Breakingviews - Lloyds CEO leaves the big thinking to successor

Lloyds Chief Executive Antonio Horta-Osorio speaks at the British Chambers of Commerce annual meeting in central London February 10, 2015.

LONDON (Reuters Breakingviews) - The board of Lloyds Banking Group has devised a management handover that evokes its boss’s slick hair. Well-coiffed Chief Executive António Horta-Osório will leave the 23 billion pound UK bank in 2021, nine months after incoming Chairman Robin Budenberg joins. The smooth transition will reassure shareholders, and give Budenberg time to find a successor to boost fee income and test the waters on M&A.

Horta-Osório’s tenure, which will have lasted for a decade by the time he departs, has been a triumph in relative, if not absolute, terms. Lloyds investors earned a return including reinvested dividends of minus 38% since March 2011. That’s abysmal, but still superior to Barclays’ minus 51% and Royal Bank of Scotland’s minus 69%. Brexit, low interest rates, compensation for mis-selling and the pandemic hurt everyone. But Horta-Osório controlled what he could: Lloyds’ costs were 49% of revenue last year, compared with the 59% average for the UK industry, according to UBS analysts.

The bank’s orderly transition improves its chances of maintaining that lead. Horta-Osório is due to leave in the middle of next year. Incoming Chairman Budenberg, whose appointment was unveiled on Monday, will join the board in October and take over from Norman Blackwell at the start of 2021. That gives the former investment banker, who helped orchestrate the government’s 2008 bailout of UK banks including Lloyds, at least nine months to find a successor. Potential candidates include Chief Financial Officer William Chalmers and Alison Brittain, the CEO of Whitbread who used to run Lloyds’ retail banking arm.

Whoever Budenberg chooses, their skills will have to go beyond Horta-Osório’s knack for cutting costs. The biggest challenge is finding a way to boost revenue while persistent low interest rates squeeze lending margins on core products like mortgages. The obvious solution is to put more resources behind the Scottish Widows insurance division while cranking up fee-based businesses like wealth management. Lloyds’ cost efficiency also puts it in a strong position to absorb smaller lenders like Virgin Money. However, that would require regulators to change their minds about further consolidation in the already concentrated UK banking market.

Finally, the new CEO will have to figure out what retail banking should look like in an increasingly digital economy, while navigating the threat from fintechs and U.S. behemoths like It’s a tall order. But Lloyds’ board has at least given the bank a good chance of finding the right person.


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