REG - Natwest Markets PLC - NWM Plc Q3 Results 2024
25/10/2024 08:15
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RNS Number : 5656J Natwest Markets PLC 25 October 2024
NatWest Markets Group
Q3 2024
Interim Management Statement
ci.natwest.com
NatWest Markets Group (NWM Group)
Results for Q3 2024
As part of the NatWest Group Commercial & Institutional segment, we
continued to support customers in navigating their financing and risk
solutions requirements in a period of continued high interest rates and
uncertain geopolitical outlook. We will maintain our focus on leveraging
growth opportunities through the delivery of markets products and
collaboration across the segment to meet our customers' needs, whilst managing
our capital efficiently.
Financial review
NWM Group maintained its robust capital and liquidity position in Q3 2024 and
reported a profit of £20 million, compared with a profit of £1 million in Q2
2024 and a loss of £57 million in Q3 2023. Total income decreased to £284
million in Q3 2024, largely driven by foreign exchange (FX) reserves recycling
and lower Fixed Income revenues, partially offset by stronger performances in
Currencies and Capital Markets. Operating expenses decreased to £254 million,
mainly driven by VAT recoveries recognised.
Financial performance
- Total income of £284 million decreased by £39 million compared with £323
million in Q2 2024 mainly driven by FX reserves recycling, lower Fixed Income
revenues and a reduction in the amount recognised under the profit share
arrangement with fellow NatWest Group subsidiaries, partially offset by higher
income in Currencies and Capital Markets. Total income increased by £69
million compared with £215 million in Q3 2023 driven by a stronger
performance across the product suite and the profit share arrangement with
fellow NatWest Group subsidiaries, which was introduced in Q4 2023 and under
which NWM Group recognised £19 million in Q3 2024.
- Operating expenses of £254 million in Q3 2024 were £83 million lower than
£337 million in Q2 2024 and £40 million lower than £294 million in Q3 2023.
Litigation and conduct costs of £23 million reflected ongoing progress in
closing legacy matters and were down by £16 million compared with £39
million in Q2 2024 and by £14 million compared with £37 million in Q3 2023.
Other operating expenses of £231 million were down by £67 million compared
with £298 million in Q2 2024 and down by £26 million compared with £257
million in Q3 2023, largely due to VAT recoveries recognised.
- Total assets and liabilities increased by £9.7 billion and £9.8 billion to
£187.6 billion and £181.3 billion respectively at 30 September 2024,
compared with 31 December 2023. Increases in funded assets including trading
assets, settlement balances and cash and balances at central banks were offset
by lower derivative fair values, largely reflecting FX rate volatility across
major currencies and variations in interest rates across different currencies
and tenors.
Capital and leverage
- Total NWM Plc RWAs were £21.5 billion at 30 September 2024, compared with
£20.5 billion at 30 June 2024 and £22.1 billion at 31 December 2023. The
decrease since 31 December 2023 was driven by lower counterparty credit risk,
lower market risk, and a decrease from the annual update to operational risk
RWAs; partially offset by an increase in credit risk.
- NWM Plc's Common Equity Tier 1 (CET1) ratio was 17.3% at 30 September 2024,
compared with 17.1% at 31 December 2023. The increase in the period was
largely driven by the decrease in RWAs, partially offset by reserve movements.
- Total MREL for NWM Plc at 30 September 2024 was £9.1 billion, or 42.4% of
RWAs, up from £7.6 billion or 34.5% of RWAs at 31 December 2023. The increase
in total MREL in the current period was largely due to the issuance of three
new MREL instruments with NatWest Group plc amounting to $2.15 billion and two
new internal Tier 2 instruments amounting to $1.16 billion, partially offset
by the redemption of an internal €0.95 billion Tier 2 instrument, and other
reserve movements.
- NWM Plc's leverage ratio at 30 September 2024 was 4.6%, compared with 5.0% at
31 December 2023. The decrease in the period was mainly due to higher leverage
exposure, driven by increases in trading assets and other financial assets,
partially offset by a decrease in net settlement balances.
Liquidity and funding
- NWM Plc's liquidity portfolio increased by £2.3 billion to £17.0 billion at
30 September 2024 (31 December 2023 - £14.7 billion), largely driven by
funding raised to support banking book growth. The liquidity coverage ratio
(LCR) decreased to 163% (31 December 2023 - 183%), largely due to higher net
outflows partially offset by the increase in liquidity portfolio.
- NWM Plc issued public benchmark transactions amounting to £4.5 billion in the
nine months ended 30 September 2024. Transactions comprised issuances under
our EMTN programme of €2.5 billion and CHF0.18 billion of notes respectively
and an issuance under our US MTN programme of $2.75 billion of notes. NWM Plc
also raised funding in other formats throughout the period including, but not
limited to, structured note issuance.
ESG highlights
We delivered £3.7 billion of climate and sustainable funding and financing in
Q3 2024, contributing a cumulative £45.0 billion towards the NatWest Group
climate and sustainable funding and financing target((1)) of £100 billion
between 1 July 2021 and the end of 2025.
(1) NatWest Group uses its climate and sustainable funding and
financing inclusion (CSFFI) criteria to determine the assets, activities and
companies that are eligible to be included within its climate and sustainable
funding and financing target. This includes both provision of committed (on
and off-balance sheet) funding and financing, including provision of services
for underwriting issuances and private placements.
Outlook((1))
We retain the Outlook guidance provided in the NatWest Markets Plc 2023 Annual
Report and Accounts.
(1) The guidance, targets, expectations and trends discussed in this
section represent management's current expectations and are subject to change,
including as a result of the factors described in the 'Risk Factors' section
in the NatWest Markets Plc 2023 Annual Report and Accounts, and the 'Summary
Risk Factors' in the NatWest Markets Plc 2024 Interim Results. These
statements constitute forward-looking statements. Refer to 'Forward-looking
statements' in this announcement.
Financial review
The table below presents an analysis of key lines of NWM Group's income
statement. Commentary refers to the table below as well as the consolidated
income statement shown on page 6.
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2024 2023 2024 2024 2023
Income statement £m £m £m £m £m
Net interest income 347 201 110 116 123
Non-interest income 587 444 174 207 92
Total income 934 645 284 323 215
Litigation and conduct costs (61) (29) (23) (39) (37)
Other operating expenses (785) (799) (231) (298) (257)
Operating expenses (846) (828) (254) (337) (294)
Operating profit/(loss) before impairment releases/losses 88 (183) 30 (14) (79)
Impairment releases/(losses) 8 3 1 (1) (2)
Operating profit/(loss) before tax 96 (180) 31 (15) (81)
Tax credit/(charge) 7 (25) (11) 16 24
Profit/(loss) for the period 103 (205) 20 1 (57)
Income (1)
Fixed Income 170 137 41 66 32
Currencies 379 351 139 128 124
Capital Markets 502 332 171 166 114
Capital Management Unit & other (2) (38) (26) (27) (11) 3
Income including shared revenue before OCA 1,013 794 324 349 273
Transfer pricing arrangements with fellow
NatWest Group subsidiaries (3) (74) (151) (42) (24) (51)
Income excluding OCA 939 643 282 325 222
Own credit adjustments (OCA) (5) 2 2 (2) (7)
Total income 934 645 284 323 215
(1) Product performance includes gross income earned on a NatWest
Group-wide basis, including amounts contributed to other NatWest Group
subsidiaries. Income including shared revenue before OCA includes revenue
share from other NatWest Group subsidiaries but before revenue share is paid
to or contributed to those subsidiaries.
(2) Capital Management Unit was set up in Q3 2020 to manage capital
usage and optimisation across all parts of NatWest Markets, with the income
materially relating to legacy positions.
(3) Transfer pricing arrangements with fellow NatWest Group
subsidiaries includes shared revenue paid to or contributed to those
subsidiaries and a profit share arrangement with fellow NatWest Group
subsidiaries. The profit share arrangement was introduced during Q4 2023 to
reward NWM Group on an arm's length basis for its contribution to the
performance of the NatWest Group Commercial & Institutional business
segment, 2023 being the first full year with the Commercial &
Institutional segment in place. The profit share is not allocated to
individual NatWest Markets product areas.
Nine months ended 30 September 2024 performance
- Net interest income largely represents interest income from lending activity
and capital hedges, offset by interest expense from the funding costs of the
business. The increase of £146 million compared with the nine months ended 30
September 2023 largely reflects growth in lending activity partially offset by
the impact of one-off items.
- Non-interest income increased by £143 million compared with the period ended
30 September 2023 mainly due to the profit share arrangement with fellow
NatWest Group subsidiaries which was introduced in Q4 2023 and under which NWM
Group recognised £100 million in the current period, in addition to stronger
performances across the product suite and one-off items, partially offset by
FX reserves recycling due to a legacy overseas branch closure completed in the
quarter.
- Operating expenses increased by £18 million compared with the nine months
ended 30 September 2023. Litigation and conduct costs reflected ongoing
progress on closing legacy matters and were up by £32 million. Other
operating expenses decreased by £14 million, largely due to credits
recognised in the current period in relation to property charges and VAT
recoveries recognised during Q3 2024 in relation to the finalisation of the
2023 VAT annual adjustment and earlier periods, partially offset by increases
in severance costs, staff costs, bank levies and other smaller movements.
Quarter ended 30 September 2024 performance
- Net interest income decreased by £6 million compared with Q2 2024, and by
£13 million compared with Q3 2023, largely due to one-off items offset by
continued growth in lending activity.
- Non-interest income decreased by £33 million compared with Q2 2024, largely
driven by FX reserves recycling, lower Fixed Income revenues and a reduction
in the amount recognised under the profit share arrangement with fellow
NatWest Group subsidiaries, partially offset by higher revenues in Currencies
and Capital Markets and one-off items. Non-interest income increased by £82
million compared with Q3 2023, mainly due to an improved performance across
the product suite, the recognition of £19 million under the profit share
arrangement with fellow NatWest Group subsidiaries in Q3 2024, and one-off
items, partially offset by FX reserves recycling.
- Operating expenses decreased by £83 million compared with Q2 2024 and by £40
million compared with Q3 2023. Litigation and conduct costs in Q3 2024
reflected ongoing progress on closing legacy matters and were down by £16
million compared with Q2 2024 and by £14 million compared with Q3 2023. Other
operating expenses decreased by £67 million compared with Q2 2024 largely due
to VAT recoveries recognised, and lower staff and severance costs compared
with the prior quarter. Other operating expenses decreased by £26 million
compared with Q3 2023, largely due to VAT recoveries recognised partially
offset by an increase in staff costs.
Financial review
Balance sheet profile as at 30 September 2024
NWM Group's balance sheet profile is summarised below. Commentary refers to
the table below as well as the consolidated balance sheet on page 8.
Assets Liabilities
30 September 31 December 30 September 31 December
2024 2023 2024 2023
£bn £bn £bn £bn
Cash and balances at central banks 17.2 13.8
Securities 23.1 12.0 11.9 9.8 Short positions
Reverse repos (1) 23.9 23.7 33.7 26.9 Repos (2)
Derivative cash collateral given (3) 6.7 8.9 12.2 15.1 Derivative cash collateral received (4)
Other trading assets 0.7 0.7 1.2 1.8 Other trading liabilities
Total trading assets 54.4 45.3 59.0 53.6 Total trading liabilities
Loans - amortised cost 17.7 14.2 11.1 9.3 Deposits - amortised cost
Settlement balances 11.8 7.2 12.1 6.6 Settlement balances
Amounts due from holding company Amounts due to holding company
and fellow subsidiaries 0.6 1.7 6.9 5.8 and fellow subsidiaries
Other financial assets 16.8 15.7 30.4 23.6 Other financial liabilities
Other assets 0.5 0.7 0.4 0.6 Other liabilities
Funded assets 119.0 98.6 119.9 99.5 Liabilities excluding derivatives
Derivative assets 68.6 79.3 61.4 72.0 Derivative liabilities
Total assets 187.6 177.9 181.3 171.5 Total liabilities
of which:
32.2 25.1 Wholesale funding (5)
15.3 9.9 Short-term wholesale funding (5)
(1) Comprises bank reverse repos of £5.1 billion (31 December 2023 - £6.3
billion) and customer reverse repos of £18.8 billion (31 December 2023 -
£17.4 billion).
(2) Comprises bank repos of £7.0 billion (31 December 2023 - £4.0 billion) and
customer repos of £26.7 billion (31 December 2023 - £22.9 billion).
(3) Comprises derivative cash collateral given relating to banks of £3.3 billion
(31 December 2023 - £4.3 billion) and customers of £3.4 billion (31 December
2023 - £4.6 billion).
(4) Comprises derivative cash collateral received relating to banks of £5.2
billion (31 December 2023 - £6.8 billion) and customers of £7.0 billion (31
December 2023 - £8.3 billion).
(5) Wholesale funding predominantly comprises bank deposits (excluding repos),
debt securities in issue and third party subordinated liabilities, of which
short-term wholesale funding is the amount with contractual maturity of one
year or less.
- Total assets and liabilities increased by £9.7 billion and £9.8 billion
respectively at 30 September 2024. Funded assets, which exclude derivatives,
increased by £20.4 billion, largely driven by higher trading assets,
settlement balances and cash and balances at central banks. Derivative fair
values decreased in the period, largely driven by FX rate volatility across
major currencies and variations in interest rates across different currencies
and tenors.
- Cash and balances at central banks increased by £3.4 billion mainly driven by
funding raised to support banking book
growth and liquidity requirements.
- Trading assets were up by £9.1 billion, driven by an increase in securities
from client-led activity, partially offset by a decrease in derivative cash
collateral posted. Trading liabilities increased by £5.4 billion, driven by
increases in repos and short positions, partially offset by a decrease in
derivative cash collateral received.
- Loans - amortised cost increased by £3.5 billion, driven by higher loans to
customers reflecting growth in Capital Markets.
- Deposits - amortised cost increased by £1.8 billion, largely driven by an
increase in bank deposits repos to match planned banking book activity.
- Settlement balance assets and liabilities were up by £4.6 billion and £5.5
billion respectively, largely due to increased trading compared with the
seasonally lower levels of customer activity leading up to 31 December 2023.
- Other financial assets increased by £1.1 billion mainly driven by an increase
in held-to-collect securities purchased to support customer primary issuance.
- Other financial liabilities increased by £6.8 billion driven by new issuance
in the period to support planned growth in the business, partially offset by
maturities. The balance as at 30 September 2024 includes £20.5 billion of
medium-term notes issued.
- Derivative assets and derivative liabilities were down by £10.7 billion and
£10.6 billion respectively, largely reflecting FX rate volatility across
major currencies and variations in interest rates across different currencies
and tenors.
Non-IFRS measures
This document contains a number of non-IFRS measures. For details of the basis
of preparation and reconciliations, where applicable, refer to the non-IFRS
measures section on page 12.
Capital, liquidity and funding risk
Introduction
NWM Group takes a comprehensive approach to the management of capital,
liquidity and funding, underpinned by frameworks, risk appetite and policies,
to manage and mitigate capital, liquidity and funding risks. The framework
ensures the tools and capability are in place to facilitate the management and
mitigation of risk ensuring that NWM Group operates within its regulatory
requirements and risk appetite.
Capital, RWAs and leverage
The capital resources, RWAs and leverage for NWM Plc are presented on a
transitional basis for the remaining IFRS 9 relief in respect to ECL.
Regulatory capital is monitored and reported at legal entity level for NWM
Plc.
30 September 30 June 31 December
2024 2024 2023
Capital adequacy ratios (1,2) % % %
CET1 17.3 18.7 17.1
Tier 1 20.6 22.0 20.2
Total 23.6 25.3 23.0
Total MREL 42.4 42.2 34.5
Capital (1,2) £m £m £m
CET1 3,720 3,840 3,776
Tier 1 4,416 4,519 4,455
Total 5,066 5,198 5,072
Total MREL (3) 9,104 8,672 7,627
Risk-weighted assets
Credit risk 8,252 8,085 7,895
Counterparty credit risk 6,095 5,881 6,516
Market risk 6,127 5,574 6,366
Operational risk 1,002 1,002 1,322
Total RWAs 21,476 20,542 22,099
(1) NWM Plc's total capital ratio requirement is 11.5%, comprising the minimum
capital requirement of 8%, supplemented with the capital conservation buffer
of 2.5% and the institution specific countercyclical buffer (CCyB) of 1%. The
minimum CET1 ratio is 8.0%, including the minimum capital requirement of 4.5%.
The CCyB is based on the weighted average of NWM Plc's geographical exposures.
(2) In addition, NWM Plc is subject to Pillar 2A requirements for CET1, AT1 and
Tier 2. Refer to the NatWest Markets Plc Q3 Pillar 3 2024 report for further
details on these additional capital requirements.
(3) Includes senior internal debt instruments issued to NatWest Group plc with a
nominal value of £4.0 billion (30 June 2024 - £3.5 billion; 31 December 2023
- £2.6 billion).
Leverage
The leverage ratio has been calculated in accordance with the Leverage Ratio
(CRR) part of the PRA rulebook.
30 September 30 June 31 December
2024 2024 2023
Tier 1 capital (£m) 4,416 4,519 4,455
Leverage exposure (£m) (1) 96,209 86,275 89,929
Leverage ratio (%) 4.6 5.2 5.0
(1) Leverage exposure is broadly aligned to the accounting value of on
and off-balance sheet exposures albeit subject to specific adjustments for
derivatives, securities financing positions and off-balance sheet exposures.
Liquidity and funding
30 September 30 June 31 December
2024 2024 2023
Liquidity coverage ratio (LCR) (%) 163 173 183
Liquidity portfolio (£bn) 17.0 18.5 14.7
Total wholesale funding (£bn) (1) 32.2 30.7 25.1
Total funding including repo (£bn) 95.1 90.0 82.4
(1) Predominantly comprises bank deposits (excluding repos), debt
securities in issue and third party subordinated liabilities.
Condensed consolidated income statement
For the period ended 30 September 2024 (unaudited)
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2024 2023 2024 2024 2023
£m £m £m £m £m
Interest receivable 2,055 1,509 698 682 614
Interest payable (1,708) (1,308) (588) (566) (491)
Net interest income 347 201 110 116 123
Fees and commissions receivable 374 279 120 132 93
Fees and commissions payable (166) (119) (55) (59) (45)
Income from trading activities 428 329 199 123 78
Other operating income (49) (45) (90) 11 (34)
Non-interest income 587 444 174 207 92
Total income 934 645 284 323 215
Staff costs (353) (316) (112) (117) (94)
Premises and equipment (55) (47) (19) (19) (16)
Other administrative expenses (431) (455) (120) (199) (181)
Depreciation and amortisation (7) (10) (3) (2) (3)
Operating expenses (846) (828) (254) (337) (294)
Profit/(loss) before impairment releases/losses 88 (183) 30 (14) (79)
Impairment releases/(losses) 8 3 1 (1) (2)
Operating profit/(loss) before tax 96 (180) 31 (15) (81)
Tax credit/(charge) 7 (25) (11) 16 24
Profit/(loss) for the period 103 (205) 20 1 (57)
Attributable to:
Ordinary shareholders 43 (257) 3 (15) (74)
Paid-in-equity holders 51 52 17 17 17
Non-controlling interests 9 - - (1) -
103 (205) 20 1 (57)
Condensed consolidated statement of comprehensive income
For the period ended 30 September 2024 (unaudited)
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2024 2023 2024 2024 2023
£m £m £m £m £m
Profit/(loss) for the period 103 (205) 20 1 (57)
Items that do not qualify for reclassification
Remeasurement of retirement benefit schemes (4) (2) (1) (2) (2)
Changes in fair value of credit in financial liabilities
designated at fair value through profit or loss (FVTPL) (25) (26) 1 (3) (22)
Fair value through other comprehensive income (FVOCI)
financial assets 13 9 10 1 6
Tax 16 2 (2) - 3
- (17) 8 (4) (15)
Items that do qualify for reclassification
FVOCI financial assets 4 6 (2) (2) 2
Cash flow hedges 25 (48) 98 (15) 56
Currency translation (127) (76) (77) (21) 68
Tax - (33) (20) 3 (17)
(98) (151) (1) (35) 109
Other comprehensive (loss)/income after tax (98) (168) 7 (39) 94
Total comprehensive income/(loss) for the period 5 (373) 27 (38) 37
Attributable to:
Ordinary shareholders (55) (425) 10 (54) 20
Paid-in equity holders 51 52 17 17 17
Non-controlling interests 9 - - (1) -
5 (373) 27 (38) 37
Condensed consolidated balance sheet
As at 30 September 2024 (unaudited)
30 September 31 December
2024 2023
£m £m
Assets
Cash and balances at central banks 17,237 13,831
Trading assets 54,361 45,324
Derivatives 68,578 79,332
Settlement balances 11,786 7,227
Loans to banks - amortised cost 1,445 1,246
Loans to customers - amortised cost 16,247 12,986
Amounts due from holding company and fellow subsidiaries 606 1,730
Other financial assets 16,766 15,723
Other assets 613 518
Total assets 187,639 177,917
Liabilities
Bank deposits 4,660 2,267
Customer deposits 6,459 6,998
Amounts due to holding company and fellow subsidiaries 6,870 5,802
Settlement balances 12,064 6,641
Trading liabilities 58,964 53,623
Derivatives 61,417 71,981
Other financial liabilities 30,383 23,574
Other liabilities 500 653
Total liabilities 181,317 171,539
Owners' equity 6,315 6,380
Non-controlling interests 7 (2)
Total equity 6,322 6,378
Total liabilities and equity 187,639 177,917
Condensed consolidated statement of changes in equity
For the period ended 30 September 2024 (unaudited)
Share
capital and Total Non
share Paid-in Retained Other owners' controlling Total
premium equity earnings reserves* equity interests equity
£m £m £m £m £m £m £m
At 1 January 2024 2,346 904 3,195 (65) 6,380 (2) 6,378
Profit attributable to ordinary
shareholders and paid-in equity holders 94 94 9 103
Other comprehensive income
- Realised gain in period
on FVOCI equity shares 3 (3) - -
- Changes in fair value of credit in
financial liabilities designated at FVTPL
due to own credit risk (25) (25) (25)
- Unrealised gains: FVOCI 18 18 18
- Remeasurement of retirement
benefit schemes (4) (4) (4)
- Amounts recognised in equity: cash flow hedges (181) (181) (181)
- Foreign exchange reserve movement (127) (127) (127)
- Amounts transferred from equity to
earnings 205 205 205
- Tax 16 - 16 16
Paid-in equity dividends paid (51) (51) (51)
Share-based payments (10) (10) (10)
Merger reserve amortisation (2) 2 - -
At 30 September 2024 2,346 904 3,216 (151) 6,315 7 6,322
30 September
2024
Attributable to: £m
Ordinary shareholders 5,411
Paid-in equity holders 904
Non-controlling interests 7
6,322
*Other reserves consist of:
Merger reserve (12)
FVOCI reserve 26
Cash flow hedging reserve (138)
Foreign exchange reserve (27)
(151)
Notes
1. Presentation of condensed consolidated financial statements
The condensed consolidated financial statements should be read in conjunction
with NatWest Markets Plc's 2023 Annual Report and Accounts. The accounting
policies are the same as those applied in the consolidated financial
statements.
The directors have prepared the condensed consolidated financial statements on
a going concern basis after assessing the principal risks, forecasts,
projections and other relevant evidence over the twelve months from the date
they are approved.
Amendments to IFRS effective from 1 January 2024 had no material effect on the
condensed consolidated financial statements.
2. Trading assets and liabilities
Trading assets and liabilities comprise assets and liabilities held at fair
value in trading portfolios.
30 September 31 December
2024 2023
£m £m
Assets
Loans
Reverse repos 23,856 23,694
Collateral given 6,699 8,914
Other loans 685 762
Total loans 31,240 33,370
Securities
Central and local government
- UK 3,284 2,729
- US 6,007 2,600
- Other 9,325 3,062
Financial institutions and Corporate 4,505 3,563
Total securities 23,121 11,954
Total 54,361 45,324
Liabilities
Deposits
Repos 33,671 26,902
Collateral received 12,220 15,062
Other deposits 901 1,150
Total deposits 46,792 43,114
Debt securities in issue 247 706
Short positions 11,925 9,803
Total 58,964 53,623
Notes
3. Other financial liabilities
30 September 31 December
2024 2023
£m £m
Customer deposits - designated as at fair value through profit or loss (FVTPL) 1,398 1,259
Debt securities in issue
- Medium-term notes 20,540 17,608
- Commercial paper and certificates of deposit 8,177 4,433
Subordinated liabilities
- Designated as at FVTPL 233 238
- Amortised cost 35 36
Total 30,383 23,574
4. Amounts due to holding company and fellow subsidiaries
30 September 31 December
2024 2023
£m £m
Bank deposits - amortised cost 544 537
Customer deposits - amortised cost 46 55
Settlement balances 211 -
Trading liabilities 768 1,028
Other financial liabilities - subordinated liabilities 1,087 1,022
MREL instruments issued to NatWest Group plc 4,159 3,070
Other liabilities 55 90
Total 6,870 5,802
5. Litigation and regulatory matters
NatWest Markets Plc's Interim Results 2024, issued on 26 July 2024, included
disclosures about NWM Group's litigation and regulatory matters in Note 10.
Set out below are the material developments in those matters (which have been
previously disclosed) since publication of the Interim Results 2024.
Litigation
1MDB litigation
A Malaysian court claim was served in Switzerland in November 2022 by 1MDB, a
sovereign wealth fund, in which Coutts & Co Ltd was named, along with six
others, as a defendant in respect of losses allegedly incurred by 1MDB. It is
claimed that Coutts & Co Ltd is liable as a constructive trustee for
having dishonestly assisted the directors of 1MDB in the breach of their
fiduciary duties by failing (amongst other alleged claims) to undertake due
diligence in relation to a customer of Coutts & Co Ltd, through which
funds totalling c.US$1 billion were received and paid out between 2009 and
2011. 1MDB seeks the return of that amount plus interest. Coutts & Co Ltd
filed an application in January 2023 challenging the validity of service and
the Malaysian court's jurisdiction to hear the claim, and a hearing took place
in February 2024. In March 2024, the court granted that application. 1MDB has
appealed that decision and a prior decision by the court not to allow them to
discontinue their claim. Both appeals are scheduled to be heard in December
2024.
Coutts & Co Ltd (a subsidiary of RBS Netherlands Holdings B.V., which in
turn is a subsidiary of NWM Plc) is a company registered in Switzerland and is
in wind-down following the announced sale of its business assets in 2015.
6. Post balance sheet events
Other than as disclosed in this document, there have been no other significant
events between 30 September 2024 and the date of approval of these accounts
that would require a change to or additional disclosure in the condensed
consolidated financial statements.
Non-IFRS measures
NWM Group prepares its financial statements in accordance with IFRS as issued
by the IASB which constitutes a body of generally accepted accounting
principles (GAAP). This document contains a number of adjusted or alternative
performance measures, also known as non-GAAP or non-IFRS performance measures.
These measures are adjusted for certain items which management believe are not
representative of the underlying performance of the business and which distort
period-on-period comparison. These non-IFRS measures are not measures within
the scope of IFRS and are not a substitute for IFRS measures. These measures
include:
- Management analysis of operating expenses shows litigation and conduct
costs on a separate line. These amounts are included within staff costs and
other administrative expenses in the statutory analysis. Other operating
expenses excludes litigation and conduct costs which are more volatile and may
distort comparisons with prior periods.
- Funded assets are defined as total assets less derivative assets. This
measure allows review of balance sheet trends exclusive of the volatility
associated with derivative fair values.
- Management view of income by business including shared revenue and
before own credit adjustments. This measure is used to show underlying income
generation in NatWest Markets excluding the impact of own credit adjustments.
- Revenue share refers to income generated by NatWest Markets products
from customers that have their primary relationship with other NatWest Group
subsidiaries, a proportion of which is shared between NatWest Markets and
those subsidiaries.
- Transfer Pricing arrangements with fellow NatWest Group subsidiaries
includes revenue share and a profit share arrangement with fellow NatWest
Group subsidiaries. The profit share arrangement was introduced during 2023 to
reward NWM Group on an arm's length basis for its contribution to the
performance of the NatWest Group Commercial & Institutional business
segment, 2023 being the first full year with the Commercial &
Institutional segment in place. The profit share is not allocated to
individual NatWest Markets product areas.
- Own credit adjustments are applied to positions where it is believed
that the counterparties would consider NWM Group's creditworthiness when
pricing trades. The fair value of certain issued debt securities, including
structured notes, is adjusted to reflect the changes in own credit spreads and
the resulting gain or loss recognised in income.
Non-IFRS financial measures
Operating expenses - management view
Nine months ended
30 September 2024 30 September 2023
Litigation Other Statutory Litigation Other Statutory
and conduct operating operating and conduct operating operating
costs expenses expenses costs expenses expenses
£m £m £m £m £m £m
Staff costs 21 332 353 8 308 316
Premises and equipment - 55 55 - 47 47
Other administrative expenses 40 391 431 21 434 455
Depreciation and amortisation - 7 7 - 10 10
Total 61 785 846 29 799 828
Quarter ended
30 September 2024
Litigation Other Statutory
and conduct operating operating
costs expenses expenses
£m £m £m
Staff costs 8 104 112
Premises and equipment - 19 19
Other administrative expenses 15 105 120
Depreciation and amortisation - 3 3
Total 23 231 254
Quarter ended
30 June 2024
Litigation Other Statutory
and conduct operating operating
costs expenses expenses
£m £m £m
Staff costs 7 110 117
Premises and equipment - 19 19
Other administrative expenses 32 167 199
Depreciation and amortisation - 2 2
Total 39 298 337
Quarter ended
30 September 2023
Litigation Other Statutory
and conduct operating operating
costs expenses expenses
£m £m £m
Staff costs 4 90 94
Premises and equipment - 16 16
Other administrative expenses 33 148 181
Depreciation and amortisation - 3 3
Total 37 257 294
Additional information
Presentation of information
NatWest Markets Plc ('NWM Plc') is a wholly-owned subsidiary of NatWest Group
plc or 'the ultimate holding company'. The NatWest Markets Group ('NWM Group')
comprises NWM Plc and its subsidiary and associated undertakings. The term
'NatWest Group' comprises NatWest Group plc and its subsidiary and associated
undertakings. The term 'NWH Group' refers to NatWest Holdings Limited ('NWH')
and its subsidiary and associated undertakings. The term 'NatWest Bank Plc'
or 'NWB Plc' refers to National Westminster Bank Plc.
NWM Plc publishes its financial statements in pounds sterling ('£' or
'sterling'). The abbreviations '£m' and '£bn' represent millions and
thousands of millions of pounds sterling, respectively, and references to
'pence' or 'p' represent pence in the United Kingdom ('UK'). References to
'dollars' or '$' are to United States of America ('US') dollars. The
abbreviations '$m' and '$bn' represent millions and thousands of millions of
dollars, respectively. The abbreviation '€' represents the 'euro', and the
abbreviations '€m' and '€bn' represent millions and thousands of millions
of euros, respectively.
Statutory results
Financial information contained in this document does not constitute statutory
accounts within the meaning of section 434 of the Companies Act 2006 ("the
Act"). The statutory accounts for the year ended 31 December 2023 have been
filed with the Registrar of Companies. The report of the auditor on those
statutory accounts was unqualified, did not draw attention to any matters by
way of emphasis and did not contain a statement under section 498(2) or (3) of
the Act.
Contact
Paul Pybus Investor Relations +44 (0) 7769 161183
Forward-looking statements
Cautionary statement regarding 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', 'commit', 'believe', 'should', 'intend', 'will',
'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 targets and guidance relating to
financial performance measures, such as income growth, operating expense, cost
reductions, impairment loss rates, balance sheet reduction, including the
reduction of RWAs, CET1 ratio (and key drivers of the CET1 ratio, including
timing, impact and details), Pillar 2 and other regulatory buffer requirements
and MREL and non-financial performance measures, such as climate and
sustainability-related performance ambitions, targets and metrics, including
in relation to initiatives to transition to a net zero economy, climate and
sustainable funding and financing and financed emissions. In addition, this
document includes forward-looking statements relating, but not limited to:
planned cost reductions, disposal losses and strategic costs; implementation
of NatWest Group's and NWM Group's strategy (including in relation to
investment programmes relating to digital transformation of their operations
and services and inorganic opportunities); the timing and outcome of
litigation and government and regulatory investigations; funding plans and
credit risk profile; managing its capital position; liquidity ratio;
portfolios; net interest margin; and drivers related thereto; lending and
income growth, product share and growth in target segments; impairments and
write-downs; restructuring and remediation costs and charges; NWM Group's
exposure to political risk, economic assumptions and risk, climate,
environmental and sustainability risk, operational risk, conduct risk,
financial crime risk, cyber, data and IT risk and credit rating risk and to
various types of market risk, including interest rate risk, foreign exchange
rate risk and commodity and equity price risk; customer experience, including
our Net Promotor Score (NPS); employee engagement and gender balance in
leadership positions.
Limitations inherent to forward-looking statements
These statements are based on current plans, expectations, estimates, targets
and projections, and are subject to significant inherent risks, uncertainties
and other factors, both external and relating to NatWest Group's and NWM
Group's strategy or operations, which may result in NWM Group being unable to
achieve the current plans, expectations, estimates, targets, projections and
other anticipated outcomes expressed or implied by such forward-looking
statements. In addition, certain of these disclosures are dependent on choices
relying on key model characteristics and assumptions and are subject to
various limitations, including assumptions and estimates made by management.
By their nature, certain of these disclosures are only estimates and, as a
result, actual future results, gains or losses could differ materially from
those that have been estimated. Accordingly, undue reliance should not be
placed on these statements. The forward-looking statements contained in this
document speak only as of the date we make them and we expressly disclaim any
obligation or undertaking to update or revise any forward-looking statements
contained herein, whether to reflect any change in our expectations with
regard thereto, any change in events, conditions or circumstances on which any
such statement is based, or otherwise, except to the extent legally required.
Important factors that could affect the actual outcome of the forward-looking
statements
We caution you that a large number of important factors could adversely affect
our results or our ability to implement our strategy, cause us to fail to meet
our targets, predictions, expectations and other anticipated outcomes or
affect the accuracy of forward-looking statements described in this document.
These factors include, but are not limited to, those set forth in the risk
factors and the other uncertainties described in NatWest Markets Plc's Annual
Report and its other public filings. The principal risks and uncertainties
that could adversely NWM Group's future results, its financial condition
and/or prospects and cause them to be materially different from what is
forecast or expected, include, but are not limited to: economic and political
risk (including in respect of: economic and political risks and uncertainties
in the UK and global markets, including as a result of GDP growth, inflation
and interest rates, supply chain disruption, fiscal and monetary policy
changes (such as increases in bank levies), and geopolitical developments
(including the direct and indirect impacts of escalating armed conflicts);
changes in interest rates and foreign currency exchange rates; uncertainty
regarding the effects of Brexit; and HM Treasury's ownership of NatWest Group
plc); business change and execution risk (including in respect of: NatWest
Group's strategy and NatWest Group's creation of its Commercial &
Institutional franchise (of which NWM Group forms part); financial resilience
risk (including in respect of: NWM Group's ability to meet targets, generate
returns or implement its strategy effectively; prudential regulatory
requirements for capital and MREL; NWM Group's reliance on access to capital
markets directly or indirectly through its parent (NatWest Group); capital,
funding and liquidity risk; reductions in the credit ratings; the competitive
environment; the requirements of regulatory stress tests; counterparty and
borrower risk; model risk; sensitivity to accounting policies, judgments,
estimates and assumptions (and the economic, climate, competitive and other
forward looking information affecting those judgments, estimates and
assumptions); changes in applicable accounting standards; the adequacy of
NatWest Group's resolution plans; and the application of UK statutory
stabilisation or resolution powers to NatWest Group); climate and
sustainability risk (including in respect of: risks relating to climate change
and sustainability-related risks; both the execution and reputational risk
relating to NatWest Group's climate change-related strategy, ambitions,
targets and transition plan; climate and sustainability-related data and model
risk; the failure to implement climate change resilient governance,
procedures, systems and controls; increasing levels of climate, environmental,
human rights and other sustainability-related laws, regulation and oversight;
climate, environmental, human rights and other sustainability-related
litigation, enforcement proceedings, investigations and conduct risk; and
reductions in ESG ratings); operational and IT resilience risk (including in
respect of: operational risks (including reliance on third party suppliers);
cyberattacks; the accuracy and effective use of data; attracting, retaining
and developing senior management and skilled personnel; complex IT systems;
NWM Group's risk management framework; and NWM Group's reputational risk); and
legal, regulatory and conduct risk (including in respect of: the impact of
substantial regulation and oversight; the outcome of legal, regulatory and
governmental actions and investigations as well as remedial undertakings; and
changes in tax legislation or failure to generate future taxable profits).
Forward-looking statements continued
Climate and ESG disclosures
Climate and sustainability-related disclosures in this document are not
measures within the scope of International Financial Reporting Standards
('IFRS'), use a greater number and level of judgments, assumptions and
estimates, including with respect to the classification of climate and
sustainable funding and financing activities, than our reporting of historical
financial information in accordance with IFRS. These judgments, assumptions
and estimates are highly likely to change materially over time, and, when
coupled with the longer time frames used in these disclosures, make any
assessment of materiality inherently uncertain. In addition, our climate risk
analysis, net zero strategy, including the implementation of our climate
transition plan, remain under development, and the data underlying our
analysis and strategy remain subject to evolution over time. The process we
have adopted to define, gather and report data on our performance on climate
and sustainability-related measures is not subject to the formal processes
adopted for financial reporting in accordance with IFRS and there are
currently limited industry standards or globally recognised established
practices for measuring and defining climate and sustainability-related
related metrics. As a result, we expect that certain climate and
sustainability-related disclosures made in this document are likely to be
amended, updated, recalculated or restated in the future. Please also refer to
the cautionary statement in the section entitled 'Climate-related and other
forward-looking statements and metrics' of the NatWest Group 2023
Climate-related Disclosures Report published by NatWest Group plc for the
consolidated group, including NatWest Markets Plc.
Cautionary statement regarding Non-IFRS financial measures and APMs
NWM Group prepares its financial statements in accordance with UK-adopted
International Accounting Standards (IAS) and International Financial Reporting
Standards (IFRS).This document may contain financial measures and ratios not
specifically defined under GAAP or IFRS ('Non-IFRS') and/or alternative
performance measures ('APMs') as defined in European Securities and Markets
Authority ('ESMA') guidelines. Non-IFRS measures and APMs are adjusted for
notable and other defined items which management believes are not
representative of the underlying performance of the business and which distort
period-on-period comparison. Non-IFRS measures provide users of the financial
statements with a consistent basis for comparing business performance between
financial periods and information on elements of performance that are one-off
in nature. Any Non-IFRS measures and/or APMs included in this document, are
not measures within the scope of IFRS, are based on a number of assumptions
that are subject to uncertainties and change, and are not a substitute for
IFRS measures.
The information, statements and opinions contained in this document do not
constitute a public offer under any applicable legislation or an offer to sell
or a solicitation of an offer to buy any securities or financial instruments
or any advice or recommendation with respect to such securities or other
financial instruments.
Legal Entity Identifier: RR3QWICWWIPCS8A4S074
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