Page last updated at 07:15 GMT, Thursday, 18 September 2008 08:15 UK
Bank shares fall despite bail-out

HBOS name plate

HBOS and Lloyds TSB are two of the best known names on the High Street.

Their merger will create a giant financial services group, a further step in the consolidation of numerous banks, building societies and insurance companies that were independent less than 20 years ago.


HBOS was created in 2001 when the Bank of Scotland merged with the Halifax bank.

The Halifax had been a building society until 1997 when it took part in the upheaval that swept the building society movement, and converted to become a bank in its own right, in the process converting its savers into shareholders.

It had swallowed up both the Leeds Permanent building society (in 1995) and the Birmingham Midshires (in 1999) to expand its position as one of the UK's biggest mortgage lenders.

That is why the enlarged HBOS group now has more private shareholders than any other UK company, at two million.

The Bank of Scotland boasts that it is Scotland's first and oldest bank, established in 1695.

Branches - Lloyds 1,900; HBOS 1,100
Customers - Lloyds 16 million; HBOS 22 million
Employees - Lloyds 70,000; HBOS 72,000
Savings - Lloyds is the UK's fourth largest savings provider; HBOS is the market leader
Retail savings balance - Lloyds 65bn; HBOS 139bn

It still has the right to print its own bank notes.

Both sides styled their merger in 2001 as the beginning of a new era.

With the UK's house price boom in full swing, it looked like a good idea.

And in 2007 the combined operation made profits of nearly 5.5bn, partly derived from the fact that 40% of UK households have some sort of loan or account with the bank.

It claims to hold one fifth of all the cash saved in UK bank accounts.

Within the space of 24 hours the outlook for it has changed radically.

On Tuesday it said that "HBOS has a strong capital base and continues to fund very satisfactorily".

Now it will lose its independence after agreeing to be rescued by one of its biggest rivals.


Lloyds TSB is also a creation of mergers and expansion.

Lloyds, for a long time one of the "Big Four" of UK High Street banking, took over the smaller TSB in 1995.

In the same year Lloyds also took over the Cheltenham & Gloucester building society to expand its business in mortgage lending.

Lloyds TSB branch sign
About to become much bigger

After that it continued to expand, for instance taking over the Scottish Widows insurance firm in 2000, although an attempt to buy the Abbey National bank the following year was thwarted by the Competition Commission.

Like all other UK banks, the subsequent years have seen it make profits on a previously undreamt of scale. In 2007 it made 4bn.

Despite the credit crunch, this year has seen it expand its mortgage lending aggressively, just as HBOS has been reining in its own new mortgage lending.

Lloyds TSB has been making special offers to customers of the stricken Northern Rock who have been coming to an end of their deals with the now nationalised bank.

Lloyds TSB will now become rather bigger than any of its executives might once have imagined.

In an earlier version of this story, we said Halifax swallowed up Leeds building society in 1995. It should have read Leeds Permanent Building Society. This has been amended.

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