REG - Royal Bk Scot.Grp. - Half Yearly Report - Part 1 <Origin Href="QuoteRef">RBS.L</Origin> - Part 5
29/10/2014 09:16
- Part 5: For the preceding part double click ID:nRSA9698Nd
Restructuring costs
- direct (28) (37) (13) (15) (24)
- indirect (163) (46) (139) (24) (20)
Litigation and conduct costs (50) (410) (50) - (385)
Operating expenses (2,158) (2,682) (1,146) (1,012) (1,487)
Profit/(loss) before impairment losses 269 26 (70) 339 (251)
Impairment recoveries/(losses) 39 (223) 45 (6) (144)
Operating profit/(loss) 308 (197) (25) 333 (395)
Operating profit - adjusted (1) 549 296 177 372 34
Note:
(1) Excluding restructuring costs and litigation and conduct costs.
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2014 2013 2014 2014 2013
£m £m £m £m £m
Analysis of income by product
Rates 656 467 297 359 255
Currencies 351 479 159 192 282
Credit 774 992 309 465 315
Global Transaction Services 421 425 214 207 211
Portfolio 318 323 156 162 167
Total (excluding revenue share and run-off businesses) 2,520 2,686 1,135 1,385 1,230
Inter-segment revenue share (119) (141) (59) (60) (68)
Run-off businesses 26 163 - 26 74
Total income 2,427 2,708 1,076 1,351 1,236
Corporate & Institutional Banking
Key metrics Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2014 2013 2014 2014 2013
Performance ratios
Return on equity (1) 2.7% (1.6%) (0.5%) 5.6% (6.8%)
Return on equity - adjusted (1,2) 4.8% 2.5% 3.3% 6.2% 0.6%
Net interest margin 0.88% 0.72% 0.90% 0.85% 0.67%
Cost:income ratio 89% 99% 107% 75% 120%
Cost:income ratio - adjusted (2) 79% 81% 88% 72% 86%
Notes:
(1) Return on equity is based on segmental operating profit after tax divided by average notional equity (based on 12% of the monthly average of segmental RWAs).
(2) Excluding restructuring costs and litigation and conduct costs.
30 June 31 March 31 December
2014 2014 2013
£bn £bn Change £bn Change
Capital and balance sheet
Loans and advances to customers (gross) 69.2 70.7 (2%) 69.1 -
Loan impairment provisions (0.2) (0.2) - (0.9) (78%)
Net loans and advances to customers 69.0 70.5 (2%) 68.2 1%
Net loans and advances to banks (1) 19.4 20.0 (3%) 20.5 (5%)
Reverse repos 78.8 78.1 1% 76.2 3%
Securities 67.9 75.0 (9%) 72.1 (6%)
Cash and eligible bills 18.7 21.0 (11%) 20.6 (9%)
Other 24.9 22.0 13% 11.0 126%
Funded assets 278.7 286.6 (3%) 268.6 4%
Provision coverage (2) 168% 199% (3,100bp) 59% 10,900bp
Repos 73.1 77.5 (6%) 74.8 (2%)
Customer deposits (excluding repos) 55.5 57.1 (3%) 64.8 (14%)
Bank deposits (excluding repos) 31.7 29.5 7% 30.2 5%
Debt securities in issue 17.3 18.1 (4%) 21.5 (20%)
Risk-weighted assets (3)
- Credit risk
- non-counterparty 58.4 59.0 (1%) 61.8 (6%)
- counterparty 28.9 34.0 (15%) 17.5 65%
- Market risk 28.7 35.3 (19%) 26.4 9%
- Operational risk 11.8 11.9 (1%) 14.7 (20%)
127.8 140.2 (9%) 120.4 6%
Notes:
(1) Excludes disposal groups.
(2) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(3) Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis. On a fully loaded Basel 3 basis risk-weighted assets at 1 January 2014 were £147.1 billion.
Corporate & Institutional Banking
Key points
The creation of Corporate & Institutional Banking (CIB) (which comprises the former Markets and International Banking
divisions) is largely complete. The new franchise will continue to focus on the corporate and institutional client base
while maintaining the same vigorous levels of cost reduction and capital management. The commitment to clients was
highlighted this quarter when the business was awarded Global Finance's Best Supply Chain Finance provider in Western
Europe for the seventh consecutive year and also received The Banker's Loans Deal of the Year Europe award.
The low interest rate and low volatility trading environment continues to be challenging. Investor activity remains subdued
and excess client liquidity has curtailed lending. Opportunities for income generation were limited in comparison to the
same period last year, when central bank intervention generated significant volatility.
H1 2014 compared with H1 2013
· Operating profit increased by £505 million, reflecting lower impairments, cost reductions and lower litigation and conduct costs, partially offset by lower income as the business continued to reduce in size to focus on core activities. Restructuring costs were also higher. Adjusted operating profit increased by £253 million or 85% to £549 million.
· Rates income increased by £189 million, 40%, compared with a weak H1 2013. Income associated with continued deleveraging and de-risking of the business supported the result.
· Currencies income was £128 million or 27% lower than in H1 2013, when the business took advantage of volatility caused by central bank intervention in the United States and Japan.
· Credit income was £218 million or 22% lower in H1 2014 compared with H1 2013, which benefited from the general credit market rally. This, combined with a reduced deployment of risk-weighted assets, resulted in lower income. Within Credit income, Asset Backed Product (ABP) income was £510 million, compared with £617 million in H1 2013.
· Global Transaction Services and Portfolio were both flat compared with H1 2013, reflecting the subdued levels of client activity and continued low margin market environment.
· Total expenses were down by 20%, reflecting lower litigation and conduct costs partly offset by higher restructuring costs. Adjusted expenses fell by 12%, driven by headcount reductions and tight control of discretionary expenditure.
· Impairments represented a net recovery of £39 million, compared with a loss of £223 million in H1 2013, driven by the release of latent provisions, reflecting the creation of RCR and improving credit conditions and the non-repeat of significant individual cases.
· Funded assets increased compared with 31 December 2013 as activity levels picked up. Compared with 30 June 2013, however, funded assets fell significantly, down from £328 billion to £279 billion, reflecting the refocusing of the business on core activities.
· Risk-weighted assets increased following the introduction of CRD IV on 1 January 2014. On a like-for-like Basel III basis, risk-weighted assets fell significantly from £172 billion at 30 June 2013, to £128 billion at 30 June 2014. This was driven by a range of mitigation and de-risking actions and the transfer of £13 billion of risk-weighted assets to RCR.
Corporate & Institutional Banking
Key points (continued)
Q2 2014 compared with Q1 2014
· An operating loss of £25 million was driven by restructuring costs and litigation and conduct costs of £202 million. Excluding these items, adjusted operating profit was £177 million, down £195 million, reflecting lower income principally in Credit and Rates.
· Client activity in Rates weakened compared with Q1 2014, and trading gains were lower. As a result, income declined by £62 million.
· Currencies income, down £33 million, continued to be impacted by limited volume and volatility in a highly competitive market environment.
· Credit income decreased by 34%, driven by a lower level of gains in asset backed products following more favourable market movements in Q1 2014. ABP income was £188 million compared with £322 million in Q1 2014.
· Global Transaction Services and Portfolio remained stable as they continued to be impacted by the low margin environment and subdued client activity.
· Total expenses increased by 13% due to restructuring and litigation and conduct costs. Adjusted expenses were down 3%, driven by lower staff costs.
· Funded assets remained broadly stable in a subdued market environment. The small reduction was driven by debt securities in the Rates business.
· Risk-weighted assets fell by £12 billion, reflecting continued mitigation actions and reduced risk exposures.
Q2 2014 compared with Q2 2013
· Rates increased by £42 million, 16%, despite a low volatility environment, benefiting from income associated with de-risking the business in contrast to Q2 2013, which was impacted by difficult trading conditions.
· Currencies income was £123 million or 44% lower, reflecting the subdued market conditions, compared to greater volatility in Q2 2013 following central bank intervention in the United States and Japan.
· Income from Portfolio fell £11 million or 7%. Q2 2013 included a gain on an asset sale.
· Total expenses fell by £341 million, 23%, driven by lower litigation and conduct costs and the ongoing cost reduction programme, partially offset by a £108 million increase in restructuring costs.
Central items
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2014 2013 2014 2014 2013
£m £m £m £m £m
Central items not allocated 91 553 86 5 352
Funding and operating costs have been allocated to operating divisions based on direct service usage, the requirement for
market funding and other appropriate drivers where services span more than one division.
Residual unallocated items relate to volatile corporate items that do not naturally reside within a division.
Key points
H1 2014 compared with H1 2013
· Central items not allocated represented a credit of £91 million compared with a credit of £553 million in H1 2013. The change was principally driven by lower gains on the disposal of available-for-sale securities in Treasury, which were down £245 million to £215 million for H1 2014, along with a £150 million restructuring charge relating to the Williams & Glyn franchise.
Q2 2014 compared with Q1 2014
· Central items not allocated represented a credit of £86 million compared with a credit of £5 million in Q1 2014. The improvement principally reflects lower restructuring costs relating to Williams & Glyn and favourable movements in respect of fair value movements on derivatives not qualifying for hedge accounting in Treasury partially offset by lower AFS gains.
Q2 2014 compared with Q2 2013
· Central items not allocated represented a credit of £86 million compared with a credit of £352 million inQ2 2013. The change was principally driven by lower gains on the disposal of available-for-sale securities in Treasury, which were down £342 million to £13 million for Q2 2014.
Citizens Financial Group (£ Sterling)
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2014 2013 2014 2014 2013
£m £m £m £m £m
Income statement
Net interest income 987 939 499 488 469
Net fees and commissions 350 382 181 169 192
Other non-interest income 270 188 210 60 86
Non-interest income 620 570 391 229 278
Total income 1,607 1,509 890 717 747
Direct expenses
- staff (512) (572) (261) (251) (286)
- other (501) (482) (252) (249) (233)
Indirect expenses - (48) - - (27)
Restructuring costs (69) (3) (69) - (2)
Operating expenses (1,082) (1,105) (582) (500) (548)
Profit before impairment losses 525 404 308 217 199
Impairment losses (104) (51) (31) (73) (32)
Operating profit 421 353 277 144 167
Operating profit - adjusted (1) 490 356 346 144 169
Average exchange rate - US$/£ 1.669 1.544 1.683 1.655 1.536
Analysis of income by product
Mortgages and home equity 223 249 111 112 123
Personal lending and cards 204 204 106 98 104
Retail deposits 376 379 190 186 189
Commercial lending 333 335 168 165 167
Commercial deposits 216 200 109 107 98
Other 255 142 206 49 66
Total income 1,607 1,509 890 717 747
Analysis of impairments by sector
Residential mortgages 1 12 6 (5) 10
Home equity 34 37 15 19 18
SBO home equity 4 - (17) 21 -
Corporate and commercial 8 (35) (1) 9 (11)
Other consumer 55 37 26 29 15
Securities 2 - 2 - -
Total impairment losses 104 51 31 73 32
Loan impairment charge as % of gross
customer loans and advances (excluding
reverse repurchase agreements) by sector
Residential mortgages - 0.4% 0.4% (0.3%) 0.7%
Home equity 0.6% 0.5% 0.5% 0.6% 0.5%
SBO home equity 0.6% - (5.6%) 6.5% -
Corporate and commercial 0.1% (0.3%) - 0.1% (0.2%)
Other consumer 1.2% 0.8% 1.2% 1.3% 0.7%
Total 0.4% 0.2% 0.2% 0.5% 0.2%
Note:
(1) Excluding restructuring costs.
Citizens Financial Group (£ Sterling)
Key metrics Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2014 2013 2014 2014 2013
Performance ratios
Return on equity (1) 7.5% 6.6% 9.8% 5.1% 6.3%
Return on equity - adjusted (1,2) 8.7% 6.7% 12.2% 5.1% 6.4%
Net interest margin 2.94% 2.90% 2.93% 2.94% 2.89%
Cost:income ratio 67% 73% 65% 70% 73%
Cost:income ratio - adjusted (2) 63% 73% 58% 70% 73%
Notes:
(1) Return on equity is based on segmental operating profit after tax divided by average notional equity (based on 12% of monthly average of segmental RWAs).
(2) Excluding restructuring costs.
30 June 31 March 31 December
2014 2014 2013
£bn £bn Change £bn Change
Capital and balance sheet
Loans and advances to customers (gross)
- residential mortgages 6.4 6.2 3% 5.8 10%
- home equity 11.3 12.0 (6%) 12.1 (7%)
- SBO home equity 1.2 1.3 (8%) - 100%
- corporate and commercial 24.2 24.7 (2%) 24.1 -
- other consumer 9.1 9.0 1% 8.6 6%
52.2 53.2 (2%) 50.6 3%
Loan impairment provisions (0.5) (0.5) - (0.3) 67%
Net loans and advances to customers 51.7 52.7 (2%) 50.3 3%
Funded assets 75.7 75.7 - 71.3 6%
Investment securities 14.5 14.9 (3%) 12.9 12%
Risk elements in lending
- retail 1.1 1.1 - 0.9 22%
- commercial 0.2 0.2 - 0.1 100%
Total risk elements in lending 1.3 1.3 - 1.0 30%
Provision coverage (1) 38% 41% (300bp) 26% 1,200bp
Customer deposits (excluding repos) 52.9 54.9 (4%) 55.1 (4%)
Bank deposits (excluding repos) 4.7 3.4 38% 2.0 135%
Loan:deposit ratio (excluding repos) 98% 96% 200bp 91% 700bp
Risk-weighted assets (2)
- Credit risk
- non-counterparty 54.8 55.4 (1%) 50.7 8%
- counterparty 0.8 0.8 - 0.5 60%
- Operational risk 5.1 5.1 - 4.9 4%
60.7 61.3 (1%) 56.1 8%
Spot exchange rate - US$/£ 1.711 1.668 1.654
Notes:
(1) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(2) Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis.
Key points
● Sterling strengthened against the US dollar during the first half of 2014, with the spot exchange rate at 30 June 2014 increasing 3% compared with 31 December 2013.
● Performance is described in full in the US dollar-based financial statements set out on pages 56 to 60.
Citizens Financial Group (US dollar)
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2014 2013 2014 2014 2013
$m $m $m $m $m
Income statement
Net interest income 1,647 1,449 838 809 720
Net fees and commissions 584 590 305 279 295
Other non-interest income 452 291 353 99 133
Non-interest income 1,036 881 658 378 428
Total income 2,683 2,330 1,496 1,187 1,148
Direct expenses
- staff (855) (883) (439) (416) (439)
- other (835) (744) (423) (412) (359)
Indirect expenses - (74) - - (40)
Restructuring costs (115) (5) (115) - (3)
Operating expenses (1,805) (1,706) (977) (828) (841)
Profit before impairment losses 878 624 519 359 307
Impairment losses (174) (78) (53) (121) (48)
Operating profit 704 546 466 238 259
Operating profit - adjusted (1) 819 551 581 238 262
Analysis of income by product
Mortgages and home equity 373 384 188 185 189
Personal lending and cards 340 314 178 162 159
Retail deposits 627 586 319 308 291
Commercial lending 556 518 283 273 257
Commercial deposits 360 309 183 177 151
Other 427 219 345 82 101
Total income 2,683 2,330 1,496 1,187 1,148
Analysis of impairments by sector
Residential mortgages 1 19 10 (9) 16
Home equity 57 56 25 32 27
SBO home equity 6 - (28) 34 -
Corporate and commercial 13 (53) (2) 15 (17)
Other consumer 94 56 45 49 22
Securities 3 - 3 - -
Total impairment losses 174 78 53 121 48
Loan impairment charge as % of gross
customer loans and advances (excluding
reverse repurchase agreements) by sector
Residential mortgages - 0.4% 0.4% (0.3%) 0.7%
Home equity 0.6% 0.5% 0.5% 0.6% 0.5%
SBO home equity 0.6% - (5.6%) 6.5% -
Corporate and commercial 0.1% (0.3%) - 0.1% (0.2%)
Other consumer 1.2% 0.8% 1.2% 1.3% 0.7%
Total 0.4% 0.2% 0.2% 0.5% 0.2%
Note:
(1) Excluding restructuring costs.
Citizens Financial Group (US dollar)
Key metrics
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2014 2013 2014 2014 2013
Performance ratios
Return on equity (1) 7.5% 6.6% 9.8% 5.1% 6.3%
Return on equity - adjusted (1,2) 8.7% 6.7% 12.2% 5.1% 6.4%
Net interest margin 2.94% 2.90% 2.93% 2.94% 2.89%
Cost:income ratio 67% 73% 65% 70% 73%
Cost:income ratio - adjusted (2) 63% 73% 58% 70% 73%
Notes:
(1) Return on equity is based on segmental operating profit after tax divided by average notional equity (based on 12% of monthly average of segmental RWAs).
(2) Excluding restructuring costs.
The results of Citizens Financial Group on a comparable basis are set out below. These include Non-Core operations and
exclude Group allocations.
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2014 2013 2014 2014 2013
$m $m $m $m $m
Total income 2,683 2,401 1,496 1,187 1,183
Operating expenses (1,805) (1,656) (977) (828) (815)
Impairment losses (174) (202) (53) (121) (112)
Operating profit 704 543 466 238 256
Operating profit - adjusted (1) 819 548 581 238 259
Return on equity 7.5% 5.9% 9.8% 5.1% 5.7%
Return on equity - adjusted (1,2) 8.7% 6.0% 12.2% 5.1% 5.7%
Notes:
(1) Excluding restructuring costs.
(2) Return on equity is based on segmental operating profit after tax divided by average notional equity (based on 12% of monthly average of segmental RWAs).
Citizens Financial Group (US dollar)
30 June 31 March 31 December
2014 2014 2013
$bn $bn Change $bn Change
Capital and balance sheet
Loans and advances to customers (gross)
- residential mortgages 10.9 10.3 6% 9.6 14%
- home equity 19.4 20.0 (3%) 20.1 (3%)
- SBO home equity 2.0 2.1 (5%) - 100%
- corporate and commercial 41.4 41.2 - 39.8 4%
- other consumer 15.6 15.2 3% 14.1 11%
89.3 88.8 1% 83.6 7%
Loan impairment provisions (0.9) (0.9) - (0.4) 125%
Net loans and advances to customers 88.4 87.9 1% 83.2 6%
Funded assets 129.5 126.2 3% 117.9 10%
Investment securities 24.9 24.9 - 21.3 17%
Risk elements in lending
- retail 1.9 1.9 - 1.5 27%
- commercial 0.3 0.3 - 0.2 50%
Total risk elements in lending 2.2 2.2 - 1.7 29%
Provision coverage (1) 38% 41% (300bp) 26% 1,200bp
Customer deposits (excluding repos) 90.5 91.6 (1%) 91.1 (1%)
Bank deposits (excluding repos) 8.0 5.7 40% 3.3 142%
Loan:deposit ratio (excluding repos) 98% 96% 200bp 91% 700bp
Risk-weighted assets (2)
- Credit risk
- non-counterparty 93.8 92.4 2% 83.8 12%
- counterparty 1.3 1.3 - 0.8 63%
- Operational risk 8.7 8.5 2% 8.2 6%
103.8 102.2 2% 92.8 12%
Notes:
(1) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(2) Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis.
Key points
H1 2014 and Q2 2014 results are not directly comparable with prior year periods; prior year results exclude Non-Core
operations and include Group allocations. In the context of the planned disposal of Citizens Financial Group, central Group
costs are no longer allocated to the division.
H1 2014 compared with H1 2013
· Operating profit increased by $158 million, or 29%, to $704 million, reflecting the sale of the Illinois retail branches and small business and select middle market relationships in the Illinois market. Excluding the impact of the sale, $283 million net gain, and restructuring costs, $115 million (H1 2013 - $5 million), operating profit was down 3% driven by lower non-interest income and higher impairment losses partially offset by higher net interest income.
· The former Non-Core portfolio is now included on a prospective basis from 1 January 2014. On a comparable basis, operating profit excluding the impact of the sale, $283 million net gain, and restructuring costs, $115 million (H1 2013 - $5 million), was down 2% driven by lower non-interest income and higher expenses partially offset by higher net interest income and lower impairment losses.
Citizens Financial Group (US dollar)
Key points (continued)
H1 2014 compared with H1 2013 (continued)
· The branch sale comprised retail branches located in Illinois, including certain customer deposits of $4.8 billion and selected loans of $1.0 billion (primarily middle market, small business, home equity and credit card balances). The transaction which
completed on 20 June 2014 and resulted in a net gain of $283 million and restructuring costs of $17 million.
· The operating environment and market conditions remained challenging, with intense competition for loans. An extended period of low short-term rates limited net interest margin expansion and the rise in long-term rates dramatically slowed mortgage
refinance volumes.
· Net interest income was up $198 million, or 14%, to $1,647 million driven by a larger investment portfolio, loan growth including the transfer of assets from Non-Core, the benefit of interest rate swaps and deposit pricing discipline.
· Higher rates led to investment security purchases resulting in average portfolio growth of $6.3 billion over the year.
· Average loans and advances were up 9%, driven by the $3.6 billion transfer of assets from Non-Core, commercial and auto loan growth, a strategic initiative to purchase residential mortgages and to hold more originations on the balance sheet. This was
partially offset by home equity run-off.
· Average customer deposits were down 3%, with planned run-off of high priced deposits. Consumer and small business checking balances both grew by 3% over the year.
· Excluding the gain on the sale of the Illinois branches of $283 million, non-interest income was down $128 million, or 15%, to $753 million reflecting lower securities gains of $69 million, lower mortgage banking fees of $49 million, as refinancing volumes
have slowed, and lower deposit fees of $31 million due to a change in the posting order of customer transactions, partially offset by higher commercial banking fee income of $21 million. Mortgage origination activity has slowed as market rates have risen,
leading to lower applications combined with lower levels of gains on sales of mortgages.
· Excluding restructuring costs of $115 million (H1 2013 - $5 million), total expenses were down $11 million, or 1%, to $1,690 million driven by the removal of indirect costs in 2014, incentive reversals for prior year plans and lower retirement costs
partially offset by lower mortgage servicing rights impairment recapture and higher consumer regulatory compliance costs.
· Restructuring costs include costs related to the sale of the Illinois branches and other initiatives intended to improve the overall effectiveness and efficiency of the franchise.
· Impairment losses increased by $96 million to $174 million due to a reserve build of $15 million in H1 2014 compared with a reserve release of $58 million in H1 2013 and higher charge-offs including those related to assets transferred from Non-Core.
Q2 2014 compared with Q1 2014
· Operating profit increased by $228 million, or 96%, to $466 million largely due to the sale of the Illinois retail branches and small business and select middle market relationships. Excluding the impact of the sale, $283 million, and restructuring costs, $115 million, operating profit was up $60 million, or 25%, to $298 million driven by lower impairment losses.
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