Lloyds Banking Group warned today that HBOS – the ailing bank it rescued last year – could post annual losses of around £10bn (€11.3bn) for 2008.
The huge losses will be caused by the falling value of the group’s assets and a £7bn (€7.8bn) writedown following a “more conservative” assessment of HBOS’s corporate division.
Chief executive Eric Daniels said: “HBOS’s 2008 results have been adversely affected by the impact of market dislocation, which accelerated significantly in the last quarter of 2008, and the additional impairments required on the HBOS corporate lending portfolios.”
Shares in Lloyds Banking Group - 43%-owned by the British taxpayer - tumbled nearly 40% following the bank's warning.
The fall came despite the bank adding that Lloyds TSB will make pre-tax profits of around £1.3bn (€1.45bn).
The massive writedowns at HBOS throw a fresh spotlight on the handling of risk at the bank.
This week James Crosby – a former HBOS chief executive – resigned as deputy chairman of the Financial Services Authority (FSA) over claims that he sacked a head of risk for warning that the bank was “going too fast”. Crosby denies the allegations.
The losses include around £7bn (€7.85bn) of writedowns at HBOS’s corporate lending division, which is heavily exposed to hard-hit housing and commercial property sectors.
“These impairments primarily reflect the application of a more conservative recognition of risk and the further deterioration in the economic environment,” Mr Daniels said.