HBOS lifts profit as consumer lending stays strong

Britain's biggest mortgage lender HBOS Plc reported a 29 percent rise in 2003 profit on Wednesday, towards the top of forecasts, as it raised its share of a booming consumer lending market.
But the stock fell three percent after a strong start to the year and amid concerns the profitability on the loans the bank makes was falling.
The UK's fourth biggest bank, however, predicted higher shareholder returns as it posted a pre-tax profit of 3.77 billion pounds ($7.1 billion), up from 2.91 billion a year earlier.
Ten analysts polled by Reuters had expected a figure of 3.64-3.8 billion pounds, with a median of 3.72 billion.
"This is an organisation that is gaining market share in every market it operates in and as a result is producing the pay off for shareholders," Chief Executive James Crosby said in an interview. Shareholder returns will increase this year, he said.
The bank has piled on retail and corporate loans amid a UK spending spree with borrowing costs at their lowest since the 1950s. Investors have been concerned that the bank's growth might not be sustainable and might lead to rising bad debts.
Crosby said credit quality was stable and was improving in corporate banking.
He also forecast house prices and mortgage lending would probably rise more than expected this year.
House prices have raced higher in recent years amid low interest rates and a shortage of homes, particularly in England's south-east.
HBOS shares were down three percent at 741 pence at 0920 GMT. The stock has gained 4.3 percent in the past six months, making it the fourth-worst performer of the UK's 11 listed banks. But it has been the third-best this year.
The cost-income ratio fell to 41.6 percent from 45.2 percent a year earlier as underlying costs rose nine percent.
The net interest margin, which measures profitability of lending, dropped to 1.77 percent from 1.83 percent.
"Some may say that the margin looks to be a bit squeezed and costs are higher than expected," said Dresdner Kleinwort Wasserstein analyst Simon Maughan, who recommends investors buy HBOS stock.