Lloyds Banking Group, whose chief executive António Horta-Osório is currently off work with “fatigue”, warned it would fail to meet some of its key financial targets as the bailed out bank slumped to a £3.8bn loss in the first nine months of the year.
Continuing to insist that the Portuguese-born banker would be back by next month, the bank admitted that the “challenging” economic environment would hold back its ability to generate as much income as it had hoped in the years ahead.
Horta-Osório’s “leave of absence” was announced last week to a stunned City and the bank’s shares have slumped 25% in the past seven days, as his absence and the eurozone crisis has knocked confidence in the bank. The shares recovered some losses on Tuesday on relief that the figures were no worse than feared — rising 6% to 29.4p — but still leaving the loss on the taxpayer’s 40% stake at £12bn.
Tim Tookey, the finance director who is leaving in March and standing in for Horta-Osório, insisted it was “business as usual” at the bank and that he was focused “on the job in hand”. “My biggest responsibility to him and my colleagues to maintain the momentum,” said Tookey, who is one of the last directors to survive from the management team that wasinvolved in the rescue takeover of HBOS during the 2008 banking crisis.
Shareholders are calling for a clear succession plan in the wake of a radical management overhaul that Horta-Osório has embarked upon since taking the helm on 1 March, which has reduced the number of available internal successors.
The bank is now reconsidering its financial targets because it expects interest rates to remain at their historically low level of 0.5% for longer than it had expected. A rise in interest rates had been expected by the end of this year although some analysts now believe rates could stay this low well into 2012. While low interest rates help customers by keeping bad debt charges down — and the bank’s impairment charge fell 22% to £7.3bn — they also make it difficult for the bank to make profits on its savings accounts. The bank said that “the attainment of some of our medium-term financial targets, principally with regard to income related metrics, may be delayed to beyond 2014”. It is already implementing a cost cutting plan to achieve £2bn of annual savings by the end of this year, which in total will put the number of job losses at close to 45,000since the HBOS rescue.
The bank reported a pre-tax loss of £3.8bn, for the first nine months, largely as a result of a previously announced £3.2bn provision for payment protection insurance. Tookey preferred to focus on performance on what he calls a “combined business basis” which he said showed the bank made a £1.7bn profit.
There was not a major update on the sale of the 632 branches that must be sold to meet European Union rules on state aid. Some 850 staff are now deployed on this so-called Project Verde sale, which has cost £90m so far, and Tookey stressed that the bank was pursing a “dual track” option of a potential flotation of the branches as well.
The bank has £179m of exposure to the most troubled countries in the eurozone, up from £156m a year ago, and £3.4bn in total to European countries. Tookey said the bank had been reducing is exposure to banks in these troubled eurozone countries, with its exposure to Italian bank cut to £1.2bn from £1.7bn for instance.
One of the major concerns for the City over Lloyds has been its ability to fund itself on the financial markets after its bailout in October 2008. The bank stressed on Tuesday it was making “strong progress” against its targets to raise £30.6bn on the wholesale term markets. Tookey stressed the bank had managed to raise an additional £3bn in October despite the turmoil caused by the eurozone crisis, allowing it to compete its funding programme for 2011.
The bank said it was on track to meet its lending targets under Project Merlin, having lent £32bn — gross — to UK businesses, of which £9.6bn to small businesses.
The bank cannot pay a dividend until next year because of restrictions imposed by the EU