Hi, news today of Lloyds TSB Group figures say that it has made a loss of £6.3bn. Slightly better than the previous year of £6.7bn loss.
Yet, behind these figures it seems Lloyds TSB has bad debt of £24bn, on a turnover [annual total income] of £23.9bn.
What’s going on?
Bad debt is defined as:
Accounts receivable that will likely remain uncollectable and will be written off. [from investorwords]
So in its dealings Lloyds TSB has got into deals where now it is going to [in all probability] write off the equivalent of a years revenue [probably its highest years revenue to date].
According to the BBC article on the issue:
The bank blamed the massive losses on commercial property loans made by Halifax Bank of Scotland (HBOS), which it took over at the start of last year.
It said these “impairments” were 21% lower in the second half of 2009, and would continue to see a similar rate of improvement throughout this year.
‘Impairments’ sounds like a vast understatement when £24bn is to be written off. Their shares only fell 5% this morning.
Is this what the financial sector is getting away with?
I say getting away with, because it feels as though people are becoming inured to such problems…even though it is often the tax payer and consumer who end up funding this. Lloyds TSB [+HBOS] got bailed out to the tune of £17bn in 2008. Their market capitalisation went from nearly £60bn to £18bn and the government [tax payer] bailout resulted in a share in the bank of about 43.5% [BBC article 19 Oct 2008], yet all the tax payer did was, in effect, allow them to make decisions leading to £24bn in bad debt.
Inured means ‘to habituate to something undesirable, especially by prolonged subjection’. [freedictionary]
Just to put it into context, the decisions of HBOS/Lloyds TSB that resulted in bad debt of £24bn is the same amount the UK government and local authorities spent on the UK’s transport systems in 2009.
Yes, I realise that it is not necessarily as simple as that. Perhaps someone from the finance sector will make it more clearly complex for me. For example: it’s not clear how much the total loan value was and whether the £24bn is a small percentage of the total loan value or not – that would be interesting to know.
The bottom line is that a public listed company whose market capitalisation was £25.5bn in 2008 [HBOS] seems to have gone into loan deals that have gone bad to the tune of £24bn. A sum equivalent that UK government spends on all UK transport in one year. A sum not much greater than the tax payer bailout of HBOS/Lloyds TSB.
In terms of human behaviour, the issues that spring to mind include:
- What were the decision making criteria and drivers in providing loans?
- What concepts of risk and risk assessment, and relevant economic context, were used?
- Who were checking these, and ensuring that the loans were appropriate? [I'd guess people were financially incentivised for securing loans though that's only a guess].
- The public seem to be inured to such news…what does that mean in terms of influencing change? Does inertia in a social system mean problems are likely to re-occur? [hint on the 2nd part - yes, it does].
- What is the impact on tax payers of such inurement and of the continuance of the existing system largely unchanged? [largely unchanged because if you're inured to it the incentive for others to change their behaviours is small].
- When will people come to realise that unless you are part of the solution, you are part of the problem? Being part of the problem means that you reinforce it passively or actively [being inured to it is passive reinforcement - acceptance].
- What is it within the world of economics and human nature that has got us to this point – where debt of such proportions is accepted, as are the behaviours that lead to it? If I’ve missed the news, and it’s not accepted what tangibly is happening to ensure it never happens again?
Yours impassioned on a Friday afternoon,
Finn
PS: I realise that if your system is in meltdown then it all spirals out because there is not enough money for people to pay their loans etc at the taxpayer/consumer level. Yet:
- Tthe UK government, and other nations, shoved money into the system – where has that gone?
- Come to that, where has the original money gone? [mmm - am I showing a commoners lack of grasp of economics? or is the distribution of that money that is the problem? or is it that fake money, 'debt', was forming an enormous house of cards?]
- “The UK economy grew by 0.3% in the final three months of last year, faster than previously estimated.” [BBC: 'UK economic growth revised up to 0.3%']
