House price slump weighs down on LLoyds TSB

Lloyds TSB suffered a 70% drop in first half pre-tax profits after a £585 million writedown, while predicting that lower growth in the UK economy would continue to impact its business.

Lloyds revealed its writedown charge was impacted by its monoline exposure, which accounted for £170 million of the writedown. It had previously flagged £387 million worth of writedowns in May. 

It added that of the £585 million writedown, £477 million was a markdown adjustment, with £108 million of losses which it did not expect to get back.

Regarding the impact of the credit crunch and mortgage problems in the UK on its retail banking operation, the bank said that it was seeing an impact from falling house prices, stating: ‘Impairment losses on loans and advances were slightly higher at £655 million, largely reflecting the impact of lower house prices on the mortgage impairment charge.’ 

However the group added that as a percentage of average lending the impairment charge had declined marginally.

Also, it said that its share of the net mortgage lending market had jumped to 24.4%. Its net mortgage lending jumped to £7.3 billion from £4.8 billion or 8.9% of market share in the first half of last year. Lloyds TSB's increase in gross mortgage lending to £16.8 billion from £16 billion last year puts it in the same league as the UK’s top lenders Abbey and HBOS.

A three-year deal with Northern Rock, which encourages its borrowers to jump ship to Lloyds TSB, should help support its market share in the second half of this year. Lloyds TSB’s mortgage arm Cheltenham & Gloucester focuses on mainstream, low risk home loans. 

The Lloyds board announced that it would increase the 2008 interim dividend by 2 per cent to 11.4 pence per share.

Announcing the results on Wednesday morning, chairman Sir Victor Blank, spoke about the turbulence faced by the financial services sector, which he said ‘has been compounded by the marked slowdown in the UK economy as a whole’.

The group’s insurance arm Scottish Widows fared better, reporting a 15% rise in pre-tax profits.