REG - Royal Bk Scot.Grp. - Q3 2017 Interim Management Statement <Origin Href="QuoteRef">RBS.L</Origin> - Part 3
27/10/2017 07:06
- Part 3: For the preceding part double click ID:nRSa7726Ub
additional litigation or conduct costs, additional pension contributions, further
impairments or accounting changes; ineffective management of capital or changes to regulatory requirements relating to
capital adequacy and liquidity or failure to pass mandatory stress tests; RBS's ability to access sufficient sources of
capital, liquidity and funding when required; changes in the credit ratings of RBS, RBS entities or the UK government;
declining revenues resulting from lower customer retention and revenue generation in light of RBS's strategic refocus on
the UK; as well as increasing competition from new incumbents and disruptive technologies.
Forward-looking statements
In addition, there are other risks and uncertainties that could adversely affect our results, ability to implement our
strategy, cause us to fail to meet our targets or the accuracy of forward-looking statements in this document. These
include operational risks that are inherent to RBS's business and will increase as a result of RBS's significant
restructuring initiatives being concurrently implemented; the potential negative impact on RBS's business of global
economic and financial market conditions and other global risks, including risks arising out of geopolitical events and
political developments; the impact of a prolonged period of low interest rates or unanticipated turbulence in interest
rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices, equity prices; basis,
volatility and correlation risks; the extent of future write-downs and impairment charges caused by depressed asset
valuations; deteriorations in borrower and counterparty credit quality; heightened regulatory and governmental scrutiny and
the increasingly regulated environment in which RBS operates as well as divergences in regulatory requirements in the
jurisdictions in which RBS operates; the risks relating to RBS's IT systems or a failure to protect itself and its
customers against cyber threats, reputational risks; risks relating to increased pension liabilities and the impact of
pension risk on RBS's capital position; risks relating to the failure to embed and maintain a robust conduct and risk
culture across the organisation or if its risk management framework is ineffective; RBS's ability to attract and retain
qualified personnel; limitations on, or additional requirements imposed on, RBS's activities as a result of HM Treasury's
investment in RBS; the value and effectiveness of any credit protection purchased by RBS; risks relating to the reliance on
valuation, capital and stress test models and any inaccuracies resulting therefrom or failure to accurately reflect changes
in the micro and macroeconomic environment in which RBS operates, risks relating to changes in applicable accounting
policies or rules which may impact the preparation of RBS's financial statements or adversely impact its capital position;
the impact of the recovery and resolution framework and other prudential rules to which RBS is subject; the recoverability
of deferred tax assets by the Group; and the success of RBS in managing the risks involved in the foregoing.
The forward-looking statements contained in this document speak only as at the date hereof, and RBS does not assume or
undertake any obligation or responsibility to update any forward-looking statement to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
The information, statements and opinions contained in this document do not constitute a public offer under any applicable
legislation or an offer to sell or solicit of any offer to buy any securities or financial instruments or any advice or
recommendation with respect to such securities or other financial instruments.
Additional information
Presentation of information
In this document, 'RBSG plc' or the 'parent company' refers to The Royal Bank of Scotland Group plc, and 'RBS' or the
'Group' refers to RBSG plc and its subsidiaries.
Financial information contained in this document does not constitute statutory accounts within the meaning of section 434
of the Companies Act 2006 ('the Act'). The statutory accounts for the year ended 31 December 2016 have been filed with the
Registrar of Companies. The report of the auditor on those statutory accounts was unqualified, did not draw attention to
any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.
In this document Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity, which
continues to be reported as a separate operating segment.
Key operating indicators
As described in Note 1 on page 14, RBS prepares its financial statements in accordance with IFRS as issued by the IASB
which constitutes a body of generally accepted accounting principles (GAAP). This document contains a number of adjusted or
alternative performance measures, also known as non-GAAP financial measures. These measures exclude certain items which
management believe are not representative of the underlying performance of the business and which distort period-on-period
comparison. These measures include:
● 'Adjusted' measures of financial performance, principally operating performance before: own credit adjustments; gain or loss on redemption of own debt; strategic disposals; restructuring costs and litigation and conduct costs;
● Performance, funding and credit metrics such as 'return on tangible equity', 'adjusted return on tangible equity' and related RWA equivalents incorporating the effect of capital deductions (RWAes), total assets excluding derivatives (funded assets), net interest margin (NIM) adjusted for items designated at fair value through profit or loss (non-statutory NIM), cost:income ratio, loan:deposit ratio and REIL/impairment provision ratios. These are internal metrics used to measure business performance;
● Personal & Business Banking (PBB) franchise results, combining the reportable segments of UK Personal & Business Banking (UK PBB) and Ulster Bank RoI, Commercial & Private Banking (CPB) franchise results, combining the reportable segments of Commercial Banking, Private Banking and RBS International (RBSI) and 'core businesses' results combining PBB, CPB and NatWest Markets results which are presented to provide investors with a summary of the Group's business performance; and
● Cost savings progress and 2017 target calculated using operating expenses excluding litigation and conduct costs, restructuring costs and the VAT recoveries.
Contacts
Analyst enquiries: Matt Waymark Investor Relations +44 (0) 207 672 1758
Media enquiries: RBS Press Office +44 (0) 131 523 4205
Analyst and investor presentation Web cast and dial in details
Date: Friday 27 October 2017 www.rbs.com/results
Time: 9:00 am UK time International - +44 1452 568 172
Conference ID: 59366016 UK Free Call - 0800 694 8082US Toll Free - 1 866 966 8024
Available on www.rbs.com/results
● Interim Management Statement Q3 2017 and background slides.
● A financial supplement containing income statement, balance sheet and segment performance information for the nine quarters ended 30 September 2017.
● Pillar 3 supplement at 30 September 2017.
Appendix
Segmental income statement reconciliations
Segmental income statement reconciliations
PBB CPB Central
Ulster Commercial Private RBS NatWest Capital Williams items & Total
UK PBB Bank RoI Banking Banking International Markets Resolution & Glyn other RBS
Nine months ended 30 September 2017 £m £m £m £m £m £m £m £m £m £m
Income statement
Total income - statutory 4,303 443 2,678 487 292 1,326 (476) 626 397 10,076
Own credit adjustments - 3 - - - 55 20 - - 78
Loss on redemption of own debt - - - - - - - - 7 7
Strategic disposals - - - - - - - - (156) (156)
Total income - adjusted 4,303 446 2,678 487 292 1,381 (456) 626 248 10,005
Operating expenses - statutory (2,333) (422) (1,439) (335) (153) (1,125) (715) (230) (243) (6,995)
Restructuring costs - direct 24 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 - adjusted (2,112) (336) (1,295) (318) (139) (944) (194) (230) 128 (5,440)
Impairment (losses)/releases (139) 21 (245) (4) (3) (1) 149 (36) (1) (259)
Operating profit/(loss) - statutory 1,831 42 994 148 136 200 (1,042) 360 153 2,822
Operating profit/(loss) - adjusted 2,052 131 1,138 165 150 436 (501) 360 375 4,306
Additional information
Return on equity (1) 30.8% 2.1% 8.3% 9.5% 12.2% 1.8% nm 23.0% nm 5.2%
Return on equity - adjusted (1,2,3) 34.8% 6.5% 9.9% 10.8% 13.7% 6.1% nm 23.0% nm 10.4%
Cost:income ratio (4) 54.2% 95.3% 51.8% 68.8% 52.4% 84.8% nm 36.7% nm 69.1%
Cost:income ratio - adjusted (2,3,4) 49.1% 75.3% 46.2% 65.3% 47.6% 68.4% nm 36.7% nm 53.9%
Nine months ended 30 September 2016
Income statement
Total income - statutory 3,951 439 2,548 496 278 1,289 (69) 620 (178) 9,374
Own credit adjustments - (3) - - - (82) (142) - (67) (294)
Loss on redemption of own debt - - - - - - - - 127 127
Strategic disposals - - - - - - 81 - (245) (164)
Total income - adjusted 3,951 436 2,548 496 278 1,207 (130) 620 (363) 9,043
Operating expenses - statutory (2,784) (443) (1,458) (390) (110) (1,110) (915) (353) (1,277) (8,840)
Restructuring costs - direct 50 32 13 1 1 16 35 57 894 1,099
- indirect 86 4 49 22 2 50 35 - (248) -
Litigation and conduct costs 420 95 16 2 (1) 62 257 - 889 1,740
Operating expenses - adjusted (2,228) (312) (1,380) (365) (108) (982) (588) (296) 258 (6,001)
Impairment (losses)/releases (67) 66 (123) (5) (11) - (383) (31) 1 (553)
Operating profit/(loss) - statutory 1,100 62 967 101 157 179 (1,367) 236 (1,454) (19)
Operating profit/(loss) - adjusted 1,656 190 1,045 126 159 225 (1,101) 293 (104) 2,489
Additional information
Return on equity (1) 17.0% 3.1% 8.5% 7.0% 15.4% 1.6% nm 14.8% nm (8.5%)
Return on equity - adjusted (1,2,3) 26.4% 9.5% 9.4% 8.9% 15.6% 2.4% nm 18.3% nm (0.6%)
Cost:income ratio (4) 70.5% 100.9% 55.4% 78.6% 39.6% 86.1% nm 56.9% nm 94.2%
Cost:income ratio - adjusted (2,3,4) 56.4% 71.6% 52.2% 73.6% 38.8% 81.4% nm 47.7% nm 65.9%
For notes refer to page 3 of this appendix.
Segmental income statement reconciliations
PBB CPB Central
Ulster Commercial Private RBS NatWest Capital Williams items & Total
UK PBB Bank RoI Banking Banking International Markets Resolution & Glyn other RBS
Quarter ended 30 September 2017 £m £m £m £m £m £m £m £m £m £m
Income statement
Total income - statutory 1,548 150 928 166 97 394 (374) 209 39 3,157
Own credit adjustments - - - - - 7 (2) - - 5
Total income - adjusted 1,548 150 928 166 97 401 (376) 209 39 3,162
Operating expenses - statutory (747) (129) (443) (103) (59) (350) (176) (72) (64) (2,143)
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 - adjusted (699) (119) (420) (100) (49) (306) (61) (72) 52 (1,774)
Impairment (losses)/releases (67) 10 (151) 3 2 - 71 (11) - (143)
Operating profit/(loss) - statutory 734 31 334 66 40 44 (479) 126 (25) 871
Operating profit/(loss) - adjusted 782 41 357 69 50 95 (366) 126 91 1,245
Additional information
Return on equity (1) 36.8% 4.6% 8.6% 13.2% 10.4% 0.6% nm 24.6% nm 4.5%
Return on equity - adjusted (1,2,3) 39.3% 6.1% 9.3% 13.8% 13.6% 3.6% nm 24.6% nm 8.2%
Cost:income ratio (4) 48.3% 86.0% 45.7% 62.0% 60.8% 88.8% nm 34.4% nm 67.5%
Cost:income ratio - adjusted (2,3,4) 45.2% 79.3% 43.1% 60.2% 50.5% 76.3% nm 34.4% nm 55.6%
Quarter ended 30 June 2017
Income statement
Total income - statutory 1,378 148 885 161 97 444 (43) 211 426 3,707
Own credit adjustments - 2 - - - 28 15 - (1) 44
Gain on redemption of own debt - - - - - - - - 9 9
Strategic disposals - - - - - - - - (156) (156)
Total income - adjusted 1,378 150 885 161 97 472 (28) 211 278 3,604
Operating expenses - statutory (735) (151) (446) (108) (48) (355) (378) (74) (104) (2,399)
Restructuring costs - direct 3 5 1 - - 10 60 - 134 213
- indirect 26 4 17 3 1 25 (12) - (64) -
Litigation and conduct costs 9 33 1 - - 3 266 - 30 342
Operating expenses - adjusted (697) (109) (427) (105) (47) (317) (64) (74) (4) (1,844)
Impairment (losses)/releases (40) (13) (33) (4) 2 (1) 33 (14) - (70)
Operating profit/(loss) - statutory 603 (16) 406 49 51 88 (388) 123 322 1,238
Operating profit/(loss) - adjusted 641 28 425 52 52 154 (59) 123 274 1,690
Additional information
Return on equity (1) 30.8% (2.4%) 10.7% 9.6% 14.0% 2.9% nm 23.5% nm 8.0%
Return on equity - adjusted (1,2,3) 32.8% 4.3% 11.4% 10.3% 14.3% 6.6% nm 23.5% nm 12.9%
Cost:income ratio (4) 53.3% 102.0% 48.3% 67.1% 49.5% 80.0% nm 35.1% nm 64.4%
Cost:income ratio - adjusted (2,3,4) 50.6% 72.7% 46.1% 65.2% 48.5% 67.2% nm 35.1% nm 50.7%
For notes refer to next page.
Segmental income statement reconciliations
PBB CPB Central
Ulster Commercial Private RBS NatWest Capital Williams items & Total
UK PBB Bank RoI Banking Banking International Markets Resolution & Glyn other RBS
Quarter ended 30 September 2016 £m £m £m £m £m £m £m £m £m £m
Income statement
Total income - statutory 1,336 146 849 165 93 471 103 209 (62) 3,310
Own credit adjustments - - - - - 55 42 - 59 156
Loss on redemption of own debt - - - - - - - - (3) (3)
Strategic disposals - - - - - - 30 - 1 31
Total income - adjusted 1,336 146 849 165 93 526 175 209 (5) 3,494
Operating expenses - statutory (742) (131) (474) (112) (39) (381) (437) (111) (484) (2,911)
Restructuring costs - direct (1) 8 12 - - 6 23 12 409 469
- indirect 26 3 9 3 - 27 10 - (78) -
Litigation and conduct costs (1) 3 6 - (1) 6 231 - 181 425
Operating expenses - adjusted (718) (117) (447) (109) (40) (342) (173) (99) 28 (2,017)
Impairment (losses)/releases (27) 39 (20) (3) - - (120) (14) 1 (144)
Operating profit/(loss) - statutory 567 54 355 50 54 90 (454) 84 (545) 255
Operating profit/(loss) - adjusted 591 68 382 53 53 184 (118) 96 24 1,333
Additional information
Return on equity (1) 27.1% 7.8% 9.5% 11.1% 15.4% 3.1% nm 15.7% nm (4.8%)
Return on equity - adjusted (1,2,3) 28.3% 9.9% 10.4% 11.8% 15.1% 8.0% nm 17.9% nm 4.6%
Cost income ratio (4) 55.5% 89.7% 53.9% 67.9% 41.9% 80.9% nm 53.1% nm 87.8%
Cost income ratio - adjusted (2,3,4) 53.7% 80.1% 50.6% 66.1% 43.0% 65.0% nm 47.4% nm 57.3%
Notes:
(1) 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.
(2) Excluding own credit adjustments, (loss)/gain on redemption of own debt and strategic disposals.
(3) Excluding restructuring costs and litigation and conduct costs.
(4) Operating lease depreciation included in income (nine months ended September 2017 - £107 million; Q3 2017 - £35 million; nine months ended September 2016 - £115 million; Q2 2017 - £36 million, Q3 2016 - £39 million).
Legal Entity Identifier: 2138005O9XJIJN4JPN90
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