By Sinead Cruise and Andrew MacAskill
LONDON (Reuters) - Top investors in Lloyds Banking Group (L:LLOY) are concerned that chief executive Antonio Horta-Osório might leave the bank sooner than anticipated following press scrutiny of his private life and want its board to start looking for his successor.
After a stellar 2015, which saw Lloyds swing back to profit, restore dividends and millions of British government shares sold to private owners, 2016 has been less auspicious for the Portuguese banker, who took the top job five years ago.
Britain's vote to leave the European Union in June and the Bank of England base rate cut that followed has put Lloyds' ambitious profit and dividend targets under strain, and cast fresh doubts about when the government might be able to recoup the last of the taxpayer cash used in its 2008 bailout.
Then on Wednesday, Lloyds was forced to defend Horta-Osório's expenses after The Sun newspaper, published by Rupert Murdoch's News Corp (O:NWSA), carried a front-page story alleging the married chief executive ran up a 3,826 pound ($4,962) hotel bill while spending time with another woman.
The intense scrutiny of his private life has led some investors to fear Horta-Osório could quit before the task of restructuring Britain's biggest mortgage lender is complete.
"It is definitely something the board should be thinking hard about," one of the bank's top 20 shareholders said, who declined to be named because of the sensitivity of the matter.
"It's a concern allied to the fact that the job for next couple of years is going to be harder than he thought now."
Lloyds said its chairman Norman Blackwell had reviewed the allegations and was satisfied Horta-Osório had paid his own personal expenses while attending a Singapore conference.
"Antonio has the full confidence and backing of the Board in his role as Chief Executive, and he remains committed to the bank and delivering on its strategic ambitions," a spokeswoman said in a statement on Thursday. Horta-Osório was unavailable for comment, the spokeswoman said.
The tabloid story follows disappointing corporate headlines for Lloyds after it announced a further 3,000 cuts from its 75,000-strong workforce and plans to close 200 branches by the end of next year. It is already part-way through culling 9,000 jobs and has closed nearly 100 branches so far in 2016.
Its shares have tumbled by almost 25 percent this year and it now faces millions of pounds of unexpected compensation payouts linked to its role in Britain's payment protection insurance scandal after a claims deadline extension.
Lloyds said last month that Britain's financial watchdog was also investigating how it treated customers who had difficulty repaying mortgages.
BENCH PRESSED
Lloyds was quick to reassure staff that Horta-Osório hadn't broken any rules and was committed to the bank, an internal memo distributed on Wednesday said.
"To have people dig into your private life like that has been a source of enormous embarrassment," a second shareholder said, adding "whether that is enough to drive him out, I don't know. One would hope that he would get on with the job".
A senior source at the bank told Reuters that succession planning for all senior Lloyds executives was a regular board agenda item and has been handled diligently for some time.
However, shareholders remain concerned about the bench-strength of the Lloyds executive team and several who spoke to Reuters called on the board to review its options without delay.
"There's not been an obvious internal successor since Alison Brittain left to run Whitbread (LON:WTB)," one of the shareholders said.
And investment managers who have met with senior Lloyds staff in recent weeks say they have seen a slump in morale since the Brexit vote, which forced the government to postpone selling its remaining Lloyds shares.
"I got the impression that people were feeling pretty good about things pre the referendum, seeing the prospect of getting the government stake cleared, but that was derailed," a source at another of the bank's 20 largest investors said.
Market, regulatory and compliance pressures have compounded share price woes and a poor public image of bankers since the financial crisis, making it tough to find bank CEO applicants.
"I don't see being the CEO of a UK focused bank - or any bank for that matter - as that attractive at the moment."