Reaction: Grim outlook as Bank of Scotland owner Lloyds notches up £600m in losses

Bank of Scotland owner Lloyds has warned of a “profound” impact from coronavirus after tumbling into the red.
Lloyds Banking Group building in Fountainbridge, Edinburgh. Picture: Ian RutherfordLloyds Banking Group building in Fountainbridge, Edinburgh. Picture: Ian Rutherford
Lloyds Banking Group building in Fountainbridge, Edinburgh. Picture: Ian Rutherford

The lender, which is regarded as the most exposed of the big banks to the vagaries of the UK economy, took a £2.4 billion impairment charge in the second quarter for the loans it thinks might turn sour – way ahead of the figure expected by analysts.

The news sent Lloyds into the red, with the group, which also owns Scottish Widows, suffering a £602 million pre-tax loss for the first half of the year.

Hide Ad
Hide Ad

Chief executive Antonio Horta-Osorio said: “The impact of the coronavirus pandemic in the first half of 2020 has been profound on the way we live our lives and on the global economy.

“We remain fully focused on helping our customers and the UK economy recover, in collaboration with government and our regulators.”

Earlier this month, Horta-Osorio said he will step down from the top job next year after a decade in charge.

The latest impairment provision adds to a £1.4bn charge taken in the first quarter of the year, and bankers now expect the hit to reach between £4.5bn and £5.5bn in 2020.

Hide Ad
Hide Ad

Lloyds said its outlook for the year remains “highly uncertain” and warned that “the impact of lower rates and economic fragility will continue for at least the rest of the year”.

Donald Brown, senior investment manager at wealth management firm Brewin Dolphin, said: “Lloyds’ pre-tax loss is worse than analyst expectations and, like Barclays earlier in the week, it has had to set aside a large amount of capital to offset the potential impact of Covid-19 on its loan book, with bad debts expected to rise sharply.

“However, the bank is well capitalised and strong liquidity and increased customer deposits mean it has the opportunity to lend into the recovery, with the potential to underpin longer-term growth.

“Of all the major banks, Lloyds is most exposed to the performance of the UK economy which brings with it its own set of challenges – not least the influence of Brexit, which is still taking shape in the background.”

Hide Ad
Hide Ad

Richard Hunter, head of markets at Interactive Investor, noted: “The current environment is proving to be a hard slog for Lloyds, and the difficulties are unfortunately set to continue.

“The wider challenges are exacerbated given the bank’s perceived status as a barometer of the UK economy.

“With GDP [gross domestic product] growth remaining under pressure and the unemployment rate potentially yet to peak, the uncertainty around Brexit negotiations takes on additional significance given an already faltering economy.”

Horta-Osorio’s departure will mark a regime change at Lloyds as the board appointed Robin Budenberg as chairman. He replaced Lord Blackwell, who had previously announced he was leaving in 2020.

Hide Ad
Hide Ad

Royal Bank of Scotland is due to release its latest results on Friday.

Read More
Boss of Bank of Scotland owner Lloyds to step down after decade in charge: Aviva...

A message from the Editor:

Thank you for reading this story on our website. While I have your attention, I also have an important request to make of you.

The dramatic events of 2020 are having a major impact on many of our advertisers - and consequently the revenue we receive. We are now more reliant than ever on you taking out a digital subscription to support our journalism.

Subscribe to scotsman.com and enjoy unlimited access to Scottish news and information online and on our app. Visit https://www.scotsman.com/subscriptions now to sign up.

By supporting us, we are able to support you in providing trusted, fact-checked content for this website.

Joy Yates

Editorial Director

Comment Guidelines

National World encourages reader discussion on our stories. User feedback, insights and back-and-forth exchanges add a rich layer of context to reporting. Please review our Community Guidelines before commenting.