No one studied the results from the Lloyds Banking Group on Friday more closely than Lord Levene.
The businessman wants to buy the 600 branches which the bank is being forced to sell – along with the customers and accounts.
Eric Daniels, Lloyds' outgoing chief executive, disclosed a profit of £2.2bn. but also added he accepts a sale well before the 2013 deadline imposed by the EU. "We have said on branch disposals that we would focus on the integration; that is now coming to an end so we are going to begin to focus on such disposals," he explained. But Levene is waiting to open negotiations with his successor, Antonio Horta-Osorio, who moves into Daniels's office next month and looks eager to rid himself of Lloyds' troubles as soon as possible in order to concentrate on the bank's future.
Daniels is a victim of Lloyds' opportunist bid for the troubled HBOS, the Halifax and Bank of Scotland group, which forced him to sell a 42 per cent stake to the Government. Selling those 600 branches is a European Union condition of accepting that state aid. Now Levene, 69 and a former City of London Lord Mayor, is taking his turn at being opportunistic in seeking to buy the cast-offs.
He floated a company – currently called NBNK Investments – to buy the network last summer and raised £50m. He is ready to raise around £3bn more and move straight from Aim to the FTSE 100, but he cannot buy until Lloyds sells. He denies being frustrated at the progress but admits: "The outgoing chief executive was not very happy about it all, but I think the new chief executive wants to get on with it. I hope it will be very soon."
Royal Bank of Scotland also had to sell 318 branches for accepting government aid, and those went to Santander, the Spanish giant, for £1.7bn last summer. Levene denies losing that auction, saying it was the wrong mix of consumer and business customers, but he admits: "We were not in a position of wanting to bid for the RBS package." And a lock-up agreement means he cannot bid for the government-owned Northern Rock before November, following his recruitment of its chief executive, Gary Hoffman, to run NBNK.
"The Lloyds assets are top of the list," insists Levene. "All the talk about Northern Rock – it was never on our shopping list and certainly not as the crucial thing we had to go for." Northern Rock has only 74 branches; but buying a ready-made package of 600 will automatically make its new owner the UK's seventh largest bank. Along with that branch network comes 2.3 million customers, including 91,000 small businesses, together with £70bn of loans and Cheltenham & Gloucester mortgages. The buyer also purchases the TSB and Intelligent Finance brands.
But while Levene is a sturdy pillar of the Square Mile, he has no experience of running a high-street bank. "I'm a consumer," he says, in defence. "I've got a wife who is a retail addict and I two children and 10 grandchildren. I hear from them." And he listens to an ever-growing team of executives plucked from Tesco Bank, RBS, Lloyds and the building societies.
Levene knew nothing about insurance before becoming chairman of Lloyd's of London in 2002. So, at 61, he did work experience with an underwriter to learn the trade – and then he treated it as any other business and hauled it from the Dark Ages into the 21st century.
"I complained about the medieval way of working – people walking up and down Leadenhall Street with slip cases full of paper under their arms. We shipped five tons of paper every week to Chatham," he says. Levene halted the vans to the Kent back-office and expanded the use of computers. "Now, on a trial basis, we're introducing iPads."
He hopes to introduce similar efficiencies at the Lloyds branches after he renames them, but his vision is as much a reversion to old-style banking as the introduction of new technologies. Unlike the Icelandic banks that invaded the UK market before the crash, he will not be bribing savers with high rates or low European-style borrowing rates; he prefers to beat rivals on service. "We'd hope that when customers go into a branch they'd know who they are dealing with and they'd know the people they face. When you phone up, they'll understand what you want," he says. "And it'll be names, not numbers."
High costs have deterred others from entering the UK market but while NBNK will have to bear expenditure that Lloyds currently spreads across the rest of its network, starting with a clean sheet will free the buyer from some fixed costs and bureaucratic ways. Brokers at Credit Suisse think the 600 branches will make far more profit than the £500m claimed by Lloyds.
Lloyds must approach buyers by November, and the banking analyst Jonathan Pierce says: "By that point the bank should be able to provide more detail on the financials (where disclosure so far has been poor) and we expect this to demonstrate that the current profitability is much higher than it was in 2008. Indeed, by 2013 we believe the spread on the mortgage stock could be 150 basis points [1.5 per cent] higher than in 2008 – boosting revenue by £1bn."
Pierce suggests the branches will be sold on a low valuation. "Our forecast assumes that the branches are sold for around £3bn – around 1.5-times book value," he says.
Levene is not revealing his hand, but does not disagree with that figure. "Until they put the whole package together we do not know, but it's a large number," he admits. "That's why there are not going to be long lines of people waiting to buy."
Yet, despite forming and floating NBNK specifically to buy the Lloyds business, there is no certainty it will be the buyer. While EU rules prevent a sale to a major British bank, and some foreign institutions such as BBVA and BNP Paribas have ruled themselves out, there could yet be an auction that Levene loses – or Lloyds' sale plan could be upset by external factors.
That is why he wants to act quickly. However, he admits: "There is a slight cloud on the horizon called the Independent Commission on Banking." The Government's inquiry into the UK banking sector – including whether Lloyds/HBOS should be split up – does not report until September. But there is talk of Lloyds being forced to sell half as many branches again – pushing up the price and extending the timetable.
Agreeing the 600-branch deal before the summer would suit buyer and seller and might thwart the commission's plans. "Whether the impending report will have any effect on the vendor, who knows? But it might have an effect on the vendor's main shareholder," he warns. That shareholder, ultimately, is the Government, of course. "That would be unfortunate, but we've plenty of work to do in getting ready.
"And if we don't get it, we will have to look for something else – or give investors their money back."
Army surplus seller to chair of Lloyd's of London
Despite Levene's standing in the City, he is not known for his consumer skills or retail experience. At 21, he joined United Scientific Holdings, a small firm selling army-surplus goods, became its boss and built it into a major quoted defence company, buying the Alvis tank manufacturer. Then he switched to becoming head of procurement at the MoD. He returned to the private sector after six years, joining the investment bank Wasserstein Perella, then the Bankers Trust and Deutsche Bank.
He chaired the DLR and later Canary Wharf. He was a director of the German stock exchange and head of British Invisibles and its successor, IFSL. He also rose from councillor to alderman in the City of London and, in 1998, toured the world as Lord Mayor. He is chairman of the Lloyd's insurance market.Reuse content