Lloyds to cut 15,000 jobs

30 June 2011

Shares in Lloyds Banking Group were flying high on Thursday as it revealed plans to cut a further 15,000 of its staff in what will be the biggest job cuts in British banking history.

Ahead of its strategic review announcements, the part-nationalised bank said it aims to axe the jobs by 2014 and halve its foreign markets business.

Later today, it will unveil plans to streamline the group and deliver £1.5 billion of cost savings within the next three years.

Popular move

The plans, pioneered by António Horta-Osório, who took over as chief executive in March, are set to be popular with investors and taxpayers, but not with staff and union leaders Unite said the review would cause "deep distress and anxiety".

The job losses represent 14% of Lloyds's 104,000 employees, but the bank said it would not close any UK branches, implying that the cuts are likely to fall on middle management and back office functions.

The job cuts come on top of 27,500 losses already announced since it was propped up by taxpayers' cash in 2008.

Lloyds's shares were heading the FTSE 100 winners' board in morning trading, up over 6% at 47.60p.

"Our aim is to become the best bank for customers. We will unlock the potential in this franchise over time by creating a simpler, more agile and responsive organisation, and by making substantial investments in better-value products and services for our customers, to deliver strong, stable and sustainable returns for our shareholders," said Horta-Osório.

The bank said its cost-cutting programme will be delivered through better end-to-end processes and IT platforms, simplified management and legal structures, centralised support functions, in addition to the job cuts.

£2 billion 'freed up'

While the programme itself will cost £2.3 billion in total, it is expected to free up about £2 billion for investments over the period.

Lloyds said it would use the money to "revitalise Halifax" and develop its other UK businesses including Lloyds TSB and Bank of Scotland. It also voiced its support for pension and investment arm Scottish Widows.

Substantial savings will be made through the closure of half the bank's international operations, as it withdraws from 15 of the 30 countries it currently operates in.

Horta-Osório promised that Lloyds, which is 41%-owned by UK taxpayers, would wean itself off government funding by the end of this year.

Expectations for 2011 performance remain broadly unchanged to those given in the interim management statement on 5 May.

Positive City response

Louise Cooper, City commentator at BGC Partners said the announcement would go down well in the City.

"We know that this group - forged in the financial crisis - has massive market share and so it was never going to be a surprise that the EU competition authorities wanted 600 branches sold.

"There is pressure on banks (especially those owned by the government) to consider the wider social good of the country, and Lloyds new CEO, coming from Europe, really gets this. If you look at the statement, there is a promise that the commercial business will continue to focus on SME lending (a subject much discussed in the media). And then there is also a promise not to offshore further UK jobs.

"First António Horta-Osório broke ranks with the rest of his industry by acknowledging the problems with PPI (which earned him brownie points with the regulator and politicians) and now he implicitly accepts the wider role that banks play in the societies in which they operate. He made his reputation at Santander, and now that he is at Lloyds, he is proving that he is the man for the job."

This article was written for Interactive Investor

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