Here is an interesting question; do you think HBOS senior management will be getting any christmas bonuses this year? Yesterday, the share price crashed, after the company revealed that its share of the mortgage market tumbled. The company tried some dumb marketing trick and it backfired.
Somehow, I still think that Christmas will still turn out alright for them, whatever the share price does.
Almost £1.5 billion was wiped from the stock market value of HBOS yesterday after it admitted that an attempt to treat existing customers better had backfired.
HBOS, Britain’s most widely held company, revealed that its share of the new mortgage market had collapsed in the past few months as the terms it offered prospective new mortgage customers failed to match the competition. Shares in HBOS, which is owned by 2.2 million small shareholders, were the worst performing in the FTSE 100, falling by 39p or 3.6 per cent, to £10.31.
“Parts of the strategy did not deliver what we’d hoped for,” said communications director Shane O’Riordain. “We’ve learnt some lessons. We’ve already taken remedial action and told the City.”
The problem began last July when HBOS decided to narrow the differential between the terms it offers existing customers coming to the end of lock-in periods on mortgages and the terms offered to attract new customers.
Not enough existing customers remained with HBOS to offset the revenues forgone from fewer new customers being recruited. The group’s share of net new mortgage lending shrank from 17 per cent in 2006 to 8 per cent in the first few months of this year. In the past its share has been as high as 31 per cent and is typically about 20 per cent.
The problem was exacerbated because a few lenders including Barclays and Lloyds TSB’s Cheltenham & Gloucester aggressively sought to win market share by offering exceptional terms.