* Ex-CEO Crosby apologies for first time over near collapse
* Crosby says incompetent lending brought bank to its knees
* Former bosses say 2008 financial crisis unforeseeable
* Ex CEO Hornby denies sales culture at root of problem
By Steve Slater and Matt Scuffham
LONDON, Dec 3 A former chief executive of HBOS
apologised for the first time on Monday for his role in
the high-risk lending strategy that pushed the British bank
close to collapse during the financial crisis.
Knighted by the Queen in 2006 for services to the financial
sector, James Crosby admitted to a committee of British members
of parliament that incompetent corporate lending brought HBOS to
its knees two years later.
"I was horrified and deeply upset by what happened," Crosby
told the joint committee of Britain's Parliamentary Commission
on Banking Standards. "I am apologising. I played a major part
in building a business that subsequently failed."
The parliamentary committee is looking into what its members
described as the "HBOS catastrophe" and what lessons can be
learnt to prevent future bank failures.
Once Britain's biggest mortgage provider, HBOS had to be
rescued by rival Lloyds and propped up with an 11.5
billion pound ($18.43 billion) taxpayer bailout when the
financial crisis laid bare its disastrous exposure to property
in Britain and Ireland.
"I have no doubt that my reputation and my achievements will
never again be seen in the same light," said Crosby, who sat
alone during over two hours of questioning. "I am too closely
associated with the problems of HBOS."
Crosby, who stood down as HBOS CEO in 2006, admitted that he
would be unlikely to get regulatory approval to run a financial
services company if he applied to British authorities now. He
has no plans to do so.
"THE GLORIOUS BENEFIT OF HINDSIGHT"
HBOS was created through a merger between Halifax, a former
English building society, and the 300-year-old Bank of Scotland
in 2001. The bank then rapidly ramped up its lending using cheap
funding on the wholesale markets rather than safer customer
But HBOS's high-risk strategy was exposed when that funding
dried up following the collapse of Lehman Brothers in 2008.
By the autumn of 2006, HBOS's exposure to individual
borrowers had ballooned with 17 loans worth more than 500
million pounds each compared to just five in 2002. Two loans
were worth as much as 2 billion pounds apiece.
Impairments on the bank's corporate loans hit 26 billion
pounds in 2006.
"It is a very bad number," said Crosby.
In a separate 2-hour appearance, Crosby's successor and
protege said HBOS's focus on commercial property loans and its
reliance on wholesale funding was its downfall.
"I don't think we properly foresaw the linkage between
corporate lending and the wholesale funding markets," Andy
Hornby said. "I bitterly regret this."
Like Crosby, Hornby often started his answers by saying,
"With the glorious benefit of hindsight."
Hornby, who left HBOS in 2008, was hired by the bank in 1999
from retailer ASDA for his ability to sell products rather than
In an exchange with committee member Justin Welby, the
incoming Archbishop of Canterbury, Hornby denied that a sales
culture took root at the bank after the merger of Halifax and
Bank of Scotland in 2001.
"What did change was that the balance sheet was capable of
doing much larger deals," said Hornby.
Dressed in clergyman garb, Welby recalled dealings with Bank
of Scotland in the 1980s.
"It was screwing blood out of a stone to get them to part
with their precious money," he said. "Bank of Scotland were
(sic) enjoyably boring."
A report by Britain's financial regulator into the way HBOS
was run said in March it only escaped a "very substantial
penalty" because the taxpayer would have to foot the bill.
In September, Peter Cummings, head of corporate lending at
HBOS, was fined 500,000 pounds by the UK financial regulator for
management failings and banned for life from the industry.
Since leaving HBOS, Crosby has fronted government inquiries
into identity fraud and mortgages and was deputy chairman of
Britain's financial regulator between 2007 and 2009.
Hornby is currently chief executive of UK betting firm Gala