Lloyds Banking Posts First Profit Since HBOS Purchase
Lloyds CEO Eric Daniels
Lloyds Banking Group via Bloomberg
Lloyds CEO Eric Daniels said in a statement, “We continue to believe that a gradual recovery over the next couple of years remains the most likely outcome for the economy.”
Lloyds CEO Eric Daniels said in a statement, “We continue to believe that a gradual recovery over the next couple of years remains the most likely outcome for the economy.” Source: Lloyds Banking Group via Bloomberg
Aug. 4 (Bloomberg) -- Richard Stovin-Bradford of the Financial Times' Lex commentary team discusses Lloyds Banking Group Plc's first-half profit reported today. Britain’s largest mortgage lender said pro-forma pretax profit was 1.6 billion pounds, its first profit since the company's acquisition of HBOS Plc forced the bank to seek a government bailout. (Source: Bloomberg)
Aug. 4 (Bloomberg) -- Harald Eggerstedt, a credit strategist at RIA Capital Markets Ltd., talks about bank earnings and the outlook for insolvencies. He speaks from Edinburgh with Maryam Nemazee on Bloomberg Television's "Countdown." (Source: Bloomberg)
Lloyds Banking Group Plc, Britain’s largest mortgage lender, reported a profit for the first time since its acquisition of HBOS Plc forced the bank to seek a government bailout. Bad-loan charges fell by half.
Pro-forma pretax profit was 1.6 billion pounds in the first six months of the year, compared with a loss of 3.96 billion pounds a year earlier, the London-based bank said in a statement today. That beat the 694.5 million-pound estimate of 17 analysts in a Bloomberg survey. The bank gained in London trading.
“What’s really gratifying is all the key line items are moving the right way,” Lloyds Chief Executive Officer Eric Daniels told reporters on a conference call today. “The biggest news on the page is that impairments were down 51 percent.”
Lloyds, Britain’s second-biggest taxpayer-assisted bank, was helped by the recovery in residential and commercial property prices in the first half of the year, which caused a reduction in the number of bad loans. Lloyds’s writedowns soared to 24 billion pounds following its purchase of HBOS in January last year, which had forced the bank to seek a taxpayer-funded rescue and post a pretax loss of 6.3 billion pounds for 2009.
Bad-loan provisions were 6.56 billion pounds in the first six months of this year, compared with 13.4 billion pounds a year earlier. Net income was 596 million pounds in the period, missing the median estimate of 744 million pounds among seven analysts surveyed by Bloomberg.
Government Support
The bank rose 3.6 percent to 74.49 pence at the close in London at 4:35 p.m., the biggest gain in the 54-member Bloomberg Europe Banks and Financial Services Index. The bank’s shares have risen about 47 percent in 2010, making the lender the second-best performing stock in the FTSE 350 Index of Britain’s five biggest lenders.
“Lloyds’ management is to be congratulated for reporting profit before tax well ahead of expectations,” said Bruce Packard, an analyst at Seymour Pierce Ltd. in London, who has a “sell” rating on the stock. “Yet this is profit in an accounting sense, rather than an economic sense, given the 132 billion pounds of government support the group is still receiving.”
Lloyds uses funds provided by the government and central bank, under programs including the Special Liquidity Scheme that allows banks to swap hard-to-trade mortgage-backed securities for government bonds to improve liquidity.
Impairments will be lower in the second half of this year and lower still in 2011, Daniels said on the conference call.
‘Clear Turnaround’
Profit at the consumer banking unit climbed more than sixfold to 2.46 billion pounds in the first six months of the year, from 360 million pounds in the same period a year earlier. The commercial division posted a profit of 742 million pounds after a loss of 3.2 billion pounds a year earlier.
“It’s the most clear turnaround story in Europe,” said Arturo De Frias, an analyst at Evolution Securities Ltd. who has a “buy” rating on the stock. “These are very strong numbers. We expected impairments to fall significantly, but they have fallen even more than expected.”
Lloyds’ wealth and international unit posted a loss that widened more than fourfold to 1.6 billion pounds. Impairments at the unit rose 51 percent to 2.2 billion pounds, reflecting the deterioration in the Irish economy, Lloyds said.
The bank halted dividend payments following its government bailout in 2008 and has not yet resumed them. It has 2.5 million individual shareholders.
‘Right Team’
Lloyds is the second U.K. government-assisted bank to report a profit this week. Northern Rock Asset Management Plc, a unit of the wholly nationalized bank, yesterday reported net income of 358.8 million pounds in the first half.
Chairman Win Bischoff said today that the results demonstrate the bank has the “right management team.” Lloyds has drawn up a shortlist of candidates to replace Daniels and appointed a recruitment firm to identify potential replacements, a person familiar with the situation said earlier this year.
Europe’s banks are reporting higher profits as writedowns fall following economic recovery. On Aug. 2, HSBC Holdings Plc, Europe’s biggest bank, said net income doubled to $6.76 billion, while BNP Paribas SA, France’s biggest bank, said second quarter profit rose 31 percent as bad loans declined.
The British government, which provided more than 20 billion pounds of capital to Lloyds, has a paper profit of around 2.4 billion pounds on its investment in the bank. Any sale will not occur before next year’s report on whether to separate retail and investment banking units, the government has said.
Lending Commitments
Lloyds said it is ahead of its lending commitments to the U.K. government, which includes 67 billion pounds of credit to homeowners and businesses in the year to March 2011. The bank lent 8.4 million pounds to homeowners and 17 billion to businesses in the three months to the end of June, it said.
Prime Minister David Cameron and Bank of England Governor Mervyn King today discussed how banks can be encouraged to lend to small- and medium-sized businesses. King said July 28 that access to credit is “a particular problem.”
“It’s not a question of being mean and turning customers away,” Daniels said of lending conditions to reporters on the conference call today. “We are seeing very little demand out there.”
British taxpayers stand to gain 19 billion pounds after government-backed banks posted higher-than-expected earnings, the Centre for Economics & Business Research said in a report today. The government has about 71.5 billion pounds invested in bank stock after rescuing Royal Bank of Scotland Group Plc, Lloyds and Northern Rock during the financial crisis.
To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net; Jon Menon in London at jmenon1@bloomberg.net
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