Natwest Group Plc · LSE:NWG
Natwest — The Royal Bank of Scotland Group — UBS Global Financial Services Conference 2006
42 slides from Natwest's conference presentation, May 15, 2006
Slide 1: Is Big Better?
Is Big Better? 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: Is Big Better? RBS World Banks
Is Big Better? RBS World Banks 2005 Total income #5 Operating profit #5 Market capitalisation #8 Slide 3
Slide 4: Potential Disadvantages
Is Big Better? Potential Disadvantages ▮ Complexity/inflexibility ▮ Big becomes an objective ▮ Diversification – negative Slide 4
Slide 5: Advantages
Is Big Better? Advantages ▮ Diversification – positive ▮ Scale ▮ Options Slide 5
Slide 6: Advantages: Diversification
Is Big Better? Advantages ▮ Diversification ▮ Scale ▮ Options Slide 6
Slide 7: Diversification
Diversification ▮ Larger bank can be active in multiple business segments and geographic areas ▮ Reduces dependency on any one activity or geography ▮ Supports more consistent growth in income and profit Slide 7
Slide 8: Diversified by Business
Diversified by Business 1999 Income 2005 Income Pro forma Ulster Bank Ulster Bank RBS Insurance 4% 3% 8% Citizens RBS Insurance 5% Corporate 21% Markets Corporate 33% Markets 39% Citizens 12% Retail Markets 44% Retail Markets 31% 1999 income is pro forma as if the acquisition of NatWest had taken pl
Slide 9: Diversified by Type of Income
Diversified by Type of Income 1999 Income 2005 Income Pro forma Net Interest Income 48% Net Interest Income 39% Deposits Lending Deposits Lending 25% 23% 17% 22% Non-Interest Income 52% Non-Interest Income 61% 1999 income is pro forma as if the acquisition of NatWest had taken place on 1 January 199
Slide 10: Diversified by Type of Income
Diversified by Type of Income Non-Interest Income % of Total Income 2005 Net fees and commissions 19% – Money transmission and lending 10% – Cards related 4% – Other 5% General insurance premium income 23% Income from trading activities 9% Other operating income 10% Non-interest income % total incom
Slide 11: Diversified by Type of Income
Diversified by Type of Income Net Interest Income % of Total Income 2005 Personal deposits 10% Personal lending 13% Business deposits 7% Business lending 9% Net interest income % total income 39% Slide 11
Slide 12: Diversified by Type of Income
Diversified by Type of Income UK Personal Lending % of Total Income 2005 Net Non- Total Interest Interest Credit cards + personal loans 5% 2% 7% Mortgages 2% – 2% Personal lending 7% 2% 9% Slide 12
Slide 13: Diversified by Geography
Diversified by Geography 1999 Operating Profit 2005 Operating Profit Pro forma Rest of World Europe Europe 1% US 5% 13% 10% UK UK 85% 58% US 28% 1999 operating profit is pro forma as if the acquisition of NatWest had taken place on 1 January 1999 Slide 13
Slide 14: Advantages: Scale
Is Big Better? Advantages ▮ Diversification ▮ Scale ▮ Options Slide 14
Slide 15: Scale
Scale ▮ Overall size less important than scale in chosen businesses and geographies ▮ Scale arises from leveraging existing platform: – Add customers in existing products and markets – Add new products in existing markets – Add new markets for existing products ▮ Organically and by acquisition Slide
Slide 16: Increase Scale by Organic Growth
Increase Scale by Organic Growth Example: Corporate Markets ▮ Added corporate customers, improved relationships ▮ Leveraged areas of existing scale eg acquisition finance, project finance, securitisation ▮ Increased scale in Financial Markets products eg foreign exchange, interest rates, debt capita
Slide 17: Increase Scale by Acquisitions
Increase Scale by Acquisitions Year Acquisition Increase Establish Scale Platform 2000 NatWest 2001 Allstate Corporation (motor insurance, Germany/Italy) Mellon Regional Franchise 2002 Royal Insurance (motor insurance, Italy) Medford Bancorp 2003 Commonwealth Bancorp Port Financial Corporation Santa
Slide 18: Increase Scale by Acquisitions: Churchill Insurance
Increase Scale by Acquisitions Example: Churchill Insurance ▮ RBS strong in UK general insurance (Direct Line) ▮ Acquired Churchill Insurance in 2003 ▮ Churchill profit in 2002 £86 million ▮ Kept brand, converted to RBS platform – Access to Direct Line pricing engine – Cost savings: IT, claims, Head
Slide 19: Increase Scale by Acquisitions: United States
Increase Scale by Acquisitions United States 2000 2005 Citizens Citizens RBS Deposits #24 #8 #6 Assets #32 #8 #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 5,940 8,260 Source: SNL/FFIEC, American Banker 2000 UK GAAP
Slide 20: US Cost:Income Ratios
US Cost:Income Ratios Citizens + Selected Cost:Income Ratio Mid-West Competitors 2005 Citizens 47.7% Large cap JPMorgan Chase 60.1% US Bancorp 44.3% National City 59.4% Fifth Third 53.2% KeyCorp 63.2% Mid cap Huntington 60.0% Sky Financial Group 53.1% Small cap Wintrust Financial 62.5% MB Financial
Slide 21: Leverage Scale
Leverage Scale Manufacturing Technology Operations Services IT Operations Account Group Purchasing Management IT Development Group Property Telephony Lending Payments Slide 21
Slide 22: Leverage Scale
Leverage Scale Group Purchasing Prices Paid v Industry Average Paper supplies -20% Media spend -10% PCs -20% Slide 22
Slide 23: Lower Cost of Funds
Lower Cost of Funds Credit Ratings US Banks S&P Moody’s Large cap A- AA- A3 Aaa Mid cap BBB- A- Baa3 A1 Small cap B+ BBB+ Baa1 Baa3 Source: UBS, Bloomberg Slide 23
Slide 24: Credit Ratings
Credit Ratings S&P Moody’s RBS AA Aa1 Citigroup AA- Aa1 Bank of America AA- Aa2 HSBC AA- Aa2 JPMorgan Chase A+ Aa3 UBS AA+ Aa2 Wells Fargo AA Aaa SCH AA- Aa3 Wachovia A+ Aa3 Barclays AA Aa1 Highest rated operating entity used for each banking group Slide 24
Slide 25: Advantages: Options
Is Big Better? Advantages ▮ Diversification ▮ Scale ▮ Options Slide 25
Slide 26: Options
Options ▮ Range of activities by business and geography ▮ Skills and resources to establish additional options to support future growth ▮ Some options are developed, others arise Slide 26
Slide 27: Existing Options Being Developed
Existing Options Being Developed Example: Leverage Platform Established in US ▮ Citizens ▮ Card issuing (People’s Bank card portfolio acquired March 2004) ▮ Merchant acquiring (Lynk Systems acquired September 2004) Now developing significant option: ▮ Citizens + Corporate Markets, including RBS Gree
Slide 28: Opportunistic Options Arise
Opportunistic Options Arise Example: RBS/Bank of China Partnership ▮ RBS led an investment of 10% in Bank of China, RBS itself bought 5% for £0.9 billion ▮ Developing business co-operation: credit cards, corporate banking, wealth management ▮ Developing infrastructure co-operation: risk, finance, hu
Slide 29: Is Getting Bigger Making us Better?
Is Big Better? Is Getting Bigger Making us Better? Slide 29
Slide 30: Growth
Growth Income Growth 1999 – 2005 Pro forma 1999 2005 Change Change £m £m £m Total income 11,065 25,569 14,504 +131% Components of Income Growth £m % Total NatWest transaction benefits 890 6% Acquisitions 4,843 33% Organic growth 8,771 61% Total 14,504 100% 1999 UK GAAP, 2005 IFRS Slide 30
Slide 31: Growth
Growth % Growth 2001 2002 2003 2004 2005 Total income +18% +16% +14% +18% +14% Operating profit +32% +12% +11% +15% +16% Excluding acquisitions and at constant exchange rates Total income +17% +12% +10% +11% +10% Operating profit +30% +9% +10% +14% +12% Slide 31
Slide 32: 2005 Results
2005 Results £m % Total income 25,569 +14% Group operating profit 8,251 +16% Attributable profit 5,392 +17% Basic earnings per share 169.4p +13% Adjusted earnings per share 175.9p +8% Tier 1 capital 7.6% Return on equity 18.2% Slide 32
Slide 33: United States
United States Total Income 2004 2005 Change $m $m % Citizens 4,174 5,940 +42% Corporate Markets 1,946 2,335 +20% Central items 6 -15 Total 6,126 8,260 +35% Geographic analysis of income determined by location of customers Slide 33
Slide 34: Europe
Europe Total Income 2004 2005 Change €m €m % Corporate Markets 668 1,091 +63% Ulster Bank ROI 755 832 +10% RBS Insurance 419 494 +18% Retail Markets 460 472 +3% Central items 41 17 Total 2,343 2,906 +24% Geographic analysis of income determined by location of customers Slide 34
Slide 35: Asia-Pacific
Asia-Pacific Total Income 2004 2005 Change $m $m % Corporate Markets 211 266 +26% Retail Markets 119 140 +18% Central items 0 11 Total 330 417 +26% Geographic analysis of income determined by location of customers Slide 35
Slide 36: Efficiency
Efficiency Cost:Income Ratio 2005 RBS Bank of America HSBC SCH Citigroup Wells Fargo Wachovia Barclays JPMorgan Chase UBS 30 40 50 60 70 % Cost:income ratios as reported by banks, or based on income and costs reported by banks RBS: netting operating lease depreciation against rental income Slide 36
Slide 37: Growth
Growth Growth in Earnings Per Share 1999 – 2005 RBS Bank of America HSBC Citigroup Wells Fargo UBS SCH Barclays Wachovia JPMorgan Chase -5 0 5 10 15 20 RBS, HSBC, Barclays, UK GAAP 1999 - 2004 and IFRS 2004 - 2005 % pa RBS excluding goodwill amortisation and integration costs, as reported Bank of Am
Slide 38: Return
Return Return on Equity % 20 15 10 5 0 UK GAAP IFRS IFRS 2000 2001 2002 2003 2004 2005* After-tax return on ordinary equity excluding goodwill amortisation, intangibles amortisation, integration costs and exceptional items. * Allowing for constant capital Slide 38
Slide 39: Capital Generation
Capital Generation IFRS IFRS £bn 2001 2002 2003 2004 2005 Gross capital generated 3.5 4.2 4.7 5.0 5.6 Capital to support growth in RWAs at 5.0% (1.7) (1.2) (1.5) (3.0) (2.3) Ordinary dividends (1.1) (1.3) (1.5) (1.6) (1.9) Capital available for other purposes 0.7 1.7 1.7 0.4 1.4 AVSs – – Acquisition
Slide 40: Conclusion
Is Big Better? Conclusion ▮ Size doesn’t matter ▮ Diversification matters ▮ Scale matters ▮ Options matter Slide 40
Slide 41: Conclusion
Is Big Better? Conclusion ▮ RBS is diversified ▮ RBS has scale ▮ RBS has options Slide 41
Slide 42: Is Big Better?
Is Big Better? Sir Fred Goodwin Group Chief Executive
The Royal Bank of Scotland Group — UBS Global Financial Services Conference 2006 on 6ix