Natwest Group Plc · LSE:NWG
Natwest — The Royal Bank of Scotland Group — Merrill Lynch conference 2004
42 slides from Natwest's conference presentation, Oct 5, 2004
Slide 1: Managing Complexity
Managing Complexity Sir Fred Goodwin Group Chief Executive
Slide 2: Managing Complexity: 1 Step Process
Managing Complexity 1 Step Process ▮ Reduce complexity Slide 2
Slide 3: Reduce Complexity: Limit business activity
Managing Complexity Reduce Complexity Step 1.i Limit business activity to contiguous/complementary areas ▮ We haven’t diversified into – Equity trading and sales – Mergers and acquisitions advisory services – Institutional fund management – Life assurance manufacturing Slide 3
Slide 4: Reduce Complexity: We have diversified
Managing Complexity Reduce Complexity Step 1.i Limit business activity to contiguous/complementary areas ▮ We have diversified – geographically: Mellon, Charter One, other Citizens acquisitions, Bank von Ernst, First Active, People’s Bank, BIBIT, Lynk Systems – Green Flag, Dixon Motors Slide 4
Slide 5: Establish appropriate organisation structure
Managing Complexity Reduce Complexity Step 1.ii Establish appropriate organisation structure ▮ Group similar activities together, creating – Centres of excellence – Specialisation – Economies of scale ▮ Maintain consistency Slide 5
Slide 6: Group Structure
Group Structure CUSTOMERS • Coutts • Direct Line • RBS Cards • Personal • Personal • Large Corporates - RBS • Ulster Bank • Personal • NatWest Cards • Small Business • Mid Corporates and • First Active • Adam • Churchill • Small Business • Business • MINT • RSA Commercials-RBS/NW • Personal • NatWes
Slide 7: Create appropriate operating model
Managing Complexity Reduce Complexity Step 1.iii Create appropriate operating model ▮ Featuring – Clear delegation of responsibility – Clear reporting requirements – Clear performance management regime – Effective communication (bi-directional) – Appropriate ‘clock speed’ ▮ Must maintain consistency
Slide 8: Create clarity of objectives
Managing Complexity Reduce Complexity Step 1.iv Create clarity of objectives ▮ What are we trying to do? Objectives should be – Group wide – Aspirational – Achieveable – Not too detailed ▮ High level objective “We aim to deliver superior sustainable value for our shareholders, customers and staff” S
Slide 9: Create clarity of objectives: specific objectives
Managing Complexity Reduce Complexity Step 1.iv Create clarity of objectives ▮ More specific objectives – Achieve superior income growth – Improve cost:income ratio – Maintain/improve credit quality – Increase customer numbers and satisfaction – Improve employee opinion survey scores ▮ Must maintain
Slide 10: Create clarity of required outcome
Managing Complexity Reduce Complexity Step 1.v Create clarity of required outcome ▮ Disciplined approach to – Budgets – Action plans – Cost recharging (not favoured) – Project/transaction investment hurdles – Incentives and rewards ▮ Must maintain consistency Slide 10
Slide 11: We have maintained consistency of our model since 1999
Managing Complexity We have maintained consistency of our model since 1999 ▮ But has it enabled us to cope with increasing complexity? Slide 11
Slide 12: Complexity Context
The Royal Bank of Scotland Group Complexity Context 1999 2003 2004 (pre-NatWest) Employees 32,670 120,900 133,500 Income (£m) 4,138 19,229 US income (£m) 549 2,792 Operating profit (£m) 1,211 7,151 ▮ Transformation of scope and scale of Group, through combination of – Acquisitions – Organic growth –
Slide 13: Acquisitions 1999 – 2004
Acquisitions 1999 – 2004 Date Acquisition Division Consideration (m) 1999 Oct State Street (commercial banking) Citizens $350 Nov Green Flag Direct Line £223 2000 Jan UST Corporation Citizens $1,400 Mar NatWest RBS £21,000 2001 Jul Balance of Virgin One Retail Direct £100 Aug International Aviation
Slide 14: Income Growth 2000 – 2003
Income Growth 2000 – 2003 Pro forma 1999 2003 Change over 4 Yrs £m £m £m % Total income 11,065 19,229 8,164 +74% Components of Income Growth £m % Total NatWest transaction benefits 872 11% Other acquisitions 1,865 23% Organic growth 5,427 66% Total 8,164 100% Slide 14
Slide 15: UK Financial Services New Entrants
UK Financial Services New Entrants Commenced Profit/(Loss) 2003 Scottish Widows Bank 1995 £17m Goldfish 1996 (£30m) The One account 1997 £27m Sainsbury’s Bank 1997 £22m Tesco Personal Finance 1997 £160m Egg 1998 (£34m) Standard Life Bank 1998 £5m Direct Line Rescue 1998 £31m Marbles 1999 not reporte
Slide 16: Model has had to cope with increasing complexity
Managing Complexity Model has had to cope with increasing complexity ▮ But has it delivered results in line with our objectives? Slide 16
Slide 17: Creating Value for Shareholders
Creating Value for Shareholders ▮ Grow income ▮ Improve efficiency ▮ Maintain credit quality Slide 17
Slide 18: Grow Income: RBS Income 1999 – 2003
Grow Income RBS Income 1999 – 2003 £bn 20 15 10 5 0 1999 2000 2001 2002 2003 Pro forma Slide 18
Slide 19: Grow Income: Income Growth 1999 – 2003
Grow Income Income Growth 1999 – 2003 HSBC RBS Wells Fargo Citigroup Bank of America JPM Chase 0 20 40 60 80 100 % Income as reported in US$, except RBS which reports in sterling Slide 19
Slide 20: Percentage Growth in Income 1999 – 2003
Grow Income Percentage Growth in Income 1999 – 2003 % 100 HSBC 80 RBS 60 Wells Fargo 40 Citigroup 20 Bank of America 0 JPM Chase -20 1999 2000 2001 2002 2003 Income as reported in US$, except RBS which reports in sterling Slide 20
Slide 21: Income Growth 1H03 – 1H04 in US Dollars
Grow Income Income Growth 1H03 - 1H04 in US Dollars RBS HSBC Bank of America Citigroup Wells Fargo JPM Chase 0 10 20 30 40 % Half year income as reported in US$, except RBS whose sterling income has been converted into US$ Slide 21
Slide 22: Income Growth by Year in US Dollars
Grow Income Income in 2000 2001 2002 2003 1H04 US Dollars RBS +5% +12% +21% +24% +36% HSBC +17% +5% +3% +54% +35% Bank of America +1% +7% 0% +11% +22% Citigroup +16% +6% +6% +9% +16% Wells Fargo +10% +1% +20% +12% +7% JPM Chase -4% -4% +3% +7% +4% Income as reported in US$, except RBS whose sterling
Slide 23: RBS Cost:Income Ratio 1999 – 1H04
Improve Efficiency RBS Cost:Income Ratio 1999 – 1H04 % 70 65 60 55 50 45 40 35 1999 2000 2001 2002 2003 1H04 RBS: netting operating lease depreciation against rental income Slide 23
Slide 24: Cost:Income Ratios 1999 – 1H04
Improve Efficiency Cost:Income Ratios 1999 – 1H04 % 70 65 60 55 50 45 40 35 99 00 01 02 03 1H 99 00 01 02 03 1H 99 00 01 02 03 1H 99 00 01 02 03 1H 99 00 01 02 03 1H 99 00 01 02 03 1H 04 04 04 04 04 04 Citigroup B of A HSBC JPM Chase Wells Fargo RBS Cost:income ratios as reported by banks, or based
Slide 25: Maintain Credit Quality: P&L Provisions
Maintain Credit Quality P&L Account Provisions: Customer Loans + Advances % 3.0 2.5 2.0 1.5 1.0 0.5 0.0 99 00 01 02 03 1H 99 00 01 02 03 1H 99 00 01 02 03 1H 99 00 01 02 03 1H 99 00 01 02 03 1H 99 00 01 02 03 1H 04 04 04 04 04 04 Citigroup B of A HBSC JPM Chase Wells Fargo RBS Slide 25
Slide 26: Balance Sheet Provisions as Percentage of Risk Elements
Maintain Credit Quality RBS Balance Sheet Provisions as a Percentage of Risk Elements in Lending and Potential Problem Loans % 100 80 60 40 20 0 1999 2000 2001 2002 2003 1H04 Slide 26
Slide 27: Creating Value for Shareholders
Creating Value for Shareholders ▮ Grow income ▮ Improve efficiency ▮ Maintain credit quality Slide 27
Slide 28: Strategy: What is our goal?
Strategy What is our goal? ▮ Generating superior sustainable value for our shareholders ▮ To achieve this we need to add value for – Our customers – Our people Slide 28
Slide 29: Our Customers
Our Customers 1999 – 2003 Increase Increase 000s % Retail Banking Personal customers 1,900 +16% Retail Direct UK credit card accounts 3,600 +55% RBS Insurance UK motor in-force policies 5,400 +203% Ulster Bank Personal customers 500 +68% Citizens Personal customers 1,400 +136% Slide 29
Slide 30: Customer Satisfaction: Overall Relationship Performance
CBFM Customer Satisfaction Overall Relationship Performance 75% RBS 60% Important Bank 45% 30% 15% 0% 350 500 650 Service Quality Index Slide 30
Slide 31: Retail Banking Customer Satisfaction
Retail Banking Customer Satisfaction Telephony Satisfaction RBS NatWest 50 60 70 80 GB Q2 average, extremely and very satisfied % Source: NOP FRS, quarterly rolling Slide 31
Slide 32: RBS Insurance Customer Satisfaction
RBS Insurance Customer Satisfaction Direct Line Motor Motor quotes Motor renewers Motor purchasers 0 20 40 60 80 100 % Extremely/very satisfied Source: RBS Insurance, August 2004 Slide 32
Slide 33: Tesco Personal Finance Customer Satisfaction
Tesco Personal Finance Customer Satisfaction Customer Satisfaction – Motor Insurance % % customers very satisfied 90 % customers extremely satisfied 80 70 60 50 40 30 20 10 0 TPF Other Providers Source: NOP FRS Base: 6 months to end of June 2004 Slide 33
Slide 34: Citizens Customer Satisfaction
Citizens Customer Satisfaction Customer Satisfaction Ratings % 90 New England 85 Mid Atlantic 80 75 Completely or very satisfied 70 Q202 Q302 Q403 Q103 Q203 Q303 Q403 Q104 Q204 Source: Citizens Slide 34
Slide 35: Our People
Our People RBS 2003 v UK Financial Services norm* Employment security Communication Customer focus and quality Management leadership Training and development Job satisfaction and commitment Total reward Workload and stress Image and competitive position Performance management Employee involvement Ma
Slide 36: Our People: 2003 Employee Opinion Survey
Our People 2003 Employee Opinion Survey I have a clear understanding of the goals and objectives of our business 86% Slide 36
Slide 37: Our Shareholders: Total Shareholder Return
Our Shareholders Total Shareholder Return 6 Mar 2000 – 1 Oct 2004 Bank of America RBS Wells Fargo HSBC Citigroup JPM Chase -40 -20 0 20 40 60 80 100 120 140 % Source: Merrill Lynch Slide 37
Slide 38: Strategy: What is our goal?
Strategy What is our goal? ▮ Generating superior sustainable value for our shareholders ▮ To achieve this we need to add value for: – Our customers – Our people Slide 38
Slide 39: Conclusion
Managing Complexity Conclusion ▮ RBS model works ▮ Has helped to reduce complexity ▮ Remains relevant and viable Slide 39
Slide 40: Charter One Update
Charter One Update ▮ Transaction completed 1 September 2004, ahead of schedule ▮ Management transition completed ▮ Balance sheet positioning implemented ▮ Integration underway ▮ So far, so good Slide 40
Slide 41: Other Recent Acquisitions
Other Recent Acquisitions ▮ Churchill integration fully on track ▮ First Active integration fully on track ▮ IT migration completed for – People’s Bank credit card business – Bank von Ernst Slide 41
Slide 42: Managing Complexity
Managing Complexity Sir Fred Goodwin Group Chief Executive
The Royal Bank of Scotland Group — Merrill Lynch conference 2004 on 6ix