The trouble with HBOS

Why don't people want to invest in HBOS? It is one of the biggest and most profitable of our high street banks and mortgage lenders, and yet it commands a poor rating on the stock market. Lloyds and Barclays are more highly valued. In fact, most of HBOS's competitors get a better crack of the whip.

The problem is that HBOS has been too smart. Three years ago it ignored fears about a housing meltdown and stepped up its lending programme to grab market share. It was a gutsy move by chief executive James Crosby and profits and revenues have forged ahead. But now that interest rates are heading north, and the housing market is cooling, the City has turned against the banks, fearing that a huge rise in bad debt provisions is around the corner.

As a sector, the banks have underperformed the London market this year, but HBOS has done worse than most. By taking risks on the retail lending front three years ago, HBOS is more vulnerable to a consumer slowdown, investors believe.

This analysis, however, is largely unfair because Crosby has ordered his managers to do whatever is necessary to retain customers. That has meant contacting borrowers who have come off special deals and onto the variable rate to offer yet more special deals.

HBOS has been telephoning up to 2,000 customers a day to make sure they know about an array of discount packages on offer. The tactic has worked. Instead of remortgaging with other lenders, a large proportion of HBOS's customers have remained loyal.

The cost may be some erosion to margins, but interim profits due this week should be between 15-20 per cent to the good. And bad debt provisions are not expected to rise any higher than the increase in the loan book. Even so, the City perception is that HBOS is a big bank that is more exposed than most to a housing crash. For shareholders, sentiment is everything, and Crosby will have his work cut out to allay their fears - no matter how good the numbers.

Mirror, Mirror on the block?


Sly Bailey, who joined Trinity Mirror as chief executive a year ago, has been instrumental in boosting confidence in the company, with the shares rebounding from a low of 464p to more than 600p on Friday. She is rationalising the regional newspaper division, which includes the Birmingham Post, as well as dismantling the old network of local fiefdoms by streamlining management and cutting bureaucracy.

Bailey has also brought in her own people and overseen the resignations of a number of key executives, the latest being Stephen Parker, boss of the regional titles, as part of a wide sweep following her replacement of Philip Graf.

Advertising revenue and circulation proceeds are forecast to come in higher when Trinity Mirror reports its figures this week. And yet, all is not well.

The Mirror's circulation continues to fall; in some months more sharply than its competitors. How to arrest the long-term decline remains Bailey's most intractable problem. She may not want to sell it, but the sale of the Telegraph shows that national newspapers fetch fancy prices. Brokers reckon the Daily Mirror and Sunday Mirror are worth at least £640m. In an auction, they would be worth much more. How about it?

Earth to telecoms bosses: get real


Still little sign of consolidation among telecommunications companies despite feverish speculation. Thus Colt, Energis, Kingston Communications and Fibernet are most often cited as targets.

The problem with these companies is that few have the money to make cash bids, and several carry significant debt, which makes deals difficult to support. But purchases could be made by offering shares in an enlarged company, which could then rip out costs and offer economies of scale.

Accepted, all-share mergers are unpopular with City funds, which prefer a fistful of cash, but can we carry on like this? Colt said last week that businesses are not investing to upgrade their systems to higher-margin data and internet services. More generally, there are too many telecoms providers, so the firms must cut prices in a vain attempt to secure business that doesn't exist.

This is ludicrous. The corporate egos in some of these boardrooms should swallow their pride - and their jobs if necessary - because the only solution for this bloated industry is to soak up excess capacity via consolidation. Tearing each other apart is hardly business in any rational sense.

A marriage unmade in Hull


Talking about mergers in the telecommunications industry, I am told that Thus - which started life as Scottish Telecom - made an attempt earlier this year to cement a marriage with Kingston Communications. The geographical and business fit looked good, but the deal was killed off by the local authority in Hull, which owns a significant stake in Kingston. Rumour has it that the councillors couldn't bear to sell out to the Celts, and feared the wrath of their voters. Bah, humbug!