This is exactly what crushes the spirit of the market. Banks and their media cheerleaders keep telling us that the surprises are over, the bad debt behind us and the good times are near. The market needs calm, boring and predictable behavior for one quarter and then another and another, etc. "Discoveries" of new bad debt only enhance the existing belief that it's a dangerous market.
Lloyds banking Group revealed yesterday that it had found £80bn of high-risk loans at HBOS, the bank it bought last month to save it from collapse.Uh huh. Who ever could have forecasted anything like that?
The high-risk assets are part of £165bn of loans that Lloyds said were outside its own appetite for risk. Surging bad debts on HBOS's books drove it to a £10.8bn loss for 2008.
Impairment losses at HBOS surged to £9.9bn from £2.01bn a year earlier, with two-thirds coming from the corporate bank, with its heavy weighting towards the stricken commercial property and housebuilding sectors.
Alex Potter, a banking analyst at Collins Stewart, said: "The scale of the deterioration in the HBOS book has shocked us."
Lloyds said that HBOS's estimate of the losses for 2008 was only a third of Lloyds', which itself turned out to be too low by £1.6bn.
Eric Daniels, Lloyds' chief executive, said the bank's forecast had not predicted that the economy would shrink by 1.5 per cent in the last quarter of 2008, increasing pressure on borrowers. "While we were pretty gloomy, what actually happened is we were not gloomy enough," he added. But he insisted that the losses were not far off Lloyds' expectations and were manageable.
