Lloyds Banking Group PLC (LYG) 2015 Q4 法說會逐字稿

Welcome to the Lloyds Banking Group 2015 conference call.

(Operator Instructions)

This conference is being recorded today. I will now hand the conference over to Douglas Radcliffe. Please go ahead.

Good afternoon, everybody. Thank you for joining the [step focused] call on the Lloyds Banking Group's full-year results. For those that don't know me, My name is Douglas Radcliffe and I'm the Group Investor Relations Director. I'm also joined today by Toby Rougier, our Group Corporate Treasurer, and Richard Shrimpton, he's our Group Issuance Director.

A number of you may well have dialed into the results meeting this morning, and if you did, I apologize, as I will run through some of the key points again. I will start with our strategic positioning, cover our financials, and will then hand over to Toby for some more detailed comments on the balance sheet, capital, funding, liquidity, and regulation. Finally, we then set aside some time at the end for Q&A.

Looking first at the economy and our differentiated model, while the recent market volatility and lower-for-longer bank base rates are currently creating challenges for the sector, the underlying economy in the UK continues to be resilient with GDP growth of 2.2% in 2015, providing a solid foundation for the Group's future prospects. Importantly, the recent economic recovery has been achieved on a sustainable basis with continuing deleveraging reflected in reducing ratios of debt to GDP. The Group has a strong balance sheet, having significantly strengthened our capital, funding, and liquidity in recent years, which, combined with our cost position and low-risk business model, position us well in the face of the current market volatility and uncertainties.

Mortgages, as many of you know, are our largest asset class and we are seeing credit quality continuing to improve, supported by positive employment trends and low interest rates. The average loan-to-value ratio of our book has now reduced from 53% to 46% over the past two years, with the proportion of our portfolio with a loan-to-value of over 100% reducing to just over 1%.

In an operating environment where changes to customer preferences, increasing competition, evolving regulation, market volatility, and the prospects of lower-for-longer interest rates are creating significant headwinds for the UK banking sector, our differentiated, simple, low-risk, UK-focused retail and commercial business model positions us well to react effectively. Our low-cost operating model enables us to deliver value to our customers while investing in our propositions and generating superior and sustainable returns. In addition, as a UK-focused bank that is not subject to multiple regulatory jurisdictions, we are well-placed to respond to the increased regulatory requirements that the sector is facing.

So looking at the results themselves, we've delivered a robust underlying financial performance with increased underlying profitability and returns. Underlying profitability of GBP8.1 billion was up 5% versus 2014, or 10% excluding TSB. This was driven by a 1% increase in income, lower operating costs, and a 48% reduction in impairments, resulting in an underlying return on required equity of 15%. We saw a good net interest income performance with a 5% increase to GBP11.5 billion, reflecting a continued improvement in the net interest margin, which at 2.63% is 23 basis points higher than 2014. As in previous periods, these trends continue to reflect improved deposit pricing, lower wholesale funding costs, and the disposal of lower margin run-off assets, partly offset by ongoing asset pricing pressures.

Looking forward, we expect these factors to continue and expect the Group's 2016 margin to increase to around 2.7%. Other income is down 5% due to the disposal of run-off assets with the underlying performance in line with prior year. As expected, other income recovered in the fourth quarter with improvements in every division, and was up 11% on Q3 despite around GBP60 million of weather-related insurance claims. On costs, operating costs of GBP8.3 billion were lower than 2014, with efficiency savings from our simplification program, business disposals, and run-off more than offsetting increases from pay and inflation and additional investment in the business. Our market-leading cost-income ratio improved to 49.3% and remains one of the lowest across the sector.

We're responding to the lower interest rate environment through the accelerated delivery of cost initiatives and the targeting of further efficiency savings. And we remain committed to achieving annual reductions in this ratio with a target of around 45%, which we now expect to achieve as we exit 2019. Impairments fell 48% year on year to GBP568 million, with the AQR improving to 14 basis points compared with 23 in 2014. Run-off was down by GBP195 million and our ongoing businesses by GBP339 million, reflecting the current economic environment, our effective risk management, as well as provisional write-backs and releases.

The quality of the Group's loan portfolio continues to improve. Impaired loans are now 2.1% of total advances compared with 2.9% a year ago, and our coverage remains high at 46%. It is also worth highlighting that our lending exposures across oil and gas, mining, and commodities are small, representing approximately 1% of our total loans and advances to customers in aggregate. And so far this year we are not seeing any signs of increased stress in our wider book.

In terms of guidance, the AQR is expected to be around 20 basis points in 2016. This comprises of a marginally lower level of gross impairments and a much-reduced level of write-backs and provision releases. Statutory profit before tax was GBP1.6 billion for 2015, which includes a further provision of GBP4 billion for PPI, of which GBP2.1 billion was taken in Q4, leaving GBP3.5 billion currently unutilized. While year-on-year reactive complaint volumes were down 8% in 2015, and are currently averaging approximately 8,000 per week, we are now assuming that reactive complaint volumes, including those relating to Plevin, will increase to around 10,000 per week through to the currently proposed time bar in mid-2018. Clearly, actual experience could and is likely to be volatile through the period, but we believe that, based on these assumptions, the amount we have provided should be sufficient.

Turning briefly to the balance sheet, on risk-weighted assets the Group continues to make good progress in derisking, with RWAs down GBP17 billion or 7% to GBP223 billion. This was driven by a GBP9 billion reduction from disposals, including TSB, and a GBP7 billion benefit from economic factors including an increase in house prices. On capital, the business continues to be well capitalized and strongly capital-generative. In 2015, you've seen a further strengthening of our CET1 ratio from 12.8% at the end of the prior year to a pro forma 13.9% pre-dividends and 13% post-dividends. Total capital now stands at 21.5% and the leverage ratio of 4.8% post dividend.

Toby will cover all of these in more detail shortly. Given our performance and capital position, we today announced that the Board has recommended a final ordinary dividend of 1.5p per share bringing the total ordinary dividend for the year to 2.5p. In addition, in line with our commitment to return service capital, the Board has also recommended a special dividend of 0.5p per share. I'll now hand over to Toby, who will cover the balance sheet in more detail.

Thank you, Douglas. Good afternoon, everyone, and good morning to those dialing in from North America.

Douglas has provided you with an overview of the full-year results. I'll now discuss the shape of the Group's balance sheet covering the Group's capital funding and liquidity positions. I'll also cover some of the regulatory changes we've seen and provide an update on our issuance plans. But before covering the balance sheet, I would like to provide an update on the ECNs given recent activity. As many of you will know, in December, the Court of Appeal unanimously found that a capital disqualification event had occurred. Following this, we launched tender offers for the non-prioritized ECNs stating that we would call any securities outstanding at the end of the tender. We also called the prioritized ECNs.

More recently, the Supreme Court has announced it will allow the trustee's appeal, and the hearing is due on the 21st of March. We don't know when a judgment will be handed down, however, and it may be many weeks or even months after the court hearing. In calling the ECNs, we've tried to balance the interests of different stakeholders, including both our equity investors and our debt investors. I appreciate that a number of debt investors are disappointed by what we've done. However, it was only by calling the ECNs that we were able to address the asymmetry in relation to the two sets of stakeholders. If the Supreme Court finds that a CDE has not occurred, then we will fairly compensate investors. However, if the Supreme Court confirms the Court of Appeals' decision, absent calling the bonds, there was no way to recoup the excess coupons paid to the detriment of our shareholders. I appreciate that some of you were looking for more detail on the ECNs on this call. However, given it's an ongoing legal process, there's not much more I can say. That said, I hope we're coming to the end of this process and that this matter will shortly be resolved.

Now back to the balance sheet and results. As I mentioned, I wanted to talk briefly through the balance sheet, looking at capital funding liquidity, and I'll also touch on ratings. On capital, the Group continues to be strongly capital-generative. Before dividends and PPI, we generated 3 percentage points of capital in the year as a result of strong underlying profits and reduced risk-weighted assets. This underlying capital generation allowed us to absorb the impact of the sale of TSB, the additional PPI and other conduct charges, while still improving the Group's capital position.

Our pro forma common equity Tier 1 ratio was 13.9% at the year end before dividends, and 13% after dividends. To echo George's comments from this morning, we continue to believe that our current capital requirements to grow the business, meet regulatory requirements, and cover uncertainties, will be around 13%. The Group has also continued to maintain a strong total capital ratio of 21.5% after dividends at the year end, putting us in the top tier of global banks. This means that the Group is well-placed to meet MREL, and I'll cover this a little bit later in the call. And finally, on capital, the Group's leverage ratio remained broadly flat at 4.8% post-dividend, which again puts us in a strong position.

Turning next to funding and liquidity, the Group's loan-to-deposit ratio remains roughly flat at 109%. Total deposits at GBP418 billion were down 1% excluding TSB, due to a planned reduction in tactical deposits. Wholesale funding has increased moderately from GBP116 billion to GBP120 billion over the year. Money market funding is included in these numbers and was roughly flat at GBP22 billion at the year end. At the end of 2015, we had around GBP123 billion of LCR eligible liquid assets, which exceeds our total outstanding wholesale funding, and is more than 5 times our money market funding. Hence the Group continues to maintain a robust liquidity position. We've also made good progress so far this year against our term issuance plan, which I'll cover later. And these improvements were recognized in Lloyds Bank's ratings, which are either reaffirmed or upgraded by each of the three main agencies this year.

To summarize before moving on to some of the regulatory developments, 2015 was another strong year of delivery with increasing revenues and underlining profits despite tough economic conditions. The Group has a diverse funding platform and maintains significant levels of liquidity. And finally, the business is strongly capital-generative with market-leading capital ratios that leave us well-placed for any future changes.

So now let me discuss the various regulatory developments and how they impact the Group. Regulation generally is an area where we continue to see considerable activity, and I'll try and pick out some of the main developments. Firstly on liquidity, in October, the liquidity coverage ratio became the Pillar 1 standard in the UK. The Group is fully compliant with the regulations, and as I mentioned, we have a robust liquidity position with an LCR in excess of 100%. In addition to our primary liquidity, the Group maintains around GBP100 billion of secondary liquidity, the vast majority of which is eligible for use in a range of central bank facilities.

Turning to capital, we've seen the regulations continue to evolve this year with the finalization of the UK leverage ratio, a revised Pillar 2 methodology, and a clarification of the UK regulatory capital buffers, as well as more recently consultation papers on MREL, domestic systemic risk buffers, and further consultation papers on ring-fencing. Given our topic of the day, I'll take a little bit more time to talk about MREL. As you know, Lloyds is not a G-SIB and as such, we are not subject to TLAC but are subject to MREL. And the PRA has recently published a consultation paper on the implementation of MREL in the UK.

This consultation closes in March, and we would expect a policy statement shortly thereafter, and an indication of our bank's specific MREL some time after that. That said, for Lloyds, we expect our MRELs to be met with regulatory capital and senior unsecured debt issued out of our holding company, Lloyds Banking Group PLC. In this regard, we haven't issued senior debt out of the HoldCo yet, given our strong total capital position, but now that we have greater clarity on what is required in terms of MREL, we'll probably start issuing later this year. At present, the MREL CP points to an end state amount of roughly 2 times Pillar 1 and Pillar 2A plus buffers from the beginning of 2020.

Clearly, this stage is certainly a consultation paper and we're still waiting further clarity. However, given our strong total capital position, we don't expect this will fundamentally change the funding model of the Group. We anticipate meeting MREL through migration of OpCo debt as it matures. To give you a sense of quantum, we have about GBP5 billion of OpCo senior unsecured debt maturing in each of the next four years, and it's a proportion of this debt that we're likely to refinance at HoldCo level.

I'd now like to comment briefly on ring-fencing, following on to the comments that George made in his presentation this morning. Early this year, in line with the rest of the UK industry, we submitted our near final ring-fencing plans to the regulators. We have a clear plan for ring-fencing based on our simple UK-focused retail and commercial business model. The vast majority, around 97% of loans and advances, will sit within the ring-fence bank, and hence the costs of implementation and associated customer impact are expected to be relatively low for us. We estimate costs in the region of a few hundred million pounds, spread over the next few years, and we are fully on track to deliver in line with the 2019 deadline. We continue to expect that all existing and new OpCo senior debt will remain within the ring-fence bank.

That's all I want to say on regulation, but let me finish by talking briefly about our issuance plans. As I mentioned earlier, total wholesale funding increased moderately in 2015 to GBP120 billion. The Group has a well-established and diversified wholesale funding platform and a broadly stable balance sheet now that we have completed nearly all of our restructuring. During 2015, we issued around GBP22 billion of new term debt across a diverse range of products and currencies, and we have established ourselves as one of the strongest credits in Europe, as evidenced by our credit spread performance in the past few years. Looking through the cycle, we expect steady-state funding requirements to be roughly GBP15 billion to GBP20 billion per annum, evenly distributed across different products. Specifically for 2016, we currently expect issuance volumes will be at the lower end of this range, at around GBP13 billion to GBP15 billion.

We've made a strong start to the year with around GBP4 billion already issued despite recent market volatility, and have seen good demand for both public benchmark deals and for privately placed MTNs. We currently have no near-term need for additional Tier 1, but we will continue to explore opportunities around other asset classes that are likely to include HoldCo senior, as I mentioned earlier, and more Tier 2 subordinated debt later this year.

That concludes what I wanted to say. Thank you for listening. I'll now hand back to Douglas.

Thanks, Toby.

To summarize, in 2015, the Group made good strategic and financial progress. The Group has a clear strategy and a differentiated business model which is providing security in the face of recent market volatility and competitive advantage through our low-risk approach and focus on costs. And through our simple UK-focused multi-brand approach, we continue to be well-positioned to deliver even in a period of lower-for-longer interest rates. As a result, for 2016, we expect an increase in our net interest margin to around 2.7%, are committed to further reducing the cost to income ratio, and expect a level of impairments significantly lower than are through the cycle guidance.

We are also reconfirming our medium-term return on required equity of 13.5% to 15 %, and our 45% cost income ratio targets, although, due to the interest rate environments, and in the case of our ROE, additional tax surcharge, we now expect the timing of these targets to be deferred out to 2018 and exiting 2019 respectively. We remain confident in our ability to generate significant amount of additional capital, and as a result, we are also today improving our guidance for pre-dividend CET1 generation from around 150 to 200, to around 200 basis points per annum.

In summary, the combination of our simple low-risk business model with our ongoing strategic delivery and balance sheet strength, positions us well to deliver sustainable growth and superior returns and through this, become the best bank for customers.

That concludes today's presentation. We are now available to take your questions.

(Operator Instructions)

Lee Street from Citigroup. Lee, please go ahead.

Hello. Good afternoon, and thank you for taking my questions. Two for you, please. Could you confirm in terms of management of buffers as it relates to obviously the [MG&H] one coupons, what you're looking to run out on a fully applied basis. I know there was a lot of talk about it on the call this morning but I'd just like to be clear. And secondly, if Lloyds were to lose the ECN appeal, can you just quantify what that would do in terms of the 2016 net interest margin guidance, please?

Thanks, Lee. Okay. No problem. Toby will answer the first question and then I'll cover the ECN guidance.

On capital guidance, so we say in terms of what we currently need, we say our current guidance is around the 12%, plus an amount roughly equal to one year's ordinary dividends, which most people interpret as another percent. So broadly around 13%, and that would include a management buffer.

With regard to your questions on our ECNs and margin guidance, we made it quite clear this morning that clearly the full-year net interest margin was 2.63. We are now expecting a net interest margin for 2016 of 2.70, and that includes the benefit of ECNs. That probably equates to about 4 to 5 bps.

Okay. So 100 bps managed buffer and the bulk of the increase then from the ECNs. Then is that probably a fair takeaway?

Absolutely.

Okay. Thank you very much, gentleman.

Thank you.

Greg Case from Morgan Stanley. Greg, please go ahead.

Hi, guys. Just a couple for me. Firstly, I was just wondering if you had an idea of an optimum total capital ratio that you guys were looking for. Now that you're looking at doing senior hold [cuts], I was wondering if the amount of tier 2 in the stock might want to come down. I know you're flagging that you're looking to do maybe a bit more. I was wondering how all that fits together.

And also just on the FLS, I know it's not something we think about an awful lot but given you guys have got, what, GBP26 billion [hour] I was just wondering how that profile comes down over time and I'm guessing that's baked into your issuance forecasts. Does that -- I know it comes down by about 25% every six months, I think it is. Is that based on your drawings or is that based on the full allowance that you would have?

Okay. Thanks Greg. I think Toby will respond to those.

Greg, hi. So on total capital, at the time of the strategic review in October 2014, we gave guidance in terms of total capital. We looked to maintain a total capital ratio of roughly 20% or around 20%, and that would still be true today. And then, I think your second question was on FLS. Is that right?

Yes.

Yes, you are right. We have been a strong supporter or an active supporter of the government's funding for lending scheme. It's a scheme that was design to promote lending to SMEs. It's a scheme that we have been an active supporter of.

What we currently have -- I think you mentioned a number of GBP26 billion. I think it's a little higher than that. So we currently have about GBP32 billion outstanding under FLS, and the maturities are fully baked into our funding program. So we think about it in the context of the funding program in terms of the maturity profile of that.

Yes. Thank you very much. Does that imply you drew more down in the fourth quarter? I think the only updates were up to the -- .

We did draw more in the fourth quarter, yes.

Okay. That makes sense. All right. That's it for me. Thanks.

Thanks, Greg.

Georgia Hades from Alliance Global Investor. Georgia, please go ahead. Georgia, your line is open.

Georgia, do you have a question? I'm not sure, Georgia, whether you might be on mute. But I think in the absence of any response from Georgia, we should take the next question, please.

Neil McCabe, Fiera Capital. Neil, please go ahead.

Hi. Thanks for taking my call, guys. I'm calling from Toronto, Canada so I wasn't on the earlier call and have not had an opportunity to listen to the replay. My understanding is Antonio had made some comments around Brexit's concerns, you guys being relatively insulated. I was just wondering if you could elaborate on that and how you guys are thinking about that. Just some -- I'm sure you've got sort of a blanket statement you're sending out at this point with reference to that. Any comments you can make would be helpful. Thanks.

Sure. Thanks, Neil. Actually, to be quite honest, Antonio didn't make any comments on the call this morning about Brexit because actually there weren't any questions raised, which I have to say was slightly surprising on the actual equity call. Essentially, as you know though, I can actually add a couple of comments here. If you look at Lloyds as an entity, we are very much a UK-focused business. Over 95% of our assets are in the UK. So from a direct impact, there's probably going to be a limited impact across the piece.

However clearly, a number of our customers, particular in the commercial space, actually have dealings with customers with their businesses across Europe and indeed the world, so clearly it will impact us and we will have an interest in it. Now from our side, clearly the decision to progress with the referendum was only taken last week. The referendum date has now been decided as the 23rd of June. The Board has actually yet to have a good opportunity to discuss our approach to the referendum and how we're going to look at it, so that's something that they will do at the next available opportunity, and we'll update the market at the time.

Okay. Thanks a lot.

So at the moment, the amounts of [save] updates is fairly limited.

Okay, great. Thanks a lot.

I think we have one more question outstanding I think from Andrew.

Thank you. You announced the solvency ratio of 148% for the insurance operations. I just wanted to ask is that a single operating company or is it like a consolidation of your insurance writers?

I'll take that. During the course of 2014, we went through a Part 7 exercise to consolidate the insurance entities into one entity so they're all now one entity and so it would be in relation to that one entity.

Okay. Thank you. And just quickly following on from that, you said that this is I think before dividend. Do you have an idea what the amount of dividend coming up from the insurance group is going to be?

There was actually a dividend that was paid of GBP500 million, which was actually paid in 2016, so this year but actually relating to the 2015 year. So hence why that GBP500 million has actually been included in the Group's capital ratios and which is why we've actually got a pro forma capital ratio of 13%. So in any normal year, it would have actually been taken last year, but due to solvency 2, we actually held that off to actually see exactly what the impact was going to be. And it was actually only formally paid this year even though it related to last year.

I see. Okay. Thank you.

I think we now have a couple of more questions that have come on the line. Joseph, next.

Joseph, your line is open. Please go ahead

Hi, thanks for taking my question. Perhaps you guys could shed some light on what the Company means in using the term commentated fairly in the event of a favorable ruling for the ECN holders. Maybe the quantum of the effect, and who actually awards the damages? Is the Supreme Court doing that or would it be the company? Thank you.

Yes, thank you. I'll take that. I can't comment any more on that I'm afraid not least because the nature of the judgment may have some impact on it so at this stage, I'm afraid the answer is we've got no more comment to make on that point.

Thanks. Just in terms of -- can you comment if the Supreme Court awards a judgment or not? In terms of damages? In terms of damages?

So the question's in front of the Supreme Court as I understand it is whether or not a capital disqualification event has occurred. So that's the question that they will be opining on. Clearly they might choose to go further than that.

Okay, great thank you.

[Kenda Affery] from Axiom. Kenda, Please go ahead.

Good afternoon. Thank you. On TLAC, one general question and one specific one. The general question is, what are your expectations throughout the next steps on TLAC? Do you expect a [statutory hold] where MREL would be converging with TLAC under your condition? The specific question on TLAC senior [hold group], how do you actually deal with hedges when you issue a fixed-rate senior hold group where do you hedge, and do you keep collateral or do you have to go through another [ATVR] because essentially [hold core down] is supposed to keep collateral. Thank you.

Fair questions. There's still a lot of uncertainty how TLAC and MREL will ultimately merge or not with regulation. You may have heard recently that [bire balls] and ECB and the EBI, there's still ongoing dialogue and discussion on MREL and TLAC will ultimately be employed together. As Toby said earlier, for us we are only bound by MREL under the CRR and what we are looking to do is, as with other UK banks, have a single point of entry where we issue our qualifying debt from the holding company whether that be subordinated debt or whether that be holding company senior.

To your point about STVs, et cetera, again, unlike say the Swiss, we would be issuing directly out of our UK holding company. We would then as the rules unwind, we will then downstream that debt in a form that is required to meet MREL, and we would then hedge it to the operating company.

Thank you.

John [Dorfin] from [Saintbridge] Advisors. John, please go ahead.

Hi. Thanks for the call. I just had one follow-up. Some of it was asked before, and I appreciate that you are limited in what you can discuss with respect to the ECNs, but my question really is a little bit about that. If you can't speak about what compensate fairly means, I think it's important to know whether you think that in a situation where the court rules basically that an event did not occur, which rules against the bank, and then this compensate fairly clause comes into play. Do you think that is that something that the bank will set or is that something that the court decides?

Because my understanding is, I agree with what you said that the court is ruling simply on whether a capital disqualification event has occurred and if they just do that, there's no damages awarded or anything of that type. The reason I ask is as a holder, it's very difficult to make a decision on your pending tender offer without knowing what the alternatives are. I think you can appreciate where we sit here. I appreciate the fact that the bank has committed to providing compensation -- fair compensation but that's a pretty ambiguous term, and I think it's important that disclosure be provided to allow investors to make a decision with respect to the tender offer.

John, I hear your point totally. It's been a particular painful process for all of us involved, bond holders and us as well. As Toby said earlier on, there is a sort of limited amount that we can say on this but it ultimately depends on both the nature of any judgment, and to the questions earlier on about what direction that the Supreme Court might give or how that then might be remedied. We've gone out to say that we would compensate fairly which I agree, has a certain amount of ambiguity to it. It really depends on the process thereafter.

I guess what will be involved is really kind of for stakeholders, what comes out of the Supreme Court judgment, how that's handed down, and there's a conversation between us and representatives for bond holders. But ultimately, the Supreme Court may well just instruct the High Court to determine what compensation would be, which you would assume would be fairly balanced between the interests of all parties.

Okay. That helps a little bit. It's just -- now that since the original tender came out, there's now clearly agreed to hear it, it changes the metrics quite a bit in terms of there will be a decision one way or another, right, so we have to evaluate that as fiduciaries. That's my point. So it's very hard to -- with incomplete information, it's very hard to make a decision.

We do understand that. As Toby mentioned early on, just because there is a court date set, we still have a good degree of uncertainty about when the actual judgment would be handed down.

Okay. Thank you.

Andrew Lewis from Fidelity. Andrew, please go ahead.

Hello. Thanks for taking questions today. Just on Brexit, one more question. I appreciate that the Board hasn't met and there's not much you can say on it. But I was wondering is it from a treasury perspective, do you see the referendum as a kind of event where you might want to have a higher liquidity buffer? That you might want to take extra liquidity into that referendum or is it just not something you're particularly worried about in any way from funding and liquidity perspective?

Andrew, let me give you some views on that. We have a very -- as I mentioned on the call, we have a very robust liquidity position with our LCR is north of 100%. We maintain a very significant level of liquid assets and also secondary liquidity. So we're pretty comfortable with our position going into this year.

But we've also been quite active in the first few weeks of this year in terms of our wholesale funding program for the year. We've raised GBP4 billion so far this year out of a program of GBP13 billion to GBP15 billion. So we could afford to be -- if the market develops a certain way, we could afford to be pretty quiet in Q2 and Q3 if the market wasn't there for us, but we would anticipate continuing with our program during the course of the year. We have a robust liquidity position. We're comfortable with where we are and we'll see how the market develops.

Okay. Thanks.

Simon Morgan from Moore Capital. Simon, please go ahead.

Good afternoon, gentlemen. Thanks very much for a good set of results. I've got two questions. The first procedural, the second one's qualitative. Could you just remind us what the procedure is for the exercise of the [core] option on the unattended bonds, when that's going to be? And then qualitatively, I was looking at the results that 2.25% ordinary dividend which is great, 0.5p special dividend which is fabulous.

I think there was a caller early on who was speculating on a GBP4.5 billion dividend payout which I think George said you can't dispute the math on. So I hear all that and then I heard a commentary earlier on about treating the ECNs in a way redressing the asymmetry between bond holders and equity. It seems to me that these [parents] are rather significantly in the favor of the equity and I'm trying to understand how you justify the treatment of ECNs with this dividend-paired context. Thanks.

Simon, I'll tell you what. Let me just address the dividend first of all because clearly we were very pleased today to announce an ordinary dividend totaling 2.25p for the year an additional 0.5p special. Clearly, that was based on paying down to a corrective tier 1 ratio of 13%. On the call this morning, there was also some speculation as you say as to what that might mean for future payouts. That is at this moment in time very much speculation because obviously, we have to see where we get to from a capital-ratio perspective both at the interim time period, and indeed at the full year.

We've indicated that special dividends or buybacks would only be considered at the full year. It will only be at that time when we will actually be looking at capital repatriation looking into the specials or buybacks. Certainly what I can confirm is that actually the capital generation in the business is clear, and we've highlighted that we will deliver against the dividend policy that we have stated. Toby, I don't know whether you do want to enhance anything else?

Richard, why don't you pick up the procedural stuff.

Yes, so hi Simon (inaudible). On the procedural stuff, I guess we're sort of midway through process here so the ECNs break into three categories. There was the prioritized notes from back in 2014 which were called when we announced the actions a few weeks ago. And I think the call date for that was around the second week of February. We then took the tender offer on the euro and sterling notes, which closed a week or so ago.

And that led you to be called I believe next week. I think it's around the 28th that you're to be called. And then we've got the dollar notes which the tender offer is currently ongoing for, and I believe that, that offer closes around April 2, -- sorry, March even. Getting ahead of myself. We would expect the residual ECNs that aren't tendered then to be called around 10 days after that. That's the procedural points.

You're third point was just around balancing of interests. As Richard mentioned, this has been a long running process. It's been difficult for all people involved in it. We have as I mentioned, we have as we've been through this process, we have tried to balance the interests of the different parties. I've explained my logic or our logic in the opening comments that I made. I totally understand that you may not agree with that but that's the decisions that we came to in the background to those decisions. So then I really don't think I have more to add on that now.

I appreciate that. It's not that I don't agree with it or disagree, it's just I think that when you're splashing large dividend numbers around versus chiseling coupon interest, albeit for an undetermined period. It looks a little questionable and disingenuous. That was really the point I was getting at. I understand that you are in a relatively difficult spot.

Thanks.

Cyril [Salfik] from Perry Capital. Cyril, please go ahead.

Hi, there. Congratulations on the good results and thanks for the call. I just had two questions around your AT1s. You've been one of the banks that has been more proactive and have issued AT1s when and above the minimum requirement. I think we've seen a number of other European banks issue significantly more than the minimum requirement.

So I guess my first question is, are there plans or is there a desire to do more AT1? And the second question, if there isn't, then what sort of scenarios would you have to run into to consider more?

(Inaudible) that question. I think in Europe, a lot of it's still evolving as banks are working out all their Pillar 2 requirements as well as Pillar 1 requirements. For us when we were looking at the quantum of AT1 we wanted, we were looking at the -- effectively the 1 1/2% bucket minimum which would have gotten you a number much lower than the five and the [bit] billion that we've got outstanding. Also on top of that, it was the benefit that AT1 gave us to meeting leverage ratios, to meeting rating agency requirements. I don't see filling an element of Pillar 2A as well with that.

When you take those all into account, we're broadly satisfied that the amount of AT1 we have today is sufficient. As Toby mentioned earlier on, we have no immediate plans to look at AT1 again anytime soon. It will depend over time, over the medium term how the balance sheet grows as to whether we have appetite and capacity to look at more AT1.

Okay. Great. Thank you.

Ladies and gentlemen, this concludes the Lloyds Banking Group 2015 results fixed-income conference call. For those of you wishing to review this conference, the replay facility can be accessed by dialing 0121-260-4861 within the UK. 1-844-230-8058 within the US. (Inaudible) use standard international on 0044-121-260-4861. The reservation number is 264-2650hash. Thank you for participating. You may all disconnect.