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Friday, 4 May, 2001, 12:44 GMT 13:44 UK
HBOS: The merger benefits

The Bank of Scotland and the Halifax have agreed merger terms to create a 30bn banking giant. BBC business editor Jeff Randall examines the new group's prospects for success.

Many chief executives talk about shareholder value, but few are prepared to sacrifice themselves on its altar to deliver it. But that, it seems, is what Bank of Scotland's boss Peter Burt has done in order to agree merger terms with the Halifax.

The Yorkshire-based mortgage bank is taking the top two jobs in the combined group, which will be worth about 30bn.

Lord Stevenson, Halifax's chairman, and James Crosby, its chief executive, will assume those posts in the new entity, to be called HBOS.

Much to the City's surprise, Mr Burt will become deputy chairman, rather than chief executive. He will be responsible for overseeing integration, with the specific goal of squeezing the maximum benefit from amalgamated operations.

Lame duck, exit right

Peter Burt, who is 57 and due to retire at 60, says he would have been "a lame duck" chief executive of the enlarged group and is happy to step aside for a younger man.

But insiders insist he offered himself as part of a compromise, which puts Halifax chiefs in the driving seat, in return for Edinburgh claiming the corporate headquarters.

HBOS wants to be a "fifth force" in British banking - to challenge the dominance of the Big Four (Barclays, Lloyds TSB, HSBC and Royal Bank of Scotland, owner of NatWest). That quartet knows the combined forces of Halifax and Bank of Scotland will provide formidable competition.

Shares in the two banks rose strongly on Friday after the deal was confirmed, suggesting that both sets of shareholders will vote in favour of the merger at special meetings in July.

Business logic

The business logic is compelling, with hardly any geographical or sectoral overlap.

Halifax is strong in personal finance products, while Bank of Scotland is a leader in corporate banking and affinity credit cards. Both brand names will be kept in high-street outlets.

The combined workforce, currently about 61,000, will be slimmed down by 2,000 over three years - relatively few losses for a merger of this size.

Compulsory redundancies are likely to be avoided and no branch closures are expected. That should help alleviate any political pressure for a reference to the competition authorities.

Taking nothing for granted

But neither side is taking anything for granted.

There is always the possibility that a third party will try to bust up the marriage by making a hostile bid for either Halifax of Bank of Scotland, before the deal has been sealed by shareholders.

Bank of Scotland was frustrated when it was outbid for National Westminster by Royal Bank of Scotland, and Mr Burt will be pulling out the stops to make sure that lightning does not strike twice.

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