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.


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.

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