Natwest Group Plc · LSE:NWG
Natwest — The Royal Bank of Scotland Group — Goldman Sachs Financials Conference 2004
50 slides from Natwest's conference presentation, Jun 10, 2004
Slide 1: The Royal Bank of Scotland Group
ae RBS The Royal Bank of Scotland Group
Slide 2: A Full House of Opportunities
A Full House of Opportunities Fred Watt Group Finance Director
Slide 3: What Does This Mean For RBS?
Slide 3 A Full House of Opportunities What Does This Mean For RBS? ▮ Opportunities to: – Grow income organically – Improve efficiency – Make acquisitions if they are value enhancing
Slide 4: Not New for RBS
Slide 4 A Full House of Opportunities Not New for RBS ▮ Our goal has been and remains to generate superior sustainable value for our shareholders ▮ To create value for our shareholders on a sustainable basis you need to be able to grow income on a basis that is: – Efficient – Profitable – Capable of
Slide 5: What Does This Mean For RBS?
Slide 5 A Full House of Opportunities What Does This Mean For RBS? ▮ Opportunities to: – Grow income organically – Improve efficiency – Make acquisitions if they are value enhancing
Slide 6: Income Growth
Slide 6 A Full House of Opportunities Income Growth ▮ A key driver of sustainable value creation ▮ Consistent focus required
Slide 7: UK Banks Average Growth in Income 1992-1999
Slide 7 Income Growth 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 8: UK Banks Average Growth in Income 1999-2003
Slide 8 Income Growth 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 RBS includes NatWest on a pro forma basis HSBC including Household (not pro forma)
Slide 9: World Banks Average Growth in Income 1999-2003
Slide 9 Income Growth World Banks Average Growth in Income 1999 – 2003 HSBC RBS Wells Fargo Citigroup Bank of America JPMC + BO 0 5 10 15 20 Income excluding exceptional items % pa RBS includes NatWest on a pro forma basis HSBC including Household (not pro forma)
Slide 10: Income Momentum
Slide 10 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 excluding exceptional items RBS includes NatWest on a pro forma basis HSBC including Household (not pro forma)
Slide 11: Organic Income Growth: Key Attributes For RBS
Slide 11 Organic Income Growth Key Attributes For RBS ▮ Multi-brand, multiple channel ▮ Single platform ▮ Large distribution capacity ▮ Low market shares ▮ Profitable new businesses ▮ Diversity of income ▮ Geographical options for growth ▮ A major contributor to RBS income growth
Slide 12: Multi-Brand, Multiple Channel
Slide 12 Multi-Brand, Multiple Channel
Slide 13: Multi-Brand, Multiple Channel
Slide 13 Multi-Brand, Multiple Channel ▮ Appeals to different customer groups ▮ Allows different product variants, pricing ▮ Gives flexibility for future ▮ Allows management flexibility
Slide 14: Single Platform
Slide 14 Single Platform 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 • RBS Advanta Commercials-RBS/NW • NatWest
Slide 15: Single Platform
Slide 15 Single Platform ▮ Scale ▮ Specialisation Enable us to ▮ Implement new technologies across the Group ▮ Deliver cost savings associated with acquisitions ▮ Economies of scale, benefits of specialisation
Slide 16: Large Distribution Capacity
Slide 16 Large Distribution Capacity Ranking Distribution Channels UK ▮ Branches #1 ▮ Supermarkets #1 ▮ Telephone #1 ▮ Internet #? (Large) ▮ ATMs #1 ▮ Relationship Managers #1 Source: Company Accounts, CACI and Link
Slide 17: Low Market Shares
Slide 17 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 e
Slide 18: Profitable New Businesses
Slide 18 Profitable New Businesses Examples of UK Financial Commenced Profit/(Loss) Services New Entrants 2003 Scottish Widows Bank 1995 £17m Goldfish 1996 (£30m) The One Account 1997 £23m Sainsbury’s Bank 1997 £22m Tesco Personal Finance (RBS JV) 1997 £173m Egg 1998 (£34m) Standard Life Bank 1998 £
Slide 19: Diversity of Income
Slide 19 Diversity of Income RBS Income 2003 Overseas 21% Corporate Banking 36% Insurance 16% UK Personal 27%
Slide 20: Diversity of Income
Slide 20 Diversity of Income RBS Income Mix 2003 Net Interest Income 43% Deposits Assets 20% 23% Non-Interest Income 57%
Slide 21: Diversity of Income: Net Interest Income
Slide 21 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 22: Diversity of Income
Slide 22 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 23: Diversity of Income: Non-Interest Income
Slide 23 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 t
Slide 24: RBS Profit Before Tax 2003
Slide 24 Diversity of Income RBS Profit Before Tax 2003 Rest of World 2% Europe 5% US 19% UK 74%
Slide 25: Geographical Options for Growth: Continental Europe
Slide 25 Geographical Options for Growth Continental Europe Netherlands Sweden • Retail Direct • CBFM United Kingdom • 180 employees • 30 employees • CBFM for European customers Germany • CBFM Belgium • Retail Direct • Retail Direct • RBS Insurance • 70 employees • 755 employees France Austria • CBF
Slide 26: Continental Europe Income
Slide 26 Geographical Options for Growth Continental Europe Income 2003 2002 Change £m £m % Corporate Banking and Financial Markets 182 128 +42% RBS Insurance 160 85 +88% Wealth Management 105 85 +24% Retail Direct 84 55 +53% Central items 23 22 Continental Europe 554 375 +48%
Slide 27: Geographical Options for Growth: United States
Slide 27 Geographical Options for Growth United States Mid Atlantic • Citizens • 5,300 employees New England • Citizens, Retail Direct • 9,310 employees Greenwich • CBFM • 680 employees New York • CBFM for US customers • 375 employees 2003 Income: £2.9bn Customers: 3.7m Employees: 15,660
Slide 28: United States Income
Slide 28 Geographical Options for Growth United States Income 2003 2002 Change $m $m % Citizens 2,984 2,578 +16% Corporate Banking and Financial Markets 1,581 1,276 +24% United States 4,565 3,854 +18%
Slide 29: Organic Growth: A Major Contributor
Slide 29 Organic Growth A Major Contributor 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 30: What Does This Mean For RBS?
Slide 30 A Full House of Opportunities What Does This Mean For RBS? ▮ Opportunities to: – Grow income organically – Improve efficiency – Make acquisitions if they are value enhancing
Slide 31: Cost:Income Ratio 1999-2003
Slide 31 Improve Efficiency Cost:Income Ratio 1999-2003 % 60 55 50 45 40 99 00 01 02 03 99 00 01 02 03 99 00 01 02 03 99 00 01 02 03 99 00 01 02 03 HSBC RBS Barclays HBOS Lloyds TSB Cost:income ratios as reported by banks, or based on income and costs reported by banks HSBC including Household RBS:
Slide 32: Cost:Income Ratio 1999-2003
Slide 32 Improve Efficiency Cost:Income Ratio 1999-2003 % 65 60 55 50 45 40 99 00 01 02 03 99 00 01 02 03 99 00 01 02 03 99 00 01 02 03 99 00 01 02 03 Citigroup HSBC Bank of Wells Fargo RBS America Cost:income ratios as reported by banks, or based on income and costs reported by banks HSBC including
Slide 33: Improve Efficiency: Outlook
Slide 33 Improve Efficiency Outlook ▮ Group-wide programme of initiatives ▮ Managed like NatWest integration ▮ No ‘below the line’ costs ▮ Three year programme 2003 – 2005
Slide 34: Improve Efficiency: Outlook
Slide 34 Improve Efficiency Outlook 2003 Break-even 2004 Spend accelerates, but good payback 2005 Completion achieved, benefits in full flow 2006 Full annualised benefits delivered ▮ On current business mix, planned initiatives would take cost:income ratio below 40%
Slide 35: What Does This Mean For RBS?
Slide 35 A Full House of Opportunities What Does This Mean For RBS? ▮ Opportunities to: – Grow income organically – Improve efficiency – Make acquisitions if they are value enhancing
Slide 36: Able to Make Good Acquisitions
Slide 36 Able to Make Good Acquisitions ▮ Expect to generate surplus capital ▮ Don’t need to make acquisitions ▮ Geographic options for acquisitions ▮ Track record of making good acquisitions ▮ Track record of successful integration of acquisitions ▮ Delivery of cost savings and revenue benefits
Slide 37: Acquisitions 2003-2004
Slide 37 Acquisitions 2003-2004 Completed Acquisition Division Consideration (m) 2003 Jan Commonwealth Bancorp Citizens $450 Jun Nordisk Renting CBFM €104 Jul Port Financial Corporation Citizens $285 Jul Santander Direkt Bank Retail Direct €486 Sep Churchill Insurance Group Direct Line £1,100 Oct Co
Slide 38: 2003 Major Acquisitions
Slide 38 2003 Major Acquisitions ▮ RBS Insurance including Churchill – #2 general insurer in UK – #1 in motor, #2 in home – Two leading direct retail brands – Added broker channel, stronger in partnerships ▮ Ulster Bank including First Active – Strong #3 bank in Ireland, #1 in Northern Ireland – Str
Slide 39: Acquisition of Charter One
Slide 39 Acquisition of Charter One ▮ Logical geographic extension with significant transaction benefits ▮ Significant increase in scale ▮ Opportunities for organic growth ▮ Options for future acquisitions ▮ Top 10 bank in US ▮ 25% of RBS profit before tax from US
Slide 40: Logical Geographic Extension
Slide 40 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 41: Significant Increase in Scale
Slide 41 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 42: Opportunities for Organic Growth
Slide 42 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
Slide 43: Opportunities for Organic Growth
Slide 43 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: S
Slide 44: Opportunities for Organic Growth
Slide 44 Opportunities for Organic Growth Population Total F’cast Ave (m) Deposits H’hold Income $bn Growth (03-08) Mid West Chicago, Illinois 8.4 211.4 15.1% Detroit, Michigan 4.5 78.6 16.2% Cleveland, Ohio 2.3 64.8 15.0% Source: SNL Datasource as at 30 June 2003
Slide 45: Options for Future Acquisitions
Slide 45 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 46: Top 10 Bank in US
Slide 46 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 8
Slide 47: 25% of RBS Profit Before Tax from US
Slide 47 25% of RBS Profit Before Tax from US RBS Profit Before Tax After Charter One Europe 5% Rest of World 2% US 25% UK 68%
Slide 48: What Does This Mean For RBS?
Slide 48 A Full House of Opportunities What Does This Mean For RBS? ▮ Organic income growth – Multi-brand, multiple channel – Single platform – Large distribution capacity – Low market shares – Profitable new businesses – Diversity of income – Geographical options for growth – A major contributor to
Slide 49: The Royal Bank of Scotland Group
ae RBS The Royal Bank of Scotland Group
Slide 50: Forward looking statements
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,
The Royal Bank of Scotland Group — Goldman Sachs Financials Conference 2004 on 6ix