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Lloyds to Return to Profit in 2010

Lloyds said that its combined businesses would be profitable in 2010 after seeing stronger trading and lower bad debts.

Morningstar 19 March, 2010 | 8:31AM

Lloyds Banking Group said that it expects to see fewer write-downs in both its retail and corporate businesses this year. The group made a loss of £6.3bn for the full year 2009 on the back of bad loan write-downs of £24bn, largely from its takeover of HBOS. Costs are also lower than the equivalent period in 2009, which has boosted profits.

Lloyds said that the first 10 weeks of 2010 had seen a strong trading performance and it was pleased with progress against each area of recent guidance. Net interest margin is in line with expectations, which in turn has supported a good level of income growth across the business. This excludes gains made last year from liability management transactions.

At the recent results announcement chief executive said that the worst was over for UK banks. At the time, the market was disinclined to believe his optimistic predictions, but the news that impairment charges may have peaked out is welcome. Lloyds still has a relatively weak loan-to-deposit ratio compared to its peer group and is therefore more vulnerable to any setbacks in the economic climate. News this week of lower unemployment will help.

The market responded positively to the news with the shares rising 8% to 60p in early trading. The shares have been steadily rising since mid-February when they bottomed out at 46.6p. The relative merits of the UK banks have flummoxed leading fund managers because of the unpredictability of the economic recovery. Lloyds will do well if the UK’s anaemic recovery continues, but that is a prediction few would make at the moment.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Lloyds Banking Group PLC55.45 GBX2.57

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