* Former finance director says HBOS growth was not out of
line with rivals
* Says bank needed more directors with corporate backgrounds
* Ex-risk director says 2008 short-selling threatened bank
By Matt Scuffham
LONDON, Nov 12 HBOS was not prepared for a
complete shutdown of wholesale funding markets that contributed
to its near-collapse in the financial crisis and also misread
the property market downturn, a former finance director of the
UK bank said on Monday.
Phil Hodkinson, who was finance director between 2005 and
2006, told a parliamentary inquiry that HBOS had undertaken
stress tests against various scenarios but was not prepared for
the total closure of wholesale markets.
"We had stress-tested against what would happen if some
wholesale markets were closed to banks. The event which did
bring down the bank - that all wholesale markets would be closed
to banks for some period of time - was not conceivable," he told
the Parliamentary Commission on Banking Standards.
Wholesale markets, including money market funds and other
investors that provide banks with cash, virtually dried up
during the financial crisis causing big problems for the
HBOS, more reliant on wholesale funding than rivals, had to
be rescued in 2008 through a government-engineered takeover by
Lloyds Banking Group. Weeks later, Lloyds had to ask
for a government bailout in which Britain pumped in 20 billion
pounds ($31.82 billion) to keep the enlarged bank afloat.
HBOS's downfall was also blamed on the overly aggressive
growth of its corporate division. Britain's financial regulator
has said the bank failed to rein in high risk loans at its Bank
of Scotland unit even as rivals were scaling back.
Hodkinson told the commission there was no evidence in 2007
that HBOS's corporate division had been overly aggressive and
blamed the bank's demise on the downturn in Britain's property
market. As Britain's biggest mortgage lender, the bank was
heavily exposed to falling house prices.
"From the information the board received it wasn't evident
that the corporate division was pursuing aggressive growth.
We hadn't foreseen that the UK property market, which was a
third of our book, would suffer as much as it did," he said.
Peter Cummings, the head of corporate lending until 2008, in
September was fined 500,000 pounds by Britain's Financial
Services Authority for his part in the bank's troubles and
banned for life from working in financial services.
The FSA said Cummings led a "culture of optimism" which
affected the division's judgment about bad debts and did not
properly monitor big loans properly.
Hodkinson said he believed the bank would have benefited
from having more directors with a corporate banking background.
Peter Hickman, HBOS's risk director between 2007 and 2008,
told the commission that false market rumours which led to a
slump in HBOS's shares in March 2008, had borne the "hallmarks
of a deliberate attempt to undermine the share price" and "could
have threatened the bank's existence."
Hodkinson and Hickman were appearing before the
Parliamentary Commission on Banking Standards, set up in
response to a number of scandals across the financial services