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£5.7 billion HBOS sees a difficult time ahead
Nick Goodway, Evening Standard27 Feb 2008
HBOS, Britain's fourth-largest bank and owner of the biggest mortgage lender Halifax, today warned that it expects financial market conditions to remain uncertain throughout 2008.
It also said that margins could remain under pressure in both retail and corporate banking as it reported profits for 2007 just short of City expectations. The shares fell 38p to 667p.
Chief executive Andy Hornby said: "The current turmoil in global financial markets introduces considerable uncertainty into the plans of financial institutions. We expect financial markets to be difficult in 2008, and are planning accordingly."
His words echoed those of Financial Services Authority chief executive Hector Sants, who today warned 300 bankers in London that they should gear up for change. He told them: "I don't think markets are ever going to return to the way they were."
He said banks would have to revert to more old-fashioned and straightforward ways of lending after the credit crunch, and retreat from complex packaged loan structures.
Hornby agreed, but pointed out that HBOS had suffered just £227 million of subprime-related writedowns with another £509 million of hits on its balance sheet, all of which he said he expected to "reverse over time".
But he acknowledged that HBOS would see a slowdown in its retail market as mortgage demand slows and in its corporate market, where its Bank of Scotland offshoot is likely to see a worsening in bad debts after several years of very benign conditions.
He said: "We had 21% of the mortgage market in 2007 and see that running steadily around 20% through 2008. The market will slow but it won't stop growing. We predict £80 billion-£90 billion of net new mortgages compared with the £100 billion seen over the last two years."
HBOS posted strong growth in savings - up by 15% - of which Hornby said only "1% or 2%" came from people leaving Northern Rock.
On the corporate side, where Bank of Scotland is one of the most active players in the medium market for corporate takeovers and deals, he said he expected lower uplifts in asset values, adding: "It will inevitably be quieter in the coming year with so many private-equity firms sitting on the sidelines."
HBOS warned the stock market in December that it was looking at lower margins for 2007, and they fell by nine basis points to 1.63%. Hornby said margins would be "more stable in 2008" but could still come down again "by single-digit basis points".
Headline pre-tax profits rose 3% to £5.71 billion with underlying earnings per share up 6% at 106.2p. The dividend grows 18% to 48.9p. That means an average payout of £183 for HBOS' two million-plus private shareholders. The total cost of the dividend is £1.8 billion.
Some 65,000 HBOS staff will share more than £280 million in bonuses for the year just ended.
