Page last updated at 16:35 GMT, Wednesday, 5 August 2009 17:35 UK

Lloyds rallies despite 4bn loss

Woman walking past Lloyds office
Lloyds bought Halifax Bank of Scotland on 16 January

Shares in Lloyds Banking Group surged by 11% despite its announcement of a £4bn loss in the first half of 2009, due to mounting bad debts at HBOS.

Comments that most bad news was now out and that future results would improve had heartened investors, said analysts.

The group, which is 43% owned by UK taxpayers, said £13bn of loans and investments had turned bad, most of them from Halifax Bank of Scotland.

It predicted future such charges for bad loans would be smaller.

Risks revealed

The closing price of 92.3 pence compares with the average of about 120p, which the government paid for its stake in the group.

And it was "quite conceivable", with further share price rises, that at some point the government would be able to sell its Lloyds stake at a profit, meaning taxpayers would get their money back, said banking analyst Lee Goodwin of Fox-Pitt Kilton.

This is an old fashioned failure to kick the tyres properly when lending to hotel groups, property developers and investors who in the 1950s would have been called spivs
Robert Peston, BBC business editor

BBC business editor Robert Peston said the results bore witness to the quite astonishing risks taken by HBOS.

And he added that the figures were more troubling for taxpayers than shareholders, as most of the poor quality loans were now being insured by taxpayers, not the banks.

Lloyds said it was in talks with the government about the insurance scheme, which is known as the Asset Protection Scheme.

It would insure Lloyds against further losses from bad loans, but would probably lead to the government increasing its stake in the bank.

Lloyds said that about 75% of the charges it took in the first six months related to assets that it planned to put into the scheme.

'Lurched to the other extreme'

Stephen Timms, financial secretary to the Treasury, said the results were broadly in line with what had been expected at the time of the Budget, so the amount of money set aside to cover the insurance scheme should still be adequate.

Stephen Timms: ''It's a good thing that the bad numbers are being made public''

And he welcomed the signs of increasing lending from Lloyds.

"Lloyds is starting to do the things we need banks to be doing: £18bn of mortgage lending in the first six months of this year and 60,000 new start-up business accounts," he said.

But our business editor points out that any claims that Lloyds is doing its bit appear to be at odds with a 9% reduction in the value of its loans and advances to corporate customers over the past six months, to £198bn.

Meanwhile, Liberal Democrat Treasury spokesman Vince Cable said that big banks were still not lending enough to viable businesses.

"They were reckless in the past - they over-lent in many cases - now they've lurched to the other extreme," he said.

The country doesn't produce much other than financial services these days
John Smith, Bristol

"Good British companies cannot get credit and large numbers of people are losing their jobs as a result, making the recession worse."

And the the Federation of Small Businesses said that while the number of loans was picking up again, the costs were still very high.

"In terms of small businesses going to Lloyds TSB, or HBOS, or Natwest, yes they're beginning to get a trickle of money from these banks, but it's obvious the banks are shoring their own position first and foremost," said the Stephen Alambritis of the FSB.

"They're beginning to give some money to the small business sector, but there are some opaque and hidden charges around those loans, and high interest rates on those loans."

Arrears rise

Because of accounting technicalities related to its takeover of HBOS, Lloyds made a pre-tax profit of £6bn for the period.

But the group said that as a result of the takeover of HBOS, that figure was "of limited benefit".

The takeover also means that it is difficult to find figures for the first six months of 2008 with which to compare these figures, but Lloyds said that the £4bn loss compared with a £2.8bn profit for the same period last year.

It added that the proportion of mortgages more than three months in arrears had risen to 2.44%, compared with 1.79% at the end of 2008.

The national average reported by the Council of Mortgage Lenders at the end of March was 2.39%.

Graphic of bank profits

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