The man who finished off HBOS

The man who finished off HBOS

If Peter Cummings has any sense or pride, he’ll do his best to avoid this morning’s newspapers.

Although no stranger to the media limelight or controversy, even Cummings might be taken aback at the widespread depiction of him today as the man who not only bought down one of the world’s biggest banks, but also helped precipitate the worst financial and economic crisis for 60 years.

Until January this year, Cummings was head of the corporate division at HBOS, a role that involved dishing out billions of pounds in loans to the business elite.

A Dumbarton lad who originally joined his local Bank of Scotland branch at the age of 16, by 2005 Cummings was the Edinburgh bank’s highest-paid director, earning even more than HBOS chief executive Sir James Crosby.

Last year alone, Cummings pocketed some £2.4 million in pay and benefits.

The key to Cummings’ success appears to have been cultivating relationships with a small but impressive group of worthies, from retail giant Sir Philip Green to newspaper magnates the Barclay Brothers.

Business was agreed on little more than a handshake, the Times reports this morning in a terrific profile of the big man, evoking a time not so long ago when governance and risk control were just things other people did (you can find the Times piece here).

Sir Philip Green had particular reason to foster Cummings’ friendship, with the HBOS man stumping up £950 million of the bank’s money to fund Green’s purchase of Arcadia. Retailers and property investments seem to have been particular favourites of the HBOS corporate loans division.


And for a period the strategy bore fruit, with corporate banking returns rising to £3.2 billion in 2007 – a whopping 40% of overall profits. Not bad for an organisation that used to make modest profits by taking in retail deposits and lending prudently, and that includes within its ranks one of the UK’s biggest former building societies.

By the end of his tenure – an end which astonishingly didn’t come until January this year – Cummings had built up a loan book worth more than £100 billion. As recently as February 2008, he was still ploughing money into property companies, and perhaps more surprisingly was happily telling the market about it.

The problem, however – a problem that became horribly apparent over the course of 2008 as recession struck – was that a large proportion of HBOS’s corporate loans were in investments that were horribly frothy and reliant on benign economic conditions.

These were cyclical investments, as fund managers like to say.

Yesterday we saw the consequences of such ill-thought-through cyclical investment, of straying away from the fundamentals of sound banking, when Lloyds Group – now owner of HBOS – reported a £4 billion loss on the back of bad debts of £13.4 billion.

Around £10 billion of this sum relates directly to HBOS, and in particular the loans made by Cummings and his team. Many of the names Cummings took a gamble on have either bitten the dust or seen their values fall sharply, which in turn has hit the bank’s balance sheet and profits hard.

So hard, in fact, that by last autumn the once-proud HBOS was on the verge of collapse, and was saved from the abyss only by the decisive and costly intervention of the Treasury, the Financial Services Authority, the Bank of England and, finally, the Prime Minister.

Thanks to the excesses of Cummings and his ilk, it has taken tens of billions of pounds of taxpayer cash, and the creation of a disastrously monopolistic banking behemoth, just to avoid complete meltdown.

Worse still, the government has agreed to underwrite hundreds of billions of pounds of HBOS loans through its Asset Protection Scheme, the details of which we are still waiting to see.

In other words, the taxpayer will promise to pick up the bill for much of the reckless credit HBOS extended in the pursuit of personal and corporate gain, in an insurance deal that no commercial insurer would touch with a barge pole.

It might cost us nothing, it might cost us tens of billions – we just don't know.

It is a sorry tale, one which underlines the poverty of corporate governance arrangements (what were his fellow directors doing?), the short-sightedness of institutional investors (what were the fund managers doing?), and the insanity of letting any single bank become that big and complex (ideally, HBOS would have been allowed to fail).

In fact, just what we have come to expect from the banks and the financial sector.

Lloyds chief executive Eric Daniels was circumspect in his criticism of the HBOS executive yesterday, although his admission that much of HBOS’s lending was outside the scope of Lloyds’ ‘traditional low-risk appetite’ was clear enough. He doesn’t think this is how a bank should be run, and he is quite right about that. (See Q&A: what next for Lloyds?)

Cummings, meanwhile, appears to have learnt the lessons of his peer Sir Fred Goodwin, and has gone to ground, not heard from for months. He might be in Spain, he might be in his native Dumbarton – no one seems to know.

What is clear, however, is that he is now fabulously wealthy, having earned a small fortune in his banking career and having retired at the age of 53 on a pension of £352,000 a year.

It was ever thus: bankers cream the rewards and then make us pay the price when it all goes wrong. No wonder people are so angry.


citywire.co.uk