HBOS takes $11.9 billion hit as bad debts leap

[Mrs. Sharon B. Hodge]

HBOS takes $11.9 billion hit as bad debts leap


LONDON (Reuters) – British bank HBOS Plc, due to be taken over by Lloyds TSB, said on Friday that its bad debts and other charges so far this year have jumped by two thirds in the last two months alone, to 8 billion pounds ($11.9 billion), as corporate and home loans soured.

The deteriorating economy has sent corporate and retail bad debts sharply higher and more pain lies ahead, the bank said, sending its shares down 10 percent and those of rival UK lenders by a similar amount.

HBOS, Britain's biggest home lender, said the losses would hit its capital ratios, but it declined to say by how much, and said the outlook was grim. In a statement ahead of a shareholder vote on its proposed takeover, it said the deterioration in credit quality had accelerated and estimated asset values have fallen sharply since November.

"Global market and economic conditions, UK recession and increasing unemployment will continue to present a particularly challenging operating and credit environment," the lender said.
I
t said charges for bad debts and losses on assets totaled 8 billion pounds for the year to the end of November, up from 4.8 billion at the end of September.

Bad debts on corporate loans almost doubled to 3.3 billion pounds from 1.7 billion. Losses on the unit's investment portfolio also rose, to 800 million pounds from 100 million two months earlier.

Sharp declines in house prices and pressure on margins from interest rate cuts helped lift impairments on mortgages to 700 million pounds from 400 million, the bank said. The unsecured impairment charge was 1 billion pounds, up from 800 million.

"In light of the worsening economic climate, trends in retail impairment charges are likely to come under further pressure," it said.

It added that pressure on net interest margins is building due to the recent cuts in UK base rates, which have been slashed to 2 percent.

Losses in its treasury portfolio due to falling asset values were 2.2 billion pounds, up from 1.8 billion.

HBOS said the injection of capital and liquidity under a UK government rescue plan left it "confident in its ability to navigate through this difficult period."

Investors are expected to approve its rescue funding plan and takeover by Lloyds at a meeting in Birmingham later on Friday.

By 3:39 a.m. EST HBOS shares were down 11.4 percent at 77.6 pence. Shares in Royal Bank of Scotland were down 11.6 percent, while Lloyds was down nearly 10 percent and Barclays was down 7 percent.


(Reporting by Victoria Bryan and Steve Slater; Editing by Greg Mahlich)