Natwest Group Plc · LSE:NWG
Natwest — The Royal Bank of Scotland Group — Merrill Lynch Conference 2005
49 slides from Natwest's conference presentation, Oct 4, 2005
Slide 1: Strategy 2010
Strategy 2010 Sir Fred Goodwin Group Chief Executive
Slide 2: Forward looking statements disclaimer
This presentation may contain forward looking statements, including such statements within the meaning of Section 27A of the US Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements concern or may affect future matters, such as the Group's economic results,
Slide 3: Merrill Lynch Conference
Slide 3 Merrill Lynch Conference Year Title 2000 Bringing down the barriers 2001 Building competitive advantage in a volatile world 2002 Higher growth v lower risk the challenge ahead 2003 Living in a 1% world 2004 Managing complexity 2005 Strategy 2010
Slide 4: Strategy 2010: Is five years too far ahead to look?
Slide 4 Strategy 2010 Is five years too far ahead to look? ▮ To produce budgets yes ▮ To predict markets yes ▮ To predict economic growth yes ▮ To produce business plans yes ▮ To consider strategic direction no
Slide 5: Strategic Direction
Slide 5 Strategy 2010 Strategic Direction ▮ Less precise than strategy ▮ Conditioned by both data and experience ▮ Conditioned by operating environment ▮ Conditioned by position and capabilities of the organisation
Slide 6: Strategy 2000 - 2005
ae RBS The Royal Bank of Scotland Group Strategy 2000 - 2005
Slide 7: Strategy 2000 – 2005: Position in 2000
Slide 7 Strategy 2000 – 2005 Position in 2000 ▮ Acquired NatWest March 2000 ▮ Many new opportunities and challenges Immediate Priorities ▮ Deliver NatWest transaction benefits ▮ Achieve organic income growth ▮ Improve efficiency
Slide 8: Deliver NatWest Transaction Benefits
Slide 8 Deliver NatWest Transaction Benefits £m 2,200 2,030 2,000 1,756 1,800 1,690 1,600 1,400 1,320 1,290 1,200 1,000 820 800 600 500 400 340 200 Plan 0 Actual 2000 2001 2002 2003
Slide 9: Achieve Organic Income Growth
Slide 9 Achieve Organic Income Growth Income Growth 2000 – 2004 Pro forma 1999 2004 Change Change £m £m £m Total income 11,065 22,754 11,689 +106% Components of Income Growth £m % Total NatWest transaction benefits 890 7% Acquisitions 3,837 33% Organic growth 6,962 60% Total 11,689 100%
Slide 10: Improve Efficiency
Slide 10 Improve Efficiency Income Growth 2000 – 2004 Pro forma 1999 2004 Change Change £m £m £m Total income 11,065 22,754 11,689 +106% Operating expenses 6,563 9,662 3,099 +47% Cost:income ratio 57.8% 40.8% Cost:income ratio calculated after netting operating lease depreciation against rental inco
Slide 11: Other Priorities in 2000: Geographic and Income Mix
Slide 11 Strategy 2000 – 2005 Other Priorities in 2000 Geographic Mix ▮ UK 85% v rest of world 15% Dependency on developments in UK economy Income Mix ▮ Net interest income 48% v non-interest income 52% Vulnerability to possible reduction in net interest margins
Slide 12: Other Priorities in 2000
Slide 12 Strategy 2000 – 2005 Other Priorities in 2000 Corporate Banking & Financial Markets ▮ Strong in CB but not so strong in some areas of FM ▮ Strong in UK but little outside UK, except Greenwich Direct Line ▮ Strong in motor but not so strong in home insurance Ulster Bank ▮ Strong in Northern
Slide 13: Other Priorities in 2000
Slide 13 Strategy 2000 – 2005 Other Priorities in 2000 Wealth Management ▮ Strong in UK but not so strong outside UK Retail Direct ▮ Credit cards and merchant acquiring strong in UK but no activities outside UK Citizens ▮ Strong in New England but limited scale in consolidating US retail banking mar
Slide 14: Options for Additional Growth
Slide 14 Strategy 2000 – 2005 Strategy United Kingdom + Ireland Slide 25 as at 2000 Options for Additional Growth ▮ Organic growth – Retail Banking – Corporate Banking and Financial Markets – Retail Direct – Wealth Management – Direct Line – Ulster Bank ▮ Acquisitions – Tactical – Strategic – Slide
Slide 15: Corporate Banking & Financial Markets
Slide 15 Corporate Banking & Financial Markets Strengthen Position in Financial Markets Strengthen Position Outside UK ▮ Sequential development, by product and by geography ▮ Organic growth, building at each stage on existing platform and capabilities ▮ Stable cost:income ratio during period of expa
Slide 16: Strengthen Position in Financial Markets: Currencies
Slide 16 Corporate Banking & Financial Markets Strengthen Position in Financial Markets Currencies 2001 1H05 Ranking Ranking Flow Products Total spot FX globally #11 #6 Value Products Vanilla FX options #5 #5 Exotic FX options #5 #1 Source: Risk Magazine, FX Week, RBS estimates
Slide 17: Strengthen Position in Financial Markets: Interest Rates
Slide 17 Corporate Banking & Financial Markets Strengthen Position in Financial Markets Interest Rates 2001 1H05 Market Ranking Market Ranking Share Share Flow Products UK Gilts 6.7% #5 11.9% #2 US Treasuries 4.6% #8 6.8% #5 Interest rate swaps 5.9% #7 7.5% #5 Value Products Interest rate options n/
Slide 18: Debt Capital Markets
Slide 18 Corporate Banking & Financial Markets Strengthen Position in Financial Markets Debt Capital Markets Market Share 1H01 2001 2002 2003 2004 1H05 Sterling 10.3% 10.1% 13.5% 15.9% 15.4% 16.3% US$ 1.0% 1.0% 1.9% 1.9% 2.2% 3.1% Euros 0.4% 0.5% 0.7% 1.8% 2.8% 3.8% All currencies 1.3% 1.2% 2.0% 2.3
Slide 19: Strengthen Position Outside UK
Slide 19 Corporate Banking & Financial Markets Strengthen Position Outside UK Total Income 1H01 1H05 Change % pa US ($m) 490 1,302 +28% Europe (€m) 113 447 +41% Asia-Pacific ($m) 47 147 +33%
Slide 20: Direct Line: Strengthen Position in Home Insurance
Slide 20 Direct Line Strengthen Position in Home Insurance ▮ 2003 Acquired Churchill Insurance RBS Insurance 2000 2005 Motor insurance #1 #1 Home insurance #6 #2 General insurance #3 #2 Total income (£m) 1,155 5,396 2000 UK GAAP income, 2005 IFRS 1H05 income annualised
Slide 21: Ulster Bank: Strengthen Position in Republic of Ireland
Slide 21 Ulster Bank Strengthen Position in Republic of Ireland ▮ 2004 Acquired First Active Ulster Bank Republic of Ireland 2000 2005 Current accounts #4 #4 Mortgages #6 #2 Savings #5 #4 Total income (€m) 467 823 2000 UK GAAP income, 2005 IFRS 1H05 income annualised
Slide 22: Wealth Management
Slide 22 Wealth Management Strengthen Position Outside UK ▮ 2003 Acquired Bank von Ernst in Switzerland ▮ Recruited additional private banking teams in Hong Kong and Singapore Coutts International 2000 2005 Total income (£m) 138 223 2000 UK GAAP income, 2005 IFRS 1H05 income annualised
Slide 23: Retail Direct
Slide 23 Retail Direct Establish Credit Card Issuing and Merchant Acquiring Capabilities in Europe and US Europe ▮ 2003 Acquired Santander Direkt credit cards in Germany ▮ 2004 Established partnership with German retailer Tchibo ▮ 2004 Acquired Bibit internet payments acquiring business US ▮ 2004 Ac
Slide 24: Citizens: Achieve Scale in US Retail Banking
Slide 24 Citizens Achieve Scale in US Retail Banking ▮ 2001 Acquired Mellon Regional Franchise ▮ 2004 Acquired Charter One
Slide 25: Citizens
Slide 25 Citizens Maine VT NH Citizens 2000 New York MA RI CT Michigan PA NJ Ohio MD DE Indiana Illinois West Virginia Virginia
Slide 26: Citizens
Slide 26 Citizens 000s Households 000s Households New England Midwest Rhode Island 424 Ohio 4,536 Massachusetts 2,506 Illinois 4,692 Connecticut 1,339 Michigan 3,886 New Hampshire 501 Indiana 2,399 Mid Atlantic North East Pennsylvania 4,854 Upstate New York 1,658 Vermont 248 Source: SNL Datasource a
Slide 27: Citizens
Slide 27 Citizens United States 2000 2005 Citizens Citizens RBS Deposits #24 #8 #6 Assets #32 #9 #6 Branches #33 #7 #7 Supermarket branches #23 #2 #2 ATMs #40 #9 #9 Small business lending (SBA) #9 #2 #2 Total income ($m) 1,386 5,850 8,476 Source: SNL/FFIEC, American Banker 2000 UK GAAP income, 2005
Slide 28: Diversity – by Geographic Mix
Slide 28 Diversity – by Geographic Mix 1999 Operating Profit 1H05 Operating Profit Pro forma Rest of World Europe Europe 1% US 5% 9% 10% US UK UK 27% 85% 63% 1999 operating profit is pro forma as if the acquisition of NatWest had taken place on 1 January 1999
Slide 29: Diversity – by Type of Income
Slide 29 Diversity – by Type of Income 1999 Income 1H05 Income Pro forma Net Interest Income 48% Net Interest Income 38% Lending Deposits Lending Deposits 23% 17% 21% 25% Non-Interest Income 52% Non-Interest Income 62% 1999 income is pro forma as if the acquisition of NatWest had taken place on 1 Ja
Slide 30: Strategy 2000 – 2005: Summary
Slide 30 Strategy 2000 – 2005 Summary ▮ Delivered NatWest transaction benefits ▮ Achieved immediate priorities of organic income growth, improved efficiency and stable credit quality ▮ Addressed other priorities – strategic gaps
Slide 31: Growth in Earnings Per Share 1999 – 2004
Slide 31 Strategy 2000 – 2005 Growth in Earnings Per Share 1999 – 2004 RBS HSBC HBOS Barclays Lloyds TSB -5 0 5 10 15 20 % pa UK GAAP Earnings per share excluding exceptional items and goodwill amortisation
Slide 32: Return on Equity
Slide 32 Strategy 2000 – 2005 Return on Equity % 20 15 10 5 0 2000 2001 2002 2003 2004 After-tax return on ordinary equity excluding goodwill amortisation and integration costs
Slide 33: Strategy 2000 – 2005: Summary
Slide 33 Strategy 2000 – 2005 Summary ▮ Delivered NatWest transaction benefits ▮ Achieved immediate priorities of organic income growth and improved efficiency ▮ Addressed other priorities – strategic gaps ▮ Delivered superior earnings growth ▮ Improved return on equity Created platform for growth
Slide 34: Strategic Direction 2005 – 2010
Strategic Direction 2005 – 2010
Slide 35: Position in 2005
Slide 35 Strategic Direction 2005 – 2010 Position in 2005 ▮ No change in strategic direction ▮ Some evolution of strategic priorities ▮ Platform has been built ▮ Main priority is to leverage it
Slide 36: Position in 2005
Slide 36 Strategic Direction 2005 – 2010 Position in 2005 ▮ Strong position in UK ▮ Established platform in US ▮ Established platform in Europe ▮ Opportunities in Asia-Pacific ▮ No strategic need for acquisitions
Slide 37: Corporate Platforms Established
Slide 37 Strategic Direction 2005 – 2010 Corporate Platforms Established UK US Europe Asia- Pacific Financial institutions Large corporates Mid-corporates X X Commercials X X Small businesses X X Platform established X Not planned
Slide 38: Retail Platforms Established
Slide 38 Strategic Direction 2005 – 2010 Retail Platforms Established UK US Europe Asia- Pacific Branch banking X X Consumer finance X Wealth management X Insurance X X Platform established X Not planned
Slide 39: United Kingdom
Slide 39 United Kingdom UK Market Shares Total RBS Current accounts 20% Savings accounts 9% Personal loans 11% Mortgages 6% Credit cards 14% Life insurance 2% Motor insurance 17% Home insurance 11% Small business relationships 28% Source: NOP 2004, NFO 2004, RBS estimates
Slide 40: United States
Slide 40 United States 1H04 1H05 Change $m $m % Citizens 1,687 2,901 +72% Citizens (excluding Charter one) 1,687 1,890 +12% Corporate Banking & Financial Markets 1,143 1,302 +14%
Slide 41: Europe
Slide 41 Europe 1H04 1H05 Change €m €m % Corporate Banking & Financial Markets 319 447 +40% RBS Insurance 199 236 +19% Retail Markets 214 236 +10%
Slide 42: Asia
Slide 42 Asia 1H04 1H05 Change $m $m % Corporate Banking & Financial Markets 111 147 +32% Wealth Management 46 46 –
Slide 43: China
Slide 43 China Population GDP GDP Inflation m 2004 95 – 04 95 – 04 $bn % pa % pa UK 60 2,141 2.9 1.6 EU 381 9,765 2.2 2.0 US 294 11,668 3.2 2.5 China 1,300 1,649 8.7 3.1 Source: World Bank
Slide 44: RBS/Bank of China Partnership: Investment in Bank of China
Slide 44 RBS/Bank of China Partnership Investment in Bank of China ▮ RBS leading an investment of 10% in Bank of China for $3.1 billion (£1.7 billion) ▮ RBS will itself invest $1.6 billion (£0.9 billion) ▮ Appropriate warranties and protections ▮ Transaction subject to regulatory approvals ▮ Small i
Slide 45: Bank of China
Slide 45 Bank of China ▮ Second largest bank in China, established 1912 ▮ Traditionally focussed on trade-related activities ▮ 11,307 branches in Mainland China ▮ Market shares 12% of loans, 14% of deposits ▮ Most internationalised Bank in China ▮ Brand appeals to affluent personal customers and lar
Slide 46: Business Co-operation Possibilities
Slide 46 RBS/Bank of China Partnership Business Co-operation Possibilities ▮ Corporate banking – Shipping and aviation finance – Project and structured finance – Debt capital markets ▮ Retail banking – Joint credit card business – Onshore and offshore wealth management ▮ Insurance – Personal lines i
Slide 47: Infrastructure Co-operation Possibilities
Slide 47 RBS/Bank of China Partnership Infrastructure Co-operation Possibilities ▮ Corporate governance ▮ Risk management ▮ Financial management ▮ Human resources ▮ Information technology
Slide 48: Strategic Priorities
Slide 48 Strategic Priorities 2000 – 2005 2005 – 2010 Grow income Grow income Transform efficiency Improve efficiency Improve return on equity Improve return on equity Diversify Enhance Create platform for growth Leverage platform for growth
Slide 49: Strategy 2010
Strategy 2010 Sir Fred Goodwin Group Chief Executive
The Royal Bank of Scotland Group — Merrill Lynch Conference 2005 on 6ix