Delivering a leading bank for customers and investors Ross McEwan, - - PowerPoint PPT Presentation
Delivering a leading bank for customers and investors Ross McEwan, Chief Executive Officer Bank of America Merrill Lynch conference London 27 September 2016 Agenda Core (1) bank doing well, but environment tougher H1 2016 results represent
Delivering a leading bank for customers and investors
Ross McEwan, Chief Executive Officer Bank of America Merrill Lynch conference London 27 September 2016
Agenda
Core(1) bank doing well, but environment tougher H1 2016 results represent halfway point in our 5-year plan Driving value and performance Concluding remarks
2 (1) ‘Core’ comprises the Personal and Business Banking, Commercial and Private Banking and Corporate and Institutional Banking divisions 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 uncertainty Our capital, liquidity and funding positions give us capacity to lend Addressing conduct and litigation issues as quickly and prudently as we can
3Our core bank continued to deliver solid results in Q2
Our blueprint for success
(1) Excluding litigation and conduct costs, restructuring costs, write down of goodwill and other intangible assets and the operating costs of Williams & Glyn 4 Delivery goals for 2016
Delivering on the second phase of our plan
Phase 1 – CompletePhase 2 – Now
Phase 3 – 2017 onwards Building financial strength Becoming #1Improve our core businesses
reduction from our Capital Resolution exit (Citizens divestment, Capital Resolution run-down)
conduct and litigation issues
(1) Earliest possible timing is likely to be later than Q1 2017, subject to Board and PRA approval. Key milestones before seeking PRA approval for capital distributions would include, among other considerations, maintaining the 13% CET1 ratio target, passing regulatory capital requirements, pass 2016 Bank of England stress test (including Individual Capital Guidance hurdle) and operating within capital risk appetite, peak of litigation and conduct costs passed including US RMBS, confidence in sustainable profitability, and Williams & Glyn exit assured 6 Phase 3 – becoming #1 for customers & shareholders
Phase 3 – 2017 onwards
Phase 2Improve our core businesses
Becoming #1
transformation of our core businesses
RWA reduction from
Resolution exit (Citizens divestment, Capital Resolution run-down)
remaining conduct and litigation issues
customer service, trust and advocacy by 2020
returns – target 12+% RoTE
backs(1)
subject to PRA approval(1)
(1) Earliest possible timing is likely to be later than Q1 2017, subject to Board and PRA approval. Key milestones before seeking PRA approval for capital distributions would include, among other considerations, maintaining the 13% CET1 ratio target, passing regulatory capital requirements, pass 2016 Bank of England stress test (including Individual Capital Guidance hurdle) and operating within capital risk appetite, peak of litigation and conduct costs passed including US RMBS, confidence in sustainable profitability, and Williams & Glyn exit assured 7 Property Structure Products Countries
# London properties # subsidiaries # front book # CPB and CIB countries of active
2013 11 1,107 416(2) 38 H1 2016 7(1) 666 339 13 Target 5 ~500 <300 13
36% 40% 19% 66%Simplified and streamlined
(1) Excluding property occupied by Williams & Glyn (2) FY 2014 8 Increasingly focused on UK Retail & Commercial
Income from UK RWAs in Personal, Business & Commercial
Target ~90% H1 2016 90% FY 2013 63% Target ~85% H1 2016 81% FY 2013 79%
9 Adjusted operating profit (£bn) 1.0 1.0 4.1 FY 2015 Q2 2016 Q1 2016
Core – stable operating profit with attractive returns
Adjusted return on equity 11% 11% 11%
10 Continued growth across core businesses
UK PBB Private Banking Commercial Banking RBS International
99.2 91.3
+9%H1 2016 FY 2015 119.8
+5%H1 2016 FY 2015 126.0 11.8 11.2 H1 2016 FY 2015
+5%8.5 7.3 FY 2015 H1 2016
+16% 11Net loans & advances to customers (£bn)
Supporting growth – a well positioned balance sheet
Loan to Deposit Net Stable Funding Liquidity Coverage Key ratios at H1 2016:
92% 119% 116%
12 Mortgages – competing on service, not price
RBS/ Natwest 60% LTV 2yr Fixed vs. Weighted Average Market Price (“WAMP”)
1.75% 1.80% 1.85% 1.90% 1.95% 2.00% 2.05% 2.10% 2.15% 2.20%60% LTV 2 Year Fixed
RBS/NatWest 2 YR Fixed, LTV 60% WAMP
13 Agenda
Core bank doing well, but environment tougher H1 results represent halfway point in our 5-year plan Driving value and performance Concluding remarks
14 We continue to deliver on our targets
Priorities 2016 Goals H1 2016 progress
Strength & sustainability
Maintain Bank CET1 ratio of 13% CET1 ratio of 14.5% £2 billion AT1 issuance Successfully issued $2.65 billion of AT1 capital notes (£2 billion equivalent) Capital Resolution RWAs around £30 - £35 billion at the end of 2016(1) RWAs down £6.7 billion to £42.3 billion in H1 2016.Customer experience
Narrow the gap to No.1 in Net Promoter Scores in every primary UK brand Year on year Royal Bank of Scotland Business (Scotland) has narrowed the gap. NatWest Personal and RBSG Commercial have seen improvements in NPSSimplifying the bank
Reduce operating expenses by £800 million(2) Operating expenses down £404 million(2) and we remain on track to achieve our targetSupporting growth
Net 4% growth in PBB and CPB customer loans Net lending in PBB and CPB up 15% on an annualised basis in the half yearEmployee engagement
Raise employee engagement to within two points of the GFS norm Reviewed annually during Q3 (1) Revised target following the EU Referendum, and the resultant significant weakening of sterling (2) Excluding litigation and conduct costs, restructuring costs, write down of other intangible assets, the Lowered costs by over £2.5bn over the last 2.5 years
(1) £0.4bn is made up of the benefit of lower intangible asset write-offs of 2013-£344m, 2014-£146m as well as the year on year benefit of FX (2) This includes £71m lower intangible write offs offset by £29m growth in W&G (3) Excluding litigation and conduct costs, restructuring costs, write down of goodwill and other intangible assets and the operating costs of Williams & Glyn(£bn) 8.6 10.4 11.9 7.3 2.1 2016 Target (0.8)(3) 2015 9.4 (1.0)(2) 2014 (1.5) 2013
Reduction in Adjusted Operating Costs from 2013 - H1 2016
(1)Core Other
16 Legacy business & portfolios (RWAs)
48 42 10 10 95
1
10 10 68 4 FY 2014 176 2 Q1 2016 2 65 (69%) FY 2016 revised Target(1) ~30-35 Q2 2016 55 3
Legacy – significant reduction of businesses & portfolios
(1) Capital Resolution expected to reduce RWAs to around £30-35bn by the end of 2016, W&G RWAs expected to be broadly stable(£bn) Residual central items and other Capital Resolution IPB Williams & Glyn W&G Citizens
17(15%)
Williams & Glyn update
More uncertain economic outlook, and lower-for-longer rate environment, undermine the standalone viability of the entity Alternative options remain under consideration Deadline set by the European Commission for the end of 2017 remains in place No change to restructuring cost guidance at this stage – will update as and when these become clearer
18Decision taken to stop work on the plan to create a cloned bank for the separation and divestment of W&G Focus on alternative means to achieve divestment, including asset
Outstanding issues
Williams & Glyn UK 2008 rights issue shareholder litigation FCA SME treatment review RMBS (DoJ, NCUA, FHFA, and other small claims)
19Other various UK and Ireland customer redress issues
Agenda
Core bank doing well, but environment tougher H1 results represent halfway point in our 5-year plan Driving value and performance Concluding remarks
20 Core – customer franchise strength
Ulster Ulster RoI Royal Bank of Scotland NatWest
Joint #1 Commercial #2 Business #3 Personal #1 Business Joint #1 Commercial #2 Personal #1 Personal #1 Business #3 Commercial #3 Personal #3 Business #3 Commercial Q2 2016 core key metrics (£bn) RWAs Deposits Loans 190 310 286 RBSI Business #1 Isle of Man Top 2 Guernsey Top 3 Jersey #1 Isle of Man Top 2 Guernsey Top 2 Jersey
(10)RBSI Personal
(7) (1) (1) (2) (2) (3) (3) (4) (4) (5) (5) (6) (6) (1) Royal Bank of Scotland and NatWest Business: Main current account stock market share - based on Charterhouse 4 quarters ending Q2 2016 for businesses with a turnover of £0 - 2m; excluding Future W&G (Base sizes: Scotland 2,479; E&W 9,407) (2) Royal Bank of Scotland and NatWest Commercial: Main current account stock market share - based on Charterhouse 4 quarters ending Q2 2016 for businesses with a turnover of £2m - £25m; excluding Future W&G (Base sizes: Scotland 238; E&W 2,153) (3) Royal Bank of Scotland and NatWest Personal: Main current account stock market share - based on GfK FRS 6 months ending June 2016; excluding Future W&G (Base sizes: Scotland 2,546; E&W 26,665) (4) Personal: Main current account – based on IPSOS 4 quarters MAT ending Q2 2016 (Base sizes NI 4,000; RI 3,000) (5) Business: Main current account – based on IPSOS 4 quarters MAT ending Q2 2016 for businesses with a turnover of £/ € 0 - £/ €2.5m (Base sizes NI 1,425; RI 1,615) (6)Commercial: Main current account – based on IPSOS 4 quarters MAT ending Q2 2016 for businesses with a turnover of £/€ 2.5m - £/€ 25m (Base sizes NI 1,425; RI 1,615)(7) Personal: IoM; Source GfK RBSI Group Market Share Feb 16 (Base size: IoM 500) (8) Personal: Guernsey; Source GfK RBSI Group Market Share Mar 16 (Base size: Guernsey 500) (9) Personal: Jersey; Source GfK RBSI Group Market Share Dec 15 (Base size: Jersey 501)(10) Business: IoM; Source GfK RBSI Group Market Share Feb 16 for businesses with a turnover of £0 - 2m (Base size: IoM 100) (11) Business: Guernsey; Source GfK RBSI Group Market Share Mar 16 for businesses with a turnover of £0 - 2m (Base size: Guernsey 100) (12) Business: Jersey; Source GfK RBSI Group Market Share Jan 16 for businesses with a turnover of £0 - 2m (Base size: Jersey 103) (8) (9) (11) (12) 21 Strong franchises with clear strategies (1/2)
Invest to Grow 66% of total core RWAs
UK PBB Commercial Banking RBS International
Q2 2016: RWAs: 20%
Q2 2016: RWAs: 41%
Q2 2016: RWAs: 5%
Actions
segment strategies, leveraging products, e.g. Reward
improving customer experience
simplification and product rationalisation
investment
connectivity
share (e.g. Jersey, Guernsey, Isle of Man & Gibraltar)
London branch to broaden customer
Reposition for Returns 34% of total core RWAs
Ulster Bank RoI Private Banking CIB
Q2 2016: RWAs: 11%
Q2 2016: RWAs: 4%
Q2 2016: RWAs: 19%
Actions
strong and profitable franchise
reduction
market penetration
efficiency of legacy book
strong and profitable franchise
reduction
Commercial Banking
sheet and AUM growth
reduction
with Commercial Banking
Strong franchises with clear strategies (2/2)
23 We are investing in our customer facing brands
24 Digital transformation tailored to changing customer behaviours
Progress to date 92 million
mobile payments and fund transfers in H1
28%
4.1 million
Active mobile users
21%
up on H1 20156.7 million
Active(1) digital users
32%
up on H1 201569,000
Unsecured applications via mobile in H1 2016(3) 10%
(1) Active users are defined as those with activity within the past 3 months (2) External Dealer-To-Client (D2C) activity for Bonds and Interest Rate Derivatives (3) Personal loans via mobile were introduced Q1 201661% of Rates Tickets
transacted electronically(2)
10pp
98% of active Commercial customers
are registered for online banking services
25 A spotlight on using digital to simplify the bank and improve customer experience
CIB: Fixed Income Electronic Trading Technology
Automate our Front-Office Flow-based trading, customer focus and consistent pricing, enabling control improvements and cost reductions Scalable business model
Global Rates Bonds
Level of Automation Data driven compliance Constant, consistent pricing Control and cost benefit 0% 2015 now 36%
Global Rates Bonds
26 Agenda
Core bank doing well, but environment tougher H1 results represent halfway point in our 5-year plan Driving value and performance Concluding remarks
27 Investment case
Strong customer-centric core bank, well progressed
Core Bank
generating risk adjusted returns above the cost of equity
product offering, and above market growth
Legacy portfolios / businesses
Legacy conduct issues
Forward Looking Statements
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’, ‘believe’, ‘should’, ‘intend’, ‘plan’, ‘could’, ‘probability’, ‘risk’, ‘Value-at-Risk (VaR)’, ‘target’, ‘goal’, ‘objective’, ‘may’, ‘endeavour’, ‘outlook’, ‘optimistic’, ‘prospects’ and similar expressions or variations on these expressions. In particular, this document includes forward-looking statements relating, but not limited to: The Royal Bank of Scotland Group’s (RBS) restructuring which includes divestment of Williams & Glyn, litigation, government and regulatory investigations, the proposed restructuring of RBS’s CIB business, the implementation of the UK ring-fencing regime, the implementation of a major development program to update RBS’s IT infrastructure and the continuation of its balance sheet reduction programme, as well as capital and strategic plans, divestments, capitalisation, portfolios, net interest margin, capital and leverage ratios and requirements liquidity, risk-weighted assets (RWAs), RWA equivalents (RWAe), Pillar 2A, return on equity (ROE), profitability, cost:income ratios, loan:deposit ratios, AT1 and other funding plans, funding and credit risk profile; RBS’s future financial performance; the level and extent of future impairments and write- downs; including with respect to Goodwill; future pension contributions and RBS’s exposure to political risks, operational risk, conduct risk and credit rating risk and to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity and equity price risk. These statements are based on current plans, estimates, targets and projections, and are subject to inherent risks, uncertainties and other factors which could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements. For example, certain market risk disclosures are dependent on choices relying on key model characteristics and assumptions and are subject to various limitations. By their nature, certain of the market risk disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated. Other factors that could adversely affect our results and the accuracy of forward-looking statements in this document include the risk factors and other uncertainties discussed in the Annual Report and Accounts 2015. These include the significant risks for RBS presented by the outcomes of the legal, regulatory and governmental actions and investigations that RBS is subject to (including active civil and criminal investigations) and any resulting material adverse effect on RBS of unfavourable outcomes (including where resolved by settlement); the economic, regulatory and political uncertainty arising from the majority vote to leave in the referendum on the UK’s membership in the European Union and the revived political uncertainty regarding Scottish independence; the divestment of Williams & Glyn; RBS’s ability to successfully implement the various initiatives that are comprised in its restructuring plan, particularly the proposed restructuring of its CIB business and the balance sheet reduction programme as well as the significant restructuring required to be undertaken by RBS in order to implement the UK ring fencing regime; the significant changes, complexity and costs relating to the implementation of its restructuring, the separation and divestment of Williams & Glyn and the UK ring-fencing regime; whether RBS will emerge from its restructuring and the UK ring-fencing regime as a viable, competitive, customer focused and profitable bank; RBS’s ability to achieve its capital and leverage requirements or targets which will depend on RBS’s success in reducing the size of its business and future profitability; ineffective management of capital or changes to regulatory requirements relating to capital adequacy and liquidity or failure to pass mandatory stress tests; the ability to access sufficient sources of capital, liquidity and funding when required; changes in the credit ratings of RBS or the UK government; declining revenues resulting from lower customer retention and revenue generation in light of RBS’s strategic refocus on the UK; the impact