London: Britain’s Lloyds Banking Group sank to a £4 billion ($6.8 billion) loss in the first-half of the year as it was hit by a surge in bad debts from the HBOS business it bought earlier this year.
Lloyds said on Wednesday that its impairment losses in the six months to the end of June jumped to £13.4 billion, more than five times the £2.5 billion a year ago and up from £12.4 billion in the previous six months.
Some 80% of the impairments came from HBOS legacy assets, it said.
Lloyds’ first-half loss compared to a proforma profit of £2.8 billion in the first half of 2008 and a forecast loss of £5.1 billion, according to the average forecast of six analysts.
Lloyds, which is 43% owned by the UK government after taxpayer cash was used to rescue the lender, said impairments were likely to have peaked in the first half of the year and to come in significantly lower in the second half.
With impairments anticipated to have peaked in the half, management expects the group’s results to improve in the second half and through 2010, it said in a statement.
It said about three-quarters of the impairment charge is related to assets intended to be included in the UK government’s Asset Protection Scheme, which aims to limit the bank’s exposure to losses on bad loans.
Eric Daniels, Lloyds chief executive, said that he remained in talks with HM Treasury to finalise terms for the complex APS scheme and is confident of agreeing terms that are not too different to those already outlined.
The bank said it expects to run off around £200 billion of assets over the medium term to reduce the balance sheet, which it said would have a modest impact on income.
It expects to deliver high single-digit income growth within two years.
Lloyds said that its integration of HBOS was on track to deliver more than £1.5 billion run rate annual cost savings by the end of 2011.