Lloyds sets aside £100m for HBOS loan scam

Lloyds Bank said it would set aside £100m to compensate victims of a £245m loan scam at its HBOS unit that destroyed hundreds of small businesses and saw six people jailed.

The Financial Conduct Authority said it was also reopening its investigation into the fraud. It had been asked to suspend the probe by Thames Valley police pending the outcome of the trial.

"The FCA’s investigation is focusing on the extent and nature of the knowledge of these matters within HBOS and its communications with the Financial Services Authority after the initial discovery of the misconduct," the regulator said in a statement.

Lloyds said it would make the payments for "economic losses, distress and inconvenience" and the write down would be included in its first quarter figures on April 27. As recently as January HBOS was still refusing to acknowledge the full scale of the fraud or offer any compensation.

The compensation package included providing interim payments on a case-by-case basis to help those in day-to-day financial difficulty as a result of the fraud, “reasonable” fees for professional advice to customers and writing off remaining business and personal debts owed to the bank and not chasing payments for outstanding debts.

Lloyds bought HBOS during the financial crisis of 2008 triggered by poor lending practices by banks. The government had to spend £20bn to take a 43% stake in the group to prop it up. The taxpayer now holds less than 3%.

Lloyds chief executive António Horta-Osório apologised to victims of the fraud.

“We are absolutely determined that victims of the crimes committed at HBOS Reading are fairly, swiftly and appropriately compensated. We take responsibility for putting right the wrongs that were committed at HBOS Reading at the time. That is why today we are providing an additional package of measures to ensure that customers have all the help they need as we resolve their cases as quickly as possible.”

The fraud began in 2003 when Lynden Scourfield, a senior HBOS banker at its Reading office, forced small firms that needed loans to use a turnaround consultancy led by his associate David Mills.

Cash was then sucked out of those businesses in fees by Mills and three others, including his wife Alison. If owners refused to comply they were told the bank would pull the plug on funding.

The trial heard how, in return for the business referrals, Scourfield and another HBOS banker, Mark Dobson, enjoyed luxury holidays in Barbados and Thailand, trips in the Mediterranean on the Mills's £2m yacht and sex parties.

In February, Scourfield was sentenced to 11 years and three months in jail. Mills received 15 years and his wife three-and-a-half years.

Judge Martin Beddoe described David Mills as the "devil to whom you (Scourfield) sold your soul. For sex, for luxury trips with and without your wife; for bling and for swank".

He said David Mills was a "thoroughly corrupt and devious man, adept at exploiting the weaknesses of others, particularly where that weakness is money, and adept too in getting others to do your dirty work for you".

Dobson was sentenced to four-and-a-half years, while Mills's associate Michael Bancroft was jailed for 10 years. A sixth man, John Cartwright, 72, was given three-and-a-half years for money laundering.