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

Thank you for standing by and welcome to the Lloyds Banking Group 2023 Interim Management Statement Call. [Operator Instructions] There will be a presentation from William Chalmers followed by a question-and-answer session. [Operator Instructions] Please note this call is scheduled for 1 hour and is being recorded. I will now hand over to William Chalmers. Please go ahead.

Thank you, operator. Good morning, everybody, and thank you for joining our Q3 results call. Let me start with an overview of our key messages on Slide 2. We continue to focus on supporting customers as they navigate what remains an uncertain economic environment. In this context, our purpose driven business model remains central to how we operate as we continue to help Britain prosper. We are delivering against our strategic ambitions. You saw this in our recent consumer seminar and will hear more about it in the remaining 3 seminars, including that of the Corporate and Institutional business next month. Strategic execution is key to realizing our ambition of higher more sustainable returns. In Q3 the group again delivered a robust financial performance with a solid income trajectory and capital generation. This allows us to reaffirm our 2023 guidance and to improve it to the asset quality ratio. Together with our strategic progress, it makes us well positioned to deliver for all of our stakeholders. Let's turn to the financials on Slide 3. As said, Lloyds Banking Group delivered a robust financial performance in the first 9 months of the year. Statutory profit after tax was GBP 4.3 billion. This is 46% higher than the previous year. However, we should note that the 2022 comparative included an exceptional charge relating to the implementation of IFRS 17. Return on tangible equity meanwhile year-to-date is 16.6%. Net income of GBP 13.7 billion is up 7% on the prior year. This was supported by a net interest margin of 315 basis points and growth in other income partly offset by higher operating lease depreciation charge. Total cost of GBP 6.8 billion were up 6% or 5% excluding remediation. This is in line with expectations and reflects our continued strategic investment as well as the effects of inflation on the cost base. Asset quality remains resilient. The impairment charge of GBP 849 million is equivalent to an asset quality ratio of 25 basis points year-to-date. Excluding MES impact year-to-date, the asset quality ratio was 27 basis points. TNAV per share is up 1.5p compared to Q2 to 47.2p. Alongside, the group delivered strong capital generation of 165 basis points or 129 basis points after regulatory headwinds. We've also substantially agreed to triennial pension valuation recognizing the GBP 250 million remaining deficit. I'll now turn to Slide 4 to look at our customer franchise. The customer franchise remains resilient. Total lending balances stand at GBP 452 billion, up GBP 1.4 billion in the quarter. This was driven by a GBP 1.2 billion increase in retail lending, including growth in the open mortgage book as well as continued momentum in cards, loans and motor. The growth in mortgages was driven by strong retention activity as we support customers in refinancing their mortgages in the higher rate environment. The back book, meanwhile, continues to run down and is now GBP 36 billion. We continue to see competitive mortgage pricing. Completion margins are around 50 basis points and we expect that to remain the case in the short term exerting margin pressure on the refinancing business. That said, mortgage lending remains attractive from a returns and economic value perspective. Commercial balances were down slightly by GBP 0.6 billion in the quarter. This includes the effect of FX in the Corporate and Institutional business offset by ongoing repayments of the government support scheme loans and limited new lending demand in SME. On the liability side, total deposits are up GBP 0.5 billion in the third quarter. This includes an increase of GBP 0.7 billion in Retail and stable Commercial deposits. The Retail deposit performance saw an outflow of GBP 3.2 billion in current accounts, slightly higher than the second quarter. Importantly, the reduction in current accounts was more than offset by the GBP 3.9 billion inflow in Retail savings. We continue to recapture a high proportion of current account outflows within our own savings proposition as well as gaining new customers through our attractive offerings. Overall, Retail depositer behavior continues to reflect a higher rate in inflationary environments as well as the evolving competitive situation, including our own savings offers. In Commercial Banking, we saw a small reduction in SME deposits again focused on noninterest bearing accounts. This was more than offset by growth in targeted sectors within Corporate and Institutional. Looking forward, we continue to expect total deposits to be broadly stable for the year. However, the mix shift from current account to term savings is likely to continue. While it's difficult to predict with certainty, the rate of this shift is likely to slow over time albeit remaining a headwind for the margin. Moving on to Slide 5 and group income. The group saw solid income growth in the first 9 months of the year. Net income of GBP 13.7 billion is up 7% year-on-year supported by net interest income of GBP 10.4 billion, up 10%. The margin for the first 9 months of the year is 315 basis points. This includes a Q3 margin of 308 basis points, down 6 points from Q2. This is playing out in line with our guidance given the expected headwinds from mortgage and deposit pricing partly offset by reinvestment of the structural hedge. Looking forward, we expect the margin to decline again in Q4. However, again as guided, to remain just above 300 basis points. Based on this, we continue to expect the full year margin in excess of 310 basis points. In the context of the deposit trends that I described earlier, the structural hedge nominal balance reduced to GBP 251 billion. The GBP 4 billion reduction along with any subsequent reduction in the fourth quarter is in line with our expectation of a modest reduction in hedge notional balance over the second half of this year. Given an average yield of around 1.4% and the current prevailing swap rates, the hedge refinancing continues to provide a material income tailwind. Looking forward, we continue to expect hedge income to be around GBP 0.8 billion higher in 2023 than 2022. Nonbanking NII was GBP 76 million in Q3, broadly in line with the H1 run rate. From here, we expect nonbanking NII funding costs to increase further reflecting the impact of refinancing longer-dated funding instruments as well as increasing levels of activity in a higher rate environment. Average interest earning assets of GBP 453.5 billion year-to-date were broadly stable in the quarter. Continue to expect AIEA for the full year to be slightly down compared to Q4 2022. Turning briefly to other income. OI of GBP 3.8 billion in year-to-date is up 8% year-on year with broad-based growth across all of our divisions. Q3 saw continued improvement quarter-on-quarter in line with our expectations for other income to build gradually. This is supported by customer activity, our ongoing strategic investments and the release of the store of insurance earnings within our CSM liability. Looking forward, we expect the fourth quarter outcome to be much like the third. Operating lease depreciation of GBP 585 million includes GBP 229 million in Q3, up from Q2 reflecting continued normalization. This is driven by the higher value of new vehicles, lower gains on sale, growth in the motor business including from Tusker and an adjustment to take account of recent price declines in electric vehicles. This normalization is an ongoing process meaning we expect to see a further increase in Q4. Now looking at cost on Slide 6. Cost management continues to be a critical discipline. Operating costs of GBP 6.7 billion were up 5% driven by planned strategic investments, the cost associated with new business and the impact of inflation. The cost income ratio of 49.5% for the first 9 months of the year continues to be highly competitive. Looking forward, we stay focused as always on efficiency and mitigating the impact of persistent inflation. We remain on track to deliver operating costs of circa GBP 9.1 billion in 2023. The remediation charge, meanwhile, remains low at GBP 134 million for the year-to-date largely in relation to preexisting programs. Let me now move on to asset quality on Slide 7. Asset quality remains very resilient across the group. The impairment charge of GBP 849 million for the year-to-date equates to an AQR of 25 basis points. Pre economic forecast adjustments for the year-to-date, impairment charge was GBP 918 million or 27 basis points. The Q3 charge of GBP 187 million includes a release due to updated economic forecast of GBP 74 million. Excluding this, the observed charge of GBP 261 million reflects the stable credit trends of our prime customer base and our prudent approach to risk. It also reflects a net calibration benefit of around GBP 70 million and a more resilient than expected performance in the unsecured portfolio. This net benefit in the period should not be seen as part of the underlying run rate. The stock of ECL in the balance sheet stands at GBP 5.4 billion, still close to GBP 700 million is part of our base case in driving strong coverage levels across the portfolio. Given the ongoing resilience of the portfolio, we now expect the asset quality ratio to be less than 30 basis points in 2023. This represents a slight improvement from previous guidance. Let me now turn to Slide 8 to look at the performance across our lending portfolios. The performance across our portfolios continues to be reassuring. Importantly, U.K. mortgages remains resilient. New to arrears increased slightly in the first half largely within the variable rate legacy book originated between 2006 and 2008. It is a little too early to call a trend, but new to arrears were then stable in this book in the third quarter. The unsecured and commercial books, meanwhile, continue to exhibit very stable arrears and stock rates that are broadly at or below prepandemic levels. In both cases, it's inside of our expectations. Customer behaviors are certainly reassuring. In Retail cards, minimum payers are stable. In the Commercial business, we continue to see stable levels of SME overdrafts and RCF utilization trends remaining more than 30% below prepandemic levels. Our commercial portfolio is high quality, around 90% of SME lending is secured while circa 80% of Corporate and Institutional exposure is to investment grade clients. Within the Commercial business, our net CRE exposure is only GBP 11 billion. The portfolio remains robust and is well-diversified with circa 42% of lending relating to residential investment. The average LTV of the portfolio is 43% while circa 90% have an LTV below 70%. Let me briefly look at our updated economic assumptions on Slide 9. The macro outlook has improved a little since Q2. Overall, GDP is proving more resilient than expected. We now expect growth in 2023 of 0.4% compared to our forecast of 0.2% at the half year. We've also reduced our base rate forecast with 5.25% now expected to be the peak. Our unemployment expectations continue to assume only a gradual build. Peak unemployment rate is revised down to 5.1%. We've also slightly improved our HPI assumptions now modeling a decline of 5% in 2023 and a peak to trough decline of around 11%. Let me now move on to Slide 10 and address the below the line items and TNAV. Underlying statutory profit continued to converge. Restructuring cost was GBP 69 million for the year-to-date. The volatility line at GBP 266 million includes GBP 215 million of negative insurance volatility largely in the second quarter given the increase in rates. Statutory profit after tax of GBP 4.3 billion resulted in a return on tangible equity of 16.6% for the first 9 months of the year, including 16.9% in Q3. We continue to expect the return on tangible equity greater than 14% for the full year 2023. Tangible net assets per share of 47.2p are up 1.5p in the quarter. The increase in the quarter was due to profit accumulation, the lower share count and a reduction in the cash flow hedge reserve partially offset by the impact of higher long-term gilt yields on the pension accounting surplus. Turning now to capital generation on Slide 11. We delivered strong capital generation in the first 9 months of 2023. Within this, risk-weighted assets of GBP 218 billion were GBP 6.8 billion higher, including GBP 2.4 billion in Q3. The increase year-to-date includes an adjustment as part of the anticipated impact of CRD IV model updates taken in Q2. Excluding this, lending increases and credit and model calibrations partly offset by our continued optimization efforts. Capital generation was 129 basis points after regulatory headwinds or 165 basis points before these. This results in a CET1 capital ratio of 14.6%, which includes 65 basis points of dividend accrual and remains well ahead of our ongoing target of around 13.5%. Going forward, we continue to expect 2023 capital generation post regulatory headwinds to be circa 175 basis points. I'm pleased to update that we've now substantially agreed to triennial pensions review. After around GBP 5 billion of contributions alongside asset performance and rate changes, the funding deficit stands at circa GBP 250 million. Following closing contribution of this amount by March 2024, there will be no further contributions in this triennial period. This represents a considerable achievement from the 2019 deficit position of GBP 7.3 billion. Let me finish on Slide 12. In summary, the group delivered a robust financial performance over the first 9 months of the year with income growth, disciplined cost management and resilient asset quality together driving strong capital generation. Looking forward, we are maintaining our 2023 guidance and slightly improving it to the asset quality ratio. We continue to expect net interest margin of greater than 310 basis points. Operating costs of circa GBP 9.1 billion. The asset quality ratio is now expected to be less than 30 basis points. Return on tangible equity of greater than 14% and capital generation of about 175 basis points. The group consistently delivers a robust financial performance whilst making progress against our strategic ambitions and most importantly, supporting our customers. That concludes my remarks this morning. Thank you for listening. I'll now hand back to the operator for Q&A.

[Operator Instructions] Our first caller is Guy Stebbings from Exane BNP.

A couple on deposits and NIM. So for NIM trajectory next year, I appreciate you won't want to guide the number at this stage. But as you sit here today and you weigh out tailwinds from the hedge, the headwind from mortgage spreads and the headwinds presumably still from deposit mix shift; how do you think about those factors in the extent to which they could net off or is it more likely that the NIMs decline sequentially next year? And then a question specifically on deposits. You alluded to expecting deposit mix shift to slow. I appreciate forecasting very challenging on that line. But are you seeing any signs at this stage that it's slowing or are you really talking about 2024 and beyond before we can start to think about things improving there?

Guy, obviously both important questions. If I take each of those in turn. First of all on the NIM trajectory, as you rightly said, we won't be giving guidance for 2024, but just to step back for a moment in respect of what we have given for 2023. As you know, the guidance for 2023 is in excess of 310 basis points for the year as a whole. We're now operating or rather the third quarter was operating at 308 basis points and I mentioned in my comments just now that we expect to see it decline a little again similar sort of level really for Q4, but to stay above the 300 basis points level importantly for that quarter. As we look forward, Guy. I think it's probably safe to say the headwinds in terms of deposit churn and mortgages, pressure from the relatively tight mortgage spreads that we're seeing continue to play themselves out perhaps a little bit further. I expect over time this will gradually slow down. And alongside of that as we get into 2024, the tailwinds in the form of the structural hedge in particular will most probably strengthen a little bit through the course of the year. So that gives you a bit of insight I hope, Guy, in terms of the picture that we expect to see in specifically 2023, but then in terms of the way in which the headwinds and the tailwinds play themselves out over the course of '24. Now all of that of course will depend upon rates, upon depositer behavior, upon mortgage margins and like; but we'll fill you in more precisely on year-end as to how we expect that to develop. On deposits, Guy, we are seeing deposits move a little bit during the course of the quarter. Most pleasingly, we have seen deposits go up over the course of the third quarter. So while we have PCA outflows of GBP 3.2 billion, those have been more than matched by savings inflows of GBP 3.9 billion in retail for example leading to an increase of GBP 0.7 billion and in Commercial Bank leading to an increase of GBP 0.1 billion. So we're really pleased to see that deposit performance looking at the deposit book as a whole. Having said that, as you say, there's been some churn within the deposit book and so that has been not surprisingly and very much as we guided I hope through the course of this year; but not surprisingly the interest rate environment, some movement from current accounts into savings and indeed within the savings book from instant access where customers are prepared to give up access in exchange for a higher rate in locking up the money into fixed term deposits. That is in the current rate environment, as we said, likely to continue during the course of quarter 4. As just said, I think it may play itself out a little bit further during part of 2024 looking forward. At the moment at least, Guy, there are ups and downs in any given quarter. I think it would be premature to call a trend at this point. I think we just have to see how things develop. And as said, what we are focused on is making sure the overall deposit picture remains as strong as it has done during the quarter 3.

And in terms of experience already in Q4, I know we're very early into the quarter, but has it been sort of similar to what you saw in Q3 in terms of those mix in deposits then?

I think so, Guy. Again I think it's a little -- we don't really want to call a trend based on any particular month during the quarter. But you see some months during a quarter perform better, you see some months during a quarter perhaps because of competitor offers for example be a little weaker. It kind of ebbs and flows during a quarter. I do think over time what are we going to see? We're going to see a combination of fewer bank base rate changes and therefore fewer problems for savers. We're going to see the hot money that is going to move already having moved. We're going to see the forward curve dip down and therefore competitor offers, if you like, probably dip down with it and therefore less incentive to move. We're going to see most probably the convergence between instant access rates and those on fixed term deposit rates partly for that reason. And so all of these things, Guy, I think lead us to believe that over time this churn that we're seeing a little bit of right now is likely to slow. Whether it slows in Q4 or whether it slows in 2024, I think it's difficult right now to be overly precise on the point, but you can get a sense as to kind of how we expect things to develop. And then to the extent your question is kind of how that influences the margin going forward. As said, I suspect the headwinds have a little bit to play out in the first half of 2024, I suspect the tailwind gathers strength during the second half of 2024 principally off the back of the structural hedge. So those are the kind of ingredients that I look out for that, Guy.

Our next caller is Jason Napier from UBS.

The first one was just on capital generation, the firm's clearly producing in line with plan and looking like it's going to be strongly distributed. I wonder could you just talk please about the ongoing work that you're doing with the PRL hybrid mortgage models and what the sort of standard deviations there are around capital requirements and how that might impact I guess next year's RWAs. And then secondly, other operating income for a long while has been an area of some disappointment and it's looking like it's performing really well. You said you've guided for flat in Q4. Just wondered if there's any color you might add on what sort of natural growth you get into next year from the investments, the acquisitions or maybe some sense as to at what rate the overall market in which you operate is growing at the moment and whether we can bank on reasonable sustained momentum into next year in that line item?

Two questions there, CRD IV and other operating income, Jason. CRD IV, as said, the discussions with the PRA are ongoing in respect of principally the mortgage models and how those develop looking forward. We are doing currently further analysis and indeed model development. As you know, we took GBP 3 billion in CRD IV RWAs in H1. It is likely, as we said in our public document today, that that discussion will develop and therefore off the back of that, I think quite likely that further CRD IV or RWA impacts come to pass over the course of the future periods. It's also likely those would phase over time. And so as a result, Jason, we will aim to manage them. We will also aim to offset them to the extent that we can. As you know, we've got excellent guidance out there in respect to 2024 RWA to '25 and I very much hope that we're able to manage CRD IV pressures within that existing timeframe. So we'll update that more fully at year-end as we always do, but hopefully that gives you an impression as to where we are with CRD IV dialogs with PRA. The fact that we hope over time to be able to manage those CRD IV RWA pressures in line with our existing guidance. On the topic of OI, Jason, as you say, it's pleasing to see some growth in respect of OI. Couple of points really to make there. One is we are seeing it across all of our different business areas. So for example if you look at retail, you'll see it in the context of current account development, you'll see it in context to cards, you'll see it in the context of transport. If you look at the Commercial business, you'll see it in the context of the growth within Corporate and Institutional financing or bond issues and the like along with market trends as well. Then if you look at the insurance business for example, you'll see some developments in terms of not just net new money, but also propositions like the workplace proposition there too. So really across the board strength in terms of OI, which is good to see. What's driving that? I think it's a combination of organic customer activity, which is still rebuilding to an extent at least post pandemic and some of the propositions that we're putting out there we hope are very competitive and that's what's being borne out by the numbers if you like. Alongside of that, Jason, what's driving it is our organic and inorganic investments. The organic ones being very much consistent with the strategy that Charlie and I laid out in 2022 and the inorganic ones you're familiar with. Tusker is a good example that we did at the beginning of this year, which is performing very well in terms of building that business. As we look forward, Jason, those same trends we believe are going to inform OI growth over the course of not just this year '23, but also going into 2024. And so I don't want to put a number on it clearly for 2024 at the moment, but the growth that we've seen of 8% or 9% in 2023, that feels reasonably solid and I would expect to make further progress during the course of 2024 looking forward. Final caveat there, Jason, of course as ever, it's activity dependent. It always is with other operating income, but I think the foundations feel pretty solid.

Our next caller is Jonathan Pierce from Numis.

I got 2 questions again. The first is on capital position because based on your guidance for generation over the full year less some of the dividend accrual. In the fourth quarter, I think you'll land at about 14.8%, 14.9% on the Tier 1 ratio so we'll see significant access to the target. So wondering where you feel comfortable operating that in the medium term. We came into this year I think pro forma for the buybacks at 14.1%, which again is ahead of your target. I'm also thinking about this in the context if your target just 13.5%, the low point if you like is when you announced the buybacks at the start of the year and then for the remaining 12 months, you operate considerably in excess of that target. I suppose the question is how quickly can we expect you to get down to 13.5% that you set at full year results pro forma for the buybacks Could it happen in February 2024? The second question is on deposit margin and clearly there's a debate at the moment sort of raging on the headwinds and the tailwinds. But if I just step back from it, do you produce -- you did disclose at the interim results the deposit margin including the impact of the hedge cost, which is effectively what it is. I think that number at H1 was 1.34%. So setting that quite clearly goes up a bit, goes down a bit over the next 6 to 12 months depending on deposit [ configuration ]. In the medium term is it your view that earning 130 basis points on deposits in an environment when base rate is 4% to 5% is too low and that number will go up and is it a core part the ROTE target by the time we get into 2026?

Jonathan, again important questions. The capital guidance first of all. As you commented, the capital guidance that we have out there is 13.5%. That is the target capital ratio for the bank. When we look at the capital ratio today, as you know, 14.6% is coming off of Q3 and as you alluded to, that is likely to lead to a decent capital position at year-end. A couple of points on that. One is we are very committed to capital repatriation. The 2 components of that, as you know Jonathan, are being a progressive and sustainable dividend. We increased it by 15% at the interim. I would be confident in expecting that to continue at the full year and I look forward to continued progressive and sustainable dividend growth thereafter. Alongside of that at the end of every year, we will consider the excess capital position above and beyond our target capital ratios and taking account of all kind of external and internal factors and it's really to the Board to decide at that point. But you've seen the commitment that we have in the context of buybacks in previous years and not wanting to in the interim preempt that debate, I'm sure will have a debate about what to do with excess capital at the end of this year. So that's point one. You asked specifically within capital guidance, how we see if we like coming down closer to our target of 13.5%. I think it's a relevant point. Ensure we've committed to get to 13.5% by the end of 2024. Now at the beginning of this year we were 14%. I think we would aim to deliver a relatively smooth capital trajectory down to 13.5% by the end of 2024, which in turn probably means chipping away a little below 14% by the end of this year. We'll see, but that would be my broad expectation. And then arriving in a kind of fairly linear fashion at 13.5% by the end of 2024. So hopefully, that gives you some idea as to how we think about it. The deposit margin point, it's an important one. As said, we are seeing the churn in terms of the book over the course of this year. It is entirely consistent with the expectations that we had of this interest rate environment and indeed I hope the guidance that we've given to the market through the course of the year. Likely as said, we see that continue a little bit during the course of Q4 and then I expect over time, it's hard to be too precise on when, that comes to slow down if you like and at some point presumably comes to an end. Now within that context, as you say, we have the structural hedge refinancing going on and that remains no matter what the deposit churn really does and no matter whether or not there is any modest reductions in the structural hedge, a very strong tailwind for the income profile of the business. You gave a number there in terms of the structural hedge yield as an example of that and how it's strengthening, Jonathan. So what we had within Q3 was a yield on the structural hedge of about 1.35% or thereabouts. What we expect to have for the remainder of this year is the building of that yield into the more like 1.4% to 1.5% territory and then build again during the course of 2024 into kind of above 1.6% territory. I won't be more precise beyond that, but it's the kind of 1.6% plus type territory going forward. That is off the back of some GBP 40 billion of hedge refinancings that come due during the course of 2024 which, as I said earlier on, provides quite a strong tailwind particularly in the second half of the year for the overall margin of the business. So I'm pretty confident as we sit here today that the strength of that structural hedge refinancing tailwind is likely in due course to outweigh the effects of any headwind that we may get in the meantime from the deposit churn that we're seeing and that's the balance of things. And I think, Jonathan, over time and maybe this is the final point, that is going to deliver the type of income and ultimately operating leverage that allows us to deliver a stronger ROTE and in turn stronger capital return in the period looking forward, particularly looking forward '25, '26 timeframe.

Okay. That's really helpful. And sorry, just 1 supplement. The hedge maturities for next year, are they reasonably spread across the 4 quarters or is there a lumpy profile again?

There's a bit of a back-end weighting. Jonathan. It's not terribly acute, but I think there's a bit of a skew towards the back end. So that's partly what's informing my comments around the margins to the questions earlier on.

Our next caller is Ben Toms from RBC.

Firstly on the structural hedge, you reiterated your modest single-digit reduction in the hedge notion going to half 2 2023. Do you believe that you can hold on to your noninterest-bearing deposit [indiscernible] and therefore should we be modeling better reduction in the Lloyds structural hedge notional going forward relative to our views on the sector as a whole? I guess the buffer you have over the balance sheet notion might also play a role here. And then secondly, in relation to your pension deficit funding reduction that you announced today with nearly a GBP 250 million contribution expected in Q1 2024. Would that have a bearing on your capital generation guidance of 175 basis points for FY '24? Just trying to get a feeling of how baked in this uses the existing financial plan?

Ben, again both important questions. In terms of the structural hedge, maybe I'll just start with 2023. The structural hedge guidance that we gave at the half year is for a modest reduction and that continues to be the case, if you like. I don't think there's any change to the guidance that we gave at the half year in respect of that. You've seen the nominal balance come down about GBP 4 billion during the course of quarter 3. It might come down by something similar during the course of quarter 4, let's see, but I think something broadly similar would be expected. And indeed, the combination of those 2 I added together, that's what led us to a modest notional reduction that we gave at the half year as guidance. I think looking forward, it won't surprise you now, Ben, we're not going to be specific today at least on guidance for the structural hedge going forward. We certainly will be at the tail end of the year as we always are. But looking forward, what do we expect to see? I think if you see a continuation of the churn albeit at some point no doubt a slowing, then off the back of that, that's what drives the structural hedge behavior. And so it would be reasonable to expect I guess some similar type of activity in the context of 2024. But let's see how rates play out, let's see how customer behaviors play out and that in turn will inform how we manage the structural hedge looking forward. You asked about our performance versus others and how we see the stickiness of the deposit base. Obviously I won't comment on a relative basis, but I can comment in terms of how we see the deposit base at Lloyds Banking Group develop. Maybe a couple of points to make there. I think one is we have invested heavily in terms of customer contact strategies and so we do work hard to identify where customers might move, how they might move, what it is they're looking for in terms of interest versus access trade-off, that sort of thing. A lot of it is digitized and I hope that that allows us to manage the deposit performance as best we can. Nothing is ever very perfect to be clear, but nonetheless, I think those types of investments are important. Alongside of that, we have a variety of different products with, if you like, hopefully competitive offers out there. Some of them are structural hedge eligible even though they are savings offers and so not just instant access, but we developed other products that are not fixed term if you like, so-called limited withdrawal products that in turn are structural hedge eligible. That gives customers the choice if they want to, if you like, go for a compromise between higher rates, number one; but also some degree of access, number two. That type of product allows them to do it and in turn that also allows us to keep the balances on the structural hedge in the structural hedge as is predictable and so forth. So that's combined with the customer contact strategy that we have, i.e. offers and products, that we hope allow us to manage the deposit base successfully. I think final point, Ben, is we've got a very broad-based customer profile across the U.K. It's a very broad franchise, very diversified franchise. In that sense, our deposit base and the behavior of the deposit base is driven by that type of characteristic. So maybe there's something in that. Hopefully, that addresses the structural hedge deposit questions. On the capital question, Ben, it's a good question. When we look at the position on capital, we've given very clear guidance in respect of 2023 and indeed in respect of 2024. We're not -- I'm not going to comment today specifically on 2024 beyond what I've just said. But I think on capital guidance as always in all years, we just try to be clear and consistent. We don't typically disclose all the moving pieces of capital. Indeed it's quite a complex picture. At the same time, you're aware of the income and the P&L trends that we have given and that we discussed in part again this morning. It's very clear that the pension deficit reduction is a positive for capital certainly for the remainder of this year, certainly for next year and indeed looking forward. At the same time, there are some uncertainties in the context of the capital position and they will play themselves out. So for example, we've made an allotment for CRD IV RWA increases next year, but there's some uncertainty about whether the PRA will increase RWAs more than we expect. We don't expect that clearly because our base case we've allowed for, but there is some uncertainty there. Likewise, it's impossible capital refinancings that we'll consider over the course of 2024. And then finally, there's some share-based payments where in the past we've been able to issue shares. Were now coming up against some of the limits for those and those will require purchasing shares on the market in exchange for compensation plans and the like. And so these are examples really of the types of uncertainties that we look into in the capital build and that's why, Ben, when we step back, what we want to do is just to provide something that is clear and predictable from your perspective of 175 basis points for this year and for next. Final point, Ben, that I'll make there is that having said that, let's not forget that is a very strong capital build, right. That allows us to deliver both a progressive and sustainable dividend, 15% up this year. I'll be very, very hopeful, let's say, of a decent increase in the dividend next year. I'll leave that to the Board to decide at that point. And alongside of that, you've seen our performance on buyback. So let's make no mistake about it, 175 basis points, that is a very strong capital performance that allows us to deliver a decent yield to all of our investors.

Our next caller is Chris Cant from Autonomous.