Parliamentary Commission on Banking StandardsMEETING OF THE DIRECTORS held at Old Broad Street, London at 10.30 am on 24 February 2004

MINUTES
Present
Lord Stevenson (Chairman)	Brian Ivory
James Crosby	Coline McConville
Charies Dunstone	John Maclean
Mike Ellis	Colin Matthew
Sir Ronald Garrick	George Mitchell
Tony Hobson	Sir Bob Reid
Phil Hodkinson	Louis Sherwood
Andy Hornby	Philip Yea
IN ATTENDANCE
***	***
***	Lindsay Mackay (Item 8)
***	***
Jo Dawson (Item 4 )	***
	David Walkden (Item 4 )
APOLOGIES FOR ABSENCE
There were no apologies for absence.

1. Minutes and Matters Arising

1.1 Minutes

The Minutes of the Meeting of Directors held on 27 January 2004 were approved.

The following minutes were noted:

Written Resolution of the Share Schemes Committee re Bank of Scotland Savings Related Stock Option Scheme of 14 January 2004.

Written Resolution of the Share Schemes Committee re ESOT of 14 January 2004.

Special Committee Written Resolution of 11 February re Preference Share issue.

Minutes of Audit Committee of 10 February 2004.

1.2 Non executive director appointments

The appointments of Kate Nealon and David Shearer had been confirmed by the Special Committee, following FSA approval, and had been announced. Kate and David would join the Board with effect from the date of the March meeting.

1.3 Audit committee

Tony Hobson reported that the Audit Committee had met on 10th and 20th February. Copies of the Minutes of those meetings were tabled, and noted by the Board. The first meeting, attended by the Chief Executive, had focused on year-end issues, and had made significant inputs to the drafting process. The second meeting had been concerned primarily with aggregate operational risk reporting; the annual review of the credit risk management environment; and internal controls and Turnbull compliance reporting. in that context the Committee had considered the impact of the various ARROW letters and the proposed responses by the Company—and had concluded that the matters raised by the FSA did not raise any issues that needed to be reflected in, or affected, the Turnbull Statement. The endowment issue had also been considered. Subsequent to the meeting (and following a meeting with the FSA on the same day) it had been agreed that no further provisioning was required in the 2003 accounts in respect of this issue.

KPMG had confirmed to the Committee that there were no major reporting issues that needed to be highlighted—although there was discussion in relation to embedded value; credit provisioning; and regulatory developments. Overall, the quality of the Group’s earning in 2003 was similar to that in 2002, and the level of prudence was similar to earlier years.

Additional comments made by the Committee in relation to the draft Announcement—had been taken into account. A revised version of the Announcement was tabled and the principal changes, since the previous draft, considered by the Committee, were discussed.

Key changes included positioning in relation to the absolute level of profits; the outlook in respect of the housing market, and net lending; and affirming the Group’s view that real growth prospects still continued. The Announcement, and other year end documents, would be considered further, later in the meeting.

1.4 Remuneration committee

Brian Ivory reported that the Remuneration Committee had met earlier in the day, to consider two issues:

short term incentive outcomes for executive directors and others, where an “on target” outcome had been agreed; and

the Remuneration Report, which was now in close to final form, and reflected the programme of communication with shareholders (over 30% of the equity) that had taken place in recent weeks. Investor reaction to the communication exercise had been very positive.

The Board thanked Brian for the considerable efforts he had made in connection with this time consuming, but very valuable, exercise.

2. Chief Executives Report and Management Information Pack

There was no formal January Ml Pack, but performance in January was in line with Plan. Short term fluctuations were slightly negative in the month, but target ROE ignored STF’s.

Discussions had commenced, with *** to explore the merits of a joint (banking and life company) approach to the endowments issue, and the widespread customer perception of “mis-selling”, There had been recent moves to direct “orphan assets” towards various good causes, rather than shareholders, and this could be the subject of legislation in the Budget. The Penrose Report had still not been published.

The SJPC full year results had been released earlier in the day and should be well received.

Discussions had continued with the FSA in relation to the ARROW letters and Risk Mitigation plans. Copies of the Company’s letter to the FSA had been circulated, together with a covering paper. The Group’s response was thoughtful, measured and firm—with a clear message to the FSA that their views were being taken appropriately seriously, and that the agreed risk mitigation actions, together with four proposed in-depth reviews would be pursued vigorously. But the FSA’s key conclusion—that the risk posed by the Group to the FSA’s statutory objectives was higher than at the time of the last assessment—was not accepted by the Group. Both messages would be pressed hard. The external advisers that would be retained in connection with the various proposed reviews, including the proposed Section 166 Report, had not yet been finalised.

Phil Hodkinson confirmed that in HD, sales in both the insurance and the investment businesses had started the year on or around Plan, including Creditor insurance sales. SJPC sales had recovered well. The promised report in relation to asset management performance would be circulated to the Board shortly.

The Strategy and International Division had started the year well; integration was proceeding on track; recruitment of an appropriate head of the Australian operation was underway. Ireland had also started the year well; plans to move into the retail sector were advanced, and potential inorganic (as well as organic) options were under review.

Corporate had started the year behind Plan, in terms of earnings, largely due to the opening position being behind Plan assumptions, in terms of assets. The challenge for 2004 would probably be more in respect of interest income rather than provisions—the reverse of the position in 2003.

Treasury was also well behind in the month. This was largely due to trading shortfalls in the month, but these were not causing significant concerns at this stage, and should reverse in due course.

Retail had made a solid start to the year. The business looked strong on margin, with the key challenge being in relation to provisions. A detailed meeting had taken place with the FSA in relation to endowment issues—in an attempt to reconcile apparent differences between the FSA’s views (after a limited file review) compared with an earlier and more extensive Regulatory Risk review. Good progress had been made. There had been no discussion with the FSA in relation to “pre A day” (ie pre regulation) sales. Their concerns were currently focused on sales made in the 1990’s and beyond. And their key concern appeared to be in relation to file quality and the audit trail, rather than uphold rates. The earlier apparent discrepancy between the FSA and Ombudsman views of the merits had receded ~ except in a limited number of cases where the ability to prove full adoption of the so-called “Tiner principles” was unclear, and would be re-addressed. Further meetings would take place; an updated action plan (including revisiting some cases) would be provided to the FSA within three weeks. The FSA were also putting pressure on all mortgage banks to clear complaint backlogs by May.

3. Annual Results: 31 December 2003

Various amendments had been made to the year end documents, in particular to take into account the comments made at the Audit Committee on 20th February. Revised versions of the various draft documents were available, and would be considered in detail by the Board later in the day. In 2003 market share had been gained in all key product markets. Competitive pressures were not expected to reduce Group margins during the year.

Restatements would be issued later in the year that reflected the revised organisational structure. A consequence of this would be -discontinuance of separate profit and loss reporting in respect of Intelligent Finance.

The Board would reconvene later in the day to consider and, if thought fit, finalise the Preliminary Results Announcement and the other year-end documents, together with the dividends to be paid by Halifax plc, Bank of Scotland and the Company (and it was noted that a further copy of the dividend paper, considered by the Board in January, had been tabled). Any further comments from directors could be fed into the process during the day.

4. Retail Strategy

This was the first of the “new style” of in-depth Strategic Reviews, by Operating Division. The presentation, by seven of the key senior managers within Retail, reinforced the Virtuous Circle, and focused on four key priorities:

becoming the market leader in all product markets in which the Division competed;

rapidly improving customer service levels;

preparing for a likely credit downturn, and

becoming the lowest cost provider in UK financial services.

As *** explained, HBOS had a leading market position (share of stock) in mortgages and savings, but lower historic positions in other products. In terms of new business share in 2003, however, the Group had been the number one provider in every product segment except credit cards. The mortgage multi-brand strategy was designed to optimize share with the right risk/reward profile: at present the Group was happy to be underweight in remortgages and near-prime, whilst being overweight in homemover and other sectors. Savings also pursued a multi-brand, multi-channel strategy—and was moving aggressively into higher growth sectors following a step change in inflows in recent years. The banking business would increase emphasis on mid-market and up-market sectors, whilst de-emphasising and refining the overweight position in social banking products. The Unsecured personal loan market had contracted significantly in 2003, and was expected to fall further in 2004, but the Group had gained market share from competitors through the breadth of distribution available. In due course, greater emphasis would be placed on “direct” channels where there were opportunities for further growth. Significant growth in the Cards business had not been achieved at the expense of profitability: the business was poised to deliver world class 5% ROO, although there would be significant challenges in 2004 and beyond in relation to credit performance, optimizing revenues, back book repricing—and necessary cost savings and efficiency improvements.

*** confirmed that IF had achieved its breakeven target by the end of 2003 and the foundations for growth were now in place. The aim and challenge was to build on the difficult decisions made to date and to grow IF profitability strongly—through ongoing cost reductions; productivity improvements, and an increased product range (including non-offset products, some of which had already been launched)—so that the business became a significant contributor to Retail profits and ROE by the end of the Plan period. Significant systems development and increased integration would be required—which would also reduce the relevance of stand atone profit and loss reporting for IF, which would be discontinued.

*** explained that the HBOS Retail “Sales Culture” was a major differentiator. The business had been transformed into a true multi-brand multichannel approach—and this had been accompanied by spectacular growth in sales volumes. Costs had been migrated away from-face to face servicing. The next step change in profits growth would come through increased emphasis on “self-service” products, and a more intelligent and focused approach to “acquisition”.

Cross sales had improved, 800,000 customers now had 3 products or more—but total average product holdings remained flat (at below 2 per customer) taking into account new acquisitions. There was still a considerable way to go, , in maximizing customer relationships and profitability. Customer service was also key. Major investments would be made in 2004—including adding 1,900 service colleagues, and incentivising service measures—to reduce the causes of customer complaints and frustrations, and drive up customer satisfaction and advocacy. Customer ratings had already started to show some improvement—but there was still a long way to go.

Productivity and capacity of the PFA Salesforce had grown significantly in recent years, as Jo Dawson explained: but there were still significant opportunities to take the main market Bancassurance offering into the high net worth market. Whether the Group’s high volume successes in mainstream markets could be successfully adapted to higher net worth individuals remained to be proved, but the Bank of Scotland brand was a strong brand with high net worth individuals, that could be developed further into more of a relationship brand, with an emphasis on service.

*** emphasized that the volume strategy of the past few years had worked well, without damaging asset quality. Retail accounted for about two thirds of the group’s balance sheet: and over 50% of that two thirds was represented by secured residential lending—producing a very robust balance sheet able to withstand market shocks and any significant downturn. LTV’s on secured lending were tightly controlled, and monitored closely. Although no deterioration was yet evident in relation to secured lending, steps had been taken to reduce high LTV lending given the expectation of a downturn. At inception, new lending was still predominantly less than 70% LTV. When indexed, the average LTV fell to only 43%.

The position in relation to unsecured lending was less clear. Early delinquency experience was monitored closely, and had recently shown an upturn. Provisions had increased in late 2003, and this had continued into 2004. It was too early to draw firm conclusions. New business quality seemed fine: the problem seemed to relate to slightly older lending, together with some hiccups in relation to collections efficiency and migration issues. Provision levels were already forecast to exceed target significantly in 2004; target provision levels would be tough to hit, but an action plan was already in place—to improve collections and recoveries; review limit-setting strategies; and adjust score card cut offs. There were no equivalent problems with the secured book.

*** explained the approach to the Retail IT architecture, built around six core principles that were adhered to, to the maximum extent practicable, in all IT developments, namely:

the provision of a single view of customers;

with multi-channel capability;

customer level decisioning;

single product “back ends”;

multi-brand capabilities; and

single processing system.

These were key to delivery of the lowest cost of operation; with flexibility to change; scaleability; facilitation of regulatory compliance; whilst being able to add further acquisitions.

*** emphasized that the Division had delivered all of its merger promises to date and had also delivered four key capabilities: the ability to white label; the provision of a single “counter” in Scotland; a paperless sales system; and standardized channels to customer servicing. The business now had to face the key challenge of supporting a growing book whilst holding costs down. The savings migration planned for later in the year was the final piece of merger integration. The focus could then move to exploring the strengths of the business, and ending merger-related disruption for customers.

Andy Hornby clarified that the Division’s aim was not necessarily to achieve industry leading levels of customer service. But at the very least the business had to get rid of recurring mistakes and frustrations for customers. Better customer service tracking, measurement and Ml were now in place: and there was regular feedback to colleagues about service improvements being achieved. Once the service basics were right, the approach to service levels would be looked at again. Delivery of a friendly and warm customer experience was a key objective, that the business had not had the opportunity to deliver since merger—but which was intended to be a key differentiator

5. The Way we do Business—The HBOS Ethics Statement

A draft Statement, “The Way We Do Business” had been produced—intended to underpin the various policies introduced since merger that defined in detail how the Group intended to operate across various aspects of its business. This overarching statement communicated the business philosophy succinctly—and was also intended to guide future policy development. No business practices needed to change immediately as a direct result of adoption of this Statement—although, the Statement should help drive future behavioural change that would result from clarity about the Group’s “ethics” and business philosophy.

The aim was to communicate the Statement to all colleagues within the next few weeks. It was believed that the Statement would be viewed positively by colleagues, shareholders, and other key influencers. it would not replace or avoid the need for detailed policies and strategies; but was intended as the “glue” that would bind colleagues and businesses together. Measurement and feedback were important, and would make a difference.

The Group’s current approach to mitigation of its tax liabilities, for example, was not believed to be overly aggressive—and was in keeping with the Statement. This was a “live” example that had been raised in the drafting and consultation exercise of how the Statement would be utilised in practice. The Group’s size meant it was in a position to influence and promote positive behaviours in others—including suppliers—although the language, and tone in this respect needed to be reconsidered.

The Board was happy to agree and endorse the draft Statement, amended to take into account the comments made.

6. Board and Individual Director Evaluation Exercise

Overall, the Board and Individual Director Evaluation exercise had been valuable, and had focused attention on a number of issues that should be given further consideration. In general, the Board and its Committees were believed to work well and effectively: and this assessment needed to be kept in mind. Whether this was an exercise that needed to be repeated annually—or at less frequent intervals—would be given further consideration.

The results of the Evaluation exercise were summarised. Separately, the Chairman had spoken to Directors individually, to follow up on responses to questionnaires, and cover other issues, including the following:

challenge to strategy: The quality of the papers and presentations made to the Board were high—and the Board should not seek to challenge for “effect” only in relation to issues of substance. The Board made effective but supportive challenges, as necessary, and would not seek to second guess executive management’s formulation of strategy. Today’s Retail strategy presentation was the first of the new style of Strategic Review—designed, in part, to facilitate greater challenge. “Challenge” would also naturally increase, as inorganic opportunities were considered by the Board. It was noted, however, that Reviews did not commonly include consideration of alternatives, which would naturally provoke debate. They were often largely operationally and performance focused. This aspect would be given further attention. In general terms, the Board was probably also still too big; which did not always facilitate extensive comments from individual directors, but there were significant opportunities for direct conversations with senior executives, which took place on a frequent basis;

development of strategy: it was not believed to be the role of the non-executive directors to develop strategy, or risk management. Non-executive directors best contributed to the process through thoughtful but supportive challenge to the executive;

time commitments: the HBOS Board invested significant time in relation to significant issues, with efficient use of time in relation to more routine or mundane matters. The Group’s history to date had focused on integration issues: but this would change as consideration was given to organic/inorganic and overseas/domestic issues. There was some difference of opinion in relation to the potential value of “Away Days”; some directors were more in favour than others of offsite strategy or other special sessions. Whilst Away Days would not be built into the regular Board calendar, the Board would not hesitate to schedule ad hoc additional meetings whenever this was appropriate and would add value;

succession planning: was a real issue, that merited proper Board attention. Progress was now being made and would continue, led by the Nomination Committee; and

skills and experience: ail directors should raise any specific issues where they believed further training could usefully be provided or Board attention directed. In general terms, however, this was a well experienced Board with a diverse range of skills and experience, with no major lacunae.

Relatively little Board time was spent in reviewing the strategy and competitive position of competitors, although this was, in fact, given ongoing management consideration. Arguably, there could and should be more visibility about this issue, and this would be addressed in due course.

7. Capitalisation of Subsidiary(ies) of HBOS Treasury Services PLC and Novation of Swaps

As in 2003, the opportunity had arisen to monetise a number of interest rate swaps, to eliminate the prevailing market-to-market exposure whilst allowing lines with a key market counterparty to be reopened. This might be the final such opportunity, however. After due consideration, the Board accordingly agreed and resolved, (subject to approval by the Board of HBOS Treasury Services plc (“HBOSTS”), that HBOSTS should participate in the following transactions, namely:

(i)the subscription by HBOSTS for approximately:

(a)1,000,000 ordinary shares per SPV in one or more SPVs with a nominal £1 per share (to a maximum of 9 SPVs, thus in total no more than 9,000,000 ordinary shares) and

(b)up to approximately 310,000,000 fully paid fixed rate cumulative redeemable preference shares in total across all SPVs with a nominal value of £1 per share;

(ii)that certain swap transactions under ISDA Master Agreements entered into between HBOSTS and various inter-bank counterparties be amended and, subject to approval of the SPV(s), novated with the SPV(s) acquiring rights and assuming obligations equivalent to those of HBOSTS under those Swaps; and

(iii)that power, authority and discretion be given to any one of Lindsay Mackay, Chief Executive, Treasury; ***, Head of Treasury; and ***, Head of Finance, Treasury; on behalf of the Board of HBOSTS, to negotiate, resolve, consider, approve, implement, do, execute, deliver and complete any matters, acts, instruments, agreements, indentures, deeds, documents or things necessary or desirable in relation to the transactions contemplated in paragraphs (i) and (ii) above including all legal agreements and other documents relating to-.-the matters referred to above at paragraphs (i) and (ii) inclusive and any matters incidental or ancillary thereto or arising in connection therewith.

And further that full power and authority be delegated to George Mitchell (or, in his absence, any other director of the Company) to approve and effect any future role of the SPV’s (again, also subject to agreement of the Board of HBOSTS).

8. Funding the Business Plan 2004–2008 (Including Treasury Services)

The Group Business Plan (2004/2008) had identified “funding” as a key risk to delivery of the Plan in the banking operations, and a key issue was to ensure that balance sheet growth was properly planned and controlled, through assessment of “demand” (particularly in terms of asset growth) and “supply” (the wholesale funding capacity). The current Plan sought to balance demand with supply. And the Board needed to understand that the Treasury business had no capacity to support above Plan growth.

During the past year, significant steps had been taken towards lengthening the maturity profile of the Group’s funding. Progress had been made: but there was more work to do. There had been significant and effective investor relations activity since merger. Distribution had also been widened. There was increased use of several overseas markets—US, Europe, Asia—in addition to the UK. The use of Sterling in respect of funding had also decreased, with increasing use of Euro and US Dollar denominated securities. A significant part of the Group’s Liquidity needs were also raised in non-Sterling. Currency risks were appropriately hedged or swapped, and the maturity profile of currency swaps was monitored closely.

The capacity of funding markets was huge, for high quality paper, and the Group’s track record in relation to the “Permanent” Securitisation transactions had been very successful—based on investor views of the quality of the HBOS balance sheet. Rating agency views of the Group, and the possibility that their view might change as a result of the extent of Securitisations or covered bond issuance was a risk—although the Group was believed to be well away from a trigger point in relation to their thinking.

The Treasury business would seek to continue to lengthen the maturity of wholesale funds, through Medium Term Notes, covered bonds and securitisations—to ease the pressure on liquidity. Asset growth would be monitored and controlled more closely. Customer asset growth was planned to outstrip deposit growth in the early years of the Plan, such that the wholesale funding gap would widen from £141 billion in 2003 to £259 billion in 2008,

Against this background, the updated Five Year Funding Plan—that reflected the end 2003 balance sheet and funding profile — was considered and approved. The Funding Plan would continue to be updated quarterly, and considered by GALCO.

9. HBOS Single Employer Project

A move to a (largely) single employing company for UK colleagues had already been agreed. Consultations had taken place with ACCORD and UNIFI, and no material issues had been raised. The change was intended to be effected with effect from 1st March 2004, and appropriate communications had already been sent to all affected colleagues. The Board accordingly noted:

(i)that colleagues currently employed by Halifax plc, Bank of Scotland, *** deletions investment Group Limited and St Andrew’s Group plc will transfer to become employees of HBOS UK plc on 1 March 2004;

(ii)that HBOS plc will become the principal employer of the Bank of Scotland 1976 Pension Scheme, Halifax Retirement Fund, *** deletions Staff Superannuation Scheme, Birmingham Midshires Pension Scheme, the Equitable Staff Pension Fund and the Equitable Money Purchase Scheme;

(iii)that HBOS plc is required to ensure that Group companies meet their obligations within each of the pension schemes to the same extent that HBOS employing companies were liable prior to the change in employing company; and

(iv)the additional responsibility which HBOS plc and HBOS UK plc will be assuming as Principal Employer and Participating Employer respectively, in respect of each pension scheme.

and further agreed and resolved that any director of the Company be authorised to approve any and ail legal acts and documentation to be done, entered into or issued in relation to the single employer project including, without limitation:

(i)the Business Transfer Agreement transferring employees to HBOS UK plc;

(ii)the Employee Services Agreement in relation to the provision of services of employees by HBOS UK plc to other members of the HBOS Group;

(iii)the agreement(s) to be entered into by various members of HBOS Group dealing, among other things, with the acknowledgement of the respective financial services regulatory responsibilities of those companies arising in consequence of the Single Employer Project;

(iv)(before 1 March 2004) alt necessary documentation to make HBOS UK plc a Participating Employer and HBOS plc the Principal Employer in respect of the Bank of Scotland 1976 Pension Scheme, the Halifax Retirement Fund, the *** deletions Staff Superannuation Scheme, the Birmingham Midshires Pension Scheme, the Equitable Staff Pension Fund and the Equitable Money Purchase Scheme; and

(v)any and all acts and documents ancillary to any of the above agreements.

and that such direct also be authorised to execute or cause or approve the execution of any or all of such documents.

10. Schedule of Advances—International Operations and Corporate Banking

Schedules of the principal advances made by the International Operations and Corporate Banking divisions during January 2004 were noted.

11. Accounts for the Year End 31 December 2003

As agreed earlier in the day, the meeting reconvened to consider finaiisation of the accounts and other year end documents.

11.1 Bank of Scotland

11.1.1 Post balance sheet events

The Group Finance Director confirmed that, except as already included in the documents, there were at present no further post balance sheet events, commitments or other contingencies requiring disclosure in the Annual Report and Accounts of the Company. It was confirmed that there was no material litigation outstanding which would require disclosure. Having considered those contingencies the Directors agreed that no further disclosures were required at this time.

11.1.2 Annual accounts and related documents

The Group Finance Director tabled drafts of the:

Annual Report and Accounts for the year ended 31 December 2003 for Bank of Scotland.

The Solo Profit and Loss Account for the Company.

It was agreed that each of the documents be approved, subject to any final amendments agreed by either the Chairman, Chief Executive or Group Finance Director, and that the Governor, Chief Executive, Chairman of the Audit Committee, Group Finance Director, and Secretary were authorised to sign the documents.

11.1.3 Final dividend

The Directors agreed that, following finalisation of the Annual Report and Accounts of the Company, they would recommend to ordinary shareholders the payment of a total final dividend of £317 million for the year ended 31 December 2003.

11.1.4 Letter of representation to KPMG Audit plc

The Directors authorised the Group Finance Director or, in his absence any other Director, to sign the representation letter to KPMG Audit plc in the form of the draft produced to the meeting, and to release the letter to KPMG Audit plc on finalisation of the Annual Report and Accounts of the Company.

11.2 Halifax PLC

11.2.1 Post balance sheet events

The Group Finance Director confirmed that, except as already included in the documents, there were at present no further post balance sheet events requiring disclosure in the Annual Report and Accounts of Halifax plc.’ It was confirmed that there was no material litigation outstanding which would require disclosure. Having considered those contingencies the Directors agreed that no further disclosures were required at this time.

11.2.2 Preliminary results announcement

A copy of the proposed Preliminary Results Announcement for Halifax plc, initialled for identification by the Group Finance Director, was tabled and approved. The Chief Executive was authorised to finalise the Announcement and, when finalised, authorise to release it to the London Stock Exchange.

11.2.3 Annual accounts and related documents

The Group Finance Director tabled drafts of the:

• Annual Report and Accounts for the year ended 31st December 2003 for Halifax plc;

• Summary Financial Statements of Halifax plc;

• The Solo Profit and Loss Account for Halifax plc.

It was agreed that each of the above documents be approved, subject to any final amendments agreed by either the Chairman, Chief Executive or Group Finance Director, and that the Chairman, Chief Executive, Chairman of the Audit Committee, Group Finance Director, and Secretary were authorised to sign the documents.

11.2.4 Final dividend

The Directors agreed that, following finalisation of the Annual Report and Accounts of the Company and the accompanying Stock Exchange Announcement, a total final dividend payment of £476 million be paid on the ordinary shares of the Company in respect of the year ended 31 December 2003.

11.2.5 Letter of representation to KPMG Audit plc

The Directors authorised the Group Finance Director or, in his absence any other Director, to sign the representation letter to KPMG Audit plc in the form of the draft produced to the meeting, and to release the letter to KPMG Audit plc on finalisation of the Annual Report and Accounts of the Company.

11.3 HBOS PLC

11.3.1 Post balance sheet events

The Group Finance Director confirmed that, except as already included in the documents, there were at present no further post balance sheet events requiring disclosure in the Annual Report and Accounts of the Company. It was confirmed that there was no material litigation outstanding which would require disclosure. Having considered those contingencies the Directors agreed that no further disclosures were required at this time.

11.3.2 Preliminary results announcement

A copy of the proposed Preliminary Results Announcement for the Company, initialled for identification by the Group Finance Director, was tabled and approved. The Chief Executive was authorised to finalise the Announcement and, when finalised, authorised to release it to the London Stock Exchange.

11.3.3 Annual accounts and related documents

The Group Finance Director tabled drafts of the:

Annual Report and Accounts for the year ended 31 December 2003.

Summary Financial Statements of the Company.

The Solo Profit and Loss Account for the Company.

it was agreed that each of the above documents be approved, subject to any final amendments agreed by either the Chairman, Chief Executive or Group Finance Director, and that the Chairman, Chief Executive, Chairman of the Audit Committee, Group Finance Director, Chairman of the Remuneration Committee and Secretary were authorised to sign the documents.

11.3.4 Final dividend

The Directors agreed that, following finalisation of the Annual Report and Accounts of the Company and the accompanying Stock Exchange Announcement, they would recommend to shareholders the payment of a final dividend for the year ended 31 December 2003 of 20.6 pence per ordinary share, payable on 21 May 2004 to shareholders on the register of members of 12 March 2004.

11.3.5 Letter of representation to KPMG Audit plc

The Directors authorised the Group Finance Director or, in his absence any other Director, to sign the representation letter to KPMG Audit plc in the form of the draft produced to the meeting, and to release the letter to KPMG Audit plc on finalisation of the Annual Report and Accounts of the Company.

12. Date of Next Meeting

The next meeting of the Board would be held at 10.30am on Tuesday 23 March 2004 at The Mound, Edinburgh.