Lloyds Banking Group’s journey back to full private ownership

Author: | Published: 5 Sep 2017
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Earlier this year the UK government sold its last share in Lloyds Banking Group, marking the bank's journey back to full private ownership following its rescue in the wake of the global financial crisis. This milestone was a particularly proud moment for me personally, for my leadership team and for all colleagues who have worked hard and contributed to the bank's transformation in recent years. In total, more than £21 billion has been returned to the taxpayer through the selldown – nearly £900 million more than was originally invested in stabilising the bank in 2009.

The Government's capital injection in Lloyds and other financial institutions was much more than a simple investment seeking financial returns. It was a necessary step to provide stability to and confidence in the UK's financial system; a step that averted potentially far more catastrophic economic consequences for the country.

At this juncture in the bank's history, I believe it is an appropriate moment not just to reflect on how the bank ever got into this position but also to recognise the even greater responsibility we now have to support our customers, businesses and communities across the UK.


Seven years ago, in late 2010, I was asked whether I would be willing to join Lloyds. It was a very tough decision. I had worked for Santander for 18 years in four different countries, and had managed or acquired 11 banks for them during that period. In the end, after a long debate with myself and discussion with my wife, I made up my mind to accept.

The most compelling reason of all for joining Lloyds was the impact the Group has on people's lives in the UK – arguably more than any other business in the country, given its reach and presence in practically every community.

The chance to turn around the country's leading retail and commercial bank, giving tax-payers the opportunity to get their money back and helping the British economy, was too big to pass up.


When I became Chief Executive in March 2011, I joined a bank in crisis. It was literally on the brink of insolvency, receiving substantial liquidity support from the Bank of England and burdened with an extremely weak balance sheet. The bank had £200 billion of toxic assets from the acquisition of HBOS, equating to one third of the overall loan book. Furthermore, a third of the £600 billion loan book was funded by wholesale debt, with more than £100 billion funded by short-term debt which exposed the bank to inappropriate liquidity risk. Lloyds' capital position was also in a perilous state, with a core equity tier 1 ratio of around 7%, which did not give us any room of manoeuvre to simply 'write down' or sell the toxic assets at a loss and raise capital, given the Government's very clear position they did not want to inject any more funds into the Bank.

Six years on, the bank is transformed: it is a strong, simple and low risk UK focused retail and commercial bank. This business model provides a significant competitive advantage, one which allows us to support the UK economy through good times and bad. We aim to be there for our customers and clients, for the moments that matter. This is the outcome of a relentless focus over the past six years to meet our strategic aims.


In June 2011, within my first hundred days in the job, we set out a new strategy, outlining our vision to become a simpler, more agile and more responsive organisation. The core aim of the strategy was to become the best bank for our customers and shareholders; and to support this, we set a series of targets to refocus our business portfolio back to the UK and to fit our capabilities and risk appetite. We adopted an intense focus on simplifying the bank to improve service levels, increase efficiency, and invest in, and grow, our core customer franchise.

We have also focused significantly on repairing our balance sheet. We have sold close to £200 billion of toxic assets which we acquired from HBOS and we now have almost none on our balance sheet. We have also repaid the £100 billion of special liquidity support and £200 billion of wholesale net debt and we now have zero wholesale net debt.

On top of this, we were required by the European Commission's competition authorities to divest a significant proportion of our retail customer base (around five million customers) and branch network (more than 600 branches) as a consequence of receiving state aid from the UK government. Our approach was to build and sell an entirely new challenger bank, using an existing recognised brand from our portfolio. Carving out a bank from within a bank was a very complex and challenging task – and unprecedented in Europe. It appeared on UK high streets as TSB Bank in 2013, and was fully divested from Lloyds Banking Group in 2015.

A further example of our differentiated approach was the decision to break ranks from the rest of the industry on Payment Protection Insurance (PPI). The product had been widely mis-sold to customers across the industry for a number of years. We were the first bank to compensate our customers, and our decisive action paved the way for millions of consumers to receive compensation from their lender. This came at a substantial cost to Lloyds, but it was the right thing to do for our customers.

By the end of the first three-year phase of our strategy, we had successfully become a simple, low risk, UK focused retail and commercial bank, and were in a position for the Government to start reducing its stake in the bank initially through institutional placements.

In October 2014, we set out the priorities for the second phase of our strategy which maintained our focus on customers. To support this, the Group outlined three main priorities: creating the best customer experience, including a multi-channel and multi-brand approach; becoming simpler and more efficient so as to maintain our cost leadership position and delivering sustainable growth, by growing in markets where we were under-represented.


Today, the way customers demand our services is barely recognisable from what it was only six years ago. Many customers would now rather do much of their simple day-to-day banking, not in our branches, but from the comfort of their own home or on the move. The rapid uptake of smartphones has led to the demand for mobile banking increasing exponentially.

We now operate the UK's largest digital bank, with 13 million active online users and more than 8.5 million mobile banking users. The accelerated pace of digitisation and the growing online usage by our customers means we must continue to go even further in investing in our digital proposition. Today, more than two thirds of simple customer needs are met online.

Counter transactions are falling at an accelerating rate, but we recognise that many of our customers still place great value on branches and the ability to talk to us face-to-face. We remain committed to investing in branches and still have the UK's largest branch network, with more than one in five branches on the high street. We are also introducing more mobile branches to help ensure there is continuity of banking services for customers in some communities where their nearest branch is not within easy reach.


Lloyds is part of the fabric of Britain. We see first-hand the challenges the country faces through our operations across the country. We recognise the vital role we play in supporting customers, the communities in which we operate and the UK economy as a whole. The challenges Britain faces affect us directly and we know from our experience that when the UK prospers, we do too.

As a bank that serves millions of customers and carries out billions of transactions every year, we have to recognise that we will not get things right 100% of the time. That said, part of being the best bank for customers is ensuring when we do get things wrong, we do everything we can to put them right.

With this in mind, in 2014 we launched our Helping Britain Prosper Plan. The Plan captures the commitments we are making to help the country economically and socially, which as a UK focused retail and commercial bank we are uniquely placed to do. The Plan sets out a series of public commitments to address the challenges faced by the country. Since launching the Plan we have achieved a lot, but there is a lot more we can do. The challenges our Plan addresses are:

  • Housing
  • Saving for the future
  • Skills and employability
  • Sustainable business growth
  • Social disadvantage

Since October 2012, we have created more than 4,000 new apprenticeship places, with a third of them being offered to candidates from the UK's most disadvantaged areas and with a commitment to getting to 8,000 by 2020. We grew SME lending by 31% since the end of 2010 (or circa £8 billion) when the market decreased by 12% (or circa £22 billion) over the same period, supported 121,000 start-up businesses and helped more than 10,000 clients export for the first time.


We have also been recognised as a market leader in inclusion and diversity, for example being the top Lesbian, Gay, Bisexual and Transgender (LGBT) employer according to Stonewall's Workplace Equality Index 2017. Our LGBT commitments are reflected in our marketing campaigns, with the launch of our 'He Said Yes' campaign in March 2016, which received industry-wide recognition.

Another milestone for our Plan – and another first for the industry – was a public commitment in 2014 to increase the percentage of senior roles held by women to 40% by 2020 and we remain on track to achieve this goal, with 33% achieved at the end of June this year, up from 28% in December 2013.


The progress and the scale of the transformation that has been achieved over the past six years is huge. We have strengthened the foundations of the bank, with a strong capital position and a de-risked balance sheet. We have simplified the bank, focusing on retail and commercial banking in the UK. And we have strongly invested in digital and multi-channel services capable of meeting the evolving needs of our customers and delivering the best experience for them.

In December 2016 we announced the acquisition of MBNA, a prime UK credit card business. As our first acquisition since the global financial crisis, this represents an important step in the bank's transformation and supports our strategic goal of growing in areas where we are currently under-represented – such as consumer finance.

Our strategy, together with building a strong balance sheet and sustainable business model, enabled us to resume dividend payments in 2015. Since then, we have continued to meet our aim of sustainable and progressive dividends for our shareholders, having announced an interim dividend of 1p per share, an 18% increase, at half year 2017.

But we are not complacent. There is much to do, as we adapt to the changing nature of consumer behaviour and the exciting opportunities that digitisation brings. The next phase of the bank's transformation is now being developed in detail and will be announced to the market in February 2018. One thing is for sure – customers will remain our core focus and at the heart of everything we do, as we strive to help Britain prosper.

About the author

António Horta-Osório

Group Chief Executive, Lloyds Banking Group
London, UK
W: www.lloydsbankinggroup.com

António Horta-Osório became Chief Executive of Lloyds Banking Group on March 1 2011. Previously he was the Chief Executive of Santander UK plc and Executive Vice President of Grupo Santander. He was also Chairman of Santander Totta until 2011, where he was CEO between 2000-2006, and prior to that was CEO of Banco Santander Brazil. Horta-Osório started his career at Citibank Portugal where he was Head of Capital Markets.

A graduate of management and business administration at Universidade Católica Portuguesa, Horta-Osório has an MBA from INSEAD, where he was awarded the Henry Ford II prize – and an AMP from Harvard Business School. He has also been awarded honorary doctorates from the University of Edinburgh, the University of Bath and the University of Warwick. In 2014, the Government of Portugal awarded him with the Order of Merit Grã-Cruz, which is the highest Order of Civil Merit.




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