Lloyds creates more doom and gloom

The bank lost £3.3bn in the first six months of the year - although that was largely because of PPI compensation. But it says it's expecting a 'long, slow' recovery...

by Emma Haslett
Last Updated: 19 Jul 2012
It’s Lloyds’ turn to step up to the plate with its half-yearly results today, and things aren’t looking great: the bank made a £3.3bn loss in the six months to June 30, compared to a £1.3bn profit during the same period a year ago. To be fair, that’s largely thanks to a £3.2bn charge for mis-selling payment protection insurance – but while impairment costs for bad loans fell by 17% to £5.4bn, they actually rose by 14% in Ireland, to £1.8bn. So all in all, not brilliant. And if campaigners get their own way, it might have to stand up to scrutiny from the Competition Commission soon…

Lloyds, which is 41% owned by taxpayers, did point out that before a ‘series of special charges and adjustments’ (ie. the small matter of that PPI compensation), profits would actually have been £1.1bn, down from £1.6bn in the first half of the year. Then again, that’s a bit like trying to imagine what songs Michael Jackson would have released if he hadn’t died: nice to think about, but basically fantasy.

The bank added that lending fell by 2%, although that’s hardly unexpected: ‘people are simply not buying new cookers, not buying new extensions, not buying new cars, so we shouldn’t be a surprised that a retail bank like Lloyds is suffering,’ pointed out SRN analyst Ralph Silva. The good news for businesses, though, is that it says it’s ‘on track’ to meet lending targets set by Project Merlin: it lent £21.2bn in the first half of the year, £6.7bn of which went to small and medium firms.

The major challenge now for (relatively) new CEO Antonio Horta-Osório is the sell-off of 632 of its branches, as decreed by the European Commission as a penalty for the billions of pounds it took from the state during the financial crisis. Horta-Osório says there have already been a number of ‘credible bids’ by the likes of Lloyd’s of London chairman Lord Levene, the Co-Op, and Punch Taverns founder Hugh Osmond, while Virgin Money and insurance buyout group Resolution both have their eye on the deal.

The only potential spanner in the works comes from the Independent Commission on Banking: in April, it said it wanted Lloyd’s to sell even more of its business (bearing in mind that the bank controls about a third of the UK’s retail banking market – in fact, once they’re sold off, those 632 branches will make up the UK’s seventh-largest bank). But it could yet get off lightly: while some analysts are convinced the ICB will ask for its case to be referred to the Competition Commission, others expect the Government to ignore it, based on the fact that at the moment, it’s more worried about helping the economy to recover than it is about promoting competition.

Either way, Horta-Osório said Lloyds is remaining steadily cautious about the next few months: while economic data has ‘softened’ over the past five months, the bank expects it to be a long, slow recovery. Settle in…

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