HBOS eyes £300m savings

4 October 2006
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05 October 2006 | Rebecca Ellinor

A new procurement plan for HBOS that will centralise more of its spend is expected to save as much as £300 million a year by 2010.

In statements released at the end of September, group finance director Phil Hodkinson said the bank planned to move its procurement "towards best practice". It aims to increase the proportion of centralised procurement spend from 40 per cent to 70 per cent, to bring it into line with competitors.

It is not yet known which new areas procurement will bring under central control, but a team has been set the task of identifying the areas in which most money can be saved.

A spokesman for the bank said while procurement itself would make the largest chunk of the targeted efficiencies, all departments would "look at ways to contribute to those cost savings".

Services shared across divisions, such as IT, will be increased and Hodkinson said the bank plans to "rationalise" some of its estate, and "redeploy and retrain some staff". However, chief executive Andy Hornby said the bank expected to at least maintain its staffing levels of around 65,000.

Outlining the plans in an update to shareholders, HBOS said it has seen growth in all areas since 2004. Just under a quarter (3 per cent) of the increase in profits made in the past two years resulted from cost efficiencies. Cost income ratios, which show how efficiently a business operates, have improved from around 45 per cent in 2004 to 40.9 per cent. This means the amount of income the bank generates per pound of spend is improving and the efficiency impetus is expected to further improve it.

The new drive is one of several measures announced as part of a plan to increase HBOS's business in the UK and internationally by taking market share from its competitors.

The bank which has a yearly expenses bill of £4.6 billion, estimates it will cost £350 million to make the necessary changes to achieve annual savings of up to £300 million by the end of 2009.

As previously reported (News, 21 September), John Durrell has been appointed the bank's new head of procurement. He is responsible for all third-party spend across all categories for the entire group, and SM understands his appointment is in line with HBOS's desire for procurement to play a greater part in improving performance.


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