Lloyds Banking Group Plc, the British lender that acquired HBOS Plc in January, posted a first-half loss of 3.1 billion pounds ($5.2 billion) because of writedowns on corporate and real estate loans. The lender set aside 13.4 billion pounds for bad debts, more than the 11.3 billion-pound estimate of eight analysts surveyed by Bloomberg. Provisions will drop “significantly” in the second half, the lender said in a statement today.
The loss was driven by “the high levels of impairment, mainly from the HBOS property book” Chief Executive Officer
Eric Daniels, 57, said in a telephone interview from London today. “The core business is doing extremely well.”
Lloyds sought a government bailout following its purchase of the country’s biggest mortgage lender during the credit crisis. HBOS generated about 80 percent of the combined bank’s bad loan provisions, Lloyds said today. Now 43 percent owned by the U.K., Lloyds has cut more than 8,800 jobs this year to reduce costs by 1.5 billion pounds by 2011. Those savings are “ahead of schedule,” Daniels said today.
“The bank is going through its period of maximum stress right now,”
John Paul Crutchley, an analyst at UBS AG in London said in a note to clients before the earnings were published. “Losses on the HBOS loan book have accelerated to levels beyond original expectations,” said Crutchley who has a “buy” rating on the stock.
Worst Performer
The
stock rose 5.4 percent to 88.8 pence as of 8:06 in London trading. The bank has declined 10 percent this year, making it the worst-performer in the FTSE 350 Banks Index, which has gained 18 percent in the period. Lloyds is the U.K.’s biggest provider of checking accounts and has a 28 percent share of the mortgage market.
“The overall impairment charge has now peaked,” Lloyds said. “Given our current economic outlook, that the charge in the second half of 2009 will be significantly lower than the charge in the first half of 2009. Thereafter, we expect the 2010 charge to be significantly lower than the 2009 charge.”
The loss is the biggest reported so far by a U.K. bank for the period.
Northern Rock Plc, the first U.K. bank nationalized during the credit crisis, yesterday posted a 771 million-pound loss for the period as late payments on mortgages climbed.
Barclays Plc, the U.K.’s second-biggest bank, reported a 10 percent increase in net income, helped by its securities unit, while HSBC
Holdings Plc, Europe’s biggest bank, posted a 57 percent drop in profit. Edinburgh-based
Royal Bank of Scotland Group Plc will report earnings Aug. 7.
HBOS Acquisition
The proforma loss compared with a profit of 1.95 billion pounds in the year-earlier period. On a statutory basis, Lloyds had net income of 7.1 billion pounds. That included an 11.2 billion-pound gain from the HBOS takeover because the price paid for the assets was less than their fair value, the bank said.
Lloyds’s net interest margin, the bank’s profit on lending, declined to 1.72 percent from 2 percent in the first half. Tier 1 capital, a measure of financial strength, stood at 6.3 percent at the end of June, the bank said.
The bank last week named
Win Bischoff, 68, as chairman to replace
Victor Blank, who is retiring after brokering the HBOS acquisition. The former Citigroup Inc. chairman and government adviser takes up the post on Sept. 15.
Lloyds may be forced by the European Union to sell branches and other assets to take part in a plan to insure 260 billion pounds of assets with the government. That plan may take “months” to conclude, said Daniels today.
The CEO said in May that taking part in the government’s Asset Protection Scheme will “substantially reduce the risk profile” of the bank. Lloyds will be responsible for the initial 25 billion pounds of assets insured, with taxpayers liable for 90 percent of losses after that.
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