Three ideas for Lloyds Bank's new boss

The Black Horse needs whipping into shape. A change at the top provides a great opportunity, says Matthew Lynn.

António Horta-Osório did a decent enough job as chief executive of Lloyds Bank. But whether shareholders will be all that sorry to see him leave office is open to question. The bank is back on a stable footing, but it has hardly been making a fortune for investors. Over the last five years the shares have plunged from 80p to 30p and while much of that was lost during the Covid-19 crisis, the price was still at 60p before any of us had heard of Wuhan. With the dividend now scrapped for this year in response to the epidemic, it has hardly been a great asset to own. After all that, shareholders might well feel it is time for a change. 

Safe and dull is not good enough

Whoever takes on the job will inherit a leading position in the UK’s retail finance market. Including the Halifax and Bank of Scotland brands, Lloyds has 22 million current accounts, making it the largest in the UK, and it is also the biggest mortgage lender, with a quarter of the market for home loans. There is a problem, however. All Horta-Osório has really managed to do in his decade in charge is get the group back to where it was before the crash – a safe, steady but dull retail bank. That isn’t going to be good enough for the 2020s. Retail banking needs radical reinvention. Here are three ideas for his successor. 

First, Lloyds needs to keep closing branches. Ignore the campaigners who try to keep them open and brush aside the lobbyists who argue cash needs to be protected. It is not the job of a bank to save the high street, or to keep a system of payment alive after it has become technologically obsolete. After the Covid-19 crisis, local branches are going to be more irrelevant than ever. Apart from collecting cash from small businesses – and even the smallest of them are rapidly embracing contactless cards – a bank branch doesn’t have much to do anymore. And in a world where cash is dying out, cash machines are increasingly irrelevant. But the branch network is still a huge cost. The best companies don’t simply react to change, but get ahead of it. Lloyds can only do that by closing branches quickly. 

Next, work out how to respond to technology. Traditional retail banks are under assault from every direction. App-based start-ups are providing far simpler, better-designed current accounts. Fintech companies are chipping away at once-lucrative lines of business such as currency transfers and small-business lending (insurance will be next). The technology giants are increasingly moving into finance. Amazon has launched a current account, Apple and Google have payment systems and Facebook has even tried to launch its own currency. The start-ups have agility on their side and the tech giants have a mass of customer data, and deploy it brilliantly. A traditional retail bank has some residual strengths, such as a customer base, a payment system and lots of relationships. It has to figure out how best to use them. 

Time for a rebranding

Finally, it needs to reinvent its brand. All the high-street banks spend a fortune on marketing and Lloyds is no exception. Sure, it has a lot of name recognition, but there is not much in the way of affection, or respect, and customers are only loyal because it is usually a hassle to switch account. Decades of mis-selling products and sneaky charges have trashed the trust between banks and their customers and, apart from paying out billions in compensation, not much has been done to fix that. A brand needs to stand for something solid. It could be trust, or innovation, or value – or something else entirely. But the bank needs to work out what it is, and how to make it happen. 

Over the next few weeks there will be lots of speculation about who will replace Horta-Osório. The name doesn’t matter as much as whether he or she will be willing to push for a radical change of direction. If Lloyds makes an ambitious choice, it might be able to reinvent a tired business model – and set an example that the rest of the banking industry can follow. 

Recommended

Persimmon yields 12.3%, but can you trust the company to deliver?
Share tips

Persimmon yields 12.3%, but can you trust the company to deliver?

With a dividend yield of 12.3%, Persimmon looks like a highly attractive prospect for income investors. But that sort of yield can also indicate compa…
1 Jul 2022
The MoneyWeek Podcast: nuggets of positivity in an extended bear market
Investment strategy

The MoneyWeek Podcast: nuggets of positivity in an extended bear market

Merryn and John talk about he need for higher wages and lower house prices, and why the fact that this is the least dramatic bear market they’ve ever …
1 Jul 2022
Here are the best savings accounts on the market now
Savings

Here are the best savings accounts on the market now

With inflation at more than 9%, your savings are not going to keep pace with the rising cost of living. But you can at least slow the rate at which yo…
1 Jul 2022
Don’t try to time the bottom – start buying good companies now
Investment strategy

Don’t try to time the bottom – start buying good companies now

Markets are having a rough time, so you may be tempted to wait to try to call the bottom and pick up some bargains. But that would be a mistake, says …
1 Jul 2022

Most Popular

UK house prices are definitely cooling off – but are they heading for a fall?
House prices

UK house prices are definitely cooling off – but are they heading for a fall?

UK house prices hit a fresh high in June, but as interest rates start to rise, the market is cooling John Stepek assesses just how much of an effect h…
30 Jun 2022
The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves looks at the FTSE 100’s top yielding stocks for income investors to consider.
22 Jun 2022
Gold has been incredibly boring to own – but that’s no bad thing right now
Gold

Gold has been incredibly boring to own – but that’s no bad thing right now

Stocks, bonds and cryptocurrencies have all seen big falls this year. But gold remains at its one-year average. It may be dull, but it’s doing what it…
29 Jun 2022