2013 HALF-YEAR RESULTS NEWS RELEASE - PART 2

 

STATUTORY INFORMATION

 

		Page
Condensed consolidated half-year financial statements (unaudited)
Consolidated income statement		105
Consolidated statement of comprehensive income		106
Consolidated balance sheet		107
Consolidated statement of changes in equity		109
Consolidated cash flow statement		112
Notes
1	Accounting policies, presentation and estimates	113
2	Segmental analysis	115
3	Other income	120
4	Operating expenses	121
5	Impairment	122
6	Taxation	122
7	Earnings (loss) per share	123
8	Disposal groups	123
9	Trading and other financial assets at fair value through profit or loss	124
10	Derivative financial instruments	125
11	Loans and advances to customers	126
12	Allowance for impairment losses on loans and receivables	126
13	Securitisations and covered bonds	127
14	Debt securities classified as loans and receivables	128
15	Available-for-sale financial assets	128
16	Customer deposits	128
17	Debt securities in issue	129
18	Post-retirement defined benefit schemes	129
19	Subordinated liabilities	130
20	Share capital	131
21	Reserves	131
22	Provisions for liabilities and charges	132
23	Contingent liabilities and commitments	134
24	Fair values of financial assets and liabilities	137
25	Related party transactions	143
26	Restatement of prior period information	145
27	Future accounting developments	153
28	Other information	153

 

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)

 

CONSOLIDATED INCOME STATEMENT

 

				Half-year  to 30 June  2013		Half-year  to 30 June  20121		Half-year  to 31 Dec  20121
		Note		£ million		£ million		£ million
Interest and similar income				10,751		12,734		10,814
Interest and similar expense				(7,481)		(8,470)		(7,360)
Net interest income				3,270		4,264		3,454
Fee and commission income				2,194		2,353		2,297
Fee and commission expense				(730)		(751)		(693)
Net fee and commission income				1,464		1,602		1,604
Net trading income				11,015		4,546		10,459
Insurance premium income				3,851		4,183		4,101
Other operating income				2,472		1,661		3,039
Other income		3		18,802		11,992		19,203
Total income				22,072		16,256		22,657
Insurance claims				(11,687)		(7,288)		(11,108)
Total income, net of insurance claims				10,385		8,968		11,549
Regulatory provisions				(575)		(1,075)		(3,100)
Other operating expenses				(5,993)		(5,621)		(6,178)
Total operating expenses		4		(6,568)		(6,696)		(9,278)
Trading surplus				3,817		2,272		2,271
Impairment		5		(1,683)		(2,728)		(2,421)
Profit (loss) before tax				2,134		(456)		(150)
Taxation		6		(556)		(206)		(575)
Profit (loss) for the period				1,578		(662)		(725)
Profit attributable to non-controlling interests				18		35		49
Profit (loss) attributable to equity shareholders				1,560		(697)		(774)
Profit (loss) for the period				1,578		(662)		(725)
Basic earnings (loss) per share		7		2.2p		(1.0)p		(1.1)p
Diluted earnings (loss) per share		7		2.2p		(1.0)p		(1.1)p

 

1	Restated - see notes 1 and 26.

 

 

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

		Half-year  to 30 June  2013		Half-year  to 30 June  20121		Half-year  to 31 Dec  20121
		£ million		£ million		£ million
Profit (loss) for the period		1,578		(662)		(725)
Other comprehensive income
Items that will not subsequently be reclassified to profit or loss:
Post-retirement defined benefit scheme remeasurements (note 18):
Remeasurements before taxation		981		398		(2,534)
Taxation		(226)		(96)		587
		755		302		(1,947)
Items that may subsequently be reclassified to profit or loss:
Movements in revaluation reserve in respect of available-for-sale financial assets:
Adjustment on transfers from held-to-maturity portfolio		-		-		1,168
Change in fair value		(584)		738		162
Income statement transfers in respect of disposals		(711)		(792)		(2,755)
Income statement transfers in respect of impairment		2		28		14
Other income statement transfers		-		-		169
Taxation		335		42		297
		(958)		16		(945)
Movements in cash flow hedging reserve:
Effective portion of changes in fair value		120		128		(12)
Net income statement transfers		(417)		238		(330)
Taxation		71		(83)		84
		(226)		283		(258)
Currency translation differences (tax: nil)		25		(20)		6
Other comprehensive income for the period, net of tax		(404)		581		(3,144)
Total comprehensive income for the period		1,174		(81)		(3,869)
Total comprehensive income attributable to non-controlling interests		18		34		48
Total comprehensive income attributable to equity shareholders		1,156		(115)		(3,917)
Total comprehensive income for the period		1,174		(81)		(3,869)

 

1	Restated - see notes 1 and 26.

 

 

 

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

CONSOLIDATED BALANCE SHEET

 

				At  30 June  2013		At  31 Dec  20121
Assets		Note		£ million		£ million
Cash and balances at central banks				60,555		80,298
Items in course of collection from banks				1,581		1,256
Trading and other financial assets at fair value through profit or loss		9		140,658		160,620
Derivative financial instruments		10		43,440		56,557
Loans and receivables:
Loans and advances to banks				32,593		32,757
Loans and advances to customers		11		505,784		517,225
Debt securities		14		1,690		5,273
				540,067		555,255
Available-for-sale financial assets		15		36,495		31,374
Investment properties				4,638		5,405
Goodwill				2,016		2,016
Value of in-force business				6,129		6,800
Other intangible assets				2,389		2,792
Tangible fixed assets				7,553		7,342
Current tax recoverable				350		354
Deferred tax assets				5,098		4,913
Retirement benefit assets		18		859		741
Other assets		8		24,951		18,498
Total assets				876,779		934,221

 

1	Restated - see notes 1 and 26.

 

 

 

 

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

CONSOLIDATED BALANCE SHEET (continued)

 

				At  30 June  2013		At  31 Dec  20121
Equity and liabilities		Note		£ million		£ million
Liabilities
Deposits from banks				14,226		38,405
Customer deposits		16		433,559		426,912
Items in course of transmission to banks				1,300		996
Trading and other financial liabilities at fair value through profit or loss				40,673		33,392
Derivative financial instruments		10		36,601		48,676
Notes in circulation				1,354		1,198
Debt securities in issue		17		106,347		117,253
Liabilities arising from insurance contracts and participating investment contracts				84,635		82,953
Liabilities arising from non-participating investment contracts				27,298		54,372
Unallocated surplus within insurance businesses				327		267
Other liabilities		8		48,190		46,793
Retirement benefit obligations		18		780		1,905
Current tax liabilities				146		138
Deferred tax liabilities				316		327
Other provisions				3,105		3,961
Subordinated liabilities		19		34,235		34,092
Total liabilities				833,092		891,640
Equity
Share capital		20		7,141		7,042
Share premium account		21		17,266		16,872
Other reserves		21		11,743		12,902
Retained profits		21		7,214		5,080
Shareholders' equity				43,364		41,896
Non-controlling interests				323		685
Total equity				43,687		42,581
Total equity and liabilities				876,779		934,221

 

1	Restated - see notes 1 and 26.

 

 

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

		Attributable to equity shareholders
	Share  capital and  premium			Other  reserves		Retained  profits		Total	Non-  controlling  interests			Total
		£ million		£ million		£ million		£ million		£ million		£ million
Balance at 1 January 2013
As previously reported		23,914		12,902		7,183		43,999		685		44,684
Restatement (see notes 1 and 26)		-		-		(2,103)		(2,103)		-		(2,103)
Restated		23,914		12,902		5,080		41,896		685		42,581
Comprehensive income
Profit for the period		-		-		1,560		1,560		18		1,578
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax		-		-		755		755		-		755
Movements in revaluation reserve in respect of available-for-sale financial assets, net of tax		-		(958)		-		(958)		-		(958)
Movements in cash flow hedging reserve, net of tax		-		(226)		-		(226)		-		(226)
Currency translation differences (tax: nil)		-		25		-		25		-		25
Total other comprehensive income		-		(1,159)		755		(404)		-		(404)
Total comprehensive income		-		(1,159)		2,315		1,156		18		1,174
Transactions with owners
Dividends		-		-		-		-		(25)		(25)
Issue of ordinary shares		493		-		-		493		-		493
Movement in treasury shares		-		-		(361)		(361)		-		(361)
Value of employee services:
Share option schemes		-		-		34		34		-		34
Other employee award schemes		-		-		146		146		-		146
Change in non-controlling interests		-		-		-		-		(355)		(355)
Total transactions with owners		493		-		(181)		312		(380)		(68)
Balance at 30 June 2013		24,407		11,743		7,214		43,364		323		43,687

 

 

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

 

		Attributable to equity shareholders
		Share  capital and  premium		Other  reserves		Retained  profits		Total	Non-  controlling  interests			Total
		£ million		£ million		£ million		£ million		£ million		£ million
Balance at 1 January 2012
As originally reported		23,422		13,818		8,680		45,920		674		46,594
Restatement (see notes 1 and 26)		-		-		(414)		(414)		-		(414)
Restated		23,422		13,818		8,266		45,506		674		46,180
Comprehensive income
(Loss) profit for the period		-		-		(697)		(697)		35		(662)
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax		-		-		302		302		-		302
Movements in revaluation reserve in respect of available-for-sale financial assets, net of tax		-		17		-		17		(1)		16
Movements in cash flow hedging reserve, net of tax		-		283		-		283		-		283
Currency translation differences (tax: nil)		-		(20)		-		(20)		-		(20)
Total other comprehensive income		-		280		302		582		(1)		581
Total comprehensive income		-		280		(395)		(115)		34		(81)
Transactions with owners
Dividends		-		-		-		-		(23)		(23)
Issue of ordinary shares		492		-		-		492		-		492
Movement in treasury shares		-		-		(273)		(273)		-		(273)
Value of employee services:
Share option schemes		-		-		48		48		-		48
Other employee award schemes		-		-		146		146		-		146
Change in non-controlling interests		-		-		-		-		7		7
Total transactions with owners		492		-		(79)		413		(16)		397
Balance at 30 June 2012		23,914		14,098		7,792		45,804		692		46,496

 

 

 

 

 

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

 

		Attributable to equity shareholders
		Share  capital and  premium		Other  reserves		Retained  profits		Total	Non-  controlling  interests			Total
		£ million		£ million		£ million		£ million		£ million		£ million
Balance at 1 July 2012
As originally reported		23,914		14,098		7,925		45,937		692		46,629
Restatement (see notes 1 and 26)		-		-		(133)		(133)		-		(133)
Restated		23,914		14,098		7,792		45,804		692		46,496
Comprehensive income
(Loss) profit for the period		-		-		(774)		(774)		49		(725)
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax		-		-		(1,947)		(1,947)		-		(1,947)
Movements in revaluation reserve in respect of available-for-sale financial assets, net of tax		-		(944)		-		(944)		(1)		(945)
Movements in cash flow hedging reserve, net of tax		-		(258)		-		(258)		-		(258)
Currency translation differences (tax: nil)		-		6		-		6		-		6
Total other comprehensive income		-		(1,196)		(1,947)		(3,143)		(1)		(3,144)
Total comprehensive income		-		(1,196)		(2,721)		(3,917)		48		(3,869)
Transactions with owners
Dividends		-		-		-		-		(33)		(33)
Movement in treasury shares		-		-		(134)		(134)		-		(134)
Value of employee services:
Share option schemes		-		-		33		33		-		33
Other employee award schemes		-		-		110		110		-		110
Change in non-controlling interests		-		-		-		-		(22)		(22)
Total transactions with owners		-		-		9		9		(55)		(46)
Balance at 31 December 2012		23,914		12,902		5,080		41,896		685		42,581

 

 

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

 

CONSOLIDATED CASH FLOW STATEMENT

 

		Half-year  to 30 June  2013		Half-year  to 30 June  20121		Half-year  to 31 Dec  20121
		£ million		£ million		£ million
Profit (loss) before tax		2,134		(456)		(150)
Adjustments for:
Change in operating assets		6,234		30,054		17,751
Change in operating liabilities		(19,518)		(8,749)		(37,404)
Non-cash and other items		(6,145)		1,668		413
Tax (paid) received		(26)		(94)		16
Net cash (used in) provided by operating activities		(17,321)		22,423		(19,374)
Cash flows from investing activities
Purchase of financial assets		(25,776)		(12,284)		(9,766)
Proceeds from sale and maturity of financial assets		19,647		14,238		23,426
Purchase of fixed assets		(1,852)		(1,416)		(1,587)
Proceeds from sale of fixed assets		1,444		1,022		1,573
Acquisition of businesses, net of cash acquired		(2)		(10)		(1)
Disposal of businesses, net of cash disposed		(586)		5		32
Net cash (used in) provided by investing activities		(7,125)		1,555		13,677
Cash flows from financing activities
Dividends paid to non-controlling interests		(25)		(23)		(33)
Interest paid on subordinated liabilities		(1,268)		(888)		(1,689)
Proceeds from issue of subordinated liabilities		1,500		-		-
Proceeds from issue of ordinary shares		350		170		-
Repayment of subordinated liabilities		(1,821)		(15)		(649)
Change in non-controlling interests		2		7		16
Net cash used in financing activities		(1,262)		(749)		(2,355)
Effects of exchange rate changes on cash and cash equivalents		(12)		(10)		2
Change in cash and cash equivalents		(25,720)		23,219		(8,050)
Cash and cash equivalents at beginning of period		101,058		85,889		109,108
Cash and cash equivalents at end of period		75,338		109,108		101,058

 

1	Restated - see notes 1 and 26.

 

Cash and cash equivalents comprise cash and balances at central banks (excluding mandatory deposits) and amounts due from banks with a maturity of less than three months.

 

1.         Accounting policies, presentation and estimates

 

These condensed consolidated half-year financial statements as at and for the period to 30 June 2013 have been prepared in accordance with the Disclosure Rules and Transparency Rules of the Financial Conduct Authority (FCA) and with International Accounting Standard 34 (IAS 34), Interim Financial Reporting as adopted by the European Union and comprise the results of Lloyds Banking Group plc (the Company) together with its subsidiaries (the Group).  They do not include all of the information required for full annual financial statements and should be read in conjunction with the Group's consolidated financial statements as at and for the year ended 31 December 2012 which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.  Copies of the 2012 annual report and accounts are available on the Group's website and are available upon request from Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V 7HN.

 

The British Bankers' Association's Code for Financial Reporting Disclosure (the Disclosure Code) sets out disclosure principles together with supporting guidance in respect of the financial statements of UK banks.  The Group has adopted the Disclosure Code and these condensed consolidated half-year financial statements have been prepared in compliance with the Disclosure Code's principles.  Terminology used in these condensed consolidated half-year financial statements is consistent with that used in the Group's 2012 annual report and accounts where a glossary of terms can be found.

 

The directors consider that it is appropriate to continue to adopt the going concern basis in preparing the condensed consolidated half-year financial statements.  In reaching this assessment, the directors have considered projections for the Group's capital and funding position and have had regard to the factors set out in Principal risks and uncertainties: Liquidity and funding on page 51.

 

The accounting policies are consistent with those applied by the Group in its 2012 annual report and accounts except as described below.

 

On 1 January 2013 the Group adopted the following new accounting standards and amendments to standards:

 

IFRS 10 Consolidated Financial Statements

IFRS 10 supersedes IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation - Special Purpose Entities and establishes the principles for when the Group controls another entity and is therefore required to consolidate the other entity in the Group's financial statements.  Under IFRS 10, the Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through the exercise of power.  As a result, the Group consolidates certain entities that were not previously consolidated and no longer consolidates certain entities which were previously consolidated; principally in relation to Open-Ended Investment Companies.

 

The Group has applied IFRS 10 retrospectively and restated its comparatives in accordance with the transitional provisions included in the standard.  These provisions require the Group to re-assess its control conclusions as at 1 January 2013 and restate its comparative information, applying the revised assessment in 2012 to the extent that the relevant investments were held in that year.  Details of the impact of these restatements are provided in note 26.

 

IAS 19R: Amendments to IAS 19 Employee Benefits

IAS 19R prescribes the accounting and disclosure by employers for employee benefits.  Actuarial gains and losses (remeasurements) arising from the valuation of defined benefit pension schemes are no longer permitted to be deferred using the corridor approach and must be recognised immediately in other comprehensive income.  In addition, IAS 19R also replaces interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset).  IAS 19R has been applied retrospectively and comparative figures restated accordingly.  Details of the impact of these restatements are provided in note 26.

 

1.         Accounting policies, presentation and estimates (continued)

 

The Group updates the valuations of its post-retirement defined benefit schemes at 31 December each year.  In addition, at each interim reporting date the Group reviews the assumptions used to calculate the net defined benefit obligation and updates its balance sheet carrying value where that value would otherwise differ materially from a valuation based on those revised assumptions.

 

The impact of the implementation of IAS19R on the Group's results for the half-year to 30 June 2013 has been to increase other operating expenses by £3 million and reduce profit before tax by the same amount.  The impact on the balance sheet at 30 June 2013 has been to decrease the net retirement benefit asset by £1,753 million, to increase deferred tax assets by £403 million and to reduce shareholders' equity by £1,350 million.

 

IFRS 13 Fair value measurement

IFRS 13 has been applied with effect from 1 January 2013.  IFRS 13 defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date.  IFRS 13 requires that the fair value of a non-financial asset is determined based on the highest and best use of the asset, and that the fair value of a liability reflects its non-performance risk.  These changes had no significant impact on the measurement of the Group's assets and liabilities.  The IFRS 13 disclosures required by IAS 34 are given in note 24.

 

Amendments to IAS 1Presentation of Financial Statements - 'Presentation of Items of Other Comprehensive Income'

The amendments to IAS 1 require entities to group items presented in other comprehensive income on the basis of whether they may potentially be reclassified to profit or loss subsequently.  The statement of other comprehensive income in these condensed consolidated half-year financial statements has been revised to reflect the new requirements.

 

Amendments to IFRS 7 Financial Instruments: Disclosures - 'Disclosures - Offsetting Financial Assets and Financial Liabilities'

The amendments to IFRS 7 require entities to disclose information to enable users of the financial statements to evaluate the effect or potential effect of netting arrangements on the balance sheet.  These disclosures will be made in the Group's financial statements for the year ended 31 December 2013.

 

IFRS 12 Disclosure of Interests in Other Entities

IFRS 12 requires an entity to disclose information that enables users of financial statements to evaluate the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows.  These disclosures will be made in the Group's financial statements for the year ended 31 December 2013.

 

Future accounting developments

Details of those IFRS pronouncements which will be relevant to the Group but which will not be effective at 31 December 2013 and which have not been applied in preparing these condensed consolidated half-year financial statements are set out in note 27.

 

Critical accounting estimates and judgements

The preparation of the Group's financial statements requires management to make judgements, estimates and assumptions that impact the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.  Due to the inherent uncertainty in making estimates, actual results reported in future periods may include amounts which differ from those estimates.  Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.  There have been no significant changes in the basis upon which estimates have been determined, compared to that applied at 31 December 2012.

 

 

 

2.         Segmental analysis

 

Lloyds Banking Group provides a wide range of banking and financial services in the UK and in certain locations overseas.

 

The Group Executive Committee (GEC) has been determined to be the chief operating decision maker for the Group.  The Group's operating segments reflect its organisational and management structures.  GEC reviews the Group's internal reporting based around these segments in order to assess performance and allocate resources.  This assessment includes a consideration of each segment's net interest revenue and consequently the total interest income and expense for all reportable segments is presented on a net basis.  The segments are differentiated by the type of products provided, by whether the customers are individuals or corporate entities and by the geographical location of the customer.

 

The segmental results and comparatives are presented on an underlying basis, the basis reviewed by the chief operating decision maker.  Previously the results of the Group's segments had been reviewed on a management basis and the Group's segmental analysis was presented accordingly.  The effects of asset sales, volatile items and liability management as well as the fair value unwind line are excluded in arriving at underlying profit.

 

Following a reorganisation during the second half of 2012, the Group's activities are now organised into four financial reporting segments: Retail; Commercial Banking; Wealth, Asset Finance and International; and Insurance.  The impact of this reorganisation was as follows:

 

-    The Group's Wholesale and Commercial divisions have been combined to form Commercial Banking.

-    The Group's Continental European wholesale business and the wholesale Australian business have been transferred from Wealth, Asset Finance and International to Commercial Banking.

 

Comparative figures have been restated accordingly for all of the above changes, as well as for the accounting policy changes explained in note 1.

 

Retail offers a broad range of retail financial service products in the UK, including current accounts, savings, personal loans, credit cards and mortgages.  It is also a major general insurance and bancassurance distributor, selling a wide range of long-term savings, investment and general insurance products.

 

Commercial Banking provides banking and related services for all UK and multinational business clients, from small and medium-sized enterprises to major corporate and financial institutions.

 

Wealth, Asset Finance and International gives increased focus and momentum to the Group's private banking and asset management activities, closely co-ordinates the management of its international businesses and also encompasses the Asset Finance business in the UK and Australia.  Wealth comprises the Group's private banking, wealth and asset management businesses in the UK and overseas.  International comprises retail businesses, principally in Continental Europe.

 

Insurance provides long-term savings, protection and investment products distributed through bancassurance, intermediary and direct channels in the UK.  It is also a distributor of home insurance in the UK with products sold through the retail branch network, direct channels and strategic corporate partners.  The business consists of Life, Pensions and Investments UK; Life, Pensions and Investments Europe; and General Insurance.

 

Other includes the costs of managing the Group's technology platforms, branch and head office property estate, operations (including payments, banking operations and collections) and sourcing, the costs of which are predominantly recharged to the other divisions.  It also reflects other items not recharged to the divisions, including hedge ineffectiveness, UK bank levy, Financial Services Compensation Scheme costs, gains on liability management, volatile items such as hedge accounting volatility managed centrally, and other gains from the structural hedging of interest rate risk.

 

 

2.         Segmental analysis (continued)

 

Inter-segment services are generally recharged at cost, with the exception of the internal commission arrangements between the UK branch and other distribution networks and the insurance product manufacturing businesses within the Group, where a profit margin is also charged.  Inter-segment lending and deposits are generally entered into at market rates, except that non-interest bearing balances are priced at a rate that reflects the external yield that could be earned on such funds.

 

For the majority of those derivative contracts entered into by business units for risk management purposes, the business unit recognises the net interest income or expense on an accrual accounting basis and transfers the remainder of the movement in the fair value of the derivative to the central group segment where the resulting accounting volatility is managed where possible through the establishment of hedge accounting relationships.  Any change in fair value of the hedged instrument attributable to the hedged risk is also recorded within the central group segment.  This allocation of the fair value of the derivative and change in fair value of the hedged instrument attributable to the hedged risk avoids accounting asymmetry in segmental results and leads to accounting volatility in the central group segment where it is managed.

 

Half-year to 30 June 2013		Net  interest  income		Other  income	Insurance  claims		Total  income,  net of  insurance  claims		Profit  (loss)  before tax			External  revenue		Inter-  segment  revenue
		£m		£m		£m		£m		£m		£m		£m
Underlying basis
Retail		3,590		728		-		4,318		1,636		5,920		(1,602)
Commercial Banking		1,196		1,426		-		2,622		634		2,193		429
Wealth, Asset Finance and International		431		951		-		1,382		(101)		1,062		320
Insurance		(45)		1,111		(148)		918		564		1,361		(443)
Other		34		190		-		224		169		(1,072)		1,296
Group		5,206		4,406		(148)		9,464		2,902		9,464		-
Reconciling items:
Insurance grossing adjustment		(1,700)		13,360		(11,539)		121		-
Asset sales, volatile items and liability management1		12		558		-		570		376
Volatility arising in insurance businesses		7		478		-		485		485
Simplification costs		-		-		-		-		(409)
EC mandated retail business disposal costs		-		-		-		-		(377)
Payment protection insurance provision		-		-		-		-		(500)
Other regulatory provisions		-		-		-		-		(75)
Past service cost		-		-		-		-		(104)
Amortisation of purchased intangibles		-		-		-		-		(200)
Fair value unwind		(255)		-		-		(255)		36
Group - statutory		3,270		18,802		(11,687)		10,385		2,134

 

1

Includes (i) gains or losses on disposals of assets, including centrally held government bonds, which are not part of normal business operations; (ii) the net effect of banking volatility, changes in the fair value of the equity conversion feature of the Group's Enhanced Capital Notes and net derivative valuation adjustments; and (iii) the results of liability management exercises.

 

 

2.         Segmental analysis (continued)

 

Half-year to 30 June 20121		Net  interest  income		Other  income		Insurance  claims		Total  income,  net of  insurance  claims	Profit (loss)  before tax			External  revenue		Inter-  segment  revenue
		£m		£m		£m		£m		£m		£m		£m
Underlying basis
Retail		3,553		766		-		4,319		1,472		5,392		(1,073)
Commercial Banking		1,111		1,496		-		2,607		(83)		2,066		541
Wealth, Asset Finance and International		415		1,006		-		1,421		(706)		1,813		(392)
Insurance		(37)		1,156		(233)		886		502		1,086		(200)
Other		173		(160)		-		13		(141)		(1,111)		1,124
Group		5,215		4,264		(233)		9,246		1,044		9,246		-
Reconciling items:
Insurance grossing adjustment		(721)		7,862		(7,055)		86		-
Asset sales, volatile items and liability management2		80		(136)		-		(56)		(56)
Volatility arising in insurance businesses		2		(23)		-		(21)		(21)
Simplification costs		-		-		-		-		(274)
EC mandated retail business disposal costs		-		-		-		-		(239)
Past service pensions credit		-		-		-		-		250
Payment protection insurance provision		-		-		-		-		(1,075)
Amortisation of purchased intangibles		-		-		-		-		(242)
Fair value unwind		(312)		25		-		(287)		157
Group - statutory		4,264		11,992		(7,288)		8,968		(456)

 

1	Restated - see notes 1 and 26.
2	Includes (i) gains or losses on disposals of assets, including centrally held government bonds, which are not part of normal business operations; (ii) the net effect of banking volatility, changes in the fair value of the equity conversion feature of the Group's Enhanced Capital Notes and net derivative valuation adjustments; and (iii) the results of liability management exercises.

 

 

2.         Segmental analysis (continued)

 

Half-year to 31 December 20121		Net  interest  income		Other  income		Insurance  claims		Total  income,  net of  insurance  claims	Profit (loss)  before tax			External  revenue		Inter-  segment  revenue
		£m		£m		£m		£m		£m		£m		£m
Underlying basis
Retail		3,642		696		-		4,338		1,716		5,559		(1,221)
Commercial Banking		1,095		1,436		-		2,531		(241)		2,004		527
Wealth, Asset Finance and International		384		1,037		-		1,421		(223)		1,022		399
Insurance		(41)		1,138		(132)		965		605		1,411		(446)
Other		40		(155)		-		(115)		(336)		(856)		741
Group		5,120		4,152		(132)		9,140		1,521		9,140		-
Reconciling items:
Insurance grossing adjustment		(1,866)		12,929		(10,976)		87		-
Asset sales, volatile items and liability management2		119		1,827		-		1,946		1,626
Volatility arising in insurance businesses		6		327		-		333		333
Simplification costs		-		-		-		-		(402)
EC mandated retail business disposal costs		-		-		-		-		(331)
Payment protection insurance provision		-		-		-		-		(2,500)
Amortisation of purchased intangibles		-		-		-		-		(240)
Fair value unwind		75		18		-		93		493
Other regulatory provisions		-		(50)		-		(50)		(650)
Group - statutory		3,454		19,203		(11,108)		11,549		(150)

 

1	Restated - see notes 1 and 26.
2	Includes (i) gains or losses on disposals of assets, including centrally held government bonds, which are not part of normal business operations; (ii) the net effect of banking volatility, changes in the fair value of the equity conversion feature of the Group's Enhanced Capital Notes and net derivative valuation adjustments; and (iii) the results of liability management exercises.

 

 

2.         Segmental analysis (continued)

 

Segment external assets		At  30 June  2013		At  31 Dec  20121
		£m		£m
Retail		343,400		346,030
Commercial Banking		278,920		314,090
Wealth, Asset Finance and International		45,240		77,884
Insurance		157,410		152,583
Other		51,809		43,634
Total Group		876,779		934,221
Segment customer deposits
Retail		263,220		260,838
Commercial Banking		121,409		114,115
Wealth, Asset Finance and International		48,914		51,885
Other		16		74
Total Group		433,559		426,912
Segment external liabilities
Retail		286,137		287,631
Commercial Banking		234,325		249,097
Wealth, Asset Finance and International		53,428		92,686
Insurance		151,114		143,695
Other		108,088		118,531
Total Group		833,092		891,640

 

1	Restated - see notes 1 and 26.

 

 

3.         Other income

 

		Half-year  to 30 June  2013		Half-year  to 30 June  20121		Half-year  to 31 Dec  20121
		£m		£m		£m
Fee and commission income:
Current account fees		485		512		496
Credit and debit card fees		475		463		478
Other fees and commissions		1,234		1,378		1,323
		2,194		2,353		2,297
Fee and commission expense		(730)		(751)		(693)
Net fee and commission income		1,464		1,602		1,604
Net trading income		11,015		4,546		10,459
Insurance premium income		3,851		4,183		4,101
Gains on sale of available-for-sale financial assets		711		792		2,755
Liability management2		(97)		59		(397)
Other3, 4, 5		1,858		810		681
Other operating income		2,472		1,661		3,039
Total other income		18,802		11,992		19,203

 

1	Restated - see notes 1 and 26.
2	Losses of £97 million arose in the half-year to 30 June 2013 on transactions undertaken as part of the Group's management of wholesale funding and capital; this compares to a gain of £59 million relating to the exchange of certain capital securities for other subordinated debt instruments in the half-year to 30 June 2012 (when a related gain of £109 million was also recognised in net interest income) and losses of £397 million on the buy-back of other debt securities in the half-year to 31 December 2012.
3	On 15 March 2013 the Group completed the sale of 102 million shares in St James's Place plc, reducing the Group's holding in that company to approximately 37 per cent. As a result of that reduction in holding the Group no longer consolidates St James's Place plc in its accounts, instead accounting for the residual investment as an associate. The Group realised a gain of £394 million on the sale of those shares and the fair valuation of the Group's residual stake.  Subsequently, on 29 May 2013 the Group completed the sale of a further 77 million shares, generating a profit of £39 million and further reducing the Group's holding to approximately 21 per cent.
4	In the first half of 2013 the Group disposed of its Spanish retail banking operations, including Lloyds Bank International S.A.U and Lloyds Investment España SGIIC S.A.U, to Banco Sabadell, S.A. realising a loss of £256 million.  The Group has also recognised a loss of £10 million relating to the sale of its International Private Banking operations which is expected to complete by early in 2014.
5	During the first half of 2013, the Group completed the sale of a portfolio of US RMBS (residential mortgage backed securities) for a cash consideration of £3.3 billion, realising a profit of £538 million.

4.         Operating expenses

 

		Half-year   to 30 June   2013				Half-year   to 30 June   20121				Half-year   to 31 Dec   20121
		£m				£m				£m
Administrative expenses
Staff costs:
Salaries		1,927				1,975				1,831
Social security costs		202				211				172
Pensions and other post-retirement benefit schemes:
Past service costs (credits)2			104				(250)				-
Other			329				293				296
		433				43				296
Restructuring costs		82				164				53
Other staff costs		364				356				390
		3,008				2,749				2,742
Premises and equipment:
Rent and rates		229				248				240
Hire of equipment		7				10				7
Repairs and maintenance		92				80				94
Other		162				140				130
		490				478				471
Other expenses:
Communications and data processing		581				505				577
Advertising and promotion		140				156				158
Professional fees		215				217				333
UK bank levy		-				-				179
Other		590				464				644
		1,526				1,342				1,891
		5,024				4,569				5,104
Depreciation and amortisation		969				1,052				1,074
Total operating expenses, excluding regulatory provisions		5,993				5,621				6,178
Regulatory provisions:
Payment protection insurance provision (note 22)		500				1,075				2,500
Other regulatory provisions (note 22)		75				-				600
		575				1,075				3,100
Total operating expenses		6,568				6,696				9,278

 

1

Restated - see notes 1 and 26.

2

The Group has agreed certain changes to early retirement and commutation factors in two of its principal defined benefit pension schemes, resulting in a cost of £104 million recognised in the Group's income statement in the half-year to 30 June 2013.   During 2012, following a review of policy in respect of discretionary pension increases in relation to the Group's defined benefit pension schemes, increases in certain schemes are now linked to the Consumer Price Index rather than the Retail Price Index.  The impact of this change was a reduction in the Group's defined benefit obligation of £258 million, recognised in the Group's income statement in the half-year to 30 June 2012, net of a charge of £8 million in respect of one of the Group's smaller schemes.

 

 

5.         Impairment

 

		Half-year  to 30 June  2013		Half-year  to 30 June  2012		Half-year  to 31 Dec  2012
		£m		£m		£m
Impairment losses on loans and receivables:
Loans and advances to customers		1,680		2,672		2,453
Debt securities classified as loans and receivables		1		9		(13)
Impairment losses on loans and receivables (note 12)		1,681		2,681		2,440
Impairment of available-for-sale financial assets		2		28		9
Other credit risk provisions		-		19		(28)
Total impairment charged to the income statement		1,683		2,728		2,421

 

 

6.         Taxation

 

A reconciliation of the tax (charge) credit that would result from applying the standard UK corporation tax rate to the profit (loss) before tax, to the actual tax charge, is given below:

 

		Half-year  to 30 June  2013		Half-year  to 30 June  20121		Half-year  to 31 Dec  20121
		£m		£m		£m
Profit (loss) before tax		2,134		(456)		(150)
Tax (charge) credit thereon at UK corporation tax rate of 23.25 per cent (2012: 24.5 per cent)		(496)		112		37
Factors affecting tax (charge) credit:
UK corporation tax rate change		-		(126)		(194)
Disallowed and non-taxable items		(9)		(20)		74
Overseas tax rate differences		19		13		62
Gains exempted or covered by capital losses		82		32		4
Policyholder tax		(216)		(8)		(136)
Further factors affecting the life business:2
Derecognition of deferred tax on policyholder tax credit		-		(252)		(331)
Taxation of certain insurance assets arising on transition to new tax regime		-		-		(221)
Changes to the taxation of pension business:
Policyholder tax cost		-		-		(182)
Shareholder tax benefit		-		-		206
Tax losses where no deferred tax recognised		-		(25)		-
Deferred tax on losses not previously recognised		43		-		12
Adjustments in respect of previous years		20		53		82
Effect of results of joint ventures and associates		2		9		14
Other items		(1)		6		(2)
Tax charge		(556)		(206)		(575)

 

1	Restated - see notes 1 and 26.
2	The Finance Act 2012 introduced a new UK tax regime for the taxation of life insurance companies which took effect from 1 January 2013.  The new regime, combined with current economic forecasts, has had a number of impacts on the tax charge.  The impacts are analysed above.

 

 

6.         Taxation (continued)

 

In accordance with IAS 34, the Group's income tax expense for the half-year to 30 June 2013 is based on the best estimate of the weighted-average annual income tax rate expected for the full financial year.  The tax effects of one-off items are not included in the weighted-average annual income tax rate, but are recognised in the relevant period. 

 

The Finance Act 2013 (the "Act") was substantively enacted on 2 July 2013.  The Act further reduces the rate of corporation tax to 21 per cent with effect from 1 April 2014 and 20 per cent with effect from 1 April 2015.  The impact of the corporation tax reductions to 21 and 20 per cent will be accounted for in the second half of 2013. The effect of these rate reductions on the Group's deferred tax balance is estimated to be a reduction in the net deferred tax asset of approximately £0.5 billion.

 

 

7.         Earnings (loss) per share

 

		Half-year  to 30 June  2013		Half-year  to 30 June  20121		Half-year  to 31 Dec  20121
Basic
Profit (loss) attributable to equity shareholders		£1,560m		£(697)m		£(774)m
Weighted average number of ordinary shares in issue		70,672m		69,348m		70,329m
Earnings (loss) per share		2.2p		(1.0)p		(1.1)p
Fully diluted
Profit (loss) attributable to equity shareholders		£1,560m		£(697)m		£(774)m
Weighted average number of ordinary shares in issue		71,514m		69,348m		70,329m
Earnings (loss) per share		2.2p		(1.0)p		(1.1)p

 

1	Restated - see notes 1 and 26.

 

 

8.         Disposal groups

 

Disposal groups are classified as held for sale if the Group will recover the carrying amount principally through a sale transaction rather than through continuing use and a sale is considered highly probable. The Group expects to complete the sales of its branch business in Uruguay, its international private banking operations and its joint venture interest in Sainsbury's Bank in the next 12 months.  The assets and liabilities associated with these operations are therefore classified as held-for-sale disposal groups at 30 June 2013 and included within other assets and other liabilities respectively.

 

		At  30 June  2013		At  31 Dec  2012
		£m		£m
Other assets
Assets of disposal groups classified as held for sale		1,110		194
Other liabilities
Liabilities of disposal groups classified as held for sale		2,051		214

 

Disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell.  The Group has recognised a loss of £10 million within other income relating to disposal groups classified as held for sale during the half-year to 30 June 2013.

 

At 31 December 2012, the Group's Uruguayan branch business, its branch remittance business in Japan and its portfolio management business in Luxembourg were classified as held-for-sale.  The sales of the Japan branch remittance business and the Luxembourg portfolio management business completed in the first half of 2013.

8.         Disposal groups (continued)

 

The major classes of assets and liabilities of the disposal groups are as follows:

		At  30 June  2013		At  31 Dec  2012
		£m		£m
Assets
Cash and balances at central banks		97		82
Loans and advances to banks		14		7
Loans and advances to customers		772		84
Available-for-sale financial assets		72		27
Other		186		20
Provision for impairment of the disposal groups		(31)		(26)
		1,110		194
Liabilities
Customer deposits		2,026		185
Other		25		29
		2,051		214

 

 

9.         Trading and other financial assets at fair value through profit or loss

 

		At  30 June  2013		At  31 Dec  20121
		£m		£m
Trading assets		31,349		23,345
Other financial assets at fair value through profit or loss:
Treasury and other bills		59		56
Loans and advances to customers		29		34
Debt securities		40,496		47,738
Equity shares		68,725		89,447
		109,309		137,275
Total trading and other financial assets at fair value through profit or loss		140,658		160,620

 

1	Restated - see notes 1 and 26.

 

Included in the above is £104,867 million (31 December 2012: £134,537 million) of assets relating to the insurance businesses.

 

 

 

10.       Derivative financial instruments

 

		30 June 2013				31 December 20121
		Fair value  of assets	Fair value  of liabilities			Fair value  of assets		Fair value  of liabilities
		£m		£m		£m		£m
Hedging
Derivatives designated as fair value hedges		5,175		1,467		6,903		2,128
Derivatives designated as cash flow hedges		2,144		2,551		4,668		4,470
		7,319		4,018		11,571		6,598
Trading and other
Exchange rate contracts		5,252		5,036		3,712		3,887
Interest rate contracts		27,607		26,472		37,785		36,537
Credit derivatives		167		137		94		343
Embedded equity conversion feature		1,279		-		1,421		-
Equity and other contracts		1,816		938		1,974		1,311
		36,121		32,583		44,986		42,078
Total recognised derivative assets/liabilities		43,440		36,601		56,557		48,676

 

1	Restated - see notes 1 and 26.

 

The Group reduces exposure to credit risk by using master netting agreements and by obtaining cash collateral.  Of the derivative assets of £43,440 million at 30 June 2013 (31 December 2012: £56,557 million), £28,934 million (31 December 2012: £38,158 million) are available for offset under master netting arrangements.  These do not meet the criteria under IAS 32 to enable derivative assets to be presented net of these balances.  Of the remaining derivative assets of £14,506 million (31 December 2012: £18,399 million), cash collateral of £2,206 million (31 December 2012: £5,429 million) was held and a further £2,158 million (31 December 2012: £1,387 million) was due from Organisation for Economic Co-operation and Development (OECD) banks.

 

The embedded equity conversion feature of £1,279 million (31 December 2012: £1,421 million) reflects the value of the equity conversion feature contained in the Enhanced Capital Notes issued by the Group in 2009; the loss of £142 million arising from the change in fair value in the half-year to 30 June 2013 (half-year to 30 June 2012: loss of £152 million; half-year to 31 December 2012: gain of £401 million) is included within net trading income.

 

 

 

11.       Loans and advances to customers

 

		At  30 June  2013		At  31 Dec  2012
		£m		£m
Agriculture, forestry and fishing		5,852		5,531
Energy and water supply		3,006		3,321
Manufacturing		8,520		8,530
Construction		7,599		7,526
Transport, distribution and hotels		24,014		26,568
Postal and communications		1,585		1,397
Property companies		50,289		52,388
Financial, business and other services		46,779		49,190
Personal:
Mortgages		334,702		337,879
Other		26,736		28,334
Lease financing		5,829		6,477
Hire purchase		5,478		5,334
		520,389		532,475
Allowance for impairment losses on loans and advances (note 12)		(14,605)		(15,250)
Total loans and advances to customers		505,784		517,225

 

Loans and advances to customers include advances securitised under the Group's securitisation and covered bond programmes.  Further details are given in note 13.

 

12.       Allowance for impairment losses on loans and receivables

 

		Half-year  to 30 June  2013		Half-year  to 30 June  2012		Half-year  to 31 Dec  2012
		£m		£m		£m
Opening balance		15,459		19,022		18,159
Exchange and other adjustments		429		(451)		63
Adjustment on disposal of business		(104)		-		-
Advances written off		(2,833)		(3,202)		(5,578)
Recoveries of advances written off in previous years		303		310		548
Unwinding of discount		(191)		(201)		(173)
Charge to the income statement (note 5)		1,681		2,681		2,440
Balance at end of period		14,744		18,159		15,459
In respect of:
Loans and advances to banks		3		3		3
Loans and advances to customers (note 11)		14,605		17,908		15,250
Debt securities (note 14)		136		248		206
Balance at end of period		14,744		18,159		15,459

13.       Securitisations and covered bonds

 

The Group's principal securitisation and covered bond programmes, together with the balances of the loans subject to these arrangements and the carrying value of the notes in issue, are listed in the table below.

 

	30 June 2013					31 December 2012
	Loans and  advances  securitised			Notes in  issue		Loans and  advances  securitised		Notes in  issue
Securitisation programmes1		£m		£m		£m		£m
UK residential mortgages		60,509		41,671		80,125		57,285
US residential mortgage-backed securities		-		-		185		221
Commercial loans		14,953		13,331		15,024		14,110
Irish residential mortgages		5,372		3,598		5,189		3,509
Credit card receivables		5,998		2,889		6,974		3,794
Dutch residential mortgages		4,630		4,756		4,547		4,682
Personal loans		3,732		750		4,412		2,000
PPP/PFI and project finance loans		641		109		688		104
Motor vehicle loans		715		762		1,039		1,086
		96,550		67,866		118,183		86,791
Less held by the Group				(44,524)				(58,732)
Total securitisation programmes (note 17)				23,342				28,059
Covered bond programmes
Residential mortgage-backed		85,170		61,745		91,420		64,593
Social housing loan-backed		2,747		1,800		2,927		2,400
		87,917		63,545		94,347		66,993
Less held by the Group				(25,810)				(26,320)
Total covered bond programmes (note 17)				37,735				40,673
Total securitisation and covered bond programmes				61,077				68,732

 

1	Includes securitisations utilising a combination of external funding and credit default swaps.

 

Securitisation programmes

Loans and advances to customers and debt securities classified as loans and receivables include loans securitised under the Group's securitisation programmes, the majority of which have been sold by subsidiary companies to bankruptcy remote special purpose entities (SPEs).  As the SPEs are funded by the issue of debt on terms whereby the majority of the risks and rewards of the portfolio are retained by the subsidiary, the SPEs are consolidated fully and all of these loans are retained on the Group's balance sheet, with the related notes in issue included within debt securities in issue (note 17).

 

Covered bond programmes

Certain loans and advances to customers have been assigned to bankruptcy remote limited liability partnerships to provide security to issues of covered bonds by the Group.  The Group retains all of the risks and rewards associated with these loans and the partnerships are consolidated fully with the loans retained on the Group's balance sheet and the related covered bonds in issue included within debt securities in issue (note 17).

 

Cash deposits of £17,684 million (31 December 2012: £19,691 million) held by the Group are restricted in use to repayment of the debt securities issued by the SPEs, the term advances relating to covered bonds and other legal obligations.

 

Asset-backed conduits

In addition to the SPEs detailed above, the Group sponsors three asset-backed conduits: Argento, Cancara and Grampian, which invest in debt securities (notes 14 and 15) and client receivables (note 11).

14.          Debt securities classified as loans and receivables

 

Debt securities classified as loans and receivables comprise:

		At  30 June  2013		At  31 Dec  2012
		£m		£m
Asset-backed securities:
Mortgage-backed securities		381		3,927
Other asset-backed securities		994		1,150
Corporate and other debt securities		451		402
		1,826		5,479
Allowance for impairment losses (note 12)		(136)		(206)
Total		1,690		5,273

 

 

15.       Available-for-sale financial assets

 

		At  30 June  2013		At  31 Dec  2012
		£m		£m
Asset-backed securities		2,163		2,284
Other debt securities:
Bank and building society certificates of deposit		204		188
Government securities		31,077		25,555
Corporate and other debt securities		1,649		1,848
		32,930		27,591
Equity shares		517		528
Treasury and other bills		885		971
Total		36,495		31,374

 

 

16.       Customer deposits

 

		At  30 June  2013		At  31 Dec  2012
		£m		£m
Sterling:
Non-interest bearing current accounts		37,976		35,430
Interest bearing current accounts		65,162		58,953
Savings and investment accounts		241,161		239,767
Other customer deposits		46,554		48,893
Total sterling		390,853		383,043
Currency		42,706		43,869
Total		433,559		426,912

 

Included above are liabilities of £2,991 million (31 December 2012: £4,433 million) in respect of securities sold under repurchase agreements.

 

17.       Debt securities in issue

 

	30 June 2013								31 December 20121
		At fair value  through  profit or  loss		At  amortised  cost			Total	At fair value  through  profit or  loss			At  amortised  cost		Total
			£m		£m		£m		£m		£m		£m
Medium-term notes issued			5,246		24,887		30,133		5,700		29,537		35,237
Covered bonds (note 13)			-		37,735		37,735		-		40,673		40,673
Certificates of deposit			-		12,400		12,400		-		11,087		11,087
Securitisation notes (note 13)			-		23,342		23,342		-		28,059		28,059
Commercial paper			-		7,983		7,983		-		7,897		7,897
			5,246		106,347		111,593		5,700		117,253		122,953

 

1	Restated - see notes 1 and 26.

 

 

18.       Post-retirement defined benefit schemes

 

The Group's post-retirement defined benefit scheme obligations are comprised as follows:

		At  30 June  2013		At  31 Dec  20121
		£m		£m
Defined benefit pension schemes:
- Fair value of scheme assets		32,203		30,367
- Present value of funded obligations		(31,915)		(31,324)
- Net pension scheme liability		288		(957)
Other post-retirement defined benefit schemes		(209)		(207)
Net retirement benefit asset (liability)		79		(1,164)

 

Recognised on the balance sheet as:
Retirement benefit assets		859		741
Retirement benefit obligations		(780)		(1,905)
Net retirement benefit asset (liability)		79		(1,164)

 

1	Restated - see notes 1 and 26.

 

The movement in the Group's net post-retirement defined benefit scheme assets (liabilities) during the period was as follows:

 

				£m
At 1 January 2013
As previously reported				1,567
Restatement (see notes 1 and 26)				(2,731)
Restated				(1,164)
Exchange and other adjustments				(1)
Income statement charge				(322)
Employer contributions				585
Remeasurement				981
At 30 June 2013				79

 

 

18.       Post-retirement defined benefit schemes (continued)

 

The charge to the income statement in respect of pensions and other post-retirement benefit schemes for the half-year to 30 June 2013 is comprised as follows:

 

				£m
Past service cost				104
Other				218
Defined benefit pension schemes				322
Defined contribution schemes				111
Total charge to the income statement (note 4)				433

 

The principal assumptions used in the valuations of the defined benefit pension scheme were as follows:

		At  30 June  2013		At  31 Dec  2012
		%		%
Discount rate		4.90		4.60
Rate of inflation:
Retail Prices Index		3.30		2.90
Consumer Price Index		2.30		2.00
Rate of salary increases		2.00		2.00
Rate of increase for pensions in payment		3.10		2.70

 

The application of the revised assumptions as at 30 June 2013 to the Group's principal post-retirement defined benefit schemes has resulted in a remeasurement of £981 million which has been recognised directly in equity, net of deferred tax.

 

 

19.       Subordinated liabilities

 

The Group's subordinated liabilities are comprised as follows:

		At  30 June  2013		At  31 Dec  2012
		£m		£m
Preference shares		1,406		1,385
Preferred securities		4,545		4,394
Undated subordinated liabilities		1,983		1,927
Enhanced Capital Notes		9,152		8,947
Dated subordinated liabilities		17,149		17,439
Total subordinated liabilities		34,235		34,092

 

The movement in subordinated liabilities during the period was as follows:

		Half-year  to 30 June  2013		Half-year  to 30 June  2012		Half-year  to 31 Dec  2012
		£m		£m		£m
Opening balance		34,092		35,089		34,752
New issues during the period		1,500		128		-
Repurchases and redemptions during the period		(1,821)		(208)		(649)
Foreign exchange and other movements		464		(257)		(11)
At end of period		34,235		34,752		34,092

 

 

 

20.       Share capital

 

Movements in share capital during the period were as follows:

		Number of  shares
		(million)		£m
Ordinary shares of 10p each
At 1 January 2013		70,343		7,034
Issued in the period (see below)		988		99
At 30 June 2013		71,331		7,133
Limited voting ordinary shares of 10p each
At 1 January and 30 June 2013		81		8
Total share capital				7,141

 

Of the shares issued in the period, 713 million shares were issued in relation to the payment of coupons on certain hybrid capital securities; the remaining 275 million shares issued were in respect of employee share schemes.

 

 

21.       Reserves

				Other reserves
		Share  premium			Available-  for-sale		Cash flow  hedging		Merger  and other			Total		Retained  profits
		£m			£m		£m		£m			£m		£m
At 1 January 2013
As previously reported		16,872			399		350		12,153			12,902		7,183
Restatement (see notes 1 and 26)		-			-		-		-			-		(2,103)
Restated		16,872			399		350		12,153			12,902		5,080
Issue of ordinary shares		394			-		-		-			-		-
Profit for the period		-			-		-		-			-		1,560
Post-retirement defined benefit scheme remeasurements (net of tax)		-			-		-		-			-		755
Movement in treasury shares		-			-		-		-			-		(361)
Value of employee services:
Share option schemes		-			-		-		-			-		34
Other employee award schemes		-			-		-		-			-		146
Change in fair value of available-for-sale assets (net of tax)		-			(419)		-		-			(419)		-
Change in fair value of hedging derivatives (net of tax)		-			-		95		-			95		-
Transfers to income statement (net of tax)		-			(539)		(321)		-			(860)		-
Exchange and other		-			-		-		25			25		-
At 30 June 2013		17,266			(559)		124		12,178			11,743		7,214

 

 

 

22.       Provisions for liabilities and charges

 

Payment protection insurance

Following the unsuccessful legal challenge by the British Bankers' Association against the FSA and the Financial Ombudsman Service, the Group held discussions with the FSA with a view to seeking clarity around the detailed implementation of the FSA Policy Statement which set out evidential provisions and guidance on the fair assessment of a complaint and the calculation of redress in respect of payment protection insurance (PPI) sales standards.  As a result, the Group concluded that there are certain circumstances where customer redress will be appropriate.  Accordingly the Group made provisions totalling £6,775 million during 2011 and 2012 in respect of the anticipated costs of such redress, including administrative expenses.

 

The volume of PPI complaints has continued to fall in line with expectations, with monthly complaint volumes in the first half of 2013 on average 40 per cent below the level experienced in the second half of 2012.  However, costs have been higher than expected due to the acceleration of the settlement of cases currently held with the Financial Ombudsman Service, a VAT ruling and higher uphold and settlement rates.  The Group has also increased its estimate of future administration costs.  In view of this, the Group is increasing the provision by £450 million with approximately £250 million relating to redress costs and approximately £200 million to additional administration costs.

 

In addition the Group has been informed that it has been referred to the Enforcement Team of the Financial Conduct Authority for investigation over the governance of a third party supplier and failings in the PPI complaint handling process.  A provision of £50 million has been made in respect of the likely administration costs of this exercise.

 

These provisions will bring the total amount provided to £7,275 million (of which £1,510 million relates to administration costs).  In the first half of 2013 total costs incurred were £1,280 million including approximately £380 million of administration costs, leaving approximately £1,650 million of the provision unutilised at 30 June 2013.  This represents the Group's current best estimate of the likely future costs, but a number of risks and uncertainties remain and it is possible that the eventual outcome may differ materially from the current estimate resulting in a further provision being required.

 

The provision has been based on a number of subjective assumptions, which are discussed below including the effect on the provision if actual future experience differs from that assumed:

 

-    The scope of the proactive mailing exercise covers 2.5 million policies, and approximately half of these have either been mailed or the customer has already contacted the Group.  If the scope of the proactive mailing was 0.1 million higher than that assumed in the provision, the additional provision would be approximately £30 million;

-    The response rate from customers covered by the proactive mailing exercise to date is approximately 27 per cent.  If the future response rate was 1 per cent higher than the 27 per cent assumed in the provision, the additional provision would be approximately £10 million;

-    The number of customer initiated complaints received to date, where a PPI policy existed, is 2.3 million.  If the future level of complaints was 0.1 million higher than that assumed in the provision, the additional provision would be approximately £170 million;

-    The average uphold rate per policy in the last six months, excluding those customers with no PPI policy, is 61 per cent.  If the future uphold rate was 1 per cent higher than the 73 per cent assumed in the provision, the additional provision would be approximately £10 million; and

-    The average redress rate per policy in the last six months was £1,700.  If the future average redress was £100 higher than the £1,440 assumed in the provision, (which is lower than the average over the last six months due to the expected mix of future complaints), the additional provision would be approximately £70 million.

 

The Group will reassess the continued appropriateness of the assumptions underlying its analysis at each reporting date in light of current experience and other relevant evidence.

 

22.       Provisions for liabilities and charges (continued)

 

Other regulatory provisions

Litigation in relation to insurance branch business in Germany

Clerical Medical Investment Group Limited (CMIG) has received a number of claims in the German courts, relating to policies issued by CMIG but sold by independent intermediaries in Germany, principally during the late 1990s and early 2000s.  Following decisions in July 2012 from the Federal Court of Justice in Germany the Group recognised a further provision of £150 million in its accounts for the year ended 31 December 2012 bringing the total amount provided to £325 million.  During the half-year to 30 June 2013 the Group has charged a further £75 million with respect to this litigation increasing the total provision to £400 million.  The total provision remaining as at 30 June 2013 was £320 million.

 

However, there are still a number of uncertainties as to the full impact of the FCJ's decisions, and the implications with respect to the claims facing CMIG.  As a result  the ultimate financial effect, which could be significantly different to the provision, will only be known once there is further clarity with respect to a range of legal issues involved in these claims and/or all relevant claims have been resolved.

 

Interest rate hedging products

In June 2012, a number of banks, including the Group, reached agreement with the FSA (now FCA) to carry out a review of sales made since 1 December 2001 of interest rate hedging products (IRHP) to certain small and medium-sized businesses.  The Group agreed that on conclusion of this review it would provide redress to any of these customers where appropriate.

 

Following the completion of a pilot review of a sample of IRHP sales to small and medium-sized businesses and a supplemental agreement reached with the FSA on 30 January 2013 on the principles to be adopted during the course of the wider review, the Group provided £400 million in its accounts for the year ended 31 December 2012 for the estimated cost of redress and related administration costs.  At 31 December 2012, £20 million of the provision had been utilised; a further £53 million has been utilised in the half-year to 30 June 2013.  A number of uncertainties remain as to the eventual costs given the inherent difficulties in determining the number of customers within the scope of the review and the amount of any redress to be provided to customers.

 

Other regulatory matters

In the course of its business, the Group is engaged in discussions with the PRA, FCA and other regulators in relation to a range of matters.  In 2012 a provision of £100 million was made in respect of certain UK retail and other matters; this provision has remained unchanged during the first half of the year.  The ultimate impact on the Group of these discussions can only be known at the conclusion of such discussions.

 

23.       Contingent liabilities and commitments

 

Interchange fees

On 24 May 2012, the General Court of the European Union (the General Court) upheld the European Commission's 2007 decision that an infringement of EU competition law had arisen from arrangements whereby MasterCard issuers charged a uniform fallback multilateral interchange fee (MIF) in respect of cross border transactions in relation to the use of a MasterCard or Maestro branded payment card.

 

MasterCard has appealed the General Court's judgment to the Court of Justice of the European Union.  MasterCard is supported by several card issuers, including the Group.  Judgment is not expected until late 2013 or later.

 

In parallel:

 

-    the European Commission is also considering further action, and has proposed legislation to regulate interchange fees, following its 2012 Green Paper (Towards an integrated European market for cards, internet and mobile payments) consultation;

-    the European Commission has consulted on commitments proposed by VISA to settle an investigation into whether arrangements adopted by VISA for the levying of the MIF in respect of cross-border credit card payment transactions also infringe European Union competition laws.  VISA has proposed inter alia to reduce the level of interchange fees on cross-border credit card transactions to the interim level (30 basis points) also agreed by Mastercard.  VISA has previously reached an agreement (which expires in 2014) with the European Commission to reduce the level of interchange fees for cross-border debit card transactions to the interim levels agreed by MasterCard;

-    the Office of Fair Trading (OFT) has placed on hold its examination of whether the levels of interchange fees paid by retailers in respect of MasterCard and VISA credit cards, debit cards and charge cards in the UK infringe competition law.  The OFT has placed the investigation on hold pending the outcome of the Mastercard appeal to the Court of Justice of the European Union; and

-    the UK Government held a consultation in 2013, Opening Up UK Payments.  The consultation included a proposal to legislate to introduce a new economic regulator with responsibility for payment systems, including three and four party card schemes, and a role in setting or approving interchange fees.

 

The ultimate impact of the investigations and any regulatory developments on the Group can only be known at the conclusion of these investigations and any relevant appeal proceedings and once regulatory or legislative proposals are more certain.

 

Interbank offered rate setting investigations

A number of government agencies in the UK, US and elsewhere, including the UK Financial Conduct Authority, the US Commodity Futures Trading Commission, the US Securities and Exchange Commission, the US Department of Justice and a number of State Attorneys General, as well as the European Commission, are conducting investigations into submissions made by panel members to the bodies that set various interbank offered rates including the BBA London Interbank Offered Rates (LIBOR) and the European Banking Federation's Euribor.  Certain Group companies were (at the relevant times) and remain members of various panels whose members make submissions to these bodies including the BBA LIBOR panels.  No Group company is or was a member of the Euribor panel.  Certain Group companies have received subpoenas and requests for information from certain government agencies and the Group is co-operating with their investigations.  In addition certain Group companies, together with other panel banks, have been named as defendants in private lawsuits, including purported class action suits in the US with regard to the setting of LIBOR.  It is currently not possible to predict the scope and ultimate outcome of the various regulatory investigations or private lawsuits, including the timing and scale of the potential impact of any investigations and private lawsuits on the Group.

 

23.       Contingent liabilities and commitments (continued)

 

Financial Services Compensation Scheme

The Financial Services Compensation Scheme(FSCS) is the UK's independent statutory compensation fund of last resort for customers of authorised financial services firms and pays compensation if a firm is unable or likely to be unable to pay claims against it.  The FSCS is funded by levies on the authorised financial services industry.  The levies raised may comprise a management expenses levy and a compensation costs levy.

 

Following the default of a number of deposit takers in 2008, the FSCS borrowed funds from HM Treasury to meet the compensation costs for customers of those firms.  The interest rate on the borrowings with HM Treasury, which totalled approximately £17 billion at 31 March 2013, is 12 month LIBOR plus 100 basis points.  Each deposit-taking institution contributes towards the FSCS levies in proportion to their share of total protected deposits on 31 December of the year preceding the scheme year, which runs from 1 April to 31 March.

 

The substantial majority of the principal balance of the £17 billion loan between the FSCS and HM Treasury will be repaid from funds the FSCS receives from asset sales, surplus cash flow or other recoveries in relation to the assets of the firms that defaulted.  In July 2013, the FSCS confirmed that it expects to raise compensation costs levies of approximately £1.1 billion on all deposit-taking participants over a three year measurement period from 2012 to 2014 to enable it to repay an HM Treasury loan which matures in 2016.  The amount of future compensation costs levies payable by the Group depends on a number of factors including participation in the market at 31 December, the level of protected deposits and the population of deposit-taking participants.

 

Investigation into Bank of Scotland and report on HBOS

The FSA's enforcement investigation into Bank of Scotland plc's Corporate division between 2006 and 2008 concluded with the publication of a Final Notice on 9 March 2012.  No financial penalty was imposed on the Group or Bank of Scotland plc.  On 12 September 2012 the FSA confirmed it was starting work on a public interest report on HBOS.  Thatreport is expected to be published in 2013.

 

Shareholder complaints

In November 2011 the Group and two former members of the Group's Board of Directors were named as defendants in a  purported securities class action filed in the United States District Court for the Southern District of New York.  The complaint asserted claims under the Securities Exchange Act of 1934 in connection with alleged material omissions from statements made in 2008 in connection with the acquisition of HBOS.  No quantum is specified.  In October 2012 the court dismissed the complaint.  An appeal against this decision has been filed.  The Group continues to consider that the allegations are without merit.

 

Other legal actions and regulatory matters

In addition, during the ordinary course of business the Group is subject to other threatened and actual legal proceedings (which may include class action lawsuits brought on behalf of customers, shareholders or other third parties), and regulatory challenges, investigations and enforcement actions, both in the UK and overseas.  All such material matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of the Group incurring a liability.  In those instances where it is concluded that it is more likely than not that a payment will be made, a provision is established to management's best estimate of the amount required to settle the obligation at the relevant balance sheet date.  In some cases it will not be possible to form a view, either because the facts are unclear or because further time is needed properly to assess the merits of the case and no provisions are held against such matters.  However the Group does not currently expect the final outcome of any such case to have a material adverse effect on its financial position, operations or cash flows.

 

23.       Contingent liabilities and commitments (continued)

 

Contingent liabilities and commitments arising from the banking business

 

		At  30 June  2013		At  31 Dec  2012
		£m		£m
Contingent liabilities
Acceptances and endorsements		64		107
Other:
Other items serving as direct credit substitutes		691		523
Performance bonds and other transaction-related contingencies		2,114		2,266
		2,805		2,789
Total contingent liabilities		2,869		2,896
Commitments
Documentary credits and other short-term trade-related transactions		80		11
Forward asset purchases and forward deposits placed		368		546
Undrawn formal standby facilities, credit lines and other commitments to lend:
Less than 1 year original maturity:
Mortgage offers made		9,892		7,404
Other commitments		55,832		53,196
		65,724		60,600
1 year or over original maturity		41,320		40,794
Total commitments		107,492		101,951

 

Of the amounts shown above in respect of undrawn formal standby facilities, credit lines and other commitments to lend, £58,096 million (31 December 2012: £52,733 million) was irrevocable.

 

24.       Fair values of financial assets and liabilities

 

The valuations of financial instruments have been classified into three levels according to the quality and reliability of information used to determine the fair values.

 

Level 1 portfolios

Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets or liabilities.  Products classified as level 1 predominantly comprise equity shares, treasury bills and other government securities.

 

Level 2 portfolios

Level 2 valuations are those where quoted market prices are not available, for example where the instrument is traded in a market that is not considered to be active or valuation techniques are used to determine fair value and where these techniques use inputs that are based significantly on observable market data.  Examples of such financial instruments include most over-the-counter derivatives, financial institution issued securities, certificates of deposit and certain asset-backed securities.

 

Level 3 portfolios

Level 3 portfolios are those where at least one input which could have a significant effect on the instrument's valuation is not based on observable market data.  Such instruments would include the Group's venture capital and unlisted equity investments which are valued using various valuation techniques that require significant management judgement in determining appropriate assumptions, including earnings multiples and estimated future cash flows.  Certain of the Group's asset-backed securities and derivatives, principally where there is no trading activity in such securities, are also classified as level 3.

 

Valuation control framework

Key elements of the valuation control framework, which covers processes for all levels in the fair value hierarchy including level 3 portfolios, include model validation (incorporating pre-trade and post-trade testing), product implementation review and independent price verification.  Formal committees meet quarterly to discuss and approve valuations in more judgemental areas.

 

Transfers into and out of level 3 portfolios

Transfers out of level 3 portfolios arise when inputs that could have a significant impact on the instrument's valuation become market observable; conversely, transfers into the portfolios arise when consistent sources of data cease to be available.

 

Valuation methodology

Loans and advances and debt securities measured at fair value through profit or loss and classified as level 2 are valued by discounting expected cash flows using an observable credit spread applicable to the particular instrument. The fair value of non-derivative liabilities measured at fair value through profit or loss and classified as level 2 is calculated in a similar way.

 

For other level 2 and level 3 portfolios, there is no significant change to what was disclosed in the Group's 2012 annual report and accounts in respect of the valuation methodology (techniques and inputs) applied to such portfolios.

 

24.       Fair values of financial assets and liabilities (continued)

 

The table below summarises the carrying values of financial assets and liabilities presented on the Group's balance sheet.  The fair values presented in the table are at a specific date and may be significantly different from the amounts which will actually be paid or received on the maturity or settlement date.

 

		30 June 2013				31 December 20121
		Carrying  value		Fair  value		Carrying  value		Fair  value
		£m		£m		£m		£m
Financial assets
Cash and balances at central banks		60,555		60,555		80,298		80,298
Items in the course of collection from banks		1,581		1,581		1,256		1,256
Trading and other financial assets at fair value through profit or loss		140,658		140,658		160,620		160,620
Derivative financial instruments		43,440		43,440		56,557		56,557
Loans and receivables:
Loans and advances to banks		32,593		32,339		32,757		32,746
Loans and advances to customers		505,784		495,786		517,225		506,418
Debt securities		1,690		1,468		5,273		5,402
Available-for-sale financial instruments		36,495		36,495		31,374		31,374
Financial liabilities
Deposits from banks		14,226		14,407		38,405		38,738
Customer deposits		433,559		434,856		426,912		428,749
Items in course of transmission to banks		1,300		1,300		996		996
Trading and other financial liabilities at fair value through profit or loss		40,673		40,673		33,392		33,392
Derivative financial instruments		36,601		36,601		48,676		48,676
Notes in circulation		1,354		1,354		1,198		1,198
Debt securities in issue		106,347		109,978		117,253		122,847
Liabilities arising from non-participating investment contracts		27,298		27,298		54,372		54,372
Financial guarantees		49		49		48		48
Subordinated liabilities		34,235		36,493		34,092		36,382

 

1	Restated - see notes 1 and 26.

 

The Group manages valuation adjustments for its derivative exposures on a net basis; the Group determines their fair values on the basis of their net exposures.  In all other cases, fair values of financial assets and liabilities measured at fair value are determined on the basis of their gross exposures.

 

The following table provides an analysis of the financial assets and liabilities of the Group that are carried at fair value in the Group's consolidated balance sheet, grouped into levels 1 to 3 based on the degree to which the fair value is observable.

 

24.       Fair values of financial assets and liabilities (continued)

 

Valuation hierarchy

		Level 1		Level 2		Level 3		Total
		£m		£m		£m		£m
At 30 June 2013
Trading and other financial assets at fair value through profit or loss:
Loans and advances to customers		-		17,562		-		17,562
Loans and advances to banks		-		5,502		-		5,502
Debt securities:
Government securities		18,216		-		-		18,216
Other public sector securities		25		2,600		-		2,625
Bank and building society certificates of deposit		41		3,436		-		3,477
Asset-backed securities:
Mortgage-backed securities		311		368		-		679
Other asset-backed securities		286		723		-		1,009
Corporate and other debt securities		8,561		12,214		1,917		22,692
		27,440		19,341		1,917		48,698
Equity shares		66,740		12		1,973		68,725
Treasury and other bills		112		59		-		171
Total trading and other financial assets at fair value through profit or loss		94,292		42,476		3,890		140,658
Available-for-sale financial assets:
Debt securities:
Government securities		31,077		-		-		31,077
Bank and building society certificates of deposit		-		204		-		204
Asset-backed securities:
Mortgage-backed securities		-		1,323		-		1,323
Other asset-backed securities		-		765		75		840
Corporate and other debt securities		65		1,584		-		1,649
		31,142		3,876		75		35,093
Equity shares		71		79		367		517
Treasury and other bills		519		366		-		885
Total available-for-sale financial assets		31,732		4,321		442		36,495
Derivative financial instruments		140		40,320		2,980		43,440
Total financial assets carried at fair value		126,164		87,117		7,312		220,593
Trading and other financial liabilities at fair value through profit or loss
Liabilities held at fair value through profit or loss (debt securities)		-		5,246		-		5,246
Trading liabilities:
Liabilities in respect of securities sold under repurchase agreements		-		31,458		-		31,458
Short positions in securities		2,473		283		-		2,756
Other		-		1,213		-		1,213
		2,473		32,954		-		35,427
Total trading and other financial liabilities at fair value through profit or loss		2,473		38,200		-		40,673
Derivative financial instruments		108		35,566		927		36,601
Financial guarantees		-		-		49		49
Total financial liabilities carried at fair value		2,581		73,766		976		77,323

 

There were no transfers between level 1 and level 2 during the period.

24.       Fair values of financial assets and liabilities (continued)

 

Movements in level 3 portfolio

 

The table below analyses movements in the level 3 financial assets portfolio.

 

	Trading  and other  financial  assets at fair  value through  profit or loss			Available- for-sale  financial  assets		Derivative  assets		Total  financial  assets  carried at  fair value
		£m		£m		£m		£m
At 1 January 2013		3,306		567		2,358		6,231
Exchange and other adjustments		4		21		10		35
Gains (losses) recognised in the income statement within other income		173		(1)		55		227
Gains recognised in other comprehensive income within the revaluation reserve in respect of available-for-sale financial assets		-		34		-		34
Purchases		301		27		200		528
Sales		(159)		(207)		(9)		(375)
Transfers into the level 3 portfolio		265		1		415		681
Transfers out of the level 3 portfolio		-		-		(49)		(49)
At 30 June 2013		3,890		442		2,980		7,312
Gains recognised in the income statement within other income attributable to the change in unrealised gains (losses) relating to those assets held at 30 June 2013		152		2		52		206

 

 

The table below analyses movements in the level 3 financial liabilities portfolio.

 

		Derivative  liabilities		Financial  guarantees		Total  financial  liabilities  carried at  fair value
		£m		£m		£m
At 1 January 2013		543		48		591
Exchange and other adjustments		3		-		3
(Gains) losses recognised in the income statement within other income		(44)		2		(42)
Additions		203		-		203
Redemptions		(25)		(1)		(26)
Transfers into the level 3 portfolio		248		-		248
Transfers out of the level 3 portfolio		(1)		-		(1)
At 30 June 2013		927		49		976
Gains (losses) recognised in the income statement within other income attributable to the change in unrealised gains (losses) relating to those liabilities held at 30 June 2013		43		(2)		41

 

 

24.       Fair values of financial assets and liabilities (continued)

 

Sensitivity of level 3 valuations

Valuation techniques applied to many of the Group's level 3 instruments often involve the use of two or more inputs whose relationship is interdependent.  The calculation of the effect of reasonably possible alternative assumptions included in the table below reflects such relationships.

 

The following information relates to significant unobservable inputs in respect of derivatives and debt investments shown in the table that follows:

 

-    Interest rates and inflation rates are referenced in some derivatives where the payoff that the holder of the derivative receives depends on the behaviour of those underlying references through time.

-    Credit spreads represent the premium above the benchmark reference instrument required to compensate for lower credit quality; higher spreads lead to a lower fair value.

-    Volatility parameters represent key attributes of option behaviour; higher volatilities typically denote a wider range of possible outcomes.

 

The fair values of certain equity investments, mainly those in the Group's venture capital businesses, are determined by identifying the earnings multiple for comparable companies and applying this multiple to the earnings of the entity whose value is being estimated; a higher earnings multiple will result in a higher fair value.

 

Reasonably possible alternative assumptions

The following information relates to reasonably possible alternative assumptions shown in the table that follows.

 

Debt securities

Reasonably possible alternative assumptions have been determined in respect of the Group's structured credit investment by flexing credit spreads to a range between 685 basis points and 1,016 basis points.

 

Derivatives

(i)   In respect of the embedded equity conversion feature of the Enhanced Capital Notes, the sensitivity was based on the absolute difference between the actual price of the Enhanced Capital Note and the closest, alternative broker quote available plus the impact of applying a 10 basis points increase/decrease in the market yield used to derive a market price for similar bonds without the conversion feature.  The effect of interdependency of the assumptions is not material to the effect of applying reasonably possible alternative assumptions to the valuations of derivative financial instruments.

(ii)  Uncollateralised inflation swaps are valued using appropriate discount spreads for such transactions.  These spreads are not generally observable for longer maturities.  The reasonably possible alternative valuations reflect flexing of the spreads for the differing maturities to alternative values of between 75 basis points and 230 basis points.

(iii) Swaptions are priced using industry standard option pricing models.  Such models require interest rate volatilities which may be unobservable at longer maturities.  To derive reasonably possible alternative valuations these volatilities have been flexed within a range of 1 per cent to 118 per cent.

 

Equity and venture capital investments

The valuation techniques used for unlisted equities and venture capital investments vary depending on the nature of the investment.  Reasonably possible alternative valuations for these investments have been calculated as follows:

 

-    for valuations derived from earnings multiples, a 10 per cent increase/decrease in the earnings multiple has been applied; and

-    for fund investment portfolios, the values of underlying investments have been flexed in line with International Private Equity and Venture Capital Guidelines.

 

 

24.       Fair values of financial assets and liabilities (continued)

 

						At 30 June 2013
								Effect of reasonably possible alternative assumptions2
	Valuation technique(s)	Significant unobservable inputs		Range1		Carrying  value		Favourable  changes	Unfavourable  changes
						£m		£m		£m
Trading and other financial assets at fair value through profit or loss
Debt securities	Discounted cash flow	Credit spreads (bps)		n/a3		243		17		(6)
Equity and venture capital investments	Market approach	Earnings multiple		0.9/14.4		2,172		82		(84)
	Underlying asset/net asset value (incl. property prices)4	n/a		n/a		191		41		(20)
Unlisted equities and property partnerships in the life funds	Underlying asset/net asset value (incl. property prices)4	n/a		n/a		1,284		-		-
						3,890
Available-for-sale financial assets
Asset-backed securities	Lead manager or broker quote/consensus pricing	n/a		n/a		75		-		-
Equity and venture capital investments	Underlying asset/net asset value (incl. property prices)4	n/a		n/a		367		19		(10)
						442
Derivative financial assets
Embedded equity conversion feature	Lead manager or broker quote	Equity conversion feature spread (bps)		328/532		1,279		60		(60)
Interest rate derivatives	Discounted cash flow	Inflation swap rate - funding component (bps)		54/189		1,263		127		(46)
	Option pricing model	Interest rate volatility		26%/121%		438		10		(5)
						2,980
Financial assets carried at fair value						7,312
Derivative financial liabilities
Interest rate derivatives	Discounted cash flow	Inflation swap rate - funding component (bps)		54/189		664		-		-
	Option pricing model	Interest rate volatility		26%/121%		263		-		-
						927
Financial guarantees						49
Financial liabilities carried at fair value						976

 

1	The range represents the highest and lowest inputs used in the level 3 valuations.
2	Where the exposure to an unobservable input is managed on a net basis, only the net impact is shown in the table.
3	A single pricing source is used.
4	Underlying asset/net asset values represent fair value.

 

 

25.       Related party transactions

 

UK Government

In January 2009, the UK Government through HM Treasury became a related party of the Company following its subscription for ordinary shares issued under a placing and open offer.  As at 30 June 2013, HM Treasury held a 38.7 per cent (31 December 2012: 39.2 per cent) interest in the Company's ordinary share capital and consequently HM Treasury remained a related party of the Company during the half-year to 30 June 2013.

 

In accordance with IAS 24, UK Government-controlled entities are related parties of the Group.  The Group regards the Bank of England and entities controlled by the UK Government, including The Royal Bank of Scotland Group plc, Northern Rock (Asset Management) plc and Bradford & Bingley plc, as related parties.

 

The Group has participated in a number of schemes operated by the UK Government and central banks and made available to eligible banks and building societies.

 

National Loan Guarantee Scheme

The Group is participating in the UK Government's National Loan Guarantee Scheme, which was launched on 20 March 2012.  Through the scheme, the Group is providing eligible UK businesses with discounted funding, subject to continuation of the scheme and its financial benefits, and based on the Group's existing lending criteria.  Eligible businesses who take up the funding benefit from a 1 per cent discount on their funding rate for a certain period of time.

 

Business Growth Fund

In May 2011 the Group agreed, together with The Royal Bank of Scotland plc (and three other non-related parties), to commit up to £300 million of equity investment by subscribing for shares in the Business Growth Fund plc which is the company created to fulfil the role of the Business Growth Fund as set out in the British Bankers' Association's Business Taskforce Report of October 2010.  At 30 June 2013, the Group had invested £54 million (31 December 2012: £50 million) in the Business Growth Fund and carried the investment at a fair value of £44 million (31 December 2012: £44 million).

 

Big Society Capital

In January 2012 the Group agreed, together with The Royal Bank of Scotland plc (and two other non-related parties), to commit up to £50 million each of equity investment into the Big Society Capital Fund.  The Fund, which was created as part of the Project Merlin arrangements, is a UK social investment fund.  The Fund was officially launched on 3 April 2012 and the Group had invested £12 million in the Fund by 31 December 2012 and invested a further £4 million during the half-year to 30 June 2013.

 

Funding for Lending

In August 2012 the Group announced its support for the UK Government's Funding for Lending Scheme and confirmed its intention to participate in the scheme; and in June 2013 the Group accepted the UK Government's invitation to take part in the extension of the scheme until the end of January 2015.  The Funding for Lending Scheme represents a further source of cost effective secured term funding available to the Group.  The initiative supports a broad range of UK based customers, providing householders with more affordable housing finance and businesses with cheaper finance to invest and grow.  The Group drew down £3.0 billion during the year ended 31 December 2012; there have been no further drawings in the half-year to 30 June 2013.

 

Central bank facilities

In the ordinary course of business, the Group may from time to time access market-wide facilities provided by central banks.

 

Other government-related entities

There were no significant transactions with other UK Government-controlled entities (including UK Government-controlled banks) during the period that were not made in the ordinary course of business or that were unusual in their nature or conditions.

 

25.       Related party transactions (continued)

 

Other related party transactions

During the half-year to 30 June 2013, the Group sold at fair value certain securitisation notes to Lloyds TSB Group Pension Trust (No. 1) Limited for a consideration of approximately £340 million.  Subsequently, the Group entered into a commercially negotiated agreement with Lloyds TSB Group Pension Trust (No.1) Limited to jointly sell a portfolio of US Residential Mortgage-Backed Securities with a book value of £3.5 billion.  As a result of selling the portfolio together a price premium was achieved compared to selling the notes separately.  Under the terms of the agreement the Group and Lloyds TSB Group Pension Trust (No.1) Limited agreed to share any price premium achieved above an agreed minimum threshold amount.

 

In March 2013 the Group sold 102 million shares in St. James's Place plc; fees totalling some £5 million in relation to the sale were settled by St. James's Place plc.

 

Other related party transactions for the half-year to 30 June 2013 are similar in nature to those for the year ended 31 December 2012.

 

 

26.       Restatement of prior period information

 

As explained in note 1, the Group has adopted IFRS 10 Consolidated Financial Statements and Amendments to IAS 19 Employee Benefits (IAS 19R) on 1 January 2013.   

 

The Group has restated information for the preceding comparative periods.

 

The following tables summarise the adjustments arising on the adoption of IAS 19R and IFRS 10 to the Group's:

-    income statement, statement of comprehensive income and statement of cash flows for the half-year to 30 June 2012 and the half-year to 31 December 2012;

-    balance sheet at 31 December 2012; and

-    equity at 1 January 2012.

 

Consolidated income statement - half-year to 30 June 2012

 

		As  previously  reported		IFRS 10		IAS 19  Revised		Restated
		£m		£m		£m		£m
Interest and similar income		12,734		-		-		12,734
Interest and similar expense		(8,076)		(394)		-		(8,470)
Net interest income		4,658		(394)		-		4,264
Fee and commission income		2,394		(41)		-		2,353
Fee and commission expense		(748)		(3)		-		(751)
Net fee and commission income		1,646		(44)		-		1,602
Net trading income		4,105		441		-		4,546
Insurance premium income		4,183		-		-		4,183
Other operating income		1,661		-		-		1,661
Other income		11,595		397		-		11,992
Total income		16,253		3		-		16,256
Insurance claims		(7,288)		-		-		(7,288)
Total income, net of insurance claims		8,965		3		-		8,968
Regulatory provisions		(1,075)		-		-		(1,075)
Other operating expenses		(5,601)		-		(20)		(5,621)
Total operating expenses		(6,676)		-		(20)		(6,696)
Trading surplus		2,289		3		(20)		2,272
Impairment		(2,728)		-		-		(2,728)
(Loss) profit before tax		(439)		3		(20)		(456)
Taxation		(202)		(3)		(1)		(206)
Loss for the period		(641)		-		(21)		(662)
Profit attributable to non-controlling interests		35		-		-		35
Loss attributable to equity shareholders		(676)		-		(21)		(697)
Loss for the period		(641)		-		(21)		(662)
Basic loss per share		(1.0)p						(1.0)p
Diluted loss per share		(1.0)p						(1.0)p

 

 

26.       Restatement of prior period information (continued)

 

Consolidated income statement - half-year to 31 December 2012

 

		As  previously  reported		IFRS 10		IAS 19  Revised		Restated
		£m		£m		£m		£m
Interest and similar income		10,801		13		-		10,814
Interest and similar expense		(6,384)		(976)		-		(7,360)
Net interest income		4,417		(963)		-		3,454
Fee and commission income		2,337		(40)		-		2,297
Fee and commission expense		(690)		(3)		-		(693)
Net fee and commission income		1,647		(43)		-		1,604
Net trading income		9,449		1,010		-		10,459
Insurance premium income		4,101		-		-		4,101
Other operating income		3,039		-		-		3,039
Other income		18,236		967		-		19,203
Total income		22,653		4		-		22,657
Insurance claims		(11,108)		-		-		(11,108)
Total income, net of insurance claims		11,545		4		-		11,549
Regulatory provisions		(3,100)		-		-		(3,100)
Other operating expenses		(6,155)		(1)		(22)		(6,178)
Total operating expenses		(9,255)		(1)		(22)		(9,278)
Trading surplus		2,290		3		(22)		2,271
Impairment		(2,421)		-		-		(2,421)
(Loss) profit before tax		(131)		3		(22)		(150)
Taxation		(571)		(3)		(1)		(575)
Loss for the period		(702)		-		(23)		(725)
Profit attributable to non-controlling interests		49		-		-		49
Loss attributable to equity shareholders		(751)		-		(23)		(774)
Loss for the period		(702)		-		(23)		(725)
Basic loss per share		(1.1)p						(1.1)p
Diluted loss per share		(1.1)p						(1.1)p

 

 

26.       Restatement of prior period information (continued)

 

Consolidated statement of comprehensive income - half-year to 30 June 2012

 

		As  previously  reported		IFRS 10		IAS 19  Revised		Restated
		£m		£m		£m		£m
Loss for the period		(641)		-		(21)		(662)
Other comprehensive income
Items that will not subsequently be reclassified to profit or loss:
Post-retirement defined benefit scheme remeasurements:
Remeasurements before taxation		-		-		398		398
Taxation		-		-		(96)		(96)
		-		-		302		302
Items that may subsequently be reclassified to profit or loss:
Movements in revaluation reserve in respect of available-for-sale financial assets:
Change in fair value		738		-		-		738
Income statement transfers in respect of disposals		(792)		-		-		(792)
Income statement transfers in respect of impairment		28		-		-		28
Taxation		42		-		-		42
		16		-		-		16
Movements in cash flow hedging reserve:
Effective portion of changes in fair value		128		-		-		128
Net income statement transfers		238		-		-		238
Taxation		(83)		-		-		(83)
		283		-		-		283
Currency translation differences (tax: nil)		(20)		-		-		(20)
Other comprehensive income for the period, net of tax		279		-		302		581
Total comprehensive income for the period		(362)		-		281		(81)
Total comprehensive income attributable to non-controlling interests		34		-		-		34
Total comprehensive income attributable to equity shareholders		(396)		-		281		(115)
Total comprehensive income for the period		(362)		-		281		(81)

 

 

 

26.       Restatement of prior period information (continued)

 

Consolidated statement of comprehensive income - half-year to 31 December 2012

 

		As  previously  reported		IFRS 10		IAS 19  Revised		Restated
		£m		£m		£m		£m
Loss for the period		(702)		-		(23)		(725)
Other comprehensive income
Items that will not subsequently be reclassified to profit or loss:
Post-retirement defined benefit scheme remeasurements:
Remeasurements before taxation		-		-		(2,534)		(2,534)
Taxation		-		-		587		587
		-		-		(1,947)		(1,947)
Items that may subsequently be reclassified to profit or loss:
Movements in revaluation reserve in respect of available-for-sale financial assets:
Adjustment on transfer from held-to maturity portfolio		1,168		-		-		1,168
Change in fair value		162		-		-		162
Income statement transfers in respect of disposals		(2,755)		-		-		(2,755)
Income statement transfers in respect of impairment		14		-		-		14
Other income statement transfers		169		-		-		169
Taxation		297		-		-		297
		(945)		-		-		(945)
Movements in cash flow hedging reserve:
Effective portion of changes in fair value		(12)		-		-		(12)
Net income statement transfers		(330)		-		-		(330)
Taxation		84		-		-		84
		(258)		-		-		(258)
Currency translation differences (tax: nil)		6		-		-		6
Other comprehensive income for the period, net of tax		(1,197)		-		(1,947)		(3,144)
Total comprehensive income for the period		(1,899)		-		(1,970)		(3,869)
Total comprehensive income attributable to non-controlling interests		48		-		-		48
Total comprehensive income attributable to equity shareholders		(1,947)		-		(1,970)		(3,917)
Total comprehensive income for the period		(1,899)		-		(1,970)		(3,869)

 

 

 

26.       Restatement of prior period information (continued)

 

Consolidated cash flow statement - half-year to 30 June 2012

 

		As previously  reported1		IFRS 10		IAS 19  Revised		Restated
		£m		£m		£m		£m
(Loss) profit before tax		(439)		3		(20)		(456)
Adjustments for:
Change in operating assets		29,831		223		-		30,054
Change in operating liabilities		(8,543)		(206)		-		(8,749)
Non-cash and other items		1,668		(20)		20		1,668
Tax paid		(94)		-		-		(94)
Net cash provided by operating activities		22,423		-		-		22,423
Cash flows from investing activities
Purchase of financial assets		(12,284)		-		-		(12,284)
Proceeds from sale and maturity of financial assets		14,238		-		-		14,238
Purchase of fixed assets		(1,416)		-		-		(1,416)
Proceeds from sale of fixed assets		1,022		-		-		1,022
Acquisition of businesses, net of cash acquired		(10)		-		-		(10)
Disposal of businesses, net of cash disposed		5		-		-		5
Net cash provided by investing activities		1,555		-		-		1,555
Cash flows from financing activities
Dividends paid to non-controlling interests		(23)		-		-		(23)
Interest paid on subordinated liabilities		(888)		-		-		(888)
Proceeds from issue of ordinary shares		170		-		-		170
Repayment of subordinated liabilities		(15)		-		-		(15)
Change in non-controlling interests		7		-		-		7
Net cash used in financing activities		(749)		-		-		(749)
Effects of exchange rate changes on cash and cash equivalents		(10)		-		-		(10)
Change in cash and cash equivalents		23,219		-		-		23,219
Cash and cash equivalents at beginning of period		85,889		-		-		85,889
Cash and cash equivalents at end of period		109,108		-		-		109,108

 

1	Adjusted for minor reclassifications.

 

 

26.       Restatement of prior period information (continued)

 

Consolidated cash flow statement - half-year to 31 December 2012

 

		As  previously  reported		IFRS 10		IAS 19  Revised		Restated
		£m		£m		£m		£m
(Loss) profit before tax		(131)		3		(22)		(150)
Adjustments for:
Change in operating assets		18,502		(751)		-		17,751
Change in operating liabilities		(38,138)		734		-		(37,404)
Non-cash and other items		377		14		22		413
Tax paid		16		-		-		16
Net cash used in operating activities		(19,374)		-		-		(19,374)
Cash flows from investing activities
Purchase of financial assets		(9,766)		-		-		(9,766)
Proceeds from sale and maturity of financial assets		23,426		-		-		23,426
Purchase of fixed assets		(1,587)		-		-		(1,587)
Proceeds from sale of fixed assets		1,573		-		-		1,573
Acquisition of businesses, net of cash acquired		(1)		-		-		(1)
Disposal of businesses, net of cash disposed		32		-		-		32
Net cash provided by investing activities		13,677		-		-		13,677
Cash flows from financing activities
Dividends paid to non-controlling interests		(33)		-		-		(33)
Interest paid on subordinated liabilities		(1,689)		-		-		(1,689)
Repayment of subordinated liabilities		(649)		-		-		(649)
Change in non-controlling interests		16		-		-		16
Net cash used in financing activities		(2,355)		-		-		(2,355)
Effects of exchange rate changes on cash and cash equivalents		2		-		-		2
Change in cash and cash equivalents		(8,050)		-		-		(8,050)
Cash and cash equivalents at beginning of period		109,108		-		-		109,108
Cash and cash equivalents at end of period		101,058		-		-		101,058

 

 

26.       Restatement of prior period information (continued)

 

Consolidated balance sheet at 31 December 2012

 

		As  previously  reported		IFRS 10		IAS 19  Revised		Restated
Assets		£m		£m		£m		£m
Cash and balances at central banks		80,298		-		-		80,298
Items in course of collection from banks		1,256		-		-		1,256
Trading and other financial assets at fair value through profit or loss		153,990		6,630		-		160,620
Derivative financial instruments		56,550		7		-		56,557
Loans and receivables:
Loans and advances to banks		29,417		3,340		-		32,757
Loans and advances to customers		517,225		-		-		517,225
Debt securities		5,273		-		-		5,273
		551,915		3,340		-		555,255
Available-for-sale financial assets		31,374		-		-		31,374
Investment properties		5,405		-		-		5,405
Goodwill		2,016		-		-		2,016
Value of in-force business		6,800		-		-		6,800
Other intangible assets		2,792		-		-		2,792
Tangible fixed assets		7,342		-		-		7,342
Current tax recoverable		354		-		-		354
Deferred tax assets		4,285		-		628		4,913
Retirement benefit assets		1,867		-		(1,126)		741
Other assets		18,308		190		-		18,498
Total assets		924,552		10,167		(498)		934,221

 

 

 

 

26.       Restatement of prior period information (continued)

 

Consolidated balance sheet at 31 December 2012 (continued)

 

		As  previously  reported		IFRS 10		IAS 19  Revised		Restated
		£m		£m		£m		£m
Equity and liabilities
Liabilities
Deposits from banks		38,405		-		-		38,405
Customer deposits		426,912		-		-		426,912
Items in course of transmission to banks		996		-		-		996
Trading and other financial liabilities at fair value through profit or loss		35,972		(2,580)		-		33,392
Derivative financial instruments		48,665		11		-		48,676
Notes in circulation		1,198		-		-		1,198
Debt securities in issue		117,369		(116)		-		117,253
Liabilities arising from insurance contracts and participating investment contracts		82,953		-		-		82,953
Liabilities arising from non-participating investment contracts		54,372		-		-		54,372
Unallocated surplus within insurance businesses		267		-		-		267
Other liabilities		33,941		12,852		-		46,793
Retirement benefit obligations		300		-		1,605		1,905
Current tax liabilities		138		-		-		138
Deferred tax liabilities		327		-		-		327
Other provisions		3,961		-		-		3,961
Subordinated liabilities		34,092		-		-		34,092
Total liabilities		879,868		10,167		1,605		891,640
Equity
Share capital		7,042		-		-		7,042
Share premium account		16,872		-		-		16,872
Other reserves		12,902		-		-		12,902
Retained profits		7,183		-		(2,103)		5,080
Shareholders' equity		43,999		-		(2,103)		41,896
Non-controlling interests		685		-		-		685
Total equity		44,684		-		(2,103)		42,581
Total equity and liabilities		924,552		10,167		(498)		934,221

 

 

26.       Restatement of prior period information (continued)

 

Equity at 1 January 2012

 

		As  previously  reported		IFRS 10		IAS 19  Revised		Restated
		£m		£m		£m		£m
Share capital		6,881		-		-		6,881
Share premium account		16,541		-		-		16,541
Other reserves		13,818		-		-		13,818
Retained profits		8,680		-		(414)		8,266
Shareholders' equity		45,920		-		(414)		45,506
Non-controlling interests		674		-		-		674
Total equity		46,594		-		(414)		46,180

 

 

27.       Future accounting developments

 

The following pronouncements may have a significant effect on the Group's financial statements but are not applicable for the year ending 31 December 2013 and have not been applied in preparing these condensed consolidated half-year financial statements.  Save as disclosed below, the full impact of these accounting changes is being assessed by the Group.

 

Pronouncement	Nature of change	IASB effective date
Amendments to IAS 32 Financial Instruments: Presentation - 'Offsetting Financial Assets and Financial Liabilities'	Provides additional application guidance to address inconsistencies identified in applying the offsetting criteria used in the standard.  Some gross settlement systems may qualify for offsetting where they exhibit certain characteristics akin to net settlement.	Annual periods beginning on or after 1 January 2014.
IFRS 9 Financial Instruments1	Replaces those parts of IAS 39 Financial Instruments: Recognition and Measurement relating to the classification, measurement and derecognition of financial assets and liabilities.  IFRS 9 requires financial assets to be classified into two measurement categories, fair value and amortised cost, on the basis of the objectives of the entity's business model for managing its financial assets and the contractual cash flow characteristics of the instruments and eliminates the available-for-sale financial asset and held-to-maturity investment categories in IAS 39.  The requirements for derecognition are broadly unchanged from IAS 39.  The standard also retains most of the IAS 39 requirements for financial liabilities except for those designated at fair value through profit or loss whereby that part of the fair value change attributable to the entity's own credit risk is recorded in other comprehensive income.	Annual periods beginning on or after 1 January 2015.

 

1

As at 31 July 2013, this pronouncement is awaiting EU endorsement.  IFRS 9 is the initial stage of the project to replace IAS 39.  Future stages are expected to result in amendments to IFRS 9 to deal with changes to the impairment of financial assets measured at amortised cost and hedge accounting, as well as a reconsideration of classification and measurement.  Until all stages of the replacement project are complete, it is not possible to determine the overall impact on the financial statements of the replacement of IAS 39.

 

 

28.       Other information

 

The financial information in these condensed consolidated half-year financial statements does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.  Statutory accounts for the year ended 31 December 2012 have been delivered to the Registrar of Companies.  The auditors' report on those accounts was unqualified, did not include an emphasis of matter paragraph and did not include a statement under section 498 of the Companies Act 2006.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The directors listed below (being all the directors of Lloyds Banking Group plc) confirm that to the best of their knowledge these condensed consolidated half-year financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union, and that the half-year management report herein includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

 

·     an indication of important events that have occurred during the six months ended 30 June 2013 and their impact on the condensed consolidated half-year financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·     material related party transactions in the six months ended 30 June 2013 and any material changes in the related party transactions described in the last annual report.

 

Signed on behalf of the board by

 

 

 

 

 

António Horta-Osório

Group Chief Executive

31 July 2013

 

Lloyds Banking Group plc board of directors:

 

Executive directors:

António Horta-Osório (Group Chief Executive)

George Culmer (Group Finance Director)

 

Non-executive directors:

Sir Winfried Bischoff (Chairman)

David Roberts (Deputy Chairman)

Lord Blackwell

Carolyn Fairbairn

Anita Frew

Nicholas Luff

Anthony Watson CBE

Sara Weller

INDEPENDENT REVIEW REPORT TO LLOYDS BANKING GROUP PLC

 

Introduction

We have been engaged by the Company to review the condensed consolidated half-year financial statements in the half-year results for the six months ended 30 June 2013, which comprise the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated cash flow statement and related notes.  We have read the other information contained in the half-year results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated half-year financial statements.

 

Directors' responsibilities

The half-year results are the responsibility of, and have been approved by, the directors.  The directors are responsible for preparing the half-year results in accordance with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union.  The condensed consolidated half-year financial statements included in the half-year results have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union.

 

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed consolidated half-year financial statements in the half-year results based on our review.  This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure Rules and Transparency Rules of the Financial Conduct Authority and for no other purpose.  We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated half-year financial statements in the half-year results for the six months ended 30 June 2013 are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct  Authority.

 

 

PricewaterhouseCoopers LLP

Chartered Accountants

London

31 July 2013

 

Notes:

 

a)          The maintenance and integrity of the Lloyds Banking Group plc website is the responsibility of the Group directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

 

b)          Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

 

 

 

 

 

 

 

 

CONTACTS

 

 

For further information please contact:

 

INVESTORS AND ANALYSTS

Charles King

Investor Relations Director

020 7356 3537

[email protected]

 

 

CORPORATE AFFAIRS

Matthew Young

Group Corporate Affairs Director

020 7356 2231

[email protected]

 

Ed Petter
Group Media Relations Director

020 8936 5655

[email protected]

 

 

 

 

 

 

 

 

 

 

 

 

Copies of this news release may be obtained from Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V 7HN.  The full news release can also be found on the Group's website - www.lloydsbankinggroup.com.

 

Registered office: Lloyds Banking Group plc, The Mound, Edinburgh, EH1 1YZ

Registered in Scotland no. 95000