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The dire finances of HBOS, the banking group being bailed out by the taxpayer, were laid bare yesterday when the lender said more business, mortgage and credit card customers had fallen behind on their loan repayments in the last two months.
The shock profit warning came as its shareholders gathered in Birmingham to ratify the £11bn taxpayer bail-out and its emergency takeover by Lloyds TSB. The once fast-growing bank, formed in 2001 from the merger of Halifax and Bank of Scotland, warned next year would be even more difficult.
The stark assessment of its prospects, and the admission that it would take an £8bn charge for bad debts, wiped almost a quarter off its stock market value.
Lloyds TSB, which issued bad news of its own, was off 18%, while Royal Bank of Scotland, already 58% owned by the taxpayer, was 15% down amid fears that the economic crisis was worsening.
The banks are expected to take £37bn of government funds and the fall in their shares means the taxpayer was sitting on a paper loss of almost £7bn last night.
The combined Lloyds TSB-HBOS is likely to be 44% owned by the taxpayer and dominate the high street with 3,000 branches when the deal, brokered by Gordon Brown in September, is completed next month.
Staff protested outside yesterday's meeting although it was unclear how many jobs would go from the combined 145,000 workforce. Staff at rivals Abbey, Alliance & Leicester and Bradford & Bingley, learned yesterday that their Spanish owner, Santander, is to axe 1,900 jobs over the next three years.
HBOS chairman Lord Stevenson and departing chief executive Andy Hornby both apologised for the bank's performance, but were lambasted by shareholders for being "reckless" and having a "stupid business plan" for the group.
One shareholder tried unsuccessfully to force a vote demanding Hornby and his fellow HBOS executives hand back bonuses and fees paid before the banking crisis took hold this year.
Small shareholders registered their disapproval at the takeover by Lloyds. Holders of 98.5% of the bank's shares by value approved the deal, but that rate fell to 84% when individual votes were cast.
Speaking at an often bad-tempered meeting, private shareholder Peter Hapworth described HBOS as a "basket case" after the collapse in the shares, which topped £11 at their peak, to 67.5p last night. Many received shares when Halifax demutualised in 1997 at about 700p.
"Let's face facts, it is a bank like yours along with a number of other banks that have caused the crisis in the first place. You all went dashing for short-term gain to fulfil bonuses and salaries," he said.
Stevenson defended Hornby, who he said had used all his bonuses to buy shares in HBOS. "He is not someone with yachts or grand houses," Stevenson said.
Hornby, who will stay for a few months at the combined bank on a £60,000 a month consultancy, resisted calls to pay his fee to a debt charity.
While the bank had been beset by rumours about its financial health since announcing a £4bn fundraising in April, in the past two months its position has weakened further. Since September the charge for mortgage customers failing to pay on time has risen from £400m to £700m and for customers with unsecured loans the charge reached £1bn by the end of November from £800m.
But loans to companies showed the greatest deterioration, with the bad debt figure almost doubling in two months from £1.7bn to £3.3bn, surprising the City and raising fears that other banks were facing similar difficulties.
Alex Potter, banks analyst at stockbroker Collins Stewart, said: "Another profit warning focused on mortgages and corporate. The news is bearish across the sector, in our view."
The HBOS treasury book - which takes positions in the financial markets - incurred a further £400m of losses on top of £1.8bn posted in the first nine months of the year.
But, Stevenson was at pains to defend the bank from shareholders' accusations that it had been caught up in the US subprime mortgage crisis.
Mike Blackburn, chief executive during the Halifax flotation 10 years ago, attended yesterday's meeting, which he said "marked the end of an era which started 150 years ago above a public house in Yorkshire."
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