Yahoo Finance Lloyds chief swings the axe as honeymoon period ends
Charlie Nunn spent last week bouncing from an investment summit with Prime Minister Rishi Sunak, to a high-powered London bank conference and then jetting off to Cop28 in Dubai.
Yet amid the glad-handing, the Lloyds Bank boss still found time for the more mundane parts of the job.
On Tuesday afternoon, he could be found sitting in a drab office guiding City analysts through a set of plans to boost Lloyds’ corporate business.
Nunn, who has led the group for two years, is trying to build momentum for a turnaround plan now entering its crucial phase.
The 52-year old took the reins from Antonio Horta-Osorio, the man credited with saving Lloyds from the brink during the financial crisis before hatching the goal of “helping Britain prosper”.
Now, Nunn must convince the City he has the plan for the next decade.
After a year aided by rising interest rates that have given the lender a fair wind at its back, 2024 is set to be tougher. Interest rates may well start to fall and higher wage inflation kicks in. Nunn must pick up the pace of change.
“We’re very much into the execution part now,” says Benjamin Toms, an RBC Capital Markets analyst who follows the bank. “At the beginning they went a bit slower and now they’re probably going a bit faster.”
Quickening can be seen in news that Lloyds plans to axe as many as 2,800 middle manager roles as part of an overhaul, which also includes shutting 45 Lloyds, Halifax and Bank of Scotland branches.
Nunn will shuffle most staff affected by the middle management cuts into new roles focusing on digital.
Still, the plan has prompted disquiet from unions. Lloyds workers’ largest trade union, Accord, said it would fight any job losses and push to make sure people who are moved are properly trained for their digital roles.
Nunn, a former HSBC executive who spent time at McKinsey, first laid out his plans to transform Lloyds in February 2022, saying he wanted the bank to move beyond its core business of savings and mortgage lending and develop new revenue streams.
Acquisitions of vehicle leasing business Tusker and funds platform Embark have given the bank a funnel of new customers, and there is speculation that Lloyds could swoop for Tesco Bank’s five million customers.
Nunn wants Lloyds to start cross-selling more of these sorts of products to its existing 30 million customers. Lucrative wealth management and pension products are high on the list.
Investor reaction to the strategy has so far been somewhat tepid. Lloyds’ share price is near enough where it was on the day Nunn started, with the stock moved more by economic factors than corporate ones.
Some of Lloyds’ top shareholders are fully behind him, even if the payoff is yet to come.
David Samra, managing director of Artisan Partners International Value Team, one of the bank’s largest US shareholders with a $650m (£514m) stake, told The Telegraph: “We think the share price should be double where it is.
“The strategy to reinvest back into business to develop products and services that they can sell to their customers that generates fees is the right thing to do.
“The outcome, despite management’s enthusiasm, is yet to become visible. But the objective is correct.”
For it to be a success, Nunn will have to overcome the bank’s poor track record of cross-selling. Lloyds tried to pull off a similar move in the late 90s with a £7bn deal to buy mutual Scottish Widows, which offers pensions and life insurance, but the benefits were never fully realised.
“Lloyds has tried to sell wealth management products to UK consumers for 30 years and it’s never worked before,” says Ed Firth, an analyst at Keefe, Bruyette & Woods.
Firth, who has covered banks for nearly 25 years, said the wealth management strategy was undermined by Lloyds paying just 1.4pc on its easy-access savings account when rates were 5.25pc.
“How do you expect your customers to trust you with wealth management products? I think Charlie instinctively would agree but I don’t think he’s actually managed to change the culture at Lloyds,” he says.
Lloyds disputed that customers get poor value on their products, pointing to savings products that offer up to 4.2pc with instant access. A spokesman said the bank had increased rates on 15 occasions alone this year.
Ultimately, Firth believes “the wealth management strategy stuff is a distraction”.
“I would like to see a braver recognition of the real challenges and how he plans to address them,” he says.
The rise of more nimble digitally focused lenders such as Monzo, Starling and Chase means there are more sweeping challenges on the horizon. Firth believes a key priority must be to build a cloud-based computer system that the bank can run on, allowing it to be nimbler.
Still, Cambridge-educated Nunn, who picked up £3.7m last year, has more time to show his strategy is paying off.
He is liked in the City, in no small part because of his focus on costs. Lloyds has one of the best cost-to-income ratios of all the big banks.
“In a commodity business like banking, you need to be low cost, and the focus on cost again is the exact right thing to do,” says Samra at Artisan Partners International Value Team.
“We like the management and the chairman of the board. We think they’re all excellent people.”
Despite some reservations, Firth also believes Nunn is a “breath of fresh air” compared to other bank bosses.
“Most of the banks, all they’re talking about is share buybacks and return on equity targets whereas you can actually get Charlie to talk about what customers are looking for and what they need.”
Lloyds is still making healthy profits and solid revenues.
However, despite the positive numbers, shares are still down 7pc this year and it trades at a discount to book value.
Taken one way, it could be interpreted as a poor report card for Nunn. However, Samra argues it is more to do with the regulatory straightjacket placed on banks.
“A regulatory balance needs to be achieved,” he says. “I applaud a lot of the regulation that has come in since the financial crisis but you can’t do that forever.
“Whatever profits banks can generate never make it back into the hands of the shareholders. As a result, you end up with these discounted valuations.”
Nunn himself last week warned politicians off a windfall tax on bank profits, no doubt with one eye on the possibility of an incoming Labour government. The Lloyds said there was “nervousness” among international investors about backing UK banks.
Lloyds has a policy of buying back about £2bn of its shares each year but the lender has an additional £2.5bn of excess capital it could choose to hand back, according to Jefferies.
The complex sale of Telegraph Media Group could also help Lloyds recoup its £1.16bn loan to the Barclay family, opening up the possibility of a special dividend.
However, cash handouts can only work for so long. Ultimately, Nunn must show that his vision for how to run the core business is the right one.
Toms at RBC Capital Markets says: “We’re starting to see some green shoots come through. Lloyds has invested at the right time.”
Like a gardener sowing seeds in winter, Nunn, his shareholders and the City at large are waiting for the flowers to bloom.
A Lloyds spokesman said: “To achieve the ambitious strategy we launched in February 2022 and to meet our customers’ evolving needs, we are transforming our business.
“Making big changes means not only creating new roles and upskilling colleagues in some parts of the business but also having to say goodbye to talented colleagues who have been a part of the Group’s success in the past. Where that is unfortunately the case, we will do everything we can to support them.”
