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LLOYDS TAKES £1BN CREDIT CRUNCH HIT

Lloyds TSB has ruled out the need for a multi-million pound cash call

Wednesday May 7,2008

By Andrew Johnson, Associate City Editor

LLOYDS TSB ruled out the need for a multi-billion-pound cash call to investors yesterday as it reported a £1.1billion hit from the global credit crunch during the first quarter.

The bank said profits were dented by £387million as a direct result of the “market dislocation”.

It wrote off a further £740million on securities and investments in its “available for sale” portfolio, reducing its value to £23.2billion.

These paper writedowns do not affect profits but analysts warned they could do if Lloyds were forced to sell the assets to which they relate.

Acting finance director Tim Tookey hailed the bank’s “prudent” approach, avoiding the massive writedowns that have forced rivals Royal Bank of Scotland and HBOS to ask shareholders for a combined £16billion. However, analysts warned Lloyds could make further writedowns.

Tookey said that Lloyds’ “robust” capital position and the impact of the credit crunch on rivals was allowing it to build market share at improved profit margins in the UK’s mortgage market. He added that the bank, led by chief executive Eric Daniels, had enough money to pursue organic growth plans.

But the shares fell 13dp to 439p. Lloyds said the credit-crunch writedowns, up from £280million for the whole of last year, and slowing insurance sales had held back profits growth.

Tookey said loan bad debts were likely to rise in the first half as economic growth slowed. Like HBOS, Lloyds expects house prices to fall about 10 per cent by the end of 2009.

“We are not expecting a recession this year,” said Tookey, “but there will likely be a marked slowdown.”

Earlier this year Lloyds sparked speculation about an acquisition spree, with Alliance & Leicester mooted as a possible target.

Tookey said there were opportunities but the group had “high standards” for assessing them.

Lloyds welcomed the Bank of England’s £50billion attempt to kickstart lending between banks but Tookey said it had been able to borrow money at market-leading rates.

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