20 September 2010
Lloyds Banking Group must live in a parallel universe.
The press release announcing that chief executive Eric Daniels will retire within a year gives the impression the American’s seven years at the helm have been an unqualified success.
In the release, the bank’s chairman Sir Win Bischoff said: “The entire board and I are grateful to Eric for his leadership as chief executive since June 2003 …
“The successful integration of [Lloyds TSB and HBOS] and the sooner than expected return to profitability of the enlarged Lloyds Banking Group are testament to his disciplined and vigorous leadership … It is to Eric’s credit that Lloyds is in such an excellent position for the next phase of its development.
“I have seen first-hand and value greatly the considerable management, banking and organisational expertise Eric has brought to Lloyds as chief executive. On a personal note I shall miss an outstanding colleague, his passion for the group and his commitment to its customers and employees.”
Thankfully, the Financial Times’ Lex column has made a good job of demolishing this, highlighting the catalogue of failures on Daniels’ watch, with an emphasis on the wholesale massacre of shareholder value he’s overseen since he pushed through the HBOS acquisition in September 2008. Here’s what Lex had to say about that: “For shareholders counting the cost of Daniels’ tenure as chief executive of Lloyds, the astonishing thing is that there was nary a word of remorse …
“Never mind that Mr Daniels helped perpetrate Lloyds’ reckless acquisition of HBOS in September 2008, or that he swallowed the last prime minister’s baseless competition waiver promise. Never mind that Lloyds then had to be rescued by UK taxpayers, who now own 41% of the bank. Never mind that they and other investors had to cough up £13.5bn in last November’s cash call, equivalent to almost 1% of UK output.
Mr Daniels’ pre-crisis achievements … pale in comparison to his bad crisis judgment. There has been a post-HBOS return to profitability in the first half. But falling bad loan charges on HBOS’ parlous loan book did most of the work.”
Also in the FT, Andrew Hill has written a classic Lombard piece about the announcement that Daniels is making himself scarce. Andrew writes: “In public he has never once let his nicotine-cured teak veneer slip. Even the description of his stately retirement plans maintains the fiction that he has ridden the black horse in a straight line from 2003 to the presentation of a gold watch sometime in 2011.”
Daniels has also blotted his copybook with his dilatory approach to replacing the £160bn or so it receives in state-subsidized funding through the Bank of England’s Special Liquidity Scheme and related schemes. Until August, Daniels believed he could call the government’s bluff and persuade it to prolong the SLS, according to Simon Nixon in the Wall Street Journal. But since a rude awakening from Bank of England governor Sir Meryn King last month, Daniels has been having to play catch-up. But he has been discovering that reasonably priced replacement funding from private sector sources is hard to find.
I tend to agree with Peter Thal Larsen that Lloyds urgently needs to find a credible replacement leader. In his Breaking Views column, Thal Larsen says the bank must, as a matter of urgency, appoint someone with the credibility to “square up” to the UK’s banking commission (which could well break up Lloyds/HBOS, which was always an oligopolistic construct) and remove the UK government from its share register.
Another area where Daniels has hardly excelled is in his handling the Bank of Scotland Reading scandal, an alleged fraud that cost the bank an estimated £1bn, caused the destruction of some 50-200 corporate customers, and enriched a group of businesspeople of questionable integrity (led by David Mills, founder of Quayside Corporate Services and Core Enterprise Management).
Since he inherited this mess, which appears to have involved money laundering on a massive scale, Daniels’ approach — pretend BoS Reading never happened and continue to persecute the victims — has been a disgrace. This is what I wrote about Daniel’s response to the alleged fraud last September: “After acquiring HBOS, Daniels had a fantastic opportunity to draw a line under the scandal and lance this particular boil. He could have admitted wrongdoing, declared that such behaviour would no longer be tolerated, compensated the victims and displayed at least a hint of moral backbone. But Daniels did nothing of the sort. Already in a deep hole, he chose to keep on digging.”
When the matter erupts into the public domain it’s going to be a massive embarrassment for the bank. Perhaps Lloyds decided it made sense for Daniels to depart before the proverbial hits the fan. Daniels — aka “Mr Superlatives” — remains as much in denial as all the other bods on the Lloyds Banking Group board (i.e. 100%). In the press release announcing his departure, he said: “It has been a tremendous honour and a privilege to lead our many talented and dedicated people over the last seven years. I am grateful to have been given the opportunity to create the new group and to set Lloyds well on its way to becoming the best bank for all our stakeholders including our customers, shareholders and employees.”