Examination of Witness (Question Numbers
12 JANUARY 2010
Q220 John Mann: I am asking you about
since you took over HBOS, because that is a good time frame to
take. So the 11,000 or the 15,000 might be accurate?
Mr Daniels: I would not wish to
speculate but I will be happy to write to the Committee
Q221 John Mann: I am not asking you
to speculate. All I am asking is how many jobs have gone since
you took over HBOS?
Mr Daniels: At mid-year we reported
6,000 role losses, not job losses, and we would be reporting again
at the end of February and at that time we will give the next
Q222 John Mann: What is your estimate
then that at the end of February the figure will be?
Mr Daniels: I am afraid we do
not disclose those estimates.
Q223 John Mann: So you know but you
are not going to tell us how many jobs. Is that what you are saying?
Mr Daniels: We would not be allowed
to publicly disclose. We are in a closed period.
Q224 John Mann: So the union's figure
of 15,000 may well be accurate then?
Mr Daniels: I could not possibly
Q225 John Mann: How many more do
you project in the next year, job losses, role losses?
Mr Daniels: If I may, the way
in which we operate is that we believe we take the commitments
to our staff very, very seriously, and what, again, we believe
is that we cannot build a successful franchise unless we bring
the staff with us. As a result of that, what we do is we look
very thoroughly, department by department, and make a decision
about the ideal staffing level for that department. That requires
a great deal of work; it requires careful study. Once we understand
that, we then speak to the individuals involved. We do not think
it is a good policy to make public pronouncements when people's
livelihoods are at stake and when individuals are affected. We
will always speak to the individual first. We then try and make
every attempt to make sure that that individual, if they have
performed well, gets another job within the company. Again, we
have natural attrition where people decide they want to do other
things, so backfilling natural attrition from some of the people
who have lost their roles is a very good thing. Using a single
gross measure of number of roles eliminated does not say anything
about what happens to people.
Q226 John Mann: The taxpayer might
want to know how many jobs have gone. Have you sent any functions
abroad, offshore, in this period since you took over HBOS?
Mr Daniels: No. We have committed
that we will not offshore any further jobs since we took over
Q227 John Mann: So nothing has gone
Mr Daniels: That is correct, and
in fact, we are bringing back from offshore some functions.
Q228 John Mann: You seemed to say
contradictory things to the Chairman and earlier on, I think it
was to Mr Cousins, in terms of bonuses and synergy. Earlier on
you were suggesting that synergy savings are one of the three
parts of the bonus determination but job cuts are part of the
synergy savings, but you told the Chairman that there was no relationship
between job cuts and bonus. That seems to be a contradiction.
Does synergy have any relationship of any kind to bonus?
Mr Daniels: I beg your pardon.
If I may clarify, I explained that there are three components
to compensation: there is salary, there is bonus, and there is
long-term compensation. One of the three pieces of long-term compensation
is determined by whether we hit the 1.5 or greater of synergies
or not, and how we hit it. In other words, we have to do it so
that it really adds lasting value to the shareholder. The Chairman
asked me whether we would get in fact a greater bonus for cutting
more people and I said the answer is no.
Q229 John Mann: But there is then
a direct relationship between the synergy savings and part of
the bonus, and therefore you have linked the reduction in labour
costs, i.e. jobs, with bonus directly.
Mr Daniels: There is a direct
link between achieving the synergy target and receiving a component
of the long-term compensation. That is absolutely true. The link
between the number of roles and the synergy savings is, I believe,
a lot less direct. When we make savingsfor example, we
procure about £5 billion of goods and services every year,
everything from photocopying machines to pencils to renting branches
and so on. Because we are a larger group, we purchase more in
volume, you would expect that we would achieve larger discounts.
When we combine computer systems
Q230 John Mann: I understand that.
My final question is, you are trying to persuade the British taxpayer,
not least as current and future potential customers, and yet you
are linking part of your bonus to job cuts, and you are unwilling
to say how many job losses there are. Does that not create something
of a PR problem for you in persuading the British public that
you are a suitable person for them to put their money into?
Mr Daniels: I am not sure I completely
follow the logic but let me try once more. What we believe is
that when you bring together two organisations there will beregrettably
but inevitablysome job losses, and those job losses will
result in some savings. If we in fact increase the amount of savings,
increase the amount of job losses, no, the bonus will not be any
larger or less large. What we are committed to is, we have made
a series of representations to our shareholders about what we
think the size of the synergies are and the management may or
may not be bonused or given long-term compensation based on how
Q231 John Mann: But if you do not
get through the agreed job losses, your bonus will be cut and
therefore there is a direct relationship between the bonus payments
that you are making, despite the position of the taxpayer in relation
to your bank, and the job cuts that you are making. Do you not
feel you have a problem? You are obfuscating in actually putting
the information out. Is there not a problem with the British taxpayer
seeing that you are paying bonuses for people to cut jobs?
Mr Daniels: I beg your pardon.
I have tried at least two times unsuccessfully to explain it.
Would you like me to try a third time?
John Mann: I have heard your explanation,
and you are saying that.
Chairman: I do not think we are getting
anywhere. You have explained it three times, John has come back
four times, so we will call it a draw.
Q232 Nick Ainger: Can you explain
to the Committee why your senior management, including yourself,
needs a substantial bonus to successfully complete the merger
of these two organisations? You are extremely well paid. Last
time you were before us you referred to your salary as modest.
It is not, but can you explain why you require this bonus, however
it is to be calculated, to actually do what I would have thought
should have been part of your everyday work?
Mr Daniels: Thank you for the
question, Mr Ainger, and thank you for the opportunity to clarify
my previous statement. I told the Committee that I feel incredibly
privileged to be able to lead the Lloyds Banking Group, and I
by no means mean to imply that I believe that my salary is modest.
The point that I was trying to make before and that I have, I
hope, made today in response to Mr Todd's question is that the
great majority of our employees in fact look like the nation;
they have £25,000 salaries and they have £1,000 bonuses,
and that is what the great majority of what Lloyds banking is
Q233 Nick Ainger: We understand that.
It is the Board. Surely their responsibility is to make this merger
a success, therefore, why on earth do they require a bonus to
Mr Daniels: Again, if I may distinguish,
the Remuneration Committee of the Board sets the compensation
for the management, including the senior management of the Lloyds
Banking Group. What they believe is, if you achieve specific goals
that add value to the shareholder, and you achieve them well and
above expectation, that is worthy of recognition. I think that
is what the driving force is behind it. Again, I would remind
you that the kind of compensation that we are talking about is
not investment banking compensation. We are a bank that serves
customers. What we do as a commercial bank is to give first-time
buyers mortgages, it is to help companies borrow so that they
can grow and expand. That is what we do.
Q234 Chairman: As you know, the Committee
has always been concerned about fairness and financial inclusion,
and I have received quite a high degree of correspondence from
individuals all over the country on the current account issue.
I have written to you on that and you have come back to me. Just
let me give you an example, because I think there is an issue
of perception here. "Dear Mr McFall, I thought you could
pass this information on to the relevant body, using your clout,"
so this is what I am doing. "My 84 year old mother, I look
after her finances and I have just read that a new charging structure
includes a £1 a day charge for any unauthorised overdrawn
amount of from £1 to £2,499. Such a charging structure
is biased against low-earning account holders who are most likely
to go overdrawn at the end of the month, or people like my mother,
aged 84, who has become a bit forgetful." I had one from
a 72-year old in St Boswells, saying, "The bank boasts that
up to £2,500 in overdraft will only cost £1 per day,
ignoring the plight of small borrowers who expect to pay overdraft
charges in proportion to their borrowing and whose charges are
still profit for the bank on a smaller scale." I have just
done a back-of-envelope calculation. It seems as if the charges
are not proportionate to the amount borrowed. For example, £2,500
has an APR of just under 15% whereas an overdraft of £200
would attract an APR of well over 1,500%. In fact, I calculated
1,825%. How are you going to justify those sorts of rates and
dispel the perception that it is the low-income people that are
being penalised here?
Mr Daniels: Thank you for the
question, Chairman. You have a faster calculator than I do so
I could not verify whether those rates of interest are right or
Q235 Chairman: We will ask you to
confirm that when you come back again. OK?
Mr Daniels: What I would tell
you is that what we try and do is offer a wide variety of accounts
so that customers can choose the one that is most appropriate
for them. For those people, for example, who very occasionally
fall into an overdraft because they have a particular need that
month, they would use a different product than people who dip
in and out of overdraft on a fairly frequent basis. What we try
to do is design products that are appropriate for the customer.
In part what we do is we try and price the amount of the overdraft
by the amount of risk that is incurred, and that is a very risky
product as far as the bank is concerned, and the amount of cost
that is incurred because the overdraft decisioning is reasonably
complex. That is how we price our products, and we of course want
to get a return. What I would tell you is that the overdraft product
is one of the lower return products that we have.
Q236 Chairman: I think there is a
view out there, Mr Daniels, that it is punishing low-income people
and HBOS has been pretty good over the years on the issue of financial
inclusion. In fact, you had a separate financial inclusion report
a number of years ago and I contributed, so I would not like to
see that going by the board. If you could take that away and look
at that so that you could get that public message out that you
are not disadvantaging people, it would be in everyone's interests.
Mr Daniels: Thank you, Chairman.
I can assure you that we believe very thoroughly as the Lloyds
Banking Group that financial inclusion is important for society
and important for our bank, so I absolutely take it to heart.
Q237 Chairman: Just two questions
to finish with, just for the record. Chris Rhodes, the Head of
Products and Marketing at Nationwide, has complained to the Treasury
and the FSA that partially state-owned banks such as Lloyds are
causing, in his words, "dislocations" in the savings
market through pricing their products uneconomically. Do you have
any sympathy for that view?
Mr Daniels: I can assure you that
if I priced products uneconomically, my shareholders would crucify
Q238 Chairman: When you appeared
before us in February 2009 you said that your time frame for exiting
state ownership and repaying the taxpayer would hopefully be less
than three years. Almost one year has passed now since you appeared
before the Committee. Do you still expect to be fully privately
owned by early 2012?
Mr Daniels: That is a question
that I think UKFI would be in a better position to answer. My
job is to try and make the bank as successful as possible, meaning
that we in fact can increase the profitability, increase the share
price, and assure people that this is not simply a temporary increase
but rather it is sustainable over time, and that is what will
get the share price up. In fact, as the share price rises, the
ability of the government to sell down its shares at a profit
increases and is enhanced. That is what we seek to do.
Q239 Chairman: I was taken by a quote
which one of your friends was supposed to have made to the newspapers.
Mr Daniels: I apparently have
lots of friends!