Lloyds runs aground with a £3.9bn loss

Trouble aboard the good ship Lloyds: the bank has reported a £3.9bn loss for the first nine months of 2011, compared to a £2bn profit this time last year. Of course, it blames much of that loss on the £3.2bn it had to shell out as compensation for the mis-selling of payment protection insurance – which hit the majority of its rivals just as hard. But looking at those figures, it doesn’t take a genius to work out that that can’t have been the only thing that went wrong. And considering the bank’s CEO, Antonio Horta-Osorio, was signed off with ‘exhaustion’ just six days ago, senior staff at the bank must be feeling decidedly uncomfortable.

So what’s gone wrong? Well, total income levels for the period fell by 15% to £15.3bn, which suggests that it’s simply not getting as much businesses as it was. That pushed underlying profits down by 6%, to £1.936bn by its preferred measure (doesn’t sound very preferable to us…). On the more positive side, though, it added that over the past three months, it reduced its non-core assets by £11bn to £151.4bn, reducing its exposure to bad debts by 22%. And it’s on-track to meet the lending targets it agreed with the Government as part of Project Merlin: in the last nine months, Lloyds has apparently lent £32bn to businesses, of which £9.6bn went to SMEs.  

It’s unquestionably been a tough year for banks, what with those PPI fines, and a stubbornly low base rate, which has given them little chance to raise their margins. But at Lloyds, there’s also indication of a cultural failing.

An anonymous former senior executive of the company fans the flames in today’s Telegraph, explaining that Lloyds’ reaction to the previous recession was to become strongly risk-averse, which ‘saps the energy and enthusiasm of even the keenest staff’. ‘If some mad professor wanted to conduct a cruel experiment in the psychology of stress, he couldn’t do better than to replicate the corporate culture of Lloyds Banking Group,’ he/she/it explains. ‘If a decision had to be made, then it was best to reduce the risk by getting "sign-off" from as many other people… as possible.’ So boss Horta-Osorio probably isn’t the only one suffering stress…

No doubt, some of that is to do with the fact that the bank is 41% owned by the Government – which is, presumably, keen to ensure Lloyds doesn’t return to its former, risk-loving self, thus minimising any risk of a second bailout. But of course, any fall in profitability will mean the Government is forced to put off selling its shares. So this risk-aversion could end up costing us all dear.