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Hubris: How HBOS Wrecked the Best Bank in Britain Paperback – 1 Aug 2013
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'We are indebted to Ray Perman for giving us a powerful lesson on what happens when you usurp the wisdom of a banking culture acquired over centuries for the pursuit of market share and profit at all and any cost' --The Scotsman
'...as a document of the long and short-term causes of one of British banking's lowest moments, Perman's book more than delivers. Its balanced treatment of the major players involved should be required reading for anyone wondering where to position the likes of Hornby in the credit crunch Hall of Shame,' --Breaking Views
'[An] admirably lucid account' --Independent on Sunday
About the Author
Ray Perman was a journalist in London and Edinburgh for thirty years. He was a co-founder of the business magazine Insider Publications and was Chief Executive of Scottish Financial Enterprise from 1999 to 2003. In 2011 he was appointed Chairman of The James Hutton Institute, the first institute of its type in Europe dedicated to making new contributions to the understanding of key global issues such as food, energy and environmental security.
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Immediately the 'merger' was consumated the direction and running of HBOS was dominated by the men from Yorkshire, who were compared to the religious fanatics of Afganistan - 'The Haliban', and led by Andy Hornby, a marketing whizz-kid from the supermarket chain Asda, who swamped the combined company with a 'tsunami' of a vastly increased portfolio of riskier mortgages, big ticket business loans , and poorly adjudged commercial property lending, financed in the large part by securitizations, and short term borrowings. Even at the start of 2008 when the property market was imploding worldwide, HBOS buried it's head in tha sand and publicly announced "Some people look as though they are losing their nerve - beginning to panic even - in today's testing property environment. Not us". It was soon seen as a highly reckless and irresponsible delusory statement but was indicative of the almost total lack of understanding of the gravity of the situation the bank had manoeuvred itself into. Despite falling profits and horrendously massive bad debts looming ahead pay and bonuses for the top executives escalated upwards.
Forced to improve it's capital base in accordance with Basel II regulatory requirements in July 2008 HBOS launched a rights issue which in a move that the underwriters would live to regret, was the biggest flop since the stock market crash of 1987 with less than 9% taken up, leaving the underwriters to take over a 90% paper loss. The end of HBOS came soon after when a hasty, devoid of proper due diligence procedures, take-over by Lloyds was forced through by the Government and for which Lloyds is still counting the costs and losses. Lloyds failed to spot the level of toxicity in HBOS's book and for a time it looked as if they might have blown up two banks instead of one.
HBOS's demise was caused by a fundamental breakdown in basic commonsense. If money is lent to people with no jobs, no provable income and no assets combined with lending money to buy an asset which is worth the same or even less than the amount of the loan, then those responsible must be pretty much close to delusional or stupid or both. You simply don't need to be an economic rocket scientist or mathmatical financial risk management specialist to know that this is not the way to build up a book of debt. This together with funding the whole operation with largely short term money bearing no relationship to the average length of the loan book, and an almost total lack of proper internal governance, was a lethal highly toxic mix guaranteed to bring down the house of cards.
Within 7 years of the merger the Bank of Scotland was destroyed, by the focussing on only growth with common sense and everything else subordinated, with the result of the losing sight of the incredibly simple rules of banking, which had not changed since it's inception in 1695.
A highly recommended, difficult to put down read.
Perman has avoided subjective judgement and allowed the facts to tell their own story, which does not make pretty reading for those involved, not least as one suspects that Perman, as an outsider, could not possibly have been given access to 'some of the stuff that must have gone on'. Should be recommended reading for anyone in the banking industry.
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