Natwest Group Plc · LSE:NWG
Natwest — The Royal Bank of Scotland Group — Merrill Lynch Conference 2006
40 slides from Natwest's conference presentation, Oct 3, 2006
Slide 1: Risk, Return and Growth: Getting the Balance Right
Risk, Return and Growth Getting the Balance Right Sir Fred Goodwin Group Chief Executive
Slide 2: Forward looking statements
This presentation may contain forward looking statements, including such statements within the meaning of Section 27A of the US Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements concern or may affect future matters, such as the Group's economic results,
Slide 3: Merrill Lynch Conference
Merrill Lynch Conference Year Title 2000 Bringing down the barriers 2001 Building competitive advantage in a volatile world 2002 Higher growth vs lower risk: the challenge ahead 2003 Living in a 1% world 2004 Managing complexity 2005 Strategy 2010 2006 Risk, return and growth Getting the balance rig
Slide 4: Risk, Return and Growth Getting the Balance Right
Risk, Return and Growth Getting the Balance Right High Return Low Return High Risk Low Risk High Growth Low Growth Slide 4
Slide 5: Risk, Return and Growth Getting the Balance Right
Risk, Return and Growth Getting the Balance Right RBS High Return Good Return Low Return High Risk Acceptable Risk Low Risk High Growth Sustainable Growth Low Growth Slide 5
Slide 6: Objectives
Risk, Return and Growth Getting the Balance Right Objectives ▮ Generate return on equity ▮ Grow earnings per share ▮ Deliver sustainable growth Slide 6
Slide 7: Generate Return on Equity
Generate Return on Equity Return on Equity % 20 15 10 5 0 UK GAAP IFRS IFRS 2000 2001 2002 2003 2004 2004 2005* After-tax return on ordinary equity excluding goodwill amortisation, intangibles amortisation, integration costs and exceptional items. * Allowing for constant capital Slide 7
Slide 8: Grow Earnings Per Share
Grow Earnings Per Share Growth in Earnings Per Share 1999 – 2005 World Banks RBS HSBC Citigroup Wells Fargo UBS Barclays SCH Bank of America 0 5 10 15 20 RBS, HSBC, Barclays, UK GAAP 1999-2004 and IFRS 2004-2005 % pa RBS excluding goodwill amortisation and integration costs, as reported HSBC excludi
Slide 9: Deliver Sustainable Growth
Deliver Sustainable Growth Cumulative Growth in Earnings Per Share World Banks 250 RBS HSBC Citigroup 200 Wells Fargo UBS Barclays SCH BoA 150 100 50 1999 2000 2001 2002 2003 2004 2005 Slide 9
Slide 10: Sustainable Delivery Requires
Risk, Return and Growth Getting the Balance Right Sustainable Delivery Requires ▮ Businesses which can grow their income and profit at acceptable risk … ie operational effectiveness ▮ Sufficient range of businesses to enable market and economic upturns to be exploited and downturns to be mitigated …
Slide 11: Sustainable Delivery Requires
Risk, Return and Growth Getting the Balance Right Sustainable Delivery Requires ▮ Businesses which can grow their income and profit at acceptable risk … ie operational effectiveness ▮ Sufficient range of businesses to enable market and economic upturns to be exploited and downturns to be mitigated …
Slide 12: Operational Effectiveness
Operational Effectiveness 2002 2003 2004 2005 1H06 Total income +16% +14% +18% +14% +10% Total income excluding acquisitions +12% +10% +11% +10% +10% Slide 12
Slide 13: Operational Effectiveness
Operational Effectiveness Income Growth 2002 2003 2004 2005 1H06 Excl Acquisitions Corporate Markets +10% +10% +12% +17% +16% Retail Markets +8% +6% +7% +7% +6% Ulster Bank +8% +12% +7% +15% +15% Citizens ($) +19% +11% +8% +6% +4% RBS Insurance +34% +25% +17% +8% +3% Group +12% +10% +11% +10% +10% E
Slide 14: Operational Effectiveness
Operational Effectiveness 2002 2003 2004 2005 1H06 IFRS IFRS IFRS Total income +16% +14% +18% +14% +10% Total income excluding acquisitions +12% +10% +11% +10% +10% Cost:income ratio 44.2% 42.6% 42.0% 42.4% 41.9% P&L provisions as a % of customers loans and advances 0.57% 0.57% 0.45% 0.41% 0.41% VaR
Slide 15: Sustainable Delivery Requires
Risk, Return and Growth Getting the Balance Right Sustainable Delivery Requires ▮ Businesses which can grow their income and profit at acceptable risk … ie operational effectiveness ▮ Sufficient range of businesses to enable market and economic upturns to be exploited and downturns to be mitigated …
Slide 16: Diversified by Business
Diversified by Business 1H06 Income Corporate Markets 35% Retail Markets 30% Ulster Bank 3% Citizens 12% RBS Insurance 20% Slide 16
Slide 17: Diversified by Geography
Diversified by Geography 1H06 Operating Profit Rest of World 1% Europe 13% UK 57% US 29% Slide 17
Slide 18: Diversified by Type
Diversified by Type 1H06 Income Net Interest Income 38% Personal Business lending deposits Personal Business deposits lending Net fees and commissions Insurance net premium income Income from Other operating trading activities income Non-Interest Income 62% Slide 18
Slide 19: Diversified by Type
Diversified by Type 1H06 Income Net Interest Income 38% Business deposits 6% Personal deposits 9% Non-Interest Income 62% Slide 19
Slide 20: Deposits
Deposits % Group 1H06 1H06 Net Interest Income Total Income UK US Europe Asia- Total Pacific Personal 5.9% 3.1% 0.2% 9.2% Business 4.4% 1.3% 0.2% 5.9% Total 10.3% 4.4% 0.4% 15.1% Slide 20
Slide 21: Diversified by Type
Diversified by Type 1H06 Income Net Interest Income 38% Personal lending 12% Non-Interest Income 62% Slide 21
Slide 22: Personal Lending
Personal Lending % Group 1H06 1H06 Net Interest Income Total Income UK US Europe Asia- Total Pacific Overdrafts 0.6% 0.6% Personal loans – Secured – 0.7% – – 0.7% – Unsecured 3.6% – 0.1% 3.7% Credit cards 2.3% 0.1% 0.3% 2.7% Mortgages 2.1% 0.3% 0.4% 2.8% Home equity loans – 1.1% – – 1.1% Total 8.6%
Slide 23: Diversified by Type
Diversified by Type 1H06 Income Net Interest Income 38% Business lending 11% Non-Interest Income 62% Slide 23
Slide 24: Business Lending
Business Lending % Group 1H06 1H06 Net Interest Income Total Income UK US Europe Asia- Total Pacific Small business 1.6% 1.3% 0.4% – 3.3% Mid-corp + commercial 3.8% 0.1% – 3.9% Large corporate 0.9% 0.1% 0.2% 1.2% Specialist lending – Asset finance 0.3% 0.1% 0.4% – Property finance 0.4% 0.3% 0.7% – P
Slide 25: Diversified by Type
Diversified by Type 1H06 Income Net Interest Income 38% Net fees and commissions 19% Non-Interest Income 62% Slide 25
Slide 26: Net Fees and Commissions
Net Fees and Commissions % Group 1H06 Non-Interest Total Income Income Money transmission 6.8% Lending fees 3.4% Card related services 4.3% – Cards 2.2% – Merchant acquisition 1.3% – Interchange 0.8% Other 4.3% Total 18.8% Slide 26
Slide 27: Diversified by Type
Diversified by Type 1H06 Income Net Interest Income 38% Income from Trading Activities 11% Non-Interest Income 62% Slide 27
Slide 28: Income from Trading Activities
Income from Trading Activities % Group 1H06 Non-Interest Total Income Income Foreign exchange 2.1% RBS Greenwich Capital asset-backed securities 2.3% Other securities 2.7% Interest rate derivatives 3.6% Total 10.7% Slide 28
Slide 29: Diversified by Type
Diversified by Type 1H06 Income Net Interest Income 38% Insurance Net Premium Income 22% Non-Interest Income 62% Slide 29
Slide 30: Insurance Net Premium Income
Insurance Net Premium Income % Group 1H06 Non-Interest Total Income Income Motor insurance 13.1% Home insurance 3.5% Other insurance 3.4% Bancassurance 1.8% Total 21.8% Slide 30
Slide 31: Diversified by Type
Diversified by Type 1H06 Income Net Interest Income 38% Other operating income 11% Non-Interest Income 62% Slide 31
Slide 32: Other Operating Income
Other Operating Income % Group 1H06 Non-Interest Total Income Income Operating lease rental income 6.5% Net gains on available-for-sale securities 1.1% Dividend income 0.3% Other income 2.8% Total 10.7% Slide 32
Slide 33: Total Income
Total Income ▮ Net interest income is diversified ▮ Non-interest income is diversified ▮ Many businesses earn both net interest income and non-interest income Slide 33
Slide 34: Personal Deposits + Lending Total Income
Personal Deposits + Lending Total Income % Group 1H06 1H06 Total Income Total Income UK US Europe Asia- Total Pacific Deposits 6.7% 4.1% 0.2% 11.0% Overdrafts 2.5% 2.5% Personal loans – Secured – 1.4% – – 1.4% – Unsecured 4.5% – 0.1% 4.6% Credit cards 3.4% 0.2% 0.5% 4.1% Mortgages 2.2% 0.6% 0.6% 3.4
Slide 35: Business Deposits + Lending Total Income
Business Deposits + Lending Total Income % Group 1H06 1H06 Total Income Total Income UK US Europe Asia- Total Pacific Deposits 5.2% 1.6% 0.2% 7.0% Small business 2.2% 2.3% 0.5% – 5.0% Mid-corp + commercial 4.6% 0.1% – 4.7% Large corporate 2.7% 0.3% 0.4% 3.4% Specialist lending – Asset finance 2.7% 0
Slide 36: General Insurance Total Income
General Insurance Total Income % Group 1H06 1H06 Total Income Total Income UK US Europe Asia- Total Pacific Motor insurance 11.7% – 1.4% – 13.1% Home insurance 3.5% – – – 3.5% Other insurance 3.4% – – – 3.4% Total 18.6% – 1.4% – 20.0% Slide 36
Slide 37: Group Total Income
Group Total Income % Group 1H06 1H06 Total Income Total Income Personal – Deposits + lending 28.1% – Other banking income 4.0% – General insurance 20.0% Total 52.1% Business – Deposits + lending 28.5% – Other banking income 16.7% Total 45.2% Other 2.7% Total 100.0% Slide 37
Slide 38: Diversification
Diversification ▮ Benefits enhanced by scale – We hold market positions in the top 5 for many income streams, and top 10 for most products ▮ Benefits enhanced by relationships – The better the customer relationships, the greater the propensity to transact across multiple income streams ▮ Benefits en
Slide 39: Summary
Risk, Return and Growth Getting the Balance Right Summary ▮ Balancing risk, return and growth will remain our key priority ▮ We have good operational effectiveness and diversification ▮ We are well placed to optimise the balance to produce sustainable growth now and in the future Slide 39
Slide 40: Risk, Return and Growth Getting the Balance Right
Risk, Return and Growth Getting the Balance Right Sir Fred Goodwin Group Chief Executive
The Royal Bank of Scotland Group — Merrill Lynch Conference 2006 on 6ix