lbg 2011 halfyear results tjwt appendix · unsecured lending portfolio cards loans impairment...
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APPENDIX
2
LOANS AND ADVANCES TO CUSTOMERS
(1) Before allowance for impairment losses totalling £19.2 billion and fair value adjustments
30 June 2011
LOANS AND ADVANCES TO CUSTOMERS £607BN(1)
Personal mortgages58%
Transport, distribution & hotels6%
Lease financing & hire purchase1%
Agriculture, forestry & fishery1%
Corporate other1%
Manufacturing2%
Construction2%
Personal other5%
Property companies12%
Financial, business & other services12%
3
MORTGAGE PORTFOLIO
MainstreamBuy to let
Specialist
30 June 2011
UK MORTGAGE PORTFOLIO £336.4BN
£260.8bn
£28.4bn
£47.2bn
4
MORTGAGE NEW BUSINESS DISTRIBUTION
NEW BUSINESS
6 months to 31 December 2010 - £15.3bn 6 months to 30 June 2011 - £12.9bn
Homemovers£6.0bn
Remortgages£2.7bn
Furtheradvances
£1.4bn
First time buyers£3.0bn Homemovers
£4.4bn
Remortgages£2.8bn
Further advances
£1.2bn
First time buyers£2.5bn
Buy tolet
£2.2bn
Buy tolet
£2.0bn
39%
18%9%
14%
20%34%
22%9%
16%
19%
5
MORTGAGE PORTFOLIO LTVs
New business LTVs
Indexed by value at 30 June 2011Specialist lending is closed to new business
Average LTVs
>100% LTV
Value >100% LTV
Buy to let
66.1%
74.5%
16.4%
£7.8bn
Group
61.3%
55.6%
12.2%
£41.0bn
Specialist
n/a
72.6%
19.4%
£5.5bn
Mainstream
60.4%
51.9%
10.6%
£27.7bn
≤80% LTV 48.3% 58.6%41.0%62.5%
>80–90% LTV 17.5% 16.2%20.4%15.5%
>90–100% LTV 17.8% 13.0%19.2%11.4%
6
£5.7bn (19.4%)
£8.6bn (18.5%)
>100%LTV
£30.7bn (11.6%)
UK MORTGAGE PORTFOLIOBooks performing satisfactorily with stable profiles
Specialist
Mainstream
Buy to let
30 June 2011 31 Dec 2010
Portfolio£336.4bn
£28.4bn (8.4%)
£47.2bn (14.0%)
£260.8bn (77.6%)
£5.5bn (19.4%)
£7.8bn (16.4%)
>100%LTV
£27.7bn (10.6%)
£0.6bn (1.3%)
£1.7bn (0.7%)
£0.8bn (2.8%)
>100%LTV
and >3 monthsin arrears
£3.1bn (0.9%)
£0.6bn (1.3%)
£1.8bn (0.7%)
£0.8bn (2.7%)
>100%LTV
and >3 monthsin arrears
£3.2bn (0.9%)£41bn (12.2%) £45bn (13.2%)
7
UK MORTGAGE PORTFOLIO IMPAIRMENT COVERAGE
Loans and advancesto customers (gross)
Impairment provisionsas % of impaired loans
Impaired loans
Impaired loans as %of closing advances
Impairment provisions
£341.1bn
23.5%
£6.8bn
2.0%
£1.6bn
H2 2010
£344.2bn
22.8%
£6.9bn
2.0%
£1.6bn
H1 2010 UK MORTGAGES
£336.4bn
25.3%
£6.7bn
2.0%
£1.7bn
H1 2011
8
MORTGAGE ARREARS TRENDS
% of total cases >3 months in arrears
Market2.09%(2)
(1) Source: Council of Mortgage Lenders (CML) (2) CML Q1 11Note: chart shows mortgages >3 months in arrears excluding possessions stock as a proportion of total cases
CML total market (1) Buy to LetSpecialistMainstream
The recent increase in Specialist arrears comes from the 2008 vintage as this book reaches maturity. We expect the trend to flatten out over the next 6 months. This book has been closed to new business since 2009.
0%
1%
2%
3%
4%
5%
6%
7%
8%
Q1 07
Q2 07
Q3 07
Q4 07
Q1 08
Q2 08
Q3 08
Q4 08
Q1 09
Q2 09
Q3 09
Q4 09
Q1 10
Q2 10
Q3 10
Q4 10
Q1 11
Q2 11
9
TREND IN MORTGAGE PORTFOLIO ARREARS
Volume ‘000s
CUSTOMERS NEW TO ARREARS
116
H2 09
121
H1 10 H2 10
119 117
H1 11
125
H1 09
The information has been restated to reflect all payments made by customers in the month
10
MORTGAGE PORTFOLIO – PROPERTIES IN REPOSSESSION
(1) Council of Mortgage Lenders Q1 2011 (2) Lloyds Banking Group Q2 2011
NEW REPOSSESSIONS(% of total mortgage cases)
PROPERTIES IN REPOSSESSION(% of total mortgage cases)
30 June2011
LloydsBanking Group(2)
0.06%
CMLaverage(1)
0.08%
31 March2011
30 June2011
0.10%
CMLaverage(1)
0.12%
31 March2011
LloydsBanking Group(2)
11
MORTGAGE PORTFOLIO – PROPERTIES IN REPOSSESSION
% of mortgage cases
PROPERTIES IN REPOSSESSION
(1) Council of Mortgage Lenders Q1 2011
Lloyds Banking Group %
H1 08 H2 08 H1 09 H2 09 H1 10 H2 10 H1 11
0.16%
0.12%
0.08%
0.04%
CML % (1)
0.20%
12
MORTGAGE PORTFOLIO – NEW POSSESSIONS
(1) Source: Council of Mortgage Lenders Q1 2011 (2) Lloyds Banking Group Q2 2011 (3) Source: Council of Mortgage Lenders Q2 2010 (4) Lloyds Banking Group Q2 2010
LloydsBanking Group(2)
0.06%
CML(1)
0.08%
% of total cases
NEW POSSESSIONS
LloydsBankingGroup(4)
CML(3)
0.07%0.08%
30 June2011
31 March2011
30 June2010
30 June2010
13
UNSECURED LENDING PORTFOLIO
Cards Loans
Impairment charge as a % of average lending 6.7% 5.3%
Credit cards
Loans
Personal CurrentAccounts
30 June 2011
UNSECURED PORTFOLIO £26.0BN
£2.6bn
£10.5bn
£12.9bn
14
UNSECURED LENDING PORTFOLIO
£m UNSECURED IMPAIRED LOANS
LoansCardsCurrent Accounts
2,6952,981
3,6033,819
Jun 11Dec 09 Jun 10 Dec 10
15
LOANS AND ADVANCES TO CORPORATE CUSTOMERS
Property companies32%
Lease financingand hire purchase
7%
Manufacturing5%
Corporate Other2%
Agriculture, forestry and fishing
3%
Construction4%
Transport, distribution and hotels
15%
Financial, business and other services
32%(1) Before allowance for impairment losses and fair value adjustments
30 June 2011
LOANS AND ADVANCES TO CORPORATE CUSTOMERS £220.9BN(1)
16
COMMERCIAL/RESIDENTIAL PROPERTY & HOUSEBUILDER LENDING
£78.9bn(1)
(1) Gross (pre FV adjustment and impairment). Includes full recognition of Joint Ventures.(2) Includes lending to non UK residents, and excludes residential mortgages
£53.2bn £25.7bn
Lloyds Banking Group UK
Lloyds Banking Group Overseas(2)
67% 33%
17
UK COMMERCIAL/RESIDENTIAL PROPERTY & HOUSEBUILDER LENDING
Commercial Property(£32.1bn)
£53.2bn(1)
Residential Property(£17.8bn)
Housebuilders(£3.3bn)
Through the cycle policy, supporting predominantly existing customer franchise
Some concentration seen in South East and London, although well spread across remaining UK
Portfolio heavily weighted toward investment over development
Key development origination criteria:
51% Housing Associations (local authority cash flows)
Larger residential property companies
LTSB heritage exposure mainly to the national housebuilders
HBOS previously focused on regional housebuildersLower of 60% of gross
development value or 65% project costs
Min 100% cover from pre-lets
Avoid pure speculative development
(1) Gross (pre FV adjustment and impairment). Includes full recognition of Joint Ventures
Commercial
Residential
Housebuilders
34%60%
6%
18
Recent reduction reflects strategic focus
Excluding Social Housing (local authority cash flows) and Business Support managed assets, mainstream exposure totalled £27bn at the end of June. This comprises:
Our Real Estate credit risk appetite remains aligned to the heritage LTSB approach
UK COMMERCIAL/RESIDENTIAL PROPERTY & HOUSEBUILDER LENDING(1)
(1) Gross (pre FV adjustment and impairment). 31 Dec 2010 has been restated to reflect full recognition of Joint Ventures(2) Majority of Business Support Unit lending is non-core
£bn
57.6
31 Dec 2010
17.0(2)
BusinessSupport
Unit
9.2
Social Housing
c60% originated by heritage LTSBc£1bn of housebuilderlending, with reliance on strong corporate covenants. c£6bn of residential property lending c£20bn of commercial property with a bias towards investment over development
27.0
Mainstream
Non-corec33%
Corec67%
53.2
30 June 2011
Non-corec45%
Corec55%
19
OVERSEAS PROPERTY LENDING
£25.7bn(1)
Ireland(£11.9bn)
Australia(£5.0bn)
55% Property investment, of which 83% is impaired
45% Property development, of which 99% is impaired
Europe, North America & Other(£8.8bn)
45% Property investment, of which 76% is impaired
55% Property development, of which 73% is impaired
Select disposals being made at or near book value
Split non-UK Residents £8.0bn (concentration in Europe) and North America £0.8bn
£2.6bn of non-UK residents exposure relates to Wholesale Europe (WE) business
Ireland
Australia
Europe, North America & Other
47%
20%
33%
(1) Includes lending to non UK residents and excludes residential mortgages. Gross (pre FV adjustment and impairment)
20
LEVERAGED FINANCE LENDING
Key product is cash flow lending. The business originates, executes and portfolio manages deals
Portfolio exposure has reduced by c£1.7bn in H1 2011 with new business offset by asset repayments and sales
A highly selective origination strategy
Predominantly UK focused
Underwriting criteria same as for held assets
Assets monitored closely, with c£5.3bn of the portfolio considered substandard/impaired
Lloyds Acquisition Finance £9.9bn
£12.3bn
Lloyds International £2.4bn
Gross drawn exposure has reduced by £0.5bn in H1 2011
Well spread by industry sector
95% of country risk in portfolio is Australia or New Zealand, with remainder relating to Asia
£0.5bn is impaired (20%)80%20%
Lloyds Banking Group Acquisition Finance
Lloyds Banking Group International
21
RISK CAPITAL PORTFOLIO AT CARRY VALUE(1)
(1) Excludes undrawn commitments of c£1.1bn (as at 31 December 2010 c£1.4bn)(2) Excludes £30m of Joint Ventures managed by BoS USA and £0.1bn carry value of Risk Capital held by W&I Division
Lloyds Development Capital (£1.5bn)
£4.2bn(2)
Ongoing direct equity business being managed for growth LDC continues to be profitablePortfolio is highly diversified by sector, UK geography and, through investing consistently through the cycle, by vintage year Portfolio consists of c85 investments, average value of investment is c£17m
Joint Ventures (£0.15bn)
Asset backed investments, principal sectors: Real Estate (UK & Europe), Hotels and housebuilders
Project Finance (£0.3bn)
Portfolio of high-quality, predominantly operational, PFI/PPP assets largely based in the UKPrimarily availability driven these investments are structured with the objective of providing long-term, secure cash flows
Business Support Unit (£0.09bn)
A portfolio of equity positions resulting from restructuring activity across Wholesale and other legacy assets
MANAGE FOR GROWTH
MANAGE FOR RECOVERY
MANAGE FOR VALUE
3%
52%
36%7%
2%
Funds Investment
Joint Ventures
Business Support Unit
Project Finance
Lloyds Development Capital
Fund Investments (£2.2bn)
Generally, Limited Partner Investments in private equity funds; well diversified underlying exposure principally in UK and Europe
Includes a direct investment portfolio of private equity deals
Fund Investments now manage the small US Fund book (£45m). The legal ownership of these assets remains with the US entities
22
30 June 2011Loans and
advances (£bn)Total(£bn)
Fair Value through P&L (£bn)
Availablefor sale (£bn)
Asset Backed Securities 14.8 4.9 0.4 20.1
Covered bonds - 3.2 - 3.2
Bank / Financial Institution Fixed and Floating Rate Notes 0.2 3.9 0.8 4.9
Bank Certificate of Deposits - 0.5 4.3 4.8
Other 0.2 0.2 4.9 5.3
Total 15.2 14.9 10.8 40.9
TREASURY DEBT SECURITIES PORTFOLIO
Treasury Bills and other bills - 2.2 0.4 2.6
23
ASSET BACKED SECURITIES PORTFOLIO
8020.1Total ABS940.2Negative basis8019.9Total uncovered ABS710.7Other ABS924.2Student loans
931.1850.4Personal loans-970.4Credit Cards-
1000.3Auto loans-Personal sector
852.3440.1Other-932.0CLO-580.2Commercial Real Estate-
--Corporate-Collateralised Debt Obligations
7511.6872.3CMBS-925.2Non-US RMBS-574.1US RMBS-
Mortgage Backed Securities
30 June 2011(%)30 June 2011 (£bn)Carry Value as atNet exposure
24
H1 2010 H1 2011
INSURANCEContinued focus on value over volume
LP&I UK – Sales down but EEV margin up
3.5%
4.2%
(9)%
H1 2010 H1 2011
LP&I UK – New business capital(1) stable
1.9%
H1 2010 H1 2011
LP&I UK – Increased new business profit
27%
H1 2010 H1 2011
GI – Combined ratio improved
(4)%
1.9%
£132m
£168m77% 73%
(1) Capital employed as a percentage of sales
25
IMPAIRMENT LOSSES ON LOANS AND ADVANCES TO CUSTOMERS
Total 5,3696,499
Retail 1,173 0.650.721,335
– Unsecured
– Secured (mortgages)
878
295
6.46
0.18
8.27
0.03
1,282
53
% of average lendingImpairment
H1 2011£m H1 2011
H1 2010£m
Wholesale 1,509 2.023.112,748
Wealth and International 2,528 7.896.562,227
H1 2010
Commercial 159 1.071.28189
26
IMPAIRED ASSET RATIOS – GROUP
Loans and advancesto customers (gross)
Impairment provisionsas % of impaired loans
Impaired loans
Impaired loans as %of closing advances
Impairment provisions
£144bn
44%
£29bn
20%
£13bn
Wholesale
£620bn(1)
45%
£65bn
11%
£30bn
Group
£362bn
32%
£9bn
3%
£3bn
Retail
£64bn
54%
£24bn
37%
£13bn
Wealth & Int’lH1 2011
£30bn
31%
£3bn
10%
£1bn
Commercial
(1) Includes £20bn of hedging and other items
27
IRISH PORTFOLIOCoverage level increased due to economic uncertainties
Weakness in Irish economy continues
Reflecting actual and anticipated further falls in the commercial real estate market
Low levels of redemptions and recoveries due to severe lack of liquidity
Portfolio of £27.6bn (€30.5bn)
Wind down managed by dedicated UK based Business Support Unit credit team
H1/09 H2/09 H1/10 H2/10
IMPAIRED/UNIMPAIRED ASSETS
14%33%
44% 53%
37%42%
54%
40%
59%
56% 56%
Q1/11 (IMS)
H1/11
Unimpaired
Impaired
Coverage ratio64%
28
IRISH PORTFOLIOLimited portfolio reductions (local currency basis), with increased provisioning
31 Dec 2010Portfolio size: £27.5bn (€31.8bn)
30 Jun 2011Portfolio size: £27.6bn (€30.5bn)
Loanbook
Impairedloan
balance
Impairmentprovision
Loanbook
Impairedloan
balance
Impairmentprovision
Commercial Real Estate RetailCorporate & Other
PORTFOLIO BREAKDOWN
7.7
11.7
0.9
4.3
9.2
0.6
2.4
8.1
7.9
4.8
11.9
1.2
7.85.6
10.8
0.9
3.0
5.9
£bn 27.5 14.4 7.8 27.6 17.6 9.8£bn
29
Pricing of new business and repricing of existing book
Sharing of base rate rises benefit
Reduced wholesale funding issuance allows greater control over costs going forward
Improved funding position provides greater flexibility over mix of funding sources
Base rate lower for longer
Wholesale funding costs remain higher for longer
Competition for deposits
Increasing regulatory liquidity requirements
PERFORMANCE DRIVERS – NET INTEREST MARGINTrends continue to be dominated by external factors
INTERNAL(‘Inside’ Management Control)
EXTERNAL(‘Outside’ Management Control)
Group NIM 215 – 230bps based on business and macro assumptionsCore business NIM will exceed Group margin
2014
NIM expected to be >200bps based on current assumptions2011
30
FAIR VALUE UNWIND
£bn
Further fair value unwind expected
2011
c2.7 (1)
2012
c0.5
(1) £1.7bn relates to actual fair value unwind in H1 2011
2013
c0.5
2014
(c0.5)
2015
(c0.3)
31
NET TANGIBLE ASSETS
NET TANGIBLE ASSETS (£bn)
31 Dec2010
40.3
H12011
Earningsimpact
(2.3)
1.3
Other 30 June2011
39.3
NET TANGIBLE ASSETS PER SHARE (p)
31 Dec2010
59.2
Shareissues
(0.6)
H12011
Earningsimpact
(3.4)
2.0
Other 30 June2011
57.2
32
30 June2011£bn
22Bank deposits(1)
47Certificates of deposit
87Medium-term notes
39Covered bonds
27Commercial paper
37Securitisation
37Subordinated debt
Wholesale (excl. customer deposits) 296
31 Dec2010
26
42
88
32
33
39
38
298
REDUCING OUR WHOLESALE FUNDING REQUIREMENTSMaintaining broad spread of wholesale funding
395Customer deposits(1)
691Total Group funding
383
681
Clear benefit delivered by managing balance sheet down
Good relationship customer deposit growth of £12.0bn
Primary liquid asset holding of £100.9bn
Increasing strength of funding position has facilitated an accelerated pay down of central bank funding
(1) Excluding repos
33
SUCCESSFUL TERM ISSUANCE - £25bn ACHIEVED IN H1 2011Utilising a wide variety of funding products and sources
Diverse range of funding products and sources
c£18bn of public term issuance and c£7bn of private placements completed in the first half of 2011
Additional aggregate of £5 – £10bn of public and private issuance for the rest of 2011
Expected public term issuance of c£15 – 20 billion per annum over next 2 years
TERM ISSUANCE H1 2011 PUBLIC TERM ISSUANCE BY CURRENCY
H1 2011 PUBLIC TERM ISSUANCE BY PRODUCT
GBP
Other
EURO
USDMTN
Securitisations
CoveredBonds
52%
29%
19%
15%
15%
35%
35%
34
January 2013Basel 3-0.6% c£30bn
RWA increase largely from credit valuation adjustment, securitisation and insurance allowances(1)
December 2011Basel 2.5-0.2% c£10bn
RWA increase primarily from Market Risk in the trading book
2014 - 2018
Any residual deferred tax losses
Insurance deduction (-0.2%pa)Other transitional adjustments (-0.2%pa) Largely excess expected loss
Transitional rules
IMPLEMENTATION
OngoingNon-core run down and disposals
RWA Benefit
From disposal date (by November 2013)Verde RWA Benefit
CAPITAL: BASEL 2.5 / 3.0 IMPACTMaintaining modest but prudent capital reserves over regulatory requirements
(1) Securitisation partially offset by removal of core tier 1 deduction
TARGET CORE TIER 1 CAPITAL RATIO PRUDENTLY IN EXCESS OF 10% FROM 1 JANUARY 2013 WHEN TRANSITION TO BASEL 3 COMMENCES
35
VERDE PROFILEThe Verde disposal continues to progress at pace
c£0.5bnPBT
c£32bnLiabilities
c£64bnAssets
c£16bnRWAs
c£0.2bnImpairment
c£0.5bnExpenses
c£1.2bnIncome
Verde disposal process accelerated
The business is the seventh largest bank in the UK
Information Memorandum now issued to prospective buyers
Initial bids now being reviewed
Expect to identify purchaser by the end of 2011
Total implementation costs will vary depending upon the nature of the buyer but could be up to £1bn
FINANCIALS: INDICATIVE IMPACT OF VERDE DISPOSAL
(2011 illustration) on Lloyds Banking Group financials
based on EU term sheet agreement
36
FORWARD LOOKING STATEMENTS AND BASIS OF PRESENTATION
FORWARD LOOKING STATEMENTSThis 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 performance. Statements that are not historical facts, including statements about the Group or the Group’s management’s beliefs and expectations, are forward looking statements. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. The Group’s actual future business, strategy, plans and/or results may differ materially from those expressed or implied in these forward looking statements as a result of a variety of risks, uncertainties and other factors, including, without limitation, UK domestic and global economic and business conditions; the ability to derive cost savings and other benefits, as well as the ability to integrate successfully the acquisition of HBOS; the ability to access sufficient funding to meet the Group’s liquidity needs; changes to the Group’s credit ratings; risks concerning borrower or counterparty credit quality; instability in the global financial markets; changing demographic and market related trends; changes in customer preferences; changes to regulation, accounting standards or taxation, including changes to regulatory capital or liquidity requirements; the policies and actions ofgovernmental or regulatory authorities in the UK, the European Union, or jurisdictions outside the UK, including other European countries and the US; the ability to attract and retain senior management and other employees; requirements or limitations imposed on the Group as a result of HM Treasury’s investment in the Group; the ability to complete satisfactorily the disposal of certain assets as part of the Group’s EU state aid obligations; the extent of any future impairment charges or write-downs caused by depressed asset valuations; exposure to regulatory scrutiny, legal proceedings or complaints, actions of competitors and other factors. Please refer to the latest Annual Report on Form 20-F filed with the US Securities and Exchange Commission for a discussion of such factors together with examples of forward looking statements. The forward looking statements contained in this announcement aremade as at the date of this announcement, and the Group undertakes no obligation to update any of its forward looking statements.
BASIS OF PRESENTATIONThe results of the Group and its business are presented in this presentation on a combined businesses basis and include certain income statement, balance sheet and regulatory capital analysis between core and non-core portfolios to enable a better understanding of the Group’s core business trends and outlook. Please refer to the Basis of Presentation in the 2011 Half-Year Results News Release which sets out the principles adopted in the preparation of the combined businesses basis of reporting as well as certain factors and methodologies regarding the allocation of income, expenses, assets and liabilities in respect of the Group's core and non-core portfolios.