Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — Debt Investor Presentation (February 2017)
44 slides from Lloyds Banking's debt investor presentation, Feb 22, 2017
Slide 1: 2016 Results: Presentation to Fixed Income Investors
TITLE SLIDE IS IN SENTENCE CASE. 2016 RESULTS • Presentation to Fixed Income Investors GREEN BACKGROUND. • 22 February 2017 00 Month 0000 Presenters Name
Slide 2: Highlights
HIGHLIGHTS Strong financial performance demonstrating the strength of the business model • Good underlying performance with strong improvement in statutory profit – Underlying profit of £7.9bn; statutory profit before tax more than doubled to £4.2bn • Strong capital generation of c.190bps in 2016 wi
Slide 3: Differentiated Business Model
DIFFERENTIATED BUSINESS MODEL Our simple, low risk, UK focused business model is now delivering increased statutory profit as well as strong capital generation Profit progression (£bn) • Low risk and low cost business model provides 7.8 8.1 7.9 competitive advantage 6.2 2.6 • Business delivering con
Slide 4: UK Economy
UK ECONOMY Resilient UK economic performance; UK economy enters 2017 from a position of strength Real GDP growth(1) (%) Market swap rates(3) (%) 2.5 5 year swap rate 10 year swap rate 2 1.14 1.5 0.85 0.75 1 0.5 0.45 0 UK Germany US Canada France Italy Japan 2016 GDP IMF 2017 GDP BoE 2017 GDP Jun Dec
Slide 5: UK Economy: Unsecured Lending and Debt to GDP
UK ECONOMY UK unsecured lending has grown but affordability remains good and debt-to-GDP has been reducing Unsecured lending (%) Debt to GDP (%) Total UK debt Annual growth in UK lending balances(1) to GDP(4) 20 257 258 263 256 250 249 252 100 15 10 90 5 80 0 70 -5 Q4 Q4 Q4 Q4 Q4 Q4 Q2 2010 2011 201
Slide 6: Underlying Financial Performance
UNDERLYING FINANCIAL PERFORMANCE Good underlying performance (£m) 2016 2015 Change • Good underlying profit of £7.9bn Net interest income 11,435 11,482 – – Stable NII at £11.4bn with an increased margin of 2.71% Other income 6,065 6,155 (1)% offset by marginally lower average interest earning assets
Slide 7: Income
INCOME Total income of £17.5bn with stable NII and slightly lower other income Net interest margin (%) Other income trend (£m) 1,661 8bps 1,616 1,592 0.10 2.71 1,528 1,545 2.63 0.10 1,477 1,427 1,374 (0.12) 2015 Asset Liability Wholesale 2016 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 spread spread funding 2015 2015 2
Slide 8: Divisional Income Performance
DIVISIONAL INCOME PERFORMANCE Resilient divisional income performance with trends in line with wider Group Total income (£bn) 7.8 • Retail: resilient margin and tactical deposit reduction; lower Retail 7.6 fees driven by ATM costs and packaged bank accounts 4.6 • Commercial Banking: growth due to in
Slide 9: Asset Quality
ASSET QUALITY Credit quality remains strong with no signs of deterioration in the portfolio Impairment charge (£m) Asset quality ratio (bps) 5,697 135 88 3,004 104 52 58 28 28 1,102 568 645 23 14 15 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Gross Net Impaired loans (£bn) & impaired loan rati
Slide 10: Statutory Financial Performance
STATUTORY FINANCIAL PERFORMANCE Significant increase in statutory profit primarily reflecting lower PPI provisions • Market volatility includes a £484m gain on Visa sale, (£m) 2016 2015 offset by FV unwind and amortisation of intangibles Underlying profit 7,867 8,112 • Restructuring costs include Si
Slide 11: Balance Sheet
BALANCE SHEET AIEAs down slightly primarily due to run-off; RWAs down c.£7bn due to balance sheet management actions Divisional AIEAs (£bn) • Pro-active management of the balance sheet 2014 309 93 29 30 461 Retail • AIEAs excluding run-off broadly stable at £426bn Commercial 307 Banking – Growth in
Slide 12: Balance Sheet: Common Equity Tier 1 Ratio
BALANCE SHEET Strong capital generation provides the capacity for increased dividends and funding of the MBNA acquisition Common equity tier 1 ratio (%) – Sep to Dec • Pro forma CET1 ratio of 13.8% c.80bps – Retention of c.80bps of capital to cover the 0.6 0.2 0.0 0.2 14.9 capital impact of the MBNA
Slide 13: Outlook
OUTLOOK Confidence in the Group’s future prospects is reflected in the dividend and our strong financial targets Financial targets • Our differentiated business model is delivering – Cost discipline and low risk business model • Strong financial targets reflecting strength of provide competitive adv
Slide 14: Funding and Liquidity
TITLE SLIDE IS IN SENTENCE FUNDING ANDCASE.LIQUIDITY GREEN BACKGROUND. 00 Month 0000 Presenters Name
Slide 15: Group Structure and Future Regulatory Requirements
GROUP STRUCTURE AND FUTURE REGULATORY REQUIREMENTS Simple, UK focused business model positions the Group well for ring-fencing Simplified Group structure Simplified structure under ring-fencing • Senior Unsecured (MREL) LLOYDS BANKING GROUP PLC • Subordinated Debt LLOYDS BANKING GROUP PLC • Equity •
Slide 16: Credit Ratings
CREDIT RATINGS All ratings on stable outlook unless specified LBG (HoldCo) Lloyds Bank HBOS Bank of Scotland MOODY’S Long Term Baa1 A1 A1 A1 Short Term P-2 P-1 P-1 P-1 S&P Negative Negative Negative Negative Outlook Outlook Outlook Outlook Long Term BBB+ A BBB+ A Short Term A-2 A-1 A-2 A-1 FITCH Lon
Slide 17: Wholesale Funding
WHOLESALE FUNDING Composition of wholesale funding as at 31 December 2016 Product, currency and maturity – £111bn Senior unsecured debt maturities(1) LB PLC (£28bn total) LBG PLC (£2bn total) 5% 18% 17% MM Funding 28% GBP Covered Bonds 30% EUR Securitisation USD 1.6 5.9 26% 5.1 Senior Other 4.8 33%
Slide 18: Wholesale Funding: Term Funding Model
WHOLESALE FUNDING Diverse and simple term funding model has enabled successful execution £10.4bn Term issuance in 2016 Issuer Funding platforms GBP EUR USD Other Capital/ MREL(2) issuance Lloyds Banking • Subordinated debt: AT1, Tier 2 LBG (HoldCo) HoldCo senior Group (Baa1/BBB+/A+)(1) • Senior unse
Slide 19: Liquidity
LIQUIDITY Strong liquidity position Primary/LCR eligible liquid assets(1) (£bn) 123 121 • Liquid assets are broadly unchanged compared to a 105 (2) year ago 89 • The Group maintains a strong liquid asset portfolio comprised largely of cash and LCR eligible securities 2013 2014 2015 2016 • LCR eligib
Slide 20: Capital Position and Banking Reform
TITLE SLIDE CAPITAL IS IN POSITION AND SENTENCE BANKING CASE. REFORM GREEN BACKGROUND. 00 Month 0000 Presenters Name
Slide 21: Strong Capital Base
STRONG CAPITAL BASE Well positioned in an evolving regulatory environment Capital composition(1) (%) Capital Resources (£bn) • Strong capital position 21.5 21.5 21.4 46.1 Tier 2 4.2 4.2 4.4 9.5 – fully loaded CET1 of 13.8% on a pro forma basis ECN Tier 2 0.9 0.9 0.9 2.0 – total capital ratio of 21.4
Slide 22: Evolution of CET1 Regulatory Buffers
EVOLUTION OF CET1 REGULATORY BUFFERS Strong capital generative business provides comfort for meeting regulatory buffers LBG capital buffer evolution (%) • Differentiated low risk business model with strong capital generation PRA + MB • PRA Buffer reduced reflecting de-risking; target CET1 SRB ratio
Slide 23: Relative Capital Strength
RELATIVE CAPITAL STRENGTH Well capitalised relative to global peers LBG capital composition - strong relative to peers(1) CET1 Tier 1 Total Capital 21.4% LBG Total Capital 19.4% 17.5% LBG Tier 1 Capital 3.4% 14.7% 14.1% 2.6% 1.2% 2.0% 1.6% 17.2% 22 13.8% 13.4% 12.7% 10.6% 10.3% LBG UK Average France
Slide 24: UK Approach to Resolution
UK APPROACH TO RESOLUTION Defined approach underpinned by clear preference for structural subordination 1 Losses occur at the OpCo and are passed to HoldCo via write down of intercompany HoldCo Loss Absorption Hierarchy assets HoldCo Senior Unsecured Losses arise at OpCo OpCo Loss Absorption Hierarc
Slide 25: Future Capital Requirements
FUTURE CAPITAL REQUIREMENTS Progress toward interim and final MREL requirements from a position of strength due to strong capital and diversified funding MREL requirement Flexibility to achieve MREL target by partially refinancing • MREL to be met with regulatory capital and maturing OpCo senior lia
Slide 26: Loss Absorbency Framework
LOSS ABSORBENCY FRAMEWORK UK loss absorption hierarchy is well defined UK resolution framework well established providing certainty to issuers and investors • Stated preference for structural subordination by UK Resolution Authority - Senior Hold Co issuers • NCWO principle respected - creditor hier
Slide 27: Summary
SUMMARY Well positioned to face any regulatory headwinds and loss absorbency requirements • LBG is well capitalised relative to peers – pro forma 13.8% CET1 (fully loaded), 21.4% Total Capital and 5.0% Leverage ratio • Strong capital generation and simple low risk business model means LBG is well po
Slide 28: Business Strategy
TITLE SLIDE IS IN SENTENCE BUSINESS CASE. STRATEGY GREEN BACKGROUND. 00 Month 0000 Presenters Name
Slide 29: Clear Strategic Focus
CLEAR STRATEGIC FOCUS Differentiated business model continues to deliver competitive advantage Lloyds Bank Bank of Scotland Simple, UK focused retail and commercial bank Multi-brand and multi-channel distribution Low risk and low cost business model Halifax Scottish Widows provides competitive advan
Slide 30: Creating the Best Customer Experience
CREATING THE BEST CUSTOMER EXPERIENCE Leading multi-brand, multi-channel proposition including UK’s largest digital bank Integrated multi-channel approach • UK’s largest branch network with c.2,000 branches • UK’s largest retail and commercial bank Branches with a leading Insurance proposition • Com
Slide 31: Creating the Best Customer Experience: Digital Growth
CREATING THE BEST CUSTOMER EXPERIENCE Significant growth across the digital channel and major progress in our customer journey transformations delivered Needs met via digital(1) (%) Customer journey transformation 75 65 69 73 69 of approved applications proceed 62 59 61 55 52 54 Mortgages 55% to off
Slide 32: Becoming Simpler and More Efficient
BECOMING SIMPLER AND MORE EFFICIENT Rigorous and proven cost management process provides cost leadership; Simplification programme on track to deliver increased run-rate savings of £1.4bn Low cost business model (%) Cost:income ratio – 2016 UK peer comparison(1) • Market leading cost:income ratio of
Slide 33: Delivering Sustainable Growth
DELIVERING SUSTAINABLE GROWTH Well positioned to grow the business MBNA financial metrics • MBNA acquisition – Opportunity to acquire a prime UK credit card business with a strong brand Return on investment and complementary capabilities; no further PPI exposure after acquisition +17% – In line with
Slide 34: Delivering Sustainable Growth: Loan Growth
DELIVERING SUSTAINABLE GROWTH Supporting the UK economy with continued loan growth in our targeted key customer segments Consumer Finance net lending (£bn) Net lending growth (£bn) 2014 7.1 YoY YoY (%) UK Motor 2015 9.5 Finance 2016 11.4 Open book mortgages (4.5) (2) Other Retail (0.1) (2) 2014 9.0
Slide 35: Market Share
MARKET SHARE Continue to deliver sustainable growth in target areas LBG market share(1) (%) Current account volumes 25 Retail deposit balances 20 Mortgage balances(2) 20 SME and small business lending balances 19 SME main bank relationships 19 Lex Autolease fleet cars stock 18 Average market Mid mar
Slide 36: Branch Presence
BRANCH PRESENCE Multi-brand strategy serving different segments of the market Branch network comparison Large relationship brands Challenger brands Scottish brands 1,733 1,542 1,309 1,302(1) 1,286 1,177 1,140 1,058 841 748 711 691 662 657 631(2) 588 295 336 241 193 152 112 75 73 48 8 H1 2011 vs H2 2
Slide 37: Appendix
APPENDIX
Slide 38: Loans and Advances to Customers
LOANS AND ADVANCES TO CUSTOMERS Loans and advances to customers £460bn(1) Hire purchase Transport, distribution and hotels Agriculture, forestry and fishing 2% Personal other 3% Energy and water supply 4% Property companies Manufacturing 7% (2) Construction Financial, business and other Transport, d
Slide 39: Mortgage Portfolio LTVs
MORTGAGE PORTFOLIO LTVS Further improvement in LTVs during 2016 Dec 2016 Dec 2015 Dec 2014 Dec 2010 Mainstream Buy to let Specialist Total Total Total Total(1) Average LTVs 41.8% 53.7% 49.2% 44.0% 46.1% 49.2% 55.6% New business LTVs 65.0% 61.9% – 64.4% 64.7% 64.8% 60.9% ≤ 80% LTV 88.6% 91.8% 85.2% 8
Slide 40: Insurance Division
INSURANCE DIVISION Well established business with strong and complimentary contribution to Group profit Insurance corporate structure • Insurance corporate structure simplified 2016 Underlying profit £m through a combination of life companies into Scottish Widows Ltd in 2015 • Corporate Pensions Cor
Slide 41: Stress Testing Framework
STRESS TESTING FRAMEWORK De-risked business model showed stronger adverse FL CET1 ratios under both stress tests EBA FL CET1 ratio deltas(1) 2014 v 2016 adverse scenarios (bps) bps FL CET1 - Adverse Delta (2014 test) FL CET1 - Adverse Delta (2016 test) • Stronger balance sheet 800 and FL CET1 ratio
Slide 42: EBA & PRA Stress Scenario Comparison
EBA & PRA STRESS SCENARIO COMPARISON The 2016 PRA stress test combines domestic elements of 2014 with international elements of 2015 to test all aspects of UK banks UK domestic stress scenarios PRA 2016 PRA 2015 PRA 2014 EBA 2016 EBA 2014 GDP -4.3 -3.2 -3.9 -4.2 -3.5 (peak-to-trough, ppts) Unemploym
Slide 43: Debt Investor Relations Contacts
DEBT INVESTOR RELATIONS CONTACTS Website: www.lloydsbankinggroup.com/investors/debt-investors/ INVESTOR RELATIONS LONDON Douglas Radcliffe Edward Sands Andrew Downey Group Investor Relations Director Director, Investor Relations Director, Investor Relations +44 (0)20 7356 1571 +44 (0)20 7356 1585 +4
Slide 44: Forward Looking Statement and Basis of Presentation
FORWARD LOOKING STATEMENT AND BASIS OF PRESENTATION FORWARD LOOKING STATEMENTS This document contains certain forward looking statements with respect to the business, strategy and plans of Lloyds Banking Group and its current goals and expectations relating to its future financial condition and perf
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