Natwest Group Plc · LSE:NWG
Natwest — The Royal Bank of Scotland Group — UBS Global Financials Conference 2004
45 slides from Natwest's conference presentation, May 10, 2004
Slide 1: Managing For Growth
Managing For Growth Fred Goodwin Group Chief Executive
Slide 2: Forward looking statements disclaimer
Certain statements made in this presentation are forward looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results and performance to differ materially from any expected future results or performance,
Slide 3: What are the required characteristics for growth?
Managing For Growth What are the required characteristics for growth? Slide 3
Slide 4: Characteristics for Growth
Characteristics for Growth ▮ Organic growth – Large distribution capacity – Multiple brands – Low market shares – Diversity of income – Income momentum ▮ Acquisitions – Able to make good acquisitions – Good at integration of acquisitions Slide 4
Slide 5: Large Distribution Capacity
Large Distribution Capacity Distribution Channels UK Ranking ▮ Branches #1 ▮ Supermarkets #1 ▮ Telephone #1 ▮ Internet #? (large) ▮ ATMs #1 ▮ Relationship Managers #1 Source: Company Accounts, CACI and Link Slide 5
Slide 6: Multiple Brands
Multiple Brands Multi-Brand, Multiple Channel Strategy Slide 6
Slide 7: Multiple Brands
Multiple Brands Multi-Brand, Multiple Channel Strategy ▮ Appeals to different customer groups ▮ Allows different product variants, pricing ▮ Gives flexibility for future ▮ Allows management autonomy Slide 7
Slide 8: Low Market Shares
Low Market Shares UK Market Shares Total RBS Current accounts 20% Savings accounts 8% Personal loans 10% Mortgages 5% Credit cards 15% Life insurance 2% Motor insurance 16% Home insurance 13% Small business relationships 29% Corporate lead relationships 32% Source: NOP 2003, NFO 2003, RBS estimates
Slide 9: Diversity of Income
Diversity of Income RBS Income Mix 2003 Net Interest Income 43% Non-Interest Income 57% Slide 9
Slide 10: Diversity of Income
Diversity of Income Non-Interest Income to Total Income 2003 RBS 57% Citigroup 49% Bank of America 45% Wells Fargo 44% HSBC 38% HSBC including Household Slide 10
Slide 11: Diversity of Income
Diversity of Income Non-Interest Income % of Total Income 2003 Net fees and commissions 23% – Money transmission and lending 12% – Cards related 4% – Other 7% General insurance premium income 16% Dealing profits (before associated costs) 9% Other operating income 9% Non-interest income to total inco
Slide 12: Diversity of Income
Diversity of Income RBS Income Mix 2003 Net Interest Income 43% Deposits Assets 20% 23% Non-Interest Income 57% Slide 12
Slide 13: Diversity of Income
Diversity of Income Net Interest Income % of Total Income 2003 Personal deposits 11% Personal lending 12% Business deposits 9% Business lending 11% Net interest income to total income 43% Slide 13
Slide 14: Diversity of Income
Diversity of Income ▮ Not too dependent on personal lending UK Non- % of Total UK Income 2003 Consumer finance 7% 1% 8% Mortgages 3% 1% 4% Personal lending 10% 2% 12% Slide 14
Slide 15: Income Momentum
Income Momentum UK Banks Average Growth in Income 1992 – 1999 RBS Bank of Scotland Abbey National HSBC Standard Chartered Halifax Woolwich Lloyds TSB Barclays NatWest Alliance & Leicester 0 5 10 15 20 % pa Income excluding exceptional items Slide 15
Slide 16: Income Momentum
Income Momentum UK Banks Average Growth in Income 1999 – 2003 HSBC RBS HBOS Barclays Standard Chartered Lloyds TSB Alliance & Leicester Abbey National -10 -5 0 5 10 15 20 Income excluding exceptional items % pa HSBC including Household Slide 16
Slide 17: Income Momentum
Income Momentum World Banks Percentage Growth in Income from 1999 % 100 HSBC 80 RBS 60 Wells Fargo 40 Citigroup Bank of 20 America 0 -20 1999 2000 2001 2002 2003 Income as reported by banks HSBC income including Household Slide 17
Slide 18: Income Momentum
Income Momentum RBS Income Growth Pro forma 1999 2003 Change over 4 Yrs £m £m £m % Total income 11,065 19,229 8,164 +74% Components of Income Growth £m % Total NatWest transaction benefits 872 11% Other acquisitions 1,865 23% Organic growth 5,427 66% Total 8,164 100% Slide 18
Slide 19: Able to Make Good Acquisitions
Able to Make Good Acquisitions ▮ Expect to generate surplus capital ▮ Don’t need to make acquisitions ▮ Can add to operations in – UK + Ireland – Continental Europe – United States ▮ Track record of good acquisitions Slide 19
Slide 20: Able to Make Good Acquisitions
Able to Make Good Acquisitions Date Acquisition Division Consideration (m) 1998 Sep Balance of Citizens (23.5% from Bank of Ireland) Citizens $750 1999 Oct State Street (commercial banking) Citizens $350 Nov Green Flag Direct Line £223 2000 Jan UST Corporation Citizens $1,400 Mar NatWest RBS £21,000
Slide 21: Good at Integration of Acquisitions
Good at Integration of Acquisitions Approach ▮ Minimal disruption to customer-facing activities ▮ Retain separate brands, if appropriate ▮ De-duplication of IT, processing and central functions ▮ Deliver promised revenue benefits and cost savings Slide 21
Slide 22: Good at Integration of Acquisitions
Good at Integration of Acquisitions RBS + NatWest Citizens + Mellon ▮ Large, complex integrations ▮ Substantial IT conversions ▮ Completed ahead of schedule ▮ Delivered cost savings and revenue benefits, ahead of expectations Slide 22
Slide 23: Acquisition of Charter One
a« RBS The Royal Bank of Scotland Group Acquisition of Charter One
Slide 24: Acquisition of Charter One: Strategic Rationale
Acquisition of Charter One Strategic Rationale
Slide 25: Logical Geographic Extension
Logical Geographic Extension Vermont Maine New York Michigan VT NH Ohio New York Boston MA RI Indiana Michigan CT NJ PA Philadelphia Illinois Ohio Pittsburgh MD DE Indiana Illinois West Virginia Virginia Slide 25
Slide 26: Opportunities for Organic Growth
Opportunities for Organic Growth 000s Households 000s Households New England Mid West 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:
Slide 27: Opportunities for Organic Growth
Opportunities for Organic Growth 000s Small 000s Small Businesses Businesses Mid West New England Ohio 180 Rhode Island 21 Illinois 217 Massachusetts 128 Michigan 166 Connecticut 67 Indiana 98 New Hampshire 27 North East Mid Atlantic Upstate New York 86 Pennsylvania 204 Vermont 16 Source: SNL Dataso
Slide 28: Options for Future Acquisitions
Options for Future Acquisitions State Number of Banks/Thrifts Mid West Ohio 293 Illinois 671 Michigan 154 Indiana 191 North East Upstate New York 46 Vermont 24 Slide 28
Slide 29: Significant Increase in Scale
Significant Increase in Scale Charter One Citizens Increase ▮ Customers (000s) – Personal 1,719 2,462 +70% – Business 98 233 +42% ▮ Branches – Traditional 456 615 +74% – Supermarket 160 258 +62% ▮ ATMs 988 1,661 +59% ▮ Employees 7,843 15,779 +50% Statistics at 31 March 2004 Slide 29
Slide 30: Significant Increase in Scale
Significant Increase in Scale $bn Charter One Citizens Increase ▮ Customer deposits 27.2 62.8 +43% ▮ Loans and advances 28.3 43.5 +65% ▮ Total assets 42.6 76.8 +55% ▮ Income ($m 2003) 1,867 2,984 +63% ▮ Expenses ($m 2003) 791 1,438 +55% 2003 Income and expenses: Citizens UK GAAP , Charter One US GAA
Slide 31: Top Bank in US: Deposits
Top 10 Bank in US Deposits $bn 1. Bank of America 575 2. JP Morgan Chase + Bank One (pending) 503 3. Citigroup 499 4. Wells Fargo 248 5. Wachovia 232 6. US Bancorp 119 7. SunTrust Banks + National Commerce Financial (pending) 97 8. Pro forma Citizens + Charter One 87 8. HSBC North America 86 9. Nati
Slide 32: Top Bank in US: Assets
Top 10 Bank in US Assets $bn 1. Citigroup 1,318 2. JP Morgan Chase + Bank One (pending) 1,121 3. Bank of America 1,016 4. Wachovia 411 5. Wells Fargo 397 6. US Bancorp 192 7. SunTrust Banks + National Commerce Financial (pending) 148 8. Pro forma Citizens + Charter One 129 8. National City + Provide
Slide 33: Greater Contribution from US
Greater Contribution from US RBS Profit Before Tax RBS Profit Before Tax Before Charter One After Charter One Rest of World 2% Rest of World 2% Europe 5% Europe 5% US 19% US 25% UK 74% UK 68% Slide 33
Slide 34: Acquisition of Charter One: Transaction Benefits
Acquisition of Charter One Transaction Benefits
Slide 35: Transaction Benefits
Transaction Benefits Contribution to Profit Before Tax in 2007 $m Revenue benefits 222 Cost savings 185 Total 407 Slide 35
Slide 36: Revenue Benefits: Personal Banking Products
Revenue Benefits Personal Banking Products Charter One Citizens ▮ Checking accounts – Free checking – Relationship checking – ▮ Savings accounts ▮ Mortgages ▮ Home equity ▮ Investments ▮ Credit cards – * * RBS announced purchase of People’s Bank credit card business in February 2004 Slide 36
Slide 37: Revenue Benefits: Small Business Products
Revenue Benefits Small Business Products Charter One Citizens ▮ Checking accounts ▮ Business savings – ▮ Loans ▮ Business credit card – Slide 37
Slide 38: Revenue Benefits: Mid-Corporate Products
Revenue Benefits Mid-Corporate Products Charter One Citizens ▮ Cash management – ▮ Loans ▮ Sweep account (interest paying) – ▮ Foreign exchange – ▮ Derivatives – ▮ Leasing Slide 38
Slide 39: Cost Savings
Cost Savings ▮ Technology and Operations – Migrate technology to Citizens’ systems – Consolidate operations ▮ Corporate overheads – Eliminate HQ costs – Combine central functions ▮ Business combinations – Combine auto finance businesses – Rationalise loan processing operations – Rationalise mortgage
Slide 40: Transaction Benefits
Transaction Benefits Mellon $m Mellon $m Gross revenue benefits 242 Cost savings 101 Mellon income 719 Mellon costs 453 Benefits % Savings % Mellon income 34% Mellon costs 22% Charter One $m Charter One $m Gross revenue benefits 378 Cost savings 185 Charter One income 1,867 Charter One costs 791 Ben
Slide 41: Low Risk Acquisition
Low Risk Acquisition ▮ Charter One is similar to Citizens – Emphasis on retail banking – Focus on growth and efficiency – Strong credit quality ▮ No need for divestitures or disposals ▮ No branch closures ▮ Business is not ‘broken’ ▮ Citizens proven track record in acquisitions Slide 41
Slide 42: Transaction Financials
Transaction Financials ▮ Price per share $44.50 ▮ 15.1 times 2004 consensus earnings ▮ 13.9 times 2005 consensus earnings ▮ Exceeds Group hurdle rate (12% post tax) ▮ Earnings per share broadly neutral in first year, accretive thereafter ▮ Equity placing completed 5 May 2004 ▮ Completion expected Q4
Slide 43: Acquisition of Charter One: Summary
Acquisition of Charter One Summary ▮ Logical geographic extension ▮ Significant increase in scale ▮ Opportunities for organic growth ▮ Option for future acquisitions ▮ Significant transaction benefits ▮ Low risk acquisition ▮ Top 10 bank in US ▮ 25% of RBS profit before tax from US Slide 43
Slide 44: Managing For Growth
Managing For Growth ▮ Organic growth – Large distribution capacity – Multiple brands – Low market shares – Diversity of income – Income momentum ▮ Acquisitions – Able to make good acquisitions – Good at integration of acquisitions Slide 44
Slide 45: Managing For Growth
Managing For Growth Fred Goodwin Group Chief Executive
The Royal Bank of Scotland Group — UBS Global Financials Conference 2004 on 6ix