Lloyds Banking Group plc (LYG) Q2 2019 Earnings Report, Transcript and Summary

Thank you, António, and good morning, everybody. I am delighted to be here today to tell you about the great progress we are making in Insurance and Wealth. Our financial performance has been a strong in recent years with new business premiums up 72% versus the first half of 2017. This is a result of growth across multiple business lines including corporate pensions and the step-up in auto enrolment contributions as well as growth in individual protection. As I will show you today, we have also grow share in other areas that we have heavily invested in and prioritized, such as home insurance where our offering has been transformed following three platforming. Given this new income is up 23% over the same period more than an offsetting runoff from longstanding products. These growth combined with a strong cost control in the period for an increased digitization has supported a 58% increase in underline profit over the last two years. The business is now an increasing contributor to the Group, representing 38% of other income in the first half of 2019, up 7 percentage points year-on-year. The business has also upstream around £7 billion of cumulative dividends since 2011. Insurance and Wealth is a uniquely positioned, integrated business with a comprehensive proposition across multiple product lines, leveraging the group multi-brand and multi-channel model. Since 2015, we have received the business to be leaner and more customer centric, while significantly increasing investment. As a result, we are in a better place to harness the considerable operational and financial synergies arising for being part of a wider banking group. Looking ahead, we are well positioned to capture further growth across a number of fast-growing and attractive markets, as well as deepening engagement with our customers. I will now discuss some of these areas in more detail. We see our single customer view as a unique and unrivaled opportunity to meet all of our customer financial needs in one place. We have already made this available to over 4 million customers and we'll extend this to more than 9 million by the end of 2020. As you have already seen customer engagement today has been a strong with over 9 million monthly pension were used unassigned banking products and active engagement around funds and contributions. Looking forward, our intention is to increase originality to our customers, allowing them to have greater control of their financial needs that ever before, including pension consolidation and fund switching. With approximately 60% of our group pension customers having a more multi-touch-point relationship, we see this as a significant differentiated opportunity. Beyond this, we are targeting growth across the Board, strengthening our positions in multiple businesses. We believe in today's environment for a business division of a major financial services group, it is quite unique to have achieve about market growth since 2015, in business lines where we already hold of five market share positions. And most importantly, with clear line of sight for the growth over the coming years. To bring this to life, as I mentioned in February of last year, we intend to increase our share across the attractive financial planning and retirement market. We are targeting 15% market shares in both corporate pensions and individual annuities by 2020 and £50 billion, £40 million of open book assets under administration growth. Here we have already deliver £20 billion of growth as of July supported by the Zurich acquisition. Beyond this for the first time, I am also sharing with you our previously internal ambitions across a number of other areas, leveraging a strong growth in both digital and physical channels. For instance, we are increasing our customer reach through the branch network in line with refocusing on complex needs. With our insurance policies distributed through this channel, up by more than 25% year-on-year. And in digital we are growing more than 40% in the same period. On bulk annuities we continue to be an active participant having decided to enter this market in 2014. Although our focus is on pricing with discipline. As a result, we have grown below the market in recent years opting distribution of surplus capital to the groups. Despite this we see ourselves as well positioned for growth in the future given our lower cost of capital and a stronger distribution capabilities. Turning attention now to two main areas of our financial planning and retirement strategy, where we see great growth opportunities, corporate pensions, and our joint venture with Schroders. Our financial performance has improved significantly in corporate pension since 2015 and is reflective of our recent reshaping of the business. In 2015, we have negative NPS costs and a limited position across panels. Today, as a result of our focus on enhancing the customer experience, we have significantly improved NPS and we now enjoy full panel coverage. This has been farther supported but maximizing group opportunities across the group, including building relationships with corporates through our commercial banking business. The Zurich acquisition has also a major enabler in this market, significantly increasing our rates to some of the largest corporate events in the schemes. Finally, we are creating a market leading wealth management proposition for our customers. It's same is to provide a full service offering between simple and more complex customer needs. We will do this through three lines of business. Firstly, a group branded mass market offering that we will launch at the end of 2020; secondly, our Schroders personal well join venture; and thirdly, through providing access to a leading wealth management and investment business, customer capital for our high and ultra high network customers. Through our partnership with Schroders, we are now able to meet our customer more complex needs. The partnership brings together Lloyd's Multi Channel Distribution Model and unique client base with the Schroders, investment and wealth management expertise and technology capabilities. Looking at specifically at the Schroders personal wealth, we believe that the business is well positioned to meet its ambition of becoming a top three financial planning business by the end of 2023. Having established the company in the first half of 2018 Schroders personal wealth we launched to the market later this year operating restricting model with a wide product set. We believe that the best-in-class product offering combined with transparent and competitive fees will be attractive to customers in the growing mass affluent market. Growth will also be supported by referrals of our Lloyd's customers. With these already up by more than 20% year-on-year, as well as the consideration of inorganic expansion should treatable opportunities exist. And as we move forward, the success of the business will be measured across four key areas; assets under administration, advisor numbers, growth in net new business flows, and increased profitability. Thank you and I will know hand over to George who we ran through the financials.

Thank you, António, and good morning, everybody. As you've heard in the first half, we've delivered a good financial performance with underlying profit in line with prior year of £4.2 billion. Net income of £8.8 billion is down 2%, but more than offset by a 5% reduction in costs while impairments remain in line with expectations. Statutory profit after tax is £2.2 billion and down 4% due to increase below the line charges, particularly PPI and I would discuss these shortly. Turning first to net interest income, NII is £6.1 billion and down 3% due to a £3 billion reduction in average interest earning assets and a margin in line with guidance at 290 basis points. On average interest earning assets the movement reflects the continued runoff of the close mortgage book of £2 billion and sale last year of the Irish business of £3 billion, both of which are offset by continued growth in targeted segments including £1.4 billion in motor finance and £0.8 in SME. On the margin we have again seen a reduction in asset margins offset by improved liabilities and I expect this to continue in the second six months and for the full-year margin to be in line with guidance at around 290. In terms of asset margins, we're not seeing any real change to the trends that we have set out previously. In mortgages as you know, the market remains very competitive. Most recently we have seen a slight improvement in new business pricing, but also a slight pickup in SVR attrition to around 15%. And the overall mortgage market margin has remained resilient of 1.8% and in line with the second half of 2018. In consumer finance and commercial banking margins are obviously at higher levels the mortgages and simply remain resilient at 6.7% and 2% respectively driven, particularly by growth in SME and motor. On liabilities, the margin has also remained stable at around 0.5% and we continue to target growth in high quality current accounts, which are up £1 billion on the start of the year and £3 billion on prior. We've also continued to run down tactical deposits, which had £17 billion a down more than 10% in the last year. The growth in current accounts has also increased our hedge capacity that we've stepped off hedge in recent months given market rates. We're currently around 90% notionally hedge with the balance of £172 billion and a weighted average life around three years and this compares with £180 billion at around four years at the start of the year. I mean we now have about £13 billion of hedge capacity which would converse when rates offer better value, which provides additional flexibility. Turning then to other income. Other income is £3.1 billion and in line with recent years. The Q2 is down on the equivalent period last year due to higher levels of financial markets activity and commercial and higher central gains in 2018. In terms of divisional performance, you've just heard from António and the excellent progress made in insurance and wealth which is up 21% there by new business in workplace planning and retirement, which is up nearly 50% and a much improved general insurance result. Elsewhere other income in retail was down 4% of £1 billion with higher current account fee income offset by lower net fleet volumes, while commercial fee income was disappointing in a challenging market and down 13% as result mainly of depressed markets activity and the strong performance in Q2 last year. In the center, guilt gains total £181 million in the first half down slightly on the prior year's £191 million. Going forward while we continue to have gains on the portfolio, I would not expect to realize further material amounts this year. Finally, operating and depreciation is down 5% on prior they're marginally up in Q2 to the slight reduction in used car prices. Turning to costs. As you've heard, our relentless focus on costs is a significant competitive advantage for the Group and particularly so in the current operating environment. Total costs in the first half were £4 billion and down 5% with a 3% reduction operating costs and a 44% reduction in remediation. The lower operating costs are driven by a 5% reduction in BAU with our property marketing and staff costs, offset by a 3% increase in investment related spend, as we continue to invest in the business. A non-investment, the above the line cash spend in the first half was £1.3 billion and included £0.6 billion of strategic spend, as we remain on track for more than £3 billion target by the end of 2020, and around 60% of this £1.3 billion spend was capitalized, which is in line with previous periods. Going forward, they remain further opportunities to reduce costs and I continue to expect operating costs to be below £8 billion for this year and for the cost income ratio including remediation to be in the low 40s as we exit 2020. Looking at credit. Credit quality remains strong, reflecting the Group's ongoing prudent approach to risk and provisioning and a high-quality low-risk loan portfolio. This is well over 75% secured. For the full-year, we continue to expect the net AQR to be less than 30 basis points. In the first six months, the gross and net AQR are up 7 basis points and 6 basis points respectively at 34 and 26 reflected a number of items including the alignments of Lloyd's and MBNA credit card approaches, slightly softer used car prices and a small change in methodology and motor finance. While there are also two individual names in commercial banking. In terms of actual experience, we are not observing any changes and new to arrears for mortgages and credit cards both remain low. On balances and coverage, Stage 3 balances are in line with the start of the year with 1.9% of the portfolio. While coverage fell slightly to 23% largely due to some balances in commercial entering Stage 3, where we do not expect to incur significant net losses. Stage 3 balances and coverage within the mortgage portfolio both in line with year end at 1.7% and 14.7%, while the other products in retail, I've seen Stage 3 come down slightly to 1.8%, but with coverage maintained above 50%. And across the Group, we've maintained a total balance sheet provision of £4.4 billion, which compares with an expected normalized cash write-off for the full-year of around £1.2 billion and again unchanged from the last couple of years. Looking next to statutory profit, restructuring costs were £182 million in the half and mostly comprised severance. The completion of the MBNA integration, a non-branch property costs and these are down over 50% on prior year, mainly due to the completion of the ring fencing program and significantly lower MBNA spend. Volatility, another items are £465 million and include the cost associated with changing asset management provider, fair value and amortization costs of £169 million as well as £85 million of negative banking volatility compared with a £250 million gain last year. The PPI charge of £650 million includes £550 million the second quarter, and I'll cover this in a moment. The effective tax rate is 23% and slightly lower than our expected long-term rate of around 25% and this is despite the PPI charge due to the one off release of a £158 million prior deferred tax liability in the second quarter. Finally our statutory return on tangible equity at 11.5% is a strong return, but it's clearly been impacted by the below the line charges and we now expect RoTE for the full-year to be around 12% and slightly below our original guidance. On PPI, this obviously disappointing to a game and be reporting another material charge. Process complaints have been just above our provision at 14,000 per week. However, in the second quarter, we've seen a significant increase in PPI information requests or PIRs, which are the first stage in the CMC complaints process. Previously we received around 70,000 PIRs a week of which around 9,000 or just 13% eventually resulted in a complaint. In Q2 the number of PIRs increased around 150,000 per week and is now running us around 190,000 partially offset by deterioration in quality and a lower complaint conversion rate of around just 10%. In our numbers, we've assumed that PIR stay at this elevated level of around 190,000 and of slightly lower quality through to the industry deadline at the end of August. The impact of these additional volumes equates to around 200,000 extra complaints over and above our previous assumptions. This accounts from us three quarters of the £550 million increase with the balance comprising slightly higher cost per complaint and higher related administrative expenses. Turning now to the balance sheet, loans and advances or £441 billion are stable on Q1 with growth in targeted segments included in £0.8 billion in the open mortgage book where we've delivered growth in a competitive market while maintaining our overall margin through the selective targeting of segments, including our branch originated sales. And for the full-year, I still expect the open book to close 2019 in line with 2018. Elsewhere as you've heard, SME is up £0.8 billion on prior and continues to grow ahead of the market and we continue to target growth in our high quality consumer portfolio where motor finance is up £0.9 billion in the half. Finally, RWAs are up £1 billion on the start of the year at 207 as result in plantation of IFRS 16 although down £1 billion in the quarter as we continue to optimize the business mix, particularly within the commercial division. And looking forward as you know, the number of RWA changes coming in 2020 and beyond. While there are still a number of moving parts, we now expect the 2020 regulatory increase to be towards the top end of the £6 billion to £10 billion range we've spoken about previously. The impact of which though is included in our free capital bill guidance of 170 to 200 basis points per year. And turning then finally to capital. As you know, and I've heard the group has built 70 basis points of capital in the first half. Underlying capital bill remains strong with 97 basis points from banking operations and five points for the interim insurance dividend offset by the 33 basis point impact of PPI and 11 from our IFRS 16. They're strong capital build or there's enabled us to pay an interim dividend of 1.12 pence up 5% on last year and as we announced in May we'll be moving to quarterly dividends beginning in Q1 2020. Going forward, we are maintaining our ongoing guidance of 170 to 200 basis points of free capital bill per year, but in 2019 as you've heard, we would now expect to be the lower end of this range due to the below the line charges. Finally, as you heard at Q1, the group has a capital target now of around 12.5% with a management buffer of around 1% with the 50 basis point reduction from the previous target come in from the lower systemic risk buffer and Pillar 2A requirements. So to conclude, in the first half of 2019 we've made strong strategic progress, delivered good financial performance, and increased the interim dividend by 5%. In the current environment, our strategy remains the right one and you see this in the resilience of our results. For the full-year, we expect the margins to remain at around 290, operating costs to be below £8 billion and the AQR to be less than 30. These will support capital build at the lower end of our 170 to 200 basis point range and essentially return on tangible equity of around 12%. And for the longer-term we are maintaining our targets, although said continued economic uncertainty could impact the outlook. We remain, however well-placed to continue to support customers, help bring prosper and deliver sustainable superior performance. And that concludes my presentation. We've now got time for Q&A. A - António Horta-Osório: So shall we start here? Jason?

Good morning. Jason Napier at UBS. Two questions around net interest margin, please. Firstly, we've seen in the market an improvement in credit spreads on flow mortgages, but you've already mentioned the impact of increased SVR attrition on the back book. So anything you could say about open book growth and that sort of behavior means for forward credit spread income for the business? And then secondly, just to focus on the contribution of the hedge, if we could. I appreciate your reiterated guidance for NIM for this year and next. But clearly the yield curve is less helpful than it was. And so any colleague give around the contribution headwinds that you'd face if the yield curve stays here? There's an intense interest in maturity profile of the existing positions. Thank you. António Horta-Osório: Okay. So I'll deal with the second one first. I mean, the structure hedge remains a fundamental part of how we do business, and I think we've been very clear over the years as to what our strategy is and I think very clear in terms of what the contribution is. And my expectation is as we go forward, that will remain the case. And you've seen today in terms of just our balance sheet numbers, first up, the continued focus on high quality current accounts and the growth being hedgeable balances. That's very much where our focus is and that's very much at the core of the structure hedge as part of our business and that will continue. In terms of specifics, look, we're in a different place from a year ago, and we're in different place in terms of market implied rates, five-year rates in particular and what that might mean for us. We'd still think that we are in a strong and a protected position and that is the sole purpose of the structure hedge in terms of we're bringing that stability to earnings. And as an example, just as for people to calibrate off, if one was to take the current market implied for roundabout 70 or whatever, you would at that in terms of impact, in terms of year-on-year structural hedge contribution of reducing that by something like around about the £250 million mark. That's the sort of equivalent number that you would see if you applied current market implied. Why that number was all obviously linked up to things like the runoff profile and the maturity of the structural hedge. If we look out over the next 18 months or so, we have about £10 billion of the structural hedge mature in the second half of this year and about £30 billion or so matured in as I go through 2020. So I'm not looking into any cliff event in terms of that structural hedge composition. And as I said, it's about £40 billion over the next 18 months or so. And in the context of £172 billion currently deployed, theoretically deployable £185 billion, you need to see that in context of hedge that's delivering whatever it is, £2.6 billion, £2.7 billion per annum. So very much remains our focus. We will continue to target our balance sheet strategy so that we can contribute to that structure hedge. As I said, I think we're very clear on what our strategy has been, and it will remain a very resilient part of our income even in – even if today's rates and that sort of things play out. So it means a core part of what we do and it's a key part of us underpinning in our confidence in on it. To the first part, flow mortgages, yes, look, over the last couple of months things have got slightly better in terms of the mortgage market simply through again, what's happening on those swap rates and the non-pricing through of those into customer pricing. And so that is a welcome sign and a welcome change. Do we sit up here and call a change in the market or a change in material profitability? No. We're still looking at if we came in roundabout 1% [indiscernible] you're up to 150, et cetera. That's still to come through in terms of completions. And that still compares to a back book of around 1.8. But again, I think you've seen from the slide I presented in terms of the evolution of that overall margin that we are very active in terms of retention strategies and retention policies, which are hugely important to us. We are also hugely focused in terms of – again, as I said in my presentation, targeting parts of the market that we think are more valuable to us. We prefer first-time buyers. It's part of our Helping Britain Prosper commitment. We also see greater value there vis-à-vis refinance. We're also more interested in things like retention, which again is more attractive to us. We're more interested in things like growing our branch market share, which is up about 2% or 3% year-on-year, which is a great evidence of us deploying branches for sales in more complex products. So we see that as a big positive. And overall our share of mortgages on the first half, it was something like 17% versus 16% last year. And I think things like the pipeline, I would get this stat wrong. There's something up like 20% or whatever and where it was in the equivalent period last time. So you know what our strategy is. Things have looked a bit better. We're not going to call a turn, but we're also not going to call it a change to our strategy. And then going back, I think you did ask, we do remain confident of closing this year. As I said in my presentation, in terms of that open mortgage book in line with where we started the year.

Thank you. António Horta-Osório: Additional questions? There were a few here, Rohith. Can we have the microphone here, please?

Thank you. Good morning. It's Rohith Chandra-Rajan, Bank of America Merrill Lynch. Just to follow-up on the mortgage book please. The SVR book contraction has accelerated materially in the first half of the year, so down £8 billion in the first half versus 22% annualized contraction. Just wondering if you could split that between Q1 and Q2, if there's been any step up in a particular quarter, and clarify what the rate that those customers are refinancing away from? And then secondly on gross lending, a pickup in the open mortgage book in the second quarter, as you guided to, the £8.7 billion of gross lending in Q1 curious to what that was in the Q2? And then just on the competitive environment, which as you say, the swap rates benefited new business spreads more recently in the first half of the year. It looks like in the last couple of weeks a couple of your competitors have cut pricings. Just wondering if that's something that you've observed in the market.

In terms of the last one first – in terms of activity over the last couple of weeks, it sort of doesn't surprise us and this is going back to Jason's question. I'm not going to call anything. It stays competitive. And over the course of this year, you've seen different people doing different things and you can try and divine motive and are they doing something very clever or they doing something very stupid and is this influenced by surplus liquidity or is this influenced by a land grab? It's just part and parcel so I wouldn't read into anything that's really true.

As we have been telling you over the calls or the meetings we have been having, people have different behaviors of quarters. I don't think we – I would call anything in particular in the last few weeks, maybe some people in some products have lowered prices. On the other hand you have people exiting the markets, like Tesco Bank for example. You have other competitors saying on their calls, they will be more mindful about margins and volume. I don't think the last two or three weeks have any difference to what you saw in the last eight weeks, which is an improvement, as George said, on spreads. And we have taken a larger share during that period, which is already to be completed in the books. So the open-ended mortgage book will continue to increase as George said.

And then to your other questions, in terms of the reversal book. Yes. So the attrition ticked up to about 14.5%, 14.8% towards the back end of Q2, the equivalent to that, I think in Q1 was about 13%. So we have seen a slight pick up. Some of that was actually due to the low maturities into that book, but I probably would expect if I was speaking the number for the full-year would be roundabout that sort of 15%. You're right. The total book reversal is now about £94 billion compared with about £104 billion at the start of that year. Within that, the Halifax, which is May 1 in terms of price is about £33 billion, and that's down about £5 billion in the year. But again, the actual attrition rates actually irrespective, it seems very sort of agnostic to actually rate charged and it's pretty consistent in terms of across the pieces. In terms of mortgage volumes across the piece, I think in Q1, we were looking at I think gross lending of about £10 billion and that's grown to about £12 billion in the second quarter. So you've seen that pickup and that's consistent with what we've been showing you in terms of Q1 versus Q2. I think as we said at the start, in that mortgage evolution, we knew there was a big redemption. So that took the book down, which we sort of expected in Q1, but you are seeing that pickup. And as I said, the apps pipeline look strong, and I don't have a number for those in terms of what people are moving away from you. But I would imagine new business spreads are particularly different from the ones that we've talked about in terms of the Lloyds book.

Thank you. It's Guy Stebbings with Exane BNP Paribas. The first question was just on the credit card strategy. The balances were I think flat on the previous quarter, but down about 10% since Q3 last year. Is the strategy still to grow that book? And a follow-up question there, saw a pickup in unsecured impairment rates. If you look at the trust data, which doesn't include MD&A, there wasn't a sharp move in terms of new NPL formation. So is it fair to assume MD&A, which is seeing a slight pickup in impairments? That's the first question. Do we see the second questions? António Horta-Osório: There was two question.

The second one was just on guidance around capital generation for the second half a 100 basis points. If you reflect in tangible growth, pension contributions, 81 coupons, things like that, it looks like you're guiding for profit after-tax about £2.6 billion £2.7 billion. I think consensus is a little bit below that. Where are you expecting RWA to actually be down in the second half of the year to help contribute there? Thanks. António Horta-Osório: Okay. I mean on that last one, we are looking at continued RWA optimization. And so without being just a comment on your back solved PAT, just as an input to your calculations. We are looking at RWA optimization. We did a bit of that in the first half. I would expect this into more of that in the second half, and particularly these are the large corporate business, where we're reactive in terms of returns and efficient use of capital, et cetera. You've heard us talk about that over the last number of years. And we certainly have some actions that we would be hoping and expecting to take in the second half of this year. So I would expect to see that. The unsecured MBNA, there's number of things, no part of it actually, I've got a sort of slight model change, where actually I've now have aligned MBNA is IFRS 9 numbers to the Lloyds. We were basically using Lloyds PDs on them before and we've aligned collection procedures. So there's about a £40 million step up, simply comes from a methodology alignment and isn't actually relating to underlying experience. And then in terms of card strategy, prior to MBNA, we were underweight and we were looking to grow market share. It was an area we liked or we wanted more of. So it's probably fair to say we were slightly more aggressive in terms of our approach to that market. We're now where we want to be and it's about pursuing what we think is the most successful strategy for that particular part of the market. And in that you've seen the most obvious bits are coming in on things like balance transfers, where you've seen a material reduction in the terms offered and the period of free periods as part of the product design. So you have seen a slight shift in terms of before and after the MBNA deal. It's about deploying what we think is the most successful strategy for that book. I mean, we would expect the market to be growing 2% to 3%, and we will be thereabout so. The market has been decelerating lately on credit cards. And we should be more or less in line with the market. There's no change of strategy. We are very pleased with integration of MBNA completely aligned and integrating by now with the final ROE of 18% versus 17%. We thought at the uncertain. Drew?

Hi, good morning. Thanks. May be just one follow-up on the hedge and then two separate questions. Just to finish up on the hedge. I think in the past we've discussed as your unhedged capacity rises, there is a chance of picking up a capital charge as hedge position moves. Are you expecting something like that in the second half or not really? António Horta-Osório: No. I mean I'm at them. You're right. If you take it to extremes then you're at the mercy of stress tests and all those sorts of things. £172 billion place £185 billion at the moment. You were at the margin. We've seen in terms of investment – and in terms of actions that we take taken that that we don't see that there is value there. We don't see what downside is. It's been protected. So we've stood off. But it's not to the extent to which, I think I'm going to endanger the capital position, which is not to the extent, which I think I'm going to engage in capital position. And the latest numbers we have, we are growing 5% as of May versus a market, which is growing 3%. So we keep growing above the markets, 5% to 3%.

Thank you. And then maybe just two separate topics that we haven't talked about. Firstly, obviously is maybe a strategy question, but the revenue environments quite challenging now for the whole industry. And this was exactly – this wasn't what you were planning on when you laid out medium term targets. So I think you've delivered a very good cost performance again in the first half, but I always go back to you – you already start with a very efficient cost position. So what more can you do? What are the costs livers that you will look to pull? Are you going to start with the rethink some of the investment that you've got at too or is there something else that you can point to 10 years now? Where else can you take cost out? Thank you. António Horta-Osório: That's a fair question, but you will meet [indiscernible] rather that have been here in the question for five years. So I think that that question splits into strategic and the operational. From a strategic point of view, I am a strong believer that you need a culture of attention to efficiency and costs in order to be able to relentlessly implement a reduction on BAU costs, number one. And number two strategically as well. I think you should manage your BAU cost base with the secondary on quality. So you have the BAU cost base. You have to look at quality because you could potentially get the wrong costs. And thirdly, you have to look, as you correctly pointed out whom to your investment capacity. So are you making your company more efficient, but at the detriment of quality or at the detriment of investment while NPS growth we have shown you, they increased 50% over the last eight years with another 5% increase this year, both on the multi-channel approach and also on the digital channels, which are slightly above the remaining channels. And in terms of investment, we have stepped up the investment as George showed. We are exactly in line with what we thought at £1.5 billion now at mid of the plan and I have no intention, no intention whatsoever of cutting the investments, which we could as you say, but I don't think it makes any sense to cut investments except into circumstances either if the investments don't deliver the forecast benefits and we are on plan as we show you and very excited about all the benefits we are getting and we try to show you the results of that for example, after three years in the insurance area and with the plans we have for the wealth business. Secondly, if there is a material discontinuity, so of course if there was to be a no deal Brexit and there is a discontinuity and the paybacks of those investments instead of three, four years, we can 10 years. Of course, we could lower the investments and it is true as I just said that we have £1 billion of discretionary investment every year, which about how fees immediately expensed. All of it goes out of dividend capacity as you know, because everything which is intangible reduces from the individual capacity. So we have a big lever there that we have no intention of cutting those investments because they are delivering because still the scenario most likely and the one that government favors is an orderly Brexit. We are seeing the results of those investments and we don't feel in any pressure to do anything differently. So we are not going to get those investments. But it is true to your question. We have that lever should there be a discontinued.

Thank you. I did have one more question, if that's okay. On the fee income outlook, you can see the current account fees are down half and half despite the higher balances. And I was wondering if you could talk a little bit about, where the pressures are coming from. Are you seeing any pressure from overdraft regulations as well? If you could give us a number, that would be helpful. António Horta-Osório: Okay. Well, if I step back, I mean on whole sort of ROI, the start of this year, we've talked about have an aspiration to target being in line with sort of last year £6 billion or so. We reaffirmed that at Q1. There was lot of questions on that. That is still our target. As it got a bit tougher, it has got a bit tougher to achieve. And we'll see how the second half of the year plays out. But that was our sort of aspiration and that stays the aspiration, but it has got a bit tougher. Within that what's going on, I know you asked specifically about the sort of retail bit, but when you look through the numbers and in terms of the H1 experience, retailers doing a tough job in a pretty tricky circumstance. It's down prior year, but I've got – I've taken action in terms of fee charges. I'm seeing a slight benefit from things like ATM reciprocity, which is be a going against me. I've done some internal changes in terms of commission payments between retail and insurance, which have impacted retail as well, but they are slightly down and we'll stay pretty tough there. Commercial, which is down around about 13%, it's probably done more than we expected, to be fair. And that is a more challenging market environment. And in terms of people stepping off activity, you see it in the indicators, you see it in the comments and you probably hear it talking to businesses. So there's no doubt. That's just slightly worse than expected. At the same time, again going back to what you've seen and heard from Antonio on the slides, insurance has been the standout and in ROI to be up 20% plus, 21% is a tremendous achievement. And I think that result is very reflective of the change and the success and the building of that insurance business. So for the full-year, as I said, targeting close to six was the aspiration. It stays there. It has got tougher for the full-year. I would expect retail to be sort of much of a muchness. I would expect insurance to continue to show strong results. It's not going to be 21%, but I would still expect it to be a good daylight between 2019 and 2018 and I would be hopeful that within commercial that we can claw back some of that territory and some of that ground within commercial.

Thank you, very helpful. António Horta-Osório: Joe?

Hi. Thank you. Joe Dickerson from Jefferies. George, I think at the full-year you gave us the unrealized gains on the gilt and liquid assets portfolio. If you could give us a sense of what those unrealized gains might be as at H1, that would be great. And then a secondly on liquidity, I just note that your liquidity coverage ratio is at 130% and your cash is up 8% year-to-date. Presumably, like other banks you've been having to hold higher liquidity because of the uncertainty in the environment. I guess could you quantify how much of a drag that has been to the net interest margin? Because it seems to me like on the other side of all of this next year going to be quite a tailwind on the liquidity side to the margin? And then lastly, do you still intend to distribute capital down to 13.5%?

Okay. The carry cost, the accessibility was I’d like to say there's a massive opportunity to there massive prize and I've got the precise some had, I don't think it's a big drag on the numbers and we have not been required to us to do anything as regards that. As you might expect going back to 31 March type Brexit, we sort of took the opportunity to get ahead in terms of funding. If markets were open than we thought, we would access them, and take advantage of that. So when I look at what we've actually done over the last 15 months versus original plans, we've accelerated and brought forward. And I think that was the sensible thing to do, and that kind of remains our overall stance. But I don't see that there's a massive prize in terms of the NII in terms of the carry cost that. The unrealized gains, if this number isn't right, we'll round, but I think it's just shy of about 200 million quid is that is the number that's in my head. And if that's wrong, well, I'll get Douglas to do some work and bring everybody up. And on capital look nothing's changed. You're not going to expect me to say anything different from what I'm about to say, but nothing has changed. We were pleased to get the reduction in the capital requirement because we believed it reflected real de-risking of the business both from the [indiscernible] perspective and things like contributions to pension schemes and to earlier questions around hedges and things like that. And in terms of scale and size of the Ringfence Bank. So we were very pleased for the reduction because we thought it reflected actions that we had taken. So we have please see that, but the policy has not changed. You've seen that our interim dividend which will be sustainable and progressive and you've heard these words before, but you know, the board will take their decision at the end of the year, which is the right time after we've completed stress tests of your completed plans for the subsequent years. In light of the information pertaining at that period in terms of what they do with the surplus over and above that requirement of 13.5%.

Great. Many thanks.

Thanks very much. Good morning. It's Chris Manners from Barclays. Just three questions by me. And the first one was just a tax change in capital 170 basis points of capital generation that's about £3.5 billion looking at where the RWA and 50 basis points drop in your requirement. There's another billion pounds that looks like about £4.5 billion of sort of surplus. And if we look at what you've been indicated with your interim dividend, that actually looks like you've got buyback capacity of well over £2 billion quid and I'm just trying to think about is there anything apart from a hard Brexit that we should be considering just stop getting to that sort of level and for next year. And the second question was just about the shape of the yield curve and clearly at the moment the curve is pricing potentially different outcomes, but it does look like there's going to be more than 50% chance of over the next 12 months. How would, should we expect you to be able to react to that? Can you de tune some of the pricing on the tactical deposits more? And how would you sort of deposit beater and verse work? How much can you sort of take out that manage savings book. The interesting to think about that. And the last point was on asset quality. So the gross AQR obviously jumped up a bit in the quarter 38 basis points. I know you fly those sort of couple of big corporate defaults in there and how should we think about that gross AQR trending should it get glide down a little bit from here? Thanks. António Horta-Osório: Let me just on the seconds and pointed to mentioned. Just to besides what George said, George gave you a extrapolation of if the curve stays as it is, what happens in 2020 that is without any management actions. So as you said, depending on the scenarios, we will be taking management action as we take all the time as we took in the first half versus the second half. I mean we do, it's our job. Right? And don't forget if you look at the balance sheet holistically. We always look at margin asset prices, liability prices will look at by segments, we manage it on a weakly basis and that has proved the competitive advantage. So I just want to precise point that depending on the scenario and we will see what we can do, we had in the past scenarios like that we took action, we will be taking management actions where we wanted to, we emphasize it to George's extrapolation assumes no management action so that you have a sensitivity which is important in terms of should the curve stay as it is as today what happens in 2020 but that without management actions.

So what we've guided to below 30 this year and I think whatever the number is above the planning period around 30 or something like that, we've also said there'll be a lower level of right backs and releases. Although we would expect to see continuation and be a lower level, which would guide you into a sort of a few basis points above. To your question, it's this times result has been disordered. Those two commercial names we talked about probably added about five points to the gross. So that they sort of give it a little spike to your question that are distorting the trends. So they can happen at any time and all those sorts of things. I give out that ones, but that's a sort of distortion to the six month number. António Horta-Osório: And then just to clarify, Chris, they're not defaults that just to destroy impairments we decide to take.

That's great.

And there's, I'm not to the folks that, those two additional impairment charges on two different names, we decided to take prudently. They are not the full chance to present. António Horta-Osório: In stage three or stage two.

Yes. And then to mean, António talked about the rate cut and how we respond. We've responded before. I think you would expect to see us respond again in terms of taking appropriate action in terms of product pricing, and thereafter to António's answer on cost unless also those sorts of things as well where you know we will look across the business in terms of what we might have. António Horta-Osório: And your question on capital, as George said, I mean the board policies is unchanged and I think we have a improvement dividend policy. So the ordinary dividend roses we told you before in line with nominal GDP, so we increased it to 5% but the board at the end of the year post stress test plus the posts PRA buffer with the all information available at the of industrial as usual, we will take the decision. Our target is around 12.5% plus around 1% and we will decide what we do with access and that is exactly the same procedure as we have been doing in previous years. There is no change whatsoever.

Gotcha. Thank you.

Good morning. Just a very quick couple of questions on insurance. Are there any CMI related releases in the results the first question. Second on the substitute ratio, the 149% again, the 10-year swap has come down since then Q2. So I've just – it's the case that you still don't impact on your growth aspirations in terms of the risk problems that you're doing. And just the final question on Balkan unities and the growth have looks just keeps getting better and better. Will you be looked at change your reinsurance strategy to perhaps grab more market share? António Horta-Osório: Well let me start with the latter. I think in terms of – as I said in my presentation, we are managing and Balkan with a discipline in pricing and we don't have any issues. We have the right, we see the right pricing in the market and the right proposition to go to head subject to the capitals. But the thing is we don't have any, we don't see any issues. I have said I need the returns on. Really we are heading now that the people are looking for growth. This is an opportunity for growth for us as many others that we have in the portfolio. In your second question was…

On CT ratio came down because… António Horta-Osório: Well I think that really there are different impacts in the capital ratio we have the equity, we have the interface the credit. Obviously interest rates are hitting us, but there are other things that we are doing in terms of reducing the risk and we have some changes in the models that we are managing in order to be in the right place with the capital. So we are obviously this is discuss an impact but we are doing other actions. We are taking other actions in order to be about the 140.

That’s correct. Follow up and I ask you what kind of actions is it's, I can’t see expenses? António Horta-Osório: Well, you have, I think we have a lot of opportunities to manage longevity because certainly we are probably intense of the competition, most of the people have a lot of longevity is hedged. We are keeping a lot of everything longevity in good way, but I think that this is an opportunity always to manage capital and we can see how they're doing. Okay. Shall we go to this side now, Fahed?

Hi. It's Fahed Kunwar from Redburn. Sorry to come back, onto NII. It just feels like its two quite big shifts here. So I think in a strategy day, you had structural hedge income increasing is a portion of revenues are coming in a lot or share revenues, and obviously you had one rate rise in per annum. We're looking at flat or rate time and stop rates where they are. So I understand the £250 million guidance, but the flat margin guidance is predicated on those assumptions, and what would need to happen for that flat margin guidance to change? How would margins come down from here considering those two materials shifts potentially on adjusting that guidance? So just some flexing understanding what kind of economic environment we would need if that flat margin guidance to be challenged would be helpful. And on the second question on ROI, I understand the £6 billion for this year is difficult, but the insurance growth is very, very good at the moment, and other operating income? António Horta-Osório: Yes.

And when should we start expecting growth in that line? So when should the insurance kind of benefits start to offset the impacts when retail and commercial? Thank you. António Horta-Osório: Yes. That's a good question. Look it's been tough for different reasons, in different parts of the market here and we've talked to this year, as I said it's an answer to an earlier question of approaching targeting, £6 million. I will be cautious about giving any longer-term guidance. The number of uncertainties out there are huge. I will try and reassure you that we are doing things in each of those individual businesses in terms of generating the topline. You've seen the evidence in the insurance today. Within retail, in terms of some pricing actions that we're taking, and in terms of product enhancements, again, we are doing all the right actions. Commercial, it's tough. And there was a market dependency that that would stop me saying precisely where I think that's going to come out and makes it tough for this year, let alone next year. So I can tell you internally we're doing all the right stuff. But the external market dependency in terms of business activity, we would caution me against giving you any type of long-term projection that says its £6 million this year and it will be £6.2 million or whatever. It's too uncertain. There were too many things that are beyond my gift beyond my ability to control. And then in terms of margin, what throws me off a lot. We are – going back to the start, our core assumption is still there's some kind of orderly withdrawal. With all the way rate rise this year. They obviously won't be our current view on rate rises is back end of next year on an orderly withdrawal type basis. Trying to stress myself to death, if that doesn't come through and if there's some cover no deal. And whoever was talking about the market implied, which is actually either go up or it will come down. If I do move into negative rates, in terms of what that means is something why we'll have to work through. But it's volatile and it's proven that over the last few months in terms of where that market implied has gone and let's see what happens going forward. So yes, we're in slightly different scenario obviously from when we sat here, two or three months ago. Perhaps I would say this wouldn't – I think there is a testament to what this business about and how it's run within that scope of change. I'm still able to stand in front of you and present these types of numbers. And that goes back to stuff we bought it with before or around the shape of the business model, how it's run, the leavers that are available to me right across the business. And if I have to pull different leavers at different times, so be it, but I know what my objective is and that's how we'll continue to manage the business. That's probably the best I can do.

Okay. Can I ask one quick follow-up on AIA? Close mortgage book deduction. António Horta-Osório: Yes.

Obviously, we know that the new gross flows coming on the open mortgage book. Should we start to see AIA pick up from now in a second half of the year with the increase in the open book offset the close mortgage book? Are we still looking at net flat? António Horta-Osório: Well, you're still – I mean once you've got in terms of AIAs, I mean it's just because of how the comp works. We'll be through the Irish stuff that's gone. That drops out the calculation. That's fine. That makes it easier for start. You're right. They don't really go anywhere unless that mortgage book goes anywhere, because that's the mortgage book grows. The rest of it has to run so hard. The simple math doesn't work. So I'll be stable this year, but I've still got a slight runoff in terms of about that, whatever it is 18 billion, 19 billion close mortgage book and that will lose 1 billion, and 1.5 billion a year. So I probably have to convert. If I'm stable and I've got a 1.5 billion close headwind, then I could probably just about getting that flat in terms of consumer finance and then an SME. It depends where I go on things like large corporates. And I said to an answer to an earlier question. We probably will be still looking to continue to optimize large corporates that they're more likely to go down than up. So if you put all those pieces together, you're probably closer to flat than growth at the moment still.

Thank you very much. António Horta-Osório: Yes. Martin.

Good morning. Martin Leitgeb from Goldman Sachs. If I could ask, maybe start with a broader question just on Brexit and Brexit impact on your business and just thinking about the usual variables, loan growth and credit quality. I think you alluded to that you saw in particular and impact on business confidence. I guess business loan demand. Could you share a little bit more light what you're seeing across the business as a retail and a corporate in terms of loan demand? And also asset quality, whether it has been any pockets of deterioration you have noticed at this stage. My second question is just with regards to loan provisioning and general loan. I think some of your peers have built general provisions regarding a specific mark for risk facing the UK. I think Lloyd's hasn't just you're thinking behind us. Just to follow-up on the various NIM questions, just if we were just to think about NII progression from here, assuming the rate environment were not to change, how should we think about NII progression from here? What would you expect that the guard will decline? We have seen over the last two or three quarters we'll continue. Thank you. António Horta-Osório: Okay. So I'll take the first question and George will take the other two. Look as I said, I mean there are two separate this in segments. You have the retail side and you have the corporate side. We are mostly retail bankers, so most of our loans and most of our activity. And on the retail side we see as I said on my introductory remarks, we see no change whatsoever. We don't see a mortgage growth continues at model as the same pace as the previous year around the 3% stock year-on-year. As you know, we have seen it slides deceleration in car finance. It continues to grow in single-digits. We are watching in the latest few months a slowdown in credit cards, but it's positive and UPS are also growing positive within single-digits. So we don't see in terms of growth any significant change, a slight slowdown. In terms of impairments, we don't see any signs of impairments on the retail book. You'll see as we mentioned before, some deterioration in secondhand car prices, which we have both and the little bit in provisions. That if you remember was something we were anticipating last year and did not happened and we kept the provisions and it happened this year. So we have adjusted the recording and as George said, we also changed the model to have the through the cycle provision which got some impact. But so apart from the residual second found residual car prices, which I would say is more of a ketchup which we expected last year. It happened on the first half. The costumer book is in the same position. We don't see any significant deterioration. I am not surprised about that Martin as I think I said as well, because when you look, you see employment continued to grow, that obviously improves demands and contributes to GDP consumption is two-thirds of GDP. Real wages are now growing at the 1% or more for more than a year, which also supports consumption and GDP and employment is that an historical lows since the statistics began being made? As you know, interest rates are very low and going lower, so I'm not surprised that on the retail side you see no changes in the current environment. Obviously subject to no discontinuity. On the corporate side, as I also mentioned and we had those already mentioned in Q1 that there was some softening of a business confidence. That softening has continued and I show you the PMI intentions, hiring intentions and business confidence. In terms of what the translation is in business demands. We have seen a slight deceleration again in SME and mid-market lending and we are now growing at 2% you might remember that in the past we had been doing it 3%, 4%. We are now going to 2% so a slight increase but not very significant and the markets according to our numbers is growing between zero and 1%. And in terms of impairments on SMEs, our mid-markets as George mentioned as well. We don't see any change, any systemic change. We have made, as we mentioned before, two additional impairments for two specific cases on two larger corporates, different sectors. So specific things which sometimes happened in large corporates. But it's effect as you know, the business confidence is having a progressive softening, but with a small impacts so far in terms of business demands and we don't see any signs in impairments, which again should not be the case with a level of interest rate, with a level of employment consumption, et cetera. That's a bit more color going segment by segment. I hope that's helpful.

And then two other points I may have on loan provisioning, that should be making specific provisions for specific macro. I mean, I don't know if it's a reference back to coming into the sort of Brexit scenario, but I mean in our first nine provision and as you know, I have my base, I have a 30%, my upside 30%, my downside 30%, and my extreme 10%, which sort of seems quite obvious. But I think as we went through last year, I don't think it will appear to set off in that position in terms of having that spread. And there were some changes as they moved through the year. We didn't move because we'd already captured an element of that, that severe right in our one-gen numbers. And we're consistent in the deployment of that as we moved through the year. Now what we have done in terms of this half, as I say, our core assumption is still orderly withdrawal. But we have within that, I think as I said earlier, reflected the current environment and that current environment is slightly lower GDP is slightly lower HPI, but at the same time slightly better unemployment. And when I flow all those through my multiple economic scenarios, it had an adverse impact in the sort of tens of millions type stuff in terms of that H1 impairment charge you saw. So our central [indiscernible] hasn't changed and our percentages on the various scenarios hasn't changed, but the backdrop was slightly weakened, but that's not a Brexit that's simply going back to some of the António comments about the economy, just observing what we're seeing around business confidence, GDP, HPI, et cetera. But there is an offset on unemployment. So we feel that is appropriate and reflective of how we see the world going forward. And to your last question, which I must say I think is a bit of a setup question, is this did you say. If I assume the rate environment won't change, what happens to NII, which I think was a question? And I think I just said AIA is going to be relatively flat. We've talked about a resilient name and we've talked about in the current rate environment to the market implies I'll lose about £250 million. So in that scenario we'll just be working harder, Martin.

Thank you.

Good morning. It's [indiscernible] from Morgan Stanley. I think most of my questions on NIM have been addressed and we’re pleased to hear. But just a quick follow-up on PPI, please. The 190K weekly information requests is obviously a big step up, could you give us a sense of the uphold rates on that 190, how that compares to the past?

It's not so much up hopefully. It's the sort of conversion factor. So I think I said previously the rule of thumb is when we were talking about our sort of 13,000 provision previously, which is what we would assume and what we were observing in terms of complaints process per week. They used to be about 4,000 direct from customer and about 9,000 from CMC originated. And that CMC 9,000 was basically off the back of about 70,000 of these PPI information requests. And so that's a 13% conversion rate. And then what we've seen, as I said in the presentation, first to 150 then to about 190, but we have seen that complaint conversion rate dropped to, and it's still moving around just below sort of 10%. So that's the sort of conversion rate. And we'll process this, we'll work on this. The important thing in all this is that, we're four weeks away from the deadline. It is hugely disappointing to have to announce big PPI provision again. And it's also hugely disappointing to have to say uncertainties still remain. But we will be through this. We will get through this. And we'll move to much better place beyond, but at the moment it's just a question of dealing with that surge ahead of the deadline.

Okay. Thanks very much. It’s Ed Firth from KBW. Just two quick questions. The first one was on Central. I mean, I think Central is now making a bigger contribution than insurance, if I strip out that the 136 in Q1, and we don't really get much guidance as to what's in there and what's driving that number. I mean it bounces around all over the place. So I wonder if you could help us a little bit, what is actually in there and how we should think about that as it rolls forward? So that was the first question. And the second question was, I'm just getting quite concerned about credit and I know we've had a couple of questions on this. But if I just look at your numbers, you've got an increasing charge and a falling cover at a time when as you've rightly pointed out, the economy is going pretty well, unemployment is at all time lows, interest rates are very low, and you don't need to be fanciful to think of any number of shots that we could hit in the coming six to 12 months. And it doesn't look obvious that you're well prepared for that or that you are adding to your buffers at the moment. So could you just guide to us where are you? How are you looking at that and how are you getting yourself ready for what could be a pretty tough time? António Horta-Osório: I mean just two comments and George will answer. I mean I think we are very well prepared for that because the first thing I would tell you, which I said in my introductory remarks and that's why I have included a long series on the presentation. The best preparation for a potential, not likely, but potentially as you say, credit chuck, is the rate of your credit growth. Our core loan book is exactly the same as it was eight years ago as I mentioned with a £22 billion growth in targeted segments where we were underrepresented. So consumer finance and SMEs and the corresponding offsets on parts of the mortgage book that we did not like and on large corporates where we thought the risk written was not appropriate. So apart from having shares, practically all of the £200 billion of toxic assets following the H1 acquisition, we have kept the core loan book at around £440 billion. So for me, having done for 30 years, that's the best indication that you are well prepared for a potential shock. On top of it, as we told you repeatedly, our model is of a proven model. So not only on the growth rate, which is zero over 80 years, we only do prime business in the sectors that you know very well. So absolutely concentrated on prime business. We don't chase business so we have always emphasized mortgage, sorry, mortgage margins and capital and risk versus growth and in certain moments of the past we have been questioned about it. So we are very confident about that. We have a risk appetite that we review every year and we are well within risk appetite. And the third point before George may want to add something. We think we are prudently provisioned. That's what is our internal opinion for our external auditors. And we have different scenarios to Martin's question where we have a 30% downside, 10% extreme, so high capital levels, zero net debt. So I mean if there is any external truck, we are as well prepared as we could be.

I would add to that. It touches every part of what we do from risk approval to book shape to portfolio construction in terms of that secured in terms of where we play in terms of where we don't play. It covers every bit. And then to bring it down to some specifics, the work we've done on single name exposures. Yes, we've talked about a couple of names that impacted, but the work we've done over the last few years in terms of the books that were inherited to making sure that our exposure to single names are brought down and the names you want to be as massive. We show you the loan to value on the mortgages. It's a completely different space. Let me touch briefly on what we couldn't, what we ended up doing on something like motor financing. We've always talked about being prudently covered. Prices were off a bit this period. We used to allow for about a 4% or 5% reduction came through. I've taken for that. I could easily stop there, but our numbers actually now allow for a further reduction. So I've reset up my prudent provision. I could have stopped short. So it goes across the whole piece, anyway. So then to your first question, a couple things. First up, I really wouldn't strip out the 136 for insurance. I mean, I really think that is about recognition of a better deal, lower expenses and a real business benefit to insurance. Yes, under insurance accounting on PVs, the benefits, that's the way it is done, but that is a real reflection of a business being better run that will be producing better returns. So I think it's completely wrong to strip out the 136. There's also, if you look at, they benefit about 240 this year from assumption changes, one of which is 136, other which is improvements in longevity. These are real business benefits that are coming through to the benefit of shareholders within the business. So I wouldn't strip it out. And then in terms of what's in the center, as ever within centers, you've got a mixture of balances, but some element, main elements that sit within there. I've got my guilt gains. So I've got, which is just under £200 million. I have my LDC which goes through there, which again is about £150 million. I have my vocalink which sits in there, which is about £50 million. So all those are across the balances. But I also above that have basically the net of things like internal transfer pricing, which doesn't net out to zero, mainly for some technical factors. So for example, things like the cost of 81s, which we're paying out perspective go below the line. But in my internal transfer pricing, I challenged them out to the businesses. So actually the center, which is GCT from a P&L respective gets the money back but isn't actually paying out the cost of that because that's below the line. And that kind of makes up the delta. So those are the main things that are within that.

Thank you. Just a question on current accounts strategy please. And you talked about the balance growth, but the cost data shows that Lloyds has gone from being quite a net gainer until about the middle of last year. The figures last week show you the biggest net loser balances by number and that's across the brands by number. So number of people switching away. Lloyds is the month number one loser along with both Halifax. Understand that shift please.

That's a very interesting thing and we were discussing that and you can see in the appendix that we show that our market share of digital, which we always present went down from 21% to 18% and we're looking at why and the reason is exactly the reason you mentioned because the challenger banks in general have been opening lots of current accounts and of course that impacts our market share in spite of us continuing to opening current accounts.

But sorry, just in the switching data though, the challenge is very small. It's HSBC and nationwide all that stuff's going to, so it's just, that's the next shift. Just understanding in terms of…

In terms of switching data. Well first, don't forget that the switching data is not everything. It's a small part because you have the openings and closures which do not show on the switching data. So in current accounts the picture is clear as I think we showed you. The number and we showed you that on the slides. The number of active current accounts continues to increase and much more important the quality of those current accounts is improving very significantly. The average balance per customer has improved 50% since 2014 significantly above the market. And just to give you the latest available number, which I said earlier as of May, we are growing on PCA's 5% versus a market that is growing by 3%. So we continue to gain market share and that gives you I think the best indication of quality in current accounts which in the UK contrary to other markets are the most important product from a loyalty points of view. So our customers growing the users, we think that the digital offering is a big contribution to that. Those deposits are convenience deposits, not price oriented. They are growingly putting those deposits with us and our market share is increasing. So that's I think the best indication and I was going to make the point on the challengers. Everybody's opening current accounts on the challengers because as you know, the price is zero. So for you to have more current accounts that have any costs and there are specific things that people like to do with them, but I think the right criteria to monitor going forward is the quality of those accounts, the average balances and the potential revenues that they produce to be seen. Okay. Final question here.

Hi, good morning. [Indiscernible] from a SocGen. Can I ask about the non-banking net interest expense please? I guess this is for you George. I think I guess it's gone up become more negative because of IFRS 16.

Yes, that's true.

I think last time we saw you, you’re saying it wouldn't get near to 100 million, but I mean we're already there just in six months of the year. So is there anything funny in the first half that has made that number more negative or this is a…

No, are you sure? I said if we can get near to 100 million. My memory does go this isn't - no, I'm, I'm pretty sure I didn't say that we expected to go up because I mean this is the, the funding cost of basically non NII generating aspects and we saw 70 million or whatever in the first half, which is, it started the old in terms of H1 last year, but it's more in line with the second half of last year, which I think was about 60 million. And I would expect for the full-year to be about double that. I mean IFRS 16 is the 34 million of that. But I don't know – if I did, I did and I was wrong because it's kind a – it’s basically trackage where we expected it to be. So I would expect the full-year to be about double this and there is an IFRS16 pickup. It moves around depending upon because you know, how much type of business that commercial in terms of fee predominately fee generating income that they do. But elsewhere it's the funding of LDC, the funding of Scottish widows and things like that. But I would expect to be about double that for the full-year.

Okay. Thanks. António Horta-Osório: Thank you. Just before I close, I would just say a few words. As you know, this is George's last set of results before he retires this week. George has been a crucial member of the team and of the turnaround we did here at Lloyd's. So I think he has been an outstanding CFO. And on behalf of myself, the Group Executive Committee the Board. I would just like to publicly thank him and I would like to really recognize your greatest contribution to the bank. Thank you very much George.

Thank you, António.