Lloyds cheers City with vow to return to black this year

Published on Friday 19 March 2010 20:26

LLOYDS Banking Group promised the City a return to profitability this year in an unscheduled trading statement yesterday that cheered financial markets.

• Picture: Getty

The part-nationalised bank said the improved outlook reflected good trading in the first ten weeks of 2010, with bad debts "trending at lower levels than anticipated", while costs were down compared with the same period last year.

The bank, which made a 6.3 billion loss last year after bad debts rose to 24bn from 14.9bn in 2008, said it "believes that it will be profitable on a combined basis in 2010". The "combined basis" means taken together with the HBOS business that includes Bank of Scotland, which it acquired early last year.

On the stock market, Lloyds' shares closed up 8.2 per cent, or 4.58p, at 60.13p, making it the biggest riser in the FTSE 100 index. The share price jump cut the public's paper losses on its 20bn-plus investment in Lloyds by 1.7bn. According to the National Audit Office, the state paid an average of 74p for its 41 per cent stake, so even after yesterday's surge the government is still sitting on losses of almost 3.5bn.

Previously, most City analysts forecast further losses for this year as Lloyds tries to get out from under the distressed commercial property portfolio it acquired with its takeover of HBOS.

The positive update came ahead of an investor presentation Lloyds chief executive Eric Daniels is due to give on Wednesday at the Morgan Stanley European Financials conference.

The statement said the bank now expected to deliver a better performance than previous guidance on both retail and corporate bad debts this year.

It said: "In the first ten weeks of 2010, the group's trading performance has been strong and we are pleased with the group's performance against each area of recent guidance."

Lloyds said the group's net interest margin was "trending in line with recent guidance and this has supported a good level of income growth" on a combined Lloyds/HBOS basis.

Net interest margin is a key industry metric of the difference between the rate banks lend at and what they pay on deposits.

City analysts said the better news on bad debts would reassure the market after a 21 per cent fall in Lloyds' sour loans during the second half of last year fell short of some investors' expectations.

Most analysts had previously been forecasting widely varying pre-tax losses for Lloyds in 2010, ranging from about 200 million to 3.6bn.

Simon Willis, banking specialist at NCB Stockbrokers, who had forecast a profit for Lloyds this year of 500m, said: "Having disappointed a little bit with the full-year results, this kind of puts them back on track.

"It's also interesting they have issued this statement so soon after the annual results."

Execution Noble banking analyst Joseph Dickerson said in a note that, following the strong performance of Lloyds's shares yesterday, "we anticipate follow through, but would flag the prospect of a pre-election placing in the stock".

Lloyds, which cut 13,000 jobs in 2009, is also pushing through an austerity drive aimed at taking out 2bn in costs by the end of 2011 – a target raised at the recent annual results from an earlier 1.5bn.