Lloyds plunges to £4bn loss

Lloyds Banking Group has seen its earnings collapse, leaving it with a £4bn loss in the first half of the year. The core of its problems in the period were bad debts related to HBOS, which it took over with government assistance earlier this year leaving it 43 per cent owned by the UK taxpayer. This helped push up overall bad debts, or its "impairment charge", to £13.4bn.

Despite the loss, the bank was in fact able to announce a "statutory" pre-tax profit of £6bn. This stems from the fact that it paid £11.2bn less for HBOS than its worth and so bumps up the bank's earnings under accounting rules. However the figures are in stark contrast to those reported by Barclays and HSBC earlier this week, and more akin to the poor results from Northern Rock, which, like Lloyds, benefited from state aid.

Chief executive Eric Daniels pointed out that the impairment charge was peaking and tried to put a gloss on the numbers, saying: "Our first half loss was driven by the high levels of impairment. The core business delivered a resilient performance, despite the weak economy. 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."

The City agreed with Daniels, with investors buying shares in the bank and pushing its shareprice up five per cent this morning. Analysts had expected a loss of around £5bn, so the news came as a relief to some. Buyers will also have been heartened by reports that Bank of New York Mellon is on the verge of snapping up Insight Investment Management, the fund management company owned by Lloyds.

WHAT THEY ARE SAYING:Simon Pilkington, an analyst at JPMorgan Cazenove, in the Daily Telegraph: "In absolute terms and proportionately, Lloyds Banking is most exposed to UK consumer debt. We expect loan impairment to remain persistently high for several years."

John Paul Crutchley, an analyst at UBS AG, on Bloomberg.com: "The bank is going through its period of maximum stress right now. Losses on the HBOS loan book have accelerated to levels beyond original expectations." ·