A Gleam of Light Amongst A Sea Of Gloom

February 22nd, 2008

News from the City has been quite gloomy of late, but there are reasons to be cheerful, especially if you are a shareholder of Lloyds TSB Group. The biggest U.K. provider of personal loans has announced second-half profits increased 10 percent, helped by mortgage lending, asset sales and cost controls.

The bank also gained 4.8 percent in London trading after saying net income in the six months ended Dec. 31 rose to £1.75 billion, or 30.8 pence a share, from £1.59 billion, or 28 pence. The London-based bank also increased the dividend by 5 percent, it said in a statement.

‘Lloyds TSB has proved to be something of a safe harbour amid the global storm,’ said Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers. ‘These numbers have not disappointed.’

Lloyds TSB managed to increase pre-tax profit in its consumer bank by 20 percent even as the economy weakened. The bank increased mortgage lending and attracted more deposits, helping to control costs and offset the economies slowdown as consumers try to reduce a record £1.4 trillion of debt. Chief Executive Officer Eric Daniels said Lloyds TSB won’t have a ‘significant’ increase in bad debts in this year’s first half. The bank rose 20.75 pence to 457 pence in London, valuing Lloyds TSB at £26.2 billion. The shares are down 3 percent this year, outperforming the nine-member FTSE All-share Banks index, down 11 percent.

Lloyds TSB took a second-half writedown of £280 million on credit-related assets. That’s a fraction of the charges at larger banks such as Barclays, which wrote down £1.64 billion at its securities unit last year, and Royal Bank of Scotland, which said in December it will record £1.25 billion in net writedowns.

Lloyds TSB will now be able to consider acquisitions in the UK market, where smaller lenders including Bradford and Bingley and Alliance and Leicester have been weakened by writedowns and increased funding costs. Alliance & Leicester rose 6.4 percent to 510 pence in London on speculation of a bid from Lloyds TSB. The Leicester based bank is down 56 percent from a year ago because of funding concerns.

Lloyds TSB had considered a bid for Northern Rock, according to the Government and Northern Rock. However, Lloyds TSB discussed concerns that the government backing for Northern Rock may give it an unfair advantage in pricing its home loans. Lloyds TSB, with one of the largest branch networks in Britain, is less reliant on credit markets than other lenders. Whereas Lloyds TSB uses deposits for almost two-thirds of its funding, Alliance & Leicester and Bradford & Bingley raise about half their funds in capital markets, which have become more expensive than branch-based funds following the credit crunch.

Lloyds TSB’s costs relative to income in the second half fell to 49 percent from 50.8 percent, indicating greater efficiency. On the other hand, the bank shed 4,552 employees last year, or 7 percent of its 58,000 workforce. It will also cut as many as 2,000 jobs this year, Finance Director Helen Weir said at the press conference. This is, however, a small smudge on an excellent performance record.

This entry was posted on Friday, February 22nd, 2008 at 4:19 pm and is filed under Personal Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

A Gleam of Light Amongst A Sea Of Gloom

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