TIDM68FF
RNS Number : 3947H
HBOS PLC
31 July 2019
HBOS plc
2019 Half-Year Results
Member of the Lloyds Banking Group
FORWARD LOOKING STATEMENTS
This document contains certain forward looking statements with
respect to the business, strategy, plans and / or results of the
HBOS Group and its current goals and expectations relating to its
future financial condition and performance. Statements that are not
historical facts, including statements about the HBOS Group's or
its directors' and/or management's beliefs and expectations, are
forward looking statements. By their nature, forward looking
statements involve risk and uncertainty because they relate to
events and depend upon circumstances that will or may occur in the
future. Factors that could cause actual business, strategy, plans
and/or results (including but not limited to the payment of
dividends) to differ materially from forward looking statements
made by the HBOS Group or on its behalf include, but are not
limited to: general economic and business conditions in the UK and
internationally; market related trends and developments;
fluctuations in interest rates, inflation, exchange rates, stock
markets and currencies; any impact of the transition from IBORs to
alternative reference rates; the ability to access sufficient
sources of capital, liquidity and funding when required; changes to
the HBOS Group's or Lloyds Banking Group plc's or Lloyds Bank plc's
credit ratings; the ability to derive cost savings and other
benefits including, but without limitation as a result of any
acquisitions, disposals and other strategic transactions; changing
customer behaviour including consumer spending, saving and
borrowing habits; changes to borrower or counterparty credit
quality; instability in the global financial markets, including
Eurozone instability, instability as a result of uncertainty
surrounding the exit by the UK from the European Union (EU) and as
a result of such exit and the potential for other countries to exit
the EU or the Eurozone and the impact of any sovereign credit
rating downgrade or other sovereign financial issues; political
instability including as a result of any UK general election;
technological changes and risks to the security of IT and
operational infrastructure, systems, data and information resulting
from increased threat of cyber and other attacks; natural, pandemic
and other disasters, adverse weather and similar contingencies
outside the HBOS Group's or Lloyds Banking Group plc's or Lloyds
Bank plc's control; inadequate or failed internal or external
processes or systems; acts of war, other acts of hostility,
terrorist acts and responses to those acts, geopolitical, pandemic
or other such events; changes in laws, regulations, practices and
accounting standards or taxation, including as a result of the exit
by the UK from the EU, or a further possible referendum on Scottish
independence; changes to regulatory capital or liquidity
requirements and similar contingencies outside the HBOS Group's or
Lloyds Banking Group plc's or Lloyds Bank plc's control; the
policies, decisions and actions of governmental or regulatory
authorities or courts in the UK, the EU, the US or elsewhere
including the implementation and interpretation of key legislation
and regulation together with any resulting impact on the future
structure of the Group; the ability to attract and retain senior
management and other employees and meet its diversity objectives;
actions or omissions by the HBOS Group's directors, management or
employees including industrial action; changes to the HBOS Group's
post-retirement defined benefit scheme obligations; the extent of
any future impairment charges or write-downs caused by, but not
limited to, depressed asset valuations, market disruptions and
illiquid markets; the value and effectiveness of any credit
protection purchased by the HBOS Group; the inability to hedge
certain risks economically; the adequacy of loss reserves; the
actions of competitors, including non-bank financial services,
lending companies and digital innovators and disruptive
technologies; and exposure to regulatory or competition scrutiny,
legal, regulatory or competition proceedings, investigations or
complaints. Please refer to the latest Annual Report on Form 20-F
filed by Lloyds Banking Group plc with the US Securities and
Exchange Commission for a discussion of certain factors and risks
together with examples of forward looking statements.
Except as required by any applicable law or regulation, the
forward looking statements contained in this document are made as
of today's date, and the HBOS Group expressly disclaims any
obligation or undertaking to release publicly any updates or
revisions to any forward looking statements contained in this
document to reflect any change in the HBOS Group's expectations
with regard thereto or any change in events, conditions or
circumstances on which any such statement is based. The
information, statements and opinions contained in this document do
not constitute a public offer under any applicable law or an offer
to sell any securities or financial instruments or any advice or
recommendation with respect to such securities or financial
instruments.
CONTENTS
Page
Financial review 1
Principal risks and uncertainties 5
Condensed consolidated half-year financial statements 7
Consolidated income statement 7
Consolidated statement of comprehensive income 8
Consolidated balance sheet 9
Consolidated statement of changes in equity 11
Consolidated cash flow statement 14
Notes 15
Statement of directors' responsibilities 42
Independent review report 43
Contacts 45
FINANCIAL REVIEW
Principal activities
HBOS plc (the Company) and its subsidiaries (together, the
Group) provide a wide range of banking and financial services in
the UK and overseas.
The Group's revenue is earned through interest and fees on a
broad range of financial services products including current and
savings accounts, personal loans, credit cards and mortgages within
the retail market; loans and other products to commercial,
corporate and asset finance customers; and private banking.
Review of results
Income statement
During the half-year to 30 June 2019, the Group recorded a
profit before tax of GBP1,107 million compared to GBP1,110 million
during the same period in 2018.
Total income increased by GBP202 million, to GBP3,167 million in
the half-year to 30 June 2019 compared with GBP2,965 million in the
half-year to 30 June 2018, with a GBP128 million decrease in net
interest income being more than offset by an increase of GBP330
million in other income.
Net interest income was GBP2,741 million in the half-year to 30
June 2019, down 4 per cent on the half-year to 30 June 2018 with
increased interest payable on deposits from banks and amounts due
to fellow Lloyds Banking Group undertakings more than offsetting
lower costs on customer deposits.
Other income of GBP426 million in the half-year to 30 June 2019
was GBP330 million higher compared to GBP96 million in the
half-year to 30 June 2018. Net fee and commission income was GBP38
million higher at GBP154 million in the half-year to 30 June 2019
compared to GBP116 million in the half-year to 30 June 2018,
largely reflecting reductions in interbank agency fee expense and
fees payable to fellow Lloyds Banking Group undertakings following
the transfer out of certain activities as a consequence of the
Lloyds Banking Group's ring-fencing programme; net trading income
was a surplus of GBP202 million. Other operating income was GBP90
million higher with a gain of GBP70 million in the half-year to 30
June 2019 compared to a loss of GBP20 million in the half-year to
30 June 2018, in part reflecting the GBP105 million loss on the
sale of the Group's Irish mortgage portfolio in the first half of
2018.
Total operating expenses increased by GBP86 million to GBP1,848
million in the period compared to GBP1,762 million in the half-year
to 30 June 2018, driven by a GBP87 million increase in regulatory
provisions. Regulatory provisions comprised GBP280 million in
respect of payment protection insurance (PPI) compared to GBP175
million in the half-year to 30 June 2018 and GBP52 million in
respect of other conduct issues. The additional PPI charge in the
period is largely driven by expected higher total volume of
complaints and associated administration costs given the
significant increase in PPI information requests received in the
second quarter of 2019. Other operating expenses were broadly
unchanged at GBP1,516 million in the half-year to 30 June 2019
compared to GBP1,517 million in the half-year to 30 June 2018 with
decreases in staff costs, as the Lloyds Banking Group moves to
employ its staff within Lloyds Bank plc, being offset by increases
in expenditure recharged to the Group by fellow Lloyds Banking
Group undertakings, again as more external costs for Lloyds Banking
Group become paid by Lloyds Bank plc. Increases in depreciation
charges were largely offset by the decrease in rent and rates as
the Group adopted IFRS 16.
Impairment increased to GBP212 million in the half-year to 30
June 2019 compared with GBP93 million in the half-year to 30 June
2018 largely reflecting a single commercial exposure. Despite this
underlying credit quality remains strong.
The tax expense for the period was GBP361 million (half-year to
June 2018: GBP347 million) representing an effective tax rate of 33
per cent (half-year to June 2018: 31 per cent), the higher rate
reflecting the impact of increased non-deductible costs including
conduct charges.
FINANCIAL REVIEW (continued)
Balance sheet and capital
Total assets were GBP5,195 million higher at GBP338,855 million
at the end of the period compared to GBP333,660 million at 31
December 2018 with increases in balances due from fellow Lloyds
Banking Group undertakings more than offsetting reductions in the
closed mortgage book and the impact of the transfer of the Bank of
Scotland plc's Netherlands branch to Lloyds Banking Group's
European ring-fenced bank. Total liabilities were GBP4,999 million
higher at GBP326,584 million at 30 June 2019 compared to GBP321,585
million at 31 December 2018 with increases in amounts due to fellow
Lloyds Banking Group undertakings being partially offset by lower
customer deposits.
Total equity has increased by GBP196 million from GBP12,075
million at 31 December 2018 to GBP12,271 million at 30 June 2019,
with total comprehensive income for the period of GBP733 million
more than offsetting dividends paid of GBP500 million.
The Group's common equity tier 1 capital ratio increased to 13.9
per cent (31 December 2018: 12.9 per cent) largely due to profits
for the period. The tier 1 capital ratio increased to 17.8 per cent
(31 December 2018: 17.2 per cent) reflecting the increase in common
equity tier 1 capital, partially offset by the annual reduction in
the transitional limit applied to grandfathered AT1 capital. The
total capital ratio reduced to 19.7 per cent (31 December 2018:
20.6 per cent) reflecting the annual reduction in the transitional
limit applied to grandfathered tier 2 capital and movements in
eligible provisions and other adjustments, partially offset by the
increase in tier 1 capital.
Risk-weighted assets reduced by GBP321 million, or 0.5 per cent,
to GBP61,815 million at 30 June 2019 compared to GBP62,136 million
at 31 December 2018, reflecting a reduction in market risk, offset
by a net increase in credit risk, largely driven by the
implementation of IFRS 16 and mortgage model changes.
FINANCIAL REVIEW (continued)
Capital position at 30 June 2019
The Group's capital position as at 30 June 2019, applying CRD IV
transitional rules and IFRS 9 transitional arrangements, is set out
in the following section.
Capital ratios
At At
30 June 31 Dec
Capital resources (transitional) 2019 2018
GBPm GBPm
Common equity tier 1
Shareholders' equity per balance sheet 10,748 10,538
Adjustment to retained earnings for foreseeable
dividends - (500)
Cash flow hedging reserve 35 70
Other adjustments 264 291
------- -------
11,047 10,399
Less: deductions from common equity tier 1
Goodwill and other intangible assets (452) (445)
Prudent valuation adjustment (96) (88)
Removal of defined benefit pension surplus (448) (378)
Deferred tax assets (1,442) (1,497)
------- -------
Common equity tier 1 capital 8,609 7,991
------- -------
Additional tier 1
Additional tier 1 instruments 2,407 2,710
------- -------
Total tier 1 capital 11,016 10,701
------- -------
Tier 2
Tier 2 instruments 1,314 1,943
Eligible provisions - 165
Other adjustments (162) -
------- -------
Total tier 2 capital 1,152 2,108
------- -------
Total capital resources 12,168 12,809
------- -------
Risk-weighted assets 61,815 62,136
Common equity tier 1 capital ratio(1) 13.9% 12.9%
Tier 1 capital ratio(1) 17.8% 17.2%
Total capital ratio(1) 19.7% 20.6%
(1) Reflecting the full impact of IFRS 9 at 30 June 2019, without
the application of transitional arrangements, the Group's common
equity tier 1 capital ratio would be 13.5 per cent, the tier 1
capital ratio would be 17.3 per cent and the total capital ratio
would be 19.7 per cent.
FINANCIAL REVIEW (continued)
At At
30 June 31 Dec
2019 2018
GBPm GBPm
Risk-weighted assets
Foundation Internal Ratings Based (IRB) Approach 5,062 5,363
Retail IRB Approach 36,799 35,754
Other IRB Approach 1,729 1,093
------- ------
IRB Approach 43,590 42,210
Standardised Approach 5,742 6,864
------- ------
Credit risk 49,332 49,074
------- ------
Counterparty credit risk 612 599
Credit valuation adjustment risk 117 115
Operational risk 10,539 10,539
Market risk 616 1,235
------- ------
Underlying risk-weighted assets 61,216 61,562
Threshold risk-weighted assets 599 574
------- ------
Total risk-weighted assets 61,815 62,136
------- ------
PRINCIPAL RISKS AND UNCERTAINTIES
Our Principal risks and uncertainties are reviewed and reported
regularly as advised in our 2018 Annual Report. Following a review
of the Group's risk categories, change / execution risk, data risk
and operational resilience were elevated from secondary to primary
risk categories in the Group's Risk Management Framework.
The external risks faced by the Group may impact the success of
delivering against the Group's long term strategic objectives. They
include but are not limited to global macro-economic conditions,
ongoing political uncertainty, regulatory developments and market
liquidity.
These changes are being embedded during 2019 and are now
reflected within the Group's principal risks as below:
Credit risk - The risk that parties with whom the Group has
contracted fail to meet their financial obligations (both on and
off balance sheet). For example observed or anticipated changes in
the economic environment could impact profitability due to an
increase in delinquency, defaults, write-downs and/or expected
credit losses.
Regulatory and legal risk - The risk of financial penalties,
regulatory censure, criminal or civil enforcement action or
customer detriment as a result of failure to identify, assess,
correctly interpret, comply with, or manage regulatory and/or legal
requirements.
Conduct risk - The risk of customer detriment across the
customer lifecycle including: failures in product management,
distribution and servicing activities; from other risks
materialising, or other activities which could undermine the
integrity of the market or distort competition, leading to unfair
customer outcomes, regulatory censure, reputational damage or
financial loss.
Operational risk - Operational risk is defined as the risk of
loss resulting from inadequate or failed internal processes, people
and systems or from external events.
People risk - The risk that the Group fails to provide an
appropriate colleague and customer centric culture, supported by
robust reward and wellbeing policies and processes; effective
leadership to manage colleague resources; effective talent and
succession management; and robust control to ensure all
colleague-related requirements are met.
Capital risk - The risk that the Group has a sub-optimal
quantity or quality of capital or that capital is inefficiently
deployed across the Group.
Funding and liquidity risk - Funding risk is the risk that we do
not have sufficiently stable and diverse sources of funding.
Liquidity risk is the risk that we have insufficient financial
resources to meet our commitments as they fall due.
Governance risk - The risk that the Group's organisational
infrastructure fails to provide robust oversight of decision making
and the control mechanisms to ensure strategies and management
instructions are implemented effectively.
Market risk - The risk that the Group's capital or earnings
profile is affected by adverse market rates. The principal market
risks are interest rates and credit spreads in the banking business
and equity, credit spreads and longevity risk in the Group's
defined benefit pension schemes.
Model risk - The risk of financial loss, regulatory censure,
reputational damage or customer detriment, as a result of
deficiencies in the development, application and ongoing operation
of models and rating systems.
PRINCIPAL RISKS AND UNCERTAINTIES (continued)
Data risk - The risk of the Group failing to effectively govern,
manage, and protect its data (or the data shared with Third Party
Suppliers) impacting the Group's agility, accuracy, access and
availability of data, ultimately leading to poor customer outcomes,
loss of value to the Group and mistrust from regulators.
Operational resilience risk - The risk that the Group fails to
design resilience into business operations, underlying
infrastructure and controls (people, process, technical) so that it
is able to withstand external or internal events which could impact
the continuation of operations, and fails to respond in a way which
meets customer expectations and needs when the continuity of
operations is compromised.
Change and execution risk - The risk that in delivering its
change agenda, the Group fails to ensure compliance with laws and
regulation, maintain effective customer service and availability,
and/or operate within the Group's risk appetite.
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Half-year Half-year
to 30 June to 30 June
2019 2018(1)
Note GBPm GBPm
Interest and similar income 4,268 4,276
Interest and similar expense (1,527) (1,407)
---------- ----------
Net interest income 2,741 2,869
---------- ----------
Fee and commission income 302 302
Fee and commission expense (148) (186)
---------- ----------
Net fee and commission income 2 154 116
Net trading income 202 -
Other operating income 70 (20)
---------- ----------
Other income 426 96
---------- ----------
Total income 3,167 2,965
---------- ----------
Regulatory provisions 11 (332) (245)
Other operating expenses (1,516) (1,517)
---------- ----------
Total operating expenses 3 (1,848) (1,762)
---------- ----------
Trading surplus 1,319 1,203
Impairment 4 (212) (93)
---------- ----------
Profit before tax 1,107 1,110
Tax expense 5 (361) (347)
---------- ----------
Profit for the period 746 763
---------- ----------
Profit attributable to ordinary shareholders 696 713
Profit attributable to non-controlling interests 50 50
---------- ----------
Profit for the period 746 763
---------- ----------
(1) Restated, see note 1.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Half-year Half-year
to 30 June to 30 June
2019 2018(1)
GBPm GBPm
Profit for the period 746 763
Other comprehensive income
Items that will not subsequently be reclassified
to profit or loss:
Post-retirement defined benefit scheme remeasurements
(note 10):
---------- ----------
Remeasurements before tax (53) 426
Tax 9 (81)
---------- ----------
(44) 345
Movement in revaluation reserve in respect
of equity shares held at fair value through
other comprehensive income:
---------- ----------
Change in fair value - 8
Tax - -
---------- ----------
- 8
Items that may subsequently be reclassified
to profit or loss:
Movement in revaluation reserve in respect
of debt securities held at fair value
through other comprehensive income:
---------- ----------
Change in fair value 11 (10)
Tax (2) 1
---------- ----------
9 (9)
Movement in cash flow hedging reserve:
---------- ----------
Effective portion of changes in fair value 29 (89)
Net income statement transfers 19 (11)
Tax (13) 27
---------- ----------
35 (73)
Currency translation differences (tax: nil) (13) (1)
---------- ----------
Other comprehensive income for the period,
net of tax (13) 270
---------- ----------
Total comprehensive income for the period 733 1,033
---------- ----------
Total comprehensive income attributable to
ordinary shareholders 683 983
Total comprehensive income attributable to
non-controlling interests 50 50
---------- ----------
Total comprehensive income for the period 733 1,033
---------- ----------
(1) Restated, see note 1.
CONSOLIDATED BALANCE SHEET
At At
30 June 31 Dec
2019(1) 2018
(unaudited) (audited)
Note GBPm GBPm
Assets
Cash and balances at central banks 2,261 2,579
Items in course of collection from banks 131 181
Financial assets at fair value through profit
or loss 6 500 509
Derivative financial instruments 10,479 9,361
----------- ---------
Loans and advances to banks 332 486
Loans and advances to customers 253,049 262,324
Due from fellow Lloyds Banking Group undertakings 65,295 53,190
----------- ---------
Financial assets at amortised cost: 7 318,676 316,000
Financial assets at fair value through other
comprehensive income 2,170 1,085
Goodwill 325 325
Other intangible assets 127 120
Property, plant and equipment 1,495 777
Current tax recoverable - 10
Deferred tax assets 1,692 1,779
Retirement benefit assets 10 540 455
Other assets 459 479
----------- ---------
Total assets 338,855 333,660
----------- ---------
(1) Reflects the implementation of IFRS 16, see note 1.
CONSOLIDATED BALANCE SHEET (continued)
At At
30 June 31 Dec
2019(1) 2018
(unaudited) (audited)
Note GBPm GBPm
Equity and liabilities
Liabilities
Deposits from banks 21,027 20,908
Customer deposits 154,132 162,141
Due to fellow Lloyds Banking Group undertakings 122,431 109,169
Items in course of transmission to banks 158 274
Financial liabilities at fair value through
profit or loss 102 103
Derivative financial instruments 11,097 9,867
Notes in circulation 1,042 1,104
Debt securities in issue 9 10,152 11,861
Other liabilities 1,486 794
Retirement benefit obligations 10 126 124
Current tax liabilities 109 2
Deferred tax liabilities 1 -
Other provisions 11 752 1,027
Subordinated liabilities 3,969 4,211
----------- ---------
Total liabilities 326,584 321,585
Equity
----------- ---------
Share capital 3,763 3,763
Other reserves 10,146 10,115
Retained profits (3,161) (3,340)
----------- ---------
Shareholders' equity 10,748 10,538
Non-controlling interests 1,523 1,537
----------- ---------
Total equity 12,271 12,075
----------- ---------
Total equity and liabilities 338,855 333,660
----------- ---------
(1) Reflects the implementation of IFRS 16, see note 1.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Attributable to equity shareholders
------------------------------------------------
Non-
Share Other Retained controlling
capital reserves profits Total interests Total
GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 January
2019 3,763 10,115 (3,340) 10,538 1,537 12,075
Comprehensive income
Profit for the period - - 696 696 50 746
Other comprehensive
income
-------------------- -------- -------- ------ ----------- ------
Post retirement defined
benefit scheme
remeasurements, net of
tax - - (44) (44) - (44)
Movements in
revaluation
reserve in respect of
debt securities held
at
fair value through
other
comprehensive income,
net of tax - 9 - 9 - 9
Movements in cash flow
hedging reserve, net
of
tax - 35 - 35 - 35
Currency translation
differences (tax: nil) - (13) - (13) - (13)
-------------------- -------- -------- ------ ------
Total other
comprehensive income - 31 (44) (13) - (13)
-------------------- -------- -------- ------ ----------- ------
Total comprehensive
income - 31 652 683 50 733
-------------------- -------- -------- ------ ----------- ------
Transactions with
owners
-------------------- -------- -------- ------ ----------- ------
Dividends - - (500) (500) - (500)
Distributions to
non-controlling
interests - - - - (50) (50)
Capital contribution
received - - 27 27 - 27
Changes in
non-controlling
interests - - - - (14) (14)
-------------------- -------- -------- ------ ------
Total transactions with
owners - - (473) (473) (64) (537)
-------------------- -------- -------- ------ ----------- ------
Balance at 30 June 2019 3,763 10,146 (3,161) 10,748 1,523 12,271
-------------------- -------- -------- ------ ----------- ------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
(continued)
Attributable to equity
shareholders
Share
capital Non-
and Other Retained controlling
premium reserves profits Total interests Total
GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 January 2018 3,763 10,220 (1,869) 12,114 1,537 13,651
Comprehensive income
Profit for the period(1) - - 713 713 50 763
Other comprehensive income
------- -------- -------- ------- ----------- -------
Post-retirement defined benefit
scheme remeasurements, net
of tax - - 345 345 - 345
Movements in revaluation reserve
in respect of financial assets
held at fair value through
other comprehensive income,
net of tax:
Debt securities - (9) - (9) - (9)
Equity shares - 8 - 8 - 8
Movements in cash flow hedging
reserve, net of tax - (73) - (73) - (73)
Currency translation differences
(tax: nil) - (1) - (1) - (1)
------- -------- -------- ------- ----------- -------
Total other comprehensive
income - (75) 345 270 - 270
------- -------- -------- ------- ----------- -------
Total comprehensive income - (75) 1,058 983 50 1,033
------- -------- -------- ------- ----------- -------
Transactions with owners
------- -------- -------- ------- ----------- -------
Dividends - - (1,800) (1,800) - (1,800)
Distributions to non-controlling
interests(1) - - - - (50) (50)
Capital contribution received - - 37 37 - 37
Total transactions with owners - - (1,763) (1,763) (50) (1,813)
------- -------- -------- ------- ----------- -------
Realised gains and losses
on equity shares held at fair
value through other comprehensive
income - (1) 1 - - -
------- -------- -------- ------- ----------- -------
Balance at 30 June 2018 3,763 10,144 (2,573) 11,334 1,537 12,871
------- -------- -------- ------- ----------- -------
(1) Restated, see note 1.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
(continued)
Attributable to equity
shareholders
Share
capital Non-
and Other Retained controlling
premium reserves profits Total interests Total
GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 July 2018 3,763 10,144 (2,573) 11,334 1,537 12,871
Comprehensive income
Profit for the period(1) - - 772 772 51 823
Other comprehensive income
------- -------- -------- ------- ----------- -------
Post-retirement defined benefit
scheme remeasurements, net
of tax - - (86) (86) - (86)
Movements in revaluation reserve
in respect of financial assets
held at fair value through
other comprehensive income,
net of tax:
Debt securities - (4) - (4) - (4)
Equity shares - 1 - 1 - 1
Movements in cash flow hedging
reserve, net of tax - (20) - (20) - (20)
Currency translation differences
(tax: nil) - 5 - 5 - 5
------- -------- -------- ------- ----------- -------
Total other comprehensive
income - (18) (86) (104) - (104)
------- -------- -------- ------- ----------- -------
Total comprehensive income - (18) 686 668 51 719
------- -------- -------- ------- ----------- -------
Transactions with owners
------- -------- -------- ------- ----------- -------
Dividends - - (1,500) (1,500) - (1,500)
Distributions to non-controlling
interests(1) - - - - (51) (51)
Capital contribution received - - 36 36 - 36
Total transactions with owners - - (1,464) (1,464) (51) (1,515)
------- -------- -------- ------- ----------- -------
Realised gains and losses
on equity shares held at fair
value through other comprehensive
income - (11) 11 - - -
------- -------- -------- ------- ----------- -------
Balance at 31 December 2018 3,763 10,115 (3,340) 10,538 1,537 12,075
------- -------- -------- ------- ----------- -------
(1) Restated, see note 1.
CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
Half-year Half-year
to 30 June to 30 June
2019 2018
GBPm GBPm
Profit before tax 1,107 1,110
Adjustments for:
Change in operating assets (3,680) 25,208
Change in operating liabilities 4,658 (22,226)
Non-cash and other items (199) (535)
Tax paid (159) (820)
---------- ----------
Net cash provided by operating activities 1,727 2,737
Cash flows from investing activities
---------- ----------
Purchase of financial assets (1,173) (281)
Proceeds from sale and maturity of financial
assets 184 297
Purchase of fixed assets (129) (90)
Proceeds from sale of fixed assets 55 50
---------- ----------
Net cash used in investing activities (1,063) (24)
Cash flows from financing activities
---------- ----------
Dividends paid to ordinary shareholders (500) (1,800)
Distributions on other equity instruments
issued by subsidiaries (50) (50)
Interest paid on subordinated liabilities (134) (228)
Repayment of subordinated liabilities (328) (1,656)
---------- ----------
Net cash used in financing activities (1,012) (3,734)
---------- ----------
Effects of exchange rate changes on cash and
cash equivalents - -
---------- ----------
Change in cash and cash equivalents (348) (1,021)
Cash and cash equivalents at beginning of
period 1,019 2,409
---------- ----------
Cash and cash equivalents at end of period 671 1,388
---------- ----------
Cash and cash equivalents comprise cash and balances at central
banks (excluding mandatory deposits) and amounts due from banks
with a maturity of less than three months.
NOTES
Page
1 Accounting policies, presentation and estimates 16
2 Net fee and commission income 19
3 Operating expenses 19
4 Impairment 19
5 Taxation 20
6 Financial assets at fair value through profit or loss 20
7 Financial assets at amortised cost 21
8 Allowance for impairment losses 24
9 Debt securities in issue 27
10 Post-retirement defined benefit schemes 28
11 Provisions for liabilities and charges 29
12 Contingent liabilities and commitments 31
13 Fair values of financial assets and liabilities 34
14 Related party transactions 40
15 Dividends on ordinary shares 40
16 Implementation of IFRS 16 41
17 Ultimate parent undertaking 41
18 Other information 41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting policies, presentation and estimates
These condensed consolidated half-year financial statements as
at and for the period to 30 June 2019 have been prepared in
accordance with the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority (FCA) and with International
Accounting Standard 34 (IAS 34), Interim Financial Reporting as
adopted by the European Union and comprise the results of HBOS plc
(the Company) together with its subsidiaries (the Group). They do
not include all of the information required for full annual
financial statements and should be read in conjunction with the
Group's consolidated financial statements as at and for the year
ended 31 December 2018 which were prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union. Copies of the 2018 Annual Report and Accounts
are available on the Lloyds Banking Group's website and are
available upon request from Investor Relations, Lloyds Banking
Group plc, 25 Gresham Street, London EC2V 7HN.
The directors consider that it is appropriate to continue to
adopt the going concern basis in preparing the condensed
consolidated half-year financial statements. In reaching this
assessment, the directors have considered projections for the
Group's capital and funding position.
Except as noted below, the accounting policies are consistent
with those applied by the Group in its 2018 Annual Report and
Accounts.
Changes in accounting policy
The Group adopted IFRS 16 Leases from 1 January 2019. IFRS 16
replaces IAS 17 Leases and addresses the classification and
measurement of all leases. The Group's accounting as a lessor under
IFRS 16 is substantially unchanged from its approach under IAS 17;
however for lessee accounting there is no longer a distinction
between finance and operating leases.
As lessee, under IFRS 16, in respect of leased properties
previously accounted for as operating leases the Group now
recognises a right-of-use asset and a corresponding liability at
the date at which the leased asset is available for use. Assets and
liabilities arising from a lease are initially measured on a
present value basis. The lease payments are discounted using the
interest rate implicit in the lease, if that rate can be
determined, or the Group's incremental borrowing rate. Lease
payments are allocated between the liability and finance cost. The
finance cost is charged to profit or loss over the lease period so
as to produce a constant periodic rate of interest on the remaining
balance of the liability for each period. The right-of-use asset is
depreciated over the shorter of the asset's useful life and the
lease term on a straight-line basis. Payments associated with
leases with a lease term of 12 months or less and leases of
low-value assets are recognised as an expense in profit or loss on
a straight-line basis.
Details of the impact of adoption of IFRS 16 are provided in
note 16.
The Group has also implemented the amendments to IAS 12 Income
Taxes with effect from 1 January 2019 and as a result tax relief on
distributions on other equity instruments, previously taken
directly to retained profits, is now reported within tax expense in
the income statement. Comparatives have been restated. Adoption of
these amendments to IAS 12 has resulted in a reduction in the tax
expense and an increase in profit for the period in the half-year
to 30 June 2019 of GBP14 million (half-year to 30 June 2018: GBP14
million). There is no impact on total shareholders' equity.
Future accounting developments
The IASB has issued a number of minor amendments to IFRSs
effective 1 January 2020 (including IFRS 3 Business Combinations
and IAS 1 Presentation of Financial Statements). These amendments
are not expected to have a significant impact on the Group.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Accounting policies, presentation and estimates (continued)
Critical accounting estimates and judgements
The preparation of the Group's financial statements requires
management to make judgements, estimates and assumptions that
impact the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Due to the
inherent uncertainty in making estimates, actual results reported
in future periods may include amounts which differ from those
estimates. Estimates, judgements and assumptions are continually
evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be
reasonable under the circumstances. The Group's significant
judgements, estimates and assumptions are unchanged compared to
those applied at 31 December 2018, except as detailed below.
Allowance for impairment losses
At 30 June 2019 the Group's allowance for expected credit losses
(ECL) allowance was GBP2,168 million (31 December 2018: GBP2,187
million), of which GBP2,114 million (31 December 2018: GBP2,137
million) was in respect of drawn balances.
The measurement of expected credit losses is required to reflect
an unbiased probability-weighted range of possible future outcomes.
The approach to generating the economic scenarios used in the
calculation of the Group's ECL allowances is little changed since
31 December 2018. The central scenario reflects the Group's updated
base case assumptions used for medium-term planning purposes.
Additional model-generated upside, downside and severe downside
scenarios are identified to represent a typical scenario from
specified points along an estimated loss distribution, with the
scenario weightings unchanged since 31 December 2018. The key UK
economic assumptions made by the Group as at 30 June 2019 averaged
over a five year period are shown below.
Economic assumptions
Severe
Base case Upside Downside downside
% % % %
Scenario weighting 30 30 30 10
At 30 June 2019
Bank of England base rate 1.25 2.05 0.49 0.11
Unemployment rate 4.3 3.8 5.7 7.0
House price growth 1.5 5.2 (2.3) (7.4)
Commercial real estate price
growth (0.2) 1.6 (4.9) (9.5)
At 31 December 2018
Bank of England base rate 1.25 2.34 1.30 0.71
Unemployment rate 4.5 3.9 5.3 6.9
House price growth 2.5 6.1 (4.8) (7.5)
Commercial real estate price
growth 0.4 5.3 (4.7) (6.4)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Accounting policies, presentation and estimates (continued)
Economic assumptions - start to peak
Severe
Base case Upside Downside downside
% % % %
At 30 June 2019
Bank of England base rate 1.75 2.70 0.75 0.75
Unemployment rate 4.7 4.5 7.0 8.1
House price growth 7.3 28.8 (1.6) (2.2)
Commercial real estate price
growth (0.6) 8.4 (1.0) (1.6)
At 31 December 2018
Bank of England base rate 1.75 4.00 1.75 1.25
Unemployment rate 4.8 4.3 6.3 8.6
House price growth 13.7 34.9 0.6 (1.6)
Commercial real estate price
growth 0.1 26.9 (0.5) (0.5)
Economic assumptions - start to trough
Severe
Base case Upside Downside downside
% % % %
At 30 June 2019
Bank of England base rate 0.75 0.75 0.31 0.01
Unemployment rate 3.8 3.4 3.8 3.9
House price growth (1.1) (0.5) (12.0) (33.2)
Commercial real estate price
growth (1.5) 0.0 (23.8) (40.7)
At 31 December 2018
Bank of England base rate 0.75 0.75 0.75 0.25
Unemployment rate 4.1 3.5 4.3 4.2
House price growth 0.4 2.3 (26.5) (33.5)
Commercial real estate price
growth (0.1) 0.0 (23.8) (33.8)
The Group's base-case economic scenario has changed little over
the year and reflects a broadly stable outlook for the economy.
Although there remains considerable uncertainty about the economic
consequences of the UK's planned exit from the European Union, the
Group considers that at this stage the range of possible outcomes
is adequately reflected in its choice and weighting of
scenarios.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Net fee and commission income
Half-year Half-year
to 30 to 30
June June
2019 2018
GBPm GBPm
Fee and commission income:
--------- ---------
Current accounts 103 96
Credit and debit card fees 110 114
Other 89 92
--------- ---------
Total fee and commission income 302 302
Fee and commission expense (148) (186)
--------- ---------
Net fee and commission income 154 116
--------- ---------
3. Operating expenses
Half-year Half-year
to 30 June to 30 June
2019 2018
GBPm GBPm
Administrative expenses:
Staff costs 645 744
Premises and equipment 87 141
Other expenses 666 552
---------- ----------
1,398 1,437
Depreciation and amortisation 118 80
---------- ----------
Total operating expenses, excluding regulatory
provisions 1,516 1,517
Regulatory provisions:
---------- ----------
Payment protection insurance provision (note
11) 280 175
Other regulatory provisions (note 11) 52 70
---------- ----------
332 245
---------- ----------
Total operating expenses 1,848 1,762
---------- ----------
4. Impairment
Half-year Half-year
to to
30 June 30 June
2019 2018
GBPm GBPm
Impairment charge on drawn balances 208 108
Loan commitments and financial guarantees 4 (16)
Financial assets at fair value through
other comprehensive income - 1
Total impairment charge 212 93
--------- ---------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Taxation
In accordance with IAS 34, the Group's income tax expense for
the half-year to 30 June 2019 is based on the best estimate of the
weighted-average annual income tax rate expected for the full
financial year. The tax effects of one-off items are not included
in the weighted-average annual income tax rate, but are recognised
in the relevant period.
An explanation of the relationship between tax expense and
accounting profit is set out below:
Half-year Half-year
to 30 to 30
June June
2019 2018(1)
GBPm GBPm
Profit before tax 1,107 1,110
---------- ---------
UK corporation tax thereon at 19 per cent
(2018: 19 per cent) (210) (211)
Impact of surcharge on banking profits (95) (95)
Non-deductible costs: conduct charges (54) (33)
Other non-deductible costs (16) (8)
Non-taxable income 1 7
Tax relief on coupons on non-controlling interests 10 10
Tax-exempt gains on disposals 3 1
Recognition of losses that arose in prior
years - (14)
Adjustments in respect of prior years - (4)
---------- ---------
Tax expense (361) (347)
---------- ---------
(1) Restated, see note 1.
6. Financial assets at fair value through profit or loss
At At
30 June 31 Dec
2019 2018
GBPm GBPm
Loans and advances to customers 500 509
-------- ------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Financial assets at amortised cost
Half-year to 30 June 2019
(A) Loans and advances to customers
Stage 1 Stage 2 Stage 3 Total
GBPm GBPm GBPm GBPm
At 1 January 2019 232,951 25,345 6,143 264,439
Exchange and other adjustments 76 (17) (26) 33
Additions (repayments) 37 (1,515) (544) (2,022)
-------- ------- ------- -------
Transfers to Stage 1 3,030 (3,020) (10) -
Transfers to Stage 2 (5,957) 6,525 (568) -
Transfers to Stage 3 (345) (1,181) 1,526 -
-------- ------- ------- -------
(3,272) 2,324 948 -
Recoveries 85 85
Disposal of businesses (6,615) (360) (42) (7,017)
Financial assets that have been
written off (371) (371)
-------- ------- ------- -------
At 30 June 2019 223,177 25,777 6,193 255,147
Allowance for impairment losses (154) (816) (1,128) (2,098)
-------- ------- ------- -------
Total loans and advances to
customers 223,023 24,961 5,065 253,049
-------- ------- ------- -------
(B) Loans and advances to banks
At 1 January 2019 486 -- 486
Additions (repayments) (154) --(154)
------ -----
At 30 June 2019 332 -- 332
Allowance for impairment losses - -- -
------ -----
Total loans and advances to
banks 332 -- 332
------ -----
(C) Debt securities
At 1 January 2019 - - 13 13
Financial assets that have
been written off (12) (12)
-------- ------ ----- -------
At 30 June 2019 - - 1 1
Allowance for impairment
losses - - (1) (1)
-------- ------ ----- -------
Total debt securities - - - -
-------- ------ ----- -------
Due from fellow Lloyds
Banking Group
undertakings 65,295 - - 65,295
-------- ------ ----- -------
Total financial assets
at amortised cost 288,650 24,961 5,065 318,676
-------- ------ ----- -------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Financial assets at amortised cost (continued)
Year ended 31 December 2018
(A) Loans and advances to customers
Stage 1 Stage 2 Stage 3 Total
GBPm GBPm GBPm GBPm
At 1 January 2018 226,533 37,768 6,039 270,340
Exchange and other adjustments 108 (20) (2) 86
Additions (repayments) 2,903 (2,104) (1,287) (488)
-------- -------- ------- -------
Transfers to Stage 1 11,361 (11,350) (11) -
Transfers to Stage 2 (6,731) 7,470 (739) -
Transfers to Stage 3 (680) (2,395) 3,075 -
-------- -------- ------- -------
3,950 (6,275) 2,325 -
Recoveries - - 218 218
Disposal of businesses (543) (4,024) (553) (5,120)
Financial assets that have been
written off (597) (597)
-------- -------- ------- -------
At 31 December 2018 232,951 25,345 6,143 264,439
Allowance for impairment
losses (149) (858) (1,108) (2,115)
-------- -------- ------- -------
Total loans and advances to
customers 232,802 24,487 5,035 262,324
-------- -------- ------- -------
(B) Loans and advances to banks
At 1 January 2018 551 -- 551
Exchange and other adjustments 1 -- 1
Additions (repayments) (66) --(66)
At 31 December 2018 486 -- 486
Allowance for impairment - -- -
losses
----- ----
Total loans and advances to
banks 486 -- 486
----- ----
(C) Debt securities
At 1 January 2018 - - 20 20
Financial assets that have been
written off (7) (7)
At 31 December 2018 - - 13 13
Allowance for impairment losses - - (13) (13)
-------- ------ ----- -------
Total debt securities - - - -
-------- ------ ----- -------
Due from fellow Lloyds Banking
Group
undertakings 53,190 - - 53,190
-------- ------ ----- -------
Total financial assets at amortised
cost 286,478 24,487 5,035 316,000
-------- ------ ----- -------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Financial assets at amortised cost (continued)
Transfers between stages are deemed to have taken place at the
start of the reporting period, with all other movements shown in
the stage in which the asset is held at 30 June 2019. Net increase
and decrease in balances comprise new loans originated and
repayments of outstanding balances throughout the reporting period.
Loans which are written off in the period are first transferred to
Stage 3 before write-off.
Loans and advances to customers include advances securitised
under the Group's securitisation and covered bond programmes (see
note 9).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Allowance for impairment losses
Half-year to 30 June 2019
Stage Stage Stage
1 2 3 Total
GBPm GBPm GBPm GBPm
In respect of drawn balances
At 1 January 2019 158 858 1,121 2,137
Exchange and other adjustments (1) (6) 109 102
Transfers to Stage 1 153 (149) (4) -
Transfers to Stage 2 (22) 87 (65) -
Transfers to Stage 3 (5) (98) 103 -
Impact of transfers between stages (135) 168 85 118
----- ----- ----- -----
(9) 8 119 118
Other items charged to the income
statement 27 (35) 98 90
----- ----- ----- -----
Charge to the income statement
(note 4) 18 (27) 217 208
Advances written off (383) (383)
Disposal of businesses (6) (9) (14) (29)
Recoveries of advances written
off in previous years 85 85
Discount unwind (6) (6)
----- ----- ----- -----
At 30 June 2019 169 816 1,129 2,114
----- ----- ----- -----
In respect of undrawn balances
At 1 January 2019 24 23 3 50
Transfers to Stage 1 3 (3) - -
Transfers to Stage 2 (1) 1 - -
Transfers to Stage 3 - (1) 1 -
Impact of transfers between stages (3) 6 - 3
----- ----- ----- -----
(1) 3 1 3
Other items charged to the income
statement 1 2 (2) 1
----- ----- ----- -----
Charge to the income statement
(note 4) - 5 (1) 4
At 30 June 2019 24 28 2 54
----- ----- ----- -----
Total allowance for impairment
losses 193 844 1,131 2,168
----- ----- ----- -----
In respect of:
----- ----- ----- -----
Loans and advances to customers 154 816 1,128 2,098
Debt securities - - 1 1
Other assets 15 - - 15
----- ----- ----- -----
Drawn balances 169 816 1,129 2,114
Provisions in relation to loan
commitments and
financial guarantees 24 28 2 54
----- ----- ----- -----
Total allowance for impairment
losses 193 844 1,131 2,168
----- ----- ----- -----
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Allowance for impairment losses (continued)
Year ended 31 December 2018
Stage Stage Stage
1 2 3 Total
GBPm GBPm GBPm GBPm
In respect of drawn balances
At 1 January 2018 163 1,076 1,260 2,499
Exchange and other adjustments 17 (1) 41 57
Transfers to Stage 1 137 (134) (3) -
Transfers to Stage 2 (14) 92 (78) -
Transfers to Stage 3 (8) (111) 119 -
Impact of transfers between stages (95) 120 152 177
----- ----- ----- -----
20 (33) 190 177
Other items charged to the income
statement (42) (82) 179 55
----- ----- ----- -----
Charge to the income statement
(note 4) (22) (115) 369 232
Advances written off (604) (604)
Disposal of businesses - (102) (162) (264)
Recoveries of advances written
off in previous years 218 218
Discount unwind (1) (1)
----- ----- ----- -----
At 31 December 2018 158 858 1,121 2,137
----- ----- ----- -----
In respect of undrawn balances
At 1 January 2018 37 50 - 87
Exchange and other adjustments - (1) 2 1
Transfers to Stage 1 11 (11) - -
Transfers to Stage 2 (2) 2 - -
Transfers to Stage 3 (1) (2) 3 -
Impact of transfers between stages (10) 7 (1) (4)
----- ----- ----- -----
(2) (4) 2 (4)
Other items charged to the income
statement (11) (22) (1) (34)
----- ----- ----- -----
Charge to the income statement (13) (26) 1 (38)
At 31 December 2018 24 23 3 50
----- ----- ----- -----
Total allowance for impairment
losses 182 881 1,124 2,187
----- ----- ----- -----
In respect of:
----- ----- ----- -----
Loans and advances to banks - - - -
Loans and advances to customers 149 858 1,108 2,115
Debt securities - - 13 13
Other assets 9 - - 9
----- ----- ----- -----
Drawn balances 158 858 1,121 2,137
Provisions in relation to loan
commitments and
financial guarantees 24 23 3 50
----- ----- ----- -----
Total allowance for impairment
losses 182 881 1,124 2,187
----- ----- ----- -----
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Allowance for impairment losses (continued)
The Group's income statement charge comprises:
Half-year
to 30 Year ended
June 31 Dec
2019 2018
GBPm GBPm
Drawn balances 208 232
Undrawn balances 4 (38)
---------
Total 212 194
--------- ----------
Transfers between stages are deemed to have taken place at the
start of the reporting period, with all other movements shown in
the stage in which the asset is held at 30 June 2019. As assets are
transferred between stages, the resulting change in expected credit
loss of GBP118 million for drawn balances, and GBP3 million for
undrawn balances, is presented separately as in the stage in which
the allowance is recognised at the end of the reporting period.
Net increase and decrease in balances comprise the movements in
the expected credit loss as a result of new loans originated and
repayments of outstanding balances throughout the reporting period.
Loans which are written off in the period are first transferred to
Stage 3 before write-off. Consequently, recoveries on assets
previously written-off will also occur in Stage 3 only.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Debt securities in issue
30 June 2019 31 December 2018
-------------------------- ---------------------------------
At fair At fair
value value
through At through At
profit amortised Total profit amortised Total
or or
loss cost loss cost
GBPm GBPm GBPm GBPm GBPm GBPm
Medium-term notes issued - 1,166 1,166 - 1,168 1,168
Covered bonds - 4,811 4,811 - 6,017 6,017
Securitisation notes 52 4,175 4,227 53 4,676 4,729
------- --------- ------ --------- --------- -------
Total debt securities
in issue 52 10,152 10,204 53 11,861 11,914
------- --------- ------ --------- --------- -------
The notes issued by the Group's securitisation and covered bond
programmes are held by external parties and by subsidiaries of the
Group.
Securitisation programmes
At 30 June 2019, external parties held GBP4,227 million (31
December 2018: GBP4,729 million) and the Group's subsidiaries held
GBP22,425 million (31 December 2018: GBP22,826 million) of total
securitisation notes in issue of GBP26,652 million (31 December
2018: GBP27,555 million). The notes are secured on loans and
advances to customers and debt securities classified at amortised
cost amounting to GBP27,335 million (31 December 2018: GBP29,330
million), the majority of which have been sold by subsidiary
companies to bankruptcy remote structured entities. The structured
entities are consolidated fully and all of these loans are retained
on the Group's balance sheet.
Covered bond programmes
At 30 June 2019, external parties held GBP4,811 million (31
December 2018: GBP6,017 million) and the Group's subsidiaries held
GBP700 million (31 December 2018: GBP700 million) of total covered
bonds in issue of GBP5,511 million (31 December 2018: GBP6,717
million). The bonds are secured on certain loans and advances to
customers amounting to GBP7,355 million (31 December 2018: GBP9,034
million) that have been assigned to bankruptcy remote limited
liability partnerships. These loans are retained on the Group's
balance sheet.
Cash deposits of GBP1,691 million (31 December 2018: GBP1,843
million) which support the debt securities issued by the structured
entities, the term advances related to covered bonds and other
legal obligations are held by the Group.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Post-retirement defined benefit schemes
The Group's post-retirement defined benefit scheme obligations
are comprised as follows:
At At
30 June 31 Dec
2019 2018
GBPm GBPm
Defined benefit pension schemes:
Fair value of scheme assets 15,914 14,519
Present value of funded obligations (15,457) (14,148)
-------- --------
Net pension scheme asset 457 371
Other post-retirement schemes (43) (40)
-------- --------
Net retirement benefit asset 414 331
-------- --------
Recognised on the balance sheet as:
Retirement benefit assets 540 455
Retirement benefit obligations (126) (124)
-------- --------
Net retirement benefit asset 414 331
-------- --------
The movement in the Group's net post-retirement defined benefit
scheme asset during the period was as follows:
GBPm
Asset at 1 January 2019 331
Income statement charge (53)
Employer contributions 189
Remeasurement (53)
-----
Asset at 30 June 2019 414
-----
The principal assumptions used in the valuations of the defined
benefit pension schemes were as follows:
At At
30 June 31 Dec
2019 2018
% %
Discount rate 2.33 2.90
Rate of inflation:
Retail prices index 3.19 3.20
Consumer prices index 2.14 2.15
Rate of salary increases 0.00 0.00
Weighted-average rate of increase for pensions
in payment 3.02 3.03
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Provisions for liabilities and charges
Provisions Payment Other
for Protection regulatory
commitments Insurance provisions Other Total
GBPm GBPm GBPm GBPm GBPm
At 31 December
2018 50 392 442 143 1,027
Adjustment on
implementation
of IFRS 16 - - - (30) (30)
Provisions applied - (323) (220) (44) (587)
Charge for the
period 4 280 52 6 342
------------- ------------ ------------ ------ ------
At 30 June 2019 54 349 274 75 752
------------- ------------ ------------ ------ ------
Payment protection insurance
The Group increased the provision for PPI costs by a further
GBP280 million in the half-year to 30 June 2019, of which GBP245
million was in the second quarter, bringing the total amount
provided to GBP5,738 million.
The charge in the second quarter is largely driven by the
significant increase in PPI information requests (PIRs) which is
likely to lead to higher total complaints and associated
administration costs.
At 30 June 2019, a provision of GBP349 million remained
unutilised relating to complaints and associated administration
costs. Total cash payments were GBP323 million during the six
months to 30 June 2019.
The total amount provided for PPI represents the Group's best
estimate of the likely future cost. A number of risks and
uncertainties remain including with respect to future complaint
volumes, however the potential impact of these risks has reduced
due to the proximity of the industry deadline. The cost could
differ from the Group's estimates and the assumptions underpinning
them, and could result in a further provision being required. This
may also be impacted by any further regulatory changes, the final
stage of the Financial Conduct Authority (FCA) media campaign and
Claims Management Company and customer activity, and potential
additional remediation arising from the continuous improvement of
the Group's operational practices.
Deloitte LLP has been appointed to assist the Official Receiver
with the submission of PPI queries to providers to establish
whether any mis-sold PPI redress is due to creditors of bankrupts'
estates. The Group has not made any provision in relation to this
matter, which will remain under review.
For every additional 1,000 reactive complaints per week from
July 2019 through to the industry deadline of the end of August
2019, the Group would expect an additional charge of approximately
GBP20 million.
Other provisions for legal actions and regulatory matters
In the course of its business, the Group is engaged in
discussions with the PRA, FCA and other UK and overseas regulators
and other governmental authorities on a range of matters. The Group
also receives complaints in connection with its past conduct and
claims brought by or on behalf of current and former employees,
customers, investors and other third parties and is subject to
legal proceedings and other legal actions. Where significant,
provisions are held against the costs expected to be incurred in
relation to these matters and matters arising from related internal
reviews. During the six months to 30 June 2019 the Group charged a
further GBP52 million in respect of legal actions and other
regulatory matters, and the unutilised balance at 30 June 2019 was
GBP274 million (31 December 2018: GBP442 million). The most
significant items are as follows.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Provisions for liabilities and charges (continued)
Arrears handling related activities
The Group has provided an additional GBP26 million in the
half-year to 30 June 2019 for the costs of identifying and
rectifying certain arrears management fees and activities, taking
the total provided to date to GBP480 million. The Group has put in
place a number of actions to improve its handling of customers in
these areas and has made good progress in reimbursing arrears fees
to impacted customers.
Packaged bank accounts
The Group had provided a total of GBP204 million up to 31
December 2018 in respect of complaints relating to alleged
mis-selling of packaged bank accounts, with no further amounts
provided during the six months to 30 June 2019. A number of risks
and uncertainties remain particularly with respect to future
volumes.
HBOS Reading - customer review
The Group has now completed its compensation assessment for all
71 business customers within the customer review, with more than 98
per cent of these offers to individuals accepted. In total, more
than GBP98 million has been offered of which GBP84 million has so
far been accepted, in addition to GBP9 million for ex-gratia
payments and GBP6 million for the re-imbursements of legal
fees.
The review follows the conclusion of a criminal trial in which a
number of individuals, including two former HBOS employees, were
convicted of conspiracy to corrupt, fraudulent trading and
associated money laundering offences which occurred prior to the
acquisition of HBOS by Lloyds Banking Group in 2009. The Group had
provided a further GBP15 million in the year ended 31 December 2018
for customer settlements, raising the total amount provided to
GBP115 million and is now nearing the end of the process of paying
compensation to the victims of the fraud, including ex-gratia
payments and re-imbursements of legal fees.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Contingent liabilities and commitments
Interchange fees
With respect to multi-lateral interchange fees (MIFs), the Group
is not directly involved in the ongoing litigation (as described
below) which involve card schemes such as Visa and Mastercard.
However, the Group is a member / licensee of Visa and Mastercard
and other card schemes:
-- Litigation brought by retailers continues in the English
Courts against both Visa and Mastercard.
-- Litigation brought on behalf of UK consumers is also
proceeding in the English Courts against Mastercard.
-- Any ultimate impact on the Group of the litigation against
Visa and Mastercard remains uncertain at this time
Visa Inc completed its acquisition of Visa Europe on 21 June
2016. As part of this transaction, the Group and certain other UK
banks also entered into a Loss Sharing Agreement (LSA) with Visa
Inc, which clarifies the allocation of liabilities between the
parties should the litigation referred to above result in Visa Inc
being liable for damages payable by Visa Europe. The maximum amount
of liability to which the Group may be subject under the LSA is
capped at the cash consideration which was received by the Group at
completion. Visa Inc may also have recourse to a general indemnity,
previously in place under Visa Europe's Operating Regulations, for
damages claims concerning inter or intra-regional MIF setting
activities.
LIBOR and other trading rates
In July 2014, Lloyds Banking Group announced that it had reached
settlements totalling GBP217 million (at 30 June 2014 exchange
rates) to resolve with UK and US federal authorities legacy issues
regarding the manipulation several years ago of Lloyds Banking
Group companies' submissions to the British Bankers' Association
(BBA) London Interbank Offered Rate (LIBOR) and Sterling Repo Rate.
The Swiss Competition Commission concluded its investigation
against Lloyds in June 2019. Lloyds Banking Group continues to
cooperate with various other government and regulatory authorities,
including a number of US State Attorneys General, in conjunction
with their investigations into submissions made by panel members to
the bodies that set LIBOR and various other interbank offered
rates.
Certain Lloyds Banking Group companies, together with other
panel banks, have also been named as defendants in private
lawsuits, including purported class action suits, in the US in
connection with their roles as panel banks contributing to the
setting of US Dollar, Japanese Yen and Sterling LIBOR and the
Australian BBSW Reference Rate. Certain of the plaintiffs' claims,
have been dismissed by the US Federal Court for Southern District
of New York (subject to appeals).
Certain Lloyds Banking Group companies are also named as
defendants in (i) UK based claims; and (ii) two Dutch class
actions, raising LIBOR manipulation allegations. A number of the
claims against Lloyds Banking Group in relation to the alleged
mis-sale of interest rate hedging products also include allegations
of LIBOR manipulation.
It is currently not possible to predict the scope and ultimate
outcome on the Group of the various outstanding regulatory
investigations not encompassed by the settlements, any private
lawsuits or any related challenges to the interpretation or
validity of any of Lloyds Banking Group's contractual arrangements,
including their timing and scale.
UK shareholder litigation
In August 2014, Lloyds Banking Group and a number of former
directors were named as defendants in a claim by a number of
claimants who held shares in Lloyds TSB Group plc (LTSB) prior to
the acquisition of HBOS plc, alleging breaches of duties in
relation to information provided to shareholders in connection with
the acquisition and the recapitalisation of LTSB. The defendants
refute all claims made. A trial commenced in the English High Court
on 18 October 2017 and concluded on 5 March 2018 with judgment to
follow. It is currently not possible to determine the ultimate
impact on the Group (if any).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Contingent liabilities and commitments (continued)
Tax authorities
Lloyds Banking Group has an open matter in relation to a claim
for group relief of losses incurred in its former Irish banking
subsidiary, which ceased trading on 31 December 2010. In 2013 HMRC
informed Lloyds Banking Group that their interpretation of the UK
rules which allow the offset of such losses denies the claim. If
HMRC's position is found to be correct management estimate that
this would result in an increase in HBOS Group's current tax
liabilities of approximately GBP360 million (including interest).
Lloyds Banking Group does not agree with HMRC's position and,
having taken appropriate advice, does not consider that this is a
case where additional tax will ultimately fall due.
Mortgage arrears handling activities
On 26 May 2016, Lloyds Banking Group was informed that an
enforcement team at the FCA had commenced an investigation in
connection with the Group's mortgage arrears handling activities.
This investigation is ongoing and Lloyds Banking Group continues to
cooperate with the FCA. It is not currently possible to make a
reliable assessment of any liability that may result from the
investigation including any financial penalty or public
censure.
HBOS Reading - FCA investigation
The FCA's investigation into the events surrounding the
discovery of misconduct within the Reading-based Impaired Assets
team of HBOS has concluded. The FCA issued a final notice on 21
June 2019 announcing that Lloyds Banking Group had agreed to settle
the matter and pay a fine of GBP45.5 million.
Other legal actions and regulatory matters
In addition, during the ordinary course of business the Group is
subject to other complaints and threatened or actual legal
proceedings (including class or group action claims) brought by or
on behalf of current or former employees, customers, investors or
other third parties, as well as legal and regulatory reviews,
challenges, investigations and enforcement actions, both in the UK
and overseas. All such material matters are periodically
reassessed, with the assistance of external professional advisers
where appropriate, to determine the likelihood of the Group
incurring a liability. In those instances where it is concluded
that it is more likely than not that a payment will be made, a
provision is established to management's best estimate of the
amount required at the relevant balance sheet date. In some cases
it will not be possible to form a view, for example because the
facts are unclear or because further time is needed properly to
assess the merits of the case, and no provisions are held in
relation to such matters. In these circumstances, specific
disclosure in relation to a contingent liability will be made where
material. However the Group does not currently expect the final
outcome of any such case to have a material adverse effect on its
financial position, operations or cash flows.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Contingent liabilities and commitments (continued)
Contingent liabilities and commitments arising from the banking
business
At At
30 June 31 Dec
2019 2018
GBPm GBPm
Contingent liabilities
Acceptances and endorsements 1 1
Other:
------- ------
Other items serving as direct credit substitutes 32 36
Performance bonds and other transaction-related
contingencies 212 192
------- ------
244 228
------- ------
Total contingent liabilities 245 229
------- ------
Commitments and guarantees
Documentary credits and other short-term trade-related
transactions 1 1
Forward asset purchases and forward deposits
placed 27 47
Undrawn formal standby facilities, credit
lines and other commitments to lend:
Less than 1 year original maturity:
------- ------
Mortgage offers made 13,075 10,059
Other commitments and guarantees 23,376 23,024
------- ------
36,451 33,083
1 year or over original maturity 3,008 3,211
------- ------
Total commitments and guarantees 39,487 36,342
------- ------
Of the amounts shown above in respect of undrawn formal standby
facilities, credit lines and other commitments to lend, GBP16,635
million (31 December 2018: GBP13,937 million) was irrevocable.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Fair values of financial assets and liabilities
The valuations of financial instruments have been classified
into three levels according to the quality and reliability of
information used to determine those fair values. Note 41 to the
Group's 2018 financial statements describes the definitions of the
three levels in the fair value hierarchy.
Valuation control framework
Key elements of the valuation control framework, which covers
processes for all levels in the fair value hierarchy including
level 3 portfolios, include model validation (incorporating
pre-trade and post-trade testing), product implementation review
and independent price verification. Formal committees meet
quarterly to discuss and approve valuations in more judgemental
areas.
Transfers into and out of level 3 portfolios
Transfers out of level 3 portfolios arise when inputs that could
have a significant impact on the instrument's valuation become
market observable; conversely, transfers into the portfolios arise
when sources of data cease to be observable.
Valuation methodology
For level 2 and level 3 portfolios, there is no significant
change to the valuation methodology (techniques and inputs)
disclosed in the Group's 2018 Annual Report and Accounts applied to
these portfolios.
The table below summarises the carrying values of financial
assets and liabilities presented on the Group's balance sheet. The
fair values presented in the table are at a specific date and may
be significantly different from the amounts which will actually be
paid or received on the maturity or settlement date.
30 June 2019 31 December 2018
----------------- ------------------
Carrying Fair Carrying Fair
value value value value
GBPm GBPm GBPm GBPm
Financial assets
Financial assets at fair value through
profit or loss 500 500 509 509
Derivative financial instruments 10,479 10,479 9,361 9,361
-------- ------- --------- -------
Loans and advances to banks 332 333 486 487
Loans and advances to customers 253,049 256,387 262,324 264,320
Due from fellow Lloyds Banking Group
undertakings 65,295 65,295 53,190 53,190
-------- ------- --------- -------
Financial assets at amortised cost: 318,676 322,015 316,000 317,997
Financial assets at fair value through
other
comprehensive income 2,170 2,170 1,085 1,085
Financial liabilities
Deposits from banks 21,027 21,027 20,908 20,908
Customer deposits 154,132 153,939 162,141 161,908
Due to fellow Lloyds Banking Group
undertakings 122,431 122,431 109,169 109,169
Financial liabilities at fair value
through profit or loss 102 102 103 103
Derivative financial instruments 11,097 11,097 9,867 9,867
Debt securities in issue 10,152 10,178 11,861 11,821
Subordinated liabilities 3,969 3,984 4,211 3,963
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Fair values of financial assets and liabilities (continued)
The carrying amount of the following financial instruments is a
reasonable approximation of fair value: cash and balances at
central banks, items in the course of collection from banks, items
in course of transmission to banks and notes in circulation.
The Group manages valuation adjustments for its derivative
exposures on a net basis; the Group determines their fair values on
the basis of their net exposures. In all other cases, fair values
of financial assets and liabilities measured at fair value are
determined on the basis of their gross exposures.
The following tables provide an analysis of the financial assets
and liabilities of the Group that are carried at fair value in the
Group's consolidated balance sheet, grouped into levels 1 to 3
based on the degree to which the fair value is observable.
Financial assets
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
At 30 June 2019
Financial assets at fair value
through profit or loss:
Loans and advances to customers - - 500 500
------- ------- ------- ------
Total financial assets at
fair value through profit
or loss - - 500 500
------- ------- ------- ------
Financial assets at fair value
through other comprehensive
income:
Debt securities 123 2,047 - 2,170
------- ------- ------- ------
Total financial assets at
fair value through other comprehensive
income 123 2,047 - 2,170
------- ------- ------- ------
Derivative financial instruments - 10,466 13 10,479
------- ------- ------- ------
Total financial assets carried
at fair value 123 12,513 513 13,149
------- ------- ------- ------
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
At 31 December 2018
Financial assets at fair value
through profit or loss:
Loans and advances to customers - 399 110 509
Total financial assets at
fair value through profit
or loss - 399 110 509
------- ------- ------- ------
Financial assets at fair value
through other comprehensive
income:
Debt securities 117 968 - 1,085
Total financial assets at
fair value through other comprehensive
income 117 968 - 1,085
------- ------- ------- ------
Derivative financial instruments - 9,361 - 9,361
------- ------- ------- ------
Total financial assets carried
at fair value 117 10,728 110 10,955
------- ------- ------- ------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Fair values of financial assets and liabilities (continued)
Financial liabilities
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
At 30 June 2019
Financial liabilities at fair
value through profit or loss:
Liabilities held at fair value
through profit or loss - - 52 52
Trading liabilities - 50 - 50
------- ------- ------- ------
Total financial liabilities
at fair value through profit
or loss - 50 52 102
------- ------- ------- ------
Derivative financial instruments - 10,765 332 11,097
------- ------- ------- ------
Total financial liabilities
carried at fair value - 10,815 384 11,199
------- ------- ------- ------
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
At 31 December 2018
Financial liabilities at fair
value through profit or loss:
Liabilities held at fair value
through profit or loss - 53 - 53
Trading liabilities - 50 - 50
------- ------- ------- -----
Total financial liabilities
at fair value through profit
or loss - 103 - 103
------- ------- ------- -----
Derivative financial instruments - 9,867 - 9,867
------- ------- ------- -----
Total financial liabilities
carried at fair value - 9,970 - 9,970
------- ------- ------- -----
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Fair values of financial assets and liabilities (continued)
Movements in level 3 portfolio
The tables below analyse movements in the level 3 financial
assets portfolio.
Financial
Financial assets at Total
assets at fair financial
fair value through assets
value through other carried
profit or comprehensive Derivative at
loss income assets fair value
GBPm GBPm GBPm GBPm
At 1 January 2019 110 - - 110
Gains (losses) recognised
in the income statement within
other income (1) - 1 -
Additions - - 1 1
Sales (8) - - (8)
Transfers into the level 3
portfolio 399 - 11 410
At 30 June 2019 500 - 13 513
-------------- -------------- ---------- -----------
Gains (losses) recognised
in the income statement within
other income relating to those
assets held at 30 June 2019 - - - -
Financial Financial Total
assets at assets financial
fair at fair assets
value through value through carried
profit other comprehensive Derivative at
or loss income assets fair value
GBPm GBPm GBPm GBPm
At 1 January 2018 62 7 420 489
Exchange and other adjustments 1 - - 1
Gains (losses) recognised in
the income statement within
other income 2 - (2) -
Sales - - (418) (418)
Transfers into the level 3
portfolio - 128 - 128
Transfers out of the level -
3 portfolio - - -
-------------- -------------------- ---------- -----------
At 30 June 2018 65 135 - 200
-------------- -------------------- ---------- -----------
Gains (losses) recognised in
the income statement within
other income relating to those
assets held at 30 June 2018 9 - (2) 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Fair values of financial assets and liabilities (continued)
Movements in level 3 portfolio
The tables below analyse movements in the level 3 financial
liabilities portfolio.
Financial
liabilities Total
at financial
fair value liabilities
through carried
profit Derivative at
or loss liabilities fair value
GBPm GBPm GBPm
At 1 January 2019 - - -
Redemptions (1) (12) (13)
Transfers into the level 3 portfolio 53 344 397
------------ ------------ ------------
At 30 June 2019 52 332 384
------------ ------------ ------------
Gains recognised in the income statement
within other income relating to those
liabilities held at 30 June 2019 - - -
Financial
liabilities Total
at financial
fair value liabilities
through carried
profit or Derivative at fair
loss liabilities value
GBPm GBPm GBPm
At 1 January 2018 - 54 54
Redemptions - (54) (54)
------------ ------------ -------------
At 30 June 2018 - - -
------------ ------------ -------------
Gains recognised in the income statement
within other income relating to those
liabilities held at 30 June 2018 - - -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Fair values of financial assets and liabilities (continued)
The tables below set out the effects of reasonably possible
alternative assumptions for categories of level 3 financial assets
and financial liabilities which have an aggregated carrying value
greater than GBP500 million.
At 30 June 2019
---------------------------------------
Effect of reasonably
possible alternative
assumptions(1)
-----------------------------
Significant
Valuation unobservable Carrying Favourable Unfavourable
technique(s) inputs Range(2) value changes changes
GBPm GBPm GBPm
Financial assets at fair value through profit
or loss:
Loans and Discounted Inferred
advances cash spreads 76bps/104bps
to customers flows 500 4 (4)
-------------- ---------------------------------------------- --------
Financial assets at fair value through
other comprehensive income - - -
Derivative financial assets 13 - -
--------
Financial assets carried at fair
value 513
--------
Financial liabilities at fair
value through profit or loss 52 - -
Derivative financial liabilities 332 - -
--------
Financial liabilities carried
at fair value 384
--------
(1) Where the exposure to an unobservable input is managed on a net
basis, only the net impact is shown in the table.
(2) The range represents the highest and lowest inputs used in the
level 3 valuations.
At 31 December 2018
-------------------------------------
Effect of reasonably
possible alternative
assumptions(1)
---------------------------
Significant
Valuation unobservable Carrying Favourable Unfavourable
technique(s) inputs Range(2) value changes changes
GBPm GBPm GBPm
Financial assets at fair value through profit
or loss:
Loans and Discounted Inferred
advances cash spreads 99bps/101bps
to customers flows 110 1 (1)
-------------- --------------- ------------- --------
Financial assets at fair value through
other comprehensive income - - -
Financial assets carried at fair
value 110
--------
(1) Where the exposure to an unobservable input is managed on a net
basis, only the net impact is shown in the table.
(2) The range represents the highest and lowest inputs used in the
level 3 valuations.
Unobservable inputs
Significant unobservable inputs affecting the valuation of debt
securities, unlisted equity investments and derivatives are
unchanged from those described in the Group's 2018 financial
statements.
Reasonably possible alternative assumptions
Valuation techniques applied to many of the Group's level 3
instruments often involve the use of two or more inputs whose
relationship is interdependent. The calculation of the effect of
reasonably possible alternative assumptions included in the table
above reflects such relationships and are unchanged from those
described in the Group's 2018 financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Related party transactions
Balances and transactions with Lloyds Banking Group plc and
fellow Lloyds Banking Group undertakings
The Company and its subsidiaries have balances due to and from
the Company's ultimate parent company, Lloyds Banking Group plc,
and fellow Lloyds Banking Group undertakings. These are included on
the balance sheet as follows:
At At
30 June 31 Dec
2019 2018
GBPm GBPm
Assets
Derivative financial instruments 7,006 6,201
Due from fellow Lloyds Banking Group undertakings 65,295 53,190
Liabilities
Due to fellow Lloyds Banking Group undertakings 122,431 109,169
Derivative financial instruments 8,786 7,674
Debt securities in issue 53 61
Subordinated liabilities 83 93
During the half-year to 30 June 2019 the Group earned GBP229
million (half-year ended 30 June 2018: GBP175 million) of interest
income and incurred GBP959 million (half-year ended 30 June 2018:
GBP884 million) of interest expense on balances and transactions
with Lloyds Banking Group plc and fellow Lloyds Banking Group
undertakings.
In addition, during the half-year to 30 June 2019 the Group
incurred expenditure of GBP27 million (half-year ended 30 June
2018: GBP33 million) on behalf of fellow Lloyds Banking Group
undertakings which was recharged to those undertakings; and fellow
Lloyds Banking Group undertakings incurred expenditure of GBP448
million (half-year ended 30 June 2018: GBP349 million) on behalf of
the Group which has been recharged to the Group.
Other related party transactions
Other related party transactions for the half-year to 30 June
2019 are similar in nature to those for the year ended 31 December
2018.
15. Dividends on ordinary shares
No interim dividend has been proposed in respect of the current
period.
The Company paid a dividend of GBP500 million on 13 May 2019;
the Company paid dividends of GBP1,800 million on 16 May 2018 and
GBP1,500 million on 19 September 2018.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. Implementation of IFRS 16
The Group adopted IFRS 16 Leases from 1 January 2019 and elected
to apply the standard retrospectively with the cumulative effect of
initial application being recognised at that date; comparative
information has therefore not been restated.
Lease liabilities amounting to GBP779 million in respect of
leased properties previously accounted for as operating leases were
recognised at 1 January 2019. These liabilities were measured at
the present value of the remaining lease payments, discounted using
the Group's incremental borrowing rate as at that date, adjusted to
exclude short-term leases and leases of low-value assets. The
weighted-average borrowing rate applied to these lease liabilities
was 2.43 per cent. The corresponding right-of-use asset of GBP749
million was measured at an amount equal to the lease liabilities,
adjusted for lease liabilities recognised at 31 December 2018 of
GBP30 million. The right-of-use asset and lease liabilities are
included within property, plant and equipment and other liabilities
respectively. There was no impact on shareholders' equity.
In applying IFRS 16 for the first time, the Group has used a
number of practical expedients permitted by the standard; the most
significant of which were the use of a single discount rate to a
portfolio of leases with reasonably similar characteristics;
reliance on previous assessments of whether a lease is onerous and
the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease. The
Group has also elected not to apply IFRS 16 to contracts that were
not identified as containing a lease under IAS 17 and IFRIC 4
Determining whether an Arrangement contains a Lease.
17. Ultimate parent undertaking
HBOS plc's ultimate parent undertaking and controlling party is
Lloyds Banking Group plc which is incorporated in Scotland. Lloyds
Banking Group plc has published consolidated accounts for the year
ended 31 December 2018 and copies may be obtained from Investor
Relations, Lloyds Banking Group, 25 Gresham Street, London EC2V 7HN
and are available for download from www.lloydsbankinggroup.com.
18. Other information
The financial information included in these condensed
consolidated half-year financial statements does not constitute
statutory accounts within the meaning of section 434 of the
Companies Act 2006. Statutory accounts for the year ended 31
December 2018 have been delivered to the Registrar of Companies.
The auditors' report on those accounts was unqualified, did not
include an emphasis of matter paragraph and did not include a
statement under section 498 of the Companies Act 2006.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors listed below (being all the directors of HBOS plc)
confirm that to the best of their knowledge these condensed
consolidated half-year financial statements have been prepared in
accordance with International Accounting Standard 34, Interim
Financial Reporting, as adopted by the European Union, and that the
half-year results herein includes a fair review of the information
required by DTR 4.2.7R and DTR 4.2.8R, namely:
-- an indication of important events that have occurred during
the six months ended 30 June 2019 and their impact on the condensed
consolidated half-year financial statements, and a description of
the principal risks and uncertainties for the remaining six months
of the financial year; and
-- material related party transactions in the six months ended
30 June 2019 and any material changes in the related party
transactions described in the last annual report.
Signed on behalf of the board by
António Horta-Osório
Group Chief Executive
30 July 2019
HBOS plc board of directors:
António Horta-Osório (Group Chief Executive)
George Culmer (Chief Financial Officer)
Juan Colombás (Chief Risk Officer)
Lord Blackwell (Chairman)
Anita Frew (Deputy Chairman and Senior Independent Director)
Alan Dickinson
Simon Henry
Lord Lupton CBE
Amanda Mackenzie OBE
Nicholas Prettejohn
Stuart Sinclair
Sara Weller CBE
INDEPENDENT REVIEW REPORT TO HBOS PLC
Report on the condensed consolidated half-year financial
statements
Our conclusion
We have reviewed HBOS plc's condensed consolidated half-year
financial statements (the 'interim financial statements') in the
2019 Half-Year Results of HBOS plc (the 'Company') for the six
month period ended 30 June 2019. Based on our review, nothing has
come to our attention that causes us to believe that the interim
financial statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the consolidated balance sheet as at 30 June 2019;
-- the consolidated income statement and consolidated statement
of comprehensive income for the period then ended;
-- the consolidated cash flow statement for the period then ended;
-- the consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the 2019 Half-Year
Results have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The 2019 Half-Year Results, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the 2019
Half-Year Results in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the 2019 Half-Year Results based on our
review. This report, including the conclusion, has been prepared
for and only for the Company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the 2019
Half-Year Results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
30 July 2019
--
CONTACTS
For further information please contact:
INVESTORS AND ANALYSTS
Douglas Radcliffe
Group Investor Relations Director
020 7356 1571
douglas.radcliffe@finance.lloydsbanking.com
Edward Sands
Director of Investor Relations
020 7356 1585
edward.sands@lloydsbanking.com
Nora Thoden
Director of Investor Relations
020 7356 2334
nora.thoden@lloydsbanking.com
CORPORATE AFFAIRS
Grant Ringshaw
Director of Media Relations
020 7356 2362
grant.ringshaw@lloydsbanking.com
Matt Smith
Head of Corporate Media
020 7356 3522
matt.smith@lloydsbanking.com
Copies of this news release may be obtained from Investor
Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V
7HN. The full news release can also be found on the Group's website
- www.lloydsbankinggroup.com.
Registered office: HBOS plc, The Mound, Edinburgh EH1 1YZ
Registered in Scotland no. SC218813
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR RBMMTMBAJBIL
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