Lloyds TSB profit slumps 63%, misses expectations

LONDON (MarketWatch) -- U.K. bank Lloyds TSB said Wednesday that its first-half net profit fell 63% after weak markets hurt investments at its insurance arm while impairment or "bad debt charges" surged in its wholesale and international business.

The group reported a net profit of 576 million pounds ($1.14 billion), compared to 1.54 billion pounds a year ago. Operating profit for the period was down 70% to 599 million pounds and fell well short of the 773 million pound consensus forecast.

Total impairment losses at the bank rose 31% to 1.1 billion pounds, mainly driven by the wholesale and international banking business, while the rise in U.K. retail impairments was a more modest 4%, reflecting the impact of lower house prices.

Lloyds said it expects U.K. house prices to fall between 10% and 15% in 2008 and that a decline in the middle of that range could add around 100 million pounds to impairment charges in the second half of the year.

Lloyds has a relatively small exposure to risky debt compared to some rivals and said write-downs on its portfolio of asset backed securities were 62 million pounds. It's also written-down 170 million pounds of payment protection it held with bond insurers.

Its insurance arm suffered from the market volatility over the last several months, leading to 505 million pounds of losses, mainly reflecting a fall in the valuation of its annuity portfolio.