Chairman’s Report
Regulation
The regulatory agenda shows no sign of abatement although the existing enquiries into banking fees and payment and protection insurance have a clearer deadline for conclusion. By far the most significant development for 2008 will be the regulatory aftermath of the financial markets dislocation. The conventional wisdom that ‘something needs to be done’ will see a healthy debate on customer protection. Regulators and the Central Banks need to strike the right balance between achieving a better level of investor protection on the one hand and the further restriction of liquidity with unintended economic and anti-competitive consequences on the other. There can, however, be no substitute for the acceptance of responsibility by individual banks, since reliance on regulation to protect investors, retail, equity or debt, is at best a back stop, not a first line of defence.
The Board and Management
In 2007, we made a number of changes to our Executive structure with responsibilities at the Retail bank split on a product and distribution model. Jo Dawson adds Retail distribution to her Insurance & Investment portfolio and Dan Watkins, formerly Group Risk Director, joins the main board as Chief Executive Retail Products. As a direct consequence, Benny Higgins left the Board in August as no suitable role existed for him in the new structure. Phil Hodkinson, Group Finance Director, announced his retirement from the Board to take effect from the end of 2007 and we welcomed back to the Board, Mike Ellis as Group Finance Director. Phil’s contribution to the Board, in his roles as Group Finance Director and previously Chief Executive of the Insurance & Investment division, together with his role as the Board champion on Corporate Responsibility has been outstanding. We wish him well.
Philip Gore-Randall joined the Board as Chief Operating Officer. Philip has had a long career with extensive experience, in the UK and overseas, at a senior level in large financial organisations, joining HBOS from Aon UK Limited, where he held the role of Chief Operating Officer following a period as Chairman and Chief Executive of Aon Risk Services.
John E Mack joined the Board as a Non-executive Director with international banking experience in a career encompassing senior executive roles at Bank of America and Shinsei Bank of Japan. We welcome them both and the considerable experience they bring to the Board.
Having completed two three-year terms as a Non-executive Director, Charles Dunstone will retire at the forthcoming AGM in April and will not offer himself for re-election. Charles has been a magnificent colleague and we thank him very much for his contribution to HBOS.
Corporate Responsibility
We take Corporate Responsibility (‘CR’) very seriously. By this we do not mean the somewhat superficial CR whereby a quantum of money is parcelled up into penny packets and given to good causes. We take CR to mean the Board of HBOS being very comfortable that it is doing everything it can to ensure that every aspect of its business – its products, its treatment of staff, customers and other stakeholders – conforms to the highest standards of behaviour. The Board reviews the overall CR strategy annually. Our CR agenda has been ably championed at Board level by Phil Hodkinson. With Phil’s retirement, the CR mantle and the Board challenge for future progress now passes to Peter Cummings.
2008
Rarely can a Chairman predict with such confidence the shape of markets in the year ahead. Our prognosis is for continuing uncertainty in the money and capital markets, and for slower volume growth in most of our trading markets. Tough though this may be, we are confident that we are well positioned to take advantage of the opportunities that this scenario will inevitably present and that we will continue to create shareholder value in these markets. To do so requires no let-up on the discipline we apply to each part of our strategy. Growth will be tempered as necessary by strong capital and liquidity disciplines. It is management’s job to ensure that HBOS capitalises on the opportunities that present themselves in every market scenario. We are well placed to capture our share of the markets in which we operate. Shareholders can be assured that the perspective that shapes our ambition is the recognition that responsibility for the Company’s performance is ours and ours alone.
Dennis Stevenson
Chairman