Shares in HBOS and its soon-to-be merger partner, Lloyds TSB, plunged today after the Halifax and Bank of Scotland owner revealed an £8 billion cost of bad debts and charges for mortgage, loan and business arrears.

HBOS revealed the huge writedown just hours before shareholders vote on the bank's rescue takeover by Lloyds TSB.

However, investors were unimpressed with the £8 billion charge, sending shares in Lloyds TSB down 17.2 per cent to 130.8p and HBOS 15.98 per cent lower to 73.6p.

In a trading statement released today, HBOS said its impairment charges and bad debts had risen by £3.2 billion since the end of September.

It said its impairment charge for mortgage borrowers falling into arrears had risen more than threefold since June to £700 million this year as increasing number of homeowners struggled to meet their repayments.

The impairment charge for unsecured lending in the 11 months to November was a larger £1 billion, while the impairment charge in corporate has nearly doubled since September to £3.3 billion.

The total amount the bank is setting aside for bad loans and charges is now £8 billion, up from £4.2 billion at the end of September.

The bank said that pressure on net interest margins is building due to the recent cuts in the UK base rate, which has been slashed to 2 per cent.

However, HBOS said today: "...through the injection of capital and liquidity facilitated by the UK Government, both currently and going forward, HBOS remains confident in its ability to navigate through this difficult period, as it becomes part of the enlarged Lloyds Banking Group.”

In addition to the £5 billion in charges, the bank is also writing off £800 million for losses on its property and investment portfolio after an 18 per cent fall in property prices since the market peaked in summer last year.

It has also accounted for a £2 billion loss in its treasury portfolio because of "market dislocation", doubling the hit it accounted for in June.

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