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on 31 May 2013
I found Hubris more riveting that a Dan Brown and much more believable. It is well written, carefully researched, just the right balance of facts and comments and paints a very colourful picture of the downfall of a Scottish institution. I used to think that I couldn't go wrong in owning banking shares - reading Hubris explains to me why I was mistaken. I look forward to a follow-up book when matters have progressed and those responsible for the bank's collapse have been dealt with under due processes.
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on 22 November 2012
In Hubris: How HBOS Wrecked The Best Bank in Britain, Ray Perman reveals that, in 2006, certain members of the HBOS board had serious concerns about the bank's behaviour in the UK mortgage market and that they failed to intervene. A plan to launch 125% loan-to-value residential mortgages in November 2006 was, Perman writes, greeted with 'mute astonishment' by some board members'. What he does not reveal was who was mute and why they bit their tongues. Given that their role is supposed to be to look after the interests of shareholders, surely these individuals ought to be named and shamed?

Maybe part of the problem was that, as Perman reveals on page 96 of the book, executive directors were allowed to appoint the non-executives - the exact opposite of what's meant to happen in a PLC.

Perman makes clear that, until some 25 years ago, the Bank of Scotland was actually trusted by its customers. When it adopted its 'A Friend for life' slogan in 1984, Perman claims, 'it was not greeted with cynicism. People believed it meant it, and more importantly, it did.' However by the 1990s the leadership of the Bank of Scotland and other UK banks had no qualms about sacrificing this trust on the altar of greed. Not only did they start prioritising sales over service (and, latterly, financial stability); they also started playing fast and loose with their own balance sheets in pursuit of targets that were often quixotic and ephemeral.

Perman recounts how things deteriorated further following Bank of Scotland's ill-considered merger with Halifax in September 2001. The merged bank, called HBOS, immediately started taking a 'cheap and cheerful', 'pile it high and sell it cheap' approach to financial products under the leadership of ex-actuary James Crosby and former Asda marketeer Andy Hornby.

As long as the sales growth continued, the bank's board didn't seem to care how it was achieved, or if they were burdening their customers and the wider economy with debt they could ill afford, or that the assumptions that underpinned their approach (house prices couldn't fall, derivatives had banished risk etc) were wholly fallacious. Nor, seemingly, did they mind that they were leading a 300-year-old institution to the brink of destruction, even firing senior risk managers such as Paul Moore who dared to warn them of the error of their ways (this is an episode that I don't think Perman examines fully enough).

Perman describes how a collective amnesia overcame the top people at HBOS, their minds dulled by reassuring claims from the Federal Reserve chairman Alan Greenspan that complex derivatives had banished volatility from financial markets and from Chancellor of the Exchequer Gordon Brown that he had banished "boom and bust".

Reassured by such falsehoods, the HBOS directors strove to grow their balance sheet at almost any cost, partly because it would trigger bigger bonuses for themselves. They had few qualms about piling into risky lending, highly dubious lending, overpriced speculative private equity and commercial property deals and proprietary trading on financial markets. And they did so mainly in five main geographic markets: UK, US, Ireland, Australia and New Zealand.

Perman describes with aplomb some of the wilder excesses HBOS's retail and corporate banking arms, capturing the cynical mind-set of its Crosby-led management and the internal chaos that ensued. In particular he highlights that the 15% to 20% annual growth targets laid down by Crosby and his co-directors were 'startlingly demanding'.

As the FSA reports have made clear, internal controls were virtually non-existent, especially in the bank's now notorious corporate lending arm. It was no surprise that by the time the credit markets started to freeze over as a result of massive fraud in the subprime mortgage market from July 2007, HBOS was dead in the water.

It was laid low because, as a direct result of their knowledge of its own reckless and cavalier approach to lending, poor quality 'asset' base and inability to reduce its dependence on short-term wholesale funding, its wholesale funders no longer trusted it.

The disastrous institution probably ought to have been allowed to go bankrupt (or shut down in as orderly a way as possible) but, for fear of financial Armageddon, the Bank of England, Financial Services Authority, US Federal Reserve and the government of Gordon Brown stepped in to save it from the consequences of its own folly.

They did this by providing clandestine emergency loans, and by recapitalising the bank with £11.5bn of taxpayers' money, and waving through an anti-competitive rescue takeover by Lloyds TSB. At the time Brown chose to single out Fred Goodwin, the chief executive of RBS, which also failed in spectacular fashion in October 2008, for special blame - it enabled Brown to divert the media and public attention away from his own pivotal role in the banks' near demise. However, as Perman makes clear in Hubris, the greedy and incompetent former directors of HBOS, including its Teflon-coated chairman Lord Stevenson, are no less worthy of such opprobrium.

My main criticisms of the book are that Perman shies away from probing the well-documented instances when, at the apogee of its own reckless irresponsibility in 2003-07, HBOS broke FSA regulations and also, probably, the criminal law. Instances included when it encouraged customers who were taking out so-called 'self-certified' loans to lie about their incomes. Another was when it imposed known embezzlers on between fifty and two hundred of its small and medium-sized corporate borrowers, with devastating results. I expect a lot more will surface about some of the bank's more nefarious activities in the coming weeks and months.

I also think that Perman is sometimes inclined to take a rather simplistic, black and white, BoS = "good", Halifax ="bad" approach to this sorry saga. It is worth pointing out that the two HBOS executive directors who were directly responsible for the most damage at HBOS -- Colin Matthew (international, including Ireland and Australia) and Peter Cummings (corporate) -- both started as trainees at Bank of Scotland in the 1960s and 1970s.

Bank of Scotland is today a hollowed-out shell. It is no more than a trading name within the enlarged Lloyds Banking Group. Perman makes clear that, having squandered our trust, it and similar banks like RBS are likely to take at least a generation to regain it. My own view is that, unless those who were responsible for the carnage at HBOS (many of whom still work in the enlarged Lloyds Banking Group or, like Graeme Shankland and his team, have found other ways of profiting from their past idiocy and incompetence) are held accountable for their actions, trust will never be rebuilt, and proper reform of the UK's financial sector will prove elusive.
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on 21 March 2014
It was a bit heavier than I expected but I soon learned that it needed to be. The gross incompetence and arrogance fuelled by greed propelled the bank(HBOS) towards an inevitable disaster. How were they ever allowed to lend in that fashion in the first place?.
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on 29 November 2012
Review by James Buxton
Ray Perman does a masterly job telling an appalling story. It is the tale of how a Scottish bank which once attracted admiration for sound management made an unsuitable merger, pursued unsustainable growth and ended up losing vast sums of money for its shareholders, many of whom were its own employees.
Bank of Scotland was one of the oldest banks in Britain. It was founded in Edinburgh in 1694 before Scotland and England united to form the United Kingdom. In the 1980s it was shaken out of a placid existence by an imaginative chief executive, Bruce Pattullo. The bank was a pioneer in innovation, becoming the first UK bank to enable its customers to access their accounts via their PCs.
It also avoided some of the mistakes made by other UK banks in the 1980s and under Pattullo and his successor Peter Burt, Bank of Scotland was happy to be described by The Economist magazine as `the most boring bank in Britain.'
But that was to change. In 1999 the bank hatched an ambitious plan to treble its size by acquiring the ailing National Westminster Bank, a bank three times its size. It was narrowly outbid by its Edinburgh neighbour the Royal Bank of Scotland, and was left vulnerable to a takeover.
But then Peter Burt received a suggestion that Bank of Scotland might be interested in merging with another financial institution, the Yorkshire-based Halifax Building Society, Britain's biggest mortgage provider.
The merger went ahead in 2000, creating Halifax Bank of Scotland or HBOS for short. Its head office was in Edinburgh with its administrative centre in Halifax. But it was not a happy arrangement.
The cautious Scottish bankers were under the direction of people in Halifax they unflatteringly referred to as the Haliban, like the Taliban in Afghanistan. In charge was Andy Hornby who had come into banking from retailing, having been a managing director at Asda, the supermarket chain.
Hornby believed that instead of simply providing customers with a service, the bank should actively sell them financial products and even telephone them at home in the evening. Soon the bank was winning one third of all new mortgages sold in Britain.
At the same time HBOS massively expanded its corporate lending, becoming involved in financing large transactions in the UK retail sector, and taking equity stakes in the businesses they created.
But the expansion was unsustainable and in 2008 the chickens came home to roost. HBOS admitted to making huge losses on its exposure to the US housing market while the UK companies to which it had lent could not repay their loans.
By September 2008 customers started to take their money out of the bank. HBOS was collapsing and Alastair Darling, the UK finance minister, had to authorise an emergency loan from the Bank of England.
The UK government searched for another company to rescue HBOS. It turned to LloydsTSB, then a relatively strong bank. A deal was reached after a frantic night's negotiations and LloydsTSB agreed to buy HBOS for a knockdown price. The government had to put in billions of pounds of new capital, ending up owning 45 per cent of the merged company.
HBOS had been wrecked. Its shareholders lost 90 per cent of their investment. Among the unluckiest losers were the 50,000 HBOS staff who had been rewarded for loyalty with shares in the bank, or who had taken advantage of offers to buy shares at a discount. They had watched in horror as the value of their shares collapsed almost to zero.
Meanwhile the directors and senior executives enjoyed to the end enormous salaries. When they lost their jobs they still received generous redundancy packages.
Ray Perman tells the story of the rise and fall of Bank of Scotland vividly and succinctly. He explains the technicalities of banking and embellishes the story with human touches about the key personalities involved. It's just a shame that it's such a sad story.
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on 13 May 2015
A very easy and informative read for me, despite the fact that I had what I consider to be only an average prior knowledge of normal banking procedures - if such as thing exists in these days of corporate greed by companies run by individuals who seem to be obsessed by power and personal gain, rather than providing a good service to customers and maintaining the long-term prosperity and security that not only their customers, but also the country at large has a right to expect. Everyone should read this book, as the excesses which brought the the country to its knees are only likely to be driven out of the system when better informed shareholders, customers and the general public demand more far more accountability from these crooks in sharp suits. This book certainly dispels the myth that only by paying top dollar can companies in the UK secure the quality of management required for long-term growth and prosperity - in fact it suggests that the reverse may be true, as large organisations such as this really need to be run by long-term thinkers and strategists with a steady hand, rather than members of the get rich quick brigade who are generally seeking to feather their own nests, rather than act as responsible custodians of not only their own organisations but also the economy on which the rest of the population depends.
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on 3 August 2016
The problem with 'Hubris:How HBOS Wrecked the Best Bank in Britain' is probably captured in the title itself, whereby the author presents what I find to be a very blinkered view, believing that Bank of Scotland was genuinely a bank without rival in terms of its strategy/profitability/management etc., and that in short, its collapse was entirely driven by Halifax and its own poorly qualified management team. The first part of the book is actually very interesting, providing a good history of the Bank and how after the Natwest deal failure it was essentially forced to find a partner. After that, however the book really tails off in my opinion, simply blaming Halifax for almost all the combined banks subsequent failings - that would be fine, but the author wasn't able to speak to any of the key 'villains' as he sees them, notably Hornby and Crosby, so everything feels somewhat biased. As three stars suggests, it's 'okay' but I am unlikely to ever read it again.
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on 30 April 2013
This is a first rate description of what went wrong with the Bank of Scotland, you can add all the other banks as well. This was a race to the top or bottom depending on how you review the end result. People who had no banking experience running banks against all historical ethics which built the banks into the force they once were. The term ''boring banks'' was used by members of the press, this in turn drove the directors of the banks to their ludicrous aim of trying to be the biggest, well they succeeded, the biggest failures in corporate history. I do not understand why some of the directors were not prosecuted, especially when you hear their comments to the select committees. Perman demonstrates how the mistakes were made and compounded, this is a really good book, I found it difficult to put down.
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on 24 March 2014
I found this a most accessible account of a complex subject-readable and clear.
Towards the close, the authors do become judgmental, but this is not a polemic-it describes events clearly and initially without bias or comment.
This gives this account its strength; one draws ones own conclusions, albeit aghast at the tragedy that is unfolding, but is able to understand how it came about without having to resort to hindsight.
Anyone reading this would hesitate to give a snap judgement on the industry or its higher management-they all were clearly bright people who believed in what they were doing. It is hard to avoid the conclusion that another group of managers would have come to the same sticky end (and indeed, did), and would again in the same circumstances.
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on 16 September 2012
An excellent insight into the arrogance of the people really responsible for the collapse of HBOS. The book reveals the men responsible for the disastrous decision to not only merge with the Halifax but to put them in charge of the Bank of Scotland. An absolute scandal that no one has been brought to book.....yet.
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on 26 November 2013
Excellent book about financial greed and gluttony. No one had the guts to speak up even if they knew things were going wrong. They're still at it viz the latest Coop bank scandal featuring another megalomaniac in Paul Flowers. As a humble ex company secretary accountant to medium size food manufacturing companies in the 60's to the 90's where were the auditors who squeezed every bit of justification of balance sheet values.
I can see it happening again
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