Lloyds Banking unveils 8.5 bln pound HBOS loss

Lloyds Banking Group said its HBOS unit made a hefty loss last year due to bigger-than-expected bad loans, wiping nearly a third off the group's stock market value.

HBOS had a pretax loss of 8.5 billion pounds ($12.28 billion) for 2008, Lloyds said in a statement on Friday, driven by 7 billion pounds in bad corporate loans and a further 4 billion pounds in asset write-downs.

In November, HBOS had estimated its corporate impairments at just 3.3 billion pounds.

By 1452 GMT, Lloyds Banking Group shares were down 29 percent at 64.8 pence, having earlier fallen as low as 54.9 pence.

"The market doesn't like the fact that in a period of a month the corporate losses (at HBOS) are twice what they had announced," said Mamoun Tazi, analyst at MF Global.

Lloyds said the big rise in bad loans and write downs was driven by falling asset values as markets continued to deteriorate.

It said the increase also reflected the application of Lloyds own "more conservative" accounting methods at HBOS since the two banks joined forces late last year.

"Whilst we recognise the short term outlook is more challenging, Lloyds Banking Group has the largest UK financial services franchise, with excellent long-term earnings potential," Lloyds Chief Executive Eric Daniels said in a statement.

Lloyds Banking Group's Lloyds TSB unit made a profit of about 1.3 billion pounds, the company said, including write-downs of about 1.3 billion pounds.

HBOS, seen as vulnerable to the global credit crisis because it depended on wholesale borrowing for much of its funding, agreed to be bought by Lloyds TSB in September last year.

The government-brokered deal came amid confidence-sapping falls in HBOS' share price, and was made possible by a one-off waiver of British competition rules.