Lloyds to pay £100m in compensation for HBOS loans scandal

LLOYDS Banking Group has revealed it will take a £100m hit paying compensation to victims of the HBOS Reading bribery scandal, as the City watchdog restarted its investigation into what the lender knew about the scam.

The bank has already written off about £250m of fraudulent loans made in the scandal, which in February saw six people, including two former HBOS employees, being jailed for a combined 47 years and six months.

It now expects to spend a further £100m reimbursing customers who suffered “economic losses, distress and inconvenience” because of the fraud at HBOS’s Reading office in the years before the financial crisis.

In a further blow, the Financial Conduct Authority (FCA) also announced that it had resumed an inquiry that it had suspended in early 2013 while Thames Valley Police conducted its own six-year investigation into the scam, which resulted in this year’s convictions.

“The FCA’s investigation is focusing on the extent and nature of the knowledge of these matters within HBOS and its communications with the Financial Services Authority after the initial discovery of the misconduct,” the regulator said.

The enforcement action was started by the FCA’s predecessor, the FSA, and could result in Lloyds being fined.

At the same time, Lloyds said it would appoint “a senior independent lawyer”, likely to be either a senior QC or a retired judge, “to consider whether the issues relating to HBOS Reading were investigated and appropriately reported to authorities”.

The scam was carried out at HBOS’s division in Reading which handled small businesses that had run into trouble and took place between 2003 and 2007, before Lloyds rescued the bank with a disastrous takeover in 2009 during the financial crisis.

It involved bribery with sex parties, luxury holidays, expensive watches and cash to refer companies that were HBOS clients to a consultancy firm called Quayside Corporate Services (QCS). The troubled businesses were then asset-stripped by QCS.

The regulator’s examination of the Reading fraud adds yet another level of scrutiny of HBOS. In January, the FCA and the Bank of England’s Prudential Regulation Authority launched investigations into the senior managers running HBOS when it almost collapsed during the crisis, probes that could lead to individuals being barred from working in financial services for life.

The £100m provision taken by Lloyds will surprise investors because the bank, just under 2pc owned by the taxpayer, had been playing down the compensation it expected to pay.

It had initially estimated that about 50 customers had been embroiled but as others have come forward it now believes between 70 and 100 clients were hurt by the scam. It only announced that it would review the case for compensation following the sentencings in February and after it faced pressure from MPs to redress customers.

Antonio Horta-Osorio, the bank’s chief executive, said: “We take responsibility for putting right the wrongs that were committed at HBOS Reading at the time.”

Lloyds shares fell 0.6p to 63p yesterday.

The scam involved sex parties, holidays and cash to refer firms that were HBOS clients to a consultancy