Lloyds Banking Group(LYG) - 2019 Q3 - Earnings Call Transcript

Financial Performance - Statutory profit before tax for the first nine months was £2.9 billion, significantly down due to an additional PPI charge of £1.8 billion in Q3 [6][19] - Underlying profit decreased by 5% to £6 billion, with a strong underlying return on tangible equity at 15.7% [7][20] - Revenues fell by 3%, while total costs decreased by 5%, leading to an improved cost-income ratio of 46.5% [7][15] Business Line Performance - Other income for the quarter was £1.3 billion, facing challenges particularly in commercial markets and lower fee income in retail due to reduced fleet volumes [12][14] - Insurance business continued to perform well, although impacted by rates, with no recurrence of benefits from previous asset manager changes [13] - The open mortgage book increased by £6.1 billion, including £3.7 billion from the Tesco acquisition, with strong underlying growth of £2.4 billion [21][22] Market Performance - SME lending grew by 2% year-on-year, while motor finance increased by 8%, outperforming the market [23] - Total current accounts rose by 3%, with UK personal current accounts growing approximately 50% ahead of a competitive market [23] Company Strategy and Industry Competition - The company continues to target a progressive and sustainable ordinary dividend, maintaining a capital target of around 12.5% with a management buffer of 1% [8][28] - The strategy includes a focus on cost reductions and prudent growth, with investments of £1.7 billion since the launch of GSR3 in 2018 [29][31] - The company aims to be a top 3 financial planning business by the end of 2023 through the launch of Schroders Personal Wealth [29] Management Commentary on Operating Environment and Future Outlook - The management acknowledged the subdued economic environment impacting business performance, with continued uncertainty likely to affect the outlook [30][31] - For 2019, the company expects a net interest margin of 288 basis points and operating costs to be less than £7.9 billion [30] - The management remains focused on prudent growth, cost reduction, and investment in the business despite external pressures [31] Other Important Information - The company has seen a reduction in the restructuring charge by 54% year-on-year, with the integration of MBNA and ring-fencing work now complete [19] - The effective tax rate for the year-to-date is 33%, reflecting the nondeductibility of certain PPI redress costs [20] Q&A Session Summary Question: Other operating income trends and annualization - Management indicated that the tough environment for other income is expected to persist into Q4, cautioning against annualizing Q3 trends [33][34][40] Question: Capital generation outlook for 2020 - Management expressed confidence in the capital-generating characteristics of the business, expecting to remain within the 170 to 200 basis points range for capital generation [41][42] Question: Bulk annuities appetite and pipeline - Management confirmed no change in appetite for bulk annuities, noting that timing issues affect quarterly outcomes [49][50] Question: Motor finance charge and market sensitivity - The motor finance charge was influenced by second-hand car prices, with recent data indicating a slight improvement [53][54] Question: PPI charge and provision details - The £1.8 billion PPI provision includes components for direct complaints, official receiver considerations, and operational costs, with management providing a detailed breakdown [78][79] Question: Cost-to-income ratio guidance - Management refrained from providing specific guidance on the cost-to-income ratio for 2021, citing a tough revenue environment [83] Question: Mortgage competition and growth outlook - Management noted competitive pressures in the mortgage market, with a cautious approach to growth based on risk-adjusted returns [86][90]