Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — Investor Day (June 2011)
64 slides from Lloyds Banking's investor day presentation, Jun 30, 2011
Slide 1: Strategic Review: Presentation to Analysts & Investors
STRATEGIC REVIEW Presentation to Analysts & Investors 30 June 2011 London
Slide 2: Strategy & Guidance
STRATEGIC REVIEW Strategy & Guidance 30 June 2011 António Horta-Osório Group Chief Executive
Slide 3: Agenda
AGENDA Opening Sir Win Bischoff Strategy & Guidance António Horta-Osório Simplification Mark Fisher Finance Tim Tookey Q&A 2
Slide 4: Iconic brands with rich history and immense potential
ICONIC BRANDS WITH RICH HISTORY AND IMMENSE POTENTIAL TO DELIVER FOR BOTH CUSTOMERS AND SHAREHOLDERS 3
Slide 5: Agenda: First Days
AGENDA First 100 Days Strategy Action Plan Guidance 4
Slide 6: First Days: Rapid, focused actions taken since March
FIRST 100 DAYS Rapid, focused actions taken since March Strengthened executive leadership team New, more agile organisation in place Accelerated pay down of government and central bank funding Disciplined sale of non-core assets Accelerating EU/HMT-mandated branch sale programme Renewed
Slide 7: Old federal management structure duplicated resources
OLD ‘FEDERAL’ MANAGEMENT STRUCTURE DUPLICATED RESOURCES WITH TOO MANY LAYERS CEO GROUP RETAIL WEALTH & GROUP WHOLESALE INSURANCE OPERATIONS GROUP HR GROUP RISK BANKING INTERNATIONAL FINANCE /IT Lloyds/ Commercial International L, P & I Risk Risk Risk Finance Bank of Scotland Corporate UK Wealth GI F
Slide 8: First Days: A new, more agile organisation in place
FIRST 100 DAYS A new, more agile organisation in place – creating a high performance culture CEO Retail Banking LLOYDS TSB & BANK OF HALIFAX PRODUCTS WEALTH SCOTLAND COMMUNITY AND & COMMERCIAL WHOLESALE INSURANCE COMMUNITY BANK MARKETING INTERNATIONAL BANK Operations and IT Finance Risk Management O
Slide 9: Agenda: Strategy
AGENDA First 100 Days Strategy Action Plan Guidance 8
Slide 10: Key trends shaping strategic context
STRATEGY Key trends shaping strategic context Want simplicity and transparency INCREASING Demand a quality, multi-channel customer service experience 1 CUSTOMER EXPECTATIONS Growing demand for advice to plan/save for retirement Increasingly demand better value for their money Stringent UK
Slide 11: Unique assets but important challenges
STRATEGY Today, the Group has unique assets but faces some important challenges UNIQUE ASSETS KEY CHALLENGES Valuable customer franchise and State Aid and associated sales market position Addressing funding structure Well-recognised and respected brands in all markets Limited investment fo
Slide 12: Strategy fits distinctive assets: the best bank for customers
STRATEGY The Group’s strategy fits with our distinctive assets and capabilities THE BEST BANK FOR CUSTOMERS Create shareholder value by simplifying the way we work and investing where we can make a real difference STRONG BROAD STRONG CUSTOMER CUSTOMER MULTI- INTEGRATED ICONIC FOCUSED RELATION- CHANN
Slide 13: This strategy will deliver shareholder value
STRATEGY This strategy will deliver shareholder value THE BEST BANK FOR SHAREHOLDERS Reinstate dividend after regulatory capital requirements are defined and prudently met, and return to full private ownership CUSTOMER- CAPITAL POSITIVE PRUDENT STRONG DISCIPLINED DRIVEN, ALLOCATED OPERATING RISK STA
Slide 14: Agenda: Action Plan
AGENDA First 100 Days Strategy Action Plan Guidance 13
Slide 15: Action plan to ensure strong, stable returns
OUR ACTION PLAN WILL ENSURE STRONG, STABLE RETURNS FOR OUR SHAREHOLDERS OVER THE NEXT 3 YEARS AND BEYOND RESHAPE our business portfolio to fit Sustainable, predictable RoE, our assets, capabilities in excess of our CoE and risk appetite SIMPLIFY the Group Significant to improve agility, service, cos
Slide 16: Reshape our portfolio: focus on attractive UK segments
RESHAPE OUR PORTFOLIO We will focus investments on attractive UK customer segments and the products they need DECISION CRITERIA ACTIONS Strong, above-hurdle returns SME lending Attractive growth prospects CA and Savings Liquidity/capital efficient Transaction banking CORE Sustainable c
Slide 17: Disciplined approach to manage and reduce non-core assets
RESHAPE OUR PORTFOLIO Disciplined approach to manage and reduce non-core assets Adequate coverage ratios for all non-performing assets Organisational model: – Dedicated workout unit under Risk for non-performing CRE and corporate loans – Other non-strategic activities managed in a dedicated way
Slide 18: Reshape our portfolio: best bank for personal customers
RESHAPE OUR PORTFOLIO We will invest to be the best bank for personal customers A leading challenger brand on the High Street Recognised by industry and media as a value for money leader HALIFAX (e.g. ‘Moneyfacts’ Best ISA and Best Current Account Provider 2011) RETAIL BANKING Game-changing pr
Slide 19: Reshape our portfolio: partner for business customers
RESHAPE OUR PORTFOLIO We will invest to be the best through-the-cycle partner for business customers A leader in fuelling UK economic recovery and integral to our customers’ communities Best through-the-cycle banking partner to UK SMEs COMMERCIAL BANKING New relationship and service model, bet
Slide 20: Bancassurance is a core part of our strategy
RESHAPE OUR PORTFOLIO Bancassurance is a core part of our strategy and a solid financial contributor to the Group Scottish Widows – the UK’s most trusted and preferred brand Top 3 provider in Life, Pensions & Investments with 10% market share 43% of new business with existing bank customers LI
Slide 21: Simplify the Group: reduce costs by £1.5bn annually
SIMPLIFY THE GROUP Post-integration, simplify the Group to improve service and reduce costs by £1.5bn annually TARGET OUTCOMES ACTIONS £1.5bn in annual cost savings Implement workflow, automate, OPERATIONS & in 2014 (on top of integration improve IT landscape, establish synergies) PROCESSES 9 ce
Slide 22: Invest in our core business: reinvest £500m annually
INVEST IN OUR CORE BUSINESS Reinvest £500m annually to improve our customer proposition and grow core income TARGET OUTCOMES ACTIONS OUR CUSTOMERS WILL VALUE Simple retail product portfolio Reinvest 1/3 of savings from PRODUCTS THAT New transaction banking, financing Simplification CUSTOMERS a
Slide 23: Case study: Halifax market challenger
INVEST IN OUR CORE BUSINESS Case study: Halifax will be a market challenger for today’s high street New challenger products, including radical new Savings offer, to drive increasing volume and profit All branches open on Saturday Active on-line customers grow from 3.1 - 5.4m to drive lower cos
Slide 24: Case study: UK's leading retail bancassurance provider
INVEST IN OUR CORE BUSINESS Case study: The UK’s leading Retail Bancassurance provider +50% Growing need for advice to plan/save for CUSTOMERS retirement/future Specialised advisor teams better able to 2010 2014 help customers meet their protection and investment needs Ability to quickly devel
Slide 25: Case study: through-the-cycle partner to UK SMEs
INVEST IN OUR CORE BUSINESS Case study: Leading through-the-cycle partner to UK SMEs Balance sheet- driven banking – Loans Our highly rated RM’s will have OPPORTUNITY – Current A/C 100% more time with – Payments customers – Cards SUCCESSION – Factoring Time-to-cash for loans reduced by over 50%
Slide 26: Case study: developing wholesale markets business
INVEST IN OUR CORE BUSINESS Case study: Developing our wholesale markets business to capitalise on our corporate lending relationships CUSTOMER-DRIVEN REVENUE BY PRODUCT REVENUE BY SEGMENT Enhanced 'capital-light' offerings – Structured Financial Credit Institutions Debt financing, Fixed Income an
Slide 27: Case study: propositions for affluent, HNW and mass affluent
INVEST IN OUR CORE BUSINESS Case study: New propositions will help affluent, HNW and mass affluent customers meet their financial goals CURRENTLY LOW GROW CUSTOMERS WALLET SHARE AMONGST IN PROPOSITION AND KEY SEGMENTS WALLET SHARE Segment share of customers Number of in-proposition customers Reali
Slide 28: Agenda: Guidance
AGENDA First 100 Days Strategy Action Plan Guidance 27
Slide 29: Group Financial Targets, 2014 (1 of 2)
GUIDANCE Group Financial Targets, 2014 (1 of 2) Additional discretionary investment £500m pa by 2014 to grow our core customer franchise CUSTOMER- DRIVEN Core income growth > nominal GDP Growth DIVERSIFIED OOI as % of total income(1) c50% of Group income INCOME 2.15 - 2.30%; core business higher tha
Slide 30: Group Financial Targets, 2014 (2 of 2)
GUIDANCE Group Financial Targets, 2014 (2 of 2) 50 - 60bps PRUDENT RISK Average AQR Core business AQR expected to be at the APPETITE bottom end of this range Loan-to-deposit ratio ≤130% Group, ≤ 120% Core STRONG STABLE FUNDING LCR & NSFR Requirements met ahead of regulatory implementation dates Stat
Slide 31: Delivering a strategy that is best for shareholders
GUIDANCE Delivering a strategy that is best for shareholders Enhanced and resilient earnings Strong EPS progression will support share price growth 9 Simplifying the business will lower costs 9 Lower costs will create capacity for strategic investment 9 Focus on less capital intensive activi
Slide 32: Strategy & Guidance
STRATEGIC REVIEW Strategy & Guidance 30 June 2011 António Horta-Osório Group Chief Executive
Slide 33: Integration & Simplification
STRATEGIC REVIEW Integration & Simplification 30 June 2011 Mark Fisher Director, Group Operations
Slide 34: Moving from integration to transformation
MOVING FROM INTEGRATION TO TRANSFORMATION RUN-RATE SYNERGY BENEFITS (£bn) 2.0 Integration Programme will complete within the 1.6 original three year target 1.4 Run rate benefits of £2bn well on track 1.1 Integration was not transformation 0.8 – Moved the Group to a single platform – Single pla
Slide 35: Simplification is at the heart of becoming the best bank
SIMPLIFICATION IS AT THE HEART OF BECOMING THE BEST BANK FOR CUSTOMERS AND A HIGH PERFORMING ORGANISATION SIMPLIFYING OUR BUSINESS Improve customer service Become more efficient Capture scale benefits Ensure transparency Save to invest Empower managers and colleagues A permanent featur
Slide 36: Great strides made, but significant potential remains
WE HAVE MADE GREAT STRIDES ALREADY – BUT SIGNIFICANT POTENTIAL REMAINS CURRENT LLOYDS BANKING BEST IN CLASS GROUP POSITION <5% rework in >20% rework in some END-TO-END operational processes operational processes EXAMPLE PROCESSES <7 days commercial 4 - 10 weeks commercial INTEGRATION loan ‘t
Slide 37: Simplification will deliver £1.5bn savings in 2014
SIMPLIFICATION WILL DELIVER £1.5BN SAVINGS IN 2014 AND A 2014 EXIT RUN RATE OF £1.7BN PER ANNUM EXIT-RATE NUMBER SAVINGS £BN OF 4 KEY WORKSTREAMS BY 2014 INITIATIVES Operations and Processes 0.6 25 Implement workflow, automate, improve IT landscape, establish centres of excellence Invest significa
Slide 38: Operations and processes: benefits to colleagues and customers
OPERATIONS AND PROCESSES: Simplification will deliver significant benefits to our colleagues and customers BENEFITS WHAT WILL THE CUSTOMER Accelerated fulfilment of requests PROGRAMME DELIVER? IMPACT Reduced errors and complaints Simplify end-to-end processes – Automation Eliminated highly m
Slide 39: Operations and processes: structured approach across 200 groups
OPERATIONS AND PROCESSES: Structured approach across over 200 groups of services EXAMPLES Reduced end-to-end time by c30% Forms validated/submitted WHAT WILL THE electronically, reducing input errors by PROGRAMME DELIVER? ACCOUNT c60% SWITCHING Automation leading to c70% reduction in manual re
Slide 40: Sourcing: further potential for simplification
SOURCING: Further real potential for simplification building on integration APPROACH OUTCOME Demand management - 1,000 suppliers with simpler specifications SIMPLER SUPPLY CURRENT ~94% spend CHAINS Relationship POSITION 17,000 suppliers with restructure - deeper ~6% spend and closer working
Slide 41: Organisation: simplify organisation and governance
ORGANISATION: Simplify organisation and governance structures REDUCE MANAGEMENT SPANS AND LAYERS From: To: 8 LAYERS X 7 LAYERS X SPAN OF 8 SPAN OF 10 Focus on middle management reduction Stronger, more effective functions CONSOLIDATE AND RATIONALISE INTERNATIONAL BUSINESSES 40
Slide 42: Distribution and channels: improved customer experience
DISTRIBUTION AND CHANNELS: Actively manage distribution and channels, deliver an improved customer experience BUILD ON STRENGTHS AND CONTINUE TO INNOVATE Increased and enhanced functionality – Internet – Mobile – Telephony Active management of channel usage Increase internet banking usage to 1
Slide 43: Experienced team and capabilities to deliver simplification
EXPERIENCED TEAM AND STRONG CAPABILITIES IN PLACE TO DELIVER SIMPLIFICATION DELIVERY Strong control and co-ordination – as with integration CONTROL Rigorous planning and milestone tracking Accountable Executives already in place, high-level plans ACCOUNTABILITY developed for key initiatives, a
Slide 44: Integration & Simplification
STRATEGIC REVIEW Integration & Simplification 30 June 2011 Mark Fisher Director, Group Operations
Slide 45: Finance
STRATEGIC REVIEW Finance 30 June 2011 Tim Tookey Group Finance Director
Slide 46: 2011 Guidance – broadly unchanged
2011 GUIDANCE – BROADLY UNCHANGED Previous guidance Additional comments Net interest 2.07% in Q1 2011 with some Expect NIM to be just above margin headwinds for the year 2% in 2011 Broadly unchanged but non- Trends reflect customer core reductions will further Income deleveraging and subdued
Slide 47: The Best Bank for Customers
THE BEST BANK FOR CUSTOMERS 46
Slide 48: Economic backdrop and key assumptions
ECONOMIC BACKDROP AND KEY ASSUMPTIONS A cautious outlook for the UK economy NORMALISING REAL GROWTH RISING BASE RATES REAL GDP GROWTH (%) BANK OF ENGLAND BASE RATE (%) 4 7.0 6.0 2 5.0 0 4.0 -2 3.0 2.0 -4 1.0 -6 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2005 2006 2007 2008 2009 2010 2011
Slide 49: Performance drivers – earnings
PERFORMANCE DRIVERS – EARNINGS Focus on relationship driven earnings 48
Slide 50: Performance drivers – income
PERFORMANCE DRIVERS – INCOME Delivering sustainable, less capital intensive earnings 2010 FOCUS AND DRIVERS 2014 Bancassurance DCM / Corporate cross sales OOI 41% Affluent and wealthy customers c50% OOI UK SMEs VERDE AND NON CORE DISPOSALS Lower risk, less capital intensive balance sheet N
Slide 51: Performance drivers – net interest margin
PERFORMANCE DRIVERS – NET INTEREST MARGIN Trends continue to be dominated by external factors INTERNAL EXTERNAL (‘Inside’ Management Control) (‘Outside’ Management Control) Pricing of new business and repricing of Base rate lower for longer existing book Wholesale funding costs remain higher
Slide 52: Performance drivers – costs
PERFORMANCE DRIVERS – COSTS Driving efficiency through simplification whilst increasing investment Integration on track to 0.4 complete with £2bn pa of £11.1bn savings by end of 2011 0.5 0.6 c£10bn (0.6) Simplification programme to (1.5) (0.5) achieve £1.5bn of savings before £0.5bn re-investmen
Slide 53: Performance drivers – impairment
PERFORMANCE DRIVERS – IMPAIRMENT Continued reduction in impairment charge GROUP ASSET QUALITY RATIO All portfolios reviewed and confirmed as adequately provisioned Previous guidance for 2011 remains valid: – Retail – modest reduction 325bps – Wholesale – modest reduction – International – initia
Slide 54: Non core portfolio excluding Verde
NON CORE PORTFOLIO – EXCLUDING VERDE Continued disciplined reductions in non core portfolio Income(1) £4.3bn £3.8bn £0.5bn Portfolio changes as a result Impairment £9.1bn £9.2bn £1.9bn of the strategic review include: RWAs £141bn £142bn £129bn ≤£65bn – Lex Autolease and social housing now core – S
Slide 55: Non core portfolio – Verde profile
NON CORE PORTFOLIO – VERDE PROFILE The Verde disposal continues to progress at pace FINANCIALS: INDICATIVE IMPACT OF VERDE DISPOSAL (2011 illustration) on Lloyds Banking Group financials Verde disposal process based on EU term sheet agreement accelerated The business is the seventh Income c£1.2b
Slide 56: Significant scope for prudent core business growth
THE BEST BANK FOR CUSTOMERS Delivers significant scope for prudent core business growth SOURCES APPLICATIONS RESULT Non core asset run off Significant net new core Prudent funding profile and disposals business growth Less capital intensive capacity Verde disposals earnings Increasing li
Slide 57: Funding: annual wholesale issuance requirement continues to fall
FUNDING Annual wholesale issuance requirement continues to fall £50bn Previous guidance of £20 - 25bn public pa over the next few years £20bn Future public term issuance £30-35bn requirements now reduced to Forecast c£15 - 20bn pa for 2012 - 2014 c5-10bn c£25bn pa Strength of funding facilitat
Slide 58: Liquidity: exceeding regulatory requirements
LIQUIDITY Exceeding regulatory liquidity requirements >100% 71% LIQUIDITY COVERAGE RATIO Increasing regulatory liquidity requirements 2010 2014 Meeting LCR and NSFR by 2014 (in advance of >100% regulatory requirements) 88% NET STABLE FUNDING RATIO 2010 2014 57
Slide 59: Capital: Basel 2.5 / 3.0 impact
CAPITAL: BASEL 2.5 / 3.0 IMPACT Maintaining modest but prudent capital reserves over regulatory requirements IMPLEMENTATION Basel 2.5 RWA increase primarily from Market Risk in the December 2011 -0.2% c£10bn trading book Basel 3 RWA increase largely from credit valuation January 2013 -0.6% c£30bn ad
Slide 60: Group Financial Targets, 2014
GUIDANCE Group Financial Targets, 2014 Additional discretionary investment £500m pa by 2014 CUSTOMER- to grow our core customer franchise DRIVEN Core income growth > nominal GDP growth DIVERSIFIED OOI as % of total income(1) c50% of Group income INCOME Net interest margin 2.15 – 2.30%; core
Slide 61: Delivering strong, stable returns for shareholders
THE BEST BANK FOR CUSTOMERS Delivering strong, stable returns for shareholders Smaller balance sheet, robust capital structure and stronger funding platform Sustainable returns on Reduced capital intensity equity of 12.5 – 14.5% by 2014 with positive Slimmer, more agile and efficient operati
Slide 62: Forward Looking Statements
FORWARD LOOKING STATEMENTS This announcement contains forward looking statements with respect to the business, strategy and plans of the Lloyds Banking Group, its current goals and expectations relating to its future financial condition and performance. Statements that are not historical facts, incl
Slide 63: Finance
STRATEGIC REVIEW Finance 30 June 2011 Tim Tookey Group Finance Director
Slide 64: Q&A
LLOYDS BANKING GROUP ee STRATEGIC REVIEW Q&A