Fool's Eye View

[ February 16, 2000 ]

Halifax Calls For Extra Help

By Stuart Watson (TMFTiger)

Great Titchfield Street, London -- Like all the retail banks, the Halifax (LSE: HFX) has seen its share price crumble in the past few months. The shares have lost almost half their value since the start of November. In fact they are trading at less than nine times last year's earnings. Such valuations are normally reserved for companies deep in crisis or the midst of grizzly bear markets.

But neither of these situations really seems appropriate. Yes, interest rates are going up and this often spells a reduction in banks' profit margins. But they are not going up that much, and everyone knew they were likely to go up months ago anyway. The question for investors is whether Mr Market is being even more of a lunatic than normal, or if there is method in his madness. There is a first time for everything.

Rather than interest rate cycles, which are much more sedate these days, the biggest threat to banks is new methods of banking slicing away at their fat profit margins. If anything the UK is lagging behind in terms of Internet banking. There is not that much on offer at the moment. Barclays (LSE: BARC) expects to have 1m Internet customers by the end of this year; it is the market leader in this country. Other banks, such as Lloyds TSB (LSE: LLOY) are dragging their heels by comparison, with just 160,000 online customers.

But at least the Halifax is showing some signs of welcoming new technologies. This morning it announced a move in mobile banking using GPRS (General Packing Radio Service) and WAP (Wireless Application Protocol) technologies in conjunction with BT's (LSE: BT.A) Cellnet. The service will allow customers to view balances and transactions, transfer funds and pay bills using mobiles, laptops, palmtops or personal digital assistants. The expected launch date is around September this year.

GPRS services will be rolled out by Cellnet in the next few months and will increase the delivery speeds of information to mobiles by five to ten times. Although that sounds impressive, further increases will be required before these applications become acceptable to the masses. It may well be 2002, and the introduction of the next generation of mobile phones, known as 3G, before mobile banking really catches the public imagination.

The Halifax also announced the appointment of two non-executive directors, Charles Dunstone and Coline McConville. The former appointment is the most eye-catching. Dunstone is the 35-year-old founder of Carphone Warehouse, the largest independent retailer of mobile phones in the UK.

Although the Halifax's share price perked up slightly on this news, it still remains deep within the wastelands. The biggest problem that the company faces is inertia. It has the customers. In fact it has 21m of them and boasts a relationship of some sort with 40% of all households in the UK. Its situation has some parallels with that of BT itself; a dominant market position that is under threat from young pretenders. If either BT or the Halifax don't manage to keep their large customer bases intact they really only have themselves to blame.

Related Links

• Halifax message board
• TMFEssex on 3G
• Fool's Eye View on Halifax - November 2
• Fool's Eye View message board