Parliamentary Commission on Banking StandardsSupplementary written evidence from Lord Stevenson

1. The relationship between HBOS plc. and Loudwater Investment Partners and Loudwater Trust

1.1 Please outline the relationship, if any, between HBOS plc and a) Loudwater Trust and b) Loudwater Investment Partners Ltd.

HBOS plc (“HBOS”), through a wholly owned subsidiary, was owner of 49% of the share capital of Loudwater Trust Limted (“LWT”).

Loudwater Investment Partners Limited (“LIPL”) acts as adviser to LWT.

1.2 Did any companies connected to HBOS plc have shareholdings in Loudwater Trust? If so, what was the size of the shareholding?

As 1.1.

1.3 To what extent did Loudwater Trust invest in companies to which HBOS had lent money?

To the best of my, and my former colleagues’, knowledge LWT has not invested in any companies to which HBOS or any subsidiary or joint venture thereof has lent money.

1.4 Did this include any of the assets held in HBOS plc’s joint ventures portfolio?

As 1.3.

1.5 What was the quality of any assets purchased by Loudwater Trust from HBOS plc?

LWT has not purchased any assets from HBOS.

1.6 To what extent did HBOS fund transactions/investments undertaken by Loudwater Trust, including any assets purchased by Loudwater Trust from HBOS plc?

There was apparently one instance where a subsidiary of HBOS made a joint investment with LWT (my colleagues at LIPL believe the HBOS investment was c. $10 million). Otherwise, HBOS only funded investments made by LWT through its shareholding in LWT. I had no involvement with the joint-investment—either in the co-ordination or the investment decision—and both companies performed due diligence independently.

2. Loudwater Investment Partners’ activities

2.1 Please provide the end year profit and loss accounts for Loudwater Investment Partners for each year from December 2007 until (and including) December 2011.

Attached.

2.2 Please describe the nature of the investment shown in Loudwater Investment Partners’ balance sheet as at 31 December 2011 under fixed assets “investments”?

Of the fixed asset investments of £542,477, £3,838 relates to IT and Office equipment and £538,639 represents an investment in a UK Equity fund (an OEIC) that LIPL manages.

2.3 Were dividends paid by Loudwater Investment Partners?

The only dividend that has been paid was one of £88,150 during the year ended 18/12/2008. My share of it will have been £4,364.

2.4 What firms, other than Loudwater Trust, did Loudwater Investment Partners advise?

LIPL advises an open ended investment company (“OEIC”) called the “City Financial UK Equity Income Fund” which invests in UK quoted companies, and “The Bunhill Fund” a trading fund developed at Cambridge University. HBOS has had no connection with either business.

3. Your role at Loudwater Investment Partners

3.1 What was the date of your appointment to Loudwater Investment Partners?

9/1/2007

3.2 On what date was your appointment notified to the FSA?

14/6/2007

3.3 What was the date on which you resigned from Loudwater Investment Partners?

I spoke to the Chairman of LIPL in August telling him I wished to retire as soon as was practicable officially stepping down as in 3.4. The background is that I have taken on two major international responsibilities and over the last eighteen months have been in a process of retiring from the majority of my other roles.

3.4 On what date was: a) the FSA and b) Companies House notified of your resignation?

(a.)3/12/2012

(b.)3/12/2012

3.5 How would you describe your role in your capacity as Non-Executive Director of Loudwater Investment Partners?

As well as fulfilling my formal requirements, my principal role was to provide strategic advice to the board of LIPL. I was not party to or involved in any investment advice given by LIPL.

3.6 From your recollection, was there any discussion at the HBOS Board concerning your appointment to Loudwater Investment Partners?

Yes. As it happens, the LIPL formation coincided with my being asked to take on a significant role with one of the world’s largest private equity businesses. My recollection, and that of the Chairman of LIPL who remembers having to wait as I discussed it with colleagues, is that I consulted colleagues about both and that the advice was positive for LIPL but negative for the private equity role.

3.7 Whilst employed by Loudwater Investment Partners, what remuneration; dividends or other financial benefits did you receive from the firm?

Nothing other than as disclosed in 2.3.

3.8 Were any of your family employed by Loudwater Investment Partners or Loudwater Trust during the period you were a NED?

One of my children works for LIPL, managing the OEIC and as COO of the Bunhill Fund and started working for Loudwater in 2010. HBOS has had no connection with or investment in the OEIC or the Bunhill Fund.

3.9 Are any members of your immediate family still employed by either Loudwater Investment Partners or Loudwater Trust?

As 3.8.

3.10 Were you at any point a shareholder in Loudwater Investment Partners? If so, what was the size of your shareholding in the firm between December 2006 and the date of this letter?

Yes, 5%. It is perhaps also worth mentioning that at flotation I subscribed for shares in LWT (as I have for the other two businesses with LIPL advises) so as to align my interests.

4 January 2013

APPENDIX 1

LOUDWATER INVESTMENT PARTNERS LIMITED—ABBREVIATED ACCOUNTS—FOR THE YEAR ENDED 31 DECEMBER 2007

2007

2006

Notes

£

£

£

£

Fixed assets

Tangible assets

2

5,030

 

Current assets

Debtors

10,850

3,8828

Cash at bank and in hand

234,694

28,888

245,544

67,716

 

Creditors amounts falling due within one year

(43,996)

(3,386)

 

Net current assets

201,548

64,330

 

Total assets less current liabilities

206,578

64,330

 

Capital and reserves

Called up share capital

3

50,500

48,000

Profit and loss account

156,078

16,330

Shareholders’ funds

206,578

64,330

In preparing these abbreviated documents:

(a)The directors are of the opinion that the company is entitled to the exemption from audit conferred by Section 249A(1) of the Companies Act 1985,

(b)No notice has been deposited under Section 249B(2) of the Companies Act 1985, and

(c)The directors acknowledge their responsibilities for:

(i)ensuring that the company keeps accounting records which comply with Section 221 of the Companies Act 1985, and

(ii)preparing accounts which give a true and fair view of the state of affairs of the company as at the end of the financial year and of its profit or loss for the financial year in accordance with the requirements of Section 226, and which otherwise comply with the requirements of this Act relating to accounts, so far as applicable to the company.

These abbreviated accounts have been prepared in accordance with the special provisions of Part VII of the Companies Act 1985 relating to small companies.

Approved by the Board for issue on 30/04/2008.

Notes to the Abbreviated AccountsFor the Year Ended 31 December 2007

1. Accounting policies

1.1 Accounting convention

The financial statements are prepared under the historical cost convention and in accordance with the Financial reporting Standard for Smaller Entities (effective January 2007).

1.2 Compliance with accounting standards

The financial statements are prepared in accordance with applicable United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), which have been applied consistently (except as otherwise stated).

1.3 Turnover

Turnover represents amounts receivable for goods and services net of VAT and trade discounts.

1.4 Tangible fixed assets and depreciation

Tangible fixed assets are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life as follows:

Fixtures, fittings & equipment

3 years straight line basis

2. Fixed assets

Fixed assets

Tangible assets

£

Cost

At 1 January 2007

Additions

7,545

At 31 December 2007

7,545

Depreciation

At 1 January 2007

Charge for the year

2,515

At 31 December 2007

2,515

Net book value

At 31 December 2007

5,030

3.

Share Capital

2007

2006

£

£

Authorised

50,500 Ordinary shares of £1 each

50,500

50,500

 

Allotted, called up and fully paid

50,500 Ordinary shares of £1 each

50,500

48,000

APPENDIX 2

LOUDWATER INVESTMENT PARTNERS LIMITED—ABBREVIATED ACCOUNTS—FOR THE YEAR ENDED 31 DECEMBER 2008

2008

2007

Notes

£

£

£

£

Fixed assets

Tangible assets

2

8,146

5,030

 

Current assets

Debtors

12,726

10,850

Cash at bank and in hand

471,252

234,694

 

483,978

245,544

Creditors amounts falling due within one year

(114,347)

(43,996)

 

Net current assets

369,631

201,548

 

Total assets less current liabilities

377,777

206,578

 

Capital and reserves

Called up share capital

3

50,500

50,500

Profit and loss account

327,277

156,078

Shareholders’ funds

377,777

206,578

In preparing these abbreviated documents:

(a)The directors are of the opinion that the company is entitled to the exemption from audit conferred by Section 249A(1) of the Companies Act 1985,

(b)No notice has been deposited under Section 249B(2) of the Companies Act 1985, and

(c)The directors acknowledge their responsibilities for:

(i)ensuring that the company keeps accounting records which comply with Section 221 of the Companies Act 1985, and

(ii)preparing accounts which give a true and fair view of the state of affairs of the company as at the end of the financial year and of its profit or loss for the financial year in accordance with the requirements of Section 226, and which otherwise comply with the requirements of this Act relating to accounts, so far as applicable to the company.

These abbreviated accounts have been prepared in accordance with the special provisions of Part VII of the Companies Act 1985 relating to small companies.

Approved by the Board for issue on 16/09/2009.

Notes to the abbreviated accounts—for the year ended 31 December 2008.

1. Accounting policies

1.1 Accounting convention

The financial statements are prepared under the historical cost convention and in accordance with the Financial reporting Standard for Smaller Entities (effective January 2007).

1.2 Compliance with accounting standards

The financial statements are prepared in accordance with applicable United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), which have been applied consistently (except as otherwise stated).

1.3 Turnover

Turnover represents amounts receivable for goods and services net of VAT and trade discounts.

1.4 Tangible fixed assets and depreciation

Tangible fixed assets are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life as follows:

Fixtures, fittings & equipment

3 years straight line basis

2. Fixed assets

Fixed assets

Tangible assets

£

Cost

At 1 January 2007

7,545

Additions

6,244

At 31 December 2008

13,789

Depreciation

At 1 January 2008

2,515

Charge for the year

3,128

At 31 December 2008

5,643

Net book value

At 31 December 2008

8,146

At 31 December 2007

5,030

3.

Share Capital

2008

2007

£

£

Authorised

50,500 Ordinary shares of £1 each

50,500

50,500

 

Allotted, called up and fully paid

50,500 Ordinary shares of £1 each

50,500

50,500

APPENDIX 3

LOUDWATER INVESTMENT PARTNERS LIMITED—ABBREVIATED ACCOUNTS—FOR THE YEAR ENDED 31 DECEMBER 2009

2009

2008

Notes

£

£

£

£

Fixed assets

Tangible assets

2

6,687

8,146

 

Current assets

Debtors

16,547

12,726

Cash at bank and in hand

559,750

471,252

576,750

483,978

 

Creditors amounts falling due within one year

(67,516)

(114,347)

 

Net current assets

508,781

369,631

 

Total assets less current liabilities

515,468

377,777

 

Capital and reserves

Called up share capital

3

50,500

50,500

Profit and loss account

464,968

327,777

Shareholders’ funds

515,468

377,777

For the financial year ended 31 December 2009 the company was entitled to exemption from audit under section 477 Companies Act 2006. No member of the company has deposited a notice, pursuant to section 476, requiring an audit of these financial statements under the requirements of the Companies Act 2006.

The directors acknowledge their responsibilities for ensuring that the company keeps accounting records which comply with section 386 of the Act and for preparing financial statements which give a true and fair view of the state of affairs of the company as at the end of the financial year and of its profit or loss for the financial year in accordance with the requirements of sections 394 and 395 and which otherwise comply with the requirements of the Companies Act 2006 relating to accounts, so far as applicable to the company.

These abbreviated accounts have been prepared in accordance with the provisions applicable to companies subject to the small companies regime within Part 15 of the Companies Act 2006.

Approved by the Board for issue on 22/09/2010.

Notes to the abbreviated accounts—for the year ended 31 December 2009.

1. Accounting policies

1.1 Accounting convention

The financial statements are prepared under the historical cost convention and in accordance with the Financial reporting Standard for Smaller Entities (effective April 2008).

1.2 Compliance with accounting standards

The financial statements are prepared in accordance with applicable United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), which have been applied consistently (except as otherwise stated).

1.3 Turnover

Turnover represents amounts receivable for goods and services net of VAT and trade discounts.

1.4 Tangible fixed assets and depreciation

Tangible fixed assets are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows:

Fixtures, fittings & equipment

3 years straight line basis

2. Fixed assets

Fixed assets

Tangible assets

£

Cost

At 1 January 2009

13,789

Additions

3,842

At 31 December 2009

17,631

Depreciation

At 1 January 2009

5,643

Charge for the year

5,301

At 31 December 2009

10,944

Net book value

At 31 December 2009

6,687

At 31 December 2008

8,146

3.

Share Capital

2009

2008

£

£

Authorised

50,500 Ordinary shares of £1 each

50,500

50,500

 

Allotted, called up and fully paid

50,500 Ordinary shares of £1 each

50,500

50,500

APPENDIX 4

LOUDWATER INVESTMENT PARTNERS LIMITED—ABBREVIATED ACCOUNTS—FOR THE YEAR ENDED 31 DECEMBER 2010

Balance sheet as at 31 December 2010

Notes

2010

2009

£

£

£

£

Called up share capital not paid

0

0

Fixed assets

Tangible

2

5,797

6,687

Investments

3

507,742

Total fixed assets

513,539

6,687

Current assets

Debtors

13,643

16,547

Cash at bank and in hand

135,884

559,750

 

Total current assets

149,527

576,297

Creditors: amounts falling due within one year

(69,820)

(67,516)

Net current assets

79,707

508,781

 

Total assets less current liabilities

593,246

515,468

 

Total net Assets (liabilities)

593,246

515,468

Capital and reserves

Called up share capital

50,500

50,500

Profit and loss account

542,746

464,968

Shareholders funds

593,246

515,468

(a)For the year ending 31 December 2010 the company was entitled to exemption under section 477(2) of the Companies Act 2006.

(b)The members have not required the company to obtain an audit in accordance with section 476 of the Companies Act 2006.

(c)The directors acknowledge their responsibility for:

(i)Ensuring the company keeps accounting records which comply with Section 386; and

(ii)preparing accounts which give a true and fair view of the state of affairs of the company as at the end of the financial year, and of its profit or loss for the financial year in accordance with the requirements of Section 393, and which otherwise comply with the requirements of the Companies Act relating to accounts, so far as applicable to the company

(d)These accounts have been prepared in accordance with the provisions applicable to companies subject to the small companies regime.

Approved by the Board on 19 August 2011.

Notes to the abbreviated accounts—for the year ended 31 December 2010.

1. Accounting policies

The accounts have been prepared under the historical cost convention and in accordance with the Financial Reporting Standards for Small Entities (effective January 2005).

Turnover

Turnover represents amounts receivable for goods and services net of VAT and trade discounts.

Depreciation

Depreciation has been provided at the following rates in order to write off the assets over their estimated useful lives.

Fixtures and fittings

33.3% Straight Line

2. Tangible fixed assets

Cost

£

At 31 December 2009

17,631

additions

2,876

disposals

revaluations

transfers

At 31 December 2010

20,507

 

Depreciation

At 31 December 2009

10,944

Charge for year

3,766

on disposals

At 31 December 2010

14,710

 

Net Book Value

At 31 December 2009

6,687

At December 2010

5,797

The investment is stated at historical cost. The directors’ valuation is based on a valuation statement as at 20 November 2010. No provision has been made within these accounts to reflect these increase in value.

3. Investments (fixed assets)

Fixed asset investments are stated at cost less provision for diminution in value.

APPENDIX 5

LOUDWATER INVESTMENT PARTNERS LIMITED—ABBREVIATED ACCOUNTS—FOR THE YEAR ENDED 31 DECEMBER 2011

Notes

2011

2010

£

£

Fixed assets

Tangible assets

2

3,838

5,796

Investments

3

538,639

507,742

542,477

513,538

Current assets

Debtors

14,233

13,338

Cash at bank in hand

73,831

135,884

88,064

149,222

Creditors amounts falling due within one year

(18,901)

(70,815)

Net current assets

69,163

78,407

Net assets

611,640

591,945

Capital and reserves

Called up share capital

4

50,500

50,500

Profit and loss account

561,140

541,445

Shareholders’ funds

611,640

591,945

The directors are satisfied that the company is entitled to exemption from the requirement to obtain an audit under section 477 of the Companies Act 2006.

Members have not required the company to obtain an audit in accordance with section 476 of the Act.

The directors acknowledge their responsibilities for complying with the requirements of the Companies Act 2006 with respect to accounting records and the preparation of accounts.

The accounts have been prepared in accordance with the provisions in Part 15 of the Companies Act 2006 applicable to companies subject to the small companies regime.

Approved by the Board on 25 April 2012.

Notes to the abbreviated accounts—for the year ended 31 December 2011.

1. Accounting policies

Basis of preparation

The accounts have been prepared under the historical cost convention and in accordance with the Financial Reporting Standard for Smaller entities (effective April 2008).

Turnover

Turnover represents the value, net of value added tax and discounts, of goods provided to customers and work carried out in respect of services provided to customers.

Depreciation

Depreciation has been provided at the following rates in order to write off the assets over their estimated useful lives.

Fixtures and fittings

33.3% Straight Line

Pensions

The company operates a defined contribution pension scheme. Contributions are charged to the profit and loss account as they become payable in accordance with the rules of the scheme.

2.

Tangible fixed assets

£

Cost

At 1 January 2011

20,506

Additions

2,623

At 31 December 2011

23,129

Depreciation

At 1 January 2011

14,710

Charge for the year

4,581

At 31 December 2011

19,291

Net book value

At 31 December 2011

3,838

At 31 December 2010

5,796

3.

Investments

£

Cost

At 1 January 2011

507,742

Additions

30,897

At 31 December 2011

538,639

4.

Share Capital

Nominal
Value

2011
Number

2011
£

2010
£

Allotted, called up and fully paid Ordinary shares

£1 each

50,500

50,500

50,500

Prepared 4th April 2013