Lloyds Makes $5.5 Billion Loss, Gives Gloomy Outlook

Lloyds Banking Group, the state-backed UK bank, said Friday that it made a 3.5 billion pound ($5.5 billion) pre-tax loss in 2011, down from a profit of 281 million pounds in 2010, and warned that its outlook remained “challenging.”

The results, which included a 3.2 billion pounds one-off provision for the Payment Protection Insurance (PPI) scandal, are better than the consensus forecast for a 4 billion pounds loss.

Lloyds, which is 40 percent owned by the British government, has improved its core tier 1 capital ratio by 60 basis points to 10.8 per cent, ahead of new European banking regulations.

Its loan to deposit ratio – a key measure of leverage - improved to 135 percent from 154 percent at the end of 2010. Income fell by 10 percent to 21.1 billion pounds, as British consumers continued to reduce their debts. The bank said in a statement that it expects income to fall again in 2012.

Bonuses are down by around 30 percent at Lloyds, [LLOY-GB  Loading...      ()   ] which is more focused on retail than investment banking.

Chief Executive Antonio Horta-Osorio has already said he will forgo his bonus, after taking time off last year due to illness. 

He said: “While we remain mindful of the challenges of the external environment, Lloyds Banking Group is now in a significantly stronger position than it was twelve months ago.”

The UK banks reporting season has been dominated by the conversation about bonuses.

The total bonus pool fell by around 30 percent to 375 million pounds, with cash bonuses capped at £2,000. Several former board members have been ordered to hand back part of previous bonuses in the light of the PPI scandal.

However, total salaries remained almost static at 3.8 billion pounds, while the number of employees shrank by around 6,000, indicating that basic salaries at the bank are still healthy.

While bonuses for investment banking have been cut across the board in the UK, in many cases, banks have hiked employees’ basic salary at the same time.

Results have been downbeat so far, with disappointing announcements from several key players after the euro zone debt crisis and continued low consumer confidence impacted their businesses.

Rival RBS reported a pre-tax loss of 766 million pounds ($1.2 billion) for 2011 Thursday, while Barclays reported a below-forecast pretax profit of 5.9 billion pounds ($9.3 billion) earlier this month.

HSBC, which together with Barclays has performed better during the crisis than state-backed Lloyds and RBS, reports Monday.

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