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New Lloyds CEO Promises ‘Boring’ Banking, Shuns Daniels Advice

Lloyds Banking Group Plc Chief Executive Officer Antonio Horta-Osorio promised a lower loan-to-deposit ratio at Britain’s biggest mortgage lender as part of a return to “boring” banking.

That’s a different tone from his predecessor, Eric Daniels, who said last year that holding a pound in deposits for every pound lent amounted to “19th century banking” which was unlikely to “serve the economy terribly well or society terribly well.”

Lloyds needed more than 20 billion pounds ($32 billion) in taxpayer assistance after taking over HBOS Plc as it neared collapse three years ago. The bank has had “no occasion” to consult Daniels, 59, since he quit the lender in February, Chairman Win Bischoff said yesterday. Daniels is on the payroll until September, he said.

The comments from Horta-Osorio, a former Banco Santander SA executive, “represent a return to basics, a simplification and a refocusing,” said Matthew Czepliewicz, a banking analyst at Collins Stewart. “I think if we look back in two or three years time, what we’re going to see is Lloyds moving in the direction in the U.K. of the model that Santander has -- to focus on simple things and do them very well.”

Commercial and retail banking “is supposed to be boring in my opinion,” the new CEO told journalists yesterday. “You have to build it day by day, client by client, brick by brick.”

Horta-Osorio, 47, who took over from Daniels in March, said he plans to cut the loan-to-deposit ratio to 130 percent, bringing the value of the bank’s lending book closer to the value of its customer savings. That compares with a ratio of 176 percent at the end of June 2009.

‘Efficient Financial Markets’

The target is part of the bank’s strategic review undertaken when Horta-Osorio took over. Lloyds also plans to eliminate 15,000 jobs by 2014 in addition to the 27,000 already culled since 2008.

Lloyds cut its use of government and central bank liquidity support to 37 billion pounds at June 30 from 97 billion pounds at the end of last year. Lloyds and Royal Bank of Scotland Group Plc were the biggest users of the U.K.’s emergency support programs.

Daniels said in February 2010 that while liquidity was “very much the watchword during the past year,” banks used “efficient financial markets” to increase leverage and so help individuals and businesses.

A week after Daniels’s comments, HSBC’s then CEO Michael Geoghegan said, “there’s nothing wrong with 19th century banking, where you take deposits and then you lend.” The bank’s loan-to-deposit ratio at the time was 77 percent.

“We make no apology for having continued to position the balance sheet conservatively,” Geoghegan said in March 2010. “The past three years have only reinforced our commitment to this approach.”

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