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Monday, December 12, 2005 1:36 PM

Consumer Slowdown in the UK

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The Times Online is reporting that a Consumer slowdown hits Lloyds.

Lloyds TSB has warned that it is feeling the effects of the downturn in consumer sentiment, conceding that the growth of its lending to individuals has slowed and that is faces a higher impairment charge on bad debts to struggling customers.

Although it maintained that it was on track to generate profits of more than £3.5 billion for the full year, Britain's fifth-largest bank warned that more of its heavily indebted customers were finding it difficult to repay their loans.

Lloyds TSB also said it was reviewing the assumptions it makes about mortality rates for its customers and it was likely to "strengthen" its reserves as a result.

The bank said that this, combined with increased provisions to cover claims over missold mortgage endowment policies, would probably cost it about £300 million.

Lloyds TSB said this morning that its mortgage lending remained strong and that it was "making progress" in recruiting quality customers.

But the bank added: "However, against the backdrop of slower growth in consumer lending, the retail bank has experienced lower levels of growth in unsecured consumer lending, together with some further deterioration in credit quality as more customers, with higher levels of indebtedness, have experienced repayment difficulties.

"This will lead to an increase in the level of UK retail banking impairment provisions as a percentage of average lending on a comparable basis, for the second half of 2005."
The bank is making progress in "recruiting" quality customers?
How much progress?
It seems to me there was too much recruitment of marginal customers in the first place.

The significant point is impairment charges are rising and customers have having a difficulty repaying loans. On that thought I have several comments.
  • Writeoffs in the UK (and elsewhere) have only just begun.
  • The day of reckoning is at hand in the US soon as well.
  • What gold does is going to depend in part on Bernanke's reaction to the upcoming mess.
  • With the global economy so dependent on US consumer spending, earnings have likely peaked everywhere.
  • The party is over regardless of where interest rates head.
Mike Shedlock / Mish

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