Update: Lloyds shares soar despite £4bn loss

5th Aug 2009 07:03

Shares in Lloyds Banking soared today despite the part-nationalised bank posting an underlying loss of £4bn after a huge jump in bad debts.Impairment charges jumped by nearly £11bn to £13.4bn reflecting huge write-downs of HBOS's commercial property loans, but investors took heart from the bank's comments that this would be the peak of the write-offs and that trading was looking better.Net income for the six months rose from £11.4bn to £12.2bn. On a statutory basis, and after an £11.2bn goodwill write-back, the bank reported a profit of £5.95bn. Lloyds, which is 43% owned by the UK government after being rescued earlier this year, said the rise in bad debts stemmed from commercial real estate, rising unemployment, reduced corporate cash flows and the continuing impact of lower house prices. Some 80% of the impairment charge came from acquisition HBOS. This charge is expected to be the peak after a 'prudent valuation' of HBOS's commercial property related assets. Lloyds said it expects bad debts to fall further in 2010.The bank added that three-quarters of its £13.4bn bad debts were also covered by the government's asset protection scheme, even though it is still talks over the final details of its participation.Lloyd's has agreed to put £260bn of dubious loans into the scheme. That will see it suffer the first £25bn of losses on the portfolio, but after that the UK taxpayer will pick up 90% of the tab. Today's figures leave a further £15bn leeway before the taxpayer has to stump up.Integration of HBOS is ahead of schedule, Lloyds said, and on track to deliver over £1.5bn annual saving by end 2011, Annualised run-rate savings will be £700m by the year end, it added.Elsewhere, Lloyds described the core businesses performance as resilient despite margin pressure and weak economy. Gross mortgage lending totalled £18bn, a 27% share of gross lending and 37% of net new lending. Net mortgage lending was £1bn.Lloyds added it will report a loss before tax for 2009 (excluding acquisition related negative goodwill gain). Continued pressure on margins will be more than offset by lower expected impairment charges in second half. It expects the economy to start to turn up in 2010.'We are successfully managing the short-term issues and are well positioned to outperform over the medium term, providing value to our customers and shareholders,' chief executive Eric Daniels said.