REG - Royal Bk Scot.Grp. - 1st Quarter Results <Origin Href="QuoteRef">RBS.L</Origin> - Part 4
15/07/2015 15:25
- Part 4: For the preceding part double click ID:nRSd7782Lc
● Average customer deposits were up 14% (4% on a US dollar basis), given growth across all deposit categories.
RBS Capital Resolution
● RCR funded assets have been reduced by £13 billion, or 54%, since Q1 2014, driven by disposals and repayments and since inception on 1 January 2014 have reduced by £18 billion or 62%.
● RWA equivalent decreased by £29 billion, or 57%, since Q1 2014. This primarily reflects disposals and repayments and since inception on 1 January 2014 have reduced by £43 billion or 67%.
Central items
● Central items not allocated represented a charge of £211 million in the quarter compared with a gain of £5 million in Q1 2014. This is principally due to a charge of £27 million on the disposal of available-for-sale securities in Treasury in the quarter versus a gain of £203 million in Q1 2014.
Additional analysis of Segment performance is set out in Appendix 1.
Selected statutory financial statements
Condensed consolidated income statement for the period ended 31 March 2015
Quarter ended
31 March 31 December 31 March
2015 2014 2014
£m £m £m
Interest receivable 3,076 3,238 3,265
Interest payable (873) (856) (1,058)
Net interest income 2,203 2,382 2,207
Fees and commissions receivable 989 1,055 1,117
Fees and commissions payable (177) (204) (231)
Income from trading activities 330 (403) 922
Gain on redemption of own debt - - 20
Other operating income 174 135 651
Non-interest income 1,316 583 2,479
Total income 3,519 2,965 4,686
Staff costs (1,325) (1,325) (1,439)
Premises and equipment (419) (480) (580)
Other administrative expenses (1,339) (1,999) (577)
Depreciation, amortisation and write downs (512) (203) (229)
Write down of goodwill and other intangible assets - (311) (82)
Operating expenses (3,595) (4,318) (2,907)
(Loss)/profit before impairment losses (76) (1,353) 1,779
Impairment releases/(losses) 129 670 (289)
Operating profit/(loss) before tax 53 (683) 1,490
Tax charge (193) (1,040) (314)
(Loss)/profit from continuing operations (140) (1,723) 1,176
(Loss)/profit from discontinued operations, net of tax
- Citizens (1) (320) (3,885) 104
- Other 4 3 9
(Loss)/profit from discontinued operations, net of tax (316) (3,882) 113
(Loss)/profit for the period (456) (5,605) 1,289
Non-controlling interests 84 (71) (19)
Preference share and other dividends (74) (115) (75)
(Loss)/profit attributable to ordinary and B shareholders (446) (5,791) 1,195
Loss per ordinary and equivalent B share (EPS) (2)
Basic and diluted EPS from continuing and discontinued operations (3.9p) (50.7p) -
Basic and diluted EPS from continuing operations (2.1p) (16.2p) -
Notes:
(1) Included within Citizens discontinued operations are the results of the reportable operating segment Citizens Financial Group (CFG), the loss on transfer of CFG to disposal groups, subsequent fair value remeasurements related to Citizens, and certain Citizens related activities in Central items and related one-off and other items.
(2) Q1 2014 earnings were all attributable to the DAS.
Selected statutory financial statements
Condensed consolidated statement of comprehensive income
for the period ended 31 March 2015
Quarter ended
31 March 31 December 31 March
2015 2014 2014
£m £m £m
(Loss)/profit for the period (456) (5,605) 1,289
Items that do not qualify for reclassification
Actuarial losses on defined benefit plans - (108) -
Tax - (36) -
- (144) -
Items that do qualify for reclassification
Available-for-sale financial assets 202 199 264
Cash flow hedges 124 958 295
Currency translation 11 424 (135)
Tax (102) (264) (88)
235 1,317 336
Other comprehensive income after tax 235 1,173 336
Total comprehensive (loss)/income for the period (221) (4,432) 1,625
Total comprehensive (loss)/income is attributable to:
Non-controlling interests 47 204 24
Preference shareholders 70 99 65
Paid-in equity holders 4 16 10
Dividend access share - 320 -
Ordinary and B shareholders (342) (5,071) 1,526
(221) (4,432) 1,625
Key points
● The movement in available-for-sale financial assets during the quarter reflects realised losses on available-for-sale bonds.
● Cash flow hedging gains in the quarter largely results from decreases in Sterling swap rates across the maturity profile of the portfolio.
● Currency translation gains in the quarter are principally due to the strengthening of the dollar against sterling, mostly offset by the impact of the weakening of the Euro against sterling.
Selected statutory financial statements
Condensed consolidated balance sheet at 31 March 2015
31 March 31 December
2015 2014
£m £m
Assets
Cash and balances at central banks 75,521 74,872
Net loans and advances to banks 25,002 23,027
Reverse repurchase agreements and stock borrowing 16,071 20,708
Loans and advances to banks 41,073 43,735
Net loans and advances to customers 333,173 334,251
Reverse repurchase agreements and stock borrowing 53,329 43,987
Loans and advances to customers 386,502 378,238
Debt securities 79,232 86,649
Equity shares 6,325 5,635
Settlement balances 11,341 4,667
Derivatives 390,565 353,590
Intangible assets 7,619 7,781
Property, plant and equipment 5,336 6,167
Deferred tax 1,430 1,540
Prepayments, accrued income and other assets 5,995 5,878
Assets of disposal groups 93,673 82,011
Total assets 1,104,612 1,050,763
Liabilities
Bank deposits 37,235 35,806
Repurchase agreements and stock lending 27,997 24,859
Deposits by banks 65,232 60,665
Customer deposits 349,289 354,288
Repurchase agreements and stock lending 41,386 37,351
Customer accounts 390,675 391,639
Debt securities in issue 45,855 50,280
Settlement balances 11,083 4,503
Short positions 19,716 23,029
Derivatives 386,056 349,805
Accruals, deferred income and other liabilities 14,242 13,346
Retirement benefit liabilities 1,843 2,579
Deferred tax 381 500
Subordinated liabilities 22,004 22,905
Liabilities of disposal groups 85,244 71,320
Total liabilities 1,042,331 990,571
Equity
Non-controlling interests 5,473 2,946
Owners' equity*
Called up share capital 6,925 6,877
Reserves 49,883 50,369
Total equity 62,281 60,192
Total liabilities and equity 1,104,612 1,050,763
* Owners' equity attributable to:
Ordinary and B shareholders 51,861 52,149
Other equity owners 4,947 5,097
56,808 57,246
Contingent liabilities and commitments 237,087 241,186
Selected statutory financial statements
Condensed consolidated statement of changes in equity for the period ended 31 March 2015
Quarter ended
31 March 31 December 31 March
2015 2014 2014
£m £m £m
Called-up share capital
At beginning of period 6,877 6,832 6,714
Ordinary shares issued 48 45 38
At end of period 6,925 6,877 6,752
Paid-in equity
At beginning of period 784 979 979
Reclassification (1) (150) (195) -
At end of period 634 784 979
Share premium account
At beginning of period 25,052 24,934 24,667
Ordinary shares issued 112 118 93
At end of period 25,164 25,052 24,760
Merger reserve
At beginning and end of period 13,222 13,222 13,222
Available-for-sale reserve
At beginning of period 299 172 (308)
Unrealised gains 39 173 433
Realised losses/(gains) 106 (19) (218)
Tax (26) (27) (5)
Recycled to profit or loss on disposal of businesses (2) - - 36
Transfer to retained earnings (47) - -
At end of period 371 299 (62)
Cash flow hedging reserve
At beginning of period 1,029 291 (84)
Amount recognised in equity 498 1,328 653
Amount transferred from equity to earnings (386) (370) (358)
Tax (41) (220) (70)
Transferred to retained earnings 9 - -
At end of period 1,109 1,029 141
Foreign exchange reserve
At beginning of period 3,483 3,173 3,691
Retranslation of net assets 494 209 (170)
Foreign currency (losses)/gains on hedges of net assets (566) 114 32
Tax (14) (4) (2)
Transfer to retained earnings (618) (9) -
At end of period 2,779 3,483 3,551
Capital redemption reserve
At beginning and end of period 9,131 9,131 9,131
Notes:
(1) Paid-in equity reclassified to liabilities as a result of the call of RBS Capital Trust IV in January 2015 and RBS Capital Trust III in December 2014.
(2) Net of tax - £11 million in the quarter ended 31 March 2014.
(3) Relating to the secondary offering of Citizens Financial Group in March 2015.
Selected statutory financial statements
Condensed consolidated statement of changes in equity for the period ended 31 March 2015
Quarter ended
31 March 31 December 31 March
2015 2014 2014
£m £m £m
Retained earnings
At beginning of period (2,518) 3,493 867
(Loss)/profit attributable to ordinary and B shareholders and other equity owners
- continuing operations (161) (1,741) 1,164
- discontinued operations (211) (3,935) 106
Equity preference dividends paid (70) (99) (65)
Paid-in equity dividends paid, net of tax (4) (16) (10)
Transfer from available-for-sale reserve 47 - -
Transfer from cash flow hedging reserve (9) - -
Transfer from foreign exchange reserve 618 9 -
Cost of placing CFG equity (29) - -
Actuarial losses recognised in retirement benefit schemes
- gross - (108) -
- tax - (36) -
Loss on disposal of own shares held - (8) -
Shares issued under employee share schemes (56) (50) (36)
Share-based payments
- gross 4 3 (39)
- tax - 3 (1)
Reclassification of paid-in equity (27) (33) -
At end of period (2,416) (2,518) 1,986
Own shares held
At beginning of period (113) (136) (137)
Disposal of own shares 2 - -
Shares issued under employee share schemes - 23 1
At end of period (111) (113) (136)
Owners' equity at end of period 56,808 57,246 60,324
Non-controlling interests
At beginning of period 2,946 2,747 473
Currency translation adjustments and other movements 83 101 3
Profit/(loss) attributable to non-controlling interests
- continuing operations 21 18 12
- discontinued operations (105) 53 7
Dividends paid (11) (4) -
Movements in available-for-sale securities
- unrealised gains/(losses) 57 42 (1)
- realised losses - 3 3
- tax (21) (13) -
Movements in cash flow hedging reserve
- amount recognised in equity 12 18 -
- amounts transferred from equity to earnings - (18) -
Equity withdrawn and disposals - (1) -
Equity raised (3) 2,491 - 115
At end of period 5,473 2,946 612
Total equity at end of period 62,281 60,192 60,936
Total equity is attributable to:
Non-controlling interests 5,473 2,946 612
Preference shareholders 4,313 4,313 4,313
Paid-in equity holders 634 784 979
Ordinary and B shareholders 51,861 52,149 55,032
62,281 60,192 60,936
For the notes to this table refer to page 29.
Notes
1. Basis of preparation
The condensed consolidated financial statements should be read in conjunction with RBS's 2014 Annual Report and Accounts
which were prepared in accordance with International Financial Reporting Standards issued by the International Accounting
Standards Board (IASB) and interpretations issued by the IFRS Interpretations Committee of the IASB as adopted by the
European Union (EU) (together IFRS).
Accounting policies
There have been no significant changes to RBS's principal accounting policies as set out on pages 349 to 357 of the 2014
Annual Report and Accounts. Amendments to IFRSs effective for 2015 have not had a material effect on RBS's Q1 2015
results.
Critical accounting policies and key sources of estimation uncertainty
The judgements and assumptions that are considered to be the most important to the portrayal of RBS's financial condition
are those relating to pensions, goodwill, provisions for liabilities, deferred tax, loan impairment provisions and fair
value of financial instruments. These critical accounting policies and judgments are described on pages 357 to 359 of RBS's
2014 Annual Report and Accounts.
Going concern
Having reviewed RBS's forecasts, projections and other relevant evidence, the directors have a reasonable expectation that
RBS will continue in operational existence for the foreseeable future. Accordingly, the results for the quarter ended 31
March 2015 have been prepared on a going concern basis.
Restatements
Citizens was classified as a disposal group on 31 December 2014 and its assets and liabilities from that date have been
aggregated and presented as separate lines in accordance with IFRS 5. Citizens was also reclassified as a discontinued
operation; comparatives for the quarter ended 31 March 2014 have been restated.
2. Citizens Financial Group
In March 2015 RBS sold 155.25 million shares in CFG (28.4% of CFG's common stock) for proceeds of £2.5 billion reducing its
interest in CFG to 41.9%. Transaction costs of £29 million were taken to owners' equity.
As required by IFRS 10 Consolidated Financial Statements, RBS continues to consolidate CFG despite no longer holding a
majority of voting rights. Given the significance of its voting interest and the dispersion of other shareholdings, RBS is
deemed under IFRS 10 to have 'de facto' control.
CFG, as a disposal group, is measured at the lower of carrying value and fair value less costs to sell. At 31 March 2015
CFG was recorded at its fair value less costs to sell of £8.3 billion (101% of CFG's IFRS net tangible assets). The net
loss of £320 million in Q1 2015 discontinued operations attributable to CFG comprised profit after tax for the period of
£187 million less a write down to fair value less costs to sell of £507 million.
Notes
3. Income
Quarter ended
31 March 31 December 31 March
2015 2014 2014
£m £m £m
Loans and advances to customers 2,902 3,086 3,063
Loans and advances to banks 105 72 95
Debt securities 69 80 107
Interest receivable 3,076 3,238 3,265
Customer accounts 390 392 490
Deposits by banks 13 10 35
Debt securities in issue 211 217 287
Subordinated liabilities 226 225 210
Internal funding of trading businesses 33 12 36
Interest payable 873 856 1,058
Net interest income 2,203 2,382 2,207
Fees and commissions receivable
- payment services 231 241 250
- credit and debit card fees 181 215 213
- lending (credit facilities) 269 281 311
- brokerage 90 78 85
- investment management 82 96 102
- trade finance 64 75 60
- other 72 69 96
Fees and commissions receivable 989 1,055 1,117
Fees and commissions payable (177) (204) (231)
Net fees and commissions 812 851 886
Foreign exchange 171 281 211
Interest rate 101 (300) 225
Credit 36 (249) 356
Own credit adjustments 95 (84) 95
Other (73) (51) 35
Income from trading activities (1) 330 (403) 922
Gain on redemption of own debt - - 20
Operating lease and other rental income 72 104 91
Own credit adjustments 25 (60) 44
Changes in the fair value of FVTPL financial assets and liabilities and
related derivatives 80 13 20
Changes in fair value of investment properties (4) 12 (12)
(Loss)/profit on sale of:
- securities (29) 14 196
- property, plant and equipment 13 74 24
- subsidiaries and associated undertakings (62) (2) 192
Dividend income 42 10 8
Share of profits less losses of associated undertakings 34 40 27
Other income 3 (70) 61
Other operating income 174 135 651
Total non-interest income 1,316 583 2,479
Total income 3,519 2,965 4,686
Note:
(1) The analysis of income from trading activities is based on how the business is organised and the underlying risks managed. Income from trading activities comprises gains and losses on financial instruments held for trading, both realised and unrealised, interest income, dividends and the related hedging and funding costs in the trading book. Other includes equities & commodities.
Notes
4. Provisions for liabilities and charges
Regulatory and legal actions
Other FX Other
customer investigations/ regulatory Property
PPI IRHP redress litigation provisions Litigation and other Total
£m £m £m (1) £m £m £m £m £m
At 1 January 2015 799 424 580 320 183 1,805 663 4,774
Transfer - - - 50 (50) - - -
Currency translation and other
movements - - 2 - 3 86 7 98
Charge to income statement (2) 100 - 257 334 - 176 76 943
Releases to income statement (2) - - - - - (4) (56) (60)
Provisions utilised (110) (103) (50) - - (11) (87) (361)
At 31 March 2015 789 321 789 704 136 2,052 603 5,394
Notes:
(1) Closing provision primarily relates to investment advice and packaged accounts.
(2) Relates to continuing operations.
There are uncertainties as to the eventual cost of redress in relation to certain of the provisions contained in the table
above. Assumptions relating to these are inherently uncertain and the ultimate financial impact may be different from the
amount provided. RBS will continue to monitor the position closely and refresh its assumptions.
5. Litigation, investigations and reviews
Except for the developments noted below, there have been no material changes to litigation, investigations and reviews as
disclosed in the Report and Accounts for the year ended 31 December 2014.
Litigation
Shareholder litigation (US)
RBS and certain of its subsidiaries, together with certain current and former officers and directors were named as
defendants in a purported class action filed in the United States District Court for the Southern District of New York
involving holders of American Depositary Receipts (the ADR claims).
A consolidated amended complaint asserting claims under Sections 10 and 20 of the US Securities Exchange Act of 1934 and
Sections 11, 12 and 15 of the Securities Act was filed in November 2011 on behalf of all persons who purchased or otherwise
acquired the Group's American Depositary Receipts (ADRs) from issuance through 20 January 2009. In September 2012, the
Court dismissed the ADR claims with prejudice. In August 2013, the Court denied the plaintiffs' motions for reconsideration
and for leave to re-plead their case. The plaintiffs appealed, but on 15 April 2015, the United States Court of Appeals for
the Second Circuit affirmed the lower court's dismissal of the plaintiffs' claims.
Notes
5. Litigation, investigations and reviews (continued)
Investigations and reviews
LIBOR and other trading rates
In February 2013, RBS announced settlements with the Financial Services Authority (FSA) in the United Kingdom, the United
States Commodity Futures Trading Commission and the United States Department of Justice (DOJ) in relation to investigations
into submissions, communications and procedures around the setting of LIBOR. RBS agreed to pay penalties of £87.5 million,
US$325 million and US$150 million to these authorities respectively to resolve the investigations. As part of the agreement
with the DOJ, RBS plc entered into a Deferred Prosecution Agreement (DPA) in relation to one count of wire fraud relating
to Swiss Franc LIBOR and one count for an antitrust violation relating to Yen LIBOR. On 17 April 2015, following expiry of
the DPA, the DOJ filed a motion seeking dismissal of the criminal information underlying the DPA. On 21 April 2015, the
U.S. District Court in Connecticut granted the motion and ordered the charges dismissed; as result, the DPA is of no
further effect.
Foreign exchange related investigations
In November 2014, RBS plc reached a settlement with the FCA in the United Kingdom and the United States Commodity Futures
Trading Commission (CFTC) in relation to investigations into failings in the bank's Foreign Exchange businesses within its
Corporate & Institutional Banking (CIB) segment. RBS plc agreed to pay penalties of £217 million to the FCA and $290
million to the CFTC to resolve the investigations. Payment of the fines was made on 19 November 2014.
As previously disclosed, RBS remains in discussions with other governmental and regulatory authorities on similar issues
relating to failings in the Bank's Foreign Exchange business within its CIB segment. These include advanced settlement
discussions regarding the criminal investigation being conducted by the DOJ and with certain other financial regulatory
authorities and RBS expects that it will incur financial penalties in conjunction with any such settlements. The timing and
final amounts of any settlements and related litigation risks and consequences remain uncertain and could be material.
On 21 July 2014, the Serious Fraud Office announced that it was launching a criminal investigation into allegations of
fraudulent conduct in the foreign exchange market, apparently involving multiple financial institutions.
6. Recent developments
Sale of part of Citizens Financial Group Inc. stake
On 6 April 2015, CFG completed a private offering of $250 million, or 250,000 shares of its 5.500% fixed-to-floating rate
non-cumulative perpetual Series A preferred stock, liquidation preference $1,000 per share. The net proceeds of the
offering were used to fund the repurchase of 10.5 million shares of CFG's common stock on 7 April 2015 at a price of $23.86
per share. Following the repurchase, RBS's interest in CFG has reduced to 40.8%.
Notes
6. Recent developments (continued)
Further sale of North American loan portfolio to Mizuho
On 27 April 2015, RBS entered into a definitive agreement with Mizuho Bank, Ltd. ("Mizuho"), a wholly-owned subsidiary of
the Mizuho Financial Group, for the sale of a further portfolio of corporate loan commitments. This transaction follows the
announcement on 26 February 2015 of a sale to Mizuho of a portfolio of US and Canadian loan commitments.
This additional portfolio sold to Mizuho comprises $5.6 billion of loan commitments, including $0.5 billion of drawn assets
as of 28 February 2015, and generated a profit after tax in the region of approximately $20 million in the year to 31
December 2014. The cash consideration will be approximately $0.5 billion, generating a loss on disposal, net of unamortised
fees, of around $30 million (£20 million). Final cash consideration and loss will depend upon settlement date portfolio
balances. Sale proceeds will be used for general corporate purposes. The transaction is expected to be substantially
complete by the end of Q3 2015. The original transaction announced on 26 February 2015 remains on track and is subject to
progressive closing as customer and agent banks' consents are obtained. Together with the announced sale to Mizuho in late
February, approximately two thirds of our North American corporate loan portfolio and associated commitments identified for
exit have now been disposed of.
7. Exchange rates
The following table shows the principal exchange rates:
£1 = E Quarter average Period end
31 March 2015 1.345 1.382
31 December 2014 1.268 1.285
31 March 2014 1.208 1.210
£1 = $ Quarter average Period end
31 March 2015 1.514 1.485
31 December 2014 1.582 1.562
31 March 2014 1.655 1.668
8. Post balance sheet events
There have been no significant events between 31 March 2015 and the date of approval of this announcement which would
require a change to or additional disclosure in the announcement.
Appendix 1
Additional
segment information
Appendix 1 - UK Personal & Business Banking
Quarter ended
31 March 31 December 31 March
2015 2014 2014
Income statement £m £m £m
Net interest income 1,143 1,209 1,124
Net fees and commissions 294 315 333
Other non-interest income 15 8 6
Non-interest income 309 323 339
Total income 1,452 1,532 1,463
Direct expenses
- staff costs (216) (220) (224)
- other costs (70) (82) (127)
Indirect expenses (460) (564) (524)
Restructuring costs
- direct - (2) -
- indirect (30) (16) 10
Litigation and conduct costs (354) (650) -
Operating expenses (1,130) (1,534) (865)
Profit/(loss) before impairment losses 322 (2) 598
Impairment releases/(losses) 26 (41) (88)
Operating profit/(loss) 348 (43) 510
Operating profit - adjusted (1) 732 625 500
Analysis of income by product
Personal advances 216 222 235
Personal deposits 190 210 142
Mortgages 617 656 638
Cards 175 169 198
Business banking 269 270 245
Other (15) 5 5
Total income 1,452 1,532 1,463
Analysis of impairments by sector
Personal advances 35 36 39
Mortgages (2) (23) 1
Business banking (66) 3 29
Cards 7 25 19
Total impairment (releases)/losses (26) 41 88
Performance ratios
Return on equity (2) 15.4% (3.5%) 22.0%
Return on equity - adjusted (1,2) 34.3% 29.6% 21.6%
Net interest margin 3.61% 3.74% 3.61%
Cost:income ratio 78% 100% 59%
Cost:income ratio - adjusted (1) 51% 57% 60%
31 March 31 December 31 March
2015 2014 2014
Capital and balance sheet £bn £bn £bn
Funded assets 134.6 134.3 132.8
Total assets 134.6 134.3 132.8
Net loans and advances to customers 127.4 127.2 125.5
Risk elements in lending 3.6 3.8 4.5
Impairment provisions (2.4) (2.6) (2.9)
Customer deposits 148.0 148.7 144.6
Risk-weighted assets (3) 42.6 42.8 48.5
Notes:
(1) Excluding restructuring costs and litigation and conduct costs.
(2) Return on equity is based on operating profit after tax adjusted for preference share dividends divided by average notional equity (based on 13% of the monthly average of segmental RWAe).
(3) RWAs on an end-point CRR basis.
(4) International Private Banking business reclassified to disposal groups.
Appendix 1 - Ulster Bank
Quarter ended
31 March 31 December 31 March
2015 2014 2014
Income statement £m £m £m
Net interest income 133 150 154
Net fees and commissions 33 38 32
Other non-interest income 24 16 15
Non-interest income 57 54 47
Total income 190 204 201
Direct expenses
- staff costs (60) (65) (63)
- other costs (17) (19) (17)
Indirect expenses (63) (78) (63)
Restructuring costs
- indirect 1 4 (2)
Litigation and conduct costs - 19 -
Operating expenses (139) (139) (145)
Profit before impairment losses 51 65 56
Impairment releases/(losses) - 104 (47)
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