Salvage ethnography in the financial sector the path to economic crisis in scotland

This book explores the merger between the Bank of Scotland and Halifax, revisiting ethnographic data collected in 2001–2 from the perspective of the present – that is, after the global f

This book explores the merger between the Bank of Scotland

and Halifax, revisiting ethnographic data collected in 2001–2

from the perspective of the present – that is, after the global

financial crisis around 2008 and the associated devastating

effects on several banks It contributes to our understanding

of the stereotypes and mutual perceptions that shape

Scottish and English national identities, while using the

interpenetrating national and organisational contexts to

critically examine the concept of culture

Ethnographic data was collected during a year’s fieldwork in

the Bank of Scotland and HBOS The book focuses on the year

in which the Bank of Scotland merged with Halifax to form

HBOS, scrutinising an encounter between two very different

organisational cultures embedded in Scottish and English

national identities that are often symbolically opposed

Through this ethnographic setting, it explores how bank staff

coped with and made sense of rapid organisational change,

and how those changes prefigured the crisis that was to

come That change was part of wider social and economic

changes often associated with neoliberalism heightened

competition and embattled social solidarity The study

salvages a record of a disappearing banking culture that is

symptomatic of wider social change It also engages in an

innovative way with the perennial problem of relating

small-scale ethnographic data to large-small-scale historical change

Written clearly and concisely with narrative momentum, the

book will appeal to students and scholars interested in the

banking and economic crisis, national identity in Scotland

and the UK, the nature of culture and the challenges of

ethnographic research

Jonathan Hearn is Professor of Political and Historical Sociology

at the University of Edinburgh

Cover image: HBOS corporate HQ, Edinburgh Flickr: Secret Pilgrim

CC BY-SA 2.0 Cover design: riverdesign.co.uk

www.manchesteruniversitypress.co.uk

9 780719 087998

ISBN 978-0-7190-8799-8

New Ethnographies

JONATHAN HEARN

Salvage ethnography

in the financial sectorThe path to economic crisis in Scotland

Salvage ethnography in the financial sector

New Ethnographies

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An ethnography of English football fans: Cans, cops and carnivals Geoff Pearson

Iraqi women in Denmark: Ritual performance and belonging

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Tragic encounters and ordinary ethics: Palestine-Israel in British universities Ruth Sheldon

Devolution and the Scottish Conservatives: Banal activism, electioneering

and the politics of irrelevance Alexander Smith Exoticisation undressed: Ethnographic nostalgia and authenticity

in Emberá clothes Dimitrios Theodossopoulos Immersion: Marathon swimming, embodiment and identity Karen Throsby Enduring violence: Everyday life and conflict in eastern Sri Lanka Rebecca Walker

Performing Englishness: Identity and politics in a contemporary folk resurgence Trish Winter and Simon Keegan-Phipps

Salvage ethnography

in the financial sector

The path to economic crisis in Scotland

Jonathan Hearn

Manchester University Press

Copyright © Jonathan Hearn 2017

The right of Jonathan Hearn to be identified as the author of this work has been asserted by him in

accordance with the Copyright, Designs and Patents Act 1988.

Published by Manchester University Press

Altrincham Street, Manchester M1 7JA

www.manchesteruniversitypress.co.uk

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging-in-Publication Data applied for

ISBN 978 0 7190 8799 8 hardback

First published 2017

The publisher has no responsibility for the persistence or accuracy of URLs for any external or

third-party internet websites referred to in this book, and does not guarantee that any content on

such websites is, or will remain, accurate or appropriate.

Typeset in Minion and Futura by R J Footring Ltd, Derby, UK

List of figures and tables page vi

Acknowledgements vii

Series editor’s foreword viii

1 Introduction: ethnography, history and the vagaries of research 1

2 History: from the Bank of Scotland’s origins to HBOS and crisis 14

3 Theory: explaining financial crisis and conceptualising capitalism 34

4 Culture: nations, banks and the organisation of power and social life 49

5 Change: discourses of agency and progress in organisational change 71

6 Identity: struggles with personhood, nationhood and professional virtue 87

7 Comparison: doing ethnography and thinking comparatively 108

8 Conclusion 123

References 139

Index 146

Figures and tables

Figure 1.1 The basic organisational structure of HBOS, 2001–2 6

Figure 1.2 Timetable of fieldwork methods 9

Table 4.1 Characterisations of delegates on the 'Assertiveness’ course 59

This book has been a long time coming: not just from the original fieldwork in

2001–2 on which it is based to the idea of the book, but also from that conception

to the delivery of the manuscript to Manchester University Press The first gap

happened because I had largely given up on producing a book out of this body of

research, the moment having passed and my research having moved on But then

the economic crisis of 2008 happened, and I began to consider returning to the

data in that light, and eventually arranged a contract with MUP for a

contribu-tion to the New Ethnographies series However, even then various other research

projects and professional obligations already in train made it difficult to find time

to return to the data, do new supplementary research, and write

So my first expression of gratitude goes to my editors at MUP, Tony Mason and

Tom Dark, and Alex Smith, series editor, for their patience and support In addition,

Ralph Footring’s assiduous editing has improved the text I would also like to thank

the entire team who worked on the Nations and Regions Research Programme

(1999–2005), and the Leverhulme Trust for funding that programme and this study

as part of it In particular, I would like to thank David McCrone, the programme

coordinator, and Tony Cohen, who led the ethnographic portion of it In 2013–14

I enjoyed a Mid-Career Fellowship from the Independent Social Research

Founda-tion to begin a new line of research into the history and instituFounda-tionalisaFounda-tion of

competition in liberal forms of society Although doing that work was one of the

things that delayed the delivery of this book, the ideas generated there shaped the

book, and I think thanks to the ISRF are also due here Jeremy Peat and Ray Perman

kindly agreed to discuss the state of banking in Scotland post-crisis with me as I

was beginning to plan the book, and I am grateful to them Of course, I must also

thank the many staff members of the Bank of Scotland, the Halifax and HBOS who

gave their time and allowed me into their lives for a bit all those years ago None of

these has any responsibility for the contents of this book, which falls to me alone

Although I have wandered away from my anthropological roots, and discuss my

ambivalence about the ethnographic method in these pages, nonetheless I would

like to thank and dedicate this book to two anthropologists and teachers whose

influence was intellectually formative for me, Mario Bick and Jane Schneider

Series editor’s foreword

When the New Ethnographies series was launched in 2011, its aim was to publish

the best new ethnographic monographs that promoted interdisciplinary debate

and methodological innovation in the qualitative social sciences Manchester

University Press was the logical home for such a series, given the historical role it

played in securing the ethnographic legacy of the famous ‘Manchester School’ of

anthropological and interdisciplinary ethnographic research, pioneered by Max

Gluckman in the years following the Second World War

New Ethnographies has now established an enviable critical and commercial

reputation We have published titles on a wide variety of ethnographic subjects,

including English football fans, Scottish Conservatives, Chagos islanders,

inter-national seafarers, African migrants in Ireland, post-civil war Sri Lanka, Iraqi

women in Denmark and the British in rural France, among others Our list of

forthcoming titles, which continues to grow, reflects some of the best

scholar-ship based on fresh ethnographic research carried out all around the world Our

authors are both established and emerging scholars, including some of the most

exciting and innovative up-and-coming ethnographers of the next generation

New Ethnographies continues to provide a platform for social scientists and

others engaging with ethnographic methods in new and imaginative ways We

also publish the work of those grappling with the ‘new’ ethnographic objects

to which globalisation, geopolitical instability, transnational migration and the

growth of neoliberal markets have given rise in the twenty-first century We will

continue to promote interdisciplinary debate about ethnographic methods as the

series grows Most importantly, we will continue to champion ethnography as a

valuable tool for apprehending a world in flux

Alexander Thomas T Smith

Department of Sociology, University of Warwick

Introduction: ethnography, history and the vagaries of research

This book takes a body of ethnographic data collected in 2001–2, during a year’s

fieldwork at the Bank of Scotland and HBOS, and revisits it from the perspective

of the present, that is, the time of writing this book (c.2014–16) That present is

one in which the global banking and financial crisis that emerged around 2008 has

had devastating effects on several banks, including this one My original research

had been planned to take place in the Bank of Scotland (BoS) but earlier in 2001,

before the research began, BoS had merged with the Halifax to form HBOS In

September 2008, massively overexposed by the crisis, HBOS was acquired by

Lloyds TSB, in a deal orchestrated by the British Labour government to prevent a

second bank failure after the collapse of Northern Rock a few months earlier The

time between my fieldwork (and the merger) and the acquisition of HBOS was a

mere seven years – of rapid growth followed by spectacular failure

My overarching aim is to explore the tension between the ‘ethnographic

present’ of the original research and the unavoidable alteration of perspective on

that data that the economic crisis has created I am interested in how many aspects

of the research findings anticipated and prefigured what was to come, and yet can

be understood in these terms only from the later vantage point Larger structural

and historical explanations of what went wrong in the financial sector will be

drawn on to frame the study, but these are ultimately beyond the immediate

scope of this ethnography Instead, I have tried to make a virtue of the necessarily

micro-level body of data generated by ethnography focused on a relatively narrow

slice of staff, in a single organisation, over one year, by treating it as something that

gains meaning, and depth, precisely by distance, the passage of time and changed

historical perspective In this way I attempt to contribute to our understanding of

how to do the ethnography of organisations and institutions in a way that achieves

depth of analysis I have tried to produce a book that brings together ethnographic

detail and longitudinal perspective, and that provides through its examples a

different way to think about how nationalism and national identities operate in

everyday life And I have sought to use this particular case to gain insight into how

the economic crisis triggered in 2008 came about, and was implicated in a more

general process of social transformation

2 Salvage ethnography in the financial sector

In particular, I will be examining how that first year after the merger of BoS

and Halifax framed and shaped comparative talk about organisational cultures

and national identities, which took on a specific salience for the people I studied

during this period In an environment of accelerating organisational growth and

heightened competitiveness, staff negotiated and wrestled with notions of the ideal

bank employee These notions were often dissonant with established conceptions

of BoS culture, and Scottish ‘character’, in ways that were especially invidious for

BoS staff Thus a larger structural and organisational context triggered anxieties

and uncertainties about personal issues, questions of identity, selfhood, value and

even virtue (cf Mills 1959)

Time changes everything

Let me flesh this out by recounting something that happened shortly before I

began writing this book After work on a Friday in October 2012, I went out to join

several old friends for some drinks and conversation, friends I have known since

I first met several of them at BoS, when I was doing the ethnographic fieldwork

behind this study They call themselves ‘The Walkers’ The original nucleus of this

group had formed well before I met them, as a group of friends from work who

would meet every so often for a drink, in the early days going for a short ‘walk’ to

the pub after lunch on some Fridays By the time I knew them this had become

an after-hours activity, meeting up at a different pub about once every couple of

months As I write, there are about seven regular members, not counting myself I

am an erratic participant on these nights, but have tried to catch up from time to

time Only two of the group still work for the Bank, the rest all having retired or

left for other reasons in the years since I did my research

We met at Leslie’s Bar on Ratcliffe Terrace in Edinburgh Those present were

Thomas, Paul, Donald, Ben, Angus and Duncan.1 I brought out a copy of Ray

Perman’s recent book Hubris: How HBOS Wrecked the Best Bank in Britain

(2012) It turned out Angus had already read it, and thought it offered a

reason-able account of what had happened to the Bank they had all known We passed

it around Paul was adamant that it was misnamed, that the subtitle should be

How Halifax Wrecked the Best Bank in Britain (not HBOS) Or, alternatively,

how certain former leaders of the Bank had ruined it There was clearly a lot of

cynicism in the group, which Paul articulated, although I sensed that most of

them had made some sort of peace with events We spoke about the fall in HBOS

shares as the crisis worsened, and how staff, who regularly took annual bonuses in

shares, held on to them, convinced they would recover They just could not believe

how far they would fall Ben said his regular cashing-in of shares, to fund holidays

and such, meant that he had not lost as much as some But others had built up

retirement nest eggs that had disappeared This very much echoed what Perman

said in his book and what I had heard these fellows say before

I was struck by two themes that emerged spontaneously in the conversation,

without any prompting from me, because they harked back to things I had heard

during my original research, and that appear in this book One was a discussion of

Introduction 3

how Lloyds plc was in a ‘centralisation’ phase, trying to draw control into the centre

of the organisation during a period when profits were difficult and costs needed to

be controlled It was wryly observed that this was part of an endless organic cycle

of large organisations as they grow, responding to internal power dynamics and

to their economic environments We commented on how, when I was doing the

research in 2001–2, BoS and then HBOS had been in a decentralisation phase, in

particular distributing control of much of the staff training out to the divisions,

diminishing the central training part of the Bank, where many of these guys had

met, and where I was based for much of my research I remembered how then the

same detached assessment of this process was expressed in interviews, that the

pendulum inexorably swings between centralisation and decentralisation, and

that the arguments made for each need to be taken with a pinch of salt

The other theme that struck me was comparative talk about how up to date

or backward various organisational systems are, and how this compares with

competitors This is a group of people with considerable experience across various

kinds of organisation, in banking and elsewhere One was talking about the

systems in Lloyds being behind those in HBOS, another about the backward

systems in a unit in the University of Edinburgh that he had done some systems

analysis work for Among them there was a strong underlying tendency to view

organisations as things more or less adapted to the present environment, whether

ahead, keeping pace or falling behind This is a very basic part of how they view

the world of business organisations, as a ‘natural’ terrain of competition between

the better and the worse adapted

I chatted with Thomas about the present book He seemed to like the proposed

title Salvage Ethnography (explained further below), grasping the idea that it was

about the ethnography of an organisational culture that had slipped away into

history The evening as a whole confirmed for me a strong sense of a group that

shared something in the past, that was now gone, not just faded with time, but

collapsed, wiped off the map Survivors, in a lifeboat, sharing a drink

Research: original aims, access, design, methods and reframing

The original research had purposes that were not exactly the same as the ones I am

putting it to now The study was one of several conducted by a large team of social

scientists under the auspices of the Nations and Regions Research Programme

(1999–2005) funded by the Leverhulme Trust That programme was inspired by

questions about the effects of recent political devolution in the UK, including the

establishment of a parliament in Scotland and an assembly in Wales, on notions

of national identity It involved a variety of studies and methods, ranging from

large-scale opinion surveys to localised ethnographies, conducted by sociologists,

political scientists, social psychologists and anthropologists (see Bechhofer and

McCrone 2009) The objective of my study was to gain a better understanding

of the subtle ways in which national identity comes into play in daily life, and in

particular how large organisations frame and shape the ways that national identity

is construed As an ethnography, it aimed to systematically observe and interact

4 Salvage ethnography in the financial sector

with people bound together by a specific social context (the Bank) on a daily basis

over an extended period of time This enabled in-depth observation, reflection

and analysis of behaviour in that context, to help build up a holistic picture of

people’s understanding of themselves and their circumstances Thus while it was

‘in’ the banking sector, the research was ‘on’ national identity The purpose was not

to make generalisations about large populations (whether British, Scottish or even

the staff of the Bank), but rather to offer more nuanced interpretations of how

people actually ‘do’ national identity in daily life Thus this small-scale qualitative

study was seen as complementing and offering a methodological counterpoint

to the various other studies run under the same programme, to support a

com-posite understanding of national identity The larger issues of national identity and

social and political change have remained alive in the intervening years, with the

increasing electoral success of the Scottish National Party (SNP), a referendum on

Scottish independence in 2014, and a UK referendum on leaving the European

Union in 2016 These events fall somewhat outside the purview of this study, but I

will address this wider context in the Epilogue

As I have noted, between the initial research design and negotiation of access,

BoS entered into a merger with Halifax, to form HBOS Negotiation of access

had been facilitated by social ties between a senior member of the research team

and the then Governor of BoS In fact, after this had been done, the merger with

Halifax was entered into, and just before the fieldwork was to start I was notified

that the Bank intended to cancel its agreement to allow the research, given the

new context This led to a renegotiation with Bank, in which I and the director

of the research programme, David McCrone, made the case for the continuing

value of the research despite the merger, and the considerable disruption to the

research programme a cancellation would cause In the end we were successful I

raise this episode partly to note the vagaries of research, but also to highlight that,

at this point in time, BoS was still sufficiently embedded within the organisational

matrix of Scottish civil society that it mattered to maintain cordial relations

between key organisations such as the Bank and the University of Edinburgh,

relations that were still underpinned by Scottish social networks It is also worth

noting that BoS had long been the University’s bank, but that this relationship

was severed post-2008

So while still based primarily in BoS, the research plan was reoriented to take

account of the new HBOS context The original expectation was that the

eth-nography would allow us to get at everyday, ‘banal’ (Billig 1995) expressions of

national identity that are often less noticeable because they are not triggered by

explicit, nationally framed confrontations The merger obviously changed this It

perforce reoriented the research, as it involved a union of a Scottish and an English

bank, thus highlighting issues of national identity within that context While less

charged than national confrontations between political parties or football teams,

there was nonetheless now a clear dimension of national encounter within the

organisation, which raised new issues

‘Participant observation’ – taking on roles that allow ethnographers to

par-ticipate in the daily life of those they are studying – is much mythologised and

Introduction 5

romanticised There were obvious limitations to doing this, in that I was not a

trained banker, nor an employee of the bank Many parts of the bank involved

technical skills and matters of information sensitivity that would have made

par-ticipant observation impracticable and inappropriate So I sought to approximate

the role of a fellow employee as best I could, and found that before long I was

frequently identified as someone on ‘secondment’ to the Bank from the University

Thus my role as ethnographer was assimilated to a role category familiar to bank

staff, as the long-term ‘loaning’ of staff from one organisation to another for

specific projects is fairly common

I was primarily based in what was called Group Learning and Development

(GL&D), which managed and delivered various aspects of general and executive

staff training, as well as educational resources for the bank as a whole While I

was there, GL&D also ran projects to standardise staff competency frameworks,

manage bank relations with government training schemes, and investigate the

potential for e-learning within the Bank From there I worked in and around

various teams involved in human resources (HR) within BoS and HBOS more

widely This made sense because the HR areas, covering such things as public

rela-tions, employee relarela-tions, community relations and staff training, were centrally

concerned with the generation and managing of a corporate culture and identity

Given the core research questions, this was a logical place from which to work

I should note that about two years prior to the merger, there had been a decision

by the board of directors to shift the organisational structure of the Bank from one

based on geographical regions to one divided according to major core functions

Following this there was a more specific decision to ‘devolve’ much of the staff

training functions to the new divisions: Corporate Banking, Business Banking,

Retail/Personal Banking, Insurance and Investment, Treasury and Group (core

functions) (see Figure 1.1) Furthermore, GL&D had been physically relocated to

more modest premises and was undergoing downsizing, as it was redesigned to

concentrate exclusively on the training of executives and those identified as having

executive potential The merger tended to accelerate this restructuring process

and was clearly demoralising for some of its staff

I went to a central office in GL&D almost daily, where I was assigned a desk

and a computer I normally wore a suit and tie Participant observation extended

to more informal socialising over lunch, at office parties and after hours Much

of what I did in GL&D drew on my academic and research skills, applying those

to Bank needs Sometimes (especially at first) participant observation involved

menial tasks, and in some contexts I was more an observer than a participant My

activities developed as people became more familiar with me and new

opportuni-ties opened up within the Bank To summarise:

• I began in October 2001 by working in the BoS ‘Learning Centre’, a library

of educational/training materials, primarily books and videos I worked on

a project of inventorying the video holdings and repackaging them, as well

as various other odd jobs, chatting with staff as they came and went This

provided an initial foothold from which to develop participant observation

6 Salvage ethnography in the financial sector

interest rate management, services and specialist products to business and corporate clients

Insurance and Investment Life, personal, medical and household insur

Business Banking Banking products and services to small and medium- size enterprises

Introduction 7

• During the early months I also spent time following the public activities of

Social Investment Scotland, a consortium of Scottish banks designed for

lending to the ‘social/voluntary’ sector, which was then under the directorship

of someone seconded from BoS This ended up fairly peripheral to the research

• A major research activity from early December 2001 through February 2002

was attending ‘menu’ training courses These were ‘off the shelf’ staff training

courses that any staff could elect to go on, although they were often advised

to do so by their managers Rather than area-specific skills, they focused on

developing general skills, with titles such as: ‘Assertiveness’, ‘Leading the Team’,

‘Creativity and Innovation’, ‘Presentation Skills’ and ‘Dealing with Difference’

Here I met staff from across the Bank, regionally, divisionally and in terms of

employment grades, participating as if I were another staff member, although

my research role was always disclosed to the course leader and participants

This ended up being a particularly rich source of ethnographic data

• From early 2002, a major focus of participant observation became my work

with a new team, the Diversity Team, which was set up to integrate diversity

and equality policies across HBOS, and to formulate and advocate new policies

in this area The team members came from both BoS and Halifax I worked

on a variety of projects with this team, which involved both working with the

team and making contacts and seeking information from other areas within

the Bank (as well as outside) The main ones were: (1) designing and

analys-ing the results of a questionnaire designed to assess awareness of diversity

issues among staff in HBOS Card Services (based in Cardiff and Dunfermline);

(2) researching data and corporate policies on elder care and helping inform

an integrated policy on carers for HBOS staff; (3) collecting information on

gender pay audits and data sets on gender and pay among staff in various

parts of HBOS These projects allowed me some insights into the ‘nuts and

bolts’ of the Bank’s relations with its staff, and an opportunity to provide some

reciprocation in exchange for the research access I had been granted It also

facilitated more contact with Halifax-based staff of HBOS, to offset the ‘BoS

perspective’ of my fieldwork

Participant observation was supplemented by other methods:

• An open-ended questionnaire was administered via an email list originally

based on BoS staff identified for managerial training by GL&D But by this

stage in the merger, the list had begun to incorporate staff from a Halifax

background This list was the best available basis for the distribution of this

questionnaire and was a means to get ‘buy-in’ from the respondents Of the 203

respondents: 18 were from Halifax and 185 from BoS; 149 were men and 54

were women The respondents’ service with the banks ranged from 6 months to

about 35 years, with most clustered in the 10- to 25-year range Responses were

fairly widely though not proportionately spread across the major divisions of

the Bank, and a few respondents were in training on the graduate scheme and

not yet placed in a specific business unit There is no presumption that the

8 Salvage ethnography in the financial sector

questionnaire responses were statistically representative Like the rest of the

ethnography, the questionnaire study contains the bias of the BoS point of view,

as well as being directed at managerial-track staff A representative sample

would have had many more staff at lower grades, working in retail banking

and female It is used as a further source of focused qualitative data, not as a

statistical representation of the HBOS staff at the time

• Thirty-nine semi-structured interviews were undertaken, 38 of which were

tape-recorded Most interviewees were chosen on the basis of their responses

to the questionnaire described above I tried to do interviews with respondents

who seemed particularly interesting and engaged, and tried to get a relatively

balanced sample from across the major divisions of the Bank, which included

staff based in London and other UK cities Of these 23 were with men and 16

with women I also did a further five interviews (not tape-recorded but written

up as notes) with key informants from the HR section of the Bank where the

participant observation was based, and one with an Edinburgh-based banking

expert outside of HBOS (four men and one woman)

• Various documents and in-house publications were collected and selected

materials at the Bank’s archives were surveyed

Participant observation went on throughout the research period (October 2001

to September 2002), although the location/focus shifted over time, as planned

The email survey was designed, piloted and conducted during the middle of the

research period (February–May) The interviews were conducted in the summer

months (June–August) Documents were collected throughout the research

period There was a final period of collecting documents and taking notes at the

BoS archives in September

There is a logic to the sequence of methods and how they were phased in

Participant observation was subjected to ongoing analysis through writing and

reflecting on field notes An initial analysis of themes in the field notes informed

the design of the email questionnaire, which was developed in dialogue with

other members of the Leverhulme research team, and piloted with a small group

of BoS staff The interview questions were also developed partly out of issues

raised in the responses to the questionnaire The combining and ‘overlapping’ of

participant observation, survey and interviews aimed to achieve a certain depth in

the discursive/qualitative data (see Figure 1.2)

I worked with this data, and wrote and published on it for several years after

the fieldwork (see Hearn 2006, 2007, 2009), but inevitably my interests moved

on to other things However, after the events of 2008 I found myself periodically

returning again to reflect on the research, and eventually devised the plan for this

book This has involved new reading around the topic, some new informational

interviews with some well informed observers of the Scottish economic scene to

help bring my knowledge up to date, as well as discussions with some of my old

contacts at the Bank, as described above

I want the research process to be evident in the presentation of the ethnographic

data in Chapters 4–7 In some passages I have stuck very close to my original

10 Salvage ethnography in the financial sector

field notes, and have indicated this I indicate where I am using a transcript of a

recorded interview and where I am paraphrasing the words of informants from

field notes I have drawn heavily on the responses to the email questionnaire to

show the range and complexity of language around certain key themes I explore

These often provide the sharpest verbatim fragments of the general discourse

going on in the Bank at the time When I refer to ‘responses’ or ‘respondents’ I

am using this particular body of data However, I have tried to mix these with

ethnographic ‘vignettes’ to achieve a rounder picture of the ethnographic setting

Without following a strict temporal line, these chapters trace the journey from the

initial to the final days of my fieldwork Finally, I have used pseudonyms for the

informants I had direct contact with in this study I have not changed the names

of Bank leaders who were also public figures, their names appearing in the news

media in association with the Bank

The strengths and weaknesses of ethnography

In recent years my research has tended to become more theoretical and historical

This partly reflects my own frustration with some limitations of ethnography as

a research method, limitations that the present book grapples with, although I

doubt they can be ‘solved’

I did my PhD in cultural anthropology at the Graduate Center of the City

University of New York in the late 1980s and early 1990s That department was

strongly defined by an emphasis on global and historical perspectives, an interest

in European ethnography, and the commanding influence of Eric R Wolf His

magisterial Europe and the People Without History (1982) functioned as a kind of

departmental bible during the time I was there My doctoral research focused on

social networks around the nationalist movement in Scotland at the time,

explor-ing the moral discourses and social constructions of history which characterised

that movement True to the style of the department, my ethnographic work was

heavily framed within longer-term historical research into the development of

modern Scotland and the growth of the welfare state in the twentieth century

One of my core conclusions was that Scottish pressure for devolution and

inde-pendence was deeply bound up with a moral economic defence of the welfare

state in Britain, understood as under attack by Conservative politics socially

based in England

When I began the BoS/HBOS project, I remember thinking that it would be

satisfying to do something more like traditional, relatively bounded ethnography

Even though the fieldwork was done in a modern formal organisation, it was in

some ways more like studying in the proverbial ‘village’ than my previous

field-work, which had traced out rather loose social networks within a diverse social

movement that faded into a much wider national context of social life But as it

turned out, these satisfactions were counterpoised by frustrations with that very

boundedness A few years back I was attending a presentation in anthropology,

and a colleague quipped that the presenter’s style of research was ‘claustrophilic’,

that is, attracted to the small space, the minute canvass, on which an ethnographic

Introduction 11

account can be based Anthropological ethnography, because of its often intensive

and detailed focus on a small group over a relatively bounded period of time, lends

itself to this perspective And there is merit in a close understanding of

micro-social processes But usually a well developed understanding of any micro-social process

involves locating it in a wider context, situating the more micro within the more

macro Conventionally, eth nographers have often done this by including an early,

contextualising historical chapter based on secondary sources and perhaps some

local archives Eth nographers who build up a record of sustained research with a

particular community over many years of course also acquire a more extended

temporal perspective on those they study, and are able to provide particularly rich

accounts on that basis And ethno historical approaches can also provide a

correc-tive, blending the concern with specific sociocultural groups and the advantages

of historical perspective

However, the initial research on which this book was based, while it included

some historical contextualisation, was oriented to the ethnographic present It

focused on the ways in which the people I was observing were enacting their

senses of national identity, bringing these into play in a daily life that, while clearly

shaped and to some degree triggered by the encompassing event of the bank

merger, was also somehow abstracted from the wider historical context There was

something ‘claustrophilic’ about the project, with which I was never comfortable

But the passage of time changes things First, some of what ethnographers study

is ephemeral, and that ended up being the case for the present research Although

the Bank of Scotland persists as a kind of regional brand within Lloyds plc (as

does the Halifax), the older BoS ethos, and the clash of organisational cultures that

defined my research period, are ultimately things that have now passed So there is

value in examining interesting processes before they slip away But perhaps more

importantly, their significance is not inherent in those events, but a matter of the

vantage point from which we observe and understand, and that keeps changing

‘Salvage ethnography’

In an article titled ‘Ethnographic salvage and the shaping of anthropology’ (1970)

Jacob W Gruber argued that much early anthropological fieldwork and

eth-nography was born of a desire to capture and preserve cultures that were assumed

to be disappearing, or soon to become so transformed as to be unrecognisable

This was particularly true of the study, in the Boasian tradition, of Indians in North

America While this preservationist ethos, and the accompanying conception of

cultures as rather stable and unchanging systems, has been fundamentally

chal-lenged, and largely gone out of style, I think the idea is pertinent in the case of this

study My fieldwork of just a few years ago has become a record of a ‘vanishing way

of life’ among the bankers, written down as the onslaught of a more ‘pro gressive’

banking culture was already rendering the memories and self-conceptions of

many of the people I worked with obsolete Of course we are not talking about a

people under threat of ethnocide, but rather the steady, cyclical churn of capitalist

business practice, the ‘creative destruction’ (Schumpeter 1976: 81–6) by which

12 Salvage ethnography in the financial sector

progress is measured Nonetheless, there is a pervasive elegiac air to the data I will

present, a feeling of loss and defeat

The point however is not simply to preserve a record of a dying organisational

culture Ultimately, it is to explore the relationship between that original account,

largely composed in an ethnographic present to which we cannot return, and

the present perspective, which of course is itself slipping into the past as I write

The perspective of the book lies in the tension between then and now, and the

significance of the data changes with our historical perspective Where originally

I was more concerned with the vagaries of national identity and people’s sense of

personhood under the pressures of corporate merger, I now see a specific acting

out of a larger drama of cultural change in the UK banking sector, connected to

deep dysfunction in that industry

Chapter overview

The next two chapters, 2 and 3, provide a long-term historical perspective on BoS/

HBOS, from inception to the 2008 financial crisis, and then a consideration of the

nature of historical explanation, under the rubric of ‘theory’ The historical chapter

concentrates on the more recent history but does go back to the late seventeenth

century, when the Bank of Scotland was founded This may appear surplus to

requirements, but part of my aim is to situate the ethnographic present in the

larger currents of history There is disproportion between 300 years of history and

a year of ethnography, but ultimately that year can best be understood by situating

it in ever-widening circles of temporal perspective Chapter 3 takes ‘theory’ to

mean historical, causal explanation It examines the main attempts to explain

the proximate causes of the 2008 crisis, as well as more encompassing political

economic arguments about the trajectory and dynamics of capitalism, which must

frame these more immediate explanations I conclude with some thoughts on

the problem of relating micro- to macro-analyses, in other words, of placing

small-scale ethnographic research like that presented here in a wider historical

framework I argue that this is a necessary part of a well rounded understanding

of the fine details of social life

Chapters 4–7 are the ‘ethnographic’ chapters drawing on the original research

data I ask readers to consciously descend from the macroscopic perspective of

history to the microscopic one of the (now historical) ethnographic present, but to

keep that first perspective in the back of their minds Each of these chapters takes

its title from a governing concept – culture, change, identity and comparison I

see these not as ‘theories’ but as simultaneously key themes in the data and tools

for analysis of the data, that have to be articulated in dialogue with the material

under discussion I am not attempting to resolve any wider theoretical debates,

but rather to show the necessity of these concepts for making sense of the data and

my particular way of articulating these concepts in relation to that data For this

reason I have structured Chapters 4–6 such that a ‘conceptual interlude’ exploring

the title concept in question is embedded in the middle of each Thus each of

these chapters starts with an initial exploration of ethnographic data, steps back to

Introduction 13

contemplate its governing concept, and then returns to the data Chapter 4 looks

at the concept of ‘culture’ as applied to both national groups (Scots and English)

and organisations (BoS and Halifax) Chapter 5 explores the theme of ‘change’, as

both the unavoidable circumstance of wider social change, and a moral imperative

to constant organisational change in the business world Chapter 6 examines the

concept of ‘identity’ and how it bears on how people deploy social categories,

such as Scottish and English, and how they experience their own personhood

Chapter 7, on ‘comparison’, takes a different approach While the chapter is still

concerned with the ethnographic data, my primary aim is to explore the in herently

though often only implicitly comparative nature of ethnographic research

In-evitably, as they try to understand ethnographic environments, ethnographers

think comparatively about their knowledge and experience of other settings I

try to use this as a way of getting a broader view of the materials in the previous

three chapters Chapter 8 reviews and draws together the themes of the book,

returning to the overarching question of historical perspective and explanation

As mentioned above, the Epilogue steps back from the immediate study to relate

it to recent political and constitutional events in Scotland and the UK as a whole

Conclusion

This has been a fairly reflexive introduction, necessarily so, because the

perspec-tive it tries to articulate and that informs the rest of the book emerges out of

personal reflections on the merits of the ethnographic method, and my own

changing temporal perspective on the research While I use the ethnographic

data to gauge theoretical explanations and the utility of analytic concepts, my first

goal is to convey a descriptive sense of the ethnographic setting and its historical

context I am not attempting anything terribly novel or abstract at the theoretical

and conceptual end In my view, in a work such as this, these should serve to help

put the particularity of the data in a wider, at least implicitly comparative context,

but should not become ends in themselves I use, combine and refine theories and

concepts that suit my own preferred interpretations But I hope I have presented

the data with enough detail and fidelity that at least a strong feeling for the original

research settings comes across, however much that has been filtered through my

own interpretation

Note

1 I have used pseudonyms for my informants I have used actual names for leading figures

known publicly in association with the Bank.

History: from the Bank of Scotland’s

origins to HBOS and crisis

Conceptualising history

It is very traditional to begin an ethnography with a chapter of historical

back-ground to the case in question This chapter does that, but it also seeks to be

explicit about how it does that, because how we conceptualise history, how

we select and organise events, facts, details into a narrative, implies a general

approach to explanation Historical narratives encode a certain amount of theory,

whether we like it or not (Carr 1961; Koselleck 1985; White 1984) In the next

chapter I will consider theoretical explanations, of both the 2008 financial crisis

and its aftermath, and the long-term political and economic trends that led to it

But here I simply want to make explicit some basic concepts that guide my

narra-tive It is also important to do this here because these ideas inform later chapters

as well For instance, the ideas of social change and competition that help frame

this historical chapter also come into play, at a more ‘micro’ level, in later, more

ethnographically focused chapters

I view BoS/HBOS through an ecological and evolutionary model By that I mean

I make sense of the changes to the Bank by seeing these as successive adaptations,

always approximate and imperfect, to a changing institutional environment That

environment can include any number of factors, but most crucial among these are

the complex interactions of state and economy Banks are brought into existence,

and get their livelihoods, by serving the needs of these two constituencies And as

in most evolutionary theory, competition is a core dynamic, significantly affecting

pressures towards change To varying degrees according to prevailing conditions,

banks compete with one another, are affected by political and economic

competi-tion between other organisacompeti-tions, and internalise competicompeti-tion, making it part of

their own operations Let me elaborate briefly on these three areas of institutional

evolution, state–economy relations and competition

The term ‘evolution’ is liable to set off alarm bells (Degler 1991) It easily

triggers two misunderstandings: first, that one is trying to reduce the social to

the biological; and second, that one conceives of some predetermined path of

development that things will follow Neither of these is the case here For me, the

emphasis is on how change in an entity (in this case an organisation, a bank) is

History 15

driven by processes of adaptation to an environment This analytic model does

not, of itself, imply any directional change, simply an ongoing context and core

dynamic of change Whether one regards this conception as relying on an analogy

with biological evolution, or whether one regards evolution in both the biological

and social domains as reflecting some more general logic of change, does not

concern me here (see Hodgson and Knudsen 2010: 30–46) Various efforts to

ground theories of social change in an evolutionary model have tried to ana

logic-ally parallel the various specific processes from genetic evolution (e.g Nolan and

Lenski 2004), especially in trying to identify a concept such as a ‘meme’ (a cultural

or informational unit that is ‘inherited’) to correspond to the gene (e.g Blute

2010; Runciman 2009) I am not interested in such tight analogies, and find them

unconvincing I am in fact more influenced by an older anthropological approach

that sought to understand basic tendencies and variations in broad types of social

organisation in terms of the ecological conditions in which they develop and

operate, and the effects of increasing scales of operation (Fried 1967; Service 1975;

Steward 1972) Of course, this kind of ecological explanation loses force as societies

become larger, more complex and interpenetrating in their political and economic

processes In effect it becomes impossible to analytically disarticulate the ‘society’

from its ‘environment’ Nonetheless, this more complex, more globalised world

of interdigitating societies, economies and polities is itself composed of various

entities, primarily forms of social organisation, such as states, firms, voluntary

associations, social movements and so on, that can be usefully analysed through

the judicious application of an ecological/evolutionary model Pragmatically, I

find that my efforts to make sense of social processes invariably bring me back to

some such ‘light touch’ conception

I argue that the most immediate institutional environment in which banks

(and many other organisations) emerge, adapt and develop is that set up by the

dynamic of state and economy Moreover, I suggest that there is a certain

asym-metry in this formulation that needs to be corrected Put this way, we tend to think

of the economy as an environment to which the state must adapt, but it is equally

true that politics constitutes an environment to which economic actors, usually

in the form of firms and corporations, must adapt In modelling this relationship,

it is more accurate to picture two interacting institutional clusters of

organisa-tions, with the state and various para-governmental bodies (‘civil society’) on one

side and a host of major and minor economic organisations on the other The

former are oriented to meeting competing demands in an arena of public opinion,

while the latter are oriented to meeting competing demands articulated through

markets These two organisational arenas overlap and interpenetrate Crucially,

this complex dyadic relationship is part of the very definition of modern, liberal,

capitalist and democratic forms of society (cf Ingham 2008; Weber 1927) It is

the mutually reinforcing and legitimating power in these two interdependent

spheres that gives this form of society its core dynamic The state protects freedom

in the economy (albeit often highly uneven) and the economy in turn delivers

productivity and wealth to the state, at least in the good times (Hearn 2012:

135–9) Modern banks are diagnostic of this relationship, often being set up by

16 Salvage ethnography in the financial sector

governments in the first instance, or at least requiring government sanction and

a degree of control Central banks are the obvious paradigmatic case, with their

special responsibilities, in various articulations with government treasuries, for

such things as currency supply and interest rates Many other banks and financial

organisations are situated more clearly in the private sphere, but because all are

collectively involved in national and transnational patterns and flows of financial

intermediation and investment, they are perennially of concern to governments

If modern capitalist society is characterised by this mutual reinforcement of core

economic and political institutions, then central banks, and banking sectors more

generally, are linchpins in that relationship

Competition is a very familiar and yet slippery concept We use it to describe

a wide range of relationships in which entities (e.g organisms, species, persons,

groups, organisations and institutions) come into a contest over limited goods (e.g

food, ecological niches, resources, wealth, status and power) We are concerned

here strictly with the human variety, as it plays out in highly institutionalised

and organised contexts On the one hand, there is simply the bare condition of

competi tion between persons, groups and organisations over limited goods But

on the other, there is what I call ‘reflexive competition’, that is, the fact that we not

only compete, but deliberately harness and organise the process of competition,

treating it as a preferred way to decide who gains what, in the marketplace,

in contests for political leadership, and in myriad other contexts of daily life

Competi tion is a core ideological concept in liberal forms of society, ranging

over diverse spheres of life, and legitimating distributive outcomes in a way that

often appears very natural, obscuring the human hand in when, where and how

it operates

It is perhaps noticeable that I have made no reference so far to two very popular

concepts: globalisation and neoliberalism I do not entirely dispense with these,

but find them problematic as conceptual tools of analysis I regard them as rather

abstract, descriptive labels for bundles of large-scale processes that are more

pre-cisely understood through the concepts I have just been reviewing Globalisation

usually refers to the general increasing scale and scope of human institutions

beyond the bounds of the nation-state, along economic, political, cultural and

technological dimensions (Mann 2013; Sassen 2007) Specific theories of

globalis ation tend to focus on one of these dimensions, with the globalisation of

capitalism and markets often enjoying pride of place I have no problem with the

broad characterisation of recent decades in these terms, although I am inclined to

note that various processes of globalisation (e.g religious, imperial, commercial)

have been going on for centuries (Osterhammel and Petersson 2005; Therborn

2000) The novelty of change since World War II can be exaggerated But I think

that to understand processes of globalisation, we need to come down to a

con-ceptualisation of the dynamic relationships between key entities The concept of

neoliberalism corresponds closely to that of globalisation, referring especially to

the ideological turn towards privileging the interests of economic over state

insti-tutions and actors, and taking economic theories about markets and competition

as a general model for the reform of institutions and organisations throughout

History 17

society (Crouch 2011; Mann 2013) Again, I recognise this general description of

what has happened, but think that we need more precise concepts to get at why it

has happened The risk with terms such as these is that we easily slide from their

application, in the form of ‘x is an instance of globalisation and/or neoliberalism’,

to dubious assertions of causal analysis, such as ‘x is an effect of globalisation and/

or neoliberalism’ Causal assertions on such a grand scale are of limited value

British banking c.1695–1914 and the founding of BoS and of the Halifax

Our story begins in the late seventeenth century Scotland and England had

shared a monarchy since 1603 and were soon to combine their independent

par-liaments in 1707 The first public British banks were established with the model

of the Bank of Amsterdam in mind It was established in 1609 in the context of

a thriving Dutch commercial economy It took in deposits of metal money and

provided a system of credit between its members, and it was backed by the City

of Amsterdam, giving confidence in its credit The Bank of England was founded

in 1694 largely through the funds of London merchants, to support the English

government, particularly in the costs of war with France By contrast, the Bank of

Scotland, founded in 1695, was forbidden to lend to the Scottish Parliament and

needed parliamentary approval to lend to the Crown It was neither insured by

the state nor designed to directly fund the state Although established by an Act

of the Scottish Parliament, it was a business venture among Scottish, especially

Edinburgh elites, subscribing their own capital Prior to this, the main source of

investment capital would have been private merchant bankers, who could advance

their own money and who sometimes formed partnerships to pool risk BoS was

an early example of a limited liability corporation; that is, its subscribers risked

only the money they had invested in the bank From the outset, the bank made

loans in the form of transferable notes or ‘bills’, which soon increasingly circulated

as money and supported a more extensive system of smaller-scale credit This early

establishment of paper money was innovative and the Bank’s most fundamental

contribution to the Scottish economy To help it get started, BoS was granted a

monopoly in public banking in Scotland and an exemption of its dividends from

taxation for its first 21 years (Checkland 1975: 23–33)

Of the 172 original ‘adventurers’ (i.e subscribers) of BoS, about a fifth were

resident in London, the rest in Scotland Greater and lesser landed nobility

pre-dominated, with about 41 merchants, primarily based in Edinburgh and London,

and a small group of lawyers and judges and a few other professions, all based

in Scotland The Bank arose out of its political economic context In short, its

establishment was particularly supported by ruling elites who had backed the

‘Glorious Revolution’ of 1688, which replaced James VII of Scotland (James II of

England), a Stuart with Jacobite support in the Highlands, with William and Mary,

the firmly Protestant monarchs invited from Holland by the English Parliament

This enabled those elites to legislate for greater security of tenure, reversing the

previous royal predations of James VII on the lands of nobility who had opposed

18 Salvage ethnography in the financial sector

him This in turn made it easier to treat estates as collateral to underwrite the new

bank, which in turn was needed to stimulate trade so that there would be a greater

tax base through which to support an army in Scotland to protect economic and

political interests So, although the legal relationship of BoS to the Scottish state

was very different from that of the Bank of England with regard to the English

state, their underlying purposes – to stimulate commerce and underwrite the

expenses of the state – were similar (Saville 1996: 1–6)

Early on, even before its banking monopoly expired, BoS came into fierce

com-petition with the Company of Scotland, more commonly known as the Darien

Company, which was set up by an Act of the Scottish Parliament in 1695 with

exclusive rights to trade between Scotland and America, Africa and Asia The

Darien Company in effect parlayed its rights to trade into a capacity to bank As

the Company accumulated large sums of money in advance of its first trading

ventures, it began to use this capital to underwrite its own form of bank notes and

soon set upon a strategy to undermine BoS by accumulating BoS notes and

threat-ening to return them en masse in unpayable amounts BoS could not trespass

on the Darien Company’s trading activities in retaliation, having been legally

constituted so that it was not allowed to trade on its own account This conflict

led to a liquidity crisis for BoS, depleting its supply of coin and forcing it to close

down branches and restrict lending to survive However, the Darien Company’s

fortunes also turned The main ‘projector’ of the Company, William Paterson, had

been driven out of London, where the Company was seen as infringing on the

ex-clusive trading rights of the English East India Company, burning his connections

with various London backers This is part of what drove the scheme to take over

banking in Scotland But the Darien Company overextended itself, leaving too

little cash to back its original trading ventures, and also fell prey to embezzling It

withdrew from its banking activities and eventually set up a failed colonial trading

settlement in Darien, Panama (1698–1700), ending in deficit in 1706, having

squandered a large amount of Scotland’s investment capital (Checkland 1975:

33–7; Saville 1996: 19–38)

The failure of the Darien scheme reflected the desperation of actors in the

Scottish economy By 1697 successive years of poor harvests had severely weakened

the essentially agrarian Scottish economy, raising indebtedness throughout

society There was awareness that substantial access to imperial trade networks

was necessary for Scotland to transform its ecologically vulnerable, low-growth

economy The failure of the Darien scheme compounded this situation instead of

solving it This was no doubt a factor in the decision of the Scottish Parliament to

merge with the English Parliament to form a common UK Parliament, in effect

completing the tendency towards union that had begun with the Union of the

Crowns in 1603 under James VI/I With the Treaty of Union in 1707 Scotland

found greater political stability and access to imperial trade, England secured its

northern border and a shared Protestant-commercial culture was consolidated

In the early eighteenth century the Scottish export trade was limited to primary

or minimally manufactured goods: textiles (linen, wool); cattle and sheep; leather;

various fish; and some coal and lead ore Guild crafts in the burghs manufactured

History 19

goods primarily for local markets, with limited economic horizons Grain was

exported only in some good years Larger merchants often served the carrying

trade, or mainly imported colonial goods to Scotland, thereby contributing to

a negative trade balance for Scotland The Union of 1707 at first hit indigenous

manufacturers hard as trade tariffs were lifted, but over the next couple of decades

the economy began to expand A major factor from about 1740 to 1776 was

the growth of the tobacco trade from the North American colonies, which was

dominated by a group of large Glasgow merchants Some of these profits were

reinvested in other parts of the Scottish economy, such as the industrialisation of

linen weaving Politically the society was managed by patronage systems anchored

in an aristocratic landed elite that increasingly articulated with a growing merchant

class, and negotiated relations with the political centre in London Attempts by

Highland-based aristocratic factions to re-establish the Stuart royal dynasty in

Scotland in the Jacobite rebellions of 1715 and 1745 disrupted the economy and

left abiding political tensions, but by their failure underscored the growing

politi-cal and economic union with England

It was a dynamic and volatile century for Scottish banking The Royal Bank

of Scotland (RBS) was established in 1727 and until 1746 it and BoS controlled

public banking in Scotland The two rival banks were associated the two emerging

factions in British politics, RBS with the Whigs and the interests of the growing

urban merchant class, with a strong power base in London, and BoS with the

Tories and rurally based great landed interests, in keeping with the Bank’s origins

outlined above Soon after RBS was founded, with both banks issuing their own

notes, another ‘bank note war’ ensued similar to the Darien Company’s efforts,

with both banks threatening to undermine each other by hoarding notes and

then using them to drain specie from their opponent Eventually a truce was

negotiated During this period BoS twice tried and failed to develop a network of

regional Scottish branches RBS only had one branch office, but it was in Glasgow

and at the centre of growing trade out of Glasgow This reflected the stronger

Whig–mercantile connections of RBS Glasgow commerce was also stimulated by

merchant bankers, borrowing from RBS and BoS in Edinburgh to make private

loans to smaller businesses in Glasgow

More generally, the Scottish banking system developed very distinctively from

the English system A major reason for this was that the Bank of England was

established along with a law that said no other bank could be established with

more than six partners This made it all but impossible to create any bank that

could rival the resources of the Bank of England In Scotland, on the other hand,

any group could form a bank and enter the banking market Moreover, all banks

were free to issue their own bank notes, without government restraint Between

1746 and 1772 there was a proliferation of banks in Scotland The British Linen

Company was established in Edinburgh in 1746 with rights to both that trade

and banking capacity It was a pioneer in developing a regional branch network

Glasgow’s Thistle Bank was established in 1761 The 1760s saw the growth of

smaller, provincial banking companies in Dundee, Perth, Aberdeen and Ayr

(Munn 1981) With so many and varied and competing banks, each able to issue

20 Salvage ethnography in the financial sector

its own notes as it saw fit, there were tendencies towards inflation and collapse,

as well as continuing ‘bank note wars’ The overheating of the Scottish banking

system peaked with the collapse of the Ayr bank in 1772 However, the system

had already begun to regulate itself, both voluntarily and by statute by 1765, and it

was becoming more stable Despite its often rocky, crisis-prone development, the

effect of this growth in the banking sector was an increasingly integrated Scottish

economy In 1773, when James Boswell and Dr Samuel Johnson reached the Isle

of Skye on their famous tour of the Scottish Highlands, they were surprised to find

that the peasant tenants were paying their rents to the local lairds (minor lords)

with bills they had acquired from drovers in exchange for their cattle (Lenman

1981: 23) Even the outer reaches of the economy were becoming monetised

The nineteenth century was characterised by the growth of industry and

empire The population of Scotland had already grown by about 50 per cent in

the eighteenth century In the nineteenth century it roughly trebled, from about

1.5 million to about 4.5 million, with people increasingly concentrated in

in-dustrialising cities such as Glasgow Cotton and woollen textile industries were

central in the first half of the century, with mining (coal and iron) and the

rail-roads and shipbuilding becoming central industries by the end of the century The

rural economy was transformed as agricultural labour was mechanised and sheep

farming increasingly replaced cattle in the Highlands, pushing rural folk into cities

and emigration abroad Meanwhile, new careers were available in the empire,

such as administrating, trading, missionising and soldiering The political system

evolved correspondingly, with the franchise in the UK increasingly extended to

the developing middle classes in the Reform Acts of 1832, 1867 and 1884, the

last of these extending the vote to the new industrial working classes The Whig

faction evolved into the Liberal Party, allied with the industrial bourgeoisie, and

with a strong free trade philosophy, and commitment to ideals of progress and

empire The Liberals became the dominant party in Scotland in the nineteenth

century, although they began to lose ground to new labour parties after the last

Reform Act

Banking in nineteenth-century Scotland became a bit less exciting There was

continued growth in branch networks and provincial banks The Union Bank of

Scotland was established in Glasgow in 1830, absorbing a host of smaller banks

by 1843 The Clydesdale Bank, also based in Glasgow, was established in 1838

Both cases reflected the growing confidence of the Glasgow business community

and their desire to end their dependency on Edinburgh-based banking, which

was often seen as too conservative in its lending These were also examples of the

new breed of joint-stock banks Some of the provincial banks had had enough

partners for them to be close to being joint-stock ventures, but these new banks

had partners numbering in the hundreds and they developed nationwide branch

networks Between 1810 and 1850, the new joint-stock banks together overtook

the three chartered banks (BoS, RBS and British Linen) in terms of paid-up capital,

thus becoming central to the Scottish banking system as a whole (Checkland

1975: 337) This also contributed to the decline of private merchant bankers, now

marginalised by a diverse and extensive field of banking concerns By mid-century

History 21

the emergence of a system of a relatively small number of large banks in Scotland

meant that: (1) regional interest rates were coming into alignment, allowing the

formation of a more integrated national economy; and (2) principles of negotiated

self-regulation of the banking industry were established Scottish bankers also

learned to coordinate their actions in warding off unwelcome legislation advanced

in England in response to problems with its more unstable banking system in this

period The effect was that Scottish banking settled into cartel-like and much less

dynamic arrangements by the end of the nineteenth century When the Clydesdale

Bank began establishing branches in the north of England in 1874, this led to

objections from English bankers fearful of takeover by Scotland’s more robust

banking system, and an inconclusive government inquiry In the end there was

a ‘gentlemen’s agreement’ that the Scottish banks would limit themselves to the

branch offices in London necessary for business, and the English banks would

stay south of the border, an agreement that held for the next hundred years or

so By the eve of World War I, all Scottish banks were in effect joint-stock

com-panies BoS enjoyed a dominant position in a sector that had become somewhat

complacent and low-risk oriented, relying on customer deposits and short-term

loans, and with a somewhat aloof relationship to the actual workings of industry

and agriculture

Meanwhile, as suggested above, banking in England had been less stable,

especially in the early nineteenth century, partly because of the constraints on

bank size due to the six-member rule The Bank of England’s near monopoly on

large-scale banking meant that it served as a kind of bulwark for the financial

power of the English landed elite One eventual effect of this was a distinctively

English banking crisis in 1825–6 In short, credit expansion in response to

post-Napoleonic War deflation and economic contraction led to over-speculation and

collapse among the many small, poorly capitalised English provincial banks,

which, like the Scottish banks at this time, were able to issue their own notes

Scottish banks, with their larger numbers of investors, were more able to weather

the storm as debts were called in (J D Turner 2014: 67–71, 212–13)

Another development was the growth in savings banks and building societies

from 1810 on Savings banks did not issue notes or lend to business, but simply

held personal savings, stimulating this practice among the growing middle and

working classes Building societies, first established in Birmingham in 1775, were

largely a northern English phenomenon, growing out of friendly societies that

estab lished the practice of members paying monthly subscriptions to support

house building by their members The early societies were ‘terminating’; that

is, once each member had a house, the society was wound up But these were

followed by ‘permanent’ building societies, which maintained an ongoing business

of funding house building and purchase The English building societies in many

ways compensated for England’s under-developed banking system at the time

Crucial for our story, in 1853 the Loyal Georgian Society of Halifax established the

Halifax Permanent Building Society (HPBS) on these terms, and it developed an

extensive branch network in Yorkshire by the end of the century (Hargreaves 1999:

126–8) By 1918 HPBS had become the largest building society in the country

22 Salvage ethnography in the financial sector

Twentieth-century transformations, c.1914–2000

Having provided a quick general history of British banking, from this point on I

will focus on our key players, BoS and, to a lesser degree, Halifax, while still trying

to situate them in a general context

Two World Wars and the inter-war depression hit the British economy hard

in the twentieth century, leaving a country deep in debt in 1945, and soon to

see the rapid decline of its overseas empire (Mann 2012: 30–42) In the post-war

period the British Labour Party enjoyed greater power and time in government,

but there was also a general shift towards support for a social democratic model

across the political spectrum State management of competing interests, provision

of basic social welfare and responsibility for maintaining employment became

widely held common sense This broad consensus generally held up until the

1970s, when declining competitiveness of heavy industries, price rises due to the

oil crisis of the early 1970s and general economic stagnation combined to weaken

confidence in this model, laying the ground for a revival of a more market-driven

conception of economy and society This broad structural shift was embodied

in the person of Margaret Thatcher, Conservative Prime Minister from 1979 to

1990, who increasingly articulated the pro-market ideology that would come to

be called ‘neoliberalism’ However, this was not simply a matter of ideology and

party policy Deindustrialisation was weakening the manufacturing economy and

the union power base of the Labour Party, and making the economy more reliant

on its financial sector for growth, along with an expanding service sector When

the Labour Party came back into power in 1997 under the mantle of ‘New Labour’,

it adapted to the new economic order, while attempting to shore up some aspects

of progressive taxation and public provisioning, and attending particularly to

the interests of public sector workers, who tended to be more unionised and

supportive of the old social democratic model But under Chancellor and later

Prime Minister Gordon Brown, Labour courted the powerful financial interest of

the City of London, regarding it as a key wealth creator that needed autonomy in

order to operate effectively A key indication of this new relationship was the early

decision to devolve control over money supply and interest rates to the Bank of

England, and thus out of the hands of ‘interfering’ government

People in Scotland, and indeed in the north of England and Wales, tended

to resist this structural shift, being more committed to the industrial and social

democratic model and ‘old Labour’ Scotland had gone into industrial decline

after World War I, and had become used to routine state intervention to help

stimulate its economy By the latter twentieth century this had led to the

domina-tion of the Labour Party in the ‘central belt’ (Glasgow–Edinburgh) of urban

industrial Scotland But this domination was increasingly challenged by the

Scottish National Party (SNP), established in 1934, but only beginning to enjoy

electoral success in the 1960s The contentious ‘politics of neoliberalism’ in the

1980s and 1990s tended to get expressed in Scotland as a competition between

Labour and the SNP to most effectively represent social democratic dissent from

the prevailing trend, and a general defence of the welfare state Correspondingly,

History 23

the Conservative Party suffered a severe decline in support during this period

There was a tendency among Scots occupying positions of institutional power and

shaping public opinion to see an attack on the activist state as an attack on their

position of social leadership, and to see the defence of the welfare state and the

interests of Scotland as conjoined Part of the Labour Party’s strategy for

consoli-dating Scottish support in the run-up to the 1997 general election was to promise

to legislate for a prompt referendum on the establishment of a Scottish Parliament,

which had become a mainstream aspiration during this period in Scotland The

new Parliament was established in 1999 and is now the focal point of Scottish

politics (Hearn 2000) At the time of the referendum, the then Governor of BoS,

Bruce Pattullo, publicly expressed opposition to devolution, a view more common

among the business community, always concerned to minimise the

unpredict-ability of political change But this was at odds with public opinion

The effects of the depression of the 1930s and World War II had been to turn

BoS and the other banks towards larger and safer investments in government

securities, and to oblige them to lend most of their deposits to the government

After the war many bankers expected a new cycle of industrial boom followed

by bust, and they were wary of advances to industry But gradually BoS’s gilt

holdings, deteriorating in value due to rising interest rates, were substantially

reduced (at a loss) and lending to industry grew Between 1957 and 1964 advances

to industry grew from 27.8 per cent of assets to just above 50 per cent of assets,

with ship owning, shipbuilding and engineering constituting 19.2 per cent of these

advances (Saville 1996: 646) Major initiatives in Scotland in this period included

advances and overdrafts to support: the Ravenscraig steel mill (opened in the

mid-1950s); the building of the Firth of Clyde Dry Dock to attract more ship repair and

refurbishment work to the Clyde; and the creation of the wholly owned subsidiary

of BoS Kingston Financial Services (Clyde) Ltd to facilitate large ship purchases,

primarily by foreign owners As Saville notes, BoS also ‘used its financial muscle

wherever possible to steer contracts for shipbuilding and engineering to Scottish

firms, and on occasion declined facilities for companies which wished to use

builders abroad’ (Saville 1996: 652) Despite these efforts the combined effects of

fiercely competitive industries abroad and tepid government support meant that

the efforts of the Scottish banks were insufficient to reverse the secular decline of

Scotland’s heavy industries

The more sociological point, however, is that the BoS’s interests and activities

were well embedded within those of wider Scottish society, making it part of the

broader post-war consensus As Saville remarks:

The steel and other metal trades, shipbuilding and the engineering trades remained

central to the outlook and wealth of a number of leading Scottish families with

whom the Bank had close connections Some of these were represented on the

board Further, in the 1950s and 1960s there were still hundreds of medium-sized

and small industrial, service and building firms, and tens of thousands of workmen

who relied on subcontracts from these traditional sectors, as well as those employed

in numerous legal, accountancy and architectural practices This ensured that public

interest in the welfare of the larger Establishments remained resilient and dominated

24 Salvage ethnography in the financial sector

political life in a way that marked out Scottish politics All four political parties – the

Conservative and Unionist Party, the Labour Party, the Scottish National Party and

the Liberal Party – focused on the well-being of these industrial sectors and vied

with each other over solutions It was natural that the Bank, with its two-and-a-half

centuries’ association with industry and the Establishment of the country, would be

actively involved, although the importance of bank advances was overshadowed by

government spending and party pronouncements (Saville 1996 : 646–7)

In other words, BoS’s relationship to the Scottish economy in this period had

become one of an almost paternalistic stewardship While the normative view

in the banking sector was more conservative and capitalism-friendly than that

in much of the rest of Scottish society, it was nonetheless embedded in the wider

interests of society at that time

The last great chapter in BoS’s relations with Scottish industry is the one titled

‘North Sea oil’ BoS’s background in financing in the areas of science, technology

and engineering meant it was well placed to take the lead in the development of

the oil industry in Scotland in the 1970s In 1975 the Bank opened its first

inter-national office, in Houston, Texas, as an outgrowth of its involvement in the oil

industry Through various intermediary companies, BoS financing went to such

areas as building platforms, drilling and laying pipelines, storage and refining,

and various supply services (Saville 1996: 703–8) The Bank remained involved in

the oil industry, but eventually North Sea oil passed its initial growth phase, and

the general decline in heavy industry and the shift to a service sector economy

meant that the Bank increasingly had to look elsewhere for new business In the

1980s and 1990s this included expansion into the residential mortgage market,

personal financial services and credit cards During this period BoS expanded

its provision to small and medium-sized businesses, opening a series of regional

business centres throughout the UK This general programme of diversification

included global expansion and the acquisition of banks in New Zealand, Australia

and Wales An ill-considered and abortive attempt to enter into a US banking

deal with the American televangelist Pat Robertson in 1999 (discussed further in

Chapter 4) was an indication of the pressures to expand the Bank’s global presence

These strategies were developing in a wider context of profound changes in the

basic legal structures shaping the financial industry in the UK First, the UK had

seen the growth of ‘secondary’ or ‘fringe’ banks since the 1960s (often in the form

of ‘merchant banks’) These were able to operate outside the credit controls that

regulated public clearing banks and they specialised in borrowing from wholesale

money markets and lending to finance commercial property purchases, business

acquisitions and mergers They also increasingly cut into some of the functions of

clearing banks The Competition and Credit Control Act of 1971 lifted controls

on standard banks, enabling them to compete more effectively with the secondary

banking sector The result was a stock market and property boom, which crashed

in 1973–5, triggered by oil price increases The Bank of England had to step in and

quietly absorb much of the losses to stabilise the banking industry

Second, in 1986 under Margaret Thatcher a package of legislation deregulating

financial markets and the London Stock Exchange (LSE) was enacted, commonly

History 25

called ‘Big Bang’ These reforms were designed to dislodge the relatively ‘cozy’

old-boy networks associated with London’s ‘gentlemanly capitalism’, and to spur

the LSE to become more meritocratic and more competitive with other stock

markets, especially Wall Street As part of the reforms the ‘open outcry’ system

of the traditional stock market floor was replaced by electronic, screen-based

trading, which set the stage for vast acceleration of financial transactions The

reforms also abolished a system of fixed commissions on transactions, and a

func-tional division of labour between agents or institutions that represented clients

with stocks to sell (stockbrokers) and those that actually struck deals

(stock-jobbers) This greatly liberalised trading practice and strengthened both London’s

role as a global financial capital and the City of London’s dominant position in the

UK economy

Finally, 1986 also saw the Building Societies Act, which paved the way for

the demutualisation of many building societies as they transformed into

joint-stock companies in which former members of the mutual organisation became

corporate shareholders In this way the two largest UK building societies became

the new banks, Abbey National and Halifax, adding to general competition in the

banking sphere

Over the 1970s and 1980s, precisely because BoS had maintained a certain

distance from the often overheated London centre, it had built up its reputation

for reliability BoS managed to stay minimally exposed to both the ‘secondary

banking crisis’ of 1973–5 and, a decade later, the over-exposure of many London

banks recycling petrodollars into loans to Latin American countries that

eventu-ally defaulted in the mid-1980s It made its aloofness towards London a virtue

Amid all these changes BoS’s reputation in banking circles by the mid-1990s

was very good It was widely viewed as a relatively small but shrewd and prudent

operation Under the cautious and adroit leadership of its Governor, Bruce Pattullo

(1991–8), BoS maintained a productive niche in an increasingly competitive and

volatile banking sector As Perman observes:

The year 1995 saw Bruce Pattullo receive his knighthood and the Bank celebrate its

tercentenary The Financial Times Lex column marked the occasion by calling the

company ‘the most boring bank in Britain’ which had made dullness a virtue ‘The

Business’s steadiness helps explain 300 years of consistent profitability and more

recently how the Bank has outperformed the sector by nearly 100 percent since

1980’ (Perman 2012 : 50)

Meanwhile, in Yorkshire, since the early 1900s, HPBS had continued to grow,

merging with Halifax Equitable, the second-largest building society after HPBS, in

1927 By mid-century its total assets had multiplied a 100-fold, and it was major

employer in the region In 1995 the HBS (having dropped the ‘Permanent’) and

the Leeds Permanent Building Society merged, with a plan to then demutualise, as

was now possible following the Building Societies Act The Halifax was established

as a public bank in 1997, rich with mortgage assets Former Society members

became shareholders and, in one of the biggest stock market flotations in history

up to that point, £18 billion in shares were distributed among 7.6 million people

26 Salvage ethnography in the financial sector

As a bank, Halifax was flush with mortgage assets, but underdeveloped in areas

such as treasury functions and corporate finance, and thus was ripe to join forces

with a more established bank (Hargreaves 1999: 217–19)

Mergers, acquisitions, the formation of HBOS

and the ‘ethnographic present’

The merger to form HBOS can be viewed as a late episode in a long trend in

both Scottish and British banking After World War II Scotland had eight banks

Ancient rivals BoS and RBS were key players, but the post-war scene also included:

the Union Bank and the British Linen Bank, which merged with BoS in 1955 and

1971 respectively; the Commercial Bank and the National Bank, which merged

in 1958, and then joined RBS in 1967; and the Clydesdale Bank and the North of

Scotland Bank, which merged in 1950 These bank amalgamations were largely

contained within Scotland and were responses to demands for greater economies

of scale and larger units to keep pace with the growing size and capital needs of

corporations (Checkland 1975: 641) In the 1960s there were growing concerns

about ‘the increased financial and political powers of the City of London which, it

was thought, could further erode the commercial standing of the Scottish banks’,

combined with the new policies of the Wilson government that ‘encouraged

both larger conglomerations and a more competitive framework in banking and

finance’ (Saville 1996: 680) The amalgamation of the Royal Bank and the National

Commercial Bank in 1967 was a response to these pressures, provoking the BoS/

British Linen merger in 1971, as an effort both to keep pace with RBS and to

cope with the same broader pressures Another marker of this more competitive

atmosphere was the decision in 1974 by Barclays to abandon the ‘gentlemen’s

agreement’ mentioned above and extend its branches into Scotland

As this suggests, the notion of a viable and competitive bank operating

pri-marily within Scottish national and industrial horizons was becoming less tenable

An important and fateful step in this direction had already taken place many

years earlier In the 1950s Scottish banks began to show interest in linking up

with highly profitable finance houses specialising in hire-purchase arrangements

In 1958 BoS acquired North West Securities (NWS), based in Chester, England,

which eventually became the subsidiary Capital Bank and which was ‘internally

merged’ with the rest of BoS in 1999 But it remained a distinctive internal

struc-ture within BoS, with its own identity Capital Bank’s hire-purchase business was

very different from traditional personal and small-business lending practised by

local bank branches The latter relied on personal recommendations and local

knowledge, whereas the former employed sophisticated credit-scoring systems

and relied on considerable staff initiative in the pursuit of business (Saville 1996:

671) These differences generated tensions between BoS and its subsidiary over the

years, between more ‘command and control’ and ‘freewheeling’ business styles

Nonetheless, by 1995 NWS/Capital Bank was the second-largest finance house

in the UK This success enabled it to maintain a considerable degree of autonomy

within the organisation The key point for this study is that by the time of the

History 27

BoS/Halifax merger, the recently integrated Capital Bank, still based in England,

contained well over a quarter of BoS’s total staff Thus the transgression of the

Tweed had long been foreshadowed

The entire question of an autonomous Scottish banking sector became a more

live issue in 1980, when two ‘colonial banks’, Standard Chartered and HSBC,

began competitively bidding to take over RBS Their proposals were referred to

the Monopolies and Mergers Commission (MMC) by the Office of Fair Trading

Deeply concerned over the implications of this development for the maintenance

of a distinctive Scottish banking sector, the leadership of BoS formed a group to

prepare submissions to the MMC making the case against such takeovers and for

the importance of regional banking in Scotland as elsewhere in the UK The MMC

required some convincing, concerned that the relatively small size of the Scottish

banks rendered them unviable, but in the end, perhaps bolstered by the rioting

in socially disenfranchised areas of 31 cities in England in the summer of 1981,

the MMC ‘found the case for a separate Scottish banking industry sufficiently

persuasive to rule against the proposals’ (Saville 1996: 740) in January 1982

In terms of ownership, the independence of the Scottish banks was

compli-cated Barclays Bank had acquired 35 per cent stock ownership of BoS through

the amalgamation of BoS and British Linen, and had agreed not to alter its

stock-holding without prior agreement from the BoS board But there were frictions

between Barclays and BoS, and Barclays soon began to indicate a desire to reduce

its holdings For a time the matter was left alone, but in 1984 Barclays decided

that its earlier agreements were no longer binding and indicated its intention to

sell its shares BoS was able to guide the Scotland-based Standard Life Assurance

Company, with which it had long-standing and close connections, to Barclays

Standard Life acquired the ‘golden share’ in January 1985, thus bringing

owner-ship of BoS back into a predominantly Scottish orbit But in May 1996 Standard

Life announced its intention to sell off the ‘golden share’ (then down to 32.2 per

cent), sparking a series of news stories about how this could make BoS vulnerable

to takeover if acquired en bloc This led to various political figures in Scotland

such as Alistair Darling (Labour Shadow Chief Secretary to the Treasury) and

Alex Salmond (SNP leader) weighing in on the need to keep BoS ‘independent’

On BBC radio, Conservative Scottish Secretary Michael Forsyth, who had met

with BoS Governor Bruce Pattullo to discuss the matter, said ‘The Government

has always taken the view that market forces are a very useful servant, but they’re

not our masters’ In an opinion piece in the Sunday Times on 19 May 1985, Peter

Clarke took Forsyth and Pattullo to task for considering the BoS case to be ‘above’

market forces and shareholder interests By June it was apparent that the shares

would be sold piecemeal to a range of institutional investors and stories about the

threat of takeover died down

On 24 September 1999, BoS surprised the City by making a £20.85 billion

bid to take over NatWest, in effect striking first in an environment where further

amalgamation in the banking sector seemed unavoidable (the previous two years

had seen quiet and abortive talks of merger with both NatWest and Barclays)

The press was delighted, calling the bid ‘savage’, ‘hostile’ and ‘audacious’, and

28 Salvage ethnography in the financial sector

portraying it as a David and Goliath encounter Chief Executive Peter Burt and

Group Managing Director Gavin Masterton were represented in text and cartoons

as marauding Jacobites coming over the border, and the Financial Times called it

a ‘Braveheart Raid on Dowdy Dame with Tarnished Past’ (25 September 1999)

Many commentators were quick to point out that, under these new terms, BoS

and other Scottish banks could not expect to have their future ‘independence’

protected By 29 November, after much press speculation about other potential

bidders for NatWest (including Halifax), RBS made a counter-bid of £25.1 billion

As investors worried about the two Scottish banks bidding beyond their means,

BoS and RBS share prices fell, while NatWest shares correspondingly rose In

early February 2000 NatWest was still fighting off both bids, but by 10February

NatWest’s major institutional shareholders had opted for the RBS bid, causing BoS

shares to jump by 9.3 per cent as the City anticipated a takeover of BoS, despite

frequent remarks from financial commentators that it had very little fat to trim It

was during this same period that Capital Bank ceased to be a subsidiary and was

finally fully integrated with the rest of the BoS, to make the entire organisation

larger and less vulnerable to takeover

In the latter half of 2000 BoS held abortive talks with Abbey National about a

possible merger, but nothing came of it Then on 25 April 2001 it was announced

that BoS and Halifax were in merger talks and the City responded positively,

raising the share price of both banks, in what was widely seen as a sensible move,

bringing together the mortgage-based capital of Halifax and the lending expertise

of BoS, creating a strong UK-wide branch network at a stroke, and new

oppor-tunities for cross-selling Halifax products to BoS customers Halifax’s major new

online and telephone banking venture, Intelligent Finance (IF), was already based

in Edinburgh, further enhancing the ‘fit’ Billed as a ‘merger of equals’, Halifax was

nonetheless twice the size of BoS, with around 36,000 employees to BoS’s 19,000,

and a market value of around £18 billion compared with BoS’s £10 billion By

4 May it had been agreed that HBOS would be headquartered at The Mound, BoS’s

Edinburgh headquarters, but that the job of Chief Executive would go Halifax’s

James Crosby, while Peter Burt, three years away from retirement, would stay

on as Executive Deputy Chairman until 2004, to oversee integration Other top

jobs going to Halifax were: Lord Dennis Stevenson, Chairman; Mike Ellis, Group

Finance Director; and Andy Hornby, Chief Executive Retail BoS executives took

three director posts: George Mitchell in Corporate Banking; Colin Mathew in

Business Banking; and Gordon McQueen in Treasury Eventually 13 of 15 senior

jobs in Corporate Banking and Business Banking, which together with Treasury

represented around 30 per cent of the new Bank’s operating profit, went to BoS

executives, while 10 of 13 key posts in Retail Banking and Insurance and

Invest-ment went to Halifax executives, representing around 70 per cent of the Bank’s

operating profits This division of labour at the top of the organisation reflected

primary strengths of the two banks In late July the Department of Trade and

Industry cleared the merger, saying that it would ‘strengthen competitive pressure

on the big four’ (HSBC, RBS, Barclays, Lloyds TSB) (Sunday Herald, 23 December

2001, p 7) and the merger was overwhelmingly supported by BoS and Halifax

History 29

shareholders a few days later The first day of trading for the shares of HBOS was

10 September 2001 and shares performed well However, the terrorist attacks on

New York City and Washington, DC, on the next day inevitably depressed the

whole market, obscuring the market’s reception of the new bank

The formation of HBOS seriously stepped up the pressure among the BoS staff

to develop a more aggressive, sales-oriented culture, something closer to that

which prevailed within Capital Bank It is important to realise that the pressure in

this direction, though often resisted within the Bank, had been growing steadily

since the 1960s, with increasing conversations within banking circles about the

need to seek more working-class customer accounts, extend banking hours, use

computers to increase efficiency, and encourage branch staff and managers not

just to maintain, but to develop new business Nonetheless, the HBOS merger was

experienced by many staff as a step change in this direction The ‘ethnographic

present’ that underlies the rest of this book focuses on the year from September

2001 to October 2002, when much work was going on to integrate systems and

staff from the two banks

To the ‘crisis’

HBOS was formed near the peak of a general expansion of the British banking

system, part of the new, neoliberal centrality of the financial sector to the UK

economy As indicated above, the Labour Party government in Westminster from

1997 to 2010 did little to oppose this trend, seeking rather to capitalise on it as best

it could Only when the banking crisis hit in 2007–8 did this relationship reverse,

to one in which the banks were turning to government for support

In Scotland, over five general elections to the Scottish Parliament, power has

shifted from Labour to the SNP (specifically: 1999, Labour government; 2003,

Labour–Liberal Democrat coalition; 2007, SNP minority government; 2011, SNP

majority government; 2016, SNP minority government) In this new political

institutional context, the dominant public discourse has tended to be to the left of

that in Westminster, with stronger social democratic overtones The Conservative

Party enjoys much less support in Scotland than in England Nonetheless, Scotland

has undergone the same economic structural changes as the rest of the UK, with

the service and financial sectors increasingly important (Paterson et al 2004) In

practice, Scottish politics is shaped by a neoliberal political economy, while the

major political parties often try to articulate more social democratic policies and

aspirations For those supporting independence, there is an option of projecting

such aspirations onto a hypothetically independent Scotland in the future, one

that would ‘do things differently’ This aspiration was expressed in the September

2014 referendum on Scottish independence, in which 45 per cent of those voting

opted for independence, a sentiment rearticulated in the UK May 2015 general

election, in which Scotland sent a record 56 SNP MPs to Westminster, out of a

total of 59 Scottish MPs

The early years of HBOS appeared promising, with substantial year-on-year

growth The basic strategy of combining BoS’s strengths in treasury and corporate

30 Salvage ethnography in the financial sector

banking with Halifax’s skills in retail banking and its large mortgage book seemed

a good one Not always apparent, however, was the way this growth was based on

assets in the form of loans growing at a faster rate than deposits (13 per cent per

annum versus 8 per cent per annum) More generally, there was a fundamental

shift in the culture of the Bank and its guiding philosophy, with a decline in the

serious attention given to avoiding risk and an increasing emphasis on marketing

and aggressive expansion of loan activity One effect of this was that it became

neces sary to issue a new share offer in 2002, worth £1.37 billion, to help

under-write this rapid expansion By 2005 there were beginning to be clear signs of loan

book deterioration in HBOS’s annual report, although one had to read carefully to

see them (Perman 2012: 109–10)

The rising star of the new organisation was Andy Hornby, Chief Executive

Retail, whose background was in retail management in organisations such as

the supermarket group ASDA, rather than banking His leadership was key to

transforming the culture of the Retail Division into one much more oriented to

sales and expanding the number of financial products sold to customers But this

ethos was radiating throughout the Bank Corporate Banking, which had always

had a more aggressive, alpha-male, deal-making culture, was pushed even further

in this direction Although there were rumblings against it, it was not generally a

surprise within the Bank when Hornby succeeded James Crosby as Chief

Execu-tive in 2006, when Crosby announced rather unexpectedly that he was stepping

down (ironically, soon to become Deputy Chairman of the Financial Services

Authority, the main UK regulator of the banking industry)

The immediate causes of the 2007–8 banking crisis can be fairly briefly stated

here Especially in the US and the UK, very risky ‘subprime’ mortgage loans

proliferated in an environment of low interest rates and cheap consumer credit

In order to theoretically reduce risk, low-quality loans were combined with

higher-quality loans in complex packages known as ‘asset-backed securities’ and

‘collateralised debt obligations’ These were then traded between banks as bundles

of assets But the ratio of low-quality loans in these bundles was increasing, a

fact obscured by the complexity of the process and a considerable degree of

overconfidence in the banking community When the unsound nature of these

loans, and exposure of banks to them, began to become apparent, with early bank

failures such as Northern Rock in the UK, it was nonetheless extremely difficult

to determine for many banks what their exposure was, leading to a ‘freezing’ of

credit and money markets that regularly shifted large sums between banks to

help them deal with day-to-day shifts in exposure Credit dried up, both between

banks, which now wanted to hold onto as many solid assets as possible, and for

the wider economy

At HBOS this played out in terms of an increasingly desperate attempt by the

Corporate Division to compensate for the decaying value of the Bank’s retail and

mortgage loan book, by making ever larger and riskier deals, heavily leveraged

and often in the vulnerable commercial property sector Despite this situation the

management of HBOS rejected warnings from auditors KPMG and from their

own internal risk department in the Corporate Division (Perman 2012: 204–5;

History 31

see also PCBS (Parliamentary Commission on Banking Standards) 2013) Perman

sums up:

The reason all this was allowed to happen was that HBOS’ corporate division

operated in a culture that valued and encouraged sales above all else Risk

manage-ment was regarded as a constraint on the business rather than an integral part of it

Managers were incentivised to focus on revenue rather than risk… (Perman 2012 :

203)

Ultimately the crippling loses were located in the Corporate, International and

Treasury Divisions, not the Retail Division itself, even though it incurred greater

mortgage-related loses than its major competitors (PCBS 2013: 17; J D Turner

2014: 99) But this development appears to have been related to the fact that the

overall Bank culture had been influenced at the executive level by an aggressive

retail sales ethos, which had displaced an older, more risk-averse banking culture

By the end of 2007, just as the severe downturn set in, HBOS was heavily

exposed to the property market Of its £430 billion in outstanding loans,

‘three-quarters of all lending was secured on land, bricks and mortar’ (Perman 2012:

139), most of it residential mortgages, but also construction firms, commercial

property companies, and hotel and retail trades The collapse in September 2008 of

the US bank Lehman Brothers, which had lost close to £4 billion on bad mortgage

debts, triggered panic in the City and both the FTSE 100 and HBOS share prices

fell rapidly as the markets assessed vulnerability When it became clear that HBOS

and several other UK banks would collapse without government support, this

was quietly provided by the Bank of England But this situation was

unsustain-able Not willing to nationalise another bank after Northern Rock, and especially

one of HBOS’s size, the Labour government (specifically Prime Minister Gordon

Brown and Chancellor of the Exchequer Alistair Darling) pressured HBOS into a

takeover by Lloyds TSB in 2009 (the new bank is named Lloyds Banking Group

plc) Even as the deal was being negotiated, share prices for Lloyds TSB and HBOS

were steadily falling By October 2008, as the takeover was being finalised, the UK

government provided a funding package of £300 billion in new capital, guarantees

and support to the Bank of England’s ability to supply systemic liquidity, which

RBS, HBOS and Lloyds were obliged to accept to stay afloat Meanwhile, many

HBOS staff were also shareholders, having routinely invested bonuses in a once

at-tractive employee shareholding scheme As they were reassured by their employer

and told to keep faith, the value of their savings in HBOS collapsed, costing many

staff dearly

In the run-up to the Lloyds takeover there were several futile attempts by

outside observers to propose ways of maintaining HBOS’s independence, most

notably when Peter Burt, former head of BoS, and George Mathewson, former

head of RBS, suggested that the HBOS board oust Hornby and Stevenson, and

invite them to manage the Bank out of its difficulties But it was too late to return

to banking as was and the proposal went nowhere Since the Lloyds takeover, the

name HBOS has ceased to be used publicly, but the Bank of Scotland and Halifax

continue as regional banking brands underneath the Lloyds umbrella