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Lloyds Bank surprises City with a warning

Lloyds Bank today warned the City that corporate bad debts at the group are expected to soar by around 50% this year but more worryingly, the company has yet to finalise its participation in the government's insurance scheme for toxic assets. Many were under the impression that Lloyds Bank was already confirmed as a member of the scheme but today's announcement would appear to indicate otherwise.

The 50% increase in corporate debt provisions is mainly as a consequence of the HBOS takeover as the company has significant exposure to the commercial property and real estate markets in the UK and Ireland. As we have covered on a number of occasions, the HBOS loan book was in a far worse condition than even the most pessimistic of Lloyds Bank directors had assumed. The ongoing controversy regarding this takeover dragged on for some time and many believe directors of both Lloyds Bank and HBOS were distracted from their everyday operations.

It will be interesting to see when Lloyds Bank joins the government's toxic insurance scheme and the exact assets which will be transferred over to the arrangement. There is the potential for a short-term fillip in the company's balance sheet strength as and when a significant amount of potentially toxic debt is transferred away.

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