Sir James Crosby tells parliamentary committee he was ‘horrified and deeply upset’ by 2008 Lloyds rescue and subsequent bailout
Sir James Crosby, the former chief executive of HBOS has issued an apology for his role in the bank’s near collapse, acknowledged the damage to his reputation and admitted he does not expect to be able to run a bank again.
Giving evidence to the parliamentary banking standards committee, Crosby told MPs and peers he was “horrified and deeply upset by what happened” in 2008 when Lloyds rescued HBOS and the enlarged bank received a £20bn taxpayer bailout.
Crosby, who handed the helm to Andy Hornby in June 2006, said: “I am very sorry for what happened.”
He said he had not handed back any of his £520,000 a year pension as he had lost money after the bank’s collapse. In often heated exchanges with MPs and peers, Crosby was asked if he had considered handing back his knighthood – awarded as he left the bank – after Fred Goodwin, former boss of Royal Bank of Scotland, was stripped of the title this year.
Crosby said he was “completely realistic” about the effect on his reputation: “I am in no doubt my reputation and achievements will never again be seen in the same light.”
Asked if he expected to be approved by the Financial Services Authority to run a bank, Crosby said: “I don’t expect that if I applied I would be approved, no, given my history.”
Rory Phillips QC, for the committee, told Crosby he was being questioned because “the seeds for what went wrong” were the result of plans and strategy he devised before his departure.
Andrew Tyrie, the conservative MP who chairs the committee, forced Crosby to concede that lending by the corporate bank – which led to losses of £26bn – had been “incompetent” and that this had caused the bank’s near collapse.
Crosby insisted he had not sacked Paul Moore, the whistlebower who warned about risks being taken by the bank, saying he had made been redundant. This was not because of the challenges Moore had made, Crosby said, who added Moore had only raised the concerns once he had been made redundant.
It was allegations by Moore in February last year that led to Crosby’s resignation as deputy chairman of the Financial Services Authority.
Crosby also insisted he did not remember going “ballistic” when told by Hornby, then running the retail bank, about concerns being raised by the FSA over the bank’s lending.
In written evidence published before the committee hearing Crosby admitted that “stress tests” carried out by the company before its near collapse failed to identify the risks being taken in its corporate division.
Referring to the freezing of funding markets in 2007, Crosby said: “With the benefit of hindsight, it brought about a much more significant deterioration in the performance of HBOS’s corporate loans than anyone would have expected or indeed should have been the case.
“That can only be because HBOS was taking more risk than it understood was the case at the time.”
Hornby’s written evidence described how the board of the bank was run in a “broadly consensual style” and said: “Looking back at the problems encountered by HBOS and others in the financial crisis, it now seems apparent that much of the stress testing carried out, while valid, failed to highlight the largest risk which materialised in 2007 to 2008, namely the closure of wholesale funding markets and the ensuing impact on corporate banking credit conditions.”
Hornby, who runs Coral, the private equity-owned bookmaker, said the “ultimate weakness” in the corporate division was the “concentration of risk in commercial real estate and in certain large exposures”.
HBOS’s chief executive until Lloyds completed its rescue takeover in early 2009, Hornby said the bank should have tried harder to amass deposits from its corporate customers, rather than rely on wholesale markets to fund its lending.
The FSA is compiling a report into what went wrong at HBOS, which was created in 2001 by the merger of Halifax and Bank of Scotland.
Peter Cummings, the HBOS banker whose division lent billions of pounds to property developers, was given a lifetime ban and fined £500,000 by the watchdog for his role in the banking crisis. He is the only former HBOS banker to be penalised by the FSA as a result of the near collapse of the bank.