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Showing posts with label Lloyds. Show all posts
Showing posts with label Lloyds. Show all posts

Thursday 6 June 2013

Bank losses worrisome !

It is imperative for banks to have a better prediction of their losses so that their capital position will be better reflected

IT may seem strange to analyse bank losses at a time when major banks, even the taxpayer-owned ones, are profitable.

Moreover, major economies are also said to be turning around. So why would we be so worried about bank losses?

According the analysts at Barclays, this is related to the bank's risk-weighted assets.

With so much focus on capital and the need to boost capital for the taxpayer-owned banks, it is inevitable that the question on losses would pop up.

That's when the banks accurately forecast the capital required.

However, if they do not have a fairly accurate idea of the losses they may be incurring, they may not be allocating enough capital buffer for it.

Therefore, the analysis on bank losses should be seen in a positive light as it helps to shed information early on the capital position of the bank.

The startling fact is that the banks themselves may not be able to predict their losses with a fair degree of accuracy, said the Telegraph.

UK, European and Asian banks, on average, forecast losses of nearly 30% higher than those they actually faced, the survey by analysts at Barclays found.


According to the report, Lloyds and HSBC predicted a default rate on their lending portfolios more than 50% above what they actually experienced.

Barclays was found to have been too pessimistic, particularly with assets in its investment bank where it forecast a default rate 78% higher than in reality.

“Most of the time banks' PDs (predicted defaults) are lower than forecast, suggesting a degree of conservatism,” the analysts said, as quoted by the Telegraph.

“The forecasting errors' can be massive, which raises questions over both their predictability and hence meaningfulness of the resulting risk weighted assets,'' they said.

It is therefore imperative for banks to have a better prediction of their losses so that their capital position will be better reflected.

Banks' boards of directors are fortifying themselves with new knowledge.

HSBC, the largest British bank, has appointed former director-general of British Security Service, Sir Jonathan Evans, onto its board, with expertise in counter terrorism and cyber threats.

With the accusations of money laundering, these major banks are coughing up a lot of money to engage top guns that can deal with the intricacies of it all.

Before terrorim, it was risk posed by over dabbling in derivatives. Banks engaged armies of risk and compliance oficers

Whether these counterrorism and cyber threat themes really emerge into trends remains to be seen.

A survey by pension fund The Scottish Widow indicated that in 10 years' time, Britons will have to work till 70.

They do not have enough savings to last through, as they are currently caught up in daily living expenses, it was reported in The Guardian.

That sounds chilling but fast becomig a reality soon in many other countries.

Many will start rushing for health and pharmaceutical products to strengthen themselves while others will just struggle on.

Plain Speaking by YAP LENG KUEN

>Columnist Yap Leng Kuen reckons it's easier to think positive.

Related:

Saturday 25 February 2012

Lloyds, Britain’s biggest mortgage lender plunges to £3.5bn loss for 2011


Rising Funding Costs Imperil Profit in 2011

Part-nationalised Lloyds Banking Group said today that it is "in a significantly stronger position than it was 12 months ago" despite unveiling total losses of £3.5 billion for last year.The losses, which compare with a £281 million profit the previous year and are driven by a £3.5 billion hit to tackle the payment protection insurance scandal, are nearly twice the size of those at fellow state-backed bank Royal Bank of Scotland.

 http://www.independent.ie/video/video-world-news/lloyds-makes-35bn-loss-3030959.html
By  Gavin Finch in London at gfinch@bloomberg.net
Antonio Horta-Osorio - Lloyds
Lloyds chief executive António Horta-Osório is cutting 15,000 jobs, on top of the 30,000 already axed. Photograph: Reuters

Lloyds Chief Executive Officer Eric Daniels


Former Chief Executive Officer Eric Daniels said, “We achieved a step change in our financial performance despite modest economic growth.” Photographer: Chris Ratcliffe/Bloomberg

Lloyds Banking Group Plc, Britain’s biggest mortgage lender, tumbled in London trading as the bank said rising funding costs will squeeze profit margins in 2011.

The net interest margin, the difference between what the bank pays for funds and what it charges for loans, will be unchanged in 2011, Lloyds said in a statement today. The lender is replacing government support with costlier wholesale funding.

“The numbers and outlook statement from Lloyds are a bit of a horror show,” said Ian Gordon, an analyst at Exane BNP Paribas SA in London with a “neutral” rating on the stock. “Lloyds’s second-half performance has been very weak.”

Analysts including Gordon and John-Paul Crutchley at UBS AG said they may cut estimates for 2011 pretax profit by more than 2 billion pounds ($3.2 billion), about a third. Chief Executive Officer Eric Daniels, who will be succeeded by Antonio Horta- Osorio next week, has been trying to wean Lloyds off state aid after the takeover of HBOS Plc in 2008 led to 13 billion pounds of losses and left the taxpayer owning 41 percent of the lender.

The shares tumbled 4.5 percent to 62.85 pence at the close in London, the biggest decline in more than three months.

“The knee-jerk reaction could be some disappointment,” said Cormac Leech, an analyst at Canaccord Genuity Ltd. in London who has a “buy” rating on the stock. “The biggest negative is that the margin will stay flat in 2011.”

Net Interest Margin

Lloyds posted a full-year net loss of 320 million pounds in 2010, compared with a 2.83 billion-pound profit in 2009, the bank said in the statement. Earnings the previous year were buoyed by an 11.1 billion-pound accounting gain on the HBOS purchase. Pretax profit slumped 62 percent to 609 million pounds in the second half of 2010 from the first half.

The net interest margin rose to 2.1 percent from 1.8 percent in 2009. Lloyds cut its reliance on government aid to 96.6 billion pounds in 2010 from 157.2 billion pounds in 2009.

The shares, the second-best performing of the U.K.’s five biggest lenders last year, may struggle to repeat that in 2011 as funding costs and Irish loan losses climb and a government commission weighs whether to break Lloyds up, analysts said. The Independent Banking Commission, which is reviewing competition in the financial services industry, will report in September. Lloyds said today it also expects a “slow recovery over the next couple of years” for the British economy.

“Another extremely challenging year lies ahead,” Gordon said. “There are still very significant bumps in the road.”

Halifax, Oil Losses

Lloyds posted its first full-year pretax profit since the credit crisis today. Profit was 2.2 billion pounds compared with a loss of 6.3 billion pounds in 2009. That beat the 2 billion- pound median profit estimated by 21 analysts surveyed by Bloomberg. Provisions fell 45 percent to 13.2 billion pounds in 2010 from 24 billion pounds in 2009.

Profit was crimped by a 4.3 billion-pound charge for bad loans in Ireland and a 365 million-pound loss on the sale of two deepwater oil drilling rig businesses to Seadrill Ltd. The bank also made a 500 million-pound provision to cover payments it’s making to Halifax mortgage clients because the terms of their loans were unclear.

Lloyds follows Royal Bank of Scotland Group Plc in posting an increase in losses from the implosion of Ireland’s decade- long real estate boom. Edinburgh-based RBS posted a full-year loss of 1.1 billion pounds yesterday, missing analyst estimates as Irish loan losses almost doubled.

“We expect to see further reductions in impairment losses in 2011 and beyond,” Lloyds said in the statement.

‘Radical’ Intervention

Pretax profit at Lloyds’s consumer banking unit rose to 4.7 billion pounds from 1.4 billion pounds. Profit was bolstered as customers reverted to standard variable rate mortgages, which generate more income than fixed-rate loans, Daniels, 59, said on a call to journalists today.

“The stand-out performance in the retail division will undoubtedly raise eyebrows, adding fuel to the fire of those that view the banking behemoth as an anti-competitive force,” said Paul Mumford, a fund manager at Cavendish Asset Management in London. “Increased profits will be met by increased enthusiasm for radical regulatory intervention.”

Daniels, who has overseen a 76 percent plunge in Lloyds share price since he took over as CEO in 2003, said he was “very pleased’ with his tenure at the bank. Daniels told the BBC Radio 4 Today Programme that he hasn’t decided whether to accept his 1.45 million-pound bonus for 2010 even though the board has made an award.

The bank’s core Tier 1 capital ratio, which measures financial strength, rose to 10.2 percent from 8.1 percent as risk-weighted assets declined by 18 percent to 406.4 billion pounds. Lloyds said it expects to meet its target to cut assets by about 100 billion pounds over the next three years.

“We achieved a step change in our financial performance despite modest economic growth,” Daniels said. “While the significant decrease in impairments was a key driver in our return to profitability, we also saw a good performance in the core business.”

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