Disastrous merger with HBOS still casts cloud over Daniels' legacy at Lloyds

The disastrous merger with HBOS continued to cloud Eric Daniels' legacy at Lloyds Banking Group after the firm was forced to hike provisions for toxic property loans in Ireland and Australia.

Bad debt charges for Ireland surged by 45pc to £4.3bn in 2010, and rose 60pc to £1.3bn in Australia  -  reflecting HBOS's reckless pursuit of growth.

Lloyds showed that it too had made some questionable loan decisions, after revealing that it booked a £365m loss on two oil rigs in Singapore related to loans to SeaDragon offshore.

Enlarge   Lloyds' rocky road to recovery

Back in the black: The results were the last to be presented by chief Eric Daniels


Overall, a big drop in impairment charges enabled the bank to move back into the black with an underlying pre-tax profit of £2.2bn, compared to losses of £6.3bn a year earlier.

But at the bottom line, the loss to shareholders was £320m  -  meaning the Government doesn't receive a penny in corporation tax and investors will have to wait before seeing any benefits or a dividend from the HBOS/Lloyds tie-up.

In his final presentation before handing over to new chief Antonio Horta-Osorio next week, Daniels insisted that 'the combined entity is doing very well' and the merger will end up being 'a very good deal for all of our stakeholders'.

Shares in Lloyds, which is 41pcowned by the government, fell 2.93p to 62.85p. They are a far cry from the 280p price enjoyed by Lloyds shareholders before the merger was announced in 2008.

But chairman Sir Win Bischoff said the company was 'extremely grateful' to Daniels for doing 'an absolutely fabulous job'.

As well as lower bad debt charges, profitability has also been improved by an increase in margins on the high street banking business, as customers move off their discount mortgage offers on to less attractive standard-variable rates. Total loans to businesses are down, but Lloyds has lent out more to small firms.

Daniels pointed out, to the disappointment of some analysts, that retail margins probably won't fatten much further next year.

There is also some concern about a rise in mortgage impairments, with Lloyds now expecting house prices to fall 2pc in 2011.

The merger which has led to 26,000 announced job cuts, has not come cheap. integration costs including staff severance packages rose to £1.7bn in 2010, from £1.1bn in 2009.

The bank refused to say how much money it was handing to staff in bonuses, but said the overall pot was lower than last year. nor would Daniels, who was awarded a £1.45m bonus for last year, say how many staff were made millionaires.

He said the board 'showed restraint' but also paid staff the market rate.