Clearly the last 18 months have seen unprecedented change for the worldwide financial services sector and the UK sector has been no different. Within the UK we have seen the nationalisation of Northern Rock, the acquisition of Alliance & Leicester, the break up of Bradford & Bingley and the recapitalisation of the UK banking sector.

Lloyds Banking Group has not been immune from the market dislocation as even the safest banks like Lloyds TSB with strong capital bases and limited exposure to risky assets have been impacted. Like many other financial institutions the Lloyds TSB Corporate Markets business has been significantly affected by the market dislocation; however the relationship focus of our strategy has meant that the impact on the Group's profit before tax was comparatively limited at £1,270 million in 2008. Although significant in absolute terms, this remains relatively low compared to many of our global peers.

Importantly in the current turbulent markets, the enlarged Group has a robust capital position, continues to fund at competitive prices and has diverse funding capabilities. The Group continues to offer security through its relative credit strength and our strong credit ratings are representative of this position. The board remains convinced that the combination of Lloyds TSB and HBOS will bring long-term benefits for our shareholders.

The unprecedented turmoil in the global financial markets has also had a significant impact on bank share prices, many of which have fallen considerably. It is not easy to offer simple explanations as to why the stock market has marked down bank share prices to such a degree in recent months but clearly there are a number of factors at play including the current view of, and future projections for, the UK economy and its impact on future asset write downs and impairments. It is also undoubtedly the case that there is currently a great deal of nervousness in the markets which is reflected in volatile bank share prices.

We are living through difficult times but Lloyds Banking Group remains a strong institution focused on building deeper relationships with our customers and delivering long-term shareholder value.

The strategy for the new Lloyds Banking Group will be similar to that successfully adopted by Lloyds TSB. We will continue to implement our 'through the cycle' customer relationship based approach. The new enlarged entity has significant scale advantage and both organisations enjoy a terrific reputation for managing efficiency. We will adopt the more conservative Lloyds TSB risk disciplines, which have served us well, and we will embed them across the combined business. We will also maintain the economic profit disciplines we use to allocate capital efficiently. At the same time, we will continue to invest in people and systems to serve our customers better and we will look to set customer and staff satisfaction standards that are unparalleled in the market.

The Lloyds TSB management team has a strong track record of delivery built up over the last five years as we have consistently executed against our strategy to attract more customers to our franchise business, to deepen relationships with these customers over time, to deliver sustainable cost and productivity improvements in our operations and to make the most effective use of all our resources. These skills will all remain important for Lloyds Banking Group.

The acquisition of HBOS provides a unique strategic opportunity to create the best financial services business in the United Kingdom. The combination of Lloyds TSB and HBOS creates a new stronger organisation and helps support the stability of the UK financial system. We are bringing together two of the most efficient customer franchises in the country and providing an unrivalled distribution network for our customers. The information advantage from the large customer base is a real differentiating edge, and the size of our operations gives us a clear opportunity for better productivity. We are targeting benefits in excess of £1.5 billion per annum through cost synergies, or some 14 per cent of the enlarged Group's cost base, by 2011. The enlarged Group has the capital strength and diverse funding capabilities which will enable us better to meet the current industry challenges and continue to lend to and support our customers. Despite our relative strength, the shape of the financial services markets is changing all the time and we will continue to operate in highly vibrant and competitive markets.

We believe we have a great case for value creation in the long-term, through building the largest financial services company in the UK, with the attendant benefits of a strong market position and large scale. All in, we believe this is a unique opportunity to create the UK's leading financial services company.

The Government's recapitalisation of the banking sector in October 2008 was necessary to restore confidence and stability to the financial services sector at that time, and although they now hold a significant stake in the organisation we are comfortable that the Government's investment was the right way of achieving that capital increase for our company.

It is important to note that the board believes that HM Treasury will act as a value-oriented shareholder with regard to the strategic development of the Group and the Government has stressed the importance of institutional and individual investors as well as HM Treasury.

A number of specific requirements stem from Government ownership which primarily relate to corporate governance and lending, as outlined below. Dividend restrictions, as outlined below, have also been introduced due to the presence of the Government preference shares.

LENDING

We have a commitment to maintain the availability and active marketing of competitively priced mortgage lending and lending to Small and Medium Enterprises (SMEs) but do not expect any impact on our lending policies or on our conduct of business. As a major lender in the UK economy focused on developing enduring relationships with our customers, we recognise that our success is based on a commitment to helping our customers throughout the economic cycle. We are able to do this because we have a robust capital position.

We remained open for business last year and grew our lending prudently. Lending to SMEs grew by 20 per cent at Lloyds TSB in 2008 and over 100,000 small businesses chose to bank with Lloyds TSB last year. Both Lloyds TSB and HBOS also launched charters setting out the practical steps they will take to support small businesses through the economic downturn. In addition, on the retail side, we are the biggest mortgage provider in the first time buyer market and more basic banking customers bank with Lloyds Banking Group than any other bank.

CORPORATE GOVERNANCE

The Government are also keen to see an enlarged board and we are appointing two new independent non-executive directors, in consultation with HM Treasury (See the Non-executive Directors section). It is important to note that the new directors will have precisely the same role and responsibilities as any other director on the board.

DIVIDEND

As part of the HM Treasury recapitalisation scheme, the Group was required to suspend the payment of cash dividends to ordinary shareholders until the HM Treasury preference shares issued as part of the scheme are repaid. In the meantime however, as we indicated in our shareholder circular last year, the board has approved a capitalisation issue of one for 40 ordinary shares held.

No, Lloyds TSB has clearly demonstrated a strong track record of delivery with a prudent risk appetite and the new Lloyds Banking Group has no intention of changing this successful approach.

Lloyds Banking Group will continue to take a prudent approach to risk management and our philosophy remains to take a 'through the cycle' relationship based approach to lending. We are committed to this relationship approach, are focused on the needs of our customers and recognise that we have a role to play in helping our customers through the economic downturn, particularly when they face financial difficulty. The new Group has already exited a number of non core areas in which HBOS previously participated and will continue to assess participation in business areas on a conservative basis.

Our conservative approach to managing the Group's risk has meant that we remain well positioned to capture growth opportunities at a time when others have pulled back from the market. As a result, we have been able to capture market share in a number of key areas without impacting the overall quality of business.