Watchdogs that didn’t bark By ALEX BRUMMER
AMID the stupefying detail in the official reports into the demise of HBOS, among the issues which most resonates is the supine behaviour of the company’s board.
As the challenger bank of its time, the combination of Britain’s dominant building society the Halifax and the Calvinist Bank of Scotland, the board of HBOS looked an exciting place to sit during the go-go Blair-Brown years.
HBOS attracted to its board a glittering cast of business people, including former Pearson chairman Lord Stevenson, founder of Carphone Warehouse Sir Charles Dunstone and Richard Cousins, currently the chief executive of catering giant Compass. What is remarkable is how unchallenging the non-executives chose to be, as first James Crosby and then Andy Hornby pursued a breakneck expansion policy.
They sought annual growth of 20pc as if they were running a discount retailer rather than a bank that was the custodian of the nation’s savers and mortgages.
As any GCSE student of economics is taught, banks need to have adequate capital as a cushion in times of trouble. It is a disastrous mistake to borrow short and lend long. Yet many of the people at HBOS failed to ask vital questions about the dependence on shortterm funding. When the financial system almost froze over in September 2008, the Bank of England had to step in with £24.5bn of cash to keep the ATMs loaded.
One might have thought that any association with a bank as deeply flawed as HBOS would have disqualified directors and executives from working in the City, if not the whole of commerce, ever again.
Remarkably, several of the key players are back in banking.
The former group finance director Mike Ellis is currently chairman of the Skipton Building Society; the former head of corporate lending George Mitchell works for Intrinsic Mortgage Planning and the former boss of treasury Lindsay Mackay is a director of Alpha Bank in London.
All have financial jobs which could make them vulnerable to being banned from working in the City, if the regulators were to find they are culpable in some way.
Post the financial crisis, the demand for experienced bankers has been strong as the Bank of England has insisted that boards be strengthened with people with hands-on knowledge of finance. That has provided a useful safety net for former HBOS insiders, several of whom look to have bounced back into lucrative jobs.
They are not alone. A number of the criticised regulators also have enjoyed comfortable landings. Former FSA chief John Tiner is at Credit Suisse and enforcer Margaret Cole currently is chief counsel at auditors PwC. In spite of serious mistakes they have passed seamlessly into the private sector. Given the severity of many of the findings in the report it ought to be incumbent on employers to reassess their suitability to hold down high-profile City jobs.
Certainly, taxpayers who bailed out HBOS in its time of need and investors in it and its saviour Lloyds have reason to feel resentment. Why, they might ask, have people been reintegrated back into the financial sector, despite the costly errors?
Experienced directors, executives and advisers who failed to put the brakes on unhinged expansion, should not have escaped unscathed from the mess.
Viper in the nest
ROLLS-Royce’s chief executive Warren East has a hard enough job already restructuring the aeroengine maker in quite hostile market conditions.
Income from service contracts, which is based on flying hours, has fallen sharply because so many aircraft are parked up in China.
And it lacks the engines for narrowbodied passenger jets to fill the gap as its market share of engines for wider body aircraft increases.
Amid the heavy winds in the marketplace it must now cope with an ambitious San Francisco-based shareholder, ValueAct, which has increased its holding to 10pc, making it the largest investor in the flagship British firm. The first aggressive move by the marauder is to seek a seat on the Rolls-Royce board. Once it has achieved that it may become increasingly hard to resist pressure for asset sales, with the marine engines unit – which powers many of the world’s super yachts – potentially vulnerable.
Chairman Ian Davis would be advised to get Whitehall and the Government on-side before ValueAct’s Jeffrey Ubben shows his fangs.
Pain killer
BRITAIn’S drug giants AstraZeneca and GlaxoSmithKline can probably breathe a sigh of relief now that serial acquirer Pfizer has turned its attention to Irelandbased Allergan.
If the $150bn deal can be agreed, Pfizer would get the low tax base in Ireland that its chief executive, British-born Ian Read, has been seeking, as well as a big stake in the Botox market.
The 30pc premium for Allergen ought to be highly attractive to the company’s shareholders. Less clear is whether the US Treasury Department, which abhors takeovers driven by tax inversions, will play ball.