LAST Thursday, Royal Bank of Scotland Group unveiled a 29% rise in pre-tax profits and its shares promptly soared in value by nearly 6%. Yesterday, HBOS, the fifth force in British banking created out of the 2001 merger of Bank of Scotland and the Halifax, precisely matched that percentage rise in pre-tax profits and its shares initially tumbled nearly 5%.
''It's not that HBOS disappointed but they weren't as bullish as the Royal,'' explained one anonymous market trader, widely reported on the wires. That comment says more about the prevailing psychology among the braces brigade than anything else.
However, the disparity in market reaction deserves closer scrutiny.
HBOS shares had risen in value by more than 5% in the three weeks running up to the release of its 2003 results. Market expectations of a good outcome were clearly high. By comparison, the Royal's shares showed much less movement ahead of its results.
After that initial bout of profit-taking yesterday, HBOS shares rallied. By the close, they were only down 7p at 757p, a fall of less than 1%. So arguably, market reaction to the two sets of results has not been that dramatically different over the whole piece. What HBOS gained by way of market anticipation followed by a rethink as yesterday unfolded, RBS gained from breaking records and exceeding expectations on the day.
Should investors be this even-handed in their expectations of the two banks? They are, after all, very different corporate animals.
There are strong similarities. Both have wrung more than they promised in savings out of their big merger/ takeover. Both are increasingly efficient, with HBOS's cost:income ratio - down 3.6 points to 41.6% - just shading the Royal's 42%. Both are showing strong growth in profit contributions right across their main divisions.
However, the things that distinguish their strategic approaches are even more marked. Ireland seems the limit of HBOS's global ambitions. Group chief executive James Crosby told analysts yesterday Australia was ''not core'' to the group in the longer term.
His opposite number at the Royal, Fred Goodwin, has made 10 acquisitions since the start of 2003, eight of them in the US or on continental Europe. His problem is reining in expectations that the next move is imminent.
HBOS is clearly growing market share in the UK - in mortgage finance, where it now controls a quarter of the entire market, and in credit cards and current accounts, where Howard, Angela and other celebrity staff are pulling in more and more customers.
That brassy marketing surge is threatening to propel HBOS from fifth force into fourth spot, or even third, nudging past Lloyds TSB and Barclays in terms of profitability. But paying out more to attract more business carries financial consequences. HBOS's net interest margin fell last year to 1.77%. The Royal's fell too, but still stands at 3%.
Some of the gloss was peeled off HBOS's results yesterday by Crosby's own warning about there being ''no room for complacency'' after three years of boom in the UK housing market. As market leader, HBOS is already ''de-emphasising'' remortgaging business because of its unfavourable risk/reward characteristics.
Now, says Crosby, his bank will continue to ''tighten'' its lending criteria in the housing market and expects its share of net lending to fall back to 23%. But if it is taking such precautions over its exposure to mortgage finance, should we really be so bullish about its ability to grow the rest of its retail banking market share?
HBOS is showing good growth in both business and corporate banking. But even with a 6% share of the SME market it has a very long way to go to rival the presence the Royal acquired in that market through its takeover of NatWest. Intelligent Finance may now be breaking even and e-sure off the starting blocks., but these businesses have a long way to go to rival an established brand such as Direct Line.
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