Lloyds TSB yesterday became the latest big bank to reveal that its profits had been marred by a sharp rise in bad debts in the first half of this year.
At £1.78bn, profits before tax edged 4 per cent higher in the six months to the end of June, in large part a result of cost cutting.
However, the charge for defaults jumped 20 per cent to £800m for the group as a whole and by 16 per cent to £632m for Lloyds' UK retail business.
Higher mortgage payments and steeper energy bills may have left more Britons struggling to service other debts, but Lloyds, like HSBC before it, blamed much of the surge in defaults on a change to rules last year that made bankruptcy easier.
Eric Daniels, Lloyds' chief executive, said: "The change in bankruptcy law is having a wider impact on societal mores. In our parents' day, when you inherited a debt you paid it back. Today, kids that are leaving college are being told to just default."
The Enterprise Act, intended to de-stigmatise bankruptcy and foster entrepreneurs, is being used by consumers simply to "walk away" from debt, he added.
The spike in defaults overshadowed results characterised by Mr Daniels as "very good", but given a lukewarm reception by many within the City.
Lloyds' shares fell 6p to 528p, valuing the country's fifth-biggest bank at £30.1bn amid disappointment over the performance of its retail bank. Profits before tax crept just 2 per cent higher to £713m against the same period last year, and fell 8 per cent from the second half of 2005.
Revenue growth in retail banking slowed as outstanding balances on personal loans dwindled and income fell from the payment protection insurance sold alongside them.
Lloyds' 6.7 per cent share of net mortgage lending - the difference between the amounts lent and repaid - fell well short of its traditional 9.1 per cent market share. Ian Gordon, banking analyst at Dresdner Kleinwort, said: "At the start of this year, Lloyds flagged an increasing strategic focus on mortgages as a product to drive cross-sales. Today, we have seen a very disappointing mortgage share."
He added: "There was precious little evidence of tangible franchise growth. Customer satisfaction surveys can't be put on a spreadsheet."
Terri Dial, an American retail banking specialist, was brought in from the US lender Wells Fargo in June last year in an effort to re-invigorate Lloyd's struggling retail bank.
Industry experts were encouraged by elements of yesterday's results. Job cuts, offshoring and improvements in administration saw costs across the bank fall 3 per cent to £1.27bn.
Sales at Scottish Widows, Lloyds' life assurance arm, jumped 35 per cent, allowing it to pay about £400m to its parent later this year.
Profits from wholesale and corporate banking, which lends to businesses, were 11 per cent better at £768m.
Lloyds, which offers the highest yield of any FTSE 100 company, maintained an interim dividend at 10.7p a share.Reuse content