Lloyds Banking Group has cancelled staff bonuses for 2020 after missing financial targets and recording a sharp drop in profits during the Covid crisis. The bank told staff across its Halifax, Lloyds and Bank of Scotland brands on Thursday that it was making an early announcement on bonuses in light of the challenging economic outlook, and with profits already down 85% to £434m in the first nine months of the year. Last year Lloyds cut its bonus pool for the first time in four years to £310m, down from £465m in 2018. The bank told staff in a memo: “Despite the good news about the vaccine rollout, like most of our peers, our year-to-date business performance continues to be challenging.” Despite reporting a third-quarter profit, Lloyds told employees: “We are not where we expected to be and are short of the commitments we made to ourselves and our shareholders – which I know also includes many of you.” The decision has not changed fortunes for the chief executive, António Horta-Osório, who is set to leave in June 2021 and confirmed earlier this year that he would waive his 2020 bonus, worth as much as £1.8m. William Chalmers, the finance chief, also ruled himself out of a payout worth up to approximately £800,000. The decision to cancel bonuses means Lloyds will avoid uncomfortable questions from UK regulators, which said last week they would be scrutinising cash bonuses for bankers in light of the continued economic uncertainty. But the cancellation could prove controversial, if the bank decides to pay shareholders dividends in the new year. The Bank of England last week lifted its temporary ban on dividend payouts to investors, but told lenders a cap would be imposed until at least mid-2021. The coronavirus pandemic has put pressure on bank earnings. Record low interest rates have squeezed net interest income, which measures the difference between interest earned on loans v that paid on deposits. The deteriorating economic outlook has also forced Lloyds to put aside £4.1bn so far to cover potential defaults on loans and credit cards. Lloyds has also announced almost 2,000 job losses since September as part its restructuring plans. Accord, a specialist union for staff in financial services, said: “Bad news is bad news and the lack of any group performance share [bonus] will give some individuals real problems next year when many family budgets are already stretched.” However, unions have reached a tentative agreement to increase salaries by at least 1% for about 80% of Lloyds Banking Group staff. The lowest-paid workers will be guaranteed a pay rise of at least £400. Lloyds is also considering distributing shares to employees in the new year in lieu of a bonus, and earlier this year paid one-off bonuses worth £250 to frontline staff who had worked through the pandemic. The group said: “This decision on bonuses in no way reflects the hard work and commitment our people have made throughout this extraordinary year to keep our businesses operating strongly and to provide support and help to our consumer and business customers.”