View more on these topics

Banking commission says HBOS’ focus on specialist mortgages drove losses

HBOS plc 480

The parliamentary commission on banking standards says HBOS’ focus on the growth of its specialist mortgage lending saw it make “significantly” higher losses than rivals.

In its report, An accident waiting to happen: The failure of HBOS, published today, MPs say the growth in mortgage lending also led to the bank being “excessively confident” and taking greater risks in other areas such as structured investments.

HBOS was forced to merge with Lloyds Banking Group in 2008 to avoid collapse and the Government then took a 42 per cent stake in the merged bank.

The report states: “The [retail] division incurred substantially higher mortgage-related losses than its major competitors, reflecting the bank’s strategy of pursuing growth in higher risk non-standard mortgages.

“We also note that the division’s customer funding gap was a major factor in the group’s overall funding gap, which was a principal immediate cause in the short term of the failure of the bank. Prudent customer funding should have been a secure source of stability during market storms.”

HBOS was split into a number of brands including BM solutions for buy-to-let lending and higher risk mortgages and The Mortgage Business for specialist lending while Halifax was a purely mainstream lender.

MPs also hit out at the “poor quality” of HBOS assets with more than half of all impairments in safe residential mortgages, which is normally substantially lower than other assets.

John Charcol senior technical manager Ray Boulger says: “HBOS was heavily dependent on wholesale funding just like Northern Rock and Bradford & Bingley. The fact it grew so quickly meant they had to move into non-standard products”

Boulger says many of HBOS’ problems stem from selling loss leading tracker products and sub-prime deals that were too cheap.

PCBS member and Tory MP Mark Garnier says: “HBOS was going out and aggressively trying to grab market share and be a fast-growing business. They were creating the big problem of borrowing short and lending long and anyone who does that to a great extent will find themselves in trouble.”

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com