Lloyds Banking Group plc · LSE:LLOY
Lloyds Banking — FY2008 Earnings Presentation
71 slides from Lloyds Banking's earnings presentation, Feb 27, 2009
Slide 1: 2008 Results
2008 RESULTS 27 February 2009
Slide 2: 2008 Results - Sir Victor Blank, Chairman
2008 RESULTS 27 February 2009 Sir Victor Blank Chairman
Slide 3: 2008 Results - Tim Tookey, Group Finance Director
2008 RESULTS 27 February 2009 Tim Tookey Group Finance Director
Slide 4: Key messages
Key messages: Strong Lloyds TSB relationship business momentum HBOS issues analysed and understood Challenges broadly as expected Robust funding and capital position HBOS acquisition delivers significant tangible net asset value enhancement 4
Slide 5: 2008 Results - Lloyds TSB
LLOYDS BANKING GROUP i 2008 RESULTS LLOYDS TSB
Slide 6: Lloyds TSB: Continuing businesses performance 2008
Lloyds TSB: Continuing businesses performance 2008 £m 2007 2008 % Change Statutory profit before tax 4,000 807 (80) Volatility – Insurance 277 746 – Policyholder interests 222 471 US dollar payments related provision – 180 Settlement of overdraft claims 76 – Financial Services Compensation Scheme le
Slide 7: Lloyds TSB: Continuing businesses performance 2008
Lloyds TSB: Continuing businesses performance 2008 £m 2007 2008 % Change Total income, net of insurance claims 10,843 11,010 2 Total excluding market dislocation 11,031 11,935 8 Expenses (5,317) (5,582) (5) Trading surplus 5,526 5,428 (2) Impairment (1,796) (3,012) (68) Insurance grossing adjustment
Slide 8: Lloyds TSB: Divisional performance 2008
Lloyds TSB: Divisional performance 2008 £m 2007 2008 % Change UK Retail Banking 1,720 1,793 4 Insurance & Investments 722 901 25 Wholesale & International 1,300 274 (79) – excluding market dislocation 1,580 1,544 (2) Central Group items (12) (552) Insurance grossing adjustment 26 10 Profit before ta
Slide 9: Lloyds TSB: Customer lending and deposit trends
Lloyds TSB: Customer lending and deposit trends £bn +16% 242.7 142% +9% 134% 209.8 170.9 156.6 2007 2008 2007 2008 2007 2008 Customer Lending Customer Deposits Loan to Deposit Ratio 9
Slide 10: Lloyds TSB: Impairment losses on loans and advances
Lloyds TSB: Impairment losses on loans and advances 2007 2008 Variance % of Average Lending Impairment £m £m % 2007 2008 UK Retail Banking 1,224 1,472 (20) 1.10 1.22 – Personal loans/overdrafts 679 779 (15) 5.32 5.73 – Credit cards 527 526 – 7.96 8.12 – Mortgages 18 167 0.02 0.17 Insurance & Investm
Slide 11: Lloyds TSB: Impairment losses on loans and advances
Lloyds TSB: Impairment losses on loans and advances 2007 2008 Variance % of Average Lending Impairment £m £m % 2007 2008 UK Retail Banking 1,224 1,472 (20) 1.10 1.22 Insurance & Investments – 2 – 0.03 Wholesale & International Banking 447 1,149 (157) 0.51 1.09 – Corporate Markets 115 685 (496) 0.19
Slide 12: Lloyds TSB: Impaired asset ratios
Lloyds TSB : Impaired asset ratios Retail Retail 31 December 2008 Mortgages Other Wholesale Group Loans and advances to customers (gross) £115bn £39bn £92bn £246bn Impaired assets £1,361m £4,477m £2,704m £8,542m Impaired assets as % of closing balances 1.2% 11.4% 2.9% 3.5% Impairment provisions £186
Slide 13: Lloyds TSB: 2008 results – summary
Lloyds TSB: 2008 results – summary Core relationship businesses continue to perform well Resilient income levels, affected by slowing economic environment and impact of market dislocation Strong cost management maintained Significant rise in impairment levels Capital and funding position r
Slide 14: 2008 Results - HBOS
LLOYDS BANKING GROUP 2008 RESULTS HBOS
Slide 15: HBOS: Profit performance 2008
HBOS: Profit performance 2008 £m 2007 2008 Statutory profit (loss) before tax 5,474 (10,825) Short-term fluctuations 115 239 Policyholder tax (18) 893 FSCS levy/regulatory provisions 122 200 Goodwill impairment 5 158 2007 Finance Act 10 – Loss on sale of businesses – 845 Underlying profit (loss) bef
Slide 16: HBOS: Profit performance 2008 – by division
HBOS: Profit performance 2008 – by division* £m 2007 2008 % Change Retail 2,026 1,367 (33) Corporate 2,359 (6,793) Insurance & Investment 644 739 15 International 757 154 (80) Treasury & Asset Management 259 (3,627) Group items (337) (330) Profit before tax 5,708 (8,490) * Calculated on an underlyin
Slide 17: HBOS: Customer lending and deposit trends
HBOS: Customer lending and deposit trends £bn +1% 430.0 435.2 196% 177% (9)% 243.2 222.3 2007 2008 2007 2008 2007 2008 Customer Lending Customer Deposits Loan to Deposit Ratio 17
Slide 18: HBOS: Corporate – profit performance 2008
HBOS: Corporate – profit performance 2008 £m 2,359 Income down £3.2 billion, largely investment portfolio writedowns Significant rise in corporate impairments from £0.6 billion to £6.7 billion Corporate impairment charges in 2008 driven by: – Commercial £1.5 billion – Real estate £1.6 billion
Slide 19: HBOS: Treasury & Asset Management – profit performance 2008
HBOS: Treasury & Asset Management – profit performance 2008 £m Market dislocation £3,948 million (2007: £227 million) 259 – Negative fair value adjustments £2,527 million – Impairment losses £1,421 million (3,627) 2007 2008 19
Slide 20: HBOS: Impairment losses on loans and advances
HBOS: Impairment losses on loans and advances 2007 2008 % of Average Lending Impairment £m £m 2007 2008 Retail (1,277) (2,230) 0.52 0.88 – Secured (28) (1,125) 0.01 0.47 – Unsecured (1,249) (1,105) 7.20 6.54 Corporate (619) (6,669) 0.62 5.89 International (116) (958) 0.20 1.50 (2,012) (9,857) 0.50 2
Slide 21: HBOS: Losses reflect deteriorating economic environment
HBOS: Losses reflect deteriorating economic environment and more conservative provisioning methodology Forecast H2 2008 Difference from estimate due to HBOS impairments/writedowns increased corporate impairments £bn £bn HBOS estimate (2.4) Corporate impairments – 2009 outlook deteriorated to 1 in 25
Slide 22: HBOS: Impaired asset ratios
HBOS: Impaired asset ratios Retail Retail 31 December 2008 Secured Unsecured Corporate International Group Loans and advances to customers £238.5bn £16.8bn £116.4bn £61.0bn £435.2bn* Impaired assets £6,914m £2,209m £13,848m £3,060m £26,031m Impaired assets as % of closing balances 2.9% 13.2% 11.9% 5
Slide 23: HBOS: 2008 results – summary
HBOS: 2008 results – summary 2008 loss of £9.9 billion before policyholder tax 2008 statutory loss before tax £10.8 billion Key drivers: – Core business franchise remains strong Underlying Retail net operating income increased by 5% Underlying Insurance and Investment profit up 15% – Incre
Slide 24: Lloyds Banking Group
LLOYDS BANKING GROUP i LLOYDS BANKING GROUP
Slide 25: Lloyds Banking Group: Key messages after six weeks of HBOS ownership
Lloyds Banking Group: Key messages after six weeks of HBOS ownership Excellent progress on integration Lloyds TSB risk management policies and practices in place across the entire group Robust capital and funding position – Comparable core tier 1 ratio 7.7% – Reported core tier 1 ratio 6.4% –
Slide 26: Lloyds Banking Group: A well spread customer lending base
Lloyds Banking Group: A well spread customer lending base Loans and advances to customers £731 billion* Property Postal & companies communications 12% 2% Financial, business Transport, & other services Manufacturing distribution & 15% 3% hotels 5% Energy & Construction water supply 2% 1% Agriculture
Slide 27: Lloyds Banking Group: Mortgage portfolio
Lloyds Banking Group: Mortgage portfolio UK mortgage portfolio £351 billion Specialist (HBOS) £33bn Buy to let (HBOS) £32bn Prime (Lloyds TSB) £103bn Buy to let (Lloyds TSB) 29% £10bn 49% Prime (HBOS) £173bn Lloyds TSB HBOS 27
Slide 28: Lloyds Banking Group: Mortgage arrears trends
Lloyds Banking Group: Mortgage arrears trends % of total cases >3 months in arrears 4.0 3.0 2.0 Market 1.88% 1.0 0.0 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 CML total market Lloyds TSB prime Lloyds TSB buy to let HBOS prime HBOS buy to let HBOS Specialist * Source: Council of Mortgage Lender
Slide 29: Lloyds Banking Group: Mortgage portfolio LTVs
Lloyds Banking Group: Mortgage portfolio LTVs Prime Prime BTL BTL Specialist Lloyds TSB HBOS Lloyds TSB HBOS HBOS Average LTVs 54.5% 51.0% 71.2% 79.0% 72.6% New business 2008 LTVs 63.0% 65.3% 71.0% 73.2% 70.8% <= 80% LTV 57.8% 57.6% 48.4% 32.7% 38.5% > 80–90% LTV 13.1% 13.9% 15.5% 21.4% 21.3% > 90–1
Slide 30: Lloyds Banking Group: Secured portfolio – understood, controlled and areas for focus selected
Lloyds Banking Group: Secured portfolio – understood, controlled and areas for focus selected Portfolio >100% LTV >100% LTV and £351bn >3 months in arrears Sector now exited Specialist 19.4% 1.5% LTV policies now Buy to let aligned 21.7% 1.0% Multiple exposures very limited Limited 2009 grow
Slide 31: Lloyds Banking Group: Properties in possession
Lloyds Banking Group: Properties in possession Properties in possession New repossessions (% of mortgage cases) (% total cases) 0.34% 0.29% 0.21% 0.16% 0.12% 0.07% CML Average* LTSB HBOS CML Average* LTSB HBOS 31 Dec 2008 31 Dec 2008 * Council of Mortgage Lenders 31
Slide 32: Lloyds Banking Group: Unsecured lending portfolios
Lloyds Banking Group: Unsecured lending portfolios Unsecured portfolio £37.4 billion Banking (HBOS) £4.1bn Credit cards (Lloyds TSB) £6.6bn Transaction banking (Lloyds TSB) £1.8bn Credit cards (HBOS) £6.7bn Loans (HBOS) £6.0bn Loans (Lloyds TSB) £12.2bn Impairment charge as a % of average lending Ca
Slide 33: Lloyds Banking Group: Arrears performance by vintage – loans
Lloyds Banking Group: Arrears performance by vintage – loans Arrears % Month 3 Month 6 Month 9 Month 12 Month 15 Month 18 Month 21 Month 24 Dec 04 Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Mar 07 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Including joint ventures 33
Slide 34: Lloyds Banking Group: Loans and advances to corporate customers
Lloyds Banking Group: Loans and advances to corporate customers Loans and advances to corporate customers £307.2 billion Post and Communications 4% Transport Property companies distribution and 29% Hotels 13% Construction 4% Manufacturing 7% Energy and water supply 2% Agriculture, forestry and fishi
Slide 35: Commercial/residential real estate & housebuilder lending
Lloyds Banking Group Commercial/residential real estate & housebuilder lending £97.4bn Lloyds TSB UK £23.3bn 24% HBOS UK* £44.7bn 46% 30% HBOS Overseas* £29.4bn Lloyds TSB UK HBOS Overseas HBOS UK * Including joint ventures 35
Slide 36: Lloyds TSB: UK commercial/residential real estate & housebuilder lending
Lloyds TSB: UK commercial/residential real estate & housebuilder lending Commercial property (£14.5bn) Residential property (£7.5bn) Through the cycle policy, 54% Housing Associations supporting existing customer £23.3bn (local authority cash flows) franchise Larger residential property Well
Slide 37: HBOS: UK commercial/residential real estate & housebuilder lending
HBOS: UK commercial/residential real estate & housebuilder lending Commercial property (£29.1bn) Residential property (£11.6bn) Focus on cash flows Significant housing association £44.7bn* lending Predominantly investment property Remainder predominantly large volume, low value deals Well
Slide 38: HBOS: Overseas property lending
HBOS: Overseas property lending* Ireland (£10.7bn) Australia (£5.3bn) 55% property investment of Evenly split between residential which 7% is stressed/ impaired £29.4bn and commercial 45% property development of 63% development (15% stressed) which 38% is stressed/ impaired 37% investment
Slide 39: Lloyds Banking Group: Leveraged finance lending
Lloyds Banking Group: Leveraged finance lending HBOS Leveraged Finance/ Lloyds TSB Acquisition Finance (£5.5bn) Integrated Finance (£9.4bn) A highly selective origination £14.9bn Well spread by sector strategy Predominantly UK focused Well spread by sector Leveraged - c£1.4 billion Under
Slide 40: Lloyds Banking Group: Corporate equity risk portfolio
Lloyds Banking Group: Corporate equity risk portfolio HBOS Funds Investments (£1.6bn) HBOS Integrated Finance (£1.2bn) Investments in private equity 62 assets; 65% originated pre funds £5.9bn 2007 119 investments written 1995 – Significant concentration risk 2008 exists 15% Valuations base
Slide 41: Lloyds Banking Group: Treasury debt securities portfolio
Lloyds Banking Group: Treasury debt securities portfolio Loans and Available £bn receivables for sale FVTPL Total ABS 38.1 14.0 3.6 55.7 Covered bonds - 4.1 - 4.1 Bank FRNs 2.6 16.0 2.2 20.8 Bank CDs - 12.3 3.1 15.4 Treasury Bills and other bills - 29.1 - 29.1 Other* - 5.3 8.8 14.1 Total 40.7 80.8 1
Slide 42: Lloyds Banking Group: Asset backed securities portfolio
Lloyds Banking Group: Asset backed securities portfolio Net exposure Current £bn 31 Dec 2008 book price Mortgage backed securities – US RMBS 7.4 64 – Non-US RMBS 12.5 89 – CMBS 4.6 88 24.5 79 Collatteralised Debt Obligations – CBO 2.3 50 – CLO 5.8 88 8.1 73 Personal sector – Auto loans 2.4 97 – Cred
Slide 43: Lloyds Banking Group: Fair value adjustments
Lloyds Banking Group: Fair value adjustments Review of all assets and liabilities, on and off balance sheet Over £1 trillion of balances reviewed at portfolio levels As a result, only Lloyds Banking Group has fair valued its lending and savings balances Adjustments unwind over contractual/be
Slide 44: Fair value adjustments affecting core tier 1 capital
Lloyds Banking Group: Fair value adjustments affecting core tier 1 capital £bn Loans, deposits and other Debt securities Retail Debt securities in issue 6.2 – loans (4.1) – savings (0.8) Other borrowed funds 9.8 (4.9) Corporate (6.9) Treasury (1.0) International (2.3) Other (0.1) (15.2) 16.0 Tax 4.5
Slide 45: Lloyds Banking Group: Net negative capital adjustments
Lloyds Banking Group: Net negative capital adjustments £bn Fair value adjustments affecting core tier 1 capital 0.8 Available for sale/cash flow hedging reserves (6.3) Reduction in expected losses 1.5 Other 0.3 Net negative capital adjustments (3.7) 45
Slide 46: Lloyds Banking Group: Robust capital ratios
Lloyds Banking Group: Robust capital ratios Pro forma capital ratios* Reported basis (after fair value adjustments) Core tier 1 6.4% Tier 1 9.8% Total 12.5% Comparable basis (before AFS/CFH reserves adjustments) Core tier 1 7.7% Total tier 1 11.1% Total capital 13.7% * 31 December 2008, Lloyds TSB a
Slide 47: Lloyds Banking Group: Net tangible assets
Lloyds Banking Group: Net tangible assets Net tangible assets (£bn) NTA per share (p) 17.5 0.2 17.7 45 179 16 Uplift £10bn 118 7.7 HBOS Initial Adjusted Purchase LBG Jan Acquisition Adjusted NTA* tangible TNAV price NTA per 2009 and TNAV Dec 2008 fair value required share capital tangible per LBG ad
Slide 48: Lloyds Banking Group: A diverse funding profile
Lloyds Banking Group: A diverse funding profile Core customer deposit base Diverse wholesale funding profile Measured use of Government schemes Strong funding and liquidity profile Credit ratings in ‘double A’ range Significant Central Bank eligible collateral 48
Slide 49: Diverse funding sources with prudent maturity profile
Lloyds Banking Group Diverse funding sources with prudent maturity profile 31 Dec 31 Dec £bn 2008 2008 Bank deposits 41.6 Customer deposits 72.7 Less than one year 285.9 Certificates of deposit 72.4 Medium-term notes 61.5 Covered bonds 29.1 One to two years 30.9 Commercial paper 28.8 Securitisation
Slide 50: Lloyds Banking Group: Outlook
Lloyds Banking Group: Outlook Excellent progress on integration Lloyds TSB risk management policies and practices in place across the entire group Robust capital and funding position Arms around the issues and challenges being addressed 50
Slide 51: 2008 Results - Tim Tookey, Group Finance Director
2008 RESULTS 27 February 2009 Tim Tookey Group Finance Director
Slide 52: 2008 Results - Eric Daniels, Group Chief Executive
2008 Results 27 February 2009 Eric Daniels Group Chief Executive
Slide 53: Key messages
Key messages The Lloyds TSB and HBOS results reflect their business models We understand the immediate challenges and are addressing them The Lloyds Banking Group will create significant value 53
Slide 54: Results reflect respective business models
2008 Results reflect respective business models Lloyds TSB HBOS Profitable despite downturn Unprofitable due to impairments Continued franchise growth Growth of strong franchises curtailed by funding issues Economic profit objective Income objective 54
Slide 55: Agenda
Agenda The immediate challenges How the Lloyds Banking Group will create value 55
Slide 56: Economic outlook: Economic environment will remain difficult
Economic outlook Economic environment will remain difficult GDP Growth Forecast – 2009 (%) Consensus1 vs. Lloyds Banking Group House prices will continue to fall through 2009 (0.2) Unemployment will continue to rise (1.6) Consumer spending will (2.6) (2.5) slow further Oct ‘08 Feb ‘09 Consensu
Slide 57: Understanding the HBOS loan book
Understanding the HBOS loan book Retail Corporate International Total £bn Total loans 255 116 61 432 Outside Lloyds TSB risk appetite ~65 ~80 ~20 ~165 Higher risk 31 40 9 80 57
Slide 58: HBOS Retail – Higher risk assets
HBOS Retail – Higher risk assets Portfolio £bn assets (%) Actions we have taken Buy to let 15 46% Managed new business to Lloyds TSB criteria: – Stopped Self Cert, Sub Prime Self certified 11 39% – Stopped new build BTL >65% – No mainstream >90%; no Sub prime 4 100% mainstream new build >80% Rev
Slide 59: HBOS Corporate – Higher risk assets
HBOS Corporate – Higher risk assets Portfolio £bn assets (%) Actions we have taken Real estate 11 31% Applied Lloyds TSB risk procedures and structure JVs 11 57% Completed analysis for £25bn of portfolio – on a file by file Commercial 10 35% basis – remaining £15bn underway ISAF 5 34% Segregat
Slide 60: HBOS International – Higher risk assets
HBOS International – Higher risk assets Portfolio £bn assets (%) Actions we have taken Ireland 6 19% Reduced new corporate business and lending appetite European Retail excl. Ireland 0.2 2% Discontinued specialist mortgage products, including Australia 2 15% BTL Reduced LTV in mainstream North
Slide 61: Summary: Group wide actions taken to-date
Summary: Group wide actions taken to-date In divisions At Group level Stopped flow of new high risk Applying Lloyds TSB risk lending governance, appetite and sanctioning Identified the higher risk assets Conducting central checks of Undertaking detailed review of divisional risk activities
Slide 62: Our capital and funding position is robust
Our capital and funding position is robust Capital Funding Current Core Tier 1 of 6.4% Funding below market Comparable Core Tier 1 of Extending maturity 7.6% Credit ratings in ‘double A’ All ratios above regulatory range standards Lending paced to funding, risk and capital parameters 62
Slide 63: Agenda
Agenda The immediate challenges How the Lloyds Banking Group will create value 63
Slide 64: The longer-term potential: Case for HBOS acquisition remains compelling
The longer-term potential Case for HBOS acquisition remains compelling A powerful franchise Clear cost leadership Enhanced revenue potential Strong internal capital generation 64
Slide 65: Integration progress
Integration progress The Lloyds Banking Group is rapidly taking shape Appointed Top 500 executives – now managing combined businesses Rules, governance, values and vision in place on Day 1 Efficient 8x8 organisation structure Balanced scorecard goals including economic profit Integrated in
Slide 66: Strong progress on delivering cost synergy value
Strong progress on delivering cost synergy value Five initiatives account for c.75% of 2009 target and for c.55% of the 2011 run rate Delivery 2011 run rate commenced 1. Procurement rationalisation 300 9 2. Business unit consolidation 200 9 3. Rationalisation of IT 130 9 4. Management & support (ex
Slide 67: Revenue synergy potential
Revenue synergy potential We have started to identify revenue synergies Preliminary est. Selected examples PBT impact (£m) 1. Increasing cross-sell in HBOS retail 80 – 120 2. Conversion of HBOS retail customers 80 – 120 to SME 3. Increase cross sell in HBOS commercial 40 – 80 4. Extend private banki
Slide 68: Core businesses will drive low risk growth
Core Profit Core businesses will drive low risk growth 1 2008 Proforma: Core vs. Non-Core Growth drivers (£bn) 21.6 2.3 Growth in core 19.3 markets 8.3 Cost synergies Revenue synergies 4.5 Redeployed capital 6.5 Normalised impairments 2 Total Income Non-Core Core Core Core Core Profit Reve
Slide 69: Key messages
Key messages The Lloyds TSB and HBOS results reflect their business models We understand the immediate challenges and are addressing them The Lloyds Banking Group will create significant value 69
Slide 70: 2008 Annual Results
2008 Annual Results Eric Daniels Group Chief Executive 27 February 2009
Slide 71: 2008 Results
2008 RESULTS 27 February 2009