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Lloyds To Stun City On Profit

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http://business.timesonline.co.uk/tol/busi...icle6719040.ece

LLOYDS BANKING GROUP could shock the market with its first-half results by announcing that accounting trickery has helped it scrape into the black. Despite enormous bad-debt provisions – estimated at £13 billion – the bank is likely to post a modest headline profit for the first six months of the year.

Some of its most toxic sub-prime investments have clawed back billions of pounds of value in recent months. Other credit instruments will also have recorded paper gains for Lloyds.

Under fair-value accounting rules, the paper gains will flow straight through to the bottom line. The rules have proved controversial throughout the credit crisis and have been widely blamed for accelerating the destruction of value on bank balance sheets.

In the second quarter of the year, the prices of many distressed assets bounced back. Lloyds is expected to be among the first of the world’s big banks to chart big gains on the back of the rules now that some troubled assets have increased in price.

Lloyds took £14 billion of provisions last year to account for mark-to-market movements on its own balance sheet and that of HBOS. Even a small improvement could prove significant. The same accounting principles may allow Lloyds to release profits elsewhere on its balance sheet. Lloyds took a write-down of £13.8 billion on the HBOS loan book after the acquisition last autumn. Despite the continued bad debts being suffered on the book, analysts believe it could claw back some of those earlier charges.

The accounting write-backs, coupled with operating profits of £7 billion, will combine to outweigh the enormous bad-debt charges being suffered on the bank’s exposures to mortgages, corporate loans and commercial property.

One analyst said: “There are a lot of big numbers involved here. When big numbers start moving around they can become very significant.â€

The bank reporting season has already produced a number of surprises. Wall Street’s banking analysts were proved to be significantly wide of the mark last week in their forecasts for Goldman Sachs. The bank’s record quarterly profits of $3.4 billion (£2 billion) were roughly twice what the market had forecast.

Morgan Stanley is due to report second-quarter figures on Wednesday. Analyst expectations vary significantly but the consensus suggests the bank will post a small loss.

Credit Suisse, widely considered to be one of the banks to win from the credit crunch, will also report second-quarter figures this week. Huge trading profits are expected to have been recorded by its foreign exchange, fixed income and commodities businesses.

From the comments:

Doesn't this just show how crazy the mark-to-market rules were in the first place? They were responsible for the needless destruction of capital and were never more than paper losses which as anyone with half a brain knows, only become 'real' losses if you choose to sell at that price. The underlying loans that comprise many of these assets, have never been in default at all! Madness. However, we are now starting to see 'real' losses as actual loans go into default as the economy falters. If you think it through, what has happened is that paper losses have caused banking collapses, which has caused recession, which has in turn caused real losses. So, is this really all the fault of the Banks? Any fair-minded, and thinking, man would surely conclude otherwise.

So will the coke snorting idiots on the trading floor send banking shares back up if these quoted figures are accurate???

I expect Ponzi Brown to lay claim to it was his genius of doing the right thing that has helped to create this economic recovery that will now be destroyed by swine flu.

So all of these trillions spent has allowed the banks to produce a few billions profit, good rate of return???

Excellent value for money if you ask me. :ph34r:

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http://www.guardian.co.uk/commentisfree/20...-crisis-banking

Public anger about bankers' bonuses began to melt away as spring gave way to summer and MPs' expenses took over as the object of righteous indignation. But it's too soon to stop the clamour for a culture change among the City's wheeler-dealers.

According to the IMF, the total cost of supporting the UK banks has so far been a stunning £904bn. The financial industry now exists only because of the largesse of government.

And with unemployment rising at the fastest rate in a generation, the argument that City financiers are "wealth-creators" has surely been demolished. Finance is necessary to channel cash to enterprising individuals who can put it to good use and allow consumers to spread expenditure through their working lives. But when the financial sector becomes too large, it sucks talent and resources into essentially wasteful activities and as anyone who's cashed in a pension or endowment over the past 12 months will tell you, it's hardly delivered a great deal for its customers.

Sir David Walker's suggestion last week that top bankers' pay should be revealed in annual reports is a start, though he stopped short of insisting names be revealed. But even "naming and shaming" wouldn't work on the shameless. The government should enforce his recommendations that payouts be made long term, and include clauses allowing them to be clawed back when necessary. Relying on what Walker called "comply or explain" enforcement is not enough - it's time for "comply or else".

And ministers have been too lily-livered in bringing high finance to heel. Alistair Darling has rejected new rules to split off the racy deal-makers from staid, deposit-taking, high street banks, after City lobbying.

Yet with savers' deposits now effectively guaranteed by government, the Treasury has a right to set constraints on what sort of activities the clearing banks should get up to. Neither should Darling rule out limits on the sheer size banks are allowed to reach.

Ministers argue that new Financial Services Authority powers to demand that risky banks hold more capital against hard times will bring them to heel, but peering inside sprawling banks to judge the risks they are taking is an activity at which the FSA has shown itself to be singularly ineffective over the past decade. Much better to have clear rules, backed by legislation.

Excellent for £1tr we have allowed our banks to generate a few billion in profit. Is this a good investment ratio?

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Guest DissipatedYouthIsValuable

Ignorance is Strength.

War is Peace.

Loss is profit.

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One analyst said: “There are a lot of big numbers involved here. When big numbers start moving around they can become very significant
.â€

Clearly unless you pay ridiculously large bonuses to retain the brightest of the bright like this fella they'll all run off to be teachers.

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.â€

Clearly unless you pay ridiculously large bonuses to retain the brightest of the bright like this fella they'll all run off to be teachers.

so its not worth a punt?

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rk is referring to the analyst comment I think.

One thing that links in to possibly confirm this story was the news that the government is conducting a beauty parade of investment banks to help them sell their shares back to the market. Their target price was above 122p. And they will conduct this beauty parade annually.

I for one was very surprised at that announcement as it seemed far too early - they had been talking in terms of years before this.

So what that means is that the government can see an opportunity to offload some of its shares this year at or above its target price. I'm pretty sure they'll have inside info about what will be reported at Lloyds results.

So take that for what its worth. Just a thought.

EDIT: Plus will there be a read across to other companies carrying assets that have been marked to market and may have to re-write value back e.g. other banks and life insurers.

EDIT2: I should declare that I hold some Lloy for punting purposes but have no long term confidence in the share. The above is therefore probably wishful thinking rather than entirely rational analysis.

Thanks HAM, I was talking in terms of daytrading or short term rather than a longterm hold. If the market is rigged then it doesn't matter so long as you are in step with the government/banks does it?

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Sorry, that's a bit too technical for me. Can you explain it for me? I assume you think it is important as you bolded it.

I just thought it was a funny statement to make by some supposedly intelligent person.

Although to be fair big numbers are involved and I am a little confused so I don't know how helpful I could be.

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Although to be fair big numbers are involved and I am a little confused so I don't know how helpful I could be.

I think they're pretty damn confused by big numbers too.

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Thanks HAM, I was talking in terms of daytrading or short term rather than a longterm hold. If the market is rigged then it doesn't matter so long as you are in step with the government/banks does it?

And the market is rigged how exactly?

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And the market is rigged how exactly?

Mark to Model.

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So let me get this straight.

If you own a construction company and borrow money against the imaginary value of an emerald it is called fraud and you go to prison.

If you own a bank and borrow money against the imaginary value of a property, you get a big fat bonus.

Hmmmmm.

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Not exactly rigging though, is it?

Probably as well though as the City analysts don't understand anything else.

I would say it certainly is.

if a company is bust, ie it owes today 1p more than it can pay, or a regulated quantity of reserve is busted, then saying that a true situation is not true "because its within the rules" is as corrupt as an MPs duck hotel.

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Gouranga.

is that like "Oovavoo"...correct, or "Irano" incorrect.

Dove from above.

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It's like the opposite of "Grrrr, anger"

is this a test?

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No I thought you were kidding me or I thought you might google it....

"be happy" as in the song "don't worry, be happy"

http://en.wikipedia.org/wiki/Gouranga

You may have seen the term spraypainted on bridges above motorways a while back. I thought it was a bridge manufacturer that I hadn't heard of and decided to google it.

http://www.youtube.com/watch?v=jyYZUhSeRYc

Anyway - you need to chill out. This is no way to start your week.

GOTCHA.

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So let me get this straight.

If you own a construction company and borrow money against the imaginary value of an emerald it is called fraud and you go to prison.

If you own a bank and borrow money against the imaginary value of a property, you get a big fat bonus.

Hmmmmm.

But bankers can be trusted so it's never fraud.

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