The newly-merged Lloyds TSB high street banking colossus yesterday announced a heavy pounds 425m provision for restructuring which it hoped would produce significant cost savings in years to come.
Revealing 1995 pre-tax profits up 16 per cent to pounds 2.08m before the one- off charge, Sir Brian Pitman, chief executive, said shareholders would not have to wait long before the first cost benefits came through.
The group has set itself a target of saving pounds 350m a year from 1999. But the bank has already combined some of its dealing and head office functions, as well as the Lloyds and TSB leasing and asset management businesses. Sir Brian said there would be "quite a lot of scrapping" in terms of IT systems and specialised premises as the merging group chooses either the Lloyds or the TSB option. The group is working on the restructuring with the Boston Consulting Group, which handled the Glaxo Wellcome merger.
Sir Robin Ibbs, Lloyds TSB chairman, said: "In relation to the benefits to come from this merger, we do not think the restructuring charge is particularly high." The group remains coy about branch closures, expected in the later phase of the restructuring next year, where analysts calculate substantial scope for savings.
Sir Robin said "nothing like the amount of the restructuring charge is to be paid to individuals as some have feared". He added that most of the staff reductions should come through natural turnover, running at a rate of 6,000 a year in the combined bank.
Richard Coleman, analyst at Merrill Lynch, said, "In some senses, the bigger the better with the restructuring charge because this business is all about costs from now on. The big difference between Lloyds TSB and other banks is its ability to reduce costs, especially in a world where it is hard to find income growth."
Although still digesting TSB as well as Cheltenam & Gloucester building society acquired last year, Lloyds said it was still looking for expansion opportunities in retail financial services.
The post-tax return on equity was 23.1 per cent against 20.9 per cent in 1994. The final dividend for 1995 is 7.8p a share. Pre-tax profits from banking, including mortgages, were up 59 per cent to pounds 823m on increased volumes and cost control. Insurance pre-tax profits were up 30 per cent to pounds 556m. Lloyds TSB shares closed down 6p yesterday 341.5.
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