Lloyds Banking Group, the UK-listed bank now partly owned by the UK government, said today its wealth business logged an underlying profit of £358 million ($542 million) in 2012, up from £287 million a year earlier.

Lloyds Banking Group, the UK-listed bank now partly owned by the UK government, said today its wealth business logged an underlying profit of £358 million ($542 million) in 2012, up from £287 million a year earlier.

The wealth business forms part of the wealth, asset finance and international arm at the bank. This division reported an underlying loss of £929 million in 2012, but this was far narrower than the £2.785 billion loss recorded a year before. Net interest income at this division of the bank was £799 million in 2012, it said in a statement today, compared with £1.0 billion in 2011.

The wealth business had total customer deposits, excluding repos, of £30.8 billion at the end of last year, up from £26.2 billion a year earlier; total client balances were £35 billion, up from £31 billion.

Across the whole wealth, asset finance and international division, funds under management at the end of last year were £189.1 billion, up from £182 billion. This figure includes business units in the Lloyds Banking Group such as St James’s Place, Invista Real Estate, Scottish Widows Investment Partnership, and Private and International Banking. In PIB, assets under management were £12.6 billion, down from £12.8 billion at the end of 2011.

In a bullish statement, the bank said: “Wealth provides strong growth opportunities for the group. Its goal is to be recognised as the wealth advisor of choice to appropriate retail and commercial banking customers alongside targeted customer acquisition. We aim to grow the amount of customer deposits and funds under management that we manage on behalf of franchise customers, whilst improving margins and operating efficiency.”

“We are investing in our wealth business to grow market share in what is viewed as a key growth opportunity for the group.  The investment is geared towards developing compelling propositions for mass affluent and affluent customers within the UK and Channel Islands and also those with UK connections in anglophile territories,” it continued.

CEO

António Horta-Osório, group chief executive at Lloyds, said: “Within the wealth business we have continued to leverage our expertise to deepen customer insight and to invest in products and services that are tailored to meet the needs of our clients.  In preparation for the implementation of the Retail Distribution Review we invested in training our advisors to ensure that they are fully-qualified and best-positioned to continue to advise clients, and ensured that our systems and processes comply with new standards.

“In 2012, we also launched our private banking client centre which improved the 'onboarding' experience for our UK wealth clients, whilst making the referral process simpler for colleagues,” he said.

Group results

At the overall bank group level, there was a pre-tax statutory loss of £570 million, significantly narrower, however, than a loss in 2011 of £3.542 billion. Total underlying income declined 13 per cent year-on-year to £18.386 billion. Total underlying income, net of insurance claims, fell 8 per cent year-on-year to £17.285 billion.

In terms of its capital adequacy, the bank had a Core Tier 1 ratio – an important measure of “buffer capital” under the Basel rules – of 12 per cent in 2012, up from 10.8 per cent a year earlier.

In 2012, there was a group net interest margin of 1.93 per cent, in line with guidance.

Costs were reduced by 5 per cent to £10.1 billion, in line with strategic review target two years ahead of plan.

In an assessment of recent and future risks, Lloyds concluded: “Over the last five years, the global banking crisis and economic downturn has driven cyclically high bad debt charges, especially in the group's legacy HBOS portfolios, arising from the group's lending to both retail (including those in Wealth, Asset Finance and International division) and commercial customers (including those in Wealth, Asset Finance and International division).”

“Group portfolios will remain strongly linked to the economic environment, with inter alia house price falls, unemployment increases, consumer over-indebtedness and rising interest rates being possible impacts to the group's exposures.  The group has exposure to commercial customers in both the UK and internationally, including Europe and Ireland, particularly related to commercial real estate lending, where the group has a high level of lending secured on secondary and tertiary assets. The possibility of further economic downside risk remains,” it said.