Key highlights*
The Group has continued to deliver a good revenue performance in the third
quarter of 2009, with similar trends, excluding gains on liability management
transactions, to those delivered in the first half of the year.
The Group's banking net interest margin has shown clear signs of stabilising
and was flat in the third quarter of 2009, compared to the first half of the
year.
The Group's costs in the nine months to 30 September 2009 were 2 per cent lower
than in the equivalent prior period, as we continued to deliver a robust cost
performance.
Excellent progress has continued to be made on the integration of the enlarged
Group, with the achievement of £50 million higher run-rate cost synergies than
those previously announced.
The run-rate of overall impairments has slowed in the third quarter of the
year. As a result, we continue to expect impairments to fall significantly in
the second half of 2009, compared to the first half of the year.
As previously announced, we continue to expect the Group to report a loss
before tax for 2009, excluding the impact of the £11.2 billion credit relating
to negative goodwill.
Eric Daniels, Group Chief Executive, commented:
"The Group has delivered a robust business performance over the last few
months, in what remained a challenging, albeit stabilising, economic
environment. Our core relationship businesses have, once again, performed well
with good revenue growth, as margins begin to stabilise, and we have achieved a
strong cost performance. We have made further excellent progress on the
integration of the enlarged Group, with the achievement of higher than
previously announced cost synergies in the third quarter of the year.
"On impairments, the slowdown in the run-rate in the third quarter provides
additional comfort that the Group's overall impairment charge has peaked, and
that there will be a significant reduction in impairments in the second half of
2009. We have also significantly improved our short-term liquidity position.
"In all key areas of the Group we are delivering in line with recent guidance.
Consistent delivery against these goals underpins our ability to achieve the
Group's long-term growth opportunities."
*Unless otherwise stated, 2009 performance comparisons relate to the equivalent
period in 2008 for the enlarged Group's aggregated continuing businesses.
Good revenue growth in the third quarter of 2009
The Group has delivered good revenue growth in the third quarter of 2009 with a
strong performance in its core relationship businesses, excluding the gains on
liability management transactions. During the third quarter, the Group banking
net interest margin has shown clear signs of stabilising and continues to
benefit from ongoing asset repricing which has offset the impact of lower
deposit margins and higher funding costs. The third quarter margin was flat
compared to the first half of 2009.
Revenue trends in Retail reflected a solid overall business performance. We
have continued to build momentum in customer deposits with balances increasing
£2.0 billion during the third quarter. In lending, our unsecured balances have
remained broadly flat, reflecting subdued customer demand, and whilst mortgage
markets have also remained relatively subdued throughout the industry, our
gross mortgage lending in the first nine months of the year totalled £26
billion.
Revenue growth in our Wholesale business remained very strong in the first nine
months of the year, largely reflecting the absence of last year's
mark-to-market losses on treasury assets, although the growth rate has slowed
during the third quarter. There was a continued strong cross-selling
performance, supported by improved spreads and favourable trading conditions in
Treasury and Trading.
In Wealth and International, revenue trends improved in the third quarter
compared to the first half, reflecting higher customer numbers and
strengthening equity markets in Wealth, and the impact of higher margins from
the continued repricing of assets in our International businesses.
In Insurance, new business sales in our life, pensions and investments
businesses were 27 per cent lower than in the first nine months of 2008,
reflecting extremely difficult market conditions which have led to a general
market-wide slowdown in the sale of life, pensions and investment products.
Sales through the intermediated distribution channel have continued to be
particularly challenging although this has been partially offset by a
relatively resilient performance in the bancassurance channel.
Robust Group cost performance
The Group has an excellent track record in managing its cost base, and has
continued to deliver a robust cost performance, resulting in the Group's costs
being 2 per cent lower than the same period last year. We have continued to
make significant progress in capturing integration related cost savings and
£250 million of cost synergies and other operational efficiencies have already
been realised in the first nine months of the year to support a target for 2009
which has now been increased to £450 million. We expect these will represent
annual run-rate savings of approximately £750 million by the year-end, some £50
million higher than our previously announced expected run-rate. The Group
remains confident that it will meet its commitment to deliver more than £1.5
billion run-rate synergies and other operating efficiencies by the end of 2011,
notwithstanding the business impact of the State Aid remedies which the Group
expects to be required by the European Commission.
Overall impairment levels have peaked, with a reducing run-rate
During the third quarter of the year the Group has, as expected, experienced a
reduction in the run-rate of overall impairment provisions compared to the
first half of the year. However, as expected at the time of the Group's 2009
interim results we have experienced a significant year-to-date rise in the
impairment charge compared to last year, reflecting falls in the value of
commercial real estate, the impact of economic deterioration (including the
effects of rising unemployment) and reduced corporate cash flows.
In Retail, impairment losses in the first nine months of 2009 totalled £3.3
billion. Impairment losses on the secured lending portfolio in the first nine
months totalled £0.8 billion compared to £0.6 billion in the first half of the
year. Arrears levels have improved during the quarter and remain significantly
better than the industry average. As expected, the unsecured lending portfolio
has continued to show signs of stress in the third quarter with impairment
losses totalling £2.5 billion in the nine months to 30 September 2009 (2009H1:
£1.6 billion). This was primarily due to the ongoing impact of rising
unemployment levels. As previously announced, we expect to see a moderate
increase in the overall Retail impairment charge in the second half of the
year, largely reflecting the anticipated impact of rising unemployment levels.
We continue to expect the retail impairment charge to be lower in 2010 than in
2009. We currently expect residential house prices to be flat in 2009 and
2010.
The Wholesale charge for impairment losses totalled £3.2 billion in the third
quarter of the year (2009H1: £9.7 billion), reflecting continuing declines in
commercial property prices and reducing levels of corporate cash flows. There
was however, as expected, a significant reduction in the run-rate of impairment
provisioning in the quarter. As previously indicated, we continue to believe
the overall Wholesale impairment charge peaked in the first half of 2009 and
expect a significant reduction in the Wholesale impairment charge in the second
half of 2009 and a further reduction in 2010. We currently expect commercial
real estate prices to fall 15 per cent in 2009 and be flat in 2010.
In our Wealth and International business we continue to have ongoing concerns
with regard to the outlook for the Irish economy and impairments remain at a
high level totalling £0.9 billion in the third quarter (2009H1: £1.5 billion),
reflecting particularly significant provisions against our Irish commercial
real estate portfolio. We now expect the high level of impairments to continue
throughout 2009 and in 2010.
Overall, impairment losses for the Group in the first nine months totalled
£18.6 billion (2009H1: £13.4 billion), with a significant reduction in the
run-rate in the third quarter of the year. We believe the overall impairment
charge peaked in the first half of 2009. We continue to believe, given our
current economic outlook, that the charge in the second half of 2009 will be
significantly lower than the charge in the first half of 2009. Thereafter, we
expect the 2010 charge to be significantly lower than the 2009 charge.
Insurance volatility
A large proportion of the investments relating to the Group's insurance
business is invested in assets which are expected to be held on a long-term
basis and which are inherently subject to short-term investment market
fluctuations. Whilst it is expected that those investments will provide
enhanced returns over the longer term, the short-term impact of investment
market volatility can be significant. In the third quarter of 2009 we
experienced positive volatility, excluding policyholder interests volatility,
of £0.7 billion, reflecting the significant strengthening of equity markets and
narrowing credit spreads in fixed income markets. The nine months to 30
September 2009 therefore resulted in a positive volatility, excluding
policyholder interests volatility, of £0.2 billion.
Improving liquidity and funding position
Customer lending at 30 September 2009 totalled £649 billion, compared to £653
billion at 30 June 2009, as a reduction of balances from portfolios in run-off
offset growth from the Group's core relationship businesses. During the third
quarter, customer deposits, excluding repo balances, increased to £373 billion,
from £370 billion at 30 June 2009, driven by good growth in retail balances.
As a result, the loan-to-deposit ratio at 30 September 2009 improved by 2
percentage points during the third quarter of the year.
Over the last three months we have continued to see further increases and
improvements in the capacity of wholesale funding markets and during the third
quarter we issued a £4 billion Residential Mortgage Backed Securities (RMBS)
transaction and a 10 year non Government-guaranteed €1.5 billion bond. During
the third quarter of the year the Group has maintained a liquid asset portfolio
of over £75 billion of high quality government debt and cash reserves. This
liquidity buffer is a multiple of the Group's current regulatory requirements
and is consistent with our estimate of requirements under the recently
published FSA Policy Statement (PS09/16).
- END -
For further information:
Investor Relations
Michael Oliver
+44 (0) 20 7356 2167
Director of Investor Relations
Email: michael.oliver@ltsb-finance.co.uk
Douglas Radcliffe
+44 (0) 20 7356 1571
Senior Manager, Investor Relations
Email: douglas.radcliffe@ltsb-finance.co.uk
Media Relations
Shane O'Riordain
+44 (0) 20 7356 1849
Group Communications Director
Email: shane.o'riordain@lloydsbanking.com
FORWARD LOOKING STATEMENTS
This 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. 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 results may differ materially from the
results expressed or implied in these forward looking statements as a result of
a variety of factors, including UK domestic and global economic and business
conditions, the ability to derive cost savings and other benefits as well as to
mitigate exposures from the acquisition and integration of HBOS, risks
concerning borrower quality, market related trends and developments, changing
demographic trends, changes in customer preferences, changes to regulation, the
policies and actions of governmental and regulatory authorities in the UK or
jurisdictions outside the UK, including other European countries and the US,
exposure to regulatory scrutiny, legal proceedings or complaints, competition
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. The forward looking statements contained in this announcement are
made as at the date of this announcement, and the Group undertakes no
obligation to update any of its forward looking statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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LLOYDS BANKING GROUP - INTERIM MANAGEMENT STATEMENT
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