Lloyds TSB eyes deals as bank posts record profits

Lloyds TSB, already one of the biggest banking groups in the world, yesterday said it was looking for more multi-billion pound acquisitions to add to its growing empire.

Its shares leapt more than 4 per cent to 873p as the group announced a 30 per cent rise in its dividend and record profits of pounds 3.2bn in 1997, a rise of more than a quarter from the previous year.

However, the bank faces a threat of strike action from BIFU, the finance union which represent three quarters of its staff, over impending mass job cuts and a new wage structure.

BIFU, the finance union, predicted that 10,000 jobs would be lost and more than 650 branches would close as Lloyds integrates its banking network with TSB. The union also believes that the bank's new wage deal will leave a fifth of the bank's staff without a pay rise this year.

Lloyds TSB has closed 153 bank branches last year with the loss of 3,300 staff. Overall the company cut 4,426 jobs during 1997. The bank is determined to continue its huge cost cutting program to fight off the threat of growing competition from anybody from supermarket chains to Richard Branson's Virgin group who have set up their own low cost banking operations.

Lloyds TSB indicated it had billions at its disposal to launch a major acquisition. Sir Brian Pitman, the group's chairman said: "We are rapidly building up excess capital which we would prefer to use to make an acquisition. We are generating more than pounds 1bn in surplus funds. There are lots of opportunities coming up over the next few years."

Lloyds TSB indicated that any purchase was likely to be within the UK financial services sector. Chief executive Peter Ellwood said: "We have already looked at a number of companies, including a number of insurance companies."

The bank said yesterday that is was unlikely to launch a share buyback or give money back to shareholders until it has exhausted its acquisition possibilities. That is likely to be at least 18 months away.

Mr Ellwood admitted that the entrance of the supermarkets into the banking market was a real threat. "I use the example of petrol. Within a few years the supermarket gained a 25 per cent share of the petrol market. At the moment are lending figures have gone up. However, in the long term, banking margins will come under pressure."

The group has already cut costs by pounds 220m since tying up its pounds 15bn merger with TSB. It plans to slash at least another pounds 180m of costs over the next two years by integrating the two branch networks. The merger has been sanctioned by the House of Lords, but is still being considered by the House of Commons, a process likely to take several months. But the bill is understood to face opposition from several Tory MP's, including Alan Clark. A TSB Hill Samuel action group has been formed amid concerns that TSB will have to surrender a pounds 1bn pension surplus to Lloyds.

If the cost-cutting is allowed to proceed it would lead to a swathe of high street closures around the country amongst the groups 2,600 branch network. The group is also considering rebranding all its sites with the Lloyds-TSB name.

Lloyds TSB kicked off the banking results season in style, with its retail banking profits rising 16 per cent to pounds 832m and mortgage earnings up one- third to pounds 693m. But the growth in the number of mortgages at the bank has slowed in recent months. Mr Ellwood admitted that intense price competition from building societies who have decided to retain their mutual status and give customers cheaper deals has contributed to sales falling away.

Outlook, page 25

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