Lloyds expects lower income in 2012 By Adam Jones February 24, 2012 -- Updated 1020 GMT (1820 HKT) UK's Lloyds Banking Group made a pre-tax loss of £3.54bn in 2011 Partly UK state-owned bank said income was likely to be lower in 2012 than 2011 £3.54bn pre-tax loss compares with profit of £281m in 2010 London (FT) -- Lloyds Banking Group made a pre-tax loss of £3.54bn in 2011 after a big reduction in loan impairment losses was unable to compensate for a previously announced £3.2bn charge arising from the payment protection insurance mis-selling scandal. The partly state-owned bank added that income was likely to be lower in 2012 than it was in 2011 and confirmed it would miss key medium-term financial targets. However, it also predicted that impairments -- losses taken on bad loans -- would ease faster than expected this year, while cost savings were also set to accelerate. "I don't think this is a profit warning," said António Horta-Osório, chief executive. Lloyds shares, which have rallied in recent weeks after a steep decline in 2011, fell 2 per cent to 35.86p in early morning trading in London on Friday. The £3.54bn pre-tax loss compares with a profit of £281m in 2010. On a "combined businesses" basis -- a Lloyds-devised measure of underlying performance -- it posted a £2.69bn profit, an increase of 21 per cent. Income net of insurance claims -- a measure of sales for banks -- fell 17 per cent from £24.96bn to £20.77bn, reflecting subdued lending demand, disposals of non-core assets and a lower lending margin. Impairments dropped 26 per cent to £9.79bn on a combined businesses basis. Mr Horta-Osório said a similar reduction was expected in 2012, adding that this guidance was stronger than the market had been expecting. He said the predicted improvement reflected the disposal of non-core assets as well as more astute new lending: "The quality of new business is better." Lloyds also said its restructuring programme would yield cost savings more quickly than expected, with an extra £200m pencilled in for 2014 without any increase in predicted job losses. "It is a matter of going quicker than going deeper," said Mr Horta-Osório, who returned from two months of medical leave last month. Lloyds said in November it might not be able to deliver some medium-term, mainly income-related goals. On Friday, it said it expected that the achievement of these targets would indeed be delayed. It said the downbeat prediction that combined businesses income in 2012 would be lower than the £21.12bn posted in 2011 reflected a continued reduction in non-core assets, weak demand for loans, higher wholesale funding costs and low interest rates. Net interest margin fell from 2.21 per cent to 2.07 per cent and is expected by Lloyds to dip below 2 per cent in 2012. Its core tier one capital ratio, the key measure of balance sheet strength, rose from 10.2 per cent to 10.8 per cent at the end of 2011.