Lloyds 'still searching for a buy in Europe'

Lloyds TSB sought to reassure the market yesterday that it was still searching for European acquisitions after its foiled attempt to buy Abbey National earlier this month.

Peter Ellwood, the chief executive of Lloyds, said: "We are talking to people in Europe and we would very much like to do a deal. About 90 per cent of our profits are in the UK now and this is higher than I would like to see." He denied that he had been forced to look to Europe as a second-best option, and said Abbey National was "never going to be a transformational deal".

Mr Ellwood gave his first guidance on his post-Abbey strategy as he unveiled results for the six months to 30 June. This included a £329m exceptional charge representing a fall in the value of its assets due to the drop in stock-market returns this year.

Interim profits were hit by weaker investment returns as well as by exceptional restructuring costs of £54m and a £16m charge for the aborted takeover of Abbey, which was blocked by UK regulators.

Excluding the impact of exceptional charges, underlying operating profits rose by 9 per cent to £2.2bn, and the shares gained 6 per cent to 701p.

The City was not satisfied with Lloyds' guidance about its future plans. Martin Cross, an analyst at Teather & Greenwood, said: "There is a huge question mark over Lloyds which the bank really didn't address yesterday, and in fact implied that a deal is further off than many expected."

If Lloyds doesn't act quickly, Mr Cross predicted, its share price could be adversely affected. "The City is interested in growth. If Lloyds does not buy something at least the size of Abbey, it will not achieve double-digit earnings per share growth in the next few years."

The latest figures show a better than expected performance in the bank's insurance operations, but profits fell in its UK retail banking and mortgage arms. Pre-tax profits from UK retail banking fell by £42m to £330m after Lloyds ploughed £50m of investment into raising customer service standards and e-commerce. The mortgage business also fell by £18m to £423m, mainly because of increased market competition. The insurance arm, which includes Scottish Widows, reported a 34 per cent increase in operating profits to £792m.

Lloyds attracted criticism earlier this year for abandoning a key cost-cutting target. Yesterday, it said costs including acquisitions rose by 14 per cent.