Surface Ripples

The Men At The Top – Eric Daniels

Eric Daniels was born on August 14 1951 in Dillon, Montana of a German university professor and a Chinese mother, who met at the University of Berkeley.

He went to High School in New Jersey, took a BA in History at Cornell University in 1973 and then studied for an MSc in Management at Massachusetts Institute of Technology, leaving in 1975.

His wife is from Panama and he has one son.

Daniels’ career began with Citibank in 1975. He was in Panama for five years, then moved to Argentina and later to Chile. In the late 1980s he spent three years in London and became Chief Operating Officer of Citibank Consumer Bank in 1998. When Citibank and Travelers merged in 1998, he became Chairman and Chief Executive Officer of Travelers Life and Annuity. From 2000 - 2001 he was Chairman and Chief Executive Officer of a small internet start-up company which didn’t last long. He joined Lloyds TSB in 2001 as Head of Retail Banking and became Chief Executive in June 2003. When Lloyds TSB took over HBOS in 2009, he became Chief Executive of Lloyds Banking Group.

Daniels comes across as anything but the “brash American” so beloved of critics of US bankers (unlike one of his peers). In 2008 The Guardian described him as “The quiet American” and “The Invisible Man”! Those who have known him or met him describe him as a “deep thinker” and “good with numbers”. In some ways, this made him the perfect counter balance to Sir Victor Blank – Lloyds’ former high profile chairman. Some say that it was Blank who pushed the HBOS deal rather than Daniels, but this we may never know.

Although not seen as a “star” at Citibank according to David Enrich of The Wall Street Journal , his activity in purchasing successful businesses in Latin America clearly impressed potential future employers, especially Lloyds where, as one of his reports told the BBC in September 2010, he brought “vision and effort” and a “sense of direction and purpose”.

When Daniels joined Lloyds as Head of Retail Banking in 2001, things had slowed down thanks to its ill-timed £7billion acquisition of Scottish Widows two years earlier. He spent the next five years turning things around to make Lloyds a serious player once more.

Equally, the effort that he has made to put things right after the HBOS acquisition (let’s not call it a “merger”) has been impressive, with Lloyds returning to profitability in the first half of the year (although there is now speculation that another profits warning is in the offing…). He maintained the confidence of his shareholders sufficiently to support a £13.5billion rights issue to increase its capital and fend off accusations by the EU that Lloyds benefitted from state aid.

Those achievements have allowed Daniels to claim, as Blank did, that the HBOS deal will eventually be applauded. That argument is certainly now plausible given the size of the profits – £3.7bn this year, say the analysts – but let's see if Lloyds survives the fallout from the Banking Commission. (The Guardian)

Will the HBOS purchase be seen as a good move in the future? It has been fraught, to say the least, with critics pointing out that competition rules were waived to save the previous government’s face. Lloyds was seen to have increased its market share to between 25-30% of the UK retail market whilst destroying shareholder value by not making proper disclosure of a £25.4billion loan from the government to HBOS and handing a 41% shareholding to the UK taxpayer.

Thanks to this, Daniels is the subject of litigation by shareholders who are demanding about £14million in compensation, and a commission has been set up to assess whether Lloyds Banking Group should be broken up.

HBOS will be a subject of debate for some time. Some will say that its acquisition has made Lloyds Banking Group a major force in the UK market, but at the expense of huge bad debt and being 41% owned by the UK taxpayer. There is talk that Daniels was interested in Northern Rock, and one wonders whether his failure to acquire that may have pushed him more strongly when HBOS came up for grabs. Apparently he knew that it would be “painful” in the short-term, but the speed with which the global economy deteriorated after Lloyds stepped in seems to have caught everyone by surprise.

Daniels is not, according to many, a risk-taker in the same mould that other high-profile bank heads were. Some believe that the HBOS acquisition may have been “pushed” by a government anxious to avoid another “Northern Rock” episode. However, Lloyds Banking Group have now taken on what some would feel is “toxic” debt which will take time to sort out. Equally, there’s the issue of Lloyds having to shrink its balance sheet due to competition regulations, which were happily torn up by the previous government to make the rescue possible. When his departure was announced, shares in Lloyds Banking Group rose, giving the taxpayer a profit on its stake of around £1bn on the average price paid for the shares. Clearly the markets approved…

From the remuneration point of view, Daniels embarrassed himself before MPs in February 2009 by describing his £1million salary as "relatively modest". When he leaves, he could take with him shares and cash worth over £14million, but this is rumour so far. He’s also entitled to a pension of at least £190,000 a year according to The Guardian.

The Banking Commission set up to enquire into the financial markets will be looking closely at the banking industry, and rumour has it that they may recommend a break-up of such as Lloyds Banking Group. Politically, this is tempting for a (relatively) new government keen to be seen to be “doing something”, but Daniels and his peers will resist.

Conclusions? Daniels leaves Lloyds Banking Group in profit (excluding HBOS) and probably with a good deal. In March 2008, he told the Sunday Times “my job is to leave Lloyds in shape to last another 240 years, and that means you are very careful with reputation, with capital, with customers and with the franchise you build.” Let's hope he did right with HBOS, as that is what he’ll be remembered for…

Labels: Career, Financial, Strategy

posted by William Martin @ 21:03