Lloyds Banking Group PLC ADR LYG
Q4 2012 Earnings Call Transcript

Transcript Call Date 03/01/2013

Antonio Horta-Osorio - Group Chief Executive: Good morning everyone. Thank you for joining us for our 2012 Results Presentation. In the first part of my presentation, I will give an overview of our 2012 financial performance and describe the substantial progress we have made on our three to five-year journey to become the best bank for customers. George, our Group Finance Director will then give you the detail behind our 2012 financial performance and Mark, our Group Operations Director, will cover simplification and cost. I'll return briefly to summarize and cover our expectation on 2013 and beyond.

We have significantly improved the Group's underlying performance in 2012 by approximately GBP2 billion and our core business continues to deliver strong returns above the cost of equity. I believe we have a very strong core franchise in place and the work we have done so far throughout the year including a further 5% reduction in costs leaves us well-positioned for future growth.

We have continued to strengthen and derisk the balance sheet. We have now reached the loan to deposit ratio over 121% for the Group and 101% for the core business and in 2012, we reduced our noncore portfolio by almost a third to GBP100 billion, all significantly ahead of plan.

I remain confident in our capital position, and we have continued to improve our capital ratios both on current rules and on the fully loaded CRD IV basis, in spite of the additional legacy provisions. Whilst we have continued to make progress, I am of course disappointed that legacy issues, including PPI, have continued to impact our statutory performance negatively during the year. We remain committed to resolving these issues as soon as possible.

We have also made good progress on Project Verde. From this summer we expect Verde to be operating as a separate business, the TSB Bank within the Group. This will allow us to continually sell to the cooperative group, or if required pursue our plan B, an IPO, and therefore ensure we obtain best value for our shareholders, as well as certainty and also for our customers and colleagues.

As the largest Retail and Commercial Bank in the U.K., our success and of the British economy have been extricable linked, as I announced here many times. We are prioritizing actions which will stimulate economic growth and we were therefore the first Bank to access the Funding for Lending scheme in September.

We have committed in excess of GBP11 billion in gross funds under the scheme to businesses and households since the inception of the scheme in September having drawn GBP3 million so far under the scheme.

Our support for U.K. SME customers is underlined by our net lending which for the second year running grew by 4% in a market that contracted 4%.

Now to an overview of our financial performance in 2012. Group profit and returns increased substantially last year. This is testament to the actions we have taken in simplifying and de-risking our business model. Total cost reductions and impairments fell by 42%, driven by a further improvement in credit quality with impairments as a percentage of our average advances falling by 60 basis points around 1%. These improvements primarily driven by the substantial reduction in non-core assets more than offset the expected decline in income given lower margins in line with our guidance as a result of higher funding costs.

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