REG - Royal Bk Scot.Grp. - Q3 2017 Interim Management Statement <Origin Href="QuoteRef">RBS.L</Origin> - Part 2
27/10/2017 07:06
- Part 2: For the preceding part double click ID:nRSa7726Ua
(25) (42) (1) (2) (48) (195) - (697) (1,034)
- indirect (184) (27) (96) (16) (4) (86) 35 - 378 -
Litigation and conduct costs (13) (34) (6) - (8) (47) (361) - (52) (521)
Operating expenses (2,333) (422) (1,439) (335) (153) (1,125) (715) (230) (243) (6,995)
Operating profit/(loss) before impairment (losses)/releases 1,970 21 1,239 152 139 201 (1,191) 396 154 3,081
Impairment (losses)/releases (139) 21 (245) (4) (3) (1) 149 (36) (1) (259)
Operating profit/(loss) 1,831 42 994 148 136 200 (1,042) 360 153 2,822
Operating profit/(loss) - adjusted (3,4) 2,052 131 1,138 165 150 436 (501) 360 375 4,306
Additional information
Return on equity (5) 30.8% 2.1% 8.3% 9.5% 12.2% 1.8% nm 23.0% nm 5.2%
Return on equity - adjusted (3,4,5) 34.8% 6.5% 9.9% 10.8% 13.7% 6.1% nm 23.0% nm 10.4%
Cost:income ratio (6) 54.2% 95.3% 51.8% 68.8% 52.4% 84.8% nm 36.7% nm 69.1%
Cost:income ratio - adjusted (3,4,6) 49.1% 75.3% 46.2% 65.3% 47.6% 68.4% nm 36.7% nm 53.9%
Average interest earning assets (£bn) 153.0 25.3 131.2 18.5 23.9 17.7 15.1 25.3 nm 419.5
Net interest margin 2.93% 1.64% 1.74% 2.48% 1.37% 0.49% 0.88% 2.63% nm 2.16%
Total assets (£bn) 164.5 25.1 147.3 19.9 24.3 215.7 89.3 25.6 40.1 751.8
Funded assets (£bn) (7) 164.5 25.1 147.3 19.9 24.3 112.7 22.2 25.6 38.4 580.0
Net loans and advances to customers (£bn) 140.4 19.5 96.6 13.3 9.3 16.7 8.4 20.4 0.1 324.7
Risk elements in lending (£bn) 1.7 3.4 1.7 0.1 0.1 - 1.6 0.3 0.1 9.0
Impairment provisions (£bn) (1.1) (1.1) (0.8) - - - (0.5) (0.2) (0.2) (3.9)
Customer deposits (£bn) 154.0 17.3 98.2 27.0 24.9 7.1 6.6 24.6 0.2 359.9
Risk-weighted assets (RWAs) (£bn) 34.0 17.9 74.6 9.2 9.6 31.8 23.1 9.3 1.1 210.6
RWA equivalent (£bn) (5) 37.2 18.9 77.4 9.2 9.6 33.5 25.6 9.8 1.3 222.5
Employee numbers (FTEs - thousands) (8) 17.4 2.8 4.9 1.6 0.8 5.4 0.1 4.0 36.6 73.6
For the notes to this table refer to page 10. nm = not meaningful
Segment performance
Quarter ended 30 September 2017
PBB CPB Central
Ulster Commercial Private RBS NatWest Capital Williams items & Total
UK PBB Bank RoI Banking Banking International Markets Resolution & Glyn (1) other (2) RBS
£m £m £m £m £m £m £m £m £m £m
Income statement
Net interest income 1,128 104 570 116 83 23 76 166 38 2,304
Other non-interest income 420 46 358 50 14 378 (452) 43 1 858
Total income adjusted (3) 1,548 150 928 166 97 401 (376) 209 39 3,162
Own credit adjustments - - - - - (7) 2 - - (5)
Total income 1,548 150 928 166 97 394 (374) 209 39 3,157
Direct expenses - staff costs (163) (50) (113) (36) (13) (143) (7) (45) (384) (954)
- other costs (51) (17) (55) (6) (3) (50) (19) (9) (610) (820)
Indirect expenses (485) (52) (252) (58) (33) (113) (35) (18) 1,046 -
Operating expenses - adjusted (4) (699) (119) (420) (100) (49) (306) (61) (72) 52 (1,774)
Restructuring costs - direct (1) (1) (2) (1) (2) (18) (65) - (154) (244)
- indirect (47) (8) (19) (2) - (13) 39 - 50 -
Litigation and conduct costs - (1) (2) - (8) (13) (89) - (12) (125)
Operating expenses (747) (129) (443) (103) (59) (350) (176) (72) (64) (2,143)
Operating profit/(loss) before impairment (losses)/releases 801 21 485 63 38 44 (550) 137 (25) 1,014
Impairment (losses)/releases (67) 10 (151) 3 2 - 71 (11) - (143)
Operating profit/(loss) 734 31 334 66 40 44 (479) 126 (25) 871
Operating profit/(loss) - adjusted (3,4) 782 41 357 69 50 95 (366) 126 91 1,245
Additional information
Return on equity (5) 36.8% 4.6% 8.6% 13.2% 10.4% 0.6% nm 24.6% nm 4.5%
Return on equity - adjusted (3,4,5) 39.3% 6.1% 9.3% 13.8% 13.6% 3.6% nm 24.6% nm 8.2%
Cost:income ratio (6) 48.3% 86.0% 45.7% 62.0% 60.8% 88.8% nm 34.4% nm 67.5%
Cost:income ratio - adjusted (3,4,6) 45.2% 79.3% 43.1% 60.2% 50.5% 76.3% nm 34.4% nm 55.6%
Average interest earning assets (£bn) 155.8 26.1 130.0 19.2 23.7 19.1 13.5 25.4 nm 431.0
Net interest margin 2.87% 1.58% 1.74% 2.39% 1.39% 0.48% 2.23% 2.60% nm 2.12%
Total assets (£bn) 164.5 25.1 147.3 19.9 24.3 215.7 89.3 25.6 40.1 751.8
Funded assets (£bn) (7) 164.5 25.1 147.3 19.9 24.3 112.7 22.2 25.6 38.4 580.0
Net loans and advances to customers (£bn) 140.4 19.5 96.6 13.3 9.3 16.7 8.4 20.4 0.1 324.7
Risk elements in lending (£bn) 1.7 3.4 1.7 0.1 0.1 - 1.6 0.3 0.1 9.0
Impairment provisions (£bn) (1.1) (1.1) (0.8) - - - (0.5) (0.2) (0.2) (3.9)
Customer deposits (£bn) 154.0 17.3 98.2 27.0 24.9 7.1 6.6 24.6 0.2 359.9
Risk-weighted assets (RWAs) (£bn) 34.0 17.9 74.6 9.2 9.6 31.8 23.1 9.3 1.1 210.6
RWA equivalent (£bn) (5) 37.2 18.9 77.4 9.2 9.6 33.5 25.6 9.8 1.3 222.5
Employee numbers (FTEs - thousands) (8) 17.4 2.8 4.9 1.6 0.8 5.4 0.1 4.0 36.6 73.6
For the notes to this table refer to following page. nm = not meaningful.
Condensed consolidated income statement for the period ended 30 September 2017 (unaudited)
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2017 2016 2017 2017 2016
£m £m £m £m £m
Interest receivable 8,280 8,488 2,818 2,730 2,796
Interest payable (1,504) (1,988) (514) (492) (629)
Net interest income (1) 6,776 6,500 2,304 2,238 2,167
Fees and commissions receivable 2,492 2,519 826 844 843
Fees and commissions payable (652) (592) (204) (231) (200)
Income from trading activities 832 384 (52) 485 401
(Loss)/gain on redemption of own debt (7) (127) - (9) 3
Other operating income 635 690 283 380 96
Non-interest income 3,300 2,874 853 1,469 1,143
Total income 10,076 9,374 3,157 3,707 3,310
Staff costs (3,576) (3,982) (1,129) (1,132) (1,287)
Premises and equipment (1,041) (1,006) (363) (301) (354)
Other administrative expenses (1,736) (3,234) (528) (789) (1,095)
Depreciation and amortisation (630) (529) (119) (169) (175)
Write down of other intangible assets (12) (89) (4) (8) -
Operating expenses (6,995) (8,840) (2,143) (2,399) (2,911)
Profit before impairment losses 3,081 534 1,014 1,308 399
Impairment losses (259) (553) (143) (70) (144)
Operating profit/(loss) before tax 2,822 (19) 871 1,238 255
Tax charge (992) (922) (265) (400) (582)
Profit/(loss) for the period 1,830 (941) 606 838 (327)
Attributable to:
Non-controlling interests 21 37 (8) 18 7
Preference share and other dividends 478 343 222 140 135
Dividend access share - 1,193 - - -
Ordinary shareholders 1,331 (2,514) 392 680 (469)
Earnings/(loss) per ordinary share (EPS)
Earnings/(loss) per ordinary share (2) 11.2p (21.5p) 3.3p 5.7p (3.9p)
Notes:
(1) Negative interest on loans and advances is classed as interest payable. Negative interest on customer deposits is classed as interest receivable. Nine months ended and quarter ended 30 September 2016 have been re-presented accordingly.
(2) There is no dilutive impact in any period.
Notes to segment performance on pages 8 and 9
(1) Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and comprises RBS England and Wales branch-based businesses, along with certain small and medium enterprises and corporate activities across the UK. During
the period presented W&G has not operated as a separate legal entity.
(2) Central items include unallocated transactions which principally comprise volatile items under IFRS and balances in relation to international private banking for Q1 2016.
(3) Excluding own credit adjustments, (loss)/gain on redemption of own debt and strategic disposals.
(4) Excluding restructuring costs and litigation and conduct costs.
(5) RBS's CET 1 target is 13% but for the purposes of computing segmental return on equity (ROE), to better reflect the differential drivers of capital usage, segmental operating profit after tax and adjusted for preference dividends is divided by average
notional equity allocated at different rates of 14% (Ulster Bank RoI - 11% prior to Q1 2017), 11% (Commercial Banking), 14% (Private Banking - 15% prior to Q1 2017), 12% (RBS International) and 15% for all other segments, of the monthly average of
segmental risk-weighted assets incorporating the effect of capital deductions (RWAes). RBS's Return on equity is calculated using profit for the period attributable to ordinary shareholders.
(6) Operating lease depreciation included in income (nine months ended September 2017 - £107 million and Q3 2017 - £35 million).
(7) Funded assets exclude derivative assets.
(8) On 1 January 2017 4.5 thousand employees on a FTE basis were transferred from Central items to NatWest Markets in preparation for ring-fencing.
Condensed consolidated statement of comprehensive income for the period ended 30 September 2017 (unaudited)
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2017 2016 2017 2017 2016
£m £m £m £m £m
Profit/(loss) for the period 1,830 (941) 606 838 (327)
Items that do not qualify for reclassification
Loss on remeasurement of retirement benefit schemes (26) (1,047) - (5) (52)
Loss on fair value of credit in financial liabilities
designated at fair value through profit or loss
due to own credit risk (107) - (30) (57) -
Tax (5) 285 3 8 12
(138) (762) (27) (54) (40)
Items that do qualify for reclassification
Available-for-sale financial assets 37 (162) 8 (31) (67)
Cash flow hedges (983) 1,515 (372) (422) (66)
Currency translation 82 1,276 (21) 109 205
Tax 237 (297) 76 128 63
(627) 2,332 (309) (216) 135
Other comprehensive (loss)/income after tax (765) 1,570 (336) (270) 95
Total comprehensive income/(loss) for the period 1,065 629 270 568 (232)
Total comprehensive income/(loss) is attributable to:
Non-controlling interests 30 157 (19) 39 32
Preference shareholders 155 192 70 45 79
Paid-in equity holders 323 151 152 95 56
Dividend access share - 1,193 - - -
Ordinary shareholders 557 (1,064) 67 389 (399)
1,065 629 270 568 (232)
Condensed consolidated balance sheet as at 30 September 2017 (unaudited)
30 September 30 June 31 December
2017 2017 2016
£m £m £m
Assets
Cash and balances at central banks 88,210 86,807 74,250
Net loans and advances to banks 16,671 20,685 17,278
Reverse repurchase agreements and stock borrowing 12,905 14,847 12,860
Loans and advances to banks 29,576 35,532 30,138
Net loans and advances to customers 324,650 326,059 323,023
Reverse repurchase agreements and stock borrowing 23,767 25,183 28,927
Loans and advances to customers 348,417 351,242 351,950
Debt securities 87,860 86,169 72,522
Equity shares 507 518 703
Settlement balances 8,528 12,091 5,526
Derivatives 171,720 193,531 246,981
Intangible assets 6,484 6,467 6,480
Property, plant and equipment 4,777 4,823 4,590
Deferred tax 1,637 1,677 1,803
Prepayments, accrued income and other assets 4,046 3,797 3,713
Total assets 751,762 782,654 798,656
Liabilities
Bank deposits 36,186 38,965 33,317
Repurchase agreements and stock lending 7,047 5,183 5,239
Deposits by banks 43,233 44,148 38,556
Customer deposits 359,879 359,882 353,872
Repurchase agreements and stock lending 33,245 37,855 27,096
Customer accounts 393,124 397,737 380,968
Debt securities in issue 31,700 31,997 27,245
Settlement balances 9,094 11,379 3,645
Short positions 31,793 29,862 22,077
Derivatives 164,394 184,161 236,475
Provisions for liabilities and charges 7,109 11,227 12,836
Accruals and other liabilities 6,925 6,603 7,006
Retirement benefit liabilities 152 182 363
Deferred tax 516 585 662
Subordinated liabilities 14,248 14,724 19,419
Total liabilities 702,288 732,605 749,252
Equity
Non-controlling interests 746 844 795
Owners' equity*
Called up share capital 11,906 11,876 11,823
Reserves 36,822 37,329 36,786
Total equity 49,474 50,049 49,404
Total liabilities and equity 751,762 782,654 798,656
*Owners' equity attributable to:
Ordinary shareholders 42,105 42,149 41,462
Other equity owners 6,623 7,056 7,147
48,728 49,205 48,609
Condensed consolidated statement of changes in equity for the period ended 30 September 2017 (unaudited)
Share
capital and Total Non
statutory Paid-in Retained Other owners' controlling Total
reserves equity earnings reserves* equity interests equity
£m £m £m £m £m £m £m
At 1 January 2017 41,926 4,582 (12,936) 15,037 48,609 795 49,404
Profit attributable to ordinary shareholders
and other equity owners - - 1,809 - 1,809 21 1,830
Other comprehensive income
- changes in fair value of credit in financial
liabilities designated at fair value through profit
or loss due to own credit risk - - (107) - (107) - (107)
- other amounts recognised in equity - - (26) (175) (201) 9 (192)
- amounts transferred from equity to profit or loss - - - (677) (677) - (677)
- recycled to profit or loss on disposal
of businesses (1) - - - (21) (21) - (21)
- tax - - (5) 237 232 - 232
Preference share and other dividends paid - - (478) - (478) (20) (498)
Shares and securities issued during the period 226 - (5) - 221 - 221
Redemption of preference shares (2) 692 - (692) - - - -
Reclassification of paid-in equity (3) - (524) (196) - (720) - (720)
Capital reduction (4) (30,331) - 30,331 - - - -
Share-based payments - gross - - (26) - (26) - (26)
Movement in own shares held 87 - - - 87 - 87
Equity withdrawn - - - - - (59) (59)
At 30 September 2017 12,600 4,058 17,669 14,401 48,728 746 49,474
30 September
2017
Total equity is attributable to: £m
Non-controlling interests 746
Preference shareholders 2,565
Paid-in equity holders 4,058
Ordinary shareholders 42,105
49,474
*Other reserves consist of:
Merger reserve 10,881
Available-for-sale reserve 260
Cash flow hedging reserve 298
Foreign exchange reserve 2,962
14,401
Notes:
(1) No tax impact.
(2) In September 2017, non-cumulative US dollar preference shares recorded as debt were redeemed at their original issue price of US$1.1billion. The nominal value of £0.3 million has been credited to the capital redemption reserve; share premium increased by £0.7 billion in respect of the premium received on issue, with a corresponding decrease in retained earnings.
(3) Paid-in equity reclassified to liabilities as a result of the call of RBS Capital Trust D in March 2017 (redeemed in June 2017) and the call of US$564 million and CAD321 million EMTN notes in August 2017 (redeemed in October 2017).
(4) On 15 June 2017, the Court of Session approved a reduction of RBSG plc capital so that the amounts which stood to the credit of share premium account and capital redemption reserve were transferred to retained earnings.
Notes
1. Basis of preparation
The condensed consolidated financial statements should be read in conjunction with RBS's 2016 Annual Report and Accounts
which were prepared in accordance with International Financial Reporting Standards issued by the International Accounting
Standards Board (IASB) and interpretations issued by the IFRS Interpretations Committee of the IASB as adopted by the
European Union (EU) (together IFRS).
Accounting policies
Ahead of adopting IFRS 9 Financial Instruments from 1 January 2018 RBS has adopted the provisions in respect of the
presentation of gains and losses on financial liabilities designated as at fair value through profit or loss from 1 January
2017. Accordingly, a loss of £30 million has been reported in the consolidated statement of other comprehensive income in
Q3 2017 instead of in the consolidated income statement. Comparatives have not been restated, however, in Q3 2016 a loss of
£92 million was included in the consolidated income statement. Own credit adjustments on financial liabilities
held-for-trading will continue to be recognised in the consolidated income statement, a loss of £5 million was reported in
Q3 2017 (Q3 2016 - loss of £64 million).
Apart from the above RBS's principal accounting policies are as set out on pages 297 to 306 of the 2016 Annual Report and
Accounts. Other amendments to IFRS effective for 2017 have not had a material effect on RBS's Q3 2017 results.
Critical accounting policies and key sources of estimation uncertainty
The judgements and assumptions that are considered to be the most important to the portrayal of RBS's financial condition
are those relating to goodwill, provisions for liabilities, deferred tax, loan impairment provisions and fair value of
financial instruments. These critical accounting policies and judgements are described on pages 306 to 308 of RBS's 2016
Annual Report and Accounts.
Going concern
Having reviewed RBS's forecasts, projections and other relevant evidence, the directors have a reasonable expectation that
RBS will continue in operational existence for the foreseeable future. Accordingly, the results for the period ended 30
September 2017 have been prepared on a going concern basis.
2. Provisions for liabilities and charges
Payment Other Residential Litigation
protection customer mortgage and other
insurance redress (1) backed securities regulatory Other (2) Total
£m £m £m £m £m £m
At 1 January 2017 1,253 1,105 6,752 1,918 1,808 12,836
Currency translation and other movements - (1) (114) (13) 10 (118)
Charge to income statement - - - 32 204 236
Releases to income statement - (2) - (3) (39) (44)
Provisions utilised (78) (99) - (950) (164) (1,291)
At 31 March 2017 1,175 1,003 6,638 984 1,819 11,619
Currency translation and other movements - 5 (237) (17) 38 (211)
Charge to income statement - 55 222 59 371 707
Releases to income statement - (38) - (4) (96) (138)
Provisions utilised (81) (114) (44) (113) (398) (750)
At 30 June 2017 1,094 911 6,579 909 1,734 11,227
Currency translation and other movements - 1 (159) (4) (14) (176)
Charge to income statement - 1 - 105 118 224
Releases to income statement - (1) - (2) (1) (4)
Provisions utilised (3) (115) (84) (3,588) (221) (154) (4,162)
At 30 September 2017 979 828 2,832 787 1,683 7,109
Notes:
(1) Closing provision predominantly relates to investment advice, packaged accounts (including costs) and tracker mortgages.
(2) The Group recognised a £750 million provision in 2016 as a consequence of the announcement that HM Treasury is seeking a revised package of remedies that would conclude its remaining State Aid commitments. An additional charge of £50 million was taken in Q2 2017 following further revisions to the package, taking the total provision to £800 million.
(3) Q3 2017 utilisation includes the $4.75 billion payment made following the settlement reached between RBS and the Federal Housing Finance Agency in relation to RBS's issuance and underwriting of RMBS in the US.
There are uncertainties as to the eventual cost of redress in relation to certain of the provisions contained in the table
above. Assumptions relating to these are inherently uncertain and the ultimate financial impact may be different from the
amount provided.
Notes
3. Material developments in litigation, investigations and reviews
RBS's 2017 Interim Results issued on 4 August 2017 included comprehensive disclosures about RBS's litigation,
investigations and reviews in Note 12. Set out below are the material developments in these matters since the 2017 Interim
Results were published. RBS generally does not disclose information about the establishment or existence of a provision for
a particular matter where disclosure of the information can be expected to prejudice seriously RBS's position in the
matter.
Litigation
Residential mortgage-backed securities (RMBS) litigation in the US
Among other RMBS litigation, RBS Securities Inc. (RBSSI) remains a defendant in a lawsuit relating to RMBS issued by Nomura
Holding America Inc. (Nomura) and subsidiaries, filed by the US Federal Housing Finance Agency (FHFA) as conservator for
the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). On 11
May 2015, following a trial, the United States District Court for the Southern District of New York issued a written
decision in favour of FHFA, finding, as relevant to RBS, that the offering documents for four Nomura-issued RMBS for which
RBSSI served as an underwriter contained materially misleading statements about the mortgage loans that backed the
securitisations. Nomura and RBS appealed. On 28 September 2017, the court's judgment against Nomura and RBSSI was affirmed
by the United States Court of Appeals for the Second Circuit.
RBSSI estimates that its net exposure under the court's judgment is approximately US$383 million, which consists of the
difference between the amount of the judgment against RBSSI (US$636 million) and the estimated market value of the four
RMBS that FHFA would return to RBSSI pursuant to the judgment, plus the costs and attorney's fees that will be due to FHFA
if the judgment is upheld. The estimated net exposure in this matter is covered by an existing provision. The judgment is
stayed pending potential further appeal by the defendants, though post-judgment interest on the judgment amount will accrue
while the appeal is pending. RBSSI intends to pursue a contractual claim for indemnification against Nomura with respect to
any losses it suffers as a result of this matter.
RBS continues to caution that, in connection with its RMBS litigation matters and RMBS investigations taken as a whole,
further substantial provisions and costs may be recognised and, depending upon the final outcomes, other adverse
consequences may occur.
London Interbank Offered Rate (LIBOR)
As previously disclosed, certain members of the Group have been named as defendants in a number of class actions and
individual claims filed in the US with respect to the setting of LIBOR and certain other benchmark interest rates. On 18
August 2017, the court in the action relating to the Singapore Interbank Offered Rate and Singapore Swap Offer Rate
dismissed all claims against RBS for lack of personal jurisdiction; however, the court is allowing the plaintiffs to
replead their complaint. On 25 September 2017, the court in the action relating to Swiss Franc LIBOR dismissed all claims
against all defendants; however, the court is allowing the plaintiffs to replead their complaint. Both of these actions
are pending in the United States District Court for the Southern District of New York.
FX antitrust litigation
On 3 August 2017, the United States District Court for the Southern District of New York held that the amended complaint in
the FX-related antitrust class action on behalf of a purported class of "consumers and end-user businesses" adequately
pleads that the class has the requisite antitrust standing. As a result, the discovery phase has commenced. RBS and the
other defendants are seeking reconsideration of the court's decision regarding standing or, in the alternative, permission
to take an immediate appeal to the United States Court of Appeals for the Second Circuit.
Notes
3. Material developments in litigation, investigations and reviews (continued)
Weiss v. National Westminster Bank Plc (NatWest)
As previously disclosed, NatWest is defending a lawsuit filed by a number of US nationals (or their estates, survivors, or
heirs) who were victims of terrorist attacks in Israel. The plaintiffs allege that NatWest is liable for damages arising
from those attacks pursuant to the US Anti-terrorism Act because NatWest previously maintained bank accounts and
transferred funds for the Palestine Relief & Development Fund, an organisation which plaintiffs allege solicited funds for
Hamas, the alleged perpetrator of the attacks. On 5 October 2017, the United States District Court for the Eastern District
of New York dismissed claims against NatWest with respect to two terrorist attacks, but denied NatWest's summary judgment
motion with respect to claims arising from 16 other attacks. No trial date has been set.
Investigations and reviews
RMBS and other securitised products investigations
On 26 October 2017, the United States Attorney for the District of Connecticut (USAO) announced that it entered into a
Non-Prosecution Agreement (NPA) with RBSSI in connection with misrepresentations to counterparties relating to secondary
trading in various forms of asset-backed securities. The NPA, which recognises RBSSI's timely self-reporting and
cooperation, requires RBSSI to pay a penalty of US$35 million, reimburse customers at least US$9.1 million, and continue to
cooperate with the investigation. These amounts are covered by existing provisions. As part of the NPA, the USAO has
agreed not to file criminal charges against RBSSI relating to certain conduct and information described in the NPA if RBSSI
complies with the NPA during its one-year term. In March and December 2015, two former RBSSI traders entered guilty pleas
in the United States District Court for the District of Connecticut, each to one count of conspiracy to commit securities
fraud while employed at RBSSI.
FCA review of RBS's treatment of SMEs
On 23 October 2017, the FCA published an interim account incorporating a summary of the Skilled Person's report which
stated that, further to the general investigation announced in November 2016, the FCA has decided to carry out a more
focused investigation.
4. Post balance sheet events
Other than matters disclosed, there have been no further significant events between 30 September 2017 and the date of
approval of this announcement.
Forward-looking statements
Cautionary statement regarding forward-looking statements
Certain sections in this document contain 'forward-looking statements' as that term is defined in the United States Private
Securities Litigation Reform Act of 1995, such as statements that include the words 'expect', 'estimate', 'project',
'anticipate', 'commit', 'believe', 'should', 'intend', 'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)',
'target', 'goal', 'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or
variations on these expressions.
In particular, this document includes forward-looking statements relating, but not limited to: future profitability and
performance, including financial performance targets such as return on tangible equity; cost savings and targets, including
cost:income ratios; litigation and government and regulatory investigations, including the timing and financial and other
impacts thereof; structural reform and the implementation of the UK ring-fencing regime; the implementation of RBS's
transformation programme, including the further restructuring of the NatWest Markets business; the satisfaction of the
Group's residual EU State Aid obligations; the continuation of RBS's balance sheet reduction programme, including the
reduction of risk-weighted assets (RWAs) and the timing thereof; capital and strategic plans and targets; capital,
liquidity and leverage ratios and requirements, including CET1 Ratio, RWA equivalents (RWAe), Pillar 2 and other regulatory
buffer requirements, minimum requirement for own funds and eligible liabilities, and other funding plans; funding and
credit risk profile; capitalisation; portfolios; net interest margin; customer loan and income growth; the level and extent
of future impairments and write-downs, including with respect to goodwill; restructuring and remediation costs and charges;
future pension contributions; RBS's exposure to political risks, operational risk, conduct risk, cyber and IT risk and
credit rating risk and to various types of market risks, including as interest rate risk, foreign exchange rate risk and
commodity and equity price risk; customer experience including our Net Promotor Score (NPS); employee engagement and gender
balance in leadership positions.
Limitations inherent to forward-looking statements
These statements are based on current plans, estimates, targets and projections, and are subject to significant inherent
risks, uncertainties and other factors, both external and relating to the Group's strategy or operations, which may result
in the Group being unable to achieve the current targets, predictions, expectations and other anticipated outcomes
expressed or implied by such forward-looking statements. In addition certain of these disclosures are dependent on choices
relying on key model characteristics and assumptions and are subject to various limitations, including assumptions and
estimates made by management. By their nature, certain of these disclosures are only estimates and, as a result, actual
future gains and losses could differ materially from those that have been estimated. Accordingly, undue reliance should not
be placed on these statements. Forward-looking statements speak only as of the date we make them and we expressly disclaim
any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in the Group's expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
Important factors that could affect the actual outcome of the forward-looking statements
We caution you that a large number of important factors could adversely affect our results or our ability to implement our
strategy, cause us to fail to meet our targets, predictions, expectations and other anticipated outcomes or affect the
accuracy of forward-looking statements we describe in this document, including in the risk factors and other uncertainties
set out in the Group's 2016 Annual Report on Form 20-F and other materials filed with, or furnished to, the US Securities
and Exchange Commission, and other risk factors and uncertainties discussed in 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 or
may be subject to (including active civil and criminal investigations) and any resulting material adverse effect on RBS of
unfavourable outcomes and the timing thereof (including where resolved by settlement); economic, regulatory and political
risks, including as may result from the uncertainty arising from the vote to leave in the EU Referendum and from the
outcome of general elections in the UK and changes in government policies; RBS's ability to satisfy its residual EU State
Aid obligations and the timing thereof; RBS's ability to successfully implement the significant and complex restructuring
required to be undertaken in order to implement the UK ring-fencing regime and related costs; RBS's ability to successfully
implement the various initiatives that are comprised in its transformation programme, particularly the proposed further
restructuring of the NatWest Markets business, the balance sheet reduction programme and its significant cost-saving
initiatives and whether RBS will be a viable, competitive, customer focused and profitable bank especially after its
restructuring and the implementation of the UK ring-fencing regime; the exposure of RBS to cyber-attacks and its ability to
defend against such attacks; RBS's ability to achieve its capital and leverage requirements or targets which will depend in
part on RBS's success in reducing the size of its business and future profitability as well as developments which may
impact its CET1 capital including
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