Lloyds Banking Group plc: Crisis Or Opportunity?

Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) has confirmed that it will be shedding 9000 jobs and closing 200 branches during a three-year period to make way for a more digital banking experience. Over the past two weeks Lloyds has been riding a roller coaster of uncertainty, particularly over Sunday’s news that the FTSE 100 lender had passed the EU Banking Authority’s stress test but only by a narrow margin. Their shares, which on Friday decreased by just 0.01%, on Monday, sank more than 2% after the stress test news broke. However, the bank did announce on Tuesday that its underlying profit in Q3 “increased 35 % to £5,974 million,” while their net income saw a 3% increase totalling £13,898 million, which excluded the effect of the share disposal in 2013 from St James’s Place.

Is this a thumbs up or thumbs down approach?  

It is apparent that the move is a sign that Lloyds is trying to cut costs, computerised banking is becoming more popular as customers are performing more of their transactions online and on mobile platforms. The plan is expected to save Lloyds about £1 billion by 2017.

According to Lloyds CEO, António Horta-Osório, the bank intends to change their “digital capability, providing customers with simpler, seamless interactions across online, mobile and branches, and improving the efficiency of products and services.” He added that the  bank will be “integrating the role of branches with digital and telephony as part of a seamless multi-channel approach.” 

Mr Horta-Osório may have a point based on the British Banking Association’s (BBA)  June 2014 report. The organisation revealed that millions of people are now turning to “mobile phone apps” and other technology to handle their money. They describe that apps provided by banks today are being downloaded “more than 14 million times,” while about  £1 billion is being transferred online daily.  The report details that branches will continue to be a necessary aspect to banking in the 21st century, but their daily use has decreased substantially.  It also emphasises that customers are looking forward to more “options with the way they communicate with their bank.” As a result, Lloyds’ move to a more digitally focused banking experience for their customers may be an approach that they needed to do.

Things may not be as they seem

So is Lloyds’ move to cut staff and create a more computerised banking environment a sign that the bank is dealing with a crisis or is it a hidden opportunity? On the surface, it seems that although the company is cutting costs by reducing  staff, while reporting improved profit and income results, may show that the bank is making moves that are  necessary for them to prosper. 

However, analysts may not be so confident in Lloyds’ current path. Equities analysts from Jefferies Group lowered the bank’s shares from a “hold” to an “underperform” rating.  Furthermore, there is concern surrounding Lloyds’ recent incident involving the bank having erroneously sold payment protection insurance (PPI) to its customer, which has forced it to put together £900 million in compensation to individuals who were affected.

In some ways it seems that Lloyds is creating opportunities for its future and its customers by choosing the digital banking route. On the other hand, it may actually have a crisis on their hands as a result of barely passing the EU banking stress test along with their current PPI situation.