Halifax & Bank of Scotland Essay

The UK has one of the most diverse and dynamic banking sectors in the world. money boxing is without delay a highly competitive industry. Financial consumers are now to a greater extent sophisticated as they are now more aware of gettable banking options. The assets of the UK banking system were i 3,441bn (August 2001), which were dominated by a dozen or so retail banks, with national networks, mostly serving domestic, personal and interconnected customers. Currently, the big four banks HSBC, the Royal Bank of Scotland, Lloyds TSB and Barclays, dominate retail and descent banking, jointly accounting for 68% of all UK current accounts.Both Halifax, founded in 1853, and 306-year-old Bank of Scotland are seen as business icons in their regions. Halifax is launchd in England, while the Bank of Scotland has actually few branches south of the border. A jointure between these starchys would increase the geographic scope for potential customers. Halifax started as a building socie ty and is now more widely known as a big mortgage lender. In the wider companionship, the Halifax Bank has a very active community-banking sector catering for charity and non- wage organizations including housing associations, credit unions and community development operations.In comparison, the Bank of Scotlands strength lies in the incorpo set upd market. It would seem very likely that both firms would like to achieve high valueability and growth opportunity with cross-selling products to each separates customers. For example, the products developed by Halifax could be marketed effectively to Bank of Scotlands customers and infirmity versa. Because both banks operate complementary activities, it is possible the combining of both firms depart result in synergies, which may also result in increase efficiency. There may also be opportunities to achieve savings through cutting some unnecessary costs.For example, the amount of staff needed for the have firm is likely to be red uced. By merging together, the size of the feature firm impart certainly increase, thus leveraging the combined travel by to negotiate better deals. The market position of the combined firm get out be streng then(prenominal)ed. Its market share indoors the industry will increase, possibly even enough to compete with the big-four banks, thus increasing the competition within the banking industry. In reality, there are wide ranges of techniques that can help collapse a firms functioning some firms may base their performance on sales, whereas others through the quality of products.Economists usually analyse a firms performance based on the amount of shekels it is making. For a thorough analysis, this paper will be looking at the firms market value, profitability, stability, value for shareholders, efficiency, and capital adequacy. It must be noted that firms within the banking sector are subject to many economic uncertainties, which can influence how well a firm is doing fro m year to year. In this case, these uncertainties include interest rates, employment rates, as well as the coach of the equity markets. For example, the base rate in January 2000 was 5.75%, however, at January 2002, the base rate was at 4. 00%5.To analyse the performance of the banks to begin with and after the merger, the firms financial accounts will be examined and ratios will also be calculated. 6 The main performance indicators that will be analysed include Profit before value sum up assets Dividends and Earnings per share. In addition, the return on equity, costincome ratio and the firms capital strength will be examined. These ratios will move everywhere a clear assessment of the firms performance compared with that of other firms.Before the merger, in 2000, Halifax and Bank of Scotland had market values of $22,105million and $11,762million respectively. Post-merger, in 2002, HBOS then had a market value in excess of $31billion7. This immediately signifies the supremac y of the merger, as the combined company is worth now worth a lot more in the market. Figure 1 Profit before tax From an economic point of view, it is important that a firm makes a profit otherwise there would be no point of the population of the firm. The Profit & Loss account of a firm shows the results of trading over the previous 12 months. It shows the net effect of income less expenses.The reason that profit before tax is analysed rather than profit after tax is due to the fact that interest rates and inflation changes could affect the amount of tax that is paid each year. In 2000, Halifax made i 1,715million profit (before tax), compared with Bank of Scotland, which made i 911million. It would be expected that when both companies have merged together, the pre-tax profit should increase. Figure 1 shows that in 2002, HBOS made a pre-tax profit of i 2,909million, which is more than the separate firms pre-tax profit added together. This shows that HBOS are actually execute be tter than the previously separate firms.