HBOS set to dampen fears on exposure

Published on Monday 16 June 2008 21:14

HBOS is expected to have to address rising concerns about whether it is over-exposed to Britain's embattled housebuilding sector when it publishes its £4 billion rights issue prospectus later this week.

However, the Halifax/Bank of Scotland banking group received a boost yesterday when the UK Shareholders' Association said it did not expect the bank to publish any writedowns on individual property assets it holds.

UKSA said it realised this information might be "commercially sensitive".

Roger Lawson, a director of UKSA, many of whose members are believed to be among HBOS's two million private investors, said: "I think the concern is people are asked to subscribe in new shares and there is a risk of further (housebuilding] liabilities being disclosed.

"Perhaps HBOS has not been as open with ordinary shareholders as they have been with the institutions and underwriters."

Lawson said that a general reassurance and comparison with UK peer banks would be reasonable and adequate.

He added: "I don't think HBOS should disclose commercially sensitive information, certainly not on individual loans."

The prospectus is set to come alongside a trading update in which HBOS's chief executive, Andy Hornby, is expected to deny the bank is excessively exposed to the housebuilding sector.

Housebuilders' shares have nosedived amid falling house prices and tougher conditions for gaining mortgages.

It is believed Hornby will say that, despite Halifax being Britain's biggest mortgage bank, HBOS does not consider its exposure to housebuilders – at about 3.3bn of loans – is proportionately greater than rivals.

Analysts believe loans to housebuilders comprise 3 per cent of HBOS's corporate loan book and 1 per cent of its total loan book – broadly in line with the UK average.

It is thought Hornby may also confirm that the bank has lent 40bn to construction and property companies – about 37 per cent of HBOS's loan book against a banking industry average of 38 per cent.

It remains unclear whether HBOS is prepared to give a figure for its potential losses on its property investments, or possible related writedowns.

HBOS declined to comment yesterday or to say on what day the prospectus and trading update will be published.

The bank's major housebuilder investments include a 50 per cent stake in Crest Nicholson and 20 per cent of McCarthy & Stone, both taken over the last two years.

The bank also took undisclosed stakes in Miller Group and Tulloch north of the Border in recent months.

McCarthy & Stone, a specialist retirement homes builder, recently drafted in investment bank NM Rothschild to look at the overall structure of its business, including revenue streams, products and costbase.

Apart from its equity stake in M&S, acquired when the bank teamed up with Scottish property entrepreneur Sir Tom Hunter to buy the company for 1bn two years ago, HBOS is also believed to be exposed to 80m of its 800m debt.

There has been some concern as to whether M&S can service its debt.