Jeremy Warner's Outlook: Will someone please shut HBOS up

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The Independent Online

HBOS should learn to keep its mouth shut. Every time it issues a statement, which it has been doing a lot of in recent months, its share price takes a hammering. Yesterday's trading update was no exception.

All the underpinning of the HBOS share price by the FSA's crackdown on short selling was undone as the company predicted a 9 per cent fall in house prices this year, a halving of transactions, and a steep rise in arrears. If the shares fall any further, then the £4bn rights issue will again be in danger of being left with the underwriters.

As it happens, it wasn't a negative message that HBOS was trying to get across. Rather, what the mortgage bank wanted to say was that the profits outlook hadn't deteriorated any further since the market was last updated in March. To the contrary, as the mortgage book is progressively repriced on to more expensive deals, margins will improve, and, with them, so will the bank's cash flow.

HBOS should have known better. Markets are in no mood to see the positive. Primed by the Governor of the Bank of England's bleak remarks at the Mansion House dinner, only the negative was going to get heard. So it was the increase in arrears and the projected fall in house prices – bigger than any other mortgage lender is predicting – that investors chose to focus on. HBOS is rightly more gloomy about the housing markets than any of its rivals, but expects the consequent climb in arrears to be more than offset by improved margins.

The increase in arrears on buy-to-let and self-certified mortgages certainly looks alarming, but these are a comparatively small part of the total mortgage book, and, at 1.89 per cent, the overall level of arrears is still no higher than it was two years ago, when the housing market was booming.

I hesitate to say the stock looks oversold. The market has a nasty habit of being more right than the management on these things. Yet unless Britain really is heading into a nasty recession, there's surely got to be upside from here.