Lloyds Banking Group, whose chief executive António Horta-Osório is off work with fatigue, warned it would fail to meet some of its key financial targets as the bailed-out bank slumped to a £3.8bn loss in the first nine months of the year.
Continuing to insist that the Portuguese-born banker would be back next month, the bank admitted the "challenging" economic environment would hold back its ability to generate as much income as it had originally hoped by 2014.
Horta-Osório's "leave of absence" was announced last week to a stunned City and the bank's shares have slumped 25% in the past seven days as his illness and the eurozone crisis knocked confidence in the bank. The shares recovered some losses on Tuesday on relief that the figures were no worse than feared — rising 4% to 28.9p — but still leaving the loss on the taxpayer's 40% stake at £12bn.
Tim Tookey, the finance director who is leaving in three months to join the UK insurance arm of Resolution and standing in for Horta-Osório, insisted it was "business as usual" . Tookey, who is one of the last directors to survive from the management team that was involved in the rescue takeover of HBOS during the 2008 banking crisis, said: "My biggest responsibility to him [Horta-Osório] and my colleagues is to maintain the momentum so we can give the business back to Antonio in good condition with the same momentum and direction of travel that was here last week." Asked if he might stay longer, he made it clear he had already signed the contract.
Shareholders are calling for a clear succession plan in the wake of a radical management overhaul that Horta-Osório has embarked upon since taking the helm on 1 March, which has reduced the number of available internal successors. Among those who might be lined up to take over on a stand-in basis, should Horta-Osório not return, are non-executive director David Roberts, formerly of Barclays, or the chairman Sir Win Bischoff who personally recruited Horta-Osório from Santander.
Lloyds is reconsidering its financial targets because had expected interest rates – currently at 0.5% – to rise by the end of the year, although some analysts now believe rates could stay this low well into 2012. While low interest rates help customers by keeping bad debt charges down – and the bank's impairment charge fell 22% to £7.3bn – they also make it difficult for the bank to make profits on its savings accounts. Alex Potter, analyst at Berenberg, said the dropped targets - set in June - were "disappointing". "The dropping of these so quickly is indicative of both a lack of visibility management feels towards its own returns as well as potentially weakening trends already visible in some areas," he said.
It is implementing a cost-cutting plan to achieve £2bn of annual savings by the end of this year, which in total will put the number of job losses at close to 45,000 since the HBOS rescue.
The bank reported a pre-tax loss of £3.8bn for the first nine months, largely as a result of a previously announced £3.2bn provision for payment protection insurance. On the same measure, the bank made £1.9bn profit a year ago. Tookey preferred to focus on performance on what he calls a "combined business basis" which he said showed the bank made a £1.7bn profit.
There was no major update on the 632 branches that must be sold to meet European Union rules on state aid. Some 850 staff are now deployed on this so-called Project Verde sale, which has cost £90m so far, and Tookey stressed that the bank was pursuing a "dual track" option of a potential flotation of the branches as well.
One of the major concerns has been Lloyds' ability to fund itself on the financial markets and it tried to allay those fears, saying it had even raised £3bn in October despite the turmoil caused by the eurozone crisis. Its funding programme for 2011 is complete.
The bank said it was on track to meet its lending targets under Project Merlin, having lent £32bn — gross — to UK businesses, of which £9.6bn was to small firms.
The bank cannot pay a dividend until next year because of restrictions imposed by the EU. Analysts at UBS noted that Lloyds had announced it intended to start repaying coupons on its bond issues on 31 January, the day the EU rules are lifted, which they said was "a key prerequisite to the resumption of ordinary dividend payments".