UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
31 JULY 2015
Commission File number 001-15246
LLOYDS BANKING GROUP plc
(Translation of registrant's name into English)
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 of Form 20-F or Form 40-F.
Form
20-F S Form 40-F £
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b) (1) ________.
Indicate by
check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b) (7) ________.
This report
on Form 6-K shall be deemed incorporated by reference into the company's Registration Statement on Form F-3 (File Nos. 333-189150
and 333-189150-01) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents
or reports subsequently filed or furnished.
EXPLANATORY NOTE
This report on Form 6-K contains the interim
report of Lloyds Banking Group plc, which includes the unaudited consolidated interim results for the half-year ended 30 June
2015, and is being incorporated by reference into the Registration Statement with File Nos. 333-189150 and 333-189150-01.
BASIS OF PRESENTATION
This report covers the results
of Lloyds Banking Group plc (the Company) together with its subsidiaries (the Group) for the half-year ended 30 June 2015.
Statutory basis
Statutory results are set out
on pages 49 to 96. However, a number of factors have had a significant effect on the comparability of the Group’s
financial position and results. As a result, comparison on a statutory basis of the 2015 results with 2014 is of limited benefit.
Underlying
basis
In
order to present a more meaningful view of business performance, the results are presented on an underlying basis excluding items
that in management’s view would distort the comparison of performance between periods. Based on this principle the following
items are excluded from underlying profit:
| – | the amortisation of purchased intangible assets and
the unwind of acquisition-related fair value adjustments; |
| – | the effects of certain asset sales, the impact of
liability management actions and the volatility relating to the Group’s own debt and hedging arrangements as well as that
arising in the insurance businesses and insurance gross up; |
| – | Simplification costs; which for 2015 are limited to
severance costs relating to the programme announced in October 2014. Costs in 2014 include severance, IT and business costs relating
to the programme started in 2011; |
| – | TSB build and dual running costs and the loss relating
to the TSB sale; |
| – | payment protection insurance and other conduct provisions;
and |
| – | certain past service pensions credits or charges in
respect of the Group’s defined benefit pension arrangements. |
Unless otherwise stated income
statement commentaries throughout this document compare the half-year to 30 June 2015 to the half-year to 30 June 2014,
and the balance sheet analysis compares the Group balance sheet as at 30 June 2015 to the Group balance sheet as at 31 December
2014.
FORWARD LOOKING STATEMENTS
This document
contains certain forward looking statements with respect to the business, strategy and plans of Lloyds Banking Group and its current
goals and expectations relating to its future financial condition and performance. Statements that are not historical facts, including
statements about Lloyds Banking 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 to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such 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 exchange rates, stock markets and currencies;
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; changing customer behaviour including consumer spending, saving and borrowing habits;
changes to borrower or counterparty credit quality; instability in the global financial markets, including Eurozone instability,
the potential for one or more countries to exit the Eurozone or European Union (EU) (including the UK as a result of a referendum
on its EU membership) and the impact of any sovereign credit rating downgrade or other sovereign financial issues; technological
changes and risks to cyber security; pandemic, natural 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; changes in laws, regulations, accounting
standards or taxation, including as a result of further Scottish devolution; 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 in the UK, the EU, the US or elsewhere including the implementation of key legislation and regulation; the ability
to attract and retain senior management and other employees; requirements or limitations imposed on the Group as a result of HM
Treasury’s investment in the Group; 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 provision of banking operations
services to TSB Banking Group plc; 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 and lending companies; 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 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 Lloyds Banking Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward
looking statements.
CONTENTS
|
Page |
Summary of results |
1 |
|
|
Statutory information (IFRS) |
|
Consolidated income statement |
2 |
Summary consolidated balance sheet |
3 |
Review of results |
3 |
|
|
Underlying basis information |
|
Segmental analysis of profit (loss) before tax by division (unaudited) |
6 |
Group profit reconciliations |
7 |
Divisional highlights |
|
Retail |
10 |
Commercial Banking |
12 |
Consumer Finance |
14 |
Insurance |
16 |
Other |
19 |
|
|
Additional information on an underlying basis |
|
Banking net interest margin |
21 |
Volatility relating to the insurance business |
21 |
Number of employees (full-time equivalent) |
22 |
|
|
Risk management |
|
Principal risks and uncertainties |
23 |
Credit risk portfolio |
25 |
Funding and liquidity management |
37 |
Capital management |
42 |
|
|
Statutory information |
|
Condensed consolidated half-year financial statements (unaudited) |
49 |
Consolidated income statement |
50 |
Consolidated statement of comprehensive income |
51 |
Consolidated balance sheet |
52 |
Consolidated statement of changes in equity |
54 |
Consolidated cash flow statement |
57 |
Notes |
58 |
SUMMARY OF RESULTS
|
|
Half-year
to 30 June
2015 |
|
Half-year
to 30 June
2014 |
|
Change
since
30 June
2014 |
|
Half-year
to 31 Dec
2014 |
|
|
£m |
|
£m |
|
% |
|
£m |
|
|
|
|
|
|
|
|
|
Statutory results (IFRS) |
|
|
|
|
|
|
|
|
Total income, net of insurance claims |
|
8,807 |
|
7,696 |
|
14 |
|
8,703 |
Total operating expenses |
|
(7,453) |
|
(6,192) |
|
(20) |
|
(7,693) |
Trading surplus |
|
1,354 |
|
1,504 |
|
(10) |
|
1,010 |
Impairment |
|
(161) |
|
(641) |
|
75 |
|
(111) |
Profit before tax |
|
1,193 |
|
863 |
|
38 |
|
899 |
Profit attributable to ordinary shareholders |
|
677 |
|
574 |
|
18 |
|
551 |
Basic earnings per share |
|
1.0p |
|
0.8p |
|
25 |
|
0.8p |
|
|
|
|
|
|
|
|
|
Underlying basis (page 6) |
|
|
|
|
|
|
|
|
Underlying profit |
|
4,383 |
|
3,819 |
|
15 |
|
3,937 |
|
|
|
|
|
|
|
|
|
Capital and balance sheet |
|
At
30 June
2015 |
|
At
31 Dec
2014 |
|
Change
since
31 Dec
2014
% |
|
|
|
|
|
|
|
Statutory |
|
|
|
|
|
|
Loans and advances to customers1 |
|
£452bn |
|
£478bn |
|
(5) |
Customer deposits2 |
|
£417bn |
|
£447bn |
|
(7) |
Loan to deposit ratio3 |
|
109% |
|
107% |
|
2pp |
|
|
|
|
|
|
|
PRA transitional risk-weighted assets |
|
£227bn |
|
£240bn |
|
(5) |
PRA transitional common equity tier 1 capital ratio |
|
13.3% |
|
12.8% |
|
0.5pp |
1 |
Excludes reverse repos of £0.1 billion (31 December 2014: £5.1 billion). |
2 |
Excludes repos of £nil (31 December 2014: £nil). |
3 |
Loans and advances to customers (excluding reverse repos) divided by customer deposits (excluding repos). |
STATUTORY INFORMATION (IFRS)
CONSOLIDATED INCOME STATEMENT
| |
| Half-year
to 30 June 2015 | | |
| Half-year
to 30 June 2014 | | |
| Half-year
to 31 Dec 2014 | |
| |
| £ million | | |
| £ million | | |
| £ million | |
| |
| | | |
| | | |
| | |
Interest and similar income | |
| 8,975 | | |
| 9,728 | | |
| 9,483 | |
Interest and similar expense | |
| (3,483 | ) | |
| (4,466 | ) | |
| (4,085 | ) |
Net interest income | |
| 5,492 | | |
| 5,262 | | |
| 5,398 | |
Fee and commission income | |
| 1,598 | | |
| 1,836 | | |
| 1,823 | |
Fee and commission expense | |
| (607 | ) | |
| (609 | ) | |
| (793 | ) |
Net fee and commission income | |
| 991 | | |
| 1,227 | | |
| 1,030 | |
Net trading income | |
| 3,018 | | |
| 4,588 | | |
| 5,571 | |
Insurance premium income | |
| 1,414 | | |
| 3,492 | | |
| 3,633 | |
Other operating income | |
| 890 | | |
| (535 | ) | |
| 226 | |
Other income | |
| 6,313 | | |
| 8,772 | | |
| 10,460 | |
Total income | |
| 11,805 | | |
| 14,034 | | |
| 15,858 | |
Insurance claims | |
| (2,998 | ) | |
| (6,338 | ) | |
| (7,155 | ) |
Total income, net of insurance claims | |
| 8,807 | | |
| 7,696 | | |
| 8,703 | |
Regulatory provisions | |
| (1,835 | ) | |
| (1,100 | ) | |
| (2,025 | ) |
Other operating expenses | |
| (5,618 | ) | |
| (5,092 | ) | |
| (5,668 | ) |
Total operating expenses | |
| (7,453 | ) | |
| (6,192 | ) | |
| (7,693 | ) |
Trading surplus | |
| 1,354 | | |
| 1,504 | | |
| 1,010 | |
Impairment | |
| (161 | ) | |
| (641 | ) | |
| (111 | ) |
Profit before tax | |
| 1,193 | | |
| 863 | | |
| 899 | |
Taxation | |
| (268 | ) | |
| (164 | ) | |
| (99 | ) |
Profit for the period | |
| 925 | | |
| 699 | | |
| 800 | |
| |
| | | |
| | | |
| | |
Profit attributable to ordinary shareholders | |
| 677 | | |
| 574 | | |
| 551 | |
Profit attributable to other equity holders | |
| 197 | | |
| 91 | | |
| 196 | |
Profit attributable to equity holders | |
| 874 | | |
| 665 | | |
| 747 | |
Profit attributable to non-controlling interests | |
| 51 | | |
| 34 | | |
| 53 | |
Profit for the period | |
| 925 | | |
| 699 | | |
| 800 | |
SUMMARY CONSOLIDATED BALANCE SHEET
|
|
At
30 June
2015 |
|
At
31 Dec
2014 |
Assets |
|
£ million |
|
£ million |
|
|
|
|
|
Cash and balances at central banks |
|
67,687 |
|
50,492 |
Trading and other financial assets at fair value through profit or loss |
|
147,849 |
|
151,931 |
Derivative financial instruments |
|
27,980 |
|
36,128 |
Loans and receivables: |
|
|
|
|
Loans and advances to customers |
|
452,427 |
|
482,704 |
Loans and advances to banks |
|
23,548 |
|
26,155 |
Debt securities |
|
1,569 |
|
1,213 |
|
|
477,544 |
|
510,072 |
Available-for-sale financial assets |
|
32,173 |
|
56,493 |
Held-to-maturity investments |
|
19,960 |
|
− |
Other assets |
|
49,639 |
|
49,780 |
Total assets |
|
822,832 |
|
854,896 |
|
|
|
|
|
Liabilities |
|
|
|
|
Deposits from banks |
|
16,966 |
|
10,887 |
Customer deposits |
|
416,595 |
|
447,067 |
Trading and other financial liabilities at fair value through profit or loss |
|
63,328 |
|
62,102 |
Derivative financial instruments |
|
27,778 |
|
33,187 |
Debt securities in issue |
|
77,776 |
|
76,233 |
Liabilities arising from insurance and investment contracts |
|
107,604 |
|
114,486 |
Subordinated liabilities |
|
22,639 |
|
26,042 |
Other liabilities |
|
42,105 |
|
34,989 |
Total liabilities |
|
774,791 |
|
804,993 |
|
|
|
|
|
Shareholders’ equity |
|
42,256 |
|
43,335 |
Other equity instruments |
|
5,355 |
|
5,355 |
Non-controlling interests |
|
430 |
|
1,213 |
Total equity |
|
48,041 |
|
49,903 |
Total equity and liabilities |
|
822,832 |
|
854,896 |
REVIEW OF RESULTS
The Group recorded a profit before tax of
£1,193 million for the half-year to 30 June 2015, an increase of £330 million, or 38 per cent, compared
to the profit before tax of £863 million for the half-year to 30 June 2014
On 20 March 2015 the Group announced that
it had agreed to sell a 9.99 per cent interest in TSB Banking Group plc (TSB) to Banco de Sabadell S.A. (Sabadell) and that it
had entered into an irrevocable undertaking to accept Sabadell’s recommended cash offer in respect of its remaining 40.01
per cent interest in TSB. The sale of the 9.99 per cent interest completed on 24 March 2015, reducing the Group’s holding
in TSB to 40.01 per cent; this sale lead to a loss of control and the deconsolidation of TSB. On 30 June 2015 the Group announced
that Sabadell’s offer had become unconditional in all respects and the proceeds were received on 10 July 2015. In the half-year
to 30 June 2015 the Group incurred a charge of £660 million following the deconsolidation of TSB; this comprised a gain of
£5 million on disposal of the 9.99 per cent interest and the revaluation of the Group’s remaining 40.01 per
cent interest, offset by a provision of £665 million in relation to the Group’s obligations under the Transitional
Service Agreement and in respect of IT provision.
REVIEW OF RESULTS (continued)
Total income, net of insurance claims, increased
by £1,111 million, or 14 per cent, to £8,807 million for the half-year to 30 June 2015 from £7,696 million
in the half-year to 30 June 2014.
Net interest income increased by £230 million,
or 4 per cent, to £5,492 million. This increase was despite an increase of £57 million in the charge within
net interest income for amounts allocated to unit holders in Open-Ended Investment Companies, from £300 million in the
half-year to 30 June 2014 to £357 million in the half-year to 30 June 2015. Excluding this charge, net interest income
was £287 million, or 5 per cent, higher at £5,849 million. The net interest margin increased, reflecting
the disposal of lower margin assets which were outside of the Group’s risk appetite at the end of 2014 as well as the continued
benefits of reduced funding and liability costs, partly offset by lower asset prices. In addition, the strengthening of the margin
relative to the first half of 2014 reflects a full six months of the benefit of the Enhanced Capital Notes (ECNs) exchange in April
2014.
Other income decreased by £2,459 million,
or 28 per cent, to £6,313 million, largely due to a £1,570 million decrease in net trading income, reflecting
lower income from the insurance businesses due to the impact of market conditions on the policyholder assets within those businesses,
relative to the half-year to 30 June 2014; together with a £2,078 million reduction in insurance premium income and a £1,425
million improvement in other operating income. The market-driven movements in insurance trading income, together with the movement
in insurance premium income, were largely offset in the Group’s income statement by a £3,340 million, or 53 per
cent, decrease in the insurance claims expense, to £2,998 million, and the impact on net interest income of amounts
allocated to unit holders in Open-Ended Investment Companies. Net trading income within the Group’s banking operations was
a profit of £431 million compared to a profit of £587 million in the half-year to 30 June 2014, although
this includes mark-to-market losses of £390 million arising from the equity conversion feature of the Group’s
ECNs, compared to a gain of £226 million in the half-year to 30 June 2014. Net fee and commission income was £236
million, or 19 per cent, lower at £991 million, principally as a result of the sale of Scottish Widows Investment Partnership,
which completed on 31 March 2014. Insurance premium income was £2,078 million lower at £1,414 million; regular
income of £3,373 million in the half-year to 30 June 2015 was partly offset by a charge of £1,959 million relating
to the recapture by a third party insurer of a portfolio of policies previously reassured with the Group. This charge is offset
by an equivalent credit within the insurance claims expense. Other operating income was £1,425 million higher at £890 million
reflecting the fact that the half-year to 30 June 2014 included the loss of £1,362 million arising from the Group’s
exchange and cash redemption transactions relating to its ECNs. Excluding this loss, other operating income was £63 million,
or 8 per cent, higher at £890 million in the half-year to 30 June 2015 compared to £827 million in the half-year to
30 June 2014 as a result of increased income from the movement in value of in-force insurance business.
Total operating expenses increased by £1,261 million,
or 20 per cent, to £7,453 million; although the half-year to 30 June 2015 includes a charge of £665 million
relating to the disposal of TSB, there was a pension curtailment credit of £822 million in the half-year to 30 June 2014
and the half-year to 30 June 2015 includes a charge in respect of regulatory provisions of £1,835 million compared to a charge
of £1,100 million in the same period in 2014. Excluding these items, costs were £961 million, or 16 per
cent, lower at £4,953 million. This decrease reflects a £711 million reduction in Simplification and TSB build
and dual-running costs, together with the impact of business disposals and the ongoing benefits of the Group’s efficiency
programmes.
The Group increased the provision for expected
PPI costs by a further £1,400 million in the first half of 2015. This brings the amount provided to £13,425 million.
Total costs incurred in the second quarter were £876 million and as at 30 June 2015, £2,237 million or 17 per
cent of the total provision, remained unutilised. The volume of reactive PPI complaints in the first half of 2015 fell by 8 per
cent compared with the first half of 2014 but were marginally higher than the Q4 2014 run-rate and expectations. Reactive complaints
continue to be driven by Claims Management Company (CMC) activity.
The Group also made a further charge of
£435 million in respect of other conduct issues. This comprises £318 million of provisions related to potential
claims and remediation in respect of legacy product sales and a fine of £117 million following the agreement reached with
the Financial Conduct Authority with regard to aspects of the Group’s PPI complaint handling process during the period March
2012 to May 2013.
REVIEW OF RESULTS (continued)
Impairment losses decreased by £480 million,
or 75 per cent, to £161 million; this improvement reflects lower levels of new impairment as a result of effective
risk management, improving economic conditions and the continued low interest rate environment.
The tax charge for the half-year to 30 June
2015 was £268 million (half-year to 30 June 2014: £164 million), representing an effective tax rate of 22.5
per cent; this compares to an effective tax rate of 19.0 per cent in the first half of 2014, which reflected tax exempt gains on
the sales of businesses, including Scottish Widows Investment Partnership.
On the balance sheet, total assets were
£32,064 million, or 4 per cent, lower at £822,832 million at 30 June 2015, compared to £854,896
million at 31 December 2014. Loans and advances to customers decreased by £30,277 million, or 6 per cent,
to £452,427 million, principally reflecting the deconsolidation of TSB which lead to a decrease of £21,643 million.
Customer deposits decreased by £30,472 million, to £416,595 million, principally reflecting the deconsolidation
of TSB which lead to a decrease of £24,625 million. Shareholders’ equity decreased by £1,079 million,
or 2 per cent, from £43,335 million at 31 December 2014 to £42,256 million at 30 June 2015 as the
retained profit for the period of £874 million was more than offset by the impact of the dividend paid to shareholders
of £535 million together with a negative post-retirement defined benefit scheme remeasurement and other reserve movements.
Non-controlling interests were £783 million or 65 per cent, lower at £430 million, as a result of the deconsolidation
of TSB.
At 30 June 2015 the Group’s wholesale
funding remained stable at £116 billion (31 December 2014: £116 billion) of which £39 billion (31 December
2014: £41 billion) had a maturity of less than one year. The Group’s total wholesale funding requirement remains
broadly matched by its primary liquid asset portfolio, which is unchanged at £109 billion.
The Group's common equity tier 1 capital
ratio increased to 13.3 per cent at the end of June 2015, after allowing for the interim dividend, from 12.8 per cent
at the end of December 2014, driven by a combination of retained profit and a reduction in risk-weighted assets.
The Group has announced an interim dividend
of 0.75 per share, amounting to £535 million. The Group has a strong capital position with a CET1 ratio of 13.3
per cent and a leverage ratio of 4.9 per cent.
The Group’s aim is to have a dividend
policy that is both progressive and sustainable. The Group recommenced payment at the full year and, as previously indicated, expects
ordinary dividends to increase over the medium term with a dividend payout ratio of at least 50 per cent of sustainable earnings.
In addition, going forward the Board will give due consideration, subject to the circumstances at the time, to the distribution
of surplus capital through the use of special dividends or share buy-backs. Surplus capital represents capital over and above the
amount management wish to retain to grow the business, meet regulatory requirements and cover uncertainties. This amount of retained
capital is likely to vary from time to time depending on circumstances, but is currently around 12 per cent plus an amount broadly
equivalent to a further year’s ordinary dividend.
SEGMENTAL ANALYSIS OF PROFIT (LOSS) BEFORE
TAX BY DIVISION (UNAUDITED)
Underlying basis
| |
| Half-year
to 30 June 2015 | | |
| Half-year to 30 June 2014 | | |
| Half-year
to 31 Dec 2014 | |
| |
| £ million | | |
| £ million | | |
| £ million | |
| |
| | | |
| | | |
| | |
Retail | |
| 1,839 | | |
| 1,710 | | |
| 1,518 | |
Commercial Banking | |
| 1,193 | | |
| 1,156 | | |
| 1,050 | |
Consumer Finance | |
| 539 | | |
| 534 | | |
| 476 | |
Insurance | |
| 584 | | |
| 461 | | |
| 461 | |
Other | |
| 228 | | |
| (42 | ) | |
| 432 | |
Underlying profit before tax | |
| 4,383 | | |
| 3,819 | | |
| 3,937 | |
The Group Executive Committee (GEC), which
is the chief operating decision maker for the Group, reviews the Group’s internal reporting based around these segments (which
reflect the Group’s organisational and management structures) in order to assess the Group’s performance and allocate
resources; this reporting is provided on an underlying profit before tax basis. The GEC believes that this basis better represents
the performance of the Group. IFRS 8 requires that the Group present its segmental profit before tax on the basis reviewed by the
chief operating decision maker that is most consistent with the measurement principles used in measuring the Group’s statutory
profit before tax. Accordingly, the Group presents its segmental underlying basis profit before tax in note 2 on page 59
of its financial statements in compliance with IFRS 8 Operating Segments.
The aggregate total of the underlying basis
segmental results constitutes a non-GAAP measure as defined in the United States Securities and Exchange Commission’s Regulation
G. Management uses the aggregate and segmental underlying profit before tax, both non-GAAP measures, as measures of performance
and believes that they provide important information for investors because they are comparable representations of the Group’s
performance. Profit before tax is the comparable GAAP measure to aggregate underlying profit before tax; the following table sets
out the reconciliation of this non-GAAP measure to its comparable GAAP measure.
GROUP PROFIT RECONCILIATIONS
| |
| Half-year
to 30 June 2015 | | |
| Half-year
to 30 June 2014 | | |
| Half-year to 31 Dec 2014 | |
| |
| £m | | |
| £m | | |
| £m | |
| |
| | | |
| | | |
| | |
Underlying profit | |
| 4,383 | | |
| 3,819 | | |
| 3,937 | |
Asset sales | |
| (52 | ) | |
| 94 | | |
| 44 | |
Liability management | |
| (6 | ) | |
| (1,376 | ) | |
| (10 | ) |
Own debt volatility | |
| (333 | ) | |
| 225 | | |
| 173 | |
Other volatile items | |
| 36 | | |
| (73 | ) | |
| (39 | ) |
Volatility arising in insurance business | |
| 18 | | |
| (122 | ) | |
| (106 | ) |
Fair value unwind | |
| (77 | ) | |
| (315 | ) | |
| (214 | ) |
Simplification and TSB build and dual running costs | |
| (117 | ) | |
| (828 | ) | |
| (696 | ) |
Charge relating to TSB disposal | |
| (660 | ) | |
| - | | |
| - | |
Payment protection insurance provision | |
| (1,400 | ) | |
| (600 | ) | |
| (1,600 | ) |
Other conduct provisions | |
| (435 | ) | |
| (500 | ) | |
| (425 | ) |
Past service pensions credit | |
| - | | |
| 710 | | |
| - | |
Amortisation of purchased intangibles | |
| (164 | ) | |
| (171 | ) | |
| (165 | ) |
Profit before tax – statutory | |
| 1,193 | | |
| 863 | | |
| 899 | |
Asset sales
Asset sales comprise the gains and losses
on asset disposals (half-year to 30 June 2015: loss of £52 million; half-year to 30 June 2014: gain of £94 million),
principally of assets which were outside of the Group’s risk appetite.
Liability management
Losses of £6 million arose in
the half-year to 30 June 2015 (half-year to 30 June 2014: £14 million) on transactions undertaken as part
of the Group’s management of its wholesale funding and capital. In March and April of 2014, the Group issued £5.35
billion of AT1 securities in exchange for £5.0 billion (nominal) of ECNs, giving rise to further liability management
losses of £1,362 million in the first half of 2014.
Own debt volatility
Own debt volatility includes a loss of
£390 million (half-year to 30 June 2014: gain of £226 million) relating to the change in fair
value of the equity conversion feature of the Enhanced Capital Notes, which principally reflects the ongoing amortisation of
the value of the conversion feature over its life. Own debt volatility also includes a £53 million gain (half-year
to 30 June 2014: £25 million) relating to the change in fair value of the small proportion of the
Group’s wholesale funding which was designated at fair value at inception.
Other volatile items
Other volatile items includes the change
in fair value of interest rate derivatives and foreign exchange hedges in the banking book not mitigated through hedge accounting,
resulting in a gain of £5 million (a charge of £127 million was incurred in the first half of 2014). Other
volatile items also include a positive net derivative valuation adjustment of £31 million (half-year to 30 June
2014: gain of £54 million), reflecting movements in the market implied credit risk associated with customer derivative
balances.
Volatility relating to the insurance
business
The Group’s statutory profit before
tax is affected by insurance volatility caused by movements in financial markets generating a variance against expected returns,
and policyholder interests volatility, which primarily reflects the gross up of policyholder tax included in the Group tax charge.
Volatility relating to the insurance business increased the Group’s statutory profit by £18 million in the first half
of 2015; this compares to negative insurance volatility of £122 million in the first half of 2014.
GROUP PROFIT RECONCILIATIONS (continued)
Fair value unwind
The statutory (IFRS) results include the
impact of the acquisition-related fair value adjustments arising from the acquisition of HBOS in 2009; these adjustments affect
a number of line items.
The principal financial effects of the fair
value unwind are to reflect the effective interest rates applicable at the date of acquisition, on assets and liabilities that
were acquired at values that differed from their original book value, and to recognise the reversal of credit and liquidity risk
adjustments as underlying instruments mature or become impaired. Generally, this leads to higher interest expense as the value
of HBOS’s own debt accretes to par and a lower impairment charge reflecting the impact of acquisition balance sheet valuation
adjustments.
Simplification and TSB costs
Simplification programme costs were £32 million
(half-year to 30 June 2014: £519 million); and TSB build and dual running costs were £85 million (half-year
to 30 June 2014: £309 million).
Charge relating to TSB disposal
On 20 March 2015 the Group announced that
it had agreed to sell a 9.99 per cent interest in TSB Banking Group plc (TSB) to Banco de Sabadell S.A. (Sabadell) and that it
had entered into an irrevocable undertaking to accept Sabadell’s recommended cash offer in respect of its remaining 40.01
per cent interest in TSB. The offer by Sabadell was conditional upon, amongst other things, regulatory approval.
The sale of the 9.99 per cent interest completed
on 24 March 2015, reducing the Group’s holding in TSB to 40.01 per cent; this sale led to a loss of control and the deconsolidation
of TSB. The Group’s residual investment in 40.01 per cent of TSB was then recorded at fair value, as an asset held for sale.
The Group recognised a loss of £660 million reflecting the net costs of the Transitional Service Agreement between Lloyds
and TSB, the contribution to be provided by Lloyds to TSB in moving to alternative IT provision and the net result on sale of the
9.99 per cent interest and fair valuation of the residual investment.
The Group announced on 30 June 2015 that
all relevant regulatory clearances had been received and that the sale was therefore unconditional in all respects, so that at
30 June 2015 the Group was carrying a receivable from Sabadell in respect of the final proceeds of sale. The proceeds were received
on 10 July 2015.
Payment protection insurance (PPI)
The Group increased the provision for expected
PPI costs by a further £1.4 billion in the first half of 2015. This brings the total amount provided to £13.4 billion,
of which £2.2 billion remains unutilised. The unutilised provision comprises elements to cover the Past Business Review
(PBR), remediation activity and future reactive complaints including associated administration costs.
The Past Business Review activity is nearing
completion, with no further provisions taken in the first half. The Group has mailed 98 percent of the total PBR scope and the
remaining 2 per cent of customers are expected to be mailed by the end of 2015.
The Group continues to progress with remediation.
At the end of 2014, the Group had identified approximately 1.2 million previously defended and redressed cases for re-review. During
the first half the scope of the programme has been extended by 0.2 million to approximately 1.4 million cases. The Group has
now completed the review of 96 per cent of previously defended cases, which were prioritised given their complexity and the level
of potential redress required. The remaining scope, including the review of previously redressed cases, is expected to be substantially
completed by the end of the year. The changes in the scope of the programme, together with higher overturn and redress rates, has
resulted in an additional provision of approximately £0.4 billion in the second quarter.
GROUP PROFIT RECONCILIATIONS (continued)
The volume of reactive PPI complaints in
the first half of 2015 fell by 8 per cent compared with the first half of 2014, but was marginally higher than the fourth quarter
2014 run-rate and above expectations. Reactive complaints continue to be driven by Claims Management Company (CMC) activity. Higher
than expected average redress, coupled with the revised forecast of complaint volumes and associated operational costs accounts
for £1.0 billion of the provision taken in the second quarter.
The cash payment in the first half of 2015
was £1.7 billion and included remediation and PBR payments. As indicated, the PBR and remediation programmes are expected
to be substantially complete by the end of this year, slightly later than originally envisaged. The monthly run-rate spend of these
programmes is expected to reduce significantly from the current level of around £140 million to around £30 million
at the end of this year with an associated reduction in operating costs.
A number of risks and uncertainties remain,
in particular in respect of complaint volumes, which are primarily driven by CMC activity. The current provision assumes a significant
decrease in reactive complaint volumes over the next 18 months, compared with trends in recent quarters. If this decline is
delayed by six months and reactive complaints remain at the same level as the first half of 2015, this would lead to an additional
provision of approximately £1.0 billion at the end of the year; a similar level of provisioning would be required for
each six months of flat complaint volumes in 2016.
Other conduct provisions
In the first half of 2015, the Group incurred
a further charge of £435 million in respect of a number of matters affecting the Retail, Commercial Banking and Consumer
Finance divisions. Within this total, £318 million of provisions related to potential claims and remediation in respect
of products sold through the branch network and continuing investigation of matters highlighted through industry wide regulatory
reviews, as well as legacy product sales and historical systems and controls such as those governing legacy incentive schemes.
This includes £175 million in respect of complaints relating to Packaged Bank Accounts. In addition, the charge included
the previously announced settlement of £117 million that the Group reached with the Financial Conduct Authority with
regard to aspects of its PPI complaint handling process during the period March 2012 to May 2013.
Past service pensions credit
In 2014, the Group reviewed its defined
benefit pension arrangements as part of a wider review of the pay, benefits and reward it offers to employees. As a result, the
Group decided to reduce the cap on the increases in pensionable pay used in calculating the pension benefit, from 2 per cent to
0 per cent with effect from 2 April 2014. This change and other actions, which are expected to result in a reduced level of volatility
in the value of the Group’s defined benefit pension schemes in the future, resulted in a £710 million credit in
the income statement in the half-year to 30 June 2014.
Amortisation of purchased intangibles
A total of £4,650 million of
customer-related intangibles, brands, core deposit intangibles and purchased credit card relationships were recognised on the acquisition
of HBOS in 2009 and these are being amortised over their estimated useful lives, where this has been determined to be finite. This
has resulted in a charge of £164 million in the half-year to 30 June 2015 (half-year to 30 June 2014: £171 million).
The customer-related intangibles include
customer lists and the benefits of customer relationships that generate recurring income. The purchased credit card relationships
represent the benefit of recurring income generated from the portfolio of credit cards purchased and the core deposit intangible
is the benefit derived from a large stable deposit base that has low interest rates.
DIVISIONAL HIGHLIGHTS
RETAIL
Retail offers a broad range of financial
service products, including current accounts, savings, personal loans and mortgages, to UK personal customers, including Wealth
and small business customers. It is also a distributor of insurance, protection and credit cards, and a range of long-term savings
and investment products. Retail’s aim is to be the best bank for customers in the UK, by building deep and enduring relationships
that deliver value to customers, and by providing them with greater choice and flexibility. Retail will maintain its multi-brand
and multi-channel strategy, and continue to simplify the business and provide more transparent products, helping to improve service
levels and reduce conduct risks.
Progress
against strategic initiatives
| · | Continued development of our digital capability. Our online user base has increased to over 11
million customers, with over 5.9 million active mobile users. |
| · | Continued to attract new customers through positive switching activity, particularly through the
Halifax challenger brand which has attracted around 120,000 customers in the first half of 2015. |
| · | Club Lloyds proposition has been strengthened by the addition of new home insurance and cards offers,
helping to attract a further 200,000 customers in the first half of 2015. |
| · | Developed a market leading Young Savers proposition, with around 250,000 children’s savings
accounts opened in the first half of 2015, helping develop a savings culture in young people and allowing us to start building
long lasting relationships with these customers. |
| · | Achieved £16 billion of gross new mortgage lending in in the first half of 2015. Launched
a new online application process that allows customers to reach Agreement in Principle to borrow, improving efficiency for both
customers and the business. |
| · | On track to deliver our lending commitment to first-time buyers, providing 1 in 4 mortgages. Retail
continues to be a leading supporter of the UK government’s Help to Buy scheme, with lending of £2.5 billion under
the mortgage guarantee element of the scheme since launch. |
| · | Exceeded our lending commitment, supporting over 1 in 5 new business start-ups. Improved our proposition
to small business customers, launching a range of new to market products and services. |
| · | Enhanced proposition for investment customers, becoming the first UK Bank to offer investment advice
through video-conferencing and screen sharing. |
| · | Increased Net Promoter Scores across all channels in in the first half of 2015. |
Financial
performance
| · | Underlying profit increased 8 per cent to £1,839 million. |
| · | Net interest income increased 7 per cent. Margin has increased 16 basis points to 2.44 per
cent, driven by improved deposit margin and mix, more than offsetting reduced lending rates. |
| · | Other income down 20 per cent. Lower protection income following the removal of face-to-face
advised standalone protection roles in branches, lower wealth income following regulatory changes. |
| · | Costs increased 4 per cent to £2,300 million, with operational efficiencies funding
increased investment in the business. |
| · | Impairment reduced 41 per cent to £163 million, driven by lower unsecured charges due
to lower impaired loan and arrears balances. Secured coverage was broadly flat at 36 per cent. |
| · | Return on risk-weighted assets increased 73 basis points driven by 3 per cent reduction to
risk-weighted assets and 8 per cent increase to underlying profit. |
Balance
sheet
| · | Loans and advances to customers fell 1 per cent to £312.9 billion with the open
mortgage book (excluding specialist mortgage book and Intelligent Finance) increasing 1 per cent versus June 2014. |
| · | Customer deposits decreased 3 per cent to £278.2 billion, with more expensive tactical balances
down 12 per cent to £33.2 billion, reflecting lower lending growth and actions to protect interest margins. |
| · | Risk-weighted assets decreased by £1.8 billion to £65.9 billion, driven by an improvement
in the credit quality of assets and a modest contraction to lending balances. |
RETAIL (continued)
|
|
Half-year
to 30 June
2015 |
|
Half-year
to 30 June
2014 |
|
Change |
|
Half-year
to 31 Dec
2014 |
|
Change |
|
|
£m |
|
£m |
|
% |
|
£m |
|
% |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
3,743 |
|
3,493 |
|
7 |
|
3,586 |
|
4 |
Other income |
|
559 |
|
700 |
|
(20) |
|
512 |
|
9 |
Total income |
|
4,302 |
|
4,193 |
|
3 |
|
4,098 |
|
5 |
Costs |
|
(2,300) |
|
(2,207) |
|
(4) |
|
(2,257) |
|
(2) |
Impairment |
|
(163) |
|
(276) |
|
41 |
|
(323) |
|
50 |
Underlying profit |
|
1,839 |
|
1,710 |
|
8 |
|
1,518 |
|
21 |
|
|
|
|
|
|
|
|
|
|
|
Banking net interest margin |
|
2.44% |
|
2.28% |
|
16bp |
|
2.29% |
|
15bp |
Asset quality ratio |
|
0.10% |
|
0.18% |
|
(8)bp |
|
0.20% |
|
(10)bp |
Return on risk-weighted assets |
|
5.55% |
|
4.82% |
|
73bp |
|
4.36% |
|
119bp |
Return on assets |
|
1.17% |
|
1.09% |
|
8bp |
|
0.95% |
|
22bp |
|
|
|
|
|
|
|
|
|
|
|
Key balance sheet items |
|
At
30 June
2015 |
|
At
31 Dec
2014 |
|
Change |
|
|
£bn |
|
£bn |
|
% |
|
|
|
|
|
|
|
Loans and advances excluding closed portfolios |
|
283.9 |
|
284.7 |
|
− |
Closed portfolios |
|
29.0 |
|
30.5 |
|
(5) |
Loans and advances to customers |
|
312.9 |
|
315.2 |
|
(1) |
|
|
|
|
|
|
|
Relationship balances |
|
245.0 |
|
247.9 |
|
(1) |
Tactical balances |
|
33.2 |
|
37.6 |
|
(12) |
Customer deposits |
|
278.2 |
|
285.5 |
|
(3) |
Total customer balances |
|
591.1 |
|
600.7 |
|
(2) |
|
|
|
|
|
|
|
Risk-weighted assets |
|
65.9 |
|
67.7 |
|
(3) |
COMMERCIAL BANKING
Commercial Banking supports UK businesses
from SMEs to large corporates and financial institutions. It has a client led, low risk strategy targeting sustainable returns
on risk weighted assets above 2 per cent by 2015 and more than 2.4 per cent by the end of 2017, whilst simplifying operating processes,
building digital capability and maintaining capital discipline. Commercial Banking aims to be the best bank for clients, delivering
a through-the-cycle relationship approach that provides affordable, simple and transparent finance, as well as support for complex
needs and access to Government funding schemes.
Progress against strategic initiatives
| · | Increased lending to SMEs by 5 per cent supported by strong relationship banking and remain
the largest net lender to SMEs under the Funding for Lending Scheme (FLS), with over £3 billion of gross FLS lending
in the first half of 2015. |
| · | Maintained lending to Mid Market clients in a declining market, delivering an improved local service
with an overall increase in client advocacy and ongoing investment in relationship manager capability. |
| · | Grown both SME and Mid Market client base and have committed over £735 million of funding
support to UK manufacturing. |
| · | Global Corporates was ranked first in Sterling capital markets financing of UK corporates in the
first half of 2015, raising more than £1.8 billion for clients. It continues to help Britain prosper globally by providing
UK clients with overseas capability and leveraging its considerable domestic capabilities in support of major international companies
seeking a gateway into the UK. |
| · | Financial Institutions (FI) actively supports the Financial Services industry in the UK, a sector
critical to the success of the UK economy. Our leading FI franchise continued to deliver through deep sector expertise as illustrated
by the growing number of lead financing roles, helping our clients to raise £30 billion of funding in the year to date. |
| · | Strong deposit growth underpinned by continued investment in Transaction Banking platforms and
further helped by the Group’s improving credit rating. |
| · | Continued our commitment to Helping Britain Prosper, raising over £500 million through
our Environmental, Social and Governance (ESG) programmes including the issuance of our second ESG bond for £250 million
and launch of an ESG Term Deposit to finance SMEs, healthcare providers and renewable energy projects in the most economically
disadvantaged areas of the UK. |
| · | Supporting over £2.6 billion of UK national infrastructure financing including
developing and leading the first CPI-linked bond in the sterling market, used by the Greater London Authority to partly fund
the extension of the London Underground Northern Line; a development which is expected to lead to the creation of 24,000 new
jobs and 18,000 new homes. |
Financial performance
| · | Underlying profit of £1,193 million, up 3 per cent, driven by income growth and
a significant reduction in impairments. |
| · | Income increased by 2 per cent to £2,257 million, reflecting strong growth in our
Core Client franchises, offset by lower revaluation income from Lloyds Development Capital (LDC). |
| · | Net interest margin increased by 18 basis points to 2.81 per cent due to disciplined pricing
of new lending and a continued reduction in funding costs as a result of attracting high quality transactional deposits in SME,
Mid Markets and Global Corporates. |
| · | Other income increased 4 per cent, driven by significant refinancing activity support provided
to Global Corporate clients and increases in Mid Markets and Financial Institutions, offset by a reduction in LDC. |
| · | Asset quality ratio of 0.04 per cent improved by 1 basis point, reflecting lower gross charges,
improved credit quality and continued progress in executing the strategy of building a low risk commercial bank. |
| · | Return on risk-weighted assets increased by 33 basis points to 2.29 per cent. We remain
on target to deliver sustainable returns in excess of 2 per cent in 2015 and more than 2.40 per cent by the end of 2017. |
Balance sheet
| · | Loans and advances to customers fell by 1 per cent to £100.2 billion with growth in SME offset
by transfers to the Insurance division. |
| · | Customer deposits increased by 5 per cent, with growth in all client segments. |
| · | Risk-weighted assets decreased by £3.4 billion, reflecting continued optimisation of
the balance sheet. Reductions in credit and market risk-weighted assets were the result of active portfolio management across Financial
Markets and Global Corporates, and Market Risk model changes.
|
COMMERCIAL BANKING (continued)
|
|
Half-year
to 30 June
2015 |
|
Half-year
to 30 June
2014 |
|
Change |
|
Half-year
to 31 Dec
2014 |
|
Change |
|
|
£m |
|
£m |
|
% |
|
£m |
|
% |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
1,234 |
|
1,234 |
|
− |
|
1,246 |
|
(1) |
Other income |
|
1,023 |
|
984 |
|
4 |
|
972 |
|
5 |
Total income |
|
2,257 |
|
2,218 |
|
2 |
|
2,218 |
|
2 |
Operating costs |
|
(1,043) |
|
(1,022) |
|
(2) |
|
(1,101) |
|
5 |
Operating lease depreciation |
|
(14) |
|
(11) |
|
(27) |
|
(13) |
|
(8) |
Costs |
|
(1,057) |
|
(1,033) |
|
(2) |
|
(1,114) |
|
5 |
Impairment |
|
(7) |
|
(29) |
|
76 |
|
(54) |
|
87 |
Underlying profit |
|
1,193 |
|
1,156 |
|
3 |
|
1,050 |
|
14 |
|
|
|
|
|
|
|
|
|
|
|
Banking net interest margin |
|
2.81% |
|
2.63% |
|
18bp |
|
2.70% |
|
11bp |
Asset quality ratio |
|
0.04% |
|
0.05% |
|
(1)bp |
|
0.10% |
|
(6)bp |
Return on risk-weighted assets |
|
2.29% |
|
1.96% |
|
33bp |
|
1.88% |
|
41bp |
Return on assets |
|
1.06% |
|
1.01% |
|
5bp |
|
0.87% |
|
19bp |
|
|
|
|
|
|
|
|
|
|
|
Key balance sheet items |
|
At
30 June
2015 |
|
At
31 Dec
2014 |
|
Change |
|
|
£bn |
|
£bn |
|
% |
|
|
|
|
|
|
|
SME |
|
28.8 |
|
27.9 |
|
3 |
Other |
|
71.4 |
|
73.0 |
|
(2) |
Loans and advances to customers |
|
100.2 |
|
100.9 |
|
(1) |
Customer deposits |
|
125.4 |
|
119.9 |
|
5 |
Total customer balances |
|
225.6 |
|
220.8 |
|
2 |
|
|
|
|
|
|
|
Risk-weighted assets |
|
102.8 |
|
106.2 |
|
(3) |
CONSUMER FINANCE
Consumer Finance aims to extend its market
leadership in motor finance by building its digital capability and creating new propositions in both the Black Horse and Lex Autolease
businesses. In Credit Cards, better use will be made of Group customer relationships and insight, with investment into digital
strategic initiatives to seek growth within its current risk appetite from franchise customers, as well as a focus on attracting
non-franchise customers.
Progress against strategic objectives
| · | Investing in our growth strategy: |
| − | Successfully launched the market’s first direct-to-consumer, secured car finance proposition,
providing a simple, digital hire purchase and personal contract purchase offering through online banking and mobile devices. |
| − | Further digital developments within Credit Cards improving our customers’ experience, particularly
within mobile. Significant improvements in our customer propositions, including a broadened, more competitive product range, along
with improved switching and multiple product holding capabilities. |
| · | Focus on new business in a competitive market: |
| − | 17 per cent growth in Black Horse new lending year-on-year with strong underlying business performance
including the Jaguar Land Rover partnership, while leading the industry in embedding significant Consumer Credit regulatory change. |
| − | 6 per cent growth in Lex Autolease fleet size year-on-year with leads from the franchise up 14
per cent. |
| − | 21 per cent increase in Cards balance transfer volumes year-on-year from both new and existing
customers and a net gainer from competitors. |
| − | 25 per cent growth in transaction volumes year-on-year within the Cardnet Acquiring solutions business,
driven by increased activity from existing customers. |
| · | Growing balances in under-represented markets: |
| − | UK Consumer Finance loan growth of 17 per cent year-on-year. |
| − | Growth in Credit Cards lending balances of 5 per cent year-on-year. |
| − | Black Horse lending up 33 per cent and Lex operating leases 10 per cent higher year-on-year. |
| · | Customer satisfaction improved with increased Net Promoter Scores year-on-year across the UK businesses
including a significant improvement in Credit Cards. |
Financial performance
| · | Underlying profit up to £539 million, with new business volume driven income growth in Black
Horse and Lex Autolease and reductions in impairments reflecting improved quality of the portfolio, offsetting an increase in costs
largely reflecting investment in our growth strategy. |
| · | Net interest income increased by 2 per cent to £658 million driven by strong growth across
all lending businesses, partly offset by a 43 basis point reduction in net interest margin to 6.26 per cent including the impact
of lower Euribor rates on the online deposit businesses. The lower margin underlies a shift towards higher quality and hence lower
margin lending which in turn is consistent with the lower impairment charges being experienced. |
| · | Increase in other income to £677 million as a result of the continued fleet growth in Lex
Autolease in a competitive environment. |
| · | Costs increased by 7 per cent to £756 million with operational efficiencies more than offset
by investment in growth initiatives and increased operating lease depreciation as a result of growth in the Lex Autolease fleet. |
| · | Impairment charges reduced by 49 per cent to £40 million, with an improvement in the asset
quality ratio, driven by continued improvement in portfolio quality supported by the sale of recoveries assets in the Credit Cards
portfolio. |
| · | Return on risk-weighted assets in line with the prior year at 5.19 per cent with growth in
underlying profit offset by a small increase in average risk-weighted assets. |
Balance sheet
| · | Net lending increased by 4 per cent since December driven by Black Horse with growth of 18 per
cent. In Credit Cards we have seen growth accelerate to 5 per cent year-on-year. Balances in the European businesses were down
8 per cent since December driven by foreign exchange rate movements. |
| · | Operating lease assets up by 3 per cent since December to £3.2 billion reflecting growth
in the Lex Autolease fleet. |
| · | Customer deposits reduced by 24 per cent since December to £11.4 billion driven by deposit
re-pricing activity in response to lower Euribor rates and foreign exchange rate movements. |
| · | Risk weighted assets unchanged since December, with growth in net lending offset by active portfolio
management and improvements in credit quality. |
CONSUMER FINANCE (continued)
|
|
Half-year
to 30 June
2015 |
|
Half-year
to 30 June
2014 |
|
Change |
|
Half-year
to 31 Dec
2014 |
|
Change |
|
|
£m |
|
£m |
|
% |
|
£m |
|
% |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
658 |
|
645 |
|
2 |
|
645 |
|
2 |
Other income |
|
677 |
|
675 |
|
− |
|
689 |
|
(2) |
Total income |
|
1,335 |
|
1,320 |
|
1 |
|
1,334 |
|
− |
Operating costs |
|
(403) |
|
(389) |
|
(4) |
|
(373) |
|
(8) |
Operating lease depreciation |
|
(353) |
|
(319) |
|
(11) |
|
(348) |
|
(1) |
Costs |
|
(756) |
|
(708) |
|
(7) |
|
(721) |
|
(5) |
Impairment |
|
(40) |
|
(78) |
|
49 |
|
(137) |
|
71 |
Underlying profit |
|
539 |
|
534 |
|
1 |
|
476 |
|
13 |
|
|
|
|
|
|
|
|
|
|
|
Banking net interest margin |
|
6.26% |
|
6.69% |
|
(43)bp |
|
6.30% |
|
(4)bp |
Asset quality ratio |
|
0.38% |
|
0.78% |
|
(40)bp |
|
1.30% |
|
(92)bp |
Impaired loans as a % of closing advances |
|
2.8% |
|
4.2% |
|
(1.4)pp |
|
3.4% |
|
(0.6)pp |
Return on risk-weighted assets |
|
5.19% |
|
5.20% |
|
(1)bp |
|
4.49% |
|
70bp |
Return on assets |
|
4.16% |
|
4.30% |
|
(14)bp |
|
3.79% |
|
37bp |
Key balance sheet items |
|
At
30 June
2015
|
|
At
31 Dec
2014
|
|
Change |
|
|
£bn |
|
£bn |
|
% |
|
|
|
|
|
|
|
Loans and advances to customers |
|
21.8 |
|
20.9 |
|
4 |
Of which UK |
|
17.3 |
|
16.0 |
|
8 |
Operating lease assets |
|
3.2 |
|
3.1 |
|
3 |
Total customer assets |
|
25.0 |
|
24.0 |
|
4 |
Of which UK |
|
20.5 |
|
19.1 |
|
7 |
Customer deposits |
|
11.4 |
|
15.0 |
|
(24) |
Total customer balances |
|
36.4 |
|
39.0 |
|
(7) |
|
|
|
|
|
|
|
Risk-weighted assets |
|
21.0 |
|
20.9 |
|
− |
INSURANCE
The Insurance division is committed to meeting
the changing needs of our customers by working with our Group partners to provide a range of trusted and value for money products
via multiple channels. Since it was founded 200 years ago Scottish Widows has been protecting what our customers value most and
helping them plan financially for the future, currently with almost six million life and pensions customers and over £95 billion
of funds under management.
Progress against strategic initiatives
| · | Corporate Pensions assets under management increased by £1.4 billion to £28.4 billion
in the first half of the year following continued growth in contributions under auto enrolment. As a leading provider in this sector,
Insurance is well positioned to benefit from the expected growth in the workplace savings market. |
| · | Launched a new retirement planning website to inform and educate customers about the options and
choices available to them in retirement. This provides customers with increased flexibility in how they access guidance on their
retirement options. In the four months since launch more than 150,000 customers have utilised this site. |
| · | Home Insurance sales through online channels continued to grow, supported by strong retention,
following the decision taken to bring the underwriting in house. Continued investment in the Group’s direct digital capability
is expected to deliver a more flexible Home Insurance product later this year. |
| · | Customer access to protection products has been extended with the launch of an online product which
gives customers the opportunity to acquire life insurance through a quick and easy digital journey. |
| · | Successfully executed a bulk annuity transaction with the Scottish Widows With-Profits fund. This
represented a key stage in plans to participate in the growing and attractive defined benefit pensions scheme de-risking market
via a bulk annuities offering. |
| · | Continued optimisation of assets across the Group through the acquisition of attractive higher
yielding assets from the Group to match long duration annuity liabilities. Total assets acquired to date are circa £5 billion. |
| · | Increased focus on the core UK business with the agreed sale of the Isle of Man based Clerical
Medical International insurance business. |
Financial performance
| · | Underlying profit up 27 per cent to £584 million, primarily driven by the £98 million
new business value of the bulk annuity transaction with the With-Profits fund. |
| · | LP&I sales (PVNBP) increased by 25 per cent in the year, boosted by £2,386 million from
the With-Profits fund annuity transaction. Excluding this, PVNBP fell by 26 per cent, driven by significant regulatory and
market change. |
| · | Operating cash generation increased by £11 million, to £391 million, primarily reflecting
benefits from the acquisition of higher yielding assets more than offsetting the initial impact of the bulk annuity transaction
with the With-Profits fund. |
| · | General Insurance Gross Written Premiums (GWP) decreased 7 per cent, reflecting the competitive
market environment and the run off of products closed to new customers. |
Capital
| · | Estimated Pillar 1 capital surplus is £2.7 billion (Scottish Widows plc, £2.6 billion
in 2014) and for Insurance Groups Directive is £3.1 billion (Insurance Group, £3.0 billion in 2014) with the changes
in both Pillar 1 and IGD reflecting earnings in the first half of the year. |
| · | Preparations are on track for Solvency II implementation on 1 January 2016. Implementation is expected
to have a minimal impact on the Insurance division capital position given the anticipated impact of transitional arrangements. |
| · | Plans are progressing well to simplify the corporate structure of the life insurance entities to
deliver capital and simplification benefits. |
INSURANCE (continued)
Performance summary
|
|
Half-year
to 30 June
2015 |
|
Half-year
to 30 June
2014 |
|
Change |
|
Half-year
to 31 Dec
2014 |
|
Change |
|
|
£m |
|
£m |
|
% |
|
£m |
|
% |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
(73) |
|
(64) |
|
(14) |
|
(67) |
|
(9) |
Other income |
|
1,025 |
|
854 |
|
20 |
|
871 |
|
18 |
Total income |
|
952 |
|
790 |
|
21 |
|
804 |
|
18 |
Costs |
|
(368) |
|
(329) |
|
(12) |
|
(343) |
|
(7) |
Underlying profit |
|
584 |
|
461 |
|
27 |
|
461 |
|
27 |
|
|
|
|
|
|
|
|
|
|
|
Operating cash generation |
|
391 |
|
380 |
|
3 |
|
357 |
|
10 |
UK LP&I sales (PVNBP)1 |
|
5,837 |
|
4,680 |
|
25 |
|
3,921 |
|
49 |
General Insurance total GWP2 |
|
561 |
|
604 |
|
(7) |
|
593 |
|
(5) |
General Insurance combined ratio |
|
73% |
|
80% |
|
(7)pp |
|
76% |
|
(3)pp |
1 |
Present value of new business premiums. |
2 |
Gross written premiums. |
Profit by product group
|
Half-year to 30 June 2015 |
|
Half-year
to 30 June
2014 |
|
Half-year
to 31 Dec
2014 |
|
Pensions &
investments |
Protection &
retirement |
Bulk
annuities |
General
insurance |
Other1 |
Total |
|
Total |
|
Total |
|
£m |
£m |
£m |
£m |
£m |
£m |
|
£m |
|
£m |
New business income |
91 |
15 |
98 |
− |
− |
204 |
|
151 |
|
116 |
Existing business income |
307 |
64 |
− |
− |
34 |
405 |
|
441 |
|
442 |
Long-term investment strategy |
− |
52 |
39 |
− |
− |
91 |
|
95 |
|
65 |
Assumption changes and experience variances |
(16) |
66 |
− |
− |
10 |
60 |
|
(105) |
|
(29) |
General Insurance income net of claims |
− |
− |
− |
192 |
− |
192 |
|
208 |
|
210 |
Total income |
382 |
197 |
137 |
192 |
44 |
952 |
|
790 |
|
804 |
Costs |
(220) |
(72) |
(7) |
(69) |
− |
(368) |
|
(329) |
|
(343) |
Underlying profit |
162 |
125 |
130 |
123 |
44 |
584 |
|
461 |
|
461 |
|
|
|
|
|
|
|
|
|
|
|
Underlying profit
30 June 20142 |
144 |
141 |
− |
138 |
38 |
461 |
|
|
|
|
1 |
‘Other’ is primarily
income from return on free assets, interest expense plus certain provisions. |
2 |
Full 2014 comparator tables for the profit and
cash disclosures can be found on the Lloyds Banking Group investor site. |
New business income has increased by £53
million, with the primary driver being a £98 million benefit from the bulk annuity transaction with the Scottish Widows With-Profits
fund. This has been offset by a reduction in Protection income following the removal of face-to-face advised standalone protection
roles in branches and a reduction in income from individual annuities following Pensions Freedom. Corporate pension income remained
robust although decreased relative to significant sales in 2014 driven by auto enrolment.
The fall in existing business income reflects
a reduction in the expected rate of return used to calculate the life and pensions income. The rate of return is largely set by
reference to an average 15 year swap rate (rate of return 2.82 per cent in the first half of 2015 and 3.48 per cent in
2014).
INSURANCE (continued)
Long-term investments strategy includes
the benefit from the successful acquisition of a further £0.8 billion of higher yielding assets to match the long duration
liabilities in both the standard annuity book as well as the newly acquired bulk annuity business.
Assumption changes and experience variances
include a £40 million benefit from changes to assumptions on longevity reflecting experience in the annuity portfolio. The
prior year included a one-off £100 million charge relating to the corporate pensions fee cap.
General Insurance income net of claims has
fallen by £16 million, reflecting the run-off of products closed to new customers.
Costs are £39 million higher, reflecting
significant investment spend in the first half of 2015 supporting our strategic growth initiatives and significant regulatory and
change agendas.
Operating cash generation
| |
Half-year to 30 June 2015 | |
Half-year to 30 June 2014 | |
Half-year to 31 Dec 2014 |
| |
| Pensions & investments | | |
| Protection & retirement | | |
| Bulk annuities | | |
| General insurance | | |
| Other | | |
| Total | | |
| Total | | |
| Total | |
| |
| £m | | |
| £m | | |
| £m | | |
| £m | | |
| £m | | |
| £m | | |
| £m | | |
| £m | |
Cash invested in new business | |
| (91 | ) | |
| (17 | ) | |
| (105 | ) | |
| - | | |
| - | | |
| (213 | ) | |
| (153 | ) | |
| (135 | ) |
Cash generated from existing business | |
| 280 | | |
| 105 | | |
| 63 | | |
| - | | |
| 33 | | |
| 481 | | |
| 395 | | |
| 366 | |
Cash generated from General Insurance | |
| - | | |
| - | | |
| - | | |
| 123 | | |
| - | | |
| 123 | | |
| 138 | | |
| 126 | |
Operating cash generation1 | |
| 189 | | |
| 88 | | |
| (42 | ) | |
| 123 | | |
| 33 | | |
| 391 | | |
| 380 | | |
| 357 | |
Intangibles and other adjustments2 | |
| (27 | ) | |
| 37 | | |
| 172 | | |
| - | | |
| 11 | | |
| 193 | | |
| 81 | | |
| 104 | |
Underlying profit | |
| 162 | | |
| 125 | | |
| 130 | | |
| 123 | | |
| 44 | | |
| 584 | | |
| 461 | | |
| 461 | |
Operating cash generation 30 June 2014 | |
| 143 | | |
| 36 | | |
| - | | |
| 138 | | |
| 63 | | |
| 380 | | |
| | | |
| | |
1 |
Derived from underlying profit by
removing the effect of movements in intangible (non-cash) items and assumption changes. For 2015 reporting this measure has
been refined to include the cash benefits from the ‘long-term investments strategy’. |
2 |
Intangible items include the value of in-force
life business, deferred acquisition costs and deferred income reserves. |
The Insurance business generated £391
million of operating cash in the first half of 2015, £11 million higher than the prior year. Within Protection & retirement,
cash benefits of £53 million were recognised in respect of the successful acquisition of attractive higher yielding
assets to match long duration annuity liabilities. Within Bulk annuities, the cash benefits from such transactions was £63 million,
partially offsetting the initial strain of the bulk annuity transaction with the With-Profits fund contained within ‘Cash
invested in new business’. In addition, the sale of a reinsurance asset contributed £48 million to operating cash.
OTHER
Other comprises Run-off, Central items and
the results of TSB.
RUN-OFF
|
Half-year
to 30 June
2015 |
|
Half-year
to 30 June
2014 |
|
Change |
|
Half-year
to 31 Dec
2014 |
|
Change |
|
|
£m |
|
£m |
|
% |
|
£m |
|
% |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
(19) |
|
(67) |
|
72 |
|
(49) |
|
61 |
Other income |
|
105 |
|
260 |
|
(60) |
|
191 |
|
(45) |
Total income |
|
86 |
|
193 |
|
(55) |
|
142 |
|
(39) |
Operating costs |
|
(74) |
|
(153) |
|
52 |
|
(126) |
|
41 |
Operating lease depreciation |
|
(7) |
|
(16) |
|
56 |
|
(13) |
|
46 |
Costs |
|
(81) |
|
(169) |
|
52 |
|
(139) |
|
42 |
Impairment |
|
32 |
|
(324) |
|
|
|
121 |
|
(74) |
Underlying profit (loss) |
|
37 |
|
(300) |
|
|
|
124 |
|
(70) |
|
|
|
|
|
|
|
|
|
|
|
Key balance sheet items |
|
At
30 June
2015 |
|
At
31 Dec
2014 |
|
Change |
|
|
£bn |
|
£bn |
|
% |
|
|
|
|
|
|
|
Loans and advances to customers |
|
12.2 |
|
14.4 |
|
(15) |
Total assets |
|
14.4 |
|
16.9 |
|
(15) |
Risk-weighted assets |
|
14.3 |
|
16.8 |
|
(15) |
|
|
|
|
|
|
|
| · | Run-off includes certain assets previously classified as non-core and the results and gains or
losses on sale of businesses sold in 2014. |
| · | The reduction in income and costs largely related to the sale of Scottish Widows Investment Partnership
in the first quarter of 2014. |
| · | The net release of impairment charge in the first half of 2015 reflected the reduction in the run-off
book and improving economic conditions. This has led to a low level of new charges which have been more than offset by releases
and write-backs. A breakdown of impairment is shown on page 33. |
CENTRAL ITEMS
|
Half-year
to 30 June
2015 |
|
Half-year
to 30 June
2014 |
|
Half-year
to 31 Dec
2014 |
|
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
Total underlying income |
|
36 |
|
66 |
|
66 |
Costs |
|
38 |
|
(34) |
|
12 |
Impairment |
|
(1) |
|
− |
|
(2) |
Underlying profit |
|
73 |
|
32 |
|
76 |
|
|
|
|
|
|
|
| · | Central items include income and expenditure not recharged to divisions, including the costs of
certain central and head office functions. |
OTHER (continued)
TSB
The Group’s results in 2015 include TSB
for the first quarter only, following the agreement in March to sell the remaining stake in the business to Banco Sabadell.
|
Half-year
to 30 June
2015 |
|
Half-year
to 30 June
2014 |
|
Half-year
to 31 Dec
2014 |
|
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
Underlying profit |
|
118 |
|
226 |
|
232 |
ADDITIONAL INFORMATION
| 1. | Banking net interest margin |
Banking net interest margin is calculated
by dividing banking net interest income by average interest-earning banking assets. A reconciliation of banking net interest income
to Group net interest income showing the items that are excluded in determining banking net interest income follows:
| |
| Half-year to 30 June 2015 | | |
| Half-year to 30 June 2014 | | |
| Half-year to 31 Dec 2014 | |
| |
| £m | | |
| £m | | |
| £m | |
| |
| | | |
| | | |
| | |
Banking net interest income – underlying basis | |
| 5,789 | | |
| 5,426 | | |
| 5,633 | |
Insurance division | |
| (73 | ) | |
| (64 | ) | |
| (67 | ) |
Other net interest income (including trading activity) | |
| (1 | ) | |
| 42 | | |
| 5 | |
Net interest income – underlying basis excluding TSB | |
| 5,715 | | |
| 5,404 | | |
| 5,571 | |
Asset sales and other items | |
| (174 | ) | |
| (303 | ) | |
| (316 | ) |
TSB | |
| 192 | | |
| 400 | | |
| 386 | |
Insurance gross up | |
| (241 | ) | |
| (239 | ) | |
| (243 | ) |
Group net interest income – statutory | |
| 5,492 | | |
| 5,262 | | |
| 5,398 | |
Average interest-earning banking assets
exclude TSB and are calculated gross of related impairment allowances, and relate solely to customer and product balances in the
banking businesses on which interest is earned or paid.
| |
| Half-year to 30 June 2015 | | |
| Half-year to
30 June 2014 | | |
| Half-year to
31 Dec 2014 | |
| |
| £bn | | |
| £bn | | |
| £bn | |
| |
| | | |
| | | |
| | |
Average loans and advances (gross) | |
| 457.4 | | |
| 477.4 | | |
| 468.8 | |
Non-banking assets and other adjustments1 | |
| (12.6 | ) | |
| (11.8 | ) | |
| (12.1 | ) |
Average interest-earning assets excluding TSB | |
| 444.8 | | |
| 465.6 | | |
| 456.7 | |
1 |
Other adjustments include assets
that are netted for interest earning purposes and reverse repos. |
|
|
| 2. | Volatility arising in insurance businesses |
The Group's statutory result before tax
included positive volatility totalling £18 million compared to negative volatility of £122 million in 2014.
Volatility comprises the following:
| |
Half-year to 30 June 2015 | |
Half-year to 30 June 2014 | |
Half-year to 31 Dec 2014 |
| |
£m | |
£m | |
£m |
| |
| |
| |
|
Insurance volatility | |
| (109 | ) | |
| (133 | ) | |
| (86 | ) |
Policyholder interests volatility | |
| 83 | | |
| 43 | | |
| (26 | ) |
Total volatility | |
| (26 | ) | |
| (90 | ) | |
| (112 | ) |
Insurance hedging arrangements | |
| 44 | | |
| (32 | ) | |
| 6 | |
Total | |
| 18 | | |
| (122 | ) | |
| (106 | ) |
ADDITIONAL INFORMATION (continued)
Insurance volatility
The Group’s insurance business has
policyholder liabilities that are supported by substantial holdings of investments. IFRS requires that the changes in both the
value of the liabilities and investments are reflected within the income statement. The value of the liabilities does not move
exactly in line with changes in the value of the investments. As the investments are substantial, movements in their value can
have a significant impact on the profitability of the Group. Management believes that it is appropriate to disclose the division’s
results on the basis of an expected return in addition to results based on the actual return. The impact of the actual return on
these investments differing from the expected return is included within insurance volatility.
The expected gross investment returns
used to determine the underlying profit of the business are based on prevailing market rates and published research into
historical investment return differentials for the range of assets held. Where appropriate, rates are updated throughout the
year to reflect changing market conditions and changes in the asset mix. In 2015 the basis for calculating these expected
returns has been enhanced to reflect an average of the 15 year swap rate over the preceding 12 months and where appropriate,
rates are updated throughout the year to reflect changing market conditions. The negative insurance volatility during the
period ended 30 June 2015 of £109 million primarily reflects an adverse performance on cash investments in the
period relative to the expected return and an increase in yields.
Policyholder interests volatility
Accounting standards require that tax on
policyholder investment returns should be included in the Group’s tax charge rather than being offset against the related
income. The result is, therefore, to either increase or decrease profit before tax with a related change in the tax charge. Timing
and measurement differences exist between provisions for tax and charges made to policyholders. Consistent with the expected approach
taken in respect of insurance volatility, differences in the expected levels of the policyholder tax provision and policyholder
charges are adjusted through policyholder interests volatility. In the first half of 2015, the statutory results before tax included
a credit to other income which relates to policyholder interests volatility totalling £83 million (first half of 2014:
£43 million) relating to offsetting movements in equity, bond and gilt returns.
Insurance hedging arrangements
The Group purchased put option contracts
in 2015 to protect against deterioration in equity market conditions and the consequent negative impact on the value of in-force
business on the Group balance sheet. These were financed by selling some upside potential from equity market movements. On a mark-to-market
basis a gain of £44 million was recognised in relation to these contracts in the first half of 2015.
3. Number of employees
| |
| At
30 June 2015 | | |
| At
31 Dec 2014 | |
| |
| | | |
| | |
Retail | |
| 33,130 | | |
| 35,032 | |
Commercial Banking | |
| 6,473 | | |
| 6,212 | |
Consumer Finance | |
| 3,413 | | |
| 3,483 | |
Insurance | |
| 1,963 | | |
| 2,015 | |
Group operations, functions and run-off | |
| 33,274 | | |
| 32,407 | |
TSB | |
| - | | |
| 7,685 | |
| |
| 78,253 | | |
| 86,834 | |
Agency staff, interns and scholars | |
| (2,628 | ) | |
| (2,344 | ) |
Total number of employees (full-time equivalent) | |
| 75,625 | | |
| 84,490 | |
Total number of employees excluding TSB | |
| | | |
| 76,978 | |
RISK MANAGEMENT
PRINCIPAL RISKS AND UNCERTAINTIES
The most significant risks faced by the
Group which could impact the success of delivering against the Group’s long-term strategic objectives and through which global
macro-economic, regulatory developments and market liquidity dynamics could manifest, are detailed below. Except where noted, there
has been no significant change to the description of these risks or key mitigating actions disclosed in the Group’s 2014
Annual Report and Accounts, with any quantitative disclosures updated herein. Please refer to the Group’s Annual Report on
Form 20-F for the year ended 31 December 2014 for further detail on these risks.
Credit risk – Adverse changes
in the economic and market environment or the credit quality of our counterparties and customers could reduce asset values; potentially
increase write-downs and allowances for impairment losses thereby adversely impacting profitability.
Conduct risk – We face significant
potential conduct risk, including selling products which do not meet customer needs; failing to deal with complaints effectively
and exhibiting behaviours which do not meet market or regulatory standards.
Market risk – Key market risks
include interest rate and credit spread in the Banking business, credit spread and equity in the Insurance business and the defined
benefit pension schemes where asset and liability movements impact on our capital position. In addition, a Group hedge has been
implemented to provide protection from Insurance equity volatility.
Operational risk – Significant
operational risks which may result in financial loss, disruption or damage to the reputation of the Group, including the availability,
resilience and security of our core IT systems and the potential for failings in our customer processes.
Capital risk – Future capital
position is potentially at risk from a worsening macroeconomic environment, which could lead to adverse financial performance and
deplete capital resources and/or increase capital requirements.
Funding and liquidity risk –
Our funding and liquidity position is supported by a significant and stable customer deposit base. A deterioration in either our
or the UK’s credit rating, or a sudden and significant withdrawal of customer deposits could adversely impact our funding
and liquidity position. In addition, the Group has a contingency funding plan providing management actions and strategies available
in stressed conditions.
PRINCIPAL RISKS AND UNCERTAINTIES (continued)
Legal and regulatory risk –
The Group and its businesses are subject to ongoing regulation, associated legal and regulatory risks, and legal and regulatory
actions. They are also subject to the effects of changes in the laws, regulations, policies, voluntary codes of practice (as well
as in their respective interpretations) and court rulings in the UK, the European Union and the other markets in which the Group
operates. These laws and regulations include (i) increased regulatory oversight, particularly in respect of conduct issues; (ii)
prudential regulatory developments; and (iii) industry-wide initiatives. Depending on the specific nature of the requirements and
how they are enforced, such changes could have a significant impact on the Group's operations, business prospects, structure, costs
and/or capital requirements.
Mitigating actions
| · | The Legal, Regulatory and Mandatory Change Committee seeks to drive forward activity to develop
plans for ensuring delivery of all legal and regulatory changes and track their progress against those plans. |
| · | Continued investment in our people, processes, training and IT systems is assisting us in meeting
our legal and regulatory commitments. |
| · | Engagement with the regulatory authorities on forthcoming regulatory changes, market reviews and
CMA investigations. |
| · | Defined and embedded conduct risk strategy. |
Governance risk – Against a
background of increased regulatory focus on governance and risk management the most significant challenges arise from the Senior
Managers and Certification Regime (SMR) which comes into operation in March 2016 and the requirement to Ring Fence core UK financial
services and activities from January 2019.
Mitigating actions
| · | The Group’s response to SMR is managed through a programme with workstreams addressing the
implementation of each of the major components. |
| · | A programme is in place to address the requirements of ring fencing and the Group is in close and
regular contact with regulators to develop the plans for our anticipated operating and legal structures. |
| · | Our aim is to ensure that evolving risk and governance arrangements continue to reflect the balance
of business in the Group while adhering to regulatory objectives. |
People risk – Key people risks
include the risk that the Group may fail to attract and retain talent in an increasingly competitive marketplace, particularly
in the light of the introduction of the Senior Managers and Certification Regime in 2016 which introduces a reverse burden of proof
and increased accountability.
Mitigating actions
| · | Focused actions on delivery of strategies to attract, retain and develop high calibre people. |
| · | Maintain compliance with legal and regulatory requirements relating to Senior Managers and Certification
Regime, embedding compliant and appropriate colleague behaviours. |
| · | Continue focus on the Group’s culture, delivering initiatives which reinforce behaviours
to generate the best long-term outcomes for customers and colleagues. |
CREDIT RISK PORTFOLIO
Significant reduction in impairments
and impaired assets
| · | The impairment charge decreased by 75 per cent from £707 million to £179
million in the first half of 2015 compared to the first half of 2014. The impairment charge has decreased across all divisions. |
| · | The reduction reflects lower levels of new impairment as a result of effective risk management,
improving economic conditions and the continued low interest rate environment. |
| · | The impairment charge also benefited from provision releases but at lower levels than seen during
the first half of 2014. |
| · | The impairment charge as a percentage of average loans and advances to customers improved to 0.09 per cent
compared to 0.30 per cent during the first half of 2014. |
| · | Impaired loans as a percentage of closing advances reduced to 2.7 per cent at 30 June
2015, from 2.9 per cent at 31 December 2014 driven by improvements in all divisions. Impaired loans reduced by £1,828 million
during the period, mainly due to disposals, write-offs and lower levels of newly impaired loans. |
Low risk culture and prudent risk appetite
| · | The Group is delivering sustainable lending growth by maintaining its lower risk origination discipline
despite terms and conditions in the market being impacted by excess liquidity. The overall quality of the portfolio has improved
over the last 12 months. |
| · | The Group continues to deliver above market lending growth in SME whilst maintaining its prudent
risk appetite. |
| · | The Group continues to adopt a conservative stance across the Eurozone, maintaining close portfolio
scrutiny and oversight. The Group has minimal direct exposure to Greece. Detailed contingency plans are in place and exposures
to financial institutions domiciled in peripheral Eurozone countries remain modest and managed within tight risk parameters. |
Re-shaping of the Group is fundamentally
complete
| · | Run-off net external assets have reduced from £16,857 million to £14,411 million during
the first half of 2015 in a capital accretive way. |
| · | The Run-off portfolio now represents only 2.7 per cent of the overall Group’s loans
and advances and poses substantially less downside risk to the Group. The remaining assets are the subject of frequent review,
and are impaired to appropriate levels based on external evidence and internal reviews. |
| · | The Group continues to reduce its exposure to Ireland with gross loans and advances further reduced
by £1,258 million to £6,642 million gross (net £4,437 million) during the first half of 2015;
due to disposals, write-offs and net repayments. |
| · | The Irish wholesale portfolio remains significantly impaired at 91.5 per cent, with provision
coverage of 85.8 per cent. Net exposure in Ireland wholesale has fallen to £572 million (31 December 2014: £956 million). |
| · | The Irish Retail portfolio has reduced from £4,464 million at 31 December 2014
to £3,984 million at 30 June 2015. |
CREDIT RISK PORTFOLIO (continued)
Impairment charge by division
|
|
Half-year
to 30 June
2015 |
|
Half-year
to 30 June
2014 |
|
Change
since
30 June
2014 |
|
Half-year
to 31 Dec
2014 |
|
|
£m |
|
£m |
|
% |
|
£m |
Retail: |
|
|
|
|
|
|
|
|
Secured |
|
49 |
|
94 |
|
48 |
|
187 |
Loans and overdrafts |
|
102 |
|
165 |
|
38 |
|
114 |
Other |
|
12 |
|
17 |
|
29 |
|
22 |
|
|
163 |
|
276 |
|
41 |
|
323 |
Commercial Banking: |
|
|
|
|
|
|
|
|
SME |
|
(4) |
|
5 |
|
|
|
10 |
Other |
|
11 |
|
24 |
|
54 |
|
44 |
|
|
7 |
|
29 |
|
76 |
|
54 |
Consumer Finance: |
|
|
|
|
|
|
|
|
Credit Cards |
|
21 |
|
69 |
|
70 |
|
117 |
Asset Finance UK |
|
21 |
|
8 |
|
|
|
22 |
Asset Finance Europe |
|
(2) |
|
1 |
|
|
|
(2) |
|
|
40 |
|
78 |
|
49 |
|
137 |
Run-off: |
|
|
|
|
|
|
|
|
Ireland retail |
|
(2) |
|
13 |
|
|
|
(19) |
Ireland commercial real estate |
|
16 |
|
56 |
|
71 |
|
11 |
Ireland corporate |
|
59 |
|
182 |
|
68 |
|
65 |
Corporate real estate and other corporate |
|
(52) |
|
92 |
|
|
|
(120) |
Specialist finance |
|
(25) |
|
30 |
|
|
|
(8) |
Other |
|
(28) |
|
(49) |
|
(43) |
|
(50) |
|
|
(32) |
|
324 |
|
|
|
(121) |
Central items |
|
1 |
|
− |
|
|
|
2 |
Total impairment charge |
|
179 |
|
707 |
|
75 |
|
395 |
|
|
|
|
|
|
|
|
|
Impairment charge as a % of average advances |
|
0.09% |
|
0.30% |
|
(21)bp |
|
0.17% |
Total impairment charge comprises:
|
|
Half-year
to 30 June
2015 |
|
Half-year
to 30 June
2014 |
|
|
|
Half-year
to 31 Dec
2014 |
|
|
£m |
|
£m |
|
|
|
£m |
|
|
|
|
|
|
|
|
|
Loans and advances to customers |
|
198 |
|
705 |
|
|
|
380 |
Debt securities classified as loans and receivables |
|
(2) |
|
− |
|
|
|
2 |
Available-for-sale financial assets |
|
− |
|
2 |
|
|
|
3 |
Other credit risk provision |
|
(17) |
|
− |
|
|
|
10 |
Total impairment charge |
|
179 |
|
707 |
|
|
|
395 |
CREDIT RISK PORTFOLIO (continued)
Group impaired loans and provisions
At 30 June 2015 |
|
Loans and
advances to
customers |
Impaired
Loans |
Impaired
loans as %
of closing
advances |
Impairment
provisions1 |
Impairment
provision
as % of
impaired
loans2 |
|
|
£m |
£m |
% |
£m |
|
% |
|
|
|
|
|
|
|
|
|
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
Secured |
|
301,044 |
|
3,880 |
|
1.3 |
|
1,414 |
|
36.4 |
Loans and overdrafts |
|
10,149 |
|
641 |
|
6.3 |
|
195 |
|
78.9 |
Other |
|
3,775 |
|
280 |
|
7.4 |
|
48 |
|
19.0 |
|
|
314,968 |
|
4,801 |
|
1.5 |
|
1,657 |
|
37.8 |
Commercial Banking: |
|
|
|
|
|
|
|
|
|
|
SME |
|
29,016 |
|
1,352 |
|
4.7 |
|
264 |
|
19.5 |
Other |
|
72,319 |
|
1,357 |
|
1.9 |
|
919 |
|
67.7 |
|
|
101,335 |
|
2,709 |
|
2.7 |
|
1,183 |
|
43.7 |
Consumer Finance: |
|
|
|
|
|
|
|
|
|
|
Credit Cards |
|
9,189 |
|
424 |
|
4.6 |
|
156 |
|
78.8 |
Asset Finance UK |
|
8,386 |
|
154 |
|
1.8 |
|
117 |
|
76.0 |
Asset Finance Europe |
|
4,516 |
|
45 |
|
1.0 |
|
21 |
|
46.7 |
|
|
22,091 |
|
623 |
|
2.8 |
|
294 |
|
74.1 |
Run-off: |
|
|
|
|
|
|
|
|
|
|
Ireland retail |
|
3,984 |
|
121 |
|
3.0 |
|
119 |
|
98.3 |
Ireland commercial real estate |
|
1,411 |
|
1,326 |
|
94.0 |
|
1,151 |
|
86.8 |
Ireland corporate |
|
1,247 |
|
1,105 |
|
88.6 |
|
935 |
|
84.6 |
Corporate real estate and other corporate |
|
2,623 |
|
1,147 |
|
43.7 |
|
691 |
|
60.2 |
Specialist finance |
|
4,942 |
|
530 |
|
10.7 |
|
366 |
|
69.1 |
Other |
|
1,386 |
|
118 |
|
8.5 |
|
121 |
|
102.5 |
|
|
15,593 |
|
4,347 |
|
27.9 |
|
3,383 |
|
77.8 |
Reverse repos and other items3 |
|
5,329 |
|
− |
|
− |
|
− |
|
− |
Total gross lending |
|
459,316 |
|
12,480 |
|
2.7 |
|
6,517 |
|
55.1 |
Impairment provisions |
|
(6,517) |
|
|
|
|
|
|
|
|
Fair value adjustments4 |
|
(372) |
|
|
|
|
|
|
|
|
Total Group |
|
452,427 |
|
|
|
|
|
|
|
|
1 |
Impairment provisions include collective
unimpaired provisions. |
2 |
Impairment provisions as a percentage of impaired
loans are calculated excluding Retail and Consumer Finance loans in recoveries (£394 million in Retail loans and overdrafts, £27 million in Retail other and £226 million
in Consumer Finance credit cards). |
3 |
Includes £5.1 billion (31 December
2014: £4.4 billion) of lower risk loans transferred from Commercial Banking and Retail divisions into Insurance
division’s shareholder funds to support the Insurance division’s annuity portfolio. |
4 |
The fair value adjustments relating to loans
and advances were those required to reflect the HBOS assets in the Group’s consolidated financial records at their fair
value and took into account both the expected losses and market liquidity at the date of acquisition. The unwind relating
to future impairment losses requires significant management judgement to determine its timing which includes an assessment
of whether the losses incurred in the current period were expected at the date of the acquisition and assessing whether the
remaining losses expected at the date of the acquisition will still be incurred. The element relating to market liquidity
unwinds to the income statement over the estimated expected lives of the related assets, although if an asset is written-off
or suffers previously unexpected impairment then this element of the fair value will no longer be considered a timing difference
(liquidity) but permanent (impairment). The fair value unwind in respect of impairment losses incurred was £37 million
for the period ended 30 June 2015 (30 June 2014: £90 million). The fair value unwind in respect of loans and
advances is expected to continue to decrease in future years as fixed-rate periods on mortgages expire, loans are repaid or written-off,
and is expected to reduce to zero over time. |
CREDIT RISK PORTFOLIO (continued)
Group impaired loans and provisions
(continued)
At 31 December 2014 |
|
Loans and
advances to
customers |
Impaired
Loans |
Impaired
loans as %
of closing
advances |
Impairment
provisions1 |
Impairment
provision
as % of
impaired
loans2 |
|
|
£m |
£m |
% |
£m |
|
% |
|
|
|
|
|
|
|
|
|
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
Secured |
|
303,121 |
|
3,911 |
|
1.3 |
|
1,446 |
|
37.0 |
Loans and overdrafts |
|
10,395 |
|
695 |
|
6.7 |
|
220 |
|
85.3 |
Other |
|
3,831 |
|
321 |
|
8.4 |
|
68 |
|
23.1 |
|
|
317,347 |
|
4,927 |
|
1.6 |
|
1,734 |
|
38.8 |
Commercial Banking: |
|
|
|
|
|
|
|
|
|
|
SME |
|
28,256 |
|
1,546 |
|
5.5 |
|
398 |
|
25.7 |
Other |
|
74,203 |
|
1,695 |
|
2.3 |
|
1,196 |
|
70.6 |
|
|
102,459 |
|
3,241 |
|
3.2 |
|
1,594 |
|
49.2 |
Consumer Finance: |
|
|
|
|
|
|
|
|
|
|
Credit Cards |
|
9,119 |
|
499 |
|
5.5 |
|
166 |
|
76.5 |
Asset Finance UK |
|
7,204 |
|
160 |
|
2.2 |
|
112 |
|
70.0 |
Asset Finance Europe |
|
4,950 |
|
61 |
|
1.2 |
|
31 |
|
50.8 |
|
|
21,273 |
|
720 |
|
3.4 |
|
309 |
|
70.5 |
Run-off: |
|
|
|
|
|
|
|
|
|
|
Ireland retail |
|
4,464 |
|
120 |
|
2.7 |
|
141 |
|
117.5 |
Ireland commercial real estate |
|
1,797 |
|
1,659 |
|
92.3 |
|
1,385 |
|
83.5 |
Ireland corporate |
|
1,639 |
|
1,393 |
|
85.0 |
|
1,095 |
|
78.6 |
Corporate real estate and other corporate |
|
3,947 |
|
1,548 |
|
39.2 |
|
911 |
|
58.9 |
Specialist finance |
|
4,835 |
|
364 |
|
7.5 |
|
254 |
|
69.8 |
Other |
|
1,634 |
|
131 |
|
8.0 |
|
141 |
|
107.6 |
|
|
18,316 |
|
5,215 |
|
28.5 |
|
3,927 |
|
75.3 |
TSB |
|
21,729 |
|
205 |
|
0.9 |
|
88 |
|
42.9 |
Reverse repos and other items3 |
|
9,635 |
|
|
|
|
|
|
|
|
Total gross lending |
|
490,759 |
|
14,308 |
|
2.9 |
|
7,652 |
|
56.4 |
Impairment provisions |
|
(7,652) |
|
|
|
|
|
|
|
|
Fair value adjustments |
|
(403) |
|
|
|
|
|
|
|
|
Total Group |
|
482,704 |
|
|
|
|
|
|
|
|
1 |
Impairment provisions include collective
unimpaired provisions. |
2 |
Impairment provisions as a percentage of impaired
loans are calculated excluding Retail and Consumer Finance loans in recoveries (£437 million in Retail loans and overdrafts, £26 million in Retail other and £282 million in Consumer Finance
credit cards). |
3 |
Includes £4.4 billion of lower risk
loans (social housing, infrastructure and education) transferred from Commercial Banking division into Insurance division’s
shareholder funds to support the Group’s annuity portfolio. |
CREDIT RISK PORTFOLIO (continued)
Retail
| · | The impairment charge was £163 million in the first half of 2015, a decrease of 41 per
cent against the first half of 2014. Reductions were seen across all portfolios. |
| · | The impairment charge, as a percentage of average loans and advances to customers, improved to
0.10 per cent in the first half of 2015 from 0.18 per cent in the first half of 2014. |
| · | Impaired loans decreased by £126 million in the first half of 2015 to £4,801 million
which represented 1.5 per cent of closing loans and advances to customers (31 December 2014: 1.6 per cent). |
Secured
| · | The impairment charge was £49 million in the first half of 2015, a decrease of 48 per
cent against the first half of 2014. The impairment charge as a percentage of average loans and advances to customers, improved
to 0.03 per cent in the first half of 2015 from 0.06 per cent in the first half of 2014. |
| · | Impaired loans reduced by £31 million in the first half of 2015 to £3,880 million.
Impairment provisions as a percentage of impaired loans decreased to 36.4 per cent from 37.0 per cent at 31 December
2014. |
| · | The value of mortgages greater than three months in arrears (excluding repossessions) decreased
by £175 million to £6,169 million at 30 June 2015 compared to £6,344 million at 31 December 2014. |
| · | The average indexed loan to value (LTV) on the mortgage portfolio at 30 June 2015 decreased to
45.9 per cent compared with 49.2 per cent at 31 December 2014. The percentage of closing loans and advances with an indexed
LTV in excess of 100 per cent decreased to 1.2 per cent at 30 June 2015, compared with 2.2 per cent at 31 December 2014. |
| · | The average LTV for new mortgages and further advances written in the first half of 2015 was 64.6 per
cent compared with 64.8 per cent for 2014. |
Loans and overdrafts
| · | The impairment charge was £102 million in the first half of 2015, a decrease of 38 per
cent against the first half of 2014. The reduction was driven by a continued underlying improvement of portfolio quality supported
by write-backs from the sale of recoveries assets. |
| · | The impairment charge as a percentage of average loans and advances to customers, improved to 1.94 per
cent in the first half of 2015 from 3.09 per cent in the first half of 2014. |
| · | Impaired loans reduced by £54 million in the first half of 2015 to £641 million representing
6.3 per cent of closing loans and advances to customers, compared with 6.7 per cent at 31 December 2014. |
Retail secured and unsecured loans and
advances to customers
|
|
At 30 June
2015 |
|
At 31 Dec
2014 |
|
|
£m |
|
£m |
|
|
|
|
|
Mainstream |
|
226,174 |
|
228,176 |
Buy-to-let |
|
54,172 |
|
53,322 |
Specialist1 |
|
20,698 |
|
21,623 |
|
|
301,044 |
|
303,121 |
|
|
|
|
|
Loans |
|
8,068 |
|
8,204 |
Overdrafts |
|
2,081 |
|
2,191 |
Wealth |
|
2,895 |
|
2,962 |
Retail Business Banking |
|
880 |
|
869 |
|
|
13,924 |
|
14,226 |
|
|
|
|
|
Total |
|
314,968 |
|
317,347 |
1 |
Specialist lending has been closed to new business since 2009. |
CREDIT RISK PORTFOLIO (continued)
Retail (continued)
Retail mortgages greater than three months
in arrears (excluding repossessions)
|
|
Number of cases |
|
Total mortgage accounts % |
|
Value of loans1 |
|
Total mortgage balances % |
|
June
2015 |
|
Dec
2014 |
June
2015 |
|
Dec
2014 |
June
2015 |
|
Dec
2014 |
June
2015 |
|
Dec
2014 |
|
|
Cases |
|
Cases |
|
% |
|
% |
|
£m |
|
£m |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mainstream |
|
36,556 |
|
37,849 |
|
1.6 |
|
1.7 |
|
3,960 |
|
4,102 |
|
1.8 |
|
1.8 |
Buy-to-let |
|
5,147 |
|
5,077 |
|
1.1 |
|
1.1 |
|
651 |
|
658 |
|
1.2 |
|
1.2 |
Specialist |
|
9,252 |
|
9,429 |
|
6.4 |
|
6.3 |
|
1,558 |
|
1,584 |
|
7.5 |
|
7.3 |
Total |
|
50,955 |
|
52,355 |
|
1.8 |
|
1.8 |
|
6,169 |
|
6,344 |
|
2.0 |
|
2.1 |
1 |
Value of loans represents total book value of mortgages more than three months in arrears. |
The stock of repossessions decreased to
601 cases at 30 June 2015 compared to 1,740 cases at 31 December 2014.
Period end and average LTVs across the
Retail mortgage portfolios
At 30 June 2015 |
|
Mainstream |
|
Buy-to-let |
|
Specialist |
|
Total |
|
Unimpaired |
|
Impaired |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 60% |
|
52.9 |
|
44.5 |
|
41.0 |
|
50.6 |
|
50.9 |
|
30.0 |
60% to 70% |
|
21.1 |
|
29.3 |
|
21.2 |
|
22.5 |
|
22.6 |
|
18.1 |
70% to 80% |
|
15.4 |
|
14.1 |
|
17.5 |
|
15.3 |
|
15.3 |
|
18.6 |
80% to 90% |
|
7.6 |
|
8.9 |
|
12.3 |
|
8.2 |
|
8.1 |
|
13.9 |
90% to 100% |
|
2.1 |
|
2.1 |
|
4.2 |
|
2.2 |
|
2.1 |
|
9.3 |
Greater than 100% |
|
0.9 |
|
1.1 |
|
3.8 |
|
1.2 |
|
1.0 |
|
10.1 |
Total |
|
100.0 |
|
100.0 |
|
100.0 |
|
100.0 |
|
100.0 |
|
100.0 |
Outstanding loan value (£m) |
|
226,174 |
|
54,172 |
|
20,698 |
|
301,044 |
|
297,164 |
|
3,880 |
Average loan to value:1 |
|
|
|
|
|
|
|
|
|
|
|
|
Stock of residential mortgages |
|
43.3 |
|
56.7 |
|
54.4 |
|
45.9 |
|
|
|
|
New residential lending |
|
65.0 |
|
62.7 |
|
n/a |
|
64.6 |
|
|
|
|
Impaired mortgages |
|
55.3 |
|
74.4 |
|
67.3 |
|
59.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2014 |
|
Mainstream |
|
Buy-to-let |
|
Specialist |
|
Total |
|
Unimpaired |
|
Impaired |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 60% |
|
44.6 |
|
32.4 |
|
31.4 |
|
41.5 |
|
41.7 |
|
22.5 |
60% to 70% |
|
19.9 |
|
27.3 |
|
19.5 |
|
21.2 |
|
21.3 |
|
15.3 |
70% to 80% |
|
18.5 |
|
21.8 |
|
19.8 |
|
19.2 |
|
19.2 |
|
17.8 |
80% to 90% |
|
10.6 |
|
9.4 |
|
14.9 |
|
10.7 |
|
10.6 |
|
16.7 |
90% to 100% |
|
4.5 |
|
6.8 |
|
8.7 |
|
5.2 |
|
5.2 |
|
11.9 |
Greater than 100% |
|
1.9 |
|
2.3 |
|
5.7 |
|
2.2 |
|
2.0 |
|
15.8 |
Total |
|
100.0 |
|
100.0 |
|
100.0 |
|
100.0 |
|
100.0 |
|
100.0 |
Outstanding loan value (£m) |
|
228,176 |
|
53,322 |
|
21,623 |
|
303,121 |
|
299,210 |
|
3,911 |
Average loan to value:1 |
|
|
|
|
|
|
|
|
|
|
|
|
Stock of residential mortgages |
|
46.3 |
|
61.3 |
|
59.2 |
|
49.2 |
|
|
|
|
New residential lending |
|
65.3 |
|
62.7 |
|
n/a |
|
64.8 |
|
|
|
|
Impaired mortgages |
|
60.1 |
|
81.0 |
|
72.6 |
|
64.9 |
|
|
|
|
1 |
Average loan to value is calculated as total loans and advances as a percentage of the total collateral of these loans and advances. |
CREDIT RISK PORTFOLIO (continued)
Commercial Banking
| · | The impairment charge was £7 million in the first half of 2015, 76 per cent lower
than the £29 million in the first half of 2014. This has been driven by lower levels of new impairment as a result of effective
risk management, improving economic conditions and the continued low interest rate environment. |
| · | The charge also benefited from provision releases but at lower levels than seen during 2014. |
| · | The obligor quality of the Commercial Banking lending portfolio is predominantly rated good or
better. New business is generally of good quality and better than the overall back book average. Surplus market liquidity continues
to lead to some relaxation of credit conditions in the marketplace, although the Group remains disciplined within its low risk
appetite. |
| · | The impairment charge as a percentage of average loans and advances improved to 0.04 per cent
in the first half of 2015 from 0.05 per cent in the first half of 2014, and from 0.10 per cent for the half year to 31
December 2014. |
| · | Impaired loans reduced by 16.4 per cent to £2,709 million at 30 June 2015 compared
with 31 December 2014 (£3,241 million). Impaired loans as a percentage of closing loans and advances to customers reduced
to 2.7 per cent from 3.2 per cent at 31 December 2014. |
| · | Impairment provisions reduced to £1,183 million at 30 June 2015 (December 2014: £1,594 million)
and includes collective unimpaired provisions of £277 million (December 2014: £338 million). |
SME
| · | The SME Banking portfolio continues to grow within prudent credit risk appetite parameters. As
a result of the Group’s customer driven relationship management, net lending has increased 5 per cent since June 2014.
This also reflects the Group’s commitment to the UK economy and the Funding for Lending Scheme. |
| · | Portfolio credit quality has remained stable or improved across all key metrics. |
| · | There was a net release of £4 million compared to a net charge of £5 million in
the first half of 2014. SME continues to benefit from provision releases which offset minimal gross charges incurred. |
Other Commercial Banking
| · | Other Commercial Banking comprises £72,319 million of gross loans and advances to customers
in Mid Markets, Global Corporates and Financial Institutions. |
| · | The Mid Markets portfolio remains UK focused and dependent on the performance of the domestic economy.
Overall credit quality remained stable. |
| · | The Global Corporate portfolio continues to be predominantly investment grade focused and is performing
well against the backdrop of a stable economic UK environment. The quality of the portfolio remains good and is managed within
the bank’s prudent agreed risk appetite. |
| · | The real estate business within the Group’s Mid Markets and Global Corporate portfolio is
focused upon the larger end of the UK property market ranging from medium sized and substantial unquoted private real estate portfolios
up to the publicly listed and funds sector. Portfolio credit quality remains good being underpinned by seasoned management teams
with proven asset management skills. The number of new impaired connections is minimal and new business propositions continue to
be written in line with agreed risk appetite. |
| · | Financial Institutions serves predominantly investment grade counterparties with whom relationships
are either client focused or held to support the Group’s funding, liquidity or general hedging requirements. |
| · | Trading exposures continue to be predominantly short-term and/or collateralised with inter-bank
activity mainly undertaken with fully acceptable investment grade counterparties. |
| · | The Group continues to adopt a conservative stance across the Eurozone maintaining close portfolio
scrutiny and oversight particularly given the current macro environment and horizon risks. |
CREDIT RISK PORTFOLIO (continued)
Consumer Finance
| · | The impairment charge reduced by 49 per cent to £40 million in the first half of
2015 compared to £78 million in the first half of 2014. The reduction was driven by a continued underlying improvement of
portfolio quality supported by write-backs from the sale of recoveries assets in the Credit Cards portfolio. |
| · | Impaired loans decreased by £97 million in the first half of 2015 to £623 million
which represented 2.8 per cent of closing loans and advances to customers (31 December 2014: 3.4 per cent). |
Run-off
Ireland
| · | Within the Ireland book the most significant contribution to impaired loans is the Commercial Real
Estate portfolio where 94.0 per cent of the portfolio is impaired. The impairment coverage ratio has increased to 86.8 per
cent from 83.5 per cent at 31 December 2014, predominantly due to the impact of deleveraging activities. Net lending in Ireland
Commercial Real Estate has reduced to £260 million (31 December 2014: £412 million). |
| · | Total impaired loans within the Irish retail mortgage portfolio are broadly stable at £121 million
(31 December 2014: £118 million). The average indexed loan to value (LTV) at 30 June 2015 increased to 89.5 per
cent compared with 88.5 per cent at December 2014. The percentage of closing loans and advances with an indexed LTV in excess
of 100 per cent decreased to 38.2 per cent at 30 June 2015, compared with 38.9 per cent at 31 December 2014. |
Corporate real estate and other corporate
| · | This portfolio predominantly consists of UK real estate loans together with other Corporate loans
relating to real estate sectors, supported by trading activities (such as hotels, housebuilders and care homes). |
| · | The continuing proactive management by the specialist teams in line with improvement in real estate
market conditions has enabled a number of write-backs on previously impaired loans during 2015, with a net impairment write-back
of £52 million in the first half of 2015, compared to an impairment charge of £92 million in the first half of 2014. |
| · | Net loans and advances reduced by £1,104 million, from £3,036 million to £1,932
million for the first six months of 2015 (36 per cent reduction versus 35 per cent for first six months of 2014) as the portfolio
continues to reduce significantly ahead of expectations. |
Specialist Finance
| · | Net loans and advances for the Specialist Finance Asset Based Run-off portfolio stood at £4,576
million at 30 June 2015 (gross £4,942 million), and include Ship Finance, Aircraft Finance and Infrastructure, with
around half of the remaining lending in the lower risk leasing sector. |
| · | The portfolio also includes a reducing Treasury Asset legacy investment portfolio, which together
with operating leases, gives total net external assets of £6,226 million at 30 June 2015 (gross £6,592 million). |
CREDIT RISK PORTFOLIO (continued)
Run-off (continued)
Ireland retail mortgage LTV analysis
At 30 June 2015 |
|
Unimpaired |
|
Impaired |
|
Total |
|
|
£m |
|
% |
|
£m |
|
% |
|
£m |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 60% |
|
878 |
|
22.7 |
|
17 |
|
14.1 |
|
895 |
|
22.5 |
60% to 70% |
|
322 |
|
8.3 |
|
5 |
|
4.1 |
|
327 |
|
8.2 |
70% to 80% |
|
373 |
|
9.7 |
|
6 |
|
5.0 |
|
379 |
|
9.5 |
80% to 100% |
|
843 |
|
21.8 |
|
19 |
|
15.7 |
|
862 |
|
21.6 |
100% to 120% |
|
842 |
|
21.8 |
|
16 |
|
13.2 |
|
858 |
|
21.5 |
120% to 140% |
|
445 |
|
11.5 |
|
17 |
|
14.1 |
|
462 |
|
11.6 |
Greater than 140% |
|
160 |
|
4.2 |
|
41 |
|
33.8 |
|
201 |
|
5.1 |
Total |
|
3,863 |
|
100.0 |
|
121 |
|
100.0 |
|
3,984 |
|
100.0 |
Average loan to value: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock of residential mortgages |
|
|
|
|
|
|
|
|
|
|
|
89.5 |
Impaired mortgages |
|
|
|
|
|
|
|
|
|
|
|
151.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2014 |
|
Unimpaired |
|
Impaired |
|
Total |
|
|
£m |
|
% |
|
£m |
|
% |
|
£m |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 60% |
|
979 |
|
22.5 |
|
18 |
|
15.2 |
|
997 |
|
22.4 |
60% to 70% |
|
356 |
|
8.2 |
|
4 |
|
3.4 |
|
360 |
|
8.1 |
70% to 80% |
|
425 |
|
9.8 |
|
4 |
|
3.4 |
|
429 |
|
9.6 |
80% to 100% |
|
925 |
|
21.3 |
|
14 |
|
11.9 |
|
939 |
|
21.0 |
100% to 120% |
|
933 |
|
21.5 |
|
15 |
|
12.7 |
|
948 |
|
21.2 |
120% to 140% |
|
505 |
|
11.6 |
|
14 |
|
11.9 |
|
519 |
|
11.6 |
Greater than 140% |
|
221 |
|
5.1 |
|
49 |
|
41.5 |
|
270 |
|
6.1 |
Total |
|
4,344 |
|
100.0 |
|
118 |
|
100.0 |
|
4,462 |
|
100.0 |
Average loan to value: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock of residential mortgages |
|
|
|
|
|
|
|
|
|
|
|
88.5 |
Impaired mortgages |
|
|
|
|
|
|
|
|
|
|
|
124.7 |
CREDIT RISK PORTFOLIO (continued)
Forbearance
The Group operates a number of schemes to
assist borrowers who are experiencing financial stress. Forbearance policies are disclosed in Note 54 of the Group’s 2014
Annual Report and Accounts, pages 305 to 314.
Retail forbearance
At 30 June 2015, UK retail secured loans
and advances currently or recently subject to forbearance were 1.3 per cent (31 December 2014: 1.4 per cent) of total
UK retail secured loans and advances.
At 30 June 2015, unsecured retail loans
and advances currently or recently subject to forbearance were 1.4 per cent (31 December 2014: 1.6 per cent) of
total unsecured retail loans and advances. Further analysis of the forborne loan balances is set out below.
UK retail lending
|
|
Total loans and advances which are currently or recently forborne |
|
Total current and recent forborne loans and advances which are impaired1 |
|
Impairment provisions as % of loans and advances which are currently or recently forborne |
|
|
At June
2015 |
|
At Dec
2014 |
|
At June
2015 |
|
At Dec
2014 |
|
At June
2015 |
|
At Dec
2014 |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
% |
|
% |
UK secured lending: |
|
|
|
|
|
|
|
|
|
|
|
|
Temporary forbearance arrangements |
|
|
|
|
|
|
|
|
|
|
|
|
Reduced contractual monthly payment |
|
82 |
|
146 |
|
9 |
|
29 |
|
2.1 |
|
6.0 |
Reduced payment arrangements |
|
428 |
|
552 |
|
55 |
|
69 |
|
4.4 |
|
3.4 |
|
|
510 |
|
698 |
|
64 |
|
98 |
|
4.0 |
|
4.0 |
Permanent treatments |
|
|
|
|
|
|
|
|
|
|
|
|
Repair and term extensions |
|
3,263 |
|
3,696 |
|
159 |
|
168 |
|
4.5 |
|
3.5 |
Total |
|
3,773 |
|
4,394 |
|
223 |
|
266 |
|
4.4 |
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
UK unsecured lending: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans and overdrafts |
|
147 |
|
162 |
|
120 |
|
139 |
|
37.2 |
|
39.4 |
1 |
£3,550 million of current and recent forborne UK Secured loans and advances were not impaired at 30 June 2015 (31 December 2014: £4,128 million). £27 million of current and recent forborne loans and overdrafts were not impaired at 30 June 2015 (31 December 2014: £23 million). |
CREDIT RISK PORTFOLIO (continued)
Commercial Banking forbearance
At 30 June 2015, £3,927 million
(December 2014: £5,137 million) of total loans and advances were forborne of which £2,709 million (December 2014:
£3,241 million) were impaired. The coverage ratio for forborne loans decreased from 31.0 per cent at 31 December 2014
to 30.1 per cent at 30 June 2015.
Unimpaired forborne loans and advances were
£1,218 million at 30 June 2015 (December 2014: £1,896 million). The table below sets out the Group’s
largest unimpaired forborne loans and advances to commercial customers (exposures over £5 million) as at 30 June 2015
by type of forbearance:
|
|
30 June
2015 |
|
31 Dec
2014 |
|
|
£m |
|
£m |
Type of unimpaired forbearance: |
|
|
|
|
UK1 exposures > £5m |
|
|
|
|
Covenants |
|
421 |
|
1,018 |
Extensions |
|
333 |
|
426 |
Multiple |
|
72 |
|
6 |
|
|
826 |
|
1,450 |
Exposures < £5m and other non-UK1 |
|
392 |
|
446 |
Total |
|
1,218 |
|
1,896 |
1 |
Based on location of the office recording the transaction. |
Consumer Finance forbearance
At 30 June 2015, Consumer Credit Cards loans
and advances currently or recently subject to forbearance were 2.6 per cent (31 December 2014: 2.6 per cent) of
total Consumer Credit Cards loans and advances. At 30 June 2015, Asset Finance retail loans and advances on open portfolios currently
subject to forbearance were 1.7 per cent (31 December 2014: 2.1 per cent) of total Asset Finance retail loans
and advances.
Analysis of the forborne loan balances
|
|
Total loans and advances which are forborne |
|
Total forborne loans and advances which are impaired1 |
|
Impairment provisions as % of loans and advances which are forborne |
|
|
30 June
2015 |
|
31 Dec
2014 |
|
30 June
2015 |
|
31 Dec
2014 |
|
30 June
2015 |
|
31 Dec
2014 |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
% |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Credit Cards |
|
234 |
|
234 |
|
127 |
|
140 |
|
26.4 |
|
29.1 |
Asset Finance |
|
103 |
|
109 |
|
52 |
|
53 |
|
25.8 |
|
20.5 |
1 |
£158 million of current and recent forborne loans and advances (Consumer Credit Cards: £107 million, Asset Finance: £51 million) were not impaired at 30 June 2015 (31 December 2014: Consumer Credit Cards: £94 million, Asset Finance: £56 million). |
CREDIT RISK PORTFOLIO (continued)
Run-off forbearance
Ireland commercial real estate and corporate
All loans and advances in Ireland commercial
real estate and corporate are treated as forborne (30 June 2015: £2,658 million, 31 December 2014: £3,436 million).
At 30 June 2015, £2,431 million (31 December 2014: £3,052 million) were impaired. The coverage ratio for
forborne loans increased from 72.2 per cent at 31 December 2014 to 78.5 per cent at 30 June 2015.
Secured retail lending – Ireland
At 30 June 2015, Irish retail secured loans
and advances currently or recently subject to forbearance were 5.3 per cent (31 December 2014: 6.3 per cent) of total
Irish retail secured loans and advances. Further analysis of the forborne loan balances is set out below:
|
|
Total loans and advances which are currently or recently forborne |
|
Total current and recent forborne loans and advances which are impaired1 |
|
Impairment provisions as % of loans and advances which are currently or recently forborne |
|
|
30 June
2015 |
|
31 Dec
2014 |
|
30 June
2015 |
|
31 Dec
2014 |
|
30 June
2015 |
|
31 Dec
2014 |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
% |
|
% |
Ireland secured lending: |
|
|
|
|
|
|
|
|
|
|
|
|
Temporary forbearance arrangements |
|
|
|
|
|
|
|
|
|
|
|
|
Reduced payment arrangements |
|
35 |
|
41 |
|
26 |
|
28 |
|
35.2 |
|
34.0 |
Permanent treatments |
|
|
|
|
|
|
|
|
|
|
|
|
Repair and term extensions |
|
175 |
|
239 |
|
10 |
|
13 |
|
9.8 |
|
9.1 |
Total |
|
210 |
|
280 |
|
36 |
|
41 |
|
14.1 |
|
12.7 |
1 |
£174 million of current and recent forborne loans and advances were not impaired at 30 June 2015 (31 December 2014: £239 million). |
Corporate real estate, other corporate
and Specialist Finance
At 30 June 2015, £1,725 million
(31 December 2014: £1,998 million) of total loans and advances were forborne of which £1,677 million (31 December
2014: £1,912 million) were impaired. The coverage ratio for forborne loans increased from 58.3 per cent at 31 December
2014 to 61.3 per cent at 30 June 2015.
Unimpaired forborne loans and advances were
£48 million at 30 June 2015 (December 2014: £86 million).
The table below sets out the Group’s
largest unimpaired forborne loans and advances (exposures over £5 million) as at 30 June 2015 by type of forbearance:
|
|
30 June
2015 |
|
31 Dec
2014 |
|
|
£m |
|
£m |
Type of unimpaired forbearance |
|
|
|
|
UK1 exposures > £5m |
|
|
|
|
Covenants |
|
6 |
|
− |
Extensions |
|
− |
|
47 |
Multiple |
|
24 |
|
24 |
|
|
30 |
|
71 |
Exposures < £5m and other non-UK1 |
|
18 |
|
15 |
Total |
|
48 |
|
86 |
1 |
Based on location of the office recording the transaction. |
FUNDING AND LIQUIDITY MANAGEMENT
The Group’s funding position has been
significantly strengthened and the Group has transformed its balance sheet structure in recent years. As a result the Group has
set a new loan to deposit ratio range of 105 per cent to 110 per cent, which the Group remained comfortably within during the first
half of 2015. During this period the Group has also maintained the liquidity buffer at a broadly consistent level.
Total funded assets reduced by £25.3 billion
to £468.1 billion. Loans and advances to customers, excluding reverse repos, reduced by £25.3 billion and customer
deposits, excluding repos, decreased by £30.6 billion all primarily driven by the sale of TSB. Excluding TSB, loans
and advances decreased by £3.7 billion with increased net lending in Consumer Finance offset by reductions in the run
off portfolio. Customer deposits on an equivalent basis decreased by £6 billion with increases in Commercial Banking
offset by reductions in retail tactical deposits and online deposits within Consumer Finance.
Wholesale funding has reduced by £0.5 billion
to £116.0 billion, with the volume with a residual maturity less than one year remaining broadly stable at £38.9 billion
(£41.1 billion at 31 December 2014). The Group’s term funding ratio (wholesale funding with a remaining life of
over one year as a percentage of total wholesale funding) increased to 66 per cent (65 per cent at 31 December
2014).
During the first half of 2015 the Group’s
term issuance costs have remained broadly in line with 2014 and significantly lower than previous years. Term wholesale funding
demand has been lower in recent years as the Group contracted its balance sheet. The Group now has a stable and managed term wholesale
funding programme, consistent with the stable balance sheet. Term funding volumes are expected to remain broadly consistent with
2015 over the next few years.
Standard and Poor’s, Moody’s
and Fitch have now completed their reviews of Lloyds Bank's ratings following the UK implementation of the EU Bank Recovery and
Resolution Directive. In all cases, Lloyds Bank’s ratings were either reaffirmed or upgraded due to the delivery of our strategy
to be a low risk, customer focused UK bank and/or recognition of the protection Lloyds’ sizeable subordinated debt buffer
provides to senior creditors. In particular, Fitch upgraded Lloyds Bank to ‘A+’ from ‘A’ and revised the
outlook to ‘Stable’ from ‘Negative’. Moody’s affirmed Lloyds’ rating at ‘A1’ and
improved the outlook to ‘Positive’ from ‘Rating Under Review Negative’. S&P affirmed Lloyds’
rating at ‘A’ and improved the outlook to ‘Stable’ from ‘Credit Watch Negative’. Following
these rating actions, Lloyds Bank's median rating has improved to ‘A+’ (previously ‘A’). The effects of
a potential downgrade from all three rating agencies are included in the Group liquidity stress testing.
The Liquidity Coverage Ratio (LCR) is due
to become the Pillar 1 standard for liquidity in the UK from October 2015. Following finalisation of requirements from the PRA,
the Group expects to meet the minimum requirements and has a robust and well governed reporting framework in place for both regulatory
reporting and internal management information.
The combination of a strong balance sheet
and access to a wide range of funding markets, including government and central bank schemes, provides the Group with a broad range
of options with respect to funding the balance sheet in the future, including in the event of a severe market dislocation.
FUNDING AND LIQUIDITY MANAGEMENT (continued)
Group funding position
|
|
At 30 June
2015 |
|
At 31 Dec
2014 |
|
Change |
|
|
£bn |
|
£bn |
|
% |
Funding requirement |
|
|
|
|
|
|
Loans and advances to customers1 |
|
452.3 |
|
477.6 |
|
(5) |
Loans and advances to banks2 |
|
4.8 |
|
3.0 |
|
60 |
Debt securities |
|
1.6 |
|
1.2 |
|
33 |
Reverse repurchase agreements |
|
− |
|
− |
|
− |
Available-for-sale financial assets – secondary3 |
|
5.1 |
|
8.0 |
|
(36) |
Cash balances4 |
|
4.3 |
|
3.6 |
|
19 |
Funded assets |
|
468.1 |
|
493.4 |
|
(5) |
Other assets5 |
|
253.1 |
|
265.2 |
|
(5) |
|
|
721.2 |
|
758.6 |
|
(5) |
On balance sheet primary liquidity assets6 |
|
|
|
|
|
|
Reverse repurchase agreements |
|
0.5 |
|
7.0 |
|
(93) |
Balances at central banks – primary4 |
|
63.4 |
|
46.9 |
|
35 |
Available-for-sale financial assets – primary |
|
27.1 |
|
48.5 |
|
(44) |
Held-to-maturity financial assets – primary |
|
20.0 |
|
− |
|
|
Trading and fair value through profit and loss |
|
(3.1) |
|
(6.1) |
|
(49) |
Repurchase agreements |
|
(6.3) |
|
− |
|
|
|
|
101.6 |
|
96.3 |
|
6 |
Total Group assets |
|
822.8 |
|
854.9 |
|
(4) |
Less: other liabilities5 |
|
(242.0) |
|
(240.3) |
|
1 |
Funding requirement |
|
580.8 |
|
614.6 |
|
(5) |
Funded by |
|
|
|
|
|
|
Customer deposits7 |
|
416.5 |
|
447.1 |
|
(7) |
Wholesale funding8 |
|
116.0 |
|
116.5 |
|
− |
|
|
532.5 |
|
563.6 |
|
(6) |
Repurchase agreements |
|
0.3 |
|
1.1 |
|
(73) |
Total equity |
|
48.0 |
|
49.9 |
|
(4) |
Total funding |
|
580.8 |
|
614.6 |
|
(5) |
1 |
Excludes £0.1 billion (31 December 2014: £5.1 billion) of reverse repurchase agreements. |
2 |
Excludes £18.3 billion (31 December 2014: £21.3 billion) of loans and advances to banks within the Insurance business and £0.4 billion (31 December 2014: £1.9 billion) of reverse repurchase agreements. |
3 |
Secondary liquidity assets comprise a diversified pool of highly rated unencumbered collateral (including retained issuance). |
4 |
Cash balances and balances at central banks – primary are combined in the Group’s balance sheet. |
5 |
Other assets and other liabilities primarily include balances in the Group’s Insurance business and the fair value of derivative assets and liabilities. |
6 |
Primary liquidity assets are PRA eligible liquid assets, including UK Gilts, US Treasuries, Euro AAA government debt, designated multilateral development bank debt and unencumbered cash balances held at central banks. |
7 |
Excluding repurchase agreements at 30 June 2015 of £0.1 billion (31 December 2014: £nil). |
8 |
The Group’s definition of wholesale funding aligns with that used by other international market participants; including interbank deposits, debt securities in issue and subordinated liabilities. |
FUNDING AND LIQUIDITY MANAGEMENT (continued)
Reconciliation of Group funding to the
balance sheet
At 30 June 2015 |
|
Included in
funding
analysis |
|
Repos |
|
Fair value
and other
accounting
methods |
|
Balance
sheet |
|
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
|
|
|
|
|
|
|
|
Deposits from banks |
|
8.9 |
|
8.1 |
|
− |
|
17.0 |
Debt securities in issue |
|
84.0 |
|
− |
|
(6.2) |
|
77.8 |
Subordinated liabilities |
|
23.1 |
|
− |
|
(0.5) |
|
22.6 |
Total wholesale funding |
|
116.0 |
|
8.1 |
|
|
|
|
Customer deposits |
|
416.5 |
|
0.1 |
|
− |
|
416.6 |
Total |
|
532.5 |
|
8.2 |
|
|
|
|
At 31 December 2014 |
|
Included in
funding
analysis |
|
Repos |
|
Fair value
and other
accounting
methods |
|
Balance
sheet |
|
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
|
|
|
|
|
|
|
|
Deposits from banks |
|
9.8 |
|
1.1 |
|
− |
|
10.9 |
Debt securities in issue |
|
80.6 |
|
− |
|
(4.4) |
|
76.2 |
Subordinated liabilities |
|
26.1 |
|
− |
|
(0.1) |
|
26.0 |
Total wholesale funding |
|
116.5 |
|
1.1 |
|
|
|
|
Customer deposits |
|
447.1 |
|
− |
|
− |
|
447.1 |
Total |
|
563.6 |
|
1.1 |
|
|
|
|
Analysis of 2015 total wholesale funding
by residual maturity
|
Less
than
one
month |
One to
three
months |
Three
to six
months |
Six to
nine
months |
Nine
months
to one
year |
One to
two
years |
Two to
five
years |
More
than
five
years |
Total
at
30 June
2015 |
Total
at
31 Dec
2014 |
|
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit from banks |
|
6.8 |
|
1.1 |
|
0.3 |
|
0.3 |
|
− |
|
0.1 |
|
− |
|
0.3 |
|
8.9 |
|
9.8 |
Debt securities in issue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
1.0 |
|
2.5 |
|
1.3 |
|
3.1 |
|
1.0 |
|
− |
|
− |
|
− |
|
8.9 |
|
6.8 |
Commercial paper |
|
2.4 |
|
2.6 |
|
0.3 |
|
0.4 |
|
0.2 |
|
− |
|
− |
|
− |
|
5.9 |
|
7.3 |
Medium-term notes1 |
|
0.8 |
|
1.1 |
|
1.2 |
|
1.5 |
|
1.9 |
|
4.8 |
|
10.8 |
|
11.9 |
|
34.0 |
|
29.2 |
Covered bonds |
|
1.2 |
|
− |
|
− |
|
− |
|
1.2 |
|
6.7 |
|
4.5 |
|
10.6 |
|
24.2 |
|
25.2 |
Securitisation |
|
0.5 |
|
1.3 |
|
2.0 |
|
1.1 |
|
0.6 |
|
2.7 |
|
1.8 |
|
1.0 |
|
11.0 |
|
12.1 |
|
|
5.9 |
|
7.5 |
|
4.8 |
|
6.1 |
|
4.9 |
|
14.2 |
|
17.1 |
|
23.5 |
|
84.0 |
|
80.6 |
Subordinated liabilities |
|
− |
|
0.6 |
|
0.2 |
|
0.2 |
|
0.2 |
|
3.3 |
|
6.5 |
|
12.1 |
|
23.1 |
|
26.1 |
Total wholesale funding2 |
|
12.7 |
|
9.2 |
|
5.3 |
|
6.6 |
|
5.1 |
|
17.6 |
|
23.6 |
|
35.9 |
|
116.0 |
|
116.5 |
1 |
Medium-term notes include funding from the National Loan Guarantee Scheme (30 June 2015: £1.4 billion; 31 December 2014: £1.4 billion). |
2 |
The Group’s definition of wholesale funding aligns with that used by other international market participants; including interbank deposits, debt securities in issue and subordinated liabilities. |
FUNDING AND LIQUIDITY MANAGEMENT (continued)
Analysis of 2015 term issuance
|
|
Sterling |
|
US Dollar |
|
Euro |
|
Other
currencies |
|
Total |
|
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
|
|
|
|
|
|
|
|
|
|
Securitisation |
|
0.7 |
|
0.9 |
|
− |
|
− |
|
1.6 |
Medium-term notes |
|
0.3 |
|
3.5 |
|
1.8 |
|
0.8 |
|
6.4 |
Covered bonds |
|
1.5 |
|
− |
|
− |
|
− |
|
1.5 |
Private placements1 |
|
0.7 |
|
1.3 |
|
1.3 |
|
− |
|
3.3 |
Subordinated liabilities |
|
− |
|
− |
|
− |
|
− |
|
− |
Total issuance |
|
3.2 |
|
5.7 |
|
3.1 |
|
0.8 |
|
12.8 |
1 |
Private placements include structured bonds and term repurchase agreements (repos). |
Term issuance for the first half of 2015
totalled £12.8 billion with the majority across medium term notes and private placements. Utilisation of the UK government’s
Funding for Lending Scheme (FLS) has further underlined the Group’s support to the UK economic recovery and the Group remains
committed to passing the benefits of this low cost funding on to its customers. As of 30 June 2015, the Group had drawn £24 billion
under the FLS. The maturities for the FLS are fully factored into the Group’s funding plan.
Liquidity portfolio
At 30 June 2015, the Banking business had
£109.0 billion (31 December 2014: £109.3 billion) of highly liquid unencumbered assets in its primary liquidity
portfolio which are available to meet cash and collateral outflows and PRA regulatory requirements. A separate liquidity portfolio
to mitigate Insurance liquidity risk is managed within the Insurance business. Primary liquid assets are broadly equivalent to
the Group’s total wholesale funding, and thus provides a substantial buffer in the event of continued market dislocation.
Primary liquidity |
|
At 30 June
2015 |
|
At 31 Dec
2014 |
|
Average
2015 |
|
Average
2014 |
|
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
|
|
|
|
|
|
|
|
Central bank cash deposits |
|
63.4 |
|
46.9 |
|
64.6 |
|
62.3 |
Government/MDB bonds1 |
|
45.6 |
|
62.4 |
|
47.6 |
|
47.9 |
Total |
|
109.0 |
|
109.3 |
|
112.2 |
|
110.2 |
|
|
|
|
|
|
|
|
|
Secondary liquidity |
|
At 30 June
2015 |
|
At 31 Dec
2014 |
|
Average
2015 |
|
Average
2014 |
|
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
|
|
|
|
|
|
|
|
High-quality ABS/covered bonds2 |
|
3.4 |
|
3.9 |
|
3.7 |
|
3.6 |
Credit institution bonds2 |
|
0.1 |
|
0.9 |
|
0.6 |
|
1.4 |
Corporate bonds2 |
|
0.2 |
|
0.6 |
|
0.5 |
|
0.3 |
Own securities (retained issuance) |
|
16.4 |
|
20.6 |
|
17.8 |
|
22.2 |
Other securities |
|
5.7 |
|
5.7 |
|
6.0 |
|
5.5 |
Other3 |
|
62.7 |
|
67.5 |
|
66.7 |
|
74.1 |
Total |
|
88.5 |
|
99.2 |
|
95.3 |
|
107.1 |
Total liquidity |
|
197.5 |
|
208.5 |
|
|
|
|
1 |
Designated multilateral development bank (MDB). |
2 |
Assets rated A- or above. |
3 |
Includes other central bank eligible assets. |
FUNDING AND LIQUIDITY MANAGEMENT (continued)
In addition the Banking business had £88.5 billion
(31 December 2014: £99.2 billion) of secondary liquidity, the vast majority of which is eligible for use in a range
of central bank or similar facilities and the Group routinely makes use of as part of its normal liquidity management practices.
Future use of such facilities will be based on prudent liquidity management and economic considerations, having regard for external
market conditions.
The entire primary liquidity portfolio and
a subset of the secondary portfolio are LCR eligible. The Group considers diversification across geography, currency, markets and
tenor when assessing appropriate holdings of primary and secondary liquid assets. This liquidity is managed as a single pool in
the centre and is under the control of the function charged with managing the liquidity of the Group. It is available for deployment
at immediate notice, subject to complying with regulatory requirements, and is a key component of the Group’s liquidity management
process.
Encumbered assets
The Board and Group Asset & Liability
Committee monitor and manage total balance sheet encumbrance via a number of risk appetite metrics. At 30 June 2015, the Group
had £134.7 billion (31 December 2014: £134.9 billion) of externally encumbered and £688.1 billion
(31 December 2014: £720.0 billion) of unencumbered on balance sheet assets. Primarily the Group encumbers mortgages,
lending and credit card receivables through the issuance programmes and tradable securities through securities financing activity.
Refer to the 2014 Annual Report and Accounts for further details on how the Group classifies assets for encumbrance purposes.
CAPITAL MANAGEMENT
The Group continued to strengthen its Common
Equity Tier 1 (CET1) ratio during the first half of 2015 through increased underlying profits and a reduction in risk-weighted
assets. The positive impact of these items was partly offset by the interim dividend, conduct charges and the disposal of TSB.
| · | The CET1 ratio increased 0.5 percentage points from 12.8 per cent to 13.3 per cent. |
| · | The leverage ratio has remained stable at 4.9 per cent. |
| · | The transitional total capital ratio reduced 0.3 percentage points from 22.0 per cent
to 21.7 per cent. |
Regulatory capital developments
The regulatory capital framework within
which the Group operates continues to be developed at global, European and UK levels focusing on RWA calibration, leverage and
bail in requirements, examples of which include the following:
| · | At a global level the Basel Committee has issued consultation papers on the capital treatment of
interest rate risk in the banking book (IRRBB) and on proposed revisions to the framework for the capital charge relating to Credit
Valuation Adjustment (CVA) variability. We also await the outcome of the, now closed, consultations on proposed revisions to the
Standardised Approach risk-weight framework in addition to initial proposals on the design of a new capital floors framework. In
the meantime the fundamental review of the trading book (FRTB) is ongoing. |
| · | At a European level the European Banking Authority (EBA) has issued recommendations about the CVA
capital treatment, including the possible removal of EU exemptions and final draft Regulatory Technical Standards (RTS) on Prudent
Valuation Adjustments (PVA) and the criteria for determining minimum requirements for own funds and eligible liabilities (MREL). |
| · | In the UK the PRA is consulting on proposals for implementing the UK leverage ratio framework as
recommended by the Financial Policy Committee. It has also recently finalised proposals to reform the Pillar 2 framework, including
new approaches for determining Pillar 2A capital requirements and the setting of Pillar 2B capital requirements (the PRA buffer). |
The Group continues to monitor these developments
very closely, analysing the potential capital impacts to ensure the Group continues to maintain a strong capital position that
exceeds the minimum regulatory requirements and the Group’s risk appetite and is consistent with market expectations.
The Group is subject to Pillar 2A Individual
Capital Guidance (ICG) from the PRA. This reflects a point in time estimate by the PRA, which may change over time, of the amount
of capital that is needed in relation to risks not covered by Pillar 1. The Group’s underlying ICG remains unchanged
over the half-year and as at 30 June 2015 equated to 3.9 per cent of risk-weighted assets, of which 2.2 per cent must
be covered by CET1 capital. The 10 basis point increase in these percentages over the half-year is as a result of lower risk-weighted
assets.
Capital position at 30 June 2015
The Group’s capital position as at
30 June 2015 is presented in the following section applying CRD IV transitional arrangements, as implemented in the UK by the PRA,
and also on a fully loaded CRD IV basis.
CAPITAL MANAGEMENT (continued)
|
Transitional |
|
Fully loaded |
Capital resources |
At 30 June
2015 |
|
At 31 Dec
2014 |
|
At 30 June
2015 |
|
At 31 Dec
2014 |
|
£m |
|
£m |
|
£m |
|
£m |
Common equity tier 1 |
|
|
|
|
|
|
|
Shareholders’ equity per balance sheet |
42,256 |
|
43,335 |
|
42,256 |
|
43,335 |
Adjustment to retained earnings for foreseeable dividends |
(535) |
|
(535) |
|
(535) |
|
(535) |
Deconsolidation of insurance entities1 |
(1,262) |
|
(824) |
|
(1,262) |
|
(824) |
Adjustment for own credit |
116 |
|
158 |
|
116 |
|
158 |
Cash flow hedging reserve |
(429) |
|
(1,139) |
|
(429) |
|
(1,139) |
Other adjustments |
239 |
|
333 |
|
239 |
|
333 |
|
40,385 |
|
41,328 |
|
40,385 |
|
41,328 |
less: deductions from common equity tier 1 |
|
|
|
|
|
|
|
Goodwill and other intangible assets |
(1,779) |
|
(1,875) |
|
(1,779) |
|
(1,875) |
Excess of expected losses over impairment provisions and value adjustments |
(394) |
|
(565) |
|
(394) |
|
(565) |
Removal of defined benefit pension surplus |
(718) |
|
(909) |
|
(718) |
|
(909) |
Securitisation deductions |
(211) |
|
(211) |
|
(211) |
|
(211) |
Significant investments1 |
(2,575) |
|
(2,546) |
|
(2,575) |
|
(2,546) |
Deferred tax assets |
(4,551) |
|
(4,533) |
|
(4,551) |
|
(4,533) |
Common equity tier 1 capital |
30,157 |
|
30,689 |
|
30,157 |
|
30,689 |
|
|
|
|
|
|
|
|
Additional tier 1 |
|
|
|
|
|
|
|
Other equity instruments |
5,355 |
|
5,355 |
|
5,355 |
|
5,355 |
Preference shares and preferred securities2 |
4,528 |
|
4,910 |
|
− |
|
- |
Transitional limit and other adjustments |
(706) |
|
(537) |
|
− |
|
- |
|
9,177 |
|
9,728 |
|
5,355 |
|
5,355 |
less: deductions from tier 1 |
|
|
|
|
|
|
|
Significant investments1 |
(1,180) |
|
(859) |
|
− |
|
− |
Total tier 1 capital |
38,154 |
|
39,558 |
|
35,512 |
|
36,044 |
|
|
|
|
|
|
|
|
Tier 2 |
|
|
|
|
|
|
|
Other subordinated liabilities2 |
18,111 |
|
21,132 |
|
18,111 |
|
21,132 |
Deconsolidation of instruments issued by insurance entities1 |
(2,133) |
|
(2,522) |
|
(2,133) |
|
(2,522) |
Adjustments for non-eligible instruments |
(467) |
|
(675) |
|
(1,095) |
|
(1,857) |
Amortisation and other adjustments |
(3,224) |
|
(3,738) |
|
(4,840) |
|
(5,917) |
|
12,287 |
|
14,197 |
|
10,043 |
|
10,836 |
Eligible provisions |
475 |
|
333 |
|
475 |
|
333 |
less: deductions from tier 2 |
|
|
|
|
|
|
|
Significant investments1 |
(1,759) |
|
(1,288) |
|
(2,939) |
|
(2,146) |
Total capital resources |
49,157 |
|
52,800 |
|
43,091 |
|
45,067 |
|
|
|
|
|
|
|
|
Risk-weighted assets |
226,980 |
|
239,734 |
|
226,980 |
|
239,734 |
|
|
|
|
|
|
|
|
Common equity tier 1 capital ratio |
13.3% |
|
12.8% |
|
13.3% |
|
12.8% |
Tier 1 capital ratio |
16.8% |
|
16.5% |
|
15.6% |
|
15.0% |
Total capital ratio |
21.7% |
|
22.0% |
|
19.0% |
|
18.8% |
1 |
For regulatory capital purposes, the Group’s Insurance business is deconsolidated and replaced by the amount of the Group’s investment in the business. A part of this amount is deducted from capital (shown as ‘significant investments’ in the table above) and the remaining amount is risk weighted, forming part of threshold risk-weighted assets. |
2 |
Preference shares, preferred securities and other subordinated liabilities are categorised as subordinated liabilities in the balance sheet. |
CAPITAL MANAGEMENT (continued)
The key differences between the transitional
capital calculation as at 30 June 2015 and the fully loaded equivalent are as follows:
| · | Capital securities that previously qualified as tier 1 or tier 2 capital, but do not fully qualify
under CRD IV, can be included in tier 1 or tier 2 capital (as applicable) up to specified limits which reduce by 10 per cent
per annum until 2022. |
| · | The significant investment deduction from AT1 will gradually transition to tier 2. |
The movements in the transitional CET1,
AT1, tier 2 and total capital positions in the period are provided below.
|
|
Common
Equity Tier 1 |
|
Additional
Tier 1 |
|
Tier 2 |
|
Total
capital |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
At 31 December 2014 |
|
30,689 |
|
8,869 |
|
13,242 |
|
52,800 |
Profit attributable to ordinary shareholders1 |
|
600 |
|
|
|
|
|
600 |
Eligible minority interest |
|
(470) |
|
|
|
|
|
(470) |
Adjustment to retained earnings for foreseeable dividends |
|
(535) |
|
|
|
|
|
(535) |
Movement in treasury shares and employee share schemes |
|
(269) |
|
|
|
|
|
(269) |
Pension movements: |
|
|
|
|
|
|
|
|
Removal of defined benefit pension surplus |
|
191 |
|
|
|
|
|
191 |
Movement through other comprehensive income |
|
(242) |
|
|
|
|
|
(242) |
Available-for-sale reserve |
|
(67) |
|
|
|
|
|
(67) |
Deferred tax asset |
|
(18) |
|
|
|
|
|
(18) |
Goodwill and other intangible assets |
|
96 |
|
|
|
|
|
96 |
Excess of expected losses over impairment provisions and value adjustments |
|
171 |
|
|
|
|
|
171 |
Significant investments |
|
(29) |
|
(321) |
|
(471) |
|
(821) |
Eligible provisions |
|
|
|
|
|
142 |
|
142 |
Subordinated debt movements: |
|
|
|
|
|
|
|
|
Repurchases, redemptions and other |
|
|
|
(551) |
|
(1,910) |
|
(2,461) |
Other movements |
|
40 |
|
|
|
|
|
40 |
At 30 June 2015 |
|
30,157 |
|
7,997 |
|
11,003 |
|
49,157 |
|
|
|
|
|
|
|
|
|
1 |
Profits made by Insurance are removed from CET1 capital. However, when dividends are paid to the Group by Insurance these are recognised through CET1 capital. |
CET1 capital resources have reduced by £532 million
in the period, largely due to the removal of eligible minority interest related to TSB, the interim dividend and movements in treasury
shares and employee share schemes. The reductions were partially offset by profit attributable to ordinary shareholders, reflecting
underlying profit offset by conduct charges and the disposal of TSB, and a reduction in the excess of expected losses over impairment
provisions and value adjustments.
AT1 capital resources have reduced by £872 million
in the period, primarily reflecting the annual reduction in the transitional limit applied to grandfathered AT1 capital instruments
and an increase in significant investments.
Tier 2 capital resources have reduced by
£2,239 million in the period largely reflecting calls and redemptions, amortisation of dated instruments, foreign exchange
movements and an increase in significant investments, partially offset by an increase in eligible provisions.
CAPITAL MANAGEMENT (continued)
Risk-weighted assets |
|
At 30 June
2015 |
|
At 31 Dec
2014 |
|
|
£m |
|
£m |
|
|
|
|
|
Foundation Internal Ratings Based (IRB) Approach |
|
70,367 |
|
72,393 |
Retail IRB Approach |
|
67,529 |
|
72,886 |
Other IRB Approach |
|
17,385 |
|
15,324 |
IRB Approach |
|
155,281 |
|
160,603 |
Standardised Approach |
|
21,117 |
|
25,444 |
Contributions to the default fund of a central counterparty |
|
280 |
|
515 |
Credit risk |
|
176,678 |
|
186,562 |
Counterparty credit risk |
|
8,006 |
|
9,108 |
Credit valuation adjustment risk |
|
2,172 |
|
2,215 |
Operational risk |
|
26,279 |
|
26,279 |
Market risk |
|
3,629 |
|
4,746 |
Underlying risk-weighted assets |
|
216,764 |
|
228,910 |
|
|
|
|
|
Threshold risk-weighted assets1 |
|
10,216 |
|
10,824 |
Total risk-weighted assets |
|
226,980 |
|
239,734 |
|
|
1 |
Threshold risk-weighted assets reflect
the element of significant investments and deferred tax assets that are permitted to be risk-weighted instead of deducted from
common equity tier 1 capital under threshold rules. Significant investments primarily arise from investment in the Group’s
Insurance business. |
|
|
Risk-weighted assets movement
by key driver |
|
Credit
risk1 |
|
Counter
party
credit risk1 |
|
Market
risk |
|
Operational risk |
|
Total |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Risk-weighted assets at
31 December 2014 |
|
186,562 |
|
11,323 |
|
4,746 |
|
26,279 |
|
228,910 |
Management of the balance sheet |
|
(1,849) |
|
(572) |
|
(309) |
|
− |
|
(2,730) |
Disposals |
|
(5,818) |
|
(2) |
|
− |
|
− |
|
(5,820) |
External economic factors |
|
(3,185) |
|
(491) |
|
(19) |
|
− |
|
(3,695) |
Model and methodology changes |
|
1,054 |
|
(108) |
|
(789) |
|
− |
|
157 |
Regulatory policy change |
|
− |
|
− |
|
− |
|
− |
|
− |
Other |
|
(86) |
|
28 |
|
− |
|
− |
|
(58) |
Risk-weighted assets |
|
176,678 |
|
10,178 |
|
3,629 |
|
26,279 |
|
216,764 |
Threshold risk-weighted assets |
|
|
|
|
|
|
|
|
|
10,216 |
Total risk-weighted assets |
|
|
|
|
|
|
|
|
|
226,980 |
|
|
1 |
Credit risk includes movements in contributions to the default fund of central counterparties and counterparty credit risk includes the movements in credit valuation adjustment risk. |
CAPITAL MANAGEMENT (continued)
The risk-weighted assets movement tables
provide analyses of the movement in risk-weighted assets in the period by risk type and an insight into the key drivers of the
movements. The key driver analysis is compiled on a monthly basis through the identification and categorisation of risk-weighted
asset movements and is subject to management judgment.
Credit risk-weighted assets reduced from
£186.6 billion to £176.7 billion driven by the following key movements:
| · | Management of the balance sheet includes risk-weighted asset movements arising from new lending
and asset
run-off. During the first half of 2015, risk-weighted assets decreased by £1.8 billion as a result of the active management
of lending portfolios, partially offset by targeted lending growth. |
| · | Disposals include risk-weighted asset reductions arising from the sale of assets, portfolios and
businesses. Disposals reduced risk-weighted assets by £5.8 billion, primarily driven by the completion of the sale of TSB
as well as other small disposals and related reductions in sundry debtors. |
| · | External economic factors capture movements driven by changes in the economic environment. The
reduction in
risk-weighted assets of £3.2 billion is mainly due to improvements in credit quality and favourable foreign exchange
rate movements. |
| · | Model and methodology changes include the movement in risk-weighted assets arising from new model
implementation, model enhancement and changes in credit risk approach applied to certain portfolios. The increase in risk-weighted
assets of £1.1 billion is principally driven by an update to models in Commercial Banking. |
Counterparty credit risk reductions of £1.1
billion reflect reduced mark to market valuations and trade compressions.
Market risk-weighted assets reduced by £1.1
billion, reflecting continued optimisation of the balance sheet as a result of active portfolio management across Financial Markets,
and market risk model changes.
Enhanced Capital Notes (ECNs)
In 2009 the Group undertook a significant
capital raising exercise which included the issuance of approximately £8.3 billion of ECNs. Approximately £3.3
billion of these ECNs remain outstanding.
Upon issuance, the ECNs contributed to going
concern capital in stress tests applied by the regulator and were structured with a conversion trigger in excess of the then minimum
regulatory requirements and stress test threshold. However, given subsequent changes to regulatory capital rules, including changes
in the definition of core capital, the conversion trigger for the ECNs is substantially below today’s minimum regulatory
requirements and stress test thresholds. The terms of the ECNs provide the Group with the right to call any series of these ECNs
at par or a
make-whole price in the event that they cease to be taken into account as core capital for the purposes of any stress test applied
by the Prudential Regulation Authority (PRA) (a Capital Disqualification Event).
After the ECNs were not taken into account
for the purpose of core capital for the 2014 PRA stress test, the Group announced on 16 December 2014 that it intended to approach
the PRA to seek permission to redeem certain series of ECNs. On 31 March 2015 such permission was received from the PRA under Article
78 of the Capital Requirements Regulation (Regulation 575/2013/EU). The Group also notified investors that the Trustee intended
to seek a declaratory judgment in respect of the interpretation of certain terms of the ECNs.
On 3 June 2015, the Chancery Division of
the High Court handed down its judgment in respect of the ECNs, in which it found that a Capital Disqualification Event had not
occurred. The Group has filed an appeal with the Court of Appeal and the hearing is expected to take place in the week commencing
24 August 2015.
CAPITAL MANAGEMENT (continued)
Leverage ratio
In January 2015 the existing CRD IV rules
on the calculation of the leverage ratio were amended to align with the European Commission’s interpretation of the revised
Basel III leverage ratio framework. The Group’s leverage ratio has been calculated in accordance with the amended CRD IV
rules on leverage.
|
|
Fully loaded |
|
|
At 30 June
2015 |
|
At 31 Dec
20141 |
|
|
£m |
|
£m |
Total tier 1 capital for leverage ratio |
|
|
|
|
Common equity tier 1 capital |
|
30,157 |
|
30,689 |
Additional tier 1 capital |
|
5,355 |
|
5,355 |
Total tier 1 capital |
|
35,512 |
|
36,044 |
|
|
|
|
|
Exposure measure |
|
|
|
|
|
|
|
|
|
Statutory balance sheet assets |
|
|
|
|
Derivative financial instruments |
|
27,980 |
|
36,128 |
Securities financing transactions (SFTs) |
|
33,668 |
|
43,772 |
Loans and advances and other assets |
|
761,184 |
|
774,996 |
Total assets |
|
822,832 |
|
854,896 |
|
|
|
|
|
Deconsolidation adjustments2 |
|
|
|
|
Derivative financial instruments |
|
(1,421) |
|
(1,663) |
Securities financing transactions (SFTs) |
|
1,908 |
|
1,655 |
Loans and advances and other assets |
|
(145,491) |
|
(144,114) |
Total deconsolidation adjustments |
|
(145,004) |
|
(144,122) |
|
|
|
|
|
Derivatives adjustments |
|
|
|
|
Adjustment for regulatory netting |
|
(18,515) |
|
(24,187) |
Adjustment to cash collateral |
|
1,058 |
|
(1,024) |
Net written credit protection |
|
309 |
|
425 |
Regulatory potential future exposure |
|
12,407 |
|
12,722 |
Total derivatives adjustments |
|
(4,741) |
|
(12,064) |
|
|
|
|
|
Counterparty credit risk add-on for SFTs |
|
1,022 |
|
1,364 |
|
|
|
|
|
Off-balance sheet items |
|
55,695 |
|
50,980 |
|
|
|
|
|
Regulatory deductions and other adjustments |
|
(9,636) |
|
(10,362) |
|
|
|
|
|
Total exposure |
|
720,168 |
|
740,692 |
|
|
|
|
|
Leverage ratio |
|
4.9% |
|
4.9% |
1 |
Restated to align with the amended CRD IV rules on leverage implemented in January 2015. |
2 |
Deconsolidation adjustments predominantly reflect the deconsolidation of assets related to Group subsidiaries that fall outside the scope of the Group’s regulatory capital consolidation (primarily the Group’s insurance entities). |
CAPITAL MANAGEMENT (continued)
Key movements
The Group’s fully loaded leverage
ratio remained stable at 4.9 per cent with the impact of the reduction in tier 1 capital entirely offset by the £20.5
billion reduction in the exposure measure, the latter largely reflecting the reduction in balance sheet assets arising, in part,
from the disposal of TSB.
The derivatives exposure measure, representing
derivative financial instruments per the balance sheet net of deconsolidation and derivatives adjustments, reduced by £0.6
billion primarily reflecting market movements and trade compressions offset by adjustments for ineligible cash collateral.
The SFT exposure measure, representing SFTs
per the balance sheet inclusive of deconsolidation adjustments and counterparty credit risk add-on, reduced by £10.2 billion
reflecting active balance sheet management, reduced trading volumes and further application of eligible on-balance sheet netting.
Off-balance sheet items increased by £4.7
billion, partly reflecting new mortgage offers placed during the period.
STATUTORY INFORMATION
|
Page |
Condensed consolidated half-year financial statements (unaudited) |
|
Consolidated income statement |
50 |
Consolidated statement of comprehensive income |
51 |
Consolidated balance sheet |
52 |
Consolidated statement of changes in equity |
54 |
Consolidated cash flow statement |
57 |
|
|
Notes |
|
1 |
Accounting policies, presentation and estimates |
58 |
2 |
Segmental analysis |
59 |
3 |
Operating expenses |
62 |
4 |
Impairment |
62 |
5 |
Taxation |
63 |
6 |
Earnings per share |
63 |
7 |
Trading and other financial assets at fair value through profit or loss |
64 |
8 |
Derivative financial instruments |
64 |
9 |
Loans and advances to customers |
65 |
10 |
Debt securities in issue |
65 |
11 |
Post-retirement defined benefit schemes |
66 |
12 |
Provisions for liabilities and charges |
67 |
13 |
Contingent liabilities and commitments |
70 |
14 |
Fair values of financial assets and liabilities |
74 |
15 |
Related party transactions |
81 |
16 |
Disposal of interest in TSB Banking Group plc |
83 |
17 |
Ordinary dividends |
83 |
18 |
Events since the balance sheet date |
83 |
19 |
Future accounting developments |
84 |
20 |
Condensed consolidating financial information |
85 |
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (UNAUDITED)
CONSOLIDATED INCOME STATEMENT
|
|
|
|
Half-year to
30 June
2015 |
|
Half-year to
30 June
2014 |
|
Half-year to
31 Dec
2014 |
|
|
Note |
|
£ million |
|
£ million |
|
£ million |
|
|
|
|
|
|
|
|
|
Interest and similar income |
|
|
|
8,975 |
|
9,728 |
|
9,483 |
Interest and similar expense |
|
|
|
(3,483) |
|
(4,466) |
|
(4,085) |
Net interest income |
|
|
|
5,492 |
|
5,262 |
|
5,398 |
Fee and commission income |
|
|
|
1,598 |
|
1,836 |
|
1,823 |
Fee and commission expense |
|
|
|
(607) |
|
(609) |
|
(793) |
Net fee and commission income |
|
|
|
991 |
|
1,227 |
|
1,030 |
Net trading income |
|
|
|
3,018 |
|
4,588 |
|
5,571 |
Insurance premium income |
|
|
|
1,414 |
|
3,492 |
|
3,633 |
Other operating income |
|
|
|
890 |
|
(535) |
|
226 |
Other income |
|
|
|
6,313 |
|
8,772 |
|
10,460 |
Total income |
|
|
|
11,805 |
|
14,034 |
|
15,858 |
Insurance claims |
|
|
|
(2,998) |
|
(6,338) |
|
(7,155) |
Total income, net of insurance claims |
|
|
|
8,807 |
|
7,696 |
|
8,703 |
Regulatory provisions |
|
|
|
(1,835) |
|
(1,100) |
|
(2,025) |
Other operating expenses |
|
|
|
(5,618) |
|
(5,092) |
|
(5,668) |
Total operating expenses |
|
3 |
|
(7,453) |
|
(6,192) |
|
(7,693) |
Trading surplus |
|
|
|
1,354 |
|
1,504 |
|
1,010 |
Impairment |
|
4 |
|
(161) |
|
(641) |
|
(111) |
Profit before tax |
|
|
|
1,193 |
|
863 |
|
899 |
Taxation |
|
5 |
|
(268) |
|
(164) |
|
(99) |
Profit for the period |
|
|
|
925 |
|
699 |
|
800 |
|
|
|
|
|
|
|
|
|
Profit attributable to ordinary shareholders |
|
|
|
677 |
|
574 |
|
551 |
Profit attributable to other equity holders1 |
|
|
|
197 |
|
91 |
|
196 |
Profit attributable to equity holders |
|
|
|
874 |
|
665 |
|
747 |
Profit attributable to non-controlling interests |
|
|
|
51 |
|
34 |
|
53 |
Profit for the period |
|
|
|
925 |
|
699 |
|
800 |
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
6 |
|
1.0p |
|
0.8p |
|
0.8p |
Diluted earnings per share |
|
6 |
|
1.0p |
|
0.8p |
|
0.8p |
1 |
The profit after tax attributable to other equity holders of £197 million (half-year to 30 June 2014: £91 million; half-year to 31 December 2014: £196 million) is offset in reserves by a tax credit attributable to ordinary shareholders of £40 million (half-year to 30 June 2014: £20 million; half-year to 31 December 2014: £42 million). |
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (UNAUDITED) (continued)
CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
|
|
Half-year to
30 June
2015 |
|
Half-year to
30 June
2014 |
|
Half-year to
31 Dec
2014 |
|
|
£ million |
|
£ million |
|
£ million |
|
|
|
|
|
|
|
Profit for the period |
|
925 |
|
699 |
|
800 |
Other comprehensive income |
|
|
|
|
|
|
Items that will not subsequently be reclassified to profit
or loss: |
|
|
|
|
|
|
Post-retirement defined benefit scheme remeasurements
(note 11): |
|
|
|
|
|
|
Remeasurements before taxation |
|
(302) |
|
(599) |
|
1,273 |
Taxation |
|
60 |
|
120 |
|
(255) |
|
|
(242) |
|
(479) |
|
1,018 |
Items that may subsequently be reclassified to profit or loss: |
|
|
|
|
|
|
Movements in revaluation reserve in respect of available-for-sale financial assets: |
|
|
|
|
|
|
Change in fair value |
|
(16) |
|
557 |
|
133 |
Income statement transfers in respect of disposals |
|
(49) |
|
(85) |
|
(46) |
Income statement transfers in respect of impairment |
|
− |
|
2 |
|
− |
Taxation |
|
(2) |
|
(51) |
|
38 |
|
|
(67) |
|
423 |
|
125 |
Movements in cash flow hedging reserve: |
|
|
|
|
|
|
Effective portion of changes in fair value |
|
(404) |
|
1,008 |
|
2,888 |
Net income statement transfers |
|
(481) |
|
(572) |
|
(581) |
Taxation |
|
175 |
|
(86) |
|
(463) |
|
|
(710) |
|
350 |
|
1,844 |
Currency translation differences (tax: nil) |
|
27 |
|
(1) |
|
(2) |
Other comprehensive income for the period, net of tax |
|
(992) |
|
293 |
|
2,985 |
Total comprehensive income for the period |
|
(67) |
|
992 |
|
3,785 |
|
|
|
|
|
|
|
Total comprehensive income attributable to ordinary shareholders |
|
(315) |
|
867 |
|
3,536 |
Total comprehensive income attributable to other equity holders |
|
197 |
|
91 |
|
196 |
Total comprehensive income attributable to equity holders |
|
(118) |
|
958 |
|
3,732 |
Total comprehensive income attributable to non-controlling interests |
|
51 |
|
34 |
|
53 |
Total comprehensive income for the period |
|
(67) |
|
992 |
|
3,785 |
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (UNAUDITED) (continued)
CONSOLIDATED BALANCE SHEET
|
|
|
|
At
30 June
2015 |
|
At
31 Dec
2014 |
Assets |
|
Note |
|
£ million |
|
£ million |
|
|
|
|
|
|
|
Cash and balances at central banks |
|
|
|
67,687 |
|
50,492 |
Items in course of collection from banks |
|
|
|
1,159 |
|
1,173 |
Trading and other financial assets at fair value through profit or loss |
|
7 |
|
147,849 |
|
151,931 |
Derivative financial instruments |
|
8 |
|
27,980 |
|
36,128 |
Loans and receivables: |
|
|
|
|
|
|
Loans and advances to banks |
|
|
|
23,548 |
|
26,155 |
Loans and advances to customers |
|
9 |
|
452,427 |
|
482,704 |
Debt securities |
|
|
|
1,569 |
|
1,213 |
|
|
|
|
477,544 |
|
510,072 |
Available-for-sale financial assets |
|
|
|
32,173 |
|
56,493 |
Held-to-maturity investments |
|
|
|
19,960 |
|
− |
Investment properties |
|
|
|
4,702 |
|
4,492 |
Goodwill |
|
|
|
2,016 |
|
2,016 |
Value of in-force business |
|
|
|
4,863 |
|
4,864 |
Other intangible assets |
|
|
|
1,942 |
|
2,070 |
Tangible fixed assets |
|
|
|
8,154 |
|
8,052 |
Current tax recoverable |
|
|
|
195 |
|
127 |
Deferred tax assets |
|
|
|
4,039 |
|
4,145 |
Retirement benefit assets |
|
11 |
|
908 |
|
1,147 |
Other assets |
|
|
|
21,661 |
|
21,694 |
Total assets |
|
|
|
822,832 |
|
854,896 |
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (UNAUDITED) (continued)
CONSOLIDATED BALANCE SHEET (continued)
|
|
|
|
At
30 June
2015 |
|
At
31 Dec
2014 |
Equity and liabilities |
|
Note |
|
£ million |
|
£ million |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Deposits from banks |
|
|
|
16,966 |
|
10,887 |
Customer deposits |
|
|
|
416,595 |
|
447,067 |
Items in course of transmission to banks |
|
|
|
790 |
|
979 |
Trading and other financial liabilities at fair value through profit or loss |
|
|
|
63,328 |
|
62,102 |
Derivative financial instruments |
|
8 |
|
27,778 |
|
33,187 |
Notes in circulation |
|
|
|
1,090 |
|
1,129 |
Debt securities in issue |
|
10 |
|
77,776 |
|
76,233 |
Liabilities arising from insurance contracts and
participating investment contracts |
|
|
|
81,183 |
|
86,918 |
Liabilities arising from non-participating investment contracts |
|
|
|
26,131 |
|
27,248 |
Unallocated surplus within insurance businesses |
|
|
|
290 |
|
320 |
Other liabilities |
|
|
|
35,251 |
|
28,105 |
Retirement benefit obligations |
|
11 |
|
467 |
|
453 |
Current tax liabilities |
|
|
|
24 |
|
69 |
Deferred tax liabilities |
|
|
|
40 |
|
54 |
Other provisions |
|
|
|
4,443 |
|
4,200 |
Subordinated liabilities |
|
|
|
22,639 |
|
26,042 |
Total liabilities |
|
|
|
774,791 |
|
804,993 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
Share capital |
|
|
|
7,146 |
|
7,146 |
Share premium account |
|
|
|
17,292 |
|
17,281 |
Other reserves |
|
|
|
12,455 |
|
13,216 |
Retained profits |
|
|
|
5,363 |
|
5,692 |
Shareholders’ equity |
|
|
|
42,256 |
|
43,335 |
Other equity instruments |
|
|
|
5,355 |
|
5,355 |
Total equity excluding non-controlling interests |
|
|
|
47,611 |
|
48,690 |
Non-controlling interests |
|
|
|
430 |
|
1,213 |
Total equity |
|
|
|
48,041 |
|
49,903 |
Total equity and liabilities |
|
|
|
822,832 |
|
854,896 |
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (UNAUDITED) (continued)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|
|
Attributable to equity shareholders |
|
|
|
|
|
|
|
Share
capital
and
premium |
|
Other
reserves |
|
Retained
profits |
|
Total |
Other
equity
instruments |
|
Non-
controlling
interests |
|
Total |
|
|
£ million |
|
£ million |
|
£ million |
|
£ million |
|
£ million |
|
£ million |
|
£ million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2015 |
|
24,427 |
|
13,216 |
|
5,692 |
|
43,335 |
|
5,355 |
|
1,213 |
|
49,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the period |
|
– |
|
− |
|
874 |
|
874 |
|
– |
|
51 |
|
925 |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement defined benefit scheme remeasurements, net of tax |
|
– |
|
– |
|
(242) |
|
(242) |
|
– |
|
– |
|
(242) |
Movements in revaluation reserve in respect of available-for-sale financial assets, net of tax |
|
– |
|
(67) |
|
– |
|
(67) |
|
– |
|
– |
|
(67) |
Movements in cash flow hedging reserve, net of tax |
|
– |
|
(710) |
|
– |
|
(710) |
|
– |
|
– |
|
(710) |
Currency translation differences (tax: nil) |
|
– |
|
27 |
|
– |
|
27 |
|
– |
|
– |
|
27 |
Total other comprehensive income |
|
– |
|
(750) |
|
(242) |
|
(992) |
|
– |
|
– |
|
(992) |
Total comprehensive income |
|
– |
|
(750) |
|
632 |
|
(118) |
|
– |
|
51 |
|
(67) |
Transactions with owners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
|
– |
|
− |
|
(535) |
|
(535) |
|
– |
|
(10) |
|
(545) |
Distributions on other equity instruments, net of tax |
|
– |
|
– |
|
(157) |
|
(157) |
|
– |
|
– |
|
(157) |
Redemption of preference shares |
|
11 |
|
(11) |
|
– |
|
– |
|
– |
|
– |
|
– |
Movement in treasury shares |
|
– |
|
– |
|
(479) |
|
(479) |
|
– |
|
– |
|
(479) |
Value of employee services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share option schemes |
|
– |
|
– |
|
60 |
|
60 |
|
– |
|
– |
|
60 |
Other employee award schemes |
|
– |
|
– |
|
150 |
|
150 |
|
– |
|
– |
|
150 |
Adjustment on sale of interest in TSB Banking Group plc (TSB) (note 16) |
|
– |
|
– |
|
– |
|
– |
|
– |
|
(825) |
|
(825) |
Other changes in
non-controlling interests |
|
– |
|
–
|
|
– |
|
– |
|
– |
|
1 |
|
1 |
Total transactions with owners |
|
11 |
|
(11) |
|
(961) |
|
(961) |
|
– |
|
(834) |
|
(1,795) |
Balance at
30 June 2015 |
|
24,438 |
|
12,455 |
|
5,363 |
|
42,256 |
|
5,355 |
|
430 |
|
48,041 |
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (UNAUDITED) (continued)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(continued)
|
|
Attributable to equity shareholders |
|
|
|
|
|
|
|
Share
capital
and
premium |
|
Other
reserves |
|
Retained
profits |
|
Total |
Other
equity
instruments |
|
Non-
controlling
interests |
|
Total |
|
|
£ million |
|
£ million |
|
£ million |
|
£ million |
|
£ million |
|
£ million |
|
£ million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2014 |
|
24,424 |
|
10,477 |
|
4,088 |
|
38,989 |
|
– |
|
347 |
|
39,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the period |
|
– |
|
− |
|
665 |
|
665 |
|
– |
|
34 |
|
699 |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement defined benefit scheme remeasurements, net of tax |
|
– |
|
– |
|
(479) |
|
(479) |
|
– |
|
– |
|
(479) |
Movements in revaluation reserve in respect of available-for-sale financial assets, net of tax |
|
– |
|
423 |
|
– |
|
423 |
|
– |
|
– |
|
423 |
Movements in cash flow hedging reserve, net of tax |
|
– |
|
350 |
|
– |
|
350 |
|
– |
|
– |
|
350 |
Currency translation differences (tax: nil) |
|
– |
|
(1) |
|
– |
|
(1) |
|
– |
|
– |
|
(1) |
Total other comprehensive income |
|
– |
|
772 |
|
(479) |
|
293 |
|
– |
|
– |
|
293 |
Total comprehensive income |
|
– |
|
772 |
|
186 |
|
958 |
|
– |
|
34 |
|
992 |
Transactions with owners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
|
– |
|
− |
|
− |
|
− |
|
– |
|
(8) |
|
(8) |
Distributions on other equity instruments, net of tax |
|
– |
|
– |
|
(71) |
|
(71) |
|
– |
|
– |
|
(71) |
Issue of ordinary shares |
|
3 |
|
– |
|
– |
|
3 |
|
– |
|
– |
|
3 |
Issue of Additional Tier 1 securities |
|
– |
|
– |
|
(26) |
|
(26) |
|
5,355 |
|
– |
|
5,329 |
Movement in treasury shares |
|
– |
|
– |
|
(263) |
|
(263) |
|
– |
|
– |
|
(263) |
Value of employee services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share option schemes |
|
– |
|
– |
|
21 |
|
21 |
|
– |
|
– |
|
21 |
Other employee award schemes |
|
– |
|
– |
|
99 |
|
99 |
|
– |
|
– |
|
99 |
Adjustment on sale of
non-controlling interest in TSB |
|
– |
|
– |
|
(135) |
|
(135) |
|
– |
|
565 |
|
430 |
Other changes in
non-controlling interests |
|
– |
|
–
|
|
– |
|
– |
|
– |
|
10 |
|
10 |
Total transactions with owners |
|
3 |
|
– |
|
(375) |
|
(372) |
|
5,355 |
|
567 |
|
5,550 |
Balance at 30 June 2014 |
|
24,427 |
|
11,249 |
|
3,899 |
|
39,575 |
|
5,355 |
|
948 |
|
45,878 |
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (UNAUDITED) (continued)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(continued)
|
|
Attributable to equity shareholders |
|
|
|
|
|
|
|
Share
capital
and
premium |
|
Other
reserves |
|
Retained
profits |
|
Total |
Other
equity
instruments |
|
Non-
controlling
interests |
|
Total |
|
|
£ million |
|
£ million |
|
£ million |
|
£ million |
|
£ million |
|
£ million |
|
£ million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 July 2014 |
|
24,427 |
|
11,249 |
|
3,899 |
|
39,575 |
|
5,355 |
|
948 |
|
45,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the period |
|
– |
|
− |
|
747 |
|
747 |
|
– |
|
53 |
|
800 |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement defined benefit scheme remeasurements, net of tax |
|
– |
|
– |
|
1,018 |
|
1,018 |
|
– |
|
– |
|
1,018 |
Movements in revaluation reserve in respect of available-for-sale financial assets, net of tax |
|
– |
|
125 |
|
– |
|
125 |
|
– |
|
– |
|
125 |
Movements in cash flow hedging reserve, net of tax |
|
– |
|
1,844 |
|
– |
|
1,844 |
|
– |
|
– |
|
1,844 |
Currency translation differences (tax: nil) |
|
– |
|
(2) |
|
– |
|
(2) |
|
– |
|
– |
|
(2) |
Total other comprehensive income |
|
– |
|
1,967 |
|
1,018 |
|
2,985 |
|
– |
|
– |
|
2,985 |
Total comprehensive income |
|
– |
|
1,967 |
|
1,765 |
|
3,732 |
|
– |
|
53 |
|
3,785 |
Transactions with owners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
|
– |
|
− |
|
− |
|
− |
|
– |
|
(19) |
|
(19) |
Distributions on other equity instruments, net of tax |
|
– |
|
– |
|
(154) |
|
(154) |
|
– |
|
– |
|
(154) |
Issue of other equity instruments |
|
– |
|
– |
|
5 |
|
5 |
|
– |
|
– |
|
5 |
Movement in treasury shares |
|
– |
|
– |
|
(23) |
|
(23) |
|
– |
|
– |
|
(23) |
Value of employee services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share option schemes |
|
– |
|
– |
|
102 |
|
102 |
|
– |
|
– |
|
102 |
Other employee award schemes |
|
– |
|
– |
|
134 |
|
134 |
|
– |
|
– |
|
134 |
Adjustment on sale of
non-controlling interest in TSB |
|
|
|
|
|
(36) |
|
(36) |
|
– |
|
240 |
|
204 |
Other changes in
non-controlling interests |
|
– |
|
–
|
|
– |
|
– |
|
– |
|
(9) |
|
(9) |
Total transactions with owners |
|
− |
|
– |
|
28 |
|
28 |
|
– |
|
212 |
|
240 |
Balance at 31 December 2014 |
|
24,427 |
|
13,216 |
|
5,692 |
|
43,335 |
|
5,355 |
|
1,213 |
|
49,903 |
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (UNAUDITED) (continued)
CONSOLIDATED CASH FLOW STATEMENT
|
|
Half-year to
30 June
2015 |
|
Half-year to
30 June
2014 |
|
Half-year to
31 Dec
2014 |
|
|
£ million |
|
£ million |
|
£ million |
|
|
|
|
|
|
|
Profit before tax |
|
1,193 |
|
863 |
|
899 |
Adjustments for: |
|
|
|
|
|
|
Change in operating assets |
|
26,512 |
|
1,932 |
|
(2,804) |
Change in operating liabilities |
|
81 |
|
3,172 |
|
8,820 |
Non-cash and other items |
|
(6,417) |
|
1,651 |
|
(4,147) |
Tax (paid) received |
|
(49) |
|
2 |
|
(35) |
Net cash provided by operating activities |
|
21,320 |
|
7,620 |
|
2,733 |
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
Purchase of financial assets |
|
(12,358) |
|
(7,363) |
|
(4,170) |
Proceeds from sale and maturity of financial assets |
|
14,838 |
|
1,685 |
|
2,983 |
Purchase of fixed assets |
|
(1,564) |
|
(1,651) |
|
(1,791) |
Proceeds from sale of fixed assets |
|
526 |
|
725 |
|
1,318 |
Acquisition of businesses, net of cash acquired |
|
− |
|
(1) |
|
− |
Disposal of businesses, net of cash disposed |
|
(4,282) |
|
536 |
|
7 |
Net cash used in investing activities |
|
(2,840) |
|
(6,069) |
|
(1,653) |
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
Dividends paid to ordinary shareholders |
|
(535) |
|
− |
|
− |
Distributions on other equity instruments |
|
(197) |
|
(91) |
|
(196) |
Dividends paid to non-controlling interests |
|
(10) |
|
(8) |
|
(19) |
Interest paid on subordinated liabilities |
|
(1,250) |
|
(1,416) |
|
(789) |
Proceeds from issue of subordinated liabilities |
|
− |
|
− |
|
629 |
Proceeds from issue of ordinary shares |
|
− |
|
3 |
|
− |
Repayment of subordinated liabilities |
|
(2,068) |
|
(1,240) |
|
(1,783) |
Changes in non-controlling interests |
|
1 |
|
440 |
|
195 |
Net cash used in financing activities |
|
(4,059) |
|
(2,312) |
|
(1,963) |
Effects of exchange rate changes on cash and cash equivalents |
|
(2) |
|
4 |
|
(10) |
Change in cash and cash equivalents |
|
14,419 |
|
(757) |
|
(893) |
Cash and cash equivalents at beginning of period |
|
65,147 |
|
66,797 |
|
66,040 |
Cash and cash equivalents at end of period |
|
79,566 |
|
66,040 |
|
65,147 |
Cash and cash equivalents comprise cash
and balances at central banks (excluding mandatory deposits) and amounts due from banks with a maturity of less than three months.
| 1. | Accounting policies, presentation and estimates |
These condensed consolidated half-year financial
statements as at and for the period to 30 June 2015 have been prepared in accordance with the Disclosure Rules and Transparency
Rules of the Financial Conduct Authority (FCA) and with International Accounting Standard 34 (IAS 34), Interim Financial Reporting
as issued by the International Accounting Standard Board and comprise the results of Lloyds Banking Group plc (the Company) together
with its subsidiaries (the Group). They do not include all of the information required for full annual financial statements and
should be read in conjunction with the Group’s consolidated financial statements as at and for the year ended 31 December
2014 which were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standard Board. Copies of the 2014 Annual Report and Accounts are available on the Group’s website and are available upon
request from Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V 7HN.
The British Bankers’ Association’s
Code for Financial Reporting Disclosure (the Disclosure Code) sets out disclosure principles together with supporting guidance
in respect of the financial statements of UK banks. The Group has adopted the Disclosure Code and these condensed consolidated
half-year financial statements have been prepared in compliance with the Disclosure Code’s principles. Terminology used in
these condensed consolidated half-year financial statements is consistent with that used in the Group’s 2014 Annual Report
and Accounts where a glossary of terms can be found.
The directors consider that it is appropriate
to continue to adopt the going concern basis in preparing the condensed consolidated half-year financial statements. In reaching
this assessment, the directors have considered projections for the Group’s capital and funding position and have had regard
to the factors set out in Principal risks and uncertainties: Funding and liquidity on page 23.
The accounting policies are consistent with
those applied by the Group in its 2014 Annual Report and Accounts.
During the half-year to 30 June 2015, government
debt securities with a carrying value of £19,938 million, previously classified as available-for-sale, were reclassified
to held-to-maturity. Unrealised gains on the transferred securities of £194 million previously taken to equity continue
to be held in the available-for-sale revaluation reserve and will be amortised to the income statement over the remaining lives
of the securities using the effective interest method or until the assets become impaired.
Future accounting developments
Details of those IFRS pronouncements which
will be relevant to the Group but which will not be effective at 31 December 2015 and which have not been applied in preparing
these financial statements are set out in note 19.
Critical accounting estimates and
judgements
The preparation of the Group’s financial
statements requires management to make judgements, estimates and assumptions that impact the application of accounting policies
and the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates, actual
results reported in future periods may include amounts which differ from those estimates. Estimates, judgements and assumptions
are continually evaluated and are based on historical experience and other factors, including expectations of future events that
are believed to be reasonable under the circumstances. There have been no significant changes in the basis upon which estimates
have been determined, compared to that applied at 31 December 2014.
Lloyds Banking Group provides a wide range
of banking and financial services in the UK and in certain locations overseas. The Group Executive Committee (GEC) remains the
chief operating decision maker for the Group.
The segmental results and comparatives are
presented on an underlying basis, the basis reviewed by the chief operating decision maker. The effects of asset sales, volatile
items, the insurance grossing adjustment, liability management, Simplification costs, TSB build and dual-running costs, the charge
relating to the TSB disposal, regulatory provisions, certain past service pension credits or charges, the amortisation of purchased
intangible assets and the unwind of acquisition-related fair value adjustments are excluded in arriving at underlying profit.
Following the announcement of the sale of
TSB to Banco Sabadell, the Group no longer considers TSB to be a separate financial reporting segment and as a consequence its
results are included in Other. The Group’s activities are organised into four financial reporting segments: Retail; Commercial
Banking; Consumer Finance and Insurance. There has been no change to the descriptions of these segments as provided in note 4 to
the Group’s financial statements for the year ended 31 December 2014.
There has been no change to the Group’s
segmental accounting for internal segment services or derivatives entered into by units for risk management purposes since 31 December
2014.
Half-year to 30 June 2015 |
|
Net
interest
income |
|
Other
income,
net of
insurance
claims |
Total
income,
net of
insurance
claims |
Profit
(loss)
before tax |
|
External
revenue |
|
Inter-
segment
revenue |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Underlying basis |
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
3,743 |
|
559 |
|
4,302 |
|
1,839 |
|
4,629 |
|
(327) |
Commercial Banking |
|
1,234 |
|
1,023 |
|
2,257 |
|
1,193 |
|
1,842 |
|
415 |
Consumer Finance |
|
658 |
|
677 |
|
1,335 |
|
539 |
|
1,462 |
|
(127) |
Insurance |
|
(73) |
|
1,025 |
|
952 |
|
584 |
|
1,241 |
|
(289) |
Other |
|
345 |
|
− |
|
345 |
|
228 |
|
17 |
|
328 |
Group |
|
5,907 |
|
3,284 |
|
9,191 |
|
4,383 |
|
9,191 |
|
− |
Reconciling items: |
|
|
|
|
|
|
|
|
|
|
|
|
Insurance grossing adjustment |
|
(241) |
|
287 |
|
46 |
|
− |
|
|
|
|
Asset sales, volatile items and liability management1 |
|
26 |
|
(384) |
|
(358) |
|
(355) |
|
|
|
|
Volatility relating to the insurance business |
|
− |
|
18 |
|
18 |
|
18 |
|
|
|
|
Simplification costs |
|
− |
|
− |
|
− |
|
(32) |
|
|
|
|
TSB build and dual-running costs |
|
− |
|
− |
|
− |
|
(85) |
|
|
|
|
Charge relating to the TSB disposal |
|
− |
|
5 |
|
5 |
|
(660) |
|
|
|
|
Payment protection
insurance provision |
|
− |
|
− |
|
− |
|
(1,400) |
|
|
|
|
Other conduct provisions |
|
− |
|
− |
|
− |
|
(435) |
|
|
|
|
Amortisation of purchased intangibles |
|
− |
|
− |
|
− |
|
(164) |
|
|
|
|
Fair value unwind |
|
(200) |
|
105 |
|
(95) |
|
(77) |
|
|
|
|
Group – statutory |
|
5,492 |
|
3,315 |
|
8,807 |
|
1,193 |
|
|
|
|
1 |
Comprises (i) losses on disposals of assets which are not part of normal business operations (£52 million); (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 (losses of £297 million); and (iii) the results of liability management exercises (losses of £6 million). |
2. Segmental
analysis (continued)
Half-year to 30 June 2014 |
|
Net
interest
income |
|
Other
income,
net of
insurance
claims |
Total
income,
net of
insurance
claims |
Profit
(loss)
before tax |
|
External
revenue |
|
Inter-
segment
revenue |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Underlying basis |
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
3,493 |
|
700 |
|
4,193 |
|
1,710 |
|
4,497 |
|
(304) |
Commercial Banking |
|
1,234 |
|
984 |
|
2,218 |
|
1,156 |
|
1,785 |
|
433 |
Consumer Finance |
|
645 |
|
675 |
|
1,320 |
|
534 |
|
1,377 |
|
(57) |
Insurance |
|
(64) |
|
854 |
|
790 |
|
461 |
|
859 |
|
(69) |
Other |
|
496 |
|
235 |
|
731 |
|
(42) |
|
734 |
|
(3) |
Group |
|
5,804 |
|
3,448 |
|
9,252 |
|
3,819 |
|
9,252 |
|
– |
Reconciling items: |
|
|
|
|
|
|
|
|
|
|
|
|
Insurance grossing adjustment |
|
(239) |
|
314 |
|
75 |
|
– |
|
|
|
|
Asset sales, volatile items and liability management1 |
|
10 |
|
(1,135) |
|
(1,125) |
|
(1,130) |
|
|
|
|
Volatility relating to the insurance business |
|
– |
|
(122) |
|
(122) |
|
(122) |
|
|
|
|
Simplification costs |
|
– |
|
– |
|
– |
|
(519) |
|
|
|
|
TSB build and dual-running costs |
|
– |
|
– |
|
– |
|
(309) |
|
|
|
|
Payment protection insurance provision |
|
– |
|
– |
|
– |
|
(600) |
|
|
|
|
Other conduct 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 |
Comprises (i) gains or losses on disposals of assets which are not part of normal business operations (£94 million); (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 (gain of £152 million); and (iii) the results of liability management exercises (losses of £1,376 million). |
2 |
This represents the curtailment credit of £843 million following the Group’s decision to reduce the cap on pensionable pay (see note 3) partly offset by the cost of other changes to the pay, benefits and reward offered to employees. |
2. Segmental
analysis (continued)
Half-year to 31 December 2014 |
|
Net
interest
income |
|
Other
income,
net of
insurance
claims |
|
Total
income,
net of
insurance
claims |
Profit (loss)
before tax |
|
External
revenue |
|
Inter-
segment
revenue |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Underlying basis |
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
3,586 |
|
512 |
|
4,098 |
|
1,518 |
|
4,537 |
|
(439) |
Commercial Banking |
|
1,246 |
|
972 |
|
2,218 |
|
1,050 |
|
2,015 |
|
203 |
Consumer Finance |
|
645 |
|
689 |
|
1,334 |
|
476 |
|
1,426 |
|
(92) |
Insurance |
|
(67) |
|
871 |
|
804 |
|
461 |
|
347 |
|
457 |
Other |
|
547 |
|
115 |
|
662 |
|
432 |
|
791 |
|
(129) |
Group |
|
5,957 |
|
3,159 |
|
9,116 |
|
3,937 |
|
9,116 |
|
− |
Reconciling items: |
|
|
|
|
|
|
|
|
|
|
|
|
Insurance grossing adjustment |
|
(243) |
|
300 |
|
57 |
|
– |
|
|
|
|
Asset sales, volatile items and liability management1 |
|
(3) |
|
16 |
|
13 |
|
168 |
|
|
|
|
Volatility relating to the insurance business |
|
– |
|
(106) |
|
(106) |
|
(106) |
|
|
|
|
Simplification costs |
|
– |
|
(22) |
|
(22) |
|
(447) |
|
|
|
|
TSB build and dual-running costs |
|
– |
|
– |
|
– |
|
(249) |
|
|
|
|
Payment protection insurance provision |
|
– |
|
– |
|
– |
|
(1,600) |
|
|
|
|
Other conduct provisions |
|
– |
|
– |
|
– |
|
(425) |
|
|
|
|
Amortisation of purchased intangibles |
|
– |
|
– |
|
– |
|
(165) |
|
|
|
|
Fair value unwind |
|
(313) |
|
(42) |
|
(355) |
|
(214) |
|
|
|
|
Group – statutory |
|
5,398 |
|
3,305 |
|
8,703 |
|
899 |
|
|
|
|
1 |
Comprises (i) gains on disposals of assets which are not part of normal business operations (£44 million); (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 (gains of £134 million); and (iii) the results of liability management exercises (losses of £10 million). |
|
|
Segment external
assets
|
|
Segment customer
deposits
|
|
Segment external
liabilities
|
|
|
At
30 June
2015 |
|
At
31 Dec
2014 |
|
At
30 June
2015 |
|
At
31 Dec
2014 |
|
At
30 June
2015 |
|
At
31 Dec
2014 |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
315,088 |
|
317,246 |
|
278,231 |
|
285,539 |
|
286,376 |
|
295,880 |
Commercial Banking |
|
179,530 |
|
241,754 |
|
125,407 |
|
119,882 |
|
232,024 |
|
231,400 |
Consumer Finance |
|
26,514 |
|
25,646 |
|
11,423 |
|
14,955 |
|
16,502 |
|
18,581 |
Insurance |
|
150,899 |
|
150,615 |
|
− |
|
− |
|
144,915 |
|
144,921 |
Other |
|
150,801 |
|
119,635 |
|
1,534 |
|
26,691 |
|
94,974 |
|
114,211 |
Total Group |
|
822,832 |
|
854,896 |
|
416,595 |
|
447,067 |
|
774,791 |
|
804,993 |
|
|
Half-year to
30 June
2015 |
|
Half-year to
30 June
2014 |
|
Half-year to
31 Dec
2014 |
|
|
£m |
|
£m |
|
£m |
Administrative expenses |
|
|
|
|
|
|
Staff costs: |
|
|
|
|
|
|
Salaries and social security costs |
|
1,859 |
|
2,074 |
|
1,892 |
Pensions and other post-retirement benefit schemes1 |
|
278 |
|
(530) |
|
304 |
Restructuring and other staff costs |
|
273 |
|
513 |
|
492 |
|
|
2,410 |
|
2,057 |
|
2,688 |
Premises and equipment |
|
360 |
|
444 |
|
447 |
Other expenses: |
|
|
|
|
|
|
Communications and data processing |
|
436 |
|
595 |
|
523 |
UK bank levy |
|
− |
|
− |
|
237 |
TSB disposal (note 16) |
|
665 |
|
– |
|
– |
Other |
|
740 |
|
1,046 |
|
788 |
|
|
1,841 |
|
1,641 |
|
1,548 |
|
|
4,611 |
|
4,142 |
|
4,683 |
Depreciation and amortisation |
|
1,007 |
|
950 |
|
985 |
Total operating expenses, excluding regulatory provisions |
|
5,618 |
|
5,092 |
|
5,668 |
Regulatory provisions: |
|
|
|
|
|
|
Payment protection insurance provision (note 12) |
|
1,400 |
|
600 |
|
1,600 |
Other regulatory provisions (note 12) |
|
435 |
|
500 |
|
425 |
|
|
1,835 |
|
1,100 |
|
2,025 |
Total operating expenses |
|
7,453 |
|
6,192 |
|
7,693 |
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 in the half-year to 30 June 2014, partly offset by a charge of £21 million following changes to pension arrangements for staff within the TSB business. |
|
|
|
|
|
|
Half-year to
30 June
2015 |
|
Half-year to
30 June
2014 |
|
Half-year to
31 Dec
2014 |
|
|
£m |
|
£m |
|
£m |
Impairment losses on loans and receivables: |
|
|
|
|
|
|
Loans and advances to customers |
|
181 |
|
639 |
|
96 |
Debt securities classified as loans and receivables |
|
(2) |
|
− |
|
2 |
Impairment losses on loans and receivables |
|
179 |
|
639 |
|
98 |
Impairment of available-for-sale financial assets |
|
− |
|
2 |
|
3 |
Other credit risk provisions |
|
(18) |
|
− |
|
10 |
Total impairment charged to the income statement |
|
161 |
|
641 |
|
111 |
A reconciliation of the tax charge that
would result from applying the standard UK corporation tax rate to the profit before tax, to the actual tax charge, is given below:
|
|
Half-year to
30 June
2015 |
|
Half-year to
30 June
2014 |
|
Half-year to
31 Dec
2014 |
|
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
Profit before tax |
|
1,193 |
|
863 |
|
899 |
|
|
|
|
|
|
|
Tax charge thereon at UK corporation tax rate of 20.25 per cent
(2014: 21.5 per cent) |
|
(242) |
|
(186) |
|
(193) |
Factors affecting tax charge: |
|
|
|
|
|
|
UK corporation tax rate change and related impacts |
|
7 |
|
− |
|
(24) |
Disallowed items |
|
(99) |
|
(113) |
|
(82) |
Non-taxable items |
|
46 |
|
58 |
|
95 |
Overseas tax rate differences |
|
(8) |
|
(17) |
|
(7) |
Gains exempted or covered by capital losses |
|
47 |
|
147 |
|
34 |
Policyholder tax |
|
(39) |
|
(23) |
|
9 |
Adjustments in respect of previous years |
|
21 |
|
(19) |
|
53 |
Effect of results of joint ventures and associates |
|
− |
|
(3) |
|
10 |
Other items |
|
(1) |
|
(8) |
|
6 |
Tax charge |
|
(268) |
|
(164) |
|
(99) |
In accordance with IAS 34, the Group’s
income tax expense for the half-year to 30 June 2015 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.
On 8 July 2015, the Government announced
that the corporation tax rate applicable from 1 April 2017 would be 19 per cent and from 1 April 2020 would be 18 per cent. In
addition, the Government announced that from 1 January 2016 banking profits will be subject to an additional tax surcharge of 8
per cent. The proposed reductions in the rate of corporation tax and the introduction of the banking surcharge are expected to
be enacted, and the impact accounted for, in the second half of 2015.
|
|
Half-year to
30 June
2015 |
|
Half-year to
30 June
2014 |
|
Half-year to
31 Dec
2014 |
|
|
£m |
|
£m |
|
£m |
Basic |
|
|
|
|
|
|
Profit attributable to ordinary shareholders |
|
677 |
|
574 |
|
551 |
Tax credit on distributions to other equity holders |
|
40 |
|
20 |
|
42 |
|
|
717 |
|
594 |
|
593 |
|
|
|
|
|
|
|
Weighted average number of ordinary shares in issue |
|
71,349m |
|
71,350m |
|
71,350m |
Earnings per share |
|
1.0p |
|
0.8p |
|
0.8p |
|
|
|
|
|
|
|
Fully diluted |
|
|
|
|
|
|
Profit attributable to ordinary shareholders |
|
677 |
|
574 |
|
551 |
Tax credit on distributions to other equity holders |
|
40 |
|
20 |
|
42 |
|
|
717 |
|
594 |
|
593 |
|
|
|
|
|
|
|
Weighted average number of ordinary shares in issue |
|
72,463m |
|
72,399m |
|
72,494m |
Earnings per share |
|
1.0p |
|
0.8p |
|
0.8p |
7. Trading and other financial assets
at fair value through profit or loss
|
|
At
30 June
2015 |
|
At
31 Dec
2014 |
|
|
£m |
|
£m |
|
|
|
|
|
Trading assets |
|
43,419 |
|
48,494 |
|
|
|
|
|
Other financial assets at fair value through profit or loss: |
|
|
|
|
Treasury and other bills |
|
22 |
|
22 |
Debt securities |
|
40,520 |
|
41,839 |
Equity shares |
|
63,888 |
|
61,576 |
|
|
104,430 |
|
103,437 |
Total trading and other financial assets at fair value through profit or loss |
|
147,849 |
|
151,931 |
Included in the above is £95,201 million
(31 December 2014: £94,314 million) of assets relating to the insurance businesses.
| 8. | Derivative financial instruments |
|
|
30 June 2015 |
|
31 December 2014 |
|
|
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 |
|
1,662 |
|
763 |
|
2,472 |
|
962 |
Derivatives designated as cash flow hedges |
|
1,070 |
|
1,814 |
|
1,761 |
|
2,654 |
|
|
2,732 |
|
2,577 |
|
4,233 |
|
3,616 |
Trading and other |
|
|
|
|
|
|
|
|
Exchange rate contracts |
|
6,586 |
|
8,020 |
|
7,034 |
|
6,950 |
Interest rate contracts |
|
16,784 |
|
15,527 |
|
22,506 |
|
20,374 |
Credit derivatives |
|
254 |
|
468 |
|
279 |
|
1,066 |
Embedded equity conversion feature |
|
256 |
|
– |
|
646 |
|
− |
Equity and other contracts |
|
1,368 |
|
1,186 |
|
1,430 |
|
1,181 |
|
|
25,248 |
|
25,201 |
|
31,895 |
|
29,571 |
Total recognised derivative assets/liabilities |
|
27,980 |
|
27,778 |
|
36,128 |
|
33,187 |
The embedded equity conversion feature
of £256 million (31 December 2014: £646 million) reflects the value of the equity conversion
feature contained in the Enhanced Capital Notes issued by the Group in 2009; a loss of £390 million arose from the
change in fair value in the half-year to 30 June 2015 (half-year to 30 June 2014: gain of £226 million; half-year
to 31 December 2014: gain of £175 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, was
derecognised on completion of those transactions in the half-year to 30 June 2014.
| 9. | Loans and advances to customers |
|
|
At
30 June
2015 |
|
At
31 Dec
2014 |
|
|
£m |
|
£m |
|
|
|
|
|
Agriculture, forestry and fishing |
|
7,092 |
|
6,586 |
Energy and water supply |
|
3,690 |
|
3,853 |
Manufacturing |
|
6,400 |
|
6,000 |
Construction |
|
5,303 |
|
6,425 |
Transport, distribution and hotels |
|
14,283 |
|
15,112 |
Postal and communications |
|
3,037 |
|
2,624 |
Property companies |
|
36,253 |
|
36,682 |
Financial, business and other services |
|
38,729 |
|
44,979 |
Personal: |
|
|
|
|
Mortgages |
|
311,031 |
|
333,318 |
Other |
|
20,603 |
|
23,123 |
Lease financing |
|
2,797 |
|
3,013 |
Hire purchase |
|
8,559 |
|
7,403 |
|
|
457,777 |
|
489,118 |
Allowance for impairment losses on loans and advances |
|
(5,350) |
|
(6,414) |
Total loans and advances to customers |
|
452,427 |
|
482,704 |
Loans and advances to customers include
advances securitised under the Group's securitisation and covered bond programmes.
| 10. | Debt securities in issue |
|
30 June 2015 |
|
31 December 2014 |
|
At fair value through
profit or loss |
At
amortised
cost |
|
Total |
At fair value
through
profit or
loss |
|
At
amortised
cost |
|
Total |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium-term notes issued |
|
7,393 |
|
26,262 |
|
33,655 |
|
6,739 |
|
22,728 |
|
29,467 |
Covered bonds |
|
− |
|
25,500 |
|
25,500 |
|
− |
|
27,191 |
|
27,191 |
Certificates of deposit |
|
− |
|
9,313 |
|
9,313 |
|
− |
|
7,033 |
|
7,033 |
Securitisation notes |
|
− |
|
10,842 |
|
10,842 |
|
− |
|
11,908 |
|
11,908 |
Commercial paper |
|
− |
|
5,859 |
|
5,859 |
|
− |
|
7,373 |
|
7,373 |
|
|
7,393 |
|
77,776 |
|
85,169 |
|
6,739 |
|
76,233 |
|
82,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notes issued by the Group’s securitisation
and covered bond programmes are held by external parties and by subsidiaries of the Group.
Securitisation programmes
At 30 June 2015, external parties held £10,842 million
(31 December 2014: £11,908 million) and the Group’s subsidiaries held £27,707 million (31 December
2014: £38,149 million) of total securitisation notes in issue of £38,549 million (31 December 2014:
£50,057 million). The notes are secured on loans and advances to customers and debt securities classified as loans and
receivables amounting to £62,853 million (31 December 2014: £75,970 million), the majority of which
have been sold by subsidiary companies to bankruptcy remote structured entities. The structured entities are consolidated fully
and all of these loans are retained on the Group's balance sheet.
| 10. | Debt securities in issue (continued) |
Covered bond programmes
At 30 June 2015, external parties held £25,500 million
(31 December 2014: £27,191 million) and the Group’s subsidiaries held £4,970 million (31 December
2014: £6,339 million) of total covered bonds in issue of £30,470 million (31 December 2014: £33,530 million).
The bonds are secured on certain loans and advances to customers that have been assigned to bankruptcy remote limited liability
partnerships. These loans are retained on the Group's balance sheet.
Cash deposits of £9,210 million
(31 December 2014: £11,251 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.
| 11. | Post-retirement defined benefit schemes |
The Group’s
post-retirement defined benefit scheme obligations are comprised as follows:
|
|
At
30 June
2015 |
|
At
31 Dec
2014 |
|
|
£m |
|
£m |
|
|
|
|
|
Defined benefit pension schemes: |
|
|
|
|
- Fair value of scheme assets |
|
38,041 |
|
38,133 |
- Present value of funded obligations |
|
(37,399) |
|
(37,243) |
Net pension scheme asset |
|
642 |
|
890 |
Other post-retirement schemes |
|
(201) |
|
(196) |
Net retirement benefit asset |
|
441 |
|
694 |
Recognised on the balance sheet as: |
|
|
|
|
Retirement benefit assets |
|
908 |
|
1,147 |
Retirement benefit obligations |
|
(467) |
|
(453) |
Net retirement benefit asset |
|
441 |
|
694 |
The movement in the Group’s net post-retirement
defined benefit scheme asset during the period was as follows:
|
|
£m |
|
|
|
At 1 January 2015 |
|
694 |
Income statement charge |
|
(154) |
Employer contributions |
|
203 |
Remeasurement |
|
(302) |
At 30 June 2015 |
|
441 |
The principal assumptions used in the valuations
of the defined benefit pension scheme were as follows:
|
|
At
30 June
2015 |
|
At
31 Dec
2014 |
|
|
% |
|
% |
|
|
|
|
|
Discount rate |
|
3.80 |
|
3.67 |
Rate of inflation: |
|
|
|
|
Retail Prices Index |
|
3.14 |
|
2.95 |
Consumer Price Index |
|
2.14 |
|
1.95 |
Rate of salary increases |
|
0.00 |
|
0.00 |
Weighted-average rate of increase for pensions in payment |
|
2.69 |
|
2.59 |
| 11. | Post-retirement defined benefit schemes (continued) |
The application of the revised assumptions
as at 30 June 2015 to the Group’s principal post-retirement defined benefit schemes has resulted in a remeasurement loss
of £302 million which has been recognised in other comprehensive income, net of deferred tax of £60 million.
| 12. | Provisions for liabilities and charges |
Payment protection insurance
The Group made provisions totalling £12,025
million to 31 December 2014 against the costs of paying redress to customers in respect of past sales of PPI policies, including
the related administrative expenses.
The Group has increased the provision by
a further £1,400 million which brings the total amount provided to £13,425 million, of which, at 30 June 2015,
£2,237 million remained unutilised (17 per cent of total provision). The remaining provision covers the Past Business
Review (PBR), remediation activity and future reactive complaints including associated administration expenses.
The main drivers of the provision are as
follows:
Proactive mailing resulting from Past
Business Reviews (PBR)
The Group has mailed 98 per cent of
the total PBR scope, with the remaining mailings scheduled for completion in the second half of 2015. The Group is confident that
the scope of proactive mailing is final, albeit monitoring continues, and there has consequently been no change to the amount provided.
Remediation
The Group continues to progress the re-review
of previously handled cases. Approximately 1.2 million cases were included within the scope of remediation at 31 December 2014
covering both previously defended and previously redressed complaints for re-review. The Group has completed the review of approximately
96 per cent of all complaints previously defended, which were prioritised given their complexity and the level of potential redress
required, with some residual payments expected in the second half of 2015. During the half-year, the scope was extended by 0.2
million to 1.4 million cases. The remaining scope is expected to be substantially complete by the end of the year. The change in
scope, together with higher overturn rates and average redress, has resulted in an additional provision of approximately £400
million.
Volumes of reactive complaints (after
excluding complaints from customers where no PPI policy was held)
At 31 December 2014, the provision assumed
a total of 3.6 million complaints would be received. During the first half of 2015 complaint volumes were 8 per cent lower than
over the same period of 2014 and 2 per cent lower than the second half of 2014. The run rate of complaints in the first half of
2015 was, however, marginally higher than the fourth quarter 2014 run-rate and above expectations. Complaint volumes continue to
be largely driven by Claims Management Company (CMC) activity. As a result, the Group has increased the total expected complaint
volumes to 3.9 million with approximately 0.7 million still to be received. Coupled with higher than expected average redress and
the additional associated administration costs, this has resulted in a further provision of approximately £1,000 million.
| 12. | Provisions for liabilities and charges (continued) |
Quarter |
Average monthly
reactive complaint
volume |
Quarter on
quarter % |
|
Q1 2013 |
61,259 |
(28%) |
|
Q2 2013 |
54,086 |
(12%) |
|
Q3 2013 |
49,555 |
(8%) |
|
Q4 2013 |
37,457 |
(24%) |
|
Q1 2014 |
42,259 |
13% |
|
Q2 2014 |
39,426 |
(7%) |
|
Q3 2014 |
40,624 |
3% |
|
Q4 2014 |
35,910 |
(12%) |
During the second quarter of 2015 the Group has seen a fall of approximately 2 per cent in complaint levels. However, the provision remains sensitive to future trends. |
Q1 2015 |
37,791 |
5% |
Q2 2015 |
36,957 |
(2%) |
Average redress
Average redress has trended higher than
expected by approximately £200 per policy due to a change in the product and age mix of complaints.
Expenses
The Group expects to maintain the PPI operation
on its current scale for longer than previously anticipated given the update to volume related assumptions and the re-review of
previously handled cases continuing into the second half of 2015. The estimate for administrative expenses, which comprise complaint
handling costs and costs arising from cases subsequently referred to the FOS, is included in the provision increase outlined above.
Sensitivities
The Group estimates that it has sold approximately
16 million policies since 2000. These include policies that were not mis-sold as they were suitable for, and appropriately disclosed
to, the customer. Since the commencement of the PPI redress programme in 2011 the Group estimates that it has contacted, settled
or provided for in excess of 45 per cent of the policies sold since 2000, covering both customer-initiated complaints
and actual and expected proactive mailings undertaken by the Group.
The cash payments in the first half of 2015
were approximately £1.7 billion covering PBR, remediation and reactive complaints and associated administration costs. The
PBR and remediation programmes are expected to be substantially complete by the end of this year, slightly later than envisaged.
The monthly run-rate spend of these programmes is expected to reduce significantly from the current level of around £140
million to around £30 million by the end of the year with an associated reduction in operating costs.
The total amount provided for PPI represents
the Group’s best estimate of the likely future costs. A number of risks and uncertainties remain, in particular with respect
to future complaint volumes, which are primarily driven by the level of CMC initiated complaints. The current provision assumes
a significant decrease in reactive complaint volumes over the next 18 months compared with recent quarterly trends. If this decline
is delayed by six months and reactive complaints remain at the same level as the first half of 2015, this would lead to an additional
provision of approximately £1.0 billion at the end of the year; a similar level of provisioning would be required for
each six months of flat complaint volumes in 2016.
| 12. | Provisions for liabilities and charges (continued) |
Key metrics and sensitivities are highlighted
in the table below:
Sensitivities1 |
To date unless noted |
Future |
Sensitivity |
|
|
|
|
Reactive complaints since origination (m)2 |
3.2 |
0.7 |
0.1 = £240m |
Proactive mailing: |
|
|
|
– number of policies (m)3
|
2.7 |
0.1 |
n/a |
– response rate4 |
34% |
30% |
1% = £3m |
Average uphold rate per policy5 |
78% |
75% |
1% = £12m |
Average redress per upheld policy6 |
£1,935 |
£2,000 |
£100 = £90m |
Remediation cases (m) 7 |
0.7 |
0.7 |
1 case = £400 |
Administrative expenses (£m) |
2,420 |
400 |
1 case = £500 |
1 |
All sensitivities exclude claims where no PPI policy was held. |
2 |
Sensitivity includes complaint handling costs, and have increased as a result of higher average redress and a shift towards older policies. |
3 |
To date volume includes customer initiated complaints. |
4 |
Metric relates to mature mailings only. Future response rates are expected to be lower than experienced to date as mailings to higher risk customers have been prioritised. |
5 |
The percentage of complaints where the Group finds in favour of the customer. This is a blend of proactive and customer initiated complaints. The 78 per cent uphold rate is based on six months to June 2015. The lower uphold rate in the future reflects a lower proportion of PBR related cases which typically have a higher uphold rate, reflecting the higher risk nature of those policy sales. |
6 |
The amount that is paid in redress in relation to a policy found to have been mis-sold, comprising, where applicable, the refund of premium, compound interest charged and interest at 8 per cent per annum. Actuals are based on the six months to June 2015. The increase in future average redress is influenced by a shift in the reactive complaint mix towards older, and therefore more expensive, policies. |
7 |
Remediation to date is based on cases reviewed as at 30 June 2015, but not necessarily settled. The sensitivity is based on the expected future average cost of a remediation case. It is an average of full payments, top-up payments and nil payouts where the original decision is retained. It is lower than experienced to date as future remediation largely comprises top-up payments on previously redressed cases. |
Other regulatory provisions
Litigation in relation to insurance branch
business in Germany
Clerical Medical Investment Group Limited
(CMIG) has received a number of claims in the German courts relating to policies issued by CMIG but sold by independent intermediaries
in Germany, principally during the late 1990s and early 2000s. Following decisions in July 2012 from the Federal Court of Justice
in Germany the Group recognised provisions totalling £520 million during the period to 31 December 2014. Recent experience
has been broadly in line with expectations and, accordingly, no further provision has been recognised in the half-year to 30 June
2015. The remaining unutilised provision as at 30 June 2015 is £137 million.
The validity of the claims facing CMIG depends
upon the facts and circumstances in respect of each claim. As a result the ultimate financial effect, which could be significantly
different from the current provision, will only be known once all relevant claims have been resolved.
Interest rate hedging products
In June 2012, a number of banks, including
the Group, reached agreement with the FSA (now FCA) to carry out a review of sales made since 1 December 2001 of interest rate
hedging products (IRHP) to certain small and medium-sized businesses. As at 30 June 2015 the Group had identified 1,723 sales
of IRHPs to customers within scope of the agreement with the FCA which have opted in and are being reviewed and, where appropriate,
redressed. The Group agreed that it would provide redress to any in-scope customers where appropriate. The Group continues to review
the remaining cases within the scope of the agreement with the FCA and has met all of the regulator’s requirements to date.
At 30 June 2015, the total amount provided
for redress and related administration costs for in-scope customers was £680 million (31 December 2014: £680 million).
As at 30 June 2015, the Group has utilised £617 million (31 December 2014: £571 million), with £63 million
(31 December 2014: £109 million) of the provision remaining.
| 12. | Provisions for liabilities and charges (continued) |
FCA review of complaint handling
On 5 June 2015 the FCA announced a settlement
with the Group totalling £117 million following its investigation into aspects of the Group’s PPI complaint handling
process during the period March 2012 to May 2013. The FCA did not find that the Group acted deliberately. The Group has reviewed
all customer complaints fully defended during the Relevant Period. The remediation costs of reviewing these affected cases are
not materially in excess of existing provisions.
Other legal actions and regulatory matters
In the course of its business, the Group
is engaged in discussions with the PRA, FCA and other UK and overseas regulators and other governmental authorities on a range
of matters. The Group also receives complaints and claims from customers in connection with its past conduct and, where significant,
provisions are held against the costs expected to be incurred as a result of the conclusions reached. During the half-year to 30
June 2015, the Group charged an additional £318 million (half-year to 30 June 2014: £225 million) in respect
of a number of matters affecting the Retail, Commercial Banking and Consumer Finance divisions. This includes a provision of £175 million
for customer redress and associated administration costs in response to complaints concerning Packaged Bank Accounts. At 30 June
2015, provisions for other legal actions and regulatory matters of £732 million remained unutilised.
| 13. | Contingent liabilities and commitments |
Interchange fees
With respect to interchange fees, the Group
is following closely the course of investigations, litigation and recent regulation (as described below) which involve card schemes
such as Visa and MasterCard. The Group is not directly involved in these matters but is a member of certain card schemes, in particular,
Visa and MasterCard. The matters referred to above include the following:
| · | A new European Regulation to regulate cross-border and domestic fallback multilateral interchange
fees (MIFs) in the EU. This regulation came into force on 8 June 2015 and it will introduce interchange fee caps for credit card
MIFs (to 30 bps) and debit card MIFs (to 20bps). The interchange fee caps come in to force on 9 December 2015; |
| · | The European Commission also continues to pursue other competition investigations into MasterCard
and Visa probing, amongst other things, interchange paid in respect of cards issued outside the EEA; |
| · | Litigation continues in the English High Court against both Visa and MasterCard. This litigation
has been brought by several retailers who are seeking damages for allegedly ‘overpaid’ MIFs; |
| · | The new UK payments regulator may exercise its powers to regulate domestic interchange fees. In
addition, the FCA has undertaken a market study in relation to the UK credit cards market. |
The ultimate impact on the Group of the
above investigations, regulatory or legislative developments and the litigation against VISA and MasterCard can only be known at
the conclusion of these matters.
LIBOR and other trading rates
In July 2014, the Group announced that it
had reached settlements totalling £217 million (at 30 June 2014 exchange rates) to resolve with UK and US federal
authorities legacy issues regarding the manipulation several years ago of Group companies’ submissions to the British Bankers’
Association (BBA) London Interbank Offered Rate (LIBOR) and Sterling Repo Rate. The Group continues to cooperate with various other
government and regulatory authorities, including the Serious Fraud Office, the Swiss Competition Commission, and a number of US
State Attorneys General, in conjunction with their investigations into submissions made by panel members to the bodies that set
LIBOR and various other interbank offered rates.
| 13. | Contingent liabilities and commitments (continued) |
Certain Group companies, together with other
panel banks, have also been named as defendants in private lawsuits, including purported class action suits, in the US in connection
with their roles as panel banks contributing to the setting of US Dollar, Japanese Yen and Sterling LIBOR. The lawsuits, which
contain broadly similar allegations, allege violations of the Sherman Antitrust Act, the Racketeer Influenced and Corrupt Organizations
Act (RICO) and the Commodity Exchange Act (CEA), as well as various state statutes and common law doctrines. Certain of the plaintiffs’
claims, including those asserted under US anti-trust laws, have been dismissed by the US Federal Court for Southern District of
New York (the District Court). That court’s dismissal of plaintiffs’ anti-trust claims has been appealed to the New
York Federal Court of Appeal.
Certain Group Companies are also named as
defendants in UK based claims raising LIBOR manipulation allegations in connection with interest rate hedging products.
The Group also reviewed its activities in
relation to the setting of certain foreign exchange daily benchmark rates and related matters. The Group has been co-operating
with the FCA and other regulators and has been providing information about the Group’s review to those regulators. In addition,
the Group, together with a number of other banks, was named as a defendant in several actions filed in the District Court between
late 2013 and February 2014, in which the plaintiffs alleged that the defendants manipulated WM/Reuters foreign exchange rates
in violation of US antitrust laws. On 31 March 2014, plaintiffs effectively withdrew their claims against the Group (but not
against all defendants) by filing a superseding consolidated and amended pleading against a number of other defendants without
naming any Group entity as a defendant.
It is currently not possible to predict
the scope and ultimate outcome on the Group of the various outstanding regulatory investigations not encompassed by the settlements,
any private lawsuits or any related challenges to the interpretation or validity of any of the Group’s contractual arrangements,
including their timing and scale.
UK shareholder litigation
In August 2014, the Group and a number of
former directors were named as defendants in a claim filed in the English High Court by a number of claimants who held shares in
Lloyds TSB Group plc (LTSB) prior to the acquisition of HBOS plc, alleging breaches of fiduciary and tortious duties in relation
to information provided to shareholders in connection with the acquisition and the recapitalisation of LTSB. The claim is at an
early stage and so it is currently not possible to determine the ultimate impact on the Group (if any), but it intends to defend
the claim vigorously.
Financial Services Compensation Scheme
The Financial Services Compensation Scheme
(FSCS) is the UK’s independent statutory compensation fund of last resort for customers of authorised financial services
firms and pays compensation if a firm is unable or likely to be unable to pay claims against it. The FSCS is funded by levies on
the authorised financial services industry. Each deposit-taking institution contributes towards the FSCS levies in proportion to
their share of total protected deposits on 31 December of the year preceding the scheme year, which runs from 1 April to 31 March.
Following
the default of a number of deposit takers in 2008, the FSCS borrowed funds from HM Treasury to meet the compensation costs for
customers of those firms. At 31 March 2015, the principal balance outstanding on these loans
was £15,797 million (31 March 2014: £16,591 million). Although the substantial majority of this loan will be repaid
from funds the FSCS receives from asset sales, surplus cash flow or other recoveries in relation to the assets of the firms that
defaulted, any shortfall will be funded by deposit-taking participants of the FSCS. The amount of future levies payable by the
Group depends on a number of factors including the amounts recovered by the FSCS from asset sales, the Group’s participation
in the deposit-taking market at 31 December, the level of protected deposits and the population of deposit-taking participants.
PRA/FCA report on HBOS
On 12 September 2012 the FSA announced that
it was starting work on a public interest report on HBOS. That report is now being produced as a joint PRA/FCA report but has not
yet been published.
| 13. | Contingent liabilities and commitments (continued) |
Tax authorities
The Group provides for potential tax liabilities
that may arise on the basis of the amounts expected to be paid to tax authorities. This includes open matters where Her Majesty's
Revenue and Customs (HMRC) adopt a different interpretation and application of tax law which might lead to additional tax. The
Group has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary, which
ceased trading on 31 December 2010. In the second half of 2013 HMRC informed the Group that their interpretation of the UK rules,
permitting the offset of such losses, denies the claim; if HMRC’s position is found to be correct management estimate that
this would result in an increase in current tax liabilities of approximately £600 million and a reduction in the Group’s
deferred tax asset of approximately £400 million. The Group does not agree with HMRC's position and, having taken appropriate
advice, does not consider that this is a case where additional tax will ultimately fall due.
Residential mortgage repossessions
In August 2014, the Northern Ireland High
Court handed down judgment in favour of the borrowers in relation to three residential mortgage test cases, concerning certain
aspects of the Group’s practice with respect to the recalculation of contractual monthly instalments of customers in arrears. The
Group is reviewing the issues raised by the judgment and will respond as appropriate to any investigations or proceedings that
may in due course be instigated as a result of these issues.
Plevin v Paragon Personal Finance
Limited
On 27 May 2015 the FCA gave an update on
its announcement from January 2015 that it would be collecting evidence on current trends in PPI complaints to assess whether the
current approach to PPI complaint handling is continuing to meet its objectives. The FCA stated that it expects to give its view
in the summer. In that announcement the FCA also noted that in November 2014 the Supreme Court had ruled in Plevin v Paragon
Personal Finance Limited [2014] UKSC 6 (Plevin) that the lender’s failure to disclose a large commission payment
on a single premium PPI policy made the relationship between that lender and the borrower unfair under section 140A of the Consumer
Credit Act 1974. The FCA is considering whether additional rules and/or guidance are required to deal with the potential impact
of the Plevin decision on complaints about PPI and indicated that it expects to announce its views on this aspect, including
next steps, in its announcement in the summer. The Financial Ombudsman Service are also considering the implications for PPI complaints.
Given the current uncertainty, it is not presently possible to estimate the financial impact of the Plevin decision and
accordingly no additional provision has been established at this stage, but it is possible that the impact could be material.
Other legal actions and regulatory
matters
In addition, during the ordinary course
of business the Group is subject to other complaints and threatened or actual legal proceedings (including class or group action
claims) brought by or on behalf of employees, customers, investors or other third parties, as well as regulatory reviews, challenges,
investigations and enforcement actions, both in the UK and overseas. All such material matters are periodically reassessed, with
the assistance of external professional advisers where appropriate, to determine the likelihood of the Group incurring a liability.
In those instances where it is concluded that it is more likely than not that a payment will be made, a provision is established
to management's best estimate of the amount required at the relevant balance sheet date. In some cases it will not be possible
to form a view, for example because the facts are unclear or because further time is needed properly to assess the merits of the
case, and no provisions are held in relation to such matters. However the Group does not currently expect the final outcome of
any such case to have a material adverse effect on its financial position, operations or cash flows.
| 13. | Contingent liabilities and commitments (continued) |
Contingent liabilities and commitments
arising from the banking business
|
|
At
30 June
2015 |
|
At
31 Dec
2014 |
|
|
£m |
|
£m |
Contingent liabilities |
|
|
|
|
Acceptances and endorsements |
|
130 |
|
59 |
Other: |
|
|
|
|
Other items serving as direct credit substitutes |
|
405 |
|
330 |
Performance bonds and other transaction-related contingencies |
|
2,034 |
|
2,293 |
|
|
2,439 |
|
2,623 |
Total contingent liabilities |
|
2,569 |
|
2,682 |
|
|
|
|
|
Commitments |
|
|
|
|
Documentary credits and other short-term trade-related transactions |
|
42 |
|
101 |
Forward asset purchases and forward deposits placed |
|
428 |
|
162 |
|
|
|
|
|
Undrawn formal standby facilities, credit lines and other commitments to lend: |
|
|
|
|
Less than 1 year original maturity: |
|
|
|
|
Mortgage offers made |
|
10,463 |
|
8,809 |
Other commitments |
|
59,901 |
|
64,015 |
|
|
70,364 |
|
72,824 |
1 year or over original maturity |
|
35,679 |
|
34,455 |
Total commitments |
|
106,513 |
|
107,542 |
Of the amounts shown above in respect of
undrawn formal standby facilities, credit lines and other commitments to lend, £55,027 million (31 December 2014:
£55,029 million) was irrevocable.
| 14. | Fair values of financial assets and liabilities |
The valuations of financial instruments
have been classified into three levels according to the quality and reliability of information used to determine those fair values.
Note 51 to the Group’s 2014 financial statements describes the definitions of the three levels in the fair value hierarchy.
Valuation control framework
Key elements of the valuation control framework,
which covers processes for all levels in the fair value hierarchy including level 3 portfolios, include model validation (incorporating
pre-trade and post-trade testing), product implementation review and independent price verification. Formal committees meet quarterly
to discuss and approve valuations in more judgemental areas.
Transfers into and out of level 3 portfolios
Transfers out of level 3 portfolios
arise when inputs that could have a significant impact on the instrument’s valuation become market observable; conversely,
transfers into the portfolios arise when consistent sources of data cease to be available.
Valuation methodology
For level 2 and level 3 portfolios, there
is no significant change to what was disclosed in the Group’s 2014 Annual Report and Accounts in respect of the valuation
methodology (techniques and inputs) applied to such portfolios.
The table below summarises the carrying
values of financial assets and liabilities presented on the Group’s balance sheet. The fair values presented in the table
are at a specific date and may be significantly different from the amounts which will actually be paid or received on the maturity
or settlement date.
|
|
30 June 2015 |
|
31 December 2014 |
|
|
Carrying
value |
|
Fair
value |
|
Carrying
value |
|
Fair
value |
|
|
£m |
|
£m |
|
£m |
|
£m |
Financial assets |
|
|
|
|
|
|
|
|
Trading and other financial assets at fair value through profit or loss |
|
147,849 |
|
147,849 |
|
151,931 |
|
151,931 |
Derivative financial instruments |
|
27,980 |
|
27,980 |
|
36,128 |
|
36,128 |
Loans and receivables: |
|
|
|
|
|
|
|
|
Loans and advances to banks |
|
23,548 |
|
23,892 |
|
26,155 |
|
26,031 |
Loans and advances to customers |
|
452,427 |
|
450,322 |
|
482,704 |
|
480,631 |
Debt securities |
|
1,569 |
|
1,491 |
|
1,213 |
|
1,100 |
Available-for-sale financial instruments |
|
32,173 |
|
32,173 |
|
56,493 |
|
56,493 |
Held-to-maturity investments |
|
19,960 |
|
19,785 |
|
− |
|
− |
Financial liabilities |
|
|
|
|
|
|
|
|
Deposits from banks |
|
16,966 |
|
16,978 |
|
10,887 |
|
10,902 |
Customer deposits |
|
416,595 |
|
416,933 |
|
447,067 |
|
450,038 |
Trading and other financial liabilities at fair value through profit or loss |
|
63,328 |
|
63,328 |
|
62,102 |
|
62,102 |
Derivative financial instruments |
|
27,778 |
|
27,778 |
|
33,187 |
|
33,187 |
Debt securities in issue |
|
77,776 |
|
80,400 |
|
76,233 |
|
80,244 |
Liabilities arising from non-participating investment contracts |
|
26,131 |
|
26,131 |
|
27,248 |
|
27,248 |
Financial guarantees |
|
44 |
|
44 |
|
51 |
|
51 |
Subordinated liabilities |
|
22,639 |
|
26,751 |
|
26,042 |
|
30,175 |
The carrying amount of the following financial
instruments is a reasonable approximation of fair value: cash and balances at central banks, items in the course of collection
from banks, items in course of transmission to banks and notes in circulation.
| 14. | Fair values of financial assets and liabilities
(continued) |
The Group manages valuation adjustments
for its derivative exposures on a net basis; the Group determines their fair values on the basis of their net exposures. In all
other cases, fair values of financial assets and liabilities measured at fair value are determined on the basis of their gross
exposures.
The following tables provide an analysis
of the financial assets and liabilities of the Group that are carried at fair value in the Group’s consolidated balance sheet,
grouped into levels 1 to 3 based on the degree to which the fair value is observable.
Financial
assets
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
£m |
|
£m |
|
£m |
|
£m |
At 30 June 2015 |
|
|
|
|
|
|
|
|
Trading and other financial assets at fair value
through profit or loss: |
|
|
|
|
|
|
|
|
Loans and advances to customers |
|
− |
|
26,601 |
|
− |
|
26,601 |
Loans and advances to banks |
|
− |
|
6,564 |
|
− |
|
6,564 |
Debt securities |
|
24,155 |
|
22,949 |
|
3,670 |
|
50,774 |
Equity shares |
|
62,071 |
|
337 |
|
1,480 |
|
63,888 |
Treasury and other bills |
|
22 |
|
− |
|
− |
|
22 |
Total trading and other financial assets at fair value through profit or loss |
|
86,248 |
|
56,451 |
|
5,150 |
|
147,849 |
Available-for-sale financial assets: |
|
|
|
|
|
|
|
|
Debt securities |
|
24,896 |
|
5,366 |
|
− |
|
30,262 |
Equity shares |
|
47 |
|
709 |
|
303 |
|
1,059 |
Treasury and other bills |
|
852 |
|
− |
|
− |
|
852 |
Total available-for-sale financial assets |
|
25,795 |
|
6,075 |
|
303 |
|
32,173 |
Derivative financial instruments |
|
51 |
|
25,696 |
|
2,233 |
|
27,980 |
Total financial assets carried at fair value |
|
112,094 |
|
88,222 |
|
7,686 |
|
208,002 |
|
|
|
|
|
|
|
|
|
At 31 December 2014 |
|
|
|
|
|
|
|
|
Trading and other financial assets at fair value
through profit or loss: |
|
|
|
|
|
|
|
|
Loans and advances to customers |
|
− |
|
28,513 |
|
− |
|
28,513 |
Loans and advances to banks |
|
− |
|
8,212 |
|
− |
|
8,212 |
Debt securities |
|
24,230 |
|
24,484 |
|
3,457 |
|
52,171 |
Equity shares |
|
59,607 |
|
322 |
|
1,647 |
|
61,576 |
Treasury and other bills |
|
1,459 |
|
− |
|
− |
|
1,459 |
Total trading and other financial assets at fair value through profit or loss |
|
85,296 |
|
61,531 |
|
5,104 |
|
151,931 |
Available-for-sale financial assets: |
|
|
|
|
|
|
|
|
Debt securities |
|
47,437 |
|
7,151 |
|
− |
|
54,588 |
Equity shares |
|
45 |
|
727 |
|
270 |
|
1,042 |
Treasury and other bills |
|
852 |
|
11 |
|
− |
|
863 |
Total available-for-sale financial assets |
|
48,334 |
|
7,889 |
|
270 |
|
56,493 |
Derivative financial instruments |
|
94 |
|
33,263 |
|
2,771 |
|
36,128 |
Total financial assets carried at fair value |
|
133,724 |
|
102,683 |
|
8,145 |
|
244,552 |
| 14. | Fair values of financial assets and liabilities
(continued) |
Financial liabilities
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
£m |
|
£m |
|
£m |
|
£m |
At 30 June 2015 |
|
|
|
|
|
|
|
|
Trading and other financial liabilities at fair value
through profit or loss: |
|
|
|
|
|
|
|
|
Liabilities held at fair value through profit or loss |
|
− |
|
7,393 |
|
1 |
|
7,394 |
Trading liabilities |
|
3,592 |
|
52,342 |
|
− |
|
55,934 |
Total trading and other financial liabilities at fair value through profit or loss |
|
3,592 |
|
59,735 |
|
1 |
|
63,328 |
Derivative financial instruments |
|
108 |
|
26,337 |
|
1,333 |
|
27,778 |
Financial guarantees |
|
− |
|
− |
|
44 |
|
44 |
Total financial liabilities carried at fair value |
|
3,700 |
|
86,072 |
|
1,378 |
|
91,150 |
|
|
|
|
|
|
|
|
|
At 31 December 2014 |
|
|
|
|
|
|
|
|
Trading and other financial liabilities at fair value
through profit or loss: |
|
|
|
|
|
|
|
|
Liabilities held at fair value through profit or loss |
|
− |
|
6,739 |
|
5 |
|
6,744 |
Trading liabilities |
|
2,700 |
|
52,658 |
|
− |
|
55,358 |
Total trading and other financial liabilities at fair value through profit or loss |
|
2,700 |
|
59,397 |
|
5 |
|
62,102 |
Derivative financial instruments |
|
68 |
|
31,663 |
|
1,456 |
|
33,187 |
Financial guarantees |
|
− |
|
− |
|
51 |
|
51 |
Total financial liabilities carried at fair value |
|
2,768 |
|
91,060 |
|
1,512 |
|
95,340 |
| 14. | Fair values of financial assets and liabilities (continued) |
Movements in level 3 portfolio
The tables below analyse movements in the
level 3 financial assets portfolio.
|
Trading
and other
financial
assets at fair
value through
profit or loss |
|
Available-
for-sale
financial
assets |
|
Derivative
assets |
|
Total
financial
assets
carried at
fair value |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
At 1 January 2015 |
|
5,104 |
|
270 |
|
2,771 |
|
8,145 |
Exchange and other adjustments |
|
(1) |
|
− |
|
(44) |
|
(45) |
Losses recognised in the income statement within other income |
|
(61) |
|
− |
|
(534) |
|
(595) |
Gains recognised in other comprehensive income within the revaluation reserve in respect of available-for-sale financial assets |
|
− |
|
1 |
|
− |
|
1 |
Purchases |
|
785 |
|
38 |
|
182 |
|
1,005 |
Sales |
|
(649) |
|
(6) |
|
(105) |
|
(760) |
Transfers into the level 3 portfolio |
|
20 |
|
− |
|
− |
|
20 |
Transfers out of the level 3 portfolio |
|
(48) |
|
− |
|
(37) |
|
(85) |
At 30 June 2015 |
|
5,150 |
|
303 |
|
2,233 |
|
7,686 |
Losses recognised in the income statement within other income relating to those assets held at 30 June 2015 |
|
(39) |
|
− |
|
(533) |
|
(572) |
|
|
|
|
|
|
|
|
|
|
Trading
and other
financial
assets at fair
value
through
profit or loss |
|
Available-
for-sale
financial
assets |
|
Derivative
assets |
|
Total
financial
assets
carried at
fair value |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
At 1 January 2014 |
|
4,232 |
|
449 |
|
3,019 |
|
7,700 |
Exchange and other adjustments |
|
− |
|
(9) |
|
(10) |
|
(19) |
Gains recognised in the income statement within other income |
|
167 |
|
(78) |
|
277 |
|
366 |
Gains recognised in other comprehensive income within the revaluation reserve in respect of available-for-sale financial assets |
|
− |
|
15 |
|
− |
|
15 |
Purchases |
|
432 |
|
199 |
|
10 |
|
641 |
Sales |
|
(367) |
|
(173) |
|
(1,072) |
|
(1,612) |
Transfers into the level 3 portfolio |
|
441 |
|
− |
|
22 |
|
463 |
Transfers out of the level 3 portfolio |
|
− |
|
(74) |
|
(53) |
|
(127) |
At 30 June 2014 |
|
4,905 |
|
329 |
|
2,193 |
|
7,427 |
Gains recognised in the income statement within other income relating to those assets held at
30 June 2014 |
|
140 |
|
− |
|
50 |
|
190 |
| 14. | Fair values of financial assets and liabilities (continued) |
The tables below analyse movements in the
level 3 financial liabilities portfolio.
|
Trading and
other financial
liabilities
at fair value
through profit
or loss |
|
Derivative
liabilities |
|
Financial
guarantees |
|
Total
financial
liabilities carried at
fair value |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
At 1 January 2015 |
|
5 |
|
1,456 |
|
51 |
|
1,512 |
Exchange and other adjustments |
|
− |
|
(33) |
|
− |
|
(33) |
(Gains) losses recognised in the income statement
within other income |
|
− |
|
(100) |
|
(7) |
|
(107) |
Additions |
|
− |
|
124 |
|
− |
|
124 |
Redemptions |
|
(4) |
|
(102) |
|
− |
|
(106) |
Transfers into the level 3 portfolio |
|
− |
|
|
|
− |
|
− |
Transfers out of the level 3 portfolio |
|
− |
|
(12) |
|
− |
|
(12) |
At 30 June 2015 |
|
1 |
|
1,333 |
|
44 |
|
1,378 |
Gains recognised in the income statement within other income relating to those liabilities held at 30 June 2015 |
|
− |
|
(100) |
|
(7) |
|
(107) |
|
|
|
|
|
|
|
|
|
|
Trading and
other financial
liabilities
at fair value
through profit
or loss |
|
Derivative
liabilities |
|
Financial
guarantees |
|
Total
financial
liabilities
carried at
fair value |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
At 1 January 2014 |
|
39 |
|
986 |
|
50 |
|
1,075 |
Exchange and other adjustments |
|
– |
|
(5) |
|
– |
|
(5) |
(Gains) losses recognised in the income statement within other income |
|
(2) |
|
78 |
|
(2) |
|
74 |
Additions |
|
– |
|
5 |
|
– |
|
5 |
Redemptions |
|
(25) |
|
(53) |
|
– |
|
(78) |
Transfers into the level 3 portfolio |
|
– |
|
5 |
|
– |
|
5 |
At 30 June 2014 |
|
12 |
|
1,016 |
|
48 |
|
1,076 |
Gains (losses) recognised in the income statement within other income relating to those liabilities held at 30 June 2014 |
|
− |
|
(78) |
|
− |
|
(78) |
| 14. | Fair values of financial assets and liabilities (continued) |
The tables below set out the effects of
reasonably possible alternative assumptions for categories of level 3 financial assets and financial liabilities which have an
aggregated carrying value greater than £500 million.
|
|
|
|
|
|
At 30 June 2015 |
|
|
|
|
|
|
|
|
Effect of reasonably
possible alternative
assumptions1 |
|
Valuation technique(s) |
Significant unobservable inputs |
|
Range2 |
|
Carrying
value |
|
Favourable
changes |
Unfavourable
changes |
|
|
|
|
|
|
£m |
|
£m |
|
£m |
Trading and other financial assets at fair value through profit or loss: |
|
|
|
|
|
Equity and venture capital investments |
Market approach |
Earnings multiple |
|
4/16 |
|
2,179 |
|
75 |
|
(75) |
Unlisted equities and debt securities, property partnerships in the life funds |
Underlying asset/net asset value (incl. property prices)3 |
n/a |
|
|
|
2,615 |
|
− |
|
(6) |
Other |
|
|
|
|
|
356 |
|
|
|
|
|
|
|
|
|
|
5,150 |
|
|
|
|
Available for sale financial assets |
|
|
|
|
303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial assets: |
|
|
|
|
|
|
|
|
|
Embedded equity conversion feature |
Lead manager or broker quote |
Equity conversion feature spread |
183/406 |
|
256 |
|
15 |
|
(15) |
Interest rate
derivatives |
Discounted cash flow |
Inflation swap rate – funding component (bps) |
|
6/177 |
|
1,409 |
|
12 |
|
(13) |
|
Option pricing model |
Interest rate
volatility |
|
0%/76% |
|
568 |
|
4 |
|
(4) |
|
|
|
|
|
|
2,233 |
|
|
|
|
Financial assets carried at fair value |
|
|
|
7,686 |
|
|
|
|
|
|
|
|
|
|
Trading and other financial liabilities at fair value through profit or loss |
1 |
|
|
|
|
Derivative financial liabilities: |
|
|
|
|
|
|
|
|
|
Interest rate derivatives |
Discounted cash flow |
Inflation swap rate – funding component (bps) |
6/177 |
|
846 |
|
|
|
|
|
Option pricing model |
Interest rate volatility |
|
0%/76% |
|
487 |
|
|
|
|
|
|
|
|
|
1,333 |
|
|
|
|
Financial guarantees |
|
|
|
|
44 |
|
|
|
|
Financial liabilities carried at fair value |
|
|
|
1,378 |
|
|
|
|
1 |
Where the exposure to an unobservable input is managed on a net basis, only the net impact is shown in the table. |
2 |
The range represents the highest and lowest inputs used in the level 3 valuations. |
3 |
Underlying asset/net asset values represent fair value. |
| 14. | Fair values of financial assets and liabilities (continued) |
|
|
|
|
|
|
At 31 December 2014 |
|
|
|
|
|
|
|
|
Effect of reasonably possible alternative assumptions1 |
|
Valuation technique(s) |
Significant unobservable inputs |
|
Range2 |
|
Carrying
value |
|
Favourable
changes |
Unfavourable
changes |
|
|
|
|
|
|
£m |
|
£m |
|
£m |
Trading and other financial assets at fair value through profit or loss: |
|
|
|
|
|
Equity and venture capital investments |
Market approach |
Earnings multiple |
|
4/14 |
|
2,214 |
|
75 |
|
(75) |
Unlisted equities and debt securities, property partnerships in the life funds |
Underlying asset/net asset value (incl. property prices)3 |
n/a |
|
n/a |
|
2,617 |
|
4 |
|
(2) |
Other |
|
|
|
|
|
273 |
|
|
|
|
|
|
|
|
|
|
5,104 |
|
|
|
|
Available for sale financial assets |
|
|
|
|
270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial assets: |
|
|
|
|
|
|
|
|
|
Embedded equity conversion feature |
Lead manager or broker quote |
Equity conversion feature spread |
175/432 |
|
646 |
|
21 |
|
(21) |
Interest rate
derivatives |
Discounted cash flow |
Inflation swap rate – funding component (bps) |
|
3/167 |
|
1,382 |
|
17 |
|
(16) |
|
Option pricing model |
Interest rate
volatility |
|
4%/120% |
|
743 |
|
6 |
|
(6) |
|
|
|
|
|
|
2,771 |
|
|
|
|
Financial assets carried at fair value |
|
|
|
8,145 |
|
|
|
|
Trading and other financial liabilities at fair value through profit or loss |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial liabilities: |
|
|
|
|
|
|
|
|
|
Interest rate derivatives |
Discounted cash flow |
Inflation swap rate – funding component (bps) |
3/167 |
|
807 |
|
|
|
|
|
Option pricing model |
Interest rate volatility |
|
4%/120% |
|
649 |
|
|
|
|
|
|
|
|
|
1,456 |
|
|
|
|
Financial guarantees |
|
|
|
|
51 |
|
|
|
|
Financial liabilities carried at fair value |
|
|
|
1,512 |
|
|
|
|
1 |
Where the exposure to an unobservable input is managed on a net basis, only the net impact is shown in the table. |
2 |
The range represents the highest and lowest inputs used in the level 3 valuations. |
3 |
Underlying asset/net asset values represent fair value. |
Unobservable
inputs
Significant unobservable inputs affecting
the valuation of debt securities, unlisted equity investments and derivatives are unchanged from those described in the Group’s
2014 financial statements.
Reasonably possible alternative assumptions
Valuation techniques applied to many of
the Group’s level 3 instruments often involve the use of two or more inputs whose relationship is interdependent. The calculation
of the effect of reasonably possible alternative assumptions included in the table above reflects such relationships and are unchanged
from those described in the Group’s 2014 financial statements.
| 15. | Related party transactions |
UK government
In January 2009, the UK government through
HM Treasury became a related party of the Company following its subscription for ordinary shares issued under a placing and open
offer. As at 30 June 2015, HM Treasury held an interest of 16.87 per cent in the Company’s ordinary share capital, with
its interest having fallen below 20 per cent on 11 May 2015. As a consequence of HM Treasury no longer being considered to
have a significant influence, it ceased to be a related party of the Company for IAS 24 purposes at that date.
In accordance with IAS 24, UK government-controlled
entities were related parties of the Group; the Group regarded the Bank of England and entities controlled by the UK government,
including The Royal Bank of Scotland Group plc (RBS), NRAM plc and Bradford & Bingley plc, as related parties.
The Group has participated in a number of
schemes operated by the UK government and central banks and made available to eligible banks and building societies.
National Loan Guarantee Scheme
The Group has participated in the UK government’s
National Loan Guarantee Scheme, which was launched on 20 March 2012. Through the scheme, the Group is providing eligible UK businesses
with discounted funding, subject to continuation of the scheme and its financial benefits, and based on the Group’s existing
lending criteria. Eligible businesses who have taken up the funding benefit from a 1 per cent discount on their funding rate for
a pre-agreed period of time.
Funding for Lending
In August 2012, the Group announced its
support for the UK Government’s Funding for Lending Scheme and confirmed its intention to participate in the scheme. The
Funding for Lending Scheme represents a further source of cost effective secured term funding available to the Group. The original
initiative supported a broad range of UK based customers, providing householders with more affordable housing finance and businesses
with cheaper finance to invest and grow. In November 2013, the Group entered into extension letters with the Bank of England to
take part in an extension of the Funding for Lending Scheme until the end of January 2015. This extension of the Funding for
Lending Scheme focused on providing businesses with cheaper finance to invest and grow. In December 2014, the Bank of England announced
a further extension to the Funding for Lending Scheme running to the end of January 2016 with an increased focus on supporting
small businesses. At 30 June 2015, the Group had drawn down £24 billion (31 December 2014: £20 billion) under
the Funding for Lending Scheme, of which £14 billion had been drawn down under the extension to the scheme announced
in 2013.
Enterprise Finance Guarantee
The Group participates in the Enterprise
Finance Guarantee Scheme which was launched in January 2009 as a replacement for the Small Firms Loan Guarantee Scheme. The
scheme is a UK government-backed loan guarantee, which supports viable businesses with access to lending where they would otherwise
be refused a loan due to a lack of lending security. The Department for Business, Innovation and Skills (formerly the Department
for Business, Enterprise and Regulatory Reform) provides the lender with a guarantee of up to 75 per cent of the capital of
each loan subject to the eligibility of the customer within the rules of the scheme. As at 30 June 2015, the Group had offered
6,378 loans to customers, worth over £539 million. Under the most recent renewal of the terms of the scheme, Lloyds
Bank plc and Bank of Scotland plc, on behalf of the Group, contracted with The Secretary of State for Business, Innovation and
Skills.
| 15. | Related party transactions (continued) |
Help to Buy
On 7 October 2013, Bank of Scotland plc
entered into an agreement with The Commissioners of Her Majesty's Treasury by which it agreed that the Halifax Division of Bank
of Scotland plc would participate in the Help to Buy Scheme with effect from 11 October 2013 and that Lloyds Bank plc would participate
from 3 January 2014. The Help to Buy Scheme is a scheme promoted by the UK government and is aimed to encourage participating lenders
to make mortgage loans available to customers who require higher loan-to-value mortgages. Halifax and Lloyds are currently participating
in the Scheme whereby customers borrow between 90 per cent and 95 per cent of the purchase price. In return for the payment of
a commercial fee, HM Treasury has agreed to provide a guarantee to the lender to cover a proportion of any loss made by the lender
arising from a higher loan-to-value loan being made. £2,484 million of outstanding loans at 30 June 2015 (31 December
2014: £1,950 million) had been advanced under this scheme.
Business Growth Fund
The Group has invested £151 million
(31 December 2014: £118 million) in the Business Growth Fund (under which an agreement was entered into with RBS
amongst others) and, as at 30 June 2015, carries the investment at a fair value of £142 million (31 December 2014:
£105 million).
Big Society Capital
The Group has invested £33 million
in the Big Society Capital Fund under which an agreement was entered into with RBS amongst others.
Housing Growth Partnership
The Group has committed to invest up to
£50m into the Housing Growth Partnership under which an agreement was entered into with the Homes and Communities Agency.
Central bank facilities
In the ordinary course of business, the
Group may from time to time access market-wide facilities provided by central banks.
Other government-related entities
There were no significant transactions with
other UK government-controlled entities (including UK government-controlled banks) during the year that were not made in the ordinary
course of business or that were unusual in their nature or conditions.
Other related party transactions
Other related party transactions for the
half-year to 30 June 2015 are similar in nature to those for the year ended 31 December 2014.
| 16. | Disposal of interest in TSB Banking Group plc |
On 20 March 2015 the Group announced that
it had agreed to sell a 9.99 per cent interest in TSB Banking Group plc (TSB) to Banco de Sabadell S.A. (Banco Sabadell) and that
it had entered into an irrevocable undertaking to accept Banco Sabadell’s recommended cash offer in respect of its remaining
40.01 per cent interest in TSB. The offer by Banco Sabadell was conditional upon, amongst other things, regulatory approval.
The sale of the 9.99 per cent interest completed
on 24 March 2015, reducing the Group’s holding in TSB to 40.01 per cent; this sale led to a loss of control and the deconsolidation
of TSB. The Group’s residual investment in 40.01 per cent of TSB was then recorded at fair value, as an asset held for sale.
The Group recognised a loss of £660 million reflecting the net costs of the Transitional Service Agreement between Lloyds
and TSB, the contribution to be provided by Lloyds to TSB in moving to alternative IT provision and the net result on sale of the
9.99 per cent interest and fair valuation of the residual investment.
The Group announced on 30 June 2015 that
all relevant regulatory clearances had been received and that the sale was therefore unconditional in all respects, so that at
30 June 2015 the Group was carrying a receivable from Banco Sabadell in respect of the final proceeds of sale. The proceeds were
received on 10 July 2015.
An interim dividend for 2015 of 0.75 pence
per ordinary share (half-year to 30 June 2014: nil) will be paid on 28 September 2015. The total amount of this dividend is £535 million.
Shareholders who have already joined the
dividend reinvestment plan will automatically receive shares instead of the cash dividend. Key dates for the payment of the dividend
are:
Shares quoted ex-dividend |
13 August 2015 |
Record date |
14 August 2015 |
Final date for joining or leaving the dividend reinvestment plan |
28 August 2015 |
Interim dividend paid |
28 September 2015 |
On 19 May 2015, a dividend in respect of
2014 of 0.75 pence per ordinary share was paid to shareholders. This dividend totalled £535 million.
| 18. | Events since the balance sheet date |
On 30 July 2015, the Group announced that
it had agreed the sale of a portfolio of Irish commercial loans, with a book value of £724 million, for a cash consideration
of approximately £827 million; after transaction and other costs the gain on disposal is not expected to be significant.
The transaction is expected to complete in the fourth quarter of 2015.
| 19. | Future accounting developments |
The following pronouncements are not applicable
for the year ending 31 December 2015 and have not been applied in preparing these financial statements. Save as disclosed below,
the full impact of these accounting changes is being assessed by the Group.
IFRS 9 Financial Instruments
IFRS 9 replaces IAS 39 Financial
Instruments: Recognition and Measurement. IFRS 9 requires financial assets to be classified into one of three measurement categories,
fair value through profit or loss, fair value through other comprehensive income and amortised cost, on the basis of the objectives
of the entity’s business model for managing its financial assets and the contractual cash flow characteristics of the instruments.
These changes are not expected to have a significant impact on the Group.
IFRS 9 also replaces the existing
‘incurred loss’ impairment approach with an expected credit loss approach. This change is likely to result in an increase
in the Group’s balance sheet provisions for credit losses although the extent of any increase will depend upon, amongst other
things, the composition of the Group’s lending portfolios and forecast economic conditions at the date of implementation.
In February 2015, the Basel Committee on Banking Supervision published a consultative document outlining supervisory expectations
regarding sound credit risk practices associated with implementing and applying an expected credit loss accounting framework. A
final version is expected to be issued at the end of 2015.
The hedge accounting requirements
of IFRS 9 are more closely aligned with risk management practices and follow a more principle-based approach than IAS 39. The revised
requirements are not expected to have a significant impact on the Group.
IFRS 9 is effective for annual periods beginning
on or after 1 January 2018.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 replaces IAS 18 Revenue and IAS
11 Construction Contracts. IFRS 15 establishes principles for reporting useful information about the nature, amount, timing and
uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised at an amount
that reflects the consideration to which the entity expects to be entitled in exchange for goods and services. Financial instruments,
leases and insurance contracts are out of scope and so this standard is not expected to have a significant impact on the Group.
IFRS 15 is effective for annual periods
beginning on or after 1 January 2017, although in May 2015, the IASB issued an exposure draft proposing to defer the effective
date to 1 January 2018. In addition, on 30 July 2015 another exposure draft was issued proposing targeted amendments to the standard.
| 20. | Condensed consolidating financial information |
Lloyds Bank plc (Lloyds Bank) is a wholly
owned subsidiary of the Company and intends to offer and sell certain securities in the US from time to time utilising a registration
statement on Form F-3 filed with the SEC by the Company. This will be accompanied by a full and unconditional guarantee by the
Company.
Lloyds Bank intends to utilise an exception
provided in Rule 3-10 of Regulation S-X which allows it to not file its financial statements with the SEC. In accordance with the
requirements to qualify for the exception, presented below is condensed consolidating financial information for:
| · | The Company on a stand-alone basis as guarantor; |
| · | Lloyds Bank on a stand-alone basis as issuer; |
| · | Non-guarantor subsidiaries of the Company and non-guarantor subsidiaries of Lloyds Bank on a combined
basis (Subsidiaries); |
| · | Consolidation adjustments; and |
| · | Lloyds Banking Group’s consolidated amounts (the Group). |
Under IAS 27, the Company and Lloyds Bank
account for investments in their subsidiary undertakings at cost less impairment. Rule 3-10 of Regulation S-X requires a company
to account for its investments in subsidiary undertakings using the equity method, which would increase/(decrease) the result for
the period of the Company and Lloyds Bank in the information below by £444 million and £344 million, respectively,
for the half-year to 30 June 2015; £516 million and £413 million for the half-year to 30 June 2014;
and £517 million and £(1,134) million for the half-year to 31 December 2014. The net assets of the Company
and Lloyds Bank in the information below would also be increased by £4,891 million and £2,855 million, respectively,
at 30 June 2015; and £5,309 million and £2,957 million at 31 December 2014.
| 20. | Condensed consolidating financial information (continued) |
Income statements
For the half-year ended 30 June 2015 |
|
Company |
|
Lloyds
Bank |
Subsidiaries |
Consolidation
adjustments |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
Net interest (expense) income |
|
142 |
|
2,148 |
|
3,374 |
|
(172) |
|
5,492 |
Other income |
|
63 |
|
2,460 |
|
5,602 |
|
(1,812) |
|
6,313 |
Total income |
|
205 |
|
4,608 |
|
8,976 |
|
(1,984) |
|
11,805 |
Insurance claims |
|
- |
|
- |
|
(2,998) |
|
- |
|
(2,998) |
Total income, net of insurance claims |
205 |
|
4,608 |
|
5,978 |
|
(1,984) |
|
8,807 |
Operating expenses |
|
(12) |
|
(3,897) |
|
(3,438) |
|
(106) |
|
(7,453) |
Trading surplus |
|
193 |
|
711 |
|
2,540 |
|
(2,090) |
|
1,354 |
Impairment |
|
- |
|
(65) |
|
(133) |
|
37 |
|
(161) |
Profit (loss) before tax |
|
193 |
|
646 |
|
2,407 |
|
(2,053) |
|
1,193 |
Taxation |
|
40 |
|
45 |
|
(495) |
|
142 |
|
(268) |
Profit (loss) for the period |
|
233 |
|
691 |
|
1,912 |
|
(1,911) |
|
925 |
Income statements (continued)
For the half-year ended 30 June 2014 |
|
Company |
|
Lloyds Bank |
Subsidiaries |
Consolidation
adjustments |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
Net interest (expense) income |
|
146 |
|
1,942 |
|
3,515 |
|
(341) |
|
5,262 |
Other income |
|
(135) |
|
3,293 |
|
10,436 |
|
(4,822) |
|
8,772 |
Total income |
|
11 |
|
5,235 |
|
13,951 |
|
(5,163) |
|
14,034 |
Insurance claims |
|
− |
|
− |
|
(6,338) |
|
− |
|
(6,338) |
Total income, net of insurance claims |
11 |
|
5,235 |
|
7,613 |
|
(5,163) |
|
7,696 |
Operating expenses |
|
5 |
|
(3,834) |
|
(2,959) |
|
596 |
|
(6,192) |
Trading surplus |
|
16 |
|
1,401 |
|
4,654 |
|
(4,567) |
|
1,504 |
Impairment |
|
− |
|
(263) |
|
(619) |
|
241 |
|
(641) |
(Loss) profit before tax |
|
16 |
|
1,138 |
|
4,035 |
|
(4,326) |
|
863 |
Taxation |
|
133 |
|
(151) |
|
(385) |
|
239 |
|
(164) |
(Loss) profit for the period |
|
149 |
|
987 |
|
3,650 |
|
(4,087) |
|
699 |
|
|
|
|
|
|
|
|
|
For the half-year ended
31 December 2014 |
|
Company |
|
Lloyds Bank |
Subsidiaries |
Consolidation
adjustments |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
Net interest (expense) income |
|
109 |
|
2,078 |
|
3,423 |
|
(212) |
|
5,398 |
Other income |
|
418 |
|
3,887 |
|
9,603 |
|
(3,448) |
|
10,460 |
Total income |
|
527 |
|
5,965 |
|
13,026 |
|
(3,660) |
|
15,858 |
Insurance claims |
|
− |
|
− |
|
(7,155) |
|
− |
|
(7,155) |
Total income, net of insurance claims |
527 |
|
5,965 |
|
5,871 |
|
(3,660) |
|
8,703 |
Operating expenses |
|
(270) |
|
(4,093) |
|
(3,643) |
|
313 |
|
(7,693) |
Trading surplus |
|
257 |
|
1,872 |
|
2,228 |
|
(3,347) |
|
1,010 |
Impairment |
|
− |
|
(322) |
|
(158) |
|
369 |
|
(111) |
Profit (loss) before tax |
|
257 |
|
1,550 |
|
2,070 |
|
(2,978) |
|
899 |
Taxation |
|
(27) |
|
(36) |
|
(287) |
|
251 |
|
(99) |
Profit (loss) for the period |
|
230 |
|
1,514 |
|
1,783 |
|
(2,727) |
|
800 |
| 20. | Condensed consolidating financial information (continued) |
Consolidated statement of comprehensive
income
Half-year ended 30 June 2015 |
|
Company |
|
Lloyds Bank |
|
Subsidiaries |
Consolidation
adjustments |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) for the period |
|
233 |
|
691 |
|
1,912 |
|
(1,911) |
|
925 |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
Items that will not subsequently be reclassified to profit or loss: |
|
|
|
|
|
|
|
|
|
|
Post-retirement defined benefit scheme remeasurements (note 11): |
|
|
|
|
|
|
|
|
|
|
Remeasurements before taxation |
|
− |
|
(111) |
|
(191) |
|
− |
|
(302) |
Taxation |
|
− |
|
22 |
|
38 |
|
− |
|
60 |
|
|
− |
|
(89) |
|
(153) |
|
− |
|
(242) |
Items that may subsequently be reclassified to profit or loss: |
|
|
|
|
|
|
|
|
|
|
Movements in revaluation reserve in respect of available-for-sale financial assets: |
|
|
|
|
|
|
|
|
|
|
Change in fair value |
|
− |
|
(7) |
|
(21) |
|
12 |
|
(16) |
Income statement transfers in respect of disposals |
|
− |
|
(15) |
|
(34) |
|
− |
|
(49) |
Income statement transfers in respect of impairment |
|
− |
|
− |
|
9 |
|
(9) |
|
− |
Taxation |
|
− |
|
(2) |
|
2 |
|
(2) |
|
(2) |
|
|
− |
|
(24) |
|
(44) |
|
1 |
|
(67) |
Movements in cash flow hedging reserve: |
|
|
|
|
|
|
|
|
|
|
Effective portion of changes in fair value |
|
− |
|
(308) |
|
156 |
|
(252) |
|
(404) |
Net income statement transfers |
|
− |
|
(239) |
|
(322) |
|
80 |
|
(481) |
Taxation |
|
− |
|
109 |
|
33 |
|
33 |
|
175 |
|
|
− |
|
(438) |
|
(133) |
|
(139) |
|
(710) |
Currency translation differences
(tax: nil) |
|
− |
|
(12) |
|
44 |
|
(5) |
|
27 |
Other comprehensive income for the period, net of tax |
|
− |
|
(563) |
|
(286) |
|
(143) |
|
(992) |
Total comprehensive income for the period |
|
233 |
|
128 |
|
1,626 |
|
(2,054) |
|
(67) |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income attributable to ordinary shareholders |
|
36 |
|
128 |
|
1,575 |
|
(2,054) |
|
(315) |
Total comprehensive income attributable to other equity holders |
|
197 |
|
− |
|
− |
|
− |
|
197 |
Total comprehensive income attributable to equity holders |
|
233 |
|
128 |
|
1,575 |
|
(2,054) |
|
(118) |
Total comprehensive income attributable to non-controlling interests |
|
− |
|
− |
|
51 |
|
− |
|
51 |
Total comprehensive income for the period |
|
233 |
|
128 |
|
1,626 |
|
(2,054) |
|
(67) |
| 20. | Condensed consolidating financial information (continued) |
Consolidated statement of comprehensive
income (continued)
Half-year ended 30 June 2014 |
|
Company |
|
Lloyds Bank |
Subsidiaries |
Consolidation
adjustments |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) for the period |
|
149 |
|
987 |
|
3,650 |
|
(4,087) |
|
699 |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
Items that will not subsequently be reclassified to profit or loss: |
|
|
|
|
|
|
|
|
|
|
Post-retirement defined benefit scheme remeasurements: |
|
|
|
|
|
|
|
|
|
|
Remeasurements before taxation |
|
− |
|
(333) |
|
(266) |
|
− |
|
(599) |
Taxation |
|
− |
|
67 |
|
53 |
|
− |
|
120 |
|
|
− |
|
(266) |
|
(213) |
|
− |
|
(479) |
Items that may subsequently be reclassified to profit or loss: |
|
|
|
|
|
|
|
|
|
|
Movements in revaluation reserve in respect of available-for-sale financial assets: |
|
|
|
|
|
|
|
|
|
|
Change in fair value |
|
− |
|
427 |
|
123 |
|
7 |
|
557 |
Income statement transfers in respect of disposals |
|
− |
|
12 |
|
(90) |
|
(7) |
|
(85) |
Income statement transfers in respect of impairment |
|
− |
|
− |
|
3 |
|
(1) |
|
2 |
Taxation |
|
− |
|
(55) |
|
4 |
|
− |
|
(51) |
|
|
− |
|
384 |
|
40 |
|
(1) |
|
423 |
Movements in cash flow hedging reserve: |
|
|
|
|
|
|
|
|
|
|
Effective portion of changes in fair value |
|
− |
|
− |
|
(114) |
|
1,122 |
|
1,008 |
Net income statement transfers |
|
− |
|
− |
|
(218) |
|
(354) |
|
(572) |
Taxation |
|
− |
|
− |
|
66 |
|
(152) |
|
(86) |
|
|
− |
|
− |
|
(266) |
|
616 |
|
350 |
Currency translation differences (tax: nil) |
|
− |
|
1 |
|
(7) |
|
5 |
|
(1) |
Other comprehensive income for the period, net of tax |
|
− |
|
119 |
|
(446) |
|
620 |
|
293 |
Total comprehensive income for the period |
|
149 |
|
1,106 |
|
3,204 |
|
(3,467) |
|
992 |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income attributable to ordinary shareholders |
|
58 |
|
1,106 |
|
3,170 |
|
(3,467) |
|
867 |
Total comprehensive income attributable to other equity holders |
|
91 |
|
− |
|
− |
|
− |
|
91 |
Total comprehensive income attributable to equity holders |
|
149 |
|
1,106 |
|
3,170 |
|
(3,467) |
|
958 |
Total comprehensive income attributable to non-controlling interests |
|
− |
|
− |
|
34 |
|
− |
|
34 |
Total comprehensive income for the period |
|
149 |
|
1,106 |
|
3,204 |
|
(3,467) |
|
992 |
20. Condensed consolidating financial
information (continued)
Consolidated statement of comprehensive
income (continued)
Half-year ended 31 December 2014 |
|
Company |
|
Lloyds Bank |
|
Subsidiaries |
Consolidation
adjustments |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) for the period |
|
230 |
|
1,514 |
|
1,783 |
|
(2,727) |
|
800 |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
Items that will not subsequently be reclassified to profit or loss: |
|
|
|
|
|
|
|
|
|
|
Post-retirement defined benefit scheme remeasurements: |
|
|
|
|
|
|
|
|
|
|
Remeasurements before taxation |
|
− |
|
642 |
|
631 |
|
− |
|
1,273 |
Taxation |
|
− |
|
(129) |
|
(126) |
|
− |
|
(255) |
|
|
− |
|
513 |
|
505 |
|
− |
|
1,018 |
Items that may subsequently be reclassified to profit or loss: |
|
|
|
|
|
|
|
|
|
|
Movements in revaluation reserve in respect of available-for-sale financial assets: |
|
|
|
|
|
|
|
|
|
|
Change in fair value |
|
− |
|
(63) |
|
133 |
|
63 |
|
133 |
Income statement transfers in respect of disposals |
|
− |
|
(1) |
|
(39) |
|
(6) |
|
(46) |
Income statement transfers in respect of impairment |
|
− |
|
1 |
|
4 |
|
(5) |
|
− |
Taxation |
|
− |
|
41 |
|
(5) |
|
2 |
|
38 |
|
|
− |
|
(22) |
|
93 |
|
54 |
|
125 |
Movements in cash flow hedging reserve: |
|
|
|
|
|
|
|
|
|
|
Effective net portion of changes in fair value |
|
− |
|
1,799 |
|
58 |
|
1,031 |
|
2,888 |
Net income statement transfers |
|
− |
|
(227) |
|
(256) |
|
(98) |
|
(581) |
Taxation |
|
− |
|
(315) |
|
40 |
|
(188) |
|
(463) |
|
|
− |
|
1,257 |
|
(158) |
|
745 |
|
1,844 |
Currency translation differences (tax: nil) |
|
− |
|
2 |
|
(6) |
|
2 |
|
(2) |
Other comprehensive income for the period, net of tax |
|
− |
|
1,750 |
|
434 |
|
801 |
|
2,985 |
Total comprehensive income for the period |
|
230 |
|
3,264 |
|
2,217 |
|
(1,926) |
|
3,785 |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income attributable to ordinary shareholders |
|
34 |
|
3,264 |
|
2,164 |
|
(1,926) |
|
3,536 |
Total comprehensive income attributable to other equity holders |
|
196 |
|
− |
|
− |
|
− |
|
196 |
Total comprehensive income attributable to equity holders |
|
230 |
|
3,264 |
|
2,164 |
|
(1,926) |
|
3,732 |
Total comprehensive income attributable to non-controlling interests |
|
− |
|
− |
|
53 |
|
− |
|
53 |
Total comprehensive income for the period |
|
230 |
|
3,264 |
|
2,217 |
|
(1,926) |
|
3,785 |
20. Condensed consolidating financial
information (continued)
Balance sheets
At 30 June 2015 |
|
Company |
|
Lloyds
Bank |
Subsidiaries |
Consolidation
adjustments |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
Cash and balances at central banks |
|
– |
|
62,495 |
|
5,192 |
|
– |
|
67,687 |
Items in course of collection from banks |
|
– |
|
815 |
|
344 |
|
– |
|
1,159 |
Trading and other financial assets at fair value through profit or loss |
|
– |
|
65,644 |
|
119,711 |
|
(37,506) |
|
147,849 |
Derivative financial instruments |
|
332 |
|
33,940 |
|
21,342 |
|
(27,634) |
|
27,980 |
Loans and receivables: |
|
|
|
|
|
|
|
|
|
|
Loans and advances to banks |
|
– |
|
3,969 |
|
19,549 |
|
30 |
|
23,548 |
Loans and advances to customers |
|
– |
|
159,424 |
|
288,136 |
|
4,867 |
|
452,427 |
Debt securities |
|
– |
|
397 |
|
1,091 |
|
81 |
|
1,569 |
Due from fellow Lloyds Banking Group undertakings |
|
13,960 |
|
132,327 |
|
103,565 |
|
(249,852) |
|
− |
|
|
13,960 |
|
296,117 |
|
412,341 |
|
(244,874) |
|
477,544 |
Available-for-sale financial assets |
|
– |
|
29,574 |
|
5,538 |
|
(2,939) |
|
32,173 |
Held-to-maturity investments |
|
– |
|
19,960 |
|
– |
|
– |
|
19,960 |
Investment properties |
|
– |
|
– |
|
4,702 |
|
– |
|
4,702 |
Goodwill |
|
– |
|
– |
|
2,343 |
|
(327) |
|
2,016 |
Value of in-force business |
|
– |
|
– |
|
4,520 |
|
343 |
|
4,863 |
Other intangible assets |
|
– |
|
675 |
|
285 |
|
982 |
|
1,942 |
Tangible fixed assets |
|
– |
|
3,262 |
|
4,825 |
|
67 |
|
8,154 |
Current tax recoverable |
|
– |
|
961 |
|
23 |
|
(789) |
|
195 |
Deferred tax assets |
|
41 |
|
3,704 |
|
1,554 |
|
(1,260) |
|
4,039 |
Retirement benefit assets |
|
– |
|
287 |
|
667 |
|
(46) |
|
908 |
Investment in subsidiary undertakings |
|
40,892 |
|
38,253 |
|
– |
|
(79,145) |
|
– |
Other assets |
|
806 |
|
2,174 |
|
19,411 |
|
(730) |
|
21,661 |
Total assets |
|
56,031 |
|
557,861 |
|
602,798 |
|
(393,858) |
|
822,832 |
20. Condensed consolidating financial
information (continued)
Balance sheets (continued)
At 30 June 2015 |
|
Company |
|
Lloyds
Bank |
Subsidiaries |
Consolidation
adjustments |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
Equity and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Deposits from banks |
|
– |
|
15,347 |
|
1,621 |
|
(2) |
|
16,966 |
Customer deposits |
|
− |
|
199,715 |
|
217,010 |
|
(130) |
|
416,595 |
Due to fellow Lloyds Banking Group undertakings |
11,065 |
|
84,929 |
|
121,812 |
|
(217,806) |
|
– |
Items in course of transmission to banks |
– |
|
420 |
|
370 |
|
– |
|
790 |
Trading and other financial liabilities at fair value through profit or loss |
|
– |
|
78,933 |
|
16,653 |
|
(32,258) |
|
63,328 |
Derivative financial instruments |
|
– |
|
35,816 |
|
19,596 |
|
(27,634) |
|
27,778 |
Notes in circulation |
|
– |
|
- |
|
1,090 |
|
– |
|
1,090 |
Debt securities in issue |
|
557 |
|
70,536 |
|
28,939 |
|
(22,256) |
|
77,776 |
Liabilities arising from insurance contracts and participating investment contracts |
– |
|
– |
|
81,209 |
|
(26) |
|
81,183 |
Liabilities arising from non-participating investment contracts |
|
– |
|
– |
|
26,131 |
|
– |
|
26,131 |
Unallocated surplus within insurance businesses |
|
– |
|
– |
|
290 |
|
– |
|
290 |
Other liabilities |
|
– |
|
4,211 |
|
32,825 |
|
(1,785) |
|
35,251 |
Retirement benefit obligations |
|
– |
|
205 |
|
96 |
|
166 |
|
467 |
Current tax liabilities |
|
26 |
|
6 |
|
938 |
|
(946) |
|
24 |
Deferred tax liabilities |
|
– |
|
- |
|
40 |
|
– |
|
40 |
Other provisions |
|
– |
|
2,651 |
|
1,720 |
|
72 |
|
4,443 |
Subordinated liabilities |
|
1,663 |
|
19,894 |
|
14,483 |
|
(13,401) |
|
22,639 |
Total liabilities |
|
13,311 |
|
512,663 |
|
564,823 |
|
(316,006) |
|
774,791 |
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
37,365 |
|
45,198 |
|
37,545 |
|
(77,852) |
|
42,256 |
Other equity instruments |
|
5,355 |
|
– |
|
– |
|
– |
|
5,355 |
Total equity excluding non-controlling interests |
|
42,720 |
|
45,198 |
|
37,545 |
|
(77,852) |
|
47,611 |
Non-controlling interests |
|
– |
|
– |
|
430 |
|
– |
|
430 |
Total equity |
|
42,720 |
|
45,198 |
|
37,975 |
|
(77,852) |
|
48,041 |
|
|
|
|
|
|
|
|
|
|
|
Total equity and liabilities |
|
56,031 |
|
557,861 |
|
602,798 |
|
(393,858) |
|
822,832 |
20. Condensed consolidating financial
information (continued)
Balance sheets (continued)
At 31 December 2014 |
|
Company |
|
Lloyds Bank |
Subsidiaries |
Consolidation
adjustments |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
Cash and balances at central banks |
|
− |
|
40,965 |
|
9,527 |
|
− |
|
50,492 |
Items in course of collection from banks |
|
− |
|
802 |
|
371 |
|
− |
|
1,173 |
Trading and other financial assets at fair value through profit or loss |
|
− |
|
66,321 |
|
115,737 |
|
(30,127) |
|
151,931 |
Derivative financial instruments |
|
752 |
|
40,150 |
|
26,155 |
|
(30,929) |
|
36,128 |
Loans and receivables: |
|
|
|
|
|
|
|
|
|
|
Loans and advances to banks |
|
− |
|
4,591 |
|
21,539 |
|
25 |
|
26,155 |
Loans and advances to customers |
|
− |
|
165,967 |
|
312,697 |
|
4,040 |
|
482,704 |
Debt securities |
|
− |
|
− |
|
1,148 |
|
65 |
|
1,213 |
Due from fellow Lloyds Banking Group undertakings |
|
14,110 |
|
130,636 |
|
113,164 |
|
(257,910) |
|
− |
|
|
14,110 |
|
301,194 |
|
448,548 |
|
(253,780) |
|
510,072 |
Available-for-sale financial assets |
|
− |
|
51,412 |
|
7,187 |
|
(2,106) |
|
56,493 |
Investment properties |
|
− |
|
− |
|
4,492 |
|
− |
|
4,492 |
Goodwill |
|
− |
|
− |
|
2,343 |
|
(327) |
|
2,016 |
Value of in-force business |
|
− |
|
− |
|
4,502 |
|
362 |
|
4,864 |
Other intangible assets |
|
− |
|
647 |
|
277 |
|
1,146 |
|
2,070 |
Tangible fixed assets |
|
− |
|
3,089 |
|
4,896 |
|
67 |
|
8,052 |
Current tax recoverable |
|
− |
|
918 |
|
280 |
|
(1,071) |
|
127 |
Deferred tax assets |
|
19 |
|
3,596 |
|
3,295 |
|
(2,765) |
|
4,145 |
Retirement benefit assets |
|
− |
|
351 |
|
827 |
|
(31) |
|
1,147 |
Investment in subsidiary undertakings |
|
41,102 |
|
38,818 |
|
− |
|
(79,920) |
|
− |
Other assets |
|
791 |
|
2,451 |
|
19,419 |
|
(967) |
|
21,694 |
Total assets |
|
56,774 |
|
550,714 |
|
647,856 |
|
(400,448) |
|
854,896 |
20. Condensed consolidating financial
information (continued)
Balance sheets (continued)
At 31 December 2014 |
|
Company |
|
Lloyds Bank |
Subsidiaries |
Consolidation
adjustments |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
Equity and liabilities |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Deposits from banks |
|
− |
|
8,206 |
|
2,683 |
|
(2) |
|
10,887 |
Customer deposits |
|
− |
|
194,699 |
|
252,586 |
|
(218) |
|
447,067 |
Due to fellow Lloyds Banking Group undertakings |
10,944 |
|
91,882 |
|
120,591 |
|
(223,417) |
|
− |
Items in course of transmission to banks |
− |
|
560 |
|
419 |
|
− |
|
979 |
Trading and other financial liabilities at fair value through profit or loss |
|
− |
|
73,227 |
|
14,464 |
|
(25,589) |
|
62,102 |
Derivative financial instruments |
|
− |
|
41,320 |
|
22,796 |
|
(30,929) |
|
33,187 |
Notes in circulation |
|
− |
|
− |
|
1,129 |
|
− |
|
1,129 |
Debt securities in issue |
|
561 |
|
66,062 |
|
32,875 |
|
(23,265) |
|
76,233 |
Liabilities arising from insurance contracts and participating investment contracts |
− |
|
− |
|
86,941 |
|
(23) |
|
86,918 |
Liabilities arising from non-participating investment contracts |
|
− |
|
− |
|
27,248 |
|
− |
|
27,248 |
Unallocated surplus within insurance businesses |
|
− |
|
− |
|
320 |
|
− |
|
320 |
Other liabilities |
|
93 |
|
4,358 |
|
24,827 |
|
(1,173) |
|
28,105 |
Retirement benefit obligations |
|
− |
|
190 |
|
197 |
|
66 |
|
453 |
Current tax liabilities |
|
107 |
|
5 |
|
1,288 |
|
(1,331) |
|
69 |
Deferred tax liabilities |
|
− |
|
− |
|
1,268 |
|
(1,214) |
|
54 |
Other provisions |
|
− |
|
2,795 |
|
1,990 |
|
(585) |
|
4,200 |
Subordinated liabilities |
|
1,688 |
|
21,590 |
|
16,907 |
|
(14,143) |
|
26,042 |
Total liabilities |
|
13,393 |
|
504,894 |
|
608,529 |
|
(321,823) |
|
804,993 |
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
38,026 |
|
45,820 |
|
38,114 |
|
(78,625) |
|
43,335 |
Other equity instruments |
|
5,355 |
|
− |
|
− |
|
− |
|
5,355 |
Total equity excluding non-controlling interests |
|
43,381 |
|
45,820 |
|
38,114 |
|
(78,625) |
|
48,690 |
Non-controlling interests |
|
− |
|
− |
|
1,213 |
|
− |
|
1,213 |
Total equity |
|
43,381 |
|
45,820 |
|
39,327 |
|
(78,625) |
|
49,903 |
Total equity and liabilities |
|
56,774 |
|
550,714 |
|
647,856 |
|
(400,448) |
|
854,896 |
20. Condensed consolidating financial
information (continued)
Cash flow statements
For the half-year ended 30 June 2015 |
|
Company |
|
Lloyds
Bank |
Subsidiaries |
Consolidation
adjustments |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
(265) |
|
21,719 |
|
(3,204) |
|
3,070 |
|
21,320 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Purchase of financial assets |
|
– |
|
(5,159) |
|
(8,046) |
|
847 |
|
(12,358) |
Proceeds from sale and maturity of financial assets |
|
– |
|
6,241 |
|
8,597 |
|
– |
|
14,838 |
Purchase of fixed assets |
|
– |
|
(567) |
|
(997) |
|
– |
|
(1,564) |
Proceeds from sale of fixed assets |
|
– |
|
35 |
|
491 |
|
– |
|
526 |
Dividends received from subsidiaries |
|
540 |
|
659 |
|
– |
|
(1,199) |
|
– |
Additional capital injections to subsidiaries |
|
– |
|
(64) |
|
– |
|
64 |
|
− |
Capital lending to Lloyds Bank |
|
(38) |
|
– |
|
– |
|
38 |
|
− |
Capital repayments by Lloyds Bank |
|
41 |
|
– |
|
– |
|
(41) |
|
– |
Return of capital contribution |
|
431 |
|
– |
|
– |
|
(431) |
|
− |
Disposal of businesses, net of cash disposed |
|
– |
|
170 |
|
11 |
|
(4,463) |
|
(4,282) |
Net cash provided by investing activities |
|
974 |
|
1,315 |
|
56 |
|
(5,185) |
|
(2,840) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
Dividends paid to ordinary shareholders |
|
(535) |
|
(540) |
|
(659) |
|
1,199 |
|
(535) |
Distributions on other equity instruments |
|
(197) |
|
– |
|
– |
|
– |
|
(197) |
Dividends paid to non-controlling interests |
|
– |
|
– |
|
(10) |
|
– |
|
(10) |
Interest paid on subordinated liabilities |
|
(64) |
|
(907) |
|
(912) |
|
633 |
|
(1,250) |
Repayment of subordinated liabilities |
|
– |
|
(1,087) |
|
(981) |
|
– |
|
(2,068) |
Capital contribution received |
|
– |
|
– |
|
64 |
|
(64) |
|
− |
Return of capital contribution |
|
– |
|
(431) |
|
– |
|
431 |
|
− |
Capital borrowing from the Company |
|
– |
|
38 |
|
– |
|
(38) |
|
– |
Capital repayments to the Company |
|
– |
|
(41) |
|
– |
|
41 |
|
– |
Change in non-controlling interests |
|
– |
|
– |
|
1 |
|
– |
|
1 |
Net cash (used in) provided by financing activities |
|
(796) |
|
(2,968) |
|
(2,497) |
|
2,202 |
|
(4,059) |
Effects of exchange rate changes on cash and cash equivalents |
|
– |
|
(1) |
|
(1) |
|
– |
|
(2) |
Change in cash and cash equivalents |
|
(87) |
|
20,065 |
|
(5,646) |
|
87 |
|
14,419 |
Cash and cash equivalents at beginning of period |
|
195 |
|
42,972 |
|
22,175 |
|
(195) |
|
65,147 |
Cash and cash equivalents at end of period |
|
108 |
|
63,037 |
|
16,529 |
|
(108) |
|
79,566 |
20. Condensed consolidating financial
information (continued)
Cash flow statements (continued)
For the half-year ended 30 June 2014 |
|
Company |
|
Lloyds
Bank |
Subsidiaries |
Consolidation
adjustments |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
968 |
|
6,633 |
|
(4,779) |
|
4,798 |
|
7,620 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Purchase of financial assets |
|
– |
|
(5,008) |
|
(2,554) |
|
199 |
|
(7,363) |
Proceeds from sale and maturity of financial assets |
|
– |
|
642 |
|
5,788 |
|
(4,745) |
|
1,685 |
Purchase of fixed assets |
|
– |
|
(624) |
|
(1,027) |
|
– |
|
(1,651) |
Proceeds from sale of fixed assets |
|
– |
|
101 |
|
624 |
|
– |
|
725 |
Additional capital injections to subsidiaries |
|
(6,543) |
|
(390) |
|
– |
|
6,933 |
|
– |
Capital repayments by subsidiaries |
|
124 |
|
1,930 |
|
– |
|
(2,054) |
|
– |
Acquisition of businesses, net of cash disposed |
|
– |
|
(360) |
|
(1) |
|
360 |
|
(1) |
Disposal of businesses, net of cash disposed |
|
– |
|
725 |
|
898 |
|
(1,087) |
|
536 |
Net cash provided by investing activities |
|
(6,419) |
|
(2,984) |
|
3,728 |
|
(394) |
|
(6,069) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
Distributions on other equity instruments |
|
(91) |
|
– |
|
– |
|
– |
|
(91) |
Dividends paid to non-controlling interests |
|
– |
|
– |
|
(8) |
|
– |
|
(8) |
Interest paid on subordinated liabilities |
|
(47) |
|
(885) |
|
(1,216) |
|
732 |
|
(1,416) |
Issue of other equity instruments |
|
5,329 |
|
– |
|
(5,329) |
|
– |
|
− |
Proceeds from issue of ordinary shares |
|
3 |
|
– |
|
– |
|
– |
|
3 |
Repayment of subordinated liabilities |
|
– |
|
(365) |
|
(875) |
|
– |
|
(1,240) |
Capital contribution received |
|
– |
|
– |
|
6,933 |
|
(6,933) |
|
– |
Capital repayments to the Company |
|
– |
|
(124) |
|
(1,930) |
|
2,054 |
|
– |
Sale of non-controlling interest in TSB |
|
– |
|
430 |
|
– |
|
– |
|
430 |
Change in non-controlling interests |
|
– |
|
– |
|
10 |
|
– |
|
10 |
Net cash (used in) provided by financing activities |
|
5,194 |
|
(944) |
|
(2,415) |
|
(4,147) |
|
(2,312) |
Effects of exchange rate changes on cash and cash equivalents |
|
– |
|
6 |
|
(2) |
|
– |
|
4 |
Change in cash and cash equivalents |
|
(257) |
|
2,711 |
|
(3,468) |
|
257 |
|
(757) |
Cash and cash equivalents at beginning of period |
|
511 |
|
44,491 |
|
22,306 |
|
(511) |
|
66,797 |
Cash and cash equivalents at end of period |
|
254 |
|
47,202 |
|
18,838 |
|
(254) |
|
66,040 |
20. Condensed consolidating financial
information (continued)
Cash flow statements (continued)
For the half-year ended
31 December 2014 |
|
Company |
|
Lloyds Bank |
Subsidiaries |
Consolidation
adjustments |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
(2,960) |
|
(1,782) |
|
13,113 |
|
(5,638) |
|
2,733 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Return of capital contributions |
|
198 |
|
− |
|
− |
|
(198) |
|
− |
Purchase of financial assets |
|
− |
|
(1,044) |
|
(3,103) |
|
(23) |
|
(4,170) |
Proceeds from sale and maturity of financial assets |
|
− |
|
984 |
|
1,988 |
|
11 |
|
2,983 |
Purchase of fixed assets |
|
− |
|
(559) |
|
(1,232) |
|
− |
|
(1,791) |
Proceeds from sale of fixed assets |
|
− |
|
− |
|
1,318 |
|
− |
|
1,318 |
Additional capital lending to subsidiaries |
|
(1,349) |
|
(360) |
|
− |
|
1,709 |
|
− |
Capital repayments by subsidiaries |
|
4,296 |
|
− |
|
− |
|
(4,296) |
|
− |
Acquisition of businesses, net of cash acquired |
|
− |
|
360 |
|
− |
|
(360) |
|
− |
Disposal of businesses, net of cash disposed |
|
− |
|
3 |
|
7 |
|
(3) |
|
7 |
Net cash (used in) provided by investing activities |
|
3,145 |
|
(616) |
|
(1,022) |
|
(3,160) |
|
(1,653) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
Distributions on other equity instruments |
|
(196) |
|
− |
|
− |
|
− |
|
(196) |
Dividends paid to non-controlling interests |
|
− |
|
− |
|
(19) |
|
− |
|
(19) |
Interest paid on subordinated liabilities |
|
(81) |
|
(947) |
|
(408) |
|
647 |
|
(789) |
Proceeds from issue of subordinated liabilities |
|
629 |
|
− |
|
− |
|
− |
|
629 |
Repayment of subordinated liabilities |
|
(596) |
|
(1,015) |
|
(5,597) |
|
5,425 |
|
(1,783) |
Capital contributions received |
|
− |
|
− |
|
1,709 |
|
(1,709) |
|
− |
Sale of non-controlling interest in TSB |
|
− |
|
204 |
|
− |
|
− |
|
204 |
Other changes in non-controlling interests |
|
− |
|
− |
|
(9) |
|
− |
|
(9) |
Return of capital contributions |
|
− |
|
(74) |
|
1,930 |
|
(1,856) |
|
− |
Capital repayments to the Company |
|
− |
|
− |
|
(6,350) |
|
6,350 |
|
− |
Net cash provided by (used in) financing activities |
|
(244) |
|
(1,832) |
|
(8,744) |
|
8,857 |
|
(1,963) |
Effects of exchange rate changes on cash and cash equivalents |
|
− |
|
− |
|
(10) |
|
− |
|
(10) |
Change in cash and cash equivalents |
|
(59) |
|
(4,230) |
|
3,337 |
|
59 |
|
(893) |
Cash and cash equivalents at beginning of period |
|
254 |
|
47,202 |
|
18,838 |
|
(254) |
|
66,040 |
Cash and cash equivalents at end of period |
|
195 |
|
42,972 |
|
22,175 |
|
(195) |
|
65,147 |
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 authorised.
|
LLOYDS BANKING GROUP plc |
|
|
|
|
|
|
|
|
|
|
By: |
/s/ G Culmer |
|
|
Name: |
George Culmer |
|
|
Title: |
Chief Financial Officer |
|
|
|
|
|
|
|
Dated: |
31 July 2015 |
|
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