Black Horse Ride – The inside story of Lloyds and the banking crisis
A Spokesian Review for you
Many of us lived through it. Some of us queued to be part of it.
The Crash
2008 begat a brutal change to the UK economy that adversely affected everyone who relied on it – rich or poor.
Ivan Fallon’s book helps us understand Lloyds Banking Group’s role in it all. He shows how a bank long mocked for its prudence became the victim of the thundering herds. And, highlights the failures of those who were supposed to control them.
His book was long-listed for the FT/McKinsey Business Book of the Year award 2015. In my view rightly so. It contains insights that will stand the test of time. It can help influence those who are charged with preventing future disasters. Remember what Mark Twain said:
“History doesn’t repeat itself but it often rhymes”
Bankers were not popular before the crash, and after it, even estate agents’ popularity rose (although many of them had come a cropper at the expense of the former). But there was and still is a danger in branding all bankers:
Devils or Demons
In his forward Fallon indicates that he will be telling the story from the point of view of the Lloyd’s executives involved. A refreshing approach and one crucial for historians and us to understand how economic adversity can be mitigated in the future.
Every demon is in fact a real person and not everyone in a bank was directly involved in creating the disaster – support functions in particular. That does not negate the Goodwin’s, Stevenson’s and others of their hubris. But analysing the human characteristics of how it happened means we can try and avert it by putting in place approaches that drive ‘good’ behaviours that generate innovative but not overly risky financial activities. Reaching only for the rod of regulation will not work. People are not motivated purely to obey, work must be motivating at some level.
Banking also has an emotional truth to it, one that we too often bury at our own peril. The sums of money involved are huge, rewards are percentages of this – eye watering. But it is not pure greed that bankers or traders are all guilty of. Helen Murlis (renowned reward management author) and I discussed this at the time of the crash. We concluded that recognition was a big factor. If I’m trader x and worth y the why is trader z worth more than me, reward me the same or I’ll walk. The beauty for those who did the latter, taking a stroll wasn’t very far.
I did not feel Fallon’s approach and work was designed to be a pure rebuttal against the banker bashers. It explains more than that, it shows all who were at fault, some were bankers, some were non-bankers in banking roles, others were regulators, politicians or central bankers.
Lloyd’s has been around since 1765 so Fallon wisely narrows the:
Scope
To start in the period of CEO Brian Pittman (1983 – 87) through to the end of CEO Eric Daniels stint (2003 – 11). The latter’s period as CEO was made piquant by the partnership formed with Chairman Victor Blank (2006 -09). Fallon shows you what motivated them, what they kept private from work and importantly how they never allowed their individual personalities wreck a unified stance when leading the bank.
In tandem Fallon places the mid-day sun on the failings of the regulators, he proved that in this case:
Three isn’t the magic number
Gordon Brown wanted to wrestle regulatory control of the financial services sector from the Bank of England. As Chancellor he failed. Miserably. The result, he created an un-appetising ‘fudge brownie’. Originally he wanted his newly hailed Financial Services Authority (FSA) to oversee everything. The then Governor of the Bank of England (BoE) Eddie George went nuclear – he had more arsenal than Brown. He was seen in the City as the banker’s banker.
The fudge: Now, the FSA would oversee (with pitiful resources) the financial services companies’ operations, the BoE the financial system and the Treasury would oversee the economy and both the FSA and BoE. The diffuse nature of this set up meant no one body was keeping an eye on the overall health of the patient. The herds had no one to stop a stampede into the most short-sighted ways to generate profits.
The Watchmen weren’t asleep though. They didn’t really mind when all the graph arrows pointed north. They went about their business, pulled hideous smiles, played panto in the Commons and told the taxpayer everything was alright.
As well as Fallon’s ability to shed light on these factors he also gives his readers some stark evaluations of the:
Two myths
That the City and press have saddled Lloyd’s with. These are:
- Gordon Brown casually gave the green light for Lloyd’s to merge with HBOS at a cocktail party at Spencer House
- Lloyds didn’t conduct thorough due diligence on HBOS before recommending the merger to their shareholders
The truth behind these are captured in the book. It’s not for me to say more here, I recommend you read the book (I’m not on any commission by the way, it’s my personal view).
Fallon explicitly looks at these myths, but, what he has wonderfully done for the reader is challenge another. His intimate access and knowledge of the people involved provides the reader with the ability to connect with the:
Human condition
Of the people involved. He removes the salary first, people second approach of many commentators. When reading Fallon’s book I was struck by Victor Blank’s choice of car, his decision of what to wear when the Prime Minister called him, Eric Daniel’s addiction to tobacco, his dedication to seeing his son while being a CEO, Mervyn King’s need to be viewed as an intellectual, Mandy’s ability to get out of hospital even when he didn’t want to and the loss of Terri Dial to cancer. All of these are poignant reminders that not all bankers are demons. Our economy and our own welfare requires a healthy banking system. To achieve this requires professionals and sound individuals to be in place, they might get paid more than we do. But for good reason. Bad bankers do exist though, Fallon points these people out and explains how they caused tangible pain for UK citizens. He also shows how being a true watchman in the ‘good times’ was difficult.
Who would want to entertain icebergs when the gravy was flowing?
If you have an interest in how the world around you works, read this book.
(Note. Photograph for this post © Gary Spokes 2015)
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