Natwest Group Plc · LSE:NWG

Natwest — The Royal Bank of Scotland Group — Merrill Lynch Banking & Insurance CEO Conference 2009

45 slides from Natwest's conference presentation, Sep 29, 2009

1. Slide 1: Competing in the 'new normal'

   Competing in the ‘new normal’ Merrill Lynch Banking & Insurance CEO Conference 29th September 2009 Stephen Hester, Group CEO, The Royal Bank of Scotland Group

2. Slide 2: Important Information

   Important Information „ Certain sections in this presentation 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’, ‘estimate’, ‘project’, ‘anticipate’, ‘believes’, ‘shou

3. Slide 3: Agenda

   Agenda What is the ‘new normal’? RBS’s current position Re-tooling RBS Measuring success Slide 3

4. Slide 4: Focus of this presentation

   Focus of this presentation „ RBS is being radically restructured. Huge changes are well underway reducing balance sheet, risk, product, client & geographic scope, cost base and changing the culture & management. „ Those changes constitute perhaps the most radical bank restructuring of modern times.

5. Slide 5: What is the 'new normal'?

   What is the ‘new normal’?

6. Slide 6: A return to economic growth, but constrained by the unwind of past excesses

   A return to economic growth, but constrained by the unwind of past excesses Macro Factors Examples Implications 1 4% UK / US Current Account Position as % of GDP Current Account deficit / GDP 3% 2% 1% - (1)% (2)% (3)% (4)% „ Low interest rate environment to (5)% (6)% continue for a while „ Growth re

7. Slide 7: Banking industry to face a 'new normal' operating environment

   Banking industry to face a ‘new normal’ operating environment as a result Micro Factors Examples Implications Number of US Financial Institutions1 13,000 11,000 9,000 „ Rational competitive environment 7,000 „ Increased opportunity for existing „ Continued focus on in-market 5,000 top tier franchise

8. Slide 8: RBS's current position

   RBS’s current position

9. Slide 9: 2013 Vision for RBS

   2013 Vision for RBS To be one of the world’s most admired, valuable and stable universal banks To return to 15%+ sustainable RoEs, powered by market-leading businesses in large customer-driven markets To deliver its strategy from a stable AA category risk profile and balance sheet The business mix t

10. Slide 10: Our current position

    Our current position positives: Naturally profitable businesses with historic RoE of 15%+ Strong customer base with growth potential Robust deposit franchises All core Enduring brands & customer loyalty businesses are top tier, Balanced portfolio operating at scale scalable, customer driven franchis

11. Slide 11: Naturally profitable businesses

    Naturally profitable businesses Each division has historically strong performance1 C:I Ratio LDR ~100% RoE >15% NIM >2.5% <50% or less UK Retail 9 9 UK Corporate 9 9 9 Wealth 9 9 9 Global Banking & Markets 9 9 Global Transaction Services 9 n/m 9 9 Ulster Bank 9 9 US Retail & Commercial 9 9 9 9 RBS I

12. Slide 12: Strong customer base with growth potential

    Strong customer base with growth potential „ 12.6m current accounts (+3%)1 and 9.7m savings accounts (+18%)1 demonstrating UK Retail robust growth & strength of franchise „ Improved online banking proposition with 3.8m active users registered „ Customer base maintained throughout financial crisis UK

13. Slide 13: Robust deposit franchises

    Robust deposit franchises Division H109 Deposits Overview Outlook UK Retail £83.4bn Strong client network with large affluent base Renewed focus on deposit gathering Ability to attract deposits supported by depth of client relationships UK Corporate £84.1bn Sector reducing leverage and retaining hig

14. Slide 14: Enduring brands & customer loyalty

    Enduring brands & customer loyalty Enduring customer satisfaction UK Retail1 Commercial2 66% 52 % 50 % 65% 63% 64% 64% 40 % 34 % RBS NatWest Peer 1 Peer 2 Peer 3 RBS Peer 1 Peer 2 Peer 3 Citizens3 Corporate2 51 % 74% 71% 46 % 38 % 33 % Citizens Competitors RBS Peer 1 Peer 2 Peer 3 „ Enduring custome

15. Slide 15: Balanced portfolio, operating at scale

    Balanced portfolio, operating at scale Income1 „ Diversified income streams – Income 1/3 GBM, 2/3 Retail & Corporate RWAs1 „ Well matched RWAs – RWAs 1/3 GBM, 2/3 Retail & Corporate Employees2 GBM Retail3 Corporate4 1 Q209 2 H109, excludes manufacturing and central heads 3 Retail includes UK Retail,

16. Slide 16: Re-tooling RBS

    Re-tooling RBS

17. Slide 17: How are we re-tooling the business?

    How are we re-tooling the business? Strengthening the customer franchise & improving business economics & strategy by… Cost management & cost reduction Business investment programmes Re-focusing & expanding the service proposition Margin & Non Interest Income initiatives Increasing group connectivit

18. Slide 18: Targeting market leading C:I Ratios

    Targeting market leading C:I Ratios £2.5bn cost reduction programme to Cost/Income ratio targets by division, % 2011 & more thereafter 2008 Actual1 2008 Benchmark3 2013 Target 0.6bn savings £0.6bn savingsininH1 H1 „ Annualised, approximately 62 c.55 GBM 121 £1.1bn of £2.5bn delivered ABN integration

19. Slide 19: Addressing past under-investment in Information Technology

    Addressing past under-investment RBS average Peers Common needs of businesses & examples Implementation Parameters 2005–2007 average of Initiatives costs Improve and integrate infrastructure ƒ IT spend as percent of ƒ GBM – data centres consolidation and IT improvements c10% 5 year spend > £6bn to f

20. Slide 20: Refocusing the service proposition

    Refocusing the service proposition Increasing customer accessibility – e.g. UK Retail Re-focusing the footprint – e.g. GTS Network Primary Country Significant opportunity to build remote channel access Refocused Country Explore new ownership 56% 41% 37% % of CA 31% 26% 26% 25% 25% 24% customers 17%

21. Slide 21: Margin and Non II initiatives

    Margin and Non II initiatives Plan Assumptions Non-interest income initiatives 2008 2009 2011 „ Invest in new affluent proposition with enhanced wealth -09 -11 -13 UK Retail management products „ Integrate RBS general insurance products Group NIM „ Leverage GBM capital markets platform and products

22. Slide 22: Building connectivity across the Group

    Building connectivity across the Group „ Exploiting connectivity will drive significant revenues and synergies Group-wide „ Leverage opportunities exist across customers, platforms and services e t e il nc U e ta In ns U &C C th ra W r ze R l M su C TS ea iti ls B K K G G U Cross sell 9 9 9 9 9 9 9

23. Slide 23: Improving Group connectivity, cross-sell & complementarity

    Improving Group connectivity, cross-sell & complementarity £m cross sell revenues, 2008 £380m £70m GBM UK Franchise: £1,060m Citizens £1,150m GTS £300m £70m UK Retail £30m1 Ulster UK C&C £40m2 High cross-sell £340m3 Insurance Significant Manufacturing synergies Product cross sell synergies Wealth Po

24. Slide 24: Cultural change

    Cultural change Old Focus New Focus Slide 8 EPS Growth 1 Measure Cumulative Growth in Earnings Per Share Risk: 200 „ Stand-alone credit rating 180 „ Core Tier 1 capital ratio 160 „ Loan/deposit ratio (LDR) 140 „ Wholesale funding reliance 120 „ Liquidity reserves 100 2001 2005 2008 RBS excluding goo

25. Slide 25: Targeting a balanced funding model

    Targeting a balanced funding model Loan to deposit ratios, % Non-Core asset run-off targets, £bn 1H 2009 2013 Target UK Retail 116 <105 Undrawn commitments 85 TPAs UK Corporate 122 <130 70 ~50 ~25 GTS c.230 26 <20 252 ~9 214 ~202 GBM 196 n/m ~172 ~133 ~1 ~76 Wealth 36 <30 ~19 2008 1H09 FY09 2010 201

26. Slide 26: Measuring success

    Measuring success

27. Slide 27: How to measure success?

    How to measure success? Clearly defined financial targets Measure 2008 Actual 2013 Target Targets by division UK Retail Wealth Risk RoE, % C:I, % LDR, % RoE, % C:I, % LDR, % „ Stand-alone credit rating1 BBB category AA category 2011 >1 <60 <120 2011 n.m. <60 <35 „ Core Tier 1 capital ratio 4%2 >8% 2

28. Slide 28: Creating an attractive investor story

    Creating an attractive investor story Leading positions in all our customer businesses Top tier market Strong, predictable and resilient business performance franchises Developing global franchises in Wealth, GTS and parts of GBM Complementary portfolio with clear cohesion logic and synergies Balanc

29. Slide 29: Concluding remarks

    Concluding remarks

30. Slide 30: Concluding remarks

    Concluding remarks „ A challenging macro environment continues – Near-term re-balancing & unwind will constrain growth – Headwinds from impairments will continue „ Markets will emerge with fewer competitors, but only the fit will prosper „ Businesses must re-tool to compete effectively „ RBS offers

31. Slide 31: Questions?

    Questions?

32. Slide 32: Appendices

    Appendices

33. Slide 33: Divisional targets

    Divisional targets UK Retail UK Corporate Unlocking the value of our customer franchise as the Leading franchise focused on re-building sustainable most helpful retail bank in the UK value for customers and the bank RoE, % C:I, % LDR, % RoE, % C:I, % LDR, % 2011 >1 <60 <120 2011 >5 <45 <135 2013 >15

34. Slide 34: Divisional targets

    Divisional targets Wealth Ulster Bank Leading UK franchise with global reach, providing Restructuring to sustainable profitability as Irish growth and substantial funding to Group economy recovers RoE, % C:I, % LDR, % RoE, % C:I, % LDR, % 2011 n.m. <60 <35 2011 >0 <75 <175 2013 n.m. <50 <30 2013 >15

35. Slide 35: Non-core asset run-off targets

    Non-core asset run-off targets Non Core third party assets (TPAs excl MTMs) run-off targets, £bn Undrawn commitments Breakdown of changes in TPAs, TPAs 2009 – 2013 85 Rollovers & additional drawings 50-60 70 ~50 Asset sales (50)–(60) ~25 c.230 252 ~9 Run-off (185)–(205) 214 ~202 ~172 ~133 ~1 APS sec

36. Slide 36: APS and EU

    APS and EU APS1 is two things wrapped in one 1) Insurance Policy (c.£300bn in size) to guard against “stressed downside risk” 2) Equity Raising (£19.5 – 25.5bn “B” shares) to pay insurance fee and restore RBS Core Tier 1 to AA category levels over the plan period in “expected case” „ Insurance polic

37. Slide 37: APS Implementation – Anticipated timeline

    APS Implementation – Anticipated timeline 2009 Current stage Feb Autumn Accession Phase 1 Phase 2 Phase 3 Accession agreement „ Initial „ Finalisation of „ Establish „ Sign accession „ Shareholder identification of asset selection governance agreement circular assets for APS structures and „ Negotia

38. Slide 38: Current Position – Core UK Retail

    Current Position – Core UK Retail Leading customer base & branch network Top tier market positions Market share by volume, %, Dec. 20081 Branch share RBS 2007 Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 RBS ranking 0 – 5% Current 5 – 10% Personal current accounts account 35 17 15 12 8 20 #2 increased 3% to 1

39. Slide 39: Current Position – Core UK Corporate

    Current Position – Core UK Corporate Market leading product offering Top tier market positions Overview of competitors banking products Share of primary banking relationships (£25m-£1bn), %1 Peer 1 Peer 2 Peer 3 Peer 1 Peer 2 Peer 3 Others ICM / Trade services 99 9 8 99 £25m- Rates & debt £500m2 mar

40. Slide 40: Current Position – Core Wealth

    Current Position – Core Wealth Leading player & strong franchise Sustainable Business Model #1 in HNW banking (UK) 71,000 clients „ Premium brand – boutique approach supported by group #1 (Scotland) 9,000 clients resources „ Exposure to main growth markets – hub and spoke #10 (Switzerland) 28,000 cl

41. Slide 41: Current Position – Core GBM

    Current Position – Core GBM Top tier market positions1 Fewer competitors Top 3 6–10 RBS GBM – 2008 position Average Number of FI Dealers Used by Institutional Investors2 4–5 >11 Global UK EMEA Americas APAC 2008 FX 4 1 4 2 Top 3 10 2009 9 9 9 9 Rates 5 1 Est 5 Est 9 9 8 Trading Credit trading 6 Est

42. Slide 42: Current Position – Core GTS

    Current Position – Core GTS Global Network Top tier market positions Primary Country Refocused Country UK NL W. Europe1 USA Asia Explore new ownership Overall cash 1st 1st 5th 10th 6th mgt Domestic 1st 1st n/a 16th 8th cash mgt International 3rd 1st 4th (tied) 5th 5th (tied) cash mgt Trade 2nd 1st 7

43. Slide 43: Current Position – Core Ulster Bank

    Current Position – Core Ulster Bank Strong and Growing Franchise Strong Market Shares1 across Ireland „ Strong connectivity between franchises; multi- Retail2 SME / Corporate3 faceted connectivity to RBS 32% 29% „ 1.9m customers in NI and RoI 25% 21% „ Fully invested, extensive network (Branches 287

44. Slide 44: Current Position – Core US R&C

    Current Position – Core US R&C A focused footprint – deep in chosen regions Top tier market positions Top 5 player in markets in which we operate: #2 by deposits (New England) #3 by deposits (Pennsylvania) #1 by branches (New Hampshire) #1 by branches (Rhode Island) #2 by branches (Pennsylvania) #2

45. Slide 45: Current Position – Core Insurance

    Current Position – Core Insurance Leading brands Highly efficient operation Product / Brand recognition1,2 Consideration3 Comparative combined operating ratios4 Brand Channel Percent Position Percent Position Motor personal Home personal Commercial Motor 92% 2nd 68% 2nd lines lines lines Home 92% 1s

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