Government inquiry into HBOS payoffs

The corporate banking chief was paid £660,000 despite loss
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The row over payments to disgraced bankers moved to HBOS yesterday as it emerged that the Government has ordered an inquiry into payoffs its executives have received.

Lloyds Banking Group, which bought HBOS last year as the mortgage giant teetered on the edge of the collapse, is close to completing a review of the terms on which senior HBOS executives left the bank. In particular, there is mounting controversy over a £660,000 payment made to Peter Cummings, the head of HBOS's corporate banking division, which was responsible for many of the bank's loans that have now soured – leading Lloyds to declare yesterday that HBOS made a £10.8bn loss last year.

Mr Cummings is understood to have received the payment in line with the terms of his contract, though other executives at the bank, including former chief executive Andy Hornby and Sir Denis Stevenson, the bank's former chairman, waived their right to severance payments when they left. Mr Cummings is one of the best-known figures in British banking, having built the corporate lending division into a powerhouse at HBOS. While the division was responsible for a sizeable proportion of HBOS's profits in better times, its huge exposure to the property market has lead to disastrous losses over the past year.

Mr Cummings, who is also thought to have a pension pot worth around £6m from his HBOS service, has links to many of the country's best-known business figures, having worked on deals with the likes of Sir Philip Green, the retail tycoon, Victor Tchenguiz, the property investor, Tom Hunter, the Scottish entrepreneur, and the Candy brothers, also major players in the property sector.

A series of big deals with such high-profile figures earned Mr Cummings the reputation of "banker to the stars", but he was forced to quit HBOS earlier this year when the scale of his division's losses became apparent.

Victor Blank, the chairman of Lloyds Banking Group, said yesterday that he did not yet know exactly what terms HBOS executives had left on. However, a spokesman for UK Financial Investments, the government unit set up to deal with the banks which are now state-owned, insisted Lloyds had been asked to review all payments made to those who had quit. "Lloyds agreed with UKFI last week that it would assure itself that all payouts to former HBOS directors were, as UKFI had previously been assured by HBOS, no more than was legally necessary," the spokesman said. "We understand that this process of thorough legal assurance is nearly complete." It is not yet clear whether HBOS executives received similar pension enhancements to the ones received by Sir Fred Goodwin, the former chief executive of Royal Bank of Scotland, who was allowed to retire, at age 50, on the £693,000 annual pension he would have received had he stayed at the bank until age 60.