Lloyds Banking Group plc · LSE:LLOY
Lloyds Banking — Investor Presentation (November 2009)
33 slides from Lloyds Banking's investor presentation, Nov 3, 2009
Slide 1: Rights Issue and Capital Enhancement Proposals
Rights Issue and Capital Enhancement Proposals 3 November 2009
Slide 2: Disclaimer
DISCLAIMER THIS DOCUMENT IS STRICTLY CONFIDENTIAL AND IS BEING PROVIDED TO YOU SOLELY FOR YOUR INFORMATION AND FOR USE AT A PRESENTATION TO BE HELD IN CONNECTION WITH THE PROPOSED RIGHTS ISSUE AND EXCHANGE OFFER BY THE COMPANY AND MAY NOT BE REPRODUCED IN ANY FORM OR FURTHER DISTRIBUTED TO ANY OTHER
Slide 3: Disclaimer
DISCLAIMER Certain information in this presentation is based on management estimates. Such estimates have been made in good faith and represent the genuine belief of applicable members of management. Those management members believe that such estimates are founded on reasonable grounds. However, by
Slide 4: Introduction
Introduction Sir Winfried Bischoff Chairman
Slide 5: Key Highlights
Key Highlights Eric Daniels Group Chief Executive
Slide 6: Today's Proposals
TODAY’S PROPOSALS A market-based solution to Lloyds’ capital needs At least £21 billion core1 capital generation: proceeds fully underwritten – £13.5 billion rights issue2 – £7.5+ billion exchange offers into enhanced capital notes (ECNs) and equity3 HMT/UKFI will fully subscribe to rights issue
Slide 7: Superior Economic Value to GAPS
SUPERIOR ECONOMIC VALUE TO GAPS CAPITAL AND VALUE INSURANCE PROVIDED £15.6 billion cost with marginal benefit No net GAPS claims under Group central case Public shareholders potentially diluted from 57% to 38% for limited value Even under FSA stress test net claims GAPS less than £15.6 billi
Slide 8: A Compelling Investment Proposition
A COMPELLING INVESTMENT PROPOSITION UK economic outlook beginning to stabilise BUILDING POSITIVE Stabilising margins MOMENTUM Overall impairments peaked Core tier 1 ratio increases to 8.6%1 HIGH QUALITY, EFFICIENT Liability management exercise creates contingent core tier 1 CAPITAL STRUCTU
Slide 9: Building Positive Momentum
BUILDING POSITIVE MOMENTUM Performing in line with recent guidance RECENT GUIDANCE Q3 TREND High single digit REVENUE GROWTH growth within 9 2 years MARGINS Lower in 2009H2, rising in 2010 9 COST:INCOME RATIO c.200 p.a. basis points 9 improvement Business trending in line INTEGRATION >£1.5 billion s
Slide 10: High Quality, Efficient Capital Structure
HIGH QUALITY, EFFICIENT CAPITAL STRUCTURE STRONG CORE TIER 1 CAPITAL EFFECTIVE DOWNSIDE PROTECTION Immediate 230bps increase in core tier 1 160bps contingent core tier 1 capital capital ratio to 8.6% buffer Appropriate and efficient core tier 1 ECNs convert to core tier 1 if published capita
Slide 11: State Aid
STATE AID No materially negative impact on the Group’s business c.£180 billion asset reduction Divestment of retail banking business with at least 600 branches, a 4.6% personal current account market share and approximately 19% of the Group’s mortgage book, to include: – C&G savings accounts and
Slide 12: A Leading UK Financial Services Company
A LEADING UK FINANCIAL SERVICES COMPANY • A leading provider of banking products and services LEADING MARKET POSITIONS • 35 million retail and nearly 1 million commercial customers • Focused on most attractive segments in retail and wholesale POWERFUL BRAND PRESENCE • Deep and enduring customer rela
Slide 13: Proposal Structure and Third Quarter Update
Proposal Structure and Third Quarter Update Tim Tookey Group Finance Director
Slide 14: £21 Billion of Core Tier 1 and Contingent Core Tier 1 Capital Generated
£21 BILLION OF CORE TIER 1 AND CONTINGENT CORE TIER 1 CAPITAL GENERATED £13.5 billion of new core tier 1 capital RIGHTS ISSUE Fully underwritten £13.5bn1 HMT / UKFI will fully subscribe £7.5 billion exchange offers into enhanced capital notes (ECNs) EXCHANGE OFFERS and new ordinary shares2 A
Slide 15: Exchange Offers
EXCHANGE OFFERS Overview Offers to eligible holders of £16 billion Existing Securities (tier 1/upper tier 2 capital securities) to exchange into either of: – Enhanced Capital Notes (ECNs) on a par for par basis with enhanced coupon; or – Ordinary shares1 at a discount to the par value of Existing
Slide 16: Benefits of Exchange Offers
BENEFITS OF EXCHANGE OFFERS An attractive proposition for eligible holders Benefits to ordinary shareholders – Limited upfront dilution1 – Provides protection against severe downside – Modest additional coupon cost Investors exchanging into ECNs will benefit from – Par for par exchange – Certain
Slide 17: Robust Capital Ratios
ROBUST CAPITAL RATIOS Significant increase in capital strength CORE TIER 1 CAPITAL Significant increase in core tier 1 £1.8bn capital 8.6% Non-amortising capital versus £13.0bn GAPS, reducing future Group 6.3% leverage Target core tier 1 ratio of >7% 5% Anticipated future strengthening of co
Slide 18: High Quality Capital Base
HIGH QUALITY CAPITAL BASE1 Improving quantity and quality of capital base £bn 70 +47% £62.6bn2 If Exchange Offers not fully 60 taken up, additional tier 1/ £53.1bn Tier 1/ tier 2 tier 2 capital (maximum 50 Tier 1/ £7.5 billion) tier 2 £42.6bn ECN 40 Tier 1/ Core tier 2 +48% £7.5 billion capital
Slide 19: High Quality Capital Base
HIGH QUALITY CAPITAL BASE A more sustainable capital position (as at 30 June 2009) March 2009 GAPS participation: contribution to core tier 12 Immediate After 7 years GAPS RWA relief reduces as assets run-off Net capital (‘B’ shares) 3.2% 3.2% Reduced RWAs 4.6% 0.0%3 Capital reduced as GAPS Amor
Slide 20: Key Factors Impacting Income Statement
KEY FACTORS IMPACTING INCOME STATEMENT GAPS PROPOSALS CHARGES Amortisation on £15.6 billion GAPS fee (over 7 years) 888 3 3 3 none GAPS payment none 8 (one off payment) Coupon on B shares (until conversion)1 88 3 3 none Coupon on ECNs none 8 modest Annual GAPS administration charge 8 3 none CREDITS
Slide 21: EU State Aid
EU STATE AID No materially negative impact on the Group’s business ‘NON-CORE’ ASSET REDUCTION BANKING DIVESTMENTS (2008)1 Consistent with half-year Total income: c.£1.4 billion communication Costs: c.£600 million Committed to reduce c.£180 billion over 5 years Profit before tax: c.£500 mil
Slide 22: Third Quarter Update
LLOYDS BANKING GROUP Third Quarter Update 22
Slide 23: Third Quarter Update
THIRD QUARTER UPDATE Building positive momentum Continued to deliver good revenue performance in 2009Q3 Banking net interest margin flat in 2009Q3 compared to 2009H1 Costs continue to be well controlled: 2% lower compared to 9 months to 30 September 2008 Excellent progress on integration: £5
Slide 24: Integration Update
INTEGRATION UPDATE Cost synergy delivery ahead of schedule SYNERGY DELIVERY AS AT 3Q IMS (£m) Integration benefits continue to run ahead of schedule >1,500 Integration savings in first 9 months of 2009 of £250 million Increased estimates for synergy c.750 delivery in 2009: year end run-rate of
Slide 25: Impairments Trends
IMPAIRMENTS TRENDS Overall Group impairments have peaked GROUP IMPAIRMENT CHARGES (£bn) RETAIL IMPAIRMENT CHARGES (£bn) Run-rate of impairments has slowed in 2009Q3 Significant reduction in mortgage impairment run-rate Continue to expect 2009H2 charge to be significantly lower than 2009H1 char
Slide 26: Impairments Trends
IMPAIRMENTS TRENDS Overall Group impairments have peaked WHOLESALE IMPAIRMENT CHARGES (£bn) WEALTH & INT’L IMPAIRMENT CHARGES (£bn) Significant reduction in impairment charge High level of impairments in 2009H1 continued run-rate as expected into 2009Q3 Reduction driven by sharp fall in commer
Slide 27: Impairment Guidance
IMPAIRMENT GUIDANCE Overall impairments expected to have peaked in 2009H1 RECENT GUIDANCE Q3 PERFORMANCE Expected to have peaked Lower than H1 GROUP in 2009H1 Guidance unchanged Expected to peak Lower than H1 RETAIL in 2009H2 Guidance unchanged Expected to be significantly Significantly lower than H
Slide 28: High Quality Liquid Asset Buffer
HIGH QUALITY LIQUID ASSET BUFFER Material increase in liquidity buffer £88.0bn £11.7bn Liquidity buffer in excess of 8% of £61.7bn total assets Secondary £9.3bn liquidity A multiple of current regulatory Excess prime £25.0bn £48.3bn requirements liquidity Lloyds Banking Group already Minimum p
Slide 29: A Compelling Investment Proposition
LLOYDS BANKING GROUP A compelling investment proposition 9 Significant improvement in quality and quantity of core tier 1 capital 9 Significant capital buffer from new contingent core tier 1 capital 9 Meets FSA stress test requirements 9 Not entering GAPS in favour of a market-based solution is a su
Slide 30: Appendix
LLOYDS BANKING GROUP ee Appendix
Slide 31: Capital Generation Structure Timetable
CAPITAL GENERATION STRUCTURE Timetable Each element of transaction on approval by shareholders of all other elements HMT / UKFI can vote on all resolutions to approve transaction other than relating to GAPS payment General meeting 26 November 2009 Rights issue – Rights issue terms announced 24 N
Slide 32: Economic Forecasts
ECONOMIC FORECASTS 2009 FORECAST 2010 FORECAST FSA Stress Lloyds FSA Stress Lloyds Test1 Central Case2 Test1 Central Case2 % change year-on-year – GDP -3.8 -4.0 -2.0 +1.8 – House prices3 -24.7 0.0 -20.4 0.0 – Commercial real estate3 -30.3 -15.0 -16.1 0.0 Unemployment (%) 8.1 8.2 10.4 10.1 1 Forecast
Slide 33: Rights Issue and Capital Enhancement Proposals
Rights Issue and Capital Enhancement Proposals 3 November 2009
Lloyds Banking Group — Investor Presentation (November 2009) on 6ix