Natwest Group Plc · LSE:NWG
Natwest — The Royal Bank of Scotland Group — Morgan Stanley Financial Services Conference 2014
35 slides from Natwest's conference presentation, Mar 25, 2014
Slide 1: Building a truly customer centric bank
Building a truly customer centric bank Ross McEwan, Chief Executive Morgan Stanley Financial Services Conference – London 25th March 2014
Slide 2: Agenda
Agenda 1 Strategy outline 2 Building capital strength 3 Driving sustainable returns 4 Growing our franchises 5 Our Investment Case 2
Slide 3: First priorities – recap
First priorities – recap Establish RBS Capital Resolution (Internal Bad Bank), Citizens IPO announced 3 Articulate capital plan 3 Reset relationship with HMT, PRA, UKFI and the Chancellor 3 Set out clear direction on what we want to be 3 Resolve the Dividend Access Share – underway 3 3
Slide 4: Our vision for a bank that earns your trust
Our vision for a bank that earns your trust Be reliable, consistent and simple to do business with Earn our customers' trust and win more of their business Generate reliable returns, positive organic cash flow and pay an ordinary dividend Our ambition: to be number one for customer service, trust an
Slide 5: We must invest in our customer franchises
We must invest in our customer franchises We have market leading franchises… …but they are vulnerable if we don’t act 3 #2 UK Retail current accounts 2 Customers’ expectations are rising and 3 #1 UK Small Business Banking their needs are rapidly evolving 3 #1 UK Wealth Management 2 We make it too co
Slide 6: We must reduce cost and complexity further
We must reduce cost and complexity further We have made great progress in …but our cost base and organisational downsizing and risk reduction… model still reflect our past ambition -54% -18% ~1,600 16 13 740 TPAs, £bn Costs, £bn 2007 2013 2008 2013 Loan : deposit ratio 94% Siloed organisation
Slide 7: We must generate lower risk, strong and sustainable earnings
We must generate lower risk, strong and sustainable earnings We have been pro-active in refocusing on …but most of our businesses continue to where we have a competitive advantage… generate sub-par returns RBS FY 2013 Core Return on Equity by division excluding RCR impact, % We made significant pr
Slide 8: Our strategy: UK focused Retail & Commercial bank
Our strategy: UK focused Retail & Commercial bank With Markets and international capabilities to meet our clients’ needs, primarily focusing to support their UK and Western European operations Business mix shift towards the UK… …with emphasis on Retail & Commercial Illustrative split by total income
Slide 9: Organised to best serve our customers’ needs
Organised to best serve our customers’ needs From 7 Divisions to 3 businesses, each serving specific segments of customers with similar needs Rebalancing from c.70% of our people in “back office” support and control roles to a majority in customer-facing roles, with remuneration of all staff lin
Slide 10: We will remove duplication and complexity
We will remove duplication and complexity Functions siloed & duplicated across divisions Current proposition: very complex and duplicative Divisions 109 Credit card propositions Business Group Services Centre Intl. UK Retail Wealth UK Corp. Markets Non-Core Ulster Banking Branch/ & Bus. & Comms & AB
Slide 11: Agenda
Agenda 1 Strategy outline 2 Building capital strength 3 Driving sustainable returns 4 Growing our franchises 5 Our Investment Case 11
Slide 12: CT1 ratio of 12+% by the end of 2016
1 CT1 ratio of 12+% by the end of 2016 FLB3 CT1 ratio, % Key drivers Potential uses of capital Citizens divestment Business and loan growth RCR capital release Buffer for potential future dividends Earnings Volatile items e.g. conduct and ≥12% litigation costs Williams & Glyn divestmen
Slide 13: Agenda
Agenda 1 Strategy outline 2 Building capital strength 3 Driving sustainable returns 4 Growing our franchises 5 Our Investment Case 13
Slide 14: Balance sheet rationalisation nearing successful conclusion
Balance sheet rationalisation nearing successful conclusion Funded assets and Total income, £bn 1,563 >£800bn balance sheet reduction 740 Further rationalisation Citizens divestment: £75bn ~600 Williams & Glyn divestment: £20bn RCR run-down: £29bn Growth in go- Reduced C&I: ~£65bn forward ba
Slide 15: Now we must focus on driving sustainable returns
Now we must focus on driving sustainable returns Return on Tangible Equity, % ~1.0% ~9-11%2 ~4.0% ~3.0% ~2.5%1 1 2 3 2013 underlying RCR run-down Cost reduction Lower Medium- RoTE impairments term target3 RCR run-down ~£2bn medium-term Significant reduction complete cost reductions4 in Ulster
Slide 16: Good progress in initial RCR run-down; guidance improved
1 Good progress in initial RCR run-down; guidance improved -52% 137 (12) (11) (45) 65 (4) 68% 47 coverage (6) RWAe, £bn (5) TPAs, £bn (5) 29 (2) RCR H113 Disposal Run-off Impairment 1 Other 2 RCR FY13 Target c.£2bn capital release Firmed up future reduction targets: TPAs c£23bn FY14, £11-15bn FY15
Slide 17: We will make our cost base fit for purpose
2 We will make our cost base fit for purpose Operating expenses, £bn 13.3 >£5bn cost reduction ~(3.1) ~(2.2) 0.4 ~8 Long-term cost:income ratio target: ~50% FY13 Disposals Targeted EU resolution Medium- & run-off cost savings fund, bank term target (ongoing) levy1 Our historic scale and complexity
Slide 18: Targeted cost savings to support the front line
2 Targeted cost savings to support the front line Targeted ongoing business cost reductions, £bn Businesses ~£0.3bn Property ~£0.3bn Cost reductions focused on IT & Ops1 ~£0.8bn rebalancing c.70% of our people in “back office” support and control roles to a majority in customer-facing roles Function
Slide 19: Underlying impairments starting to come down
3 Underlying impairments starting to come down Impairments coming down Lead impairment indicators improving Impairment charge, £m Loans under special monitoring – Wholesale Watch List2, £bn -25% 5,279 60 -40% 3,9421 36 0.4-0.6% 1.2% 1.0% of L&A 2014 of L&A of L&A 2012 2013 Dec-12 Dec-13 Reduction
Slide 20: Efficient capital redeployment will underpin returns
Efficient capital redeployment will underpin returns Steady state1 RoE expectations and capital usage per division Personal and Commercial and Business Banking Private Banking RoE: 15+% RoE: 15+% FLB3 RWAs: ~£300bn Corporate and Institutional Banking RoE: ~10% Steady state RoTE target: 12+% 1 Steady
Slide 21: Agenda
Agenda 1 Strategy outline 2 Building capital strength 3 Driving sustainable returns 4 Growing our franchises 5 Our Investment Case 21
Slide 22: The challenge we face – growth
The challenge we face – growth NIM consistently improving… …but asset declines led to lower NII Group Net Interest Margin, % Net interest income and Average interest earning assets, £bn +9bps -16% 2.01% 2.10% - 2.15% 650 1.92% 594 544 Expect some underlying ‘core’ loan growth 12.3 11.4 11.0 NII (£bn
Slide 23: Income initiatives – highlights
Income initiatives – highlights Personal & Business Commercial & Private Corporate & Institutional Banking Banking Banking Mortgages ‘one and done’ Deepen relationships with Increase penetration of Offer simpler and more cost internationally active international products effective products C
Slide 24: Wealth – strong business which needs to be better connected
1 Wealth – strong business which needs to be better connected : Leading UK franchise with …but revenues have remained flat and international reach… RoE has been declining Total income, £m 3 #1 UK, Assets under Management -7% 3 #2 UK, 70,000 clients 1,170 1,093 3 Top 20 Switzerland, 20,000 clients 3
Slide 25: Corporate showing early signs of growth
2 Corporate showing early signs of growth £bn Growable book Non-growable book1 72 72 73 Growable book 33 32 30 Non-growable book Q213 Q313 Q413 Gross new lending improving NatWest outperformed market for start-ups through H2, increasing market share in a buoyant market Close to ‘hitting the fl
Slide 26: SME sector is a key driver of the UK economy
3 SME sector is a key driver of the UK economy Share of businesses in the UK private sector and their associated employment and turnover, by size of business, start of 2012 Businesses Employment Turnover 99.2% SMEs account for nearly 50% of all private sector turnover in the UK 47.0% 51.2% 40.9% 34.
Slide 27: We continue to invest in our leading SME franchise
3 We continue to invest in our leading SME franchise We are the UK bank best able to support business customers throughout their entire lifecycle SME franchise As businesses grow and their needs become more complex, our proposition changes with them Personal & Business Banking Commercial & Private
Slide 28: We will continue to transform Ulster Bank
4 We will continue to transform Ulster Bank Ulster Gross Third Party Assets, £bn 45 ~(15) ~(10) ~15-20 ~5 Northern Ireland ~10-15 Republic of Ireland FY13 Transferred to RCR Tracker mortgages ‘Future’ Ulster Improving business volumes, albeit from a very low base; NIM improving Need to rationali
Slide 29: Within C&IB, Markets will become an important product set
5 Within C&IB, Markets will become an important product set Industry becoming much more capital intensive (Volcker, ICB etc.) Substantial Markets business becoming Steady- 2013 highly challenged state1 UK super-equivalent rules and capital Income £3.3bn ≤£2bn requirements make UK investment ba
Slide 30: Citizens – good foundation to deliver improving returns
6 Citizens – good foundation to deliver improving returns Citizens operates in a 12 state footprint ...with an established presence within our within 3 geographic regions... footprint and nationally Mid West Mid-Atlantic New England Dimension Rank Assets ($122bn) #13 National Loans ($87bn) #12 Depos
Slide 31: However, there is more work to be done for Citizens
6 However, there is more work to be done for Citizens Operating RoTCE Efficiency Ratio % % 12%+ 71% 69% 10% 65% Low 60s <60% 4.7% 4.8% 5.1% 2011 2012 2013 Medium- Long-term 2011 2012 2013 Medium- Long-term term term NIM Sizable gap to peer RoTCE remains % Lower NIM drives RoTCE gap, reflects ass
Slide 32: Agenda
Agenda 1 Strategy outline 2 Building capital strength 3 Driving sustainable returns 4 Growing our franchises 5 Our Investment Case 32
Slide 33: How we define our long-term success
How we define our long-term success Service #1 Net Promoter Score for each of our segments Customers Trust #1 trusted bank in the UK Great place to work People Engagement Index ≥ Global Financial Services norm1 Attractive and consistent returns Return on Tangible Equity 12+% Cost:income ratio ~50% I
Slide 34: Our Investment Case
Our Investment Case Market leading businesses in large, attractive markets Attractive returns delivered medium-term Lower risk, sustainable retail & commercial based earnings Robust capital position, model capable of paying dividends Continued transparency; track and report progress 34
Slide 35: Forward Looking Statements
Forward Looking Statements 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’, ‘shoul
The Royal Bank of Scotland Group — Morgan Stanley Financial Services Conference 2014 on 6ix