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Uncertainty over thousands of bank jobs resurfaced yesterday after Lloyds TSB raised its estimate for cost savings from its takeover of HBOS to £1.5bn and admitted that most of the cuts would be achieved in the high street operations.
While branch workers received little comfort about their job prospects, there were more reassuring words for shareholders concerned about dividend payments from the combined group, which will be known as Lloyds Banking Group. The bank now expects to start paying dividends sooner than the five years signalled by the government when the £37bn bank bail-out was announced last month.
Eric Daniels, the Lloyds TSB chief executive, who will run the combined bank, also indicated that it did not expect to be bothered by government demands to increase lending to small businesses and would-be homeowners. Describing the government as "value-oriented shareholders", Daniels said: "We don't believe [the government] will have an impact on our lending policy or conduct of business."
When it announced the £37bn bail-out last month, the government said there would be a ban on dividends for five years, a ban on directors' bonuses and a requirement to accelerate loans for mortgages and small businesses.
Lloyds pressed on with its rescue takeover yesterday, even though HBOS was forced to double the size of its credit crunch writedowns to £5bn and admit it might have to write down another £10bn of assets as a result of acquisition accounting rules. The bank admitted that arrears in its mortgage and corporate loan books were rising. Lloyds TSB also said its profits had endured a "substantial reduction" in the first nine months of the year.
Lloyds's profits have been hit by the volatility of returns in its insurance arm, loans turning sour in its corporate division and another £270m of writedowns. Posting a circular to shareholders to win support for the rescue takeover, brokered by Gordon Brown, Lloyds said that more than half of the £1.5bn cost savings - up by £500m - would be felt in the retail arm. This raised concerns about branch closures as well as job cuts.
Steve Tatlow, assistant general secretary at Lloyds TSB Group Union, said: "The government mustn't let the new 'super bank' - in which it will have a substantial financial stake - get away with slashing tens of thousands of jobs without taking all reasonable steps to avoid compulsory redundancies."
The top jobs at the combined bank have all been apportioned but few details have been released about the distribution of jobs lower down the organisation. While refusing to discuss the impact on the 140,000-strong combined workforce, Lloyds said it had found 21 cost-cutting initiatives in the retail arm that would save £790m a year by 2011. The rest of the savings will come from its insurance and investment arms, which include Clerical Medical and Scottish Widows (£235m), in wholesale and international banking (£430m) and in central functions (£45m).
The ability to start paying dividends captured the attention of City investors who had lobbied the government to lift a ban, imposed by the EU, on the payouts.
Sir Victor Blank, the Lloyds chairman, made it clear that Lloyds hoped to resume dividends more quickly by buying back the £4bn of preference shares owned by the government - £3bn of HBOS and £1bn of Lloyds - during 2009.
Senior EU officials, who insisted on the ban while the shares were outstanding, said: "They would be perfectly free to start paying a dividend next year if they have repaid the government money."
The government could end up owning 43% of the new Lloyds bank and will put the money in only if the deal is completed. If it is not, Lloyds admitted yesterday it would have to raise an extra £2bn of fresh funds on top of the £5.5bn promised so far. Besides the government's £1bn of preference shares, it is issuing £4.5bn of ordinary shares. Lloyds' share price closed at 197p yesterday - above the 173.7p at which the government is subscribing - which might help entice City investors to buy shares and cut taxpayer involvement. HBOS closed 6% higher at 105p, but still below the 119p of the Lloyds offer.
Blank confirmed that Daniels and other executives would be paid their bonuses in shares, while Daniels defended a decision to pay bonuses to staff. "To deny people who have worked extremely hard all year and to pay them under the market [rate] is not a good thing," he said.
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