The air just goes on smelling sweeter!

The resignation of Sir James Crosby following the whistleblowing revelations of Paul Moore, HBOS’ Head of Risk, highlights a major problem inside the culture of British financial services in the last 10 years.

Crosby’s arrogance would, at one time, have been thought incredible, but these days, we have come to learn that his, and other’s overweening egos are what have driven the banking gadarene rush to destruction.

Here was a man who had already been alerted (if we believe the FSA, and although I find it hard to credit, no doubt they have some documentation to back up their claim), alerted to the recognition by the FSA that they were concerned about the risk posture of his institution. He was then told by his Head of Risk (who up until that moment had presumably been doing a perfectly acceptable job) that the bank was ‘…growing too fast; had a cultural indisposition to challenge, and was a serious risk to financial stability and consumer protection…’

It is that phrase ‘cultural indisposition to challenge’ which so marks out the reason for the board actions and the office atmosphere of the workplace which these men ran like petty fiefdoms. What they demanded, they got, and no-one had the bottle to challenge them. They were nothing more than tin-pot bullies swaggering around their little empires, all of them playing mind games with their competitors, and treating their staff like serfs.

Faced with these two important warning, what did Crosby do? He ignored the regulator and sacked his Head of Risk.

Like you do!

He ignored the regulator because he knew he could afford to. In the culture of ‘light touch regulation’ they had passed on their warning, which would have been couched in a series of meticulously-minuted memos, and in the fullest use of the kind of English language we have learned to expect from the new ‘Office of Circumlocution’ . Crosby had every reason to suppose that this warning was nothing more than just a dice-roll, and that at any moment, the odds would come right in his favour, and he would be seen to be a Master of the Universe, while the FSA memo, in true regulatory fashion, would be kept confidential and never see the light of day again. As far as the warning from his Head of Risk was concerned, well the simple way to deal with him was to mark him down as a misfit. Despite their high-sounding titles, Heads of Risk, and Heads of Compliance, Money Laundering or Financial Crime, do not rank very far up the food-chain inside a major financial institution, and they are very expendable, if they do not sing the song the CEO wants to hear!

The problem with Crosby and his ilk is that they really do believe that they are immune from the effect of the ordinary ‘slings and arrows’ that the rest of us have to face, and the only ‘outrageous fortunes’ they have had to wrestle with were the ones they were voted in cash bonuses, pension plans and share options. They have come to see themselves as a gilded elite; a small, select and private group of well-tailored ‘uber-mensch’, who are, as one senior banking executive put it to me once while telling me how he and his class would never be prosecuted for money laundering ‘…we are a protected species…’

They have forgotten ‘those base degrees by which they did ascend’ (Shakespeare always finds the right motif), and they have flourished in the febrile atmosphere of a financial market where all the old rules were thrown out of the window , and all the regulations were enforced by a bunch of wimps, who really yearned to be financiers themselves and were only waiting for the recruiter to make that phone call.

In Crosby’s case, he was perceived to have risen so high that he was appointed, by Gordon Brown to the deputy chairmanship of the very regulator itself, in the naïve belief that his kind of mind was needed to continue to maintain the ‘light-touch regulation’ so beloved of New Labour. Brown never understood that just because the fox has a nice suit doesn’t make him any less of a raptor, and putting a man like Crosby, described by the Evening Standard thus; ‘…under his leadership …one of the most audacious banking mergers in history was pulled off, the ultimately doomed £29 billion pairing of Halifax and Bank of Scotland…’ into a senior regulatory position was akin to putting a complete stranglehold on any kind of dynamic regulatory activity for the foreseeable future.

Now this self-fulfilling prophecy has come to pass, and the British banking sector is in such a state which even the worst Banana Republic would think twice about investing in, it is reasonable to ask ourselves what kind of punishment is most suited for people like Crosby, not forgetting Fred the Shred, and the rest of the rogues gallery who trooped into the House of Commons Select Committee to cop a plea to their serial incompetence.

Now Crosby has resigned. He claims there is no substance in the allegations made by Paul Moore, well in my book innocent people don’t resign, they fight their corner, but as Mandy Rice Davis once said, ‘…Well, he would say that, wouldn’t he..!

I believe these men should be made the subject of a class action by the investors and the Government, where they now hold a majority shareholding, in the institutions they have ruined, and they should be sued for breach of their fiduciary duties towards their institutions.

These men have forgotten the basic, common-law responsibilities of directors, and in the exercise of their greed, arrogance and overwhelming egos, they took their eyes off their primary responsibilities. They constantly claim high skills and elevated abilities, so they should be subjected to a higher standard of prudency and probity, and they should be judged accordingly. They should have their pension funds frozen and their personal assets sequestered, their homes seized and their bank accounts controlled by the Asset Recovery team of SOCA, pending the outcomes of the trials.

We must never be allowed to forget these men and the damage they have caused. Their names should join Guy Fawkes on November 5th, and their effigies should be burned on huge bonfires until such time as their memory has been finally expunged. None of their ill-gotten wealth would even go near scratching the surface of what they have dissipated, but it would be a most defining moment!