Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a1044728

Lloyds exec refused to sign off £10bn HBOS rescue

Former chief risk officer at Lloyds initially refused to approve controversial rescue of Halifax Bank of Scotland in 2008, court documents reveal.

 
Lloyds exec refused to sign off £10bn HBOS rescue
 

The former chief risk officer at Lloyds Banking Group initially refused to sign off on the rescue of Halifax Bank of Scotland (HBOS) in 2008, because of concerns, according to court documents.

The Financial Times has reported that the allegation was made during the £600 million High Court lawsuit brought against the bank by 6,000 investors.

Documents said that chief risk officer Carol Sergeant expressed her concern over entering the transaction, providing a £10 billion loan facility in early 2008 to the debt-stricken bank, directly to former chief executive Eric Daniels.

The shareholders who launched the suit are suing Lloyds and five former directors of the bank including Daniels. They claim that they were misled when approving the takeover of HBOS. They say that important information about HBOS was withheld from them while Lloyds and the directors deny any wrongdoing.

The claim says: ‘The fact that Lloyds was granting or had granted a £10 billion loan facility to HBOS was at all material times treated as secret by Lloyds and the knowledge of the transaction was limited to a relatively small group of people.’

While Sergeant initially expressed concern over 'exporting their liquidity problems to us before consummation and in such extraordinarily difficult markets', she later signed off on the deal. 

The case goes to trial in October. 

Earlier this year, Lloyds set up a £100 million compensation scheme for victims of small business fraud by HBOS managers.

In February Lynden Scourfield, a former HBOS manager, was jailed for 11 years after being convicted of bribery and fraud. Five associates, including consultant David Mills and ex-HBOS banker Mark Dobson, were imprisoned for a combined 36 years and nine months.  

Lloyds maintained that it could not establish whether a crime had been committed. It came under fire for being slow to react to the fraud, however has now appointed Professor Russel Griggs OBE to carry out an independent review and reassess victims’ compensation claims.

10 comments so far. Why not have your say?

Law Man

Aug 29, 2017 at 19:19

Well done Carole Sergeant; but why did she later "sign off on the deal"? Did the facts change?

report this

richard tomkin

Aug 29, 2017 at 22:19

This is all very interesting.I would like to hear from Lord Stephenson of Coddenham,Sir Victor Blank,and Gordon Brown on the background to this crisis arrangement.What have they to say ?

report this

George Bowen via mobile

Aug 30, 2017 at 07:06

In my view the role that Victor Blank played should be examined and if as I suspect, criminal charges laid.

report this

phil2121

Aug 30, 2017 at 10:24

Is not about time to give HBOS it`s independence again the UK retail Banking sector is going back to it`s old monopolistic ways. Perfect example Lloyd's bank being allowed to take over MBNA.

report this

Anonymous 1 needed this 'off the record'

Aug 31, 2017 at 16:43

Not only was the loan of £10bn NOT disclosed. Emergency Liquidity Assistance from Bank of England of about £25bn and US Federal Reserve assistance of billions was not revealed to shareholders who had to vote for the merger of Lloyds TSB (AAA rated) with HBOS (bust bank).

Share price crashed. Dividends suspended.

Trial on 4th October 2017 to recover shareholder losses.

What about the Secret Dossier?

report this

Anonymous 1 needed this 'off the record'

Aug 31, 2017 at 16:49

Read the Plenderleith Report.

http://www.bankofengland.co.uk/publications/Documents/news/2012/cr1plenderleith.pdf

" From 14 October 2008, HMT provided an indemnity to the Bank for any amounts above the amount drawn under these facilities at close of business on 13 October 2008. The HBOS facility was therefore indemnified above £23.1 billion and the RBS sterling facility was indemnified above £13.5 billion. The US dollar ELA facility was not indemnified. This meant that, at peak on 13 October, £51.1 billion of the Bank’s exposure to these two banks was not indemnified. Once the US dollar facility was repaid on 17 October, £36.5 billion remained unindemnified"

"The ELA facilities to both banks were provided covertly and their existence was not publicly disclosed until 24 November 2009, when the Bank published details of the facilities "

report this

Anonymous 1 needed this 'off the record'

Aug 31, 2017 at 16:52

"Any change in the pattern of their funding, from struggling to roll over market funding at increasingly short maturities before they received ELA to a more orderly process of funding after receipt of ELA, was effectively blurred, only a week after ELA was initiated, by the more far-reaching announcement on 8 October of the Government recapitalisation scheme for banks and of the Credit Guarantee Scheme (CGS), of which both banks took advantage. Again, general market disturbance provided camouflage for the specific problems of two individual banks."

report this

Anonymous 1 needed this 'off the record'

Aug 31, 2017 at 16:53

"In particular, banks had been utilising the SLS since April to alleviate their funding difficulties. The sterling ELA extended to HBOS and RBS was very similar in structure to the liquidity provided under the SLS (9-month T-bills provided by the Bank on a collateral swap against illiquid assets). So provision of additional T-bills to two banks in ELA operations, and their use by those two banks in the market or in the Bank’s operations, would not have been distinguishable in the market from T-bills provided in the SLS. In this sense, while the SLS was directed to a different purpose, it served as camouflage for the ELA operations"

report this

Anonymous 1 needed this 'off the record'

Aug 31, 2017 at 16:54

There is much more!

report this

Tomboy

Sep 02, 2017 at 14:25

Gorden Brown was the man who abolished Boom & Bust & sold the gold reserves for peanuts we have had some wonderful P M s over the last 40 years

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire Guide to Investment Trusts


In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.

Watch Now

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Read more...

Black Monday: 30 years on from the 1987 crash

by Michelle McGagh on Oct 19, 2017 at 12:48

Sorry, this link is not
quite ready yet