Lloyds has persistently struggled with revenue growth © AFP via Getty Images

Slow steaming enables container vessels to save fuel, assuming their customers can wait. Lloyds Bank appears to churn along in a similar fashion. A management reshuffle on Monday hinted at a change of course. A new chairman, Robin Budenberg, replaces Lord Blackwell early next year. His first task: find a replacement for chief executive António Horta-Osório who departs after June 2021. An extended timescale gives the impression of a long-term, thoughtful plan. The bank’s share price performance suggests otherwise.

With a decade in the job next March, Mr Horta-Osório has steered Lloyds’ transformation from failure to steady-as-she-goes UK lender. A large part of Mr Horta-Osório’s tenure involved unloading the government’s 43 per cent stake taken after the last financial crisis. That he did so while generating a total shareholder return of 27 per cent since he joined (to the end of 2019) is commendable. Those returns trounced both Royal Bank of Scotland and Barclays. Lloyds also beats most of its UK peers in terms of valuation, trading at half its tangible book value.

Shunning international diversification, Mr Horta-Osório instead focused on scale and efficiencies in its UK markets. Lower costs — overheads compared with revenues have dropped by half — are testament to his improvements.

Unfortunately, refocusing Lloyds on UK retail and commercial banking means a high exposure ahead of a serious economic collapse. The OECD believes the UK will suffer a greater percentage decline in GDP than its European peers. That risk has halved its market value this year.

Capital buffers offer some reassurance against looming loan losses. Its common equity tier 1 ratio of 14.2 per cent in the first quarter, including its scrapped dividend payout, leaves about a 3 percentage point buffer to its regulatory minimum. With government support, loan losses have been pushed further into the future, delaying any immediate capital erosion.

But Lloyds has persistently struggled with revenue growth. Interest earning assets have fallen for a decade, notes Berenberg. The bank has tried to diversify, such as by buying credit card group MBNA in 2016. Owning that business looks unhelpful in the current environment. Wealth management and insurance expansion are other ideas. Traditional wealth management, though, must battle structurally declining fees.

Lloyds gained a reputation as stable but boring under Mr Horta-Osório’s tenure. His successor faces rougher sailing.

If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button “Add to myFT”, which appears at the top of this page above the headline.

Get alerts on UK banks when a new story is published

Copyright The Financial Times Limited 2020. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article