|Industry||Finance and Insurance|
|Fate||Acquired by Lloyds Banking Group|
Edinburgh, Scotland |
Halifax, West Yorkshire
Leeds, West Yorkshire
James Crosby & Andy Hornby (former Chief Executives)|
Lord Stevenson of Coddenham (Chairman)
Number of employees
|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 Bank of Scotland. 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 was also the UK's largest mortgage lender. The HBOS Group Reorganisation Act 2006 saw the transfer of Halifax plc to 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 the 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 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.
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.
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 232p per share, which is less than the 275p price at which HBOS raised funds earlier in 2008.
"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."
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 favour of 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 over-ruling 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 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, appeared 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."
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 into Royal Bank of Scotland Group Plc, Lloyds TSB and HBOS Plc, to avert financial sector collapse or UK "banking meltdown". He stressed that it was not "standard public ownership", as the banks would return to private investors "at the right time". Alistair Darling claimed that the British public would benefit from the rescue plan, as the government would have some control over RBS in exchange for about £20 billion of funding. Total State ownership in RBS would be 60%, and 40% for HBOS. Royal Bank of Scotland said it intended to raise £20 billion ($34 billion) capital with the government's aid; its chief executive Fred Goodwin resigned. The government acquired $8.6 billion of preference shares and underwrote $25.7 billion of ordinary shares. Thus, it intended to raise £15 billion (€18.9 billion, $25.8 billion) from investors, to be underwritten by the government. The State would pay £5 billion for RBS, while Barclays Bank raised £6.5 billion from private sector investors, with no government help. Reuters reported that Britain could inject £40 billion ($69 billion) into the three banks including Barclays.
In 2015 an investigation by the Prudential Regulation Authority and Financial Conduct Authority blamed the failure requiring the bailout on the bank's executives, as well as being critical of the Financial Services Authority (FSA), the then-regulator. A parallel investigation into the FSA's enforcement process concluded it was too late to fine responsible executives, but up to 10 former HBOS executives could be banned from the financial services industry.
Causes of failure were identified as follows:
The firm’s executive management pursued rapid and uncontrolled growth of the Group’s balance sheet. This led to an over-exposure to highly cyclical commercial real estate (CRE) at the peak of the economic cycle.
On Boxing Day 2000 Halifax started its most successful Marketing Campaign, which was continued five months later after the creations of HBOS.
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 wrote that HBOS held shares in the UK arms sector totalling £483.4 million, and served as principal banker for Babcock International and Chemring.
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.
HBOS conducted 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 was the banking division of the HBOS group, and operated the following brands:
- Bank of Scotland
- Bank of Scotland Private Banking
- Bank of Scotland Treasury Services
- Birmingham Midshires
- 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%) – holding sold to J Sainsbury plc on 31 January 2014.
- The Mortgage Business (TMB)
- Blair, Oliver & Scott (Debt recovery)
- St James's Place Bank
- Banco Halifax Hispania – rebranded as Lloyds Bank International in 2010 and sold to Banco Sabadell in 2013.
- Bank of Scotland Corporate
- Bank of Scotland International – transferred to Lloyds TSB Offshore in 2012, which became Lloyds Bank International in 2013.
- Bank of Scotland Investment Services
- Bank of Scotland (Ireland), trading as Halifax since 2006 and closed down on 31 December 2010.
- Bank of Scotland, Amsterdam branch - trading as Lloyds Bank since 2013 (savings) and 2014 (mortgages).
- Bank of Scotland, Berlin branch
HBOS Australia was formed in 2004 to consolidate the group's holdings in Australia. It consisted of the following subsidiaries:
- Capital Finance Australia Limited
- BOS International Australia Ltd
The group's businesses in Australia were sold to Westpac in October 2013.
HBOS Insurance and Investment Group Limited
HBOS Insurance & Investment Group Limited manages the group's insurance and investment brands in the UK and Europe. It consisted of the following:
- St James's Place Capital (60%)
- Halifax General Insurance Services Ltd
- St Andrew's Group
- Clerical Medical
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