Why U.K.'s Lloyds is posting a huge loss

A general view of a branch of Lloyds Bank in London, England.

TEXT OF STORY

BILL RADKE: As American banks reported earnings, they said they were still putting aside money to deal with bad loans. European banks are saying the same thing.
Latest example: Lloyds. The British bank posted a nearly seven billion dollar loss for the first half of 2009. Lloyds is struggling under the weight of a purchase it made earlier this year as Christopher Werth explains.


CHRISTOPHER WERTH: Lloyds may be wishing it could turn back time and undo the deal that made it Britain's largest retail bank. The purchase of HBOS brought with it over $18 billion in bad loans. That accounts for 80 percent of the sour debt Lloyds now carries on its books.

David Buik is with BGC Partners. He says the agreement was hurried through by the British government around the height of the financial turmoil of last year.

DAVID BUIK: That's the one thing no one can shake off here, how that deal went through. Had we known how dire the state of HBOS's balance sheet was, there's no way they could either pay the price or contemplated the deal.

But the British taxpayer will be bearing the brunt of those losses. Right now, Lloyds is 43 percent government owned. And any further write-downs will be covered by the government's Asset Protection Scheme, an insurance program that will likely increase the public's stake in the bank.

In London, this is Christopher Werth for Marketplace.

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