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Black Horse Ride: The Inside Story of Lloyds and the Banking Crisis
Longlisted for the FT and McKinsey Business Book of the Year Award 2015 In September 2008, HBOS, with assets larger than Britain's GDP, was on the edge of bankruptcy. Its collapse would have created the biggest economic crisis since the 1930s and a major political disaster for the Labour government. With the help and support of Gordon Brown, HBOS was rescued by Lloyds TSB, one of the country's strongest banks, in circumstances that have since become the stuff of City legend. In the highly acclaimed Black Horse Ride, veteran financial journalist Ivan Fallon brings together the accounts of all the power players involved in this dramatic saga for the first time, including the key roles played by the Governor of the Bank of England, the Prime Minister and the Treasury. Through a compelling cast of prominent bankers, politicians and investors, Fallon reveals what really occurred in the aftermath of the crash of Lehman Brothers, perhaps the worst single day in banking history.
456 pages, Kindle Edition
First published June 18, 2015
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Displaying 1 - 4 of 4 reviews
April 8, 2016
In the time I worked in banking I experienced two mergers (well, one merger and a takeover). The first involving Lloyds and TSB was, in retrospect, fairly easy: ok, the IT systems didn’t speak to each other for an age, but on the staff side it always felt like we were all pulling in the same direction. The second one was different. When Lloyds ‘rescued’ HBOS in 2008 the banking world was in turmoil and after the deal was done, and particularly after it became clear how swallowing this toxic beast had impacted the healthy bank, it felt… well, difficult to swallow.
For most staff I knew in the new Lloyds Banking Group there were three questions we wanted (but never got) answers to:
1. Were Victor Blank (Chairman of Lloyds) and Eric Daniels (CEO) pushed into the takeover of HBOS by the then Prime Minister, Gordon Brown?
2. Did Daniels, as he later suggested, fail to complete satisfactory due diligence before the takeover was signed and sealed – and if so why didn’t he extract guarantees from the government to protect Lloyds against unforeseen problems in the HBOS business?
3. Why was the deal done without a guarantee that the government would look after competition issues (including Brussels) to prevent the need to sell off branches later?
The answers to all these questions are here, and a good deal more too. I found it to be a comprehensive walkthrough of the recent history of Lloyds Bank, the strategic challenges it faced leading up to the 2008 banking crisis and a pretty detailed meeting by meeting account of how events played out. It also provides an interesting view on what the longer term impacts of the takeover are.
The scope of this book is actually wider than just the Lloyds/HBOS issue, taking in the impacts on all the UK banks and also exploring the global picture. It’s familiar stuff to anyone who followed the news at that time, but I learnt a good deal more about how events played out.
It’s not possible to tell just how accurate this portrayal is, but the author is a well respected journalist and he seems to have gained access to many key sources in writing this account. Through it all, Blank and Daniels actually come out of it quite well – better than I thought they would. It’s pretty damning of the Treasury, the Bank of England and the Financial Services Authority, though. Brown, too, doesn’t come come out of it well at all.
By the way, the answers to the questions are:
1. No. Daniels had been talking to Andy Hornby (CEO, HBOS) for a couple of years about a possible merger. They hadn’t progressed due to the competition issues. The financial crisis provided a window of opportunity to slip this deal through.
2. No. Due diligence was completed to the standard you’d expect in a takeover of this kind. The problem was twofold: Lloyds couldn’t see the detailed lending book until the deal was completed and the economic downturn ran much deeper than anyone predicted, thus throwing out all the calculations anyway. But, the guarantee was never sought – and given the pace of events it should have been.
3. A verbal confirmation was obtained, but this was never confirmed in writing. Interestingly, in his conclusion the author suggests that this might turn out to be a blessing in disguise. Lloyds probably ended up with too many branches and in batching up and selling off TSB it actually disposed of something that was cost heavy and revenue light.
A compelling read for anyone interested in learning more about how the banks and the government worked their way through the crisis and also anyone who has a hankering to learn a bit more about how top executives in big businesses earn their crust.
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pre-read thoughts...
Having spent just about 40 years with TSB, then Lloyds TSB, then Lloyds Banking Group, I know how it felt to go through the HBOS merger from the inside: the bad feeling and suspicion from the staff of both banks and further down the line the growing certainty that the whole deal had been botched. It'll be interesting to see what some of the people who were involved in framing and executing the deal have to say about it. I don't expect the whole truth - this will, no doubt, come out in time - but I'm looking forward to hearing their story, all the same.
For most staff I knew in the new Lloyds Banking Group there were three questions we wanted (but never got) answers to:
1. Were Victor Blank (Chairman of Lloyds) and Eric Daniels (CEO) pushed into the takeover of HBOS by the then Prime Minister, Gordon Brown?
2. Did Daniels, as he later suggested, fail to complete satisfactory due diligence before the takeover was signed and sealed – and if so why didn’t he extract guarantees from the government to protect Lloyds against unforeseen problems in the HBOS business?
3. Why was the deal done without a guarantee that the government would look after competition issues (including Brussels) to prevent the need to sell off branches later?
The answers to all these questions are here, and a good deal more too. I found it to be a comprehensive walkthrough of the recent history of Lloyds Bank, the strategic challenges it faced leading up to the 2008 banking crisis and a pretty detailed meeting by meeting account of how events played out. It also provides an interesting view on what the longer term impacts of the takeover are.
The scope of this book is actually wider than just the Lloyds/HBOS issue, taking in the impacts on all the UK banks and also exploring the global picture. It’s familiar stuff to anyone who followed the news at that time, but I learnt a good deal more about how events played out.
It’s not possible to tell just how accurate this portrayal is, but the author is a well respected journalist and he seems to have gained access to many key sources in writing this account. Through it all, Blank and Daniels actually come out of it quite well – better than I thought they would. It’s pretty damning of the Treasury, the Bank of England and the Financial Services Authority, though. Brown, too, doesn’t come come out of it well at all.
By the way, the answers to the questions are:
1. No. Daniels had been talking to Andy Hornby (CEO, HBOS) for a couple of years about a possible merger. They hadn’t progressed due to the competition issues. The financial crisis provided a window of opportunity to slip this deal through.
2. No. Due diligence was completed to the standard you’d expect in a takeover of this kind. The problem was twofold: Lloyds couldn’t see the detailed lending book until the deal was completed and the economic downturn ran much deeper than anyone predicted, thus throwing out all the calculations anyway. But, the guarantee was never sought – and given the pace of events it should have been.
3. A verbal confirmation was obtained, but this was never confirmed in writing. Interestingly, in his conclusion the author suggests that this might turn out to be a blessing in disguise. Lloyds probably ended up with too many branches and in batching up and selling off TSB it actually disposed of something that was cost heavy and revenue light.
A compelling read for anyone interested in learning more about how the banks and the government worked their way through the crisis and also anyone who has a hankering to learn a bit more about how top executives in big businesses earn their crust.
----------------------------------
pre-read thoughts...
Having spent just about 40 years with TSB, then Lloyds TSB, then Lloyds Banking Group, I know how it felt to go through the HBOS merger from the inside: the bad feeling and suspicion from the staff of both banks and further down the line the growing certainty that the whole deal had been botched. It'll be interesting to see what some of the people who were involved in framing and executing the deal have to say about it. I don't expect the whole truth - this will, no doubt, come out in time - but I'm looking forward to hearing their story, all the same.
May 11, 2016
Lloyds TSB was the third biggest bank in the world with a market capitalisation of €34 billion in 1996. The mighty Citibank, Barclays and Bank of America were only two-thirds its size, and for a brief spell in 1998 it had the honour of being the biggest banking house in the world. Skip forward ten years to 2006 and Lloyds had slipped to number five in the UK, sixteen in Europe and out of the world top twenty. Barclays, RBS and HBOS looked set to leave it behind in their quest for global growth while Lloyds was reaping 94 percent of its profits from the UK domestic market. City analysts, restless shareholders and yield-hungry investors could be forgiven for seeing it as the most boring and conservative of Britain’s ‘Big Five.’ So how did it end up being 43 percent owned by the UK taxpayer and earning the opprobrium of Her Majesty’s citizens?
Ivan Fallon does a splendid job of chronicling the dark days of October 2008 when the UK Treasury helped to broker a deal that had been off the table for the previous five years. Lloyds had a merger with HBOS at the top of its wish-list prior to the banking meltdown of September 2008, but did not expect the Competition Commission to approve an integration. It had mauled the bank in public and prevented a hostile £19 billion acquisition of Abbey National in 2001. A merger between Lloyds and HBOS would not have happened unless the entire banking system threatened to implode.
Story has it Gordon Brown approached the Lloyds Chairman, Victor Blank, at a Citigroup cocktail party the day after Lehman went bust, giving him an implicit nod to buy up HBOS before it suffered the same fate. Though not as simple as this, not one person in the Labour Government, Bank of England, FSA or in the City thought it a bad deal at the time. In some quarters Blank and Lloyds CEO, Eric Daniels, received praise as saviours of the UK banking industry.
This helps Fallon put a much-needed perspective on Lloyds during this period of crisis, and he’s right to correct perceptions this famous banking house was an accident waiting to happen. Aside from the colossal write-downs and collapsing share-prices of all major banks in 2008-09, Lloyds did a good job of resisting the casino banking and reckless proprietary trading of the fat-cat years. The sweeping history of legendary CEO Brian Pitman is a case in point: under his leadership between 1983 and 1997 Lloyds closed its US and Latin American banking operations and pioneered the modern day ‘Banc assurance’ model that now dominates UK high street banking. Everything from outsourcing call centres to India, cross-selling insurance products to current account holders, targeted mortgage brokering, and commission-based KPIs for retail staff helped Lloyds extract huge profits from the UK market. Few businesses succeed by turning their back on the wider world because it offends the instincts of free-market capitalism. Yet Lloyds increased returns on equity by up to 40 percent in Pitman’s last year, a figure rarely seen in the industry these days.
The main thing the reader comes away with after finishing this book is the sheer scale of the crisis that engulfed the western world. On the day of Victor Blank’s private chat with Gordon Brown at the Citigroup reception America had four global Investment Banks on Wall Street; two days later only Goldman Sachs and Morgan Stanley remained. AIG needed a $90 billion bailout to survive and the HBOS share price had lost a monumental 18 percent in the space of hours. The word ‘Armageddon’ is mentioned too often to describe catastrophic world events, but is not exaggerated here.
Daniels and Blank thought they had the deal of the century, but did not count on the merger being forced through at a shotgun pace for political as well as economic reasons. Daniels in particular believes the Treasury stigmatized Lloyds as one of the irresponsible banks in need of recapitalisation, even though Barclays got permission to raise £7 billion from private sources (mainly the Qatar Government) and did not have to participate in Alistair Darling’s bailout deal in October 2008. In Fallon’s view, the ‘no support without capitalisation’ offer from the government allowed too many exceptions, unlike the US Treasury’s determination to force all major banks to take capital regardless of their health. Yet even this was not enough to mitigate the losses from the HBOS loan book: by February 2009 Lloyds had identified 40 percent of HSBOS’s £432 billion loan assets at risk. By the end of the year they wrote off £18 billion in losses.
Instead of saving the UK banking system, Lloyds got swallowed up in its worst moments of crisis and took a massive hit on acquiring a bank Gordon Brown refused to privatise. The subsequent ‘too big to fail’ subsidy put Lloyds in the firing line of public anger even though it did not cause the crisis and continued lending to SME and home-owners during the credit crunch. Politicians and an excitable media are quick to cite the £46 billion of HBOS losses between 2008 and 2011, but are often guilty of confusing write-offs with provisions. It’s clear the author has a lot of sympathies for the Black Horse.
But though Fallon is right to separate Lloyds from the recklessness of RBS and HBOS, one cannot help feeling he is perhaps too sycophantic towards Victor Blank. Lloyd’s unenviable position as the number one mis-seller of PPI in the period 2000-2009 is also glossed over, despite the fact the bank put aside £6.3 billion in 2013 to cover compensation claims (the largest of any UK lender). And for a bank with an aversion to Derivatives, Fallon forgets to mention Lloyds contributed to an FSA fund of £3 billion in 2012 to compensate business customers forced to take out Interest Rate Swaps as a condition for loan approvals. This is not the behaviour of a cautious or boring bank.
Nevertheless, Black Horse Ride is an instant classic and should still be on the book shelves in ten years. Fallon has a wide network of sources and years of experience as a financial journalist and commentator. Readers not steeped in the intricacies of Mergers & Acquisitions, share price fundamentals and impairment provisions should not be daunted by the subject matter and will find this as good as any introduction to the world of Commercial Finance & Banking.
Ivan Fallon does a splendid job of chronicling the dark days of October 2008 when the UK Treasury helped to broker a deal that had been off the table for the previous five years. Lloyds had a merger with HBOS at the top of its wish-list prior to the banking meltdown of September 2008, but did not expect the Competition Commission to approve an integration. It had mauled the bank in public and prevented a hostile £19 billion acquisition of Abbey National in 2001. A merger between Lloyds and HBOS would not have happened unless the entire banking system threatened to implode.
Story has it Gordon Brown approached the Lloyds Chairman, Victor Blank, at a Citigroup cocktail party the day after Lehman went bust, giving him an implicit nod to buy up HBOS before it suffered the same fate. Though not as simple as this, not one person in the Labour Government, Bank of England, FSA or in the City thought it a bad deal at the time. In some quarters Blank and Lloyds CEO, Eric Daniels, received praise as saviours of the UK banking industry.
This helps Fallon put a much-needed perspective on Lloyds during this period of crisis, and he’s right to correct perceptions this famous banking house was an accident waiting to happen. Aside from the colossal write-downs and collapsing share-prices of all major banks in 2008-09, Lloyds did a good job of resisting the casino banking and reckless proprietary trading of the fat-cat years. The sweeping history of legendary CEO Brian Pitman is a case in point: under his leadership between 1983 and 1997 Lloyds closed its US and Latin American banking operations and pioneered the modern day ‘Banc assurance’ model that now dominates UK high street banking. Everything from outsourcing call centres to India, cross-selling insurance products to current account holders, targeted mortgage brokering, and commission-based KPIs for retail staff helped Lloyds extract huge profits from the UK market. Few businesses succeed by turning their back on the wider world because it offends the instincts of free-market capitalism. Yet Lloyds increased returns on equity by up to 40 percent in Pitman’s last year, a figure rarely seen in the industry these days.
The main thing the reader comes away with after finishing this book is the sheer scale of the crisis that engulfed the western world. On the day of Victor Blank’s private chat with Gordon Brown at the Citigroup reception America had four global Investment Banks on Wall Street; two days later only Goldman Sachs and Morgan Stanley remained. AIG needed a $90 billion bailout to survive and the HBOS share price had lost a monumental 18 percent in the space of hours. The word ‘Armageddon’ is mentioned too often to describe catastrophic world events, but is not exaggerated here.
Daniels and Blank thought they had the deal of the century, but did not count on the merger being forced through at a shotgun pace for political as well as economic reasons. Daniels in particular believes the Treasury stigmatized Lloyds as one of the irresponsible banks in need of recapitalisation, even though Barclays got permission to raise £7 billion from private sources (mainly the Qatar Government) and did not have to participate in Alistair Darling’s bailout deal in October 2008. In Fallon’s view, the ‘no support without capitalisation’ offer from the government allowed too many exceptions, unlike the US Treasury’s determination to force all major banks to take capital regardless of their health. Yet even this was not enough to mitigate the losses from the HBOS loan book: by February 2009 Lloyds had identified 40 percent of HSBOS’s £432 billion loan assets at risk. By the end of the year they wrote off £18 billion in losses.
Instead of saving the UK banking system, Lloyds got swallowed up in its worst moments of crisis and took a massive hit on acquiring a bank Gordon Brown refused to privatise. The subsequent ‘too big to fail’ subsidy put Lloyds in the firing line of public anger even though it did not cause the crisis and continued lending to SME and home-owners during the credit crunch. Politicians and an excitable media are quick to cite the £46 billion of HBOS losses between 2008 and 2011, but are often guilty of confusing write-offs with provisions. It’s clear the author has a lot of sympathies for the Black Horse.
But though Fallon is right to separate Lloyds from the recklessness of RBS and HBOS, one cannot help feeling he is perhaps too sycophantic towards Victor Blank. Lloyd’s unenviable position as the number one mis-seller of PPI in the period 2000-2009 is also glossed over, despite the fact the bank put aside £6.3 billion in 2013 to cover compensation claims (the largest of any UK lender). And for a bank with an aversion to Derivatives, Fallon forgets to mention Lloyds contributed to an FSA fund of £3 billion in 2012 to compensate business customers forced to take out Interest Rate Swaps as a condition for loan approvals. This is not the behaviour of a cautious or boring bank.
Nevertheless, Black Horse Ride is an instant classic and should still be on the book shelves in ten years. Fallon has a wide network of sources and years of experience as a financial journalist and commentator. Readers not steeped in the intricacies of Mergers & Acquisitions, share price fundamentals and impairment provisions should not be daunted by the subject matter and will find this as good as any introduction to the world of Commercial Finance & Banking.
September 11, 2017
I think this book is aimed at readers with a good knowledge of banking because it uses lots of jargon. I enjoyed the start of this biography-of-a-bank, but half way through it became obvious it was a hagiography. Lloyds is this perfect bank - like a lighthouse of prudence in a wild storm. Fallon is really patronising about anyone who worked for the government or for a bank that wasn't Lloyds. Nothing about PPI. It felt like a Lloyds commission. Too biased to be interesting or reliable on any level.
February 6, 2017
Relatively easy reading and brings a fresh perspective to the financial crisis in the UK. Encompasses history, psychology, politics, business etc. Is unashamedly biased and one or two bits require a little bit of financial understanding.
Displaying 1 - 4 of 4 reviews