Now Lloyds loses £4bn in reckless lending

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It saw toxic debts balloon by more than five times to £13.4 billion in the first half of this year after the takeover of troubled HBOS, which was instigated by Gordon Brown.

The group is 43 per cent owned by the taxpayer who is now nursing heavy losses on the £17 billion investment.

Chief executive Eric Daniels blamed HBOS for 80 per cent of the write downs and said the fall in property prices this year had a significant impact. The half-year results showed Lloyds racked up losses of £3.96 billion. It made a profit of £2.78 billion in the same period last year.

Mr Daniels said: "2008 was a difficult year for the banking industry and the first half of 2009 proved no less challenging. While the environment will remain challenging, management expects the economy to stabilise in the second half and start recovering slowly in 2010."

The terrible Lloyds figures come the day after fully-nationalised Northern Rock reported losses of almost £725 million after it wrote off more than £600 million in bad loans.

Lloyds, for years seen as a safe bank, merged with the far more aggressive HBOS last year to save the Halifax and Bank of Scotland owner from collapse.

The takeover has since cost Lloyds chairman Sir Victor Blank his job.

Barclays and HSBC, which did not require government bailouts to survive the financial crisis, this week reported combined profits of £6 billion driven by their strong investment banking businesses.

Lloyds shares rose 5.4p to 89.62p today leaving taxpayers sitting on a £4 billion loss on their investment in the bank.

Mr Daniels said he was confident the takeover of HBOS will be beneficial in the long run.

"We have no regrets at all," he said. When you look at the medium term outlook or the group, this is going to turn into a very good deal.

"We have to look at the deal and the performance over a good few years and we have confidence in the future."

Lloyds now expects house prices to fall by seven per cent this year against its earlier forecast of a 15 per cent slump.