IF YOU strip out all the bad stuff it's really quite good. A bit unfair, perhaps, to Lloyds TSB boss Eric Daniels on the bank's interim trading results.
Lloyds TSB 306p -15pBut "underlying fatigue" can strike company-watchers. When times are good, businesses trumpet their statutory, or "headline", profit figures.
But when times are bad, corporates do backflips to accentuate t
he positive and massage the performance as a result.
Statutory performance is then dismissed as an artificial construct that does not reflect the "underlying" strength of the business.
So we get profit figures stripping out losses on the sale of businesses; profits excluding bigger writedowns to do with the credit crunch (Lloyds TSB); profits excluding the costs to do with restructuring and redundancy programmes; earnings that strip out currency fluctuations. The "underlying" list can be overwhelming.
Daniels and Lloyds came up with a neologism yesterday. Regarding the impact on the statutory results (a shocking 70 per cent fall to £599m from £1.99bn a year earlier, by the way), the bank constantly referred to results before and after the impact of "market dislocation".
This implies some sort of God-like aberration in financial markets rather than banks not lending to each other because they all now suspect each other of having flaky assets.
As if Lloyds and its banking peers do not function by their involvement in wholesale money markets, even if admittedly the latter have functioned very unusually over the past year in a liquidity crunch that metamorphosed into the credit crunch.
Apart from such presentational matters, the market had concerns about Lloyds's interim statement.
One was the bank's warning that house prices could fall 10 to 15 per cent this year, which could add £100m to bad debts in the second trading half.
Overall first-half impairment charges rose nearly a third to £1.1bn, and mortgage arrears are expected to continue to rise.
Lloyds's somewhat surprising 24 per cent share of net new mortgage lending in the first half is not that relevant here.
Daniels admits there were specific circumstances around that jump in share from the bank's more traditional share of 9 per cent, as a number of competitors left the mortgage market.
As they return, which he expects in the second half, that share of new lending should fall.
Some eyebrows were also raised at the 2 per cent rise in the divi yesterday, given the fall in Lloyds's core tier 1 capital ratio to 6.2 per cent at the end of June from 7.4 per cent at the start of the year.
The recapitalisations at the likes of HBOS, Royal Bank of Scotland and Barclays indicate that Lloyds has lost the competitive edge its capital ratios once gave it, although the bank yesterday maintained they were "robust".
Mike Trippett, a banking analyst at Oriel Securities, put his finger on the market worries, however.
"The statement flags they cannot continue to grow at the rate we've seen in the past few years given the economic environment," Trippett said.
Does that leave M&A action to take up the slack? Like TV's Blue Peter, Lloyds reached for one it had prepared earlier at that point. Daniels said it would be remiss not to consider acquisitions in this climate, but that its focus was organic growth.
Whatever the truth on whether Daniels considered a major acquisition in Germany recently, it looks less likely that Lloyds will emerge as a counter bidder to Banco Santander for Alliance & Leicester.
The regulators would certainly block it because a takeover of A&L by a major British player would remove a competitor from the market.
PERHAPS the message on profligacy is getting through. The latest Abstract of Banking Statistics issued by the British Bankers' Association says that at any one time well over a quarter of credit card borrowing is not incurring interest.
Instead, flashing the plastic (that's not the BBA's terminology, just to clarify) is being used increasingly just to defer payment.
The BBA also says borrowing on credit cards contracted 2 per cent last year, and average outstanding credit card debt fell last year to £1,124 – the lowest in three years.
Clearly, bankers flogging mortgages to people that couldn't afford them in Main Street, USA, in order to boost their own banking bonuses, has had a positive side-effect over here.
The full article contains 731 words and appears in The Scotsman newspaper.
