Lloyds Up on Results, Still a Hold

As preannounced on February 13, Lloyds Banking Group plc (LYG - Analyst Report) posted statutory pretax earnings of £1.2 billion for full-year 2008, while HBOS, which was acquired by Lloyds in January 2009, had a £10.8 billion statutory pretax loss, reflecting £12.1 in impairment losses from loans and investment securities.

Positively, Lloyds enjoyed solid loan growth and strong cost controls in 2008, but impairment charges jumped 68%. We expect retail and corporate impairment charges to continue to rise as the recession takes hold, which will offset lower investment and asset portfolio writedowns and any near-term synergies of the HBOS acquisition. Accordingly, we have reduced our 2009 EPADS estimate to a loss of $1.50 per share from earnings of $0.47 per share.

In other news, discussions with the UK government about participation in the Asset Protection Scheme (APS) continue, though no final decisions have been reached. While Lloyds was required to omit a cash dividend as part of the UK government’s recapitalization scheme, the Board has approved a 2.5% stock dividend.

We are maintaining our Hold recommendation on Lloyds Banking Group plc. The current Zacks rank is 3, indicating no clear directional pattern in the share price over the near term. In afternoon trading, LYG shares are up over 9% from yesterday’s closing price of $2.51.