(Adds further analyst reaction, details of Halifax expansion)
LONDON (AFX) - HBOS PLC turned in a 17 pct rise in annual profits, buoyed by strong growth in corporate banking, and announced plans for a major expansion of its Halifax branch network.
The UK's fourth-biggest bank and biggest mortgage lender said pretax profit for 2005 came in at 4.8 bln stg, up from 4.1 bln the previous year, and slightly ahead of the consensus analyst forecast of 4.7 bln stg.
The improvement was driven by a 27 pct increase in underlying profits at the corporate banking division, while profit at the international division -- dominated by HBOS' Irish and Australian operations -- rose 50 pct.
That offset a weaker performance in the insurance and investment division, where underlying profit was down 1 pct. Retail banking profits rose 8 pct.
The bank said it had scaled back its lending activities in the UK in favour of more rapid growth overseas. The bad debt charge for the year was 1.6 bln stg, up from 1.2 bln in 2004, and in line with analyst forecasts.
The consumer banking division accounted for the bulk of the increase, with bad debt charges rising to 991 mln stg from 668 mln stg a year earlier.
By 9.10 am, HBOS shares were down 3.6 pct at 1,024 pence, valuing the company at about 39.2 bln stg. Prior to today's statement, the shares had risen 9 pct since the beginning of the year.
'The results themselves were in line, but there are a lot of question marks coming out of today's statement, and that's proving a little too much for the price to bear,' said Hargreaves Landsdown analyst Richard Hunter, citing concerns over bad debts and unflattering comparisons with well-received results announced in the past week by HBOS rivals Royal Bank of Scotland and Lloyds TSB.
HBOS said it was setting aside a further 130 mln stg to cover compensation to customers who claim they were mis-sold endowment policies, taking the total for the year to 260 mln stg.
And chief executive James Crosby said the bank was taking a cautious approach to the booming business lending market.
'We continue to be wary of apparently buoyant trading conditions in UK corporate banking. Such an environment calls for caution and a clear focus on returns rather than volume,' he said in a statement.
Crosby added that the bank was set for further growth overall in 2006, predicting that interest rates would fall and economic growth would pick up in the UK.
The final dividend was set at 24.35 pence per share, taking the full payout for the year to 36.10 pence, a 10 pct increase on 2004.
In 2005, the bank also benefited from tight cost controls, with overall costs as a percentage of income falling to 42.2 pct from 44.7 pct the previous year. HBOS said it expected the ratio of costs to income to improve again in 2006.
The group net interest margin -- net income from lending as a percentage of total loans, a key profit driver -- rose to 1.80 pct in 2005 from 1.79 pct the previous year.
Separately, HBOS said it planned to open 100 new branches of the Halifax building society over the next five years, taking the total to about 1,100.
The new branches will be concentrated in the south of England, expanding its network in the region by about 15 pct.
The company said the expansion programme, which will create about 1,500 new jobs, is the biggest the Halifax has undertaken since the 1970s.
The move follows the announcement last month of a plan to open 46 new HBOS branches in Ireland. myles.neligan@afxnews.com mn/cw/mn/ak/mn/slm COPYRIGHT Copyright AFX News Limited 2005. All rights reserved. The copying, republication or redistribution of AFX News Content,inculding by framing or similar means, is expressly prohibited without the prior written consent of AFX News. AFX News and AFX Financial News Logo are registered trademarks of AFX News Limited