HBOS profits slump 51%
HBOS saw its profits fall by 51% in the first half of the year due to the ongoing credit crunch and rising levels of bad consumer debt.
HBOS said that profits before tax slumped to just £1.45 billion in the first half of the year, compared with the £2.96 billion seen in the same period last year. The bank also revealed that it was forced to write off £1.1 billion of sub-prime losses, and £1.3 billion from customers unable to meet their mortgage and loan repayments.
The bank said that around 39,300 of its customers cannot repay their debts, which is an increase of 36% from December’s figure of 35,600. Mortgage arrears at the bank are also on the up, from 1.67% of borrowers at the end of 2007 to 1.95% today. But chief executive of HBOS, Andy Hornby, is expecting further losses. "In light of the deteriorating economic environment, we expect to see upward pressure on impairment losses," he said.
HBOS has managed to raise £4 billion from selling new shares, but the bank admitted that it was considering selling ‘selective assets’. Although Hornby did not indicate what assets these may be, it has prompted speculation that its Australian and Irish operations may be set for the chop. "We will look at all sensible options," he said. "If some buyers consider assets are worth more to them than they are to us then we don't rule that out."
Earlier this week it emerged that Abbey had knocked HBOS off the top spot as the largest lender of new mortgages, taking a total market share of 26%. Cheltenham & Gloucester came a close second with a 24% share, while HBOS now takes third place with 20%.
All sub-prime financial products are aimed at borrowers with patchy credit histories and the term typically refers to mortgage candidates, though any form of credit offered to people who have had problems with debt repayment is classed as sub-prime. Depending on the lender’s own criteria, sub-prime can apply to borrowers who have missed a few credit card or loan repayments to people who have major debt problems and county court judgments (CCJ) against their name. To reflect the extra risk in lending to people who have struggled in the past, rates on sub-prime deals are typically higher than for “prime” borrowers.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.