Lloyd's New Chief Faces a Familiar Rival

After 18 years working for Chairman Emilio Botín at Spain's Banco Santander (STD), António Horta-Osório may have tired of waiting for the chief executive officer's job. Horta-Osório, 46, is becoming CEO of Lloyds Banking Group, taking a "substantial" pay cut, Lloyds Chairman Winfried Bischoff said when he announced the appointment on Nov. 3. The same day, Santander said that Ana Patricia Botín, Emilio's 50-year-old daughter, will replace Horta-Osório atop the bank's U.K. unit.

Horta-Osório, who brings with him secrets picked up over four years running Santander in the U.K., will be competing head-to-head with his former company and the family that built it. The family's longstanding grip on the company—three Botíns have served as chairman—may have contributed to his departure. "Possibly he felt he was being pushed toward the exit door to make way for Ana Patricia Botín," says Andrew Lim, a financial analyst at Matrix Corporate Capital in London.

While Santander, Spain's biggest bank, has been expanding, Lloyds, based in London, has been shrinking since a U.K. taxpayer-funded rescue in 2008. Under Horta-Osório, Lloyds will need to pay down the almost Pound120 billion ($193 billion) it still owes the central bank and the British government and earn a return on the state's equity stake for taxpayers. He also will have to give evidence to a government commission on banking competition next September, arguing against a breakup of the bank, which controls about a quarter of U.K. mortgage lending and is now 41 percent state-owned. Horta-Osório, who will take over on Mar. 1, replacing J. Eric Daniels, is aware of the challenges. "He goes into it with his eyes wide open," Bischoff said.

Lloyds "has to be taken to the next phase of its development," Horta-Osório said on a conference call in London with reporters on the day of the announcement. "This is probably the only bank in Europe for which I'd consider leaving Santander." He declined to comment for this story.

Horta-Osório built Santander's U.K. unit into the country's second-biggest mortgage lender after becoming CEO in 2006, in part by helping acquire mortgage bank Alliance & Leicester and units of Bradford & Bingley. Since 2008 profits have climbed 68 percent at the unit, which accounted for 18 percent of Santander's overall earnings in the third quarter. Santander said on Oct. 28 that it planned to sell a stake in the U.K. business in an initial public offering that would probably take place in the first part of 2011.

Before being named to her new post, Ana Patricia Botín had led Santander's Spanish retail unit Banesto. On her watch, Banesto survived Spain's real estate collapse without posting a single quarterly loss. After earning an economics degree at Pennsylvania's Bryn Mawr College in 1981 and working for J.P. Morgan in Madrid and New York, she took her first job at Santander in 1988. "Her path has been very carefully prepared," says Robert Tornabell, a professor of finance at the ESADE business school in Barcelona. Her new post "would be the last step" on the road to succession, he says.

Horta-Osório, who speaks four languages, earned his MBA from INSEAD in 1991 and was hired by Emilio Botín from Goldman Sachs (GS) in 1993 to run Santander's Portuguese investment banking unit. He says his move to Lloyds was influenced by his growing attachment to Britain, where he lives with his wife and three children.

The Portuguese national, a master scuba diver who has gone cage diving with sharks, says he saw the job of rebooting the bank as a way of helping put the U.K. economy back on its feet. "The success of Lloyds is inextricably linked to the success of the British economy," Horta-Osório said on the conference call. "I really like your country, the culture of tolerance. This is the country where my wife and I decided we want to see our children grow up."

The bottom line: Moving from Santander to Lloyds, Horta-Osório will be competing against the daughter of his former boss.

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