Natwest Group Plc · LSE:NWG
Natwest — The Royal Bank of Scotland Group — Morgan Stanley Financial Services Conference 2012
40 slides from Natwest's conference presentation, Mar 27, 2012
Slide 1: The road to standalone strength
The road to standalone strength Bruce Van Saun, Group FD, The Royal Bank of Scotland Group Morgan Stanley Financial Services Conference 27th March 2012
Slide 2: Important Information
Important Information Certain sections in this document 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’, ‘believes’, ‘should’, ‘
Slide 3: Agenda
Agenda RBS: The Recovery Plan and Scorecard Non-Core: Driving Risk Improvement GBM restructuring: Round 2 The Core Franchise Value Proposition Gaining Standalone Strength 3
Slide 4: The Recovery Plan and Scorecard
The Recovery Plan and Scorecard
Slide 5: In 2009 RBS instigated a 5 year Recovery Plan
In 2009 RBS instigated a 5 year Recovery Plan Objectives To serve customers well To restore the Bank to a sustainable and conservative risk profile To rebuild value for all shareholders These priorities are interconnected and mutually supporting Strategy The new RBS is built upon customer-driven bus
Slide 6: Progress to date: RBS's deleveraging actions reflect trend in key economies
Progress to date: RBS’s deleveraging actions reflect trend in key economies c. £600bn reduction in balance sheet achieved £bn Additional targeted 1,563 (246) (164) reduction (255) 977 (~125) 79 1 Worst Point ABN AMRO Non-Core Core GBM Other (incl. FY11 Non-Core assets to reduction reduction liquidit
Slide 7: Progress to date: Balance sheet
Progress to date: Balance sheet Balance sheet managed down Non-Core assets more than halved Third Party Assets, £bn Group Funded Assets, £bn ~1,600 (39%) 258 (64%) 977 94 1 Worst point FY11 FY08 FY11 Short-term funding reduced Liquidity portfolio > STWF2 STWF, £bn Liquidity portfolio, £bn 297 (66%)
Slide 8: Progress to date: Balance sheet
Progress to date: Balance sheet Capital base robust Leverage below target Core Tier 1 ratio, % Leverage, x APS benefit +660bps 10.6 0.9 28.7 16.9 18.0 4.0 FY08 FY11 FY08 FY11 Target Close to self-funded Focus on safety and security of the Group loan : deposit ratio, % 154 (46pp) 108 bank - key balan
Slide 9: Progress to date: Funding and liquidity profile
Progress to date: Funding and liquidity profile Key Metrics RBS FY11 UK Peers4 EU Peers4 Better than Peers H111 H111 UK EU Loan : Deposit Ratio (Group/Core) 108% / 94% 113% 99% x Liquidity Buffer1 as % Funded Balance Sheet 16% 16% 8% Liquidity Buffer1 as % STWF2 152% 119% 67% STWF2 as % Funded Balan
Slide 10: Progress to date: The Group's risk profile is significantly better
Progress to date: The Group’s risk profile is significantly better Short-term wholesale funding1 Commercial Real Estate Exposure2 £bn 297 Core Non-Core 300 £98bn 250 216 £87bn 200 £75bn £51bn £42bn 150 130 £41bn 102 100 50 £47bn £45bn £34bn 0 FY08 FY09 FY10 FY11 FY09 FY10 FY11 Non-Core market risk g
Slide 11: Progress to date: Costs tightly controlled, impairments declining, capital rebuilt
Progress to date: Costs tightly controlled, impairments declining, capital rebuilt Relentless focus on cost efficiency, further savings initiatives planned £bn 17.6 3.0 15.5 0.8 1.2 0.4 0.4 1.3 1 2 FY08 rebased Cost Non-Core Divestments Inflation Investment & Other FY11 reduction reduction Regulator
Slide 12: Non-Core: Driving Risk Improvement
Non-Core: Driving Risk Improvement
Slide 13: Non-Core: Driving risk improvement
Non-Core: Driving risk improvement The primary driver of risk reduction Non-Core – make-up at inception Non-Core – challenges & answers Separately managed as run-down division Significant complexity around portfolio At inception: assets — £258bn of funded assets — Brought in asset class expertise, b
Slide 14: Non-Core: How we went about it
Non-Core: How we went about it Run-down plan: Run-off has been key driver: — Biggest single contributor to run-down – 42%2 reduction Assets at inception: to date £258bn1 — No/limited execution costs relative to market disposals — Requires a focused and systematic approach — Stay close to clients – o
Slide 15: Non-Core: Asset composition changes
Non-Core: Asset composition changes YE 2008 funded assets YE 2011 funded assets Other Corporate Corporate Retail RBS Insurance £2.0bn Project & Export Other Project & Export Finance Retail Finance £21.3bn UK Mortgages & Bank of China / Linea Directa £12.6bn Personal Lending RBS Insurance £1.1bn UK M
Slide 16: Non-Core: 2013 'rump'
Non-Core: 2013 ‘rump’ 2013 rump of c.£40bn TPAs is forecast £bn 40 2013 Non-Core ‘rump’ estimated at c.£40bn, including: 44% Corporate — Corporate and other assets of low yield but CRE generally good credit quality 34% Retail — CRE of c.£15bn, c.60-65% in longer-term Markets work-out 5% 7% 10% Other
Slide 17: Non-Core: Progress summary & outlook
Non-Core: Progress summary & outlook Currently delivering ahead of plan: — FY11 funded assets of £94bn vs. original target of £118bn — Non-Core assets <10% of Group funded assets — Cumulative impairments at £18.6bn, vs £20-30bn guide range — Disposals to date capital accretive — Risk profile of Grou
Slide 18: Wholesale Restructuring
2% RBS Group Wholesale Restructuring
Slide 19: GBM: Restructuring 2008/09
GBM: Restructuring 2008/09 Wholesale restructuring in 2008 GBM donated Non-Core assets - Deleveraging ahead of plan TPAs1 169 TPAs1, £bn Ability to focus £bn on deleveraging 169 Original Plan 104 Actual 668 GBM 80 -169 Non-Core 7 57 43 256 15 FY08 FY11 499 08 GBM Enhanced risk culture fully embedded
Slide 20: GBM: Why we had to go to round two restructuring
GBM: Why we had to go to round two restructuring Economic RBS impact Slower economic recovery NIM and impairment headwinds Flatter yield curve Lower customer activity levels Market RBS impact Customer risk aversion Lower IB client activity & risk volatility Dislocated funding markets Higher Group fu
Slide 21: GBM: The plan going forward
GBM: The plan going forward RBS Competitive Positioning Weak Strong Low • Cash Equities • Prime Services • FX • Corporate Broking • Transaction Services Capital Intensity • Equity Capital Markets • Investor Products • M&A • Credit Markets • Rates • Emerging Markets • Asset-backed Products • Corporat
Slide 22: New mix improves stability of revenues
New mix improves stability of revenues Revised profile will drive increased stability of revenues with scale down/exit of more volatile products Cyclical Stable Exit: loss Exit: loss Cyclical making making Stable Quarterly volatility1 of Exit Products revenues (1Q09-4Q11) Flow Rates Emerging Asset C
Slide 23: Markets business overview
Markets business overview Summary Provides products and services to a wide range of the Group’s clients and addresses the more complex financial needs of large corporate and institutional clients and (via Retail network, RBS Wealth and third party distributors) sophisticated retail investors Interme
Slide 24: Significant connectivity of Markets business with rest of RBS Group
Significant connectivity of Markets business with rest of RBS Group Revenue Connectivity of Markets and International Banking Businesses Across RBS Group International UK Retail Banking ~£40m ~£1.1bn ~£1bn ~£150m UK Citizens Markets Corporate ~£80m ~£600m Ulster Bank Wealth ~£80m ~£20m ~£1.9bn1 reve
Slide 25: International Banking overview
International Banking overview Summary Client focus: Internationally oriented corporates and their subsidiaries. Financial Institutions to who we sell Transactions Services Coverage model: Integrated coverage organisation serving own client base and international transaction services needs of the Gr
Slide 26: Markets & Int'l Banking: Achievable medium term targets
Markets & Int’l Banking: Achievable medium term targets FY’11 FY’11 pro-forma Medium-term targets Management levers GBM Markets IB Markets IB Cost: income 73% 66% 66% c.60% <60% Cost efficiency ratio RWA reduction: — Lower inventory RoE 8% 9% 11% >12% >12% — De-risking — Model improvements Reduce as
Slide 27: Core Franchise Value Proposition
Core Franchise Value Proposition
Slide 28: Our ongoing business – a complementary mix
Our ongoing business – a complementary mix Core profits offsetting Non-Core loss Good blend of RoEs Core operating profit vs. Non-Core operating loss, FY09- FY11 RoE, % FY11, £bn GTS 31 22.0 UK Retail 26 Wealth 19 (24.3) UK Corporate 12 Core Non-Core US R&C 6 TNAV maintained TNAV/Share, p Ulster Ban
Slide 29: Improving sustainable strength & value
Improving sustainable strength & value FY07 revenues1, old structure Balance sheet structure 66% R&C GBM Markets R&C GBM 34% GBM 32% Rest of Group 2007 44% 56% RWAs4 66% Target 23% 77% FY11 revenues2, new structure o/w c.10% Int’l Banking Markets 20% 80% R&C 2007 68% 32% TPAs 11% International Banki
Slide 30: Robust franchises, leading market positions
Robust franchises, leading market positions UK Retail: 1 — #2 for UK current accounts (13m); 11.4m savings accounts UK Corporate: 2 3 — #1 SME bank, #1 Corporate Bank; c1.2m customers Wealth: 4 — #1 UK High Net Worth Private Bank US R&C: 5 — Top 5 player in 8 of the top10 markets in which we operate
Slide 31: UK Retail and Commercial: Strong UK businesses
UK Retail and Commercial: Strong UK businesses Growing UK deposit balances Good blended RoE currently… RBS UK Retail & UK Corporate Market1 household & combined customer deposits (£bn) corporate deposits (£bn) FY’11 RoE +5% 1,500 250 +16% UK Retail 26% 1,351 1,400 203 1,285 200 1,300 UK Corporate 12
Slide 32: US R&C, Ulster Bank: Improvement impactful to Core results
US R&C, Ulster Bank: Improvement impactful to Core results US R&C profits are recovering Ulster Bank underlying profits improved Operating Profit, $m Core Ulster Bank Pre-impairment Profit & Impairments, £m 769 1,384 Impairments stabilised 473 in H211 Q411 RoE 8% 649 281 360 (174) FY09 FY11 FY09 FY1
Slide 33: Insurance: continues to deliver on turnaround
Insurance: continues to deliver on turnaround #1 UK personal lines insurer with 19% market RoE turnaround share in motor and 18% in home1 RBS Insurance RoE, % Earnings turnaround in 2011 driven by continuing management action following a period of underperformance and elevated bodily injury 10.3 cla
Slide 34: Standalone Strength
2% RBS Group Standalone Strength
Slide 35: APS update
APS update APS scheme has provided enhanced capital strength, APS Covered Assets reduced risk and facilitated Non-Core run-down £bn APS covered assets have more than halved since 2008, -53% while CT1 benefit has declined to 0.87% from 1.6% at 282 FY09 231 195 RBS and APA1 estimates agree the £60bn ‘
Slide 36: Planned milestones in 2012
Planned milestones in 2012 Non-Core targeted £65- Jan: SLS fully 70bn funded assets by year repaid end May: Last CGS funding matures Q1: MIB structure Plan to IPO Insurance confirmed Q1 Q2 Q3 Q4 Return to BAU funding and liquidity management Plan for Santander sale to close April: EC coupon ban ends
Slide 37: Conclusions
2% RBS Group Conclusions
Slide 38: Markers of success
Markers of success Progress A fundamentally A resized, restructured and de-risked balance sheet restructured group An efficiently run, lower cost business A viable, attractive, Maintenance of market-leading positions with customer relevance standalone business Complementary business proposition with
Slide 39: Conclusions
Conclusions Resilient R&C performance, especially UK businesses Continued improvement from US R&C and Insurance Core Franchises GBM: Clear plan to improve RoE: in execution phase Value proposition driven by management actions and in the longer term by improving economic activity Non-Core TPAs below
Slide 40: Questions?
2% RBS Group Questions?
The Royal Bank of Scotland Group — Morgan Stanley Financial Services Conference 2012 on 6ix