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Lloyds bank hits huge loss as bad debts rocket
2009-08-05
LONDON (AFP) - Britain's state-controlled Lloyds Banking Group said Wednesday it crashed into the red in the first half, in stark contrast to strong performances this week by three top banks wholly in private hands. LBG announced that it suffered a first-half net loss of 3.124 billion pounds (3.7 billion euros, 5.3 billion dollars) in the six months to the end of June, compared with net profits of 1.954 billion pounds in the first half of 2008. The group blamed a staggering rise in bad debts that was largely fuelled by its takeover of rival bank HBOS earlier this year. However, LBG's share price surged because the loss was smaller than expected and the group added that impairment levels had probably peaked amid a deep recession in Britain. The news comes one day after emerging markets bank Standard Chartered posted record interim profits, while peers Barclays and HSBC posted combined first-half net profits of 6.55 billion dollars on Monday. All three banks avoided state control unlike LBG and Royal Bank of Scotland (RBS) which both fell victim to the global financial crisis and subsequent credit crunch. Lloyds, which is now 43-percent government-owned after a massive bailout, added Wednesday that total impairment charges rocketed to 13.4 billion pounds, compared with 2.5 billion previously. "Our first half loss was driven by the high levels of impairment. The core business delivered a resilient performance, despite the weak economy," Chief Executive Eric Daniels said in the earnings release. "We are successfully managing the short-term issues and are well positioned to outperform over the medium term, providing value to our customers and shareholders." Lloyds added that "approximately three-quarters" of the impairment charges were linked to assets which would be placed in the British government's so-called toxic or high-risk asset insurance scheme. That means that the majority of the risk, and any potential losses, will be shouldered by the British taxpayer. RBS -- which is 70-percent owned by the state -- will post its latest results on Friday. On Wednesday, Lloyds also announced a pre-tax loss of 3.957 billion pounds for the first half, compared with a profit of 2.775 billion last time around. Revenues meanwhile increased seven percent to 11.94 billion pounds in the first half. The group also revealed that assets of HBOS -- which Lloyds bought in January in a government-brokered deal -- accounted for around 80 percent of the impairments. But Lloyds also forecast that loan impairments have probably peaked, adding that the second half looked "tough but manageable". In reaction on the London stock market, LBG shares surged 12.72 percent to 94.99 pence, while the FTSE 100 index of top companies rose 0.37 percent in early afternoon deals. "The spike in the share price represents a collective sigh of relief that the impairment numbers have peaked according to the bank," said equities analyst Richard Hunter at Hargreaves Lansdown Stockbrokers. "Lloyds remains largely reliant on the fortunes of the UK economy and, as such, is less diversified than most of its rivals. "The upbeat management comments may have provided some respite for the shares today, but the outlook is challenging." LBG's interim results were calculated on a pro-forma basis, as if it had already been trading as a combined group. The company has slashed thousands of jobs since its creation earlier this year when Lloyds TSB bought rival lender HBOS. HBOS had faced potential collapse as the credit crunch hit its ability to raise funds. It was also saddled high-risk investments in the housing and commercial property sector that have gone sour.
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