HBOS legacy hitting Lloyds
(12 August 2009 – UK) The latest results of UK banking giant, Lloyds, recorded both a £6 billion (A$11.9 billion) profit and a £4 billion loss, with the legacy of the HBOS acquisition clearly taking effect in the first half of 2009.
The pro-forma basis of Lloyds’ results take into account the HBOS acquisition for comparison purposes and show a £4.0 billion loss for the first half compared to a £2.8 billion profit in the comparable period last year.
The difference to statutory profit is the ‘negative goodwill gain’ that Lloyds made on its purchase of HBOS.
The £11.2 billion negative goodwill gain was the discount to assets that Lloyds received, taking into account the problems that legacy HBOS assets are experiencing.
Going by the statutory basis, the banking group reported a profit before tax of £6.0 billion, directly influenced by the goodwill gain.
The pro-forma loss was driven, as previously guided, by a significant increase in impairments, which rose from £2.5 billion to £13.4 billion.
Around 80 percent of this impairment charge was related to legacy HBOS assets, so it is important to look at the pro-forma loss relative to the negative goodwill gain made. As such, the results were generally better than expected, and the Lloyds share price increased.
Excluding impairments, combined group revenue was up, while expenses were down compared with the same time last year. Before schedule cost-synergies on the HBOS acquisition have contributed to this.
Lloyds highlighted that assets with a level of risk not consistent with the group’s strategy for sustainable, relationship based businesses will be sold. These assets account for some £300 billion or around one third of the bank's total balance sheet. Given this, over the next five years, the group intends to run-off around £200 billion of this portfolio and expects the impact on income to be modest.
The difference to statutory profit is the ‘negative goodwill gain’ that Lloyds made on its purchase of HBOS.
The £11.2 billion negative goodwill gain was the discount to assets that Lloyds received, taking into account the problems that legacy HBOS assets are experiencing.
Going by the statutory basis, the banking group reported a profit before tax of £6.0 billion, directly influenced by the goodwill gain.
The pro-forma loss was driven, as previously guided, by a significant increase in impairments, which rose from £2.5 billion to £13.4 billion.
Around 80 percent of this impairment charge was related to legacy HBOS assets, so it is important to look at the pro-forma loss relative to the negative goodwill gain made. As such, the results were generally better than expected, and the Lloyds share price increased.
Excluding impairments, combined group revenue was up, while expenses were down compared with the same time last year. Before schedule cost-synergies on the HBOS acquisition have contributed to this.
Lloyds highlighted that assets with a level of risk not consistent with the group’s strategy for sustainable, relationship based businesses will be sold. These assets account for some £300 billion or around one third of the bank's total balance sheet. Given this, over the next five years, the group intends to run-off around £200 billion of this portfolio and expects the impact on income to be modest.
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