31/07/2001

Halifax and Bank of Scotland merger costs total £21 million

The Halifax's merger with Bank of Scotland has cost £21 million, the mortgage bank has revealed.

The merger which took effect on Tuesday July 31st will see the Halifax, the UK’s biggest mortgage lender diversify into small business and corporate banking, while Bank of Scotland will gain retail deposits and branches.

Halifax has reported a 5 per cent slide in profits in its last set of results posted before completing its merger with Bank of Scotland. Interim results show pre-tax profit of £839 million, down from £885 million last year.

The bank says it's made significant productivity gains that mean it's beaten its own target of keeping operating expenses steady by 6 per cent.

But it says it's having to trim its profits margin in order to "sweep aside 'back book' pricing practices in the mortgage, savings and traditional banking businesses". This is the practice of offering better rates to new savers and borrowers than existing customers.

Profits from Halifax's diversified businesses, which account for 49 per cent of group profit, grew by 33 per cent to £452 million.

Looking ahead, Halifax says the UK is well placed by comparison with most major economies, but is still dependent on when the US economy improves.

Halifax Chief Executive James Crosby said: “The housing market has generally been strong. However, in the current economic environment, it is likely to settle back to trend performance without the need for interest rate increases.”

The company said that depressed stock markets must inevitably impact on near-term prospects in the group's important long-term savings businesses, but "nonetheless we believe that these results show that we are laying the foundation for future earnings growth".

HBOS, as the merged group will style itself, is expected to challenge the dominance of the so-called Big Four high street banks - Lloyds TSB, Barclays, HSBC and Royal Bank of Scotland. Halifax says the new bank will become a "powerful competitive force". (AMcE)

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