Lloyds Banking Group Plc, Britain’s biggest mortgage lender, named Antonio Horta-Osorio as chief executive officer, depriving Banco Santander SA of the executive preparing its U.K. division for an initial public offering.
The Portuguese national will replace Eric Daniels as Lloyds CEO on March 1, the London-based lender said in a statement today. Daniels, 59, led Lloyds’ takeover of HBOS Plc in Sept. 2008, a purchase that forced the lender to seek a 17 billion- pound ($27 billion) government bailout.
Horta-Osorio, 46, led Santander’s expansion in Britain during the past two years, buying up Alliance & Leicester Plc as well as parts of Bradford & Bingley Plc and Royal Bank of Scotland Group Plc during the credit crisis, to add to the Abbey unit Santander acquired in 2004. The bank is preparing to sell a stake in its U.K. division in an IPO next year.
“It’s now going to be difficult to proceed with the IPO,” said Andrea Williams, who helps manage about $1.1 billion at Royal London Asset Management in London. “It’s quite a surprise. He’s done a good job at Santander.”
Ana Patricia Botin, daughter of Santander ChairmanEmilio Botin, will succeed Horta-Osorio, according to two people familiar with the situation. Officials at the banks declined to comment. She was previously chairman of Banco Espanol de Credito SA.
Lloyds gained 2.7 percent to 69.2 pence at the close of trading in London, valuing the bank at 47.2 billion pounds. Santander, based in the Spanish city of the same name, dropped 3.5 percent to 8.69 euros in Madrid.
Santander “might struggle to IPO Abbey with an unfamiliar” CEO, Bruce Packard, an analyst at Seymour Pierce Ltd. in London, wrote in a note to clients today. “From a Lloyds perspective, we think he is a credible external appointment.”
Daniels said in September he would step down within 12 months after the bank returned to profit. Lloyds yesterday forecast a “good” financial performance for 2010. The lender posted a profit in the fiscal first-half, its first since the HBOS purchase.
Horta-Osorio joins a bank that’s been shrinking following a taxpayer-funded rescue. Lloyds has sold assets, among them its Bank of Scotland Integrated Finance investment unit and cut more than 22,000 jobs since its rescue. The bank still has to sell 600 branches by 2013 to comply with European Union state aid rules. In all, Lloyds plans to shrink its balance sheet by 200 billion pounds by 2014.
At Lloyds, Horta-Osorio will also face a government inquiry into competition among British lenders. The panel, led by John Vickers, may decide to recommend breaking up some of Britain’s banks. Lloyds has a 28 percent share of the mortgage lending market following its takeover of HBOS.
He will also have to cut the lender’s dependence on about 120 billion pounds of central bank funding and oversee the reduction of the government’s 41 percent stake in the lender, analysts said.
“We have appointed a very well-qualified person to this job,” Prime Minister David Cameron’s spokesman Steve Field told reporters in London. “It is in the taxpayer’s interest that the bank is run well,” he said.
“We will be able to turn around this bank into the next phase of its development and this will be good news for the taxpayers, the employees and ultimately the U.K. economy,” Horta-Osorio told reporters today.
Three New CEOs
Lloyds is the third of Britain’s banks to name a new CEO in the past two months. Barclays Plc, Britain’s third-biggest lender, said in September that American-born Robert Diamond would replace John Varley. The same month, HSBC Holdings Plc, Europe’s biggest bank, replaced CEO Michael Geoghegan with Stuart Gulliver.
Horta-Osorio began his career at Citibank in Portugal, where he was head of capital markets, according to Santander’s website. He worked for Goldman Sachs Group Inc. in New York and London in corporate finance, and in 1993 joined Santander has head of Banco Santander de Negocios Portugal.
He joined Abbey as a non-executive director in November 2004 and became CEO of the division in August 2006. He is a member of Santander’s management committee.
Santander U.K. had a 19 percent share of mortgage lending in the third quarter and a 14 percent share of total mortgage stock. Santander, Spain’s biggest bank, last week said it will miss its 2010 earnings goal after bad loans caused its lowest quarterly profit in more than four years. Net income at Horta- Osorio’s U.K. unit has doubled to 1.55 billion euros ($2.2 billion) in the first nine months of this year, compared with 743 million euros in the same period of 2006.
The decision to leave Santander was “emotionally very difficult,” Horta-Osorio said. “There is nothing about Santander that I have to say in any negative way.”
Horta-Osorio will be taking a “major reduction in his compensation” when he joins Lloyds, Chairman Win Bischoff told journalists in a conference call.
He will be given a package worth as much as 7.5 million pounds including an annual salary of 1 million pounds, an annual bonus of as much as 225 percent of salary and a long term performance-based share incentive of as much as 420 percent of salary for 2011 that vests in three years. He’ll also be compensated for loss of deferred cash and shares and pension benefits that he is forgoing at Santander. His U.K. salary and short-term bonus at Santander is 3.4 million pounds, excluding performance awards, said Bischoff.
His performance will also be judged against the bank’s lending to “small and medium-sized” businesses, Lloyds said.
Daniels was paid 1.12 million pounds last year, including a salary of 1 million pounds, according to the bank’s annual report. He waived his bonus for the year.
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