Of Special Interest


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11th November 2011

Lloyds Banking LOSS

Lloyds Banking Group reported 9 month net attributable LOSS of £2,824m (€3,291m $4,538m ¥353.8bn Y28,800m) versus year ago profit of £1,523m. Quarterly profits were only provided at the profit before tax level which amounted to a Q3 LOSS of £607m (€707m $975m ¥76.1bn Y6,190m) compared with a year ago profit of £671m. Heavily shaping the 9 month loss was the £3.2bn charge for the mis-selling of Payment Protection Insurance taken in Q2 - Lloyds having been by far the most aggressive seller of this insurance. Lower income, higher costs and fair value writedowns were also factors in the LOSS.

The good news is that Lloyds exposure to the PIIGS sovereign debt countries and Belgium (an interesting addition to the dubious countries group) is less than £200m. Even adding exposure to banks and ABS from the same group of countries the figure remains below £5.4bn. Debt value adjustment is not a major distortion because the market value never rose enough for a fall to be significant although it would have been helpful for the figure to have been provided.

Yet the bank is not without problems. First, it announced that it may not meet its financial targets for 2012. Second, the absence of CEO, António Horta-Osório. Losing a CEO for sickness reasons would be a blow to any major organisation but is made many times worse because Horta-Osório has either removed all of the experienced top management or they have decided to leave, with him bringing in his own men. The bank was resorted to appointing a man serving his notice as temporary CEO, and who is said that he will leave at the end of March come what may. At this time not having a leader to clearly enunciate strategy is a serious weakness. Third, Moody's has the bank on credit watch and is very likely to downgrade the bank. Expenses are only discussed under the 'combined business basis' and despite the increase YTD the bank states that it expects full year expenses on this basis (only?) to be lower than in 2010.

Credibility is not helped by the bank continuing to highlight 'the combined business basis' profitability. This reads like a wish list, excluding anything bad that has happened to the bank and markets - such as PPI charges, reduction in asset values etc. When all these factors are excluded then the bank is magically shown in profit. It also raises the question as to whether the bank will be so fast to exclude fair value when it is rising and charges when they relate to last year and not the current year.

Income Statement 9 months 2011 2010 Change
£m £m %
Interest and similar income 20,308 21,699 -6
Interest and similar expense -10,375 -12,303 -16
Net interest income 9,933 9,396 6

Fee and commission income 3,292 3,381 -3
Fee and commission expense -1,116 -1,282 -13
Net fee and commission income 2,176 2,099 4
Net trading income -5,732 9,725 --
Insurance premium income 6,187 6,166 0
Other operating income 1,703 3,161 -46
Other income total 4,334 21,151 -80

Total income 14,267 30,547 -53
Insurance claims 843 -11,616 --
Total income, net of insurance claims 15,110 18,931 -20

Payment protection insurance provision -3,200 – --
Other operating expenses -9,772 -9,131 7
Total operating expenses -12,972 -9,131 42

Trading surplus 2,138 9,800 -78
Impairment -6,017 -7,734 -22
Share of results of joint ventures and associates 21 -99 --
(Loss) profit before tax -3,858 1,967 --
Taxation 1,079 -367 --
(Loss) profit for the period -2,779 1,600 --
Profit attributable to non-controlling interests 45 77 -42
(Loss) profit attributable to equity shareholders -2,824 1,523 --