REG - Royal Bk Scot.Grp. - Final Results <Origin Href="QuoteRef">RBS.L</Origin> - Part 6
26/02/2016 07:12
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risks,
operational risk, conduct risk and credit rating risk and to various types of market risks, such as interest rate risk,
foreign exchange rate risk and commodity and equity price risk. These statements are based on current plans, estimates,
targets and projections, and are subject to inherent risks, uncertainties and other factors which could cause actual
results to differ materially from the future results expressed or implied by such forward-looking statements. For example,
certain market risk disclosures are dependent on choices relying on key model characteristics and assumptions and are
subject to various limitations. By their nature, certain of the market risk disclosures are only estimates and, as a
result, actual future gains and losses could differ materially from those that have been estimated.
Other factors that could adversely affect our results and the accuracy of forward-looking statements in the Annual Report
and Accounts 2015 include the risk factors and other uncertainties discussed in to 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 subject to (including active civil and criminal investigations) and any resulting material adverse effect on
RBS of unfavourable outcomes (including where resolved by settlement); the uncertainty relating to the referendum on the
UK's membership of the European Union and the consequences of it; the separation and divestment of Williams & Glyn; RBS's
ability to successfully implement the various initiatives that are comprised in its restructuring plan, particularly the
proposed restructuring of its CIB business and the balance sheet reduction programme as well as the significant
restructuring required to be undertaken by RBS in order to implement the UK ring fencing regime; the significant changes,
complexity and costs relating to the implementation of its restructuring, the separation and divestment of Williams & Glyn
and the UK ring-fencing regime; whether RBS will emerge from its restructuring and the UK ring-fencing regime as a viable,
competitive, customer focused and profitable bank; RBS's ability to achieve its capital and leverage requirements or
targets which will depend on RBS's success in reducing the size of its business and future profitability; ineffective
management of capital or changes to regulatory requirements relating to capital adequacy and liquidity or failure to pass
mandatory stress tests; the ability to access sufficient sources of capital, liquidity and funding when required; changes
in the credit ratings of RBS or the UK government; declining revenues resulting from lower customer retention and revenue
generation in light of RBS's strategic refocus on the UK the impact of global economic and financial market conditions
(including low or negative interest rates) as well as increasing competition. In addition, there are other risks and
uncertainties. These include operational risks that are inherent to RBS's business and will increase as a result of RBS's
significant restructuring; the potential negative impact on RBS's business of actual or perceived global economic and
financial market conditions and other global risks; the impact of unanticipated turbulence in interest rates, yield curves,
foreign currency exchange rates, credit spreads, bond prices, commodity prices, equity prices; basis, volatility and
correlation risks; heightened regulatory and governmental scrutiny and the increasingly regulated environment in which RBS
operates; the risk of failure to realise the benefit of RBS's substantial investments in its information technology and
systems, the risk of failing to preventing a failure of RBS's IT systems or to protect itself and its customers against
cyber threats, reputational risks; 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; risks relating to increased pension liabilities
and the impact of pension risk on RBS's capital position; increased competitive pressures resulting from new incumbents and
disruptive technologies; RBS's ability to attract and retain qualified personnel; HM Treasury exercising influence over the
operations of RBS; limitations on, or additional requirements imposed on, RBS's activities as a result of HM Treasury's
investment in RBS; the extent of future write-downs and impairment charges caused by depressed asset valuations;
deteriorations in borrower and counterparty credit quality; 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; the impact of the recovery and resolution framework and other prudential rules to which RBS is subject 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.
Appendix 1
Williams & Glyn
Appendix 1 Williams & Glyn
Williams & Glyn overview and update
Williams & Glyn (W&G) has c.1.6 million retail banking customers with an estimated market share of 2% in Personal Current
Accounts (PCA) in the UK. The bank has c.240,000 commercial customers served through either the retail bank or a national
network of relationship managers.
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.
Williams & Glyn separation
Progress continues to be made in establishing a standalone W&G business with a number of notable developments in 2015. A
new management team has been appointed, with Jim Brown becoming CEO and Leigh Bartlett CFO in September 2015. W&G has
continued to recruit into the business, strengthening a number of customer-facing and central functions.
Work continues on the separation of W&G, but this will now not be achieved until after Q1 2017. The Group remains committed
to full divestment by the end of 2017, although it continues to face significant challenges and risks in separating the W&G
business, some of which may only emerge as various separation process phases are progressed. The W&G separation process is
a high priority for the Group and involves the diversion of Group resources away from other key areas. The associated risks
are discussed in more detail in the Risk Factors on pages 390 to 414 in the 2015 Annual Report and Accounts.
Williams & Glyn financial information
In the main body of this results document, W&G is presented as a segment within RBS, reflecting the contribution made by
W&G's ongoing business to RBS which was previously reported in UK PBB. This does not reflect the allocation of separation
costs or the financial impact of any disposal transaction. The segmental performance of W&G has been extracted from the
2015 Annual Report and Accounts, including the audited financial statements.
In this appendix, W&G's financial information is shown on two different bases:
· A non-statutory 'carve out' internally managed basis for the years ended 31 December, 2015, 2014 and 2013 which reflects the adjustments to the W&G segmental information, relating to a) the full allocation of additional costs for the services W&G received from RBS during these periods and b) the inclusion of certain customer portfolios that are currently reported through other segments in RBS.
· An illustrative standalonebasis of presentation which provides an indicativeview of W&G's standalone profile for 2015.
During the periods presented, W&G has been an integral part of RBS and has not operated as a separate legal entity. As
such, the non-statutory carve out basis of presentation does not fully reflect the actual cost base, funding, liquidity and
capital profile of a standalone bank.
Appendix 1 Williams & Glyn
In respect of the illustrative standalone basis, W&G's actual cost base, funding, liquidity and capital requirements as a
separated bank may ultimately differ materially from those implied by this illustrative financial information. The
illustrative financial information presented herein is based on certain assumptions, which may prove to be incorrect. As
such, this illustrative financial information should be treated as solely indicative of currently modelled parameters and
should not be construed as an indication or projection of W&G's actual or future results or financial position on a
standalone basis. When considering this information, readers should take this and the risks inherent in preparing such
financial information into consideration. For a description of the risks and uncertainties relating to the W&G separation
and divestment see the risk factors on page 391 in the RBS 2015 Annual Report and Accounts.
The illustrative standalone financial information presented in this appendix does not comply with the UK rules relating to
the preparation of proforma financial information under the Prospectus Directive rules or Regulation S-X in the United
States, and if presented in accordance with these rules, such presentation would be different than that presented herein.
The illustrative standalone financial information presented in this appendix has not been audited or reviewed by the
Group's auditors.
Appendix 1 Williams & Glyn
Non-statutory carve out financial statements
Year ended
31 December 31 December 31 December
2015 2014 2013
Income statement £m £m £m
Net interest income 679 687 670
Net fees and commissions 173 184 199
Other operating income 16 18 19
Non-interest income 189 202 218
Total income 868 889 888
Administrative expenses (522) (502) (449)
Restructuring costs (28) - -
Depreciation (11) (14) (14)
Operating expenses (561) (516) (463)
Operating profit before impairment losses 307 373 425
Impairment losses (15) (63) (85)
Operating profit before taxation 292 310 340
Tax charge (60) (68) (81)
Profit for the year 232 242 259
Performance ratios
Loan impairment charge as a % of gross customer loans and advances by sector 0.1% 0.3% 0.4%
Net interest margin excluding central IEAs 3.42% 3.47% 3.40%
Cost:income ratio 65% 58% 52%
Cost:income ratio - adjusted (1) 61% 58% 52%
Balance sheet
Assets
Cash 94 88 87
Loans and advances to customers 20,325 19,939 20,163
Derivative financial assets 102 242 350
Derivative financial assets - intra-group
Property, plant and equipment 90 95 104
Prepayments, accrued income and other assets 11 13 11
Total assets 20,622 20,377 20,715
Liabilities
Deposits by banks 14 23 117
Customer accounts 25,209 23,159 22,824
Derivative financial liabilities 17 32 98
Derivative financial liabilities - intra-group - - -
Debt securities in issue - - -
Amounts due to related undertakings 3,174 3,763 3,807
Provisions 28 - -
Other liabilities 50 30 20
Total liabilities 28,492 27,007 26,866
Net investment from RBS Group (7,870) (6,630) (6,151)
Net investment from RBS Group and liabilities 20,622 20,377 20,715
Balance sheet metrics
Loan:deposit ratio (excluding repos) 81% 86% 88%
Risk-weighted assets £bn 10.0 10.2 11.9
Note:
(1) Excluding restructuring costs.
Appendix 1 Williams & Glyn
Income statement on a non-statutory carve out basis
W&G's net interest margin declined from 3.47% in 2014 to 3.42% in 2015. This decline was primarily due to margin pressure
on new mortgage volumes and a reduction in the number of customers on the standard variable rate. In Commercial, W&G has
widened margins by improving front book pricing while also re-pricing deposits. Fee income has reduced in the year due to
lower fee income from credit and debit cards, as well as lower overdraft usage and tariffs in 2015.
Operating expenses increased by £45 million in the year as W&G continued to develop its capability to operate as a
standalone bank, while also investing £28 million in the restructuring of its Commercial Banking business.
Net impairment losses were £15 million in 2015, lower than the £63 million loss incurred in 2014 due to portfolio provision
releases and reduced levels of defaults in portfolios reflecting a benign UK economy.
The W&G business has continued to perform in line with management's expectations since 31 December 2015, the last financial
year end of the business, to the date of this announcement.
Balance sheet on a non-statutory carve out basis
Customer lending grew by £0.4 billion, or 2%, to £20.3 billion in 2015 driven by good growth in mortgage lending and
Commercial loans. During 2015, £0.3 billion of Commercial lending was transferred to Commercial Banking. Adjusting for this
transfer, customer lending grew by 4%.
Supported by investment in both W&G's mortgage intermediary platform and direct mortgage advisers, Retail's growth was
generated by almost £2 billion of gross new mortgage lending in the year which drove a 5% increase in mortgage lending
balances.
W&G also saw deposit balances grow in the year, increasing by £2.1 billion, with Retail rising by 10% and Commercial by 8%.
At the end of the year, almost 30% of deposits placed with W&G were held in personal and business current accounts.
Williams & Glyn illustrative standalone results
An illustration of W&G's standalone income statement and balance sheet for 2015 prepared as though it operated
independently of the RBS Group is presented below based on certain assumptions.
The major adjustments made in preparing this illustrative standalone information compared to W&G's financial information
presented on a "carve out" basis are in respect of:
· Costs - W&G is assumed to have a fully developed cost base, reflecting the people and infrastructure required to operate on a standalone basis
· Capital - Illustrative levels of equity and capital securities have been included on the balance sheet
· Liquidity - W&G is assumed to manage its own funding and liquidity position which, combined with the assumed addition of capital, drives a high level of liquid assets
See page 2 above with respect to important disclosures relating to the preparation of this information.
Appendix 1 Williams & Glyn
Williams and Glyn Standalone Financial information
Non-statutory Illustrative
carve Illustrative Williams & Glyn
Segmental Adjustments out financial adjustments standalone financial
performance (1) statements (2) statements
2015 £m £m £m £m £m
Income statement
Net interest income 658 21 679 (24) 655
Net fee and commission income 160 13 173 - 173
Other operating income 15 1 16 - 16
Non interest income 175 14 189 - 189
Total income 833 35 868 (24) 844
Administrative expenses (359) (163) (522) (51) (573)
Restructuring expenses (28) - (28) - (28)
Depreciation - (11) (11) - (11)
Total operating expenses (387) (174) (561) (51) (612)
Operating profit before impairment losses 446 (139) 307 (75) 232
Impairment losses (15) - (15) - (15)
Operating profit before taxation 431 (139) 292 (75) 217
Tax charge (3) - (60) (60) 21 (39)
Profit for the year 431 (199) 232 (54) 178
Performance ratios
Loan impairment charge as a % gross
customer loans and advances 0.1% 0.1% 0.1%
Net interest margin excluding central IEAs 3.38% 3.42% 3.30%
Cost:income ratio 46% 65% 73%
Cost:income ratio - adjusted (4) 43% 61% 69%
Assets
Cash and balances at central banks 91 3 94 3,594 3,688
Loans and advances to customers 20,016 309 20,325 - 20,325
Available-for-sale financial assets - - - 3,594 3,594
Derivative financial assets 2 100 102 - 102
Property, plant and equipment - 90 90 - 90
Prepayments and other assets 10 1 11 24 35
Total assets 20,119 503 20,622 7,212 27,834
Liabilities
Customer deposits 24,085 1,124 25,209 - 25,209
Deposits by banks 9 5 14 - 14
Derivative financial liabilities 29 (12) 17 - 17
Debt securities in issue - - - 415 415
Amounts due to related undertakings - 3,174 3,174 (3,174) -
Provisions 28 - 28 - 28
Other liabilities 49 1 50 73 123
Total liabilities 24,200 4,292 28,492 (2,686) 25,806
Net Investment
Net investment from RBS Group (5) (4,081) (3,789) (7,870) 9,623 1,753
AT1 Instruments - - - 275 275
Net investment from RBS Group (4,081) (3,789) (7,870) 9,898 2,028
Total equity and liabilities 20,119 503 20,622 7,212 27,834
Balance sheet metrics
Loan:deposit ratio (excluding repos) 83% 81% 81%
Risk-weighted assets £bn (6) 9.9 10.0 14.0
otes:
(1) Adjustments made in respect of RBS recharges and perimeter (e.g. inclusion of customers currently within the NatWest
brand) as set out on page 1 of this appendix.
(2) The illustrative adjustments include assumptions with respect to W&G's fully developed cost base, and capitalisation
and liquidity adjustments illustrative of a standalone entity. These are management estimates based on a number of
assumptions and as a result should not be considered as an indication of W&G's actual or future results as a standalone
bank which may be materially different.
(3) Indicative tax charge at 21%.
(4) Excluding restructuring costs.
(5) W&G is not a separate legal entity and a number of items on the balance sheet are presented as allocations of
transactions of the wider RBS Group. The net funding/capital position with RBS Group represents a combination of the
overall receivables and payables with W&G and the funding balances with RBS Group, which cannot be separately identified or
allocated.
(6) The segmental performance and non-statutory carve out financial information RWAs have been presented on an Advanced
Internal Rating Basis (AIRB), while the "illustrative standalone" Williams & Glyn financial information RWAs have been
presented on a standardised basis.
This information is provided by RNS
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