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[ 2010-06-07 ]

Lloyds still reeling under HBOS bad debts
London (UK) – 27 February 2010 – The Times - Lloyds Banking
Group continued to suffer the pain of its controversial
acquisition of HBOS, notching up £24 billion in bad debts in
2009, but it said that the picture was improving.

Impairments at the UK’s largest retail bank rose almost £9
billion, or 61 per cent, in 2009, mainly because of its huge
exposure to property companies — a legacy of the lending
binge orchestrated by HBOS’s former head of the corporate
bank, Peter Cummings.

However, the bank — the first to call the top of the
impairments cycle last summer — said that bad debts were
better in the second half of the year than the first and
would fall further from here. However, Ireland, where where
one third of loans are impaired, is still a cause of

Shares in Lloyds, which is 41 per cent owned by taxpayers,
have risen 20 per cent in the past two weeks. Yesterday they
fell 2.4p or 4 per cent to 52.5p. That is well below the 74p
that the Government paid to save the bank, and the price at
which it would have to sell in order to fulfil its aim of
making a profit for taxpayers.

Sir Win Bischoff said yesterday that the bank which he
chairs recognised that given its 30 million customers, it
had a “responsibility” to help the economy. Net lending —
total lending minus customers who have repaid loans — was
positive in 2009, but Lloyds refused to give figures.

However, the Liberal Democrat Treasury spokesman attacked
the lack of disclosure as “specious spin”. Lord Oakeshott of
Seagrove Bay said: “That is like a shopkeeper counting all
the notes she’s taken without knocking off the change.”

The bank has already said that it would meet the target set
by the Government of lending £3 billion to mortgage
customers by March. However, it will not fulfil its pledge
to extend £11 billion of credit to businesses because of the
high level of customer repayments and the bank’s desire not
to lend to risky clients.

Attempting to dampen anger among the small business
community, Truett Tate, the head of Lloyds’ wholesale bank,
said: “I understand people’s frustration, but there are
customers who are overleveraged and surviving because of the
low interest rate environment. They would like to borrow
more but we shouldn’t lend to them.”

Lloyds reported a loss of £6.3 billion, a slight improvement
on the bank’s 2008 loss of £6.7 billion. Excluding a £6.1
billion accounting gain on its own debt, the loss was £12.4

In an attempt to vindicate its decision to buy HBOS as it
was teetering on the edge of collapse in September 2008,
Lloyds increased its estimate of annual synergies from the
deal from £1.5 billion to £2 billion. The bank refused to
say how much of those synergies would come from
redundancies. Lloyds cut staff by 13,682 in 2009.

Analysts believe that total job cuts could reach about
40,000. The bank’s headcount stands at 107,144.

Lloyds, which does not have an investment bank, will pay out
about £200 million in bonuses, with average payouts of £900.
Eric Daniels said earlier this week he would waive his £2.3
million bonus to avoid “obscuring” the good progress at
Lloyds in the past 12 months.

Sir Win said that the chief executive had made the right
decision but warned that “while the public mood is
important”, businesses could not get into a situation where
executives felt they had to turn down bonuses which had been
agreed with shareholders.

Sir Win also said banks had been “too reactive” over the
wave of proposals for regulatory change and needed to form a
group which could set out their own proposals

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