Carburton Street, London -- Is there room for a new force in British high street banking? HBOS (LSE: HBOS), formed after the merger between the Halifax and the Bank of Scotland, certainly thinks so. Today's trading update from HBOS showed the progress being made to capture business from Lloyds TSB (LSE: LLOY), Barclays (LSE: BARC), Royal Bank of Scotland (LSE: RBOS) and HSBC (LSE: HSBA).
The HBOS statement confirmed that full year profits would be in line with market expectations. The confidence was underpinned by sales of retail and investment products being "well ahead of plan". The group's business and corporate banking operations also put in solid performances.
While cross-selling opportunities between Halifax's large retail customer base and Bank of Scotland's expertise in business accounts will aid operational synergies, innovation has notably helped HBOS gain further market share. For instance, the introduction of a current account paying 4% interest and the recent launch of an interest-bearing business account has certainly upped the competitive stakes.
But HBOS has essentially been forced to make these marked improvements to its banking facilities. Chipping away at the dominance of the 'big four' has been remarkably difficult over time. Indeed, after blocking the Lloyds TSB (LSE: LLOY) and Abbey National (LSE: ANL) merger, the Competition Commission stated that "the entrenched position of the big four remains strong" and "branch-based players entering the industry in the last 10 years have grown only slowly despite offering better terms than the big four."
To fulfil its ambition of becoming a fifth force in British banking, HBOS needs to maintain the competitiveness of all of its products. The danger for HBOS is relying on the traditional tricks of the trade. It's would be too easy, say, just to pay poor interest rates on old products. Unfortunately for HBOS, it seems those all too familair banking habits die hard. For instance, the rate of interest on the group's heavily promoted current account has been cut from 4% to 2%. Meanwhile, old accounts such as the Halifax Liquid Gold, presently pay just 0.1% interest.
More: HBOS: A Rising Star In UK Banking | HBOS discussion board
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