March 26, 2023

DealBook: Chief of British Lender Quits

LONDON – Barry Tootell, the chief executive of the British lender Co-Operative Banking Group, resigned on Friday, less than a month after the firm failed to acquire part of the branch network of a local rival, Lloyds Banking Group.

Mr. Tootell’s resignation also comes as the credit rating agency Moody’s Investors Service cut Co-Operative Bank’s rating to junk status on fears that the British bank may suffer future losses from a growing level of delinquent loans.

The ratings agency said that Co-Operative Bank’s core Tier 1 ratio, a measure of a bank’s ability to weather financial shocks, was significantly lower than its British competitors, and the bank also remained exposed to faltering real estate loans.

“We are disappointed by the ratings downgrade announced by Moody’s,” Co-Operative Bank said in a statement on Friday. “We have a strong funding profile and high levels of liquidity, which are significantly above the regulatory requirements.”

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The bank, however, acknowledged that it needed to raise more capital. British regulators announced this year that the country’s largest financial institutions needed to increase their cash reserves by a combined £25 billion, or $38 billion, by the end of the year.

The Co-Operative Bank has been on the back foot since it announced last month that it would not buy about 630 branches from Lloyds in a potential deal, which had dragged on for more than a year.

The British lender said it had walked away from the acquisition because of weakness in the local economy that would make it difficult to generate suitable returns, according to Peter Marks, the outgoing chief executive of the bank’s parent, the Co-operative Group, which operates a range of businesses including supermarkets and funeral homes.

Mr. Tootell, the head of Co-Operative’s banking unit, will be replaced by Rod Bulmer, who joined the bank six years ago after holding a senior position at the British division of the Spanish bank Santander.

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DealBook: Executive Pay Rises 10% in Britain, Adding to Debate

Martin Sorrell, chief executive of WPP, has responded to criticisms on pay packages.Simon Dawson/Bloomberg NewsMartin Sorrell, chief executive of WPP, has responded to criticisms on pay packages.
Robert Diamond of Barclays was the highest-paid executive among FTSE 100 companies.Simon Dawson/Bloomberg NewsRobert Diamond of Barclays was the highest-paid executive among FTSE 100 companies.

LONDON – Pay for top managers in Britain rose 10 percent last year, a report released on Tuesday showed, providing fresh ammunition for critics who argue that executive pay has become excessive.

Chief executives of Britain’s 100 largest publicly traded companies received a median pay increase of 10 percent last year, according to a report by Manifest, a proxy voting agency, and MMK, which advises on remuneration. That is higher than Britain’s inflation rate of 3 percent, and the median executive package was about 200 times more than the average pay of employees in the private sector.

Shareholders are increasingly fighting back against pay packages that they consider to be too excessive at a time of economic turmoil and a volatile stock market environment. Firms in the United States and Europe, including Citigroup, UBS, Credit Suisse and Barclays, have faced shareholder revolts against their pay practices this year.

In Britain, the insurance firm Aviva and the oil company Cairn Energy had their remuneration reports rejected this year by shareholders in a nonbinding vote. Aviva’s chief executive later resigned over the controversy.

Anthony Watson, chairman of the remuneration committee of the British lender Lloyds Banking Group, conceded to a parliamentary committee on Tuesday that when it came to executive pay, not “everything in the garden is rosy.”

“Have individuals got paid too much in the past? Yes, because a lot of variable pay has morphed into fixed pay,” he said as part of a government inquiry into corporate compensation.

WPP, one of the largest advertising companies, is expected to face strong shareholder opposition for its pay packages at the annual shareholder meeting on Wednesday. Martin Sorrell, the firm’s chief executive, received £11.6 million ($18.1 million) last year, making him Britain’s second-highest paid executive among FTSE 100 companies, according to the Manifest report.

Robert E. Diamond Jr. of Barclays, who made £21 million, was the highest-paid executive in the survey, while David Brennan of the pharmaceutical company AstraZeneca ranked third, with a pay package of £11.3 million.

Median base salaries for FTSE 100 chief executives rose 2.5 percent last year, but packages were lifted by larger long-term incentive pay and deferred bonuses, according to the report. The median total pay of an executive rose 10 percent, to £3.7 million, even as the value of stocks in the FTSE 100 index dropped 5 percent.

Some chief executives, including Mr. Sorrell, have responded to criticisms over their pay. In an editorial titled “Mea culpa – I act like the owner I am” in The Financial Times on June 5, Mr. Sorrell wrote: “I find the controversy over my compensation deeply disturbing.” He continued: “The most wounding comment, made anonymously, is that I deserve a ‘bloody nose’ because I have been behaving as an owner, rather than as a ‘highly paid manager.’ If that is so, mea culpa. I thought that was the object of the exercise, to behave like an owner and entrepreneur and not a bureaucrat, who loads up with ‘heads I win, tails you lose’ options by just being there.”

His comments won support last week from Ivan Glasenberg, chief executive of the mining giant Glencore International. Mr. Glasenberg is also embroiled in a pay controversy because shareholders criticized awards for the head of Xstrata, the company he is in the process of merging with Glencore.

“If you want a good C.E.O., you have to pay for it,” Mr. Glasenberg said, adding that shareholders have to decide whether they want a “caretaker manager” or someone who behaves like an owner of the company.

Apart from the size of the pay checks, shareholder criticism has focused on the lack of transparency in executive pay, which now often includes bonuses paid in shares and deferred for several years. Some investors also complained about the lack of independence of remuneration committees, saying they did not consult enough with shareholders.

John Lee, managing partner at FIT Remuneration Consultants, told the parliamentary inquiry that pay needed to become more transparent and simple but that investors also needed to build greater trust in remuneration committees. “We’ve all hidden behind formulae” to calculate the level of remuneration instead of having “enough faith in remuneration committee members to apply their judgment,” Mr. Lee said.

Mr. Watson of Lloyds said he met about twice with each of the bank’s large shareholders to discuss pay, including with officials of the British government, which bailed out the bank in 2008.

He told the inquiry that he usually asked for their input before calculating pay, but added: “What we wouldn’t do is say ‘We’re thinking of paying this person this. Do you think that’s O.K.?’”

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DealBook: Lloyds Chief to Return From Medical Leave in January

António Horta-Osório, chief executive of Lloyds Banking Group.Chris Ratcliffe/Bloomberg NewsAntónio Horta-Osório, chief executive of the Lloyds Banking Group.

LONDON – The Lloyds Banking Group said on Wednesday that António Horta-Osório planned to return to his post in January, after a two-month medical leave for exhaustion.

Mr. Horta-Osório passed a “rigorous process, including obtaining independent medical advice,” to prove he would be able to manage the bank effectively upon his return on Jan. 9, and that he would not experience a relapse, Lloyds said in a statement. His medical leave of absence began on Nov. 2.

After taking on too much work in his first year in the job, Mr. Horta-Osório was dealing with sleep deprivation and the inability to switch off, the Lloyds chairman, Winfried Bischoff, said.

“He returns with the full confidence of the board,” Mr. Bischoff said on a conference call with reporters. “Antonio realizes that he can’t come back business as usual. Antonio came forward with plans” to reduce his direct reporting lines.

Upon his return, Mr. Horta-Osório is to announce changes in the way he runs the bank and how much of the executive workload he plans to delegate, Mr. Bischoff said.

Mr. Horta-Osório, 47, joined Lloyds in March with great support from some investors, who hoped he would help turn around the struggling bank and wean it off government support. He was hired from Banco Santander, where he ran the British business and had a good track record of adding branches and expanding market share.

After a few months in the job at Lloyds, Mr. Horta-Osório said he would cut some middle management roles and improve customer service at branches.

Shares in Lloyds had declined 19 percent since Mr. Horta-Osório took leave; they gained 0.8 percent in London on Wednesday.

Mr. Bischoff also said that Mr. Horta-Osório was keen to return to the bank and had unanimous support from the board. The bank consulted doctors and shareholders, including the British government, before agreeing to his return.

“He was surprised as we were that this happened,” Mr. Bischoff said. “He has learned from what has happened. This is very unlikely to reoccur, and we put structures in place to make it even less likely.” He said the doctor’s view was that Mr. Horta-Osório had a “mild form” of exhaustion.

Mr. Bischoff thanked Tim Tookey, the departing chief financial officer, for taking over as chief executive on a temporary basis. Mr. Tookey had been expected to leave Lloyds early next year to join Friends Life, another British financial services company.

In a separate announcement, Lloyds said on Wednesday that it had entered into exclusive negotiations to sell 632 bank branches to the Co-operative Group. NBNK, a financial services firm set up in 2010 by Peter K. Levene, the former chairman of London’s insurance market Lloyd’s, is no longer a contender for the branches, Mr. Tookey said.

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Markets Stumble on Deficit Worries

In Europe, the euro weakened and the bond yields of indebted nations climbed as investors worried about the degree of political will to overcome the region’s debt crisis.

Investors also remained concerned about events in the United States, where President Obama is trying to get lawmakers to agree to a deficit-reducing package before an Aug. 2 deadline for increasing the debt ceiling.

“People are very concerned about the length of the process in the debt-ceiling debate,” said Russell Price, a senior economist with Ameriprise Financial, adding that there were also concerns about contagion in the euro zone debt crisis.

On Wall Street in late afternoon, the Dow Jones industrial average was down 124.31 points, or 1.00 percent, to 12,355.42 and the Standard Poor’s 500-stock index lost 13.80 points, or 1.05 percent, to 1,302.34.

Stocks also may have been reacting to a Goldman Sachs report Friday that cut the outlook for real United States economic growth in the near term. Goldman Sachs economists cut their forecasts to 1.5 percent in the second quarter from 2 percent, and to 2.5 percent in the third quarter from 3.25 percent.

In Europe, the market jitters marked the start of an important week for the European Union as its leaders attempt to stem full-blown market contagion.

The leaders will hold a special summit meeting Thursday, but there appears to be no agreement yet over the terms of a second bailout for Greece, especially on the nature of a private sector contribution.

The lack of clarity along with recent investor sales of Italian and Spanish bonds have led analysts to become increasingly pessimistic.

“The euro zone crisis has recently worsened significantly, exacerbated by disagreements between the E.U.’s key politicians,” said Ruth Lea, an economic adviser to the Arbuthnot Banking Group in London. “It is becoming increasingly clear that there will have to be major steps towards fiscal union or the euro zone will begin to disintegrate.”

She added that the “debt crisis can fairly be described as having morphed into a political crisis.”

Further complicating the latest Greek rescue, the European Central Bank’s president, Jean-Claude Trichet, reiterated during an interview with The Financial Times Deutschland published Monday that the bank would not accept bonds from any defaulting country as collateral. That could leave Greek banks without financing if credit agencies deem a restructuring, even a voluntary one, to be a default.

The Euro Stoxx 50, a benchmark index of blue-chips stocks in the region, closed down 1.98 percent in late afternoon trading, and the CAC 40 in Paris lost 2.04 percent for the day. The euro weakened to $1.4044 from $1.4157 late Friday.

Perceived as a haven, the Swiss franc surged to a record high against both the euro and the dollar Monday. The euro declined to 1.14848 francs and the dollar dropped to 0.8177 francs. The price of gold for August delivery also touched a new nominal high, rising above $1,600 a troy ounce, as investors sought safer assets.

Further clouding the picture were the stress tests on the region’s banks carried out by regulators . The results were released after markets closed Friday. The threshold to pass the test was set at a core Tier 1 capital ratio, which encompasses safe assets, at 5 percent.

Of the 90 banks, eight failed, with an aggregate capital shortfall 2.5 billion euros. But the exercise left unanswered many questions about how many healthier lenders would survive a deepening of the debt crisis, given their exposure to Greek, Italian and Spanish bonds. A sovereign default case was excluded from the tests.

Also on Monday, the European Central Bank made no use of its program to buy government bonds last week despite market speculation that it had weighed in to support Italian and Spanish bonds, The Associated Press reported. The bank said in a statement Monday that it purchased no bonds. It’s the 11th consecutive week the bank has left the program idle.

Yields on riskier Italian 10-year bonds pushed higher — up 0.20 percentage point, at 5.941 percent — alongside rising yields on Spanish, Portuguese and Greek equivalents.

Last week, Italy accelerated a deficit-cutting plan, aware that investors had been selling its debt fearing it might need outside support.

Matthew Saltmarsh reported from London and Christine Hauser reported from New York.

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DealBook: Lloyds Plans to Cut 15,000 Jobs

António Horta-Osório presented a cost-cutting plan on Thursday four months after taking over as chief executive of Lloyds Banking Group.Chris Ratcliffe/Bloomberg NewsAntónio Horta-Osório presented a cost-cutting plan on Thursday four months after taking over as chief executive of Lloyds Banking Group.

The Lloyds Banking Group said on Thursday that it planned to eliminate 15,000 jobs by the end of 2014 and scale back its overseas operations as part of a larger reorganization aimed at allowing the British government to sell its stake in the lender.

Lloyds, of which the British government owns 41 percent, said it expected to save £1.5 billion ($2.4 billion) annually by the end of 2014. The savings would come from reducing its international presence to fewer than 15 countries from 30, lowering computer systems costs and streamlining middle management.

Shares in Lloyds rose 6.5 percent in early trading in London after the news.

“This bank has lost money and is losing money, and we have to get this bank back on its feet to support the U.K. economy and in order to enable it to repay taxpayers’ money,” the chief executive, António Horta-Osório, said. “This will be a journey, and it will take three to five years.”

Mr. Horta-Osório presented the cost-cutting plan four months after taking over as chief executive of Lloyds with a pledge to turn around the ailing bank. He said he planned to focus on the bank’s British retail business and on lending to small and midsize companies. Lloyds is Britain’s largest mortgage lender.

Lloyds, which received government funds to help it through the global financial crisis, is under pressure from the government to increase lending while also selling some assets to allow for more competition in the banking market.

The bank has already started to repay government aid and said it expected to receive offers for 632 branches it has to sell by the middle of July.

The cost savings announced on Thursday would allow Lloyds to invest £2 billion in its brand and to expand its wealth management unit focused on high-net-worth individuals with links to Britain.

Mr. Horta-Osório said he would focus on the bank’s Halifax retail banking brand and improve customer services by opening some branches on the weekend, for example.

Lloyds swung to a net loss of £2.4 billion in the first quarter on costs to compensate some clients that were improperly sold loan insurance.

Lloyds ran into trouble in 2008 after the government urged it to buy HBOS, a British mortgage lender that was on the verge of collapse. But the combination pushed Lloyds from profits into losses and its stock slumped, leading the government to step in with a rescue package.

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