February 11th, 2009
Paul Moore, a senior executive at HBOS, was sacked by one of Gordon Brown’s favoured bankers after warning his bosses they were taking excessive risks, MPs were told.
The former head of risk at HBOS – one of the biggest casualties of the banking meltdown – told the Treasury Select Committee how he predicted the bank’s practices could “lead to disaster”.
He informed the bank’s board of his concerns, but was later sacked by Sir James Crosby, the bank’s former chief executive.
Sir James is now the deputy chairman of the Financial Services Authority, the watchdog tasked with monitoring wrong doing in the City. He was appointed by the Treasury and has also carried out a wide ranging investigation into the mortgage market for the Prime Minister.
In his evidence, Mr Moore told MPs “anyone whose eyes were not blinded by money, power and pride” would have realised problems were mounting for HBOS and the other high street banks.
However, he claimed he was replaced by someone with no experience for voicing his fears. HBOS would later become one of the highest profile victims of the credit crisis. Ultimately, it had to be taken over by LloydsTSB last year.
Mr Moore’s disclosures provide the most stark evidence yet of bank boards refusing to question their business models at the height of the banking and credit boom.
In a damning testimony, submitted to the Treasury committee’s inquiry into the banking sector, Mr Moore said it was clear that “excessive consumer credit based on massively increasing property prices” was bound to cause problems.
But he said no one felt able to speak out because of the “fear” of the executives who were being paid vast sums.
The select committee heard that it was Sir James who made the decision to sack Mr Moore.
In his evidence Mr Moore, who was head of Group Regulatory Risk at HBOS between 2002 and 2004, wrote: “I certainly knew that the bank was going too fast (and told them) had a cultural indisposition (and told them) and was a serious risk to financial stability …and consumer protection (and told them.)”
He said he told the board they “ought to slow down” and that their sales culture was “significantly out of balance with their systems and controls.”
Mr Moore claimed he had been told by the FSA that he was doing a good job, but that this was dismissed by Sir James. He sued for unfair dismissal and the claim was settled.
He added: “I was subjected to a gagging order but have decided to speak out now because I believe the public interest demands it.
“After I was dismissed and to prove just how seriously HBOS took risk management, I was replaced by a new group risk director who had never carried out a role as a risk manager of any type before.”
He concluded: “Sadly, no one wanted or felt able to speak up for fear of stepping out of line with the rest of the lemmings who were busy organising themselves to run over the edge of the cliff behind the pied piper CEOs and executive teams that were being paid so much to play the tune and take them in that direction.”
Two former HBOS executives were quizzed by the Treasury select committee over Mr Moore’s dismissal. George Mudie, a Labour committee member, said: “At the end of the day you sacked your group risk fellow. Now, four years later it turns out he was right and you were wrong.”
Lord Stevenson, the former chairman of HBOS, replied: “I remember the incident very well. It was taken very seriously by the board.”
Last night George Osborne, the shadow chancellor, said: “Paul Moore has made very serious allegations about how his warnings about the risks being run at HBOS were dismissed by the then chief executive, James Crosby.
“Given that as Chancellor, Gordon Brown appointed Sir James as Deputy Chairman of the FSA and that as Prime Minister he relies upon him as a key economic adviser, the Government need urgently to investigate the allegations and discover the truth.
“What is at issue here is Gordon Brown’s judgement and the people he takes advice from.”
HBOS collapsed because of the failure of the very business model that allowed it to expand rapidly.
The bank operated with a huge £198bn so-called “funding gap” – the difference between customer deposits and customer loans. The gap was filled by borrowing on wholesale international money markets. But from 2007, those markets effectively froze as investors took fright, leaving HBOS unable to raise money and teetering on the brink.
Sir James was unavailable for comment.
But Mr Moore said: “One final observation I would make about the HBOS disaster is this: wasn’t it actually Sir James Crosby rather than Andy Hornby (HBOS chief executive) who was the original architect of the HBOS retail strategy?
“Sir James is still deputy chairman of the FSA and advises the Government on how to solve the mortgage crisis. Some might now question what his ‘contribution to financial services’ has been when this will have led to millions of people in excessive debt, 10,000s who will lose their jobs and many more who balance sheets have been impacted by precipitous fall of the HBOS share price.”
Mr Moore has previously accused Halifax bosses, including ex-Asda executive Mr Hornby, of abandoning the bank’s conservative roots in a reckless rush for market share.