The BBC’s business editor has predicted that the departing Lloyds chief executive’s decision to buy HBOS may prove right in the end. At some point in the future, maybe two or three years, Lloyds will have absorbed all of the bad debt, and losses, that was brought to the table by HBOS. The new group will eventually get out of debt, and benefit greatly as it becomes an enormous collector of revenue from the savings, and earnings, of its client base.

When Lloyds bought HBOS, it was thought at the time that it was taking on a risky investment. Few people predicted that it was going to be as bad as it was, with HBOS losses in 2008 hitting £10.8 billion. In fact, one commentator suggested that the investment may turn out to be the worst portfolio of loans in UK banking history.

At the time, the government was keen to see the takeover go ahead, and waved the usual concerns concerning competition. The deal was then approved, in January, by an Edinburgh court.

The problems for HBOS stem from some very bad lending decisions that it had made, during the boom. The bank was ill prepared for the credit crunch, the recession that followed and record numbers of consumers defaulting on home loans, personal loans and credit card debt repayments. Overcommitted consumers are falling into difficulty, in increasing numbers, and finding themselves in need of some form of debt relief. The bank was simply not ready for this.

The turmoil at Lloyds has resulted in the announcement today, by chief executive Sir Victor Blank, that he will step down in a year from now. He took over as chairman in 2006, but has faced mounting criticism for the HBOS takeover. News that Sir Victor is to quit sent shares in Lloyds group up by more than 5% in trading today.

The new chairman, who is yet to be named, will be faced with a mountain of losses, and debt reduction, coupled with a period of stability for the business, will have to be the first priority.