Lloyds chairman: Pace of HBOS were a surprise

LONDON: The chairman of Lloyds Banking Group said he expected losses when his organization took over Halifax/Bank of Scotland, but was surprised at the pace at which the red ink rolled in, British media reported Saturday.

Victor Blank told the BBC in an interview set for broadcast Saturday that the losses at HBOS were at "the worst end of expectations."

"What we found in the HBOS portfolio was, I think, the problems we anticipated being there," he said. "What surprised us was the speed at which these losses came in. The speed with which those problems came home to roost was greater than we would have anticipated because (of) the fall in gross domestic product."

Lloyds agreed to acquire HBOS in a government-backed takeover last fall to prevent the bank's collapse. It has blamed HBOS for record writedowns.

The bank reported 13.4 billion pounds in impairments earlier this month- 80 per cent of which came from what the bank described as riskier loans from HBOS. The majority of HBOS loans "are outside the traditional Lloyds low-risk appetite," the company said as it released its earnings.

"When we announced the deal in the middle of September, it did not feel like a rescue of HBOS," he told the BBC "It felt like a wonderful opportunity that was available, and would only have been available in adversity."

But Blank said that financial troubles increased after new government regulations required all the banks to have extra capital.

"The government changed the rules and the world changed," he said.

Blank's comments are important because there has been constant speculation that the chairman entered into the deal because of his close ties with Prime Minister Gordon Brown. He has announced in May he would step aside as chairman in June 2010.

"It became clear that in order to rehabilitate Lloyds Banking Group as quickly as possible in the eyes of the banking community, it was probably necessary for some change to be made at the top," he said. "Fair or unfair ... it was necessary."

Lloyds shares have roughly tripled since March as hopes mount hopes that the banking crisis may be over amid unprecedented support from the government. The bank said bad loan charges had peaked.

The government holds a 43.4 per cent stake after investors balked at the burden of the HBOS acquisition, which was cleared by the government when it waived regulatory restraints.