Hubris: How HBOS Wrecked the Best Bank in Britain (12 page)

Peter Burt had assumed the role of Chief Executive a few years earlier and had promoted Gavin Masterton to Treasurer and Chief General Manager. In 1997 the two began a reform of the structure of
the bank, following a similar format to that adopted by its main rival, the Royal Bank. The old geographic fiefdoms – east, west and London – were abolished and in their place
functional divisions were created – branch banking, corporate banking and risk and compliance.

The Bank was still growing, but the funding worry would not go away. Having failed to buy a building society, a couple of tentative approaches had been made to London banks, essentially
suggesting that a merger could inject Scottish management expertise into a much larger under-performing balance sheet. While still Governor, Bruce Pattullo had met Robert Alexander, then chairman
of Nat-West, who had dismissed the idea as ‘Scotland 4, England nil’. A few years later when Barclays was going through one of its recurring changes of chief executive, Peter
Burt’s name had been mentioned as possible leader. He had met the chairman, but it never went any further because Burt would not come alone – making him chief executive would lead to
the reverse takeover of the under-performing Barclays by the much smaller Bank of Scotland. In any case, Burt was not a member of one of the founding families, who still wielded influence in
Barclays. Some executives might have been frightened by his very active management style, which contrasted with their more
laissez-faire
approach.

On the positive side, Sainsbury’s Bank had proved to be much more successful than even the Bank had expected. Six months after launch it had taken £1 billion in deposits and had
500,000 customers, most new to Bank of Scotland since Sainsbury’s had predominantly a south of England network. Two years later this was up to £2 billion. Opportunities to pull the same
trick again in the UK were obviously limited: other major UK retailers were already joining up with other banks (e.g. Tesco with the Royal Bank of Scotland). But having been rebuffed in its attempt
to buy a bank in Texas, perhaps the US would be more fertile ground? The concept of telephone banking was still novel there and the Bank began to scout for a suitable partner, one which already had
a large customer base, but was not already either providing finance itself or linked to a financial institution.

The seemingly ideal partner came in early 1999 via an unlikely route. The Catholic Archbishop of New York introduced the Bank’s head of US operations to Dr Pat
Robertson,
²
who appeared to have everything the Scottish bankers could wish for. He was an established and successful businessman with a
reputed personal fortune of $200 million and a law degree from Yale, and he had built up a private television channel with 55 million subscribers. He thus not only had the potential customers for
the new venture, but a means of promoting financial services to them through his own show on his own channel. On top of that he was already familiar with the UK as a non-executive director of the
fashion retailer Laura Ashley.

The Bank plunged in. Mindful of the fact that although Sainsbury’s Bank had been very successful in customer acquisition, high initial start-up costs had meant that it took two years to
break even, a deal was structured to reduce initial outgoings. A US company was formed – New Foundation Bank to be based in Hartford, Connecticut – with Bank of Scotland taking 60 per
cent of the shares, Robertson 25 per cent and a Milwaukee company, Marshall & Ilsey, holding the remaining 15. The Bank was to provide the expertise and up to $50 million of seed capital, while
Robertson did the marketing and Marshall & Ilsey processed the accounts. The bank planned to launch within six months with a massive advertising campaign. The initial target was to take $300
million in deposits, rising to $3 billion after three years – a modest aim if the Sainsbury pattern could be replicated. The deal was initially greeted with enthusiasm in the US, with the
Milwaukee Journal Sentinel
claiming that it would create 300 new jobs in the city.

Robertson was to chair the new bank and commented that ‘by a nice coincidence’ his ancestors had left Scotland for America in 1695, the same year in which Bank of Scotland had been
conceived. The three partners made applications to the relevant US Federal and State authorities for a banking licence.

What the Bank had not realised was that Robertson was a very controversial figure. It was already known that besides being a businessman he was a pastor in a Baptist Church based in South
Virginia and that he led an organisation known as the US Christian Coalition. He had been an unsuccessful Republican candidate for the Presidency and his television station was the overtly
religious Christian Broadcasting Network. What had not been appreciated was
that Robertson was a man of divisive views who expressed them regularly and forcefully on his own
television show. In particular he condemned homosexuals, but he was not much in favour of feminists or members of religions other than his own.

The Bank announced the venture in a low-key press release faxed to newspapers at the beginning of March. Although it used the headline ‘Moneylenders in the Temple’ in its first
report
The Scotsman
, the Bank’s local daily in Edinburgh, was broadly complimentary, calling the deal ‘low risk with plenty of upside’.
³
But the news alerted gay rights groups in the US who were quickly in touch with their UK counterparts, complaining about the unsuitability of a man with Robertson’s
views becoming a partner of the hitherto upright Bank. Before long the Jewish Anti-Defamation League had joined the protest, citing several speeches and remarks Robertson had allegedly made. By the
following day
The Scotsman
was calling Robertson ‘a far-right zealot’ and boycotts and pickets outside Bank offices were being organised.

Momentum developed with surprising speed; a day later
The Scotsman
was reporting that customers were closing their accounts. Journalists were digging up quotes from Robertson not only
criticising homosexuals and Jews, but Hindus and Muslims as well. On the fourth day the newspaper carried a leading article under the headline: ‘The lure of the false prophet.’ It
declared that Robertson was not just a maverick, but a deliberately offensive man who had equated homosexuality with Satanism and Nazism and believed that liberals were involved in a worldwide
Masonic conspiracy to subjugate mankind to the devil. ‘In a British context his views are insane. It is hard to understand how a significant minority of Americans can take his views
seriously.’
⁴
Robertson’s flair for business was unquestioned, the paper added, before asking pointedly of the Bank: ‘Does
one of Scotland’s most prestigious institutions really feel comfortable that it is now intimately associated with a man who earnestly insists that homosexuals want to destroy Christianity,
that feminists kill their children and practise witchcraft and that the United Nations is an evil organisation?’

That afternoon, the Edinburgh
Evening News
reported that a meeting of students at Edinburgh University calling for a mass withdrawal of accounts from the Bank had attracted 70 people.
The
Daily Mail
in London joined the attack and the Scottish tabloid
Daily Record
urged
‘Don’t bank with hate peddling preacher Pat’. Only
the
Financial Times
offered the Bank any support, saying that although at first the unlikely alliance of the outspoken Southern Baptist and the taciturn Scottish Presbyterians sounded like
a hoax, Robertson offered arguably as strong and trusted a brand in the US as Sainsbury did in the UK.
⁵

The Bank’s public relations department was completely unprepared for the row and didn’t know how to react. On top of that the Bank’s two top executives, Peter Burt and Gavin
Masterton, were reluctant to speak in public and the Governor, Sir Alistair Grant, had other more pressing concerns. He was fighting cancer, a battle which was later that year to force him to step
down from the post and hand over to one of the Deputy Governors, Sir Jack Shaw. Burt was nonplussed by the furore. Describing Robertson, he declared: ‘He is a charismatic personality. He is
not a hellfire and brimstone preacher and he is not a John Knox. He is of Scottish origin and not like the traditional image of the Scottish preacher damning the faithful from the pulpit. I would
say he comes across as a very kindly man.’

But the controversy would not die down. Academic staff called on Edinburgh University to close its account, trade unions, local authorities, charities and the Anglican Bishop of Edinburgh joined
the protest and a group of MPs talked about lodging a protest with the Comptroller of the Currency in the US. Gay protestors picketed the Bank of Scotland stand at the Ideal Home Exhibition in
London. In April the Bank unveiled another set of record profits and a dividend rise and a defiant Burt told the annual meeting: ‘I quite understand that some people feel uncomfortable, but
from a commercial point of view I don’t think we have any alternative and an individual’s personal religious views don’t form the basis on which the Bank makes its business and
commercial judgements, nor should it.’ He added that the Bank had received ‘a few hundred letters, but not one church, or trade union or university has registered a
complaint’.

The attempt to quieten the row proceeded on two fronts. A lawyer acting for Pat Robertson sent a strongly worded letter to newspapers marked ‘not for publication’ and warning them of
consequences should they describe him as ‘an extremist, bigot, racist or anti-semite’.
The Scotsman
, undaunted, printed the letter together with a catalogue of quotes from
Robertson illustrating its charges against the preacher. Meanwhile a crisis management specialist hired by the Bank to beef
up its public-relations effort organised a trip to
the US for Scottish journalists, paying $3,000 a head to fly them to meet Robertson in person. He received them on his 700-acre wooded estate at Virginia Beach and told them in emollient tones that
he was frankly appalled at the attacks on him coming from the British media. ‘Suddenly to be described as a Bible thumping fundamentalist is something I don’t understand,’ he
said. ‘I am a man of integrity and honour.’

The Bank dearly wished the row to go away. It was overshadowing everything else it was doing, including selling the small New Zealand subsidiary it had bought, making £175 million profit
on the deal, and launching banking services via 5,000 Australian pharmacists, which passed off unnoticed.

For a while it looked as though the strategy was working. Press comment died down and protest groups struggled to keep it in the headlines. The crisis might have passed had Robertson not decided
to use his TV show to investigate the current state of Scotland. He sent a reporter to the country and commented on the unflattering picture which came back. Scotland, he said, was a ‘dark
land’ and the contrast with the glorious history of the country was ‘kinda frightening’. He went on: ‘In Europe the big word is “tolerance”. You tolerate
everything. Homosexuals are riding high in the media and in Scotland you cannot believe how strong the homosexuals are. Heroes of the calibre of John Knox no longer exist, spelling possible doom
for the nation. And that could happen. It could go back to the darkness very easily. It used to be called Christendom and the Church of Scotland was so noted for their piety. The Edinburgh
University was a great cultural centre of theology. I don’t know, we need to pray for them . . .’
⁶

Predictably the programme, widely reported in Britain in the press and on television and radio, provoked a renewed onslaught on the Bank. The Church of Scotland, the Roman Catholic Church, the
Scottish TUC and even the Scottish Tourist Board, fearful perhaps of losing the business of God-fearing Southern Baptists, joined the chorus. The charities ActionAid and Guide Dogs for the Blind
threatened to pull out of their commercial relationships with the Bank. Newspaper interest which was dimming, was suddenly reignited. Under the heading ‘No place for intolerance’,
The Scotsman
leader on 1 June linked Robertson’s views to those of football bigots and declared that there was no place for either in modern Scotland.

The Bank issued a typically cautious statement: ‘We have reviewed the content and the context of the broadcast made by Dr Robertson and are considering the
position.’ Bank of Scotland shares fell by 4 per cent.

Clearly the game was up. Reputational damage was outweighing the potential upside and rumours began to circulate in the stock market that the deal would be killed. On 3 June Peter Burt flew to
the US for a showdown with Pat Robertson in a hotel in Boston and Bank of Scotland shares rose modestly on the news. Two days later it was confirmed that the deal was dead; the Bank bought out
Robertson’s shares for a reported $10 million and chalked it up to experience.

The
Financial Times in
an editorial under the heading ‘God’s Bankers’, said there had been a distinct element of comedy about the affair and pointed out the irony that
despite Robertson’s characterisation as a country of sexual licence, Scotland had waited 13 years after England before legalising homosexual activity between consenting adults in private.
‘In the goldfish bowl of world business anonymity is impossible. Mr Robertson knows his market – it would scarcely pay him to tailor his views for a small country in Northern Europe.
Partnership is all very well, but the trick is to ensure that there is an identity of interest and balance of power.’
⁷

Peter Burt rejected any suggestion that heads should roll because of the fiasco. ‘If you try to do things, sometimes you get it wrong, but if you execute everyone who tries something and
gets it wrong pretty soon you have no one who tries to do anything. That is exactly the wrong way around.’
⁸
At the annual general
meeting a week later acting Governor Sir Jack Shaw made the same point: ‘Our judgement was wrong and we apologise, but the Robertson decision was reviewed by the board over a year – any
idea that we should be seeking scapegoats is totally foreign to our nature.’