LLOYDS BANKING GROUP COMMERCIAL BANKING UPDATE · 4/16/2013 · Director Director Director 1....

COMMERCIAL BANKING UPDATE 1

LLOYDS BANKING GROUP LLOYDS BANKING GROUP LLOYDS BANKING GROUP LLOYDS BANKING GROUP COMMERCIAL BANKING UPDATECOMMERCIAL BANKING UPDATECOMMERCIAL BANKING UPDATECOMMERCIAL BANKING UPDATE

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WELCOME & INTRODUCTIONWELCOME & INTRODUCTION

António Horta-Osório

Group Chief Executive

WELCOME & INTRODUCTIONWELCOME & INTRODUCTION

António Horta-Osório

Group Chief Executive

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COMMERCIAL BANKINGA core part of Lloyds Banking Group

Strong core franchise across UK

A single division serving all the Group’s business clients

UK-centric approach, focused on meeting our clients’ needsKey to our support for the UK economic recovery

Leveraging Commercial Banking as an integral part of the Group

Strategy and action plan fully aligned and integrated with GroupDelivering cost and product synergies with other parts of the GroupSupporting the Group’s funding and commercial needs

2

A clear plan to improve Commercial Banking’s returns

Growing diversified, sustainable earnings streamsDelivering increased operational and cost efficiencies through SimplificationOptimising the balance sheet through clear participation choices and strong risk controls

COMMERCIAL BANKING STRATEGYCOMMERCIAL BANKING STRATEGYAndrew Bester, Chief Executive, Commercial Banking


3


AGENDA



IMPROVING COMMERCIAL BANKING RETURNSNick Slape, Finance Director, Commercial Banking

MANAGING RISK APPROPRIATELYStephen Shelley, Risk Director, Commercial Banking

4

BEST BANK FOR CLIENTSDavid Oldfield, Andrew England,

Richard Moore, James Garvey

CLOSING REMARKS AND Q&AAndrew Bester, Chief Executive, Commercial Banking



2015 Core RoRWA >2%Relentless focus on

5

Execution


COMMERCIAL BANKINGBuilding the best bank for clients

1 25m SME clients1.25m SME clients

Relationships with 91% of FTSE 100

c.40% active users of digital channel

Relationships with 83% of FTSE 250

6

500 business centres across the UK

Network of over 4,000 client facing staff

COMMERCIAL BANKINGPersonal reflections

Unique client franchiseS d bili

Strengths

Strong product capabilityClient-centric team

Shifting industry trendsSubdued environmentRegulatory challenges

Macro environmentBalance sheet normalisationLegacy issues unwindCreate an integrated franchise Fully leverage growth opportunitiesCost discipline

Transformation

2015 Core RoRWA

>2%

7

Weak NIM Large consumption of Group RWAInsufficient returns

Financial performanceRobust RWA management / choicesRelentless execution


COMMERCIAL BANKINGActions to date

Achieved already What is different

Strategic review

Aligned 16 business lines

New coverage model

Appointed management team

Re-segmentation

Relentless execution of strategy

Integrated daily P&L

Performance management framework

Pricing independence

Business model drives collaboration

8

Performance management tools Disciplined investment & participation

Andrew BesterGroup Director &

CEO Commercial Banking

COMMERCIAL BANKINGExperienced & integrated leadership team

David Oldfield

MD,SME &

Andrew England

MD,

Adrian Walker

MD,

Clare Francis

MD,

Edward Thurman

MD,

GroupRisk1

GroupFinance1

GroupHR1

Group Risk1

Richard Moore

MD,

James Garvey

MD,

Darryl EalesMD,

KarinCookChief

CEO Commercial Banking

Andy Cumming

MD,

Stephen Shelley

Risk

Nick Slape

Finance

Hugh McKay

HR

9

SME & Mid-

Markets;Head of Lending

,Trans-action

Banking

,Business Develop-ment & Trans-

formation

,Global

Corporates

,Financial Institutions

,Financial Markets

,Capital Markets

,LDC Operating

Officer

CLIENT RELATIONSHIPS PRODUCT MANAGEMENT DELIVERY / FUNCTIONAL SUPPORT

,Global

Head of Non-Core

Director Director Director

1. Independent Group functions


COMMERCIAL BANKINGVision and strategy aligned to Group priorities

Robust capital, liquidity and risk

profile

STRENGTHEN

Scalable infrastructure

SIMPLIFYFocused, value

creating balance sheet

RESHAPEClient centricUK focused

Capital efficient

Cost leadership provides competitive advantage

Returns above cost of capital with lower risk

Supports UK business

10

Client leadership

INVEST

Delivers 100% of the

bank to clients

COMMERCIAL BANKINGSupporting all of the Group’s business clients

Lloyds Banking Group

Commercial Banking1,2% of Group1,2

Financial Institutions

No. of clients ~1m ~5,000 ~850 ~2,000

Income

Deposits

Lending Assets

SME Mid-Markets

£25m-£750m t/o

Global Corporates

£750m+ t/o£1-25m t/o

£0-1m t/o

~250k

Income split 37% 24% 23% 16%

73%

27%

24%

76%

26%

11

Lending assets 27% 33% 30% 10%

1. Commercial Banking metrics as a % of Group based on 2012 Full Year News Release2. Core only

Core RoRWA

Deposits

RWA

Income split 37% 24% 23% 16%74%

54%46%

Rest of GroupCommercial Banking

Client at the centre of our model


Mid-MarketsSME Global Corporates Financial Institutions

Share of 2012 Core Client

Income1

COMMERCIAL BANKINGOur full product capability will service our client needs

37% 24% 23% 16%

Investment Banking

Equity DerivativesPrime Brokerage

Financial Markets

CapitalMarkets

M&AECMSecondary Equities

Loan SyndicationAcquisition FinanceLDC2

Liquidity Management

FXMoney Markets Deposits

BondsConduitsProject Finance

Term SecuritisationPrivate Placements

Market ResearchWealth Products 23%

14%

Risk Management

12

TransactionBanking

Markets

Lending

Deposits

Current a/csCall DepositsOverdrafts

Trade FinanceSupply Chain FinanceInternational Payments

Asset Finance Revolving CreditCRE Loans13%

50%

Term LoansCommercial Mortgages

FactoringInvoice DiscountingLeasing

Cash Mgmt.PaymentsCredit Cards

1. Excludes own account / non-client2. Focus on equity support into UK Mid-Markets companies

COMMERCIAL BANKINGAll coverage areas will improve current returns

Higher-value switchers

Strategy Actions

Growth“Local Execution”

Growth“Local Execution”

Disciplined Participation

SME

Mid-Markets

Global Corporates

Higher-value switchersGreater relationship manager capacity enabled by investmentIncrease digital take-up

Targeted geographic expansionMore relationship managers Leverage SME success in Mid-Markets

Improve share of walletFocus on UK-linked clientsOptimisation of low return relationships

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Optimisation of low return relationships

Improve share of walletRefocused coverageSupport Group, Commercial Banking franchise and UK financial services industry

Relentless execution focus across four client segments


COMMERCIAL BANKINGSME: Grow by winning locally

SME

Client numbers vs. Income1

78%~80%

Mid-Markets

Global C t

22%

£1-£25m Turnover"SME"

~20%

<£1m Turnover"Business Banking"

Income

Number of Clients

Market Share by client turnover2

Strong franchise

Winning switchers

Winning in key GDP regions

Growing lending & deposits

Leveraging Transaction Banking

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£10m-£25m£0m-£1m

19%21%

£1m-£2m

17%

£2m-£10m

21%Corporates


1. FY 20122. Charterhouse UK Business Banking Survey Q4 2012 (including Verde clients)

Banking

Reducing cost to serve

COMMERCIAL BANKINGMid-Markets: Grow by winning locally

SME

Mid-Markets Assets by segment1

Medium-Sized

Mid-Markets

Global C t

Medium-Sized Business and Mid-Cap Market Share3

29%

13% 26%

7%

24%

Education, Communities and GovernmentReal EstateSocial Housing

Mid-Cap2

Business2

Leveraging SME experience

Increasing RM population

Enhancing RM effectiveness

Building capabilities

Leveraging Transaction B ki

151. As at Dec-20122. Medium-Sized Business is £25m-£100m turnover; Mid-Cap is £100m-£750m turnover3. Experian PH. Market share of trading businesses with turnover £25m-500m

Corporates


19%

Market Leader

29%


Banking

Delivering Financial Markets


COMMERCIAL BANKINGGlobal Corporates: Disciplined participation focused on improving returns

Client Segmentation

SME % of clients

Strategy1

Prioritisation Criteria

Franchise opportunity

UK focused

Crit

eria

Mid-Markets

Global C t

clients1

2

Gold

Platinum

Diamond

Sub-hurdle

Grow / defend

Grow / up-tier

Deepen

Optimise

c.5%

c.15%

c.45%

c.35%

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Returns

Corporates


Lending Transaction Banking

Financial Markets

Capital Markets

Product Penetration3 Returns

RoRWA

COMMERCIAL BANKINGFinancial Institutions: Disciplined participation leveraging London as a global financial centre

SME

Prioritisation Criteria Client Segmentation% of

clientsStrategy

1

Mid-Markets

Global C t

Grow / defend

Grow / up-tier

Manage for efficiency

Optimise

c.2%

c.13%

c.65%

c.20%

Correspondent banking

Institutional distribution

Gold

Platinum

Diamond

Sub-hurdle

clients

Supporting the Commercial Banking Franchise

Support the Group

Crit

eria

1

2

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Corporates


Lending Transaction Banking

Financial Markets

Capital Markets

Product Penetration Returns

RoRWASupport financial services industry in the UK

3


COMMERCIAL BANKINGContinued cost discipline creates capacity to re-invest

Re-engineering end-to-end processes

Delayering structure

Headcount efficiencies

11 Centres of Excellence

Simplification initiatives

SME: enabling self-serve

Mid-Markets: additional local RMs

Transaction Banking: stronger platform

Markets: digital channel and targeted

Strategic investments

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Leverage Group functionality

g gcapability build

Transformation Journey

COMMERCIAL BANKINGDeliver sustainable returns above the cost of equity

Normalisation of funding costsStrategic investments in product capabilityFranchise growth SME / Mid-Markets

2015 Core RoRWA

>2%

SimplificationScalable integrated platformsCentres of Excellence

Cost Control

Income Growth

19

Balance Sheet and Risk

Management

Capital optimisationActive portfolio managementLower risk origination discipline

Relentless execution


AGENDA

COMMERCIAL BANKING STRATEGYAndrew Bester, Chief Executive, Commercial Banking


IMPROVING COMMERCIAL BANKING RETURNSIMPROVING COMMERCIAL BANKING RETURNSNick Slape, Finance Director, Commercial BankingIMPROVING COMMERCIAL BANKING RETURNSIMPROVING COMMERCIAL BANKING RETURNS

Nick Slape, Finance Director, Commercial Banking

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IMPROVING COMMERCIAL BANKING RETURNSIMPROVING COMMERCIAL BANKING RETURNSNick Slape, Finance Director, Commercial BankingIMPROVING COMMERCIAL BANKING RETURNSIMPROVING COMMERCIAL BANKING RETURNS

Nick Slape, Finance Director, Commercial Banking

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COMMERCIAL BANKINGCore Financial Performance…key drivers to improve our returns

Income Growth

Normalisation of funding costs

Strategic investments in product capability

1 1

Cost Control

Growth p p y

Franchise growth SME / Mid-Markets

Simplification

Scalable integrated platforms

Centres of Excellence

22

Balance Sheet & Risk Mgt

Capital optimisation

Active portfolio management

Lower risk origination discipline

1. Core Commercial Banking only

COMMERCIAL BANKINGHalf yearly performance

Income1

(£m)Income Growth 1 378

1,4682,364

1,128

2,320

1,114

2,3262,755

Other incomeNII

Legacy issues driving margin compression

(£m)

Costs1

(£m)

1,0701,1621,1111,181Cost

Control

Growth 1,378

1,236

,

1,206

,

9481,287

H2’12H1’12H2’11H1’11

Other Income progression

Strict cost disciplineSimplification creates capacity

23

Impairment1(£m)

H2’12H1’12H2’11H1’11


33% YoY fall in impairmentsAQR of 67bpsImpairments normalising

704

1,055

20122011



COMMERCIAL BANKINGDiversified client-led income profile

Client vs non-client income1,2

Income Growth

10%

Non ClientClient

Cost Control

Growth

90%

Non Client

23%13%

90% of income client driven

Low-risk products

Diversified client franchise

Leverage SME success 37%

16%

Income by client segment1,2

Client income split by product1,2

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14%

50%

Financial MarketsCapital MarketsTransaction BankingTerm Lending

Disciplined participation

24%

23%

Global CorpsMid MarketsSME

Fin. Institutions

1. FY 20122. Core Commercial Banking only

COMMERCIAL BANKINGNormalisation of funding costs will benefit margin

2.22%2.54%Income

Growth

Net interest margin1‘Cost of money’ better understood

Enhanced commercial behaviours

Legacy long duration asset margin drag

(32bps)

20122011

Cost Control

Growth Legacy long duration asset margin drag

Active portfolio management

Client-led solutions to reduce duration

Focus on better quality deposits

Lending maturity profile1

18% Under 5 yearsOver 5 years2

LTSB 5 year CDS spreads (bps)

336400

500

25


1. Core Commercial Banking2. Based on specific portfolios with a weighted average life of over 5 years and includes Social Housing & Structured Finance

Commercial behaviour driving further NIM improvement

82%106 122

0

100

200

300

01/08 07/08 01/09 07/09 01/10 07/10 01/11 07/11 01/12 07/12 01/13


COMMERCIAL BANKINGLeveraging client focused product capability to drive other income

Income Growth

Other Income growth

+9%

Cost Control

Growth

2012

2,442

2011

2,235

10% Term Lending

Other Income by product1,2

Existing pockets of strong product capability

Investment in client focused products

Quarter on quarter growth

Increasing share of wallet

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31%

28%

31%

10%

Financial MarketsCapital Markets3

Transaction BankingTerm Lending

Not increasing risk

1. FY 20122. Core Commercial Banking only3. Capital Markets includes LDC

COMMERCIAL BANKINGCost savings reinvested to create income growth

Income Growth

Over 100 projectsProcess automation

Cost Control

Growth

Cost disciplineSimplification cost savings of £0.2bn paCreating capacity

Process automationCentres of ExcellenceChannels & products

Simplification

Headroom for Investment

27


£0.5bn targeted incremental investment over three yearsCapability build across Transaction Banking and MarketsInvesting in return enhancing capital light products

Invest for Income Growth


COMMERCIAL BANKINGActive portfolio management to enhance returns

133-138Income Growth

Core RWAs (£bn)

(10%)

2015

~125

Growth

5-10


15-20

2012 CRD IV pro forma

CRD IV and other Reg lator change

5-10

2012

38

128

90Cost Control

Growth

28

Lending RWAs £90bn correspond to £102bn of Loans and Advances to Customers

Modest impact of CRD IV and regulatory change

Disciplined participation and active portfolio management

Creating capacity for supporting our clients and participating in FLS

Growth includes franchise growth, maturities and repayments

ParticipationIV pro formaRegulatory change


LendingNon-Lending


FY111 FY121 2015

Banking net interest margin 2.54% 2.22%Income Growth Income (£bn) 5.1 4.7

Other Income as a % of income 44% 52%

Cost:Income Ratio 45% 48%Cost Control

Growth

29

Impairment charge as a % of average advances 0.95% 0.67%

RWA (£bn) 129 128 ~125

Return on Risk-Weighted Assets 1.32% 1.36% >2.00%




AGENDA



MANAGING RISK APPROPRIATELYMANAGING RISK APPROPRIATELYStephen Shelley, Risk Director, Commercial Banking


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31




Prudent risk appetite

Active portfolio Low risk

portfolioPrudent risk

appetite

Active portfolio Lower risk

portfolio

32

appetite managementportfolioappetite managementportfolio

A erage AQR1 2008 2009 (bps)

COMMERCIAL BANKINGLower risk business underpinned by the prudent heritage LTSB appetite

153

669

Average AQR1 2008-2009 (bps)

LTSB lower risk approach

Legacy HBOS portfolio largely exited or in non-core

Prudent LTSB approach is already embedded

33

LTSBHBOS

1. Commercial Banking excluding Wholesale Europe International Portfolios


COMMERCIAL BANKINGIndependent Enterprise-wide Risk Framework

SME Mid-Markets

Global Corporates


Market Risk Credit Risk

Capital Risk

Insurance Risk

Operational Risk

Risk typesMarket Risk

Small relative to peers

Average 95 per cent 1-day trading Value at Risk (VaR) was £7m for year to December 2012

Conduct Risk

Enhancements to product design, sales processes, root cause analysis

Credit Risk

Prudent and through the cycle credit risk appetite

34

Funding & Liquidity Risk

Financial Reporting Risk People Risk

Governance Risk

Conduct RiskRegulatory Risk

Prudent and through the cycle credit risk appetite

Clearly defined levels of authority

Early identification and management of deteriorating credits

COMMERCIAL BANKINGWe are executing a robust conduct risk strategy

Product Governance

Rigorous product risk assessment Product implementation reviews Annual product reviewsE h d d k i

Qualitative statements and core metrics, regularly reviewed at Board level

Supported by more detailed divisional appetite statements and limits

Further evolving MI to

Client Treatment

Conduct Risk Appetite

Enhanced record keeping

Responsible lending Post sales processes ensure best outcomes

Culture, Recruitment Reward and

Best bank for clientsClient outcome measures drive reward

35

enhance Conduct Risk Appetite Metrics

Complaint Handling

Root cause analysisClient outcome testing Rectification framework

Training


COMMERCIAL BANKINGEstablished credit risk approach supports our UK-centric strategy

Hold policy

Risk appetite Conservative, through the cycle approachTarget market and risk acceptance criteria

Single counterparty and selective sector concentration limitsCaps for higher risk sectors and asset classes

5%

95%

2012 Core asset portfolio1

36

Credit policyMinimum obligor quality rating criteria for bulk of new businessSector and product specific parameters

Robust processes with strong oversight are in place

InternationalUK

1. UK defined as all UK-booked business

COMMERCIAL BANKINGImproving credit risk profile

Improved obligor qualityCore CB (excl. Financial Markets): Probability of Default (commitments)

Sector concentrations under control Obligor quality is stable Heritage LTSB approach to originationAdhered to credit risk appetite for FLSBSU transfers do n 37%

Commercial/Residential Property1

Core

37

BSU transfers down 37%Real Estate exposure under control

Total £43.7bn

UK Good Book£18.0bn

UK Business Support Unit

£12.7bn

Overseas2

£13.0bn

1. 2012 Full Year News Release2. Overseas includes £7.4bn of Ireland assets

Core

Non-Core


COMMERCIAL BANKINGLower impairments via prudent risk management

1.1

Core impairment charge (£bn)

(33%)

0.7

20122011

Core AQR (bps)

(28bps)

Core impairments down 33%Core AQR 67bps Good book forborne loans minimal

38

67

95

2011 2012

( p )

COMMERCIAL BANKINGActive portfolio management

OriginationNew centralised pricing controls

Origination discipline

Optimise low return clients

Pricing models reflect full Basel III impactsPortfolio Management team approve all larger transactions

Built client return metrics combining all product revenues and risksClient management plans to deepen walletOptimisation of long dated low margin loans

39

RWA optimisation

Disciplined origination reducing capital requirements for new businessStronger distribution focus


AGENDA




BEST BANK FOR CLIENTSBEST BANK FOR CLIENTSBEST BANK FOR CLIENTSBEST BANK FOR CLIENTS

40

BEST BANK FOR CLIENTSBEST BANK FOR CLIENTSDavid Oldfield, Andrew England, Richard Moore, James Garvey

BEST BANK FOR CLIENTSBEST BANK FOR CLIENTSDavid Oldfield, Andrew England, Richard Moore, James Garvey


BEST BANK FOR CLIENTSBEST BANK FOR CLIENTS

SME & Mid-Markets – David Oldfield


SME & Mid-Markets – David Oldfield

41


COMMERCIAL BANKINGSME supports clients’ needs across the UK

SME UK geographic spread

21%21%

Market share by client turnover1

31% 33%40%

34% 33%31%

Market share by region1,2

£10m-£25m

17%

£2m-£10m

19%

£1m-£2m£0m-£1m

£0m-£1m t/o: ~1m clients

£1m-£25m t/o: ~250,000 clients

~2,500 client facing staff

500 business centres

421. Charterhouse UK Business Banking Survey Q4 2012 (including Verde clients)2. £1m-£25m turnover clients. Market share at Dec-2012

25%31% 33%

Overall UKSouth and West

ScotlandMidlands and North

London and East

3 %

19%

33%

16%

31%

19%

Market LeaderLloyds Banking Group

20 Area Director groups

Area Director and Support Centres

COMMERCIAL BANKINGOpportunity to grow underpenetrated Mid-Markets regions

11% London and South East

Mid-Markets UK geographic spread 2012 Income by region1

30%

40%19%Midlands, East and South West

ScotlandNorth

29%34%

30%34%

29%26%

Market share by region2

£25m-£750m t/o: ~5,000 clients

165+ RMs

20 Area Director groups

431. Comprises Medium-Sized Business and Mid-Cap only2. Experian PH, market shares as at Dec-2012. Market share of trading businesses with turnover £25m-£500m

15%

29%

19%

North Overall UKScotland

29%

Midlands, East and

South West

21%

London and South East

17%

26%

Market LeaderLloyds Banking Group


COMMERCIAL BANKINGThe best Relationship Managers local to clients

addresses “client needs” Our proposition

Experienced and knowledgeable RMs, many with 20+ years experienceNamed, local RM supportRM portfolios comprise similar size / sector clients leading to deep insight

Net lending to SME 4% up in a market that declined 4% in 2012Net lending to Mid-Markets in H2 2012 broadly flat in a market that declined 6%Providing discounted lending to SMEs through NLGS and FLSSupport in excess of 100k business start ups annually

Direct access to RMs through client’s preferred channelsReduced time to cash by almost 50%

Best RMs“know the business”

Helping Britain prosper “support UK SME”

Core capabilities“make it easy”

44

Leveraging the combined geographic reach

Access through RMs to broader product/sector specialistsRange of industry accredited key market RMs providing tailored service

make it easy

Franchise growth“help access expertise”

COMMERCIAL BANKINGCommitted to supporting UK clients through a number of government schemes

FLSDiscounts of 1% per annum to all qualifying clients First bank to participate in scheme Committed in excess of £11bn in gross funds to end 2012g

Enterprise Finance

Guarantee (EFG) Scheme

One of the most active EFG lendersBy the end of 2012 we provided– More than 5,200 EFG loans worth in excess of £400m – Represent 26% of all loans granted through the scheme

Business Finance

Key contributor to the Government Business Finance taskforce400 business volunteer mentors – 42% of the UK wide bank mentor population SME and Mid Markets Charters

45

Finance Taskforce

SME and Mid-Markets ChartersClient lending appeals200 client outreach events in 2012

UK Business Angels

Association

Supporting efforts to help SMEs secure equity from private investorsWe are the only bank represented on the Board of the UKBAA£850m early stage equity with advice from angels complements our debt finance support


COMMERCIAL BANKINGWinning new clients

Schools ManufacturingAgriculture

Attracted a switcher after 150 year relationship with previous bank

P iti diff ti t d

Bank 57% of all academies

Clients cite service excellence, strength of

iti d d th f

Largest provider of finance to UK agriculture

34% share of lending to f

46

Proposition differentiated through sector knowledge

proposition and depth of sector knowledge as deciding factors

farmers

Support 9 in 10 deals presented to us


Transaction Banking – Andrew England


Transaction Banking – Andrew England

47


COMMERCIAL BANKINGSignificant volumes across Transaction Banking platforms

Payment volumes (m)1

Leveraging platforms post integration

EUROMONEY TRADE FINANCE April 2012Best Domestic Trade Finance Provider

CARD & PAYMENT AWARDSFebruary 2013Best Merchant Acquiring Initiative –London 2012

518

541

Payment volumes (m)1

4%

48

2011 2012

1. Includes domestic payments for SME, Mid-Markets and Global Corporates. Market grew by up to 1% in 2012

Helping clients with their working capital needs

COMMERCIAL BANKINGConsolidation and simplification of infrastructure to create a sustainable platform for growth

2011 – post LTSB/HBOSFragmented landscape 2012 / 2013 2014

Channels

Account platform

Limited liquidityConsolidation of account systems

Build new online channel

Invest in product systems

Single core account platform – SME to Global

Single new electronic channel

Market leading liquidity l i

Investment / transformation

Delivery of integrated platforms

Lloyds TSB

HBOS

49

Channels

Account platform

solutions

Integrated Trade business

Simplifying the operating model, building capability and increasing product offering


COMMERCIAL BANKINGInvestment delivers strong core capabilities

Maximise opportunity in payments tradeMaximise opportunity in payments, trade finance, liquidity and cards

- Develop product propositions

- Improve access through modern online channel and seamless access to domestic and international payments

- Deliver real-time Sterling account platform

Enhance Transaction

Banking platform

50

- Partnering with International banks to build Trade capability

- Specialist sales teams

COMMERCIAL BANKINGDelivering capability to fulfil client needs

UK ManufacturerAirline

Long-term banking partner

High-volume Trade Finance facility

Simplify and standardise banking interfaces

Direct access to the i t t

51

Flexible Trade Lending solution

appropriate payment systems

Award-winning tailored solution



Financial Markets – Richard Moore


Financial Markets – Richard Moore

52

COMMERCIAL BANKINGSimple products serving client needs

5 key product areas across coverage segments

Measure and manage to good client outcomes

Competitive capability

Generate capital efficient returns

Low risk, client-driven

income streams

53


COMMERCIAL BANKINGInvesting to serve the different needs of our clients

Complete core Financial Markets infrastructure build in 2013– Capability to respond to regulation, automation and capital challenges Alignment to coverage and product partners is critical to stable and diversified income

Mid-Markets

SME

Access to market li idit

Financial Markets Role

Simple FX & Interest Rate Hedging ProductsMoney Market Deposits

FX & Interest Rate Risk ManagementLiquidity Management

Alignment to coverage and product partners is critical to stable and diversified income– Top 3 core banks command 80% share of wallet

Client Segments

54

Global Corporates


liquidity through multiple channels

FX & Interest Rate Risk ManagementBond DistributionLiquidity & Collateral Management

Access to market liquidity in FX, Rates & CreditBond Distribution Securitisation Distribution

COMMERCIAL BANKINGEffective intermediation to deliver for the client

“We bring together UK focused clients and relevant investors”

ClientsCapital Markets

private side

Financial Markets

public sideInvestors

55

Origination SyndicationPricing

and Liquidity

DistributionStructuring

and solutions

Research and

Insight

Lending / reciprocity

UK Gateway Strategy


COMMERCIAL BANKINGDelivering solutions in capital light products

GEMMBroadcasterARENA

Rapid growth and increased credibility

Supported the c.£3.6bn refinance of Arqiva existing

Single, customisable e-trading interface for FX

Gilt Edged Market Maker

56

Market leading position

Flagship FM product and gateway to our core proposition

debt facilities

Lloyds acted as bookrunner on the Senior and Junior notes

and Money Market deposits with insight, analysis and reporting

Built for our clients by our clients


Capital Markets – James Garvey


Capital Markets – James Garvey

57


COMMERCIAL BANKINGSupporting clients with financing & risk management

Support relationship managers and their client franchise ambitions

Focus on Debt Financing and Risk Management

Partner with Coverage and Financial Markets to drive distribution in support of originate-to-distribute model

Seek to maximise share of wallet by addressing client needs

Conservative risk profile with strong oversight and control

Build a competitive range of client-centric

financing and risk management

products

58

COMMERCIAL BANKINGEstablished a competitive range of client solution capabilities

Largest provider of syndicated

Supporting UK clients How we are structured to succeed

Largest provider of syndicated lending to the UK economy

An established UK corporate bond franchise

Leading UK corporate Risk Management Solutions team help

Financing Risk Management

Loans Bonds Asset Backed Solutions

Loan Markets

Asset Backed Bonds

Corp / FI DCM

Risk Management Solutions

Product Solutions

59

Management Solutions team help clients manage their balance sheet risks

Building an enhanced financing and risk management product suite for our clients

Short Term FinancingInfrastructure & Energy

Acquisition Finance


CAPITAL MARKETS Strong growth in Capital Markets franchise

60%

nshi

ps 50% UK competitors

Total UK Corporate DCM Service Quality

#2 for ‘Best Domestic Bond Distribution’

Lloyds Banking Group improvement in overall DCM specialist capability was the largest among major competitors

2012

-150 -100 -50 0

20112010

DCM Origination Quality* Difference from average

15010050

Impo

rtant

DC

M R

elat

ion

0%

40%

20%

10%

30%

competitors

IB providers

Interest Rate Derivative Service Quality


60

UK competitors

#1 in UK corporate IRD Market Share

#1 in UK corporate IRD Sterling Swaps Penetration

#1 jointly for Quality Index and Quality Index Sales

#1 for ‘Best’ & ‘Top 3’ Sales Rep

20112010

2012

100

2%

-500%

10%

6%

-150 0

8%

150

Est

imat

ed M

arke

t Sha

re

4%

-100 50

Service Quality Difference from average

IB providers


Housing Association Bond League Table FY 20121

COMMERCIAL BANKINGIncreasing the availability of UK housing stock through public bond issues

Rank BookrunnerAmount

(£m) No.3Market share

1Lloyds Banking Group 883 9 27.7%

2 Peer 1 801 8 25.1%

3 Peer 2 634 7 19.9%

4 Peer 3 300 4 9.4%

5 Peer 4 233 4 7.3%

£225m 5.375% notes due 2042

Bookrunner

May 2012

£225m 5.375% notes due 2042

Bookrunner

May 2012

Case Study: Saxon Weald

61

6 Peer 5 100 1 3.1%

Total2 2,785 16 100%

Excludes aggregation vehicle transactions and private placements

Saxon Weald issued £225m, 30 yr amortising bonds

1. Dealogic2. Total Amount and Market Share includes banks not in the top 63. Each deal may have more than one Bookrunner


COMMERCIAL BANKINGSupporting the UK economy

£1.75bn Senior Bond£300m Senior Retail Bond£150m Bond / $240m USPP / $121m swap

$500m Senior Bond £760m Senior/Index Link Bond

€1.25bn Senior Bond£600m Senior Bond

£750m 3.2% Notes due 2024£1,000m 4.3% Notes due 2042

September 2012

Bookrunner

£300m 4.7% Notes due 2021

October 2012

Bookrunner

£150m Aquisition Facilities$240m Private Placement

$121m USD Swap

October 2012

Bookrunner

$500m 5.6% Notes due 2023

January 2013

Bookrunner

£1.25bn Hybrid Perpetual Bond

£750m Senior Bond

February 2013

£610m 5.6% Notes due 2038£150m 1.6% Notes due 2038

Bookrunner

€1.0bn Senior Bond

62

March 2012

Bookrunner

€1,250m 4.125% notes due 2018

June 2012

Bookrunner

£300m 4.4% Notes due 2034£300m 4.6% Notes due 2046

January 2013

Bookrunner

£1,250m 6.0%

January 2013

£750m 5.6% Notes due 2038

Bookrunner

€1,000m Notes due 2021

March 2013

Bookrunner

AGENDA



BEST BANK FOR CLIENTS


63



CLOSING REMARKS AND Q&ACLOSING REMARKS AND Q&AAndrew Bester, Chief Executive, Commercial Banking

CLOSING REMARKS AND Q&ACLOSING REMARKS AND Q&AAndrew Bester, Chief Executive, Commercial Banking


Transformation Journey


Normalisation of funding costsStrategic investments in product capabilityFranchise growth SME / Mid-Markets

2015 Core RoRWA

>2%

SimplificationScalable integrated platformsCentres of Excellence

Cost Control

Income Growth

64

Balance Sheet and Risk

Management

Capital optimisationActive portfolio managementLower risk origination discipline

Relentless execution

LLOYDS BANKING GROUP LLOYDS BANKING GROUP LLOYDS BANKING GROUP LLOYDS BANKING GROUP COMMERCIAL BANKING UPDATECOMMERCIAL BANKING UPDATECOMMERCIAL BANKING UPDATECOMMERCIAL BANKING UPDATE

65

Best Bank for ClientsBest Bank for ClientsBest Bank for ClientsBest Bank for Clients


APPENDIX

66

Andrew Bester, Group Director and Chief Executive, Commercial Banking, was appointed on 1 July 2012. He has worked in Financial Services for 22 years in a wide variety of client origination, product specialist, finance and general management roles across 3 continents. He has spent most of his senior career transforming businesses.

APPENDIX: MANAGEMENT BIOGRAPHIESAndrew Bester – CEO, Commercial Banking

Andrew started his banking career with Standard Chartered and rejoined in 2004. Most recently within Consumer Banking he was Global COO having also been the Chief Financial Officer. Prior to this he was Co-Head of Wholesale Banking for Greater China and before that undertook the same role for the Africa region. He also served on the Boards of Standard Chartered in China, Korea and Taiwan.

Before joining Standard Chartered, Andrew was the Group Finance Director for Xchanging, a leading European outsourcing firm. Prior to this, he worked at Deutsche Bank in Europe.

Andrew qualified as a Chartered Accountant with Deloitte & Touche. He is a member of the South African Institute of Chartered Accountants the Chartered Institute of Management

67

South African Institute of Chartered Accountants, the Chartered Institute of Management Accountants and is a Chartered Global Management Accountant. Andrew is also a member of the Association of Corporate Treasurers.

Andrew is the Chairman of Lloyds Development Capital (LDC) and sits on the Boards of both the Global Financial Markets Association (GFMA) and the Association of Financial Marketsin Europe (AFME).

Andrew reports to António Horta-Osório and is a member of the Group Executive Committee


David Oldfield – MD, SME & Mid-Markets Head of Lending

Clare Francis – MD, Global Corporates

APPENDIX: MANAGEMENT BIOGRAPHIESClient Relationships Leadership

Markets, Head of LendingDavid has worked Lloyds Banking Group and has over 25 years of banking experience

CorporatesClare has worked for Lloyds Banking Group, HSBC and NatWest, and has over 20 years of banking experience

Edward Thurman – MD, Financial InstitutionsEd has worked for Lloyds Banking Group, Bear Stearns, ABN AMRO, McKinsey &

Andy Cumming – MD, Global Head of Non-CoreAndy has worked for Lloyds Banking Group and has over 35 years of banking

68

Bear Stearns, ABN AMRO, McKinsey & Company, the Financial Services Authority and the Bank of England, and has 15 years of banking experience

Group and has over 35 years of banking experience

Andrew England – MD, Transaction Banking

Richard Moore – MD, Financial Markets

APPENDIX: MANAGEMENT BIOGRAPHIESProduct Management Leadership

Transaction BankingAndrew has worked for Lloyds Banking Group, UniCredit, Deutsche Bank and Citibank, and has over 30 years of banking experience

MarketsRichard has worked for Lloyds Banking Group and Citigroup, and has over 25 years of banking experience

James Garvey – MD, Capital MarketsJames has worked for Lloyds Banking Group, Goldman Sachs, West LB, UBS

Darryl Eales – MD, LDCDarryl has worked for Lloyds Banking Group and has over 25 years of banking experience

69

Group, Goldman Sachs, West LB, UBS and Citicorp, and has over 25 years of banking experience

experience


Adrian Walker – MD, Business Development and TransformationAdrian has worked for Lloyds Banking Group RBS and NatWest and Royal

Karin Cook – Chief Operating OfficerKarin has worked for Lloyds Banking Group, HSBC, Goldman Sachs and Morgan Stanley and has over 20 years

APPENDIX: MANAGEMENT BIOGRAPHIESDelivery / Functional Support Leadership

Group, RBS and NatWest, and Royal Bank of Canada and has over 25 years of banking experience

Morgan Stanley, and has over 20 years of banking experience

Stephen Shelley – Risk DirectorStephen has worked for Lloyds Banking Group and Barclays, and has over 20 years of banking experience

Nick Slape – Finance DirectorNick has worked for Lloyds Banking Group, Lehman Brothers, Merrill Lynch, Deutsche Bank and Dresdner Kleinwort, and has over 25 years of banking experience

70

Hugh McKay – HR DirectorHugh has worked for Lloyds Banking Group and has over 30 years of banking experience

FORWARD LOOKING STATEMENTSThis presentation contains forward looking statements with respect to the business, strategy and plans of the Lloyds Banking Group, its current goals and expectations relating to its future financial condition and performance. Statements that are not historical facts, including statements about the Group or the Group’s 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 on circumstances that will or may occur in the future The Group’s actual future business strategy plans and/or results may differ materially from those expressed or implied in these

FORWARD LOOKING STATEMENTS ANDBASIS OF PRESENTATION

future. The Group s actual future business, strategy, plans and/or results may differ materially from those expressed or implied in these forward looking statements as a result of a variety of risks, uncertainties and other factors, including, but not limited to, UK domestic and global economic and business conditions; the ability to derive cost savings and other benefits, including as a result of the Group’s simplification programme; the ability to access sufficient funding to meet the Group’s liquidity needs; changes to the Group’s credit ratings; risks concerning borrower or counterparty credit quality; instability in the global financial markets, including Eurozone instability and the impact of any sovereign credit rating downgrade or other sovereign financial issues; market related risks including, but not limited to, changes in interest rates and exchange rates; changing demographic and market related trends; changes in customer preferences; changes to laws, regulation, accounting standards or taxation, including changes to regulatory capital or liquidity requirements; the policies and actions of governmental or regulatory authorities in the UK, the European Union, or jurisdictions outside the UK, including other European countries and the US; the implementation of the draft EU crisis management framework directive and banking reform following the recommendations made by the Independent Commission on Banking; 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; the ability to complete satisfactorily the disposal of certain assets as part of the Group’s EC state aid obligations; the extent of any future impairment charges or write-downs caused by depressed asset valuations, market disruptions and illiquid markets; the effects of competition and the actions of competitors including non bank financial services and lendingdisruptions and illiquid markets; the effects of competition and the actions of competitors, including non-bank financial services and lending companies; exposure to regulatory scrutiny, legal proceedings, regulatory investigations or complaints, and other factors. 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. The forward looking statements contained in this presentation are made as at the date of this presentation, and the Group undertakes no obligation to update any of its forward looking statements.

BASIS OF PRESENTATIONThe results of the Group and its business are presented in this presentation on a management basis and include certain income statement, balance sheet and regulatory capital analysis between core and non-core portfolios to enable a better understanding of the Group’s core business trends and outlook. Please refer to the Basis of Presentation in the 2012 Results News Release which sets out the principles adopted in the preparation of the management basis of reporting as well as certain factors and methodologies regarding the allocation of income, expenses, assets and liabilities in respect of the Group's core and non-core portfolios.

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