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Halifax, HBOS Cancer Continues to Eat into Lloyds TSB, £4Billion Loss

Companies / Credit Crisis 2009 Aug 05, 2009 - 04:40 AM GMT

By: Nadeem_Walayat

Companies

Best Financial Markets Analysis ArticleToday Britains biggest tax payer bailed out bankrupt mortgage bank HBOS, contributed towards Lloyds TSB bottom line loss of £4 billion. The HBOS bad mortgage debt losses continue to eat into Lloyds TSB's balance sheet to the tune of another £10 billion, that's £20 billion to date of HBOS bad debt provisions of which the UK tax payers have a 50% stake in and given more capital injections will soon rise to approx 70% of the group. So that there is no illusion A 70% GOVERNMENT STAKE MEANS DEFACTO NATIONALISATION


Lloyds TSB's Path Towards Nationalisation.

Back on September 18th 2008, the shotgun wedding between Lloyds TSB and HBOS (Takeover) was hailed as a smart move by much of the mainstream press, but as I voiced at the time ( Lloyds TSB Takeover of HBOS for £12 billion, £2.32 per share ) that Lloyds TSB may come to regret the decision as the economic slump unfolds, which is now coming to pass. Now the government has squanders more than £30 billion in terms of capital injections and a further potential loss of as much as £275 billion as per the amount of debt insured. This on top of all of the other bailouts brings the total liabilities and capital injections to a huge £1.5 trillion that risks bankrupting Britain as I elaborated upon yesterday - Northern Rock, Tax Payer Bailed Out Bankrupt Bank Adds 750Million More Losses. That risks an eventual real loss of as much as £500 billion, against Alistair Darlings assurances that Tax payers would not lose a single penny!

Defacto Nationalisation is inevitable as I pointed out on the 13th of February (Will HBOS Bankrupt Lloyds TSB into Nationalisation?)- Given the size of the HBOS and Lloyds TSB loan book, the £10 billion loss declared at the time was just the tip of the ice berg as 2009 will turn out to be a worse year than 2008 in economic terms as £10 billion of share holder equity cannot hope to defend against a loan book well in excess of £1 trillion, where even a further 1% loss due to bad debts would equate to more than total shareholder equity, and given the crash in UK house prices of 21% to date with a housing market depression to follow for many years despite the ongoing summer bounce, I cannot imagine how the bank can hope to survive in its present form.

Is the Worst Behind us ?

I am afraid not, we are perhaps at the the half way point (if we are lucky) which implies further capital injections into the bankrupt banks coupled with at least another £600 billion in terms of asset protection insurance. Then we have the budget deficits of as much as £200 billion a year to contend with, as mentioned earlier the consequences of all of this debt will be low economic growth and much higher inflation following the ongoing deflationary economic crash into mid 2009 that will equally be followed by a powerful inflationary up thrust that will send sterling plunging and interest rates higher as investors balk at holding UK government bonds (gilts) which will likely trigger a series of further Quantitative Inflation measures as the British economy is unable to wean itself off of Mervyn Kings magic central bank wand that conjures hundreds of billions out of thin air, that will be necessary to finance the huge budget deficits.

UK House Prices Summer Bounce

The unfolding bounce in UK house prices prices is inline with my May analysis that concluded that UK house prices will experience a bounce during the summer months from extremely oversold levels as a consequence of liquid buyers returning to the market and the debt fuelled economic recovery which 'should' be reflected in rising house prices during the summer months that undoubtedly will increasingly be taken by the mainstream press to conclude that the house prices have bottomed.

To receive my next major in depth analysis of the UK housing market subscribe to my always free newsletter.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 250 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Aq
05 Aug 09, 13:53
Incorrect data

The taxpayer owned 43%. Lloyds already paid part of the preference shares so no 70% on the table.


Nadeem_Walayat
05 Aug 09, 14:51
70%

I said current is approx 50%, watch as it rises towards 70%.


Aq
05 Aug 09, 17:13
70% was already paid

Lloyds gave the uk 70% 4 months ago and it already paid that part (pref shares) and the gover. Now stands at 43%

are u suggesting Lloyds is going to be bailed out again?

The bank has already covered the big impairments and the other toxic assets will go into the gov. scheme.

I really fail to see your point.


Nadeem_Walayat
05 Aug 09, 18:36
Lloyds Losses.

The point is being ahead of the curve in seeing through the creative accounting deployed to give the illusion that the stake is less than what it actually is and infact shrinking when it is inevitable that it will grow!

As with Northern rock where loans are converted to equity and this spread the illusion that Northern Rock has repaid more than what it actually has.

Dig deeper and you will see that the REAL tax payer stake is north of 50% and destined to rise to 70% as LLoyds declares more losses that burns through capital, and then who do you think will step in to replace that capital ? Yeh the tax payers hence 70%.


dave
10 Aug 09, 09:25
UK House prices

An informative article as usual, I will am looking forward to reading your next major in depth analysis of the UK housing market. After the bounce we have had recently I am wondering if this is a V shaped recovery or if we will see prices drop off again.


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