Sharp profit fall for Lloyds TSB

Lloyds TSB said 2008 had been a period of "considerable turbulence"

Lloyds TSB has suffered a sharp drop in profits in the first six months of the year after a fall in the value of its assets due to global financial turmoil.

Profit before tax was 70% lower at £599m ($1.18bn), compared with a profit of £1.99bn in first half of 2007.

Excluding the impact of a decline in financial markets on its investments, Lloyds TSB said businesses, especially retail banking, had performed well.

It increased its shareholder dividend by 2% to 11.4 pence per share.

"The first half of 2008 has been a period of considerable turbulence for the financial services sector," said chairman Sir Victor Blank.

A fall of 70% or almost £1.4bn in its pre tax profits for the first half of the year is something of a shock Robert Peston, BBC Business Editor Read Robert's blog in full

That market turbulence has contributed to more than a billion pounds being wiped off the value of its investments and its insurance businesses, including Scottish Widows, Lloyds TSB said.

The credit crunch caused £505m to be wiped off the value of its insurance business due to the fall in the value of its stock market investments.

A further £585m was lost due to a fall in the value of other assets, including those linked to the debt markets such as collateralised debt obligations (CDOs) and structured investment vehicles (SIVs).

Speaking to reporters, the company asserted that, unlike other banks, it had no investments related directly to the US sub-prime mortgage market whose value has collapsed. Sub-prime lenders provide financing to companies or individuals with poor or non-existent credit histories.

Lloyds TSB also pointed out that excluding the impact of market volatility, its profit before tax had risen by 11% to £2.16bn.

However, BBC business editor Robert Peston warned that the 70% fall in profits was a worrying possible augury of the problems other UK banks may disclose as they report their results.

Housing slowdown

Looking to the future, Lloyds TSB said it expected the slowing growth of the UK economy to hit its business.

The group said it had won almost of quarter of all new lending in the mortgage market in the first six months of the year. It also opened half a million new current accounts.

However, Lloyds said it expected house prices to fall by up to 15% this year. Were prices to fall by 12.5%, it said by way of an example, this would wipe £100m off the value of its mortgage loans.