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Lloyds makes loss but sees a ray of light

LLOYDS Banking Group sank to a &pound;4bn pre-tax loss in the first half, due to writedowns on the property loan portfolio it inherited from HBOS, but said that it believed impairments had reached their peak and would decline rapidly.<br /><br />The bank saw impairment rise from &pound;2.5bn in the first half of 2008 to &pound;13.4bn, 80 per cent of which it attributed to legacy assets it took on with the purchase of HBOS.<br /><br />Chief executive Eric Daniels said that HBOS &ldquo;wasn&rsquo;t a balanced portfolio and clearly did not perform through the cycle&rdquo;, adding that the acquired bank&rsquo;s loan book would look more like Lloyds&rsquo; relatively conservative portfolio in future.<br /><br />But despite the hit on HBOS, Daniels said that overall impairment had now peaked, while finance director Tim Tookey said that he expected a &ldquo;significant reduction&rdquo; in second-half bad debt charges.<br /><br />Tookey said that three quarters of the &pound;13.4bn in impaired assets would be placed into the government&rsquo;s asset protection scheme (APS), which insures banks against deteriorating asset values.<br /><br />But the bank said it was still discussing terms and conditions with the Treasury over the APS and refused to rule out the possibility that it might renegotiate the terms of the scheme.<br /><br />Lloyds plans to insure &pound;250bn of assets with the scheme, but under current terms would have to bear the first loss on 10 per cent, or &pound;25bn, of those assets.<br /><br />But if impairments were to decline significantly, the bank could find that it has less assets to insure than the first loss threshold, rendering use of the scheme pointless.<br /><br />Daniels said that the bank, which is 43 per cent government owned, was fulfilling its commitment to lend into the UK economy, pointing to &pound;18bn of gross mortgage lending so far this year.<br /><br />The integration of HBOS was running ahead of schedule, the bank said, and was on track to deliver more than &pound;1.5bn in run rate savings by 2011.<br /><br />Lloyds has also identified &pound;300bn worth of assets which it said were outside its risk appetite and would be run off, with &pound;200bn earmarked for disposal within five years.