As I write, it is hard to feel optimistic. Ireland has received a bailout from the IMF and its eurozone partners. Am I the only commentator who questions the efficacy of a monetary union two of whose members teeter on the precipice of bankruptcy? The euro is worth $1.36, some 5% less than in January 2010. This valuation to me is collective lunacy but perhaps helps explain the appeal of gold for some of the most intelligent financiers. John Paulson, David Einhorn, Jim Rogers and George Soros all own tons of the stuff.
For most of this year I thought collective lunacy reigned in the boardroom of UK bank Lloyds. I did not understand why chief executive Eric Daniels was still in charge. It was Daniels, together with the former chairman, Sir Victor Blank, who agreed in the autumn of 2008 to purchase the floundering HBOS. HBOS was a seething cauldron of poison: the commercial loan book, even at that time, looked bad and it turned out to be horrific. Lloyds, which until recently was thought of as the best UK bank (remember Sir Brian Pitman, the highly regarded former chief executive), became a crippled ward of the state unable to pay a dividend to its loyal shareholders. Blank walked the plank last year but Daniels lingered on. This was partly I am informed, because Daniels is a good operational banker and was viewed as a safe pair of hands. I also think it was difficult to replace Blank and Daniels at the same time. Let’s face it, there aren’t many qualified candidates keen to run a stricken, state-supported bank in an era when senior bankers rank lower in the popularity stakes than estate agents, journalists or even politicians.
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During the past few months, sources kept whispering that this or that senior banker had been approached to run Lloyds. But the search never seemed to progress. Then in early November it was announced that António Horta-Osório, chief executive of Santander UK, had been appointed as Lloyds’ new chief executive and would formally take over from Daniels in March 2011. The public rejoicing was such that it was if the archangel Gabriel had descended from heaven. On the day of the announcement, shares in Lloyds rallied some 3% and shares in the Spanish banking group wilted by 4%.
Some people were surprised at the appointment. Horta-Osório is Portuguese and had worked at the Santander group for the past 17 years. In my May column this year, I had listed a few bankers whose careers I thought had real momentum: the market’s rising stars. He was among this select group: "I expect Horta-Osório to play an even more prominent role in European banking in the next few years," I wrote. "Good commercial bankers are hard to find."
Horta-Osório’s departure is a blow for Santander. He had grown the business substantially from its Abbey National roots and was very much a hands-on chief. Not for him the delicious epitaph I once heard used of a former Barclays chief executive: "He’s so big picture, he’s out of the picture."
Shortly before Horta-Osório resigned, it was confirmed that Santander was planning a partial flotation of its UK operations. Ana Patricia Botín, daughter of Santander chairman Emilio Botín, will take over from Horta-Osório. But I doubt very much that she will be able to proceed quickly with the deal. Sceptical UK investors who have been burnt on numerous IPOs (remember Ocado) will want to see the colour of her eyes and maybe a few quarters’ numbers without Horta-Osório before they buy stock.
Lloyds is a quagmire. This murky landscape may not worry Horta-Osório. But for a while he will be fighting on several fronts simultaneously. He must sort out and stabilize the relationship with the UK authorities: UK Financial Investments holds a 41% stake in the group. Questions swirl as to whether Lloyds might now be split up on competition grounds. Horta-Osório will be good at pouring oil on troubled waters. He is charming but canny and his experience as a non-executive director of the Bank of England will be useful.
Horta-Osório also needs to decide the overall strategy for the institution. I never understood why the bank embarked on a capital markets hiring spree last year. I wrote about this in my October 2009 column. Lloyds’ board must have been delusional to think the firm could compete with more established players. RBS tried this and the outcome was ugly. My advice to the new chief executive: close the whole area down.
Horta-Osório must deal with Lloyds’ toxic-asset portfolio. And finally, he must raise morale and maybe recruit some key staff. This is a challenging "to-do" list that he will relish. I have never been a big fan of Lloyds’ chairman, Sir Win Bischoff. Described by some as a "true gentleman", he failed to impress me during his brief tenure as chairman of Citi. A source murmurs mysteriously: "Win is like a pillow. He bears the impression of the last person who sat on him." As far as I’m concerned, Bischoff’s best achievement is hiring Horta-Osório, although I suspect that his candidature was strongly sponsored by the UKFI. Anyway, the appointment is good for Lloyds and good for the taxpayer and it is good for the UK that high-calibre individuals want to nurse our sick children.
There was some other interesting hiring news. It’s late in the year to hire people in the financial sector, so autumn appointments tend to be City recidivists – bankers who for one reason or another are "resting". Somehow a resting banker doesn’t have quite the ring about it that a resting actor does. John Hyman, the former co-head of global capital markets at Morgan Stanley, is joining hedge fund Cheyne Capital. John had a dalliance earlier this year with Nomura that did not lead to a formal engagement. It is good to see him resurfacing and I look forward to calling on him in due course.
