"The investment adage is: 'Buy on the rumour, sell on the fact' and it was applied with vigour to shares in HBOS. Having risen by nearly 10 per cent in two weeks, in expectation of a strong results statement, they tumbled by nearly 5 per cent this morning when record profits were revealed.

"James Crosby, the HBOS chief executive, said he remained optimistic about the bank's prospects.

"'This is an organisation that is gaining market share in every market it operates in and as a result is producing the pay-off for shareholders,' he said.

"Investors, however, looked beyond the 29 per cent rise to £3.76 billion in pre-tax profits for signs that HBOS might be unable to continue such rapid growth. On page nine in today's report they found Mr Crosby advising that there was 'no room for complacency' in the property market.

"He said that fears over house prices had prompted the bank to demand that mortgage applicants go through extra hoops to prove their financial security. HBOS said it was prepared to tighten its loans criteria at the expense of market share.

"When the company owns, in Halifax, the UK's largest mortgage lender, such a caution comes with profitability strings attached.

"Furthermore HBOS noted a slowdown in the rate of growth in unsecured loans and credit card balances. 'Although there are a few signs of deterioration in retail credit conditions, here too we remain vigilant for any contrary indicators,' Mr Crosby said.

"Investors were left rushing for the exit, wiping more than £1 billion from the company's stock market value.

"Such a sell-off appears premature. HBOS may have given a warning over complacency in the property market, to which the bank is heavily exposed, but a crash in house prices is unlikely. Only on Monday John Wriglesworth, an economist with Hometrack, said that there was 'more chance of finding Elvis on Mars' than of a major fall in the value of homes.

"HBOS's decision to tighten criteria for mortgages is a rational response to a market slowdown which will reduce borrowers' ability to rely on increasing property values to reduce the significance of their liabilities.

"HBOS has also reduced its reliance on the mortgage market through expansion into other markets. It has harnessed the strengths of its Bank of Scotland unit to bring business banking services to England and Wales.

"A focus on bancassurance, meanwhile, helped investment and insurance operations achieve a 51 per cent surge in profits.

"HBOS forecast further growth in the sectors as faith in shares returns and the bank's bigger rivals focus on international markets.

"Mr Crosby said: 'As a number of competitors also look outside the UK for their primary growth prospects, the opportunities increase for a strong HBOS to grow at the expense of the competition.'

"The bank's margins are also set to increase as rising interest rates present an opportunity to increase mortgage demands faster than the returns offered to savers."

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