Lloyds Banking Group(LYG) - 2019 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Underlying profit for 2019 amounted to GBP 7.5 billion with a return on tangible equity (ROTE) of 14.8% [4] - Statutory profit after tax was GBP 3 billion, significantly below last year, primarily due to PPI charges [4][6] - Net income was GBP 17.1 billion, slightly lower than the prior year, with a net interest margin of 2.88% [6][35] - Total costs were reduced by 5%, including a 6% reduction in business-as-usual costs, resulting in a cost-to-income ratio of 48.5% [6][36] Business Line Data and Key Metrics Changes - The open mortgage book increased by GBP 3.5 billion in 2019, driven by the Tesco book acquisition [10] - The SME portfolio grew by 3.3% since the start of GSR3, outperforming the market [10] - Consumer finance, particularly in Motor Finance, saw a GBP 1 billion increase [44] - The Commercial Banking portfolio's margin remained stable at 2%, despite a reduction in the asset base [45] Market Data and Key Metrics Changes - The UK economy showed resilience despite challenges, with household spending power rising close to 2% annually [12] - Employment rates reached all-time highs, and consumer confidence showed signs of improvement [12] - Business confidence is gradually recovering as Brexit-related uncertainties diminish [12] Company Strategy and Development Direction - The company is focused on strategic investments, having made around GBP 2 billion since the start of GSR3, with a commitment of over GBP 3 billion by the end of 2020 [3] - The strategy aims to transform the group for success in a digital world while supporting the core purpose of Helping Britain Prosper [14] - The company is enhancing customer experience through digital capabilities and partnerships with fintech providers [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business's resilience and strategic direction, despite external challenges [3][12] - The outlook for 2020 includes expectations for increased statutory profits and a statutory ROTE of 12% to 13% [64][71] - The company anticipates a gradual improvement in other income, particularly in Insurance and Wealth [52] Other Important Information - The company plans to move to quarterly dividends starting Q1 2020, with an increase in total ordinary dividends to 3.37p per share [5][71] - The CET1 capital ratio finished at 13.8%, with expectations for free capital build of 170 to 200 basis points in 2020 [8][69] Q&A Session Summary Question: Outlook for non-interest income and capital distribution - Management discussed the Insurance business's performance and the potential for rate hardening in 2020, indicating that they are not relying solely on this for performance [74][75] - Regarding capital, management noted a prudent stance and that the decision on capital repatriation will be made by the Board at the end of 2020 [76] Question: Net interest income and balance sheet guidance - Management addressed the NIM guidance and the impact of reinvestment in Q4, along with expectations for the balance sheet mix evolving over the year [77]