Shock Robert Peston news: he’s human and fallible

Although Robert Peston has recently been criticising HBOS for the behaviour that led to it running up massive losses, a look through his book published as recently as last year shows him repeatedly praising HBOS for some of the very actions that are now being criticised.

For example, in late February, Robert Peston wrote on his BBC blog that,

For all the criticism of the alleged excessive risks taken by HBOS’s mortgage department – as per the charges levelled at the bank by its former head of regulatory risk, Paul Moore – the most reckless lending and investments were made by the bit of the bank that provides services to companies…

It made the classic mistake of doing what bankers used to call “pig-on-pork”, or taking equity stakes in creditor companies.

As I’ve said before, it is amazing that the Financial Services Authority, the City watchdog, didn’t feel it was appropriate to rein in HBOS’s corporate lending department.

In particular, it’s odd that the FSA didn’t apparently appreciate that the ability of a lender to properly assess credit risk can be dangerously damaged when that lender thinks it’s going to make massive returns on equity investments (the notorious “pig-on-pork”).

Note that phrase, “classic mistake”. So when last year Robert Peston published his book*, Who Runs Britain?, what did he have to say about such behaviour?

It certainly features a few times in the book, because Peston goes into some detail into the dealings between businessman Philip Green and Peter Cummings of Bank of Scotland (which merged with Halifax to become HBOS).

When Peter Cummings arranged for his bank to lend money to Philip Green, he frequently secured as part of the deal an equity share in the operation his bank was lending money for. In other words, this was the sort of “pig-on-pork” transaction that Peston now says is a “classic mistake”. But how did Peston write-up these actions in his book? Here’s how:

Bank of Scotland would make a spectacular return on this [pig-on-pork] investment. [p.71]

Cummings has never been proved wrong to back Green. And his employer, HBOS, has made a great return from the relationship, because it has tended to take equity stakes in his deals. [p.96]

Does this all matter, other than giving a chance to smile to those who have been out-scooped or embarrassed by Robert Peston’s more recent reports? I think it does, because avoiding similar mistakes in the future requires a proper understanding of the mistakes of the past, one of which seems to be the degree to which not only those in the financial sector but also those reporting on the financial sector forgot some “classic mistakes”.

* All references are to the hardback edition of the book.

Read more by or more about , , , or .
This entry was posted in News.
Advert

2 Comments

  • Mark Inskip 1st Mar '09 - 6:50pm

    Your quotations are a little selective and misrepresent what Peston wrote and the point he was making.

    On p.95 he wrote of Green “This private-equity superstar and his competitors eventually got what they wanted from the banks with more money than sense. Green’s astounding record may therefore have played a role in creating the conditions for the private-equity banking crisis of 2007.”
    He goes on to explain how the big lending banks were stuck with huge loans to private equity financed companies, that they could not write off this debt and that they had to write down in value etc.

    Cummings and BOS did not make a mistake in financing Green, but they make plenty of mistakes in assuming that their other investments were going to be similarly successful.

Post a Comment

Lib Dem Voice welcomes comments from everyone but we ask you to be polite, to be on topic and to be who you say you are. You can read our comments policy in full here. Please respect it and all readers of the site.

To have your photo next to your comment please signup your email address with Gravatar.

Your email is never published. Required fields are marked *

*
*
Please complete the name of this site, Liberal Democrat ...?

Advert

Recent Comments

  • Imaduddin Ahmed
    Adrian Ramsay from the Green party wants to get a cross-party grouping against military intervention on Iran. He has Labour representation but not Lib Dem....
  • Nigel Jones
    Belated birthday wishes Mary and I am often particularly interested in your comments on Lib Dem Voice....
  • Joseph Bourke
    The UK is a permanent member of the UN security council and has a responsibility to promote the NPT ...
  • Nigel Jones
    Thank you Adrian for reminding us in some detail of our opposition to the Iraq war, which clearly showed our international values. Ed Davey should be doing the ...
  • Nigel Jones
    I think Ed should have been more clearly opposed to the actions of Trump and Israel. The idea of regime change by military force began in recent practice by the...