The failure of HBOS lends a cautionary tale


April 5, 2013

Bob Young is managing director of CHL Mortgages

Us mortgage lenders enjoy something of a complicated relationship with each other. While there is an element of fraternal symbiosis and competition is genuinely welcomed, at the end of the day we are all vying for the same business so things are never likely to get too cosy. Despite this, it is never nice to see rivals run into difficulty, regardless of one’s propensity for schadenfreude. There are some caveats to that statement however; one being if the misfortune was totally avoidable and entirely of the lender’s own doing, which brings us neatly on to HBoS’s current grilling by the Banking Standards Commission.


What rubbed most people up about the way HBoS behaved wasn’t just the reckless lending practices it exhibited, but the fact that the organisation went about it as if it had reinvented the wheel. Yes, it cornered the lion’s share of the market in the early noughties, but given the price and risk it operated at, something would have had to have been seriously amiss for it not to capitalise on such tactics. There seemed to exist a belief among the group’s top brass that its position had somehow been earned through graft and ingenuity, when it was clear for all to see that if you price cheaper than anyone else (not to mention the occasional undercut here and there), volume is bound to follow.


The salt in the wounds of those who foresaw all this happening is that we are now approaching the fifth anniversary of the banking crisis and the full facts of this particular debacle have still yet to emerge. Review after review has been conducted – and the Financial Conduct Authority’s own take on the HBoS scandal is unlikely to emerge until the autumn – yet it was the end of last year before James Crosby conceded his incompetency and drawing further apologies from the main protagonists has been akin to extracting blood from a stone. No wonder the Banking Standards Commission has labelled Lord Stevenson – the HBoS chairman at the time of its collapse – as living in cloud cuckoo land. Perhaps the worst slight of all was that Stevenson was “delusional rather than mendacious”. Being labelled a liar or a fraud is one thing, but questioning one’s sanity is a whole other level of insult.


HBoS was far from the only banking group that took leave of its senses over the past decade, but what made the reckless behaviour of the few even more galling was that solid lenders such as ourselves who fully understood the relationship between risk and return suffered as a consequence.


The recommendations included within the Mortgage Market Review should ensure the industry never returns to the free and easy credit days before the collapse, but how much have the central characters really learnt from the crisis given the State, i.e. taxpayers, were forced to step in and clear up their mess? Hopefully in the long run those of us who stuck to our responsible lending guns will emerge the victors in all of this, but it’s certainly requiring a lot of patience to be proved right on this front. The coy adage runs that “I hate to say I told you so”, but in this instance, most of the mortgage market will be echoing this very sentiment.      


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