HBOS posts 22% profits rise

HBOS became the latest UK banking group to post an increase in annual profits today, with a 22% rise to ?4.59bn.

The pre-tax figure for 2004 is double the ?2.29bn that HBOS reported in the first year after its creation in 2001, when Halifax merged with Bank of Scotland to create Britain's fourth largest bank.

HBOS has the UK's largest base of small shareholders, who will each receive a full-year dividend of 32.95p a share - 7% more than last year. An estimated 2.5 million private investors will share around ?345m of a total payout of ?1.28bn. The Edinburgh-based group said it would buy back shares up to the value of ?750m during 2005.

The bank's performance was helped by an improvement of over a fifth in earnings from its high street operations, which made a surplus of ?2.06bn. It also credited tight cost controls and volume growth for the increase in profits.

HBOS also revealed an increase in bad loans, however, with non-performing loans as a share of customer advances rising from 1.81% to 2.16%. It also saw its share of the UK mortgage lending market fall from 25% to 17% after adopting a more cautious approach to the sector. Customer lending improved by 10% with customer deposits up 7%.

The group said it would continue to focus on costs, but that reductions would not be achieved at the expense of customer services or future growth. Last year it added 2,000 service-related jobs, giving it a total of 66,016 staff in the UK and 72,636 worldwide, with an annual payroll of ?1.88bn.

The bank's chief executive, James Crosby, dampened speculation that the bank would soon make an acquisition abroad. "I wouldn't attach a high priority to an acquisition outside the UK, and I would make it even lower in the US," he told Reuters.

Mr Crosby also forecast that US banks were unlikely to rush to buy British lenders. "It's a long way across the Atlantic," he said. "I wouldn't be betting money on that, although I wouldn't rule it out."

Today's results were slightly ahead of analysts' forecasts.

"[They] were expected to be good, and they are good," said Bruce Packard, an industry analyst at ING Financial Markets, who kept a "buy" rating on the shares, which he called "the cheapest in Europe" on a price-to-earnings basis.

However, the shares had fallen by 11.5p to 835.5p by 10am, driven down by the increase in bad loans.

HSBC has already posted annual pre-tax profits of ?9.2bn for 2004, while the Royal Bank of Scotland made ?6.9bn. In all, the major UK banks are likely to have made ?30bn during the year.