In a major surprise to the City, Antonio Horta-Osorio is to return to work as chief executive of Lloyds Banking Group six weeks after he stood aside on medical advice after suffering extreme fatigue and sleep deprivation.
Sir Win Bischoff, the chairman of the 41 per cent taxpayer-owned Lloyds, said Mr Horta-Osorio was "bushy-tailed" and had a "big smile" at the prospect of returning to work.
The bank also said Co-operative Group, which owns the Co-op Bank and Smile, had won the £1.5bn auction for the 632 Lloyds and Cheltenham & Gloucester branches it had been ordered to sell by European regulators.
The decision to allow Mr Horta-Osorio to return, made at a board meeting yesterday, came as a shock to many in the City. It had been thought by many that his standing had been so severely damaged that he might never return.
Sir Win said: "This was a unanimous decision and he returns with the full confidence of the board. All of us believe he continues to be the best man for the job as he was when we appointed him last year.
"Of course, if he had said 'on the one hand this, and on the other hand that', it would have coloured our view of what to do... he was very keen to come back. He does not want this to happen again.
" He was as surprised as we were that it happened. I don't for a moment believe that this will happen again but now we will be more aware of the incipient signs that this is getting close."
Sir Win added that if Mr Horta-Osorio had a relapse: "I would have to consider my own position as chairman very carefully."
Mr Horta-Osorio has agreed – at his own initiative, according to Lloyds – "to restructure and reduce his direct reporting lines in order to strengthen the accountabilities of his senior management team. This is designed to provide the most appropriate environment to maximise the senior management's contribution as the group enters the next stage of its transformation".
Lloyds said its board has "completed a rigorous process, including obtaining independent medical advice, to assess Antonio's ability to return and effectively lead the group".
It said he would return to work on 9 January. Sir Win said that the bank has taken independent medical advice and his illness was "very, very, very unlikely" to return.
Mr Horta-Osorio did not take part in the Project Verde decision that saw Co-op Bank win the two-horse race to buy 600-plus Lloyds branches. The loser is Lord Levene's specially created vehicle NBNK. Lloyds said the decision to make the Co-op the preferred bidder had "less execution risk" and could be consummated by the end of March 2012. It did not reveal a price but it is almost certainly well below book value.
Peter Marks, the chief executive of the Co-operative Group, said: "We have a clear strategy for driving the group forwards. As part of that, we have been working to build upon our strong foundations in banking to ensure customers have a real alternative on the high street."
The takeover will almost treble the number of branches the Co-op has at just short of 1,000. Lloyds poached Horta-Osorio, who once worked at Goldman Sachs, from Santander UK at the end of last year to replace Eric Daniels, the American chief executive and architect of the disastrous merger of Lloyds and HBOS.
He was given an £8.3m joining package, as well as a guaranteed bonus of £2.3m this year.
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