HBOS released its first-half results statement today, and not surprisingly, it wasn’t a pretty picture. Pre-tax profits fell 72% in the first six months of the year to £848m (last year it racked up nearly £3bn) after the bank was forced to take a £1.1bn hit on investments soured by the credit crunch. HBOS has seen its share of the mortgage market fall, while bad debts were up 36% to £1.3bn as existing borrowers struggled to keep up with repayments.
As Britain’s biggest mortgage lender, HBOS obviously has more to lose than most from the continued deterioration of the housing market. According to the latest gloomy survey by Nationwide, house prices are now 8% lower than this time last year, knocking almost £15,000 off the average property value. That’s a lot of lost equity – in fact, ratings agency Standard & Poor’s reckons one in seven homeowners will soon be facing negative equity. So it was slightly alarming to see today’s admission by HBOS that the value of mortgages it classed as being ‘impaired’ had risen 21% to £5.1bn. With prices expected to tumble by 10-15% in the coming year, there’s almost certainly going to be worse to come.
So it’s no wonder that CEO Andy Hornby has put some of the bank’s non-core operations up for sale, in a bid to try and raise a few extra pennies. Hornby didn’t say which assets he’s prepared to flog, but rumour has it that its Irish and Australian operations will be first on the block, along with its majority stake in wealth manager St James’s Place.
But although today’s news from HBOS wasn’t great, it could have been a lot worse. The profit figure was higher than analyst forecasts – and not significantly worse than Lloyds TSB yesterday – while speculation of further credit crunch-related write-downs (on top of those announced earlier this month) appears to have been unfounded. So in general terms, its losses weren’t quite as bad as expected and there were no new skeletons brought out of the closet – which in the current climate, counts as a decent result. HBOS is even fulfilling its earlier promise to pay out a dividend (albeit in shares). So the bank’s 8% share price bounce this morning isn’t as odd as it might look at first sight.
After the year HBOS has had, no news is good news as far as the stock market is concerned...