REG - Royal Bk Scot.Grp.Royal Bk.of Scot.Nat.Westminster Bk - Interim Management Statement <Origin Href="QuoteRef">NWB_pa.L</Origin> <Origin Href="QuoteRef">RBS.L</Origin> - Part 2
31/10/2014 08:11
- Part 2: For the preceding part double click ID:nRSe7759Va
· Non-interest income totalled £1,496 million, down 30% from £2,127 million in Q2 2014. Within this, income from trading activities declined by £391 million, reflecting the strategic decision to concentrate on core product areas in CIB. Other operating income reduced by £271 million compared with Q2 2014, reflecting a non-repeat of the £170 million gain in Q2 2014 on the sale of the Illinois franchise by CFG, and losses of £104 million(1) on the disposal of available-for-sale debt securities.
Note:
(1) An additional £73 million loss attributable to other shareholders is included within RFS Holdings minority interest.
Analysis of results
Operating expenses
Quarter ended Nine months ended
30 September 30 June 30 September 30 September 30 September
2014 2014 2013 2014 2013
£m £m £m £m £m
Staff expenses 1,611 1,693 1,758 4,951 5,343
Premises and equipment 490 485 540 1,569 1,619
Other 516 605 683 1,808 2,162
Restructuring costs* 180 385 205 694 476
Litigation and conduct costs 780 250 349 1,030 969
Administrative expenses 3,577 3,418 3,535 10,052 10,569
Depreciation and amortisation 306 282 344 857 1,060
Write down of other intangible assets - - - 82 -
Operating expenses 3,883 3,700 3,879 10,991 11,629
Adjusted operating expenses (1) 2,923 3,065 3,325 9,267 10,184
*Restructuring costs comprise:
- staff expenses 79 153 137 275 279
- premises and equipment 53 137 4 249 29
- other 48 95 64 170 168
Restructuring costs 180 385 205 694 476
Staff costs as a % of total income 37% 34% 36% 35% 34%
Cost:income ratio 89% 75% 79% 77% 75%
Cost:income ratio - adjusted (1) 67% 62% 68% 65% 66%
Employee numbers (FTEs - thousands) 110.8 113.6 120.3 110.8 120.3
Note:
(1) Excluding restructuring costs and litigation and conduct costs.
Q3 2014 compared with Q2 2014
· Operating expenses increased by 5% to £3,883 million, principally reflecting a £530 million increase in litigation and conduct costs to £780 million, which was partly offset by lower restructuring costs, down £205 million.
· Litigation and conduct costs in Q3 2014 included £400 million of potential conduct costs following investigations into the foreign exchange market and an additional £100 million charge for PPI reflecting higher than expected reactive complaint volumes.
· Adjusted operating expenses declined to £2,923 million, down £142 million or 5%. The fall was primarily attributable to tight control of discretionary expenditure, lower incentive accruals in CFG and CIB in particular, and the impact of the sale of the Illinois branches in Q2 2014. Adjusted operating expenses for the first nine months of the year were 9% lower than the comparable period in 2013.
· The cost:income ratio was 89% compared with 75% in Q2 2014 reflecting higher litigation and conduct costs along with lower income. The adjusted cost:income ratio was 67%, up from 62% for Q2 2014, as lower income, primarily in CIB and Centre, outweighed the decline in operating expenses.
Analysis of results
Impairment (releases)/losses
Quarter ended Nine months ended
30 September 30 June 30 September 30 September 30 September
2014 2014 2013 2014 2013
£m £m £m £m £m
Loans (803) (89) 1,120 (532) 3,281
Securities 2 (4) 50 - 39
Total impairment (releases)/losses (801) (93) 1,170 (532) 3,320
Loan impairment (releases)/losses
- individually assessed (410) (42) 580 (297) 2,052
- collectively assessed 52 221 287 400 1,021
- latent (445) (258) 253 (625) 217
Customer loans (803) (79) 1,120 (522) 3,290
Bank loans - (10) - (10) (9)
Loan impairment (releases)/losses (803) (89) 1,120 (532) 3,281
RBS excluding RCR/Non-Core (193) 36 584 97 1,842
RCR (610) (125) n/a (629) n/a
Non-Core n/a n/a 536 n/a 1,439
RBS loan impairment (releases)/losses (803) (89) 1,120 (532) 3,281
Customer loan impairment charge as a % of
gross loans and advances (1)
RBS (0.8%) (0.1%) 1.0% (0.2%) 1.0%
RBS excluding RCR/Non-Core (0.2%) - 0.6% - 0.6%
RCR (9.5%) (1.7%) n/a (3.3%) n/a
Non-Core n/a n/a 5.2% n/a 4.7%
30 September 30 June 31 December
2014 2014 2013
Loan impairment provisions £20.0bn £22.4bn £25.2bn
Risk elements in lending £30.5bn £34.1bn £39.4bn
Provisions as a % of REIL
- RBS 66% 66% 64%
- RBS excluding RCR/Non-Core 57% 59% 56%
- RCR 72% 71% n/a
- Non-Core n/a n/a 73%
REIL as a % of gross customer loans
- RBS 7.4% 8.3% 9.4%
- RBS excluding RCR/Non-Core 3.4% 3.6% 5.3%
- RCR 67.6% 68.1% n/a
- Non-Core n/a n/a 51.8%
Note:
(1) Excludes reverse repurchase agreements and includes disposals groups.
Analysis of results
Q3 2014 compared with Q2 2014
· A net loan impairment release of £803 million was recorded in Q3 2014, £714 million higher than in Q2 2014. This included a £610 million release in RCR driven by the improved economic environment and rising asset values in the UK and especially Ireland, together with net provision releases in Ulster Bank supported by rising Irish residential property prices and proactive debt management. While UK PBB's net impairment charge increased as a result of lower latent releases, underlying credit conditions remain
benign.
· REIL decreased by £3.6 billion to £30.5 billion during Q3 2014. Of the reduction, £3.0 billion was in RCR which continued its strategy of disposing of non-performing assets. Continued favourable market conditions resulted in some disposals being achieved at prices above net book value. The £0.6 billion reduction in non-RCR was primarily in Commercial Banking portfolios due to repayments and write-offs.
· REIL as a percentage of gross customer loans declined, both in RCR, to 67.6%, and in the rest of RBS to 3.4%.
Analysis of results
Risk elements in lending (REIL) and loan impairment provisions
Quarter ended 30 September 2014
REIL Impairment provisions (1)
RBS RBS
excl. RCR RCR Total excl. RCR RCR Total
£m £m £m £m £m £m
At beginning of period 13,653 20,428 34,081 8,041 14,405 22,446
Currency translation and other adjustments (72) (258) (330) (41) (190) (231)
Additions 808 445 1,253
Repayments and disposals and transfers to performing book (840) (2,187) (3,027) - (6) (6)
Transfers between REIL and potential problem loans (91) (18) (109)
Amounts written-off (403) (962) (1,365) (403) (962) (1,365)
Recoveries of amounts previously written-off 43 3 46
Net release to the income statement - continuing operations (193) (610) (803)
Unwind of discount (2) (29) (27) (56)
At end of period 13,055 17,448 30,503 7,418 12,613 20,031
Nine months ended 30 September 2014
REIL Impairment provisions (1)
RBS RBS
excl. RCR RCR Total excl. RCR RCR Total
£m £m £m £m £m £m
At beginning of period 15,276 24,116 39,392 8,716 16,500 25,216
Currency translation and other adjustments (239) (916) (1,155) (159) (585) (744)
Additions 3,081 2,332 5,413
Repayments and disposals and transfers to performing book (3,580) (5,537) (9,117) - (6) (6)
Transfers between REIL and potential problem loans (212) 34 (178)
Amounts written-off (1,271) (2,581) (3,852) (1,271) (2,581) (3,852)
Recoveries of amounts previously written-off 127 17 144
Net charge/(release) to the income statement - continuing operations 97 (629) (532)
Unwind of discount (2) (92) (103) (195)
At end of period 13,055 17,448 30,503 7,418 12,613 20,031
Notes:
(1) Includes provisions relating to loans and advances to banks (refer to the following page).
(2) Recognised in interest income.
Analysis of results
Loans and related credit metrics: Loans, REIL, provisions and impairments
The table below analyses gross loans and advances to banks and customers (excluding reverse repos) and related credit
metrics by sector and geography (by location of lending office).
Credit metrics Quarter ended
30 September 2014 (1) REIL as a Provisions Provisions Impairment
Gross % of gross as a % as a % of charge/ Amounts
loans REIL Provisions loans of REIL gross loans (releases) written-off
£m £m £m % % % £m £m
Central and local government 8,490 1 1 - 100 - (4) -
Finance 37,552 454 280 1.2 62 0.7 (15) 2
Personal - mortgages 149,505 5,722 1,579 3.8 28 1.1 (61) 60
- unsecured 28,592 2,038 1,700 7.1 83 5.9 101 178
Property 54,236 14,582 10,261 26.9 70 18.9 (295) 708
Construction 6,178 1,146 722 18.5 63 11.7 3 48
Manufacturing 22,854 526 378 2.3 72 1.7 16 109
Finance leases (2) 13,798 184 138 1.3 75 1.0 1 10
Retail, wholesale and repairs 18,430 1,010 698 5.5 69 3.8 (23) 27
Transport and storage 15,200 1,179 552 7.8 47 3.6 (31) 62
Health, education and leisure 15,404 775 422 5.0 54 2.7 24 80
Hotels and restaurants 8,099 1,265 712 15.6 56 8.8 (33) 19
Utilities 5,429 123 56 2.3 46 1.0 (14) 2
Other 30,314 1,456 1,138 4.8 78 3.8 (27) 51
Latent - - 1,354 - - - (445) n/a
414,081 30,461 19,991 7.4 66 4.8 (803) 1,356
of which:
UK
- residential mortgages 113,064 1,590 233 1.4 15 0.2 (22) 30
- personal lending 16,116 1,722 1,538 10.7 89 9.5 77 131
- property 38,740 6,219 3,573 16.1 57 9.2 (158) 566
- construction 4,569 832 466 18.2 56 10.2 (10) 46
- other 112,986 3,260 2,230 2.9 68 2.0 (122) 166
Europe
- residential mortgages 15,759 3,210 1,196 20.4 37 7.6 (54) (5)
- personal lending 1,160 112 101 9.7 90 8.7 1 18
- property 9,732 8,278 6,642 85.1 80 68.2 (139) 139
- construction 1,107 304 247 27.5 81 22.3 12 3
- other 21,120 3,247 2,703 15.4 83 12.8 (425) 164
US
- residential mortgages 20,320 907 148 4.5 16 0.7 16 36
- personal lending 10,272 188 42 1.8 22 0.4 24 28
- property 4,991 60 21 1.2 35 0.4 2 3
- construction 465 2 1 0.4 50 0.2 - 1
- other 29,605 230 624 0.8 271 2.1 1 26
RoW 14,075 300 226 2.1 75 1.6 (6) 4
414,081 30,461 19,991 7.4 66 4.8 (803) 1,356
Banks 29,146 42 40 0.1 95 0.1 - 9
Notes:
(1) Includes disposal groups.
(2) Includes instalment credit.
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
2014 2014 2013 (2) 2014 2014 2013 (2)
Risk asset ratios % % % % % %
CET1 (3) 10.8 10.1 8.6 10.8 10.1 8.6
Tier 1 10.8 10.1 8.6 12.7 12.1 10.3
Total 13.1 12.4 10.6 16.3 15.6 13.6
Capital £bn £bn £bn £bn £bn £bn
Tangible equity 44.3 42.9 41.1 44.1 42.9 41.1
Expected loss less impairment provisions (1.6) (1.3) (1.7) (1.6) (1.3) (1.7)
Prudential valuation adjustment (PVA) (0.4) (0.5) (0.8) (0.4) (0.5) (0.8)
Deferred tax assets (1.6) (1.7) (2.3) (1.6) (1.7) (2.3)
Own credit adjustments 0.6 0.6 0.6 0.6 0.6 0.6
Pension fund assets (0.2) (0.2) (0.2) (0.2) (0.2) (0.2)
Other deductions 0.1 (0.1) 0.1 0.2 (0.1) 0.1
Total deductions (3.1) (3.2) (4.3) (3.0) (3.2) (4.3)
CET1 capital 41.2 39.7 36.8 41.1 39.7 36.8
AT1 capital - - - 7.5 7.6 7.5
Tier 1 capital 41.2 39.7 36.8 48.6 47.3 44.3
Tier 2 capital 8.8 9.0 8.7 13.6 13.9 13.8
Total regulatory capital 50.0 48.7 45.5 62.2 61.2 58.1
Risk-weighted assets £bn £bn £bn £bn £bn £bn
Credit risk
- non-counterparty 277.0 283.3 317.9 277.0 283.3 317.9
- counterparty 38.2 38.6 39.1 38.2 38.6 39.1
Market risk 29.7 33.4 30.3 29.7 33.4 30.3
Operational risk 36.8 36.8 41.8 36.8 36.8 41.8
Total RWAs 381.7 392.1 429.1 381.7 392.1 429.1
Leverage £bn £bn £bn
Derivatives 314.0 274.9 288.0
Loans and advances 422.1 414.5 418.4
Reverse repos 75.5 81.7 76.4
Other assets 234.5 240.0 245.1
Total assets 1,046.1 1,011.1 1,027.9
Derivatives
- netting (254.5) (217.5) (227.3)
- potential future exposures 106.2 102.5 128.0
Securities financing transactions gross up 72.9 77.5 59.8
Undrawn commitments 98.7 98.0 100.2
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