Lloyds TSB predicted a 10 per cent fall in house prices by the end of 2009 as the bank bucked the trend to report relatively small writedowns and no need for additional capital.

Announcing its first-quarter update, Tim Tookey, the acting finance director, said that Lloyds TSB was gaining market share in savings accounts and increasing margins on mortgages.

However, like its peers, the bank was downbeat about the housing market. “We think there’s likely to be a 10 per cent reduction in prices over 2008 and 2009,” Mr Tookey said.

He declined to give more detail on the size of the margin increase, which was coming from a historically low base, but said that the mortgage market remained competitive. Further information will be given at the bank’s interim results on July 30.

Lloyds TSB said that it would deliver an increase of at least 10 per cent in pre-tax profits for the first quarter, after taking only £387 million in writedowns on its exposure to credit products held in its trading portfolio. The writedowns come on top of a £280 million markdown on assets in 2007 and alongside a £740 million fair value reduction in long-term assets held by the bank. Lloyds TSB managed to sell one of its collateralised debt obligations (CDOs) made up of asset-backed securities at cost, cutting the bank’s exposure to the credit markets by £566 million.

Lloyds TSB does not set targets for its Tier 1 or core equity Tier 1 ratios — a measure of financial strength — but is one of the better-capitalised banks in the UK, with a Tier 1 of 9.5 per cent and equity Tier 1 of 7.4 per cent. Royal Bank of Scotland said last month that it would raise £12 billion in a rights issue to drag its equity Tier 1 to 6 per cent, while HBOS is raising £4 billion from shareholders to hit a target of nearly 7 per cent. Mr Tookey said that Lloyds TSB had no need for any additional cash.

Alex Potter, at Collins Stewart, said that the bank’s defensive business model was useful in the present markets. Robert Law, at Lehman Brothers, expected its shares to continue to outperform. But Mr Potter told investors that the impending recession in Britain was likely to hit the bank, which is less diversified than some rivals.

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