REG - Royal Bk Scot.Grp. - Final Results <Origin Href="QuoteRef">RBS.L</Origin> - Part 4
26/02/2016 07:12
- Part 4: For the preceding part double click ID:nRSZ2357Qc
84.9 11.0 7.2 26.5 52.9 19.5 63.1 394.8
Risk elements in lending (£bn) 3.6 4.4 2.4 0.1 0.2 - 15.6 0.6 1.3 28.2
Impairment provisions (£bn) (2.5) (2.4) (0.9) - (0.1) - (11.1) (0.4) (0.6) (18.0)
Customer deposits (£bn) 132.6 14.7 84.9 22.3 20.8 11.8 36.4 22.0 69.4 414.9
Risk-weighted assets (RWAs) (£bn) 36.6 21.8 63.2 8.7 7.5 41.9 95.1 10.1 71.0 355.9
RWA equivalent (£bn) 39.2 20.0 70.1 8.7 7.5 42.6 101.3 10.8 71.4 371.6
Employee numbers (FTEs - thousands) 22.4 2.5 6.2 2.0 0.6 1.7 2.6 4.2 49.1 91.3
nm = not meaningful. *Restated - refer to page 46 for further details.
Notes:
(1) Central items includes unallocated costs and assets which principally comprise volatile items under IFRS and balances in relation to Citizens and international private banking.
(2) Excluding own credit adjustments, gains/(losses) on redemption of own debt and strategic disposals. Tax on these items was a £15 million charge in FY 2015 (FY 2014 - £29 million credit; Q4 2015 - £72 million credit; Q3 2015 - £25 million charge; Q4 2014 -
£26 million credit).
(3) Excluding restructuring costs, litigation and conduct costs and write down of goodwill. Tax on these items was £563 million in FY 2015 (FY 2014 - £551 million; Q4 2015 - £141 million; Q3 2015 - £95 million; Q4 2014 - £262 million).
(4) 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 11% (Commercial Banking and Ulster Bank RoI), 12% (RBS International) and 15% for all other segments, of the monthly average of segmental risk-weighted assets after capital deductions (RWAes). This notional equity was
previously 13% for all segments. In addition, due to changes in UK tax rules enacted in the Finance Act 2015, RBS has increased its longer-term effective 31 December tax rate. The notional tax rate used in the segmental ROE has been revised from 25% to 28%
(Ulster Bank RoI - 15%; RBS International - 10%). RBS's forward planning tax rate is 26%.
Segment performance
2015 compared to 2014
UK Personal & Business Banking
● UK PBB now includes Ulster Bank Northern Ireland and excludes Williams & Glyn, which is reported as a separate segment.
● UK PBB recorded an operating profit of £1,030 million in 2015, a reduction of 9% or £103 million from 2014. This was primarily driven by lower non-interest income combined with increased restructuring costs and litigation and conduct costs. This was
partially offset by a small net impairment release compared with a prior year charge. Adjusted operating profit (£2,169 million) and return on equity (11.7%) were broadly stable compared with the prior year.
● Total income was £5,200 million, a reduction of 4% from £5,444 million. Net interest income declined 2% to £4,152 million primarily as a result of continued margin pressure in the mortgage market as customers move to lower margin fixed rate products
together with higher internal funding costs. The decline was partly offset by improved deposit margins. Reflecting strong mortgage balance growth, net interest margin (NIM) declined 14 basis points from 2014 to 3.18% as the overall portfolio mix continues
to be increasingly weighted toward secured lending, together with the decline in unsecured balances. The decline was slightly offset by improved deposit margins.
● Non-interest income was £1,048 million, a reduction of 14% compared with the prior year as interchange fees on credit and debit cards declined £59 million, combined with reduced advice income.
● Operating expenses were £4,177 million, remaining broadly stable against 2014. Litigation and conduct costs increased 6% due to customer redress provisions, primarily relating to PPI, to £972 million, whilst higher restructuring costs were up £56 million,
to £167 million. This was principally offset by a reduction in staff and other costs. Adjusted operating expenses totalled £3,038 million, 3% lower than 2014.
● Net impairment releases totalled £7 million, compared with a net charge of £154 million in 2014, driven by decreased charges from bad debt flows and benefit of provision releases and recoveries.
● 2015 was a strong year for the mortgage business with applications increasing 48% from £21.7 billion to £32.0 billion as gross new lending rose 29% to £23 billion. Market share of new mortgages was 10.5% versus a stock share of 8.2%. This led to net
mortgage balances growing by £9.3 billion or 10% to £104.8 billion.
● Mortgage growth was the principal driver of an £8.2 billion increase in net loans and advances to customers. Unsecured balances continued to decline gradually, albeit at a much slower rate.
● Customer deposit balances increased £5.2 billion to £137.8 billion due to growth in personal savings, current accounts and business banking.
● RWAs fell £3.3 billion to £33.3 billion due to the improved quality of portfolio.
Ulster Bank RoI
● Following the strategic review of Ulster Bank in 2014, it was confirmed that the Northern Ireland and Republic of Ireland businesses were to be separated. The change of management controls and governance was completed in October 2015 with the Northern Irish business included in UK Personal & Business Banking (UK PBB) and the reportable segment of Ulster Bank RoI now comprising the core Republic of Ireland business only.
● A significant weakening of the euro relative to sterling during 2015 had a material impact on Ulster Bank RoI's financial comparison with 2014 and the income trend in particular.
● Ulster Bank RoI recorded an operating profit of £262 million compared with an operating profit of £489 million in 2014, the decline was primarily due to considerably lower net impairment releases in 2015. Adjusted operating profit was £264 million, a decrease of £219 million from 2014. Return on equity was 10.6%, down from 18.6% in 2014.
Segment performance
Ulster Bank RoI (continued)
● Total income was £550 million, a decrease of 9% from the prior year reflecting the weakening of the euro during 2015. Excluding the impact of the euro exchange rate movement, total income increased 1% due to a continued improvement in deposit pricing in
line with market trends, combined with non-recurring benefits, including a gain on the sale of a buy-to-let portfolio of £12 million and the closure of a foreign exchange exposure of £24 million. These benefits were largely offset by reduced income on free
funds.
● Net interest margin (NIM) was 1.57%, a decrease of 35 basis points from 2014, primarily driven by reduced income on free funds and an increased drag from liquidity management requirements. NIM continues to reflect a sizeable drag from the low yielding
tracker mortgage book.
● Operating expenses increased by 2% from £421 million to £429 million, reflecting an increase in pension servicing costs, totalling £22 million, largely offset by the benefit of a weakening euro. Cost savings delivered through a further reduction in both
employee numbers and the property footprint were somewhat offset by further investment in the business and operational infrastructure.
● Net impairment releases reduced by £165 million to £141 million, and although at lower levels, continued to reflect the improving economic conditions and the benefits of proactive debt management.
● Gross new mortgage lending increased 53% to £0.5 billion whilst gross new lending to commercial customers increased 65% to £1.1 billion. Strong new lending volumes across the business in 2015 were offset by high levels of customer repayments and the sale
of a £0.3 billion buy-to-let mortgage portfolio. Net loans and advances to customers decreased £1.4 billion to £16.7 billion, £1 billion of which related to exchange rate movements. The low yielding tracker mortgage portfolio balances reduced from £10.6
billion in 2014 to £9.2 billion, but continues to make up a significant part of the overall mortgage book.
● RWAs reduced 11% from £21.8 billion to £19.4 billion due to improved credit metrics and the impact of a weakening euro while RWA intensity reduced by 2 percentage points to 104%. RWAs on the tracker mortgage portfolio reduced from £9.3 billion in 2014 to
£7.8 billion.
Commercial Banking
● Comparisons with prior periods are affected by a number of internal business transfers. In line with changes to the business model, the UK and Western European corporate loan portfolios transferred to Commercial Banking on 1 May 2015 and 1 October 2015 respectively. The prior period financials were adjusted for the UK Transaction Services business transfer, which does not affect comparisons. The results exclude RBS International which is reported as a separate segment for the first time.
● Commercial Banking recorded an operating profit of £1,264 million, broadly in line with the prior year. Adjusted operating profit was £1,384 million, a decrease of £92 million from 2014 due to a marginal fall in income reflecting margin pressure. Return on equity was broadly stable year on year.
● Total income was £3,254 million, compared with £3,305 million in 2014. Net interest income was £1,997 million, a 1% increase from 2014, driven largely by higher asset and deposit volumes. Net interest margin decreased three basis points to 1.88% with improved deposit margins partly offsetting competitive pressures on new business asset margins. Non-interest income fell by 5% to £1,257 million driven by a loss of £34 million from the sale of non-strategic asset portfolios and the transfer of the commercial
cards business to UK PBB in 2014.
Segment performance
Commercial Banking (continued)
● Operating expenses totalled £1,921 million, a reduction of 2% from 2014, principally driven by tight control on discretionary costs and lower litigation and conduct costs, down 54% to £51 million, combined with restructuring costs falling 36% to £69 million. Adjusted operating expenses were £1,801 million, an increase of £57 million, primarily as a result of a higher UK bank levy charge.
● Net impairment losses decreased £16 million to £69 million due to lower individual charges, offsetting lower net provision releases.
● Commercial Banking recorded volume growth across segments, resulting in net loans and advances to customers increasing by £6.4 billion to £91.3 billion. This included £5.0 billion from the transferred businesses, offset by strategic run-off and sale of selected assets totalling £2.2 billion. Excluding the transferred businesses and strategic run-off and disposals, net new lending was £3.6 billion.
● Customer deposits totalled £88.9 billion, an increase of £4.0 billion reflecting high levels of liquidity in the market.
● RWAs increased £9.1 billion to £72.3 billion in 2015, of which £8.4 billion relates to £5 billion of assets transferred in. The higher capital intensity reflects increased level of undrawn commitments in these transferred businesses.
● The Commercial Banking run-off portfolio includes funded assets of £12.5 billion and RWAs of £8.5 billion.
Private Banking
● Private Banking results exclude the international private banking business.
● Private Banking recorded an adjusted operating profit of £113 million, a fall of £77 million reflecting lower income and higher impairment losses. A charge for goodwill impairment of £498 million attributed to the business drove an operating loss of £470 million, compared with an operating profit of £99 million in 2014.
● Total income was £644 million, a reduction of £45 million from 2014. Net interest income was £436 million, down 4% primarily due to lower net interest margin. Non-interest income totalled £208 million, a decrease of 11% driven by lower investment and transactional income as the business adjusted pricing to reflect a more competitive market.
● Adjusted operating expenses were £518 million, up 3%, with reductions in the direct cost base offset by a higher UK bank levy charge. Operating expenses totalled £1,101 million, an increase of £506 million, driven by a goodwill impairment charge of £498 million, and considerably higher restructuring costs of £73 million which included a share of an asset write down related to software of £91 million, and lower litigation and conduct costs of £12 million.
● Net impairment losses totalled £13 million, compared with a release of £5 million, due to higher individual and latent charges.
● Despite challenging market conditions, assets under management and net loans and advances to customers were broadly stable compared with the prior year.
RBS International
● RBS International (RBSI) operates under the CPB franchise, serving retail, commercial, corporate and financial institution customers in Jersey, Guernsey, Isle of Man and Gibraltar. RBSI is reported as a separate segment for the first time.
● RBSI reported an operating profit of £207 million, £31 million lower than 2014, largely due to lower income from deposits which in turn drove return on equity down to 18.5%, from 24.2%.
● Total income decreased 6% to £367 million, mainly due to reductions in net interest income, falling £20 million to £303 million, principally reflecting lower deposit margins and lower return on free funds partly offset by higher asset volumes. Non-interest income declined £4 million to £64 million as a result of a lower CIB revenue share and lower net lending fees.
Segment performance
RBS International (continued)
● There were no impairments in 2015 compared with modest impairment releases of £7 million in the prior year.
● Operating expenses remained stable at £160 million due to control of direct expenditure offset by a slightly higher UK bank levy charge.
● Net loans and advances to customers increased by £0.1 billion to £7.3 billion. Customer deposit balances grew £0.5 billion to £21.3 billion. The business is a liability heavy business with a loan-to-deposit ratio of 35%.
● RWAs increased by £0.8 billion to £8.3 billion as a result of a change in business mix and foreign exchange movements.
Corporate & Institutional Banking
● Comparisons with prior periods are affected by a number of internal business transfers. In line with changes to the business model, the UK and Western European corporate loan portfolios transferred to Commercial Banking on 1 May 2015 and 1 October 2015
respectively; the Short Term Money markets business was transferred to Treasury on 1 August 2015. The prior period financials were adjusted for the UK Transaction Services business transfer to Commercial Banking which does not affect prior period
comparisons.
● CIB reported an operating loss of £837 million in 2015, compared with an operating loss of £710 million in 2014. This included restructuring costs of £524 million and litigation and conduct costs of £378 million. The adjusted operating loss was £55
million, compared with a profit of £233 million in 2014. The reduction was driven by lower income partially offset by the continued reduction in adjusted expenses, down £249 million, or 15%, to £1,467 million as the business continues to take costs out and
move towards a more sustainable cost base.
● Total income declined by £404 million, or 21%, to £1,527 million in 2015. This includes £120 million relating to own credit adjustments and £98 million relating to the transfer of portfolio businesses to Commercial Banking. Excluding this, CIB income was
£1,309 million, in line with previous guidance. Rates income declined, reflecting the reduced scale and risk appetite of the business. Currencies incurred losses when the Swiss Central Bank unexpectedly removed the Swiss Franc's peg to the Euro. Financing
was impacted by the strategically reduced corporate footprint especially in the US and by lower levels of EMEA investment grade issuance.
● Operating expenses fell by £281 million, or 11%, to £2,369 million in 2015. This includes £35 million relating to the transfer of portfolio businesses to Commercial Banking. Expenses remaining in CIB were £2,334 million. Adjusted operating expenses fell by
£249 million or 15% to £1,467 million as the business reshaped, including a considerable reduction in headcount. Litigation and conduct costs fell by £454 million, or 55%, to £378 million, primarily relating to foreign exchange settlements in the US. This
reduction was offset by an increase in restructuring costs of £422 million to £524 million, primarily relating to property and intangible asset write downs.
● Funded assets fell by £34.4 billion to £103.3 billion as the business continues to work through re-shaping, and included £17 billion (2014 - £20 billion) relating to the transfer to Treasury of the Short Term Markets business and £5 billion from the
transfer of the UK and Western European corporate loan portfolios to Commercial Banking.
● RWAs reduced by £8.8 billion to £33.1 billion compared with £41.9 billion, nearing the end-state target of c.£30 billion. The reduction was primarily driven by the transfer of the UK and Western European portfolio businesses to Commercial Banking.
Segment performance
Capital Resolution
● Capital Resolution consists of CIB Capital Resolution and RBS Capital Resolution (RCR). CIB Capital Resolution was created from non-strategic portfolios from CIB to enable the build of a strong go-forward CIB business. The perimeter was £101 billion of
funded assets on 1 January 2015. RCR was created on 1 January 2014 to de-risk the balance sheet; its original perimeter was £47 billion of funded assets.
● Capital Resolution RWAs reduced from £95.1 billion to £49.0 billion driven by significant reductions across CIB Capital Resolution and RCR, which primarily reflected disposals and repayments activity.
● CIB Capital Resolution reduced RWAs by £32.6 billion to £40.5 billion, achieving its target RWA reduction of £25 billion.
● Capital Resolution made an operating loss of £3,687 million, including income related disposal losses of £367 million, restructuring costs of £1,307 million, together with litigation and conduct costs of £2,105 million primarily relating to additional
provisions for mortgage-backed securities litigation in the US. Adjusted expenses were reduced by £481 million, or 24% to £1,539 million, principally reflecting a fall in headcount of approximately 1,100. Net impairment releases of £725 million were
recorded, primarily in RCR driven by the disposal strategy and favourable market and economic conditions.
● Capital Resolution funded assets fell £62.2 billion to £53.4 billion. CIB Capital Resolution funded assets fell £51.9 billion to £48.8 billion in 2015, primarily due to loan portfolio disposals. RCR funded assets fell £10.3 billion to £4.6 billion, driven
by extensive disposal activity across all asset groups with 533 deals completed in 2015 at an average price of 109% of book value.
● RCR has achieved its asset reduction objective a year ahead of schedule by reducing funded assets by 88% since its formation to £4.6 billion; exceeding the targeted reduction of 85%.
Williams & Glyn
● W&G is in the process of being established as a fully licensed, independent, full-service retail and commercial bank, with its own operating infrastructure and platform. RBS continues to work towards the separation of W&G and to meeting its EC commitments
to fully divest the business by the end of 2017. W&Gs reported segmental results reflect the contribution made by W&G's ongoing business to RBS, as distinct to the financial effects of any disposal transaction. These figures do not reflect the cost base,
funding, liquidity and capital profile of W&G as a standalone bank and does not include certain customer portfolios which are currently reported through other segments within RBS.
● Operating profit was £431 million, compared with a profit of £467 million in 2014. The reduction was principally driven by lower non-interest income and restructuring costs attributed to Commercial Banking, partly offset by a lower net impairment charge.
Adjusted operating profit was down £8 million to £459 million.
● Total income was £833 million, compared with £852 million in 2014. Net interest income reduced £6 million to £658 million due to mortgage margin pressure from the impact of market competition on new business pricing. Net interest margin declined 6 basis
points to 2.87%, due to the aforementioned margin pressure on new mortgage volumes and a reduction in the number of customers on the standard variable rate. Non-interest income fell by 7%, primarily due to lower fee income from credit and debit cards as
well as lower overdraft usage and tariffs.
● Operating expenses totalled £387 million, an increase of £57 million, including a restructuring charge of £28 million in Commercial Banking. Adjusted expenses increased 9% to £359 million as the business continued to stand up the central functions and
operations areas resulting in an increase in staff costs of 7% or £13 million.
Segment performance
Williams & Glyn (continued)
● Net impairment losses were £15 million, lower than the £55 million loss incurred in 2014 due to portfolio provision releases and reduced levels of defaults in portfolios reflecting a benign UK economy.
● Loans and advances grew by £0.4 billion, or 2%, to £20.3 billion. Excluding the transfer of £0.3 billion of commercial lending back to CPB, lending grew £0.7 billion, or 4%, driven by good growth in both mortgage lending and commercial loans. Customer deposits rose £2.1 billion, or 10%, to £24.1 billion with growth in both transactional accounts and savings accounts.
● RWAs fell £0.2 billion to £9.9 billion due to the better credit quality of the overall portfolio.
Central items & other
● Central items not allocated represented a charge of £903 million compared with a charge of £931 million in 2014. This includes restructuring costs relating to Williams & Glyn of £630 million, a write-off of intangible assets of £59 million, a loss of £263
million on the repurchase of certain US dollar, Sterling and Euro senior debt securities and a loss of £67 million on the disposal of available-for-sale securities. These were partially offset by Treasury funding costs, including volatile items under IFRS,
a gain of £169 million. Also included are £56 million of income, £109 million of direct operating expenses and £122 million of indirect operating expenses in relation to the international private banking business. Adjusted operating expenses totalled £231
million, 6% lower than 2014.
Q4 2015
UK Personal & Business Banking
● UK PBB reported an operating loss of £290 million, compared with an operating loss of £115 million in Q4 2014. This was driven by higher restructuring costs of £87 million, an increase of £71 million and lower income. Adjusted operating profit was £404 million, a reduction of £147 million from a year earlier.
● Total income was 9% lower at £1,254 million compared with Q4 2014 as the increasingly competitive mortgage market weighed on net interest income. New business margins were lower coupled with customers rolling off standard variable rate balances and onto lower margin fixed rate products. Deposit re-pricing slightly offset this. NIM decreased to 3.03%, down 34 basis points from Q4 2014 and 16 basis points from Q3 2015. Standard variable rate balances continued to decline and represented 17% of the mortgage
book at 31 December 2015.
● Non-interest income declined 22% to £224 million compared to Q4 2014 primarily due to decline in debit and credit card interchange fees, reward cashback payable (not in prior year) and lower advice income.
● Operating expenses increased 5% to £1,571 million compared to Q4 2014 due to higher restructuring costs of £87 million. Adjusted costs were £877 million, a small increase from Q4 2014. Staff costs fell 3% compared to Q4 2014; however, this was offset by higher bank levy and other costs.
● Total loans and advances to customers increased £3.3 billion from Q3 2015. Mortgage balances recorded a net increase of £3.6 billion from Q3 2015, totalling £104.8 billion. Gross lending in the quarter totalled £7.5 billion, up 8% on Q3 2015. Flow market share in Q4 was 12.1% compared with our stock share of 8.2%.
● Customer deposit balances increased £2.9 billion compared with Q3 2015 due to significant growth in instant access savings and balance growth in both business and personal current accounts.
● RWAs fell £3.3 billion to £33.3 billion compared with Q4 2014 due to lower unsecured balances, improved underlying quality across all products and recalibration benefits.
Segment performance
Ulster Bank RoI
● Ulster Bank RoI operating profit was £19 million, compared with £124 million in Q4 2014, principally due to considerably lower net impairment releases. Adjusted operating profit totalled £9 million, a decrease of £94 million from Q4 2014.
● Total income was £36 million lower than in Q4 2014 at £116 million. This reflected the impact of euro exchange rate movements and reduced income on free funds, somewhat offset by deposit pricing improvement and the benefit of new business lending. Compared with Q3 2015, income was down £48 million largely due to the non-recurring gains in Q3 2015 from the sale of a buy-to-let portfolio of £12 million and the closure of a foreign exchange exposure of £24 million.
● Operating expenses increased £9 million to £107 million compared with Q4 2014 largely due to the benefit of releases on conduct and litigation costs in Q4 2014 partly offset by a benefit from the weakening euro.
● Net impairment releases of £10 million were £60 million lower than the prior year and £44 million lower than Q3 2015. A continued benefit from collections activity was partly offset by the impact of revised assumptions on the residential mortgage portfolio in Q4 2015.
● The low yielding tracker mortgage portfolio reduced from £9.4 billion to £9.2 billion compared with Q3 2015 with RWAs falling £0.1 billion to £7.8 billion.
Commercial Banking
● Commercial Banking recorded an operating profit of £140 million, compared with an operating profit of £231 million in Q4 2014. This was principally driven by a higher charge for UK bank levy and increased restructuring costs.
● Total income was £797 million, a decrease of 6% from Q4 2014. Net interest income increased 1% to £512 million, primarily due to higher asset and deposit volumes combined with higher deposit margins, partially offset by lower asset margins. Non-interest income fell 17% from Q4 2014, driven by reduced equity gains of £7 million, down £30 million, and a loss of £34 million on the sale of non-strategic asset portfolios.
● Operating expenses were £630 million, 8% higher than in Q4 2014, mainly due to increased restructuring costs of £54 million as the pace of business initiatives accelerated and a higher UK bank levy charge. There was a litigation and conduct costs write-back of £8 million compared with a charge of £62 million in Q4 2014. Compared with Q3 2015, operating expenses increased 54% due to the UK bank levy charge.
● Net impairment losses decreased £5 million to £27 million primarily due to lower individual charges.
● Net loans and advances to customers totalled £91.3 billion at the end of 2015, including £3.1 billion from the businesses transferred in Q4 2015. Excluding the transferred businesses, net lending increased £0.4 billion compared with Q3 2015.
● RWAs increased £8.1 billion to £72.3 billion from Q3 2015, including £6.0 billion from the businesses transferred in Q4 2015. Excluding the transferred businesses, RWAs increased £2.1 billion in the quarter, driven by new business and foreign exchange movements.
Private Banking
● Private Banking reported an adjusted operating loss of £13 million, compared with a £25 million profit in Q4 2014 principally due to a higher UK bank levy charge and lower income. A goodwill impairment charge of £498 million attributed to the business led to an operating loss of £516 million, compared with an operating loss of £66 million in Q4 2014.
Segment performance
Private Banking (continued)
● Total income was £158 million, down 7% from Q4 2014, due mainly to lower new business asset margins, lower investment income and reduced deposit income.
● Operating expenses totalled £662 million, an increase from £237 million in Q4 2014. The increase was due to the goodwill impairment charge of £498 million, offset by reductions in litigation and conduct costs. Adjusted operating expenses increased 34% from Q3 2015 due to the UK bank levy.
● Assets under management increased in the quarter from £13.5 billion to £13.9 billion due to market movements.
RBS International
● RBS International reported an operating profit of £55 million, compared with an operating profit of £60 million in Q4 2014.
● Total income fell £6 million against Q4 2014 to £95 million due primarily to lower new business asset margins. Compared with the previous quarter, income increased £8 million due to higher new lending volumes and increased fee income.
● Operating expenses were £40 million, £2 million higher than Q4 2014 due to the increased charge for the UK bank levy.
● Net loans and advances to customers rose £0.3 billion to £7.3 billion in the quarter, mainly from volume growth in the funds sector, partly offset by repayments in local government lending.
● Customer deposits decreased £1.0 billion to £21.3 billion in the quarter as clients looked to manage their cash positions over year end.
Corporate & Institutional Banking
● CIB reported an operating loss of £245 million, compared with an operating loss of £536 million in Q4 2014, reflecting the £365 million reduction in litigation and conduct costs to £5 million. Adjusted operating loss was £112 million compared with £114 million in Q4 2014.
● Total income declined by £37 million to £186 million compared with £223 million in Q4 2014, primarily due to increased losses on own credit adjustments of £66 million compared with £33 million in Q4 2014. Excluding this, total income was £252 million compared with £256 million in Q4 2014. This reflects a significant increase in Rates income offset by a reduction in Currencies and the absence in Q4 2015 of income from the businesses transferred to Commercial Banking.
● Operating expenses reduced by £334 million to £431 million compared with £765 million in Q4 2014, primarily reflecting lower litigation and conduct costs of £5 million, compared with £370 million in Q4 2014, partially offset by an increase in restructuring costs of £43 million to £62 million compared with £19 million in Q4 2014. Adjusted expenses decreased by £12 million to £364 million, reflecting lower back office costs, partially offset by the impact of a one-off staff cost credit in Q4 2014.
● RWAs reduced by £5.7 billion in the quarter to £33.1 billion, driven by the transfer to Commercial Banking of the Western European loan portfolio.
Capital Resolution
● During Q4 2015, Capital Resolution reduced RWAs by £10.7 billion to £49.0 billion, due primarily to the sales of several portfolios in CIB Capital Resolution and disposals and repayments within RCR.
● Capital Resolution funded assets fell £12.6 billion to £53.4 billion. CIB Capital Resolution funded assets fell £10.7 billion, primarily due to the loan portfolio disposals with RCR funded assets reducing £1.9 billion driven by disposal activity across all asset groups.
Segment performance
Capital Resolution (continued)
● Capital Resolution Q4 2015 operating loss of £1,902 million reflected disposal losses within income of £180 million, an increase from £89 million in Q3 2015, and £1,498 million of litigation and conduct costs from provisions for mortgage-backed securities
litigation in the United States. Adjusted operating expenses fell by 20% compared with Q4 2014 to £394 million driven by a reduction in staff costs. Restructuring costs reduced to £104 million in the quarter. Net impairment releases of £356 million were
recorded in Q4 2015 primarily in RCR Ireland driven by a significant disposal of commercial real estate assets.
Williams & Glyn
● Operating profit was £53 million, against a profit of £123 million in Q4 2014 and a profit of £115 million in Q3 2015. This was primarily due to increased operating costs as the business continued to stand up the central functions and operations, in addition to incurring £28 million of costs in relation to the restructuring of Commercial Banking.
● Total income reduced by 4% compared to Q4 2014 due primarily to lower non-interest income, reflecting lower interchange fee income from credit and debit cards. Income was broadly flat compared to Q3 2015.
● Operating expenses were £135 million, an increase of £51 million from Q4 2014 due largely to £28 million of restructuring costs and £9 million higher staff costs as headcount increased. Compared to Q3 2015, costs increased £44 million due to restructuring costs and costs associated with the standing up of central and operations.
● Net impairment losses totalled £20 million, an uplift of £11 million from Q4 2014 and £15 million from Q3 2015 due to a large single corporate charge.
● Loans and advances were flat against Q3 2015. Excluding the transfer of £0.2bn of Commercial lending back to CPB in Q4, lending grew £0.2 billion driven by good growth in mortgage lending. Customer deposits grew £0.5 billion against Q3 2015.
Central items & other
● Central items not allocated represented a charge of £264 million for the quarter compared with a charge of £717 million for Q4 2014. This includes a £263 million loss on the repurchase of certain US dollar, Sterling and Euro senior debt securities and a
£44 million adverse own credit adjustment (Q4 2014 - £61 million charge). Restructuring costs included a charge relating to Williams & Glyn of £181 million and a write-off of intangible assets of £59 million (Q4 2014 - £247 million). Treasury funding
costs, including volatile items under IFRS, recorded a gain of £193 million (Q4 2014 - £323 million).
Statutory results
Consolidated income statement for the period ended 31 December 2015
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2015 2014 2015 2015* 2014
£m £m £m £m £m
Interest receivable 11,925 13,079 2,855 2,963 3,238
Interest payable (3,158) (3,821) (693) (776) (856)
Net interest income 8,767 9,258 2,162 2,187 2,382
Fees and commissions receivable 3,742 4,414 904 880 1,055
Fees and commissions payable (809) (875) (251) (195) (204)
Income from trading activities 1,060 1,285 15 170 (403)
(Loss)/gain on redemption of own debt (263) 20 (263) - -
Other operating income 426 1,048 (83) 141 135
Non-interest income 4,156 5,892 322 996 583
Total income 12,923 15,150 2,484 3,183 2,965
Staff costs (5,726) (5,757) (1,277) (1,562) (1,325)
Premises and equipment (1,827) (2,081) (447) (635) (480)
Other administrative expenses (6,288) (4,568) (3,192) (730) (1,999)
Depreciation and amortisation (1,180) (930) (186) (282) (203)
Write down of goodwill and other intangible assets (1,332) (523) (659) (67) (311)
Operating expenses (16,353) (13,859) (5,761) (3,276) (4,318)
(Loss)/profit before impairment releases (3,430) 1,291 (3,277) (93) (1,353)
Impairment releases 727 1,352 327 79 670
Operating (loss)/profit before tax (2,703) 2,643 (2,950) (14) (683)
Tax (charge)/credit (23) (1,909) 261 3 (1,040)
(Loss)/profit from continuing operations (2,726) 734 (2,689) (11) (1,723)
Profit/(loss) from discontinued operations,
net of tax (1) 1,541 (3,445) 90 1,093 (3,882)
(Loss)/profit for the period (1,185) (2,711) (2,599) 1,082 (5,605)
Non-controlling interests (409) (60) (20) (45) (71)
Preference shares (297) (330) (74) (80) (99)
Other owners (88) (49) (47) (17) (16)
Dividend access share - (320) - - -
(Loss)/profit attributable to ordinary shareholders (1,979) (3,470) (2,740) 940 (5,791)
(Loss)/earnings per ordinary share (EPS) (2)
Basic EPS from continuing and discontinued operations (17.2p) (30.6p) (23.6p) 8.1p (50.7p)
Basic EPS from continuing operations (27.7p) 0.5p (24.5p) (1.0p) (16.2p)
* Restated, refer to Note 1 on page 46 for further details.
Notes:
(1) Refer to Note 2 on page 46 for further details.
(2) Diluted EPS from discontinued operations was 0.1p less than basic EPS in the year ended 31 December 2015. There was no dilution in any other period.
Statutory results
Consolidated statement of comprehensive income for the period ended 31 December 2015
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2015 2014* 2015 2015* 2014*
£m £m £m £m £m
(Loss)/profit for
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