HBOS takes 5.2 billion pound hit

By Steve Slater and Myles Neligan

LONDON (Reuters) - Home lender HBOS Plc doubled its hit from toxic assets and bad loans to over 5 billion pounds on Monday and its takeover partner Lloyds TSB warned of a sharp fall in profits.

Lloyds also said it plans to writedown assets held by takeover target HBOS by up to 10 billion pounds due to accounting rules and as it takes a more stringent view of its target's asset portfolio.

The banks said the takeover remained on track, and Lloyds said it expects to resume dividend payments next year after repaying preference shares taken by the UK government.

It raised its expected cost savings from the deal to 1.5 billion pounds per year from 1 billion pounds.

By 2:00 p.m. Lloyds shares were down 3.19 percent at 192 pence, valuing its offer at 116.2 per HBOS share. HBOS shares rose 4.8 percent to 104.1p, helped in part by a weekend report of a potential counterbid.

HBOS said it had taken a 5.2 billion pound hit from toxic assets and bad loans in the first nine months of the year, up 2.7 billion during the third quarter.

The 10 billion pound capital hit identified by Lloyds would come on top of this and include 3.8 billion pounds of fair value adjustments crystallised on the deal. Further losses would come from applying Lloyds' more conservative valuation criteria on HBOS assets, and would be largely offset by positive adjustments on debt carried, Lloyds said.

Oriel Securities analyst Mike Trippitt said: "It's Lloyds' fair valuing of HBOS' assets as they see it at the moment. I think there was a suspicion that something of this order of magnitude would be required."