Wed. May 18th, 2022

The CEO of Lloyds Banking Group is preparing a new strategy that will expand its ambitions in real estate, wealth, commercial and investment banking while moving the borrower into growth mode after years of retrenchment.

Since taking over in August, Charlie Nunn has been planning his first strategic update, scheduled for February. The former HSBC CEO – who succeeded António Horta-Osório after moving to the chairmanship of Credit Suisse – has a £ 4 billion war chest as the British economy recovered faster than the pandemic expected, releasing more capital.

Nunn is considering quadrupling the budget of Citra Living, Lloyds’ new private home rental brand, to increase it to an initial £ 1bn of £ 250m, said people familiar with the deliberations. The number has not yet been finalized and may increase further.

Citra is one of a number of measures being considered aimed at diversifying Lloyds’ revenue away from traditional retail banking services and loans, which are being squeezed by low interest rates and fintech competition.

Lloyds has dominant market shares in UK mortgage loans and credit cards, which limits its opportunities to grow organically or make acquisitions. It also has a 19 per cent share of UK SME loans, according to its latest annual report.

Nunn plans to shift its focus to expanding the commercial bank – specifically larger corporate and institutional clients – as well as currency trading, insurance and wealth management, areas where Lloyds is chasing local competitors.

“Everyone thinks of Lloyds as just this big retail bank, just a big mortgage lender, but it also has excellent commercial, corporate and insurance arms,” ​​said one person with knowledge of the plans. “It has more customer touch points than Amazon, which is as successful as they are because of their cross-selling.”

The growth plan would mean a reversal in Lloyds’ strategy after the bank was forced to dramatically scale down its presence in commercial and investment banking after its 2008 government assistance.

Lloyds declined to comment.

The Financial Times previously reported that the bank has set a “strategic challenge” to own 10,000 residential rental properties by the end of 2025, with a further goal of reaching 50,000 by 2030, making it one of the UK’s largest landlords. Achieving the first target means that Citra will have a balance sheet of around £ 4bn and generate around £ 300m in additional profit before tax.

The quadrupling in funding planned by Nunn indicates a much stronger commitment to expanding the business. As recently as October, CFO William Chalmers scaled down the bank’s ambitions in the area, calling Citra an “exploratory exercise”.

Another plank of Nunn’s strategy will be to expand the UK wealth management business, focusing on digital services for the mass-wealthy segment, clients such as doctors and lawyers with up to £ 1 million to invest, rather than the ultra- rich, the people who are famous. said with the plans.

A joint venture with Schroders has shown disappointing growth since it was announced in 2018. Overall wealth and insurance customer inflows also slowed to £ 5 billion last year from £ 18 billion in 2019. Lloyds hopes his existing relationships with 14 million UK households will allow him to accelerate customer acquisition.

The financing of the net zero transition will be another area of ​​focus. Lloyds has appointed a 23-strong ESG investment banking team that includes recruits from the industry, such as from miner Rio Tinto.

Nunn – who worked for McKinsey before becoming a banker – also wants to see more cross-selling to commercial and corporate clients of the investment bank, particularly in foreign exchange, trade finance and lending.

He wants to “drive growth, expand risk appetite and geographical boundaries responsibly,” said another celebrity, adding that the strategy has not yet been finalized. “He does not only see Lloyds as a British bank. It has many international clients and it needs to do more to support them abroad. ”

Lloyds is considering recruiting a team in New York – the first time it would have a significant presence there for a decade – to help its UK customers invest in US infrastructure projects.

Lloyds’ share price has recovered about 30 percent this year, but is still about a quarter lower since the beginning of 2020, before the pandemic, and is trading at a 30 percent discount to the book value of its net assets.

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