Our strategy
Our strategy has five key elements:
- Growing the UK franchise
- Targeted international growth
- Cost leadership
- Capital discipline
- Colleague development
Growing the UK franchise
The Board is optimistic about the fundamental prospects for the Company’s core businesses and its ability to grow its UK business.
HBOS’s Retail business aims to offer retail customers a range of simple, value for money products under different brands including Halifax, Bank of Scotland, Birmingham Midshires and Intelligent Finance. Whilst HBOS intends to maintain its position as the UK’s biggest provider of liquid savings and market leader in mortgages, it also intends to optimise its market shares across its diverse product range over time, depending on the competitive context and sustainability of returns in each case, so as to create enduring value for its shareholders.
HBOS’s Corporate business provides relationship banking to UK and European businesses, in addition to providing specialist lending into the real estate, private equity and other sectors. HBOS focuses on markets where it believes it has a competitive advantage and a distinctive offering. HBOS will continue to seek high quality opportunities, concentrating on returns rather than volumes to deliver sustainable value for its shareholders.
HBOS’s Insurance & Investment business manufactures and distributes a range of life, pensions and investment products and general insurance products ranging from household to motor. In addition to Halifax and Bank of Scotland, key brands include esure, Clerical Medical and St James’s Place. HBOS intends the strong growth in the contribution from its Insurance and Investment businesses to continue, as it believes that UK investment markets offer good long term growth prospects reflecting demographic trends, and that in both investment and general insurance the business can further benefit from low cost access to HBOS Retail customers.
Targeted international growth
Internationally, the Group continues to grow its businesses by applying the formula that has served it well in the UK to other markets that it understands. In Australia, where the Group has been operating for over 10 years, it is expanding on its strong West Coast presence and is now establishing its Commercial and Retail banking capability in eastern Australia.
In Ireland, the Group is in its second full year of expansion into the provision of retail banking facilities through the, now almost complete, establishment of a branch network. In the Europe and North America operating division, the Group has increased its distribution capability in its European Financial Services operations.
Cost leadership
The Group’s cost leadership ambition (relative to its major competitors) is based on an understanding that this is a source of a sustainable competitive advantage. Cost leadership can provide pricing power and the ability to offer customers the same products or services for a lower price. It can also offer the opportunity to capture market share from competitors without any erosion of credit quality, thereby increasing sustainable revenues. Cost leadership at the Group does not mean reduced investment in its businesses, but it does mean a cultural focus on taking out the least productive costs and reinvesting these savings in growing value for its shareholders.
Capital discipline
The Group accepts that shareholders expect capital to be treated as a scarce resource, deploying it to achieve sustainable returns throughout the economic cycle. As the recent dislocation in financial markets has shown, the level of capital strength that the Group believes it is appropriate to maintain is subject to change as economic conditions vary.
During 2007, the FSA approved the Group’s ‘‘Advanced Measurement Approach’’ to operational risk and ‘‘Advanced Internal Ratings Based Approach’’ to credit risk and, as from 1 January 2008, the Group is now operating under the Basel II capital ratio regime. This advanced capital regime has redefined both the size and nature of the capital resources available to the Group as well as the level of risk weighted assets.
Consistent with this disciplined approach to capital, the Rights Issue is being implemented to raise £4.0 billion, net of expenses, to strengthen the Group’s capital base. The Company has also established a new target Tier 1 ratio of between 8.0% to 9.0% and a new target Core Tier 1 ratio of between 6.0% to 7.0%. These actions achieve a step-change in the Group’s capital strength and are being implemented against a backdrop of both the continuing financial market volatility and the more challenging UK macroeconomic environment. Following the Rights Issue, the Group will be in a stronger position to mitigate the increased sensitivity under Basel II.
The enhanced capital position will enable the Group to underpin its competitive position in its core markets and pursue its strategy.
Colleague development
As the Group faces the unprecedented financial turmoil in global markets, its focus on colleague development has never been more important and its ability to execute its strategy depends on engaging with, and motivating, its colleagues to consistently deliver outstanding performance. The Group aims to have the strongest leadership teams in the sector and has high expectations of its leaders. The Group provides colleagues with ongoing opportunities to learn and to develop their careers and regularly evaluates its efforts to create a positive working environment that reflects the diversity of colleagues. The Group keeps all aspects of its reward systems under continuous review to ensure they deliver the right reinforcement in respect of recruitment, retention and motivation. Through the Group’s ‘‘Colleague Opinion Survey’’, it tracks its leadership and capability indices as well as employer and product advocacy.
Please contact us if we can help you with any queries about HBOS.
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