Lloyds Banking Group’s board of directors has designed a change of directors that evokes the gummed hair of their boss. Chief Executive António Horta-Osório will leave the British bank, worth £ 23 billion, in 2021, nine months after future President Robin Budenberg takes office. This smooth transition will reassure shareholders and give Budenberg time to find a successor who will improve commission income and probe the M&A field.
Horta-Osório’s mandate, which will have been a decade long when he leaves, has been a victory in relative if not absolute terms. Since March 2011, Lloyds investors have obtained a return, including reinvested dividends, of -38%. It’s a lousy figure, but still better than -51% for Barclays and -69% for Royal Bank of Scotland. Brexit, low interest rates, compensation for fraudulent sales of financial products, and the pandemic have hurt everyone. But Horta-Osório has controlled what it has been able to: last year, Lloyds’ costs represented 49% of revenues, compared to 59% for the British sector average, according to UBS analysts.
The bank’s orderly transition improves its chances of maintaining that advantage. Horta-Osório should leave office in the middle of next year. The new President Budenberg, whose appointment was made public on Monday, will join the board of directors in October and replace Normal Blackwell as president in early 2021. That gives the former investment banker, who in 2008 helped orchestrate the bailout. government of British banks, including Lloyds, at least nine months to find a successor. Possible candidates include Chief Financial Officer William Chalmers and Alison Brittain, CEO of Whitbread, who once led Lloyds’ retail banking section.
Whoever Budenberg chooses, his skills should go beyond Horta-Osório’s ability to cut expenses. The biggest challenge is finding a way to increase income at a time when low-interest rates compress loan spreads on key products like mortgages. The obvious solution is to allocate more resources to the group’s insurance subsidiary, Scottish Widows, and at the same time boost economic activities such as wealth management. Lloyds’ profitability also places it in a strong position to absorb smaller lenders, such as Virgin Money. However, that would require regulators to change their minds about any new consolidation in the British banking market, already concentrated.
Finally, the new CEO will have to figure out what retail banking should look like in an increasingly digital economy while resisting the threat from financial techies and American giants like Amazon.com. It’s difficult, but at least Lloyds’ board of directors has given the bank a good chance to find the right person.