HBOS losses bore £4bn hole in Lloyds Banking
Wednesday, 05 August 2009 08:58
Lloyds Banking today reported losses of £4 billion for the first half of 2009 as bad debts at HBOS drilled into the performance of the merged group.
The group - which is 43 per cent owned by the state - saw the cost of bad debts and impairments stand at £13.4 billion mostly pushed by Halifax's heavy property portfolio of mortgages, but said this should have peaked in the first half of the year.
Lloyds Banking said theses property losses were "the primary driver behind the substantial losses".
In the second half of 2008 a further £12.4 billion was written off - with 80 per cent of all impairment charges coming from HBOS.
"Overall, impairments in the second half of 2009 are expected to be significantly lower than the first half with progressive reductions thereafter," said Eric Daniels, Lloyds Banking chief executive.
The bank also saw a 14 per cent drop in banking revenues as its margins were hit by low interest rates and changes to the sale of payment protection insurance (PPI).
The bank also revealed mortgage lending had suffered as demand weakens, but its market share - of a much smaller market - had grown.
Levels of consumer savings at the combined group grew 4.9 per cent from the start of the year.
Sir Victor Blank, Lloyds Bank chairman, who is set to step down after shareholder anger over the deal to buy the ailing HBOS, defended the merger, which saw Lloyds TSB buy HBOS for £9.6 billion in January after the government cleared competition hurdles.
"I have a great belief in the exciting prospects for the group going forward. We are very strongly positioned for long-term success," he said.
Mr Daniels added: "We are successfully managing the short-term issues and are well positioned to outperform over the medium term, providing value to our customers and shareholders."
Since the merger of Lloyds TSB and HBOS the group has shed some 8,000 jobs.
The group announced today £100 million savings from cost cutting - and £700 million of savings are expected by the end of the year.
Results were reported on a pro-forma basis - comparing the performance of the two firms before merger and now.
On a statuary basis, a £5.95 billion profit was made due to 'negative goodwill' charges due to the acquisition of HBOS.
At 8:58, the LLoyds Banking share price was up 4.28 per cent to 87.88p. A year ago the LLoyds TSB share price was trading over £3.
Nick Raynor, investment adviser at The Share Centre, explained although the merger may have presented Lloyds with a significant opportunity to cement its future place on the high street, "HBOS' skeletons in the closet continue to haunt the group".
"The good news for Lloyds Banking Group shareholders is that most of these poor quality loans are now insured by the government, therefore by us the taxpayers. This means any future losses will be a problem for us not the banks," he said.
"Despite the bank's losses its share price jumped seven per cent in early morning trading. However, investors hoping to profit from day trading in the banks should be wary as we foresee further bad debts and rights issues within the sector.
"As Lloyds now has the biggest exposure to UK consumer debt we are listing the bank as a tentative weak hold."
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