Cover of MoneyWeek magazine issue no 477

Liquid assets

12 March 2010 / Issue 477

It's time to stock up on water...


  • Canadian telecoms are set to soar – buy in now
  • Get a double-digit income from blue-chip stocks
  • From Greece to Iceland, taxpayers are revolting


The crisis isn’t over yet 

Think the banking crisis is over? Then you should take a look at the big banks’ recent results. Flick through the numbers for Lloyds and a few things leap out.

The first is that 40% of Lloyds’ outstanding residential loans have loan-to-value (LTV) ratios of 80% or over. That’s frightening, given that the average LTV on their “impaired loans” is only 76.5%, and given that 13% of all their loans are in negative equity.

It’s pretty clear that UK house prices will soon see another fall. As Ian Campbell points out on Breakingviews, prices have to fall another 17% just for the long-term ratio of price to average earnings to approach historically normal levels. That would put a lot more than 13% of Lloyds’ loans in negative equity, which often leads to impairment.

The second is also about housing. It shows that the average LTV on the bank’s new home loans is 59.3%. This is serious. This tells us that lending is very tight right now (most would-be borrowers looking for a mortgage at Lloyds won’t have a 40% deposit) and, in part, these numbers tell us why. Lloyds has lots of bad loans. Assuming it has done even the most basic of risk assessments, it must know it will soon have many more.

This is deflationary stuff and goes some way to explaining why inflation in Britain is as low as it is right now…

• Read the full editor’s letter here:
The crisis isn’t over yet