Part-nationalized Lloyds Banking Group unveiled a £10 billion loss for 2008 and said it had not finalized a plan to put billions of pounds of assets into a government-backed insurance scheme.
Lloyds said talks with the government on an asset insurance scheme were “well advanced” and CEO Eric Daniels told Reuters he would provide an update “reasonably shortly.” But he declined to comment on how much would be put into the scheme while he was “in the middle of negotiations.”
The bank, which is 43% owned by the government, had been expected to announce it was putting over £250 billion of assets into the plan. By 8:20 a.m. Lloyds shares were down 8.5% at 68.6 pence, giving up some of their 31% surge on Thursday when they were helped by optimism that terms of the plan would be more favorable than earlier expected.
“They haven’t managed to conclude a deal on asset protection, and we think the uncertainty will lead to disappointment,” said Simon Willis, analyst at NCB Stockbrokers. The so-called asset protection scheme launched by Britain’s Treasury on Thursday is expected to insure well over £500 billion worth of assets by the time other banks have signed up.
Lloyds said the outlook also remained tough and “the short-term outlook for the enlarged group is challenging.” “Impairments will continue to run at high levels, especially in the higher risk parts of the legacy HBOS portfolios,” it said.
BIG HBOS LOSS
HBOS -- the mortgage lender Lloyds took over in January -- suffered a 2008 statutory loss of £10.8 billion, hit by £9.9 billion of losses on soured corporate loans, rising homeowner bad debts and credit market exposure. The former Lloyds TSB business made a statutory profit of £807 million, down from £4 billion, as its impairments jumped to £3 billion.
HBOS’s loss was in line with guidance Lloyds gave two weeks ago in a profit warning. It indicates that the combined group made a statutory loss of £10.1 billion, compared with a combined profit of £9.4 billion in 2007.
The massive loss came a day after rival Royal Bank of Scotland reported a £24 billion loss, the biggest in UK corporate history, and said the government’s stake could rise as high as 95% as it put £325 billion of assets in the UK protection scheme. Lloyds bought HBOS in a government-backed deal after the owner of the Halifax neared collapse due to its overdependence on wholesale borrowing.
Now rising corporate and home loan bad debts are creating problems for the enlarged bank as the British economy deteriorates, stoking criticism of the deal and raising concern the bank may need to raise more capital. The enlarged bank’s core tier 1 ratio was 6.4% at the end of 2008. (Reuters)