James Max - James Max is a broadcaster, columnist and business expert

Lloyds Banking Group must reflect on poor decisions

On pretty much every level, share price, turnover, profitability, shareholder return, customer satisfaction, public perception and actually bothering to turn up to work, let’s face it, the Group Chief Executive of Lloyds Banking Group, hasn’t had a great 2011.

It’s the right decision that he has chosen not to take his bonus this year. But what kind of system allows someone to be given or paid “over and above what is due” when results have not been achieved? I really don’t have a problem with people being well paid to do difficult and profitable jobs. Nor is it wrong to be paid considerable sums if, as a result of your work, you make profits for shareholders, employees and provide a great service for customers. Where I have a problem is that these rewards are being paid too often to those who do not achieve.

Of course the mess at Lloyds Banking Group is not his fault. After all, a retired British sea captain has just filed a US class action. The previous management under the chairmanship of Sir Victor Blank and former chief executive Eric Daniels have been accused of a “reckless disregard of the truth”. Days after a merger deal between Lloyds TSB and HBOS was signed in 2008 the British bank was “technically insolvent”. At the announcement of the merger, Daniels had described the transaction as “a fantastic deal” adding that the combined companies would have a “robust capital position”. It’s clear now that Daniel’s definitions of the words “fantastic” and “robust” clearly mean something very different to him.

This has to go down as one of the worst corporate deals in history. Shareholder value to the tune of £14 billion was lost at the time of the merger. More has been lost since. Those in charge of the merger were probably more interested in the political points and rewards they felt might be on offer than actually bothering to look through the books of the troubled HBOS basket case. The extensive loans that had been made on commercial property were toxic. In effect, previous management had presided over a bank that bought market share. The dreadful state of affairs in respect of the residential loan book and the precarious capital position of the bank were plain for all to see. Yet Messrs’ Blank and Daniels carried on regardless.

Safe, boring, traditional, cautious Lloyds TSB walked headlong into a financial disaster. Of course none of those who perpetrated this horrendous deal suffered in any way. Many have left the renamed Lloyds Banking Group with their personal wealth and pensions in tact. The former management team at HBOS didn’t do too badly either. All have continued to earn large sums even after the government stepped in and bailed them out. What of the politicians who forced the deal to go through? As we know, they are busy earning a packet on the speaking and consultancy circuit.

In September 2010 Eric Daniels announced he was stepping down as the Group Chief Executive. A replacement had to be found. Given that the British Government owns just over 40% of the bank, it was important to find someone who could not only lead the bank out of a crisis but also had the capabilities and skills to rebuild the balance sheet and return the organisation to profit. Antonio Horta-Osorio was selected. He was the former CEO of Santander in the UK and held senior positions across the group. This is a bank that had picked its mergers well and ridden through choppy waters. He joined Lloyds in January 2011 and was made CEO on the 1st March. So far so good.

So why do I think the current boss isn’t up to the job, if the mess is the fault of his predecessors? Setting aside that in November 2011 he had to take temporary leave due to stress related illness, he’s taken all the wrong decisions. He’s hired his friends in from his former employers, tinkered around with a strategy that wasn’t really a strategy and delivered appalling performance on virtually every level. When he took over, as CEO the share price was 70 pence a share. Now it’s 29 pence. He’s paid over a million quid a year and has multiple share options. In addition to that I am sure there are plenty of benefits from pensions and provisions for healthcare and goodness only knows what else made available to him, even if he sets aside this year’s bonus. Diddums that he gave up a lucrative post at his previous employers. Business today is about performance. He’s not performing.

The public image of Lloyds and its brands is terrible. Their ads are appalling. The cartoon characters, patronising voiceover lady and offering to customers is weak. The work by Rainey Kelly Campbell Roalfe Y&R is tired, unappealing and dull. The bank’s choice of sponsorship and brand awareness is low key and ineffective. The layout of branches and imagery is tired and uninspiring. Indeed I just noticed that if I get myself a Lloyds TSB credit card I could get a great interest rate. 17.9% APR. Sorry? How Much? The best savings rate I can get from them on a two year ISA is 3.3%. But on most other accounts the best I can get is between 1.5 – 2.5%. That’s gross, before tax. Then there are the mortgages. Compared to the rest of the market they are expensive. Not only that there’s no innovation and the longest I can borrow for is 4 years. On top of their dreadful rates, I have to pay arrangement fees and early repayment charges. This is a bank on the back foot. Taking advantage of customers who can’t or won’t leave rather than fighting for new business.

Pulling the Halifax brand to pieces seems almost cruel. Those cringe adverts. It can’t be the ad agency’s fault. Adam & Eve are the brains behind this year’s most successful ad campaign for John Lewis. It must be management at Halifax themselves who are to blame. Singing? Please. Before we had the low rent sales people pretending to be radio dj’s and now we have a bunch of staff looking like X factor rejects “singing” to persuade you that they know how to help. I wouldn’t trust them to look after my dog for the afternoon, let alone my money.

The group’s websites areconfusing and old fashioned.There’s a limited use of technology, lack of a willingness to lend to small businesses and although they say they help, there’s a lack of action on the ground. It really is a basket case. The Chief Executive is meant to set a vision. In the most recent press release he spent most of his time talking about (the failed) Project Merlin and all the awards they have won. Yawn.

If he were an effective CEO, Mr Horta-Osorio would be leading from the front. The first time we heard from him was when he took over the new post. The next time he was in the news, to announce that he was a bit knackered, couldn’t sleep and was taking some time off.

If he’d set a clear vision. If he’d been honest with shareholders about the bad loans. If he’d structured the bank in such a way as to deliver competitive deals to corporate and personal customers alike. If he’d competed in the marketplace to build shareholder value. If he’d won new customers. If he’d been innovative. If he’d repositioned the various brands. If, just if, then the old thoroughbred might be able to win victory for shareholders and the government alike. He has done none of these things.

For private shareholders his appointment has been a disaster and for the government’s holding in Lloyds Banking Group, the outlook isn’t good. There’s no thoroughbred here. Just a knackered old donkey that needs to be sent back Portugal. Perhaps he’d be better off on a beach anyway. Despite returning to work this week, it sounds like Mr Horta-Orsario needs a rest.

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