REG - Royal Bk Scot.Grp. - Interim Management Statement <Origin Href="QuoteRef">RBS.L</Origin> - Part 2
29/04/2016 07:06
- Part 2: For the preceding part double click ID:nRSc7468Wa
(6) Net interest margin includes Treasury allocations and interest on intercompany borrowings, which are excluded from third party customer rates.
(7) Ulster Bank Ireland Limited 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
Quarter ended
31 March 31 December 31 March
2016 2015 2015
Non-interest income £m £m £m
Net fees and commissions 654 653 812
Income from trading activities (110) 59 235
Own credit adjustments 256 (115) 120
Loss on redemption of own debt - (263) -
Strategic disposals (6) (22) (135)
Other operating income 114 10 284
Total non-interest income 908 322 1,316
Memo:
IFRS volatility in Treasury (356) 59 (123)
Note:
(1) IFRS volatility relates to loans which are economically hedged but for which hedge accounting is not permitted under IFRS.
Key points
· Non-interest income was £908 million, a reduction of £408 million, or 31%, compared with £1,316 million in Q1 2015. The reduction principally reflects a £234 million fall in Capital Resolution due to planned asset disposals, a £233 million increase in the
charge for volatile items under IFRS (£356 million in Q1 2016 compared with £123 million in Q1 2015) and a £194 million reduction in CIB, reflecting a challenging market and the reduced scale of the business. Partially offsetting, strategic disposal losses
were £135 million in Q1 2015, largely in respect of International Private Banking.
· Compared with Q4 2015, non-interest income was £586 million higher principally reflecting an own credit adjustment gain of £256 million compared with a charge of £115 million in Q4 2015, a £263 million loss on redemption of own debt in Q4 2015 and a
reduction in Capital Resolution losses. Partially offsetting, a £356 million charge for volatile items under IFRS was reported in the quarter compared with a gain of £59 million in Q4 2015.
· Net fees and commissions fell by £158 million, or 19%, compared with Q1 2015 to £654 million reflecting the planned Capital Resolution asset run-down, £59 million, lower CIB income, down £104 million, and lower interchange fees in UK PBB, down £25 million.
· Losses from trading activities totalled £110 million in Q1 2016 compared with income of £235 million in Q1 2015, reflecting an increased charge for volatile items under IFRS as well as income reductions across CIB and Capital Resolution.
· Other operating income of £114 million was £170 million lower than Q1 2015 principally reflecting planned Capital Resolution run-down.
Analysis of results
Quarter ended
31 March 31 December 31 March
2016 2015 2015*
Operating expenses £m £m £m
Staff costs 1,202 1,072 1,285
Premises and equipment 315 422 411
Other administrative expenses 446 786 380
Restructuring costs (see below) 238 614 447
Litigation and conduct costs 31 2,124 856
Administrative expenses 2,232 5,018 3,379
Depreciation and amortisation 178 170 232
Write down of goodwill - 498 -
Write down of other intangible assets 10 75 -
Operating expenses 2,420 5,761 3,611
Adjusted operating expenses (1) 2,151 2,525 2,308
Restructuring costs comprise:
- staff expenses 121 205 56
- premises, equipment, depreciation and amortisation 9 41 288
- other 108 368 103
238 614 447
Staff costs as a % of total income 39% 43% 37%
Cost:income ratio 79% 232% 103%
Cost:income ratio - adjusted (2) 76% 88% 65%
Employee numbers (FTE - thousands) 92.4 91.5 91.7
*Restated, refer to Note 1 on page 32 for further details.
Notes:
(1) Excluding restructuring costs, litigation and conduct costs, and write down of goodwill.
(2) Excluding restructuring costs, litigation and conduct costs, write down of goodwill, own credit adjustments, loss on redemption of own debt and strategic disposals.
Key points
· Total operating expenses of £2,420 million were £1,191 million, or 33%, lower than Q1 2015 principally reflecting lower litigation and conduct costs of £31 million (Q1 2015 - £856 million) and lower restructuring costs of £238 million (Q1 2015 - £447 million).
· Adjusted operating expenses fell by £157 million, or 7%, from Q1 2015 to £2,151 million. Excluding expenses associated with Williams & Glyn and the write down of intangible assets, adjusted operating expenses reduced by £189 million and remain on target to achieve an £800 million reduction for the year.
· Staff costs of £1,202 million were down £83 million, or 6%, on Q1 2015 reflecting reduced headcount in CIB and Capital Resolution.
· Restructuring costs of £238 million in the quarter principally related to the Williams & Glyn separation, £158 million.
· Litigation and conduct costs of £31 million were significantly lower than recorded in previous quarters which included additional provisions for mortgage-backed securities and foreign exchange litigation in the US, additional PPI provisions and other customer redress.
Analysis of results
Quarter ended
31 March 31 December 31 March
2016 2015 2015
Impairment losses/(releases) £m £m £m
Loan impairment losses/(releases)
- individually assessed 186 (271) (15)
- collectively assessed 16 (27) 12
- latent 21 (28) (225)
Total loan impairment losses/(releases) 223 (326) (228)
Securities - (1) 99
Total impairment losses/(releases) 223 (327) (129)
31 March 31 December 31 March
Credit metrics (1) 2016 2015 2015
Gross customer loans £325,339m £315,111m £413,900m
Loan impairment provisions £6,701m £7,139m £13,785m
Risk elements in lending (REIL) £11,867m £12,157m £22,278m
Provisions as a % of REIL 57% 59% 62%
REIL as a % of gross customer loans 3.6% 3.9% 5.4%
Note:
(1) Includes disposal groups and excludes reverse repos.
Key points
· A net impairment loss of £223 million was reported in Q1 2016 compared with a release of £129 million in Q1 2015 and a release of £327 million in Q4 2015.
· Capital Resolution reported an impairment loss of £196 million compared with a release of £145 million in Q1 2015. The charge for the quarter included £226 million (Q4 2015 - £83 million; Q1 2015 - £59 million) in relation to exposures in the shipping portfolio reflecting difficult conditions in some parts of the sector.
· Provision coverage decreased from 59% at 31 December 2015 to 57% at 31 March 2016.
Analysis of results
Selected credit risk portfolios
31 March 2016 31 December 2015
CRA (1) TCE (2) EAD (3) CRA (1) TCE (2) EAD (3)
Natural Resources £m £m £m £m £m £m
Oil & Gas 3,518 6,735 5,225 3,533 6,609 5,606
Mining & Metals 1,050 1,998 1,465 1,134 2,105 1,555
Electricity 3,606 8,344 6,055 2,848 7,454 5,205
Water & Waste 5,125 6,290 6,242 4,835 5,948 5,873
13,299 23,367 18,987 12,350 22,116 18,239
Commodity Traders (4) 668 1,187 1,215 749 1,117 1,350
Of which: Natural Resources 506 889 796 548 772 776
Shipping 6,894 7,380 7,140 7,140 7,688 7,509
Notes:
(1) Credit risk assets (CRA) consist of lending gross of impairment provisions and derivative exposures after netting and contingent obligations.
(2) Total committed exposure (TCE) comprises CRA, securities financing transactions after netting, banking book debt securities and committed undrawn facilities.
(3) Exposure at default (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.
(4) Commodity Traders represent customers in a number of industry sectors, predominantly Natural Resources above.
Key points
· Oil & Gas - The portfolio remained broadly unchanged. Non-performing loans increased to £182 million (31 December 2015 - £138 million) reflecting the continued challenging market environment.
· Mining & Metals - Exposure continued to reduce in Q1 2016 predominantly due to proactive credit management. The sector remains under stress and continues to be subject to heightened monitoring. Non-performing loans increased to £101 million (31 December 2015 - £48 million).
· Commodity Traders - Exposure is mainly to the largest independent physical commodity traders, funding is predominantly short-dated and used for working capital.
· Shipping - Following deterioration in market values and charter rates to historic lows in the dry bulk sector, provisions increased from £181 million to £374 million in Q1 2016. Non-performing loans increased to £827 million (31 December 2015 - £434 million).
31 March 2016 31 December 2015
Balance Total Balance Total
sheet exposure sheet exposure
Emerging markets (1)
Tier 1 capital 38,427 39,605
Leverage ratio % 5.3 5.6
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 both bases with the exception of unrealised gains on AFS securities which have been included from 2015 under the PRA transitional basis.
(2) Based on end-point CRR Tier 1 capital and leverage exposure under the CRR Delegated Act.
Analysis of results
Key points
● CET1 ratio of 14.6% fell by 90 basis points in the quarter reflecting lower CET1 capital as well as higher RWAs.
● CET1 capital decreased by £1.2 billion due to the payment of the final DAS dividend (50 basis points impact on CET1 ratio) and the accelerated pension payment (30 basis points).
● RWAs have increased by £6.9 billion in the quarter to £249.5 billion reflecting loan growth in the core franchises alongside market volatility and exchange rate movements as sterling weakened (£3.3 billion).
● Increases in non-counterparty credit risk RWAs (£5.2 billion) and counterparty risk RWAs (£3.7 billion) were partly offset by a £2.0 billion reduction associated with the annual recalculation of operational risk RWAs.
● The increase in credit risk RWAs was principally across Commercial Banking (£3.9 billion), UK PBB (£1.5 billion) and RBSI (£0.8 billion). Partially offsetting, Capital Resolution reduced by £1.8 billion in line with planned run-down.
○ Commercial Banking and RBSI credit risk RWAs increased as a result of asset growth and the impact of foreign exchange movements.
○ UK PBB credit risk RWAs increased due to mortgage lending growth and a recalibration of mortgage risk parameter models.
● Counterparty risk RWAs increased in the quarter in CIB and Capital Resolution driven by market volatility and the implementation of new risk parameter models.
● Leverage ratio decreased in the quarter from 5.6% to 5.3% due to lower Tier 1 capital (as discussed above) and an increase in funded assets reflecting loan growth.
Segment performance
Quarter ended 31 March 2016
PBB CPB Central
Ulster Commercial Private RBS Capital Williams items & Total
UK PBB Bank RoI Banking Banking International CIB Resolution & Glyn other (1) RBS
£m £m £m £m £m £m £m £m £m £m
Income statement
Net interest income 1,019 105 536 113 75 19 86 162 41 2,156
Other non-interest income 256 50 317 52 15 258 (35) 43 (298) 658
Total income - adjusted (2) 1,275 155 853 165 90 277 51 205 (257) 2,814
Own credit adjustments - 3 - - - 64 108 - 81 256
Strategic disposals - - - - - - (6) - - (6)
Total income 1,275 158 853 165 90 341 153 205 (176) 3,064
Direct expenses - staff costs (181) (51) (131) (40) (10) (67) (45) (62) (615) (1,202)
- other costs (63) (11) (49) (14) (5) (14) (33) (15) (745) (949)
Indirect expenses (484) (42) (256) (83) (20) (250) (154) (21) 1,310 -
Operating expenses - adjusted (3) (728) (104) (436) (137) (35) (331) (232) (98) (50) (2,151)
Restructuring costs - direct (13) (6) (1) (1) - - (7) (20) (190) (238)
- indirect (9) - 1 (15) (1) (12) (9) - 45 -
Litigation and conduct costs - - (2) - - (18) (10) - (1) (31)
Operating expenses (750) (110) (438) (153) (36) (361) (258) (118) (196) (2,420)
Profit/(loss) before impairment losses 525 48 415 12 54 (20) (105) 87 (372) 644
Impairment releases/(losses) (16) 13 (14) (2) (2) - (196) (6) - (223)
Operating profit/(loss) 509 61 401 10 52 (20) (301) 81 (372) 421
Operating profit/(loss) - adjusted (2,3) 531 64 403 26 53 (54) (377) 101 (307) 440
Additional information
Return on equity (4) 26.1% 8.8% 11.1% 1.5% 16.0% (2.6%) nm nm nm (9.6%)
Return on equity - adjusted (2,3,4) 27.3% 9.2% 11.2% 5.1% 16.3% (4.4%) nm nm nm (9.4%)
Cost:income ratio 59% 70% 51% 93% 40% 106% nm 58% nm 79%
Cost:income ratio - adjusted (2,3) 57% 67% 51% 83% 39% 119% nm 48% nm 76%
Total assets (£bn) 146.3 22.7 139.4 17.4 23.7 255.9 218.8 24.2 34.5 882.9
Funded assets (£bn) 146.3 22.6 139.4 17.3 23.7 116.0 50.2 24.2 31.0 570.7
Net loans and advances to customers (£bn) 121.8 17.9 96.4 11.6 8.0 18.6 22.4 20.1 1.8 318.6
Risk elements in lending (£bn) 2.4 4.5 2.2 0.1 0.1 - 2.2 0.4 - 11.9
Impairment provisions (£bn) (1.6) (2.7) (1.1) - - - (1.0) (0.3) - (6.7)
Customer deposits (£bn) 136.9 13.7 97.1 23.2 21.6 6.7 24.9 24.3 6.6 355.0
Risk-weighted assets (RWAs) (£bn) 34.7 20.4 75.7 8.6 9.1 36.1 47.6 9.7 7.6 249.5
RWA equivalent (£bn) 37.5 21.7 79.7 8.6 9.1 36.7 48.4 10.1 7.8 259.6
Employee numbers (FTEs - thousands) 21.4 3.2 6.0 1.8 0.7 1.3 1.0 5.5 51.5 92.4
For the notes to this table refer to page 21. nm = not meaningful
Segment performance
Quarter ended 31 December 2015
PBB CPB Central
Ulster Commercial Private RBS Capital Williams items & Total
UK PBB Bank RoI Banking Banking International CIB Resolution & Glyn other (1) RBS
£m £m £m £m £m £m £m £m £m £m
Income statement
Net interest income 1,030 85 512 108 78 28 6 165 150 2,162
Other non-interest income 224 31 285 50 17 224 (239) 43 87 722
Total income adjusted (2) 1,254 116 797 158 95 252 (233) 208 237 2,884
Own credit adjustments - - - - - (66) (5) - (44) (115)
Loss on redemption of own debt - - - - - - - - (263) (263)
Strategic disposals - - - - - - (24) - 2 (22)
Total income 1,254 116 797 158 95 186 (262) 208 (68) 2,484
Direct expenses - staff costs (199) (40) (124) (43) (12) (63) (54) (61) (476) (1,072)
- other costs (82) (28) (80) (7) (5) (50) (54) (24) (1,123) (1,453)
Indirect expenses (596) (49) (380) (109) (24) (251) (286) (22) 1,717 -
Operating expenses - adjusted (3) (877) (117) (584) (159) (41) (364) (394) (107) 118 (2,525)
Restructuring costs - direct (31) 7 (40) (7) - - (21) (28) (494) (614)
- indirect (56) (1) (14) 12 1 (62) (83) - 203 -
Litigation and conduct costs (607) 4 8 (10) - (5) (1,498) - (16) (2,124)
Write down of goodwill - - - (498) - - - - - (498)
Operating expenses (1,571) (107) (630) (662) (40) (431) (1,996) (135) (189) (5,761)
(Loss)/profit before impairment losses (317) 9 167 (504) 55 (245) (2,258) 73 (257) (3,277)
Impairment releases/(losses) 27 10 (27) (12) - - 356 (20) (7) 327
Operating (loss)/profit (290) 19 140 (516) 55 (245) (1,902) 53 (264) (2,950)
Operating profit/(loss) - adjusted (2,3) 404 9 186 (13) 54 (112) (271) 81 348 686
Additional information
Return on equity (4) (16.8%) 3.0% 3.1% (118.9%) 19.1% (15.1%) nm nm nm (26.5%)
Return on equity - adjusted (2,3,4) 19.8% 1.4% 4.6% (4.4%) 18.7% (7.6%) nm nm nm 6.6%
Cost:income ratio 125% 92% 79% 419% 42% 232% nm 65% nm 232%
Cost:income ratio - adjusted (2,3) 70% 101% 73% 101% 43% 144% nm 51% nm 88%
Total assets (£bn) 143.9 21.3 133.5 17.0 23.1 215.3 201.5 24.1 35.7 815.4
Funded assets (£bn) 143.9 21.2 133.5 17.0 23.1 103.3 53.4 24.1 33.4 552.9
Net loans and advances to customers (£bn) 119.8 16.7 91.3 11.2 7.3 16.1 23.6 20.0 2.0 308.0
Risk elements in lending (£bn) 2.7 3.5 1.9 0.1 0.1 - 3.4 0.5 - 12.2
Impairment provisions (£bn) (1.8) (1.9) (0.7) - (0.1) - (2.3) (0.3) - (7.1)
Customer deposits (£bn) 137.8 13.1 88.9 23.1 21.3 5.7 26.0 24.1 6.0 346.0
Risk-weighted assets (RWAs) (£bn) 33.3 19.4 72.3 8.7 8.3 33.1 49.0 9.9 8.6 242.6
RWA equivalent (£bn) 35.5 20.4 77.6 8.7 8.3 33.4 50.3 10.4 8.8 253.4
Employee numbers (FTEs - thousands) 22.4 2.5 5.8 1.9 0.7 1.3 1.4 5.1 50.4 91.5
For the notes to this table refer to page 21. nm = not meaningful
Segment performance
Quarter ended 31 March 2015
PBB CPB Central
Ulster Commercial Private RBS Capital Williams items & Total
UK PBB Bank RoI Banking Banking International CIB Resolution & Glyn other (1) RBS
£m £m £m £m £m £m £m £m £m £m
Income statement
Net interest income 1,032 95 482 110 76 14 157 163 74 2,203
Other non-interest income 282 43 307 55 17 470 250 41 (134) 1,331
Total income - adjusted (2) 1,314 138 789 165 93 484 407 204 (60) 3,534
Own credit adjustments - - - - - 46 65 - 9 120
Strategic disposals - - - - - - (14) - (121) (135)
Total income 1,314 138 789 165 93 530 458 204 (172) 3,519
Direct expenses - staff costs (200) (40) (123) (46) (10) (109) (92) (45) (620) (1,285)
- other costs (64) (18) (51) (9) (4) (26) (57) (6) (788) (1,023)
Indirect expenses (445) (43) (241) (68) (24) (257) (260) (25) 1,363 -
Operating expenses - adjusted (3) (709) (101) (415) (123) (38) (392) (409) (76) (45) (2,308)
Restructuring costs - direct - - - - - - (16) - (431) (447)
- indirect (30) 1 1 3 (2) (91) (184) - 302 -
Litigation and conduct costs (354) - - (2) - (334) (166) - - (856)
Operating expenses (1,093) (100) (414) (122) (40) (817) (775) (76) (174) (3,611)
Profit/(loss) before impairment losses 221 38 375 43 53 (287) (317) 128 (346) (92)
Impairment (losses)/releases (20) 25 1 1 (2) 8 145 21 (50) 129
Operating profit/(loss) 201 63 376 44 51 (279) (172) 149 (396) 37
Operating profit/(loss) - adjusted (2,3) 585 62 375 43 53 100 143 149 (155) 1,355
Additional information *
Return on equity (4) 8.4% 10.1% 12.4% 7.8% 18.8% (13.3%) nm nm nm (4.3%)
Return on equity - adjusted (2,3,4) 27.2% 9.9% 12.4% 7.5% 19.5% 3.0% nm nm nm 7.4%
Cost:income ratio 83% 72% 52% 74% 43% 154% nm 37% nm 103%
Cost:income ratio - adjusted (2,3) 54% 73% 53% 75% 41% 81% nm 37% nm 65%
Total assets (£bn) 137.8 21.7 131.1 17.3 24.3 308.7 338.7 23.7 101.6 1,104.9
Funded assets (£bn) 137.8 21.6 131.1 17.3 24.3 152.1 108.3 23.7 97.7 713.9
Net loans and advances to customers (£bn) 111.7 16.7 86.2 11.1 7.2 31.6 48.5 19.5 67.7 400.2
Risk elements in lending (£bn) 3.4 4.0 2.3 0.1 0.1 - 10.4 0.6 1.4 22.3
Impairment provisions (£bn) (2.4) (2.1) (0.8) (0.1) (0.1) - (7.3) (0.4) (0.6) (13.8)
Customer deposits (£bn) 131.6 13.5
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