Tomorrow, Lloyds will publish its Q1 results and will set out how much the coronavirus pandemic will cost the bank. Barclays has set aside £2.1bn and HSBC £2.4bn for customers not being able to repay back loans during the crisis.
The UK economy could shrink by 35% in the second quarter of this year and unemployment could hit 10%. Tens of thousands of small and medium sized businesses are going to collapse, even with the Government’s support packages as the coronavirus lockdown measures take their devastating toll. COVID-19 could end up dwarfing the financial crisis in economic damage. There will be a bounce back but economists are arguing over how long that will take. It seems that the restrictions are now used to cope with coronavirus are going to be the ‘next’ normal for much of this year and possibly even into next year, if no vaccine is found. So, what does that mean for Lloyds?
The key performance indicators driving the Lloyds strategy will need to be changed to reflect the world post the COVID-19 pandemic. That work is happening now but let’s be clear: new business is going to take a massive hit and costs are going to be the main lever Lloyds will try to control. There will be some who will be quick, and the management consultants are already jumping on the bandwagon, to highlight the fact that the pandemic has created a number of opportunities for Lloyds and other banks to exploit, particularly in the move to digital banking. They will point to the amount of new business that is now being done through the digital channels compared to before the pandemic started. One bank recently reported that prior to the lockdown 60% of new business was done through the branch network. Now, 60%+ of new business is done through the digital and mobile channels. That shouldn’t surprise anyone but the expectation that customers who have moved to new channels will do so permanently is naïve.
Lloyds will also be looking at its location strategy, flexible working and the different ways it’s now interacting with customers. Again, this is something that all the banks will be looking at as they try recoup some of the costs of the pandemic.
Branches Are The Next Big Idea
There will be some in Lloyds who will fail to grasp the lessons of this pandemic and will adopt strategies that will harm the bank in the long term. We can see this happening already with some talking about speeding up the move to digital banking at the expense of branches. The digital players have been largely absent from this crisis and the weaknesses of their business models – namely no ‘bricks or mortar’ – have been clear to see. Customers, especially business banking, want banks with a high street presence, especially at times of emergency and that’s why they are key to Lloyds’s business model. Research shows that even those customers who use digital channels exclusively want the reassurance that branches will be there should they need to use them. There will always be digital start-ups who can offer fancy cards and cheap marketing gimmicks but those will not be around for the long-term, whereas Lloyds will be.
That doesn’t mean what branches do in future can’t be reconfigured. Both Lloyds, TSB and Barclays branches are helping out their respective contact centres dealing with customer calls. The Chief Executive of Barclays said that retail branches “could be used for investment banking and call centre work in future”.
In fact, now would be a good time for Lloyds to reverse the branch closures it recently announced permanently and commit not to close any more branches until the end of next year at the earliest, when this pandemic will be over.
The Future Of Work In Lloyds
There will be a team of people in Lloyds who are looking at its location strategy right now who see increasing the use of remote working as a way of reducing costs. The idea of sticking thousands of people in buildings may be a thing of the past. So, for many thousands of Lloyds, staff remote working might be the ‘next normal’. And that will bring its own set of problems. In a recent McKinsey article – “Shaping and safeguarding the banking workforce after COVID-19” – it said: “losing the workplace as a great equaliser of employees of different backgrounds also exposes underlying inequalities, raising questions on how to handle equity and fairness”.
Equally, many staff in branches are now interacting with customers digitally and through the telephone for some specific areas of activity that could become permanent. How that will work without putting extra pressure on branch staff will need to be discussed with the union.
We will cover these issues in more detail in forthcoming Newsletters.
And Finally….
When HSBC announced its results a few days ago, its Chief Executive, Noel Quinn said he would donate 25% of his base base pay, about £160,000, for the next six months to charity. He also said that he wouldn’t take his annual cash bonus which was worth £1.2 million. Ewan Stevenson, Chief Financial Officer, is doing exactly the same. Mark Tucker, the Chairman of HSBC, is giving up his entire package, worth £1.5 million, to charity.
As we set out in a previous Newsletter, all the other executives of the leading banks are doing the same and donating base pay to various charities.
The only thing Mr Horta-Osorio has agreed to give up is a potential bonus which is probably not going to be worth very much, if anything, at all. That’s not living the Lloyds culture.
We all agree that charity begins at home. Mr Horta-Osorio and the other Lloyds executives need to dig deep and give up their basic pay and pensions for the next 6 months. It’s pocket change to most of them anyway.
Over to you Antonio, William and Norman.
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