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The shocking state of the HBOS finances was laid bare today as its new owner Lloyds Banking Group racked up losses of nearly £4 billion after £13.4 billion of loans turned sour.
Lloyds chief executive Eric Daniels said 80% of the write-off on bad loans — £10.7 billion — came from HBOS with as much as £9 billion related to reckless lending on commercial property.
He said the majority of loans made by the Bank of Scotland side of the business before the takeover were “outside the traditional Lloyds low-risk appetite”.
It sparked fresh anger from investors over the rescue of HBOS by Lloyds, a deal instigated by Gordon Brown which cost Lloyds chairman Sir Victor Blank his job and has left taxpayers nursing billions of pounds of losses.
Blank is being replaced by former Citigroup chief Sir Win Bischoff.
The revelation came as Lloyds, which is 43% owned by the taxpayer, reported losses of £3.96 billion in the first half of the year against profits of £2.78 billion in the same period of 2008.
Shares in Lloyds jumped 11.72p to 95.86p after the losses came in lower than the £5 billion feared in the City and the £9.5 billion reported in the second half of last year.
The figures left taxpayers sitting on a loss of £3 billion on their investment in Lloyds. They are also £1 billion down on their 70% stake in Royal Bank of Scotland, which reports on Friday.
Daniels said he expected impairments on bad loans to have peaked in the first half of the year having ballooned more than five times to £13.4 billion.
“All new lending is now being made within the Lloyds risk criteria,” said Daniels, who is cutting 9000 jobs this year.
Lloyds' figures showed £8.34 billion of the writedowns came from its wholesale division which includes corporate lending by Bank of Scotland.
Many of the loans were agreed by Peter Cummings, the former head of corporate loans at HBOS, and the division slumped to a loss of £3.2 billion from a £37 million profit.
The High Street banking arm was hit by £2.19 billion of bad debts and saw profits fall from £1.7 billion to £360 million.
Profits at the insurance unit, which includes Scottish Widows and Clerical Medical, dropped from £720 million to £397 million.
Lloyds said three quarters of the £13.4 billion of writedowns will be dumped in the Asset Protection Scheme set up by the Government to insure toxic loans, leaving the taxpayer facing yet another bill from the banking crisis.
Under the terms of the deal, Lloyds meets the first £25 billion of losses from the £260 billion of qualifying loans. Beyond that, the taxpayer shoulders 90% of the losses and Lloyds just 10%.
Lloyds wrote off £15 billion last year on bad loans as the recession, rising unemployment and falling property prices hit customers' repayments.
The firm said it now has a detailed understanding of the HBOS books following the rushed takeover last year.
In a sign that the business is returning to its high street roots, the bank said around a third of its total balance sheet, or £300 billion, was made up of assets it deemed to be too risky.
Lloyds said that it plans to run off £200 billion of these assets within the next five years and expects the impact on its incomes to be modest.
The state of the HBOS finances has underlined how the bank went badly wrong under its former bosses Andy Hornby and Sir James Crosby, a key City adviser to Gordon Brown and former deputy chairman of the Financial Services Authority.
Reader views (12)
Just bear this in mind: You lose billions you are bankrupt. It's simple. We are all now living in Fairy Banking Land.
- Never Eat Tuna Again, London, 06/08/2009 07:30
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It was a bad day when the government allowed building societies to become banks.
They had neither the expertise or finances, the building societies were governed to only lending a proportion of their assets.
Now its a free for all with silly mortages and even sillier house prices because people have paid too much, loaned to them by mickey mouse banks.
- Paul, East London, 06/08/2009 00:38
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Oh then he can expect a large golden handshake as failure
does not seem to count for much in the finance industry.
- Ronald Whitten, Chesterfield England, 05/08/2009 19:50
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Goldman Sacks of Cash,Barclays and HSBC profits in a time of recession...Now how could that be.?...Well it seems that the technology of microsecond dealing along with microselling and microbuying is the answer...Superfast computing, networking and High Frequency Trading is the new game in town and if you are ahead of the game you can make lots of money by controlling the market.
Basically it is cheating...Heads I win, tails you lose....Just as casinos never loose.
So the best bet is if you are in with the in crowd, you are a winner. But if you are not part of this new technological game, stay well away from the stock market otherwise you could loose lots...Wait and see the next crash.
The fear now is that the pension schemes will be slow to react and could continue loosing out and also the large bailed out banks and building societies will no longer be part of the in crowd and they will also loose out, resulting in massive public support from the tax payer...Question is how much more cash/ financial support can the government provide to prop up the loosers?...By then I fear that there will be a massive flight of capital from the UK by the "in crowd".
- Ian, Inverurie, Aberdeenshire., 05/08/2009 18:57
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Surely, surely, the answer to all this is very straighforward. Ban all banks from mortgage lending, make them deal ONLY with commercial business. Make all banks divest themselves of the Building Societies, Mutuals or what-ever-name- is being used Mortagage lenders. Make these be the ONLY people who can lend to domestic properties and ban them from any banking whatsoever.
Banks would then risk with the business sector only, Mutuals etc would only be in the domestic area and then, just stop ANY repossesions of domestic properties whatsoever for - say a five years period. Housing stabilises, banks and big business can feed off each other and the housing of mortgagees is safe.
If holding too many airports is anti-social, then so is financially ruling domestic housing.
- Norman Speight, London UK, 05/08/2009 18:22
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The people pay the government to govern on their behalf so instead of giving all the banks the money, it would be a good idea for the Government to pay one years mortgage payments on behalf of all the people who are having their homes reposessed by these banks, while they get back on their feet. After all it seems that the Governments inability to govern properly created their woes.
- Val B, Kent, 05/08/2009 17:49
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I have often wondered why we are bailing out Scottish Banks with English Taxes?
Could it be something to do with our Scottish Prime Minister?
- Mickinlondon, london., 05/08/2009 16:55
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AS A LLOYDS SHAREHOLDER I CANNOT UNDERSTAND WHY LLOYDS BLAMES HBOS FOR ITS LOSES. ITS LIKE THE CAPTAIN OF A SHIP STEERING IT INTO AN ICEBERG BLAMING THE COLD WEATHER. HE HIT THE ICEBERG, LLOYDS BROUGHT HBOS. THAT THEY ALOWED SOMEONE LIKE GORDON TO URGE THEM ON IS AN EVEN MORE STUPID EXCUSE., WHO TAKES A POLITICIANS ADVICE, WHEN YOU ARE MENT TO BE EMPLOYING THE FINEST FINANCIAL BRAINS AVAILABLE.
- Alan Green, Woodford Green, 05/08/2009 16:47
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The blame does not lie with Gordon Brown: it lies with all those expensively paid analysts and fund managers who cheered the managements on as they pursued their reckless strategies. My UK personal pension fund has just been transferred to Australia: after contributing for 20 years the total is slightly less than I have paid in - putting the money under my bed would have produced a better result. But the people responsible for 'investing' my contributions have done very nicely, I'm sure.
- Tonyb, Melbourne, Australia, 05/08/2009 13:27
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The one in the Dock should be Gordon Brown aka slippery sam.
He pushed Lloyds into the deal.
- Philip Morris, Watford, 05/08/2009 12:43
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Still no court cases for HBOS or RBS board members - no directors yet held to account for gross negligence? This is government, corporate governance and a banking system befitting a banana republic.
- Jim, London, 05/08/2009 10:46
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This was Gordon's deal and you know that whatever Gordon touches turns to dogs mess.
- Alex C, London, 05/08/2009 09:48
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