Lloyds to write off debts worth tens of millions linked to HBOS fraud

Lloyds Banking Group is to write off tens of millions of pounds of debts associated with the mistreatment of customers at HBOS's scandal-hit Reading branch.

Sky News has learnt that Britain's biggest high street lender wrote to 191 fraud victims this week to inform them that it was extending the scope of debt write-offs - in line with the recommendation of an independent review published last month.

The move is the latest act of contrition from Lloyds aimed at drawing a line under a decade-old scandal that saw dozens of small businesses collapse after they were loaded with debt and then seized by a cabal of corrupt bankers.

Two former HBOS executives were among six people jailed in 2017 over the corruption, which added another dark chapter to the litany of misconduct exposed at UK banks after the 2008 financial crisis.

A string of inquiries into the affair at the Reading branch of HBOS - which Lloyds rescued in 2008 - have taken place, with Lloyds hit by repeated criticism of their handling of attempts to compensate customers.

A review published in December by Sir Ross Cranston accused Lloyds of lacking transparency in its compensation evaluation process, and recommended the establishment of a new independent panel to reassess customers' claims.

The bank said last month that it would make a £35,000 one-off payment to each of the 191 victims, costing a total of just under £7m.

In a letter to the former HBOS Reading customers, seen by Sky News, Jo Harris, Lloyds Bank's managing director, said its original approach had "unintentionally caused us to treat participants who were in the Customer Review inconsistently".

Ms Harris said that Lloyds was now "extending the scope of the debt write-off measure introduced in the Customer Review to include customers who had either repaid their debts to HBOS or had refinanced their debts with another financial institution prior to the commencement of the Customer Review".

An insider said on Thursday that the new measure was expected to cost Lloyds tens of millions of pounds.

The bank has already paid out more than £100m in redress under its original scheme.

That figure is likely to increase substantially as a result of a reassessment of direct and consequential losses in relation to businesses which failed because of the HBOS Reading fraud.

The new independent panel being set up to assess compensation claims is expected to be in place by the spring.

A separate investigation by Dame Linda Dobbs examining "whether the issues relating to HBOS Reading were investigated and appropriately reported to authorities at the time by LBG, following its acquisition of HBOS" is expected to conclude this year.

In a statement, Lloyds said it was "committed to ensuring Sir Ross Cranston's recommendations are implemented and that customers affected by the HBOS Reading fraud are offered the option of an independent re-review of their cases, looking again at the assessment of any direct and consequential losses that flowed from the fraud".

"Since Sir Ross's report was published in December we have been working with victims, their supporters including the APPG on Fair Business Banking and the SME Alliance, and other stakeholders on how best to implement Sir Ross's recommendations, including how it is undertaken and which independent expert (or experts) should be appointed to lead that review."