PETER CUMMINGS, chief executive of Bank of Scotland Corporate, has defended the bank's decision to take big equity stakes in two of the UK's leading house-building companies at the onset of the credit crunch.

Cummings defended the Edinburgh-based bank's decision to provide debt and equity funding at the peak of the credit bubble to the £1.1 billion buyout of McCarthy & Stone and the £725 million acquisition of Crest Nicholson, even though the equity in both deals is now understood to be worthless.

Both takeovers were made in partnership with West Coast Capital, the private-equity vehicle of Ayrshire-based billionaire Sir Tom Hunter.

Speaking after HBOS's annual general meeting in the SECC in Glasgow, Cummings said: "We are a through-the-cycle lender and investor."

He said he believes retirement homes builder McCarthy & Stone ought to be able to ride out the property downturn as it is the dominant player in its niche. "On a global basis, there are greater numbers of people living in retirement today than all the retired people in history," said Cummings. He said demand for housing from the over 65s would continue to surge despite the housing market slowdown.

Debt in McCarthy & Stone is trading at about 60% of its face value while that in Crest Nicholson is trading at about 65% of par - meaning the equity in these deals is currently worthless. However, Cummings said it does not matter, as the bank is a long-term investor and underlying businesses remain sound.

HBOS's appetite for housebuilders has not diminished since the start of the credit crunch. In recent weeks it has bought stakes in Miller Group and Tulloch Homes.

The bank's commitment to the sector has been strengthened by an internal report predicting that the UK government will miss its target of building three million new homes by 2020 by some 500,000 units. In the report, the bank's chief economist, Martin Ellis, warned the shortfall may be even higher.

Cummings said that HBOS, which last week unveiled a £4bn rights issue to strengthen its credit ratios, has been selectively buying some of the "distressed sales" made by commercial property mutual funds in recent months.

Bank of Scotland Corporate has some £40bn in property and construction loans on its books. Cummings, who last year was paid more than HBOS chief executive Andy Hornby, said the bank has no intention of reducing its exposure to the sector.