How can this be?

Profits at Lloyds Banking Group collapsed in the first quarter, crashing 95% after the bank was forced to take a £1.4bn charge to cover a surge in bad debts linked to the Covid-19 outbreak.

The first-quarter provision is meant to cover potential defaults by customers over the coming months, as they struggle to keep up with payments due to the UK’s nationwide lockdown.

The losses haven’t happened yet, they are expected and so provisions are being made.

But only days ago we were told that this isn’t possible:

The FT has two articles this morning highlighting the failure of accounting rules to handle the impact of the coronavirus crisis, most especially in banking.

The problem that is being faced has persisted since 2005 when International Financial Reporting Standards were introduced as the de facto accounting standard system for the UK, the EU and over 100 other countries.

This is not the moment to critique the multitudinous failings of IFRS accounting, although they exist. It is instead the moment to note that they are the very opposite of the reasonably objective standards for reporting that any user of accounts might require, most especially at times like this.

The current problem relates to loss reporting. As Jonathan Ford notes in the FT, when IFRS reporting was introduced the rules on loss reporting were absurdly relaxed:

You may remember the issue that emerged in 2008. Banks hung back from revealing their losses on loans because they claimed the standards then in force required them only to provide for losses when a loan was actually at, or on the threshold of, default.

Sure, in a collision between Spud and reality we know which way to bet but still…..

15 thoughts on “How can this be?”

  1. I’ve gotten the impression that banks are now being strong-armed to hand out loans willy-nilly, so assumably every bad business and business idea gets a loan. Banks have been also bullied to stop dividend payments. So I dumped my HSBC shares and wish them happier times after they have relocated to Hong Kong, where most of their business is located.

    And to top that up, Shell cut their dividend, first time since 1945.

  2. @Sam

    Surely time for a host of us to say that we’ve “made a donation and that it’s deserved” only for Spud to find £0.01 donated……..

    I’ve twice suggested he do equity release on his £350,000 mortgage free house but it seems spending other people’s money is more appealing and he doesn’t publish the suggestion.

  3. Couldn’t he (Spud) get an actual job that pays an actual salary. Like a shelf stacker? Pompous twat.

  4. Oh woe, we may not have Murphy’s thoughts to admire in future:

    “I am simply saying that if this blog is to continue then the time has come when I need to ask for donations. It may not be able to so so otherwise.”

  5. Sam Jones, this one is a gem:

    And it’s very hard to keep the sight (sic) running and also run a dummy version as well…

    It’s hard to tell which is which.

  6. Don’t the royalties on his classic works of fiction keep him fed? You remember “The Joy of Tax” and “The Corajus State”?

  7. I got a receipt. How modern.

    Your Receipt
    Donation Number:
    Date: April 30 2020
    Total: £52.48
    Payment Method: Offline Donation
    Thank you for your donation. You can make a BACs payment to 08-92-99 69273894

    You’re welcome mate. Though I might skip the next step and doing that BACS payment.

  8. Just had a quick look and it looks dodgy, unbranded pop up asking for credit card info, but there is an offline donation so you can pledge and pay later which I assume is how you ended up with a receipt.
    Wonder why he isn’t looking at stuff like Patreon or Buy Me A Coffee for small donations

  9. the give me money text bit is very long (obviously doesn’t understand marketing) so many people may well get bored before even seeing the donate button, also claims 17,000 posts and wasn’t he claiming over 30,000 last week?

  10. “I am simply saying that if this blog is to continue then the time has come when I need to ask for donations. It may not be able to so so otherwise.”

    [Deep Thought voice}: Whom will that inconvenience?

  11. @Jussi

    With China becoming enemy No 1, HSBC ain’t moving to HK

    BP didn’t cut div and have £26bn cash pile

    Next has iirc £6bn cash

    Lloyd’s: they’re forcing firms to pass a pre-loan application assessment

    Fraud: it will be huge, mostly non-whites and Eastern EU

    @Tim Worstall April 30, 2020 at 5:40 pm

    Nice. Did Richard write a bot?

Leave a Reply

Your email address will not be published. Required fields are marked *