MortgagesDec 16 2015

It’s my job to say ‘You’ll blow the bank up’

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Paul Moore, the former head of group regulatory risk of HBoS, is, perhaps understandably, an angry man.

Mr Moore headed the bank’s compliance team during the early 2000s, and tried to warn the management that the bank was taking too many risks. Their response, he said, was to fire him, and three years later the bank unravelled as it was overly dependent on wholesale financial markets that had seized up, and was forced to be rescued by Lloyds TSB.

“James Crosby [former CEO] fired me because I challenged his business strategy, which is my job. It’s my job to say ‘You’ll blow the bank up’. I had overwhelming evidence that HBoS was out of control.

“What’s so galling about this is that senior managers are going to get away with it because the regulator failed to do what it should have done. They’re going to walk away with millions of pounds and no real punishment.”

He is talking now, partly because he has just written a book about his experience at HBoS and afterwards, and because the PRA and FCA have just published their report into the failure of the bank.

The report has been praised because it describes in some detail the risks that the bank was taking and HBoS’ senior management’s decision to instal a head of risk whose background was in sales.

The problem for Mr Moore is that he claims he was painted the bad guy – only going to the FSA with his experience of the bank’s obliviousness to the risks it was taking once he had lost his job.

At HBoS, he had tried to do what he was paid to do, to “slow the bank down”. Mr Moore recalled: “All of us should be saying: ‘This strategy doesn’t add up.’ It’s got a risk strategy that won’t work and it will lead to disaster. They wanted me out of the way.

“When I was fired, James Crosby said I was being made redundant. I said my job is required by the regulator. He said it was because I had lost the confidence of the executives. I had told him that when I took on this job I was going to upset people.”

Mr Moore has paid a heavy price for his attempts to change the strategy the bank was pursuing. He has suffered clinical depression and alcoholism, his reputation has been seriously tarnished and his family have been heavily affected by it.

However, the outlook for him was promising initially. He trained as a barrister, before moving into compliance roles in financial services. Mr Moore ended up as a partner in KPMG, working in compliance for seven years, receiving, he said, accolades as one of its best-performing partners, known for dealing with big remedial cases.

In 2002, he moved to HBoS, taking on a job as head of regulatory and operational risk management in the insurance and investment division before he was promoted to head of group regulatory risk in 2003.

James Crosby had been in charge for two years as chief executive of the combined group, formed from Halifax and Bank of Scotland, and formerly of Halifax, and according to the PRA report, had big ambitions.

The report noted that the bank planned to achieve a return-on-equity goal of 20 per cent, with aggressive growth targets, dominant market share and tight cost control.

The report said: “What the strategy lacked was a clear articulation of the risks faced by the firm and its risk appetite in pursuing its objectives. The group put itself under pressure to maintain an increasing level of income.

“As margins declined on all forms of lending, a search for yield pushed it towards more risky propositions.”

Why does Mr Moore think senior management pursued this strategy? He said: “In a sense I’ve asked myself that question 100 times. Were they completely mad? Did they think, somehow or other, that they could do things no other bank in the history of time could never do?

“Or did they knowingly do it to make money for themselves? By the time they got to 2004/2005 they could have saved themselves if they had changed their strategy.”

Once Mr Moore left HBoS, he felt he had a duty to go to the then FSA and tell them what was happening. “You do everything you can to operate within your existing management structures. If that doesn’t work then you blow the whistle to the regulator in full detail.”

But he claimed the FSA did not take him seriously. KPMG – ironically Mr Moore’s former employer – investigated his views about HBoS, namely that his replacement at HBoS was unsuitable, and management did not like to be challenged about its risky practices. KPMG concluded that the allegations were unfounded.

However, Mr Moore claims there was more to it. At that time, Mr Crosby was on the FSA board, eventually becoming deputy chairman, which raised questions for many people and, for Mr Moore at the time, about his potential influence.

He said: “The PRA report says there’s no evidence of [Mr] Crosby’s influence when he was a non-executive director. But the mere fact that he was there creates influence.”

Mr Moore is also critical of the auditor, KPMG, ironically his former employer, who investigated his claims of unfair dismissal and his allegations about HBoS.

Mr Moore points to a paragraph in the FCA/PRA report, that highlights the fact that HBoS needed wholesale, short term funding of £125bn in March 2008. He said: “They had to finance more than the cost of the NHS in three months, and still KPMG allowed them to launch a rights issue.” The £4bn rights issue in July that year was a massive flop

So what does Mr Moore plan to do for the future? He has set up a publishing house, called New Wilberforce Publishing that is designed to publish books from other whistleblowers. He also wants directors to give up their right to a limitation period, which has contributed to the likes of James Crosby, and his second in command, Andy Hornby, from facing serious censure.

He is adamant, though. “I just thought I was doing my job. Whistleblowers have a blindness to their own risk. It comes as a huge shock that no one wants them to tell the truth.”

Melanie Tringham is features editor of Financial Adviser

Paul Moore’s career ladder

2012 - 2014 – Non-executive chairman, Assetz Capital

2009 to present – founder and owner of Moore, Carter & Associates

2006 - 2010 – Non-executive chairman and investor, Complete Networks

2005 - 2006 – Head of Compliance, EME Marsh

2003 - 2005 – Head of group regulatory risk, HBoS

2002 - 2003 – Head of regulatory and operational risk management, insurance and investment division, HBoS

1995 - 2002 – Partner, regulatory services practice, KPMG

1990 - 1994 – General counsel and compliance officer, Acuma, part of American Express

1984 - 1989 – Legal Manager, product development group, Allied Dunbar Assurance