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David Prosser: Lloyds still can't move beyond the HBOS disaster narrative

Outlook: As for the taxpayer, there can be no disposal of the Lloyds stake until Sir John Vickers' Independent Banking Commission has made its view clear

Tuesday 22 February 2011 01:00 GMT
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Poor old Lloyds Banking Group: the miserable news related to its rescue mission for HBOS two-and-a-half years ago just keeps on coming. As if the losses from HBOS's commercial lending activities haven't been disastrous enough, it now turns out that the bank's Halifax business, the country's biggest mortgage lender, wasn't up to the basic job of communicating its interest rates properly to borrowers. The result is a £500m bill for its new owner.

For António Horta-Osório, who takes over as Lloyds chief executive a week today, the sinking feeling will be a new one. For Eric Daniels, the man who he replaces, it has been an all-too familiar sensation – both sets of annual results over which he has presided since the HBOS deal was sealed have been marred by disclosures of its difficulties. His final set of numbers, due on Friday, will be too.

As a result, Mr Daniels is leaving Lloyds well before it becomes clear whether, as he has always argued, the acquisition of HBOS was too good an opportunity to miss.

That argument has had a logic to it: in circumstances other than a financial crisis, Lloyds could never have persuaded the competition authorities to sign off on a takeover of HBOS, such is the market power of the combined entities. Eventually, once the hidden HBOS nasties stop rearing their ugly heads, that power ought to translate into profitability.

The flaw is that Lloyds' power may be diluted before the bank has had the chance to enjoy it. The European Union has already ordered it to sell off 600 UK branches – a disposal that banking analysts say will reduce Lloyds profits by 12 per cent in 2012 – and there is a potential for much worse to come from the Independent Commission on Banking.

Sir John Vickers' review of the industry, expected to conclude in the spring, may yet call for the unwinding of the Lloyds-HBOS deal. One half of Sir John's brief is to investigate how to encourage competition in Britain's retail banking industry. He has already made it clear that recommending the separation of Lloyds-HBOS is not out of the question should he decide competition requires it – as you might expect him to given that the group has a combined market share close to a third on some products.

Where does this leave Lloyds shareholders, including the taxpayer, with its 41 per cent stake? Well, were Sir John to order a break-up of the group, investors would have had to put up with three years of downside from the HBOS deal, only to be deprived of the potential future upside. As for the taxpayer, it is clear there can be no disposal of the stock until Sir John has made his views known.

A better candidate for News Corp top job

It is the sort of concept that, inother circumstances, Shine, the independent television production company, might use as the basis for a compelling docu-drama. Put two siblings on the board of a global media business run by their father and watch them battle it out to succeed him. Maybe viewers should get the casting vote?

News Corp's purchase of Elisabeth Murdoch's Shine – and her promotion to full voting member of the News Corp board – is understandably being viewed through the succession prism. Does Ms Murdoch's return to the fold suggest that James Murdoch now has a fight on his hand to become Rupert Murdoch's anointed heir?

If so, it must be said that James remains in pole position. The growth of Shine has been impressive – sales up 10-fold over the past five years – but Elisabeth's brother's achievements while running BSkyB, a much more expansive role, were just as noteworthy. He has rightly received flak in recent months for failing to get to grips with the phone-hacking scandal since taking charge at News Corp Europe, but the vision he showed in turning Sky from a utility business to genuine growth star was impressive.

Still, there is a better candidate than either James or Elisabeth for the top job at News Corp and he is already working at the company. Step forward Chase Carey, president and chief operating officer of the business (and the man to whom Ms Murdoch will now report), who has a CV that reads far more impressively than that of either sibling in every respect. It takes in a string of successes at News Corp and beyond – one reason, no doubt, why he was invited back to the business two years ago after quitting a few years previously, an unusual step for Rupert Murdoch. What a pity he lacks the one quality most vital to become CEO at News Corp – the right surname.

Last chance to put women on the board

It was good to hear Sheelagh Whittaker, a non-executive director of the insurance giant Standard Life, tell the Today programme yesterday that quotas are the answer to the pathetic failure of large companies to promote more women to their boards. But sadly, while research published yesterday revealed that 47 per cent of women in managerial positions agree with Ms Whittaker, Lord Davies' review on gender equality in the boardroom, due on Thursday, is unlikely to grant her wish. Not least that is because a number of senior women have told him they do not share Ms Whittaker's view.

The better news is that it does now look as if the Davies review will have more bite than we feared. In addition to wishy-washy suggestions about better mentoring of high-flying women to ensure they fulfil their potential – a worthy idea, but one that leaves rather too much to chance – Lord Davies is now expected to set some deadlines within which larger companies will have to hit certain targets.

That's encouraging, assuming there is an explicit understanding that if those targets are not met, discussions about quotas will be reopened. If not, there's no point in having a deadline.

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