While investors celebrate the fallacy that is Q1 bank earnings, an odd thing is happening across the pond: they’re telling the truth. Lloyds Banking Group was out today with an astonishingly truthful look at what the financial services sector looks like when you don’t get billions in “FICC” revenue from “trading” (read: AIG) and silly accounting tricks that help hide non-performing assets.
I’ve attached some highlights from the statement. In a nutshell, this banking crisis is FAR from over….The stock is getting hammered for those that care….
Rising impairment levels
Consistent with the guidance given in February this year, during the first quarter of 2009 we have experienced a significant rise in impairment levels in the Group’s lending portfolios. This largely represents the impact of the further economic deterioration, including the effects of rising unemployment, reduced corporate cash flows, the continuing impact of lower house prices and falls in the value of commercial real estate.
As we have previously announced, we continue to expect retail impairment levels to rise significantly during 2009, in both the secured and unsecured lending portfolios. We expect continuing declines in commercial property prices and reducing levels of corporate cash flows as we anticipate a continuing difficult economic outlook. These factors are now leading us to anticipate further corporate defaults during the rest of the year, notably in the commercial real estate portfolios in the UK and Ireland. In particular, the real estate exposures in the legacy HBOS portfolios are more sensitive to a downturn in the economic environment. As a result, corporate impairments in 2009 are expected to be more than 50 per cent higher than in 2008.
A little honesty on this side of the pond would be nice….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
Bill
WFC to do $6B secondary!!! TPC, you NAILED the bank-call, NAILED it. WTG. What a farce!!!! I love it.
Onlooker
No kidding. They put us to shame. We really do look more corrupt and immoral by the day.
Simon Johnson for Treasury Secretary!
Cullen Roche
It’s kind of sad that I am right about this. It would have been really nice to know that the government and the banks weren’t actually in cahoots to game private investors all these months….
Clotario
Sorry folks, over this way tomorrow is always a sunny day and the next bubble is always just around the corner.
It’s refreshing to see the situation be assessed PRIOR to the decisions on how to handle it being made, rather than dictating that everything will be back the the 2005 version of ‘normal’ soon enough, full [profligate best-case-scenario spending] steam ahead.
Cullen Roche
Are you a UKer?
Clotario
Sorry, ‘over this way’ denotes Geithnerland.
Cullen Roche
Gotcha. Yeah, it’s funny how markets are naturally proactive, but all of our policy action regarding them is reactive. Doesn’t make any sense….