António Horta-Osório turned Lloyds “from a liability to the taxpayer into an asset for the country”, according to Mervyn King © Luke MacGregor/Bloomberg

António Horta-Osório, chief executive of Lloyds Banking Group, has been batting away questions about his future longer than many executives stay in their jobs.

After years of speculation, on Monday the Portuguese banker finally announced his intention to step down next June after a decade at the helm of the UK’s largest high street bank.

However, the announcement raised fresh questions for both Lloyds and Mr Horta-Osório as the banking sector grapples with unprecedented uncertainty and pressures from the impact of the pandemic and prolonged low interest rates.

Attention has quickly turned to the potential candidates to replace Mr Horta-Osório, as well as where the 56 year-old could head next.

Lloyds’ chairman Norman Blackwell told staff on Monday that the bank was approaching “a natural break point for him to hand over the executive leadership”, as it nears the end of its latest three-year strategic plan.

Mr Horta-Osório, who was known for running a highly centralised operation and taking an active role in the management of Lloyds’ £440bn balance sheet, won plaudits for stabilising the bank in the wake of the 2008 financial crisis and cutting costs to create one of the UK’s most efficient lenders. 

The pressure became too much in 2011 when Mr Horta-Osório was diagnosed with stress-induced insomnia and signed off work. He slept almost continuously for over a week and spent time at the private Priory Hospital.

Lloyds under Mr Horta-Osório

But he recovered and went on to turn Lloyds “from a liability to the taxpayer into an asset for the country”, according to Mervyn King, who was governor of the Bank of England when Mr Horta-Osório was appointed in 2011.

The chief executive told staff on Monday in a memo seen by the FT that they had “led a revolution” on how [mental health] is managed in organisations large and small.”

Despite the bank’s financial turnaround, however, Lloyds’ share price almost halved during his tenure, weighed down by low interest rates and more than £20bn of penalties and customer compensation for mis-selling payment protection insurance. 

The bank’s £22bn market capitalisation is now barely higher than the cost of the PPI scandal and it is valued at half the book value of its net assets. The BoE has also banned any dividends or share buybacks until the fallout from Covid-19 is clearer.

Defenders of the chief executive said the PPI scandal was beyond Mr Horta-Osório’s control, though some industry veterans blame him for breaking ranks with peers and agreeing to start compensating customers without first setting a time limit for claims.

“In very trying circumstances he has created a strong and secure bank,” said Peter Davies of hedge fund Lansdowne Partners, one of the company’s top-20 investors. “Unfortunately, markets may not reward this during his tenure, but . . . I suspect his creation of true value will be very evident in a few years time.”

Lloyds’ hopes of hitting ambitious profitability targets were disrupted by pandemic and analysts suggested Mr Horta-Osório’s successor may need a different set of skills as the bank seeks growth in new areas.

Pre-tax profit fell 95 per cent in the first quarter owing to £1.4bn of charges to cover expected credit losses and the BoE’s recent interest rate cuts will cut hundreds of millions of pounds from its annual revenues.

The bank is now planning to extend its push into wealth management and insurance in an attempt to offset low interest rates. Some board members have pushed for more radical action, such as M&A activity — a call that may be strengthened by the announcement of former investment banker, Robin Budenberg, as incoming chairman.

“A traditional banker might not be the right fit given the way the board seems to be thinking about strategic evolution,” said John Cronin, an analyst at Goodbody.

Insiders regard Vim Maru, a long time lieutenant of Mr Horta-Osório, who followed him from Santander, as the leading internal candidate for the top job. As head of retail banking, Mr Maru already runs Lloyds’ largest unit and will play a key role in designing the new strategic plan that is due to be announced in February. His appointment would avoid the potential complications that could come with a new executive arriving to implement their predecessor’s strategy.

External candidates include Alison Brittain, a former Lloyds executive who has built up M&A experience as head of Whitbread, and RSA chief executive Stephen Hester. Mr Hester is highly rated by many in the City, but has a chequered history with Mr Budenberg, who played a key role in his defenestration as chief executive of Royal Bank of Scotland in 2013, amid a dispute with the government over strategy. 

David Herro, vice-chairman of Harris Associates, Lloyds’ biggest shareholder, said Mr Horta-Osório was leaving the bank in a strong position but cautioned that, like many of its European peers, the relatively low pay on offer for the top job, compared with US rivals, may discourage some candidates.

“We have what seems to be a capable new chairman coming in, the bank is in great shape and extremely well-capitalised,” Mr Herro said. Mr Horta-Osório “caught a lot of guff in the media over his pay and pension and I hope it doesn’t chase a good quality successor away.”

Although Mr Horta-Osório’s announcement on Monday was styled as a “retirement”, friends expect him to seek another major job in European banking after his exit.

He has been linked with the vacant chief executive role at HSBC twice over the past three years and was once considered the most likely successor to take over as chief executive of his former employer, Santander. 

Analysts on Monday suggested his experience in retail banking and digitisation would suit the Spanish bank.

One person who has worked closely with Mr Horta-Osório said: “He is relentless. I’ve seen some other CEOs ready to leave after so long in their role, but that is not him.”

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