Lloyds to close 200 branches and cut 9000 jobs
Lloyds Banking Group reiterated its plan to close 200 branches and cut 9,000 jobs, just two days after finding out it had just scraped through the EBA stress test. The UK high street bank that was bailed out by the British taxpayer during the financial crisis aims to reduce costs and spend more on digital technology.
Two hundred represents about 6% of all the bank’s branches. Lloyds stressed that it will be opening 50 new ones, meaning it will actually end up with just 150 fewer branches.
Nine thousand job cuts means a 10% reduction in its workforce. Some employees will be redeployed in new positions. The bank said “We will continue to look to redeployment and natural turnover as the main way to achieve this.”
Lloyds announced on Tuesday that its underlying profits increased by 35% to £6 billion in the year to date. It also took another £900 million in PPI (payment protection insurance) mis-selling charges.
Analysts expect the company to set aside a further £1 billion for PPI compensation in 2015. Finance Director George Culmer said he could not rule out additional increases.
António Horta-Osório expects competitors will also close down more branches over the next two years, which will subsequently allow Lloyds to gain market share.
Lloyds posted an underlying profit of £2.2 billion in Q3 2014, which was 41% higher than in Q3 2013.
Following the European Banking Association stress test result on Sunday, analysts wonder whether the company will be able to pay dividends. It has not paid any since 2008. The bank says it is in talks with the Bank of England regarding dividend payments.
The poorest performer
Among the British banks, Lloyds was the weakest performer in the EBA tests. However, it insists that since December 31, 2014, it has improved its capital position considerably. At the end of 2013 its Core Tier 1 capital ratio was 10.3%, compared to 12% today.
The branch closures and job cuts will save the company £3 billion over the next three years, and will also mean it will be able to lend £30 billion more, Lloyds said.
Group Chief Executive, António Horta-Osório, said:
“In the first nine months, we have continued to invest in our core UK franchise to improve our products, services and processes to support customers and the UK economy. We have delivered substantial improvements to profitability while at the same time continuing to address historical legacy issues. The business is performing strongly and we are well positioned to continue to support and benefit from UK economic growth.”
Lloyds faces another more stringent stress test by the Bank of England in December, which will gauge its ability to withstand financial shocks, including a 35% fall in house prices as well as an interest hike of up to 6%.
How well it performs will decide whether it may pay its first dividend since being bailed out six years ago.
In a conference call with reporters, Mr. Culmer said he expected Lloyds to pass the December test and believes a modest dividend for 2014 will be paid.