HBOS, the largest mortgage lender in the UK, says its profits have fallen 4% in 2007, partially as a result of the increased costs of borrowing funds for mortgages.
The news comes as Hector Sants, chief executive of the FSA, warned that banks may never again be able to lend money as cheaply as they have in recent years due to higher costs in the wholesale markets.
Overall, pre-tax profits fell from £5.7bn in 2006 to £5.47bn in 2007, sending shares down 8.7% to 643.5p by late morning.
Retail business was particularly badly hit, with profits falling 13%, and HBOS blamed much of the drop on the high cost of borrowing funds on wholesale markets.
The bank indicated that it will concentrate on profitable mortgage lending in 2008, rather than pursuing market share.
Shareholder dividends have grown 18% for the year to 48.9p per share.
Andy Hornby, chief executive of HBOS, comments: “In 2007, the disciplined execution of our strategy has resulted in good earnings growth for our shareholders despite difficult market conditions.”
However, the bank has reduced the value of its investments by £277m as a result of the credit crunch and continuing uncertainty in financial markets.
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