Lloyds Banking Group(LYG) - 2025 Q3 - Earnings Call Transcript

Financial Performance and Key Metrics - The group reported a statutory profit after tax of £3.3 billion for the first nine months of 2025, with a return on tangible equity (ROTE) of 11.9% [5][6] - Excluding the motor provision, ROTE was 14.6%, and the full-year ROTE is now expected to be around 12% or 14% excluding motor [6][17] - Year-to-date net income reached £13.6 billion, a 6% increase compared to the previous year, driven by growth in net interest income and a 9% rise in other operating income [6][12] - Operating costs for the year-to-date were £7.2 billion, up 3% year-on-year, in line with expectations [7][14] - The closing CET1 ratio stood at 13.8%, reflecting strong capital generation of 110 basis points year-to-date [19] Business Line Performance - Group lending balances increased to £477 billion, up £18 billion or 4% year-to-date, with retail lending growing by £5.1 billion [9][10] - Year-to-date deposits grew by £14 billion or 3%, with a quarterly increase of £2.8 billion [10] - Net interest income for the first nine months was £10.1 billion, up 6% year-on-year, with a net interest margin of 3.06% [11][12] - Other operating income (OOI) reached £4.5 billion year-to-date, up 9% year-on-year, with Q3 OOI at £1.6 billion, a 3% increase from Q2 [12][68] Market Data and Key Indicators - The retail business saw continued growth across cards, loans, and motor businesses, while commercial lending balances increased by £1.3 billion in Q3 [9][10] - The insurance, pensions, and investments segment experienced steady growth, with approximately £3.3 billion of open book net new money year-to-date [10] Company Strategy and Industry Competition - The company completed the acquisition of Schroders Personal Wealth, now rebranded as Lloyds Wealth, which will enhance its wealth management capabilities [4][33] - Significant advancements were made in the digital asset strategy, including partnerships to deliver tokenized deposits and FX derivatives trades [5][39] - The company aims to integrate Lloyds Wealth into its broader offerings, enhancing customer propositions and driving shareholder value [34][36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the underlying business performance despite the additional £800 million charge related to motor commissions [4][19] - The company anticipates continued growth in net interest income and margin expansion into 2026, driven by structural hedge contributions and lending growth [26][27] - The outlook for asset quality remains strong, with an expected asset quality ratio of around 20 basis points for the full year [16] Other Important Information - The company maintained strong cost discipline, with year-to-date operating costs in line with expectations, and plans to meet its full-year guidance [14][19] - The total provision for motor finance remediation now stands at £1.95 billion, reflecting the adverse outcomes from FCA proposals [15][44] Q&A Session Summary Question: Regarding motor finance provisions and potential top-ups - Management indicated that the current provision of £1.95 billion is a best estimate and that the FCA's proposals are heavily weighted in their scenario analysis, suggesting limited movement in overall provisioning [22][24] Question: Expectations for net interest margin (NIM) growth - Management expects NIM to continue to grow in Q4, driven by structural hedge contributions, and anticipates continued margin expansion into 2026 [26][27] Question: Insights on the wealth management strategy post-acquisition - The acquisition of Lloyds Wealth is seen as a significant step forward, with plans to integrate it into existing customer propositions and enhance advisory capabilities [33][34] Question: Thoughts on tokenized assets and their impact on banking revenues - Management views tokenized assets as an opportunity rather than a threat, with ongoing projects aimed at developing programmable currency and enhancing customer value [39][40] Question: Distribution strategy and potential for more frequent buybacks - Management remains committed to distributing excess capital and will consider the form and timing of distributions at the end of the year, with no immediate plans for more frequent buybacks [42][44] Question: Trends in non-banking net interest income and other operating income - Non-banking net interest income is running about 10% ahead of last year, primarily driven by volume growth, while other operating income is expected to continue growing, albeit with some variability across divisions [62][66][68]