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Lloyds Bank finds massive loan risk on HBOS balance sheet

Lloyds Bank has this weekend revealed over £80 billion of high-risk loans on the HBOS balance sheet which it was not fully aware of. This comes at a time when Lloyds bank was forced to take a £10 billion hit for HBOS loan write-offs and a significant increase on its own more conservative balance sheet write-offs. So what next?

Overall Lloyds Bank has now located around £165 billion of loans which are outside the company's natural appetite for risk. The group has been in talks with the UK Treasury about making use of the toxic asset insurance facility but there appears to be some confusion as to what exactly is going on. Despite the fact that Royal Bank of Scotland has managed to secure insurance for over £350 billion of toxic assets there appears to be a delay in rubberstamping the deal for Lloyds Bank.

There is no way that Lloyds Bank can take such a massive hit without having to raise capital at some point in the near future with the UK government poised to increase its stake, even though the board of directors at Lloyds Bank would rather take a different route. The days of the conservative Lloyds Bank Group have long gone after the acquisition of HBOS.

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