BANKING group HBOS yesterday announced a 22-per cent hike in full-year profits despite a pounds-130m mis-selling provision, pounds-200m of staff bonuses and a hefty rise in bad debts at its core retail division.
The Edinburgh-based bank, created from the 2001 merger of Bank of Scotland with the Halifax, said pre-tax profits jumped to pounds-4.59bn during 2004 - around pounds-100m higher than most analysts had forecast.
James Crosby, chief executive, said: "These are strong results and ahead of expectations. With every division delivering, what we see is HBOS firing on all cylinders. In the three years since merger profits have almost doubled."
Excluding exceptional items of pounds-178m - comprising merger integration costs of pounds-48m and a pounds-130m provision against endowment mis-selling claims - underlying pre-tax profits rose 23-per cent to pounds-4.77bn. The endowments provision is the first time it has put aside cash for such compensation and comes after a "significant increase" in the volume of complaints last year.
The UK's biggest mortgage lender is giving workers a slice of a pounds-200m bonus pot with around pounds-50m set to be paid out in Scotland. Additionally, the bank is dishing out pounds-60m worth of free shares to staff this summer, the equivalent of around 5-per cent of average salary.
UK banks have been enjoying bumper profit figures for 2004 thanks to rising revenue and low levels of bad debts. However, HBOS said that non-performing loans as a percentage of total customer advances had risen slightly from 1.75-per cent to 1.85-per cent within banking operations. On the retail side they rose from 1.81-per cent to 2.16-per cent, but Crosby said that mortgage book arrears were still at 20-year lows.
Scotland has been the fastestgrowing geographical area for HBOS since it was formed, with more than 2300 jobs created north of the border, where the bank employs 17,636 people or 27-per cent of its UK workforce.
While its larger rivals like HSBC and Royal Bank of Scotland are expanding with overseas acquisitions, HBOS is gunning for growth in the UK. Last year it signed up one million bank accounts and 1.2 million credit cards. The focus remains on luring customers with valuefor-money products while keeping a tight control of costs.
Crosby said acquisitions in the UKwere "not that likely", adding that the company owed it to the shareholders who had bought into its UK growth strategy not to dilute what could be delivered. "This strategy has legs. We are not talking about small, modest potential for growth. We are talking about markets where we have 10-per cent to 12-per cent share and we can get to 15-per cent to 20-per cent."
Within the small business banking market, HBOS acquired 29,000 customers last year, enabling it to grow deposit balances by 21-per cent. The corporate business banking unit lifted pretax profits 25-per cent to pounds-1.38bn, with cost savings yielded as a result of merging the former corporate and business divisions.
The retail unit saw profits up 22-per cent as income grewwhile costs remained flat. The bank's average loan-to-value ratio is now 41-per cent. Crosby said: "Profits are in no sense a dirty word. We have the right to earn profits for our shareholders and the responsibility to provide a fair deal for our customers."
Overseas, HBOS has set about exporting its strategy to Australia and Ireland. Pre-tax profits for the international division grew by 21-per cent to pounds-312m.
HBOS shareholders will receive a full-year dividend of 32.95p a share, a rise of 7-per cent on a year earlier. The bank has the UK's largest base of small shareholders, with an estimated 2.5 million private investors set to share around pounds-345m of the pounds-1.28bn dividend for 2004. It also confirmed plans to launch a pounds-750m share buy-back.
The shares slipped 10.5p to 836.5p as investors fretted about the impact of further potential interest rate rises on the housing market and consumer borrowing.
Major award Page 25
Graphic showing How HBOS makes it profits
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