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RBS is getting Active

As HBOS continues its dominance in lending, a competitor could be lurking with the Royal Bank of Scotland looking to take a bigger slice of the mortgage market.

RBS has seen continuing strong organic growth over the past year, particularly in the mortgage sector after buying First Active in the first half of 2004.

Its retail empire includes NatWest, Tesco Personal Finance, The One Account, Direct Line Financial Service, Lombard Direct and WorldPlay, the group’s internet banking platform.

RBS’s income was up by 20 per cent in the first half of 2004 to 10,940m from the same period last year while profit rose by 12 per cent to 400m from 3,851m.

Gross loans and advances to customers totalled 25.9bn in the first half of last year, of which 8.8bn was made up of mortgages, up from 2003’s figure of 7.6bn.

HBOS net mortgage lending fell in the first half of 2004 to 8.9bn from 11.4bn the previous year. It said it was pulling back the reins on lending in preparation for mortgage regulation. Its estimated market share at that point was 17 per cent, down from 25 per cent in 2003.

There are clearly some similarities between the two. Both have strong identifiable brands. HBOS owns Bank of Scotland, BM Solutions, Intelligent Finance, Halifax and Capital Finance.

Charcol senior technical manager Ray Boulger says HBOS brands seem to have clear identities, particularly Halifax and BM Solutions but at RBS there seems to be a blur, particularly between the Royal Bank of Scotland and NatWest brands where their strategies are not clearly identifiable.

But brokers say First Active and The One Account have started to create a buzz that could be the impetus to a drive to push RBS ahead.

The One Account is a secured personal bank account service which puts a customer’s money in one place, including mortgage, loans, savings and current account, in theory making the payment of interest on a mortgage faster and quicker. In June last year, The One Account had 160,000 customers and over 10bn of customer facilities.

Intermediaries have been praising First Active since its acquisition last year. IFA John Payne says: “There is consistent service from First Active. They pay sensible procuration fees and clients seem to like them. I have never had to chase my fee, which is always a bonus, and so far they have lived up to their promises.”

First Active head of national partnership Louis Kaszczak says the success of First Active is partly down to timing. At its national launch, it had already been set up with the MCOB in mind, he says. He adds: “We promote ourselves fairly heavily and our proposition is clear to understand.”

First Active also has a policy of paying brokers a full procuration fee if they recommend its products to clients at the end of its two-year fixed-rate deal. PMI IFA John Stewart says: “What First Active is doing is fantastic and others should follow suit. Lenders are being aggressive in attracting clients at the end of fixed products. First Active have really got this right.”

The lender has attracted some criticism from smaller brokers for its refusal to deal with intermediaries that are dealing with low-volume business.

How realistic is it for RBS to get even close to HBOS in mortgage lending?

Boulger says: “RBS is not on the same scale as HBOS and will struggle to get there. But First Active has been extremely energetic and has had a lot of success. There is no doubt it is performing better than The One Account. It increased its share of the market in the second half of last year and I expect it will do so this year.”

The successes of BM Solutions and Intelligent Finance are certainly going to be hard acts to follow. BM Solutions has a loyal following from intermediaries. Boulger says The One Account got off to a rocky start by saying it could function without reliance on intermediaries. The success of First Active has indicated the mortgage market cannot function without the intermediary sector.

The Council of Mortgage Lenders says that around 60 per cent of mortgage business comes through intermediaries.

RBS would not make a statement on last year’s multi-brand success ahead of its financial statement for the second half of 2004which is due at the end of this week.

Although HBOS is hardly running for cover, RBS has a robust balance sheet, a strong customer franchise and the diversity of its income streams leaves it well placed for the future.

The First Active marketing campaign last year targeting billboards, TV and national newspapers has started to make the blue thumbs-up logo a recognisable image. First Active closed 2004 by covering Trafalgar Square with synthetic snow and inviting passers by to make snowmen and drink hot chocolate. Howard at the Halifax had better watch out.


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