HBOS shares bounce despite £1 billion of writedowns; profits down 56%

HBOS, the UK's biggest mortgage lender, bounced early on despite revealing more than £1 billion of writedowns and a slide in profits, after the group pointed to a stronger second half of the year and beat expectations.

Shares in the bank, which recently completed a £4 billion rights issue to shore up its capital base, moved ahead 6.5% or 17.5p, to 288.75p initially, after profits after tax came in at £950 million.

Although the figure was down 56% from last year's number of £2.14 billion, results had been expected to come in even lower.

The group also revealed it would pay an interim dividend, in the form of capitalisation, of 6.1p.

Meanwhile, the company took the opportunity to air more of its dirty laundry after revealing its profit had been severely impacted by a writedown of £1.095 billion, caused by exposure to various financial instruments.

It said: 'The results for the first half of 2008 have been significantly affected by £1.095 billion of negative fair value adjustments taken in respect of debt securities.'

It said the writedowns related primarily to its exposure to asset backed securities and floating rate notes.

The group's chief executive, Andy Hornby, said although the first half of the year had seen the dislocation in financial markets transform into an economic slowdown, the company had taken action and was now better placed going forward.

He said: 'We have now completed our £4 billion rights issue, rebasing the Group to stronger capital ratios. We are repricing both new and existing business, to deliver margin stability, and the Group is now well positioned to operate in the more challenging economic environment.'

The group added it expected to operate comfortably within its capital ranges.

By 09:07am, shares were up 3.7% or 10p, at 281.25p.