Lloyds says since HBOS’s last trading update in December 2008, trading has been further impacted by increasingly difficult market conditions, an acceleration in the deterioration of credit quality and falls in estimated asset values.
The key elements of the loss are the £4bn impact of market dislocation and approximately £7bn of impairments in the HBOS corporate division.
The market dislocation has been driven by deterioration in asset quality and falling market valuations.
While the group says Lloyds TSB traded profitably and satisfactorily in 2008 and expects to report a profit before tax from its continuing businesses, including the impact of approximately £1.3bn from market dislocation, of some £2.4bn
On the back of the news Lloyds Banking Group’s share price fell a whopping 21% to 62p per share.
Eric Daniels, group chief executive of Lloyds Banking Group, says: “HBOS’ 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.
“These impairments primarily reflect the application of a more conservative recognition of risk and the further deterioration in the economic environment.
“Whilst we recognise that the short term outlook is more challenging, Lloyds Banking Group has the largest UK financial services franchise, with excellent long-term earnings potential. The Group will provide an update to the market on 27 February 2009, and is already making good progress in integrating the two businesses.”