Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — FY2011 Earnings Presentation
32 slides from Lloyds Banking's earnings presentation, Feb 24, 2012
Slide 1: 2011 Results
2011 RESULTS 24 February 2012 Tim Tookey y Group Finance Director
Slide 2: Delivering: Summary
DELIVERING …… PERFORMANCE IN LINE WITH EXPECTATIONS PRUDENT MANAGEMENT OF NON-CORE BUSINESS SIGNIFICANTLY IMPROVED CAPITAL RATIOS, STRENGTHENED LIQUIDITY AND FUNDING POSITION SUMMARY 1
Slide 3: Income Statement
INCOME STATEMENT Combined businesses profit broadly in line with expectations £m GROUP CORE 2010 2011 2010 2011 Underlying income(1) 23,537 21,197 19,972 18,933 (10)% (5)% Total costs (11,078) (10,621) (9,884) (9,682) 4% 2% Impairment (13,181) (9,787) (3,612) (2,887) 26% 20% Profit before tax – 2,21
Slide 4: Resilient Underlying Profits
RESILIENT UNDERLYING PROFITS Liability management gains more than offset volatile items £m 2010 2011 % Change Profit before tax – combined businesses basis 2,212 2,685 21% Adjust to exclude effects of liability management, volatile items and asset sales Gains and losses on asset sales (453) (88) Ban
Slide 5: Business Performance
BUSINESS PERFORMANCE Statutory result principally reflecting PPI provision £m 2010 2011 % Change Profit before tax – combined businesses basis 2,212 2,685 21% Integration, simplification and EC mandated retail (1,653) (1,452) business disposal costs Volatility arising in insurance businesses 306 (83
Slide 6: Performance of Core Business
PERFORMANCE OF CORE BUSINESS Resilient performance despite challenging market conditions £m 2010 2011 % Change Net interest income 11,745 10,916 (7)% Other operating income Other 8,769 , , 8,360 ( ) (5)% Insurance claims (542) (343) 37% Effects of liability management, volatile items 51 603 and asse
Slide 7: Business Performance – Income
BUSINESS PERFORMANCE – INCOME Reductions as a result of smaller balance sheet and subdued d demand d £m (10)% (10)% 23,444 93 23,537 21,197 21,123 (1,120) (58) (566) (185) (411) (74) £665m core £665 £455m non-core 2010 0 0 Volatile o at e 2010 0 0 Custo e Customer Other Ot e Wholesale o esa e Treasu
Slide 8: Business Performance – Core Income
BUSINESS PERFORMANCE – CORE INCOME Reductions principally due to subdued demand and customer deleveraging d l i £m (2)% (5)% 20 023 20,023 19 972 19,972 612 18,933 603 19,536 (51) (665) (589) (173) (224) 2010 0 0 Volatile o at e 2010 0 0 Customer Asset sset Deposit epos t Wholesale o esa e Ot e Othe
Slide 9: Group Net Interest Margin
GROUP NET INTEREST MARGIN Reduced banking margins reflecting continued high f di funding cost 2.21% 2 07% 2.07% 1.81% UNFAVOURABLE FAVOURABLE Higher funding Improvement in costs asset rates Increasing cost of Mix of deposit vs liquid assets wholesale funding Lower return on Run off of po
Slide 10: Cost Performance
COST PERFORMANCE Continued strong cost control and delivery of operating efficiencies ffi i i £m 4% 6% 11,078 10,882 179 189 10 621 10,621 (150) (46) 116 10,253 (490) (178) (77) 2010 Impairment FSCS 2010 Incremental Simplification Operatingg Other 2011 FSCS Bank 2011 total of tangible operating syne
Slide 11: Financial Performance
FINANCIAL PERFORMANCE Improving asset quality driving over 20% impairment reductions d i in i each h division di i i RETAIL (£bn) WHOLESALE (£bn) 29% 28% 4.1 PRINCIPAL DRIVERS 2.7 2.9 0.1 2.0 Retail – decrease in the 0.2 3.5 unsecured charge 2.2 2.6 1.8 0.6 0 6 0.7 0 7 Wholesale – reduced 2010 2
Slide 12: Impairment Charge
IMPAIRMENT CHARGE Substantial further reductions WHOLESALE (£bn) W&I (£bn) Material reduction primarily in corporate real Trend continues to be dominated by Ireland estate and related portfolios Decline in valuations of Australasian property Supported by the stabilising UK and US One third
Slide 13: Impairment Charge
IMPAIRMENT CHARGE Substantial further reductions RETAIL (£bn) COMMERCIAL (£bn) Lower unsecured impairments reflect improved Lower default levels in a subdued UK economy risk management and business quality Our outlook remains cautious Secured charges reflect forward looking house price i mov
Slide 14: New to Arrears and Impairments
NEW TO ARREARS AND IMPAIRMENTS Continuing improvement in credit quality RETAIL SECURED (£bn) RETAIL UNSECURED (£bn) New to arrears New to arrears 15.2 14.8 14.5 13.2 3.4 3.1 2.6 2.2 H1/10 H2/10 H1/11 H2/11 H1/10 H2/10 H1/11 H2/11 WHOLESALE (£m) COMMERCIAL (£m) New to impaired N New tto impaired i i
Slide 15: Irish Portfolio
IRISH PORTFOLIO Coverage level increased due to economic uncertainties but portfolio f li stabilised bili d IMPAIRED / UNIMPAIRED ASSETS (%) 62% 56% U i Unimpaired i d 54% Impaired 42% Coverage ratio 40% 37% 66% 64% 53% 44% 33% 14% H1/09 H2/09 H1/10 H2/10 H1/11 H2/11 Weakness in Irish economy cont
Slide 16: Performance Summary
PERFORMANCE SUMMARY Performing in line with expectations Income reductions result from smaller balance sheet and subdued demand Margin guidance achieved despite challenging funding environment Successful liabilityy management g exercise more than offsets volatile items and asset sales Excell
Slide 17: Delivering: Summary
DELIVERING …… PERFORMANCE IN LINE WITH EXPECTATIONS PRUDENT MANAGEMENT OF NON-CORE BUSINESS SIGNIFICANTLY IMPROVED CAPITAL RATIOS, STRENGTHENED LIQUIDITY AND FUNDING POSITION SUMMARY 16
Slide 18: Non-Core Portfolio
NON-CORE PORTFOLIO Continued disciplined reductions in non-core portfolio £bn £53BN(1) NON-CORE REDUCTION IN 2011 RWA 144 109 ≤65 £4.8bn UK CRE disposals; Total assets 194 27% c. 80% of which is outside London Treasury Substantial run-off of treasury assets Assets 49 141 Commercial Cash receiv
Slide 19: Performance of Non-Core Business
PERFORMANCE OF NON-CORE BUSINESS Reductions in impairments and costs partially offset by lower i income and d lower l fair f i value l unwind i d £m 2010 2011 Movement Net interest income 2,398 1,317 (1,081) Other operating income 1,167 947 (220) Effects of liability management, volatile items (144)
Slide 20: Non-Core Capital Consumption / Release
NON-CORE CAPITAL CONSUMPTION / RELEASE £0.3bn capital release; real benefit even greater due to avoidance id off future f impairments i i H1 2011 H2 2011 FY 2011 Loss before tax(1) (£m) (1,762) (1,902) (3,664) Post tax loss ‘capital p consumed’ (£m) ( ) ((1,295) , ) ((1,398) , ) ((2,693) , ) Reduced
Slide 21: Exposures to Selected Eurozone Countries
EXPOSURES TO SELECTED EUROZONE COUNTRIES Substantial reductions achieved and minimal sovereign exposures remaini £m Direct Banks & sovereign & other Insurance central bank financial shareholder balances institutions assets ABS Corporate Retail Total Greece – – – 55 431 – 486 Italy 16 521 47 39 81 –
Slide 22: Delivering: Summary
DELIVERING …… PERFORMANCE IN LINE WITH EXPECTATIONS PRUDENT MANAGEMENT OF NON-CORE BUSINESS SIGNIFICANTLY IMPROVED CAPITAL RATIOS, STRENGTHENED LIQUIDITY AND FUNDING POSITION SUMMARY 21
Slide 23: Capital Strengthened with Asset Reduction Offsetting PPI & Trading Impact
CAPITAL STRENGTHENED WITH ASSET REDUCTION OFFSETTING PPI & TRADING IMPACT L Lower capital i l intensity i i off new business b i % 0.5% 1.3% 0.0% (0.2)% ((0.2)% ) 10.8% 10 2% 10.2% (0.6)% (0.2)% 0.4% core 0.7% combined businesses profit 0.9% non-core (0.9)% statutory and other items RWA impacts Capi
Slide 24: Capital: CRD IV
CAPITAL: CRD IV Maintaining prudent capital reserves over and above regulatory l requirements i Date of rule Estimated impact if applied change to December 2011 core tier 1 RWA increases largely from derivative valuation adjustments, c. £25-30bn RWAs c. (0.8)% January changes in definition of defaul
Slide 25: Loan to Deposit Ratio
LOAN TO DEPOSIT RATIO Further improvement driven by deposit growth and reduction i lending in l di balances b l LOANS AND ADVANCES(1) (£bn) LOAN TO DEPOSIT RATIO (%) (7)% 626 590 549 169% 154% 135% Dec Dec Dec 2009 2010 2011 CUSTOMER DEPOSITS(2) (£bn) 120% 6% 109% 371 383 406 Dec Dec Dec 2009 2010 2
Slide 26: Further Improvement in Wholesale Funding
FURTHER IMPROVEMENT IN WHOLESALE FUNDING Prudent maturity profile driven by successful issuance programme WHOLESALE FUNDING MATURITY PROFILE (£bn) WHOLESALE FUNDING £251BN (16)% > 1 year 55% 298 2 – 5 years 251 £60bn 149 50% >5 years 1 – 2 years 138 £26bn £52bn 55% £69bn 149 money £23bn market CGS 5
Slide 27: Wholesale Funding – Term Issuance
WHOLESALE FUNDING – TERM ISSUANCE £15bn of 2012 requirements already completed £bn 2012 ISSUANCE YTD £2bn pre-funded in 2011 50.0 £5bn liability management exercise i contributes t ib t ttowards d funding plans 35.3 2012 YTD term funding volume 10.6 £8b £8bn 20-25 65% – €1.25bn 5yr covered bon
Slide 28: Short-Term Wholesale Funding & Liquidity
SHORT-TERM WHOLESALE FUNDING & LIQUIDITY Liquidity significantly exceeds short-term funding and regulatory l requirements i £bn 218 202 192 143% coverage 179% 160 coverage 149 152 117 107 49 62 59 113 109 44 49 38 63 Primary 100 98 93 101 95 liquid 69 assets 52 57 35 Dec Dec Jun Dec 2008 2010 2011 2
Slide 29: Delivering: Summary
DELIVERING …… PERFORMANCE IN LINE WITH EXPECTATIONS PRUDENT MANAGEMENT OF NON-CORE BUSINESS SIGNIFICANTLY IMPROVED CAPITAL RATIOS, STRENGTHENED LIQUIDITY AND FUNDING POSITION SUMMARY 28
Slide 30: Summary
SUMMARY Resilient performance in line with expectations in a difficult economic environment Core business performance reflects subdued demand in key markets and the benefits of improved funding profile Prudent management g of the non-core business with disciplined p approach pp to non-core ass
Slide 31: 2011 Results
2011 RESULTS 24 February 2012 Tim Tookey y Group Finance Director
Slide 32: Forward Looking Statements and Basis of Presentation
FORWARD LOOKING STATEMENTS AND BASIS OF PRESENTATION 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 perfor