economic cycle [and] lower-quality lending’. HBOS’s board, chaired by grand non-banker Lord Stevenson, failed to challenge this crazy course, which was also insufficiently tested by the FSA — whose decision afterwards to pursue action against only one executive (corporate lending chief Peter Cummings, who was fined £500,000 for ‘misconduct’) was, says Green, ‘materially flawed’.

There’s a whiff of Chilcot here, in the sense that the time taken to publish these reports has been extended by ‘Maxwellisation’ — allowing those mentioned to comment on drafts — and it would now be too late to impose fines on anyone else. Green clearly thinks the FSA should also have investigated chief executive Andy Hornby (now at Gala Coral, the bookmaker); and that the authorities should reconsider investigating Stevenson and half a dozen others with a view to deciding whether they are ‘fit and proper’ to hold office in financial firms.

Such processes will take years more; some on the list are retired, so ‘prohibition’, if imposed, would mean little; HBOS’s bailed-out parent Lloyds is on the road to recovery and might prefer to leave the past behind. So why prolong the torture? The answer, of course, is that leaving the past behind — forgetting or never learning lessons — caused all the trouble in the first place. The FSA failed before and after, but its successors must not give up the chase. For the education of future generations, a final apportionment of blame is the only way to bring closure to the HBOS fiasco.

Frisky giant

A cocktail of Viagra and Botox would put a fixed smile on anyone’s face. Let’s hope it has that effect for shareholders in the companies that manufacture those potions, respectively Pfizer and Allergan, which are merging to create a global healthcare giant. The deal is actually a reverse takeover driven from New York by Pfizer’s Scottish-born boss Ian Read, but putting Dublin-based Allergan on top of the new structure to take advantage of lower tax rates. If US politicians don’t block it, Irish treasury officials should also be feeling unusually frisky.

Cut-throat catalyst

I used to see Jim Slater on his way to play bridge at the Portland Club in Mayfair, but we never exchanged so much as a nod. Upright, tanned, sharp-eyed, the once–controversial financier (who has died aged 86) looked fit for his age, despite lifelong health worries — the main reason he left a high–flying motor-industry career in 1964 to found his investment firm Slater Walker, in partnership with the Tory MP Peter Walker.

Slater Walker became synonymous, after the 1973 crash, with City spivvery and the kind of risk-taking excess from which the next generation failed to learn. In the 1960s, however, it was seen as a modernising force in British industry, where management was, in Slater’s words, ‘too cosy, self-perpetuating and inefficient… and the shareholder was given a raw deal’. When the Conservatives returned to power, the Slater star rose even higher: Anthony Sampson in The New Anatomy of Britain (1971) called him ‘the very paragon of the new Heath-type Tory: self-made, hard-working, unsentimental, competitive’. It’s true Slater was a high-profile exponent of ‘asset-stripping’ and so a precursor of today’s private-equity cut-throats, but he was a catalyst for positive change.

It was to Slater’s credit, too, that he based his investment decisions on intensive research (his ‘Zulu Principle’), gambled with his own money as well as other people’s, and fought back from adversity — making a new fortune, in later years, in dotcom stocks, property and gold. His demeanour never encouraged me to introduce myself, so I cannot say whether he was congenial company; but one associate tells me he was ‘a loyal and generous friend though sometimes infuriatingly obdurate — and by his own admission, sometimes too clever for his own good’.

Thanks, Jim

Slater also had a hand in the fate of The Spectator. In 1967, when its proprietor Ian Gilmour decided to sell, he entrusted negotiations to Slater — to whom he had been introduced by Peter Walker. One of Slater- Walker’s clients was the machine-tool entre-preneur Harry Creighton, who fancied being a press baron. Other potential bidders included the then editor, Nigel Lawson, who tried to raise a consortium — but according to Spectator historian Simon Courtauld, ‘Slater was pressing Creighton’s suit, Gilmour was anxious to conclude the matter and Creighton was ready to pay him £75,000’. What followed was the paper’s lowest ebb; by 1975, Creighton was feeling the pain of sinking sales and libel costs, and sold (again for £75,000) to Henry Keswick. The rest is history, but without Slater’s intervention it might have been a different history. So in a way we have Jim to thank.

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  • e2toe4

    We have got so hung up on the idea of the legal system as a tool of rehabilitation (rightly in many ways) that we seem to lose sight of the retributive and punitive aspects.

    Tarmac laying gangs who perform a *service* in repairing a driveway but then extort money from the householder don’t get done under any special law..they get tried under whatever existing law best fits..extortion, demanding money with menaces, fraud etc.

    But in respect of the behaviour of senior people in the Banking crisis a whole shoal of red herrings were produced… the lack of a specific law to address the various crimes and misdemeanours …the idea that no point on the gradient from ordinary Directorial activity, through pushing the envelope, onward to creating very aggressive business models and on to where many (not just some) senior people finally arrived; the point at which they probably did know things could not continue as they were but calculated they would not face any meaningful personal sanctions and so continued to push ever more recklessly forward.

    In a world where *just two more years*, and even just a single year could bring *earnings* beyond the lifetime total of very useful professions across society the attraction of turning a blind eye to obvious signs of approaching catastrophe ..for the company of course, not the individuals, was just too overwhelming to resist.

    Just as the attraction of conning an isolated pensioner out of thousands of pounds is for the tarmac gangs who regularly appear in Crown court.

    Our society is not moving on from the events of especially 2007/08 because there has been nothing yet to move on from. It is possibly the single biggest thing, or if not that certainly a very major topic, still supporting the divisive agenda of organisations as diverse as the SNP, the entryists who have captured the Labour Party, and even the debates over the future of the EU.

    I am not by nature someone who advocates punitive reasons for action, but in this case I think it is both necessary and sufficient to at least allow the possibility of society as a whole moving on, and indeed bankers being able to properly repair the image of the business as a whole.

    Learning lessons from mistakes is always the most important aspect of any failure in any walk of life..but learning lessons shouldn’t be seen as the only possible response.

    Major figures should not be seen to have walked away with impunity; they do not have to be reduced to penury but do have to be seen to lose the ridiculous material rewards of bad behaviours, but right now the lack of legal actions hasn’t created the threat of moral has embedded the reality of it in the minds of many people, and indeed many businesses. We won’t be preserving the business culture of fair dealing and ethical underpinning to contracts that we all value—we will be taking urgent steps to try and regain it.

  • mikewaller

    The failure to punish errant bankers has been another nail in the “We are all in this together” coffin. We all know what would happen to an irresponsible driver who wrecked lives, so why should bankers be treated differently? Could it be they get away with it because “they are one of us”? Concerning which, why does MVW just put Applegarth in the frame for Northern Rock? As the following quotation makes clear, Matt Ridley was his partner in crime. Yet all the latter gets from his Specie pals is oodles of praise and profoundly beneficial amnesia. The English, amongst others, do so love a Lord.

    “The former chairman of Northern Rock, Matt Ridley, has described his leadership of the failed bank as a “catastrophic black mark” on his CV.

    Matt Ridley said that the bank’s failure was an ‘incredibly painful memory’

    The Eton-educated journalist and scientist followed his father onto the board of Northern Rock.

    However, he resigned in 2007 after the bank was forced to go to the Government for emergency funding.

    In an interview with Newcastle’s The Journal newspaper, Mr Ridley said: “I enormously regret what happened at Northern Rock. It’s an incredibly painful memory for me and it’s something that I will live with for the rest of my life.

    “I have nothing but remorse for my role in what happened. I’ve apologised and explained as much as I can what happened before the Treasury Select Committee.”

    Mr Ridley and Adam Applegarth, Northern Rock’s chief executive, were called in front of the Treasury Select Committee after the bank collapsed in 2007. Members of the committee blamed him for “damaging the good name of British banking”.

  • Spandavia

    Calling people to account for their conduct and imposing the correct penalties is nothing to do with ‘blame games.’ Any conduct that causes thousands to lose their savings, their businesses and, in some cases, their homes, is nothing at all to do with games.
    Lord Stevenson, Andy Hornby, Peter Cummings and James Crosby oversaw banking conduct that beggars belief. Senior executives of organisations outside of the banking sector or even the bosses of SMEs who behaved in a similar manner, would have faced very serious consequences by now and I doubt whether Maxwellisation or re-Maxwellisation would have come into the equation.
    The bigger tragedy still is thousands of shareholders and SME owners are unable to get justice or rebuild their lives because of the gigantic cover up that has been put in place for so many years not only to perpetuate the myth these reckless and incompetent bankers were simply victims of the so called “credit crunch” but also to persuade everyone top bankers should continue to get telephone number wages and bonuses so they can fail with vigour yet again.
    I sincerely believe that when those who are minded to have really studied Andrew Green’s report, the huge can of worms he has thankfully opened will result in a significant change of heart from those who have so willingly jeopardised and tarnished their own names to protect the ‘great and the good.’ And that can only be a good thing for banking reform – if we are ever to get such a thing.