HBOS to give chief ?2.2m bonus

Andy Hornby, head of the branch business of the banking group HBOS, appears to be on track to receive shares worth £2.2m after reaching targets to boost profits in the bank's Halifax and Bank of Scotland network.

The 38-year-old former supermarket executive was offered the shares under a package designed to prevent him becoming chief executive of the troubled chemist chain Boots two years ago.

The banking group's pre-tax profits reached £4.6bn in 2004, up 22%.

Profits would have been higher had it not been for a £130m provision to cover claims for endowment misselling and £48m relating to the merger of the Bank of Scotland and Halifax, which created HBOS three years ago.

Profits in the retail arm run by Mr Hornby rose 22% to £2bn, seemingly the fastest growth of any of the major banks on the high street although comparisons are difficult.

Mr Hornby had to boost retail profits by 60% over three years to receive the award of 260,000 shares in April. HBOS would not comment before its annual report later this month.

HBOS shares closed at 836.5p yesterday, down 10.5p, partly unsettled by a rise in bad debt provisions in the retail bank. Total provisions for bad debts rose to £1.2bn from £1bn.

The bank will pay a total dividend of 32.95p and indicated that its shareholders will get a higher dividend in the future. As a result of Halifax's legacy as a building society, HBOS has more private shareholders than many other companies. It is also planning to buy back £750m of shares.

The group positions itself as a competitor to the "big four" and intends to keep the pressure on Barclays, Royal Bank of Scotland/NatWest, Lloyds TSB and HSBC.

James Crosby, chief executive, said HBOS had been "the major contributor" to competition among the major banks. "Banking has changed for the better," he said. "But I agree with Don Cruickshank that rather a lot more needs to be done."

Mr Cruickshank's Treasury-commissioned review of the banking sector in 2000 concluded that a watchdog - dubbed PayCom - should regulate the behind-the-scenes payments system. PayCom was not created although the Office of Fair Trading is due to report next month on changes that may be needed.

Mr Crosby does not want to become one of the big four even though the HBOS profits appear likely to surpass those of Lloyds TSB, which reports tomorrow.

"It's not a club we want to be a member of," he said. "We have a different perspective. It's not a size issue. It's about behaviour and attitude."

To thwart criticism of making excess profit, Mr Crosby said: "Profit is in no sense a dirty word."

He has set targets for the bank to take market shares of 15% to 20%. The bank is the country's biggest mortgage lender but its net market share fell from 25% to 17%, below its traditional 22%.

Its share of savings was 16%. In investment products, where it owns Clerical Medical, £1 in every £8 invested is now managed by the HBOS group, which is now taking more new business than any of its competitors.

In business banking, it intends to hang the Bank of Scotland logo - which is used for small business customers -over its Halifax branches in England and Wales.

Its corporate business, which provides loans to businessmen such as the Top Shop owner Philip Green, reported profits of £1.3bn, up from £1.1bn.