Lloyds TSB upbeat despite profits slide

Lloyds TSB added to nerves at the start of the bank reporting season today after it revealed more credit crunch losses but assured its underlying business was strong.

Britain’s fifth largest bank posted a 70% slide in half-year pre-tax profits to £599m (€762m) after a £585m (€744m) hit from the credit turmoil and investment writedowns at its insurance arm.

However, the losses seen so far are a fraction of those suffered by its rivals and Lloyds said that on an underlying basis, profits were up 11% to £2.16nm (€2.7bn).

Its UK retail arm saw underlying profits rise 15% to £911m (€1.2bn) as the group’s mortgage business, Cheltenham & Gloucester, took advantage of the wider clampdown in mortgage lending to boost its share of net new business to more than 24%.

The group is now the second biggest lender of new mortgages in the UK behind Abbey, which yesterday revealed it too has been increasing share, toppling Halifax from the top spot.

The squeeze on hard-pressed mortgage borrowers was highlighted as Lloyds said it had increased profit margins on new home loans.

However, there may be some relief for borrowers on the horizon, according to Lloyds.

The bank is expecting rivals that have sharply pulled back lending to start coming back in to the market over the next six months.

Eric Daniels, group chief executive, said: “The mortgage market is reaching a new equilibrium.

“We expect lenders in the second half to take a more aggressive stance and put more mortgages out there. So we don’t think we’ll continue to take a 24% share of net new lending.”

Shares in the group dropped 5% as the tumble in profits proved that Lloyds is not immune to the sector’s troubles.

Today’s “market dislocation” loss brings the group’s total credit crunch impact so far to £865 million.