Lloyds Banking Group PLC (LYG) 2004 Q2 法說會逐字稿

Welcome to the Lloyds TSB 2004 Interim Results Conference Call. This call is being recorded. Hosting the call will be Helen Weir, Group Finance Director and Michael Oliver, Director of Investor Relations. Following the formal comments, you will have the opportunity to ask questions. Ms. Weir, you may begin now.

Thank you very much and good morning everyone. I'm very pleased to be here with you for my first time as Group Finance Director of Lloyds TSB. What I'm intending to do is to run through probably for about 10 minutes or so the outline of the numbers we announced this morning and to add some color in terms of the implications they have for our strategy going forward.

As you have seen on the [statutory] basis, we reported profit and earnings down somewhat as a result of the business disposals that we made last year, which were dilutive. However, really to get a better [inaudible] of the continuing operation, you need you look the [status] on this basis.

On continuing operations basis, we reported profit before tax up by 12% to a 174 million pound. Earnings per share are up by 13%, 20.6 pence. And the return on average risk weighted asset increasing to 1.95%. We have announced that we have maintained our interim dividend per share at 10.7 pence.

Just one point to note is that last year there were couple of one of non-trading items, which some what distort the overall picture in terms of the individual lines. And so the numbers I will be talking to will take those assets -- assets -- the income line and as of the cost line and report them as the single profit element. The two are pretty much [net off] so they don't actually affect the overall profit level.

What I will also be doing is talking to numbers that include in [notional] interest of 57 million pounds; we are charging against last year's numbers for the purposes of comparing on an apple-to-apple basis. That's because in the continuing business figures this year, we don’t have the figures from the discontinued operation. And those are [renewed] from the numbers also last year, but we do have the benefit in the first half of this year as the interest on that proceed receive which are not on in the continuing operations for last year. On this basis we see total income back up by about 5%. Operating expense is up by 3%, giving a trading surface up by 6% in total.

General insurance provision, they are up about 12% and bad debt provisions are relatively -- with a relatively small increase of just 3%. As a result our profit before tax from a consistent basis year-on-year is up by 8%. I think this a good performance in market that is -- has slowed some what, half on half.

Looking at the performance of our individual business divisions, in the U.K. Retail Banking we saw good volume growth, particularly in the mortgages, the credit cards and loans businesses. However, that was offset to a certain extent by some margin erosion. The margin erosion aroused from three different areas; firstly from funding cost where the funding that we or -- effectively the earnings that we get in our current account balance is declined year-on-year. Secondly, there was a mixed effect those assets grew faster than liabilities and thirdly, we saw the impact on some competitive pressure particularly in the mortgage book where the margins on mortgages in the first half were significantly down on last year, particularly with the popularity of fixed rate mortgages in the first half.

As far as we are concerned we don't look at just a single product margin we actually look at the margin that we get from our customer relationship and most people who take out mortgage also take out other products most notably home insurance and Lloyds (phonetic) protection home insurance and actually, the overall -- relationship we have with those customers is very profitable. So, once those margin declined that's been made [out] effectively on other line.

The insurance investment division grew well with an improvement in new business profitability and good new business growth, meaning that the overall result, -- our profits were up by 10%. The business withheld the strongest [inaudible] however, with our wholesale business where profit were up by 19% year-on-year and we've seen good performance pretty much across all the key divisions there, particularly from the corporate banking division where we are building on our strategy of deepening our existing customer relationship, that's selling more products rather than just the main debt product to our existing customer based. We also saw a good growth in the asset finance business where we have been gaining market share, in the business banking business where we are now beginning to see some positive signs of growth and also we benefited from an improved profitability from our capital -- venture capital development business where profits increase by 27 million pounds year-on-year.

So overall our profit before tax grew by about 8%. I think those are the key financial highlights that I had liked to talk to. What I like now to do is to move on and talk a little bit more about the picture of the business in bit more detail and what's happening in each of the individual division.

So I think about putting a [inaudible] in some context, I think historically if you look back we've been able to achieve good returns, but until recently we've not actually grown. Our object which is now is to grow our business without sacrificing our return. If we look at the performance from our continuing operations what we can see is we are seeing good growth as well as maintaining our high level of returns. Our return on equity for the half were 23.5%.

The growth story that’s I'm setting out to you is not just in this quarter, but this is the -- this is the second half of successive growth, which I think is encouraging. I think it's fair to say that we would say that the shape of the earnings growth that we see is not altogether exactly what we want to see. We want to see more top-line growth coming through than we have at present. However, we are beginning to make headway on this. And I think also what would we would like to be coming through is more balanced growth across the individual divisions, but again we believe progress is being made and I hope to describe that to you in next five minutes or so.

Over the last year we would be working against three management priorities, which under [pin-off] strategy. The first will be just to manage the business portfolio and reduced earnings volatility. And we've made significant progress in this area over the last 12 months. We've announced a series of strategic [sale] and in each case we've sold businesses where we did not believe we could achieve sustained economic profit growth, although they added too much volatility to our earnings. We've just completed the sale [inaudible] I have just announced an agreement to sell Argentina and Colombia. These businesses had a disproportionate impact on the group. In the last five years they now -- return on equity of negative 29% and combined losses of 220 million pounds. So we now have a better quality, a more predictable set of businesses. We are focused on the call and now fully concentrate on driving growth from within our core franchises.

The second element of our strategy was to maintain and build levels of profitability and a third to grow our business. I'll talk a little bit about the objective of maintaining and building profitability. I think one of the key things is that -- we come to the conclusion over the last year that there is a need to manage to group differently to build profitability. and we are now making some steps -- we've started on the journey towards delivering this. We've introduce economic profit growth as the guiding principle and are already beginning to see good results. And we've been redirecting our balance sheet with higher earning costumer assets, away from many products; -- this will find margins such as debt securities and other non relationship assets.

This has allowed us to contain our growth in risk weighted assets to 6% without constraining any of our businesses and I have already mentioned we saw an improvement in our return on average risk weighted assets from 1.95% in this half compared with 1.86 in the same half a year ago. I’ll return on risk weighted asset have increased over the past two periods. We also set a high priority on cost management and once again we've delivered positive [shares] which is higher income growth than cost growth. Across the business where the 5% growth in income and 3% growth in cost we have achieve this positive growth discipline in each of our business also and that one of the primary objectives not only to group level also the divisions business unit level across the business. One of the things that has enabled us to achieve that has been a continuous focus on efficiency measures and quality measures. We now have over half of our major customer processes covered by strict [inaudible] measurement an excellent progress is being made in the Sigma [inaudible]. This is what is enabling us to continue to reduce our cost base. It is not about sacrificing investments for the future, but actually it is about improving the efficiency of underlying business processes.

The final element of accelerating profitable growth is about our focus being moving from focusing around individual product to focusing on customer relationship. We currently have about 22% of the current accounts base within the U.K., but our share of other products such as personal lending, credit cards and mortgages is quite a lot lower than that. So, we believe we have a significant opportunity to increase our penetration of our customer’s wallet. Generally, on the corporate side we have 19% of business accounts, but only 12% to 13% of commercial account, 10% of corporate account. So, once again what we are seeing is as the size of the customer increases, our penetration decreases. We believe there is an excellent opportunity for us to grow with our customers and in addition once we have a high-tech penetration of core lending, our penetration in other products needs from our customer, business customer base is relatively low. So we believe there is a good opportunity to us to grow there.

So our strategy is around focusing on deepening our customer relationships. And we believe there is ample opportunity for us to grow market share in individual products, increase our share of wallet and to draw at the revenue line with out sacrificing returns or incurring uneconomic acquisition costs. We are basically have three divisions with three storey. In U.K retail bank we are focusing on maintaining momentum. In the whole sale and international bank we are focusing on building momentum and in insurance and investments basically this is a recovery storage. And these are the priorities we have set us at about a year ago. We are seeing good progress in each of these. In UKRB we are focusing on changing the business model, becoming more customer focused and putting in place the operating model a more decentralized operation models of to score that.

We are seeing good growth as I have already mentioned in the wholesale and international bank. And in insurance and investments we are focusing on the profitable part of the business and improving the overall profitability. In the retail bank we recognized that to achieve the stand economic profit growth in the medium term we need to change our business model. As I said our objectives are attract and retain high quality customers that have a greater spend on financial services, and offer us higher value potential. And we are looking deepen the 15 million customer relationships that we have. And increase the one third share of wallet that we currently captured. In the first half of this year, we embarked on a major change program in U.K retail bank. Changing the focus of the retail network from sales volume to value creation, we have reorganized around a 165 local markets which will make us more responsive to each geography and our customers. And each market is now managed and measured as a profit center which will encourage attracting higher quality customers and deepening relationships. We have also put in place 1,400 relationship managers and segmented office to deepen relationship with our most valued customers.

This strategy is already beginning to bear fruit and we are seeing good volume growth and market share gains in most of our key retail product areas. We also have evidence that we are deepening our relationships particular with our higher quality customer, our higher potential customer base. We now have 1.8 million customers in our privilege program which is the program we have developed targeted at this particular group of customers. And from our measurement what we can see is that these customers rate on are more happy with the service that are provided to them. The rate of attrition is lower than for other customers where our officially to already one of the lowest in the industry. And we are doing more profitable business with these customers, the incremental profit generated by these customers as running it over three times that [inaudible] customers that are not in the privilege program.

Looking at the wholesale balance this is about building momentum. We have got an extensive franchise of nearly 600,000 clients providing a platform for growth. Across wholesale we provide transaction services and liquidity which are the most valued part in the relationship with our customers. Yet our natural shares of the higher return less [act it] intensive products, go to our competitors. And that’s the opportunity that we have. Our other challenge is to become much better at staying with our customer as they grow in their needs to become more complex. Recognizing this we have changed the measure of success by which we manage our relationship team that are now focused on total relationship value. We have increased the number of customer facing staff the corporate bank by 200 people and are rounding out our product range. We are developing full product capacity in the regional centers from Venture Capital through to advise these services and we are [inaudible] teams together in terms of the product specialist and their relationship managers which will also support our strategy of transitioning customers through our office.

And finally we are developing we are developing better management information’s system to report our relationship to -- to support our relationship led growth plan. We are seeing some very good and very encouraging early signs from this program and what is especially pleasing is that the growth in the division is being driven in large part by higher corporate relationship income and more particularly other income which is increased by 14% on the same period last year. This growth is being achieved in the support of [clearly] finding embedded policies and practices. Its very easy to grow your profits in short term by taking on lot more risk but we are very clear that we need to make sure we have in place to run risk management processes and procedures before we start to grow. So we've established clearly defined embedded risk policies and practices which will provide a frame work, for us to grow these businesses in a controlled and sustainable manner. What is pleasing is that in all of our key areas whether it is a corporate bank, business banking, or asset finance we have seen double digit profit growth year-on-year

Turning to insurance and investments within the INI division our objectives are to make the bank assurance model work and this continues to be a top priority. We need to build on the success that Scottish Widows enjoys with the IFA, or independent financial advisor channel. We need to manage capital efficiency and ensure the product meet out internal rate to return. We’re making progress in addressing the challenges and in particular around bank assurance, we’re launching simplified, suite of products specially designed for the branch network. And we’ve realigned the sales force to focus on the key customer relationships. We’ve also intensified our focus on the key IFA relationships. We’ve set return hurdles for each product and that the results have refocused our efforts in terms of product development in the portfolio. And we’ve also developed our Internet and telephone distribution with the general insurance product.

We’ve -- as I mentioned we’ve in terms of product profitability, we continue to manage the portfolio to ensure that new business profitability meets our requirement and we’ve seen an increase to half-on-half in the new business margins from 23.4% last year 24.3% this year. This is driven by decision that we’ve taken to withdraw from some of the less profitable and more capital intensive life and pension’s product such as long-term care and [inaudible] saving as these did not meet our internal rates of return. The impact of the improvement in new business margin is that new business contribution is growing by 5 million pounds and 74 million is up from 69 million to 74 million pounds. We’ve also see good self momentum building during the half. A number of the changes that I talked about took place during the first quarter and we see very encouraging second quarter on first quarter growth across each of our distribution channels. In terms of new product we launched the combination bond and new products for customers and the new guarantee income bond as part of our strategy is simplifying the product range available for the branch channel.

Our total growth quarter-on-quarter it 24% with good growth across each of our channels. So, we have one year into the rollout of this strategy. The first objective of managing down volatility has been well advanced. A component of return which we define as economic profit discipline and cost quality discipline are seriously underway and starting to take hold. And finally we are beginning to realize our growth objective across all three divisions. Each of them has taken a substantial change program that's building solid under depending future growth and we think some good leading indicators such as improving sales, improves customer satisfaction, continued high returns and growth. The 8% increase in profit in half year, over the prior year was encouraging and we do look forward to continuing progress in the half. And the other key messages are apart from the overall profit growth is the asset quality within the business remains strong as we continue to have strong capital ratios with our tier-one capital staying year-on-year 9.5 -- till December we've stated 9.5% and we've grown up tier-one capital ratio year-on-year and our total capital ratio remains strong at 10.6%. So, good progress in terms of strategy. We have seen with some good times in terms of sales and profitability growth and we continue to have a strong capital position. That was really all that I wanted to say for now and Mike and I will be happy to take any questions you may have.

Thank you Ms. Weir. The question-and-answer session will be conducted electronically. If you care to ask a question, you may do so by pressing the "*" key followed by the digit "1" on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, it is "*" "1" to ask a question. "*" "1" and we will pause momentarily while we assemble our roster. And our first question comes from Richard Jenkins (phonetic) of Ame Trimark (phonetic).

Hi, the question is in regards to the retail bank you mentioned, managing a customer for overall customer profitability. Can you go in to how the underwriting criteria may change or not change on thinking in regards to mortgages or credit cards? If you are looking at the overall profitability and what I am tying to get us is will you sacrifice on one side, say mortgages to get higher profitability on credit cards or vice versa? Thank you.

Yeah. I mean basically one of the things that we are focusing very much on in our consumer portfolio is growing the quality of our customer base overall. And that’s rising inside the privilege program have become very important because they are programs that are targeted particularly at higher value customers. What we are doing within the retail portfolio is moving increasingly and this is particularly at the case on the lending in credit cards business towards risk base pricing where by based on our assessment is the customer risk profile, we will adjust our pricing relative to that. So the higher quality customers will effectively receive lower pricing because obviously the risk associated with their business is much, is much less.

In terms of pricing at the moment for any particular customer we would look at the individual products but clearly our attitude is developing that relationship with them is based on their overall quality and the overall size of their wallet, of their wallet as a whole. Looking at the overall risk based pricing I think the key point to note that is that we haven't flattened our credit standards in fact that our credit quality on our loan both consistent with our strategy of growing quality business is actually improved as we look at our most recent measures those delinquency which is an early indicator of credit quality what we see is an improvement in our overall credit measures. I think the other thing to notice that I mean another example would be the chance that we are taking on credit card where you will be aware that in the U.K. a lot of people are currently providing a zero balance transfer for a credit card to the market. This chance that we have decided to take on this is that frankly it isn't economic to offer a 15 month 0% financing to people who then move those balances everywhere, anywhere else once this 0% period comes to an end basically you are chasing hot money instead what we are doing is we are offering that type of offer where appropriation probably with their much quite significantly shorter 0% period to our existing customer base because we know that to the extent that our existing customer take offer or move their credit card from the competition to us. The retention is quite significantly greater, so this will be the comment that our making particular interest in your question, I don't know Mike you could comment on this.

Richard Hi, I was just there if you look at the provision charged that we had in half year with it rose only by 3% that was near a good performance in the wholesale business, slightly higher provisions in the retail business partly acquisition related and partly volume growth related the credit quality position remains pretty robust.

Thank you

Once again it is "*" "1" to ask a question. "*" "1" to ask a question. And there appear to be no -- and we will now go to Debo Dera (phonetic) of Dexie (phonetic).

Good afternoon I have one question on the life insurance can you give me the internal rate of return your targeting in which you get on the life insurance call it or probably for example which doesn’t each much capital which is the margin you make and I mean the real margin come from the management not the new business margin?

Yeah, no I hear the question on that. We don’t have to disclose the internal rate of returns that we receive on -- that we make or the hurdle that we set nor the internal rate of return that we have, we make on each of the individual product. What I can say however is that we have seen the improvement in the internal rates of returns through each of the channel through which we operate. As a result of focusing on those products that are more profitable to us. So I think that is the key thing as we are looking at the life insurance book. That a certain products which we just didn’t feel that we would they have to write profitably and that we have exited those part of the market this is part of our overall approach to economy profit and the client is not within life insurance the decline is across the business whereby you know, first of all we can look at each of our business segments and look at the economic profit that we driving from each of our business segment. In fact each of our business is as the return which is the above target rate of return. However when you dig it that deeper any business sector what you find is that with even within the sector there is some line -- business lines that are more profitable than others some but it is directly about target return and some of not. And this is the activity that we did in the life business we've found that there were certain areas once that I've already mentioned which don’t deliver etc or rates of return clearly we will trust time improve the profitability of the individual product that if we can still that we can spare with do that we will than come after that part of the market and focus on those area which are more profitable for us and give us higher internal rate of return so what we seen is significant improvement in the internal rate of return as result of is activity it need to be key channel in the branches in the IFA network and in the direct area. Clearly the returns that we get through the branch the branches are significantly higher than through the other channels particularly the IFA channel, which is why developing the bank assurance model is actually important one for then Mike do you want to add on that.

I mean the translation into the number that we’ve report shows us and improved new business margin coming through it.

Okay, thank you.

Our next question comes from Harry Hurchbert (phonetic) Horway (phonetic) Capital Management.

Hello, Helen. Hello Mike,

Hi Harry.

Quick question to try and understand the margin attrition in the U.K. could you just give us some sense for where the five basis points reduction in U.K. retail banking margin actually comes from is most of the pressure in more digits and I guess unlike to that is the question of you know, what is the trade off that needs to be made between volume growth and margin attrition and how do you square that with your risk based pricing, or the methodology that you are using.

Okay, I think, I'm happy to answer that question but before I do so the point that I would like to make is, that we don't just, I think international gross margins is just one measure or is one part of the overall picture and that's why I think looking for the return on risk weighted asset is actually more important, because you get a whole picture that's really -- it sounds like having a mortgage, but now that -- once the pressure on mortgage demand which means that the overall net interest margin is impacted by the relatively narrow margin, we are seeing on mortgages, the fact that we make -- we also get the additional opportunities through the sale of home insurance, to the sale of term insurance which is fee based product, means the overall relationship is profitable. Clearly if you just look at net interest margin and you are only seeing part of that as overall relationship, so I think it is important to look at the thing holistic clear and that's why we prefer to look for the return on risk weighted assets, as a more holistic measure as suppose of the relationship we have with our customers, but specifically on your question about the margin. The decline in the retail margin was attributable to 3 broadly equal factors. The first is lower earnings from our current account balance sheet. Basically we have an investment policy on our current account balance sheet, so actually they have invested on our rolling 5 year basis, and thus the benefit of the higher base rate that we are not seeing, will take some time to come through, so we are actually seeing the slight margin decrease on our current account balances.

The second element, I must say it is probably the third -- the second element is the mix effect because our retail asset has grown profit than our retail liabilities. And the third area is around competitive pressure. I mean I think you will remember at the beginning of the year we indicated that we saw such margins would begin, you know there would be pressure on margin during the half, and I think we are on of the few banks to sort of anticipate that. And I think that -- when you look at all the bank's result, you have seen the margin pressure in market place. The most notable area is around the mortgage book which I have already talked about. We have also seen some pressure on margin in credit cards and that’s particularly impacted by that 700 million pounds with the zero interest balance scheme. Most of that we expect to roll of in the second half to revert variable rate. And those early days our attention on the business after reversion to our standard rate has been very satisfactory thus far. I think the final element -- the final point I would make about margin is concerned the risk based pricing clearly if you are as we are getting the best of quality customer base. You are actually offering us slightly --you know the offering about a client. So we would like to squeeze your margins. And may be that the risk associated with that is even better. So that profit that you make on it, the economic profit effetely is improved but if you just leave again at one part of picture the margin, you will slight pressure on margin. We have moved now fraction of the proportion of the loans that we valued. To the top three credit categories has increased from 30% to 40% of our book, so we are writing better quality business. The flip side of that is we look the some pressure on margin. I think it's fair to say that the overall decrease in margin was anticipated during the end of last year. As the early singes of increased competitiveness in the market became more evident.

However the key point I would like to emphasize is that, the margin decline is more than offset by the big growth in volume business in retail bank and I think the other point to make is that as we looked towards the second half we do anticipate a slowing down in the rate of decline over the interest margin in the retail business. Driven by aid of roll-off of the zero based transport in the credit card both and also by a slight widening on spreads in the deposit book. Hope that's helpful?

Alright thanks very much.

Thank you.

Our next question is from Chelsea Upson (phonetic) of Satellite Asset Management.

Hi a good question for you -- good morning just the execution of second half for stabilization of the margin to what degree would you lead to see retention on the $700 million of credit card, 0% credit card which we not turn off like in the sense that you going to have the benefit on deposit side, [inaudible] etc., I am still not sure why if was a customer and that a 0% rating someone else was in a very competitive market offering the another 0% rate I would not chose to churn and so given your expectation that you expect stabilization what kind of number on retention of that $700 million are you making?

Okay I think you are not necessarily a typical customer I think it's fair to say I think here some hot money you are on the market we exactly you are describing so it rolls around from one office to the next office to the next offer. We don't know if she disclosed our overall retention rate for what I would say to is that we have counted all retention rate this business rolled off is being both satisfactory and means combined with the six months interest free period it typically means that it actually turns out to be a good -- a profitable products for us. I think one of the reasons why customers perhaps are staying with us we are -- we have gone out with this business to attract our existing customers those are the people relationship with Lloyds TSB will manage to get them to transfer their business which was elsewhere already have the relationship so I think that makes it more sticky, it’s about having the relationship with the customer other than that Mike, would you want to add something to that.

Yeah the flip side to the comment on focusing on the relationship side, is that non-franchise customer that are coming do have a low capability and which is why we are not focusing on nets going forward so this about looking after our existing customer relationships deepening those relationships and our experience so far has been reasonably strong in terms of those customers staying with us once the zero balance transfer period runs off

Great thank you

As a reminder it is "*" "1" to ask a question. And we -- our next question comes from Jennifer Bruno (phonetic) of CBB Capital (phonetic).

Hi there. I'm just wondering given I mean I realize that the U.K. market is already very competitive but as the advent of Santan there taking over the Abbey change the environment at all?

Good question, I think it's all quite clearly because we don’t know what their strategy for operating that business would be. There is clearly going to be appearance where they can have quite a lot of work to do. As you all have seen from the [inaudible] result they having of business of late. However you know sometimes there are good bankers and you know, in the longer term I would expect them to add some value to the franchise. I think there is UK market is already quite competitive. So the having Santan coming in running Abbey would make a lot of difference. So that we would in quite a competitive environment I would be surprised to be that make a lot of different in terms of competitive climate. I think the key point to note is that we’ve already got as very clearly articulated organic growth structuring, which is demonic this thing customer franchise. Both in the retail in the call for business did. I think you know what we see is that are [trustees] is beginning to great gain attraction as your see from this result from we have made good progress in all about business unit I wait -- I don’t think that Santan takeover of Abbey national changes that position significantly. So one should never underestimate a competitor and we won't.

Thank you.

and our next question is follow up from Junky Hudson (phonetic) of Satellite Asset Management.

Hi, Thank sorry for the repeat regarding kind of Santander’s decision of Abbey [inaudible] essential one under IAS comment from Dave that in sense its kind of inevitable and they are just kind of doing it ahead of '05 there is been number of comment there have seen have to whether any through read across the your decision making can you just walk me through how you guys is currently in booking at IAS and on the pension side?

Yes, certainly. I mean, IAS 19, which is the pension standard is not dissimilar from FRS17 and as you know we have already adopted FRS17. We are already making enhanced contribution into our pension fund; we are putting our face contributions to our pension fund, probably the order of magnitude of about 120 to 150 million pounds a year. We are talking that's up -- about 220, so our total contribution over the year is about 350 million pounds of that 220 is sort of -- amortized the deficit over a period of time.

As far as the International Accounting Standards are concerned, we did see a significant impact from an accounting point of view. However, I think accounting is less of the issue; the issue I think that Abbey Group focus is really the capital issue. At the moment the pension fund deficit that we have is -- sort of effectively adding back on to our Tier 1 capital, so the FFA disregard the pension fund deficits to capital purposes. However, when we got that agreement from then they said they would want to revisit it where International Accounting Standards came in. We clearly are under discussion with the FFA informally on this basis and, you know, based on those discussions we certainly do not anticipate as the eventual position will be the deduction of our pension fund deficit from capital base, quite some way from that. In the context of the overall International Accounting Standards, we are pretty confident that while there will be some impact on our capital base it will be well within the total range of our capital ratios. We have pretty strong capital ratios, currently a strong -- our capital base and we don't believe that the impact of International Accounting Standard is likely to affect that. I think the key point to note is that although the accounting may change the under lined fundamental to the business and the cash flows will remain unaltered. Therefore, economically the financial position of the group is only going to be changed if the standard affects either the capital health, which is what I have already referred to. All the levels of distribution will reserve and that’s certainly isn't an issue for us. So you know, clearly, you know things on [inaudible] at this particular point, but the early conversations we have had with FFA leave us reasonably confident about the treatment of the pension fund deficit for capital purposes. The International Accounting Standard IS19 is not as similar from FRS17. So therefore, the impact on our actual accounts from a reporting point of view, we don’t anticipate to be material.

Alright, thank you very much.

Thank you.

There appears to be no further questions. I will turn the call back over to you Ms. Weir for closing comments.

Great, thank you very much and thank you everyone for taking time to spend with us today. I hope that's given you a clearer view and an update on where we are as far as the business is concerned. The key points that I just want to leave you is really would be around good growth in -- across our businesses particularly in our customer lending and customer deposits, where we are see increases in market share, we will also make good progress in our wholesale and the investment in insurance divisions. We have seen some margin erosion in the retail business, which we've talked about today. Costs, however, remains firmly under control and asset quality remains strong and we do have significantly strong capital ratio. Any way, thank you very much once again and, Mike and I would look forward to seeing many of you, I hope when we visit the U.S. in the fall. Thank you.

We thank you for your participation in today's conference call. The conference call has now concluded you may disconnect at this time.