THE CHIEF executive of Lloyds Banking Group has said the organisation will soon reveal what it plans to do with the multi-billion pound Scottish Widows portfolio currently managed on its behalf by rival Standard Life Aberdeen, despite the latter challenging its right to terminate their contract.
Speaking as he revealed that Lloyds had made an underlying pre-tax profit of £4.2 billion for the first six months of the year, António Horta-Osório said the banking group expected to soon announce the results of a competitive tender for the £109 billion mandate.
“We’ve had a lot of interest in that and expect to announce something at the end of summer,” he said.
“We are very excited and it will be a great deal for our customers when we get there.”
Lloyds announced in February that it intended to end its relationship with Standard Life Aberdeen because it felt that the business, which was created by the August 2017 merger of Aberdeen Asset Management and Standard Life, had become a “material competitor”.
The £109bn of mainly pensions money had been run by Aberdeen since it acquired Scottish Widows Investment Partnership in 2014.
While a number of investment houses including BlackRock and Schroders are understood to be in the running to take over management of those assets, Standard Life Aberdeen made it clear in May that it would not give up the mandate without a fight.
Standard Life Aberdeen noted at the time that it did not agree that it was in material competition with Lloyds and as such did not consider that Lloyds, Scottish Widows or any affiliates had “the right to terminate” their investment management agreements.
“The parties are engaging with each other within the framework of the dispute resolution process envisaged in the investment management agreements,” it added.
It is understood that those discussions are continuing and that Standard Life Aberdeen, which earns around £130 million a year for managing the funds, has not changed its position on the issue.
The value of the pensions business was underscored in Lloyds half-year results, with the group noting that it had seen a 50 per cent increase in life and pensions sales over the six-month period. This was in part down to auto-enrolment contribution levels in workplace pensions rising from 2% to 5% in April.
It said this was “driven by increases in new members in existing workplace schemes, the impact of contracted increases in auto-enrolment workplace contributions and bulk annuities”.
In total, life and pensions sales were up from £5bn to £7.5bn, making it the fastest growing segment of the business overall.
The loan book the group charges interest on, by comparison, fell from £444bn to £442bn during the period, while customer deposits nudged up from £416bn to £418bn.
Overall the amount of income Lloyds received from interest was up by 7% to £6.3bn while total income rose by 2% to £9.5bn. Underlying profits, meanwhile, were up by 7%, from £3bn to £4.2bn.
Mr Horta-Osório said the results demonstrated “a strong and sustainable financial performance” that he expects to continue to the full-year stage.
Despite this, the bank continues to be dogged by legacy issues such as payment protection insurance (PPI) claims and fraudulent behaviour by some staff in an HBOS branch in Reading.
Chief financial officer George Culmer said the bank now expects to receive 13,000 PPI claims a week up until the Government’s August 2019 cut-off date as opposed to the 11,000 it had previously assumed. As a result, Lloyds increased its PPI provision by £550m in the first half, bringing the total sum it has provided to date to £19.2bn.
In terms of the victims of the Reading fraud, which targeted small-business owners, Mr Horta-Osório said the bank was “absolutely focused” on compensating victims and is “in the latter stages of that”.
He said that offers had been made to over 90% of affected customers and that the majority of those had accepted the bank’s terms.
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