British bank Lloyds soars back into profit

4th August 2010, Comments 0 comments

Britain's state-rescued Lloyds Banking Group bounced back into profit in the first half of the year, it said Wednesday, sparking hope that the government will eventually make a gain on its stake.

Pre-tax profit hit 1.6 billion pounds (1.9 billion euros, 2.5 billion dollars) in the six months to the end of June, which compared with a loss of 4.0 billion pounds in the same part of 2009, it said in a results statement.

Loan impairments, or bad debts, narrowed sharply to 6.55 billion pounds compared with 13.4 billion last time around.

The bumper results beat market expectations for pre-tax profit of 858 million pounds and impairments of 6.73 billion, according to Dow Jones Newswires.

"The first half of 2010 was a significant milestone for Lloyds Banking Group as the group returned to profit," said chief executive Eric Daniels in the earnings release.

"Despite the challenging economic environment, the core businesses performed strongly and we continued to see positive momentum.

"Given the business model we have established, coupled with the gradual recovery in economic growth in the UK, we continue to believe that the group is well positioned to deliver a strong financial performance over the coming years."

Lloyds Banking Group (LBG) is 41-percent owned by the British government after a massive state bailout at the height of the global financial crisis.

The group was hobbled by its 2008 government-brokered takeover of Halifax Bank of Scotland (HBOS), which was saddled with high-risk investments in the property sector.

The pre-tax profit figure strips out the cost of HBOS integration and other one-off items.

Investors applauded the first-half numbers, sending Lloyds' share price 2.95 percent higher to 74.04 pence in midday deals on the London stock market, which was down 1.19 percent.

News of the first-half profits prompted speculation that the government would eventually make a healthy profit from its holding, according to Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers.

"Whilst the government stake continues to overhang the shares, there is nonetheless a theoretical paper profit, after the (share) price has exceeded the quoted break-even price of 63 pence," Hunter said.

Lloyds added on Wednesday that net profits plunged to 596 million pounds in the first half of 2010, compared with 7.15 billion pounds last year. The sharp drop was largely owing to an 11.2-billion-pound gain following the purchase of HBOS before the takeover turned sour.

The lender had already stated in April that it expected to return to profit in the first three months of 2010.

On Friday, part-nationalised Royal Bank of Scotland is also expected to report a return to profitability in the first half of 2010. RBS is 83-percent state-owned after receiving an even larger bailout.

© 2010 AFP

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