Published on ShanghaiDaily.com (http://www.shanghaidaily.com/)
http://www.shanghaidaily.com/sp/article/2008/200807/20080731/article_368711.htm
Bad loans slash Lloyds profit
Created: 2008-7-31
Author:Ben Livesey
LLOYDS TSB Group Plc, the biggest bank that depends almost entirely on fees from lending in the United Kingdom, yesterday reported first-half profit that fell a more-than-estimated 63 percent because of bad loans and credit writedowns.
Lloyds TSB yesterday declined as much as 5.3 percent in London trading after the company said net income was 576 million pounds (US$1.1 billion), or 10.1 pence a share. The bank raised the dividend by 2 percent, less than last year's 5 percent, Bloomberg News reported.
Chief Executive Officer Eric Daniels said the odds of a UK recession are increasing.
Bad loans jumped 31 percent to 1.1 billion pounds in the first half, and Lloyds TSB wrote down 585 million pounds of credit-related assets. Daniels said house prices in Britain may fall 15 percent this year, and the company's first-half gains in mortgage lending may not last.
''Lloyds is trying to grow in a slowing market, and we expect it will get harder to do so," said Sandy Chen, a London-based analyst at Panmure Gordon & Co. "The increased impairment charges will increasingly burden earnings."
Lloyds TSB set aside 505 million pounds for investment writedowns amid declining equity markets and 180 million pounds for an expected settlement of a United States probe, it said.
The sales of the bank's closed-life-insurance and share-register units last year also held back earnings.
Pretax profit in Lloyds TSB's consumer-lending unit rose 20 percent to 911 million pounds. The corporate lending unit had pretax profit of 195 million pounds, down from 811 million pounds a year earlier as writedowns increased.
Writedown losses
Lloyds TSB wrote down 62 million pounds on collateralized debt obligations, 170 million pounds on bond insurance, 46 million pounds on a structured investment vehicle and 307 million pounds on traded credit investments. The losses counted against first-half profit.
The bank also marked down 630 million pounds on securities it intends to hold until maturity, less than the 704 million-pound markdown it estimated in the first quarter. The markdowns reduced reserves rather than profit.
Lloyds TSB nearly tripled its share of the UK mortgage market to 24 percent from 8.9 percent a year earlier as competitors pulled back and more borrowers refinanced.
Lloyds TSB yesterday declined as much as 5.3 percent in London trading after the company said net income was 576 million pounds (US$1.1 billion), or 10.1 pence a share. The bank raised the dividend by 2 percent, less than last year's 5 percent, Bloomberg News reported.
Chief Executive Officer Eric Daniels said the odds of a UK recession are increasing.
Bad loans jumped 31 percent to 1.1 billion pounds in the first half, and Lloyds TSB wrote down 585 million pounds of credit-related assets. Daniels said house prices in Britain may fall 15 percent this year, and the company's first-half gains in mortgage lending may not last.
''Lloyds is trying to grow in a slowing market, and we expect it will get harder to do so," said Sandy Chen, a London-based analyst at Panmure Gordon & Co. "The increased impairment charges will increasingly burden earnings."
Lloyds TSB set aside 505 million pounds for investment writedowns amid declining equity markets and 180 million pounds for an expected settlement of a United States probe, it said.
The sales of the bank's closed-life-insurance and share-register units last year also held back earnings.
Pretax profit in Lloyds TSB's consumer-lending unit rose 20 percent to 911 million pounds. The corporate lending unit had pretax profit of 195 million pounds, down from 811 million pounds a year earlier as writedowns increased.
Writedown losses
Lloyds TSB wrote down 62 million pounds on collateralized debt obligations, 170 million pounds on bond insurance, 46 million pounds on a structured investment vehicle and 307 million pounds on traded credit investments. The losses counted against first-half profit.
The bank also marked down 630 million pounds on securities it intends to hold until maturity, less than the 704 million-pound markdown it estimated in the first quarter. The markdowns reduced reserves rather than profit.
Lloyds TSB nearly tripled its share of the UK mortgage market to 24 percent from 8.9 percent a year earlier as competitors pulled back and more borrowers refinanced.
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