It’s not easy to take positives from today’s Lloyds Banking Group results, given that the once-healthy bank has just plunged to yet another whopping full-year loss. It ended 2009 a painful £6.3bn in the red, as it continued to pay a heavy price for swallowing that rancid HBOS loan book. However, glass-half-full types will note that these bad debts actually fell quite sharply in the second half of the year, a trend that Lloyds expects to continue in 2010; once this millstone has been removed from its neck, the bank should look a lot healthier (much as it did before the deal, you might argue). And by virtue of having no investment bank to speak of, at least it’s side-stepped the bonus row…
The most eye-catching number in Lloyds' results today (142 pages, if you fancy a bit of light bedtime reading) was the total impairments, i.e. the money that it’s been forced to write off on bad debts, mostly from HBOS’s commercial property portfolio. These ballooned to an extraordinary £24bn, more than £9bn above last year’s total. By way of context, this was slightly higher than the entire Group’s revenues for the year. So it’s no wonder Lloyds ended up so far in the red (although it was able to claim a statutory profit-before-tax of £1bn once an £11bn goodwill credit – for buying HBOS so far below its book price – was taken into account).
More significantly, under-fire CEO Eric Daniels (who has very sensibly opted to waive his seven-figure bonus, despite the chairman suggesting he was entitled to the full whack) said that impairments were 21% lower in the second half of 2009. And he expects this to keep improving at the same rate in 2010, ‘with further substantial reductions in 2011 and beyond’. This is partly because Lloyds thinks the property market is through the worst, and partly because it’s managed to get some of the dodgiest loans off the books. So theoretically, it could all be downhill from here for the bank (which, lest we forget, is 41% taxpayer-owned)
Lloyds’ theory is that when the worst cock-ups of the HBOS lenders are off the books, the tie-up will leave it with a much bigger and more powerful operation. And the integration does at least seem to be going reasonably well; with costs down 5% last year, Daniels now thinks he can be saving £2bn a year by 2011. And as it tries to fall back on its traditional strengths in retail and commercial banking, Lloyds managed to sign up 2m current accounts, 5m savings accounts and 100,000 new corporate accounts last year. Indeed, the ‘substantial achievement’ of 2009 leaves the group ‘in a strong position…to deliver the growth potential of the enlarged franchise,’ Daniels insisted today.
He’ll certainly hope so, because it’s the only way he’ll ever be able to justify what has so far looked like an absolute stinker of a deal.
In today's bulletin:
UK growth revised up - as pound slides again
HBOS debt pile pushes Lloyds to £6.3bn loss
Get high with a little help from your friends?
The hidden cost of price cuts
Why the rise in forced retirements is bad for the UK