Enlarge imageBy Sean Farrell
LONDON (Reuters) - HBOS shares have surged after the Halifax owner said it would return cash to shareholders next year and beat 2004 profit forecasts.
The bank’s shares were up 4.3 percent to 809-1/2 pence at 9:02 a.m. on Tuesday, making them the best performer in the FTSE 100 index <.FTSE>.
HBOS, the country’s fourth-biggest bank by assets, said in an upbeat trading statement it would buy back up to 750 million pounds of shares next year and aims to raise its dividend growth rate.
Full-year underlying pretax profit before exceptional items will "comfortably exceed" forecasts after trading beat expectations, HBOS
The bank put the analyst consensus forecast for 2004 full-year pretax profit excluding exceptionals at 4.559 billion pounds, up 17 percent from 2003.
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HBOS, formed from the merger of mortgage lender Halifax and Bank of Scotland three years ago, has piled on assets by taking business
from established rivals such as Lloyds TSB
Chief Executive James Crosby told Reuters the bank could maintain its profit growth.
"The underlying growth over the next few years we do look to deliver in much the same way," Crosby said in an interview.
The decision to return cash to shareholders comes after the country’s biggest mortgage lender decided against bidding for arch rival Abbey
National and National Australia Bank’s
"We remain absolutely committed to UK organic growth," Crosby said. "Shareholders will start to share more fully in our growth."
HBOS has increased its dividend cover -- net income divided by the total payout -- to 2.5 and will not seek to raise it further, Crosby said. That means shareholders can look forward to bigger payments as profit rises.
"2.5 is a growth-oriented dividend cover. We don’t need any more than that," Crosby said.
The bank will beat forecasts because sales have been good, 2004 cost increases are below the bank’s target of 5 percent and its profit margin is better than expected, Crosby said.
Retail banking growth has been in line with expectations and corporate lending in the second half of the year will match the first half, the bank said. Insurance was also strong, it added.
The bank will beat pretax profit consensus despite a one-off charge for compensating customers misadvised on investment products designed to pay off mortgages, the bank said. Rival Lloyds TSB said on Monday it would set aside 110 million pounds this year for that purpose.
The jump in HBOS shares follows a 5 percent rise this year before Tuesday, making it the third-best performer of the UK’s 10 listed banks and the top performer in the past month.
HBOS is the latest bank to update the market on its performance in 2004 ahead of full-year results. It has produced the most upbeat statement of big lenders, reassuring investors concerned about the outlook as consumer borrowing slows and a house price boom comes to an end.
HBOS said new accounting rules that take effect next year would cut headline earnings per share by about 3 percent and underlying earnings by about 5 percent.
The bank is due to report full-year results on March 2.
