Britain's Lloyds says HBOS unit makes £10.8bn pre-tax loss

Britain's Lloyds Banking Group, 43 per cent state-owned after a bailout, said yesterday its HBOS unit made a pre-tax loss of £10.8 billion last year.

It was a record loss for HBOS, which has been slammed by the global credit crunch, soaring bad debts and a recession in Britain. HBOS had posted pre-tax profits of £5.5 billion in 2007.

In another day of grim news for the banking sector, LBG said its Lloyds TSB arm - which merged with HBOS earlier this year - saw net profits collapse 75 per cent to £819 million last year from £3.3 billion in 2007.

LBG also forecast that the entire group would make a loss this year and added that it was in talks with the British government about joining its scheme to ring-fence toxic assets at the heart of the global financial crisis.

"Against a backdrop of recession and an ongoing global financial crisis, we expect this year to be another challenging year," LBG chief executive officer Eric Daniels said in an earnings release.

HBOS was hit last year by £9.9 billion worth of losses on bad consumer loans which were written off.

"The continuing global dislocation in financial markets last year has resulted in exceptional instability and volatility, leading to falling market, investor and customer confidence," LBG said.

"This has had a profound effect on the banking sector generally and on HBOS specifically," it added.

The latest dire financial news comes a day after Royal Bank of Scotland unveiled a record British corporate loss of £24.1 billion, coupled with an announcement that it will need a new state bailout worth up to £25.5 billion.

Lloyds had already warned earlier this month that HBOS would suffer a pre-tax loss of about £10 billion because of the credit crunch.

"2008 has been an immensely challenging period for all banks and the assets on the enlarged group's balance sheet have shown increasing signs of stress during the year," LBG noted.

"While our risk management and business support culture is strong, the continuing economic deterioration in the UK will make this year another difficult one.

"We currently expect retail impairment levels to rise significantly this year, largely reflecting the expected increase in unemployment levels in the UK and the impact of further house price falls."

Lloyds warned accordingly that "overall... we expect the enlarged group to report a loss for 2009".

Lloyds said it was in "advanced" discussions with the government on joining a scheme to ring-fence such toxic assets.

"Lloyds Banking Group confirms that its discussions with HM Treasury about participating in the Asset Protection Scheme are progressing and are well advanced," it said in a separate statement.

"While there can be no certainty about the outcome, the group will provide a further market update in due course."