HBOS
Encyclopedia
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
company in the United Kingdom, a wholly owned subsidiary of the Lloyds Banking Group
Lloyds Banking Group
Lloyds Banking Group plc is a major British financial institution, formed through the acquisition of HBOS by Lloyds TSB in 2009. As at February 2010, HM Treasury held a 41% shareholding through UK Financial Investments Limited . The Group headquarters is located at 25 Gresham Street in London, with...
having been taken over in January 2009. It is the holding company
Holding company
A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself; rather, its purpose is to own shares of other companies. Holding companies allow the reduction of risk for the owners and can allow...
for Bank of Scotland plc
Bank of Scotland
The Bank of Scotland plc is a commercial and clearing bank based in Edinburgh, Scotland. With a history dating to the 17th century, it is the second oldest surviving bank in what is now the United Kingdom, and is the only commercial institution created by the Parliament of Scotland to...
, 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
Big Four (banks)
Big Four is the colloquial name for the four main banks in several countries, where the banking industry is dominated by just four institutions and where the phrase has gained currency.-Australia:...
UK retail banks. It is also the UK’s largest mortgage lender. HBOS Group Reorganisation Act 2006
HBOS Group Reorganisation Act 2006
The HBOS Group Reorganisation Act 2006 is a private Act of Parliament, passed by the Parliament of the United Kingdom in June 2006. The aim of the act was to provide HBOS plc, a banking and insurance group in the UK, the legal authority to reorganise its subsidiaries into a simplified structure...
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
The Mound
The Mound is an artificial hill in central Edinburgh, Scotland, which connects Edinburgh's New Town and Old Town. It was formed by dumping around 1,501,000 cartloads of earth excavated from the foundations of the New Town into the drained Nor Loch which forms today's Princes Street Gardens. The...
in Edinburgh
Edinburgh
Edinburgh is the capital city of Scotland, the second largest city in Scotland, and the eighth most populous in the United Kingdom. The City of Edinburgh Council governs one of Scotland's 32 local government council areas. The council area includes urban Edinburgh and a rural area...
, Scotland; the former head office of Bank of Scotland. Operational headquarters were based in Halifax, West Yorkshire
Halifax, West Yorkshire
Halifax is a minster town, within the Metropolitan Borough of Calderdale in West Yorkshire, England. It has an urban area population of 82,056 in the 2001 Census. It is well-known as a centre of England's woollen manufacture from the 15th century onward, originally dealing through the Halifax Piece...
, England; the former head office of Halifax.
The group became part of Lloyds Banking Group
Lloyds Banking Group
Lloyds Banking Group plc is a major British financial institution, formed through the acquisition of HBOS by Lloyds TSB in 2009. As at February 2010, HM Treasury held a 41% shareholding through UK Financial Investments Limited . The Group headquarters is located at 25 Gresham Street in London, with...
through a takeover by Lloyds TSB
Lloyds TSB
Lloyds TSB Bank Plc is a retail bank in the United Kingdom. It was established in 1995 by the merger of Lloyds Bank, established in Birmingham, England in 1765 and traditionally considered one of the Big Four clearing banks, with the TSB Group which traces its origins to 1810...
. 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.
HBOS Group Reorganisation Act 2006
In 2006, HBOS secured the passing of the HBOS Group Reorganisation Act 2006HBOS Group Reorganisation Act 2006
The HBOS Group Reorganisation Act 2006 is a private Act of Parliament, passed by the Parliament of the United Kingdom in June 2006. The aim of the act was to provide HBOS plc, a banking and insurance group in the UK, the legal authority to reorganise its subsidiaries into a simplified structure...
, 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 March 2008, HBOS shares fell 17 percent amid false rumours that it had asked the Bank of EnglandBank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
for emergency funding. The Financial Services Authority
Financial Services Authority
The Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...
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
Lehman Brothers
Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...
, 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
Credit crunch
A credit crunch is a reduction in the general availability of loans or a sudden tightening of the conditions required to obtain a loan from the banks. A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rates...
.
However, later that day, the BBC
BBC
The British Broadcasting Corporation is a British public service broadcaster. Its headquarters is at Broadcasting House in the City of Westminster, London. It is the largest broadcaster in the world, with about 23,000 staff...
reported that HBOS was in advanced takeover talks with Lloyds TSB
Lloyds TSB
Lloyds TSB Bank Plc is a retail bank in the United Kingdom. It was established in 1995 by the merger of Lloyds Bank, established in Birmingham, England in 1765 and traditionally considered one of the Big Four clearing banks, with the TSB Group which traces its origins to 1810...
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
Competition law
Competition law, known in the United States as antitrust law, is law that promotes or maintains market competition by regulating anti-competitive conduct by companies....
.
Alex Salmond
Alex Salmond
Alexander Elliot Anderson "Alex" Salmond MSP is a Scottish politician and current First Minister of Scotland. He became Scotland's fourth First Minister in May 2007. He is the Leader of the Scottish National Party , having served as Member of the Scottish Parliament for Gordon...
, Scotland's First Minister
First Minister of Scotland
The First Minister of Scotland is the political leader of Scotland and head of the Scottish Government. The First Minister chairs the Scottish Cabinet and is primarily responsible for the formulation, development and presentation of Scottish Government policy...
, 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 spivSpivIn the United Kingdom, a spiv is a particular type of petty criminal, who deals in stolen or black market goods of questionable authenticity, especially a slickly-dressed man offering goods at bargain prices...
s and speculators in the financial markets."
Vince Cable, the Liberal Democrats
Liberal Democrats
The Liberal Democrats are a social liberal political party in the United Kingdom which supports constitutional and electoral reform, progressive taxation, wealth taxation, human rights laws, cultural liberalism, banking reform and civil liberties .The party was formed in 1988 by a merger of the...
' economic spokesman
Shadow Chancellor of the Exchequer
The Shadow Chancellor of the Exchequer in the British Parliamentary system is the member of the Shadow Cabinet who is responsible for shadowing the Chancellor of the Exchequer. The title is in the gift of the Leader of the Opposition but is informal. The Shadow Chancellor has no constitutional...
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 TSBLloyds TSB
Lloyds TSB Bank Plc is a retail bank in the United Kingdom. It was established in 1995 by the merger of Lloyds Bank, established in Birmingham, England in 1765 and traditionally considered one of the Big Four clearing banks, with the TSB Group which traces its origins to 1810...
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
Prime Minister of the United Kingdom
The Prime Minister of the United Kingdom of Great Britain and Northern Ireland is the Head of Her Majesty's Government in the United Kingdom. The Prime Minister and Cabinet are collectively accountable for their policies and actions to the Sovereign, to Parliament, to their political party and...
Gordon Brown
Gordon Brown
James Gordon Brown is a British Labour Party politician who was the Prime Minister of the United Kingdom and Leader of the Labour Party from 2007 until 2010. He previously served as Chancellor of the Exchequer in the Labour Government from 1997 to 2007...
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
Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
and Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
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 BrownGordon Brown
James Gordon Brown is a British Labour Party politician who was the Prime Minister of the United Kingdom and Leader of the Labour Party from 2007 until 2010. He previously served as Chancellor of the Exchequer in the Labour Government from 1997 to 2007...
'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
Lloyds TSB
Lloyds TSB Bank Plc is a retail bank in the United Kingdom. It was established in 1995 by the merger of Lloyds Bank, established in Birmingham, England in 1765 and traditionally considered one of the Big Four clearing banks, with the TSB Group which traces its origins to 1810...
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
Alistair Darling
Alistair Maclean Darling is a Scottish Labour Party politician who has been a Member of Parliament since 1987, currently for Edinburgh South West. He served as the Chancellor of the Exchequer from 2007 to 2010...
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
Fred Goodwin
Sir Frederick Anderson Goodwin CA, FCIBS is a Scottish chartered accountant and former banker who was chief executive of the Royal Bank of Scotland Group between 2001 and 2009....
'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
Reuters
Reuters is a news agency headquartered in New York City. Until 2008 the Reuters news agency formed part of a British independent company, Reuters Group plc, which was also a provider of financial market data...
reported Britain could inject 40 billion pounds ($69 billion) into the said 3 banks including Barclays.
Links to the arms trade
In December 2008 the British anti-poverty charity War on WantWar on Want
War on Want is an anti-poverty charity based in London, England. It seeks to highlight the needs of poverty-stricken areas around the world and lobbies governments and international agencies to tackle problems as well as raising public awareness of the concerns of developing nations while...
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
Babcock International Group
Babcock International Group plc is a British-based support services company specialising in managing complex assets and infrastructure in safety-critical and mission-critical environments. Although the company has civil contracts, its main business is with public bodies, particularly the UK...
and Chemring.
Mortgage fraud
During 2003 The Money ProgrammeThe Money Programme
The Money Programme is a finance and business affairs television programme on BBC2.It was first broadcast on 5 April 1966 and presented by "commentators" William Davis, Erskine Childers and Joe Roeber. At this time David Attenborough was the controller of BBC2...
uncovered systemic mortgage fraud
Mortgage fraud
Mortgage fraud is crime in which the intent is to materially misrepresent or omit information on a mortgage loan application to obtain a loan or to obtain a larger loan than would have been obtained had the lender or borrower known the truth....
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 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 Wales
In 2002, HBOS dropped the Bank of WalesBank of Wales
The Bank of Wales was a bank based in Cardiff, Wales, founded by Sir Julian Hodge in 1971. The company provided commercial banking services to small and medium-sized businesses in Wales....
brand and absorbed the operations into Bank of Scotland Business Banking.
HBOS bad loans
On Friday, 13 February 2009, Lloyds Banking GroupLloyds Banking Group
Lloyds Banking Group plc is a major British financial institution, formed through the acquisition of HBOS by Lloyds TSB in 2009. As at February 2010, HM Treasury held a 41% shareholding through UK Financial Investments Limited . The Group headquarters is located at 25 Gresham Street in London, with...
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
London Stock Exchange
The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...
, 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
- Bank of ScotlandBank of ScotlandThe Bank of Scotland plc is a commercial and clearing bank based in Edinburgh, Scotland. With a history dating to the 17th century, it is the second oldest surviving bank in what is now the United Kingdom, and is the only commercial institution created by the Parliament of Scotland to...
- Bank of Scotland Private Banking
- Bank of Scotland Treasury Services
- Birmingham MidshiresBirmingham MidshiresBirmingham Midshires is a commercial bank in the United Kingdom, a division of Bank of Scotland plc . It is headquartered at Pendeford Business Park, Wolverhampton, England and has 67 offices throughout England...
- Halifax
- AA Savings
- Halifax Financial Services (Holdings) Ltd
- Halifax Investment Fund Managers Ltd
- Halifax Share DealingHalifax Share DealingHalifax Share Dealing is an online broker allowing customers to buy and sell shares in UK and international companies across a range of markets....
Limited - Halifax Unit Trust Management Ltd
- Intelligent FinanceIntelligent FinanceIntelligent Finance is a Scottish offset bank, a division of Bank of Scotland plc which is part of Lloyds Banking Group. It was established as a division of Halifax plc in 2000 by Jim Spowart, who helped establish other direct financial services firms including Direct Line.Following a...
- Sainsbury's BankSainsbury's BankSainsbury's Bank, now trading as Sainsbury's Finance, is a 50:50 joint venture between J Sainsbury and Bank of Scotland . Sainsbury’s was the first major British supermarket to open a bank, commencing trading in February 1997...
(50%) - The Mortgage Business (TMB)
- Blair, Oliver & Scott (Debt recovery)
- St James's Place Bank
International
- Banco Halifax HispaniaBanco Halifax HispaniaLloyds Bank International, is a Spanish bank and part of the Lloyds Banking Group. The bank was set up in 1993 as Banco Halifax, the Spanish subsiidiary of Halifax....
- Bank of Scotland Corporate
- Bank of Scotland InternationalBank of Scotland InternationalBank of Scotland International is the international banking division of Bank of Scotland plc, part of Lloyds Banking Group. It is headquartered in Jersey...
- Bank of Scotland Investment Services
- Bank of Scotland (Ireland)Bank of Scotland (Ireland)Bank of Scotland was a bank based in the Republic of Ireland, a subsidiary of the Bank of Scotland, which in turn is a part of the Lloyds Banking Group. It was more widely known under the trading name of its former retail division, Halifax. Since 10 February 2010 the bank has no longer accepted...
, trading as Halifax - Bank of Scotland (Netherlands)Bank of Scotland (Netherlands)The Bank of Scotland is the Dutch subsidiary of Bank of Scotland plc, part of the Lloyds Banking Group. It was established in 1999 and is headquartered in Amsterdam....
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
Bank of Western Australia
Bank of Western Australia is a full service bank based in Perth, Western Australia. Formerly a wholly owned subsidiary of HBOS plc, it was sold in October 2008 to the Commonwealth Bank of Australia for 2.1 billion....
and St Andrew's Australia Pty Ltd subsidiaries for approximately A$2bn to Commonwealth Bank of Australia
Commonwealth Bank of Australia
The Commonwealth Bank of Australia is a multinational bank with businesses across New Zealand, Fiji, Asia, USA and the United Kingdom. Commonwealth Bank provides a variety of financial services including retail, business and institutional banking, funds management, superannuation, insurance,...
.
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 MedicalClerical MedicalClerical Medical is a British life insurance, pensions and investments company founded in 1824.In 1824, Dr George Pinckard formed a committee of physicians and members of the clergy which published a pamphlet called 'Prospectus for the Establishment of a new Assurance Office with Improved...
- Sainsbury's BankSainsbury's BankSainsbury's Bank, now trading as Sainsbury's Finance, is a 50:50 joint venture between J Sainsbury and Bank of Scotland . Sainsbury’s was the first major British supermarket to open a bank, commencing trading in February 1997...
- Insight Investment Management Limited
External links
- Official website of HBOS plc (now redirects to Lloyds Banking Group website)