Lloyds profits slashed by 80%

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Lloyds Banking Group expects to make losses this year after its takeover of ailing rival HBOS.

The former Lloyds TSB business saw profits slashed by 80 per cent to £807 million in 2008 compared with £4 billion in 2007.

But the enlarged group will fall into the red in 2009 after the deal to buy HBOS, which plunged £9.9 billion into the red last year.

The latest grim update comes a day after Royal Bank of Scotland unveiled a record £24.1 billion loss and a new bail-out worth up to £25.5 billion.

Derek Simpson, joint leader of Unite said: "The huge losses announced by Lloyds Banking Group further illustrate the dire straits in which the financial system finds itself.

"More than ever it is essential that the new Lloyds Banking Group retains and protects its hard working staff.

"Now is not the time to reduce what is clearly the bank's greatest asset - its staff.

"As the taxpayer looks to insure the assets of this and other financial organisations it is vital that jobs are retained.

"Staff cannot be dumped on the dole where taxpayers will simply have to pay again.

"We will oppose any compulsory redundancies or offshoring of UK jobs from the bank."

The separate figures for the two banks reflected the fact that the takeover was not formally completed until January.

Lloyds chief executive Eric Daniels said: "Against a backdrop of recession and an ongoing global financial crisis, we expect 2009 to be another challenging year."

He warned there would be "some staffing reductions" resulting from the £1.5 billion cost-saving programme under way following the merger, but hoped to make the majority of the cuts through natural staff turnover or limited voluntary redundancy programmes.

The figures from HBOS showed a five-fold rise in bad debts at the bank during 2008, swelling to £9.9 billion from £2 billion the previous year.

The bulk of these charges came from HBOS's corporate lending arm, which saw impairment charges of £6.6 billion after the bank's new owner took a more conservative view of its lending book. Bad debts as a proportion of its loans jumped to 11.9 per cent.

The corporate arm has suffered through its heavy exposure to hard-hit sectors such as commercial property and housebuilding, but the HBOS retail banking business also suffered.

Its share of mortgages more than three months behind on payments jumped to 2.68 per cent from 1.67 per cent the year before, driven by the worsening economy and a large jump in arrears for specialist lending, such as buy-to-let.

The firm's overall savings deposits fell by more than £10 billion to £143.7 billion over the year as some customers withdrew their cash in the financial turmoil.

Awareness of limits on guaranteed savings also led many to spread their money around a number of banks to reduce risks, HBOS said.

Lloyds TSB stepped in to rescue HBOS after the crisis in financial markets sent the group to the brink of collapse and a potential nationalisation in the autumn.

The two banks have received a combined £17 billion in taxpayer support to prop up their finances so far.

Lloyds said talks with the Treasury over dumping toxic debts in the taxpayer-backed Asset Protection Scheme were "progressing and are well advanced".

Yesterday RBS said it intended to place £325 billion of assets into the scheme. The bank will be liable for the first £19.5 billion of the losses, with the taxpayer picking up the bill for 90 per cent of the remainder.