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HBOS plc
Fate Taken over by Lloyds Banking Group
Founded 2001
Headquarters Edinburgh, Scotland
United Kingdom
Key people James Crosby & Andy Hornby (former Chief Executives)
Lord Stevenson of Coddenham (Chairman)
Industry Finance and Insurance
Products Financial Services
Revenue -(2009)
Operating income -(2009)
Profit -(2009)
Employees 72,000
Parent Lloyds Banking Group
Subsidiaries Bank of Scotland plc, HBOS Australia, HBOS Insurance & Investment Group
Group headquarters on The Mound, Edinburgh.
HBOS Office at Trinity Road, Halifax.
Halifax offices in Aylesbury, Buckinghamshire.
HBOS offices in Lovell Park, Leeds, formerly those of the Leeds Permanent Building Society, before their takeover by the Halifax Building Society.

HBOS plc is a banking and insurance company in the United Kingdom, a wholly owned subsidiary of the Lloyds Banking Group having been taken over in January 2009. It is the holding company for Bank of Scotland plc, which operated the Bank of Scotland and the Halifax brands; HBOS Australia, and HBOS Insurance & Investment Group Limited, the group's insurance division.

HBOS was formed by the 2001 merger of Halifax plc and the Governor and Company of the Bank of Scotland,[1] and the formation of HBOS was heralded as creating a fifth force in British banking as it created a company of comparable size and stature to the established Big Four UK retail banks. It is also the UK’s largest mortgage lender.[2] HBOS Group Reorganisation Act 2006 saw the transfer of Halifax plc to the Governor and Company of the Bank of Scotland, which was now a registered public limited company, Bank of Scotland plc.

Although officially HBOS is not an abbreviation of any specific words, it is widely presumed to stand for Halifax Bank of Scotland. The corporate headquarters of the group were located on The Mound in Edinburgh, Scotland; the former head office of Bank of Scotland. Operational headquarters were based in Halifax, West Yorkshire, England; the former head office of Halifax.[3]

The group became part of Lloyds Banking Group through a takeover by Lloyds TSB. This came into effect on Monday 19 January 2009 after both sets of shareholders approved the deal. HBOS continues to operate as a separate organisation within the new group, although over time it is likely to be restructured.

Lloyds Banking Group has stated that the new group will continue to use 'The Mound' as the headquarters for its Scottish operations and will not cease the issue of Scottish bank notes.[4][5]

Contents

History

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HBOS Group Reorganisation Act 2006

In 2006, HBOS secured the passing of the HBOS Group Reorganisation Act 2006, a private Act of Parliament that rationalised the bank's corporate structure.[6] The act allowed HBOS to make the Governor and Company of the Bank of Scotland a public limited company, Bank of Scotland plc, which became the principal banking subsidiary of HBOS. Halifax plc transferred its undertakings to Bank of Scotland plc, and although the brand name was retained, Halifax then began to operate under the latter's UK banking licence.

The provisions in the Act were implemented on 17 September 2007.

2008 short selling and credit crunch

In March 2008, HBOS shares fell 17 percent amid false rumours that it had asked the Bank of England for emergency funding.[7] The Financial Services Authority conducted an investigation as to whether short selling had any links with the rumours. It concluded that there was no deliberate attempt to drive the share price down.[8]

On 17 September 2008, very shortly after the demise of Lehman Brothers, HBOS's share price suffered wild fluctuations between 88p and 220p per share, despite the FSA's assurances as to its liquidity and exposure to the wider credit crunch.[9]

However, later that day, the BBC reported that HBOS was in advanced takeover talks with Lloyds TSB to create a "superbank" with 38 million customers. This was later confirmed by HBOS. The BBC suggested that shareholders would be offered up to £3.00 per share, causing the share price to rise, but later retracted that comment.[10][11] Later that day, the price was set at 0.83 Lloyds shares for each HBOS share, equivalent to 232p per share,[12] which is less than the 275p price at which HBOS raised funds earlier in 2008.[13]

In order to avoid another Northern Rock-style collapse, the UK government announced that should the takeover go ahead, they would allow it to bypass competition law.

Alex Salmond, Scotland's First Minister, previously an economist, said of the takeover:

"I am very angry that we can have a situation where a bank can be forced into a merger by basically a bunch of short-selling spivs and speculators in the financial markets."[14]

Vince Cable, the Liberal Democrats' economic spokesman mocked so-called "masters of the universe," whose hedge funds profited from short-selling.[15]

Acquisition by Lloyds TSB

On 18 September 2008 the terms of the recommended offer for HBOS by Lloyds TSB were announced. The deal was concluded on 19 January 2009.[16] The three main conditions for the acquisition were:

  • Three Quarters of HBOS shareholders voted in agreement with the board's actions;[5]
  • Half Of Lloyds TSB shareholder voted to approve the takeover;[17]
  • UK government dispensation with respect to competition law.

A group of Scottish businessmen challenged the right of the UK government to approve the deal by overruling UK competition law, but this was rejected. The takeover was approved by HBOS shareholders on December 12.

Prime Minister Gordon Brown personally brokered the deal with Lloyds TSB, an official said: “It is not the role of a Prime Minister to tell a City institution what to do”.[18] The Lloyds TSB board have stated that merchant banks Merrill Lynch and Morgan Stanley were amongst the advisers recommending the takeover.[5]

Lloyds Banking Group has said Edinburgh-based HBOS, which it absorbed in January, made a pre-tax loss of £10.8bn in 2008. Andy Hornby, the former chief executive of HBOS and Lord Stevenson of Coddenham, its former chairman, have already come before the Commons treasury committee to answer for the near-collapse of the bank. Mr Hornby said: "I'm very sorry what happened at HBOS. It has affected shareholders, many of whom are colleagues, it's affected the communities in which we live and serve, it's clearly affected taxpayers, and we are extremely sorry for the turn of events that has brought it about."

Bailout

On October 13, 2008, Gordon Brown's announcement that government must be a "rock of stability," resulted to an "unprecedented but essential" government action: the Treasury would infuse £37 billion ($64 billion, €47 billion) of new capital-bailout into Royal Bank of Scotland Group Plc, Lloyds TSB and HBOS Plc, to avert financial sector collapse or UK "banking meltdown". He stressed, however, that it was not "standard public ownership" for the banks would return to private investors "at the right time."[19][20] Alistair Darling stated UK taxpayers would benefit from the government's rescue plan, for it will have some control in RBS in exchange of about £20 billion from the taxpayer. Total ownership in RBS would be 60%, with the figure for HBOS 40%.[21] Royal Bank of Scotland stated it intended to raise 20 billion pounds ($34 billion) capital with government's aid, amid its chief executive Fred Goodwin's resignation. The government acquires $8.6 billion of preference shares and underwriting $25.7 billion of ordinary shares. Thus, it intended to raise 15 billion pounds (18.9 billion euros, 25.8 billion dollars) from investors, to be underwritten by the government. Taxpayers' money will buy 5 billion pounds of shares from RBS, amid Barclays bank raising 6.5 billion pounds only from investors, instead of government help.[22] Reuters reported Britain could inject 40 billion pounds ($69 billion) into the said 3 banks including Barclays.[23]

Controversy

Links to the arms trade

In December 2008 the British anti-poverty charity War on Want released a report documenting the extent to which HBOS and other UK commercial banks invest in, provide banking services for and make loans to arms companies. The charity writes in its report that HBOS holds shares in the UK arms sector totally £483.4 million, and serves as principal banker for Babcock and Chemring.[24]

Mortgage fraud

Neighbouring Halifax and Lloyds TSB branches outside the Arndale Centre, Cross Gates, Leeds.

During 2003 The Money Programme uncovered systemic mortgage fraud throughout HBOS. The Money Programme found that during the investigation brokers advised the undercover researchers to lie on applications for self-certified mortgages from, among others, The Bank of Scotland, The Mortgage Business and Birmingham Midshires[25]. All three are part of the Halifax Bank of Scotland Group, Britain's biggest mortgage lender. James Crosby, head of HBOS at the time, refused to be interviewed in relation to the exposed mortage fraud. Further examples of mortgage fraud have came to light, which has seen mortgage brokers take advantage of fast track processing systems, as seen at HBOS, by entering false details, often without the applicants knowledge.

Bank of Scotland Reading Fraud

The bank's corporate lending arm, Bank of Scotland Corporate, in tandem with its preferred "turnaround consultancy" Quayside Corporate Services, conspired to undermine and to expropriate the assets of some 32 of its own corporate customers in 2003-2007. The fraud caused an estimated £925 million of the bank's money to disappear [26]. Yet neither the bank nor the Financial Services Authority has been able to find any "evidence" of wrongdoing. The bank's only responses to date have been to scapegoat some of the managers involved, including its former director of mid-market high-risk Lynden Scourfield, who is reported to have been fired in March 2007. The fraud was the subject of a BBC 'File on 4' documentary on 26 May 2009[27] and a UK parliamentary debate on 2 June 2009[28] -- where MPs demanded that the FSA launch a thorough investigation. The affair has also been extensively documented by financial journalist Ian Fraser.[29] On the 19th October 2009, the FSA were sent a comprehensive Report with attachments containing evidence from some 30 victims of the HBOS Reading fraud as well as information from whistle blowers, city lawyers and Companies House documents. The Report was also sent to the Governor of the Bank of England, Mervyn King, Chancellor of the Exchequer, Alistair Darling, the Treasury Select Committee, Liberal Democrat Treasury spokesman, Vince Cable, leader of the Conservative party, David Cameron, Shadow Chancellor, George Osborne, all the MPs who attended the Westminster Debate in June 09 and Neelie Kroes at the EU Commission. With the exception of the Chancellor, all recipients of the Report have confirmed in writing to the authors or to their related constituent, they are following the progress of the FSA investigation. Hector Sants, CEO of the Financial Services Authority (FSA), has confirmed he is taking the matter very seriously. The Prime Minister, Gordon Brown, was not sent a copy of the Report until 15th January 2010. However, the events at HBOS Reading were first brought to his personal attention 6th October 2008 when he was sent substantial documentation supporting allegations of fraud at HBOS Reading. He subsequently received 6 other letters requesting his intervention on behalf of the victims. The Prime Minister has not commented on the Report. To date (8 March 2010), no visible action has been taken against HBOS or Lloyds Banking Group for the HBOS Reading fraud. Subsequent to the fraud, which caused many HBOS customers to lose their businesses and therefore their livelihoods, some business owners have had their homes repossessed or have been made to sell them by HBOS. Lloyds/HBOS continue in their attempts to evict other victims of HBOS Reading. The FSA have said it would be inappropriate for them to request that Lloyds Banking Group stay proceedings pending the outcome of their investigations.

Bank of Wales

In 2002, HBOS dropped the Bank of Wales brand and absorbed the operations into Bank of Scotland Business Banking.

HBOS bad loans

On Friday, 13 February 2009, Lloyds Banking Group revealed losses of £10bn at HBOS, £1.6bn higher than Lloyds had anticipated in November because of deterioration in the housing market and weakening company profits.[30]. The share price of Lloyds Banking Group plunged 32% on the London Stock Exchange, carrying other bank shares with it.[30]

Operations

HBOS conducts all its operations through three main businesses:

  • Bank of Scotland plc
  • HBOS Australia
  • HBOS Insurance & Investment Group Limited

Bank of Scotland plc

Bank of Scotland plc is the banking division of the HBOS group, and operates the following brands:

United Kingdom

International

HBOS Australia

HBOS Australia was formed in 2004 to consolidate the group’s holdings in Australia. It consists of the following subsidiaries:

  • Capital Finance Australia Limited
  • BOS International (Australia) Ltd

Reported by Mohsin*

On 8 October 2008 HBOS Australia sold its Bank of Western Australia and St Andrew's Australia Pty Ltd subsidiaries for approximately A$2bn to Commonwealth Bank of Australia.[31]

HBOS Insurance & Investment Group Limited

HBOS Insurance & Investment Group Limited manages the group’s insurance and investment brands in the UK and Europe. It consists of the following:

  • esure
  • First Alternative
  • St James's Place Capital (60%)
  • Halifax General Insurance Services Ltd
  • St Andrew's Group
  • Clerical Medical
  • Sainsbury's Bank
  • Sheilas' Wheels
  • Insight Investment Management Limited [32]

References

Notes

  1. ^ "HBOS: the issue explained". Guardian. 2001-05-04. http://www.guardian.co.uk/money/2001/may/04/personalfinancenews2. Retrieved 2008-09-17. 
  2. ^ "HBOS is the largest mortgage lender in the Isles". 2008-08-07. http://www.iht.com/articles/2008/08/07/business/pound.php. Retrieved 2008-09-17. 
  3. ^ "Bank of Scotland, Halifax tie knot". All Business. http://www.allbusiness.com/public-administration/national-security-international/1038824-1.html. Retrieved 2007-07-02. 
  4. ^ "Lloyds TSB confirms deal to take over HBOS". 2008-09-18. http://www.iht.com/articles/ap/2008/09/18/business/EU-Britain-HBOS.php. Retrieved 2008-09-18. 
  5. ^ a b c "Recommended acquisition of HBOS plc by Lloyds TSB Group plc". Lloyds TSB. 2008-09-17. http://www.investorrelations.lloydstsb.com/media/pdf_irmc/ir/2008/2008Aug_LTSB_Acquires_HBOS.pdf. Retrieved 2008-09-18. 
  6. ^ "HBOS Group Reorganisation Act 2006". 2006. http://www.opsi.gov.uk/acts/localact2006/ukla_20060001_en_1. Retrieved 2008-09-17. 
  7. ^ "Authorities avert run on HBOS caused by false rumours". 2008. http://www.guardian.co.uk/business/2008/mar/20/creditcrunch.hbosbusiness. Retrieved 2008-09-17. 
  8. ^ "FSA concludes HBOS rumours investigation". 2008. http://www.fsa.gov.uk/pages/Library/Communication/PR/2008/086.shtml. Retrieved 2008-09-17. 
  9. ^ "HBOS Statement". 2008. http://www.fsa.gov.uk/pages/Library/Communication/Statements/2008/hbos.shtml. Retrieved 2008-10-11. 
  10. ^ "HBOS in merger talks with Lloyds TSB". BBC News. 2008-09-17. http://news.bbc.co.uk/go/rss/-/1/hi/business/7620483.stm. Retrieved 2008-09-17. 
  11. ^ "HBOS confirms in takeover talks with Lloyds TSB". 2008-09-17. http://uk.reuters.com/article/mergersNews/idUKWLA975220080917. Retrieved 2008-09-17. 
  12. ^ "Lloyds seals deal for HBOS". Reuters. 2008-09-18. http://uk.reuters.com/article/businessNews/idUKLH43730920080918. Retrieved 2008-09-18. 
  13. ^ "Lloyds TSB takeover talks with HBOS: the key issues". Guardian. 2008-09-17. http://www.guardian.co.uk/business/2008/sep/17/lloydstsbgroup.hbosbusiness. Retrieved 2008-09-17. 
  14. ^ "Salmond attacks financial 'spivs'". BBC News. 2008-09-17. http://news.bbc.co.uk/1/hi/scotland/edinburgh_and_east/7621153.stm. Retrieved 2008-09-17. 
  15. ^ "Brown must not become lenders' Fairy Godmother". Daily Mail. 2008-11-22. http://www.dailymail.co.uk/money/article-1059574/VINCE-CABLE-Brown-lenders-Fairy-Godmother.html. Retrieved 2009-03-01. 
  16. ^ Lloyds: What happens next?
  17. ^ "Lloyds TSB - Your shareholder questions answered". Lloyds TSB. http://www.lloydstsb.com/merger/shareholder_questions_answered.asp?WT.ac=LTSBacquisitionofHBOS. Retrieved 2008-11-03. 
  18. ^ "Gordon Brown steps in to secure HBOS rescue". London: The Times Online. 2008-09-17. http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4772801.ece. Retrieved 2008-09-18. 
  19. ^ news.bbc.co.uk, Brown: We'll be rock of stability
  20. ^ bloomberg.com, Stocks Rebound After Government Bank Bailout; Lloyds Gains
  21. ^ guardian.co.uk, Darling: UK taxpayer will benefit from banks rescue
  22. ^ afp.google.com, Britain to invest up to 37 billion pounds in ailing banks
  23. ^ reuters, British banks set for 40 billion pound rescue: sources
  24. ^ War on Want, Banking on Bloodshed
  25. ^ The Money Programme uncovers massive mortgage fraud
  26. ^ True losses from HBOS Reading fraud
  27. ^ File on 4 uncovers fraud at BoS Corporate
  28. ^ Transcript of parliamentary debate from Hansard
  29. ^ Examining HBOS
  30. ^ a b "Lloyds shares tumble as HBOS slumps to £10bn loss". 2009-02-13. http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4612681/Lloyds-shares-tumble-as-HBOS-slumps-to-10bn-loss.html. Retrieved 2009-02-28. 
  31. ^ Australia's CBA to buy BankWest for $1.5bn
  32. ^ Phorm Inc (2 October 2009). "Notification of major interest in shares". Press release. http://www.iii.co.uk/investment/detail/?display=news&code=cotn:PHRM.L&action=article&articleid=7554666. Retrieved 2 October 2009. 

Bibliography

  • Alan Cameron, Bank of Scotland, 1695-1995: A Very Singular Institution, Mainstream Publishing (20 April 1995), ISBN 1851586911
  • Peter Pugh, The Strength to Change: Transforming a Business for the 21st Century, Sponsored Publishing (29 October 1998), ISBN 0670880493

External links


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