Lloyds Banking Group unexpected trading statement triggers drop in its share price

Lloyds Banking Group today made an unexpected trading statement which triggered a drop in its share price, over 10% early on.

Lloyds is over 60% owned by the government and has not yet completed its participation in the government Asset Protection Scheme.

In the trading statement, Lloyds warned that it expected to see a significant rise in its HBOS bad debts as borrowers fail to keep up with mortgage and unsecured loan repayments.

The problems are arising as a result of the recession and rising unemployment levels, along with falling commercial property and house prices.

Other factors are also contributing to the poor outlook, including a lower demand for personal loans, falling interest rates cutting margins and lower demand for Payment Protection Insurance (PPI) following the Competition Commission banning the sale of single premium PPI.

Overall Lloyds expects 2009 to be another year of losses.

On a slightly more positive note, Eric Daniels, Chief Executive of Lloyds said ‘Whilst we continue to expect difficult economic conditions to prevail over the next year or so, we believe the strengthened group will be able to comfortably manage through the expected near-term economic downturn and focus on enhancing the group’s prospects for long-term growth.’

The Lloyds news is a far contrast to the 15% rise in pre-tax profits announced by Barclays today, buoying its share price.