Lloyds Banking Group’s new chief executive, Victor Horta-Osorio, outlined his new strategic vision for the bank on Thursday, and it is a bleak one for many of his staff.
Horta-Osorio said the bank would cut 15,000 jobs, around 14 percent of the total workforce, as part of a drive to achieve annual cost savings of £1.5 billion and a return on equity of 12.5-14.5 percent by the end of 2014. In a conference call with journalists he promised “a leaner, more efficient” bank.
The bank, 41 percent owned by the government since a bailout in 2009 when Lloyds merged with the stricken HBOS, is under severe pressure to cut costs after being pushed into the red in the first quarter by a £3.2 billion provision for the mis-selling of payment protection insurance. It must also boost the share price which has stubbornly remained below the 63 pence level at which the government bought its shares in the group.
Horta-Osorio, a Portuguese national who succeeded Eric Daniels as CEO in March, wants the bank to focus even more on its core UK market and said Lloyds would pull out of more than 15 of the 30 countries in which it operates.
He offered little detail on the new strategy, but he did say he wanted wealth management for the mass affluent and bancassurance to be core parts of the group, and so ruling out the disposal of Scottish Widows about which there has been speculation since 2009. He also promised more of a focus on customer deposits and to reduce the loan-to-deposit ratio from 146 percent to 130 percent in the next three years.
Asked what would excite the markets about his announcements on Thursday, Horta-Osorio replied that “retail and commercial banking “should be boring.” He also said it would take three to five years to create “a high performance organization.” His three priorities were to return to profitability, to support the UK economy and to pay back the taxpayer, he said.
The bank is anxiously awaiting two important verdicts in the coming months. In September, the Independent Commission on Banking, led by Sir John Vickers, is due to issue its final report in which it could call for more disposals by Lloyds. The European Commission has already ordered the bank to sell over 600 branches, a sale that will wipe out £500 million of pre-tax profits according to the bank. And the UK Treasury’s UK Financial Investments is considering when to dispose of its stake.
The markets reacted positively to Lloyds’ plans, with the group’s shares rising by 9 percent to 48.75 pence.
