Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — FY2012 Earnings Presentation
56 slides from Lloyds Banking's earnings presentation, Mar 1, 2013
Slide 1: 2012 Results
LLOYDS BANKING GROUP ce 2012 RESULTS 1 March 2013
Slide 2: Agenda
AGENDA ACHIEVEMENTS AND GROUP PERFORMANCE António Horta-Osório, Group Chief Executive 2012 FINANCIAL RESULTS George Culmer, Culmer Group Finance Director UPDATE ON COSTS AND SIMPLIFICATION Mark Fisher, Director, Group Operations SUMMARY António Horta-Osório, Group Chief Executive 1
Slide 3: 2012 Highlights
2012 HIGHLIGHTS Significantly improved performance and balance sheet f h strengthened further h d and d de-risked d i k d Significantly g y improved p performance p – Substantial increase in Group underlying profit from £0.6bn to £2.6bn – Core business delivering strong returns above cost of equit
Slide 4: 2012 Financial Performance
2012 FINANCIAL PERFORMANCE Improved underlying performance and strong core returns GROUP CORE (£m) 2012 2011 Change % 2012 2011 Change % Underlying income(1) 18,386 21,046 (13)% 17,285 18,765 (8)% Total costs (10,082) (10,621) 5% (9,212) (9,682) 5% Impairment (5,697) (9,787) 42% (1,919) (2,887) 34%
Slide 5: Balance Sheet Further Strengthened
BALANCE SHEET FURTHER STRENGTHENED Improved loan to deposit ratio and capital position; significant non-core asset reduction d i CUSTOMER DEPOSITS(1) (£bn) NON-CORE ASSETS (£bn) 4% 236 423 194 (30)% 406 141 383 98 371 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2009 Dec 2010 Dec 2011 Dec 2012 LOAN TO DE
Slide 6: Core Divisional Financial Performance: Retail
CORE DIVISIONAL FINANCIAL PERFORMANCE Further increase in core Retail profit and returns UNDERLYING PROFIT (£m) 21% 3,224 2,656 Retail Strong cost control and credit performance more than offsetting lower income 2011 2012 Income down 3%, reflecting subdued demand for lending and portfolio RETURN
Slide 7: Core Divisional Financial Performance: Commercial Banking
CORE DIVISIONAL FINANCIAL PERFORMANCE Commercial Banking: stable profitability and improved returns COMMERCIAL (SME) (£m) C Commercial i l (SME) 9% 452 Good performance with 4% 416 loan growth and strong cost and risk control 1.90% COMMERCIAL BANKING (£m) Wholesale 1.69% 1% Stable returns in cha
Slide 8: Core Divisional Financial Performance: Wealth, Asset Finance and Insurance
CORE DIVISIONAL FINANCIAL PERFORMANCE Increased profitability in Wealth and Asset Finance; I Insurance performance f impacted i d by b subdued bd d environment i WEALTH, ASSET FINANCE & INTERNATIONAL (£m) Wealth, Asset Finance & International 27% 459 Wealth profit increased by 25%, with 361 strong
Slide 9: Investing in Growth
INVESTING IN GROWTH Building the best bank for customers Investing to be the best bank for personal customers – Increased investment in technology and digital and mobile proposition: 9.5m online users – Improved branch services: 421 branches refurbished; opening hours extended – Simpler process fo
Slide 10: Helping Britain Prosper
HELPING BRITAIN PROSPER Supporting personal and commercial customers UK’s largest lender to first-time buyers – Helping more than 55,000 customers buy their first home in 2012; 1 in 4 first-time buyers – Committed to helping around 60,000 in 2013 Continued support for UK SMEs – Gross lending in
Slide 11: Delivering on Our Strategic Plan
DELIVERING ON OUR STRATEGIC PLAN Substantial transformation of the Group in the first 18 months off our 3 to 5 year plan l STRATEGIC INITIATIVES ACHIEVEMENTS SINCE JUNE 2011 Reshaping our business portfolio and 9 More than 90% of original non-core reduction target achieved; target increased by £20
Slide 12: Agenda
AGENDA ACHIEVEMENTS AND GROUP PERFORMANCE António Horta-Osório, Group Chief Executive 2012 FINANCIAL RESULTS George Culmer, Culmer Group Finance Director UPDATE ON COSTS AND SIMPLIFICATION Mark Fisher, Director, Group Operations SUMMARY António Horta-Osório, Group Chief Executive 11
Slide 13: Financial Performance
FINANCIAL PERFORMANCE Significantly improved Group performance GROUP CORE (£m) 2012 2011 Change % 2012 2011 Change % Net interest income 10,335 12,210 (15)% 9,868 10,893 (9)% Other income(1) 8,051 8,836 (9)% 7,417 7,872 (6)% Underlying income 18,386 21,046 (13)% 17,285 18,765 (8)% Total costs (10,08
Slide 14: Financial Performance: Income
FINANCIAL PERFORMANCE Stronger core income trends in second half of the year GROUP UNDERLYING INCOME(1) (£m) (13)% Group income of £18.4bn, down 13% 21,046 18,386 – 7% fall in average interest-earning (1,213) (162) (239) (426) (139) (233) (248) banking assets £(634)m Core – 14bp decline in net int
Slide 15: Financial Performance: Net Interest Margin
FINANCIAL PERFORMANCE 2012 Group margin in line with guidance NET INTEREST MARGIN GROUP MARGINS 0.15% 2.07% 1.93% (0.15)% (0.09)% (0.05)% 2 32% 2.32% 2 32% 2.32% 2 32% 2.32% 2 33% 2.33% 2011 Asset Deposit Wholesale Other 2012 1.95% 1.91% 1.93% 1.94% pricing spread funding & mix & mix costs CORE MARG
Slide 16: Financial Performance: Impairment
FINANCIAL PERFORMANCE Further reduction in impairment, ahead of original guidance, di driven by b improving i i asset quality li GROUP IMPAIRMENT (£bn) (42)% Impairment charge down 42% to £5.7bn, 9.8 5.7 ahead of original guidance 69 6.9 Significant g reduction in non-core 3.8 impairment charge
Slide 17: Reduction in Impairment Charge Across All Divisions
FINANCIAL PERFORMANCE Reduction in impairment charge across all divisions RETAIL (£m) (36)% Unsecured U d reduction d ti d driven i b by proactive ti approach h 1,970 to collections and recoveries and strong credit 1,270 1,507 management 893 463 377 Secured decrease reflects improved p p perform
Slide 18: Statutory Reconciliation
FINANCIAL PERFORMANCE Statutory reconciliation Simplification costs of £676m (£m) 2012 2011 contributing to run-rate savings of £847m Management profit 4,827 2,685 Verde costs of £570m (2011: £170m) Integration Simplification and Verde costs (1,246) Integration, (1 246) (1 452) (1,452) Further
Slide 19: Legacy Issues – PPI
LEGACY ISSUES – PPI AVERAGE COMPLAINT VOLUMES PER MONTH(1) 140,000 (20)% Further experience of volumes, uphold rates, operational and redress costs 110,000 Additional Additi l provision i i off £1,500m £1 500 ttaken k iin 80,000 Q4 taking total 2012 provision to £3,575m Total PPI provision of
Slide 20: Balance Sheet: Deposit Growth and Lower Wholesale Funding
BALANCE SHEET FURTHER STRENGTHENED Deposit growth and non-core reduction driving lower wholesale h l l funding f di Change 2012 Movements GROUP Dec Jun Dec % (£bn) 2012 2012 2011 Dec/Dec (£bn) H1 H2 Total ASSETS Lower core loans L l and d Core loans and advances(1) 425 429 437 (3)% 8 4 12 advances N
Slide 21: Non-Core Portfolio
NON-CORE PORTFOLIO Substantial, capital accretive non-core reduction; RWA reduction d i ahead h d off asset reduction d i and d greater than h 2011 NON-CORE PORTFOLIO (£bn) OTHER CORPORATE (£bn) Total RWAs 144 (24)% 109 (33)% 73 26 Aviation 3 Non-Retail RWAs 105 (30)% 74 (42)% 43 Leveraged Finance 4
Slide 22: Funding Transformation and Liquidity
BALANCE SHEET FURTHER STRENGTHENED Funding transformation complete; liquidity coverage further improved WHOLESALE FUNDING (£bn) Wholesale funding reduced by £81bn in 2012 298 (43)% 251 (32)% Short-term wholesale funding of £51bn, down 100 £62bn in the year – now less than 30% of (31)% 69 (55)% 1
Slide 23: Capital Position Further Improved
BALANCE SHEET FURTHER STRENGTHENING Capital position further improved CORE TIER 1 RATIO Core tier 1 ratio improved p to 12.0% 1.6% 1.5% 12.0% Total capital ratio of 17.3% exceeds 10.8% (1.4)% ICB’s PLAC(3) recommendation (0.5)% Improvements driven by: – management profit – lower RWAs – offset
Slide 24: Agenda
AGENDA ACHIEVEMENTS AND GROUP PERFORMANCE António Horta-Osório, Group Chief Executive 2012 FINANCIAL RESULTS George g Culmer,, Group p Finance Director UPDATE ON COSTS AND SIMPLIFICATION Mark Fisher, Director, Group Operations SUMMARY António Horta-Osório, Group Chief Executive 23
Slide 25: Delivered Strategic Review Cost Target 2 Years Ahead of Plan
FINANCIAL PERFORMANCE Delivered Strategic Review cost target 2 years ahead of plan TOTAL COSTS (£m) (4)% (5)% Costs decreased 5%, including reinvestment 11,078 10,621 of Simplification savings in core business 170 93 10,082 (177) (596) (29) Reduction of approximately £1bn over last 2 years Now
Slide 26: Operational Improvements
OPERATIONAL IMPROVEMENTS Simplifying the Group continues, reducing costs and i improving i performance f SOURCING OPERATIONAL IMPROVEMENTS Working with fewer suppliers and Smarter… more partners… Operational centres of excellence DEMAND Lloyds Banking Group Suppliers MANAGEMENT 18,000+ Fewer, Fe
Slide 27: Benefits for Customers Being Delivered
BENEFITS FOR CUSTOMERS BEING DELIVERED Over 200 initiatives, with many significant improvements for customers, including… i l di Simpler internet banking activation; 1 1.2m 2m additional online users DIGITAL 9.5m internet banking customers, >1bn logons, 3.3m mobile users GENERAL INSURANCE Cust
Slide 28: Best Bank for Customers
BEST BANK FOR CUSTOMERS Improving customer service FSA BANKING COMPLAINTS CUSTOMER SATISFACTION PER 1,000 1 000 ACCOUNTS (excluding PPI) NET PROMOTER SCORES 6 55% Lloyds TSB 5 50% Bank of Bank A Scotland 4 45% Bank B Halifax 3 Bank C 40% Bank D 2 35% Lloyds Banking 1 Group 30% Nationwide H2 10 H1 11
Slide 29: Agenda
AGENDA ACHIEVEMENTS AND GROUP PERFORMANCE António Horta-Osório, Group Chief Executive 2012 FINANCIAL RESULTS George g Culmer,, Group p Finance Director UPDATE ON COSTS AND SIMPLIFICATION Mark Fisher, Director, Group Operations SUMMARY António Horta- Horta-Osório, Group Chief Executive 28
Slide 30: Summary
SUMMARY Well-positioned for success given our clear strategy and diff differentiated i d model d l Our strategy gy is the right g one for current and expected p economic conditions The regulatory environment is uncertain, but we remain confident in our capital position and will continue to suppo
Slide 31: Summary: Further Progress Expected in 2013
SUMMARY We expect further progress in 2013 and beyond Group p net interest margin g expected p to be around 1.98% in full year 2013 Expect p Group p total costs of around Further significant £9.8bn in 2013 improvement in Group profitability Expect further improvement in asset quality, driving
Slide 32: Appendix
LLOYDS BANKING GROUP spd APPENDIX
Slide 33: Loans and Advances to Customers
LOANS AND ADVANCES TO CUSTOMERS LOANS AND ADVANCES TO CUSTOMERS £532.5bn(1) 31 Dec 2012 Financial, business and other services 9% Property companies 10% Personal other 5% Construction 1% Manufacturing 2% Personal mortgages Corporate Other 64% 1% Agriculture, forestry and fishery 1% L Lease fi financ
Slide 34: Mortgage New Business Distribution
MORTGAGE NEW BUSINESS DISTRIBUTION UK MORTGAGE PORTFOLIO £323.9bn(1) NEW BUSINESS £26.2bn 31 Dec 2012 12 months to 31 Dec 2012 Specialist Homemovers 40% Buy to let 25.6 First time buyers 10 3 10.3 49.6 23% 6.1 248.7 4.0 3.7 2.1 Buy to let Remortgages M i t Mainstream 15% 14% Further advances 8% (1)B
Slide 35: Mortgage Portfolio LTVs
MORTGAGE PORTFOLIO LTVs Mainstream Buy to let Specialist Total Average LTVs 52.7% 73.6% 72.6% 56.4% N New b business i LTV LTVs 62 3% 62.3% 64 5% 64.5% n/a / 62 6% 62.6% ≤80% LTV 63.0% 51.9% 41.6% 59.6% >80–90% LTV 16.6% 16.5% 19.1% 16.8% >90–100% LTV 10.5% 15.4% 18.5% 11.9% >100% LTV 9.9% 16.2% 20.
Slide 36: UK Mortgage Portfolio
UK MORTGAGE PORTFOLIO Books performing satisfactorily with stable profiles 31 DEC 2012 (£bn) 31 DEC 2011 (£bn) 37.8 3.1 39.7 3.1 323.9 332.1 (11.7)% (1.0)% (12.0)% (0.9)% 27.3 5.4 0.8 25.6 5.3 0.8 (8.2)% (19.8)% (20 8)% (20.8)% ((2.9)% ) (7 9)% (7.9)% (3 1)% (3.1)% 48.3 7.6 0.6 49.6 8.0 0.6 (15.7)%
Slide 37: UK Mortgage Portfolio Impairment Coverage
UK MORTGAGE PORTFOLIO IMPAIRMENT COVERAGE UK MORTGAGES DEC 2012 DEC 2011 Loans and advances to customers (gross) (1) £323.9bn £332.1bn Impaired loans £6.3bn £6.5bn Impaired loans as % of closing advances 1.95% 1.94% Impairment provisions £1.6bn £1.7bn Impairment provisions as % of impaired loans 25.
Slide 38: Mortgage Portfolio Trends
MORTGAGE PORTFOLIO TRENDS NUMBER OF TOTAL CASES >3 MONTHS IN ARREARS (000’s) Percentage of total cases >3 months in arrears 60 2.2% 50 40 30 20 7.6% 10 1.6% 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 M i t Mainstream S i
Slide 39: Mortgage Portfolio – New Repossessions
MORTGAGE PORTFOLIO – NEW REPOSSESSIONS PROPERTIES IN REPOSSESSION NEW REPOSSESSIONS (% OF MORTGAGE CASES) (% OF TOTAL CASES) 0.25% 0.20% 0 07% 0.07% 0.15% 0.05% 0 10% 0.10% 0.10% 0.08% CML(1) Lloyds Banking 0.05% Group(2) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 31 Dec 2012 31 Dec
Slide 40: Unsecured Lending Portfolio
UNSECURED LENDING PORTFOLIO UNSECURED PORTFOLIO £22.7bn(1) 31 Dec 2012 £9.5bn Credit cards Personal current accounts £2.7bn £10.5bn Loans Cards Loans Impairment charge as a % of average lending 3.43% 2.25% (1)Before allowance for impairment losses and fair value adjustments. 39
Slide 41: Unsecured Lending Portfolio
UNSECURED LENDING PORTFOLIO IMPAIRED BALANCE (£m) 2,695 243 2,370 295 2,014 1,999 ,999 253 333 1,350 1,100 923 847 1,102 975 838 819 Jun2011 Dec 2011 Jun 2012 Dec 2012 Loans Cards Current Accounts 40
Slide 42: Loans and Advances to Corporate Customers
LOANS AND ADVANCES TO CORPORATE CUSTOMERS LOANS AND ADVANCES TO CORPORATE CUSTOMERS £166.3bn(1) 31 Dec 2012 Transport, distribution and hotels 16% Property companies 32% Construction 5% Manufacturing 5% Corporate Other 2% Agriculture, forestry and fishing 3% Lease financing and hire purchase 7% Fina
Slide 43: Direct Real Estate Lending – Commercial/Residential Property
DIRECT REAL ESTATE LENDING – Commercial/Residential property COMMERCIAL/RESIDENTIAL PROPERTY Core TOTAL Non Core £43.7bn(1) UK UK Business OVERSEAS GOOD BOOK Support pp Unit £18.0bn £12.7bn £13.0bn(2) c72% Commercial Real Estate Gross £12.7bn/Net £8.8bn Ireland (Gross £7.4bn/Net £2.7bn) 91% im
Slide 44: Direct Real Estate Lending – Commercial/Residential Property
DIRECT REAL ESTATE LENDING – Commercial/Residential property UK COMMERCIAL/RESIDENTIAL PROPERTY BOOK £30.7bn(1) (37)% 48.5 5.8 43.9 40.8 5.9 36.6 4.4 34.7 44 4.4 3.9 30.7 30 7 42.7 3.9 38.0 36.4 32 2 32.2 30.8 26.8 Jun 2010 Dec 2010 Jun 2011 Dec 2011 Jun 2012 (2) Dec 2012 Net Exposure Impairment All
Slide 45: Leveraged Finance Lending
LEVERAGED FINANCE LENDING LEVERAGED FINANCE LENDING (£bn)(1) Acquisition Finance Gross £5.76bn / Net £5.01bn Portfolio exposure has reduced with new business more than offset by asset repayment, sales & write offs 16.2 A highly selective origination 1.5 14.5 strategy. Predominantly UK focused 1.
Slide 46: Irish Portfolio
IRISH PORTFOLIO Robust coverage which minimises downside risks PORTFOLIO BREAKDOWN (£bn)(1) 31 Dec 2012 31 Dec 2011 Portfolio size: £19.5bn (€24bn) Portfolio size: £24.8bn (€30bn) 19.5 12.5 8.6 24.8 16.4 10.2 7.0 6.7 1.4 1.0 1.5 1.1 6.9 5.1 5.4 29 2.9 4.3 2.8 10.9 7.4 98 9.8 67 6.7 4.7 6.2 Loan Impa
Slide 47: Irish Portfolio
IRISH PORTFOLIO Robust coverage which minimises downside risks IMPAIRED LOAN RATE AND COVERAGE RATIO TREND Ireland Wholesale Ireland Retail(1) 68% 70% 70% 71% 67% 65% 65% 61% 55% 53% 45% 86% 85% 39% 84% 84% 69% 58% 22% 23% 20% 11% 15% 9% H1 10 H2 10 H1 11 H2 11 H1 12 H2 12 H1 10 H2 10 H1 11 H2 11 H1
Slide 48: Irish Wholesale Portfolio
IRISH WHOLESALE PORTFOLIO Robust coverage which minimises downside risks WHOLESALE IRELAND AS AT 31 DEC 2012 (£bn) % of 12.8 Portfolio Impaired 11 0 11.0 Rate(1) 85% 5.4 42% 4.3 78% Coverage 75 7.5 R ti (2) 68% Ratio 3.1 24% 2.8 65% 3.1 99% CRE CRE £7.4 £6.7 2.5 82% CRE 4.3 34% 3.6 85% £4.7 2.2 60%
Slide 49: Australasian Wholesale CRE Portfolio
AUSTRALASIAN WHOLESALE CRE PORTFOLIO Significant progress made in de-risking the wider portfolio NET EXPOSURE (£bn) 5.2 4.4 3.2 1.3 04 0.4 0.1 Jun 2010 Dec 2010 Jun 2011 Dec 2011 Jun 2012 Dec 2012 48
Slide 50: Impairment Losses on Loans and Advances to Customers
IMPAIRMENT LOSSES ON LOANS AND ADVANCES TO CUSTOMERS % Impairment of average 2012 2011 l loans and d advances d Impairment £m £m 2012 2011 R t il Retail 1 270 1,270 1 970 1,970 0 36% 0.36% 0 54% 0.54% – Secured (mortgages) 377 463 0.12% 0.14% – Unsecured 893 1,507 3.74% 5.65% Commercial Banking 2,94
Slide 51: Impaired Asset Ratios – Group
IMPAIRED ASSET RATIOS – GROUP Wealth, Asset Commercial 31 Dec 2012 Retail Finance and Group(1) Banking International Loans and advances £346 6bn £346.6bn £144 8bn £144.8bn £42 9bn £42.9bn £540 1bn £540.1bn to customers (gross)(2) I Impaired i d lloans £8 3b £8.3bn £24 0b £24.0bn £14 0b £14.0bn £46 3
Slide 52: Non-Core Reductions
NON-CORE REDUCTIONS Non-core reductions continue to be capital accretive 2012 2011 Loss before tax(1) (£m) (3,315) (3,664) Post tax loss ‘capital consumed’ (£m) (2,503) (2,693) Reduced RWAs (£bn) 35.9 35.1 att 10% ‘‘capital it l released’ l d’ (£ (£m)) 3 590 3,590 3 513 3,513 Decrease / (Increase) i
Slide 53: Selected Eurozone Exposures
SELECTED EUROZONE EXPOSURES Substantial reductions achieved and minimal sovereign exposures remaini Banks & other th IInsurance Sovereign financial shareholder (£m) Debt (1) institutions ABS Corporate Personal assets Total Ireland – 759 305 5,972 , 5,559 , 111 12,706 , Spain 19 1,177 132 2,110 1,472
Slide 54: Reducing Our Wholesale Funding Requirements
REDUCING OUR WHOLESALE FUNDING REQUIREMENTS Broad spread of Wholesale funding with increasing asset coverage £bn Dec 2012 Dec 2011 WHOLESALE FUNDING £170bn Bank deposits(1) 15 25 > 1 year 70% Certificates of deposit 11 28 M di Medium-term t notes t 35 70 2 – 5 years £45bn >5 years Covered bonds 39 3
Slide 55: Net Tangible Assets
NET TANGIBLE ASSETS NET TANGIBLE ASSETS (£bn) NET TANGIBLE ASSETS PER SHARE (p) 58.6 40.3 54.9 38 7 38.7 (1 2) (1.2) (2.1) (0.4) (1.4) (0.2) Dec 2011 2012 Other Dec 2012 Dec 2011 Share 2012 Other Dec 2012 Earnings issues Earnings impact impact 54
Slide 56: 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