Halifax Bank of Scotland

Halifax Bank of Scotland (HBOS) was a banking group based in Edinburgh. They are now part of the Lloyds TSB group.

The Halifax was Britain’s biggest building society, an institution that specialised in savings and mortgages. It was named after the Yorkshire town of Halifax, and retained its head office there and its branch network is particularly strong in the north of England. The Halifax Building Society turned itself into a bank and floated on the London Stock Exchange in the 1990s. Its members were compensated for the loss of mutual status with a generous share allocation and it became one of the most widely held shares in Britain.

Using the capital raising powers that it now had as a quoted bank it raised a large amount of money and made a concerted attempt to become a leader both in the savings market and in originating new mortgages. It was later taken over by the Bank of Scotland in 2007, which did not have a large branch network in England and they made a concerted attempt to challenge the traditional “top five” banks particularly in savings and mortgages. As part of the takeover deal extensive offices were maintained in the building society’s old base in Halifax.

The Halifax brand has become a very consumer centered brand, with one of the largest stock brokers aimed at small investors in the country, a current account which attracts a high interest rate, a sizeable presence in the mortgage market and various savings account aimed at long term investors/

Bank of Scotland

The Bank of Scotland (BOS) was Scotland’s oldest bank and was formed in the seventeenth century in Edinburgh, where its headquarters still are. It is the second oldest bank in the United Kingdom, after the Bank of England and it is the only commercial institution created by the Parliament of Scotland that still exists. It was known as having strong sympathies for the Jacobite cause of the usurped Stuart kings, a sympathy that led to the government sponsored creation of its arch rival.

Services offered under the Bank of Scotland brand

The Bank of Scotland concentrated primarily on its Scottish hinterland building both a branch network, and offering a wide variety of services to business customers, particularly built around its specialism in financing Energy businesses, a skill that it had developed during the discovery and development of North Sea oil and the purchase of the Bank of Western Australia in Perth. It also built up a small branch network in the larger English market, but concentrated in the larger cities. In Scottish terms it was a very important bank, but due to the small size of the Scottish market it was only a medium sized bank in terms of the United Kingdom.

Halifax Bank of Scotland

In 2001 the Bank of Scotland decided to take over the newly demutualised Halifax with a very large English branch network and customer base. The head office was kept in Edinburgh, with substantial and important operations maintained in Halifax in Yorkshire. They both maintained their brands, with the Bank of Scotland concentrating on the Scottish and business markets and Halifax maintaining an active and expanding consumer operation.

Both the Bank of Scotland and Halifax had grown slowly but steadily on the basis of a conservative policy of lending funded by customer deposits. This now changed. The policy was to fund expansion through the money markets and to undercut more established banks with savings and current accounts that offered market leading rates of interest and mortgages that tended to require a lower deposit than most other banks were willing to offer.

Credit Crunch and the end of HBOS independence

The HBOS business model was particularly susceptible to any tightening of the credit markets, as it borrowed a large amount of its funds from the open market rather than its depositors, which were rolled over on a short term basis meaning that funds had to be repaid quickly if new borrowing could not be found. This duly happened in 2008 and HBOS was operationally bankrupt.

At a famous dinner party the Prime Minister Gordon Brown, a Scot with a parliamentary seat in Edinburgh, persuaded the Lloyds chairman Sir Victor Blank to take over HBOS to stop depositors withdrawing their funds and a merger was quickly agreed.