HBOS takes £1bn hit but points to "resilient" market

BANKING group HBOS said that is trading in line with its expectations, but warned of a £1bn writedown in the first-half of its financial year and said house prices are expected to fall by 9% this year.

The owner of Britain’s biggest home lender Halifax, and Bank of Scotland, announced a £4bn rights issue in late April and said it would cut its dividend, as it attempts to deal with an increased hit from bad investments and the deteriorating mortgage market.

The group, which issues one in five mortgages in the UK, said that house sales are likely to fall by 45% this year.

It said that while the fall in house prices would hit impairment charges, the increase in arrears would be in line with its forecasts.

Today HBOS pointed to the positives as it faces up to the effects of the credit crunch.

“While HBOS is not immune from the global dislocation in financial markets that is impacting the wider economy and credit conditions, it is on track to demonstrate a resilient performance in 2008,” it said in a trading statement.

It said its trading performance will improve in the second half of the year because of the write-downs it has had to make on the value of its investments since January.

Since its interim management statement at the end of April, it has increased these write-downs by £58m to £1.028bn.

While its retail banking operations are “robust” and will be boosted by growth in net interest income on the back of “moderate” asset growth and stabilising margins, it said its corporate business had adopted a “cautious approach”.

The group’s insurance business has benefited from strong sales in home and car insurance and the lack of extreme weather conditions such as last summer’s floods.

Looking ahead, the group said: “We expect the UK economy to slow further in 2008, with a modest rise in unemployment and low interest rates, accepting that inflationary pressures will restrict the MPC’s ability to reduce base rates below current levels.  We now expect house prices to fall by up to 9% in 2008.

“As previously indicated, asset growth is slowing and the rate of deposit growth is targeted to outstrip that for assets in 2008.  We are achieving substantially better pricing on new lending in our key markets and, as a result, the decline in the net interest margin seen in 2007 is expected to moderate in 2008. We anticipate relatively stable and potentially improving margins in 2009.”