HBOS debts leave Lloyds £4bn in the red
Updated on 05 August 2009
Part-nationalised Lloyds Banking Group reveals £4bn losses in the first half of the year, blaming bad debts at Halifax-Bank of Scotland. Ben King reports.
A £13bn write-off for bad debts wiped out any of the lender's operating profits. Four fifths of the bank's bad debts came from the Halifax-Bank of Scotland side of the business, which was rushed into a merger with Lloyds last year to save it from collapse.
The bank says the worst is now over, but taxpayers are further than ever from severing their links with the stricken banking giant.
Amid questions over the wisdom of last year's takeover some now believe the group should be split up. There are also questions over whether Lloyds is lending enough to help stimulate the economy given how much taxpayer help it has had. The bank, which is 43 per cent owned by the government, said impairments on bad debt rose "significantly" to £13.4bn, largely due to HBOS. Due to complex accounting changes, Lloyds posted a statutory £6bn pre-tax profit.
Lloyds said the fall in property prices over the first six months of the year had a significant affect on the group's results because of the large amount of related loans at HBOS.
It said more conservative assessments of HBOS's commercial property assets meant impairments, which were up from £2.5bn in 2008, should peak in the first half of the year.
Lloyds rescued its rival HBOS at the peak of last year's banking crisis, but the hurried, government-encouraged deal has provoked outrage among shareholders concerned about the level of so-called "toxic" assets now on its books.
The announcement came after Northern Rock reported a £724m loss yesterday admitting it will not be able to meet its full lending targets as rising mortgage arrears had left it heavily in debt.
In February the government announced plans to lend more than £5bn through Northern Rock, to restore a measure of competition to a mortgage market.
However, the bank now admits that its lending in 2009 is likely to be closer to £4bn, because those losses have eaten into its capital base and restricted its room to lend.
Earlier this week Barclays and HSBC, which turned down government bailouts, announced combined profits of almost £6bn in the first half of the year.
Shares in both banks rose sharply as they reported record revenues from their investment banking arms, with bankers on course for massive bonus payments.
But the banks also revealed a total of almost £13bn on bad debts from recession-hit customers defaulting on mortgages and other loans.
In the US, Wall Street's biggest player Goldman Sachs announced huge quarterly profits despite taking billions of dollars in bailout cash.
The announcement sparked questions about influence from some commentators who have dubbed the bank "government Sachs".
Interview: John McFall.
John McFall, chairman of the Commons Treasury Select Committee, told Krishnan Guru-Murthy that the merger was the right decision.
Mr McFall said: "I don’t think it was a mistake because at the time we saw the banking infrastructure in the country ready to go down completely so I do not think the government had any choice at that particular time.
"But what we can see today is the horror story of HBOS where in the last year alone £19bn of bad loans have been written off and sadly this is where the taxpayer comes in."
He added: "So what I do not want is hasty action to split up Lloyds and HBOS."
Mr McFall said transparency was essential and dismissed recent bank profits, saying that institutions remained on "life support".
He said any “quick exit” from government ownership would be a disservice to the taxpayer.
In the future, he said the UK economy needed to look toward “smaller institutions” to achieve stability.
