$12B Loss at Lloyds' HBOS Sends Shiver Through Financial Stocks

Shares of Lloyds Banking Group plc (NYSE: LYG) have plummeted in NYSE trading this morning, causing the company to lose as much as $6.4 billion in market value. The market action follows reports from Lloyds earlier that it expects its newly-acquired HBOS lender to record a 8.5 billion pound ($12.3 billion) pre-tax loss for the year ended December 31, 2008.

Lloyds has attributed the loss to a 4 billion pound charge from "market dislocation", as well as a 7 billion pound charge from impairments. As HBOS estimated (as recently as December 12) that it would lose 2.2 billion pounds from market dislocation and 3.3 billion pounds from impairments, the announcement today obviously comes as quite a surprise to investors, hence the decline.

The 30% drop in Lloyds stock price is the sharpest one-day decline in more than 20 years, according to sources.

The concerning news has caused shares of other European banks to fall also: Barclays (NYSE: BCS) is currently down 5.6% to $5.90, Royal Bank of Scotland (NYSE: RBS) is down 6.2% to $6.56 and embattled Allied Irish Banks (NYSE: AIB) is down 22.2% to $2.00.

Investor pessimism seems to have spread across the pond this morning, as financials in the US are also taking a hit. Bank of America (NYSE: BAC) is down 2%, US Bancorp (NYSE: USB) is down 3.5%, Wells Fargo (NYSE: WFC) is down 4%, JPMorgan (NYSE: JPM) is down 3% and Morgan Stanley (NYSE: MS) is down about 1%. Goldman Sachs (NYSE: GS) and Citigroup (NYSE: C) are two of the few financials that are holding positive ground today.

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