Natwest Group Plc · LSE:NWG

Natwest — Royal Bank of Scotland Group (RBS) — H1 2017 Earnings Presentation

44 slides from Natwest's earnings presentation, Aug 4, 2017

  1. Slide 1: H1 2017 Results

    3<RBS H1 2017 Results 4 August 2017

  2. Slide 2: Howard Davies, Chairman

    %* RBS Howard Davies Chairman

  3. Slide 3: Ross McEwan, Chief Executive Officer

    Ross McEwan Chief Executive Officer

  4. Slide 4: Key messages

    Key messages H1 attributable profit of £939m; Adjusted RoE 11.5% Cost, capital and lending targets on track for fourth consecutive year Targeting a bottom line profit in 2018, subject to final approval of the alternative remedies package for W&G, and resolving DOJ investigations Continue to support

  5. Slide 5: Good progress against our strategic priorities in H1

    Good progress against our strategic priorities in H1 Priorities Our 2017 Goal Our Progress in H1 2017 Commercial NPS score up 4 points, to Customer Significantly increase NPS or maintain +22, NatWest Personal stable at +13, experience No.1 in chosen segments further work required to close the gap in

  6. Slide 6: The bank we will become – 2020 financial targets

    The bank we will become – 2020 financial targets(1) Our strategic plan targets sustainable returns based on… Sub-50% £6.4bn cost 12%+ ROTE(2) Cost:Income base(3) Ratio This will be based off… Retail & UK income CET1 ratio 13% Commercial ~90% RWAs ~85% 6 (1) These statements constitute forward lookin

  7. Slide 7: Continue to support the UK within our risk appetite

    Continue to support the UK within our risk appetite Diversified portfolio with improving risk Growing in chosen markets, within risk metrics appetite Gross loans and advances to customers Gross mortgage lending UK PBB (£bn) 5% Mortgages 49% Unsecured £14bn Personal lending 3% 117 123 92 96 105 £330b

  8. Slide 8: Responding to changing customer behaviour and using technology to meet their needs

    Responding to changing customer behaviour and using technology to meet their needs Customers continue to migrate to digital channels # Active mobile users (m) Monthly Get Cash uses, up over four 19% >200k times the number in Dec-16 5.0 4.2 Payments sent through our app in Jun- 10m 17, up 13% on Dec-

  9. Slide 9: Digital transformation and simplification delivering positive JAWs in our UK PBB business

    Digital transformation and simplification delivering positive JAWs in our UK PBB business Positive operating JAWs in UK PBB Mortgage process digitalised £2,755m Income 5.4% Paperless 10 50% days to completion reduction £2,615m 11.8% ~70% Up from £1,510m Efficient of customers receive 58% Adj. costs

  10. Slide 10: Good progress simplifying the bank and reducing cost

    Good progress simplifying the bank and reducing cost Subsidiary companies Commercial products (13%) (19%) 604 121 523 98 FY’16 H1’17 FY’16 H1’17 Property footprint(1) Systems (7%) (20%) 153 143 3,500 2,800 FY’16 H1’17 FY’16 H1’17 10 (1) Group property excluding branch network

  11. Slide 11: Our 2020 investment case

    Our 2020 investment case 2 Balanced, stable 2020 and improving income  A leading UK Retail and generation Commercial Bank with a focussed Markets division 1 3  Strong brands and market Resilient Balance Sheet with Customer led, Improving positions improving digital enabled productivity efficiency

  12. Slide 12: Ewen Stevenson, Chief Financial Officer

    Ewen Stevenson Chief Financial Officer

  13. Slide 13: H1 2017 update on progress

    H1 2017 update on progress Core Bank Progress  Core adjusted income growth of 8.6% over H1 2016 Grow income  On track to meet 3% lending growth FY 2017 target supported by mortgages  £494m additional costs out in H1 2017 Cut costs  On track to meet £750m reduction target for 2017  Reduced H1 20

  14. Slide 14: Core income growth H1 2017 vs. H1 2016

    Core income growth H1 2017 vs. H1 2016 Adjusted income (£m) H1 annualised balance sheet growth 8.6% 2017 target PBB/ CPB 3.0% 2.3% 43.9% 6,297 5,801 5.0% H1 2017 PBB/CPB 4.1% £146m £51m £299m UK PBB Mortgages(2) 10.2% UK PBB 12.5% +3.8% combined Business Banking(2) adjusted income UK PBB (2.0%) Unse

  15. Slide 15: NIM progression

    NIM progression Net interest margin (‘NIM’), bps Increased liquidity Competitive pressure 224 (8) (3) 213 Q1’17 Q2’17 Average interest 405 422 earning assets (£bn)  The majority of the NIM decline in Q2 was driven by a conscious build-up in liquidity 15

  16. Slide 16: Adjusted operating cost progress to 2017 target

    Adjusted operating cost progress to 2017 target Adjusted Operating Costs(1) (£bn) Spend vs. restructuring cost guidance 2017 YTD restructuring spend H1 17 27% Remaining to meet 2017 target 8.4 cost reduction 2017 spend target ~£1bn(2) 73% ~0.5 H2 17 cost reduction Source of adjusted cost reductions

  17. Slide 17: Progress made on £20bn gross RWA reduction across PBB, CPB and NWM

    Progress made on £20bn gross RWA reduction across PBB, CPB and NWM H1 2017 change in RWA (£bn) Group RWAs FY 2016 £228.2bn  RWAs down by £12.8bn in H1; Q2 reduction of £6.3bn Core gross RWA reduction (£8.6bn)  Core bank gross RWAs reduced by £8.6bn o/w PBB (£0.7bn) in H1; On track to achieve £20bn

  18. Slide 18: H1 2017 results by business

    H1 2017 results by business Total Core Franchises Total Other RBS Central Ulster Commercial Private RBS NatWest Total Core Capital (£bn) UK PBB W&G(1) items & Total Other Bank RoI Banking Banking International Markets Franchises Resolution other(2) Adj. Income(3) 2.8 0.3 1.8 0.3 0.2 1.0 6.3 (0.1) 0.

  19. Slide 19: IFRS 9

    IFRS 9 Day 1 impact expected to be modestly capital accretive, estimated at ~3 pence to TNAV and ~30bps to CET1 ratio Uplift in provisions estimated to be in the order of £0.5bn. CET1 impact neutral as fully offset by reduced expected loss deduction £1.0bn MTM adjustment on certain loan portfolios t

  20. Slide 20: Strategic developments

    Strategic developments Legacy Strategic Comments Comments issues successes Wind up expected by Issuance £3.6bn in H1, Capital year end 2017; expect to stop MREL total issuance Resolution separately reporting beyond Q3 now £7.8bn HoldCo capital Alawwal In ongoing discussions with a Distributable reor

  21. Slide 21: Conclusion

    Conclusion Core bank - income up, costs down, less capital with a corresponding step change in operating performance Legacy – Continuing to make good progress; no update on DoJ / RMBS Consecutive quarterly bottom-line profits, over £900m in H1 of attributable profits On track to meet all 2017 and 20

  22. Slide 22: Q&A

    >< RBS Q&A

  23. Slide 23: Appendix

    >< RBS Appendix

  24. Slide 24: Notable items

    Notable items (£m) Q2 2017 Q1 2017 Q4 2016 Q2 2016 H1 2017 H1 2016 Total Income 3,707 3,212 3,216 3,000 6,919 6,064 Own Credit Adjustments (44) (29) (114) 194 (73) 450 Gain/(Loss) on redemption of own debt (9) 2 1 (130) (7) (130) Strategic disposals 156 - - 201 156 195 o/w Visa Gain - - - 246 - 246

  25. Slide 25: Litigation and conduct

    Litigation and conduct End of H1 2017 provisions (£m) Comments  An additional £151m provision for the recent FHFA settlement 6,579  RBS continues to cooperate with the DoJ in its civil and criminal investigations of RMBS US RMBS matters and several state attorney generals in their investigations 

  26. Slide 26: Tangible Net Asset Value (TNAV) movements

    Tangible Net Asset Value (TNAV) movements £m Shares in issue (m) TNAV per share Q1 2017 TNAV 35,186 11,842 297p Profit for the period post tax(1) 846 7p Less: profit to NCI / other owners (158) (1p) Other comprehensive Income (270) (2p) o/w AFS (31) - o/w Cashflow hedging gross of tax (422) (4p) o/w

  27. Slide 27: Continued reduction of Capital Resolution RWAs

    Continued reduction of Capital Resolution RWAs RWAs (£bn) Q2 2017 split of RWAs Alawwal Bank 7% 9% Portfolio + GTS(1) 7% 6% Shipping (46%) 49 Markets £26.6bn Alawwal Bank 7 28% Other 44% 35 Operational Risk 31 Total 8 27 8 7 Disposal spend vs. target 42 ~15-20 Disposal losses incurred 27 to date 23

  28. Slide 28: NPS

    NPS Net Promoter Scores across our core businesses 30 Personal Banking(1) Business Banking(2) Commercial Banking(3) 21 21 22 20 20 15 18 12 13 13 11 10 4 4 (2) (2) (3) 0 (4) (7) (8) (10) (13) (4) (4) (5) (7) Royal Bank of Scotland (Scotland) NatWest (England & Wales) (21) (12) RBSG (GB) (20) (30) Q2

  29. Slide 29: Fixed Income Investor Presentation

    Fixed Income Investor Presentation H1 2017 Results 4 August 2017

  30. Slide 30: Core credit messages

    Core credit messages Diversified income streams Three core franchises generating stable and attractive returns Targeted growth Well progressed on legacy clean-up and improving balance sheet resilience 2020 Target Operating Profile Sub-50% C:I 13% CET1 ~85% RWAs in ~90% Income 12+% ROTE ratio ratio P

  31. Slide 31: Diversified income streams

    Diversified income streams H1 2017 Adjusted income contribution Strategic plan targets higher quality (%) of earnings in future Ulster Bank RoI 5% UK Business Banking  Focus on customer loyalty, conducting 6% more business with our most valuable UK Personal customers Banking 37%  Targeted growth C

  32. Slide 32: Three core businesses generating stable and attractive returns

    Three core businesses generating stable and attractive returns Core Adjusted Return 11% 11% 14% on Equity(1,2) (%) 4.2 4.1 Core Adjusted operating profit(2) (£bn) 1.2 1.2 1.3 1.3 1.4 1.1 1.0 1.0 1.0(3) 0.8(3) 0.5 0.8 Q1’15 Q2’15 Q3’15 Q4’15 FY’15 Q1’16 Q2’16 Q3’16 Q4’16 FY’16 Q1’17 Q2’17  Core busi

  33. Slide 33: CET1 and leverage ratios

    CET1 and leverage ratios CET1 Ratio CRR Leverage Ratio +140bps 14.8% 5.1% 5.1% 13.4% 13.0% FY 2016 H1 2017 Target FY 2016 H1 2017  CET1 increased 140bps despite £1.2bn of restructuring, conduct & litigation costs  Leverage ratio maintained  Increasing clarity on capital generation as legacy issue

  34. Slide 34: H1 2017 Results – Treasurer’s view

    H1 2017 Results – Treasurer’s view Solid capital and liquidity metrics maintained, continued focus on balance sheet optimisation Capital reorganisation complete, distributable reserves up £30bn Good progress against issuance plans Delivering on structural reform – ring-fencing plans entering executi

  35. Slide 35: Solid capital and liquidity metrics maintained

    Solid capital and liquidity metrics maintained H1 2017 FY 2016 Loan : deposit ratio 91% 91% Short-term wholesale funding £18bn £14bn (1) Liquidity coverage ratio 145% 123% Net stable funding ratio 123% 121% Common equity tier 1 ratio 14.8% 13.4% CRR Leverage ratio 5.1% 5.1% (2) Loss Absorbing Capita

  36. Slide 36: MDA phase-in and assessment of appropriate buffers

    MDA phase-in and assessment of appropriate buffers Target CET1 ratio versus maximum distributable amount (“MDA”), % (3) Illustration, based on assumption of static regulatory capital requirements 14.8 Illustrative 13.0 headroom (1) Illustrative 6.4 2.4 headroom (1) 10.6 (4) 0.5 1.0 8.4 0.5 2.5 1.3 (

  37. Slide 37: Capital reorganisation successfully completed and increased available distributable reserves

    Capital reorganisation successfully completed and increased available distributable reserves 2017 evolution in RBSG (HoldCo) distributable reserves (£bn) 38.1 (0.2) 30.3 8.0 FY 2016 Capital reorganisation Other movements (1) H1 2017  H1 2017 RBSG (HoldCo) distributable reserves £38.1bn vs £8.0bn at

  38. Slide 38: On track to meet future MREL requirements

    On track to meet future MREL requirements (1) Future LAC requirement Progress toward future non-CRR MREL(4) needs (3) Based on BoE May 2017 guidance Based on current £215bn RWA and static regulatory capital requirements ~£25bn CRD IV & Management >4% Buffers ~£17bn (4) Non-CRR 11.8% MREL £8.5bn ~£9b

  39. Slide 39: Managing legacy securities

    Managing legacy securities Manage stack for value, balancing factors including: current & future regulatory value; relative funding cost; and Rating Agency considerations Not called equity accounted USD7.640% and EUR7.0916% (nominal value ~£0.8bn)(1)  Retained for transitional Tier 1 and rating age

  40. Slide 40: Good progress against simple issuance needs

    Good progress against simple issuance needs 2017 Issuance Plan H1 Progress Issuance focussed on MREL build:  Target £3-5bn equivalent Senior  Issued £3.6bn equivalent MREL HoldCo eligible Senior HoldCo  No active need for AT1  No active need for Tier 2 Returning to modest funding activity:  Rei

  41. Slide 41: Ring fencing plans progressing well

    Ring fencing plans progressing well Illustrative future structure NatWest Holdings Limited NatWest Markets Plc(1) RBS International Ltd • Primarily deposit funded • Primarily repo funded • Primarily deposit funded • Liquidity managed across major operating subsidiaries • Down-streamed MREL(2) • Acce

  42. Slide 42: Estimated Loss Absorbing Capital (“LAC”) position

    (1) Estimated Loss Absorbing Capital (“LAC”) positon (4) H1 2017, £bn LAC value (1) Regulatory Value (2,3) Par Value Common Equity Tier 1 Capital(5) 31.9 31.9 31.9 Tier 1 Capital: End point CRR compliant AT1 4.0 4.0 4.0 o/w RBS Group Plc (HoldCo) 4.0 4.0 4.0 o/w RBS Operating Subsidiaries (OpCos) -

  43. Slide 43: RBS senior debt rating composition

    RBS senior debt rating composition Standard & Poor’s Moody’s Fitch Stand Alone Credit Profile bbb Baseline Credit Assesment baa3 Viability Ratings bbb+ Anchor bbb+ Macro profile Very Strong - Operating environment a+ to aa Stand- Business position 0 Financial profile baa2 Company profile bbb to a- a

  44. Slide 44: Forward Looking Statements

    Forward Looking Statements Cautionary statement regarding 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

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