Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — HBOS — H1 2008 Earnings Presentation
44 slides from Lloyds Banking's earnings presentation, July 2008
Slide 1: Interim Results July 2008
Interim Results July 2008 Andy Hornby
Slide 2: Business model reshaped
Business model reshaped y A stronger capital base y Repricing assets to improve margins y Improving the deposit to loan ratio y Growth in Insurance & Investment y Re-focusing Treasury y Tight cost management
Slide 3: Interim Results July 2008
Interim Results July 2008 Mike Ellis
Slide 4: Key Financials
Key Financials % H1 2008 H1 2007 Growth Underlying profit before tax excl. NFVA (£m) 2,546 2,962 (14) Underlying profit before tax (£m) 1,451 2,962 (51) Underlying earnings per share* excl. NFVA (p) 47.4 54.6 (13) Underlying earnings per share* (p) 26.4 54.6 (52) Dividends per share (p) 6.1 16.6 (63
Slide 5: Key Financial Ratios
Key Financial Ratios H1 2008 H1 2007 Cost:income ratio excl. NFVA (%) 41.2 39.9 Cost:income ratio (%) 49.6 39.9 Group return on equity excl. NFVA (%) 16.6 21.0 Group return on equity (%) 10.3 21.0 Proforma Basel II Capital Ratios Core Tier 1 (%) 6.5 Tier 1 (%) 8.6 Total (%) 12.2
Slide 6: Group Income Statement
Group Income Statement H1 2008 H1 2007 % £m £m Growth Underlying net interest income 3,861 3,626 6 Underlying non-interest income* 2,606 2,801 (7) Underlying operating income* 6,467 6,427 1 Underlying operating expenses (2,667) (2,563) 4 Operating profit before provisions* 3,800 3,864 (2) Impairment
Slide 7: Retail – Income Statement
Retail – Income Statement H1 2008 H1 2007 % £m £m Growth Underlying net interest income 2,064 2,087 (1) Underlying non-interest income 650 630 3 Underlying operating income 2,714 2,717 - Underlying operating expenses (1,056) (1,053) - Operating profit before provisions 1,658 1,664 - Impairment losse
Slide 8: Retail Impairment Provisions
Retail Impairment Provisions Impaired Impairment Coverage loans/closing provisions advances % £m % Secured 2.16 490 10 Unsecured 12.28 1,820 82 30 June 2008 Total 2.88 2,310 31 Secured 1.80 330 8 Unsecured 13.04 1,919 83 31 December 2007 Total 2.59 2,249 34
Slide 9: Mortgage Arrears
Mortgage Arrears Total Mortgage Cases (%) Total Mortgage Balances (%) 30.6.2008 31.12.2007 30.6.2008 31.12.2007 Mainstream 1.23 1.16 1.44 1.33 Specialist 2.49 1.97 3.27 2.59 Total 1.46 1.30 1.95 1.67
Slide 10: Retail Outlook
Retail Outlook y Selective and modest asset growth y Growing banking and savings y Stable and potentially improving margins y Tight cost control and service excellence y Prepared for the housing downturn y Resilient pre-provisioning profitability
Slide 11: Corporate – Income Statement
Corporate – Income Statement H1 2008 H1 2007 % £m £m Growth Underlying net interest income 1,140 992 15 Underlying non-interest income 486 922 (47) Underlying operating income 1,626 1,914 (15) Underlying operating expenses (404) (436) (7) Operating profit before provisions 1,222 1,478 (17) Impairmen
Slide 12: Corporate Advances
Corporate Advances £117.8bn at 30 June 2008 Property investment 20% Property development 7% Housing association 60% 3% Housebuilders 3% 7% Other property
Slide 13: Corporate Investment Portfolio
Corporate Investment Portfolio £4.9bn at 30 June 2008 Property 2% Housebuilders 2% 10% Hotels 6% 26% PE Funds 7% Growth Equity 4% 5% Infrastructure 38% Trade Manufacturing Other
Slide 14: Corporate Outlook
Corporate Outlook y Selective asset growth y Deposit led Commercial Banking expansion y Partnering in ISAF, JVs and SIF y Margin opportunities y Prepared for a tougher economic climate and growth beyond
Slide 15: International – Income Statement
International – Income Statement H1 2008 H1 2007 % £m £m Growth Underlying net interest income 670 504 33 Underlying non-interest income 215 207 4 Underlying operating income 885 711 24 Underlying operating expenses (443) (334) 33 Operating profit before provisions 442 377 17 Impairment losses (119)
Slide 16: Australia
Australia y UPBT down 6% to £135m y Targeted asset growth y Focus on deposits y Stable margins y Credit quality sound but we remain vigilant y Building long term value
Slide 17: Ireland
Ireland y UPBT up 6% to £85m y Margin pressure but improved pricing for new lending y Loans and advances – 28% Construction and property – 28% Home mortgages (indexed LTV 53%) y More selective asset growth y Increased focus on deposits
Slide 18: Europe and North America (ENA)
Europe and North America (ENA) y UPBT flat at £103m y Stable margins y Loans and advances – 62% Home mortgages: Netherlands (£6.8bn) and Spain (£1.5bn) – 38% Corporate: US (£4.9bn) and Canada y Cautious and selective asset growth y EFS impacted by market conditions but positioned for growth opportun
Slide 19: Insurance & Investment – Income Statement
Insurance & Investment – Income Statement H1 2008 H1 2007 % £m £m Growth Underlying net interest income (52) (50) 4 Underlying non-interest income 910 775 17 Underlying operating income 858 725 18 Underlying operating expenses (456) (409) 11 Underlying profit before tax (IFRS basis) 402 316 27
Slide 20: General Insurance
General Insurance y UPBT up 64% to £176m y Gross written premiums (GWP) up 3% to £892m – Household up 7% – Motor up 43% – Repayment down 13%
Slide 21: Investment
Investment y UPBT up by 8% to £226m y Comparable sales – PVNBP down 5% to £7,201m – Intermediary up 13% – Wealth Management up 1% – Bancassurance down 18% y Net fund flows up 33% to £1.2bn
Slide 22: Insurance & Investment Outlook
Insurance & Investment Outlook y Core Strengths – Multi-channel distribution model & strong brands – Low cost access to Group’s customers y General Insurance – Growing market share in household and motor – Invest in retention, claims and pricing capability y Investment – Build on highly productive b
Slide 23: Treasury & Asset Management – Income Statement
Treasury & Asset Management – Income Statement H1 2008 H1 2007 % £m £m Growth Net interest income 39 93 (58) Underlying non-interest income * 345 267 29 Underlying net operating income * 384 360 7 Underlying operating expenses (160) (170) (6) Other income - 4 Underlying profit before tax * 224 194 1
Slide 24: Debt Securities
Debt Securities Banking Book Trading Grampian Other Book Total Asset Class £bn £bn £bn £bn Asset Backed 16.2 9.2 12.0 37.4 Securities Covered Bonds 3.2 3.2 Floating Rate Notes 11.8 5.5 17.3 Certificates of Deposit 1.7 12.1 13.8 Other 2.5 1.4 3.9 Total (net of NFVA) 16.2 28.4 31.0 75.6
Slide 25: Asset Backed Securities
Asset Backed Securities Banking Book Trading Grampian Other Book Total Asset Class £bn £bn £bn £bn Mortgage Backed Securities 8.9 3.2 7.7 19.8 Collateralised Debt Obligations 5.9 0.2 0.5 6.6 Personal Sector 2.8 0.3 2.1 5.2 FFELP Student Loans 5.5 0.1 5.6 Other ABS 0.6 0.1 0.7 Negative Basis * 0.5 2.
Slide 26: Asset Backed Securities – US RMBS
Asset Backed Securities – US Residential Mortgage Backed Securities (RMBS) Banking Book Trading Grampian Other Book Total Asset Class £m £m £m £m Prime * 1,029 218 697 1,944 Alt-A 3,427 975 2,226 6,628 Sub-prime 62 9 19 90 Total (Pre NFVA) 4,518 1,202 2,942 8,662 * Prime includes £568m of second lie
Slide 27: Asset Backed Securities – Collateralised Debt Obligations
Asset Backed Securities – Collateralised Debt Obligations Banking Book Trading Total Grampian Other Book Asset Class £m £m £m £m ABS CDO * 195 128 - 323 High Yield Corporate 101 - - 101 CBO Investment Grade 2,235 - - 2,235 Corporate CBO Commercial Real 708 63 - 771 Estate CBO CLO 2,701 43 442 3,186
Slide 28: Monolines
Monolines Negative Basis Wrapped Bonds Notional Exposure Notional Exposure £bn £bn £bn £bn Investment Grade 2.4 0.4 1.9 0.3 Sub-investment grade * 0.4 0.3 Total 2.8 0.4 2.2 0.3 * We have assumed no benefit from cover provided by sub-investment grade monolines
Slide 29: High Quality Portfolio
High Quality Portfolio y Portfolio continues to be highly rated y Alt-A is performing satisfactorily y Exposure to sub-prime borrowers minimal y ABS CDOs only 2.5% of the ABS book y 74% of ABS CDOs covered by investment grade monoline y No benefit assumed from sub-investment grade monoline cover
Slide 30: Treasury
Treasury y Focus on funding and liquidity y Sales to HBOS clients y Services to HBOS Group y Grampian to be managed down y Liquidity rebalanced
Slide 31: Funding
Funding Customer Deposits 5% 5% 9% Bank Deposits 5% CDs 8%8% CP 52% MTNs 4% Covered Bonds 11% Securitisation 6% 7% Capital
Slide 32: Capital Ratios – Basel II
Capital Ratios – Basel II 30.6.2008 30.6.2008 1.1.2008 Proforma (£bn) £bn £bn Risk Weighted Assets (RWAs) 331.6 331.6 309.2 Capital Resources Tier 1 28.4 24.1 23.7 Tier 2 17.1 17.4 15.3 45.5 41.5 39.0 Supervisory Deduction (5.2) (5.2) (5.1) Total Regulatory Capital 40.3 36.3 33.9 Capital Ratios % %
Slide 33: Risk Weighted Assets
Risk Weighted Assets 30.6.2008 1.1.2008 £bn £bn Retail 71.5 67.9 Corporate 172.4 163.4 International 69.4 59.7 Treasury & Asset Management 17.6 17.0 Insurance & Investment 0.7 1.2 Total 331.6 309.2
Slide 34: Summary
Summary y Strong capital ratios y Selective asset growth y Improving funding profile y Adjusting the cost base y Income growth potential y Margin stability with potential for improvement y Resilient pre-provisioning profitability
Slide 35: Interim Results July 2008
Interim Results July 2008 Andy Hornby
Slide 36: We remain cautious in our economic assumptions
We remain cautious in our economic assumptions y UK GDP slowing throughout 2008 and into 2009 y Base rates likely to stay broadly at current level y Consensus forecast for house price decline down 15-20% over 2008 and 2009 combined y Commercial property prices already down 19%, consensus expectation
Slide 37: Business model reshaped
Business model reshaped y A stronger capital base y Repricing assets to improve margins y Improving the deposit to loan ratio y Growth in Insurance & Investment y Re-focusing Treasury y Tight cost management
Slide 38: A stronger capital base
A stronger capital base y As at 30 June (adjusted for the rights issue) – Tier 1 capital ratio 8.6% – Core Tier 1 capital ratio 6.5% – Total capital ratio 12.2% y Dividend policy – c.40% payout ratio – Interim dividend in shares – Final dividend in cash y Moderate asset growth y Selective disposals
Slide 39: Repricing assets to improve margins
Repricing assets to improve margins y H1 2008 Group margin just 3 bps lower than H2 07 – Retail margins +3 bps, Corporate margins -5 bps – One third of Retail book “re-pricing” each year – One fifth of Corporate book “re-pricing” each year y Stable or improving margins targeted for 2009 y Margin sta
Slide 40: Improving the deposit to loan ratio
Improving the deposit to loan ratio 5% 5% 9% • Short term liquidity 5% strong 8% 8% • Growing assets slower 52% than deposits 4% • Selective disposals / 11% asset run downs 6% 7% Customer Deposits MTNs Bank Deposits Covered Bonds CDs Securitisation CP Capital
Slide 41: Growth in Insurance & Investment
Growth in Insurance & Investment y Sales and retention success point to strong growth potential in household and motor insurance y Demographics continue to support growth opportunities in investment markets y Strong franchise and multi-branded distribution a competitive advantage y Continued emergen
Slide 42: Re-focusing Treasury
Re-focusing Treasury y Grampian being managed down y Liquidity portfolio re-based to lower risk liquidity accepting lower yield y Selective sale options but only at appropriate value
Slide 43: Tight cost management
Tight cost management y H1 2008 cost growth of 4% y Focused investment only in areas that add most value y Cost extraction from lower return businesses y Significant front and back office productivity savings in 2008 and 2009
Slide 44: Business model reshaped
Business model reshaped y A stronger capital base y Repricing assets to improve margins y Improving the deposit to loan ratio y Growth in Insurance & Investment y Re-focusing Treasury y Tight cost management