Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — H1 2011 Earnings Presentation
54 slides from Lloyds Banking's earnings presentation, Aug 4, 2011
Slide 1: 2011 Half-Year Results
2011 HALF-YEAR RESULTS 4 August 2011 António Horta-Osório Group Chief Executive
Slide 2: Resilient business performance, in line with expectations
“Resilient business performance, in line with expectations, despite challenging market conditions”
Slide 3: Agenda
AGENDA ECONOMIC AND REGULATORY ENVIRONMENT BUSINESS PERFORMANCE STRATEGIC REVIEW GUIDANCE AND SUMMARY 2
Slide 4: Macro economic and regulatory environment: challenging market conditions
MACRO ECONOMIC AND REGULATORY ENVIRONMENT Challenging market conditions ECONOMIC ENVIRONMENT REGULATORY ENVIRONMENT Weak UK economic recovery – GDP, ICB – ring fencing/competition interest rates, unemployment, property prices Capital/liquidity requirements – CRD IV Uncertainty derived from t
Slide 5: A cautious outlook for the UK economy
MACRO ECONOMIC ENVIRONMENT A cautious outlook for the UK economy NORMALISING REAL GROWTH(1) RISING BASE RATES(2) REAL GDP GROWTH (%) BANK OF ENGLAND BASE RATE (%) 4 7.0 6.0 2 5.0 0 4.0 -2 3.0 Consensus Range of market 2.0 -4 projections 1.0 -6 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20
Slide 6: Agenda
AGENDA ECONOMIC AND REGULATORY ENVIRONMENT BUSINESS PERFORMANCE STRATEGIC REVIEW GUIDANCE AND SUMMARY 5
Slide 7: Business Performance: resilient underlying performance
BUSINESS PERFORMANCE Resilient underlying business performance, in line with expectations, despite challenging market conditions GROUP £m H1 2010 H2 2010 H1 2011 Combined businesses underlying profit before tax of £1.3bn Underlying income(1) 11,866 11,775 10,414 (12)% Statutory loss before tax o
Slide 8: Business Performance: Integration
BUSINESS PERFORMANCE: INTEGRATION Strong delivery on integration: focus now moving to transformation RUN RATE STRONG PERFORMANCE IN H1 2011 Majority of integration projects now in final £2,000m stages £1,750m Core IT system integration to occur in H2 – to include migration of HBOS data to £1,379
Slide 9: Significant progress in reducing the risk profile
BUSINESS PERFORMANCE Significant progress in reducing the risk profile of the Group NON CORE PORTFOLIO REDUCTIONS 16% £194bn £162bn Reduction in non-core assets to £162bn Excellent progress against term funding objectives with £25bn of wholesale term issuance in the half Dec 2010 H1 2011 Furth
Slide 10: Verde progress
BUSINESS PERFORMANCE: VERDE PROGRESS The Verde disposal continues to progress at pace Verde disposal process accelerated Information Memorandum issued to prospective buyers Initial bids now being reviewed Expect to identify purchaser by the end of 2011 Total implementation costs will vary
Slide 11: Continued strong support for UK customers
BUSINESS PERFORMANCE: LENDING Continued strong support for UK customers CUSTOMER LENDING Continue to prioritise active support for the UK’s economic recovery On track to deliver full year contribution on Merlin lending agreement CUSTOMER LENDING – CORPORATE CUSTOMER LENDING – RETAIL £21.2bn of
Slide 12: Retail customer deposits
BUSINESS PERFORMANCE: RETAIL CUSTOMER DEPOSITS Maintained strong deposit growth in a weakening market UK household deposit growth has slowed Lloyds Banking Group has maintained growth in H1 2011 Good performance in our high street brands supported by customer led products Growth delivered th
Slide 13: Good progress on customer service
BUSINESS PERFORMANCE: CUSTOMER SERVICE Good progress on customer service CUSTOMER SERVICE Process simplification embedding across the Group to drive better end-to-end customer experience All Halifax branches to open every Saturday by the end of August Using customer insight to develop products
Slide 14: Good progress on complaint handling
BUSINESS PERFORMANCE: CUSTOMER SERVICE Good progress on complaint handling TARGET ACHIEVEMENT In March we announced stretching targets: Reduce the overall number of FSA reportable 9 24% reduction in level of complaints complaints we receive by 20% (excluding PPI) between H1 2010 & H1 2011 (excludi
Slide 15: Agenda
AGENDA ECONOMIC AND REGULATORY ENVIRONMENT BUSINESS PERFORMANCE STRATEGIC REVIEW GUIDANCE AND SUMMARY 14
Slide 16: Best bank for customers and subsequently shareholders
STRATEGIC REVIEW A clear focus on being the best bank for customers and subsequently shareholders THE BEST BANK FOR CUSTOMERS STRONG BROAD STRONG CUSTOMER CUSTOMER MULTI- INTEGRATED ICONIC FOCUSED RELATION- CHANNEL PLATFORM BRANDS PEOPLE SHIPS DISTRIBUTION THE BEST BANK FOR SHAREHOLDERS CUSTOMER- CA
Slide 17: Four key elements to deliver the strategy
STRATEGIC REVIEW Four key elements to deliver the strategy RESHAPE our business portfolio to fit Sustainable, predictable RoE, our assets, capabilities in excess of our CoE and risk appetite SIMPLIFY the Group Significant to improve agility, service, cost savings and positive and efficiency operatin
Slide 18: Strategic Review: Simplification
STRATEGIC REVIEW: SIMPLIFICATION Over £1.5billion of annual savings to be delivered in 2014 from over 100 projects WORKSTREAM PROGRAMME EXAMPLE PROJECT ACTIVITY End-to-end Processes Reduce account switching time by 30% OPERATIONS Develop a service orientated architecture & PROCESSES IT Simplificatio
Slide 19: Specific investment initiatives to drive revenue growth
STRATEGIC REVIEW: INVESTMENT INITIATIVES Specific investment initiatives to drive revenue growth 18
Slide 20: Agenda
AGENDA ECONOMIC AND REGULATORY ENVIRONMENT BUSINESS PERFORMANCE STRATEGIC REVIEW GUIDANCE AND SUMMARY 19
Slide 21: Group Financial Targets 2014
GUIDANCE Group Financial Targets 2014 Additional discretionary investment to £500m pa by 2014 CUSTOMER- grow our core customer franchise DRIVEN DIVERSIFIED Core income growth > nominal GDP growth OOI as % of total income(1) c50% of Group income INCOME Net interest margin 2.15 – 2.30%
Slide 22: Business Summary
BUSINESS SUMMARY Good progress in reducing the Group’s risk profile Reduction in non core assets Reduction in loan to deposit ratio Growth in customer relationship deposits Accelerated reduction in government and central bank facilities Provided clarity on PPI provisioning Resilient busine
Slide 23: 2011 Half-Year Results
2011 HALF-YEAR RESULTS 4 August 2011 António Horta-Osório Group Chief Executive
Slide 24: 2011 Half-Year Results
2011 HALF-YEAR RESULTS 4 August 2011 Tim Tookey Group Finance Director
Slide 25: Delivering
DELIVERING …… PERFORMANCE IN LINE WITH EXPECTATIONS PRUDENT MANAGEMENT OF NON-CORE BUSINESS STABLE CAPITAL RATIOS, STRENGTHENED LIQUIDITY AND FUNDING POSITION SUMMARY AND 2011 GUIDANCE 24
Slide 26: Income Statement
INCOME STATEMENT Resilient underlying performance in line with expectations despite challenging market conditions £m GROUP CORE H1 2010 H2 2010 H1 2011 H1 2010 H2 2010 H1 2011 Underlying income(1) 11,866 11,775 10,414 9,956 9,874 9,486 (12)% (5)% Costs(2) (5,435) (5,493) (5,332) (4,908) (4,976) (4,8
Slide 27: Business Performance & Statutory Profit
BUSINESS PERFORMANCE & STATUTORY PROFIT PROFIT BEFORE TAX (£m) H1 2010 H2 2010 H1 2011 Underlying profit before tax 988 1,421 1,340 Liability management gains 423 - - Fair value movement of ECN conversion feature 192 (812) (236) Profit before tax – combined businesses basis 1,603 609 1,104 Integrati
Slide 28: Group Revenue
GROUP REVENUE Trend driven by non-core reductions and specific items £m (18)% (12)% 12,481 11,866 (192) (423) 10,414 (236) 10,178 (470) (875) (107) 6,911 6,911 6,378 6,378 5,570 4,955 4,036 3,800 H1 2010 MTM on Liability Underlying Other, Non-core Other, Underlying MTM on H1 2011 ECN management H1 2
Slide 29: Core Revenue Trends
CORE REVENUE TRENDS Principally due to subdued demand and customer deleveraging £m (5)% 10,571 60 127 9,250 (428) (423) (160) (497) 5,614 5,353 (470) 4,957 3,897 H1 2010 MTM Liability Customer Banking Margin Other, H1 2011 on ECN management balance Volatility and net conversion gains movement in OOI
Slide 30: Performance of Core Business
PERFORMANCE OF CORE BUSINESS £m H1 2010 H2 2010 H1 2011 Net interest income 5,614 5,420 5,353 Other operating income Other 5,218 3,923 4,095 Insurance Claims (261) (281) (198) Total income 10,571 9,062 9,250 Costs (4,908) (4,976) (4,860) Impairment (1,653) (1,959) (1,636) FV unwind & share of JV’s/A
Slide 31: Group Net Interest Margin
GROUP NET INTEREST MARGIN Reduced banking margins % Favourable Unfavourable Improvement in Competitive asset rates deposit markets 2.12 Mix of deposit vs. Higher wholesale 2.08 2.07 wholesale funding rates funding Increasing liquid Run off of poorer assets yielding assets H1 H2 H1 2010 2
Slide 32: Cost Performance
COST PERFORMANCE Continued strong cost control and delivery of synergies £m 2% 5,435(1) 124 5,332 50 527 472 (196) (81) 4,860 4,908 H1 2010 Incremental Operating VAT Other incl. H1 2011 Operating synergies Leases & NIC inflation Operating expenses depreciation expenses Core Non-core (1) Excluding im
Slide 33: Group Impairment Charge
GROUP IMPAIRMENT CHARGE Significant reduction, primarily driven by Wholesale £bn 24.0 13.4 Group £1.1bn 17% 17% 10.6 Retail £0.2bn 12% 13.2 Wholesale £1.2bn 44% 6.6 6.6 5.4 Commercial £30m 16% 4.9 W&I £0.3bn (14%) 4.7 3.8 1.7 1.9 1.6 H1/09 H2/09 H1/10 H2/10 H1/11 Core Non-core Rounding is
Slide 34: Impairment Charge: Retail and Commercial
IMPAIRMENT CHARGE Portfolio performance in line with expectations RETAIL COMMERCIAL Lower unsecured impairments reflect improved Lower default levels in a subdued UK risk management and business quality economy Secured charges reflect house price Our outlook remains cautious movements and st
Slide 35: Impairment Charge: Wholesale and W&I
IMPAIRMENT CHARGE Portfolio performance in line with expectations WHOLESALE W&I Material reduction primarily in corporate real Trend continues to be dominated by Irish estate and related portfolios economy Supported by the stabilising UK and US Decline in valuations of Australasian property
Slide 36: Irish Portfolio
IRISH PORTFOLIO Coverage level increased due to economic uncertainties IMPAIRED / UNIMPAIRED ASSETS Unimpaired Impaired 56% 56% 54% Coverage ratio 42% 40% 37% 64% 59% 53% 44% 33% 14% H1/09 H2/09 H1/10 H2/10 Q1/11 H1/11 (IMS) Weakness in Irish economy continues Reflecting actual and anticipated f
Slide 37: Exposures to Selected Eurozone Countries
EXPOSURES TO SELECTED EUROZONE COUNTRIES Monitored on a regular basis and managed accordingly £m Corporate(1) Retail(1) Belgium 556 - Belgium corporate performing well with no underlying problems Greece 773 - Greek exposures – generally secured shipping loans Ireland(2) 9,252 7,034 Spanish Ret
Slide 38: Exposures to Selected Eurozone Countries: secured
EXPOSURES TO SELECTED EUROZONE COUNTRIES More than 40% of exposures are secured £m Banking groups Assets Money held by Direct Covered market & insurance Sovereign bonds FRNs general facilities(1) ABS businesses Total Belgium 87 - 242 77 - 477 883 Greece - - - - 70 - 70 Ireland - 145 - 224 373 79 821
Slide 39: UK Mortgage Portfolio
UK MORTGAGE PORTFOLIO Books performing satisfactorily with stable profiles 30 June 2011 31 Dec 2010 Portfolio >100% >100% >100% >100% £336bn LTV LTV LTV LTV and >3 months and >3 months in arrears in arrears £28.4bn (8.4%) Specialist £0.8bn (2.8%) £0.8bn (2.7%) £5.5bn (19.4%) £5.7bn (19.4%) Buy to le
Slide 40: UK Mortgage Forbearance
UK MORTGAGE FORBEARANCE Reducing forbearance activity and stable arrears trends CUSTOMERS NEW TO FORBEARANCE CUSTOMERS NEW TO ARREARS Volume ‘000s 7000 6000 5000 4000 3000 125 116 121 119 117 2000 1000 0 Mar Jul Nov Mar Jul Nov Mar Jun H1 09 H2 09 H1 10 H2 10 H1 11 09 09 09 10 10 10 11 11 Volumes
Slide 41: Delivering
DELIVERING …… PERFORMANCE IN LINE WITH EXPECTATIONS PRUDENT MANAGEMENT OF NON-CORE BUSINESS STABLE CAPITAL RATIOS, STRENGTHENED LIQUIDITY AND FUNDING POSITION SUMMARY & 2011 GUIDANCE 40
Slide 42: Non-Core Portfolio
NON-CORE PORTFOLIO Continued disciplined reductions in non-core portfolio £bn RWA 144 129 ≤65 Total Assets 193.7 16% Treasury 162.4 Assets 49 29 Commercial 26 Real Estate 25 Other Wholesale 37 ≤90 32 International 52 47 Retail 30 29 Dec 2010 June 2011 End 2014 Target 41
Slide 43: Balance Sheet De-risking
BALANCE SHEET DE-RISKING Reducing risk & capital intensity of our business RISK-WEIGHTED ASSETS (£bn) 6% 406 383 Overall RWA reduction driven by: 144 11% – Focussed non-core Non-core 129 34% asset run-down – Subdued new lending demand Core 262 – Lower risk new lending 3% 255 66% Expected year-en
Slide 44: Performance of Non-Core Business
PERFORMANCE OF NON-CORE BUSINESS £m H1 2010 H2 2010 H1 2011 Net interest income 1,297 1,491 1,025 Other operating income Profit/(losses) on asset sales 137 (369) (738) Other 476 779 641 Total income 1,910 1,901 928 Costs (677) (517) (472) Impairment (4,901) (4,668) (3,786) FV unwind & share of JV’s/
Slide 45: Non-Core Capital Consumption / Released
NON-CORE CAPITAL CONSUMPTION / RELEASED £m H1 2011 Loss before tax (1) (1,556) Post tax loss -> ‘Capital consumed’ (1,144) Reduced RWAs (£bn) 15.2 at 10% -> ‘Capital released’ 1,520 Decrease/(increase) in EEL (487) Net capital released (111) Funding benefit (£bn) 26.8 Closing CT1 allocated to non-co
Slide 46: Delivering
DELIVERING …… PERFORMANCE IN LINE WITH EXPECTATIONS PRUDENT MANAGEMENT OF NON-CORE BUSINESS STABLE CAPITAL RATIOS, STRENGTHENED LIQUIDITY AND FUNDING POSITION SUMMARY & 2011 GUIDANCE 45
Slide 47: A Strong and Stable Capital Position
A STRONG AND STABLE CAPITAL POSITION Improving quality and quantity of capital CORE TIER 1 RATIO (%) 0.4% 0.1% 10.2% 10.1% Tier 1 ratio: 11.6% 9.0% Total capital ratio: (0.6)% 15.0% Effect of the statutory loss was broadly offset by the reduction in RWAs Core tier 1 ratio excludes the impact
Slide 48: Solid and Stable Wholesale Funding Position
SOLID AND STABLE WHOLESALE FUNDING POSITION …and long term maturity profile improved WHOLESALE FUNDING MATURITY PROFILE WHOLESALE FUNDING £296BN £bn 49% (1)% 2 – 5 years 298 £61bn 296 >5 years £54bn 1 – 2 years 149 >1 yr 144 £29bn 50% 49% 149 152 <1 yr 51% 50% Primary liquid asset coverage Dec 2010
Slide 49: Government & Central Bank Funding
GOVERNMENT & CENTRAL BANK FUNDING Excellent progress in reducing liquidity support £bn 157.2 £60bn reduction in government and central 62% bank funding in H1 Other 96.6 All remaining facilities 107.2 mature by October 2012 Other 51.2 Current plans assume that remaining facilities 37.1 will be
Slide 50: Further Improvement in Loan to Deposit Ratio
FURTHER IMPROVEMENT IN OUR LOAN TO DEPOSIT RATIO Loan to deposit ratio now at 144% - Core book ratio is 114% GROUP RATIO CORE RATIO (1900)bps 163% (1300)bps 154% 144% 127% 120% 114% H1 2010 H2 2010 H1 2011 H1 2010 H2 2010 H1 2011 Loan to deposit ratio continues to improve due to: – Excellent relat
Slide 51: Delivering
DELIVERING …… PERFORMANCE IN LINE WITH EXPECTATIONS PRUDENT MANAGEMENT OF NON-CORE BUSINESS STABLE CAPITAL RATIOS, STRENGTHENED LIQUIDITY AND FUNDING POSITION SUMMARY & 2011 GUIDANCE 50
Slide 52: Summary and 2011 Guidance
SUMMARY AND 2011 GUIDANCE H1 2011 Guidance 2011 Net interest H1 2011 NIM at 2.07% Expect NIM to be just above 2% in 2011 margin Trends continue to reflect customer Non-core asset run-off will further reduce Income deleveraging and subdued demand balance sheet size and thus income Down slig
Slide 53: Forward Looking Statements and Basis of Presentation
FORWARD LOOKING STATEMENTS AND BASIS OF PRESENTATION 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 perfor
Slide 54: 2011 Half-Year Results
2011 HALF-YEAR RESULTS 4 August 2011 Tim Tookey Group Finance Director