Natwest Group Plc · LSE:NWG
Natwest — The Royal Bank of Scotland Group — Investor Day (July 2012)
55 slides from Natwest's investor day presentation, Jul 2, 2012
Slide 1: US R&C Investor Roundtable
US R&C Investor Roundtable Ellen Alemany, Chief Executive Officer July 2, 2012 US R&C Executive Committee
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: Contents
Contents 1 US Retail & Commercial Banking Overview Ellen Alemany 2 Consumer Banking Brad Conner 3 Commercial Banking Robert Matthews 4 Financial Performance John Fawcett 5 Summary Ellen Alemany 6 Appendix 3
Slide 4: 1. US R&C Overview
1. US R&C Overview Ellen Alemany, Chief Executive Officer
Slide 5: Citizens' scale presents an attractive opportunity...
1 Citizens’ scale presents an attractive opportunity... Citizens is the 12th largest bank in the US ($130BN in assets) and offers the personal service of a community bank with the conveniences and expertise of a global financial services firm Citizens operates in a 12 state footprint ...with the 9th
Slide 6: ...and is important to RBS's geographic and business mix
1 ...and is important to RBS’s geographic and business mix A strong fit for the Group… … and a key component of targeted balance RBS Core 2011 Revenue Distribution % US R&C 13% Markets R&C Total 27% 73% UK Retail 24% International 10% Ulster 4% Access to the worlds largest economy Wealth 5% UK Cor
Slide 7: Citizens has an experienced management team...
1 Citizens has an experienced management team... Ellen Alemany Chief Executive Officer 35 Years in Banking Brad Conner Robert Matthews David Bowerman Vice Chairman Vice Chairman Vice Chairman Consumer Banking Commercial Banking Business Services 25 Years 26 Years 25 Years Robert Nelson John Fawcett
Slide 8: ...and focused strategic priorities
1 ...and focused strategic priorities Our credo and brand remain the foundation of who we are and what we stand for. Our “back-to-basics” strategy focuses on core banking products, and competes on service & capabilities rather than price GOOD BANKING IS GOOD CITIZENSHIP 8
Slide 9: Our strategy is working...
1 Our strategy is working... Citizens Source: Regulatory Y-9C Filings Peer Average NORMALIZED ROE %* NET INTEREST MARGIN % COST / INCOME % 73.4 11.25 3.54 3.51 3.48 68.4 67.0 67.7 9.44 3.22 63.6 64.3 60.8 61.9 8.75 2.96 2.95 2.80 2.50 4.91 5.07 0.34 (0.75) (5.41) FY 09 FY 10 FY 11 Q1 12 FY 09 FY 10
Slide 10: ...despite the challenging regulatory environment
1 ...despite the challenging regulatory environment Quantity and velocity of regulatory changes pose significant challenges to all US banks resulting in an industry wide lowering of returns IMPACT Regulation E and the Durbin Amendment impacted fee income by ~$300 TO CITIZENS million Annual costs
Slide 11: We are investing in our future
1 We are investing in our future Citizens has historically under-invested in technology, and over the past few years has made strategic investments that strengthen our value proposition and improve back office efficiencies Capital Investment 5.4% $ in Millions 4% of Total Revenue 4.8% % of revenue 3
Slide 12: We strive to become more efficient...
Citizens Peer Average 1 We strive to become more efficient... Source: Regulatory Y-9C Filings and SNL Financial (for analyst estimate on peers) Cost to income ratios have reset in the industry due to the impact of the regulatory environment on fee income and increased expenses to comply with the new
Slide 13: ...and expect our profitability to improve...
1 ...and expect our profitability to improve... Core US R&C - IFRS Core US R&C earnings rebound continues: 2010 ROE 3.7%, 2011 ROE 6.3%, Q1 12 ROE 8.4%... targeting over 12% PROJECTION 12%+ 8.4% 6.3% FY 11 Q1 12 Improved Loan Fee Expenses RWAs Medium Actual Actual Funding Growth Income Term Cost Gro
Slide 14: ...as we continue to shift our business mix
1 ...as we continue to shift our business mix Citizens continues to focus on balancing its loan mix by growing its Commercial Business to diversify its portfolio and drive increases in NIM% and fee income Citizens FY 09 FY 11 Medium Term Target 13% 20% 49% 49% 50% 50% 38% 31% Consumer Commercial Non
Slide 15: 2. Consumer Banking
2. Consumer Banking Brad Conner, Vice Chairman
Slide 16: The consolidated Consumer Banking division...
2 The consolidated Consumer Banking division... US R&C recently formed a consolidated Consumer Banking division by combining all product and distribution channels under a single management structure The synergies of this unified division more effectively promote new customer acquisition, encourage
Slide 17: ...posted solid improvement...
2 ...posted solid improvement... Despite the challenging regulatory environment for consumer focused banking, the Consumer Banking Division posted strong improvement in many areas US GAAP FY 10 FY 11 B/(W) % Actual Actual FY 11 vs. 10 Residential Loans 29.4 30.0 2% Spot All Other Loans 12.8 13.7 7%
Slide 18: ...and has strong lending positions in our footprint
2 ...and has strong lending positions in our footprint Home Equity AUTO MORTGAGE Lines of Credit Q1 12 Rank Q1 12 Rank Q4 11 Rank Boston 1 3 7 England New Providence 1 1 1 SE New Hampshire 1 2 4 Central / Eastern CT 2 6 >10 Atlantic Philadelphia 1 5 5 Mid Pittsburgh 2 2 >10 Upstate NY 2 4 10 Clevela
Slide 19: Our strong value proposition...
2 Our strong value proposition... Customers are offered the best of both worlds: Personal service of a local community bank and the conveniences of a larger bank Customer Satisfaction 3.5 million customer relationship review sessions with recommendations performed 73.5% last year 69.2% Customer
Slide 20: ...has resulted in core product growth...
2 ...has resulted in core product growth... Significantly improved deposit mix and cost of HELOC1 portfolio continues to grow while funds by focusing on core customers most banks were forced to pull back Average Retail Deposits Growth in HELOC Outstandings (in billions) (Q1’12 vs. Q1’11) Cost of $ 8
Slide 21: ...and is deepening customer relationships
2 …and is deepening customer relationships Strategy focused on driving primary bank relationships measured by active checking and depth of relationship Active Checking Mix 64% 59% Q1'09 Q1'12 Direct deposit penetration …along with the mix of active …and deposit customers with continues to improve… o
Slide 22: We are building out underpenetrated markets
2 We are building out underpenetrated markets Mortgage Business Banking Wealth Management Expansion of loan officer channel Improve loan penetration Expand premier bankers and capture private client opportunity Implement new origination platform Focus on cross sell and cash management Re
Slide 23: We invest in initiatives that strengthen our value proposition...
2 We invest in initiatives that strengthen our value proposition… 2011-15 Project Description Contribution1 BRANCH IMAGE Replacement of the 25 year old branch teller platform $85M CAPTURE Paperless processing will streamline operations and improve customer experience AUTO FINANCE Replacement o
Slide 24: ...and prepare us for the future
2 ...and prepare us for the future Evaluating new branch concepts for potential traditional and in-store branch upgrades Branches are brighter, with better traffic flow, and offer faster service The branches seek to maximize every point of customer interaction Offers video conferencing with sp
Slide 25: 3. Commercial Banking
3. Commercial Banking Robert Matthews, Vice Chairman
Slide 26: Commercial Banking structure has been optimized...
3 Commercial Banking structure has been optimized… Significant reorganization and investment has optimized operating efficiencies in our core and specialized businesses Commercial Banking Revenue generating lines of business Vice Chairman Robert Matthews Commercial Corporate Asset & Corporate Specia
Slide 27: ...with performance illustrating material growth
3 …with performance illustrating material growth Financial performance to date highlights positive trajectories US GAAP FY 10 FY 11 B/(W) % Actual Actual FY 11 vs. 10 Total Loans 29.4 33.4 14% Spot Balance Non Interest Bearing Deposits 8.4 10.6 25% Sheet $BN Total Deposits 21.2 20.4 (4% ) Fee Income
Slide 28: We have a strong presence in our footprint...
3 We have a strong presence in our footprint… Commercial holds a top 5 ranking in our core products in the footprint and continues to improve its Capital Markets (bookrunner) capabilities Commercial Enterprise Banking Middle Market Middle Market Lead Relationship1 Lead Relationship1 Bookrunner Ranki
Slide 29: ...and are growing the business
3 …and are growing the business Commercial Banking has outpaced the market average in loan growth, differentiating itself from competitors by adding value to clients’ businesses through quality ideas and solutions C & I Loan Growth LIBOR Spread (bps)1 Market RBS Citizens Market RBS Citizens 30% 280
Slide 30: We are investing in our people and infrastructure...
3 We are investing in our people and infrastructure… Strategic actions over the last 18 months have improved operating efficiencies, realigned resources, increased support, and empowered colleagues to be leaders LEADS Selling Skills LEADS Sales Training LEADS Sales Management Enhancing Relationshi
Slide 31: ...while improving our product capabilities
3 …while improving our product capabilities We will deepen client relationships by sustaining momentum with capital markets, improving our cash management capabilities and providing timely & relevant corporate finance solutions # of Lead Left & Joint Lead Capital Markets Arrangement Fees 111 ($milli
Slide 32: Our clients are taking notice
3 Our clients are taking notice Client metrics indicate strong performance against national competitors Commercial Enterprise Banking Middle Market Rank vs. Rank vs. 2010 2011 Comp. 2010 2011 Comp. Relationship Manager Loyalty - Likelihood to Recommend 62% 81% 1 66% 90% 1 Proactively Provides Advice
Slide 33: 4. Financial Performance
4. Financial Performance John Fawcett, Chief Financial Officer
Slide 34: Good sustainable progress in spite of a very challenging economic backdrop
Good sustainable progress in spite of a very 4 challenging economic backdrop Core US R&C - IFRS B/(W) vs. prior yr Total Revenue Excluding Gains $MM FY09 FY10 FY11 $ % Total Revenue 4,458 4,732 4,871 139 3% 4,420 4,650 4,713 Total Expenses (3,436) (3,390) (3,488) (98) (3%) 1,665 1,710 1,665 PBIL1 1,
Slide 35: Stabilized net interest income with a smaller and de-risked balance sheet
Stabilized net interest income with a smaller 4 and de-risked balance sheet Core US R&C - IFRS 800 Average 762 700 $MM 600 500 NII1 400 AIEA2 10 30 $BN 50 70 90 110 Average 107 130 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 2009 2010 2011 2012 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q
Slide 36: Net Interest Margin stable and closing the gap with peers
4 Net Interest Margin stable and closing the gap with peers 850 3.40% 800 3.18% Peer NIM Ranking4 3.20% 3.08% $MM 750 Q4’11 Q1’12 B/(W) 3.07% 3.00% bps 700 2.85% 3.02% 2.80% BB&T 4.04% 3.92% (13) 650 2.72% PNC 3.90% 3.91% 1 600 120 2.60% 110 550 2.41% M&T Bank 3.63% 3.67% 4 2.40% $BN 100 500 Fifth T
Slide 37: Fee income stable but constrained by regulation
Fee income stable but constrained 4 by regulation Core US R&C - IFRS Fee Income, $MM Reg E Revenue Impact - $MM 445 414 428 484 172 33 403 410 34 389 35 34 33 34 29 31 35 45 32 32 312 30 28 53 27 52 62 100 100 90 91 94 103 Jul 09 - Jun 10 Jul 10 - Jun 11 207 210 229 233 192 179 "Durbin" Interchange
Slide 38: Expense Analysis – Q1 2012
4 Expense Analysis – Q1 2012 Citizens – US GAAP Expenses Expense / Earning Assets Q1 '12 (annualized) Change Peer Avg 3.94% Q4’11 Q4’11 Comerica 3.08% 3.17% 0.09% All Other Net OREO(1) 8% Regions 4.01% 0.67% 3.34% & NPA(2) 2% Insurance & Tax 4% US Bancorp 3.41% 3.65% 0.24% Advertising & Staf f PR 2%
Slide 39: Reshaping our Balance Sheet
4 Reshaping our Balance Sheet Loans AFS Investment Portfolio US R&C IFRS – AVG Citizens IFRS – AVG $BN 2009 2011 30 Commercial Commercial 25 20 $BN 39% 15 44% 56% 10 61% Other 5 Govt Consumer Agency Consumer 0 2008 2009 2010 2011 May '12 Transitioning to a larger commercial mix 91% Government gu
Slide 40: Non-Core Loan Portfolio Manageable and in steady decline
Non-Core Loan Portfolio 4 Manageable and in steady decline Non-Core End of Period Loans Non-Core End of Period Loan Projections - $BN (2012 budget) as of December 2011 (Spot) $BN 25 22.8 1 SBO 3.7 Home Lending Solutions 1.2 20 17.8 Student Lending 1.2 Indirect Auto 0.1 Credit Cards 0.1 15 15.8 13.3
Slide 41: Credit remains strong...
4 Credit remains strong … Core US R&C – US GAAP Loan Impairment by Product1, $MM Q1 12 – Average Loans - $79BN Other Consumer 1,095 Cards Loans 2% 4% CRE 8% Auto Commercial 9% $35BN 44% 577 737 C&I 37% 383 396 HE Loans 29% Consumer 518 308 $44BN 354 56% Cons 88 Mortgage 11% 2009 2010 2011 Net Charge
Slide 42: ...driven by good geographic distribution and sound underwriting
…driven by good geographic distribution Core US R&C – US GAAP 4 and sound underwriting Q1 2012 Wholesale Credit Retail Credit - ($BN) Distribution by Region LTV 0 2 4 6 8 FICO 0 5 10 15 Mid-Atlantic Midwest < 50 CRE 6% C&I 13% Midwest 50–60 > 760 740–759 16% 60–70 Mid Atlantic 720–739 39% Midwest CR
Slide 43: We have strong asset quality...
Citizens – US GAAP 4 We have strong asset quality … Q1 2012 NPLs/Loans % Reserves/NPLs % KeyCorp 1.39% KeyCorp 137% M&T Bank 2.02% PNC 86% Citizens 2.15% Citizens 83% Comerica 2.25% BB&T 77% BB&T 2.56% Peer Avg 74% PNC 2.73% M&T Bank 74% US Bancorp 3.12% Comerica 73% Peer Avg 3.27% US Bancorp 69% Fi
Slide 44: ...and we are well capitalized versus peers
Citizens – US GAAP 4 …and we are well capitalized versus peers Q1 2012 Tier 1 Capital Ratio Tier 1 Common Ratio Regions 14.34% Citizens 13.34% Citizens 13.84% KeyCorp 11.55% KeyCorp 13.29% Comerica 10.27% BB&T 12.77% BB&T 10.04% Fifth Third 12.20% Fifth Third 9.64% Peer Avg 11.78% Regions 9.62% PNC
Slide 45: 5. Summary
5. Summary Ellen Alemany, Chief Executive Officer
Slide 46: US R&C is a key component of RBS Group
5 US R&C is a key component of RBS Group A compelling franchise 12th largest bank in the US; extensive Branch, ATM, online, and mobile networks Self funded with strong asset quality, credit ratings and capital ratios Key contributor to Group’s geographic and business mix diversity Experience
Slide 47: 6. Appendices
¥¥ RBS Group 6. Appendices
Slide 48: Management Biographies (1/4)
6 Management Biographies (1/4) Ellen Ellen Alemany is Head of RBS Americas and Chairman and Chief Executive Officer of Citizens Alemany Financial Group, Inc. She also is a member of the Royal Bank of Scotland Group's Executive Committee, which is the RBS Group's nine-member executive leadership te
Slide 49: Management Biographies (2/4)
6 Management Biographies (2/4) David David Bowerman is Vice Chairman, Head of RBS Citizens Business Services with responsibility for Bowerman Operations, Technology, Property, Procurement and Security across RBS entities in the Americas. Prior to his current position, David was Managing Director
Slide 50: Management Biographies (3/4)
6 Management Biographies (3/4) Robert Robert Nelson is Chief Administrative Officer and Head of Strategy of Citizens Financial Group, Inc. Nelson Nelson drives the development and implementation of the company's strategic plans and works closely with the other members of the senior leadership team
Slide 51: Management Biographies (4/4)
6 Management Biographies (4/4) Theresa Theresa McLaughlin is Group Executive Vice President of Citizens Financial Group, Inc. & RBS McLaughlin Citizens responsible for all company-wide marketing, public relations, government relations, corporate giving, communications & customer experience. McLa
Slide 52: Citizens Financial Group - Legal Entity
6 Citizens Financial Group - Legal Entity Legal Vehicle Citizens Financial Group Core Non Core Business US Retail & US Retail & Services Commercial Commercial Banking Banking External View Group Business Services Group Centre Group Treasury Cost Allocation 52
Slide 53: Reconciliation of Core US R&C to Total Citizens
6 Reconciliation of Core US R&C to Total Citizens IFRS - $MM FY 2011 US Retail & Commercial International Business Central Total Core Non Core Total Banking Services Items CFG Net Interest Income $ 3,099 $ 268 $ 3,367 $ 0 $ (34) $ (1) $ 3,332 Fee Income 1,665 9 1,674 0 23 0 1,698 Total Revenue Excl.
Slide 54: Cost to Income Ratio
6 Cost to Income Ratio Citizens 80% 70% 60% 50% 40% 30% 20% 10% 0% Q1 Q2 2009 Q3 Q4 Q1 Q2 2010 Q3 Q4 Q1 Q2 2011 Q3 Q4 2012 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2009 2010 2011 2012 Citizens 69% 63% 63% 68% 67% 67% 66% 70% 66% 66% 67% 67% 67% Citizens Peer Average Peer Median 59% 59% 64% 60% 62%
Slide 55: Financial Summary
6 Financial Summary US R&C IFRS - $MM FY 09 FY 10 FY 11 B/(W) vs. Prior Year Actual Actual Actual $ % Net Interest Income 2,755 2,940 3,048 108 4% Fee Income 1,665 1,710 1,665 (45) (3%) Gains & Losses 38 82 158 75 91% Non Interest Income 1,703 1,792 1,823 31 2% Total Revenue 4,458 4,732 4,871 139 3%
The Royal Bank of Scotland Group — Investor Day (July 2012) on 6ix