Scope Ratings pointed out that, well ahead of the January 2019 deadline, Lloyds Banking Group PLC has made the necessary changes to its organisational and legal structure to implement UK ring-fencing requirements. Lloyds Bank PLC, comprising the majority of the group’s retail and commercial banking activities, will become the future ring-fenced bank. Meanwhile, Lloyds Bank Corporate Markets PLC (LBCM) which will be active in lending to financial institutions, financial markets derivatives and capital markets, will be a non-ring-fenced bank.

As detailed in its February 2018 report looking at the implications of UK ring-fencing requirements, Scope considers ring-fencing to be mainly for the benefit of retail customers rather than institutional investors. Further, Scope’s analysis focuses on an operating company’s business model, financial metrics and importance to its group rather than on its ring-fencing status.

Scope affirmed the existing ratings on various Lloyds group entities. In addition, Scope assigned first-time Issuer Ratings of A+ and A to Lloyds Banking Group PLC and to LBCM, respectively. The one-notch differential between LBCM’s Issuer Rating and its parent’s is based on the former’s potentially less central role in the group’s strategy and on its inherently more volatile business mix.

The following rating actions have been taken regarding the various entities of the Lloyds group:

Lloyds Banking Group PLC

• Assigned new Issuer Rating of A+.
• Affirmed A rating on senior unsecured debt (MREL eligible).
• Affirmed BB+ rating on AT1 securities.

Lloyds Bank PLC

• Affirmed Issuer Rating of A+.
• Affirmed A+ rating on senior unsecured debt (not MREL eligible).
• Affirmed S-1+ rating on short-term debt.

Lloyds Bank Corporate Markets PLC

• Assigned new Issuer Rating of A.

All ratings have a Stable Outlook.

Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.

Methodology
The methodology used for this rating(s) and/or rating outlook(s) Bank Rating Methodology is available on www.scoperatings.com.
Historical default rates of Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definition of default as well as definitions of rating notations can be found in Scope’s public credit rating methodologies on www.scoperatings.com.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rating was not requested by the rated entity or its agents. The rated entity and/or its agents participated in the rating process. Scope had no access to accounts, management and/or other relevant internal documents for the rated entity or related third party.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity and third parties.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory Disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst Pauline Lambert, Executive Director
Person responsible for approval of the rating: Sam Theodore, Group Managing Director
Lloyds Bank PLC issuer rating/outlook was first released by Scope on 02.04.2014. The rating/outlook was last updated on 01.06.2016.
Lloyds Bank PLC short-term rating/outlook was first released by Scope on 22.05.2014. The rating/outlook was last updated on 26.10.2017.
Lloyds Bank PLC senior unsecured debt rating/outlook was first released by Scope on 02.04.2014. The rating/outlook was last updated on 01.06.2016.
Lloyds Banking Group PLC issuer rating/outlook was first released by Scope on 19.07.2018.
Lloyds Banking Group PLC Senior unsecured debt rating/outlook was first released by Scope on 02.04.2014.
Lloyds Banking Group PLC AT 1 rating/outlook was first released by Scope on 09.10.2014. The rating/outlook was last updated on 12.03.2015.
Lloyds Bank Corporate Markets PLC issuer rating/outlook was first released by Scope on 19.07.2018.

Potential conflicts
Please see www.scoperatings.com. for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
© 2018 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstrasse 5 D-10785 Berlin.

Scope Ratings GmbH, Lennéstrasse 5, 10785 Berlin, District Court for Berlin (Charlottenburg) HRB 192993 B, Managing Director: Torsten Hinrichs.