REG - Royal Bk Scot.Grp. - Interim Management Statement <Origin Href="QuoteRef">RBS.L</Origin> - Part 2
30/10/2015 07:01
- Part 2: For the preceding part double click ID:nRSd9427Da
2014 2015 2015 2014
Operating expenses £m £m £m £m £m
Staff costs 3,776 4,184 1,265 1,242 1,356
Premises and equipment 1,061 1,360 352 298 423
Other 1,338 1,418 477 481 396
Restructuring costs* 2,317 612 847 1,023 167
Litigation and conduct costs 1,444 1,030 129 459 780
Administrative expenses 9,936 8,604 3,070 3,503 3,122
Depreciation and amortisation 608 724 190 186 261
Write down of intangible assets - 82 - - -
Operating expenses 10,544 9,410 3,260 3,689 3,383
Adjusted operating expenses (1) 6,783 7,768 2,284 2,207 2,436
*Restructuring costs comprise:
- staff expenses 625 248 281 288 79
- premises, equipment, depreciation and amortisation 705 244 375 42 52
- other 987 120 191 693 36
Restructuring costs 2,317 612 847 1,023 167
Staff costs as a % of total income 37% 35% 42% 35% 37%
Cost:income ratio 104% 78% 107% 103% 93%
Cost:income ratio - adjusted (1) 67% 65% 75% 62% 67%
Employee numbers (FTE - thousands) 92.4 93.3 92.4 91.6 93.3
Note:
(1) Excluding restructuring costs and litigation and conduct costs.
Key points
· Staff costs totalled £1,265 million, down £91 million or 7%, compared with Q3 2014, principally driven by declining headcount. Premises and equipment expenses were down £71 million from Q3 2014 as RBS's property portfolio is managed down.
· Adjusted operating expenses in the nine months ended 30 September 2015 totalled £6,783 million, down £985 million or 13%, compared with the same period of 2014. RBS expects to exceed £900 million of cost savings for the full year. However, Q4 2015 will include the annual bank levy charge; in addition, £190 million of accrual reversals were recorded in Q4 2014.
· Restructuring costs totalled £847 million for Q3 2015, principally relating to CIB (£637 million, including £276 million of property related charges) and to Williams & Glyn separation (£190 million). Restructuring costs in the first nine months of 2015 were £2.3 billion, approaching half of the expected c.£5 billion of total restructuring costs from 2015 to 2019.
· Litigation and conduct costs of £129 million were lower than recorded in recent quarters and related principally to a charge in CIB in relation to certain mortgage-backed securities litigation.
Analysis of results
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2015 2014 2015 2015 2014
Impairment (releases)/losses £m £m £m £m £m
Loan impairment (releases)/losses
- individually assessed (135) (321) (15) (105) (415)
- collectively assessed (8) 293 (13) (7) 16
- latent (380) (642) (64) (91) (450)
Customer loans (523) (670) (92) (203) (849)
Bank loans (4) (10) (4) - -
Total loan impairment releases (527) (680) (96) (203) (849)
Securities 127 (2) 17 11 2
Total impairment releases (400) (682) (79) (192) (847)
30 September 30 June 31 December
Credit metrics (1) 2015 2015 2014
Gross customer loans £322,957m £390,781m £412,801m
Loan impairment provisions £9,277m £11,303m £18,040m
Risk elements in lending (REIL) £14,643m £18,714m £28,219m
Provisions as a % of REIL 63% 60% 64%
REIL as a % of gross customer loans 4.5% 4.8% 6.8%
Credit metrics excluding Citizens
Gross customer loans £322,957m £328,821m £352,659m
Loan impairment provisions £9,277m £10,771m £17,504m
Risk elements in lending (REIL) £14,643m £17,474m £26,889m
Provisions as a % of REIL 63% 62% 65%
REIL as a % of gross customer loans 4.5% 5.3% 7.6%
Note:
(1) Includes disposal groups. Citizens is included in disposal groups at 30 June 2015 and 31 December 2014.
Key points
· Loan impairment releases in Q3 2015 were £96 million compared with £849 million in Q3 2014.
· Excluding Citizens, provision coverage increased from 62% at 30 June 2015 to 63% at 30 September 2015, largely reflecting the £2.8 billion reduction in REIL, principally driven by RCR disposals.
Analysis of results
Selected credit risk portfolios
30 September 2015 30 June 2015 (1) 31 December 2014 (1)
CRA (2) TCE (2) EAD (2) CRA (2) TCE (2) EAD (2) CRA (2) TCE (2) EAD (2)
Natural resources £m £m £m £m £m £m £m £m £m
Oil and gas 4,632 9,181 7,224 6,664 15,499 11,318 9,421 22,014 15,877
Mining and metals 1,397 2,516 1,934 1,717 2,914 2,543 2,660 4,696 3,817
Electricity 3,323 9,145 6,282 4,361 11,935 7,933 4,927 16,212 9,984
Water and waste 4,901 5,955 5,906 5,006 6,174 6,041 5,281 6,718 6,466
Natural resources 14,253 26,797 21,346 17,748 36,522 27,835 22,289 49,640 36,144
Commodity traders (3) 884 1,239 1,355 1,136 1,835 1,996 1,968 2,790 3,063
Of which: natural resources 662 915 922 706 1,083 1,197 1,140 1,596 1,852
Shipping 7,937 8,568 8,266 8,258 8,874 8,616 10,087 10,710 10,552
Notes:
(1) Prior period data excludes Citizens for comparative purposes: Citizens totals for natural resources and shipping were 30 June 2015 - TCE £4.4 billion, EAD £3.6 billion; 31 December 2014 - TCE £4.2 billion, EAD £3.4 billion.
(2) Credit risk assets (CRA) consist of lending gross of impairment provisions, derivative exposures after netting and contingent obligations. Total committed exposure (TCE) comprises CRA, securities financing transactions after netting, banking book debt
securities and committed undrawn facilities. Exposure at default (EAD) is gross of credit provisions and is after credit risk mitigation. EAD reflects an estimate of the extent to which a bank will be exposed under a specific facility on the default of a
customer or counterparty. Uncommitted undrawn facilities are excluded from TCE but included within EAD; therefore EAD can exceed TCE.
(3) Commodity traders represents customers in a number of industry sectors, predominately natural resources above.
Key points
· Oil and gas: total exposure has more than halved during 2015 and decreased significantly during Q3 2015. This primarily reflected continued loan sales and run-off across the CIB portfolio in Asia-Pacific and the US.
· Mining and metals: the reduction in exposure during 2015 reflected proactive management of more vulnerable sub-sectors. The majority of the exposure is to large international customers and matures within five years.
· Commodity traders: total exposure has more than halved during 2015 and is primarily to the largest physical commodity traders, the exposure is predominantly short-dated, collateralised and uncommitted facilities used for working capital.
· Shipping: exposure is in CIB Capital Resolution and RCR. The decrease in exposure in Q3 2015 principally reflected sales in RCR.
30 September 2015 30 June 2015 31 December 2014
Balance Total Balance Total Balance Total
sheet exposure sheet exposure sheet exposure
Emerging markets (1) £m £m £m £m £m £m
India 1,952 2,456 1,680 2,225 1,989 2,628
China 1,588 1,651 2,358 2,510 3,548 4,079
Russia 953 1,028 1,618 1,709 1,830 1,997
Note:
(1) Balance sheet and total exposures include banking and trading book debt securities and are net of impairment provisions in respect of lending - refer to the Country risk section of the 2014 Annual Report and Accounts for detailed definitions.
Key point
· Exposure to most emerging markets decreased in 2015 as RBS continues to implement its strategy to withdraw from non-strategic countries. The drop in Chinese exposure in Q3 2015 reflected corporate loan sales and reductions in cash collateral due to reduced volumes of foreign exchange trading. Total exposure to Russia has halved during 2015 and the reduction in Q3 2015 was mostly due to corporate loan sales.
Analysis of results
Capital and leverage ratios
End-point CRR basis (1) PRA transitional basis
30 September 30 June 31 December 30 September 30 June 31 December
2015 2015 2014 2015 2015 2014
Risk asset ratios % % % % % %
CET1 12.7 12.3 11.2 12.7 12.3 11.1
Tier 1 13.3 12.3 11.2 15.5 14.3 13.2
Total 16.0 14.8 13.7 19.8 18.5 17.1
Capital £m £m £m £m £m £m
Tangible equity 44,442 43,919 44,368 44,442 43,919 44,368
Expected loss less impairment provisions (1,185) (1,319) (1,491) (1,185) (1,319) (1,491)
Prudential valuation adjustment (392) (366) (384) (392) (366) (384)
Deferred tax assets (1,159) (1,206) (1,222) (1,159) (1,206) (1,222)
Own credit adjustments 208 345 500 208 345 500
Pension fund assets (256) (250) (238) (256) (250) (238)
Other deductions (1,478) (1,070) (1,614) (1,456) (1,047) (1,884)
Total deductions (4,262) (3,866) (4,449) (4,240) (3,843) (4,719)
CET1 capital 40,180 40,053 39,919 40,202 40,076 39,649
AT1 capital 1,997 - - 8,716 6,709 7,468
Tier 1 capital 42,177 40,053 39,919 48,918 46,785 47,117
Tier 2 capital 8,331 8,181 8,717 13,742 13,573 13,626
Total regulatory capital 50,508 48,234 48,636 62,660 60,358 60,743
Risk-weighted assets
Credit risk
- non-counterparty 237,800 245,000 264,700 237,800 245,000 264,700
- counterparty 26,900 27,500 30,400 26,900 27,500 30,400
Market risk 19,700 22,300 24,000 19,700 22,300 24,000
Operational risk 31,600 31,600 36,800 31,600 31,600 36,800
Total RWAs 316,000 326,400 355,900 316,000 326,400 355,900
Leverage (2)
Derivatives 296,500 282,300 354,000
Loans and advances 402,300 402,800 419,600
Reverse repos 52,100 67,800 64,700
Other assets 207,700 211,800 212,500
Total assets 958,600 964,700 1,050,800
Derivatives
- netting (280,300) (266,600) (330,900)
- potential future exposures 82,200 83,500 98,800
Securities financing transactions gross up 6,600 6,200 25,000
Undrawn commitments 78,900 84,700 96,400
Regulatory deductions and other
adjustments 500 2,000 (600)
Leverage exposure 846,500 874,500 939,500
Tier 1 capital 42,177 40,053 39,919
Leverage ratio % 5.0 4.6 4.2
Notes:
(1) Capital Requirements Regulation (CRR) as implemented by the Prudential Regulation Authority in the UK, with effect from 1 January 2014. All regulatory adjustments and deductions to CET1 have been applied in full for the end-point CRR basis with the exception of unrealised gains on AFS securities which has been included from 2015 under the PRA transitional basis.
(2) Based on end-point CRR Tier 1 capital and leverage exposure under the revised 2014 Basel III leverage ratio framework and the CRR Delegated Act.
Analysis of results
Key points
· RBS's CET1 ratio strengthened to 12.7% at 30 September 2015, up 40 basis points from 30 June 2015 and 150 basis points since the start of the year. The increase was principally driven by a further reduction in RWAs, which fell by £10.4 billion during Q3 2015. Excluding the impact of movements in both US dollar and euro exchange rates, the RWA reduction would have been £14.9 billion.
· CIB Capital Resolution RWAs decreased by £6.7 billion from 30 June 2015 due to portfolio reduction of £7 billion, including further sale to Mizuho of £1.3 billion and ongoing GTS exit activity of £1.5 billion, partly offset by foreign exchange movements as sterling weakened against the dollar.
· CIB Go-forward RWAs decreased by £3.3 billion from 30 June 2015 principally due to a decrease of £2.2 billion in market risk RWAs.
· RCR RWAs reduced by £2.0 billion from 30 June 2015 reflecting ongoing disposal and run-off strategy.
· The leverage ratio improved to 5.0% at 30 September 2015, up 40 basis points from 30 June 2015, assisted by the successful issue of US$3.15 billion (£2 billion) Additional Tier 1 capital notes in August 2015 and reduced leverage exposure driven by lower reverse repos and undrawn commitments.
· On a pro-forma basis, assuming full deconsolidation of Citizens credit and counterparty risk RWAs at 30 September 2015, RBS's CET1 ratio would have been 16.2% and its leverage ratio 5.6%.
Segment performance
On 3 August 2015, RBS's interest in Citizens fell to 20.9% and Citizens Financial Group (CFG) ceased to be a reportable
segment. The following segment disclosures have been restated accordingly. Refer to pages 2 and 31 for further
information.
Nine months ended 30 September 2015
PBB CPB CIB
Ulster Commercial Private Central Total
UK PBB Bank Total Banking Banking Total items (1) RCR RBS
£m £m £m £m £m £m £m £m £m £m
Income statement
Net interest income 3,460 392 3,852 1,673 377 2,050 518 227 (42) 6,605
Non-interest income 920 190 1,110 871 248 1,119 1,243 (114) 187 3,545
Total income 4,380 582 4,962 2,544 625 3,169 1,761 113 145 10,150
Direct expenses - staff costs (694) (179) (873) (377) (209) (586) (461) (1,778) (78) (3,776)
- other costs (221) (54) (275) (166) (49) (215) (209) (2,294) (14) (3,007)
Indirect expenses (1,379) (196) (1,575) (657) (289) (946) (1,571) 4,139 (47) -
Restructuring costs - direct (5) (21) (26) (11) (1) (12) (404) (1,875) - (2,317)
- indirect (72) (3) (75) (8) (83) (91) (1,258) 1,428 (4) -
Litigation and conduct costs (362) 6 (356) (59) (28) (87) (980) (21) - (1,444)
Operating expenses (2,733) (447) (3,180) (1,278) (659) (1,937) (4,883) (401) (143) (10,544)
Profit/(loss) before impairment losses 1,647 135 1,782 1,266 (34) 1,232 (3,122) (288) 2 (394)
Impairment releases/(losses) 6 110 116 (42) (1) (43) 35 (47) 339 400
Operating profit/(loss) 1,653 245 1,898 1,224 (35) 1,189 (3,087) (335) 341 6
Additional information
Operating expenses - adjusted (2) (2,294) (429) (2,723) (1,200) (547) (1,747) (2,241) 67 (139) (6,783)
Operating profit/(loss) - adjusted (2) 2,092 263 2,355 1,302 77 1,379 (445) 133 345 3,767
Return on equity (3) 26.2% 10.1% 20.7% 11.6% (4.5%) 9.6% (26.0%) nm nm 2.4%
Return on equity - adjusted (2,3) 33.7% 10.8% 26.0% 12.5% 4.1% 11.4% (5.1%) nm nm 11.7%
Cost:income ratio 62% 77% 64% 50% 105% 61% 277% nm nm 104%
Cost:income ratio - adjusted (2) 52% 74% 55% 47% 88% 55% 127% nm nm 67%
Total assets (£bn) 139.1 28.0 167.1 95.9 16.8 112.7 464.1 119.6 12.9 876.4
Funded assets (£bn) 139.1 27.9 167.0 95.9 16.7 112.6 177.4 116.9 6.5 580.4
Net loans and advances to customers (£bn) 132.5 20.6 153.1 91.6 13.5 105.1 50.8 0.4 4.3 313.7
Risk elements in lending (£bn) 3.0 4.0 7.0 2.2 0.1 2.3 0.2 - 5.1 14.6
Impairment provisions (£bn) (2.0) (2.3) (4.3) (0.8) (0.1) (0.9) (0.1) (0.1) (3.9) (9.3)
Customer deposits (£bn) 152.9 19.2 172.1 98.9 29.1 128.0 47.8 3.7 0.9 352.5
Risk-weighted assets (RWAs) (£bn) 39.4 21.5 60.9 67.2 9.8 77.0 78.0 87.7 12.4 316.0
RWA equivalent (£bn) (4) 43.2 21.7 64.9 72.1 9.8 81.9 79.7 88.1 13.9 328.5
Employee numbers (FTEs - thousands) 25.6 4.2 29.8 6.0 2.7 8.7 2.8 50.6 0.5 92.4
For the notes to this table refer to page 22. nm = not meaningful
Segment performance
Quarter ended 30 September 2015
PBB CPB CIB
Ulster Commercial Private Central Total
UK PBB Bank Total Banking Banking Total items (1) RCR RBS
£m £m £m £m £m £m £m £m £m £m
Income statement
Net interest income 1,170 127 1,297 565 123 688 142 77 (17) 2,187
Non-interest income 289 87 376 265 81 346 295 (154) (3) 860
Total income 1,459 214 1,673 830 204 1,034 437 (77) (20) 3,047
Direct expenses - staff costs (238) (59) (297) (122) (66) (188) (139) (619) (22) (1,265)
- other costs (81) (21) (102) (56) (23) (79) (60) (777) (1) (1,019)
Indirect expenses (466) (70) (536) (224) (95) (319) (510) 1,380 (15) -
Restructuring costs - direct (5) (3) (8) (1) 2 1 (193) (647) - (847)
- indirect (22) (3) (25) - (3) (3) (444) 476 (4) -
Litigation and conduct costs 2 (2) - - - - (107) (22) - (129)
Operating expenses (810) (158) (968) (403) (185) (588) (1,453) (209) (42) (3,260)
Profit/(loss) before impairment losses 649 56 705 427 19 446 (1,016) (286) (62) (213)
Impairment (losses)/releases (11) 58 47 (15) (4) (19) 4 1 46 79
Operating profit/(loss) 638 114 752 412 15 427 (1,012) (285) (16) (134)
Additional information
Operating expenses - adjusted (2) (785) (150) (935) (402) (184) (586) (709) (16) (38) (2,284)
Operating profit/(loss) - adjusted (2) 663 122 785 413 16 429 (268) (92) (12) 842
Return on equity (3) 31.8% 14.1% 25.5% 11.7% 1.7% 10.5% (29.2%) nm nm 8.8%
Return on equity - adjusted (2,3) 33.1% 15.1% 26.7% 11.7% 1.9% 10.6% (9.1%) nm nm 15.8%
Cost:income ratio 56% 74% 58% 49% 91% 57% 332% nm nm 107%
Cost:income ratio - adjusted (2) 54% 70% 56% 48% 90% 57% 162% nm nm 75%
Total assets (£bn) 139.1 28.0 167.1 95.9 16.8 112.7 464.1 119.6 12.9 876.4
Funded assets (£bn) 139.1 27.9 167.0 95.9 16.7 112.6 177.4 116.9 6.5 580.4
Net loans and advances to customers (£bn) 132.5 20.6 153.1 91.6 13.5 105.1 50.8 0.4 4.3 313.7
Risk elements in lending (£bn) 3.0 4.0 7.0 2.2 0.1 2.3 0.2 - 5.1 14.6
Impairment provisions (£bn) (2.0) (2.3) (4.3) (0.8) (0.1) (0.9) (0.1) (0.1) (3.9) (9.3)
Customer deposits (£bn) 152.9 19.2 172.1 98.9 29.1 128.0 47.8 3.7 0.9 352.5
Risk-weighted assets (RWAs) (£bn) 39.4 21.5 60.9 67.2 9.8 77.0 78.0 87.7 12.4 316.0
RWA equivalent (£bn) (4) 43.2 21.7 64.9 72.1 9.8 81.9 79.7 88.1 13.9 328.5
Employee numbers (FTEs - thousands) 25.6 4.2 29.8 6.0 2.7 8.7 2.8 50.6 0.5 92.4
For the notes to this table refer to page 22. nm = not meaningful
Segment performance
Nine months ended 30 September 2014
PBB CPB CIB
Ulster Commercial Private Central Total
UK PBB Bank Total Banking Banking Total items (1) RCR RBS
£m £m £m £m £m £m £m £m £m £m
Income statement
Net interest income 3,474 486 3,960 1,520 516 2,036 595 312 (24) 6,879
Non-interest income 1,031 140 1,171 859 299 1,158 2,663 (115) 254 5,131
Total income 4,505 626 5,131 2,379 815 3,194 3,258 197 230 12,010
Direct expenses - staff costs (705) (182) (887) (390) (227) (617) (666) (1,889) (126) (4,185)
- other costs (305) (55) (360) (176) (47) (223) (300) (2,644) (56) (3,583)
Indirect expenses (1,423) (187) (1,610) (598) (326) (924) (1,773) 4,386 (79) -
Restructuring costs - direct (8) 8 - (40) (2) (42) (44) (526) - (612)
- indirect (76) (34) (110) (40) (8) (48) (163) 325 (4) -
Litigation and conduct costs (268) - (268) (50) - (50) (612) (100) - (1,030)
Operating expenses (2,785) (450) (3,235) (1,294) (610) (1,904) (3,558) (448) (265) (9,410)
Profit/(loss) before impairment losses 1,720 176 1,896 1,085 205 1,290 (300) (251) (35) 2,600
Impairment (losses)/releases (227) 261 34 (43) 4 (39) 51 11 625 682
Operating profit/(loss) 1,493 437 1,930 1,042 209 1,251 (249) (240) 590 3,282
Additional information
Operating expenses - adjusted (2) (2,433) (424) (2,857) (1,164) (600) (1,764) (2,739) (147) (261) (7,768)
Operating profit - adjusted (2) 1,845 463 2,308 1,172 219 1,391 570 61 594 4,924
Return on equity (3) 22.1% 16.2% 19.6% 10.4% 12.3% 10.7% (2.4%) nm nm 7.3%
Return on equity - adjusted (2,3) 27.6% 17.2% 23.6% 11.8% 12.9% 12.0% 2.2% nm nm 11.9%
Cost:income ratio 62% 72% 63% 54% 75% 60% 109% nm nm 78%
Cost:income ratio - adjusted (2) 54% 68% 56% 49% 74% 55% 84% nm nm 65%
Total assets (£bn) 134.2 26.5 160.7 89.7 21.1 110.8 572.9 170.4 31.3 1,046.1
Funded assets (£bn) 134.2 26.3 160.5 89.7 21.0 110.7 274.9 168.1 17.9 732.1
Net loans and advances to customers (£bn) 127.0 22.0 149.0 85.0 16.7 101.7 73.1 57.1 13.2 394.1
Risk elements in lending (£bn) 4.1 4.8 8.9 2.6 0.2 2.8 0.1 1.3 17.4 30.5
Impairment provisions (£bn) (2.7) (2.9) (5.6) (1.0) (0.1) (1.1) (0.2) (0.5) (12.6) (20.0)
Customer deposits (£bn) 146.0 19.7 165.7 87.0 36.2 123.2 57.1 58.4 1.2 405.6
Risk-weighted assets (RWAs) (£bn) 44.7 23.9 68.6 64.9 12.2 77.1 123.2 82.2 30.6 381.7
RWA equivalent (£bn) (4) 47.3 21.4 68.7 71.6 12.2 83.8 125.0 82.2 38.3 398.0
Employee numbers (FTEs - thousands) 25.0 4.5 29.5 6.8 3.4 10.2 4.0 48.8 0.8 93.3
For the notes to this table refer to page 22. nm = not meaningful
Segment performance
Quarter ended 30 June 2015
PBB CPB CIB
Ulster Commercial Private Central Total
UK PBB Bank Total Banking Banking Total items (1) RCR RBS
£m £m £m £m £m £m £m £m £m £m
Income statement
Net interest income 1,147 132 1,279 562 126 688 174 88 (14) 2,215
Non-interest income 322 46 368 330 81 411 346 170 59 1,354
Total income 1,469 178 1,647 892 207 1,099 520 258 45 3,569
Direct expenses - staff costs (231) (60) (291) (126) (67) (193) (142) (585) (31) (1,242)
- other costs (69) (16) (85) (56) (14) (70) (71) (732) (7) (965)
Indirect expenses (463) (63) (526) (208) (96) (304) (521) 1,366 (15) -
Restructuring costs - direct - (18) (18) (10) (3) (13) (195) (797) - (1,023)
- indirect (20) (1) (21) (7) (81) (88) (539) 648 - -
Litigation and conduct costs (10) 8 (2) (59) (26) (85) (373) 1 - (459)
Operating expenses (793) (150) (943) (466) (287) (753) (1,841) (99) (53) (3,689)
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