Natwest Group Plc · LSE:NWG
Natwest — H1 2018 Earnings Presentation
54 slides from Natwest's earnings presentation, Aug 3, 2018
Slide 1: H1 2018 Results
H1 2018 Results 3rd August
Slide 2: Howard Davies, Chairman
3x RBS Howard Davies Chairman ‘\ Sa !
Slide 3: Ross McEwan, Chief Executive Officer
Ross McEwan Chief Executive Officer
Slide 4: Key Messages
Key Messages Good performance in a tough operating environment H1 2018 Profit Before Tax of £1.8 bn, and Attributable Profit of £888m Announcing an intention to declare 2p interim dividend (1) Building to a payout ratio of around 40% over time Committed to <50% cost:income ratio and 12%+ ROTE 2020 t
Slide 5: Group financial performance
Group financial performance Delivering on our strategy is driving returns for shareholders Strong capital and Stable income Reducing cost delivering returns 16.1% Excluding NatWest Markets, central £133m H1 2018 CET1 Ratio items and one-offs income is Other expenses reduction Up 110bps on Q1 2018(3)
Slide 6: Supporting our customers
Supporting our customers Helping UK and Republic of Ireland businesses and homeowners £13.6bn gross new mortgage lending Total customer deposits in growth in UKPBB since Dec 17 UK PBB up 4.3% on H1 2017 Over 1bn mobile app logins, SME Lending in Business up 20% on H1 2017 Banking up 1.5% on H1 2017
Slide 7: Shift from physical to digital continues at pace
Shift from physical to digital continues at pace Continued focus on investment in digital channels Physical reduction Branch counter Cheque usage Contact Centre calls transactions down 16% on H1 2017 down 11% on H1 2017 down 7% on H1 2017(1) Over 80% of Commercial Digital sales in UK PBB Mobile Paym
Slide 8: Improving the core business
Improving the core business Digital strategy supports cost reduction and improves customer experience UK PBB Mobile App users (m) Conversations with Cora +20% 1.5 Cora integrated with NatWest Mobile App 6.0 Million 5.5 1.0 4.6 5.0 0.5 0.0 FY 2016 H1 2017 FY 2017 H1 2018 Q1 2018 Q2 2018 Tealand Direc
Slide 9: Delivering new innovative solutions
Delivering new innovative solutions Applying what we learn back into the core bank ESME CurrencyPay Cloud based accounting software New Commercial lending platform Piloting new Foreign Exchange product Teal CurrencyPay Voted #1 accounting software for £10-£150k loans Real-time rates SMEs Dec
Slide 10: UK Personal and Business Banking
UK Personal and Business Banking Good operating performance despite margin pressure in mortgages UK PBB (£m) +101 Operating profit up £101m 162 (50) 1,432 • Total income decreased £11m, 1,331 (11) or 0.3% • Operating expenses decreased £162m or 9.3% • Impairment charge £50m higher, or 52% H1 2017 Op
Slide 11: Ulster Bank Republic of Ireland
Ulster Bank Republic of Ireland Improved credit metrics across all portfolios Ulster Bank RoI (€m) +88 Operating profit up €88m 17 100 • Total income increased €14m, 57 or 4.1% • Operating expenses decreased €57m or 16.7% 14 12 • Net Impairment release €30m compared to €13m release in H1 2017 H1 201
Slide 12: Commercial Banking
Commercial Banking Focus on capital efficiency delivering better returns Like-for-like basis Commercial Banking (£m) +352 912 Transfers(1) 660 (142) 4 38 560 H1 2017 Op. Income Operating expenses Impairments H1 2017 H1 2018 Op. Profit (Reported) (Including transfers) Profit (Reported) Like-for-like
Slide 13: Private Banking
Private Banking Reshaping of the business is delivering a better performance Like-for-like basis Private Banking (£m) +62 156 Transfers(1) 18 (6) 94 82 H1 2017 Op. Income Operating expenses H1 2017 H1 2018 Op. Profit (Reported) (Including transfers) Profit (Reported) Like-for-like basis: Operating p
Slide 14: RBS International
RBS International Making good progress towards ring-fencing structure Like-for-like basis RBS International (£m) Transfers(1) +2 82 (7) 171 173 96 H1 2017 Op. Income Operating expenses H1 2017 H1 2018 Op. Profit (Reported) (Including transfers) Profit (Reported) Like-for-like basis: Operating profit
Slide 15: NatWest Markets
NatWest Markets Good customer flows despite a challenging second quarter Like-for-like basis NatWest Markets (£m) Transfers(1) +203 46 66 1 (38) (157) (185) H1 2017 Op. Income Operating expenses Impairment H1 2017 H1 2018 Op. (Loss) (Reported) (Including transfers) Profit (Reported) Like-for-like ba
Slide 16: 2020 investment case
2020 investment case(1) The bank we are becoming • A leading UK Retail and Commercial 2 Bank with a focused Markets Balanced, stable and improving income division generation • Strong brands and market positions 1 3 Improving • Growing in attractive chosen Resilient Balance Sheet with improving effic
Slide 17: Ewen Stevenson, Chief Financial Officer
Ewen Stevenson Chief Financial Officer
Slide 18: Summary financials
Summary financials vs. H1 2017 99 89 (109) (296) £6.7bn 6,919 Income 6,702 (3.1%) Income (£m)(1) £4.7bn Operating expenses (2.4%) H1 2017 PBB & CPB RBSI NatWest Centre H1 2018 Markets £1.8bn Operating profit 218 (11) (6.4%) (3) (2) 202 £0.9bn NIM (bps) Attributable profit (5.4%) H1 2017 Increased Co
Slide 19: 2020 targets
2020 targets(1) Our strategic plan targets sustainable returns based on… Sub-50% 12%+ ROTE Cost:Income Ratio This will be based off… Retail & CET1 ratio in UK income ~90% Commercial RWAs excess of 13% ~85% (1) The targets, expectations and trends discussed in this presentation represent management’s
Slide 20: Capital distribution
Capital distribution(1) • Expect RWAs to reduce by £5-10bn (vs. FY 2017) by FY 2018 • Mortgage risk weighting expected to increase RWAs by £12bn in H2 RWA 2020 outlook • Basel 3 amendments currently assumed to inflate RWAs by 10%, or around £20bn in 2021/2022 • Announced intention to declare an inte
Slide 21: Summary
Summary Attributable profit ex. US RMBS £1,690m for H1 2018 PBB & CPB income up, costs down, RWAs down, major legacy issues largely resolved On track to deliver our 2020 financial targets Announcing intention to declare an interim dividend, subject to the timing of the finalisation of the settlement
Slide 22: Appendix
3x RBS Appendix ‘\ va !
Slide 23: Income H1 2018
Income H1 2018 Resilient Retail & Commercial performance in tougher conditions Income (£m) (1) Net Interest Margin (bps) 89 (109) 6,919 99 218 (296) (11) 6,702 (3) (2) 202 H1 2017 PBB & RBSI NatWest Centre H1 2018 H1 2017 Increased Competitive Mix impacts H1 2018 CPB Markets liquidity pressure • Tot
Slide 24: Costs H1 2018
Costs H1 2018 Continued gentle run-down of underlying costs Operating costs (£m) Strategic costs (£m) 10,265 790 775 58 Strategic cost guidance 163 1,476 Conduct & Litigation 732 ~£2.5bn (£801m) 612 o/w DOJ (£1040m) 350 o/w Nomura RMBS 5,929 4,553 litigation indemnity H1 2017 H2 2017 H1 2018 FY 2018
Slide 25: RWAs and capital generation
RWAs and capital generation Continued RWA reductions support strong capital build RWAs (£bn) CET1 ratio 16.2% 16.2% (0.1%) 1.0 16.1% 200.9 By the end of 0.2% 2018 Bank 15.9% 0.3% (3.2) RWAs expected to be lower by (0.8%) £5bn - £10bn (vs. 1.0% FY 2017) 198.8 191-196 (0.5%) 0.3% FY 2017 Pensions RWA
Slide 26: H1 2018 results by business
H1 2018 results by business Central Ulster Bank Commercial Private RBS NatWest (£bn) UK PBB items & Total RBS RoI Banking Banking International Markets other(1) Income 3.2 0.3 1.8 0.4 0.3 0.7 0.1 6.7 Operating expenses (1.6) (0.3) (0.8) (0.2) (0.1) (0.7) (1.0) (4.7) Impairment (losses) / releases (0
Slide 27: Notable items income and expenses
Notable items income and expenses (£m) H1 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017 H1 2017 Q2 2017 Q1 2017 Total Income 6,702 3,400 3,302 3,057 3,157 6,919 3,707 3,212 IFRS volatility in Central items (111) 17 (128) (173) 21 154 172 (18) UK PBB Debt Sale 26 - 26 9 168 8 - 8 FX (loss)/gain in Central ite
Slide 28: Diluted Tangible Net Asset Value (TNAV) movements
Diluted Tangible Net Asset Value (TNAV) movements Shares in TNAV per Diluted shares Diluted TNAV Amount (£m) Amount (£m) issue (m) share (p) in issue (m) per share (p) Q1 2018 TNAV 35,644 11,993 297p 35,644 12,075 295p Profit for the period post tax 201 2p 201 2p Less: loss to NCI / other owners (10
Slide 29: Litigation and conduct
Litigation and conduct End of H1 2018 provisions (£m) Comments • Settlement in principle reached with DOJ 3,715 for US RMBS • Incremental charge of £1,040m taken in Q2 US RMBS 2018 • Nomura RMBS litigation indemnity recovery of £241m 745 711 650 • RBS has made provisions totalling £5.1bn to date for
Slide 30: Spotlight on UK PBB Mortgages
Spotlight on UK PBB Mortgages Book LTV BTL vs. Owner occupied mix H1 2018 gross new >100% 345 lending average LTV FY 2017 H1 2018 69% Owner 80% <=100% 18,526 Occupied Buy to Buy to let let 12% 13% 50% <=80% 69,697 61% BTL <=50% 48,550 88% 87% Owner 0 20,000 40,000 60,000 80,000 Owner occupied Mortga
Slide 31: Spotlight on UK PBB Mortgages
Spotlight on UK PBB Mortgages New business flow and stock movements 1.6% 2 year and 5 year swap rates 1.4% Gross new lending Net lending movement 1.2% 10 1.0% 0.8% 8 0.6% 5yr Swap 0.4% 6 2yr Swap Lending 0.2% (£bn) 4 0.0% Q2 2016 Q4 2016 Q2 2017 Q4 2017 Q2 2018 2 H1 2016 H1 2018 0 5yr 23% fixed Q1 2
Slide 32: Net interest income and cash flow hedging reserve sensitivity
Net interest income and cash flow hedging reserve sensitivity Structural and product hedge Change in NII – 25bps upward shift in yield curves 30 June 2018 30 June 2018 (£m) Year 1 Year 2 Year 3 Incremental Average notional Overall yield income (£m) (£bn) (%) Structural hedges 30 96 163 Equity struct
Slide 33: Net Promoter Scores across our brands
Net Promoter Scores across our brands Personal Banking(1) Business Banking(2) Commercial Banking(3) NatWest remains stable. Branch closures Continued impact from operating model Remains ahead of the rest of the market impacting Royal Bank of Scotland. changes 30 21 20 21 22 21 21 18 18 17 15 20 15 1
Slide 34: Fixed Income H1 2018 Results
Fixed Income Investor Presentation H1 2018 Results 3rd August 2018
Slide 35: Katie Murray, Deputy CFO
3< RBS Katie Murray Deputy CFO \ va!
Slide 36: Summary financials
Summary financials vs. H1 2017 £6.7bn Income (3.1%) 6,919 89 (109) 99 (296) 6,702 £4.7bn Income (£m)(1) Operating expenses (2.4%) H1 2017 PBB & CPB RBSI NatWest Centre H1 2018 Markets £1.8bn Operating profit (6.4%) 218 (11) 202 (3) (2) £0.9bn NIM (bps) Attributable profit (5.4%) H1 2017 Increased Co
Slide 37: Capital outlook
Capital outlook(1) • Expect RWAs to reduce by £5-10bn (vs. FY 2017) by FY 2018 RWA • Mortgage risk weighting expected to increase RWAs by £12bn in H2 2020 outlook • Basel 3 amendments currently assumed to inflate RWAs by 10%, or around £20bn in 2021/2022 CET1 • CET1 ratio 2020 target in excess of 13
Slide 38: 2020 targets
2020 targets(1) Our strategic plan targets sustainable returns based on… Sub-50% 12%+ ROTE Cost:Income Ratio This will be based off… Retail & CET1 ratio in UK income ~90% Commercial RWAs excess of 13% ~85% (1) The targets, expectations and trends discussed in this presentation represent management’s
Slide 39: Core messages
Core messages Attributable profit ex. US RMBS £1,690m for H1 2018 Solid capital generation: CET1 up 110bps(1), RWAs down, major legacy issues largely resolved On track to deliver our 2020 financial targets Intention to build future capital distributions (1) Excludes the impact of £2bn pre-tax pensio
Slide 40: Robert Begbie, Treasurer
3< RBS Robert Begbie Treasurer \ Siva !
Slide 41: Treasurer's View
Treasurer’s View • Balance sheet strength and sustainability in an uncertain environment • Positive momentum on ratings • Largely completed 2018 MREL & funding requirements • Resolution of major legacy issued reflected in credit spread performance • H1 Ring-fencing milestones achieved, on track for
Slide 42: Strong, sustainable balance sheet
Strong, sustainable balance sheet H1 2018 FY 2017 Loan : deposit ratio 87% 88% Short-term wholesale funding £13bn £18bn Liquidity coverage ratio 167% 152% Net stable funding ratio 141% 132% Common equity Tier 1 ratio 16.1% 15.9% CRR Leverage ratio 5.2% 5.3% Loss absorbing capital ratio 29.6% 27.1% 9
Slide 43: Positive momentum on ratings
Positive momentum on ratings Ratings actions in H1 Moodys S&P Fitch RBS Group Baa2/Pos BBB-/Pos BBB+/Pos Inside the ring-fence • H1 2018 saw positive action on our ratings from all three agencies Natwest Bank Plc A1*/A2/Pos A-/Pos A-/Pos • Moody’s upgraded the senior unsecured Royal Bank of Scotland
Slide 44: On track to meet future MREL requirements
On track to meet future MREL(2) requirements Future LAC requirement (1) (4) Progress toward future non-CRR MREL needs Based on BoE June 2018 guidance Based on current £199bn RWA and static regulatory capital requirements (3) CRD IV & Management >4% £24.0bn Buffers (4) £4-6bn annual Non-CRR 11.8% iss
Slide 45: Issuance reflects post ring fencing entity structure
Issuance reflects post ring fencing entity structure • Ring-fenced entity funding weighted toward deposits • No requirement for senior unsecured issuance out of the ring-fenced bank OpCos • Potential for secured issuance from ring-fenced bank OpCos for funding diversification purposes • ~£1-1.5bn se
Slide 46: Actively managing the non-MREL Capital stack
Actively managing the non-MREL Capital stack • Continue to manage the legacy capital stack for value: current & future regulatory value; relative funding cost; and Rating Agency considerations • ~£7bn legacy Tier 1 redeemed since FY 2014 • No need for AT1 or Tier 2 issuance, given outlook for balanc
Slide 47: Progress on structural reform
Progress on structural reform RFTS 1 successfully completed: H1 2018 • Retail & commercial asset transferred across the ring-fence; • Major OpCos renamed; and • Covered Bond programme transferred to NatWest Bank Plc • Capital reduction exercise in NatWest Markets completed in July • Non-permitted cu
Slide 48: Appendix
Appendix Information Classification: Internal 16
Slide 49: RWAs and capital generation
RWAs and capital generation Continued RWA reductions support strong capital build RWAs (£bn) CET1 ratio 16.2% 16.2% (0.1%) 1.0 16.1% 200.9 By the end of 0.2% 2018 Bank 15.9% 0.3% (3.2) RWAs expected to be lower by (0.8%) £5bn - £10bn (vs. 1.0% FY 2017) 198.8 191-196 (0.5%) 0.3% FY 2017 Pensions RWA
Slide 50: Strong CET1 build
Strong CET1 build Target CET1 ratio versus maximum distributable amount (“MDA”), % Illustration, based on assumption of static regulatory capital requirements (3) 16.1 › 13.0 6.4 Illustrative Illustrative(1) 11.1 1.9 headroom (1) headroom 9.7 1.0 0.5 1.0 (4) 0.8 1.9 2.5 (2) Countercyclical Buffer (3
Slide 51: Estimated Loss Absorbing Capital (LAC)
Estimated Loss Absorbing Capital (“LAC”) H1 2018 £bn LAC Value Regulatory Value Par Value Common equity tier 1 32.0 32.0 32.0 Tier 1 Capital: End point CRR compliant 4.0 4.0 4.0 o/w RBS Group Plc (HoldCo) 4.0 4.0 4.0 o/w RBS Operating Subsidiaries (OpCos) - - - Tier 1 Capital: End point CRR non-comp
Slide 52: H1 2018 results by business
H1 2018 results by business Central Ulster Bank Commercial Private RBS NatWest (£bn) UK PBB items & Total RBS RoI Banking Banking International Markets other(1) Income 3.2 0.3 1.8 0.4 0.3 0.7 0.1 6.7 Operating expenses (1.6) (0.3) (0.8) (0.2) (0.1) (0.7) (1.0) (4.7) Impairment (losses) / releases (0
Slide 53: Litigation and conduct
Litigation and conduct End of H1 2018 provisions (£m) Comments 3,715 • Settlement in principle reached with DOJ for US RMBS • Incremental charge of £1,040m taken in Q2 US RMBS 2018 • Nomura RMBS litigation indemnity recovery of £241m 745 711 650 • RBS has made provisions totalling £5.1bn to date for
Slide 54: Disclaimers
Disclaimers The targets, expectations and trends discussed in this presentation represent management’s current expectations and are subject to change, including as a result of the factors described in the “Summary Risk Factors” on pages 48 and 49 of the H1 2018 IMS and the “Risk Factors” on pages 37