REG - Royal Bk Scot.Grp. - 1st Quarter Results <Origin Href="QuoteRef">RBS.L</Origin> - Part 2
28/04/2017 07:06
- Part 2: For the preceding part double click ID:nRSb6230Da
of non performing loans in Q1 2017.
· Commercial Banking NIM fell by 12 basis points from Q1 2016 to 1.76% driven by asset margin pressure in a competitive market and lower rate environment. Compared with Q4 2016, NIM increased by 8 basis points due to the active re-pricing of the deposit book and asset pricing actions on new lending.
· Private Banking NIM of 2.58% reduced by 22 basis points compared with Q1 2016 reflecting the competitive market and low rate environment.
· Structural hedges of £126 billion generated a benefit of £0.3 billion through net interest income for Q1 2017.
Analysis of results
Quarter ended
31 March 31 December 31 March
2017 2016 2016
Non-interest income £m £m £m
Net fees and commissions 605 608 654
Income/(loss) from trading activities 428 622 (110)
Own credit adjustments (OCA) (29) (114) 256
Gain on redemption of own debt 2 1 -
Strategic disposals - - (6)
Other operating income (28) (109) 114
Total non-interest income 978 1,008 908
Key points
· Non-interest income was £978 million, an increase of £70 million, or 7.7%, compared with Q1 2016. NatWest Markets non-interest income increased by £137 million, or 42.5%, to £459 million reflecting consistent customer activity and an improved trading
environment compared to a particularly difficult Q1 2016, partially offset by an £84 million adverse movement in OCA. Central items non-interest income improved by £117 million principally reflecting a reduction in IFRS volatility losses, £18 million
compared with £356 million in Q1 2016, partially offset by a £52 million FX loss (compared with a £52 million gain in Q1 2016) and a £105 million charge in respect of the unwind of securitisations relating to our property portfolio. Partially offsetting,
Capital Resolution non-interest income was a loss of £92 million compared with a gain of £67 million in Q1 2016 reflecting a £115 million adverse movement in OCA and increased disposal losses, £50 million compared with £2 million in Q1 2016.
· Income from trading activities increased by £538 million compared with Q1 2016 largely reflecting reduced IFRS volatility losses and increased NatWest Markets income.
· Other operating income decreased by £142 million compared with Q1 2016 largely reflecting a £105 million charge in respect of the unwind of securitisations relating to our property portfolio.
Analysis of results
Quarter ended
31 March 31 December 31 March
2017 2016 2016
Operating expenses £m £m £m
Staff costs 1,024 1,025 1,202
Premises and equipment 310 346 315
Other administrative expenses 320 601 446
Restructuring costs (see below) 577 1,007 238
Litigation and conduct costs 54 4,128 31
Administrative expenses 2,285 7,107 2,232
Depreciation and amortisation 168 178 178
Write down of intangible assets - 69 10
Operating expenses 2,453 7,354 2,420
Adjusted operating expenses (1) 1,822 2,219 2,151
Restructuring costs comprise:
- staff expenses 291 117 121
- premises, equipment, depreciation and amortisation 241 107 9
- other 45 783 108
577 1,007 238
Staff costs as a % of total income 31.9% 31.9% 39.2%
Cost:income ratio (2) 76.1% 230.2% 78.7%
Cost:income ratio - adjusted (2,3) 55.8% 66.3% 76.1%
Employee numbers (FTE - thousands) 76.2 77.8 92.4
Notes:
(1) Excluding restructuring costs and litigation and conduct costs.
(2) Operating lease depreciation included in income (Q1 2017 - £36 million; Q4 2016 - £37 million and Q1 2016 - £38 million).
(3) Excluding restructuring costs, litigation and conduct costs, own credit adjustments, gain on redemption of own debt and strategic disposals.
Key points
· Total operating expenses of £2,453 million were £33 million, or 1.4%, higher than Q1 2016 reflecting a £339 million increase in restructuring costs and a £23 million increase in litigation and conduct costs, partially offset by a £329 million, or 15.3%, reduction in adjusted operating expenses.
· Excluding a £51 million VAT recovery, adjusted operating expenses reduced by £278 million, or 12.9%, compared with Q1 2016 and we remain on target to achieve a £750 million reduction for the full year. The cost reduction was principally driven by Capital Resolution, down £163 million or 70.3%, and Central items, down £79 million, excluding the VAT recovery. Across PBB, CPB and NatWest Markets, adjusted operating expenses reduced by £22 million, or 1.2%.
· Staff costs of £1,024 million, were £178 million, or 14.8%, lower than Q1 2016 underpinned by a 16,200, or 17.5%, reduction in FTEs.
· Restructuring costs of £577 million included a £235 million charge associated with the planned reduction of our property portfolio, a £73 million net settlement relating to the RBS Netherlands pension scheme and a £70 million charge in Capital Resolution, primarily in respect of Asia-Pacific restructuring.
· Litigation and conduct costs of £54 million were £23 million higher than Q1 2016 and reflected a number of small items.
· Compared with Q4 2016, adjusted operating expenses reduced by £397 million principally reflecting the £190 million UK bank levy charge and a £69 million write down of intangible assets in Q4 2016 and a £51 million VAT recovery in Q1 2017.
Analysis of results
Quarter ended
31 March 31 December 31 March
2017 2016 2016
Impairment losses/(releases) £m £m £m
Loan impairment losses/(releases)
- individually assessed 42 (40) 186
- collectively assessed 38 (1) 16
- latent 4 (25) 21
Total loan impairment losses/(releases) 84 (66) 223
Securities (38) (9) -
Total impairment losses/(releases) 46 (75) 223
31 March 31 December 31 March
Credit metrics (1) 2017 2016 2016
Gross customer loans £330,843m £327,478m £325,339m
Loan impairment provisions £4,110m £4,455m £6,701m
Risk elements in lending (REIL) £9,726m £10,310m £11,867m
Provisions as a % of REIL 42% 43% 57%
REIL as a % of gross customer loans 2.9% 3.1% 3.6%
Provisions as a % of gross customer loans 1.2% 1.4% 2.1%
Note:
(1) Includes disposal groups and excludes reverse repos.
Key points
· A net impairment loss of £46 million, 6 basis points of gross customer loans, compared with a loss of £223 million in Q1 2016.
· Capital Resolution reported a net impairment release of £45 million in Q1 2017 compared with a loss of £196 million in Q1 2016 which included a £226 million charge in respect of the shipping portfolio.
· Commercial Banking reported a net impairment loss of £61 million in Q1 2017, £47 million higher than Q1 2016 with four specific impairment charges totalling £47 million in the quarter.
· REIL reduced by £2,141 million, compared with Q1 2016, to £9,726 million reflecting Capital Resolution run-down and a portfolio sale in Ulster Bank RoI partially offset by an increase in the shipping portfolio, foreign exchange movements and the implementation of a revised mortgage methodology in Ulster Bank RoI. REIL represented 2.9% of gross customer loans compared with 3.6% at 31 March 2016 and 3.1% at 31 December 2016. Provision coverage was 42% compared with 57% at 31 March 2016 and 43% at 31 December
2016.
· Excluding REIL in Capital Resolution and Ulster Bank RoI, REIL were £4.1 billion or 1.4% of the respective gross customer loans.
Capital and leverage
Key points
· CET1 has increased by 70 basis points to 14.1% as a result of the attributable profit and the reduction in RWAs in the period.
· RWAs have decreased by £6.5 billion to £221.7 billion primarily driven by a £4.0 billion reduction in Capital Resolution reflecting disposal and run offs in line with exit strategy and a £1.1 billion reduction in NatWest Markets principally due to business movements. Excluding volume growth, RWAs across PBB, CPB and NatWest Markets reduced by £3.2 billion during Q1 2017.
· Operational risk RWAs have decreased by £1.9 billion as a result of the annual recalculation.
· Leverage ratio decreased marginally to 5.0% as increased lending exposure was offset by movements in capital.
Capital and leverage ratios
End-point CRR basis (1)
31 March 31 December
2017 2016
Risk asset ratios % %
CET1 14.1 13.4
Tier 1 15.9 15.2
Total 19.2 19.2
Capital £m £m
Tangible equity 35,186 34,982
Expected loss less impairment provisions (1,396) (1,371)
Prudential valuation adjustment (377) (532)
Deferred tax assets (887) (906)
Own credit adjustments (245) (304)
Pension fund assets (186) (208)
Cash flow hedging reserve (888) (1,030)
Other deductions 45 (8)
Total deductions (3,934) (4,359)
CET1 capital 31,252 30,623
AT1 capital 4,041 4,041
Tier 1 capital 35,293 34,664
Tier 2 capital 7,370 9,161
Total regulatory capital 42,663 43,825
Risk-weighted assets
Credit risk
- non-counterparty 160,100 162,200
- counterparty 20,800 22,900
Market risk 17,000 17,400
Operational risk 23,800 25,700
Total RWAs 221,700 228,200
Leverage (2)
Derivatives 204,100 247,000
Loans and advances 347,200 340,300
Reverse repos 45,500 41,800
Other assets 186,500 169,600
Total assets 783,300 798,700
Derivatives
- netting and variation margin (204,200) (241,700)
- potential future exposures 63,400 65,300
Securities financing transactions gross up 2,800 2,300
Undrawn commitments 55,100 58,600
Regulatory deductions and other adjustments 300 100
CRR leverage exposure 700,700 683,300
Tier 1 capital 35,293 34,664
CRR leverage ratio % 5.0 5.1
UK leverage exposure (3) 622,200 614,600
UK leverage ratio % (3) 5.7 5.6
Notes:
(1) CRR as implemented by the PRA in the UK, with effect from 1 January 2014. All regulatory adjustments and deductions to CET1 have been applied in full for both bases with the exception of unrealised gains on available-for-sale securities which have been included from 2015 under the PRA transitional basis.
(2) Based on end-point CRR Tier 1 capital and leverage exposure under the CRR Delegated Act.
(3) Based on end-point CRR Tier 1 capital and UK leverage exposures reflecting the post EU referendum measures announced by the Bank of England in the third quarter of 2016.
Segment performance
Quarter ended 31 March 2017
PBB CPB Central
Ulster Commercial Private RBS NatWest Capital Williams items & Total
UK PBB Bank RoI Banking Banking International Markets Resolution & Glyn (1) other (2) RBS
£m £m £m £m £m £m £m £m £m £m
Income statement
Net interest income 1,111 105 567 112 80 29 33 165 32 2,234
Other non-interest income 266 41 298 48 18 479 (85) 41 (101) 1,005
Total income - adjusted (3) 1,377 146 865 160 98 508 (52) 206 (69) 3,239
Own credit adjustments - (1) - - - (20) (7) - (1) (29)
Gain on redemption of own debt - - - - - - - - 2 2
Total income 1,377 145 865 160 98 488 (59) 206 (68) 3,212
Direct expenses - staff costs (163) (49) (125) (38) (12) (71) (16) (53) (497) (1,024)
- other costs (64) (12) (55) (7) (3) (17) (9) (11) (620) (798)
Indirect expenses (489) (47) (268) (68) (28) (233) (44) (20) 1,197 -
Operating expenses - adjusted (4) (716) (108) (448) (113) (43) (321) (69) (84) 80 (1,822)
Restructuring costs - direct (20) (19) (39) - - - (70) - (429) (577)
- indirect (111) (15) (60) (11) (3) (68) (16) - 284 -
Litigation and conduct costs (4) - (3) - - (31) (6) - (10) (54)
Operating expenses (851) (142) (550) (124) (46) (420) (161) (84) (75) (2,453)
Operating profit/(loss) before impairment (losses)/releases 526 3 315 36 52 68 (220) 122 (143) 759
Impairment (losses)/releases (32) 24 (61) (3) (7) - 45 (11) (1) (46)
Operating profit/(loss) 494 27 254 33 45 68 (175) 111 (144) 713
Operating profit/(loss) - adjusted (3,4) 629 62 356 44 48 187 (76) 111 10 1,371
Additional information
Return on equity (5) 24.8% 4.0% 5.7% 6.0% 12.0% 1.7% nm nm nm 3.1%
Return on equity - adjusted (3,4,5) 32.0% 9.3% 8.9% 8.6% 13.0% 7.9% nm nm nm 9.7%
Cost:income ratio (6) 61.8% 97.9% 62.0% 77.5% 46.9% 86.1% nm 40.8% nm 76.1%
Cost:income ratio - adjusted (3,4,6) 52.0% 74.0% 49.7% 70.6% 43.9% 63.2% nm 40.8% nm 55.8%
Total assets (£bn) 159.1 24.7 153.3 18.1 25.1 225.3 119.2 25.8 32.7 783.3
Funded assets (£bn) (7) 159.1 24.6 153.3 18.1 25.1 113.9 29.2 25.8 30.1 579.2
Net loans and advances to customers (£bn) 135.8 19.0 99.7 12.5 8.9 17.9 12.3 20.6 - 326.7
Risk elements in lending (£bn) 1.9 3.5 1.7 0.1 0.1 - 2.1 0.3 - 9.7
Impairment provisions (£bn) (1.2) (1.1) (0.8) - - - (0.7) (0.2) (0.1) (4.1)
Customer deposits (£bn) 146.3 16.6 97.2 25.7 25.3 8.0 7.6 24.0 0.8 351.5
Risk-weighted assets (RWAs) (£bn) 32.7 17.7 77.8 8.7 9.5 34.1 30.5 9.7 1.0 221.7
RWA equivalent (£bn) (5) 35.7 18.9 81.8 8.7 9.5 36.0 32.7 10.2 1.2 234.7
Employee numbers (FTEs - thousands) 18.2 3.1 5.4 1.7 0.8 1.2 0.3 4.3 41.2 76.2
For the notes to this table refer to page 17. nm = not meaningful
Segment performance
Quarter ended 31 December 2016
PBB CPB Central
Ulster Commercial Private RBS NatWest Capital Williams items & Total
UK PBB Bank RoI Banking Banking International Markets Resolution & Glyn (1) other (2) RBS
£m £m £m £m £m £m £m £m £m £m
Income statement
Net interest income 1,093 105 542 111 77 29 44 170 37 2,208
Other non-interest income 246 32 325 50 19 285 (329) 47 446 1,121
Total income adjusted (3) 1,339 137 867 161 96 314 (285) 217 483 3,329
Own credit adjustments - - - - - (29) (8) - (77) (114)
Gain on redemption of own debt - - - - - - - - 1 1
Total income 1,339 137 867 161 96 285 (293) 217 407 3,216
Direct expenses - staff costs (161) (57) (130) (39) (12) (64) (23) (60) (479) (1,025)
- other costs (72) (23) (69) (12) (4) (7) (3) (13) (991) (1,194)
Indirect expenses (544) (65) (357) (95) (45) (267) (150) (24) 1,547 -
Operating expenses - adjusted (4) (777) (145) (556) (146) (61) (338) (176) (97) 77 (2,219)
Restructuring costs - direct (1) (6) (12) (6) (1) (3) (21) - (957) (1,007)
- indirect (50) 2 (34) (8) (1) (43) 13 - 121 -
Litigation and conduct costs (214) (77) (407) 1 (1) (466) (3,156) - 192 (4,128)
Operating expenses (1,042) (226) (1,009) (159) (64) (850) (3,340) (97) (567) (7,354)
Operating profit/(loss) before impairment (losses)/releases 297 (89) (142) 2 32 (565) (3,633) 120 (160) (4,138)
Impairment (losses)/releases (16) 47 (83) 8 1 - 130 (11) (1) 75
Operating profit/(loss) 281 (42) (225) 10 33 (565) (3,503) 109 (161) (4,063)
Operating profit/(loss) - adjusted (3,4) 546 39 228 23 36 (24) (331) 109 559 1,185
Additional information
Return on equity (5) 13.5% (5.8%) (9.1%) 1.6% 8.8% (30.2%) nm nm nm (48.2%)
Return on equity - adjusted (3,4,5) 27.8% 5.4% 5.3% 4.5% 9.8% (2.7%) nm nm nm 8.6%
Cost:income ratio (6) 77.8% 165.0% 117.1% 98.8% 66.7% nm nm 44.7% nm 230.2%
Cost:income ratio - adjusted (3,4,6) 58.0% 105.8% 62.6% 90.7% 63.5% 107.6% nm 44.7% nm 66.3%
Total assets (£bn) 155.6 24.1 150.5 18.6 23.4 240.0 132.5 25.8 28.2 798.7
Funded assets (£bn) (7) 155.6 24.0 150.5 18.5 23.4 100.9 27.6 25.8 25.4 551.7
Net loans and advances to customers (£bn) 132.1 18.9 100.1 12.2 8.8 17.4 12.8 20.6 0.1 323.0
Risk elements in lending (£bn) 2.0 3.5 1.9 0.1 0.1 - 2.3 0.4 - 10.3
Impairment provisions (£bn) (1.3) (1.2) (0.8) - - - (0.8) (0.2) (0.2) (4.5)
Customer deposits (£bn) 145.8 16.1 97.9 26.6 25.2 8.4 9.5 24.2 0.2 353.9
Risk-weighted assets (RWAs) (£bn) 32.7 18.1 78.5 8.6 9.5 35.2 34.5 9.6 1.5 228.2
RWA equivalent (£bn) (5) 35.7 19.5 82.6 8.6 9.5 37.2 37.5 10.1 1.7 242.4
Employee numbers (FTEs - thousands) 18.3 3.1 5.5 1.7 0.8 1.2 0.4 4.5 42.3 77.8
For the notes to this table refer to page 17. nm = not meaningful.
Segment performance
Quarter ended 31 March 2016
PBB CPB Central
Ulster Commercial Private RBS NatWest Capital Williams items & Total
UK PBB Bank RoI Banking Banking International Markets Resolution & Glyn (1) other (2) RBS
£m £m £m £m £m £m £m £m £m £m
Income statement
Net interest income 1,019 105 536 113 75 19 86 162 41 2,156
Other non-interest income 256 50 317 52 15 258 (35) 43 (298) 658
Total income - adjusted (3) 1,275 155 853 165 90 277 51 205 (257) 2,814
Own credit adjustments - 3 - - - 64 108 - 81 256
Strategic disposals - - - - - - (6) - - (6)
Total income 1,275 158 853 165 90 341 153 205 (176) 3,064
Direct expenses - staff costs (181) (51) (131) (40) (10) (67) (45) (62) (615) (1,202)
- other costs (63) (11) (49) (14) (5) (14) (33) (15) (745) (949)
Indirect expenses (484) (42) (256) (83) (20) (250) (154) (21) 1,310 -
Operating expenses - adjusted (4) (728) (104) (436) (137) (35) (331) (232) (98) (50) (2,151)
Restructuring costs - direct (13) (6) (1) (1) - - (7) (20) (190) (238)
- indirect (9) - 1 (15) (1) (12) (9) - 45 -
Litigation and conduct costs - - (2) - - (18) (10) - (1) (31)
Operating expenses (750) (110) (438) (153) (36) (361) (258) (118) (196) (2,420)
Operating profit/(loss) before impairment (losses)/releases 525 48 415 12 54 (20) (105) 87 (372) 644
Impairment (losses)/releases (16) 13 (14) (2) (2) - (196) (6) - (223)
Operating profit/(loss) 509 61 401 10 52 (20) (301) 81 (372) 421
Operating profit/(loss) - adjusted (3,4) 531 64 403 26 53 (54) (377) 101 (307) 440
Additional information
Return on equity (5) 26.1% 8.8% 11.1% 1.5% 16.0% (2.6%) nm nm nm (9.6%)
Return on equity - adjusted (3,4,5) 27.3% 9.2% 11.2% 5.1% 16.3% (4.4%) nm nm nm (9.4%)
Cost:income ratio (6) 58.8% 69.6% 49.3% 92.7% 40.0% 105.9% nm 57.6% nm 78.7%
Cost:income ratio - adjusted (3,4,6) 57.1% 67.1% 49.0% 83.0% 38.9% 119.5% nm 47.8% nm 76.1%
Total assets (£bn) 146.3 22.7 139.4 17.4 23.7 255.9 218.8 24.2 34.5 882.9
Funded assets (£bn) (7) 146.3 22.6 139.4 17.3 23.7 116.0 50.2 24.2 31.0 570.7
Net loans and advances to customers (£bn) 121.8 17.9 96.4 11.6 8.0 18.6 22.4 20.1 1.8 318.6
Risk elements in lending (£bn) 2.4 4.5 2.2 0.1 0.1 - 2.2 0.4 - 11.9
Impairment provisions (£bn) (1.6) (2.7) (1.1) - - - (1.0) (0.3) - (6.7)
Customer deposits (£bn) 136.9 13.7 97.1 23.2 21.6 6.7 24.9 24.3 6.6 355.0
Risk-weighted assets (RWAs) (£bn) 34.7 20.4 75.7 8.6 9.1 36.1 47.6 9.7 7.6 249.5
RWA equivalent (£bn) (5) 37.5 21.7 79.7 8.6 9.1 36.7 48.4 10.1 7.8 259.6
Employee numbers (FTEs - thousands) 21.4 3.2 6.0 1.8 0.7 1.3 1.0 5.5 51.5 92.4
nm = not meaningful.
Notes:
(1) Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and comprises RBS England and Wales branch-based businesses, along with certain small and medium enterprises and corporate activities across the UK. During
the period presented W&G has not operated as a separate legal entity.
(2) Central items include unallocated transactions which principally comprise volatile items under IFRS and balances in relation to international private banking for Q1 2016.
(3) Excluding own credit adjustments, gain on redemption of own debt and strategic disposals.
(4) Excluding restructuring costs and litigation and conduct costs.
(5) RBS's CET 1 target is 13% but for the purposes of computing segmental return on equity (ROE), to better reflect the differential drivers of capital usage, segmental operating profit after tax and adjusted for preference dividends is divided by notional
equity allocated at different rates of 14% (Ulster Bank RoI - 11% prior to Q1 2017), 11% (Commercial Banking), 14% (Private Banking - 15% prior to Q1 2017), 12% (RBS International) and 15% for all other segments, of the monthly average of segmental risk
-weighted assets incorporating the effect of capital deductions (RWAes). RBS Return on equity is calculated using profit for the period attributable to ordinary shareholders.
(6) Operating lease depreciation included in income (Q1 2017 - £36 million; Q4 2016 - £37 million and Q1 2016 - £38 million).
(7) Funded assets exclude derivative assets.
Segment performance
Quarter ended
31 March 31 December 31 March
2017 2016 2016
Total income by segment £m £m £m
UK PBB
Personal advances 225 215 204
Personal deposits 204 184 168
Mortgages 590 598 564
Cards 137 150 142
Business banking 194 188 182
Other 27 4 15
Total 1,377 1,339 1,275
Ulster Bank RoI
Corporate 45 34 56
Retail 100 101 100
Other - 2 2
Total 145 137 158
Commercial Banking
Commercial lending 468 503 436
Deposits 123 109 125
Asset and invoice finance 171 175 177
Other 103 80 115
Total 865 867 853
Private Banking
Investments 25 23 28
Banking 135 138 137
Total 160 161 165
RBS International 98 96 90
NatWest Markets
Rates 325 129 121
Currencies 128 157 144
Financing 88 78 42
Other (33) (50) (30)
Total excluding own credit adjustments 508 314 277
Own credit adjustments (20) (29) 64
Total 488 285 341
Capital Resolution
Portfolio and GTS 16 34 52
Shipping 5 6 16
Markets 16 6 (29)
Other (39) (6) 8
Total excluding disposals and own credit adjustments (2) 40 47
Disposal losses (50) (325) (2)
Own credit adjustments (7) (8) 108
Total (59) (293) 153
Williams & Glyn (1)
Retail 119 129 115
Commercial 87 88 90
Total 206 217 205
Central items (68) 407 (176)
Total RBS 3,212 3,216 3,064
Note:
(1) Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and comprises RBS England and Wales branch-based businesses, along with certain small and medium enterprises and corporate activities across the UK. During the period presented Williams & Glyn has not operated as a separate legal entity.
Segment performance
Quarter ended
31 March 31 December 31 March
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