LONDON 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 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 deposits.
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 manage risk.
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 Coral.