Lloyds Bank shares under more pressure

Lloyds Banking Group came under more stock market pressure today amid City fears that taxpayers could be forced to pump yet more billions into the beleaguered bank.

A shock warning of £10 billion in annual losses at merger partner HBOS wiped nearly a third from its share price on Friday.

The stock fell as much as 20% further before clawing back the ground later as bank sources sought to play down fears of a full-blown nationalisation.

But the problems at Lloyds, which is already 43% owned by the taxpayer, prompted concern among analysts after the worse-than-expected losses unveiled at HBOS.

Collins Stewart banking analyst Alex Potter said: "We do feel that much of this new loss is simply moving from HBOS's aggressive practices to the greater level of conservatism of Lloyds...however we cannot discount the prospect of Lloyds requiring further capital if HBOS turns even worse."

Panmure Gordon analyst Sandy Chen predicted Lloyds would now make an £11 billion pre-tax loss for 2009, but said "we do not expect this to force a full nationalisation".

He added: "The positive medium-term outlook for (Lloyds) has not been disputed; it is just whether or not it will make it there that investors seem worried about."

Both analysts slashed their target prices on the firm to reflect the uncertainty over the group's short term prospects.

Lloyds and HBOS received £17 billion in funds from the taxpayer to shore up their balance sheet but the market value of the newly-merged group is now less than £10 billion.

At the weekend, Chancellor Alistair Darling declined to rule out a state takeover.

Mr Darling stressed that banks would be "best run in the commercial sector and privately owned".

But the nervousness in the sector put other banks under pressure today. Royal Bank of Scotland - 68% owned by the taxpayer - was down 2%, while Barclays shed 3%. HSBC - seen as the safest haven in the UK banking sector - was in positive territory.

Lloyds stunned investors with the unexpected announcement on Friday.

Shares lost about 40% of their value within minutes of the news, leaving the taxpayer with paper losses of more than £2.5 billion at one stage.

Lloyds said HBOS's assets had been hit by falling markets and announced £7 billion in writedowns at HBOS's corporate division - about £1.6 billion higher than it expected last November.

This follows a "more conservative" assessment of HBOS's corporate division, which is heavily exposed to the troubled housing and commercial property sectors.

HBOS's huge losses contrast with the £5.71 billion in underlying profits which the bank made for 2007.

Despite the surprise warning, Lloyds TSB was tipped to make pre-tax profits of about £1.3 billion for 2008.

Friday's announcement came just days after Sir James Crosby - a former HBOS chief executive - resigned as deputy chairman of the Financial Services Authority (FSA) over claims that he sacked a head of risk for warning that the bank was "going too fast". Sir James denies the allegations.

Lloyds said this weekend that its five executive directors had voluntarily given up their bonuses for 2008.