FORMER HBOS chief executive Sir James Crosby yesterday agreed with MPs that incompetent lending helped lay waste to the bank with billions of pounds of losses, and was partly responsible for driving it into the arms of Lloyds Banking Group.
Sir James, chief executive from when the bank was formed in 2001 to the summer of 2006, said he realised his reputation in banking was irrevocably damaged by the collapse and that retaining his knighthood was for others to decide.
Under trenchant cross examination by Andrew Tyrie MP, chairman of the Parliamentary Commission on Banking Standards, as to whether HBOS’s lending was incompetent, Sir James said: “With the benefit of hindsight, it was not competent.”
Sir James, who assumed the top job when Halifax merged with Bank of Scotland to form HBOS, told MPs it was impossible to blame the level of bad debts at the bank purely on the financial crisis, although that unprecedented event had exacerbated its problems.
“With the benefit of hindsight, it was not good lending,” he said. The scale of bad debts at Bank of Scotland’s corporate arm later triggered a £17 billion taxpayer bailout at Lloyds, of which £11.5bn was related to HBOS.
Sir James also admitted to MPs that the bank’s strong reliance on wholesale money markets rather than safer deposit-backed lending was a more vulnerable business model when markets froze up for a year from the summer of 2007 and the collapse of Northern Rock.
Asked by one MP if he had considered relinquishing his knighthood, following the stripping of the honour from former disgraced Royal Bank of Scotland chief executive Fred Goodwin, Sir James said: “I’m in no doubt that my reputation and achievements will never be seen again in the same light.”
He added: “That [him retaining his knighthood] is for others to decide, in truth. I’m completely realistic about my reputation.”
In a torrid two-hour session before the commission, Sir James was accused by Mr Tyrie of “bailing out” of the bank by cashing in two-thirds of his shares before it collapsed. He replied: “In effect, yes. But not knowingly. I was balancing my portfolio of assets.”
It was disclosed at the commission that Sir James had earned a total of £8 million in remuneration over his five years at the helm, plus a pension pot of £572,000 a year.
He said he had not relinquished any of this pay or pension entitlement, unlike Mr Goodwin who gave up a substantial proportion of his pension after political pressure, because he had lost money on long-term incentive plans with HBOS .
Andy Hornby, who succeeded Sir James in 2006, admitted to MPs that the £45bn of impairments run up by HBOS were “appalling losses” and the bank had taken a number of measures to reduce risk in the business.