A cultural banking revolution


BBC business editor Robert Peston on new brooms at Lloyds and Santander

So a super-suave, brainy, Portuguese alumnus of Citibank and Goldman becomes chief executive of Lloyds, the biggest retail bank in Britain.

And a woman (and no, I haven't taken leave of my senses) takes the helm of arguably the second most important retail bank in this country, Santander UK.

Now that's what I call a cultural revolution in the male dominated, staid world of British banking.

Antonio Horta-Osorio, who is 46 and has run all of Santander's UK operations since 2006, will replace Eric Daniels as Lloyds' boss on March 1 next year.

And Ana Patricia Botin, daughter of Santander's chairman, Emilio Botin, is to become the new head of Santander UK.

She's widely regarded as a formidable banker. But some will doubtless note that the glass ceiling for female bankers in the UK could only be shattered by the offspring of one of the world's most powerful banking dynasties.

As for the new boss of Lloyds, his track record doesn't look too shabby.

He has been at Santander for 18 years and was on a path to become chief executive of that highly reputed Spanish-based international retail bank in three years.

In his time there, he has created substantial banking operations for Santander in Brazil and Portugal. Acquiring retail banks and integrating them is his forte (he has done that seven times).

In 2006, Horta-Osorio inherited control of a UK bank that used to be called Abbey National (bought by Santander in November 2004), and he subsequently took over the savings and deposits business of Bradford & Bingley and the whole of Alliance & Leicester.

Santander says that even stripping out the impact of the acquisitions, he has achieved double-digit revenue and profits growth during each year of his tenure. And - which can't be said of many banks, and certainly can't be said by Lloyds - there has been unbroken profits growth in every three month period of his time at the helm.

But why on earth is he leaving one of the world's most successful banks, where he was the heir apparent, to run a bank that in the last couple of years has generated mind-boggling losses.

And why would he want to stay in the UK, where the word "banks" and "banker" are almost terms of abuse?

Well he told me that he and his wife have come to love the UK. He likes the diversity and openness of the UK and regards it as the best place to educate his children.

And, before you ask, that love of this country hasn't been generated by an enormous bag of cash that Lloyds wants to foist on him.

That said, he will be well paid by Lloyds, with a package comparable to that of Stephen Hester, chief executive of Royal Bank of Scotland - so worth many millions of pounds over several years.

But although he will receive some compensation from Lloyds for the Santander share plans he's surrendering, Lloyds insists that he will be losing money on the deal, that his overall remuneration will fall.

What are the potentially big prizes for Lloyds from the recruitment?

Well there are two.

First there's the obvious one, that as and when Lloyds has cut out or cured its stinking loans and investments, he'll finish off the integration of HBOS (bought so controversially by Lloyds in the autumn of 2008) in a way that makes Lloyds as efficient as Santander.

In the UK, Santander's ratio of costs to income is 38%, more than 5 percentage points lower than Lloyds on an underlying basis; and each 1% reduction in Lloyds costs relative to income would generate an additional £250m of profit (or so).

Second, he's probably the best advocate that Lloyds could have at the Banking Commission set up by George Osborne. Or at least that's what Win Bischoff, Lloyds' dapper German chairman, tells me.

The Commission is examining whether Lloyds, with its 30% share of UK current accounts, 24% of mortgages and 23% of small banking services, should be broken up.

What Mr Horta-Osorio will argue, from first hand experience, is that Lloyds' sheer size did not prevent Santander winning significant amounts of new business in the UK - that Lloyds was unable to stifle competition or squish a new competitor in the shape of Santander, which these days is a major player, with more than 10% of the British retail banking market.

Which is relevant evidence for the Commission.

However the Commission will be aware that Lloyds' ability to exploit its substantial market shares to batter rivals may have been constrained by the need for management to first remedy all those poisonous loans that came with HBOS.

And if Mr Horto-Osorio turns out to be as effective a banker as his history suggests he may be, then Lloyds' market power may turn out to be very dangerous indeed for its competitors - and, the Commission may fear, rather better for Lloyds' shareholders than for consumers, as and when the bank is rehabilitated.

UPDATE 1408: Hmmm. Mr Horta-Osorio may be making a financial sacrifice by joining Lloyds, but he's most definitely not doing charity work.

He'll be receiving a base salary of £1.035m base salary, £610,000 in lieu of pension contribution, up to £2.3m in bonus, and a maximum of £4.6m in long term incentives, payable in three years.

So if he hits targets, he could earn up to £8.5m for his performance in his first year.

Oh, and he will receive unspecified compensation for the loss of cash, shares and pension benefits at Santander.

All of which begs the question, since he is making a financial sacrifice to join Lloyds, what on earth was he earning at Santander?‬‪

You can keep up with the latest from business editor Robert Peston by visiting his blog on the BBC News website.

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