Lloyds Banking Group (LSE:LLOY) — Q3 2024 Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the LLOYDS BANKING GROUP PLC Q3 2024 Results Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Please simply type in your questions at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review your questions submitted today and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll and I'm sure the company will be most grateful for your participation.

0:31 And I'd now like to hand over to Group Investor Relations Director Douglas Radcliffe. Good afternoon. Excellent. Thank you very much indeed, Mark. So thank you. Good afternoon, everybody. As indicated, I'm Douglas Radcliffe, and I'm the Group Investor Relations Director for LLOYDS. Background, I've worked for the group for what thirty years or so. I joined the investor relations team back in what 2007 and have been running the team for the last ten years or so. I'm also joined by Sarah Robson, who's a senior manager in my team. As many of you will know, LLOYDS BANKING GROUP has the largest retail investor base in The UK. And so we're very happy to be running one of these retail briefings with investor me company.

1:20 We view these events as an important way of keeping in touch with our shareholders. So thank you for joining us. Within this call, I'll provide some context on the performance of the group, including a run through of some of the key messages following our q three results that were issued at the end of October, as well as other market issues you might have heard about, particularly motor finance as it's been in the headlines in recent days. This should all take about twenty minutes, so there'll be plenty of time for q and a. Before I touch upon the financial performance and go through the q three highlights, I'd just like to provide some context on the group and our current strategy. I'll start with a couple of slides which outline the group's business model and key product areas.

2:11 Hopefully, you can see the slide that's in front of you. LLOYDS is a UK focused retail and commercial financial services institution. We have a relatively simple operating model with business split across three reporting divisions. Retail, banking, commercial banking, and insurance, pensions and investments. Within these divisions, we offer a comprehensive product suite to meet our customers' ever evolving financial needs.

2:43 The business is underpinned by a portfolio of familiar and trusted brands, such as LLOYDS BANK, Halifax, and Scottish Widows, alongside a few newer brands you may be less familiar with, including TUSKA, our car salary sacrifice proposition for corporates, and LLOYDS LLOYDS LLOYDS BANKING, our private rental arm. The breadth of our franchise provides us with unparalleled insights into the customers that bank with us and allows us to develop more targeted offerings that deliver greater value for our customers and the group. It also creates a unique competitive advantage in the complementary products and services that we can offer. As ever, we are guided by our purpose, which is helping Britain prosper.

3:35 I'll now go into our competitive strengths, which differentiate our proposition on slide four.

3:43 What I've tried to do here is put the actual layout, the competitive strengths on the left hand side, and just include some of the key metrics behind the business on the right hand side. As many of you as many of you will be aware, we are the biggest UK bank with 900,000,000,000 of assets and 27,000,000 customers. Not only is our leading customer franchise offering broad, but we are also the number one provider in several core product areas, including mortgages, cards, loans, and transport. Our capabilities across both banking and insurance offer a unique customer proposition within The UK, which is a clear competitive advantage. We have a clear strategic vision of being a UK customer focused digital leader.

4:33 One of our strengths is an all channel distribution focus, leveraging our trusted brands. We now have 22,000,000 digitally active users, and we are continually leveraging our digital capabilities to innovate and improve our customer products and services. Indeed, we have the largest digital bank in The UK. Let me now hand over to Sarah, who will provide an overview of our strategic focus areas. Thanks, Douglas. So in February 2022, our CEO, Charlie Nunn set out a five year strategy for LLOYDS BANKING GROUP.

5:11 We are focused on driving revenue growth and diversification, strengthening our cost and capital efficiency, and maximising the potential of people, technology and data. In particular, our growth initiatives are focused on four key areas, deepening and innovating within the consumer space, creating a new mass affluent offering, building our corporate and institutional offering, and digitizing and diversifying our SME business. If you would like any more detail on these initiatives, please do look at our website, as we've done a separate strategic seminar for each of these areas over the past year. Our strategic transformation is supported by 3,000,000,000 of strategic investment spend between 2022 and 2024, and a total of £4,000,000,000 between 2022 and 2026.

6:09 We have now almost completed the third year of our five year strategy, and are on track to deliver the interim 2024 targets, which I will outline on the next slide. We're pleased to say that our strategy is actually progressing very well. And this is translating into positive financial benefits. Our 2024 targets include delivery of the naught of naught point 7,000,000,000 of additional revenues from strategic initiatives in 2024. With this growing to 1,500,000,000 per annum by 2026. We are also on track to deliver 1,200,000,000 of gross cost savings this year. Our performance to date gives us confidence in our 2026 targets.

6:58 This includes a return on tangible equity of greater than 15%, and capital generation of more than 200 basis points in 2026. Finally, Douglas will now touch on shareholder distributions on slide seven, before moving to the latest financials. Thanks, Sarah. The group's strong capital generation continues to support growth in shareholder distributions. At the half year as many will many of you will have seen, the board announced an increased interim dividend of 1.06p per share, which was actually a 15% growth on last year. As usual, we always consider further capital distributions at the year end. Both the interim and final dividend per share have grown consistently over our strategic plan.

7:49 The 2024 interim dividend per share announced at the half year is actually around 60% higher than in 2021. This strong distribution growth is consistent with our guidance for a progressive and sustainable ordinary dividend. Alongside this dividend growth, LLOYDS have executed consecutive and significant share buybacks. The buyback last year was 2,000,000,000. These buybacks have reduced the group share counts by around 12% since the end of twenty twenty one, supporting growth in shareholder value. We remain committed to distributions and returning excess capital to shareholders. I'll now talk to our latest financials. I'm going to largely reference the slides we used with institutional investors at the q three results, as I think it's helpful for you to see what was presented to them.

8:42 But I'll bring focus on specific areas that are worth highlighting. So let's look at slide eight. Within our q three results, there were essentially three key messages throughout our presentation. Firstly, and as just mentioned, we continue to make good progress on our strategy. Secondly, in the third quarter, the group again delivered a robust financial performance. This included income growth alongside cost discipline and strong asset quality. Finally, our performance, as well as the strength of the group's franchise, allowed us to reaffirm our 2024 guidance and gave us increasing confidence in our 2026 commitments.

9:35 I'll now turn to a summary of the financial performance on the next slide. It's rather busy with a whole load of numbers on this slide, but I still thought it would be helpful for you just to see. I'm sure you would have seen some of it in the news release as well. But essentially, statutory profit after tax for the first nine months of the year was 3,800,000,000, with a return on tangible equity of 14%. Pleasingly, q three or the third quarter saw growth in income versus the second quarter, including net interest income up 2%. This was this was supported by a quarterly net interest margin, as you'll see, of 2.95%, up two basis points on q two. And the market was looking for that change in direction in the net interest margin.

10:28 On a year to date basis, other income was up 9% on the prior year, driven by growth across our business. We remain focused on costs, which were up 5% year on year, in line with expectations. Asset quality, clearly that's really important from a bank perspective, remains strong. The year to date impairment charge of $273,000,000 equates to an asset quality ratio of just nine basis points. Tangible net asset value per share, which is effectively the book value of the company per share, increased to 52.5p, up 2.9p in q three, driven by profits and the unwind of the cash flow hedge reserve given falling rates.

11:20 Our performance delivered strong capital generation of 132 basis points in the year to date, in line with our guidance of 175 basis points for the full year. And clearly, that's very important when you're looking at capital return, as I talked about earlier. I'll now turn to the balance sheet growth on the next slide.

11:43 Our customer franchise, despite already being one of the largest franchises in The UK, continues to grow. Our total lending balances of 457,000,000,000 were up 4,600,000,000 in the third quarter. This was primarily driven by strong mortgage book growth, up 3,200,000,000, reflecting a strengthening market throughout this year. We have also written a market share of new business that is in excess of our share of stock, which is about 19%, supported by improvements to our customer proposition off the back of our strategic investments. Elsewhere in retail, as you can see, we saw continued growth across cards of naught 100,000,000, and unsecured loans of naught 600,000,000.

12:35 Commercial lending balances were down slightly by about naught 200,000,000 in the third quarter. Within this, we saw similar trends to recent quarters, with growth in corporate and institutional business, more than offset by the impact of continued government backed lending repayments in SMEs. That's effectively the small and medium sized businesses. Our deposit franchise also continues to perform strongly. Deposits of $476,000,000,000 were up 1,000,000,000 in the third quarter. We saw growth of 1,700,000,000 in retail, with savings up 2,800,000,000. Current accounts were slightly lower in the quarter by about 1,100,000,000, but this performance was actually a little better than we expected.

13:22 Deposit churn, which is basically the movement from current account into savings, and within savings from instant access into fixed term deposits, continues to ease, as expected in the declining rate environment. Commercial deposits were down 500,000,000 quarter on quarter. Growth in targeted segments, and targeted sectors within small and medium sized businesses, was offset by an expected outflow in corporate and institution.

13:52 Alongside these deposit developments, insurance, pensions and investments, saw 3,500,000,000 of net new money year to date. So turning to the next slide, which looks at income in a bit more detail. As mentioned, the group delivered income growth across both net interest income and other operating income in the third quarter. Net interest income of 3,200,000,000 was up 2% quarter on quarter. This includes the net interest margin of 2.95%, which was up slightly, just two basis points on q two. And this was driven by a strong contribution from the structural hedge in the quarter, which more than offset the ongoing headwinds in mortgages and deposits.

14:42 As background, the structural hedge is effectively the sum of our interest rate incentive balances that can be invested in swaps over a longer period of time, generally about three and a half years. The structural hedge notional balance remained unchanged at 242,000,000,000 in the third quarter, after reducing 5,000,000,000 in the first half of the year. This reflects increasing stability in our rate insensitive deposit balances. Basically, our current accounts and some of our more sticky savings balances. Looking forward, we continue to expect the 2024 net interest margin to be greater than two ninety basis points. Year to date average interest earning assets are $450,000,000,000, with healthy growth as we've already indicated in the third quarter, led by mortgages.

15:40 We continue to expect average interest earning assets to be greater than $450,000,000,000 for the year as a whole. In other income, basically fee income, we saw continued momentum in the third quarter. Year to date, other operating income of 4,200,000,000 is up 9% year on year, with the third quarter up 3% quarter on quarter. Our performance this year continues to be driven by stronger activity, and also reflects our strategic initiatives across the divisions. Operating lease depreciation was $315,000,000 in the third quarter. This is consistent with our expectations as set out at the half year, based on business growth and revised depreciation schedules.

16:32 Let me now move to costs.

16:36 We remain on track to deliver our cost guidance of 9,400,000,000 in 2024. And as an organization, we have a strong reputation, and indeed a track record of delivering against cost targets and focusing on efficiency. Q3 operating costs were 2,300,000,000, stable quarter on quarter. Over the first nine months of the year, operating costs of 7,000,000,000 were up 5% year on year, or 4% excluding the 100,000,000 Bank of England levy. This also includes accelerated severance charges versus 2023, taken to facilitate cost efficiencies.

17:24 Excluding both this levy and the components of severance, which is in excess of last year, costs were up just 2%. So as you can see, inflationary pressures are being significantly offset by continued cost discipline and investment in savings. The third quarter cost to income ratio was 53.4%, or 52.7% excluding remediation. The remediation charge is 29,000,000 in the quarter, and 124,000,000 year to date. Stepping back at this point, I thought it was worth noting here, you know, given we're talking about remediation, that since we published our third quarter results, we have seen a new Court of Appeal ruling on motor finance.

18:17 This arose from a couple of cases that were progressed by other financial services providers, other motor finance providers in the market. Basically, these rulings relate to commission disclosure and consent obligations for motor finance, which go beyond the scope of the previous FCA motor commissions review. We published a stock exchange announcement shortly after these court outcomes, noting that the group is assessing the potential impact of the court decisions, as well as any broader implications, pending the outcome of the appeal applications. And when I say the appeal applications, the next stage of the process would essentially be for those in those individual providers to to take those cases to the Supreme Court.

19:07 We believe we met all regulatory rules in force at the time. But clearly this case, or these cases actually changed the law in force. We will clearly look to update the market if and as appropriate. And we are very happy to take any questions you have on the topic in our q and a session following this presentation. Indeed, couple of questions have already been submitted. I would note however, that at this stage, there are a number of uncertainties relating to the likely outcomes, and therefore we may not be able to give a significant amount of further detail. I'll now hand over to Sarah, who will talk through asset quality. Thanks, Douglas. So asset quality remains very strong, and reflects both resilient credit performance as well as the underlying portfolio.

19:59 The q three impairment charge is 172,000,000, equivalent to an asset quality ratio of 15 basis points.

20:08 This benefited from strong portfolio performance, but also a debt sale of unsecured assets, providing a circa 80,000,000 credit. Year to date, the impairment charge is $273,000,000. This reflects a low underlying charge, helped by some one offs, and an improving economic outlook in the first half of the year in particular. The impairment charge reflects both portfolio performance and economic developments on an underlying basis. So removing the benefits relating to the economic environment, the impairment charge is a still low $597,000,000, or an AQR of 18 basis points. Looking forward, we continue to expect the asset quality ratio to be less than 20 basis points for 2024.

21:02 I'll now touch on return on tangible equity and Tina.

21:08 Return on tangible equity in q3 was 15.2% contributing to a robust year to date performance of 14%. Tangible net assets per share at 52.5p are up 1.7p year to date, and 2.9p in q3.

21:30 The increase over both periods was driven by profits and the unwind of the cash flow hedge reserve offset by shareholder distributions. Looking ahead, we continue to expect teen off per share to grow as headwinds unwind, and the reduced share count from the buyback continues to provide support. We also continue to expect the group's return on tangible equity to be circa 13% for 2024. This incorporates ongoing TNAV growth, alongside slightly lower fourth quarter earnings, given the usual seasonal factors, such as the bank levy, and a more normalised impairment charge. So turning now to capital generation on the next slide.

22:19 The group delivered strong capital generation in the first nine months of the year of 132 basis points. This keeps us on track for our target of circa 175 basis points for the full year. Within this risk weighted assets were $223,000,000,000, up 4,200,000,000 in the first nine months. This continues to be largely driven by lending growth, partially offset by securitizations and other capital optimization activity. We remain confident that risk weighted assets will end the year consistent with our guidance of between $2.20 and $225,000,000,000. Our closing CET one ratio for the quarter is 14.3%, well ahead of our target to pay down to 13 and a half percent by the end of this year, and to pay down to 13.0% by the end of twenty twenty six.

23:20 I'll now move on to the final slides to wrap up the presentation. So overall, the group delivered a robust financial performance in q3, with income growth, disciplined cost management and strong asset quality, together driving strong capital generation. This performance allowed us to reaffirm all of our 2024 guidance, And we remain confident in our 2026 guidance. For ease, all of this guidance is set out in full on this slide. That concludes our prepared comments. So thank you very much for listening. We've now got some time for Q and A. So I'll hand back to Mark. That's great, Sarah Douglas, thank you once again for updating investors. Ladies and gentlemen, please do continue to submit your questions just using the Q and A tab situated on the right hand corner of the screen. Just want the guys to take a few moments to review your questions submitted already. Just want to remind you a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your Investor Meet company dashboard.

24:19 Douglas, Sarah, as you can see, you've had a number of questions from investors both ahead of today's event and throughout your presentation. So firstly, thank you to everybody for engagement. If I may Douglas just hand back to you, you could take us through that Q and A, if I could ask you to read out the questions and I'll pick up from you at the end. Absolutely, no problem at all, Mark. That's absolutely fine. So, in essence, as I mentioned earlier on in the call, have been a couple of questions pre submitted, both of the pre submitted questions actually related to motor finance. Effectively, the first question was really relating to our current position on motor finance and indeed the range of possible outcomes and estimated time scales. So, let me provide a little bit of color on that at the moment, Some of which I sort of referenced earlier on in the presentation.

25:08 In essence, what I would say is that the Court of Appeal ruling that came out was a surprise to us all. It wasn't just a surprise to us. I suspect it was a surprise to individual companies challenging the, that had taken the case to the Court of Appeal and indeed the market as a whole. And effectively what it does is it changes our understanding of the law. So what we've really been doing over the past couple of weeks is really reviewing and working out the implications for us as a business. When we look at it, clearly there are a huge number of uncertainties, most of which are actually external uncertainties. You know, clearly from a next stage in the process, you know, we believe that, you know, both of the previous, both of the other corporates that lost the case for the Court of Appeal are challenging that Court of Appeal. To challenge that, they will need to take it or to, as I say, the Supreme Court.

26:06 So, the first stage in the process is for the Supreme Court to accept that they will actually listen to it. Clearly, that is yet to be done. I suspect, you know, that those claims are currently progressing forward. If they do accept, you would then have to agree a date for the Supreme Court judgment and review itself, which could well be a few months on into the future. I think the shortest period of time there's ever been for a Supreme Court judgment since agreeing it has probably been about

26:39 four months. It's likely to be a bit longer than that. I think generally, the market view is that we would prefer an accelerated process, but we will have to see exactly how that progresses, and that's outside of our hands to some extent. Secondly, with regards to the actual cases themselves and the remedies, the way the Court of Appeal was written means that the actual specific remedies that we're looking at need to be agreed by the local courts and the lower courts. So clearly that has still to occur,

27:13 which leaves some uncertainties. Certainly, there are still uncertainties there with regards to the timescales, if it is indeed accepted that it will go to the Supreme Court as well. You also have various, you know, challenges when it comes to the interpretation of the ruling itself, and specific issues that relate to that. And indeed looking at, you know, the individual, you know, methodology and the definitions used. How do you clarify vulnerable customers? How do you look at sophisticated customers?

27:43 What's the documentation in place? What's the sales process in place? So a number of, you know, differences that then need to be investigated and will take time. In addition to that, you know, it's clearly uncertain at the moment as to, you know, how other counterparties will, will step in or be engaged, you know, including the FCA, A number of you may well have seen that the FCA did actually make a statement this morning, you know, highlighting some of the areas of you know, that they will be looking at. But in essence, are a huge number of uncertainties when it comes to that. The other thing to I suppose to really clarify from here is that actually when we are looking at this, this this particular Court of Appeal is very much looking at disclosure and indeed consensus disclosure.

28:35 Whereas when you previously looked at the FCA review, it was more looking at fairness of commission. So although there was clearly be some overlap, there are differences between the different elements that are there. Now clearly, we are we're currently, you know, reviewing the implications at this moment in time. You know, that's exactly what we're doing. We don't have, you know, a view on your potential outcomes, know, and indeed there's still uncertainty with regard to the estimated time scales,

29:06 but we will continue to keep the market informed, you know, as and when, you know, we we progress in some of these areas. You will see that obviously, you know, following the Court of Appeal, we put a stock exchange announcement out on on the following Monday, And indeed, you know, there are various other transcripts referencing, you know, how these things are evolving, you know, whether that be on a sell side roundtable, whether that be on a UBS conference where our CFO, you know, spoke yesterday, you know, we'll continue to put those transcripts and detail up on the websites so that people can see. So at the moment, we don't know exactly what the outcome will be, because there are still significant uncertainties there. But we continue to investigate and approach them. So that's in essence, a little bit of a summary as to the process and what now happens.

29:56 There's also been a question submitted really on, you know, what that means for bonuses, what that means for remuneration, if indeed we have to take a significant charge. I think there's a number of important aspects that need to come out from this side. You know, clearly, first of all, you know, we don't know what the impact is likely to be at this stage, because the investigation is still being progressed. What we do know, however, is that we believe that we were in compliance with all of the related regulatory advice and legal requirements at the time, and indeed were consistent with industry best practice. What's also evidence, this is what was mentioned at the start, was that, you know, this effectively becomes a change in the law and was a surprise to everyone.

30:50 So, in essence, when you look at our remuneration structures, our remuneration structures would reflect any remediation charge that was taken. Clearly, is taken into consideration when you're setting bonus pools. In addition, whether you look at the annual bonus, deferred bonus, LTIPs, long term shareholder plans, effectively they incorporate malice and clawback provisions and overarching committee discretion to adjust formulaic outcomes if indeed there were any issues identified. So that's in essence, you know, it's like summarizing that, you know, there are processes in place if indeed, you know, this is proven to be something where we have to take a significant provision. There's a number of other questions that have come through.

31:36 Yeah, maybe Sarah, that's a couple of them you might want to address as well. Perhaps, know, on the first one, the worst, can you elaborate on the benefits expected from your ongoing investments in technology and strategic transformations, particularly in retail banking and insurance? Maybe that's something that you could cover and I'll add some extra bits too. Yeah, definitely. So I spoke at the start around our strategy and the four key areas of focus. One of those being digitizing within the consumer space. And we actually did a strategic seminar on this about this time last year, it was in October 2023. Effectively, we've got a significant customer base within the retail perspective. So 22,000,000 digitally active customers.

32:22 What we've been doing is investing significantly in technology. And what that allows us to do is target these customers a lot better from a product perspective. So using our app, you might've seen we've done a lot of kind of investment. There's been a recent rebrand. What we're now able to do is enable customers to see all of their product areas in one place. So I can log onto my app, I can see my current account. There's also a save and invest tab. There's a lending tab. There's now also an insurance tab as well. So effectively, what we're able to do is bring together all of our products and all of our propositions into one place. And that's really beneficial from a, almost from a cross selling perspective. So if I'm a customer, I can go in and it's really easy for me to have that relationship with LLOYDS, have that current account relationship with LLOYDS. But then it's also a lot of easier for me to add on additional products.

33:10 So that is definitely a benefit of the investment that we're seeing. And that links to some of the growth in other income that you're seeing as well. So the growth in other income that Douglas mentioned up 9% year on year, a lot of that is linked to strategic benefits across the business. So it's in retail, it's in consumer, it's in insurance. And what that is looking to deliver is the additional 700,000,000 of additional revenues linked to the strategy in 2024. That then actually becomes 1,500,000,000 additional revenues by 2026. And we've said that half of that roughly will be other operating income. So here, it's really kind of evidence of how we are using that investment spend. So that 3,000,000,000 that I spoke about between 2022 and 2024, and 4,000,000,000 over the five year strategic plan, and looking to deliver additional incremental revenues linked to the strategy. And a lot of that is driven directly by the investment in technology.

34:06 Yeah, absolutely. So thank you. And you know, it's, it's quite clear that if any bank is going to be successful going forward, that actually, you know, technology and having effectively an effective digital proposition is absolutely fundamental, which is why we've made the investment we have in recent years, which is why actually we believe that, you know, operating The UK's largest, you know, digital bank and, know, the strength of access that we have through our digital channels is a real advantage. That actually relates quite well to another question that came in, which was effectively about physical branches. So, question that came in is what's the future plans with regard to physical branches? Is the plan to reduce the physical estate and invest further in digital solutions?

34:55 So as I've indicated, you know, clearly the the digital proposition is fundamental going forward. We do have the largest digital bank in The UK. We do also have the largest physical footprint in The UK. We have around a thousand branches, you know, which are pretty much split or split between the different brands of LLOYDS BANK, Halifax and indeed the Bank of Scotland branches in Scotland. In essence, the number of branches, yeah, over the past few years has has declined. In essence, it's declined because the customer usage has reduced significantly. Although there are a small proportion of our customers that do solely use branches, the number using branches has reduced significantly. So we don't we don't end up having any future targets as to, you know, what our branch network will look like in you know, three, four, five years time. And it will be very much dependent on you know, exactly the usage of branches by customers and how they how they prefer to use our channels.

35:56 Certainly, if we see the same sort of channels that you've seen in in recent years, then it could well be the case, the branch numbers would be lower, but in essence, this is very much driven by by customer usage, and that's how you almost like that branch network will be decided. In essence, looking at the other questions that come on board, there was a question here about do you think there'll be any M and A in the sector? It's interesting because, know, I think there's two elements there. You know, one is with regards to M and A for LLOYDS BANKING GROUP as a whole. And secondly, there's there's from the sectoral perspective. If I look at it from a LLOYDS BANKING GROUP PERSPECTIVE, when we went out with the strategy in 2022, which Sarah's already talked about very much being a strategy that aims to deliver over both three years and five years.

36:57 It was very much an organic strategy. Our belief was that actually, you know, there are there are areas or from our perspective, we believe that we can grow the business on an an organic basis. We will look at selective acquisitions, you know, if indeed, you know, they add, you know, economies of scale to the business, if indeed, you know, they add particular capabilities that we don't already have or can introduce, you platforms or technology that we don't currently have. You know, we've made a couple of acquisitions over the last few years. We bought Tusco, which was a salary sacrifice motor finance scheme. We bought Embark, which was more of a platform from an intermediary perspective.

37:43 So we will look at acquisitions, but they tend to be small and the strategy tends to be on organic strategy. Could there be M and A across the sector? Yeah, I think, you know, there could well be M and A across the sector. I think that, you know, the nature of that m and a will will depend on, you know, price will depend on value will depend on your market and markets and competition and how it exists. I think what you'll tend to find is that some of the larger players, you know, probably have market shares in some of the key product areas that might be restrictive. But where that's not the case, you could certainly see in some of those smaller players that more M and A could indeed happen. And indeed, we've started to see a little bit of that in the sector, whether that be Virgin Money, Nationwide, Coventry, and Co op, etc. And but as Douglas said, from a from a Lloyd's banking group perspective, we've already got such significant such a significant franchise and scale, and that any focus from a from our perspective, and m and a will be very much value and you can offer anything different to what we already offer our customers.

38:52 So it's primarily likely to be a more organic focused strategy. Excellent. Another question that came up was how does the budget in particular the increase in I think that's national insurance contributions impact your cost assessments? So it's interesting, I think, know, when we look at it from a budget perspective, I think, you know, the major fear in advance of, you know, the budget was that there would be, you know, potential for, you know, bank taxes, and the like, clearly, those didn't materialize. But what you did say was that there would be an increase in national insurance contributions for employers. So that is, know, all large corporates would have some impact from that side.

39:40 In essence, the impact to our cost base from that is likely to be around 100,000,000. In essence, that's what almost like a full year run rate would would look like. In essence, I think that's actually in practice, it comes on board. I think slightly into next year. Think it may be April, April, May into next year. So, it may not be the full 100,000,000 impact next year, but generally that's the primary cost that comes from the budget itself. If you look at our cost guidance, we've got cost guidance of around 9,400,000,000 for this year, we fully anticipate to deliver against that that cost guidance of 9,400,000,000. We're the end of this year. So in February, we will tend to do our guidance for the year ahead.

40:26 So we'll look towards, you know, you know, putting that out there in in February with the full year results. So as in guidance for 2025. The other area clearly, of course, is that from 2026, we do actually have cost income guidance and our cost income guidance, if it is for cost income guidance to be less than 50%, which again, we have we have reiterated and continue to hope to deliver against, which comes from both the income benefit as well as a tight control of costs. Another question was, what's your view on interest rates over the next twelve months? In essence, our side, it looks from, you know, clearly, are significantly impacted by, you know, The UK economic environment.

41:12 You know, from our side, you know, the vast majority of our assets are in The UK. As I highlighted right at the start, we're a UK based retail and commercial bank. In essence, our original projection was that we would see two rate reductions at 25 basis points this year. Obviously, you saw that rate reduction last week, so, or the second rate reduction. So, in essence, that's been in line with our expectations of two base rates reductions for this year. Clearly, think there's one other committee later this year, but our expectation was two rate cuts for this year. We're then assuming that there will be three rate cuts in 2025 over the course of the year. If you look at some of the other economic expectations that we're expecting, we're probably expecting GDP growth strengthening slightly, but basically expected to grow what just over 1% in 2024, and then to increase slightly for from there into 2025 and 2026.

42:21 You know, likewise, we've probably got unemployment for 2024. We're currently projecting about what 4.3%. We expect that to uptick slightly for 2025 and 2026, more along the lines to about, you know, 4.7%, something like that. But still, you know, a relatively mild increase. At the same time, we're expecting house prices to increase slightly. So, I think our latest expectation for house prices is that we expect them to increase about 3% this year and slightly less in both 2025 and 2026. So, I think that pretty much provides a summary of, from the economic side, but from an interest rate perspective, I say it's three rate cuts is our expectation for next year. I would also probably add to that, that obviously we update our economic assumptions every quarter. So the economic assumptions that Douglas just outlined are our assumptions as at our Q3 results. But obviously, we update those every quarter. So you can expect us to be revising or reviewing those at least ahead of our full year results.

43:34 Yeah, and then another question that's come on board is that, you know, with the focus on helping Britain prosper, how is the bank addressing the financial challenges faced by SMEs and households in the current high interest rate environment? Yeah, it's, I mean, that's fundamental. Sarah, I'm sure will be able to add more to this as well, but you know, as I rightly said that, you know, when you look at the purpose of the organization, the purpose of the organization is helping Britain prosper. In essence, it's in the best interests of both LLOYDS BANKING GROUP and indeed the economy for the economy to grow. You know, we believe that, you know, actually, you know, a growing economy is good for the country, it's good for us as a business. Likewise, we believe that economic stability is is important and that that's, you know, understood by, you know, the regulators and indeed the politicians.

44:25 And I think there there is a general understanding that actually banks have a very important role to play in enabling growth, not just from an SME perspective, but also from a corporate perspective, and indeed from a consumer side. So from that perspective, you know, we are very much looking to, you know, continue to lend to both SMEs and indeed large corporates, you know, through the cycle. You know, our view is that, you know, that the way that LLOYDS BANK operates is this is not just lending in the good times, this is lending in the good times and the bad times. And clearly, you you have to look at it on a commercial basis. You have to look at it from, you know, what the appropriate rates are, what the appropriate risk appetite is, but our view is very much that we will continue to lend to those segments, you know, irrespective of, you know, the rate environment and where we are. I completely agree. And would also emphasize our proactive customer outreach strategy.

45:23 So if you think back kind of twelve months or so to the when the cost of living crisis was really at its peak, we had significant interaction with our customers, whether that be retail customers via the app, via branch contact, via telephone, via email, and communicated with millions of customers. And similarly from SME side with the by the relationship managers, lots of proactive outreach to them to ensure that they were okay, and that their financial needs were being met. So I'd say that you had particularly proactive customer outreach strategy from that perspective. However, what we've actually found is that generally, The UK consumer has been pretty resilient. So we found that either customers have been able to generally adapt that spending behaviors, it's similar on the SME side.

46:12 That has helped our, you know, our strong asset quality position from a from a group perspective. That's great, Douglas. Sarah, thank you very much indeed. You've taken all the questions from investors. Thank you once again to everybody for your engagement this afternoon. Douglas, Sarah, I know investor feedback will be particularly important to you both and to the rest of the team, and I'll shortly redirect those on the call to give you their thoughts and expectations. But before doing so, wonder if I may Douglas just come back to you just for a couple of closing comments and then I'll send investors for their feedback. Yes, absolutely. Thank you very much indeed, Mark. And you know, the first thing I suppose is just thank everyone on the call for actually dialing in. You know, I think these are, you know, this is an important method of making sure that we can communicate effectively to retail investors as well as institutional investors, and it's great to have your interest in the company.

47:00 And I think from a message perspective, think from my side, there's probably just the three or four things to probably, you know, just conclude on. You know, firstly, those messages that we talked about with the results that actually, you know, as a business, the strategic transformation and the investment that we're making in the business is really starting to deliver both for customers and from a return perspective. And, you know, that's really important to how successful we're going to be in the future. You can see the robust financial performance that's coming through, and saying net interest margin now increasing, net interest income now increasing, at the same time as as cost being under control and indeed, you know, being being in a very manageable position. And that's given us, you know, a nice a nice way of actually being able to, or nice position to be able to reaffirm our 2024 guidance and indeed be confident in our 2026 guidance.

47:54 We are very aware and we're very transparent on, you know, the the challenges that we face in the market, you know, particularly at the moment with regards to motor finance. We're aware that there are uncertainties there that, you know, they're currently being investigated and clearly we will look towards, you know, updating the market, you know, as and as and when we can do. But from our side, you know, irrespective of that, you know, we believe that actually the the business itself and the underlying performance is in a strong position. So, thank you very much indeed for dialing in, and look forward to receiving any comments, and look forward to, you know, undertaking these events again in the future. So, thank you very much. That's great. Douglas, Sarah, thank you very much indeed for your time once again. Can I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the company can really better understand your views and expectations?

48:49 This may take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of LLOYDS BANKING GROUP PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.