Lloyds says black hole at Irish unit BoSI set to soar
Published 26/02/2011 | 05:00
UK banking giant Lloyds has warned that impairments in its defunct Bank of Scotland (Ireland) business could surge beyond the £7.7bn (€9bn) hit already taken.
Lloyds said yesterday that the economic and political "fragility" in "post-bailout Ireland" could trigger "further credit quality determination" in BoSI's £27.42bn Irish loan book.
The comments came as Lloyds released full-year results for 2010, including a £4.3bn (€5bn) impairment charge for Ireland, which had been flagged in an announcement on December 17.
The Irish performance cast a major shadow over the group's overall results, with Lloyds' shares closing down 4.5pc even though the bank returned to profit for the first time since the crisis hit.
"The Irish economy remains at very low levels," Lloyds' outgoing chief executive Eric Daniels said.
"We view them [impairments] as sort of bouncing along the bottom, not getting worse but certainly not improving."
Lloyds said the "most significant" contribution to impairments came from the £11.7bn (€13.7bn) commercial real estate portfolio, where provisions were running at £4.8bn.
BoSI's £8bn corporate book has booked cumulative provisions of £2.3bn, while impairments taken on the £7.7bn retail business are up to £870m.
"[In 2011] we expect housing prices to continue to decline, probably about 5pc, and commercial real estate to be about flat," said Mr Daniels.
"We think that we're very well provisioned."
Last year's Irish provisions were sharply worse than the £2.9bn hit taken in 2009, though the UK bank had been mooting 2010 provisions of £1.6bn as late as November.
Lloyds attributed the poorer result to a "material deterioration in the economic environment in the last quarter of 2010", culminating in the bailout.
Lloyds exited the Irish market in 2010 by first shutting down its Halifax retail network and then pulling BoSI out of the commercial lending market at the end of year.
BoSI's "gross loans" fell from £29.1bn at the end of 2009 to £27.42bn at the end of 2010, as repayments marginally outstripped new lending.
On a group-wide basis, Lloyds' £2.2bn pre-tax profit was about £300m ahead of consensus expectations and was a massive turnaround on 2009's £6.3bn loss. The group swung back to a £320m loss on an after-tax basis, as it bore the brunt of "one-off" charges and a hefty tax bill.