Lloyds Banking Group Plc is considering deeper cuts, beyond its target to eliminate 9,000 jobs by the end of next year, according to two people with knowledge of the matter.
Britain’s largest mortgage lender could remove more jobs than outlined in the October 2014 plan to help lower expenses, said the people, who asked not to be identified because the details are private. A spokesman for Lloyds declined to comment, Bloomberg reported.
“We expect confirmation that cost-reduction efforts have been brought forward somewhat” when Lloyds reports first-quarter earnings on April 28, Jason Napier and Ivan Jevremovic, analysts at UBS Group AG who have a buy rating on the shares, wrote in a note to clients this month. They estimate the lender will post underlying pretax profit of £1.92 billion ($2.75 billion) in the period, down 7% from a year earlier.
Chief Executive Officer Antonio Horta-Osorio, 52, is looking to reduce costs as the Bank of England keeps interest rates at a record low, hurting earnings, amid concerns over slowing economic growth. Banks around the globe from Barclays Plc to Citigroup Inc. are eliminating jobs, jettisoning less profitable assets and cutting costs to boost returns amid whipsawing markets and tighter regulation.
Key Rate
Lloyds’s progress in removing £1 billion of annual expenses by 2017 is ahead of its expectations after the total number of employees fell 2% to 75,306 last year and it removed £373 million of costs. Even so, the lender had based its strategy on a forecast that the central bank would increase its key interest rate to 2.5% by the end of next year. It now expects the central bank to hike rates to that level by 2019, making lending less profitable in the meantime. The rate was unchanged at 0.5% on April 14.
The UK-focused bank said in February it would take two years longer than planned to hit its cost-to-income ratio target of 45% because of low interest rates. The measure of profitability now won’t be reached until 2019, after falling to 49.3% last year, the lowest among major British lenders.
Lloyds could accelerate its job-cutting program and undertake a fresh strategic review this summer before the end of its three-year plan, according to one of the people with knowledge of the matter. The lender, in which the government has a 9.2% stake, may want to wait for clarity following the UK referendum on European Union membership in June before making any changes. It could increase the number of job cuts and branch closures over the existing planning period, the person added.
