Margaret Doyle

Margaret Doyle's Profile

Lloyds calls bottom of loss cycle – early?

August 5, 2009

Lloyds Banking Group’s outgoing chairman, Victor Blank, foretold “exciting prospects [and] long-term success” as the bank wrote off 13.4 billion pounds in bad debts, contributing to an overall 4 billion pound loss. The group’s assertion that its loan impairments have peaked — well ahead of when historical precedent suggests — may also prove a hostage to fortune.
Blank’s remarks and chief executive Eric Daniels’ thanks to him for his “significant contribution” had an air of surrealism about them. Blank, after all, cooked up the hasty takeover of HBOS that scuppered the formerly cautious Lloyds last autumn, forcing it into government arms. Daniels did nothing to stop him.
Blank is bowing out after losing the confidence of UK Financial Investments, the body that looks after the government’s 43 percent stake in the bank. However, UKFI’s boss, John Kingman. still defends Daniels, whose old-style banking skills are seen as key to digging Lloyds out of this mess.
The extent of the damage of the HBOS deal is evident from the numbers. No less than 80 percent of the impairments come from its book, which was laden with overvalued real estate, both commercial and residential. Indeed, the cost of bad HBOS loans in the first six months of the year exceeds the amount it spent buying the bank.
In Lloyds’ defence, it is dealing aggressively with Blank’s unfortunate legacy. It is working through the loan book and identifying the real dross that will go into the Government Asset Protection Scheme (GAPS). Three quarters of the assets affected by the impairment charge are ear-marked for the GAPS.
Moreover, all of the group’s new lending (which is significant — gross mortgage lending, for example, is 18 billion pounds, maintaining its market share at 27 percent), is now done under Lloyds stricter criteria. The group is winding down the “specialist”, e.g. self certified, and buy-to-let mortgage categories that proved so tempting to amateur property barons.
Lloyds is also crunching through the integration at top speed. It has always been known for being tight on costs. Indeed, it is a bitter joke in the industry that it drip-feeds job losses — rather than declaring its target for cuts — in an effort to avoid political fall-out. Staff numbers fell by 2,619 in the first half, to 118,207. More are surely to come with the group targeting an annual improvement of a full 2 percentage points in its cost income ratio for the next few years.
On the funding side, Lloyds is increasing the maturity of its funding — despite the higher costs — though are still concerns the enlarged bank remains overly dependent on wholesale funding which is currently being supplied by central banks and
government guarantees.
So far, each of these initiatives has been dwarfed by the sheer scale of HBOS losses. Normally banking losses peak a year or so after the trough of the recession, which suggests any turning point is at least twelve months away.
Lloyds reckons that the property focus of the HBOS books means that losses have peaked much earlier than they would otherwise have done. The GAPS should also help shield Lloyds from mounting losses.
However, general corporate defaults are likely to rise, as are nemployment-related defaults on unsecured debt. If Lloyds’ prediction proves correct, it will have taken a step towards rebuilding its battered credibility. Who knows? Daniels may be able to keep his job after all.

Comments

It all depends in your reasons Catalin… for many household, children, and so on. aren’t critical. They might instead focus on building a successful potential rather than residing the “white picket fence” United states aspiration

 

I actually wanted to write down a small comment in order to appreciate you for some of the splendid techniques you are placing on this site. My prolonged internet search has finally been rewarded with brilliant details to exchange with my great friends. I would assert that most of us website visitors are extremely endowed to be in a good community with very many marvellous individuals with very beneficial advice. I feel extremely grateful to have seen your webpage and look forward to many more excellent moments reading here. Thanks once again for everything.

 

It all depends in your reasons Catalin… for many household, children, and so on. aren’t critical. They might instead focus on building a successful potential rather than residing the “white picket fence” United states aspiration

 

Thank you for another essential article. Where else could anyone get that kind of information in such a complete way of writing? I have a presentation incoming week, and I am on the lookout for such information.

 

I would not think regarding starting up children only understand that I can’t provide my kids most what they need. I do not begin to see the point in marriage and achieving kids if you cannot nuture them properly and give the the proper schooling. It can be absurdity. lots of young families who may have kids and they do not have cash to feed all of them. Which is cruelty from our perspective. Of course, this depends around the a higher level education these people obtained.

 

Speculate I explained, you will need to innovate with a number of amount for those to possess a explanation to select anyone.

 

Just! Often there is … usually a means!

 

My personal some other form of precisely the same saying:
“Hurry way up as well as fail, so you can start succeeding.Inches

 

Everything they want, That’s setting your club greater than needed

 

My Favorite:
Genius is a pct motivation along with ninety-nine per cent sweating. Manley The. Thomas edison

 

Everything they want, That’s setting your club greater than needed

 

“If you want to work on your purpose, your objectives should go to operate you. If you work on the plan, the program goes to be effective on you. Whatever good things we all construct wind up building all of us.”
Jim Rohn is excellent

 

Just! Often there is … usually a means!

 

Every single disappointment offers you the opportunity to discover as well as expand. I really believe you find out more from the downfalls than you need to do your current successes.

 

My Favorite:
Genius is a pct motivation along with ninety-nine per cent sweating. Manley The. Thomas edison

 

I think this is among the most significant information for me.And i’m glad reading your article. But want to remark on few general things, The web site style is great, the articles is really nice : D. Good job, cheers

 

You could certainly see your skills within the work you write. The world hopes for more passionate writers like you who aren’t afraid to say how they believe. Always follow your heart.

 

This is the perfect blog for anyone who wants to know about this topic. You know so much its almost hard to argue with you (not that I really would want…HaHa). You definitely put a new spin on a subject thats been written about for years. Great stuff, just great!

 

It all depends in your reasons Catalin… for many household, children, and so on. aren’t critical. They might instead focus on building a successful potential rather than residing the “white picket fence” United states aspiration

 

Excellent stage, I realize. To each and every their particular play

 

Every single disappointment offers you the opportunity to discover as well as expand. I really believe you find out more from the downfalls than you need to do your current successes.

 

Hi there Neil, I have 2 estimates that have tied to myself since I was obviously a child.

 

I have recently started a blog, the information you provide on this website has helped me greatly. Thanks for all of your time & work.

 

The only way all around is thru.

 

Cheers, they will weren’t intended to run into doing this.

 

My favorite is: grocery

 

Our mantra (personal made):
“Only the very best problems at any time succeed.In .

 

Just like I usually say… everybody can desire, however few individuals act. That is why many people these days are usually next to pennyless!

 

Cheers, they will weren’t intended to run into doing this.

 

I love that! It is so true, the most successful individuals have unsuccessful repeatedly. party

 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  • About Margaret

    "Margaret Doyle is a Reuters Breakingviews columnist, based in London. She writes about investment banking. She has been a journalist for over 14 years. She has written for The Daily Telegraph and The Economist and presented various radio programmes for the BBC. She began her career as a consultant at McKinsey & Co. She has an economics degree from Trinity College, Dublin and an MBA from Harvard Business School, which she attended as a Fulbright scholar. She is a Conservative Member of Westminster City Council."
  • Follow Margaret