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HBOS potentially made losses of £10 billion before tax over 2008, Lloyds Banking Group has revealed.

Trading at HBOS has deteriorated since December, Lloyds said, as economic conditions worsened and Lloyds re-evaluated the bank's balance sheet using its own more "conservative" methods.

The losses are not nearly so large as those reported by Royal Bank of Scotland – expected to total £28 billion – but are £1.6 billion more than was earlier predicted, and have shocked the City.

Lloyds said a £7 billion writedown in the HBOS corporate division, which was exposed to the property sector, accounted for a large proportion of the forecast losses.

An hour after the statement was released, shares in Lloyds Banking Group had plunged 30.8 per cent to 62.90p.

In contrast, Lloyds TSB traded "profitably and satisfactorily" over 2008, and expects to post a pre-tax profit of £2.4 billion.

Eric Daniels, group chief executive of Lloyds Banking Group, said: "Whilst we recognise that the short term outlook is more challenging, Lloyds Banking Group has the largest UK financial services franchise, with excellent long-term earnings potential."

The lender added it will provide an update to the market on February 27th, and is "already making good progress in integrating the two businesses."

The Lloyds Banking Group is 43 per cent owned by the taxpayer.

Mr Daniels admitted to the Treasury select committee this week Lloyds would not have needed government support if it had not merged with HBOS.