Banks in a stew as Lloyds reveals Irish woes

Banks in a stew as Lloyds reveals Irish woes Terry Murden ; THE legacy of former HBOS property chief Peter Cummings hung over Lloyds Banking Group again last week as the impact of its lending policies struck once more, only the timing could not have been more sensitive with the banks and the government trying to cosy up under the mistletoe.

Lloyds stunned the market on Friday after admitting it will take a £4.3 billion hit on its Irish loans portfolio, mostly rotten property deals, about £1bn more than it had previously advised. .There is now concern that Royal Bank of Scotland, with an even bigger Irish loan book, could also be facing losses.

Antonio Horta-Osorio, the Spaniard who takes the helm at Lloyds next spring, will know he has a mountain to climb and the word doing the rounds of the City on Friday was that his senior executives wanted to get the Irish rubbish out on the streets before he found any more lying around in the waste bins.

Whatever else he finds in his in-tray, he'll be certain to find orders from HM Treasury to improve lending practices and de-risk those banking practices that have got us into this mess.

By the time he takes over in March he will be hoping any fall-out from the next bonus round will be fading. In the meantime, his counterparts at rival banks are doing their bidding through Project Merlin, a move led by outgoing Barclays boss John Varley, to extract assurances from the government that there will be no new taxes on the banks.

By offering to increase small business lending and ease up on bonus payments the banks hope they can achieve some kind of ceasefire with the government.

The new mood of compromise wasn't helped by Deputy Prime Minister Nick Clegg's renewed warning on bonuses last week. To some extent Clegg's outburst was indicative of internal tensions in the coalition. George Osborne and David Cameron are more dovish on the banking issue, while Clegg and Business Secretary Vince Cable want tougher restrictions on the banks. It's a clear Tory-Lib Dem divide and some believe the Deputy PM is trying to look tough after the pummelling he got after his U-turn on student tuition fees.

But the Bank of England had to remind the banks in its latest Financial Stability Report that they are not yet off the leash and that bolstering their balance sheets to withstand further shocks is more important than dishing out rewards to so-called star employees. Lloyds didn't do much for confidence by giving investors the sort of early Christmas present they didn't want.
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