Lloyds Banking Group Plc · LSE:LLOY

Lloyds Banking — FY2013 Earnings Presentation

41 slides from Lloyds Banking's earnings presentation, Feb 13, 2014

  1. Slide 1: 2013 Results: Presentation to Analysts and Investors

    2013 RESULTS Presentation to Analysts and Investors 13 F February b 2014

  2. Slide 2: Agenda

    AGENDA 2013 PROGRESS António Horta-Osório, Group Chief Executive FINANCIAL RESULTS AND GUIDANCE George Culmer, Culmer Group Finance Director UPDATE ON COSTS AND SIMPLIFICATION Mark Fisher, Director, Group Operations DELIVERING GROWTH António Horta-Osório, Group Chief Executive 1

  3. Slide 3: 2013 Strategic Highlights

    2013 STRATEGIC HIGHLIGHTS ƒ Significant progress made on our strategy, with delivery ahead of plan ƒ Continued focus on our customers and helping Britain prosper; core lending returned to growth in all divisions ƒ Financial performance substantially improved; Group underlying profit more than double

  4. Slide 4: Financial Performance: Profit and returns substantially improved

    FINANCIAL PERFORMANCE Profit and returns substantially improved GROUP CORE ƒ Group underlying profit more than doubled to £6.2bn with core contributing £18,805m £18,244m £7.6bn INCOME 2% 6% – Further improvement p in core p profitability y – Significant reduction in non-core losses 2.12% 2.49% NIM 1

  5. Slide 5: Balance Sheet: Core lending returned to growth, non-core assets reduced

    BALANCE SHEET Core lending returned to growth, non-core assets further reduced d d and d capital i l and d funding f di position i i strengthened h d CUSTOMER DEPOSITS & CORE LENDING (£bn) NON-CORE ASSETS (£bn) 4% (67)% 3% 438 437 194 431 (35)% 428 141 423 425 131 98 85 48 64 25 63 56 50 39 Dec 2012

  6. Slide 6: Best Bank for Customers

    BEST BANK FOR CUSTOMERS Strong deposit growth reflecting strength of our brands DEPOSIT GROWTH (%) ƒ Deposit growth continues in low Lloyds, TSB & BoS 9 base rate environment Retail relationship brands 6.4% ƒ Our relationship brands have Halifax 4 outperformed the market Other Retail(1) (11) ƒ Stron

  7. Slide 7: Supporting Our Customers and the UK Economy

    SUPPORTING OUR CUSTOMERS AND THE UK ECONOMY Core loan book now growing in all divisions CORE LOANS AND ADVANCES (£bn) 3% ƒ Core loan book growth of 3%, against market 425 428 437 contraction of 1%(1) 6 7 9 102 106 110 ƒ Committed over £37bn to UK customers through Funding for Lending (FLS), (FLS) wi

  8. Slide 8: Investing to Be the Best Bank for Customers

    INVESTING TO BE THE BEST BANK FOR CUSTOMERS Simplification enabling investment and delivering improved customer satisfaction i f i and d lower l complaints l i LOWER COMPLAINTS(1) 6 6 ƒ Strategic investment spend of around £600m in our core franchise in 2013 4 4 ƒ Improved customer service, reflecte

  9. Slide 9: Agenda

    AGENDA 2013 PROGRESS António Horta-Osório, Group Chief Executive FINANCIAL RESULTS AND GUIDANCE George Culmer, Culmer Group Finance Director UPDATE ON COSTS AND SIMPLIFICATION Mark Fisher, Director, Group Operations DELIVERING GROWTH António Horta-Osório, Group Chief Executive 8

  10. Slide 10: Financial Performance: Substantial increase in Group underlying profit

    FINANCIAL PERFORMANCE Substantial increase in Group underlying profit ƒ Underlying y g profit p more than (£m) 2013 2012 Change % doubled to £6.2bn Net interest income 10,885 10,335 5% ƒ Net interest income growth driven by improved net interest margin and d core loan l growth th Other income 7,920

  11. Slide 11: Core Divisional Financial Performance: Retail and Commercial Banking

    CORE DIVISIONAL FINANCIAL PERFORMANCE Substantial improvement in profitability and returns RETAIL (£m) ƒ Underlying profit improvement driven by 17% 5% growth in NII and 11% reduction in 3,774 3,224 impairment ƒ NII growth driven by 15bps margin 4.55% expansion and return to growth in core 3.60% len

  12. Slide 12: Core Divisional Financial Performance: WAFI and Insurance

    CORE DIVISIONAL FINANCIAL PERFORMANCE Substantially improved profits in WAFI, and strong cash generation i in i Insurance I WEALTH, ASSET FINANCE & INTERNATIONAL (£m) 38% 632 ƒ Significant increase in profitability with strong NII growth and reduced costs 459 ƒ Enhanced returns and net interest marg

  13. Slide 13: Divisional Income: Net interest income

    DIVISIONAL INCOME Strong net interest income performance driven by margin and d core lending l di growthh NET INTEREST INCOME (£m) NET INTEREST MARGIN 2013 2012 % 2.64% 2.43% 2.54% Retail 7,525 7,163 5% 2.34% 2.29% 2.06% 2.17% 1.96% Commercial 2,444 2,242 9% W l h Asset Wealth, A Finance Fi & IInt’l

  14. Slide 14: Divisional Income: Core other income

    DIVISIONAL INCOME Resilient core other income in a challenging environment CORE OTHER INCOME (£m) 2013 2012 % ƒ Retail R t il down d 3% reflecting fl ti lower l Retail 1,400 1,446 (3)% Bancassurance and Protection income Commercial 2,480 2,442 2% Wealth, Asset Finance & Int’l(1) 1,627 1,639 ((1)% )

  15. Slide 15: Financial Performance: Key asset quality metrics

    FINANCIAL PERFORMANCE Key asset quality metrics all reflect a lower risk business; AQR target off 50 50-60bps 60b achieved hi d a year ahead h d off plan l GROUP IMPAIRMENT (£m) GROSS IMPAIRED LOANS (£bn) % of 10.1% 9.4% 8.6% 7.7% 6.3% book(1) 5,422 (53)% 4,365 60 (34)% 53 3,157 46 40 3 786 3,786 3

  16. Slide 16: Financial Performance: Increased Group statutory profit before tax

    FINANCIAL PERFORMANCE Increased Group statutory profit before tax ƒ Gain on asset sales of £100m includes (£m) 2013 2012 £787m gain on government bonds offset by non-core disposals Underlying profit 6,166 2,565 ƒ Volatile items includes positive insurance volatility, more than offset by other items

  17. Slide 17: Legacy Issues: PPI complaint volumes falling

    LEGACY ISSUES PPI complaint volumes falling; increased provision reflects revised expectations AVERAGE COMPLAINT VOLUMES PER MONTH(1) (15)% ƒ Complaint volumes continue to fall 140,000 (24)% – Down 56% vs Q4 2012 105,000 (28)% ƒ Increased provision of £1.8bn in Q4 (12)% reflects 70,000 (8)% – £1.1bn

  18. Slide 18: Balance Sheet Highlights

    BALANCE SHEET HIGHLIGHTS Strong balance sheet GROUP 2013 MOVEMENTS Dec Jun Dec Change % (£bn) 2013 2013 2012 Dec/Dec (£bn) H1 H2 Total ASSETS SOURCE OF FUNDS Core loans and advances(1) 437 428 425 3% Non-core asset reduction 16 19 35 Non-core assets 64 83 98 (35)% Deposit growth 8 8 16 Primary liqui

  19. Slide 19: Non-Core Portfolio

    NON-CORE PORTFOLIO Further non-core reduction of £35bn; capital accretion of £2 6b £2.6bn NON RETAIL (£bn) RETAIL (£bn) Total net external 131 assets Treasury 49 assets (71)% (30)% 85 Total net (22)% 23 external assets UK CRE(1) 24 63 (49)% 56 19 50 48 UK Retail(2) 9 39 39 Other 32 35 30 corporate 2

  20. Slide 20: Run-off Portfolio

    RUN-OFF PORTFOLIO Expect to reduce run-off portfolio by c.30% in 2014 NON-CORE / RUN-OFF PORTFOLIO (£bn) Total net 64 external assets ƒ Run-off portfolio comprises UK Retail Run-off u o po portfolio to o 26 – Our O non-core non-retail t il assets t – Certain non-core retail assets, including Ireland

  21. Slide 21: Further Strengthening the Balance Sheet

    FURTHER STRENGTHENING THE BALANCE SHEET Significant progress in enhancing capital ratios FULLY LOADED COMMON EQUITY TIER 1 RATIO – SEPT TO DEC 0.6% ƒ Estimated pro forma fully 0.4% 0.2% 0.6% 10.3% loaded CRD IV common equity 9.9% (0.5)% (0.9)% tier 1 ratio improved to 10.3% ƒ Core tier 1 ratio impro

  22. Slide 22: Agenda

    AGENDA 2013 PROGRESS António Horta-Osório, Group Chief Executive FINANCIAL RESULTS AND GUIDANCE George g Culmer,, Group p Finance Director UPDATE ON COSTS AND SIMPLIFICATION Mark Fisher, Director, Group Operations DELIVERING GROWTH António Horta-Osório, Group Chief Executive 21

  23. Slide 23: Financial Performance: Maintaining the reducing cost trend

    FINANCIAL PERFORMANCE Maintaining the reducing cost trend TOTAL COSTS 2013 (£m) ƒ 5% cost reduction (5)% – Driven by strong Simplification 10,124 savings 119 9,635 155 (599) (164) ƒ Simplification 2014 exit run run-rate rate target increased to £2bn from £1.9bn 2012 Simplification Disposals Pay and

  24. Slide 24: Simplifying the Group

    SIMPLIFYING THE GROUP Working smarter and reducing costs TOTAL NUMBER OF SUPPLIERS ƒ £464m of sourcing run-rate savings c.18,000+ ƒ Almost Al t 82% off spend d now with ith top t 100 15,700 suppliers ƒ 19 non-branch property exits in 2013 10,500 – Target up from 50 to 55 9,100 8,500 ƒ Legal Entities

  25. Slide 25: Benefits for Customers Being Delivered

    BENEFITS FOR CUSTOMERS BEING DELIVERED Over 300 initiatives, with many improvements for customers, including including… ƒ Further penetration of internet banking ƒ Over 10.5m active internet users, over 4m mobile banking users and DIGITAL more than 1.2bn logons in 2013 ƒ Strong progress in online sa

  26. Slide 26: Agenda

    AGENDA 2013 PROGRESS António Horta-Osório, Group Chief Executive FINANCIAL RESULTS AND GUIDANCE George g Culmer,, Group p Finance Director UPDATE ON COSTS AND SIMPLIFICATION Mark Fisher, Director, Group Operations DELIVERING GROWTH António Horta- Horta-Osório, Group Chief Executive 25

  27. Slide 27: Lloyds Banking Group: Our Business Model

    LLOYDS BANKING GROUP – OUR BUSINESS MODEL Differentiated model enabling delivery of lower cost of equity ƒ UK customer t ffocused dbbusiness i LOWER RISK BUSINESS MODEL ƒ Retail and Commercial specialisation LOWER COST OF EQUITY ƒ Leading cost position LOWER COST OF DEBT ƒ Lower financial leverage U

  28. Slide 28: UK Economic Recovery

    UK ECONOMIC RECOVERY Helping Britain prosper as the UK economy gathers momentum UK MEDIUM-TERM GDP GROWTH FORECAST % change on year earlier 2.7(1) ƒ UK economy recovering 1.9 1.7 1.1 – Falling unemployment and inflation levels 0.3 boosting consumer confidence (0.8) – Reduced Eurozone risk boosting b

  29. Slide 29: Investing to Be the Best Bank for Customers: Growth opportunities

    INVESTING TO BE THE BEST BANK FOR CUSTOMERS Continued investment in growth opportunities ƒ Multi-brand strategy supporting loan and deposit growth; strong switching performance in Halifax RETAIL ƒ Expect to deliver positive mortgage lending growth consistent with stronger market, and demand for unse

  30. Slide 30: Dividend Policy

    DIVIDEND POLICY Reflects substantial progress and confidence in the future SUBSTANTIAL PROGRESS ON STRATEGIC PLAN ƒ PRA confirmed it will consider dividend applications in line with normal procedures ƒ We expect to apply to the PRA in H2 IMPROVED 2014 to restart dividend payments, at a FINANCIAL mod

  31. Slide 31: Summary

    SUMMARY ƒ Supporting our customers and helping Britain prosper as the economic recovery gathers momentum; increasing lending to our core customers ƒ Significantly improved financial performance, and capital substantially strengthened, despite legacy charges ƒ Further simplifying and de-risking the G

  32. Slide 32: Forward Looking Statements and Basis of Presentation

    FORWARD LOOKING STATEMENTS AND BASIS OF PRESENTATION FORWARD LOOKING STATEMENTS This presentation contains forward looking statements with respect to the business, strategy and plans of the Lloyds Banking Group, its current goals and expectations relating to its future financial condition and perfor

  33. Slide 33: Appendix

    APPENDIX

  34. Slide 34: Low Risk Business Model

    LOW RISK BUSINESS MODEL Increasing recognition of balance sheet strength and d i ki de-risking UK BANK CDS(1) 400 Bank Current level(2) Change since (bps) Jan 2012 (bps) LBG 76 (259) 350 HSBC 78 (66) Barclays 98 (101) 300 Standard Chartered 119 (62) RBS 119 (229) 250 200 150 RBS Standard Chartered 1

  35. Slide 35: Balance Sheet Further Strengthened

    BALANCE SHEET FURTHER STRENGTHENED Funding transformation substantially complete; liquidity coverage further f h improved i d WHOLESALE FUNDING (£bn) 298 (54)% ƒ Wholesale funding reduced by £32bn in (19)% 95 251 2013 (34)% 63 54 50 (60)% 170 8% 157 ƒ Short-term Short term funding 32% of total whole

  36. Slide 36: Mortgage Portfolio LTVs

    MORTGAGE PORTFOLIO LTVs Mainstream Buy to let Specialist Total Total Dec 2013 Dec 2013 Dec 2013 Dec 2013 Dec 2012 Average g LTVs 49.5% 66.9% 66.2% 52.8% 56.4% New business LTVs 63.6% 64.0% n/a 63.6% 62.6% ≤80% LTV 73.7% 67.7% 55.1% 71.4% 59.6% >80–90% LTV 14.7% 15.1% 20.1% 15.1% 16.8% >90–100% LTV 7

  37. Slide 37: Direct Real Estate Lending

    DIRECT REAL ESTATE LENDING Commercial/Residential property UK COMMERCIAL/RESIDENTIAL PROPERTY BOOK £27.4bn(1) (44)% 48.5 5.8 43.9 40.8 59 5.9 4.4 36.6 34.7 4.4 3.9 31.5 30.4 42.7 3.6 2.9 27.4 38.0 36.4 3.0 32.2 30.8 27.9 27 5 27.5 24.4 Jun Dec Jun Dec Jun Dec Jun Dec 2010 2010 2011 2011 2012 2012(2)

  38. Slide 38: Irish Portfolio

    IRISH PORTFOLIO Robust coverage which minimises downside risks PORTFOLIO BREAKDOWN (£bn) Dec 2013 Dec 2012 Gross assets: £15.4bn(1) (Net: £8.7bn) Gross assets: £19.5bn(2) (Net: £10.9bn) Non-retail gross assets: £9.4bn (Net: £3.4bn) Non-retail gross assets: £12.9bn (Net: £5.4bn) 15 4 15.4 93 9.3 67 6

  39. Slide 39: Net Tangible Assets

    NET TANGIBLE ASSETS Reduction primarily driven by legacy items NET TANGIBLE ASSETS PER SHARE (p) – SEPT TO DEC 51.1 1.0 0.1 (0.1) (1.2) 48.5 (2.4) Sept Earnings SJP DTA Reserve Legacy Dec 2013 write off movements 2013 and other NET TANGIBLE ASSETS PER SHARE (p) – DEC TO DEC(1) 2.6 1.7 51.9(1) 52.4 (

  40. Slide 40: Non-Core Reductions

    NON-CORE REDUCTIONS Non-core reductions continue to be capital accretive 2013 2012 Loss before tax(1) (£m) (1,839) (3,315) Post tax loss ‘capital consumed’ (£m) (1,411) (2,503) Reduced RWAs (£bn) 33.9 35.9 att 10% ‘‘capital it l released’ l d’ (£ (£m)) 3 385 3,385 3 590 3,590 Decrease in EEL(2) ((£m

  41. Slide 41: Forward Looking Statements and Basis of Presentation

    FORWARD LOOKING STATEMENTS AND BASIS OF PRESENTATION FORWARD LOOKING STATEMENTS This presentation contains forward looking statements with respect to the business, strategy and plans of the Lloyds Banking Group, its current goals and expectations relating to its future financial condition and perfor

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