REG - Royal Bk Scot.Grp. - Final Results <Origin Href="QuoteRef">RBS.L</Origin> - Part 4
23/02/2018 07:06
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(subject to the appeal by PAG) may have significance to other similar
LIBOR-related cases currently pending in the English courts, some of which
involve substantial amounts.
The case of London Bridge Holdings Ltd and others v RBS plc remains stayed
pending the outcome of the PAG appeal. The sum claimed in that case is £446.7
million.
As previously disclosed, In addition to claims alleging that IRHPs were
mis-sold, RBS has received a number of claims involving allegations that it
breached a legal duty of care in its conduct of the FCA redress programme.
These claims have been brought by customers who are dissatisfied with redress
offers made to them through the FCA redress programme. The claims followed a
preliminary decision against another UK bank. RBS has since been successful in
opposing an application by a customer to amend its pleadings to include
similar claims against RBS, on the basis that the bank does not owe a legal
duty of care to customers in carrying out the FCA review. An appeal of that
decision was dismissed in July 2017 and permission to further appeal was
refused by the UK Supreme Court in December 2017.
Investigations and reviews
RMBS and other securitised products investigations
As previously disclosed and as noted in Note 31 in the 2017 RBS Annual Report
and Accounts, in the US, RBS is involved in reviews, investigations and
proceedings by federal and state governmental law enforcement and other
agencies and self-regulatory organisations, including, among others, ongoing
active investigations by the US Department of Justice and several state
attorneys general relating primarily to due diligence on and disclosure
related to loans purchased for, or otherwise included in, securitisations and
related disclosures.
As at 31 December 2017, the total aggregate of provisions in relation to
certain of the RMBS investigations and RMBS litigation matters (set out under
"Litigation, investigations and reviews" in Note 31) was £3.2 billion (US$4.4
billion).
RBS continues to cooperate with the DOJ and with certain state attorneys
general in their investigations of RMBS matters. The duration, timing for
resolution and outcome of these investigations and RMBS litigation matters
remain uncertain, including in respect of whether settlements for all or any
of such matters may be reached. Further substantial provisions and costs may
be recognised and, depending on the final outcome, other adverse consequences
may occur as described above and in the Risk Factor relating to legal,
regulatory and governmental actions and investigations set out on page 372 of
the Annual Report and Accounts.
In December 2017, RBS Financial Products Inc. agreed to pay US$125 million to
settle the RMBS investigation of the California Attorney General. Payment has
been made from a previously established provision. RBS is in advanced
discussions with the New York Attorney General to resolve its investigation,
although there is no certainty that any settlement will be reached.
Notes
4. Material developments in litigation, investigations and reviews continued
FCA review of RBS's treatment of SMEs
As previously disclosed, the FCA is conducting a review into the treatment of
small and medium enterprise (SME) customers in RBS's former Global
Restructuring Group (GRG) between 2008 and 2013.
The FCA published its final summary of the Skilled Person's report on 28
November 2017. The UK House of Commons Treasury Select Committee, seeking to
rely on Parliamentary powers, published the full version of the Skilled
Person's report on 20 February 2018.
FCA investigation into RBS plc's compliance with the Money Laundering
Regulations 2007
As previously disclosed, on 21 July 2017, the FCA notified RBS that it was
undertaking an investigation into RBS plc's compliance with the Money
Laundering Regulations 2007 in relation to certain customers. Following
amendment to the scope of the investigation, there are currently three areas
under review: (1) compliance with Money Laundering Regulations in respect of
Money Service Business customers; (2) compliance with the Terrorism Act 2000
in relation to sanctions screening; and (3) the Suspicious Transactions
regime in relation to the events surrounding a particular customer. The
investigations in all three areas are assessing both criminal and civil
culpability. RBS is cooperating with the investigations.
UK retail banking
On 19 December 2017, the UK Competition & Markets Authority (CMA)
published directions for RBS and other four other banks, which set out revised
implementation dates for the delivery of certain obligations relating to open
banking under the Retail Banking Market Investigation Order 2017. On 29
January 2018 the CMA published separate directions for RBS, which set out
revised implementation dates for the delivery of certain obligations requiring
personal current account overdraft alerts to be sent to customers under the
Order.
Notes
5. Related party transactions
UK Government
The UK Government and bodies controlled or jointly controlled by the UK
Government and bodies over which it has significant influence are related
parties of the Group. The Group enters into transactions with many of these
bodies on an arm's length basis.
Bank of England facilities
In the ordinary course of business, the Group may from time to time access
market-wide facilities provided by the Bank of England.
The Group's other transactions with the UK Government include the payment of
taxes, principally UK corporation tax and value added tax; national insurance
contributions; local authority rates; and regulatory fees and levies
(including the bank levy and FSCS levies).
Interests in associates
Transactions with associates have given rise to the following:
2017 2016
£m £m
Loans and advances 130 156
Customer deposits 111 64
Total income 28 30
Operating expenses 23 8
Other related parties
(a) In their roles as providers of finance, Group companies provide
development and other types of capital support to businesses. These
investments are made in the normal course of business and on arm's length
terms. In some instances, the investment may extend to ownership or control
over 20% or more of the voting rights of the investee company. However, these
investments are not considered to give rise to transactions of a materiality
requiring disclosure under IAS 24.
(b) The Group recharges The Royal Bank of Scotland Group Pension Fund with the
cost of administration services incurred by it. The amounts involved are not
material to the Group.
Full details of the Group's related party transactions for the year ended 31
December 2017 are included in the 2017 Annual Report and Accounts.
6. Post balance sheet events
Other than matters disclosed, there have been no further significant events
between 31 December 2017 and the date of approval of this announcement.
Statement of directors' responsibilities
The responsibility statement below has been prepared in connection with the
Group's full Annual Report and Accounts for the year ended 31 December 2017.
We, the directors listed below, confirm that to the best of our knowledge:
· the financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the company and
the undertakings included in the consolidation taken as a whole; and
· the Strategic Report and Directors' report (incorporating the
Business review) include a fair review of the development and performance of
the business and the position of the company and the undertakings included in
the consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
By order of the Board
Howard Davies Ross McEwan Ewen Stevenson
Chairman Chief Executive Chief Financial Officer
22 February 2018
Board of directors
Chairman Executive directors Non-executive directors
Howard Davies Ross McEwan Frank Dangeard
Ewen Stevenson Alison Davis
Morten Friis
Robert Gillespie
John Hughes
Penny Hughes
Yasmin Jetha
Brendan Nelson
Sheila Noakes
Mike Rogers
Mark Seligman
Dr Lena Wilson
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', 'plan',
'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal',
'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and
similar expressions or variations on these expressions.
In particular, this document includes forward-looking statements relating, but
not limited to: future profitability and performance, including financial
performance targets such as return on tangible equity; cost savings and
targets, including cost:income ratios; litigation and government and
regulatory investigations, including the timing and financial and other
impacts thereof; structural reform and the implementation of the UK
ring-fencing regime; the implementation of RBS's transformation programme,
including the further restructuring of the NatWest Markets franchise; the
satisfaction of the Group's residual EU State Aid obligations; the
continuation of RBS's balance sheet reduction programme, including the
reduction of risk-weighted assets (RWAs) and the timing thereof; capital and
strategic plans and targets; capital, liquidity and leverage ratios and
requirements, including CET1 Ratio, RWA equivalents (RWAe), Pillar 2 and other
regulatory buffer requirements, minimum requirement for own funds and eligible
liabilities, and other funding plans; funding and credit risk profile;
capitalisation; portfolios; net interest margin; customer loan and income
growth; the level and extent of future impairments and write-downs, including
with respect to goodwill; restructuring and remediation costs and charges;
future pension contributions; RBS's exposure to political risks, operational
risk, conduct risk, cyber and IT risk and credit rating risk and to various
types of market risks, including as interest rate risk, foreign exchange rate
risk and commodity and equity price risk; customer experience including our
Net Promoter Score (NPS); employee engagement and gender balance in leadership
positions.
Limitations inherent to forward-looking statements
These statements are based on current plans, estimates, targets and
projections, and are subject to significant inherent risks, uncertainties and
other factors, both external and relating to the Group's strategy or
operations, which may result in the Group being unable to achieve the current
targets, predictions, expectations 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 gains and losses could
differ materially from those that have been estimated. Accordingly, undue
reliance should not be placed on these statements. Forward-looking statements
speak only as of the date we make them and we expressly disclaim any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in the
Group's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
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 we describe in this
document, including in the risk factors and other uncertainties set out in the
Group's 2017 Annual Report and other risk factors and uncertainties discussed
in this document. These include the significant risks for RBS presented by the
outcomes of the legal, regulatory and governmental actions and investigations
that RBS is or may be subject to and any resulting material adverse effect on
RBS of unfavourable outcomes and the timing thereof (including where resolved
by settlement); economic, regulatory and political risks, including as may
result from the uncertainty arising from Brexit and from the outcome of
general elections in the UK and changes in government policies; RBS's ability
to satisfy its residual EU State Aid obligations and the timing thereof; RBS's
ability to successfully implement the significant and complex restructuring
required to be undertaken in order to implement the UK ring-fencing regime and
related costs; RBS's ability to successfully implement the various initiatives
that are comprised in its restructuring and transformation programme,
particularly the proposed further restructuring of the NatWest Markets
franchise, the balance sheet reduction programme and its significant
cost-saving initiatives and whether RBS will be a viable, competitive,
customer focused and profitable bank especially after its restructuring and
the implementation of the UK ring-fencing regime; the dependence of the
Group's operations on its IT systems; the exposure of RBS to cyber-attacks and
its ability to defend against such attacks; RBS's ability to achieve its
capital, funding, liquidity and leverage requirements or targets which will
depend in part on RBS's success in reducing the size of its business and
future profitability as well as developments which may impact its CET1 capital
including additional litigation or conduct costs, additional pension
contributions, further impairments or accounting changes; ineffective
management of capital or changes to regulatory requirements relating to
capital adequacy and liquidity or failure to pass mandatory stress tests;
RBS's ability to access sufficient sources of capital, liquidity and funding
when required; changes in the credit ratings of RBS, RBS entities or the UK
government; declining revenues resulting from lower customer retention and
revenue generation in light of RBS's strategic refocus on the UK; as well as
increasing competition from new incumbents and disruptive technologies.
Forward-looking statements
In addition, there are other risks and uncertainties that could adversely
affect our results, ability to implement our strategy, cause us to fail to
meet our targets or the accuracy of forward-looking statements in this
document. These include operational risks that are inherent to RBS's business
and will increase as a result of RBS's significant restructuring and
transformation initiatives being concurrently implemented; the potential
negative impact on RBS's business of global economic and financial market
conditions and other global risks, including risks arising out of geopolitical
events and political developments; the impact of a prolonged period of low
interest rates or unanticipated turbulence in interest rates, yield curves,
foreign currency exchange rates, credit spreads, bond prices, commodity
prices, equity prices; basis, volatility and correlation risks; the extent of
future write-downs and impairment charges caused by depressed asset
valuations; deteriorations in borrower and counterparty credit quality;
heightened regulatory and governmental scrutiny (including by competition
authorities) and the increasingly regulated environment in which RBS operates
as well as divergences in regulatory requirements in the jurisdictions in
which RBS operates; the risks relating to RBS's IT systems or a failure to
protect itself and its customers against cyber threats, reputational risks;
risks relating to increased pension liabilities and the impact of pension risk
on RBS's capital position, including on any requisite management buffer; risks
relating to the failure to embed and maintain a robust conduct and risk
culture across the organisation or if its risk management framework is
ineffective; RBS's ability to attract and retain qualified personnel;
limitations on, or additional requirements imposed on, RBS's activities as a
result of HM Treasury's investment in RBS; the value and effectiveness of any
credit protection purchased by RBS; risks relating to the reliance on
valuation, capital and stress test models and any inaccuracies resulting
therefrom or failure to accurately reflect changes in the micro and
macroeconomic environment in which RBS operates, risks relating to changes in
applicable accounting policies or rules which may impact the preparation of
RBS's financial statements or adversely impact its capital position; the
impact of the recovery and resolution framework and other prudential rules to
which RBS is subject; the application of stabilisation or resolution powers in
significant stress situations; contribution to relevant compensation
schemes; the execution of the run-down and/or sale of certain portfolios and
assets; the recoverability of deferred tax assets by the Group; and the
success of RBS in managing the risks involved in the foregoing.
The forward-looking statements contained in this document speak only as at the
date hereof, and RBS does not assume or undertake any obligation or
responsibility to update any forward-looking statement to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
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 solicit of any offer to buy any securities or financial instruments or any
advice or recommendation with respect to such securities or other financial
instruments.
Presentation of information
In this document, 'RBSG plc' or the 'parent company' refers to The Royal Bank
of Scotland Group plc, and 'RBS' or the 'Group' refers to RBSG plc and its
subsidiaries.
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 2016 have been
filed with the Registrar of Companies and those for the year ended 31 December
2017 will be filed with the Registrar of Companies following the company's
Annual General Meeting. 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.
The condensed consolidated income statement, condensed consolidated statement
of comprehensive income, condensed consolidated balance sheet, condensed
consolidated statement of changes in equity, condensed consolidated cash flow
statement and related notes presented on pages 33 to 44 inclusive are
presented on a statutory basis as described in Note 1.
Key operating indicators
As described in Note 1 on 4 40, RBS 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
financial measures. These measures exclude certain items which management
believe are not representative of the underlying performance of the business
and which distort period-on-period comparison. These measures include:
● 'Adjusted' measures of financial performance, principally operating
performance before: own credit adjustments; gain or loss on redemption of own
debt; strategic disposals; restructuring costs and litigation and conduct
costs;
● Performance, funding and credit metrics such as 'return on tangible equity',
'adjusted return on tangible equity' and related RWA equivalents incorporating
the effect of capital deductions (RWAes), total assets excluding derivatives
(funded assets), net interest margin (NIM) adjusted for items designated at
fair value through profit or loss (non-statutory NIM), cost:income ratio,
loan:deposit ratio and REIL/impairment provision ratios. These are internal
metrics used to measure business performance;
● Personal & Business Banking (PBB) franchise results, combining the
reportable segments of UK Personal & Business Banking (UK PBB) and Ulster
Bank RoI, Commercial & Private Banking (CPB) franchise results, combining
the reportable segments of Commercial Banking and Private Banking and 'core
businesses' results combining PBB, CPB, RBS International (RBSI) and NatWest
Markets results which are presented to provide investors with a summary of the
Group's business performance; and
● Cost savings progress and 2017 target calculated using operating expenses
excluding litigation and conduct costs, restructuring costs and the VAT
recoveries.
Presentation of operating performance from Q1 2018
As previously indicated, and reflecting the progress RBS has made in resolving
its legacy issues and becoming a simpler bank, from Q1 2018 financial
performance and key performance indicators will no longer be reported on an
'adjusted' basis. We will continue to provide detail of notable items on
memorandum lines where they materially distort comparisons with prior periods.
Segmental reorganisation and business transfers
RBS continues to deliver on its plan to build a strong, simple and fair bank
for both customers and shareholders. To support this, and in preparation for
the UK ring-fencing regime, the previously reported operating segments
were realigned in Q4 2017 and a number of business transfers completed.
Segmental reorganisation
The previously reported operating segments are now realigned and comparatives
have been re-presented as follows:
· The former Williams & Glyn reportable operating segment has
been integrated into the UK PBB reportable segment;
· The former Capital Resolution reportable operating segment has
been integrated into the NatWest Markets reportable segment, with the
exception of the costs in relation to the RMBS claims, which have been
transferred to the Central items & other reportable segment;
· The RBSI reportable operating segment is no longer presented
within the CPB franchise.
Business transfers
Unless otherwise stated on 1 October 2017 the following changes were made to
RBS's businesses, which impacts its financial reporting but where comparatives
have not been re-presented:
· Shipping and other activities, which were formerly in the Capital
Resolution reportable operating segment, were transferred from the NatWest
Markets reportable operating segment to the Commercial Banking reportable
operating segment.
· UK PBB Collective Investment Funds (CIFL) business was
transferred to the Private Banking reportable operating segment in order to
better serve customers.
· The RBS International (RBSI) reportable operating segment was
aligned to the legal entity The Royal Bank of Scotland International
(Holdings) Limited. This predominantly involved transfers from the Private
Banking reportable operating segment, and Services and Functions within
Central items & other in preparation for the implementation of the UK
ring-fencing regime.
· Commercial Banking whole business securitisations and relevant
financial institutions (RFI) were transferred to NatWest Markets during
December 2017. RFIs are prohibited from being within the ring-fence due to
their nature and exposure to global financial markets. The move is in
preparation for the implementation of the UK ring-fencing regime.
Presentation of information
Segmental reorganisation and business transfers continued
Reportable operating segments
Following the changes above the reportable operating segments are as follows,
for full business descriptions see page 110 of the Report of the directors and
Note 37 in the 2017 Annual Report and Accounts:
Franchise Reportable operating segment
Personal & Business Banking (PBB) UK Personal & Business Banking (UK PBB)
Ulster Bank RoI
Commercial & Private Banking (CPB) Commercial Banking
Private Banking
Other reportable segments RBS International (RBSI)
NatWest Markets
Central items & other
Contacts
Analyst enquiries: Matt Waymark Investor Relations +44 (0) 207 672 1758
Media enquiries: RBS Press Office +44 (0) 131 523 4205
Analyst and investor presentation Fixed Income Web cast and dial in details
Date: Friday 23 February 2018 Friday 23 February 2018 www.rbs.com/results (http://www.rbs.com/results)
Time: 9:30 am UK time 1:30 pm UK time International - +44 (0) 20 3009 5755
Conference ID: 3294479 8735879 UK Free Call - 0800 279 6637
US Local Dial-In, New York - 1 646 517 5063
Available on www.rbs.com/results (http://www.rbs.com/results)
● Announcement and slides
● Annual Report and Accounts 2017
● A financial supplement containing income statement, balance sheet and segment
performance for the nine quarters ended 31 December 2017
● Pillar 3 Report 2017
● IFRS 9 Transition Report
Appendix
Segmental income statement reconciliations
Segmental income statement reconciliations
PBB CPB Central
Ulster Commercial Private RBS Natwest items & Total
UK PBB Bank RoI Banking Banking International Markets other RBS
Year ended 31 December 2017 £m £m £m £m £m £m £m £m
Income statement
Total income - statutory 6,477 604 3,484 678 389 1,050 451 13,133
Own credit adjustments - 3 - - - 66 - 69
Loss on redemption of own debt - - - - - - 7 7
Strategic disposals - - - - - (26) (321) (347)
Total income - adjusted 6,477 607 3,484 678 389 1,090 137 12,862
Operating expenses - statutory (3,829) (676) (2,014) (529) (219) (2,201) (933) (10,401)
Restructuring costs - direct 79 27 48 20 5 319 1,067 1,565
- indirect 382 29 119 25 4 117 (676) -
Litigation and conduct costs 210 169 33 39 8 237 589 1,285
Operating expenses - adjusted (3,158) (451) (1,814) (445) (202) (1,528) 47 (7,551)
Impairment (losses)/releases (235) (60) (362) (6) (3) 174 (1) (493)
Operating profit/(loss) - statutory 2,413 (132) 1,108 143 167 (977) (483) 2,239
Operating profit/(loss) - adjusted 3,084 96 1,308 227 184 (264) 183 4,818
Additional information
Return on equity (1) 23.7% (5.0%) 6.6% 6.4% 11.2% (9.0%) nm 2.2%
Return on equity - adjusted (1,2) 30.7% 3.6% 8.2% 11.3% 12.6% (3.7%) nm 8.8%
Cost:income ratio (3) 59.1% 111.9% 56.0% 78.0% 56.3% nm nm 79.0%
Cost:income ratio - adjusted (2,3) 48.8% 74.3% 50.0% 65.6% 51.9% 140.2% nm 58.2%
Year ended 31 December 2016
Income statement
Total income - statutory 6,127 576 3,415 657 374 1,212 229 12,590
Own credit adjustments - (3) - - - (187) 10 (180)
Loss on redemption of own debt - - - - - - 126 126
Strategic disposals - - - - - 81 (245) (164)
Total income - adjusted 6,127 573 3,415 657 374 1,106 120 12,372
Operating expenses - statutory (4,276) (669) (2,467) (549) (174) (2,824) (5,235) (16,194)
Restructuring costs - direct 46 38 25 7 2 75 1,913 2,106
- indirect 198 2 83 30 3 115 (431) -
Litigation and conduct costs 634 172 423 1 - 550 4,088 5,868
Operating expenses - adjusted (3,398) (457) (1,936) (511) (169) (2,084) 335 (8,220)
Impairment (losses)/releases (125) 113 (206) 3 (10) (253) - (478)
Operating profit/(loss) - statutory 1,726 20 742 111 190 (1,865) (5,006) (4,082)
Operating profit/(loss) - adjusted 2,604 229 1,273 149 195 (1,231) 455 3,674
Additional information
Return on equity (1) 16.2% 0.7% 4.1% 5.6% 13.8% (12.5%) nm (17.9%)
Return on equity - adjusted (1,2) 25.1% 8.4% 8.4% 7.8% 14.2% (8.7%) nm 1.6%
Cost:income ratio (3) 69.8% 116.1% 71.0% 83.6% 46.5% nm nm 129.0%
Cost:income ratio - adjusted (2,3) 55.5% 79.8% 54.8% 77.8% 45.2% 188.4% nm 66.0%
For notes refer to page 3 of this appendix.
Segmental income statement reconciliations
PBB CPB Central
Ulster Commercial Private RBS NatWest items & Total
UK PBB Bank RoI Banking Banking International Markets other RBS
Quarter ended 31 December 2017 £m £m £m £m £m £m £m £m
Income statement
Total income - statutory 1,548 161 806 191 97 200 54 3,057
Own credit adjustments - - - - - (9) - (9)
Strategic disposals - - - - - (26) (165) (191)
Total income - adjusted 1,548 161 806 191 97 165 (111) 2,857
Operating expenses - statutory (1,266) (254) (575) (194) (66) (583) (468) (3,406)
Restructuring costs - direct 55 2 6 19 3 129 317 531
- indirect 198 2 23 9 - 13 (245) -
Litigation and conduct costs 197 135 27 39 - 51 315 764
Operating expenses - adjusted (816) (115) (519) (127) (63) (390) (81) (2,111)
Impairment (losses)/releases (60) (81) (117) (2) - 26 - (234)
Operating profit/(loss) - statutory 222 (174) 114 (5) 31 (357) (414) (583)
Operating profit/(loss) - adjusted 672 (35) 170 62 34 (199) (192) 512
Additional information
Return on equity (1) 7.8% (26.5%) 1.3% (2.9%) 9.2% (14.0%) nm (6.7%)
Return on equity - adjusted (1,2) 26.2% (5.3%) 3.1% 12.1% 10.4% (8.7%) nm 4.0%
Cost:income ratio (3) 81.8% 157.8% 70.0% 101.6% 68.0% nm nm 111.5%
Cost:income ratio - adjusted (2,3) 52.7% 71.4% 62.8% 66.5% 64.9% nm nm 73.6%
Quarter ended 30 September 2017
Income statement
Total income - statutory 1,757 150 928 166 97 20 39 3,157
Own credit adjustments - - - - - 5 - 5
Total income - adjusted 1,757 150 928 166 97 25 39 3,162
Operating expenses - statutory (819) (129) (443) (103) (59) (526) (64) (2,143)
Restructuring costs - direct 1 1 2 1 2 29 208 244
- indirect 47 8 19 2 - 28 (104) -
Litigation and conduct costs - 1 2 - 8 102 12 125
Operating expenses - adjusted (771) (119) (420) (100) (49) (367) 52 (1,774)
Impairment (losses)/releases (78) 10 (151) 3 2 71 - (143)
Operating profit/(loss) - statutory 860 31 334 66 40 (435) (25) 871
Operating profit/(loss) - adjusted 908 41 357 69 50 (271) 91 1,245
Additional information
Return on equity (1) 34.2% 4.6% 8.6% 13.2% 10.4% (15.4%) nm 4.5%
Return on equity - adjusted (1,2) 36.2% 6.1% 9.3% 13.8% 13.6% (10.3%) nm 8.2%
Cost:income ratio (3) 46.6% 86.0% 45.7% 62.0% 60.8% nm nm 67.5%
Cost:income ratio - adjusted (2,3) 43.9% 79.3% 43.1% 60.2% 50.5% nm nm 55.6%
For notes refer to next page.
Segmental income statement reconciliations
PBB CPB Central
Ulster Commercial Private RBS NatWest items & Total
UK PBB Bank RoI Banking Banking International Markets other RBS
Quarter ended 31 December 2016 £m £m £m £m £m £m £m £m
Income statement
Total income - statutory 1,556 137 867 161 96 (8) 407 3,216
Own credit adjustments - - - - - 37 77 114
Gain on redemption of own debt - - - - - - (1) (1)
Total income - adjusted 1,556 137 867 161 96 29 483 3,329
Operating expenses - statutory (1,139) (226) (1,009) (159) (64) (1,149) (3,608) (7,354)
Restructuring costs - direct 1 6 12 6 1 24 957 1,007
- indirect 50 (2) 34 8 1 30 (121) -
Litigation and conduct costs 214 77 407 (1) 1 581 2,849 4,128
Operating expenses - adjusted (874) (145) (556) (146) (61) (514) 77 (2,219)
Impairment (losses)/releases (27) 47 (83) 8 1 130 (1) 75
Operating profit/(loss) - statutory 390 (42) (225) 10 33 (1,027) (3,202) (4,063)
Operating profit/(loss) - adjusted 655 39 228 23 36 (355) 559 1,185
Additional information
Return on equity (1) 15.1% (5.8%) (9.1%) 1.6% 8.8% (27.0%) nm (48.2%)
Return on equity - adjusted (1,2) 26.2% 5.4% 5.3% 4.5% 9.8% (10.3%) nm 8.6%
Cost income ratio (3) 73.2% 165.0% 117.1% 98.8% 66.7% nm nm 230.2%
Cost income ratio - adjusted (2,3) 56.2% 105.8% 62.6% 90.7% 63.5% nm nm 66.3%
Notes:
(1) RBS's CET1 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), 16% (RBS International - 12% prior to November 2017)
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.
(2) Excluding own credit adjustments, (loss)/gain on redemption of own debt,
strategic disposals, restructuring costs and litigation and conduct costs.
(3) Operating lease depreciation included in income (year ended 31 December 2017 -
£142 million; year ended December 2016 - £152 million; Q4 2017 - £35
million; Q3 2017 - £35 million; Q4 2016 - £37 million).
Legal Entity Identifier: 2138005O9XJIJN4JPN90
This information is provided by RNS
The company news service from the London Stock Exchange
llion, adjusting for transfers(1), mainly reflecting disposal activity.
Note:
(1) Shipping and other activities which were formerly in Capital Resolution, were transferred to Commercial Banking on 1 October 2017, including total funded assets of £3.3 billion, net loans and advances to customers of £2.6 billion, and RWAs of £2.1 billion. Whole business securitisations and relevant financial institutions (RFI) were transferred from Commercial Banking during December 2017, including net loans and advances to customers of £0.8 billion, and RWAs of £0.6 billion. Comparatives were not re
-presented for these transfers.
Segment performance
Q4 2017 compared with Q3 2017
● An operating loss of £357 million compared with £435 million in Q3 2017 reflecting higher income partially offset by higher restructuring costs. Adjusted income in the core business decreased by £117 million to £284 million, reflecting seasonally lower customer activity and more challenging market conditions in Q4 2017.
● Adjusted operating expenses increased by £23 million to £390 million principally due to the annual UK bank levy charge, £28 million.
● Adjusting for transfers(1), RWAs decreased by £0.5 billion to £52.9 billion and funded assets decreased by £13.7 billion to £118.7 billion principally reflecting ongoing reductions in the legacy business and seasonally lower balances in the core business.
Q4 2017 compared with Q4 2016
● Adjusted income of £165 million was £136 million higher than Q4 2016 largely reflecting lower legacy business disposal losses. In the core business, adjusted income of £284 million was £30 million, or 9.6%, lower than Q4 2016 primarily due to lower levels of customer activity.
● Legacy disposal losses, other adjustments and impairments decreased by £83 million to £112 million.
● Adjusted expenses decreased by £124 million to £390 million driven by headcount reductions in the legacy business.
Central items
2017 compared with 2016
● Central items not allocated represented a charge of £483 million in 2017, compared with a £5,006 million charge in 2016, and included litigation and conduct costs of £589 million, compared with £4,088 million in 2016. Treasury funding costs were a charge
of £58 million, compared with a charge of £94 million in 2016. Restructuring costs in the year included £94 million relating to the former Williams & Glyn business, compared with £1,399 million in 2016. In addition to a VAT recovery of £86 million,
compared with £227 million in 2016, a £156 million gain on the sale of Vocalink and a £135 million gain in relation to the sale of EuroClear(2).
Q4 2017 compared with Q3 2017
● Central items not allocated represented a charge of £414 million in the quarter, compared with a £25 million charge in Q3 2017, and included litigation and conduct costs of £315 million, compared with £12 million in Q3 2017. Q4 2017 Treasury funding costs
were a charge of £129 million, compared with £61 million in Q3 2017, and included a £173 million IFRS volatility charge.
Q4 2017 compared with Q4 2016
● Central items not allocated represented a charge of £414 million in the quarter, compared with a £3,202 million charge in Q4 2016, and included litigation and conduct costs of £315 million, compared with £2,849 million in 2016. Q4 2017 Treasury funding
costs were a charge of £129 million, compared with a gain of £465 million in Q4 2016, and included a £173 million IFRS volatility charge and an FX loss of £8 million, compared with a £308 million IFRS volatility gain and a £140 million FX gain in Q4 2016.
Note:
(1) Shipping and other activities which were formerly in Capital Resolution, were transferred to Commercial Banking on 1 October 2017, including total funded assets of £3.3 billion, net loans and advances to customers of £2.6 billion, and RWAs of £2.1 billion. Whole business securitisations and relevant financial institutions (RFI) were transferred from Commercial Banking during December 2017, including net loans and advances to customers of £0.8 billion, and RWAs of £0.6 billion. Comparatives were not re
-presented for these transfers.
(2) The total gain in relation to the sale of Euroclear was £161 million, of which £135 million central items and £26 million NatWest Markets.
Condensed consolidated income statement for the period ended 31 December 2017
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
£m £m £m £m £m
Interest receivable 11,034 11,258 2,754 2,818 2,770
Interest payable (2,047) (2,550) (543) (514) (562)
Net interest income (1) 8,987 8,708 2,211 2,304 2,208
Fees and commissions receivable 3,338 3,340 846 826 821
Fees and commissions payable (883) (805) (231) (204) (213)
Income from trading activities 634 974 (198) (52) 590
(Loss)/gain on redemption of own debt (7) (126) - - 1
Other operating income 1,064 499 429 283 (191)
Non-interest income 4,146 3,882 846 853 1,008
Total income 13,133 12,590 3,057 3,157 3,216
Staff costs (4,676) (5,124) (1,100) (1,129) (1,142)
Premises and equipment (1,565) (1,388) (524) (363) (382)
Other administrative expenses (3,323) (8,745) (1,587) (528) (5,511)
Depreciation and amortisation (808) (778) (178) (119) (249)
Write down of other intangible assets (29) (159) (17) (4) (70)
Operating expenses (10,401) (16,194) (3,406) (2,143) (7,354)
Profit/(loss) before impairment
(losses)/releases 2,732 (3,604) (349) 1,014 (4,138)
Impairment (losses)/releases (493) (478) (234) (143) 75
Operating profit/(loss) before tax 2,239 (4,082) (583) 871 (4,063)
Tax (charge)/credit (824) (1,166) 168 (265) (244)
Profit/(loss) for the period 1,415 (5,248) (415) 606 (4,307)
Attributable to:
Non-controlling interests 35 10 14 (8) (27)
Preference share and other dividends 628 504 150 222 161
Dividend access share - 1,193 - - -
Ordinary shareholders 752 (6,955) (579) 392 (4,441)
Earnings/(loss) per ordinary share (EPS)
Earnings/(loss) per ordinary share (2) 6.3p (59.5p) (4.9p) 3.3p (37.7p)
Notes:
(1) Negative interest on loans and advances is classed as interest payable. Negative interest on customer deposits is classed as interest receivable.
(2) There is no dilutive impact in any period.
Condensed consolidated statement of comprehensive income for the period ended 31 December 2017
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
£m £m £m £m £m
Profit/(loss) for the period 1,415 (5,248) (415) 606 (4,307)
Items that do not qualify for reclassification
Gain/(loss) on remeasurement of retirement benefit schemes 90 (1,049) 116 - (2)
Loss on fair value of credit in financial liabilities
designated at fair value through profit or loss
due to own credit risk (126) - (19) (30) -
Tax (10) 288 (5) 3 3
(46) (761) 92 (27) 1
Items that do qualify for reclassification
Available-for-sale financial assets 26 (94) (11) 8 68
Cash flow hedges (1,069) 765 (86) (372) (750)
Currency translation 100 1,263 18 (21) (13)
Tax 256 (106) 19 76 191
(687) 1,828 (60) (309) (504)
Other comprehensive (loss)/income after tax (733) 1,067 32 (336) (503)
Total comprehensive income/(loss) for the period 682 (4,181) (383) 270 (4,810)
Total comprehensive income/(loss) is attributable to:
Non-controlling interests 52 121 22 (19) (36)
Preference shareholders 234 260 79 70 68
Paid-in equity holders 394 244 71 152 93
Dividend access share - 1,193 - - -
Ordinary shareholders 2 (5,999) (555) 67 (4,935)
682 (4,181) (383) 270 (4,810)
Condensed consolidated balance sheet as at 31 December 2017
31 December 30 September 31 December
2017 2017 2016
£m £m £m
Assets
Cash and balances at central banks 98,337 88,210 74,250
Net loans and advances to banks 16,254 16,671 17,278
Reverse repurchase agreements and stock borrowing 13,997 12,905 12,860
Loans and advances to banks 30,251 29,576 30,138
Net loans and advances to customers 323,184 324,650 323,023
Reverse repurchase agreements and stock borrowing 26,735 23,767 28,927
Loans and advances to customers 349,919 348,417 351,950
Debt securities 78,933 87,860 72,522
Equity shares 450 507 703
Settlement balances 2,517 8,528 5,526
Derivatives 160,843 171,720 246,981
Intangible assets 6,543 6,484 6,480
Property, plant and equipment 4,602 4,777 4,590
Deferred tax 1,740 1,637 1,803
Prepayments, accrued income and other assets 3,921 4,046 3,713
Total assets 738,056 751,762 798,656
Liabilities
Bank deposits 39,479 36,186 33,317
Repurchase agreements and stock lending 7,419 7,047 5,239
Deposits by banks 46,898 43,233 38,556
Customer deposits 367,034 359,879 353,872
Repurchase agreements and stock lending 31,002 33,245 27,096
Customer accounts 398,036 393,124 380,968
Debt securities in issue 30,559 31,700 27,245
Settlement balances 2,844 9,094 3,645
Short positions 28,527 31,793 22,077
Derivatives 154,506 164,394 236,475
Provisions for liabilities and charges 7,757 7,109 12,836
Accruals and other liabilities 6,402 6,925 7,006
Retirement benefit liabilities 129 152 363
Deferred tax 583 516 662
Subordinated liabilities 12,722 14,248 19,419
Total liabilities 688,963 702,288 749,252
Equity
Non-controlling interests 763 746 795
Owners' equity*
Called up share capital 11,965 11,906 11,823
Reserves 36,365 36,822 36,786
Total equity 49,093 49,474 49,404
Total liabilities and equity 738,056 751,762 798,656
*Owners' equity attributable to:
Ordinary shareholders 41,707 42,105 41,462
Other equity owners 6,623 6,623 7,147
48,330 48,728 48,609
Condensed consolidated statement of changes in equity for the period ended 31 December 2017
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
£m £m £m £m £m
Called-up share capital
At beginning of period 11,823 11,625 11,906 11,876 11,792
Ordinary shares issued 142 198 59 30 31
At end of period 11,965 11,823 11,965 11,906 11,823
Paid-in equity
At beginning of period 4,582 2,646 4,058 4,491 4,582
Redeemed/reclassified (1) (524) (110) - (433) -
Additional Tier 1 capital (2) - 2,046 - - -
At end of period 4,058 4,582 4,058 4,058 4,582
Share premium account
At beginning of period 25,693 25,425 739 - 25,663
Ordinary shares issued 235 268 92 47 30
Redemption of debt preference shares (5) 748 - 56 692 -
Capital reduction (3) (25,789) - - - -
At end of period 887 25,693 887 739 25,693
Merger reserve
At the beginning and end of period 10,881 10,881 10,881 10,881 10,881
Available-for-sale reserve
At beginning of period 238 307 260 259 188
Unrealised gains 202 282 53 49 69
Realised gains (176) (376) (64) (41) (1)
Tax (9) 25 6 (7) (18)
At end of period 255 238 255 260 238
Cash flow hedging reserve
At beginning of period 1,030 458 298 575 1,565
Amount recognised in equity (277) 1,867 141 (178) (471)
Amount transferred from equity to earnings (792) (1,102) (227) (194) (279)
Tax 266 (193) 15 95 215
At end of period 227 1,030 227 298 1,030
Foreign exchange reserve
At beginning of period 2,888 1,674 2,962 2,984 2,898
Retranslation of net assets 111 1,470 13 (26) (40)
Foreign currency (losses)/gains on hedges
of net assets (6) (278) (2) 4 35
Tax (1) 62 (2) (12) (6)
Recycled to profit or loss on disposal of businesses (4) (22) (40) (1) 12 1
At end of period 2,970 2,888 2,970 2,962 2,888
Capital redemption reserve
At the beginning of period 4,542 4,542 - - 4,542
Capital reduction (3) (4,542) - - - -
At end of period - 4,542 - - 4,542
For the notes to this table refer to the notes on page 38.
Condensed consolidated statement of changes in equity for the period ended 31 December 2017
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
£m £m £m £m £m
Retained earnings
At beginning of period (12,936) (4,020) 17,669 18,184 (8,500)
Profit/(loss) attributable to ordinary shareholders
and other equity owners 1,380 (5,258) (429) 614 (4,280)
Equity preference dividends paid (234) (260) (79) (70) (68)
Paid-in equity dividends paid, net of tax (394) (244) (71) (152) (93)
Capital reduction (3) 30,331 - - - -
Dividend access share dividend - (1,193) - - -
Redemption of debt preference shares (5) (748) (56) (692) -
Redemption of equity preference shares (5) - (1,160) - - -
Gain/(loss) on remeasurement of the retirement
benefit schemes
- gross 90 (1,049) 116 - (2)
- tax (28) 288 (8) - 3
Changes in fair value of credit in financial liabilities
designated at fair value through profit or loss
- gross (126) - (19) (30) -
- tax 18 - 3 3 -
Shares issued under employee share schemes (5) (10) - - -
Share-based payments
- gross (22) (9) 4 8 4
Redemption/reclassification of paid-in equity (196) (21) - (196) -
At end of period 17,130 (12,936) 17,130 17,669 (12,936)
Own shares held
At beginning of period (132) (107) (45) (45) (136)
Shares utilised for employee share schemes 161 41 5 - 7
Own shares acquired (72) (66) (3) - (3)
At end of period (43) (132) (43) (45) (132)
Owners' equity at end of period 48,330 48,609 48,330 48,728 48,609
Condensed consolidated statement of changes in equity for the period ended 31 December 2017
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
£m £m £m £m £m
Non-controlling interests
At beginning of period 795 716 746 844 853
Currency translation adjustments and other
movements 17 111 8 (11) (9)
Profit/(loss) attributable to non-controlling interests 35 10 14 (8) (27)
Dividends paid (25) - (5) (20) -
Equity withdrawn and disposals (59) (42) - (59) (22)
At end of period 763 795 763 746 795
Total equity at end of period 49,093 49,404 49,093 49,474 49,404
Total equity is attributable to:
Non-controlling interests 763 795 763 746 795
Preference shareholders 2,565 2,565 2,565 2,565 2,565
Paid-in equity holders 4,058 4,582 4,058 4,058 4,582
Ordinary shareholders 41,707 41,462 41,707 42,105 41,462
49,093 49,404 49,093 49,474 49,404
Notes:
(1) Paid-in equity reclassified to liabilities as a result of the call of RBS Capital Trust D in March 2017 (redeemed in June 2017) and the call of US$564 million and CAD321 million EMTN notes in August 2017 (redeemed in October 2017).
(2) AT1 capital notes totalling £2.0 billion issued in August 2016.
(3) On 15 June 2017, the Court of Session approved a reduction of RBSG plc capital so that the amounts which stood to the credit of share premium account and capital redemption reserve were transferred to retained earnings.
(4) Nil tax impact.
(5) During 2017, non-cumulative US dollar preference shares recorded as debt were redeemed at their original issue price of US$1.1 billion. The nominal value of £0.3 million has been credited to the capital redemption reserve; share premium increased by £0.7
billion in respect of the premium received on issue, with a corresponding decrease in retained earnings. During 2016, non-cumulative US dollar preference shares were redeemed at their original price of US$1.5 billion. The nominal value of £0.3 million was
transferred from share capital to capital redemption reserve and ordinary owners equity was reduced by £0.4 billion in respect of the movement in exchange rates since issue.
Condensed consolidated cash flow statement for the period ended 31 December 2017
Year ended
31 December 31 December
2017 2016
£m £m
Operating activities
Operating profit/(loss) before tax 2,239 (4,082)
Adjustments for non-cash items (5,125) (7,810)
Net cash outflow from trading activities (2,886) (11,892)
Changes in operating assets and liabilities 42,147 8,413
Net cash flows from operating activities before tax 39,261 (3,479)
Income taxes paid (520) (171)
Net cash flows from operating activities 38,741 (3,650)
Net cash flows from investing activities (6,482) (4,359)
Net cash flows from financing activities (8,208) (5,107)
Effects of exchange rate changes on cash and cash equivalents (16) 8,094
Net increase/(decrease) in cash and cash equivalents 24,035 (5,022)
Cash and cash equivalents at beginning of year 98,570 103,592
Cash and cash equivalents at end of year 122,605 98,570
Notes
1. Basis of preparation
The condensed consolidated financial statements should be read in conjunction with RBS's 2017 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
Ahead of adopting IFRS 9 Financial Instruments from 1 January 2018 RBS has adopted the provisions in respect of the
presentation of gains and losses on financial liabilities designated as at fair value through profit or loss from 1 January
2017. Accordingly, a loss of £126 million has been reported in the consolidated statement of other comprehensive income in
2017 instead of in the consolidated income statement. Comparatives have not been restated, however, in 2016 a gain of £154
million was included in the consolidated income statement. Own credit adjustments on financial liabilities held-for-trading
will continue to be recognised in the consolidated income statement, a loss of £69 million was reported in 2017 (2016 -
gain of £26 million).
Apart from the above RBS's principal accounting policies are as set out on pages 251 to 259 of the 2017 Annual Report and
Accounts. Other amendments to IFRS effective for 2017 have not had a material effect on RBS's 2017 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 goodwill, provisions for liabilities, deferred tax, loan impairment provisions and fair value of
financial instruments. These critical accounting policies and judgements are described on pages 259 to 261 of RBS's 2017
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 period ended 31
December 2017 have been prepared on a going concern basis.
2. Pensions
As at 31 December 2017, the Main scheme had an unrecognised surplus reflected by a ratio of assets to liabilities of c.120%
under IAS 19 valuation principles. The surplus is unrecognised because the trustee's power to enhance member benefits could
consume that surplus meaning that RBS does not control its ability to realise an asset. The existence of the asset, albeit
unrecognised, limits RBS's exposure to changes in actuarial assumptions and investment performance. See Note 4 on the 2017
Annual Report and Accounts for further details.
Notes
3. Provisions for liabilities and charges
Payment Other Residential Litigation
protection customer mortgage and other
insurance (1) redress backed securities regulatory Other (2) Total
£m £m £m £m £m £m
At 1 January 2017 1,253 1,105 6,752 1,918 1,808 12,836
Currency translation and other movements - (1) (114) (13) 10 (118)
Charge to income statement - - - 32 204 236
Releases to income statement - (2) - (3) (39) (44)
Provisions utilised (78) (99) - (950) (164) (1,291)
At 31 March 2017 1,175 1,003 6,638 984 1,819 11,619
Currency translation and other movements - 5 (237) (17) 38 (211)
Charge to income statement - 55 222 59 182 518
Releases to income statement - (38) - (4) (96) (138)
Provisions utilised (81) (114) (44) (113) (209) (561)
At 30 June 2017 1,094 911 6,579 909 1,734 11,227
Currency translation and other movements - 1 (159) (4) (14) (176)
Charge to income statement - 1 - 105 118 224
Releases to income statement - (1) - (2) (1) (4)
Provisions utilised (3) (115) (84) (3,588) (221) (154) (4,162)
At 30 September 2017 979 828 2,832 787 1,683 7,109
Currency translation and other movements - (1) (31) 3 1 (28)
Charge to income statement 175 172 492 84 499 1,422
Releases to income statement - (13) (50) (147) (73) (283)
Provisions utilised (101) (116) - (86) (160) (463)
At 31 December 2017 1,053 870 3,243 641
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