REG - Lloyds Banking Group - Half-year results <Origin Href="QuoteRef">LLOY.L</Origin> - Part 7
06/09/2014 22:42
- Part 7: For the preceding part double click ID:nRSe8094Nf
(1,125) (1,130)
Volatility relating to the insurance business - (122) (122) (122)
Simplification costs - - - (519)
TSB costs - - - (309)
Payment protection insurance provision - - - (600)
Other regulatory provisions - - - (500)
Past service credit2 - - - 710
Amortisation of purchased intangibles - - - (171)
Fair value unwind (313) (71) (384) (315)
Group - statutory 5,262 2,434 7,696 863
1 Includes (i) gains or losses on disposals of assets which are not part of normal business operations; (ii) the net effect of banking volatility, changes in the fair value of the equity conversion feature of the Group's Enhanced Capital Notes and net derivative valuation adjustments; and (iii) the results of liability management exercises.
2 This represents the curtailment credit of £843 million following the Group's decision to reduce the cap on pensionable pay (see note 4) partly offset by the cost of other changes to the pay, benefits and reward offered to employees.
2. Segmental analysis (continued)
Half-year to 30 June 2013 Net Other Total Profit (loss) External Inter-
interest income, income, before tax revenue segment
income net of insurance claims net of revenue
insurance
claims
£m £m £m £m £m £m
Underlying basis
Retail 3,036 733 3,769 1,300 4,107 (338)
Commercial Banking 1,009 1,154 2,163 854 1,507 656
Consumer Finance 670 681 1,351 509 1,381 (30)
Insurance (49) 945 896 559 1,187 (291)
TSB 305 88 393 60 431 (38)
Run-off and Central items 235 657 892 (380) 851 41
Group 5,206 4,258 9,464 2,902 9,464 -
Reconciling items:
Insurance grossing adjustment (1,700) 1,821 121 -
Asset sales, volatile items and liability management1 12 558 570 376
Volatility relating to the insurance business 7 478 485 485
Simplification costs - - - (409)
TSB costs - - - (377)
Past service pensions cost - - - (104)
Payment protection insurance provision - - - (500)
Other regulatory provisions - - - (75)
Amortisation of purchased intangibles - - - (200)
Fair value unwind (255) - (255) 36
Group - statutory 3,270 7,115 10,385 2,134
1 Includes (i) gains or losses on disposals of assets, including centrally held government bonds, which are not part of normal business operations; (ii) the net effect of banking volatility, changes in the fair value of the equity conversion feature of the Group's Enhanced Capital Notes and net derivative valuation adjustments; and (iii) the results of liability management exercises.
2. Segmental analysis (continued)
Half-year to 31 December 2013 Net Other Total Profit (loss) External Inter-
interest income, income, before tax revenue segment
income net of insurance claims net of revenue
insurance
claims
£m £m £m £m £m £m
Underlying basis
Retail 3,464 702 4,166 1,715 4,419 (253)
Commercial Banking 1,104 1,105 2,209 1,036 1,452 757
Consumer Finance 663 678 1,341 456 1,391 (50)
Insurance (58) 919 861 529 1,252 (391)
TSB 310 75 385 46 432 (47)
Run-off and Central items 196 183 379 (518) 395 (16)
Group 5,679 3,662 9,341 3,264 9,341 -
Reconciling items:
Insurance grossing adjustment (1,230) 1,253 23 -
Asset sales, volatile items and liability management1 2 (1,018) (1,016) (1,096)
Volatility relating to the insurance business (7) 190 183 183
Simplification costs - - - (421)
TSB costs - - - (310)
Payment protection insurance provision - - - (2,550)
Other regulatory provisions - - − (330)
Amortisation of purchased intangibles - - - (195)
Fair value unwind (376) (62) (438) (264)
Group - statutory 4,068 4,025 8,093 (1,719)
1 Includes (i) gains or losses on disposals of assets, including centrally held government bonds, which are not part of normal business operations; (ii) the net effect of banking volatility, changes in the fair value of the equity conversion feature of the Group's Enhanced Capital Notes and net derivative valuation adjustments; and (iii) the results of liability management exercises.
2. Segmental analysis (continued)
Segment external assets At At
30 June 31 Dec
2014 2013
£m £m
Retail 317,593 317,146
Commercial Banking 238,099 232,421
Consumer Finance 24,360 25,025
Insurance 145,106 155,378
TSB 26,284 24,084
Run-off and Central items 92,498 92,976
Total Group 843,940 847,030
Segment customer deposits
Retail 284,273 283,189
Commercial Banking 117,168 113,498
Consumer Finance 17,423 18,733
TSB 23,700 23,100
Run-off and Central items 2,527 2,791
Total Group 445,091 441,311
Segment external liabilities
Retail 297,999 300,412
Commercial Banking 225,145 211,379
Consumer Finance 21,096 21,868
Insurance 138,947 149,445
TSB 24,221 23,289
Run-off and Central items 90,654 101,301
Total Group 798,062 807,694
3. Other income
Half-year to 30 June 2014 Half-year to 30 June 2013 Half-year to 31 Dec 2013
£m £m £m
Fee and commission income:
Current account fees 466 485 488
Credit and debit card fees 510 475 509
Other fees and commissions 860 1,234 928
1,836 2,194 1,925
Fee and commission expense (609) (730) (655)
Net fee and commission income 1,227 1,464 1,270
Net trading income 4,588 11,015 5,452
Insurance premium income 3,492 3,851 4,346
Gains (losses) on sale of available-for-sale financial assets 85 711 (82)
Liability management1,2 (1,376) (97) (45)
Other3,4 756 1,858 904
Other operating income (535) 2,472 777
Total other income 8,772 18,802 11,845
1 In April 2014, the Group completed concurrent Sterling, Euro and Dollar exchange offers with holders of certain series of its Enhanced Capital Notes (ECNs) to exchange the ECNs for new Additional Tier 1 (AT1) securities. In addition the Group completed a
tender offer to eligible retail holders outside the United States to sell their Sterling-denominated ECNs for cash. The exchange offers completed with the equivalent of £5.0 billion of ECNs being exchanged for the equivalent of £5.35 billion of AT1
securities, before issue costs. The retail tender offer completed with approximately £58.5 million of ECNs being repurchased for cash. A loss of £1,362 million has been recognised in relation to these exchange and tender transactions in the half-year to 30
June 2014.
2 Losses of £14 million arose in the half-year to 30 June 2014 (half-year to 30 June 2013: £97 million; half-year to 31 December 2013: £45 million) on other transactions undertaken as part of the Group's management of its wholesale funding and capital.
3 On 31 March 2014 the Group completed the sale of Scottish Widows Investment Partnership, realising a gain of £128 million.
4 During 2013 the Group completed a number of disposals of assets and businesses, including:- On 15 March 2013 the Group completed the sale of 102 million shares in St. James's Place plc, reducing the Group's holding in that company to approximately 37
per cent. The Group realised a gain of £394 million on the sale of those shares and the fair valuation of the Group's residual stake. On 29 May 2013 the Group completed the sale of a further 77 million shares, generating a profit of £39 million and on 13
December 2013 completed the sale of the remainder of its holding, generating a profit of £107 million.- On 31 May 2013, the Group sold a portfolio of US RMBS (residential mortgage-backed securities) for a cash consideration of £3.3 billion, realising
a profit of £538 million.- On 30 June 2013 the Group disposed of its Spanish retail banking operations, including Lloyds Bank International S.A.U and Lloyds Investment España SGIIC S.A.U, to Banco Sabadell, S.A. realising a loss of £256 million.-
On 31 December 2013, the Group completed the sale of its Australian operations (which principally comprise Capital Finance Australia Limited, a provider of motor and equipment asset finance, and BOS International (Australia) Limited, a corporate lending
business) generating a profit on sale of £49 million.- On 21 August 2013 the Group announced the sale of its German life insurance business, Heidelberger Lebensversicherung AG, which completed in the first quarter of 2014; an impairment of £382
million was recognised in the half-year to 31 December 2013.
4. Operating expenses
Half-year to 30 June 2014 Half-year to 30 June 2013 Half-year to 31 Dec 2013
£m £m £m
Administrative expenses
Staff costs:
Salaries 1,873 1,927 1,877
Social security costs 201 202 183
Pensions and other post-retirement benefit schemes:
Past service (credits) charges1 (822) 104 −
Other 292 329 325
(530) 433 325
Restructuring costs 108 82 29
Other staff costs 405 364 419
2,057 3,008 2,833
Premises and equipment:
Rent and rates 218 229 238
Hire of equipment 7 7 8
Repairs and maintenance 99 92 86
Other 120 162 148
444 490 480
Other expenses:
Communications and data processing 595 581 588
Advertising and promotion 162 140 173
Professional fees 243 215 210
Other 641 590 619
1,641 1,526 1,590
4,142 5,024 4,903
Depreciation and amortisation 950 969 971
Total operating expenses, excluding regulatory provisions 5,092 5,993 5,874
Regulatory provisions:
Payment protection insurance provision (note 23) 600 500 2,550
Other regulatory provisions (note 23) 500 75 330
1,100 575 2,880
Total operating expenses 6,192 6,568 8,754
1 On 11 March 2014 the Group announced a change to its defined benefit pension schemes, revising the existing cap on the increases in pensionable pay used in calculating the pension benefit, from 2 per cent to nil with effect from 2 April 2014. The effect of
this change was to reduce the Group's retirement benefit obligations recognised on the balance sheet by £843 million with a corresponding curtailment gain recognised in the income statement. This has been partly offset by a charge of £21 million following
changes to pension arrangements for staff within the TSB business. In 2013, the Group agreed certain changes to early retirement and commutation factors in two of its principal defined benefit pension schemes, resulting in a curtailment cost of £104
million recognised in the Group's income statement in the half-year to 30 June 2013.
5. Impairment
Half-year to 30 June 2014 Half-year to 30 June 2013 Half-year to 31 Dec 2013
£m £m £m
Impairment losses on loans and receivables:
Loans and advances to customers 639 1,680 1,045
Debt securities classified as loans and receivables − 1 −
Impairment losses on loans and receivables (note 11) 639 1,681 1,045
Impairment of available-for-sale financial assets 2 2 13
Total impairment charged to the income statement 641 1,683 1,058
6. Taxation
A reconciliation of the tax (charge) credit that would result from applying the standard UK corporation tax rate to the
profit (loss) before tax, to the actual tax charge, is given below:
Half-year to 30 June 2014 Half-year to 30 June 2013 Half-year to 31 Dec 2013
£m £m £m
Profit (loss) before tax 863 2,134 (1,719)
Tax (charge) credit thereon at UK corporation tax rate of 21.5 per cent (2013: 23.25 per cent) (186) (496) 400
Factors affecting tax (charge) credit:
UK corporation tax rate change − − (594)
Disallowed items (113) (81) (86)
Non-taxable items 58 72 60
Overseas tax rate differences (17) 19 (135)
Gains exempted or covered by capital losses 147 82 (25)
Policyholder tax (23) (216) (35)
Deferred tax on losses no longer recognised following sale of Australian operations − − (348)
Deferred tax on Australian tax losses not previously recognised − 43 17
Adjustments in respect of previous years (19) 20 77
Effect of results of joint ventures and associates (3) 2 7
Other items (8) (1) 1
Tax charge (164) (556) (661)
In accordance with IAS 34, the Group's income tax expense for the half-year to 30 June 2014 is based on the best estimate
of the weighted-average annual income tax rate expected for the full financial year. The tax effects of one-off items are
not included in the weighted-average annual income tax rate, but are recognised in the relevant period.
7. Earnings (loss) per share
Half-year to 30 June 2014 Half-year to 30 June 2013 Half-year to 31 Dec 2013
Basic
Profit (loss) attributable to ordinary shareholders £574m £1,560m £(2,398)m
Tax credit on distributions to other equity holders £20m − −
£594m £1,560m £(2,398)m
Weighted average number of ordinary shares in issue 71,350m 70,672m 71,341m
Earnings (loss) per share 0.8p 2.2p (3.4)p
Fully diluted
Profit (loss) attributable to ordinary shareholders £574m £1,560m £(2,398)m
Tax credit on distributions to other equity holders £20m − −
£594m £1,560m £(2,398)m
Weighted average number of ordinary shares in issue 72,399m 71,514m 71,341m
Earnings (loss) per share 0.8p 2.2p (3.4)p
8. Trading and other financial assets at fair value through profit or loss
At At
30 June 2014 31 Dec 2013
£m £m
Trading assets 42,126 37,350
Other financial assets at fair value through profit or loss:
Treasury and other bills 53 54
Loans and advances to customers 20 27
Debt securities 39,227 38,853
Equity shares 65,761 66,399
105,061 105,333
Total trading and other financial assets at fair value through profit or loss 147,187 142,683
Included in the above is £100,311 million (31 December 2013: £100,706 million) of assets relating to the insurance
businesses.
9. Derivative financial instruments
30 June 2014 31 December 2013
Fair value of assets Fair value of liabilities Fair value of assets Fair value of liabilities
£m £m £m £m
Hedging
Derivatives designated as fair value hedges 4,740 1,015 5,100 1,497
Derivatives designated as cash flow hedges 1,664 3,684 1,687 3,021
6,404 4,699 6,787 4,518
Trading and other
Exchange rate contracts 3,683 4,762 4,686 5,671
Interest rate contracts 15,130 14,421 18,479 18,607
Credit derivatives 181 272 208 190
Embedded equity conversion feature 471 − 1,212 -
Equity and other contracts 1,372 1,131 1,753 1,478
20,837 20,586 26,338 25,946
Total recognised derivative assets/liabilities 27,241 25,285 33,125 30,464
The Group reduces exposure to credit risk by using master netting agreements and by obtaining cash collateral. Of the
derivative assets of £27,241 million at 30 June 2014 (31 December 2013: £33,125 million), £16,426 million (31 December
2013: £19,479 million) is available for offset under master netting arrangements. These do not meet the criteria under IAS
32 to enable derivative assets to be presented net of these balances. Of the remaining derivative assets of £10,815 million
(31 December 2013: £13,646 million), cash collateral of £2,774 million (31 December 2013: £3,188 million) was held.
The embedded equity conversion feature of £471 million (31 December 2013: £1,212 million) reflects the value of the equity
conversion feature contained in the Enhanced Capital Notes issued by the Group in 2009; a gain of £226 million arose from
the change in fair value in the half-year to 30 June 2014 (half-year to 30 June 2013: loss of £142 million; half-year to 31
December 2013: loss of £67 million) and is included within net trading income. In addition, £967 million of the embedded
derivative, being that portion of the embedded equity conversion feature related to ECNs derecognised pursuant to the
Group's exchange and retail tender transactions completed in April 2014 (see note 3), has been derecognised on completion
of those transactions.
10. Loans and advances to customers
At At
30 June 2014 31 Dec 2013
£m £m
Agriculture, forestry and fishing 6,303 6,051
Energy and water supply 3,982 4,414
Manufacturing 6,880 7,650
Construction 7,350 7,024
Transport, distribution and hotels 20,524 22,294
Postal and communications 1,915 2,364
Property companies 40,399 44,277
Financial, business and other services 47,032 44,807
Personal:
Mortgages 335,032 335,611
Other 22,456 23,230
Lease financing 3,814 4,435
Hire purchase 6,074 5,090
501,761 507,247
Allowance for impairment losses on loans and advances (note 11) (10,416) (11,966)
Total loans and advances to customers 491,345 495,281
Loans and advances to customers include advances securitised under the Group's securitisation and covered bond programmes.
Further details are given in note 12.
11. Allowance for impairment losses on loans and receivables
Half-year to 30 June 2014 Half-year to 30 June 2013 Half-year to 31 Dec 2013
£m £m £m
Opening balance 12,091 15,459 14,744
Exchange and other adjustments (320) 429 (138)
Adjustment on disposal of businesses − (104) (72)
Advances written off (2,047) (2,833) (3,481)
Recoveries of advances written off in previous years 283 303 153
Unwinding of discount (106) (191) (160)
Charge to the income statement (note 5) 639 1,681 1,045
Balance at end of period 10,540 14,744 12,091
In respect of:
Loans and advances to banks − 3 -
Loans and advances to customers (note 10) 10,416 14,605 11,966
Debt securities 124 136 125
Balance at end of period 10,540 14,744 12,091
12. Securitisations and covered bonds
The Group's principal securitisation and covered bond programmes, together with the balances of the loans subject to these
arrangements and the carrying value of the notes in issue, are listed in the table below.
30 June 2014 31 December 2013
Loans and advances securitised Notes in issue Loans and advances securitised Notes in issue
Securitisation programmes1 £m £m £m £m
UK residential mortgages 54,431 34,236 55,998 36,286
Commercial loans 9,908 9,960 10,931 11,259
Credit card receivables 6,329 4,174 6,314 3,992
Dutch residential mortgages 4,102 4,232 4,381 4,508
Personal loans 1,820 751 2,729 750
PPP/PFI and project finance loans 471 103 525 106
77,061 53,456 80,878 56,901
Less held by the Group (38,886) (38,288)
Total securitisation programmes (note 16) 14,570 18,613
Covered bond programmes
Residential mortgage-backed 51,805 34,641 59,576 36,473
Social housing loan-backed 2,439 1,800 2,536 1,800
54,244 36,441 62,112 38,273
Less held by the Group (7,024) (7,606)
Total covered bond programmes (note 16) 29,417 30,667
Total securitisation and covered bond programmes 43,987 49,280
1 Includes securitisations utilising a combination of external funding and credit default swaps.
Securitisation programmes
Loans and advances to customers and debt securities classified as loans and receivables include loans securitised under the
Group's securitisation programmes, the majority of which have been sold by subsidiary companies to bankruptcy remote
structured entities. As the structured entities are funded by the issue of debt on terms whereby the majority of the risks
and rewards of the portfolio are retained by the subsidiary, the structured entities are consolidated fully and all of
these loans are retained on the Group's balance sheet, with the related notes in issue included within debt securities in
issue (note 16).
Covered bond programmes
Certain loans and advances to customers have been assigned to bankruptcy remote limited liability partnerships to provide
security to issues of covered bonds by the Group. The Group retains all of the risks and rewards associated with these
loans and the partnerships are consolidated fully with the loans retained on the Group's balance sheet and the related
covered bonds in issue included within debt securities in issue (note 16).
Cash deposits of £10,927 million (31 December 2013: £13,500 million) held by the Group are restricted in use to repayment
of the debt securities issued by the structured entities, the term advances relating to covered bonds and other legal
obligations.
Asset-backed conduits
In addition to the structured entities detailed above, the Group sponsors three asset-backed conduits: Argento, Cancara and
Grampian, which invest in debt securities (note 13) and client receivables (note 10).
13. Available-for-sale financial assets
At At
30 June 2014 31 Dec 2013
£m £m
Asset-backed securities 1,960 2,178
Other debt securities:
Bank and building society certificates of deposit 264 208
Government securities 42,293 38,290
Corporate and other debt securities 3,816 1,855
46,373 40,353
Equity shares 1,151 570
Treasury and other bills 864 875
Total 50,348 43,976
14. Other assets
At 30 June At 31 Dec
2014 2013
£m £m
Assets arising from reinsurance contracts held 655 732
Deferred acquisition and origination costs 121 130
Settlement balances 6,339 2,904
Corporate pension asset 11,414 9,984
Investments in joint ventures and associates 72 101
Assets of disposal groups − 7,988
Other assets and prepayments 6,328 5,187
Total other assets 24,929 27,026
15. Customer deposits
At At
30 June 2014 31 Dec 2013
£m £m
Non-interest bearing current accounts 42,535 40,802
Interest bearing current accounts 83,619 77,789
Savings and investment accounts 262,309 265,422
Liabilities in respect of securities sold under repurchase agreements − 2,978
Other customer deposits 56,628 54,320
Total 445,091 441,311
16. Debt securities in issue
30 June 2014 31 December 2013
At fair value At amortised cost Total At fair value through profit or loss At amortised cost Total
through profit or
loss
£m £m £m £m £m £m
Medium-term notes issued 5,562 20,969 26,531 5,267 23,921 29,188
Covered bonds (note 12) − 29,417 29,417 - 30,667 30,667
Certificates of deposit − 6,810 6,810 - 8,866 8,866
Securitisation notes (note 12) − 14,570 14,570 - 18,613 18,613
Commercial paper − 5,963 5,963 - 5,035 5,035
5,562 77,729 83,291 5,267 87,102 92,369
17. Other liabilities
At At
30 June 2014 31 Dec 2013
£m £m
Settlement balances 3,538 3,358
Unitholders' interest in Open Ended Investment Companies 17,311 22,219
Liabilities of disposal groups − 7,302
Other creditors and accruals 8,820 7,728
Total other liabilities 29,669 40,607
18. Post-retirement defined benefit schemes
The Group's post-retirement defined benefit scheme obligations are comprised as follows:
At At
30 June 2014 31 Dec 2013
£m £m
Defined benefit pension schemes:
- Fair value of scheme assets 33,864 32,568
- Present value of funded obligations (34,306) (33,355)
Net pension scheme liability (442) (787)
Other post-retirement schemes (217) (211)
Net retirement benefit liability (659) (998)
Recognised on the balance sheet as:
Retirement benefit assets 342 98
Retirement benefit obligations (1,001) (1,096)
Net retirement benefit liability (659) (998)
The movement in the Group's net post-retirement defined benefit scheme liability during the period was as follows:
£m
At 1 January 2014 (998)
Exchange and other adjustments −
Income statement charge:
Regular cost (181)
Curtailments (see below) 822
641
Employer contributions 297
Remeasurement (599)
At 30 June 2014 (659)
Included within curtailments is a credit of £843 million following the Group's decision to reduce the cap on pensionable
pay (see note 4); this
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