HBOS bucks trend with plan to open 50 new bank branches

HBOS, the country's fourth largest bank, unveiled yesterday its most ambitious drive to expand its branch network since the 1970s. It will create 1,500 jobs as it opens 50 new branches and updates 50 more.

The new branches, mainly in London and the South-east, where HBOS has relatively few, will cost the bank about £20m a year for the next five years.

HBOS said the growing numbers of customers happy to bank by telephone or over the internet still take comfort from having a branch to handle more complex transactions. Typically, each new branch will house 19 bankers including sales specialists in its life assurance policies, investments and mortgages.

Andy Hornby, HBOS's chief executive-designate, said: "This is a very significant move. It's certainly the first time for decades a major bank has embarked on such an expansion. Rumours of the death of the bank branch were very wide of the mark. Branches are at the very root of UK retail banking."

UK retail banking remains at the very heart of HBOS, the bank insisted. "We have fantastic growth opportunities within the UK," Mr Hornby said. "We remain completely committed to organic growth here."

Experts reckoned HBOS may be forced to set its sights further afield in a few years as room for growth narrows in competitive, mature domestic markets.

Ian Gordon, a banking analyst at Dresdner Kleinwort Wasserstein, HBOS's joint broker, said: "Sooner or later, we believe that HBOS will look for overseas acquisitions in order to broaden its options for deploying surplus capital outside the UK."

HBOS also unveiled pre-tax profits for 2005 of £4.8bn, 17 per cent better than in 2004 and a record for the bank. That was towards the higher end of analysts' expectations, after corporate and international banking did well.

Costs were screwed down still further and retail banking did better than rivals. At 36.1p, the dividend is 10 per cent higher this year than last. But HBOS shares fell 44.5p to 1,017.5p in yesterday's worst performance by a constituent of the FTSE 100 index of leading companies as investors switched into RBS and Lloyds.

The bank's shares have soared to new highs in recent months, but there was disappointment within the City at the amount of home loans the company made last year and a jump in bad debt on unsecured loans and credit cards.

Customers shifting their mortgages elsewhere in the second half of the year after special deals expired left HBOS with only 14 per cent of net new lending in 2005. That's below its own targets and way off its traditional 22 per cent market share.

David Williams, a UK banking analyst at Morgan Stanley, the other joint broker to HBOS, said: "HBOS will be having a long, hard look at how to keep existing mortgage customers over the coming months."