Time for action

3 August 2010 By Hugo Dixon Follow @hugodixon

Eric Daniels deserves some of the blame for the UK bank’s valuedestructive takeover of HBOS. While he may have a job integrating the banks in the short term, he’s not the best person to lead Lloyds in the long run. The board should get on with planning his succession in earnest.

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Lloyds Banking Group has started formal succession planning for its chief executive Eric Daniels although no date has been set for his departure, a person familiar with the situation has told Reuters Breakingviews.

The process is a contingency planning exercise to identify successors to Daniels in the event that he stands down, and the board is not actively recruiting a new CEO. Lloyds has retained a headhunter and held discussions at board level, which have included Daniels and the head of human resources. The aim is to complete the plan by the end of this year.

Daniels, 58, has come in for considerable criticism as a result of the bank's decision to acquire HBOS, the UK mortgage lender, shortly after Lehman Brothers went bankrupt in September 2008. That acquisition led to the resignation of Victor Blank, the chairman, amid pressure from shareholders including UKFI, the government body which owns 41 percent of Lloyds.

However, Daniels has been unapologetic about the HBOS acquisition and is expected to use Lloyds' firsthalf results on Aug. 4 to argue that the deal is on track to deliver value for shareholders. Lloyds is expected to post pretax profit before exceptionals of 772 million pounds, according to Reuters consensus estimates, compared with a pretax, preexceptional loss of 4 billion pounds in the first half of last year.

Winfried Bischoff, who took over as Lloyds' chairman from Blank last year, has told a number of shareholders that the bank is involved in a succession planning process.

Both the board and UKFI believe that Daniels is doing a good job integrating Lloyds and HBOS and is the right person to run the bank at present, according to people familiar with their thinking. However, there has been less unanimity that Daniels is the right person for the long run.

Earlier this year, Bischoff sounded out Mervyn Davies, former chairman of Standard Chartered, on whether he might be interested in becoming Lloyds' CEO. Davies, who at was a government minister the time, said he was not.

Other potential successors include: Sandy Flockhart, chairman of HSBC's personal, commercial banking and insurance businesses; Naguib Kheraj, former CEO of JPMorgan Cazenove and former finance director of Barclays; and Antonio HortaOsorio, chief executive of Santander's UK business.

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