HBOS Earnings, UK GDP Growth

123jump.com Staff
27 Feb, 2008
New York City

Largest mortgage lender in the UK, HBOS, reported 2007 profit edged higher but failed to meet expectations. For the year 2007, the bank reported impairment losses on loans and advances of

[R]1:00PM News York, 6:00 PM London- Largest mortgage lender in the UK reported 3% rise in earnings, lower gain than expected, on a charge related to subprime loans and flood damage payments. Fourth quarter GDP growth slowed to 0.6% from 0.7% rise in the third quarter.

London stock averages declined after lower-than-expected earnings at HBOS raised the specter of lingering subprime related losses. HBOS, the parent of Halifax and Bank of Scotland, appears to have lower losses from the credit market turmoil compared to other banks and financial services.

Market Sentiment

In London trading FTSE 100 fell 0.18% or 10.9 to 6,076.

Of the 102 FTSE 100 index stocks, 60 gained, 39 declined, and 3 were unchanged. Vedanta Resources led advancers in the index with a rise of 6.13% as commodities continue rising on a sliding dollar.

Fourth Quarter GDP eases to 0.6%

The Office of National Statistics reported today that fourth quarter GDP edged up 0.6% compared to a rise of 0.7% in the third quarter. Fourth quarter GDP is now 2.9% higher from the same period a year ago.

GDP is the fourth quarter eased as growth in the service industries grew by 0.6%, down from 0.9% in the previous quarter. Also, output of the business services and finance industry grew by 0.5%, while output of government and other services rose by 0.7%.

In the year 2007 economic growth was 3.1%, higher than 2.9% rate of growth in 2006.

ONS added that output of the production industries rose by 0.1%, output of utilities grew by 1.7% and mining and quarrying edged up 0.3%. Construction output rose by 0.7%, while household expenditure increased 0.2% in the same period from 0.9% in the previous quarter.

According to the statistics office, government final consumption expenditure surged by 0.9%, 2.2% above the level seen in the fourth quarter of 2006.

On the overall, the trade deficit for the fourth quarter narrowed to £11.3 billion compared to £12.0 billion in the third quarter.

Services output rose 0.6%

Separately, the ONS reported services output rose by 0.6% in the fourth quarter compared to the previous quarter led by increases in business services and finance, transport storage, and communication and government and other services.

Distribution output increased by 0.2% in the quarter to December, as wholesale made a significant impact. Though output from retail also increased, there was a drop in output from the motor trades.

In addition, hotels and restaurants output fell by 0.3% in the quarter under review. The most significant decreases were in licensed restaurants, hotels and canteens and catering.

Transport, storage and communication output surged by 1.9% in the quarter, with significant increases in post and telecommunications, land transport and other transport services.


Earnings from HBOS Disappoint

HBOS, the largest UK mortgage lender, reported a slight decline in net operating income in 2007 to £5.403 billion from £5.54 billion in 2006. Profit before tax fell to £2.04 billion from £2.36 billion in 2006. Underlying net profit attributable to shareholders rose to £3.965 billion from £3.816 billion in 2006.

Underlying earnings per share increased 6% to 106.2p from 100.5p in 2006, after recording negative fair value adjustments on traded investment securities of £227m and claims of £135m arising from the 2007 summer floods.

Customer lending in 2007 rose 14% to £430 billion and customer deposits in 2007 increased 15% to £243.2 billion. Tier 1 capital ratio declined to 7.4% from 8.1% and total ratio fell 11.1% from 12% in 2006.

Advances to customers increased by 14% to £430.0 billion from £376.8 billion in 2006 reflecting the growth of 22% in corporate loans and 38% in international loans, and 7% growth in retail loans.

The company proposed a final dividend of 32.3p resulting in a full year dividend up 18% to 48.9p from 41.4p in 2006.

Impairment losses on loans and advances in 2007 were £1.3 billion compared to £1.1 billion in 2006 as reported in the preliminary financial statement.


Gainers & Losers

Vedanta Resources led gainers in the FTSE 100 stocks with a rise of 6.13% followed by increases in Admiral Group of 4.01%, in Schroders Plc of 2.95%, in Unilever Plc of 2.65%, and in Kazakhmys Plc of 2.52%.

Commodity stocks continue to rally as investors sought the metals to hedge against a falling U.S. dollar.

HBOS led decliners in the FTSE 100 stocks with a decline of 6.81% followed by losses in Yell Group of 4.46%, in Old Mutual Plc of 3.50%, in London Stock Exchange of 2.98%, and in Standard Life of 2.67%.

HBOS fell after the mortgage lender’s annual profit posted a lower-than-expected profit increase.

Dividend for the year rose to 48.9p, an 18% rise from a year ago. The lender also forecasted that 2008 will be a challenging financial year.

Other financial stocks fell as well. Alliance & Leicester tumbled 1% and Royal Bank of Scotland shed 0.85% despite a block trade of 50 million shares that prompted speculation of an investment from Qatar Investment Authority.

Old Mutual declined after it posted a 5% drop in annual profit.