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The chief executive of Lloyds Banking Group has warned that political uncertainty, regulatory costs and a lack of focus on competitiveness in the UK are deterring international investment in the country’s banks.
“There is panic at the moment about the UK . . . around the lack of stability we have,” Charlie Nunn told the FT’s Global Banking Summit on Tuesday.
Nunn surveyed US investors the week after former chancellor Kwasi Kwarteng’s disastrous “mini” budget in September and found that the budget had caused a “significant reduction in certainty”. He also heard “concerns about the UK as an investment thesis”.
The Lloyds boss added that differing economic prospects between the US and the UK – including productivity growth and the trade balance – could also constrain investment in the medium term.
The UK financial services sector has suffered additional long-term discounts, he said, due to large fines – such as the £790mn charge Lloyds made last year over historic fraud at HBOS, which it owns – and a focus on restructuring. and enforcement of regulation over the past 13 years.
“Capital investments have gone to those things instead of driving innovation and growth,” Nunn said.
However, he added that the emphasis on competitiveness in the Financial Services and Markets Bill currently working through the House of Commons was welcome, saying it “hasn’t been a focus in the last decade”.
Nunn said Lloyds would not “benefit” from lifting the bankers’ bonus cap “unlike other financial services firms”. Barclays, which has a significant investment bank and a large New York-based workforce, and HSBC, which employs most of its staff in Asia, stand to gain more from removing the cap.
He unveiled his £4bn growth strategy for Lloyds in February, after years of cuts under previous chief executive Antonio Horta-Osorio. Nunn said its targets – including adding £1.5bn in revenue by 2026 – were “very achievable”, despite the bleak economic outlook.
Shares in Lloyds are down about 8 percent so far this year and have fallen nearly 30 percent over the past five years.
Nunn also said on Tuesday that Lloyds, the UK’s biggest mortgage lender, was talking to regulators about measures to support landlords.
While most of Lloyd’s customers were concerned about the cost of living crisis and the challenges that would arise in 2023, Nunn said that only 1 percent were currently unable to make ends meet.
Strategies discussed with the Financial Conduct Authority include extending terms on home loans or switching to interest-only mortgages to support customers struggling to keep afloat.
While mortgage rates have fallen significantly as the market stabilized following the “mini”-budget, borrowers face much higher rates than a year ago.
Lloyds forecast a “relatively mild recession for most of next year”, he said, with gross domestic product falling by just 1 per cent, unemployment reaching 5 per cent and interest rates peaking at 4 per cent.
“It’s an unusual recession in that employment is still strong but there are tight labor markets, which means tough times for consumers and businesses, but not a deep recession,” he said.
The crisis had a “very modest” impact on the banking sector in pension funds using so-called liability-driven investment strategies, Nunn said. Volatility was fueled by the “mini”-budget, which roiled the gilt market and forced some pension funds to raise cash immediately.
Lloyds paid a £500mn pension deficit contribution to its own pension scheme in the third quarter, although chief financial officer William Chalmers said in October that this was pre-planned.
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