Economic tsunami of 2008 ruined lives but no bankers have faced the courts

At the height of the banking crisis in 2008, I took a phone call from one of the people closely involved in the banks’ rescue.

He pleaded with me to opine in print that Lloyds must be allowed to merge with the beleaguered HBOS and that the government must pump taxpayer money into HBOS. My source said it would trigger an economic tsunami if the institutions were allow to fail.

When I asked for evidence, he said it was common sense and promptly rang off.

That is where, by an large, the justice system has left the Global Financial Crisis, a mega event that was stunningly seen as axiomatic, rather than as a calamity for which the main actors should have been held responsible.

I was reminded of this exchange when the news surfaced — slipped out more like, on the eve of a long holiday weekend — that City watchdogs have concluded that no prosecutions will be brought against the former bosses of HBOS over its near collapse in 2008.

You may think that 14 years is a long wait. That might tell you something about the enthusiasm of the beaks, in the form of the Bank of England and Financial Conduct Authority, or FCA, to get involved.

In fact, this inquiry took six years. It was set to conclude in 2017, having been launched in 2016, but then the authorities discovered a cache of previously unexamined material.

In all, they had to go through a further two million documents before reaching a verdict of no action against those who presided over a fast-growth strategy in which the bank lent like crazy and ran up bad debts of £45 billion before being bailed out by the taxpayer to the tune of £20bn and being taken over by Lloyds.

The truth is that the 2016 investigation only began because the Bank and FCA were forced into action. They’d previously looked at HBOS’s failings and decided in 2015 that “ultimate responsibility for the failure of HBOS rests with its board”.

Despite this stark finding, they decided against bringing prosecutions.

It was only when a separate report by Andrew Green QC, also released in 2015, found that public interest decreed actions against the bank’s ex-chiefs be reconsidered that they reluctantly began their latest scrutiny.

Mr Green has described the earlier decision not to pursue the executive board directors — including chairman Lord Stevenson, former finance chief Mike Ellis and ex-chief executive Andy Hornby — as “materially flawed”.

The Bank and FCA said: “Independent decision-makers reviewed the matters under investigation and have each determined that no enforcement action should be taken against these former HBOS senior managers. These investigations have therefore been closed.”

The 2015 report had described a boardroom that lacked banking experience and a management team that drove a culture of growth at all costs. It said the bank “failed to set an appropriate strategy and also failed to challenge a flawed business model that placed inappropriate reliance on continuous growth without due regard to the risks involved”.

However, after “rigorous and forensic investigations”, after gathering more than two million documents, interviewing former bank managers, and undertaking “substantial analysis” of the bosses’ roles and responsibilities at what was then the country’s biggest mortgage lender and savings institution, the outcome is no further action.

This means that only one HBOS executive — former head of the commercial lending arm Peter Cummings — has ever been punished over what happened. Mr Cummings was barred from working in the City again and fined £500,000 in September 2012.

The logical extension of this is to suppose that Mr Cummings acted entirely alone — which, of course, is ludicrous. Certainly, he is entitled to feel more than a little angry over his apparent scapegoating.

What was the “too big to fail” argument, so eloquently explained to me above, spilt over into “too big to jail”.

No senior banker anywhere stood trial, let alone went to prison, for bringing the world’s financial services industry to its knees, for forcing governments to mount lifeboat operations that cost several billions of pounds and for causing a global recession with the loss of untold numbers of jobs, not to mention the infliction of misery on countless people, sparking mental and stress-related health issues.

HBOS was a shocking, basket-case of a bank. As well as the growth and lending policy, its Reading branch, which specialised in the rescue of small businesses, was at the centre of an enormous fraud.

Tens of smaller business customers were ruined between 2003 and 2007 when corrupt bankers conspired with so-called turnaround consultants to loot the businesses that had been placed in the bank’s “high risk” unit.

The scheme's discovery did lead to the conviction and jailing of six people. But they were not at the top and again, there is the sense of a prevailing attitude of sweeping things under the carpet rather than pursuing the bosses.

A whistleblower, Sally Masterton, was forced out in 2015 after writing a report that was critical of the bank’s handling of the Reading affair. Lloyds eventually apologised, paid her compensation and admitted she had acted with “integrity and good faith”.

In 2012, as I detail in my new book Too Big To Jail, HSBC was fined a record $1.9bn for enabling the laundering of money by the Sinaloa Mexican drugs cartel, headed by the notorious Joaquin “El Chapo” Guzman.

As much as $1.9bn was, it amounted to only five weeks of HSBC profits. Under the Deferred Prosecution Agreement, reached with the US Department of Justice, HSBC agreed to pay the sum and to undergo a six-year reform programme.

The HSBC bankers were pursuing a high-growth strategy — sound familiar? Warnings about what was unravelling in Mexico were simply ignored.

Make no mistake, the Americans wanted to prosecute, partly because they were acutely aware that no senior banker had been indicted over 2008. But the UK government, in the form of George Osborne, who was chancellor at the time, and the Treasury intervened, maintaining that indictments and possible convictions jeopardised the bank and with that the edifice of the banking system.

No evidence was offered for this assertion. The upshot, and this latest news from the Bank and FCA affirms this, is that bankers are somehow above and beyond. Fining them has minimal effect; what they understand and dread is the prospect of personal ruin, of prison.

To date, they have nothing to fear.

Chris Blackhurst is author of Too Big To Jail — Inside HSBC, the Mexican drug cartels and the greatest banking scandal of the century (Macmillan).