HBOS changes: Too little, too late?


This week saw a little-heralded leadership change in the retail division of the financial giant HBOS. When a bank changes one or two members of its management team, it does so to reassure investors of continuity as well as to signal change. Has HBOS been too complacent over its business environment? Are the changes too little, too late?

According to a BBC report this week:

HBOS has announced a revamp of its retail division, including the departure of its head Benny Higgins … finance director Phil Hodkinson will [also] retire at 50 next year, and will be replaced by a former incumbent, Mike Ellis …”The structural changes we have introduced in our retail business are right for the group,” said chief executive Andy Hornby. Mr Higgins, who moved from Royal Bank of Scotland last year to head the retail unit, will leave HBOS at the end of 2007. [CEO] Mr Hornby told the Reuters news agency that Mr Higgins’ departure was not related to a recent 8% drop in profits at the retail unit. The business was hit by a sharp drop in its share of mortgages earlier in the year after a new pricing strategy went wrong, although the bank says its share has since recovered.

So there we are. No change there, then

Banks are as prone to jolts and change as any other business. Arguably they have become as accustomed to dealing with change as companies in many other business sectors. Their corporate advertising increasingly seeks to present images of innovative and dynamic set-ups. Yet, they also work hard at maintaining a corporate image of stability and reliability. Which just goes to show that effective creativity in advertising can be pretty challenging. How would you send out a convincing signal that you are reliable and adventurous, dynamic and prudent?

HBOS doesn’t stand for anything

I think of HBOS as an abbreviation for two big names in Banking after a recent merger, namely the Halifax and Bank of Scotland. Wrong. The (usually) reliable Wikipedia tells me it is an Initialized name. We shouldn’t connect it with some earlier entity or entities. Same with ICI. Not Imperial Chemical Industries. Anyway, that’s going to be another story. Let’s just say that what is now HBOS used to be the Halifax Building Society of Halifax, Yorkshire, and The Bank of Scotland of Edinburgh.

Background to the story

Earlier this year the bank announced satisfaction with its profits.

CEO Andrew Hornby said HBOS was optimistic about the UK economy and growth in its main markets, and that the UK business environment was “generally benign”.

How benign is benign?

Hornby’s view was not widely shared

“Overall the quality of these figures looks poor and the guidance of 2007 on loan growth, margin, costs and bad debt looks disappointing,” analysts at Fox-Pitt, Kelton said in a note


AS it turned out, the HBOS retail business environment was to prove far from benign. Over Christmas 2006 there had been unfortunate publicity for the bank’s role in the sad tale of the collapse of Farepak. In 2007 it became clearer that the shared business model of the retail banks was failing. This relied on offering ‘free’ retail banking, partly subsidised by high charges for non-agreed overdrafts. HBOS faces substantial losses. It also proved non-competitive in mortgages, and failed in its retention strategy.

Anatomy of a high flier

In 2005, CEO Andy Hornby was assessed as one of the FTSE’s ‘power players’ for among other things being remunerated with ‘biggest directorship’ of the FTSE 100 at around a £ million sterling for his HBOS responsibilities. The young city high-flier was a former Blue Circle and Asda executive, and could take credit for his part in steering through the merger successfully.

The deal was a coup for The Halifax. However gently the merger was presented, Halifax emerged with the better hand. Hornby became its CEO, and Lord Dennis Stevenson (another Halifax man) became Chairman of the new company. The Bank of Scotland had recently lost out in several take-over bids, including its wooing of National Westminster Bank, when it had lost to its bitter rival, the Royal Bank of Scotland.

What’s going on?

Perhaps researching this blog has made me over-sensitive to leadership battles. But the story leaves me with just that suspicion that there is more to unfold. Has HBOS been complacent over its business environment? The kindest that can be said was that it did not rush into hasty action recently. More unkindly, maybe it could be accused of being too reactive.

I haven’t picked up the signals of stakeholder discontent that indicate real ‘trouble at the top’. No comments about excessive remuneration packages. But those city analysts have already sent out signals suggesting the business environment is not as benign as HBOS would like it to be.

I have a very small shareholding in one of the group’s financial products. I’m not planning on selling. I’m not planning on acquiring any more either. And maybe there will be a business case to invest in, written on leadership style and proactivity.

5 Responses to HBOS changes: Too little, too late?

  1. Tudor,

    Some of history’s most successful leaders knew when to and when not to be — and how to be — “proactive”.

    As they travelled back to Paris from Moscow in 1812, Napoleon told General Caulaincourt that “time brings things to pass imperceptibly; the great art is to act opportunely”. Napoleon’s first secretary, Bourreinne wrote that Napoleon “was thoroughly convinced of the truth that trifles often decide the greatest events; therefore he watched rather than provoked opportunity, and when the right moment approached, he suddenly took advantage of it.”

    After a successful step in his early struggle to become CEO of the Chinese Communist Party, Mao Zedong said: “Melons ripen. Don’t pick them off when they are not yet ripe. When they are ready, they will drop. In struggle, one mustn’t be too rigid.”

    Following a “reconciliation luncheon” between Ernst Rohm (the Nazi Party’s SA Chief-of-Staff and Hitler’s ‘friend’) and Defence Minister Blomberg and his generals in 1934 – Rohm had put the generals offside by suggesting that the defence of Germany should be “the domain of the SA” with himself as Defence Minister – Rohm made disparaging remarks about Hitler. When told about this and Rohm’s threat to go his own way, Hitler said: “We must let matters ripen.”

    In late 1940, Count Ciano wrote in his diary about Marshal Badoglio: “Mussolini wants to sack him. He is moving slowly, because this is his nature in such matters, and because he wants to let time take its course.”

    Jeff Schubert

  2. Tudor says:

    Hi Jeff,

    So the challenge seems to be how to stay calm and do nothing, when others are pressurizing you for action? Gordon Brown has been ‘blessed’ with circumstnces in which action after action were was not just gestures, but seen to be necessary.

    Not so sure about HBOS.

  3. Tudor says:

    Update needed:

    This post seems to have anticipated the credit crunch. Maybe some updating is worthwhile.

  4. Tudor says:

    I have deleted two replies as potentially libellous towards Andy Hornby

  5. […] particular credit for the way he handled the Halifax merger with the Bank of Scotland, although his style was seen as less dynamic than more entrepreneurial banking […]

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