Further Impairment Charges Expected At HBOS

Tom Burroughes

12 December 2008

UK banking group HBOS, which is being taken over by rival UK banking group Lloyds TSB, said further deterioration in markets continued to hit its business, resulting in an estimated impairment charge of £5 billion for the 11 months to 30 November, up from £1.7 billion for the year-to-date period to 30 September.

HBOS said in a trading statement that it has logged an impairment charge of £700 million on secured lending operations, £1.0 billion for unsecured lending arrears, and £3.3 billion in losses related to the corporate credit market.

Lloyds and HBOS are being temporarily nationalised by the UK as part of steps by policymakers to strengthen the capital of such banks.

HBOS said that as stated in its November interim management statement, its retail net interest margin was stable as compared to the level reported in the first half of 2008, but this will come under pressure due to recent sharp interest rate cuts by the Bank of England.

On the real estate side, falls in estimated property values and other investments have caused an estimated £800 million loss for the 11 months to 30 November, HBOS said.

“Investment valuations are expected to remain under significant pressure in our private equity and joint venture businesses,” HBOS said.

On a more positive note, HBOS said its insurance and investment division continued to make a “good contribution” to group results.