The assignment of a Senior Debt Rating of AA (double A) rests on Halifax Group’s continued dominant position in the UK mortgage market, its solid earnings criteria and strong capital base. The Halifax Group plc continues to be the leading mortgage bank in the UK with a market share of approximately 19% of outstanding balances. In recent years, its dominant position has been eroded because of increased competition and the group’s desire to sustain margins. However, in compensation, Halifax has diversified its earnings such that 35% of pre-tax profits in 1999 came from its non-traditional businesses. The group plans to increase this to 50% by 2002. As part of this earnings diversification, Halifax is currently developing three new internet businesses – Halifax Online, for its existing customers; Intelligent Finance (IF.com), a stand-alone entity to attract new customers; and ‘esure’, an on-line insurance company. Halifax will invest £150 million in these initiatives and provide £1 billion of capital backing for Intelligent Finance. Although the UK mortgage market continues to grow strongly, Halifax’s mortgage balances in arrears declined to 1.52% from 1.88% of total balances, which was below the Council of Mortgage Lenders (CML) average of 1.67%. Whilst there is some concern that the residential mortgage market is near to overheating, especially in the south-east of England, low interest rates, though on an upwards trend, mean that affordability still remains high. Halifax continues to maintain strong capital ratios, built up over the years it existed as a mutual building society. During 1998 and 1999, Halifax bought back £2.3 billion of its own shares. The group became the first UK bank to issue tier 1 preferred securities in 1999 for supporting the growth of Clerical Medical.
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