LLOYDS BANKING GROUP COMMERCIAL BANKING UPDATE
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LLOYDS BANKING GROUP COMMERCIAL BANKING UPDATE 0 WELCOME & INTRODUCTION António Horta-Osório Group Chief Executive 1 COMMERCIAL BANKING A core part of Lloyds Banking Group A single division serving all the Group Group’s s business clients Strong core franchise across UK UK-centric approach, focused on meeting our clients’ needs Key to our support for the UK economic recovery Leveraging Commercial Banking as an integral part of the Group Strategy and action plan fully aligned and integrated with Group Delivering cost and product synergies with other parts of the Group Supporting the Group’s funding and commercial needs A clear plan to improve Commercial Banking’s returns Growing diversified, sustainable earnings streams Delivering g increased operational p and cost efficiencies through g Simplification p Optimising the balance sheet through clear participation choices and strong risk controls 2 COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking 3 AGENDA COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking BEST BANK FOR CLIENTS David Oldfield, Andrew England, Ri h d Moore, Richard M James J Garvey G CLOSING REMARKS AND Q&A A d Andrew Bester, B t Chi Chieff Executive, E ti Commercial C i l Banking B ki 4 COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking 2015 Core RoRWA >2% Relentless focus on Execution 5 COMMERCIAL BANKING Building the best bank for clients 1.25m SME clients Relationships with 91% of FTSE 100 Relationships with 83% of FTSE 250 c.40% active users of digital channel 500 business centres across the UK Network of over 4,000 client facing staff 6 COMMERCIAL BANKING Personal reflections Strengths g Unique client franchise Strong product capability Client-centric team Macro environment Shifting industry trends Subdued environment R Regulatory l t challenges h ll Financial performance Weak NIM Large consumption of Group RWA Insufficient returns Transformation Balance sheet normalisation Legacy issues unwind Create an integrated franchise Fully leverage growth opportunities Cost discipline Robust RWA management / choices R l tl Relentless execution ti 2015 Core RoRWA >2% 7 COMMERCIAL BANKING Actions to date Achieved already What is different Strategic review Relentless execution of strategy Aligned 16 business lines Integrated daily P&L New coverage model Performance management framework Appointed management team Pricing independence Re-segmentation Business model drives collaboration Performance management tools Disciplined investment & participation 8 COMMERCIAL BANKING Experienced & integrated leadership team Andrew Bester Group Director & CEO Commercial Banking Group Risk1 David Clare Edward Andy Oldfield Francis Thurman Cumming MD, MD, MD, MD, SME & Global Financial Global MidCorporates Institutions Head of Markets; Non-Core Head of Lending CLIENT RELATIONSHIPS 1. Independent Group functions Andrew England MD, Transaction Banking Richard Moore MD, Financial Markets James Garvey MD, Capital Markets Darryl Eales MD, LDC PRODUCT MANAGEMENT Karin Cook Chief Operating Officer Adrian Walker MD, Business Development & TransTrans formation Group Risk1 Group Finance1 Group HR1 Stephen Shelley Risk Director Nick Slape Finance Director Hugh McKay HR Director DELIVERY / FUNCTIONAL SUPPORT 9 COMMERCIAL BANKING Vision and strategy aligned to Group priorities STRENGTHEN Robust capital, liquidity and risk profile Supports UK business SIMPLIFY Scalable infrastructure Cost leadership provides competitive advantage Client centric UK focused Capital efficient Returns above cost of capital with lower risk RESHAPE Focused, value creating balance sheet Delivers 100% of the bank to clients INVEST Client leadership 10 COMMERCIAL BANKING Supporting all of the Group’s business clients Lloyds Banking Group Commercial Banking1,2 % of Group1,2 27% Income Lending Assets SME Mid-Markets Global Corporates £0-1m £1-25m t/o t/o £25m-£750m t/o £750m+ t/o No. of clients ~1m ~250k ~5,000 ~850 ~2,000 Income split 37% 24% 23% 16% Lending assets 27% 33% 30% 10% 73% 24% Financial Institutions 76% 26% Deposits RWA 74% 46% 54% Core RoRWA Client at the centre of our model Commercial Banking Rest of Group 1. Commercial Banking metrics as a % of Group based on 2012 Full Year News Release 2. Core only 11 COMMERCIAL BANKING Our full product capability will service our client needs 9 37% 9 24% 9 23% 9 16% SME Mid-Markets Global Corporates Financial Institutions Loan Syndication Acquisition Finance LDC2 Liquidity FX Money Markets Management Deposits Current a/cs Call Deposits Overdrafts Term Loans Commercial Mortgages Cash Mgmt. Payments Credit Cards CRE Loans M&A ECM Secondary Equities Equity Derivatives Prime Brokerage Bonds Conduits Project Finance Term Securitisation Private Placements Risk Management Market Research Wealth Products Factoring Invoice Discounting Leasing Asset Finance 1. Excludes own account / non-client 2. Focus on equity support into UK Mid-Markets companies Trade Finance Supply Chain Finance International Payments Share of 2012 Core Client Income1 Investment 8 Banking Capital 9 14% Markets Financial 9 23% Markets Transaction 9 50% Banking Revolving Credit Lending 9 13% 12 COMMERCIAL BANKING All coverage areas will improve current returns Strategy Actions SME Growth “Local Local Execution” Execution 9 9 9 Higher-value switchers Greater relationship p manager g capacity p y enabled by y investment Increase digital take-up Mid Markets Mid-Markets Growth “Local Execution” 9 9 9 Targeted geographic expansion More relationship managers Leverage SME success in Mid-Markets Global Corporates Disciplined Participation 9 9 9 Improve share of wallet Focus on UK-linked clients Optimisation of low return relationships 9 9 9 Improve share of wallet Refocused coverage Support Group, Commercial Banking franchise and UK financial services industry Financial Institutions Disciplined Participation Relentless execution focus across four client segments 13 COMMERCIAL BANKING SME: Grow by winning locally Client numbers vs. Income1 SME ~80% 78% Number of Clients Income 22% ~20% Mid-Markets <£1m Turnover "Business Banking" £1-£25m Turnover "SME" Market Share by client turnover2 Global Corporates 21% Strong franchise Winning switchers Winning in key GDP regions Growing lending & deposits Leveraging Transaction Banking Reducing cost to serve 21% 19% 17% Financial Institutions £0m-£1m £1m-£2m £2m-£10m £10m-£25m 1. FY 2012 2. Charterhouse UK Business Banking Survey Q4 2012 (including Verde clients) 14 COMMERCIAL BANKING Mid-Markets: Grow by winning locally Mid-Markets Assets by segment1 Medium-Sized Business2 SME 24% 29% % Mid-Cap Mid Cap2 Education, Communities and Government Mid-Markets 13% 26% 7% Global Corporates Real Estate Social S i l Housing Medium-Sized Business and Mid-Cap 3 M k t Share Market Sh 29% 19% Leveraging SME experience Increasing g RM p population p Enhancing RM effectiveness Building capabilities Leveraging Transaction Banking Delivering Financial Markets Financial Institutions Lloyds Banking Group Market Leader 1. As at Dec-2012 2. Medium-Sized Business is £25m-£100m turnover; Mid-Cap is £100m-£750m turnover 3. Experian PH. Market share of trading businesses with turnover £25m-500m 15 COMMERCIAL BANKING Global Corporates: Disciplined participation focused on i improving i returns Client Segmentation Prioritisation Criteria Strategy SME 1 UK focused Diamond Platinum Mid-Markets % of clients Grow / defend c.5% Grow / up-tier c.15% Deepen c.45% Optimise c.35% Global Corporates Crriteria 2 Gold Franchise opportunity oppo tu ty Sub-hurdle Lending Financial Institutions Returns Product Penetration 3 Returns Transaction Banking Financial Markets Capital Markets RoRWA 16 COMMERCIAL BANKING Financial Institutions: Disciplined participation leveraging L d London as a global l b l financial fi i l centre Client Segmentation Prioritisation Criteria Strategy SME 1 Support the Group Diamond Platinum Mid-Markets % of clients Grow / defend c.2% Grow / up-tier c.13% Manage for efficiency c.65% Optimise c.20% 2 Crriteria Global Corporates Gold Supporting the Commercial Banking F Franchise hi Correspondent banking Sub-hurdle Returns Product Penetration 3 Financial Institutions Institutional distribution Support financial services industry in the UK Lending Transaction Banking Financial Markets Capital Markets RoRWA 17 COMMERCIAL BANKING Continued cost discipline creates capacity to re-invest Simplification initiatives Re-engineering end-to-end processes Strategic investments SME: enabling self-serve Delayering structure Mid-Markets: additional local RMs Headcount efficiencies Transaction Banking: stronger platform 11 Centres of Excellence Markets: digital channel and targeted capability build Leverage Group functionality 18 COMMERCIAL BANKING Deliver sustainable returns above the cost of equity T Transformation f ti Journey J Income Growth 9 Normalisation of funding costs 9 Strategic investments in product capability 9 Franchise growth SME / Mid-Markets Cost Control 9 Simplification 9 Scalable integrated platforms 9 Centres of Excellence Balance Sheet and Risk Management 2015 Core RoRWA >2% 9 Capital optimisation portfolio management g 9 Active p 9 Lower risk origination discipline Relentless execution 19 AGENDA COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking BEST BANK FOR CLIENTS David Oldfield, Andrew England, Ri h d Moore, Richard M James J Garvey G CLOSING REMARKS AND Q&A A d Andrew Bester, B t Chi Chieff Executive, E ti Commercial C i l Banking B ki 20 IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking 21 COMMERCIAL BANKING Core Financial Performance…key drivers to improve our returns 11 Normalisation of funding costs Income Growth Strategic investments in product capability Franchise growth SME / MidMid Markets Simplification Cost Control Scalable integrated platforms Centres of Excellence Balance Sheet & Risk Mgt 1. Core Commercial Banking only Capital C it l optimisation ti i ti Active portfolio management Lower risk origination discipline 22 COMMERCIAL BANKING Half yearly performance NII 2 755 2,755 Income Growth Cost Control Income1 (£m) Other income 2,326 2,320 2,364 1,378 1,114 1,128 1,468 Legacy issues driving margin compression Other Income progression 1,287 948 1,206 1,236 H1’11 H2’11 H1’12 H2’12 1,181 1,111 1,162 1,070 Costs1 Strict cost discipline (£m) Simplification creates capacity H1’11 H2’11 H1’12 H2’12 1,055 Balance Sheet & Risk Mgt 704 Impairment1 (£m) AQR of 67bps Impairments normalising 2011 1. Core Commercial Banking only 33% YoY fall in impairments 2012 23 COMMERCIAL BANKING Diversified client-led income profile Client vs non-client income1,2 10% Income Growth Client Non Client 90% of income client driven 90% Cost Control Client income split by product1,2 23% 13% Income by client segment1,2 Diversified client franchise 16% 37% Leverage SME success Disciplined participation 23% 14% Low-risk L i k products d t 50% Balance Sheet & Risk Mgt 24% Term Lending SME Transaction Banking Mid Markets Capital Markets Global Corps Financial Markets Fin. Institutions 1. FY 2012 2. Core Commercial Banking only 24 COMMERCIAL BANKING Normalisation of funding costs will benefit margin Net interest margin1 (32bps) Income Growth 2.54% ‘Cost of money’ y better understood Enhanced commercial behaviours 2.22% Legacy long duration asset margin drag Active portfolio management Client-led solutions to reduce duration 2011 Cost Control Focus on better quality deposits 2012 Lending maturity profile1 Over 5 years2 18% Under 5 years LTSB 5 year CDS spreads (bps) 500 336 400 300 200 Balance Sheet & Risk Mgt 100 122 106 82% 0 01/08 07/08 01/09 07/09 01/10 07/10 01/11 07/11 01/12 07/12 01/13 Commercial behaviour driving further NIM improvement 1. Core Commercial Banking 2. Based on specific portfolios with a weighted average life of over 5 years and includes Social Housing & Structured Finance 25 COMMERCIAL BANKING Leveraging client focused product capability to drive other income Other Income growth Income Growth +9% 2,442 2,235 Cost Control Existing pockets of strong product capability 2011 Investment in client focused products 2012 Other Income by product1,2 10% Term Lending Transaction Banking 31% Quarter on quarter growth Increasing share of wallet Not increasing risk Capital Markets3 28% Balance Sheet & Risk Mgt Financial Markets 31% 1. FY 2012 2. Core Commercial Banking only 3. Capital Markets includes LDC 26 COMMERCIAL BANKING Cost savings reinvested to create income growth Income Growth Cost Control Balance Sheet & Risk Mgt Simplification Headroom for Investment Invest for Income Growth Over 100 projects Process automation C t Centres off Excellence E ll Channels & products Cost discipline Simplification cost savings of £0.2bn pa Creating g capacity p y £0.5bn targeted g incremental investment over three y years Capability build across Transaction Banking and Markets Investing in return enhancing capital light products 27 COMMERCIAL BANKING Active portfolio management to enhance returns Core RWAs (£bn) (10%) Income Growth 133-138 128 5-10 38 15-20 ~125 5-10 90 Cost Control 2012 Non-Lending Balance Sheet & Risk Mgt CRD IV and other Regulatory change 2012 CRD IV pro forma Disciplined Participation Growth 2015 Lending Lending RWAs £90bn correspond to £102bn of Loans and Advances to Customers Modest impact of CRD IV and regulatory change Disciplined participation and active portfolio management Creating g capacity p y for supporting pp g our clients and p participating p g in FLS Growth includes franchise growth, maturities and repayments 28 COMMERCIAL BANKING Deliver sustainable returns above the cost of equity Income Growth Cost Control FY111 FY121 2.54% 2.22% 5.1 4.7 Other Income as a % of income 44% 52% Cost:Income Ratio 45% 48% 0 95% 0.95% 0.67% 129 128 ~125 1.32% 1.36% >2.00% Banking net interest margin Income (£bn) Impairment charge as a % of average advances Balance Sheet & Risk Mgt RWA (£bn) Return on Risk-Weighted g Assets 1. Core Commercial Banking only 2015 29 AGENDA COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking BEST BANK FOR CLIENTS David Oldfield, Andrew England, Ri h d Moore, Richard M James J Garvey G CLOSING REMARKS AND Q&A A d Andrew Bester, B t Chi Chieff Executive, E ti Commercial C i l Banking B ki 30 MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking 31 MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking Prudent riskrisk Prudent appetite appetite Low riskrisk Lower portfolio portfolio Active Active portfolio portfolio management management 32 COMMERCIAL BANKING Lower risk business underpinned by the prudent heritage LTSB appetite i Average AQR1 2008-2009 (bps) 669 153 HBOS LTSB lower risk approach Legacy HBOS portfolio largely exited or in non-core Prudent LTSB approach is already embedded LTSB 1. Commercial Banking excluding Wholesale Europe International Portfolios 33 COMMERCIAL BANKING Independent Enterprise-wide Risk Framework SME MidMarkets Global Financial Corporates Institutions Market Risk Ri k ttypes Risk Market Risk Credit Risk Small relative to peers Insurance Risk Average 95 per cent 1-day trading Value at Risk (VaR) was £7m for year to December 2012 Conduct Risk Capital Risk Operational Risk Enhancements to product design, sales processes, root cause analysis Credit Risk Prudent and through the cycle credit risk appetite Funding & Liquidity Risk Financial Reporting Risk People Risk Clearly defined levels of authority E Early l id identification tifi ti and d managementt off deteriorating d t i ti credits Governance Risk Regulatory Risk Conduct Risk 34 COMMERCIAL BANKING We are executing a robust conduct risk strategy Product Governance Rigorous go ous product p oduc risk s assessment assess e Product implementation reviews Annual product reviews Enhanced record keeping Client Treatment Responsible lending Post sales processes ensure best outcomes Culture, Recruitment Reward and Training Best bank for clients Client outcome measures drive reward Complaint Handling Root cause analysis Client outcome testing Rectification framework Conduct Risk Appetite Qualitative statements and core metrics metrics, regularly reviewed at Board level Supported by more detailed divisional appetite statements and limits Further evolving MI to enhance Conduct Risk Appetite Metrics 35 COMMERCIAL BANKING Established credit risk approach supports our UK-centric strategy Risk appetite Conservative, through the cycle approach Target market and risk acceptance criteria 2012 Core asset portfolio1 5% Hold policy Credit policy Single counterparty and selective sector concentration limits Caps for higher risk sectors and asset classes Minimum obligor quality rating criteria for bulk of new business Sector and product specific parameters 95% UK International Robust p processes with strong g oversight g are in place p 1. UK defined as all UK-booked business 36 COMMERCIAL BANKING Improving credit risk profile Improved obligor quality Core CB (excl. Financial Markets): Probability of Default (commitments) Sector concentrations under control Obligor quality is stable Heritage LTSB approach to origination Adhered to credit risk appetite for FLS Commercial/Residential Property1 Total £43.7bn UK Good Book £18.0bn UK Business Support Unit £12 7bn £12.7bn 1. 2012 Full Year News Release 2. Overseas includes £7.4bn of Ireland assets Core BSU transfers down 37% Non-Core Real Estate exposure under control Overseas2 £13.0bn 37 COMMERCIAL BANKING Lower impairments via prudent risk management Core impairment charge (£bn) (33%) 1.1 07 0.7 2011 2012 Core impairments down 33% Core AQR 67bps Core AQR (bps) Good book boo forborne o bo e loans oa s minimal a (28bps) 95 67 2011 2012 38 COMMERCIAL BANKING Active portfolio management Origination discipline New centralised pricing controls Pricing models reflect full Basel III impacts Portfolio Management team approve all larger transactions Optimise low return clients Built client return metrics combining all product revenues and risks Client management plans to deepen wallet Optimisation of long dated low margin loans RWA optimisation Disciplined origination reducing capital requirements for new business Stronger distribution focus 39 AGENDA COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking BEST BANK FOR CLIENTS David Oldfield, Andrew England, Richard Moore Moore, James Garvey CLOSING REMARKS AND Q&A A d Andrew Bester, B t Chi Chieff Executive, E ti Commercial C i l Banking B ki 40 BEST BANK FOR CLIENTS SME & Mid-Markets Mid Markets – David Oldfield 41 COMMERCIAL BANKING SME supports clients’ needs across the UK SME UK geographic spread Market share by client turnover1 21% 21% £0m-£1m t/o: ~1m 1m clients 19% 17% £1m-£25m t/o: ~250,000 clients £0m-£1m £0m £1m £1m-£2m £1m £2m £2m-£10m £2m £10m £10m-£25m £10m £25m ~2,500 client facing staff Market share by region1,2 500 business centres 40% 34% 31% 20 Area Director groups Area Director and Support Centres 1. Charterhouse UK Business Banking Survey Q4 2012 (including Verde clients) 2. £1m-£25m turnover clients. Market share at Dec-2012 33% 33% 31% 25% 19% 16% London and East Midlands and North 19% Scotland Lloyds Banking Group South and West Overall UK Market Leader 42 COMMERCIAL BANKING Opportunity to grow underpenetrated Mid-Markets regions Mid-Markets UK geographic spread 2012 Income by region1 11% £25m-£750m t/o: ~5 5,000 000 clients London and South East Midlands, East and South West 40% 19% North Scotland 165+ RMs 30% 20 Area Director groups Market share by region2 29% 26% 21% 15% London and South East 30% Midlands, East and South West 29% 19% 17% North Lloyds Banking Group 1. Comprises Medium-Sized Business and Mid-Cap only 2. Experian PH, market shares as at Dec-2012. Market share of trading businesses with turnover £25m-£500m 34% 34% Scotland Overall UK Market Leader 43 COMMERCIAL BANKING The best Relationship Managers local to clients Our proposition Best RMs “know the business” Helping Britain prosper “support UK SME” Core capabilities “make it easy” Franchise g growth “help access expertise” addresses “client needs” 9 Experienced and knowledgeable RMs, many with 20+ years experience 9 Named, local RM support 9 RM portfolios comprise similar size / sector clients leading to deep insight 9 9 9 9 Net lending to SME 4% up in a market that declined 4% in 2012 Net lending to Mid-Markets in H2 2012 broadly flat in a market that declined 6% Providing discounted lending to SMEs through NLGS and FLS Support in excess of 100k business start ups annually 9 Direct access to RMs through client’s client s preferred channels 9 Reduced time to cash by almost 50% 9 Access through RMs to broader product/sector specialists 9 Range of industry accredited key market RMs providing tailored service Leveraging the combined geographic reach 44 COMMERCIAL BANKING Committed to supporting UK clients through a number of government schemes h FLS Discounts off 1% % per annum to all qualifying f clients First bank to participate in scheme Committed in excess of £11bn in gross funds to end 2012 Enterprise Finance Guarantee (EFG) Scheme One of the most active EFG lenders By the end of 2012 we provided – More than 5 5,200 200 EFG loans worth in excess of £400m – Represent 26% of all loans granted through the scheme Business Finance Taskforce UK Business Angels Association Key contributor to the Government Business Finance taskforce 400 business volunteer mentors – 42% of the UK wide bank mentor population SME and Mid-Markets Charters Client lending appeals 200 client outreach events in 2012 Supporting efforts to help SMEs secure equity from private investors We are the only bank represented on the Board of the UKBAA £850m early stage equity with advice from angels complements our debt finance support 45 COMMERCIAL BANKING Winning new clients Agriculture Schools Largest provider of finance Bank 57% of all academies to UK agriculture 34% share of lending to farmers Support 9 in 10 deals presented t d to t us Clients cite service excellence, strength of proposition and depth of sector knowledge as deciding factors Manufacturing Attracted a switcher after 150 year relationship with previous bank Proposition differentiated through sector knowledge 46 BEST BANK FOR CLIENTS Transaction Banking – Andrew England 47 COMMERCIAL BANKING Significant volumes across Transaction Banking platforms Leveraging platforms post integration Payment volumes (m)1 EUROMONEY TRADE FINANCE April 2012 Best Domestic Trade Finance Provider 4% 541 CARD & PAYMENT AWARDS February 2013 Best Merchant Acquiring Initiative – London 2012 518 2011 2012 Helping clients with their working capital needs 1. Includes domestic payments for SME, Mid-Markets and Global Corporates. Market grew by up to 1% in 2012 48 COMMERCIAL BANKING Consolidation and simplification of infrastructure to create a sustainable i bl platform l f for f growth h 2011 – post LTSB/HBOS Fragmented landscape 2012 / 2013 2014 Investment / transformation Delivery of integrated platforms Lloyds TSB Channels Account A t platform l tf Limited liquidity Consolidation of account systems Build new online channel HBOS Channels Account platform Invest in product systems Single core account platform – SME to Global Single new electronic channel Market leading liquidity solutions Integrated Trade business Simplifying the operating model, building capability and increasing product offering 49 COMMERCIAL BANKING Investment delivers strong core capabilities Maximise opportunity in payments, trade finance, liquidity q y and cards - Develop product propositions Enhance Transaction Banking platform p access through g modern online - Improve channel and seamless access to domestic and international payments real-time time Sterling account platform - Deliver real - Partnering with International banks to build Trade capability - Specialist sales teams 50 COMMERCIAL BANKING Delivering capability to fulfil client needs Airline Simplify and standardise banking interfaces Direct access to the appropriate payment systems UK Manufacturer Long-term banking partner High-volume Trade Finance facility Flexible Trade Lending solution Award-winning A d i i ttailored il d solution 51 BEST BANK FOR CLIENTS Financial Markets – Richard Moore 52 COMMERCIAL BANKING Simple products serving client needs 5 key product areas across coverage segments Low risk, client-driven income streams Measure and manage to good client outcomes Competitive capability Generate capital efficient returns 53 COMMERCIAL BANKING Investing to serve the different needs of our clients Complete core Financial Markets infrastructure build in 2013 – Capability to respond to regulation, automation and capital challenges Alignment to coverage and product partners is critical to stable and diversified income – Top 3 core banks command 80% share of wallet Client Segments SME Financial Markets Role Simple FX & Interest Rate Hedging Products Money Market Deposits Mid-Markets FX & Interest Rate Risk Management Liquidity Management Global Corporates FX & Interest Rate Risk Management Bond Distribution Liquidity & Collateral Management Financial Institutions Access to market liquidity in FX, Rates & Credit Bond Distribution Securitisation Distribution Access to market liquidity through multiple channels 54 COMMERCIAL BANKING Effective intermediation to deliver for the client “We We bring together UK focused clients and relevant investors” investors Clients Lending / reciprocity Capital Markets Financial Markets private side public side Origination Syndication Pricing and Liquidity Distribution Investors Research and Insight Structuring and solutions UK Gateway Strategy 55 COMMERCIAL BANKING Delivering solutions in capital light products ARENA Broadcaster GEMM Gilt Edged Market Maker Single, customisable e-trading interface for FX and Money Market deposits with insight, analysis and reporting Built for our clients by our clients Supported the c.£3.6bn refinance of Arqiva existing debt facilities Lloyds acted as bookrunner on the th Senior S i and d JJunior i notes Rapid growth and increased credibility Market leading position Flagship FM product and gateway to our core proposition 56 BEST BANK FOR CLIENTS Capital Markets – James Garvey 57 COMMERCIAL BANKING Supporting clients with financing & risk management Support relationship managers and their client franchise ambitions Build a competitive range of client-centric financing and risk management products Focus on Debt Financing and Risk Management Partner with Coverage and Financial Markets to drive distribution in support of originate-to-distribute model Seek to maximise share of wallet by addressing client needs Conservative risk profile with strong oversight and control 58 COMMERCIAL BANKING Established a competitive range of client solution capabilities Supporting UK clients How we are structured to succeed Largest provider of syndicated lending to the UK economy An established UK corporate bond franchise Leading UK corporate Risk Management Solutions team help clients manage their balance sheet risks Financing Loans Bonds Asset Backed Solutions Risk Management Solutions Loan Markets Corp / FI DCM Asset Backed B k d Bonds P d t Solutions Product S l ti Infrastructure & Energy gy Building an enhanced financing and risk management product suite for our clients Risk Management Short Term Financing Acquisition Finance 59 CAPITAL MARKETS Strong growth in Capital Markets franchise Total UK Corporate DCM Service Quality Important DCM R Relationships 60% UK competitors 50% Lloyds Banking Group p 40% #2 for ‘Best Domestic Bond Distribution’ 2012 30% Lloyds Banking Group improvement in 2011 20% 2010 overall DCM specialist capability was the largest among major competitors IB providers 10% 0% -150 -100 -50 0 50 100 150 DCM Origination Quality* Difference from average I t Interest t Rate R t Derivative D i ti Service S i Quality Q lit Estimated Marke et Share 10% #1 in UK corporate IRD Market Share 2012 8% Lloyds Banking Group 6% 2011 2010 UK competitors 4% IB providers 2% Penetration #1 jointly for Quality Index and Quality Index Sales 0% -150 #1 in UK corporate IRD Sterling Swaps -100 -50 0 50 Service Quality Difference from average 100 150 #1 for ‘Best’ & ‘Top 3’ Sales Rep 60 COMMERCIAL BANKING Increasing the availability of UK housing stock through public bli bond b d issues i Housing Association Bond League Table FY 20121 Rank Bookrunner Amountt A (£m) No.3 Market M k t share 1 Lloyds Banking Group 883 9 27.7% 2 Peer 1 801 8 25.1% 3 Peer 2 634 7 19.9% 4 Peer 3 300 4 9.4% 5 Peer 4 233 4 7.3% 6 Peer 5 100 1 3.1% Total2 2 785 2,785 16 100% Case Study: Saxon Weald £225m 5.375% notes due 2042 Bookrunner May 2012 Saxon Weald issued £225m, 30 yr amortising bonds Excludes aggregation vehicle transactions and private placements 1. Dealogic 2. Total Amount and Market Share includes banks not in the top 6 3. Each deal may have more than one Bookrunner 61 COMMERCIAL BANKING Supporting the UK economy £150m Bond / $240m USPP / $121m swap $500m Senior Bond £300m Senior Retail Bond £760m Senior/Index Link Bond £150m Aquisition Facilities $240m Private Placement $121m USD Swap $500m 5.6% Notes due 2023 £300m 4.7% Notes due 2021 £610m 5.6% Notes due 2038 £150m 1.6% Notes due 2038 Bookrunner Bookrunner Bookrunner Bookrunner Bookrunner O t b 2012 October J January 2013 O t b 2012 October February 2013 S t b 2012 September €1.0bn Senior Bond £1.25bn Hybrid Perpetual p Bond £600m Senior Bond €1.25bn Senior Bond £750m Senior Bond €1,000m Notes due 2021 £1,250m 6.0% £300m 4.4% Notes due 2034 £300m 4.6% Notes due 2046 €1,250m 4.125% notes due 2018 Bookrunner Bookrunner Bookrunner Bookrunner Bookrunner March 2013 January 2013 June 2012 March 2012 January 2013 £1.75bn Senior Bond £750m 3.2% Notes due 2024 £1,000m £1 000m 4 4.3% 3% Notes due 2042 £750m 5.6% Notes due 2038 62 AGENDA COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking BEST BANK FOR CLIENTS David Oldfield, Andrew England, Richard Moore,, James Garvey y CLOSING REMARKS AND Q&A Andrew Bester, Bester Chief Executive, Executive Commercial Banking 63 COMMERCIAL BANKING Deliver sustainable returns above the cost of equity T Transformation f ti Journey J Income Growth 9 Normalisation of funding costs 9 Strategic investments in product capability 9 Franchise growth SME / Mid-Markets Cost Control 9 Simplification 9 Scalable integrated platforms 9 Centres of Excellence Balance Sheet and Risk Management 2015 Core RoRWA >2% 9 Capital optimisation portfolio management g 9 Active p 9 Lower risk origination discipline Relentless execution 64 LLOYDS BANKING GROUP COMMERCIAL BANKING UPDATE Best Bank for Clients 65 FORWARD LOOKING STATEMENTS AND BASIS OF PRESENTATION FORWARD LOOKING STATEMENTS This presentation 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 or may 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, but not limited to, UK domestic and global economic and business conditions; the ability to derive cost savings and other benefits, including as a result of the Group’s simplification programme; 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, including Eurozone instability and the impact of any sovereign credit rating downgrade or other sovereign financial issues; market related risks including, but not limited to, changes in interest rates and exchange rates; changing demographic and market related trends; changes in customer preferences; changes to laws, regulation, accounting standards or taxation, including changes to regulatory capital or liquidity requirements; the policies and actions of governmental or regulatory authorities in the UK, the European Union, or jurisdictions outside the UK, including other European countries and the US; the implementation of the draft EU crisis management framework directive and banking reform following the recommendations made by the Independent Commission on Banking; the ability to attract and retain senior management and other employees; requirements or limitations imposed on the Group p as a result of HM Treasury’s y investment in the Group; p; the ability y to complete p satisfactorily y the disposal p of certain assets as p part of the Group’s EC state aid obligations; the extent of any future impairment charges or write-downs caused by depressed asset valuations, market disruptions and illiquid markets; the effects of competition and the actions of competitors, including non-bank financial services and lending companies; exposure to regulatory scrutiny, legal proceedings, regulatory investigations or complaints, 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 certain factors together with examples of forward looking statements. statements The forward looking statements contained in this presentation are made as at the date of this presentation, and the Group undertakes no obligation to update any of its forward looking statements. BASIS OF PRESENTATION The results of the Group and its business are presented in this presentation on a management basis and include certain income statement, balance ba a ce sheet s ee and a d regulatory egu a o y capital cap a analysis a a ys s between be ee core co e a and d non-core o co e po portfolios o os to oe enable ab e a be better e u understanding de s a d g o of the eG Group’s oup s core co e business trends and outlook. Please refer to the Basis of Presentation in the 2012 Results News Release which sets out the principles adopted in the preparation of the management 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.
