Published on 5 Apr 2013

Was HBOS the worst bank in the world? You vote

You can cast your votes on our Facebook page here or in the comments section below.

Today’s impressive Tyrie commission report into the profound and epic failure of HBOS got me thinking. HBOS, only alive for seven years, would come very high in any poll of the “worst bank in the world”.

It was an epic failure, well documented by the journalist Ian Fraser in his terrifying timeline, and in Ray Perman’s book Hubris. Last week I found myself inside the Bank of Cyprus headquarters with some understandably fed-up workers. In the foyer I found a host of gongs from financial media celebrating BoC being the eastern Mediterranean’s best bank.

Famously, Anglo Irish received the title of  “world’s best bank” from Oliver Wyman on behalf of the good burghers of Davos, just a few months before bringing down the finances of the entire Republic of Ireland.

Personally, I’m going with Bankia/Caja Madrid. I didn’t want to, but ended up writing a whole chapter of my book about Spain seen through the eyes of this abominable too-big-to-fail monster, created after the 2008 too-big-to-fail crisis. For the purposes of my vote, I include the financial incompetence exhibited by the savings banks Caja Madrid and Valencia-based Bancaja that formed Bankia.

Rules: this is the “worst”, not “most evil”, one per country. Surviving intact suggests at least one dimension of basic competence, so this is a list of bust and formerly bust banks. This is my shortlist of six:

Anglo Irish, Ireland

Cost 30bn euros, bankrupted Ireland, drove it into a troika programme. Terrible lattice of insider lending into small number of property boom-connected parties. Remnants recently liquidated. Read “Anglo Republic” by Simon Carswell. The children of Irishmen and women not yet born will still be repaying this debt in the 2050s. “Best bank in the world”, 2007.

Bankia, Spain

As Caja Madrid and Bancaja, these two savings banks were bad enough posterboys for property insanity, local government vanity projects, and friendly loans to construction companies. There is a layer of government complicity on top.

And then we have the overarching folly of the merger to create a too-big-to-fail institution AFTER everyone had worked out this was a disaster. Largest loss in Spanish history last month. Hundreds of thousands of pensioners lost money that they thought were savings, but were now worthless preference shares. Funded Ronaldo’s transfer to Real Madrid (!) and then repoed him at the European Central Bank. Stupidly shaped HQ.

HBOS, UK

Appallingly run bank that only lasted seven years. A one way all-encompassing bet on UK property bubble. Massive bonuses paid for a high street bank. Boss knighted, appointed to the regulator, and then asked to review mortgage market by Gordon Brown.

Corporate lending terrible too, pioneering hedge fund-style equity stakes. The nadir of UK self-regulation. Read Hubris by Ray Perman. Had to be rescued by Lloyds. Shocking report published today by Parliamentary Commission on Banking Standards. Annoying adverts.

Kaupthing, Iceland

Fourth biggest bankruptcy in world history. Appalling “shopping”, as Iceland’s central bank governor once told me. Appalling funding model included UK grannies, when the rest of the world gave up. Appalling cross-shareholdings.

Lending to shareholders revealed by Wikileaked lending book. Again bankrupted an entire nation, requiring massive devaluation, capital controls still in place. Questionable links with politics and industrialists.  Throw in Landsbanki and Glitnir and you have three of the top 12 bankruptcies in world history, from a country with the same population as Coventry.

Lehman Brothers, US

Largest bankruptcy ($120bn) in world history by a long shot. Instrumental in supersizing subprime boom after offering full service mortgage supply line from house to derivative. Caused collapse in world trade, and massive recession all around the world.

Laiki (Popular Bank), Cyprus

Again, a bank that essentially, effectively brought an entire nation to bankruptcy. The end result here saw capital controls, the longest western shutdown of a banking system since the 1930s, restrictions on the use of credit cards and the export of bank notes.

Its forced liquidation also led to massive losses for depositors in the largest Cypriot bank, Bank of Cyprus. The most egregious failures at Laiki concerned the continuing purchase of Greek government bonds even as every man and his dog knew they were about to get a large haircut.

There was also what former Laiki audit chair Chris Pavlou told me last week represented “very dodgy lending” in its Greek subsidiary. In its collapse, however, the role of incompetence at a European level, and the need to protect Greece from the consequences of bad lending in the Greek unit, also loom large.

Other suggestions from Twitter include: Monte de Paschi, Italy: Dexia (France/ Belgium); and Fortis (Belgium/ NL). I’m open to suggestions, but not convinced they rank in the big league.

You can cast your votes on our Facebook page here or in the comments section below.

Follow @faisalislam on Twitter.

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11 reader comments

  1. Philip Edwards says:

    Faisal,

    That;s rather like judging the financial health of the football English Premier League by its league table.

    Bit daft, really.

    I hope that book of yours does more than look at the mere technicalities of the international banks ripoff. If not, you might end up repeating the words of Gordon Gekko, Robert Peston, Bernie Madoff, Michael Milken and all the other tenth rate barrow boys and spivs that, “Greed Is Good.” And that would be a great pity.
    :-)

  2. Andrew Dundas says:

    Bear Stearns was first US Bank to go belly up. That precipitated other collapses leading up to the catastrophe of Lehmann Bros collapse.

    Relatively speaking – and you did ask about world busts – the Wall St collapses were easily the worst in the world. Their downfalls did for the rest of us.

  3. Hedley Lamarr says:

    Er……RBS? Still buying sub-prime when even Barclays had stopped; carried on with the ABN-AMRO deal even when it was obvious it was suicide?

    Northern Rock? business model was junk

    Lloyds – for being strong-armed by Gordon Brown into taking over the piece of junk HBOS?

  4. libi uremovic says:

    banks are giving out loans with no way to pay …the city of beaumont is $284 million in debt ….for the last 2 years the bank has given the city another $20 million bond debt just to pay the interests on past debt – there is no way the city can continue…if beaumont wasn’t cooking their books they would have been the 4th cali city to go bankrupt – http://www.libionline.net/follow-the-money-blog.html

  5. IGiveUp says:

    The worst? Where to begin? The current banking model is rotten to the core and needs a paradigm shift of philosophy so that it oils the wheels of capitalism without risking the assets of working citizens for personal gain of the individuals participating and being richly rewarded by the current gigantic con trick.

    I suppose Northern Rock comes to mind, but if I knew the extent of the fraud, I am sure it would be eclipsed many times over.

    If it wasn’t so serious, it would just be sad.

    1. Andrew Dundas says:

      NR’s plight certainly got attention. But it’s shareholders ended up losing everything and we taxpayers got a thriving small bank for nothing. Moreover, NR did not lend rashly as others did.
      What did for NR was the Wall St crash caused by “collateralised debt obligations” which were a mathematical con-trick. When US auditors asked how much theynwere really worth, the whole house-of-cards on Wall St came crashing down.
      Intertestingly, the US government bailed out Lehmann Bros – the greatest crash – and went on to making a healthy profit when they sold it on.

  6. Ray Turner says:

    Does it matter which is the worst when they’re all bad…?

    A bad bank, to whatever degree, is no good to anybody. We need them all to be solid, reliable and trustworthy instutions…

  7. adil says:

    Whilst it’s really tempting to blame the banks for the current situation there is another culprit and in my opinion I think that it’s us. The banks are only giving the shareholders what they want which are profits. Large, unreasonable profits. If we were to consider the implications of quick wins or get rich schemes perhaps the banks would be guided to a more moral line.

    I think that it’s very important that we realise that the nurturing of greed and the obsession with get rich quick schemes (the buy-to-let bubble comes to mind) is a fast track to disaster.

    In my opinion the current problems can be traced right back to the 1980s where get rich culture blossomed. Our current situation is a natural consequence of those times. The past 30 years provide a valuable lesson. The question is do we have the courage to learn from it?

  8. Y.S. says:

    If Scotland was independent would it have survived the RBS and HBOS going broke?

    1. Andrew Dundas says:

      Survive? No.
      So it’d be a re-run of the financial disaster that led directly to the bail-out Treaty of 1708.

  9. Shaun says:

    I’ve just been reading this: http://www.rollingstone.com/politics/news/everything-is-rigged-the-biggest-financial-scandal-yet-20130425

    Is there any truth in it? Makes the Libor thing look like small change.

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