TIDM68FF
RNS Number : 3139M
HBOS PLC
27 July 2017
HBOS plc
Half-Year Management Report
For the half-year to 30 June 2017
Member of the Lloyds Banking Group
FORWARD LOOKING STATEMENTS
This document contains certain forward looking statements with
respect to the business, strategy and plans 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 the plans, objectives,
expectations, estimates and intentions expressed in such 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 (including low or negative rates),
exchange rates, stock markets and currencies; 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 the exit by the UK
from the European Union (EU) 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;
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, 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; the ability to attract and retain senior management
and other employees; 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 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. 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 (unaudited)
Consolidated income statement 6
Consolidated statement of comprehensive income 7
Consolidated balance sheet 8
Consolidated statement of changes in equity 9
Consolidated cash flow statement 12
Notes 13
Statement of directors' responsibilities 34
Independent review report 35
Contacts 37
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 capital market products to commercial,
corporate and asset finance customers; and private banking.
Review of results
During the half-year to 30 June 2017, the Group recorded a
profit before tax of GBP1,705 million compared with a profit before
tax in the half-year to 30 June 2016 of GBP2,245 million. However,
the Group has incurred conduct charges of GBP482 million in the
half-year to 30 June 2017 compared to GBP149 million in the half
year to 30 June 2016. Excluding the conduct charges from both
periods, the Group recorded a profit before tax of GBP2,187 million
in the half-year to 30 June 2017, a decrease of GBP207 million, or
9 per cent, from GBP2,394 million in the half-year to 30 June
2016.
Total income decreased by GBP354 million, or 9 per cent, to
GBP3,684 million in the half-year to 30 June 2017 compared with
GBP4,038 million in the half-year to 30 June 2016, comprising a
GBP146 million decrease in other income and a GBP208 million
decrease in net interest income.
Net interest income was GBP3,043 million in the half-year to 30
June 2017; a decrease of GBP208 million, or 6 per cent, compared to
GBP3,251 million in the half-year to 30 June 2016, reflecting the
continuing run-off of assets outside of outside of the Group's risk
appetite and changes in funding mix.
Other income was GBP146 million lower at GBP641 million in the
half-year to 30 June 2017 compared to GBP787 million in the
half-year to 30 June 2016. Net fee and commission income was GBP10
million or 5 per cent, lower at GBP203 million compared to GBP213
million in the half-year to 30 June 2016. Net trading income
increased by GBP236 million to GBP275 million in the half-year to
30 June 2017 compared to GBP39 million in the half-year to 30 June
2016. Other operating income was GBP372 million, or 70 per cent,
lower at GBP163 million in the half-year to 30 June 2017 compared
to GBP535 million in the half-year to 30 June 2016. Other operating
income in the half-year to 30 June 2016 included a gain of GBP435
million arising on a restructuring of capital instruments within
the Lloyds Banking Group which was not repeated in 2017.
Operating expenses increased by GBP134 million, or 8 per cent to
GBP1,903 million in the half-year to 30 June 2017 compared with
GBP1,769 million in the half-year to 30 June 2016. A provision of
GBP482 million was made in respect of conduct issues in the
half-year to 30 June 2017 compared to a charge of GBP149 million in
the same period in 2016. The charge in 2017 includes GBP216 million
in respect of PPI, reflecting current claim levels, which remain
above the Group's previous provision assumption. The remaining
GBP266 million relates to other conduct matters including the HBOS
Reading fraud, packaged bank accounts and arrears handling.
Excluding all conduct charges from both years, operating expenses
were GBP199 million, or 12 per cent, lower at GBP1,421 million in
the half-year to 30 June 2017 compared to GBP1,620 million in the
half-year to 30 June 2016. Staff costs were GBP51 million, or 7 per
cent, lower at GBP718 million in the half-year to 30 June 2017
compared with GBP769 million in the half-year to 30 June 2016;
annual pay rises have been offset by the impact of headcount
reductions resulting from the Group's rationalisation programmes.
Premises and equipment costs were GBP8 million or 7 per cent,
higher at GBP129 million in the half-year to 30 June 2017 compared
with GBP121 million in the half-year to 30 June 2016. Other
expenses were GBP153 million, or 24 per cent, lower at GBP488
million in the half-year to 30 June 2017 compared to GBP641 million
in the half-year to 30 June 2016. Depreciation and amortisation
costs were GBP3 million, or 3 per cent, lower at GBP86 million in
the half-year to 30 June 2017 compared to GBP89 million in the
half-year to 30 June 2016.
FINANCIAL REVIEW (continued)
Impairment losses increased by GBP52 million to GBP76 million in
the half-year to 30 June 2017 compared with GBP24 million in the
half-year to 30 June 2016. Impairment losses in respect of loans
and advances to customers were GBP43 million higher at GBP76
million in the half-year to 30 June 2017 compared with GBP33
million in the half-year to 30 June 2016; this reflects releases in
relation to lending portfolios in run-off in 2016 which have not
been repeated. There was a release of GBP2 million in respect of
undrawn commitments in the half-year to 30 June 2017, compared to a
credit of GBP9 million in the half-year to 30 June 2016.
In the half-year to 30 June 2017, the Group recorded a tax
charge of GBP522 million compared to a charge of GBP562 million in
the half-year to 30 June 2016, an effective tax rate of 31 per
cent, compared to the standard UK corporation tax rate of 19.25 per
cent, principally as a result of the banking surcharge and
restrictions on the deductibility of conduct provisions.
Total assets were GBP34,566 million higher at GBP378,844 million
at 30 June 2017 compared to GBP344,278 million at 31 December 2016.
Amounts due from fellow Lloyds Banking Group undertakings were
GBP38,136 million higher at GBP85,047 million at 30 June 2017
compared to GBP46,911 million at 31 December 2016. Loans and
advances to customers were GBP148 million lower at GBP268,751
million at 30 June 2017 compared to GBP268,899 million at 31
December 2016; the impact of the reacquisition of a portfolio of
mortgages has been offset by reductions in the larger corporate
sector, as the Group focuses on optimising capital and returns, and
in closed mortgage books.
Total liabilities were GBP35,510 million higher at GBP364,953
million at 30 June 2017 compared to GBP329,443 million at 31
December 2016. Deposits from banks were GBP10,101 million higher at
GBP16,292 million at 30 June 2017 compared to GBP6,191 million at
31 December 2016 as a result of the use of repurchase agreements as
a favourable form of funding. Customer deposits were GBP2,385
million lower at GBP176,932 million compared to GBP179,317 million
at 31 December 2016 as reductions in non-relationship deposit
balances have more than offset inflows from Commercial clients.
Amounts due to fellow Lloyds Banking Group undertakings were
GBP35,264 million higher at GBP134,845 million at 30 June 2017
compared to GBP99,581 million at 31 December 2016. Debt securities
in issue were GBP4,767 million, or 29 per cent, lower at GBP11,912
million at 30 June 2017 compared to GBP16,679 million at 31
December 2016 following maturities of some tranches of
securitisation notes and covered bonds.
Total equity was GBP944 million, or 6 per cent, lower at
GBP13,891 million at 30 June 2017 compared to GBP14,835 million at
31 December 2016; this reflected negative movements in the Group's
available-for-sale and cash flow hedging reserves. The profit for
the period of GBP1,183 million being more than offset by dividends
paid of GBP2,000 million.
The Group's common equity tier 1 capital ratio reduced to 12.2
per cent (31 December 2016: 12.7 per cent), principally as a result
of the interim dividend paid during the period. The tier 1 capital
ratio reduced to 15.8 per cent (31 December 2016: 16.6 per cent)
and the total capital ratio reduced to 18.9 per cent (31 December
2016: 20.4 per cent) reflecting the reduction in common equity tier
1 capital, the annual reduction in the transitional limit applied
to grandfathered instruments and the amortisation of dated tier 2
instruments.
Risk-weighted assets reduced by GBP2,238 million, or 3 per cent,
to GBP76,370 million at 30 June 2017 compared to GBP78,608 million
at 31 December 2016, largely relating to active portfolio
management, disposals and yield curve movements.
FINANCIAL REVIEW (continued)
Capital ratios
At At
30 June 31 Dec
Capital resources (transitional) 2017 2016
GBPm GBPm
Common equity tier 1
Shareholders' equity per balance sheet 12,354 13,298
Adjustment to retained earnings for foreseeable dividends (500) (500)
Cash flow hedging reserve (60) (89)
Other adjustments (4) (10)
------- -------
11,790 12,699
Less: deductions from common equity tier 1
Goodwill and other intangible assets (438) (424)
Prudent valuation adjustment (88) (165)
Excess of expected losses over impairment provisions and value adjustments (87) (132)
Removal of defined benefit pension surplus (67) (69)
Securitisation deductions (186) (186)
Non-significant investments (10) (61)
Deferred tax assets (1,596) (1,678)
------- -------
Common equity tier 1 capital 9,318 9,984
------- -------
Additional tier 1
Additional tier 1 instruments 3,012 3,314
less: deductions from tier 1
Non-significant investments (276) (272)
------- -------
Total tier 1 capital 12,054 13,026
------- -------
Tier 2
Tier 2 instruments 2,605 3,206
Eligible provisions 317 321
less: deductions from tier 2
Non-significant investments (519) (512)
------- -------
Total tier 2 capital 2,403 3,015
------- -------
Total capital resources 14,457 16,041
------- -------
Risk-weighted assets 76,370 78,608
Common equity tier 1 capital ratio 12.2% 12.7%
Tier 1 capital ratio 15.8% 16.6%
Total capital ratio 18.9% 20.4%
FINANCIAL REVIEW (continued)
At At
30 June 31 Dec
2017 2016
GBPm GBPm
Risk-weighted assets
Foundation Internal Ratings Based (IRB) Approach 6,679 7,626
Retail IRB Approach 40,484 40,295
Other IRB Approach 5,558 5,525
------- ------
IRB Approach 52,721 53,446
Standardised Approach 7,751 8,184
------- ------
Credit risk 60,472 61,630
------- ------
Counterparty credit risk 1,127 1,574
Credit valuation adjustment risk 107 242
Operational risk 12,256 12,256
Market risk 1,539 1,980
------- ------
Underlying risk-weighted assets 75,501 77,682
Threshold risk-weighted assets 869 926
------- ------
Transitional risk-weighted assets 76,370 78,608
------- ------
PRINCIPAL RISKS AND UNCERTAINTIES
The most significant risks faced by the Group which could impact
the success of delivering against the Group's long-term strategic
objectives and through which global macro-economic, regulatory
developments and market liquidity dynamics could manifest, are
detailed below. Except where noted, there has been no significant
change to the description of these risks or key mitigating actions
disclosed in the Group's 2016 Annual Report and Accounts, with any
quantitative disclosures updated herein.
Credit risk - The risk that customers and/or other
counterparties whom the Group has either lent money to or entered
into a financial contract with, or other counterparties with whom
the Group has contracted, fail to meet their financial obligations,
resulting in loss to the Group. Adverse changes in the economic and
market environment the Group operates in or the credit quality
and/or behaviour of the Group's customers and counterparties could
reduce the value of the Group's assets and potentially increase the
Group's write downs and allowances for impairment losses, adversely
impacting profitability.
Conduct risk - Conduct risk can arise from the failure to design
products and services to ensure they are aligned to customer needs
and to design and execute sales processes to ensure products and
services are offered only to those customers who need and will
benefit from them. Additionally, the failure to provide ongoing
support and service to customers and to recognise and respond to
customer complaints, providing appropriate rectification in a
timely manner. Conduct risk can result from the failure to ensure
that colleagues behave in line with conduct, regulatory and ethical
standards. Additionally, market conduct risks exist where actions
taken can disrupt the fair and effective operation of a market in
which the Group is active.
Market risk - The risk that the Group's capital or earnings
profile is affected by adverse market rates, in particular interest
rates and credit spreads in the Banking business and credit spreads
in the Group's Defined Benefit Pension Schemes.
Operational risk - The Group faces significant operational
risks, such as risk of cyber and terrorism, which may result in
financial loss, disruption of services to customers, and damage to
its reputation. These include the availability, resilience and
security of the Group's core IT systems and the potential for
failings in the Group's customer processes.
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 - The risk that the Group has
insufficient financial resources to meet its commitments as they
fall due, or can only secure them at excessive cost.
Regulatory and legal risk - The risks of changing legislation,
regulation (including regulatory changes such as the Second Payment
Services Directive and Open Banking), policies, voluntary codes of
practice and their interpretation in the markets in which the Group
operates can have a significant impact on the Group's operations,
business prospects, structure, costs and/or capital requirements
and ability to enforce contractual obligations.
Governance risk - Against a background of increased regulatory
focus on governance and risk management, the most significant
challenges arise from the requirement to improve the resolvability
of the Group and to ring-fence core UK financial services and
activities from January 2019, and from the further development of
the Senior Managers and Certification Regime.
People risk - Key people risks include the risk that the Group
fails to maintain organisational skills, capability, resilience and
capacity levels in response to increasing volumes of
organisational, political and external market change.
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS
(UNAUDITED)
CONSOLIDATED INCOME STATEMENT
Half-year Half-year
to 30 June to 30 June
2017 2016
Note GBP million GBP million
Interest and similar income 4,466 4,999
Interest and similar expense (1,423) (1,748)
----------- -----------
Net interest income 3,043 3,251
----------- -----------
Fee and commission income 390 411
Fee and commission expense (187) (198)
----------- -----------
Net fee and commission income 203 213
Net trading income 275 39
Other operating income 163 535
----------- -----------
Other income 641 787
----------- -----------
Total income 3,684 4,038
----------- -----------
Regulatory provisions (482) (149)
Operating expenses (1,421) (1,620)
----------- -----------
Total operating expenses 2 (1,903) (1,769)
----------- -----------
Trading surplus 1,781 2,269
Impairment 3 (76) (24)
----------- -----------
Profit before tax 1,705 2,245
Taxation 4 (522) (562)
----------- -----------
Profit for the period 1,183 1,683
----------- -----------
Profit attributable to ordinary shareholders 1,132 1,632
Profit attributable to non-controlling interests 51 51
----------- -----------
Profit for the period 1,183 1,683
----------- -----------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Half-year Half-year
to 30 June to 30 June
2017 2016
GBP million GBP million
Profit for the period 1,183 1,683
Other comprehensive income
Items that will not subsequently be classified to profit or loss:
Post-retirement defined benefit scheme remeasurements (note 8):
----------- -----------
Remeasurements before taxation (38) (349)
Taxation 7 66
----------- -----------
(31) (283)
Items that may subsequently be classified to profit or loss:
Movements in revaluation reserve in respect of available-for-sale financial assets:
----------- -----------
Change in fair value 11 92
Income statement transfers in respect of disposals (116) (48)
Income statement transfers in respect of impairments 10 1
Taxation 11 (20)
----------- -----------
(84) 25
Movement in cash flow hedging reserve:
----------- -----------
Effective portion of changes in fair value taken (54) 302
Net income statement transfers 15 (165)
Taxation 10 (37)
----------- -----------
(29) 100
Currency translation differences (tax: nil) 1 (4)
----------- -----------
Other comprehensive income for the period, net of tax (143) (162)
----------- -----------
Total comprehensive income for the period 1,040 1,521
----------- -----------
Total comprehensive income attributable to ordinary shareholders 989 1,470
Total comprehensive income attributable to non-controlling interests 51 51
----------- -----------
Total comprehensive income for the period 1,040 1,521
----------- -----------
CONSOLIDATED BALANCE SHEET
At At
30 June 31 Dec
2017 2016
Note GBP million GBP million
Assets
Cash and balances at central banks 2,533 2,840
Items in course of collection from banks 285 188
Trading and other financial assets at fair value through profit or loss 5 1,528 2,397
Derivative financial instruments 12,885 14,664
Loans and receivables:
----------- -----------
Loans and advances to banks 2,104 1,116
Loans and advances to customers 6 268,751 268,899
Debt securities 177 169
Due from fellow Lloyds Banking Group undertakings 85,047 46,911
----------- -----------
356,079 317,095
Available-for-sale financial assets 1,613 3,034
Goodwill 325 325
Other intangible assets 113 100
Property, plant and equipment 986 1,106
Current tax recoverable 8 7
Deferred tax assets 1,904 1,998
Retirement benefit assets 8 84 86
Other assets 501 438
----------- -----------
Total assets 378,844 344,278
----------- -----------
Equity and liabilities
Liabilities
Deposits from banks 16,292 6,191
Customer deposits 176,932 179,317
Due to fellow Lloyds Banking Group undertakings 134,845 99,581
Items in course of transmission to banks 515 248
Trading and other financial liabilities at fair value through profit or loss 182 945
Derivative financial instruments 11,562 13,225
Notes in circulation 1,317 1,402
Debt securities in issue 7 11,912 16,679
Other liabilities 500 785
Retirement benefit obligations 8 296 250
Current tax liabilities 1,231 825
Other provisions 2,239 1,846
Subordinated liabilities 7,130 8,149
------- -------
Total liabilities 364,953 329,443
------- -------
Equity
------- -------
Share capital 3,763 3,763
Other reserves 10,281 10,393
Retained profits (1,690) (858)
------- -------
Shareholders' equity 12,354 13,298
Non-controlling interests 1,537 1,537
------- -------
Total equity 13,891 14,835
------- -------
Total equity and liabilities 378,844 344,278
------- -------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity shareholders
--------------------------------------------------
Share
capital Non-
and Other Retained controlling
premium reserves profits Total interests Total
GBP million GBP million GBP million GBP million GBP million GBP million
Balance at 1 January 2017 3,763 10,393 (858) 13,298 1,537 14,835
Comprehensive income
Profit for the period - - 1,132 1,132 51 1,183
Other comprehensive income
----------- ----------- ----------- ----------- ----------- -----------
Post retirement defined
benefit scheme
remeasurements, net of tax - - (31) (31) - (31)
Movements in revaluation
reserve in respect of
available-for-sale
financial assets,
net of tax - (84) - (84) - (84)
Movements in cash flow
hedging reserve,
net of tax - (29) - (29) - (29)
Currency translation
differences (tax: nil) - 1 - 1 - 1
----------- ----------- ----------- ----------- ----------- -----------
Total other comprehensive
income - (112) (31) (143) - (143)
----------- ----------- ----------- ----------- ----------- -----------
Total comprehensive income - (112) 1,101 989 51 1,040
----------- ----------- ----------- ----------- ----------- -----------
Transactions with owners
----------- ----------- ----------- ----------- ----------- -----------
Dividends paid - - (2,000) (2,000) - (2,000)
Distributions to
non-controlling interests,
net of tax - - 14 14 (51) (37)
Capital contribution
received - - 53 53 - 53
----------- ----------- ----------- ----------- ----------- -----------
Total transactions with
owners - - (1,933) (1,933) (51) (1,984)
----------- ----------- ----------- ----------- ----------- -----------
Balance at 30 June 2017 3,763 10,281 (1,690) 12,354 1,537 13,891
----------- ----------- ----------- ----------- ----------- -----------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)
Attributable to equity
shareholders
Share
capital Non-
and Other Retained controlling
premium reserves profits Total interests Total
GBP GBP GBP GBP GBP GBP
million million million million million million
Balance at 1 January
2016 3,763 10,479 (298) 13,944 1,537 15,481
Comprehensive income
Profit for the period - - 1,632 1,632 51 1,683
Other comprehensive
income
-------- -------- -------- -------- ----------- --------
Post-retirement defined
benefit scheme remeasurements,
net of tax - - (283) (283) - (283)
Movements in revaluation
reserve in respect
of available-for-sale
financial assets, net
of tax - 25 - 25 - 25
Movements in cash flow
hedging reserve,
net of tax - 100 - 100 - 100
Currency translation
differences (tax: nil) - (4) - (4) - (4)
-------- -------- -------- -------- ----------- --------
Total other comprehensive
income - 121 (283) (162) - (162)
-------- -------- -------- -------- ----------- --------
Total comprehensive
income - 121 1,349 1,470 51 1,521
-------- -------- -------- -------- ----------- --------
Transactions with owners
-------- -------- -------- -------- ----------- --------
Dividends paid - - (2,000) (2,000) - (2,000)
Distributions to non-controlling
interests,
net of tax - - 14 14 (51) (37)
Capital contribution
received - - 49 49 - 49
-------- -------- -------- -------- ----------- --------
Total transactions
with owners - - (1,937) (1,937) (51) (1,988)
-------- -------- -------- -------- ----------- --------
Balance at 30 June
2016 3,763 10,600 (886) 13,477 1,537 15,014
-------- -------- -------- -------- ----------- --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)
Attributable to equity
shareholders
Share
capital Non-
and Other Retained controlling
premium reserves profits Total interests Total
GBP GBP GBP GBP GBP GBP
million million million million million million
Balance at 1 July 2016 3,763 10,600 (886) 13,477 1,537 15,014
Comprehensive income
Profit for the period - - 873 873 50 923
Other comprehensive
income
-------- -------- -------- -------- ----------- --------
Post-retirement defined
benefit scheme remeasurements,
net of tax - - (282) (282) - (282)
Movements in revaluation
reserve in respect
of available-for-sale
financial assets, net
of tax - (31) - (31) - (31)
Movements in cash flow
hedging reserve,
net of tax - (180) - (180) - (180)
Currency translation
differences (tax: nil) - 4 - 4 - 4
-------- -------- -------- -------- ----------- --------
Total other comprehensive
income - (207) (282) (489) - (489)
-------- -------- -------- -------- ----------- --------
Total comprehensive
income - (207) 591 384 50 434
-------- -------- -------- -------- ----------- --------
Transactions with owners
-------- -------- -------- -------- ----------- --------
Dividends paid - - (610) (610) - (610)
Capital contribution
received - - 33 33 - 33
Distributions to non-controlling
interests,
net of tax - - 14 14 (50) (36)
Total transactions
with owners - - (563) (563) (50) (613)
-------- -------- -------- -------- ----------- --------
Balance at 31 December
2016 3,763 10,393 (858) 13,298 1,537 14,835
-------- -------- -------- -------- ----------- --------
CONSOLIDATED CASH FLOW STATEMENT
Half-year Half-year
to 30 June to 30 June
2017 2016
GBP million GBP million
Profit before tax 1,705 2,245
Adjustments for:
Change in operating assets (35,046) (2,216)
Change in operating liabilities 35,682 4,274
Non-cash and other items 16 (1,370)
Tax received 29 95
----------- -----------
Net cash provided by operating activities 2,386 3,028
Cash flows from investing activities
----------- -----------
Purchase of available-for-sale financial assets (194) (235)
Proceeds from sale and maturity of available-for-sale financial assets 1,542 1,455
Purchase of fixed assets (65) (56)
Proceeds from sale of fixed assets 89 24
Disposal of businesses, net of cash disposed 26 5
----------- -----------
Net cash provided by investing activities 1,398 1,193
Cash flows from financing activities
----------- -----------
Dividends paid to equity shareholders (2,000) (2,000)
Dividend paid to non-controlling interests (51) (51)
Interest paid on subordinated liabilities (246) (246)
Repayment of subordinated liabilities (760) (586)
Capital repayment to ultimate parent company - (1,198)
----------- -----------
Net cash used in financing activities (3,057) (4,081)
----------- -----------
Effects of exchange rate changes on cash and cash equivalents 1 13
----------- -----------
Change in cash and cash equivalents 728 153
Cash and cash equivalents at beginning of period 3,052 2,392
----------- -----------
Cash and cash equivalents at end of period 3,780 2,545
----------- -----------
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 14
2 Operating expenses 15
3 Impairment 15
4 Taxation 16
Trading and other financial assets at fair
5 value through profit or loss 16
6 Loans and advances to customers 17
7 Debt securities in issue 17
8 Post-retirement defined benefit schemes 18
9 Provisions for liabilities and charges 19
10 Contingent liabilities and commitments 20
11 Fair values of financial assets and liabilities 23
12 Related party transactions 30
13 Dividends on ordinary shares 30
14 Future accounting developments 31
15 Ultimate parent undertaking 33
16 Other information 33
1. Accounting policies, presentation and estimates
These condensed consolidated half-year financial statements as
at and for the period to 30 June 2017 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 2016 which were prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union. Copies of the 2016 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.
The accounting policies are consistent with those applied by the
Group in its 2016 Annual Report and Accounts.
Future accounting developments
Details of those IFRS pronouncements which will be relevant to
the Group but which will not be effective at 31 December 2017 and
which have not been applied in preparing these condensed
consolidated half-year financial statements are set out in note
14.
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. There have been no significant
changes in the basis upon which estimates have been determined,
compared to that applied at 31 December 2016.
2. Operating expenses
Half-year Half-year
to 30 June to 30 June
2017 2016
GBPm GBPm
Administrative expenses:
Staff costs 718 769
Premises and equipment 129 121
Other expenses 488 641
---------- ----------
1,335 1,531
Depreciation and amortisation 86 89
---------- ----------
Total operating expenses, excluding regulatory provisions 1,421 1,620
Regulatory provisions:
---------- ----------
Payment protection insurance provision (note 9) 216 -
Other regulatory provisions (note 9) 266 149
---------- ----------
482 149
---------- ----------
Total operating expenses 1,903 1,769
---------- ----------
3. Impairment
Half-year Half-year
to 30 June to 30 June
2017 2016
GBPm GBPm
Impairment losses on loans and receivables:
----------- -----------
Loans and advances to customers 76 33
Debt securities classified as loans and receivables (4) -
----------- -----------
Impairment losses on loans and receivables 72 33
Impairment of available-for-sale financial assets 6 -
Other credit risk provisions (2) (9)
----------- -----------
Total impairment charged to the income statement 76 24
----------- -----------
4. Taxation
In accordance with IAS 34, the Group's income tax expense for
the half-year to 30 June 2017 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 June to 30 June
2017 2016
GBPm GBPm
Profit before tax 1,705 2,245
----------- -----------
Tax thereon at UK corporation tax rate of 19.25 per cent (2016: 20 per cent) (328) (449)
Impact of bank surcharge (147) (151)
Impact of change in UK corporation tax rates (7) 12
Disallowed items(1) (86) (61)
Non-taxable items 13 80
Overseas tax rate differences (5) (1)
Gains exempted 18 16
Adjustments in respect of previous years 18 (9)
Effect of results of joint ventures and associates 1 -
Other items 1 1
----------- -----------
Tax expense (522) (562)
----------- -----------
(1) The Finance (No. 2) Act 2015 introduced restrictions
on the tax deductibility of provisions for conduct
charges arising on or after 8 July 2015. This has
resulted in an additional income tax charge of
GBP79 million (half-year to 30 June 2016: GBP30
million).
5. Trading and other financial assets at fair value through profit or loss
At At
30 June 31 Dec
2017 2016
GBPm GBPm
Trading assets 35 943
Other financial assets at fair value through profit or loss:
------- ------
Debt securities 1,363 1,335
Equity shares 130 119
------- ------
1,493 1,454
------- ------
Total trading and other financial assets at fair value through profit or loss 1,528 2,397
------- ------
6. Loans and advances to customers
At At
30 June 31 Dec
2017 2016
GBPm GBPm
Agriculture, forestry and fishing 654 616
Energy and water supply 188 207
Manufacturing 321 344
Construction 1,330 1,380
Transport, distribution and hotels 1,966 2,942
Information and communication 240 242
Property companies 6,194 6,534
Financial, business and other services 2,420 2,601
Personal:
Mortgages 246,330 245,327
Other 10,945 10,667
Leasing 275 342
Hire purchase 111 82
------- -------
Gross loans and advances to customers 270,974 271,284
Allowance for impairment losses on loans and advances to customers (2,223) (2,385)
------- -------
Total loans and advances to customers 268,751 268,899
------- -------
Loans and advances to customers include advances securitised
under the Group's securitisation and covered bond programmes (see
note 7).
7. Debt securities in issue
At At
30 June 31 Dec
2017 2016
GBPm GBPm
Medium term notes issued 1,336 1,377
Covered bonds 6,737 9,689
Securitisation notes 3,839 5,562
------- ------
11,912 16,628
Amounts due to fellow Lloyds Banking Group undertakings - 51
------- ------
Total debt securities in issue 11,912 16,679
------- ------
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 2017, external parties held GBP3,839 million (31
December 2016: GBP5,562 million) and the Group's subsidiaries held
GBP17,593 million (31 December 2016: GBP18,642 million) of total
securitisation notes in issue of GBP21,432 million (31 December
2016: GBP24,204 million). The notes are secured on loans and
advances to customers and debt securities classified as loans and
receivables amounting to GBP31,648 million (31 December 2016:
GBP34,218 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.
7. Debt securities in issue (continued)
Covered bond programmes
At 30 June 2017, external parties held GBP6,737 million (31
December 2016: GBP9,689 million) and the Group's subsidiaries held
GBP700 million (31 December 2016: GBP700 million) of total covered
bonds in issue of GBP7,437 million (31 December 2016: GBP10,389
million). The bonds are secured on certain loans and advances to
customers amounting to GBP10,227 million (31 December 2016:
GBP11,032 million) that have yet to be assigned to bankruptcy
remote limited liability partnerships. These loans are retained on
the Group's balance sheet.
Cash deposits of GBP1,993 million (31 December 2016: GBP5,713
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.
8. Post-retirement defined benefit schemes
The Group's post-retirement defined benefit scheme obligations
are comprised as follows:
At At
30 June 31 Dec
2017 2016
GBPm GBPm
Defined benefit pension schemes:
Fair value of scheme assets 15,242 15,499
Present value of funded obligations (15,337) (15,548)
-------- --------
Net pension scheme liability (95) (49)
Other-post retirement schemes (117) (115)
-------- --------
Net retirement benefit liability (212) (164)
-------- --------
Recognised on the balance sheet as:
Retirement benefit assets 84 86
Retirement benefit obligations (296) (250)
-------- --------
Net retirement benefit liability (212) (164)
-------- --------
The movement in the Group's net post-retirement defined benefit
scheme liability during the period was as follows:
GBPm
Liability at 1 January 2017 (164)
Income statement charge (83)
Employer contributions 73
Remeasurement (38)
-----
Liability at 30 June 2017 (212)
-----
The principal assumptions used in the valuations of the defined
benefit pension scheme were as follows:
At At
30 June 31 Dec
2017 2016
% %
Discount rate 2.71 2.76
Rate of inflation:
Retail prices index 3.18 3.23
Consumer prices index 2.13 2.18
Rate of salary increases 0.00 0.00
Weighted-average rate of increase for pensions in payment 3.01 3.03
9. Provisions for liabilities and charges
Payment protection insurance
As at 30 June 2017, a provision of GBP974 million remained
unutilised relating to complaints and associated administration
costs. Total cash payments were GBP172 million during the year to
30 June 2017.
The Group increased the provision for PPI costs by a further
GBP216 million in the half-year to 30 June 2017, bringing the total
amount provided to GBP5,003 million.
The charge is largely driven by a potentially higher total
volume of complaints and associated operating costs due to higher
reactive complaint volumes received over the past three quarters.
This is in addition to the expected impact of the Financial Conduct
Authority's (FCA) rules and guidance published on 2 March 2017
(Policy Statement 17/3), which confirmed an industry deadline of
August 2019.
The total amount provided for PPI represents the Group's best
estimate of the likely future cost. However a number of risks and
uncertainties remain in particular with respect to future volumes.
The cost could differ from the Group's estimates and the
assumptions underpinning them, and could result in a further
provision being required. There is significant uncertainty around
the impact of the regulatory changes, FCA media campaign and Claims
Management Companies and customer activity.
Key sensitivities are as follows(1) :
- the number of customer initiated complaints received: an
increase of 50,000 from the level assumed would increase the
provision by GBP100 million;
(1) All sensitivities are influenced by a proportion of
complaints falling under the Plevin rules and guidance.
Other provisions for legal actions and regulatory matters
Packaged bank accounts
In the half-year to 30 June 2017 the Group has provided an
additional GBP26 million in respect of complaints relating to
alleged mis-selling of packaged bank accounts raising the total
amount provided to GBP117 million. As at 30 June 2017, GBP74
million of the provision remained unutilised. The total amount
provided represents the Group's best estimate of the likely future
cost, however a number of risks and uncertainties remain in
particular with respect to future volumes.
Arrears handling related activities
The Group has provided an additional GBP68 million in the
half-year to 30 June 2017 (bringing the total provision to GBP346
million), for the costs of identifying and rectifying certain
arrears management fees and activities. Following a review of the
Group's arrears handling activities, the Lloyds Banking Group has
put in place a number of actions to improve further its handling of
customers in these areas and the Lloyds Banking Group is
reimbursing mortgage arrears fees to around 590,000 customers. As
at 30 June 2017, the unutilised provision was GBP346 million.
HBOS Reading - customer review
The Group has commenced a review into a number of customer cases
from the former HBOS Impaired Assets Office based in Reading. This
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 the Lloyds Banking Group in 2009. The review is ongoing, the
Group has provided GBP100 million in the half-year to 30 June 2017
and is in the process of paying compensation to the victims of the
fraud for economic losses, ex-gratia payments and awards for
distress and inconvenience.
Other 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 and claims from customers in connection
with its past conduct and, where significant, provisions are held
against the costs expected to be incurred as a result of the
conclusions reached. In the half-year to 30 June 2017, the Group
charged an additional GBP72 million in respect of matters across
all divisions. At 30 June 2017, the Group held unutilised
provisions totalling GBP489 million for these other legal actions
and regulatory matters.
10. Contingent liabilities and commitments
Interchange fees
With respect to multi-lateral interchange fees (MIFs), the
Lloyds Banking Group is not directly involved in the ongoing
investigations and litigation (as described below) which involve
card schemes such as Visa and MasterCard. However, the Lloyds
Banking Group is a member of Visa and MasterCard and other card
schemes.
-- The European Commission continues to pursue certain
competition investigations into MasterCard and Visa probing,
amongst other things, MIFs paid in respect of cards issued outside
the EEA;
-- Litigation continues in the English Courts against both Visa
and MasterCard. This litigation has been brought by several
retailers who are seeking damages for allegedly 'overpaid' MIFs.
From publicly available information, it is understood these damages
claims are running to different timescales with respect to the
litigation process. It is also possible that new claims may be
issued.
-- Any ultimate impact on the Lloyds Banking Group of the above
investigations and the litigation against Visa and MasterCard
remains uncertain at this time.
Visa Inc completed its acquisition of Visa Europe on 21 June
2016. The Lloyds Banking Group's share of the sale proceeds
comprised cash consideration of approximately GBP330 million (of
which approximately GBP300 million was received on completion of
the sale and GBP30 million is deferred for three years) and
preferred stock, which the Lloyds Banking Group measures at fair
value. The preferred stock is convertible into Class A Common Stock
of Visa Inc or its equivalent upon the occurrence of certain
events. As part of this transaction, the Lloyds Banking 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 Lloyds Banking Group may
be subject under the LSA is capped at the cash consideration which
was received by the Lloyds Banking 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, the 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 Lloyds Banking Group continues to cooperate
with various other government and regulatory authorities, including
the Serious Fraud Office, the Swiss Competition Commission, and 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. The lawsuits, which contain broadly
similar allegations, allege violations of the Sherman Antitrust
Act, the Racketeer Influenced and Corrupt Organizations Act and the
Commodity Exchange Act, as well as various state statutes and
common law doctrines. Certain of the plaintiffs' claims, including
those in connection with USD and JPY LIBOR, have been dismissed by
the US Federal Court for Southern District of New York. Appeals
remain possible.
Certain Lloyds Banking Group companies are also named as
defendants in UK based claims raising LIBOR manipulation
allegations.
It is currently not possible to predict the scope and ultimate
outcome on the Lloyds Banking 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 the Lloyds Banking Group's contractual
arrangements, including their timing and scale.
10. Contingent liabilities and commitments (continued)
UK shareholder litigation
In August 2014, the Lloyds Banking Group and a number of former
directors were named as defendants in a claim filed in the English
High Court 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. It is currently not possible to determine
the ultimate impact on the Lloyds Banking Group (if any), but the
Lloyds Banking Group intends to defend the claim vigorously.
Financial Services Compensation Scheme
Following the default of a number of deposit takers in 2008, the
Financial Services Compensation Scheme (FSCS) borrowed funds from
HM Treasury to meet the compensation costs for customers of those
firms. In June 2017, the FSCS announced that following the sale of
certain Bradford & Bingley mortgage assets, the principal
balance outstanding on these loans was GBP4,678 million (31
December 2016: GBP15,655 million). Although it is anticipated that
the substantial majority of this loan 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,
any shortfall will be funded by deposit-taking participants,
including the Group, of the FSCS. The amount of future levies
payable by the Group depends on a number of factors, principally,
the amounts recovered by the FSCS from asset sales.
Tax authorities
The 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 the 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 the
Group's current tax liabilities of approximately GBP350 million and
a reduction in the Group's deferred tax asset of approximately
GBP50 million. The 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.
There are a number of other open matters on which the Group is in
discussion with HMRC, none of which is expected to have a material
impact on the financial position of the Group.
Residential mortgage repossessions
In August 2014, the Northern Ireland High Court handed down
judgment in favour of the borrowers in relation to three
residential mortgage test cases concerning certain aspects of the
Lloyds Banking Group's practice with respect to the recalculation
of contractual monthly instalments of customers in arrears. The FCA
is actively engaged with the industry in relation to these
considerations and has recently published Guidance on the treatment
of customers with mortgage payment shortfalls. The Guidance covers
remediation for mortgage customers who may have been affected by
the way firms calculate these customers' monthly mortgage
instalments. The Lloyds Banking Group is now determining its
detailed approach to implementation of the Guidance and will
contact affected customers next year.
Update following the Financial Conduct Authority's publication
of Policy Statement 17/3
On 2 August 2016, the Financial Conduct Authority (FCA)
published a further consultation paper (CP16/20: Rules and guidance
on payment protection insurance complaints: feedback on CP15/39 and
further consultation), following on from the original consultation
published in November 2015.
On 2 March 2017 the FCA confirmed that the deadline by which
consumers would need to make their PPI complaints would be 29
August 2019, and new rules with respect to the UK Supreme Court's
decision in Plevin v Paragon Personal Finance Limited [2014] UKSC
61 would come into force on 29 August 2017.
On 31 May 2017 an application for judicial review of Policy
Statement 17/3 was filed in the High Court of England and Wales,
which subject to the Court's determination may have an impact on
the implementation of the FCA's rules and guidance in Policy
Statement 17/3.
10. Contingent liabilities and commitments (continued)
Mortgage arrears handling activities
On 26 May 2016, the Lloyds Banking Group was informed that an
enforcement team at the FCA had commenced an investigation in
connection with the Lloyds Banking Group's mortgage arrears
handling activities. This investigation is ongoing and it is
currently not possible to make a reliable assessment of the
liability, if any, that may result from the investigation.
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.
Contingent liabilities and commitments arising from the banking
business
At At
30 June 31 Dec
2017 2016
GBPm GBPm
Contingent liabilities
Acceptances and endorsements 1 1
Other:
------- ------
Other items serving as direct credit substitutes 18 19
Performance bonds and other transaction-related contingencies 77 83
------- ------
95 102
------- ------
Total contingent liabilities 96 103
------- ------
Commitments
Documentary credits and other short-term trade-related transactions 1 -
Forward asset purchases and forward deposits placed 29 28
Undrawn formal standby facilities, credit lines and other commitments to lend:
Less than 1 year original maturity:
------- ------
Mortgage offers made 10,711 9,828
Other commitments 22,036 21,817
------- ------
32,747 31,645
1 year or over original maturity 3,261 3,651
------- ------
Total commitments 36,038 35,324
------- ------
Of the amounts shown above in respect of undrawn formal standby
facilities and other commitments to lend, GBP14,652 million (2016:
GBP14,431 million) was irrevocable.
11. 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 42 to the
Group's 2016 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 three 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 three 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 consistent sources of data cease to be available.
Valuation methodology
For level two and level three portfolios, there is no
significant change to what was disclosed in the Group's 2016 Annual
Report and Accounts in respect of the valuation methodology
(techniques and inputs) applied to such 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 2017 31 December 2016
-------------------------- --------------------------
Carrying value Fair value Carrying value Fair value
GBPm GBPm GBPm GBPm
Financial assets
Trading and other financial assets at fair value
through profit or loss 1,528 1,528 2,397 2,397
Derivative financial instruments 12,885 12,885 14,664 14,664
Loans and receivables:
-------------- ---------- -------------- ----------
Loans and advances to banks 2,104 2,105 1,116 1,115
Loans and advances to customers 268,751 270,940 268,899 270,153
Debt securities 177 167 169 152
Due from fellow Lloyds Banking Group undertakings 85,047 85,047 46,911 46,911
-------------- ---------- -------------- ----------
356,079 358,259 317,095 318,331
Available-for-sale financial instruments 1,613 1,613 3,034 3,034
Financial liabilities
Deposits from banks 16,292 16,292 6,191 6,191
Customer deposits 176,932 176,817 179,317 179,420
Due to fellow Lloyds Banking Group undertakings 134,845 134,845 99,581 99,581
Trading and other financial liabilities at fair value
through profit or loss 182 182 945 945
Derivative financial instruments 11,562 11,562 13,225 13,225
Debt securities in issue 11,912 11,943 16,679 16,621
Subordinated liabilities 7,130 7,031 8,149 7,554
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.
11. Fair values of financial assets and liabilities (continued)
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 one to
three 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 2017
Trading and other financial assets at fair value through profit or loss:
Loans and advances to customers - 35 - 35
Debt securities - 1,363 - 1,363
Equity shares - - 130 130
------- ------- ------- ------
Total trading and other financial assets at fair value through profit or
loss - 1,398 130 1,528
------- ------- ------- ------
Available-for-sale financial assets
Debt securities 114 1,116 - 1,230
Equity shares - 12 371 383
------- ------- ------- ------
Total available-for-sale financial assets 114 1,128 371 1,613
------- ------- ------- ------
Derivative financial instruments - 12,470 415 12,885
------- ------- ------- ------
Total financial assets carried at fair value 114 14,996 916 16,026
------- ------- ------- ------
Level Level Level
1 2 3 Total
GBPm GBPm GBPm GBPm
At 31 December 2016
Trading and other financial
assets at fair value
through profit or loss:
Loans and advances
to customers - 943 - 943
Debt securities - 1,335 - 1,335
Equity shares - - 119 119
----- ------ ----- ------
Total trading and other
financial assets at
fair value through
profit or loss - 2,278 119 2,397
----- ------ ----- ------
Available-for-sale
financial assets:
Debt securities 114 2,439 - 2,553
Equity shares - 12 469 481
----- ------ ----- ------
Total available-for-sale
financial assets 114 2,451 469 3,034
----- ------ ----- ------
Derivative financial
instruments - 14,081 583 14,664
----- ------ ----- ------
Total financial assets
carried at fair value 114 18,810 1,171 20,095
----- ------ ----- ------
11. Fair values of financial assets and liabilities (continued)
Financial liabilities
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
At 30 June 2017
Trading and other financial liabilities at fair value through profit or
loss:
Trading liabilities - 182 - 182
------- ------- ------- ------
Total trading and other financial liabilities at fair value through profit
or loss - 182 - 182
------- ------- ------- ------
Derivative financial instruments - 11,512 50 11,562
------- ------- ------- ------
Total financial liabilities carried at fair value - 11,694 50 11,744
------- ------- ------- ------
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
At 31 December 2016
Trading and other financial liabilities at fair value through profit or
loss:
Liabilities held at fair value through profit or loss - - 2 2
Trading liabilities - 943 - 943
------- ------- ------- ------
Total trading and other financial liabilities at fair value through profit
or loss - 943 2 945
------- ------- ------- ------
Derivative financial instruments - 13,168 57 13,225
------- ------- ------- ------
Total financial liabilities carried at fair value - 14,111 59 14,170
------- ------- ------- ------
Financial guarantees are recognised at fair value on initial
recognition and are classified as level 3; the balance is not
material.
11. 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.
Trading
and other Total
financial assets Available- financial
at fair for-sale assets
value through financial Derivative carried at
profit or loss assets assets fair value
GBPm GBPm GBPm GBPm
At 1 January 2017 119 469 583 1,171
Exchange and other adjustments - (1) 13 12
Gains (losses) recognised in the income statement within
other income 17 - (137) (120)
Losses recognised in other comprehensive income within
the revaluations reserve in respect
of available-for-sale financial assets - (101) - (101)
Purchases - 24 - 24
Sales (6) (20) - (26)
Transfers out of the level 3 portfolio - - (44) (44)
---------------- ---------- ---------- ----------
At 30 June 2017 130 371 415 916
---------------- ---------- ---------- ----------
Gains (losses) recognised in the income statement within
other income relating to those assets
held at 30 June 2017 19 - (137) (118)
Trading
and other Total
financial
assets Available- financial
at fair for-sale assets
value through financial Derivative carried at
profit
or loss assets assets fair value
GBPm GBPm GBPm GBPm
At 1 January 2016 226 339 342 907
Exchange and other
adjustments 1 6 42 49
Gains (losses) recognised
in the income statement
within other income (15) - 296 281
Gains recognised in
other comprehensive
income within the revaluation
reserve in respect
of available-for-sale
financial assets - 39 - 39
Purchases - 48 - 48
Sales (93) (4) - (97)
Transfers into the
level 3 portfolio - 31 - 31
------------- ---------- ---------- ----------
At 30 June 2016 119 459 680 1,258
------------- ---------- ---------- ----------
Gains (losses) recognised
in the income statement
within other income
relating to those assets
held at 30 June 2016 (12) - 296 284
11. 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.
Trading
and
other financial
liabilities Total
at financial
fair value liabilities
through carried
profit Derivative at
or loss liabilities fair value
GBPm GBPm GBPm
At 1 January 2017 2 57 59
Gains recognised in the income
statement within other income (2) (7) (9)
---------------- ------------ ------------
At 30 June 2017 - 50 50
---------------- ------------ ------------
Gains recognised in the income
statement within other income
relating to those liabilities
held at 30 June 2017 - (7) (7)
Trading
and
other financial
liabilities Total
at financial
fair value liabilities
through carried
profit Derivative at
or loss liabilities fair value
GBPm GBPm GBPm
At 1 January 2016 1 38 39
Exchange and other adjustments - 2 2
Losses recognised in the income
statement within other income 1 24 25
------------------ ------------ ------------
At 30 June 2016 2 64 66
------------------ ------------ ------------
Losses recognised in the income
statement within other income
relating to those liabilities
held at 30 June 2016 1 24 25
11. 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.
At 30 June 2017
----------------------------------
Effect of reasonably
possible alternative
assumptions(1)
------------------------
Significant
Valuation unobservable Carrying Favourable Unfavourable
technique(s) inputs Range(2) value changes changes
GBPm GBPm GBPm
Trading and other financial assets
at fair value through profit or loss:
Underlying
asset/net
asset
Equity value
and venture (incl.
capital property
investments prices)(3) n/a n/a 130 14 (14)
-------------- --------------- ------------- -------- --------
130
--------
371 31 (36)
Available for sale financial
assets
Derivative financial assets:
Interest Option Interest
rate pricing rate
derivatives model volatility 0%/136% 415 1 (3)
-------------- --------------- ------------- -------- --------
415
--------
Financial assets carried
at fair value 916
--------
Derivative financial
liabilities:
Interest Option Interest
rate pricing rate
derivatives model volatility 0%/136% 50 - -
-------------- --------------- ------------- -------- --------
50
--------
Financial liabilities carried
at fair value 50
--------
(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.
(3) Underlying asset/net asset values represent fair
value.
11. Fair values of financial assets and liabilities (continued)
At 31 December 2016
----------------------------------
Effect of reasonably
possible alternative
assumptions(1)
------------------------
Significant
Valuation unobservable Carrying Favourable Unfavourable
technique(s) inputs Range(2) value changes changes
GBPm GBPm GBPm
Trading and other financial assets
at fair value through profit or loss:
Underlying
asset/net
asset
Equity value
and venture (incl.
capital property
investments prices)(3) n/a n/a 119 6 (10)
-------------- --------------- ------------- -------- --------
119
--------
Available for sale financial
assets 469 30 (35)
Derivative financial assets:
Interest Option Interest
rate pricing rate
derivatives model volatility 0%/115% 583 2 (8)
-------------- --------------- ------------- -------- --------
583
--------
Financial assets carried
at fair value 1,171
--------
Trading and other financial
liabilities at fair value through
profit or loss 2 - -
Derivative financial
liabilities:
Interest Option Interest
rate pricing rate
derivatives model volatility 0%/115% 57 - -
-------------- --------------- ------------- -------- --------
57
--------
Financial liabilities carried
at fair value 59
--------
(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.
(3) Underlying asset/net asset values represent fair
value.
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 2016 financial
statements.
Reasonably possible alternative assumptions
Valuation techniques applied to many of the Group's level three
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 2016 financial statements.
12. 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
2017 2016
GBPm GBPm
Assets
Derivative financial instruments 7,458 8,502
Loans and receivables: Due from fellow
Lloyds Banking Group undertakings 85,047 46,911
Trading and other financial assets
at fair value through profit or loss 1,397 2,278
Liabilities
Due to fellow Lloyds Banking Group
undertakings 134,845 99,581
Derivative financial instruments 8,463 9,622
Subordinated liabilities 161 383
Trading and other financial liabilities
at fair value through profit or loss 182 943
Debt securities in issue 84 139
During the half-year to 30 June 2017 the Group earned GBP156
million (half-year ended 30 June 2016: GBP144 million) of interest
income and incurred GBP804 million (half-year ended 30 June 2016:
GBP900 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 2017 the Group
incurred expenditure of GBP39 million (half-year ended 30 June
2016: GBP41 million) on behalf of fellow Lloyds Banking Group
undertakings which was recharged to those undertakings; and fellow
Lloyds Banking Group undertakings incurred expenditure of GBP277
million (half-year ended 30 June 2016: GBP409 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
2017 are similar in nature to those for the year ended 31 December
2016.
13. Dividends on ordinary shares
The Company paid a dividend of GBP2,000 million on 11 May 2017;
the Company paid dividends of GBP2,000 million on 12 May 2016 and
GBP610 million on 23 September 2016.
14. Future accounting developments
The following pronouncements are not applicable for the year
ending 31 December 2017 and have not been applied in preparing
these interim financial statements. Save as disclosed below, the
impact of these accounting changes is still being assessed by the
Group and reliable estimates cannot be made at this stage.
With the exception of IFRS 9 'Financial Instruments', and IFRS
15 'Revenue from Contracts with Customers', as at 26 July 2017
these pronouncements are awaiting EU endorsement.
IFRS 9 Financial Instruments
IFRS 9 replaces IAS 39 'Financial Instruments: Recognition and
Measurement' and is effective for annual periods beginning on or
after 1 January 2018.
The Group has an established IFRS 9 programme to ensure a high
quality implementation in compliance with the standard and
additional regulatory guidance that has been issued. The programme
involves Finance and Risk functions across the Group with
Divisional and Group steering committees providing oversight. The
key responsibilities of the programme include defining IFRS 9
methodology and accounting policy, development of Expected Credit
Loss ('ECL') models, identifying and implementing data and system
requirements, and establishing an appropriate operating model and
governance framework.
The programme is progressing in line with delivery plans and is
currently completing credit risk model development and embedding
the IFRS 9 operating model into the business. All core models are
expected to be operational by September 2017 and outputs will be
reviewed and validated ahead of implementation
Classification and measurement
IFRS 9 requires financial assets to be classified into one of
three measurement categories, fair value through profit or loss,
fair value through other comprehensive income or amortised cost.
Financial assets will be measured at amortised cost if they are
held within a business model the objective of which is to hold
financial assets in order to collect contractual cash flows, and
their contractual cash flows represent solely payments of principal
and interest. Financial assets will be measured at fair value
through other comprehensive income if they are held within a
business model the objective of which is achieved by both
collecting contractual cash flows and selling financial assets and
their contractual cash flows represent solely payments of principal
and interest. Financial assets not meeting either of these two
business models; and all equity instruments (unless designated at
inception to fair value through other comprehensive income); and
all derivatives are measured at fair value through profit or loss.
An entity may, at initial recognition, designate a financial asset
as measured at fair value through profit or loss if doing so
eliminates or significantly reduces an accounting mismatch.
The Group has undertaken an assessment of the classification and
measurement of financial assets and, whilst certain portfolios will
need to be reclassified, including from amortised cost to fair
value through profit or loss, the overall impact on the Group is
not expected to be significant.
IFRS 9 retains most of the existing requirements for financial
liabilities. However, for financial liabilities designated at fair
value through profit or loss, gains or losses attributable to
changes in own credit risk may be presented in other comprehensive
income. The Group has elected to early adopt this presentation of
gains and losses on financial liabilities from 1 January 2017.
14. Future accounting developments (continued)
Impairment
The IFRS 9 impairment model will be applicable to all financial
assets at amortised cost, debt instruments measured at fair value
through other comprehensive income, lease receivables, loan
commitments and financial guarantees not measured at fair value
through profit or loss.
IFRS 9 replaces the existing 'incurred loss' impairment approach
with an expected credit loss model, resulting in earlier
recognition of credit losses compared with IAS 39. Expected credit
losses are the unbiased probability weighted average credit losses
determined by evaluating a range of possible outcomes and future
economic conditions.
The ECL model has three stages. Entities are required to
recognise a 12 month expected loss allowance on initial recognition
(stage 1) and a lifetime expected loss allowance when there has
been a significant increase in credit risk since initial
recognition (stage 2). Stage 3 requires objective evidence that an
asset is credit-impaired, which is similar to the guidance on
incurred losses in IAS 39.
IFRS 9 requires the use of more forward looking information
including reasonable and supportable forecasts of future economic
conditions. The need to consider a range of economic scenarios and
how they could impact the loss allowance is a subjective feature of
the IFRS 9 ECL model. The Group has developed the capability to
model a number of economic scenarios and capture the impact on
credit losses to ensure the overall ECL reflects an appropriate
distribution of economic outcomes.
For all material portfolios, IFRS 9 ECL calculation will
leverage the systems, data and methodology used to calculate
regulatory 'expected losses'. The definition of default for IFRS 9
purposes will be aligned to the Basel definition of default to
ensure consistency across the Group. IFRS 9 models will use three
key input parameters for the computation of expected loss, being
probability of default ('PD'), loss given default ('LGD') and
exposure at default ('EAD'). However, given the conservatism
inherent in the regulatory expected losses calculation and some
differences in the period over which risk parameters are measured,
some adjustments to these components have been made to ensure
compliance with IFRS 9.
The new impairment requirements will result in an increase in
the Group's balance sheet provisions for credit losses and may have
a negative impact on the Group's regulatory capital position. The
extent of any increase in provisions will depend upon a number of
factors including the composition of the Group's lending portfolios
and forecast economic conditions at the date of implementation. It
is not possible to conclude on the capital impact as the
interaction with IFRS 9 and the capital rules, including possible
transitional arrangements, is still being finalised.
Whilst the Group is still running and testing the new credit
risk models, it is not possible to provide a reliable estimate of
the increase in impairment provisions on 1 January 2018. The
ongoing impact on the financial results will only become clearer
after running the IFRS 9 models over a period of time and under
different economic environments, however, it could result in
impairment charges being more volatile when compared to the current
IAS 39 impairment model, due to the forward looking nature of
expected credit losses.
Hedge accounting
The hedge accounting requirements of IFRS 9 are more closely
aligned with risk management practices and follow a more
principle-based approach than IAS 39. The standard does not address
macro hedge accounting, which is being considered in a separate
IASB project. There is an option to retain the existing IAS 39
hedge accounting requirements until the IASB completes its project
on macro hedging. The Group expects to continue applying IAS 39
hedge accounting in accordance with this accounting policy
choice.
14. Future accounting developments (continued)
IFRS 15 Revenue from Contracts with Customers
IFRS 15 replaces IAS 18 'Revenue' and IAS 11 'Construction
Contracts' and is effective for annual periods beginning on or
after 1 January 2018.
The core principle of IFRS 15 is that revenue reflects the
transfer of goods or services to customers in an amount that
reflects the consideration to which an entity expects to be
entitled. The recognition of such revenue is in accordance with
five steps to: identify the contract; identify the performance
obligations; determine the transaction price; allocate the
transaction price to the performance obligations; and recognise
revenue when the performance obligations are satisfied.
Revenue relating to financial instruments, leases and insurance
contracts are out of scope, however, the Group does recognise fee
income that is within scope, for example on added value accounts,
interchange and service fees, certain mortgage fees, factoring and
commitment fees. A substantial proportion of the current revenue
recognition policy for fee and commission income is not expected to
change. The standard is therefore not expected to have a
significant impact on the Group's profitability.
Upon transition, any adjustments can be recognised either
retrospectively to each prior reporting period presented, or
retrospectively with the cumulative effect of initially applying
the standard recognised at the date of initial application as an
adjustment to the opening balance retained earnings. The Group
anticipates adopting the second approach to transition.
IFRS 16 Leases
IFRS 16 replaces IAS 17 'Leases' and is effective for annual
periods beginning on or after 1 January 2019.
IFRS 16 requires lessees to recognise a right of use asset and a
liability for future payments arising from a lease contract.
Lessees will recognise a finance charge on the liability and a
depreciation charge on the asset which could affect the timing of
the recognition of expenses on leased assets. This change will
mainly impact the properties that the Group currently accounts for
as operating leases. Finance systems will need to be changed to
reflect the new accounting rules and disclosures. Lessor accounting
requirements remain aligned to the current approach under IAS
17.
Minor amendments to other accounting standards
The IASB has issued a number of minor amendments to IFRSs
effective 1 January 2018 (including IFRS 2 'Share-based Payment'
and IAS 40 'Investment Property') and IFRIC 23 'Uncertainty over
Income Tax Treatments' effective 1 January 2019. These revised
requirements are not expected to have a significant impact on the
Group.
15. 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 2016 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.
16. Other information
The financial information included in these condensed
consolidated interim 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 2016 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 management report 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 2017 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 2017 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
26 July 2017
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)
Alan Dickinson
Simon Henry
Lord Lupton CBE
Deborah McWhinney
Nicholas Prettejohn
Stuart Sinclair
Sara Weller CBE
INDEPENT 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
2017 half-year management report of HBOS plc for the six month
period ended 30 June 2017. 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 2017;
-- the consolidated income statement for the period then ended;
-- the 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 2017 half-year
management report 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 one 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 2017 half-year management report, including the interim
financial statements, is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the 2017 half-year management report 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 2017 half-year management report 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
Ireland) 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 2017
half-year management report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
26 July 2017
Notes:
(a) The maintenance and integrity of the Lloyds Banking Group
plc website is the responsibility of the directors; the work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the interim financial
statements since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
CONTACTS
For further information please contact:
INVESTORS AND ANALYSTS
Douglas Radcliffe
Group Investor Relations Director
020 7356 1571
douglas.radcliffe@finance.lloydsbanking.com
Andrew Downey
Director of Investor Relations
020 7356 2334
andrew.downey@finance.lloydsbanking.com
Edward Sands
Director of Investor Relations
020 7356 1585
edward.sands@lloydsbanking.com
CORPORATE AFFAIRS
Fiona Laffan
Group Corporate Communications Director
020 7356 2081
fiona.laffan@lloydsbanking.com
Matt Smith
Head of Corporate Media
020 7356 3522
matt.smith@lloydsbanking.com
Registered office: HBOS plc, The Mound, Edinburgh EH1 1YZ
Registered in Scotland No. SC218813
This information is provided by RNS
The company news service from the London Stock Exchange
END
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