Profile: Andrew Whittaker and Kate Cheetham, Lloyds Banking Group

The bank’s group and deputy GCs discuss the split of Lloyds and TSB, and helping Lloyds’ efforts to rebuild trust after the banking crisis.

When Andrew Whittaker joined Lloyds Banking Group as group general counsel (GC) in May 2013, the message to the market behind his move following a 13-year stint as GC of the UK’s Financial Services Authority (FSA) was not lost.

The trend towards embracing regulatory skills (think now-departed FSA chief executive Hector Sants’ appointment as compliance head at Barclays) came as the major high street bank continued to deal with the fallout of the financial crisis, which for Lloyds meant a multi-billion pound bail-out by the UK government. That is to say nothing of its implication in payment protection insurance mis-selling and ongoing investigations into its involvement in alleged Libor rigging.

Since Whittaker’s arrival he and deputy GC Kate Cheetham have been executing measures required by European competition rules on state aid, in light of the government’s 43.4% stake in the bank and Lloyds’ 2008 rescue of beleaguered Halifax Bank of Scotland (HBOS) for £12bn, before the extent of its own problems became apparent.

Much like other banks which received state aid, Lloyds was required to hive off parts of its business, in this case over 600 branches, to provide a fair choice for consumers. The Royal Bank of Scotland, by comparison, will this year complete its sale of leading insurer Direct Line.

However, for Lloyds – and therefore Whittaker and Cheetham – the European Union ruling has had more far-reaching consequences than many of its counterparts, leading to the first bank spin-off in the UK, requiring major assistance and planning from the legal team, certainly beyond the normal run of M&A.

At the time of speaking to Legal Business, Cheetham and Whittaker were preparing the prospectus for the forthcoming initial public offering (IPO) of TSB.

This is ‘plan B’ for Lloyds, after The Co-operative Bank withdrew its circa £750m bid for the TSB branches in April 2013.

‘We do think that what’s expected of banks in the world today is very different from what might have been expected five or ten years ago.’
Andrew Whittaker, Lloyds

Unsurprisingly, the float is high on the agenda of conversation and, in what emerges to be a fairly typical glass-half-full observation, Whittaker says: ‘In one sense, it will be pretty much business as usual because we will be continuing to do banking business across the market and the ownership won’t make a difference to the way that we operate. But in the other sense, the actual ownership part of it will take a bit of work on our part, depending on how the government deals with it.’

‘In leading up to the IPO, we are ensuring that TSB is ready to float on the stock exchange,’ explains Cheetham. ‘At the moment it’s a privately-owned company in a publicly-listed group, but once it’s publicly listed itself, it will need to have a level of corporate governance it doesn’t currently need.

‘Then there is writing the prospectus, ensuring that management effectively describes the business risk and the opportunities, as well as supporting Susan Crichton, who started as TSB’s GC at the beginning of the year, in building her legal team.’

For Lloyds’ 370-strong legal team, this is in fact the more straightforward part of spinning off the TSB business, which last September saw the rebranded TSB – the bank that ‘liked to say yes’ in the eighties before merging with Lloyds in 1995 – once again open its doors as a separate bank to 4.5 million customers.

‘It was a huge piece of work for the legal team and it’s continuing now,’ says Cheetham, who led much of the project. ‘We had to do a number of Part VII transfers through the courts to move the customers out of various parts of the organisation into Lloyds TSB Scotland, as it then was. We then had to turn it into TSB plc, capitalise it and then make sure it has all the contracts and services it needs.

‘As TSB hit the high street, at the same time we did the rebrand of Lloyds Bank. It was a massive programme, which wasn’t just about rebranding the properties. It meant all the customer terms and conditions had to be changed, as the fundamental contractual basis on which you are trading has changed too,’ adds Cheetham.

For such a major project involving millions of customers, there has been relatively little fallout. ‘It has all been done very successfully,’ says Whittaker. ‘The TSB launch has shown that it is possible to do major IT projects successfully, on time and pretty much on budget, which is very encouraging.’

While the legal team can’t take all the credit for its success, the operation is nonetheless a credit to it, and to Whittaker and Cheetham, who have worked in partnership on a flexible basis since May last year, when Whittaker joined the banking group on a part-time contract.

Cheetham works full-time, but they admit managing the legal team of one of the UK’s dominant banks is a 24/7 job, whether you are officially working or not.

The legal team is largely UK-centric, with only eight lawyers in the US and around a third of the team in Scotland, divided into five sectors: retail and wealth; commercial banking; insurance; group litigation, regulatory and competition; and group legal.

A few lawyers also remain in Australia, completing any outstanding legal work after the banking group agreed to sell its Australian operations to Westpac Banking Corporation, the country’s second-largest bank, for around £900m last October, following its 2008 bailout.

‘It’s a pretty full-service team,’ says Cheetham. ‘We have a branch in the US so it has its own business there. The US legal team supports the banking and finance work the US business does, but then it also supports us as a group because we are Securities and Exchange Commission-registered as well as raising debt in various places, including the US.

‘There are big, specific pieces of legislation like Dodd-Frank [Wall Street Reform and Consumer Protection Act] and FATCA [Foreign Account Tax Compliance Act], which will have a significant impact on our UK business, so they are an important part of the team, working out what it means for the business and how we are going to implement any changes to ensure that we comply.’

‘We’re completely aligned to what the business is doing and we’re thinking about how we play our part in helping the group’s strategic goals.’
Kate Cheetham, Lloyds

Also occupying the legal team are the bank’s latest lending initiatives, such as increasing funding for small and medium enterprises (SMEs).

Cheetham says: ‘We’re completely aligned to what the business is doing and we’re thinking about how we play our part in helping the group’s strategic goals to “help Britain prosper”, so it’s things like setting up the legal framework for the funding for lending scheme for us to operate that, things like developing new products, supporting the growth in lending and products for SMEs, pensions auto-enrolment, etc.’

Whittaker adds: ‘Doing the right thing will give the banks a competitive advantage. We do think that what’s expected of banks in the world today is very different from what might have been expected five or ten years ago.’

Almost as an extension of that desire to improve the banking culture, the duo are in the process of setting up a new internal training contract scheme and Whittaker says: ‘What’s really important to us is to create an open culture, to make people feel like they are part of the community and doing their bit for the community, and they’re bringing people in and training them up. In an environment where people are critical of the banking culture, they are good things for the bank to be associated with.’

In terms of their external advisers, Whittaker and Cheetham are guarded about the line-up of 14 core firms, perhaps in light of the fact that they will, within the next six months, review the law firm panel, where the emphasis is on a smaller number of core firms that advise ‘across the piece’.

‘One of the requirements of being a core law firm is that you have strengths in each of the main areas in which we are likely to want expertise,’ adds Cheetham.

‘We do have panels for specialist things, whether it’s HR or financial markets etc, but it is all part of the same framework. It may be a GC who heads up on that panel or it may be one of the other senior leadership teams, possibly one of their direct reports. We try to make sure it’s not just something the GCs do,’ she adds.

The tail-end of the financial crisis still has a vicious sting and, for Whittaker and Cheetham, their workload will continue to be dominated by its fallout for some time to come.

But the message to the market is that things are moving on.