Lloyds TSB shocks City with 70% fall in profits

Lloyds TSB's first-half profit fell 70 per cent as market turmoil hit the bottom line and the bank warned of rising mortgage bad debts.

Pre-tax profit fell to £599m because of £585m of writedowns from the credit crunch and £794m of negative volatility at its insurance business as stock markets fell. Analysts had expected profit of £773m, according to a Reuters poll. Britain's largest bank for personal current accounts was the biggest faller in the FTSE 100 index, dropping 4.7 per cent. It was the first bank to post interim results in a reporting season set to provide grim reading for investors.

Lloyds insisted that its underlying business was strong and that the combination of market volatility and writedowns would not be repeated. Underlying profit, stripping out volatility, write-downs and a US legal charge, rose 11 per cent to 2.2bn. Underlying revenue growth of 9 per cent outstripped cost growth of 5 per cent.

Lloyds had returned to favour with investors after avoiding excessive exposure to exotic assets. But concerns are increasing about its capital position and exposure to the slowing UK economy.

Lloyds predicted that house prices would fall by 10-15 per cent this year, with a further drop of about 5 per cent next year – the gloomiest prediction so far from a major mortgage lender. A 12.5 per cent fall in house prices this year would add about £100m to the bank's impairment charge this year, said Tim Tookey, the acting finance director. Eric Daniels, the chief executive, said the chances of a UK recession had increased during this year but said Lloyds still believed the economy would slow rather than go into reverse. Mr Daniels faced repeated questions from analysts about the bank's capital strength. Lloyds has not joined its rivals HBOS, Barclays and Royal Bank of Scotland, who have raised a combined £21bn to shore up their capital buffers.

The bank's equity tier one ratio fell to 6.2 per cent at the end of June from 7.4 per cent at the start of the year. Lloyds increased its interim dividend by 2 per cent to 11.4p a share. Some analysts have speculated that the payout, which has a big 11 per cent yield, would have to be cut in a sharp economic downturn. First-half impairment losses rose 31 per cent to £1.1bn, driven by rising corporate bad debts. "When many banks are asking shareholders for additional capital and others are giving the dividend in scrip [shares] or suspending it, we are continuing to increase it", reflecting the bank's confidence in its prospects, said Mr Daniels.

UK retail banking profits rose 15 per cent for the half-year to £911m. Lloyds said it took market share in mortgages, with 24 per cent of net new lending, and also in other products.

Sir Victor Blank, the chairman, said Lloyds was still on the look-out for acquisition opportunities but added: "Don't hold your breath." The bank now appears unlikely to bid against Santander of Spain for Alliance & Leicester. Lloyds considered a big acquisition in Germany earlier this year but shareholders made it clear they opposed such a deal. Mr Daniels said Lloyds would never make an acquisition that undermined its reputation for prudence.

Its shares closed at 306p.

PROMOTED VIDEO
News
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

Reach Volunteering: Charity Treasurer

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

SThree: Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

Ampersand Consulting LLP: Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

In a world of Saudi bullying, right-wing Israeli ministers and the twilight of Obama, Iran is looking like a possible policeman of the Gulf

Iran is shifting from pariah to possible future policeman of the Gulf

Robert Fisk on our crisis with Iran
The young are the new poor: A third of young people pushed into poverty

The young are the new poor

Sharp increase in the number of under-25s living in poverty
Greens on the march: ‘We could be on the edge of something very big’

Greens on the march

‘We could be on the edge of something very big’
Revealed: the case against Bill Cosby - through the stories of his accusers

Revealed: the case against Bill Cosby

Through the stories of his accusers
Why are words like 'mongol' and 'mongoloid' still bandied about as insults?

The Meaning of Mongol

Why are the words 'mongol' and 'mongoloid' still bandied about as insults?
Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

Kenyans still waiting for justice over Mau Mau uprising

Thousands join class action over Britain's role in the emergency
Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

The last Christians in Iraq

After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Britain braced for Black Friday
Bill Cosby's persona goes from America's dad to date-rape drugs

From America's dad to date-rape drugs

Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
Clare Balding: 'Women's sport is kicking off at last'

Clare Balding: 'Women's sport is kicking off at last'

As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

Oh come, all ye multi-faithful

The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Dr Charles Heatley: The GP off to do battle in the war against Ebola

The GP off to do battle in the war against Ebola

Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

Flogging vlogging

First video bloggers conquered YouTube. Now they want us to buy their books
Saturday Night Live vs The Daily Show: US channels wage comedy star wars

Saturday Night Live vs The Daily Show

US channels wage comedy star wars
When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

When is a wine made in Piedmont not a Piemonte wine?

When EU rules make Italian vineyards invisible