The main takeaway from today’s results statement, and that which investors are clinging on to, is that bad debts have peaked. Impairment losses have in fact surged five-fold over the last year to total £13.4 billion in the first half of 2009, 80% of which are related to the portfolio of HBOS, which is infamously acquired just under a year ago.
Lloyds Banking Group, which was forced to relinquish 43% of its shareholdings to the UK government mere weeks after the HBOS acquisition in order to secure a £17 billion bailout, today said it expects bad debts will dissipate from the second half of 2009 onwards. Furthermore, despite the larger-than-expected increase in loan losses, Lloyds’ pretax loss for the six months to end-June amounted to £4.0 billion which, astoundingly large as it may be, was more than £1 billion less than analysts had feared.
Still, this loss is in stark contrast to numbers reported earlier in the week by Barclays and HSBC: neither one succumbed to propping up its balance sheet with taxpayers’ money, yet both on Monday reported group profits as opposed to the losses posted by peer Lloyds this morning.
Soaring bad debt hampered profits at Barclays, but its investment banking division helped push first-half profits up 8% year-on-year to £3 billion, while HSBC topped market expectations to land US$5 billion-worth of pretax profits over the same period.
For Lloyds, however, it was less about the numbers and more about the sentiment. Today’s earnings attest to a line being drawn under the group’s troubled recent history, compounded by a clear improvement in investor sentiment of late, particularly with regard to the financial sector. Granted, there is still a long way to go before the industry and, indeed, the economy are firmly out of the red but the general consensus is that the worst is now behind us.
As such, shares in the group skyrocketed following the results statement, peaking at a gain of more than 14% in afternoon deals to then settle down to 92.26p at last check, up 9.5% or 8p. UK peers tracked the top index performer, with Royal Bank of Scotland, Barclays, Standard Chartered and HSBC each taking on 1.0%-5.0%. RBS will report its own results this coming Friday.
Noting the positive share price reaction to Lloyds’ results, Joshua Raymond, market strategist at City Index, said: “In black and white they are weak figures but add some colour and they show a performance towards the top end of market expectations.” Raymond added that “whilst the numbers show the difficult situation that Lloyds has faced following the HBOS takeover they are nonetheless a good set, and the picture is looking brighter.”
Looking ahead, the bank’s chief executive Eric Daniels said the group is well positioned to outperform in the medium term adding that the second half of the year looks “tough but manageable.”
“While the environment will remain challenging, management expects the economy to stabilise in the second half and start recovering slowing in 2010,” Daniels said.
