Credit crunch sees HBoS profits halved

HALIFAX Bank of Scotland today announced that profits in the first half of the year were more than halved as it continues to fall victim to the credit crunch.

The Edinburgh-based bank's 51 per cent underlying interim pre-tax profit decline was largely attributable to a £1.1 billion hit it has taken as a result of the economic slowdown.

It also said that hard-pressed customers struggling to keep up with repayments had contributed to its bad debts leaping by £1.31bn.

The results for the first six months of 2008 give the clearest indication so far of the extent it is suffering from the credit crunch.

While at this time last year it was reporting buoyant profits of £2.96bn, it has now seen those sliced to only £1.31bn.

At an after-tax level, profits were down 56 per cent at £950m.

Today's figures are likely to increase the pressure on HBoS in the wake of its £4bn rights issue, when underwriters were left with stock after less than nine per cent of the shares were taken up by existing shareholders.

Its trading troubles have already led to rumours of a break-up of the company, with US bank JP Morgan being linked with a bid.

Andy Hornby, chief executive of HBoS, said: "The first half of 2008 has seen the dislocation in financial markets evolve into a wider economic slowdown.

"We have now completed our £4bn rights issue, rebasing the group to stronger capital ratios.

"We are repricing both new and existing business, to deliver margin stability. The group is now well positioned to operate in the more challenging economic environment."

The extent of HBoS's share price decline has resulted in its value being dramatically reduced and has led to speculation that it is ripe for a takeover.

When the effect of the "negative fair value adjustments" are stripped out, underlying profit before tax still fell by 14 per cent to £2.55bn.

The company said that advances to customers had increased by 12 per cent to £456bn, although it forecast that the rate of lending will slow in the second half, particularly in Corporate.