In public, HBOS appeared as it always did – confident, brash, even a little cocky. Entering 2008 this was an institution that had forced its way on to the top table of British banking.
Its young chief executive, Andy Hornby, was the coming man, beloved by the City. His former boss, Sir James Crosby, had comfortably assumed the role of grandee and was busily picking up directorships of other companies as well as charities and arts bodies.
Irritating ads featuring staff members filled the airwaves, while the corporate division was becoming a powerhouse; its name featured as a financier of many City deals.
Worth £40bn at its height, HBOS had arrived, knocking over rivals and moving beyond its ambition of becoming a "fifth force" in UK banking having more than doubled its assets and loan book between 2001 and 2008.
But as the financial crisis entered its most dangerous phase, the bank would be pleading for a rescue from its once derided rival Lloyds, under the wings of a Government scared of the consequences if a deal failed to materialise.
That rescue has, to some extent, kept the failures which led to the demise of HBOS "under the radar" by comparison to Royal Bank of Scotland. Yesterday's report by the commisssion seeks to correct that.
The report lays the blame for the demise square at the door of its management, dismissing the arguments of former boss, Sir James Crosby, his successor, Andy Hornby, and the chairman, Lord Stevenson, that it was due to the one off unpredictable events of the credit crunch and subsequent financial crisis. They complained that no one could have predicted the closure of the wholesale money markets on which the bank relied to fund its lending.
The report excoriates that version of events saying: "The problems of liquidity were the occasion for the failure of HBOS, not the cause. If HBOS's difficulties were solely the result of funding and liquidity problems, their lasting effects would have been much more limited, including for the taxpayer.
"Lloyds Banking Group has now repaid all the Government backed funding raised during the financial crisis. Without solvency pressures, HBOS would not have needed equity support from the taxpayer. The HBOS failure was fundamentally one of solvency."
The report continues: "The explanation by senior HBOS management given to the commission for the scale of the Group's losses is entirely unconvincing. The impairments and losses incurred were substantially worse than for the peer group."
While the three have previously issued apologies they have persisted in putting the blame on "unpredictable" events such as the credit crunch. The commission says: "The apologies of those at the top of HBOS for the loss imposed upon the taxpayers and others ring hollow; an apology is due for the incompetent and reckless Board strategy; merely apologising for having failed to plan for an unforeseeable event is not much of an apology."
The report says the poor quality of the assets on HBOS's books was "the direct result of the company's strategy, which pursued asset growth in higher risk areas. This asset growth was compounded by a risky funding strategy. The combination of higher risk assets and risky funding represents a fundamentally flawed business model and a colossal failure of senior management and of the board".
The losses were proportionately higher than even those of Royal Bank of Scotland and "unusually high" when compared to other bank failures.
The report castigates the "reckless lending" by the bank's corporate division and says the financial crisis was merely "the catalyst to expose this".
But while the head of the corporate lending Peter Cummings faced a £500,000 fine and ban from the City, none of the HBOS big three have faced sanction from financial watchdogs.
The report says: "The analysis that we have undertaken of the circumstances of the downfall of HBOS leave no doubt that [it] cannot be laid solely at the feet of Peter Cummings. While his personal responsibility for some staggering losses should properly be recognised, significant and indeed disastrous losses were also incurred by other divisions, whose heads have not been held personally accountable in the same way." It says it is "surprised" that he has been the only HBOS banker to face disciplinary action and wants consideration to be given to whether the big three "should be barred from undertaking any future role in the [financial] sector".
The FSA's successor bodies, the Financial Conduct Authority and the Prudential Regulation Authority, are currently working on a report into the FSA's handling of the affair.
But the commission's report says: "The picture that emerges is that the FSA's regulation of HBOS was thoroughly inadequate. From 2004 until the latter part of 2007 the FSA was not so much the dog that did not bark as a dog barking up the wrong tree... Regulatory failings meant that a number of opportunities were missed to prevent HBOS from pursuing the path that led to its own downfall."
It talks of a "fundamental weakness" of approach by the watchdog and says opportunities to steer the company away from the path that led to its downfall were missed.
Both successor bodies said they would be studying the report while a spokesman for the Treasury said: "The failure of HBOS was a symptom of the financial crisis and the regulatory system in place at that time. The Government is committed to learning the lessons of the past and protecting taxpayers from bank failures in the future."
Where are they now?
Baron Stevenson of Coddenham
Held on to a number of non-executive roles, including directorships of Western Union and The Economist. He was also chancellor of the University of the Arts in London, all of which he has since given up.
Sir James Crosby
Since leaving he has pursued a portfolio career. He served as the chairman of Misys, the software group, until it was taken private, and is still the senior independent director of Compass.
In June 2009 he took on the £1m-a-year post of chief executive of Alliance Boots. He lasted less than two years. However, last July the teflon man of British business was back as chief executive of Coral.
Independent News Service