Euromoney is not a cheerleader for the UK. It just reports on global finance. And the evidence is compelling that Lloyds and HSBC are now industry-leading examples of the two very different business models that have emerged among the world’s top banks since the financial crisis.
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Lloyds has specialized within one country. In 2019, regulators will require UK banks to place their domestic retail and business banking operations inside distinct legal entities with their own capital and liquidity buffers that cannot be drawn down to cover losses incurred in supposedly riskier international investment banking.
Around 97% of Lloyds’ activities will fall within the ring-fenced bank.
Its determined chief executive, António Horta-Osório, who has restored the bank to the point where the UK government sold down its last share in May, has focused ruthlessly on costs. With a cost-to-income ratio now at 49%, Lloyds appears to have opened up a formidable competitive advantage.
Offering basic banking services at low cost holds out the promise that banks might actually provide returns to shareholders without boosting profits by mis-selling to retail customers and later charging the compensation costs to equity investors.