Edinburgh-based Intelligent Finance is a “luxury” that HBOS can ill-afford, according to one of the UK’s leading banking analysts.
John-Paul Crutchley, analyst at Merrill Lynch, argues the offset bank should be shut down and integrated with the bank’s mainstream Halifax and Bank of Scotland operations. He said such a move would cut out a substantial portion of IF’s estimated £150 million annual running costs.
The analyst says IF was launched by the Halifax in 2000 partly because a separate online brand was “fashionable” as dotcom mania gripped the business world.
Crutchley said: “HBOS appears to have, at times, indulged in following the latest business fashions, which do not always deliver as hoped.” He also referred to digital insurance company esure, launched as a joint venture between founder Sir Peter Wood and Halifax in 2000-1 and the 60% stake HBOS owns in wealth manager St James’s Place Capital.
In a research note titled ‘CEO For A Day – A Review Of UK Banks’ Strategic Positioning’, Crutchley wrote: “Intelligent Finance was created as HBOS’s standalone internet bank offering an offset product to its customers. We also believe it was designed to act as a new-entrant blocker in an effort to reduce mortgage redemptions from the Halifax.
“Although HBOS maintains that IF is on course to break even in 2004, we think it is hard to generate a sufficient return on capital without acknowledging the £430m of P&L investment.
“We think it is hard to justify the luxury of a separate standalone branch and operational infrastructure and consider it would be more appropriate to bring IF back within the traditional HBOS/Halifax Direct architecture. We believe that a considerable amount of the current £150m of annual costs could be saved by such action.”
IF was launched at a time when all the leading UK banks were concerned about the threat posed by the internet and online banking to their core business franchises. The bank was founded by Jim Spowart, who was replaced as chief executive by Grenville Turner, former head of sales at HBOS Retail, in November 2001.
Shane O’Riordain, a spokesman for HBOS, said: “That is not going to happen. IF is a deliberately different brand because its proposition is completely different.”
He referred to remarks made by HBOS chief executive James Crosby in July. Crosby said then that IF was on course to break even by the end of 2003.
IF reduced its losses to £38m in six months to June, down from a loss of £59m in the second half of 2002. It took a net share of the new mortgage lending market of 5% in the first half of 2003. IF employs 2,400 staff at locations in Edinburgh Park, Livingston and Rosyth.
This article was published in the Sunday Herald on 14 September 2003