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Lloyds Banking Group PLC Earnings - Analysis & Highlights for Q4 2024

Overview

PositivesNegativesOutlook

The company has delivered good growth in loans, deposits, and other fee-based products.
The company delivered net interest income of £12.8 billion in 2024, including growth of 1% in Q4.
The company has grown net income by circa £2 billion since 2021, including consistent growth in other income lines.
The company expects net interest income to grow to £13.5 billion in 2025, up about £700 million YoY.

Q4 2024 Earnings Call - Fixed Income

Commercial lending balances were down slightly by £1 billion in 2024, although up when excluding government-backed lending repayments.
Commercial lending was down £0.3 billion in Q4, including £0.4 billion of government-backed lending repayments.
The company's return on tangible equity and capital generation were impacted by an additional provision relating to motor finance commissions of £700 million.

Q4 2024 Earnings Call - Fixed Income

Net interest income is expected to grow to £13.5 billion in 2025, up about £700 million YoY.
The company expects to deliver robust net income of £17.1 billion in 2024, supported by franchise growth.
The company expects the charge to grow in line with fleet growth and higher value vehicles.
The company is not assuming that Lex or any other products are impacted.
The company will only guide to net interest income to simplify its approach and focus on the key outputs.

Q4 2024 Earnings Call - Fixed Income

Q&A Highlights from Lloyds Banking Group PLC Earnings Call Q4 2024

Analyst asked about the company's approach to issuing AT1 and tier 2 bonds, as well as their currency preferences.
- The company typically targets AT1 at around 2%, with a current issuance of 240 basis points, giving them £900 million above what they need to have. They have a natural bias towards sterling for AT1, but have flexibility for tier 2, where they have issued in G3, Aussie dollars, Singapore dollars, and other currencies.
Analyst asked about the company's approach to Stage 2 loans, specifically regarding economic scenarios and modelling impacts.
- The company has a more conservative approach to severe downside scenarios, but has removed some ultra-inflation assumptions due to improving economics and economic releases. The modelling of Stage 2 is predominantly modeling effect, with 90% of assets in Stage 2 continuing to perform. The removal of super inflation scenarios has led to a mechanical move from Stage 2 back to Stage 1.
Analyst asked about the company's approach to motor finance provisions, specifically regarding the Supreme Court appeal and the range of assumptions used in their analysis.
- The company has taken a total provision of £1.15 billion, with £450 million taken in Q4 of 2023 and an additional £700 million taken in the current results. The additional provision is based on a range of scenarios and assumptions, including process outcomes, economic outlook, and remedies. The company has undertaken a full analysis based on a lot of factors and consulting various judges, but there are still significant uncertainties. The company is not providing specific highs or lows for the provision, as the likelihood of 0% interest rates is remote.
Analyst asked about the size of the provision this time compared to the previous one and whether it is linked to the broadening of the scope to non-disclosure as opposed to discretionary disclosure, and if it is topping up on both elements of the claim.
- Douglas Radcliffe, Chief Financial Officer, explained that the provision of £700 million was taken based on the Court of Appeal judgment that goes beyond the scope of the FCA review. The provision reflects the Court of Appeal judgment and is not linked to the broadening of the scope to non-disclosure as opposed to discretionary disclosure. The provision is not topping up on both elements of the claim.
Analyst asked about the company's views on whether they are taking market share.
- Douglas Radcliffe, Chief Financial Officer, stated that the company is significantly increasing the share in certain areas, such as Tusker, which is a salary sacrifice, motor finance, largely electric vehicles, with around 90% of the vehicles being electric. The company is also maintaining or slightly growing the book and share in the overall motor finance area.
Analyst asked about the impact of digital investments on customer relationships, asset quality, marketing, and pricing, and how the company determines where to allocate marginal dollars for digital investments.
- Douglas Radcliffe, Chief Financial Officer, explained that the company has been investing in technology and data for several years, with the goal of improving customer engagement and enhancing the proposition. He highlighted the increase in mobile app users and the adoption of cloud technology as examples of the success of these investments. He also mentioned the importance of using data to improve customer knowledge and benefit customers.
Analyst asked about the company's strategy and how it aligns with government plans for UK growth, including homeownership, home build, social housing, and net zero.
- Richard Douglas Shrimpton, Chief Executive Officer, explained that the company's strategy is aligned with government plans for UK growth, as it focuses on helping Britain prosper. He mentioned that the company's offering, including mortgages and protection products, is aligned with these plans, and that the company's success will benefit the UK economy. He also mentioned that the company is waiting for the outcome of the Supreme Court hearing, which is expected in the next couple of months.
Analyst asked about the impact of autos uncertainty on the company's short-term performance.
- Douglas Radcliffe, Chief Financial Officer, mentioned that the company is facing some uncertainty in the automotive sector, but that it is a short-term issue. He also mentioned that the company is focused on delivering the last phase of its strategy, which is aligned with the government's plans for UK growth.

Q4 2024 Earnings Call - Fixed Income