Credit crunch costs Lloyds TSB £200m

Last Modified: 10 Dec 2007
Source: ITN

The credit crunch has cost Lloyds TSB £200 million so far, as fall-out from the turmoil continues to weigh on the banking sector.

The UK's fifth-largest bank said it remains "firmly on track" to deliver a good performance in 2007 and the losses had been limited to £200 million as of the end of October.

The losses came from an array of financial instruments, including an £89 million exposure to mortgage-backed bonds; a £90 million profits blow on its exposure to "conduit" company Cancara, used to raise short-term funds, hit by the slump in market demand for asset-backed securities; and £22 million in losses on other financial instruments known as structured investment vehicles (SIVs).

But the bank added that its high street operation had benefited from tighter mortgage lending standards, while the firm has continued to grow its share of current accounts and seen "significantly improved deposits".

The bank has also gained additional funds through the sale of businesses such as the £977 million disposal of its Abbey Life business to Deutsche Bank in July.

Chief executive Eric Daniels said: "Whilst no bank has been immune from the recent turbulence, the relatively limited impact of the market dislocation on the group has been more than offset by the significant profit on the sales of non-core businesses."

Lloyds TSB's profits will also be affected by repaid overdraft fees to customers, which cost it 336 million at the end of June. It expects a similar charge during the second half of the year.

The flood chaos in June and July will also result in £110 million extra in insurance claims for 2007, the bank said.

Lloyds TSB's exposure to investments based on high-risk mortgages is smaller than larger rivals such as Barclays and Royal Bank of Scotland.

Swiss investment banking giant UBS has written off another £5 billion after loans to high-risk US borrowers and warned shareholders it could make an overall loss for the year.

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