Lloyds to spend £3bn to try and keep hitting the right buttons

Comment Martin Flanagan

Lloyds Banking Group’s Antonio Horta-osorio is on the front foot with the City, with the fully re-privatised bank reporting its highest profit since before the financial crash, a 20 per cent rise in the divi, a £1 billion share buyback programme in 2018 and £3bn of investment in the group over the next three years. Lloyds is clearly making a statement that it is the banking sector’s income stock again, drawing a clear line under its disastrous acquisition of HBOS and the lengthy aftermath when it slid into part-state ownership and a period of suspended dividends ordered by the EU in return for its taxpayer bailout.

The bank’s chief executive revealed that digitisation is at the heart of his new threeyear strategic plan also unveiled yesterday. That and training staff up to become more proficient in digital working via a 50 per cent increase in training time.

Horta-osorio says he is a fan of branch banking, and that Lloyds will remain the biggest branched bank in the UK, with about 20 per cent of the total, but, crucially, he did not rule out further branch closures or further job losses, a significant feature of recent years.

In essence, Lloyds plans to follow the money, tailoring its digital/branch model to the consumer statistics. Another key element of the future strategy is to chase hard in the long-term savings and pensions market, with its high-profile Scottish Widows brand pivotal.

Lloyds, Britain’s biggest digital bank, with about 13 million internet customers now and a target of 15 million by 2020, also reckons the wider economy will be supportive of its growth plans.

It cites UK unemployment at 40-year record lows that will underpin consumption, and believes interest rates will only be at 1.25 per cent in three years time, further helping consumers and comfortably below historical trend levels until the shifting of the monetary tectonic plates in the financial crash.

The bank also believes the further efficiencies flowing from its £3bn investment will see its cost/income ratio come down to the “low 40s” by the end of 2020, compared with a decent 46.8 per cent at present.

In short, the future for Lloyds looks a mixture of digitisation and a progressive dividend policy aimed to keep customers and shareholders plugged in.