Aman Rakkar

Aman Rakkar inquired about the possibility of reintroducing share buybacks earlier than planned, given the projected CET1 ratio, and the capital allocation thought process between inorganic growth and buybacks. He also asked for clarification on the Banking NII guidance, specifically if there were other non-repeat items beyond the $100 million and the deposit growth assumption for 2026.

Answer

Group CFO Georges Elhedery emphasized strong capital generation and the priority of restoring the CET1 ratio post-Hang Seng privatization, with buyback decisions made quarterly. He reiterated the four high-bar criteria for inorganic opportunities. Group Chief Risk and Compliance Officer Pam Kaur confirmed the 14-14.5% CET1 operating range, reaffirmed the 50% dividend payout, and stated that buybacks remain a tool for surplus capital. She clarified that beyond the $100 million non-repeat item, there were no other one-offs in Q4 Banking NII, and strong deposit growth is expected to continue driving NII in 2026.

Aman Rakkar of Barclays questioned if the ~$42 billion NII guidance was conservative, as it implies an H2 slowdown, and asked about levers to offset HIBOR pressure. He also asked about the intensity of the cost-saving program and the outlook for flat costs in 2026.

Answer

Group CEO Georges Elhedery emphasized the commitment to cost discipline and reinvesting savings from non-strategic exits into growth areas. Group CFO Pam Kaur acknowledged the NII guidance could be seen as conservative but reflects uncertainty around HIBOR normalization and dollar movements. She highlighted the structural hedge and deposit growth as offsetting levers, but did not comment on 2026 costs.

Aman Rakkar of Barclays Investment Bank questioned the circa $42 billion NII guidance, noting it implies a slowdown in H2, and asked about levers to offset HIBOR declines. He also inquired about the intensity of the cost-saving push, the potential for further savings, and whether to model flattish costs for 2026.

Answer

Group CFO Pam Kaur acknowledged the NII guidance may seem conservative but accounts for HIBOR uncertainty, offset by a weaker USD and structural hedge reinvestments. Group CEO Georges Elhedery highlighted the $1.5 billion in simplification savings and another $1.5 billion from non-strategic exits, but declined to give 2026 cost guidance. He emphasized that the $83 billion growth in deposits is a key lever for future NII.

Aman Rakkar asked about shifts in customer behavior, such as derisking or deleveraging, particularly among corporate clients affected by trade tariffs. He also questioned the commitment to capital returns amid uncertainty and whether the bank might delay the redeployment of cost savings.

Answer

Georges Elhedery, an executive, noted that corporate clients are in a 'wait-and-see' mode with some investments on hold, but there is no panic, while personal banking and wealth activity remains strong. Manveen Kaur, an executive, affirmed the commitment to capital returns, with buybacks decided quarterly based on capital generation. She stated the cost redeployment timeline is unchanged, though minor delays are possible.

Aman Rakkar from Barclays Investment Bank asked for the key drivers behind the upgraded revenue guidance, questioned what performed better than initial expectations, and followed up on why the strong Return on Tangible Equity (RoTE) should decline significantly in 2026.

Answer

CFO Katie Murray attributed the upgraded guidance to strong volume growth, the Sainsbury's acquisition, and higher structural hedge income. CEO Paul Thwaite added that better-than-expected non-interest income and strong volumes gave them confidence. For 2026, Murray outlined continued momentum from growth and a larger hedge tailwind, which would be partially offset by the impact of rate cuts, while noting TNAV would also grow.

Aman Rakkar of Barclays questioned the sustainability of the impressive deposit margin expansion given various factors like the structural hedge and rate cuts. He also commented that the company's guidance appears conservative given the strong Q1 results.

Answer

Executive Paul Thwaite acknowledged the strong start to the year but cited wider global uncertainty as the reason for maintaining current guidance. He confirmed the bank has executed well on deposit pass-through rates. CFO Katie Murray added that the deposit margin has benefited from the structural hedge, and future performance will depend on the level of pass-through on expected rate cuts and competitive behavior.

Aman Rakkar of Barclays inquired about the volatility in the Corporate Center, specifically a 4 basis point funding cost benefit to Net Interest Margin (NIM). He asked if this benefit was sustainable and whether the reported 205 bps NIM is a reliable baseline for future quarters, particularly in a scenario with no rate cuts.

Answer

CFO Katie Murray explained that while the Corporate Center can have volatility between NII and non-interest income, its total income impact is roughly zero over time. She advised analysts to model the center as a zero-sum item and focus on the broadly stable NIM across the three main businesses, which she noted is a positive outcome. She reiterated that the bank provides total income guidance, not specific NIM guidance.

Aman Rakkar of Barclays Investment Bank asked for an update on the motor finance review, specifically the impact of a recent FOS interest rate development. He also questioned the potential ceiling for the mortgage protection penetration rate and its effect on the bank's competitiveness.

Answer

Executive Director & CFO William Chalmers addressed motor finance, noting the FOS rate change is a positive factor but only one variable within their scenario-based provision as they await the Supreme Court ruling. Both he and Group Chief Executive Charlie Nunn discussed protection penetration, which has risen to 20%, stating they aspire to reach 30% or more. They see this as a key lever for enhancing customer relationship profitability and mortgage market competitiveness.

Aman Rakkar questioned the visibility and predictability of the operating lease depreciation line item and sought details on the rationale behind the £100 million ECL central adjustment for tariff risks, including the direct impact on the corporate business.

Answer

Executive William Leon Chalmers explained that operating lease depreciation is driven by fleet size, higher-value vehicles, and disposal gains, and while it will grow, it won't be at the same pace as Q1. He clarified the £100 million ECL adjustment is a prudent measure to get ahead of potential tariff impacts, noting the bank's direct exposure to U.S. exporters is very modest at around 1% of loans.

Aman Rakkar inquired about the drivers for Net Interest Income (NII) and Net Interest Margin (NIM) in Q4, specifically questioning potential upside to the structural hedge contribution and the expected momentum in Average Interest-Earning Assets (AIEA).

Answer

William Leon Chalmers, an executive at Lloyds, explained that the NIM turned positive in Q3 (2.95%) and is expected to tick up slightly in Q4. He noted the structural hedge's strong Q3 contribution was due to maturities and yields, but the full-year growth might only be slightly stronger than the guided >£700 million. He confirmed AIEA growth would continue in Q4, supporting the full-year guidance of >£450 billion, but expects overall NII to be broadly stable from Q3 to Q4 due to a slight uptick in non-banking NII.