Lloyds Bank looks after shareholders and staff – but savers are left short

Banker bonuses are back, not that they ever really went away. There are three certainties in life: death, taxes and bankers getting paid.

Lloyds is not a big player in this game when compared to the likes of Barclays or HSBC but it still produced a chunky £446m – the biggest bonus pool in four years and an increase of 11 per cent over last year. So of course there was a fuss given that profits were flat at £6.9bn and savers, in particular, have been feeling short-changed as interest rates have headed off into the stratosphere.

Britain’s biggest retail bank, which also owns Scottish Widows, has multiple stakeholders which raises a question – is it getting the balance right?

First let’s look at the staff and that bonus pool. Some nuance is called for here: that £446m is a bank-wide figure, so thousands of eligible staff will share in it.

Of course, a boost for a junior manager at one of the bank’s declining number of branches, who might be able to afford a holiday as a result, is a world apart from what the 21 millionaires at the top will be getting.

On the other hand, the bank handed over a £1,000 cost of living payment to most of its staff, in addition to a pay rise, which delivered the best returns to those at the bottom. And it is those on lower incomes who are really feeling the heat from the cost of living crisis.

That pay deal delivers £2,000 or 5 per cent, whichever is greater, up to a maximum of £5,000. It equates to between 8 and 13 per cent for 43,000 lower grade staff. Those further up the scale – the bank’s middle earners – suffered a real terms pay cut.

CEO Charlie Nunn did just fine with a £3.8m package. It was down nearly a third from the £5.5m he made in 2021, but the latter was largely as a result of a £4.2m buyout to compensate him for shares he gave up through moving across from HSBC. No one on that sort of money is struggling.

All the same, while the headline bonus number is substantial this isn’t a simple tale of fat-cattery. The bank has helped its low-waged employees too.

So, what are you doing for us, shareholders ask?

Lloyds’ net income – its revenues – surged by 14 per cent to £18bn. Costs also rose, but by much less and the cost to income ratio fell by a lot, to 50.4 per cent from 61 per cent. Margins jumped to nearly 3 per cent from two-and-a-half. So far, so (very) good.

The reason profits didn’t improve on the back of all that was largely because of a chunky provision (£1.5bn) taken as a result of fears of a sharp increase in customers defaulting on their loans. That appears prudent given the state of the economy and sky-high inflation. By contrast, last year’s earnings were flattered by £1.4bn coming back from past provisions. We should also note of Lloyds’ fourth quarter that profits nearly doubled.

So once again there’s a lot going on behind the headline number, most of it very favourable to the bank and its shareholders. The latter have been handsomely rewarded, to the tune of £3.6bn via share buybacks and an increased dividend, a 20 per cent increase in distributions to them. If staff are doing okay, shareholders are doing really well.

The share price didn’t do much in response because the City fretted about Lloyds’ cautious view of the future. This bank – which had to be bailed out by the taxpayer a decade or so ago – is set fair. Its shareholders have no cause for complaint.

Which brings us to the customers. They do have a grumble, especially savers, who are paying for those increased margins and all that shareholder largesse.

Last year, the Bank of England imposed eight interest rate rises. There were eight corresponding rises in the bank’s standard variable lending rate (SVR). The pricing of fixed rate mortgage deals is not linked to base rates, not directly. It’s a complex process resting on the expectations for future rates via the price of “interest rate swap” derivatives. But they have still risen across the board, even if they’ve come back a bit since Liz Truss drove a bulldozer into the middle of the financial markets and the wider economy.

Savings rates only four times last year, with a fifth increase at the start of this year when there was another rise in base rates and the SVR.

Borrowers had a bad year but it’s savers who have cause for complaint. Criticisms made of banks coining it in and short-changing savers is valid.

Lloyds shareholders are in clover, staff are mostly fine, borrowers are having a tough time but savers are getting stiffed. The only consolation may be that it’s a similar picture at other banks. This is a controversy that is set to dog the industry throughout the course of the year.