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Lloyds Banking Group - Q3 2019 Interim Management Statement


Lloyds Banking Group plc

Q3 2019 Interim Management Statement

31 October 2019

António Horta-Osório, Group Chief Executive said:

"In the first nine months of 2019 we have made strong strategic progress and delivered solid financial performance in a challenging external environment. I am disappointed that our statutory result was significantly impacted by the additional PPI charge in the third quarter, driven by an unprecedented level of PPI information requests received in August. However, our performance continues to demonstrate the resilience of our customer franchise and business model, the strength of our balance sheet and that our strategy is the right one in this environment.

We will maintain our prudent approach to growth and risk whilst continuing to focus on reducing costs and investing in the business to transform the Group for success in a digital world. Although continued economic uncertainty could further impact the outlook, we remain well placed to support our customers and to continue to Help Britain Prosper."








Strong strategic progress and the right strategy in the current environment

  •  Strategic investment of £1.7 billion since launch of GSR3 in February 2018
  • Schroders Personal Wealth launched with ambition of becoming top 3 financial planning business by end of 2023
  • Acquisition of Tesco Bank's £3.7 billion UK prime residential mortgage portfolio

Solid financial performance with statutory result impacted by additional PPI charge

  • Statutory profit before tax of £2.9 billion including an additional £1.8 billion PPI charge in the third quarter
  • Underlying profit of £6.0 billion in a challenging external environment, with lower net income partly offset by lower total costs and higher impairment charges

−   Net income of £13.0 billion, down 3 per cent, with slightly lower average interest-earning banking assets of £434 billion, net interest margin of 2.89 per cent and other income of £4.4 billion, down 4 per cent

−   Total costs of £6.0 billion down 5 per cent driven by reductions in both operating costs and remediation charges. Market-leading cost:income ratio further reduced to 46.5 per cent with positive jaws of 2 per cent

−   Credit quality remains strong. Net asset quality ratio of 29 basis points, including a single large corporate charge in the third quarter

  •  Tangible net assets per share of 52.0 pence. Statutory return on tangible equity reduced to 6.8 per cent significantly driven by the PPI charge with underlying return on tangible equity remaining strong at 15.7 per cent


Balance sheet strength maintained with lower Pillar 2A requirement

  •  Loans and advances up £6 billion in the quarter, with continued growth in targeted segments including the open mortgage book, benefiting from both the Tesco mortgage acquisition and organic growth, SME and Motor Finance
  • CET1 capital build of 149 basis points in the first nine months before PPI charge and 28 basis points after the charge; CET1 ratio of 13.5 per cent
  • Pillar 2A CET1 requirement reduced from 2.7 per cent to 2.6 per cent. Target CET1 ratio remains c.12.5 per cent, plus a c.1 per cent management buffer. Given the Pillar 2A reduction, the headroom above the regulatory requirements has increased


  • The resilience of the Group's business model is reflected in its 2019 guidance:

−     Net interest margin of 2.88 per cent, in line with previous guidance of c.2.90 per cent

−     Operating costs now expected to be less than £7.9 billion, ahead of previous guidance, and cost:income ratio to be lower than in 2018

−     Net asset quality ratio of less than 30 basis points

−     Free capital build of c.75 basis points, post the PPI charge of 121 basis points

  •  Although continued economic uncertainty could further impact the outlook, the Group remains well positioned with the right strategy to continue delivering for customers and shareholders