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Lloyds results stung by bad loans at HBOS

  • Story Highlights
  • Losses attached to HBOS have been bigger than expected, nearly 3,000 jobs cut
  • Eighty percent of bad loans incurred by Lloyds came from HBOS
  • The UK government encouraged Lloyds-HBOS deal to shore up the banking system
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LONDON, England (CNN) -- Lloyds Banking Group Wednesday reported a loss of £4 billion ($6.8 billion) for the first half of 2009 -- much of it incurred from its takeover of troubled UK rival HBOS earlier in the year.

Lloyds Banking Group says that most of its bad loans relate to HBOS, which it bought in 2008.

Lloyds Banking Group says that most of its bad loans relate to HBOS, which it bought in 2008.

The banking group took a charge of $22.8 billion, mainly for bad loans -- 80 percent of which came from HBOS.

"Our first half loss was driven by the high levels of impairment," Group Chief Executive J Eric Daniels said in a statement. "The core business delivered a resilient performance, despite the weak economy. We are successfully managing the short-term issues and are well positioned to outperform over the medium term, providing value to our customers and shareholders."

The banking group made a $4.8 billion profit in the comparable period last year -- although direct comparisons are hard due to the acquisition of HBOS.

Daniels added that the decline in property prices had a significant impact on the group's results, especially given the concentration of assets acquired through the sale of HBOS.

Lloyds Banking Group, which began trading in January, was formed following the merger between HBOS and Lloyds TSB last year.

The UK government, which encouraged the deal to save HBOS and shore up the banking system, announced in March that it would take a stake of up to 66 percent in Lloyds in return for insuring up to $442 billion of the group's toxic assets. At present the government stake stands at 43 percent.

But the losses attached to HBOS have been bigger than expected, with Lloyds cutting almost 3,000 jobs since mid-April.

Earlier in the year Lloyds announced that HBOS made a $18.3 billion pre-tax loss for 2008. In Tuesday's statement the bank said that it expects the economy to stabilize throughout the rest of the year, with a weak upturn in 2010.

As previously announced, it said, it expects to report a loss before tax for 2009, excluding the impact of negatives linked to the HBOS acquisition. Impairments through the HBOS deal are expected to peak in the first half of 2009.

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