High street bank seeks to cut costs in anticipation of interest rate cut and cites 15% fall in use of branches

Lloyds Banking Group is axing 3,000 jobs and closing 200 branches as customers desert the high street for digital channels in a move that allows it to save costs at a time when interest rates are expected to be cut after the Brexit vote.

The job cuts come on top of 54,000 announced since the rescue of HBOS in 2008 and sparked an angry reaction from unions, which warned about the impact on customers.

The latest cutbacks to the remaining 75,000-strong workforce were revealed as the 9% taxpayer-owned bank reported a doubling in pre-tax profits and admitted it was being investigated by the Financial Conduct Authority over the way it handled customers having difficulty paying their mortgages.

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The UK’s biggest mortgage lender and savings institution was unable to say whether it faced a penalty from the City regulator, but it has set aside £350m to cover the costs of mishandling customers in arrears not only with their home loans but also with unsecured debts.

António Horta-Osório, Lloyds’s chief executive, said the decision to cut jobs – which will save £400m – had been tough. But he said the use of branches had fallen by 15% year on year, faster than had been the case when he announced a £1bn cost-saving programme of 200 branch closures and 9,000 job cuts in October 2014.



He refuted a warning by an official at Unite that customer service would be damaged. Rob MacGregor, Unite national officer, described the cuts as “grim news”, while Ged Nichols, general secretary of the Accord union, which represents 22,000 staff who joined Lloyds from Halifax, said staff would be confused.

“The loyal, dedicated and customer-focused employees in the Lloyds Banking Group are still reeling from recent job losses,” said Nichols. “They will be bewildered by today’s news and wonder what has happened that is so catastrophic that these further job cuts and branch closures are necessary. Interest rates might be lower for longer, but why are job losses higher and faster? Where will the axe fall next?”

Facebook Twitter Pinterest António Horta-Osório, chief executive of Lloyds, said the job cuts will save £400m. Photograph: Graeme Robertson/The Guardian

Horta-Osório – born in Portugal, who has taken British nationality – said he expected the vote for Brexit to cause a “deceleration of growth” in a period of uncertainty. Interest rates would likely be cut to 0.25% from their historic low of 0.5%, he said, but should not go below zero because of the negative signal this would send about the economy. He would not say how long he expected rates to remain at that level.



“Additional monetary measures will have only a marginal impact,” said Horta-Osório, who urged the government to consider an infrastructure programme to bolster productivity.

“This country has underinvested for years ... The productively problem is already an issue. We can borrow almost at zero.”

Insisting that the vote for Brexit would not cause the bank to alter its lending criteria or strategy, Horta-Osório said: “We should focus on helping the country to grow and get out of this uncertainty as quickly as possible in the best possible way.”. He refused to confirm the bank would pass on the full effect of any rate cut to borrowers or require savers to take a knock to their income.

While first half pre-tax profits doubled to £2.5bn, Horta-Osório focused on the underlying profits – which exclude restructuring costs and other items – that were down 5% at £4.1bn.

While he said the acceleration of the branch closure programme was motivated by customers increasingly banking online or digitally, analysts were calculating the impact of an interest rate cut on its profits and ability to generate surplus capital to pay out in dividends.

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A quarter-point cut at next week’s monetary policy committee meeting would knock £100m off annual profits while the bank’s finance director, George Culmer, admitted that the plunge in the pound to 31-year lows had reduced the amount of capital the bank holds as it increases the value of its riskiest assets.

But the Brexit vote had also led to £10bn of deposits being placed with the bank.

As a result of buying HBOS – which includes the former Halifax building society – Lloyds has 2.7 million retail investors and is paying a 0.85p pence per share dividend, up 13%.

The prospect of special dividends had helped propel the share price last year – when George Osborne had promised to sell the remaining taxpayer stake to the public at a discount. It is not clear how his successor, Philip Hammond, would tackle any selloff given the fall in the share price since the Brexit vote, which at one point plunged below 50p. The taxpayer took what was a 43% stake in the bank at an average price of 73p and after the results were down 5% at 52p.

“Lloyds has increased its interim dividend significantly, but if the Brexit axe is to fall anywhere it’s likely to be on the special dividend at the end of the year,” said Laith Khalaf, senior analyst at stock broker Hargreaves Lansdown.