HBoS declares war on Big Four to capture small firms banking ahead of £30bn float

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The Independent Online

The newly merged Halifax and Bank of Scotland are to unleash an offensive against the Big Four clearing banks by launching a major recruitment drive in the field of banking for small businesses.

The undertaking came as shares in the enlarged £30bn bank, known as HBoS, began to trade this morning on the Stock Market based on Halifax's closing price on Friday of 831p. Due to the high number of private investors who held Halifax shares, the new bank will have the largest retail shareholder backing in the country.

HBoS plans to recruit near to 500 staff for 100 branches in England and Wales to try to drum up new small business customers. Bank of Scotland already provides banking services for business customers, and controls 30 per cent of the Scottish market, but Halifax, a building society until four years ago, has never done so. Small business banking has traditionally been the domain of NatWest, now owned by Royal Bank of Scotland, Lloyds TSB, Barclays and HSBC.

One of the main reasons the HBoS merger was waved through by the competition authorities was due to the likelihood it would provide the strongest competition to date in the Big Four's small business market in England and Wales.

James Crosby, Halifax's chief executive and in the same job in the merged group, promised the clearing banks would have a fight on their hands. "We think there is plenty of room to deliver products which are in the interests of customers but which are also in the interest of our shareholders as margins in this area are still high."

Margins in banking for small- and medium-sized enterprises (SME) are around 5 per cent – higher than the 1.7 per cent Halifax has operated on in its retail division. HBoS is unlikely to launch services including loans and money transmission with the same low profit margin but will almost certainly introduce services priced more competitively than those currently available.

But HBoS will probably follow the established practice among banks of subsidising its retail business with higher profit margins from the SME side. HBoS will be the largest provider of mortgages, with a loan book of £120bn, and the top savings bank, controlling £85.5bn of deposits. HBoS has 3.1 million retail shareholders, most Halifax customers who received windfall shares.

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