Lloyds Banking Group (LLOY) UBS Flagship European Conference 2024 summary

Legal and regulatory developments

• Court of Appeal ruling shifted focus from commission fairness to disclosure and informed consent, creating significant legal uncertainty.

• Uncertainties remain regarding judicial outcomes, applicable fact patterns, and potential FCA actions, with possible resolution in 2025 or 2026.

• GBP 450 million provisioned for the FCA inquiry; ongoing review of provisioning as the situation evolves.

• Immediate compliance actions included moving to a no-commission structure, followed by a compliant commission-based model with full disclosure.

Macroeconomic and budget impacts

• Recent budget focused on education, housing, and health, with limited direct impact on banks and a modest fiscal stimulus expected.

• Post-budget rate volatility observed; rates expected to settle near 3.5% by 2026, with current levels slightly above expectations.

• NIC increase to have a GBP 100 million annual impact.

• Fiscal stimulus may support macroeconomic growth into 2025 and beyond.

Net interest income and margin outlook

• Margin environment improving, with NIM at 2.95% and expected to strengthen through 2025 and 2026.

• Mortgage spreads stable at around 70 basis points, with potential for slight improvement if swap rates stabilize.

• Structural hedge contribution expected to exceed GBP 700 million in 2024, with further significant growth in 2025 and 2026.

• Main risks to NII growth include a sudden collapse in rates or a deteriorating macro environment.