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New Lloyds CEO cuts 15,000 jobs in revival plan

By Sudip Kar-Gupta and Steve Slater

LONDON (Reuters) - Lloyds will axe 15,000 jobs and halve its international presence, a plan its new boss hopes will save 1.5 billion pounds ($2.4 billion) a year by 2014 and return the part-nationalized British bank to health.

Chief Executive Antonio Horta-Osorio, presenting his overhaul of the bank on Thursday after 122 days in charge, aims to cut through middle management and make the bank simpler and more agile. Shares surged as investors applauded the plan.

"We have to do this. The bank has lost money and is losing money as you saw in Q1 and we have to get this bank back on its feet to support the UK economy and to get it profitable in order to pay taxpayers' money back," Horta-Osorio told reporters.

The latest cuts for Lloyds, Europe's seventh biggest bank by market value, will add to 27,000 job losses already since the 2008 financial crisis. It employs 103,000 staff.

The cost of the program will be 2.3 billion pounds, but the savings garnered will allow the bank to invest an extra 2 billion pounds in its UK retail banking.

Horta-Osorio will cut Lloyds' international presence to fewer than 15 countries from 30 now in order to focus more on domestic retail banking, where it is market leader and has historically been far more significant than its presence overseas.

Lloyds' business outside the UK currently includes operations in Europe, such as Holland, Germany and Spain, both north and south America and Asia. Horta-Osorio, a respected Portuguese banker whom Lloyds poached from rival Santander UK, declined to say which countries Lloyds would leave.

He said he was pleased with the bank's 60 percent stake in wealth manager St. James's Place, worth 1 billion pounds, but refused to rule out if it could be sold.

The Unite trade union group attacked the job cuts, but Horta-Osorio said the move was necessary. HSBC and banks in Italy, Switzerland and the United States have also announced job cuts this week as regulatory pressures and slow economies weigh heavily.

Lloyds shares were up 8.8 percent at 48.6 pence by 1400 GMT, the best-performing UK blue-chip stock and lifting its market value to over 33 billion pounds.

"This looks like third time lucky for UK banks' strategy days -- Lloyds has delivered solid targets with some key milestones," said Mike Trippitt, analyst at Oriel Securities.

Trippitt said Lloyds' strategy review compared favorably to other strategy days held by rivals HSBC and Barclays, whose targets ended up underwhelming investors.

Horta-Osorio is targeting a return on equity of 12.5 to 14.5 percent by 2014, as all banks come under pressure to improve profitability. Its cost of capital is now about 11.5 percent.

The bank's plan, which also aims to lift margins, cut the ratio of loans to deposits to 130 percent and lower costs to less than 44 percent of income, was realistic but not without risk, investors and analysts said.

"This is still just a wish list of what they want to achieve by 2014 and there's some execution risk involved in this plan," said Royal London Asset Management fund manager Jane Coffey. "There's still a lot of questions with Lloyds, such as their funding costs."

Lloyds said it had repaid 60 billion pounds of liquidity support from the UK government and central bank this year, cutting that support to 37 billion pounds.

It is likely to have now fully repaid borrowings from Britain's Special Liquidity Scheme, analysts said. The SLS was set up in late 2008 to fund lenders and together with a credit guarantee scheme supplied 157 billion pounds to Lloyds at the peak of the crisis.


Lloyds was one of the world's most profitable banks and a darling of the sector in the 1990s for its dynamic takeover policy, cost efficiency and massive returns, but its growth and strategy stalled after it was blocked by regulators from buying former building society Abbey National in 2001.

Known as the "Black Horse" after its logo, it was landed with billions of pounds of losses after it bought troubled rival HBOS at the height of the credit crisis of 2008, a deal brokered by the Labour government of the time.

Its losses led to it being bailed out along with Royal Bank of Scotland, and Britain finished up with a stake of 41 percent in Lloyds and 83 percent in RBS.

As payback for the bail-out, European regulators have ordered Lloyds to sell 630 branches, although a British banking commission may make it sell far more to increase competition.

Lloyds said it was on track to find a buyer for those branches by the end of the year. Virgin Money, new bank venture NBNK and National Australia Bank are likely bidders for those branches.

The HBOS deal gave Lloyds the Halifax retail banking business, and CEO Horta-Osorio said Lloyds planned to "revitalize" that brand.

Bancassurance, which includes Scottish Widows insurance arm, will remain a core part of the group, but Lloyds will refocus investment banking to core functions like FX trading, debt capital markets and transaction banking for big UK corporates.

Lloyds said it planned to restart progressive dividend payments once it is allowed to do so and has built a "prudent" capital cushion, which analysts expect to mean a core Tier 1 capital ratio of near 12 percent. Dividends are seen as unlikely before 2013.

Lloyds shares remain below the 63.1p average price paid by the UK government, and investors said it and other banks remain vulnerable to more losses from debt-ridden European countries such as Ireland, and to the costs of increasing regulation.

(Additional reporting by Tommy Wilkes; Editing by Sophie Walker and Jane Merriman)