The Men Who Run Lloyds Banking

Published in Company Comment on 7 September 2012

What you need to know about the bank’s top executives.

Management can make all the difference to a company's success and thus its share price.

The best companies are those run by talented and experienced leaders with strong vested interests in the success of the business, held in check by a board with sound financial and business acumen. Some of the worst investments to hold are those run by executives collecting fat rewards as the underlying business goes to pot.

In this series, I'm assessing the boardrooms of companies within the FTSE 100 (UKX). I hope to separate the management teams that are worth following from those that are not. Today I am looking at Lloyds Banking (LSE: LLOY) (NYSE: LYG.US), the high street bank that is 40% owned by the UK government.

Here are the key directors:

Sir Winifred (Win) Bischoff(non-exec) Chairman
Antonio Horta-OsorioChief Executive
George CulmerFinance Director

None of the men who ran Lloyds bank four years ago run it now. The directors who backed Lloyds' disastrous acquisition of HBOS which forced it to accept a government bail-out have all been cleared out. But on his appointment in 2009 chairman Win Bischoff strongly backed the previous CEO Eric Daniels, the co-architect of the HBOS deal who was finally ousted in 2011 but collected a fat consultancy fee for doing nothing for six months.

Sir Win is a City grandee and former investment banker who spent much of his career with Schroders (LSE: SDR), and subsequently Citibank (NYSE: C.US) after it acquired Schroders' investment banking business. He was chairman of Citibank from 2007 to 2009.


Antonio Horta-Osorio was plucked from his role as CEO of Santander's (NYSE: SAN.US) UK subsidiary to become CEO in March 2011, swiftly replacing much of the top management at Lloyds with colleagues from Santander. Known as a hands-on, details manager, in November 2011 he suffered work-related stress and was absent from his desk for six weeks. The board agreed to lighten his workload on his return, though unsurprisingly did not lighten his remuneration.

Finance director George Culmer joined the board in May this year after the previous incumbent abruptly departed to join insurer Resolution (LSE: RSL). A chartered accountant, he has previously worked in the insurance industry, latterly being FD of RSA Insurance (LSE: RSA). He was given £2 million worth of shares to buy out his deferred bonus.

The eight non-execs have an impressive mix of banking, finance and business experience.

I analyse management teams from five different angles to help work out a verdict. Here's my assessment:

1. Reputation. Management CVs and track record.

Score 3/5
2. Performance. Success at the company.

Shares have moderately underperformed sector.
Score 2/5
3. Board Composition. Skills, experience, balance

Good non-execs.
Score 3/5
4. Remuneration. Fairness of pay, link to performance.

In line with sector.
Score 2/5
5. Directors' Holdings, compared to their pay.

Low compared to remuneration.
Score 2/5

Overall, Lloyds scores 12 out of 25, a poor result. The jury is still out on whether Snr Horta-Osorio is up to the job.

I've collated all my FTSE 100 boardroom verdicts on this summary page. I hope it helps with your analysis.

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> Tony does not own any shares mentioned in this article.

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BigJC1 08 Sep 2012 , 12:42pm

The new management team always faced a marathon, not a 100m sprint. They inherited a real crock and have had to sort out some very difficult situations. However, core profitability seems to be around £6bn, provisions have largely been made, and cost savings ruthlessly driven through.

A return to dividend is now largely a political/FSA/BoE decision but it certainly looks on the horizon. With a great infrastructure, UK customer base and several good brands (Lloyds, Halifax, St James Place) I think the management team will begin to see the fruits of their hardwork.

I have heard that the god come man, who can turn base metals into gold, water into plonk, bow down all Fools before his name - Neil Woodford, dislikes banks. But don't let that put you off to much, if you bought Lloyds at 24p a few months back then 37p looks pretty good and when they sit at £3 with a 25p dividend you will be extremely happy. Just stay the marathon course and avoid the sprint.

BigJC1 10 Sep 2012 , 10:32am

I forgot to add a couple of links that perhaps throw more light on Lloyds and the management team performance: Sector/Financial Services/uk-banks-performance-benchmarking-report-hy-2012.pdf

k8r4u 10 Sep 2012 , 4:43pm

"... when they sit at £3 with a 25p dividend you will be extremely happy".

I suspect I may be extremely dead.

BigJC1 10 Sep 2012 , 5:11pm

k8r4u: How long have you got ?

Without a restoration of dividend they are currently 70% above the 52 week low, an average 20% uplift per annum would get them to £3 in just over 10 years. My time line is 5 to 7 years for the transformation, UK government and taxpayers would probably like to accelerate that by taking the legislative cuffs off a little sooner.

The big leap will come when dividend is restored, investment funds will realise they are hopelessly light on Financials and when the market comprehends that of all the UK banks Lloyds are the least impacted of trying to split casino from retail. A return to say a 10p div at a 3.5% return would suggest a value of £2.85.

There are risks but the the bank has gone from £9.7bn of net assets in 2008 to £46bn in 2011 so the foundations are a magnitude stronger.

ShawshankSteve 11 Sep 2012 , 9:16am

I would still like to know just when we are likely to see dividends return. I may have missed it but I have not seen any positive indication of when this is likely to be. Anyone know anything?

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