Announcing its first results since becoming a public company last year, the bank pledged to spend one-quarter of its pounds 4bn surplus on buying back shares over the next 12 months.
The move will disappoint its four million policyholders who have hung on to windfall shares in the hope of a special dividend. It was widely hoped the new bank would use an upfront dividend payment to give shareholders a second windfall of more than pounds 100 each.
Jon Foulds, chairman of Halifax, said: "We did look at all options and concluded that the share buy-back program was the right one." It added that it would be "in and out of the market" for its own shares over the next year, if and when the price was right to enhance value for remaining shareholders.
Mr Foulds said Halifax was still looking to make an acquisition but said it could not see value in a UK purchase. But he also held out the prospect of an expansion into Europe.
"Taking a long-term view, it probably will be right for the Halifax at some stage to move into Europe but it has got to be at a sensible price and it has got to be on a worthwhile scale. If the right opportunity came up in the short term then we would certainly be interested. But it may not. This is a very long game of chess."
The buyback was announced as Halifax revealed that its share of the mortgage market, measured as net lending, had shrunk from 11 per cent in 1996 to just 6 per cent last year. Meanwhile, savers withdrew pounds 615m from deposit accounts - against an inflow of pounds 2,318m the year before.
Mike Blackburn, chief executive, said that both figures had been affected by the conversion last summer. Many mortgage holders had redeemed their loans after waiting months or even years to pick up windfall shares.
However, he admitted that market conditions were tough because rival lenders were slashing their margins. The society would spend 20 per cent more this year on special deals for first-time buyers.
City analysts reacted with disappointment to the buy-back plans and bemoaned the apparent lack of a clear corporate strategy.
Geoff Miller, an analyst at Wise Speke, the private client stockbroker, said: "The whole strategic message was garbled and the message coming through is not a positive one. The company really needs to do something to demonstrate that they are able to benefit from the fact that a third of the UK population has had an account. The Halifax has a strategy, but it has yet to put any of it into practice."
Outlook, page 21