Lloyds No Closer to Finding CEO as Daniels Plans to Step Down

Lloyds Banking Group Plc started to plan for Chief Executive Officer Eric Daniels’s departure in March. Six months on, Daniels is preparing to retire and the lender is no closer to finding his replacement.

Daniels will step down within the next 12 months as the bank seeks a successor, the London-based lender said in a statement yesterday. There isn’t a clear favorite to replace him, according to analysts and investors, who cited executives from Nationwide CEO Graham Beale to Lloyds’s consumer banking chief Helen Weir as potential candidates for the role.

The next Lloyds CEO must navigate the sale of 600 branches by 2013 to comply with European Union government-aid rules, bring down the highest loan-to-deposit ratio of Britain’s biggest banks and convince a government-appointed commission not to break up the country’s largest mortgage lender. The bank, which is now profitable, is also prohibited from paying dividends until at least 2012 after taking a government bailout.

“It’s a tough job, because the outlook for the banks is not that great,” said Jane Coffey, head of U.K. equities at Royal London Asset Management, which manages $51 billion including Lloyds shares. “It’s going to be highly regulated. There’s not going to be as much opportunity to make money either working for the bank or owning the shares.”

Source: Lloyds Banking Group via Bloomberg

Lloyds Chief Executive Officer Eric Daniels. Close

Lloyds Chief Executive Officer Eric Daniels.

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Source: Lloyds Banking Group via Bloomberg

Lloyds Chief Executive Officer Eric Daniels.

Daniels, 59, led Lloyds’ takeover of HBOS Plc in September 2008, a purchase that forced the lender to seek a 17 billion- pound ($27 billion) rescue that left the government with a 41 percent stake in the bank. Lloyds is the third of Britain’s four biggest banks to announce a change in leadership after Barclays Plc CEO John Varley and HSBC Holdings Plc Chairman Stephen Green said they would step down this month.

Varley, Diamond

Barclays, Britain’s third-biggest lender, named Robert Diamond CEO when it announced Varley’s retirement on Sept. 7. HSBC, Europe’s biggest bank, plans to pick Green’s successor before the end of this month, a person with knowledge of the situation said Sept. 10. If the board decides against promoting CEO Michael Geoghegan, the most likely candidate to succeed Green is John Thornton, chairman of the lender’s North American division, the person said.

Lloyds began its search for Daniels’s successor in March. That month, the lender hired JCA Group, a recruitment firm, to draw up a shortlist of candidates to replace Daniels as a contingency measure, a person familiar with the situation said at the time. Officials at the London-based firm weren’t available to comment.

Daniels’s Pension

Daniels is entitled to receive a pension worth 3.8 million pounds, or 192,000 pounds a year, according to the bank’s 2009 annual report. He may also get as much as 12.5 million Lloyds shares, worth about 9.3 million pounds at today’s prices. That amount may be reduced because Daniels won’t serve as CEO until 2012 and may not meet his performance targets.

Lloyds Chairman Win Bischoff said yesterday the lender hasn’t drawn up a shortlist of candidates and will consider both internal and external candidates from the U.K. and overseas. The bank will also be in contact with the government over any plans to find a replacement, he added.

“It may not be that attractive a role,” said Matrix Corporate Capital LLP analyst Andrew Lim, who has a “buy” rating on Lloyds. Anyone taking the post will need to continue the integration of HBOS, reduce costs and control the balance sheet, he said.

The shares jumped 2.8 percent to 77.41 pence in London trading yesterday, valuing the company at 52.8 billion pounds. The shares have gained 52 percent this year, making them the second-best performing U.K. bank stock after Royal Bank of Scotland Group Plc, the recipient of the biggest of the biggest government bailout in the U.K.

Job Candidates

Potential candidates for the Lloyds job also include Frits Seegers, former Barclays Plc retail banking head, Stuart Gulliver, HSBC Holdings Plc investment banking head, and Paul Thurston, HSBC U.K. head, Gary Hoffman, Northern Rock Plc CEO, and Gordon Nixon, CEO of Royal Bank of Canada, according to a report yesterday from BGC Partners Inc.

Spokesmen for Northern Rock and HSBC declined to comment, and a spokesman for Nixon wasn’t immediately available. Seegers couldn’t immediately be reached.

Lloyds must wean itself off 132 billion pounds of central bank and government funding which it required after taking over HBOS. To do so, Lloyds must reduce its balance sheet by about 200 billion pounds by 2014 by shrinking its mortgage book and selling assets, according to its annual report.

Government Commission

The new CEO will also deal with the recommendations next year by a U.K. government-sponsored commission inquiring into the structure of banking. The committee will seek to boost competition in consumer banking and, with 30 percent of the U.K. mortgage market, Lloyds will be scrutinized by the committee.

Still, Lloyds reported a profit last month for the first time since the HBOS purchase, posting a proforma pretax profit of 1.6 billion pounds in the six months to June.

“If the next CEO can get rid of the government’s shareholding and take Lloyds back onto a full private footing that would be quite a feather in their cap,” said Nic Clarke, a London-based analyst at Charles Stanley & Co., who rates Lloyds a “hold.”

To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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