Banking boom boosts Halifax share handout

Millions of Halifax members are set for a much bigger windfall than they had been led to expect when the country's biggest building society floats on the stock market in a week's time. If City predictions of the price at which Halifax shares will end their first day's dealings are accurate, someone getting the minimum handout can look forward to shares worth pounds 1,400.

According to one of the City's spread betting organisations, IG Index, Halifax shares will be worth 700p at close of play on Monday 2 June, the first day of trading. Anyone with both a savings account and a mortgage with Halifax will have shares worth at least pounds 2,800 and possibly much more, depending on the level of funds in their account.

That prediction is well ahead of the range originally suggested by Halifax when it announced details of its flotation and told its 8 million members their shares might be worth between 395p and 450p. The increase means the minimum handout, which two-thirds of members will receive, is more than pounds 500 higher than expected.

Halifax received the official go-ahead for the float yesterday as the Building Societies Commission confirmed the transfer of the business of the Halifax Building Society to Halifax plc. Assuming authorisation is obtained from the Bank of England, the shares will start trading in nine days' time, entering the FTSE 100 index three weeks later.

Analysts said yesterday the short delay before Halifax enters the index was one factor in the rapid increase in expectations for the price. Big institutional investors are expected to scramble for shares in early dealings in order to maintain their weighting in the banks sector.

They will get their first chance to buy shares next Friday when, as with the Alliance & Leicester, an auction will be held of the shares that members have already indicated they wish to cash in immediately.

The technical squeeze is one of the main factors driving expectations, but part of the rise, analysts say, is attributable to the underlying strength of the whole sector. Bank shares have soared over the past 12 months in the most benign environment for financial stocks in years.

Lloyds TSB shares, which closed last night at 618p, near to an all-time high, have more than doubled in 12 months. Four years ago they were worth 122p. Barclays, pounds 12.29 last night, were only 751p a year ago. Abbey National has enjoyed the run, and Alliance & Leicester, up 37p yesterday to 636p, is more than 100p higher than its low point a month ago.

Banks are enjoying buoyant trading conditions and analysts said yesterday they were anticipating raising their forecasts across the sector as the summer progresses. The continuing consumer boom and the recovering housing market are providing plenty of lending opportunities, improving the banks' product mix and offsetting some of the competitive pressures on margins.

All the banks are currently in the process of slashing their cost bases, thanks to a reduction in their expensive branch networks and a move to cheaper telephone and PC-based delivery systems as well as alternative physical methods such as supermarket banking. With the UK still well behind the US in this regard, the cost-cutting process has a way to go.

As a result of buoyant trading and cost-cutting, all the banks are faced with an embarrassment of surplus capital. Dividend growth has vastly outpaced the rest of the market and some banks, such as Barclays and NatWest, have opted to return even more to shareholders via share buybacks. That trend is also expected to continue.

The final positive for the banks has been the rise in sterling in recent months, which has hit exporting companies so hard but left the banks, which are predominantly domestic businesses, looking relatively attractive.

Whether the Halifax shares hang on to their early gains will depend partly on the number of shareholders who cannot resist the temptation to cash in their early gains. Just over a quarter of the Alliance & Leicester's shares were sold immediately, but partly because of the performance of A&L's shares more Halifax shares are expected to be tucked away as a long- term investment.

Shares windfall, Long Weekend, pages 27-30