Lloyds loses $5.3 billion in H1 on bad loans

[August 05, 2009]  LONDON (AP) -- Lloyds Banking Group PLC, part owned by the British government after a bailout, on Wednesday reported a loss of 3.1 billion pounds ($5.3 billion) for the first half of the year as bad loans rose at HBOS, the bank it took over in January.

The merged bank's share price rose after management said the worst of the bad debts problem was over.

"With impairments anticipated to have peaked in the half, management expects the group's results to improve in the second half and through 2010," chief executive Eric Daniels said. The company said it expected only weak growth in the British economy next year.

Lloyds shares rose 6.3 percent to 89.567 pence on the London Stock Exchange.

The partly nationalized bank reported that impairments rose from 2.5 billion pounds to 13.4 billion pounds -- 80 percent of that from what the bank described as riskier loans from HBOS, or Halifax/Bank of Scotland, which was taken over by Lloyds TSB. The majority of HBOS loans "are outside the traditional Lloyds low-risk appetite," the company said.

The merged Lloyds group revenue was 7 per cent higher at 11.9 billion pounds. The earnings figures assume that HBOS was part of the company from Jan. 1.

"The spike in the share price in early trade represents a collective sigh of relief that the impairment numbers have peaked according to the bank," said Richard Hunter, analyst at Hargreaves Lansdown Stockbrokers.

"The figures themselves are difficult both to unpick and compare due to the HBOS integration, but they nonetheless make for sobering reading. The largely property-related HBOS writedown of over 13 billion pounds is more than expected, whilst the Tier 1 capital of 6.3 percent looks light in comparison to its peers," Hunter said. Tier 1 capital is an important measure of a bank's financial solidity.

Other banks which reported first-half earnings this week also reported higher impairment charges for bad loans, but Barclays and Standard Chartered managed to post higher profits anyway.

Lloyds Banking Group was formed on Jan. 19 with the completion of the acquisition of HBOS. The government, which waived regulatory restraints to allow the combination and then had to bail out the combined group, now holds a 43.4 percent stake.

Lloyds said it is still talking to the government about terms for joining the Asset Protection Scheme, which would insure some risky assets but also likely raise the government's stake in the bank. Lloyds said about 40 percent of the assets which contributed to the first half impairment charge would probably be covered by the insurance.

Lloyds said it intended over the next five years to dispose of 200 billion pounds worth of assets out of a total of 300 billion which "are not consistent with the strategy of building sustainable, relationship-based businesses."

Lloyds said those assets "account for a disproportionate level of risk."

"It is anticipated that the group's loan to deposit ratio will return to legacy Lloyds TSB levels of approximately 140 percent over the next few years," the company said.

The bank's retail division, including mortgage specialist Halifax, provides one in four mortgages in the United Kingdom. Retail impairment losses increased by 60 percent to 2.2 billion, particularly reflecting the impact of lower house prices on mortgage impairment charge, Lloyds said.

On Monday, Barclays PLC said first-half net profit rose 10 percent 1.888 billion pounds as stronger earnings from its expanded investment banking division outweighed a higher provisions for risky loans.

However, impairments dropped net profit at HSBC Holdings PLC by 57 percent to $3.35 billion.

On Tuesday, nationalized mortgage lender Northern Rock on Tuesday said losses rose 31 percent to 740 million pounds as bad loan provisions swelled to over a billion pounds. Standard Chartered PLC said first-half profit rose 5.5 percent to $1.88 billion although it doubled provisions for risky loans.

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On the Net: http://www.lloydsbankinggroup.com/

[Associated Press; By ROBERT BARR]

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