Natwest Group Plc · LSE:NWG
Natwest — The Royal Bank of Scotland Group — Goldman Sachs European Financials Conference 2005
48 slides from Natwest's conference presentation, Jun 9, 2005
Slide 1: Goldman Sachs European Financials Conference
Goldman Sachs European Financials Conference Fred Watt, Group Finance Director 9 June 2005
Slide 2: 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,
Slide 3: Navigating the Sea of Change
Navigating the Sea of Change ▮ The sea is constantly changing ▮ The environment has changed over the last five years Slide 3
Slide 4: Navigating the Sea of Change
Navigating the Sea of Change ▮ How has the environment changed in the past five years? Market / Economic Themes – 1999/2000 Internet boom and bust – 2001 Economic slowdown Falling interest rates – 2002 Large corporate credit problems – 2003 Strong consumer lending growth – 2004 Broad based global ec
Slide 5: Navigating the Sea of Change
Navigating the Sea of Change ▮ How has RBS fared in this environment? – Income growth – Efficiency – Credit quality – Earnings – Capital returned Slide 5
Slide 6: Income Growth
Income Growth Income Growth 2000 – 2004 Pro forma 1999 2004 Change Change £m £m £m Total income 11,065 22,754 11,689 +106% Slide 6
Slide 7: Income Growth – World Banks
Income Growth – World Banks Income Growth 2000 – 2004 RBS +106% RBS ($) +133% Citigroup +55% Bank of America +57% HSBC +141% JPMorgan Chase +38% Wells Fargo +59% Income as reported by banks in US dollars, except RBS which reports in sterling Slide 7
Slide 8: Income Growth – World Banks
Income Growth – World Banks 2000 2001 2002 2003 2004 RBS +12% +18% +16% +14% +18% RBS ($) +5% +12% +21% +24% +32% Citigroup +16% +6% +6% +9% +10% Bank of America +4% -3% -1% +10% +6% HSBC +17% +5% +3% +54% +23% JPMorgan Chase -4% -4% +3% +7% +4% Wells Fargo +10% +1% +20% +12% +6% Slide 8
Slide 9: Efficiency
Efficiency Pro forma 1999 2004 Change Change £m £m £m Total income 11,065 22,754 11,689 +106% Operating expenses 6,563 9,662 3,099 +47% Cost:income ratio 57.8% 40.8% Cost:income ratio calculated after netting operating lease depreciation against rental income Slide 9
Slide 10: Efficiency – World Banks
Efficiency – World Banks Cost:Income Ratio 1999 – 2004 % 70 65 60 55 50 45 40 35 99 00 01 02 03 04 99 00 01 02 03 04 99 00 01 02 03 04 99 00 01 02 03 04 99 00 01 02 03 04 99 00 01 02 03 04 Citigroup B of A HSBC JPM Chase Wells Fargo RBS Cost:income ratios as reported by banks, or based on income and
Slide 11: Credit Quality – World Banks
Credit Quality – World Banks P&L Account Provisions / Customer Loans + Advances % 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 00 01 02 03 04 00 01 02 03 04 00 01 02 03 04 00 01 02 03 04 00 01 02 03 04 00 01 02 03 04 Citigroup Bank of HBSC JPMorgan Wells Fargo RBS America Chase Slide 11
Slide 12: Earnings
Earnings Pro forma 1999 2004 Change Group operating profit £3,359m £8,101m +141% Earnings per share 78.3p 172.5p +120% Slide 12
Slide 13: Earnings – World Banks
Earnings – World Banks Growth in Earnings Per Share 1999 – 2004 RBS Citigroup HSBC Wells Fargo Bank of America JPMorgan Chase -40 -20 0 20 40 60 80 100 120 140 RBS excluding goodwill amortisation and integration costs, as reported % Citigroup excluding discontinued operations and exceptional items,
Slide 14: Capital Returned to Shareholders
Capital Returned to Shareholders Dividends 2001 2002 2003 2004 Total £m £m £m £m £m Ordinary dividends 1,085 1,267 1,490 1,837 5,679 Dividends on Additional Value Shares 399 798 1,463 – 2,660 Slide 14
Slide 15: Navigating the Sea of Change
Navigating the Sea of Change ▮ Why has RBS prospered in this constantly changing environment? – Ability to grow income – Diversified income – Strong market positions Slide 15
Slide 16: Ability to Grow Income
Ability to Grow Income Income Growth 2000 – 2004 Pro forma 1999 2004 Change Change £m £m £m Total income 11,065 22,754 11,689 +106% Components of Income Growth £m % Total NatWest transaction benefits 890 7% Acquisitions 3,837 33% Organic growth 6,962 60% Total 11,689 100% Slide 16
Slide 17: Diversified Income
Diversified Income ▮ By brand/channel ▮ By type ▮ By geography ▮ By business Slide 17
Slide 18: Diversified Income – by Brand/Channel
Diversified Income – by Brand/Channel Multi-Brand, Multiple Channel Strategy Slide 18
Slide 19: Diversified Income – By Type
Diversified Income – By Type Net Interest Income % of Total Income 1999 2004 Personal deposits 14% 10% Personal lending 9% 12% Business deposits 10% 7% Business lending 15% 11% Net interest income % total income 48% 40% Slide 19
Slide 20: Diversified Income – By Type
Diversified Income – By Type Non-Interest Income % of Total Income 1999 2004 Net fees and commissions 26% 21% – Money transmission and lending 12% 11% – Cards related 5% 4% – Other 9% 6% General insurance premium income 7% 22% Dealing profits (before associated costs) 9% 9% Other operating income 10
Slide 21: Diversified Income – By Geography
Diversified Income – By Geography 1999 Operating Profit 2004 Operating Profit Pro forma Charter One Pro forma Rest of World Europe Europe 1% US 5% 8% 10% US UK UK 25% 85% 66% Slide 21
Slide 22: Diversified Income – By Geography
Diversified Income – By Geography Income Growth 2003 2004 Change in Local Currency UK (£m) 15,099 17,519 +16% Ireland (€m) 749 1,040 +39% Continental Europe (€m) 801 1,242 +55% United States ($m) 4,713 6,362 +35% Rest of World ($m) 373 392 +5% Total income adjusted for currency impact +20% Slide 22
Slide 23: Diversified Income – by Business
Diversified Income – by Business 2004 Income Corporate Banking & Financial Markets 33% Retail Banking + Retail Direct 30% Wealth Management 4% Ulster Bank 3% Citizens 9% RBS Insurance 21% Slide 23
Slide 24: Strong Market Position – UK
Strong Market Position – UK Ranking UK corporate banking #1 UK retail banking #2 UK general insurance #2 UK private banking #1 UK offshore banking #1 UK supermarket banking #1 UK motor insurance #1 UK home insurance #2 Slide 24
Slide 25: Strong Market Position – CBFM
Strong Market Position – CBFM Ranking Global US dollar private placements #1 Global project finance #1 Sterling interest rate derivatives #1 European leveraged finance #1 Sterling foreign exchange #1 US Treasury Primary Dealership #1 (sales and research rating) Sterling bonds #2 Global foreign excha
Slide 26: Strong Market Position – Citizens
Strong Market Position – Citizens Ranking Deposits #8 Assets #10 Branches #7 ATMs #9 Supermarket branches #2 Small business lending #2 US commercial banks, US GAAP, 31 Dec 04 Source: SNL 31 Dec 04 Slide 26
Slide 27: Navigating the Sea of Change
Navigating the Sea of Change ▮ How is the environment changing today? – Slower economic growth? – Consumer/corporate rebalancing? – For RBS z Charter One z Current trading z IFRS Slide 27
Slide 28: Slower Economic Growth?
Slower Economic Growth? Forecasters predict positive economic growth 2002 2003 2004 2005 2006 UK 1.8% 2.2% 3.1% 2.5% 2.3% US 1.9% 3.0% 4.4% 3.7% 3.4% Germany 0.1% 0.1% 1.4% 0.9% 1.4% Source: Datastream, Consensus Economics Slide 28
Slide 29: Consumer/Corporate Rebalancing?
Consumer/Corporate Rebalancing? ▮ Higher interest rates, leading to changes in consumer behaviour ▮ Increased corporate activity Slide 29
Slide 30: Changes in Consumer Behaviour
Changes in Consumer Behaviour UK consumer confidence has remained stable Index 40 30 20 Personal financial situation 10 0 -10 -20 -30 2000 2001 2002 2003 2004 2005 Source: GfK Slide 30
Slide 31: Changes in Consumer Behaviour
Changes in Consumer Behaviour UK personal sector gearing remains low % Total Household Interest Payments/Total Household Disposable Income 20 15 10 5 0 1985 1990 1995 2000 2005 Source: Bank of England (series commenced 1987) Slide 31
Slide 32: Changes in Consumer Behaviour
Changes in Consumer Behaviour But the rate of increase in personal loans has declined % increase 20 Credit cards 15 Personal loans 10 5 0 2000 2001 2002 2003 2004 2005 Annual growth in unsecured balances Source: Bank of England Slide 32
Slide 33: Retail Banking and Retail Direct
Retail Banking and Retail Direct % of Group Income 2004 Personal lending 8% Personal deposits 6% Non-interest income and small business banking 16% Total 30% Slide 33
Slide 34: Retail Banking and Retail Direct
Retail Banking and Retail Direct ▮ Continuing income growth, although consumer in a period of transition – Reduced growth in income from unsecured lending – Increased volume of secured lending ▮ Continued growth in small business income and money transmission ▮ Some increase in arrears, but from his
Slide 35: Increased Corporate Activity
Increased Corporate Activity UK Corporate sector lending is increasing % increase 20 15 10 5 0 2000 2001 2002 2003 2004 2005 Month on prior year month growth in non-financial lending Source: Bank of England, financial institution sterling net lending excl securitisations to PNFC, seasonally adjusted
Slide 36: Corporate Banking & Financial Markets
Corporate Banking & Financial Markets Income 2004 2003 Change US ($m) 1,996 1,541 +30% Continental Europe (€m) 436 263 +66% ▮ United States – Established debt capital markets business, leveraging Greenwich Capital’s customer relationships – Increased distribution of CBFM products to Citizens’ custom
Slide 37: Corporate Banking & Financial Markets
Corporate Banking & Financial Markets ▮ UK activity levels good ▮ Strong momentum in Europe ▮ Good organic growth in US, coupled with greater collaboration with Citizens ▮ Credit quality good Slide 37
Slide 38: Charter One
Charter One ▮ Acquired 1st September 2004 ▮ Excellent fit with Citizens ▮ Substantial opportunities – Transaction benefits – Organic growth Slide 38
Slide 39: Citizens
Citizens Distribution of 2004 Income by Activity Citizens 36% 30% 18% 12% 4% Retail Commercial Consumer Mortgage Other Banking Banking Lending Related Citizens income 2004 Retail banking includes deposits and fees, commercial banking includes loans, deposits and fees Slide 39
Slide 40: Citizens and Charter One
Citizens and Charter One Distribution of 2004 Income by Activity 47% Citizens Charter One 36% 30% 18% 16% 16% 15% 12% 6% 4% Retail Commercial Consumer Mortgage Other Banking Banking Lending Related Citizens: 2004 income, Charter One: Sep-Dec 2004 income Retail banking includes deposits and fees, com
Slide 41: Transaction Benefits
Transaction Benefits Contribution to Profit Before Tax in 2007 $m Revenue benefits 222 Cost savings 185 Total 407 Slide 41
Slide 42: Opportunities for Organic Growth
Opportunities for Organic Growth Households 000s ▮ Citizens states – New England 4,767 – Mid-Atlantic 4,837 ▮ Charter One states – Midwest 15,490 – Northeast 3,416 Source: SNL Datasource Slide 42
Slide 43: Opportunities for Organic Growth
Opportunities for Organic Growth Population Total Forecast (m) Deposits H’hold Income $bn Growth (04-09) Midwest Chicago, Illinois 9.4 220.5 13.2% Detroit, Michigan 4.5 76.2 11.5% Cleveland, Ohio 2.1 62.2 11.0% Indianapolis, Indiana 1.6 23.7 13.4% Deposits exclude Credit Unions Source: SNL Datasourc
Slide 44: Citizens
Citizens ▮ Good underlying franchise growth ▮ Charter One – Initial performance good – Integration fully on track – Enhanced product range and new branches adding value – So far, so good ▮ Credit quality good Slide 44
Slide 45: RBS Current Trading
RBS Current Trading Pre-close Trading Update ▮ Group continues to perform well in the first half of 2005 ▮ Strong overall income growth ▮ Group’s efficiency programme remains on plan to deliver previously stated benefits ▮ Credit quality good, credit metrics expected to remain stable overall ▮ Integ
Slide 46: Impact of IFRS
Impact of IFRS IFRS Transition Report ▮ 2004 results restated for retrospective standards ▮ 2004 results proforma for all new standards – Profit before tax, a reduction of around 5% – Basic EPS an increase of around 10% – Adjusted EPS, a reduction of around 5% Slide 46
Slide 47: Navigating the Sea of Change – Summary
Navigating the Sea of Change Summary ▮ RBS has performed consistently well throughout periods of change ▮ Key strengths – Ability to grow income – Diversified income – Strong market positions ▮ Multiple growth opportunities Slide 47
Slide 48: Goldman Sachs European Financials Conference
Goldman Sachs European Financials Conference Fred Watt Group Finance Director 9 June 2005
The Royal Bank of Scotland Group — Goldman Sachs European Financials Conference 2005 on 6ix