Lloyds makes £3.5bn annual loss

Lloyds Banking Group made a loss of £3.5bn for the year to 31 December after setting aside £3.2bn to cover payment protection insurance claims. In 2010 the bank, which is 40% owned by the UK taxpayer, had made a pre-tax profit of £281m. The bank said last year that it was setting money to cover claims over mis-sold PPI - loan repayment insurance for borrowers should they lose their job. Lloyds said its bonus pool for 2011 was £375m, down 30% against 2010. The average bonus for each of its 100,000 staff will be £3,900. Earlier this week the bank, which also owns TSB and Halifax Bank of Scotland, announced it would not be paying £2m of the pre-announced bonuses to 13 executives, including the former chief executive Eric Daniels. The current chief executive, Antonio Horta-Osorio, took over at the start of last year. Towards the end of the year he took two months off after suffering severe sleep deprivation. He returned to work last month, but said he would not take the bonus he was entitled to, which was worth up to £2.4m. Challenges The bank is undergoing a wide-ranging reorganisation, which includes 15,000 job cuts and the disposal of 632 branches. Lloyds is also cutting its international activities to 15 nations by 2014, compared with 30 currently. The bank's shares fell after the results announcement. Its share price was 63p at the time the government took ownership of what was then just over 43% of the company. But it was about half that, at 35p, in Friday morning trading. The bank said that it was "in a significantly stronger position than it was 12 months ago", but that the 2012 financial year was likely to present a raft of challenges, from regulatory issues to the eurozone economy. Lloyds' chief executive, Antonio Horta-Osorio, said in a statement: "We expect the external environment to remain challenging in 2012, with a subdued economy, continued high levels of regulatory scrutiny and political uncertainty relating to the banking sector, and the continued potential for downside effects from financial market volatility and instability in the eurozone." Lloyds, which is the country's biggest retail bank, said it expected the unemployment rate to top 9% in 2013. It does not expect to see any improvement in the housing market this year or next and is forecasting prices to remain flat well into 2013. Mr Horta-Osorio told BBC business editor Robert Peston that Lloyds is only one year into a three-to-five-year process of rehabilitating the bank. He said that by the start of 2013, Lloyds may have adequate capital for the board to start thinking about the resumption of dividend payments, something that is crucial if taxpayer is ever to see a return on their investment in the bank. Losses on its investment are currently in the region of £10bn.