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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Lloyds Banking Group Plc | LSE:LLOY | London | Ordinary Share | GB0008706128 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.08 | -0.16% | 50.92 | 50.86 | 50.90 | 51.08 | 50.20 | 50.70 | 140,525,532 | 16:35:22 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Commercial Banks, Nec | 23.74B | 5.46B | 0.0859 | 5.92 | 32.33B |
TIDMLLOY
RNS Number : 0515Y
Lloyds Banking Group PLC
24 February 2012
STATUTORY INFORMATION
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Page
Primary statements
Consolidated income statement 163
Consolidated statement of comprehensive income 164
Consolidated balance sheet 165
Consolidated statement of changes in equity 167
Consolidated cash flow statement 169
Notes
1 Accounting policies, presentation and estimates 170
2 Segmental analysis 174
3 Other income 178
4 Operating expenses 179
5 Impairment 180
6 Loss on disposal of businesses in 2010 180
7 Taxation 181
8 Loss per share 182
Trading and other financial assets at fair value through
9 profit or loss 182
10 Derivative financial instruments 183
11 Loans and advances to customers 184
12 Allowance for impairment losses on loans and receivables 184
13 Securitisations and covered bonds 185
14 Debt securities classified as loans and receivables 186
15 Available-for-sale financial assets 186
16 Credit market exposures 187
17 Customer deposits 189
18 Debt securities in issue 189
19 Subordinated liabilities 190
20 Share capital 190
21 Reserves 191
22 Payment protection insurance 192
23 Contingent liabilities and commitments 193
24 Capital ratios 197
25 Related party transactions 200
26 Future accounting developments 202
27 Other information 203
CONSOLIDATED INCOME STATEMENT
2011 2010
Note GBP million GBP million
Interest and similar income 26,316 29,340
Interest and similar expense (13,618) (16,794)
----------- -----------
Net interest income 12,698 12,546
----------- -----------
Fee and commission income 4,935 4,992
Fee and commission expense (1,391) (1,682)
----------- -----------
Net fee and commission income(1) 3,544 3,310
Net trading income (368) 15,724
Insurance premium income 8,170 8,148
Other operating income 2,768 4,316
----------- -----------
Other income 3 14,114 31,498
----------- -----------
Total income 26,812 44,044
Insurance claims(1) (6,041) (19,088)
----------- -----------
Total income, net of insurance claims 20,771 24,956
----------- -----------
Payment protection insurance provision (3,200) -
Other operating expenses (13,050) (13,270)
----------- -----------
Total operating expenses 4 (16,250) (13,270)
----------- -----------
Trading surplus 4,521 11,686
Impairment 5 (8,094) (10,952)
Share of results of joint ventures and
associates 31 (88)
Loss on disposal of businesses 6 - (365)
----------- -----------
(Loss) profit before tax (3,542) 281
Taxation 7 828 (539)
----------- -----------
Loss for the year (2,714) (258)
----------- -----------
Profit attributable to non-controlling
interests 73 62
Loss attributable to equity shareholders (2,787) (320)
----------- -----------
Loss for the year (2,714) (258)
----------- -----------
Basic loss per share 8 (4.1)p (0.5)p
Diluted loss per share 8 (4.1)p (0.5)p
(1) See note 3.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2011 2010
GBP million GBP million
Loss for the year (2,714) (258)
Other comprehensive income
Movements in revaluation reserve in respect of
available-for-sale financial assets:
----------- -----------
Change in fair value 2,603 1,231
Income statement transfers in respect of disposals (343) (399)
Income statement transfers in respect of impairment 80 114
Other income statement transfers (155) (110)
Taxation (575) (343)
----------- -----------
1,610 493
Movements in cash flow hedging reserve:
----------- -----------
Effective portion of changes in fair value 916 (1,048)
Net income statement transfers 70 932
Taxation (270) 30
----------- -----------
716 (86)
Currency translation differences (tax: nil) (84) (129)
----------- -----------
Other comprehensive income for the year, net
of tax 2,242 278
----------- -----------
Total comprehensive income for the year (472) 20
----------- -----------
Total comprehensive income attributable to non-controlling
interests 72 57
Total comprehensive income attributable to equity
shareholders (544) (37)
----------- -----------
Total comprehensive income for the year (472) 20
----------- -----------
CONSOLIDATED BALANCE SHEET
As at As at
31 December 31 December
2011 2010
Assets Note GBP million GBP million
Cash and balances at central banks 60,722 38,115
Items in course of collection from banks 1,408 1,368
Trading and other financial assets at fair
value through profit or loss 9 139,510 156,191
Derivative financial instruments 10 66,013 50,777
Loans and receivables:
------------ ------------
Loans and advances to banks 32,606 30,272
Loans and advances to customers 11 565,638 592,597
Debt securities 14 12,470 25,735
------------ ------------
610,714 648,604
Available-for-sale financial assets 15 37,406 42,955
Held-to-maturity investments 8,098 7,905
Investment properties 6,122 5,997
Investments in joint ventures and associates 334 429
Goodwill 2,016 2,016
Value of in-force business 6,638 7,367
Other intangible assets 3,196 3,496
Tangible fixed assets 7,673 8,190
Current tax recoverable 434 621
Deferred tax assets 4,496 4,164
Retirement benefit assets 1,338 736
Other assets 14,428 12,643
------------ ------------
Total assets 970,546 991,574
------------ ------------
CONSOLIDATED BALANCE SHEET
As at As at
31 December 31 December
2011 2010
Equity and liabilities Note GBP million GBP million
Liabilities
Deposits from banks 39,810 50,363
Customer deposits 17 413,906 393,633
Items in course of transmission to banks 844 802
Trading and other financial liabilities
at fair value through profit or loss 24,955 26,762
Derivative financial instruments 10 58,212 42,158
Notes in circulation 1,145 1,074
Debt securities in issue 18 185,059 228,866
Liabilities arising from insurance contracts
and
participating investment contracts 78,991 80,729
Liabilities arising from non-participating
investment contracts 49,636 51,363
Unallocated surplus within insurance businesses 300 643
Other liabilities 32,041 29,696
Retirement benefit obligations 381 423
Current tax liabilities 103 149
Deferred tax liabilities 314 247
Other provisions 3,166 1,532
Subordinated liabilities 19 35,089 36,232
------------ ------------
Total liabilities 923,952 944,672
Equity
------------ ------------
Share capital 20 6,881 6,815
Share premium account 21 16,541 16,291
Other reserves 21 13,818 11,575
Retained profits 21 8,680 11,380
------------ ------------
Shareholders' equity 45,920 46,061
Non-controlling interests 674 841
------------ ------------
Total equity 46,594 46,902
------------ ------------
Total equity and liabilities 970,546 991,574
------------ ------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity shareholders
---------------------------------------------------
Share Non-
capital Other Retained controlling
and premium reserves profits Total interests Total
GBP million GBP million GBP million GBP million GBP million GBP million
Balance at 1 January
2011 23,106 11,575 11,380 46,061 841 46,902
Comprehensive income
(Loss) profit for
the period - - (2,787) (2,787) 73 (2,714)
Other comprehensive
income
------------ ----------- ----------- ----------- ------------ -----------
Movements in revaluation
reserve in respect
of available-for-sale
financial assets, net
of tax - 1,611 - 1,611 (1) 1,610
Movements in cash
flow hedging reserve,
net of tax - 716 - 716 - 716
Currency translation
differences, net of
tax - (84) - (84) - (84)
------------ ----------- ----------- ----------- ------------ -----------
Total other comprehensive
income - 2,243 - 2,243 (1) 2,242
------------ ----------- ----------- ----------- ------------ -----------
Total comprehensive
income - 2,243 (2,787) (544) 72 (472)
------------ ----------- ----------- ----------- ------------ -----------
Transactions with
owners
------------ ----------- ----------- ----------- ------------ -----------
Dividends - - - - (50) (50)
Issue of ordinary
shares 316 - - 316 - 316
Movement in treasury
shares - - (276) (276) - (276)
Value of employee services:
Share option schemes - - 125 125 - 125
Other employee award
schemes - - 238 238 - 238
Change in non-controlling
interests - - - - (189) (189)
------------ ----------- ----------- ----------- ------------ -----------
Total transactions
with owners 316 - 87 403 (239) 164
------------ ----------- ----------- ----------- ------------ -----------
Balance at 31 December
2011 23,422 13,818 8,680 45,920 674 46,594
------------ ----------- ----------- ----------- ------------ -----------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)
Attributable to equity shareholders
---------------------------------------------------
Share Non-
capital Other Retained controlling
and premium reserves profits Total interests Total
GBP million GBP million GBP million GBP million GBP million GBP million
Balance at 1 January
2010 24,944 7,217 11,117 43,278 829 44,107
Comprehensive income
(Loss) profit for
the period - - (320) (320) 62 (258)
Other comprehensive
income
------------ ----------- ----------- ----------- ------------ -----------
Movements in revaluation
reserve in respect
of available-for-sale
financial assets, net
of tax - 498 - 498 (5) 493
Movements in cash
flow hedging reserve,
net of tax - (86) - (86) - (86)
Currency translation
differences, net of
tax - (129) - (129) - (129)
------------ ----------- ----------- ----------- ------------ -----------
Total other comprehensive
income - 283 - 283 (5) 278
------------ ----------- ----------- ----------- ------------ -----------
Total comprehensive
income - 283 (320) (37) 57 20
------------ ----------- ----------- ----------- ------------ -----------
Transactions with
owners
------------ ----------- ----------- ----------- ------------ -----------
Dividends - - - - (47) (47)
Issue of ordinary
shares 2,237 - - 2,237 - 2,237
Redemption of preference
shares 11 (11) - - - -
Cancellation of deferred
shares (4,086) 4,086 - - - -
Movement in treasury
shares - - 20 20 - 20
Value of employee services:
Share option schemes - - 154 154 - 154
Other employee award
schemes - - 409 409 - 409
Change in non-controlling
interests - - - - 2 2
------------ ----------- ----------- ----------- ------------ -----------
Total transactions
with owners 1,838 4,075 583 2,820 (45) 2,775
------------ ----------- ----------- ----------- ------------ -----------
Balance at 31 December
2010 23,106 11,575 11,380 46,061 841 46,902
------------ ----------- ----------- ----------- ------------ -----------
CONSOLIDATED CASH FLOW STATEMENT
2011 2010
GBP million GBP million
(Loss) profit before tax (3,542) 281
Adjustments for:
Change in operating assets 44,097 31,860
Change in operating liabilities (19,187) (45,683)
Non-cash and other items (1,339) 11,173
Tax (paid) received (136) 332
----------- -----------
Net cash provided by (used in) operating activities 19,893 (2,037)
Cash flows from investing activities
----------- -----------
Purchase of financial assets (28,995) (46,890)
Proceeds from sale and maturity of financial
assets 36,523 45,999
Purchase of fixed assets (3,095) (3,216)
Proceeds from sale of fixed assets 2,214 1,354
Acquisition of businesses, net of cash acquired (13) (73)
Disposal of businesses, net of cash disposed 298 428
----------- -----------
Net cash provided by (used in) investing activities 6,932 (2,398)
Cash flows from financing activities
----------- -----------
Dividends paid to non-controlling interests (50) (47)
Interest paid on subordinated liabilities (2,126) (1,942)
Proceeds from issue of subordinated liabilities - 3,237
Repayment of subordinated liabilities (1,074) (684)
Change in non-controlling interests 8 2
----------- -----------
Net cash (used in) provided by financing activities (3,242) 566
Effects of exchange rate changes on cash and
cash equivalents 6 479
----------- -----------
Change in cash and cash equivalents 23,589 (3,390)
Cash and cash equivalents at beginning of year 62,300 65,690
----------- -----------
Cash and cash equivalents at end of year 85,889 62,300
----------- -----------
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.
1. Accounting policies, presentation and estimates
These financial statements as at and for the year to 31 December 2011 have been prepared in accordance with the Listing Rules of the Financial Services Authority (FSA) relating to Preliminary Results. They do not include all of the information required for full annual financial statements. Copies of the 2011 annual report and accounts will be published on the Group's website and will be available upon request from Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V 7HN, in March 2012.
The British Bankers' Association's Code for Financial Reporting Disclosure (the Disclosure Code) sets out disclosure principles together with supporting guidance in respect of the financial statements of UK banks. The Group has adopted the Disclosure Code and these financial statements have been prepared in compliance with the Disclosure Code's principles. Terminology used in these financial statements is consistent with that used in the Group's annual report and accounts where a glossary of terms can be found.
The directors consider that it is appropriate to continue to adopt the going concern basis in preparing the Group's financial statements. In reaching this assessment, the directors have considered projections for the Group's capital and funding position and have had regard to the factors set out in Principal risks and uncertainties: Liquidity and funding on page 110.
In previous years the Group has included annual management charges on non-participating investment contracts within insurance claims. In light of developing industry practice, these amounts (2011: GBP606 million; 2010: GBP577 million) are now included within net fee and commission income.
Accounting policies
The accounting policies are consistent with those applied by the Group in its 2010 annual report and accounts.
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. Save for the estimates detailed below relating to payment protection insurance and German insurance business litigation, there have been no significant changes in the basis upon which estimates have been determined, compared to that applied at 31 December 2010.
1. Accounting policies, presentation and estimates (continued)
Payment protection insurance
The Group has charged a provision of GBP3,200 million in respect of payment protection insurance (PPI) policies as a result of discussions with the FSA and a judgment handed down by the UK High Court (see note 22 for more information). The provision represents management's best estimate of the anticipated costs of related customer contact and/or redress, including administration expenses. However, there are still a number of uncertainties as to the eventual costs from any such contact and/or redress given the inherent difficulties in assessing the impact of detailed implementation of the FSA Policy Statement of 10 August 2010 for all PPI complaints, uncertainties around the ultimate emergence period for complaints, the availability of supporting evidence and the activities of claims management companies, all of which will significantly affect complaints volumes, uphold rates and redress costs.
The provision requires significant judgement by management in determining appropriate assumptions, which include the level of complaints, uphold rates, proactive contact and response rates, Financial Ombudsman Service referral and uphold rates as well as redress costs for each of the many different populations of customers identified by the Group in its analyses used to determine the best estimate of the anticipated costs of redress. If the level of complaints was one percentage point higher (lower) than estimated for all policies open within the last six years then the provision made in 2011 would have increased (decreased) by approximately GBP70 million. There are a large number of inter-dependent assumptions under-pinning the provision; this sensitivity assumes that all assumptions, other than the level of complaints, remain constant.
The Group will re-evaluate the assumptions underlying its analysis at each reporting date as more information becomes available. As noted above, there is inherent uncertainty in making estimates; actual results in future periods may differ from the amount provided.
Provision in relation to German insurance business litigation
Clerical Medical Investment Group Limited (CMIG) has received a number of claims in the German courts, relating to policies issued by CMIG but sold by independent intermediaries in Germany, principally during the late 1990's and early 2000's. CMIG's strategy includes defending claims robustly and appealing against adverse judgments. The ultimate financial effect, which could be significant, will only be known once all relevant claims have been resolved. The Group has charged a provision of GBP175 million (see note 23 for more information). Management believes this represents the most appropriate estimate of the financial impact, based upon a series of assumptions, including the number of claims received, the proportion upheld, and resulting legal and administration costs.
This provision requires significant judgement by management in determining appropriate assumptions, including the number of claims received, the proportion upheld, and resulting legal and administration costs. Assuming that all other assumptions remain unchanged, if in the longer term the level of claims was ten percentage points higher (lower) than estimated then the cost would increase (decrease) by approximately GBP3 million; and if uphold rates were ten percentage points higher (lower) than estimated then the cost would increase (decrease) by approximately GBP13 million.
The Group will re-evaluate the assumptions underlying its analysis at each reporting date as more information becomes available. As noted above, there is inherent uncertainty in making estimates; actual results in future periods may differ from the amount provided.
1. Accounting policies, presentation and estimates(continued)
Recoverability of deferred tax assets
At 31 December 2011 the Group carried deferred tax assets on its balance sheet of GBP4,496 million (2010: GBP4,164 million) and deferred tax liabilities of GBP314 million (2010: GBP247 million). This presentation takes into account the ability of the Group to net deferred tax assets and liabilities only where there is a legally enforceable right of offset. The largest category of deferred tax asset before netting relates to tax losses carried forward.
The recoverability of the Group's deferred tax assets in respect of carry forward losses is based on an assessment of future levels of taxable profit expected to arise that can be offset against these losses. The Group's expectations as to the level of future taxable profits take into account the Group's long--term financial and strategic plans, and anticipated future tax adjusting items.
In making this assessment account is taken of business plans, the five year board approved operating plan and the following future risk factors:
-- The expected future economic outlook as set out in the Group Chief Executive's statement; -- The retail banking business disposal as required by the European Commission; and -- Future regulatory change.
The Group's deferred tax asset includes GBP5,862 million (2010 GBP6,572 million) in respect of trading losses carried forward. The tax losses have arisen in individual legal entities and will be used as future taxable profits arise in those legal entities, though substantially all of the unused tax losses for which a deferred tax asset has been recognised arise in Bank of Scotland plc and Lloyds TSB Bank plc. The deferred tax asset will be utilised over different time periods in each of the entities in which the tax losses arise. The Group's assessment is that these tax losses will be fully used within eight years.
Under current UK tax law there is no expiry date for unused tax losses.
Deferred tax assets totalling GBP1,288 million (2010: GBP685 million) have not been recognised in respect of certain capital losses carried forward, trading losses carried forward (mainly in certain overseas companies) and unrelieved foreign tax credits as there are no predicted future capital or taxable profits against which these losses can be recognised.
New accounting pronouncements
The Group has adopted the following new standards and amendments to standards which became effective for financial years beginning on or after 1 January 2011. None of these standards or amendments to standards have had a material impact on these financial statements.
(i) Amendment to IAS 32 Financial Instruments: Presentation - 'Classification of Rights Issues'. Requires rights issues denominated in a currency other than the functional currency of the issuer to be classified as equity regardless of the currency in which the exercise price is denominated.
(ii) IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments. Clarifies that when an entity renegotiates the terms of its debt with the result that the liability is extinguished by the debtor issuing its own equity instruments to the creditor, a gain or loss is recognised in the income statement representing the difference between the carrying value of the financial liability and the fair value of the equity instruments issued; the fair value of the financial liability is used to measure the gain or loss where the fair value of the equity instruments cannot be reliably measured.
1. Accounting policies, presentation and estimates(continued)
(iii) Improvements to IFRSs (issued May 2010). Amends IFRS 7 Financial Instruments: Disclosure to require further disclosures in respect of collateral held by the Group as security for financial assets and sets out minor amendments to other standards as part of the annual improvements process.
(iv) Amendment to IFRIC 14 Prepayments of a Minimum Funding Requirement. Applies when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover those requirements and permits such an entity to treat the benefit of such an early payment as an asset.
(v) IAS 24 Related Party Disclosures (Revised). Simplifies the definition of a related party and provides a partial exemption from the requirement to disclose transactions and outstanding balances with the government and government-related entities. The Group has taken advantage of an exemption in respect of government and government-related transactions that permits an entity to disclose only transactions that are individually or collectively significant. Details of related party transactions are disclosed in note 25.
Details of those IFRS pronouncements which will be relevant to the Group but which were not effective at 31 December 2011 and which have not been applied in preparing these financial statements are given in note 26.
2. Segmental analysis
Lloyds Banking Group provides a wide range of banking and financial services in the UK and in certain locations overseas.
The Group Executive Committee (GEC) has been determined to be the chief operating decision maker for the Group. The Group's operating segments reflect its organisational and management structures. GEC reviews the Group's internal reporting based around these segments in order to assess performance and allocate resources. This assessment includes a consideration of each segment's net interest revenue and consequently the total interest income and expense for all reportable segments is presented on a net basis. The segments are differentiated by the type of products provided, by whether the customers are individuals or corporate entities and by the geographical location of the customer.
The segmental results and comparatives are presented on a combined businesses basis, the basis reviewed by the chief operating decision maker; during the year ended 31 December 2011 the chief operating decision maker has commenced reviewing the results of the Group's Commercial business separately to the Wholesale segment. As a consequence, the Group's activities are now organised into five financial reporting segments: Retail, Wholesale, Commercial, Wealth and International, and Insurance.
During the third quarter of 2011, the Group implemented a new approach to its allocation methodologies for funding costs and capital that ensures that the cost of funding is more fully reflected in each segment's results. The new methodology is designed to ensure that funding costs are allocated to the segments and that the allocation is more directly related to the size and behavioural duration of asset portfolios, with a similar approach applied to recognise the value to the business from the Group's growing deposit base. Comparative figures have been restated. The impact of this restatement was to reduce 2010 net interest income and profit before tax in Retail by GBP730 million, in Wholesale by GBP404 million, in Commercial by GBP48 million and in Wealth and International by GBP126 million; and to increase 2010 net interest income and profit before tax in Insurance by GBP224 million, in Group Operations by GBP11 million and in Central items by GBP1,073 million.
Retail offers a broad range of retail financial service products in the UK, including current accounts, savings, personal loans, credit cards and mortgages. It is also a major general insurance and bancassurance distributor, selling a wide range of long-term savings, investment and general insurance products.
The Wholesale division serves businesses with turnover above GBP15 million with a range of propositions segmented according to customer need. The division comprises Wholesale Banking and Markets, Wholesale Business Support Unit and Asset Finance.
Commercial serves in excess of a million small and medium-sized enterprises and community organisations with a turnover of up to GBP15 million. Customers extend from start-up enterprises to established corporations, and are supported with a range of propositions aligned to customer needs. Commercial comprises Commercial Banking and Commercial Finance, the invoice discounting and factoring business.
Wealth and International was created to give increased focus and momentum to the Group's private banking and asset management activities and to closely co-ordinate the management of its international businesses. Wealth comprises the Group's private banking, wealth and asset management businesses in the UK and overseas. International comprises corporate, commercial, asset finance and retail businesses, principally in Australia and Continental Europe.
Insurance provides long-term savings, investment and protection products distributed through bancassurance, intermediary and direct channels in the UK. It is also a distributor of home insurance in the UK with products sold through the retail branch network, direct channels and strategic corporate partners. The business consists of Life, Pensions and Investments UK; Life Pensions and Investments Europe; and General Insurance.
2. Segmental analysis (continued)
Other includes the costs of managing the Group's technology platforms, branch and head office property estate, operations (including payments, banking operations and collections) and procurement services, the costs of which are predominantly recharged to the other divisions. It also reflects other items not recharged to the divisions, including hedge ineffectiveness, UK bank levy, Financial Services Compensation Scheme costs, gains on liability management, volatile items such as hedge accounting managed centrally, and other gains from the structural hedging of interest rate risk.
Inter-segment services are generally recharged at cost, with the exception of the internal commission arrangements between the UK branch and other distribution networks and the insurance product manufacturing businesses within the Group, where a profit margin is also charged. Inter-segment lending and deposits are generally entered into at market rates, except that non-interest bearing balances are priced at a rate that reflects the external yield that could be earned on such funds. For the majority of those derivative contracts entered into by business units for risk management purposes, the business unit recognises the net interest income or expense on an accrual accounting basis and transfers the remainder of the fair value of the swap to the central group segment where the resulting accounting volatility is managed where possible through the establishment of hedge accounting relationships. Any change in fair value of the hedged instrument attributable to the hedged risk is also recorded within the central group segment. This allocation of the fair value of the swap and change in fair value of the hedged instrument attributable to the hedged risk avoids accounting asymmetry in segmental results and records volatility in the central group segment where it is managed.
Effects
of liability
management, Profit
Net volatile (loss) Inter-
interest Other items and Total before External segment
2011 income income asset sales income tax revenue revenue
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Retail 7,497 1,649 48 9,194 3,636 12,267 (3,073)
Wholesale 2,139 3,335 (1,415) 4,059 828 2,895 1,164
Commercial 1,251 446 - 1,697 499 1,263 434
Wealth and International 828 1,197 - 2,025 (3,936) 2,144 (119)
Insurance (67) 2,687 - 2,620 1,422 3,253 (633)
Other 585 (7) 1,293 1,871 236 (356) 2,227
----------- ------- ------------- ------- ------- -------- --------
Group - combined
businesses basis 12,233 9,307 (74) 21,466 2,685 21,466 -
-------- --------
Insurance grossing
adjustment 336 5,530 - 5,866 -
Integration,
simplification
and EC mandated
retail business
disposal - - - - (1,452)
Volatility arising
in insurance
businesses 19 (857) - (838) (838)
Fair value unwind (710) 1,028 - 318 -
Effects of liability
management, volatile
items and asset
sales 820 (894) 74 - -
Amortisation
of purchased
intangibles - - - - (562)
Payment protection
insurance provision - - - - (3,200)
Provision in
relation to German
insurance business
litigation - - - - (175)
-------------
Group - statutory 12,698 14,114 - 26,812 (3,542)
----------- ------- ------------- ------- -------
2. Segmental analysis (continued)
Effects
of
liability
management,
volatile Profit
Net items (loss) Inter-
interest Other and asset Total before External segment
income income sales income tax revenue revenue
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Retail 8,648 1,607 - 10,255 3,986 13,603 (3,348)
Wholesale 2,847 3,974 (295) 6,526 2,514 3,911 2,615
Commercial 1,127 457 - 1,584 291 1,378 206
Wealth and International 1,050 1,123 37 2,210 (4,950) 3,000 (790)
Insurance (39) 2,799 15 2,775 1,326 3,180 (405)
Other 510 (24) 150 636 (955) (1,086) 1,722
--------- ------- ------------ ------- ------- -------- --------
Group - combined
businesses basis 14,143 9,936 (93) 23,986 2,212 23,986 -
Insurance grossing
adjustment (949) 19,739 - 18,790 -
Integration
costs - - - - (1,653)
Volatility arising
in insurance
businesses (26) 332 - 306 306
Fair value unwind (301) 1,263 - 962 -
Effects of liability
management, volatile
items and asset
sales (321) 228 93 - -
Amortisation
of purchased
intangibles - - - - (629)
Pension curtailment
gain - - - - 910
Customer goodwill
payments provision - - - - (500)
Loss on disposal
of businesses - - - - (365)
------------
Group - statutory 12,546 31,498 - 44,044 281
--------- ------- ------------ ------- -------
2. Segmental analysis (continued)
As at As at
31 December 31 December
Segment external assets 2011 2010(1)
GBPm GBPm
Retail 356,295 369,170
Wholesale 320,435 327,055
Commercial 28,998 28,938
Wealth and International 74,623 85,508
Insurance 140,754 143,300
Other 49,441 37,603
---------- ----------
Total Group 970,546 991,574
---------- ----------
Segment customer deposits
Retail 247,088 235,591
Wholesale 91,357 92,951
Commercial 32,107 31,311
Wealth and International 42,019 32,784
Other 1,335 996
---------- ----------
Total Group 413,906 393,633
---------- ----------
Segment external liabilities
Retail 279,162 275,945
Wholesale 259,209 289,257
Commercial 32,723 31,952
Wealth and International 75,791 65,658
Insurance 129,350 132,133
Other 147,717 149,727
---------- ----------
Total Group 923,952 944,672
---------- ----------
(1) Segment total assets as at 31 December 2010 have been restated
to reflect the reclassification of certain central adjustments
3. Other income
2011 2010
GBPm GBPm
Fee and commission income:
------- -------
Current account fees 1,053 1,086
Credit and debit card fees 877 812
Other fees and commissions(1) 3,005 3,094
------- -------
4,935 4,992
Fee and commission expense (1,391) (1,682)
------- -------
Net fee and commission income 3,544 3,310
Net trading income (368) 15,724
Insurance premium income 8,170 8,148
------- -------
Liability management gains(2) 599 423
Other 2,169 3,893
------- -------
Other operating income 2,768 4,316
------- -------
Total other income 14,114 31,498
------- -------
(1) In previous years the Group has included annual management charges
on non-participating investment contracts within insurance claims.
In light of developing industry practice, these amounts (2011:
GBP606 million; 2010: GBP577 million) are now included within net
fee and commission income.
(2) During December 2011, the Group completed the exchange of certain
subordinated debt securities issued by Lloyds TSB Bank plc and
HBOS plc for new subordinated debt securities issued by Lloyds
TSB Bank plc by undertaking an exchange offer on certain securities
which were eligible for call before 31 December 2012. This exchange
resulted in a gain on extinguishment of the existing securities
of GBP599 million being the difference between the carrying amount
of the securities extinguished and the fair value of the new securities
issued together with related fees and costs.
As part of the exchange, the Group announced that all decisions
to exercise calls on those original securities that remained outstanding
following the exchange offer would be made with reference to the
prevailing regulatory, economic and market conditions at the time.
These securities will not, therefore, be called at their first
available call date which will lead to coupons continuing to be
being paid until possibly the final redemption date of the securities.
Consequently, the Group is required to adjust the carrying amount
of these securities to reflect the revised estimated cash flows
over their revised life and to recognise this change in carrying
value in interest expense. Included within net interest income
is a credit of GBP570 million in respect of the securities that
remained outstanding following the exchange offer. In December
2011, the Group decided to defer payment of non-mandatory coupons
on certain securities and, instead, settle them using an Alternative
Coupon Satisfaction Mechanism (ACSM) on their contractual terms.
This change in expected cashflows resulted in a gain of GBP126
million in net interest income from the recalculation of the carrying
value of these securities.
On 18 February 2010, as part of the Group's recapitalisation and
exit from its proposed participation in the Government Asset Protection
Scheme, Lloyds Banking Group plc issued 3,141 million ordinary
shares in exchange for certain existing preference shares and preferred
securities. This exchange resulted in a gain of GBP85 million.
During March 2010 the Group entered into a bilateral exchange,
under which certain Enhanced Capital Notes denominated in Japanese
yen were exchanged for an issue of new Enhanced Capital Notes denominated
in US dollars; the securities subject to the exchange were cancelled
and a profit of GBP20 million arose. In addition, during May and
June 2010 the Group completed the exchange of a number of outstanding
capital securities issued by Lloyds Banking Group plc and certain
of its subsidiaries for ordinary shares in Lloyds Banking Group
plc, generating additional core tier 1 capital for the Group. The
securities subject to exchange were cancelled, generating a total
profit of GBP318 million for the Group.
4. Operating expenses
2011 2010(1)
GBPm GBPm
Administrative expenses
Staff costs:
------ -------
Salaries 3,784 3,787
Performance-based compensation 361 533
Social security costs 432 396
Pensions and other post-retirement benefit schemes:
Net curtailment (gains) losses(2) - (910)
Other 401 628
------ -------
401 (282)
Restructuring costs 124 119
Other staff costs 1,064 1,069
------ -------
6,166 5,622
Premises and equipment:
------ -------
Rent and rates 547 602
Hire of equipment 22 18
Repairs and maintenance 188 199
Other 294 358
------ -------
1,051 1,177
Other expenses:
------ -------
Communications and data processing 954 1,126
Advertising and promotion 398 362
Professional fees 576 742
Customer goodwill payments provision - 500
Provision in relation to German insurance business
litigation 175 -
Financial services compensation scheme management
expenses levy 179 46
UK bank levy 189 -
Other 1,122 1,061
------ -------
3,593 3,837
------
10,810 10,636
Depreciation and amortisation 2,175 2,432
Impairment of tangible fixed assets(3) 65 202
------ -------
Total operating expenses, excluding payment protection
insurance provision 13,050 13,270
Payment protection insurance provision (note
22) 3,200 -
------
Total operating expenses 16,250 13,270
------ -------
(1) During 2011, the Group has reviewed the analysis of certain cost
items and as a result has reclassified certain items of expenditure;
comparatives for 2010 have been restated accordingly.
(2) Following changes by the Group to the terms of its UK defined benefit
pension schemes in 2010, all future increases to pensionable salary
are capped each year at the lower of: Retail Prices Index inflation;
each employee's actual percentage increase in pay; and 2 per cent
of pensionable pay. In addition to this, during the second half
of 2010 there was a change in commutation factors in certain defined
benefit schemes. These changes led to a net curtailment gain of
GBP910 million recognised in the income statement in 2010.
(3) GBP65 million (2010: GBP52 million) of the impairment of tangible
fixed assets related to integration activities.
4. Operating expenses (continued)
Performance-based compensation
The table below analyses the Group's performance-based compensation costs (excluding branch-based sales incentives) between those relating to the current performance year and those relating to earlier years.
2011 2010
GBPm GBPm
Performance-based compensation expense comprises:
Awards made in respect of the year ended 31 December 363 505
Awards made in respect of earlier years (2) 28
---- ----
361 533
---- ----
Performance-based compensation expense deferred
until later years comprises:
Awards made in respect of the year ended 31 December 43 39
Awards made in respect of earlier years 29 39
---- ----
72 78
---- ----
Performance-based awards expensed in 2011 include cash awards amounting to GBP160 million (2010: GBP163 million).
5. Impairment
2011 2010
GBPm GBPm
Impairment losses on loans and receivables:
----- ------
Loans and advances to banks - (13)
Loans and advances to customers 8,020 10,727
Debt securities classified as loans and receivables 49 57
----- ------
Impairment losses on loans and receivables (note
12) 8,069 10,771
Impairment of available-for-sale financial assets 80 106
Other credit risk provisions (55) 75
----- ------
Total impairment charged to the income statement 8,094 10,952
----- ------
6. Loss on disposal of businesses in 2010
In 2010, the Group reached agreement to dispose of its interests in two wholly-owned subsidiary companies through which an oil drilling rig construction business acquired through a previous lending relationship operated; the sale was completed in January 2011. These companies, which had gross assets of GBP860 million, were sold to Seadrill Limited; a loss of GBP365 million arose on disposal, which was recognised in the year ended 31 December 2010.
7. Taxation
A reconciliation of the tax credit (charge) that would result from applying the standard UK corporation tax rate to the (loss) profit before tax, to the actual tax credit (charge), is given below:
2011 2010
GBPm GBPm
(Loss) profit before tax (3,542) 281
------- -----
Tax credit (charge) thereon at UK corporation
tax rate of 26.5 per cent
(2010: 28 per cent) 939 (79)
Factors affecting tax credit (charge):
UK corporation tax rate change (404) (137)
Disallowed and non-taxable items 238 5
Overseas tax rate differences 17 134
Gains exempted or covered by capital losses 106 65
Policyholder interests 53 (227)
Tax losses where no deferred tax recognised (261) (487)
Deferred tax on losses not previously recognised 332 -
Adjustments in respect of previous years (206) 218
Effect of results of joint ventures and associates 8 (25)
Other items 6 (6)
------- -----
Tax credit (charge) 828 (539)
------- -----
On 23 March 2011, the Government announced that the corporation tax rate applicable from 1 April 2011 would be 26 per cent. This change passed into legislation on 29 March 2011. The enacted reduction in the main rate of corporation tax from 28 per cent to 27 per cent with effect from 1 April 2011 had been incorporated in the Group's deferred tax calculations as at 31 December 2010. In addition, the Finance Act 2011, which passed into law on 19 July 2011, included legislation to reduce the main rate of corporation tax from 26 per cent to 25 per cent with effect from 1 April 2012. The change in the main rate of corporation tax from 27 per cent to 25 per cent has resulted in a reduction in the Group's net deferred tax asset at 31 December 2011 of GBP394 million, comprising the GBP404 million charge included in the income statement and a GBP10 million credit included in equity.
The proposed further reductions in the rate of corporation tax by 1 per cent per annum to 23 per cent by 1 April 2014 are expected to be enacted separately each year. The effect of these further changes upon the Group's deferred tax balances and leasing business cannot be reliably quantified at this stage.
8. Loss per share
2011 2010
Basic
Loss attributable to equity shareholders GBP(2,787)m GBP(320)m
Weighted average number of ordinary shares in
issue 68,470m 67,117m
Loss per share (4.1)p (0.5)p
Fully diluted
Loss attributable to equity shareholders GBP(2,787)m GBP(320)m
Weighted average number of ordinary shares in
issue 68,470m 67,117m
Loss per share (4.1)p (0.5)p
9. Trading and other financial assets at fair value through profit or loss
2011 2010
GBPm GBPm
Trading assets 18,056 23,707
Other financial assets at fair value through
profit or loss:
------- -------
Loans and advances to customers 124 325
Debt securities 45,593 41,946
Equity shares 75,737 90,213
------- -------
121,454 132,484
------- -------
Total trading and other financial assets at fair
value through profit or loss 139,510 156,191
------- -------
Included in the above is GBP118,890 million (31 December 2010: GBP129,702 million) of assets relating to the insurance businesses.
10. Derivative financial instruments
2011 2010
--------------------------- ---------------------------
Fair value Fair value Fair value Fair value
of assets of liabilities of assets of liabilities
GBPm GBPm GBPm GBPm
Hedging
Derivatives designated as fair
value hedges 7,428 1,547 4,972 1,235
Derivatives designated as cash
flow hedges 5,422 5,698 2,432 3,163
Derivatives designated as net
investment hedges - 1 2 -
---------- --------------- ---------- ---------------
12,850 7,246 7,406 4,398
---------- --------------- ---------- ---------------
Trading and other
Exchange rate contracts 6,650 5,423 8,811 4,551
Interest rate contracts 43,086 44,031 31,131 31,670
Credit derivatives 238 328 256 207
Embedded equity conversion
feature 1,172 - 1,177 -
Equity and other contracts 2,017 1,184 1,996 1,332
---------- --------------- ---------- ---------------
53,163 50,966 43,371 37,760
---------- --------------- ---------- ---------------
Total recognised derivative
assets/liabilities 66,013 58,212 50,777 42,158
---------- --------------- ---------- ---------------
The Group reduces exposure to credit risk by using master netting agreements and by obtaining cash collateral. Of the derivative assets of GBP66,013 million at 31 December 2011 (31 December 2010: GBP50,777 million), GBP46,618 million (31 December 2010: GBP31,740 million) are available for offset under master netting arrangements. These do not meet the criteria under IAS 32 to enable derivative assets to be presented net of these balances. Of the remaining derivative assets of GBP19,395 million (31 December 2010: GBP19,037 million), cash collateral of GBP5,269 million (31 December 2010: GBP1,429 million) was held and a further GBP7,875 million (31 December 2010: GBP8,385 million) was due from Organisation for Economic Co-operation and Development (OECD) banks.
The embedded equity conversion feature of GBP1,172 million (31 December 2010: GBP1,177 million) reflects the value of the equity conversion feature contained in the Enhanced Capital Notes issued by the Group in 2009; the loss of GBP5 million arising from the change in fair value in the year ended 31 December 2011 (2010: loss of GBP620 million) is included within net trading income.
11. Loans and advances to customers
2011 2010
GBPm GBPm
Agriculture, forestry and fishing 5,198 5,558
Energy and water supply 4,013 3,576
Manufacturing 10,061 11,495
Construction 9,722 7,904
Transport, distribution and hotels 32,882 34,176
Postal and communications 1,896 1,908
Property companies 64,752 78,263
Financial, business and other services 64,046 59,363
Personal:
Mortgages 348,210 356,261
Other 30,014 36,967
Lease financing 7,800 8,291
Hire purchase 5,776 7,208
-------- --------
584,370 610,970
Allowance for impairment losses on loans and
advances (note 12) (18,732) (18,373)
-------- --------
Total loans and advances to customers 565,638 592,597
-------- --------
Loans and advances to customers include advances securitised under the Group's securitisation and covered bond programmes. Further details are given in note 13.
12. Allowance for impairment losses on loans and receivables
2011 2010
GBPm GBPm
Opening balance 18,951 15,380
Exchange and other adjustments (367) 112
Advances written off (7,834) (7,125)
Recoveries of advances written off in previous
years 429 216
Unwinding of discount (226) (403)
Charge to the income statement (note 5) 8,069 10,771
------- -------
Balance at end of year 19,022 18,951
------- -------
In respect of:
Loans and advances to banks 14 20
Loans and advances to customers (note 11) 18,732 18,373
Debt securities (note 14) 276 558
------- -------
Balance at end of year 19,022 18,951
------- -------
13. Securitisations and covered bonds
The Group's principal securitisation and covered bond programmes, together with the balances of the loans subject to these arrangements and the carrying value of the notes in issue, are listed in the table below.
2011 2010
----------------------- -----------------------
Loans and Loans and
advances Notes in advances Notes in
securitised issue securitised issue
Securitisation programmes GBPm GBPm GBPm GBPm
UK residential mortgages 129,764 94,080 146,200 114,428
US residential mortgage backed
securities 398 398 - -
Commercial loans 13,313 11,342 11,860 8,936
Irish residential mortgages 5,497 5,661 6,007 6,191
Credit card receivables 6,763 4,810 7,327 3,856
Dutch residential mortgages 4,933 4,777 4,526 4,316
Personal loans - - 3,012 2,011
PPP/PFI and project finance loans 767 110 776 110
Motor vehicle loans 3,124 2,871 926 975
164,559 124,049 180,634 140,823
------------ ------------
Less held by the Group (86,637) (100,081)
-------- ---------
Total securitisation programmes
(note 18) 37,412 40,742
-------- ---------
Covered bond programmes
-------- ---------
Residential mortgage-backed 91,023 67,456 93,651 73,458
Social housing loan-backed 3,363 2,605 3,317 2,181
94,386 70,061 96,968 75,639
------------ ------------
Less held by the Group (31,865) (43,489)
-------- ---------
Total covered bond programmes (note
18) 38,196 32,150
-------- ---------
Total securitisation and covered
bond programmes 75,608 72,892
-------- ---------
Securitisation programmes
Loans and advances to customers and debt securities classified as loans and receivables include loans securitised under the Group's securitisation programmes, the majority of which have been sold by subsidiary companies to bankruptcy remote special purpose entities (SPEs). As the SPEs are funded by the issue of debt on terms whereby the majority of the risks and rewards of the portfolio are retained by the subsidiary, the SPEs are consolidated fully and all of these loans are retained on the Group's balance sheet, with the related notes in issue included within debt securities in issue. In addition to the SPEs detailed above, the Group sponsors three conduit programmes: Argento, Cancara and Grampian.
Covered bond programmes
Certain loans and advances to customers have been assigned to bankruptcy remote limited liability partnerships to provide security to issues of covered bonds by the Group. The Group retains all of the risks and rewards associated with these loans and the partnerships are consolidated fully with the loans retained on the Group's balance sheet and the related covered bonds in issue included within debt securities in issue.
Cash deposits of GBP20,435 million (2010: GBP36,579 million) held by the Group are restricted in use to repayment of the debt securities issued by the SPEs, the term advances relating to covered bonds and other legal obligations.
14. Debt securities classified as loans and receivables
Debt securities classified as loans and receivables comprise:
2011 2010
GBPm GBPm
Asset-backed securities:
Mortgage-backed securities 7,179 11,650
Other asset-backed securities 5,030 12,827
Corporate and other debt securities 537 1,816
------ ------
12,746 26,293
Allowance for impairment losses (note 12) (276) (558)
------ ------
Total 12,470 25,735
------ ------
15. Available-for-sale financial assets
2011 2010
GBPm GBPm
Asset-backed securities 2,867 9,512
Other debt securities:
------ ------
Bank and building society certificates of deposit 366 407
Government securities 25,236 12,552
Other public sector securities 27 29
Corporate and other debt securities 5,245 12,132
------ ------
30,874 25,120
Equity shares 1,938 2,255
Treasury and other bills 1,727 6,068
Total 37,406 42,955
------ ------
16. Credit market exposures
The Group's credit market exposures primarily relate to asset-backed securities exposures held in the Wholesale division. An analysis of the carrying value of these exposures, which are classified as loans and receivables, available-for-sale financial assets or trading and other financial assets at fair value through profit or loss depending on the nature of the investment, is set out below.
Net exposure Net exposure
at 31 at 31
Loans and Available- Dec Dec
receivables for-sale Trading 2011 2010
GBPm GBPm GBPm GBPm GBPm
Mortgage-backed securities
------- ------------ ------------
US residential 4,063 - - 4,063 4,242
Non-US residential 1,837 1,189 99 3,125 7,898
Commercial 1,175 613 - 1,788 3,516
7,075 1,802 99 8,976 15,656
Collateralised debt obligations:
------- ------------ ------------
Collateralised loan obligations 915 195 52 1,162 4,686
Other 264 - - 264 494
1,179 195 52 1,426 5,180
Federal family education loan
programme student loans (FFELP) 3,380 146 - 3,526 7,777
Personal sector 145 366 - 511 3,967
Other asset-backed securities 314 322 20 656 1,035
------- ------------ ------------
Total uncovered asset-backed
securities 12,093 2,831 171 15,095 33,615
Negative basis(1) - 36 150 186 1,109
------- ------------ ------------
Total Wholesale asset-backed
securities 12,093 2,867 321 15,281 34,724
------- ------------ ------------
Direct 9,067 1,317 321 10,705 22,296
Conduits 3,026 1,550 - 4,576 12,428
------- ------------ ------------
Total Wholesale asset-backed
securities 12,093 2,867 321 15,281 34,724
------- ------------ ------------
(1) Negative basis means bonds held with separate matching credit default
swap (CDS) protection.
Exposures to monolines
At 31 December 2011, the Group had no direct exposure to sub-investment grade monolines on credit default swap (CDS) contracts. Its exposure to investment grade monolines through CDS contracts was GBP14 million (gross exposure: GBP168 million) and through wrapped loans and receivables was GBP178 million (gross exposure: GBP274 million).
The exposure to monolines arising from negative basis trades is calculated as the mark-to-market of the CDS protection purchased from the monoline insurer after derivative valuation adjustments. The exposure to monolines on wrapped loans and receivables and bonds is the internal assessment of amounts that will be recovered on interest and principal shortfalls.
In addition, the Group has GBP1,550 million (2010: GBP1,985 million) of monoline wrapped bonds and GBP274 million (2010: GBP425 million) of monoline wrapped liquidity commitments on which the Group currently places no reliance on the guarantor.
16. Credit market exposures (continued)
Credit ratings
An analysis of external credit ratings as at 31 December 2011 of the Wholesale division's asset-backed security portfolio by asset class is provided below.
Net Below
Asset class exposure AAA AA A BBB BB B B
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Mortgage-backed
securities
US residential
Prime 777 175 393 97 100 12 - -
Alt-A 3,286 1,144 781 633 651 77 - -
Sub-prime - - - - - - - -
4,063 1,319 1,174 730 751 89 - -
Non-US residential 3,125 1,318 935 399 309 164 - -
Commercial 1,788 273 604 648 199 64 - -
8,976 2,910 2,713 1,777 1,259 317 - -
Collateralised debt
obligations:
Collateralised loan
obligations 1,162 274 455 331 7 50 16 29
Other 264 1 1 - 111 151 - -
1,426 275 456 331 118 201 16 29
Personal sector 511 273 165 15 58 - - -
FFELP 3,526 3,419 107 - - - - -
Other asset-backed
securities 656 61 52 197 94 252 - -
Total uncovered
asset-backed securities 15,095 6,938 3,493 2,320 1,529 770 16 29
Negative basis(1)
Monolines 150 - 150 - - - - -
Banks 36 36 - - - - - -
186 36 150 - - - - -
Total as at 31
Dec 2011 15,281 6,974 3,643 2,320 1,529 770 16 29
Total as at 31
Dec 2010 34,724 20,805 7,310 3,713 1,764 763 147 222
(1) The external credit rating is based on the bond ignoring the benefit
of the CDS.
17. Customer deposits
2011 2010
GBPm GBPm
Sterling:
Non-interest bearing current accounts 28,050 21,516
Interest bearing current accounts 66,808 73,859
Savings and investment accounts 222,776 215,733
Other customer deposits 52,975 50,414
------- -------
Total sterling 370,609 361,522
Currency 43,297 32,111
------- -------
Total 413,906 393,633
------- -------
Included above are liabilities of GBP7,996 million (31 December 2010: GBP11,145 million) in respect of securities sold under repurchase agreements.
18. Debt securities in issue
2011 2010
At fair At fair
value value
through At through At
profit or amortised profit amortised
loss cost Total or loss cost Total
GBPm GBPm GBPm GBPm GBPm GBPm
Medium-term notes
issued 5,339 63,366 68,705 6,665 80,975 87,640
Covered bonds (note
13) - 38,196 38,196 - 32,150 32,150
Certificates of deposit - 27,994 27,994 - 42,276 42,276
Securitisation notes
(note 13) - 37,412 37,412 - 40,742 40,742
Commercial paper - 18,091 18,091 - 32,723 32,723
5,339 185,059 190,398 6,665 228,866 235,531
19. Subordinated liabilities
The Group's subordinated liabilities are comprised as follows:
2011 2010
GBPm GBPm
Preference shares 1,216 1,165
Preferred securities 4,893 4,538
Undated subordinated liabilities 1,949 2,002
Enhanced capital notes 9,085 9,235
Dated subordinated liabilities 17,946 19,292
------
Total subordinated liabilities 35,089 36,232
------ ------
The movement in subordinated liabilities during the year was as follows:
GBPm
At 1 January 2011 36,232
New issues during the year 2,302
Repurchases and redemptions during the year (4,021)
Foreign exchange and other movements 576
-------
At 31 December 2011 35,089
-------
During December 2011, the Group completed the exchange of certain subordinated debt securities issued by Lloyds TSB Bank plc and HBOS plc for new subordinated debt securities issued by Lloyds TSB Bank plc by undertaking an exchange offer on certain securities which were eligible for call before December 2012. This exchange resulted in a gain on the extinguishment of the existing securities of GBP599 million being the difference between the carrying amount of the securities extinguished and the fair value of the new securities issued together with related fees and costs.
Since 31 January 2010, the Group has been prohibited, under the terms of an agreement with the European Commission, from paying discretionary coupons and dividends on certain of its hybrid capital securities. This prohibition ended on 31 January 2012. Payments recommenced on certain hybrid capital securities from 31 January 2012. Future coupons and dividends on these hybrid capital securities will only be paid subject to, and in accordance with, the terms of the relevant securities.
20. Share capital
Movements in share capital during the year were as follows:
Number
of shares
(million) GBPm
Ordinary shares of 10p each
At 1 January 2011 68,074 6,807
Issued in the year 653 66
At 31 December 2011 68,727 6,873
---------- -----
Limited voting ordinary shares of 10p each
At 1 January and 31 December 2011 81 8
Total share capital 6,881
-----
The shares issued in the year were in respect of employee share schemes.
21. Reserves
Other reserves
Share Available- Cash flow Merger Retained
premium for-sale hedging and other Total profits
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January
2011 16,291 (285) (391) 12,251 11,575 11,380
Issue of ordinary
shares 250 - - - - -
Loss for the
year - - - - - (2,787)
Movement in treasury
shares - - - - - (276)
Value of employee
services:
Share option
schemes - - - - - 125
Other employee
award schemes - - - - - 238
Change in fair
value of available-for-sale
assets (net of
tax) - 1,930 - - 1,930 -
Change in fair
value of hedging
derivatives
(net of tax) - - 659 - 659 -
Transfers to
income statement
(net of tax) - (319) 57 - (262) -
Exchange and
other - - - (84) (84) -
At 31 December
2011 16,541 1,326 325 12,167 13,818 8,680
22. Payment protection insurance
There has been extensive scrutiny of the Payment Protection Insurance (PPI) market in recent years.
In October 2010, the UK Competition Commission confirmed its decision to prohibit the active sale of PPI by a distributor to a customer within seven days of a sale of credit. This followed the completion of its formal investigation into the supply of PPI services (other than store card PPI) to non-business customers in the UK in January 2009 and a referral of the proposed prohibition to the Competition Appeal Tribunal. The Competition Commission consulted on the wording of a draft Order to implement its findings from October 2010, and published the final Order on 24 March 2011 which became effective on 6 April 2011. Following an earlier decision to stop selling single premium PPI products, the Group ceased to offer PPI products to its customers in July 2010.
On 29 September 2009 the FSA announced that several firms had agreed to carry out reviews of past sales of single premium loan protection insurance. Lloyds Banking Group agreed in principle that it would undertake a review in relation to sales of single premium loan protection insurance made through its branch network since 1 July 2007. That review will now form part of the ongoing PPI work referred to below.
On 1 July 2008, the Financial Ombudsman Service (FOS) referred concerns regarding the handling of PPI complaints to the Financial Services Authority (FSA) as an issue of wider implication. On 29 September 2009 and 9 March 2010, the FSA issued consultation papers on PPI complaints handling. The FSA published its Policy Statement on 10 August 2010, setting out evidential provisions and guidance on the fair assessment of a complaint and the calculation of redress, as well as a requirement for firms to reassess historically rejected complaints which had to be implemented by 1 December 2010.
On 8 October 2010, the British Bankers' Association (BBA), the principal trade association for the UK banking and financial services sector, filed an application for permission to seek judicial review against the FSA and the FOS. The BBA sought an order quashing the FSA Policy Statement and an order quashing the decision of the FOS to determine PPI sales in accordance with the guidance published on its website in November 2008.
The Judicial Review hearing was held in late January 2011 and on 20 April 2011 judgment was handed down by the High Court dismissing the BBA's application. On 9 May 2011, the BBA confirmed that the banks and the BBA did not intend to appeal the judgment.
After publication of the judgment, the Group entered into discussions with the FSA with a view to seeking clarity around the detailed implementation of the Policy Statement. As a result, and given the initial analysis that the Group conducted of compliance with applicable sales standards, which is continuing, the Group concluded that there are certain circumstances where customer contact and/or redress will be appropriate. Accordingly the Group made a provision in its income statement for the year ended 31 December 2011 of GBP3,200 million in respect of the anticipated costs of such contact and/or redress, including administration expenses. During 2011, the Group made redress payments of GBP1,045 million to customers. The Group anticipates that all claims will be settled by 2015. However, there are still a number of uncertainties as to the eventual costs from any such contact and/or redress given the inherent difficulties of assessing the impact of the detailed implementation of the Policy Statement for all PPI complaints, uncertainties around the ultimate emergence period for complaints, the availability of supporting evidence and the activities of claims management companies, all of which will significantly affect complaints volumes, uphold rates and redress costs.
23. Contingent liabilities and commitments
Interchange fees
The European Commission has adopted a formal decision finding that an infringement of European Commission competition laws has arisen from arrangements whereby MasterCard set a uniform Multilateral Interchange Fee (MIF) in respect of cross-border transactions in relation to the use of a MasterCard or Maestro branded payment card. The European Commission has required that the MIF be reduced to zero for relevant cross-border transactions within the European Economic Area. This decision has been appealed to the General Court of the European Union (the General Court). Lloyds TSB Bank plc and Bank of Scotland plc (along with certain other MasterCard issuers) have successfully applied to intervene in the appeal in support of MasterCard's position that the arrangements for the charging of the MIF are compatible with European Union competition laws. The UK Government has also intervened in the General Court appeal supporting the European Commission position. An oral hearing took place on 8 July 2011 but judgment is not expected for six to twelve months. MasterCard has reached an understanding with the European Commission on a new methodology for calculating intra-European Economic Area MIF on an interim basis pending the outcome of the appeal.
Meanwhile, the European Commission is pursuing an investigation with a view to deciding whether arrangements adopted by Visa for the levying of the MIF in respect of cross-border payment transactions also infringe European Union competition laws. In this regard Visa reached an agreement with the European Commission to reduce the level of interchange for cross-border debit card transactions to the interim levels agreed by MasterCard. The UK's Office of Fair Trading has also commenced similar investigations relating to the MIF in respect of domestic transactions in relation to both the MasterCard and Visa payment schemes. The ultimate impact of the investigations on the Group can only be known at the conclusion of these investigations and any relevant appeal proceedings.
Interbank offered rate setting investigations
Several government agencies in the UK, US and overseas, including the US Commodity Futures Trading Commission, the US SEC, the US Department of Justice and the FSA as well as the European Commission, are conducting investigations into submissions made by panel members to the bodies that set various interbank offered rates. The Group, and/or its subsidiaries, were (at the relevant time) and remain members of various panels that submit data to these bodies. The Group has received requests from some government agencies for information and is co-operating with their investigations. In addition, the Group has been named in private lawsuits, including purported class action suits in the US with regard to the setting of London interbank offered rates (LIBOR). It is currently not possible to predict the scope and ultimate outcome of the various regulatory investigations or private lawsuits, including the timing and scale of the potential impact of any investigations and private lawsuits on the Group.
23. Contingent liabilities and commitments (continued)
Financial Services Compensation Scheme (FSCS)
The FSCS is the UK's independent statutory compensation fund for customers of authorised financial services firms and pays compensation if a firm is unable to pay claims against it. The FSCS is funded by levies on the industry (and recoveries and borrowings where appropriate). The levies raised comprise both management expenses levies and, where necessary, compensation levies on authorised firms.
Following the default of a number of deposit takers in 2008, the FSCS borrowed funds from HM Treasury to meet the compensation costs for customers of those firms. The borrowings with HM Treasury, which total circa GBP20 billion, are on an interest-only basis until 31 March 2012 and the FSCS and HM Treasury are currently discussing the terms for refinancing these borrowings to take effect from 1 April 2012. Each deposit-taking institution contributes towards the management expenses levies in proportion to their share of total protected deposits on 31 December of the year preceding the scheme year, which runs from 1 April to 31 March. In determining an appropriate accrual in respect of the management expenses levy, certain assumptions have been made including the proportion of total protected deposits held by the Group, the level and timing of repayments to be made by the FSCS to HM Treasury and the interest rate to be charged by HM Treasury. For the year ended 31 December 2011, the Group has charged GBP179 million (2010: GBP46 million) to the income statement in respect of the costs of the FSCS.
Whilst it is expected that the substantial majority of the principal will be repaid from funds the FSCS receives from asset sales, surplus cash flow or other recoveries in relation to the assets of the firms that defaulted, to the extent that there remains a shortfall, the FSCS will raise compensation levies on all deposit-taking participants. The amount of any future compensation levies also depends on a number of factors including the level of protected deposits and the population of deposit-taking participants and will be determined at a later date. As such, although the Group's share of such compensation levies could be significant, the Group has not recognised a provision in respect of them in these financial statements.
Litigation in relation to insurance branch business in Germany
Clerical Medical Investment Group Limited (CMIG) has received a number of claims in the German courts, relating to policies issued by CMIG but sold by independent intermediaries in Germany, principally during the late 1990s and early 2000s. CMIG has won the majority of decisions to date, although a small number of regional district and appeal courts have found against CMIG on specific grounds. CMIG's strategy includes defending claims robustly and appealing against adverse judgments. The ultimate financial effect, which could be significant, will only be known once all relevant claims have been resolved. However, consistent with this strategy, and having regard to the costs involved in managing these claims, and the inherent risks of litigation, the Group has recognised a provision of GBP175 million. Management believes this represents the most appropriate estimate of the financial impact, based upon a series of assumptions, including the number of claims received, the proportion upheld, and resulting legal and administration costs.
23. Contingent liabilities and commitments (continued)
Shareholder complaints
The Group and two former members of the Group's Board of Directors have been named as defendants in a purported securities class action pending in the United States District Court for the Southern District of New York. The complaint, dated 23 November 2011, asserts claims under the Securities Exchange Act of 1934 in connection with alleged material omissions from statements made in 2008 in connection with the acquisition of HBOS. No quantum is specified.
In addition, a UK-based shareholder action group has threatened multi-claimant claims on a similar basis against the Group and two former directors in the UK. No claim has yet been issued.
The Group considers that the claims are without merit and will defend them vigorously. The claims have not been quantified and it is not possible to estimate the ultimate financial impact on the Group at this early stage.
Employee disputes
The Group is aware that a union representing a number of the Group's employees and former employees is seeking to challenge the cap on pensionable pay introduced by the Group in 2011 on the grounds that it is unlawful. This challenge is at a very early stage. The Group will resist the challenge should it be pursued.
The Group also faces a number of other threats of legal action from employees in relation to terms of employment including pay and bonuses. The Group considers that the complaints are without merit and, should proceedings be issued, they will be vigorously defended.
FSA investigation into Bank of Scotland
In 2009 the FSA commenced a supervisory review into HBOS. The supervisory review has now been superseded as the FSA has commenced enforcement proceedings against Bank of Scotland plc in relation to its Corporate division pre 2009. The proceedings are ongoing and the Group is co-operating fully. It is too early to predict the outcome or estimate reliably any potential financial effects of the enforcement proceedings but they are not currently expected to be material to the Group.
23. Contingent liabilities and commitments(continued)
Regulatory matters
In the course of its business, the Group is engaged in discussions with the FSA in relation to a range of conduct of business matters, including complaints handling, packaged bank accounts, savings accounts product terms and conditions, interest only mortgages, sales processes and remuneration schemes. The Group is keen to ensure that any regulatory concerns are understood and addressed. The ultimate impact on the Group of these discussions can only be known at the conclusion of such discussions.
Other legal actions and regulatory matters
In addition, during the ordinary course of business the Group is subject to other threatened and actual legal proceedings (which may include class action lawsuits brought on behalf of customers, shareholders or other third parties), regulatory investigations, regulatory challenges 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 to settle the obligation at the relevant balance sheet date. In some cases it will not be possible to form a view, either because the facts are unclear or because further time is needed properly to assess the merits of the case and no provisions are held against such matters. However the Group does not currently expect the final outcome of any such case to have a material adverse effect on its financial position.
Contingent liabilities and commitments arising from the banking business
2011 2010
GBPm GBPm
Contingent liabilities
Acceptances and endorsements 81 48
Other:
------- -------
Other items serving as direct credit
substitutes 1,060 1,319
Performance bonds and other transaction-related
contingencies 2,729 2,812
------- -------
3,789 4,131
------- -------
Total contingent liabilities 3,870 4,179
------- -------
Commitments
Documentary credits and other short-term trade-related
transactions 105 255
Forward asset purchases and forward
deposits placed 596 887
Undrawn formal standby facilities, credit lines
and other commitments to lend:
Less than 1 year original maturity:
------- -------
Mortgage offers made 7,383 8,113
Other commitments 56,527 60,528
------- -------
63,910 68,641
1 year or over original maturity 40,972 47,515
------- -------
Total commitments 105,583 117,298
------- -------
Of the amounts shown above in respect of undrawn formal standby facilities, credit lines and other commitments to lend, GBP53,459 million (2010: GBP63,630 million) was irrevocable.
24. Capital ratios
As at As at
31 Dec 31 Dec
Capital resources 2011 2010
GBPm GBPm
Core tier 1
Shareholders' equity per balance sheet 45,920 46,061
Non-controlling interests per balance sheet 674 841
Regulatory adjustments to non-controlling interests (577) (524)
Regulatory adjustments:
Adjustment for own credit (136) (8)
Defined benefit pension adjustment (1,004) (1,052)
Unrealised reserve on available-for-sale debt
securities (940) 747
Unrealised reserve on available-for-sale equity
investments (386) (462)
Cash flow hedging reserve (325) 391
Regulatory prudent valuation adjustments (32) -
Other items (4) (3)
43,190 45,991
Less: deductions from core tier 1
Goodwill (2,016) (2,016)
Intangible assets (2,310) (2,390)
50 per cent excess of expected losses over impairment (720) -
50 per cent of securitisation positions (153) (214)
Core tier 1 capital 37,991 41,371
Non-controlling preference shares (1) 1,613 1,507
Preferred securities(1) 4,487 4,338
Less: deductions from tier 1
50 per cent of material holdings (94) (69)
Total tier 1 capital 43,997 47,147
-------- --------
Tier 2
Undated subordinated debt 1,859 1,968
Dated subordinated debt 21,229 23,167
Less: restriction in amount eligible - -
Unrealised gains on available-for-sale equity
investments 386 462
Eligible provisions 1,259 2,468
Less: deductions from tier 2
50 per cent excess of expected losses over impairment (720) -
50 per cent of securitisation positions (153) (214)
50 per cent of material holdings (94) (69)
-------- --------
Total tier 2 capital 23,766 27,782
-------- --------
Supervisory deductions
Unconsolidated investments - life (10,107) (10,042)
- general insurance and other (2,660) (3,070)
-------- --------
Total supervisory deductions (12,767) (13,112)
-------- --------
Total capital resources 54,996 61,817
-------- --------
Risk-weighted assets 352,341 406,372
Core tier 1 capital ratio 10.8% 10.2%
Tier 1 capital ratio 12.5% 11.6%
Total capital ratio 15.6% 15.2%
(1) Covered by grandfathering provisions issued by the FSA.
24. Capital ratios (continued)
As at As at
31 Dec 31 Dec
Risk-weighted assets 2011 2010
GBPm GBPm
Divisional analysis of risk-weighted assets:
Retail 103,237 109,254
Wholesale 163,766 196,164
Commercial 25,434 26,552
Wealth and International 47,278 58,714
Group Operations and Central items 12,626 15,688
------- -------
352,341 406,372
------- -------
Risk type analysis of risk-weighted assets:
Foundation IRB 90,450 114,490
Retail IRB 98,823 105,475
Other IRB 9,433 14,483
Advanced approach 198,706 234,448
Standardised approach 103,525 124,492
------- -------
Credit risk 302,231 358,940
Operational risk 30,589 31,650
Market and counterparty risk 19,521 15,782
------- -------
Total risk-weighted assets 352,341 406,372
------- -------
Risk-weighted assets reduced by GBP54,031 million to GBP352,341 million, a decrease of 13 per cent. This reflects risk-weighted asset reductions across all divisions driven by balance sheet reductions of non-core assets, lower core lending balances and stronger management of risk.
Retail risk-weighted assets reduced by GBP6,017 million mainly due to lower in lending balances and the reducing mix of unsecured lending.
The reduction of Wholesale risk-weighted assets of GBP32,398 million primarily reflects the balance sheet reductions including treasury asset sales and the run down in other non-core asset portfolios. This has been partly offset by an increase in market and risk-weighted assets, as a result of the implementation of CRD lll.
Risk-weighted assets within Wealth and International have reduced by GBP11,436 million as a result of asset a run down of non-core assets and foreign exchange movements.
Integration of risk models activity previously undertaken on a separate heritage basis was largely completed in 2010 and there have been no significant migrations to IRB methodologies during 2011. We anticipate moving some portfolios that are currently measured on the standardised approach over to an IRB methodology, these changes will take place primarily during 2012 and 2013.
24. Capital ratios (continued)
Core tier 1 capital
Core tier 1 capital has decreased by GBP3,380 million largely reflecting losses in the period. In addition there has been an increase in excess of expected losses over impairment losses, reflecting the reduction of legacy lending that is subject to very high provision levels and replacement with new lending.
The movements in core tier 1 and total capital in the period are shown below:
Core tier
1 Total
GBPm GBPm
At 1 January 2011 41,371 61,817
Loss attributable to ordinary shareholders (2,787) (2,787)
Decrease in regulatory post-retirement benefit
adjustments 48 48
Decrease in goodwill and intangible assets deductions 80 80
Increase in excess of expected losses over impairment
allowances (720) (1,440)
Increase in material holdings deduction - (50)
Decrease in eligible provisions - (1,209)
Decrease in supervisory deductions from total
capital - 345
Decrease in dated subordinated debt - (1,938)
Other movements (1) 130
At 31 December 2011 37,991 54,996
Tier 2 capital
Tier 2 capital has decreased in the period by GBP4,016 million reflecting an increase in excess of expected losses over impairment, as noted above, and a reduction in eligible provisions. In addition, dated subordinated debt has also reduced in the period, partly due to amortisation and partly due to a capital restructuring exercise in December 2011, which resulted in a net overall redemption of dated subordinated debt.
Supervisory deductions
Supervisory deductions mainly consist of investments in subsidiary undertakings that are not within the banking group for regulatory purposes. These investments are primarily the Scottish Widows and Clerical Medical life and pensions businesses together with general insurance business. Also included within deductions for other unconsolidated investments are investments in non-financial entities that are held by the Group's private equity (including venture capital) businesses. During the period there has been a decrease in supervisory deductions primarily due to reduced holdings in private equity businesses, and in some cases changes to the level and/or nature of investments resulting in a reclassification as material holdings.
25. Related party transactions
UK Government
In January 2009, the UK Government through HM Treasury became a related party of the Company following its subscription for ordinary shares issued under a placing and open offer. As at 31 December 2011, HM Treasury held a 40.2 per cent (31 December 2010: 40.6 per cent) interest in the Company's ordinary share capital and consequently HM Treasury remained a related party of the Company during the year ended 31 December 2011.
From 1 January 2011, in accordance with IAS 24 (Revised), UK Government-controlled entities became related parties of the Group. The Group regards the Bank of England and banks controlled by the UK Government, comprising The Royal Bank of Scotland Group plc, Northern Rock (Asset Management) plc and Bradford & Bingley plc, as related parties.
Since 1 January 2011, the Group has had the following significant transactions with the UK Government or UK Government-related entities:
Government and central bank facilities
During the year ended 31 December 2011, the Group participated in a number of schemes operated by the UK Government, central banks and made available to eligible banks and building societies.
Special liquidity scheme and credit guarantee scheme
The Bank of England's UK Special Liquidity Scheme was launched in April 2008 to allow financial institutions to swap temporarily illiquid assets for treasury bills, with fees charged based on the spread between 3-month LIBOR and the 3-month gilt repo rate. The scheme will operate for up to three years after the end of the drawdown period (30 January 2009) at the Bank of England's discretion. The Group did not utilise the Special Liquidity Scheme at 31 December 2011.
HM Treasury launched the Credit Guarantee Scheme in October 2008 as part of a range of measures announced by the UK Government intended to ease the turbulence in the UK banking system. It charged a commercial fee for the guarantee of new short and medium term debt issuance. The fee payable to HM Treasury on guaranteed issues was based on a per annum rate of 50 basis points plus the median five-year credit default swap spread. The drawdown window for the Credit Guarantee Scheme closed for new issuance at the end of February 2010. At 31 December 2011, the Group had GBP23.5 billion of debt in issue under the Credit Guarantee Scheme (31 December 2010: GBP45.4 billion). During the year, fees of GBP28 million paid to HM Treasury in respect of guaranteed funding were included in the Group's income statement.
Lending commitments
The formal lending commitments entered into in connection with the Group's proposed participation in the Government Asset Protection Scheme have now expired and in February 2011, the Company (together with Barclays, Royal Bank of Scotland, HSBC and Santander) announced, as part of the 'Project Merlin' agreement with HM Treasury, its capacity and willingness to increase business lending (including to small and medium-sized enterprises) during 2011.
25. Related party transactions (continued)
Business Growth Fund
In May 2011 the Group agreed, together with The Royal Bank of Scotland plc (and three other non-related parties), to subscribe for shares in the Business Growth Fund plc which is the company created to fulfil the role of the Business Growth Fund as set out in the British Bankers' Association's Business Taskforce Report of October 2010. During 2011, the Group has incurred sunk costs of GBP4 million which have been written off.
As at 31 December 2011, the Group's investment in the Business Growth Fund was GBP20 million.
Other government-related entities
Other than the transactions referred to above, there were no other significant transactions with the UK Government and UK Government-controlled entities (including UK Government-controlled banks) during the period that were not made in the ordinary course of business or that were unusual in their nature or conditions.
Other related party transactions
During 2011, the Group sold at fair value certain non-government bonds, equities and alternative assets to Lloyds TSB Group Pension Scheme No 1 for GBP336 million and to Lloyds TSB Group Pension Scheme No 2 for GBP67 million.
Except as noted above, other related party transactions for the year ended 31 December 2011 are similar in nature to those for the year ended 31 December 2010.
26. Future accounting developments
The following pronouncements may have a significant effect on the Group's financial statements but are not applicable for the year ending 31 December 2011 and have not been applied in preparing these financial statements. Save as disclosed, the full impact of these accounting changes is being assessed by the Group.
Pronouncement Nature of change IASB effective
date
Amendments to Requires an entity to disclose information Annual and interim
IFRS 7 Financial to enable users of its financial periods beginning
Instruments: statements to evaluate the effect on or after 1 January
Disclosures - or potential effect of netting arrangements 2013.
'Disclosures-Offsetting on the entity's balance sheet.
Financial Assets
and Financial
Liabilities'
IFRS 10 Consolidated Supersedes IAS 27 Consolidated and Annual periods beginning
Financial Statements Separate Financial Statements and on or after 1 January
SIC-12 Consolidation - Special Purpose 2013.
Entities and establishes principles
for the preparation of consolidated
financial statements when an entity
controls one or more entities.
IFRS 12 Disclosure Requires an entity to disclose information Annual periods beginning
of Interests that enables users of financial on or after 1 January
in Other Entities statements to evaluate the nature 2013.
of, and risks associated with, its
interests in other entities and
the effects of those interests on
its financial position, financial
performance and cash flows.
IFRS 13 Fair The standard defines fair value, Annual periods beginning
Value Measurement sets out a framework for measuring on or after 1 January
fair value and requires disclosures 2013.
about fair value measurements. It
applies to IFRSs that require or
permit fair value measurements or
disclosures about fair value measurements.
IAS 19 Employee Prescribes the accounting and disclosure Annual periods beginning
Benefits by employers for employee benefits. on or after 1 January
Actuarial gains and losses (remeasurements) 2013.
in respect of defined benefit pension
schemes can no longer be deferred
using the corridor approach and
must be recognised immediately in
other comprehensive income. At 31
December 2011, unrecognised actuarial
losses were GBP539 million. The
income statement charge for 2011
would have been approximately GBP200
million higher under the revised
standard.
Amendments to Inserts application guidance to Annual periods beginning
IAS 32 Financial address inconsistencies identified on or after 1 January
Instruments: in applying the offsetting criteria 2014.
Presentation used in the standard. Some gross
- 'Offsetting settlement systems may qualify for
Financial Assets offsetting where they exhibit certain
and Financial characteristics akin to net settlement.
Liabilities'
IFRS 9 Financial Replaces those parts of IAS 39 Financial Annual periods beginning
Instruments(1) Instruments: Recognition and Measurement on or after 1 January
relating to the classification, 2015.
measurement and derecognition of
financial assets and liabilities.
Requires financial assets to be
classified into two measurement
categories, fair value and amortised
cost, on the basis of the objectives
of the entity's business model for
managing its financial assets and
the contractual cash flow characteristics
of the instruments. The available-for-sale
financial asset and held-to-maturity
investment categories in IAS 39
will be eliminated. The requirements
for financial liabilities and derecognition
are broadly unchanged from IAS 39.
(1) IFRS 9 is the initial stage of the project to replace IAS 39. Future
stages are expected to result in amendments to IFRS 9 to deal with
changes to the impairment of financial assets measured at amortised
cost and hedge accounting. Until all stages of the replacement
project are complete, it is not possible to determine the overall
impact on the financial statements of the replacement of IAS 39.
As at 23 February 2012, these pronouncements are awaiting EU endorsement.
27. Other information
The information in this announcement, which was approved by the board of directors on 23 February 2012, does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2010 have been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not include a statement under sections 498(2) (accounting records or returns inadequate or accounts not agreeing with records and returns) or 498(3) (failure to obtain necessary information and explanations) of the Companies Act 2006.
CONTACTS
For further information please contact:
INVESTORS AND ANALYSTS
Kate O'Neill
Managing Director, Investor Relations
020 7356 3520
kate.o'neill@ltsb-finance.co.uk
Charles King
Director of Investor Relations
020 7356 3537
charles.king@ltsb-finance.co.uk
CORPORATE AFFAIRS
Matthew Young
Group Corporate Affairs Director
020 7356 2231
matt.young@lloydsbanking.com
Ed Petter Group Media Relations Director
020 8936 5655
ed.petter@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: Lloyds Banking Group plc, The Mound, Edinburgh, EH1 1YZ
Registered in Scotland no. 95000
This information is provided by RNS
The company news service from the London Stock Exchange
END
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