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, 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.
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.
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.
History
HBOS Group Reorganisation Act 2006
In 2006, HBOS secured the passing of the
HBOS Group Reorganisation Act
2006, a private Act of Parliament that would allow the group to
operate in a more simplified structure. 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
company'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. 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.
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.
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.
Later that day, the price was set at 0.83 Lloyds shares for each
HBOS share, equivalent to 232
p per share,
which is less than the 275p price at which HBOS raised funds
earlier in 2008.
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."
Vince Cable, the
Liberal Democrats'
economic spokesman mocked
so-called "masters of the universe," whose
hedge funds profited from short-selling.
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. The three main conditions for the
acquisition were:
- Three Quarters of HBOS shareholders voted in agreement with the
board's actions;
- Half Of Lloyds TSB shareholder voted to approve the
takeover;
- 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 12th.
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”. The Lloyds
TSB board have stated that merchant banks
Merrill Lynch and
Morgan Stanley were amongst the advisers
recommending the takeover.
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-collape 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 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."
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%. 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.
Reuters reported Britain could inject 40 billion
pounds ($69 billion) into the said 3 banks including
Barclays.
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.
Mortgage fraud
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.
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.
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.. The share price
of Lloyds Banking Group plunged 32% on the
London Stock Exchange, carrying other
bank shares with it.
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:
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.
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:
References
Notes
- Lloyds: What happens next?
- news.bbc.co.uk, Brown: We'll be rock of stability
- bloomberg.com, Stocks Rebound After Government Bank
Bailout; Lloyds Gains
- guardian.co.uk, Darling: UK taxpayer will benefit
from banks rescue
- afp.google.com, Britain to invest up to 37 billion
pounds in ailing banks
- reuters, British banks set for 40 billion pound
rescue: sources
- War on Want, Banking on Bloodshed
- The Money Programme uncovers massive mortgage
fraud
- Australia's CBA to buy BankWest for $1.5bn
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
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