Lloyds Banking Group Plc, the UK lender that acquired HBOS Plc in January, said provisions for bad loans will decline “significantly” after it posted a first-half loss of 3.1 billion pounds (US$5.2 billion).

Lloyds sought a 17 billion-pound bailout from taxpayers after it agreed to buy HBOS in September in a government-brokered deal to prevent the collapse of Britain’s biggest mortgage lender. HBOS accounted for about 80 percent of the combined bank’s bad loan provisions, Lloyds said Wednesday.

“The HBOS loan losses are severe,” said Richard Champion, who helps manage $2 billion including Lloyds’s stock at Principal Investment Management Ltd., in Sevenoaks, England. “Looking forward, they are saying we are getting back to more normal conditions and loss levels are stabilizing, which will be taken positively.”

The bank has declined 0.9 percent this year, making it the second worst-performer in the FTSE 350 Banks Index after Edinburgh-based Royal Bank of Scotland Group Plc.

Global writedowns

Banks and financial firms worldwide have posted $1.5 trillion of writedowns and credit losses since the start of the credit crisis in 2007, according to data compiled by Bloomberg. The UK owns 43 percent of Lloyds and 70 percent of RBS after agreeing to bail out the banks with a 37 billion-pound capital injection last year. Prime Minister Gordon Brown has also pledged to insure 585 billion pounds of toxic and other assets held by the two banks.

“The overall impairment charge has now peaked,” Lloyds said. “The charge in the second half of 2009 will be significantly lower than the charge in the first half of 2009. Thereafter, we expect the 2010 charge to be significantly lower than the 2009 charge.”

“This isn’t what usually happens before a trough in a recession,” wrote Sandy Chen, an analyst at Panmure Gordon & Co. who has a “sell” rating on the stock, in an e-mailed note to investors Wednesday.

The UK economy will shrink 4 percent this year before expanding by about 1.8 percent in 2010, Lloyds Chief Executive Officer Eric Daniels said. The bank expects a “gradual return” to economic growth in the next 18 months, adding that any rebound will be “modest.”

‘Kitchen sink job’

“We need to see more detail in the presentation to establish to what extent this is a kitchen sink job and whether we believe this,” said Simon Willis, an analyst at NCB Stockbrokers Ltd. in London, referring to the forecast for loan losses. He has a “sell” rating on Lloyds.

House prices are likely to decline by about 7 percent or less this year before increasing 2 percent in 2010, the bank said. Commercial real estate prices will probably fall 15 percent this year and be “flat” next year, Daniels said.

Lloyds is the UK’s biggest provider of checking accounts and has a 27 percent share of the mortgage market. The loss is the biggest reported so far by a UK bank for the period. Northern Rock Plc, the first UK bank nationalized during the credit crisis, on Tuesday posted a 771 million-pound loss for the period as late payments on mortgages climbed.

Source: Bloomberg