Lloyds’ Bad Debts Hit 13.4bn Reports Say

Lloyds Banking Group has laid bare the scale of its latest state bail-out after revealing that taxpayers will insure three-quarters of the “toxic” assets, Philip Aldrick says in The Daily Telegraph.

The assets will cause a record £13.4bn of bad debts at the lender in the first half of the year.

Analysts say most bad news was now out and the future results would improve, which had heartened investors, the BBC reports.

The group, which is 43% owned by UK taxpayers, said £13bn of loans and investments had turned bad, most of them from the HBOS - Halifax and Bank of Scotland (BoS).

Eric Daniel, chief executive of the Lloyds banking group blamed the dismal performance on the BoS book acquired with HBOS, which was highly exposed to individual entrepreneurs and commercial property.

He said it was not performing “how any reasonable book would behave…it was not a balanced portfolio”.
The government is reportedly paid for the group’s stake - the closing price of 92.3 pence compares with the average of about 120p.

The banking analyst Lee Goodwin of Fox – Pitt Kilton told the BBC that with further share price rises, at some point the government would be able to sell its Lloyds stake at a profit, meaning taxpayers would get their money back.

The BBC business editor said the figures were more troubling for taxpayers than shareholders, as most of the poor loans were now being insured by taxpayers, not the banks.

Lloyds said it was in talks with the government about the insurance scheme, which is known as the Asset Protection Scheme.

It would insure Lloyds against further losses from bad loans, but would probably lead to the government increasing its stake in the bank, the BBC reports.

Lloyds has then added that about 75% of the charges it took in the first six months related to assets that it planned to put into the scheme.

Stephen Timms, financial secretary of the Treasury welcomed the signs of increasing leading from Lloyds, and he said: “Lloyds is starting to do the things we need banks to be doing, £18bn of mortgage leading in the first six months of this year and 60,000 news start-up business accounts.”

The BBC business editor pointed out any claims that Lloyds is doing its bit appear to be at odds with a 90% reduction in the value of its loans and advances to corporate customers over the past six months, to £198bn.

Liberal Democrat Treasury spokesman Vince Cable also expressed his concern by saying the big bans were still not lending enough to viable business, says the BBC.