Broker snap: £6.3bn loss for Lloyds "entirely plausible"

13th Jul 2009 13:04

Reports in the Sunday Times that Lloyds Banking Group may report interim losses of £6.3bn are "entirely plausible", according to stockbroker Nomura."The group itself has indicated it expects to be in loss for the year as a whole. It has also warned that corporate credit loss charges will be up to 50% higher than last year. Accordingly, we already have full year pre-tax loss estimates of £10bn, including an assumption for credit losses of £22.5bn (the Sunday Times article suggests full-year credit losses of over £20bn)," the broker notes.Nomura sees two key issues for Lloyds management: first, the proportion of current losses that are attributable to assets covered by the government's Asset Protection Scheme (APS) and, second, the group's earnings power excluding the APS assets."Ironically, despite the scale of current losses, which are the largest in the sector, we regard the asset quality and book value of the Lloyds group as the most reliable of the domestic UK banks, due to the APS. The asset quality problems of the group, large though they may be, are in clearly identifiable parts of the asset base and appear to have been substantially transferred to the APS," the broker believes, adding that the remainder of the (non-APS) books appears to be of "relatively high quality"."Our negative view of Lloyds is due to the pressure we see on the group's sustainable profitability, partly as we view it the most exposed to the structural uncertainties from funding (i.e. its loans/deposits ratio) and to the current sector margin pressures," Nomura said.