Tag Archives: Rights Issue

Maxwellisation? Enough already.

So first we had the so called ‘credit crunch’. Bankers all over the world, all paid telephone number fees, ran banks into the ground and brought various economies to their knees. Then we had the bailouts – Governments all over the world and not least the UK, decided the best way out of the ‘credit crunch’ was to give the banks billions of pounds, dollars, Euro’s, you name it, they gave it, to the banks to replace what they lost in their bizarre spending frenzy. And that resulted in mass austerity across the UK, Europe and the US – probably elsewhere as well but I’m not an expert.

Then came the clean up – or the apparent clean up. What happened to cause the credit crunch and how regulators and Governments could ensure we wouldn’t get a repeat performance anywhere in the near future? And how was this clean up done? Well that’s the latest page in the most bizarre story of the 21st century history book – we clean up by burying as much truth as possible and where we can’t – because the public are demanding explanations – we introduce Maxwellisation.

I’ve read various explanations of Maxwellisation and they make as much or even less sense to me as the fateful and long drawn out love affair on the Maxwell House advert. I don’t know what happened in the agonising and tragic story of a love affair that was almost but never quite fulfilled. I certainly don’t know what it had to do with coffee! And similarly I don’t understand how the exploits of Robert Maxwell – who apparently ripped off not just his own company but also pension funds – could be introduced as a legitimate way to stop the rightful exposure of wrong doing?

I may be mad but surely we’ve got it the wrong way around? If our regulators and their third party experts do in depth investigations into situations and come up with explanations, in the form of reports, which finally expose the truth, how can it be right that the people named and blamed in those explanations, can challenge the reports before they are released? Are we saying our ‘experts’ and our regulators may have got things completely wrong? Is it in the nature of ‘experts’ who spend years doing these reports at vast expense to the public, to get it completely wrong? Is that an equation our regulators start with? I don’t think so.

This is like an appeal in the justice system happening before the trial. So the crooks, let’s say for the sake of argument bank robbers, receive the prosecution case and, before a Judge or a jury gets to hear it, half of it is removed because the accused don’t like it or they don’t agree with it. Better still, the accused’s lawyers may be able to come up with legal technicalities as to why the allegations can’t even be made in the first place. So what the Judge or the jury finally get to hear is an edited version of events as permitted by the defendants. Wow, I can see that going down very well with the criminal fraternity. Not a luxury extended to Tom Hayes but surely one the magic circle lawyers will be insisting on for more senior bank management in the future.

As someone who has spent years of my life investigating bank fraud albeit from the perspective of someone who is actually in the rock & roll business, the one thing I know is ‘the written word doesn’t lie.’ Even if people have been deliberately writing lies, the culmination of a proper investigation will just highlight those lies and you will be grateful someone bothered to put the lies in writing as an example of fraud or corruption or, at the very least misconduct or negligence. For example – how could any bank relying on untold amounts of emergency funding from the Bank of England and then needing several billion pounds from the public purse, possibly pretend to investors that it’s a safe bet to plough money into a Rights Issue? But read this absolute twaddle from Andy Hornby back in 2008 http://www.thisismoney.co.uk/money/news/article-1631967/HBOS-chief-Hornby-defends-rights-issue.html and you’ll see that’s exactly what some of them did! Now what part of Maxwellisation can alter those facts?

Better still, let’s remind ourselves of exactly how the great and the good from HBOS and RBS were still trying to pull the wool over everyone’s eyes even after they’d been so instrumental in bringing the Country to the edge of the abyss: http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/uc144_vii/uc14402.htm

That’s a cracking read by the way.

I don’t know how anyone would do a comprehensive investigation into why we went into the Iraq war although logic would say the absence of the weapons of mass destruction, which were the reason for so many tragic deaths, raises some terrifying questions. But in the case or RBS or HBOS, it’s just not that complicated. If two music publishers can expose a massive fraud in HBOS and if certain members of SME Alliance are supplying the Times with evidence of massive issues in RBS, how can the FCA and their ‘experts’ be so endlessly challenged on their findings? The whole thing smacks of the dreaded ‘D’ word – deals. Deals to hide what really happened in our banking sector. Deals to protect the so called great and the good. Deals which, rather than give the public some sort of closure on what happened and show who was responsible, will just ensure the same or worse happens in the future.

There is no point in Maxwellisation – it’s apparently not a legal requirement and all it is doing is staving off the inevitable. If either of these banking reports ends up as another whitewash, there’s a whole army of people out there who will challenge them. Journalists, whistle blowers, small organisations like SME Alliance, Move Your Money and Bully Banks – not to mention various forthcoming trials (criminal & civil) which will shed more light on the reality. Clearly, if the FCA keep delaying their reports or if they allow the truth to be watered down, others will happily set the record straight.

I would say, from a public perception, Maxwellisation should really be called Orwellisation. We are continually walking backwards to Orwell’s views of 1984. The important difference is, there was no social media in Orwell’s world. No twitter or Facebook or Linked In. And unless the powers that be can wipe out the world wide web, Maxwellisation is actually and ultimately just like the coffee advert – long, drawn out and a fantasy. We’ve had enough fantasy when it comes to real people’s lives. Just like the cream always goes to the top of the coffee,  the truth, as Hillsborough has shown us, also has an amazing way of coming out on top and Maxwellisation won’t change it.

Surely the public have been on the receiving end of too much abuse from bankers without this latest trickery? Let’s just get on with it please, let’s publish these reports and stop all this nonsense. As a very good friend of mine would say – enough already!


Bank of England Minutes v The Bank of England Plenderlieth Report

Just a very quick blog – mostly a copy paste job because I am very confused by the Bank of England Minutes 07-09 which were published today. I have to admit I have not read the entire document but, as of September 2007 I am surprised the minutes did not contain masses of detail and concern about HBOS (Fox) or Lloyds (Lark).

Here’s why:

In October 2012 the Bank of England presented the Plenderleith Report to the Court. I went through this report with a fine tooth comb because of some work I was doing with Paul Moore. And I came to the conclusion that, even although it did little good to the economy, the Bank of England, albeit frustrated by a lack of data from the FSA, was closely monitoring HBOS by September 2007.

I have very quickly I have taken out the salient points which highlight this position:

Executive Summary
In relation to the specific vulnerabilities of the two banks to which the Bank eventually
extended ELA, the Bank was able to identify in advance, and to monitor, the increasing
liquidity strains thatHBOS was experiencing during 2008. There was significantly less close
focus on the liquidity position of RBS, but its funding problems did not in fact crystallise untila late stage, after the failure of Lehman Brothers.
In relation to both banks, however,and indeed to the process of monitoring the risks to
individual banks in general, the Bank’s ability to identify impending threats in concrete terms was made more difficult by an underlap that had developed in the regulatory structure.Initially at any rate, the Bank was dependant on the FSA for liquidity data on individual banks; but the data available to the FSA were not forward looking and
lacked the granular detail the Bank required for an operational response like ELA. Equally, while the Bank could identify the threat that vulnerabilities in individual banks posed to wider systemic stability, the FSA was less closely focused on the deteriorating systemic picture. Under the pressure of events, this underlap was progressively bridged during the course of 2008, but it hampered how far in advance the Bank could get a clear view of the strains building up on individual banks.
Since the funding difficulties being experienced by HBOS were identified at an early stage,
well in advance of its need for ELA crystallising in October 2008, the Review suggests that,
where there is advance awareness of such strains, the Bank might consider acting pre
emptively to provide bilateral liquidity support before the need becomes immediate.


And here is the main chapter on HBOS:

How aware was the Bank of the particular vulnerabilities of the two banks to which

it eventually extended ELA?
The case of HBOS
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).
Work undertaken within the Bank in November 2007 identified a number of key risks that
meant that HBOS was likely to be particularly vulnerable to a change in market sentiment.
These included: the risk of reputational contagion from association with other mortgage
banks, given that HBOS was the UK’s largest mortgage bank; HBOS’s reliance on wholesale
funding at around 50% oftotal funding, and within that its reliance on securitisation as a
source of funding; and its commercial property exposures. At that stage, HBOS was
nonetheless viewed as being somewhat less vulnerable than Alliance & Leicester and
Bradford & Bingley because of its more diversified business model.
The increased focus on individual banks and improved data flow from the FSA was not just
confined to HBOS, Alliance & Leicester and Bradford & Bingley. From September 2007, the
Bank began to receive liquidity information on other major UK banks from the FSA at least
weekly. The individual banks’ data lacked in several respects the detail the Bank would have
liked, but it was used by the Bank to try to determine which banks would be most affected by
a crystallisation of the possible key risks to the UK banking sector. Iterations of this work
were shared with the Tripartite Standing Committee in October and November 2007.
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.
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
utilisethe SLS launched in April, the Bank continued through the summer closely to monitor HBOS’s liquidity strains on a daily basis as HBOS endeavouredto 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.
The full report is here


This report suggests the BoE and the Tripartauthority were fully or at least partially prepared for the Crisis. I could be wrong but the reports on the minutes seem to infer this wasn’t the case.


Christmas 2014 round up of financial crimes with no one going to jail.

My husband made a very valid point a few days ago and I have been thinking about it every day since. He pointed out that when we (Paul and I) started looking at misconduct in the financial industry and specifically HBOS, we couldn’t get anyone to take our allegations seriously because no one believed us. That was in 2007 and it took until late 2009 to actually get the FSA involved and 2010 before the police got involved – even although we made allegations to the police in November 2007. We’re not a lot further forward now in December 2014 because the criminal trials for that alleged crime won’t start until September 2015 – and even then, I’m not holding my breath.

It was disappointing no one believed us in 2007 but not surprising because the idea banks, or rather bankers, might be crooks, was out of the question back then. Bankers were seen as respectable professionals and your bank manager was so trustworthy, he or she could even sign your passport. The same doesn’t apply now and no one bats an eyelid at the concept of crooked bankers – in fact bad conduct is what we expect from them, to the point even the good guys (yes I do acknowledge there are still many good bankers our there) are tarred with the same brush.

Paul’s point was simple: It was tough back in 2007 because no one believed us, so nothing was done. Now, everyone knows the financial sector is rife with fraud and corruption and still nothing has been done! Not just in the case we reported – right across the board and in thousands of cases. Even more alarming is the fact that, in many instances I know of, where people have tried to report financial crime, the police will not investigate it! In all probability this is because they don’t have the budgets to investigate such a glut of criminality in austerity Britain – but that is of no help to the victims who are frequently told – “it’s a civil matter.” No it’s not – crime is never a ‘civil matter’ and even victims of PPI have a right to report it as a crime, get a crime number and, if applicable, also have it investigated. Of course that might damage crime statistics.

But no. Most financial crime is just swept under the carpet as “mis-selling” or “restructuring” and resolved by bank shareholders’ paying huge fines to the FCA. Think about that for a moment – we all believe bankers have committed criminal acts but nothing has happened. It just beggars belief and is really as scary as hell because, what it actually means is, we can no longer rely on the Law and really do have a two tier criminal justice system. There isn’t another, plausible explanation.

This terrifying thought was brought home again when I read the latest excellent Matt Taibbi article in Rolling Stone magazine: http://www.rollingstone.com/politics/news/the-police-in-america-are-becoming-illegitimate-20141205 where he is talking about the disparities in the US legal system and it reminded me that I still haven’t had a reply to my letter to Mr Cameron of December 2012 when I asked for some clarification about the apparent immunity bankers have from prosecution. In that letter, which I wrote after reading some worrying comments from Andrew Bailey (now head of the PRA), I said:

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.

I am writing to ask you, as Prime Minister, for some clarification.

Does your government endorse the notion that banks and bankers should be given a licence to commit criminal acts without any fear of prosecution? Is this now official government policy? Are the British public now being asked to accept that, despite incontrovertible evidence of multiple criminal acts by banks, including money-laundering, drug-money-laundering, Libor rigging, multiple frauds and assorted Ponzi schemes, bankers are considered to be immune from prosecution? And if so, can I ask on what grounds your government, or indeed the government of any democratic country, can justify such a policy?” Full letter here: http://www.ianfraser.org/dear-mr-cameron-if-bankers-are-above-the-law-we-need-an-urgent-explanation/

I didn’t write the letter to be confrontational – although I must admit I am incredibly disappointed the PM’s strong words in the run up to the last election about what should happen to criminal bankers, turned out to be hot air and no more. This is what he said to Jeff Randall in January 2009:

“I think that we need to look at the behaviour of banks and bankers and, where people have behaved inappropriately, that needs to be identified and if anyone has behaved criminally, in my view, there is a role for the criminal law and I don’t understand why is this country the regulatory authorities seem to be doing so little to investigate it, whereas in America they’re doing quite a lot.”

I wrote the letter because I genuinely wanted some reassurance from the Prime Minister that bankers are not above the law; we don’t have a two tier legal system and; something would be done to redress this inequitable situation.

So what has happened to clarify or allay my concerns since December 2012? Well a few things have happened but not what I was expecting. For example:

  1. I’ve never had a reply.

  2. Several banks have been found guilty of money laundering and even money laundering for drug cartels. And the only penalty has been a huge tax on the bank’s shareholders who have paid massive fines for the conduct of bankers. But no one has gone to jail.

*given that banks (buildings or legal entities) don’t have any physical ability to pick up the phone and negotiate with drug cartels – such deals had to be done by bankers. So why have no bankers been held responsible?

  1. Many banks have been found guilty of making billions of pounds with the PPI scam. They’ve had to pay the money back in many cases but, I assure you, not all cases. So again, the shareholders have lost a fortune. But no one has gone to jail.

* I often wonder who invented PPI? Did senior bankers sit down and plan how best to get thousands of their customers to take out insurance policies which cost them a fortune but could never be used? Or did someone in a bank find a recipe for creating and implementing PPI in a fortune cookie?

  1. As a founder member of SME Alliance, I talk every day to people whose businesses have been totally destroyed with various, ridiculously (and I would suggest deliberately) complicated financial products under the collective name of swaps. I’m not a victim of a swap and I know little about them (I’m learning fast) but even their titles smack of more contempt for businesses e.g. vanilla swaps. Can you have chocolate or strawberry? Probably. The FCA have said many of these products should never have been sold to ‘unsophisticated’ clients and in some cases banks have had to give the money back. However, the years it has taken for this to happen and the devastation these products have caused, apparently do not necessitate banks having to pay out billions in compensation. The redress scheme the FCA has come up with has conveniently been limited to peanuts – and no one has gone to jail.

* A journalist was telling me the other day of a case where someone challenged the FCA decision multiple times and was eventually awarded £500k – but of course the bank interest and charges on his account over the time it took to challenge the bank’s conduct meant the victim got nothing and the bank paid themselves £500k. You couldn’t make it up.

  1. The now infamous business recovery units like RBS/GRG have been merrily acquiring, appropriating, stealing their clients’ assets left right and centre and sadly RBS have not been working in isolation. It has caused outrage – it’s been all over the news, MPs have held debates on the subject, Committees have interviewed senior bankers and regulators and even the ever cautious BBC have suggested some bankers are crooks. http://www.bbc.co.uk/programmes/b04t6jy1 But no one has gone to jail.

* As a victim of HBOS Reading (similar model) I have so much to say on this – but am having to keep quiet for now but not forever.

  1. And while the likes of GRG and HBOS Reading have caused many businesses to fail, a separate scandal has specifically targeted farms across the Country for over 20 years. Repeated allegations have been made against a man called Des Phillips and various of the 59 companies he has been or is a director of including UK Farm Finance, UKCC and UK Acorn Finance. And some of our major banks have been heavily implicated in these allegations as have other ‘professionals’. It’s a sickening story which has resulted in many family farms being repossessed and, sadly, farmers committing suicide. You can hear about it here: http://www.bbc.co.uk/programmes/b040hzz5 or read about here: http://www.publications.parliament.uk/pa/cm201415/cmhansrd/cm141111/halltext/141111h0001.htm No one has been prosecuted so no one has gone to jail.

  2. Bankers or traders have been found guilty of rigging LIBOR. Again, massive fines have been levied – another penalty on shareholders. However, in this instance it looks possible some bankers will go to jail and one banker has even pleaded guilty. But let’s not get too excited that justice might be done. Read this: http://www.theguardian.com/business/2014/oct/07/banker-pleads-guilty-libor-rigging-rate-fixing

As you can see the banker concerned could get up to 10 years in jail but we don’t know who he is or what bank he worked for and reporting on this case is heavily restricted. Presumably, after the other three people charged have had their trials, we might know more. But I wouldn’t bet money on it – especially if the banker in question worked for one of the State subsidised banks. But it’s a start.

I could make the list much longer but, to date and looking at the 6 instances above, money laundering, PPI, Swaps, asset theft including farms and LIBOR rigging, it’s certain 1 person in the UK will go to jail and 4 people might. And when you look at the trail of poverty, misery, desperation and devastation these crimes have caused, it is unbelievably disappointing – not to mention scandalous, that our regulators, justice system and worse still, our Government, have let this happen. In fact it is morally and ethically reprehensible.

Of course individual bankers do go to jail quite regularly – they’re usually quite low down in the pecking order and their offences (with a few noticeable exceptions) just about make it into their local newspapers. But the top dogs – the ones who make policy – the ones who instigate and oversee the kind of conduct which allowed all of the above to happen, seem to remain above the law. Which begs the question – why do we have laws?

Meanwhile, the Government have issued the following figures regarding crimes to businesses:


I haven’t read it in any great detail but I’m pretty sure it doesn’t mention the wholesale destruction of SMEs by banks. I sometimes think we should move the Houses of Parliament to Canary Wharf and have done with it before La La Land spreads across the whole of London.

Here in the real world we are in the run up to what will be another very austere festive season for many people in Britain – and I’m not just talking about people or SMEs who have been defrauded by banks. I’m talking about those families who’ve lost jobs and/or benefits and most of all, those people relying on food banks or who have lost their homes and now live on the street. A lot of people would say – me included – our major banks and therefore our most senior bankers, were very instrumental in causing our national austerity. And, post the so called Credit Crunch, those same banks (especially the part State owned ones) have done little to help the economy and much to damage it further. Unbelievably, the people at the top of those banks continue to be heavily rewarded.

For example, yesterday (13th December) I was reading an article about the top paid European Bank CEO’s. http://www.cityam.com/1415705309/which-ceos-european-bank-have-biggest-pay-checks-two-uk-banks-take-second-and-third-place

Hmmm – £7.4M. Even when you deduct 50% tax, that still leaves approximately £71k a week. I think you could have one hell of a Christmas with that remuneration package!

Mind you, every silver lining has its own cloud and I suddenly thought – I bet it’s really tough finding the perfect Christmas gift for these top bankers because, what do you buy for the man or woman who has everything? So maybe La La Land has its own problems at Christmas.

Shame you can’t gift wrap integrity – if we could give some of them that, the whole Country might feel more festive. Still, there’s always the good old standby gift – Monopoly. After all, banks have bought, sold, packaged and mortgaged every property on the board many, many times over – but, to date, they have been very adept at steering clear of the “Go to Jail” square. But then I’m guessing Al Capone thought he would never lose ‘games’ either.

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?

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.
















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.”


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