Business View: HBOS's lazy rivals leave the way wide open for growth

If James Crosby, chief executive of HBOS, has any lingering doubts about the decision to drop plans to bid for Abbey National and instead go for organic growth, then he should take heart from the following story.

If James Crosby, chief executive of HBOS, has any lingering doubts about the decision to drop plans to bid for Abbey National and instead go for organic growth, then he should take heart from the following story.

After 10 years of poor service, I recently decided to sack my bank (one of the so-called big four) and switch to another company. With all my direct debts and standing orders changed over, I strode into my local branch to sign the form to close my old account. I'd been looking forward to this moment for some time.

I was asked to write why I was leaving the bank, so I gave a blunt assessment: "1) Poor customer service. 2) Uncompetitive rates. 3) Inefficient practices." Before I could close my account, I first had to pay off a few pounds to cover an outstanding overdraft, so I handed over a debit card. "Oh, I'm sorry, Mr Hirst, we don't accept this," I was told. The card in question is accepted by virtually every high-street retailer in the country. Even my local newsagent in south-east London takes it, but not, it would appear, one of Britain's biggest banking groups. So to pay off my balance I was sent outside to join a line of people queuing to use the bank's cash machine. On returning inside, the cashier turned to my form and asked, without a sense of irony: "So, tell me, Mr Hirst, what do you mean by 'poor customer service'?"

I suspect that my experience is not unique. For too long the banking incumbents - Lloyds TSB, Barclays, HSBC and Royal Bank of Scotland - have relied on customer inertia to accept a sub-standard service.

But this presents HBOS, formed in 2001 through the merger of Halifax and Bank of Scotland, a huge opportunity. Not that the City has quite grasped this yet.

The Square Mile last week gave Mr Crosby's decision to back out of the Abbey race - giving Banco Santander Central Hispano a clear run - a mixed response. The chief executive was feted for putting shareholder value ahead of any empire-building tendencies he may have harboured. Research has shown that most mergers destroy shareholder value rather than create it (remember the Allen Yurko era at Invensys or Graham Wallace's tenure at Cable & Wireless?).

But HBOS's withdrawal didn't please everyone. Critics said that the Abbey affair had highlighted a weakness in HBOS - its future growth prospects. But judging by the shambles at my old bank, I'd say there are plenty of opportunities for HBOS to grow market share.

Through Halifax and its bespectacled mascot, Howard Brown, HBOS has made great strides winning business in the current account market, growing its share from 9 to 14 per cent in three years. Its formula is simple: strong advertising, competitive rates and an offer to take the pain out of switching by sorting out customers' admin. The fact that the big four banks have yet to respond by raising their abysmal rates of interest shows that Halifax has still a large market to eat into.

Through Bank of Scotland, HBOS will also turn its attention to small and medium-sized business banking. Here the incumbent banks have a firmer grip on the market. Customers are afraid to switch for fear that they won't be able to secure short-term business loans from their new bank. But the truth is that many customers are getting a raw deal, in some cases being charged even for cashing cheques. HBOS has a 6 per cent market share of small business banking, concentrated mainly in Scotland; it reckons that it can grow this to 15 per cent over the next few years. If HBOS gets its marketing right, and if its product offering is more competitive than the incumbents, then I reckon it will be pushing at an open door.

PS: My old bank was Lloyds TSB.

clayton.hirst@independent.co.uk

Jason Nissé is away