Lloyds Slides for Second Day After HBOS Loss Forecast (Update2)

By Kevin Crowley
Bloomberg News
February 16, 2009

Feb. 16 (Bloomberg) -- Lloyds Banking Group Plc fell for a second day in London trading after its forecast of a 10 billion- pound ($14 billion) loss at its HBOS Plc unit fueled concern it may be forced to raise additional capital.

The bank dropped as much as 22 percent and traded 6.8 percent lower at 57.2 pence at 9:15 a.m., valuing the company at 9.5 billion pounds. Lloyds has fallen 37 percent in the last two days following the announcement.

"If losses were to accelerate there is a risk capital could reduce to levels below which the market would have confidence in the group," analysts led by John-Paul Crutchley at UBS AG, wrote in a note to clients today. Crutchley has a "buy" rating on the stock.

Lloyds said loan impairments at the HBOS corporate division will be about 7 billion pounds. That's more than double the Edinburgh-based bank's own forecast in December. Lloyds agreed to buy HBOS, the U.K.'s biggest mortgage lender, in a government- brokered takeover in September when it came close to collapse as credit markets froze.

Asked about the possible nationalization of Lloyds, Stephen Timms, chief secretary to the Treasury, told the British Broadcasting Corp. today that the government was not "contemplating that at the moment. We've made it very clear that in our view the commercial sector and private ownership is the right place for banks."

All five of the bank's executive directors have decided to forgo any bonuses they might be awarded for last year, spokesman Shane O'Riordain said by telephone today. No employees working in HBOS's corporate arm will receive a 2008 bonus, he said.

The lender won't make decisions on compensation for the rest of its workforce until it consults U.K. Financial Investments Ltd., the body which manages the government's 43 percent stake in Lloyds.

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