no options were exercised during 2012 or 2011. The options outstanding under the HBOs share Option Plan and st James’s Place share Option Plan at 31 december 2012 had exercise prices in the range of £0.5183 to £5.80 (2011: £0.5183 to £8.7189) and a weighted average remaining contractual life of 1.1 years (2011: 2.0 years).
The EPs and EP performance measures applying to this 2009 lTiP award were set on the basis that the Group would enter into the Government Asset Protection scheme. As the Group did not participate in the Government Asset Protection scheme, in June 2010 the Remuneration committee approved restated performance measures on a basis consistent with the EPs and EP measures used for the 2010 lTiP awards. At the end of the relevant period, neither of the performance conditions had been met and the awards lapsed.
An additional discretionary award was made in April, May and september 2009. The performance conditions for those awards were as follows: (i) Synergy Savings: The release of 50 per cent of the shares was dependent on the achievement of target run-rate synergy savings in 2009 and 2010 as well as the achievement of sustainable synergy savings of at least £1.5 billion by the end of 2011. The award was broken down into three equally weighted annual tranches. Performance was assessed at the end of each year against annual performance targets based on a trajectory to meet the 2011 target. The extent to which targets were achieved determined the proportion of shares to be banked each year. Any release of shares was subject to the Remuneration committee judging the overall success of the delivery of the integration programme.
if adjusted EPs reaches 7.4p, 100 per cent of this element will vest.
if the adjusted EP reaches £567 million, 25 per cent of this element of the award, being the threshold, will vest. if the adjusted EP reaches £1,234 million, 100 per cent of this element will vest.
if the average percentage reaches 15 per cent, 100 per cent of this element will vest.
(v) net Simplification benefits: relevant to 10 per cent of the award. Performance will be measured by reference to the run rate achieved by the end of 2014.
(vi) Customer satisfaction: relevant to 10 per cent of the award. Performance will be measured by reference to the total number of FsA reportable complaints per 1,000 customers over the three year period to 31 december 2014.
if complaints per 1,000 customers average 1.5 per annum or less over three years, 25 per cent of this element of the award, being the threshold, will vest.
(iii) Funds under management (FUM) growth: relevant to 20 per cent of the award. The performance target is based on growth in the value of third party assets managed by sWiP by the end of the 3 year period. if third party FuM reaches a specified target level, 100 per cent of this
For awards made to sWiP’s code staff (as defined by FsA), a fourth performance condition was set, relating to an internal measure of operational risk. This additional measure is relevant to 15 per cent of the award for these individuals, with a corresponding 5 per cent reduction in each of the weightings for the other three measures described above. As with the other measures, this performance condition has a target value at which 100 per cent of the award will vest, a maximum value at which 200 per cent of the award will vest, and a threshold value at which 25 per cent of the award will vest.
Lloyds Banking Group Annual Report and Accounts 2012298 note 51: Shared-based payments (continued)
Weighted average expected life 2.5 years 3.0 years 1.3 years 2.8 years
no provisions have been recognised in respect of loans given to key management personnel (2011 and 2010: £nil).
At 31 december 2012, the Group did not provide any guarantees in respect of key management personnel (2011 and 2010: none).
From 1 January 2011, in accordance with iAs 24, uK Government-controlled entities became related parties of the Group. The Group regards the Bank of England and entities controlled by the uK Government, including The Royal Bank of scotland Group plc, northern Rock (Asset Management) plc and Bradford & Bingley plc, as related parties.
since 31 december 2011, the Group has had the following significant transactions with the uK Government or uK Government-related entities: Government and central bank facilities during the year ended 31 december 2012, the Group participated in a number of schemes operated by the uK Government and central banks and made available to eligible banks and building societies.
Funding for Lending in August 2012 the Group announced its support for the uK Government’s Funding for lending scheme and confirmed its intention to participate in the scheme. The Funding for lending scheme represents a further source of cost effective secured term funding available to the Group. The initiative supports a broad range of uK based customers, providing householders with more affordable housing finance and businesses with cheaper finance to invest and grow. The Group drew down £3.0 billion during 2012.
Pension funds The Group provides banking and some investment management services to certain of its pension funds. At 31 december 2012, customer deposits of £129 million (2011: £63 million) and investment and insurance contract liabilities of £1,213 million (2011: £928 million) related to the Group’s pension funds.
Open ended investment Companies (OeiCs) The Group manages 244 (2011: 249) OEics, and of these 136 (2011: 142) are consolidated. The Group invested £1,563 million (2011: £1,283 million) and redeemed £1,690 million (2011: £884 million) in the unconsolidated OEics during the year and had investments, at fair value, of £6,479 million (2011: £4,431 million) at 31 december. The Group earned fees of £325 million from the unconsolidated OEics during 2012 (2011: £318 million).
in parallel: – the European commission is also considering further action, including introducing legislation to regulate interchange fees, following its 2012 Green Paper (Towards an integrated European market for cards, internet and mobile payments) consultation; – the European commission is pursuing an investigation with a view to deciding whether arrangements adopted by VisA for the levying of the MiF in respect of cross-border credit card payment transactions also infringe European union competition laws. in this regard VisA reached an agreement (which expires in 2014) with the European commission to reduce the level of interchange fee for cross-border debit card transactions to the interim levels agreed by Mastercard; and
£6,479 million (2011: £4,431 million) at 31 december. The Group earned fees of £325 million from the unconsolidated OEics during 2012 (2011: £318 million).
Joint ventures and associates The Group provides both administration and processing services to its principal joint venture, sainsbury’s Bank plc. The amounts receivable by the Group during the year were £32 million (2011: £21 million), of which £16 million was outstanding at 31 december 2012 (2011: £10 million). At 31 december 2012, sainsbury’s Bank plc also had balances with the Group that were included in loans and advances to banks of £1,229 million (2011: £1,173 million), deposits by banks of £1,268 million (2011: £780 million) and trading liabilities of £nil (2011: £340 million).
FSA investigation into Bank of Scotland and report on HBOS in 2009, the FsA commenced a supervisory review into HBOs. The supervisory review was superseded when the FsA commenced an enforcement investigation into Bank of scotland plc in relation to its corporate division between 2006 and 2008. These proceedings have now concluded. The FsA published its Final notice on 9 March 2012. no financial penalty was imposed on the Group or Bank of scotland plc. The FsA has committed to producing a public interest report on HBOs. The FsA has indicated that the report is expected to be published in the summer.
Forward asset purchases and forward deposits placed 546 596 undrawn formal standby facilities, credit lines and other commitments to lend: less than 1 year original maturity: Mortgage offers made 7,404 7,383
Financial liabilities deposits from banks – – – – – 39,810 – 39,810 customer deposits – – – – – 413,906 – 413,906 items in course of transmission to banks – – – – – 844 – 844
intention and ability to hold them for the foreseeable future or until maturity. As at the date of reclassification, the weighted average effective interest rate of the assets transferred was 6.3 per cent with the estimated recoverable cash flows of £3,524 million.
From held for trading to loans and receivables 11 9 67 56 750 727 1,833 1,822 2,883 2,926
From held for trading to loans and receivables 1 (3) (34) 208 (347)
From available-for-sale financial assets to loans and receivables 24 (68) 69 161 (108)
From available-for-sale financial assets to loans and receivables: (3) Fair values of financial assets and liabilities The following table 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.
Financial liabilities items in course of transmission to banks 996 996 844 844
Trading and other financial liabilities at fair value through profit or loss 35,972 35,972 24,955 24,955 debt securities in issue 117,369 122,963 185,059 183,113 liabilities arising from non-participating investment contracts 54,372 54,372 49,636 49,636
Lloyds Banking Group Annual Report and Accounts 2012308 note 54: Financial instruments (continued)
Held-to-maturity investments The fair values of government securities are based on market prices whereas the carrying value is based on cost, the difference being interest rate driven. in 2012, these assets were transferred to the available-for-sale portfolio and carried at fair value at 31 december 2012.
deposits from banks and customer deposits The fair value of deposits repayable on demand is considered to be equal to their carrying value. The fair value for all other deposits is estimated using discounted cash flows applying either market rates, where applicable, or current rates for deposits of similar remaining maturities. The difference between fair value and carrying value is principally interest rate driven on fixed deposits.
items in course of transmission to banks The fair value approximates carrying value due to their short-term nature.
notes in circulation The fair value of notes in circulation which are payable on demand is considered to be equal to their carrying value.
level 3 portfolios level 3 portfolios are those where at least one input which could have a significant effect on the instrument’s valuation is not based on observable market data. such instruments would include the Group’s venture capital and unlisted equity investments which are valued using various valuation techniques that require significant management judgement in determining appropriate assumptions, including earnings multiples and estimated future cash flows. certain of the Group’s asset-backed securities and derivatives, principally where there is no trading activity in such securities, are also classified as level 3.
valuation control framework The key elements of the control framework for the valuation of financial instruments include model validation, product implementation review and independent price verification. These functions are carried out by appropriately skilled risk and finance teams, independent of the business area responsible for the products.
Other asset-backed securities 258 1,565 – 1,823 corporate and other debt securities 5,692 17,647 1,519 24,858
Trading liabilities: liabilities in respect of securities sold under repurchase agreements – 24,553 – 24,553 short positions in securities 1,850 350 – 2,200
depending on the business sector and the circumstances of the investment, unlisted equity valuations are based on earnings multiples, net asset values or discounted cash flows.
complex interest rate and foreign exchange products where there is significant dispersion of consensus pricing or where implied funding costs are material and unobservable are classified as level 3.
The Group’s level 3 derivative assets include £1,421 million (2011: £1,172 million) in respect of the value of the embedded equity conversion feature of the Enhanced capital notes issued in december 2009. The embedded equity conversion feature is valued by comparing the market price of the Enhanced capital notes with the market price of similar bonds without the conversion feature. The latter is calculated by discounting the expected Enhanced capital note cash flows in the absence of a conversion using prevailing market yields for similar capital securities without the conversion feature. The market price of the Enhanced capital notes was calculated with reference to multiple broker quotes. Movements in the fair value of the derivative are recorded in net trading income.
Gains recognised in the income statement relating to those assets held at 31 december 2011 203 31 178 412 losses recognised in other comprehensive income relating to those assets held at 31 december 2011 – (132) – (132)
Gains recognised in the income statement relating to those liabilities held at 31 december 2012 223 3 226 losses recognised in the income statement relating to those liabilities held at 31 december 2011 (93) (5) (98)
included within the gains (losses) recognised in the income statement are losses of £57 million (2011: gains of £314 million) related to financial instruments that are held in the level 3 portfolio at the year end. These amounts are included in other operating income.
included within the gains (losses) recognised in other comprehensive income are losses of £24 million (2011: losses of £132 million) related to financial instruments that are held in the level 3 portfolio at the year end.
sensitivity of level 3 valuations At 31 December 2012 At 31 december 2011 valuation basis/technique Main assumptions effect of reasonably possible alternative assumptions
Lloyds Banking Group Annual Report and Accounts 2012314 note 54: Financial instruments (continued)
Asset-backed securities Reasonably possible alternative valuations have been calculated for asset-backed securities by using alternative pricing sources and calculating an absolute difference. The pricing difference is defined as the absolute difference between the actual price used and the closest, alternative price available.
Derivative financial instruments (i) in respect of the embedded equity conversion feature of the Enhanced capital notes, the sensitivity was based on the absolute difference between the actual price of the Enhanced capital note and the closest, alternative broker quote available plus the impact of applying a 10 bps increase/decrease in the market yield used to derive a market price for similar bonds without the conversion feature. The effect of interdependency of the assumptions is not material to the effect of applying reasonably possible alternative assumptions to the valuations of derivative financial instruments.
(ii) in respect of credit default swaps written on level 3 negative basis asset-backed securities, reasonably possible alternative valuations have been calculated by flexing the spread between the underlying asset and the credit default swap, or adjusting market yields, by a reasonable amount. The sensitivity is determined by applying a 60 bps increase/decrease in the spread between the asset and the credit default swap.
The combination of a one notch deterioration in the credit rating of derivative counterparties and a ten per cent increase in lGd increases the cVA by £154 million. current market value is used to estimate the projected exposure for products not supported by the model, which are principally complex interest rate options that are traded in very low volumes. For these, the cVA is calculated on an add-on basis (in total contributing £69 million of the overall cVA balance at 31 december 2012).
The Group has also recognised a Funding Valuation Adjustment to adjust for the net cost of funding certain uncollateralised derivative positions where the Group considers that this cost is included in market pricing. This adjustment is calculated on the expected future exposure discounted at a suitable cost of funds. A ten basis points increase in the cost of funds will increase the funding valuation adjustment by approximately £14 million.
At 31 december 2012, the Group’s derivative trading business held mid to bid-offer valuation adjustments of £103 million (2011: £85 million).
A. Transferred financial assets that continue to be recognised in full The Group enters into repurchase and securities lending transactions in the normal course of business that do not result in derecognition of the financial assets concerned. in all cases, the transferee has the right to sell or repledge the assets concerned .
interest rate risk in the Group’s retail banking business interest rate risk arises from the different repricing characteristics of the assets and liabilities. liabilities are either insensitive to interest rate movements, for example interest free or very low interest customer deposits, or are sensitive to interest rate changes but bear rates which may be varied at the Group’s discretion and that for competitive reasons generally reflect changes in the Bank of England’s base rate. There is a relatively small volume of deposits whose rate is contractually fixed for their term to maturity.
Report of the independent auditors on the consolidated financial statements 204 Consolidated financial statements 206 Notes to the consolidated financial statements 214 Report of the independent auditors on the parent company financial statements 344 Parent company financial statements 345 Notes to the parent company financial statements 348
The Group’s main overseas operations are in the Americas, Asia, Australasia and Europe. details of the Group’s structural foreign currency exposures, after net investment hedges, are as follows: Functional currency of Group operations £m £m
Financial guarantees 9,520 10,831 irrevocable loan commitments and other credit-related contingencies4 55,629 57,329
The criteria that the Group uses to determine that there is objective evidence of an impairment loss are disclosed in note 2(H). All impaired loans which exceed certain thresholds, principally within the Group’s commercial Banking division, are individually assessed for impairment by reviewing expected future cash flows including those that could arise from the realisation of security. included in loans and receivables are advances which are individually determined to be impaired with a gross amount before impairment allowances of £34,533 million (31 december 2011: £48,142 million).
Allowance for impairment losses on loans and advances to customers 15,250 18,732
Total debt securities classified as loans and receivables 5,273 At 31 december 2011
Treasury bills and other bills 370 4 – – – – 374
Total debt securities held at fair value through profit or loss 18,840 5,114 8,786 7,492 2,132 1,882 44,246
Treasury bills and other bills 56 – – – – – 56
Asset-backed securities: Other asset-backed securities 19 151 52 – – – 222 corporate and other debt securities 304 141 312 489 151 179 1,576
Total held as trading assets 2,604 1,554 1,939 631 152 179 7,059
Total held at fair value through profit or loss 25,108 5,435 10,225 7,026 2,059 2,799 52,652 credit risk in respect of trading and other financial assets at fair value through profit or loss held within the Group’s unit-linked funds is borne by the policyholders and credit risk in respect of with-profits funds is largely borne by the policyholders. consequently, the Group has no significant exposure to credit risk for such assets which back those contract liabilities.
Assets arising from reinsurance contracts held Of the assets arising from reinsurance contracts held at 31 december 2012 of £2,320 million (2011: £2,534 million), £764 million (2011: £842 million) were due from insurers with a credit rating of AA or above.
There were reverse repurchase agreements which are accounted for as collateralised loans within loans and advances to banks with a carrying value of £662 million (2011: £508 million), against which the Group held collateral with a fair value of £662 million (2011: £511 million), all of which the Group is able to repledge.
loans and advances to customers The Group holds collateral against loans and advances to customers in the form of mortgages over residential and commercial real estate, charges over business assets such as premises, inventory and accounts receivable, charges over financial instruments such as debt securities and equities, and guarantees received from third parties.
At 31 december 2011 70 per cent to 80 per cent 60,236 1,894 843 62,973 80 per cent to 90 per cent 53,113 2,250 1,103 56,466 90 per cent to 100 per cent 40,236 2,182 1,196 43,614
Other no collateral is held in respect of retail credit cards or overdrafts, or unsecured personal loans. For non-mortgage retail lending to small businesses, collateral will often include second charges over residential property and the assignment of life cover.
The majority of non-mortgage retail lending is unsecured. At 31 december 2012, impaired non-mortgage lending amounted to £2,328 million, net of an impairment allowance of £1,326 million (2011: £2,696 million, net of an impairment allowance of £1,848 million). The fair value of the collateral held in respect of this lending was £48 million (2011: £43 million). in determining the fair value of collateral, no specific amounts have been attributed to the costs of realisation and the value of collateral for each loan has been limited to the principal amount of the outstanding advance in order to eliminate the effects of any over-collateralisation and to provide a clearer representation of the Group’s exposure.
There were reverse repurchase agreements which are accounted for as collateralised loans with a carrying value of £5,087 million (2011: £16,835 million), against which the Group held collateral with a fair value of £4,916 million (2011: £16,936 million), all of which the Group is able to repledge. included in these amounts are collateral balances in the form of cash provided in respect of reverse repurchase agreements amounting to £2 million (2011: £34 million). These transactions were generally conducted under terms that are usual and customary for standard secured lending activities.
impaired secured wholesale lending and associated collateral relates to lending to property companies and to customers in the financial, business and other services; transport, distribution and hotels; and construction industries.
Trading and other financial assets at fair value through profit or loss 10,000 3,102 loans and advances to customers 11,603 37,926 debt securities classified as loans and receivables 154 398
Available-for-sale financial assets 4,251 1,618 in addition to the assets detailed above, the Group also holds assets that are encumbered through the Group’s asset-backed conduits and its securitisation and covered bond programmes. Further details of these assets are provided in notes 21 and 22.
Arrears do not accrue during the break. The contractual monthly payment is recalculated at the end of the break to take account of missed interest and, if appropriate, capital payments.
Repair – Capitalisation of arrears Once customers have evidenced recovery from financial difficulty and re-established a strong payment record, this treatment allows the repair of the customer’s financial position through the permanent capitalisation of arrears. customers must demonstrate that they can meet the contractual terms of their loan by making six consecutive contractual monthly payments and must give their permission for the capitalisation. Arrears may not be capitalised more than twice in a five year period.
customers receiving support from uK Government sponsored programmes The Group participates in a number of uK Government sponsored programmes designed to support households, which are described on page 136. Where these schemes provide borrowers with a state benefit that is used to service the loan, there is no change in the reported status of the loan which is managed and reported in accordance with its original terms.
The income support for Mortgage interest scheme remains the most successful of the Government backed schemes. it is the longest-running, is the most widely known and provides both the customer and the Group with an assurance as to the maintenance of at least two years’ worth of interest payments. The Group estimates that around £2.6 billion of its mortgage exposures are receiving this benefit. This includes those who are also receiving other treatments for financial difficulty.
The financial distress balance include arrangements to pay where the customer is paying less than the contractual payment and had such arrangements at the year end.
The Group notes that forbearance alone is not necessarily an indicator of impairment but is a trigger point for it to review the customer’s credit profile.
Total forborne loans and advances which are impaired £m impairment allowance as a % of loans and advances which are forborne
At 31 December 2012 unimpaired – Business support unit 6,734 – –
Federal family education loan programme student loans 119 135 – 254 3,526
An analysis of these asset-backed securities by credit rating is provided below.
non-us residential mortgage-backed securities 1,827 981 286 102 196 262 – –
Liquidity risk liquidity risk is defined as 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. The Group carries out monthly stress testing of its liquidity position against a range of scenarios, including those prescribed by the FsA. The Group’s liquidity risk appetite is also calibrated against a number of stressed liquidity metrics.
Maturities of assets and liabilities Up to 1 month £m £m £m £m
Assets cash and balances at central banks 80,035 259 4 – – 80,298
Liabilities derivative financial instruments, trading and other financial liabilities at fair value through profit or loss 12,818 5,556 12,843 20,164 33,256 84,637 liabilities arising from insurance and investment contracts 27,230 1,469 5,270 20,676 82,947 137,592
Trading and other financial assets at fair value through profit or loss 10,508 6,791 2,919 7,968 111,324 139,510 loans and advances to banks 22,976 3,261 2,241 3,671 457 32,606 loans and advances to customers 68,983 10,146 31,056 105,808 349,645 565,638 debt securities held as loans and receivables 98 – 8 689 11,675 12,470
Liabilities derivative financial instruments, trading and other financial liabilities at fair value through profit or loss 10,612 4,838 6,729 21,407 39,581 83,167 liabilities arising from insurance and investment contracts 11,723 1,786 5,568 19,971 89,879 128,927
Trading and other financial liabilities at fair value through profit or loss 10,284 2,336 3,516 6,491 3,602 26,229 liabilities arising from non-participating investment contracts 27,429 – – – 22,207 49,636
Capital risk capital risk is defined as the risk of the Group having a sub-optimal amount or quality of capital or that capital is inefficiently deployed across the Group.
Other provision movements 379 (294) 49 net charge (credit) in respect of defined benefit schemes 68 199 (455)
interest expense on subordinated liabilities 2,783 2,155 3,619 loss on disposal of businesses 7 21 314
These OEics (Open-ended investment companies) are mutual funds which are consolidated if the Group manages the funds and also has a majority beneficial interest. The population of OEics to be consolidated varies at each reporting date as external investors acquire and divest holdings in the various funds. The consolidation of these funds is effected by the inclusion of the fund investments and a matching liability to the unitholders; and changes in funds consolidated represent a non-cash movement on the balance sheet.
included within cash and cash equivalents at 31 december 2012 is £17,889 million (2011: £21,601 million; 2010: £14,694 million) held within the Group’s life funds, which is not immediately available for use in the business.
Lloyds Banking Group Annual Report and Accounts 2012342 note 57: Future accounting developments The following pronouncements may have a significant effect on the Group’s financial statements but are not applicable for the year ending 31 december 2012 and have not been applied in preparing these financial statements. save as disclosed, the full impact of these accounting changes is being assessed by the Group.
Requires entities to group items presented in other comprehensive income on the basis of whether they are potentially reclassified to profit or loss subsequently.
iFRs 10 Consolidated Financial Statements supersedes iAs 27 Consolidated and Separate Financial Statements and sic-12 Consolidation – Special Purpose Entities and establishes the principles for when the Group controls another entity and therefore is required to consolidate the other entity in the Group’s financial statements. The implementation of iFRs 10 will result in the Group consolidating certain entities that were previously not consolidated, and deconsolidating certain entities which were previously consolidated. The effect of applying iFRs 10 in 2012 would have been to recognise an increase in total assets and total liabilities at 31 december 2012 of approximately £8.3 billion resulting in no change to shareholders’ equity. There would have been no impact on the result for the year to 31 december 2012.
note 58: Approval of financial statements The consolidated financial statements were approved by the directors of lloyds Banking Group plc on 1 March 2013.
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with chapter 3 of Part 16 of the companies Act 2006 and for no other purpose. We do not, in giving these opinions, 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.
Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. in addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements. if we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on other matters prescribed by the Companies Act 2006 in our opinion: – the part of the directors’ Remuneration Report to be audited has been properly prepared in accordance with the companies Act 2006; and
Other matter We have reported separately on the group financial statements of lloyds Banking Group plc for the year ended 31 december 2012.
The directors approved the parent company financial statements on 1 March 2013.
Value of employee services: share option schemes – – – 129 129
Value of employee services: share option schemes – – – 69 69
Cash flows from financing activities interest paid on subordinated liabilities (293) (39) –
note 4: Share capital and share premium details of the company’s share capital and share premium account are as set out in notes 46 and 47 to the consolidated financial statements.
Lloyds Banking Group Annual Report and Accounts 2012350 note 8: Debt securities in issue These comprise us$862.5 million 7.75% Public income notes due 2050 issued by the company in July 2010.
Key management personnel The key management personnel of the Group and the company are the same. The relevant disclosures are given in note 52 to the consolidated financial statements.
The principal subsidiaries, all of which have prepared accounts to 31 december and whose results are included in the consolidated accounts of lloyds Banking Group plc, are: Share class
in november 2009, as part of the restructuring plan that was a requirement for European commission approval of state aid received by the Group, lloyds Banking Group agreed to suspend the payment of coupons and dividends on certain of the Group’s preference shares and preferred securities for the two year period from 31 January 2010 to 31 January 2012. The Group also agreed to temporarily suspend and/or waive dividend payments on certain preference shares which have been issued intra-group. consequently, in accordance with the terms of some of these instruments, subsidiaries could have been prevented from making dividend payments on ordinary shares during this period. in addition, certain subsidiary companies currently have insufficient distributable reserves to make dividend payments.
Financial liabilities: debt securities in issue – – – 545 545 subordinated liabilities – – – 4,349 4,349
Financial liabilities: debt securities in issue – – – 555 555 subordinated liabilities – – – 4,308 4,308
Total financial liabilities – – – 4,863 4,863 note 54 to the consolidated financial statements outlines the valuation hierarchy into which financial instruments measured at fair value are categorised.
Online portfolio management and enquiries Equiniti operates a web based enquiry and portfolio management service. Visit www.shareview.co.uk for details on how to register to access the following facilities: – register your preferred format for receiving company communications; – register your proxy appointment or voting instructions; – update your address details directly; and
– choose your preferred contact methods – via email, phone or in writing.
Share dealing facilities lloyds Banking Group offers shareholders a choice of three dealing services: Bank of Scotland Share Dealing – internet dealing. Visit www.bankofscotlandsharedealing.co.uk
Bank of scotland share dealing and Halifax share dealing internet services are available 24/7 and telephone services are available between 8.00 am and 9.15 pm, Monday to Friday and 9.00 am to 1.00 pm on saturday. To open a share dealing account with either of these services, you must be 18 years of age or over and be resident in the uK, Jersey, Guernsey or the isle of Man.
Lloyds TSB Share Dealing – internet dealing. Visit www.lloydstsbsharedealing.com internet services are available 24/7 and telephone services are available between 8.00 am and 6.00 pm, Monday to Friday. details of any dealing costs are available when you log on to the share dealing website or when you call the above number. To open a lloyds TsB share dealing Account, you must be 18 years of age or over and be resident in the uK, the channel islands or the isle of Man.
Shareholder information 356 Forward looking statements 358 Glossary 359 Abbreviations 364 Index to annual report 365
At 31 December 2012 Shareholders number of ordinary shares size of shareholding number % Millions %
lloyds Banking Group may also make or disclose written and/or oral forward looking statements in reports filed with or furnished to the us securities and Exchange commission, lloyds Banking Group annual reviews, half-year announcements, proxy statements, offering circulars, prospectuses, press releases and other written materials and in oral statements made by the directors, officers or employees of lloyds Banking Group to third parties, including financial analysts. Except as required by any applicable law or regulation, the forward looking statements contained in this annual report are made as of the date hereof, and lloyds Banking Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this annual report to reflect any change in lloyds Banking Group’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Bank levy The levy that applies to certain uK banks, uK building societies and the uK operations of foreign banks from 1 January 2011. The levy is payable based on a percentage of the chargeable equity and liabilities of the bank as at the balance sheet date.
A security issued by a third party which references ABss or other assets purchased by the issuer. lloyds Banking Group has invested in instruments issued by other banking groups, including collateralised loan Obligations and commercial Real Estate cdOs. details of these investments are given in note 55.
A security backed by the repayments from a pool of commercial loans. clOs are usually structured products with different tranches whereby senior classes of holder receive repayment before other tranches are repaid.
A provision established following an impairment assessment on a collective basis for homogeneous groups of loans, such as credit card receivables and personal loans, that are not considered individually significant and for loan losses that have been incurred but not separately identified at the balance sheet date.
Commercial Paper commercial paper is an unsecured promissory note issued to finance short-term credit needs. it specifies the face amount paid to investors on the maturity date. commercial paper can be issued as an unsecured obligation of the Group or, for example when issued by the Group’s conduits, as an asset-backed obligation (in such case it is referred to as asset-backed commercial paper). commercial paper is usually issued for periods from as little as a week up to nine months.
Commercial Real estate commercial real estate includes office buildings, industrial property, medical centres, hotels, malls, retail stores, shopping centres, farm land, multifamily housing buildings, warehouses, garages, and industrial properties.
Cost:income ratio Operating expenses compared to total income net of insurance claims. The Group calculates this ratio using the ‘reported basis’ which is the basis on which financial information is reported internally to management.
The credit spread is the yield spread between securities with the same currency and maturity structure but with different associated credit risks, with the yield spread rising as the credit rating worsens. it is the premium over the benchmark or risk-free rate required by the market to take on a lower credit quality.
Customer deposits Money deposited by account holders. such funds are recorded as liabilities of the Group. The Group includes certain repos within customer deposits.
expected loss This is the amount of loss that can be expected by the Group calculated in accordance with FsA rules. in broad terms it is calculated by multiplying the default Frequency by the Loss Given Default by the exposure at Default.
impairment allowances impairment allowances are a provision held on the balance sheet as a result of the raising of a charge against profit for the incurred loss inherent in the lending book. An impairment allowance may either be individual or collective.
Loan-to-value ratio (LTv) The loan-to-value ratio is a mathematical calculation which expresses the amount of a mortgage balance outstanding as a percentage of the total appraised value of the property. A high lTV indicates that there is less value to protect the lender against house price falls or increases in the loan if repayments are not made and interest is added to the outstanding balance of the loan.
Medium Term notes Medium term notes are a form of corporate borrowing covering maturity periods ranging from nine months to 30 years. details of the notes issued under the Group’s medium term notes programmes are given in note 36.
Private equity investments Private equity is equity securities in operating companies not quoted on a public exchange. investment in private equity often involves the investment of capital in private companies or the acquisition of a public company that results in the delisting of public equity. capital for private equity investment is raised by retail or institutional investors and used to fund investment strategies such as leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital.
Special Purpose entities (SPes) sPEs are entities that are created to accomplish a narrow and well defined objective. There are often specific restrictions or limits around their ongoing activities. The Group uses a number of sPEs, including those set-up under securitisation programmes, and as conduits. Where the Group has control of these entities or retains the risks and rewards relating to them they are consolidated within the Group’s results.
DvA debit Valuation Adjustment eCns Enhanced capital notes eei Employee Engagement index eev European Embedded Value eP Economic Profit ePS Earnings Per share eRM Enterprise Risk Management eU European union
Accounting policies 217, 221 notes to the consolidated financial statements 254
Accounting policy 219 critical accounting estimates and judgements 226 notes to the consolidated financial statements 242 income statement consolidated 206 information for shareholders
Basis of determining regulatory capital 195 capital sensitivities 199 capital statement 195 critical accounting estimates and judgements 227
Financial information calculated on a ‘realistic’ basis 195 liabilities arising from insurance contracts and participating investment contracts 262 liabilities arising from non-participating investment contracts 270 life insurance sensitivity analysis 269
Accounting policy 216 notes to the consolidated financial statements 259 investment property
Governance risk 202 insurance risk 185 liquidity and funding risk 177
Accounting policy 222 critical accounting estimates and judgements 227 notes to the consolidated financial statements 244, 276 value at Risk (vaR) 171 value of in-force business
Accounting policy 224 notes to the consolidated financial statements 256 volatility insurance 74
designed and produced by Radley Yeldar www.ry.com Photography by George Brooks, Paul Eversley, Marcus Ginns, shutterstock.com