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We've had the good in Barclays and HSBC. Yesterday came the bad in Northern Rock. Now we're down to the ugly with Lloyds and Royal Bank of Scotland later in the week.
The sadness of that statement is that until recently it was inconceivable that the name of Lloyds would be keeping such company. Of all the high street banks, it was the most conservatively-run, still clinging to old fashioned branding as the “sign of the black horse”.
Its shareholders were happy to truck along, safe in the knowledge that while others harboured global aspirations, their bank would not veer from its usual path and while its share price did not soar, the shares would continue to pay them a healthy dividend.
Then the industry imploded and Lloyds, furnished with government support and seizing a long-held ambition, merged with HBOS. Today, the newly constituted Lloyds Banking Group is admitting writing off £13.4 billion in bad debts in the first half of this year, 80 per cent of them from the HBOS side. They were, says Lloyds, in a phrase that is aching with self-restraint, “outside the traditional Lloyds low-risk appetite”.
The “H” or Halifax element wasn't the problem, it was the “BOS” or Bank of Scotland bit where the trouble lay. Much of its lending was against commercial property ventures. Fine, if property values keep on rising, then there's no problem with the repayments. But if they fall, what then? A deep swallow and a large chunk of £13.4 billion is the answer.
Lloyds shareholders, which now include the taxpayer with 43 per cent of the combined bank, are paying the price for reckless banking on a breathtaking scale. There are, though, grounds for optimism. Lloyds is adamant the defaults have peaked. This, they are saying, is the worst it will get. From this may yet emerge a “superbank”, an aim the Lloyds management resolutely cling to. It's just a pity that to get there so much pain has to be experienced first.
Reader views (1)
What ever happened to "learning by the mistakes of others?"
- Rogan, Irving, 05/08/2009 19:05
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