Lloyds posts £3 billion loss as bad debts surge

Britain's state-controlled Lloyds Banking Group said yesterday it plunged into a first-half net loss of £3.124 billion, rocked by soaring bad debts from the takeover of HBOS.

The loss, equivalent to €3.7 billion, contrasted with a net profit of £1.954 billion in the first half of 2008, LBG said in a results statement.

The group, which is 43-per cent government-owned after a massive bailout, also announced a pre-tax loss of £3.957 billion in the six months to the end of June, compared with a profit of £2.775 billion last time around.

Total impairment charges rocketed to £13.4 billion, compared with £2.5 billion previously.

Assets of HBOS, which Lloyds bought in January in a government-brokered deal, accounted for around 80 per cent of the impairments amid a deepening recession in Britain.

"Our first half loss was driven by the high levels of impairment. The core business delivered a resilient performance, despite the weak economy," chief executive Eric Daniels said in the earnings release.

He added: "We are successfully managing the short-term issues and are well positioned to outperform over the medium term, providing value to our customers and shareholders."

Group revenues meanwhile increased seven per cent to £11.94 billion in the first half.

On an upbeat note, Lloyds forecast that loan impairments have probably peaked, adding that the second half looked "tough but manageable".

In reaction on the London stock market, LBG shares surged 7.69 per cent to 90.75 pence, while the FTSE 100 index of top companies was down 0.17 per cent at 4,663.06 points.

"The spike in the share price represents a collective sigh of relief that the impairment numbers have peaked according to the bank," said equities analyst Richard Hunter at Hargreaves Lansdown Stockbrokers.

"Lloyds remains largely reliant on the fortunes of the UK economy and, as such, is less diversified than most of its rivals.

"The upbeat management comments may have provided some respite for the shares today, but the outlook is challenging."

LBG's interim results were calculated on a pro-forma basis, as if it had already been trading as a combined group.

The company has slashed thousands of jobs since its creation earlier this year when Lloyds TSB bought rival lender HBOS.

HBOS had faced potential collapse as the credit crunch hit its ability to raise funds. It was also saddled with massive losses as a result of high-risk investments which have plunged in value.