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Update sends Lloyds shares diving Lloyds shares tumble after update
(20 minutes later)
Shares in Lloyds Banking Group, the company formed after the merger with HBOS, have fallen sharply following a trading update. Shares in Lloyds Banking Group, the company formed after the merger with HBOS, have tumbled after it said HBOS losses would be worse than expected.
The bank announced that it expected HBOS to report a pre-tax loss for the whole of 2008 of £10bn, which is £1.6bn more than it predicted in November.The bank announced that it expected HBOS to report a pre-tax loss for the whole of 2008 of £10bn, which is £1.6bn more than it predicted in November.
Lloyds shares initially fell by as much as 40% before recovering somewhat to trade down 20%. Shares initially fell by as much as 40% before recovering to trade down 20%, amid investor shock at the new figures.
The Lloyds side of the business is expected to make a profit of £1.3bn.The Lloyds side of the business is expected to make a profit of £1.3bn.
'Challenging''Challenging'
Most of the losses of HBOS are blamed on a £7bn write-down at its corporate division, which is heavily exposed to the housing and commercial property sectors. Most of the HBOS losses are blamed on a £7bn write-down at its corporate division, which is heavily exposed to the housing and commercial property sectors. In 2007, HBOS made a profit of £5.7bn.
Lloyds Banking Group is 43% owned by the government. "HBOS's 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," Eric Daniels, its chief executive, added.
HBOS made a profit of £5.7bn in 2007. But he stressed the longer term prospects of the business. "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," he said.
Its chief executive Eric Daniels blamed the problems on "market dislocation", but stressed the longer term prospects of the business. The Lloyds Banking Group is 43% owned by the government.
"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," he said. Investor doubt
The BBC's business editor Robert Peston says the profits warning is embarrassing for Lloyds' chief executive, Eric Daniels.
"This afternoon's horrible fall in Lloyds' share price is investors having serious doubts about whether Lloyds was right to buy HBOS.
"Daniels will hope that those investors don't start to have serious doubts about whether he is the right man to attempt to rebuild a bank that many would say has been seriously weakened by the acquisition of HBOS," our correspondent says.
The trading update come after James Crosby, the former chief executive of HBOS, resigned as deputy chairman of the Financial Services Authority after a former employee of HBOS said his warnings that the bank was growing too fast were ignored.