Banking giant Lloyds TSB has reported profits down 18%, as it swallowed "significant hits" including stock market falls and bad Argentine debts.

The firm, reporting pre-tax profits down �554m for 2002, said it had increased by �50m its provision for losses at Argentine operations, while share falls had sliced �59m from its income from managing unit trust.

Peter Ellwood: "Not easy times"

Lloyds TSB also said it had allocated �205m to redress holders of pension and savings products sold 10-15 years ago.

Insurance unit Abbey Life was in December fined a record �1m for mis-selling endowment mortgages

And longer life expectancies had prompted the bank to put aside �57m for holders of life policies.

"The group does operate in a world of greater competitive ferocity, greater regulation and a tough global economic environment, exacerbated by concerns over geo-political stability," chief executive Peter Ellwood said.

"These are not easy times.

Lloyds' Scottish Widows division had been forced to sell "several hundred million" pounds of equities to maintain solvency ratios, in the face of the stockmarket decline.

Reasons to be cheerful

But Mr Ellwood added that the bank had also last year grown its share of personal loan, credit card and insurance markets and "sold more products to more people than we have ever done before".

Lloyds looks slightly weak on the revenue side, but this has been offset by good cost control and bad debts, which were not as bad as feared Richard Staite, SG Securities

The firm's record of cross-selling different Lloyds products to customers remains "industry leading".

Costs had been cut through the loss of 4,100 jobs over the year mainly in the core UK banking division - leaving the group with 79,500 staff.

"All these factors augur well for sustainable growth," Mr Ellwood said.

The firm had performed "satisfactorily" he said, despite the fall in pre-tax profits to �2.61bn.

"The group's core businesses continued to perform well."

City reaction

The profits figures were at the top end of City expectations and, following well-received results from Barclays on Thursday, eased fears that banks were suffering heavily amid economic and stockmarket downturns.

"Lloyds looks slightly weak on the revenue side, but this has been offset by good cost control and bad debts, which were not as bad as feared," said SG Securities analyst Richard Staite.

Investors were further reassured by Lloyds decision to increase its dividend by 1.5%.

Many observers had speculated that the fall in profits might force Lloyds to hold, or even reduce, its payout, and Lloyds shares surged 20.5p higher to 448.5p in early trade in London on Friday.

But shares in the bank lost ground as investors focused on the increase in provisions for bad debts, and concerns over the level of cash being swallowed by the bank's life division.

In afternoon trade, the stock stood at 399.25p, 32p down on Thursday's close.