The new chief executive of HBOS, Andy Hornby, unveiled unexpectedly strong profits yesterday for the first six months of this year and ruled out embarking on an acquisition spree.
At £2.65bn, profits before tax were 17 per cent higher than during the same time last year, largely as a result of impressive performances by its investment business and nascent overseas operations.
The bumper profits allowed Mr Hornby to promise a more generous £1bn share buy-back programme, lift the interim dividend 15 per cent to 13.5p, and give a £67m windfall of free shares to staff on his first official day in the job.
Mr Hornby, who at 39 becomes the youngest head of a major bank, was also at pains to stress a continuation of the successful strategy of his predecessor, James Crosby.
Mr Crosby set his sights on a 20 per cent share of the UK market for mortgages, savings, investments, credit cards, current accounts and, eventually, personal loans. Mr Hornby said: "It may not be sexy, but I passionately believe that the direction of the business going forward should be where we have been in the past 12 months: strong organic growth in the UK and targeted international expansion."
HBOS - formed from the merger of Halifax and Bank of Scotland in 2001 - has a traditional share above 20 per cent only in mortgages, where it is the runaway market leader.
Mr Hornby insisted that this and moves to replicate the HBOS model in Ireland and Australia gave the bank plenty of room for growth without recourse to acquisition. "For me, acquisitions are guilty until proven innocent," he said. "It's just not on the radar."
The lender recaptured its traditional 21 per cent share of net mortgage lending - the difference between the amount lent and repaid - this year, largely due to surprisingly good customer retention. That had dwindled to just 11 per cent over the last six months of 2005 after HBOS pulled back amid concerns over creeping interest rates and potential defaults.
Bad debts increased to £864m from £750m a year ago, underscoring a trend already displayed by rival lenders. Steeper energy bills and mortgage payments have left more Britons struggling to meet payments on personal loans and credit cards. HBOS expects impairments to reach about £1.9bn over the whole year.
In a difficult six months for unsecured lending, protection and motor insurance, when credit card balances were flat, profits from HBOS's UK retail business - for so long the jewel in its crown - grew by a modest 4 per cent. That unsettled the shares, which eased 2p to 972.5p, valuing the bank at almost £37bn.
But Ian Gordon, a banking analyst at HBOS's broker Dresdner Kleinwort said: "Retail may not look great on the surface, but it's better than its peers and is actually a decent operational performance."Reuse content