SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
31
October 2019
LLOYDS BANKING GROUP
plc
(Translation of registrant's name into
English)
5th Floor
25 Gresham Street
London
EC2V 7HN
United Kingdom
(Address
of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual
reports
under
cover Form 20-F or Form 40-F.
Form
20-F..X.. Form 40-F
Indicate
by check mark whether the registrant by furnishing the
information
contained
in this Form is also thereby furnishing the information to
the
Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes
No ..X..
If
"Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule
12g3-2(b):
82- ________
Index
to Exhibits
Item
No.
1 Regulatory News Service Announcement, dated 31 October
2019
re: Q3
2019 Interim Management Statement
Lloyds
Banking Group plc
Q3 2019
Interim Management Statement
31
October 2019
GROUP CHIEF EXECUTIVE’S STATEMENT
“In
the first nine months of 2019 we have made strong strategic
progress and delivered solid financial performance in a challenging
external environment. I am disappointed that our statutory result
was significantly impacted by the additional PPI charge in the
third quarter, driven by an unprecedented level of PPI information
requests received in August. However, our performance continues to
demonstrate the resilience of our customer franchise and business
model, the strength of our balance sheet and that our strategy is
the right one in this environment.
We will
maintain our prudent approach to growth and risk whilst continuing
to focus on reducing costs and investing in the business to
transform the Group for success in a digital world. Although
continued economic uncertainty could further impact the outlook, we
remain well placed to support our customers and to continue to Help
Britain Prosper.”
António
Horta-Osório, Group Chief Executive
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HIGHLIGHTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2019
Strong strategic progress and the right strategy in the current
environment
● Strategic
investment of £1.7 billion since launch of GSR3 in February
2018
● Schroders Personal
Wealth launched with ambition of becoming top 3 financial planning
business by end of 2023
● Acquisition of
Tesco Bank’s £3.7 billion UK prime residential mortgage
portfolio
Solid financial performance with statutory result impacted by
additional PPI charge
● Statutory profit
before tax of £2.9 billion including an additional £1.8
billion PPI charge in the third quarter
● Underlying profit
of £6.0 billion in a challenging external environment, with
lower net income partly offset by lower total costs and higher
impairment charges
-
Net
income of £13.0 billion, down 3 per cent, with slightly lower
average interest-earning banking assets of £434 billion,
net interest margin of 2.89 per cent and other income of £4.4
billion, down 4 per cent
-
Total costs of
£6.0 billion down 5 per cent driven by reductions in both
operating costs and remediation charges. Market-leading cost:income
ratio further reduced to 46.5 per cent with positive jaws of 2 per
cent
-
Credit quality
remains strong. Net asset quality ratio of 29 basis points,
including a single large corporate charge in the third
quarter
● Tangible net assets
per share of 52.0 pence. Statutory return on tangible equity
reduced to 6.8 per cent significantly driven by the PPI charge with
underlying return on tangible equity remaining strong at 15.7 per
cent
Balance sheet strength maintained with lower Pillar 2A
requirement
● Loans and advances
up £6 billion in the quarter, with continued growth in
targeted segments including the open mortgage book, benefiting from
both the Tesco mortgage acquisition and organic growth, SME and
Motor Finance
● CET1 capital build
of 149 basis points in the first nine months before PPI charge and
28 basis points after the charge; CET1 ratio of 13.5 per
cent
● Pillar 2A CET1
requirement reduced from 2.7 per cent to 2.6 per cent. Target CET1
ratio remains c.12.5 per cent, plus a c.1 per cent management
buffer. Given the Pillar 2A
reduction, the headroom above the regulatory requirements has
increased
Outlook
● The resilience of
the Group’s business model is reflected in its 2019
guidance:
-
Net
interest margin of 2.88 per cent, in line with previous guidance of
c.2.90 per cent
-
Operating costs now
expected to be less than £7.9 billion, ahead of previous
guidance, and cost:income ratio to be lower than in
2018
-
Net asset quality
ratio of less than 30 basis points
- Free capital build
of c.75 basis points, post the PPI charge of 121 basis
points
● Although continued
economic uncertainty could further impact the outlook, the Group
remains well positioned with the right strategy to continue
delivering for customers and shareholders
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INCOME STATEMENT − UNDERLYING BASIS
|
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Nine
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Nine
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Three
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Three
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months
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months
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months
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months
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ended
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ended
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ended
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ended
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|
30 Sept
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30 Sept
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30 Sept
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30 Sept
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2019
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2018
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Change
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2019
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2018
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Change
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£m
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£m
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%
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£m
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£m
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%
|
|
|
|
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|
|
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Net interest income
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9,275
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9,544
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(3)
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3,130
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3,200
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(2)
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Other income
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4,415
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4,610
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(4)
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1,315
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1,486
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|
(12)
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Operating lease depreciation
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(731)
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(731)
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–
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(258)
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(234)
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(10)
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Vocalink gain on sale
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50
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–
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–
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–
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Net income
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13,009
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13,423
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(3)
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4,187
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4,452
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(6)
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Operating costs
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(5,817)
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(6,014)
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3
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(1,911)
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(1,990)
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4
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Remediation
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(226)
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(366)
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38
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(83)
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(109)
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24
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Total costs
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(6,043)
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(6,380)
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5
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(1,994)
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(2,099)
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5
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Impairment
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(950)
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(740)
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(28)
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(371)
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(284)
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(31)
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Underlying profit
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6,016
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6,303
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(5)
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1,822
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2,069
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(12)
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Restructuring
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(280)
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(612)
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54
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(98)
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(235)
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58
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Volatility and other items
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(339)
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(207)
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(64)
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126
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(17)
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Payment protection insurance provision
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(2,450)
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(550)
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(1,800)
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–
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Statutory profit before tax
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2,947
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4,934
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(40)
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50
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1,817
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(97)
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Tax expense1
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(960)
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(1,194)
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20
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(288)
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(394)
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27
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Statutory profit (loss) after
tax1
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1,987
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3,740
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(47)
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(238)
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1,423
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Earnings (loss) per share
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2.2p
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4.7p
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(53)
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(0.5)p
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1.8p
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Banking net interest margin
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2.89%
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2.93%
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(4)bp
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2.88%
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2.93%
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(5)bp
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Average interest-earning banking assets
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£434bn
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£436bn
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–
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£435bn
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£435bn
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–
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Cost:income ratio
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46.5%
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47.5%
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(1.0)pp
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47.6%
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47.1%
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0.5pp
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Asset quality ratio
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0.29%
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0.22%
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7bp
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0.33%
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0.25%
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8bp
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Underlying return on tangible equity
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15.7%
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16.2%
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(0.5)pp
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14.3%
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15.9%
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(1.6)pp
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Return on tangible equity
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6.8%
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13.0%
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(6.2)pp
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(2.8)%
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14.8%
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(17.6)pp
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KEY BALANCE SHEET METRICS
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At 30 Sept
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At 30 June
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Change
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At 31 Dec
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Change
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2019
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2019
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|
%
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|
|
2018
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|
%
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|
|
|
|
|
|
|
|
|
|
|
|
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Loans and advances to customers2
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£447bn
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£441bn
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1
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£444bn
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1
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Customer deposits3
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£419bn
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£418bn
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–
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£416bn
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1
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Loan to deposit ratio
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107%
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|
106%
|
|
1pp
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|
|
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107%
|
|
–
|
Capital build4
|
|
28bp
|
|
70bp
|
|
|
|
|
|
210bp
|
|
|
CET1 ratio pre dividend accrual5
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|
14.4%
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|
14.6%
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|
(0.2)pp
|
|
|
|
13.9%
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|
0.5pp
|
CET1 ratio5
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13.5%
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14.0%
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(0.5)pp
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13.9%
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|
(0.4)pp
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Transitional MREL ratio5
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32.5%
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32.2%
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0.3pp
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32.6%
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|
(0.1)pp
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UK leverage ratio5
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|
4.9%
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|
5.1%
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(0.2)pp
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|
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5.6%
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|
(0.7)pp
|
Risk-weighted assets5
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|
£209bn
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|
£207bn
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|
1
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|
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£206bn
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|
1
|
Tangible net assets per share
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|
52.0p
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|
53.0p
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|
(1.0)p
|
|
|
|
53.0p
|
|
(1.0)p
|
|
|
1
|
Comparatives
restated to reflect amendments to IAS 12, see basis of
presentation.
|
2
|
Excludes
reverse repos of £55.6 billion (30 June 2019: £54.1
billion; 31 December 2018: £40.5 billion).
|
3
|
Excludes
repos of £1.8 billion (30 June 2019: £4.1 billion; 31
December 2018: £1.8 billion).
|
4
|
Capital
build is reported before accrual for ordinary dividends,
cancellation of remaining share buyback and Tesco mortgage
portfolio.
|
5
|
The
CET1, MREL and leverage ratios and risk-weighted assets at 30 June
2019 and 31 December 2018 are reported on a pro forma basis,
reflecting the dividend paid up by the Insurance business in the
subsequent reporting period. The CET1 ratios at 31 December 2018
incorporate the effects of the share buyback announced in February
2019 and are reported post dividend accrual.
|
QUARTERLY INFORMATION
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|
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|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
ended
|
|
ended
|
|
ended
|
|
ended
|
|
ended
|
|
ended
|
|
ended
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|
|
30 Sept
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|
30 June
|
|
31 Mar
|
|
31 Dec
|
|
30 Sept
|
|
30 June
|
|
31 Mar
|
|
|
2019
|
|
2019
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|
2019
|
|
2018
|
|
2018
|
|
2018
|
|
2018
|
|
|
£m
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|
£m
|
|
£m
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|
£m
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|
£m
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|
£m
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|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
3,130
|
|
3,062
|
|
3,083
|
|
3,170
|
|
3,200
|
|
3,173
|
|
3,171
|
Other income
|
|
1,315
|
|
1,594
|
|
1,506
|
|
1,400
|
|
1,486
|
|
1,713
|
|
1,411
|
Operating lease depreciation
|
|
(258)
|
|
(254)
|
|
(219)
|
|
(225)
|
|
(234)
|
|
(245)
|
|
(252)
|
Vocalink gain on sale
|
|
–
|
|
–
|
|
50
|
|
–
|
|
–
|
|
–
|
|
–
|
Net income
|
|
4,187
|
|
4,402
|
|
4,420
|
|
4,345
|
|
4,452
|
|
4,641
|
|
4,330
|
Operating costs
|
|
(1,911)
|
|
(1,949)
|
|
(1,957)
|
|
(2,151)
|
|
(1,990)
|
|
(2,016)
|
|
(2,008)
|
Remediation
|
|
(83)
|
|
(123)
|
|
(20)
|
|
(234)
|
|
(109)
|
|
(197)
|
|
(60)
|
Total costs
|
|
(1,994)
|
|
(2,072)
|
|
(1,977)
|
|
(2,385)
|
|
(2,099)
|
|
(2,213)
|
|
(2,068)
|
Impairment
|
|
(371)
|
|
(304)
|
|
(275)
|
|
(197)
|
|
(284)
|
|
(198)
|
|
(258)
|
Underlying profit
|
|
1,822
|
|
2,026
|
|
2,168
|
|
1,763
|
|
2,069
|
|
2,230
|
|
2,004
|
Restructuring
|
|
(98)
|
|
(56)
|
|
(126)
|
|
(267)
|
|
(235)
|
|
(239)
|
|
(138)
|
Volatility and other items
|
|
126
|
|
(126)
|
|
(339)
|
|
(270)
|
|
(17)
|
|
(16)
|
|
(174)
|
Payment protection insurance provision
|
|
(1,800)
|
|
(550)
|
|
(100)
|
|
(200)
|
|
–
|
|
(460)
|
|
(90)
|
Statutory profit before tax
|
|
50
|
|
1,294
|
|
1,603
|
|
1,026
|
|
1,817
|
|
1,515
|
|
1,602
|
Tax expense1
|
|
(288)
|
|
(269)
|
|
(403)
|
|
(260)
|
|
(394)
|
|
(369)
|
|
(431)
|
Statutory profit (loss) after
tax1
|
|
(238)
|
|
1,025
|
|
1,200
|
|
766
|
|
1,423
|
|
1,146
|
|
1,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking net interest margin
|
|
2.88%
|
|
2.89%
|
|
2.91%
|
|
2.92%
|
|
2.93%
|
|
2.93%
|
|
2.93%
|
Average interest-earning banking assets
|
|
£435bn
|
|
£433bn
|
|
£433bn
|
|
£436bn
|
|
£435bn
|
|
£436bn
|
|
£437bn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost:income ratio
|
|
47.6%
|
|
47.1%
|
|
44.7%
|
|
54.9%
|
|
47.1%
|
|
47.7%
|
|
47.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset quality ratio
|
|
0.33%
|
|
0.27%
|
|
0.25%
|
|
0.18%
|
|
0.25%
|
|
0.18%
|
|
0.23%
|
Gross asset quality ratio
|
|
0.40%
|
|
0.38%
|
|
0.30%
|
|
0.30%
|
|
0.30%
|
|
0.26%
|
|
0.27%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying return on tangible equity
|
|
14.3%
|
|
15.6%
|
|
17.0%
|
|
13.6%
|
|
15.9%
|
|
17.3%
|
|
15.4%
|
Return on tangible equity
|
|
(2.8)%
|
|
10.5%
|
|
12.5%
|
|
7.8%
|
|
14.8%
|
|
11.9%
|
|
12.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to customers2
|
|
£447bn
|
|
£441bn
|
|
£441bn
|
|
£444bn
|
|
£445bn
|
|
£442bn
|
|
£445bn
|
Customer deposits3
|
|
£419bn
|
|
£418bn
|
|
£417bn
|
|
£416bn
|
|
£422bn
|
|
£418bn
|
|
£413bn
|
Loan to deposit ratio
|
|
107%
|
|
106%
|
|
106%
|
|
107%
|
|
105%
|
|
106%
|
|
108%
|
Risk-weighted assets4
|
|
£209bn
|
|
£207bn
|
|
£208bn
|
|
£206bn
|
|
£207bn
|
|
£207bn
|
|
£211bn
|
Tangible net assets per share
|
|
52.0p
|
|
53.0p
|
|
53.4p
|
|
53.0p
|
|
51.3p
|
|
52.1p
|
|
52.3p
|
|
|
1
|
Comparatives
for 2018 restated to reflect amendments to IAS 12, see basis of
presentation.
|
2
|
Excludes
reverse repos.
|
3
|
Excludes
repos.
|
4
|
Risk-weighted
assets at 30 June 2018 are reported on a pro forma basis reflecting
the sale of the Irish mortgage portfolio.
|
BALANCE SHEET ANALYSIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 30 Sept
|
|
At 30 June
|
|
|
|
At 30 Sept
|
|
|
|
At 31 Dec
|
|
|
|
|
2019
|
|
2019
|
|
Change
|
|
2018
|
|
Change
|
|
2018
|
|
Change
|
|
|
£bn
|
|
£bn
|
|
%
|
|
£bn
|
|
%
|
|
£bn
|
|
%
|
Loans and advances to customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open mortgage book
|
|
271.0
|
|
264.9
|
|
2
|
|
267.1
|
|
1
|
|
266.6
|
|
2
|
Closed mortgage book
|
|
19.1
|
|
19.8
|
|
(4)
|
|
21.5
|
|
(11)
|
|
21.2
|
|
(10)
|
Credit cards
|
|
17.7
|
|
17.7
|
|
–
|
|
18.5
|
|
(4)
|
|
18.1
|
|
(2)
|
UK Retail unsecured loans
|
|
8.4
|
|
8.2
|
|
2
|
|
7.9
|
|
6
|
|
7.9
|
|
6
|
UK Motor Finance
|
|
15.6
|
|
15.5
|
|
1
|
|
14.4
|
|
8
|
|
14.6
|
|
7
|
Overdrafts
|
|
1.3
|
|
1.2
|
|
8
|
|
1.2
|
|
8
|
|
1.3
|
|
–
|
Retail other1
|
|
9.2
|
|
9.0
|
|
2
|
|
8.3
|
|
11
|
|
8.6
|
|
7
|
SME2
|
|
32.4
|
|
32.3
|
|
–
|
|
31.8
|
|
2
|
|
31.8
|
|
2
|
Mid Markets
|
|
30.7
|
|
30.6
|
|
–
|
|
30.5
|
|
1
|
|
31.7
|
|
(3)
|
Global Corporates and Financial Institutions
|
|
33.7
|
|
34.7
|
|
(3)
|
|
34.1
|
|
(1)
|
|
34.4
|
|
(2)
|
Commercial Banking other
|
|
5.2
|
|
4.3
|
|
21
|
|
5.0
|
|
4
|
|
4.3
|
|
21
|
Wealth
|
|
0.9
|
|
0.9
|
|
–
|
|
0.8
|
|
13
|
|
0.9
|
|
–
|
Central items
|
|
2.0
|
|
1.9
|
|
5
|
|
3.5
|
|
(43)
|
|
3.0
|
|
(33)
|
Loans and advances to
customers3
|
|
447.2
|
|
441.0
|
|
1
|
|
444.6
|
|
1
|
|
444.4
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail current accounts
|
|
76.1
|
|
76.0
|
|
–
|
|
74.3
|
|
2
|
|
73.7
|
|
3
|
Commercial current accounts2,4
|
|
34.6
|
|
34.0
|
|
2
|
|
33.5
|
|
3
|
|
34.9
|
|
(1)
|
Retail relationship savings accounts
|
|
144.3
|
|
144.4
|
|
–
|
|
146.0
|
|
(1)
|
|
145.9
|
|
(1)
|
Retail tactical savings accounts
|
|
14.1
|
|
15.3
|
|
(8)
|
|
18.7
|
|
(25)
|
|
16.8
|
|
(16)
|
Commercial deposits2,5
|
|
135.8
|
|
133.2
|
|
2
|
|
134.6
|
|
1
|
|
130.1
|
|
4
|
Wealth
|
|
13.6
|
|
13.8
|
|
(1)
|
|
13.7
|
|
(1)
|
|
14.1
|
|
(4)
|
Central items
|
|
0.7
|
|
0.9
|
|
(22)
|
|
0.8
|
|
(13)
|
|
0.8
|
|
(13)
|
Total customer
deposits6
|
|
419.2
|
|
417.6
|
|
–
|
|
421.6
|
|
(1)
|
|
416.3
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets7
|
|
858.5
|
|
822.2
|
|
4
|
|
829.2
|
|
4
|
|
797.6
|
|
8
|
Total liabilities7
|
|
810.4
|
|
773.2
|
|
5
|
|
781.5
|
|
4
|
|
747.4
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
42.5
|
|
43.4
|
|
(2)
|
|
42.0
|
|
1
|
|
43.4
|
|
(2)
|
Other equity instruments
|
|
5.4
|
|
5.4
|
|
–
|
|
5.4
|
|
–
|
|
6.5
|
|
(17)
|
Non-controlling interests
|
|
0.2
|
|
0.2
|
|
–
|
|
0.3
|
|
(33)
|
|
0.3
|
|
(33)
|
Total equity
|
|
48.1
|
|
49.0
|
|
(2)
|
|
47.7
|
|
1
|
|
50.2
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares in issue, excluding own shares
|
|
70,007m
|
|
70,740m
|
|
|
|
71,122m
|
|
|
|
71,149m
|
|
|
|
|
1
|
Primarily
Europe.
|
2
|
Includes
Retail Business Banking.
|
3
|
Excludes
reverse repos.
|
4
|
Primarily
non interest-bearing Commercial Banking current
accounts.
|
5
|
Primarily
Commercial Banking interest-bearing accounts.
|
6
|
Excludes
repos.
|
7
|
The
adoption of IFRS 16 on 1 January 2019 resulted in the recognition
of a right-of-use asset of £1.7 billion and lease liabilities
of £1.8 billion.
|
REVIEW OF PERFORMANCE
Solid financial performance with statutory result impacted by
additional PPI charge
The
Group’s statutory profit before tax for the nine months was
£2,947 million with good underlying profit offset by an
additional £1,800 million payment protection insurance (PPI)
charge in the third quarter.
Given
the challenging external environment, underlying profit was
£6,016 million compared to £6,303 million in
the first nine months of 2018, reflecting lower net income
partially offset by lower total costs and higher impairment
charges. The Group’s underlying return on tangible equity
remained strong at 15.7 per cent.
Net
income of £13,009 million was 3 per cent lower than in
the first nine months of 2018, reflecting lower net interest income
and other income, while operating lease depreciation was
stable.
Net
interest income of £9,275 million was down
3 per cent with both net interest margin and average
interest-earning banking assets slightly lower. Net interest margin
reduced to 2.89 per cent for the period, and to 2.88 per cent in
the third quarter, with the benefit of lower deposit costs, higher
current account balances and a small benefit from aligning MBNA
credit card terms to other brands across the Group more than offset
by continued pressure on asset margins. Average interest-earning
banking assets reduced by £1.9 billion year on year with
growth in targeted segments more than offset by lower balances in
the closed mortgage book and the sale of the Irish mortgage
portfolio in the first half of 2018.
Other
income decreased by 4 per cent to £4,415 million due to
lower Commercial Banking income driven by more subdued levels of
client activity in the markets business given challenging external
conditions, lower Retail income predominately driven by lower Lex
Autolease volumes, and lower gilt sales. Insurance and Wealth
continued to perform well reflecting growth in workplace pensions
new business in the first half and higher general insurance income
whilst also benefiting from assumption changes and the one-off
benefit from the planned change in investment management provider
taken in the first half of 2019.
Total
costs of £6,043 million were 5 per cent lower
than in the first nine months of 2018 driven by continued
reductions in both operating costs and remediation charges.
Operating costs of £5,817 million were 3 per cent lower with a
6 per cent reduction in business as usual
costs1,
largely driven by increased efficiency from digitalisation and
process improvements, in parallel with strategic investment of
£0.8 billion in the business, up 24 per cent compared to the
first nine months of 2018. Remediation charges of
£226 million were significantly lower than the
£366 million in the first nine months of 2018 and
included additional charges of £83 million in the third
quarter of 2019 relating to a number of items across existing
programmes. The Group’s market-leading cost:income ratio
continues to provide a competitive advantage and further
strengthened to 46.5 per cent with positive jaws of
2 per cent. As a result of the Group’s continued
focus on efficiency, operating costs (which exclude remediation)
are now expected to be less than £7.9 billion for the
full year 2019, ahead of previous guidance and the cost:income
ratio (which includes remediation) is expected to be lower than in
2018.
Credit
quality remains strong with a net asset quality ratio of 29 basis
points and a gross asset quality ratio of 36 basis points,
compared with 22 basis points and 28 basis points respectively in
the first nine months of 2018. The impairment charge increased to
£950 million, with the increase primarily driven by a single
large corporate charge in the third quarter and lower used car
prices. The underlying asset quality ratio has remained low in
recent quarters and the Group continues to expect a net asset
quality ratio of less than 30 basis points in 2019.
The
Group’s outlook and IFRS 9 base case economic scenario used
to calculate expected credit loss have remained broadly stable in
the quarter and throughout 2019 and reflect an orderly exit of the
UK from the European Union.
|
|
1
|
2018
business as usual costs have been adjusted to a comparable basis
after the implementation of IFRS 16 in 2019. On an unadjusted basis
business as usual costs reduced 10 per cent on prior
year.
|
REVIEW OF PERFORMANCE (continued)
Restructuring
costs of £280 million were down 54 per cent, primarily
reflecting lower severance costs relating to the Group’s
strategic investment plans and the completion of both the
integration of MBNA and the ring-fencing programme, which were
partially offset by costs associated with establishing the
Schroders Personal Wealth joint venture.
Volatility
and other items of £339 million included adverse
movements in banking volatility as well as the one-off charge for
exiting the Standard Life Aberdeen investment management agreement
taken in the first half of 2019.
The PPI
provision charge of £2,450 million included an additional
charge of £1,800 million in the quarter, reflecting the
significant increase in PPI information requests (PIRs) leading up
to the deadline for submission of claims on 29 August 2019, a PPI
provision linked to the Official Receiver and associated
administration costs. The assessment of PIR volumes is now complete
and the third quarter charge reflects this and the most recent data
in terms of quality, which remains low, averaging around 10 per
cent. Taking this additional charge into account, the unutilised
provision relating to PIRs, complaints and associated
administration costs stood at £2,324 million at the end of the
third quarter.
Balance sheet strength maintained with lower Pillar 2A
requirement
Loans
and advances to customers increased by £6.2 billion to
£447.2 billion in the third quarter with growth in
targeted segments, including the open mortgage book, SME and Motor
Finance, offset by reductions in the closed mortgage book and
Global Corporates and Financial Institutions. The open mortgage
book grew by £6.1 billion driven by the £3.7 billion
Tesco mortgage acquisition and £2.4 billion of organic book
growth as the Group took advantage of market pricing in the third
quarter and benefitted from a strong application pipeline. The
Group now expects its open mortgage book at the end of 2019,
including the Tesco mortgage acquisition, to be ahead of the 2018
year-end balance.
The Group continues to optimise funding and target current account
balance growth, with Retail current accounts up 3 per cent
over the last nine months at £76.1 billion (31 December 2018:
£73.7 billion). The loan to deposit ratio was flat at
107 per cent.
Tangible net assets per share reduced by 1.0 pence in the first
nine months of 2019 to 52.0 pence mainly due to the impact of
the additional PPI charge on the Group’s statutory profit for
the period.
The Group’s CET1 capital build amounted to 149 basis points
before PPI and to 28 basis points after the in-year PPI charge
equivalent to 121 basis points. Underlying capital build of
148 basis points, along with other movements of 12 basis
points (reflecting market movements and the continued optimisation
of Commercial Banking risk-weighted assets, net of additional
pension contributions), was partly offset by the 11 basis points
impact of IFRS 16. The Group’s capital position also
benefitted by 34 basis points as a result of the cancellation of
the remaining c.£650 million of the 2019 buyback programme, as
announced in September 2019. The Group used 9 basis points of
capital for the acquisition of the Tesco mortgage
portfolio.
As a result, in the first nine months of the year, the CET1 capital
ratio increased to 14.4 per cent pre dividend accrual. After
accruing 91 basis points for the ordinary dividend, the CET1 ratio
at 13.5 per cent remains in line with the Board’s
target.
Given the PPI charge in the third quarter, equivalent to
88 basis points, the Group now expects, assuming no
unforeseen events, free capital build of around 75 basis points in
2019. The Group continues to target a progressive and sustainable
ordinary dividend and in line with normal practice, the
Board will give due consideration to the return of any surplus
capital at the year end.
REVIEW OF PERFORMANCE (continued)
The Group recently received notification from the Prudential
Regulation Authority (PRA) that its Pillar 2A CET1 requirement has
reduced from 2.7 per cent to 2.6 per cent. The Board’s view
of the current level of capital required by the Group to grow the
business, meet regulatory requirements and cover uncertainties
remains unchanged at c.12.5 per cent, plus a c.1 per cent
management buffer. The headroom to regulatory requirements has
therefore increased. As previously reported, the Group’s CET1
capital target reduced during 2019 and is now 50 basis points lower
than prior year.
The Group remains well positioned to meet its minimum requirement
for own funds and eligible liabilities (MREL) from 2020 and as at
30 September 2019, had a transitional MREL ratio of 32.5 per cent.
The UK leverage ratio remains strong at 4.9 per cent.
Risk-weighted assets have increased by £3 billion over the
period driven primarily by the implementation of IFRS 16,
mortgage model updates and the acquisition of the Tesco mortgage
portfolio, offset in part through further optimisation of the
Commercial Banking portfolio.
Outlook
In the
first nine months of 2019 the Group made strong strategic progress
and delivered a solid financial performance in a challenging
external environment. The Group’s performance continues to
demonstrate the resilience of its customer franchise and business
model, the strength of its balance sheet and that its strategy
remains the right one in the current environment.
The
Group will maintain its prudent approach to growth and risk whilst
continuing to focus on reducing costs and investing to transform
the business for success in a digital world. Although continued
economic uncertainty could further impact the outlook, the Group
remains well placed to support its customers and to continue to
Help Britain Prosper.
ADDITIONAL FINANCIAL INFORMATION
1.
Banking
net interest margin and average interest-earning banking
assets
|
|
|
|
|
|
|
Nine
|
|
Nine
|
|
|
months
|
|
months
|
|
|
ended
|
|
ended
|
|
|
30 Sept
|
|
30 Sept
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Group net interest income – statutory basis
(£m)
|
|
7,425
|
|
9,138
|
Insurance gross up (£m)
|
|
1,559
|
|
267
|
Volatility and other items (£m)
|
|
291
|
|
139
|
Group net interest income – underlying basis
(£m)
|
|
9,275
|
|
9,544
|
Non-banking net interest expense (£m)1
|
|
103
|
|
19
|
Banking net interest income – underlying basis
(£m)
|
|
9,378
|
|
9,563
|
|
|
|
|
|
Net loans and advances to customers
(£bn)2
|
|
447.2
|
|
444.6
|
Impairment provision and fair value adjustments
(£bn)
|
|
4.1
|
|
4.0
|
Non-banking items:
|
|
|
|
|
Fee-based
loans and advances (£bn)
|
|
(7.0)
|
|
(6.3)
|
Other
non-banking (£bn)
|
|
(3.5)
|
|
(5.9)
|
Gross banking loans and advances (£bn)
|
|
440.8
|
|
436.4
|
Averaging (£bn)3
|
|
(6.8)
|
|
(0.5)
|
Average interest-earning banking assets (£bn)
|
|
434.0
|
|
435.9
|
|
|
|
|
|
Banking net interest margin (%)
|
|
2.89
|
|
2.93
|
|
|
1
|
Nine
months ended 30 September 2019 includes impact from the
implementation of IFRS 16.
|
2
|
Excludes
reverse repos.
|
3
|
2019
includes a £3.6 billion impact from the Tesco mortgage
portfolio acquisition.
|
2.
Return
on tangible equity
|
|
|
|
|
|
|
Nine
|
|
Nine
|
|
|
months
|
|
months
|
|
|
ended
|
|
ended
|
|
|
30 Sept
|
|
30 Sept
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Average shareholders' equity (£bn)
|
|
43.3
|
|
42.9
|
Average intangible assets (£bn)
|
|
(5.9)
|
|
(5.4)
|
Average tangible equity (£bn)
|
|
37.4
|
|
37.5
|
|
|
|
|
|
Underlying profit after tax (£m)1
|
|
4,543
|
|
4,725
|
Add back amortisation of intangible assets (post tax)
(£m)
|
|
269
|
|
219
|
Less profit attributable to non-controlling interests and other
equity holders (£m)1
|
|
(415)
|
|
(392)
|
Adjusted underlying profit after tax (£m)
|
|
4,397
|
|
4,552
|
|
|
|
|
|
Underlying return on tangible equity (%)
|
|
15.7
|
|
16.2
|
|
|
|
|
|
Group statutory profit after tax (£m)1
|
|
1,987
|
|
3,740
|
Add back amortisation of intangible assets (post tax)
(£m)
|
|
269
|
|
219
|
Add back amortisation of purchased intangible assets (post tax)
(£m)
|
|
56
|
|
83
|
Less profit attributable to non-controlling interests and other
equity holders (£m)1
|
|
(415)
|
|
(392)
|
Adjusted statutory profit after tax (£m)
|
|
1,897
|
|
3,650
|
|
|
|
|
|
Statutory return on tangible equity (%)
|
|
6.8
|
|
13.0
|
|
|
1
|
Comparatives
restated to reflect amendments to IAS 12, see basis of
presentation.
|
|
BASIS OF PRESENTATION
|
This
release covers the results of Lloyds Banking Group plc together
with its subsidiaries (the Group) for the nine months ended
30 September 2019.
IFRS 16 and IAS 12: The Group adopted
IFRS 16 Leases from 1
January 2019 and as permitted elected to apply the standard
retrospectively with the cumulative effect of initial application
being recognised at that date; comparative information has not been
restated. The Group has implemented the amendments to IAS 12
Income Taxes with effect
from 1 January 2019 and as a result tax relief on distributions on
other equity instruments, previously recognised in equity, is now
reported within tax expense. Comparatives have been
restated.
|
Statutory basis: Statutory profit before
tax and statutory profit after tax are included on pages 2 and 3.
However, a number of factors have had a significant effect on the
comparability of the Group’s financial position and results.
Accordingly, the results are also presented on an underlying
basis.
|
Underlying basis: The statutory results
are adjusted for certain items which are listed below, to allow a
comparison of the Group’s underlying
performance.
- restructuring,
including severance-related costs, the rationalisation of the
non-branch property portfolio, the establishment of the Schroders
strategic partnership, the integration of MBNA and Zurich’s
UK workplace pensions and savings business;
- volatility and
other items, which includes the effects of certain asset sales, the
volatility relating to the Group’s hedging arrangements and
that arising in the insurance businesses, insurance gross up, the
unwind of acquisition-related fair value adjustments and the
amortisation of purchased intangible assets;
- payment protection
insurance provisions.
|
Unless
otherwise stated, income statement commentaries throughout this
document compare the nine months ended 30 September 2019 to
the nine months ended 30 September 2018, and the balance sheet
analysis compares the Group balance sheet as at 30 September
2019 to the Group balance sheet as at 31 December
2018.
Alternative performance measures: The
Group uses a number of alternative performance measures, including
underlying profit, in the discussion of its business performance
and financial position. There have been no changes to the
definitions used by the Group; further information on these
measures is set out on page 112 of the Group’s 2019 Half-Year
Results News Release.
Capital: The Q3 2019 Interim Pillar 3
Report can be found at: http://www.lloydsbankinggroup.com/investors/financial-performance/
|
FORWARD LOOKING STATEMENTS
This
document contains certain forward looking statements with respect
to the business, strategy, plans and/or results of the Group and
its current goals and expectations relating to its future financial
condition and performance. Statements that are not historical
facts, including statements about the Group's or its directors'
and/or 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 upon
circumstances that will or may occur in the future. Factors that
could cause actual business, strategy, plans and/or results
(including but not limited to the payment of dividends) to differ
materially from forward looking statements made by the Group or on
its behalf include, but are not limited to: general economic and
business conditions in the UK and internationally; market related
trends and developments; fluctuations in interest rates, inflation,
exchange rates, stock markets and currencies; any impact of the
transition from IBORs to alternative reference rates; the ability
to access sufficient sources of capital, liquidity and funding when
required; changes to the Group's credit ratings; the ability to
derive cost savings and other benefits including, but without
limitation as a result of any acquisitions, disposals and other
strategic transactions; the ability to achieve strategic
objectives; changing customer behaviour including consumer
spending, saving and borrowing habits; changes to borrower or
counterparty credit quality; concentration of financial exposure;
management and monitoring of conduct risk; instability in the
global financial markets, including Eurozone instability,
instability as a result of uncertainty surrounding the exit by the
UK from the European Union (EU) and as a result of such exit and
the potential for other countries to exit the EU or the Eurozone
and the impact of any sovereign credit rating downgrade or other
sovereign financial issues; political instability including as a
result of any UK general election; technological changes and risks
to the security of IT and operational infrastructure, systems, data
and information resulting from increased threat of cyber and other
attacks; natural, pandemic and other disasters, adverse weather and
similar contingencies outside the Group's control; inadequate or
failed internal or external processes or systems; acts of war,
other acts of hostility, terrorist acts and responses to those
acts, geopolitical, pandemic or other such events; risks relating
to climate change; changes in laws, regulations, practices and
accounting standards or taxation, including as a result of the exit
by the UK from the EU, or a further possible referendum on Scottish
independence; changes to regulatory capital or liquidity
requirements and similar contingencies outside the Group's control;
the policies, decisions and actions of governmental or regulatory
authorities or courts in the UK, the EU, the US or elsewhere
including the implementation and interpretation of key legislation
and regulation together with any resulting impact on the future
structure of the Group; the ability to attract and retain senior
management and other employees and meet its diversity objectives;
actions or omissions by the Group's directors, management or
employees including industrial action; changes to the Group's
post-retirement defined benefit scheme obligations; the extent of
any future impairment charges or write-downs caused by, but not
limited to, depressed asset valuations, market disruptions and
illiquid markets; the value and effectiveness of any credit
protection purchased by the Group; the inability to hedge certain
risks economically; the adequacy of loss reserves; the actions of
competitors, including non-bank financial services, lending
companies and digital innovators and disruptive technologies; and
exposure to regulatory or competition scrutiny, legal, regulatory
or competition proceedings, investigations or complaints. 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 and risks together with examples of forward looking
statements. Except as required by any applicable law or regulation,
the forward looking statements contained in this document are made
as of today's date, and the Group expressly disclaims any
obligation or undertaking to release publicly any updates or
revisions to any forward looking statements contained in this
document to reflect any change in the Group’s expectations
with regard thereto or any change in events, conditions or
circumstances on which any such statement is based. The
information, statements and opinions contained in this document do
not constitute a public offer under any applicable law or an offer
to sell any securities or financial instruments or any advice or
recommendation with respect to such securities or financial
instruments.
CONTACTS
For
further information please contact:
INVESTORS AND ANALYSTS
Douglas
Radcliffe
Group
Investor Relations Director
020
7356 1571
douglas.radcliffe@lloydsbanking.com
Edward
Sands
Director
of Investor Relations
020
7356 1585
edward.sands@lloydsbanking.com
Nora
Thoden
Director
of Investor Relations
020
7356 2334
nora.thoden@lloydsbanking.com
CORPORATE AFFAIRS
Grant
Ringshaw
External
Relations Director
020
7356 2362
grant.ringshaw@lloydsbanking.com
Matt
Smith
Head of
Media Relations
020
7356 3522
matt.smith@lloydsbanking.com
Copies
of this interim management statement may be obtained
from:
Investor
Relations, Lloyds Banking Group plc, 25 Gresham Street,
London EC2V 7HN
The
statement can also be found on the Group’s website –
www.lloydsbankinggroup.com
Registered
office: Lloyds Banking Group plc, The Mound, Edinburgh, EH1
1YZ
Registered
in Scotland No. 95000
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
LLOYDS
BANKING GROUP plc
(Registrant)
By: Douglas
Radcliffe
Name: Douglas
Radcliffe
Title: Group
Investor Relations Director
Date: 31
October 2019
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