Natwest Group Plc · LSE:NWG
Natwest — The Royal Bank of Scotland Group — H1 2016 Earnings Presentation
47 slides from Natwest's earnings presentation, August 2016
Slide 1: H1 2016 Results
>< RBS H1 2016 Results
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 We maintain strong positions in our target markets, supported by product and service improvements The fundamentals of our Plan remain unchanged. However, we are now operating in a more uncertain environment Progress against our Plan has made us more resilient to deal with this uncertain
Slide 5: Financial results highlights
Financial results highlights Adjusted ROTE across our core PBB, CPB and CIB franchises of 11% in Q2 2016 and H1 2016. Q2 2016 core franchise adjusted operating profit of £1bn(1) Attributable loss of £1,077m driven by £1,284m of provisions relating to conduct and litigation issues PBB and CPB net loa
Slide 6: Business activity since the EU Referendum
Business activity since the EU Referendum New Mortgage Applications Debit card spending per day EU Referendum EU Referendum Average Average Week ending 10-Jun 17-Jun 24-Jun 1-Jul 8-Jul 15-Jul 22-Jul 04-Jun 11-Jun 18-Jun 25-Jun 02-Jul 09-Jul Commercial Banking volumes – Business CIB deal count for FX
Slide 7: Our blueprint for success
Our blueprint for success Committed to being #1 bank for customers (1) Excluding litigation and conduct costs, restructuring costs, write down of goodwill and other intangible assets and the operating costs of Williams & Glyn. 7
Slide 8: Outstanding issues
Outstanding issues FCA SME treatment review RMBS UK 2008 rights issue shareholder litigation Williams & Glyn 8
Slide 9: Simplified and streamlined
Simplified and streamlined We are becoming a leaner, smaller bank Property Structure Products Countries # CPB and CIB countries of # London properties # subsidiaries # front book active operation 2013 11 1,107 416(2) 38 36% 40% 19% 66% H1 2016 7(1) 666 339 13 Target 5 ~500 <300 13 (1) Excluding prop
Slide 10: Customers are doing more business with us
Customers are doing more business with us We are committed to investing in our core bank Improving Customer Service Supporting UK Business Award winning DigiDocs loan application 50% increase in gross lending to small process for business customers reduced businesses since H1 2015 from 11 days to wi
Slide 11: Strong franchises with clear strategies
Strong franchises with clear strategies Majority generating good returns, with actions to improve performance UK PBB Commercial Banking RBS International Invest to 20% RWAs 41% RWAs 5% RWAs Grow Adj. ROE: 24% Adj. ROE: 7% Adj. ROE: 16% Clear customer segment Accelerate simplification and Grow
Slide 12: Continued growth in our core businesses
Continued growth in our core businesses Strong H1 2016 growth in net customer loans UK PBB Commercial Banking (£bn) +5% (£bn) +9% 126.0 99.2 119.8 91.3 FY 2015 H1 2016 FY 2015 H1 2016 Private Banking RBS International (£bn) +5% (£bn) +16% 11.8 8.5 11.2 7.3 FY 2015 H1 2016 FY 2015 H1 2016 12
Slide 13: Summary
Summary Strong and growing core bank – delivered again in Q2 Legacy continues to be cleaned up and reduced EU Referendum outcome creates new uncertainty Positioned to deal with potential challenges ahead 13
Slide 14: Ewen Stevenson, Chief Financial Officer
Ewen Stevenson Chief Financial Officer
Slide 15: Q2 2016 results by franchise
Q2 2016 results by franchise Core Franchises Total Other Total RBS Central Ulster Commercial Private RBS Total Core Capital Total (£bn) UK PBB CIB W&G items & Bank RoI Banking Banking International Franchises Resolution Other other(1) Adj. Income(2) 1.3 0.1 0.8 0.2 0.1 0.4 3.0* (0.4) 0.2 (0.1) (0.3)
Slide 16: NIM analysis Q2 2016 vs. Q2 2015
NIM analysis Q2 2016 vs. Q2 2015 NIM Interest earning Assets Core Bank (£bn) (2bps) (5%) 2.32% 2.30% 417 396 +8bps 101 61 2.13% 2.21% Core +6% 316 335 Q2 2015 Q2 2016 Q2 2015 Q2 2016 Q2 2015 Q2 2016 16
Slide 17: Lowered costs by >£2.5bn over the last 2.5 years
Lowered costs by >£2.5bn over the last 2.5 years Reduction in Adjusted Operating Costs from 2013 - H1 2016 (£bn) Other reduction Target to reduce adjusted operating costs by 11.9 £800m in 2016; £404m achieved in H1 2016 (0.4)(1) (1.1) 10.4 (1.0)(2) Organic 9.4 (0.8)(3) reduction 0.4 8.6 W&G 1.5 Capi
Slide 18: Reduction of legacy businesses & portfolios
Reduction of legacy businesses & portfolios Legacy business & portfolios (RWAs) (£bn) Citizens (69%) W&G 176 IPB Capital Resolution 68 Residual central items and other 10 2 65 4 (15%) 55 95 1 10 10 10 48 42 ~30-35 0 2 3 FY 2014 Q1 2016 Q2 2016 FY 2016 (1) Capital Resolution expected to reduce RWAs t
Slide 19: Spotlight on credit
Spotlight on credit Customer loans & advances Gross L&As by sector Gross L&As by business at end Q2 2016 at end Q2 2016 (£bn) (£bn) 333.0 333.0 UK PBB Personal Mortgages Ulster Personal Unsecured UK 131.2 Personal Commercial Banking 127.5 Commercial Mortgages Private Real Estate £147.1 RBS Internati
Slide 20: Spotlight on credit
Spotlight on credit UK & Ireland CRE exposure Total UK investment portfolio average LTV 53%, UK CRE investment portfolio by LTV band performing book 49%, Commercial Banking new at end Q2 2016 business LTV 46% (£bn) Interest cover 3.4x in Commercial Banking UK and Total UK CRE exposure £24.6bn(3)
Slide 21: Spotlight on credit
Spotlight on credit UK residential mortgage exposure UK PBB mortgage exposure by LTV band UK total mortgage exposure by region At end Q2 2016 At end Q2 2016 UK PBB performing mortgages: £109.1bn(1) (£bn) Other regions South East 50% or less 39% 25.0 28.0 50-70% 36% 70-80% 13% West Midlands 7.1 80-90
Slide 22: Spotlight on credit
Spotlight on credit Risk Elements in Lending REILs Key portfolios REILs As at end Q2 2016 As at end Q2 2016 (£bn) (£bn) (as % of Total Gross L&As) (as % of Total Gross L&As within the business key portfolio) (70%) 39.4 (9.4%) UK PBB Capital 2.3 Ulster 1.8% Commercial Resolution 20.3 4.3 20.1% Ex Cap
Slide 23: Post EU Referendum financial implications
Post EU Referendum financial implications NIM / impact of low interest rates Volumes Impairment cycle / IFRS 9 Legacy assets rundown and defined benefit pension plan 23
Slide 24: Summary
Summary Strong and growing core bank – delivered again in Q2 Legacy continues to be cleaned up and reduced EU Referendum outcome creates new uncertainty Positioned to deal with potential challenges ahead 24
Slide 25: Q&A
Q&A
Slide 26: Appendix
>< RBS Appendix
Slide 27: NPS
NPS Net Promoter Scores across our core businesses Royal Bank of Scotland (Scotland) NatWest (England & Wales) RBSG (GB) 30 Personal Banking(1) Business Banking(2) Commercial Banking(3) 20 18 15 13 12 9 9 9 10 9 9 8 8 10 6 4 4 0 (6) (4) (7) (7) (7) (10) (9) (9) (10) (12) (17) (20) (30) Q2 Q3 Q4 Q1 Q
Slide 28: Notable items
Notable items (£m) Q2 2016 Q1 2016 Q4 2015 Q2 2015 H1 2016 H1 2015 Total Income 3,000 3,064 2,484 3,737 6,064 7,256 Other Credit Adjustments 194 256 (115) 168 450 288 Loss on redemption of own debt (130) - (263) - (130) - Strategic disposals 201 (6) (22) - 195 (135) o/w Visa Gain (in Central Items)
Slide 29: Litigation and conduct
Litigation and conduct End of H1 2016 provisions (£m) Comments MBS litigation and investigations may require additional provisions in future periods that in aggregate could be 5,172 materially in excess of the provisions existing as of Q1 US RMBS 2016 These provisions do not include potential pe
Slide 30: Leverage ratio – key drivers
Leverage ratio – key drivers (40bps) Leverage ratio (%) 5.6% 5.2% (£bn) Q4 2015 Q2 2016 % change CET 1 capital 37.6 35.7 (5%) AT1 capital 2.0 2.0 0% Tier 1 Capital 39.6 37.7 (4%) Total assets 815.4 901.6 11% Netting and variation margin (258.6) (328.4) 27% Securities financing transactions gross up
Slide 31: Tangible Net Asset Value (TNAV) movements
Tangible Net Asset Value (TNAV) movements Q4 2015 Q1 2016 Shares in TNAV per Shares in TNAV per £m issue (m) share £m issue (m) share Starting TNAV 40,943 11,625 352p 40,892 11,661 351p Profit for the period post tax(1) (525) (4p) (886) (8p) Less: profit to NCI / other owners (1,431) (12p) (122) (1p
Slide 32: £125bn of free funds
£125bn of free funds A strategic asset but cyclically challenging Average Non-interest bearing demand deposits Sensitivity of Net interest income to interest by franchise, and tangible equity rate changes (£bn) Tangible equity Other(1) CPB PBB 122 125 Sensitivity 108 (£m) 42 40 + 25 basis point shif
Slide 33: Mortgages – competing on service, not price
Mortgages – competing on service, not price RBS/ Natwest 60% LTV 2yr Fixed vs. Weighted Average Market Price (“WAMP”) 60% LTV 2 Year Fixed 2.20% 2.15% 2.10% 2.05% 2.00% 1.95% 1.90% 1.85% 1.80% 1.75% RBS/NatWest 2 YR Fixed, LTV 60% WAMP 33
Slide 34: Residential mortgages – new business indicators
Residential mortgages – new business indicators New Business 5yr PD rate Average LTV (Value) PD % LTV % 74% 72% 70% 68% 66% 64% 62% 60% Jul-14 Jul-15 Nov-14 Nov-15 May-14 May-15 May-16 Jan-14 Mar-14 Sep-14 Jan-15 Mar-15 Sep-15 Jan-16 Mar-16 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2013 2013 2013 2013
Slide 35: Ring Fencing update
Ring Fencing update Target organisational structure ~80% of RWAs expected to be committed to Ring- RBS Group plc Fenced Bank(4) (Holding Company) ~15% RWAs in CIB NRFB. Target well capitalised entity with an investment grade credit rating(4) (2) Overall group supported by Bank-wide service Rin
Slide 36: Fixed Income Investor Presentation
Fixed Income Investor Presentation H1 2016 Results 5 August 2016
Slide 37: John Cummins, Treasurer
x RBS John Cummins Treasurer
Slide 38: H1 2016 Results – Treasurer's view
H1 2016 Results – Treasurer’s view Strong funding and liquidity metrics maintained 14.5% CET1 ratio, versus 13% target Active management toward end-state MREL compliance £2.2bn Senior HoldCo issued YTD, versus £3-5bn 2016 target Continue to target up to £2bn AT1 issuance in 2016, subject to market c
Slide 39: Funding & liquidity
Funding & liquidity H1 2016 FY 2015 Loan : deposit ratio 92% 89% Short-term wholesale funding £15bn £17bn Liquidity portfolio £153bn £156bn Liquidity coverage ratio 116% 136% Net stable funding ratio 119% 121% Stressed outflow coverage 213% 227% Balance sheet position means no current requirement
Slide 40: Capital ratios maintained above target
Capital ratios maintained above target CRR end-point Common Equity CRR end-point Tier 1 Leverage Tier 1 (CET1) ratio, % ratio, % 15.5 5.6 14.5 5.2 13.0 11.2 4.2 3.4 8.6 (1) FY 2013 FY 2014 FY 2015 H1 2016 Target FY 2013 FY 2014 FY 2015 H1 2016 40 (1) During period of restructuring
Slide 41: Current assessment of appropriate buffers
Current assessment of appropriate buffers Target CET1 ratio versus maximum distributable amount (“MDA”), % (4) Illustration, based on assumption of static regulatory requirements 14.5 Illustrative 13.0 headroom(1) Illustrative 10.8 2.2 (1) 6.2 headroom 1.0 8.3 0.4 (2) 2.5 0.6 (3) (4) 2.8 2.8 10.8 8.
Slide 42: Continue to reduce outstanding wholesale funding
Continue to reduce outstanding wholesale funding FY 2014 - H1 2016 reduction in outstanding wholesale funding, £bn 83.5 2.9 12.0 19.3 55.1 FY 2014 Issuance Calls / Buybacks Maturity H1 2016 Total wholesale funding funding reduced by £28.4bn since FY 2014 to £55.1bn Continue to expect maturities
Slide 43: Progression toward HoldCo primary issuing entity
Progression toward HoldCo primary issuing entity Target organisational structure(1) moving toward HoldCo as primary issuing entity RBS Group plc Single Point of Entry for UK resolution compliance drives Holding Company future Loss-Absorbing Capital (“LAC”) issuance from HoldCo Proportional Interco
Slide 44: Estimated Loss Absorbing Capital (LAC) position
(1) Estimated Loss Absorbing Capital (“LAC”) positon (4) H1 2016, £bn LAC value (1) Regulatory Value (2,3) Par Value (5) Common Equity Tier 1 Capital 35.7 35.7 35.7 Tier 1 Capital: End point CRR compliant AT1 2.0 2.0 2.0 o/w RBS Group Plc (HoldCo) 2.0 2.0 2.0 o/w RBS Operating Subsidiaries (OpCo's)
Slide 45: Sizing future capital / funding requirements
Sizing future capital / funding requirements (1) Illustrative future loss absorbency requirements Scaled to Minimum Requirements for Own Funds and Eligible Liabilities (“MREL”) based on Bank of England Consultation(2) Discretionary buffers MREL G-SIB 1.0% (3) ‘up to’ Continue to target up to £2bn
Slide 46: H1 2016 Results – Treasurer's view
H1 2016 Results – Treasurer’s view Strong funding and liquidity metrics maintained 14.5% CET1 ratio, above 13% target Active management toward end-state MREL compliance £2.2bn Senior HoldCo issued YTD, versus £3-5bn target Continue to target up to £2bn AT1 issuance in 2016, subject to market conditi
Slide 47: Forward Looking Statements
Forward Looking Statements 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’, ‘believe’, ‘sh
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