Lloyds Banking Group Plc, Britain’s biggest mortgage lender, will cut 15,000 jobs and reduce costs by an additional 1.5 billion pounds ($2.4 billion) as it withdraws from overseas units and increases its U.K. focus. The shares soared the most in more than a year.
Most of the job losses will come in the U.K. as a result of cuts to management functions and by centralizing some roles, the London-based bank said in a statement. The bank also plans to withdraw from more than 15 of its 30 overseas units.
“Lloyds must become leaner, more agile and more responsive,”, Chief Executive Officer Antonio Horta-Osorio, 47, said today in a conference call with journalists outlining his first strategic review since he took the job in March. “We will focus on attractive” customers in the U.K., “reduce our international presence and continue our disciplined reduction of non-core assets,” the bank said.
British banks, including Lloyds, HSBC and Barclays Plc, are reviewing their operations and trimming profitability targets as regulators enforce higher capital requirements to prevent a repeat of the 2008 financial crisis. Horta-Osorio told parliamentarians last month that the 41 percent government-owned lender still had “substantial” problems and would take three-to-five years to turn into a “great bank.”
Lloyds had already pledged 2 billion pounds of savings annually following its purchase of HBOS Plc three years ago, which has so far resulted in about 27,000 job losses. HSBC Holdings Plc, Europe’s biggest bank, today said it would cut 700 posts.
The shares rose 9.7 percent to 49 pence at the close in London, the largest rise since May last year and the second-biggest increase in the 49-member Bloomberg 500 Banks Index. The government paid an average of 73.6 pence a share for its stake in the bank.
“Many of the fears some had expected going into this strategic review have not materialized,” wrote Joseph Dickerson, an analyst at Espirito Santo investment bank in a note to investors. Today is the start of “a string of positive catalysts,” for the shares, added Dickerson who has a “buy” rating on the stock.
The Portuguese banker pledged to reduce so-called non-core assets and also ruled out a sale of the bank’s Scottish Widows insurance unit, the statement said.
Lloyds has units in North America, Australia, Ireland, Germany and the Netherlands. The U.K. already represents about 90 percent of the bank’s assets. The bank has a total of 104,000 employees, with about 4,000 outside the U.K., it said today.
The cuts “will cause deep distress and anxiety across the company as staff face the reality of this arbitrary slashing of jobs,” said David Fleming, national officer of the Unite union, which represents some Lloyds employees. “This total failure to take significant action to make appropriate changes to rebuild the public confidence in the sector is deplorable.”
Lloyds said the savings would help fund a 2 billion-pound investment program, designed to “revitalize” its Halifax brand and expand its wealth unit. It pledged not to send any more permanent jobs from the U.K. to offshore locations.
The lender is targeting a “sustainable” return-on-equity, a measure of profitability, of 12.5 percent to 14.5 percent by the end of 2014. That’s a reduction from “over 15 percent in the medium-to-longer term” forecast by Finance Director Tim Tookey in a presentation to analysts in February.
“The real headline grabber is the new RoE guidance which has been downgraded,” wrote Gary Greenwood, an analyst at Shore Capital in a note to investors today. “This is due to a weaker revenue outlook with net interest margin downgraded.”
The company, which received a taxpayer-funded bailout of more than 20 billion pounds, forecast a net interest margin of “just above 2 percent” this year. It will rise to as much as 2.3 percent by 2014, the bank said today. Tookey in February forecast “north of 2.5 percent” by 2014.
The loan-to-deposit ratio would fall to 130 percent, it said today. That compares with 148 percent at the end of the first quarter.
“We have to do this because this bank lost money last year on an after-tax basis,” said Horta-Osorio. “We have to get this bank back on its feet to effectively support the U.K. economy and moreover we have to get this bank also profitable and supporting the U.K. economy” to “pay taxpayers’ money back.”
Work should be returned from India and the Philippines to the U.K. to soften the impact of the cuts, said Lloyds Trade Union in an e-mailed statement today.
“The bank is 41 percent owned by the taxpayer and it has a special responsibility to secure jobs in the U.K. and limit the impact of compulsory redundancy on Lloyds Banking Group staff,” said LTU General Secretary Mark Brown in the statement.