U.K. in Milestone Lloyds Stock Sale -- WSJ

By Francesco Guerrera and Portia Crowe Features Dow Jones Newswires

Final divestment of crisis-era holding is a milestone for CEO Horta-Osório

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LONDON -- The U.K. government has sold its last remaining stake in Lloyds Banking Group PLC, a watershed moment for the British lender almost a decade after it was bailed out for more than GBP20 billion at the height of the financial crisis.

The bank said that, including dividends and share sales, the government has in total received GBP21.2 billion ($27.4 billion), GBP894 million more than it put in. The U.K. Treasury has been gradually selling shares for several years.

The sale is a milestone for António Horta-Osório, the bank's chief executive since February 2011, who has presided over a transformation from a troubled bank with a sprawling international footprint to one focused almost entirely on one country: Britain.

In its home country, Lloyds has become a retail and commercial lending powerhouse. Mr. Horta-Osório, in an interview last week with Dow Jones's Financial News, says he isn't changing his focus.

"I don't think that investors should expect any significant change of direction," he said.

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This credo means that, despite its deep relationships with companies across the U.K., Lloyds won't expand its capital markets offering. For Mr. Horta-Osório, that type of risky business is no longer in the bank's DNA and cost structure.

"We leave businesses like trading equities and others to experts like investment banks," he says, with only a hint of a smile after the word "experts."

In London finance circles, Lloyds went from being a source of worries -- or worse, the butt of jokes -- to being hailed as a comeback story. It contrasts favorably with Royal Bank of Scotland Group PLC, the other big British bank bailed out during the financial crisis. RBS is still majority owned by the government, which is sitting on a large loss.

His performance at Lloyds means Mr. Horta-Osório is facing questions about the future. The chief executive job at HSBC PLC, a much bigger bank, will open up next year. Mr. Horta-Osório, 53 years old, is a perpetual CEO, having run his first bank when he was 29. When pressed on whether he wanted to stay at Lloyds, he said simply: "I am very happy."

Asked to elaborate, he didn't offer much more, mentioning the obvious tasks ahead: the integration of credit-card provider MBNA, whose GBP1.9 billion acquisition was announced in December; more technology investments; and the bank's next strategic plan, due out in the fall. "I am really happy at the bank and I am very focused on these next few tasks," Mr. Horta-Osório said.

Mr. Horta-Osório said investors shouldn't expect another "big bang" strategic change at Lloyds. The bank has sold or closed operations in some 24 countries, shut thousands of branches, cut tens of thousands of jobs and poured money into digital infrastructure.

"When you have a company or a bank in huge difficulty...you need bold ideas, you need a huge turnaround strategy, and you need a very strong change of direction," he added. "When you are pursuing a successful strategy, I think you have a different leadership style and a different type of objectives."

To those who criticize him for putting all of Lloyds's eggs in the U.K. basket, the Portuguese executive answers that, in the current regulatory environment, spreading the bank across geographies would be much worse.

In his view, the rule changes ushered in after the 2008 financial crisis are forcing banks to keep more capital within national boundaries to reassure local authorities they wouldn't be a burden on the taxpayer in the event of failure. As a result, banks' ability to move capital cheaply across countries is a thing of the past and being in a lot of places at once has become a competitive disadvantage.

"The big strategic changes in banking are mainly related to much stronger regulation, much higher capital levels and a need from banks -- fortunately, I would say -- of having a much bigger focus on customers," he said. "I would argue that banks have really to focus on where they have their competitive advantages. Because to go into multiple countries now is not an advantage."

So far, this belief has paid off -- Lloyds's shares have risen by more than 12% since Mr. Horta-Osório took the reins, more than rivals like Barclays PLC and RBS (though all three have underperformed the FTSE 100).

But dangers lurk, led by the potential economic aftershocks of Brexit.

Mr. Horta-Osório, who took British citizenship well before the fate of European Union nationals in the U.K. became an issue, argues that Lloyds's conservative business model and low cost base would enable it to weather any major downturn.

Write to Francesco Guerrera at francesco.guerrera@wsj.com

(END) Dow Jones Newswires

May 18, 2017 02:48 ET (06:48 GMT)