In an interview on CNBC, James Edsberg discusses the recent results of Lloyds Banking Group and the outlook for the European banking sector.
“The LloydsTSB and HBOS consolidated results were flagged up in recent trading statements - so the level of corporate impairments announced today is large but no surprise”, said James Edsberg. “Of more concern is today’s news that the bank failed to reach agreement with the UK Government on the details of its Asset Protection Scheme arrangement.”
“We were expecting that the bank would insure an estimate £250bn of poor loans - the majority inherited from HBOS corporate lending division. It’s likely that the markets will punish Lloyds for this continued uncertainty. Compare the market’s the reaction to RBS which despite the largest losses in UK corporate history, reached agreement with the government on the APS - and it’s share price rallied 22%.”
“As for those interested in the root causes, you only have to look as far as HBOS 2007 Annual Report. Here’s a quote. It says, “we will no longer set half-yearly or annual net lending targets and will favour profitable growth over market share”. In other words, the bank had an explicit policy of winning market share over assessing the quality of the loans it was making. It was growing market share late in the cycle. If you want to know why HBOS has suffered the losses it has in its corporate lending, look no further.”
James went on to discuss the impact of the Asset Protection Scheme. “There will be many governments looking at the outcome of the Asset Protection Scheme negotiations with the UK banks to see if it achieves stability. It’s early days, but indications are that the APS may be a better way for the governments to avoid nationalisation and to give capital to a bank without expecting dilutive ordinary shares in return.”
“The next big issue for European banks to deal with is their exposure to Eastern European investments and corporate lending. Eastern Europe. Eastern Europe is to European banks what Sub-prime is to US banks. And many Austrian, Italian and other European banks and governments will face tough decisions in the next 2 months in this area.”
View the full Lighthouse interview with CNBC
View all recent Lighthouse interviews with CNBC
“The LloydsTSB and HBOS consolidated results were flagged up in recent trading statements - so the level of corporate impairments announced today is large but no surprise”, said James Edsberg. “Of more concern is today’s news that the bank failed to reach agreement with the UK Government on the details of its Asset Protection Scheme arrangement.”
“We were expecting that the bank would insure an estimate £250bn of poor loans - the majority inherited from HBOS corporate lending division. It’s likely that the markets will punish Lloyds for this continued uncertainty. Compare the market’s the reaction to RBS which despite the largest losses in UK corporate history, reached agreement with the government on the APS - and it’s share price rallied 22%.”
“As for those interested in the root causes, you only have to look as far as HBOS 2007 Annual Report. Here’s a quote. It says, “we will no longer set half-yearly or annual net lending targets and will favour profitable growth over market share”. In other words, the bank had an explicit policy of winning market share over assessing the quality of the loans it was making. It was growing market share late in the cycle. If you want to know why HBOS has suffered the losses it has in its corporate lending, look no further.”
James went on to discuss the impact of the Asset Protection Scheme. “There will be many governments looking at the outcome of the Asset Protection Scheme negotiations with the UK banks to see if it achieves stability. It’s early days, but indications are that the APS may be a better way for the governments to avoid nationalisation and to give capital to a bank without expecting dilutive ordinary shares in return.”
“The next big issue for European banks to deal with is their exposure to Eastern European investments and corporate lending. Eastern Europe. Eastern Europe is to European banks what Sub-prime is to US banks. And many Austrian, Italian and other European banks and governments will face tough decisions in the next 2 months in this area.”
View the full Lighthouse interview with CNBC
View all recent Lighthouse interviews with CNBC
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