Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — H1 2009 Earnings Presentation
58 slides from Lloyds Banking's earnings presentation, Aug 5, 2009
Slide 1: 2009 Interim Results
2009 INTERIM RESULTS 5 August 2009 Eric Daniels Group Chief Executive
Slide 2: Key Messages
KEY MESSAGES Core business performing well Integration ahead of schedule Capital and funding plans in place A realistic view of the economy We expect to outperform in the medium-term for: Customers Shareholders 2
Slide 3: 2009 First Half Overview
2009 FIRST HALF OVERVIEW A resilient performance in a challenging environment Pro-forma basis – £m 2008H1 2009H1 % Change Total income(1) 11,180 11,939 7 Expenses (5,871) (5,718) 3 Trading surplus 5,309 6,221 17 Impairment (2,514) (13,399) Joint ventures/fair value unwind (20) 3,221 Profit/(loss) be
Slide 4: Core Business Performance
CORE BUSINESS PERFORMANCE Strong business growth from the operating divisions 1 million new personal current accounts 2.3 million new savings accounts Retail £18 billion of gross mortgage lending; 27% share of gross lending; 37% share of net new lending 60,000 new Commercial accounts opened;
Slide 5: Impairments
IMPAIRMENTS Concentrated in commercial real estate Wealth and ~80% International £1,469m 80% from HBOS book Substantial charge for commercial real estate – Property values Wholesale ~60% £9,738m severely hit early – Prudent view on values Expect peak overall impairments in first-half Retail £2
Slide 6: Delivering the Integration
DELIVERING THE INTEGRATION Integration is ahead of schedule KEY THEMES COST SYNERGIES (£m) Large scale integration In year Year-end contribution run rate Organisation in place >£1,500m Major systems choices made ~£700m Cost synergies significant >£400m £107m 2009H1 2009 2009 2011 forecast ta
Slide 7: Capital and Funding
CAPITAL AND FUNDING Strengthening our capital base and funding profile CAPITAL FUNDING Mid-year core tier 1 ratio of 6.3% Diversified funding sources £4bn placing and open offer Strong retail and corporate deposit base Liability management initiatives Extended maturities Expect to run-
Slide 8: Economic Outlook
ECONOMIC OUTLOOK Weak recovery most likely scenario GDP GROWTH IN CENTRAL SCENARIO House prices(1) % change on year earlier (7)% in 2009 2% in 2010 2.6 1.8 2.0 Commercial property values(1) 0.7 (15)% in 2009 0% in 2010 Company failures Peak in 2010 Lower rate than last recession (4
Slide 9: Outlook
OUTLOOK Delivering earnings growth Revenue growth to build to high single digits over next 2 years: Margin improvements Volume increases Cost:income ratio: Targeted to improve by 2 percentage points per year Earlier years will be higher due to synergies Impairments past the peak: – Com
Slide 10: Sources of Growth
SOURCES OF GROWTH Well positioned to outperform SOURCES OF INCOME GROWTH WE ARE WELL POSITIONED Large attractive market Unparalleled distribution Economic recovery Powerful information systems and product capabilities Focused on high growth areas of market Scale to drive efficiency and –
Slide 11: Outperforming the Market
OUTPERFORMING THE MARKET HOW WE CAN OUTPERFORM Acquire new customers Acquire new – Winning new relationships customers Deepen relationships with existing customers – Providing better value to our customers and meeting more of their needs Broaden Deepen reach and offer relationship Broaden reac
Slide 12: Deepening Customer Relationships: Retail
DEEPENING CUSTOMER RELATIONSHIPS The value of relationship depth in Retail PRODUCTS HELD PER RETAIL CUSTOMER GROWTH OPPORTUNITIES 1. Continue to increase relationship 46% Profit per customer depth in Lloyds TSB customer (vs. customer holding one product) franchise 2x 4x 5x 7x 9x 13x 2. Apply Lloyds
Slide 13: Deepening Customer Relationships: Wholesale
DEEPENING CUSTOMER RELATIONSHIPS The value of relationship depth in Wholesale LLOYDS TSB REVENUE PER DIFFERENCE IN CROSS SALES REVENUE CORPORATE CUSTOMER PER CORPORATE CUSTOMER 9x 2.3x 4.5x Lending Two or Trusted BOS Lloyds product more Advisor TSB only products Relationship(1) (1) Lloyds TSB custom
Slide 14: Building the UK's Best Financial Services Company
BUILDING THE UK’S BEST FINANCIAL SERVICES COMPANY A model for sustainable growth Vision To be the UK’s best financial services company Objective Sustainable through the cycle value for customers and shareholders Framework Prudent, strong risk disciplines Strategy Customer relationships Cost leadersh
Slide 15: 2009 Interim Results: Group Finance Director
2009 INTERIM RESULTS 5 August 2009 Tim Tookey Group Finance Director
Slide 16: Overview
OVERVIEW Core business in good shape; good progress with integration Resilient revenues in difficult economic environment Excellent cost performance Successful integration underway; cost synergies on track Profound understanding of HBOS business and likely losses Detailed credit reviews
Slide 17: Business Performance 2009H1
BUSINESS PERFORMANCE 2009H1(1) Resilient revenues; excellent cost performance £m 2008H1 2009H1 % Change Total income, net of insurance claims 11,180 11,939 7 Expenses (5,871) (5,718) 3 Trading surplus 5,309 6,221 17 Impairment (2,514) (13,399) Joint ventures/associates (20) (507) Fair value unwind –
Slide 18: Divisional Performance 2009H1
DIVISIONAL PERFORMANCE 2009H1 Trading surplus Profit before tax £m 2008H1 2009H1 2008H1 2009H1 Retail 3,111 2,273 1,741 360 Wholesale 1,145 2,698 37 (3,208) Insurance 704 531 720 397 Wealth and International 495 382 421 (342) Group Operations and central items (146) 337 (144) (1,164) 5,309 6,221 2,7
Slide 19: Key Revenue Trends
KEY REVENUE TRENDS £m +7% 745 1, 572 (266) 11,939 11,180 (1,153) (139) 2008H1 Market Liability PPI Increased Other 2009H1 dislocation manage- impact Wholesale in 2008 ment funding costs 19
Slide 20: Group Net Interest Margin
GROUP NET INTEREST MARGIN 38bp 2.00% (30)bp 1.72% (35)bp (1)bp 2008H1 Asset Lower Increased Mix 2009H1 repricing deposit wholesale effect spread funding costs 20
Slide 21: Forces Influencing Our Margins
FORCES INFLUENCING OUR MARGINS NEW LENDING EXISTING LENDING Pricing for risk Repricing patterns changing significantly in some books Relationship lending and cross- sell opportunities Maturity profiles different from funding profiles FUNDING, INCLUDING DEPOSITS Impact of base rates on reta
Slide 22: Expectations for Future Margins
EXPECTATIONS FOR FUTURE MARGINS Margins expected to increase in 2010 and 2011 2009 2010 2011 BASE RATE MOVEMENTS ASSET REPRICING COST OF WHOLESALE FUNDING OVERALL MARGIN IMPACT xxx 22
Slide 23: Cost Trends
COST TRENDS Excellent cost management £m (3)% 5,871 132 2 5,718 (107) Significant cost (180) synergies available over next 3 years Thereafter, cost:income ratio targeted to improve by c. 200 basis points per annum 2008H1 US FSCS Integration Other 2009H1 provision synergies in 2008 23
Slide 24: Integration: Planning Largely Complete
INTEGRATION Planning largely complete – now starting to execute £m In year Run rate Benefits so far driven by non- contribution IT dependent initiatives >1,500 Programmes mobilising into execution c. 700 Considerable de-layering and de-duplication of roles underway (over 8,000 FTE >400 reducti
Slide 25: Integration: Major Projects Underway
INTEGRATION Major integration projects underway 2009H1 End 2009 End 2010 End 2011 Management de-layering Procurement – quick wins Strategic procurement programmes Property rationalisation Further property rationalisation De-duplication and rationalisation Further efficiency improvements Full systems
Slide 26: Retail Impairment
RETAIL IMPAIRMENT Impairment charge expected to peak in 2009H2 £m 2,324 2,192 Expected outlook 591 1,037 2009H2 to be moderately higher than 2009H1 1,371 – Higher unsecured charge Secured 258 reflecting increased unemployment – Higher secured (mortgage) Unsecured 1,113 1,287 1,601 charge as a resu
Slide 27: Secured Portfolio
SECURED PORTFOLIO All new business written within risk appetite Portfolio >100% LTV >100% LTV £349bn and >3 months in arrears Specialist 25.9% 3.1% Specialist portfolios now HBOS in run-off buy to let 30.2% Targeted GAPS protection 2.1% Lloyds TSB 22.6% 0.6% buy to let Core relationship sector
Slide 28: Trend in Properties in Possession
TREND IN PROPERTIES IN POSSESSION Properties in possession lower than industry average Properties in possession New repossessions (% of mortgage cases) (% total cases) % 0.25 CML 0.20 0.12% 0.15 0.10 0.06% Lloyds Banking Group 0.05 0.00 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 CML Lloyds average(1)
Slide 29: Wholesale Impairment
WHOLESALE IMPAIRMENT Impairment charge expected to fall from a 2009H1 peak £m Expected outlook 9,738 9,319 2009H1 expected to be peak in Wholesale charge Asset Finance Significant overall reduction in 2009H2 with further reduction in Treasury and 2010 impairments Trading – Higher traditional len
Slide 30: Wealth and International Impairment Trends
WEALTH AND INTERNATIONAL IMPAIRMENT TRENDS Impairment levels expected to have peaked £m Expected outlook 1,469 Expected reduction in Other impairments on CRE and concentrated risk exposures Australia Continued concern over impact 663 of Irish economic outlook Ireland Significant reduction in 2
Slide 31: Impairment Outlook
IMPAIRMENT OUTLOOK Overall Group impairments expected to have peaked Our economic expectations Our impairment expectations Wholesale and International impairments have peaked ECONOMIC OUTLOOK Weak recovery most likely scenario GDP GROWTH IN CENTRAL SCENARIO House prices(1) Retail impairments e
Slide 32: Expected Unwind of Acquisition Related Adjustments
EXPECTED UNWIND OF ACQUISITION RELATED ADJUSTMENTS £bn c. £5.7 billion unwind expected during 2009 3.7 £1.5 billion expected to unwind from 2010 onwards 2.0 Future unwind subject to variation according to 1.0 timing of future HBOS impairments <0.3 <0.3 <0.3 2009H1 2009H2 2010 2011 2012 2013 Ac
Slide 33: Net Tangible Assets
NET TANGIBLE ASSETS Net tangible assets (£bn) Net tangible assets per share (p) 4.0 140 25.2 23.7 (2.5) 8 100 92 (38) (10) 31 Dec Placing 2009H1 30 Jun 31 Dec Placing 2009H1 30 Jun GAPS 30 Jun 2008 & open earnings 2009 2008 & open earnings 2009 B shares 2009 offer impact offer impact post GAPS (1) A
Slide 34: Robust Capital Ratios
ROBUST CAPITAL RATIOS 0.8% 0.2% 6.2% 6.3% Core tier 1 6.3% (0.9%) Tier 1 8.6% Total 10.6% Proforma Placing RWA 2009H1 2009H1 Jan 2009 & open reductions losses offer 34
Slide 35: Rightsizing Our Balance Sheet
RIGHTSIZING OUR BALANCE SHEET Total assets £1,063bn £200bn Expected portfolio run-off over next 5 years 30 Jun 2009 2013 £200bn of assets are expected to run-off over the next 5 years 35
Slide 36: Creating Optionality
CREATING OPTIONALITY REDUCE FUNDING REQUIREMENT Portfolio run-off of c. £200 billion over 5 years creates options: ̶ Support business growth ̶ Increase capital ratios ̶ Reduce funding requirement INCREASE CAPITAL SUPPORT BUSINESS RATIOS GROWTH 36
Slide 37: Diverse Funding Sources with Prudent Maturity Profile
DIVERSE FUNDING SOURCES WITH PRUDENT MATURITY PROFILE £bn 31 Dec 2008 30 Jun 2009 Bank deposits 54.9 53.4 Less than 1 year £177.1bn Certificates of deposit 77.5 68.0 Medium-term notes 63.5 84.6 Covered bonds 29.1 27.1 Commercial paper 28.9 27.3 Securitisation 43.6 39.4 Subordinated debt 45.4 33.7 >
Slide 38: Summary
SUMMARY Core business in good shape; good progress with integration Resilient revenues in difficult economic environment Excellent cost performance Successful integration underway; cost synergies on track Profound understanding of HBOS business and likely losses Detailed credit reviews o
Slide 39: Appendix
LLOYDS BANKING GROUP ee APPENDIX
Slide 40: A Well Spread Customer Lending Base
A WELL SPREAD CUSTOMER LENDING BASE Loans and advances to customers £683 billion Post and Transport communications distribution and 1% hotels 30 June 2009 5% Personal mortgages 54% Manufacturing Construction 2% 2% Energy and water supply 1% Agriculture, forestry and fishing 1% Lease financing and hi
Slide 41: Mortgage Portfolio
MORTGAGE PORTFOLIO UK mortgage portfolio £349 billion 30 June 2009 Specialist £33bn Prime £273bn Buy to let (HBOS) £34bn Buy to let (Lloyds TSB) £9bn 41
Slide 42: Mortgage Arrears Trends
MORTGAGE ARREARS TRENDS % of total cases >3 months in arrears 8% 7% 6% 5% 4% Market 2.4% 3% 2% 1% 0% Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 CML total market Prime Specialist HBOS buy to let Lloyds TSB buy to let Source: Council of Mortgage Lenders Note: chart shows mortgages >3
Slide 43: Mortgage Portfolio LTVs
MORTGAGE PORTFOLIO LTVs Buy to let Buy to let Prime Lloyds TSB HBOS Specialist Group Average LTVs 53.4% 65.8% 82.2% 75.5% 57.3% New business 2009 LTVs 57.4% 62.0% 64.4% 63.5% 57.8% <= 80% LTV 55.0% 46.7% 29.8% 33.6% 50.3% > 80–90% LTV 13.3% 14.1% 18.5% 20.2% 14.5% > 90–100% LTV 13.2% 16.6% 21.5% 20.
Slide 44: Properties in Possession
PROPERTIES IN POSSESSION Properties in possession New repossessions (% of mortgage cases) (% total cases) 0.23% 0.12% 0.09% 0.06% CML Lloyds CML Lloyds average(1) Banking Group average(1) Banking Group 30 Jun 2009 30 Jun 2009 (1) Council of Mortgage Lenders 2009Q1 44
Slide 45: Unsecured Lending Portfolio
UNSECURED LENDING PORTFOLIO Unsecured portfolio £33.9 billion 30 June 2009 Other Credit cards £1.9bn £12.4bn Transaction banking £2.7bn Loans £16.9bn Cards Loans Impairment charge as a % of average lending 10.6% 6.9% 45
Slide 46: Loans and Advances to Corporate Customers
LOANS AND ADVANCES TO CORPORATE CUSTOMERS Loans and advances to corporate customers £259.8 billion Post and Transport communications 1% 30 June 2009 distribution and hotels Property companies 13% 32% Construction 5% Manufacturing 6% Energy and water supply 2% Agriculture, forestry and fishing 2% Lea
Slide 47: Commercial/Residential Real Estate and Housebuilder Lending
COMMERCIAL/RESIDENTIAL REAL ESTATE AND HOUSEBUILDER LENDING £95.5bn(1) Lloyds TSB £24.3bn 25% HBOS UK(2) 44% £41.8bn 31% HBOS Overseas(2) £29.4bn (1) Gross (pre FVA adjustment and impairment) (2) Including Joint Ventures 47
Slide 48: Lloyds TSB: Commercial/Residential Real Estate and Housebuilder Lending
LLOYDS TSB: COMMERCIAL/RESIDENTIAL REAL ESTATE AND HOUSEBUILDER LENDING Commercial property £14.6bn(1) Residential property £8.5bn Through the cycle policy, £24.3bn 55% Housing Associations (local supporting existing customer authority cash flows) franchise Larger residential property companie
Slide 49: HBOS: UK Commercial/Residential Real Estate and Housebuilder Lending
HBOS: UK COMMERCIAL/RESIDENTIAL REAL ESTATE AND HOUSEBUILDER LENDING Commercial property £28.6bn Residential property £9.8bn Focus on cash flows £41.8bn(1) Significant housing association lending Predominantly investment property Remainder large volume, low value 24% deals Well diversified
Slide 50: HBOS: Overseas Property Lending
HBOS: OVERSEAS PROPERTY LENDING Ireland £11.6bn Australia £5.7bn 56% property investment of £29.4bn(1) 49% property development of which 6% is impaired which 22% is impaired 44% property development of 43% property investment of which 19% which 42% is impaired 11% is impaired 39 % 8% prope
Slide 51: Leveraged Finance Lending
LEVERAGED FINANCE LENDING Lloyds TSB acquisition finance £4.4bn HBOS leveraged finance £9.5bn A highly selective origination £13.9bn Well spread by sector strategy Predominantly UK focused Well spread by sector Underwriting criteria same as for held Predominantly UK focused assets 32 %
Slide 52: Corporate Equity Risk Capital Portfolio
CORPORATE EQUITY RISK CAPITAL PORTFOLIO HBOS funds investments £1.4bn HBOS integrated finance £0.6bn Generally Limited Partner £3.4bn Includes 44 low value connections Investments in private equity from the Growth Capital Portfolio and funds; well diversified the new Government Enterprise Fund u
Slide 53: Treasury Debt Securities Portfolio
TREASURY DEBT SECURITIES PORTFOLIO Loans and Available- Fair Value £bn receivables for-sale through P&L Total ABS 32.6 12.1 1.5 46.2 Covered bonds – 3.5 – 3.5 Bank FRNs 1.9 16.0 2.6 20.5 Bank CDs – 3.4 2.8 6.2 Treasury Bills and other bills – 4.0 1.0 5.0 Other(1) 0.6 0.6 2.2 3.4 Total 35.1 39.6 10.1
Slide 54: Asset Backed Securities Portfolio
ASSET BACKED SECURITIES PORTFOLIO Net exposure Net exposure Carry value (%) £bn 31 Dec 2008 30 Jun 2009 as at 30 Jun 2009 Mortgage backed securities – US RMBS 7.4 5.9 63 – Non-US RMBS 12.5 10.4 88 – CMBS 4.6 3.6 77 24.5 19.9 78 Collateralised Debt Obligations – Corporate 2.3 1.8 35 – CLO 5.8 5.7 84
Slide 55: Impairment Provisions on Loans and Advances – Group
IMPAIRMENT PROVISIONS ON LOANS AND ADVANCES – GROUP 2008H1 2009H1 % of Average lending(2) Impairment(1) £m £m 2008H1 2009H1 Retail 1,371 2,188 0.73 1.15 – Secured (mortgages) 258 591 0.15 0.34 – Unsecured 1,113 1,597 6.22 9.06 Wholesale 872 8,343 0.75 6.87 Wealth and International 68 1,461 0.24 4.55
Slide 56: Impairment Provisions on Loans and Advances – Group
IMPAIRMENT PROVISIONS ON LOANS AND ADVANCES – GROUP 2008H1 2009H1 % of Average lending(2) Impairment(1) £m £m 2008H1 2009H1 Retail 1,371 2,188 0.73 1.15 Wholesale 872 8,343 0.75 6.87 – Corporate Markets 711 7,940 0.75 7.05 – Asset Finance 161 403 2.08 5.96 Wealth and International 68 1,461 0.24 4.55
Slide 57: Impaired Asset Ratios – Group
IMPAIRED ASSET RATIOS – GROUP Wealth and 2009H1 Retail Wholesale International Group Loans and advances to customers (gross) £383.3bn £235.3bn £62.1bn £683.3bn Impaired assets £11,394m £31,725m £5,900m £49,019m Impaired assets as % of closing balance 3.0% 13.5% 9.5% 7.2% Impairment provisions £3,596
Slide 58: Forward Looking Statements
FORWARD LOOKING STATEMENTS This announcement 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 performance. By their nature, forward looking statements in