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
For more details on this topic, see Bank of Scotland and Halifax Building Society.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 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 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-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 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 sh
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