Banks rocked as Lloyds profits plummet by 70%

Britain's banks were rocked today when Lloyds TSB reported a plunge in profits of £1.4 billion - a 70 per cent fall.

The result was far worse than a pessimistic City was expecting and raised fears for high street rivals.

HBOS, which owns Halifax, reports tomorrow and Alliance & Leicester the day after.

Lloyds TSB blamed the global credit crunch and losses in its insurance business. The figures will heighten government fears that more small banks could collapse like Northern Rock. Lloyds was regarded as the most conservative of the big banks and had won praise for resisting the temptation to make risky loans during the boom years.

Lloyds said it expected house prices to fall by up to 15 per cent this year, which would push tens of thousands of people into negative equity.

Banks have come under fire from consumer groups for squeezing customers with high charges as they themselves struggle with the downturn. Critics of the industry say not enough banking bosses have accepted responsibility for their failures by resigning.

Lloyds TSB chief executive Eric Daniels warned the British economy was facing a sharp slowdown in the coming months, and will grow by only 1.6 per cent this year - far lower than Treasury estimates of two per cent.

He said the crisis in the financial markets and falling house prices "have impacted consumer confidence and contributed to lower growth" in the last six months.

The bank made £599 million in the six months to June, down from almost £2 billion a year ago.

It said its performance reflected good "momentum". But the City is now fearful for the company. Simon Pilkington of Cazenove said: "We perceive a longterm challenge to the group's position."

Lloyds shares were the biggest faller in the FTSE this morning, down 19p at 302p, with HBOS falling 7p at 265¾p.