Any other business: The FSA and I agree: the HBOS men really were the worst of the lot

I wrote here in November that ‘history may judge the HBOS men to have been the worst of the lot’, and the FSA, in its grindingly slow, bureacratic way, is finally about to catch up with them. The regulator has at last issued a ‘Final Notice’ to the Bank of Scotland arm of HBOS to the effect that its Corporate Banking Division, under the now comfortably retired Peter Cummings, ‘failed to take reasonable care to ensure that [it] adequately and prudently managed high value transactions which showed signs of stress’. In fact — I paraphrase — it seems to have taken no care at all, tearing up the banking textbooks as it piled on lending to the commercial property sector and took equity stakes in many of the deals as well. Rather than spreading risk prudently, the bank concentrated it in huge exposures to the raciest of its real estate customers: in March 2008, the top 30 borrowers were happy recipients of £34 billion of Bank of Scotland depositors’ cash between them.

What’s so remarkable about these revelations, even couched as they are in dessicated FSA lawyer-language that mentions no individuals by name, is that they are not about adventures in new-fangled securities or bold acquisitions that went wrong, as was the case with RBS, but in the bricks-and-mortar lending that every traditional British banker is supposed to understand to his fingertips and every bank board ought to be capable of calling a halt to when property markets start to overheat. Cummings, who joined Bank of Scotland as a teenage clerk in the 1970s, had worked through several previous boom-and-busts, yet he inculcated what the FSA calls a ‘culture of optimism’, underpinned by pressure for profit performance, that defied all past experience. ‘Some people look as though they are losing their nerve,’ he declared early in 2008.