life, the world and interest rates
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Life, the worldand Interest Rates
East Midlands Councils7 April 2011
Simon Cossey Director, Financial Markets
LLOYDS BANKING GROUP 2
WHATEVER HAPPENED TO THE SLOW RECOVERY?
-6.0
-4.0
-2.0
0.0
2.0
4.0
2006 2007 2008 2009 2010
%
QUARTERLY
ANNUAL
Long-term average
6.0
LLOYDS BANKING GROUP 3
BUSINESS CONFIDENCE IS RECOVERING AND INVESTMENT SPENDING WILL FOLLOW…
% increase in year
98 99 00 01 02 03 04 05 06 07 08 09 10-40
-30
-20
-10
0
10
20
30
40
50
60
-60
-50
-40
-30
-20
-10
0
10
20
Business investment, lhs
UK business confidence, rhs
Source: Thomson Datastream
% balance
LLOYDS BANKING GROUP 4
CORPORATE SURPLUS IS HEALTHY (18% OF GDP)
-6
-4
-2
0
2
4
6
1987 1989 1991 1993 1995 1997 1999 2001 2003200520072009
% of GDP, 4 qma
-6
-4
-2
0
2
4
6
1987 1989 1991 1993 1995 1997 1999 2001 2003200520072009
% of GDP, 4 qma
£270BN
LLOYDS BANKING GROUP 5
IN-HOUSE BUSINESS BAROMETER POINTS TO SLOWER GROWTH
-80
-60
-40
-20
0
20
40
60
80
Jan-0
6
Jul-
06
Jan-0
7
Jul-
07
Jan-0
8
Jul-
08
Jan-0
9
Jul-
09
Jan-1
0
Jul-
10
Jan-1
1
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
% bal %Qtr
LTSB Business Barometer – economic prospects (3m
lead)
Monthly GDP (RHS)
GDP growth
projected to slow sharply
LLOYDS BANKING GROUP 6
UK HOUSEHOLDS AMONGST THE MOST INDEBTED IN THE WORLD
166
105
81
111
69
96
124114
4834
180
160
140 139130 128
11298
6960
0
20
40
60
80
100
120
140
160
180
200
Switz
erla
nd
Unite
d Ki
ngdo
m
Sout
h Ko
rea
Canad
a
Spai
n
Unite
d St
ates
Japa
n
Germ
any
Fran
ce
Italy
20002008
Hou
sehold
deb
t %
dis
posa
ble
inco
me
Source: National Statistical Agencies
LLOYDS BANKING GROUP 7
DELEVERAGING POSES A CONTINUED IMPEDIMENT TO PRIVATE SECTOR RECOVERY
Source: Bank of England
-10
-5
0
5
10
15
20
25
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Lending to households
Lending to corporates
%yr
LLOYDS BANKING GROUP 8
HOUSEHOLDS SAVING LESS TO FINANCE SPENDING
Source: ONS
-6
-4
-2
0
2
4
6
8
10
12
14
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
UK saving ratio
UK consumer spending %Yr
%
LLOYDS BANKING GROUP 9
PUBLIC SECTOR EMPLOYMENT BY REGION
29.226.0 24.7 24.3
22.1 21.9 20.8 20.4 20.418.1
16.4 16.2
20.7
5
15
25
35
Nort
hern
Ire
land
Wale
s
Sco
tlan
d
Nort
h E
ast
York
s &
Hum
ber
Nort
h W
est
Lond
on
South
West
West
Mid
lands
East
Mid
lands
South
East
East
Unit
ed K
ing
dom
% (as share of total)
Source: LTSB/ONS
LLOYDS BANKING GROUP 10
THE HOUSING MARKET IS STABLE BUT SUBDUED…
% increase in year
2008 2009 2010-80-60-40-20
0
20406080
100120
140
Numbers approved
Value of loans
LLOYDS BANKING GROUP 11
INTEREST RATES NOT SET TO RISE UNTIL END OF 2011 AT THE EARLIEST
Source: Lloyds
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
3.0
6
9.0
6
3.0
7
9.0
7
3.0
8
9.0
8
3.0
9
9.0
9
3.1
9.1
3.1
1
9.1
1
3.1
2
Short term interest rates, %
US
Euro
Forecasts
UK
LLOYDS BANKING GROUP 12
LOWER INTEREST RATES HAVE SUPPORTED DISPOSABLE INCOME
Source: Lloyds
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
Q1 20
00
Q3 20
00
Q1 20
01
Q3 20
01
Q1 20
02
Q3 20
02
Q1 20
03
Q3 20
03
Q1 20
04
Q3 20
04
Q1 20
05
Q3 20
05
Q1 20
06
Q3 20
06
Q1 20
07
Q3 20
07
Q1 20
08
Q3 20
08
Q1 20
09
Q3 20
090
5000
10000
15000
20000
25000
Standard variable rate
Property income paid (RHS)
% £mn
LLOYDS BANKING GROUP 13
CONSUMPTION GROWTH TO BE WEAKER LOOKING FORWARD
Source: Lloyds
Consumption growth moderation
-4
-3
-2
-1
0
1
2
3
4
2004 2005 2006 2007 2008 2009 2010F 2011F 2012F 2013F
YoY % Avg 2.36% Avg 1.40%
LLOYDS BANKING GROUP 14
…INTEREST RATES SHOULD REMAIN LOW BEFORE RISING SHARPLY ONCE RECOVERY TAKES HOLD
0
0.5
1
1.5
2
2.5
3
3.5Cur
rent
Dec
-10
Mar
-11
Jun-
11
Sep-
11
Dec
-11
Mar
-12
Jun-
12
Sep-
12
Dec
-12
LTSB 3-mth Libor forecast %
Market expectation of 3-mth Libor %
%
0
0.5
1
1.5
2
2.5
3
3.5Cur
rent
Dec
-10
Mar
-11
Jun-
11
Sep-
11
Dec
-11
Mar
-12
Jun-
12
Sep-
12
Dec
-12
LTSB 3-mth Libor forecast %
Market expectation of 3-mth Libor %
%
LLOYDS BANKING GROUP 15
CPI & RPI INFLATION FORECAST
- 2
-1
0
1
2
3
4
5
6
2007 2008 2009 2010 2011 2012
CPI inflation
RPI inflation
- 2
-1
0
1
2
3
4
5
6
% yr
-
-
LTSB Forecast
-
-
Source: LTSB/ONS
LLOYDS BANKING GROUP 16
IMPORTANT NOTICE
This presentation does not constitute or imply an offer or commitment whatsoever on the part of Lloyds TSB Bank plc (“Lloyds TSB”). Any such offer may only be made after the negotiation of satisfactory documentation and only after appropriate credit authority has been obtained. The pricing discussed herein is based on our view of current market conditions and is for discussion purposes only.This presentation and all ancillary documents relating to it (together the "Presentation") was prepared by Lloyds TSB exclusively for you for the purpose of analysing certain potential transactions. The Presentation is being made available on a strictly confidential basis to you and is intended only for the internal use of authorised recipients (“Recipients”) and no part of it may be disclosed to any third party. This Presentation and the information contained herein are the property of Lloyds TSB. Recipients are hereby notified that photocopying, scanning, or any other form of reproduction, or distribution - in whole or in part - to any other person at any time is strictly prohibited without the prior written consent of Lloyds TSB.The information in this Presentation reflects prevailing conditions and our judgment as of this date, all of which are subject to change or amendment without notice and the delivery of such amended information at any time does not imply that the information (whether amended or not) contained in this Presentation is correct as of any time subsequent to its date. Whilst Lloyds TSB have exercised reasonable care in preparing this presentation and any views or information expressed or presented are based on sources they believe to be accurate and reliable, neither Lloyds TSB, nor any of their officers, servants, agents, employees or advisors make any representation or warranty, express or implied, as to the fairness, accuracy, adequacy, completeness or correctness of such information, nor as to the achievement or reasonableness of any projections, targets, estimates, or forecasts and nothing in this Presentation should be relied upon as a promise or representation as to the future. Neither Lloyds TSB nor any of their officers, servants, agents, employees or advisors or any affiliate or any person connected with them accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this Presentation or its contents or otherwise arising in connection therewith. Lloyds TSB undertakes no obligation to update or correct any information contained herein or otherwise to advise as to any future changes to it. Applicable tax, accounting and legal considerations are subject to change and in all cases independent professional advice should be sought in those areas. This Presentation is provided for information purposes only: there has been no independent verification of the contents of this Presentation. It does not constitute or contain investment advice. It is not and shall not be construed as an offer, invitation, recommendation or solicitation to sell, issue, purchase or subscribe for any securities in any jurisdiction or to enter into any transaction. It is not and shall not be construed as an offer to arrange, underwrite, finance, purchase or sell any security, financial instrument, assets, business, or otherwise provide monies to any party. Such offers may only be provided in writing after satisfactory legal, financial, tax, accounting and commercial due diligence, as well as approval from the relevant business and credit committees of Lloyds TSB and/or their affiliates. The information contained in this Presentation is in summary form for the convenience of presentation and may therefore not be complete.Products and services that may be referenced in the Presentation may be provided through affiliates of Lloyds TSB or any person connected with them. Lloyds TSB and their affiliates prohibits employees from offering a favourable research rating or specific price target or changing a rating or target to get a mandate and Lloyds TSB and their affiliates prohibit research analysts from being compensated for involvement in investment banking transactions, except to the extent that such participation is intended to benefit investor clients. Lloyds TSB, their affiliates, their respective directors or officers or persons connected with them may have an interest in any financial instrument mentioned in this Presentation. Lloyds TSB Corporate Markets is a trading name of Lloyds TSB. Lloyds TSB’s registered office is 25 Gresham Street, London EC2V 7HN and it is registered in England and Wales under No. 2065.Lloyds TSB is authorised and regulated in the United Kingdom by the Financial Services Authority.
LLOYDS BANKING GROUP 17
The Bond Age is upon us
Don’t panic
6 Sources of Capital
It’s a Corporate World out there
LLOYDS BANKING GROUP 18
The Wall of Worry
CHINA QE 2 PIIGS
G20 Currencies Unemployment
Inflation
LLOYDS BANKING GROUP 19
MPC swingometer points away from printing cash
LLOYDS BANKING GROUP 20
5, 10, 11, 12, 13, 15
LLOYDS BANKING GROUP 21
Acceptilation
LLOYDS BANKING GROUP 22
Booming local market - £50ld
LLOYDS BANKING GROUP 23
The Seven Economic ‘R’s
6 Recovery
1 Recession
2 Resuscitate
3 Relapse
4 Recuperate
5 Regenerate
7 Robust
LLOYDS BANKING GROUP 24
Reboot – turn the economy on and off
Resolute – in approach
8
Rebalancing – will take some time
Retrenchment – Consumers think twice
Rescue – have we done enough
Ramifications – are we ready
Somewhere between two and three
Reduction – deficit
LLOYDS BANKING GROUP 25
IMPORTANT NOTICE
This presentation does not constitute or imply an offer or commitment whatsoever on the part of Lloyds TSB Bank plc (“Lloyds TSB”). Any such offer may only be made after the negotiation of satisfactory documentation and only after appropriate credit authority has been obtained. The pricing discussed herein is based on our view of current market conditions and is for discussion purposes only.This presentation and all ancillary documents relating to it (together the "Presentation") was prepared by Lloyds TSB exclusively for you for the purpose of analysing certain potential transactions. The Presentation is being made available on a strictly confidential basis to you and is intended only for the internal use of authorised recipients (“Recipients”) and no part of it may be disclosed to any third party. This Presentation and the information contained herein are the property of Lloyds TSB. Recipients are hereby notified that photocopying, scanning, or any other form of reproduction, or distribution - in whole or in part - to any other person at any time is strictly prohibited without the prior written consent of Lloyds TSB.The information in this Presentation reflects prevailing conditions and our judgment as of this date, all of which are subject to change or amendment without notice and the delivery of such amended information at any time does not imply that the information (whether amended or not) contained in this Presentation is correct as of any time subsequent to its date. Whilst Lloyds TSB have exercised reasonable care in preparing this presentation and any views or information expressed or presented are based on sources they believe to be accurate and reliable, neither Lloyds TSB, nor any of their officers, servants, agents, employees or advisors make any representation or warranty, express or implied, as to the fairness, accuracy, adequacy, completeness or correctness of such information, nor as to the achievement or reasonableness of any projections, targets, estimates, or forecasts and nothing in this Presentation should be relied upon as a promise or representation as to the future. Neither Lloyds TSB nor any of their officers, servants, agents, employees or advisors or any affiliate or any person connected with them accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this Presentation or its contents or otherwise arising in connection therewith. Lloyds TSB undertakes no obligation to update or correct any information contained herein or otherwise to advise as to any future changes to it. Applicable tax, accounting and legal considerations are subject to change and in all cases independent professional advice should be sought in those areas. This Presentation is provided for information purposes only: there has been no independent verification of the contents of this Presentation. It does not constitute or contain investment advice. It is not and shall not be construed as an offer, invitation, recommendation or solicitation to sell, issue, purchase or subscribe for any securities in any jurisdiction or to enter into any transaction. It is not and shall not be construed as an offer to arrange, underwrite, finance, purchase or sell any security, financial instrument, assets, business, or otherwise provide monies to any party. Such offers may only be provided in writing after satisfactory legal, financial, tax, accounting and commercial due diligence, as well as approval from the relevant business and credit committees of Lloyds TSB and/or their affiliates. The information contained in this Presentation is in summary form for the convenience of presentation and may therefore not be complete.Products and services that may be referenced in the Presentation may be provided through affiliates of Lloyds TSB or any person connected with them. Lloyds TSB and their affiliates prohibits employees from offering a favourable research rating or specific price target or changing a rating or target to get a mandate and Lloyds TSB and their affiliates prohibit research analysts from being compensated for involvement in investment banking transactions, except to the extent that such participation is intended to benefit investor clients. Lloyds TSB, their affiliates, their respective directors or officers or persons connected with them may have an interest in any financial instrument mentioned in this Presentation. Lloyds TSB Corporate Markets is a trading name of Lloyds TSB. Lloyds TSB’s registered office is 25 Gresham Street, London EC2V 7HN and it is registered in England and Wales under No. 2065.Lloyds TSB is authorised and regulated in the United Kingdom by the Financial Services Authority.
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