• Statutory Profit After Tax: GBP4.5 billion, or GBP5 billion excluding the Q4 motor provision.
• Return on Tangible Equity (RoTE): 12.3%, or 14% excluding the motor provision.
• Net Income: GBP17.1 billion for the full year.
• Net Interest Margin: 2.95% for the full year.
• Operating Costs: GBP9.4 billion, up 3% year-on-year.
• Impairment Charge: GBP433 million, equating to an asset quality ratio of 10 basis points.
• Tangible Net Asset Value (TNAV) per Share: Increased to 52.4p, up 1.6p in the year.
• Capital Generation: 148 basis points, or 177 basis points excluding the Q4 motor provision.
• Group Lending Balances: GBP459 billion, up GBP9 billion or 2% in the year.
• Deposits: Grew by 2% or GBP11 billion during the year.
• Ordinary Dividend Increase: 15% increase in the ordinary dividend.
• Share Buyback: GBP1.7 billion announced.
• Additional Revenues from Strategic Initiatives: GBP0.8 billion, ahead of the GBP0.7 billion target.
• Gross Cost Savings: GBP1.2 billion, more than offsetting inflation impacts.

• Warning! GuruFocus has detected 4 Warning Sign with LYG.

Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Lloyds Banking Group PLC (NYSE:LYG) reported a robust financial performance for 2024, with statutory profit after tax reaching GBP4.5 billion, or GBP5 billion excluding a Q4 motor provision.
• The company announced a 15% increase in the ordinary dividend and a share buyback of GBP1.7 billion, reflecting strong shareholder distributions.
• Lloyds Banking Group PLC (NYSE:LYG) achieved GBP0.8 billion of additional revenues from strategic initiatives, surpassing their target of GBP0.7 billion.
• The group delivered GBP1.2 billion of gross cost savings, more than offsetting inflationary pressures.
• Lloyds Banking Group PLC (NYSE:LYG) maintained a strong capital position with a CET1 ratio of 13.5% after dividend and buyback distributions, meeting their guidance.

Negative Points

• An additional GBP700 million provision was taken in Q4 related to motor finance commissions, impacting return on tangible equity and capital generation.
• Operating costs increased by 3% year-on-year to GBP9.4 billion, in line with guidance but reflecting inflationary pressures.
• The impairment charge for the year was GBP433 million, equating to an asset quality ratio of 10 basis points, with expectations for this to rise to circa 25 basis points in 2025.
• The company faces uncertainties related to the Supreme Court's decision on motor finance commissions, which could impact financial outcomes.
• Despite strong performance, the company anticipates ongoing headwinds from mortgage refinancing and deposit churn, which may affect future income growth.

Q & A Highlights

Q: Can you provide more details on the structural hedge and its impact on future earnings? A: William Chalmers, CFO, explained that the structural hedge is a significant tailwind for income. The notional was held at GBP242 billion in 2024, with a yield of 1.9%, significantly below refinancing rates. The hedge is expected to grow modestly in 2025 and 2026, with about 90% of 2025 and 75% of 2026 expectations already locked in, ensuring a predictable income boost.

Q: What are the expectations for tangible net asset value (TNAV) growth, and how does the cash flow hedge reserve impact this? A: William Chalmers noted that TNAV per share is expected to grow materially, potentially reaching double-digit growth. This is driven by the unwinding of the cash flow hedge reserve, business growth, pension build, and the share buyback program.

Q: Can you elaborate on the methodology for the motor finance provision and the range of outcomes considered? A: William Chalmers explained that the provision is based on legal uncertainties, potential FCA responses, and customer reactions. A range of scenarios was considered, with probability weightings applied to each, resulting in a GBP1.15 billion provision. The final financial impact could vary significantly.

Q: How do you view the regulatory environment, and what changes could support growth? A: Charlie Nunn emphasized the need for regulatory reforms to support growth, particularly in housing, infrastructure, and pensions. He highlighted the importance of a predictable conduct agenda and optimizing prudential regulation to enhance competitiveness and growth.

Q: What are the expectations for mortgage market share and margins in 2025? A: Charlie Nunn stated that while Lloyds aims to maintain a strong market share, it will not chase market share at the expense of margins. The first quarter of 2025 has seen tighter margins due to market conditions, but the overall outlook for the year is more stable.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.