Who benefits from Lloyds Bank cuts?
Lloyds Bank boss Antonio Horta-Osorio is showing little mercy in his quest to revive the bailed out institution. Another 9,000 jobs will go and 150 branches will close. The bank will emerge from the continued shake-up more profitably, but efficiencies don’t always suit the staff or, for that matter, the customer.
The figures released this morning point to a turnaround in its performance and prospects and a return to the dividend register. These figures will encourage investors and the Treasury, though the extra £900m provision for mis-sold payment protection insurance is shocking. Sadly, we have become so used to these announcements that it no longer dominates the headlines.
Investment in technology will be stepped up, though customers and staff will need to be persuaded that its purpose is better banking for the customer and not cheaper banking for the company. All banks want to provide transaction services where customers want them and RBS has identified rail stations, for instance. Some of it will be self-service banking.
But the downside of introducing more automation is that the remaining staff complain about being stretched and set over-demanding targets. This impacts on the level of service provided. An out-of-order ATM is no use to anyone. The Financial Ombudsman said last year that Lloyds and Bank of Scotland were the worst banks for dismissing customer complaints.
Details on the closure of branches are yet to be released but the banks should do well not to undervalue those of us who still use them regularly. Promises that most customers will have a branch within five miles are little comfort for those who will lose their local outlet.
At least the branches I use are still there. It has been difficult enough having my account in England with a branch that was not among those transferred to TSB. The EU-enforced sale means there are no branches of Lloyds in Scotland so I have become a customer of Bank of Scotland by default. We were promised that the investment made in technology would ensure a smooth transition.
If my experiences in the last year or so are anything to go by progress has been too slow. A Bank of Scotland branch was unable to make a simple BACS transaction and asked me to pop in and pick up the cash in a brown envelope. A branch of Cheltenham & Gloucester (now part of TSB) did not have the ability to handle a Visa transaction for £3,000 and asked me to pay by cheque or bring in the cash. These cases may have been some months ago, but by then Lloyds had already spent several billions supposedly integrating Bank of Scotland with Lloyds. So nervous am I about the ability of the bank to handle a transaction that I always ask the cashier to check that it has gone through before I leave.
A key plank of the strategy for Horta-Osorio is to reduce the bank’s cost-income ratio from 49.7% to 45%. This is a measure of its efficiency and whether its costs are too high in relation to its income. The lower the figure, the more efficient it is, and 45% would be towards the lower end of the banking spectrum.
By definition, lowering the ratio means either cutting costs or raising income, though it is better to do both. The bank says deposits are up. However, the focus of attention tends to fall on the cost reduction side of the equation and given the size of the job cuts at Lloyds it is clear that cost control is winning the argument.
The bank’s underlying profit for the nine months to the end of September compared with the same period in 2013 grew 35% to £5.974 billion, with a 1 per cent reduction in income more than offset by a 3% reduction in costs and a 59 per cent improvement in impairments.
But thanks to legacy provisions, including the latest PPI charge, meant bottom line statutory profit before tax fell 5% to £1.614 billion.
We keep hearing from the banks that impairments will improve. Almost casually setting aside a further £1 billion does not sound like much of an improvement.