Today, 27 July 2018, TSB announces its financial results for the six months to 30 June 2018.
- TSB’s mobile app, online banking, telephone banking and branch service levels are much improved after the issues caused by the switch to our new IT system, and have been for some time.
- Our focus remains on minimising the level of future service interruptions for our customers.
- Following migration, and in order to mitigate the customer impact of the service disruption, TSB recruited over 1,800 people and redeployed a further 700 Partners into customer-facing roles. Our TSB Partners have shown exceptional commitment and care in supporting our customers throughout.
- No TSB customer will be left out of pocket as a result of these IT issues, and no customer complaint will go unanswered. To ensure customers are compensated properly and as quickly as possible TSB has created a dedicated and experienced team with more than 260 people.
- TSB has recognised additional post-migration costs, including customer compensation, additional resources and foregone income as a result of waived overdraft fees and interest charges, of £176.4 million.
- TSB’s financial performance in the first six months of the year was significantly impacted by the IT migration with a statutory loss before tax of £107.4 million.
- As at 30 June 2018, TSB’s total customer lending was £31.0 billion, total customer deposits stood at £29.6 billion and its Common Equity Tier 1 capital ratio remained strong at 19.2%.
- Around 26,000 customers switched their bank account away from TSB, and more than 20,000 customers opened a new bank account or switched their account to TSB in the second quarter of the year.
Paul Pester, TSB Chief Executive Officer, says: “We’re making progress in resolving the service problems customers experienced following our IT migration, and we will continue to work tirelessly until we have put things right. I know how frustrated many customers have been by what’s happened. It was not acceptable, and was not the level of service that we pride ourselves on – nor was it what our customers have come to expect from TSB.
“It has been a difficult time for customers and I am grateful to them for their patience. I would also like to say thank you to our Partners for their enormous efforts. They have done everything in their power to continue serving our customers, and I am proud to see that the values on which the Bank has been built have shone through during this time.
“Our priority in the second half of the year continues to be putting things right for our customers. Looking further ahead we are determined to get back to bringing more competition to UK banking and ultimately making banking better for consumers and small businesses.”
Financial results in the half were:
- TSB’s financial performance in the first half was significantly impacted by the IT migration and subsequent service disruption. As a result, TSB’s statutory loss before tax is £107.4 million, against a profit of £108.3 million in H1 2017.
- The delivery of the migration programme resulted in:
- Income from Lloyds Banking Group (LBG) of £318 million, due following TSB's migration from the LBG IT platform.
- This was offset by a charge of £318 million for migration related costs.
- TSB has recognised additional post-migration costs and foregone income to the value of £176.4 million as follows:
- A provision for customer redress, associated remediation resource costs and fraud costs which total £115.8 million;
- Additional resource and advisory costs to support the remediaton of systems and operating defects of £30.7 million;
- Foregone income of £29.9 million related to waived fees and charges as a result of service disruption.
- TSB’s liquidity is robust while our capital position remains one of the strongest of the UK banks with a fully loaded common equity tier one ratio of 19.2%.
- Total customer deposits at £29.6 billion decreased by £0.9 billion (3.1%) compared to December 2017, and £0.4 billion (1.2%) year-on-year.
- Current account deposits have increased year-on-year, since the end of December 2017, and since the end of March 2018.
- This growth was offset by a planned reduction in savings balances as a result of pricing decisions taken early this year to manage ISA deposit volumes ahead of the 2018 ‘ISA season’ given TSB’s strong liquidity position, in turn supported by extended participation in the Term Funding Scheme.
- TSB advanced £2.6 billion of new mortgage loans in the first half of 2018.
- Total customer lending at £31.0 billion is up 2.8% (£0.8 billion) year-on-year with franchise lending growth offset by the continued roll-off of the Whistletree portfolio (£0.4 billion year-on-year). The mortgage portfolio loan-to-value remained low at 45%.
- Franchise customer lending (excluding the Whistletree portfolio) grew to £29.1 billion, up 4.5% (£1.2 billion) year-on-year from £27.9 billion.
|Balance sheet and capital||At 30 June 2018||At 31 Dec 2017||At 30 June 2017||Change vs. Dec 17||Change vs. June 17|
|Franchise customer lending – excluding Whistletree (£ million)||29,105.0||28,744.8||27,852.6||1.3%||4.5%|
|Total customer lending (£ million)||31,023.7||30,854.2||30,174.5||0.5%||2.8%|
|Total customer deposits (£ million)||29,576.9||30,520.6||29,943.0||-3.1%||-1.2%|
|Group loan to deposit ratio||104.9%||101.1%||100.8%||3.8pp||4.1pp|
|Common Equity Tier 1 capital ratio (fully loaded)||19.2%||20.0%||19.3%||(0.8)pp||(0.1)pp|
|Financial performance||H1 2018||H2 2017||H1 2017||Change vs. H2 2017||Change vs. H1 2017|
|Franchise profit before tax – excluding additional post-migration costs (£ million)||79.9||70.4||49.3||13.5%||62.1%|
|Additional post-migration costs1||(176.4)||-||-||n/a||n/a|
|Franchise (loss) / profit before tax||(96.5)||70.4||49.3||-237.1%||-295.7%|
|Mortgage Enhancement profit before tax (£ million)||-||-||61.7||n/a||n/a|
|Management (loss) / profit before tax (£ million)||(96.5)||70.4||111.0||-237.1%||-186.9%|
|Other one-off items2 (£ million)||(2.4)||(11.6)||(17.2)||-79.3%||-86.0%|
|Banking volatility3 (£ million)||(8.5)||(4.4)||14.5||93.2%||-158.6%|
|Statutory (loss) / profit before tax (£ million)||(107.4)||54.4||108.3||-297.4%||-199.2%|
|Group banking net interest margin4||2.82%||3.02%||3.02%||(20)bps||(20)bps|
|TSB asset quality ratio5||0.27%||0.26%||0.25%||1bp||2bps|
2 Other one off items reflect costs incurred in preparing for and undertaking the IT migration, less the related income received from Lloyds Banking Group.
3 Banking volatility reflects gains and losses on derivatives not in hedge accounting relationships, hedge accounting ineffectiveness, and volatility associated with share schemes.
4 Management basis net interest income divided by average loans and advances to customers, gross of impairment allowance.
5 Impairment charge on loans and advances to customers divided by average loans and advances to customers, gross of impairment allowance.
First half update
We have made clear progress following our recent IT issues, but we won’t rest until we have put things right for customers and we get back to bringing more competition to UK banking.
1. TSB's IT migration
- On 22 April 2018 TSB moved from an IT system rented from LBG to a new IT system provided by Sabis.
- Whilst the migration of all customer records took place as planned, problems were experienced by many customers.
- As TSB outlined to the Treasury Select Committee in June, from internal investigations, it appears that the design of the platform itself is robust, but that the deployment onto the technical infrastructure led to many of the problems.
- As also set out to the Treasury Select Committee, TSB and Sabis therefore shifted the focus of the internal investigation towards the testing regime in Sabis and its providers.
- The TSB Board has commissioned an independent review, from Slaughter and May, to understand why these problems occurred. This review is underway and TSB will report and act on the findings.
2. Putting things right for customers
- TSB’s focus has been on resolving the IT issues and ensuring that impacted customers are compensated properly.
- To respond to the issues, significant resource has been added – with over 1,800 people recruited and 700 Partners redeployed, in addition to around 500 people recruited ahead of migration.
- TSB’s mobile app, online banking, telephone banking and branch service levels are much improved after the issues caused by the switch to our new IT system; our focus remains on minimising the level of future service interruptions for our customers.
- In light of the difficulties experienced, TSB has contacted all customers to explain how it is putting things right.
- As of 25 July TSB has received 135,403 complaints since migration.
- TSB has set up a dedicated team to look at every customer complaint on an individual basis. At present the team has more than 260 people, and we are continuing to add more resource over the coming weeks.
- The Bank continues to combine the desire for speed with the need to ensure that each complaint is considered and resolved properly.
- All of our customers who have complained have been contacted, and 37% of complaints have been resolved.
3. Business update
- Total lending reached £31.0 billion – up 2.8% (£0.8 billion) year-on-year from £30.2 billion.
- TSB extended £1.4 billion in new mortgage loans to help people buy their own home or get a better mortgage deal in the second quarter of the year.
- Around 26,000 customers switched their bank account away from TSB in the second quarter of the year.
- More than 20,000 customers opened a new bank account or switched their account to TSB in the second quarter of the year, with total customer deposits at £29.6 billion.
TSB remains one of the most strongly capitalised banks in the UK with a healthy liquidity reserve. Our absolute focus remains on putting things right and getting back to our mission of making banking better for all UK consumers.
We anticipate operating costs in the second half of the year to remain elevated, mainly reflecting the additional resources added in the first half of the year. The monthly run rate of these costs is expected to decrease as the year progresses.
As outlined to the Treasury Select Committee in June, TSB is discussing with Sabadell Group how TSB might “in source” its IT infrastructure from Sabis and manage it directly.
Whilst the migration to our new platform caused considerable frustration and difficulties for many customers, in the long-run we remain confident that the platform will deliver benefits to consumers – and importantly enable TSB to help more local businesses right across the UK.
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