It seemed too good to last… and it was.
Lloyds Banking Group has bucked the trend in the UK banks sector and reported a disappointing set of half year figures.
At pixel time the shares were down 4.4p at 37.25p.
Here’s why.
From Lloyds’ half year report.
Yep, impairments, which haven’t fallen by as much as expected.
Joint house broker Citigroup spells out below by exactly how much.
Impairments Above Expectations – 1H11 impairment of £5.4bn is 13% above (eg worse) consensus and 7% above Citi estimates. For 2Q11, impairments are 29% above consensus. Relative to our 1H11 forecast, impairments are broadly in-line for Retail (65bps annualised 1H11, 72bps 1H10, 76bps 2H10) and International (789bps, 656bps, 1129bps) but higher in Wholesale (202bps, 311bps, 131bps). Balance sheet impaired loans (10.6%) and coverage ratio (45%) broadly unchanged.
Hmm. Wholesale — or the part of Lloyds lumbered with the corporate real estate assets and the related portfolios of the late, and not much lamented, HBOS.
More from the results statement.
The decrease in this period has continued to be primarily driven by lower impairment from the HBOS heritage corporate real estate and real estate related asset portfolios, together with the stabilising UK and US economic environment in 2010 and so far in 2011 a low interest rate environment helping to maintain defaults at a relatively lower level. This was partly offset by increased impairment on leveraged acquisition finance exposures.
And a bit more on this leveraged acquisition finance portfolio:
Loans and advances to customers of £36.8 billion largely comprise balances in the Structured Corporate Finance portfolio, which includes Acquisition Finance (leveraged lending), Project Finance and asset based finance (in the main rail, aviation and shipping). The leveraged finance portfolio continues to be affected by the economic environment, although the rate of new problem loans abated during 2010 and this trend has continued during the first half of 2011. However, a number of sectors remain vulnerable, especially retail, leisure and healthcare, and refinancing risk is also an issue for Acquisition Finance, with significant loan maturities due in the next few years…
Now, the decrease wasn’t anything like the market was expecting in spite of the positive spin from Lloyds.
JPMorgan, for example, was forecasting a figure of £1.1bn [in wholesale]. The result was £500m higher.
The legacy of Fat Bloke Finance lives on.
(Other highlights/lowlights of impairments include Ireland, where a further 11 per cent of the bank’s portfolio has become impaired, and Australia and New Zealand, where the number’s risen 8 per cent.)
Related link:
HBOS uncovered – FT Alphaville