British bank Lloyds TSB said first-half profit dropped 70 per cent from a year ago as it took a £585 million ($739 billion) hit from its exposure to risky assets and adverse volatility in its insurance arm.
Britain's fifth biggest bank said its statutory profit in the six months to the end of June was £599 million, down from £1.99 billion a year ago. The average forecast from nine analysts polled by Lloyds was for profit of £773 million.
Its first-half underlying profit, stripping out volatility, writedowns and a US legal charge, rose 11 per cent to £2.16 billion.
The bank took a £280 million writedown in 2007, less than rivals who have risked more on complex financial products that have turned sour. It had flagged another £387 million hit at a trading update in May.
Lloyds, the first UK bank to report half-year results, said it expects a UK economic slowdown to hit its business but it was "well positioned for a lower growth environment".
"Our capital management is strong and our capital ratios remain robust and are sufficient to support our current organic growth plans," chief executive Eric Daniels said.
Its core Tier 1 capital ratio was 6.2 per cent at the end of June. Lloyds said it would lift its half-year dividend by 2 per cent.