Natwest Group Plc · LSE:NWG
Natwest — The Royal Bank of Scotland Group — FY2016 Earnings Presentation
68 slides from Natwest's earnings presentation, Feb 24, 2017
Slide 1: FY 2016 Results
FY 2016 Results 24 February 2017
Slide 2: Howard Davies, Chairman
x RBS Howard Davies Chairman
Slide 3: Ross McEwan, Chief Executive Officer
Ross McEwan Chief Executive Officer
Slide 4: Key messages
Key messages(1) Attributable loss of £7.0bn driven by £10bn of one-offs, reflecting progress in addressing a number of legacy issues Strong core bank: net lending growth of 10%, income growth of 4.0% and positive JAWS of 3.7% Cost, capital and lending targets met three years running Expect one final
Slide 5: Progress on our strategy
Progress on our strategy Since FY 2013 we have addressed the majority of material legacy issues At the end of Phase II: Refocused on our core franchise markets, International Private Banking sold; Citizens with active operations ceased in 26 countries divested, the largest US bank IPO in history De-
Slide 6: Progress on our strategy: net lending growth
Progress on our strategy Continued strong net lending growth in our core businesses Net loans & advances to customers, £bn UK PBB Commercial Banking 10% 10% 132 100 120 91 FY 2015 FY 2016 FY 2015 FY 2016 Private Banking RBS International 9% 21% 12 9 11 7 FY 2015 FY 2016 FY 2015 FY 2016 6
Slide 7: Progress on our strategy: income growth
Progress on our strategy Solid income growth across our core businesses Adjusted Income(1), £bn +2% FY 2015 5.2 5.3 FY 2016 +2% 3.4 3.4 +16% (8%) +2% 1.5 +2% 1.3 0.8 0.7 0.6 0.7 0.4 0.4 UK PBB Ulster Bank Commercial Private Banking RBS International NatWest ROI (EUR) Banking(2) Markets(2) Adj. ROE F
Slide 8: Committed to being the No. 1 bank for customers
Committed to being the No. 1 bank for customers 8 (1) Excluding litigation and conduct costs, restructuring costs, write down of goodwill, and the 2016 VAT release of £227m.
Slide 9: Strong market positions across our customer brands
Strong market positions across our customer brands RBSI - Isle of Man Royal Bank of Scotland #1 Personal(8) #1 Business(1) #1 Business(9) Joint #1 Commercial(2) #2 Personal(3) Ulster Northern Ireland #1 Personal(4) #1 Business & Commercial(5) NatWest Joint #1 Commercial(2) #2 Business(1) #3 Personal
Slide 10: Personal & Business Banking
Personal & Business Banking Targeted customer segmentation while delivering more through digital channels Delivering for customers Increasing use of digital NatWest Intermediary Solutions Net Promoter Score Products sold through digital channels (m) 1.7 79 62 0.9 40 41 26 0.3 6 2011 2012 2013 2014 2
Slide 11: Commercial & Private Banking
Commercial & Private Banking Further innovation and use of digital channels to enhance market leading position Delivering for customers Increasing use of digital Commercial Net Promoter Score(1) Bankline updated, a new best in class Commercial online web access tool 21 20 18 195,000 daily users 15 9
Slide 12: NatWest Markets
NatWest Markets A more efficient NatWest Markets business Delivering for customers Increasing use of digital Income by product (FY 2016) Level of automation of bond trades Financing 39% 15% 52% Rates 33% Currencies 8% In 2016, NatWest Markets gained or held Q4 2015 Q4 2016 share in every Rates & FX
Slide 13: Overview
Overview Good progress on resolving legacy, next phase of our plan will increase focus on customers, cost base and bottom line profit Strong net lending and good income growth in the core bank Cost, capital and lending targets met three years running Unadjusted 12%+ ROTE and sub-50% cost to income r
Slide 14: Ewen Stevenson, Chief Financial Officer
Ewen Stevenson Chief Financial Officer
Slide 15: FY & Q4 2016 Summary
FY & Q4 2016 Summary FY 2016 attributable loss of £6,955m, including £5,868m conduct & litigation provisions. Q4 2016 attributable loss of £4,441m Adjusted operating profit for combined PBB, CPB and NWM of £4,249m up 4% vs. FY 2015; adjusted ROTE of 11.1% Cost, capital and lending targets met three
Slide 16: FY & Q4 2016 Income Statement
FY & Q4 2016 Income Statement vs. FY vs. Q4 (£m) FY 2016 Q4 2016 Q4 2016 vs. Q4 2015 2015 2015 Adjusted income(1) 12,372 (5%) 3,329 +15% Attributable loss of £4,441m Total income 12,590 (3%) 3,216 +29% operating loss of £4,063m Adj. operating expenses(1) (8,220) (12%) (2,219) (12%) Restructuring c
Slide 17: Q4 2016 – Balance Sheet
Q4 2016 – Balance Sheet vs. Q3 vs. Q4 Customer balances (£bn) Q4 2016 2016 2015 Q4 2016 vs. Q4 2015 Funded assets 552 (3%) (0%) Customer loans and advances Net loans & advances to customers 323 (1%) +5% +5%; customer deposits +3% Customer deposits 354 (1%) +3% Liquidity and funding RWAs reduced
Slide 18: Q4 2016 results by business – UK PBB
Q4 2016 results by business – UK PBB Total Core Franchises Total Other RBS Central Ulster Commercial Private RBS NatWest Total Core Capital Total (£bn) UK PBB W&G(1) items & Bank RoI Banking Banking International Markets Franchises Resolution Other other(2) Adj. Income(3) 1.3 0.1 0.9 0.2 0.1 0.3 2.9
Slide 19: Q4 2016 results by business – Commercial Banking
Q4 2016 results by business – Commercial Banking Total Core Franchises Total Other RBS Central Ulster Commercial Private RBS NatWest Total Core Capital Total (£bn) UK PBB W&G(1) items & Bank RoI Banking Banking International Markets Franchises Resolution Other other(2) Adj. Income(3) 1.3 0.1 0.9 0.2
Slide 20: Q4 2016 results by business – NatWest Markets
Q4 2016 results by business – Natwest Markets Total Core Franchises Total Other RBS Central Ulster Commercial Private RBS NatWest Total Core Capital Total (£bn) UK PBB W&G(1) items & Bank RoI Banking Banking International Markets Franchises Resolution Other other(2) Adj. Income(3) 1.3 0.1 0.9 0.2 0.
Slide 21: Williams & Glyn
Williams & Glyn Income Statement (£m) FY 2016 Comments Total Income 837 TNAV down 6p and CET1 down o/w Retail 480 30bps due to £750m restructuring o/w Commercial 357 provision taken in respect of the Total adjusted operating costs 393 17 February 2017 update on Adj. Operating profit 402 RBS’s rema
Slide 22: Financial Targets - 2017 and 2020
Financial Targets - 2017 and 2020 Net lending growth in PBB / CPB: 3%(1) in 2017; driven by strong mortgage growth and selected Commercial segments Operating costs: reduction in operating costs by £750m(2) in 2017, and £2bn over the next 4 years; majority achieved against combined PBB, CPB and NWM b
Slide 23: Four foundations to achieve 2020 targets
Four foundations to achieve 2020 targets Resolve legacy issues and expense one-off costs, bulk of residual targeted to be expensed in 2017 Accelerate income momentum through enhanced customer servicing in the core bank Achieve significant further cost efficiency, with accelerating JAWS from 20
Slide 24: Resolve legacy issues and expense one-off costs
Resolve legacy issues and expense one-off costs One-off cost Comment c.£2bn over 2017 to 2019 (excluding W&G); of which c.£1bn in 2017 Restructuring costs Partially related to exiting head office properties with onerous lease terms £2.0bn of lifetime disposal costs; of which Capital Resolution
Slide 25: Core income momentum
Core income momentum NIM: Sharp improvement in 5 and 10 year swap rate reduces forward looking headwinds from roll-off of existing structural hedging; SVR 12% of book Volumes: 3% net lending growth target for combined PBB/CPB in 2017 - expect to continue to achieve market share gains in targeted cus
Slide 26: Achieve further significant cost efficiency
Achieve further significant cost efficiency Adjusted operating costs (£bn) £3.1bn cost reduction achieved over 3 8.4(1) years to 2016; 2017 cost reduction 0.4 W&G target of £750m 0.8 Capital Resolution Significant further cost efficiency NWM across PBB and CPB through 1.3 PBB+CPB digitisation, p
Slide 27: Improve RWA efficiency across PBB, CPB and NWM
Improve RWA efficiency across PBB, CPB and NWM Core Bank RWAs (£bn) Target gross £20bn RWA reduction by end 183(1) (20) Q4 2018, with some offsetting volume 163 growth UK PBB 33 Improving RWA efficiency underpins Ulster Bank 18 improved returns and mitigates potential impact of RWA regulatory ti
Slide 28: Financial Targets - 2020
Financial Targets - 2020 Sub-50% 12%+ (1) Cost:Income ROTE Ratio 28 (1) 12%+ is the non adjusted and ‘as reported’ target
Slide 29: Ross McEwan, Chief Executive Officer
Ross McEwan Chief Executive Officer
Slide 30: Summary
Summary(1) Fundamentals of our strategy remain unchanged Progress in dealing with legacy issues Financial targets hit three years running - costs down, capital solid, lending and income growth in core bank Further on costs, faster on digital transformation to deliver a better customer experience Tar
Slide 31: Q&A
Q&A
Slide 32: Appendix
>< RBS Appendix
Slide 33: FY 2016 results by business
FY 2016 results by business Core Franchises Total Other Total 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) 5.3 0.6 3.4 0.7 0.4 1.5 11.8 (0.4) 0
Slide 34: Q4 2016 results by business
Q4 2016 results by business Total Core Franchises Total Other RBS Central Ulster Commercial Private RBS NatWest Total Core Capital Total (£bn) UK PBB W&G(1) items & Bank RoI Banking Banking International Markets Franchises Resolution Other other(2) Adj. Income(3) 1.3 0.1 0.9 0.2 0.1 0.3 2.9 (0.3) 0.
Slide 35: Notable items - Income
Notable items - Income (£m) FY 2016 FY 2015 Q4 2016 Q3 2016 Q4 2015 Total Income 12,590 12,923 3,216 3,310 2,484 Own Credit Adjustments 180 309 (114) (156) (115) Gain/(Loss) on redemption of own debt (126) (263) 1 3 (263) Strategic disposals 164 (157) - (31) (22) o/w Visa Gain 246 - - - - o/w Cap Re
Slide 36: Notable items - Expenses
Notable items - Expenses (£m) FY 2016 FY 2015 Q4 2016 Q3 2016 Q4 2015 Total Expenses (16,194) (16,353) (7,354) (2,911) (5,761) Restructuring (2,106) (2,931) (1,007) (469) (614) o/w Williams & Glyn (1,456) (658) (810) (301) (209) Litigation & Conduct (5,868) (3,568) (4,128) (425) (2,124) o/w US RMBS
Slide 37: Tangible Net Asset Value (TNAV) movements
Tangible Net Asset Value (TNAV) movements Q3 2016 Q4 2015 Shares in TNAV per Shares in TNAV per £m issue (m) share £m issue (m) share Starting TNAV 39,822 11,792 338p 40,943 11,625 352p Loss for the period post tax(1) (4,237) (36p) (5,089) (43p) Less: profit to NCI / other owners (134) (1p) (1,707)
Slide 38: Structural hedging - Interest rate sensitivity
Structural hedging - Interest rate sensitivity Sensitivity of Net interest income to interest Structural Hedge rate changes (£bn) Product hedge Equity hedge 122 122 123 Sensitivity (£m) + 25 basis point shift in yield curves 96 87 88 90 − 25 basis point shift in yield curves (236) + 100 basis point
Slide 39: CET1 and leverage ratios
CET1 and leverage ratios CET1 Ratio Leverage Ratio +480bps +170bps 13.4% 13.0% 5.1% 8.6% 3.4% FY 2013 FY 2016 Target FY 2013 FY 2016 39
Slide 40: Leverage ratio – key drivers
Leverage ratio – key drivers Leverage ratio (%) 5.6% 5.1% (£bn) FY 2015 FY 2016 % change CET 1 capital 37.6 30.6 (19%) AT1 capital 2.0 4.0 100% Tier 1 Capital 39.6 34.7 (12%) Total Funded Assets 552.9 551.7 (0%) Total assets 815.4 798.7 (2%) Netting and variation margin (258.6) (241.7) (7%) Securiti
Slide 41: Credit risk
Credit risk FY 2016 REILs FY 2016 Ulster ROI REILs £bn (as % of Total Gross L&As) £bn (as % of Total Gross L&As) (74%) (54%) 39.4 (9.4%) 7.6 (28.5%) Capital Resolution 20.3 3.5 (17.4%) Ex Capital Resolution 10.3 (3.1%) 19.1 2.3 8.0 FY 2013 FY 2016 FY 2013 FY 2016 (1) Excluding Ulster Bank ROI and
Slide 42: Reduction of Capital Resolution RWAs
Reduction of Capital Resolution RWAs RWAs, £bn Loan portfolios(1) Alawwal Bank Shipping Other 49 Markets Operational risk 6 GTS 4 35(2) 3 3 21 16 ~15-20 4 1 7 8 3 2 4 3 Q4 2015 Q4 2016 2017 Target(3) Target of £15-20bn of RWAs excluding Alawwal Bank by end 2017 (1) Loan portfolios include APAC, EM
Slide 43: FY 2016 Adjusted Operating costs
FY 2016 Adjusted Operating costs Reduction in Adjusted Operating Costs, £bn W&G Reduction in operating costs by £750m in 2017; majority achieved against Capital Resolution combined PBB, CPB and NWM businesses Central items Other reduction NWM 11.9 (0.4)(1) Core business ex.NWM (1.1) 10.4 (1.0)(2)
Slide 44: Restructuring costs (ex.W&G) vs. annual cost saving
Restructuring costs (ex.W&G) vs. annual cost saving 2014 - 2016 £bn 3.9 Cost saving achieved in given year Cumulative cost saving 0.75 3.1 1.0 2.1 1.0 3.1 1.1 Annual cost 2.1 saving 1.1 2014 2015 2016 2017(1) Cumulative Restructuring 0.8 3.1 3.7 4.7 costs We expect to incur restructuring costs of
Slide 45: NPS
NPS Net Promoter Scores across our core businesses 30 Personal Banking(1) Business Banking(2) Commercial Banking(3) 21 20 20 18 13 12 13 15 11 9 9 9 9 10 4 4 (2) (2) 0 (4) (4) (4) (6) (7) (7) (7) (9) (10) (5) Royal Bank of Scotland (Scotland) NatWest (England & Wales) RBSG (GB) (20) (30) Q4 Q1 Q2 Q3
Slide 46: Outlook – 2017 (1/2)
Outlook – 2017(1) (1/2) Subject to providing fully for the remaining legacy issues, including RMBS exposures and State Aid obligations relating to W&G in particular, RBS currently expects that 2017 will be its final year of substantive clean up with significant one-off costs. Consequently, we antici
Slide 47: Outlook – 2017 (2/2)
Outlook – 2017(1) (2/2) Cumulative Capital Resolution disposal losses will total c.£2bn since the beginning of 2015, with £1.2bn incurred to date, with most of the balance incurred in 2017 Expect to incur restructuring costs (ex.W&G) of c.£1bn in 2017 and approximately a further £1bn across 2018 and
Slide 48: Outlook – Medium Term
Outlook – Medium Term(1) Target achieving our sub 50% cost:income ratio and 12% return targets in 2020 on an unadjusted basis, one year later than originally planned Expect to be able to grow volumes faster than market growth rates over the coming years underpinned by our ability to grow the PBB and
Slide 49: Growth and risk profile
Growth and risk profile New mortgage lending 2016 (average LTV by weighted value), £bn 74% 71% 69% 70% 70% 62% 62% 62% 61% 59% 55% 54% UK PBB Ulster Bank Private RBSI W&G Total ROI Owner occupied average LTV by weighted value Buy to let average LTV by weighted value 49
Slide 50: Fixed Income Investor Presentation
Fixed Income Investor Presentation FY 2016 Results 24 February 2017
Slide 51: Core credit messages
Core credit messages Diversified income streams Three core franchises generating stable and attractive returns Well progressed on legacy clean-up and improving balance sheet resilience Credit and market risk positioned appropriately for less certain macro outlook 2020 Target Operating Profile Sub-50
Slide 52: Diversified income streams
Diversified income streams FY 2016 Adjusted Income split by Strategic plan targets higher quality Core Franchise (%) of earnings in future Ulster Bank RoI 5% UK Business Banking Focus on customer loyalty, conducting 6% more business with our most valuable customers UK Personal Banking 39% Target
Slide 53: Three core businesses generating stable and attractive returns
Three core businesses generating stable and attractive returns Core Adjusted Return on Equity(1,2) (%) 11% 11% 4.2 4.1 Core Adjusted operating profit(2) (£bn) 1.2 1.2 1.3 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 2015 Q1’16 Q2’16 Q3’16 Q4’16 FY 2016 Core businesses averaged >£1b
Slide 54: Robert Begbie, Treasurer
x RBS Robert Begbie Treasurer
Slide 55: FY 2016 Results – Treasurer’s view
FY 2016 Results – Treasurer’s view Solid capital and liquidity metrics maintained Increasing focus on balance sheet optimisation Lower capital requirements reflect strategic progress 13% target CET1 ratio maintained Our issuance needs are evolving to reflect our strategic progress and future structu
Slide 56: Solid capital and liquidity metrics maintained
Solid capital and liquidity metrics maintained FY 2016 FY 2015 Loan : deposit ratio 91% 89% Short-term wholesale funding £14bn £17bn Liquidity coverage ratio 123% 136% Net stable funding ratio 121% 121% Core equity tier 1 ratio 13.4% 15.5% Leverage ratio 5.1% 5.6% 56
Slide 57: Reduced capital requirements reflect strategic progress
Reduced capital requirements reflect strategic progress Pillar 2A total capital requirement(1) 2019 ‘fully phased’ CET1 MDA floor (1.2%) (0.7%) 5.0% 10.8% 10.1% 3.8% Previous Current Previous Current Pillar 2A reduction primarily reflects contribution to pension scheme 13% target CET1 ratio main
Slide 58: 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 requirements 13.4 13.0 Illustrative Illustrative headroom(1) 2.9 headroom(1) 5.0 10.1 1.0 8.4 0.5 2.5 1.3 (2) 2.1 2.1(3) 10.1
Slide 59: Capital reorganisation planned to increase available distributable reserves
Capital reorganisation planned to increase available distributable reserves 2016 evolution in RBSG (HoldCo) distributable reserves ~38 (£bn) ~30 16.3 1.2 6.0 8.0 1.1 8.0 FY 2015 Tier 1 Write down Other(1) FY 2016 Illustrative redemptions of investment benefit of capital reorganisation FY 2016 RBSG
Slide 60: Our issuance needs in 2017 are evolving
Our issuance needs in 2017 are evolving to reflect our strategic progress Issuance focussed on MREL(1) build: Target £3-5bn equivalent Senior HoldCo No active need for AT1 No active need for Tier 2 Returning to modest funding activity: Reintroduce regular secured funding Participant in the
Slide 61: Target £3-5bn Senior HoldCo MREL in 2017
Target £3-5bn Senior HoldCo MREL in 2017 Illustrative future MREL requirements versus estimated existing position Based on illustrative £200bn RWA and static regulatory requirements(1) ~£24bn CRD IV & Management >3% Buffers ~£16bn Existing (non-CRR) MREL (3) MREL 11.8% £11bn HoldCo ~£8bn £5bn Senior
Slide 62: Illustrative future funding structure
Illustrative future funding structure The Royal Bank of Scotland Group plc Group Holding Company and primary issuing entity for MREL Proportional Intercompany issuance of Loss Absorbing Capital NatWest Holdings Limited NatWest Markets RBS International & Subsidiary Operating companies Plc Limited A
Slide 63: Sustainable banking
Sustainable banking “Sustainability goes hand in hand with building trust. If we act irresponsibly, we will lose trust. That applies not just to how we treat our customers, but also the wider role we play in society. I want us to be supporting businesses beyond just providing finance. I want us to b
Slide 64: Sustainable banking: Board governance and oversight
Sustainable banking: Board governance and oversight Sustainable banking governance sits directly under the Board and is informed by regular sessions with external stakeholders The Royal Bank of Scotland Group plc board National The Royal Bank of Westminster Bank Scotland plc board plc board Group Gr
Slide 65: We are building a more sustainable bank
We are building a more sustainable bank Customer Focused Responsible Business Working at RBS • This year, for the first time, we have chosen to integrate our • 757 branches now have • We increased the number of financial and non-financial Digital Zones where female leaders to 34% in 2016. performanc
Slide 66: We are building a more sustainable bank
We are building a more sustainable bank We are developing leadership positions on enterprise and financial capability Supporting enterprise Building financial capability Entrepreneurial Spark Boost Financial Education Opening accounts Continued supporting UK Launched Boost - a free MoneySense, our 2
Slide 67: Sustainable banking: benchmarks
Sustainable banking: benchmarks 2013 2014 2015 2016 • Retained top 10% positions in Dow CDP Jones World Index and CDP Leaders category RBS – Disclosure 88 98 99 A- RBS – Performance B B B • Members of the United Nations Global Compact since 2003. Industry Av. - Disclosure 70 69 84 C • Sustainability
Slide 68: 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
The Royal Bank of Scotland Group — FY2016 Earnings Presentation on 6ix