TSB chiefs braced for criticism over £370m IT meltdown A long-awaited report by a City law firm on last year's crisis has cost TSB £25m - or about £83,000-per-page, Sky News learns.

Posted by on January 13, 2018

The board of TSB Bank is to be heavily criticised for failing to properly prepare for a crucial systems migration in a report on the ensuing meltdown that left two million customers without access to their current accounts.

Sky News has learnt that Slaughter and May, the City law firm commissioned by TSB to investigate the crisis, has concluded its probe and submitted its final report to the UK's sixth-biggest bank.

Regulators have also been handed the report, which is expected to be published later this month.

This weekend, Sky News can reveal that a substantial number of current and former TSB managers have had outstanding deferred share awards dating back to 2015 cancelled by the lender as a result of the fiasco.

The decision has prompted some of those executives to consider taking legal action against the bank, although it was unclear this weekend whether any formal claim would be forthcoming.

It has also emerged that the final cost of the report has hit a staggering £25m - equating to roughly £83,000 for each of its nearly-300 pages.

Sources close to TSB and its owner - the Spanish financial services group Banco Sabadell - said the publication could yet be delayed, but insisted that they were keen for it to be in the public domain before a strategy update from Debbie Crosbie, its new chief executive, on 25 November.

Ms Crosbie, who was recruited from the Virgin Money-owner CYBG just over a year ago, will announce plans to simplify TSB by removing costs and axing hundreds of jobs, according to insiders.

TSB was handed the final version of the Slaughter and May inquiry at the end of last week.

A TSB branch
Image:The board of TSB Bank is expected to be heavily criticised, Sky News has learnt

One advantage for TSB of publishing it in the next fortnight would be that it would inevitably face little in the way of political scrutiny ahead of next month's general election.

However, the conclusion of the probe will be followed by a joint investigation by the Financial Conduct Authority and Prudential Regulation Authority, which could lead to enforcement actions against both TSB and individuals.

Executives who are criticised in the Slaughter and May report are now said to be in the process of reviewing its contents ahead of its publication.

That group of individuals is likely to include Paul Pester, the former chief executive, who left the company last year in the wake of the IT failure.

The scale of the crisis facing TSB - which was spun out of Lloyds Banking Group, listed on the stock exchange in 2014 and acquired by Sabadell the following year - emerged in April 2018, when the bank tried to migrate customer data from Lloyds' systems to a new one designed by its Spanish owner.

Almost two million customers found themselves unable to make payments for days, or in some cases several weeks.

It sparked hundreds of thousands of customer complaints and led to TSB reporting a pre-tax loss of more than £105m last year.

Mr Pester said a few days into the crisis that the bank was "on its knees".

He subsequently faced criticism from Andrew Bailey, the FCA chief executive, for failing to be "open and transparent" about the IT issues.

Prior to the crisis, Mr Pester had earned a reputation as a thoughtful banker who tried to improve the reputation of high street lending by devolving more decision-making to branch managers and restricting executive pay.

He has already surrendered one £1.6m instalment of a deferred share-based Sabadell Integration Award, with no TSB executives receiving bonuses for 2018.

However, TSB's remuneration committee has since decided to freeze or cancel all outstanding awards granted under that incentive scheme, according to insiders.

Sources said the Slaughter and May report had concluded that TSB's board took an excessively optimistic view about the prospect of the systems migration being successful.

It is expected to say that the complexity of the project meant that the chances of it taking place without problems were slim.

Bosses are understood to be accused of a failure to ask the right questions about the process - which represented one of the most difficult technology transitions ever attempted.

Earlier this year, The Sunday Times reported that Sabadell's in-house IT services unit had breached its delivery contract with TSB and had provisionally agreed to pay the British high street bank more than £150m in compensation.

Other professional advisers on the systems upgrade, including Deloitte, will also be directly criticised in the final report.

Richard Meddings, TSB's chairman, may be shielded from the most overt criticism by Slaughter and May on the basis that he had taken the helm just weeks before the botched migration took place.

In its annual report this year, the lender said "the underlying issues related to some aspects of three key interconnected issues - the initial configuration, the capacity of the infrastructure and also some aspects of coding".

According to TSB's accounts, the IT meltdown has already cost the bank close to £370m in "post-migration charges", including the cost of the Slaughter and May investigation.

The majority of these charges related to compensation for customers who were left out of pocket by the IT problems.

TSB received a huge dowry from Lloyds to take over the business, which it was forced to divest under a state aid deal in the aftermath of its £20bn taxpayer bailout in 2008.

In a statement this weekend, a spokesman for TSB and Sabadell said: "We have now received the review into TSB's 2018 migration carried out by the law firm, Slaughter and May.

"The TSB board is reviewing it, sharing it with UK regulators and will provide a further update in due course."

Last month, the Treasury Select Committee warned that regulators risked being perceived as ineffective because no bankers had been the subject of successful enforcement action over IT failures in the industry.

The growing reliance of consumers and businesses on digital banking services meant they were increasingly at risk of being "cashless and cut off", the MPs said.

Major systems failures have hit financial services groups including Royal Bank of Scotland and Visa in recent years.

A source close to TSB said the benefits of its IT upgrade were visible in the stability of the bank's technology and the speed with which it could now offer customers new products and services.

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