Lloyds announces 70% profit plunge raising fears for high street rivals

The result was far worse than a pessimistic City was expecting and raised fears for high street rivals.

HBOS, which owns Halifax, reports tomorrow and Alliance & Leicester the day after.

Lloyds TSB blamed the global credit crunch and losses in its insurance business.

Lloyds has announced huge losses for the first half of this year

The figures will heighten government fears that more small banks could collapse like Northern Rock.

A spokesperson today said: "Lloyds TSB’s business model is completely different to Northern Rock.

"During a period of considerable turbulence for the financial services sector and a slow down in the UK economy, Lloyds TSB continued to deliver a strong underlying performance in all its core business and is well positioned for a lower growth environment.

"Lloyds TSB believes that it has the right business model to perform well in the current environment and excluding the impact of market dislocation, profit before tax increased by 11 per cent to £2,158 million."

Lloyds was regarded as the most conservative of the big banks and had won praise for resisting the temptation to make risky loans during the boom years.

Lloyds said it expected house prices to fall by up to 15 per cent this year, which would push tens of thousands of people into negative equity.

Banks have come under fire from consumer groups for squeezing customers with high charges as they themselves struggle with the downturn.

Critics of the industry say not enough banking bosses have accepted responsibility for their failures by resigning.

Lloyds TSB chief executive Eric Daniels warned that the British economy was facing a sharp slowdown in the coming months, and will grow by only 1.6 per cent this year  -  far lower than Treasury estimates of two per cent.

He said the crisis in the financial markets and falling house prices 'have impacted consumer confidence and contributed to lower growth' in Britain in the last six months.

Mr Daniels insisted that Lloyds TSB will continue to deliver a strong operating and financial performance.

Lloyds TSB made £599million in the six months to June, down from almost £2billion a year ago. The bank said its underlying performance reflected good 'momentum'.

But the City is now fearful of the future prospects for the company.

Simon Pilkington, an analyst at Cazenove, said: 'The dividend is unsustainable. We perceive a long-term challenge to the group's capital position.'

Bank shares across the world have collapsed this year in the wake of the credit crunch.

This morning, Lloyds TSB fell 15p to 306p. It insisted it will not have to raise fresh cash from investors unlike rivals.

Royal Bank of Scotland, Barclays and HBOS have all been forced to raise billions of pounds to shore up balance sheets.