Gloom lifting as Lloyds predicts return to profit

Mar 20 2010 by Iain Laing, The Journal

LLOYDS Banking Group had some cheer for the taxpayer as it predicted a return to profit this year after lower than expected bad debts.

The bank is 41% state-owned but shares jumped as much as 10% following the upbeat comments, cutting the public’s paper losses on its £20bn investment in Lloyds by £1.7bn.

According to the National Audit Office, the state paid an average 74p for the shares, so even after yesterday’s surge the Government is still sitting on losses of almost £3.5bn.

Lloyds racked up £24bn in bad debts during 2009 – mainly due to the toxic debts in the HBOS loan book – which led to a £6.3bn loss last year.

But the group said: "Impairment provisions are currently trending at lower levels than anticipated and as a result the group now expects to deliver a better impairment performance than previously guided, in both the retail and corporate businesses, in 2010."

The better news from Lloyds – as well as lower than expected losses from nationalised Bradford & Bingley – also helped Royal Bank of Scotland and Barclays advance.

Seymour Pierce analyst Bruce Packard warned against reading too much into yesterday’s statement.

He said: "In general, banks have been very bullish in client meetings after their results. Given that interest rates are at a 350-year low, it is not surprising that credit quality is improving.

"But UK households are around three times more indebted than during the early 1990s recession, and consensus forecasts for growth look far too optimistic compared to how the banks grew income coming out of the last recession."