Sir James Crosby, former chief executive of HBOS and architect of the Government’s current lending plans, had to step down from his position as deputy chairman of the FSA thanks to revelations at a Treasury select committee meeting.
It began last Tuesday, when the former executives of HBOS and RBS appeared before the Treasury select committee. Ex-HBOS chief executive Andy Hornby and former chairman Lord Stevenson were attacked for being part of a machine that ignored the “siren voice” of former head of group regulatory risk Paul Moore who was reported to have had his fears scrubbed from board minutes and sacked after he said that HBOS’s rapid growth was unstable.
Moore took HBOS to an industrial tribunal but the firm made a payout to him with a gagging order.
Moore was quoted to have said: “I told HBOS their sales culture was significantly out of balance with their systems and their controls. I told the board they ought to slow down but was prevented in having this properly minuted.”
The former HBOS chiefs defended themeselves. Stevenson said: “The fundamental mistake was failure to predict the wholesale risk. Moore’s accusations were nothing to do with this.”
But by Wednesday morning, Crosby had quit from the FSA.
Crosby said: “Whilst I am totally confident that there is no substance to any of the allegations, I nonetheless feel that the right course of action for the FSA is for me to resign from the FSA board.”
Former RBS chief executive Sir Fred Goodwin and ex-chairman Sir Tom McKillop were also lashed by MPs for their part in RBS’s problems, in particular, RBS’s choice to buy Dutch bank ABN Amro.
Labour MP Jim Cousins said: “Mr McKillop, how would summarise the deal? I am asking you because you were in charge of this board, you have destroyed a great British bank and you have cost the taxpayer £20bn.”
McKillop replied: “It was a bad mistake, we are sorry we bought ABN Amro.”
All four repeatedly apologised for their parts in the crisis. Stevenson said: “We are profoundly and unreservedly sorry at the turn of the events. We are also sorry about the effects it has had on the communities that we serve.”
Committee members also attacked HSBC UK managing director Paul Thurston, Santander chief executive António Horta-Osório, Lloyds TSB chief executive Eric Daniels, Barclays chief executive John Varley and RBS’s new chief Stephen Hester.
In particular, Daniels was grilled for his part in the HBOS acquisition, which led to Lloyds TSB having to ask the Government to take a 43 per cent share in the bank.
MPs were concerned when Daniels admitted that Lloyds would have liked “three to five times” the 5,000 man-days it took to do due diligence on the merger. Andy Love, MP, said: “How can you be so confident this was a prudent deal if you would still have been doing the due diligence now?”
Hester said: “Many of the things that have gone wrong in the world, sadly, were there for all to see. The lack of saving, the obsessive consumer spending, the house price boom, the trade deficits.”
But they were also apologetic. Varley said: “A number of players in this drama who are to blame, including governments, it includes central banks and it does include lenders. If you ask me, as I sit here today, is it understandable that public sentiment is that banks have the largest amount of blame? I think that is perfectly understandable.”
Before the dust had a chance to settle on round two, the FSA released a statement on Wednesday night about Crosby’s resignation. It admitted it had found fault with HBOS as early as 2002.
Prime Minister Gordon Brown felt the heat before the liaison committee on Thursday. Treasury select committee chairman John McFall said: “Does the fact that Crosby was in the FSA not bring into question regulatory management and does it discredit it?”
Brown strenuously denied this and claimed the FSA had not made the Treasury aware of HBOS’s problems while the Treasury was deciding on Crosby’s appointment as FSA deputy chairman.
Conservative MP Michael Jack responded: “Are you telling me that one of the UK’s biggest banks has got a shot across the bows and these matters did not figure in Treasury discussions? In all these discussions, did you discuss any real world issues? What world were these people operating in?”
Brown stood firm in his defence of his adviser Crosby. He said: “This attempt to make this a British phenomenon that has British causes and has British ministers to blame is a disservice to actually getting to the heart of the problem and dealing with it. This was a global meltdown and we are all trying to get out of the situation with our banks and all the banks in the world.”
“Those people who have been responsible and had to come for support have gone and as far as the future, all systems have to be based on long-term rewards.”
McFall replied: “It is a long, hard road to go down to bring the public round on that issue.”