Natwest Group Plc · LSE:NWG
Natwest — The Royal Bank of Scotland Group — Investor Day (September 2012)
46 slides from Natwest's investor day presentation, Sep 24, 2012
Slide 1: RBS Markets Investor Roundtable
RBS Markets Investor Roundtable September 24th 2012
Slide 2: Important Information
Important Information Certain sections in this document contain ‘forward-looking statements’ as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words ‘expect’, ‘estimate’, ‘project’, ‘anticipate’, ‘believes’, ‘should’, ‘
Slide 3: Today's speakers
Today’s speakers John Hourican Peter Nielsen CEO Markets & CEO Markets International Banking Chris Kyle David Coleman CFO Markets & CRO Markets & International International Banking Banking 3
Slide 4: Agenda
Agenda 1 Introduction – overview of strategic changes John Hourican Page 5-10 2 Markets update Peter Nielsen Page 12-26 3 Financial performance and resource management Chris Kyle Page 28-32 4 Risk management David Coleman Page 34-38 5 Conclusion Peter Nielsen Page 40 4
Slide 5: Summary
Summary Delivered our Reduced size of the business and delivered critical profits to the Group promises Business exits announced in January on track Product engine for the Group’s Corporate clients and serves the needs of Markets now a the Financial Institution clients focused business Supports the
Slide 6: GBM strategy delivered ahead of plan
GBM strategy delivered ahead of plan Profit ahead of expectations... …balance sheet managed down… …reduced risk throughout 2009 - 2011 Cumulative Operating Profit, £bn Third Party Assets, £bn Markets Business Daily Revenue Volatility3, £m -56% 10.7 874 48 Transferred 9.1 169 to Non-Core in 2009 501
Slide 7: Clear set of actions in 2012 to continue delivery
Clear set of actions in 2012 to continue delivery Industry developments RBS ‘5 tests’ RBS actions 1. Focused on strongest businesses and exited loss-makers 1. Top tier competitive Weak macro-economic position in enduring 2. Redrawn operating model environment outlook, customer franchise • Formed “In
Slide 8: Resulting business re-weights overall Group business mix
Resulting business re-weights overall Group business mix FY07 revenues1, old structure FY11 revenues2, new structure Revenues Markets Markets 20% activities GBM represent 34% lower 11% percentage International of Group 66% Banking 69% revenues Rest of Group Rest of Group Total 80% FY07 RWA, old stru
Slide 9: New model: clear client focus and product engines support Group
New model: clear client focus and product engines support Group Markets International Banking Financial Institutions Corporates Currencies Consumer, Retail & SSAs & SWFs1 Corporate Coverage Healthcare Rates, Prime Services & Client Execution Banks Asset Backed Products and Energy & Resources Investo
Slide 10: Business exits and restructure well progressed
Business exits and restructure well progressed = On track Progress update Status Exit Equities • UK Corporate Broking sold to Jefferies Complete • Cash Equities • ECM • Dutch business sold to ABN AMRO Complete • Corporate Broking • Agreed sale to CIMB of Asia Pacific Equities Effect transfer of asse
Slide 11: Agenda
Agenda 1 Introduction – overview of strategic changes John Hourican Page 5-10 2 Markets update Peter Nielsen Page 12-26 3 Financial performance and resource management Chris Kyle Page 28-32 4 Risk management David Coleman Page 34-38 5 Conclusion Peter Nielsen Page 40 11
Slide 12: Markets: key messages
Markets: key messages Focused business embedded in RBS Group: – Product engine for the Group’s Corporate and Retail clients – Serves the Group’s Financial Institution (FI) clients What is Markets? – Supports the three pillars of the Markets & International Banking proposition – risk management, debt
Slide 13: Markets proposition today
Markets proposition today Summary Markets supports the three pillars of the Markets & International Banking proposition: • Risk management – comprehensive expertise in fixed income and FX products, liquidity and balance sheet management • Debt financing – vanilla and structured bonds, loans and bala
Slide 14: Key product engines for Group, accretive to RoE
Key product engines for Group, accretive to RoE Markets connectivity with RBS Group clients 2011 revenue from sales of Markets products to clients of Corporate Markets Retail other divisions Banking and £m International Wealth Banking 1,000 Retail Currencies Other Products Risk Management NatWest &
Slide 15: Markets has a diverse portfolio of businesses
Markets has a diverse portfolio of businesses Powerful Corporate and Bank franchises Leading UK player, strong in EMEA and US FY11 revenue split by client type1 FY11 revenue split by geography1 SSAs Other FIs APAC Asset Managers 9% 7% 3% Americas UK 1% Corporates 31% Hedge Funds 8% 33% Insurers 9% 3
Slide 16: Markets now a smaller, less resource intensive business
Markets now a smaller, less resource intensive business Income, Costs & Headcount Assets Revenues1 Third Party Assets (TPAs) £bn 6.2 £bn 0.3 4.4 340 314 303 0.2 3.3 2 2.8 1 0 ~250 Returns 6.0 0.1 0.0 4.2 3.2 2.8 338 313 302 Return on Equity4 250 % 2010 2011 H1’11 H1’12 Costs £bn 3.4 3.5 Dec Dec June
Slide 17: In our chosen businesses RBS Markets ranks #5
In our chosen businesses RBS Markets ranks #5 Full Product Basis – FY’11 Revenues Chosen Businesses – FY’11 Revenues (FY’11) (FY’11) “Chosen businesses” blue bar Cash Equities Cash Equities for competitors excludes Cash Equities, Commodities, Exotic Commodities Credit, US + Japan Investor Commoditie
Slide 18: Efficient in generating returns from cost base and balance sheet
Efficient in generating returns from cost base and balance sheet Profitability11 Profitability Headcount Reduction22 Headcount Reduction (FY’11) (June ’12 vs. year end ‘10) #4 #1 38% 28% 22% -6% -6% -6% 20% 20% 20% -9% -8% 17% -10% -10% -10% 12% -14% 9% -4% -29% RBS RBS Balance Sheet3 Income From Tr
Slide 19: Prominent in industry awards
Prominent in industry awards #1 USD Western Europe Inflation Derivatives Rates #2 Sterling Cash House of the Year Interest Rate Derivatives #3 Overall Rates 2012 House of the Year Best Debt House Best for Sterling in the UK Issues Best Offshore RMB House Debt Financing Most Innovative Deal #1 Corpor
Slide 20: Clear strategic response to challenging external context
Clear strategic response to challenging external context Markets strategic context Markets strategic response Macro- Weak global economy economic 1 Eurozone instability environment Defend Declining revenue pools product Increased capital requirements and strengths challenged funding conditions 5 2 B
Slide 21: Defend product strengths and sensibly scale
1 Defend product strengths and sensibly scale Defend product strengths Capitalise on growth opportunities De-risk and reshape: • Scale back resource-intensive activities in new capital regime Rates • Focus on shorter-dated, more £1.5bn1 vanilla transactions Rebalance product mix: • Increase proporti
Slide 22: Further develop Financial Institution & Corporate client franchises
2 Further develop Financial Institution & Corporate client franchises Broaden the Corporate client franchise with Reshape the FI client franchise – examples Group partners – examples • Moving away from dependence on • Partnering with International Banking Growing business Banks Delivering and UK Cor
Slide 23: Deliver cost, control and capital agenda
3 Deliver cost, control and capital agenda Cost re-engineering Control agenda Investment1 Smaller, more focused business 623 (£m) 504 Focus on aged Historic stress loss (£m) 393 418 Product inventory, stress 210 217 and Risk loss (halved in last year), etc. 0 6-11 8-11 10-1112-11 2-12 4-12 6-12 2008
Slide 24: Manage down balance sheet without damaging revenues
3 Manage down balance sheet without damaging revenues Steps to reduce capital Balance sheet reduction in practice: Rates without proportionate reduction in revenues Existing portfolio (“back book”) Given heavy impact of Basel 2.5 and Basel 3 capital regulations Rates has been a major focus Infrastru
Slide 25: Positioned for market structure changes
4 Positioned for market structure changes RBS Markets actions Regulations Impact Higher capital 1. Greater cost of Growing Futures requirements Enhanced electronic offering compliance Reduced risk Greater uncertainty of market outcome 2. Move from derivatives to warehousing Building Clearing for key
Slide 26: Rebuild people platform
5 Rebuild people platform RBS management actions Leadership Management renewal, succession and stability Context Transformational Leadership programmes and talent management, focused on the middle section of the staff population • Historic record of industry excess, which People Stratified approach:
Slide 27: Agenda
Agenda 1 Introduction – overview of strategic changes John Hourican Page 5-10 2 Markets update Peter Nielsen Page 12-26 3 Financial performance and resource management Chris Kyle Page 28-32 4 Risk management David Coleman Page 34-38 5 Conclusion Peter Nielsen Page 40 27
Slide 28: Markets delivered a robust performance in 2011 and H1 '12
Markets delivered a robust performance in 2011 and H1 ’12 £m 2011 H1'11 H1'12 Total Income ongoing 4,997 3,565 3,154 Inter-divisional revenue share (767) (412) (360) Reduction in Markets Run-Off 185 123 6 revenues in line with Total Income 4,415 3,276 2,800 peers (H1 vs. H1) Direct Expenses Tight fo
Slide 29: Markets Balance Sheet has been actively managed down
Markets Balance Sheet has been actively managed down Third Party Assets1 338 5% £bn 313 302 2% 0% 6% Reverse Repos 95 9% 100 98 1% Reverse Repos Debt Securities 87% highly liquid 96 Cash & T-Bills 95 90 Other2 76% 39 Loans & Advances 28 27 40 (Collateralised)3 28 34 Loans & Advances 43 41 39 (Uncoll
Slide 30: Unsecured wholesale funding requirement reduced
Unsecured wholesale funding requirement reduced Managing down unsecured wholesale funding requirement • Unsecured wholesale funding s has fallen 16% in H1 2012 Unsecured Wholesale Funding Requirement £bn 83 • This has been driven by initiatives to: 6 – Increase secured deposits 77 especially with Ce
Slide 31: Markets has clear plans to deliver its medium-term RWA target
Markets has clear plans to deliver its medium-term RWA target Mitigating the impact of Basel 3 on regulatory capital • Uplift to 2013 Risk Weighted Assets estimates driven by £bn estimated impact ~145 of CRD IV ~15 ~35 changes on ~10 existing portfolio 108 ~10 ~110 • Note that rules are not yet fina
Slide 32: Costs being managed down, but more work to do
Costs being managed down, but more work to do Markets headcount Markets total costs (£m) Key messages -14% • 14% reduction in Markets 14,601 3,444 3,481 headcount (2010-H1’12) 14,197 reflecting investment in Investment 2,673 technology, reduced 12,566 Group1 699 771 2,965 volumes and integration Run
Slide 33: Agenda
Agenda 1 Introduction – overview of strategic changes John Hourican Page 5-10 2 Markets update Peter Nielsen Page 12-26 3 Financial performance and resource management Chris Kyle Page 28-32 4 Risk management David Coleman Page 34-38 5 Conclusion Peter Nielsen Page 40 33
Slide 34: Risk management controls and standards clearly defined
Risk management controls and standards clearly defined Markets Business 1st line Front Office Culture defined and expectations clear of defence Back Office Clear expectations at Group and Markets level Calibrated to risk appetite Risk governance and controls in place 2 line of nd Governance processe
Slide 35: Continued progress in the Risk agenda
Continued progress in the Risk agenda Group Risk Appetite Framework now embedded in strategy Risk Appetite Risk Appetite and Strategy alignment established via regular stress testing Framework Risk Capital Management team established to deliver divisional stress testing Limit control frameworks cali
Slide 36: Improved risk metrics and lower P&L volatility
Improved risk metrics and lower P&L volatility Aged Inventory VaR and Historic Stress Metrics £bn 3.7 Methodology Historic Stress Loss 3.3 120 VaR £m 2.4 80 2.2 40 0 0 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 1 day 99% Trading VaR Historic Stress Loss Jun 10 Jun 11 Dec 11 Jun 12 Disciplined
Slide 37: Diversified, high quality portfolio, limited exposure to Eurozone periphery
Diversified, high quality portfolio, limited exposure to Eurozone periphery Geographic Distribution of asset portfolio (June 2012) Sector Distribution (June 2012) 4% 3% 4% 7% 5% 9% 22% APAC Americas 51% UK 11% 50% 14% EMEA Bank s Sove re igns NBFIs Ins ure rs & Funds 20% Se curitis ations Prope rty
Slide 38: Management of Counterparty Derivative Risk
Management of Counterparty Derivative Risk Mark to Market: Derivative Exposures Uncollateralised MTM breakdown June ‘12 MTM derivative exposures June ‘12 £bn £bn 28 Equity 472 472 8 Non-Investment Grade 5 15 Credit 62 Currency 17 Investment grade Sovereign 407 2 Interest rate 390 Uncollateralised MT
Slide 39: Agenda
Agenda 1 Introduction – overview of strategic changes John Hourican Page 5-10 2 Markets update Peter Nielsen Page 12-26 3 Financial performance and resource management Chris Kyle Page 28-32 4 Risk management David Coleman Page 34-38 5 Conclusion Peter Nielsen Page 40 39
Slide 40: Conclusion
Conclusion Delivered our Reduced size of the business and delivered critical profits to the Group promises Business exits announced in January on track Product engine for the Group’s Corporate clients and serves the needs of Markets now a the Financial Institution clients focused business Supports t
Slide 41: Appendix
x RBS Group 41
Slide 42: Rates – De-risk and Reshape
Rates – De-risk and Reshape H1 2011 FY 2011 H1 2012 FY 2011 Market Revenues, £m 1,036 1,474 1,217 Revenue 6 Position & Ranking1 Financial % of Total Markets 29% 29% 39% Productivity 1 Performance Revenues Ranking1 2012 headlines • Half year performance 17% ahead of 2011, driven mainly by strong perf
Slide 43: Currencies – Leverage Group Strengths to Grow Share
Currencies – Leverage Group Strengths to Grow Share H1 2011 FY 2011 H1 2012 FY 2011 Market Revenues, £m 508 1,060 421 Revenue 5 Position & Ranking1 Financial % of Total Markets 14% 21% 13% Productivity 2 Performance Revenues Ranking1 • Running in line with 2011 with Spot FX more robust than FX Optio
Slide 44: Asset Backed Products – Re-balance Product Mix
Asset Backed Products – Re-balance Product Mix H1 2011 FY 2011 H1 2012 FY 2011 Market Revenues, £m 984 1,254 805 Revenue 2 Position & Ranking1 Financial % of Total Markets 28% Productivity 1 25% 26% Performance Revenues Ranking1 2012 headlines • Strong revenues driven by good trading client flow in
Slide 45: Credit Markets – Strengthen Alignment between Origination & Trading
Credit Markets – Strengthen Alignment between Origination & Trading Including DCM H1 2011 FY 2011 H1 2012 Excluding DCM FY 2011 Market Revenue 10 Position & Revenues, £m 638 616 497 Ranking1 Financial % of Total Markets 18% 12% 16% Productivity NM2 Performance Revenues Ranking1 2012 headlines • Cred
Slide 46: Investor Products & Equity Derivatives – Focus on strengths
Investor Products & Equity Derivatives – Focus on strengths in the Investor Product Suite H1 2011 FY 2011 H1 2012 FY 2011 Market Revenues, £m 399 593 214 Revenue 7 Position & Ranking1 Financial % of Total Markets 11% Productivity 7 12% 7% Performance Revenues Ranking1 2012 headlines • Revenues down
The Royal Bank of Scotland Group — Investor Day (September 2012) on 6ix