The Parliamentary commission on banking standards blames poor lending practices at HBOS’s broker-friendly specialist arms for driving “significantly” higher retail losses than its rivals.
In its report, An accident waiting to happen: The failure of HBOS, published last week, the MPs and Lords that make up the commission 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 such as self-cert, Bank of Scotland offering high LTV deals and The Mortgage Business for specialist lending.
Scottish Widows sold offset and professional deals, Cheltenham & Gloucester offered buy-to-let and residential while Halifax was its mainstream lender.
PMS executive chairman John Malone says: “It was lending in areas that the regulator has now deemed to be irresponsible such as self-cert and high LTV deals so the mortgage business left a lot to be desired. ”
John Charcol senior technical manager Ray Boulger says: “It sold loss-leading products and it was a basic fallacy in their business plan that they would retain enough people at the end of a cheap deal to make a profit.”