Lloyds: despite losses in half-year results, the worst is over

The Group - which is 43% owned by the taxpayer - said its debts were levelling off at just over £13bn because it had finished going through the loans it inherited through the HBoS takeover, and had taken the necessary provisions after applying tougher risk assessments.

Eric Daniels, chief executive at LBG, said the first-half losses were driven by high levels of impairment.

"The core business delivered a resilient performance, despite the weak economy. We are successfully managing the short-term issues and are well positioned to outperform over the medium term, providing value to our customers and shareholders."

He added: "Overall impairments in the second half of 2009 are expected to be significantly lower than the first half with progressive reductions thereafter."

Nick Raynor, investment adviser at The Share Centre, said HBoS' reckless lending cancelled out the £6bn pre-tax profit LBG made in the first part of the year.

He explained: "Although the HBoS takeover may present Lloyds with a significant opportunity to cement its future place on the high street, HBoS' skeletons in the closet continue to haunt the Group."

Raynor noted that there was some good news for the Group however, as most of the poor quality loans were now insured by the Government.

He added: "This means any future losses will be a problem for us not the banks."

Vince Cable, Shadow Chancellor for the Liberal Democrats, was unsurprised by LBG's loss. He explained: "We knew that Lloyds was opening a can of worms when it took over HBoS."