Nick Goodway: The scale of ramping up risky lending was simply staggering

Inside HBOS

On the eve of the financial crisis that overwhelmed Northern Rock, Bradford & Bingley and Lehman Brothers, and sent shockwaves through the financial system, the corporate lending division of HBOS had "a higher risk profile" than that of any other major UK bank.

It had a higher proportion of loans on commercial property and to entrepreneurs than any of its rivals, the Financial Services Authority (FSA) has found.

The division "operated a one-stop-shop" which offered equity and debt funding to companies with lower levels of security and control" than was normal.

Bank of Scotland funded huge commercial property schemes in the Republic of Ireland and backed private entrepreneurs such as Tom Hunter, who once owned the housebuilder Crest Nicholson.

Lloyds, which took over HBOS at the Labour Government's behest three years ago, has written off £32bn of HBOS loans since the takeover. That is more than the £20bn pumped in by the taxpayer.

The scale of the Bank of Scotland's ramping up of risky lending was staggering. In 2006 it signed off 199 leveraged deal worth over £75m which totalled £56bn. The following year it approved 361 such deals worth £96.2bn. Much of this was on what are known as "sub-investment" or even junk loans.

The FSA said that during that period the bank regularly had to raise its exposure to already risky loans in order not to lose clients to its competitors. It "entered numerous transactions with weak lending criteria and/or aggressive structures".

Bank of Scotland staff were driven by bonuses based on the amount of revenue they could drive through doing deals. Management failed to to check the riskiness of all loans and in many cases senior individuals told junior bankers to pass them without complete checks.

But the area of the FSA's final notice against Bank of Scotland which remains the most fascinating are the paragraphs which it has been forced to print as "Redacted".