HBOS chief executive Andy Hornby does not expect any improvement in the testing economic climate over the next year. He says that, be it on unemployment, house prices or other data, there is virtually certain to be an uptick in the gloom index for quite some time yet.
But Hornby, head of Britain's biggest mortgage lender and a significant bankroller of the business sector, does not think we are currently heading for an early-1990s-type recession.
He is reassured that current mortgage arrears levels are under a
quarter of the levels they reached in those dark times.
Primarily this is because interest rates are at far lower historical levels than was the case 16 years ago, he says, when they doubled in about 15 months as Britain exited ignominiously from the European Exchange Rate Mechanism.
This led to a doubling of unemployment in just over two years, of which there is little likelihood this time round, HBOS believes.
That does not mean there will not be short-term pain, however, and, with previously flagged credit-crunch-related writedowns, HBOS's statutory interim profits have just fallen 72 per cent. That follows a 70 per cent slump in profits at Lloyds TSB announced on Wednesday.
The betting must be that the other banks, including HSBC, Royal Bank of Scotland and Barclays, will have much the same story to tell the market next week.
If so, the generic sector message will have been threefold. First, things are much tougher than they have been for a long time, and there is no early light at the end of the tunnel.
Second, the volatility in financial stocks has to some extent decoupled from an abrupt, but still more measured deterioration in the economy.
And, third, that decline bears no relation currently to the dark times from 1990 to 1992, when interest rates and unemployment soared and negative equity (homes not being worth as much as outstanding mortgage loans) stalked Britain.
Hornby believes that a major difference and point of resilience between this downturn and that recession is that back then between 35 and 40 per cent of UK mortgage loans had a loan-to-value ratio (LTV) of more than 90 per cent.
Therefore, a lot more people were already much more overstretched as the grim economic reaper lurched from the shadows.
By comparison, last year only 5 per cent of LTVs in the general UK mortgage sector were over 90 per cent. Banks have started being prudent instead of talking about being prudent.
These are fair points and the 7 per cent jump in HBOS's share price yesterday shows the stock market may now feel the bear raids on HBOS's stock during its rights issue were ill-judged and overdone. The interim performance, like Lloyds TSB's, was indeed resilient.
But, just as the pendulum can swing too far towards pessimism, it can also go too far the other way. Things are not good.
HBOS's retail profits were down 5 per cent this time. Corporate profits are just under 40 per cent lower, while that division's bad debts charge has jumped 40 per cent as businesses come under pressure. International profits are treading water.
The only division to buck the trend this time was insurance and investments, partly helped by a rebound in general insurance, as we had no repeat of last summer's severe flooding-related claims.
In the round, though, Hornby looks to have it about right as things stand. Banking conditions are far from good, but it is no nightmare.
SHARES in drugs giant AstraZeneca trade on ten times forecast 2009 earnings. That is below rival GlaxoSmithKline on 11.5 times. This disparity is largely down to concern about Astra's relatively sparse late-stage drug pipeline.
So the company will have welcomed the 3 per cent rise in its shares yesterday that greeted a better-than-expected 14 per cent jump in Q2 profits.
As a result, Astra has lifted its full-year earnings forecasts, always a banker for a lift in the shares.
It follows some earlier market relief that the company seems to have fought off immediate generic threats to two of its main drugs, Nexium for acid reflux, and Seroquel for schizophrenia.
For a more substantial rerating of the stock, however, better news will have to come from that drugs pipeline.
The full article contains 727 words and appears in The Scotsman newspaper.
