The Great Escape: After a six-year investigation into HBOS’ near-collapse, city regulators were met with angry backlash and left bankers scot-free
It was a catastrophic banking failure that resulted in a £20 billion taxpayer bailout.
Now, 14 years later, anger is growing that more and more people responsible are not being punished.
When the city’s watchdogs finally decided to find out who was responsible for the sinking of HBOS, it took them six years and searched through 2 million documents. It all ended last Friday with a three-page press release announcing that no further action was needed.
The Financial Conduct Authority’s decision not to investigate ten senior managers, including chief executive Andy Hornby (pictured), was found to be “materially flawed”.
The Mail has learned that the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have no plans to release more detailed findings.
That leaves open questions about the justification for the decision – and does not ease the anger of the outraged.
“I can see why it was a good opportunity to draw a line,” said Philip Hammond, one of six Chancellors who have lived at 11 Downing Street since HBOS failed in 2008.
But the announcement has done less than that, and politicians and city figures have lined up to criticize the move.
The FCA and PRA say their investigations were “rigorous and forensic”.
But Prem Sikka, the Labor peer and accounting professor, said: “They basically told the bankers: ‘Go on with what you were doing’ because there are no personal consequences. You can’t react like that.
“These people collect all kinds of performance-related bonuses, but many are the result of misconduct and reckless practices, but there are no personal penalties.
These people must have had an inkling of what was going on or they would not be fit to be directors. And they are not even accused of that. I think they need to be prosecuted.’
The Halifax Bank of Scotland collapsed in 2008 after piling up £45 billion in bad debts.
This led to a government-managed takeover by competitor Lloyds, which in turn had to be bailed out by the Treasury for £20 billion, increasing government debt.
The most recent investigation focused on the question of whether former top managers should be banned from the financial sector.
It followed a 2015 report by Andrew Green QC on the handling of the case by the Financial Services Authority, the city’s former regulator, which was replaced by the FCA.
Responsible: Bank of England Governor Andrew Bailey headed the FCA Financial Conduct Authority
Green concluded that the FSA’s decision not to investigate 10 senior managers, including chief executive Andy Hornby and chief executive Lord Stevenson, was “materially flawed”.
Also in 2015, a preliminary report by the FCA and PRA found that HBOS’ board pursued a “flawed and unbalanced strategy” that focused on lending more money to achieve short-term profitability.
It was Andrew Bailey, as deputy governor of the Bank of England, who announced the inquiry – and said it would be carried out “as soon as possible”. Bailey, now Bank Governor, was later in charge at the FCA for much of the time the investigation dragged on.
Only one ex-manager, Peter Cummings – then head of corporate lending at the Bank of Scotland – was penalized.
He was fined £500,000 and banned from the city in 2012. Hornby runs Restaurant Group, owners of Wagamama and Frankie & Benny’s.
Gina Miller, the businesswoman and activist, said: “Those responsible should have been reprimanded.
No one was found guilty, there was no new rule. And the regulators had so much information. Hornby etc. were rewarded for failure.’
Kevin Hollinrake, the Conservative MP and a member of the Treasury Department’s selection committee, said: “You ran a systemically important financial organization that crashed the economy. This will always happen if FCA doesn’t hold people accountable.
“HBOS borrowed short-term and lent long-term because they thought good times would last forever, but they were caught completely by surprise because Hornby wasn’t qualified to run a bank.”