Lloyds Banking Group is to axe 3,000 jobs and close 200 branches as it races to cut costs in anticipation of a cut in interest rates.
The bank is blaming a fall in the use of branches by customers and anticipated cuts to interest rates following the vote for Brexit last month for the decision to cut jobs. Mark Carney, the Bank of England governor, signalled a rate cut would take place during the summer and the City now expects rates will be cut from their 0.5% historic low on 4 August.
The cuts by the 9%-taxpayer-owned bank come on top of 9,000 announced in a three-year cost-cutting programme in October 2014, which followed 45,000 jobs that went after the rescue of HBOS during the 2008 crisis. Lloyds, which also owns Halifax, employs around 75,000 - down some 54,000 following the HBOS takeover.
Unions reacted furiously to the cuts announcement. Ged Nichols, general secretary of the Accord union, which represents 22,000 staff who joined Lloyds from Halifax, said he was seeking urgent talks with the bank.
“The loyal, dedicated and customer-focused employees in the Lloyds Banking Group are still reeling from recent job losses. They will be bewildered by today’s news and wonder what has happened that is so catastrophic that these further job cuts and branch closures are necessary. Interest rates might be lower for longer but why are job losses higher and faster? Where will the axe fall next?” said Nichols.
Other union officials said customer service could be damaged. Unite national officer Rob MacGregor said: “This grim news of yet more job losses and branch closures will send a shiver down the spine of Lloyds employees, who have worked hard to make the bank a success and deliver excellent customer service against a backdrop of continual uncertainty.”
The bank had already earmarked 200 branches for closure by 2017 so the latest announcement means that 400 will be shut by the end of next year.
António Horta-Osório, Lloyds’ chief executive, said the decision to cut jobs – which will save £400m - had been tough. But, he said, use of branches had fallen by 15% year on year, faster than had been the case at the time of the previous announcement to cut jobs.
He said he expected the Bank of England to cut rates to 0.25% but said policy makers would avoid negative rates because of the negative signal this sends about the economy. Neither did he expect to follow the move by Royal Bank of Scotland to warn customers that it might have to charge for deposits.
The Lloyds chief executive was speaking as the bank reported a doubling of first half pre-tax profits to £2.5bn. He focused on the underlying profits – which exclude restructuring costs and other items – which were down 5% at £4.1bn.
In the immediate aftermath of the vote for Brexit the Lloyds share price dived below 50p – well below the 73.6p average price at which taxpayers bought their stake in the bank, which has fallen from 43%. After the results announcement, the shares were trading 4% lower in early trading at 53.5p.
Horta-Osório said: “Following the EU referendum the outlook for the UK economy is uncertain and, while the precise impact is dependent upon a number of factors, including EU negotiations and political and economic events, a deceleration of growth seems likely.
“Given the sustainable recovery in recent years, the UK economy enters this period of uncertainty from a position of strength and is well positioned to face any economic headwinds.”
The Brexit vote also drove sterling to 31-year lows at one stage and this has reduced the amount of capital the bank holds as it increases the value of its riskiest assets. Horta-Osório admitted that it might be difficult to generate as much surplus capital – which might be paid out in dividends – as might have been the case.
“Given the uncertainty, it is too early to determine the impact on our formal longer term guidance at this stage. However, while the business will remain highly capital generative, it is possible that this capital generation may be somewhat lower in future years than previously guided. We will formally update guidance when we have a clearer view of likely outcomes,” he said.
As a result of buying HBOS – which includes the former Halifax building society – Lloyds has 2.7 million retail investors and is paying a 0.85p per share dividend, up 13%.
George Osborne, when he was chancellor, had promised to sell the remaining taxpayer stake to the public at a discount but it is not clear how his successor, Philip Hammond, will tackle any sell off given the fall in the share price.
The bank maintained its profit guidance – measured by net interest margin – for 2016 but did not spell out what it expected next year.
The prospects of special dividends had helped propel the share price last year. “Lower capital generation impinges on the bank’s ability to return cash to shareholders. Lloyds has increased its interim dividend significantly, but if the Brexit axe is to fall anywhere it’s likely to be on the special dividend at the end of the year,” said Laith Khalaf, senior analyst at stock broker Hargreaves Lansdown.
This article was written by Jill Treanor, for theguardian.com on Thursday 28th July 2016 08.56 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010