A review into the failure of HBOS by the Bank of England and Financial Conduct Authority has concluded that senior management should now be considered for enforcement investigations, including the man who led the bank’s boom-time drive into real estate, chief executive of the corporate banking division Peter Cummings.
The review by the FCA and Prudential Regulation Authority found that senior management, along with the board, established a business model predicated on continuous growth, ignoring the cyclical nature of certain markets, including real estate, and the risks that involved.
Despite warnings from the FSA, until the collapse of the company, management continued with a business model that was “unsustainable in the long-term”.
One of the fateful decisions by management, the review claims, was to expand its commercial property lending book even though it had become evident that the market had turned.
In January 2008, Cummings said the commercial property portfolio “had grown very modestly compared with the peer group, with very limited exposure to development risk”.
The report states that 60% of all loans on HBOS’s books between 1999 and 2008 were made between 2006 and the end of 2007 with what the report describes as significant “control failings” by management.
By November 2008, 38%, or £68bn, of the total loan book was held against commercial property – well above the banking average of 23% for commercial property loans at the time.
Review reveals HBOS’s failings
- “HBOS’s group board should have been alert to the fact that the corporate’s book could grow out of control, given its business model.”
- “There was a culture of optimism which affected the attitude towards assessing credit risk in the course of loan approval.”
- “Mr Cummings was the chair [of the corporate credit risk committee] but only attended nine of the 34 meetings held from the beginning of 2006 to the end of the review period.”
