Lloyds TSB latest to be hit by credit crunch as profits plunge 70%

Published on Wednesday 30 July 2008 22:19

THE banking giant Lloyds TSB yesterday said credit crunch losses and woes in its insurance business had wiped 70 per cent off pre-tax profits in the first half of this year.

Britain's fifth-largest bank reported interim profits of 599 million, compared with 1.99 billion in the first six months of 2007, with a further 585 million hit from the credit turmoil and investment writedowns in its insurance arm.

However, the losses seen so far are a fraction of those suffered by its rivals, and Lloyds said that, on an underlying basis, its profits were up by 11 per cent to 2.16 billion.

Its UK retail arm saw underlying profits up 15 per cent to 911 million as the group's mortgage business, Cheltenham & Gloucester, took advantage of the wider clampdown in mortgage lending to boost its share of net new business to more than 24 per cent.

The group is now the second-biggest lender of new mortgages in the UK behind Abbey, which on Tuesday revealed it, too, had been increasing its share, toppling Halifax from the top spot.

The squeeze on hard-pressed mortgage borrowers was highlighted as Lloyds said it had increased profit margins on new home loans. But it said there may be some relief for borrowers on the horizon.

Lloyds is expecting rivals that have sharply pulled back on their lending to start coming back into the market over the next six months.

Eric Daniels, the group chief executive, said: "The mortgage market is reaching a new equilibrium. We expect lenders in the second half to take a more aggressive stance and put more mortgages out there. So we don't think we'll continue to take a 24 per cent share of net new lending."

Shares in the group dropped 5 per cent as the tumble in profits proved Lloyds was not immune to the sector's troubles.

Yesterday's "market dislocation" loss brings the group's total credit-crunch impact so far to 865 million.

The 585 million interim results hit includes the 387 million revealed in the first quarter, but comes on top of the 280 million reported last year.

The group said performance was also affected by a significant drop in the value of investments at its insurance business, as the volatility in stock markets took its toll.

However, Lloyds signalled there would be no multi-billion-pound fundraising move to boost its balance sheet – Barclays, HBOS and Royal Bank of Scotland have all turned to shareholders for extra cash – and said its capital position was "very robust".