Lloyds Makes a Profit Thanks to Mortgages

by Mark Johnston

The part nationalised Lloyds Banking Group looks set to meet its prediction and report a profit since the credit crunch. Lloyds which 41% is owned by the UK tax payer posted a positive performance in the third part of the year and is set to deliver profits in the third part of 2010 as well.

Its good performance is being attributed to some good mortgage lending figures alongside a reduction in the amount of bad debt, mostly associated with home loans. Its mortgage arm has benefited from increased mortgage rates and profits from customers ending their deals and being moved to a standard variable rate which has been a positive even in light of a struggling UK housing market.

Chief executive Eric Daniels said: “I am pleased to report that we had a good third quarter in our core business as we continue to deliver against the group guidance we provided at the interims.” He also pointed out that Lloyds had also managed ot pay back £7 billion in funding from the Bank of England.

The Lloyds group which owns Cheltenham & Gloucester and the Halifax hopes to build on its third quarter results of £1.6 billion in profit in the last part of 2010. But some experts are concerned about the amount of exposure Lloyds has in the desperate UK housing market with house prices seemingly dropping on a weekly basis. Lloyds did post higher than expected loan losses in Ireland and were affected by higher than expected charges in some overseas countries. This may have been the reason that shares still fell even with such positive results although some described  them as “modest”.

There have also been reports of fears from experts in regards to claims that could arise from controversial payment protection insurance, estimate but the bill for Lloyds up to £1.5 billion.

Nic Clarke, a financial analyst at Charles Stanley, said: “Despite good progress this year we believe the market still frets about the significant amount of wholesale funding that matures in the next couple of years and the potential impact that a weakening UK economy would have on Lloyds, given its significant exposure to both UK retail and commercial customers.”

Lloyds was quoted in saying that they had reviewed their mortgage offering and changed their rates to reflect both the increased cost in lending and the amount of risk that a particular customer represents. This comes as no comfort to the swaths of first time buyers that have been effectively priced out of the market by UK banks and building societies looking to tighten up their lending criteria to reduce their overall risk by demanding up to 60% for deposits on a property.

Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers, said the improving trend on bad debts and success in funding markets “underpins confidence that the bank will eventually exit current Bank of England support”.



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