Third Bridge专家访谈讨论Lloyds利率、NIM、财富业务与战略更新预期

[[00:00:59]]
Lloyds Banking Group made a decent start to 2026 in its Q1 results, which were better than expected, with net income rising 9% to GBP 4.785bn, of which NII remains the largest line, up 8% YoY to GBP 3.569bn, with guidance being slightly upgraded to GBP 14.9bn for full-year 2026. What's your assessment of the key headwinds and tailwinds that are impacting the company's results?

[[00:01:32]]
I think the largest one, at least, on the NII line is interest rates. Typically, banks and Lloyds in particular, have done well when rates have been higher rather than lower. We've obviously been in a falling rate cycle. That appears to have changed. We may get one interest rate rise later this year, certainly seems to be the view on the Street. My opinion is that that is beneficial for Lloyds with a significant retail deposit book, which they don't have a great history of repricing upwards as interest rates increase.

[[00:02:11]]
Why do you think Lloyds doesn't have a great history of driving that upwards? Management is more cautious on the Street, with consensus at GBP 15.056bn for NII for full-year 2026. Is that caution arising from that, or is it something else?

[[00:02:33]]
I don't know where the caution comes from. I think it makes sense that the management team are cautious and I think historically have been cautious, at least on the NII outlook. Some other lines perhaps less so. Like I said, an interest rate increase is beneficial for them. I'm not sure exactly the percentage probability that's on that at the moment, but it looks likely the base rate is going to go up. Lloyds, I think, gets about 10bps out of every 25bp increase that goes to its margin.

[[00:03:15]]
What do you think is more accurate, GBP 15.056bn estimated by the Street or GBP 14.9bn estimated by Lloyds?

[[00:03:27]]
I'm going to sit firmly on the fence between that, and I suspect it's going to land somewhere between the two. Somewhere literally in the middle of those two ranges. I was going to say much of that is going to depend on exactly what happens to interest rates. Clearly, later in the year, any increase happens, the less impact it's going to have on the current year results. We're going to have to watch that quite closely in terms of the Bank of England outputs. Of course, it's a sterling interest rate environment for these guys.

[[00:04:04]]
You spoke about a 10bps uplift for every 25bps the interest rate goes up, which plays into NIM. Lloyds' management appears confident in NIM through Q2, Q3 and Q4 in 2026 due to structural hedge tailwinds and funding issuance benefits. NIM in Q1 stood at 3.17%, which is up 14bps YoY and 7bps QoQ. What's your outlook for the company's NIM going forwards? How positive are you on that expansion vs its peers?

[[00:04:42]]
My sense is they're going to end up somewhere between 3.25% and 3.35% for the full year. That's up 10-12 points on where they were in Q1. Again, interest rates are important to that. I think the business mix is also important. There has been some sign of success in terms of gathering commercial assets and liabilities. It's certainly been an increasing part of their balance sheet over the years. That should continue to feed through as well. The structural hedge, I'm less sure about. The reason for that is the structural hedge protects against interest rate volatility. What it does is it tends to dampen for the current account book and for the equity that's placed into the hedge, it tends to dampen the response to interest rate movement. If interest rates tick up, structural hedge is going to help them less than perhaps they're claiming.

[[00:05:56]]
How long would you expect it to read through in terms of a rate increase or decrease due to the structural hedge?

[[00:06:06]]
Most institutions, I'm not exactly sure where Lloyds is at the moment, but they'll put that between three and five years. In terms of the placement of every tranche of the hedge will be 1/50th or 1/60th of the total balance that they're putting in. It tends to catch up but over a very long time period.

[[00:06:34]]
Lending growth across all business lines stood at GBP 486.2bn, which is up 4% YoY. What's your assessment of Lloyds' lending mix?

[[00:06:56]]
Lending line, GBP 486bn is the balance sheet amount. They're probably turning the mortgage book once every five or six years on average, commercial book probably slightly quicker than that. Commercial book has been growing, and it's been growing faster than 4%. It's becoming an increasing part of the mix. Of the GBP 486bn, I think the commercial book is around 20% of that amount at the moment. I'd expect that to continue to grow, maybe as far as 22-24% by the end of the year. Retail lending, therefore, becoming slightly less important. That's probably particularly true if they're getting cautious on some of the non-mortgage parts of the retail book.

[[00:07:48]]
Lloyds has quite large mortgage exposure. There's a stark difference in regional growth in terms of house price growth, with the north outperforming the south and London seeing negative price changes YoY. How does that affect the company based on which regions you expect it to be stronger or weaker?

[[00:08:18]]
I think Lloyds is pretty broad-based across the country. It's operating through its own franchise, but also massively through brokers, particularly through the Halifax brand. I don't believe they have a particular geographic skew. They'll be lending to the whole economy. Whether or not there's an appetite change internally in respect of, I guess, particularly larger loans, perhaps prime residential London addresses, etc, I don't know. The other thing, of course, is how this crosses over into their ambitions in the wealth space, where they're talking about doing more with wealthier customers, principally in the investment side. If they're doing that in banking as well, then they presumably have been looking at those prime residential properties and maybe a tension between those two things.

[[00:09:27]]
We've seen banks diversify some lending lines and potentially try to capture more risky areas. Barclays sticks out as one through Kensington Mortgages. Do you see Lloyds potentially playing in more risky areas such as speciality lending to maintain or improve NIM if the company is to be more aggressive?

[[00:09:51]]
I just can't see it. The reason I can't see is I think there is a conservatism almost in the DNA, just to some extent from the Lloyds brand for decades previously and to some extent because of what happened in 2008-09, where the institution was burned and some of the people still in senior roles despite the changes at the very top, lived through all of that and will remember it well. They've also, if you think about it, got burned kind of twice now on other things outside of what happened in the financial crisis. PPI, where no one really saw that coming. On the motor finance, where I think Lloyds felt it was being conservative about a lot of things. Actually, it turns out it wasn't. I suspect they're going to stay fairly risk-averse and let Shawbrook and even things like the building societies go and play in the bespoke underwriting, development finance, pushing harder in motor finance again, all those sorts of spaces.

[[00:11:05]]
You highlighted risk cautiousness and motor finance. There are other scandals such as the HBOS Reading fraud scandal. Do you think Lloyds has evolved its risk appetite enough to try and prevent these from coming up? If the company thought it was cautious and got its fingers burned in motor finance, albeit it's an industry-wide issue, is Lloyds not being cautious enough, or is it a reflection of bad luck?

[[00:11:42]]
Look, having worked there, there was definitely… Like I said, it was in the DNA, the caution, trying to think about what the right thing was for the customer, making sure that you weren't exposing the bank to undue risks. What's amazing is that this almost crept up on them again and wasn't spotted. I'm not sure it's an appetite question. I think the appetite for taking undue or unwarranted risk probably still isn't there. It's a question as to whether the risk identification and measurement and classification and reporting, and spotting the things that you don't expect coming before you do the thing that causes the problem. The reason I say that, look, I think historically, it was a very, very complex organisation. It probably benefits now from being much more simplified and straightforward but probably still risks being a little bit reliant on a very large mechanism of gathering risk and ticking boxes through a bureaucracy perhaps rather than identifying things for stepping back and really identifying the material black swan events that can cause a problem.

[[00:13:21]]
Do you think Lloyds has solved the issues? We are seeing ongoing simplification efforts such as the Halifax roll-up into the Lloyds brand, which could be a signal of that.

[[00:13:36]]
I think the Halifax roll-up is something slightly different. That doesn't look like it's driven by a simplification for the sake of being able to manage the business, if that makes sense. That is much more of a direct, in my view, at least from what's been published, much more of a direct cost play. That is about an opportunity to really go through and deduplicate branch presence on the high street to the extent they haven't done that already and to really start to drive out marketing costs probably more than anything else.

[[00:14:20]]
Lloyds' other income rose faster than NII, up 11% YoY and 1% QoQ to GBP 1.605bn in Q1 2026. That was mostly driven by strength in investments and a full quarter of Lloyds Wealth offsetting lower corporate and investment banking activity. What's your assessment of potentially diversifying non-NII sources? Where do you see the greatest opportunity for the company's growth?

[[00:14:44]]
It's been the holy grail for a long time. Really, I think there's three areas. Commercial banking tends to be a driver of more OI, at least in terms of the mix between that and NII compared to retail banking. That's the first. The second is the insurance business. The third is wealth. I think we'll probably come to wealth with some specific questions in a minute. Let's focus on the other two. Commercial banking, Lloyds has grown that franchise faster than its retail franchise. It has sought to do more and to break out from perhaps this perception of it's just a UK-focused bank that can only do stuff in the UK. I think it's definitely been trying to get further up the value chain in terms of larger deals where things are syndicated. It's doing more in its capital or particularly in debt capital markets business as a sterling issuance bank. There's some bright signs there. Actually, I think insurance is probably even the bigger story. They made a significant acquisition in the insurance space. They're doing an enormous amount within the workplace pension space. If you think about pensions, assets probably haven't reached the peak yet in terms of… We've got a population which is ageing but is not yet at the point where more people are de-accumulating than accumulating. That opportunity in the pensions management space looks to be fairly large.

[[00:16:34]]
Where do you see Lloyds capturing business in the pensions management space? I assume that sits within Scottish Widows.

[[00:16:40]]
It's the Scottish Widows division that does that business, yes.

[[00:16:44]]
How can Lloyds compete against more specialist providers within that?

[[00:16:52]]
I think the principal thing and where they seem to be specialising themselves now is in the workplace pensions. You've got them now against Aegon and I guess, the Standard Life, some of the big providers. If they win business, they're going to win business in very significant lumps in that space. I think probably less so on the pure-play retail direct investment side. I know we're going to get to investments in a bit, but the Schroders JV on the investment side, it sits within, I think now, the wealth side of the business and not the insurance and investment side. It was at least the second or third go at trying to grow a direct investments franchise, which doesn't look like it's succeeded so far. I think in my view, the insurance business is really going to grow through being a B2B provider more than a B2C provider.

[[00:18:03]]
On 30 July 2026, Lloyds will be reporting and has a strategy update. The company seems to be fairly quiet on Scottish Widows and its reporting. Do you see that changing the strategy update? Do you see any announcements that would make sense?

[[00:18:20]]
I would hope some, and the timing of this Interview is unfortunate. It would be nice to have seen that update beforehand. I don't know, but I would hope to see something on the insurance business because it's the one thing that genuinely differentiates them from the UK peers.

[[00:18:38]]
What would you be looking for?

[[00:18:46]]
It's a good question. I think maybe just some really clear pointers around what they expect that business to be able to achieve in the next 3-5 years.

[[00:19:04]]
Thinking about Lloyds Wealth, the company carried out the Schroders Personal Wealth acquisition, which was completed on 9 October 2025. How significant a driver do you see that being? How does that position it against NatWest Wealth post-Evelyn acquisition, with more pure-play wealth providers such as SJP [St James's Place], Rathbones, etc?

[[00:19:32]]
That business, I think, there was some disclosed growth in it. It went from about GBP 12bn or GBP 13bn of AUM when it was set up to around GBP 18bn. At the point that they have brought it back again. That said, they didn't get it to profitability. Therein, I think, lies the challenge. That personal wealth space, the provision of advice and the discretionary fund management that comes on the back of that still looks enormously fragmented. Despite the various players that are trying to roll it up, whether that's a kind of Openwork Partnership or SJP or anybody else, you keep getting innovative players popping up in the fintech space in there as well who are starting to offer just different models and different ways of providing that service and that confidence to customers without necessarily the upfront expense that comes with talking to an advisor and giving them 2% of your wealth on the way in. Personally, I see that business as being problematic unless they're going to thoroughly digitise it.

[[00:21:05]]
Regarding the acquisition funnel for Lloyds Wealth's clients, it seems pretty clear from commentary about the company's aim to cross-sell clients. How successful do you think it will be at cross-selling products? Bear in mind, Lloyds has gone quiet on some targets for the number of products per customer in the past.

[[00:21:32]]
Again, that's been the holy grail for 15 or 20 years. You have a franchise with 30 million or something like that current accounts in it, a very high proportion of the UK population that are banking with the institution, probably a slightly older customer base than some of the other businesses and arguably, therefore, a slightly wealthier customer base. Typically, you get rich as you get older at least to a certain extent. Yet somehow that hasn't materialised that funnel of identifying a customer either through the reducing number of transactions that occur in branches and the interactions that they'll have with those customers or through more model-based approaches of looking at transaction patterns, etc. It just hasn't emerged in terms of a cross-sell of a significant volume of wealth products. I think that's starting to happen in the digital space. There's certainly more of just a direct investment, self-select type activity that's happening through the banking app, but again, that's going to pick off most likely people who are investing a couple of hundred pounds per month rather than someone coming with GBP 0.5mn of investable assets that is going to start to move the dial much more quickly.

[[00:23:13]]
Why do you think Lloyds hasn't been successful in past at cross-selling?

[[00:23:27]]
I question whether it's really a cross-sell that the customer wants or whether actually, fundamentally, customers are just comfortable having their wealth and their banking separate. If the hypothesis is we'll win the investments because we've got the banking and the relationship, then there's a whole bunch of stuff. You have to believe about what the quality of those relationships is on the banking side or how meaningfully invested the customers are in that bank and that brand to want to buy something else from the bank.

[[00:24:29]]
Do you see that changing at all, and do you see any drivers?

[[00:24:37]]
My fear is it actually starts to go the other way and that you start to see either the neobanks expanding into this space where they'll do it in a very simple way using their apps or you have very digitally agile competitors coming into the market with just a fundamentally different offer.

[[00:25:07]]
How successful do you see the acquisition being in the long term?

[[00:25:17]]
If I'm really honest, I don't think the Schroders acquisition is going to move the dial, particularly for Lloyds one way or the other. I honestly believe their opportunity is much stronger in the core franchise in retail, growing the commercial lending franchise in terms of changing outcomes entirely what the insurance business is doing.

[[00:25:51]]
How much scope do you see for AI to start driving cross-selling by creating a clearer picture of customers or specialised offers?

[[00:26:06]]
Three or four years ago, it was the machine learning approach. How do you identify the next best action type of thing to look at the data pattern and see who is most susceptible to buying and then finding that offer to them. Now all the talk has been about the LLMs for the last two years and now agentic. The question is going to be, can you harness those three things together? Can you do it in a way which factors in or understands customers' marketing preferences, either the expressed ones in terms of non-marketing indicators or those that haven't been expressed and where you're allowed to then get them the right message through that approach. I think Lloyds has a lot of smart people working on some of this stuff. I just question whether trying to target the wealth offer is… It might work, but is it as important as making sure that your mortgage customers stay with you and you reduce churn on the mortgage book? Is it more important than trying to make sure that you're doing regular savings from current accounts or those sort of things.

[[00:28:08]]
The question about AI and cross-selling could translate into other products to drive retention and customer profitability, such as cards, mortgages, etc. Is that where you'd expect the company to be more successful?

[[00:28:25]]
That's where I'd expect them to be successful, yes, exactly.

[[00:28:33]]
According to Financial Times, Lloyds is looking to expand its corporate banking footprint. You highlighted commercial banking as a strength or area of focus earlier, particularly in the US, which also touches on geographic expansion. What do you see the company focusing on in the 30 July 2026 strategy update regarding that expansion? How successful do you see that push being, ie, why would someone bank with Lloyds over Barclays or JPMorgan?

[[00:29:08]]
There's two thesis there. Bear in mind, they have an office in the States. They've recently opened, I think, a new office in Luxembourg. I'm pretty sure they have an office in Germany as well to let them do commercial banking business on the European Mainland. I think the point there is around the connectivity. The strength that they have in sterling, the franchise that they have in the UK with customers means they're well-placed to support those customers as they go outside the UK, so go with the customer to the new location or to represent themselves as the bank for businesses that are inbound to the UK. They're going to have to compete with those enormous US or Chinese or other banks with a very specific UK-led slant to it based on their expertise in the sterling zone.

[[00:30:18]]
Is that expertise significant? Obviously, you would expect NatWest Securities to be stronger. Investec are trying to capture corporate banking market share at the minute, particularly in the mid-market. Barclays is known for being very strong in corporate and investment banking, particularly in the UK.

[[00:30:45]]
What was the question? Why would they be more successful than those other organisations?

[[00:30:49]]
Yes, exactly.

[[00:30:50]]
I think it's probably they have sufficient firepower to compete in that space and historically have not really chosen to do so. There's almost a natural market share to gather off the back of the market share that they have of UK SMEs, for example.

[[00:31:21]]
What are your thoughts on Lloyds' attempt to grow by hiring? The company is hiring key people from banks such as Wells Fargo, which I think is where the new Head of Corporate and Investment Banking is coming from. How key is that to building reputation? How long might that take?

[[00:31:41]]
I don't know. It's not the first time that they've hired bankers from other institutions, including, I think, they had someone from Standard Bank previously. They had someone from Barclays most recently in C&IB. I don't buy the argument that your one senior leader in that space is going to really change how most of your corporate clients feel about you.

[[00:32:16]]
On the digital banking proposition, Lloyds describes itself as a leading digital bank in the UK, reinforcing revenue and cost opportunities. Do you think the company is more advanced or is competing more by comparing itself against the big four banks? Is it able to position itself more against challengers?

[[00:32:47]]
Lloyds still talk about this themselves. They were very early to the internet banking 1.0, they were a very early adopter. Since then, have been probably the largest online bank in the UK. Now they're probably the largest retail bank in the UK. It's a natural follow-on, but they have spent a lot of money on bringing their app further up to scratch, putting journeys into it to make it more functional, rearchitecting the underpinnings of it to enable that and moving away from some fairly historic monolithic technology. I think they're in a pretty good space on the retail side, at least in that respect. The challenge they've got is I think it still costs them probably anywhere between 10x and 40x or 50x as much to develop a feature as it seems to cost the challenger banks. Now why that is? I'm not sure, but they can only afford to do that because of their scale.

What am I trying to say here? I think that they have the scale. As long as they don't do anything mad and lose the scale, they can probably afford to compete with the challengers. Given my earlier comments about risk appetite, they'll be thoughtful about exactly what it is they develop and how they develop it. None of the weird and wacky parts of a Revolut, for example, at least in my opinion, you're not going to see that on a Lloyds app anytime soon. I don't know if you want me to talk about digital as far as the commercial bank is concerned.

[[00:34:58]]
Yes. If you can discuss it, that would be great.

[[00:35:03]]
I haven't looked directly at the offering for a while. My observation on it was that it was more fragmented than on the retail side. The retail side was quite obvious. You had a banking app, which is substantially the same just with different branding, whether you're a Halifax or a Lloyds customer. I think the same was true for Lloyds vs Bank of Scotland on the commercial side, but you had different banking apps and routes in depending on the scale of your business and whether you sat within the commercial bank or the corporate bank within the Lloyds structure. I think it was also true when you moved up the structure or down the structure, you could potentially find yourself needing to change your internet banking to a different platform. That meant it wasn't a great customer journey on the commercial side. I know there's some work was going on to try and improve that. Where it's got to? I'm not sure. I know at the top end, they launched Gem, which was a payments platform. I believe that was quite successful after some early teething problems in terms of working within the top end corporate clients who want to transact and instruct very high payment volumes and probably started to be the route of some additional capability in other currencies. Where Lloyds historically has been weak has been on foreign currency offerings, particularly for retail customers.

[[00:36:54]]
You spoke earlier about how Lloyds potentially has an older customer base vs challenger banks and some peers. What does that mean for the digital banking push and penetration? How successful do you think the company has been in driving customers from branches to apps and websites?

[[00:37:25]]
It's difficult to answer that from outside other than the experience of going into a branch or observing what happens in branches as you walk around. I think they delivered perhaps what they said they wanted to do, which was to reduce the use of branches as a transactional hub and make it the place where you go when you've got a complex query that can't be dealt with and then gradually try and increase the volume of more complex queries that can be dealt with through online journeys. Here, I'm speaking more as a customer than anything else but an educated customer who is looking at it perhaps through the lens of someone who's been in the industry for a long time.

There are increasingly more and more journeys that are available on the app, and they are becoming easier to access and to use, and they've been thinking very hard about the UX that goes behind that in terms of how customers will interact and find those journeys and access them and pass through with the minimum number of steps required. I can't really answer how successful they are at, and let's not say driving, I think Lloyds would probably object to that word. It's about encouraging, making it easy for those customers to access. If you walk into a branch, the demographic is probably no longer what you would expect for the whole population. I think you walk into a branch, you'll tend to find it's older or people who are struggling with their access to their bank account.

[[00:39:28]]
How much cheaper do you think it is to serve a customer online vs in a branch for a standard product such as a mortgage?

[[00:39:45]]
In outline terms, your branch costs behave differently. While they're fixed in the moment, they are more variable than your cost for serving online. Essentially, the online cost is one great big lump to provide the service. Then it doesn't really matter if 1,000 customers come through that day or 2,000 as long as they're not dropping out of the process. On your branches, it really starts to matter if you've got 1,000 customers or 2,000. That's more than any branch would ever handle. You're either going to have to staff up or you're going to find you actually need more or fewer branches to cope with the volume at least over the period of one year or two. I think it's very likely that the average cost to serve is a factor of 10 higher in the branches than it is online, but it's also more variable.

[[00:41:02]]
Looking back to Halifax and Lloyds, Lloyds has been rationalising its branch network, cutting branches as it integrates those brands. How much overlap do you see within that network? What impact do you see that having in reality?

[[00:41:27]]
Branch rationalisation has been going on for a long time. All the main brands have been doing it. Through my banking career, it's been a theme of banks turning into bars and coffee shops. I think the removal of Halifax probably give Lloyds a jump on being able to do more. Not perhaps from a regulatory, last bank in town type perspective, but just that there will be… I don't know the extent of it, but there will be some overlap between Lloyds and Halifax branches, particularly in major urban centres. Once those branches are interoperable, the only substantive difference between them becomes the branding. Therefore, it's crazy to maintain a blue shop front and a green shop front on the same high street. We haven't really got into this yet. I do wonder, though, the Halifax was something of a sacred cow for a very long period of time. It was untouchable, and maintaining it as a separate brand was deemed to be mission-critical. There were super-loyal customers to that brand that would not dream of banking with the other brand. That was always the perception. I question whether there is going to be some loyalty tax that results from the withdrawal of the brand.

[[00:43:16]]
If loyalty tax comes into play, what does that mean? Is that clients not wanting to bank with Lloyds and taking their money and running? What might the effect be?

[[00:43:33]]
I don't know if it's as clear as take your money and running. We live in a society where there's around something like 100 million current accounts in the UK and 60 million people, of which some are children, so they won't have a current account. Let's say the average adult has two transactional banking accounts, let's call it that, like an account with an HSBC as well as a Lloyds or a card account with Revolut as well as an account with Lloyds. My fear is Lloyds would not directly know that the customer has gone because the customers just check out. The worst of all worlds is the customer leaves the account open doing next to nothing because that just means it's running cost for Lloyds to communicate, but not actually earning any money. Then you run into a world of actually shutting accounts down, can be quite difficult if it's at the bank's volition. I think it's a silent giving up rather than a noisy one.

[[00:44:53]]
How significant a threat is this, considering that gen Z and younger generations are far more likely to have multiple bank accounts and potentially, their salary might be going to Lloyds, but then they might be using Monzo or Revolut for everyday spending?

[[00:45:16]]
I think that's the hypothesis, isn't it? In my limited experience of having one child, that's exactly what happens, but it's also what I've read in the market. I think for that younger demographic, it's not an immediate problem. It's a future problem, 5-8 years down the track when if they're not your customer, what is it you have to do then to acquire them as a customer for the other things you want them to do like take a mortgage from you. It probably plays to the mortgage market continuing to become increasingly broker-led and just not having that relationship with, quote, unquote, the bank. Not having your customers a few thousand pounds per month salary coming in is probably not problematic in terms of the economics for Lloyds. What is problematic is when that customer in five years' time wants to go and take a GBP 200,000 mortgage to buy a house.

[[00:46:38]]
Do you mean that is when they have to go to brokers?

[[00:46:43]]
Then that customer even more so than today is going to go to a broker to get that mortgage, and they're going to get broker to wherever the best rate is.

[[00:46:54]]
Do you think Lloyds' digital banking proposition, which the company is heavily pushing, is enough to mitigate the impacts you mentioned and allow it to capture a younger customer base, considering how easy it is to navigate the challenger banking apps?

[[00:47:10]]
I think the challenge is not the navigation of the app once you're in. It's actually the complexity of getting an account in the first place. We know Monzo just got a fine from the FCA for the due diligence standards on new accounts. Things may change a little bit, but if you look at what is required in terms of not just how you serve documents to the bank during the account take on, but which documents are required and how they are certified or otherwise, it seems much easier to go and open an account with a Monzo or Revolut even today than it does with Lloyds.

[[00:48:01]]
What's the answer for Lloyds? Would the company make its processes easier?

[[00:48:08]]
They need to make it absolutely seamless onboarding.

[[00:48:12]]
How do you see the company doing that?

[[00:48:15]]
Again, they're going to have to just keep working on their user experience and listening to whatever focus groups they have. I think there'll be any number of people within Lloyds that know this already, but for me, the challenge is actually that the app is probably there. It's there or thereabouts. Once you're in, if it takes you three clicks to make a payment vs two, it doesn't really matter as long as it's in your phone, you can do it quickly. It's how do you get this customer through the door in the first place? How do you attract them? How do you make it easy for them, so there are no reasons for them to walk away mid-process.

[[00:49:02]]
Could you estimate roughly how long it takes to open an account with Lloyds vs a challenger bank?

[[00:49:13]]
Monzo, I think you can do it within five minutes. Lloyds, I haven't tried recently. I would guess it's still probably 2x or 3x or 4x that plus the fallout rate. I can't point to any data on this, but I would expect the fallout rate to be higher where something has to happen, where a document has to have somebody to certify or it has to be taken into a branch or whatever it is. There's the stickiness that's in the process, perhaps not for everybody, but for a significant enough minority is where the problem really lies rather than is it five or 15 minutes. It's the 40% of people that drop out of the process and need something else to happen.

[[00:50:15]]
Do you see any opportunity for Lloyds to leverage AI to speed up onboarding?

[[00:50:22]]
Absolutely. It's an arms race between the ability to create fake documents and spot them, but the ability to validate documents and the fact that someone who they're claiming to be through other indications that they're quoting their address or whatever, there will be so many things about behavioural cues about how you fill the form and the time you take to think about responding or type something, a bit like the biometrics, how you type your PIN code into your phone app is as important as the PIN code, but there'll be things that you can estimate around the way people type their names, for example, I'm sure of it.

[[00:51:22]]
In terms of AI, how far ahead or behind the curve do you think Lloyds is based on its communication and your expectation for how the company might operate?

[[00:51:35]]
I know in the public announcements, they're putting lots of money into it, but I honestly couldn't say how far ahead or behind they are.

[[00:51:44]]
Would you expect the investments to have a material impact, or do you think Lloyds' cautiousness, which you highlighted earlier, might counter that?

[[00:52:02]]
I think it's a question of the focus. It's where are they putting that effort and investment. If it's on enhancing the onboarding journey, making it simpler to get through the gate, that's great. If it's on other things that have to happen in the retail bank about identifying customers who are starting to think about mortgage borrowing or whatever it is, if it's identifying customers who are using an account for salary, but placing funds with a third-party bank for their deposits and encouraging them to bring it back, they feel like there is where Lloyds has a… There's such a material market to go after with that, that making a 10-20bp shift in behaviour is super valuable. I think it's probably not about capability. I'm pretty sure they bought exactly the same capability as everybody else. It's how they choose which journeys and which problems to throw it at.

[[00:53:17]]
Where do you see Lloyds targeting AI roll-outs? What impact does regulation have within that?

[[00:53:29]]
We talked a little bit already about the onboarding journeys. I mentioned Monzo is fined from the FCA. I think the regulator is going to want to look very carefully at where you're using AI to enhance the information there. They're going to want to think about is that sufficient from a financial crime perspective. The other one, I think that's really obvious is how do you enhance your credit decisioning with additional information beyond what you can get from bureau. That, I think, also is going to have a fair amount of regulatory scrutiny because you've got questions around treating customers fairly, financial inclusion, being able to explain your model-based approaches and your credit decisioning, all these sorts of things. It's not without its challenges, but I don't see that they're not going to try and use it in the right way to enhance their decision-making.

[[00:54:56]]
Lloyds is targeting OPEX of GBP 9.9bn with a cost-to-income ratio of around 50% for full-year 2026. In Q1 2026, the company's cost-to-income ratio stood at 51.9% due to income growth and efficiency savings. Why do you think it may not hit its goals?

[[00:55:19]]
There is a long history of Lloyds, at least before Charlie Nunn, of setting and hitting operating cost targets out with any provisioning. In my head, I think they are very good at controlling spend, and I talked a little bit before about the DNA of the organisation. It goes through like a stick of rock about how spend is controlled. The one thing that might cause a problem there is if there's any more conduct provisioning, but I think that sits outside of those OPEX targets.

[[00:55:58]]
Aspects such as the motor finance.

[[00:56:01]]
Motor Finance is the obvious one, where they took what, GBP 1.9bn, something like that.

[[00:56:05]]
Do you think GBP 1.95bn is enough? Obviously, the remediation has been paused.

[[00:56:14]]
My sense on this one is the FCA is pretty invested in that scheme. The pause is just a pause, and it will come back. That said, it's impossible to say from the outside. We could point back at the history on PPI as perhaps not the best indicator in that that process started with provisions being made and then they were topped up and topped up and topped up and topped up many, many times as the situation got worse. My expectation is that Lloyds have learned the lessons from that. They have resourced up appropriately to manage whatever programme of activity is required to actually assess cases on a timely basis so they don't end up in the same position they ended up on the PPI where cases were getting to a time limit and just being passed through whether or not they've been assessed and paid.

[[00:57:30]]
Do you think that's likely?

[[00:57:33]]
I think they're more likely to be much more organised about it this time. They will be careful to provide and not repeat the errors of the past.

[[00:57:48]]
Considering the upcoming strategy update on 30 July 2026, how much focus do you see Lloyds placing on further efficiency gains? Do you see the company driving the cost-to-income ratio lower? If so, where would you expect it to try and rationalise?

[[00:58:15]]
We've already talked about the Halifax on the retail side. I don't know, I haven't looked at the brand spend, but that must have been significant as well as the further branch savings. I think what we're probably talking about in the longer term is more rationalisation of costs, but probably not to the extent that it has happened in the past, unless they find ways to genuinely improve processes and deploy agentic technologies into processes, which could then lead to further rounds of redundancies. I think it's more likely that the cost-to-income ratio will improve over time because they're driving the income growth. Particularly, if they get it right with the core retail franchise, if they can grow the commercial lending, the cost base that underpins those is not hugely variable. I could see Lloyds getting over the long term to cost-to-income ratios in the low 40s. It's probably never going to be in the 20s like a pure-play digital bank.

[[00:59:48]]
What 2-3 key things do you think investors should be monitoring regarding Lloyds for the upcoming 30 July 2026 strategy update and over the next 1-2 years?

[[01:00:04]]
What should they monitor? I think, it's really important, I think they should be reading and… It's possibly not even exactly what they say about midterm targets. It's how explicit they are about midterm targets. To what extent is the management team now fully bought into being able to deliver on something. I think it's whatever they've got to say about the motor finance redress. We've talked about that a little bit. Then I think they need to say something about… I'm hoping they say something genuinely about the insurance division. As we talked about before, they've been a little bit quiet on that.

[[01:00:51]]
Is there anything else you want to highlight around Lloyds?

[[01:00:55]]
No. Thank you.

[[01:00:57]]
We'll now end the Interview. Let me close by saying thank you for your input and goodbye. Cheers. Bye.

Transcription ends at 01:01:04 of the recorded material