Lloyds TSB is a leading UK-based financial services group, which was created in 1995 following the merger of the TSB Group and the Lloyds Bank Group. Its businesses provide a wide range of banking and financial services in the UK and overseas, principally through branches of the Lloyds TSB Bank and its wholly owned subsidiaries, Cheltenham & Gloucester and Lloyds TSB Scotland. In 2000, Lloyds TSB Group acquired Scottish Widows; this transaction positioned Lloyds TSB Group as one of the leading suppliers of long-term savings and protection products in the UK. During 2003 and 2004, Lloyds TSB Group disposed of a number of its overseas operations, as part of the process of managing its portfolio of businesses to focus on its core markets.

            Red = 25 day moving average.           Green = 200 day moving average.

suggest keeping an eye on 200 dma .... as it is rising, 520 may be a bit optimistic for the bottom, if that is not an oxymoron (from the moron)

AFX - 20 October 2006

LONDON (AFX) - The UK's Office of Fair Trading said it plans to refer the market for payment protection insurance (PPI) to the anti-trust watchdog, arguing that a lack of competition between PPI providers results in poor value for consumers.

The move marks a setback for the UK banking industry, which generates large profits by selling payment protection policies, designed to keep up debt repayments if borrowers lose their income.

Unveiling the conclusions of a six-month study of the PPI industry, the OFT said there is 'little competitive pressure' in the market because consumers usually buy PPI from the same bank that is lending to them.

'Following the work we have undertaken it is clear that many consumers are failed by PPI - insurance which gives them a poor deal and often less protection than they think,' OFT chief executive John Fingleton said in a statement.

'There is limited evidence the industry is taking steps to improve the situation, but we believe they will not make major improvements to competition in the market,' he said.

The OFT is publishing its report today, and will hold consultations with banks and consumer organisations before reaching a final decision on whether to refer the PPI market to the Competition Commission early next year.

The Commission could ultimately impose price caps on PPI, making it less profitable for the banks.

According to the OFT, PPI generates revenues of about 5.5 bln stg for the leading UK banks every year.

Analysts say the banks that generate the most profit from PPI, and that have the most to lose from a clampdown on the sector, are Lloyds TSB Group PLC, HBOS PLC, Northern Rock PLC, and Barclays PLC.

The OFT launched its investigation in April in response to complaints from consumer groups that PPI is too expensive and is frequently mis-sold as a result of high pressure sales tactics.

Thanks cynic and dai.

The Business - 19/10/2006

Is the stable door closing on the Black Horse? - By : Helen Dunne & Ben Marlow


With predators moving in on its insurance arm, Scottish Widows, Lloyds TSB is facing an uncertain future as an independent bank.

It was only eight years ago that Lloyds TSB was the largest bank in the world by market value, led by the redoubtable Sir Brian Pitman, a chief executive feared and respected in equal measure and of whom it was said, only half jokingly, could turn Evian water into claret. Today those glory days are but a distant memory. Lloyds TSB languishes as the UKs fifth-largest banking group and outsiders struggle to remember the name of current chief executive Eric Daniels. It has been surpassed by HSBC, Barclays, Royal Bank of Scotland (which barely blipped on the radar screen in Sir Brians day) and HBOS, a powerhouse carved from a former building society (Halifax) and a regional player (Bank of Scotland).

The downturn in Lloyds TSBs fortunes can be dated back to its disastrous acquisition of life assurance group Scottish Widows for 7bn (E10.4bn, $13bn), completed in 2000. The highly leveraged purchase took place at the top of the equity cycle and as shares began to slump, so too did the value of Scottish Widows and the rationale for the deal. For five years, Scottish Widows business sucked in expensive capital, forcing the bank to sell off key overseas operations to fund growth. It also meant Lloyds was stuck with the deeply unfashionable bancassurance model, whereby banking and insurance services are sold together, further alienating investors. Finally, last year Scottish Widows paid its first dividend to the bank; but in the view of many in the City, it is a case of too little, too late and now the entire future of Lloyds TSB as an independent institution is being questioned.

Several serious buyers lurk in the wings to buy Scottish Widows. A tentative 8bn approach from Swiss Re and Axa has been discussed (and rejected) at board level, while other interested parties, such as Hugh Osmonds Pearl Group and Resolution Group, have indicated their willingness to get into a bidding battle for the closed funds. So far, the bank has spurned Scottish Widowss suitors; but many analysts believe that the time is right for Lloyds TSB to sell up and that new regulatory and accounting requirements make it the only sensible option.

Without Scottish Widows, Lloyds TSB should be no more vulnerable to overseas predators, such as Americas Citigroup or Spains Banco Hispano, than it currently is, as any buyers of the bank could easily sell Widows off. But the impact for Lloyds of a sell-off could nevertheless be damaging psychologically. Investors may begin to ask: what is the point of a small, independent British bank that tried and failed to go global and diversify?

Lloyds TSBs transformation from sleepy high street bank into a world-class leader but also the seeds of its subsequent downfall came under the stewardship of no-nonsense Pitman, who was appointed chief executive in 1983. Under Pitmans stewardship Lloyds TSBs market capitalisation increased 40-fold from 1bn to 40bn, and he delivered an annual compound total shareholder return, including reinvestment of dividends, of 26%. But, by the time Pitman retired in 2001, doubts about his record were already being expressed. His obsession with return on equity had been achieved at the expense of infrastructure investment, particularly in e-banking and internet facilities.

His successor, Peter Ellwood, presided over a time of static growth and minimal dynamism. After the Competition Commission blocked Lloydss proposed merger with Abbey, Ellwood held discussions with many merger partners, and regularly discussed the virtues of cross border transactions; but ultimately he failed to deliver. Within weeks of taking over, current chief executive Daniels, the son of a German father and Cantonese mother, admitted Lloyds TSB was accident prone as the bank was forced to pay 100m in fines and compensation for mis-selling risky precipice bonds to unsuspecting investors under the Scottish Widows brand.

The life insurance group initially became the focus of Daniels attention. Effectively, the Scottish Widows deal was a reverse takeover, explains Blue Oak Capitals Simon Maughan. The guys running it were given control of Lloyds TSBs insurance arm, told to develop some new savings and investment products and sell them through the branch network as well as the traditional IFA route which Scottish Widows preferred. Ultimately those developed were highly capital intensive, long dated products that were unsuited for the majority of Lloyds TSBs customers. Daniels ousted the Scottish Widows team, installing the banks director of group IT, Archie Kane, as executive director of Insurance and Investments in October 2003.

Borrowing heavily from HBOS by importing a retail ascetic to high street banking, Lloyds TSB now offers fewer, simpler products in the branches. Sales of Scottish Widowss branded products rose 35% in the first six months of this year. Paradoxically, therefore, Lloyds is finally beginning to make bancassurance work at the very time when it is having to consider whether to withdraw from the market.

Daniels ditched Ellwoods centralised approach in favour of a more collegiate culture, recruiting Terri Dial, known as the human cyclone, from Wells Fargo to oversee the retail operations. Wells Fargo is renowned for its ability to cross-sell products to customers, and Dial who is ranked 18th in our list of the top 30 most powerful women in the City is expected to import those techniques to try and make a success of bancassurance.

Dial has complained that getting things done within Lloyds TSB was initially like swimming in porridge; but as staff responded to the structure she introduced, it appeared as though someone had poured a jug of milk in. When I arrived, for one report we were asked to do, we got 55 pages of instructions, she recalls incredulously. The report wasnt even going to be 55 pages long.

But simplifying reporting lines, importing retailing techniques and offering better value products have been unable to offset the drain on resources that Scottish Widows has become. Lloyds TSB was forced to sell off its Brazilian subsidiary to HSBC for 815m, followed by operations in Paraguay a couple of years later and the disposal of its Argentina arm. More recently, operations in New Zealand were sold for 900m. The strategy has also left Lloyds TSB almost completely UK-centric in its focus, with 98% of its profits derived from its home market.

Two factors might now encourage the sale of Scottish Widows. The offer price of about 8bn is well above the groups embedded value of 5.5bn. Previous offers were always below the embedded value, which would have resulted in a capital deficit on sale that wouldnt have been tolerated by investors. A sale now would give Lloyds TSB cash to play with, especially given that 8bn is merely an opening offer.

But the regulatory changes, known as Basle II, that come into force on 1 January, will change the way financial subsidiaries are reflected in the balance sheet. Investments in financial subsidiaries were previously deducted from Tier 2 capital (comprising debt); from 1 January, they must be deducted in equal measure from Tier 2 and Tier 1 capital (comprising equity). Although the total capital ratio will remain unchanged, this will have the effect of lowering Lloyds TSBs Tier 1 capital which is viewed as a sign of strength by investors. Regulators require a minimal level. The Financial Services Authority has given Lloyds TSB five years to recapitalise the acquisition of Scottish Widows through retained earnings; but after 2012 the life assurance group will impact its balance sheet.

Even if traditional investors do not push management to change strategy and sell Scottish Widows, arbitrage firms, activist funds and hedge funds are likely to spoil Lloydss party, demanding either a sale of the insurance business or even a wholesale takeover. The banks pension fund deficit would be a barrier to the second option, albeit one which some believe could be circumvented; a greater one is the fact Lloyds TSB is now purely a British bank, which has made it less attractive to hostile bidders.

One thing is sure: the only way Lloyds TSB is likely not only to survive but also to thrive is if it sells Scottish Widows and uses the money to mount an aggressive expansion strategy. But the new world of global banking is tough and time is running out.