HBOS Reveals Exposure to Bad Home Loans

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Fri, 20 Jun 2008

HBOS, Britain’s biggest mortgage lender, has revealed that it is currently exposed to £5 billion of bad home loans . The announcement came as the lender gave its pessimistic forecast for the housing market over the next 12 months. Having written down £100 million of investments in its house building sector, HBOS predicts that there will be a 9 per cent fall in property prices during 2008.

The company’s chief executive, Andy Hornby, admitted that bad debts had increased, but affirmed his belief that the company’s performance was in line with expectations in the current climate. Regardless of expectations, the lender has suffered in recent times, with the poor performance reflected by its downgrading by the ratings agency Standard and Poor’s from stable to negative. HBOS’ need for capital is also reflected by the fact they are currently running a £4 billion rights issue.

HBOS did, however, offer some positivity, forecasting that margins would improve in 2009 having increased interest rates as a result of the higher borrowing costs it faces. Mr Hornby also affirmed that despite having exposure to £2.8 billion of flat investments in the US mortgage market, £1.8 billion of this is held in the bank’s treasury and as such won’t affect profits.

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