Business Context and Reporting Period
This Form 6-K filing by Lloyds Banking Group Plc, dated October 23, 2018, reports a strategic partnership with Schroders plc to create a market-leading wealth management proposition. The announcement details the formation of a new joint venture (JV) for financial planning and the appointment of Schroders as an active investment manager for significant assets.
Key Financial Metrics and Transaction Details
- Assets Under Management (AUM): Schroders will manage approximately £80 billion of Scottish Widows and Lloyds insurance and wealth-related assets.
- Joint Venture Assets: Lloyds will transfer approximately £13 billion of assets and associated advisers to the new JV.
- Private Client Transfer: Approximately £400 million of existing private client assets will be transferred to Schroders' UK wealth management business.
- Consideration: The aggregated consideration for the asset transfers is approximately £200 million, satisfied through shares representing up to 19.9% of Schroder Wealth Holdings Limited.
- Projected JV Profit: The combined profit before tax for the JV and transferred private client assets is estimated at c.£35 million for 2018 (c.£130 million income and c.£95 million costs).
- JV Gross Assets: Estimated at c.£120 million.
Material Changes and Strategic Shifts
The filing outlines a material shift in Lloyds' wealth management strategy, moving from a standalone model to a partnership model. Key changes include:
- Ownership Structure: Lloyds will own 50.1% of the new financial planning JV, with Schroders owning 49.9%.
- Investment Management Mandate: Schroders is appointed as the active investment manager for the £80 billion mandate for at least five years.
- Arbitration Status: Lloyds remains confident in its rights to terminate current asset management agreements, expecting the arbitration process with Standard Life Aberdeen to conclude early in the following year.
Guidance, Outlook, and Risks
Outlook and Growth Targets:
- The JV aims to commence activities by the end of H1 2019, subject to regulatory approvals.
- The JV targets becoming a top three UK financial planning business within five years.
- The transaction supports Lloyds' target of additional Financial Planning and Retirement assets under administration exceeding £50 billion by 2020.
Financial Impact: The transaction is not expected to have a material financial impact on Lloyds in the short term. Lloyds will recognize its share of profits from the JV and its investment in Schroder Wealth Holdings Limited in Other Income.
Risks and Contingencies:
- Regulatory Approval: The transaction, including the shareholding in Schroder Wealth Holdings Limited, is subject to regulatory approval.
- Deferred Consideration: The acquisition of the 49.9% JV stake is subject to a true-up exercise involving possible deferred cash consideration determined after three years based on net new business performance.
- Forward-Looking Risks: The filing lists standard risks including economic conditions, Brexit impacts, interest rate fluctuations, cyber security threats, and regulatory changes.
Key Facts for Investor Verification
- Confirmation of regulatory approvals for the JV and the 19.9% stake in Schroder Wealth Holdings Limited.
- The timeline for the conclusion of the arbitration process with Standard Life Aberdeen regarding the £67 billion of Scottish Widows insurance assets.
- The specific terms of the deferred consideration "true-up" mechanism for the JV stake.
- Actual commencement date of the JV activities relative to the H1 2019 target.
- Integration progress of the £13 billion asset transfer and the £400 million private client transfer.