Lloyds Banking Group Annual Report and Accounts 20128 insuRAncE The Insurance division provides long-term savings, protection and investment products and general insurance products to customers in the UK and Europe. The uK life, Pensions and investments business provides long-term savings, protection and investment products distributed through the bancassurance, intermediary and direct channels of the lloyds TsB, Halifax, Bank of scotland and scottish Widows brands. The European life, Pensions and investments business distributes products primarily in the German market under the Heidelberger leben and clerical Medical brands.
To put this into figures: Even though the operating environment in the uK remained challenging, we delivered consistent underlying performance in our core business, demonstrating the strength of our strategy and management team. This resulted in an increase of our underlying profit before tax over that of 2011 from £638 million to £2,607 million. The statutory results, however, were impacted by a number of items including payment protection insurance, for which we took provisions totalling an additional £3,575 million in 2012, bringing the total amount provided to £6,775 million since 2011. Additionally we made a further provision in respect of possible claims arising from sME derivatives amounting to £400 million.
executive Remuneration As a Group we are aware of the views of our various stakeholders on executive remuneration. We seek to motivate, incentivise and retain our talent whilst remaining mindful of the current economic outlook. As examples of the justified restraint in the current circumstances we have made no changes for 2013 in senior executives’ pay (with one exception) and our incentive compensation for 2012 in absolute amount and as a percentage of revenues (less than 2 per cent) is lower than that of any other major banking institution in the united Kingdom.
We have made good progress in reducing our loan to deposit ratio and though we initially targeted a loan to deposit ratio of less than 130 per cent by the end of 2014, we are now targeting 120 per cent.
The results highlight strong levels of engagement in some areas including using customer feedback to improve processes and providing colleagues with appropriate training to keep up with customer demands. Our PEi score is again well above the uK industry average, showing that colleagues believe in the Group’s commitment to delivering and continuously improving the products and services we provide to our customers. These scores indicate that our colleagues are committed to the Group’s strategy of becoming the best bank for customers.
As one of the most active participants in the Project Finance market, lloyds Banking Group is playing a key role in finding solutions to current and future funding requirements. We currently have commitments to renewable energy projects in the uK with capacity totalling over 1800MW. More detail will be available in our 2012 Responsible Business Report.
Overview The Group delivered a significantly improved performance in 2012, in a continued challenging economic and regulatory environment. We have substantially increased Group underlying profit and delivered strong returns in excess of the cost of equity in the core business, while further strengthening our balance sheet and delivering significant reductions in costs and risk. Our statutory results for the year were however affected by further provisions for contact and redress costs in relation to legacy PPi business and iRHP sales to small and medium-sized businesses, and also included £3,207 million of gains from sales of government securities.
Core income The reduction in core net interest income of 9 per cent to £9,868 million reflected the 3 per cent decrease in core average interest-earning banking assets, and a 10 basis point decline in banking net interest margin which was a result of continued elevated funding costs. The decline in core assets slowed in the second half, with customer loans and advances down by £3.2 billion compared with a reduction of £8.5 billion in the first half. The core net interest margin was stable throughout the year. core other income reduced by 5 per cent, reflecting lower expected returns in the insurance business, and reduced sales of insurance products.
Core impairment The core impairment charge of £1,919 million was 34 per cent lower than the charge in 2011, primarily driven by better performance in Retail, which reduced by 34 per cent to £1,192 million, and commercial Banking, which reduced by 33 per cent to £704 million. The reduction in Retail was mainly driven by a reduction in the unsecured charge driven by our sustainable approach to risk, reduced balances and effective portfolio management, while the secured portfolio also saw a lower charge as a result of a fall in impaired loans. Within commercial Banking the fall in core impairment charge was primarily attributable to lower impairments in some core portfolios, including Mid Markets, corporate and sME. in Mid Markets and corporate, there were specific large impairments in these portfolios in 2011, which were not repeated in 2012. The core impairment charge as a percentage of average advances improved to 0.44 per cent, remaining better than our long-term target for the Group as a whole.
Wholesale funding <1 year maturity as a % of total wholesale funding 29.8% 45.1% (15.3)pp loan to deposit ratio2 121% 135% (14)pp core business loan to deposit ratio2 101% 109% (8)pp
We continue to maintain a strong liquidity position. Our primary liquid asset portfolio at the year-end reduced to £87.6 billion (2011: £94.8 billion), reflecting a reduction in total assets, wholesale funding and regulatory liquidity requirements. This represents approximately three times our money market funding and is approximately one and half times our aggregate wholesale funding with a maturity of less than a year, providing a substantial buffer in the event of market dislocation. in addition to primary liquidity assets, we have significant secondary liquidity holdings of £117.1 billion. Our total liquid assets represent approximately four times our short-term wholesale funding.
Total underlying loss decreased by £446 million with core underlying profit decreasing by £22 million mainly due to the significant reduction in impairments and increased other income, partially offset by reduced net interest income.
Wealth provides strong growth opportunities for the Group. its goal is to be recognised as the Wealth advisor of choice to appropriate Retail and commercial Banking customers alongside targeted customer acquisition. We aim to grow the amount of customer deposits and funds under management that we manage on behalf of franchise customers, whilst improving margins and operating efficiency.
in Asset Finance, we have been refocusing the business into sectors which fit our risk appetite and profitability and are looking to deliver focused, profitable growth while completing the run-down or disposal of portfolios which are closed to new business.
in 2012, the statutory results before tax included a credit to other income which relates to policyholder interests volatility totalling £143 million (2011: £283 million charge).
(loss) profit for the year attributable to equity shareholders (1,427) (2,787) (320) 2,827 772
external appointments: david is the non-executive chairman of The Mind Gym.
Former appointments: lord Blackwell is a former senior independent director of standard life and chaired their uK life and Pensions Board. He was a non-Executive director of dixons Group and sEGRO and a non-Executive Member of the Office of Fair Trading. He was a partner of McKinsey & co. and a director of Group development at natWest Group. From 1995 to 1997, lord Blackwell was Head of the Prime Minister’s Policy unit and was appointed a life Peer in 1997.
external appointments: Tony is a non-Executive director of Vodafone Group. He is the senior independent director of Hammerson and Witan investment Trust and chairman of the lincoln’s inn investment committee and Marks & spencer Trustees.
Skills and experience: George has deep operational and financial expertise including strategic and financial planning and control. He has worked in financial services in the uK and overseas for over 20 years. With a strong background in insurance and shareholder advocacy, his skills and experience enhance the Board and strengthen further the senior management team.
Significant contracts details of related party transactions are set out in note 52 on pages 298 to 301.
Resolutions concerning the re-appointment of Pricewaterhousecoopers llP as auditors and authorising the Audit committee to set their remuneration will be proposed at the annual general meeting.
The nomination & Governance committee and the Board are responsible for oversight of the process for succession, management development of the most senior executives both at and below Board level, including Executive directors and members of the Group Executive committee. The primary responsibility for developing and maintaining a succession plan for key leadership positions in the senior executive team rests with the Group chief Executive. Arrangements are reviewed with the nomination & Governance committee at least annually with the latest review taking place in september 2012.
– information about the Remuneration committee’s responsibilities is given in the directors’ remuneration report on pages 98 to 114.
Total costs Payout range set relative to 2015 targets Threshold: <= £9,323 million Maximum: <= £8,973 million non-core assets at end of 2015 (excluding uK Retail)
Lloyds Banking Group Annual Report and Accounts 2012104 in the case of the nomination & Governance committee, membership currently comprises the deputy chairman, senior independent director and chairs of the Board committees (the fees for which include membership of the nomination & Governance committee) and one other independent non-Executive director. Only this director receives an attendance fee, which is £5,000 per annum.
That the company’s ranking based on TsR over the relevant period against a comparator group (18 companies including lloyds Banking Group) must be at least ninth, when 30 per cent of the option will be exercisable. if the company is ranked first to fifth position in the group, then 100 per cent of the option will be exercisable and if ranked tenth or below, the performance condition is not met.
The Group strategy and risk appetite were developed together to ensure one informed the other in creating a strategy that delivers on becoming the best bank for our customers whilst helping Britain prosper and creating sustainable growth over time.
– The Group’s strategy operates in tandem with the Group’s high level risk appetite which is supported by more detailed metrics and limits. An updated Risk Appetite statement was approved by the Board in 2012 which incorporated recommendations from the non-executive directors and is fully aligned with Group strategy.
consequently, the Group’s management of material people risks is critical to its capacity to deliver against its strategic objectives. Over the coming twelve months the Group’s ability to manage people risks successfully is likely to be affected by the following factors: – The Group’s continuing structural consolidation and the sale of part of its branch network under Project Verde may disrupt its ability to lead and manage its people effectively in some areas; – The developing and increasingly rigorous and intrusive regulatory environment may challenge the Group’s people strategy, remuneration practices and retention; and
– The continuation of the Group’s strategy of right-sizing the balance sheet and development of the retail deposit base which has led to a significant reduction in the wholesale funding requirement over the past year.
Board Risk committee Oversees and challenges the development, implementation and maintenance of the Group’s risk management framework, ensuring that its strategy, principles, policies and resources are aligned internally to its risk appetite as well as externally to regulation, corporate governance and industry best practice. The Board Risk committee regularly reviews the Group’s risk exposures across the risk drivers and the detailed risk types.
Risk management in the business line management is directly accountable for the management of risks arising in their individual businesses. A key objective is to ensure that business decisions strike an appropriate balance between risk and reward, consistent with the Group’s risk appetite.
At Group level a consolidated risk report and risk appetite dashboard are produced, which are reviewed and debated by the Group Risk committee, Board Risk committee and the Board to ensure that they are satisfied with the overall risk profile, risk accountabilities and mitigating actions. The report and dashboard provide a monthly assessment of the aggregate residual risk for the risk drivers, comparing the assessment with the previous periods and providing a forecast for the next twelve months, including an assessment of emerging risks, which could impact the Group over the next five years.
The nature, construction and calibration of retail and non-retail models are very different and so too are their respective master scales (not least in their graduality). The distribution of probabilities of default is also different, which precludes reporting on a single consolidated basis.
At 31 december 2012, the Group’s total gross derivative asset exposure to counterparties registered in the above countries was £754 million (2011: £775 million), offset by derivative liabilities of £278 million (2011: £204 million) and cash collateral held of £152 million (2011: £191 million). Within the following detailed tables, derivative assets are included within the carrying value column, and derivative liabilities and cash collateral are included within the netting column.
Carrying value £m netting £m net £m carrying value £m netting £m net £m sovereign debt: Financial institutions – banks: Available-for-sale – – – 180 – 180
2012 has seen a continuation of the Group’s involvement in the development of low carbon electricity generation with significant lending in support of Government targets for decarbonisation of the power sector. The Group’s commitments to renewable energy now support over 1700MW of capacity, sufficient to power around 2 million homes. in addition, the Group continues to be the largest provider of finance after the European investment Bank to the offshore transmission ownership scheme designed by the Government to encourage investment in large scale offshore wind farms and helping create significant investment and jobs in uK energy infrastructure.
Mitigation Mitigation is undertaken across the Group and consists of the following components: – Risks are assessed by the business and controls put in place to mitigate them.
Market risk in the Group’s retail portfolios and in the Group’s capital and funding activities is managed centrally within triggers defined in the Group policy for interest rate risk in the banking book, which is reviewed and approved annually.
Execution, delivery and process management 24.90 29.67 27.19 28.65 in 2012, the highest frequency of events occurred in External Fraud (58.0 per cent) and Execution, delivery and Process Management (24.9 per cent). clients, Products and Business Practices accounted for 58.7 per cent of losses (54.4 per cent in 2011). The continued high proportion of losses in this category is driven by legacy issues.
scenarios cover both Group specific and market wide difficulties. The Group calculates the stressed cash flow mismatch under the prescribed FsA scenarios, which include the effect of credit rating agency downgrades; the idiosyncratic, market wide and combined stresses. The Group also calculates the stressed cash flow position under a range of the Group’s own scenarios reflecting possible future liquidity risks. These scenarios cover us market disruption, market counterparty failure, uK sovereign rating downgrade and a Eurozone stress. The key risk driver assumptions applied to the scenarios are: Liquidity risk driver Market wide and Group specific stresses
The key dependencies on successfully funding the Group’s balance sheet include the continued functioning of the money and capital markets; successful right-sizing of the Group’s balance sheet; limited further deterioration in the uK’s and the Group’s credit rating; and no significant or sudden withdrawal of customer deposits. Additionally, the Group has entered into a number of Eu state Aid related obligations to achieve reductions in certain parts of its balance sheet by the end of 2014. These are assumed within the Group’s funding plan. The Group has achieved the asset reduction commitment, two years ahead of the mandated completion date, and is currently working with the European commission to achieve formal release from the commitment. until release is obtained from the European commission the Group may have to continue with these asset reductions and or/disposals and may receive a lower price upon disposal.
Total capital resources 53,603 53,809 36,151 core/common equity tier 1 capital ratio 12.0% 11.6% 8.1%
The Group’s estimated fully loaded leverage ratio (with ineligible tier 1 instruments grandfathered) is 3.8 per cent and the Group’s estimated fully loaded leverage ratio, excluding the tier 1 instruments is 3.1 per cent. These would both be in excess of the Basel committee’s minimum ratio of 3 per cent which is proposed should become a Pillar i requirement by 1 January 2018. The Group will continue to monitor closely the leverage ratio against the emerging rules and minimum calibration and will aim to increase the ratio further by continuing to run down its non-core portfolios and by profit generation.
Other differences between iFRs and regulatory valuation of assets and liabilities – – 107 (163) 124 68
The surplus held in the clerical Medical With-Profit Fund can only be applied to meet the requirements of the fund itself or distributed according to the prescribed rules of the fund. shareholders are entitled to an amount not exceeding one ninth of the amount distributed to policyholders in the form of bonuses on traditional with-profits business. The use of capital within the fund is also subject to the terms of the scheme of demutualisation effected in 1996 and the conditions contained in the Principles and Practices of Financial Management of the fund. in extreme circumstances capital within the clerical Medical non-Profit Fund may be made available to support the With-Profit Fund.
Where such an event has had an impact on the estimated future cash flows of the financial asset or group of financial assets, an impairment allowance is recognised. The amount of impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. if the asset has a variable rate of interest, the discount rate used for measuring the impairment allowance is the current effective interest rate.
The Group’s income statement charge includes the current service cost of providing pension benefits, the expected return on the schemes’ assets, net of expected administration costs, and the interest cost on the schemes’ liabilities. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are not recognised unless the cumulative unrecognised gain or loss at the end of the previous reporting period exceeds the greater of 10 per cent of the scheme assets or liabilities (‘the corridor approach’). in these circumstances the excess is charged or credited to the income statement over the employees’ expected average remaining working lives. Past service costs are charged immediately to the income statement, unless the charges are conditional on the employees remaining in service for a specified period of time (the vesting period). in this case, the past service costs are amortised on a straight-line basis over the vesting period.
(4) Reinsurance contracts entered into by the Group with reinsurers under which the Group is compensated for benefits payable on one or more contracts issued by the Group are recognised as assets arising from reinsurance contracts held. Where the underlying contracts issued by the Group are classified as insurance contracts and the reinsurance contract transfers significant insurance risk on those contracts to the reinsurer, the assets arising from reinsurance contracts held are classified as insurance contracts. Where the underlying contracts issued by the Group are classified as non-participating investment contracts and the reinsurance contract transfers financial risk on those contracts to the reinsurer, the assets arising from reinsurance contracts held are classified as non-participating investment contracts.
Total underlying income, net of insurance claims 24,868 (649) (306) (246) – (309) 23,358 loss on disposal of businesses (365) – – – 365 – –
in december 2011, the Group decided to defer payment of non-mandatory coupons on certain securities and, instead, settle them using an Alternative coupon satisfaction Mechanism on their contractual terms. This change in expected cash flows resulted in a gain of £126 million in net interest income in the year ended 31 december 2011 from the recalculation of the carrying value of these securities.
Share of net assets at 31 December 298 309 326 15 25 103 313 334 429 during 2012, the Group recognised a net £10 million (2011: £8 million) of losses of associates not previously recognised. The Group’s unrecognised share of losses of associates during 2010 was £8 million and of joint ventures is £126 million in 2012 (2011: £85 million; 2010: £180 million). For entities making losses, subsequent profits earned are not recognised until previously unrecognised losses are extinguished. The Group’s unrecognised share of losses net of unrecognised profits on a cumulative basis of associates is £31 million (2011: £56 million; 2010: £104 million) and of joint ventures is £330 million (2011: £299 million; 2010: £339 million).
– Exchange rate related contracts include forward foreign exchange contracts, currency swaps and options. A forward foreign exchange contract is an agreement to buy or sell a specified amount of foreign currency on a specified future date at an agreed rate. currency swaps generally involve the exchange of interest payment obligations denominated in different currencies; the exchange of principal can be notional or actual. A currency option gives the buyer, on payment of a premium, the right, but not the obligation, to sell specified amounts of currency at agreed rates of exchange on or before a specified future date.
Rental income (note 9) 389 388 direct operating expenses arising from investment properties that generate rental income 42 50 capital expenditure in respect of investment properties: £m £m capital expenditure contracted for at the balance sheet date but not recognised in the financial statements 24 33
Lloyds Banking Group Annual Report and Accounts 2012264 note 37: Liabilities arising from insurance contracts and participating investment contracts (continued)
(ii) Method of calculation of liabilities The non-profit fund liabilities are determined on the basis of recognised actuarial methods and consistent with the approach required by regulatory rules. The methods used involve estimating future policy cash flows over the duration of the in-force book of policies, and discounting the cash flows back to the valuation date allowing for probabilities of occurrence.
This sensitivity shows the impact of reducing maintenance expenses and investment expenses to 90 per cent of the expected rate.
in addition, deferred tax assets have not been recognised in respect of unrelieved foreign tax carried forward at 31 december 2012 of £42 million (2011: £171 million), as there are no predicted future taxable profits against which the unrelieved foreign tax credits can be utilised. These tax credits can be carried forward indefinitely.
The Group will reassess the continued appropriateness of the assumptions underlying its analysis at each reporting date in the light of current experience and other relevant evidence.
For options granted in 2005 The same conditions applied as for grants made in 2004, except that: – the performance condition was linked to the performance of lloyds Banking Group plc’s total shareholder return (calculated by reference to both dividends and growth in share price) against a comparator group of 15 companies including lloyds Banking Group plc; – if the performance condition was not met at the end of the third subsequent year, the options would lapse; and
The performance conditions for awards made in March and september 2011 are as follows: (i) ePS: relevant to 50 per cent of the award. The performance target is based on 2013 adjusted EPs outcome.
The performance conditions for awards made in March and september 2012 are as follows: (i) eP: relevant to 30 per cent of the award. The performance target is based on 2014 adjusted EP outcome.
if the average percentage reaches 20 per cent, 25 per cent of this element of the award, being the threshold, will vest.
Financial Services Compensation Scheme The Financial services compensation scheme (Fscs) is the uK’s independent statutory compensation fund for customers of authorised financial services firms and pays compensation if a firm is unable to pay claims against it. The Fscs is funded by levies on the industry (and recoveries and borrowings where appropriate). The levies raised comprise both management expenses levies and, where necessary, compensation levies on authorised firms.
Other legal actions and regulatory matters in addition, during the ordinary course of business the Group is subject to other threatened and actual legal proceedings (which may include class action lawsuits brought on behalf of customers, shareholders or other third parties), regulatory investigations, regulatory challenges and enforcement actions, both in the uK and overseas. All such material matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of the Group incurring a liability. in those instances where it is concluded that it is more likely than not that a payment will be made, a provision is established to management’s best estimate of the amount required to settle the obligation at the relevant balance sheet date. in some cases it will not be possible to form a view, either because the facts are unclear or because further time is needed properly to assess the merits of the case and no provisions are held against such matters. However the Group does not currently expect the final outcome of any such case to have a material adverse effect on its financial position, operations or cash flows.
Capital commitments Excluding commitments in respect of investment property (note 27), capital expenditure contracted but not provided for at 31 december 2012 amounted to £279 million (2011: £296 million). Of this amount, £276 million (2011: £292 million) related to assets to be leased to customers under operating leases. The Group’s management is confident that future net revenues and funding will be sufficient to cover these commitments.
Available-for-sale financial assets debt securities: Government securities 25,555 – – 25,555
Trading and other financial liabilities at fair value through profit or loss liabilities held at fair value through profit or loss (debt securities) – 5,339 – 5,339
Represented by: £m £m credit Valuation Adjustment 928 1,425 debit Valuation Adjustment (174) (493)
Market credit default swap (cds) spreads are used to develop the probability of default for quoted counterparties. For unquoted counterparties, internal credit ratings and market sector cds curves and recovery rates are used. The loss Given default (lGd) is based on market recovery rates and internal credit assessments.
Asset-backed securities: corporate and other debt securities 150 – – – – 252 402
The extent to which collateral values are actively managed will depend on the credit quality and other circumstances of the obligor. Although lending decisions are predominantly based on expected cash flows, any collateral provided may impact the pricing and other terms of a loan or facility granted; this will have a financial impact on the amount of net interest income recognised and on internal loss-given-default estimates that contribute to the determination of asset quality.
Lloyds Banking Group Annual Report and Accounts 2012328 note 55: Financial risk management (continued)
commensurate with the aim of this activity (i.e. to manage customers through their temporary financial difficulty) during the capital payment break arrears accrue based on the temporary interest only contractual monthly payment. On expiry of the break, the customer is transferred back onto capital and interest repayment terms, with the outstanding balance recovered across the remaining term of the original loan.
Collective impairment assessment of retail secured loans subject to forbearance loans which are forborne are grouped with other assets with similar risk characteristics and assessed collectively for impairment as described below. The loans are not considered as impaired loans unless they meet the Group’s definition of an impaired asset.
Prior to allowing the capital repayment holiday, the Group undertakes a full financial review to confirm the customer’s financial difficulty and ability to maintain the revised level of repayment. The aim of this activity is to manage customers through their temporary financial distress, and accordingly, on expiry of the break, the Group will look to transfer the customer back onto capital and interest repayment terms, with the outstanding balance recovered across the remaining term of the original loan.
– have been prepared in accordance with the requirements of the companies Act 2006.
Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the companies Act 2006 requires us to report to you if, in our opinion: – adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
Sir Winfried Bischoff António Horta-Osório George Culmer chairman Group chief Executive Group Finance director
subject to the foregoing, there were no further significant restrictions on any of the company’s subsidiaries in paying dividends or repaying loans and advances. All regulated banking and insurance subsidiaries are required to maintain capital at levels agreed with the regulators; this may impact those subsidiaries’ ability to make distributions.
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.
The derivative assets designated as hedging instruments represent level 2 portfolios. The derivative assets classified as held for trading (not being designated as hedging instruments) shown above represent level 3 portfolios (2011: £174 million level 2 and £1,172 million level 3). The level 3 derivatives reflect the value of the equity conversion feature of the Enhanced capital notes issued in december 2009 as part of lloyds Banking Group’s recapitalisation and exit from the Government Asset Protection scheme.
At 31 december 2011 debt securities in issue 11 – 32 688 – 731
Conduits A financial vehicle that holds asset-backed securities which are financed with short-term deposits (generally commercial paper) that use the asset-backed securities as collateral. The conduit will often have a liquidity line provided by a bank that it can draw down on in the event that it is unable to issue funding to the market. The Group sponsors three asset-backed conduits, Argento, cancara and Grampian. Further details are provided in note 22.
Securitisation securitisation is a process by which a group of assets, usually loans, are aggregated into a pool, which is used to back the issuance of new securities. securitisation is the process by which ABs are created. A company sells assets to a special purpose entity which then issues securities backed by the assets. This allows the credit quality of the assets to be separated from the credit rating of the original company and transfers risk to external investors. Assets used in securitisations include mortgages to create mortgage-backed securities or Residential Mortgage-Backed Securities as well as Commercial Mortgage-Backed Securities. The Group has established several securitisation structures as part of its funding and capital management activities. These generally use mortgages, corporate loans and credit cards as asset pools. A listing of these programmes with the amounts secured and associated funding raised is given in note 21.
The economy 19 impact on our markets 20 net fee and commission income 236 net interest income 235 net trading income 236