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 3
31/10/2014 08:11
- Part 3: For the preceding part double click ID:nRSe7759Vb
Operating profit/(loss) 214 (139) 75 296 49 345 (18) 155 132 (844) (155)
Additional information
Operating expenses - adjusted (£m) (2) (838) (142) (980) (392) (215) (607) (1,014) (24) (555) (145) (3,325)
Operating profit/(loss) - adjusted (£m) (2) 514 (133) 381 307 54 361 210 158 134 (845) 399
Return on equity (3) 10.2% (11.8%) 2.2% 11.1% 9.9% 10.9% (0.3%) nm 4.9% nm (6.9%)
Return on equity - adjusted (2,3) 24.6% (11.3%) 11.1% 11.5% 10.9% 11.4% 3.8% nm 5.0% nm (3.4%)
Cost:income ratio 76% 69% 76% 51% 81% 59% 99% nm 74% nm 79%
Cost:income ratio - adjusted (2) 56% 67% 58% 49% 80% 57% 81% nm 74% nm 68%
Funded assets (£bn) 131.9 29.2 161.1 88.9 21.0 109.9 309.6 116.4 71.5 37.3 805.8
Total assets (£bn) 131.9 29.4 161.3 88.9 21.1 110.0 625.9 118.0 71.9 42.3 1,129.4
Risk-weighted assets (£bn) (4) 52.2 31.8 84.0 66.4 12.1 78.5 129.0 21.5 56.1 40.9 410.0
Employee numbers (FTEs - thousands) 26.8 4.8 31.6 7.2 3.6 10.8 4.8 52.7 18.6 1.8 120.3
*Restated - refer to page 39.
Notes:
(1) Central items include unallocated income and expenses which principally comprise profits/losses on the sale of the Treasury AFS portfolio (quarter ended 30 September 2014 - £72 million loss;
quarter ended 30 June 2014 - £13 million profit; quarter ended 30 September 2013 - £150 million profit) and profit and loss on hedges that do not qualify for hedge accounting.
(2) Excluding restructuring costs and litigation and conduct costs.
(3) Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of divisional RWAs; 2013 RWAs are on a Basel 2.5 basis).
(4) RWAs at 30 September 2013 are on a Basel 2.5 basis.
Segment performance
Q3 2014 compared with Q2 2014
UK Personal & Business Banking
● Operating profit increased by 3% to £499 million primarily reflecting higher income. Adjusted operating profit increased by 3% to £682 million.
● Total income grew by 3% to £1,543 million, supported by improvements in deposit margins. Operating expenses remained broadly stable at £965 million.
● Net impairment losses increased by £19 million primarily reflecting lower latent releases. However, underlying default charges continued to decrease, down 5% in the quarter with continued improvements in asset quality.
● Gross new mortgage lending totalled £5.3 billion. Net mortgage growth was £0.8 billion with strong retention in fixed rate roll-offs and higher repayments.
● Business Banking gross new lending increased by 44% in the year to date compared with the same period in 2013. The recent launch of the Small Business Fund demonstrates the business's continued commitment to this market sector.
Ulster Bank
● Operating profit increased by £336 million to £382 million, primarily due to further net impairment releases supported by rising Irish residential property prices coupled with proactive debt management. The potential exists for further releases in the future if market conditions continue to improve. Restructuring costs were stable. Adjusted operating profit increased by £336 million to £394 million.
● Total income grew by 1% to £214 million. Proactive re-pricing of deposits has contributed to the improvement in net interest margin since Q3 2013. In both Q2 2014 and Q3 2014 net interest margin benefited from the recognition of interest income on non-performing assets. Management continues to focus on implementing cost saving initiatives but expenses during 2014 have been adversely impacted by a number of additional regulatory charges and levies.
● Trading conditions improved further during Q3 2014 supported by GDP growth, lower unemployment and a recovery in property values but the business environment remains challenging. Ulster Bank has seen an increase in demand for new lending, from both personal and business customers throughout 2014.
Commercial Banking
● Commercial Banking continues to focus on simplifying the way customers do business with the bank. The business improved the online customer lending process, streamlined its product range, reduced the average account opening time by ten days and implemented a further 56 'simplifying customer life' ideas.
● Progress has been made on integrating the Commercial and Private businesses resulting in an increase in referrals and helping to ensure that customers' broadest needs are met.
● Operating profit grew by 30% to £407 million quarter on quarter, primarily reflecting the absence of litigation and conduct costs during the quarter and lower restructuring costs (down 70%). Adjusted operating profit remained stable with higher income and lower operating expenses offset by modest net impairment charges compared with net impairment release in Q2 2014.
● Total income grew by 2% to £811 million partly as a result of margin expansion, primarily from deposit re-pricing. Cost saving initiatives resulted in an 8% reduction in direct expenses.
Segment performance
Q3 2014 compared with Q2 2014 (continued)
Commercial Banking (continued)
● Net impairment losses totalled £12 million compared with a £9 million net release in Q2 2014 as a result of lower releases of latent provisions.
● Deposit balances decreased by £1.0 billion to £87.0 billion reflecting active management of the bank's funding surplus, while net loans and advances to customers grew by £1.1 billion across a number of sectors to £85.0 billion. RWAs increased by £1.9 billion primarily from a change in methodology.
Private Banking
● Following a review of the high net worth business, RBS has decided to exit the international business. This exit will be carried out with a focus on minimising client and business disruption while maximising value and certainty of execution. Private Banking UK remains a core business with a significant opportunity to integrate and leverage the franchise within Commercial & Private Banking.
● Operating profit decreased by 9% to £64 million principally due to higher restructuring costs. Adjusted operating profit declined by 3% to £71 million.
● Total income decreased by 1% to £270 million while operating expenses excluding restructuring costs increased by 3% to £203 million primarily due to remediation expenses.
● Net impairment releases totalled £4 million compared with a £1 million net impairment charge in Q2 2014.
● Client assets and liabilities grew by £0.7 billion in Q3 2014 with increases across all categories. This includes growth of £0.2 billion in assets under management to £28.9 billion across the UK and international businesses.
Corporate & Institutional Banking
● Corporate & Institutional Banking continued to make progress on reducing RWAs and controlling discretionary expenditure during Q3 2014, focusing on strengths in core product areas to serve its customers better whilst moving to a lower risk model.
● Operating loss grew by £532 million to £557 million reflecting higher litigation and conduct charges partly offset by lower restructuring costs. Adjusted operating profit was subdued, declining by £156 million to £21 million, driven by lower income, partially offset by lower operating expenses as the business continued to manage down discretionary expenditure. Adjusted operating profit was £570 million in the year to date compared with £506 million in the same period in 2013.
● Total income declined by 23% to £831 million in Q3 2014. Rates performance was relatively muted, falling 19% to £240 million. Credit fell by £111 million, primarily due to Asset Backed Products, where resources deployed by the business continued to reduce in line with the strategic decision to concentrate on core product areas. RWAs in Assets Backed Products have almost halved to £12 billion in 2014.
● RWAs were £123.2 billion, down £4.6 billion compared with end Q2 2014, reflecting both risk reduction and business mitigation actions, and despite adverse currency movements of £1.3 billion.
Segment performance
Q3 2014 compared with Q2 2014 (continued)
Citizens Financial Group
● The initial public offering of Citizens Financial Group (CFG) was successfully completed with shares priced at $21.50 per share, and trading began on the New York Stock Exchange on 24 September. Given the trading strength of the stock, the underwriters also exercised their overallotment option, resulting in a total of $3.5 billion of common stock being sold. As a result, RBS's holding in CFG stood at 71.25% as of 30 September and was reduced to 70.5% of shares outstanding following a buyback by CFG on 8
October.
● Operating profit for Q3 2014 was $271 million. Excluding the $283 million net gain on the sale of the Illinois franchise in Q2 2014 and restructuring costs, operating profit was down $5 million or 2% from Q2 2014.
● Total income was down 21% from Q2 2014, principally driven by the impact of the Illinois franchise sale.
● Operating expenses, excluding restructuring costs, decreased by 6% largely due to the impact of the Illinois franchise sale as well as lower incentive accruals and higher consumer regulatory compliance costs in Q2 2014.
● Loans and advances were up 2%, driven by higher commercial loans, auto loan organic growth and purchases and a strategic initiative to purchase residential mortgages. Customer deposits have also increased by 2% from the prior quarter maintaining a 98% loan:deposit ratio.
RBS Capital Resolution
● RCR funded assets were £18 billion, down £11 billion or 38% since inception on 1 January 2014; with £3 billion of the reduction in the current quarter driven by disposals and run-off.
● RWA equivalent (RWAe)(1) decreased to £38 billion, a reduction of £27 billion or 41% since 1 January 2014. The RWAe reduction of £5.2 billion in the quarter reflects a combination of disposals and run-off partially offset by the impact of impairment releases.
● Operating profit for the quarter was £638 million, up £572 million compared with Q2 2014, including £605 million of net provision releases reflecting improving economic conditions.
● RCR has been capital accretive since its formation on 1 January 2014.
Central items
● Operating loss in Central items in Q3 2014 was £319 million compared with an £86 million operating profit in Q2 2014. In Q3 2014, RBS took advantage of improved market prices to dispose of E9 billion of available-for-sale debt securities at a loss of £104 million(2) and recognised a loss of £110 million primarily relating to IFRS volatility arising from interest rate movements. Q2 2014 benefited from a number of small gains on asset realisations.
Notes:
(1) RWA equivalent (RWAe) is an internal metric that measures the equity capital employed in segments. RWAe converts both performing and non-performing exposures into a consistent capital measure, being the sum of the regulatory RWAs and the regulatory capital deductions, the latter converted to RWAe by applying a multiplier of 10.
(2) An additional £73 million loss attributable to other shareholders is included within RFS Holdings minority interest.
UK Personal & Business Banking
Quarter ended Nine months ended
30 September 30 June 30 September 30 September 30 September
2014 2014 2013 2014 2013
Income statement £m £m £m £m £m
Net interest income 1,198 1,152 1,141 3,474 3,341
Net fees and commissions 335 304 344 972 968
Other non-interest income 10 43 5 59 10
Non-interest income 345 347 349 1,031 978
Total income 1,543 1,499 1,490 4,505 4,319
Direct expenses
- staff costs (223) (225) (232) (672) (698)
- other costs (78) (93) (121) (298) (321)
Indirect expenses (481) (458) (485) (1,463) (1,435)
Restructuring costs
- direct (2) (6) (21) (8) (91)
- indirect (63) (23) (29) (76) (68)
Litigation and conduct costs (118) (150) (250) (268) (410)
Operating expenses (965) (955) (1,138) (2,785) (3,023)
Profit before impairment losses 578 544 352 1,720 1,296
Impairment losses (79) (60) (138) (227) (394)
Operating profit 499 484 214 1,493 902
Operating profit - adjusted (1) 682 663 514 1,845 1,471
Analysis of income by product
Personal advances 231 232 233 698 676
Personal deposits 194 160 125 496 352
Mortgages 657 649 663 1,944 1,940
Cards 187 176 213 561 632
Business banking 261 245 245 751 726
Other 13 37 11 55 (7)
Total income 1,543 1,499 1,490 4,505 4,319
Analysis of impairments by sector
Personal advances 46 40 34 125 118
Mortgages (8) 4 18 (3) 44
Business banking 20 1 56 50 143
Cards 21 15 30 55 89
Total impairment losses 79 60 138 227 394
Performance ratios
Return on equity (2) 26.9% 25.3% 10.2% 26.1% 14.3%
Return on equity - adjusted (1,2) 36.8% 34.7% 24.6% 32.2% 23.4%
Net interest margin 3.72% 3.64% 3.60% 3.65% 3.54%
Cost:income ratio 63% 64% 76% 62% 70%
Cost:income ratio - adjusted (1) 51% 52% 56% 54% 57%
30 September 30 June 31 December
2014 2014 2013
Capital and balance sheet £bn £bn £bn
Funded assets 134.2 133.6 132.2
Total assets 134.2 133.6 132.2
Net loans and advances to customers 127.0 126.4 124.8
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