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HBOS £11 billion in the red after a year of disaster
Hugo Duncan13 Feb 2009
The full extent of the crisis at HBOS was laid bare today when Lloyds Banking Group admitted that the Halifax owner lost about £11 billion last year.
Lloyds rushed out a grim trading statement to the Stock Exchange that confirmed what many in the City have long feared - the rescue of HBOS by Lloyds TSB at the height of the banking crisis will come at a very heavy price.
Lloyds, now 43%-owned by the taxpayer following the merger and £17 billion of Government support, blamed tumbling asset prices, the ongoing freeze in the credit markets, and "increasingly difficult market conditions".
Shares in Lloyds sank on the news, losing 35.9p, or 40%, to 55p.
Other banks followed suit, with Royal Bank of Scotland, now 68%-owned by the taxpayer, down 1.7p at 22.3p.
Lloyds said HBOS made an underlying loss of £8.5 billion but this widened to some £11 billion after other factors such as goodwill write-offs were included. Some £7 billion of losses came in the HBOS corporate division led by Peter Cummings.
The losses - compared with a profit of £5.7 billion in 2007 - will increase speculation that outright nationalisation of the UK banking sector is inevitable.
Some City analysts argue that it would be better to take the High Street banks into national ownership sooner rather than later, saying this will make it easier for the recovery to begin.
Public anger at the damage wrought by banks has been growing for months.
This week, the Commons' influential Treasury Select Committee hauled in several top bankers for questioning, including former HBOS chief executive Andy Hornby and Lloyds boss Eric Daniels.
Daniels today said: "HBOS's 2008 results have been adversely affected by the impact of market dislocation, which accelerated significantly in the last quarter of 2008, and the additional impairments required on the HBOS corporate lending portfolios.
"These impairments primarily reflect the application of a more conservative recognition of risk and the further deterioration in the economic environment.
"Whilst we recognise that the short term outlook is more challenging, Lloyds has the largest UK financial services franchise, with excellent long-term earnings potential.
"The group is already making good progress in integrating the two businesses."
Lloyds said it expected the Lloyds TSB business to make profits of £1.3 billion.
David Buik at BCG Partners said: "The HBOS loss is a lot more than we thought it would be and Lloyds' own position is worse than we thought. The numbers are messy. It's not surprising the market didn't like it."
Reader views (5)
The upper levels of banks all around the world are populated by people with the morals no better than thieves. Why did we expect anything better? Just a shame my children have to share pavement-space with creatures like this.
- Ant, London, 16/02/2009 11:04
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Now we have the facts it is time for Mr Daniels to go. Through him Lloyds Bank is broke and he should fall on his sword.I only wish i was there to push him.
- Stan White, leeds, 15/02/2009 13:59
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An absolute scandal -- Shareholder Value destroyed on an epic scale and the Chief Executive has even admitted Lloyds did inadequate due diligence so they had no real idea of what they were getting in to.
A great bank destroyed in pursuit of a vanity project !
- Michael, Surbiton, Surrey, 13/02/2009 18:38
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This was a shot gun marriage, conducted by Alistair Darling, and was not in the interest of Lloyds TSB shareholders or staff. However, I suspect if it had not been done HBOS would have gone bust and that would/could have bought the whole banking system down. The results of which would make our present problems seem like a walk in the park - so the lesser of two evils.
- Jeremy E, London, 13/02/2009 18:18
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Before the question of the HBOS merger arose, Lloyds TSB were proud to announce that they were in good shape and not affected by the sub-prime credit crisis. Apart from potential greed, based on 'biggest is best' what on earth made them want to get tied up with HBOS and all their troubles. An absolutely stupid decision based on a shot-gun marriage with Gordon Brown holding the gun. The result has caused huge losses to numerous pension funds and ordinary shareholders. If the bank is nationalised that will be another pile of money down the drain never to be seen again.
- Douglas, Bristol, 13/02/2009 16:11
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