Number 10 turns up pressure on Hornby over HBOS

Banker in spotlight after predecessor forfeits knighthood and part of pension

Pressure is mounting on the former HBOS chief executive Andy Hornby to give up at least part of the lucrative pension entitlement he built up during his time at the company.

Downing Street officials turned up the heat on the 46-year-old after his predecessor, Sir James Crosby, agreed to give up his knighthood and a third of his pension in the wake of a damaging report last week from the Parliamentary Commission on Banking Standards. Sir James also stepped down as a non-executive director at the caterer Compass Group, and also "with great regret" quit as a trustee of Cancer Research UK.

A spokesman for the Prime Minister said Sir James had "done the right thing" and that it was now a "matter for their consciences and judgement" whether others followed his lead.

Lord Oakeshott, the Liberal Democrat peer, was more direct: "Clearly it's not sustainable for Andy Hornby not to follow."

HBOS was worth more than £40bn at its height, but had to be rescued by Lloyds in a Government-brokered deal during the financial crisis and was largely responsible for the subsequent £20bn taxpayer-funded bailout of Lloyds.

Mr Hornby, who is now the chief executive of the betting group Gala Coral, is eligible for an annual pension of £240,000 from HBOS, having taken over from Sir James in 2006 and stayed until the merger. The former chairman, Lord Stevenson, is not entitled to a pension.

The fallout from last week's report also continued to engulf the auditor KPMG, whose reputation was dealt another blow when the accounting regulator confirmed that it was considering investigating the Big Four accountant's audit of HBOS in the lead-up to the bank's collapse.

KPMG suffered its third major setback in less than 24 hours, having already been forced to resign as auditor of Herbalife and Sketchers in the US following an insider trading scandal.

The Financial Reporting Council said it was "monitoring the situation closely". The watchdog said it would take a final decision once a separate report on HBOS by the Financial Conduct Authority was published later this year. In response KPMG said: "We stand by the quality of our audit work at HBOS."

Ed Balls, the shadow Chancellor, was also drawn into the affair. He was challenged to say if he supported the former HBOS chief's knighthood and appointment to a series of powerful positions under the former Labour Prime Minister Gordon Brown.

The Conservative MP Nadhim Zahawi wrote to Mr Balls saying there were "serious questions" raised about whether he recommended the banker for the appointments.

While he was Chancellor, Mr Brown appointed Sir James to the board of the Financial Services Authority in 2003. In 2006 he was knighted and led a government review into ID cards. In April 2008 he was appointed again to lead a review into the mortgage market.

Mr Balls was chief economic adviser when Mr Brown was at the Treasury.

A spokesman for the shadow Chancellor said: "Ed played no role in [Sir James's] appointment to the FSA board, the ID review, the mortgage review or knighthood."

He accused the Tories of "playing political games" and added: "At no point when Ed was at the Treasury did the FSA, Bank of England or Treasury ring any alarm bells about the HBOS business model."