Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — H1 2010 Earnings Presentation
32 slides from Lloyds Banking's earnings presentation, Aug 4, 2010
Slide 1: 2010 Interim Results
2010 INTERIM RESULTS 4 August 2010 Tim Tookey Group Finance Director
Slide 2: Delivering: Earnings Momentum
DELIVERING …… EARNINGS MOMENTUM BALANCE SHEET AND CAPITAL STRENGTH A STRENGTHENED FUNDING POSITION SUMMARY
Slide 3: Delivering Earnings Momentum
DELIVERING EARNINGS MOMENTUM Strong growth in relationship businesses – Resilient revenue performance – Strong cost performance – Cost synergies on track Delivered strong first half profitability Lending portfolios performing very well – Significant decrease in Group impairment levels Strong
Slide 4: Business Performance
BUSINESS PERFORMANCE £m H1 2009 H1 2010 % Change Income(1) 11,939 12,481 9 5% Margin 1.72% 2.08% 9 Operating Expenses (5,718) (5,435) 9 (5%) Impairments (13,399) (6,554) 9 (51%) Profit before tax(2) (3,957) 1,603 9 Core Tier 1 6.3% 9.0% 9 The Group has delivered a strong performance in the first hal
Slide 5: Improving Divisional Performance
IMPROVING DIVISIONAL PERFORMANCE Return to profitability Profit before tax (£m)(1) H1 2009 H2 2009 H1 2010 Retail 360 1,022 2,495 Wholesale (3,208) (1,495) 742 Wealth and International (342) (2,014) (1,609) Insurance 397 578 469 Group Operations (1,164) (434) (494) and Central items (3,957) (2,343)
Slide 6: Revenue Trends
REVENUE TRENDS Good income growth % +8% NII + 7% OOI + 8% 12,481 11,939 192 102 227 12,058 11,194 (126)(1) 423 745 5,147 5,570 5,497 4,752 1,154 (232) (453) 6,911 6,911 6,442 6,442 09/H1 Liability U/L Banking Volume Non FV on Asset Insurance Other U/L Liability 10/H1 Mgmt 09/H1 Margin Impact Banking
Slide 7: Net Interest Margin
NET INTEREST MARGIN Strong margin performance with continued asset repricing Average Interest Earning Assets: £677bn £645bn 28bp 1bp 2.08% 15bp 4bp 1.83% (4)bp 1.72% (8)bp H1 2009 Asset Deposit Wholesale H2 2009 Asset Deposit Wholesale H1 2010 pricing spread Funding pricing spread Funding costs cost
Slide 8: Banking Net Interest Margin
BANKING NET INTEREST MARGIN Over time, Group can return to generating margins over 2.5% BASE RATE Slow and steady rises expected from Q1 2011 Rate reaches c.4% in 2014 ASSET Repricing activity continues – majority already captured PRICING Proportion of mortgages on SVR to increase from 45% t
Slide 9: Drivers of Future Income
DRIVERS OF FUTURE INCOME Balanced elements of income growth NET INTEREST INCOME OTHER OPERATING INCOME NII grows over time reflecting: Relationship banking strategy drives cross sell opportunities – Margin expected to reach over 2.5% by c.2014 Sustainable profitable growth in – AIEA falling du
Slide 10: Cost Performance
COST PERFORMANCE Continued strong cost control £m (5)% 5,718 201 5,435 140 (91) (543) H1 2009 Operating Cost Investment BAU H1 2010 Operating lease synergies Operating Expenses depreciation Expenses Continued strong cost control and delivery of investment and synergy programmes
Slide 11: Synergy Progression
SYNERGY PROGRESSION Strong delivery of synergy programmes RUN RATE £m 2,000 Performed strongly in 2010 and integration benefits on c.1,300 track to deliver the 2011 1,084 target 766 Benefits so far driven by non-IT dependent initiatives £99 million procurement savings realised in the first Dec
Slide 12: Target Cost : Income Ratio
TARGET COST : INCOME RATIO Synergy and efficiency programmes allow for investment expenditure COST : INCOME RATIO (%) 57.3 51.7(2) 45.1(2) 48.4(1) c.40% 43.5(1) 2008 2009 H1 2010 2014 Cost : income ratio to reduce to c.40% by 2014 (1) Reported C:I ratio (2) Excluding gains from liability management
Slide 13: Impairments – Ahead of Recent Guidance
IMPAIRMENTS – AHEAD OF RECENT GUIDANCE Overall charges 51% lower than last year’s peak GROUP RETAIL All divisions contributing to significant Significant reduction in secured and reduction in impairment charges unsecured impairments Asset disposals being achieved within Improving asset quali
Slide 14: Impairments – Ahead of Recent Guidance
IMPAIRMENTS – AHEAD OF RECENT GUIDANCE Overall charges 51% lower than last year’s peak WHOLESALE WEALTH & INTERNATIONAL Largest reductions are in corporate real Reduction achieved in Irish impairments estate and real estate related portfolios Peak still believed to be H2/09 Traditional busin
Slide 15: Non-Performing Loans
NON-PERFORMING LOANS Positive trends following expected patterns RETAIL WHOLESALE WEALTH & INTERNATIONAL 48.9% 48.3% Coverage 46.4% ● 44.4% Ratio %(1) 40.5% 39.4% 34.6% 33.9% ● 31.6% ● 35.1 36.8 31.7 15.6 11.4 12.7 Impaired 11.0 10.5 Loans 5.9 (£bn) H1/09 H2/09 H1/10 H1/09 H2/09 H1/10 H1/09 H2/09 H1
Slide 16: Improving Asset Quality
IMPROVING ASSET QUALITY Conservative provisions and improving asset quality GROUP ASSET QUALITY RATIO 347 bps 302 bps ● 201 bps 50-60 bps H1/09 H2/09 H1/10 c.2014(1) Target normalised AQR range of 50-60(1) bps (1) Core business, mix dependant, base economic scenario, c.2014
Slide 17: Insurance – Solid Performance
INSURANCE – SOLID PERFORMANCE FROM INCREASINGLY WELL TARGETED PARTICIPATION Capital intensity reduced Significantly improved new business profitability from lower PVNBP Strict product and channel choices underpinned by Ongoing IRRs improved to over 15% clear strategic choices EEV margin 3.4%
Slide 18: Delivering: Balance Sheet and Capital Strength
DELIVERING …… EARNINGS MOMENTUM BALANCE SHEET AND CAPITAL STRENGTH A STRENGTHENED FUNDING POSITION SUMMARY
Slide 19: Reducing Balance Sheet
REDUCING BALANCE SHEET Banking balance sheet reduction continues as planned Banking assets less cash(1) £bn 848 727 704 300 240 217 2008 2009 2010H1 Non-relationship assets subject to reduction Banking balance sheet reduction from asset disposals(2), customer repayment and impairment, partially offs
Slide 20: Good Progress on Asset Reductions
GOOD PROGRESS ON ASSET REDUCTIONS On target to achieve £200 billion asset run-off £bn 300 23 Treasury assets 100 240 217 70 61 Commercial Real Estate 47 37 35 Other Wholesale 72 100 62 56 International 45 c.20 for 38 33 each portfolio Retail(1) 36 33 32 2008 2009 2010H1 2014 Target Balance sheet red
Slide 21: Good Progress on Asset Reductions
GOOD PROGRESS ON ASSET REDUCTIONS £83 billion asset reduction since end 2008 £bn 300 83 240 217 (4) (9) (2) (5) (3) 2008 2009 Impairments Treasury Retail Wholesale International 2010H1 assets Good progress on balance sheet reduction in more difficult conditions than the second half of 2009
Slide 22: Maintaining a Strong Capital Position
MAINTAINING A STRONG CAPITAL POSITION Reducing our risk-weighted assets RWAs (£bn) 493.3 Reduction driven by asset sales 463.2 and reduction in procyclicality Further risk-weighted asset reductions expected over next few years: – Further asset reduction – Improving economic conditions December J
Slide 23: A Strong Capital Position
A STRONG CAPITAL POSITION Improving quality and quantity of capital Core Tier 1 ratio (%) 0.6% 9.0% 0.5% 8.1% (0.2)% Core tier 1 ratio including ECNs would be 10.5% Improved quality of capital base including Basel III mitigation Return to profitability accelerates deferred tax asset consumptio
Slide 24: Update on Basel III
UPDATE ON BASEL III Basel Committee’s consultative proposals February 2010 July 2010 Regulatory capital required Calibration and Expected 2010 H2 transition outstanding Raising the quality of the capital base Remove insurance capital from - Allow up to 10% of equity core tier 1 capital - Insurance c
Slide 25: Delivering: A Strengthened Funding Position
DELIVERING …… EARNINGS MOMENTUM BALANCE SHEET AND CAPITAL STRENGTH A STRENGTHENED FUNDING POSITION SUMMARY
Slide 26: Reducing Our Wholesale Funding Requirements
REDUCING OUR WHOLESALE FUNDING REQUIREMENTS Total wholesale funding declining WHOLESALE FUNDING MATURITY PROFILE WHOLESALE FUNDING £311bn £bn Less than 1 year (9)% Primary £160bn liquid asset 343 coverage(1) 326 311 151 > 1 yr 164 44% 151 50% 49% 192 162 160 < 1 yr > 5 years 1–2 years 56% 50% 51% £4
Slide 27: Reducing Our Wholesale Funding Requirements
REDUCING OUR WHOLESALE FUNDING REQUIREMENTS Maintaining broad spread of wholesale funding £bn Dec 2009 June 2010 Bank deposits(1) 49 48 Good relationship customer deposit growth (£12 billion), Certificates of deposit 51 40 partially offset by lower Medium-term notes 90 89 overnight institutional d
Slide 28: Successful Term Issuance
SUCCESSFUL TERM ISSUANCE Utilising a wide variety of funding products and sources H1 TERM ISSUANCE H1 TERM ISSUANCE TERM ISSUANCE BY PRODUCT BY CURRENCY Expected public term issuance of c.£20-25 billion per annum over next 3 years Lower Tier 2 OTHER Tier1 13% 3% 7% c.£18 billion of 2010 term GBP
Slide 29: 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 maintained at £84 billion 9 Reduced Government and central bank support by £25 billion 9 Comple
Slide 30: Delivering: Summary
DELIVERING …… EARNINGS MOMENTUM BALANCE SHEET AND CAPITAL STRENGTH A STRENGTHENED FUNDING POSITION SUMMARY
Slide 31: Summary Slide
SUMMARY SLIDE Delivering on our promises Income up, costs down, impairments significantly reduced 9 Realising earnings potential of core business 9 Non-relationship assets being run down for value over time – reducing capital intensity of, and volatility in, the balance sheet 9 Funding and l
Slide 32: 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