Good news from the north

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The Independent Online
THE MODERNIST metal sculpture outside the headquarters of the Halifax may not be to everyone's taste. But then it is not just there for decoration. In the event of a fire it would act as a carbon dioxide vent to protect the contents of the building's basement - 2.5 million housing deeds. Should they be destroyed, it is estimated the housing market in this country would grind to a halt for five years.

Halifax, which demutualised last year, has long been the leading player in the UK mortgage market with a share of at least 20 per cent. It has 145 years experience in protecting itself from fire risk. But the challenges posed since its demutualisation last June are new.

Diversify is the company's catchword as Halifax strives to add to its traditional core building society staples a host of new personal finance services. And in order to keep its competitors on their toes, Halifax recently announced some of its branches were to open on Sundays and then abolished the dreaded mortgage indemnity fee.

"Whilst mortgages and liquid savings will always be, in absolute terms, very important to us, in percentage terms we are looking for that to represent smaller part of bigger cake," said Mike Blackburn, the company's chief executive.

Mortgages and retail lending accounting for around 75 per cent of profits. This compares to a 50 per cent mix between traditional building society activities and new consumer financial services being offered by Halifax's biggest rival, Abbey National.

This week Halifax, which has assets of around pounds 155bn, will post full- year earnings for the first time since its flotation last summer. Analysts, cheered by rival Alliance and Leicester's 123 per cent increase in second half net income on a buoyant mortgage market, are expecting a healthy rise in profit. Halifax's first-half net rose 8.8 per cent to pounds 802m.

The move of its treasury department, the bank's nerve centre which manages the flow of funds and the balance between liabilities and assets to Old Broad Street in the City later this year is another step in the Halifax's bid to reduce its dependence on mortgages and savings.

Mr Blackburn, as the chief executive of the biggest non-London based financial institution in Britain, has to be careful of northern sensitivities.

The treasury move provoked a flurry of criticism in Yorkshire because it raised concerns the Halifax might eventually pull out of the city from which it takes its name. Mr Blackburn says this is nonsense. "We have to be sitting on the edge of that pond fishing in it rather that fly-casting from two hundred miles away," he said.

The focus at this week's press conference however will not be the treasury but the bank's estimated pounds 4bn treasure chest. Is the Halifax poised to make an acquisition or will it give some of its cash pile back to shareholders? Mr Blackburn won't be drawn before the company results are announced.

"We have 2 million customers in the UK [and] we know we could meet more of their financial needs from our own companies and our own products. Having said that acquisition is a quicker way to build critical mass," he said. Any purchase would have to represent a strategic fit for he Halifax and be "at a price which added value for our shareholders". Whilst a flurry of press speculation over the past few months has linked the Halifax with a number of potential partners, soaring share prices in the sector means there are currently few bargains around.

One business Mr Blackburn did effectively rule out was a fund manager. "The notion that we are running after every fund manager in town is off the wall because we have a jolly good fund manager business and its called Clerical Medical."

The Halifax bought life insurance and fund manager Clerical last year. In January the company reported a 30 per cent increase in profits.

Any acquisition would also have to be capable of a good management fit said Mr Blackburn.

"Something City analysts tend to overlook is that mergers and things only work if people get on well. That was one of the reason for the success of the merger between Halifax and Leeds." It helped that Mr Blackburn had been chief executive of the Leeds before moving to the Halifax, and then overseeing the merger of the two Yorkshire building societies.

Mr Blackburn doesn't rule out a foreign purchase either although he says UK regulatory authorities would have to change what he describes as their "myopic" approach to bank mergers first. The company already has experience operating in Europe with its Spanish subsidiary Banco Halifax Espana.

What about the prospect of someone buying Halifax. "Never say never" Mr Blackburn grins, adding that with his company's market capitalisation of around pounds 21bn "it would inevitably have to be a very large company".