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Not before time, Economist displays some honesty about Lloyds

November 21st, 2010

There may be widespread scepticism about the integrity of Lloyds Banking Group, but  many UK publications seem willing to give the financial behemoth the benefit of the doubt (maybe this is in the national interest or because they’re frightened the bank will pull its “For the journey” ads).

So it’s reassuring that a leading UK-based publication, The Economist, has displayed some honesty about the bank. In an article headlined One man’s giant leap, The Economist has listed some of Lloyds’s profound flaws — four of which I listed in my Is Lloyds the new Enron? article. The magazine said:-

Lloyds is huge—the world’s biggest bank by loans in 2009, after its government-brokered shotgun marriage with HBOS, another British firm, during the financial crisis of 2008. And it is a mess: the state owns a 41% stake; the bank is over-reliant on borrowing; has little international exposure; and has such high market shares in most of its products that competition authorities and rivals are almost bound to grind them down. Lloyds’ top brass have often seemed to be in denial of their problems. Its share price seems to reflect a credulous view of the company’s outlook.

The underlying theme of The Economist article is that António Horta-Osório (formerly of Banco Santander) — who takes over the reins from the “in denial” Eric Daniels in March 2011 — has been unwise to accept the task of running Lloyds Banking Group, which might well turn out to be a poisoned chalice for the Portuguese-born banker. Given the multifarious challenges that await Horta-Osório, including a likely break-up of Lloyds, who am I to disagree?

The article concludes by saying:

If Lloyds survives, Mr Horta-Osório’s task will be to clean up a giant mess.

Note: In Is Lloyds the new Enron?, a blog post I wrote just over a year ago, I argued that Lloyds Banking Group was an extremely disingenuous institution that was seeking to pull the wool over investors’ eyes with its £13.5bn rights issue. Nothing that’s happened in the past 13 months has convinced me that I was wrong. Apart from anything else, investors ought to have checked whether the valuations placed on loans and joint-ventures entered into by the bank’s former head of corporate, Peter Cummings, are worth what the bank claims. They might also care to check out how much it is costing the bank’s executioner-in-chief, Mark Fisher, to achieve targeted cost savings of £2bn and check whether the bank is being as transparent as it could be to future litigation and regulatory risk.

 

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