From a building society with a long history of lending to local working people who build their homes, Halifax demutualized in 1997 officially becoming Halifax plc. Shortly before, it merged with the Leeds Permanent Building Society and acquired Clerical Medical Fund Managers, a British life insurance company. When Halifax was listed at the London Stock Exchange in June 1997, more than 7.5 million customers became stockholders of the new bank, and it became the fifth largest company in the UK in terms of market capitalization. The new publicly-listed company continued to expand its consumer base with the acquisition of Birmingham Midshires Building Society in 1999.
The Bank of Scotland (BoS) has been one of the two largest banks in Scotland, in competition primarily with the Royal Bank of Scotland. It is considered the oldest surviving bank in the UK. Prior to merging with Halifax in 2001, the BoS had little presence in Wales and England. Its strength was limited in the corporate and business sectors. Prior to the 2001 merger with Halifax, its strategy of trying to reach out to markets outside the UK and to establish a retail or mass consumer presence was at times, erratic. Riding the spate of consolidation and mergers in the late 1990s, the BoS made a bold move to take over National Westminster Bank (NatWest), a much larger bank in from late 1999 to early 2000, but was defeated in the final bid by the Royal Bank of Scotland. The BoS also made forays into the markets outside UK - establishing a presence in Australia, with its purchase of Perth-based Bank of Western Australia, in addition to its presence in the United States, Moscow and Singapore. It however sold its New Zealand bank asset, the Countrywide Bank of New Zealand to Lloyds TBS in 1998. The Bank of Scotland's attempt to establish a wide presence in retail banking in the United States was characterized by controversy. The deal with Christian preacher Pat Robertson folded after the evangelist's racist and sexist comments about Scotland were scored by civil rights groups.
In 2001, the 10.8 billion-pound merger between Halifax and the Bank of Scotland, resulting in Halifax Bank of Scotland (HBOS) was called by the company executives as "the new force in banking" (Burt & Crosby n.y.). As a result, HBOS has now 22 million customers across the UK or two out of five households. Halifax, the consumer champion brought into the table, financial strength and scale, new products and channels and innovation. The Bank of Scotland, the old hand at commercial lending, allowed Halifax shareholders to fulfill its diversification strategies, and offered its lending capability and culture, opportunities in the small-and-medium and corporate markets, enhanced retail opportunities and partnership expertise. The strategic directives of the new company rested in its business balance (retail and commercial lending), leading brands (18 in all), market power (UK's number four financial service company) and management strength. Two strategies underpin HBOS drive to become UK's fastest growing financial services company: one is through diversification of its services across all markets, and two, offering low rates and fees to ramp up volumes and to further achieve competitive pricing. The diversified strategy of the newly formed HBOS was reflected in five main banking divisions: