Lloyds Banking Group plc · LSE:LLOY
Lloyds Banking — Investor Presentation (April 2013)
67 slides from Lloyds Banking's investor presentation, Apr 16, 2013
Slide 1: Lloyds Banking Group Commercial Banking Update
LLOYDS BANKING GROUP COMMERCIAL BANKING UPDATE 0
Slide 2: Welcome & Introduction
WELCOME & INTRODUCTION António Horta-Osório Group Chief Executive 1
Slide 3: Commercial Banking: A core part of Lloyds Banking Group
COMMERCIAL BANKING A core part of Lloyds Banking Group A single division serving all the Group Group’s s business clients Strong core franchise across UK UK-centric approach, focused on meeting our clients’ needs Key to our support for the UK economic recovery Leveraging Commercial Banking as
Slide 4: Commercial Banking Strategy
COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking 3
Slide 5: Agenda
AGENDA COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking BEST BANK FOR CLIENTS David Oldfield, Andrew Engl
Slide 6: Commercial Banking Strategy: 2015 Core RoRWA >2%
COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking Relentless 2015 Core RoRWA >2% focus on Execution 5
Slide 7: Building the best bank for clients
COMMERCIAL BANKING Building the best bank for clients 1.25m SME clients Relationships with 91% of FTSE 100 Relationships with 83% of FTSE 250 c.40% active users of digital channel 500 business centres across the UK Network of over 4,000 client facing staff 6
Slide 8: Personal reflections
COMMERCIAL BANKING Personal reflections Strengths g Unique client franchise Strong product capability Client-centric team Transformation Balance sheet normalisation Macro environment Legacy issues unwind Create an integrated franchise 2015 Core Shifting industry trends Fully leverage
Slide 9: Actions to date
COMMERCIAL BANKING Actions to date Achieved already What is different Strategic review Relentless execution of strategy Aligned 16 business lines Integrated daily P&L New coverage model Performance management framework Appointed management team Pricing independence Re-segmentation
Slide 10: Experienced & integrated leadership team
COMMERCIAL BANKING Experienced & integrated leadership team Andrew Bester Group Director & CEO Commercial Banking Group Group Group Group Risk1 Risk1 Finance1 HR1 David Clare Edward Andy Andrew Richard James Darryl Karin Adrian Stephen Nick Hugh Oldfield Francis Thurman Cumming England Moore Garvey
Slide 11: Vision and strategy aligned to Group priorities
COMMERCIAL BANKING Vision and strategy aligned to Group priorities STRENGTHEN Robust capital, liquidity and risk profile Supports UK business SIMPLIFY Cost leadership Client centric RESHAPE provides Returns above Focused, value competitive UK focused cost of capital Scalable infrastructure creating
Slide 12: Supporting all of the Group's business clients
COMMERCIAL BANKING Supporting all of the Group’s business clients Lloyds Banking Group % of Group1,2 Commercial Banking1,2 27% Income SME Mid-Markets Global Financial 73% Corporates Institutions £0-1m £1-25m £25m-£750m t/o £750m+ t/o 24% t/o t/o Lending Assets 76% No. of clients ~1m ~250k ~5,000 ~85
Slide 13: Our full product capability will service our client needs
COMMERCIAL BANKING Our full product capability will service our client needs 9 37% 9 24% 9 23% 9 16% Share of 2012 Core Client SME Mid-Markets Global Corporates Financial Institutions Income1 M&A Equity Derivatives ECM Prime Brokerage Investment 8 Secondary Equities Banking Loan Syndication Bonds Te
Slide 14: All coverage areas will improve current returns
COMMERCIAL BANKING All coverage areas will improve current returns Strategy Actions 9 Higher-value switchers Growth SME 9 Greater relationshipp manager g capacity p y enabled by y investment “Local Local Execution” Execution 9 Increase digital take-up 9 Targeted geographic expansion Growth Mid Marke
Slide 15: SME: Grow by winning locally
COMMERCIAL BANKING SME: Grow by winning locally Client numbers vs. Income1 SME ~80% 78% Number of Clients Income 22% ~20% Strong franchise Mid-Markets Winning switchers <£1m Turnover £1-£25m Turnover "Business Banking" "SME" Winning in key GDP regions Growing lending & deposits Market Share
Slide 16: Mid-Markets: Grow by winning locally
COMMERCIAL BANKING Mid-Markets: Grow by winning locally Mid-Markets Assets by segment1 SME Medium-Sized Business2 29% % 24% Cap2 Mid-Cap Mid Education, Communities and Government Leveraging SME experience Real Estate Mid-Markets 13% 26% Increasing g RM p population p Social S i l 7% Housing En
Slide 17: Global Corporates: Disciplined participation
COMMERCIAL BANKING Global Corporates: Disciplined participation focused on i improving i returns Prioritisation Criteria Client Segmentation Strategy % of SME 1 clients Grow / UK focused defend c.5% Diamond Grow / Mid-Markets Platinum c.15% up-tier 2 Crriteria Deepen c.45% Gold Franchise opportunity
Slide 18: Financial Institutions: Disciplined participation
COMMERCIAL BANKING Financial Institutions: Disciplined participation leveraging L d London as a global l b l financial fi i l centre Prioritisation Criteria Client Segmentation Strategy % of SME 1 clients Grow / Support the Group defend c.2% Diamond Grow / Mid-Markets Platinum c.13% up-tier 2 Gold M
Slide 19: Continued cost discipline creates capacity to re-invest
COMMERCIAL BANKING Continued cost discipline creates capacity to re-invest Simplification initiatives Strategic investments Re-engineering end-to-end processes SME: enabling self-serve Delayering structure Mid-Markets: additional local RMs Headcount efficiencies Transaction Banking: stro
Slide 20: Deliver sustainable returns above the cost of equity
COMMERCIAL BANKING Deliver sustainable returns above the cost of equity T Transformation f ti Journey J Income 9 Normalisation of funding costs Growth 9 Strategic investments in product capability 9 Franchise growth SME / Mid-Markets 2015 Core 9 Simplification Cost RoRWA Control 9 Scalable integrate
Slide 21: Agenda
AGENDA COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking BEST BANK FOR CLIENTS David Oldfield, Andrew Engl
Slide 22: Improving Commercial Banking Returns
IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking 21
Slide 23: Core Financial Performance: key drivers to improve returns
COMMERCIAL BANKING Core Financial Performance…key drivers to improve our returns 11 Normalisation of funding costs Strategic investments in Income product capability Growth Franchise growth SME / Mid- Mid Markets Simplification Cost Scalable integrated platforms Control Centres of Excell
Slide 24: Half yearly performance
COMMERCIAL BANKING Half yearly performance NII Other income 2 755 2,755 2,326 2,320 2,364 Legacy issues driving margin Income Income1 1,468 compression 1,378 1,114 1,128 Growth (£m) Other Income progression 1,287 948 1,206 1,236 H1’11 H2’11 H1’12 H2’12 1,181 1,111 1,162 1,070 Cost Costs1 Stric
Slide 25: Diversified client-led income profile
COMMERCIAL BANKING Diversified client-led income profile Client vs non-client income1,2 10% Client Income Non Client Growth 90% of income client 90% driven Low-risk L i k products d t Client income split by Income by client Cost product1,2 segment1,2 Diversified client Control franchise 13% 16
Slide 26: Normalisation of funding costs will benefit margin
COMMERCIAL BANKING Normalisation of funding costs will benefit margin Net interest margin1 ‘Cost of money’ y better understood (32bps) Enhanced commercial behaviours Income 2.54% 2.22% Growth Legacy long duration asset margin drag Active portfolio management Client-led solutions to reduce
Slide 27: Leveraging product capability to drive other income
COMMERCIAL BANKING Leveraging client focused product capability to drive other income Other Income growth Income +9% Growth 2,442 2,235 Existing pockets of strong product capability Investment in client focused 2011 2012 Cost products Control Other Income by product1,2 Quarter on quarter growt
Slide 28: Cost savings reinvested to create income growth
COMMERCIAL BANKING Cost savings reinvested to create income growth Income Over 100 projects Growth Process automation Simplification C t Centres off Excellence E ll Channels & products Cost discipline Cost Headroom for Control Simplification cost savings of £0.2bn pa Investment Creatin
Slide 29: Active portfolio management to enhance returns
COMMERCIAL BANKING Active portfolio management to enhance returns Core RWAs (£bn) (10%) Income 133-138 Growth 5-10 128 38 15-20 ~125 5-10 90 Cost Control 2012 CRD IV and other 2012 CRD Disciplined Growth 2015 Regulatory change IV pro forma Participation Non-Lending Lending Lending RWAs £90bn corre
Slide 30: Deliver sustainable returns above the cost of equity
COMMERCIAL BANKING Deliver sustainable returns above the cost of equity FY111 FY121 2015 Banking net interest margin 2.54% 2.22% Income Growth Income (£bn) 5.1 4.7 Other Income as a % of income 44% 52% Cost Cost:Income Ratio 45% 48% Control Impairment charge as a % of average advances 0 95% 0.95% 0.
Slide 31: Agenda
AGENDA COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking BEST BANK FOR CLIENTS David Oldfield, Andrew Engl
Slide 32: Managing Risk Appropriately
MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking 31
Slide 33: Managing Risk Appropriately: risk appetite and portfolio management
MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking Active Active Prudent riskrisk Prudent Low riskrisk Lower portfolio portfolio appetite appetite portfolio portfolio management management 32
Slide 34: Lower risk business underpinned by prudent heritage
COMMERCIAL BANKING Lower risk business underpinned by the prudent heritage LTSB appetite i Average AQR1 2008-2009 (bps) 669 LTSB lower risk approach Legacy HBOS portfolio largely exited or in non-core Prudent LTSB approach is already 153 embedded HBOS LTSB 1. Commercial Banking excluding Whole
Slide 35: Independent Enterprise-wide Risk Framework
COMMERCIAL BANKING Independent Enterprise-wide Risk Framework Mid- Global Financial SME Markets Corporates Institutions Market Risk Ri k ttypes Risk Small relative to peers Average 95 per cent 1-day trading Value at Risk Market Risk Credit Risk Insurance Risk (VaR) was £7m for year to December 2
Slide 36: Executing a robust conduct risk strategy
COMMERCIAL BANKING We are executing a robust conduct risk strategy Rigorous go ous product p oduc risk s assessment assess e Product Product implementation reviews Governance Annual product reviews Enhanced record keeping Conduct Risk Appetite Client Responsible lending Qualitative state
Slide 37: Established credit risk approach supports UK-centric strategy
COMMERCIAL BANKING Established credit risk approach supports our UK-centric strategy 2012 Core asset portfolio1 Conservative, through the cycle approach Risk appetite Target market and risk acceptance criteria 5% Single counterparty and selective sector Hold policy concentration limits Caps
Slide 38: Improving credit risk profile
COMMERCIAL BANKING Improving credit risk profile Improved obligor quality Core CB (excl. Financial Markets): Probability of Default (commitments) Sector concentrations under control Obligor quality is stable Heritage LTSB approach to origination Commercial/Residential Property1 Adhered to cr
Slide 39: Lower impairments via prudent risk management
COMMERCIAL BANKING Lower impairments via prudent risk management Core impairment charge (£bn) (33%) 1.1 07 0.7 2011 2012 Core impairments down 33% Core AQR 67bps Core AQR (bps) Good book boo forborne o bo e loans oa s minimal a (28bps) 95 67 2011 2012 38
Slide 40: Active portfolio management
COMMERCIAL BANKING Active portfolio management New centralised pricing controls Origination Pricing models reflect full Basel III impacts discipline Portfolio Management team approve all larger transactions Built client return metrics combining all product revenues and risks Optimise low C
Slide 41: Agenda
AGENDA COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking BEST BANK FOR CLIENTS David Oldfield, Andrew Engl
Slide 42: Best Bank for Clients: SME & Mid-Markets
BEST BANK FOR CLIENTS SME & Mid-Markets Mid Markets – David Oldfield 41
Slide 43: SME supports clients' needs across the UK
COMMERCIAL BANKING SME supports clients’ needs across the UK SME UK geographic spread Market share by client turnover1 21% 21% £0m-£1m t/o: 19% ~1m 1m clients 17% £1m-£25m t/o: ~250,000 clients £0m-£1m £0m £1m £1m-£2m £1m £2m £2m-£10m £2m £10m £10m-£25m £10m £25m ~2,500 client facing staff Mar
Slide 44: Opportunity to grow underpenetrated Mid-Markets regions
COMMERCIAL BANKING Opportunity to grow underpenetrated Mid-Markets regions Mid-Markets UK geographic spread 2012 Income by region1 11% London and South East £25m-£750m t/o: Midlands, East and 19% 40% South West ~5 5,000 000 clients North Scotland 165+ RMs 30% 20 Area Director groups Market sha
Slide 45: The best Relationship Managers local to clients
COMMERCIAL BANKING The best Relationship Managers local to clients Our proposition addresses “client needs” Best RMs 9 Experienced and knowledgeable RMs, many with 20+ years experience 9 Named, local RM support “know the business” 9 RM portfolios comprise similar size / sector clients leading to dee
Slide 46: Supporting UK clients through government schemes
COMMERCIAL BANKING Committed to supporting UK clients through a number of government schemes h Discounts off 1% % per annum to all qualifying f clients FLS First bank to participate in scheme Committed in excess of £11bn in gross funds to end 2012 Enterprise One of the most active EFG lender
Slide 47: Winning new clients
COMMERCIAL BANKING Winning new clients Agriculture Schools Manufacturing Largest provider of finance Bank 57% of all academies Attracted a switcher after to UK agriculture 150 year relationship with Clients cite service previous bank 34% share of lending to excellence, strength of farmers
Slide 48: Best Bank for Clients: Transaction Banking
BEST BANK FOR CLIENTS Transaction Banking – Andrew England 47
Slide 49: Significant volumes across Transaction Banking platforms
COMMERCIAL BANKING Significant volumes across Transaction Banking platforms Leveraging platforms post integration Payment volumes (m)1 EUROMONEY TRADE FINANCE April 2012 Best Domestic Trade Finance Provider 4% 541 518 CARD & PAYMENT AWARDS February 2013 Best Merchant Acquiring Initiative – London 20
Slide 50: Consolidation and simplification of infrastructure
COMMERCIAL BANKING Consolidation and simplification of infrastructure to create a sustainable i bl platform l f for f growth h 2011 – post LTSB/HBOS 2012 / 2013 2014 Fragmented landscape Lloyds TSB Investment / Delivery of integrated Channels transformation platforms Account A t platform l tf
Slide 51: Investment delivers strong core capabilities
COMMERCIAL BANKING Investment delivers strong core capabilities Maximise opportunity in payments, trade finance, liquidity q y and cards - Develop product propositions Enhance p - Improve access through g modern online channel and seamless access to domestic Transaction and international payments
Slide 52: Delivering capability to fulfil client needs
COMMERCIAL BANKING Delivering capability to fulfil client needs Airline UK Manufacturer Simplify and standardise Long-term banking partner banking interfaces High-volume Trade Direct access to the Finance facility appropriate payment systems Flexible Trade Lending solution Award-winning
Slide 53: Best Bank for Clients: Financial Markets
BEST BANK FOR CLIENTS Financial Markets – Richard Moore 52
Slide 54: Simple products serving client needs
COMMERCIAL BANKING Simple products serving client needs 5 key product areas across coverage segments Low risk, Measure and manage to good client outcomes client-driven income streams Competitive capability Generate capital efficient returns 53
Slide 55: Investing to serve the different needs of our clients
COMMERCIAL BANKING Investing to serve the different needs of our clients Complete core Financial Markets infrastructure build in 2013 – Capability to respond to regulation, automation and capital challenges Alignment to coverage and product partners is critical to stable and diversified income –
Slide 56: Effective intermediation to deliver for the client
COMMERCIAL BANKING Effective intermediation to deliver for the client “We We bring together UK focused clients and relevant investors” investors Capital Markets Financial Markets Clients Investors private side public side Pricing Research Structuring Lending / Origination Syndication and Distributio
Slide 57: Delivering solutions in capital light products
COMMERCIAL BANKING Delivering solutions in capital light products ARENA Broadcaster GEMM Gilt Edged Market Maker Single, customisable Supported the c.£3.6bn Rapid growth and increased e-trading interface for FX refinance of Arqiva existing credibility and Money Market deposits debt facilities
Slide 58: Best Bank for Clients: Capital Markets
BEST BANK FOR CLIENTS Capital Markets – James Garvey 57
Slide 59: Supporting clients with financing & risk management
COMMERCIAL BANKING Supporting clients with financing & risk management Support relationship managers and their client franchise ambitions Build a competitive Focus on Debt Financing and Risk Management range of client-centric Partner with Coverage and Financial Markets to drive distribution in
Slide 60: Established a competitive range of client solution capabilities
COMMERCIAL BANKING Established a competitive range of client solution capabilities Supporting UK clients How we are structured to succeed Largest provider of syndicated lending to the UK economy Financing Risk Management An established UK corporate bond Asset Backed Risk Management franchise Loans B
Slide 61: Strong growth in Capital Markets franchise
CAPITAL MARKETS Strong growth in Capital Markets franchise Total UK Corporate DCM Service Quality 60% UK Relationships 50% competitors 40% Lloyds Banking Groupp 2012 #2 for ‘Best Domestic Bond Distribution’ Important DCM R 30% 2011 Lloyds Banking Group improvement in 20% 2010 IB providers overal
Slide 62: Increasing availability of UK housing stock through public bond issues
COMMERCIAL BANKING Increasing the availability of UK housing stock through public bli bond b d issues i Housing Association Bond League Table FY 20121 Amountt A Market M k t Case Study: Saxon Weald Rank Bookrunner (£m) No.3 share Lloyds Banking 1 Group 883 9 27.7% 2 Peer 1 801 8 25.1% £225m 5.375% n
Slide 63: Supporting the UK economy
COMMERCIAL BANKING Supporting the UK economy £150m Bond / $240m USPP / $500m Senior Bond £300m Senior Retail Bond £760m Senior/Index £1.75bn Senior Bond $121m swap Link Bond £150m Aquisition Facilities $500m 5.6% Notes due 2023 £610m 5.6% Notes due 2038 £300m 4.7% Notes due 2021 £750m 3.2% Notes due
Slide 64: Agenda
AGENDA COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking BEST BANK FOR CLIENTS David Oldfield, Andrew Engl
Slide 65: Deliver sustainable returns above the cost of equity
COMMERCIAL BANKING Deliver sustainable returns above the cost of equity T Transformation f ti Journey J Income 9 Normalisation of funding costs Growth 9 Strategic investments in product capability 9 Franchise growth SME / Mid-Markets 2015 Core 9 Simplification Cost RoRWA Control 9 Scalable integrate
Slide 66: Commercial Banking Update: Best Bank for Clients
LLOYDS BANKING GROUP COMMERCIAL BANKING UPDATE Best Bank for Clients 65
Slide 67: 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
Lloyds Banking Group — Investor Presentation (April 2013) on 6ix