Lloyds to invest RM16.4b in technology, plans buyback

A sign hangs above the entrance to a Lloyds TSB bank branch, part of the Lloyds Banking Group Plc, in London, U.K., on Thursday, Sept. 5, 2013. A sale of the U.K. government's stake in Lloyds Banking Group Plc is facing mounting hurdles as the U.S. debates attacking Syria and the Federal Reserve weighs slowing monetary stimulus, three people with knowledge of the discussions said. Photographer: Matthew Lloyd/Bloomberg

By BLOOMBERG

LONDON • Lloyds Banking Group plc is seeking to catch up with peers and will invest more than £3 billion (RM16.43 billion) in technology as part of a new three-year strategic plan.

It will also buy back up to £1 billion of its own shares.

CEO Antonio Horta-Osorio called the investment in technology a “massive undertaking”, at a press conference in London yesterday for its 2017 results. Lloyds shares rose 1.8% to 69.04 pence or £0.69 at 8:39am yesterday in London trading.

Britain’s largest mortgage lender also guided that net interest margin, costs and capital generation should all improve in 2018, according to a filing yesterday.

Marring the results, there was yet another £600 million charge for mis-sold payment protection insurance in the fourth quarter (4Q), which contributed to pretax profit falling 20% and missing analysts’ estimates.

“While the bank missed on profit, the results look robust to us,” Jefferies Group LLC analyst Joseph Dickerson said. The guidance “suggests Lloyds has materially re-assessed the earnings power of its business”.

Seven years into his tenure, Horta-Osorio, 54, is stepping up investment in technology as customers increasingly access their accounts online rather than visit branches.

While the CEO helped steer Lloyds to profitability and full private ownership, the UKfocused bank is tied to the strength of its home economy, which has been hit by Britain’s divorce from the European Union and the prospect of higher interest rates.

Investing in a digital transformation, closing branches and reducing the workforce was already prioritised by the lender four years ago when it announced 9,000 job cuts and a £1 billion digital investment.

In 2016, the bank said a further 3,000 jobs would go and last month revealed plans to eliminate about 1,000 roles.

The £3 billion Lloyds plans to invest in tech over three years is far lower than some of its rivals.

Analysts at Autonomous Research LLP estimate that Deutsche Bank AG spends about US$4.1 billion (RM16.03 billion) a year on information technology and Wall Street giant JPMorgan Chase & Co around US$7.4 billion annually.

Other highlights from Lloyds 4Q earnings:
• Pretax profit at Lloyds fell to £780 million from £973 million a year earlier, missing the £877 million average estimate of four analysts surveyed by Bloomberg News.
• Revenue rose 6.5%; the cost-income ratio fell to 46.8%, the lowest of any major British lender; while capital jumped to 15.5%, the highest among its domestic peers.