Lloyds hammered again amid nationalisation fears

Lloyds' share price tanked again this morning, as investors worried about the spiralling losses at HBOS...

by
Last Updated: 31 Aug 2010

After news of a £10bn write-down at HBOS wiped a third off its market value on Friday, Lloyds’ shares plunged another 22% at one point this morning. Investors are worried that the mounting losses at HBOS will force Lloyds to go cap-in-hand to the Government for extra capital – or even submit to public ownership completely. Either way, the deal that PM Gordon Brown took so much credit for brokering is looking increasingly like a stinker for shareholders...

The combined Lloyds Banking Group – comprising the old Lloyds TSB and what’s left of HBOS – is already 43% owned by the taxpayer, as part of the takeover deal. But after shocking the City with that enormous loss on Friday – thanks largely to bad loans in HBOS’s old corporate division – it’s clear that the group’s finances are a lot less healthy than previously thought. Some estimates suggest that Lloyds will need to raise an extra £10bn, and it won’t be able to do that without significant help from the Treasury.

What’s more, the HBOS losses could get a lot worse yet. The chief culprit for the loss announced last week was the bank’s corporate lending division, previously run by Peter Cummings – it’s been continuing to invest in property-backed deals even after the market went pear-shaped, leaving its loan book in disastrous shape. It’s already written off £7bn – but with total loans of about £40bn, these losses may well end up being much wider.

Either way, it’s clear that HBOS is in much more of a mess than Lloyds thought when it went ahead with the deal. This reflects extremely badly on all concerned – particularly the Lloyds top brass, for corralling shareholders into a deal when they didn’t fully understand the risks (there have already been calls for the head of chairman Sir Victor Blank), and Gordon Brown, who’s previously been happy to take personal credit for making the deal happen (but will no doubt disclaim all responsibility now it’s floundering).

For its part, Lloyds has been insisting that the deal is basically a good one, and that it wasn’t in discussions with the Treasury about taking fresh capital, while the Government has played down talk of nationalisation. Lloyds’ share price did rebound this today, recovering most of its early losses – but this promises to be a nervous week for the three million or so people who hold shares in this proud bank...


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Lloyds hammered again amid nationalisation fears
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