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HBOS in crisis: First Commentary

The dramatic but expected departure of Michael Bolton from HBOS has sent the specialist lending market into a spin.

Bolton quit the organisation yesterday morning to join The Oakwood Group, a London-based private equity firm fronted by Future Mortgages founder Mike Culhane, immediately taking with him four other key players: Alan Cleary, director of sales at Halifax Intermediaries; John Nixon, operations director at BM Solutions and The Mortgage Business; Rob Williams, head of underwriting at BM Solutions; and Mark Smith, BM Solutions head of support.

The departures will be a blow to HBOS and come at a crucial time for the group. Just last month the senior management team of The Mortgage Business quit to join Deutsche Bank.

Now, with Bolton, Cleary, Nixon, Williams and Smith leaving HBOS some in the industry are starting to question the level of specialist expertise left within the group.

Boltons role within HBOS is not to be underestimated. When he joined Birmingham Midshires in 2001 the lender was still a shell of its former status as a building society and lacked direction. Its sales force was in disarray and its business distribution model relied almost exclusively on mortgage packagers.

Bolton soon put paid to that – making controversial but sound business changes from the start. Packagers were put out to pasture and the amount of business submitted through the direct channel increased almost immediately.

With Boltons arrival at HBOS, Birmingham Midshires transformation into BM Solutions had begun. And with Bolton at the forefront of its marketing and business strategy the lender soon started to make big inroads across the specialist lending spectrum, clocking up impressive sales in the buy-to-let, self-cert and sub-prime lending sectors.

Savvy appointments both internally and externally, notably the appointment of Alan Cleary to head of sales and John Nixon to operations director, soon had BM Solutions snapping at the heals of its rivals.

Indeed, it was the latter appointment which perhaps had the most impact, with Nixon managing to sort out severe service problems the lender had suffered since relaunching to the broker market prior to the launch of its acclaimed online lending proposition.

But to the outside observer it was the Bolton-Cleary dream ticket that made the most impact. Between them they revitalised an age old brand and netted HBOS a small fortune. The business is thought to have grown from 11bn mortgage assets in 2001 to over 30bn mortgage assets at the end of 2004. But perhaps more importantly to HBOS Treasury, profits also increased up from 55m in 2001 to about 300m at the end of 2004.

It comes as no surprise then that early this morning senior HBOS directors were busy behind the scenes trying desperately to stop what will be perceived by many as an implosion from happening.

So is HBOS in a specialist crisis? The group says not. Certainly the day-to-day running of the BM Solutions, Halifax and TMB brands will not be affected. Contingency plans have no doubt been drawn up for some time, albeit a little hastily following the departure of the TMB four last month. Phil Jenks was appointed to the position of HBOS specialist lending just 24 hours after Bolton quit. And of course those ever faithful BDMs will still be on the road getting that important sales message across.

Strategically, however, the departure of Bolton, Cleary and co must raise some serious questions for HBOS. Given the amount of business Bolton and Cleary have been responsible for and the recent lacklustre performance of both the BM Solutions and TMB brands, some serious questions must now be raised over their future direction.

Theres little doubt that Nigel Stockton, Birmingham Midshires managing director, will be deep in thought today. A newcomer to the mortgage market until recently he ran Capital Bank’s personal loans business hes now charged with the responsibility of both BM Solutions and TMB, and the weight of HBOS specialist strategy will clearly be resting heavy on his shoulders.

And what of The Oakwood Group? Out of small acorns do mighty oak trees grow. Oakwood was set up in 2002 by Mike Culhane and Redstone, an asset management firm based in Houston, US. Culhane previously founded and served as chairman of Future Mortgages, which was sold to Citigroup in 2001 for a figure thought to be close to 45m. He also founded Pepper Homeloans in Australia in 2001.

Taking on such a formidable team points in just one direction – the launch of a new specialist lender. You only have to look at the success of Future Mortgages to realise that Culhane has what it takes to launch a new lender to the sector even at a time when the intermediary market is forecast to decline by some 20% over the next 12 to 18 months.

Change always generates uncertainty – no matter on what scale – and you can guarantee that therell be a few nervous twitches within HBOS over the next six months. With such a formidable team embarking on an exciting new venture, if its not started already, it wont be long before the phones start to ring, hot with requests for employment.

Can we expect a mini BM Solutions? It would seem likely. But only if Bolton, Cleary, Nixon, Williams and Smith can mirror the success they have enjoyed over the last four years. They certainly carry an air of confidence in the broker market but can they pull it off a second time around? Only time will tell.


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