Lloyds – the 90 per cent LTV bank

Posted by Neil Hume on Jun 27 08:50.

Sir Victor also insists that enough due diligence was done on the deal, in two tranches and that the risks in HBOS’s property portfolio were understood. The problem was the speed with which the economy collapsed, pulling down HBOS with it.

“What happened was very unforgiving and the losses came much faster than anyone anticipated,” he said. “What we did not anticipate – and to be fair nobody else did either – was that in the last quarter of 2008 and the first quarter of 2009 it would be so negative in terms of GDP. The economy fell off the edge of a cliff.

“Therefore the things in the HBOS portfolio, the concentration on property, the degree of risk in that property portfolio came home to roost much more quickly than anyone anticipated”.

That’s former Lloyds chairman Sir Victor Blank (Cheque) defending the HBOS deal in the Sunday Telegraph.

And this is chart from the Bank of England’s Financial Stability Report:

And this is a link to recent rumblings about the bank’s risk-weighting methodology.

BNP Paribas said recently that Lloyds is a “clear example of how changes in methodology alone can cause discrepancies” in the weightings, which help dictate capital levels. The average risk-weighting of Lloyds’ residential mortgage book has fallen from 21 per cent in 2009 to 16 per cent in 2010.

Related links:
Lloyds has largest exposure to risky loans – FT
UK house price gloom – FT Alphaville

This entry was posted by Neil Hume on Monday, June 27th, 2011 at 8:50 and is filed under Capital markets, M&A, People. Tagged with , , , , .

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