Talking growth, but preparing for crisis

JUST over a month ago, Lloyds chief António Horta-Osório told investors to see his bank as a proxy for the UK economy. It would see a “long and slow recovery”, he said, as consumers gradually found jobs and paid off their debts.

But prospects for the UK – and global – economy have only grown bleaker since then. And while Horta-Osório talks about recovery, he is preparing for crisis.

Lloyds has spent the last six months in a flurry of activities to build up its balance sheet.

The bank paid back a whopping £57.8bn in government loans during the first half of this year so that its state loans now stand at £37bn.

As part of those repayments, City A.M. understands that it has fully repaid the loans it took under the special liquidity scheme (SLS). Individual banks are not allowed to declare when they have done so for fear of making it obvious which other banks have failed to pay back the aid so far.

It also issued £25bn in debt while markets were relatively stable, meaning that it only needs to sell another £5-10bn to get through the year.

But it might not be enough if the bank’s growing “resilience” can’t keep up with a spiralling crisis that could send its struggling customers’ finances into tailspin. “The markets are now closed,” Horta-Osório admitted ominously yesterday.

He says he wants to turn the business back into “a boring bank” serving British customers. Unfortunately for Lloyds and its home market, the coming months look set to be anything but boring.