HBOS profit hit by writedown, may sell assets

LONDON (Reuters) - HBOS Plc HBOS.L, Britain's biggest home lender, said it is considering asset sales after reporting first-half profits halved due to a 1.1 billion pound ($2.2 billion) hit on debt securities hurt by the credit crunch.

HBOS's shares jumped 6.5 percent to 288.5 pence by 6:25 a.m. EDT on Thursday, making it the top-performing UK stock.

Analysts detected no nasty shocks in the results, and said profits beat expectations, costs appeared under control and the shares had already been hit hard.

The bank said it would consider selling assets if the right price was offered, but would not comment on whether that meant its Australian operation Bankwest was for sale.

"We will look at all sensible options over time to improve deposit-to-loan ratios," Chief Executive Andy Hornby told Reuters. "That's about running down some assets and if some buyers consider assets are worth more to them than they are to us then we don't rule that out."

He later told analysts he would consider potential sales over the next year to 18 months.

Jason Napier, analyst at Deutsche Bank, said in a note: "The fact that asset sales are being contemplated could be a significant positive if the right assets (Australia) are sold."

HBOS said it made an underlying pretax profit, including the negative adjustments, of 1.45 billion pounds in the first six months of the year, down from 2.96 billion in the same period of 2007. The average forecast given by four analysts polled by Reuters was for a profit of 1.29 billion pounds.

It had already warned last month it would take a 1.03 billion pound hit on assets held in its treasury trading book, up from a 227 million pound impact last year from the value of debt securities tarnished by the financial markets turmoil.

STRONGER CAPITAL

The bank, which raised 4 billion pounds from a rights issue earlier this month to rebuild its capital, said its core tier 1 capital ratio would have been 6.5 percent at the end of June if the fundraising was included, one of the strongest capital positions among Europe's banks.

Many banks have raised capital this year to repair balance sheets and brace for a tough economic outlook.

Britain's economic growth is expected to slow this year and there is further downside risk in 2009, HBOS said. It predicted UK house prices will fall by 15-20 percent over 2008 and 2009.

Mortgage bad debts rose to 213 million pounds in the first half from 40 million in the previous six months. Analysts said a rise had been expected, and the trend echoed rival Lloyds TSB (LLOY.L) on Wednesday that mortgage impairments will rise.

"HBOS is a property bank in a property crunch, and is thus in the firing line if ongoing residential and commercial property price falls combine with a recession," said Bruno Paulson, analyst at Bernstein.

HBOS plans to slow asset growth in the second half, resulting in 2008 lending growth of near 5 percent. Deposit growth is expected to exceed lending growth after rising 12 percent in the first half, the bank said.

The outlook for margins is more positive as higher margins for new retail loans offset increased funding costs.

Its net interest margin dipped to 1.55 percent in the first half from 1.58 percent a year ago, as better retail margins partially offset declines in corporate and international.

HBOS said it expects stable margins in the second half and an improvement in 2009, as it reprices about one-third of its mortgage book and a fifth of corporate loans this year.

HBOS shares have tumbled 61 percent this year amid concern about its exposure to structured credit assets, higher funding costs and its heavy reliance on the slowing UK housing market and broader economy, but they have recovered from an all-time low of 225p earlier this month.

(Editing by David Cowell)