Tag Archives: Andy Hornby

Do the crime – the shareholders pay the fine. Painless. But does crime pay for Lloyds Bank?

Talking to my twitter friends in the last few days, some of whom are in the process of taking legal action against various banks, I begin to wonder how much money banks are paying in legal fees these days? And I’m also wondering how much it would cost them to simply compensate people making serious allegations against them as opposed to going to Court? Would it be cheaper? Who knows but in cases where the evidence is indisputable, it would certainly help a bank’s reputation.

But no – in so many cases, they just insist black is white or rather, they get their very costly lawyers to say it for them. And even a simple letter can cost them a fortune, depending who writes it.

For example, over the past 7 years, I’ve lost count of how many letters Paul and I have had from the various legal firms in HBOS/Lloyds employ and quite a lot of them have come from Denton Wilde Sapte (now called SR Dentons), on behalf of Peter Cummings, Lord Stevenson, the Boards of HBOS and then LBG. And, because Paul and I have apparently upset the Bank so much with our allegations, those letters came from the then Deputy Chairman of DWS, Rory McAlpine (he’s left Dentons, so we haven’t heard from him for quite a while). Not only that, he also trooped up to the Cambridge County Court 6 times at enormous cost to the Bank, or rather it’s shareholders, in an attempt to secure our eviction – which fortunately, didn’t happen and in which he was not instructed.

Mr McAlpine is no lightweight in the legal world and, as top lawyers and certainly Partners in the big law firms, demand and get top dollar, those letters will not have come cheap: Britain’s biggest law firms are shamelessly exploiting the maxim that “you get what you pay for”, with hourly fees at record levels of £850 an hour, according to new research. Independent 26 November 2013 http://www.independent.co.uk/news/uk/home-news/justice-costs-fury-as-lawyers-fees-top-850an-hour-8965339.html

Admittedly most of the legal letters we’ve had from HBOS or Lloyds Banking Group, have been quite short (it takes a limited amount of words to say bugger off) but, as the letters they were replying to were generally rather long (we were trying our hardest to give them the full picture of what was going on in their HBOS Reading branch), it’s fair to assume that, between receiving instruction to write on behalf of the Bank’s Board, then reading our letters and writing the reply, Rory would have spent a couple of hours per letter. That’s at least £1700.00 per letter. Okay, so letters from someone like Mr McAlpine (who now advises Mr Abramovich) were always likely to be fairly costly but, even junior lawyers in the magic circle law firms get charged out at £450 – £500 an hour these days. Lets say £900 per letter. Then multiply that by 1000? 10,000?

Here’s some stats from Moneywise: In the last six months of 2013, Lloyds bank were the most complained about bank with 40,500 complaints going to the Financial Ombudsman; 2nd came Bank of Scotland, with 39,134 complaints to the FoS. http://www.moneywise.co.uk/news/2014-03-04/lloyds-tops-list-most-complained-about-banks

Erring on the side of caution, it would be fair to say about 150,000 people complained about Lloyds TSB or BoS in 2013. Many of those will have got the bog standard, in-house letters to say get lost but, assuming 20% merited at least one letter from the likes of Dentons or Herbert Smith or who ever is currently flavour of the month, at £900+ per letter, that works out at £27M – from one Bank.

Then add the fines – including the fines for handling customer complaints badly. In 2013, the FSA fined Lloyds Banking Group and BoS a total of £32,343,800.00. And that money was paid for (of course) by the shareholders. Did it do any good? Apparently not, because on 28th July this year Lloyds bank Plc and BoS were fined £105M for “serious misconduct relating to the Special Liquidity Scheme (SLS), the Repo Rate benchmark and the London Interbank Offered Rate (LIBOR). http://www.fca.org.uk/firms/being-regulated/enforcement/fines

As part of the ‘agreement’ reached, Lloyds also had to pay £62M to the Commodity Futures Trading Commission and £51M to the Department of Justice in the USA. And to top it all off, the bill for PPI payments from Lloyds has almost reached £10BN: The cost of the payment protection mis-selling scandal has hit more than £22bn after Lloyds Banking Group said it was setting aside an extra £1.8bn to compensate customers. It takes the cost for Lloyds alone to just short of £10bn after the bank, which is one-third owned by the taxpayer, revealed the extra costs in a surprise trading update less than two weeks before its annual results announcement.
http://www.theguardian.com/business/2014/feb/03/lloyds-ppi-compensation-bill-10-billion-pounds

Then there’s the various shareholder groups waiting to sue the Bank with group actions (one group is apparently suing for £4BN) and, of course, the many SME owners who are due compensation for the many and various ways their businesses have been destroyed by the Bank.

My point is: surely we have reached the stage where banks and bankers should start realising ‘crime does not pay.’ Yes it may have worked for years for the Mafia and Organised crime syndicates but they don’t have to worry about their reputations. If anything, their crimes have been glamorised by the media and the public and, whatever atrocious crimes they commit, end up, sooner or later, as blockbuster movies or spectacular TV series. But what works for Tony Soprano (RIP) just doesn’t work for bankers. Villains or professional criminals work with the motto “if you can’t do the time, don’t do the crime.” Bankers, on the other hand, seem to have a motto of “we commit the crimes, the shareholders pay the fines but we always get our bonuses.” People are getting sick of it. Bankers make lousy bank robbers, they get caught all the time and worse than that, our regulators make lousy sheriffs, they do eventually catch the robbers but only penalise the victims (shareholders).

I read an article today by Mark Kleinman, Sky News, where he quoted Antonio Horta-Osorio saying:

“Enforcement and fines have an important role as a credible deterrent against future misconduct.
“But the new rules will potentially reverse the burden of proof where individuals are guilty until they prove themselves innocent in the eyes of the regulator.
“I worry that this could incentivise people to do nothing, as they could waste their time trying to create a paper trail rather than doing what they should be doing, focusing on customers.
“Secondly everyone makes mistakes. If you do a major thing wrong like causing the failure of a bank you should be held accountable for the decisions that you made. But we need to separate the major mistakes from the small ones which will always happen.”

I totally agree Mr H-O, everyone makes mistakes – but that’s where we part company. The mistakes Lloyds Bank sees as “small ones”, are actually the mistakes that ruin people’s lives. And, in the case of the many SMEs that have been totally trashed by HBOS/Lloyds, was that a mistake or was it, as it seems with GRG, a deliberate policy?

I get it that many of the mistakes Lloyds are dealing with now, were in relation to BoS, HBOS or the former management of Lloyds Banking Group but, unfortunately, it’s your watch now Mr H-O. In my opinion, it would be much better for Lloyds Bank to really deal with the skeletons of the past and then go back to traditional banking. The way things are going, a few more major fines, a couple of big group actions by unhappy shareholders, a lot more SME owners suing the bank and a few thousand more of those £900 legal letters – there won’t even be enough money left to buy hay for the black horse. As things stand, the only winners are the lawyers, who must be thoroughly satisfied with ‘bank conduct’, because its making them a fortune. And don’t get me started on auditors and administrators, who seem to be doing as well if not better than the ‘consigliere.’

p.s I wrote this blog last night (Friday 15th) and the first thing I’ve seen on twitter this morning is another article in the Daily Mail about the horrendous sales culture in Lloyds Bank. What’s wrong with this Bank? Is it trying to lose customers? And, considering the ongoing sales culture, how did the Bank manage to include the following in last year’s annual accounts (page 43 of Lloyds Banking Group 2013 results):
Conduct Risk:
Principal risks

As a major financial services provider we face significant conduct risk, including selling products to customers which do not meet their needs; failing to deal with customers’ complaints effectively; not meeting customer expectations; and exhibiting behaviours which do not meet market or regulatory standards.

Mitigating actions

Customer focused conduct strategy implemented to ensure customers are at the heart of everything we do.

Product approval, review process and outcome testing supported by conduct management information.

Clearer customer accountabilities for colleagues, including rewards with customer-centric metrics.

Really?

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My new blog starting with the HBOS/Lloyds Merger and the HBOS Rights Issue

After a very long break I have finally got around to making a new blog site – or at least I’ve got around to asking my daughter to make one for me. I haven’t been too lucky with the last couple of sites about HBOS. I had to take one site down when Thames Valley Police started their investigation into HBOS Reading – because all the blogs were about HBOS Reading and contravened sub judice. So I started a new site with slightly less specific blogs but it was still mainly about the misdemeanour’s of HBOS. And one particular blog I wrote resulted in a rather menacing phone call from an ex HBOS banker and an even nastier virus being attached to the site which contaminated any reader’s computer. So it had to go.

Anyway, third time lucky and I won’t waste time explaining what I’ve been doing since I took that blog down, I’ll move straight on to a subject that is becoming more and more prominent in the news (not that it ever went away) – the merger between Lloyds and HBOS and the legality (or not) of the HBOS Rights issue. I will just add however that I have been busy writing a book about HBOS and while I can’t publish it until next year when the criminal trials re HBOS Reading should be over, I can publish some non-specific extracts from the book as well as some of the research for it – which I have done below.

Recently someone very kindly pointed me in the direction of a document published on the Bank of England website about the Emergency Liquidity Assistance (ELA) HBOS and RBS received in October 2008. It’s a fascinating document and it clarifies some of the myths about how and why the HBOS-Lloyds merger happened. I wanted to share it with Paul Moore as I know he’s also writing a book about HBOS called ‘Crash Bank Wallop.’ To save him having to read the entire document, I extracted some of the key points in relation to the merger and the HBOS Rights Issue. I hope these points will be of interest and of use to others. All the writing in italics is from the BoE document and all the comments I’ve added are entirely my own views:

Some key points from the Bank of England report on ELA to HBOS & RBS. Oct 2012.

21. …..The judgement as to whether or not to activate ELA in 2008 needed to address three core criteria—that the potential failure of the banks in need of support should be judged to be a threat to systemic stability; that the banks receiving support should in a broad sense be solvent; and that there should be a feasible exit strategy from the ELA— …….

22.The second criterion of solvency is never easy to assess because difficulties in funding can quickly transmute into impairment of solvency. But for both banks in 2008 there was a concrete path to future solvency on which the Bank could base its decision to extend ELA. In the case of HBOS, the path to future solvency at the point ELA was extended appeared to be the merger with Lloyds TSB that had been announced on 18 September 2008.

So HBOS was insolvent in the run up to the merger and, as such, wasn’t eligible for the £25.4BN it got in ELA. And the only way around this problem was to merge HBOS with a more solvent bank. I guess Lloyds TSB pulled the short straw and I imagine even the “not given to superlatives” Eric Daniels, would no longer say the merger had a happy ending for Lloyds, its shareholders or even for him. In my book I’ve described what happened as follows:

“Consider this scenario – a previously successful business man who, due to bad judgement and excess, becomes a drunken vagrant, goes into a bank and asks for a huge loan to tide him over a bad period. He tells the bank manager he has no assets, loads of debts and is currently destitute. However, he wants the loan on the grounds he will soon be moving in with his mate down the road and that will solve his problems. His mate is minted and will pay off all his debts even although this means they will both end up strapped for cash. Would he get the loan?”

98. As noted above, the run on Northern Rock marked a step-change in the level of the Bank’s engagement with individual banks and it is clear that the Bank, and indeed the other members of the Tripartite, were fully aware of the vulnerabilities of HBOS prior to its need for ELA in October 2008. By September 2007 the Bank was receiving what it felt were more appropriate data from the FSA, at any rate on banks identified as more vulnerable, including daily liquidity reports from the FSA on HBOS (as well as on Alliance & Leicester and Bradford & Bingley).

The Bank of England were monitoring HBOS on a daily basis by Sept 07 – such was its vulnerability. But, in their trading statement December 13th 2007, Andy Hornby commented:

“HBOS is set to deliver a good full year outcome despite the dislocation in global financial markets. We continue to build on the strengths of our UK franchise and are seeing real benefits from our investment in targeted International expansion.”

And on the subject of capital and funding, Mr. Hornby said:

Our capital strength, the quality of our retail deposit franchise and the diversity of our earnings continue to underpin confidence and support for HBOS in the wholesale funding markets. Our move to lengthen the maturity profile and diversity of our funding in recent years, and our policy of not over-paying during this time of intense competition for funds and capital, is consequently being rewarded.”

http://www.lloydsbankinggroup.com/globalassets/documents/investors/2007/2007dec13_hbos_trading_smt.pdf

101. From late-2007, the Tripartite authorities began contingency planning to map out possible options for resolving HBOS should the key risks facing it crystallise. There was heightened monitoring of HBOS from March 2008 after the emergency sale of Bear Stearns on 16 March and after an unfounded market rumour that HBOS was receiving emergency assistance from the Bank caused a sharp fall in HBOS’s share price on 19 March. At this stage the Bank was considering in detail the consequences of HBOS, like Northern Rock the previous September, being unable to fund itself in the markets.

In other words, by March 2008 the BoE & the FSA absolutely knew HBOS was broke and yet they still let them proceed with a misleading Rights Issue!

102. By mid-April 2008, although still work in progress, a comprehensive contingency plan had been prepared by the FSA, in conjunction with HMT and the Bank. This contingency planning explicitly recognised the possibility of the Bank needing to undertake some form of ELA in the event of wholesale markets beginning to close to HBOS. Although by May the immediate threat to HBOS appeared to have receded somewhat, in part because it was able to utilise the SLS launched in April, the Bank continued through the summer closely to monitor HBOS’s liquidity strains on a daily basis as HBOS endeavoured to scale back assets and increase deposits in order to reduce its reliance on wholesale funding. In the event, wholesale funding became increasingly difficult as the maturity of funding available to HBOS shortened, progressively increasing the ‘snowball’ of funding that had to be rolled at shorter maturities. With the failure of Lehman Brothers on 15 September, HBOS’s position rapidly became untenable. When it finally needed to seek ELA from the Bank on 1 October, the approach did not come as a surprise and the Bank was able to respond rapidly.

That paragraph completely omits the author’s own statement in paragraph 9: “HBOS announced a £4 billion rights issue on 29 April, but only 8% of the HBOS rights issue was taken up by private investors in July, with the remainder being left with the underwriters. ”

Here’s an extract from an article written by Ian Fraser in January 09 re the rights issue:

At the meeting at which shareholders were persuaded to vote in favour of the rights issue, in Edinburgh on June 26, the HBOS chairman said: “The rights issue is absolutely right and will put us in a competitive position.”

He added: “We are saying performance will be satisfactory and resilient. Armageddon may happen and we should be prepared for it and we are.”

And he said: “We are telling the truth; we are truthful people. But if we weren’t, there’s an army of regulators, auditors et cetera to make sure we are.”

My conclusion

The Directors of HBOS, the BoE, FSA and the Treasury, were fully aware when the Rights issue was announced that; the Bank was insolvent but for the fact it was receiving substantial funding from the SLS (Special Liquidity Scheme) as of 21st April 2008 – 8 days before the Rights Issue. By 1st October HBOS was forced to go to the BoE to get Emergency Liquidity Assistance (ELA) which they got and which peaked at £25.4BN on 13th November 2008. This funding was kept secret until 24th November 2009, by which time HBOS was part of Lloyds Banking Group and investors in both HBOS and Lloyds TSB, had lost their money.

Here’s the link to the whole document: http://www.bankofengland.co.uk/publications/Documents/news/2012/cr1plenderleith.pdf