After the comforting news from the two big banks which avoided the clutches of Gordon Brown and Associates, today we get the ultimate stitch-up of all, the Lloyds forced marriage to the basket-case HBOS, which has wrecked a once-good bank as a result of personal arm-twisting and cajolery by Brown himself at a social gathering.
First are the details of the report itself with catalogues of various categories of bad debts all of monumental proportions. Then there is the ominous phrase “xxpc of the first half impairment charge related to assets expected to be included in the Government Asset Protection Scheme.” This means that in return for a small ‘premium’ the state - you and me - pick up the cost of the bad debts to save the bank. But the effect of this is to raise the state’s control of the bank from around 43% to 60%.
Then Politics Home has the apologia for this disaster from a junior Treasury minister broadcast this morning. (I’ve left in the first e-mailed comment because I couldn’t have put it better myself! )
Lloyds seems very pleased with themselves and proud of the disaster they outline. I can only add that if you think this is awful wait till you see RBS’s report!
Christina
==================================
TELEGRAPH
5.8.09
Lloyds slumps to loss as bad debts spiral to £13.4bn
The scale of the most recent taxpayer rescue for Lloyds Banking Group has been laid bare after the troubled lender revealed that three quarters of the “toxic” assets that caused a record £13.4bn of bad debts in the first half will be insured by the state.
By Philip Aldrick, Banking Editor
Details of how much toxic lending will be insured by the taxpayer under the asset protection scheme (APS) came as the bank reported a loss of £3.96bn for the six months to June compared with a £2.78bn profit for the same period last year.
The losses were driven by the bank’s unprecedented £10.9bn increase in bad debts, largely due to poor corporate lending at HBOS, the Halifax-owner Lloyds TSB took over last year. Some 80pc of the bad debt charge was down to lending made by HBOS, Lloyds said. [This illustrates the lunacy of wrecking a good bank (as efficient as Barclays and HSBC) by shot-gun marriage to a bank - HBOS - as chaotic as Northern Rock -cs]
The record bad debt charge was also higher than the £12.4bn impairment in the last six months of 2008, though Lloyds said “total impairments are expected to peak in the first half”. It added: “Approximately three quarters of the group’s first half impairment charge related to assets expected to be included in the Government Asset Protection Scheme.”
Negotiations continue with the Government over Lloyds’ involvement in the APS. It has agreed to put £260bn of assets in the scheme, which will see the bank take the first 10pc of any further losses and leave the taxpayer on the hook for the rest. It is hoped the insurance arrangement will allow HBOS to start lending again by improving its capital ratio, which stood at just 6.3pc at the end of the half – below the regulator’s current statutory minium.
It is thought that Lloyds has had to write off a large amount of the bad lending before entering the scheme to provide the taxpayer a little more protection. Royal Bank of Scotland will reveal more details about the £325bn of assets it is putting into the APS.
Lloyds, which is now 43pc owned by the state and in which the taxpayer will have a 60pc economic interest after the APS is paid for, provided £1bn of net new mortgage lending in the half – less than HSBC, Barclays and Abbey despite being the market leader with 30pc of all business. Gross mortgage lending – excluding repayments - was £18bn, a 27pc market share.
Lending to small business was ahead year-on-year in Lloyds TSB and Bank of Scotland was reopened to new lending, Lloyds said. It claimed 60,000 new commercial accounts were opened, including a 24pc share of all new start-ups. Small business lending levels have been particularly political on fears that the banks are hoarding credit and denying business necessary loans.
Bad debts in the retail operation rose £821m, or 60pc, to £2.19bn, “reflecting the impact of lower house prices on the mortgage impairment charge”. “Approximately 40pc of the retail first half impairment charge related to assets which are expected to be included in the APS,” it said.
Bad debts in the wholesale bank, which is highly exposed to the commercial real estate market, “ increased significantly by £8.66bn to £9.74bn, reflecting continuing declines in commercial property prices and reducing levels of corporate cash flows as we anticipate a continuation of the difficult economic environment”.
“These factors are now leading us to anticipate further corporate defaults during the rest of the year,” it added. ”Approximately 80pc of the first half impairment charge related to assets expected to be included in the Government Asset Protection Scheme.”
The outlined plans to reduce the size of the balance sheet by £200bn – or 20pc - over the next five years to roughly £800bn. “A significant proportion of the Group's capital supports assets which account for a disproportionate level of risk and are not consistent with the strategy of building sustainable, relationship based businesses,” it said.
The reduction in assets will include £140bn of customer lending, indicating that the bank will be progressively taking credit out of the economy for the next five years. Loans to customers in the first half fell from £677bn to £653bn, while customer deposits rose by £20bn to £429bn.
The bank stressed that the merger remained on track to deliver cost savings of more than £1.5bn by the end of 2011.
Eric Daniels, chief executive, said there were other positives to take from the numbers. He described it as “a resilient core businesses performance despite margin pressure and weak economy” and added: “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.”
==================================
POLITICS HOME
5.8.09
HBOS Lloyds merger "the right call" despite losses, says minister
Sky News 09:28
• Stephen Timms, Treasury minister
Mr Timms insisted that the government was right to facilitate the merger of HBOS and Lloyds, despite the huge losses now incurred by the combined company.
"The collapse of HBOS would have been catastrophic for the economy, for householders, and for businesses. The priority was to avoid that catastrophe," he said.
"The merger was suscessful in doing that and I think that was the right call."
He added: "It was of course matter for the shareholders of HBOS and Lloyds, and they both voted in favour of the merger." [In practice ordinary shareholders had no option for the institutional shareholders had been ‘squared’ first -cs]
Mr Timms also sounded an optimistic note on the cost to taxpayers of the supprt provided to the bank, saying current losses were in line with expectations, and that there was "every probablity" of the Lloyds returning to profit.
"In the long term there is every probability of this being a successful and profitable bank and the taxpayer will then benefit from that future course from our share in the business," he said.
"Certainly there's nothing in these results that really change our assessment of the overall cost to the taxpayer of the various provisions that we've needed to make to protect the financial system in the UK."
Comment - “Grumpy Old Man” ......... and once the Lloyds investors realised that the Chairman had sold them a pup in exchange for a Life Peerage, he was retired to "pursue other interests". NR{ock) and HBOS were all about votes in the North of England. Barclays and HBSC told Brown to stuff it and are making a profit. Lloyds has been dragged into deficit by a politically-motivated takeover in breach of the Govt's own competition rules, and NR remains a basket case. Salvatore Mundi strikes again. Party Politics and commerce don't mix.
Posts
