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Lloyds Banking Group (NYSE:LYG)

Q1 2014 Interim Management Statement Call

May 01, 2014 4:30 am ET

Executives

António Mota de Sousa Horta-Osório - Group Chief Executive and Executive Director

Mark George Culmer - Chief Financial Officer and Executive Director

Analysts

Chris Manners - Morgan Stanley, Research Division

Jonathan Pierce - Exane BNP Paribas, Research Division

Andrew P. Coombs - Citigroup Inc, Research Division

Manus Costello - Autonomous Research LLP

Claire Kane - RBC Capital Markets, LLC, Research Division

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division

Fahed Kunwar - Redburn Partners LLP, Research Division

Arturo de Frias Marques - Grupo Santander, Research Division

Operator

Thank you for standing by, and welcome to the Lloyds Banking Group Q1 2014 Interim Management Statement Conference Call. [Operator Instructions] There will be a presentation by António Horta-Osório and George Culmer, followed by a question-and-answer session. [Operator Instructions] Please note that this call is scheduled for 1 hour. I must advise you that this conference is being recorded today. I'd now like now to hand the conference over to António Horta-Osório. Please go ahead.

António Mota de Sousa Horta-Osório

Thank you very much, and good morning, everyone. Thank you for joining us for our 2014 first quarter results presentation. I am joined here today by our Chief Financial Officer, George Culmer, who'll shortly present the financial results in detail.

Turning to Slide 1 for those of you following the website presentation. We continue to successfully execute our strategy to deliver a low-risk highly efficient U.K. Retail and Commercial Bank focused on our customers' needs, supporting the U.K. economic recovery and helping Britain prosper. Underlying profit in the first quarter was GBP 1.8 billion, an increase of 22% compared to the first quarter of 2013; and at 73%, excluding the effects of St. James's Place. This was driven by progress on income, costs and impairments. We have delivered a statutory profit of GBP 1.4 billion. Our strategy of putting our customers at the heart of our business has resulted in lending growth in all of our key customer segments. Similarly, deposits have grown 4%, ahead of market growth of 2%, given our outperformance in commercial deposits and as we have focused on growing our relationship brand in retail rather than lower margin tactical brands. I will come back to lending and deposit growth in more detail shortly.

Our U.K.-focused low-risk approach is embodied in our Helping Britain Prosper Plan, which we launched in the first quarter. This simple but ambitious plan sets out 7 long-term commitments and aspirations to help Britain prosper. We are the first U.K. bank to launch a plan like this, and it directly supports our business strategy. This commitment will underpin our vision of being the best bank for customers, offering simple, tailored products and great service, helping customers and their communities to prosper.

We are also continuing to deliver benefits for our customers through our Simplification Program and, at the same time, further improve our efficiency. Our cost-to-income ratio, already the lowest in the sector, reduced further to 50.7% in the first quarter. Hence, we further reduced risk by strengthening our balance sheet and improving our capital position. As a result, I'm pleased that this improvement in our performance and the progress we have made on our strategy enabled the U.K. government in March of this year to continue the process of returning Lloyds to full private ownership, with its shareholding now reduced to 24.9%.

In summary, the group has rather strong start to the year, we are supporting and benefiting from the U.K. economic recovery and are well placed to make further progress in the remainder of 2014.

Turning now to an overview of our financial performance on Slide 2. The increase in underlying profit to GBP 1.8 billion was supported by loan growth in our key customer segments and by an expansion in net interest margin, which we increased by 36 basis points to 2.32%. This was driven by improved deposit margins and by reduced wholesale funding costs, as you will hear from George. At the same time, costs reduced by 5% year-on-year, as we further simplified the business. Impairments also fell sharply by 57%, as we continue to de-risk the balance sheet. The improved profitability, together with the reduction in run-off risk-weighted assets, drove an increase in the group's RWAs to 2.71%, an improvement of 75 basis points. George will talk you through the detail of the balance sheet shortly, but in summary, we have seen year-on-year loan growth in all key customer segments and a further reduction of GBP 3.6 billion in the run-off portfolio in Q1 of 2014. Deposits have increased by GBP 5.3 billion at group level, and the loan-to-deposit ratio has further improved to 111%. Our underlying profitability was the primary driver behind the improvements in our fully loaded capital ratio to 10.7%. We also saw a substantial increase in the Basel III leverage ratio of 0.7 percentage points to 4.5%, mainly as a result of the new AT1 securities issued.

Turning now to Slide 3 and looking in more detail at the dynamics of loan growth. We believe economic conditions in the U.K. continue to improve, with more people in employment, growing disposable incomes, better business and consumer confidence and an improved housing market. We continue to support this improvement, as evidenced by the growth of our loan book across all of our key customer segments.

Our gross new mortgage lending was GBP 9.8 billion compared to GBP 6.1 billion in the first quarter of 2013. And we continue to support first-time buyers, lending GBP 2.6 billion to over 20,000 customers to help them purchase their first home. For SMEs, which are the key driver of employment in the economic growth, we have supported around 29,000 startups so far this year and have continued to grow lending strongly to these customers. SME net lending grew 5% in the last 12 months compared to a market that has contracted by 3%. This is testimony to our commitment to support this important part of the U.K. economy. In mid-markets, we continue to gain share and grew 1% year-on-year in a market that has contracted by around 5%. In Global Corporates, lending fell in the first quarter, mainly as a result of a small number of large repayments, although it is up year-on-year.

I was pleased to see that growth in our newly formed Consumer Finance business increased strongly as targeted, with U.K. assets increasing by 9% year-on-year, driven by strong growth in Asset Finance. This includes motor financing through our Black Horse business, which has grown by 28% in the last year.

Turning to deposits growth on Slide 4. In our retail bank, our multi-brand approach has continued to deliver, with deposits increasing in our relationship brands, notably in Lloyds Bank and in Halifax. As we have reshaped the balance sheet, the increased flexibility this has given us has enabled us to deemphasize the use of some of our tactical brands and our international online deposit business, supporting stronger, more sustainable returns, given the corresponding reduction in our cost of funds. We also saw strong growth in the deposits we gathered through our Transaction Banking platform. There has been a 12% increase in these high-quality deposits, resulting from increased investments in technology in this area. In total, as I mentioned previously, we grew deposits by 4% on the year against a market which grew at 2%, reflecting once again the strength of our business model and the strength of our multi-brand strategy and relationship brands.

Turning now to our outlook for the remainder of the year on Slide 5. We expect to continue to grow our lending during the year in all of our key customer segments ahead of market growth rates, except in mortgages, where we will continue to grow in line with the market. As regards to margin, given the benefit of about 7 basis points we expect to see from the ECM exchange offer and better-than-expected deposits pricing trends, we now expect the 2014 full year group net interest margin to be around 2.40%, excluding the effect of the TSB disposal. While we expect net interest income to increase, other income trends are expected to remain challenging, given the difficult market conditions in commercial bank and ongoing changes in the insurance marketplace. We will complete our Simplification Program, which will further streamline our business for the benefit of customers and help us to maintain our market-leading cost position. We remain confident, therefore, of delivering a cost base of GBP 9 billion, excluding TSB, for the full year. On impairment, given our strong performance in the first quarter, we are improving guidance for our asset quality ratio in 2014 to around 45 basis points. We reduced the run-off portfolio by GBP 3.6 billion in the first quarter, with capital accretion of over GBP 300 million, and continue to expect a reduction to around GBP 23 billion by the end of the year, down from GBP 33 billion at the start of 2014. And finally, on TSB, we continue to expect to launch the IPO in the summer of this year, subject to market conditions and regulatory approvals, and we'll provide a further update on pricing and size at that time. With the bulk of the transformation, as set out in June 11, behind us, we are well positioned to grow and to make further progress in the remainder of 2014, taking advantage of the economic recovery underway in the U.K.

And with that, let me now hand the call over to George for a more detailed look at our financial performance.

Mark George Culmer

Thank you, António, and morning, everyone. We gave you the P&L on Slide 6. As you've heard, we've continued to make substantial progress with our strategy, and this is reflected in the group's financial performance in the first quarter. Underlying profit increased 22% to GBP 1.8 billion, with the movement in total income more than offset by the 5% reduction in costs and 57% improvement in impairment. Excluding St. James's Place, which benefited our 2013 numbers, underlying income was up 3% to GBP 4.5 billion. And costs decreased 3%, given us positive jaws of 6%, while underlying profits were up 73%. Group's overall statutory profit before tax was GBP 1.4 billion; and profit after tax, GBP 1.2 billion, with effective tax rate of 15%, reflecting the impact of tax-exempt disposals.

Looking at income on Slide 7, net interest income was up 10% to GBP 2.8 billion, mostly driven by the improved margin, as well as targeted loan growth, which more than offset the effects of disposals and run-off reductions. [indiscernible] a margin of 2.32% is slightly ahead of Q4, 36 basis points up on Q1 2013.

As shown on the chart, the year-on-year improvement comes from bank deposit pricing and lower wholesale funding costs, less the expected impacts of asset pricing headwinds and run-off reductions. Other income, excluding SJP, was down 7% to GBP 1.7 billion. This again reflects the impact of disposals and run-off which totaled GBP 104 million of the GBP 139 million year-on-year reduction. Commercial Banking put in a resilient performance, given the challenging trading environment, particularly for the markets business, which was offset within Commercial by a stronger performance in other lines of income. In insurance, we've recognized a GBP 100 million charge for the recently announced cap on corporate pension pricing, which will be implemented across the industry next year. And we also saw higher claims of GBP 40 million, given the damage from recent floods and storms. These impacts were partly offset by investments in higher yielding assets and other actions, which, taken together, contributed some GBP 90 million of additional insurance other income. While we continue to take action across the group to strengthen performance, as you heard from António, we expect other income environment to remain challenging as we move through 2014.

Looking at costs and impairments on Slide 8. As mentioned, costs improved 5% to GBP 2.3 billion. Disposals and run-off accounted for GBP 127 million, including GBP 44 million in respect to SJP. Our Simplification Program delivered year-on-year incremental savings of GBP 126 million, and we've now achieved annual run rate savings of GBP 1.6 billion out of our end 2014 target of GBP 2 billion. As you know, we continue to target full year costs, excluding TSB, of GBP 9 billion in 2014, which includes the expected FSCS and bank levy charges.

On impairments, we've seen further substantial reduction in P&L charge with a significantly improved AQR of 35 basis points. Impairment is reduced in every division, reflecting better credit quality and the benefits of reductions in the run-off portfolio. As you've just heard, as a result of this strong performance, we've improved our AQR guidance for the full year to 45 basis points.

In terms of impaired loans and coverage, the quality of the group's loan portfolio continues to improve. Impaired loans now stand at 5.7% total advances compared with 6.3% in December and 8% a year ago, while the coverage ratio has increased to 51.1%, up from 50.1% at the year-end.

On Slide 9, we set out the usual reconciliation from underlying to statutory profit. Starting with asset sales, gains on disposals totaled GBP 126 million, which included GBP 105 million from the sale of SWIP. As you may recall, the Q1 2013 total of GBP 823 million included GBP 776 million of gains on the sale of government bonds. There were no such sales in Q1 2014. The volatile items charge of just GBP 6 million includes a GBP 204 million gain from changes in the value of the ECN-embedded derivative, which was broadly offset by a fair value unwind of GBP 140 million and an insurance volatility charge of GBP 64 million. This compares with an insurance volatility gain of GBP 462 million in 2013, which is the primary driver of last year's volatile items total of GBP 250 million.

On Simplification, we've spent GBP 294 million in the first quarter. This brings the total program costs to-date to GBP 2 billion out of an estimated total cost of approximately GBP 2.4 billion to be expensed through the P&L.

And on TSB, we're making good progress towards an IPO this summer, subject to regulatory approval and market conditions. Spend in the first quarter was GBP 172 million, bringing the total costs to-date to just over GBP 1.6 billion.

Finally, the first quarter tax charge was GBP 207 million. As mentioned, this reflects -- represents an effective rate of 15%, due primarily to tax exempt gains on disposals, predominantly SWIP.

Turning now to PPI on Slide 10. On PPI, there's been no increase in the provision. In the quarter, we've seen reactive complaints running margin ahead of expectations in Q4, while uphold rates and average redress costs are marginally below forecasts. In-quarter costs of GBP 0.5 billion were also slightly better than our projections. On proactive mailings, we remain on track and expect these to be substantially complete by the end of first half of 2014.

Looking at the balance sheet. As Slide 11 shows, the shape and strength of the balance sheet continued to improve. Over the first quarter, we've generated some GBP 14 billion of funds, led by a GBP 4 billion reduction in the run-off portfolio and deposit growth of GBP 5 billion, which have driven a further reduction to group's loan-to-deposit ratio to 111%.

RWAs are down by 2% to GBP 267 billion, led by the reduction in runoff assets, while underlying profits were the main driver in the 4% improvement in shareholder equity and in TNAV, which increased 2.2p to 50.7p.

Underlying profit was a key component in our growth in regulatory capital. On Slide 12, we show the movement in our pro forma common equity Tier 1 position, which has increased from 10.3% at year-end to 10.7%. We've also benefited from the announced changes to our pension scheme and a further GBP 400 million dividend from insurance, all of which offset the impact of capital on the ECN exchange. We also significantly increased our pro forma leverage ratio to 4.5% on a Basel III basis, with a 50 basis point benefit from our Additional Tier 1 issuance.

Slide 13 sets out our total capital position following the recent ECN and AT1 exchange. Our pro forma capital ratio now stands at 19.5%. And we're the first bank in Europe to meet its full AT1 requirement. As we've said before, this is a strongly capital generative business, and our lower risk business model means that we are well positioned to meet future regulatory requirements. And as we go forward, we will continue to review our capital position to ensure we meet these regulatory requirements and optimize costs. And our confidence in our prospects means that we continue to expect to apply to the PRA in the second half of this year to restart dividend payment.

That concludes my review, and I would now like to hand back to António.

António Mota de Sousa Horta-Osório

Thank you, George. In Q1, you have seen that we have continued to execute our strategy successfully: delivering clear benefit for customers and shareholders. As economic conditions in the U.K. have continued to improve, GDP has strengthened, and confidence and employment have grown. This plays to Lloyds' strategy and strength. Lloyds is, therefore, well positioned to further play its part in helping Britain prosper and to grow as a consequence. In the first quarter, we have delivered improved underlying profitability and a substantial statutory profit. We have further strengthened and de-risked the balance sheet and improved our capital and leverage positions. Hence, as a result, we have improved our guidance for margin and impairments. Therefore, we have great confidence in the future. Risks remain, and we are not -- and we'll not be complacent, but the group is far better placed to respond to these risks, should they occur. Also, we will continue to relentlessly build our key competitive advantages as we drive our cost to income and cost of equity down for the benefit of our customers and our shareholders.

In summary, we have created a low-risk highly efficient U.K. Retail and Commercial Bank focused on our customers' needs. We are well poised to further support and benefit from the continued economic recovery and to deliver strong financial returns to our shareholders.

Thank you. This concludes our presentation, and we would now like to take any questions you may have.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Chris Manners from Morgan Stanley.

Chris Manners - Morgan Stanley, Research Division

Yes, so just a couple of questions, if I may. The first one that was just to ask you a little bit about your view on the outlook for mortgage asset margins and how competitive the market is and where you see that asset margin trending? I know you managed NIM, but just on those, the aspects of that NIM driver. And the second one, just on the balance sheet trends, and I think the average interest earning assets, maybe I missed it a little bit, versus what some people are going for, just on whether you expect and -- yes, the core loan growth to pick up a little bit more. And thirdly, on the sort of end-state capital ratio, and I know you've been sort of guiding 11% was where you're happy, is that still the fully loaded Basel III core Tier 1 ratio, the sort of level that you're targeting?

António Mota de Sousa Horta-Osório

Okay, Chris, thank you. I will take questions 1 and 2, and George will take question 3. So on the first question, what is happening, as has been happening over the last few quarters, and we have discussed it at our IMS calls, mortgage margins are coming slightly down, which is in line with the level, in my opinion, of interest rates for the economy in the U.K. following their fillers [ph]. The same is happening with deposits, as you know. Hence, we, as you know -- as all of you know, we do not target asset margins, per se, we target the difference between assets and deposit margins. That's the way we manage it. We manage it combined, we manage it on a weekly basis, which we think is exactly the right way to handle the retail markets in the U.K. Hence, my expectation for the following quarters is that mortgage markets will continue to trend down in line with the past quarters, as the same will happen with deposit margins. We have been managing the difference of the 2 margins slightly better than we thought, and that is why we are upgrading our guidance for the NIM for the year. On your second question, balance sheet trends, and I do understand, Chris, that looking at the numbers without color may look that loan growth has become a little bit -- has disappointed a little bit. But I strongly believe it is not the case, and I will explain why. We -- first, we have grown in all of our key loan segments year-on-year. And as you know, all of the corporate segments are going down still in the U.K. But when you look at what happens combining the quarter and the year-on-year, the quarter has some seasonality and some effects. And therefore, I'll give you my take and color on each of the segments going forward, taking into consideration both the quarter and the year. On mortgages, where, as we have discussed before, last year, stock growth has been around 0.7%, according to the numbers we have so far from the Bank of England, I continue to expect the stock to increase by around 2% this year, so in that terms. Why is that? Because we have, number one, much more activity on the growth of gross mortgages. So as I told you, we went from GBP 6.1 billion of total mortgages in Q1 '13 to GBP 9.8 billion of gross mortgages done in quarter 1 '14, which is a 61% increase. So activity is absolutely picking up, which is, in my opinion, very good not only in terms of activity on itself, but because this reflects the growing confidence on the U.K. economy; it is mainly driven by first-time buyers, which, in its own right, then they are stimulating the construction sector, which, as I said before, is one of the main drivers of employment in the country. At the same time, people are repaying their debts ahead of plan, and that is also, in my opinion, healthy because private sector debt as a percentage of GDP should continue to go down. And that's why you have a net impact of -- in the market of 2%. As we have said now for like 6 or 7 quarters, we will continue to grow mortgage in line with the market. We want to grow exactly with the market and we don't want -- given we have a 24% share of stock, and we will continue to do so. Therefore, I expect our mortgage net lending to increase by around 2% on the year. In relation to this segment, you have to take account, Chris, into your models that we have a closed book of specialist mortgages, which came from noncore into the core for the reasons we have explained. It's our customers, they have our credit cards, current accounts, and it's a very healthy book at the moment, now given it has already seasoned. But that is a closed book, and you have to include in your model the impact of the seasoning of that book. But in terms of our core mortgages, we will grow with the market. I expect the market to grow by 2%, as I have said before. In terms of SMEs, we continue to grow substantially above the market 5% year-on-year versus the market, which is growing -3%, and we are 21% of that market. It's like a 10 percentage point difference to the markets. When you look at the quarter, our SME growth is around 1.5%, so I continue to expect that we will continue to grow at around 5% to 6% net in the year, as the first quarter and the year-on-year both indicate. I expect the markets, which is -3%, to gradually turn positive by the end of the year, as the economic recovery takes place because credit is normally, as you know, a lagging indicator. On mid-markets, where we have grown 1% year-on-year, this may look a little bit less than what we had said before, but I'll reiterate my guidance that I expect us to grow by 3% to 4% by year-end. This will be more in the second half than in the first half. And the reason is because of the repayments, which have been abnormally high in the first quarter. And I can tell you, which I'm not sure it is in the IMS -- but I can tell you that in terms of mid-markets growth lending, we have increased year-on-year by 12%. We have increased very -- in a very healthy way. And the only reason why the year-on-year net growth is 1% is because there were abnormally high repayments in the first quarter. So I continue, as I have said at year-end, absolutely convinced that we will accelerate our 2% net growth of 2013 into the 3% to 4% level by year-end. In terms of the market, which is now growing by -5%, I expect it, in line with the SME market, for it to become gradually less negative as the year advances and exactly for the same reasons. In terms of Global Corporates, we have said before we do not target loan growth on Global Corporates. It depends on their activity and in their capital markets' activities. Our gross lending was very much in line with what we did in the first quarter of last year. We also have unusually high repayments in the first quarter, but that, for us, is not a target for the reasons I told you. What we target is share of wallet of those customers, which is going well. And on the finance -- on the Consumer Finance division, which I have guided you to become significantly positive in the year, I think the division is behaving ahead of targets. It is growing 9% year-on-year, and 4% when you consider quarter 1 alone. This is due, as I said on my speech, by an exceptionally good performance of the car financing activities, especially through Black Horse. And I expect this net lending growth to accelerate as the year progresses. It is decomposed into credit cards being in line with the level they have a year ago and slightly down on the quarter for seasonal reasons because of Christmas; and a very significant uplift on car financing. And the combination, as I told you, of 4% that -- in the quarter and 9% year-on-year should accelerate throughout the year, and the performance is exceeding our expectations. So in whole -- in the whole, we continue very positive on the economy. We will continue to support the economy and benefiting from it, as I told you. And in terms of the model, just to be precise in terms of details, I think, you also have to take into account the specialist mortgage portfolio decrease, which, obviously, is a closed book. But we are quite positive, and if anything, I would upgrade my expectations for the Consumer Finance unit during the year.

Mark George Culmer

Okay. You also -- Chris, you also asked about capital a while back and one about the -- in terms of what we said about the ratios. Yes, the full year, I said that I expected, on a steady state basis, to be targeting a capital ratio of around about 11%. That remains the position, just to confirm that. In terms of just what I mean by that, the steady state, when I look at the capital requirements, what we have to do as a business, there's a number of things in terms of just completing our de-risking. So for example, things like pension scheme, et cetera, which obviously comes through things like ICG, we've done a number of things to de-risk that in terms of hedging out inflation risks, hedging out interest rate risks, rearranging the asset base, moving away from equities, et cetera. So we've got to complete that activity. As also, steady state means we start getting through, which we will do, things like the PPI, et cetera, which we'll work our way through that. So when you get to that steady state, yes, around 11% is the right number. Obviously, it's a big year ahead of us in terms of stress tests, et cetera, but we will work that. But that's what we set for the full year, and there's nothing that has happened that has caused me to change that view.

Operator

Your next question comes from Jonathan Pierce from Exane.

Jonathan Pierce - Exane BNP Paribas, Research Division

I've got 3 quick questions, and they're all relating to capital. Firstly, on Slide 12, you've shown a 40 basis point hit in the quarter for DTA, expected loss in AFS movements. I'm just wondering where that's coming from because I wouldn't have expected the DTA and the AFS to have had a particular impact. So is there a big increase in expected loss there?

Mark George Culmer

No, that's -- Jonathan, this is George here. So number 4, the large part -- this is the one connected within the others. That is the one you're referring to the 40 basis points? -- I mean, to be honest, the main element to that comes from the first points, which is the Simplification, the costs below the lines and things like that.

Jonathan Pierce - Exane BNP Paribas, Research Division

The exceptionals, okay.

Mark George Culmer

Yes.

Jonathan Pierce - Exane BNP Paribas, Research Division

And no particular movement in those other funny...

Mark George Culmer

No, with things like DTA, [indiscernible] starting to move to profitability. So for example, the DTA asset has gone from about 5.1 to 4.9, so we're actually into the utilization rate now so...

Jonathan Pierce - Exane BNP Paribas, Research Division

Okay. Secondly, in terms of your capital build guidance for '14 and '15, I mean, you're down 40 basis points in the first quarter, and that encompasses quite a big hit on the ECM, which, I guess, was part of your thinking when you gave us the guidance back in February.

Mark George Culmer

Yes.

Jonathan Pierce - Exane BNP Paribas, Research Division

Are you willing to move that capital guidance up a little bit, having seen how things have progressed in the 3 months?

Mark George Culmer

The short answer is no, but let me expand. Yes, as you've said, when we gave the guidance, that was cognizant that we were likely to do, that you come in and take the decision at that point. And it was also a cognizant that there was likely an offset with regards to the pension, actually, that we've announced as well. You're right, underlying profit continues to drive through, and I would expect that to continue. So that's one of the certainties, if you like, in terms of if the scenario pans out. I still think the -- the guidance probably we will still be capital generative.

So those are the big 2 positives to stress. What uncertainties are out there, things like pension risks still move around. It will still be things like impacts like cash flow hedging, et cetera. We've also got one of the main items out there will be the uncertainties around things like the TSB IPO, which we said we intend to do ahead of June. If I ignore expectations of price, all those sorts of things, what we will have is when we actually do that IPO, we will recognize some of the costs upfront relating to the long-term service agreements. And we will also recognize some of the costs that relate to basically a commitment that we've given to enable them to basically move away from that contract. So we will have to recognize both of those, at point-of-sale, and that will run into several hundreds of millions at that point in time. So that's another sort of one-off, if you like. So as I look forward, I wouldn't change the guidance. There are certainties, the underlying profits will come through, the strong profit generation will come through, still some vagaries around pension funds, et cetera, cash flow hedging. There will be a hit as regards, as I said, recognition of losses at TSB. And there's nothing to do with what it IPO's at. That's just an accounting in terms of recognizing. And also we'll not touch PPI this quarter. I don't expect to touch PPI this quarter but conduct does remain an uncertainty as well as I look out.

Jonathan Pierce - Exane BNP Paribas, Research Division

Okay. That's useful. And last quick question on the ECNs, what's your thinking post the latest ECN swap on the residual GBP 4 billion or so of ECN that's out there?

Mark George Culmer

You're right. Yes, and we have whatever it is, about [indiscernible] or something like that in terms of the residual that's out there. Obviously, we are going through the announcement that PRA got out yesterday in terms of the ongoing qualification, and we are still analyzing that. If we come to the conclusion that there has been a sort of disqualification event, then we will obviously let the market know. We haven't come to that conclusion yet. We're still studying what is said. But I think we made some statements at the time in terms of should the regulatory par call become enacted, how we'd prioritize those outstanding loans, which is basically we would look to those that we've touched first in terms of utilizing that. So no, yes, we're just going through what the PRA -- well, it's quite catchy what the EBA has said with regards applicability, but it's less here with what the PRA said. But I think what is -- [indiscernible] of what we said at the time, which is likely that going forward, these won't count remains very much the case.

Jonathan Pierce - Exane BNP Paribas, Research Division

And on that residual, is your view still that you'll be fair to bondholders? Or is there any chance you will invoke a regulated par call?

Mark George Culmer

Look, I'm not going to say how we'll act. I think though how we actually conduct to the ECN AT1 exchange shows much we value those long-term relationships and strike the balance between what the good of the company and being fair to people who stood by the company.

Operator

Your next question comes from Andrew Coombs from Citi.

Andrew P. Coombs - Citigroup Inc, Research Division

I have 1 follow-up question, and then 2 new questions, please. First one is a follow-up. Just going back to the point on average interest-earning asset, down 2% Q-on-Q. So despite a NIM improvement, NII is still down. I'm just going through some of the points that you raised, Antonio. You've got a further GBP 7 billion reduction in the run-off portfolio that you're going through by year end. But offsetting that, you've talked about 2% in mortgages. So give or take, about GBP 7 billion of growth plus Consumer Finance plus the SME growth. So is it fair to suggest we potentially reached a turning point on the average interest-earning assets? Should it be flat or even slightly up from here? That would be the first question. The other 2 questions, on PPI, you've seen a Q-on-Q increase in claims. That's the first time since 2Q '12. I'm sure there's some seasonality there. But is it also a function of proactive mailing, perhaps you could comment on that increase? And then the final question just on loan losses. 35 basis points in the first quarter and yet you're only willing to reduce the full year guidance to 45 basis points. So perhaps if I could just ask why the caution there in your forward guidance.

António Mota de Sousa Horta-Osório

Okay. Look, Andrew, on quarters -- in terms of the guidance for impairments, I mean, we are a prudent management team as you know. Quarter 1 came out better than we thought, economic recovery continues to play out strongly. And that's why we are correcting the guidance down to 45 basis points. We think, as George said in his speech, it's appropriate guidance to keep at this point in time. It's a fact that all the underlying trends on NPLs continue to go down and that the economic recovery continues to go up strongly. On the first follow-up question on the average interest-earning assets, I think I gave you quite detailed color on the several core segments and also on the run-off book. But I think George will be able to help you with more detail on the average interest-earning assets.

Mark George Culmer

Yes, Andrew. Yes, so firstly, in our NII stuff, yes, I mean, I think Q4, Q1 you're talking of the reduction as a sort of -- those are sort of seasonality-driven. So I mean, of the -- I feel that we stand about GBP 100 million or so, of which about GBP 70 million of that is just down to days, and then there's about GBP 30 million, I think, that comes from things like disposals runoff, Australia, et cetera. And certainly, as I move through the period, I would not expect to see that trend continue in terms of quarterly NII trends. So I see that as a specific on to Q4 to Q1. In terms of PPI, yes, you're dead right. And in terms of -- yes, it has ticked up. And you're right, there is part seasonality. In terms of Q4, you always sort of benefit a bit from the holiday season. And you can see that, as you went through last year, you can see we were down sort of just going from the slide itself, you can see that we were down around about 10% per quarter, and then it drops to 24% in Q4. So there's a sort of seasonality fact coming through. The past book review, it doesn't per se have an impact in the sense of reactive claims. What it does do is sort of generate noise and activity. And I think awareness and activity does generate claims. And you are seeing not just from ourselves but other banks, people are sort of the passbook activity, passbook review is sort of going on with a vengeance. We expect to be completed, as I said, basically by the half year. So we've got an awful lot of activity and around here. And you had quite a lot of awareness due to the provisioning and et cetera. And actually, when you track some of those stuff, for example, it's interesting to see the responses between things like Lloyds-branded complaints and Halifax-branded complaints, so a lot of awareness, a lot of activity. As we said, it is slightly up. We were sort of projecting a slight fall in that. So it is slightly above where we expect it to be, have been some offsets, and we still have some sort of GBP 2.3 billion of the provision outstanding, so we're still in a relatively good position. And as I said, it will be a key milestone when we complete that passbook activity middle of this year just in terms unto itself but taking noise out of the system. So that is a key milestone. So better seasonality, better associated with passbook reviews. But it is was slightly ahead.

Andrew P. Coombs - Citigroup Inc, Research Division

Just going up to the first point on provisions, if we look at the first quarter, was there any large reversals or any one-off items in that? Or is it a relatively clean number?

Mark George Culmer

We had, as I said, I mean -- it's George here again. There were some asset sales in [indiscernible] books in Consumer Finance in the retail division that assisted that. There were a number of write-backs, particularly actually the run-off book benefited from some write-backs going through, so they're working. But we had also seen some of that in Q4 as well. There is always a bit of seasonality Q1 into Q4, particularly in the sort of commercial books, in terms of having a lot of cleanup, a lot of the long hard looks in Q4. So I mean, that I'd tell you, as I said, we still think, as we stand at 45 is appropriate. But we still think that's a pretty prudent view with how the year is going to pan out.

Operator

Your next question comes from Manus Costello from Autonomous.

Manus Costello - Autonomous Research LLP

I had a couple of questions, please. I wanted to ask about your volume plans in consumer. You talked about accelerating growth through this year. If I look at Bank of England data on pricing in that segment, it looks like it's coming in and it looks like spreads are compressing. So I wondered if you could talk a bit about the volume versus margin tradeoffs you're prepared to look at within that consumer segment as you grow it. And my second question was just on a point of detail. I noticed you saw quite a sharp pickup in your liquid assets this quarter. I wondered if that's strategic or if this is just a result of some asset sales. Or what's going on there? And what potential impact it might have on NIM and NII if that's managed down?

António Mota de Sousa Horta-Osório

Okay. Manus, it's Antonio. On the second question, you're absolutely right, it was just, if you want, a seasonal thing because we have a bit better deposits at the end of the quarter than we thought basically. So you should continue to expect our strategic positioning, what we were at the end of the year. And the quarter was specially good at the end of the quarter in terms of deposits. And that's why the liquid assets increased, so nothing there. In terms of the first point, you are absolutely right, spreads in Consumer Finance and in the different subsegments are continuing to come down, as I have described for the other asset spreads in the economy. And what we have been watching is that the tradeoff between the volumes and spreads is clearly positive. In terms of subsegments, if you want, I continue to expect credit cards, as I had said at the year end, to be more difficult because the competition in credit cards and the behavior of the leader is very much getting prices down. And we wanted to do things in a way which is economically interesting. So I expect credit cards to be positive for the year, as I've said at year end, but mildly positive because of this tradeoff with spreads, which we want to work out in a positive way. In terms of personal loans, I expect them to turn positive and the tradeoff is clearly positive in terms of margin versus volume. And the car financing activities, which are booming as I told you, the spreads are coming down a bit more because the market is really increasing very much. But given that the volumes are increasing very significantly, the tradeoff is clearly positive on car financing as well.

Manus Costello - Autonomous Research LLP

Okay. And just as a quick follow-up on the mortgage points. I wonder if you could give us an update on what level of the mortgage book is currently on SVR and whether or not you're seeing with the mortgage market improving in the way you discussed, any increase in instance of SVR switching?

António Mota de Sousa Horta-Osório

George, can you tell which percents we have charged?

Mark George Culmer

Yes. As I said, there's around about [indiscernible]. And so SVR and BVR [ph] is about GBP 175 billion. And in terms of churn, I mean, in the quarter, you saw a net number of about GBP 4 billion, which wasn't so materially up on the quarter before. So there's some seasonality in that, actually, a slight pickup. But it's about GBP 4 billion a quarter is what we're seeing.

António Mota de Sousa Horta-Osório

I continue to expect, Manus, the attrition on the SVR book to be mild. We think it will -- it is accelerating slightly over time. I don't expect a change in behavior, not only because of the pricing that we lever that the market has in the Help to Buy scheme but also in our specific case because our SVR at 3.99% is in the middle of the market and therefore, we are not especially affected by write-backs that have higher SVRs. So I would expect a continuation of slightly higher accretion but nothing different except for seasonality. And as George mentioned to you, nothing different than what we have discussed a quarter or 2 ago.

Operator

Your next question comes from Claire Kane from Royal Bank of Canada.

Claire Kane - RBC Capital Markets, LLC, Research Division

Two questions, please. The first is on your TSB cost guidance. Ignoring the several hundred million that you mentioned in upfront servicing costs, is the previous guidance, which I think was around GBP 200 million of other costs to come this year, does that still stand? And then my second question is on the stress test. I know it's early days, but I wondered whether you could give us your initial thoughts and also talk us through how you would look at the negative equity that will come through on your mortgage book and typically what that does to your collective provisioning.

Mark George Culmer

Okay. So yes, it appears to be it can get a bit confusing, yes. So just to be [indiscernible], there's 2 separate things. In terms of bill costs and double running costs, there's still a couple of hundred million to come. So that's what we sort of guided to and that will still come through, and you will see that in Q2. Quite separate from that, at the point of IPO that's just an accounting thing. I have to look at the contracts and I have to look at some of the commitments that we're giving with regard TSB being able to exit those contracts in the appropriate period of times. And I have to reflect the costs to Lloyds, the present value of that at that moment in time. So that's quite separate from. And what I'm sort of flagging is that there's a point of IPO, again ignoring of what price it goes at, from an accounting perspective, I will just have to make that charge. And that's the charge that I'd say will be sort of several hundred millions. But there are 2 discrete things. So there's GBP 200 million in Q2, and then there's that separate accounting charge with regards at point of IPO. So that's up with that. On stress tests, yes, obviously, we offered the details a couple of days ago, which we are obviously working through. A few things I suppose to say that what we've been asked to do is not dissimilar from stress tests that we've run internally last year or so unto ourselves. We've been asked to. When you look at the requirements, some are a bit better, some are a bit worse, et cetera. So HPI drop is a bit worse, interest rates is a bit lower, et cetera. So there's some ons and offs when I look at them and compare them with previous stress tests that the PRA have asked us to look at. What I do think is hugely important is that we go into them in this substantially strengthened position that's both from a derisked perspective but also from a capital base. And when I look at the requirements of the 4.5%, et cetera, under stress, I look at my core Tier 1 that I'm now getting with that north of 10%. I look at the AT1 transaction that I've just done, et cetera, which I can call upon. So we go into a hugely best position. And on the mortgage book again in terms of things like the LTVs, as you said, what's happened in the market is it put us in a much better position. So when I look at the north of 100% LTVs, the mortgage book is now down to about just over 4%. And that was 5%, 5.5% at the full year, and that was back into a double-digit territory 12 months ago. So what I've seen in house price inflation has again put me in a much better position in terms of the position of that book because then I'm down to just 4%.

Operator

Your next question comes from Chintan Joshi from Nomura.

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

Just before I ask the 2 questions that I have, I just want to quickly follow up on Manus' question. You mentioned the SVR book is GBP 175 billion. How much of that is the C&G book that's got that 2.5%?

Mark George Culmer

The C&G book -- it is about -- let's come back to it. I can give you a number, but I may be wrong.

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

The question I had first on rates. If I -- you have a unique window into the U.K. household. Market is expecting the first rate hike in April, May next year. I'm just wondering how you see trends and what your expectations are in terms of when we can see a rate hike in the U.K.

António Mota de Sousa Horta-Osório

Right. It's Antonio here. In terms of rates, what I could tell you is that, as I think we have discussed at the year-end call as well, is that we are very much in line with what the Bank of England has been saying. So we think that rates will rise later than people think. And we think they will stay low for longer. So my opinion is that the long-term rates in the U.K. will not go again to the 4%, 5% level. They will stay at the level lower than that. So we are very much in line with the guidance and signals that the Bank of England has been transmitting to the market.

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

And the second question I had was on capital. If I look at on mortgage risk rates, how some other geographies in Europe, like Sweden and Norway, have acted, they're putting a floor on mortgage risks -- mortgage risk rates both to trap capital in the system as well as to dampen the housing market. How do you see that debate in the U.K.? And is it even relevant? Given the kind of stress test scenario that the PRA is testing, it sounds like implicitly they are already going for a fairly hawkish scenario.

Mark George Culmer

It's not a discussion we are having with the regulators. And in terms of across the book imposition from the back of the new risk weighted, it's not the approach that we're taking. And discussions we have, we have discussed -- and these have been a while, but the discussion we have had actually are focused actually around them differentiating between front and back book. And if they were to act just in terms of taking some of the heat out of the system, it's more about looking at what they might do on the front book. But certainly, there have been no discussions about them imposing blankets as they have in sort of Sweden or Scandinavia in terms of floors on mortgage books.

António Mota de Sousa Horta-Osório

Yes. And I mean, I think if you read the FPC's last report, which goes exactly on this direction as we have also discussed previously in previous calls, I think the Bank of England FPC are also quite positive and reassured by the mortgage market review, which is increasing the underwriting standards in the U.K. in my opinion appropriately. So this will give even tougher underwriting criteria in terms of knowing your customers and in terms of knowing and stressing the customers for their disposable income after expenses, which will have positive impact in terms of asset quality. And therefore, as George is saying, all of the interactions we hear and we read on that FPC report are in line in terms of actions, in terms of new business, in terms of flow. And as you know, the situation of the U.K. Housing market in terms of prices and loan growth versus what it was in 2007 is very different and versus what's happening in Scandinavia is very different as well.

Operator

Your next question comes from Chira Barua from Sanford Bernstein.

Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division

Antonio, I had one question for you on the branch network. Around about 1.5 years back when we asked you, some of your peers were running down branches in the U.K. and you said you want to hold on to your network. Now I just want to know your latest thinking around that. And secondly, on the insurance business, we've got a suite of news coming out. So you said that other income will be suppressed. So if you could quantify some of those and give us more details, that will be helpful.

António Mota de Sousa Horta-Osório

Okay. I will take your first question on the branches and George will answer you on the insurance part. Yes, I said exactly as you said, that we would keep our branch network. We have kept it. We are committed to keeping it in that terms until the end of the year, which we will. We have opened a few branches of Halifax in Scotland, which is also interesting because Halifax, as a challenger brand, have lots of clients in Scotland but only a digital presence, not a branch presence. And going forward, what do I think? I mean, I think as you know that competitors have been going down in terms of their branch network and will continue to do so. We are reviewing now our strategy update because we are coming to the end of the first 3-year period and we will have a new 3-year period, very much BAU, given the success of the strategy. And we will readdress the question of the branch network also at the likes of the IPO of the TSB Bank, which have 630 branches which we are selling, as you know. And my expectation, although we will only have final positions for the end of the year, is that we should not -- you should not expect anything spectacular on our side in terms of branch network. We are a retail and commercial bank very much focused on a multichannel and multibrand approach to our customers and to have a strong presence in the communities, therefore, supporting our retail business banking and SME customers, and we'll continue to do so. And therefore, if competitors continue to shrink their branch networks aggressively, which I think could be the case, we will review ours. But you should not expect at all our market share of branches to decrease.

Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division

George, just before we get on, just one follow-on question to Antonio around that. So are we -- are you looking at revising your strategy? Are we expecting something by the end of the year or early next year just on a broad refresh of your strategy?

António Mota de Sousa Horta-Osório

We do as -- I just told you, we do 3-year plans. So we presented the plan in '11, which goes to the end of '14. We will now do our new 3-year plan. And by the end of the year, we will give you some update on that. But as I told you, it's mostly BAU. It's mostly a new 3-year plan because I believe that for you to have a high-performance organization, you should have ambitious targets, you should make them public. And that's what we have been doing all the time, referring back to the June 2011 targets. And we will continue to do so because I strongly believe that this is the way to improve performance and to have ample levels of the organization. Strong commitment and public targets, in my opinion, is the best way to drive performance.

Mark George Culmer

Yes, insurance. It's been a tough first quarter for insurance, a combination of announcements, whether it's a set of all the things that you know about. I mean, I know we don't break down or give some of the divisional performance of sort of Q1 and Q3. But at the Q1, just so you know, insurance is down. Q1 2014 versus Q1 2013, it's down just a bit over 20%. And when you look at what's driving that, part of that is you've got an extra GBP 40 million from the storms, the floods, et cetera, which we saw obviously in the early part of this year. You've got the GBP 100 million for the changes that were announced a few weeks back in terms of the 75 basis point cap to pensions. And we've basically reflected the costs of that come through. We've also within the group done a slight change in terms of conditions, in terms of -- I mean, I think we did this last year, talked about this last year in terms of just moving income out of insurance into the retail business. We've also got ongoing runoffs, things like -- of their legacy books. And the aggregate of those 2 have probably taken about GBP 30 million off of income. Those have been offset by one of the things that we're able to do in terms of the advantages around the insurance business within the group is in terms of move assets around, some assets have been originated in the commercial businesses, so you have things like the infrastructure, social housing, et cetera, move them into the insurance business to back some of our shareholder business like the annuities business. So it's been pretty tough. A combination of weather one-offs and announcement one-offs, lost a bit of income from the changes on annuities. But as you've heard, we're not a massive player in that particular market, so it's not a huge number. The main year-on-year drivers of that sort of 20% reduction are weather and that change in the corporate pension announcements that I've talked about.

Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division

Just as a quick follow-on, given the dividend was around GBP 400 million, if I read that right, so are you expecting -- so what should we think about going forward in terms of dividends coming from that group?

António Mota de Sousa Horta-Osório

The insurance business make each year, give or take -- I'm going to talk round numbers here. So it gives or takes about GBP 1 billion, something like that. So after tax, you've got GBP 700 million, GBP 800 million, keep a bit for growth. There's a -- you can work out what the sort of ongoing dividend distributions are like in business. We were able to take last year an exceptional amount, given the prudent way the business is being managed. But that sort of profile, I don't see a material shift in that profile.

Operator

Your next question comes from Fahed Kunwar from Redburn.

Fahed Kunwar - Redburn Partners LLP, Research Division

I just had a couple of follow-ups on the impairment line actually. So you mentioned write-backs earlier. I just wanted to get an idea into further clarity on that. So the write-backs, what actual businesses were they in? And how much was in runoff? And was there in the kind of nonrun-off businesses as well? And just thinking about the 35 basis points this quarter, I mean, how much of that was kind of lowered because of those write-backs? And how do you kind of factor in write-back into the 45 bp guidance as well?

Mark George Culmer

Fahed, so I'm going to sort of frustrate you a bit. I'm not going to give you sort of precise numbers. But we do factor a certain level of write-backs within the number. We have seen, I think as I said in an answer to an earlier question, there was quite a bit in the run-off book. It was less material in terms of the core business as you would probably expect. So we sort of benefited, particularly in the core business. But given where we impair and the sort of prudent approach that we take, I would expect a degree of. So I'm going to frustrate you in terms of certain numbers because all I'll do is I might get you to chasing the wrong trends and stuff. It's more important to hear what we say, I think, about where we're going but also saying -- we continue to say it's right to take a prudent view.

Fahed Kunwar - Redburn Partners LLP, Research Division

Okay. Fair point. And just one quick follow-up as well then. The thing with the flow of new NPLs, did you see a reduction in those? Have those remained pretty steady?

Mark George Culmer

Yes. We are seeing those coming down. I mean, we're seeing a reduction in that NPLs. And you will have seen the proportions of the impaired loans and how that's been dropping. So across the book, we are seeing positive trends.

António Mota de Sousa Horta-Osório

All segments as I said before. Yes, all segments are going down in terms of new NPLs. And if you look at our impaired book as a percentage of assets, you see very material decrease from 6.3% of the assets to 5.7% in a single quarter.

Operator

Your next question comes from Arturo de Frias from Santander.

Arturo de Frias Marques - Grupo Santander, Research Division

Well, I have 3 very quick ones, if I may. The first one is margin guidance versus Consumer Finance growth. You mentioned that you're increasing your NIM guidance because of the ECN impact and because of better trends in deposits. But given also that Consumer Finance is growing much strongly or much more strongly than expected, this should have also, at some point, a positive impact on NIM. I note your comments about margin pressure in Consumer Finance, but still in absolute terms, margins will be much better than your other books. So if you continue to grow this strong Consumer Finance, should we expect an additional improvement or could we expect an additional improvement in your NIM guidance before year end? That's one. The second one is, as you might not be able to comment on this, is related to the TSB IPO because I'm not sure what is going to be the way you're going to consolidate TSB after the IPO. And of course, that relates to the size of the stake that you are going to sell. I mean, do you think it's going to be proportionally consolidated or globally consolidated with minorities, et cetera? So that could be the second one. And the third one, just to clarify, you mentioned that you're growing now in SMEs 8 points ahead of the market. Do you expect the market to gradually improve as the year goes by. As you said, credit is a lagging indicator. So do you expect the market not to fall 3% but probably be stable? But you also said, I think, that you expected that your SME growth to be around 5% by the end of the year, which seems to imply that your advantage in terms of growth versus the market will narrow from the 8 points now to only a couple of points by the end of the year. I just wanted to make sure that I got this right or not. Or do you still expect to grow well ahead of the industry by the end of the year?

António Mota de Sousa Horta-Osório

Okay. So I will take your question on SMEs and George will give you some clarification on the other 2. On the SMEs, this is a good question actually. I mean, I think you should expect us to -- given that we are a low-risk, prudent financial focused on retail and commercial, I mean, you should expect us to be prudent as the economic recovery takes hold. And on the other hand, we have been growing SMEs on net terms for more than 3 years now. And our difference to the market of 8 percentage points, as you mentioned, which is actually 10% because we are 21% of that market, is a huge difference. So my expectation is that the market will recover gradually, as you just said. But I don't expect it to very positive. So if I have to guess a number, I would think that the market would go from minus 3% as of now to probably around plus 1% by year end. And I think we will be on the 5% to 6% net lending growth range, right? This is a bit brave to give you such clear predictions there. But that's what I think. But I think you should see that at the [indiscernible], which I told you which is the economy is recovering, other people are being less risk-averse. We have a huge difference to the market now for 3.5 years. And therefore, if we grow by year end to 5%, 6% and the market is around plus 1%, we'll still have a material difference to the market. And again we are 21% of that market at the moment.

Mark George Culmer

And on your -- on the first 2 question. On the margins, yes, you're obviously right in terms of the Consumer Finance margin. But I mean, in terms of the proportionalities, in terms of the flow, yes, we are growing faster in that area, but it will take a while for it to be able to move the overall dial. And the change to guidance that we [indiscernible] is part ECNs but part is just what's happening on the sort of the retail deposit and mortgage book. And they will continue to be the main driver. So I will not be standing up this year to revise guidance due to Consumer Finance. I mean, it's just proportionality. It's just how that flows through. Over longer term, yes but not in the horizon that you spell out. And then TSB, yes, I mean, it's basic accounting. We will -- as I said, we're looking to launch the IPO ahead of the end of June. It has to get a minimum size out of 25%. We will fully consolidate that business until we drop below 51% control of that business. And we will continue to fully consolidate it. Then when we get below, it's just basic accounting that's associated with it when we go to below 20%. But we will fully consolidate once we own more than 50% of it. Our requirement is we have to be -- we'll be out by the end of December 2015. But there's no sort of timeline in terms of how you actually move to that position. But we will -- as I say, we will fully consolidate once we own more than 50% of that business.

Arturo de Frias Marques - Grupo Santander, Research Division

Okay. So just a quick follow-up. So we are not going to see any impact on your revenue and cost dynamics because of the TSB IPO. If you continue to consolidate globally, the costs and revenues will have still be there.

Mark George Culmer

That's correct. So when we guide for this year, for example, we assume that we show GBP 9 billion, of course, those excluding anything to do with TSB. You're right. If I come to the end of this year, this is all hypothetical, and I still own 70% TSB or whatever the number is, I will still be fully consolidated and you will still see it in my revenues. And we will separately call this out, so you can see what's the underlying business. And so you can see how we've tracked that GBP 9 billion guidance, for example. So we will separately call it out. But I will -- in the sort of headline numbers that you see, it will still be in there.

António Mota de Sousa Horta-Osório

Thank you, Arturo. Thank you, everyone.

Operator

Thank you. That does conclude...

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