FORMER HBOS finance director Mike Ellis warned board colleagues the Financial Services Authority viewed HBOS's growth as an accident waiting to happen as early as 2004.
Board minutes from January of that year, when the bank was led by Sir James Crosby, have been published by the Parliamentary Commission on Banking Standards. They read: "The FSA's perspective was that the group's growth had outpaced the ability to control risks. The group's strong growth, which was markedly different than the position of the peer group, may have given rise to 'an accident waiting to happen', in their view."
The message from the FSA came four years before the institution, which has it headquarters in Edinburgh, was swallowed by Lloyds Banking Group in a rescue takeover.
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Mr Ellis, who was the bank's finance chief from its creation in 2001 to 2004 and from 2007 to 2008, told the commission the term "accident waiting to happen" could have been his. He insisted expansion following the 2001 merger of Halifax and Bank of Scotland was due to its corporate lending arm taking advantage of its expanded balance sheet and "not some sort of catching up" with rivals based in England.
The City regulator was also concerned about HBOS's "atypical approach" to business lending.
After its acquisition of HBOS, Lloyds ended up taking billions of pounds of writedowns on loans, many of them to the property sector.
In September, Peter Cummings, head of HBOS's corporate division, was fined £500,000 and banned from working in financial services for life.
Phil Hodkinson, the finance director between 2005 and 2006, told the inquiry that HBOS had not stress tested against the total closure of funding markets. "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 said.
Mr Hodkinson said the bank was also caught out by the impact of the property crash.
Peter Hickman, HBOS group risk director between 2007 and 2008, said that on March 20, 2008, when the bank's shares plunged almost 20% there appeared to have been a deliberate attempt by short-sellers to spread rumours about the bank being in difficulty. Short-sellers sell shares they do not own in the hope of making a profit from buying them back at lower prices.
"They could have threatened the bank's existence if the FSA hadn't given assurances at the time," Mr Hickman told the commission.