UK banking giant reveals £387m credit crunch hit

British banking group Lloyds TSB today revealed a further £387m (€491.3m) hit from the credit crunch, but signalled there would be no need for a cash call to investors.

The high street bank said its funding position was strong and it was "firmly on track" to deliver a good first half performance.

Each division saw "double digit" growth in profits before tax in the first quarter, excluding the credit crisis impact, according to Lloyds.

The writedown adds to £280m (€355.4m) already reported by the group last year, but is far less than that reported by its "big five" UK banking rivals.

Lloyds hailed its lower risk strategy for helping it weather the financial turmoil and said its liquidity was robust, suggesting it would not be following the lead of its rivals Royal Bank of Scotland and Halifax Bank of Scotland with multi-billion pound rights issues.

Eric Daniels, group chief executive, said: "Despite the more challenging market conditions, the group remains firmly on track to deliver a good performance for the first half of 2008, excluding the impact of market dislocation and insurance related volatility.

"Our strong liquidity and funding capability have ensured that the group has continued to raise wholesale funding at market-leading rates. This gives the group a competitive advantage and has enabled our corporate and retail relationship banking businesses to achieve strong levels of business growth in the first quarter of the year."

The group, which is Britain's biggest personal current account bank, said it had continued to build on its strong customer deposit base, with growth in bank savings and cash individual savings accounts.

Lloyds also stressed it had been able to improve its market share of new mortgage lending in spite of the credit squeeze crippling the home loan sector.

It said it expected to see "notable profit growth" in the home insurance operation as it kept costs under control and in the absence of last year's unusually high weather-related claims.

Lloyds's wholesale and international banking division took the £387m (€491.4m) credit crunch hit to first quarter pre-tax profits, although this was "relatively limited", said Lloyds.

It added that it still had £200m (€254) in indirect exposure to US sub-prime mortgage related investments.

Shares in Lloyds fell 2%, but bank analyst Alex Potter, of Collins Stewart, said today's reported writedowns were "reasonably comforting", given the far greater writedowns seen by rival banks.

The writedowns by the other major UK banks have been substantially higher, at £5.9bn (€7.4bn) in the first quarter for Royal Bank of Scotland and £2.8bn (€3.5bn) for HBOS.

Both banks have turned to shareholders to boost their capital, launching rights issues for £12bn (€15.2bn) and £4bn (€15.2bn) respectively.

There has been much talk over which bank will be next to follow their lead, with Lloyds among those at the centre of rumours.

While Lloyds did not rule out a rights issue, its update may put immediate speculation over the bank's funding to bed.

Mr Potter said: "We value Lloyds' relatively defensive business model, funding profile and balance sheet."

He added the group was growing market share in a number of areas.

"Wholesale banking appears to be taking market share in the small business sector, helping offset slowing corporate markets revenues. Direct corporate lending appears to be growing well, presumably driven by tough conditions in credit markets," he said.