Lloyds Banking Group plc · LSE:LLOY
Lloyds Banking — Lloyds TSB Group — H1 2008 Earnings Presentation
53 slides from Lloyds Banking's earnings presentation, Jul 30, 2008
Slide 1: 2008 Interim Results
GROUP RESULTS 2008 Interim Results 30 July 2008 Sir Victor Blank Chairman
Slide 2: Chairman's overview
Chairman’s overview • Strong operating and financial performance • Good growth potential • Increasing market share and profitability • Dividend increased by 2% to 11.4p per share A proven business model Consistent execution
Slide 3: 2008 Interim Results - Tim Tookey
GROUP RESULTS 2008 Interim Results 30 July 2008 Tim Tookey Acting Group Finance Director
Slide 4: A strong underlying performance
A strong underlying performance* £m 2007H1 2008H1 % Change Statutory profit before tax 1,993 599 (70) Volatility – Insurance (9) 505 – Policyholder interests 63 289 US dollar payments related provision – 180 Settlement of overdraft claims 36 – Discontinued businesses (146) – Profit before tax – cont
Slide 5: A strong underlying performance
A strong underlying performance* £m 2007H1 2008H1 % Change Total income, net of insurance claims 5,392 5,899 9 Expenses (2,618) (2,750) (5) Trading surplus 2,774 3,149 14 Impairment (837) (991) (18) Profit before tax 1,937 2,158 11 Earnings per share 25.8p 27.0p 5 Economic profit £951m £1,013m 7 Pos
Slide 6: Key performance drivers
Key performance drivers • Strong liability growth Income • Continued asset momentum, particularly in high quality mortgage and corporate lending • Margin improving • Continued strong cost disciplines Cost • Wide positive jaws • Productivity programme on track to deliver £250m net cost benefits Impai
Slide 7: Strong customer lending and deposit growth
Strong customer lending and deposit growth UK Retail Banking (£bn) +8% 121 112 20 +10% Unsecured 19 86 78 Current 21 Accounts 21 Mortgages 93 +9% 101 Savings 57 +14% 65 2007H1 2008H1 2007H1 2008H1 Customer Lending Customer Deposits 4
Slide 8: Strong customer lending and deposit growth
Strong customer lending and deposit growth Wholesale & International Banking (£bn) +22% 105 86 +16% 74 64 2007H1 2008H1 2007H1 2008H1 Customer Lending Customer Deposits 5
Slide 9: Improved banking net interest margin
Improved banking net interest margin +8bps 0.13% (0.06)% 0.01% 2.82% 2.74% 2007H1 Product Mix Funding 2008H1 6
Slide 10: UKRB: balanced income growth
UKRB: balanced income growth £m • 19% growth in bank savings • c. £28m additional AVA fees • 25% growth in wealth savings +6% 104 (27) (15) 2,852 36 21 52 2,681 Liability Driven Asset Driven £109 million £77 million 2007H1 Savings & AVA & Wealth Lending Lending Other 2008H1 Investment Other Growth R
Slide 11: W&IB: strong underlying income growth
W&IB: strong underlying income growth* £m +18% 66 2,416 (477) 56 21 233 2,040 +9% 1,939 +27% 2007H1 Corporate Commercial Asset Inter- Market 2008H1 Markets Banking Finance national Dislocation & Other * Continuing businesses 8
Slide 12: Excellent income growth in Corporate Markets
Excellent income growth in Corporate Markets* £m +27% 90 1,095 (477) 88 58 862 (37) 34 618 Relationship Based Sales 2007H1 Develop- Products Corporate Sales- Liability Market 2008H1 ment Capital Lending Risk Management Dislocation Management * Continuing businesses 9
Slide 13: Limited exposure to market dislocation
Limited exposure to market dislocation Income statement Net residual exposure Gross exposure £m write-down 2008H1 30 Jun 2008 30 Jun 2008 US sub-prime ABS – direct nil nil nil ABS CDOs – unhedged* 62 70 70 – monoline hedged 170 – 297 – major bank cash collateralised – – 1,382 SIV – capital notes* 43
Slide 14: Limited exposure to market dislocation
Limited exposure to market dislocation Income statement Net residual exposure Gross exposure £m write-down 2008H1 30 Jun 2008 30 Jun 2008 Trading portfolio – ABS trading book 97 417 417 – secondary loan trading 40 479 836 – other assets* 170 3,622 3,622 307 4,518 4,875 * Primarily high quality senio
Slide 15: Limited exposure to market dislocation
Limited exposure to market dislocation AFS reserves adjustment Balance outstanding Available-for-sale assets 2008H1 (£m) 30 Jun 2008 (£bn) Cancara* (448) 7.6 – US sub-prime – nil – Alt-A – £424 million (100% AAA/Aaa) – CMBS – £1,231 million (100% AAA/Aaa) Student Loan ABS (139) 3.2 – US Government g
Slide 16: Strong profit growth in I&I
Strong profit growth in I&I* £m +31% 38 431 63 330 0 2007H1 SWIP General Scottish 2008H1 Insurance Widows * Continuing businesses, excluding volatility 13
Slide 17: Scottish Widows: a resilient performance
Scottish Widows: a resilient performance* £m 2007H1 2008H1 % Change Return on Embedded Value New business profit 180 160 (11) Existing business 141 182 29 11.7% 10.8% Expected return 81 75 (7) 402 417 4 Impact of capital repatriation 13 – 415 417 – 2007H1 2008H1 * EEV basis, continuing businesses, e
Slide 18: Income growth ahead of costs in all divisions
Income growth ahead of costs in all divisions* Group cost:income ratio UK Retail 6% C:I ratio Banking improved 48.6% 2% 190bp 46.6% 5% Insurance & Investments (2)% Wholesale & 18% C:I ratio International improved Banking 8% 460bp 9% Group 5% Income Costs 2007H1 2008H1 * Continuing businesses, exclud
Slide 19: Asset quality remains satisfactory
Asset quality remains satisfactory 2007H1 2008H1 Variance % of Average Lending Impairment £m £m % 2007H1 2008H1 UK Retail Banking 627 655 (4) 1.15 1.12 – Personal loans/overdrafts 352 359 (2) 5.60 5.43 – Credit cards 270 252 7 8.14 7.84 – Mortgages 5 44 0.01 0.09 Wholesale & International Banking 18
Slide 20: Arrears performance by vintage – loans
Arrears performance by vintage – loans Arrears % Month 2 Month 4 Month 6 Month 8 Month 10 Month 12 Month 14 Month 16 Month 18 Month 20 Month 22 Month 24 Mar 04 Jun 04 Sep 04 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 17
Slide 21: Arrears performance by vintage – credit cards
Arrears performance by vintage – credit cards Arrears % Month 2 Month 4 Month 6 Month 8 Month 10 Month 12 Month 14 Month 16 Month 18 Month 20 Month 22 Month 24 Mar 04 Jun 04 Sep 04 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 18
Slide 22: A strong UKRB mortgage portfolio
A strong UKRB mortgage portfolio Mortgage balances outstanding ≤ 50% LTV 34% • Average indexed LTV is 47% > 50–60% 13% • Average new business LTV is 63% > 60–70% 14% • Prime focused business > 70–80% 15% > 80–90% 15% • Buy-to-let only 8% of portfolio > 90–100% 8% • No self-certification > 100% 1% 10
Slide 23: A strong UKRB mortgage portfolio
A strong UKRB mortgage portfolio New repossessions (% total cases) 0.08% • Prime focused lending • C&G 3+ months in arrears rose 3% in 12 months to 30 June 2008 0.04% 0.04% • UK market 3+ months in arrears rose 27% in 12 months to 31 March 2008 CML Average* C&G C&G 2008Q1 2008Q2 * Council of Mortgag
Slide 24: A strong UKRB mortgage portfolio
A strong UKRB mortgage portfolio Properties in possession C&G market share and (% of mortgage cases) share of properties in possession 0.13% 9.0% 0.07% 0.06% 3.8% CML Average* C&G C&G Market Share Share of 31 March 2008 30 June 2008 30 June 2008 Repossessions * Council of Mortgage Lenders 31 March 2
Slide 25: Asset quality ratio has remained stable
Asset quality ratio has remained stable 2007H1 2008H1 Variance % of Average Lending Impairment £m £m % 2007H1 2008H1 UK Retail Banking 627 655 (4) 1.15 1.12 Wholesale & International Banking 182 336 (85) 0.43 0.68 – Corporate Markets 23 136 (491) 0.09 0.40 – Commercial Banking 47 86 (83) 0.60 0.95 –
Slide 26: A good quality property lending portfolio
A good quality property lending portfolio Commercial property lending* Residential property lending • Through the cycle policy, • 52% Housing Associations supporting existing customer – local authority cash flows franchise • Larger residential property • Well spread nationwide portfolio companies •
Slide 27: A good quality property lending portfolio
A good quality property lending portfolio 2008 new commercial property lending* • Predominantly investment property lending • 100% of new business has < 75% LTV • Over 80% of new business has < 70% LTV • 2 largest transactions have < 40% LTV • Robust terms and conditions – strong cash flows, lower L
Slide 28: Economic environment remains uncertain
Economic environment remains uncertain • Consumer and corporate confidence levels have fallen • Unemployment increasing but still at a relatively low level • Overall corporate liquidity remains satisfactory • 2008 HPI falls could be between 10% and 15% 25
Slide 29: Improving our returns
Improving our returns* Post-tax return on equity (%) Economic profit (£m) + 80bp +7% 1,013 26.8 951 26.0 2007H1 2008H1 2007H1 2008H1 * Continuing businesses, excluding volatility, provision in respect of certain historic US dollar payments, market dislocation and settlement of overdraft claims 26
Slide 30: A robust capital position
A robust capital position Risk-weighted assets (£bn) Capital ratios +8% 31 Dec 30 Jun 2007 2008 6.7 153.9 2.3 Total capital 2.3 ratio 11.0% 11.3% 142.6 Tier 1 ratio 9.5% 8.6% Core tier 1 ratio 7.4% 6.2% 31 Dec Mortgage HPI Other 30 Jun 2007 Lending Lending 2008 27
Slide 31: A strong funding profile
A strong funding profile • High, and growing, customer deposit base • Conservative wholesale funding profile • Strong credit ratings; Strong funding – Moody’s ‘Aaa’ reaffirmed January 2008 and liquidity – S&P ‘AA’ reaffirmed June 2008 profile • Consistent market presence • Significant headroom 28
Slide 32: A core funding base of customer deposits
A core funding base of customer deposits Funding base composition June 2008 Consistent funding profile Bank Deposits Current £264bn Accounts £235bn 15 % 39% 20% Wholesale Funding 38% Debt Securities 24% 28% Customer 61% 13% Retail Deposits 62% Deposits Corporate/ Commercial Deposits 2007H1 2008H1 29
Slide 33: Strong core business momentum
Strong core business momentum • Strong sales and revenue growth Earnings • Wide positive jaws Momentum • Satisfactory asset quality • Sustained productivity improvements • Improving cost:income ratio High Returns • Widening product margins • ROE remains high, and improving 30
Slide 34: 2008 Interim Results - Tim Tookey
GROUP RESULTS 2008 Interim Results 30 July 2008 Tim Tookey Acting Group Finance Director
Slide 35: 2008 Interim Results - Eric Daniels
GROUP RESULTS 2008 Interim Results 30 July 2008 Eric Daniels Group Chief Executive
Slide 36: 2008 Interim Results
2008 Interim Results • A strong track record of delivery • Continued growth momentum • Well positioned for a lower growth environment • Capturing share and increasing profitability A proven business model Consistent execution 2
Slide 37: Building strong customer franchises
Building strong customer franchises Core capabilities How we measure The result • New customer share • Strong income growth 1. Acquiring & • Share of customer spend • High future value deepening • Customer advocacy • Sustainable growth 2. Efficiency & • Positive ‘jaws’ • Falling cost:income ratio pr
Slide 38: Improved income momentum
Improved income momentum Income (£m)* +9% +8% 5,899 5,392 4,989 4,645 2005H1 2006H1 2007H1 2008H1 * On a continuing businesses basis and excluding the impact of market dislocation in Corporate Markets 4
Slide 39: Sustained productivity improvement
Sustained productivity improvement Cost:income ratio (%)* 53.7 50.3 48.6 46.6 2005H1 2006H1 2007H1 2008H1 * On a continuing businesses basis and excluding the impact of market dislocation in Corporate Markets 5
Slide 40: A high quality lending portfolio
A high quality lending portfolio Asset quality ratio (%)* 0.88 0.89 0.80 0.82 2005H1 2006H1 2007H1 2008H1 * On a continuing businesses basis and excluding the impact of market dislocation in Corporate Markets 6
Slide 41: A strong track record of profit growth
A strong track record of profit growth Profit before tax (£m)* +11% +15% 2,158 1,937 1,680 1,487 2005H1 2006H1 2007H1 2008H1 * On a continuing businesses basis and excluding the impact of market dislocation in Corporate Markets 7
Slide 42: Consistently superior returns
Consistently superior returns Return on equity (%)* 26.0 26.8 23.2 22.1 2005H1 2006H1 2007H1 2008H1 * On a continuing businesses basis and excluding the impact of market dislocation in Corporate Markets 8
Slide 43: UKRB: growth momentum
UKRB: growth momentum Total sales volumes New business flows +8% +16% Other • # 1 in current accounts Internet Telephony • # 1 in added value accounts Branch • # 1 in credit cards 2006H1 2007H1 2008H1 Market share of new business (%)* • # 2 in mortgages 24.4 14.916.3 14.2 • # 1 in personal loans 11.
Slide 44: UKRB: growth momentum
UKRB: growth momentum New account cross sales 1.1 0.9 0.6 • Deepening relationships 2006H1 2007H1 2008H1 – At acquisition Average product holdings per new customer over time* – Over time 2.5 1.8 1.6 2006H1 2007H1 2008H1 * New to bank June 2006 10
Slide 45: UKRB: Well positioned for a lower growth environment
UKRB: Well positioned for a lower growth environment Sales to franchise customers (%) • Risk management 90 99 – Franchise customer focus – Tightened credit criteria – Increased collections capability Credit Loans Cards – Arrears management Retail deposits (£bn) 85.6 78.0 • Focus on deposit growth 72
Slide 46: I&I: growth momentum
I&I: growth momentum Scottish Widows bancassurance sales (PVNBP*) +8% +16% • Continued momentum in bancassurance channel • Growing market share in key 2006H1 2007H1 2008H1 product areas – protection and New home insurance sold through pensions branch network (GWP†) +10% +22% • # 1 home insurance dis
Slide 47: W&IB: growth momentum
W&IB: growth momentum Market share* Mid Market (£15m–£250m turnover) Corporate Markets 14% 12% 10% • More relationship teams 2006H1 2007H1 2008H1 • Developed new products Cross sales growth (indexed) • Maintained lending quality +64% 226 138 • Increased share 100 2006H1 2007H1 2008H1 * Source: TNS 1
Slide 48: W&IB: growth momentum
W&IB: growth momentum Number of switcher accounts* +35% Commercial • Investing in people and infrastructure 2007H1 2008Q1 • Developed new products Share of wallet by segment (%)† • Targeted switcher accounts 71 77 68 61 44 46 • Increasing cross sales 2m-15m 500k-2m 50k-500k 2007H1 2008Q1 * Source: T
Slide 49: W&IB: Well positioned for a lower growth environment
W&IB: Well positioned for a lower growth environment Level of security in Commercial lending book by segment* • Risk management 18% 14% – Tightened credit criteria – Move to secured lending 82% 86% • Focus on relationship products • Sustained cost and productivity improvements £0-2m £2-15m With secu
Slide 50: Investing in our business
Investing in our business Continuing to invest in our … and investing in people business… Investment* (indexed) Examples 148 • 19% increase in Products & Markets front office staff since January 2007 • 17% increase in relationship managers in large corporate since January 2007 100 • c.500 retail sta
Slide 51: 2008 interim results
2008 interim results • A strong track record of delivery • Strong operating and financial performance • Continued growth momentum and good growth potential • Well positioned for a lower growth environment • Capturing share and increasing profitability A proven business model Consistent execution 17
Slide 52: 2008 Interim Results - Eric Daniels
GROUP RESULTS 2008 Interim Results 30 July 2008 Eric Daniels Group Chief Executive
Slide 53: Forward looking statements
Forward looking statements This announcement contains forward looking statements with respect to the business, strategy and plans of the Lloyds TSB Group, its current goals and expectations relating to its future financial condition and performance. By their nature, forward looking statements involv