Scottish banker Benny Higgins will receive about £2.5m, well above his contractual pay-off entitlement, as a result of his surprise departure from HBOS, The Herald understands.

News of Higgins's exit came out of the blue yesterday. He only joined Halifax and Bank of Scotland parent HBOS in May last year.

Two sources close to the situation said Higgins's departure had arisen from a "personality clash" with chief executive Andy Hornby, although Hornby, when asked yesterday, denied this.

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One source put 46-year-old Higgins' pay-off at about £2.5m. Hornby refused to comment on the amount, but chose not to deny the pay-off was greater than the departing executive's contractual entitlement, in spite of being twice given the opportunity to answer this question.

Pay-offs which exceed a director's contractual entitlement are highly unusual these days in publicly-quoted companies. And companies are generally at pains to emphasise pay-offs are based only on contractual commitments.

Higgins joined HBOS in a main board post to head its retail banking business, an area overseen previously by Hornby before his elevation to group chief executive.

Hornby has now put in place a structure which splits this retail banking role in two - effectively eliminating the overarching job which his predecessor James Crosby poached Higgins from arch-rival Royal Bank of Scotland to do.

Asked twice by The Herald whether Higgins's pay-off was above his contractual entitlement, Hornby declined each time to address the question directly.

The first time, he replied: "We have got to a very mutually satisfactory conclusion on that, which I think is right for Benny and right for shareholders."

Asked again if it was above Higgins' contractual entitlement, Hornby, one of the youngest chief executives among companies in the UK's FTSE-100 index, reiterated merely that the pay-off was "mutually satisfactory".

On whether it was £2.5m, he replied: "I (am) not giving any number."

He then added his belief that the pay-off "certainly would not cause any great surprise".

Hornby said he and Higgins had parted on "extremely good terms", and added: "I really do wish him all the best for the future."

However, Hornby appeared to have been well aware of the personal consequences of his restructuring for Higgins, a larger-than-life figure in the banking sector who is a mathematics graduate of the University of Glasgow.

He said: "I fully understood Benny did not see a role big enough for him in that structure."

Higgins, who was a high flier at Standard Life before his departure in 1997 and was well regarded at Royal Bank, is likely now to move into a position as head of retail products at the likes of another bank or insurer. There was talk last night that Higgins might already have another post lined up.

HBOS's shares tumbled on the day in June on which it revealed a plunge in its share of net new UK mortgage lending on the back of a misjudged pricing strategy aimed at retaining customers, which failed to win enough fresh business.

Hornby, asked by The Herald whether this part of the mortgage pricing strategy had been his idea or that of Higgins, replied: "It is a team effort. I would never blame anything that happens in our organisation on anyone else other than the CEO (chief executive officer)."

He added that the retail banking business was in "good shape".

Hornby had indicated a business-as-usual approach when he took over from Crosby last year, but his tenure has so far been far from uneventful.

As well as the plunge in mortgage market share, which Hornby has emphasised has since been rectified, yesterday's news of Higgins's departure was accompanied by a wider management restructuring.

Hornby described the changes as "very decisive in terms of the future structure of the organisation".

In a move which surprised some in the banking industry, given the rarity of people going away and then returning to the same role, 56-year-old Mike Ellis was named as incoming finance director.

He will succeed Phil Hodkinson, who is to retire on his 50th birthday next April to do charity work. He is setting up his own charity, particularly to help the smaller good causes with less expertise in fundraising. He also expressed his desire to chair a "major UK charity".

Hodkinson said he had been putting some of his non-executive director fees towards his foundation, which an HBOS spokesman said would be launched with a donation of £250,000 of the finance director's own money. Hodkinson plans to augment this with some of his post-retirement income.

Ellis, who stepped down from HBOS at the end of 2004 to pursue a variety of roles, will rejoin the bank and take a board seat in September.

Hornby emphasised Ellis had been benchmarked against external candidates.

Philip Gore-Randall, 54, a director of insurer Aon's UK business and a former managing partner of now-defunct accountancy firm Arthur Andersen, is meanwhile joining HBOS as chief operating officer.

This chief operating officer role, held previously by Hornby, was eliminated when Hornby was promoted to chief executive.

Dan Watkins, 44, is promoted from his current post of group risk director to chief executive of retail products, and will join the board.

Jo Dawson, 45, chief executive of insurance and investment, is to take responsibility "with immediate effect" for retail distribution including the branch network.

This basically splits Higgins's role in two, and in terms of separating out the creation of retail banking products bears some similarity to Royal Bank's structure of having a "manufacturing" division.

Asked whether, given yesterday's changes in the retail division, he disagreed with the structure put in place by Crosby only last year, or whether events had moved on, Hornby replied: "Things have moved on. It is as simple as that."

He said the retail banking and insurance and investment businesses had become "closer and closer" in the way they were run and, highlighting his belief in potential to increase sales of wealth management products through bank branches, said: "I have decided the time is right to have one person running sales and distribution."

HBOS said Higgins would leave at the end of the year and would work with Watkins and Dawson in the interim period.