HBOS extends losses

Updated 16.02 Tue Sep 16 2008

Keywords: lehman brothers, halifax bank of scotland, credit crunch, house prices, loans, mortgages, HBOS

Shares in Halifax Bank of Scotland have continued to nosedive after it found itself the biggest casualty of the Lehman Brothers collapse.

HBOS stock lost another 40 per cent on top of a near 18 per cent fall on Monday - wiping more than £5 billion off the group's market capitalisation.

Alex Potter at Collins Stewart, said he estimates HBOS' gross refinancing to be £127.9 billion using last available data at the end of 2007

Analysts said fears of a "fire-sale" of Lehman's mortgage-backed securities is accelerating the bear market over fears it will slash values of other banks' holdings and lead to more hefty credit crunch writedowns.

HBOS needs to refinance more than £100 billion of funding during the coming months, something which could be more challenging after the blow to confidence from the Lehman collapse, analysts said.

Bruce Packard, at broker Pali International, said: "The fact that HBOS has been sold off suggests people are worried about the funding. But this is quite hard to quantify - it's looking like banks are all being marked down as a whole."

Meanwhile, Alex Potter at Collins Stewart, said he estimates HBOS' gross refinancing to be £127.9 billion using last available data at the end of 2007.

However, HBOS' net exposure would drop below £40 billion after taking into account normal short-term loan repayments it was able to make and £60 billion of liquid assets within the group, Mr Potter said.

Mr Potter said gross exposure figures for rivals like Barclays and Royal Bank of Scotland are much higher at £242 billion and £351 billion respectively.

Shares at rival RBS, which racked up a £5.9 billion credit crunch writedown during the first half of this year, are down nearly 10 per cent.

At Barclays Bank, which confirmed it is in talks over buying up some of Lehman's US operations, stock is down more than 5 per cent. The high street giant suffered a £2 billion credit crunch hit during the first half of the year.

Mr Potter concluded: "We don't believe HBOS has a liquidity issue." But, he warned: "A Lehman fire-sale of assets could well generate (further significant mark-to-market impairments)."

A HBOS spokesman said the group is "very confident" about its funding profile, adding that it has £258 billion of retail deposits.