Lloyds could be forced to write off a further swath of loans made by HBOS to hundreds of companies, after figures showed many of the loans are worth only a fraction of their original value, The Guardian reports.
The troubled bank has made huge loans to commercial property developers, hotel chains and leisure companies, and is expected to wipe hundreds of millions of pounds off the value of its loan book, in addition to the £10bn Lloyds struck off its balance sheet last week, as the economy worsens and many of the businesses that borrowed money go bust.
Analysts blamed the bank for expanding its lending at the height of the credit boom, leaving it over-exposed to commercial businesses that could go under in a prolonged downturn.
Between the end of 2005 and December 2007, its corporate lending jumped from £79bn to £109bn, backing deals including the £350m acquisition of the cinema chain Vue Entertainment in 2006 and a management buyout of the shirt retailer TM Lewin & Sons.
Further deterioration in the bank's loans could force Lloyds' management to call for further funds from the government. But Lloyds' chairman, Sir Victor Blank, already under intense pressure to justify the purchase of HBOS, would be forced to explain why the bank's finances have weakened further before any capital injection could be agreed.
Support for curbs on bankers' bonuses has hardened significantly in the Cabinet as ministers realise that they must keep in step with public opinion, according to The Times.
Most members of the Cabinet now favour a cap on bonuses - a big change since last Tuesday when, in an anguished debate, ministers argued over how far to go without ruining Labour's relationship with business.
Harriet Harman, Labour's deputy leader and Leader of the House of Commons, took the most aggressive line, arguing that bankers who are are known to have failed their businesses in recent years should pay the money back.
Outside the meeting a fellow minister denounced that as the "Taleban position" and accused Ms Harman of grandstanding for a future Labour leadership election.
Around the Cabinet table Ms Harman found herself being taken to task by the Blairites Hazel Blears, the Communities Secretary, and John Hutton, the Defence Secretary, who argued that Labour would damage its reputation for supporting aspiration, and would deter professionals from entering the banking profession.
The president of the European Central Bank warned yesterday that short-term measures aimed at solving the economic and financial turmoil could sow the seeds of a future crisis, The Independent says.
Jean-Claude Trichet told the European Parliament that there would be no solution to the financial and economic crisis until the structural problems in the world economy were corrected.
Trichet said the world remained out of balance in terms of the financial system, macroeconomic factors, and governance of the financial sector.
"The present crisis does not just offer us an opportunity to rebalance, it provides an obligation to rebalance these three intertwined domains of the global economy," Trichet said.
"And yet we also need to make sure that our decisions today do not lay the ground for similar disorder in the future."IFAonline
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