Lloyds Banking Group(LYG) - 2019 Q2 - Earnings Call Transcript

Financial Performance and Key Metrics - The company reported a statutory profit after tax of £2.2 billion, a return on tangible equity of 11.5%, and an underlying profit of £4.2 billion [6][54] - The net interest margin remained resilient at 290 basis points, with costs down 5% and an improved cost-to-income ratio of 45.9% [7][54] - The company generated £10 billion of gross lending to UK businesses in H1 2019, ahead of its £18 billion target for the year [29] Business Line Performance - The insurance and wealth segment saw new business premiums increase by 72% compared to the first half of 2017, contributing 38% of other income in H1 2019 [33][35] - Retail banking continued to perform well despite challenging market conditions, while commercial banking faced difficulties [8][54] - The company incurred a PPI charge of £550 million in Q2, impacting overall profitability [8][74] Market Data and Key Indicators - The UK economy showed resilience, with employment rising and real wages increasing, supporting consumption and GDP growth [11] - However, business confidence and investment intentions among UK corporates have deteriorated, leading to lower activity levels across sectors [11][12] - Global growth has softened, and the interest rate curves have flattened, creating a less supportive environment for retail and commercial banks [12] Company Strategy and Industry Competition - The company is focused on a strategic transformation while being responsive to short-term risks, maintaining a balanced approach [4][5] - Significant investments in technology and digitization are underway, with technology cash spend equating to 19% of the operating cost base [18][20] - The company aims to deepen customer relationships and enhance its competitive position through a multi-brand, multi-channel model [36][48] Management Commentary on Operating Environment and Future Outlook - Management acknowledged ongoing economic uncertainty but expressed confidence in the company's ability to support customers and deliver sustainable returns [5][31] - The company remains well-placed to achieve its long-term targets despite potential impacts from economic conditions [5][83] - The focus on efficiency and cost management is seen as a key competitive advantage in the current environment [63][118] Other Important Information - The company has committed to more than £3 billion of strategic investments over the course of its strategic plan [15] - The interim dividend was increased by 5% to 1.12 pence per share, reflecting the company's strong capital generation [3][80] Q&A Session Summary Question: Inquiry about net interest margin and credit spreads - Management discussed the structural hedge's importance and its contribution to earnings stability, noting that current market conditions would not significantly impact the capital position [86][91] - They acknowledged slight improvements in the mortgage market but maintained a cautious outlook on profitability [92][94] Question: Follow-up on mortgage book contraction - Management confirmed an accelerated contraction in the SVR book and provided details on gross lending volumes, indicating a pickup in Q2 [96][102] Question: Credit card strategy and impairment rates - Management stated that the strategy for credit cards remains focused on market share growth, with recent adjustments in product offerings [104][110] Question: Guidance on capital generation and RWA optimization - Management indicated ongoing RWA optimization efforts and expected further actions in the second half of the year to support capital generation [107][108]