HBOS

HBOS plc

Industry	Finance and Insurance
Fate	Acquired 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)
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

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 operates the Bank of Scotland and Halifax brands in the UK, as well as 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 rationalised the bank's corporate 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's UK banking licence.

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

The share price peaked at over 1150p in February 2007.

2008 short selling and credit crunch

In 2004 Paul Moore, HBOS head of Group Regulatory Risk, warned senior directors at HBOS about excessive risk-taking. He was dismissed, and his concerns not acted on.

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 232p 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 12 December.

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-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 13 October 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." 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 mortgage fraud. Further examples of mortgage fraud have come 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 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. The share price of Lloyds Banking Group plunged 32% on the London Stock Exchange, carrying other bank shares with it.

In September 2012 Peter Cummings, the head of HBOS corporate banking from 2006 to 2008, was fined £500,000 by the UK financial regulator over his role in the bank's collapse. Cummings was also banned from working in the banking industry by the Financial Services Authority (FSA). The losses in his division exceeded the initial taxpayer bailout for the bank in October 2008.

Reading branch fraud and Operation Hornet

On Sunday 3 October 2010, Lyndon Scourfield, former director of mid-market high-risk at Bank of Scotland Corporate, his wife Jacquie Scourfield, ex-director of Remnant Media Tony Cartwright and ex-NatWest banker David Mills were arrested on suspicion of fraud by the Serious and Organised Crime Agency. The scandal centred around Lyndon Scourfield's use of his position to refer companies to Quayside Corporate Services, owned and operated by David Mills, for "turnaround" services which Quayside was unqualified to provide. Several members of Quayside's staff had criminal records for embezzlement. Customers were allegedly inappropriately pressured to take on excessive debt burdens and to make acquisitions benefiting Quayside.

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

• Bank of Scotland
• Bank of Scotland Private Banking
• Bank of Scotland Treasury Services
• Birmingham Midshires
• Halifax
• AA Savings
• Halifax Financial Services (Holdings) Ltd
• Halifax Investment Fund Managers Ltd
• Halifax Share Dealing Limited
• Halifax Unit Trust Management Ltd
• Intelligent Finance
• Sainsbury's Bank (50%)
• The Mortgage Business (TMB)
• Blair, Oliver & Scott (Debt recovery)
• St James's Place Bank

International

• Banco Halifax Hispania
• Bank of Scotland Corporate
• Bank of Scotland International
• Bank of Scotland Investment Services
• Bank of Scotland (Ireland), trading as Halifax
• Bank of Scotland (Netherlands)

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.

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:

• St James's Place Capital (60%)
• Halifax General Insurance Services Ltd
• St Andrew's Group
• Clerical Medical
• Sainsbury's Bank

It also used to own UK investment manager Insight Investment Management Limited. The Bank of New York Mellon acquired Insight in 2009.