Lloyds Banking Group PLC Annual Report 2000

FY2000 Annual Report · Lloyds Banking Group PLC
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new products and services

building customer relationships

e-mpowering
customers

easier access to ﬁnancial services

real time banking

banking by telephone and internet

annual report & accounts 2000

CONTENTS

1 2000 highlights

2 Chairman’s statement

4 Group Chief Executive’s review

8 Our role in the community

9 The businesses of Lloyds TSB

11 Financial review

34 Five year financial summary

37 The board

38 Directors’ report

40 Directors’ remuneration

46 Corporate governance

48 Auditors’ report

49 Consolidated profit and loss account

50 Consolidated balance sheet

52 Company balance sheet

53 Other statements

54 Consolidated cash flow statement

55 Notes to the accounts

77 Information for shareholders

OUR GOVERNING OBJECTIVE IS TO
MAXIMISE SHAREHOLDER VALUE
OVER TIME

TO MEET OUR GOVERNING
OBJECTIVE WE AIM:

• TO BE A LEADER IN OUR CHOSEN

MARKETS

• TO BE THE FIRST CHOICE FOR
OUR 16 MILLION CUSTOMERS

• TO REDUCE DAY-TO-DAY

OPERATING COSTS THROUGH
INCREASED EFFECTIVENESS

PRESENTATION OF RESULTS

PROFIT BEFORE TAX 
BY MAIN BUSINESSES

On 3 March 2000 the Group completed the acquisition of Scottish

Widows and, as a result, the investments now held to support the with-

proﬁts business of the Group’s life companies are much more signiﬁcant

than in previous years. In accordance with generally accepted

UK Retail Banking

Mortgages

accounting practice amongst listed insurance companies in the UK, the

Insurance and Investments*

results of the Group’s insurance businesses have been separately

UK Retail Financial Services

analysed between an operating proﬁt, which includes investment

earnings calculated using longer-term rates of investment return, and a

proﬁt before tax, separately identifying the short-term ﬂuctuations in

Wholesale Markets

International Banking

Central group items

2000
£ million
daaaaaasfff

1999
£ million
daaaaaasfff

817

865

789

868

1,447
daaaaaasfff

873
daaaaaasfff

3,129

2,530

749

501

728

444

(133)
daaaaaasfff

119
daaaaaasfff

investment returns (page 28).

Business as usual operating profit

4,246

3,821

Other items also had a signiﬁcant impact on the Group’s 2000 results:

Short-term ﬂuctuations in investment returns

changes in the economic assumptions applied to our long-term

assurance business (page 29), exceptional restructuring costs

Changes in economic assumptions

Exceptional restructuring costs

(page 27), the impact of provisions for redress to past purchasers of

Pension provisions

pension policies (page 17) and a one-off charge relating to stakeholder

Stakeholder pension related charge

pensions (page 17). In 1999 the sale and closure of businesses was

Loss on sale and closure of businesses

also signiﬁcant (page 58). To facilitate comparisons of the results,

Statutory proﬁt before tax

(119)

127

(188)

(100)

(80)

28

–

–

(102)

–

–
(126)
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daaaaaasfff
asfffffffs asfffffffs
3,621

3,886

certain ﬁnancial information and commentaries have been presented on

* Insurance and Investments includes ‘normalised’ investment returns based on long-term

a ‘business as usual operating proﬁt’ basis, which excludes the effect of

rates of investment return (page 28).

these items.

2000

highlights

RESULTS

Business as usual basis

Total income increased by 8 per cent to £8,641 million.

Operating proﬁt up 11 per cent to £4,246 million from 

£3,821 million.

Efﬁciency ratio 43.6 per cent compared with 42.7 per cent.

Earnings per share increased by 10 per cent to 54.5p.

Post-tax return on average shareholders’ equity

31.8 per cent.

RESULTS

Statutory basis

UK Retail Financial Services proﬁt up £599 million, or

Proﬁt before tax up 7 per cent to £3,886 million from

24 per cent, to £3,129 million.

£3,621 million.

Other signiﬁcant achievements during 
2000 include:

Total income increased by 7 per cent to £8,469 million.

Economic proﬁt increased by 6 per cent to £1,882 million.

The Group completed the acquisitions of Scottish Widows and 

Chartered Trust.

Customer lending grew by 12 per cent to £114 billion and 

customer deposits increased by 8 per cent to £101 billion.

Earnings per share increased by 7 per cent to 49.6p.

Shareholders’ funds up by 13 per cent to £9,737 million.

Post-tax return on average shareholders’ equity 29.1 per cent.

The Group has over 1.2 million online customers of

Total capital ratio 9.0 per cent; tier 1 capital ratio 

LloydsTSB.com. LloydsTSB.com is now consistently one of the

8.2 per cent.

most visited ﬁnancial websites in Europe.

A ﬁnal dividend of 21.3p per share will be paid on 2 May

2001. This makes a total of 30.6p for the year, an increase 

of 15 per cent.

11.4 per cent estimated market share of net new mortgage 

lending.

Funds under management throughout the Group increased to 

£122 billion.

30.6

26.6

22.2

17.2

13.2

96
DIVIDENDS PER SHARE (PENCE)

99

98

97

00

LLOYDS TSB GROUP

1

chairman’s

statement

OUR GOVERNING OBJECTIVE IS TO MAXIMISE
SHAREHOLDER VALUE OVER TIME

2000 was another successful year for the Lloyds TSB Group. We
continued to grow our business organically and we made two
important acquisitions, Scottish Widows and Chartered Trust.

We earned record proﬁts and earnings per share; and the
dividend was increased by 15 per cent. At the same time, we are
investing heavily in e-commerce and restructuring to enhance
future earnings.

Over the ﬁve years since the merger between Lloyds Bank and
TSB at the end of 1995 our share price rose by 114 per cent

Sir Brian Pitman

and gross dividends increased by 140 per cent. An investment
of £1,000 in Lloyds TSB shares on 1 January 1996, with
dividends reinvested, was worth £2,500 at the end of 2000, a
compound growth rate of over 20 per cent per annum and
more than 30 per cent better than an investment in the FTSE
All Share index over the same period.

We have no illusions. We have to continue to produce favourable

results. If we can do that, our share price should follow.

A CHANGING ENVIRONMENT

Few would deny that ﬁnancial services is

an industry in ferment. It is being

transformed by increased competition,

technology and consumer demand.

The scale of competition has changed

dramatically in recent years. Consumers

have more ﬁnancial choices than ever. 

2 LLOYDS TSB GROUP

Everybody seems to want to be in the
money business. New competitors are
popping up all over the place.

Yet, the basic ﬁnancial needs of our
customers do not change that much.
They want to save, borrow, invest,
transact and be insured. They want
value, convenience, security and trust.
They want sound ﬁnancial advice. They
want access to ﬁnancial services when,
where and how it is most convenient for
them. If the value they are offered is
clear and compelling, if the service and
advice they receive is good, they will give
us more of their business.

We have risen to the challenges which
the increasingly competitive environment
presents by widening our product range,
greatly expanding our distribution
capabilities and by offering our customers
more value.

Although some new entrants in retail
ﬁnancial services have particularly low
cost structures, we have the advantage of
multi-channel distribution, which is what
most people want. We can now offer
more choice and greater accessibility and
few can match the personal service
many of our customers prefer.

In little more than a year, we have
become one of the UK’s leading
e-commerce providers of ﬁnancial
services, which is a considerable
achievement.

The arrival of stakeholder pensions in the
UK in 2001 is a further change that will
beneﬁt people who traditionally have had
difﬁculty accessing a suitable pension. The
internet will also grow in its reach and
effect. It is already bringing transparency
to all markets. Our task is to respond to
customer needs more readily than ever.

OUR STRATEGY

For years, we have been working to be
more than just a bank and, in doing so,
we have built one of the UK’s most
diversiﬁed ﬁnancial services companies.
Not only is the market for ﬁnancial
services much bigger than the banking
market, it is also growing much faster. We
want to continue to grow our share of
banking business in the UK, but our
biggest opportunity for growth lies in
increasing our share of total ﬁnancial
assets. So, there is plenty of room for
growth. Our aim is to attract more of the
business that our 16 million customers
have with other ﬁnancial companies. In
pursuit of this strategy, in the year 2000,
we sold more products to more people
than ever before.

believe that over time competition on
price alone is a losing strategy. The key
to success is to ﬁnd new, different and,
of course, better ways of serving each
customer group – services that our
customers value highly and that
command a price reﬂecting that value.
Ultimately, enhancing customer value for
target customers is the primary means of
delivering superior shareholder returns.

Because it remains highly fragmented,
the ﬁnancial services industry is ripe for
further consolidation. It is not a question
of whether restructuring is necessary, but
how it will be achieved. The acquisition
of Scottish Widows and Chartered Trust
are further examples of our participation
in the continuing industry consolidation.

Today, market segmentation has
assumed even greater importance. We

Scottish Widows – one of the most highly
regarded names in life and pensions –

will greatly strengthen our hand in the
rapidly growing long-term savings
market. It will enhance not only the
quantity but also the quality of our
earnings by reducing our dependence on
net interest income, where pressure on
margins is growing. Chartered Trust will
reinforce our leadership in motor vehicle
ﬁnance. Both of these acquisitions have
been successfully integrated with our
existing business and we will realise
substantial synergies over the next few
years.

So, our basic strategy remains unchanged.
We want to be the best and most
successful company in the ﬁnancial
services industry. There is plenty of scope
for organic growth in our chosen markets,
but we shall also continue to seek growth
by acquisition.

OUR PEOPLE

We are at heart a service company. More
sales do not always lead to better
service, but better service almost always
leads to better sales. Even in the age of
the internet, the most critical
constituency in our success is our
people. The scale and pace of change
and the success of the company would
not have been possible without the
professionalism, dedication and sheer
energy of our staff at home and overseas.

OUR FUTURE

We have a strong balance sheet, with a Triple A rating, and we
are one of the most proﬁtable banks in the world. Strategically,
we are well placed in all key areas of UK retail ﬁnancial
services.

We aim to continue to be a leader in creating value for
shareholders by offering superior customer value, both in
products and service, whether in the branch, on the telephone
or via the web.

Our current heavy investment in e-commerce and restructuring
is planned to produce substantial productivity gains, which will
enable us further to enhance customer value and hence
shareholder value. Price competition is increasing, but we
expect margin erosion to be offset by volume growth.

BOARD CHANGES

This year we shall bid farewell to Paddy Linaker, a director
since 1994. He leaves with our thanks and best wishes.

I will retire at this year’s annual general meeting in April and
I am delighted that Maarten van den Bergh, formerly President
of Royal Dutch Petroleum Company, has agreed to succeed me
as Chairman. I have every conﬁdence that the company is in
safe hands and that it is well equipped to meet the challenges
of the future. I thank you, our owners, for your support over
many years and I especially thank our great team of talented
people for being the best at what they do.

Sir Brian Pitman
Chairman
15 February 2001

LLOYDS TSB GROUP

3

group chief executive’s

review

WE AIM TO LOOK AFTER OUR CUSTOMERS SO
WELL THAT THEY WILL WANT US TO HANDLE
MORE OF THEIR FINANCIAL AFFAIRS

Peter Ellwood

2000 was a watershed year for the ﬁnancial services sector. 

time is underpinned by our three strategic aims of being a

It heralded dramatic change in the use of technology, driven

leader in our chosen markets, being ﬁrst choice for our

by the internet. It saw a signiﬁcant increase in competition from

customers by better understanding and meeting their needs,

both traditional players and new entrants, and it was marked by

and by driving down our day-to-day operating costs so that we

the increasing requirements of consumers who are rightly

have greater scope for investment in better products, superior

becoming more aware and more demanding. 2000 also saw

service and multi-channel distribution. We have made good

strong Government interest in the industry with the Cruickshank

progress on a number of fronts.

report and the subsequent review by the Competition

Commission into the provision of banking services to small and

medium-sized businesses. We were pleased to commit, with 

the other major banks, to partial funding of the Universal Bank,

which we believe will be a useful contribution to providing

banking facilities to all those who require them. 

During the year we made further progress on our ﬁrst strategic

aim to be a leader in our chosen markets with the acquisition of

Scottish Widows, concluded in March, which made us one of

the top three suppliers of long-term savings and protection

products in the UK. Scottish Widows also brought a leading and

powerful brand to the Group. In September we also concluded

Against that background, we believe that the organisations which

the purchase of Chartered Trust which gave us market

will survive and prosper in this changing environment will be

leadership in the independent provision of motor ﬁnance.

those which maximise shareholder value by creating real value

for their customers. Our vision is to create an organisation that

understands and looks after our customers so well that they give

us the privilege of looking after more of their ﬁnancial affairs.

So, we have made signiﬁcant progress towards meeting this

important strategic aim, but the most exciting developments

and progress have been made in the critically important

strategic aim of being ﬁrst choice for our customers by better

Our governing objective to maximise shareholder value over

understanding and meeting their needs.

CUSTOMER RELATIONSHIP MANAGEMENT

During 2000 we introduced a greatly

manage customer relationships in a

enhanced model of customer relationship

manner that is consistent with an individual

management (CRM) which is already

customer’s needs. The new system takes

improving customer loyalty, and

a segmented approach to our customer

increasing revenue growth in our retail

base and draws extensively on best CRM

business. This involves the real time

practice throughout the world. Full roll out

delivery of detailed information to our

throughout our UK branch network is to be

customer facing staff and allows us to

completed during the ﬁrst quarter of 2001. 

4 LLOYDS TSB GROUP

REVENUE
GROWTH

Revenue growth will be a key component

of sustainable proﬁts over the next few

years and we will therefore be investing

heavily in core markets such as wealth

management, long-term savings and

investments, business banking, our core

retail franchise and in new technology.

Our added value current account product

range continues to be in strong demand

and over 2 million of our customers now

have either a Gold or Select current

account, making us a market leader in

WEALTH MANAGEMENT

this ﬁeld. In addition, we increased the

At its heart, CRM is about retaining and

The Create offer will be underpinned by

number of our higher value personal

deepening our relationships with our

access to the comprehensive broking

choice customers to over 850,000

customers through a policy of

services of Goldman Sachs PrimeAccess™.

during 2000, and increased our

segmentation and this forms a key part

This service will provide clients with

customers’ total product holdings by 
a net 700,000. We are targeting to

increase our product sales substantially

during 2001 and we remain conﬁdent of

achieving a net 3 million increase in total

product holdings by the end of 2002. 

of our new strategies in the wealth

customised proprietary research from

management and small business sectors.

Goldman Sachs, international equity

The ﬁrst stage of our new approach in

dealing and market making, custody and

the wealth management segment has

settlement, and access to selected equity

been the development of our plans to

capital market offerings managed by

provide a new set of products and

Goldman Sachs. Create forms a key part

services for more afﬂuent customers,

of Lloyds TSB’s revenue growth strategy

which are now being implemented under

and expects to have around 250,000

a new brand ‘Create’. For these

clients by the end of 2002. Lloyds TSB

customers we will provide tailored

currently makes pre-tax proﬁts of some

independent advice, superior service and

£300 million annually from wealth

a choice of investment options from

management in the UK and overseas,

quality providers. Key elements will be

and believes that this can be doubled

our online share dealing and funds

within four years of Create’s full market

hypermarket, and a new Wealth

launch this summer.

Management Account that will allow

consolidation of all ﬁnancial products into

a single account. 

E-COMMERCE

Lloyds TSB is one of the most powerful
ﬁnancial services brands in the UK. We
have a very comprehensive network of
branches together with one of the largest
telephone banking businesses in the UK
with over 2.0 million customers and, with
over 1.2 million registered online
customers, LloydsTSB.com is now
consistently one of the most visited
ﬁnancial websites in Europe. Our overall
distribution capability will be further
improved in the second half of the year as

we complete our IT integration as
planned, providing online real time
technology for all our retail banking
customers, a facility which will become
increasingly important in the internet
world.

In December 2000 the Group announced
that it had agreed to form a joint venture
between Goldﬁsh, Centrica’s ﬁnancial
services brand, and evolvebank.com,
Lloyds TSB’s standalone internet banking

operation. The joint venture intends to

offer a broad range of integrated ﬁnancial

services products from which customers

can select to meet their individual needs.

evolvebank.com will provide technology

and banking expertise, together with

Lloyds TSB’s track record in

bancassurance and regulatory experience.

Centrica will bring the Goldﬁsh brand,

together with immediate access to

9 million Centrica customers.

LLOYDS TSB GROUP

5

notes to the accounts

group chief executive’s review
BUSINESS BANKING

In the small business market, we have been greatly encouraged by the success of a recent
pilot of a set of new segmented offers, which we have developed in response to our
business customers’ differing needs. The roll out of these new offers during 2001, coupled
with further enhancement of our innovative small business portal – success4business.com
– which within 6 months of launch already has over 20,000 registered customers, will
cement our position as the UK’s leading bank for small business start ups. We have also
launched LloydsTSBMarketplace, a trade facilitation web service, that allows suppliers and
buyers access to a secure e-enabled environment to conduct business with a wide variety
of companies within their speciﬁc marketplace.

COST MANAGEMENT

Turning from income generation to cost
management, the management of our
day-to-day costs continues to have a
strong emphasis in the Group, whilst at
the same time we are continuing to
invest heavily in e-commerce, in
restructuring to improve our efﬁciency
and productivity, and in improving the
quality of our sales and service in order
to enhance future earnings. Our
restructuring programme is making

strong progress, with further
centralisation of processing achieved and
consolidation of IT centres underway. We
are also accelerating the expansion of
lower cost delivery channels which will
involve greater use of telephony, with
more telephone calls taken out of our
branches into dedicated call centres,
allowing the branches to concentrate on
face-to-face contact with our customers. 

In August 2000 the Group announced

the creation of a new payments
processing company – Intelligent
Processing Solutions Limited (iPSL) – in
conjunction with Unisys and Barclays.
iPSL will handle all the Group’s cheque
processing activities. With increased
levels of electronic banking leading to a
decline in the volume of cheques being
processed, iPSL provides the economies
of scale needed to offset the increasing
unit cost of processing cheques.

RESULTS

So, how did these strategies translate into growth and proﬁts?
Our business as usual results for 2000 were good, with an
8 per cent growth in income, proﬁt before tax up 11 per cent,
customer lending up 12 per cent, and customer deposits up by
8 per cent. Our efﬁciency ratio remained good at 43.6 per cent,
one of the best efﬁciency ratios in the world for a ﬁnancial
services group of our size, business mix and complexity. Asset
quality improved and we maintained our strong position in all
our core markets. Proﬁt before tax on a statutory basis rose by
£265 million, or 7 per cent, to £3,886 million. Retained proﬁt
for the year was £1,041 million, reﬂecting the signiﬁcant capital
generation within the Group. Income again grew satisfactorily
with continuing margin pressure in retail markets more than
offset by good volume growth in a number of areas. We
achieved a record level of product sales, and market share
gains in many of our core markets. We are now selling more
retail products and servicing more personal customers than we
have ever done.

The quality of the Group’s earnings remained high and proﬁt
before tax from UK Retail Financial Services, encompassing UK
Retail Banking, Mortgages, and Insurance and Investments,
increased by £599 million, or 24 per cent, to £3,129 million.
This represents 74 per cent of total group proﬁt. Our Wholesale
Markets and International Banking divisions also continued to
make solid progress.

6 LLOYDS TSB GROUP

GROWTH

Going forward, the thrust of our strategy

is about the continuing investment in our

growth businesses to deliver organic

revenue growth through customer

relationship management, leveraging the

strength of our brands and our multi-

channel distribution capability, reducing

our day-to-day unit costs and driving

forward our e-commerce strategy. We also

intend to participate in the further

consolidation of ﬁnancial services, both in

the UK and overseas.

The implementation of our strategies will

ensure that, through proﬁtable top line

revenue growth and a strong grip on our

day-to-day operating costs, the Group can

continue to deliver a strong and

sustainable return on equity, together with

robust growth in equity and economic

proﬁt. The future for the ﬁnancial services

sector will undoubtedly be more

challenging than it has been in the past,

but we believe we are equipped with the

strategy, the staff, the management and the

determination to continue to succeed. 

A TAILOR-MADE
SERVICE GIVING VALUE
TO CUSTOMERS

SCOTTISH WIDOWS IS THE GROUP’S PROVIDER
OF LONG-TERM SAVINGS AND INVESTMENT
PRODUCTS. IN THE SECOND HALF OF 2000, SALES
FROM THE COMBINED LLOYDS TSB AND SCOTTISH
WIDOWS LIFE, PENSIONS AND UNIT TRUST
BUSINESSES INCREASED BY 19 PER CENT,
COMPARED TO THE SECOND HALF OF 1999.

LOOKING AHEAD

Given the increasing competition and
unprecedented level of change within our
industry, the quality of our staff will be
absolutely crucial to the success of our
organisation. During 2000, Lloyds TSB
staff at every level have responded with
vigour and commitment to the challenges
we face and they can be justly proud of
their achievements. Our staff are our
greatest asset, and I am conﬁdent that
they have the talent to ensure our
continued success. I am most grateful for
their tremendous contribution.

he has given to me during my four years

as Group Chief Executive, but also for his

unique contribution to the Lloyds TSB

Group and to British banking over the

past forty years. His retirement will

indeed mark the end of an era and we

wish him every happiness and success in

the next stage of his life. Maarten van

den Bergh succeeds Sir Brian in April and

I look forward to working equally closely

with him, over the next few years.

It gives me great pleasure to close by
paying tribute to Sir Brian Pitman, our
Chairman, who will retire in April, not
only for the signiﬁcant help and guidance

Peter Ellwood

Group Chief Executive

15 February 2001

LLOYDS TSB GROUP

7

our role in the 

community

Education’ we are working with 2,750

Strong communities form the building

blocks of business success and, with the

schools and 50 local education

largest community programme in the UK,

authorities to promote quality in school

Lloyds TSB has taken a leading role in

management and more than 600

making a positive difference to local

members of staff receive training and

communities.

support for their school governor

To help tackle ﬁnancial exclusion and

responsibilities. 

promote regeneration, we have launched

We continue to support those charitable

a new Bank Account for low-income

organisations that are the lifeblood of local

customers, developed a package of

communities through the Lloyds TSB

support for community credit unions and

Foundations. The four independent

extended our support for money advice

Foundations receive one per cent of

services. Working in partnership with

Lloyds TSB Group’s pre-tax proﬁts,

voluntary and public organisations, we

averaged over three years, in lieu of their

have also helped to create a blueprint for

shareholder dividend. In 2001, they will

a new community-based ﬁnancial service

receive more than £34 million to support

to bring mainstream ﬁnancial services to

registered charities and make £1.2 million

deprived communities. And to ensure

available to match funds raised, and time

that no community where we are currently

given, by staff to charities through the

represented is left without access to a

Matched Giving Scheme. 

bank, we will no longer close any Lloyds

TSB branch where, as of 1 May 2000,

we are the last bank in town.

Since the merger of Lloyds Bank and TSB

in 1995, including the £34 million to be

paid in respect of 2000, the four

We play an active role in education too.

Foundations will have received more than

Lloyds TSB Live! has provided more than

£120 million to distribute to charities,

900,000 secondary school children with

placing the Lloyds TSB Foundations

opportunities to take part in drama,

amongst the largest independent grant-

music and sport. Through ‘Quality in

giving trusts in the UK.

8 LLOYDS TSB GROUP

WE AIM TO SUPPORT
THOSE COMMUNITIES
THAT WE ALSO SERVE
AS A BUSINESS

34

31

27

21

13

96

97

98

99

00

DISTRIBUTION TO THE
LLOYDS TSB FOUNDATIONS (£M)

the businesses of

Lloyds TSB

Lloyds TSB is one of the leading UK-based ﬁnancial services

• Internet Banking. Internet Banking provides online banking

groups, whose businesses provide a comprehensive range of

facilities for personal and business customers and enables them

banking and ﬁnancial services in the UK and overseas. At the

to conduct their ﬁnancial affairs without using the branch

end of 2000 total group assets were £218 billion and there

network. Over 1.2 million customers have registered to use the

were over 77,000 employees. Market capitalisation was

Group’s internet banking services.

£39 billion.

• Business Banking. Small businesses are served by dedicated

The main businesses and activities of the Group during 2000

business managers based in over 450 locations throughout the

are described below:

UK Retail Financial Services encompasses three of the main

businesses – UK Retail Banking, Mortgages, and Insurance and

Investments – and provides a full range of banking and ﬁnancial

services to 16 million customers. With more than 2,400
branches of Lloyds TSB Bank, Lloyds TSB Scotland and

Cheltenham & Gloucester (C&G), the Group provides

UK. Customers have access to a full range of tailored business

services including money transmission, lending and deposits,

asset ﬁnance, factoring, mortgages, insurance and investments,

as well as success4business, an internet portal for business

customers. Lloyds TSB is the leading bank for new business
start-ups with around one in four opening accounts with the

Group.

comprehensive geographic coverage in England, Scotland and

• Private Banking and Stockbroking. Private Banking provides

Wales.

UK Retail Banking

• Current accounts, savings and investment accounts, and

consumer lending. The retail branches of Lloyds TSB Bank offer

a broad range of branded products and C&G provides retail

a range of tailor-made wealth management services and

products to individuals from 40 ofﬁces throughout the UK. In

addition to asset management, these include tax and estate

planning, executor and trustee services, deposit taking and

lending, insurance, and personal equity plan and ISA products.

At the end of 2000, funds managed and administered totalled

investments through its branch network and a postal investment

some £12 billion.

centre.

• Card Services provides a range of card-based products and

services, including credit and debit cards and card processing

services for retailers. The Group is a member of both the VISA

Lloyds TSB Stockbrokers undertakes retail stockbroking

through its Sharedeal Direct telephone service.

Mortgages

and MasterCard payment systems and is the third largest credit

Cheltenham & Gloucester is the Group’s specialist residential

card issuer in the UK.

• Cash machines. The Group has one of the largest cash

machine networks of any leading banking group in the UK and

personal customers of Lloyds TSB Bank are able to withdraw

cash, check balances and obtain mini statements through 4,400

cashpoints at branches and external locations around the country.

In addition, they have access to a further 27,000 cash machines

mortgage provider, selling its mortgages through branches of

C&G and Lloyds TSB Bank in England and Wales, as well as

through the telephone, internet and postal service, C&G
TeleDirect. The Group is the third largest residential mortgage

lender in the UK, with a market share of 9.8 per cent, loans

outstanding at the end of 2000 of £52.7 billion and 

over 980,000 borrowers.

via LINK in the UK and to cash machines worldwide through the

Insurance and Investments

VISA and MasterCard networks.

• Scottish Widows is the Group’s specialist provider of life

• Telephone Banking. Telephone Banking continues to grow and

assurance, pensions and investment products, which are

the Group provides one of the largest telephony services in Europe.

distributed through the Lloyds TSB branch network, through

At the end of 2000 over 2.0 million customers had registered to

independent ﬁnancial advisers and directly via the telephone

use the services of PhoneBank and the automated voice response

and the internet.

service PhoneBank Express.

LLOYDS TSB GROUP

9

the businesses of Lloyds TSB

• General insurance. Lloyds TSB General Insurance provides

International Banking

general insurance and broking services through the retail

branches of Lloyds TSB Bank and C&G, and through a direct

telephone operation and the internet. The business is the

market leader in the distribution of household insurance 

in the UK.

• Scottish Widows Investment Partnership manages funds for

the Group’s retail life, pensions and investment products.

Clients also include corporate pension schemes, local

• The Americas. The Group has operated in The Americas for

over 130 years and has ofﬁces in Argentina, Brazil, Colombia

and 6 other countries. In addition there are private banking and

investment operations in the United States and the Bahamas.

• New Zealand. The National Bank of New Zealand is the

country’s second largest bank and provides a full range of

banking services through some 160 outlets.

authorities and other institutions in the UK and overseas. At the

end of 2000 funds under management totalled some 

• Europe. International Private Banking covers services to

wealthy individuals outside their country of residence. The

£87 billion.

Wholesale Markets

The Group’s relationships with major UK and multinational

companies, banks and institutions, and medium-sized 

UK businesses, together with its activities in ﬁnancial markets,

are managed through dedicated ofﬁces in the UK and a number

of locations overseas, including New York and Tokyo.

business is conducted through Switzerland and through 4 other

countries overseas. There are additional private and corporate

banking operations in Spain and France.

• Offshore Banking comprises all the Group’s ofﬁces in the

Channel Islands and Isle of Man, as well as its operations in

Hong Kong, Singapore and Malaysia and representation in

Belgium, Dubai and in the USA. It provides a full range of retail
banking, private banking and ﬁnancial services to overseas

• Treasury is a leading participant in foreign exchange, money

residents and islanders, together with deposit services offshore

and certain derivatives markets to meet the needs of customers,

for UK residents.

and as part of the Group’s trading activities, including liquidity

management.

• Corporate and Commercial provides a full range of banking

and related services, including electronic banking, large value

lease ﬁnance, share registration, venture capital, correspondent

banking and capital markets services to major UK and

multinational companies, ﬁnancial institutions and, through a

network of dedicated ofﬁces, to medium-sized businesses in the

UK. The Agricultural Mortgage Corporation provides long-term

ﬁnance for the agricultural sector.

• Asset ﬁnance provides leasing, hire purchase and loan

products to the corporate and personal sectors through the

Lloyds UDT, Chartered Trust and Lloyds TSB Autolease brands.

Lloyds TSB Commercial Finance and Alex Lawrie Factors are

leading invoice discounting and factoring companies, providing

ﬁnance to developing companies.

10 LLOYDS TSB GROUP

ﬁnancial review

ACCOUNTING POLICIES AND PRESENTATION

Accounting policies are set out on pages 55 to 57. During the year, the Group implemented the requirements of Financial

Reporting Standard 15, ‘Tangible Fixed Assets’; this has resulted in two changes. The Group’s freehold and long leasehold

premises were previously included in the balance sheet at the last valuation on the basis of existing use value. Following the

implementation of the new standard the Group’s premises will no longer be revalued, and a prior year adjustment has been

made  to  restate  the  carrying  value  to  historical  cost.  This  has  resulted  in  the  carrying  value  of  tangible  ﬁxed  assets  as  at

1 January 1999 being reduced by £112 million and an equivalent adjustment being made against reserves. The effect of

this change upon the Group’s proﬁt and loss account is not signiﬁcant.

In  addition,  the  Group  has  reassessed  the  useful  economic  lives  and  residual  values  of  its  freehold  and  long  leasehold

premises  and  with  effect  from  1 January  2000,  the  cost  of  these  properties,  after  deducting  the  value  of  land,  is  being

depreciated  over  50  years.  Previously  it  was  considered  that  the  residual  values  were  such  that  depreciation  was  not

signiﬁcant. The effect of this change has been to increase the depreciation charge in 2000 by £8 million.

The Group has also changed its presentation of assets held for leasing to customers under operating lease agreements. These

assets are now included within tangible ﬁxed assets and depreciation charged over their estimated useful economic lives.

Rental income received from customers is included within other operating income. Operating lease assets were previously

included within loans and advances and the related income within net interest income. This change has no effect on proﬁt

before tax. The effect of this change on the balance sheet has been to increase tangible ﬁxed assets by £1,280 million and

reduce loans and advances to customers by an equivalent amount (31 December 1999: £479 million). Comparative ﬁgures

have been restated.

On 3 March 2000 the Group completed the acquisition of Scottish Widows and, as a result, the investments now held to

support  the  with-proﬁts  business  of  the  Group’s  life  companies  are  much  more  signiﬁcant  than  in  previous  years.  In

accordance with generally accepted accounting practice amongst listed insurance companies in the UK, the results of the

Group’s  insurance  businesses  have  been  separately  analysed  between  an  operating  proﬁt,  which  includes  investment

earnings calculated using longer-term rates of investment return, and a proﬁt before tax, separately identifying the short-term

ﬂuctuations in investment returns (page 28).

Other items also had a signiﬁcant impact on the Group’s 2000 results: changes in the economic assumptions applied to our

long-term assurance business (page 29), exceptional restructuring costs (page 27), the impact of provisions for redress to

past purchasers of pension policies (page 17) and a one-off charge relating to stakeholder pensions (page 17). In 1999, the

sale  and  closure  of  businesses  was  also  signiﬁcant  (page  58).  To  facilitate  comparisons  of  the  results,  certain  ﬁnancial

information and commentaries have been presented on a ‘business as usual operating proﬁt’ basis, which excludes the effect

of these items.

SUMMARY OF GROUP RESULTS

As  mentioned  above,  2000  ﬁgures  contain  a  number  of  items  which  had  a  signiﬁcant  impact  on  the  Group’s  results.

Excluding the impact of these items, proﬁt before tax on a business as usual basis rose by £425 million, or 11 per cent, to

£4,246 million from £3,821 million in 1999. Total income increased by 8 per cent, operating expenses increased by 10 per

cent and there was a 6 per cent increase in the trading surplus. Customer lending and deposits continued to grow, however

the net interest margin decreased by 37 basis points to 3.49 per cent, partly as a result of the impact of the funding cost of

the purchase of Scottish Widows which, as expected, reduced the margin by 20 basis points. Excluding the funding cost of

Scottish Widows, the group net interest margin in the second half of 2000 was 3.67 per cent, compared with 3.70 per cent

in the ﬁrst half of the year. Good volume growth in customer lending and deposits more than compensated for the decrease

in the margin. The efﬁciency ratio was 43.6 per cent compared with 42.7 per cent in 1999. Proﬁt attributable to shareholders

increased by 11 per cent, earnings per share increased by 10 per cent to 54.5p and economic proﬁt increased by 10 per

cent to £2,142 million. The post-tax return on average shareholders’ equity was 31.8 per cent, compared with 32.7 per cent

in 1999. The post-tax return on average assets increased to 1.92 per cent from 1.82 per cent in 1999, and the post-tax

return on average risk-weighted assets increased to 3.44 per cent from 3.24 per cent.

LLOYDS TSB GROUP

11

ﬁnancial review

SUMMARY OF GROUP RESULTS (CONTINUED)

Proﬁt before tax on a statutory basis rose by £265 million, or 7 per cent, to £3,886 million from £3,621 million in 1999.

Economic proﬁt increased by 6 per cent to £1,882 million, earnings per share increased by 7 per cent to 49.6p, shareholders’

equity increased by 13 per cent and the post-tax return on average shareholders’ equity was 29.1 per cent.

The transfer of Scottish Widows’ business to the Lloyds TSB Group was completed on 3 March 2000 and the results of the

Scottish Widows’ business have been consolidated in full with effect from that date. On a business as usual basis, Scottish

Widows  contributed  £403  million  since  3  March  2000,  before  taking  into  account  funding  costs  of  £258  million.  This

compares with normalised pre-tax proﬁts of £349 million in 1999. As a result of the Scottish Widows acquisition, group fee

income increased to 46 per cent of total income in 2000, compared with 40 per cent in 1999. In 2000 the contribution

from  Insurance  and  Investments  rose  to  34  per  cent  of  group  proﬁt,  with  more  than  half  of  this  from  life,  pensions  and

unit trusts.

The acquisition of Chartered Trust was completed on 1 September 2000. Its results have been consolidated in full with effect

from that date and a restructuring provision of £21 million has been made to cover the costs of integrating Chartered Trust

and Lloyds UDT. Excluding this restructuring provision and £9 million goodwill amortisation, the impact on group ﬁgures has

been to increase net interest income by £31 million after funding costs of £12 million, increase other income by £53 million,

increase operating expenses by £62 million, increase the provisions charge by £12 million and increase proﬁt before tax by

£10 million.

As previously anticipated, we incurred £188 million exceptional restructuring costs in 2000. E-commerce investment costs

totalled approximately £150 million. Cost control will remain very important but a core element of our strategies is to continue

to increase investment to underpin further our competitiveness and revenue growth opportunities. These strategies are aimed

at increasing economic proﬁt from many of the Group’s higher growth markets, particularly wealth management, long-term

savings and investments, business banking and the further segmentation of our core retail franchise. Accordingly, the Group’s

efﬁciency ratio is expected to improve further over time but we no longer believe that it is appropriate to be constrained by a

separate efﬁciency ratio target.

The total group charge for bad and doubtful debts was 19 per cent lower at £475 million, compared with £588 million in

1999. The domestic charge decreased to £426 million from £500 million, lower provisions in retail banking and mortgages

were partially offset by a higher charge in the motor ﬁnance businesses. Provisions overseas decreased to £49 million from

£88 million mainly as a result of higher Emerging Market Debt provision releases, following debt repayments and some asset

sales, which offset higher provisions in Argentina. The Group’s charge for bad and doubtful debts, expressed as a percentage

of average lending, was 0.43 per cent compared to 0.57 per cent in 1999. At the end of the year speciﬁc provisions for bad

and doubtful debts for the Group totalled £1,816 million, representing over 140 per cent of non-performing loans.

The  total  capital  ratio  was  9.0  per  cent  and  the  tier  1  capital  ratio  was  8.2  per  cent.  Balance  sheet  assets  increased  by

£42 billion, or 24 per cent, to £218 billion from £176 billion at the end of 1999. £25 billion of this growth was represented

by  an  increase  in  long-term  assurance  liabilities  to  policyholders  following  the  acquisition  of  Scottish  Widows.  Loans  and

advances  to  customers  increased  by  £12  billion,  or  12  per  cent.  Risk-weighted  assets  increased  by  11  per  cent  to

£93.5 billion from £84.1 billion at the end of 1999.

Staff eligible to participate in the staff proﬁt sharing scheme will receive 10 per cent of basic salary (1999: 10.5 per cent).

The total payment will be £108 million (1999: £104 million).

12 LLOYDS TSB GROUP

ﬁnancial review

QUALITY OF EARNINGS

Insurance and Investments
 33% (1999: 24%)

UK Retail Banking
19% (1999: 21%)

Wholesale Markets
17% (1999: 20%)

Mortgages
    20% (1999: 23%)

International Banking 
    11% (1999: 12%)

excluding central group items

for the year ended 31 December 2000

PROFIT BEFORE TAX BY MAIN BUSINESSES

UK Retail Financial Services

Total proﬁt before tax on a business as usual basis from UK Retail Financial Services, which encompasses UK Retail Banking,

Mortgages,  and  Insurance  and  Investments,  increased  by  £599  million,  or  24  per  cent,  to  £3,129  million  from 

£2,530 million in 1999.

UK Retail Banking and Mortgages

Total  proﬁt  before 

tax 

from  UK  Retail  Banking  and  Mortgages  rose  by  £25  million,  or  2  per  cent, 

to 

£1,682 million. Total income increased by 2 per cent and costs increased by 7 per cent, largely as a result of e-commerce

investment costs and higher marketing costs. Bad debt provisions decreased by £93 million, or 22 per cent, to £332 million

largely  due  to  the  good  economic  conditions  during  2000,  and  a  one-off  beneﬁt  of  £42  million  arising  from  a  change  in

methodology for retail provisioning to recognise more accurately the amount that the Group expects to recover.

Net interest income
Other income

Total income
Operating expenses

Trading surplus
Provisions for bad and doubtful debts

Proﬁt before tax

Proﬁt before tax:
UK Retail Banking
Mortgages

Efﬁciency ratio
Total assets (year-end)
Total risk-weighted assets (year-end)

UK Retail Banking

2000
£m
aaaaaffffffffffffffffffffffffff

2,962
1,143
aaaaaffffffffffffffffffffffffff

4,105
2,091
aaaaaffffffffffffffffffffffffff

2,014
332
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
1,682

817
865
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
1,682
50.9%
£71.3bn
£44.0bn

1999
£m
aaaaaffffffffffffffffffffffffff

2,943
1,090
aaaaaffffffffffffffffffffffffff

4,033
1,951
aaaaaffffffffffffffffffffffffff

2,082
425
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
1,657

789
868
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
1,657
48.4%
£64.3bn
£39.7bn

(the UK retail businesses of Lloyds TSB, providing banking and ﬁnancial services to personal and small business customers;

private banking; and stockbroking)

Pre-tax proﬁt from UK Retail Banking rose by £28 million, or 4 per cent, to £817 million. Total income increased by 2 per

cent, costs increased by 7 per cent largely as a result of e-commerce investment costs, and there was a reduction of 19 per

cent in bad debt provisions. A signiﬁcant element of the proﬁtability of the Group’s insurance operations is also driven through

the relationship we have with our substantial retail customer base.

LLOYDS TSB GROUP

13

ﬁnancial review

UK Retail Banking (continued)

Personal loans and credit card lending increased by 9 per cent since the end of 1999 and balances on current accounts and

savings and investment accounts grew by 10 per cent over the same period, supported by the launch of a number of new

products. The popularity of the Group’s Added Value current accounts continued with Lloyds TSB maintaining its position as

a market leader in this area with over 2 million accounts in operation. The Group also continues to maintain market-leading

positions in many of its core markets, including personal current accounts, savings and business banking.

We have continued to develop a number of alternative distribution channels in order to offer a broad range of access points

for our customers thereby improving service and enhancing revenue growth. PhoneBank, our telephone banking operation,

is one of the largest in Europe with 1.3 million customers. In addition, PhoneBank Express, our leading edge interactive voice

recognition system, now has over 700,000 registered users. PhoneBank and PhoneBank Express handled 23.5 million calls

during the year. Our supermarket banking operation, branded ‘easibank’, continues to expand and we now have 22 branches

in  ASDA  stores  or  large  shopping  centres.  We  have  extended  our  relationship  with  the  Post  Ofﬁce  to  allow  our  personal

customers to undertake banking transactions in post ofﬁces in Scotland, in addition to our existing arrangements in England

and Wales.

We continue to make substantial progress with our e-commerce strategy. We exceeded our target of 1 million online customers

of LloydsTSB.com by the end of 2000 and we now have over 1.2 million customers registered to use our online banking

service. LloydsTSB.com is now consistently one of the most visited ﬁnancial websites in Europe. We successfully launched

our standalone internet bank, evolvebank.com, in Spain during November 2000.

We  have  also  made  substantial  progress  on  a  number  of  initiatives  for  business  customers.  The  Group  has  launched

success4business.com, an internet portal designed to help small business customers maximise opportunities in e-commerce,

and LloydsTSBMarketplace, a trade facilitation web service, that allows suppliers and buyers access to a secure e-enabled

environment to conduct business with a wide variety of companies within their speciﬁc marketplace.

Our  new  e-procurement  system  has  recently  been  launched  throughout  the  Group  and  over  8,000  staff  can  now  make

purchases from their desktop PCs, saving substantial time and money as all purchases are made using the Group’s preferred

suppliers with whom discounts have been negotiated.

On 20 July 2000 the Group announced a mobile banking offer, in association with BT Cellnet, that will provide Lloyds TSB

customers with access to the Bank’s internet banking service, as well as a range of other online services. We have also started

to  provide,  in  association  with  Telewest,  a  product  information  service  on  digital  interactive  television,  and  will  launch  a

banking service in Spring 2001.

On  24  July  2000  the  Group  announced  the  launch  of  a  £20  million  joint  venture  with  antfactory,  a  leading  European

e-commerce investment company. The new joint venture, called Valuefactory Ventures, aims to identify, invest in and develop

global  new  economy  businesses  as  standalone,  value-creating  companies.  The  focus  will  be  on  investment  opportunities

which can beneﬁt from the resources and capabilities of Lloyds TSB and antfactory.

On  15  August  2000  the  Group  announced  the  creation  of  a  new  payments  processing  company  –  Intelligent  Processing

Solutions Limited (iPSL) – in conjunction with Unisys and Barclays. iPSL, which is 24.5 per cent owned by Lloyds TSB, will

handle all the Group’s cheque processing activities. With increased levels of electronic banking leading to a decline in the

volume  of  cheques  being  processed,  iPSL  provides  the  economies  of  scale  needed  to  offset  the  increasing  unit  cost  of

processing cheques.

On 13 December 2000 the Group announced that it had agreed to form a joint venture between Goldﬁsh, Centrica’s ﬁnancial

services brand, and evolvebank.com, Lloyds TSB’s standalone internet banking operation. The joint venture will be known

as Goldﬁsh Holdings Ltd. Centrica will have a 70 per cent share of the joint venture and Lloyds TSB will have a 30 per cent

share. The joint venture intends to offer a broad range of integrated ﬁnancial services products from which customers can

select to meet their individual needs. evolvebank.com will provide technology and banking expertise, together with Lloyds

TSB’s  track  record  in  bancassurance  and  regulatory  experience.  Centrica  will  bring  the  Goldﬁsh  brand,  together  with

immediate access to 9 million Centrica customers.

14 LLOYDS TSB GROUP

ﬁnancial review

UK Retail Banking (continued)

Business  Banking  continues  to  attract  a  substantial  number  of  new  customers  and  has  further  consolidated  the  Group’s

position as a market leader in the recruitment of start-up businesses. Some 116,000 new business customers chose Lloyds

TSB during the year. Revenue growth and proﬁtability has again improved based on a 14 per cent increase in lodgements,

a 13 per cent increase in lending and increased sales of insurance, mortgages and investment products. Business Banking

has, during 2000, successfully launched four new relationship offers which provide our small business customers with a

choice of options regarding the level of business and banking support they require from Lloyds TSB. Following a pilot study

in May 2000, full national roll out has commenced and supports our strategy of increasing market share from 19 per cent

in 1999 to 23 per cent in 2003.

In  our  UK  wealth  management  businesses,  UK  Private  Banking  had  another  successful  year.  Proﬁt  before  tax  increased

by 11 per cent to £110 million, from £99 million in 1999. £1.5 billion of new funds were gained during the year and total

funds  managed  and  administered  now  stand  at  some  £12.2  billion.  Lloyds  TSB  Stockbrokers,  one  of  the  largest  retail

stockbrokers in the UK, continued to perform well as high transaction levels were combined with efﬁciency gains. Pre-tax

proﬁt increased to £23 million compared with £21 million last year.

A new wealth management strategy, based on providing a new set of products and services for more afﬂuent customers, is now

being  implemented  under  a  new  brand  ‘Create’.  For  these  customers  we  will  provide  tailored  independent  advice,  superior

service and a choice of investment options from quality providers. Key elements will be our online share dealing and funds

hypermarket,  and  a  new  Wealth  Management  Account  that  will  allow  consolidation  of  all  ﬁnancial  products  into  a  single

account.  The  Create  offer  will  be  underpinned  by  access  to  the  comprehensive  broking  services  of  Goldman  Sachs

PrimeAccess™.  This  service  will  provide  clients  with  customised  proprietary  research  from  Goldman  Sachs,  international 

equity dealing and market making, custody and settlement, and access to selected equity capital market offerings managed by

Goldman Sachs.

Create forms a key part of Lloyds TSB’s revenue growth strategy and expects to have around 250,000 clients by the end of

2002.  Lloyds  TSB  currently  makes  pre-tax  proﬁts  of  some  £300  million  annually  from  wealth  management  in  the  UK  and

overseas, and believes that this can be doubled within four years of Create’s full market launch this summer.

Mortgages

(covering  the  Group’s  total  UK  mortgage  business  through  Cheltenham  &  Gloucester,  Lloyds  TSB,  Lloyds  TSB  Scotland,

Scottish Widows Bank and C&G TeleDirect)

Proﬁt before tax
Efﬁciency ratio

Gross new mortgage lending
Market share of gross new mortgage lending
Net new mortgage lending
Market share of net new mortgage lending
Mortgages outstanding (year-end)
Market share of mortgages outstanding

2000
aaaaaffffffffffffffffffffffffff

£865m
23.9%

£11.5bn
9.6%
£4.6bn
11.4%
£52.7bn
9.8%

1999
aaaaaffffffffffffffffffffffffff

£868m
22.6%

£10.7bn
9.4%
£2.8bn
7.4%
£47.5bn
9.5%

Intense competition in the mortgage market was evident throughout the year leading, as anticipated, to a lower net interest

margin which resulted in pre-tax proﬁt from Mortgages decreasing by £3 million to £865 million, from £868 million in 1999.

Proﬁt before tax in the second half of 2000 was £436 million, £7 million, or 2 per cent, higher than in the ﬁrst half of the

year. The efﬁciency ratio of the Group’s total mortgage business was 23.9 per cent compared with 22.6 per cent in 1999.

The Group continues to be one of the most efﬁcient mortgage providers in the UK.

Against this competitive background, the Group achieved in excess of its natural market share of net new lending. Gross new

lending  increased  by  7  per  cent  to  £11.5  billion,  compared  with  £10.7 billion  a  year  ago,  and  net  new  lending  was 

£4.6 billion, signiﬁcantly higher than £2.8 billion last year. This represented an estimated market share of net new lending

of 11.4 per cent, higher than our 9.8 per cent share of mortgages outstanding, and is particularly encouraging given that

mortgages are key recruitment products for other retail products and services.

LLOYDS TSB GROUP

15

ﬁnancial review

Mortgages (continued)

C&G continues to beneﬁt from mortgage sales distribution through the Lloyds TSB branch network, the IFA market and from

the strength of the C&G brand. Once again the provision of a ﬁrst class service has been a signiﬁcant factor with independent

ﬁnancial advisers awarding C&G its sixth consecutive 5-star rating in the 2000 Financial Adviser service awards. Business

levels sourced from intermediaries remain strong.

A  relatively  low  arrears  position  and  the  beneﬁcial  effect  of  house  price  increases  have  meant  that  bad  debt  provisions

remained at a low level. New provisions were offset by releases and recoveries resulting in a net credit of £13 million for the

year, compared with a credit of £3 million in 1999. The quality of our mortgage lending remains very satisfactory.

Insurance and Investments

(the life, pensions and unit trust businesses of Scottish Widows and Abbey Life; general insurance underwriting and broking;

and Scottish Widows Investment Partnership)

Life and pensions:
Scottish Widows
Lloyds TSB bancassurance
Abbey Life

General insurance

Operating proﬁt from Insurance*
Scottish Widows Investment Partnership:
Scottish Widows
Hill Samuel Asset Management

Total operating proﬁt*

Short-term ﬂuctuations in investment returns
Changes in economic assumptions
Pension provisions
Stakeholder pension related charge

2000
£m
aaaaaffffffffffffffffffffffffff

393
259
164
aaaaaffffffffffffffffffffffffff

816
591
aaaaaffffffffffffffffffffffffff

1,407

10
30

40
aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff

1,447

(119)
127
(100)
(80)

1999
£m
aaaaaffffffffffffffffffffffffff

–
234
156
aaaaaffffffffffffffffffffffffff

390
461
aaaaaffffffffffffffffffffffffff

851

–
22

22
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
873
28
–
(102)
–

* including ‘normalised’ investment returns based on long-term rates of investment return and excluding changes in the economic assumptions applied

to our long-term assurance business, pension provisions and stakeholder pension related charge

Operating proﬁt, including investment returns based on long-term rates of investment return, from Insurance and Investments

increased by 66 per cent to £1,447 million from £873 million, largely as a result of the inclusion, since 3 March 2000, of

Scottish  Widows  within  our  life  and  pensions  business.  Since  that  date  Scottish  Widows  contributed  pre-tax  proﬁts  of

£403 million, before funding costs of £258 million. This compares with normalised pre-tax proﬁts of £349 million in 1999.

Proﬁt before tax from our life and pensions business increased by £426 million, or 109 per cent, to £816 million. Weighted sales

of life, pensions and unit trusts increased by 40 per cent as the sale, on 1 February 2000, of the new business capability of Abbey

Life was offset by the inclusion, from 3 March 2000, of Scottish Widows.

Pre-tax proﬁt from general insurance operations, comprising underwriting and broking, rose by  £130 million, or 28 per cent,

to £591 million, mainly as a result of continued strong revenue growth and an improvement in our claims experience. The

Group has maintained its position as a leading distributor of personal lines insurance in the UK.

The merger of Scottish Widows Investment Management and Hill Samuel Asset Management was completed on 30 June

2000,  and  the  enlarged  asset  management  operation  was  launched  under  a  new  brand,  Scottish  Widows  Investment

Partnership. The creation of Scottish Widows Investment Partnership, with some £87 billion of funds under management,

has  enabled  the  Group  to  become  a  leading  player  in  the  asset  management  business.  Pre-tax  proﬁt  from  investment

management for the year was £40 million, up 82 per cent from £22 million in 1999, largely as a result of the inclusion,

since 3 March 2000, of the Scottish Widows investment management business.

16 LLOYDS TSB GROUP

Life and pensions (including unit trusts)

New business
Existing business
Investment earnings
Life and pensions distribution costs

Unit trusts
Unit trust distribution costs

Operating proﬁt*

ﬁnancial review

2000
£m
aaaaaffffffffffffffffffffffffff

1999
£m
aaaaaffffffffffffffffffffffffff

281
500
212
(225)

768

157
(109)

48
aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff

816

134
260
38
(99)

333

138
(81)

57
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
390

* * including ‘normalised’ investment returns based on long-term rates of investment return

Weighted sales of life, pensions and unit trusts increased by 40 per cent to £789.5 million from £565.2 million in 1999 as

a result of the inclusion, from 3 March 2000, of Scottish Widows. The withdrawal from sale of mortgage-related endowment

policies slowed the sales of regular premium life policies.

On a pro forma basis, weighted sales for the combined Lloyds TSB bancassurance and Scottish Widows life, pensions and unit

trust businesses were £711.0 million, compared to £713.1 million in 1999. By distribution channel pro forma weighted sales

in 2000 were £353.3 million from the branch network, £280.8 million from independent ﬁnancial advisers and £76.9 million

from direct channels, compared with £355.2 million, £296.5 million and £61.4 million respectively in 1999. In the second

half of 2000, weighted sales increased by 19 per cent from £318.4 million in the second half of 1999 to £379.8 million. In

2001, we anticipate that our sales growth will exceed overall market growth.

From the date of acquisition, Scottish Widows products have been available throughout the Lloyds TSB branch network, as

well as via independent ﬁnancial advisers and directly from Scottish Widows itself. From August 2000, Scottish Widows has

successfully been selling term assurance to Cheltenham & Gloucester customers.

Scottish Widows maintained its 5-star awards from independent ﬁnancial advisers in both the Life and Pensions and Investment

Provider ratings. This is the ﬁfth consecutive Life and Pensions Provider 5-star award and the fourth consecutive Investment

Provider 5-star award.

The adequacy of the provision for redress to past purchasers of pension policies has been reviewed in the light of the changes

arising from SERPS adjustments, further experience and improved knowledge as to the number and size of compensation

claims likely to be paid. The cost of redress is forecast to increase by £100 million and a provision of this amount has been

made,  bringing  the  total  provision  charged  for  this  purpose  to  £902  million,  of  which  £654  million  had  been  used  at

31 December 2000.

Stakeholder pensions will be introduced from 6 April 2001, with charges on these new products being limited by Government

to a maximum of 1 per cent per annum. In order not to disadvantage existing pensions customers, charges will be reduced

on our existing book. This will have the effect of reducing future cash ﬂows in the Group’s embedded value calculation and

a one-off charge of £80 million has therefore been made to the 2000 proﬁt and loss account.

In 1998, a provision was made within Abbey Life for liabilities under certain unit-linked products with guaranteed annuity

options  written  in  the  mid-1960s  to  the  mid-1980s  and  at  31  December  2000  this  provision  was  £152  million.  We

continually review the adequacy of the provision and remain satisﬁed that no further provision is necessary at this stage. As

part of the acquisition of Scottish Widows by the Group, certain measures were taken to protect shareholders from any likely

potential exposure to this issue. Scottish Widows has assets to match its liabilities in respect of guaranteed annuity options.

The assets are held in such a way that should a change in interest rates cause the liabilities to increase then the assets will

also increase to reﬂect this.

LLOYDS TSB GROUP

17

ﬁnancial review

Life and pensions (including unit trusts) (continued)

Total new business premium income and unit trust sales:
Regular premiums
Single premiums
Unit trusts
Weighted sales (regular + 1⁄10 single)

Weighted sales by distribution channel:
Branch network
Independent ﬁnancial advisers
Direct
Fund management

Scottish Widows (including bancassurance):
Regular premiums:
Life – mortgage related

– non-mortgage related

Pensions
Fund management
Health

Total regular premiums

Single premiums:
Life
Annuities
Pensions
Fund management

Total single premiums

External unit trust sales:
Regular payments
Single amounts

Total external unit trust sales

Abbey Life:*
Single premiums
Regular premiums
External unit trust sales:
Regular payments
Single amounts

2000
£m
aaaaaffffffffffffffffffffffffff

158.1
3,501.4
1,993.3
789.5

353.3
253.0
69.5
113.7
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
789.5

23.6
19.2
105.2
1.2
5.6
aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff

154.8

1,196.5
327.1
830.8
1,125.3
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
3,479.7

90.9
1,899.1
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
1,990.0

21.7
3.3

0.1
3.2

1999
£m
aaaaaffffffffffffffffffffffffff

129.4
1,875.7
1,770.2
565.2

355.2
92.8
9.3
107.9
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
565.2

31.4
9.8
28.2
–
4.9
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
74.3

329.6
101.7
79.3
1,079.0
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
1,589.6

76.7
1,624.5
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
1,701.2

286.1
55.1

2.4
66.6

Total life funds under management

51,085

26,542

* The Group disposed of the new business capability of Abbey Life on 1 February 2000

18 LLOYDS TSB GROUP

General Insurance

Premium income from underwriting:
Creditor
Home
Health
Other
Re-insurance premiums

Commissions from insurance broking:
Creditor
Home
Health
Other

Operating proﬁt*

* including ‘normalised’ investment returns based on long-term rates of investment return

ﬁnancial review

2000
£m
aaaaaffffffffffffffffffffffffff

126
228
50
–
(5)
aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff

399

225
34
19
120
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
398
591

1999
£m
aaaaaffffffffffffffffffffffffff

136
203
55
1
(5)
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
390

175
35
21
96
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
327
461

Operating  proﬁt,  excluding  short-term  ﬂuctuations  in  investment  returns,  from  general  insurance  operations,  comprising

underwriting and broking, rose by £130 million, or 28 per cent, to £591 million.

Income from creditor insurance increased by 13 per cent, reﬂecting higher personal and business sector lending. Sales of

home insurance policies increased by 10 per cent, with strong growth in both branch network and direct sales. Lloyds TSB

is now the leading distributor of household insurance in the UK. Overall new business sales in 2000 were over 2.4 million,

14 per  cent  higher  than  in  1999,  of  which  over  900,000  were  home  insurance  policies.  The  overall  increase  in  sales,

together  with  renewal  business,  produced  a  22  per  cent  increase  in  commission  income  from  broking  and  a  2  per  cent

increase in earned premium income from underwriting. Investment income, on a normalised basis, increased by 37 per cent

to £67 million.

The overall claims ratio of 35.1 per cent was lower than in 1999 (42.8 per cent). Claims were £27 million, or 16 per cent,

lower  at  £142  million  than  in  last  year.  This  reﬂected  the  favourable  impact  on  our  creditor  products  of  good  economic

conditions throughout the year, partly offset by the adverse weather conditions in the autumn.

The Group now has six general insurance products live on interactive television and has full quote and buy functionality on

the internet for home, motor and travel insurance.

Wholesale Markets

(banking, treasury, large value lease ﬁnance, long-term agricultural ﬁnance, share registration, venture capital, factoring and

invoice discounting, and other related services for major UK and multinational companies, banks and ﬁnancial institutions,

and medium-sized UK businesses; and Lloyds UDT)

Net interest income
Other income

Total income
Operating expenses

Trading surplus
Provisions for bad and doubtful debts
Amounts written off ﬁxed asset investments

Proﬁt before tax

Efﬁciency ratio
Total assets (year-end)
Total risk-weighted assets (year-end)

2000
£m
aaaaaffffffffffffffffffffffffff

900
622
aaaaaffffffffffffffffffffffffff

1,522
665
aaaaaffffffffffffffffffffffffff

857
94
14
aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff

749

43.7%
£65.7bn
£36.5bn

1999
£m
aaaaaffffffffffffffffffffffffff

930
444
aaaaaffffffffffffffffffffffffff

1,374
564
aaaaaffffffffffffffffffffffffff

810
75
7
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
728

41.0%
£61.5bn
£31.6bn

LLOYDS TSB GROUP

19

ﬁnancial review

Wholesale Markets (continued)

Wholesale Markets pre-tax proﬁt increased by £21 million, or 3 per cent, to £749 million. Provisions for bad and doubtful debts

increased by £19 million to £94 million largely as a result of a higher level of provisions in the motor ﬁnance businesses and

the acquisition of Chartered Trust. Total assets increased by 7 per cent and risk-weighted assets grew by 16 per cent reﬂecting

the acquisition of Chartered Trust. The efﬁciency ratio increased to 43.7 per cent, from 41.0 per cent in 1999, again reﬂecting

the acquisition of Chartered Trust.

Our Corporate and Financial Institutions businesses, serving the larger corporate market and ﬁnancial institutions, achieved

record results. Corporate Banking’s continuing focus on quality income growth ensured another strong performance. Bad debt

provisions  remain  at  a  relatively  low  level.  Lloyds  TSB Leasing  maintained  its  position  as  the  largest  ‘big  ticket’  leasing

company in the UK and Lloyds TSB Commercial Banking, serving the commercial middle market, continued to perform well,

with revenue increases, tight cost control and lower provisions all contributing to the achievement of record proﬁts for the

year.  Lloyds  TSB  Commercial  Finance  and  Alex  Lawrie  Factors,  two  of  the  leading  invoice  discounting  and  factoring

companies in the UK, expanded their range of specialist products and services and continued to grow their market share.

Lloyds TSB Development Capital continued to expand its presence in the venture capital market and achieved record proﬁts

in  2000.  The  Agricultural  Mortgage  Corporation  maintained  its  position  as  a  market  leader  in  the  provision  of  long-term

ﬁnance to farmers.

Lloyds TSB Registrars had another very successful year with income growing by 9 per cent and proﬁt by 41 per cent to a

record  £45  million.  During  the  year  shareview.co.uk,  our  unique  internet  information  service  for  shareholders,  was

successfully launched.

In  Treasury  Division  the  more  stable  interest  rate  environment,  compared  with  1999,  resulted  in  lower  income  from  our

interest rate management businesses. The Group’s activity in the derivatives markets continues to remain focused on straight

cash based products.

On 1 September 2000, the Group announced that its subsidiary, Lloyds UDT, had acquired Chartered Trust Group Plc and

ACL Autolease  Holdings  Limited  (‘Chartered  Trust’),  the  UK consumer  ﬁnance  and  contract  hire  subsidiaries  of  Standard

Chartered Bank, for a cash consideration of £614 million. The acquisition allowed the Group to consolidate its position as

market leader in the independent provision of motor ﬁnance and become one of the leading contract hire providers in the UK.

A restructuring provision of £21 million has been made to cover the costs of integrating Chartered Trust and Lloyds UDT.

International Banking

(banking and ﬁnancial services overseas in four main areas: The Americas, New Zealand, Europe and Offshore Banking;

and Emerging Markets Debt)

Net interest income
Other income

Total income
Operating expenses

Trading surplus
Provisions for bad and doubtful debts

Proﬁt before tax

Efﬁciency ratio
Total assets (year-end)
Total risk-weighted assets (year-end)

2000
£m
aaaaaffffffffffffffffffffffffff

753
386
aaaaaffffffffffffffffffffffffff

1,139
589
aaaaaffffffffffffffffffffffffff

550
49
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
501
51.7%
£19.2bn
£11.9bn

1999
£m
aaaaaffffffffffffffffffffffffff

734
378
aaaaaffffffffffffffffffffffffff

1,112
580
aaaaaffffffffffffffffffffffffff

532
88
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
444
52.2%
£19.4bn
£11.6bn

International  Banking  pre-tax  proﬁt  was  £57  million,  or  13  per  cent,  higher  at  £501  million  compared  with  1999  and

represented 12 per cent of group pre-tax proﬁt. 4 per cent related to our New Zealand business, 5 per cent to our Europe

and offshore banking operations, and 3 per cent to Latin America.

20 LLOYDS TSB GROUP

ﬁnancial review

International Banking (continued)

Proﬁts from New Zealand in local currency terms increased by 21 per cent. International private banking and the Group’s

offshore  banking  operations  both  showed  strong  improvements  over  1999  with  an  18  per  cent  increase  in  pre-tax  proﬁt

to £194 million, from £165 million in 1999.

Our consumer ﬁnance business in Brazil, Losango Consumer Finance, made a pre-tax proﬁt of £41 million,  compared with

a proﬁt of £31 million in 1999.

The  Emerging  Markets  Debt  portfolio  contributed  £104  million,  which  included  a  release  of  provisions  of  £85  million

following the repayment of debt by certain borrowers and some asset sales. This compared with a contribution of £48 million

in 1999, which included a release of provisions of £32 million.

At the end of December 2000 the Group’s provisionable exposure to Emerging Market economies which is included in loans

and advances was £1,352 million (December 1999: £1,328 million) against which provisions of £803 million (December

1999: £799 million) were held, giving cover of 59 per cent (December 1999: 60 per cent). Based on secondary market

prices, the surplus of market value over net book value of the total Emerging Markets Debt portfolio (including advances,

unapplied  interest  and  collateralised  bonds  held  as  investments)  was  more  than  £800  million  (December  1999:  £700

million).

Central group items

(earnings on surplus capital, central costs and other unallocated items)

Accrual for payment to Lloyds TSB Foundations
Earnings on surplus capital, central costs and other unallocated items

2000
£m
aaaaaffffffffffffffffffffffffff

(34)
(99)
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
(133)

1999
£m
aaaaaffffffffffffffffffffffffff

(31)
150
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
119

The four independent Lloyds TSB Foundations support registered charities throughout the UK that enable people, particularly

disabled and disadvantaged people, to play a fuller role in society. The Foundations receive 1 per cent of the Group’s pre-tax

proﬁt,  averaged  over  3  years,  instead  of  the  dividend  on  their  shareholdings.  In  2001  they  will  receive  £34  million 

(2000: £31 million) to distribute to charities, making them in aggregate one of the largest general grant-giving organisations

in the UK.

The reduction in earnings on surplus capital, central costs and other unallocated items in 2000 reﬂects the incorporation, for

the ﬁrst time, of the funding cost of the purchase of Scottish Widows.

Historically it has been the Group’s practice for central income items such as the earnings on surplus group capital and the

proﬁt  on  the  sale  of  investments  to  be  allocated  to  business  units  for  statutory  reporting  purposes.  To  avoid  unnecessary

volatility in business unit earnings, as a result of decisions at the Group Centre on the build up and use of surplus capital,

these central income items will in the future be reported within central group items. The effect on 1999 ﬁgures, which have

been restated, is an increase in central group items of £168 million offset by a commensurate reduction in business unit

earnings.

LLOYDS TSB GROUP

21

ﬁnancial review

NET INTEREST INCOME

Group:
Net interest income £m
Average interest-earning assets £m
Gross yield on interest-earning assets %
Interest spread %
Net interest margin %
Domestic:
Net interest income £m
Average interest-earning assets £m
Gross yield on interest-earning assets %
Interest spread %
Net interest margin %
International:
Net interest income £m
Average interest-earning assets £m
Gross yield on interest-earning assets %
Interest spread %
Net interest margin %

2000
aaaaaffffffffffffffffffffffffff

4,587
131,369
8.41
2.95
3.49

3,956
110,574
8.07
3.06
3.58

631
20,795
10.23
2.41
3.03

1999
aaaaaffffffffffffffffffffffffff

4,783
123,988
8.43
3.16
3.86

4,154
104,242
7.69
3.38
3.98

629
19,746
12.34
2.36
3.19

Notes:
a) Gross yield is the rate of interest earned on average interest-earning assets.
b) Interest spread is the difference between the rate of interest earned on average interest-earning assets and the rate of interest paid on average interest-
bearing liabilities.
c) Net interest margin is net interest income as a percentage of average interest-earning assets.
d)  The  analysis  of  net  interest  income  by  domestic  and  international  operations  shown  above  is  based  on  the  location  of  the  ofﬁce  recording  the
transaction, except for lending by the international business booked in London.
For details of payments made under cash gift and discount mortgage schemes, see page 65, note 31.

Excluding the £258 million funding cost of Scottish Widows, group net interest income increased by £62 million, or 1 per

cent, to £4,845 million, notwithstanding a reduction of £200 million caused by a 17 basis point reduction in the underlying

net  interest  margin.  This  £200  million  reduction  in  net  interest  income  was  more  than  offset  by  higher  volumes  of  both

customer lending and deposits. Average interest-earning assets increased by 6 per cent to £131 billion. There was further

growth in mortgages and other customer lending in the UK. The net interest margin decreased to 3.49 per cent, a reduction

of 37 basis points. The impact of the funding cost of Scottish Widows represented 20 basis points of this 37 basis point

reduction,  with  the  residual  17  basis  point  decrease  in  the  margin  reﬂecting  the  increasingly  competitive  operating

environment  and  a  lower  international  net  interest  margin.  Excluding  the  funding  cost  of  Scottish  Widows,  the  group  net

interest margin in the second half of 2000 was 3.67 per cent, compared with 3.70 per cent in the ﬁrst half of the year.

Domestic  net  interest  income  decreased  by  £198  million,  or  5  per  cent,  to  £3,956  million,  reﬂecting  the  £258  million

funding cost of Scottish Widows, and this represents 86 per cent of total group net interest income. Average interest-earning

assets increased by 6 per cent to £111 billion. There was further growth in mortgages and other customer lending. The net

interest margin decreased by 40 basis points to 3.58 per cent, again partly reﬂecting the funding cost of Scottish Widows,

which caused a reduction of 23 basis points. In addition, the increasingly competitive operating environment, particularly for

retail lending, and the higher cost of deposit products in a higher average interest rate environment caused an underlying

reduction of 17 basis points in the net interest margin. During the year the Group had strong growth in a number of ﬁner

margin products, particularly mortgages and preferentially priced savings accounts. Excluding the funding cost of Scottish

Widows, the domestic net interest margin in the second half of 2000 was 3.80 per cent, compared with 3.83 per cent in

the ﬁrst half of the year.

Net interest income from international operations increased by £2 million to £631 million, representing 14 per cent of total

group net interest income. Underlying growth on a local currency basis was largely offset by a £14 million reduction caused

by exchange rate movements. Average interest-earning assets on a local currency basis increased by 7 per cent, helped by

growth in our New Zealand mortgage portfolio, but this increase was partly offset by the effect of exchange rate movements.

The international net interest margin decreased by 16 basis points to 3.03 per cent. Whilst the interest spread held up well,

the gross yield on interest-earning assets fell signiﬁcantly as a result of lower interest rates in Latin America.

22 LLOYDS TSB GROUP

ﬁnancial review

OTHER INCOME

Other income increased by £737 million, or 23 per cent, to £3,882 million. This represented 46 per cent of total income.

Scottish  Widows  contributed  £317  million  of  this  increase.  Excluding  short-term  ﬂuctuations  in  investment  returns  in  our

insurance businesses, changes in the economic assumptions applied to our long-term assurance business, pension provisions

and  the  stakeholder  pension  related  charge  in  2000,  other  income  increased  by  £837  million,  or  26  per  cent,  to 

£4,054 million.

Fees  and  commissions  receivable  increased  by  11  per  cent  reﬂecting  increased  business  volumes  and  strong  growth  in

income from insurance broking. Other UK fees and commissions increased by 20 per cent, as a result of growth in all core

UK  businesses  and  the  impact  of  the  acquisition  of  Scottish  Widows.  International  fees  and  commissions  increased 

by 6 per cent.

Fees and commissions payable increased by £53 million against 1999, largely as a result of higher interchange fees for card

services and increased costs associated with a number of new products.

Income from long-term assurance business increased by £388 million, largely as a result of the impact of the acquisition of

Scottish  Widows.  General  insurance  premium  income  on  underwritten  business  increased  by  £9  million,  or  2  per  cent,

against 1999.

Other  operating  income  increased  by  £139  million,  largely  reﬂecting  the  acquisition  of  Chartered  Trust  and  increased

operating lease rental income within Lloyds TSB Leasing. There were also higher gains on the realisation of venture capital

investments.

Fees and commissions receivable:
UK current account fees
Other UK fees and commissions
Insurance broking 
Card services
International fees and commissions

Fees and commissions payable

Dealing proﬁts (before expenses):
Foreign exchange trading income
Securities and other gains

Income from long-term assurance business:
Income before pension provisions
Pension provisions

General insurance premium income
Other operating income

Total other income

2000
£m
aaaaaffffffffffffffffffffffffff

1999
£m
aaaaaffffffffffffffffffffffffff

629
1,171
398
304
266

2,768
(479)

141
57

198

715
(100)

615
399
381
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
3,882

663
978
327
279
250

2,497
(426)

133
82

215

329
(102)

227
390
242
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
3,145

LLOYDS TSB GROUP

23

ﬁnancial review

OPERATING EXPENSES

Administrative expenses
Staff:
Salaries and proﬁt sharing
National insurance
Pensions
Restructuring
Other staff costs

Premises and equipment:
Rent and rates
Hire of equipment
Repairs and maintenance
Other

Other expenses:
Communications and external data processing
Advertising and promotion
Professional fees
Other

Administrative expenses
Exceptional restructuring costs

Total administrative expenses
Depreciation
Amortisation of goodwill

Total operating expenses

Efﬁciency ratio
Efﬁciency ratio*

2000
£m
aaaaaffffffffffffffffffffffffff

1999
£m
aaaaaffffffffffffffffffffffffff

1,626
131
(105)
47
189

1,888

247
26
115
109

497

394
167
126
306

993
aaaaaffffffffffffffffffffffffff

3,378
188
aaaaaffffffffffffffffffffffffff

3,566
364
22
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
3,952
46.7%
43.6%

1,500
125
(108)
20
180

1,717

250
33
107
100

490

406
113
90
324

933
aaaaaffffffffffffffffffffffffff

3,140
–
aaaaaffffffffffffffffffffffffff

3,140
265
12
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
3,417
43.1%
42.7%

* excluding  short-term  ﬂuctuations  in  investment  returns,  changes  in  economic  assumptions,  exceptional  restructuring  costs,  pension  provisions  and

stakeholder pension related charge

Total operating expenses increased by £535 million, or 16 per cent, compared with 1999. On a like-for-like basis, excluding

exceptional restructuring costs of £188 million, increased costs following the acquisitions of Scottish Widows and Chartered

Trust of £117 million, and additional investments in revenue growth businesses and e-commerce of £224 million (1999:

£44 million), costs increased by 1 per cent to £3,423 million, from £3,373 million in 1999, less than the underlying rate

of inﬂation. Reduced costs in many areas were offset by higher staff costs, partly reﬂecting an increased accrual for proﬁt

sharing and millennium weekend overtime costs, increased advertising costs and a higher depreciation charge.

The  exceptional  restructuring  costs  of  £188  million  comprise  mainly  severance,  consultancy  costs,  the  write-down  of

equipment and the £21 million Chartered Trust restructuring provision. During 2001 we expect restructuring costs relating

to  the  efﬁciency  programme  to  be  approximately  £200  million,  reducing  to  approximately  £130  million  in  2002  and

£60 million  in  2003.  Annualised  cost  beneﬁts  resulting  from  these  investments  are  expected  to  total  approximately

£75 million in 2001 rising to £410 million in 2004. Expenditure on e-commerce in 2001 is expected to be similar to 2000

at  approximately  £150  million,  and  we  will  also  spend  £100  million  in  2001  to  deliver  our  new  wealth  management

strategies. Overall, the individual programmes associated with these costs are expected to achieve average payback within

three years.

The efﬁciency ratio was 46.7 per cent compared to 43.1 per cent a year ago. Excluding short-term ﬂuctuations in investment

returns, changes in the economic assumptions applied to our long-term assurance business, exceptional restructuring costs,

pension provisions and the stakeholder pension related charge in 2000, the efﬁciency ratio deteriorated slightly to 43.6 per

cent, from 42.7 per cent in 1999.

24 LLOYDS TSB GROUP

ﬁnancial review

NUMBER OF EMPLOYEES (FULL-TIME EQUIVALENT)

Staff numbers increased by 1,484 to 77,540 during 2000. Excluding an increase of 3,061 staff following the acquisition of

Scottish  Widows,  an  increase  of  1,775  staff  following  the  acquisition  of  Chartered  Trust  and  a  reduction  of  584  on  the

disposal of the new business capability of Abbey Life, staff numbers decreased by 2,768. Within UK Retail Banking staff

numbers decreased by 287 despite improvements to customer service and a substantial increase in our call centre capacity.

In Insurance and Investments numbers of staff increased to reﬂect the acquisition of Scottish Widows, in Wholesale Markets

staff numbers increased by 1,245, reﬂecting the acquisition of Chartered Trust, and in International Banking there were lower

staff numbers in Brazil and New Zealand.

Since the merger of Lloyds Bank and TSB Group at the end of 1995, there has been an underlying reduction of 20,076 staff

of which 5,407 relate to staff employed in businesses sold and 14,669 to reductions in our ongoing businesses.

UK Retail Banking*

Mortgages

Insurance and Investments
Wholesale Markets
International Banking
Other

Total number of employees (full-time equivalent)

31 December
2000
aaaaaffffffffffffffffffffffffff

31 December
1999
aaaaaffffffffffffffffffffffffff

45,371

3,657

6,420
8,339
12,563
1,190
aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff

77,540

45,658

3,669

5,187
7,094
13,223
1,225
aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff
76,056

* Although the costs of distributing mortgages and insurance through the Lloyds TSB network are allocated to the mortgage and insurance businesses,

the number of employees involved in these activities in the network is included under UK Retail Banking.

CHARGE FOR BAD AND DOUBTFUL DEBTS

The total charge for bad and doubtful debts decreased to £475 million from £588 million. The domestic charge decreased

to  £426  million  from  £500 million  largely  due  to  the  good  economic  conditions  during  2000,  and  a  one-off  beneﬁt  of

£42 million arising from a change in methodology for retail provisioning to recognise more accurately the amount that the

Group  expects  to  recover.  Provisions  overseas  decreased  to  £49  million  from  £88 million,  mainly  as  a  result  of  higher

Emerging Market Debt provision releases, which offset higher provisions in Argentina.

Domestic:
UK Retail Banking
Mortgages
Wholesale Markets

Total domestic
International Banking

Total charge

Speciﬁc provisions
General provisions

Total charge

Charge as % of average lending:
Domestic
International
Total charge

2000
£m
aaaaaffffffffffffffffffffffffff

345
(13)
94
aaaaaffffffffffffffffffffffffff

426
49
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
475
481
(6)
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
475
%
0.45
0.32
0.43

1999
£m
aaaaaffffffffffffffffffffffffff

428
(3)
75
aaaaaffffffffffffffffffffffffff

500
88
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
588
588
–
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
588
%
0.57
0.60
0.57

LLOYDS TSB GROUP

25

ﬁnancial review

TOTAL PROVISIONS FOR BAD AND DOUBTFUL DEBTS

At  the  end  of  2000  provisions  for  bad  and  doubtful  debts  totalled  £2,173  million.  This  represented  1.9  per cent  of  total

lending. The level of speciﬁc provisions increased to £1,816 million. Non-performing lending increased to £1,283 million

from £1,088 million in December 1999, largely reﬂecting the acquisition of Chartered Trust, and represented 1.1 per cent

of total lending, compared with 1.0 per cent in December 1999. At the end of the year, speciﬁc provisions represented over

140 per cent of non-performing loans. (Movements in provisions during the year are shown on page 61 in note 16.)

Total provisions for bad and doubtful
debts as % of lending (excluding
unapplied interest)
Speciﬁc:
Domestic
International 

General

Total

TAX

31 December
2000
£m
aaaaaffffffffffffffffffffffffff

774
1,042
aaaaaffffffffffffffffffffffffff

1,816
357
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
2,173

31 December
1999
£m
aaaaaffffffffffffffffffffffffff

773
989
aaaaaffffffffffffffffffffffffff

1,762
361
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
2,123

(0.8%)
(6.5%)

(1.6%)
(0.3%)

(1.9%)

(0.9%)
(6.6%)

(1.7%)
(0.3%)

(2.0%)

The effective rate of tax was 28.6 per cent (1999: 30.4 per cent), compared with an average UK corporation tax rate for

2000 of 30 per cent (1999: 30.25 per cent). The lower effective rate of tax, compared with the standard tax rate of 30 per

cent, is largely due to tax relief on payments to the QUEST to satisfy Save As You Earn options, and gains on disposals of

investments and properties sheltered by capital losses.

CAPITAL RATIOS

The international standard for measuring capital adequacy is the risk asset ratio, which relates capital to balance sheet assets

and off-balance sheet exposures weighted according to broad categories of risk. At the end of December 2000 the risk asset

ratios were 9.0 per cent for total capital and 8.2 per cent for tier 1 capital. The 8.2 per cent tier 1 capital ratio appears higher

than would perhaps be expected for the Group. This reﬂects the higher level of supervisory deductions resulting from Lloyds

TSB’s signiﬁcantly increased investment in life assurance following the acquisition of Scottish Widows.

In  2000,  following  the  acquisitions  of  Scottish  Widows  and  Chartered  Trust,  total  capital  for  regulatory  purposes  fell  by 

£4,219  million  to  £8,379  million.  Tier  1  capital  was  reduced  by  £686  million,  as  retained  proﬁts  and  the  raising  of  the

necessary capital required to complete the purchases of Scottish Widows and Chartered Trust was offset by the £2.4 billion

goodwill  arising  on  the  acquisitions.  Tier  2  capital  increased  by  £741  million  and  supervisory  deductions  increased  by 

£4,274 million, largely resulting from the acquisition of the Scottish Widows insurance business.

Risk-weighted assets increased to £93.5 billion and the post-tax return on average risk-weighted assets, a key measure of

efﬁcient use of capital, improved to 3.14 per cent from 3.02 per cent in 1999.

26 LLOYDS TSB GROUP

ﬁnancial review

31 December
2000
£m
aaaaaffffffffffffffffffffffffff

7,662
7,579
aaaaaffffffffffffffffffffffffff

15,241
(6,862)
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
8,379

£bn
aaaaaffffffffffffffffffffffffff

17.4
26.6
0.2
aaaaaffffffffffffffffffffffffff

44.2
36.5
11.9
0.9
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
93.5

3.14%
9.0%
8.2%

31 December

1999*
£m
aaaaaffffffffffffffffffffffffff

8,348
6,838
aaaaaffffffffffffffffffffffffff

15,186
(2,588)
aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff

12,598

£bn
aaaaaffffffffffffffffffffffffff

15.7
24.0
0.1
aaaaaffffffffffffffffffffffffff

39.8
31.6
11.6
1.1
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
84.1

3.02%
15.0%
9.9%

CAPITAL RATIOS (CONTINUED)

Capital: tier 1
: tier 2

Supervisory deductions

Total capital

Risk-weighted assets:
UK Retail Banking
Mortgages
Insurance and Investments

UK Retail Financial Services
Wholesale Markets
International Banking
Central group items

Total risk-weighted assets

Post-tax return on average risk-weighted assets
Risk asset ratios: total capital

: tier 1

* restated (page 55, note 1) 

Notes:

a) Tier 1 capital comprises mainly shareholders’ funds and minority interests.
b) Tier 2 capital comprises loan capital and the general provision for bad and doubtful debts.
c) Supervisory deductions comprise mainly the investment in the insurance businesses.

EXCEPTIONAL RESTRUCTURING COSTS

Exceptional restructuring costs totalling £188 million were charged to the 2000 proﬁt and loss account. The majority of these

costs  related  to  an  efﬁciency  programme  announced  in  February  2000,  but  there  was  also  a  £21  million  restructuring

provision to cover the costs of integrating Chartered Trust and Lloyds UDT.

The main features of the efﬁciency programme, which is primarily focused on non-customer facing activities, are:

• the centralisation of computer operations

• the further consolidation of all our large scale processing operations and support functions including the complete removal

of all back ofﬁce processing from branches

• the  further  streamlining  of  the  branch  network,  combined  with  the  expansion  of  lower  cost  delivery  channels  such  as

telephone banking and internet operations

• the further reduction of our purchasing costs

• the  rationalisation  of  non-personal  banking  activities,  through  the  progressive  sharing  and  consolidation  of  operational

functions.

During 2000, the restructuring costs relating to the efﬁciency programme comprised mainly severance, consultancy costs and

the  write-down  of  equipment.  During  2001  we  expect  restructuring  costs  relating  to  the  efﬁciency  programme  to  be

approximately £200 million, reducing to approximately £130 million in 2002 and £60 million in 2003. Annualised cost

beneﬁts  resulting  from  these  investments  are  expected  to  total  approximately  £75  million  in  2001  rising  to  £410  million

in 2004. Overall, the individual programmes associated with these costs are expected to achieve average payback within

three years.

LLOYDS TSB GROUP

27

ﬁnancial review

INVESTMENT FOR THE FUTURE

In 2000, we invested £499 million in premises and equipment, compared with £352 million in 1999. Expenditure on premises

and equipment over the past 5 years has totalled £1,650 million. This investment has been mainly in support of UK operations,

in the retail businesses and in new technology to enhance future proﬁtability. It has been wholly ﬁnanced by a combination of

internally generated funds and disposals. At the end of 2000, there were further capital expenditure commitments of £5 million

in respect of premises and equipment.

In addition, we incur signiﬁcant costs each year on improving systems and on staff training programmes to enhance customer

service and efﬁciency, as well as on the continuing refurbishment and maintenance of premises; these costs are charged to

the proﬁt and loss account.

SHAREHOLDER RETURNS

Dividends  of  £1,683  million  (an  increase  of  15  per  cent  per  share)  are  covered  1.6  times  by  earnings.  Proﬁt  of

£1,041 million  will  be  retained  in  the  business.  Total  shareholders’  funds  grew  by  £1,156  million,  or  13  per  cent,  to

£9,737 million (174p per share) from £8,581 million (155p per share) at the end of 1999.

Since  the  merger  between  Lloyds  Bank  and  TSB  ﬁve  years  ago,  the  Group’s  share  price  has  risen  by  114  per  cent.  An

investment of £1,000 in Lloyds TSB shares on 1 January 1996, with dividends reinvested in each year, was worth £2,500

at the end of 2000, a compound annual growth rate of over 20 per cent. On the same basis, an investment of £1,000 in

the FTSE All-Share Index would be worth £1,916.

ECONOMIC PROFIT

We continue to use economic proﬁt as a measurement of performance, which is the best way to understand the true value

being created for shareholders. Economic proﬁt represents the proﬁt attributable to shareholders less a notional charge for the

equity invested in the business. In 2000 economic proﬁt increased by 6 per cent to £1,882 million from £1,772 million in

1999. Our calculation of economic proﬁt uses average equity for the year and was based on a cost of equity of 9 per cent in

2000 (1999: 9 per cent).

Economic proﬁt instils a rigorous ﬁnancial discipline in determining investment decisions throughout the Group. It enables us

to evaluate alternative strategies objectively, with a clear understanding of the value created by each strategy, and then to

select the strategy which creates the greatest value.

SHORT-TERM FLUCTUATIONS IN INVESTMENT RETURNS

In  accordance  with  generally  accepted  accounting  practice  in  the  UK,  it  is  the  Group’s  accounting  policy  to  carry  the

investments comprising the reserves held by its life companies at market value. In the past, this has not had a signiﬁcant

impact upon the Group’s results because of the limited reserves necessary to support the predominantly unit-linked business

of  Lloyds  TSB Life  Assurance  and  Abbey  Life.  However,  the  reserves  held  to  support  the  with-proﬁts  business  of  Scottish

Widows  are  substantial  and  changes  in  market  values  will  result  in  signiﬁcant  volatility  in  the  Group’s  embedded  value

earnings. Consequently, in order to provide a clearer representation of the underlying performance, the results of the life and

pensions  business  have  been  analysed  between  an  operating  proﬁt,  which  includes  investment  earnings  calculated  using

longer-term rates of investment return, and a proﬁt before tax, separately identifying the short-term ﬂuctuations in investment

returns and other one-off items. This approach is already established practice amongst listed insurance companies in the UK.

The longer-term rates of return for the period are consistent with those used by the Group in the calculation of the embedded

value at the beginning of the period, which were 8.00 per cent for equities and 5.25 per cent for gilts. These are based upon

a long-term view of economic activity and are therefore not adjusted for market movements which are considered to be short

term. This approach is considered the most appropriate given the long-term nature of the portfolio of products and achieves

consistency in reporting from one period to the next.

Lloyds TSB General Insurance also holds investments to support its underwriting business; these are carried at market value

and gains and losses included within dealing proﬁts. Consistent with the approach adopted for the life and pensions business,

an operating proﬁt for the general insurance business has been calculated including investment earnings normalised using

the same long-term rates of return.

28 LLOYDS TSB GROUP

ﬁnancial review

CHANGES IN THE ECONOMIC ASSUMPTIONS APPLIED TO OUR LONG-TERM ASSURANCE BUSINESS

The shareholders’ interest in the long-term assurance business (‘embedded value’) is calculated on the basis of a series of

economic and actuarial assumptions. Following the acquisition of the business of Scottish Widows, a detailed review of the

economic  assumptions  used  in  the  embedded  value  calculation  has  been  carried  out,  to  ensure  that  these  assumptions

remain appropriate for the enlarged life and pensions business in the context of forecast long-term economic trends. As a

result  of  this  review  certain  assumptions  have  been  amended,  including  the  risk-adjusted  discount  rate  which  has  been

reduced from 10 per cent to 8.5 per cent. The revised assumptions, which have been used with effect from 1 January 2000

for Abbey Life and the bancassurance operation of Lloyds TSB Life, have resulted in a one-off credit to the proﬁt and loss

account  of  £127  million.  The  same  assumptions  have  been  used  for  the  Scottish  Widows  business  from  the  date  of

acquisition.

FINANCIAL INSTRUMENTS

The Group’s activities can be divided into three broad categories: banking and mortgages, insurance and investments, and

trading activities.

Banking and mortgage activities represent the most signiﬁcant element of the Group’s business in terms of proﬁt, assets and

exposure to risk. These activities are entered into in both the UK and overseas and principally comprise the Group’s core

business  of  lending  and  deposit  taking,  involving  a  full  range  of  personal  and  corporate  customers.  In  entering  into  this

business, the Group’s objective is to secure a margin between the interest paid to customers on their deposits and interest

received on amounts advanced. In order to do this, more complex ﬁnancial instruments, such as derivatives, are used as a

means of reducing risk by hedging exposures to movements in exchange rates, interest rates or other market variables.

Within its banking activities, the Group has a number of treasury operations that are responsible for utilising surplus funds

and meeting funding shortfalls by entering into transactions in the money markets. Portfolios of debt securities and treasury

bills are held to provide a source of liquidity; it is the Group’s intention to hold these investments until maturity although in

certain circumstances they may be disposed of before then where, for example, the need to hold the investment no longer

applies. Any proﬁts or losses arising from a sale of this kind are recognised immediately.

Insurance and investment businesses provide general insurance and market savings and investment products both within

and outside the banking customer bases. Fund management services are also provided although, whilst involving external

clients, this activity is currently dominated by the management of internal group funds.

Trading  activities  are  restricted  to  a  few  highly  specialist  authorised  trading  centres,  the  principal  one  being  the  Group’s

Treasury  department  in  London.  Most  of  the  Group’s  trading  activity  is  to  meet  the  requirements  of  customers  for  foreign

exchange and interest rate products, from which the Group is able to earn a spread  on the rates charged. However, interest

rate and exchange rate positions are taken out using derivatives (forward foreign exchange contracts, interest rate swaps and

forward rate agreements) and on-balance sheet instruments (mainly debt securities). The objective of these positions is to

earn a proﬁt from favourable movements in market rates. Accordingly, these transactions are reﬂected in the accounts at their

fair value and gains and losses shown in the proﬁt and loss account as dealing proﬁts.

MANAGEMENT OF RISK

The board is responsible for determining the long-term strategy of the business, the markets in which the Group will operate

and the level of risk acceptable to the Group in each area of its business.

Responsibility for the implementation of risk policy and for ensuring that there is an effective top level control framework is

delegated to the Director of Group Risk Management and Compliance, who reports to the Group Chief Executive. The board

in turn receives regular reports on risk issues prepared by Group Risk Management and Compliance.

The  Director  of  Group  Risk  Management  and  Compliance  implements  the  policies  established  by  the  board  through  four

principal  departments:  Group  Audit,  Group  Risk,  Group  Compliance,  and  Sanctioning  and  Sovereign  Risk.  Group  Risk’s

responsibilities include credit risk, market risk, operational risk, insurance risk and environmental risk; the department also

sets risk policy, develops risk methodology and undertakes risk evaluation and reporting.

At  an  operating  level,  the  Group  promotes  sound  internal  risk  management  practices  through  the  directors  of  its  separate

business units, who are primarily responsible for measuring, monitoring and controlling the range of portfolio and operating

risks within their speciﬁc area of accountability. The directors and management of the business units, as the primary risk

LLOYDS TSB GROUP

29

ﬁnancial review

MANAGEMENT OF RISK (CONTINUED)

managers,  are  responsible  for  establishing  proper  control  frameworks  within  their  businesses  to  ensure  that  the  Group’s

activities  are  conducted  effectively  but  prudently,  and  within  the  parameters  deﬁned  by  Group  Risk  Management  and

Compliance. They are responsible for ensuring that the risks within their business are identiﬁed, assessed, controlled and

monitored,  and  that  the  controls  and  procedures  implemented  comply  with  Group  policies  and  standards,  which  are

extensively documented in rule books and procedures manuals.

Credit risk

Credit risk arises from extending credit in all forms in the Group’s banking and trading activities, where there is a possibility

that a counterparty may default. The Group has dedicated standards, policies and procedures to control and monitor all such

risks.

The Director of Group Risk Management and Compliance heads Group Risk and reports to the Group Chief Executive. Group

Risk’s responsibilities in respect of credit risk include the following:

• Formulation of high level credit policies designed to ensure a balanced and managed approach to the identiﬁcation and
mitigation  of  credit  risk.  These  policies  provide  a  standard  framework  within  which  Group  businesses  structure  their
individual policies and rules. Group Risk reviews, approves and monitors credit policy documents established for individual
businesses.

• Provision of lending guidelines. These deﬁne the responsibilities for lending ofﬁcers and provide a disciplined and focused
benchmark for sound credit decisions. Clear guidance is provided on the Group’s attitude towards and appetite for credit
exposure on different market sectors, industries and products.

• Provision of a group rating system. All business units are required to operate an authorised rating system that complies
with  the  Group’s  standard  methodology.  The  Group  uses  a  ‘Master  Scale’  rating  structure  with  nine  ratings,  each
corresponding to a probability of future default.

• Establishment and maintenance of the Group’s large exposure policy. Exposure to individual counterparties or groups of
counterparties is controlled through a tiered hierarchy of delegated sanctioning authorities. Approval requirements for each
decision are based on the transaction amount, the customer’s aggregate facilities, credit risk ratings and the nature of the
risk. Regular reports on signiﬁcant credit exposures are provided to the group executive committee and board.

• Control of bank exposures. In-house proprietary rating systems are used to approve bank facilities on a group basis.

• Monitoring  of  scorecards.  The  Group  utilises  statistically-based  decisioning  techniques  (primarily  credit  scoring  and
performance scoring) for its main consumer lending portfolios. Authorisations are determined by scorecards tailored to meet
the needs of the particular business. Group Risk reviews and monitors new and material changes to scorecards.

• Control of cross-border exposures. Country limits are authorised and managed by a dedicated unit, using an in-house rating

system which takes into account economic and political factors.

• Maintenance of a centralised facilities database. Group Risk operates a centralised database of large corporate, sovereign

and bank facilities designed to ensure that a consistent aggregation policy is maintained throughout the Group.

• Formulation  of  concentration  limits  on  certain  industries  and  sectors.  Group  Risk  sets  limits  and  monitors  exposures  to

prevent over-concentration of risk.

• Portfolio analysis. In conjunction with Group Risk, group businesses identify and deﬁne portfolios of credit and related risk
exposures  and  the  key  benchmarks,  behaviours  and  characteristics  by  which  those  portfolios  are  managed  in  terms  of
credit  risk  exposure.  This  entails  the  production  and  analysis  of  regular  portfolio  monitoring  reports  for  review  by
Group Risk.

• Communication  and  provision  of  general  guidance  on  all  credit-related  risk  issues,  including  regulatory  changes  and

environmental risk policy, to promote consistent and best practice throughout the Group.

Day-to-day credit management and asset quality within each business unit is the primary responsibility of the business unit

directors.  Each  business  unit  has  in  place  established  credit  processes  involving  credit  policies,  procedures  and  lending

guidelines. Authority to delegate lending discretions within operating divisions rests with ofﬁcers holding divisional lending

delegated authority. All material authorities are advised to Group Risk.

Specialist units are established within group business units to provide intensive management and control in order to maximise

recoveries of doubtful debts.

30 LLOYDS TSB GROUP

ﬁnancial review

Credit risk (continued)

Regular  independent  audits  of  credit  processes  are  undertaken  by  Group  Audit.  Such  audits  include  consideration  of  the

completeness and adequacy of credit manuals and lending guidelines, together with an in-depth analysis of a representative

sample  of  accounts  in  the  portfolio  to  assess  the  quality  of  the  loan  book  and  other  exposures.  Individual  accounts  are

reviewed to ensure that the facility grade is appropriate, that credit procedures have been properly followed and that, where

an account is non-performing, provisions raised are adequate.

Market risk

Market risk is the risk of losses being incurred as a result of adverse movements in interest or exchange rates or other market

variables. Market risk arises in all areas of the Group’s activities and is managed by a variety of different techniques.

The Group’s trading activities expose it to the risk of adverse movements in interest rates or exchange rates. Trading activities

are restricted to a few highly specialist trading centres and the level of exposure is strictly controlled and monitored within

approved limits locally and centrally by Group Risk.

These are supplemented by a range of value at risk techniques in use in individual businesses, where suitable methodologies

have been developed in consultation with Group Risk to meet the speciﬁc requirements of each centre. At Group level, global

positions are incorporated into a central value at risk model, taking into account natural offset positions between different

trading centres, and stress tests are carried out to simulate extreme conditions.

Various parameters are used to calculate the value at risk on a given portfolio of positions, thus avoiding undue reliance on

a single measure. Based on the commonly quoted 95 per cent conﬁdence level, assuming positions are held overnight and

using observation periods of the preceding 3 years, during 2000 the value at risk on the Group’s global trading averaged 

£1.28  million  (1999:  £1.16  million)  with  a  maximum  of  £1.67  million  (1999:  £1.78  million)  and  a  minimum  of 

£0.98 million (1999: £0.77 million). The ﬁgure at 31 December 2000 was £1.17 million (1999: £1.04 million).

Group Balance Sheet Management (GBSM) speciﬁcally focuses on the management of interest rate risk in the Group’s retail

portfolios, including mortgages, and in the Group’s capital funds. GBSM reports to an Asset and Liability Committee under

the  chairmanship  of  the  Group  Finance  Director;  other  members  include  the  Director  of  Group  Risk  Management  and

Compliance and the managing directors of the Group’s principal business units. The Group’s policy is to optimise the stability

of future net interest income, which is achieved by entering into hedging transactions using interest rate swaps and other

ﬁnancial instruments.

The table shown on page 73 in note 48b) provides an indication of the Group’s interest rate repricing proﬁle at 31 December

2000,  excluding  the  Group’s  trading  and  insurance  activities  and  after  taking  into  account  the  off-balance  sheet  hedging

transactions referred to above. Items are allocated to time bands by reference to the earlier of the next interest rate repricing

date and the maturity date. It should be noted that retail assets are sometimes repaid before their contractual maturity dates,

and GBSM’s hedging transactions take into account the likelihood of such prepayments.

Structural foreign exchange risk

Structural  foreign  exchange  risk  arises  from  the  Group’s  investments  in  its  overseas  operations.  The  structural  position  is

managed after having regard to the currency composition of the Group’s risk-weighted assets, the objective being to limit the

effect of exchange rate movements on the published risk asset ratio.

The  Group’s  structural  position  at  31  December  2000  is  set  out  on  page  74  in  note  48d).  The  position  implies  that  a

hypothetical increase of 10 per cent in the value of sterling against all other currencies would lead to a £170 million reduction

in reserves. There would be no material impact upon the Group’s risk asset ratio.

Liquidity risk

To ensure that each business unit can meet its ﬁnancial obligations as they fall due, the Group complies with the Financial

Services Authority’s Sterling Stock Liquidity policy in the UK, with similar liquidity policies in place across all trading centres

worldwide. Compliance is monitored by regular liquidity returns to Group Risk.

The sources and maturities of assets and liabilities are closely monitored and diversiﬁed to avoid any undue concentration. A

substantial proportion of deposits is made up of current and savings accounts which, although repayable on demand, have

traditionally formed a stable deposit base.

LLOYDS TSB GROUP

31

ﬁnancial review

Liquidity risk (continued)

The Group’s signiﬁcant involvement in the London money market and other ﬁnancial centres, together with the strength of

the Group’s earnings and balance sheet, are important factors in assuring the continued availability of wholesale funds at

competitive rates.

Operational risk

Operational  risk  is  the  exposure  to  ﬁnancial  or  other  damage  arising  through  unforeseen  events  or  failure  in  the  Group’s

operational  processes/systems.  Examples  include  inadequate  internal  controls  and  procedures,  human  error,  deliberate

malicious acts including fraud, and business interruptions.

Business units within the Group are responsible for identifying and managing risks, and Group Risk has developed a standard

methodology,  which  is  being  implemented  by  business  units  throughout  the  Group.  Group  Audit  provides  independent

veriﬁcation of the effectiveness of risk control within business units.

Internal  control  techniques  include  segregation  of  duties,  exception  and  exposure  reporting,  business  continuity  planning,

reconciliations, and delegation of authority, and are based on the submission of timely and reliable management reporting.

Where appropriate risk is mitigated by way of insurance with third parties.

The activities of Group Risk include the approval from a risk perspective of all new products launched throughout the Group,

with  an  objective  of  ensuring  that  the  risks  associated  with  new  products  are  understood  and  managed  by  the  business

accordingly.

Insurance risk

The  Group  offers  insurance  products  to  its  customers,  and  actively  reviews  the  extent  to  which  the  associated  risk  is

underwritten internally, or reinsured with external underwriters.

The Financial Services Authority sets down minimum requirements for solvency and reserving for all classes of insurance,

which are carefully monitored by the relevant business units within the Group. The retained risk level is carefully controlled

and monitored, with close attention being paid to the analysis of underwriting experience, product design, policy wordings,

adequacy of reserves, solvency management and regulatory requirements.

Investment strategy is determined by the term and nature of the underwriting liabilities and asset/liability matching positions

are  actively  monitored.  General  insurance  exposure  to  accumulations  of  risk  and  possible  catastrophes  is  mitigated  by

reinsurance  arrangements  which  are  broadly  spread  over  different  reinsurers.  Appropriate  reinsurance  arrangements  also

apply within the life and pensions businesses.

Environmental risk

The Group has a dedicated environmental risk unit which is responsible for the development of environmental policies and

procedures, and provides practical advice and guidance on environmental issues to business units. Signiﬁcant progress has

been made in developing the Group’s environmental management system, and this is detailed in the environmental report

contained in the information pack ‘Lloyds TSB: the community and our business’ (see page 77 for details).

Compliance risk

The  Group  conducts  business  in  a  range  of  regulated  industries.  Primary  responsibility  for  ensuring  that  regulatory

requirements are observed lies with a nominated compliance ofﬁcer within each business unit, who reports directly to the

head  of  the  business  unit.  Additionally,  all  compliance  ofﬁcers  have  a  reporting  line  to  Group  Compliance,  which  has

responsibility for monitoring compliance standards and resources across the Group, and provides independent reporting and

assessment to the group directors and the board.

The Group Compliance Director retains full day-to-day responsibility for Group Compliance, including routine contact with the

regulators. He also has access to the Chairman, Group Chief Executive and other members of senior management.

32 LLOYDS TSB GROUP

ﬁnancial review

DERIVATIVES

Derivatives are used to meet the ﬁnancial needs of customers, as part of the Group’s trading activities and to reduce its own

exposure  to  ﬂuctuations  in  interest  and  exchange  rates.  The  principal  derivatives  used  by  the  Group  are  interest  rate  and

exchange rate contracts; particular attention is paid to the liquidity of the markets and products in which the Group trades to

ensure that there are no undue concentrations of activity and risk.

Interest rate related contracts include interest rate swaps, forward rate agreements and options. An interest rate swap is an

agreement between two parties to exchange ﬁxed and ﬂoating interest payments, based upon interest rates deﬁned in the

contract, without the exchange of the underlying principal amounts. Forward rate agreements are contracts for the payment

of the difference between a speciﬁed rate of interest and a reference rate, applied to a notional principal amount at a speciﬁc

date in the future. At 31 December 2000 the total notional principal amount of interest rate related contracts outstanding

was £380.9 billion (1999: £518.3 billion) of which £292.6 billion (1999: £385.0 billion) were interest rate swaps and

£48.1 billion (1999: £85.6 billion) were forward rate agreements.

Exchange rate related contracts include forward foreign exchange contracts, currency swaps and options. A forward foreign

exchange contract is an agreement to buy or sell a speciﬁed amount of foreign currency on a speciﬁed future date at an agreed

rate. Currency swaps generally involve the exchange of interest payment obligations denominated in different currencies; the

exchange of principal can be notional or actual. At 31 December 2000 the total notional principal amount of exchange rate

related contracts outstanding was £95.1 billion (1999: £95.1 billion) of which £86.7 billion (1999: £86.1 billion) related

to futures and forward foreign exchange contracts.

The  volume  of  notional  principal  amounts  does  not,  however,  represent  the  Group’s  real  exposure  to  credit  risk,  which  is

limited to the current cost of replacing contracts with a positive value to the Group, should the counterparty default. At the

end of 2000 the total potential loss (or net replacement cost) on interest rate contracts was £1.0 billion (1999: £1.0 billion)

and on exchange rate contracts was £1.3 billion (1999: £1.1 billion). To reduce credit risk the Group uses a variety of credit

enhancement techniques such as netting and collateralisation, where security is provided against the exposure. 

Equity derivatives are also used by the Group as part of its equity based retail product activity, whereby index-linked equity

options are purchased to eliminate the Group’s exposure to ﬂuctuations in various international stock exchange indices. At

31 December 2000 the total notional principal amount of equity contracts was £2.8 billion (1999: £2.4 billion).

LLOYDS TSB GROUP

33

ﬁve year 

ﬁnancial summary

Proﬁt and loss account

Net interest income

Other operating income

Total income

Operating expenses

Trading surplus

General insurance claims

Provisions

Proﬁt (loss) on sale and closure of businesses

Proﬁt on ordinary activities before tax

Proﬁt on ordinary activities after tax

Proﬁt for the year attributable to shareholders

Economic proﬁt

Results excluding special items

Total income excluding special items

Operating expenses excluding special items

Operating proﬁt excluding special items

Special items:

Short-term ﬂuctuations in investment returns

Changes in economic assumptions applied to

long-term assurance business

Exceptional restructuring costs

Pension provisions  

Stakeholder pension related charge

Guaranteed annuity provision

Proﬁt (loss) on sale and closure of businesses

Statutory proﬁt before tax

1996
£m
aaaaaaasfff

1997
£m
aaaaaaasfff

1998
£m
aaaaaaasfff

1999
£m
aaaaaaasfff

2000
£m
aaaaaaasfff

3,795

4,144

4,398

4,783

4,587

3,070
aaaaaaasfff

3,136
aaaaaaasfff

2,726
aaaaaaasfff

3,145
aaaaaaasfff

3,882
aaaaaaasfff

6,865

7,280

7,124

7,928

8,469

(3,947)
aaaaaaasfff

(4,119)
aaaaaaasfff

(3,504)
aaaaaaasfff

(3,417)
aaaaaaasfff

(3,952)
aaaaaaasfff

2,918

(120)

(332)

3,161

(145)

(424)

3,620

(146)

(543)

4,511

(169)

(595)

4,517

(142)

(489)

2,431

2,746

84
aaaaaaasfff

154
aaaaaaasfff

(126)
aaaaaaasfff

(35)
aaaaaaasfff

–
aaaaaaasfff
aaddfff aaddfff aaddfff aaddfff aaddfff
3,886
aaddfff aaddfff aaddfff aaddfff aaddfff
2,773
aaddfff aaddfff aaddfff aaddfff aaddfff
2,724
aaddfff aaddfff aaddfff aaddfff aaddfff
1,882

3,621

2,133

1,655

2,520

2,014

3,015

2,514

2,120

2,000

1,511

1,772

1,417

1,427

1,032

7,376

6,902

aaddfff aaddfff aaddfff aaddfff aaddfff
8,641
aaddfff aaddfff aaddfff aaddfff aaddfff
3,764
4,246

8,002

2,652

3,798

3,768

7,509

3,354

3,466

3,039

3,417

3,821

2

–

(149)

(39)

–

–

4

–

(351)

(100)

–

–

6

123

(38)

(400)

–

(114)

28

–

–

(102)

–

–

(119)

127

(188)

(100)

(80)

–

(35)
aaaaaaasfff

–
aaaaaaasfff
aaddfff aaddfff aaddfff aaddfff aaddfff
3,886

(126)
aaaaaaasfff

154
aaaaaaasfff

84
aaaaaaasfff

3,621

2,431

3,015

2,746

Note
Figures for 1999 and earlier years have been restated to reﬂect the implementation of FRS12 and FRS15 (relating to provisions and tangible ﬁxed assets) and other
minor adjustments.

3,886

3,621

2,746

3,015

2,431

34 LLOYDS TSB GROUP

96

97

98

99

00

STATUTORY PROFIT BEFORE TAX (£M)

ﬁve year ﬁnancial summary

1996
£m
aaaaaaasfff

1997
£m
aaaaaaasfff

1998
£m
aaaaaaasfff

1999
£m
aaaaaaasfff

2000
£m
aaaaaaasfff

100,957

10,825

108,402

12,755

113,739

12,632

119,112

129,745

14,397

14,129

17,216
aaaaaaasfff

16,791
aaaaaaasfff

17,822
aaaaaaasfff

15,928
aaaaaaasfff

23,023
aaaaaaasfff

128,998

137,948

144,193

149,437

166,897

18,139
aaaaaaasfff

23,692
51,085
aaaaaaasfff
aaaaaaasfff
aaddfff aaddfff aaddfff aaddfff aaddfff
147,137
167,885
217,982

26,542
aaaaaaasfff

20,046
aaaaaaasfff

157,994

175,979

Balance sheet and capital ratios

Loans and advances to banks and customers

Investments

Other assets

Long-term assurance assets attributable to policyholders

Total assets

Deposits by banks and customers and debt securities in issue

107,429

114,000

118,678

122,805

135,372

Other liabilities

Subordinated liabilities (loan capital)

Minority interests (equity and non-equity)

Shareholders’ funds (equity)

Long-term assurance liabilities to policyholders

Total liabilities

Risk asset ratio : total capital

: tier 1 capital

Share information

Earnings per share

Dividends per share (net)

Dividend cover (times)

Market price (year-end)

Net assets per share

Number of shareholders (thousands)

Average shares in issue (millions)

Performance measures

Post-tax return on average shareholders’ equity

Post-tax return on average assets*

Post-tax return on average risk-weighted assets*

Efﬁciency ratio

12,502

3,919

34

13,557

4,209

40

14,089

4,021

42

11,525

6,493

33

13,726

7,510

552

5,114
aaaaaaasfff

6,142
aaaaaaasfff

7,363
aaaaaaasfff

8,581
aaaaaaasfff

9,737
aaaaaaasfff

128,998

137,948

144,193

149,437

166,897

18,139
aaaaaaasfff

23,692
51,085
aaaaaaasfff
aaaaaaasfff
aaddfff aaddfff aaddfff aaddfff aaddfff
147,137
167,885
217,982

26,542
aaaaaaasfff

20,046
aaaaaaasfff

175,979

157,994

9.7%

6.6%

10.7%

7.8%

11.2%

8.6%

15.0%

9.9%

9.0%

8.2%

29.9p

13.2p

2.3

430p

95p

1,099

5,054

31.6%

1.24%

2.06%

57.5%

37.4p

17.2p

2.2

789p

113p

1,047

5,341

34.9%

1.49%

2.49%

56.6%

39.3p

22.2p

1.8

855p

134p

1,028

5,400

30.2%

1.53%

2.67%

49.2%

46.2p

26.6p

1.7

774p

155p

1,024

5,445

30.5%

1.70%

3.02%

43.1%

49.6p

30.6p

1.6

708p

174p

1,026

5,487

29.1%

1.75%

3.14%

46.7%

* Assets exclude long-term assurance assets attributable to policyholders.

Note
Figures for 1999 and earlier years have been restated to reﬂect the implementation of FRS12 and FRS15 (relating to provisions and tangible ﬁxed assets) and other
minor adjustments.

LLOYDS TSB GROUP

35

STATUTORY ACCOUNTS

CONTENTS

37 The board

38 Directors’ report

40 Directors’ remuneration

46 Corporate governance

48 Auditors’ report

49 Consolidated profit and loss account

50 Consolidated balance sheet

52 Company balance sheet

53 Other statements

54 Consolidated cash flow statement

55 Notes to the accounts

36 LLOYDS TSB GROUP

the board

Sir Brian Pitman(cid:3)
(retiring at the annual general meeting on
18 April 2001)
Chairman
Joined Lloyds Bank in 1952. After a number of
senior and general management appointments in
Lloyds Bank and Lloyds Bank International,
appointed a director and group chief executive of
Lloyds Bank in 1983. Following the merger with
TSB Group in 1995, became group chief
executive of Lloyds TSB Group and then
chairman in February 1997. Chairman of NEXT
PLC and a non-executive director of Carlton
Communications, The Carphone Warehouse
Group and Tomkins. Aged 69.

Maarten A van den Bergh§
(succeeding Sir Brian Pitman as Chairman)
Deputy Chairman
Joined Lloyds TSB Group in 2000 as deputy
chairman. Will succeed Sir Brian Pitman as
chairman when Sir Brian retires at the annual
general meeting in April 2001. Joined the Royal
Dutch/Shell Group of companies in 1968. After
a number of senior and general management
appointments in that group, became group
managing director in July 1992. Appointed
president of Royal Dutch Petroleum Company and
vice chairman of the committee of managing
directors of the Royal Dutch/Shell Group in July
1998 and continued in these roles until June
2000. A non-executive director of Royal Dutch
Petroleum Company and British
Telecommunications. Aged 58.

Alan E Moore CBE*§
Deputy Chairman
Joined Lloyds Bank International in 1980. Held
a number of senior and general management
appointments in that company and in Lloyds
Bank before becoming a director of Lloyds Bank
in 1989 and deputy chief executive and treasurer
in 1994. Following the merger with TSB Group
in 1995, became deputy group chief executive of
Lloyds TSB Group and then deputy chairman in
August 1998. Joined Glyn Mills & Co in 1953,
holding senior appointments there until his
secondment, as director general, to the Bahrain
Monetary Agency from 1974 to 1979. Aged 64.

EXECUTIVE DIRECTORS
Peter B Ellwood
Group Chief Executive
Joined TSB Bank in 1989 as chief executive,
retail banking. Appointed a director of TSB Group
in 1990 and became group chief executive in
1992. Following the merger with Lloyds Bank
in 1995, became deputy group chief executive of
Lloyds TSB Group and then group chief executive
in February 1997. Joined Barclays Bank in 1961
and after a number of senior and general
management appointments, became chief
executive of Barclaycard in 1985. Former
chairman of Visa International. Aged 57.

Michael E Fairey
Deputy Group Chief Executive
Joined TSB Group in 1991 and held a number of
senior and general management appointments in
the Group before being appointed to the board in
1997 and deputy group chief executive in March
1998. Joined Barclays Bank in 1967 and held a
number of senior and general management
appointments before becoming managing director
of Barclays Direct Lending Services in 1990.
Aged 52.

Michael D Ross
Deputy Group Chief Executive
Joined the board in 2000. Joined Scottish
Widows in 1964 and following a number of
senior and general management appointments
became group chief executive of that company 
in 1991. Aged 54.

M Kent Atkinson
Group Finance Director
Joined Bank of London & South America in
1964, which became a Lloyds Bank subsidiary in
1971, and held a number of senior and general
management appointments in the Group,
including positions in Latin America and the
Middle East, before being appointed to the board
in 1997. A non-executive director of
Coca-Cola HBC SA. Aged 55.

Dennis Holt
Group Executive Director, Retail Distribution
Joined Lloyds Bank in 1970 and held a number
of senior and general management appointments
in the Group before being appointed to the board
in 2000. Aged 52.

Archie G Kane
Group Executive Director, IT and Operations
Joined TSB Commercial Holdings in 1986 and
held a number of senior and general management
appointments in the Group before being
appointed to the board in 2000. After some 10
years in the accountancy profession, joined
General Telephone & Electronics Corporation in
1980, serving as ﬁnance director in the UK from
1983 to 1985. Aged 48.

David P Pritchard
Group Executive Director,
Wholesale and International Banking
Joined TSB Group in 1995 as group treasurer.
Seconded to the Securities and Investments
Board as head of supervision & standards,
markets & exchanges, from 1996 to 1998.
Appointed to the board in 1998. Held senior and
general management appointments with Citicorp
from 1978 to 1986 and Royal Bank of Canada
from 1986 to 1995. Aged 56.

INDEPENDENT NON-EXECUTIVE
DIRECTORS
Ewan Brown CBE*
(** succeeding Mr Linaker)
Chairman of Lloyds TSB Scotland
A director since 1999. A non-executive director
of Lloyds TSB Scotland since 1997. Executive
director of Noble Grossart since 1971. Chairman
of Dunedin Income Growth Investment Trust and
the Court of Heriot-Watt University, and a
non-executive director of Stagecoach Holdings.
Aged 58.

A Clive ButIer‡§(cid:2)
A director of TSB Group since 1993. Joined
Unilever in 1970 and following a number of
senior and general management appointments
was appointed an executive director of Unilever 
in 1992. Aged 54.

Sheila M Forbes†
A director of TSB Group since 1994. Chairs the
board of governors of Thames Valley University
and is a civil service commissioner. Head of
personnel for Unigate from 1980 to 1988 and
personnel director for Storehouse from 1988 to
1992. Director of human resources at Reed
Elsevier (UK) from 1992 to 1996. Aged 54.

notes to the accounts

Christopher S Gibson-Smith†
A director since 1999. Joined the British
Petroleum Company in 1970 and held senior and
general management appointments in the UK,
USA, Canada and Europe. Became a managing
director of BP in 1997 and managing director
and executive vice president of BP Amoco in
1998. Aged 55.

L E (Paddy) Linaker**§
(retiring at the annual general meeting on
18 April 2001)
A director of TSB Group since 1994. 
A non-executive director of Wolverhampton and
Dudley Breweries. Joined M&G Group in 1963
and held a number of senior and general
management appointments, including deputy
chairman and group managing director from
1988 to 1994. Chairman of Fisons from 1994
to 1995. Aged 66.

Thomas F W McKillop*†
A director since 1999. Joined ICI in 1969 and
held a number of senior and general
management appointments there before the
demerger in 1993, when Zeneca was created.
Chief executive of Zeneca Pharmaceuticals from
1994 to 1999 and chief executive of
AstraZeneca from 1999. Pro-chancellor of
Leicester University. Aged 57.

The Earl of Selborne KBE FRS
Chairman of The Agricultural Mortgage
Corporation
A director since 1995, having been a director 
of Lloyds Bank since 1994. Managing director 
of The Blackmoor Estate, his family business.
Chancellor of Southampton University since
1996. President of the Royal Geographical
Society from 1997 to 2000. Aged 60.

Lawrence M Urquhart*
Chairman of Scottish Widows
Joined the board in 2000. Chairman of BAA and
a non-executive director of Imerys SA. Joined
Burmah Castrol in 1977 and held a number of
senior and general management appointments in
that company before becoming chief executive in
1985 until 1993 and chairman in 1990 until
1998. Former chairman of English China Clays.
Aged 65.

Company Secretary
Alastair J Michie FCIS FCIBS

* Member of the audit committee
** Chairman of the audit committee
† Member of the remuneration committee
‡ Chairman of the remuneration committee
§ Member of the nomination committee

Chairman of the nomination committee

Senior independent director

LLOYDS TSB GROUP

37

(cid:3)
(cid:2)
directors’ report

directors’ report

Results and dividends

Directors

The consolidated proﬁt and loss account on page 49 shows a

Biographical details of directors are shown on page 37.

proﬁt attributable to shareholders for the year ended

Particulars of their emoluments and interests in shares in the

31 December 2000 of £2,724 million.

Company are given on pages 42 to 45.

An interim dividend of 9.3p per ordinary share was paid on

Mr Pell left the board on 7 January 2000 and Sir Nicholas

11 October 2000 and a ﬁnal dividend of 21.3p per ordinary

Goodison, Mr Nicholson and Dame Bridget Ogilvie left the

share will be paid on 2 May 2001. The dividends for 2000 will

board at the annual general meeting in April 2000. Mr Linaker

absorb £1,683 million.

Principal activities

and Sir Brian Pitman will retire at the annual general meeting in

2001.

The Company is a holding company and its subsidiaries provide

Mr Ross and Mr Urquhart joined the board on 3 March 2000.

a comprehensive range of banking and ﬁnancial services

Mr van den Bergh joined the board on 1 October 2000 and

through branches and ofﬁces in the UK and overseas.

Group structure

The transfer of the business of Scottish Widows’ Fund and Life

Assurance Society to the Group’s wholly-owned subsidiaries

Scottish Widows plc and Scottish Widows Annuities Limited

under the articles of association offers himself for election at the
annual general meeting.

Mr Atkinson, Professor Brown, Mr Ellwood and Mr Pritchard

retire by rotation at the annual general meeting and offer

themselves for re-election.

was completed on 3 March 2000. Following this acquisition,

No director had a material interest at any time during the year

the Group is bringing together its life, pensions, unit trust and

in any contract of signiﬁcance with the Company or its

fund management businesses.

subsidiaries.

On 1 September 2000, the Group’s subsidiary, Lloyds UDT

Employees

Finance Limited, completed the acquisition of the whole of the

issued share capital of Chartered Trust Group plc and ACL

Autolease Holdings Limited, the UK consumer ﬁnance and

contract hire subsidiaries of Standard Chartered Bank.

Business review and future developments

The Group is committed to employment policies which follow

best practice, based on equal opportunities for all employees

irrespective of sex, race, national origin, religion, colour,

disability, sexual orientation, age or marital status.

In the UK, the Group supports Opportunity Now and Race for

A review of the business and an indication of future

Opportunity, campaigns to improve opportunities for women

developments are given on pages 2 to 33.

and ethnic minorities in the work place. The Group is a

Authority to purchase shares

The authority for the Company to purchase, in the market, up

to 555 million of its shares, representing some 10 per cent of

member of the Employers’ Forum on Disability in support of

employment of people with disabilities. This recognises the

need for ensuring fair employment practices in recruitment and

selection, and the retention and career development of disabled

the issued ordinary share capital, expires at the annual general

staff.

meeting. It was not used during the year and shareholders will

be asked to give a similar authority at the annual general

meeting. Details are contained in the accompanying notice of

meeting.

Employees are kept closely involved in major changes affecting

them through such measures as team meetings, brieﬁngs,

internal communications and opinion surveys. There are well

established procedures, including regular meetings with

recognised unions, to ensure that the views of employees are

taken into account in reaching decisions.

Proﬁt sharing and share option schemes are available for most

staff, to encourage their ﬁnancial involvement in the Group.

38 LLOYDS TSB GROUP

Donations

The proﬁt and loss account includes a charge for charitable

donations totalling £34,790,000 (1999: £31,581,000)

including £34,483,333 (1999: £31,336,667) under deeds of

covenant to the four Lloyds TSB Foundations, which will be

paid during 2001. No payments were made to political parties.

Policy and practice on payment of creditors

The Company follows ‘The Better Payment Practice Code’

published by the Department of Trade and Industry regarding

the making of payments to suppliers. A copy of the code and

information about it may be obtained from the address shown

on page 77.

The Company’s policy is to agree terms of payment with

suppliers and these normally provide for settlement within

30 days after the date of the invoice, except where other

arrangements have been negotiated. It is the policy of the

Company to abide by the agreed terms of payment, provided

the supplier performs according to the terms of the contract.

As the Company owed no amounts to trade creditors at

31 December 2000, the number of days required to be shown

in this report, to comply with the provisions of the Companies

Act 1985, is nil. The equivalent ﬁgure for the Lloyds TSB Group

in the UK is 23. This bears the same proportion to the number

of days in the year as the aggregate of the amounts owed to

trade creditors at 31 December 2000 bears to the aggregate of

the amounts invoiced by suppliers during the year.

Auditors

Resolutions concerning the re-appointment of

PricewaterhouseCoopers as auditors and authorising the
directors to set their remuneration will be proposed at the

annual general meeting.

On behalf of the board

A J Michie

Secretary

15 February 2001

directors’ report

LLOYDS TSB GROUP 39

directors’ remuneration

directors’ remuneration

The remuneration committee

The remuneration committee, comprising Mr Butler (chairman),

Miss Forbes, Dr Gibson-Smith and Dr McKillop, makes

recommendations to the board on the framework of executive

directors’ remuneration and its cost, and determines, on the

board’s behalf, speciﬁc remuneration packages for each of the

chairman, the deputy chairmen and the executive directors.

Additionally, all the non-executive directors receive the minutes

of remuneration committee meetings and have the opportunity

Each executive director was eligible to earn an incentive award

equal to 50 per cent of salary. The awards for the group chief

executive and group ﬁnance director were entirely based on

group performance. Other executive directors had part of their

award based on group performance and the rest linked to the

performance of the sector of the business for which they had

responsibility. The awards were based on the attainment of

predetermined targets relating to economic proﬁt, revenue

growth, expenses and customer service.

to comment and have their views taken into account before the

The remuneration committee reviewed the attainment of targets

committee’s decisions are implemented.

and agreed the bonus payments.

Executive directors’ remuneration policy

The remuneration commitee also considered the bonus

The Group aims to ensure that the executive directors’

remuneration arrangements, in line with the Group’s overall
practice on pay and beneﬁts, are competitive and designed to

attract, retain and motivate executive directors of the highest

calibre, who are expected to perform to the highest standards.

Account is taken of information, from internal and independent

sources, on the remuneration for comparable positions in a

opportunities available to executive directors, and has increased

these to 75 per cent for executive directors and 100 per cent

for the group chief executive, with effect from the performance

year 2001. These higher bonus payments will only be payable

for superior performance as measured by the achievement of

stretching predetermined targets relating to economic proﬁt and

revenue growth.

wide range of FTSE 100 companies.

Medium-term incentive plan

The reward package

Each year, with the help of external management consultants,

the total remuneration package is reviewed, and in 2000 Hay

Management Consultants were commissioned by the

remuneration committee to conduct the review. In 2000 the

package for executive directors comprised the following

elements:

Basic salary

The aim is to ensure that the responsibilities of the role are

reﬂected in the salary and that salaries are competitively set in

relation to other comparable companies.

Annual bonus

In April 2000, shareholders approved the introduction of a

medium-term incentive plan which gives executive directors

(who do not include the chairman or the deputy chairmen) the

opportunity of an award, deferred until after the end of 2002

and which is subject to two performance targets, based on the

efﬁciency ratio and return on equity. For the group chief

executive the maximum award will be equal to 50 per cent of

aggregate basic salary for the years 2000-2002 and for other

executive directors, the maximum award will be equal to 25 per

cent of aggregate basic salary for these three years.

The two minimum performance targets are a reduction in the

group’s efﬁciency ratio to 37 per cent by the end of 2002 and a

return on equity of 28 per cent by the end of 2002. No

payment will be made under the plan unless both these

The annual bonus scheme was designed to reﬂect speciﬁc goals

minimum targets are met.

linked to the performance of the business.

40 LLOYDS TSB GROUP

directors’ remuneration

If by the end of 2002 the group’s efﬁciency ratio is between

Pensions

37 per cent and 35 per cent or lower and the return on equity

is between 28 per cent and 30 per cent or higher, the sum

payable increases on a straight line sliding scale to the

maximum award.

For the year 2000, the group’s efﬁciency ratio was

46.7 per cent and return on equity was 29.1 per cent.

Long-term rewards

The Group is committed to the governing objective of

maximising shareholder value over time. The board believes

that executive share option schemes for senior executives

provide an effective method of giving them the incentive to

achieve that objective.

In 2000 options were granted to executive directors and senior

executives within limits set by the rules of the schemes. These

limits relate to the number of shares under option and the price

payable on the exercise of options. Normally, the limit for the

grant of options to an executive in any one year would be equal

to one year’s remuneration. Performance conditions are set

when the grant of options is made. To meet the performance

conditions under the current schemes the Company’s ranking,

based on total shareholder return (calculated by reference to

both dividends and growth in share price) over the relevant

period, should be in the top ﬁfty companies in the FTSE 100.

There must also have been growth in earnings per share that is

at least equal to the aggregate percentage change in the retail

price index, plus three percentage points for each complete year

of the relevant period. These are the performance conditions

which were conﬁrmed by the shareholders at the annual

general meeting in 2000.

Proposals will be made to shareholders at the annual general

meeting relating to the executive share option scheme, and will

include recommendations regarding performance conditions and

the time over which options may vest. Details are contained in

the accompanying notice of meeting.

Executive directors are, like most other employees, entitled to

pensions based on salary and length of service with the Group,

with a maximum pension of two thirds of ﬁnal salary, unless

otherwise disclosed.

Other beneﬁts

Other beneﬁts include the use of a car, medical and other

insurance and participation in the staff proﬁt sharing scheme.

Service agreements

Mr Atkinson, Mr Ellwood, Mr Fairey, Mr Holt, Mr Kane and

Mr Pritchard each has a service agreement which the company

may terminate by giving one year’s notice. Mr Ross’s service

agreement provides for two years’ notice for the ﬁrst two years
of employment with the Group. After that, the notice period will

decrease by one month for each month of service. In the fourth

year, Mr Ross’s contract will provide for one year’s notice, like

those of the other executive directors. None of the other

directors has a service agreement with a notice period of one

year or more.

The remuneration committee has considered the provisions of

the UK listing authority’s corporate governance code relating to

compensation in the event of early termination of directors’

service contracts and a departing director’s duty to mitigate

loss. The committee reviewed the wording of the executive

directors’ contracts and felt that as the notice period did not

exceed one year, except in the case of Mr Ross as mentioned

above, there was no need to provide explicitly for compensation

payments on early termination.

LLOYDS TSB GROUP

41

directors’ remuneration

Directors’ emoluments

Current directors who served during 2000:

M K Atkinson

Ewan Brown

A C Butler

P B Ellwood

M E Fairey

S M Forbes

C S Gibson-Smith

Dennis Holt

A G Kane

L E Linaker

T F W McKillop

A E Moore

Sir Brian Pitman

D P Pritchard

M D Ross

Lord Selborne

L M Urquhart

M A van den Bergh

Former directors who served during 2000:

Sir Nicholas Goodison

P C Nicholson

Dame Bridget Ogilvie

G F Pell

Former directors who served during 1999

Salaries/fees
£000

1999
£000
aaaaaaffffffffffffffffffffffffff aaaaaaffffffffffffffffffffffffff aaaaaaffffffffffffffffffffffffff aaaaaaffffffffffffffffffffffffff aaaaaaffffffffffffffffffffffffff aaaaaaffffffffffffffffffffffffff

Proﬁt
sharing
£000

2000
Total
£000

Other
beneﬁts
£000

Performance-
related
payments
£000

325

45

33

550

380

34

30

275

300

36

33

185

400

325

302

42

70

63

73

10

8

24

16

135

33

55

38

27

30

20

40

33

30

7

229

154

113

130

124

124

22

24†

13

14

11

48†

14†

12

5†

3

1

509

45

33

856

596

34

30

428

474

36

33

216

488

496

468

42

70

68

83

10

8

25

482

32

32

807

529

45

30

–

–

46

30

204

440

450

–

54

–

–

329

35

30

453

557
aaaaaaffffffffffffffffffffffffff aaaaaaffffffffffffffffffffffffff aaaaaaffffffffffffffffffffffffff aaaaaaffffffffffffffffffffffffff aaaaaaffffffffffffffffffffffffff aaaaaaffffffffffffffffffffffffff
aad aad aad aad aad aad
4,585

5,048

1,009

3,543

313

183

‘Other beneﬁts’ include the use of a car, medical cover, relocation payment where relevant and in some cases † the annual cost of life
insurance cover similar to that provided for employees by the Lloyds TSB Group pension scheme.
The total for the highest paid director (Mr Ellwood) was £856,000. (The total for the highest paid director in 1999 (Sir Brian
Pitman), including the gain of £3,025,000 on the exercise of share options, mentioned in the table on page 44, was £3,465,000).
The gains on the exercise of share options arise from increases in the share price since the options were granted. Shareholders who
held shares for the same periods would have gained similarly from these increases.

42 LLOYDS TSB GROUP

directors’ remuneration

Directors’ pensions

Pension beneﬁts earned by the directors:

(a)
Additional pension
earned (excluding
inﬂation) during
the year ended
31 December
2000
£
aaaaaaasfff

(c)
Accrued
pension
entitlement at
31 December
2000
£
aaaaaaasfff aaaaaaasfff

(b)
Increase in
transfer value
(excluding
inﬂation)
£

20,619
31,320
16,867
79,056
16,888
2,768
37,979

332,217
570,367
272,396
1,150,733
241,065
49,190
574,521

196,527
291,914
105,501
166,981
98,319
18,042
213,976

M K Atkinson
P B Ellwood 
M E Fairey* 
Dennis Holt
A G Kane
D P Pritchard 
M D Ross

Column (a) above is the increase in pension built up during the year. It recognises (i) the accrual rate for the additional year’s
service based on the pensionable salary in force at the year end and (ii) the effect of pay changes in ‘real’ (inﬂation adjusted) terms
on the pension already earned at the start of the year.
Column (b) is the additional capital value of column (a) which would arise if the pension were to be transferred to another pension
scheme on the director’s leaving the company, based on factors supplied by the actuary of the relevant Group pension scheme in
accordance with actuarial guidance note GN11, less (where paid) the director’s contributions.
Column (c) is the aggregate pension entitlement based on pensionable service with the Company to 31 December 2000 but
payable at normal retirement age.
Members of the Group’s pension schemes have the option to pay additional voluntary contributions; neither the contributions nor
the resulting beneﬁts are included in the above table.

* Includes additional beneﬁts from the separate fund, mentioned in previous annual reports, established to cover pension obligations
of those who joined the Group after 1 June 1989 and who are subject to the Inland Revenue earnings cap relating to pensions,
introduced by the Finance Act 1989.

Mr Pritchard is entitled to additional beneﬁts from the deﬁned contribution section of the separate fund for those who joined the
Group after 1 June 1989. The Group pays an annual contribution to the fund in respect of Mr Pritchard of 27 per cent of salary in
excess of the earnings cap, which for the year 2000 equates to £63,045 (1999: £54,041).

LLOYDS TSB GROUP

43

directors’ remuneration

Directors’ interests

The directors’ interests, all beneﬁcial, in shares in Lloyds TSB Group were:

Shares:

M K Atkinson
Ewan Brown
A C Butler
P B Ellwood
M E Fairey
S M Forbes
C S Gibson-Smith
Dennis Holt
A G Kane

Options to acquire shares:

At
1 January
2000
(or date of
appointment
if later)
aaaaaaasfff

29,597
2,187
2,000
176,162
70,876
2,000
3,065
18,035
73,458

At
31 December
2000
aaaaaaasfff

31,077
3,274
2,000
177,501
72,218
2,000
3,151
19,264
78,865

At
1 January
2000
(or date of
appointment
if later)
aaaaaaasfff

5,000
1,000
1,041,911
2,576,438
866
–
3,372
–
4,000

At
31 December
2000
aaaaaaasfff

5,000
1,000
1,043,196
2,578,688
2,151
2,500
3,372
2,124
4,000

L E Linaker
T F W McKillop
A E Moore
Sir Brian Pitman
D P Pritchard
M D Ross
Lord Selborne
L M Urquhart
M A van den Bergh

At
1 January
2000
(or date of
appointment
if later)

Granted
during the
year

Weighted
average
exercise
price at
during the 31 December 31 December
2000

Exercised/
lapsed

2000

year

At

1999
£000
aaaaaaasfff aaaaaaasfff aaaaaaasfff aaaaaaasfff aaaaaaasfff aaaaaaasfff aaaaaaasfff aaaaaaasfff aaaaaaasfff

2000
£000

Amount of gain on exercise**

Exercise
price of
options
granted,
exercised
or lapsed 
during the
year

Market
price
at date of
exercise

M K Atkinson

350,875

P B Ellwood*

490,486

M E Fairey*

330,982

Dennis Holt

53,237

A G Kane*

253,806

A E Moore
Sir Brian Pitman
D P Pritchard

M D Ross

62,984
4,374
94,687

–

282†
356†

419
682
352
206
237†
269†
218†
187†
376†
136†
127†
125†

3,682
1,015†
562†

59,144
26,136
916

80,364
61,714
85,896
10,931
42,038
10,889

64,786
11,841
4,157

71,519
10,385
265,696
3,245

436,433

441p

632,564

533p

427,809

501p

102,830

626p

329,331

505p

62,984
4,374
176,591

251p
309p
698p

268,941

549p

549.5p
615.5p
442p
718p
580p
549.5p
615.5p
549.5p
615.5p
549.5p
615.5p
164.57p
253p
288p
416p
580p
768p
632p
719p
718p
253p
288p
416p
549.5p
615.5p
442p
178p
768p
719p

549.5p
615.5p
549.5p
520p

Gain made by Sir Nicholas Goodison, who retired on 11 April 2000
Gain made by S A Maran, who served during 1999
Gain made by G F Pell, who left the board on 7 January 2000

44 LLOYDS TSB GROUP

8

43

642p
642p
642p
642p

2
3
1
1

640.5p

20

8
3,025

172
27
815
aaaaaaasfff aaaaaaasfff
aas aas
27
4,098

directors’ remuneration

Directors’ interests (continued)

Options to acquire shares (continued)
Options outstanding are exercisable between 2001 and 2010.
*These directors will receive additional Lloyds TSB Group shares on exercising share options held on 28 December 1995. These
shares will compensate them for the special dividend of 68.3p per share which was paid to former TSB Group shareholders
following the merger with Lloyds Bank, but which was not paid to optionholders. In that regard Mr Kane received 402 additional
shares when he exercised the share options shown above.

**This is the difference between the market price of the shares on the day on which the share option was exercised and the price
paid for the shares, and includes the value of shares issued to compensate directors for the special dividend mentioned above.
†During the year these share options lapsed following termination of savings contracts linked to the staff sharesave option scheme,
in accordance with the rules of the scheme.
The market price for a share in the Company at 31 December 2000 was 708p. The range of prices between 1 January 2000 and
31 December 2000 was 517p to 742.5p.
None of the other directors at 31 December 2000 had options to acquire shares in the Company or its subsidiaries.

Scottish Widows loan capital
At the end of the year, Mr Ross had an interest in £57,394 of Scottish Widows Group Limited ﬂoating rate unsecured loan notes
2008, issued during the year.

Non-beneﬁcial interests
Directors had non-beneﬁcial interests as follows:
1. Mr Atkinson, Mr Ellwood, Mr Fairey, Mr Holt, Mr Kane, Mr Moore, Sir Brian Pitman, Mr Pritchard, Mr Ross and Mr van den
Bergh together with some 70,000 other employees, were potential beneﬁciaries in the 749,896, 66,536 and 3,100,000 shares
held at the end of the year by the Lloyds TSB qualifying employee share ownership trust, the TSB Group employee trust and the
Lloyds TSB Group employee share ownership trust, respectively. 1,888,211, 2,574,721 and 3,100,000 shares, respectively,
were held by these trusts at the beginning of the year. These holdings were 195,941, 18,489 and 3,100,000, respectively, on
15 February 2001. 
2. At the end of the year, Mr Ellwood also had a non-beneﬁcial interest in 7,000 shares held in another trust created during the
year.

None of those who were directors at the end of the year had any other interest in the capital of the Company or its subsidiaries
and there were no changes in their beneﬁcial interests between 31 December 2000 and 15 February 2001.
The register of directors’ interests, which is open to inspection, contains full particulars of directors’ shareholdings and options to
acquire shares in the Company.

LLOYDS TSB GROUP

45

corporate governance

The UK listing authority’s rules require companies to make

More information about directors’ remuneration is given in the

statements on corporate governance in their annual reports. The

directors’ remuneration report on pages 40 to 45 and details of

following comments are, therefore, included to comply with

how the board reviews ﬁnancial and operational controls and

these rules.

Corporate governance principles

The board considers that good governance is central to

achieving the Group’s governing objective of maximising

shareholder value. That has been uppermost in directors’ minds

when applying the governance principles contained in the code

risk management generally are shown on page 47 and in the

ﬁnancial review on pages 11 to 33.

The chairman, the group chief executive and the group ﬁnance

director have meetings with representatives of institutional

shareholders and all shareholders are encouraged to participate

in the Company’s annual general meeting.

annexed to the UK listing authority’s listing rules.

Compliance with the code

The following remarks demonstrate how the board has applied

The directors believe that the Company complies with the

these principles.

The information on page 37 shows that the Company is led and

controlled by a board comprising executive and non-executive
directors with wide experience. The appointment of directors is

considered by the board and, following the provisions in the

articles of association, they must retire by rotation, and may

stand for re-election by the shareholders, at least every three

years.

provisions of the code and that it has complied throughout the

year with the provisions where the requirements are of a

continuing nature.

Directors’ responsibilities

The directors are required by the Companies Act 1985 to

prepare ﬁnancial statements for each ﬁnancial year which give a

true and fair view of the state of affairs of the Company and the

Group as at the end of the year and of the proﬁt or loss for the

The board meets eleven times a year and a programme is

year. Following discussions with the auditors, the directors

prepared and agreed each year, which ensures that the directors

consider that in preparing the ﬁnancial statements on pages 49

are able regularly to review corporate strategy and the

to 76, the Company has used appropriate accounting policies,

operations and results of the business units in the Group and to

consistently applied and supported by reasonable and prudent

discharge their other duties. The roles of the chairman, the

judgements and estimates, and that all accounting standards

group chief executive and the board and its governance

which they consider applicable have been followed.

arrangements are reviewed annually.

The directors have responsibility for ensuring that the Company

Additionally, the directors meet, informally, four or ﬁve times a

keeps accounting records which disclose with reasonable

year, to enable them to spend more time than would normally

accuracy the ﬁnancial position of the Company and which

be available at board meetings in exploring aspects of the

enable them to ensure that the ﬁnancial statements comply with

Group’s business and to hear from senior executives below

the Companies Act 1985. They have general responsibility for

board level.

The board has a chairman’s committee, comprising the

chairman, the two deputy chairmen, the group chief executive

taking such steps as are reasonably open to them to safeguard

the assets of the Group and to prevent and detect fraud and

other irregularities.

and his deputy. The chairman’s committee meets to discuss

Going concern

current issues and strategy, examine and test proposals and

prepare for board meetings. It also has power to deal with

routine matters between board meetings.

The directors are satisﬁed that the Company and the Group

have adequate resources to continue to operate for the

foreseeable future and are ﬁnancially sound. For this reason,

The board has audit, nomination and remuneration committees

they continue to adopt the going concern basis in preparing the

which comply with the provisions of the code. Additionally, all

accounts.

the non-executive directors receive copies of the minutes of the

remuneration committee’s meetings and have the opportunity to

comment and have their views taken into account before the

committee’s decisions are implemented.

46 LLOYDS TSB GROUP

Internal control

The board of directors is responsible for the Group’s system of

internal control, which is designed to ensure effective and

efﬁcient operations, internal control, including ﬁnancial

reporting, and compliance with laws and regulations. In

establishing and reviewing the system of internal control the

directors have regard to the materiality of relevant risks, the

likelihood of a loss being incurred and the costs of control. It

follows, therefore, that the system of internal control can only

provide reasonable but not absolute assurance against the risk

of material loss.

The directors and senior management of the Group are

committed to maintaining a control conscious culture across all

areas of operation. This is communicated to all employees by

way of procedures manuals and regular management brieﬁngs.

Key business risks are identiﬁed, and these are controlled by

means of procedures such as physical controls, credit, trading

and other authorisation limits and segregation of duties. There

are well established budgeting and forecasting procedures in

place and reports are presented regularly to the board detailing

the results of each principal business unit, variances against

budget and prior year, and other performance data. Internal

controls contain procedures which assist the board in identifying

new and emerging risks.

The effectiveness of the internal control system is reviewed

regularly by the board and the audit committee which also

receives reports of reviews undertaken around the Group by the

Group’s risk management function, including internal audit and

compliance. The audit committee also receives reports from the

Company’s auditors, PricewaterhouseCoopers, which include

details of signiﬁcant internal control matters that they have

identiﬁed and has a discussion with the auditors at least once a

year without executives present, to ensure that there are no

unresolved issues of concern.

corporate governance

LLOYDS TSB GROUP

47

corporate governance

auditors’ report

To the members of Lloyds TSB Group plc

Basis of audit opinion

We have audited the ﬁnancial statements on pages 42

We conducted our audit in accordance with Auditing Standards

to 45 and 49 to 76.

Respective responsibilities of directors and auditors

The directors are responsible for preparing the annual report.

As described on page 46 this includes responsibility for

preparing the ﬁnancial statements in accordance with applicable

UK Accounting Standards. Our responsibilities, as independent

auditors, are established in the UK by statute, the Auditing

Practices Board, the Listing Rules of the Financial Services

Authority and our profession’s ethical guidance.

We report to you our opinion as to whether the ﬁnancial
statements give a true and fair view and are properly prepared

in accordance with the UK Companies Act. We also report to

you if, in our opinion, the directors’ report is not consistent with

the ﬁnancial statements, if the company has not kept proper

accounting records, if we have not received all the information

and explanations we require for our audit, or if information

speciﬁed by law or the Listing Rules regarding directors’

issued by the Auditing Practices Board. An audit includes

examination, on a test basis, of evidence relevant to the

amounts and disclosures in the ﬁnancial statements. It also

includes an assessment of the signiﬁcant estimates and

judgements made by the directors in the preparation of the

ﬁnancial statements, and of whether the accounting policies are

appropriate to the Company and the Group’s circumstances,

consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the

information and explanations which we considered necessary in

order to provide us with sufﬁcient evidence to give reasonable
assurance that the ﬁnancial statements are free from material

misstatement, whether caused by fraud or other irregularity or

error. In forming our opinion we also evaluated the overall

adequacy of the presentation of information in the ﬁnancial

statements.

Opinion

remuneration and transactions is not disclosed.

In our opinion the ﬁnancial statements give a true and fair view

We read the other information contained in the annual report

and consider the implications for our report if we become aware

of any apparent misstatements or material inconsistencies with

the ﬁnancial statements.

We review whether the statement on page 46 reﬂects the

company’s compliance with the seven provisions of the

Combined Code speciﬁed for our review by the Financial

of the state of affairs of the Company and the Group as at

31 December 2000 and of the proﬁt and cash ﬂows of the

Group for the year then ended and have been properly prepared

in accordance with the Companies Act 1985.

PricewaterhouseCoopers

Chartered Accountants and Registered Auditors

London

Services Authority, and we report if it does not. We are not

15 February 2001

required to consider whether the board’s statements on internal

control cover all risks and controls, or to form an opinion on the
effectiveness of the company’s corporate governance procedures

or its risk and control procedures.

48 LLOYDS TSB GROUP

consolidated
proﬁt and loss account

for the year ended 31 December 2000

Interest receivable:
Interest receivable and similar income arising 

from debt securities

Other interest receivable and similar income
Interest payable

Net interest income
Other income
Fees and commissions receivable
Fees and commissions payable
Dealing proﬁts (before expenses)
Income from long-term assurance business:

Income before pension provisions
Pension provisions

General insurance premium income
Other operating income

Total income
Operating expenses
Administrative expenses
Exceptional restructuring costs
Total administrative expenses
Depreciation
Amortisation of goodwill
Depreciation and amortisation

Total operating expenses

Trading surplus (deﬁcit)
General insurance claims
Provisions for bad and doubtful debts
Speciﬁc
General

Amounts written off ﬁxed asset investments

Operating proﬁt (loss)

Loss on sale and closure of businesses

Proﬁt on ordinary activities before tax
Tax on proﬁt on ordinary activities

Proﬁt on ordinary activities after tax
Minority interests: equity

: non-equity

Proﬁt for the year attributable to shareholders
Dividends

Retained proﬁt

Earnings per share
Diluted earnings per share

* restated (note 1)

Group
(excluding
Scottish
Widows)
2000
£ million
aaaaaaffffffffffffffffffffffffff

Scottish
Widows
(from
3 March)
(note 49)
2000
£ million
aaaaaaffffffffffffffffffffffffff

Note
aaaffffffffffffffffffff

Total
2000
£ million
aaaaaaffffffffffffffffffffffffff

1999*
£ million
aaaaaaffffffffffffffffffffffffff

443
10,511
6,132
aaaaaaffffffffffffffffffffffffff
4,822

–
100
335
aaaaaaffffffffffffffffffffffffff
(235)

443
10,611
6,467
aaaaaaffffffffffffffffffffffffff
4,587

430
10,022
5,669
aaaaaafffffffffffffffffffffffffffff
4,783

2,706
(461)
193

447
(100)
399
381

62
(18)
5

268
–
–
–

2,768
(479)
198

715
(100)
399
381

2,497
(426)
215

329
(102)
390
242

3,565
aaaaaaffffffffffffffffffffffffff
8,387

317
aaaaaaffffffffffffffffffffffffff
82

3,882
aaaaaaffffffffffffffffffffffffff
8,469

3,145
aaaaaafffffffffffffffffffffffffffff
7,928

3,332
129
3,461
364
22
386

46
59
105
–
–
–

3,378
188
3,566
364
22
386

3,847
aaaaaaffffffffffffffffffffffffff
4,540
142

105
aaaaaaffffffffffffffffffffffffff
(23)
–

3,952
aaaaaaffffffffffffffffffffffffff
4,517
142

481
(6)

–
–

481
(6)

475
14
aaaaaaffffffffffffffffffffffffff
3,909

–
–
aaaaaaffffffffffffffffffffffffff
aafffffff aafffffff
(23)

475
14
aaaaaaffffffffffffffffffffffffff
3,886

3,140
–
3,140
265
12
277

3,417
aaaaaafffffffffffffffffffffffffffff
4,511
169

588
–

588
7
aaaaaafffffffffffffffffffffffffff
3,747

–
aaaaaaffffffffffffffffffffffffff
3,886
1,113
aaaaaaffffffffffffffffffffffffff
2,773
13
36
aaaaaaffffffffffffffffffffffffff
2,724
1,683
aaaaaaffffffffffffffffffffffffff
1,041

(126)
aaaaaaffffffffffffffffffffffffffff
3,621
1,101
aaaaaaffffffffffffffffffffffffffffff
2,520
6
–
aaaaaaffffffffffffffffff
2,514
1,451
aaaaaafffffffffffffffffffffffffff
aafffffff aafffffff
1,063
46.2p
45.3p

49.6p
49.1p

2
32

3
4

26
25

16

5

6

7
9

43

10
11

45

12
12

LLOYDS TSB GROUP

49

consolidated

balance sheet

at 31 December 2000

Assets
Cash and balances at central banks
Items in course of collection from banks
Treasury bills and other eligible bills
Loans and advances to banks
Loans and advances to customers
Non-returnable ﬁnance

Debt securities
Equity shares
Intangible ﬁxed assets
Tangible ﬁxed assets
Own shares
Other assets
Prepayments and accrued income
Long-term assurance business attributable to 

shareholders

Long-term assurance assets attributable to 

policyholders

Total assets

* restated (note 1)

Note
aaaffffffffffffffffffff

2000
£ million
aaaaaaaaffffffffffffffffffffffffff

1999*
£ million
aaaaaaaaffffffffffffffffffffffffff

13

14

15

20

21

25

26

29

30

31

32

32

1,027
1,533
1,709
15,290
114,855
(400)

114,455
13,882
247
2,599
3,037
28
3,576
2,965

6,549
aaaaaaaaffffffffffffffffffffffffff

166,897

51,085
aaaaaaaaffffffffffffffffffffffffff
aafffffffffffffffffffffffffff
217,982

1,276
1,743
2,065
16,963
102,149
–

102,149
14,184
213
231
2,035
35
3,641
2,628

2,274
aaaaaaaaffffffffffffffffffffffffff

149,437

26,542
aaaaaaaaffffffffffffffffffffffffff
aafffffffffffffffffffffffffff
175,979

The directors approved the accounts on 15 February 2001.

Sir Brian Pitman
Chairman

P B Ellwood
Group Chief Executive

M K Atkinson
Group Finance Director

50 LLOYDS TSB GROUP

consolidated balance sheet

Note
aaaffffffffffffffffffff

2000
£ million
aaaaaaaaffffffffffffffffffffffffff

1999*
£ million
aaaaaaaaffffffffffffffffffffffffff

34

35

36

38

39

40

41

42

42

43

44

45

45

45

47

Liabilities
Deposits by banks
Customer accounts
Items in course of transmission to banks
Debt securities in issue
Other liabilities
Accruals and deferred income
Provisions for liabilities and charges:

Deferred tax
Other provisions for liabilities and charges

Subordinated liabilities:
Undated loan capital
Dated loan capital

Minority interests:

Equity
Non-equity

Called-up share capital
Share premium account
Merger reserve
Proﬁt and loss account

Shareholders’ funds (equity)

Long-term assurance liabilities to policyholders

Total liabilities

Memorandum items
Contingent liabilities:

Acceptances and endorsements
Guarantees and assets pledged as collateral 

security

Other contingent liabilities

Commitments:

Commitments arising out of sale and option to 

resell transactions
Other commitments

* restated (note 1)

16,735
100,738
420
17,899
6,980
4,325

1,559
442

3,391
4,119

37
515

552
1,396
595
343
7,403

17,694
92,851
757
12,260
5,526
3,309

1,459
474

3,294
3,199

33
–

33
1,389
404
343
6,445

9,737
aaaaaaaaffffffffffffffffffffffffff

166,897
51,085
aaaaaaaaffffffffffffffffffffffffff
aafffffffffffffffffffffffffff
217,982

8,581
aaaaaaaaffffffffffffffffffffffffff

149,437
26,542
aaaaaaaaffffffffffffffffffffffffff
aafffffffffffffffffffffffffff
175,979

357

459

3,249
1,541
aaaaaaaaffffffffffffffffffffffffff
aafffffffffffffffffffffffffff
5,147

3
42,586
aaaaaaaaffffffffffffffffffffffffff
aafffffffffffffffffffffffffff
42,589

2,485
1,479
aaaaaaaaffffffffffffffffffffffffff
aafffffffffffffffffffffffffff
4,423

14
27,862
aaaaaaaaffffffffffffffffffffffffff
aafffffffffffffffffffffffffff
27,876

LLOYDS TSB GROUP

51

company

balance sheet

at 31 December 2000

Fixed assets
Investments

Shares in group undertakings
Loans to group undertakings
Own shares

Current assets
Debtors falling due within one year

Amounts owed by group undertakings
Other debtors
Tax recoverable

Cash balances with group undertakings

Current liabilities
Amounts falling due within one year

Short-term borrowings
Amounts owed to group undertakings
Other creditors
Dividend payable

Net current liabilities

Total assets less current liabilities
Creditors
Amounts falling due after more than one year 

Dated loan capital

Net assets

Capital and reserves
Called-up share capital
Share premium account
Revaluation reserve
Proﬁt and loss account

Shareholders’ funds (equity)

Note
aaaffffffffffffffffffff

2000
£ million
aaaaaaaaffffffffffffffffffffffffff

1999
£ million
aaaaaaaaffffffffffffffffffffffffff

23

23

29

37

42

44

45

45

45

11,152
759
24

11,935

1,233
42
16
66

1,357

1
1,811
62
1,172

3,046

10,197
759
35

10,991

860
47
34
262

1,203

1
1,918
60
1,011

2,990

(1,689)

(1,787)

aaaaaaaaffffffffffffffffffffffffff

aaaaaaaaffffffffffffffffffffffffff

10,246

9,204

512
aaaaaaaaffffffffffffffffffffffffff
aafffffffffffffffffffffffffff
9,734

1,396
595
5,086
2,657
aaaaaaaaffffffffffffffffffffffffff
aafffffffffffffffffffffffffff
9,734

511
aaaaaaaaffffffffffffffffffffffffff
aafffffffffffffffffffffffffff
8,693

1,389
404
4,131
2,769
aaaaaaaaffffffffffffffffffffffffff
aafffffffffffffffffffffffffff
8,693

The directors approved the accounts on 15 February 2001.

Sir Brian Pitman
Chairman

P B Ellwood
Group Chief Executive

M K Atkinson
Group Finance Director

52 LLOYDS TSB GROUP

other statements

Statement of total recognised gains and losses
for the year ended 31 December 2000

Proﬁt attributable to shareholders
Currency translation differences on foreign currency 

net investments

Total recognised gains and losses relating to the year
Prior year adjustment (note 1)

Total gains and losses recognised during the year

Historical cost proﬁts and losses
for the year ended 31 December 2000

2000
£ million
aaaaaaaaffffffffffffffffffffffffff

2,724

(68)
aaaaaaaaffffffffffffffffffffffffff

2,656
(112)
aaaaaaaaffffffffffffffffffffffffff
2,544aafffffffffffffffffffffffffff

1999
£ million
aaaaaaaaffffffffffffffffffffffffff

2,514

(33)
aaaaaaaaffffffffffffffffffffffffff
2,481aafffffffffffffffffffffffffff

There was no material difference between the results as reported and the results that would have been
reported on an unmodiﬁed historical cost basis. Accordingly, no note of historical cost proﬁts and losses has
been included.

Reconciliation of movements in shareholders’ funds
for the year ended 31 December 2000

Proﬁt attributable to shareholders
Dividends

Retained proﬁt
Currency translation differences on foreign currency 

net investments

Issue of shares
Goodwill written back on sale and closure of businesses

Net increase in shareholders’ funds
Shareholders’ funds at beginning of year
Prior year adjustment (note 1)

Shareholders’ funds at end of year

2000
£ million
aaaaaaaaffffffffffffffffffffffffff

2,724
(1,683)
aaaaaaaaffffffffffffffffffffffffff

1,041

(68)
74
109
aaaaaaaaffffffffffffffffffffffffff

1,156
8,581
–
aaaaaaaaffffffffffffffffffffffffff
aafffffffffffffffffffffffffff
9,737

1999
£ million
aaaaaaaaffffffffffffffffffffffffff

2,514
(1,451)
aaaaaaaaffffffffffffffffffffffffff

1,063

(33)
108
80
aaaaaaaaffffffffffffffffffffffffff

1,218
7,475
(112)
aaaaaaaaffffffffffffffffffffffffff
aafffffffffffffffffffffffffff
8,581

LLOYDS TSB GROUP

53

consolidated
cash ﬂow statement

2000
£ million
aaaaaaaaffffffffffffffffffffffffff

7,558

1999*
£ million
aaaaaaaaffffffffffffffffffffffffff

1,261

(12)
(36)
(442)
(1)

(491)

(723)
(141)

(864)

(23,552)
24,756
(1,006)
78
–

(11)
–
(270)
–

(281)

(670)
(137)

(807)

(23,147)
21,921
(595)
83
(220)

276

(1,958)

(5,110)
83

(5,027)
(1,522)
aaaaaaaaffffffffffffffffffffffffff

(70)

952
509

74
(55)
(4)

(27)
3

(24)
(1,285)
aaaaaaaaffffffffffffffffffffffffff

(3,094)

2,769
–

108
(228)
(3)

1,476
aaaaaaaaffffffffffffffffffffffffff
aafffffffffffffffffffffffffff
1,406

2,646
aaaaaaaaffffffffffffffffffffffffff
aafffffffffffffffffffffffffff
(448)

for the year ended 31 December 2000

Net cash inﬂow from operating activities (note 50a)
Returns on investments and servicing of ﬁnance:
Dividends paid to equity minority interests
Payments made to non-equity minority interests
Interest paid on subordinated liabilities (loan capital) 
Interest element of ﬁnance lease rental payments

Net cash outﬂow from returns on investments and 

servicing of ﬁnance

Taxation:
UK corporation tax 
Overseas tax 

Total taxation 
Capital expenditure and ﬁnancial investment:
Additions to ﬁxed asset investments 
Disposals of ﬁxed asset investments 
Additions to tangible ﬁxed assets 
Disposals of tangible ﬁxed assets 
Capital injection to life fund 

Net cash inﬂow (outﬂow) from capital expenditure and 

ﬁnancial investment 
Acquisitions and disposals:
Acquisition of group undertakings (note 50e) 
Disposal of group undertakings and businesses (note 50g) 

Net cash outﬂow from acquisitions and disposals
Equity dividends paid 

Net cash outﬂow before ﬁnancing
Financing:
Issue of subordinated liabilities (loan capital)
Issue of preferred securities by subsidiary undertakings
Issue of ordinary share capital net of £124 million 

(1999: £205 million) contribution to the QUEST (note 29)

Repayments of subordinated liabilities (loan capital)
Capital element of ﬁnance lease rental payments

Net cash inﬂow from ﬁnancing

Increase (decrease) in cash (note 50c)

* restated (note 1)

54 LLOYDS TSB GROUP

notes to the accounts

1 Accounting policies

c Goodwill

Accounting  policies  are  unchanged  from  1999,  except  that  the  Group  has
implemented the requirements of Financial Reporting Standard 15 ‘Tangible
Fixed  Assets’;  this  has  resulted  in  two  changes.  The  Group’s  freehold  and
long leasehold premises were previously included in the balance sheet at the
last valuation on the basis of existing use value; they will now no longer be
revalued, and a prior year adjustment has been made to restate the carrying
value  to  historical  cost.  This  has  resulted  in  the  carrying  value  of  tangible
ﬁxed assets as at 1 January 1999 being reduced by £112 million and an
equivalent adjustment being made against reserves. The effect of this change
upon the Group’s proﬁt and loss account is not signiﬁcant. In addition, the
Group  has  reassessed  the  useful  economic  lives  and  residual  values  of  its
freehold and long leasehold premises and with effect from 1 January 2000,
the  cost  of  these  properties,  after  deducting  the  value  of  land,  is  being
depreciated  over  50  years.  Previously  it  was  considered  that  the  residual
values  were  such  that  depreciation  was  not  signiﬁcant.  The  effect  of  this
change  has  been  to  increase  the  depreciation  charge  in  2000  by 
£8 million.

In addition, the Group has implemented the Finance & Leasing Association’s
Statement  of  Recommended  Accounting  Practice  ‘Accounting  Issues  in  the
Asset Finance and Leasing Industry’. As a result, the presentation of assets
held  for  leasing  to  customers  under  operating  lease  agreements  has  been
changed.  These  assets  are  now  included  within  tangible  ﬁxed  assets  and
depreciation  charged  over  their  estimated  useful  economic  lives.  Rental
income received from customers is included within other operating income.
Operating lease assets were previously included within loans and advances
and the related income within net interest income. This change has no effect
on proﬁt before tax. The effect of this change on the balance sheet has been
to  increase  tangible  ﬁxed  assets  by  £1,280  million  and  reduce  loans  and
advances  to  customers  by  an  equivalent  amount  (1999:  £479  million).
Comparative ﬁgures have been restated.

The  Group  has  also  implemented  the  requirements  of  Financial  Reporting
Standard 16 ‘Current Tax’; the effect has not been signiﬁcant.

a Accounting convention

The consolidated accounts are prepared under the historical cost convention
as modiﬁed by the revaluation of debt securities and equity shares held for
dealing purposes (see g) and assets held in the long-term assurance business,
in compliance with Section 255A, Schedule 9 and other requirements of the
Companies Act 1985, in accordance with applicable accounting standards,
pronouncements of the Urgent Issues Task Force and with the Statements of
Recommended  Accounting  Practice 
the  British  Bankers’
Association.

issued  by 

The  accounts  of  the  Company  are  prepared  under  the  historical  cost
convention  as  modiﬁed  by  the  revaluation  of  shares  in  group  undertakings
(see h), in compliance with Section 226, Schedule 4 and other requirements
of the Companies Act 1985 and in accordance with applicable accounting
standards and pronouncements of the Urgent Issues Task Force.

The Group has taken advantage of the dispensation in the Urgent Issues Task
Force’s Abstract 17 ‘Employee Share Schemes’ not to apply that Abstract to
the Group’s Inland Revenue approved SAYE schemes.

b Basis of consolidation

Assets,  liabilities  and  results  of  group  undertakings  and  joint  ventures  are
included in the consolidated accounts on the basis of accounts made up to
31 December. In order to reﬂect the different nature of the shareholders’ and
policyholders’  interests  in  the  long-term  assurance  business,  the  value  of
long-term assurance business attributable to shareholders and the assets and
liabilities attributable to policyholders are classiﬁed under separate headings
in the consolidated balance sheet.

Goodwill arising on acquisitions of or by group undertakings is capitalised.
For  acquisitions  prior  to  1 January  1998,  goodwill  was  taken  direct  to
reserves  in  the  year  of  acquisition.  As  permitted  by  the  transitional
arrangements  of  Financial  Reporting  Standard  10,  this  goodwill  was  not
reinstated when the Group adopted the standard in 1998.

The  useful  economic  life  of  the  goodwill  arising  on  each  acquistition  is
determined  at  the  time  of  the  acquisition.  In  the  case  of  the  acquisition  of
Scottish  Widows  in  2000,  in  view  of  the  strength  of  the  Scottish  Widows
brand and the position of the business as one of the leading providers of life,
pensions, unit trust and fund management products, the directors consider
that it is appropriate to assign an indeﬁnite life to the goodwill. This goodwill
is  not  being  amortised  through  the  proﬁt  and  loss  account;  however  it  is
subjected  to  annual  impairment  reviews  in  accordance  with  Financial
Reporting  Standard  11  ‘Impairment  of  Fixed  Assets  and  Goodwill’.  Should
any  impairment  be  identiﬁed,  it  would  be  charged  to  the  proﬁt  and  loss
account immediately.

Paragraph  28  of  Schedule  9  to  the  Companies  Act  1985  requires  that  all
goodwill carried on the balance sheet should be amortised. In the case of the
goodwill arising on the acquisition of Scottish Widows, the directors consider
that it is appropriate to depart from this requirement in order to comply with
the over-riding requirement for the accounts to show a true and fair view. If
this goodwill was amortised over a period of 20 years, proﬁt before tax for the
year  ended  31  December  2000  would  be  £78  million  lower,  with  a
corresponding reduction in reserves; intangible assets on the balance sheet
would also be £78 million lower.

Goodwill arising on all other acquisitions is amortised on a straight line basis
over its estimated useful economic life, which does not exceed 20 years.

At  the  date  of  the  disposal  of  group  or  associated  undertakings,  any
unamortised  goodwill,  or  goodwill  taken  directly  to  reserves  prior  to
1 January  1998,  is  included  in  the  Group’s  share  of  the  net  assets  of  the
undertaking in the calculation of the proﬁt or loss on disposal.

d Income recognition

Interest income is recognised in the proﬁt and loss account as it accrues, with
the exception of interest on non-performing lending which is taken to income
when received (see e).

Fees receivable from customers to reimburse the Group for costs incurred are
taken to income when due. Fees relating to the ongoing provision of a service
or risk borne for a customer are taken to income in proportion to the service
provided  or  risk  borne  in  each  accounting  period.  Fees  charged  in  lieu  of
interest are taken to income on a level yield basis over the period of the loan.
Other fees receivable are accounted for as they fall due.

e Provisions for bad and doubtful debts and interest in suspense

Provisions for bad and doubtful debts are based on the year-end appraisal of
advances. The speciﬁc element relates to identiﬁed risk advances, whereas
the  general  element  relates  to  latent  bad  and  doubtful  debts  which  are
present  in  any  portfolio  of  bank  advances  but  have  not  been  speciﬁcally
identiﬁed.

Advances  are  written  down  to  estimated  realisable  value  when  the  normal
banking relationship with the customer has ceased; where it is doubtful that
interest earned on loans and advances will be collectable, it is credited to an
interest  in  suspense  account  and  is  only  released  to  the  proﬁt  and  loss
account when its collectability is no longer subject to signiﬁcant doubt.

LLOYDS TSB GROUP

55

notes to the accounts

1 Accounting policies (continued)

f Mortgage incentives

Payments made under cash gift and discount mortgage schemes, which are
recoverable  from  the  customer  in  the  event  of  early  redemption,  are
amortised as an adjustment to net interest income over the early redemption
charge period. Payments cease to be deferred and are charged to the proﬁt
and loss account in the event that the related loan is redeemed or becomes
impaired.

g Debt securities and equity shares

Debt securities, apart from those held for dealing purposes, are stated at cost
as adjusted for the amortisation of any premiums and discounts arising on
acquisition, which are amortised from purchase to maturity in equal annual
instalments. Debt securities acquired in exchange for advances to countries
experiencing  payment  difﬁculties,  either  collateralised  or  due  to  be
collateralised by US Treasury securities, are included in the Group’s portfolio
of investment securities at an amount based on the market value at the date
of  exchange  as  adjusted  for  the  amortisation  of  discount  on  acquisition.
Equity shares, apart from those held for dealing purposes, are stated at cost
less amounts written off. Debt securities and equity shares held for dealing
purposes are included at market value. Investments held within the long-term
assurance  fund  are  included  on  the  following  basis:  stocks,  shares,  ﬁxed
interest  securities  and  unit  trusts  held  for  unit  linked  funds  are  valued  in
accordance with policy conditions at market prices; other stocks and shares
and ﬁxed interest securities are valued at middle market price and other unit
trusts  at  bid  price;  investment  properties  are  included  at  valuation  by
independent  valuers  at  existing  use  value  at  31 December  2000,  and
mortgages and loans are at cost less amounts written off.

h Shares in group undertakings

k Leasing and instalment credit transactions (continued)

Income from instalment credit transactions is calculated by the sum of the
digits method.

In  those  cases  where  the  Group  is  the  lessee,  operating  lease  costs  are
charged to the proﬁt and loss account in equal annual instalments over the
life of the lease.

l Deferred tax

Deferred  tax  is  provided  at  the  appropriate  rates  of  tax  where  there  is  a
reasonable probability that a liability or asset will crystallise in the foreseeable
future.

m Pensions and other post-retirement beneﬁts

Contributions to the Group’s pension schemes are charged to the proﬁt and
loss  account  so  as  to  spread  the  expected  cost  of  pensions,  calculated  in
accordance  with  actuarial  advice,  on  a  systematic  basis  over  employees’
working lives. Pension arrangements for most of the staff in the UK and for
the majority of those overseas are operated through deﬁned beneﬁt schemes
funded by Group companies. The pension cost relating to these schemes is
assessed  in  accordance  with  the  advice  of  qualiﬁed  actuaries,  using  the
projected unit method. Variations from the regular cost are allocated by equal
annual  instalments  over  the  average  remaining  service  lives  of  current
employees. Pension arrangements for staff joining Lloyds TSB Group Pension
Scheme No. 1 (formerly the Lloyds Bank pension scheme) after 1 January
1996 and Lloyds TSB Group Pension Scheme No. 2 (formerly the TSB Group
pension  scheme)  after  1 January  1998  are  through  money  purchase
elements  of  these  schemes.  Arrangements  for  pensions  of  certain  staff
employed  overseas  who  are  not  included  in  funded  schemes  are  made  in
accordance with local regulations and custom.

Shares in group undertakings are stated in the balance sheet of the Company
at  its  share  of  net  tangible  assets,  with  the  exception  of  the  life  assurance
group undertakings which are stated on the basis described in o. Attributable
goodwill is included, where this has not been written off directly to  reserves.

The  cost  of  providing  post-retirement  beneﬁts  other  than  pensions  is
charged to the proﬁt and loss account on a systematic basis over employees’
working lives. The unfunded liability is included in provisions in the balance
sheet.

i Tangible ﬁxed assets

n Foreign currency translation

Tangible ﬁxed assets are included at cost less depreciation.

Land is not depreciated. Leasehold premises with unexpired lease terms of
50  years  or  less  are  depreciated  by  equal  annual  instalments  over  the
remaining  period  of  the  lease.  Freehold  and  long  leasehold  buildings  are
depreciated over 50 years. The costs of adapting premises for the use of the
Group  are  separately  identiﬁed  and  depreciated  over  10  years,  or  over  the
term  of  the  lease  if  less;  such  costs  are  included  within  premises  in  the
balance  sheet  total  of  tangible  ﬁxed  assets.  Equipment  is  depreciated  by
equal annual instalments over the estimated useful lives of the assets, which
for  ﬁxtures  and  furnishings  are  10-20  years  and  for  computer  hardware,
operating  software  and  application  software  relating  to  separable  new
systems, motor vehicles and other equipment are 3-8 years.

Premises and equipment held for letting to customers under operating leases
are depreciated over the life of the lease to give a constant rate of return on
the net investment, taking into account anticipated residual values.

j Vacant leasehold property

When  a  leasehold  property  ceases  to  be  used  in  the  business  or  a
commitment  is  entered  into  which  would  cause  this  to  occur,  provision  is
made to the extent that the recoverable amount of the interest in the property
is expected to be insufﬁcient to cover future obligations relating to the lease.

k Leasing and instalment credit transactions

Income from both ﬁnance and operating leases is credited to the proﬁt and
loss account in proportion to the net cash invested so as to give a constant
rate of return over each period after taking account of tax.

Unguaranteed residual values in respect of both ﬁnance lease and operating
lease  assets  are  reviewed  regularly  and  any  impairments  identiﬁed  are
charged to the proﬁt and loss account.

Assets, liabilities and results in foreign currencies are expressed in sterling at
the rates of exchange ruling on the dates of the respective balance sheets.
Exchange adjustments on the translation of opening net assets held overseas
are taken direct to reserves. All other exchange proﬁts or losses, which arise
from normal trading activities, are included in the proﬁt and loss account.

o Long-term assurance business

The value placed on the Group’s long-term assurance business attributable
to shareholders represents a prudent valuation of future earnings of policies
in force, together with the net worth of the business, being the net tangible
assets  and  the  surplus  retained  after  allocation  within  the  long-term
assurance  funds.  This  value  is  determined  annually  in  consultation  with
independent actuaries and is included separately in the balance sheet.

Changes  in  the  value  placed  on  long-term  assurance  business  attributable 
to shareholders, which are determined on a post-tax basis, are included in 
the proﬁt and loss account. For the purpose of presentation, the change in
this value is grossed up at the underlying rate of corporation tax.

p General insurance business

The  underwriting  result  of  the  general  insurance  business  is  determined
annually and included in proﬁt before tax after taking into account premiums,
outstanding  claims  and  deferred  acquisition  costs.  Premiums  are  included
net of refunds and a provision for the proportion of premiums written in the
year  which  relate  to  cover  provided  for  future  periods.  The  provision  for
claims  includes  the  estimated  cost  of  claims  notiﬁed  but  not  settled  and
claims incurred but not reported at the balance sheet date.

56 LLOYDS TSB GROUP

1 Accounting policies (continued)

q Derivatives

Derivatives  are  used  in  the  Group’s  trading  activities  to  meet  the  ﬁnancial
needs  of  customers,  for  proprietary  purposes  and  to  manage  risk  in  the
Group’s trading portfolios. Such instruments include exchange rate forwards
and futures, currency swaps and options together with interest rate swaps,
forward rate agreements, interest rate options and futures. These derivatives
are  carried  at  fair  value  and  all  changes  in  fair  value  are  reported  within
dealing  proﬁts  in  the  proﬁt  and  loss  account.  Fair  values  are  normally
determined by reference to quoted market prices; internal models are used to
determine  fair  value  in  instances  where  no  market  price  is  available.  The
unrealised gains and losses on trading derivatives are included within other
assets and other liabilities respectively; these items are reported gross except
in  instances  where  the  Group  has  entered  into  legally  binding  netting
agreements,  where  the Group  has  a  right  to  insist  on  net  settlement  that
would survive the insolvency of the counterparty; in these cases the positive
and negative fair values of trading derivatives with the relevant counterparties
are offset within the balance sheet totals.

Derivatives used in the Group’s non-trading activities are taken out to reduce
exposures  to  ﬂuctuations  in  interest  and  exchange  rates  and  include
exchange rate forwards and futures, currency options together with interest
rate  swaps,  forward  rate  agreements  and  options.  These  derivatives  are
accounted  for  on  an  accruals  basis,  in  line  with  the  treatment  of  the
underlying items which they are hedging. Interest receipts and payments on
hedging interest derivatives are included in the proﬁt and loss account so as
to match the interest payable or receivable on the hedged item.

A derivative will only be classiﬁed as a hedge in circumstances where there
was  adequate  evidence  of  the  intention  to  hedge  at  the  outset  of  the
transaction  and  the  derivative  substantially  matches  or  eliminates  the
exposure being hedged.

Where  a  hedge  transaction  is  superseded,  ceases  to  be  effective  or  is
terminated  early  the  derivative  is  measured  at  fair  value.  Any  proﬁt  or  loss
arising is then amortised to the proﬁt and loss account over the remaining life
of  the  item  which  it  was  originally  hedging.  When  the  underlying  asset,
liability  or  position  that  was  being  hedged  is  terminated,  the  hedging
derivative is measured at fair value and any proﬁt or loss arising is recognised
immediately.

2 Dealing proﬁts (before expenses)

Foreign exchange trading income
Securities and other gains

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

141
133
57
82
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
215

198

Dealing  proﬁts  include  the  proﬁts  and  losses  arising  both  on  the  purchase
and sale of trading instruments and from the year-end revaluation to market
value, together with the interest income earned from these instruments and
the related funding cost.

3 Administrative expenses

Salaries and proﬁt sharing
Social security costs
Other pension costs

Staff costs
Other administrative expenses

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

1,862
131
(105)

1,700
125
(108)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

1,888
1,490

1,717
1,423
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
3,140

3,378

notes to the accounts

3 Administrative expenses (continued)

1999
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000

The average number of persons on a 
headcount basis employed by the Group 
during the year was as follows:

UK
Overseas

67,576
67,848
12,599
11,847
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff

79,695

80,175

The above staff numbers exclude 6,152 (1999: 4,938) staff employed in the
long-term assurance business. Costs of £199 million (1999: £141 million)
in  relation  to  those  staff  are  reﬂected  in  the  valuation  of  the  long-term
assurance fund.

Details of directors’ emoluments, pensions and interests are given on pages
42 to 45.

During the year PricewaterhouseCoopers earned the following fees:

Statutory audit
Due diligence and other audit-related work

Audit and similar services
Consultancy and advisory services

Total fees

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

4
4
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

4
7

11
8
25
25
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
36
33

The  auditors’  remuneration  for  the  holding  company  was  £50,000
(1999: £50,000).

It  is  the  Group’s  policy  to  employ  PricewaterhouseCoopers  on  assignments
additional to their statutory audit duties where their expertise and experience
with  the  Group  are  important,  principally  tax  advice  and  due  diligence
reporting  on  acquisitions,  or  where  they  are  awarded  assignments  on  a
competitive basis.

It  is  the  Group’s  policy  to  seek  competitive  tenders  for  all  consultancy
projects.

There was a net credit in respect of pension costs for the Group in 2000 of
£105  million  (1999:  credit  of  £108  million),  which  included  a  credit  of 
£121  million  (1999:  credit  of  £121 million)  relating  to  Lloyds  TSB  Group
Pension Schemes No’s 1 and 2.

Full actuarial valuations of the Lloyds TSB Group Pension Schemes No’s 1
and 2 are carried out every three years with interim reviews in the intervening
years. At 30 June 1999, the date of the latest full actuarial valuations, the
principal  actuarial  assumptions  adopted  were  that,  over  the  long  term,  the
annual  real  rate  of  return  on  new  investments  would  be  3  per  cent  higher
than  the  annual  increase  in  pensionable  remuneration,  4  per  cent  higher
than  the  annual  increase  in  present  and  future  pensions  in  payment,  and
3 per  cent  higher  than  the  annual  increase  in  dividends  receivable.  The
market value of the assets of the schemes at this date was £11,748 million.
The  actuarial  value  of  the  assets  represented  125  per  cent  of  the  accrued
liabilities  allowing  for  future  increases  in  pensions  and  pensionable
remuneration. For funding purposes, the surpluses in the two schemes are
being eliminated by means of a contribution holiday.

Contribution  rates  to  other  schemes  have  been  adjusted  to  take  account  of
surpluses  and  deﬁciencies.  The  pensions  prepayment  of  £768  million
(1999: £647 million) for the Group is included in prepayments and accrued
income.

The  Group  operates  a  number  of  schemes  which  provide  post-retirement
health  care  beneﬁts  to  certain  employees,  retired  employees  and  their
dependent  relatives.  The  total  cost  for  the  Group  in  2000  was  £3  million
(1999: £17 million). For the principal scheme, the latest actuarial valuation
of the liability was carried out at 31 December 2000. This valuation showed
the Group’s liability to be £72 million, which had been fully provided for at
that  date.  The  principal  actuarial  assumptions  adopted  were  that,  over  the
long  term,  the  valuation  discount  rate  and  the  rate  of  increase  in  medical
costs  would  be  4  per  cent  and  3  per  cent  respectively  higher  than  annual
price inﬂation.

LLOYDS TSB GROUP

57

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

3,295
151
109

3,578
62
59

3

12

193
26
490

195
33
362

Proﬁt on ordinary
activities before tax
1999*
2000
£m
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

1,682
(99)

1,657
–

1,583

1,657

1,447
(119)
127
(59)
(100)
(80)

873
28
–
–
(102)
–

1,216

799
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2,799

2,456

1,250
(30)

1,172
–

1,220
1,172
(133)
119
–
(126)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
3,621

3,886

notes to the accounts

4 Exceptional restructuring costs

7 Proﬁt on ordinary activities before tax

Proﬁt on ordinary activities before tax is stated
after taking account of:

Income from:
Aggregate amounts receivable in respect of assets 
leased to customers and banks under:

Finance leases and hire purchase contracts
Operating leases

Proﬁt less losses on disposal of investment securities
Share of results of associated undertakings and 
joint ventures

Charges:
Rental of premises
Hire of equipment
Interest on subordinated liabilities (loan capital)

8 Segment analysis

Class of business:
UK Retail Banking and Mortgages
Proﬁt before exceptional restructuring costs
Exceptional restructuring costs

Insurance and Investments
Operating proﬁt
Short-term ﬂuctuations in investment returns
Changes in economic assumptions
Exceptional restructuring costs
Pension provisions
Stakeholder pension related charge

UK Retail Financial Services
Wholesale Markets and International Banking
Proﬁt before exceptional restructuring costs
Exceptional restructuring costs

Central group items
Loss on sale and closure of businesses

In February 2000 the Group announced a new efﬁciency programme aimed at
reducing its overall cost base. The main features of the efﬁciency programme,
which  is  primarily  focused  on  non-customer  facing  activities,  will  be  the
centralisation of computer operations; the further consolidation of large scale
processing operations and support functions including the complete removal
of  all  back  ofﬁce  processing  from  branches;  the  further  streamlining  of  the
branch  network,  combined  with  the  expansion  of  lower  cost  delivery
channels  such  as  telephone  banking  and  internet  operations;  the  further
reduction  of  purchasing  costs;  and  the  rationalisation  of  non-personal
banking  activities,  through  the  progressive  sharing  and  consolidation  of
operational functions. The programme is expected to be completed by 2003.
During  2000  costs  of  £108  million  were  incurred,  mainly  comprising
severance and consultancy costs.

Following completion of the acquisition of Scottish Widows in March 2000,
the  Group  has  been  integrating  its  businesses  with  the  Group’s  existing
insurance and investments activities. During 2000 costs of £59 million have
been incurred on this integration. In addition, a provision of £21 million has
been made to cover the cost of integrating Chartered Trust Group plc and ACL
Autolease Holdings Limited following their acquisition in September 2000.

5 Amounts written off ﬁxed asset investments

Debt securities
Equity shares 

6 Loss before tax on sale and 

closure of businesses

Provision for closure of Lloyds TSB Securities 
Services (tax: nil)
Provision for sale of Abbey Life new business 
capability (including £80 million in respect of 
goodwill previously written off to reserves) (tax: nil) 

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

9
7
5
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
14
7

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

–

(28)

(98)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

–

afffffffffffffffffffffffffff afffffffffffffffffffffffffff

(126)

–

During 1999 the Group announced its decision to withdraw from the global
custody and unit trust trusteeship business and the consequential run-down
and  closure  of  Lloyds  TSB  Securities  Services.  A  provision  was  raised  in
1999  for  the  expected  operating  losses  up  to  the  date  of  closure  and  this
provision has been released as the operating losses have been incurred over
2000;  the  closure  of  Lloyds  TSB  Securities  Services  has  now  been
completed.

The new business capability of Abbey Life was sold on 1 February 2000. A
provision  of  £98  million  was  made  for  the  loss  on  sale  in  1999;  this  loss
included £80 million in respect of goodwill previously written off to reserves
and other asset write-downs.

58 LLOYDS TSB GROUP

8 Segment analysis (continued)

8 Segment analysis (continued)

Operating proﬁt from Insurance and Investments is further analysed as follows:

Geographical area:**

Domestic
2000
£m

Total
2000
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

Inter-
national
2000
£m

Life and pensions
Scottish Widows
Other

Unit trusts
Scottish Widows
Other

Asset management
Scottish Widows
Other

General insurance

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

386
382

768

7
41

48

10
30

–
333

333

–
57

57

–
22

40
591

22
461
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
873

1,447

The  operating  proﬁt  for  the  life  and  pensions  business  shown  above
reconciles to the income from long-term assurance business shown in the
proﬁt and loss account as follows:

Life and pensions segmental proﬁt
Items separately disclosed:
Short-term ﬂuctuations in investment returns
Changes in economic assumptions
Stakeholder pension related charge
Pension provisions

Other items

Income from long-term assurance business

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

768

333

(92)
127
(80)
(100)

6
–
–
(102)

(145)
(96)
(8)
(10)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
227

615

Income from long-term assurance business is further analysed as follows:

Income net of claims and technical provisions
Pension provisions
Operating expenses
Tax charged to technical account

Surplus emerging 
Value of in-force business

Embedded value after tax

Tax gross up

Embedded value before tax

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

937
(100)
(471)
(191)

621
(102)
(291)
(159)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

175
266

69
89
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

441

158

174

69
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff

615

227

notes to the accounts

Interest receivable
Fees and commissions receivable
Dealing proﬁts (before expenses)
Income from long-term assurance business
General insurance premium income
Other operating income

8,927
2,480
149
607
399
270

2,127 11,054
2,768
198
615
399
381
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

288
49
8
–
111

Total gross income

Proﬁt on ordinary activities before tax

afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
12,832
2,583 15,415
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
459
3,886

3,427

Domestic
1999
£m

Total
1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

Inter-
national
1999
£m

Interest receivable
Fees and commissions receivable
Dealing proﬁts (before expenses)
Income from long-term assurance business
General insurance premium income
Other operating income

Total gross income

Proﬁt on ordinary activities before tax

8,015
2,227
154
219
390
141

2,437
270
61
8
–
101

10,452
2,497
215
227
390
242
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
11,146
2,877
14,023
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
3,621

3,201

420

Net assets†

Assets‡

aaaaaaaaaaaaafff aaaaaaaaaaaaafff

Class of business:
UK Retail Banking and
Mortgages
Insurance and Investments
Scottish Widows
Other businesses

UK Retail Financial Services
Wholesale Markets and
International Banking
Central group items

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

2000
£m

1999
£m

2,235

2,127 71,292

64,347

3,555
2,953

–
2,846

6,203
3,234

–
3,032

6,508

3,032
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaafffffffffffffffffff

9,437

2,846

8,743

4,973 80,729

67,379

2,625 84,899
1,269
1,016

3,090
80,851
(2,059)
1,207
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
8,614 166,897 149,437

9,774

Geographical area:** 
Domestic
International

9,129
645

8,269 144,178 128,105
345 22,719
21,332
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
8,614 166,897 149,437
*1999 ﬁgures have been restated to take account of changes in internal cost
allocation, a number of organisational changes, and a change in treatment of
certain  central  income  items,  which  were  previously  allocated  to  business
units but are now reported within central group items.

9,774

** The  geographical  distribution  of  gross  income  sources,  proﬁt  on  ordinary
activities  before  tax  and  assets  by  domestic  and  international  operations  is
based  on  the  location  of  the  ofﬁce  recording  the  transaction,  except  for
lending by the international business booked in London.

†Net  assets  represent  shareholders’  funds  plus  equity  minority  interests.
Disclosure  of  information  on  net  assets  is  an  accounting  standard
requirement  (SSAP25);  it  is  not  appropriate  to  relate  it  directly  to  the
segmental  proﬁts  above  because  the  business  is  not  managed  by  the
allocation of net assets to business units.
‡Assets exclude long-term assurance assets attributable to policyholders.

As the business of the Group is mainly that of banking and insurance, no
segment analysis of turnover is given.

LLOYDS TSB GROUP

59

notes to the accounts

9 Tax on proﬁt on ordinary activities

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

13 Treasury bills and other

eligible bills

UK corporation tax
Current tax on proﬁts for the year
Adjustments in respect of prior years

Double taxation relief

Foreign tax
Current tax on proﬁts for the year
Adjustments in respect of prior years

Current tax charge
Deferred tax

942
3

768
21

945
(72)

789
(45)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

873

744

137
(5)

114
8

132

122
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

Investment securities:
Treasury bills and similar
securities
Other eligible bills

Other securities:
Treasury bills and similar
securities
Other eligible bills

1,005
108

866
235
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
1,101

1,113

Included above:
Unamortised discounts 
net of premiums on 
investment securities

Movements in investment
securities comprise:

2000
Balance

2000

1999

Valuation
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

sheet Valuation
£m

£m

1999
Balance
sheet
£m

121
509

514
683
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
1,197

119
508
afffffffffffffffffffffffffff
627

515
683

1,198

630

1,032
47

1,079
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
1,709

857
10

867
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
2,065

2

12

Premiums
and
discounts
£m

Total
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

Cost
£m

At 1 January 2000
Exchange and other adjustments
Additions
Bills sold or matured
Amortisation of premiums and discounts

At 31 December 2000

9
–
–
(50)
45

1,189
3
7,766
(8,332)
–

1,198
3
7,766
(8,382)
45
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
630

626

4

Investment securities are those intended for use on a continuing basis in the
activities of the Group and not for dealing purposes.

The difference between the cost of other securities and market value, where
the market value is higher than the cost, is not disclosed as its determination
is not practicable.

14 Loans and advances to banks

2000
aaaaaffffffffffffffffffffffffff

1999
aaaaaffffffffffffffffffffffffff

£2,724m £2,514m

Lending to banks
Deposits placed with banks

5,487m
58m

5,445m
101m

Total loans and advances to banks
Provisions for bad and doubtful debts

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

721
615
16,298
14,731
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

15,346
(56)

17,019
(56)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff

15,290

16,963

Repayable on demand
Other loans and advances by residual maturity 
repayable:

3 months or less

1 year or less but over 3 months

5 years or less but over 1 year

Over 5 years

Provisions for bad and doubtful debts

2,794

1,132

10,352

12,266

1,365

2,780

478

357

490

351

(56)
(56)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
15,290
16,963

The  charge  for  tax  on  the  proﬁt  for  the  year  is  based  on  an  average  UK
corporation tax rate of 30 per cent (1999: 30.25 per cent).

The UK corporation tax charge includes £171 million (1999: £67 million) in
respect  of  notional  tax  on  the  shareholders’  interest  in  the  increase  in  the
value of the long-term assurance business.

10 Proﬁt for the ﬁnancial year attributable to shareholders

The  proﬁt  attributable  to  shareholders  includes  a  proﬁt  of  £1,699  million
(1999: £1,344 million) dealt with in the accounts of the parent company,
for which no proﬁt and loss account is shown as permitted by Section 230
of the Companies Act 1985.

11 Ordinary dividends

Interim: paid
Final: proposed

2000
pence
per share
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

1999
pence
per share

2000

1999

£m

8.1
18.5

9.3
21.3

440
1,011
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
1,451

511
1,172

1,683

30.6

26.6

12 Earnings per share

Proﬁt attributable to shareholders*
Weighted average number of ordinary shares in 
issue during the year**
Dilutive effect of options outstanding
Diluted weighted average number of ordinary 
shares in issue during the year
Earnings per share
Diluted earnings per share

5,545m
49.6p
49.1p

5,546m
46.2p
45.3p

*No adjustment was made to proﬁt attributable to shareholders in calculating

diluted earnings per share.

**The weighted average number of shares for the year has been calculated after
deducting 9 million (1999: 11 million) ordinary shares held by TSB Group
Holdings (Jersey) Limited, and the trustees of the TSB Group Employee Trust,
the Lloyds TSB Group Employee Share Ownership Trust and the Lloyds TSB
Qualifying Employee Share Ownership Trust, on which dividends have been
waived (note 29).

60 LLOYDS TSB GROUP

15 Loans and advances to customers

Lending to customers
Hire purchase debtors
Equipment leased to customers

Total loans and advances to customers
Provisions for bad and doubtful debts
Interest held in suspense

Loans and advances by residual maturity repayable:
3 months or less
1 year or less but over 3 months
5 years or less but over 1 year
Over 5 years
Provisions for bad and doubtful debts
Interest held in suspense

Of which repayable on demand or at short notice

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

103,368
5,172
8,122

92,194
3,674
8,448
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

116,662 104,316
(2,067)
(100)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

(2,117)
(90)

114,455 102,149

afffffffffffffffffffffffffff afffffffffffffffffffffffffff

20,980
17,689
8,286
6,935
24,408
19,342
62,988
60,350
(2,117)
(2,067)
(90)
(100)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
114,455 102,149
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
8,549

9,342

16 Provisions for bad and 

doubtful debts

At 1 January
Exchange and other adjustments
Adjustments on acquisition
Advances written off
Recoveries of advances
written off in previous years
Charge (release) to proﬁt and 
loss account:
New and additional provisions
Releases and recoveries

At 31 December

In respect of:
Loans and advances to banks
Loans and advances to customers

notes to the accounts

2000
Speciﬁc
£m

1999
General
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
General
£m

1999
Speciﬁc
£m

1,762
111
45
(748)

361
(2)
4
–

1,792
(4)
–
(744)

365
(4)
–
–

165

–

130

–

1,093
(612)

7
(13)

1,087
(499)

7
(7)

481

(6)
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
361

1,816

1,762

357

588

afffffffffffffffffffffffffff
2,173

56
2,117
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
2,173

afffffffffffffffffffffffffff
2,123

56
2,067
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
2,123

The  cost  of  assets  acquired  during  the  year  for  letting  to  customers  under
ﬁnance  leases  and  hire  purchase  contracts  amounted  to  £2,754 million
(1999: £3,193 million).

Securitisations
Certain instalment credit receivables have been securitised and are subject to
non-returnable  ﬁnancing  arrangements.  In  accordance  with  Financial
Reporting  Standard  5,  these  items  have  been  shown  under  the  linked
presentation method.

As detailed in note 49b), the Group acquired Chartered Trust Group plc and
ACL Autolease Holdings Limited on 1 September 2000. Prior to joining the
Group,  Chartered  Trust plc,  a  subsidiary  undertaking  of  Chartered  Trust
Group plc, had entered into transactions whereby it disposed of its interest in
portfolios  of  motor  vehicle  and  caravan  instalment  credit  agreements  for  a
total  of  £813 million  to  Cardiff  Automobile  Receivables  Securitisation  (UK)
No 4 plc  (CARS  4).  The  arrangement  relating  to  these  disposals  of
agreements  contained  an  option  to  offer  further  amounts  for  sale  up  until
10 December 2000; a further £167 million of receivables were sold between
1 September 2000 and this date.

CARS Trustee (UK) No 4 Limited is responsible for the collection and onward
payment of all amounts falling due under the terms of the receivables sold to
CARS 4. Principal receipts are used either to redeem ﬂoating rate notes or to
purchase further receivables; to date all principal receipts have been used to
purchase  further  receivables.  Income  receipts  are  applied  in  the  following
order of priority: interest due on the ﬂoating rate notes; credit manager fees;
payments under swaps; amounts due to third parties; dividends; and residual
income  to  Chartered  Trust  plc.  Chartered  Trust plc  has  been  appointed  by
CARS  Trustee  (UK)  No 4  Limited  as  credit  manager  and  receives  a  fee  for
fulﬁlling this function. It has no liability to the noteholders or any creditor of
CARS 4  or  CARS  Trustee  (UK)  No  4  Limited  other  than  through  failure  to
meet  its  obligations  as  credit  manager  or  for  breach  of  warranties  given.
Chartered Trust plc has no interest in the share capital of CARS 4 or CARS
Trustee (UK) No 4 Limited.

Chartered Trust plc and CARS 4 have also entered into interest rate swaps in
respect  of  this  transaction,  the  interest  rates  payable  and  receivable  under
these  swaps  are  set  by  reference  to  market  rates  of  interest  on  an  arm’s
length basis.

17 Interest held in suspense and non-performing

lending

At 1 January
Exchange and other adjustments
Interest written off
Interest taken to income
Interest suspended during the year

At 31 December

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

100
145
–
(5)
(20)
(77)
(8)
(9)
18
46
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
90
100

All interest held in suspense relates to loans and advances to customers.

Non-performing lending comprises:
Loans and advances – category 1
Loans and advances – category 2

Provisions
Interest held in suspense

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

879
404

719
369
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

1,283
1,088
(831)
(613)
(90)
(100)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
375

362

Category 1:
This comprises lending where the customer continues to operate the account,
but where there is doubt about the payment of interest. Interest continues to
be charged to the customer’s account, but it is not applied to income; it is
placed on a suspense account and only taken into income if there ceases to
be signiﬁcant doubt about its being paid.

Category 2:
This comprises lending where the operation of the customer’s account has
ceased. The lending is managed by specialist recovery departments and has
been written down to its estimated realisable value. Interest is not added to
the lending nor placed on a suspense account as its recovery is considered
unlikely; it is only taken to income if it is received.

LLOYDS TSB GROUP

61

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

20 Debt securities

2000
Balance

2000

1999

Valuation
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

sheet Valuation
£m

£m

1999
Balance
sheet
£m

Investment securities:
Government securities
Other public sector securities
Bank and building society
certiﬁcates of deposit
Other debt securities

Other securities:
Government securities
Other public sector securities
Bank and building society
certiﬁcates of deposit
Other debt securities

Due within 1 year
Due 1 year and over

Unamortised discounts
net of premiums on
investment securities

Listed: collateralised bonds

: other

Unlisted

Movements in investment
securities comprise:

At 1 January 2000
Exchange and other 
adjustments
Additions
Securities sold or matured
Charge for the year
Amortisation of premiums
and discounts

At 31 December 2000

1,006
1

1,204
1

1,196
4

1,349
4

3,034
1,631

4,145
678
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

3,034
1,631

4,153
679

5,672

5,870

6,032

6,176

3,060
131

3,060
131

3,861
65

3,861
65

105
4,914

105
4,914

286
3,940
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
13,882 14,080
14,328

286
3,940

14,184

5,340
8,542
aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff

13,882

7,095
7,089
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
14,184

afffffffffffffffffffffffffff
409

afffffffffffffffffffffffffff
771

711
8,499
4,672

1,028
7,901
5,399
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

880
8,528
4,672

869
7,907
5,408

afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff

13,882 14,080

14,184

14,328

Premiums
and

Total
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

discounts Provisions
£m

Cost
£m

£m

5,829

220

17

6,032

113
15,773
(16,238)
–

(2)
–
(23)
–

3
108
– 15,773
– (16,261)
(9)
9

29
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

29

–

–

afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff

5,477

5,672

224

29

Investment securities are those intended for use on a continuing basis in the
activities of the Group and not for dealing purposes.

The difference between the cost of other securities and market value, where
the market value is higher than the cost, is not disclosed as its determination
is not practicable.

notes to the accounts

18 Concentrations of exposure

Loans and advances to customers 
Domestic:
Agriculture, forestry and ﬁshing
Manufacturing
Construction
Transport, distribution and hotels
Property companies
Financial, business and other services
Personal: mortgages*
: other
Lease ﬁnancing
Hire purchase
Other

Total domestic
International:
Latin America
New Zealand
Rest of the world

Total international

Provisions for bad and doubtful debts**
Interest held in suspense**

2,026
3,357
1,016
3,836
2,470
9,295
52,659
11,138
8,070
5,172
2,237

2,183
3,262
754
3,540
2,303
6,614
47,451
10,092
8,369
3,674
1,698
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

101,276

89,940

3,016
7,368
5,002

2,558
7,659
4,159

14,376
15,386
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

116,662 104,316
(2,117)
(2,067)
(90)
(100)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
114,455 102,149

*Includes staff mortgages.

**Figures exclude provisions and interest held in suspense relating to loans and

advances to banks.

The  classiﬁcation  of  lending  as  domestic  or  international  is  based  on  the
location of the ofﬁce recording the transaction, except for certain lending of
the international business booked in London.

19 Residual value exposure on leased assets

The Group’s residual value exposure in respect of leased assets, all of which
are expected to be disposed of at the end of the lease terms, was as follows:

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

134
108
367
301

37
31
45
193
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
306

910

On operating lease assets where the residual
value is expected to be recovered in:
1 year or less
2 years or less but over 1 year
5 years or less but over 2 years
Over 5 years

Total exposure

62 LLOYDS TSB GROUP

notes to the accounts

1999

23 Interests in group undertakings (continued)

21 Equity shares

2000
Balance

2000

Valuation
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

sheet Valuation
£m

£m

1999
Balance
sheet
£m

Investment securities:
Listed
Unlisted

Other securities:
Listed
Unlisted

7
34

23
56
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
79

45
57
afffffffffffffffffffffffffff
102

10
33

41

43

204
2

206
aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff

247

168
2

170
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
213

Movements in investment
securities comprise:

Total
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

Cost Provisions
£m
£m

At 1 January 2000
Exchange and other adjustments
Additions
Disposals
Charge for the year

43
1
13
(11)
(5)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
41
Investment securities are those intended for use on a continuing basis in the
activities of the Group and not for dealing purposes.

55
–
13
(14)
–

12
(1)
–
(3)
5

At 31 December 2000

13

54

The difference between the cost of other securities and market value, where
the market value is higher than the cost, is not disclosed as its determination
is not practicable.

22 Assets transferred under sale and repurchase transactions

Included  in  the  Group’s  balance  sheet  are  assets  subject  to  sale  and
repurchase agreements as follows:

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

Treasury bills and other eligible bills
Debt securities

546
3,543

429
3,496
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
3,925

4,089

These  investments  have  been  sold  to  third  parties  but,  since  the  Group  is
committed to reacquire them at a future date and at a predetermined price,
they are shown in the balance sheet.

23 Interests in group undertakings

At 1 January 2000
Revaluation

At 31 December 2000

Company
aaarrrrraaaffffffffffffffffffffffffffaaaaaffffffffffffffffffffffffff
Loans
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

Shares
£m

10,197
955

759
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff

11,152

759

The  Company’s  shareholding  in  a  group  undertaking  is  comprised  of  an
investment in an unlisted bank.

On an historical cost basis, shares in group undertakings would have been
included as follows:

Cost Provisions Book value
£m
£m
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

At 1 January 2000 and 31 December 2000

afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
6,066

6,066

–

The  principal  group  undertakings,  all  of  which  have  prepared  accounts  to 
31 December and whose results are included in the consolidated accounts
of Lloyds TSB Group plc, are:

Percentage
of equity
share
capital
and voting
rights held Nature of business

Country of
registration /
incorporation
aaaaaaaffffffffffffffffffffffffff aaaaaaff aaaaaaaaaaaaaaaffff

Lloyds TSB Bank plc

England

100% Banking and ﬁnancial

services

Cheltenham & Gloucester plc England

†100% Mortgage lending and

Lloyds Bank (BLSA) Limited

England

†100% Banking and ﬁnancial

retail investments

Lloyds TSB Commercial
Finance Limited
Lloyds TSB Leasing Limited
Lloyds TSB Private Banking 
Limited
The Agricultural Mortgage
Corporation Plc
The National Bank of 
New Zealand Limited
Lloyds TSB Bank (Jersey)
Limited
Lloyds TSB Scotland plc

England

services
†100% Credit factoring

England
England

†100% Financial leasing
†100% Private banking

England

†100% Long-term agricultural

ﬁnance

New
Zealand
Jersey

†100% Banking and ﬁnancial

services

†100% Banking and ﬁnancial

services

Scotland

†100% Banking and ﬁnancial

England

Lloyds TSB General Insurance  England
Limited
Scottish Widows Investment
Partnership Group Limited
Abbey Life Assurance 
Company Limited
Lloyds TSB Insurance 
Services Limited
Lloyds TSB Life Assurance
Company Limited
Lloyds UDT Finance Limited

England

England

England

England

Chartered Trust plc

England

services
†100% General insurance

†100% Investment 

management

†100% Life assurance

†100% Insurance broking

†100% Life assurance and other
ﬁnancial services
†100% Consumer credit,

leasing and related
services
†100% Consumer credit,

leasing and related
services

Scottish Widows plc
Scottish Widows Annuities
Limited

†Indirect interest.

Scotland
Scotland

†100% Life assurance
†100% Life assurance

The country of registration/incorporation is also the principal area of operation
for each of the above group undertakings except as follows:

Lloyds  TSB  Bank  plc  operates  principally  in  the  UK  but  also  through
branches  in  Argentina,  Belgium,  Brazil,  Dubai,  Gibraltar,  Guatemala,
Hong Kong,  Honduras, 
Japan,  Luxembourg,  Malaysia,  Monaco,
Netherlands,  Panama,  Paraguay,  Singapore,  Spain,  Switzerland,  Uruguay,
the  USA  and  a  representative  ofﬁce  in  Iran.  Lloyds  Bank  (BLSA)  Limited
operates  in  Ecuador.  The  National  Bank  of  New  Zealand  Limited  also
operates through a representative ofﬁce in Hong Kong.

LLOYDS TSB GROUP

63

Cost or valuation:
At 1 January 2000 – before prior
year adjustment
Prior year adjustment (note 1)

Amended balance at 1 January 2000
Exchange and other adjustments
Adjustments on acquisition
Additions
Disposals

At 31 December 2000

Depreciation:
At 1 January 2000
Exchange and other adjustments
Charge for the year
Disposals

At 31 December 2000

Balance sheet amount at
31 December 2000

Balance sheet amount at
31 December 1999

Operating
lease
assets
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffff

Premises Equipment
£m

£m

1,133
(112)

561
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2,208
–

1,021
(22)
11
70
(28)

561
(1)
351
583
(83)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2,208
(8)
13
429
(299)

1,052

1,411
aaaaaffffffffffffffffffffffffff aaaaafffffffffffffffffffffffff aaaaafffffffffffffffffffffffffff

2,343

250
(13)
58
(11)

82
(1)
102
(52)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaafffffffffffffffffffffffff

1,423
(1)
204
(272)

284

131
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaafffffffffffffffffffffffff

1,354

768

989

afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
1,280
3,037afffffffffffffffffffffffffff

771

785

afffffffffffffffffffffffffff affffffffffffffffffffffffff affffffffffffffffffffffffffff
479
2,035afffffffffffffffffffffffffff

Balance sheet amount of
premises comprises:
Freeholds
Leaseholds 50 years and over unexpired
Leaseholds less than 50 years unexpired

Land and buildings occupied for own activities

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

490
22
256

500
23
248
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
771
679

768

691

notes to the accounts

24 Joint venture

26 Tangible ﬁxed assets

During  2000  the  Group  was  party  to  the  creation  of  a  new  payments
processing  company,  Intelligent  Processing  Solutions  Limited  (‘iPSL’),  in
conjunction  with  Unisys  and  Barclays  Bank.  This  new  company  began
operating in December 2000 and now handles all of the Group’s UK cheque
processing activities, for which fees are charged by iPSL to the Group. The
staff previously employed by the Group in its UK cheque processing activities
have been transferred to the employment of iPSL.

The Group’s investment in iPSL, which comprises 24.5 per cent of the issued
ordinary  share  capital  of  the  company,  is  being  accounted  for  as  a  joint
venture.  The  carrying  value  of  the  investment  at  31  December  2000  was
£4 million,  which  has  been  included  within  other  assets  on  the  balance
sheet.

In the year ended 31 December 2000 £4 million of fees payable to iPSL have
been  included  in  the  Group’s  administrative  expenses.  The  Group  has  also
prepaid £7 million of fees in respect of 2001 and this amount is included in
prepayments  and  accrued  income;  in  addition  at  31  December  2000  iPSL
owed £2 million to the Group, which is included in other assets.

Net
Cost Amortisation book value
£m
£m
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

16
(2)
–
22

247
(17)
2,405
–

231
(15)
2,405
(22)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
2,599

2,635

36

25 Intangible ﬁxed assets

Goodwill
At 1 January 2000
Exchange and other adjustments
Acquisitions
Charge for the year

At 31 December 2000

64 LLOYDS TSB GROUP

27 Lease commitments

29 Own shares

notes to the accounts

Annual commitments under non-cancellable operating leases were:

2000

2000
Premises Equipment
£m

1999
Premises Equipment
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

1999

£m

£m

Leases on which the 
commitment is due to expire in:
1 year or less
5 years or less but over 1 year
Over 5 years

3
18
184

7
3
2
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

14
41
191

1
2
–

afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff

205

246

12

3

Obligations under ﬁnance leases were:

Amounts payable in:
1 year or less
5 years or less but over 1 year

2000
Equipment
£m
aaaaaffffffffffffffffffffffffff

20
3
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
23

1999
Equipment
£m
aaaaaffffffffffffffffffffffffff

2
2
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff
4

28 Capital commitments

Capital  expenditure  contracted  but  not  provided  for  at  31  December  2000
amounted to £33 million (1999: £41 million), of which £28 million (1999:
£33 million)  relates  to  assets  to  be  leased  to  customers  under  operating
leases.

In December 2000 the Group announced that it had agreed to form a joint
venture  between  Goldﬁsh,  Centrica’s  ﬁnancial  services  brand,  and
evolvebank.com,  Lloyds  TSB’s  standalone  internet  banking  operation.
Although  the  amounts  are  not  yet  determined,  the  Group  is  committed  to
invest capital into the venture equivalent to 30 per cent of its initial regulatory
capital requirement and to provide funds to the venture to cover its lending
for the ﬁrst two years of operation.

Lloyds  TSB  Group  plc  sponsors  the  TSB  Group  Employee  Trust  and  the
Lloyds TSB Group Employee Share Ownership Trust, two discretionary trusts
for the beneﬁt of employees and former employees of the Lloyds TSB Group.
The  Company  has  lent  £44  million  to  the  trustees,  interest  free,  to  enable
them to purchase Lloyds TSB Group plc ordinary shares, which are used to
satisfy  options  granted  by  the  Company  or  to  meet  commitments  arising
under  other  employee  share  schemes.  Under  the  terms  of  the  trusts,  the
trustees have waived all but a nominal dividend on the shares they hold. The
cost of providing these shares is charged to the proﬁt and loss account on a
systematic basis over the period that the employees are expected to beneﬁt.
At  31  December  2000,  3  million  shares  were  held  by  the  trustees  with  a
book  value  of  £24  million  and  a  market  value  of  £22  million.  (1999:
6 million  shares  with  a  book  value  of  £30  million  and  a  market  value  of
£44 million).

The Group has also established the Lloyds TSB Qualifying Employee Share
Ownership  Trust  (‘the  QUEST’)  for  the  purpose  of  delivering  shares  on  the
exercise  of  options  under  certain  of  the  Group’s  Save  As  You  Earn  (SAYE)
share  option  schemes.  During  2000,  Lloyds  TSB  Group  plc  contributed
£122 million to the QUEST, and the trustees subscribed for 30 million shares
in the Company for a consideration of £193 million. (During 1999, Lloyds
TSB  Group  plc  contributed  £210  million  and  the  trustees  subscribed  for
30 million  shares  for  a  consideration  of  £257 million).  At  31 December
2000,  1 million  shares  were  held  by  the  QUEST  with  a  book  value  of 
£4 million,  (1999:  2  million  shares  with  a  book  value  of  £5  million),
reﬂecting the exercise price of the options the shares are expected to be used
to  satisfy.  Under  the  terms  of  the  QUEST’s  trust  deed,  the  trustees  have
waived all but a nominal dividend on  the shares they  hold.  The  difference
between the amount contributed by the Company and the book value of the
shares held by the QUEST at 31 December 2000 has been charged to proﬁt
and loss account reserves.

In  addition,  a  further  1 million  ordinary  shares  were  held  by  TSB  Group
Holdings (Jersey) Limited at 31 December 2000 (1999: 1 million shares).
These  shares,  on  which  the  dividend  entitlement  has  been  waived,  were
gifted  to  the  Group  some  years  ago  at  nil  cost  and  are  used  to  satisfy
outstanding options or to meet commitments arising under other employee
share schemes.

30 Other assets

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

Foreign exchange and interest rate contracts
Other assets

2,688
888

2,742
899
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
3,641

3,576

31 Prepayments and accrued income

Interest receivable
Other debtors and prepayments

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

875
2,090

916
1,712
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff

2,965

2,628

Included  within  other  debtors  and  prepayments  is  £242  million  (1999: 
£176  million)  relating  to  the  deferred  element  of  the  expenditure  incurred
under cash gift and discount mortgage schemes. If these incentives had been
written  off  as  incurred  net  interest  income  would  have  been  £65  million
lower in 2000 (1999: £11 million lower).

LLOYDS TSB GROUP

65

32 Long-term assurance business (continued)

During  1999,  the  Financial  Services  Authority  (FSA)  published  revised
assumptions to be incorporated into the calculations of the continuing cost of
redress to past purchasers of pension policies. These revised FSA guidelines
were based on the assumption that the average life expectancy of pensioners
had  increased,  and  lower  interest  and  inﬂation  rates  to  be  assumed  in
calculating the cost of redress. Applying these revised assumptions, the cost
of redress was forecast to increase by £102 million and a further provision
of this amount was made in 1999, increasing the total provision made for
this purpose to £802 million at 31 December 1999. In 2000 the adequacy
of the provision has again been reviewed in the light of the changes arising
from SERPS adjustments, further experience and improved knowledge as to
the number and size of compensation claims likely to be paid. The cost of
redress is forecast to increase by £100 million and a provision of this amount
has  been  made,  bringing  the  total  provision  charged  for  this  purpose  to
£902 million, of which £654 million had been used at 31 December 2000.

The  following  is  a  summarised  balance  sheet  for  the  long-term  assurance
funds:

The long-term assurance assets attributable
to policyholders comprise:
Investments
Value of other shareholders’ interests in long-term
assurance funds
Premises and equipment
Net current assets (liabilities) 

Long-term assurance business attributable
to shareholders

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

52,683

27,718

2,421
20
2,510

1,551
30
(483)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

57,634

28,816

(6,549)

(2,274)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff

51,085

26,542

Investments shown above comprise:
Fixed interest securities
Stocks, shares and unit trusts
Investment properties
Other properties
Mortgages and loans
Deposits

14,512
31,885
3,098
10
117
3,061

7,415
16,996
1,045
10
50
2,202
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff

52,683

27,718

The liabilities to policyholders comprise:
Technical provisions:

Long-term business provision (net of reinsurance)
Claims outstanding (net of reinsurance)

Technical provisions for linked liabilities
Fund for future appropriations and other liabilities

23,514
172
24,413
2,986

3,025
114
23,372
31
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff

51,085

26,542

notes to the accounts

32 Long-term assurance business

The value of long-term assurance business
attributable to shareholders included in the
consolidated balance sheet comprises:
Net tangible assets of life companies including surplus
Value of other shareholders’ interests in long-term
assurance funds

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

4,128

723

2,421

1,551
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff

6,549

2,274

The  shareholders’  interest  in  the  long-term  assurance  business  has  been
calculated on the basis of a series of economic and actuarial assumptions.

Following  the  acquisition  of  the  business  of  Scottish  Widows,  a  detailed
review of the economic assumptions used in the embedded value calculation
has been carried out, to ensure that these assumptions remain appropriate
for  the  enlarged  life  and  pensions  business  in  the  context  of  forecast  long-
term  economic  trends.  As  a  result  of  this  review  certain  assumptions  have
been  amended,  including  the  risk-adjusted  discount  rate  which  has  been
reduced  from  10  per  cent  to  8.5  per  cent.  The  principal  assumptions  are
shown below, together with those used in 1999:

Risk-adjusted discount rate (net of tax)
Return on equities (gross of tax)
Return on ﬁxed interest securities (gross of tax)
Expenses inﬂation

1999
%
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
%

8.50
8.00
5.25
3.00

10.00
8.50
5.25
3.00

The revised assumptions, which have been used with effect from 1 January
2000  for  Abbey  Life  and  the  bancassurance  operation  of  Lloyds  TSB Life,
have  resulted  in  a  one-off  credit  to  the  proﬁt  and  loss  account  of 
£127  million.  The  same  assumptions  have  been  used  for  the  Scottish
Widows business from the date of acquisition.

A  margin  over  the  long-term  risk  free  rate  of  return  is  included  within  the
discount rate to reﬂect the shareholders’ overall risk premium; other margins
are not included in the proﬁt recognition method. Allowance for tax is made
using models which reﬂect the different tax regimes affecting different classes
of  product;  no  credit  is  taken  in  respect  of  any  reduction  in  taxes  deriving
from expenses attributable to future business.

The  assumptions  for  mortality  and  morbidity  are  derived  from  published
tables adjusted for demographic differences of policyholders; those in respect
of lapses are in line with the experience of the companies concerned.

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

6,549
2,274

2,274
1,983
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

4,275
92
(4,052)
–
126

291
(5)
–
(220)
92
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
158

441

715
(100)

329
(102)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
227

615

The income from long-term assurance business is:
Value of long-term assurance business at 31 December
Value of long-term assurance business at 1 January

Increase in value of long-term assurance business
Exchange and other adjustments
Acquisitions
Capital injections
Dividends accrued

Income after tax from long-term assurance business

Income before pension provisions
Pension provisions

Income before tax from long-term assurance business

66 LLOYDS TSB GROUP

33 Assets and liabilities denominated in foreign 

currencies

Assets: denominated in sterling

: denominated in other currencies 

Liabilities: denominated in sterling

: denominated in other currencies

34 Deposits by banks

Repayable on demand
Other deposits by banks with agreed maturity dates
or periods of notice by residual maturity repayable:
3 months or less
1 year or less but over 3 months
5 years or less but over 1 year
Over 5 years

35 Customer accounts

Repayable on demand
Other customer accounts with agreed maturity dates
or periods of notice by residual maturity repayable:
3 months or less
1 year or less but over 3 months
5 years or less but over 1 year
Over 5 years

36 Debt securities in issue

Bonds and medium-term notes by
residual maturity repayable:
1 year or less
2 years or less but over 1 year
5 years or less but over 2 years
Over 5 years

Other debt securities by residual maturity repayable:
3 months or less
1 year or less but over 3 months
5 years or less but over 1 year
Over 5 years

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

126,033 111,076
38,361
40,864
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

166,897 149,437

afffffffffffffffffffffffffff afffffffffffffffffffffffffff

126,136 111,181
38,256
40,761
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

166,897 149,437

afffffffffffffffffffffffffff afffffffffffffffffffffffffff

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

4,330

3,594

9,712
1,790
695
208

12,551
1,153
341
55
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff
16,735
17,694

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

74,404

68,749

21,064
3,522
1,331
417

20,063
2,544
1,360
135
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
100,738
92,851

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

538
169
472
1,413

309
188
690
407
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2,592

1,594

8,574
6,476
241
16

7,644
2,645
362
15

15,307
10,666
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
17,899
12,260

notes to the accounts

37 Short-term borrowings

The short-term borrowings of the Company comprise ﬂoating rate unsecured
loan notes 2001. These notes are not subordinated and bear interest at rates
set  periodically  in  advance  based  on  London  Interbank  rates.  They  are
repayable, at the noteholders’ option, at six monthly intervals.

38 Other liabilities

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

Foreign exchange and interest rate contracts
Current tax
Dividends
Other liabilities

2,346
631
1,172
2,831

1,981
617
1,011
1,917
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
5,526

6,980

39 Accruals and deferred income

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

Interest payable
Other creditors and accruals

40 Deferred tax

Short-term timing differences
Pensions prepayment
Provision for Emerging Markets Debt
Accelerated depreciation allowances

At 1 January 2000
Exchange and other adjustments
Adjustments on acquisition
Tax provided

At 31 December 2000

Potential tax for which no provision has been made
relating to accelerated depreciation allowances on
equipment leased to customers

1,670
2,655

1,229
2,080
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
3,309

4,325

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

(59)
230
(198)
1,586

(94)
185
(212)
1,580
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
1,459

1,559

£m
aaaaaffffffffffffffffffffffffff

1,459
(5)
(3)
108
aaaaaffffffffffffffffffffffffff
1,559afffffffffffffffffffffffffff

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

72

72

Provision has been made for the liability to tax on overseas earnings which
are expected to be remitted to the UK. No provision has been made for the
liability to tax which could arise if premises, to the extent that the tax base
cost has been reduced by rollover relief, or group undertakings were disposed
of at their balance sheet amounts or investments in associated undertakings
and trade investments at their valuation. It is expected that the majority of
these  assets  will  be  retained  in  the  business  and  that,  in  view  of  the
substantial number of assets involved and the law relating to rollover relief,
the  likelihood  of  any  such  material  tax  liability  arising  is  remote;  no  useful
purpose would be served by attempting to quantify it.

LLOYDS TSB GROUP

67

notes to the accounts

41 Other provisions for liabilities and charges

At 1 January 2000
Exchange and other adjustments
Provisions applied
Charge for the year

At 31 December 2000

Pension obligations

Pension

Post-
Insurance
retirement
obligations provisions health care
£m

Vacant

Provision
leasehold for closure
property of business
£m

Total
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

Other
£m

£m

£m

£m

28

–

(1)

201

5

(146)

77

–

(4)

112

1

(15)

28

–

(28)

28

–

474

6

(15)

(209)

171
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

142

(2)

21

7

3

–

afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff

202

442

34

76

96

34

–

This represents the Group’s obligations in respect of certain overseas pension schemes. Full actuarial valuations are carried out by independent actuaries every
three years.

Insurance provisions

The Group’s general insurance subsidiaries maintain provisions for outstanding claims which represent the ultimate cost of settling all claims arising from events
which have occurred up to the balance sheet date and these include provisions for the cost of claims notiﬁed but not settled and for claims incurred but not yet
reported. In addition, in line with the requirements of the Insurance Companies (Reserves) Act 1995, claims equalisation provisions are maintained in relation
to property, credit and suretyship business. The majority of provisions in respect of claims will be settled in the following year, although new provisions will then
be required in respect of claims arising from that year. The level of the claims equalisation provision will be adjusted annually, taking into account the guidelines
contained in the legislation, and such provisions will be held for as long as the Group continues to write the relevant types of general insurance business.

Post-retirement health care

The  Group  operates  a  number  of  schemes  which  provide  post-retirement  health  care  beneﬁts  to  certain  employees,  retired  employees  and  their  dependent
relatives. The principal scheme relates to former Lloyds Bank staff and under this scheme the Group has undertaken to meet the cost of post-retirement health
care for all eligible former employees (and their dependants) who retired prior to 1 January 1996. For retirements subsequent to this date, the Group will meet
a reducing proportion of the cost until 31 December 2004, after which date the only obligation will be in respect of the pre 1 January 1996 retirements. The
cost of providing all post-retirement health care beneﬁts is charged to the proﬁt and loss account on a systematic basis over employees’ working lives; the provision
represents the unfunded obligation and is based on valuations of the Group’s liability by qualiﬁed actuaries.

Vacant leasehold property

Whenever the Group ceases to occupy a property, or commits itself to doing so, it is the Group’s policy to raise a provision to cover any anticipated shortfall when
comparing the recoverable amount of its interest in the property to the future rental and other payments that the Group is obligated to make over the remaining
term of the lease. These provisions are made by reference to a prudent estimate of expected sub-let income and the possibility of disposing of the Group’s interest
in  the  lease,  taking  into  account  conditions  in  the  property  market.  These  provisions  are  reassessed  on  an  annual  basis  and  will  normally  run  off  over  the
remaining  life  of  the  leases  concerned,  currently  averaging  six  years;  where  a  property  is  disposed  of  earlier  than  anticipated,  any  remaining  balance  in  the
provision relating to that property is released.

Provision for closure of business

In July 1999 the Group announced its decision to withdraw from the global custody and unit trust trusteeship business. As a result, a provision of £28 million
was raised for the anticipated operating losses to be incurred by Lloyds TSB Securities Services until the business was closed. The provision has been released to
match losses as they have been incurred over the period of run down of the business; this was completed by the end of 2000.

68 LLOYDS TSB GROUP

42 Subordinated liabilities

* Undated loan capital:
† Primary Capital Undated Floating Rate Notes:

Series 1 (US$750 million)
Series 2 (US$500 million)
Series 3 (US$600 million)

(cid:2) 55⁄8% Undated Subordinated Step-up Notes callable 2009 (E1,250 million)
† Undated Step-up Floating Rate Notes callable 2009 (E150 million)
¶ 65⁄8% Undated Subordinated Step-up Notes callable 2010
✜ Subordinated 5.57% Step-up Coupon Notes callable 2015 (¥20 billion)
¶ 61⁄2% Undated Subordinated Step-up Notes callable 2019

113⁄4% Perpetual Subordinated Bonds 

† 8% Undated Subordinated Step-up Notes callable 2023
¶ 61⁄2% Undated Subordinated Step-up Notes callable 2029

Dated loan capital:

‡ Eurocurrency Zero Coupon Bonds 2003 (¥3 billion)
§ Subordinated Fixed Rate Bonds 2003 (NZ$165 million)
† Subordinated Floating Rate Notes 2004

73⁄8% Subordinated Bonds 2004

†❖ Subordinated Floating Rate Notes 2004
† Subordinated Floating Rate Notes 2005
§ Subordinated Bonds 2005 
§ Subordinated Bonds 2006 (NZ$75 million)
† Subordinated Floating Rate Notes 2006

81⁄2% Subordinated Bonds 2006
73⁄4% Subordinated Bonds 2007

§ Subordinated Fixed Rate Bonds 2007 (NZ$150 million)

51⁄4% Subordinated Notes 2008 (DM750 million)
‡¶ 105⁄8% Guaranteed Subordinated Loan Stock 2008

91⁄2% Subordinated Bonds 2009

† Subordinated Step-up Floating Rate Notes 2009 callable 2004 (US$500 million)
(cid:5) 8.36% Subordinated Notes 2010 (NZ$100 million)
✠ 61⁄4% Subordinated Notes 2010 (E400 million)
†✠ Subordinated Floating Rate Notes 2010 (US$400 million)
‡ 12% Guaranteed Subordinated Bonds 2011

91⁄8% Subordinated Bonds 2011
43⁄4% Subordinated Notes 2011 (E850 million)

(cid:5) 65⁄8% Subordinated Notes 2015
†(cid:5) Subordinated Floating Rate Notes 2020 (E100 million)

95⁄8% Subordinated Bonds 2023

Total subordinated liabilities

notes to the accounts

Group
aaaaffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffaaffffaaaaffffffffffffffffffffffffff

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

Company
aaaaffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffaaffffaaaaffffffffffffffffffffffffff

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

502
335
401
774
94
405
117
266
100
199
198

465
310
372
766
93
405
120
266
100
199
198
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff
3,294

3,391

15
49
20
399
100
–
–
22
100
249
298
44
240
100
99
334
30
250
267
100
148
508
343
62
342

15
65
25
399
100
25
16
24
100
248
298
49
237
100
99
309
–
–
–
100
148
500
–
–
342
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

15
–
–
–
–
–
–
–
100
249
–
–
–
–
–
–
–
–
–
–
148
–
–
–
–

15
–
–
–
–
–
–
–
100
248
–
–
–
–
–
–
–
–
–
–
148
–
–
–
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

3,199

4,119

afffffffffffffffffffffffffff afffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
6,493

7,510

512

afffffffffffffffffffffffffff afffffffffffffffffffffffffff
511
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
511

512

These liabilities will, in the event of the winding-up of the issuer, be subordinated to the claims of depositors and all other creditors of the issuer.

* In certain circumstances, these notes and bonds would acquire the characteristics of preference share capital.
† These notes bear interest at rates ﬁxed periodically in advance based on Interbank rates.
‡ Issued by a group undertaking under the Company’s subordinated guarantee and, in the case of the Eurocurrency Zero Coupon Bonds 2003, on-lent to the

Company on a subordinated basis.
Issued during 2000 primarily to provide capital resources in connection with the acquisition of Chartered Trust.

¶ At the callable date the coupon on these Notes will be reset by reference to the applicable ﬁve year benchmark gilt rate.
§ These bonds bear interest, to be reset 5 years before redemption date, at a ﬁxed margin over New Zealand Government stocks.

In the event that the Notes are not redeemed at the callable date, the coupon will be reset to a ﬂoating rate.
In the event that the Notes are not redeemed at the callable date, the coupon will be reset to a ﬁxed margin over the then 5 year Yen swap rate.

❖ Exchangeable at the election of the Group for further subordinated ﬂoating rate notes.

Issued during 2000 primarily to ﬁnance the general business of the Group.

LLOYDS TSB GROUP

69

✠
(cid:2)
✜
(cid:5)
notes to the accounts

42

Subordinated liabilities (continued)

Dated subordinated liabilities are repayable as follows:

aafffffaaaaffffffffffffffffffffffffffaaaaaffffffffffffffffffffffffff aafffffaaaaffffffffffffffffffffffffffaaaaaffffffffffffffffffffffffff

Group

Company

1 year or less
2 years or less but over 1 year
5 years or less but over 2 years
Over 5 years

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

2000
£m

1999
£m

5
5
594
2,595

5
5
573
3,536

–
–
15
496
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
511

–
–
15
497

4,119

3,199

512

43 Non-equity minority interests

Non-equity  minority  interests  comprise  non-cumulative  preferred  securities
issued by Group undertakings during the year as part of the funding for the
Group’s acquisition of Scottish Widows (note 49)

Euro Step-up Non-Voting Non-Cumulative Preferred
Securities (e430 million)*
Sterling Step-up Non-Voting Non-Cumulative Preferred
Securities†

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

267

–

248

–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
–

515

*These securities constitute limited partnership interests in Lloyds TSB Capital
1 L.P., a Jersey limited partnership in which Lloyds TSB (General Partner)
Limited,  a  wholly  owned  subsidiary  of  the  Group,  is  the  general  partner.
Non-cumulative income distributions accrue at a ﬁxed rate of 7.375 per cent
per annum up to 7 February 2012; thereafter they will accrue at a rate of
2.33 per cent above EURIBOR, to be set annually.
†These securities constitute limited partnership interests in Lloyds TSB Capital
2 L.P., a Jersey limited partnership in which Lloyds TSB (General Partner)
Limited,  a  wholly  owned  subsidiary  of  the  Group,  is  the  general  partner.
Non-cumulative income distributions accrue at a ﬁxed rate of 7.834 per cent
per annum up to 7 February 2015; thereafter they will accrue at a rate of
3.50 per cent above a rate based on the yield of speciﬁed UK government
stock.

Both  of  the  above  issues  were  made  under  the  limited  subordinated
guarantee of Lloyds TSB Bank plc. In certain circumstances these preferred
securites will be mandatorily exchanged for preference shares in Lloyds TSB
Group  plc.  Lloyds  TSB  Group  plc  has  entered  into  an  agreement  whereby
dividends may only be paid on its ordinary shares if sufﬁcient distributable
proﬁts  are  available  for  distributions  due  in  the  ﬁnancial  year  on  these
preferred securities.

44 Called-up share capital (continued)

1999
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000

Authorised:
Japanese yen
Preference shares of ¥25 each

¥m
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
–
During  the  year  the  Company  reorganised  its  authorised  preference  share
capital to provide ﬂexibility for the Company to be able to issue preference
shares denominated in sterling, US dollars, euro and yen, principally (but not
exclusively) in connection with arrangements for raising additional capital for
the Group as and when appropriate.

¥m
1,250

Limited
voting
ordinary
shares of
25p each
£m

Ordinary
shares of
25p each
£m

Total
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

20
–

Issued and fully paid:
At 1 January 2000
Issued to the QUEST (note 29)

1,369
7

At 31 December 2000

1,389
7
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
1,396
The limited voting ordinary shares are held by the Lloyds TSB Foundations.
These  shares  carry  no  rights  to  dividends  but  rank  pari  passu  with  the
ordinary shares in respect of other distributions and in the event of winding
up. These shares do not have any right to vote at general meetings other than
on resolutions concerning acquisitions or disposals of such importance that
they require shareholder consent, or for the winding up of the Company, or
for a variation in the class rights of the limited voting ordinary shares.

1,376

20

At 31 December 2000, options to acquire 149 million Lloyds TSB Group
shares were outstanding under senior executives’ and savings-related share
option schemes at prices ranging from 124p to 888p per share exercisable
up to 2010.

45 Reserves

Share premium account:
At 1 January 2000
Premium arising on issue of shares

At 31 December 2000

Revaluation reserve:
At 1 January 2000 – as previously reported
Prior year adjustment (note 1)

Amended balance at 1 January 2000

Increase in net tangible assets of
subsidiary undertakings

Company
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

Group
£m

404
191

404
191
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
595

595

4,131
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

(206)
206
afffffffffffffffffffffffffff
–

4,131

955
aaaaaffffffffffffffffffffffffff
5,086afffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff

343

–

6,763
(318)

2,769
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

6,445
(68)
(124)
109
1,041

2,769
–
(128)
–
16
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
2,657

7,403

44 Called-up share capital

Authorised:
Sterling
Ordinary shares of 25p each
Limited voting ordinary shares of 25p each
Limited voting preference shares of £1 each
Preference shares of 25p each

US dollars
Preference shares of US25 cents each

Euro
Preference shares of e25 cents each

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

At 31 December 2000

Merger reserve:
At 1 January 2000 and 31 December 2000

Proﬁt and loss account:
At 1 January 2000 – as previously reported
Prior year adjustment (note 1)

Amended balance at 1 January 2000
Exchange and other adjustments
Shares issued to the QUEST (note 29)
Goodwill written back on sale and closure of businesses
Retained proﬁt

At 31 December 2000

1,728
1,728
20
20
–
300
44
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
2,048

1,792

US$m
US$m
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
40
–
em
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
–

em
40

70 LLOYDS TSB GROUP

45 Reserves (continued)

48 Derivatives and other ﬁnancial instruments

notes to the accounts

The Group proﬁt and loss account reserves at 31 December 2000 include 
£1,396  million  (1999:  £1,165  million)  not  presently  available  for
distribution  representing  the  Group’s  share  of  the  value  of  long-term
assurance  business  in  force  and  the  surplus  retained  within  the  long-term
assurance funds.

The  cumulative  amount  of  premiums  on  acquisitions  written  off  against
reserves  during  previous  years  amounts  to  £2,271 million  of  which
£1,828 million was within the last 10 years.

46 Transactions with related parties

At 31 December 2000, transactions, arrangements and agreements entered
into  by  the  Group’s  banking  subsidiaries  with  directors  and  connected
persons and with ofﬁcers included:

2000
Number of
persons

1999
Total
£000
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
1999
Total Number of
persons
£000

Loans and credit card transactions:
Directors and connected persons
Ofﬁcers

10
36

119
4,993

13
28

191
2,986

Details  of  the  principal  group  undertakings  are  given  in  note  22.  In
accordance  with  FRS 8,  transactions  or  balances  with  group  entities  that
have been eliminated on consolidation are not reported.

The  Group  enters  into  certain  transactions  with  its  long-term  assurance
businesses  which  are  not  eliminated  in  the  consolidated  accounts.  At
31 December  2000  Group  entities  owed  £2,126 million  (1999:
£1,775 million) and were owed £1,164 million (1999: £1,337 million). In
addition,  fees  of  £68  million  (1999: £42 million)  were  received,  and  fees
of £29 million  (1999: £30  million)  were  paid,  in  respect  of  asset
management services.

Details of transactions with the Group’s joint venture are set out in note 24.

47 Contingent liabilities and commitments

Contingent liabilities:
Acceptances and endorsements
Guarantees
Other:
Other items serving as direct credit substitutes
Performance bonds and other
transaction-related contingencies
Other contingent liabilities

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

357
3,249

459
2,485

266

273

1,271
4

1,198
8

1,541

1,479
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
4,423

5,147

Commitments:
Documentary credits and other
short-term trade-related transactions
Forward asset purchases and forward 
forward deposits placed
Undrawn note issuing and revolving
underwriting facilities
Undrawn formal standby facilities, credit
lines and other commitments to lend:

Less than 1 year maturity
1 year or over maturity

Other commitments

238

247

779

986

53

90

33,815
7,701
3

21,314
5,225
14
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff
42,589
27,876

Information about the Group’s use of ﬁnancial instruments and management
of the associated risks is given on pages 29 to 33 in the ﬁnancial review.

a) Derivatives

The Group uses derivatives as part of its trading activities and to reduce its
own exposure to ﬂuctuations in interest and exchange rates.

Trading
The notional principal amounts and fair values (which, after netting, are the
carrying values) of trading instruments entered into with third parties were as
follows:

31 December 2000

Exchange rate contracts:
Spot, forwards and futures
Currency swaps
Options purchased
Options written

Interest rate contracts:
Interest rate swaps
Forward rate agreements
Options purchased
Options written
Futures

Equity contracts

Effect of netting

Balances arising from off-balance sheet
ﬁnancial instruments

31 December 1999

Exchange rate contracts:
Spot, forwards and futures
Currency swaps
Options purchased
Options written

Interest rate contracts:
Interest rate swaps
Forward rate agreements
Options purchased
Options written
Futures

Equity contracts

Effect of netting

Fair values
aasdaaaffffffffffffffffffffffffffaaaaaffffffffffffffffffffffffffds

Notional
principal
amount
£m

Liabilities
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

Assets
£m

1,742
304
23
–

86,423
6,049
1,208
1,023

1,940
206
–
19
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
94,703
2,069
2,165

3,484
57
17
–
6

3,438
290,129
64
48,002
–
3,539
8
2,229
34,390
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
378,289
3,564
3,510
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
59
443

2,768

(3,388)

(3,388)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff
2,346

2,688

Fair values
aasdaaaffffffffffffffffffffffffffaaaaaffffffffffffffffffffffffffds

Notional
principal
amount
£m

Liabilities
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

Assets
£m

1,648
261
16
2

85,939
6,371
1,265
1,220

1,529
235
1
9
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
94,795
1,927
1,774

3,939
83
97
–
–

382,812
4,002
85,613
67
4,545
–
3,067
72
40,022
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
516,059
4,119
4,141
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
16
646
(3,950)
(3,950)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2,393

Balances arising from off-balance sheet 
ﬁnancial instruments

afffffffffffffffffffffffffff afffffffffffffffffffffffffff
1,981

2,742

LLOYDS TSB GROUP

71

notes to the accounts

48 Derivatives and other ﬁnancial instruments (continued)

48 Derivatives and other ﬁnancial instruments (continued)

a) Derivatives (continued)

a) Derivatives (continued)

The maturity of the notional principal amounts and replacement cost of both
trading and non-trading instruments entered into with third parties was:

31 December 2000

Exchange rate contracts:
Notional principal amount
Net replacement cost

Interest rate contracts:
Notional principal amount
Net replacement cost

Equity contracts:
Notional principal amount
Net replacement cost

31 December 1999
Exchange rate contracts:
Notional principal amount
Net replacement cost

Interest rate contracts:
Notional principal amount
Net replacement cost

Equity contracts:
Notional principal amount
Net replacement cost

Total
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

1 to 5
years
£m

Over 5
years
£m

Under
1 year
£m

88,288
1,094

4,973
183

1,816 95,077
1,316

39

177,684 159,422 43,783 380,889
1,034

157

731

146

506
68

2,054
343

208
32

2,768
443

90,281
996

4,125
137

671
13

95,077
1,146

258,197 212,598
392

305

47,487 518,282
996

299

204
39

1,776
528

413
79

2,393
646

The notional principal amount does not represent the Group’s real exposure
to  credit  risk,  which  is  limited  to  the  current  cost  of  replacing  contracts  at
current market rates should the counterparties default.

An  analysis  of  the  net  replacement  cost  of  both  trading  and  non-trading
instruments  entered  into  with  third  parties  by  counterparty  type  is  set  out
below:

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

OECD banks
Other

2,244
549

2,449
339
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
2,788

2,793

Non-trading
Through intra company and intra group transactions the Group establishes
non-trading  derivatives  positions  with  the  Group’s  independent  trading
operations.  Similar  positions  are  also  established  with  third  parties.  The
notional principal amounts and fair values of non-trading instruments entered
into with third parties were as follows:

31 December 2000

Exchange rate contracts:
Spot, forwards and futures
Currency swaps

Interest rate contracts:
Interest rate swaps
Forward rate agreements

31 December 1999

Exchange rate contracts:
Spot, forwards and futures
Currency swaps

Fair values
aaaaaffffffffffffffffffffffffffffffffffffffffaaaaaffffffffffffffffffffffffffss

Notional
principal
amount
£m

Negative
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

Positive
£m

4
5

296
78

4
7
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
11

374

9

96
–

2,466
134

35
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
35

2,600

96

Fair values
aaaaaffffffffffffffffffffffffffaaaaaffffffffffffffffffffffffffss

Notional
principal
amount
£m

Negative
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

Positive
£m

187
95

1
3
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

4
11

afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff

282

15

4

Interest rate contracts:
Interest rate swaps
Forward rate agreements

23
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
23
The Company held non-trading derivatives with a notional principal amount
of £400 million (1999: £400 million).

2,203
20

31
–

2,223

31

The  aggregate  carrying  value  of  non-trading  derivatives  with  a  positive  fair
value was an asset of £23 million (1999: an asset of £1 million) and with
a  negative  fair  value  was  a  liability  of  £1 million  (1999:  an  asset  of
£1 million).

72 LLOYDS TSB GROUP

48 Derivatives and other ﬁnancial instruments (continued)

b) Interest rate sensitivity gap analysis for the non-trading book

The table below summarises the repricing mismatches of the Group’s non-trading assets and liabilities. Items are allocated to time bands by reference to the
earlier of the next contractual interest rate repricing date and the maturity date.

notes to the accounts

As at 31 December 2000

Assets:
Treasury bills and other eligible bills
Loans and advances to banks
Loans and advances to customers
Debt securities and equity shares
Other assets

Total assets

Liabilities:
Deposits by banks
Customer accounts
Debt securities in issue
Other liabilities
Subordinated liabilities – loan capital
Minority interests and shareholders’ funds

Total liabilities

Net balances with group trading books
Off-balance sheet items

Interest rate repricing gap

Cumulative interest rate repricing gap

As at 31 December 1999

Assets:
Treasury bills and other eligible bills
Loans and advances to banks
Loans and advances to customers
Debt securities and equity shares
Other assets

Total assets

Liabilities:
Deposits by banks
Customer accounts
Debt securities in issue
Other liabilities
Subordinated liabilities – loan capital
Minority interests and shareholders’ funds

Total liabilities

Net balances with group trading books
Off-balance sheet items

Interest rate repricing gap

Cumulative interest rate repricing gap

3 months
or less
£m
aaaaaffffffffffffffffffffffffff

6 months
or less
but over
3 months
£m
aaaaaffffffffffffffffffffffffff

1 year
or less
but over
6 months
£m
aaaaaffffffffffffffffffffffffff

5 years
or less
but over
1 year
£m
aaaaaffffffffffffffffffffffffff

Over
5 years
£m
aaaaaffffffffffffffffffffffffff

Non-
interest
bearing
£m
aaaaaffffffffffffffffffffffffff

Total
£m
aaaaaffffffffffffffffffffffffff

534
13,034
69,266
2,497

40
1,184
4,894
475
22
aaaaaffffffffffffffffffffffffff

630
15,098
114,325
5,713
16,950
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
85,582
31,419
152,716

–
135
(2,075)
51
16,603
aaaaaffffffffffffffffffffffffff

1
241
5,737
1,448
22
aaaaaffffffffffffffffffffffffff

9
112
30,391
902
5
aaaaaffffffffffffffffffffffffff

46
392
6,112
340
47
aaaaaffffffffffffffffffffffffff

251
aaaaaffffffffffffffffffffffffff

14,714

7,449

6,615

6,937

12,854
89,194
8,519
159
1,727
–
aaaaaffffffffffffffffffffffffff

1,090
1,955
5,950
–
509
–
aaaaaffffffffffffffffffffffffff

604
1,508
1,769
3
–
–
aaaaaffffffffffffffffffffffffff

396
1,255
623
91
637
–
aaaaaffffffffffffffffffffffffff

15,825
100,447
16,943
9,382
7,510
10,269
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
112,453
3,002
160,376
(7,660)
28,417
(26,871)
7,660
6,188
(148)
–
(10,612)
12,229
aaaaaffffffffffffffffffffffffff
aaaaaffffffffffffffffffffffffff
aaaaaffffffffffffffffffffffffff

789
6,141
–
9,127
–
10,269
aaaaaffffffffffffffffffffffffff

92
394
82
2
4,637
–
aaaaaffffffffffffffffffffffffff

(11,612)
–
–
aaaaaffffffffffffffffffffffffff

2,242
374
(1,021)
aaaaaffffffffffffffffffffffffff

(2,889)
982
(766)
aaaaaffffffffffffffffffffffffff

3,053
264
170
aaaaaffffffffffffffffffffffffff

26,326

3,884

5,207

9,504

(14,790)
aaaaaffffffffffffffffffffffffff

(2,673)
aaaaaffffffffffffffffffffffffff

3,487
aaaaaffffffffffffffffffffffffff

23,993
aaaaaffffffffffffffffffffffffff

1,595
aaaaaffffffffffffffffffffffffff

(11,612)
aaaaaffffffffffffffffffffffffff

–
aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff

(14,790)

(17,463)

(13,976)

10,017

11,612

–

–

3 months
or less
£m
aaaaaffffffffffffffffffffffffff

6 months
or less
but over
3 months
£m
aaaaaffffffffffffffffffffffffff

1 year
or less
but over
6 months
£m
aaaaaffffffffffffffffffffffffff

5 years
or less
but over
1 year
£m
aaaaaffffffffffffffffffffffffff

Over
5 years
£m
aaaaaffffffffffffffffffffffffff

Non-
interest
bearing
£m
aaaaaffffffffffffffffffffffffff

Total
£m
aaaaaffffffffffffffffffffffffff

896
13,418
58,410
3,056
230
aaaaaffffffffffffffffffffffffff

108
1,640
3,765
725
–
aaaaaffffffffffffffffffffffffff

1,198
16,814
102,098
6,075
9,569
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
76,010
30,374
135,754

–
71
(1,864)
54
9,307
aaaaaffffffffffffffffffffffffff

–
277
7,851
1,041
27
aaaaaffffffffffffffffffffffffff

60
334
29,451
524
5
aaaaaffffffffffffffffffffffffff

134
1,074
4,485
675
–
aaaaaffffffffffffffffffffffffff

6,368

6,238

9,196

7,568

852
1,586
1,446
–
46
–
aaaaaffffffffffffffffffffffffff

15,095
81,298
6,618
149
–
–
aaaaaffffffffffffffffffffffffff

114
903
1,397
5
–
–
aaaaaffffffffffffffffffffffffff

17
1,321
1,109
–
685
–
aaaaaffffffffffffffffffffffffff

16,823
92,605
10,977
6,964
6,493
8,524
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
103,160
3,132
142,386
(6,632)
27,242
(27,150)
6,632
4,051
1,372
–
(4,280)
3,526
aaaaaffffffffffffffffffffffffff
aaaaaffffffffffffffffffffffffff
aaaaaffffffffffffffffffffffffff

–
110
407
2
5,762
–
aaaaaffffffffffffffffffffffffff

745
7,387
–
6,808
–
8,524
aaaaaffffffffffffffffffffffffff

(15,896)
–
–
aaaaaffffffffffffffffffffffffff

3,949
733
(1,576)
aaaaaffffffffffffffffffffffffff

2,915
204
1,803
aaaaaffffffffffffffffffffffffff

2,308
272
527
aaaaaffffffffffffffffffffffffff

23,464

2,419

3,930

6,281

3,107
aaaaaffffffffffffffffffffffffff

(22,252)
27,013
–
aaaaaffffffffffffffffffffffffff
aaaaaffffffffffffffffffffffffff
aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
(22,252)
10,974
–

(15,896)
aaaaaffffffffffffffffffffffffff

4,922
aaaaaffffffffffffffffffffffffff

3,106
aaaaaffffffffffffffffffffffffff

(19,145)

(16,039)

15,896

–

The table above does not take into account the effect of interest rate options used by the Group to hedge its exposure; details of options are given on page  71
in note 48a).

LLOYDS TSB GROUP

73

notes to the accounts

48 Derivatives and other ﬁnancial instruments (continued)

48 Derivatives and other ﬁnancial instruments (continued)

c) Fair value analysis

e) Unrecognised gains and losses on hedging instruments

The  table  below  shows  a  comparison  by  category  of  book  values  and  fair
values of the Group’s on-balance sheet ﬁnancial assets and liabilities.

As at 31 December 2000

Assets:

Treasury bills and other
eligible bills
Loans and advances to
banks and customers
Debt securities and equity shares
Liabilities:
Deposits by banks and customers
Debt securities in issue
Subordinated liabilities

As at 31 December 1999

Assets:

Treasury bills and other
eligible bills
Loans and advances to
banks and customers
Debt securities and equity shares
Liabilities:
Deposits by banks and customers
Debt securities in issue
Subordinated liabilities

Trading book

Non-trading book

aaaaaaaafaaaaffffffffffffffffffffffffff aaaaaaaafaaaaffffffffffffffffffffffffff
Fair
value
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

Book
value
£m

Book
value
£m

Fair
value
£m

1,079

1,079

630

627

322
8,416

322
8,416

–
5,713

–
5,972

1,201
956
–

1,201

–

–
956 16,943 16,982
7,692
7,510

–

Trading book

Non-trading book

aaaaaaaafaaaaffffffffffffffffffffffffff aaaaaaaafaaaaffffffffffffffffffffffffff
Fair
value
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

Book
value
£m

Fair
value
£m

Book
value
£m

The Group uses a variety of ﬁnancial instruments to hedge exposures in its
banking book; these hedges are accounted for on an accruals basis, in line
with  the  underlying  instruments  being  hedged.  Any  gains  or  losses  that
would occur if these instruments were carried at market value are therefore
not recognised.

At 31 December 2000, the unrecognised gains on ﬁnancial instruments used
for  hedging  were  £200  million  (1999:  £161  million)  and  unrecognised
losses were £457 million (1999: £253 million).

The  net  losses  arising  in  1999  and  earlier  years  and  recognised  in  2000
amounted to £32 million. Net losses of £200 million arose in 2000 but were
not recognised in the year.

Of the net losses of £257 million at 31 December 2000, £55 million of net
losses are expected to be recognised in the year ending 31 December 2001
and £202 million of net losses in later years.

f) Value at risk in trading activities

Details of value at risk in the Group’s global trading activities are given on
page 31 in the ﬁnancial review.

867

867

1,198

1,197

200
8,322

200
8,322

–
6,075

–
6,214

1,116
1,283
–

1,116
1,283
–

–
10,977
6,493

–
10,971
6,667

49 Acquisitions

a) On 3 March 2000, the Group completed the transfer of the business of
Scottish  Widows’  Fund  and  Life  Assurance  Society  to  its  wholly  owned
subsidiaries Scottish Widows plc and Scottish Widows Annuities Limited; the
results of Scottish Widows have been consolidated in full from that date. The
premium  on  acquisition  of  £1,870  million  has  been  capitalised  and  the
directors have determined that it has an indeﬁnite useful life (see note 1c).

A summarised proﬁt and loss account for Scottish Widows for the period from
1 January 2000 to 2 March 2000 is set out below:

Earned premiums (net of reinsurance)
Other income and charges
Net investment returns
Claims paid (net of reinsurance)
Change in technical provisions
Operating expenses
Transfer from fund for future appropriations
Tax attributable to long-term business account

£m
aaaaaffffffffffffffffffffffffff

477
10
(295)
(419)
(393)
(57)
653
(12)
aaaaaffffffffffffffffffffffffff

Loss after tax for the period to 2 March 2000

(36)afffffffffffffffffffffffffff
333afffffffffffffffffffffffffff
All recognised gains and losses are included in the proﬁt and loss account.

Proﬁt after tax for the year ended 31 December 1999

The disclosures in this note cover all on-balance sheet ﬁnancial instruments
held  in  the  trading  book  together  with  those  held  in  the  banking  book  for
which there is a readily obtainable market price.

Fair values of all derivative instruments are disclosed above.

Fair values are determined by reference to quoted market prices or, where no
market  price  is  available,  using  internal  models  which  discount  expected
future cashﬂows at prevailing interest rates.

d) Currency exposures

Structural currency exposures
The Group’s main overseas operations are in New Zealand, the Americas and
Europe.  Details  of  the  Group’s  structural  foreign  currency  exposures  are  as
follows:

Functional currency of Group operation

New Zealand dollar
Euro (and component former currencies)
US dollar
Swiss franc
Other non-sterling

Total

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

703
289
194
120
397

716
335
160
108
371
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
1,690

1,703

Non-structural currency exposures
All foreign exchange exposures in the non-trading book are transferred to the
trading area where they are monitored and controlled.

Information  about  the  management  of  market  risk  in  the  Group’s  trading
activities is given on page 31.

74 LLOYDS TSB GROUP

49 Acquisitions (continued)

49 Acquisitions (continued)

notes to the accounts

The balance sheet of Scottish Widows at 3 March 2000 was as follows:

Investments
Assets held to cover linked liabilities
Other assets
Prepayments and accrued income
Loans and advances to banks
Loans and advances to customers
Long-term assurance business attributable
to shareholders
Long-term assurance assets attributable
to policyholders
Fund for future appropriations
Technical provisions
Technical provisions for linked liabilities
Customer accounts
Accruals and deferred income
Other liabilities
Long-term assurance liabilities to policyholders

Net assets acquired

Goodwill

Consideration
Costs of acquisition

Book value
at

Fair value
Fair value
at
3 March adjustments acquisition
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

£m

£m

23,799 (23,799)
(3,062)
(1,230)
(155)
–
–

3,062
1,250
189
160
632

–
–
20
34
160
632

–

4,052

4,052

(6,541)

6,541
(18,084) 18,084
3,062
–
9
575

– 24,166 24,166
–
–
–
(709)
(12)
(100)
– (24,166) (24,166)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

(3,062)
(709)
(21)
(675)

1,870
aaaaaffffffffffffffffffffffffff
5,947afffffffffffffffffffffffffff
5,846
101
aaaaaffffffffffffffffffffffffff

5,947afffffffffffffffffffffffffff

b) On  1  September  2000  the  Group’s  subsidiary,  Lloyds  UDT  Finance
Limited,  completed  the  acquisition  of  Chartered  Trust  Group  plc  and  ACL
Autolease  Holdings  Limited  (together  ‘Chartered  Trust’),  the  UK  consumer
ﬁnance and contract hire subsidiaries of Standard Chartered Bank; the results
of  these  businesses  have  been  consolidated  in  full  from  that  date.  The
premium  on  acquisition  of  £508  million  has  been  capitalised  and  will  be
written  off  to  the  proﬁt  and  loss  account  over  its  estimated  useful  life  of
20 years.

A summarised proﬁt and loss account for Chartered Trust for the period from
1 January 2000 to 31 August 2000 is set out below:

Net interest income
Net fees and commissions
Other income

Total income
Operating expenses
Provisions for bad and doubtful debts

Proﬁt on ordinary activities before tax
Tax

Proﬁt after tax for the period to 31 August 2000

£m
aaaaaffffffffffffffffffffffffff

122
(17)
17
aaaaaffffffffffffffffffffffffff

122
(84)
(23)
aaaaaffffffffffffffffffffffffff

15
(8)
aaaaaffffffffffffffffffffffffff
7afffffffffffffffffffffffffff
23afffffffffffffffffffffffffff

Book value
at

Fair value
at
1 September adjustments acquisition
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

Fair value

£m

£m

143
1,860
375
114
(1,798)
(336)
(249)
(3)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

143
–
1,860
–
414
(39)
114
–
(1,798)
–
(336)
–
(249)
–
(3)
–
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
(39)

145

106

508
aaaaaffffffffffffffffffffffffff
614afffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff

4,077

–

4,077

Proﬁt after tax for the year ended 31 December 1999

All recognised gains and losses are included in the proﬁt and loss account.

The balance sheet of Chartered Trust at 1 September 2000 was as follows:

As a mutual life assurance society, Scottish Widows prepared accounts under
the  modiﬁed  statutory  solvency  basis;  this  is  different  to  the  Lloyds  TSB
Group  accounting  policy,  which  is  set  out  in  note  1o).  The  fair  value
adjustments above are required to:

i)  show  the  net  assets  of  Scottish  Widows  in  accordance  with  the  Group’s
accounting policy; and

ii) reﬂect the fair value of assets and liabilities.

Loans and advances to banks
Loans and advances to customers
Tangible ﬁxed assets
Other assets and prepayments
Deposits by banks
Customer accounts
Other liabilities and accruals
Minority interests – equity

The  Scottish  Widows  business  is  complex  and  whilst  no  further  fair  value
adjustments  are  expected,  in  accordance  with  the  requirements  of
paragraph 27 of Financial Reporting Standard 6, it is noted that the fair value
of the net assets of Scottish Widows and the goodwill arising shown above
are provisional.

Net assets acquired

Goodwill

Consideration

Under the terms of the transfer of Scottish Widows’ business, as set out in
the  Policyholder  Circular  dated  19  November  1999,  a  separate
memorandum account was created within the With Proﬁts Fund on 3 March
2000  called  the  Additional  Account  with  a  balance  of  £1.7  billion.  This
account included £1.3 billion which is available to meet any additional costs
of  meeting  guaranteed  beneﬁts  including  annuity  beneﬁts  on  transferred
policies  allocated  to  the  With  Proﬁts  Fund  and  any  unexpected  liabilities
which arise in the future but relate (with certain exceptions) to the operations
of Scottish Widows and its subsidiaries prior to 3 March. The assets allocated
to the Additional Account  include certain hedge assets which are intended
to protect the With Proﬁts Fund against the consequences of a future fall in
interest rates including increases in the costs of meeting policy guarantees.

The consideration was settled in cash. The fair value adjustments principally
reﬂect provision for anticipated losses in respect of residual values on certain
operating lease assets.

c) On  28  April  2000  the  Group’s  French  subsidiary,  Lloyds  Bank  S.A.
completed the purchase of the private client business of CPR Gestion Privée
for  a  cash  consideration  of  £27 million.  The  premium  on  acquisition  of 
£27 million has been capitalised and will be written off to the proﬁt and loss
account over its estimated useful life of 20 years. There were no fair value
adjustments made to the assets acquired. The results of this business have
been consolidated in full from the date of acquisition, the effect on the results
of the Group is not material.

LLOYDS TSB GROUP

75

notes to the accounts

50 Consolidated cash ﬂow statement

a Reconciliation of operating proﬁt to net cash
inﬂow from operating activities

Operating proﬁt
Increase in prepayments and accrued income
Increase in accruals and deferred income
Provisions for bad and doubtful debts
Net advances written off
Restructuring costs incurred
General insurance claims
General insurance claims paid
Amounts written off ﬁxed asset investments
Income from long-term assurance business
Interest on subordinated liabilities (loan capital)
Interest element of ﬁnance lease rental payments
Depreciation and amortisation
Other non-cash movements

Net cash inﬂow from trading activities

Net increase in loans and advances
Net (increase) decrease in investments other than
investment securities
Net decrease in other assets
Net (decrease) increase in deposits by banks
Net increase in customer accounts
Net increase in debt securities in issue
Net increase (decrease) in other liabilities
Net increase in items in course of 
collection/transmission
Other non-cash movements

Net cash inﬂow from operating activities

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

3,886
(121)
830
475
(583)
–
142
(146)
14
(615)
490
1
386
(192)

3,747
(231)
183
588
(614)
(62)
169
(145)
7
(227)
362
–
277
(186)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

4,567

3,868

(6,528)

(6,253)

(355)
20
(2,794)
7,081
4,738
569

461
1,737
827
3,147
551
(3,066)

(126)
386

(60)
49
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
1,261

7,558

b Analysis of cash as shown in the balance sheet

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

Cash and balances with central banks
Loans and advances to banks repayable on demand

1,276
1,132
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
2,408
The Group is required to maintain balances with the Bank of England which,
at 31 December 2000, amounted to £142 million (1999: £128 million).

1,027
2,794

3,821

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

2,408

2,856

1,406
(448)
7
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
2,408

3,821

Share capital
(including premium
and merger reserve)
1999
2000
£m
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2,136
198

1,823
313
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff

2,334

2,136

c Analysis of changes in cash during the year

At 1 January
Net cash inﬂow (outﬂow) before adjustments for 
the effect of foreign exchange movements
Effect of foreign exchange movements

At 31 December

d Analysis of changes in ﬁnancing during
the year

At 1 January
Cash inﬂow from ﬁnancing

At 31 December

76 LLOYDS TSB GROUP

50 Consolidated cash ﬂow statement (continued)

d Analysis of changes in ﬁnancing during
the year (continued)

Preferred securities issued by
subsidiary undertakings
1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

At 1 January
Effect of foreign exchange movements
Cash inﬂow from ﬁnancing

At 31 December

At 1 January
Effect of foreign exchange movements
Cash inﬂow from ﬁnancing
Capital repayments
Adjustments on acquisition

At 31 December

e Analysis of the net cash outﬂow in 
respect of the acquisition of group undertakings

Cash consideration paid
Cash acquired

Net cash outﬂow

f Acquisition of group undertakings

Net assets acquired:
Loans and advances
Long-term assurance business
Other assets
Tangible ﬁxed assets
Deposits by banks, customer accounts
and other liabilities

Goodwill arising on consolidation

Satisﬁed by:
Issue of loan notes
Cash
Payments pending settlement

g Disposal of group undertakings and businesses

Net assets disposed of:
Interests in associated undertakings
Other net assets
Goodwill written back on disposal

(Loss) proﬁt on sale

Cash consideration received

–
6
509

–
–
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
affffffffffffffffffffffff afffffffffffffffffffffffffff
–

515

Subordinated liabilities
and ﬁnance leases
1999
2000
£m
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

6,497
120
897
(4)
23

4,028
(69)
2,541
(3)
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

affffffffffffffffffffffff afffffffffffffffffffffffffff

7,533

6,497

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

5,110
27
–
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
27

5,110

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

2,827
4,052
168
375

–
–
1
–

(3,239)

4
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

4,183
2,405

5
22
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

affffffffffffffffffffffffff afffffffffffffffffffffffffff

6,588

27

1,077
5,110
401

–
27
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

afffffffffffffffffffffffffff afffffffffffffffffffffffffff
27

6,588

1999
£m
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

2000
£m

2
–
–
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff

–
2
93

95
2
(12)
1
aaaaafffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
afffffffffffffffffffffffffff afffffffffffffffffffffffffff
83
3

information for shareholders

ANALYSIS OF SHAREHOLDERS
at 31 December 2000

Size of shareholding

Shareholders
aaaasfffaafaaaaasfffasfffaafafaafaaaaafff
%
aaasfffaafaaaaafff

Number
aaasfffaafaaaaafff

Number of ordinary shares
aaaasfffaafaaaaasfffasfffaafafaafaaaaafff
%
aaasfffaafaaaaafff

Millions
aaasfffaafaaaaafff

1 – 99
100 – 499
500 – 999
1,000 – 4,999
5,000 – 9,999
10,000 – 49,999
50,000 – 99,999
100,000 – 999,999
1,000,000 and over

65,162
486,383
305,026
132,401
19,687
14,714
961
1,345
489
aaasfffaafaaaaafff

0.04
2.97
3.45
4.62
2.45
4.87
1.20
7.88
72.52
aaasfffaafaaaaafff
aassfffs aassfffs aassfffs aassfffs
100.00

2.0
163.7
190.0
254.6
135.1
268.0
65.8
434.0
3,994.2
aaasfffaafaaaaafff

6.35
47.40
29.72
12.90
1.92
1.43
0.10
0.13
0.05
aaasfffaafaaaaafff

1,026,168

5,507.4*

100.00

FINANCIAL
CALENDAR 2001

16 February
Results for 2000 announced

28 February
Ex-dividend date for 2000 ﬁnal dividend

2 March
Record date for ﬁnal dividend

4 April
Final date for joining or leaving the dividend
reinvestment plan for the ﬁnal dividend

* Includes 833 million shares (15%) registered in the names of some 882,000 individuals. 190 million shares (3%) are held

by over 63,000 staff and Group pensioners, or on their behalf by the trustee of the staff proﬁt sharing schemes.

18 April
Annual general meeting in Edinburgh

Substantial shareholdings
At the date of this report notiﬁcation had been
received that The Capital Group Companies, Inc
has an interest in 4% of the nominal value of the
issued share capital. No other notiﬁcation had
been received that anyone has an interest in 3%
or more of the nominal value of the issued share
capital.

Share price information
In addition to information published in the
ﬁnancial pages of the press, the latest price of
Lloyds TSB shares on the London Stock
Exchange can be obtained by telephoning 0906
8771515. These telephone calls are charged at
60p per minute, including VAT.

Share dealing facilities
The Company provides a low cost, execution
only, postal dealing service for the purchase and
sale of Lloyds TSB shares through Lloyds TSB
Registrars. The current rate of commission for
purchases is 0.75%, minimum £10, and for
sales is 0.75%, no minimum. For full details
please contact Lloyds TSB Registrars. Telephone
01903 702321.

The Company also provides a telephone dealing
service through Lloyds TSB Stockbrokers for the
purchase and sale of Lloyds TSB shares on
preferential commission terms. The current rate
for both purchases and sales is 0.75%,
minimum £18.50 maximum £75, for
transactions up to £75,000. For full details
please contact Lloyds TSB Stockbrokers.
Telephone 0845 7888100.

American Depositary Receipts (ADRs)
Lloyds TSB shares are traded in the USA through
a sponsored ADR facility, with The Bank of New
York as the depositary. The ADRs are traded on
the over-the-counter market under the symbol
LLDTY. The CUSIP number is 539439109 and
the ratio of ADRs to ordinary shares is 1:4. For
details please contact ADR Department, The
Bank of New York, 101 Barclay Street, 22nd
Floor West, New York, NY 10286. Telephone
(1) 888 BNY ADRS (US toll free); outside the US
(908) 769 9835.

Individual Savings Accounts (ISAs)
The Company provides a facility for investing in
Lloyds TSB shares through an ISA. For details
please contact Lloyds TSB Private Banking,
Freepost, PO Box 149, Haywards Heath, West
Sussex RH16 3BR. Telephone 0345 418418.

Lloyds TSB: the community and our business
Information about the Group’s role in the
community and copies of the Group’s code of
business conduct and its environmental report
may be obtained by writing to Public Affairs,
Lloyds TSB Group plc, 71 Lombard Street,
London EC3P 3BS. This information is also
available on the Group’s website (see below).

The Better Payment Practice Code
A copy of the code and information about it may
be obtained from:
The Department of Trade and Industry
1 Victoria Street
London SW1H 0ET

Shareholder enquiries
The Company’s share register is maintained by
Lloyds TSB Registrars, The Causeway, Worthing,
West Sussex BN99 6DA. Telephone 0870
6003990; textphone 0870 6003950. Please
contact them if you have enquiries about your
Lloyds TSB shareholding, including those
concerning the following matters:

• change of name or address
• loss of share certiﬁcate, dividend warrant or

tax voucher

• to obtain a form for dividends to be paid
directly to your bank or building society
account (tax vouchers will still be sent to your
registered address unless you request
otherwise)

• to obtain details of the dividend reinvestment plan
which enables you to use your cash dividends to
buy Lloyds TSB shares in the market

• request for copies of the report and accounts
in alternative formats for shareholders with
disabilities.

Lloyds TSB Registrars operates a web based
enquiry and portfolio management service for
shareholders. Visit www.shareview.co.uk for
details.

2 May
Final dividend paid

27 July
Results for half-year to 30 June 2001
announced

8 August
Ex-dividend date for 2001 interim dividend

10 August
Record date for interim dividend

12 September
Final date for joining or leaving the dividend
reinvestment plan for the interim dividend

10 October
Interim dividend paid

Head ofﬁce
71 Lombard Street
London EC3P 3BS

Registered ofﬁce
Henry Duncan House
120 George Street
Edinburgh EH2 4LH
Registered in Scotland no 95000

Registrar
Lloyds TSB Registrars
The Causeway
Worthing
West Sussex BN99 6DA

Internet
www.lloydstsb.com

The information about Lloyds TSB Stockbrokers’ services is approved

by Lloyds TSB Stockbrokers Limited. Lloyds TSB Stockbrokers is a

member of the London Stock Exchange and is regulated by SFA.

Designed by Starling Design/The Team. Printed in the UK by Burrups Ltd, St Ives plc.

This document is printed on paper produced from sustainable managed forests using an elemental chlorine free process.

LLOYDS TSB GROUP

77