Hoist by your own petard

4 August 2010 By George Hay Follow @gfhay

The UK bank is making a habit of beating its own targets and market forecasts. Bad debts are falling fast and Lloyds is beginning to exploit its dominant UK retail market position. The snag is this could make the coalition’s banking commission more inclined to break it up.

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Lloyds Banking Group posted pretax profit of 1.6 billion pounds for the first half of 2010, compared to a 4 billion pound loss in the same period last year and a 2.3 billion pound loss in the previous six months.

The UK bank was helped by impairments falling 51 percent from 13.4 billion pounds in the first half last year to 6.5 billion. Lloyds' reliance on the UK government's Special Liquidity Scheme and Credit Guarantee Scheme fell by 25 billion pounds to 132 billion.

Lloyds said it expected GDP growth in the UK of 1.3 percent in 2010 and 2.1 percent in 2011, with unemployment peaking this year. It also thinks UK house prices will be static in 2010 and up 3 percent in 2011, with commercial property prices up 6 percent and 2 percent in the same period.

Separately, Royal Bank of Scotland has agreed a sale of 318 English and Welsh branches to Santander for around 1.65 billion pounds. Separation costs of the sale, which had been ordered by the European Commission in return for state aid, will be met by RBS.

By 1030 GMT, Lloyds shares had risen 1.5 percent to 73 pence in a falling market, after an initial surge of 3.5 percent. RBS shares were flat at 52 pence, while Santander fell 1.3 percent to 10.2 euros.

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