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Like any transaction with a bank, you need to read the fine print before deciding on the merits of the offer.

Now that HBOS have released details of their directors purchases (why didn’t they tell us on Thursday?), I have changed my opinion as to the significance of these directors dealings.

1. The Bank EXPECTS executive directors to [buy shares] have meaningful shareholdings. ‘Every year since 2002 all incentive outcomes earned by all Executive Directors have, at their choice, been taken as HBOS shares, rather than cash’. The shares bought last Thursday were paid for using the net bonus paid to directors.

2. The increase in share positions is small, averaging only 16% of their pre purchase position in HBOS, wioth the exception of Jo Dawson, who increased her position by 49%.

3. The investments just made can be increased by up to 200% by the bank, dependent on real eps performance over three years. So these guys could be buying shares at 150p if they perform!

‘Executive Directors may receive up to 200% enhancement (250% for the CEO) of such shareholding dependent on growth in eps over three years in excess or RPI. 0% pa eps growth over RPI = 0% additional shares. +3% = 100% additional. +6% = 200% additional.’

My conclusion and revised opinion:

If the executive directors hadn’t bought shares in HBOS then that would have been something of concern. The fact that they did is in my view, and the view of the Bank, normal and expected behaviour. So the purchase on Thursday is in the normal course of business, and should not be taken as a positive message by investors.

For further details on remuneration policy see pp126-128 in the hbos plc 2007 Annual report and Accounts:

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March 2008