Is there a ‘Leadership vacuum’ at Lloyds TSB?

November 14, 2011

António Horta-Osório

Reports are suggesting that Lloyds Bank faces a leadership vacuum since CEO Antonio Horta-Osorio look medical leave two weeks ago

The Leadership Dilemma

The leadership dilemma has been reported as one of dealing with shareholder discontent. According to the Sunday Telegraph [13th Nov 2011]:

Major institutional shareholders are concerned at the lack of information from the bank since Mr Horta-Osorio left on medical advice two weeks ago …a number of investors said that they had not been personally contacted by Glen Moreno, the senior independent director, or by Sir Win Bischoff, the chairman, about the issue.

The sentiment among investors is that even if Mr Horta-Osorio returns to full health, it would be difficult for him to return because of the signal his absence – the result of “extreme fatigue” – has given to investors.

“It is clear the job was too big for him,” said one top 15 shareholder.

Another investor questioned why the bank was not speeding up its internal contingency plan.

Behind the headlines

The Telegraph article suggests that the company has failed to have addressed the reactions of its shareholders to the departure of Mr Horta-Osorio. Looking behind the headlines, I wondered whether the story was encouraged by parties dissatisfied with the performance of the board, and would welcome news that would discredit them before rhe appointment of an internal figure as interim CEO (Mr Moreno has been considered as a favourite candidate).

Another possibility is that powerful institutional shareholders see opportunity to exercise more influence over the Board’s decisions

What didn’t happen

What appears not to have happened is for a rapid line of communications to have opened up with the most influential stakeholders. While ‘wait and hope’ may have been a consideration, it is often a dangerous kind of strategy under conditions of corporate turbulence.

To go more deeply

The textbook Dilemmas of Leadership examines the importance of trust based leadership[chapter 6] and the challenges presented by corporate turbulence [chapter 11].


Goodbye Airmiles, and you can keep your Lloyds TSB Credit card as well

June 22, 2009
John Daniels (Lloyds)

John Daniels (Lloyds)

Those nice people at Lloyds TSB explained how I could keep my 9000 airmiles by signing up for their Credit Card. After a little thought I decided to bin the offer of their credit card, and write off those airmiles

Another great marketing wheeze brought you by the nation’s favourite industry. Yes, the near extinct banking sector breathes afresh and its members are coming up with even more creative ideas to attract customers to their credit card schemes.

Last week [June 2009] a fancy set of marketing forms plopped through my letterbox. They announced that I could save my airmiles by some rather complicated arrangement which involved me in signing up for a Lloyds TSB credit card.

I rather liked the prospect of using those airmiles, collected over quite a few years of yomping to various parts of the globe. Later I had some peripheral contact with the Airmiles organization through its links to the world’s favourite airline. At that time it seemed an enthusiastic and entrepreneurial set-up open to creative ideas.

But I don’t want a credit card. Even if I did, I would have objected to what amounts to a grudge buy. It must have sounded a winning idea on the corporate deep-diving marketing away-day.

Meanwhile, in an other part of the forest …

Meanwhile, in aother part of the forest, news breaks of the remuneration package agreed for Stephen Hester, the leader appointed to RBS to sort out the mess there. It’s all a bit complicated. Their loan is generally described as coming from money handed over to the Government by taxpayers like me. I still haven’t worked out the various ramifications of the deal cut with the bank to motivate its new chief executive Stephen Hester.

The package is made up of £1.2m in pay, up to £2m in non-cash bonuses and up to £6.4m in long-term incentives. The long-term incentives will only be payable if share price targets are hit over the next three years

The admirable Robert Peston best sums up the matter of Hester’s remuneration package

Now let’s stray into the land of the bloomin’ obvious, to look at why Mr Hester’s package will be controversial.

First and most obviously, Royal Bank is cutting thousands and thousands of jobs, perhaps up to 30,000 in the coming two years or so.

Second, Royal Bank is 70% owned by taxpayers. And at a time when the public sector is expected to be squeezed hard, it may look odd to be paying so much to the boss of a publicly controlled bank.

Third, all the banks are under pressure to increase their lending to businesses and households. For example the governor of the Bank of England agonised in public last week about how economic recovery might be put in jeopardy by the inadequacy of credit made available by banks.

Why is that relevant? Well, for the chief executive of a bank, the safest way to increase profits and the share price at this stage of the economic cycle – apart from slashing costs and cutting jobs – is borrow from retail depositors at close to 0% and then lend to the government by buying relatively risk free long-term gilts paying 4%.

The Treasury is aware of this risk. Which is why it has forced Royal Bank to agree quantitative targets for the amount of credit it will make available to businesses and households. But there is a piquant question whether Mr Hester’s remuneration incentives will deter the bank from providing more than this minimum.

All that said, one paradoxical reason for paying that kind of money to Mr Hester is also – funnily enough – that taxpayers own the majority of the shares.

He is widely regarded as that rarest of animals, an untarnished world class banker. And we surely can’t complain if a competent individual is running a state institution Also, if Mr Hester were to make the full £9.6m, Royal Bank’s share price would need to have risen to more than 70p over a sustained period – which would yield a profit for taxpayers on our 70% stake of £8bn.

Which looks a reasonable deal for the state – unless you think, as many do, that because bankers were to a large extent to blame for the economic mess we’re in, it’s too early for any of them to be earning this kind of money

Mea Culpa

In an early version of this rant, I foolishly mixed up the Lloyds TSB air miles for credit card story with the RBS Bumper payday for Stephen Hester story. The first effort read more smoothly than the second version, but suffered from the slight problem of being utterly confused.


Robert Peston interviews Andy Hornby of HBOS

October 5, 2008

Andrew Hornby, head of HBOS, is notoriously discrete. In a rare interview with Robert Peston after the tsunani week of mid September 2008, he predicts an 18-month long haul in financial markets, and house price deflation, and identifying shortage of credit as the primary causal factor of the credit crunch

The interview took place in advance of the Tsunami week in the world’s finance markets, and makes no mention of the dramatic events that were about to befall HBOS and its leader. It retains merit because it permits a ‘before and after’ analysis

Pressed on the bank’s treatment of customers, Mr Hornby identified a triple whammy for consumers of food prices, fuel costs and utility bills, resulting in less discretionary income to save. The key to an unblocking of illiquidity will be the US housing market, where a return to health will then accelerate global confidence.

Hornby disagreed that HBOS had irresponsibly managed leading over the last few years, but defended its current cautionary stance and restricted lending.

Peston: Not a single senior banker has resigned or been fired [That can’t be right unless Peston is referring to HBOS rather than bankers in general].
Hornby: We are taking responsibility, which is different from being fired.

Peston: Morgan Stanley at the end sold short.
Hornby: No comment, [but pointed to how quickly the markets cleared.]

RP outlines AH’s his glittering career What had been learned? Planning for (and dealing with) uncertainties. Later in the interview AH returned to the inter-connectedness of global factors, and need to keep a five year planning perspective [by which time the long-term trends in housing and finance will have been restored.

Peston: Are you profiteering in current circumstances? [By increased charges to customers]
Hornby: No, we in UK are competitive internationally.

The interview format remains a one-dimensional glimpses of leaders and their competencies Overall, a competent but unremarkable rather low-key performance. Strengths. Reminded me in assuredness and confidence of an interview by Louis Gallois of EADS. A leader able to reassure and communicate trust in his competence. The style seemed particularly appropriate for the current circumstances.

Within a week he was defending the proposed takeover of HBOS by Lloyds TSB


The Fate of The Scottish One: A Metaphor for Alex Salmond?

September 20, 2008
The first Scottish Numberplace

The first Scottish Numberplace

Scotland faces job losses in the wake of the tsunami in the world’s financial markets. Alex Salmond leaps into action. But the fate of a Scottish car number plate may be a salutary metaphor for the SNP and its leader

This will be remembered as the week as memorable of the Wall Street Crash in 1929. The upheavals in stock markets around the world were matched by the personal tragedies of countless individuals fearing job losses, pension and savings wipe-ups.

It was hardly worth trying to write a topical blog post, as the big issue moved on in the space of hours, from one story to the next.

One of the stories of the week was the takeover of HBOS by Lloyds TSB. Jobs in Edinburgh were under threat, as Scottish politicians and trade-union leaders were quick to point out.

Alex Salmond was among the most vociferous voices to be heard, as he denounced the bunch of spivs who had effectively stealing Scottish jobs.

A light-hearted diversion

A light-hearted diversion in the middle of the bleakest of weeks was news of the fate of another bit of Scotland’s heritage. S1, the first Scottish car number plate, was flogged off for around £400,000. By the English of course. By a bunch of spivs as Alex might have said.

The winning bidder from the company Bold Registrations, who declined to be named, agreed to pay £397,500, inclusive of buyer’s premium.
He said: “I believe that number plates in general are a good investment, even at this price.
“The registration number will remain in the UK and will be going on an old red Skoda which will be seen around the Midlands.”

I couldn’t help noting the irony of the old red Skoda.

Postscript:

As the week ended, a glimmer of hope reported in the Telegraph
Since Sunday two of the world’s biggest investment banks have collapsed while an emergency takeover had to be arranged for HBOS, Britain’s biggest mortgage and savings bank. The partial recovery came after the US government unveiled a rescue package to take on bad bank debts

Is this a dove bearing a sprig of Scottish heather?