Tag Archives: Bank of England

Did the Bank Wreck My Business? Yes – so what happens now?

Did the Bank Wreck My Business? Yes – so what happens now?

I’m pretty sure the ratings for the excellent Panorama programme, ‘Did The Bank Wreck My Business’, were very high last Monday. Certainly most people I know watched it – but then many of them have direct experience of banking abuse at the hands of RBS or Lloyds – so they would. In fact most of them were interviewed by Andy Verity and Jon Coffey although their stories weren’t used in the programme. Some would say (and I would agree) there are many more horrific stories out there that the production team could have used – but it’s not a competition. Every business annihilated by bank misconduct (known to many as fraud), is a tragedy. And, given the Beeb’s generally conservative, establishment stance, I think it’s nothing short of a miracle this programme was as frank and exposing as it was.

As always, when programmes like this are on, I took some notes. I do it mostly to collect quotes for my book (nothing quite like “from the horses mouth”quotes to make points) but I also do it because I’m so staggered at what some people in the banking world say, it has to be captured in black and white for posterity. One day future generations will surely look back and ask “how the hell (being polite there) did a democratic country let that happen?”

I know the transcript of the programme will be available soon (or I hope it will) but here’s some of my favourite quotes from last night:

Jon Pain (RBS) “The whole purpose of GRG is to help customers return to financial health…..”

Vince Cable (BIS) “Well of course I’m very alarmed because good companies appear to have been put at risk or in some cases destroyed by banks behaviour…..”

Stephen Pegge (Lloyds) “our goal is to support businesses (you know) small and medium sized businesses are really important to us….”

Jon Pain (RBS) “(But) I would in no shape or form condone any inappropriate behaviour by anybody acting on behalf of RBS – that’s not part of our agenda in supporting customers.”

Christ Sullivan (RBS) to Andrew Tyrie re GRG “It is absolutely not a profit centre!”

Ross Finch (Lloyds victims) re his meeting with an exec of Cerberus who Lloyds sold his loan to “When I expressed disbelief about their behaviour, um, he said, “what you’ve got to understand is I am a prick” – which I couldn’t believe he would say such a thing!”

I’ve just pulled out those quotes because they are either so absurd or so shocking– and they’ve been broadcast on the BBC, the bastion of British correctness. If even the Beeb is exposing RBS and Lloyds as a bunch of crooks, what can we say? Nine years on from the so called Credit Crunch and where are we? I would say, if anything, we’re walking backwards. As one of the founder members of SME Alliance and a member of Whistleblowers UK ( Paul and I blew the whistle on HBOS Reading – the HBOS equivalent of GRG), I hear horror stories about banks v SMEs every single day. But the exposure of banking atrocities is no longer limited to what banks like to portray as ‘the niche market of poorly performing SMEs’. Everyone knows how bad some of our banks are and Andy Verity’s programme should be one of the final nails in the coffin of bad banking.

But will it be? Big question:

Vince Cable, Andrew Tyrie, the Treasury Select Committee, the FCA, the PRA, Mark Carney, David Cameron, Ed Miliband, Nick Clegg – did you watch “Did The Bank Wreck My Business’? And if you did – what are you going to do about it? They certainly didn’t wreck your businesses so I understand that maybe you don’t understand the consequences of what banks do. However, I do and so do thousands of SME owners, employee’s, shareholders and creditors. We live with the consequences.

I also know Andy Verity and Jon Coffey have done extensive research to make this programme and could have used any number of totally outrageous cases because they interviewed loads of SME owners (or ex SME owners) – and I know some of those stories may have been a step too far for the Beeb. In my own case sub judice was a big problem. But I know they made the programme in the spirit of stopping banks abusing SMEs. So has it worked? Has it helped? Will anything change?

Well the Panorama team have done their bit. David, Ed, Nick, Andrew, Mark – over to you. You are the people who can make the banks behave – or at least you should be. If the reality is you’re not – then wow, we have a serious problem in our democracy.

Best quote of the programme, without doubt, has to be Austin Mitchell MP, talking in Parliament about the Keith Ross case and saying it how it really is:

“What I want to do today is tell the story of the theft of a profitable Yorkshire company and I don’t mean the criminal Mafia we often speak of I mean Britain’s dark suited Mafia which in this case is represented by Lloyd Bank and Price Waterhouse Cooper both acting in collusion….”

Here’s the link from Hansard to Keith Elliot’s case: http://www.theyworkforyou.com/whall/?id=2013-11-12a.212.0

Of course, living in Italy for nearly 20 years, Austin’s comments would strike a chord with me. Well said Austin – there’s not many MP’s who would draw Parliament’s attention to the similarities between the banks and the Mafia but I would just put you straight on one thing – our dark suited Mafiosi are, in many cases, criminal.

I’m posting this on my own blog site because this is my own view – but I believe many people in SME Alliance will appreciate this view and I have to give us a plug because the conduct exposed in the programme is one of the reasons SME Alliance was formed.

#SME Alliance – giving SMEs a voice. #nooneisabovethelaw

Mark Carney says #nooneisabovethelaw now we need to work on #whocanaffordthelaw?

On 24th September 30 people travelled from all over the Country to attend the first meeting of SMEalliance in the Old Council Chamber at the Law Society. It could have been double that number but, having asked our hosts, Rustem Guardian, for a room for 12 people, then 25 people, then 30 people, I felt it would have been rather rude to continually increase the numbers!  All the same we ended up with about 35 people. Rustem Guardian did us proud and we are enormously grateful to them for giving us such a fitting venue for our first meeting.

I say fitting because one of the key phrases that came out of the meeting was this:

“no one is above the law.”

Of course most people at the meeting were brought together because, as SME owners are very well aware, some people do seem to be above the law – which is, in part, the reason why so many SMEs are struggling and continue to be abused and especially (but by no means exclusively) by the financial sector. But the reality is  – and we need to remember it – in a working democracy, no one is above the law.

I raised this subject at the meeting because of a letter Paul and I received, dated 1st September 2014,  (1 day before SMEalliance was born) on behalf of Mark Carney, Governor of the Bank of England. We wrote to Mr Carney on 31st July 2014 and that is our first letter to him although we were in regular contact with Lord King from 2010 and he always replied, usually in person and with his private seal. Mervyn King (as he was in 2010) had asked to be kept fully informed of the progress of investigations into HBOS (ongoing) and I don’t make the point to infer we are buddies of Lord King’s,  I make it because by writing to him and getting replies, we were sure the BoE had critical information about malpractice in HBOS. So we were keen to make sure Mark Carney was similarly well informed. I can’t publish most of our letter or the reply for reasons of sub judice but I can publish this point we raised with the Governor:

Mr Carney, even as music publishers (there’s been little music publishing and lots of fraud investigation over the last 7 years), we understand the need to maintain international confidence in the City of London and our financial sector. But it would seem the attempts to indemnify bankers from crime in order to maintain that confidence, has resulted in the City becoming the ‘Wild West’ of the financial world. By not holding bankers to account individually when they break the law, we now have a situation whereby the banks feel their immunity to prosecution is a licence to further break the law. And they do so in the knowledge that, worst case scenario, their shareholders will pay huge fines while those bankers responsible for the good management and reputation of the banks, continue to get huge pay packets, bonuses and pension pots. Under such a scheme, where is the incentive for bankers to behave lawfully, morally and ethically?

The reply to this on behalf of the Governor was (I’ve redacted specific’s):

Your letter also notes a concern that regulators have not acted to penalise relevant individuals in relation to XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX and that bankers are somehow above the law and able to avoid prosecution. This is a view very much not shared by the Bank of England. As the Governors recent letter to Lord Blackwell made clear there is absolutely no doubt that bankers who are guilty of misconduct should face the regulatory and / or criminal consequences of their actions. No one is above the law.

I haven’t published that to annoy the Governor of the Bank of England by sharing private correspondence. On the contrary I’ve published it to make the point that in the “them v us” scenario many SME owners feel exists between businesses and the establishment,  we have a lot of shared views. And I may be very naive but I was actually delighted to read the headline in the Huff Post today:  Mark Carney Tears Into Bad Bankers For ‘Getting Away With It’

http://www.huffingtonpost.co.uk/2014/10/13/mark-carney-bankers-banking_n_5975494.html

I am not saying our letter to the Governor made an impact but, on the other hand, maybe he is aware of the bad conduct of banks towards SMEs – maybe we can get our message across to people like Mark Carney and maybe now if the time to resolve a “failure to communicate” situation that has existed for far too long. I really hope we can remedy that with SMEalliance. We can open a real dialogue with people who can help us get change – and this time, the message won’t be from people paid to represent us – it will be SMEs representing SMEs.

I feel hugely encouraged by the immediate response and support for SMEalliance – it really feels as if a fuse has been lit and an immediate network of like minded people have joined forces. We need to build and build our numbers so our voice gets louder. And then we can collectively make sure influential people like Mark Carney  or politicians know exactly how we feel, what our problems are and what changes we want to see – straight from the horses mouth. Starting maybe with the statement from the Governor’s office:

No one is above the law.

If even the Governor of the Bank of England is agreed on this principle. maybe we could start dealing with the one thing that hinders it:

But most people can’t afford the law.

That’s a huge problem but let’s not run before we can walk. If we can be sure the authorities will support  “no one is above the law” that would already go a long way to helping SMEs. So that when we report misconduct, fraud, misrepresentation, sharp practice or other issues that damage SMEs to the regulators, the police, MPs – we could do so with the confidence the law will protect us.

Last thing – you don’t have to have a problem to join SMEalliance. Aside from trying to raise important issues at a political level and have a huge voice, it is a huge opportunity to network, share information or idea’s and cross reference facts that will also alert others to potential pitfalls. And for those who do have a problem, it will also hopefully provide a support network.  I saw all of this go into action straight away when everyone at the meeting adjourned to the pub and it was evident the knowledge and experience people were willing to share was phenomenal.

Please visit our website http://www.smealliance.org and if like us you think SMEs, which are the absolute backbone of the economy, should have a better deal and a bigger voice, please join us. Our next meeting is 6th November at the Winford Manor Hotel in Bristol.

 

 

 

 

Save the Bankers v Save the Pandas – now there’s a choice!

This Sunday has not started well. Beautiful crisp morning but pretty damn cold – the beginning of the ice box scenario for many households who can’t afford heating. Nevertheless, Paul and I were up early and ready to go out to our local car boot which has, over the last few years, become like a weekly social event – regular stall holders with irregular wares and prices ranging from 20p to a couple of pounds, regular visitors chatting away with each other, lots of dogs (and their proud owners) and so multi cultural. I often think the car boot sale we go to, which is held in a farmers field in Cambridgeshire, is one of the best and most amicable examples of multi-cultural Britain.

Unfortunately today’s visit did not go to plan as our elderly car decided it does not want to live through another winter – and refused to start. Hey ho, won’t be the first time a car has died on us over the last few years, so I decided to take another pleasant option – read the papers on line, tweet a bit and listen to the Archers.

It was all going really well until I read an article on the Conservative home site called ‘Save the Bankers’ penned by an A level student. Now don’t get me wrong, everyone is entitled to their view and it’s always good to see young people voicing their opinions. The author even made some good points – especially the point that ‘save the bankers’ is unlikely to be as popular a campaign as ‘save the pandas.’ Yep, I’d say it’s a non starter. And he, Joe, also made the valid point that thousands of people are employed in banks – the figure of 3.8% of the population was muted although I haven’t checked that figure. Obviously it’s a big sector – obviously it employs many ordinary decent people – and even makes many of them redundant and, (I don’t know if Joe knows this) sometimes by the most ungracious of methods, like please all attend a meeting in the car park – you’re fired and don’t go back into the building.

However, the overall tone of the article was to praise the contribution banks and bankers make to society; to criticise those who insist banks are the root of all evil and; to have a pop at the Labour party for their manifesto in relation to bankers’ bonuses. With the arrogance of youth, the author insists we must rise above the ridiculous myth that banks or the City are responsible for society’s ills and we must instead take collective responsibility for economic failures.

Fair enough – not many 18 year old’s will have lost their business because of asset stripping or swaps. They probably won’t have been affected by LIBOR or even PPI at that age. They won’t know how the insolvency laws have been abused and manipulated over the years so that solvent companies are pushed into administration by banks who then acquire those assets for peanuts. So they won’t know how many SMEs have been destroyed by deliberate and immoral policy implemented to benefit an elite minority at a huge cost to the majority. And if you don’t research that side of the coin – you won’t know and you won’t include any of it in your article.

But my problem is not about the content of the article – in a world where social media means everyone can share their views across the internet, why shouldn’t Joe share his? And if he had done so on his own blog, I wouldn’t have batted an eyelid (I probably wouldn’t have even seen it). What I found worrying was that the Conservative party gave this blog/article a huge platform on their home site and in doing so, they’ve used an A level student to promote the bizarre propaganda that banks are fundamentally good, we should recognise their contribution to society, embrace the ambitious nature of bankers and allow them to thrive without the constraints of “iniquitous” legislation being imposed by regulators. Bonkers!!!

There are no doubt many good bankers out there Joe. Every sector has good people – personally I always had a bit of a soft spot for Tony Soprano. Some of my good friends come from the financial sector – although most of those particular friends are now better known as ‘whistleblowers.’ Sadly, there can’t be many good main stream banks in the UK – because unlike other European countries, we only have a handful of banks and even if 50% of them were good – that could still only be a few rather than many. In my experience and after 7 years of research, I would say the majority of the big banks have repeatedly demonstrated utter contempt for society and its laws – spurred on by successive Governments.

I have no idea who to vote for next year – almost certainly it will be the party which demonstrates any inclination to support the 4.9M SMEs in the UK who employ 25M people – if such a party exists. Who knows, that could even turn out to be the Conservative party. Like many SME owners, I would just like to see a Government that redresses the balance of the many and varied issues that have caused SMEs to bat on a totally uneven playing field – and banking is only one of the those issues. All the same, while I respect everyone’s views, I feel slightly apprehensive about any political party that gets teenagers to preach on the subject of how good our financial sector is. Poor etiquette Dave. Unless of course you are also going to let someone else have the same platform to put the other side of the argument? I can think of quite a few volunteers.

Following on from yesterday’s Indy article about the HBOS Rights Issue, can we at least stop subsidising fraudulent conduct in banks?

Tom Harper’s excellent article questioning whether or not investors were given key financial facts regarding the HBOS Rights Issue in 2008, provoked some serious outrage on the ‘Twittersphere’ yesterday – and quite rightly so. http://www.independent.co.uk/news/business/news/hbos-accused-of-misleading-the-public-over-4bn-rescue-9701791.html

I don’t suppose the Government, Lloyds, the Regulator or the BoE will be happy with that line of investigation. Not least because it opens the door to a whole torrent of questions about how many other transactions, involving state subsidised banks, have been less than transparent?

And perhaps the biggest question will be – was the information in the Lloyds/HBOS Merger proposal, as accurate and transparent as it should have been?

I am sure Lloyds bank will say the HBOS Rights Issue was nothing to do with them as it pre-dated the merger. But in order for the Merger Proposal to be correct, it should have contained watertight data about the financial state of HBOS – which, reading Tom’s article, I’m not sure it could have? I’ve looked at the Proposal and it relies on financial accounts for HBOS and Lloyds TSB dating back to 2005 – although conveniently, it only relies on unaudited accounts for HBOS in 2008. Not that it makes much difference because, sadly and to add weight to yesterdays article, the Big 4 auditors appear to have been equally confused as to the solvency of the banks despite the audited accounts, as shown in another excellent article by Ian Fraser, November 2010: http://www.ianfraser.org/connolly-i-do-believe-that-auditors-performed-well/

What I find really upsetting about all this was brought home this morning by an article from the Positive Money site (following up on an article by Jill Treanor in the Guardian). The article dates back to December 2013 and explains, in very clear and simple terms, how banks continue to be subsidised and why. https://www.positivemoney.org/2013/12/uk-banks-benefited-38bn-big-fail-state-subsidy/ And of course, if we are still subsidising the part state owned banks – we are also subsidising bankers’ bonuses – which, considering neither Lloyds nor HBOS have managed to comply with the terms and conditions of the 2008 bailouts, seems entirely unjust not to mention bonkers. In a letter I received from the Treasury dated 15/05/09, Lloyds and HBOS agreed to meet the following terms:

A range of conditions are attached to the recapitalisation package. Lloyds TSB and HBOS have agreed that over the next three years they will maintain the availability and active marketing of competitively priced lending to homeowners and to small businesses at 2007 levels. They will also provide support for schemes to help people struggling with mortgage payments to stay in their homes and the expansion of financial capability initiatives. The remuneration of senior executives will follow strict guidelines – both for 2008 (when the Government expects no cash bonuses to be paid to board members) and for remuneration policy going forward (where incentives schemes will be reviewed and linked to long-term value creation, taking account of risk, and restricting the potential for “rewards for failure”). The Government will also be consulted on the appointment of new independent non-executive directors…”

Joining up all the dots, I begin to get a very clear picture of La La Land and it’s not pretty. As I am definitely a layman in these matters (albeit a fairly well informed one), I thought I’d take this opportunity to share my view of what’s happened over the last few years.

Round up of events in La La Land.

In 2008 and after exceptional spending sprees by both the banks and the public, the proverbial finally hit the fan and many banks ran out of money. The Government, terrified they’d have a repeat of the Northern Rock débâcle, gave the banks billions from the taxpayers’ coffers. As this resulted in mass austerity, the Government were loath to let anyone know exactly how bad a shape some of the banks were in (some were insolvent) and they certainly didn’t want the public to know the exact details of the billions being handed over, so they did their best to keep it all quiet. They (and the banks) even kept it quiet from the people being asked to invest in the banks via rights issues and/or sanction the HBOS-Lloyds merger, although they didn’t have to keep it quiet from institutional investors, because they were ‘in the know’ and had no intention of investing in insolvent banks.

The banks took the money but totally ignored the social responsibility that went with it (terms and conditions) in the same way they ignore little things like money laundering laws or Principle 1 of the FSA Principles of Business: A Firm must conduct its business with integrity. Actually I struggle to see how most banks comply with any of the FCA Principles: http://www.fca.org.uk/static/documents/handbook-releases/high-level-standards136.pdf Section 2.1

However, after the credit crunch the banks could no longer be seen to lend with reckless abandon (which was a bit annoying, as they rather liked basing bonuses on inflated loan books), so they invented other reckless and ingenious ways of making money – e.g crippling the SME sector and stealing assets. Best of all, having totally screwed up and taken everyone’s money, they came up with their most ingenious plan to date – they sold us all the simple concept that – if we didn’t allow bankers to keep taking bonuses, they’d walk away – and then we’d all be screwed. To make sure that dreadful day never comes, we continue to subsidise banks so they all live happily ever after.

That sounds like a pretty dark fairy story and the darkest bit is – it’s not a fairy story. So I hope somewhere, someone in authority (not mentioning any names Mr Tyrie) will have read Tom Harper’s articles, Ian Fraser’s articles and I’m hoping Max Keiser will invite Paul Moore back on the Keiser show to talk about the appalling behaviour of HBOS, Lloyds and other banks. Because, crazy as is it and despite all the rules, laws and regulators we have, I think our best chance of getting banking reform is to report bank misconduct to the media and then spread the word via Twitter? Of course, that could ultimately do enormous damage to some banks but I can see little alternative to this course of action. It’s a huge problem that while we definitely do have regulators, it seems La La land is out of their jurisdiction – which is the obvious reason they cannot do anything to penalise errant bankers.

*Here’s a thought – if we’re going to rely on journalists to clean up the banking world – maybe we should be paying our financial journalists (and their research teams) more and getting rid of regulators? We’d save a fortune and get some results.

Anyway, what upsets me most about all this is how we continue to let ourselves be mugged and my point is: If banks are intent on continuing to cheat their customers, destroy SMEs and refusing to compensate the people they defraud while insisting they still get huge bonuses – fine. It seems there’s little we can do about it. But can we please, please stop subsidising this conduct?

Ming the Merciless v Flash Gordon. What made Britain a ‘State of Anxiety’?

I very rarely watch films in bed – mostly because the television in my bedroom is ancient and prone to turning itself off half way through a film. Or you get the picture but no sound – very frustrating. However last Monday (Bank Holiday), with both daughters and granddaughter away and as it was bucketing down with rain, I ended up staying in bed to watch Flash Gordon and the TV, in charitable mode, actually worked. I’ve never watched this film all the way through and every now and then, I enjoy watching something deliciously ridiculous. So a pleasant morning.

But my mind always strays whatever film I’m watching and something Ming the Merciless said to Flash, made it stray again. Ming suggested he would like to have Flash on his side and he would give him an entire planet of his own where Flash could rule over everyone, in exchange for his loyalty. The planet was Earth and Ming confirmed he would do such terrible things to the planet prior to handing it over, Flash would not recognise the people on Earth. “You’ll make them slaves” Flash suggests? “Let’s just say they’ll be satisfied with less” Ming replies (that’s from memory, so don’t quote me but you get the gist).

It made me think of the relationship we earthlings have with our so called ‘Masters of the Universe’ in the financial sector. There was a time when we, as the customer, expected and even assumed the people running banks were decent, professional, ethical and even helpful people. Just like the people on the adverts and a bank manager was such a pillar of the establishment, he could even sign your passport. As for the CEO or Chairman of a bank? They were, quite naturally, beyond reproach.

Times have changed radically and, while I don’t suggest the majority of employee’s in the financial sector are intentionally bad people, most of us don’t bat an eyelid now even when we hear how banks (bankers) are laundering money for Mexican drug cartels, manipulating LIBOR or screwing their customers every which way. Worse than that, we seem to have accepted the ridiculous myth no-one is personally to blame for any criminal conduct in the banking world and senior bankers should still get bonuses for running what are, in some cases, organised crime syndicates. How did that happen? When did we accept becoming a banana republic?

One of the things we are possibly all agreed on – and even bankers – is how over extended credit was a major contributory factor to the credit crunch. People with low incomes were encouraged to take on mortgages they couldn’t afford; banks were issuing credit cards like they were ‘Smarties’; businesses were getting massive loans and; even students with no incomes were offered big overdrafts. Of course no one had to accept any of these loans but, in a consumer society where “credit is good for the economy” was the motto of the day and, as the rise in house prices became totally out of sync with what people earned, many people did. And while some of the public pushed themselves to the absolute maximum in the borrowing stakes, the banks, who based their bonus structures on loans, went even further.

Then the crunch came and suddenly the huge and fundamental difference between the people (who the banks had willingly lent money to) and the banks, became horribly transparent. The banks got all or most of the money they lost back from the taxpayer (the people) on the grounds they would re-float the economy – which they didn’t do. Meanwhile the people had no one to bail them out and, almost overnight, this situation was exacerbated when the banks started aggressively demanding back the money they’d lent consumers. It was a double whammy – the credit crunch caused mass austerity on the one hand (cuts in every aspect of public funding except MPs and bankers’ wages) and, on the other hand, not only did future credit dry up, the terms for existing credit were harshly altered – although the terms and conditions which enabled this were always in the small print, tucked away discreetly for a rainy day.

I’m not talking about PPI or LIBOR or IRSA or even major bank frauds here – just how the basic principles of the bank / consumer relationship, changed. The banks, who were so eager to extend credit one day, were demanding it back with menaces the next. And the methods they’ve used over the last 6 years are often akin to those used by the playground bully. Here’s a couple of examples:

Bank of Scotland has been ordered to compensate a customer for harassment after it made an astonishing 547 calls to recover a debt. http://www.moneysavingexpert.com/news/banking/2013/07/bullying-bank-ordered-to-pay-up-for-harassing-customer-know-your-rights

‘You have 24 hours’: Devastating tape reveals how RBS accused of bullying warned struggling chain of chemists it could call in the administrators http://www.thisismoney.co.uk/money/news/article-2516063/Tape-reveals-RBS-warned-chain-chemists-administrators.html#ixzz3BaDHrbWr 

(Sorry – the above link, is temporarily not working)

Every bad thing about banks got horribly worse after the historic events of October 2008 when Gordon (Brown that is, not Flash) and his chums created a completely different pecking order in the country he was supposedly running as a democracy. And sadly, I have to conclude the end result has caused Britain to be a ‘State of Anxiety.’

Fear has always been an efficient if immoral tool to control large numbers of people. People who are frightened tend not to ‘rock the boat.’ Most of us don’t have grandiose ambitions and it’s the idea of losing the simple basics in life we’ve worked hard for, that cause the greatest fear. Therefore, regardless of how bad the game has become, we keep playing it. We don’t worry about getting run over by a bus because we don’t think it will ever happen. We don’t worry a meteorite will smash into earth and we’ll be obliterated because we know there’s nothing we could do about it. But the idea of losing your family home for instance, is a situation that cripples people with fear. I know because I’ve been through 22 eviction hearings. My particular case, or cases, were complicated and I can’t go into detail because of Operation Hornet and sub judice. But whatever the reason anyone is staring eviction in the face, the sickening fear of it becoming a reality, is always the same. It’s debilitating and crushing.

So paying your mortgage to keep your house is a number one priority which means, at all costs, you must keep your job (even if you hate your job because the new corporate order means you are asked to do things you feel are morally unacceptable). Paying that mortgage to the bank is definitely going to keep you playing the game.

But what happens if you lose your job because your employer was one of the thousands of SME owners who have been sent to the wall (administration or liquidation) by the banks who have unethically demanded long term loans be paid back overnight? Or if you worked for an SME that was a creditor of a company forced into administration which has, as a consequence, then hit the wall itself? What happens if, through no fault of your own, there is no job to pay the mortgage?

In those instances it’s an amazingly short scenario to the really basic problem of things like food. Benefits are few and far between these days (cutting those on benefits also cuts the numbers of unemployed). Who would have believed hundreds of thousands of people in Britain would have to rely on food banks? How frightening is it when you have to rely on charity to feed your family? And it happened so quickly – austerity, job losses, benefit cuts and food banks.

I could go on – electricity, travel costs, school fees, health care, old age with inadequate pensions…. what it all adds up to is anxiety and fear for a lot of people. And when people live with fear, just keeping your head above water is a priority. Questioning why you are in that situation becomes a secondary consideration – first you have to survive.

Meanwhile, the masters of the universe most responsible for where we are – what’s happened to them? In the majority of cases they have just continued to receive mega fees, bonuses and pension pots for failing with vigour. Should we feel sorry for the likes of James Crosby, who lost his knighthood and even had to forego a third of his six figure pension pot? I think most people don’t even care. Their own personal angst totally and reasonably excludes the bigger picture. Which is very convenient for those who do their best to make us forget how we got to where we are.

The comments from Ming the Merciless made me think – has the aftermath of the credit crunch brow beaten us all to the point we ‘except less’ and ‘accept the unacceptable’? Is this why we don’t shout and scream when shareholders (including the taxpayer), who’ve already lost a fortune in banks like HBOS, RBS and Lloyds, see millions of pounds being paid in fines for criminal conduct in banks as opposed to holding CEOs and Chairmen to account for what happens on their watch? Is this why we unbelievably seem to accept one law for the masses and one for the elite? Much as I hate the very idea, I think that may well be the case and I even wrote to David Cameron asking for him for some clarification on this point:

Dear Mr Cameron,

I and many other people were stunned by the quotes from the chief executive-designate of the Prudential Regulation Authority, which were reported in the Daily Telegraph yesterday (December 14th, 2012).

Mr Bailey seems to have confirmed that, irrespective of their criminal actions, banks are not only “too big to fail”; they are also “too big to prosecute”. In an interview with the Telegraph, Mr Bailey said that prosecuting banks and by implication their executive and non-executive directors,

would be a very destabilising issue. It’s another version of too important to fail. Because of the confidence issue with banks, a major criminal indictment, which we haven’t seen and I’m not saying we are going to see… this is not an ordinary criminal indictment.”

Mr Cameron, unless I am completely mistaken, Mr Bailey seems to be telling us that banks, and therefore bankers, are now officially considered to be above the law in this country and that, in the interests of confidence in the banking industry (which is already at rock bottom among the British public, and therefore can hardly sink any lower), they cannot be prosecuted ……..

…..If justice is indeed now a ‘private members’ club’, then it is to up to you, Mr Cameron, to explain this to the British public. And, as I am sure you are aware, there is a real danger that the country will descend into lawlessness if the law is unevenly applied and enforced. If you really intend proceeding down the path seemingly advocated by Mr Bailey, then you risk going down in history as the Prime Minister who did more than any other to undermine the legitimacy of the British state……

http://www.ianfraser.org/dear-mr-cameron-if-bankers-are-above-the-law-we-need-an-urgent-explanation/

I have never had a reply to my letter and the lack of reply speaks volumes.

My point: Has the so called ‘credit crunch’ worked out badly for everyone? Or has it enabled some very sinister aspects of society to come to the forefront and control us all via economic fear? I think that is exactly what’s happened. “He who pays the piper calls the tune.” Here’s the definition of that saying from the Cambridge Dictionaries on line: “said to emphasize that the person who is paying someone to do something can decide how it should be done”

There is no doubt the banks can afford to pay the piper – and how crazy is it our elected representatives gave the banks that money from the public purse? They gave the banks so much money, it seems even Governments can no longer call up a good tune these days.

Of course, in the film (and the comics), Flash Gordon never gives in to the likes of Ming. He risks everything to save the world. I can’t help feeling our modern day equivalents, who endlessly profess to be fighting for the greater good (especially running up to elections), have gone completely off track – and they only ever seem to save the inhabitants of La La land – which is a very small island somewhere between the Cayman Islands and Monte Carlo. Don’t get me wrong – I’m all for capitalism – who doesn’t want to be rich? I lived in a Communist Country for two years and it was like – well actually it was similar to what we have in Britain now – some very wealthy and very arrogant people suppressing the rights of ordinary people. We have the same kind of lunacy now masquerading as democracy. If it was just happening in a cartoon or a film, I would maybe call it deliciously ridiculous. In real life, it’s not the least bit entertaining and it’s very disturbing. And not least because the authorities we all thought we could rely on (after all we vote for them), are the very people who are allowing this absurd situation to continue. Where will it end?

BTW, you may remember, at the end of the Flash Gordon film, a random hand reaches out and takes the ‘all powerful’ ring Ming wore. Clearly Ming wasn’t really dead and was just biding his time before having another go at world domination (there’s always one). I am reliably informed Ming the Merciless is currently residing in La La Land rent free, in exchange for doing a bit of consultancy work for the great and good.

Bank reform or tokenism? Rule No 1. “Don’t ever side with anybody against the family”.

I don’t particularly like August. It doesn’t mean holiday time for my family – it just means a month when Paul and I can make little progress towards ever having a holiday because everyone to do with the HBOS scam we’re determined to see exposed, is on holiday. Still, this year August has at least given me some quiet time to continue with my book, which is going well. I can even say I’m enjoying writing it now even although it is taking me back over some very dark times including 22 eviction hearings because, for HBOS/LBG, screwing my business wasn’t enough and they wanted my home as well.

I’ve put as much humour as possible into the book because, as in the ‘Wolf of Wall Street’ story, I can see that what people really enjoy knowing about, is the excesses and madness of the banking world. They want to be entertained and disgusted at the same time – which is maybe why the ‘Wolf of Wall Street’ is a rather one sided story or ‘romp’ that focused entirely on events in ‘La La Land’ but totally ignored the effects banking or bankers have had on the rest of the world. All the same, the film was entertaining and, let’s face it, some of us might give bankers a bit more latitude if they looked like Leonardo de Caprio. But it also made me worry and contrary to what I have previously considered possible, I’m beginning to think maybe bankers are indeed starting to achieve Mafia status? We can’t control what they do but we can make great films about them. Well, if that’s the way we’re going, let’s do it – I have just the script. Although casting could be a bit of an issue with our Britbank villains.

However, there is one overwhelmingly depressing thing that really pains me while I’m writing the book about my own experience with banks and bankers – over the last 7 years and despite bucket loads of rhetoric from Governments, regulators and the endless committees who have, apparently, investigated the causes of the ‘credit crunch’, nothing has changed. Nothing at all. And that’s bad.

I have this horrible gut feeling that, while everyone, including bankers, insist that what we all want is a better banking system devoid of excessive risk, dodgy derivatives and dubious standards, actually, what the banking world really want is to carry on with “business as usual.” In reality, what’s happening now is an even bigger whitewash than all those we’ve already had. While the headlines insist bankers are about to get their comeuppance and even the SFO are threatening to investigate bank malpractice, behind the scenes and very casually, the right people are being put into the right places to make sure the cracks in the walls get a new round of sticky plaster. The ‘revolving door’ is quietly turning again. But moving the chairs around on the Titanic, didn’t do any good after the last credit crunch and moving the same chairs again, won’t stop another crash. Yet again, we have senior bankers acting as regulators – it doesn’t work.

For example, looking back many people, including me, would say HBOS, in the years running up to the credit crunch, became an absolute basket case of a bank. With hindsight even PCoBS, the TSC and the Regulator, would have to agree. Point 137 (page 44) from the PCoBS report into HBOS (HBOS – An Accident Waiting To Happen. April 2013) concludes under the heading of “Conclusion – a manual for bad banking”:

The downfall of HBOS provides a cautionary tale. In many ways, the history of HBOS provides a manual of bad banking which should be read alongside accounts of previous bank failures for the future leaders of banks, and their future regulators, who think they know better or that next time it will be different. We will ourselves seek to draw further lessons from the case of HBOS as we frame recommendations for the future in our final Report. http://www.publications.parliament.uk/pa/jt201213/jtselect/jtpcbs/144/144.pdf

You can take your pick of damning extracts from the FSA Bank of Scotland Public Censure Report (March 2012) but I think point 4.14 explains a lot about the seemingly star struck Exec’s of BoS and their ‘risky’ management:

In relation to large leveraged transactions, these deals involved lending over £75 million or a substantial equity investment which meant they had to be sanctioned by the Executive Credit Committee. There was a significant increase in the volume and complexity of deals that this committee approved during 2006 and 2007. There were 199 approvals of lending in excess of £75 million in 2006 (which represented total

lending of £56 billion), which increased to 361 such approvals in 2007 (which represented total lending of £96.2 billion). There were 56 approvals of lending over £250 million in 2006 (which represented total lending of £36.2 billion), which increased to 110 such approvals in 2007 (which represented total lending of £64 billion. The size of these transactions meant that any default would have a high impact on the book http://www.fsa.gov.uk/static/pubs/final/bankofscotlandplc.pdf

I’m interested in that extract because it confirms how the excessive loans to companies like Corporate Jet Services Ltd http://www.independent.co.uk/news/uk/politics/exclusive-the-cameron-crony-the-private-jet-company-and-a-crash-landing-that-cost-taxpayers-100m-9350090.html had to have been authorised by very senior people in the Bank and not, as LBG would have us believe, by a regional bank manager. But in truth, it wasn’t just BoS that was running amok – it was the whole of HBOS. But the FSA didn’t censor HBOS and maybe because the CEO of HBOS held a senior position in the FSA ?

I remember having a conversation with Bill Sillett (the named respondent for any queries about the Censure Report) who visited Paul and I in April 2012. I asked him back then why the Report only covered the period from 2006 to 2008 when I know for a fact HBOS was acting like a fruit loop from at least 2002. Here’s his reply, taken from my notes of the meeting 11th April 2012:

BS spoke briefly about the time scales of the FSA report and why they chose the period 2006 to 2008. He said Crosby was effectively out of the bank in that period. He said they chose that narrow remit because going back further could have involved another year of work.

I think “Crosby was effectively out of the Bank in that period” is highly significant. Obviously, had the report highlighted poor management of BoS when Crosby was the CEO of HBOS (parent of BoS), it would have caused a few red faces for the FSA. But what I still find amazing is – Mr Crosby may have come out of the Bank in 2006 but, from November 2007, he went from being a Director of the FSA to Deputy Chairman – and that was in the same period when HBOS was already under heavy scrutiny by the Bank of England. And even when the proverbial hit the fan in October 2008 and HBOS got the secret £25.4BN, apparently no one in the Tripartite Authority felt it was inappropriate for Sir James, as he was then, to continue on as the Deputy Chair of the Authority most responsible for regulating banks!

I make the point in my book:

Aside from the fact the people advising the Bank of England on how to cope with various banks losing hundreds of billions of pounds were predominantly bankers (from commercial banks), I’m very confused by the fact Gordon’s chum, Sir James Crosby (now plain old Mr Crosby), the former CEO of HBOS until mid 2006, managed to retain his position of Deputy Chairman of the FSA right through the credit crunch, the bailouts and beyond? Did Gordon Brown realise the FSA were supposed to monitor the Banks so that such disasters couldn’t happen? Had he even heard of the FSA I wonder? (NEXT PASSAGE REDACTED)……..

…..So why did JC keep his position with the regulator? Possibly it was so his friends in high places, like Gordon Brown and Alistair Darling, who appointed him to oversee Government projects, wouldn’t get egg on their faces. In 2006 Gordon appointed JC to lead a ‘Public, Private Forum’ on Identity theft and in April 2008 Alistair Darling appointed him to advise the Government on how to “improve the functioning of the mortgage markets.” And then, of course, there was his knighthood in July 2006 for services to the financial industry.

Oh well, water under the bridge now and Sir James did eventually resign from the FSA in February 2009 when the allegations made by Paul Moore in 2004, could no longer be ignored. Although according to both the FSA and James Crosby, his departure was nothing to do with Paul Moore. Here’s a statement from La La land, as reported by the BBC 11th February 2009:

Sir James said in his statement that HBOS had “extensively investigated” Mr Moore’s allegations, concluding that they “had no merit”. Mr Moore was the former head of risk at HBOS.

“I nonetheless feel that the right course of action for the FSA is for me to resign from the FSA board, which I do with immediate effect,” Sir James added.

The FSA said: “[The] specific allegations made by Paul Moore in December 2004 regarding the regulatory risk function at HBOS were fully investigated by KPMG and the FSA, which concluded that the changes made by HBOS were appropriate.”

“It should also be noted that the FSA’s concerns about HBOS’ risk management framework considerably pre-dated the allegations by Mr Moore,” the FSA said in a statement.

Excuse me? The FSA’s concerns about HBOS pre-dated Paul Moore’s allegations and – what did they do about it? They made the CEO of HBOS a Director of the FSA in January 2004 and then promoted him to Deputy Chair. Confused – you should be.

Here’s the point – as at today’s date, the Chairman of the FCA, which took over from the FSA, is now John Griffith-Jones, who held the position of Chairman of KPMG at the time Mr Moore made his allegations and who must have sanctioned the report refuting those allegations. And, because, some would say that in the corporate world at least, “incest is best”, KPMG were also the auditors of HBOS at the time they prepared the report. I share the concerns of Ian Fraser – none of us should be reassured when the financial industry is so keen to ‘Keep it in the family.’ In June 2012, Ian wrote:

I was surprised and exasperated to learn last week that chancellor George Osborne has rubber-stamped the appointment of John Griffith-Jones, the senior partner of KPMG, as chairman-designate of the Financial Conduct Authority, one of the two financial regulators that will take over from the soon-to-be-disbanded FSA. As the news of this “revolving door”,“poacher-turned-gamekeeper” appointment sank in, my disappointment bordered on outrage.

http://www.ianfraser.org/financial-regulation-with-griffith-jones-appointment-britain-keeps-it-in-the-family/

I was equally outraged Ian – and I begin to wonder what kind of ‘family’ the big banks and their auditors belong to? The Corleone family?

Meanwhile, over at the FRC, Sir Win Bischoff, former Chairman of Lloyds Banking Group (the parent of HBOS), has taken the post of Chairman while simultaneously becoming the Chair of a division of JP Morgan. You could not make it up!

I put up some details the other day about the history of the great and good on the Board of the PRA. https://spandaviablog.wordpress.com/2014/08/12/sir-win-bischoff-chairman-of-the-frc-and-also-a-chairman-of-jp-morgan-the-revolving-door-to-la-la-land-is-spinning-off-its-hinges/

Question: in the same way I sincerely doubt Sir James Crosby (as he was) was ever seriously going to let the FSA rumble the many and varied dodgy scenarios going on in HBOS while he was Deputy Chair, does anyone really believe John Griffith-Jones or Sir Win Bischoff are the right people to head up our regulators? Is Win Bischoff ever going to expose anything really bad that happened in Lloyds under his watch? Is Griffiths-Jones going to take action against KPMG or the HBOS audits under his watch. Is the forthcoming report into the failure of HBOS really going to highlight anything that would compromise those members of the ‘family’ who are still active?

Are we really on the road to reform in our banking sector – or have the powers that be, just made moved the chairs on the Titanic yet again and put the same established and reliable old foxes in place to guard the chicken coups? In my opinion, all this talk of reform is just tokenism.

I am fully aware the PRA are in the process of preparing the report on the failure of HBOS. I am also aware – as is Paul Moore – they fully intend to exclude issues that were fundamental to the Banks’ failure. Apparently, some of the really catastrophic or even criminal conduct in HBOS, is not considered relevant and consequently, is not part of the PRA remit. Yet again, they are not going against ‘the family.’

Interesting day – Ian Fraser, Tom Harper, Richard Brooks all aware of FRC conduct.

Interesting day of research (always for the book) and many thanks to Ian Fraser, Tom Harper and Richard Brooks, for pointing me in some interesting directions, especially with reference to my recent blogs.

I started my new blog site with some details about the HBOS rights issue and the Lloyds/HBOS Merger, which, after reading the BoE report on the ELA given to HBOS and RBS in 2008 does, regrettably, seem to have been a rather unfortunate ‘con’ (I just can’t find a more PC word for it) on the shareholders of Lloyds and HBOS and also on the tax payer. I can say that, in the circumstances, I fully appreciate the Tripartite Authorities were definitely ‘over a barrel’ at the time but, all the same, the losers, as always, were the little people. All of us little people who now live with such austere conditions, that hundreds of thousands of people in Britain now rely on food banks:

A food bank charity says it has handed out 913,000 food parcels in the last year, up from 347,000 the year before. The Trussell Trust said a third were given to repeat visitors but that there was a “shocking” 51% rise in clients to established food banks. It said benefit payment delays were the main cause. In a letter to ministers, more than 500 clergy say the increase is “terrible”. The government said there was no evidence of a link between welfare reforms and the use of food banks. http://www.bbc.co.uk/news/business-27032642

Paul has been out all day helping someone with a long running case against HBOS. When he came home, he asked if there were any interesting e-mail or tweets. I said Tom Harper tweeted me an article by Mark Kleinman about: The Chancellor has ruled out a sale of Lloyds shares to the public ahead of the next general election, Sky News can reveal.

I said to Paul (and I said on twitter) I didn’t think this was wise. If I was the Chancellor, I would off load those shares asap. As always, Paul pointed out the folly of my logic. I have just posted a document suggesting the lack of transparency over the HBOS/RBS ELA and the HBOS-Lloyds issue was, potentially, out of order and maybe even fraudulent. Imagine – the Government sell the shares in Lloyds now and then, down the road (and before the election) a scandal – any scandal – breaks about criminal conduct by the senior management of Lloyds Bank or its sick puppy HBOS, that causes the share price of Lloyds Banking Group to drop just after thousands of people have bought shares? Add that to what has already happened. Catastrophe. It’s not impossible in my view.

I think Tom, like Paul, has considered this possibility but me? Well I was so deeply immersed in other research, I didn’t add 1 + 1 up. So well done Mr Osborne, you clearly are wiser than I thought.

Actually, what I was concentrating on was the FRC. Following on from my blog yesterday about the appointment, as Chairman, of Sir Win Bischoff, first to the FRC and then to JP Morgan Europe, ME and Asia, I received two interesting articles from Ian Fraser on the topic. One article was about the extraordinary way in which the FRC had dropped its investigation into BAE Systems (another favourite of mine – and Tom’s http://www.independent.co.uk/news/uk/politics/exclusive-the-cameron-crony-the-private-jet-company-and-a-crash-landing-that-cost-taxpayers-100m-9350090.html ) and the article also said:

The FRC has form when it comes to letting ‘Big Four’ accountancy firms — Deloitte, Ernst & Young, KPMG and PWC — off the hook. On April 11th, The Times’s Alex Spence revealed that the Financial Reporting Council had decided against probing ‘Big Four’ firms’ pre-crash audits of UK banks, simply because it wanted an easy life.

There was a lack of will,” one well-placed insider told The Times. “There was a general reluctance to get into it. It would just be too disruptive, too damaging.

The FRC has yet to make clear whether it is going to bother to launch a specific probe of KPMG’s role as auditor of the disastrous UK bank HBOS in 2001-08. It is apparently sitting on its hands while it waits to see the outcome of the FSA’s whitewash report into the Edinburgh-based bank’s failure. http://www.ianfraser.org/britain-is-fast-turning-into-a-banana-republic-wilfully-blind-to-corruption/

The other article ian alerted me to was one he wrote for The Sunday Times. I can’t read it all because I can’t afford to subscribe (thanks HBOS/LBG) but I trust Ian enough to know it is entirely relevant to my issues about Sir Win and the FRC:

Sir Steve Robson, one of seven RBS non-executive directors to be purged last month, is facing calls to resign as non- executive director of the Financial Reporting Council (FRC).

If Robson remains in his post, critics suggest the FRC could lose credibility. At RBS he was partly responsible for one of the largest bank collapses in UK history.

“The whole civil service ethos is that Caesar’s wife is above reproach,” said Robert Bertram, a corporate lawyer with experience as a non-executive director of listed companies, who served as a member of the Competition Commission.

“Whether or not Robson, a very distinguished public servant, has made his own position untenable, it seems the FRC itself has made it untenable …..http://www.thesundaytimes.co.uk/sto/business/article156107.ece

All serious food for thought from my point of view and the icing on the cake was an article Richard Brooks sent me from Private Eye:

(C) Private Eye

(C) Private Eye

So, an interesting and worrying day. I keep thinking I have discovered important and interesting information. But of course the real ‘investigative journalists’ – and ian, Tom and Richard are three of the best – already know a lot of what I’ve discovered, they’ve published it and, the powers that be have ignored it – so I’m in good company.

Last bit of interesting news I got from my research today, was from the website of 33 Chancery Lane, the Chambers of  John Black QC who is representing the Crown in the Operation Hornet case. Interestingly, while the CPS have not updated their version of events on their website, which refers to 8 defendants and losses of £35M in the Reading fraud, John Black QC has a more updated version:

Operation Hornet (2013-2014) – advising Attorney General, CPS and Thames Valley Police on prosecution of bankers at leading financial institution and other businessmen for corruption, money laundering and fraudulent trading. The forthcoming trials concern an alleged £245m fraud.

As I said, an interesting day.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lloyds/HBOS shareholders – according to the Treasury, the merger was all down to you.

Following on from the last (and first) blog on my new site where I quoted the Bank of England’s explanation of the ELA support for HBOS and RBS, I would like to clarify the Treasury’s position – or at least the version I received. As I mentioned, the first payment of the ELA to HBOS was given on 1st October 2008 and peaked at £25.4BN on 13th November 2008. Like the rest of the population, I had no idea about this huge sum but I did know the situation with HBOS was extremely precarious by Oct 2008 and, in my view, some of the money it had lost was as a result of dubious or even criminal conduct. So, on the 6th October 2008, I wrote to Gordon Brown giving him chapter and verse about what Paul and I had uncovered and explaining why we felt the merger would potentially be a disaster.

On 20th October 2008 I received a reply from No 10 thanking me for my letter and saying: “Mr Brown felt pleased that you were able to write to him about your concerns, a careful note has been made of your comments. He has asked me to send a copy of your letter to HM Treasury as he feels it is important that they are made aware of your concerns and can send you any comments they may have. Yours Sincerely.”

The comments they had were, in the circumstances, less than transparent and not once did they mention the odd £25.4BN. But they did clarify the merger between HBOS and Lloyds TSB was, according to HM Treasury, entirely down to the shareholders of both Banks and therefore, nothing to do with Lloyds, HBOS nor the Government. So don’t go bleating or suing the Bank – it was all down to you guys! Here’s an extract from my book explaining the Treasury’s point of view:

“Back to Gordon and I’m guessing, also with hindsight, Mr Brown wishes he had just ignored my letter instead of asking his office to reply. In total I received three letters from No 10 and three letters from the Treasury, who apparently didn’t have any concerns about HBOS or the merger. In fact they didn’t even seem to realise it had happened and the first reply we got from the Treasury, dated February 2009, made reference to the ‘proposed merger’ expected to take place in January 2009:

Thank you for your recent letter regarding the merger between Lloyds TSB and Halifax Bank of Scotland (HBOS). We have received a large volume of enquiries in recent days and so are not able to provide a specific response to you at this time. I hope that the information below is helpful and answers the questions you raised.

The proposed merger between Lloyds TSB and HBOS was announced on 18th September. Both Lloyds TSB and HBOS shareholders have voted in favour, and it is expected to take effect during January 2009 subject to the approval of the Scottish courts. HBOS shareholders will receive 0.605 Lloyds TSB shares for every HBOS share. The decision on the merger between Lloyds TSB and HBOS was and remains a matter for shareholders.”

All things considered, it probably would have been better if the shareholders had reached their decisions retrospectively! Not least because responsibility for the merger seems to have been laid exclusively with them. On 16th March 2009, we received a second letter from the Treasury saying:

Thank you for your letter of 6th October 2008 to Mr Gordon Brown on the merger between Lloyds TSB and Halifax Bank of Scotland (HBOS). I am replying as Minister responsible for this policy area. I am sorry for the delay in responding to you.

Recapitalisation

On Monday 13th October, in implementing the measures announced on 8th October, the Chancellor announced that the Government would be underwriting capital investments for Royal Bank of Scotland and, on successful merger, for HBOS and Lloyds TSB.

A proposed merger between Lloyds TSB and HBOS was announced on 18th September, and became effective on 16 January 2009 following shareholder and other approvals. The decision on the merger was a matter for the shareholders of both institutions. …”

On 15th May 09 we received a third letter from the Treasury which was basically a copy paste of the second letter – which was more or less a copy paste of the first letter but with corrected time scales. All three letters contained details of the HBOS recapitalisation – how much was being raised and from where. I’m not sure their explanations really clarified exactly how much money the Government was giving HBOS or Lloyds but, crucially, the letters failed to mention the small matter of the £25.4BN given to HBOS:

On 19th November, Lloyds TSB shareholders voted in favour of its merger with HBOS and approved plans to raise £5.5 billion by issuing £4.5 billion of new ordinary shares and £1 billion of special preference shares. In relation to the newly issued ordinary shares, the shares were made available for acquisition by existing Lloyds TSB shareholders. To the extent that such shares were not acquired by existing shareholders (or other third parties) the Treasury has done so. The Treasury has also subscribed for £1 billion of preference shares

On 12 December 2008, HBOS shareholders voted in favour of the merger. In the case of HBOS, £8.5billion of newly issued ordinary shares were made available for acquisition by existing HBOS shareholders. Again, to the extent that such shares were not acquired by existing shareholders (or other third parties) the Treasury has done so. The Treasury has also subscribed to £3billion of newly issued preference shares in the capital of HBOS.

A range of conditions are attached to the recapitalisation package. Lloyds TSB and HBOS have agreed that over the next three years they will maintain the availability and active marketing of competitively priced lending to homeowners and to small businesses at 2007 levels. They will also provide support for schemes to help people struggling with mortgage payments to stay in their homes and the expansion of financial capability initiatives. The remuneration of senior executives will follow strict guidelines – both for 2008 (when the Government expects no cash bonuses to be paid to board members) and for remuneration policy going forward (where incentives schemes will be reviewed and linked to long-term value creation, taking account of risk, and restricting the potential for “rewards for failure”). The Government will also be consulted on the appointment of new independent non-executive directors…” [End of book excerpt]

Make what you will of that but what I make of it is: the shareholders of HBOS and Lloyds are responsible for the merger; the new Bank will, on instruction from the Government, be enormously supportive to home owners and SMEs; bonuses will not be paid to Board members and; I’m a China man. We didn’t know what we were handing to HBOS (or RBS) back then and, as it turns out, the terms and conditions of the bailouts were a lot less realistic or memorable than the fairy tales of Hans Christian Anderson.

Don’t get me wrong – I’m not posting this because I’m a Conservative supporter. I don’t think Mr Cameron has been any more supportive to the taxpayer in the case of Public v Banks than Gordon Brown. At the end of the day “it’s all about the money” and let’s face it we, the taxpayers, don’t have any, we gave it all to the banks. So whoever we vote for we shouldn’t really be surprised when, whatever party wins the election next year, politicians continue to vote for the banks.

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