British bank HBOS on Wednesday posted weaker-than-expected profits for 2007 alongside a cautious outlook for this year as a result of the global credit crunch. Underlying profit before tax increased 3.1 percent to 5.71 billion pounds (7.53 billion euros, 11.32 billion dollars) last year, HBOS said in an annual results statement.
That fell short of analyst consensus forecasts for 5.76 billion pounds. Investors took flight on the news, sending HBOS shares plunging 10.50 percent to 631 pence on London's FTSE 100 index, which in turn sank 1.54 percent to 5,993.50 points in mid-afternoon trade.
On a positive note, HBOS revealed relatively modest exposure to the turmoil on the credit markets in 2007 but gave a gloomy outlook for 2008. "The current turmoil in global financial markets introduces considerable uncertainty into the plans of all financial institutions," HBOS warned. "We are planning on the assumptions that market conditions will remain uncertain throughout 2008."
HBOS said it took a 227 million pound credit crunch-related asset write-down for 2007. That was higher than the 180 million pounds reported last December but remained significantly lower than most of its banking peers.
The US housing slump has sparked a credit crunch as banks became reluctant to lend to each other. Barclays' investment arm Barclays Capital took a hit of 1.635 billion-pounds in 2007 from the credit crunch and last week, Lloyds TSB revealed it had emerged with a credit-related loss of 280 million pounds.
The HBOS write-downs "are clearly right at the bottom of the spectrum in terms of what major banks have been reporting," said group chief executive Andy Hornby. "We're not complacent about it but it does show that we've been extremely conservative, avoiding putting our liquidity portfolio into some of the more esoteric instruments that have caused a lot of the write-downs around the world."
HBOS said 2007 net profit grew 4.3 percent to 4.05 billion pounds as group revenues increased 6.5 percent to 12.90 billion pounds. Some dealers said the plunge in the stock price after the results may have reflected profit-taking in the wider market after recent strong gains.
"We've had a strong day or two, so perhaps what we're seeing is an element of profit-taking and sentiment is not helped by cautious comments from HBOS," said analyst Richard Hunter of broker Hargreaves Lansdown. "We've still got the spectre of (the US) subprime (home loan crisis) in the background but each time a new bank reports numbers, the market has a better picture. Royal Bank of Scotland reports tomorrow and HSBC on Monday so that will help," he added.