Death of a bank: the downfall of a Scottish institution and how it happened

by BILL JAMIESON, THE SCOTSMAN NEWSPAPER, SUNDAY 14TH DECEMBER
INEVITABLE, and shocking. Overwhelming, and shocking. Humiliating, and shocking. At 12:40pm yesterday, the last of HBOS's shareholders threw in the towel and voted to accept the takeover bid from Lloyds TSB. And less than an hour later, at 1:30pm, I cast my own vote of sorts. I made my last cash withdrawal from the Bank of Scotland, as we know it.This was more than a gesture for me. I have had an account with the Bank of Scotland for 53 years. My father took me to the local branch of British Linen and opened an account in my name. That was a day of pride. Yesterday was a day of infamy.I had never thought, over that half-century, that I would ever outlive what was always more than a bank. It was part and parcel of being a Scot, and of Scottishness. And when I moved to London, I banked with the Bank of Scotland in Threadneedle Street. I loved its tradition and its "differentness". I wrote its cheques with pride. So yesterday, for me, was more than the loss of a bank through a merger. It was the loss of a constancy and the passing of an identity that had outworn and outlasted and endured through all the different phases of my life. I feel sadness. Millions of Scots will feel that. But I feel, too, a great shaft of anger.It is not Lloyds that has stolen the bank. It was lost on our watch and through lack of vigilance. It was lost through some of the biggest and most ruinous misjudgments made in the history of Scottish banking.In the scramble for mortgage market share, the leveraging up of the loan book, the crashing through of long-standing ratios of debt to income and loan to value, the concentration of corporate lending in building and property development and, through all this, an insouciant insistence that full provisions had been made and that it was only the stock market that had got it all wrong, the result is not just a capitulation but a Culloden. Yesterday brought a trading update revealing a near doubling of bad-debt provisioning in less than three months that was nothing else than utterly shocking.It is hard to recall that, less than ten years ago, the Bank of Scotland had one of the best reputations in British banking. Under Bruce Pattullo, it expanded and innovated but maintained throughout a firmness of vision and purpose. There was no diversification into estate agency or stockbroking or whatever passing fad had ramped up the prices of these trophy assets at the time. Pattullo saw through all that. And the analysts, fund managers, shareholders and customers deeply respected him for it.Under his stewardship, the Bank of Scotland was the first to raise a rights issue without any prior underwriting in place – such was the confidence in the bank's record, its management and its clarity of purpose. Yesterday, we handed over the wreckage of the ensuing nine years. With that trading statement and the vote that followed went 300 years of Bank of Scotland history – through wars, European revolutions, depressions and booms. The bank could manage those. All of those, in fact, except the vainglorious pride of today's generation of executive bankers and a bonus system that lit the road to ruin. Seldom has a board of directors left the platform of a public company with such a trail of devastation behind them. And seldom has the word "sorry" been used so cheaply. Sorry doesn't cover a fraction of the havoc these people have wreaked, and the institution they have destroyed. Were the directors victims of an epochal storm that few ever expected would hit global finance? Up to a point. But not all banks have been brought to their knees in such a humiliating manner as HBOS. Its shares have collapsed by 90 per cent. The collapse has been intense, and the speed terrifying. But seldom has a board of bank directors grown more slowly wise to the enormity of the crisis that hit them. Andy Hornby, the chief executive who presided over this catastrophe, is to be retained by Lloyds on a salary of £60,000 a month. Have we totally lost all sense of humility and shame? This surely, is a contract that will live in infamy. Now, with the bank's balance sheet shot to blazes and its shares plunging further, it deigns to tell 2.1 million shareholders: "Sorry." It is beyond despicable. After all this, ownership by Lloyds should be a relief. Ironically, its conservative banking culture is reminiscent of that of Pattullo at his best. But that did not make this day any better or easier or more acceptable. Sorry? That's the very least I feel today.