PETER CUMMINGS, one of the former executives whose property lending led HBOS to the brink of collapse in 2008, was yesterday fined a record £500,000 by the financial regulator and banned from holding any senior banking, investment, or insurance position for life.
In a damning indictment of what was seen as a cavalier lending style that placed more store on revenues than risk management, the Financial Services Authority (FSA) said Cummings, as chief executive of the corporate lending division, “led a culture of optimism which also affected the division’s judgment about bad debts”.
Cummings – who retired in 2009 with a pension of more than £350,000 a year – hit back, saying he rejected the decision “in its entirety” and supporters accused the FSA of treating him as a scapegoat.
The FSA said that between January 2006 and March 2008 Cummings “failed to exercise due skill, care and diligence by pursuing an aggressive expansion strategy within [the division] without suitable controls in place to manage the associated risks”.
He was judged to have “failed to take reasonable care to ensure that the corporate division adequately and prudently managed high value transactions which showed signs of stress”.
And the regulator said the division “saw risk management as a constraint on the business rather than an integral part of it”.
Cummings helped fund a series of mega-deals for the likes of Bhs-to-Top-Shop retail magnate Sir Philip Green, Scottish business heavyweight Sir Tom Hunter and Mike Ashley, the owner of Sports Direct.
But in 2008 HBOS had to be rescued by Lloyds when the financial crisis struck, involving a £17bn taxpayer bail-out, including £11.5bn at HBOS. The taxpayer is still nursing billions of pounds of losses.
The FSA said Cummings “chose not to follow the approach to levels of [debt] provisioning which had been advised by the bank’s auditors and the division’s own risk function”.
Terry McDermott, director of enforcement and financial crime at the FSA, said: “Despite being aware of the weaknesses in his division and growing problems in the economy, Cummings presided over a culture of aggressive growth without the controls in place to manage the risks associated with the strategy.
“Instead of reacting to the worsening environment, he raised his targets as other banks pulled out of the same markets.”
The FSA said it would now begin work on its report into the collapse of HBOS in 2008. It said it had not been able to do so until the conclusion of enforcement proceedings to avoid the risk of legally prejudicing the outcome of those enforcement actions.
Cummings said he did not accept liability for the matters laid out in the decision and claimed he had been subjected to a “fundamentally flawed, one-sided and oppressive process”.
He said the banking industry had been almost destroyed in the financial crisis of 2007 and 2008, with banks’ boards, governments and regulators all sharing collective responsibility.
“But the fact that I am the only individual from HBOS to face investigation defies comprehension.” He said he would not be appealing the decision in the regulator’s Upper Tribunal, where he would have been able to get an independent hearing and could call his own witnesses, due “to the enormous potential costs involved” and the further strain the process would have placed on him and his family.
“For the past three and a half years I have been singled out and subjected to an extraordinary Orwellian process by an organisation that acts as lawmaker, judge, jury, appeal court and executioner. The FSA has never had to prove its case to anyone other than itself, and sits safe in the knowledge that few individuals can afford to take it on.
“The decision to single me out for investigation is even more grotesque given that even the FSA has to admit in its notice that other senior people were involved in the critical decisions for which I am taken to task. This is tokenism at its most sinister, and has made it feel throughout like institutional oppression. The FSA failed even to interview a significant number of HBOS’s senior executives and non-executives, including its former group finance directors and the divisional finance director, in its investigation. This alone highlights the fundamental shortcomings in its investigation, which failed for example to address the question of who set the financial targets that the corporate division had to meet.”
Hunter said: “Peter Cummings is a man of complete integrity and has been wronged by this injustice wrought through a flawed process where key evidence from critical witnesses simply was not called upon.” He said the report adds nothing to the sum of learning about the financial meltdown and “calls into question the judgment of those that pursued one man”.