Bank West’s “catastrophic” expansion

wild-west

The wild west of Australia’s pre-GFC banking expansion is on display today at Banking Day:

HBOS Australia and Bankwest incurred lending losses over the four years to 2011 equal to more than one fifth of their loans, a review by a UK parliamentary committee into HBOS, the bank’s then owner, found.

The UK committee released its review into the demise of HBOS on Friday. It is the most detailed account released by an oversight body of the events leading to the rescue of HBOS by Lloyds Bank, with UK government financial support, in late 2008.

Lloyds sold Bankwest to Commonwealth Bank at the end of 2008.

According to the review, impairments for HBOS in Australia over the period 2008 to 2011 totalled £3.6 billion, equivalent to 28 per cent of the value of its Australian loan book at the end of 2008, in sterling terms.

This was “an even higher loss as a proportion of loans than [that] incurred by the corporate division of HBOS in the UK,” the review said.

As the AFR quotes:

The committee stated in its report that senior former HBOS executives, including former group chief executive James Crosby and his 2006 successor Andy Hornby, have since admitted the offshore expansion was “appalling”, “catastrophic” and “horrible”

The next time someone tells you about what a great job regulators were doing pre-GFC point them to this story.

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

  1. Correct HnHs Bank West was and is an APRA regulated entity although the parent’s balance sheet ie HBOS was also used extensively.

    Charlie Boy at APRA never admits the facts and whilst his speech of a few weeks ago was certainly aimed at him keeping his job, will he?

  2. This is interesting, but what does it actually tell us? The implications are downright scary – surely BWA’s loan book wasn’a that different to anyone else’s?

  3. “According to the review, impairments for HBOS in Australia over the period 2008 to 2011 totalled £3.6 billion, equivalent to 28 per cent of the value of its Australian loan book at the end of 2008, in sterling terms.”

    Yet Bankwest was sold to Com bank in October 2008 for $2b.

    I would have thought that the write downs are more to do with the corporate lending that was done in the BOS International (Australia) and the Capital Finance subs – both of which are finance companies and in all likelihood were outside of APRA’s regulation and capital requirements.

    And the latest results from CBA show that while BWA is running higher loss provisions and 90 days past due ratios then the Commonwealth side of the business – they are no where near the 28% quoted in the article.

    • Crocodile Chuck

      “I would have thought that the write downs are more to do with the corporate lending that was done in the BOS International (Australia) and the Capital Finance subs..”

      Correct, Swifty. BOS effectively set up a ‘bad bank’ with impaired assets which were not transferred to CBA, for ‘workout/runoff/squeezing blood from a turnip’.

  4. Lloyds didn’t own Bankwest. HBOS did. HBOS, not Lloyds, sold to CBA.

    Lloyds TSB/NBNZ sold Lloyds Bank NZA in about 1998, to ING from memory, but check that.