REG - Royal Bk Scot.Grp. - Half Year Report - Part 1 <Origin Href="QuoteRef">RBS.L</Origin> - Part 2
05/08/2016 07:07
- Part 2: For the preceding part double click ID:nRSE3368Ga
based bank to launch Android fingerprint authentication, with 37% of app logins now biometric.
● RBS became the first UK Bank to be accredited by the Royal National Institute for Blind People for making the voiceover mode simpler and easier to use for our visually impaired customers. In addition, we launched a new service for British Sign Language (BSL) customers, making it possible to instantly chat with an advisor through a BSL interpreter.
● RBS continues to support UK business growth through the launch of three new business accelerator hubs in H1 2016, bringing the total to nine, with a further three more opening in H2 2016. This included the opening of an Entrepreneurial Centre in our Edinburgh headquarters. In addition, NatWest launched a £1 billion lending fund to support small businesses.
● RBS is one of only two banks to achieve formal recognition from the Chartered Banker Professional Standards Board for excellence in monitoring the Foundation Standard for Professional Bankers. More than 94% of the in-scope employee population achieved this standard in 2015.
Highlights
Customer
RBS remains committed to achieving its target of being number one bank for customer service, trust and advocacy by 2020.
We use independent surveys to measure our customers' experience and track our progress against our goal in each of our
markets.
Net Promoter Score (NPS)
Customers are asked how likely they would be to recommend their bank to a friend or colleague, and respond based on a 0-10
scale with 10 indicating 'extremely likely' and 0 indicating 'not at all likely'. Customers scoring 0 to 6 are termed
detractors and customers scoring 9 to 10 are termed promoters. NPS is established by subtracting the proportion of
detractors from the proportion of promoters.
The table below lists all of the businesses for which we have an NPS for 2016. Year-on-year, NatWest Personal Banking,
Royal Bank of Scotland Business Banking and Commercial Banking have improved. In Scotland, we have narrowed the gap to
number one in Business Banking.
In recent years, the bank has launched a number of initiatives to make it simpler, fairer and easier to do business, and it
continues to deliver on the commitments that it made to its customers in 2014.
Q2 2015 Q1 2016 Q2 2016 Year end 2016 target
Personal Banking NatWest (England & Wales)(1) 8 13 12 15
Royal Bank of Scotland (Scotland)(1) -10 -6 -7 -5
Ulster Bank (Northern Ireland)(2) -11 -14 -16 -3
Ulster Bank (Republic of Ireland)(2) -14 -12 -11 -10
Business Banking NatWest (England & Wales)(3) 4 9 4 13
Royal Bank of Scotland (Scotland)(3) -17 -7 -4 2
Ulster Bank Business & Commercial Ulster Bank (Northern Ireland) (4) n/a -10 3 -4
Commercial Banking(5) 10 15 18 17
Highlights
Customer Trust
We also use independent experts to measure our customers' trust in the bank. Each quarter we ask customers to what extent
they trust or distrust their bank to do the right thing. The score is a net measure of those customers that trust their
bank (a lot or somewhat) minus those that distrust their bank (a lot or somewhat).
Customer trust in RBS has continued to improve and is at its highest in two years. NatWest has not changed since last
quarter. Both are currently on track to meet the 2016 year end target.
Q2 2015 Q1 2016 Q2 2016 Year end 2016 target
Customer trust(6) NatWest (England & Wales) 48% 48% 48% 51%
Royal Bank of Scotland (Scotland) -2% 21% 23% 26%
Notes:
(1) Source: GfK FRS 6 month rolling data. Latest base sizes: NatWest (England & Wales) (3387) Royal Bank of Scotland (Scotland) (527). Based on the question: "How likely is it that you would recommend (brand) to a relative, friend or colleague in the next 12
months for current account banking?"
(2) Source: Coyne Research 12 month rolling data. Latest base sizes: Ulster Bank NI (372) Ulster Bank RoI (332) Question: "Please indicate to what extent you would be likely to recommend (brand) to your friends or family using a scale of 0 to 10 where 0 is not
at all likely and 10 is extremely likely".
(3) Source: Charterhouse Research Business Banking Survey (GB), based on interviews with businesses with an annual turnover up to £2 million. Quarterly rolling data. Latest base sizes: NatWest England & Wales (1361), RBS Scotland (438). Weighted by region and
turnover to be representative of businesses in England & Wales/Scotland, 4 quarter rolling data.
(4) Source: Charterhouse Research Business Banking Survey (NI). Latest base size: Ulster (362) Weighted by turnover and industry sector to be representative of businesses in Northern Ireland, 4 quarter rolling data.In 2016 we switched the source of advocacy
measurement for Ulster Bank Corporate NI to the Charterhouse Business Banking Study. Charterhouse is a recognised, independent syndicate study that provides more frequent reporting of NPS as well as additional diagnostic customer feedback to help us
improve the customer experience. Ulster Bank Business & Commercial RoI reports annually.
(5) Source: Charterhouse Research Business Banking Survey (GB), based on interviews with businesses with annual turnover between £2 million and £1 billion. Latest base size: RBSG Great Britain (972). Weighted by region and turnover to be representative of
businesses in Great Britain, 4 quarter rolling data.
(6) Source: Populus. Latest quarter's data. Measured as a net of those that trust RBS/NatWest to do the right thing, less those that do not. Latest base sizes: NatWest, England & Wales (852), RBS Scotland (185).
Highlights
Williams & Glyn
On 28 April 2016 we announced that there was a significant risk that the separation and divestment of Williams & Glyn will
not be achieved by 31 December 2017. RBS remains committed to meeting its State Aid obligations. Work has continued to
explore alternative means to achieve separation and divestment and RBS has had positive discussions with a number of
interested parties concerning an alternative transaction related to substantially all of the business previously described
as Williams & Glyn. These discussions are at a preliminary stage and may or may not lead to a viable transaction.
Due to the complexities of Williams & Glyn's separation, whilst good progress has been made on the programme to create a
cloned banking platform, the Board concluded that the risks and costs inherent in the programme are such that it would not
be prudent to continue with this programme. RBS will instead prioritise exploring alternative means to achieve
divestment.
Outlook
● The outcome of the UK's EU Referendum has created considerable uncertainty in our core market and we continue to assess all its implications. In the current low rate and low growth environment, achieving our longer term cost:income ratio and return targets by 2019 is likely to be more challenging.
● We expect PBB and CPB income to be broadly stable in 2016 compared with 2015 as strong planned balance sheet growth, particularly in mortgages but also in core commercial lending, is balanced by headwinds from the reduction in interchange fees, low interest rates and the uncertain macroeconomic environment. In H1 2016 income across PBB and CPB was broadly stable. CIB income recovered in Q2 2016, following a difficult Q1 2016, and we now expect income to be stable in 2016 compared with 2015.
● RBS remains on track to achieve an £800 million cost reduction in 2016. We retain our expectation that cost reduction will exceed any income erosion across our combined PBB, CPB and CIB businesses.
● The impairment charge taken during H1 largely related to sector specific issues particularly in the Oil & Gas and Capital Resolution Shipping portfolios. There is a continuing risk of large single name/sector driven events across our portfolios given the uncertain macroeconomic environment. The outcome of the UK's EU Referendum has increased the level of uncertainty however it is too early at this point to quantify the impact of any potential credit losses that may result.
● Restructuring costs are expected to remain high in 2016, totalling over £1 billion. The H1 2016 restructuring charge was £630 million, of which £345 million related to Williams & Glyn.
● We expect Capital Resolution disposal losses of approximately £1.5 billion, and we anticipate that we will incur most of the remaining losses in 2016 (2015 - £367 million). Losses of £368 million in H1 2016 include an impairment charge of £264 million in relation to the Shipping portfolio. Following the EU Referendum and the resultant significant weakening of sterling, we now anticipate that Capital Resolution RWAs will be around £30 - £35 billion by the end of 2016.
● We continue to deal with a range of uncertainties in the external environment and we will also have to manage conduct-related investigations and litigation, including US RMBS, throughout 2016, and substantial related incremental provisions may be recognised during the remainder of the year.
Summary consolidated income statement for the period ended 30 June 2016
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2016 2015* 2016 2016 2015*
£m £m £m £m £m
Net interest income 4,333 4,418 2,177 2,156 2,215
Own credit adjustments 450 288 194 256 168
Loss on redemption of own debt (130) - (130) - -
Strategic disposals 195 (135) 201 (6) -
Other operating income 1,216 2,685 558 658 1,354
Non-interest income 1,731 2,838 823 908 1,522
Total income 6,064 7,256 3,000 3,064 3,737
Restructuring costs (630) (1,470) (392) (238) (1,023)
Litigation and conduct costs (1,315) (1,315) (1,284) (31) (459)
Other costs (3,984) (4,531) (1,833) (2,151) (2,223)
Operating expenses (5,929) (7,316) (3,509) (2,420) (3,705)
Profit/(loss) before impairment (losses)/releases 135 (60) (509) 644 32
Impairment (losses)/releases (409) 321 (186) (223) 192
Operating (loss)/profit before tax (274) 261 (695) 421 224
Tax charge (340) (287) (260) (80) (97)
(Loss)/profit from continuing operations (614) (26) (955) 341 127
Profit from discontinued operations, net of tax - 358 - - 674
(Loss)/profit for the period (614) 332 (955) 341 801
Attributable to:
Non-controlling interests 30 344 8 22 428
Other owners 208 167 114 94 93
Dividend access share 1,193 - - 1,193 -
Ordinary shareholders (2,045) (179) (1,077) (968) 280
Memo:
Total income - adjusted (1) 5,549 7,103 2,735 2,814 3,569
Operating expenses - adjusted (2) (3,984) (4,531) (1,833) (2,151) (2,223)
Operating profit - adjusted (1,2) 1,156 2,893 716 440 1,538
*Restated - refer to page 66 for further details
Notes:
(1) Excluding own credit adjustments, loss on redemption of own debt and strategic disposals.
(2) Excluding restructuring costs and litigation and conduct costs.
Details of other comprehensive income are provided on page 61.
Summary consolidated balance sheet as at 30 June 2016
30 June 31 March 31 December
2016 2016 2015
£m £m £m
Cash and balances at central banks 65,307 72,083 79,404
Net loans and advances to banks (1) 21,763 19,295 18,361
Net loans and advances to customers (1) 326,503 317,088 306,334
Reverse repurchase agreements and stock borrowing 45,778 42,356 39,843
Debt securities and equity shares 84,807 88,877 83,458
Assets of disposal groups (2) 396 3,405 3,486
Other assets 31,047 27,609 22,008
Funded assets 575,601 570,713 552,894
Derivatives 326,023 312,217 262,514
Total assets 901,624 882,930 815,408
Bank deposits (3) 31,377 31,774 28,030
Customer deposits (3) 355,719 352,344 343,186
Repurchase agreements and stock lending 40,881 39,030 37,378
Debt securities in issue 27,148 29,576 31,150
Subordinated liabilities 20,113 20,870 19,847
Derivatives 322,390 304,789 254,705
Liabilities of disposal groups (2) 252 2,816 2,980
Other liabilities 50,017 47,566 43,985
Total liabilities 847,897 828,765 761,261
Non-controlling interests 820 788 716
Owners' equity 52,907 53,377 53,431
Total liabilities and equity 901,624 882,930 815,408
Notes:
(1) Excludes reverse repurchase agreements and stock borrowing.
(2) Primarily international private banking business at 31 March 2016 and 31 December 2015.
(3) Excludes repurchase agreements and stock lending.
Analysis of results
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2016 2015 2016 2016 2015
Net interest income £m £m £m £m £m
Net interest income (1) 4,333 4,418 2,177 2,156 2,215
RBS
- UK Personal & Business Banking 2,109 2,067 1,090 1,019 1,035
- Ulster Bank RoI 198 190 93 105 95
- Commercial Banking 1,067 981 531 536 499
- Private Banking 226 219 113 113 109
- RBS International 151 152 76 75 76
- Corporate & Institutional Banking 43 30 24 19 16
- Capital Resolution 168 281 82 86 124
- Williams & Glyn 324 326 162 162 163
- Central items & other 47 172 6 41 98
Average interest-earning assets (IEA)
RBS 399,751 416,319 396,118 403,384 417,248
- UK Personal & Business Banking 138,192 128,485 140,591 135,793 128,957
- Ulster Bank RoI 24,233 23,136 24,288 24,178 23,029
- Commercial Banking 117,312 104,067 119,768 114,855 104,648
- Private Banking 16,441 15,716 16,622 16,259 15,855
- RBS International 21,436 20,527 21,798 21,075 20,416
- Corporate & Institutional Banking 11,745 18,702 11,923 11,568 23,128
- Capital Resolution 29,962 75,727 29,157 30,767 68,544
- Williams & Glyn 23,764 22,703 24,172 23,356 22,769
- Central items & other 16,666 7,256 7,799 25,533 9,902
Yields, spreads and margins of the banking business
Gross yield on interest-earning assets of the banking business (2) 2.85% 2.96% 2.87% 2.82% 2.91%
Cost of interest-bearing liabilities of banking business (1.00%) (1.18%) (1.00%) (1.01%) (1.14%)
Interest spread of banking business (3) 1.85% 1.78% 1.87% 1.81% 1.77%
Benefit from interest-free funds 0.33% 0.36% 0.34% 0.34% 0.36%
Net interest margin (1,4)
RBS 2.18% 2.14% 2.21% 2.15% 2.13%
- UK Personal & Business Banking (5) 3.07% 3.24% 3.12% 3.02% 3.22%
- Ulster Bank RoI (5) 1.64% 1.66% 1.54% 1.75% 1.65%
- Commercial Banking (5) 1.83% 1.90% 1.78% 1.88% 1.91%
- Private Banking (5) 2.76% 2.81% 2.73% 2.80% 2.76%
- RBS International (5) 1.42% 1.49% 1.40% 1.43% 1.49%
- Corporate & Institutional Banking 0.74% 0.32% 0.81% 0.66% 0.28%
- Capital Resolution 1.13% 0.75% 1.13% 1.12% 0.73%
- Williams & Glyn 2.74% 2.90% 2.70% 2.79% 2.87%
Average interest rates
Base rate 0.50 0.50 0.50 0.50 0.50
London inter-bank three month offered rates
- Sterling 0.59 0.57 0.58 0.59 0.57
- Eurodollar 0.63 0.27 0.64 0.62 0.28
- Euro (0.22) 0.02 (0.26) (0.19) (0.01)
For notes to this table refer to next page.
Analysis of results
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2016 2015 2016 2016 2015
% % % % %
Third party customer rates (6)
Third party customer asset rate
- UK Personal & Business Banking 3.96 4.19 3.96 3.95 4.18
- Ulster Bank RoI (7) 2.20 2.31 2.07 2.33 2.34
- Commercial Banking 2.85 2.97 2.82 2.87 2.96
- Private Banking 3.00 3.19 2.97 3.01 3.19
- RBS International 3.14 3.08 3.02 3.29 3.01
Third party customer funding rate
- UK Personal & Business Banking (0.54) (0.69) (0.46) (0.62) (0.67)
- Ulster Bank RoI (7) (0.56) (0.97) (0.53) (0.59) (0.90)
- Commercial Banking (0.36) (0.39) (0.36) (0.35) (0.31)
- Private Banking (0.22) (0.27) (0.20) (0.23) (0.25)
- RBS International (0.18) (0.38) (0.13) (0.24) (0.38)
Notes:
(1) For the purpose of net interest margin (NIM) calculations, no increase (H1 2015 - £8 million; Q2 2016 - nil; Q1 2016 - nil; Q2 2015 - £3 million) was made in respect of interest payable on financial liabilities designated as at fair value through profit or loss. Related average interest-earning assets and average interest-bearing liabilities have also been adjusted.
(2) Gross yield is the interest earned on average interest-earning assets as a percentage of average interest-earning assets.
(3) Interest spread is the difference between the gross yield and interest paid on average interest-bearing liabilities as a percentage of average interest-bearing liabilities.
(4) Net interest margin is net interest income as a percentage of average interest-earning assets.
(5) PBB NIM was 2.86% (H1 2015 - 3.00%; Q2 2016 - 2.89%; Q1 2016 - 2.83%; Q2 2015 - 2.98%); CPB NIM was 1.87% (H1 2015 - 1.94%; Q2 2016 - 1.83%; Q1 2016 - 1.91%; Q2 2015 - 1.95%).
(6) Net interest margin includes Treasury allocations and interest on intercompany borrowings, which are excluded from third party customer rates.
(7) Ulster Bank Ireland DAC manages its funding and liquidity requirements locally. Its liquid asset portfolios and non-customer related funding sources are included within its net interest margin, but excluded from its third party asset and liability rates.
Analysis of results
Half year ended Half year ended
30 June 2016 30 June 2015*
Average Average
balance Interest Rate balance Interest Rate
Average balance sheet £m £m % £m £m %
Assets
Loans and advances to banks 66,179 115 0.35 75,199 197 0.53
Loans and advances to customers 287,575 5,364 3.75 304,857 5,771 3.82
Debt securities 45,997 177 0.77 36,263 139 0.77
Interest-earning assets
- banking business (1,2) 399,751 5,656 2.85 416,319 6,107 2.96
- trading business (3) 132,839 151,588
Non-interest earning assets 338,903 493,066
Total assets 871,493 1,060,973
Memo: Funded assets 535,848 701,616
Liabilities
Deposits by banks 4,437 12 0.54 6,806 25 0.74
Customer accounts 237,126 575 0.49 243,601 758 0.63
Debt securities in issue 21,742 298 2.76 34,014 420 2.49
Subordinated liabilities 19,837 442 4.48 20,730 442 4.30
Internal funding of trading business (17,508) (4) 0.05 (15,505) 52 (0.68)
Interest-bearing liabilities
- banking business (1,2) 265,634 1,323 1.00 289,646 1,697 1.18
- trading business (3) 141,714 159,632
Non-interest-bearing liabilities
- deposits(4) 84,660 80,207
- other liabilities 325,071 471,405
Total equity 54,414 60,083
Total liabilities and equity 871,493 1,060,973
*Restated - refer to page 66 for further details
Notes:
(1) Interest payable has been increased by nil (H1 2015 - £8 million) to record interest on financial liabilities designated as at fair value through profit or loss. Related interest-earning assets and interest-bearing liabilities have also been adjusted.
(2) Interest income includes amounts (unwind of discount) recognised on impaired loans and receivables. The average balances of such loans are included in average loans and advances to banks and loans and advances to customers.
(3) Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities.
(4) Of which, PBB - £49 billion, CPB - £28 billion and other - £8 billion (H1 2015; PBB - £44 billion, CPB - £25 billion and other - £11 billion).
Analysis of results
Key points
H1 2016 compared with H1 2015
· Net interest income of £4,333 million decreased £85 million, or 2%, compared with H1 2015 principally driven by a £113 million reduction in Capital Resolution in line with the planned shrinkage of the balance sheet.
· NIM was 2.18% for H1 2016, 4 basis points higher than H1 2015 as the benefit associated with reductions in the low yielding 'non-core' assets has been partially offset by modest asset margin pressure and mix impacts across PBB and CPB.
· In UK PBB, NIM decreased by 17 basis points to 3.07% compared with H1 2015 reflecting the impact of the overall portfolio mix being increasingly weighted towards secured lending and mortgage customers switching from standard variable rate (SVR) to lower rate products. SVR mortgages represented 12% of the mortgage book as at 30 June 2016 compared with 18% a year earlier.
· Commercial Banking NIM declined by 7 basis points reflecting asset margin pressure and an increased allocation of the low yielding liquidity portfolio.
Q2 2016 compared with Q1 2016
· Net interest income of £2,177 million was £21 million higher than Q1 2016 principally driven by a £71 million increase in UK PBB reflecting deposit re-pricing, strong volume growth and a release of previously suspended credit card interest of £32 million.
· NIM was 2.21% for Q2 2016, 6 basis points higher than Q1 2016 as low yielding non-core and liquid assets become a smaller proportion of the overall book.
· NIM for our combined PBB and CPB franchises was 2.37% in Q2 2016 compared with 2.38% in Q1 2016.
· UK PBB NIM increased by 10 basis points to 3.12% reflecting a one-off release of suspended interest, 9 basis points, and deposit re-pricing whilst Commercial Banking NIM decreased by 10 basis points to 1.78% principally driven by an increased allocation of the low yielding liquidity portfolio.
Q2 2016 compared with Q2 2015
· Net interest income of £2,177 million was £38 million lower than Q2 2015 and included a £42 million reduction in Capital Resolution in line with planned shrinkage of the balance sheet.
· NIM was 8 basis points higher than Q2 2015 principally reflecting the benefit associated with reductions in the low yielding 'non-core' assets.
Analysis of results
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2016 2015 2016 2016 2015
Non-interest income £m £m £m £m £m
Net fees and commissions 1,284 1,595 630 654 783
(Loss)/income from trading activities (267) 665 (157) (110) 430
Own credit adjustments 450 288 194 256 168
Loss on redemption of own debt (130) - (130) - -
Strategic disposals 195 (135) 201 (6) -
Other operating income 199 425 85 114 141
Total non-interest income 1,731 2,838 823 908 1,522
Memo:
IFRS volatility in Treasury (1) (668) 80 (312) (356) 204
Note:
(1) IFRS volatility arises from the changes to fair value of hedges of loans which do not qualify for hedge accounting under IFRS.
Key points
H1 2016 compared with H1 2015
· Non-interest income was £1,731 million, a reduction of £1,107 million, or 39%, compared with H1 2015. Capital Resolution non-interest income fell by £771 million reflecting planned asset disposals and an additional £220 million funding valuation adjustment
in Q2 2016 (H1 2016 - £330 million) following the EU Referendum. CIB income reduced by £130 million reflecting the reduced scale of the business. In addition, we recognised a £668 million charge for volatile items under IFRS compared with an £80 million
gain in H1 2015. Partially offsetting this, we reported a strategic disposal gain of £195 million, versus a loss of £135 million in H1 2015, and recognised an FX gain of £253 million principally reflecting the significant weakening of sterling against the
dollar following the EU Referendum.
· Net fees and commissions decreased by £311 million, or 19%, compared with H1 2015 reflecting the planned Capital Resolution asset run-down, £131 million, lower CIB income, down £133 million, and lower credit card interchange fees in UK PBB, down £41
million.
· Losses from trading activities totalled £267 million compared with income of £665 million in H1 2015, reflecting an increased charge for volatile items under IFRS as well as increased losses in Capital Resolution (including an incremental £220 million
funding valuation adjustment in Q2 2016).
· Other operating income of £199 million was £226 million lower than H1 2015 principally reflecting the planned Capital Resolution asset run-down as well as equity disposal and fair value gains of £75 million reported in Commercial Banking in H1 2015.
Q2 2016 compared with Q1 2016
· Non-interest income reduced by £85 million to £823 million. Capital Resolution non-interest income fell by £474 million reflecting planned asset disposals, including disposal losses of £102 million, and an additional £220 million funding valuation adjustment following the EU Referendum. Partially offsetting, CIB non-interest income increased by £131 million principally reflecting robust levels of customer activity within the Rates business. In addition, we recognised a £246 million gain on the disposal of
our stake in Visa Europe.
Q2 2016 compared with Q2 2015
· Non-interest income reduced by £699 million largely reflecting a £537 million fall in Capital Resolution. In addition, a £312 million IFRS volatility charge was reported compared with a gain of £204 million in Q2 2015.
Analysis of results
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2016 2015* 2016 2016 2015*
Operating expenses £m £m £m £m £m
Staff costs 2,329 2,543 1,127 1,202 1,258
Premises and equipment 630 709 315 315 298
Other administrative expenses 625 861 179 446 481
Restructuring costs (see below) 630 1,470 392 238 1,023
Litigation and conduct costs 1,315 1,315 1,284 31 459
Administrative expenses 5,529 6,898 3,297 2,232 3,519
Depreciation and amortisation 352 418 174 178 186
Write down of intangible assets 48 - 38 10 -
Operating expenses 5,929 7,316 3,509 2,420 3,705
Adjusted operating expenses (1) 3,984 4,531 1,833 2,151 2,223
Restructuring costs comprise:
- staff expenses 366 344 245 121 288
- premises, equipment, depreciation and amortisation 24 330 15 9 42
- other 240 796 132 108 693
630 1,470 392 238 1,023
Of which Williams & Glyn 345 259 187 158 126
Staff costs as a % of total income 38% 35% 38% 39% 34%
Cost:income ratio 98% 101% 117% 79% 99%
Cost:income ratio - adjusted (2) 72% 64% 67% 76% 62%
Employee numbers (FTE - thousands) 89.2 91.6 89.2 92.4 91.6
*Restated - refer to page 66 for further details
Notes:
(1) Excluding restructuring costs and litigation and conduct costs.
(2) Excluding own credit adjustments, loss on redemption of own debt ,strategic disposals, restructuring costs and litigation and conduct costs.
Analysis of results
Key points
H1 2016 compared with H1 2015
· Operating expenses of £5,929 million were £1,387 million, or 19%, lower than H1 2015 reflecting lower restructuring costs of £630 million (H1 2015 - £1,470 million) and a £547 million, or 12%, reduction in adjusted operating expenses.
· Adjusted operating expenses fell by £547 million, or 12%, from H1 2015 to £3,984 million. Excluding expenses associated with Williams & Glyn, write down of intangible assets (£48 million) and a £227 million VAT recovery, adjusted operating expenses reduced by £404 million and remain on target to achieve an £800 million reduction for the year.
· Staff costs of £2,329 million were down £214 million, or 8%, principally reflecting reduced headcount in Capital Resolution and CIB.
· Restructuring costs of £630 million in H1 2016 included £345 million in respect of Williams & Glyn separation costs.
· Litigation and conduct costs of £1,315 million included an additional PPI provision following publication of the FCA Consultation Paper on 2 August, a provision in respect of the UK 2008 rights issue shareholder litigation, a provision in Ulster Bank RoI principally in respect of an industry-wide examination of tracker mortgages and various other matters.
Q2 2016 compared with Q1 2016
· Operating expenses of £3,509 million were £1,089 million higher than Q1 2016. A £1,253 million increase in litigation and conduct costs and a £154 million increase in restructuring costs were partially offset by a £318 million reduction in adjusted operating expenses.
· Adjusted operating costs of £1,833 million were £318 million lower than Q1 2016 and included a £227 million VAT recovery.
Q2 2016 compared with Q2 2015
· Operating expenses were £196 million lower than Q2 2015 reflecting a £631 million reduction in restructuring costs and a £390 million reduction in adjusted operating expenses, benefiting from a £227 million VAT recovery, partially offset by a £825 million increase in litigation and conduct costs.
Analysis of results
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2016 2015 2016 2016 2015
Impairment losses/(releases) £m £m £m £m £m
Loan impairment losses/(releases)
- individually assessed 358 (120) 172 186 (105)
- collectively assessed 43 5 27 16 (7)
- latent 11 (316) (10) 21 (91)
Total loan impairment losses/(releases) 412 (431) 189 223 (203)
Securities (3) 110 (3) - 11
Total impairment losses/(releases) 409 (321) 186 223 (192)
30 June 31 March 31 December
Credit metrics (1) 2016 2016 2015
Gross customer loans £333,017m £325,339m £315,111m
Loan impairment provisions £6,456m £6,701m £7,139m
Risk elements in lending (REIL) £11,789m £11,867m £12,157m
Provisions as a % of REIL 55% 57% 59%
REIL as a % of gross customer loans 3.5% 3.6% 3.9%
Note:
(1) Includes disposal groups and excludes reverse repos.
Key points
H1 2016 compared with H1 2015
· A net impairment loss of £409 million was reported in H1 2016 compared with a release of £321 million in H1 2015.
· Capital Resolution reported an impairment loss of £263 million compared with a release of £319 million in H1 2015. The charge for the half year included £264 million in relation to exposures
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AnnouncementREG - Higher Education Sec - Doc re. LSE Investor Report
Announcement