Lloyds Banking Group Plc sought to draw a line in the sand after compensating customers for mis-sold insurance, unveiling what could be its final charge in the scandal. It also announced the retirement of its chairman and another key executive.
Chief operating officer Juan Colombas plans to retire in July 2020 and a succession plan will be announced soon, the bank said in a statement Thursday. The British lender’s long-serving chairman Norman Blackwell is also stepping down in 2021 after nine years on the board and a search process will commence next year.
Lloyds is seeking to inject new blood at the top amid challenging conditions in the UK market. The bank’s third-quarter profit, announced alongside the senior exits, was almost wiped out by a £1.8bil (US$2.3bil) charge for its long-running involvement in mis-selling insurance to British consumers.
The shares dropped as much as 3% in London trading as the pre-tax profit of £50mil fell short of forecasts and analysts cast doubt on Lloyds’ profitability and buyback targets.
Chief financial officer William Chalmers said the consequences of the mis-selling scandal may not be over, despite the deadline for new complaints passing in August. “When George walked out the door, he said never say never on it, ” he said, referring to his predecessor George Culmer.
He also said that Colombas’ decision to retire was “entirely in line with what he wants to do with the rest of his life”.
Colombas joined in 2011 and is known as a confidant of chief executive officer Antonio Horta-Osorio, following him to Lloyds from Banco Santander SA’s UK business. He played a “critical role in helping the group determine its strategy in the wake of the financial crisis and, in particular, the restructuring of its balance sheet”, Lloyds said in its statement on Thursday.
Lloyds also hired two new senior women for the board, including former HSBC Holdings Plc group financial controller Sarah Legg and Catherine Woods, the former deputy chairman of Allied Irish Banks Plc. Anita Frew is stepping down as a non-executive director after nine years on the board.
The bank suspended its share buyback program in September after a last-minute rush of claims for PPI, the most expensive compensation programme in history for UK lenders. While regulators had urged the public to seek redress for years through high-profile advertising campaigns, the surge before the Aug 29 cut-off caught lenders flat-footed.
“I am disappointed that our statutory result was significantly impacted by the additional PPI charge in the third quarter, ” said Horta-Osorio in the statement, adding that the continued UK economic uncertainty could dent Lloyds’s outlook.
Analysts expect the PPI saga to affect the firm’s plans for shareholder returns. “We now only model £750mil of buybacks in 2020, well below the original 2019 target of £1.75bil, ” analysts at Citigroup Inc said in a note to clients.
Lloyds posted higher than expected impairments in the third quarter, which were driven by a single corporate name, Chalmers said during a call with reporters, declining to say whether it was due to the bankruptcy of the troubled airline Thomas Cook Group Plc.
The bank is also heavily exposed to the Brexit-mired British economy through loans to homeowners and small businesses.
Chalmers also declined to comment on whether the bank will stick to its profitability target for the year.
Edward Firth, an analyst at Keefe, Bruyette & Woods, said the return on tangible equity target is “clearly gone” given the PPI charge. — Bloomberg
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