Lloyds poised to grow investment banking

[LONDON] Lloyds Banking Group Plc is ready to grow its investment bank. Just don't call it that.

Britain's largest mortgage lender has shunned stock trading and merger advisory as part of an effort to be simpler and focus on businesses where it excels. But the firm's markets business - which houses bond underwriting, foreign exchange and derivatives trading for its largest corporate clients as well as a private-equity unit - generated about a third of the £4.7 billion (S$8.1 billion) of revenue at its commercial bank last year.

And the head of the operation, Andrew Bester, said his unit could grow if client demand increases as other banks in the region scale back.

"Are there opportunities where we would be putting on more resource? The answer is yes," he said in an interview in his office at the bank's headquarters in the City of London. "But ultimately it's going to be demand led. Nowhere on our platform are we placing big product-led bets." The phrase "investment bank" might as well be verboten under Chief Executive Officer Antonio Horta-Osorio, who's made a virtue of pulling Lloyds out of risky activities following the bank's bailout in the financial crisis. The markets business accounts for about 10 per cent of Lloyds's £17.5 billion in total revenue.

"We are not focused at all in investment banking, that was an area I declined to do in our strategy, and we have shut some areas that we had," Mr Horta-Osorio told reporters at a meeting alongside annual results last month. Lloyds does "nothing like the investment banks. Each one should stick to its specialty." Lloyds's markets business grew revenue by 8 per cent in the second half of last year versus the first six months of 2016, according to its annual results, which don't break out performance in detail. Corporate clients bought more currency hedging products after Britain voted to leave the European Union, while the bank also saw "good activity" across securitization, bond business and loan financing, according to Bester.

Unlike full-service global securities firms, Lloyds doesn't do takeover advice, equity capital markets, stock trading and prime brokerage services to hedge funds. Still, its revenue of about £1.6 billion roughly matches that of Royal Bank of Scotland Group Plc's NatWest Markets division, which was once among the largest investment banks in the world before following Lloyds to focus on Britain.

Like Wells Fargo & Co in the US, Lloyds must balance a desire to offer more services to its biggest corporate clients while avoiding volatile businesses that would risk the premium investors have placed on their steady consumer-focused operations. The London-based bank trades above its book value, while European securities firms such as Barclays Plc and Credit Suisse Group AG are worth less than theirs.

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