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 the year, with a return on tangible equity (ROTE) of 11.9% [5][17] - Excluding the motor provision, ROTE was 14.6%, and the full-year expectation for ROTE is around 12% or 14% excluding motor [6][18] - Year-to-date net income reached £13.6 billion, a 6% increase year-on-year, driven by growth in net interest income and a 9% rise in other operating income [6][11] - Operating costs for the year-to-date were £7.2 billion, up 3% year-on-year, in line with expectations [7][13] - 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 [8][9] - Year-to-date deposits grew by £14 billion or 3%, with a quarterly increase of £2.8 billion in Q3 [9] - Net interest income for the first nine months was £10.1 billion, up 6% year-on-year, with a Q3 margin of 306 basis points [10][11] - Other operating income (OOI) reached £4.5 billion year-to-date, up 9% year-on-year, with Q3 OOI at £1.6 billion [11][12] Market Data and Key Metrics - The retail business saw growth across cards, loans, and motor businesses, while commercial lending balances increased by £1.3 billion in Q3 [8][9] - The insurance, pensions, and investments sectors experienced steady growth, with approximately £3.3 billion of open book net new money year-to-date [9] 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][35] - Significant advancements were made in the digital asset strategy, including partnerships to deliver tokenized deposits and FX derivatives trades [5][41] - The company aims to integrate Lloyds Wealth into its broader offerings, enhancing customer propositions and driving shareholder value [35][39] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in achieving 2026 guidance despite the recent motor provision charge, indicating strong underlying business performance [4][20] - The company anticipates continued growth in net interest income and margin expansion through 2026, driven by structural hedge contributions and lending growth [27][29] - Management acknowledged potential headwinds from mortgage refinancing but maintained that guidance for net interest income remains unchanged [54] Other Important Information - An additional £800 million charge was taken for potential motor commission remediation costs, bringing total provisions to £1.95 billion [4][15] - The company is committed to maintaining cost discipline while investing in strategic growth areas [13][20] Q&A Session Summary Question: Regarding motor finance provisions and potential FCA outcomes - Management indicated that the current provision of £1.95 billion is based on scenario analysis and that the FCA's proposals are heavily weighted in their provisioning [25][26] Question: Expectations for net interest margin (NIM) growth - Management expects NIM to increase in Q4, driven by structural hedge contributions, and anticipates continued margin expansion into 2026 [27][29] Question: Insights on the wealth management strategy and potential inorganic growth - Management expressed satisfaction with the acquisition of Lloyds Wealth and emphasized focusing on organic growth and integration before considering further acquisitions [35][39] Question: Updates on non-banking funding costs and other operating income trends - Non-banking net interest income is running about 10% ahead of last year, with growth driven primarily by volumes rather than rates [71][72] - Other operating income trends show divergence, with retail performing well while insurance appears to be tapering off [70][72]