HBoS whistleblower speaks out again
In his first major interview since report vindicated him, the man who tried to stop a meltdown has a new – and sadder – message
IN NOVEMBER 2004, four years before the financial crisis would finally overwhelm HBoS, Britain’s biggest mortgage provider, the bank’s risk expert Paul Moore was enduring one of his darkest hours.
Having detailed to the board the bank’s weak risk controls and suggested it rethink sales targets, the unthinkable happened: chief executive James Crosby sacked him.
Moore was head of group regulatory risk at HBoS. His accusations, that the board did not understand the risk it was running were vindicated by regulators last week when an official report into the bank’s collapse in 2008 laid bare the devastating mistakes that led to its bailout.
But ten years on, the most prominent whistleblower of the financial crisis isn’t sure he’d do it again.
‘If I had known the misery it would cause, I wouldn’t have had the courage to do it,’ he says.
The failings of the bank that was created through the merger of Halifax and Bank of Scotland were revealed in withering detail. And in his first major interview since publication of the report, Moore chal-
I will not stop until the former directors have had their money taken away from them
lenges HBoS’s former bosses to apologise publicly for their actions.
HBoS was controversially acquired by Lloyds in a deal encouraged by then Prime Minister Gordon Brown, and subsequently needed a £20.5billion cash injection from British taxpayers to prevent its collapse.
The report found huge failings in the bank’s lending to big UK property developers, as well as in Australia and Ireland, and in managing its own cash. It was lending far more than it had on deposit and relied on money markets for day-to-day cash.
Moore told regulators in 2004 after he was sacked that HBoS was riddled with risk.
The revelation that he might not repeat the warning is a sad reflection on Britain’s financial crisis: that someone who dared speak out over the explosion in credit isn’t sure it was worth the pain.
‘Whistleblowers have a blindness to personal risk. They are driven to tell the truth. I cared about HBoS, I thought it had the potential to be a fantastic bank,’ he says.
Blowing the whistle caused huge damage to his family through his subsequent alcoholism and depression, but he feels vindicated now. He says: ‘I have not just been proved right but more than right. But I don’t care about being right. It made my life miserable, I lost a lot of money. What I care about is a world full of mess.’
Last week’s report, which opened the way for new disciplinary action against former bosses, has brought the bank’s failings into sharp relief.
‘It details easily sufficient evidence to hold all three protagonists to account,’ Moore says, referring to chief executives James Crosby and Andy Hornby, and chairman Lord Stevenson. KPMG, Moore’s previous employer and the auditor to the bank, could also be in the firing line, along with regulators.
‘In the report there is key evidence that KPMG was not happy with the 2008 mid-year loan-loss provisions which formed part of HBoS’s 2008 rights issue documents,’ he says.
The auditors agreed on a loan-loss provision in its corporate division of £500million, which ballooned in the third quarter to £1.7billion, and to £6.6 billion by the end of the year. Shareholders taking up the £4billion rights issue were misled, Moore says. There is a further issue over the bank’s high loan-to-deposit ratio – a measure of a bank’s ability to cover customer withdrawals – which forced it to rely on wholesale markets for cash. Moore says: ‘In March 2008, HBoS’s requirement for wholesale funds over the next three months was £125billion, more than the annual cost of the NHS. It couldn’t do it. Markets weren’t capable of supplying it, it had to take advantage of the Government’s special liquidity scheme. By the time of the rights issue it had been taking tens of billions from the scheme.’
That was not mentioned to investors in the rights issue in July 2008.
In response, KPMG says: ‘The suggestion KPMG was somehow responsible for the HBoS failure is one we absolutely refute.
‘Paul Moore has raised a number of issues and we have consistently advised him to make his evidence available to appropriate regulatory authorities.’
Moore is full of praise for the report, which he says is a ‘very, very thorough job’. He has some reservations about a section devoted to his whistleblowing, but says for now there are bigger issues to discuss.
He has just published a book about HBoS called Crash Bank Wallop, and says: ‘I want the directors to write a joint letter which says what we did was wrong, that we are very sorry.’
He wants the directors to waive their rights not to be fined for misconduct due to a time limit having passed. He says: ‘I will not stop until they have had their money taken from them.’
Negligent regulators, too, should apologise and give up their knighthoods, peerages and other gongs.
He takes a particular interest in the accounting issues, and is critical of the accountants’ regulator the Financial Reporting Council.
‘The FRC said the findings on accountants didn’t reach their threshold for misconduct. That’s outrageous. There is clearly a public interest in finding out why this was allowed to happen.’
As well as further enforcement proceedings against former managers likely to start in the New Year, the Department for Business could also bring disqualification proceedings to prevent ex-HBoS bosses running businesses ever again.
The Treasury Select Committee is also vowing to force the FRC to explain why it is not investigating accountants’ involvement.
For Moore, proper accountability cannot come too soon.