July 31, 2008 | posted by Michael Baxter in Banking, Oil |

Talking of dichotomy, consider this one. Today, HBOS and Shell released their latest results. Earlier in the week, it was Lloyds TSB and BP. And what a contrast! Okay, we all know the reason for the contrast, but it is worth pausing for a couple of minutes to delve a little deeper into these two extremes, crashing bank profits and surging oil company profits.

Profits at HBOS were down 72 per cent in the first six months. Profits at Lloyds TSB were 70 per cent down.

The Lloyds insurance business lost £505 million thanks to a fall in the value of its stock market investments. At the same time, it had to write off £585 million due to the fall in value of assets such as the now infamous CDOs – or collateralised Debt Obligations.

HBOS saw bad debts amount to £1.3bn.

In all, Lloyds made a profit of £599m from £1.99bn a year ago, and HBOS £848m from £2.962bn a year ago.

Although HBOS saw a slightly bigger drop in profits, in a way Lloyds saw the worst performance, considering. Remember, HBOS includes Halifax, until a few days ago the UK’s number one mortgage lender. Lloyds on the other hand is on the fringes of mortgage lending. So you would expect HBOS to suffer far more than Lloyds TSB.

But over the year that follows, expect Lloyds to enjoy a relative benefit from its lack of UK mortgage exposure.

By contrast, BP saw profits surge 6 per cent, with replacement cost profit after tax hitting $6.85bn (£3.4bn) between April and June. Profits came in at $6.5bn in the same quarter a year ago. As for its first half, BP made a profit of $13.4bn, 23 per cent up on last year.

Royal Dutch Shell saw profits leap 4.6 per cent, hitting $7.9bn (£4bn) in its latest quarter.

In a way, of course, the surging profits and escalating losses have the same cause.

The credit crunch has its roots in the way the global economy has been out of balance. The developed world is spending, and the developing world is saving and investing. This created a surge in debt, and a surge in commodity prices.

The debt bubble has burst. It is just a matter of time before the commodity bubble bursts too.