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Lloyds shares tumble after update Lloyds shares tumble after update
(10 minutes later)
Shares in Lloyds Banking Group, the company formed after its merger with HBOS, have tumbled after it said HBOS losses would be worse than expected.Shares in Lloyds Banking Group, the company formed after its merger with HBOS, have tumbled after it said HBOS losses would be worse than expected.
Lloyds 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 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.
Shares in Lloyds - 43% owned by the government - fell by as much as 40% on investor shock at the latest forecast.Shares in Lloyds - 43% owned by the government - fell by as much as 40% on investor shock at the latest forecast.
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.
By mid afternoon, Lloyds Banking Group shares were down 29% at 64.8 pence, having earlier fallen as low as 54.9 pence.
'Challenging''Challenging'
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.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.
"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. This afternoon's horrible fall in Lloyds' share price is investors having serious doubts about whether Lloyds was right to buy HBOS Robert Peston, BBC business editor class="" href="http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/02/lloyds_and_hbos_humbled.html">Robert Peston: 'HBOS humbled' "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, which lent heavily to property investors and homeowners, was particularly vulnerable to the slowdown.HBOS, which lent heavily to property investors and homeowners, was particularly vulnerable to the slowdown.
But he stressed that the longer term prospects were brighter.But he stressed that the longer term prospects were brighter.
"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."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.
Analysts voiced their shock at the update. "The market doesn't like the fact that in a period of of a month, the corporate losses (at HBOS) are twice what they had announced," said Mamoun Tazi, analyst at MF Global.
Investor doubtInvestor doubt
The BBC's business editor Robert Peston says the profits warning is embarrassing for Mr Daniels.The BBC's business editor Robert Peston says the profits warning is embarrassing for Mr Daniels.
"This afternoon's horrible fall in Lloyds' share price is investors having serious doubts about whether Lloyds was right to buy HBOS."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."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 Lloyds 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.The Lloyds 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.
This week, bosses and former bosses of key British banks were grilled by MPs about their role in the financial crisis.This week, bosses and former bosses of key British banks were grilled by MPs about their role in the financial crisis.
The former heads of the two biggest UK casualties of the banking crisis - Royal Bank of Scotland and HBOS - apologised "profoundly and unreservedly" for their banks' failure.The former heads of the two biggest UK casualties of the banking crisis - Royal Bank of Scotland and HBOS - apologised "profoundly and unreservedly" for their banks' failure.