Lloyds Banking Group PLC (LYG) 2018 Q4 法說會逐字稿

Thank you for standing by and welcome to the Lloyds Banking Group 2018 Results Fixed Income Conference Call. (Operator Instructions)

Ed Sands and Toby Rougier will outline the key highlights of the results which will be followed by a question-and-answer session. (Operator Instructions) I must advise you this conference is being recorded today, and I will now hand the conference over to Ed Sands. Please go ahead.

Thanks very much. Good afternoon, everyone, and thank you for joining this debt-focused call on the group's 2018 results. My name is Ed Sands, and I am Director of Investor Relations and I'm joined by Toby Rougier, our Group Corporate Treasurer; and Richard Shrimpton, who is Group Capital Pensions and Issuance Director. A number of you may have dialed into the results call this morning, and if you did, I'm afraid I'll run through many of the same points again. I'll cover the strategic highlights and the 2018 financials and then hand over to Toby who will cover the balance sheet in more detail.

We've also set aside some time at the end for Q&A. I'll start with the strategic highlights for the year. We've made a strong start to the group's latest strategic plan and have significantly increased levels of investments in the business in 2018. During the course of the year, we have further extended our reach as the largest digital bank in the U.K., now operating with 15.7 million digitally active users, while over 70% of the products are originated digitally.

And this is complementary to our significant reach as the largest branch network in the U.K., reflecting the strength of our multi-brand and multi-channel offering. We've also launched our Open Banking aggregation capability to all of our mobile app customers, while our unique business model has enabled us to be the only provider to be able to show all of our customers' banking and insurance needs in one place with the launch of our Single Customer View to more than 3 million customers.

On building new capabilities, we continue to work closely on our innovation pipeline like our investment in [publishing] and the announcement of our strategic partnership with Schroders will enable us to create a market-leading wealth proposition.

We've also seen strong financial performance with continued growth in profits and returns on both underlying and statutory basis. And as a result of this performance, we've delivered capital build of 210 basis points, and this has enabled the group to recommend a final ordinary dividend of 2.14p per share and the 2018 total dividend of 3.21p is 5% higher than last year, in line with our progressive and sustainable ordinary dividend policy. While the board also intends to implement an increased share buyback of up to GBP 1.75 billion over the course of 2019 reflecting our desire to return surplus capital to shareholders.

Now turning to the financials. Underlying profit of GBP 8.1 billion was up 6% with net income of GBP 17.8 billion, up 2%. Lower operating and remediation costs drove positive draws of 5% and a further improvement in the cost to income ratio, while the gross AQR was stable at 28 basis points.

Now looking briefly at the individual lines. Net interest income of GBP 12.7 billion is up 3%, driven by both an improvement in the margin and slightly higher average interest-earning assets.

The margin improvement of 7 basis points to 293 was due to lower funding and deposit costs, again more than offsetting continued pressure on asset margins. Going forward, while we expect asset pricing to remain challenging, we expect the margin will be in line with our previous guidance of being resilient to around 290 in both 2019 and the remainder of the plan period.

Other income of GBP 6 billion is in line with the underlying results in 2017 and our guidance for the year. And in terms of divisional performance, we talked last February about targeting new business growth in insurance and wealth. And in 2018 new business income was up 87% to GBP 526 million, largely driven by growth in workplace, planning and retirement.

Retail's other income was broadly stable at GBP 2.2 billion, despite the introduction of our simpler overdraft fee structure, while commercial was down slightly at GBP 1.7 billion as a result of lower levels of client financial markets activity. And gilt gains totaled GBP 270 million for the year compared with GBP 274 million in the prior year.

On costs, we continue to make good progress and operating costs are down slightly on 2017 at just over GBP 8.1 billion, while remediation costs are down 31% at GBP 600 million.

Going forward, we will maintain our focus on cost while continuing to invest in the business. We're moving at a faster pace than originally envisaged, and we now expect operating cost to be below GBP 8 billion in 2019, a year ahead of our original target and without additional cost to achieve.

Going forward, we also expect a significant reduction in remediation costs and as previously guided, we will continue to target a cost to income ratio in the low 40s by the end of 2020.

Turning now to credit. Credit quality remains strong and continues to benefit from our low-risk approach including provisioning. Gross AQR of 28 basis points is stable on the last 2 years, while the net position is 21 basis points due to the expected lower level of release and write backs.

And while IFRS 9 introduces additional volatility, we continue to expect the normalized net AQR to be less than 30 basis points in 2019 and through the plan.

Looking next to statutory profit. Statutory profit after tax, GBP 4.4 billion for the year and up 24%, with a 6% growth in underlying profit and 10% reduction in below the line items.

In terms of the individual lines, negative market volatility and asset sales in 2018 of GBP 50 million includes GBP 236 million of negative insurance volatility in the fourth quarter, reflecting weaker equity markets and wider credit spreads, some of which has already been recovered since year-end.

Restructuring of GBP 879 million include severance costs of GBP 247 million as well as the costs of our non-branch property rationalization, ring-fencing and the integration of MBNA.

In 2018, ring-fencing cost about GBP 0.3 billion and MBNA about GBP 0.1 billion. And as both of these programs are largely complete, these costs will fall away in 2019.

PPI charge of GBP 750 million includes GBP 200 million in Q4 with higher average redress and administrative costs on our improved capability to identify valid claims offset by lower reactive complaints, which were around 12,000 per week and inside our assumption of 13,000.

The effective tax rate is 26% and 7 points lower than last year due to lower conduct charges and in line with our longer-term expectation of around 25%.

Finally, as you've heard, our statutory return on tangible equity is 11.7% and already significantly ahead of the sector, and we continue to expect this to increase to between 14% and 15% this year.

With that, I'll hand over to Toby, who will cover the balance sheets in more detail.

Thank you, Ed, and good afternoon, everyone. Ed has covered the group's full year results and the progress we have made on our current strategic plan. I'll now give more detail on the group's balance sheet and how we are positioned from a capital funding and liquidity point of view. I'll also update you on our issuance plans for 2019, and then I'm happy to take any questions.

Before that though, let me just update you on our new group structure post ring-fencing which came into effect at the beginning of the year. Following the restructuring undertaken throughout last year, we now have 4 main subsidiaries below our holding company, Lloyds Banking Group.

These are Lloyds Bank, our ring-fence bank; Lloyds Bank Corporate Markets, our nonring-fence bank; Scottish Widows, the insurance company, and lastly, a small subsidiary that holds our equities businesses.

For us, our ring-fence bank continues to hold the vast majority of our customer business and accounts for over 95% of loans and advances. By comparison, our nonring-fence bank is relatively small. In terms of issuance entities, we'll continue to issue out of the holding company, Lloyds Banking Group for the groups capital and MREL needs and out of Lloyds Bank, the ring-fence bank for funding requirements.

We're also establishing an issuance program to the nonring-fence bank, although the volume of issuance from this entity is likely to be modest in line with its balance sheet. For those that are interested in further detail on the new group structure, our fixed income deck will be available on the website shortly and gives a good overview of how we're set up, where issuance will come from, and how each entity is rated.

And so back to the balance sheet and the financials, the group's balance sheet has remained stable during the year with a loan to deposit ratio of around 107%. Customer loans and advances were broadly flat year-on-year at GBP 444 billion, with growth in targeted segments offsetting the sale of our legacy Irish mortgage portfolio and a small reduction in the closed mortgage book.

Customer deposits have also remained broadly flat through the year at GBP 416 billion, with continued growth in current account balances and a small reduction in the savings portfolio.

Turning to capital, the business continues to be highly capital generative with roughly 210 basis points of CET1 capital build during the year. This includes 195 basis points of underlying capital generation, 25 basis points in relation to the insurance dividends, 25 basis points in relation to the sale of our Irish mortgage portfolio and 3 basis points for market and other movements. Against this, it was 38 basis points of additional provision for PPI, as Ed mentioned.

Looking forward, we continue to expect to generate around 170 to 200 basis points of capital each year through the plan period. We ended the year strongly capitalized, with a pro forma CET1 ratio of 16% precapital distribution or 13.9% following the declared dividends and buyback.

In terms of the capital requirements, we notified you at the half year that our Pillar 2A requirements were reduced. And this now stands at 2.7% for this year, down from 3% a year ago.

In addition to this, the capital conservation buffer is now fully phased in at 2.5%, and we've also seen the U.K. countercyclical buffer rise to 1%, which for the group translates to around 90 basis points. We expect confirmation of our domestic systemic risk buffer from the PRA in the first half of this year. In light of all this, the board's view of the required level of CET1 capital remains at circa 13% plus a management buffer of around 1%.

In terms of our other ratios, our pro forma total capital ratio remained strong with around 23% as does our pro forma U.K. leverage ratio at 5.6%.

Finally, you'll be aware that we need to meet our initial MREL requirements by the end of this year. For us, the regulatory requirement is just under 30% of RWAs. You'll have seen that over the last couple of years we've increased our senior debt issuance out of the holdco accounts for MREL. We've now issued around GBP 20 billion of senior holdco debt, taking our MREL ratio at the year-end to around 32% in line with where we need to be.

Now turning to funding and liquidity, again, our prudent approach remains unchanged. The group's LCR position at the year-end was 130%, up slightly on the prior year. LCR eligible assets at the end of December were roughly GBP 129 billion, and we continue to have a large amount of secondary liquidity available as well.

On the funding side, term issuance in 2018 totaled GBP 21 billion, slightly above our annual GBP 15 million to GBP 20 billion guidance. This was driven by attractive market opportunities and the timing of maturities in the year, including those in relation to the Bank of England's funding for lending scheme. Issuance covered a range of products with capital and senior debt from the holdco and a mixture of secured and unsecured funding from the opco.

In terms of our issuance plans for 2019, we continue to guide to an annual issuance requirement of around GBP 15 billion to GBP 20 billion equivalent.

Given the timing of maturities in our current position, I would expect the issuance to be at the lower end of this range this year. So around GBP 15 billion equivalent. In terms of products, given the strength of our capital ratio, we have limited needs to issue capital this year, so our issuance will be biased more to senior unsecured than secured products.

As we look ahead markets permitting, we anticipate issuing around GBP 5 billion of senior holdco this year and around GBP 10 billion of senior unsecured funding for the opcos. Hopefully, this will include an inaugural senior unsecured issue for LDC and the nonring-fence bank, once we get that program up and running. This public issuance will likely be complemented by some private placement activity throughout the year.

And so in summary, we enter 2019 in a strong position with a stable balance sheet and strong capital funding and liquidity positions. Our business remains strongly capital generative and whilst there may be heightened uncertainty currently, we face the future with confidence. Ed, back to you.

Thanks, Toby. To conclude, we have made significant progress during 2018 in building new capabilities to transform the group to succeed in a digital world. Our strong financial performance has reflected an increasing profitability, which has enabled increased returns to shareholders and enhanced guidance. We continue to expect our market-leading return on tangible equity to improve further to 14% to 15% this year and to deliver ongoing capital build of 170 to 200 basis points every year. We expect a margin of around 290 basis points in 2019 and continue to expect it to be resilient through the plan. As I mentioned earlier, we've accelerated our operating cost guidance and now target this to be below GBP 8 billion in 2019. We continue to expect an AQR of less than 30 basis points through the plan, reflecting our high-quality portfolio and low-risk business model. In spite of ongoing economic and political uncertainty, we believe that our simple low-risk business model is the right one.

Our strong investment will help build new sources of competitive advantage to the benefit of our customers, colleagues and shareholders while supporting our core purpose of helping Britain prosper. Thank you, and we can now take your questions.

(Operator Instructions) And your first question comes from the line of Paul Fenner from Societe Generale.

I've got a couple of questions and one feedback or request. First one, on asset quality. I heard António and everyone else talk about how stable asset quality was on the call this morning. But I also noticed that there seems to be quite a big deterioration in Stage 3. I'm looking at sort of Page 29 and 30 of the release in commercial. So I just wanted to understand -- I just wanted to sort of understand how that's kind of consistent. The second question also on asset quality -- actually I've got 3 questions. The second question, asset quality, is also -- I'm sure you've been over -- been through this in the past. But I -- the last thing I forget, you've got these PoC items which are obviously big items. I just wanted to understand why you have them in the statutory and not in underlying. Obviously, they make quite a big difference to your NPL equivalent ratio, just to understand why you treat them differently. And the third question on funding. Thanks for your plan for 2019. I'm just wondering -- so should we be -- we would be surprised if you were to do an AT1. I know that your consistent message around Tier 2 having done stuff last year is nothing. But I was under the understanding that you might be considering an AT1 this year. Please, can you clarify on that? And the suggestion I was just going to make is please, could we have the fixed income slides up at the same time as the equity guys or at least in the morning? Just because they're quite useful, and we get lots of questions around funding, et cetera.

Got it. Thank you, Paul. And noted, re getting the slides -- we will certainly -- we will certainly think about that and try to make that happen. I'm going to let Ed deal with the asset quality, as I'll pick up the AT1 question for you. Ed, do you want to add...

Okay. Again, thank you, Paul, so yes, we talked about stable asset quality across the portfolio. Problem is not least by the type of our gross asset quality ratio which is our underlying experience of risk, if you like, is unchanged at 28 basis points from 2016, 2017 and now 2018. So it's unchanged. We're not seeing any deterioration in risk indicators across the book. And sort of taken in around, we feel it is appropriate to say that asset quality is stable. In terms of the specific example you call out, there was a single name moving into Stage 3 in commercial banking. It is clearly not appropriate for us to talk to any specifics or any details around that type. You wouldn't expect us to, so I'll leave it at that. Other than to say that in a commercial bank, you see reasonably large exposures moving between the stages. That's just one part of running a commercial bank. So you will see balances moving -- moving in both directions. So that does not sort of imply any change in overall credit quality.

Paul, I don't remember. I can't remember. I don't think it was a big move. I think it was GBP 100 million or something which in the context of our GBP 450 billion book, it is not a -- is not a big number, I don't think.

And just on the PoC stuff, so the purchase of originated credit-impaired balances. The difference between the statutory and underlying is simply that it is just in the accounting treatment. In the underlying, you don't sniff out property and in the statutory, you do sniff out property. So the treatment is simply -- that is the accounting treatment. So that is how we've done it. In terms why we have these things, these are old legacy, I suppose, mortgages that were credit impaired when we acquired HBOS a decade ago. And so they are only old HBOS mortgages. They're nothing else, and they will continue to run off around about to 9% tiers, something like that.

And -- so then Paul view -- I'll talk -- on the AT1s, you asked about what we think about doing on AT1. So you're right. We've got -- as I mentioned in my speech, we've got no needs to issue capitals. See, I think we have very healthy both sort of Tier 1 capital ratios and total capital ratios. As you know, we do look at things opportunistically as well. So if we think that those are something opportunistic, we might think about it, but we don't have any need this year to issue. So that's the sort of basis what the base position.

And your next question comes from the line of Lee Street from Citigroup.

So 3 for me, please. Certainly, just on your capital stack, you still got some opcos securities, you've got some legacy securities in there. I'm just wondering from your perspective, where do you see the biggest inefficiencies within your -- the current capital stack that you've got outstanding? Secondly, you talked about a 30 basis point effective cost of credit over the period of the plan. Was just want to hear a bit more color on how you get comfortable if that's the right number. Or if in a post-IFRS 9 world where we expect perhaps more volatility, obviously, when you look at -- looks like things going to deteriorate in there, what gives you confidence that you can stay within that, and why will IFRS 9 not make it a lot more volatile? And then finally, just a technical one. I'm thinking your main features are capital instruments. Obviously, there's a bit of an interest in the market of HSBC for its reclassifications of its own discos last year and obviously there's clarification on the EBA at the year-end. Any plans on any reclassifications from your side? That would be my 3 questions.

So thank you, Lee. So let me start on 1 and 3 or rather 3 and 1. And then I'll let Ed have a crack at the end of the cost of credit strike IFRS 9 point. So on the capital instruments, yes, you're right. We haven't yet published. There's a very big supplement that we publish through our Pillar 3 which I think we're publishing next week that lists all of the outstanding capital instruments and also lists their regulatory status both at current regulatory status and their -- the regulatory status at the end of the sort of grant filing period. If I cut to the chase on it, we haven't changed the classification of any of our instruments. And we are -- we are aware of the additional guidance that has come out. I think, Lee, you may be referring to something on the disco purpose that came out from the EBA at some point. So we are continuing to look at that but at the moment, we haven't changed our thinking on what the end point is for any of our capital instruments. Specifically, on this [capacity], it's not a -- for us, it's not a big number, so I think it's GBP 300 million, GBP 350 million of outstanding, some -- something like that. And irrespective of the capital treatment, they remain -- they have a coupon cost that remain quite attractive anyway. So that was that. You then asked about the capital stack, didn't you? So we do have a number of legacy, or what might be called legacy instruments out there. So I think when I looked at it last, we had about -- across Tier 1 and Tier 2 about -- total about GBP 10 billion of instrument-ish. But roughly half of that matures pre the end of 2021. So as those legacy instruments mature, we will look at refinancing them to the extent that is necessary. Some of them obviously continue to remain the sort of valid Tier 2 instruments, and we do look at our solo capital levels as well as our subgroup levels as well as our group levels and so they do give us some benefit there. Some are also still quite attractively priced even if they don't have a regulatory treatment. And there are a relatively small number of securities that go beyond 2021 and don't have any regulatory value. So as you know, we continue to look at the capital stack. If we think there are sensible things to do around that stack, we will do them; we've done them in the past. And we'll just continue to operate in that way. So unlikely to be the big sort of exercises that you've seen us do in the past, but much more sort of focused exercises if there are things that we think worth doing. Ed, you want to check up on the...

Okay. So on the 30 basis points, I guess there are kind of 2 sides to this, right? On the one hand, how do we get comfortable with the quality of the book itself, and that is all around the underwriting processes that we go through on the sort of the mortgages side where we are underwriting new lending. That 300 basis point over SPL, which is quite an excellent, onerous hurdle but we wish to test the vulnerability and the dynamic underwriting we carry out inside into our secured portfolios. And also just the composition of the book and the cleaning of the book has gone on over the last few years. So you think GBP 290 billion of our asset book is a mortgage portfolio with an average LTV of 44%. So that is a book in which we have very significant security and very significant confidence. And also over the last probably 5 years, as we've been flowing our more stringent underwriting through the new business into that book, you might -- you end up with a low risk, sort of well underwritten portfolio. So I think we are very comfortable with the sort of credit risk in the book as today. In terms of how that then interacts with IFRS 9, as things stand today, we see actually no reason to change the economics flowing through the IFRS 9 models. So no sort of expectation of us striking a balance on something like that. However, kind of at this point, I apologize. What I'll do is sort of power what George said in the wider call this morning. If we enter a kind of stressed kind of scenario, you see, you may well see an IFRS 9 blip. That is entirely possible, but IFRS 9 being what it is, it's likely to be a fairly sort of short -- severe short lift. It's often from the stress. And then it will come back. So I don't think you can be absolutely definitive the IFRS 9 will not result in an impact of that sort with some -- what I'll say is that the book is well positioned and as things stand today, we certainly see no reason for the economics through our models to change.

We did -- just sort of just building on what Ed said there. So we do see IFRS 9 giving us more volatility. It is inherently pro-cyclical in the way that it works. You leave it -- you may not have had a chance to say, but we did publish some additional sensitivities in our news areas in terms of how our -- effectively, how our models work and the scenarios that we use. But also, some of the sensitivities around those scenarios, just to give a sense of what the volatility might be. So if you haven't had a chance, that might give you a little bit more insight as to how the expected credit loss may move in different types of scenarios.

And your next question comes from the line of Corinne Cunningham from Autonomous.

And actually -- a follow-up actually, just on the legacy bonds. So even where they are low cost to maintain, even where they might be useful as funding, have we had a still yet from the PRA whether they might still not represent an impediment to resolution? So for example, if you got something that might end up needing to convert to stock, for example. I think, in general, the -- certainly, the European approach has been that they don't want anything. It's the extermination, it's everything that's come from the parent. If you've got any thoughts on that, that would be interesting. And second question is about Tier 1. I know in the past you've talked about intrinsic run with a buffer not just on CET1, but on Tier 1 and Tier 2 as well. Could you give us an update as to what you think an appropriate buffer might be? And then slightly different question, but just on LIBOR and LIBOR succession planning. In terms of anything you can give us that just I suppose explains how that process is working through. And if there any issues or expected delays with repapering those contracts, that kind of thing?

Right. Corrine. Sorry, I forgot what your second -- your second question was something around buffers, wasn't it? Just can you remind me?

Yes. You mainly -- or in the past, you've explained that you want to run something like a 50 bps buffer on Tier 1 and if you said that effect's still part of your management thinking?

Yes, pretty much. So let me do buffers. I'll also -- I can give some colors on LIBOR. And maybe I'll ask Richard to just talk about impediment to resolution and that sort of stuff. So on buffers, yes, I think it hasn't really changed, to be honest. We continue to operate with very healthy Tier 1 and total capital ratios. We think that gives senior creditors good protection, and we think that, that's the right thing to do for our business. So in terms of Tier 1 and I think our regulatory requirements, given Pillar 2A is currently around 2.4%. So if you think about -- we'll run with sort of 2.5% to 3%, somewhere in that area, I would've thought sort of Tier 1 type stuff. And for Tier 2, our requirement I think is currently around 3.2% but we'll operate. We'll continue to operate with 3.5% to 4% Tier 2 type buffers. So we'll be in that sort of area. And obviously, our CET1 guidance remains unchanged. That's circa 13% with a management buffer of 1%. That was buffers. On LIBOR, we're obviously very engaged in terms of LIBOR transition, and we're very engaged with the regulatory authorities on that and the current thinking on that. Clearly, the regulatory routes to all the U.K. banks. All the CEOs of the U.K. banks are asking for their plans, and we are developing our plans and mobilizing our programs to think about -- transition to a new risk-free rate other than LIBOR. It's obviously an industry -- it's obviously an industry effort. So we need to coordinate what we do with what other people do, and it's slightly different in terms of what it means for bonds, what it means for loans, what it means for derivates. And on the volume side, you have seen us issue -- you've seen us issue links to SONIA. Now I think it's unlikely that we will do new issuances linked to LIBOR now, so I think most of those issuances will be -- selling issuances will be linked to SONIA, which is the new risk-free benchmark in the U.K. But in terms of the other impact, yes, we're very, very engaged in the program. And -- but yes, we -- and we're working with sort of industry participants to think about how we transition the business to something other than LIBOR. Not much more I can say on that at this stage. Impediment resolution, you want to talk about that a bit, Richard?

Yes, sure. We work quite closely with Bank of England normally on the resolution unit, and had a lot of conversation with them about impediments to resolution generally. Hopefully, you saw that last year, there were a suite of papers that came out over the course of the year. And our interpretation is that the Bank of England has the aspiration that all of the external loss-absorbing resolution capitalization from the holding company that is more pragmatic perhaps than they were a year or 2 ago which accepts that there's a materiality threshold with the legacy gap that is outstanding. So our view on that is that so long as it's got U.K. law, and for any other reason doesn't present a hindrance to resolution, that the debt should be capable of remaining outstanding to its net worth.

And your next question in queue is from Robert Smalley from UBS.

I always say this, but thanks for doing it at a time that's convenient for us in the states, so greatly appreciate it. A lot of questions have been asked and answered. I wanted to go back to something that was talked about on the equity call in terms of the net interest margin. Mortgage market remains very competitive. You seem to be able to get -- to continue to get benefits out of the deposit side. Again, is that due to technology gains? Is that due to some of the failures of some of the challengers and some of the other asset gatherers? And is there anything you can do, given the ample liquidity buffer to optimize that and have that drop into the NIM? That's my first question. Secondly, on issuance. Numbers are pretty low particularly seeing your holdco. Any idea on currency and timing? I know timing is obviously tied up in much bigger issues. But what will you look at in terms of milestones that where you can start to say okay, there's enough clarity that we can approach the market?

Okay. Ed, why don't you pick up the NIM and mortgage market points? I can talk about liquidity buffers if that'd be helpful to, Robert. And then I can also talk about currency and timings and that sort of.

Sure, okay. So we've got a couple of slides in the equity presentation that you might want to take a look at on asset pricing and liability pricing which might prove helpful. So -- and you're absolutely right to flag that mortgage pricing is very competitive. All U.K. banks are calling us out; it's a well-known fact. And so combined with the runoff of our slightly higher rate mortgage-backed book that results in a drag to the margin coming from the mortgage book and you can sort of see on our slide that the mortgage book margin is down to 0.1% 2018 on 2017. But in terms of what we have and the other banks don't seem to have, is the number of levers that we have open to us to pull, to manage the margin sort of in the round. So you have Wall Street's CV, you have the drag coming from the mortgage portfolio. We've also got the opportunity to continue growing our high quality U.K. because you are a finance portfolio that has got a margin of around about 7%, so whilst that's only GBP 40 billion versus a mortgage portfolio of GBP 290 million, that margin clearly helps the mix as you do more consumer finance lending. And likewise, in commercial banking, while the balance sheet in commercial banking remains around about GBP 100 billion as we shift the mix out of global corporates and financial institutions into SME and mid-markets, again you're improving the overall mix on the asset side. So there is stuff you can do on the asset side to help group -- the group margin. To your sort of original question, you also got the liabilities as well. Now part of that is the efforts we've undertaken to attract new current accounts. And current accounts are GBP 9 billion higher in the year. Now that is good in so far as it is low-cost funding. There's also sort of increase in the hedgeable balances as well, so there's sort of a real benefit to attracting new current accounts. But also on the liabilities as well, we've got some expenses sort of legacy liabilities that are rolling off. Now we expect the majority of them to have probably rolled off by the end of 2019. So this is not a road we can keep going down forever, but it will continue to provide some of the tailwind to the margin for another year or so. So you're assuming things like rate rises. We are assuming that we'll continue sort of hedging, things like that. So I think the point to our margin is that it is not a sort of a -- it's not -- the mortgage pricing is not the only game in town. We now have various levers that we can pull that enable us to manage the margin in around, and that's why we're able to guide to a resilient margin through the plan, so 290 in '19, and resilient through the plan.

Yes, it is our -- well, as the guidance stated, well we do feel. I mean, it is a real core competency for us in terms of how we think about and we manage the business -- clearly, we are geographically very concentrated relative to some other people. But we also operate with a single liquidity group around our core ring-fence bank. So it does mean that we can get very granular in terms of how we manage the business and in terms of the day-to-day decisions that we take around different parts of the asset and liability side of the balance sheet. Robert, you asked particularly about liquidity buffers. So our LCR went up a few percentage points I think during the quarter of 2018. And a little bit of that is structural. So in the creation of LBCM, given it's just a smaller business, we tend to operate with a slightly higher level of liquidity for that business relative to what it would have had, had it been within the ring-fence bank or when it was within the ring-fence bank. So there's a little bit of that increase that is structural. And there's a little bit also that we were running with -- we ended the year with slightly higher liquidity position because we just thought it was a sensible place to be coming into Q1 of this year. So -- but I'm only talking sort of GBP 1 million or GBP 2 billion. It's not a very significant number. In terms of currency and timing, I think was your -- what was your other question? So what I said -- so there's an internal and external bit of this, obviously. So the external is just where the external markets are and all the different markets. We have -- certainly, on the focus, we have the ability now to achieve that in all of our core markets and most of our secondary markets as well. So we do tend to look at things like cheapest to deliver that sort of stuff as well as currency and costs of translating stuff back to sterling, which is the main underlying required currency need. And what can I tell you, in terms of phasings I think if you -- it's likely to be back ended this year, I would have said. So I would be surprised if we do anything in Q1 and obviously, I wouldn't rule it out, but I'd be surprised if we do anything in Q1 in the holdco side. We might have a look in Q2, but it's likely to be more second half than first half as I sit here today just given the needs of the business where markets are and the timing of those underlying needs. I hope that was sort of helpful.

Is it possible given the size which at GBP 5 billion is not de minimis, but certainly reduced? Is it possible that you could try and do most or not all of that through the private market and not do a public holdco deal at all this year?

No, that's unlikely, Robert. That's unlikely. I do anticipate us doing public issuance this year as well as private issuance, but we will be doing some public issuance this year.

Thank you for your questions. There are no further questions in queue at this time.

So I guess we shouldn't call that quite -- oh, I think -- sorry, I think we've got one more question.

Yes, one question has come in. That is [Will Da Costa].

Just a very quick follow-up on your capital structure. As you're giving a buffer to potential target regarding Tier 1, Tier 2, I was wondering where do you see us go in terms of your MREL ratio. How do you look at that target or that requirement at all?

Yes, it's a very good question. And also, I should have mentioned that as well. So sort of in terms of interim MREL requirements, I think the regulatory number for us is sort of late 20s. I say I think only because we're still waiting for our domestic systemic risk buffer that we'll feed into that number. But that's based on a guess of what it might be. I think the regulatory requirement will be late 20s. And so we'll operate with a buffer on some of that, so as we're at sort of 32% today, again, there's not a need -- from an interim MREL point of view, there's not a need to do further issuance. We do have a slight view as to what the final number is. So the regulator is still thinking about whether to introduce a second Pillar 2A amount prior to the end of 2021. And so that is driving some of our thinking in terms about what we might issue now versus like. And if it goes there, our -- if you think about sort of mid-purchase in terms of our, in terms of our -- in terms of where we'll be on MREL, that's probably about right.

And another question's just come in. From the line of Jeffrey (inaudible).

Just wanted to clarify your comment on the AT1 issuance because, obviously, you have an AT1, an outstanding AT1 coming due for redemption in [Tocol] in June. So is your guidance on AT1 issuance taking into account the potential core or noncore of the securities? Or is -- if you decide to call this bond, you're going to issue a new AT1 to reprice it?

Thank you. It's a nice question. So I'm obviously not going to comment on the call. It would be inappropriate to do so. So -- but you are right, Jeffrey, we do have an AT1 call coming up at the end of June. I mean, our approach there really hasn't changed so in thinking about what we do around calls. Obviously, we think about what the actual and projected requirements of the business are, and then we also think about the economics of the core versus the various refinancing options. So we haven't discussed what we will do internally yet on the call. But when we have done, and we have made a decision, I would clearly -- we would clearly update the market at that time. My coloring was more sort of generally around the type of Tier 1 buffer that we look to operate with. I think at the year-end, we were something around just north of 3.5% Tier 1. I think something around there. So we don't have a need to issue more Tier 1 currently.

So I think that's it in question -- in terms of questions. Thank you, very much for joining us. I think we should we should wrap up the call there. Many thanks.

Ladies and gentlemen, this concludes the Lloyds Banking Group 2018 Results Fixed Income Conference Call. For those of you wishing to review this call, the replay facility can be accessed by dialing 0 (800) 032-9687 within the U.K., 1 (877) 482-6144 within the U.S. or alternatively use the standard international on 00 44 (207) 136-9233. The reservation number is 32066568. This information is also available on the Lloyds Banking Group website. Thank you for participating.