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Bank surges ahead

Lloyds seals £400m Embark deal and declares dividend

Lloyds-and-Embark

First big deal for Lloyds

Lloyds Banking Group has confirmed the £400 million acquisition of Embark, the privately-owned savings and retirement products group, and declared a dividend.

It is the bank’s biggest corporate acquisition since it returned to full private ownership four years ago following the government’s £20 billion bail-out in 2008.

Talks with Embark, which was set up in 2012, emerged in May as the bank pursues a return to growth by increasing share in key markets.

Embark has more than £40bn under administration and roughly 500,000 customers across the country as it has grown through a string of major acquisitions, including Zurich’s investment and retail platform last year.

It employs more than 600 staff, mainly in Edinburgh, London and Leeds.

It competes with the likes of AJ Bell and Pensionbee, which made its London stock market debut earlier this year.

The deal heralds the arrival of Charlie Nunn next month as replacement for departed CEO Antonio Horta-Osorio who led the bank’s recovery.

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The bank swung to a first-half profit and announced an interim dividend, boosted by a surging house buying market and improved economic outlook in Britain.

Lloyds posted pre-tax profits of £3.9 billion for the six months to June, ahead of the £3.1bn average of analyst forecasts compiled by the bank.

The bank had posted a first-half loss of £602 million the previous year, after setting aside billions to cover potential bad loans due to the COVID-19 pandemic.

Lloyds declared a 0.67 pence interim dividend.

On the Embark deal, Antonio Lorenzo, chief executive, Scottish Widows and Group Director, Insurance & Wealth, Lloyds Banking Group said: “There’s an ever-growing customer demand for clear, simple and affordable financial planning and retirement products and services.

“Our acquisition of Embark will not only help us serve all of a customer’s financial needs in one place, but also sit alongside our existing partnerships which meet the more complex financial planning and investment requirements of mass-affluent and high net-worth customers through Schroders Personal Wealth and Cazenove Capital.

“Through Embark’s technology, we will be able to increase the reach of our investment offerings for customers who are happy to manage their own portfolios, through modern, easy to use technology.

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“We will also be able to enhance our intermediary proposition, strengthen our offering in Retirement and modernise the way Scottish Widows works with advisers, recognising the continued value of advice.”

David Barral, chairman of Embark Group commented: “In eight short years, Embark has built one of the most respected and fastest growing digital retirement and savings businesses in the UK.

“The combination of Lloyds Banking Group’s financial strength and distribution reach, with the agility, digital capability and expertise of Embark, will provide the perfect opportunity to create a market-leading proposition for consumers, intermediaries and strategic partners.”

Market reaction

Danni Hewson, financial analyst at AJ Bell, said: “Lloyds is in a perky mood, with upgraded guidance for the returns it expects to make in 2021 and a reduction in likely impairments. It has also declared a strategic push on the retirement market and bought a platform business to accelerate its capabilities in this space.

“This would suggest there could be a new lease of life in the banking group, which has for many years lived under the cloud of PPI claims, competition from challenger banks, and clunky legacy systems.

“The PPI problems are now in the past and many challenger banks are now finding it hard to make a profit, which means Lloyds can stop looking in the rear-view mirror every five minutes and start to think about how it wants to shape its business for the future.

“It already has a solid position in the current account, mortgage and business banking segments, so the plan is to cater for more of its customers’ financial needs.

“There is increasing pressure on people to be more financially prepared for later in life, and so Lloyds going after the retirement market is a logical step forward. Nonetheless, this is a very competitive space and it’s one thing to declare ambitious growth targets and another to achieve them.

“Charlie Nunn is about to become the bank’s new chief executive and he will provide some fresh thinking in the boardroom just at the point where the backdrop is conducive to making bold strategic moves.

Charlie Nunn

New CEO: Charlie Nunn takes over next month

“A key reason behind Lloyds’ upgraded returns guidance is the improved UK macroeconomic outlook. But it needs to be careful not to be too bullish in case there are some nasty bumps in the road for the economic recovery.”

Donald Brown, senior investment manager at Brewin Dolphin, said: “Lloyds’ results build on Barclays’ the day before, with many of the same themes pointing to a banking sector on the road to recovery – significantly higher profits, lowering provisions for bad loans, and a generally more positive outlook on UK plc.

“The increase to the dividend is another step in the right direction for income investors, while the acquisition of digital savings group Embark will also add to the diversification of the bank’s offering for new and existing customers.

“Lloyds is the most exposed of the major banks to the UK economy; but, backed by a strong balance sheet, it is taking measures to solidify its position and build for the future.”

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