Lloyds shocks with warning of more massive losses

Nick Goodway
07.05.09

Lloyds Banking Group confirmed today that it will lose money this year because of its shotgun marriage to HBOS last year.

The bank also said that it expects losses from bad loans to soar by more than 50% this year as the economy suffers and lending made by the former Bank of Scotland sours.

Analysts were widely disappointed and Robert Law at Nomura said: “The statement and analyst call were universally negative in our view, indicating the pressures on UK banking.”

Chief executive Eric Daniels, who is likely to face a shareholder revolt at next month's annual meeting, said: “We expect difficult economic conditions to prevail over the next year or so.”

That contrasts markedly with his political bosses' assessment that the economy could pick up later this year.

Lloyds received a £17 billion government bailout alongside its takeover of rival HBOS last year.

The Treasury paid an average of 120p a share for its current 43% stake in Lloyds, which means that after today's 9.4p share price fall to 103.8p it is still sitting on a loss of £1.15 billion.

The chances of the government Asset Protection Scheme being triggered heightened greatly today as Daniels said “corporate impairment levels are rising significantly”.

He added that he was expecting greater defaults, particularly on property investments made in the UK and Ireland, most of which were made by the former bank of Scotland part of HBOS.

But most of these, he said, would be covered by the government scheme. Details of that have still to be sorted with Daniels saying he expected it to “be concluded over the next few months”.

Lloyds warned: “Corporate impairments in 2009 are expected to be more than 50% higher than in 2008.”

Lloyds' total impairment charge last year was almost £10 billion.

Daniels claimed that the takeover of HBOS had gone well, stating: “We have achieved all of our integration goals for the first 100 days of the enlarged group.

“We believe the strengthened group will be able to comfortably manage the expected near-term economic downturn.”

But Lloyds also admitted that it is suffering lower margins in banking and experienced a 22% fall in sales of life assurance and pensions in the first three months of this year.

Lloyds also faces a £700 million hit on the value of funds in its life assurers Scottish Widow and Clerical Medical after the fall in the stock and bond markets.

Jonathan Jackson, head of equities at Killik & Co, said: “We remain concerned about the HBOS business and the group's increased exposure to the UK economy, and we would continue to avoid the shares.”