Blank’s exit won’t end Lloyds’ troubles
IT was always Sir Victor Blank, one of the Labour Party’s favourite businessmen, who was most likely to be Lloyds Banking Group’s sacrificial lamb. It was he, after all, who was the main driver of Lloyds TSB’s ill-fated takeover of HBOS; he first discussed the idea of the deal with Gordon Brown over drinks in St. James’s, an event later described as the most expensive cocktail party in history for investors and taxpayers by one Tory MP.
While Blank may eventually be proved right that “it was the deal of a lifetime” in that the super-bank will one day be extremely profitable, it also meant a sound bank became a troubled bank and a disastrous dilution of shareholder value for Lloyds TSB’s investors. Blank hoped his purchase of HBOS would be seen in the same light as JP Morgan’s takeover of Bear Stearns and Barclays’ brilliant acquisition of Lehman Brothers US; instead, it soon started to look like Bank of America’s destructive purchase of Merrill Lynch.
Instead of having to nationalise one giant (RBS) and the smaller HBOS, the taxpayer ended up having to take over two behemoths. The world’s perception of the City of London would be very different today had Lloyds TSB remained private and independent. Blank should have done proper due diligence; for that he is now paying the price. So his decision to step down, which had become all but inevitable with shareholder outrage mounting, is welcome; but he should leave the company as soon as possible and not wait until June 2010. His staying on in a lame duck capacity is hardly likely to help Lloyds regain its direction and will continue to irritate angry shareholders. A successor must be appointed quickly. Regrettably, this may well rule out Lord (Mervyn) Davies, the trade minister, who would make a great chairman. The Labour government has another year to run so the timing is not quite right, though it may be possible to ask Lord Leitch, now vice-chair, to step in as interim chairman until the election.
Eric Daniels, Lloyds’ CEO, may be next to go, though he should stay at least until a new permanent chairman is appointed. Daniels is a superb banker, having spent most of his life building sustainable and profitable businesses around the world, especially for Citigroup. We shouldn’t forget how much good he did for Lloyds when he joined as head of retail banking in 2001 when it was struggling with its purchase of Scottish Widows.
Lloyds faces several other challenges. It must get through the next year of recession, impairments, repossessions and asset write-offs. Then it will have to build better relations with its shareholders to allow it to start raising capital privately again and for the government to start reprivatising it.
And then there are competition problems. The Tories say they don’t want banks to be too big. They are unlikely to wish to break-up HSBC or Barclays; Lloyds, which is state-controlled, would be a much easier target. Daniels has spent the past few months trying to integrate both businesses in such a way that they cannot be separated; but another way of shrinking Lloyds could be devised. And even if the Tories don’t legislate, the other big banks are watching the situation closely and will complain to the authorities if they feel the market becomes uncompetitive. In a couple of years’ time, the clamour to restrain Lloyds is likely to become deafening.