TSB is heading for legal showdown with Sabadell
Paul Pester ‘betrayed’ by Spanish owner over IT carnage
TSB is heading for a multi-million pound legal dispute with its Spanish parent Sabadell, after the challenger bank’s shift to a new IT platform entered its second week of meltdown, The Mail on Sunday has learned.
Although TSB chief executive Paul Pester has been the public face of the scandal in the UK, the software that caused the problems was installed by Sabadell’s technology offshoot, Sabis.
Supporters of Pester therefore believe he is being scapegoated for the disaster that has crippled his bank. The TSB chief is respected in the banking industry and commands a high level of loyalty from his colleagues.
Allies said he has been ‘betrayed’ by a ‘bunch of Spanish numpties’ who ‘trashed’ the bank he worked so hard to build up as a challenger to the Big Four.
So-called middleware put in by Sabis is at the root of the woes inflicted on millions of customers.
The European Central Bank is monitoring the situation. TSB is meant to be paying Sabadell hundreds of millions of pounds for the IT platform but if any of that is withheld for fines or damage to TSB, that would affect the Spanish bank’s capital position.
TSB has held talks with British regulators Andrew Bailey of the FCA and Sam Woods, head of the Prudential Regulation Authority, which oversees the stability of the financial system.
Sabis is understood to have given TSB a written assurance that the parts of the system for which they were responsible had been comprehensively tested. The affair is almost certain to end up in a legal dispute between TSB and its parents over the payment for the software.
TSB was given a £450 million dowry by its former parent Lloyds and much of it would have been earmarked for the new IT. Sabadell issued a press release last weekend celebrating what it thought was a job well done. Images have since emerged of developers in Spain drinking cava to toast the data transfers.
An IT expert said: ‘We were being told by Sabis that the system just needed a few minor tweaks. There were just some issues with configuration settings.’
Sabadell chairman Josep Oliu and chief executive Jaime Guardiola Romojaro were last week enjoying the Barcelona Open tennis tournament while TSB staff in the UK worked tirelessly to try to fix the IT collapse.
Pester has taken personal control of the crisis from Sabadell following conversations with Oliu. He has ousted Sabis and installed a crack team from computer giant IBM, but it is still not clear when the issues will be resolved. Pester has come under pressure to surrender his £1.6million bonus but is unlikely to do so ahead of a legal dispute in case this was misinterpreted as an admission of guilt. There are likely to be a number of investigations into what went wrong, including an independent inquiry commissioned by TSB itself. Pester would give up his bonus if found to be at fault in any of the probes. Regulators in the UK could fine TSB tens of millions of pounds, sources said. There could be a hefty compensation bill on top.
Disaster struck when TSB moved off the IT systems of its former parent Lloyds and on to a new platform provided by Sabadell. The Spanish bank had persuaded its own shareholders to back its takeover of TSB by boasting of its IT prowess.
A major transfer of data last weekend wreaked havoc with some customers temporarily seeing accounts on screen that did not belong to them. Some firms were unable to pay their staff.
The debacle is devastating for Pester personally as he has set out his stall as a champion of customer service in contrast with the tarnished Big Four.
One rival banking boss told The Mail on Sunday that TSB is likely to face ‘severe’ repercussions. The source said regulators are likely to put TSB under a Section 166 probe – a formal investigation by an independent expert.
RBS was fined £56 million over IT problems in 2012. The lender was ordered to pay a further £125million in compensation to customers.
Pester declined to comment on his future, his bonus or who is to blame.
However, he told Financial Mail: ‘I am truly sorry for the problems we have had and you have my absolute commitment no customer will be out of pocket. We will get TSB back to where it should be – delivering better banking.’
IT HAS been five years since the Current Account Switch Service launched to help bank customers move accounts without fear that everything would go pear-shaped.
The service, supported by the big banks and building societies, has proved a success – a rare one given the banking industry’s ability to cover itself in egg rather than in glory.
By offering assurances over how long the process will take and the smooth transition of direct debits and salary payments, it has allowed customers to move with confidence. It has also encouraged an army of challenger banks to take business off the long established big banks.
Last week, Bankers’ Automated Clearing Services (known in financial circles as Bacs) issued the latest switching statistics, confirming that in the first three months of this year 273,000 customers upped sticks – the highest quarterly total for two years. Encouraging, not overwhelming.
It also provided the winners and losers, albeit based on slightly older data – for the quarter ending last September. The banks attracting most net switchers were Halifax (top), Nationwide Building Society and TSB. The big net losers, predictably, were Lloyds, Barclays and NatWest (the biggest loser of all).
Although it will take Bacs an age to produce statistics for the quarter ending this June, it will be interesting to see the figures for TSB given the calamitous events of the past week triggered by a catastrophic IT meltdown.
Many TSB customers have been left pulling their hair out as debit cards have been blocked, direct debits not processed and online access denied. Most alarmingly, some customers have been able to see details of other people’s accounts. No wonder our sister paper renamed it Totally Shambolic Bank. It is a label the bank will find hard to shake off.
While TSB has responded to the chaos by upping the interest rate it pays on current account balances, it is a gesture only. The increase, from three to five per cent, will mean just an extra £30 a year for those who keep at least £1,500 in their account. Small beer compared to the trauma and inconvenience the bank has inflicted on customers – and the fiasco has yet to run its course. Two final thoughts. First, challenger banks are in general a breath of fresh air. But they tread a thin line. If they lose the trust of customers – as Tesco Bank did in late 2016 when criminals hacked into its systems and stole £2.5 million from customers – it is all downhill. Trust takes a long while to build, a moment to destroy and an age to restore.
Secondly, TSB boss Paul Pester, an individual who is quite brilliant when it comes to issuing soundbites, must come out and state he will not accept a performance bonus this year. For him to say – as he did on the BBC Radio 4 Today programme on Thursday – that it is for TSB’s remuneration committee to decide whether a bonus comes his way is unacceptable. He should just come out and say he will not accept one. Full stop. End of matter. IT WOULD be remiss of me today to leave you without mentioning Matt Campbell who, seven days ago, died while competing in the London Marathon. He was a mere 29.
Although I did not know Matt personally, I knew his father Martin well. He was a super photographer who in 2012 encouraged me to run ten marathons in ten days around Lake Windermere for charity Brathay. Towards the top of every hill on that tortuous 26.2-mile course, there would be Martin filming away while giving out words of encouragement. Sadly, he also died two years ago.
Matt was an exceptional runner – a sub-three hour marathoner – and a talented cook as his appearance on last year’s MasterChef: The Professionals proved. He should have been a finalist. He was running London in memory of his Dad and for Brathay, the charity Martin supported – and gave his time to – for eight wonderful years. An awful double family blow.
If you want to learn more about Brathay and the work it does helping children get a good start in life, take a look at its website – brathay.org.uk. If you feel like donating to the charity via Matt’s charity page, visit justgiving.com/ fundraising/ matt campbell london marathon. And, remember, if you are a taxpayer, tick the Gift Aid box which will give a little boost to your donation.
Matt and Martin Campbell. Rest in peace.
TSB customers have been left tearing their hair out as direct debits have been declined