Raymond Doherty 11 May 2018 11:31am

New leak criticises KPMG and FRC over HBOS

Previously unreleased documents relating to the collapse of HBoS allege KPMG is culpable for non-disclosure of fraud

Conservative MP Kevin Hollinrake, speaking in the Commons yesterday, called for a public inquiry after he received documents that revealed that HBOS senior managers took “clear” and “deliberate” action to “conceal” fraud at their Reading branch prior to Lloyds’s 2008 takeover.

“Let’s be clear, if true, this would potentially make both rights issues and the takeover fraudulent. Those named as culpable for non-disclosure in the report include chief executive Andy Hornby, chairman Sir Dennis Stevenson, former CEO James Crosby, corporate CEO Peter Cummings and auditors and reporting accountants KPMG,” said Hollinrake.

He added, “We see conflicts of interest in the report and in many other places – KPMG auditors giving HBOS a clean bill of health in February 2008, only a few months before its collapse. The audit watchdog, the Financial Reporting Council (FRC), seeing no reason to investigate this audit.

“The fact that four of the 10 members of the FRC board are partners at KPMG and that it is chaired by former Lloyds chairman, Sir Win Bischoff, who oversaw the £14bn rights issue.”

A previous Parliamentary Commission on Banking Standards report revealed that HBoS was carrying £47bn of losses when it was bailed out, despite being given a clean bill of health by KMPG.

Prior to the taxpayer rescue, the final divisional losses for HBoS’s corporate business totalled £25bn, despite KPMG clearing the management’s decision to set aside just £370m in provisions.

In response to Hollinrake’s statement, a KPMG spokesperson said, “We strongly refute these allegations, which we believe to have no basis in fact. Over the last nine years multiple inquiries by the PRA, FCA and FRC have examined the events that led to the failure of HBOS in detail. We have co-operated with all of these inquiries when requested to do so and none have concluded that our work did not meet the applicable audit standards of the time.”

KPMG was cleared by the FRC in September 2017.

It had been looking into the reason why HBoS had been given “going concern” status in 2007, a year before it collapsed and had to be rescued following the financial crash.

In a decision that has proved controversial, the accountancy regulator concluded that there was no realistic prospect that a tribunal would make an adverse finding against KPMG.

This caused outrage in the press with commentators accusing the FRC of being weak because of the vested interests of former Big Four employees who now work within its ranks.

The FRC then said it wanted to make it easier to bring cases against auditors after admitting it should have acted faster over KPMG and HBOS.

The FRC is not commenting on Hollinrake’s statement.