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MEMO FROM THE FUTURE: LLOYDS BANKING

CEO Edition

BOARD STRATEGY SESSION June 2030

TO: Lloyds Banking Board of Directors

FROM: Charlie Nunn, CEO

DATE: June 2030

SUBJECT: Managing UK Mortgage Portfolio Risk and AI-Powered Operational Efficiency

OPENING

Lloyds has £180 billion in mortgages—the largest mortgage book in the UK. With rising interest rates, house prices declining, and unemployment rising, our mortgage portfolio is increasingly stressed.

AI helps us manage this risk: better credit modeling, early identification of stressed customers, predictive default prevention. This memo proposes aggressive deployment of AI across the mortgage portfolio and retail banking operations.

THE REALITY

Current state: - Mortgages: £180 billion (core business) - Credit losses: Rising (from 0.12% to 0.35% in one year) - House prices: Down 8% from peak - Unemployment: 4.5% (rising from 3.8%) - Branches: 1,100 (declining profitability) - Digital adoption: 65% of customers

Opportunity: - AI can identify stressed borrowers 6-12 months early, enabling intervention - AI can improve underwriting and prevent new bad loans - AI can reduce operational costs 25-30% via branch closures and automation

WHERE WE ARE

Today: - £180B mortgage portfolio (core business) - Retail deposits: £200B - Operating margin: 18% - Dividend yield: 5%

The challenge: Mortgage losses are rising. We need to manage this carefully while the portfolio reprices (as mortgages renew at higher rates, some borrowers default).

THE OPPORTUNITY

Opportunity 1: AI-Powered Mortgage Risk Management

The play: Use AI to identify stressed borrowers, enable early intervention, reduce defaults.

How: - Analyze borrower financials, employment, spending patterns, macroeconomic trends - Predict default risk 6-12 months in advance - Enable early intervention (forbearance, refinancing, restructuring) - Reduce expected losses 20-30%

Estimated impact: - Reduce credit losses by £400-600 million annually - Improve ROA and ROE significantly - Reduce regulatory capital requirements (lower risk = less capital needed)

Timeline: 12-18 months to deploy

Opportunity 2: Operational Efficiency via AI and Branch Rationalization

The play: Use AI to improve operations and close unprofitable branches, reducing costs 25-30%.

How: - Deploy AI for customer service, underwriting, compliance, fraud detection - Close 300-400 unprofitable branches (out of 1,100) - Shift customers to digital and optimized branches - Reduce headcount 15,000-20,000

Estimated impact: - Operating cost reduction: £3-4 billion annually - Improve operating margin from 18% to 22-24%

Timeline: 3-4 years

Opportunity 3: Digital Banking Leadership

The play: Build world-class digital banking experience to retain and acquire customers in competitive market.

How: - Deploy AI-powered digital banking (personalized recommendations, smart budgeting, investment advice) - Build wealth management into retail bank (high-margin business) - Use digital to drive customer stickiness and cross-sell

Estimated impact: - Increase customer lifetime value 20-30% - Maintain market share despite fintech competition - Improve profitability on retained customer base

Timeline: 18-24 months

MY RECOMMENDATION

Pursue risk management as immediate priority, operational efficiency in parallel, digital leadership as longer-term investment.

EXECUTION PLAN

Phase 1: Mortgage Risk Management (2030-2032)

Phase 2: Operational Efficiency (2030-2034)

Phase 3: Digital Banking (2031-2035)

FINANCIAL IMPLICATIONS

By 2035:

Stock target: £2.20-2.50 by 2035 (from £1.60 today).

Charlie

Confidential — Board of Directors Only