Natwest Group Plc · LSE:NWG
Natwest — The Royal Bank of Scotland Group — Investor Presentation (June 2010)
45 slides from Natwest's investor presentation, Jun 28, 2010
Slide 1: Non-Core Division Investor Roundtable
Non-Core Division Investor Roundtable Nathan Bostock, Head of Restructuring and Risk June 2010 Rory Cullinan, Head of Non-Core Division Christine Palmer, Chief Risk Officer of Non-Core Division
Slide 2: Important Information
Important Information Certain sections in this presentation 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: Agenda
Agenda Key messages Strategic objectives 5 year plan Progress to date Asset Management Strategy Financial performance & risk management Concluding comments 3
Slide 4: Non-Core Division
Non-Core Division Key messages Strategic objectives 5 year plan Progress to date Asset Management Strategy Financial performance & risk management Concluding comments 4
Slide 5: Key Messages
Key Messages Non-Core is central to achieving the Group’s 2013 vision Non-Core is a central pillar in the RBS Group strategic plan Created as the primary driver of Group risk reduction A key component of regaining Group standalone strength A highly experienced and specialist management team are on b
Slide 6: Strategic objectives
Non-Core Division Key messages Strategic objectives 5 year plan Progress to date Asset Management Strategy Financial performance & risk management Concluding comments 6
Slide 7: RBS Group Strategic Vision
RBS Group Strategic Vision Non-Core, a central pillar in achieving the Group’s strategic vision Core Bank Non-Core The primary focus for value creation The primary driver of risk reduction Built around customer-driven franchises Businesses that do not meet our Strategic Comprehensive business
Slide 8: Non-Core in the RBS Group
Non-Core in the RBS Group Removal of Non-Core transforms Group financial performance 2009 actuals Core Non-Core RBS Group Income (£bn) 31.7 29.4 -2.3 Earnings Net Interest Margin (%) 2.1% 0.7% 1.8% Operating Profit (£bn) 8.3 -14.6 -6.2 Income from trading 9.0 -5.2 3.8 activities (£bn) RWAs (£bn, pre
Slide 9: Composition of the Division
Composition of the Division1 Donor Division Asset Class UKCB Shared Assets RBS Insurance Other UK Retail Retail Ulster 10% 2% Exit R&C countries 3% 8% Corporate 7% 1% 1% 6% Citizens 2% Total Assets = £258bn1 18% 43% Markets Commercial GBM Real Estate 24% 2% 71% SME Commercial RE Corporate Markets Re
Slide 10: Commercial Real Estate exposure
Commercial Real Estate exposure Diversified sector split; concentration in Western Europe Figures as at year end 2009 By geography1: Cumulative reduction and impairments Asia Pacific TPAs (Third Party Assets) excluding derivatives USA 5% reduced by £13.4bn to £49.5bn between January 12% 2009 and e
Slide 11: Corporates exposure
Corporates exposure Highly diverse pool of Corporate exposures; concentration in UK and Europe Figures as at year end 2009 By geography: UK Cumulative reduction and impairments 50% TPAs excluding derivatives reduced by £32.8bn to £78.9bn between January 2009 and end Q1 2010 Americas 10% Cumulati
Slide 12: Markets exposure – Structured Credit Portfolios
Markets exposure – Structured Credit Portfolios Significant risk reduction – Net MTM Exposure to Monolines has been reduced to £1.8bn at Q1 10, down from £4.8BN at FY 2008 £bn 4.8 3.9 3.6 2.9 1.8 1.8 FY 08 Q1 09 Q2 09 Q3 09 FY 09 Q1 10 Significant risk reduction - Net MTM Exposure to Monolines has
Slide 13: Exotic Credit - Managing Down Trading Risk
Exotic Credit - Managing Down Trading Risk Successfully reducing trading risk and P&L volatility – all risk measures sharply lower Notional Exposure by Trade Type Contributing to a marked reduction in P&L volatility (year-end 2009) ECT P&L Moves Gross Notional = £808bn Bespoke Tranche Index Tranche
Slide 14: Objectives of the Division
Objectives of the Division Achieving run down while maximising shareholder value Maximiseshareholder Maximise Shareholder value Value Viable Sell now Optimise timing, cost and method whole of exit businesses Sell later Accelerate reduction of capital and funding Maximise reduction in the RBS
Slide 15: Non-Core Division – Business management
Non-Core Division – Business management A highly experienced management team in place £bn, TPAs excl. derivatives, Nathan Bostock figures as at year end 2009 Average 24 years in the Head of Restructuring & Risk Banking and Finance industry 28 years in the industry X TPAs, £bn X RWAs, £bn All new
Slide 16: Progress to date
Non-Core Division Key messages Strategic objectives 5 year plan Progress to date Asset Management Strategy Financial performance & risk management Concluding comments 16
Slide 17: Run-off profile – funded assets
Run-off profile – funded assets Achieving the plan – c.2/3 run-off; c.40% asset disposals £bn, funded assets excl. derivatives Non Core funded assets run-off targets Undrawn commitments Breakdown of changes in funded 85 TPAs assets, 2009-2013 FX (10)-(20) 36 Roll-overs & 20-30 drawings 29 c. 214 258
Slide 18: Progress to date
Non-Core Division Key messages Strategic objectives 5 year plan Progress to date Asset Management Strategy Financial performance & risk management Concluding comments 18
Slide 19: Funded assets by asset class
Funded assets by asset class £64bn reduction in Non-Core funded assets in 15 months (25%) 2008 Year-End funded assets Q1 2010 funded assets Other Retail Other 3% Corporate 8% Retail 2% Corporate 10% Markets Markets 18% Total 43% 20% Total 41% Assets = Assets = £258bn £194bn Commercial Real Estate 26
Slide 20: Key Milestones to Date
Key Milestones to Date Good progress made, slightly ahead of plan Key Points TPAs reduced by £0.3bn to end Q1 2010, with a further £4.4bn agreed Six countries sold to ANZ – three completed in Q1 2010 (£0.6bn), an additional three Country completed in Q2 Disposals Agreement to sell Colombia to Sc
Slide 21: Non-Core Financials
Non-Core Financials Q1 2010 on track to achieve FY 2010 reduction £bn, TPAs excl. derivatives TPA Movements from beginning 2009 to 31 March 2010 258 9 13 34 201 9 8 2 2 194 51 10 6 Sempra 14 disposal Other TPA 37 movements 143 2 2 31-Dec-08 Impairments Disposals Run-Off FX Sempra1 31-Dec-09 Impairme
Slide 22: Asset Management Strategy
Non-Core Division Key messages Strategic objectives 5 year plan Progress to date Asset Management Strategy Financial performance & risk management Concluding comments 22
Slide 23: Asset Management Objectives & Constraints
Asset Management Objectives & Constraints Reducing exposures while maximising shareholder value Asset Management Objectives: Constraints impacting disposals: Take risk off the table Internal Capital intensive/pro-cyclical assets Group capital management Single name and sector concentrations
Slide 24: Managing Portfolio Run-Off
Managing Portfolio Run-Off Active portfolio management is central to delivering our strategy £bn, TPAs excl. derivatives Strategic Plan TPA Movements 2009-13 Cumulative Run-Off1 2009-13 (£bn) At year end Cumulative Drawings 2008 £bn run-off Rollovers 0-5 Run-Off 15-25 Corporate 112 40-50 (110)-(130)
Slide 25: Managing the rump
Managing the rump Expected composition of 2013 rump TPAs excl. derivatives Rump is expected to be primarily CRE exposures and Corporate assets, comprised of Expected 2013 Rump – Asset Finance (10-20%) – Project Finance (50-60%) Commercial Real Estate Other – Corporate Loans (10-20%) Markets – Ware
Slide 26: Financial performance & risk management
Non-Core Division Key messages Strategic objectives 5 year plan Progress to date Asset Management Strategy Financial performance & risk management Concluding comments 26
Slide 27: Financial Performance
Financial Performance Understanding the key drivers FY 2008 FY 2009 Q1 2010 Drivers / Outlook Funded assets (excl. derivatives) 257.9 201.0 193.5 TPA reduction driven by disposals and active management of run off. RWA development reflects the impacts of Structured Credit RWAs 170.9 171.3 164.3 d
Slide 28: Expenses
Expenses Expenses fall off significantly over 2011 due to country sales, then in line with portfolios Pace of expense reduction vs. TPA reduction Expense reduction (as % of 2009 expenses) Δ2011 Δ2012-13 13% 42% 100% 13% 17% 15% Expenses forecasted to TPA reduction (as % of 2009 year-end TPAs) fall s
Slide 29: Credit Risk - Portfolio Quality
Credit Risk - Portfolio Quality 34% of credit exposures undergo heightened monitoring or are non-performing Exposure by division Exposure1 risk rating Portfolio performance TCRE, £bn Portfolio by division Portfolio by grade 31/03/10 31/12/09 30/06/09 0% 10% 20 % Normal monitoring 103 105 98 0 25 50
Slide 30: Credit Risk - Portfolio Quality
Credit Risk - Portfolio Quality Well spread geographically; but high property exposure Exposure by region Exposure by sector Portfolio by region, % Portfolio by sector, % 0 10 20 30 40 0 5 10 15 20 25 30 35 Western Europe Property £46bn £50bn (Excluding UK) Personal £21bn United Banks, other FIs £19
Slide 31: Impairment trends
Impairment trends £16.2bn Cumulative Impairments 2008-Q1 2010 – Challenges remain in CRE and Ulster Cumulative impairments by division Cumulative impairments by sector £m £m 2 Cumulative Charge As a % of FY08 L&A Cumulative Charge As a % of FY08 L&A 18,000 16% 18,000 20% 16,1611 16,1611 16,000 13% 1
Slide 32: Funding
Funding Non-Core run-off is a significant component of the Group strategic funding plan Non-Core third party assets (TPAs excl MTMs) run- Refinancing requirement outweighed by run-off in off targets1 trend with the Group Loan:Deposit gap Non-Core third party assets2 300 50 £bn £bn 250 40 200 30 150
Slide 33: Funding
Funding Non-Core relies primarily on wholesale funding Indicative breakdown of Non-Core funded balance sheet1 Other 2 Deposits 11% Group loan-to-deposit ratio is 131% versus Core of 102% (Q1 8% 2010). Non-Core is largely wholesale funded RBS has a strategic funding plan for the overall Group for
Slide 34: Concluding comments
Non-Core Division Key messages Strategic objectives 5 year plan Progress to date Asset Management Strategy Financial performance & risk management Concluding comments 34
Slide 35: Concluding comments
Concluding comments Non-Core is a central pillar in the RBS Group strategic plan The run-off of Non-Core significantly improves Group performance, risk, capital and funding; addressing every area of failure Significant progress made to date – TPAs reduced by 25%, run-off ahead of plan Focused on max
Slide 36: Appendix
Appendix
Slide 37: Non-Core Management CVs
Non-Core Management CVs Name Title Background Nathan Head of Nathan joined RBS in February 2009 as Head of Restructuring & Risk. Formerly CFO of Abbey National and Bostock Restructuring & Alliance & Leicester, he started his career with Coopers and Lybrand before working in Financial Markets at Ch
Slide 38: Illustrative Selection of Assets for the Non-Core Division
Illustrative Selection of Assets for the Non- Core Division Five tests determined whether an asset/business remained Core Core business criteria Non-Core businesses Have a strong market share 1. Customer Weak customer Have a sustainable customer franchise franchise Are competitive in the chang
Slide 39: Illustrative Selection of Assets for the Non-Core Division
Illustrative Selection of Assets for the Non- Core Division 9 Pass Risk and 8 Fail Franchise Returns Growth Funding Connectivity Comments • Market effectively closed until late 2009; likely to remain so for some years and recover slowly Leveraged Finance 9 88 8 9 • Very cyclical market, where risk a
Slide 40: Non-Core and APS Overlap
Non-Core and APS Overlap 45% of insured assets are held by the Non-Core Division £bn, figures as at year end 2009 RWAs (before APS benefit) Core Non-core Covered Assets 13% 9% % of Group RWAs 55% 45% % of Group Covered Assets APS 76 52 APS will cover 22% of Group RWAs The Non-Core Division holds
Slide 41: Case Study #1: Country Exit - Colombia
Case Study #1: Country Exit - Colombia Stage of sale Marketing Negotiation Closing Post-Closing December 2008 June 2009 December 2009 June 2010 December 2010 June 2011 December 2011 June 2012 April 2009 1 March 2010 Transitional Service Period Initial approach to ScotiaBank signs expected market all
Slide 42: Case Study #2: On Going Tactical Disposals
Case Study #2: On Going Tactical Disposals Description “Flow” Asset Sales Since January 2009, £3.3bn of loans sold bilaterally Exposure to over 140 borrowers reduced through over 360 transactions ranging in size from over £100m down to < £100,000 Leveraged loan exposure reduced by £1.9bn, incl
Slide 43: Case Study #3: Active Portfolio Management
Case Study #3: Active Portfolio Management Description Sighting & Capital SCAC established to ensure consistent, disciplined approach to responding to new borrowing, extension and covenant waiver requests for the wholesale portfolios Allocation Committee Since inception in October 2009, SCAC has
Slide 44: Impairment trends
Impairment trends Impairment Charge 31/03/10 31/12/09 31/12/08 Cumulative FY08 Gross Loans Cumulative charge £m £m £m Charge £m & Advances £bn as a % of L&A UK Retail Mortgages 3 5 1 9 2.2 0.4% Personal 2 48 42 92 1.1 8.4% Total UK Retail 5 53 105 163 3.3 4.9% UK Corporate Manufacturing 5 87 42 124
Slide 45: Impairment trends cont’d
Impairment trends cont’d Impairment Charge 31/03/10 31/12/09 31/12/08 Cumulative FY08 Gross Loans & Cumulative charge as a % Cont’d £m £m £m Charge £m Advances £bn2 of L&A2 GBM Manufacturing & Infrastructure 29 1,405 1,280 2,714 - 15.5% Property & Construction 472 1,413 710 2,595 - 10.1% Transport 1
The Royal Bank of Scotland Group — Investor Presentation (June 2010) on 6ix