Natwest Group Plc · LSE:NWG

Natwest — The Royal Bank of Scotland Group — Q2 2014 Earnings Presentation

28 slides from Natwest's earnings presentation, Aug 1, 2014

  1. Slide 1: Q2 2014 Results

    Q2 2014 Results 1 August 2014

  2. Slide 2: We are 5 months into our journey to create a bank that earns your trust

    We are 5 months into our journey to create a bank that earns your trust Early progress encouraging UK franchises showing signs of growth Costs consistently reduced Impairments lower, supportive credit environment RCR run-down exceeding expectations On track to achieve CET1 ratio target Early progres

  3. Slide 3: Q214 results highlights

    Q214 results highlights 2nd consecutive quarter of attributable profit (Q214: £230m1; Q114: £1,195m) Q214 adjusted operating profit2 of £2.0bn, up 38% vs. Q114, driven by lower impairments and lower costs NIM improved to 2.22%, up 10bps Q/Q, 22bps Y/Y, driven by repricing initiatives, RCR run-down a

  4. Slide 4: Results at a glance

    Results at a glance Q214 vs. Q214 vs. Summary of results (£m) Q214 Q114 Q213 Q114 Q213 Income 4,925 5,053 5,447 (3%) (10%) Operating expenses (3,700) (3,408) (4,156) 9% (11%) o/w Restructuring, Conduct and Litigation (635) (129) (719) 392% (12%) 1 Adjusted operating expenses (3,065) (3,279) (3,437)

  5. Slide 5: Contents

    Contents 1 P&L explained 2 Update on restructuring progress 3 Balance sheet, Capital & Funding 4 RBS Capital Resolution 5

  6. Slide 6: Income – UK franchises showing signs of improvement

    Income – UK franchises showing signs of improvement Total Income, £m -3% 5,053 46 27 (275) 173 (61) (38) 4,925 3% 3% (20%) 24% Q114 PBB CPB CIB Citizens Centre RCR Q214  Deposit repricing, improving macro and consumer confidence supporting the UK franchises  CIB impacted by seasonally lower revenu

  7. Slide 7: NIM continues to improve

    NIM continues to improve NIM Net Interest Q214 vs. Q214 vs. Q214 (%) Q114 (%) Q213 (%) Income (£m) Q114 Q213 Personal & Business Banking 1,321 3.40 3.37 3.20 3bps 20bps Commercial & Private Banking 685 2.91 2.89 2.77 2bps 14bps Corporate & Institutional Banking 186 0.90 0.85 0.67 5bps 23bps Citizens

  8. Slide 8: Operating expenses down across all businesses

    Operating expenses down across all 3 businesses Adjusted operating Operating expenses 1 expenses £m £m +9% -7% 506 (142) (90) 18 3,700 3,408 3,279 3,065 (5%) Q114 Higher Segmental Centre RCR Q214 Q114 Q214 restructuring, cost conduct and reduction litigation  Strategic actions beginning to be imple

  9. Slide 9: Improving impairment trends supported by releases

    Improving impairment trends supported by releases Impairment charge, £m Provisions as proportion of NPLs, % 362 36 165 222 65% coverage 66% coverage (93) Q114 net Q214 net Segmental latent RCR latent Q214 specific and impairment charge provision release provision provision release collective impairm

  10. Slide 10: Operating profit improvement driven by lower impairments and costs

    Operating profit improvement driven by lower impairments and costs Adjusted operating Operating profit 1 profit £m £m +38% +3% 1,953 1,283 (506) 180 1,318 1,412 318 43 22% Q114 Higher Segmental Centre RCR Q214 Q114 Q214 restructuring, operating conduct and profit litigation increase  Businesses cap

  11. Slide 11: Litigation and conduct provisions

    Litigation and conduct provisions Payment Protection Insurance Interest Rate Hedging Regulatory & Legal Outstanding provision, £m 2,499 (173) 28 2,354 878 (218) 100 760 708 (272) 150 586 Q114 Q214 Q214 Q214 Q114 Q214 Q214 Q214 Q114 Q214 Q214 Q214 total utilisation top-up total utilisation top-up tot

  12. Slide 12: Contents

    Contents 1 P&L explained 2 Update on restructuring progress 3 Balance sheet, Capital & Funding 4 RBS Capital Resolution 12

  13. Slide 13: On target to achieve £1bn cost reduction in 2014

    On target to achieve £1bn cost reduction in 2014 Cost reduction target, £bn 14.0 (1.0) 13.0 (0.3) 12.7 FY13 Adjusted 2014 absolute FY14 target Non-repeat of FY14 target Expenses cost reduction cost base Q413 write- cost base ex. (Ex. Conduct, Litigation down intangibles intangibles & Restructuring)

  14. Slide 14: Contents

    Contents 1 P&L explained 2 Update on restructuring progress 3 Balance sheet, Capital & Funding 4 RBS Capital Resolution 14

  15. Slide 15: Early signs of loan growth

    Early signs of loan growth Mortgages – strong net lending growth with SME – continued positive trend continued market share gains Q214 Y/Y growth in mortgage loans outstanding in PBB UK 4% Applications Gross new lending +12% +38% vs. Q213 vs. Q213 1% RBS Market  H114 SME gross new lending of £5bn,

  16. Slide 16: Non-performing loans declining

    Non-performing loans declining 1 NPLs coming down RCR delivered most of the reduction NPLs, £bn NPLs as proportion of gross customer loans,% NPLs, £bn -9% -20% 37.4 (2.6) 42.7 (0.7) 37.4 34.1 34.1 9.0% 8.3% 2 Peak NPLs Q114 Q214 Q114 RCR Rest of Q214 reduction Bank  Non-performing loans down £3.3bn

  17. Slide 17: Capital generation

    Capital generation Key drivers of the improvement in Common Equity Tier 1 ratio, % +0.7 10.1 0.1 0.3 0.2 9.4 (0.1) 0.2 Q114 DAS Earnings RCR risk CIB de- Other Q214 (ex. DAS) reduction risking  Solid progress in capital ratio build, RWAs down £22bn (5%) Q/Q. RCR down £5bn, CIB down £12bn  RCR achi

  18. Slide 18: On track to achieve CET1 and leverage ratio targets

    On track to achieve CET1 and leverage ratio targets CET1 build progressing Leverage ratio continues to improve Common Equity Tier 1 ratio, % BCBS leverage ratio, % ≥12% c.11% 3.7% 10.1% 3.4% 8.6% FY13 Q214 2015 2016 FY13 Q214 target target  Maintain guidance of a CET1 ratio of c.11% by end-2015 and

  19. Slide 19: Fully loaded Common Equity Tier 1 – key drivers

    Fully loaded Common Equity Tier 1 – key drivers £bn Q214 Q114 FY13 Reported Tangible Equity 42.9 42.6 41.1 Expected loss (1.3) (1.1) (1.7) o/w PVA offset 0.3 0.6 0.5 Prudential Valuation Adjustment (0.5) (0.8) (0.8) DTAs (1.7) (1.8) (2.3) Own Credit Adjustments 0.6 0.5 0.6 Pension fund assets (0.2)

  20. Slide 20: Leverage ratio – key drivers

    Leverage ratio – key drivers BCBS leverage ratio, % +0.3% 3.4% 3.6% 3.7% FY13 Q114 Q214 Fully loaded CET 1 capital, £bn 36.8 39.1 39.7 Total assets, £bn 1,028 1,024 1,011 Netting of derivatives (227) (219) (217) Securities financing transactions 60 70 77 Regulatory deductions & other adjustments (7)

  21. Slide 21: TNAV: Profit offset by negative FX movements

    TNAV: Profit offset by negative FX movements Shares in TNAV per £m issue share Q114 TNAV 42,604 11,341 376p + Reported attributable profit 2301 +2p + Add back Q2 goodwill write-down 130 +1p + Positive AFS movement 200 +2p + Proceeds of share issuance 184 59 -1p - FX reserve movement (588) -5p - Othe

  22. Slide 22: Contents

    Contents 1 P&L explained 2 Update on restructuring progress 3 Balance sheet, Capital & Funding 4 RBS Capital Resolution 22

  23. Slide 23: Continued good progress in RCR run-down

    Continued good progress in RCR run-down £bn 65.0 -15% 50.9 (4.6) (3.8) (0.7) (0.9) 2.6 43.5 28.9 24.3 20.9 (1.8) n/a (1.4) 0.1 (0.3) assets, £bn RWAe, £bn Funded 1 2 Opening RCR Disposal Run-off Impairment Other Risk RCR 3 (1 Jan 14) Q114 Parameters Q214  Q2 asset reduction in RWA equivalents down

  24. Slide 24: Updated RCR guidance

    Updated RCR guidance Original guidance Latest view 1 Lifetime cost £4.0 – 4.5bn £2.5 – 3.0bn 2 Lifetime capital release ~£2bn ~£3.5bn 2014 TPA run-down profile ~£23bn ~£15-18bn  RCR already achieved £2bn net CET1 capital accretion since creation 1 Comprises impairments, disposal losses and running

  25. Slide 25: RCR asset composition and provisions overview

    RCR asset composition and provisions overview Asset composition Asset composition at 30 June 2014 Overview of provisions by sector Markets Ulster Securitised Products: £2.7bn CRE Investment £1.9bn Provisions Emerging Markets: £0.6bn CRE Development: £0.7bn Provisions Gross as a % of Provisions as a

  26. Slide 26: Outlook

    Outlook NIM is expected to remain close to H114 levels, with the majority of deposit re-pricing benefits now realised Continue to target ~£1bn absolute cost reduction in 2014 Higher restructuring charge expected in H214, building to ~£1.5bn for 2014. We retain our £5bn total restructuring costs guid

  27. Slide 27: Contacts

    Contacts Our Investor Relations team is available to support your research Richard O’Connor Head of Investor Relations richard.oconnor@rbs.com +44 20 7672 1758 For Equity Investors & Analysts For Debt Investors & Analysts For Corporate Access Alexander Holcroft Greg Case Leah McCreanor Head of Equit

  28. Slide 28: 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’, ‘believes’, ‘s

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