HBOS Plc, Britain's biggest mortgage lender, beat analysts' expectations with a 13 percent rise in first-half profit on Tuesday as its new chief executive ruled out making any big acquisitions.
CEO Andy Hornby said the results, along with buying back another 250 million pounds ($466 million) in shares, underscored HBOS's prospects and there would be "absolutely no change" in strategy. He said he had no plans to expand internationally through acquisitions, as some analysts expect.
"I have absolutely no intention of doing so (pursuing acquisitions), I'm not looking at anything at all," Hornby told Reuters in an interview hours after taking the helm. At 39 he becomes the youngest chief executive of a major UK bank.
"Today's results show with real clarity that organic growth is at the absolute core of what we're about and I have no intention of changing that," he said.
In the half, growth was fuelled by treasury and asset management, where profits jumped 46 percent; corporate, up 14 percent; and the UK investments arm, with sales up a third.
"I believe in the basic maxim that acquisitions are guilty until proven innocent. When you've got a business performing this well with this much top-line momentum there's even less reason to go out and do something risky," Hornby said.
Britain's fourth biggest bank said underlying pretax profit was 2.61 billion pounds in the six months to end-June, up from 2.31 billion a year ago and above an average forecast of 2.53 billion from 11 analysts polled by the company.
HBOS said its share of net UK mortgage lending bounced back to 21 percent in the half. This was in line with its traditional share of the market and its best figure since 2003 as it retained more customers.
Hornby said that as a result its 2006 net lending share should come in near the top of its 15 to 20 percent target. The bank's share of new mortgages had fallen to 14 percent in 2005 after slumping to 11 percent in the second half, when it focused on more profitable lending.
"They've clearly decided to put their foot back on the pedal," said SG analyst Bruce Packard. "People were slightly concerned about H2, so it's good to see, although it makes you slightly wonder that it's bouncing around so much."
But analysts said there was disappointment with a 4 percent rise in the retail unit's profit, with unsecured bad debts rising and credit card balances near flat.
HBOS shares were down 0.2 percent at 973 pence by 1335 GMT, valuing the business at about 37 billion pounds.
HBOS is now buying back up to 1 billion pounds of its shares this year, above the 750 million pound repurchase already promised. HBOS said 502 million pounds had been bought by mid-year. It also lifted its interim dividend by 15 percent.
But its bad debts rose to 864 million pounds in the first half from 753 million pounds a year ago. This confirms a trend by other UK banks showing that defaults on UK unsecured loans continue to rise as consumers struggle to repay debts. A change to bankruptcy laws last year further added to bad debts.
Hornby said a further deterioration in unsecured bad debts could be seen in the second half, but he was confident group bad debts in 2006 would not be more than the 1.9 billion pounds expected by analysts, up from 1.6 billion in 2005.
International profits rose 27 percent. HBOS's overseas businesses are mostly in Australia and Ireland and account for almost 15 percent of group profits. HBOS said it kept expenses under tight control, and its ratio of costs to income fell to 40.9 percent from 42.2 percent a year ago, one of the lowest cost UK mortgage providers.
"In tough markets low cost players tend to win over time and I'm confident we can continue to outperform the competition," he said. "We want to keep driving it (cost/income ratio) down."
Net interest margin - the difference between the interest levied on borrowers and interest paid to savers - was little changed from a year ago at 1.79 percent. The retail margin slipped to 1.8 percent from 1.84 percent in the previous six months due to lower mortgage margins.
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