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Lloyds Banking Group PLC (LYG)
Lloyds Banking Group Still Sees Yearly Losses
While American bank shares have been rallying due to better than expected results of the stress tests, the news wasn't so good on the other side of the pond. Lloyds Banking Group announced today that it still expects to make a pretax loss this year. These figures highlight the big problem of rising default rates on consumer and corporate loans to the bank's balance sheets. The partially nationalized lender warned that that corporate bad debts are expected to soar by 50% this year. Rival British Bank, Barclays (BCS: Charts, News, Offers) also reported their profit figures today. How did Barclay's results compare?
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Barclays defied the credit crunch today by unveiling a sharp rise in profits of nearly 15%. The British Bank said its net profit in the first quarter of the year rose to 826 million pounds ($1.24 billion) from 736 million pounds after an "exceptional" performance in January. At Barclays, profits were driven by very strong performances in Barclays Capital and by most of the international businesses within global retail and commercial banking. Pretax profit in the investment banking and investment management side of the bank jumped to 1.05 billion pounds from 365 million pounds, as the Lehman Brothers' deal drove growth in the U.S and helped improve its performance in interest rate, credit, commodity and equity securities. Pretax profit at Barclays' global retail and commercial banking arm fell 45% to 586 million pounds. Barclays declined to take part in a multibillion pound bailout of the struggling British banking system last year alongside Lloyds Group and Royal Bank of Scotland, instead raising 7 billion pounds from Middle Eastern investors and agreeing to sell its iShares fund management business to raise 3 billion pounds.
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On the other hand, Lloyds was not as lucky with its recent acquisition of HBOS as it has failed to boost profits and caused heavy losses. Lloyds' higher-than-expected impairment charges are being caused by loans issued by HBOS to commercial property and real estate businesses in the UK and Ireland. HBOS was an aggressive property lender in Britain before it was rescued by Lloyds TSB last year to create Lloyds Banking Group. Finance director Tim Tookey said that a "vast majority" of the problem loans had already been earmarked for inclusion in the asset protection scheme, the British government's toxic insurance scheme which Lloyds and Royal Bank of Scotland have signed up to. Most of the assets Lloyds is putting in the asset protection scheme are from HBOS which reported a loss of £10bn for last year. The government deal will provide insurance on around 250 billion pounds of the group's riskiest assets, but comes with a hefty price tag, including handing a majority stake to U.K. authorities. On the bright side, cost savings from the HBOS deal amounted to 150 million pounds in the quarter and the bank said it's still on track to achieve savings of 1.5 billion pounds a year by the end of 2011.
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These mixed results for Britain's largest lenders come on the heels of better than expected results of the stress tests for embattled US banks such as CitiGroup (C: Charts, News, Offers) and Bank of America (BAC: Charts, News, Offers). These results as well as Barclays' earning are seen as glimmers of hope for the beleaguered industry. Lloyd's Chief executive Eric Daniels said, "Whilst we continue to expect difficult economic conditions to prevail over the next year or so, we believe the strengthened group will be able to comfortably manage through the expected near-term economic downturn and focus on enhancing the group's prospects for long-term growth." As of 11:37 AM, Lloyds is trading down over 20%.
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