Gung-ho HBOS seeks £1.37bn

THE bank formed last year from the merger of Halifax and Bank of Scotland, HBOS, has announced a £1.37bn cash-raising exercise as it unveiled unchanged profits for 2001 of £2.6bn.

'We are dedicated to organic growth and we need more capital to achieve our aims,' said chief executive James Crosby.

The money will be raised through a placing of 22.5m new shares at a price to be determined by close of play on Thursday. The shares fell 65p to 740p as HBOS delivered a gung-ho message on future prospects. 'We are very strongly placed in all our markets and we feel the UK economy is terribly resilient,' said Crosby.

The bank has also set a swathe of challenging targets for 2002 and beyond. Last year, net mortgage market share more than doubled to 31% and the group is now aiming for a 25% net share of the lending market.

In 2001, internet division Intelligent Finance lost £154m and HBOS expects it to break even by the end of 2003. The bank also hopes to keep total cost growth to below 3% this year after a 12% rise in group expenses last year.

There is a plan too to increase the return on equity to more than 20% by 2004 from just over 18% now. Crosby said last year's merger had made good progress and was expected to deliver £690m of annual savings.

The group had spent the past year investing heavily in attracting new customers by cutting prices and marketing itself as a bank with a difference, he said. As a result, retail bank profits fell 10% to £1.4bn. Overall results were saved, however, by strong contributions from the insurance and investment arm and from business and corporate banking.

HBOS is hopeful that today's gaffe suggesting it did not want taxi-drivers, window-cleaners and market stallholders as customers will not deter small businesses from coming to its doors.

'We will be welcoming these customers in the next few months. It is our problem, not theirs,' said Crosby. 'The big issue in business banking is portability,' he added. 'It needs to be easier for people to switch banks.'

Crosby also believes the cut in margins that led to retail profits falling will not be repeated this year. 'The market has stabilised,' he said.

Group profits before tax, exceptional items and Intelligent Finance rose by 3% to £3bn and the full-year dividend is up 25% to 28p.