2007 Results Final Presentation - Lloyds Banking Group · 2007 Results 22 February 2008. 2007...

GROUP RESULTS

2007 Results22 February 2008

Sir Victor BlankChairman

GROUP RESULTS


Chairman’s overview

• Excellent operating and financial performance

• Lower risk, low volatility business model

• Confident outlook for the business

• Dividend increased 5% to 35.9p per share

Significant growth potential

Helen WeirGroup Finance Director

GROUP RESULTS


Continuing to deliver a strong performance*

Earnings per share 50.8p46.9p 8

Economic profit £1,842m£1,690m 9

* Excluding volatility, profit on sale of businesses, settlement of overdraft claims and pension schemes related credit

Profit before tax £3,919m£3,710m 6

Post-tax return on equity 25.2%25.1%

20072006 % Change

Dividend per share 35.9p34.2p 5

Good overall performance*

Total income, after claims 11,16110,679 5

Operating expenses (5,472)(5,437) (1)

Profit before tax 3,9193,710 6

£m 20072006 % Change

Trading surplus 5, 6895,242 9

Impairment (1,796)(1,555) (15)

Insurance grossing 2623


Underlying performance even stronger*

Total income, after claims 11,349(188) 611,16110,679 5

Operating expenses (5,472)– (1)(5,472)(5,437) (1)

Profit before tax 4,199(280) 133,9193,710 6

Trading surplus 5,877(188) 125, 6895,242 9

Impairment (1,704)(92) (10)(1,796)(1,555) (15)

Insurance grossing 262623


£m 2007Market

dislocation % Change20072006 % Change

Key performance drivers

• Strong liability growth: continued asset momentum• Margin outlook improving

Income

• Continued strong cost disciplines• Productivity programme ahead of expectations

Cost

• Asset quality remains satisfactory• Retail impairments lower than 2006

Impairment

• Capital efficiency continues to improve• Capital ratios robust under Basel II

Capital

• Strong customer deposit base• Continue to fund very successfully

Funding

Good customer lending and deposit growth

UK Retail Banking (£bn) Wholesale & International Banking (£bn)

Customer Lending

+6%

Customer Lending2007

19.3

119.6

100.3

UnsecuredMortgages

+19%+8%

+18%

Current AccountsSavings

Customer Deposits2006

19.3

112.8

93.5

2006

75.7

20.2

55.5

2007

82.1

20.3

61.8

Customer Deposits2006 2007

61.272.3

77.7

92.6

2006 2007

Net interest margin stabilising

Funding 2bp

Product (2)bp

Mix (9)bp

(9)bp

Year-on-year margin movement

2006H1

2.82

2007H2

2.90

2.76

2007H12006H2

2.86

2.88

2.79

%

£m

UKRB: balanced income growth

• 15% growth in bank savings• c. 500,000 new/upgraded AVAs• 12% growth in wealth savings

+6%

5,580

Liability Driven£150 million

Asset Driven£102 million

2006

5,263

Savings &Investment

Growth

86

AVA &Other

Current Account Fees

51

Wealth

13

LendingGrowth

32

LendingRelated

Insurance

70

Other(incl OtherInsurance)

65

2007

+6%

W&IB: components of income growth

£m

4,2914,212

285101 (89)

(188)16 (46) 4,479

+18%

+8% (10)%

MarketDislocation

2006 Inter-national

CorporateMarkets

CommercialBanking

AssetFinance

2007Registrars

Continued momentum in Corporate Markets

£m

+18%

1,7241,627

8063 46

(188)96 1,912

MarketDislocation

2006 ProductsLargeCorporate

Sales-Risk

Management

Develop-ment

Capital

2007

Limited exposure to market dislocation

136

£mNet residual exposure

31 Dec 2007Income statement

write-downGross exposure

31 Dec 2007

SIV

– liquidity back up 370– 370

– capital notes 7822 78

US sub-prime ABS – direct nilnil nil

ABS CDOs

– monoline hedged –25 470

– unhedged 13089 130

– major bank cash collateralised –– 1,861


144

£mNet residual exposure

31 Dec 2007Income statement

write-downGross exposure

31 Dec 2007

* Primarily high quality senior bank and corporate assets; also includes £181 million of indirect super senior exposure to US sub-prime mortgages and ABS CDOs, protected by note subordination

Trading portfolio

– secondary loan trading 66520 863

– ABS trading book 47492 474

– other assets* 3,89532 3,895

4.1Other assets– major bank senior paper and high quality ABS

(75)


20.2(413)

3.2Student Loan ABS– US Government guaranteed

(101)

Balance outstanding31 Dec 2007 (£bn)

AFS reservesadjustment (£m)Available-for-sale assets

* In addition, Cancara includes a client receivables portfolio totalling £3.7 billion, including£115 million US sub-prime mortgage assets and £42 million Alt-A mortgage assets

8.3Cancara*– US sub-prime – nil

(237)

– Alt-A – £619 million– CMBS – £1,355 million (100% AAA/Aaa)

4.6Treasury assets– Government bonds and short-dated bank CP

–

I&I: components of growth*

New businessprofit 326346 (6)

903852 6

£m 20072006 % Change

Existing business 370339 9

903816 11

Impact of capitalrepatriation –36

Expectedreturn 207131 58

New business sales – PVNBP (£m)

IFA

Bancassurance

Direct

+7%

* EEV basis, excluding volatility

New businessmargin 3.1%3.6%

10,4249,740

20072006

+20%

+2%5,706

3,421

5,817

4,096

613511

I&I: focusing on more capital efficient growth

Capital intensity of new product sales (indexed) Return on Embedded Value

85

100

2006 2007

9.9%

8.0%

9.3%

200720062005

Income growth ahead of costs in all divisions*

C:I ratio improved

130bp

C:I ratio improved

60bp

50.8%49.0%

2006 2007

Groupcost:income ratio

1%

3%

(2)%

1%

Income Costs

Group

Wholesale &InternationalBanking

Insurance &Investments

UK RetailBanking

* Excluding volatility, insurance grossing adjustments, settlement of overdraft claims andthe impact of surplus capital repatriation

6%

7%

2%

5%

Asset quality ratio has remained stable

Wholesale & International Banking 452 (47) 0.510.39308

UK Retail Banking 1,224 1 1.101.181,238

Total 1,7961,555 (15)

– Credit cards 527 (8) 7.966.99490

– Personal loans/overdrafts 679 8 5.325.85740

– Mortgages 18 (125) 0.020.018

Central group items –9

2007 Finance Act 28–

1,676 0.820.831,555 (8)

Market dislocation 92–

% of Average Lending2007£m

Variance% 20072006

2006£mImpairment

Asset quality ratio has remained stable

Wholesale & International Banking 452 (47) 0.510.39308

UK Retail Banking 1,224 1 1.101.181,238

Total 1,7961,555 (15)

– Commercial Banking 99 (6) 0.600.6793

– Corporate Markets 120 0.19(0.03)(18)

– Asset Finance 228 5 2.542.60239

Central group items –9

2007 Finance Act 28–

1,676 0.820.831,555 (8)

Market dislocation 92–

% of Average Lending2007£m

Variance% 20072006

2006£mImpairment

– Other 5 0.20(0.22)(6)

A good quality property lending portfolio

• 56% Housing Associations– local authority cash flows

• Larger residential property companies

Commercial lending Residential lending

33%67%

• Through the cycle policy, supporting existing customer franchise

• Well spread nationwide portfolio

• Indexed LTV – c 62%

• Over 90% investment

• 9% development– 60% of gross

development value– min 100% interest

cover from pre-let

• Underweight ‘retail and office’

ResidentialCommercial

Lending quality strong and consistent

Customer lending, neither past due nor impaired

SatisfactoryGood Lower quality Below standard, but not impaired

Retail – other

£29.4bn £29.9bn

57.7% 60.8%

32.9% 30.0%

Retail – mortgages

£92.9bn£99.8bn

99.6% 99.6%

Wholesale

£60.0bn

£73.5bn

59.4% 62.9%

36.3%

34.0%

2006 20072006 20072006 2007

3.7%

2.8%

Improving our returns*

+10bp

25.225.11,842

1,6901.761.72

+4bp +9%

Post-tax returnon equity (%)

Economicprofit (£m)

Post-tax return on risk-weighted assets (%)

* Excluding volatility, profit on sale of businesses, settlement of overdraft claims and the pension schemes related credit in 2006

2006 20072006 20072006 2007

Capital ratios remain robust on a Basel I basis

Total capital ratio 10.7% 11.0%

31 Dec2006

31 Dec2007

Tier 1 ratio 8.1%8.2%

Risk-weighted assets (£bn) Capital ratios

+10%

156.0172.0

UKRB

W&IB

Other

+4%

+14%

61.7

105.1

59.1

91.8

31 Dec 2006 31 Dec 2007

CollectivelyAssessedProvisions

At 31 December 2007

Improved capital position under Basel II

Tier 1 ratio Total capital ratio

Tier 1 & Total capital ratio

RiskWeightings

ExpectedLosses

Other

11.0%

Basel I

8.1%

Basel II

11.0

9.5%

2.2%

1.7%

(0.9)%

(0.3)%

(1.5)%0.2%

A strong funding profile

• High, and growing, customer deposit base

• Conservative wholesale funding profile

• Strong credit ratings; Moody’s Aaareaffirmed January 2008

• Consistent market presence

• Significant headroom

Strong funding and liquidity

profile

A core funding base of customer deposits

Corporate/Commercial

Deposits

RetailDeposits

CurrentAccounts

DebtSecurities

BankDeposits

Funding base composition December 2007

Increased percentage of customer deposit funding

29%

21%16%

21%

13%CustomerDeposits

WholesaleFunding

£228bn£247bn

2006 2007

63%

37%

61%

39%

A consistent approach to funding

Short term money market funding (£bn) UK bank 5 year senior CDS spreads

Major UK Bank ALloyds TSB

Major UK Bank BMajor UK Bank C

30 Jun 2007

126

9 11

31 Dec 2007

47

30

55

68

0

10

20

30

40

50

60

2006 2007

Strong core business momentum

Continuing to build earnings momentum

• Strong sales and revenue growth• Substantially improved productivity• Wide positive jaws• Continued satisfactory asset quality

Maintaining a robust capital position and dividend

• Capital ratios robust• Successful transition to Basel II• Significant capital repatriation from Scottish Widows• Dividend increased by 5%

Sustaining high returns

• Improving cost:income ratio• Improving return on risk-weighted assets• ROE remains high, and improving• Excellent economic profit growth

Helen WeirGroup Finance Director

GROUP RESULTS


Eric DanielsGroup Chief Executive

GROUP RESULTS


2007 results in longer term context

• Strong momentum

• Significant growth potential

• High quality sustainable earnings

Strong momentum

Sustained income growth1

1. 2003-4 figures on a UK GAAP basis excluding discontinued operations. 2005-7 figures are on a full IFRS basis, excluding volatility, insurance grossing, one-off items and market dislocation impact

2003 2004 2005 2006 2007

£8.92bn£9.20bn

£9.94bn

£10.68bn

£11.35bn+6%

+7%

Strong momentum

Strong income growth in all divisions1

UKRB

2006 2007

+6%

1. All figures exclude volatility, insurance grossing, the impact of surplus capital repatriation in I&I and market dislocation impact

W&IB

2006 2007

+6%

I&I

2006 2007

+7%£5.26bn £5.58bn

£4.21bn £4.48bn

£1.56bn £1.67bn

Strong momentum

Accelerating PBT growth1


2003 2004 2005 2006 2007

£3.06bn

£3.36bn £3.33bn

£3.71bn

£4.20bn+13%

+12%

Strong momentum

2003 2004 2005 2006 2007

Accelerating economic profit growth1

£1.33bn£1.44bn

£1.51bn

£1.69bn

£2.03bn+20%

+12%



Drivers of future profit growth

Market growth Market share growth

2nd largest economic profit pool

High levels of household financial wealth

Lowest unemployment in G7

Good medium term economic performance

Strong long term savings growth

We only have ~10% share of economic profit pool today

Gaining share across target segments and products

Relationship-focused model


Relationship-focused model

High quality income Low cost Low risk Low capital

needs

Recurring revenue streams

Strong cross-sell

Low acquisition costs

Economies of scope

Lend to customers we know

Through the cycle policy

Low volatility over cycle

Sustained profitability and growth

ReinvestmentReturns for shareholders +

High quality sustainable earnings

Where our profit comes from

% of 2007 PBT Income growth (2005 – 07)

Where our growth comes from

11%

2%

Relationship-driven

Product-driven

Relationship Product

UKRB: relationship-driven growth1

1. Internal estimates

~85%

~15%


• c.18 million customer records in UKRB

• 16 million transactions loaded per day

• Average of 2,100 data points for each current account customer

• 9 terabytes of data

• Global top quartile CRM1

• We sell to need

• We price to risk

• We have early warning indicators

– about individual customers

– about broader behavioural trends

UKRB: deep understanding of our customers

1. QCi


16%

4%

Income growth (2005 – 07)

We identified a shift towards savings and investment… …and are capturing it

Savings, investments

& current accounts

Unsecured lending &

mortgages

UKRB: changing the mix

UK Retail Banking: the demographic opportunity

<0 0-10% >10%

<30 yrs 30-44 45-54 55-64 65+ yrs

10% (7%) 40% 23% 34%

Current accounts

Unsecured lending

Mortgages

Savings and investments

Market risk-adjusted revenue growth to 2010: share by age and product

Source: internal analysis

Source: Results presentation, February 2006


• #1 new customer acquisition

• #1 new credit card issuer

• #1 in added value accounts

• #1 provider of home insurance

• #1 in personal loans

5.1

6.47.5

2005 2006 2007

+17%

Total sales volumes (millions)

UKRB: establishing market leading positions


Growth in current accounts opened… …and cross-sales at opening

Number of current accounts opened, 000’s Number of additional products purchased with current account1

+17%

1. Additional products purchased by New to Bank customers buying Classic/AVA current accounts

UKRB: establishing market leading positions

583

8821,035

2005 2006 2007 Dec-05 Dec-07Dec-06

0.52

1.21

0.84


UnsecuredMortgages

• 99% of loans to franchise customers

• 89% of credit cards issued to franchise customers

• #1 in branch-based lending

• Low book and new LTVs

• No self-certification

UKRB: low risk, relationship-focused lending

• Over 3 month arrears fell 12% in 2007

• Impairments fell 2% in 2007


Where our profit comes from

1. Internal estimates; excluding market dislocation

21%

6%

Relationship-driven

Product-driven

% of 2007 PBT Income growth (2005 – 07)

Where our growth comes from

Relationship Product

W&IB: relationship-driven growth1

~70%

~30%


2006 2007

Strong growth in cross-sales

+23%

• Record customer satisfaction

• #1 in start-ups and net gainer of switchers

• Cross-sales of Scottish Widows products to commercial up 36%

• Invoice discounting & factoring up 15%

100

123

W&IB: growing the Commercial Banking franchise

Indexed to 100 in 2006


2005 2006 2007

+46%

• Increase in mid-market share of 2 per cent1

• Top rated relationship bank

• Increase in no. of relationship managers and specialist sales forces

1. Source: TNS

100

112

163

W&IB: growing the Corporate Banking franchise

Strong growth in cross-salesIndexed to 100 in 2005


Risk profile for wholesale loans & advances to customers1

2006 2007

Good quality

Satisfactory

Other2

£60.0bn

£73.5bn

35.7 +30% 46.2

21.8+15%

25.0

1. Neither past due nor impaired2. Lower quality and below standard

• 22% growth in wholesale loans & advances

• 97% classified as good or satisfactory

• Focus on lending through the cycle

W&IB: low risk, relationship-focused lending

(13%)

2005 2006 2007


PVNBP1

£7.8bn

£9.7bn£10.4bn

Bancassurance27%35%

39%

1. Present value of new business premiums

I&I: relationship-driven growth

I&I products central to Group’s relationship businesses

• Retail Banking

• Private Banking

• Commercial Banking

• Corporate Banking+20%

+2%

Example: Scottish Widows

IFA

Direct


Example: General Insurance Example: SWIPHome insurance sold through branch network (GWP)

+14%

I&I: relationship-driven growth

2005 2006 2007

£42m£48m

£24m

UKRB: new retail products (funds under management)

2005 2006 2007

£2.96bn

£4.33bn

£1.40bn

+46%


Continuous productivity growth

2003 2004 2005 2006 2007

53.2%52.3%

53.5%

50.8%

49.0%

1. 2003-4 figures on a UK GAAP basis excluding discontinued operations. 2005-7 figures are on a full IFRS basis, excluding volatility, insurance grossing and one-off items

Cost:income ratio1


Investment themes Major projects

• Improving access for our customers

• Effectiveness in front of the customer

• Enhancing products & services

• Improving our efficiency

• New internet platform

• ‘Your finances’ sales capability

• Up-skilling frontline staff

• Commercial infrastructure

• Productivity programme

Investing for future growth

• Strong capital and funding position

• Relationship-driven business model

• Deep understanding of our customers

• Through the cycle lending

We are well placed

2007 results in longer term context

• Strong momentum

• Significant growth potential

• High quality sustainable earnings

2007 Results Final Presentation - Lloyds Banking Group · 2007 Results 22 February 2008. 2007...

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