Equipment leased to customers under finance leases primarily relates to structured financing transactions to fund the purchase of aircraft, ships and other large individual value items. There was an allowance for uncollectable finance lease receivables included in the allowance for impairment losses of £12 million (2018: £1 million) .
Recoveries of advances written off in previous years 397 28 425
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 239
In respect of: Loans and advances to banks 2 – – – 2
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 241
Financial assets at fair value through other comprehensive income (1) (14)
Other items charged to the income statement include the movements in the expected credit loss as a result of new loans originated and repayments of outstanding balances throughout the reporting period. Loans which are written off in the period are first transferred to Stage 3 before acquiring a full allowance and subsequent write-off. Consequently, recoveries on assets previously written-off also occur in Stage 3 only.
Share of income statement amounts: Tax – – – – – – – – –
Share of post-tax results 7 9 2 (1) – 4 6 9 6
Share of balance sheet amounts: Non-current liabilities (177) – – – (177) –
Share of net assets at 31 December 293 79 11 12 304 91
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 243
Had the acquisition date been 1 January 2019, the Group’s consolidated total income would have been £18 million higher at £42,374 million and the Group’s consolidated profit before tax would have been £3 million lower at £4,390 million.
The goodwill held in the Group’s balance sheet is tested at least annually for impairment. For the purposes of impairment testing the goodwill is allocated to the appropriate cash generating unit; of the total balance of £2,324 million (2018: £2,310 million) , £1,836 million, or 79 per cent of the total (2018: £1,836 million, 79 per cent of the total) has been allocated to Scottish Widows in the Group’s Insurance and Wealth division; £302 million, or 13 per cent of the total (2018: £302 million, or 13 per cent of the total) has been allocated to Cards in the Group’s Retail division; and £170 million, or 7 per cent of the total (2018: £170 million, 7 per cent of the total) to Motor Finance in the Group’s Retail division.
The liabilities in respect of the Group’s UK annuity business are matched by a portfolio of fixed interest securities, including a large proportion of corporate bonds and illiquid loan assets. The value of the in-force business asset for UK annuity business has been calculated after taking into account an estimate of the market premium for illiquidity in respect of corporate bond holdings and relevant illiquid loan assets. In determining the market premium for illiquidity, a range of inputs are considered which reflect actual asset allocation and relevant observable market data. The illiquidity premium is estimated to be 91 basis points at 31 December 2019 (2018: 128 basis points) .
The gross value of in-force business asset in the consolidated balance sheet is as follows: 2019 £m 2018 £m
Existing business: Movement in the value of in-force business (note 9) 825 (55)
Change in fair value of investment properties (note 7) (108) – – – – (108)
Balance sheet amount at 31 December 2019 3,553 979 2,464 4,439 1,669 13,104
At 31 December the future minimum rentals receivable under non-cancellable operating leases were as follows: 2019 £m 2018 £m
The Group recognises the full liabilities associated with its securitisation and covered bond programmes within debt securities in issue, although the obligations of the Group in respect of its securitisation issuances are limited to the cash flows generated from the underlying assets. The Group could be required to provide additional support to a number of the securitisation programmes to support the credit ratings of the debt securities issued, in the form of increased cash reserves and the holding of subordinated notes. Further, certain programmes contain contractual obligations that require the Group to repurchase assets should they become credit impaired.
The Group has not provided financial or other support by voluntarily offering to repurchase assets from any of its public securitisation programmes during 2019 (2018: none) .
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 249
For those policies written in Scottish Widows pre-demutualisation containing potentially valuable options and guarantees, under the terms of the Scheme a separate memorandum account was set up, within the With-Profit Fund originally held in Scottish Widows plc and subsequently transferred into Scottish Widows Limited, called the Additional Account which is available, inter alia, to meet any additional costs of providing guaranteed benefits in respect of those policies. The Additional Account had a value at 31 December 2019 of £2.6 billion (2018: £2.5 billion) . The eventual cost of providing benefits on policies written both pre and post demutualisation is dependent upon a large number of variables, including future interest rates and equity values, demographic factors, such as mortality, and the proportion of policyholders who seek to exercise their options. The ultimate cost will therefore not be known for many years.
Unit-linked business This includes unit-linked pensions and unit-linked bonds, the primary purpose of which is to provide an investment vehicle where the policyholder is also insured against death.
Life insurance The policyholder is insured against death or permanent disability, usually for predetermined amounts. Such business includes whole of life and term assurance and long-term creditor policies.
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 251
Included within change in expenses assumptions are the impacts associated with exiting the Standard Life Aberdeen investment management agreement.
Increase/(decrease) in liabilities charged to the income statement 1 287 335
Net claims outstanding at 31 December 241 254 1 Of which an increase of £335 million (2018: £367 million) was in respect of current year claims and a decrease of £48 million (2018: a decrease of £32 million) was in respect of prior year claims.
Note 34: Liabilities arising from non-participating investment contracts The movement in liabilities arising from non-participating investment contracts may be analysed as follows: 2019 £m 2018 £m
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 253
Total charge to the income statement (note 11) 532 705 625 2019 £m 2018 £m
The last funding valuations of other Group schemes were carried out on a number of different dates. In order to report the position under IAS 19 as at 31 December 2019 the most recent valuation results for all schemes have been updated by qualified independent actuaries. The funding valuations use a more prudent approach to setting the discount rate and more conservative longevity assumptions than the IAS 19 valuations.
1 Of the total debt instruments, £33,134 million (31 December 2018: £29,033 million) were investment grade (credit ratings equal to or better than ‘BBB’) .
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 257
Expected life expectancy of members: Increase of one year 40 43 1,636 1,299 1 At 31 December 2019, the assumed rate of RPI inflation is 2.94 per cent and CPI inflation 1.99 per cent (2018: RPI 3.20 per cent and CPI 2.15 per cent) .
A significant goal of the asset-liability matching strategies adopted by Group schemes is to reduce volatility caused by changes in market expectations of interest rates and inflation. In the main schemes, this is achieved by investing scheme assets in bonds, primarily fixed interest gilts and index linked gilts, and by entering into interest rate and inflation swap arrangements. These investments are structured to take into account the profile of scheme liabilities, and actively managed to reflect both changing market conditions and changes to the liability profile.
At 31 December 2019 the asset-liability matching strategy mitigated around 106 per cent of the liability sensitivity to interest rate movements and around 103 per cent of the liability sensitivity to inflation movements. In addition a small amount of interest rate sensitivity arises through holdings of corporate and other debt securities.
For the principal post-retirement healthcare scheme, the latest actuarial valuation of the liability was carried out at 31 December 2019 by qualified independent actuaries. The principal assumptions used were as set out above, except that the rate of increase in healthcare premiums has been assumed at 6.54 per cent (2018: 6.81 per cent) .
Movements in the other post-retirement benefits obligation: 2019 £m 2018 £m
The statutory position reflects the deferred tax assets and liabilities as disclosed in the consolidated balance sheet and takes into account the ability of the Group to net assets and liabilities where there is a legally enforceable right of offset. The tax disclosure of deferred tax assets and liabilities ties to the amounts outlined in the tables below which splits the deferred tax assets and liabilities by type, before such netting.
As a result of legislation enacted in 2016, the UK corporation tax rate will reduce from 19 per cent to 17 per cent on 1 April 2020. The Group measures its deferred tax assets and liabilities at the value expected to be recoverable or payable in future periods, and re-measures them at each reporting date based on the most recent estimates of utilisation or settlement, including the impact of bank surcharge where appropriate. The deferred tax impact of this re-measurement to 17 per cent in 2019 is a charge of £6 million in the income statement and a credit of £5 million in other comprehensive income.
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 259
Other (charge) credit to equity – – – – 7 – – 7
(Charge) credit to the income statement (193) 221 59 (48) (19) (35) (15)
Exchange and other adjustments – – – – – (1) (1)
No deferred tax has been recognised in respect of foreign trade losses where it is not more likely than not that we will be able to utilise them in future periods. Of the asset not recognised, £35 million (2018: £36 million) relates to losses that will expire if not used within 20 years, and £45 million (2018: £53 million) relates to losses with no expiry date.
Payment protection insurance (MBNA) MBNA increased its PPI provision by £367 million in the year ended 31 December 2019 but the Group’s exposure continues to remain capped at £240 million under the terms of the sale and purchase agreement.
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 261
Arrears handling related activities The Group has provided an additional £188 million in the year ended 31 December 2019 for the costs of identifying and rectifying certain arrears management fees and activities, taking the total provided to date to £981 million. The Group has put in place a number of actions to improve its handling of customers in these areas and has made good progress in reimbursing arrears fees to impacted customers.
Packaged bank accounts The Group had provided a total of £795 million up to 31 December 2018 in respect of complaints relating to alleged mis-selling of packaged bank accounts, with no further amounts provided during the year ended 31 December 2019. A number of risks and uncertainties remain, particularly with respect to future volumes.
Other Following the sale of TSB Banking Group plc, the Group raised a provision of £665 million in relation to various ongoing commitments; £117 million of this provision remained unutilised at 31 December 2019.
Note 40: Share capital (1) Authorised share capital As permitted by the Companies Act 2006, the Company removed references to authorised share capital from its articles of association at the annual general meeting on 5 June 2009. This change took effect from 1 October 2009.
(2) Issued and fully paid share capital 2019 Number of shares 2018 Number of shares 2017 Number of shares 2019 £m 2018 £m 2017 £m
Preference shares The Company has in issue various classes of preference shares which are all classified as liabilities under accounting standards and which are included in note 39.
The revaluation reserves in respect of debt securities and equity shares held at fair value through other comprehensive income represent the cumulative after tax unrealised change in the fair value of financial assets so classified since initial recognition; or in the case of financial assets obtained on acquisitions of businesses, since the date of acquisition.
The cash flow hedging reserve represents the cumulative after tax gains and losses on effective cash flow hedging instruments that will be reclassified to the income statement in the periods in which the hedged item affects profit or loss.
Shares cancelled under share buyback programmes (see below) 189 158 –
The payment of dividends by subsidiaries and the ability of members of the Group to lend money to other members of the Group may be subject to regulatory or legal restrictions, the availability of reserves and the financial and operating performance of the entity. Details of such restrictions and the methods adopted by the Group to manage the capital of its subsidiaries are provided under Capital Risk on page 168.
Note 45: Dividends on ordinary shares The directors have recommended a final dividend, which is subject to approval by the shareholders at the Annual General Meeting, of 2.25 pence per share (2018: 2.14 pence per share; 2017: 2.05 pence per share) representing a total dividend of £1,586 million (2018: £1,523 million; 2017: £1,475 million) , which will be paid on 27 May 2020. The financial statements do not reflect recommended dividends.
Recommended by directors at previous year end: Special dividend – – 0.50 – – 356
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 269
The weighted average fair value of awards granted in the year was £0.55.
On 9 May 2019, the Group made an award of £200 (2018: £200) of shares to all eligible employees. The number of shares awarded was 22,422,337 (2018: 21,513,300) , with an average fair value of £0.62 (2018: £0.67) based on the market price at the date of award.
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 271
Exercised/lapsed (includes entitlements of former key management personnel) (29) (37) (20)
Advanced (includes loans of appointed key management personnel) 1 1 1
The loans are on both a secured and unsecured basis and are expected to be settled in cash. The loans attracted interest rates of between 6.45 per cent and 24.20 per cent in 2019 (2018: 6.70 per cent and 24.20 per cent; 2017: 6.45 per cent and 23.95 per cent) .
Placed (includes deposits of appointed key management personnel) 44 33 41
The Group provides banking and some investment management services to certain of its pension funds. At 31 December 2019, customer deposits of £169 million (2018: £225 million) and investment and insurance contract liabilities of £127 million (2018: £79 million) related to the Group’s pension funds.
In addition to the above balances, the Group has a number of other associates held by its venture capital business that it accounts for at fair value through profit or loss. At 31 December 2019, these companies had total assets of approximately £4,761 million (2018: £4,091 million) , total liabilities of approximately £5,322 million (2018: £4,616 million) and for the year ended 31 December 2019 had turnover of approximately £4,286 million (2018: £4,522 million) and made a loss of approximately £190 million (2018: net loss of £125 million) . In addition, the Group has provided £1,266 million (2018: £1,141 million) of financing to these companies on which it received £86 million (2018: £49 million) of interest income in the year.
Note 48: Contingent liabilities, commitments and guarantees Interchange fees With respect to multi-lateral interchange fees (MIFs), the Group is not involved in the ongoing litigation (as described below) which involves card schemes such as Visa and Mastercard. However, the Group is a member/licensee of Visa and Mastercard and other card schemes. The litigation in question is as follows: – litigation brought by retailers against both Visa and Mastercard continues in the English Courts (and includes appeals heard by the Supreme Court, judgment awaited); and – litigation brought on behalf of UK consumers in the English Courts against Mastercard.
Tax authorities The 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 Group that their interpretation of the UK rules which allow the offset of such losses denies the claim for group relief of losses. If HMRC’s position is found to be correct, management estimate that this would result in an increase in current tax liabilities of
Mortgage arrears handling activities – FCA investigation On 26 May 2016, the Group was informed that an enforcement team at the FCA had commenced an investigation in connection with the Group's mortgage arrears handling activities. It is not currently possible to make a reliable assessment of any liability resulting from the investigation including any financial penalty.
Note 49: Structured entities The Group’s interests in structured entities are both consolidated and unconsolidated. Detail of the Group’s interests in consolidated structured entities are set out in: note 31 for securitisations and covered bond vehicles, note 36 for structured entities associated with the Group’s pension schemes, and below in part (A) and (B) . Details of the Group’s interests in unconsolidated structured entities are included below in part (C) .
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 275
Note 50: Financial instruments (1) Measurement basis of financial assets and liabilities The accounting policies in note 2 describe how different classes of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognised. The following table analyses the carrying amounts of the financial assets and liabilities by category and by balance sheet heading.
Derivative financial instruments 1,236 25,133 – – – – – 26,369
Loans and advances to banks – – – – – 9,775 – 9,775
Financial assets at amortised cost – – – – – 510,307 – 510,307
Deposits from banks – – – – – 28,179 – 28,179
Items in course of transmission to banks – – – – – 373 – 373
Loans and advances to banks – – – – – 6,283 – 6,283
Financial assets at amortised cost – – – – – 496,379 – 496,379
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 277
Bank and building society certificates of deposit 52 932 – 984
Debt securities: Bank and building society certificates of deposit – – – –
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 279
Debt securities: Bank and building society certificates of deposit – 118 – 118
Transfers out of the level 3 portfolio (134) – (134) (463) (284) (747)
(B) Financial liabilities, excluding derivatives Valuation hierarchy At 31 December 2019, the Group’s financial liabilities carried at fair value, excluding derivatives, comprised its financial liabilities at fair value through profit or loss and totalled £21,486 million (31 December 2018: £30,547 million) . The table below analyses these financial liabilities by balance sheet classification and valuation methodology (level 1, 2 or 3, as described on page 277) . The fair value measurement approach is recurring in nature. There were no significant transfers between level 1 and 2 during the year.
Trading liabilities: Liabilities in respect of securities sold under repurchase agreements – 11,048 – 11,048
Total financial liabilities carried at fair value, excluding derivatives 1,464 29,072 11 30,547
Certain unobservable inputs used to calculate CVA, FVA, and own credit adjustments, are not significant in determining the classification of the derivative and debt instruments. Consequently, these inputs do not form part of the Level 3 sensitivities presented.
Transfers out of the level 3 portfolio (518) 336 – –
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 283
Note 50: Financial instruments continued A one per cent rise in the CDS spread would lead to an increase in the DVA of £99 million.
Reasonably possible alternative assumptions Valuation techniques applied to many of the Group’s level 3 instruments often involve the use of two or more inputs whose relationship is interdependent. The calculation of the effect of reasonably possible alternative assumptions included in the table above reflects such relationships.
(4) Financial assets and liabilities carried at amortised cost (A) Financial assets Valuation hierarchy The table below analyses the fair values of the financial assets of the Group which are carried at amortised cost by valuation methodology (level 1, 2 or 3, as described on page 277) . Financial assets carried at amortised cost are mainly classified as level 3 due to significant unobservable inputs used in the valuation models. Where inputs are observable, debt securities are classified as level 1 or 2.
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 285
Loans and advances to customers The Group provides loans and advances to commercial, corporate and personal customers at both fixed and variable rates. Due to their short term nature, the carrying value of the variable rate loans and those relating to lease financing is assumed to be their fair value.
Repos included in above amounts: Deposits from banks 21,170 21,170 – 21,170 –
Note 51: Transfers of financial assets There were no significant transferred financial assets which were derecognised in their entirety, but with ongoing exposure. Details of transferred financial assets that continue to be recognised in full are as follows.
The table below sets out the carrying values of the transferred assets and the associated liabilities. For repurchase and securities lending transactions, the associated liabilities represent the Group’s obligation to repurchase the transferred assets. For securitisation programmes, the associated liabilities represent the external notes in issue (note 31) . Except as otherwise noted below, none of the liabilities shown in the table below have recourse only to the transferred assets.
Financial assets at amortised cost: Loans and advances to customers1 42,545 7,335 41,674 5,479 1 The carrying value of associated liabilities excludes securitisation notes held by the Group of £31,436 million (31 December 2018: £31,701 million) .
Hedge ineffectiveness arises during the management of interest rate risk due to residual unhedged risk. Sources of ineffectiveness, which the Group may decide to not fully mitigate, can include basis differences, timing differences and notional amount differences. The effectiveness of accounting hedge relationships is assessed between the hedging derivatives and the documented hedged item, which can differ to the underlying economically hedged item.
At 31 December 2019 the aggregate notional principal of interest rate swaps designated as fair value hedges was £183,489 million (2018: £150,971 million) with a net fair value asset of £569 million (2018: asset of £760 million) (note 17) . The gains on the hedging instruments were £1,144 million (2018: gains of £94 million) . The losses on the hedged items attributable to the hedged risk were £1,001 million (2018: losses of £32 million) . The gains and losses relating to the fair value hedges are recorded in net trading income.
Interest Rate Benchmark Reform As discussed in note 1, the Group has applied the hedge accounting amendments Interest Rate Benchmark Reform to hedge accounting relationships directly affected by the replacement of interest rate benchmarks. Under these amendments, for the purposes of: – determining whether a forecast transaction is highly probable; – determining whether the hedged future cash flows are expected to occur; – determining whether a hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk; and – determining whether an accounting hedging relationship should be discontinued because of a failure of the retrospective effectiveness test the Group has assumed that the interest rate benchmark on which the hedged risk or the cash flows of the hedged item or hedging instrument are based is not altered by uncertainties resulting from the proposed interest rate benchmark reform. In addition, for a fair value hedge of a non-contractually specified benchmark portion of interest rate risk, the Group assesses only at inception of the hedge relationship and not on an ongoing basis that the risk is separately identifiable and hedge effectiveness can be measured.
The Group is managing the process to transition to alternative benchmark rates under its Group-wide IBOR Transition Programme. This programme is working towards ensuring that the Group has the market capability and infrastructure to deal with the reform. The programme also encompasses the associated impacts on accounting and reporting and includes dealing with the impact on hedge accounting relationships of the transition to alternative reference rates. Further information on the Group’s programme is set out on page 134.
Note 53: Financial risk management continued Credit risk The Group’s credit risk exposure arises in respect of the instruments below and predominantly in the United Kingdom. Information about the Group’s exposure to credit risk, credit risk management, measurement and mitigation can be found on pages 141 to 161.
Financial assets at amortised cost 510,307 (2,792) 507,515 496,379 (3,241) 493,138
At 31 December 2019 the most significant concentrations of exposure were in mortgages (comprising 60 per cent of total loans and advances to customers) and to financial, business and other services (comprising 18 per cent of the total) .
Total loans and advances to customers before allowance for impairment losses 498,247 488,008
Stage 2 and Stage 3 assets with a carrying amount of £219 million (2018: £1,000 million) were modified during the year. No material gain or loss was recognised by the Group.
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 293
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 295
Total loans and advances to customers 675 995 1,447 142 3,259
Expected credit losses in respect of undrawn exposures PD range £m £m £m
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 299
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 301
Total loans and advances to customers 441,531 25,345 5,741 15,391 488,008
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 303
Total loans and advances to customers 131,846 3,112 50 90 135,098
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 307
Debt securities: Bank and building society certificates of deposit – – – 118 – 118
Asset-backed securities: Corporate and other debt securities 11,036 15 11,051 4,934 217 5,151
Total financial assets at fair value through other comprehensive income 24,776 89 24,865 24,446 348 24,794 1 Credit ratings equal to or better than ‘BBB’.
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 309
Total held as trading assets 7,038 9 7,047 7,493 19 7,512
Reverse repurchase transactions At 31 December 2019 there were reverse repurchase agreements which were accounted for as collateralised loans with a carrying value of £54,600 million (2018: £40,483 million) , against which the Group held collateral with a fair value of £52,982 million (2018: £42,339 million) , all of which the Group was able to repledge. There were no collateral balances in the form of cash provided in respect of reverse repurchase agreements included in these amounts (2018: £nil) . These transactions were generally conducted under terms that are usual and customary for standard secured lending activities.
Stage 3 secured lending The value of collateral is re-evaluated and its legal soundness re-assessed if there is observable evidence of distress of the borrower; this evaluation is used to determine potential loss allowances and management’s strategy to try to either repair the business or recover the debt.
Derivative assets, after offsetting of amounts under master netting arrangements The Group reduces exposure to credit risk by using master netting agreements and by obtaining collateral in the form of cash or highly liquid securities. In respect of the net derivative assets after offsetting of amounts under master netting arrangements of £11,673 million (2018: £9,268 million) , cash collateral of £7,650 million (2018: £6,039 million) was held.
Financial assets at fair value through other comprehensive income 2,020 1,917
Cash and balances at central banks 55,128 2 – – – – – – 55,130
Debt securities held at amortised cost 131 19 – – – 74 3,085 2,235 5,544
Cash and balances at central banks 54,662 1 – – – – – – 54,663
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 313
Derivative financial liabilities: Gross settled derivatives – net flows 864 693 844 2,549 4,830 9,780
Change in financial assets held at amortised cost (12,423) (27,038) (24,747)
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 315
Accretion of discounts and amortisation of premiums and issue costs 445 1,947 1,701
Acquisition of and additional investment in joint ventures 1 23 30
(F) Disposal and closure of group undertakings and businesses 2019 £m 2018 £m 2017 £m
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 317
Note 55: Adoption of IFRS 16 The Group adopted IFRS 16 Leases from 1 January 2019 and elected to apply the standard retrospectively with the cumulative effect of initial application being recognised at that date; comparative information has therefore not been restated. Comparative information was prepared in accordance with IAS 17. Under IAS 17, where the Group was lessee it charged operating lease rentals to the income statement on a straight-line basis over the life of the lease.
IFRS 17 requires insurance contracts and participating investment contracts to be measured on the balance sheet as the total of the fulfilment cash flows and the contractual service margin. Changes to estimates of future cash flows from one reporting date to another are recognised either as an amount in profit or loss or as an adjustment to the expected profit for providing insurance coverage, depending on the type of change and the reason for it. The effects of some changes in discount rates can either be recognised in profit or loss or in other comprehensive income as an accounting policy choice. The risk adjustment is released to profit and loss as an insurer’s risk reduces. Profits which are currently recognised through a Value in Force asset, will no longer be recognised at inception of an insurance contract. Instead, the expected profit for providing insurance coverage is recognised in profit or loss over time as the insurance coverage is provided. The standard will have a significant impact on the accounting for the insurance and participating investment contracts issued by the Group.
The Group's IFRS 17 project is progressing to plan. Work has focussed on interpreting the requirements of the standard, developing methodologies and accounting policies, and assessing the changes required to reporting and other systems. The development of the Group's data warehousing and actuarial liability calculation processes required for IFRS 17 reporting is progressing.
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 319
Other employee award schemes – – – 207 207 – 207
Redemption of preference shares 3 (3) – – – – –
Cash and cash equivalents at beginning of year 57 272 42
Cash and cash equivalents at end of year 29 57 272
Notes to the parent company financial statements for the year ended 31 December
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 321
Note 2: Financial assets at fair value through profit or loss 2019 £m 2018 £m
Note 3: Amounts due from subsidiaries These comprise short-term lending to subsidiaries, repayable on demand. As required by IFRS 9, the Company has established an allowance for impairment losses for amounts due from its subsidiaries (31 December 2019: £1 million; 31 December 2018: £5 million) based on the probability of its subsidiaries defaulting on the amounts payable in the next 12 months. The carrying value of the amounts owed by subsidiaries is a reasonable approximation to fair value.
Movements in the capital redemption reserve were as follows: 2019 £m 2018 £m 2017 £m
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 323
Note 11: Financial instruments Measurement basis of financial assets and liabilities The accounting policies in note 2 to the consolidated financial statements describe how different classes of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognised. The following table analyses the carrying amounts of the Company’s financial assets and liabilities by category and by balance sheet heading.
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 327
Q3 interim management statement Oct 1 To be published on the Group’s website by 1 July 2020 in accordance with the Capital Requirements (country analysis) Regulations 2013.
Profit for the year attributable to ordinary shareholders2 2,459 3,975 3,144 2,092 546
1 The Group has adopted IFRS 16 Leases with effect from 1 January 2019, in accordance with the transition requirements of the standard, comparative information has not been restated.
2 The Group has also implemented the amendments to IAS 12 Income Taxes with effect from 1 January 2019 and as a result tax relief on distributions on other equity instruments, previously taken directly to retained profits, is now reported within tax expense in the income statement. Comparatives have been restated.
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.
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 Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this document to reflect any change in the Group’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. The information, statements and opinions contained in this document do not constitute a public offer under any applicable law or an offer to sell any securities or financial instruments or any advice or recommendation with respect to such securities or financial instruments.
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 331
Banking net interest margin Banking net interest income on customer and product balances in the banking businesses as a percentage of average banking gross interest-earning assets for the period.
Jaws The difference between the period on period percentage change in net income and the period on period change in total costs calculated on an underlying basis.
A G Finance Ltd 50 ii # A.C.L. Ltd 1 ACL Autolease Holdings Ltd 1 ADF No.1 Pty Ltd 8 Alex Lawrie Factors Ltd 9 Alex. Lawrie Receivables Financing Ltd 9 Amberdate Ltd 1 iv Anglo Scottish Utilities Partnership 1 + * Aquilus Ltd (in liquidation) 13 Automobile Association Personal Finance Ltd 4 Bank of Scotland (B G S) Nominees Ltd 5 * Bank of Scotland (Stanlife) London Nominees Ltd 5 * Bank of Scotland Branch Nominees Ltd 5 Bank of Scotland Central Nominees Ltd 5 * Bank of Scotland Edinburgh Nominees Ltd 5 * Bank of Scotland Equipment Finance Ltd (in liquidation)
Bank of Scotland London Nominees Ltd 5 * Bank of Scotland Nominees (Unit Trusts) Ltd 5 * Bank of Scotland P.E.P. Nominees Ltd 5 * Bank of Scotland plc 5 iv Bank of Scotland Structured Asset Finance Ltd 1 Bank of Scotland Transport Finance 1 Ltd (In liquidation)
Black Horse Finance Holdings Ltd 1 i vi Black Horse Finance Management Ltd 1 Black Horse Group Ltd 1 iv Black Horse Ltd 1 Black Horse Offshore Ltd 58 Black Horse Property Services Ltd 1 Boltro Nominees Ltd 1 BOS (Ireland) Property Services 2 Ltd 16 BOS (Ireland) Property Services Ltd 16 BOS (Shared Appreciation Mortgages (Scotland)
Capital Bank Property Investments (3) Ltd 47 Capital Personal Finance Ltd 4 Cardnet Merchant Services Ltd 1 i ii iii # ̂ CF1 Ltd (in liquidation) 13 vii viii # Cashfriday Ltd 9 Cashpoint Ltd 1 Caveminster Ltd 1 CBRail S.A.R.L. 53 Cedar Holdings Ltd (in liquidation) 1 Central Mortgage Finance Ltd 12 CF Asset Finance Ltd (in liquidation) 13 Chariot Finance Ltd (In liquidation) 13 Cheltenham & Gloucester plc 12 Chiswell Stockbrokers Ltd (In liquidation) 13 Clerical Medical Finance plc 20 Clerical Medical Financial Services Ltd 20 Clerical Medical International Holdings B.V. 21 Clerical Medical Investment Fund Managers Ltd 4 Clerical Medical Managed Funds Ltd (In liquidation)
LBI Leasing Ltd 1 LDC (General Partner) Ltd 40 LDC (Managers) Ltd 40 LDC (Nominees) Ltd 40 LDC GP LLP 41 * LDC I LP 41 * LDC II LP 41 * LDC III LP 41 * LDC IV LP 41 * LDC Parallel (Nominees) Ltd 40 LDC V LP 41 * LDC VI LP 41 * LDC VII LP 41* LDC VIII LP 40 * Legacy Renewal Company Ltd 5 Lex Autolease (CH) Ltd 1 Lex Autolease (VC) Ltd 1 Lex Autolease Carselect Ltd 1 Lex Autolease Ltd 1 Lex Vehicle Finance 2 Ltd (In liquidation) 13 Lex Vehicle Leasing (Holdings) Ltd (in liquidation) 13 i ii x Lex Vehicle Leasing Ltd (in liquidation) 13 Lime Street (Funding) Ltd (in liquidation) 1 Lloyds (Gresham) Ltd 1 x Lloyds (Gresham) No. 1 Ltd 1 Lloyds (Nimrod) Specialist Finance Ltd 1 Lloyds America Securities Corporation 11 Lloyds Asset Leasing Ltd 1 Lloyds Bank (Branches) Nominees Ltd (in liquidation)
Lloyds Bank Covered Bonds LLP 44 * Lloyds Bank Equipment Leasing (No. 1) Ltd 1 Lloyds Bank Equipment Leasing (No. 7) Ltd 1 Lloyds Bank Equipment Leasing (No. 9) Ltd 1 Lloyds Bank Financial Services (Holdings) Ltd 1 iv Lloyds Bank General Insurance Holdings Ltd 45 Lloyds Bank General Insurance Ltd 1 Lloyds Bank General Leasing (No. 3) Ltd 1 Lloyds Bank General Leasing (No. 5) Ltd (in liquidation)
Lloyds Bank General Leasing (No. 11) Ltd 1 Lloyds Bank General Leasing (No. 17) Ltd 1 Lloyds Bank General Leasing (No. 20) Ltd (In liquidation)
Lloyds Bank GmbH 59 Lloyds Bank Hill Samuel Holding Company Ltd (in liquidation)
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 333
Backhouse (Westbury) JV Ltd 50% DAC Beachcroft LLP, Portwall Place, Portwall Lane, Bristol, BS1 9HS, United Kingdom i Backhouse (Castle Cary) JV Ltd 50% DAC Beachcroft LLP, Portwall Place, Portwall Lane, Bristol, BS1 9HS, United Kingdom i Bergamot Ventures Ltd 50% 6th Floor 25 Farringdon Street, London, EC4A 4AB ii Blue Bay Travel Group Ltd 99% A4 Bellringer Road, Trentham Business Quarter, Stoke-On-Trent, ST4 8GB xvii & BoS Mezzanine Partners Fund LP n/a 7 Melville Crescent, Edinburgh, EH3 7JA * Bowbridge Homes (Raunds) Ltd 50% 5 Adelaide House, Corby Gate Business Park, Priors Haw Road, Corby, NN15 5JG i Brington North Holdco Ltd 50% 25 Gresham Street, London, EC2V 7HN ~ Caedmon Homes (St Johns Mews) Ltd 50% Baldwins Wynyard Park House, Wynyard Avenue, Wynyard, TS22 5TB, United Kingdom i Caedmon Homes Ltd 50% Baldwins Wynyard Park House, Wynyard Avenue, Wynyard, TS22 5TB, United Kingdom i Caedmon Homes Kirby Hill Ltd 50% Baldwins Wynyard Park House, Wynyard Avenue, Wynyard, TS22 5TB, United Kingdom i Cardel Group Ltd 89.25% 5 The Marquis Business Centre, Royston Road, Baldock, SG7 6XL xvii & CIPHR Group Ltd 89.25% Abbey Place, 24-28 Easton Street, High Wycombe, HP11 1NT, United Kingdom i & City & General Securities Ltd 100% 10 Upper Berkeley Street, London, W1H 7PE ii & City Living (Midlands) Ltd 50% Old Banks Chambers, 582-586 Kingsbury Road, Erdington, Birmingham, B24 9ND i Citysprint (UK) Holdings Ltd 82.03%
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 335
Waverley House, Hampshire Road, Granby Industrial Estate, Weymouth, DT4 9XD xvii & xvi MFS Groupco Ltd 99% York House, Wetherby Road, Long Marston YO26 7NH i & Mitrefinch Holdings Ltd 89.25% Mitrefinch House, Green Lane Trading Estate, Clifton, York, North Yorkshire, YO30 5YY i & Motability Operations Group plc 20% (40%)
BNY MELLON MANAGED FUNDS II 10 BNY Mellon MF II – Absolute Insight Fund 84%
HBOS SPECIALISED INVESTMENT FUNDS ICVC 1 Cautious Managed Fund 52% Ethical Fund 83% Fund of Investment Trusts 39% Smaller Companies Fund 66% Special Situations Fund 51%
INVESTMENT PORTFOLIO ICVC 22 IPS Income Portfolio 22% IPS Growth Portfolio 24% Balanced Solution 42%
MULTI MANAGER ICVC 22 Multi Manager UK Equity Growth Fund 82% Multi Manager UK Equity Income Fund 30% Multi Manager UK Equity Focus Fund 20%
UK Index Linked Gilt Fund 100% Corporate Bond PPF Fund 100% SW Corporate Bond Tracker 100% Scottish Widows GTAA 1 84% Corporate Bond 1 Fund 98% Balanced Growth Fund 27% Adventurous Growth Fund 73%
UK All Share Tracker Fund 92% International Bond Fund 72% UK Smaller Companies Fund 22% UK Tracker Fund 46% UK Fixed Interest Tracker Fund 96% Emerging Markets Fund 88% UK Index-Linked Tracker Fund 48%
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2019 337
UNIVERSE, THE CMI GLOBAL NETWORK 6 CMIG GA 70 Flexible 100% CMIG GA 80 Flexible 100% CMIG GA 90 Flexible 100% Euro Cautious 86% European Enhanced Equity 100% CMIG Access 80% 100% Continental Euro Equity 98% UK Equity 77% US Enhanced Equity 90% Japan Enhanced Equity 96% Pacific Enhanced Basin 80% Euro Bond 63% US Bond 95% US Currency Reserve 81% Euro Currency Reserve 99% US Tracker 31% CMIG Focus Euro Bond 100%
THE TM LEVITAS FUNDS 21 TM Levitas A Fund 42% TM Levitas B Fund 37%
UBS INVESTMENT FUNDS ICVC 17 UBS Global Optimal Fund 29% UBS UK Opportunities Fund 38%
Sussex PO19 1UP (22) 25 Gresham Street, London EC2V 7HN (23) Schroder Funds ICAV, 10 Earlsfort Terrace, Dublin 2, Ireland D02 T380 (24) 2a, Rue Albert Borschette, BP 2174, L-1021, Luxembourg (25) 5, Rue Hohenhof, L-1736, Senningerberg, Luxembourg (26) JPMorgan Asset Management (Europe) S.A.R.L., 6, Route de Treves, L-2633,
̂Shares held directly by Lloyds Banking Group plc & The Group holds voting rights of between 20% and 49.9% ~ The Group holds voting rights of 50% (i) A Ordinary Shares (ii) B Ordinary Shares (iii) Deferred Shares (iv) Preference Shares (v) Preferred Ordinary Shares (vi) Non-voting Shares (vii) C Ordinary Shares (viii) N Ordinary Shares (ix) Preferred A Ordinary Shares (x) Redeemable Preference Shares (xi) A4 Ordinary Shares (xii) Redeemable Ordinary Shares (xiii) Common Stock (xiv) Preferred B Ordinary Shares (xv) A3 Ordinary Shares (xvi) A2 Ordinary Shares (xvii) A1 Ordinary Shares (xviii) Z Ordinary Shares
United States (26) 1 Grant’s Row, Lower Mount Street, Dublin 2, Ireland (27) 1, Avenue du Bois, Luxembourg, L – 1251, Luxembourg (28) SAB Formalities, 23 Rue de Roule, Paris, 75001, France (29) c/o PATRIZIA, 166 Sloane Street, London, SW1X 9QF (30) 20 Rue de la Poste, L-2346 Luxembourg (31) 2nd Floor, 21 Palmer Street, London, SW1H 0AD (32) McStay Luby, Dargan House, 21-23 Fenian Street, Dublin 2, Ireland (33) 3rd Floor, Standard Bank House, 47-49 La Motte Street, St Helier, JE2 4SZ, Jersey (34) P O Box 186, Royal Chambers, St Julian’s Avenue, St. Peter Port, GY1 4EF, Guernsey (35) De Entrée 254, 1101 EE, Amsterdam, Netherlands (36) 47 Esplanade, St. Helier, Jersey, JE1 0BD (37) Sarnia House, Le Truchot, St. Peter Port, Guernsey, GY1 4EF (38) 296 Doctor Chucri Zaidan Avenue, Lamb Village, Sao Paulo, 04583-110 Brazil (39) 2nd Floor, Liberation House, Castle Street, St Helier, JE1 1EY, Jersey (40) 1 Vine Street, London, W1J 0AH (41) 39 Queens Road, Aberdeen, AB15 4ZN (42) 5th Floor, The Exchange, George’s Dock, IFSC, Dublin 1, D01W3P9 (43) 110 St. Vincent Street, Glasgow, G2 4QR (44) 35 Great St. Helen’s, London, EC3A 6AP (45) Charlton Place, Charlton Road, Andover, SP10 1RE (46) Glategny Court, Glategny Esplanade, St Peter Port, GY1 3HQ, Guernsey (47) Cawley House, Chester Business Park, Chester, CH4 9FB, United Kingdom (48) 6/12, Primrose Road, , Bangalore , 560025, India (49) The Residency, 7th Floor, 133/1 Residency Road, Bangalore, 560025, India (50) St William House, Tresillian Terrace, Cardiff, CF10 5BH (51) 18th Floor, United Centre, 95 Queensway, Hong Kong (52) Pentagon House, 52-54 Southwark Street, London, SE1 1UN (53) 1A Heienhaff, Senningerberg, L-1736, Luxembourg (54) 15 Dalkeith Road, Edinburgh, EH16 5BU (55) Lichtenauerlann 170, 3062ME, Rotterdam, Netherlands (56) 48 Boulevard Grande-Duchesse Charlotte, 1330, Luxembourg (57) Caledonian Exchange, 19A Canning Street, Edinburgh, EH3 8HE (58) 11-12 Esplanade, St Helier, Jersey, JE2 3QA (59) Karl-Liebknecht-STR. 5, D_10178 Berlin, Germany (60) P O Box 12, Peveril Buildings, Peveril Square, Douglas, Isle of Man, IM99 1JJ (61) 44 Esplanade, St. Helier, Jersey, JE4 9WG (62) 8 Avenue Hoche, 75008, Paris, France (63) 26 New Street St Helier Jersey JE2 3RA (64) Fifth Floor, 100 Wood Street, London, EC2V 7EX, United Kingdom (65) Atria One, 144 Morrison Street, Edinburgh, EH3 8EB (66) Naritaweg 165, 1043 BW, Amsterdam, Netherlands (67) Calle Pinar 7, 5º Izquierda, 28006, Madrid, Spain (68) 1-2 Victoria Buildings, Haddington Road, Dublin 4, Ireland (69) Wilmington Trust SP Services (London) Limited, Third Floor, 1 King’s Arms Yard, London,