Hornby signals that he’ll keep HBOS on track

By Ian Fraser

Sunday Herald

January, 8th, 2006


Andy Hornby; image courtesy of The Sun

WHENEVER there was a tricky question about customer service at HBOS’s annual meeting last April, it was passed not to chief executive James Crosby but to head of retail banking Andy Hornby. That was a sign of things to come at HBOS, formed from the 2001 merger of Bank of Scotland and Halifax.

For some time, it has been widely believed that Hornby – a retail whizzkid who honed his skills under Archie Norman and Allan Leighton at Asda in the 1990s – was being lined up as Crosby’s heir apparent.

However, it was not until last autumn that Crosby went to HBOS chairman Lord Dennis Stevenson to declare he wished to step down ahead of his 50th birthday this year.

And on Thursday, the Edinburgh-based bank announced that Crosby will go on July 31, handing over to Hornby, who celebrates his 39th birthday next month, when he will become the youngest ever UK bank chief executive.

Hornby is highly regarded. James Eden at Dresdner Kleinwort Benson describes him as a “superstar”, while Haley Tam, an analyst at Bear Stearns, said: “Hornby is widely perceived as the driving force behind the bank’s success.”

He has overseen the Halifax’s retail banking side since 1999 when, in a pioneering move, it chose to put someone with a classical retailing background in charge of its retail arm.

Hornby quickly introduced a classical “pile it high and sell it cheap” and “retail is detail” ethos to Halifax. This proved anathema to some elderly customers but there is little doubt it has worked.

Thanks to Hornby’s retailing nous, the Yorkshire-based institution sloughed off its image as a staid old building society to become the highstreet bank to watch in the UK, and one of its most efficient.

Hornby was the brains behind initiatives such as the TV campaign featuring Howard the singing bank manager, which perhaps more than anything signalled to consumers that here was a bank that appeared to be on their side. And he also shattered the gentlemen’s agreement which, until 1999, stipulated that UK banks would not knock their rivals.

Under Hornby, HBOS attracted 1.2 million new credit-card accounts last year and one million new current accounts. It also made a big impact on the long-term savings market using the Halifax Life and Clerical Medical brands and doubled its share of small business banking sector from 3 per cent at the time of the HBOS deal to 6 per cent. However, its mortgage share stayed at a sizeable 22 per cent. Profits at the retail bank rose from £1.68 billion in 2003 to £2bn in 2004.

Hornby, who came top out of 800 MBA students at Harvard Business School, has already stressed he will not pursue a radically different strategy to Crosby. He said he would focus on four key areas: expanding the business; further share buybacks; fiscal discipline and “targeted international expansion”.

The latter goal might explain why HBOS shares, which have surged by 50 per cent since 2001, dipped 0.7 per cent on Thursday as investors feared he is more likely than Crosby to blow the bank’s spare capital on overseas acquisitions.

Merrill Lynch analyst John-Paul Crutchley said: “We note that strong cashflow and young CEOs are two of the ingredients for M&A activity.”

However, Hornby indicated any such investment would need to produce a very high rate of return, and HBOS sources say that the UK is a long way from being a mature market.

It was a sign of how valuable Hornby – a Bristol City fan and hillwalker – had become to Crosby and Stevenson, that when offered a job as chief executive of Boots, they were prepared to make a £2 million offer to persuade him to stay.

But Crosby, whose strongest legacy is as the architect of the merger that created HBOS, might yet prove a hard act to follow.

Hornby might struggle to replicate HBOS’s UK growth during Crosby’s reign. This is due to higher UK interest rates, lower demand for mortgages and increased competition from a revitalised Abbey National, which is eager to claw back market share under new owner, Banco Santander.


THE FACTS Andy Hornby, 38, is to take over from James Crosby, 49, as chief executive of HBOS in July.

BACKGROUND Hornby joined Halifax as head of retail banking in 1999, introducing a mainstream retail philosophy. He previously worked at Asda, Blue Circle and Boston Consulting Group.

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