Sir Peter Burt, the former deputy chairman of HBOS and one of the government's "banking knights", has rejected criticism of his role in the bank's demise.
Sir Peter Burt, the former deputy chairman of HBOS and one of the government's "banking knights", has rejected criticism of his role in the bank's demise.
Speaking to The Herald yesterday, Burt also dismissed fears about the possible nationalisation of Lloyds Banking Group, following the revelation of £10.9bn of losses at HBOS, as "a storm in a teacup".
The HBOS history has come under intense scrutiny in the past week, with MPs on the Treasury Select Committee accusing former chief executive Andy Hornby of presiding over a "flawed business model", and the critical spotlight moving onto his predecessor Sir James Crosby.
In his controversial testimony to the committee, Hornby said it was "many years of reliance on wholesale funding that left us in a vulnerable position" and added that "it goes back many, many years in that the former Bank of Scotland business was largely reliant on wholesale funding".
Asked about Hornby's testimony, Burt said: "Is that the Mr Hornby who denied being personally culpable?" He added: "Certainly Bank of Scotland was overly dependent on wholesale money and we tried desperately to find ways of alleviating it, that's why we set up things like Sainsbury's Bank and other joint ventures."
Burt went on: "That was why we decided in 1998 that we needed to find a partner, we didn't just (want to) buy NatWest because it seemed a good thing to do at the time, we could see that we had a need, and ironically the first people we approached were the Halifax, but their board couldn't be persuaded."
There followed unsuccessful discussions with Barclays and the NatWest bid.
"We were overly reliant on wholesale money and that is why the Halifax was such a good deal. In those days the Halifax was a well-run organisation with a huge savings deposit situation. If you go back to look at the numbers, when Halifax and Bank of Scotland merged, wholesale funding was relatively low."
Halifax was 85% self- funded at the merger and Bank of Scotland 53%.
Burt, who stepped down as HBOS executive deputy chairman in 2003, commented: "In the last few years they just blew their balance sheet out like a balloon."
He said the merged bank's assets had grown from £400bn in 2003 to £666bn in 2007. "Obviously they didn't manage to keep the ratios where they were at the time of the merger. They just got it wrong ... They just got greedy."
He said if the merger ratios had been maintained, "they would have been better than most of the British banks were" by the time of the credit freeze.
Burt mounted a short-lived campaign last November to persuade HBOS shareholders to install himself and former Royal Bank of Scotland chairman Sir George Mathewson in place of the bank's board, in a bid to maintain the independence of the Edinburgh-based bank. Asked whether he regretted the move, Burt said: "Not at all, because I think it is a good business. Lloyds will do very well out of it."
He added: "HBOS was in a mess, it needed £11bn, or call it £12bn - who is going to quibble about £1bn at the moment? What really puzzles me is the surprise everybody evincesI don't see any reason to nationalise it on the basis of the figures we have seen to date, there is plenty of capital, and the underlying ratios are quite strong. I am utterly bemused frankly, it (recent speculation) seems to me to have just been a storm in a teacup."
Lloyds shares continued their slide early yesterday after Friday's 32% crash when the bank revealed losses of £10.9bn at HBOS. Impairment charges in the Edinburgh-based (formerly Bank of Scotland) corporate division appeared to have more than doubled in two months to £7bn, though Lloyds said the figure was only £1.6bn higher than it had predicted. Burt said: "Lloyds announced in November there would be a black hole of £10bn, and they were going to get £11bn from the government for HBOS. They are now saying the black hole is close to £11bn." He said of the recent speculation: "I think it was just down to a quiet weekend and a lot of opportunity to kick the PM and kick bankers."
Lloyds shares, which fell 20% to hit 48.5p at one point yesterday, later recovered to close at 56.4p, down 5p.
Asked how the crash of HBOS had affected him and former colleagues, Burt said: "I am sorry for the people who are still there. They must be devastated to have seen it brought so low." Assuming he has held onto all his HBOS shares, he would have seen 90% wiped off their peak £5m value by last month, l Moody's Investors Service yesterday cited a "high level of troubled and higher risk exposures within HBOS" as it downgraded various ratings in Lloyds Banking Group. The group's senior debt rating goes to A1 from Aa1, with a stable outlook.
The bank financial strength rating of Lloyds TSB is downgraded to C+ from B+ with a negative outlook. The long-term bank deposit and senior debt ratings of Bank of Scotland are downgraded from Aa1 to Aa3, the same level as LTSB, and the senior debt rating of HBOS is downgraded from Aa2 to A1, the same level as Lloyds Banking Group. Moody's said the HBOS exposures "will weaken the profitability and capital adequacy of the overall group" and would add to the significant challenges of integration.
