Lloyds and HBOS scrap over cheque clearing

A row erupted between Lloyds TSB and HBOS yesterday over the time it takes for a cheque to clear.

As Lloyds TSB reported a 20% drop in pre-tax profits to £3.5bn, its chief executive Eric Daniels said he had an "out of body experience" after hearing a rival bank call for changes to the payments system.

While Mr Daniels did not name the subject of his anger, it appeared to be HBOS, which has increased the time it takes for a cheque to clear in its basic bank accounts - which are aimed at benefits recipients - from three days to six.

HBOS issued a strong rebuttal. "People in glass houses shouldn't throw stones," a HBOS spokesman said. The reason for the extension in the basic accounts was an increased incidence of fraud. "We have two-thirds of the social banking market. It might have been easier if other banks were active in this area," HBOS said.

Cheque clearing and the operation of the payments system has become a hot topic after Don Cruickshank, who investigated the sector five years ago, recently resumed his call for the creation of a new regulator for the area - PayCom.

The system is being investigated by the Office of Fair Trading, which is expected to report in April or May on ways to speed up electronic payments rather than cheques, which are falling out of use.

HSBC also appears to be pushing for the process to be speeded up. "We support the OFT task force in its initiative to develop an industry-wide solution for electronic pay ments," a HSBC spokeswoman said.

Mr Daniels said he supported attempts to update the clearing system but said customers would not necessarily benefit. "The people who benefit are the utilities," he said. Gas, water and electricity companies will receive bill payments sooner.

The £3.5bn profit reported by Lloyds yesterday takes the total for the banking sector in 2004 to just over £30bn. Lloyds was one of the few banks not to report record results because its 2003 total was boosted by £1.1bn of profits from the sale of businesses. If those businesses are stripped out, profits were up 10% rather than down 20%.

Lloyds, which has Scottish Widows and Cheltenham & Gloucester in its black horse stable, is Britain's biggest provider of current accounts. Despite its position as one of the traditional "big four" - along with Barclays, HSBC and Royal Bank of Scotland-NatWest - it is actually in fifth place in terms of profitability after HBOS, which has positioned itself as a competitor to the main players. Mr Daniels said: "Our attitude is that we are customer-driven, whether big four or big five."

After a rapid expansion through acquisitions, Lloyds is now trying to answer its critics and grow organically.

Maarten van den Bergh, the bank's chairman, said big cross-border mergers were a "couple of years along the road" and that "the issue of personalities" over who would run any combined entity was the main deterrent to corporate action.

The bank, which has faced concerns that it will be forced to cut its dividend, maintained the payment at 34.2p. Its shares rose 8.75p to 497p.

Profits in its retail banking arm, which is still seeking a full-time executive after Peter Ayliffe was ousted in January, rose 12% to £1.6bn after a £100m provision for endowment mis-selling claims.