Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — FY2010 Earnings Presentation
33 slides from Lloyds Banking's earnings presentation, Feb 25, 2011
Slide 1: 2010 Results
2010 RESULTS 25 February 2011 Tim Tookey Group Finance Director
Slide 2: Delivering: business momentum, balance sheet, funding, summary
DELIVERING …… BUSINESS MOMENTUM BALANCE SHEET AND CAPITAL STRENGTH A STRENGTHENED FUNDING POSITION SUMMARY 1
Slide 3: Business Performance: Income statement
BUSINESS PERFORMANCE Income statement HEADLINE UNDERLYING £m 2009 2010 % CHANGE % CHANGE Income(1) 23,964 23,444 (2)% 3%(2) Core +7% Non-core (9)% Costs (11,609) (11,078) 5% 6%(3) Impairments (23,988) (13,181) 45% 45% Profit before tax(4) (6,300) 2,212 Margin 1.77% 2.10% Integration savings run-rate
Slide 4: Return to Profitability
RETURN TO PROFITABILITY Business performance and statutory profit PROFIT BEFORE TAX (£m)(1) 2009 H1 2010 H2 2010 2010 Divisional performance (7,371) 988 1,421 2,409 Liability management gains 1,498 423 - 423 Fair value movement of ECN (427) 192 (812) (620) conversion feature Profit/(loss) before tax
Slide 5: Revenue Trends
REVENUE TRENDS Good underlying income growth £m +3% 23,964 423 23,641 23,444 22,893 (348) (620) (1,498) 427 11,238 9, 819 9, 622 10,167 1,096 13,822 12,726 12,726 13,822 2009 Liability MTM on Underlying NII OOI Underlying Liability MTM on 2010 Mgmt ECNs(1) 2009 2010 Mgmt ECNs(1) Net Interest Income
Slide 6: Net Interest Income Drivers
NET INTEREST INCOME DRIVERS Good performance driven by increased asset pricing IMPACT ON NII £bn VOLUME Non-core lending continues to fall Assets Customer deleveraging continues (0.4) Growth in relationship deposits Liabilities Competitive pressures remain 0.1 PRICING Increase driven b
Slide 7: Net Interest Income Drivers
NET INTEREST INCOME DRIVERS Good performance despite increasing funding costs IMPACT ON NII £bn VOLUME (0.3) PRICING 1.5 FUNDING VOLUME Fall in funding Significant reduction in customer funding gap 0.6 requirement Term issuance 2010 issuance requirements exceeded (0.2) plan FUNDING RATE Hi
Slide 8: Other Operating Income
OTHER OPERATING INCOME Underlying income fell 3%(1) (£m) (3)% 10,167 (70) (100) 9,819 (61) (117) Underlying Impact of PPI Overdraft Asset Other Underlying 2009 new charges sales 2010 business closure (1) Underlying income excludes liability management gains and the fair value movement of the ECN con
Slide 9: Economic Assumptions
ECONOMIC ASSUMPTIONS Expect slow recovery, in line with consensus GDP BASE RATE (% growth) 2.6 2.4 3.0 2.1 2.1 1.9 1.9 2.5 % quarter average Market implied rate 2.0 1.4 1.5 1.0 Group assumption 0.5 0.0 2010 2011 2012 2011 2012 Group Consensus from HMT OBR data Base survey of Independent Scenario for
Slide 10: Drivers of Future Margin
DRIVERS OF FUTURE MARGIN Limited core income growth in 2011 given by flat Net Interest Margin 2011 Continued subdued lending markets Further reduction in non-core assets VOLUME Opportunity for growth in core business Growth in customer deposits 2.08% 2.12% 2.10% Asset re-pricing offset by
Slide 11: Drivers of Future Margin
DRIVERS OF FUTURE MARGIN BANK BASE RATE, WHOLESALE ISSUANCE COSTS & MARGIN OUTLOOK 2010 2014 Higher absolute issuance costs 3.21% WHOLESALE ISSUANCE COSTS(1) but at lower spreads over time Lloyds Banking Group forecast 0.50% BANK BASE RATE 3.75% 1.56% ASSET MARGIN Limited further improvement
Slide 12: Cost Performance
COST PERFORMANCE Continued strong cost control £m (6)% 11,609 393 10,928(1) (247) (827) 2009 Operating Cost Investment/ 2010 Operating lease synergies Other Operating expenses depreciation expenses Continued strong cost control and delivery of synergy programmes (1) Excluding impairment of fixed ass
Slide 13: Synergy Progression
SYNERGY PROGRESSION Strong delivery of synergy programmes RUN RATE STRONG PERFORMANCE IN 2010 £m 79 non-branch properties exited 2,000 (162 since start of programme) £236 million procurement benefits 1,379 Integrated IT infrastructure build largely complete Improved processes implemented 766
Slide 14: Reductions in Underlying Cost:Income Ratio
REDUCTIONS IN UNDERLYING COST : INCOME RATIO UNDERLYING COST : INCOME RATIO(1) 50.7% 46.2% c.40% Excl. Bank Levy 2009 2010 2014 Costs broadly flat in 2011 (1) Excluding liability management gains, fair value movement of the ECN conversion feature and impairment of fixed assets 13
Slide 15: Group Impairment Charge
GROUP IMPAIRMENT CHARGE Significant reduction, primarily driven by Wholesale £bn £10.8 billion (45%) reduction in Group impairment charge £1.5 billion (35%) reduction in Retail 24.0 (45)% impairment charge 13.4 £11.2 billion (72%) reduction in Wholesale 12.4 impairment charge 10.6 – primarily
Slide 16: Irish Portfolio
IRISH PORTFOLIO Coverage level increased due to economic uncertainties IMPAIRED/UNIMPAIRED ASSETS Market sentiment adversely impacted by downturn and EU-IMF bail out 54% Consequently asset prices expected to be depressed for 42% longer 40% 37% Coverage ratio increased to 54% 53% (from 42% at H
Slide 17: Retail – Good Performance
RETAIL – GOOD PERFORMANCE Good performance driven by income growth and lower impairment PROFIT BEFORE TAX (£bn) Profit before tax increased to 0.7 4.7 £4.7 billion, driven by good income growth, tight cost control Income and a significantly lower Core +£1.0 billion 1.0 impairment charge Non-core +
Slide 18: Wholesale – Impairment Significantly Lower
WHOLESALE – IMPAIRMENT SIGNIFICANTLY LOWER Return to profitability driven by reduction in impairment PROFIT BEFORE TAX (£bn) 0.6 Profit before tax increased to £3.3 billion principally driven by Income (3.7) significant reduction in Core +£0.2 billion impairment charge Non-core -£0.5 billion Imp
Slide 19: Insurance – Solid Performance
INSURANCE – SOLID PERFORMANCE Capital intensity reduced SALES – PVNBP (20)% SALES DOWN EEV Margin 3.5% WHILST 2.5% INCREASED MARGINS UP PROFITABILITY 2009 2010 IFRS +13% (140)bps £1,102m 3.3% £975m NEW BUSINESS 1.9% CAPITAL IMPROVED(1) 2009 2010 (400)bps 2009 2010 83% 79% GI COMBINED RATIO IMPROVED
Slide 20: Delivering: business momentum, balance sheet, funding, summary
DELIVERING …… BUSINESS MOMENTUM BALANCE SHEET AND CAPITAL STRENGTH A STRENGTHENED FUNDING POSITION SUMMARY 19
Slide 21: Good Progress on Asset Reductions
GOOD PROGRESS ON ASSET REDUCTIONS £105 billion asset reduction since end 2008 £bn 300 £105bn 236(1) (9) 195 (20) (3) (8) (1) 2008 2009 Impairments Treasury Retail Wholesale International 2010 assets Over 50% of £200bn targeted reduction achieved in two years with minimal losses to date on disposal o
Slide 22: Indicative Profile of Core / Non-Core Business
INDICATIVE PROFILE OF CORE / NON-CORE BUSINESS Non-core reductions continue to be important CORE NON-CORE Income (underlying) % 82 18 Impairment % 31 69 RWAs % 65 35 Total assets £bn 797 195 Non-core assets are more capital intensive and generate a disproportionate level of impairment 21
Slide 23: Balance Sheet De-risking
BALANCE SHEET DE-RISKING Reducing the capital intensity of our business RISK-WEIGHTED ASSETS (£bn) 493.3 Overall RWA reduction driven by: 406.4 – Asset reductions Non-core 188.7 – Reclassification of certain assets to Foundation IRB (£23bn impact) 141.0 Further risk-weighted asset reductions exp
Slide 24: A Strong Capital Position
A STRONG CAPITAL POSITION Improving quality and quantity of capital CORE TIER 1 RATIO (%) 1.7% 10.2% (0.1)% 0.5% Core tier 1 ratio including ECNs 8.1% would be 12.1% Tier 1 ratio: 11.6% Total capital ratio: 15.2% Improved quality of capital base including Basel III mitigation Return to pro
Slide 25: Impact of Basel Changes
IMPACT OF BASEL CHANGES Impact of Basel 2.5/3 changes on pro-forma Core tier 1 ratio(1) 2.0% 14.7% 3.7% (1.2)% Impact of insurance deduction on CT1 in B2.5 20% 2014 is c.0.3% B3 80% 10.2% Dec 2010 Consensus Increase in RWA’s Illustrative Dec 2013 CT1 ratio retained earnings from Basel 2.5/3 £60bn RW
Slide 26: Delivering: business momentum, balance sheet, funding, summary
DELIVERING …… BUSINESS MOMENTUM BALANCE SHEET AND CAPITAL STRENGTH A STRENGTHENED FUNDING POSITION SUMMARY 25
Slide 27: Further Reductions in Our Wholesale Funding
FURTHER REDUCTIONS IN OUR WHOLESALE FUNDING …and maturity profile maintained WHOLESALE FUNDING MATURITY PROFILE WHOLESALE FUNDING £298BN £bn 50% (13)% 343 2–5 years 326 £52bn 298 1–2 years > 5 years £47bn £50bn 151 > 1 yr 44% 164 50% 149 50% 22% reduction in < 1 year 192 < 1 yr 162 56% 149 50% 50% P
Slide 28: Further Reductions in Government & Central Bank Funding
FURTHER REDUCTIONS IN GOVERNMENT & CENTRAL BANK FUNDING Accelerated pay-down ahead of contractual maturities REDUCING GOVERNMENT & CENTRAL BANK FUNDING £bn (39)% 157.2 £61 billion reduction in government and central bank funding Other(1) 96.6 Further £13 billion repayment of 107.2 government and
Slide 29: Further Reductions in Our Loan to Deposit Ratio
FURTHER REDUCTIONS IN OUR LOAN TO DEPOSIT RATIO Loan to deposit ratio now at 154% - Core book ratio is 119% REPORTED RATIO CORE BUSINESS RATIO (1500)bps 169% (900)bps 154% 128% 119% 2009 2010 2009 2010 Loan to deposit ratio continues to improve due to: – Excellent relationship deposit growth – Con
Slide 30: Funding Summary
FUNDING SUMMARY Executing a broad funding strategy Reduced absolute level of wholesale funding 9 Reducing reliance on short-term funding 9 Good deposit growth 9 Substantial liquid asset buffer (£98 billion) provides 2011 flexibility 9 Reduced government and central bank funding by £61 bill
Slide 31: Delivering: business momentum, balance sheet, funding, summary
DELIVERING …… BUSINESS MOMENTUM BALANCE SHEET AND CAPITAL STRENGTH A STRENGTHENED FUNDING POSITION SUMMARY 30
Slide 32: A Profitable, Strengthened Business
A PROFITABLE, STRENGTHENED BUSINESS Good progress towards our medium term targets Strong progress in balance sheet reduction 9 Further reduction in risk in the business 9 Funding and liquidity position much improved 9 Stronger capital ratios 9 Substantial reduction in Group impairments 9
Slide 33: 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