Even before the merger in September 2001, Bank of Scotland and Halifax were no new kids on the banking block. Both have been forces in UK banking for longer than anyone can remember: 2003 marks Halifax’s 150th anniversary and BOS celebrated its tercentenary in 1995.
Today HBOS stands tall among its peers with over £355 bn in assets and 22 mn customers. It’s the UK’s largest home mortgage lender and provides of a host of financial services through its five main divisions: insurance and investment, retail, business banking, corporate banking and treasury.
Since Halifax first floated in 1996 and established its investor relations department, Charles Wycks, director of IR at HBOS, has epitomized its investor communications efforts. Wycks came up on the business side of the former Leeds Permanent Building Society with which Halifax merged. He served as head of mortgages and lending and also handled the bank’s credit card portfolio and various other lending jobs.
By contrast, his colleague, assistant investor relations director John Hope, joined Halifax some four years ago. His career spanned investment management and accounting for local government.
Today Wycks and Hope find themselves shuttling unceasingly between London, where Halifax is based, and Edinburgh, home to BOS. ‘If I’m here in Edinburgh then John will be in our base in London, or vice versa,’ explains Wycks. ‘We manage it reasonably well, but I think this is probably the first time we’ve been in Edinburgh together in three or four months.’
The team
Including Wycks and Hope, HBOS has six people in IR, two of whom came from BOS. ‘One’s from a marketing background while the other has a corporate banking and finance background,’ says Wycks. ‘We find that mix particularly helpful, because it’s communication skills as well as business understanding that are important.’
The HBOS IR team has a slightly broader brief than most. In addition to equity IR, they also do a lot of the fixed-income IR and manage the group’s relationship with credit ratings agencies.
Along with all the usual responsibilities of producing results material and annual reports, they also provide a monthly management information pack for the board. ‘It’s a great way of keeping us informed about what’s going on across the whole group,’ says Hope. ‘We can also feed on an outside perspective to ensure we aren’t too insular in our views.’
According to Wycks, there’s a huge demand for investor meetings from both the fixed income and the equity sides of the market. ‘The UK bank sector is a very well researched sector; there are around 24 analysts who regularly produce research,’ he says. ‘It’s pretty onerous dealing just with them.’
And when it comes to debt IR, HBOS is by no means typical. Bond investors often complain that companies are only interested in contacting them went debt is issued but rarely after that. By contrast, HBOS tries to keep bond investors updated and periodically address their concerns. In March, for instance, it hosted a company presentation for 30 major bondholders.
A constant dialogue is also maintained with institutional equity investors through the usual channels: one-on-one meetings, conference calls and blast e-mails. Indeed, Wycks and Hope held over 500 meetings with investors last year.
But what if you’re one of HBOS’s 2.7 mn small shareholders and you want to call the company with a question? Fortunately for Wycks and Hope – given the sheer size of the register – this is not part of their responsibility. Rather, there’s a telephone-based shareholder services department with a 30-strong full-time staff. It was set up to deal with the huge volume of queries HBOS gets on shareholdings, dividends and other small investor matters.
The big move
Some of the most telling experiences Wycks and Hope can share with IR peers involve the 2001 merger that created HBOS. For Hope, crunch time came once the intention to merge was announced. Shareholders immediately wanted to know what the business was going to look like a few years down the road, where the returns would come from, and the strategy to get there.
‘It basically meant convincing the market that we had genuine growth prospects by bringing the two businesses together,’ he recalls. Where will the value come from? What’s the cost base going to look like from a combined point of view? How are you going to grow the business? Where are the synergies going to come from to give us value? Where will your returns be going forward, relative to the capital you’re consuming? These were just some of the concerns expressed by investors at the time.
At face value, the challenge of combining two organizations so geographically and even culturally remote seemed enormous, says Wycks. But investors were won over by the potential synergies. ‘It wasn’t that difficult because Halifax and Bank of Scotland represented complementary opportunities for each other,’ he recalls. ‘We combined two platforms and took the best pieces of either one and adopted that as the new model for the group.’ For instance, Halifax was stronger in retail banking services than BOS, says Wycks. ‘Whereas the opposite was true in corporate banking.’
On the road again
Overseas investors have gradually become more important for HBOS. Germany, France, Spain, Italy, Holland and particularly the US are just some of the eleven countries the HBOS IR team have visited over the last year. In the US, HBOS has quickly doubled its shareholder base from 3 to 6 percent and expects to double it again in the near future.
‘We have been growing our investor base in Europe and the US,’ Wycks confirms. ‘Ours is a particular growth story within the banking sector and there’s a big audience for that at the moment, especially in the US and particularly on the west coast, so it’s getting to be a sizeable following.’
Wycks, who has recently returned from the US where he had meetings with 33 equity investors, is quick to stress that HBOS’s five divisional chief executives often attend such investor meetings. ‘The program is split between IR activity on our own and taking management with us,’ he explains. ‘If it’s not the group chief executive or the finance director, then we can field one of the divisional chief executives.’
HBOS introduced a new section into its 2002 annual report called the Rough Report, in which David Rough, the former investment director at Legal & General, interviews HBOS CEO James Crosby. In the interview, Rough raises the type of questions serious fund managers typically ask about strategy and performance, though not always in such a polite way.
‘It played out as a good quality debate in addition to the facts and figures normally in a report,’ says Wycks. ‘It’s the sort of performance commentary that gives investors the complete picture of where we are. We’re great believers in targets and benchmarking so investors know where we are and can judge us appropriately.’
Because HBOS already provides trading updates which almost amount to quarterly reports, Wycks doesn’t look forward to the prospect of full quarterly reporting as proposed by the European Commission. ‘If it gets to quarterly reporting with full financials, then personally I’m worried that UK and European investors will become more short-term in their outlook. Results and presentations may become more short-term as well and I don’t think that serves the long-term needs of investors,’ he explains.
But HBOS doesn’t shy away from communicating. Indeed it recently swept up the award for best communications to the financial media at the IR Magazine UK Awards 2003, an accolade Hope says is due to the skills of his colleagues in the company’s communication department and the close contact the IR department maintains with them. ‘We try to make sure we’re all singing from the same hymn sheet,’ he says.
A question of trust
At a time when governance issues are being increasingly fractured and sound-bitten – a result of the UK’s landmark Higgs report on the role of non-executive directors as well as the transatlantic corporate scandals of recent years – HBOS is keen to communicate its governance activities. In April the group held a corporate governance seminar for its 25 most significant investors. Its purpose, beyond conveying the HBOS boardroom story, was to give investors a forum for dialogue with each other.
‘We want to get the message out that we take our governance very seriously and have done so for a long time,’ says Wycks. ‘The seminar was the best way of informing our audience of what we are doing and getting feedback and dialogue. We haven’t just ticked the governance boxes; we see it evolving over time. The seminar was well worth doing – something we would repeat and recommend to others.’
The event largely responded to the concerns of a market intensely focused on the Higgs report and resulting changes to the Combined Code. But unlike a lot of larger UK companies, HBOS has reacted favorably to Higgs, with chairman Dennis Stevenson giving it his explicit support at the governance seminar.
‘There are certain aspects that we’ll comply with. For others we’ll quite happily explain why they’re not right for us. In fact we have one very obvious one; Dennis Stevenson is also chairman of Pearson, one of five dual chairmen in the FTSE 100,’ Wycks says. ‘The investors who were at the seminar seemed perfectly happy with the explanation we were giving. They thought we were getting enough time and the right level of commitment from Dennis.’
The HBOS IR team has found the growing importance of governance reflected in the types of questions institutional investors are beginning to ask. However, the company secretary, not the IRO, is usually the first point of contact for such queries, and they might not be talking to the same person as the IR team: ‘Whereas in the past we would have had contact with the asset manager, portfolio manager or the analyst who follows banks or financials, nowadays we will have more than one contact and that additional contact may well be the corporate governance person,’ says Hope.
Doing the right thing
Corporate governance isn’t the only area of growing investor concern. Many UK large caps are taking corporate social responsibility much more seriously these days, and HBOS is undoubtedly among them. Not only does it publish a standalone corporate responsibility report, but this year it also launched a dedicated corporate responsibility web site covering the economic, environmental and social impact of the group’s operations.
HBOS can count itself a member of the FTSE4Good index, the Dow Jones Sustainability Index and the more recently launched Business in the Community CR Index. And, according to Wycks, both the special site and the report reflect HBOS’s growing awareness of the importance of CSR.
‘In time, if you don’t have sensible policies, you will be tripped up by the lack of them,’ he explains. ‘So it’s preventative rather than being driven by activism at this stage.’ He adds that the SRI community is growing and raising its profile: ‘Two years ago it would have been very rare in a buy-side meeting to find specialized socially responsible investors. But these days it’s more common. They’re there to make sure you’re in shape.’
What the analysts say:
Alex Potter, European banks analyst,
Lehman Brothers
‘In terms of electronic communications, HBOS is probably one of the best. They have a very good system for their press releases; we get nice downloadable formats which are easy to read. They’re also very timely in sticking things on their web site, and for us timeliness is everything. Charles and John are one of the few IR teams who put their mobile phone numbers on all their press releases as well. Quite often I get them in airport departure lounges. Clearly they are good at being on duty.’
Simon Maughan, head of European bank research,
Dresdner Kleinwort Wasserstein
‘Charles and John are very knowledgeable. They’re both senior and close to the top management at HBOS, which means they have a good understanding of what’s going on in the business and they’re able to answer our questions quickly. Their good working knowledge of the business comes from doing both equity and debt IR. They don’t have to run away and get permission from other people in most cases – and that’s a sharp contrast with the IR people at some other banks who seem to be kept on a much tighter rein.’
Hugh Pye, head of European bank research,
BNP Paribas
‘I would rank them in the top quartile of bank IR teams. They are very good at responsiveness – they come back to us very quickly with answers. IR at HBOS appears to be a relatively senior element of the group; they appear to be able to do things on their own without having to refer upwards. So they don’t just do the basics of IR, they’re also involved in strategic discussions and are privy to quite a lot of what is going on. They obviously can’t tell us anything that is not in the public domain but they are talking from a position of very good knowledge.’
