It isn’t fashionable to feel sorry for bankers, and in the past few years, we have not always been well-disposed towards Americans, but it is hard not to feel sorry for Eric Daniels, the Chief Executive of Lloyds Banking Group.
Lloyds is the archetypal boring bank, exactly what regulators want banks to be. Lloyds had no great international ambitions, it wasn’t heavily into off-balance sheet finance or anything exotic. Rather, it was a High Street bank with a limited commercial banking business, covering most markets competently but excelling in none. Sometimes the biggest threat to its existence seemed to be the risk of atrophy with declining margins eroding profitability, but instead Lloyds survived; a testament both to the inertia in the banking system and the reassurance provided to customers by Lloyds reliability. The most alluring aspect to Lloyds may have been the racy “widows” featuring in the advertisements for their life insurance company.
Daniels fitted the Lloyds mould perfectly. Trained at Citibank and with plenty of senior international experience, he knew the retail banking business well and brought a different but cautious view to Lloyds, contrasting with his more dynamic chairman, Victor Blank, who fancied himself as a deal doer when a lawyer at Clifford Chance, later at Charterhouse (the second tier merchant bank, not the second tier public school), before finishing his career at Lloyds.
It is easy to see how Blank, the former chairman of Mirror Newspapers, would have warmed to the Labour government when they proposed that Lloyds should step up to the plate and take over HBOS. Lawyers are never good at numbers even if they understand the principles of risk, but it is hard to see Blank's enthusiasm being shared lower down the bank. Lloyds, as anyone who has dealt with them knows, is the bank that likes to say “Yes, er... I mean maybe ... Look I’ll have to think about it ... Well probably not this time.... I mean 'No' .... Sorry.”
Still the deal went ahead. At the press conferences both Daniels and Blank put on a brave face about the possibilities for the bank with the expanded customer base. no doubt because Daniels was aware that it was his banks regulators who were pushing him to merge with HBOS. Daniels must have felt he was being made an offer he couldn’t refuse and was onl trying to help out like a good corporate citizen. After all, the regulator wouldn’t be forcing the bank on him if it was a complete crock of doo-doo, would they?
Dream on. Having opened the can of worms that was the HBOS legacy from the non-bankers Crosby and Hornby, Daniels found he had to go to the government for cash to prop up his banl's capital base. He wasn’t helped when the FSA decided that there was a recession coming and that UK banks would have to have more Tier 1 capital than usual. Daniels got some extra cash from the government but had to give them 43% of the merged bank in return. At this point the deal may not have looked great for Lloyds shareholders, but nevertheless acceptable, with a faint hope of some future value.
A few months later when Daniels and his team found out what they had really bought, they were forced back to the government for more “protection” (where have I heard that term before). Now the government is trying to take 70% control of the company in return for protecting Lloyds from the monster that the government encouraged it to merge with only a few months ago.
Caught between a poorly run British bank, a reckless British government and angry British shareholders, no wonder there are rumours that Daniels is ready to back his bags and head home to the USA. I wouldn’t blame him.