Lloyds losses top £3.5bn – and bank warns of more to come

Antonio Horta-Osorio warned of a tough year ahead. Picture: PA
Antonio Horta-Osorio warned of a tough year ahead. Picture: PA
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LLOYDS chief executive Antonio Horta-Osorio, back in the hot-seat after a bout of ill-health, warned of a tough year ahead as he announced a £3.5 billion loss.

Britain’s biggest mortgage lender, forecast revenues would fall further this year, after dropping 10 per cent in 2011 to £21.2bn. The bearish outlook caused Lloyds shares to close down 2.3 per cent at 35.73p, making the stock the worst performer on the benchmark FTSE 100 index.

Lloyds Banking Group is 41 per cent owned by the taxpayer

Lloyds Banking Group is 41 per cent owned by the taxpayer

The taxpayer bought a 41 per cent stake in Lloyds at an average price of around 63p, which means he is currently sitting on a £9bn loss after pumping in £20bn to save the business during the 2008 crisis.

A three-year freeze on pay-outs to investors by the European Commission expired last month, but the bank is no shape to resume dividends, it said.

“We need to have absolute clarity about our capital requirements [under new regulatory rules]. We are in discussions with the Treasury,” Horta‑Osorio said.

He added that Lloyds was one year into a “three- to five-year journey” to get back the money pumped in by the taxpayer after the bank rescued rival HBOS.

Lloyds’s loss, against £281m profit in 2010, was mainly triggered by a £3.2bn provision taken in 2011 to compensate customers for the mis-selling of payment protection insurance, and some continued restructuring costs.

Excluding exceptional items, the group did better, with combined Lloyds/HBOS businesses profit before tax up 21 per cent to £2.68bn.

But Horta‑Osorio warned: “We expect the external environment to remain challenging in 2012, with a subdued economy, continued high levels of regulatory scrutiny and political uncertainty relating to the banking sector, and the continued potential for downside effects from financial market volatility and instability in the eurozone.”

Losses on bad debts fell 26 per cent on the year to £8.1bn, £3.2bn of which related to a still struggling Irish property market that Lloyds was exposed to through its acquisition of HBOS.

Scottish Widows was one of the better performers for Lloyds last year, contributing the lion’s share of the insurance division’s 7 per cent rise in profits to £1.4bn.

Toby Strauss, who joined Lloyds from Aviva as the director for insurance last October, said: “Widows had a very good year despite a negative climate in terms of policyholder sentiment. It has moved away generally from savings and pensions to protection because in uncertain times people focus on savings.”

Strauss said Widows also saw a business opportunity in targeting the “baby boomer generation” with products.

SWIP, the asset management arm, boosted its profits £11m to £99m. Lloyds’s linchpin UK retail business, which includes Bank of Scotland and Halifax, saw profits dip 9 per cent to £3.6bn, partly hit by historically low interest rates.

The bank said it met its Merlin business lending targets. John Maltby, director of commercial banking, said 7 per cent of lending to small businesses was in Scotland, higher than the country’s estimated 6 per cent share of the UK economy.

Lloyds, which has the smallest wholesale banking business of the big four, said it would pay out £375m in bonuses for 2011, down 30 per cent. The average bonus was £3,900 for each staff member, down 24 per cent.