HBOS Warns of First-Half $2 Billion Writedown

British bank HBOS said on Thursday it was trading in line with its expectations, but warned of a 1 billion pound ($2 billion) writedown in the first half of its financial year and a bigger fall in UK house prices.

HBOS, Britain's biggest mortgage lender, said it now expected house prices to fall by up to 9 percent, compared with its previous forecast for a mid-single-digit percentage decline, and a 45 percent plunge in the number of transactions.

It said this was exerting pressure to make impairment charges, but that arrears were in line with its expectations at the beginning of the year.

It also said it was achieving better pricing on new lending in key markets and that, as a result, the decline in net interest margin seen in 2007 should moderate this year and that margins were likely to be stable or better in 2009.

HBOS unveiled a 4 billion pound cash call in April and said it would cut its dividend, one of a number of banks to announce emergency fundraisings as they grapple with bad investments and a deteriorating mortgage market.

It was forced last week to publish a statement that the deeply discounted rights issue was going to plan after its shares slumped to their lowest level since the firm was created in 2001, below the 275 pence underwriting price for the issue.

HBOS said writedowns in its Treasury Trading Book had increased by 58 million pounds since its trading update on April 29 to 1.028 billion pounds.

"First-half performance will be impacted by negative fair value adjustments to the Treasury Trading Book, but we look forward to a stronger second half year," it said. "For the year as a whole we expect a resilient performance."

HBOS shares closed 6.9 percent lower at 296.75 pence, valuing the business at about 15 billion pounds.

Copyright 2008 Reuters. Click for restrictions.