Lloyds sees 80% fall in profits

Lloyds Banking Group says that profits before tax fell 80% from £4bn in 2007 to £807m in 2008 and warns that the switchover from single premium PPI to a monthly product will hit revenues in 2009.

It says that profit before tax, on a continuing businesses basis, totalled £2.4bn, a decrease of just 35%.

Eric Daniels, chief executive at Lloyds Banking Group, says the overall profits reflect “the most difficult operating environment in many years”.

As previously announced, losses at HBOS were £1.9bn more than the £8bn it had previously anticipated.

But in today’s annual results, Daniels hit back at critics of the HBOS merger and argued that even with the losses it had bought £17bn of “tangible net asset value with consideration valued at £7.7bn”.

He adds: “All in, we have acquired a franchise that brings extensive distribution, a large customer base, good people and excellent brands.”

But he warns that HBOS had developed a number of specialist businesses that brought greater returns at greater risk, which he says did not fit the Lloyds TSB risk appetite.

He says: “We recognised this in our due diligence and this was reflected in the price we agreed to pay.

“We are buying the business in the down part of the economic cycle, at a significant discount to book value, which increases the likelihood of value creation, and we paid in shares rather than cash which in some part insulated the Lloyds TSB shareholders from market risk.”

Going forward Daniels says that he predicts 2009 a challenging year with lower margins driven by lower interest rates.

He also says that replacing its single premium payment protection insurance product with a new monthly premium product, will also take its toll.