In his last presentation to investors, Mr Antonio Horta-Osorio said: “I will be leaving the bank in a better position than when I joined, which should be the purpose of any CEO”. We’ll discuss that below in more detail but he’s certainly leaving the share price (pre-pandemic) at the same level he found it. And that’s not the purpose of a CEO paid £60 million since he joined the bank.
Nobody could have predicted the Covid-19 global pandemic but it’s Mr Horta-Osorio’s stewardship of Lloyds since he was appointed which needs to be scrutinised in a lot more detail. Mr Horta-Osorio is leaving the bank at the end of April.
Was he worth the £60 million he’s been paid since joining Lloyds Banking Group?
The First 100 Days
Mr. Horta-Osorio likes to say he saved Lloyds Banking Group from near collapse. I’ve heard it said that Lloyds was just a few days away from running out of money. There is absolutely no evidence of this other than the stories spun by the Lloyds PR people in Gresham Street. We have no doubt that the previous Chief Executive and Group Finance Officer, Eric Daniels and Tim Tookey respectively, would reject such suggestions. And let’s not forget, when Mr Horta-Osorio was forced the take his leave of absence because of sleep deprivation and stress, it was Mr. Tookey – who himself had been admitted to hospital after collapsing from exhaustion at a results presentation rehearsal in Gresham Street at the height of the HBOS takeover – who took over the running of the bank.
The £22 Billion Mistake
One of the biggest drags on the Lloyds share price, which we will discuss later, was the Payment Protection Insurance (PPI) mis-selling scandal.
INSEAD, the global business school, produced a case study on Mr Horta-Osorio’s first hundred days in office and it says of the PPI decision: “analysts felt that not only was £3.2 billion an exorbitant amount (more than double what had been expected, and approaching the FSA cost ceiling for the entire industry) but that it set a precedent that other banks would be obliged to….follow”. The case study goes on to say that a few months before his collapse: “Far from basking in the glory that had accompanied his move to Lloyds from Santander, Horta-Osorio was taking the heat for Lloyds’ “self-inflicted fall back into the red” caused, critics argued, by the write down of £3.2 billion in PPI mis-sales….”. The case study says: “Given the slide in the share price and other setbacks that had occurred on Antonio Horta-Osorio’s watch, he seemed to be failing to meet expectations”.
Instead of agreeing the PPI compensation parameters with the Regulator, Lloyds under Mr Horta-Osorio simply opened the flood gates. And this lack of understanding of the scale of the PPI problem is clear from the £3.2 billion Lloyds initially estimated it would cost the bank. Since Mr Horta-Osorio made the announcement, Lloyds has paid out compensation of £22 billion to customers, many of whom knew what they were buying. We have heard stories of customers who claimed on their insurance policies and then complained they were mis-sold the same policies. The bank paid out in those cases. To put Mr Horta-Osorio’s decision to give free money to millions of customers at the expense of shareholders into context, Lloyds is today worth roughly what it’s paid out in compensation to PPI customers.
Is that something anyone can be truly proud of?
The Lloyds Share Price
There is one subject that Mr Horta-Osorio never talks about and that’s the share price. Why not? Let’s put it this way, if the share price had tripled under his leadership you wouldn’t be able to shut him up. So, let’s look at the evidence.
When he joined the bank the share price was at 61p. Today, Lloyds shares are worth 39p. As one wag recently said: “You could buy three shares in Lloyds Banking Group for the cost of a trip to Poundstretcher”. Even before the pandemic, the Lloyds share price was significantly below (on 2nd March 2020 Lloyds shares were worth 49.54p) the share price inherited by Mr. Horta-Osorio when he took over running of the bank in March 2011.
In 2006, the leading American investment manager and guru Warren Buffett said: “Too often, executive compensation … is ridiculously out of line with performance. The deck is stacked against the investor”. The question shareholders are entitled to ask is whether Mr. Horta-Osorio’s level of performance over the past decade has been worth £60 million? Many will conclude that he’s done much better than they have.
Growing The Business
Some commentators have said that Mr. Horta-Osorio successfully offloaded £200 billion of toxic assets, eliminated £200 billion of debt and reduced the bank’s cost to income ratio, making Lloyds one of the most efficient banks in the world. All of that is true and the Lloyds CEO must be commended for stabilising the bank and returning it to private ownership.
But cutting costs in a very large bank is the easiest part of running the business. You don’t need to pay someone £60 million to close branches, sell assets and reduce staff numbers. Growing the business is the difficult bit and there are precious few examples of Mr Horta-Osorio doing that. It seems that things are so bad in Lloyds it is now talking about growing bancassurance again. We’ve been here before and the bank has never been able to make that business grow significantly. And in respect of wealth management, which Lloyds is now investing in heavily, one shouldn’t forget that St James’s Place, the largest wealth management business in the UK with funds under management of £119 billion, was sold for a song by Lloyds back in 2013.
Mr Horta-Osorio’s strategy of focusing on the UK is now the bank’s biggest weakness when the UK is going through one of the worst recessions on record. That recession is set to continue for the next few years.
‘Two Pensions’ Osorio
In a speech to the Scottish CBI, Mr Horta-Osorio said: “The example needs to come from the top, having a leader with the highest integrity and values”. When he did away with the uprating of pensions to take account of pay increases for staff but kept it for himself, what values did that show? After five years and relentless media pressure, orchestrated by us, Mr Horta-Osorio gave up his second pension perk. He also once said: “We must remember that the way we see ourselves is not the way others perceive us”. He was right. When it came to his second pension, many active staff in the defined benefit schemes will have perceived his stance to be hypocritical.
What Did Antonio Know About HBOS Reading?
Dame Linda Dobbs was appointed in April 2017 by Lloyds to: “assess whether, between 19th January 2009 and 20th January 2017, information about issues relating to HBOS Reading which LBG knew, or should have known about through due diligence, was promptly investigated and appropriately reported to the relevant authorities”.
In June 2018, Dame Linda told the Rt. Hon. Baroness Nicky Morgan, then Chairman of the Parliamentary Treasury Committee, that her report would be completed during the second half of 2019. That date came and went. We wrote to Dame Linda in early 2020 asking when her report would be published. In a letter of 30th January Mr. Adam Wiseman QC, writing on behalf of Dame Linda, said: “As such it is difficult precisely to gauge when her report will be finalised. It is anticipated that it will be in the second half of 2020…..”.
Dame Linda has now confirmed that her report will not be published until the second half of 2021, some 4 years and 9 months after she was appointed. Why has Dame Linda missed another deadline and why is she taking so long to produce what should be a straightforward report?
In my letter to the Chairman of the Treasury Select Committee I said: “the longer it takes to produce her report, the more likely it is that the key actors in the HBOS Reading scandal will have retired or left the bank, many with lucrative severance packages and pensions”.
Lord Blackwell, the previous Chairman of Lloyds Banking Group who was appointed in 2014, resigned from the Board on 1st January 2021. Mr Antonio Horta-Osorio, who we would expect to feature heavily in Dame Linda’s report, is leaving in June 2021.
If the Dobbs Report finds Lord Blackwell and Mr Horta Osorio at fault in their handling of HBOS Reading, we would expect the Group to claw back any share awards made over the last few years.
It’s only right we leave the final words to Mr Horta-Osorio. INSEAD named Mr Horta-Osorio as one of the “50 alumni who changed the world” in 2009. The INSEAD website describing his career quoted him as saying:
“If I can be remembered, I would like it to be … as someone who created value wherever he worked through building teams of excellent people who he led by example”.
Members with any questions on this Newsletter should contact the Union’s Advice Team on 01234 262868 (choose Option 1).