Lloyds Banking Group plc (LLOY) Earnings Call Transcript & Summary

Thank you very much for joining us this morning for the session with Lloyds. As in previous sessions, we will have some time for audience questions so please don't feel shy in raising your hand when the time comes. But in the short term, very pleased to welcome back Charlie Nunn, Lloyds CEO. Thanks for joining us this morning, Charlie.

Thanks for having me.

We were sitting here this time last year, and I think -- probably my first question last year was the operating environment has changed a lot since you set the strategy in February last year. It's changed a lot again since then. So I was wondering to what degree that has -- what surprised you, I guess, in terms of customer behavior? And has it changed at all the way that you prioritized the strategy in terms of reacting to the changes in the U.K. macro in particular?

Well, thanks, Rohith. And again, thanks for joining. If -- you're a glutton for punishment if you've gone through 2 U.K. banks in the last 1.5 hours, but thanks for joining. That is exactly the right starting point from my perspective. Obviously, when we launched the strategy in February 2022, so just 18 months ago, I think at that stage we were predicting in our base case that rates might peak to about 2.25%. And obviously, we've been through a massive set of changes, both geopolitically and economically since then and our baseline now is that we'll peak at 5.5%. Let's see what happens in the next period of time. But it's a really different external context. I think 2 points that matter in that context, though, with respect to us. The first is we have definitely been revisiting the strategy and testing it in this environment. And I think the commitments we made around growth, about GBP 1.5 billion of incremental growth by 2026, of which 50% would be other operating income; the pivot towards building on the businesses that have a position of strength, but trying to grow greater market share and build more strength in the businesses where we didn't have that same position in the U.K.; and then really focusing on operating and capital efficiency, the elements of the strategy are almost more important in this environment. And what we're doing is saying that if we can double down on that, we can actually deliver better outcomes for our shareholders in the '24/'26 timeline, which we laid out. Because your ability to be really embedded with your customers, having businesses that are the leading franchises in the market you operate in and being able to then deliver the operating leverage on the benefits of the higher rates is really showing through. So actually, the overall strategy we've recommitted to and really believe it is the right strategy for this environment. I think what surprised us is probably 2 things in that context and we are adapting quickly to it. One is positive, is the resilience of our customers in this environment, I think, has exceeded our expectations. Now a lot of our customers have got a really challenging time in this environment, whether they are small businesses or individuals or families. But actually, when you look at the customers that borrow from us and that form our core business case around Lloyds Banking Group, they're very resilient and they're adapting, making difficult decisions to adapt or they continue to operate very soundly. So I think the resilience of the U.K. customer base in this context and this very uncertain time has been surprising. And then the second thing has been how competition has evolved as interest rates have gone up materially for the first time in, what, 15 years. And I suppose you'll remember we guided in February '22 that we thought mortgage margins, for example, would be about 75 to 100 basis points for the life of our strategy. And as we've looked at the last -- in the last 2 result sessions, we're now guiding to more 50 basis points is the new 75 to 100 basis points. That's important because we already always thought we were first to come out and say we thought asset margins would tighten. But obviously, as we look at how rising rates is creating competitive pricing across assets and liabilities, I think we've seen some different behaviors than the ones we expected. Now despite that, we've raised our guidance for 2024 and we raised our guidance as well for the 2026 outcome. So we see a real opportunity to deliver good capital returns for shareholders in the medium term. I'm sure we want to talk about total return to shareholders in the short term, which is going to be one of the areas we know we're not delivering today. But let me pass back to you.

We'll definitely, definitely be coming to that. But before we get there, maybe just back on rates. So you mentioned that you're expecting 2.2% or we're getting to 5.5%. Thinking about Lloyds historically, so predating your tenure when rates were 50 basis points and U.K. banks were losing money on deposits, Lloyds was making an underlying RoTE of 14%. Surely, it can do significantly better than that when you've got profitability on both sides of the balance sheet. Would you agree with that? And how much better can it be?

Yes. So we haven't updated our 2026 guidance in the last couple of quarters. We'll do that when we look at the end of the year. But as you know, our current guidance says by 2026, we'll be greater than 15% RoTE. I think even more importantly, from my perspective, is we're committing to greater than 200 basis points of capital, which you've seen in the last couple of years as we've been working, William and I with our Board, we expect we will continue to get -- work with the Board to make that capital available for shareholders. So we've been distributing 13% through dividend and share buybacks for the last couple of years. And so that position we have in 2026 is a really strong and accretive set of cash flows and that capital and the capital generation will be even cleaner because we'll have got through our pension deficit. As you know, we had GBP 7 billion pension deficit just in 2020 -- I believe in 2019. So I think that's a very strong story. The other element that I need to be focused on in my role, obviously, is kind of the quality of the earnings. And what we're trying to build in 2026 is more resilience around the top line whilst we still have operating leverage on cost and capital. And there's 3 parts to that resilience of our top line story. The first is the structural hedge, which I know will always be a conversation for these meetings. But as you know, we have about GBP 255 billion of structural hedge, GBP 250 billion. It's in, at the moment, returning about 1.2%. As we reinvest that going forward, and we're reinvesting at the moment 4%, 4.5%, that gives, with a weighted average life of 3.5-ish years, real stability to the earnings that are generated by that structural hedge. So by 2026, that will be a real positive and a real tailwind for a number of years. Second thing is our revenue growth to strategic commitments, GBP 1.5 billion of extra revenue, of which half we want to be other operating income, to give more diversification and strength around our revenue lines. And at the half year, we reported good progress on that. We're comfortable with those commitments, and we're committed to delivering that. And you'll have seen that other operating income has started to move in line with the investments. So that's great. And then the third thing is, obviously, rates will probably be coming down at that stage. And what you need to manage through-the-cycle NIM, if I can use that phrase, is a well-structured balance sheet. And that means a good loan-to-deposit ratio, which is what we have, 97-ish percent; and then a good mix of well-originated assets across retail and commercial and secured and unsecured. And as you know, we're the only balance sheet in the U.K. that has that. So that positions us well to compete and to maintain through-the-cycle margin. It's kind of the natural hedge between liabilities and assets as rates fluctuate. And that's how we think about managing through-the-cycle NIM and why we're confident about that capital generation as we look into the next 2 and 3 years.

That's a very nice segue into the next question, which is I think a key investor concern for U.K. banks and increasingly for European banks is that we're getting late in this rate cycle. So the pushback is doesn't that mean your revenues are falling from here? Is that -- it doesn't sound like that's concern that you shared, given what you just said. But I'd be interested to hear your thoughts on that.

Well, I think you teed it up well. When you look at Lloyds Banking Group, we have a balance sheet and we have a set of business and franchises, which should be able to compete when rates are low and when rates are high. And as you said, in 2019 -- 2018, 2019, Lloyds balance sheet's NIM was almost 300 basis points when rates were down at 0.1%. And today, as you know, we've guided to greater than 310 basis points for this year. And the core to that is what I said: it's about having the right mix between assets and liabilities; around having stable liabilities, which is what you've seen with Lloyds Banking Group in the first half. We've seen a 1% reduction in our deposits, but our high street banks have seen a 2% -- other high street banks have 2%. That's a good sign to us, the resilience and the strategy of working on liabilities. And then you need the right mix of assets, specifically, as I said, commercial and retail with the right mix between secured and unsecured. And then you need to diversify into non-NIM-based businesses. And the strategy we laid out 4 growth areas. And as I said, the other operating income very simply is what I think I will be making sure we can deliver against and trying to show more increasingly as we go forward that we're growing those businesses. And we have growth opportunities across our corporate and institutional businesses, our SME franchise, our Insurance businesses and Retail businesses for driving other operating income. And actually, you saw a pretty balanced growth across all of those in the first 6 months of this year.

We will get on to those. But perhaps just to dig a little bit further on the margin, it's preoccupying everybody currently. And I think the main thing that's preoccupying people is deposits given how quickly things have started to move, I guess, in the first half of this year. So deposits, pricing, volumes, migration look like the biggest headwind to the margin. What are your expectations for those different features, so pricing, volume and mix?

Yes. So the overall margin, I think there's 3 parts and deposits is definitely 1. The 3 parts that we talk about, and as you know, we've had this discussion last year, we've been guiding to this now for actually the whole of the strategic cycle, which is why we were always predicting NIM to come down in 2023. In fact, we're guiding that at the end of the year very clearly. So those 3 things are the mortgage margins, and as we repriced, wider-margin mortgage business, especially through COVID, which was 150 to 200 basis points, that's repricing at 50 basis points in the current environment. So that's a headwind in this environment. The good news is we think the majority of that repricing starts to tail off at the back end of next year, which is where you see some real potential for longer-term stability around asset pricing. The second thing before I get to deposits is obviously the structural hedge. And I said earlier we are reinvesting the GBP 250 billion worth of our structural hedge at a significantly higher rate as it rolls off going forward. Today, the blended return, as we last reported, was about 1.2%. And we guided that upside for this year was about GBP 800 million worth of revenue, a similar level next year. And in fact, in the current environment, even as we look at the absolute size of the structural hedge potentially changing a bit as we guided recently, we think there's upside on next year because of the margins being wider. So that's the structural hedge. And then the third thing is deposits. And we've had a long -- a strong point of view around this, actually the whole way through the cycle. But when you get to about 3% absolute base rates, so that was about last November for us, customers would start to choose where to put their money. That's what we've saw -- seen happening. And there's 2 dynamics on that. The first is some customers will decide that they have spare liquidity and they'll move current account or instant access savings into time deposits. And then the second thing is the competitive nature around pricing will mean that there'll be a greater pass-through on savings rates for instant access and time deposits. I heard Katie talking about this earlier. I think the core thing from us is, so far, this is progressing in line with our expectations. Our guidance for greater than 310 basis points of NIM this year includes that -- those sets of assumptions and how we think that's behaving and how our customers are making those choices. And actually, when you look at Lloyds Banking Group, we've been more stable, as you'd expect, given who we are, our brands and our franchise, our customers. We've been more stable than the other high street banks in the first half of the year. So a really important part of it. But actually, it's all 3 things that give us that through-the-cycle ability to manage NIM.

And where do you see mix and pricing going from here?

So obviously, we can't know pricing completely. But what we've seen and what we've predicted in those underlying assumptions, we haven't given complete specificity around the churn levels and the competitive pricing for pass-through savings. It would be very hard to predict. And secondly, that would be a level of guidance that would probably be unhelpful. But what we expect is that people will continue to move their money in line with what we've seen in the first half of the year increasingly into savings accounts and that there will continue to be, whilst the base rate is increasing, more pass-through, more competition from our competitors. So we've seen more of the same. And actually, since the data that we released in the first half, what we've seen is a consistent trend around both the change in our customers' behavior around where they want to hold their deposits and the competitive nature of the pass-through. Now I think we all need to be humble in this context. The U.K. hasn't seen a rate cycle like this for a long time, and the last time we had high rates and customers choosing where they put their money was obviously pre the financial crisis. So our commitment has always been we, in the true Lloyds way, will try and be forward thinking. We'll try to be prudent around our guidance. But if something changes, I'll come and tell you, but nothing has changed relative to our expectations at this stage.

So then thinking about the other revenue drivers, at least for the short term, you seem to become a little bit more cautious in terms of the extent of credit demand and a bit more optimistic about some momentum in other operating income. So wonder if you could just expand on...

Yes. Thank you. I should have said one of the consequences of the environment from the original strategy is we have been a bit more cautious about growing AIEAs in this current environment. And I believe that's the right thing for the group and for you as the shareholders. We originally predicted single -- low single-digit growth in AIEAs through the length of the strategy. Actually, this year, what you can see is we've guided more flat to down. So just on the asset side before I go to OOI, again, there's a mixed story in that and hopefully this will make sense. There are our core strategic businesses, which we committed to growing, which are actually continuing to grow. So our car financing business, including the acquisition we did earlier in the year of Tusker, is actually delivering ahead of our plan, ahead of the synergies that we had built within the acquisition and that's growing well. We're seeing growth in our consumer finance businesses, cards and loans, which is great. And then we've targeted very specific segments within SME and CIB, and we're growing those businesses well. So trading businesses and then some of the DCM and financing sometimes off balance sheet in our corporate business, we're gaining share. So that's great. The 2 areas that we're seeing a smaller or a decline in our assets is parts of the mortgage business. We're still rolling off the back book mortgage business. And because of the margin compression, we don't think now is the right time to be really competing to win market share in mortgages. We've always said we've managed the Lloyds Banking Group mortgage business for value given that we're the #1 player and with such an important part of setting prices around mortgages. And then the second part is both government loans for SMEs have been reducing, and actually SMEs have been deleveraging in this current economic context. So they're not investing for the future at this stage at the same level as they were and those that are resilient and have cash are actually looking to pay down their debt. So even the asset side, flat to slightly down is what we've guided to. But actually, we're still seeing growth in the strategic areas and the areas which we think are higher returning through the cycle. And then in other operating income, we laid out 4 growth strategies or 4 growth priorities in February and what we're seeing is growth in all of them. So I'll just give a couple of examples. But on the Corporate and Institutional business, we said we have a very targeted strategy targeting U.K.-centered institutions and corporates around cash, FX, DCM financing. We're growing those well, that's performing well in this context. We're capturing market share, which you can see in various reports. So that's great. I talked about car financing and Tusker. On our Insurance business, we have a top 2 workplace pensions business. That's great. It's a low capital fee-based business. And as we scale it, it will generate more capital. And we're growing that business well and that's generating returns through our Insurance business. And in our Retail businesses, you can see growth in area as well. One of the strengths that we have is, as I said, about 25% -- 24%, 25% share of consumer finance. But we started with only about 15% share of spending and we have about 22% share of current accounts. So we still have growth opportunity to be more relevant for our customers on how they make payments and spending, and that drives again other operating income. So we're seeing growth and we're capturing share in those areas. So growth across the business linked to the strategy, I need to continue to deliver that with the team quarter-on-quarter so that it becomes really relevant to the group and it starts to become valued in the share price.

So that's what's already underway. That's the short term. You've got a series of investor seminars coming up looking at the different businesses. I was wondering if you might be able to give us maybe a taste of what to expect from those, particularly in terms of the types of things you've been talking about. So revenue diversification, what's going to drive revenue growth from here? What can we expect from those seminars in the coming months?

Yes. So a couple of things. The first thing is you'll get to meet some of the rest of my team and the new team. The team has changed quite a lot. I brought in a lot of different talent that's delivered both in the U.K. and in some other markets, and they're bringing a very innovative perspective. And I was keen for this community to get -- to meet some of the rest of the senior leadership team and for you to see how they're thinking about the growth. So that's obviously important from my perspective. In terms of the specific areas, we're sure going to talk -- have a deep dive around the whole consumer area, a deep dive around insurance protection and pensions and then a deep dive around commercial over the next few quarters. And what I've asked the team to do is to talk about exactly what we were just saying: how are we driving growth, where are we seeing progress, what you should expect, what are the kind of early indicators of the growth that we're going to report for you and how they're thinking about the value that they're creating for the shareholders. In Retail, that's going to be things like, as I said, us building out our transport offerings and getting the value out of the acquisition we did with Tusker, building out our -- the home ecosystem and how we support customers around mortgages and how we want to compete going forward around that business consumer finance. And then critically around how we continue to build out the mass affluent opportunity, which is ahead of all of our plans, but you'll see that in the data. And then how we continue to drive what we call relationship deepening in the Retail bank. And again, there's some good early indicators. For example, we've now got 21 million customers digitally actively engaged. We're 18 months ahead of where we thought we'd be. And digital engagement is a precursor for getting trust and an ability to manage those relationships more efficiently and to be able to bring -- to deepen our relationships with them. And on the investments, pensions and Insurance business, as you know, we bought Embark last year and we are looking at that as a platform by which we can bring simple investment solutions to our broader retail customer base. We launched in Q1 what we call a new Ready-Made Investments journey. We can talk about how that's scaling and how that's having impact for our customers. The workplace pensions or annuity businesses and how those are scaling and how you're driving growth around our protections and cross-sell into our Retail base. And in commercial, it's the things I was talking about. We are really seeing progress on supporting international and U.K. institutions and corporates around the things that we're the best at in the U.K. So cash, FX, rates and then financing, especially DCM, and doing it in the context of the sectors and the assets that are some of the most important for growth in the future. So the green economy, housing and real estate, the sponsors business. And we're really successfully growing those businesses, as well as pivoting our SME business to a more digital SME business going forward.

There's been a lot of media, government regulatory focus on customer treatment recently and also pricing. Is that changing the way that you run the business?

I think the simple answer is no, and I say that because we had lots of proactive engagement with the regulators and obviously the government already on some of the things that have now come and been introduced. So consumer duty is obviously the big one from a conduct perspective. As you know, Lloyds Banking Group has been a leader around conduct since the wake-up call of PPI and so we are very proactive as an institution around how we think about conduct, and we engaged early and strongly with our regulators in that context. So broadly, what I'm seeing is we are implementing what we expected around some of the specialty conduct regulation. And for that matter, the capital regulation that's come under Basel 3.1 and how they're starting to think about IFRS 9. It's very much in line with our expectations. The reality, of course, is regulation and how these regulations get implemented, get tested around specific issues. So we've had a number of issues recently: the mortgage charter; the review that the FCA is doing around the savings; obviously, the debanking discussion, which must have been important in your discussion just now with Katie. All of those things are things we're actively engaged on. But what we're seeing is good, detailed discussion in line with our expectations around the current regulation.

So then moving on to costs, particular in the context of persistently high inflation. You've reaffirmed your absolute cost targets for this year and next. I'm just curious to understand what combination of -- well, how you're able to achieve that given the headwind from inflation. So what combination of additional efficiency improvements, hedging or investment decisions you had to make to deliver that cost? And what sort of compromises you may or may not have had to make?

Yes. So great news about coming into this role is Lloyds Banking Group is an organization that knows how to manage costs and hopefully you feel that as well. It's a nice place to be in this role, having an organization that operates that way. In February '22 when we announced the strategy, we had built within the strategy then to achieve the absolute cost targets in 2024 of GBP 9.2 billion. We raised it a little bit last year. But to achieve that, we had built in GBP 1 billion worth of gross cost efficiencies. William and I felt it was really important to give you an absolute cost target so that you can have some confidence in the first few years of the strategy. But underpinning that was a gross cost efficiency saving of about GBP 1 billion. In the last few quarters, as you know, we increased that to GBP 1.2 billion. And that is because we saw additional inflationary pressure that we didn't predict back in February before this rate cycle and before Russia invaded Ukraine. So yes, we're doing what you'd expect. We're looking at our cost base and we're trying to find additional areas we can build efficiency to mitigate some of that internal pressure. And that's going well. We're committed to delivering those efficiencies. The good news is as you get further into running an organization, you know where investments and efficiencies can really deliver. So we knew that those efficiencies could come through driving some of the changes in the business model, digitizing, creating more digital engagement, creating more efficiency around customer services and sales, eliminating STP and back office costs, looking at how the cost of implementing change and making that more efficient. So those are the kind of levers. And again, hopefully, some of you will get a chance, if you want you to, to meet our new COO, but we have the COO from -- COO and CIO from ING joined us. And he's bringing another level kind of experience around driving efficiency and agile delivery and change, which is going to be an important part of that journey.

Credit quality has taken us a while to get here. It's been something I think the investment community has been worried about probably for most of the last 2 years. And for a lot of that 2 years, there's been the increase in mortgage rates. So we've got a tripling in mortgage rates, a significant step-up in repayments when people refinance. So you're in a unique position, I guess, as the leading mortgage lender in the U.K. to help us understand how your customers are coping with that. What, if anything, additional has had to be put in place to deal with that? How far through that we are? And so particularly how that is progressing in terms of mortgage affordability and asset quality? And then looking across the loan book, are there any areas of stress that you're currently seeing?

Yes. So obviously a really important question. The overall message is that from a financial performance perspective, the resilience is very strong and we think we're well provisioned relative to our loan book. And we have GBP 5.4 billion worth of ECLs in the balance sheet. Our base case, which is the core scenario that we are actually tracking below at the moment, is about GBP 700 million less than that. So we think we're well provisioned. And actually, we're currently tracking in line with or better in the portfolios than the models have predicted for this year. Let me come back to a bit more detail because obviously that's a very macro view across our GBP 450 billion worth of lending. On the mortgage book, you're right, this is not easy for those customers that are facing a higher interest rate. So some customers, it's a doubling or tripling of their monthly payment. So it's a real -- it's been a real area of focus and you'll have seen that we announced we did -- we did outreach to over 200,000 mortgage customers over the last 6 months, and we're continuing to be proactive about the mortgage customers. Having said that, there's very significant resilience. And then there is a specific part of the mortgage book where we've seen an uptick in arrears, which is the pre-2006 to 2008 pre-financial crisis. portfolio. And we gave some disclosure at the half year, specifically around that, to give you all confidence around, firstly, how the majority of the portfolio is performing because that's a small part of the overall portfolio. And then based on our understanding of that portfolio that we are being proactive in doing, providing outreach to those customers. Now just why are the mortgage portfolio customers being so resilient? I think it's for, bluntly, 2 simple reasons: one is because of the nature of origination over the last 15 years, the average mortgage household has an income of GBP 75,000. So they are significantly better off than the average customer in the U.K. Obviously, the LTVs are also low, but in terms of income and affordability, the households start with a good income. And then, secondly, we have stressed them at the point of originating that mortgage in the last 10 years at somewhere between 7% and 8.5% on their interest rates. So for people to have been able to get a mortgage, the pre-2007, 2008 mortgages are slightly different. But for the majority of our mortgage book for them -- for people to get a mortgage, they were already being stressed at higher rates than we see today. So really difficult for our customers. We're very much providing outreach and trying to support them, but that's why we see the resilience we do. And in terms of the rest of the portfolio, our consumer lending businesses are incredibly resilient. You have seen the metrics and stats. And in fact, even though our credit card assets are increasing, customers are still paying down and revolving less. So there's real resilience around that portfolio. That's largely because we're a prime lender. And at this stage, the top 6 deciles of households on the Retail business have actually still got higher savings than they had pre-COVID. So the real -- really difficult stresses and challenges in U.K. society is in the bottom 2 or 3 deciles. And of course, they don't borrow from us. So consumer finance is very resilient. And then our SME and commercial businesses are very resilient. There's 4 points where we're seeing stress, but it's not exposing us to material concerns. It's in the sectors around transport, agriculture, hospitality and CRE, commercial real estate. And of course, our exposures there are either very limited or they're very secured or both. So we're not worried about it from an ECL perspective, but those sectors have been through a really difficult 12 or 18 months actually. That goes back through COVID, maybe longer, 24, 36 months. And we are seeing pockets of stress, but it's not a concern for our financials.

Okay. And then back to capital return where it feels like we touched on it quite a long time ago. So 175 basis points or more than near-term capital generation, rising to over 200 basis points medium term. That's a GBP 3.5 billion to GBP 4.5 billion, round numbers, capital generation per year. And you're also running with surplus capital at the moment above the target level, which I think you've previously said you said plan to come back down into target level by the end of next year. So how should we think about capital distributions from Lloyds? You talked about generation. How should we think about distribution and also potential other calls on that capital?

Yes. So 2 things. The first thing is, hopefully, you'll -- I sat here 2 years ago as a new CEO and said I'm committed to capital distributions. Hopefully, you're starting to feel that I've got some fact base behind me now. And we've done 2 years where we've done significant distributions both through a dividend and a material buyback of 12% to 15% return and our Boards have been supportive of that. And my expectation is that will be what we continue to do in this environment. We will be recommending to our Boards that the capital we're not consuming would be available for the buyback. And as you said, thank you for being clear about it in the question. We continue to reconfirm that we intend to pay down to our 13.5% CET1 ratio by the end of '24. That's really important because obviously that's something visible to our regulator. You'll have seen the ACS and the stress test results positioned Lloyds Banking Group in a relatively very strong way, and that gives confidence that we'll be able to do that and that will be part of the deliberations we make. But I think this is really important. Our share price -- we haven't talked about it yet, but the share price isn't really reflecting either the cash flows and/or the returns of this business. I think there's good reasons for that. And when you look at the quality and the quantum of the capital distributions we're going to have available, this is going to be a well -- a strongly performing business and has the potential to provide strong cash flows to shareholders. The second part, which I said just -- I said there's 2 parts. But the second part is those cash flows should both be more stable, given some of the revenue and projection outcomes I gave, things like the structural hedge and our building OOI income. But also, there'll be less calls on it. So when I took on this role, we had GBP 7 billion-ish, it came down a bit, pension deficit. And as you know, I've been putting some of the capital into filling that hole. We're just closing the triennial discussion with our pension, so I think William will talk at the Q3 results about where we'd be. But I think we're going to be in a very, very different place and we're not going to see a material drag on our capital from having to put money into the pension going forward. So that means that 175 basis points this year and next year and then greater than 200 basis points from 2026 is available for the Board for distribution to shareholders. So it's a cleaner and more stable form of capital generation than you've seen in the past as well.

That's very clear. We do have time for a question or two from the audience. If you would like to raise your hands -- lights are very bright, so sorry, you will need to wave if there are questions from the audience? One over there.

Could you talk a little bit about your aspirations in U.K. Wealth and how far through the journey we are there?

Yes. Thank you. So we participate in wealth in a number of ways. But overall, the reason we thought it was an important area of growth is that although we have 15% to 30% share in most businesses we operate, 20-ish percent on average, in wealth -- in the broader wealth, we have [ nearer ] 2%. And when we look at the demographic shifts and then the needs of U.K. consumers and then the regulatory confidence that banking should be part of -- they want financial services groups like Lloyds to innovate to bring wealth to more of the mass market, we saw it as a really good opportunity for growth. Now we've participated in a few ways, through our Scottish Widows business. As I said, we are the second biggest pension fund -- workplace pension fund administrator. That's a fast-growing business. It's capital-light, we're already a leader and we'll continue to grow that. We provide annuities and protection, which I think is part of wealth of most individuals, both through IFAs and an IFA platform but also through our bank. And we have today, we have something called Halifax share dealing and we have a Lloyds Bank platform, but we have a shared dealing for self-directed wealth, but those -- and they have about 5% market share. But as we know, self-directed wealth is small in the U.K. And then we have showed Schroders Personal Wealth, which we launched as a JV. What we set out in our strategy is we want to bring those together, innovate around how we provide advice and then link it to our mass affluent customer base. So we have the biggest mass affluent customer base in the U.K. And that's part of the growth and the investment we've laid out. And we launched, for example, I said earlier, the ready-made investments journey on the back of the Embark acquisition and that started to get traction with customers. What we -- what I expect you should see is the businesses that we're operating at scale, protection, annuities, workplace pensions, will continue to be good growth engines and provide cash flows in the next few years. The new business, which is growing mass affluent wealth in a new way, will take time to build to become material for the revenue line. As you know, it takes time for customers to build assets under administration or AUA and then the margins on those businesses are lower. And -- but that was always we had in our plan. So they become more material as you look at 2026, and for what it's worth, beyond. They become really material beyond. So I do think the Wealth business is important. It's a growth area for us. We have some great starting points. It's OOI mainly, so it's diversified. And we have this unique franchise that no one else has. We have an insurance company, wealth platforms and the biggest retail franchise. But we need to deliver the forward-looking growth for you to believe, I think. Thank you.

Thank you very much for that. I think we are pretty much out of time. So Charlie, I'd like to thank you very much for your time this morning.

Thanks for having me.