Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — Debt Investor Presentation (July 2017)
39 slides from Lloyds Banking's debt investor presentation, July 2017
Slide 1: 2017 Half-Year Results: Presentation to Fixed Income Investors
TITLE SLIDE IS IN SENTENCE 2017 HALF-YEAR CASE. RESULTS GREEN BACKGROUND. Presentation to Fixed Income Investors 00 27 Month 0000 July 2017 Presenters Name
Slide 2: Highlights
HIGHLIGHTS Strong financial performance continues to demonstrate the strength of the business model • Strong first half financial performance with improved underlying and statutory profit – Underlying profit of £4.5bn and statutory profit of £2.5bn; underlying return on tangible equity of 16.6% • St
Slide 3: Financial Performance
FINANCIAL PERFORMANCE Strong underlying and statutory profit with increased interim dividends £9.3bn Total income • Strong underlying profit of £4.5bn 4% – Income up 4% with increased NII and Other Income 45.8% – Positive operating jaws of 5%, with market leading cost:income ratio Cost:income ratio
Slide 4: Our Strategic Focus
OUR STRATEGIC FOCUS We have made good progress in delivering our current strategic plan Creating the • Enhanced our multi-brand, multi-channel proposition; we operate the UK’s largest digital bank with a 21% market share and an award winning digital proposition best customer • Net promoter scores im
Slide 5: Delivering Sustainable Growth
DELIVERING SUSTAINABLE GROWTH Supporting the UK economy with continued loan growth in our targeted key customer segments Credit card net lending growth (£bn) • UK Consumer Finance net lending continues to grow 2015 9.3 – Organic credit card growth of 4% year-on-year (excl MBNA) – Continued strong gr
Slide 6: Underlying Financial Performance
UNDERLYING FINANCIAL PERFORMANCE Strong underlying performance H1 H1 (£m) 2017 2016 Change • 8% increase in underlying profit to £4.5bn Net interest income 5,925 5,782 2% – NII increased 2% to £5.9bn reflecting an improved margin Other income 3,348 3,093 8% of 2.82% and a small initial contribution
Slide 7: Income
INCOME Total income of £9.3bn with increased NII and Other Income Net interest margin (%) Other Income quarterly trend (£bn) 8bps 1.9 0.04 2.82 1.6 2.74 0.10 1.5 1.5 1.5 1.4 (0.06) H1 Asset Liability Wholesale H1 Q1 Q2 Q3 Q4 Q1 Q2 2016 spread spread funding 2017 2016 2016 2016 2016 2017 2017 & mix &
Slide 8: Costs
COSTS Operating costs continue to be tightly managed and reduced year-on-year Operating costs (£m) 1% • Operating costs down 1% since H1 2016 driven by 4,041 63 4,018 Simplification savings, partly offset by increased 95 investment in the business and inflation 65 (246) • MBNA costs of £21m in June
Slide 9: Asset Quality
ASSET QUALITY Credit quality remains strong Impairment charge (£m) Asset quality ratio (bps) 389 400 135 268 88 245 104 179 52 58 28 28 23 23 15 14 12 H1 H2 H1 H2 H1 2012 2013 2014 2015 2016 H1 2017 2015 2015 2016 2016 2017 Gross Net Impaired loans (£bn) & impaired loan ratio (%) • Impairment of £26
Slide 10: Asset Quality
ASSET QUALITY Low risk lending portfolio primarily in mortgages; UK Consumer Finance accounts for just 9% of customer assets and is prudently managed Group customer assets(1) (£bn) • Mortgages account for 64% of customer assets, with good 96 mortgage payment affordability and a strong LTV profile Mo
Slide 11: Statutory Financial Performance
STATUTORY FINANCIAL PERFORMANCE Increase in statutory profit after taking further conduct charges H1 H1 • Market volatility and other items in 2016 included the (£m) 2017 2016 £790m ECN redemption charge Underlying profit 4,492 4,161 • Restructuring costs include Simplification, non-branch property
Slide 12: Balance Sheet
BALANCE SHEET Further balance sheet optimisation; £3bn increase in loans and advances to customers and £2bn increase in RWAs Group loans & advances to customers (£bn) 456 455 453 • Improved capital returns and RWA efficiency through 450 business mix optimisation • Loans and advances to customers inc
Slide 13: Summary
SUMMARY Differentiated business model continues to deliver Profit progression (£bn) 7.8 8.1 7.9 6.2 • Our differentiated business model is delivering 4.5 2.6 – Simple, efficient and low risk business model provides 4.2 2.5 0.4 1.8 1.6 competitive advantage (0.6) – Multi-brand and multi-channel opera
Slide 14: Summary
SUMMARY Delivery of the current strategic plan and responding to the evolving environment Helping Britain Prosper • Focused on delivering final year of • Supporting and benefiting from UK current strategic plan economic performance • Started work to prepare our next three Best bank for customers yea
Slide 15: Funding and Liquidity
TITLE SLIDE IS IN FUNDING AND SENTENCE LIQUIDITY CASE. z GREEN BACKGROUND.
Slide 16: Wholesale Funding
WHOLESALE FUNDING Composition of wholesale funding as at 30 June 2017 Product, currency and maturity – £102bn Senior unsecured debt maturities(1) LB PLC (£27bn total) LBG PLC (£5bn total) 6% - 18% 20% MM Funding GBP - 26% Covered Bonds EUR 1.6 - 5% Securitisation 32% 5.2 - USD 4.4 OpCo Senior - 3.1
Slide 17: Wholesale Funding
WHOLESALE FUNDING Multiple issuance platforms with access to diverse funding sources globally £4.4bn Term issuance YTD 2017 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
Slide 18: Liquidity
LIQUIDITY Strong liquidity position Primary/LCR eligible liquid assets(1) (£bn) 123 121 122 • Liquid assets are broadly unchanged compared to 2016 (2) 105 • The Group maintains a strong liquid asset portfolio comprised largely of cash and LCR eligible securities 2014 2015 2016 2017 H1 • LCR eligible
Slide 19: Credit Ratings
CREDIT RATINGS Strong credit ratings, with stable outlook unless stated otherwise 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
Slide 20: Capital Position and Structural Reform
TITLE SLIDE IS IN CAPITAL POSITION AND SENTENCE CASE. STRUCTURAL REFORM z GREEN BACKGROUND.
Slide 21: Continued Capital Generation…
CONTINUED CAPITAL GENERATION… Strong capital generation in line with full-year 2017 guidance Common equity tier 1 ratio (%) – 2017 YTD • CET1 capital generation of 1.0% 1.0% 1.4 0.3 14.0 – Good underlying performance and lower 0.1 13.0 13.5 RWAs (pre MBNA), partly offset by conduct (0.8) (0.5) – In
Slide 22: …From a Strong Capital Base
…FROM A STRONG CAPITAL BASE Well positioned in an evolving regulatory environment Capital composition(1) (%) Capital Resources 21.4 20.8 £45.2bn • Strong capital position 4.4 4.2 £9.1bn – Fully loaded CET1 of 13.5% on a pro forma basis 0.9 0.7 £1.5bn 2.5 2.5 £5.3bn – Total capital ratio of 20.8% (fo
Slide 23: Tangible Net Asset Value and Leverage Ratio
TANGIBLE NET ASSET VALUE AND LEVERAGE RATIO Movement in TNAV per share reflects strong statutory profit offset by final 2016 dividend payment and MBNA impact; strong leverage ratio maintained Tangible net assets per share (p) – Dec to Jun Leverage ratio (%) 1.2p 0.4 0.1 5.1 4.8 4.9 6.3 (0.2) (0.2) 5
Slide 24: Managing Evolution of CET1 Regulatory Buffers
MANAGING 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 & MB PRA & MB SRB • PRA Buffer reduced in 2016 reflec
Slide 25: Peer Comparison: Relative Capital Strength
PEER COMPARISON: RELATIVE CAPITAL STRENGTH LBG is well capitalised relative to global peers LBG capital composition - strong relative to peers(1) CET1 Tier 1 Total Capital 20.8% 20.3% LBG Total Capital 4.2% 17.6% LBG Tier 1 Capital 3.1% 14.7% 14.3% 3.0% 1.2% 1.8% 1.6% 16.6% 13.5% (2) 13.5% 13.2% 11.
Slide 26: Ring-Fencing on Track with Key Milestones Achieved
RING-FENCING ON TRACK WITH KEY MILESTONES ACHIEVED Limited impact from ring-fencing given simple, UK, retail and commercial model LLOYDS BANKING GROUP • Group is making good progress with ring-fencing, on track to meet 1 January 2019 deadline • Given we are a simple, UK, retail and commercial bank t
Slide 27: Ring-Fencing on Track with Key Milestones Achieved
RING-FENCING ON TRACK WITH KEY MILESTONES ACHIEVED Non ring-fenced bank well defined with strong preliminary ratings Implementation of the non ring-fenced bank Lloyds Bank Corporate Markets ratings Non ring-fenced bank activities Lloyds Bank Corporate Lloyds Bank • Commercial Banking Markets Financi
Slide 28: Progression Toward MREL Requirement
PROGRESSION TOWARD MREL REQUIREMENT MREL build continues via efficient issuance activity from a strong capital base MREL progression • MREL to be met with regulatory capital and senior unsecured issuance at c. £4-5bn MREL 25% + CBR HoldCo level issuance p.a. c. £4-5bn MREL 20.5% + CBR issuance p.a.
Slide 29: 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 30: Summary
SUMMARY Meeting an evolving regulatory environment from a position of strength • Strongly capitalised relative to peers : – pro forma 14.0% CET1 pre dividend (fully loaded) – 20.8% Total capital – 4.9% Leverage ratio • Well positioned in a competitive environment; strong balance sheet and capital ge
Slide 31: Appendix
TITLE SLIDE IS IN APPENDIX CASE. SENTENCE z GREEN BACKGROUND.
Slide 32: UK Economy
UK ECONOMY UK economy remains resilient Debt to GDP (%) Total UK debt to GDP(1) 260 253 261 257 253 249 246 251 • UK economy remains resilient following the economic 100 trends of recent years including 90 – Strong GDP growth 80 – Consumer and business deleveraging 70 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 – Recor
Slide 33: UK Economy
UK ECONOMY UK house prices resilient though some pressure in London and South East Year-on-year house price growth(1) (%) 12 • UK house prices continue to rise in real terms though 11 London & SE price growth is slowing markedly 9 8 7 • Mortgage payment affordability better than or close to 5 5 the
Slide 34: UK Economy
UK ECONOMY Consumer indebtedness and servicing has improved in recent years, although inflation is starting to impact disposable income Consumer debt-to-income by product(1) (%) 20% • Households have recently taken on more consumer credit, but debt burden remains low 15% 10% • Total household debt s
Slide 35: Mortgage Portfolio LTVs
MORTGAGE PORTFOLIO LTVS Further improvement in LTVs during 2017 June 2017 Dec 2016 Dec 2015 Dec 2010 Mainstream Buy to let Specialist Total Total Total Total(1) Average LTVs 40.9% 52.4% 47.5% 43.0% 44.0% 46.1% 55.6% New business LTVs 64.7% 60.6% n/a 64.0% 64.4% 64.7% 60.9% ≤ 80% LTV 89.4% 93.3% 87.4
Slide 36: EBA & PRA Stress Scenario Comparison
EBA & PRA STRESS SCENARIO COMPARISON The 2017 PRA stress test combines elements of recent scenarios with a high rates environment to test all aspects of UK banks UK domestic stress scenarios PRA 2017 PRA 2016 PRA 2015 PRA 2014 EBA 2016 EBA 2014 GDP -4.7 -4.3 -3.2 -3.9 -4.2 -3.5 (peak-to-trough, ppts
Slide 37: 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 38: Debt Investor Relations Contacts
DEBT INVESTOR RELATIONS CONTACTS Website: www.lloydsbankinggroup.com/investors/debt-investors/ INVESTOR RELATIONS LONDON Douglas Radcliffe Edward Sands Group Investor Relations Director Director, Investor Relations +44 (0)20 7356 1571 +44 (0)20 7356 1585 douglas.radcliffe@lloydsbanking.com edward.sa
Slide 39: Forward Looking Statement and Basis of Presentation
FORWARD LOOKING STATEMENT AND BASIS OF PRESENTATION FORWARD LOOKING STATEMENTS 2017 HALF YEAR RESULTS 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 finan
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