Part-nationalised lender Lloyds Banking Group today said it made a £4 billion half-year loss as HBOS’s reckless lending took its toll.
The bank, which is 43 per cent owned by the Government, said impairments on bad debt rose “significantly” to £13.4 billion, largely due to HBOS.
Due to complex accounting changes, Lloyds posted a statutory £6 billion pre-tax profit today.
Lloyds said HBOS’s assets accounted for 80 per cent of the impairments. The bank said the fall in property prices over the first six months of the year had a significant effect on the group’s results because of the large amount of related loans at HBOS.
It said more conservative assessments of HBOS’s commercial property assets meant impairments, which were up from £2.5 billion in 2008, should peak in the first half of the year.
Group chief executive Eric Daniels said: “Our first half loss was driven by the high levels of impairment. The core business delivered a resilient performance, despite the weak economy.
“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 rescued its rival HBOS at the peak of last year’s banking crisis, but the hurried, Government-encouraged deal has provoked outrage among shareholders concerned about the level of so-called “toxic” assets now on its books.
The group today said most of the troubled HBOS loans were “outside the traditional Lloyds low-risk appetite”.
It added that around three quarters of the impairment charge relates to assets destined to be hived off into a taxpayer-backed insurance scheme. The firm said it now had a detailed understanding of HBOS’s books and the scale and timing of future losses.
Lloyds added that it would normally expect impairments to peak one or two years after the low point of a recession, but given the speed that the bad debt charges have hit, it expects results to improve in the second half and into 2010.
Overall customer loans turned sour rose to 3.47 per cent of average lending, compared with 0.7 per cent in 2008.
Impaired assets increased by 57 per cent to £49 billion and represent 7.2 per cent of total loans and advances, up from 4.4 per cent in December.
In a sign that the business is returning resolutely to its high street roots, the bank said around a third of its total balance sheet - or £300 billion - was made up of assets which “account for a disproportionate level of risk and are not consistent with the strategy of building sustainable, relationship based businesses”.
Lloyds said 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.
Mr Daniels said the bank expects the economy to stabilise in the second half of this year and gradually start recovering in 2010.
