Financial services marketing is about to go through one of its greatest transformations since the 1980s. Lloyds TSB’s £12.2bn (and declining) take-over of HBOS creates an unprecedented UK mortgage and savings giant with 23 million customers, a 28 % share of the mortgage market, 35% of current accounts and 3,000 UK branches. It will significantly alter the financial services landscape.
The deal was pushed through with help from the Prime Minister to prevent the total collapse of HBOS, which saw its share price fall by 70 per cent.
The big question is what Lloyds TSB will do with its enlarged portfolio of consumer brands. These include its own Lloyds TSB bank chain, Scottish Widows and Cheltenham & Gloucester. They will sit alongside HBOS brands Halifax, Bank of Scotland, Clerical Medical, Halifax Life, Sainsbury’s Bank, Intelligent Finance and Birmingham Midshires.
Lloyds TSB chief executive Eric Daniels says: “We like all of the brands in the group” but insists decisions on their future will “not be taken lightly”. A brand review is in process and Daniels says the company will take “sensible decisions” about their future.
One view is that Lloyds will carefully nurture all its brands in the short term in case an enquiry by the Office of Fair Trading should, at some point in the future, recommend it divests some of its interests. Under this reading, Lloyds will invest in marketing the brands to build them up for a sale.
But the situation is cloudy. The Government has agreed to over-ride competition concerns to push the deal through. The combined entity steps over the 25% competition benchmark in a number of areas. The Office of Fair Trading will conduct an inquiry into the effects of the merger and pass its findings to the Secretary of State for Business. But Lloyds says the deal is being done on the understanding that there will be no referral to the Competition Commission. So it is possible Lloyds will be allowed to keep hold of all its brands and market share.
The big question is what will happen to Halifax, the UK’s most high-profile and aggressively-marketed high street financial services brand, which has been promoted with the Howard Brown “staff as stars” ad campaign.
Given that Lloyds is looking for at least £1bn in cost savings from the deal, it is expected to close some of the Halifax branches which compete in locations close to Lloyds TSB branches. But this would seriously downgrade the retail presence of Halifax and call into question is viability as a high street banking brand.
Under the stewardship of HBOS chief executive Andy Hornby, a former Asda director, Halifax has become the ultimate price competitor in mortgages and savings. He has applied Asda’s retail philosophy to financial services. But this runs counter to the conservative approach of Lloyds TSB, which many expect will refrain from such keen price competition. That would remove an important stimulus to rivals to compete on price in these areas.
It seems unlikely that Lloyds will axe Halifax completely, though in the long run, some speculate the brand could be transformed into a specialist mortgage off-shoot, in a similar way that Barclays has turned Woolwich into a mortgage sub-brand.
Some expect there to be fewer financial products on the market in years to come. Already there are far fewer mortgages on offer following the credit crunch. On one estimate there are 105 different current accounts offered in the UK, a number which could also be pruned.
Meanwhile, there are serious questions about the future of the HBOS online arm Intelligent Finance, which announced in August plans to scrap current accounts, credit cards, personal loans and some mortgages to new customers.
Overall, the merger could lead to a further dwindling in the proliferation of financial products in the UK, which would hit product development and marketing budgets.
Whatever happens, it is clear that Lloyds Halifax, as it has already been dubbed, will bring about sweeping changes to financial services marketing in the UK.