BANK of Scotland’s corporate bankers shrugged off concerns over credit controls on lending as part of the HBOS group because they had weathered the 1990s recession so well, a former director revealed yesterday.
Jo Dawson, who headed up group risk at HBOS from 2004 to 2005, told a parliamentary committee on banking standards that Bank of Scotland “prided itself that it had stuck by clients” in that earlier downturn.
“There was a really strong belief in Bank of Scotland corporate that they had far greater expertise and understanding of this market than others,” Dawson told MPs.
“They were less open to challenge either internally or from the FSA [Financial Services Authority],” she said. Bank of Scotland merged with Halifax Bank in 2001 to form HBOS.
Dawson, who from 2006 became a board director at HBOS as head of insurance and investment, admitted: “The level of probing or challenge [to the corporate division’s executives, latterly led by Peter Cummings], whether by executive or non-executives, was quite low”.
Asked by panel chairman Lord Turnbull whether with hindsight the level of challenge to the division could have been more robust, Dawson replied: “Absolutely”.
Turnbull said that, in the markets, it seemed HBOS, later acquired by Lloyds and rescued by the taxpayer in 2008, was “expanding at breakneck speed” and was the bank to go to “with adventurous propositions in which you wanted a quick decision”.
Dawson told the sub-committee she had raised this sort of market gossip with HBOS’s chief executive Andy Hornby and the bank’s chairman chairman, Lord Stevenson. She said had also approached Hornby when she felt she was failing to achieve “traction” with the corporate division in her advisory role as risk director.
“The response was they were effectively comfortable with what was being done,” she added. A damning recent report into HBOS’s collapse from the FSA said there was too much “aggressive” and high-risk lending at the bank’s corporate arm, which the regulator claimed operated in a “culture of optimism”. Cummings was recently banned from holding a senior financial role in Britain.
David Quest, who has been appointed independent legal counsel to the investigatation by the Parliamentary Commission on Banking Standards, said of the advisory status of Dawson’s risk management role: “That’s a structural weakness, is it not?” Dawson replied: “Yes”.
But she said she did not feel the HBOS board believed the individual divisions had too much autonomy over their lending and risk decisions.
• Swiss bank UBS unveiled plans to make 10,000 staff redundant and wind down its fixed-income business, returning to its private banking roots as it adapts to tough capital rules.
Zurich-based UBS will focus on wealth management and a smaller investment bank, ditching much of the trading business that ran up $50 billion in losses in the financial crisis.
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