TIDM83NF
RNS Number : 6914D
Natwest Markets PLC
30 October 2020
NatWest Markets Group
Q3 2020
Interim Management Statement
NWM Group natwest.com/markets
NatWest Markets Group (NWM Group)
Q3 2020 Interim Management Statement
Supporting customers and colleagues through the impacts of
Covid-19
Throughout the pandemic NWM Group has continued to serve
customers and support colleagues, whilst progressing to reshape the
business for the future in line with the refocused strategy
announced in February.
During prolonged uncertain market conditions, the business has
actively engaged with customers on their financing, liquidity and
risk management needs and supported them on a number of significant
transactions to help build long term sustainable value.
Careful risk management has been essential during the crisis and
balance sheet, capital and liquidity metrics remained strong at 30
September 2020 in the face of significant continued uncertainty,
with a continued focus on the safety and soundness of the business
in response to Covid-19. During Q3 2020, scenario planning for a
worsening situation has been further developed across NatWest Group
and findings have been incorporated into the existing business
continuity plans for NWM Group's critical services.
Progress on strategic change
During Q3 2020, NWM Group made further progress on reshaping the
business for the future, creating greater alignment with NatWest
Group customers as well as refining products and services offered.
As part of NatWest Group's environmental, social and governance
(ESG) ambitions, which include supporting the necessary transition
to a low carbon economy, NWM Group lead-managed GBP12.3 billion of
ESG-related capital markets financing during the quarter, bringing
the total for the year to date to GBP32.2 billion.
The front office operating model was reorganised in Q3 2020 to
increase focus on NatWest Group's customers and some customer
facing roles and functional teams were transferred to NatWest
Holdings Limited to simplify the operating model and leverage
shared resources and expertise to act as one bank for customers. A
Capital Management Unit was also established to safely manage the
capital reduction and optimisation.
Further refinements to the product suite were communicated, to
focus resources on developing product capability in the areas that
matter most to NatWest Group's customers including Fixed Income,
Currencies and Capital Markets. This included exiting Distressed
and Emerging Markets Credit trading and making changes to simplify
the Rates business.
In line with the strategy announced in February, NWM Group has
continued to reduce RWAs, particularly within counterparty credit
and market risk. The business is on track to meet its targets for a
reduction in NatWest Markets Plc's (NWM Plc) RWAs of GBP14-18
billion over the medium term, with the majority of this reduction
intended to be achieved by the end of 2021.
Financial review
NWM Group reported a profit of GBP35 million for Q3 2020,
compared with a loss of GBP137 million in Q2 2020 and a loss of
GBP20 million in Q3 2019. Total income was GBP275 million in Q3
2020 as market activity and levels of primary issuance eased
compared with the first half of the year. Operating expenses of
GBP264 million reflected progress on cost reduction following the
strategic announcement in February 2020.
Income and costs
-- Income excluding asset disposals/strategic risk reduction and own
credit adjustments decreased to GBP321 million in Q3 2020, from GBP434
million in Q2 2020, driven by lower levels of market activity and
primary issuance which eased relative to the prior quarter. However,
this was a significant increase compared to GBP117 million in Q3 2019,
a period that included elevated hedging costs. Own credit adjustments
of GBP(34) million in Q3 2020 (Q2 2020 - GBP(102) million, Q3 2019
- GBP(11) million) reflected the tightening of credit spreads. Asset
disposals/strategic risk reduction losses of GBP12 million in Q3 2020
were lower than GBP63 million in Q2 2020 which included a single significant
transaction. Total income was GBP275 million in Q3 2020, compared
with GBP269 million in Q2 2020 and GBP106 million in Q3 2019.
-- Operating expenses of GBP264 million in Q3 2020 were down GBP95 million
from GBP359 million in Q2 2020, mainly due to a reduction in strategic
costs and other operating expenses following the strategic announcement
in February 2020. However, operating expenses were up by GBP82 million
compared with GBP182 million in Q3 2019, mainly due to the one-off
nature of the reimbursement under indemnification agreements in that
period, partially offset by cost reductions.
Financial review
Balance sheet, capital and RWAs
-- NWM Group's total assets and liabilities increased by GBP20.2 billion
and GBP20.3 billion to GBP286.3 billion and GBP276.5 billion respectively
at 30 September 2020, compared with 31 December 2019. The increases
primarily reflect derivative fair values, following a downward shift
in interest rate yields and weaker sterling.
-- NWM Group sold 21% of its Saudi British Bank (SABB) equity holding
during Q3 2020. The remaining balance sheet position at 30 September
2020 is GBP349 million (30 June 2020 - GBP416 million, 31 December
2019 - GBP595 million), a GBP67 million reduction from 30 June 2020
as the impact of the share sale was partially offset by an increase
in the share price.
-- Total NWM Plc RWAs were GBP28.2 billion at 30 September 2020, compared
with GBP32.8 billion at 30 June 2020 and GBP35.2 billion at 31 December
2019. The decrease reflected lower levels of credit, counterparty
credit and market risk which have trended downwards as the business
seeks to reduce RWAs including through the execution of capital optimisation
actions and exit activity. Additionally, RWA levels were favourably
impacted by market volatility having stabilised in Q2 and Q3 2020.
-- NWM Plc's Common Equity Tier 1 (CET1) ratio increased to 22.3% at
30 September 2020, from 18.9% at 30 June 2020 and 17.3% at 31 December
2019, principally reflecting reserve movements in the period and the
reduction in RWAs.
-- The total regulatory capital and CRR-compliant MREL for NWM Plc at
30 September 2020 was GBP14.0 billion, or 49.6% of RWAs.
NWM Group business review
The table below sets out the performance key metrics and
ratios.
30 September 30 June 31 December
Performance key metrics and ratios (1) 2020 2020 2019
--------------------------------------- ------------ ------- -----------
Liquidity coverage ratio (LCR) (%) (2) 302 258 254
Liquidity portfolio (GBPbn) (2) 19.7 21.6 16.1
Total wholesale funding (GBPbn) (3) 22.5 23.5 21.9
Total funding including repo (GBPbn) 83.0 91.2 85.0
Common Equity Tier 1 (CET1) ratio (%) 22.3 18.9 17.3
CRR leverage ratio (%) 5.4 5.3 5.1
Risk-weighted assets (RWAs) (GBPbn) 28.2 32.8 35.2
Total Capital ratio (%) 30.9 26.5 24.2
Total CRR-compliant MREL (GBPbn) (4) 14.0 14.1 13.5
Total MREL ratio (%) 49.6 43.0 38.4
--------------------------------------- ------------ ------- -----------
Notes:
(1) Capital, leverage and RWAs are based on PRA transitional arrangements
for NWM Plc. Regulatory capital is monitored and reported at NWM
Plc level.
(2) This metric has been presented for NWM Plc as it is monitored and
reported for regulatory purposes.
(3) Excluding derivative cash collateral, customer deposits, repo and
intra-NatWest Group balances.
(4) Includes senior internal debt instruments issued to NatWest Group
plc with a regulatory value of GBP5.1 billion (31 December 2019
- GBP4.9 billion).
The impact of Covid-19
Serving customers and business resilience
-- NWM Group has continued to focus on customers during the crisis, supporting
financing programmes and providing thematic advice.
-- NWM Group continues to work closely with NatWest Group's Commercial
Banking business to support customers' access to the Covid-19 Corporate
Financing Facility (CCFF). As at 30 September 2020, NWM Group had
arranged gross CCFF issuance of GBP8.8 billion and facilitated customer
access to combined issuance limits of GBP22.3 billion. NWM Group has
worked with 121 customers to explore the facility, utilising strong
specialist expertise across the bank to support customers through
this ongoing period of uncertainty.
-- Robust business continuity plans ensured that NWM Group was able to
continue to support customers and protect employees, with the vast
majority of the workforce continuing to work remotely in Q3 2020.
In line with guidance from public health authorities in the various
regions where NWM Group operates, a small proportion of employees
have returned to the workplace, primarily those in regulated roles
and key oversight functions.
Financial review
The impact of Covid-19 continued
Capital, funding and liquidity
-- NWM Plc RWAs decreased to GBP28.2 billion (30 June 2020 - GBP32.8
billion, 31 December 2019 - GBP35.2 billion), reflecting lower levels
of credit, counterparty credit and market risk which have trended
downwards as the business seeks to reduce RWAs including through the
execution of capital optimisation actions and exit activity. Additionally,
RWA levels were favourably impacted by market volatility having stabilised
in Q2 and Q3 2020. Operational risk RWAs reduced following the annual
re-calculation.
-- Market risk Value-at-risk (VaR) model capital multiplier - Earlier
in the year, exceptional levels of market volatility due to the pandemic
resulted in an increase in VaR model back-testing exceptions across
the industry, including in NWM Plc. As a result, the PRA announced
a temporary approach to mitigate this impact. Under the PRA temporary
approach, capital multiplier increases due to new back-testing exceptions
that resulted in an increase in capital requirements could be offset
through a commensurate reduction in RNIV capital requirements. This
approach resulted in a RWA benefit for NWM Plc of approximately GBP1.3
billion at 30 September 2020. The PRA temporary approach will cease
to apply from 1 October 2020, and be replaced by the measures announced
in the CRR Covid-19 amendment whereby back-testing exceptions due
to exceptional levels of market volatility due to Covid-19 can be
excluded from the capital multiplier. NWM Plc has applied to the PRA
for approval to use these measures.
-- NWM Group remained well-capitalised, with a NWM Plc CET1 ratio of
22.3%, within guidance of above 15%. The liquidity position was also
strong, with NWM Plc's liquidity portfolio of GBP19.7 billion and
LCR of 302%.
-- Capital, funding and liquidity remained closely monitored, with increased
tracking and scenario analysis to ensure balance sheet strength.
-- The NWM Plc senior funding programme for 2020 was largely complete
at 30 September 2020, given the benchmark transactions and private
placements completed earlier in the year and the ongoing risk reduction.
As a result, full year term senior unsecured issuance is likely to
be below the previous guidance of GBP3-5 billion.
Fair value
-- Valuation reserves, comprising of credit valuation adjustments (CVA),
funding valuation adjustments (FVA), bid-offer and product and deal
specific reserves decreased to GBP854 million at 30 September 2020
(30 June 2020 - GBP912 million) due to reductions in CVA, FVA and
bid-offer reserves.
-- CVA reserves decreased to GBP408 million at 30 September 2020 (30
June 2020 - GBP442 million) whilst FVA reserves decreased to GBP146
million (30 June 2020 - GBP162 million) and bid-offer reserves decreased
to GBP116 million (30 June 2020 - GBP128 million).
Risk
-- During Q3 2020, risk management initiatives have continued to focus
on the safety and soundness of the business in response to Covid-19.
-- Covid-19 related risks are in the final stages of being integrated
into standard management and governance processes, following the establishment
of the Covid-19 risk register earlier in 2020 to track all key risks
and risk acceptance decisions, together with regular analysis of the
impact of Covid-19 on NWM Group's risk profile.
-- NatWest Group-wide Covid-19 scenario planning for a worsening situation
continued to develop during Q3 2020 and findings have been used to
supplement the existing business continuity plans for NWM Group's
critical services.
-- Working practices and processes have been adjusted in some areas in
light of new working from home arrangements which will remain in place
for the majority of employees until at least early 2021.
-- Whilst Covid-19 has impacted NWM Group's business, overall it has
demonstrated that NWM Group has a strong ability to respond to a major
disruption event. Nevertheless the possible future risk remains heightened
as NWM Group prolongs the period that staff continue to work from
home and as the business faces the economic impacts of the crisis.
-- Internal traded VaR for NWM Group was GBP22.2 million at peak and
GBP15.7 million average during Q3 2020 (Q2 2020 - GBP25.7 million
and GBP18.8 million respectively). Stressed VaR was GBP98.2 million
at peak and GBP76.2 million on an average basis (Q2 2020 - GBP158.9
million and GBP106.0 million respectively).
Impairments
-- The impairment release for Q3 2020 was GBP3.0 million, mainly due
to IFRS 9 Stage 2 releases of GBP8.0 million following probability
of default improvements that triggered movements into Stage 1, as
well as reductions in exposures to certain counterparties. This was
partially offset by impairment charges in Stage 1 of GBP1.9 million
and Stage 3 of GBP1.6 million and certain other movements.
-- The overall impairment charge for the nine months ended 30 September
2020 was GBP42.0 million.
Outlook (1)
We retain the medium term target capital metrics, including RWA
reduction, as set out in NWM Group's 2019 Annual Report and
Accounts. NWM Group is now intending to achieve the majority of the
expected medium term RWA reduction in NWM Plc by the end of 2021,
while managing the associated income disposal losses to around
GBP0.6 billion over the two years. Full year 2020 term senior
issuance is likely to be below the previous guidance of GBP3-5
billion, given successful transactions completed earlier in the
year and the ongoing risk reduction.
Note:
(1) The targets, expectations and trends discussed in this section represent
management's current expectations and are subject to change, including
as a result of the factors described in the "Risk Factors" section
on pages 48-49 of NWM Group's 2020 Interim Results, pages 13-14
of NWM Group's 2020 Q1 IMS and pages 143-156 of NWM Group's 2019
Annual Report and Accounts. These statements constitute forward-looking
statements. Refer to Forward-looking statements in this announcement.
Financial review
The segmental analysis of key income statement lines for the
quarter ended 30 September 2020 is set out below.
Q3 2020 Q2 2020 Q3 2019
----------------------- ----------------------- -----------------------
Central Central Central
NatWest items NatWest items NatWest items
& & &
Markets other Total Markets other Total Markets other Total
Income statement GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Net interest income (20) 2 (18) 4 - 4 (55) 1 (54)
Non-interest income 256 37 293 265 - 265 178 (18) 160
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Total income 236 39 275 269 - 269 123 (17) 106
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Strategic costs (59) 27 (32) (75) (5) (80) (48) (5) (53)
Litigation and conduct costs (2) (12) (14) - (9) (9) (7) 145 138
Other operating expenses (224) 6 (218) (285) 15 (270) (271) 4 (267)
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Operating expenses (285) 21 (264) (360) 1 (359) (326) 144 (182)
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Operating (loss)/profit before
impairments (49) 60 11 (91) 1 (90) (203) 127 (76)
Impairment releases/(losses) 2 1 3 (45) (5) (50) 5 (2) 3
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Operating (loss)/profit before
tax (47) 61 14 (136) (4) (140) (198) 125 (73)
Tax credit 21 3 53
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Profit/(loss) for the period 35 (137) (20)
Income
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Fixed Income (1,2) 125 - 125 226 - 226 (20) - (20)
Currencies (2) 126 - 126 142 - 142 118 - 118
Capital Markets (1,2) 75 - 75 131 - 131 96 - 96
Capital Management Unit &
other (2,3) 1 39 40 (17) - (17) (9) (17) (26)
Revenue share paid to other
NatWest Group segments (45) - (45) (48) (48) (51) - (51)
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Income excluding Asset disposals
and OCA 282 39 321 434 - 434 134 (17) 117
Asset disposals/Strategic
risk reduction (4) (12) - (12) (63) - (63) - - -
Own credit adjustments (OCA)
(5) (34) - (34) (102) - (102) (11) - (11)
---------------------------------
Total income 236 39 275 269 - 269 123 (17) 106
--------------------------------- ------- ------- ----- ======= ======= ===== ======= ======= =====
Notes:
(1) Fixed income comprises Rates and Credit trading. Rates
income of GBP107 million (Q2 2020 - GBP175 million, Q3 2019 -
GBP(35) million) was previously presented as a separate business in
prior NWM Group results publications. Credit trading and Capital
Markets were previously reported as Financing.
(2) Income of GBP3 million, GBP1 million and GBP12 million
relating to business previously within Fixed Income, Currencies and
Capital Markets respectively has been reallocated to Capital
Management Unit in Q3 2020. Comparatives have not been restated.
The equivalent amounts were GBP(1) million, GBP1 million and GBP14
million in Q2 2020 and GBP(12) million, nil and GBP7 million in Q3
2019.
(3) Capital Management Unit was set up in Q3 2020 to manage the
capital usage and optimisation across all parts of NatWest Markets.
The income shown here relates to legacy assets.
(4) Asset disposals/Strategic risk reduction in 2020 relates to
the costs of exiting positions, and the impact of risk reduction
transactions entered into, in respect of the strategic
announcements of 14 February 2020. Prior to this date, disposal
losses were primarily reflected in legacy and are presented within
Capital Management Unit & other in the table above. Refer to
further information on page 13.
(5) Refer to further information on page 13. OCA gains and
losses can be material and vary substantially from period to period
based on NWM Group's estimation of counterparty views of NWM
Group's creditworthiness. Any such gain or loss is not taken into
account in the definition of regulatory capital.
-- Operating profit before tax was GBP14 million in Q3 2020 compared with
losses of GBP140 million and GBP73 million in Q2 2020 and Q3 2019 respectively.
Total income of GBP275 million was up slightly compared to GBP269 million
in Q2 2020, despite lower levels of market activity and primary issuance
compared to the prior quarter, but was offset by reduced asset disposal
losses and own credit adjustments. However, income was significantly
higher than Q3 2019, a period that included elevated hedging costs.
Operating expenses of GBP264 million in Q3 2020 were lower compared
with GBP359 million in Q2 2020, mainly reflecting cost reductions in
NatWest Markets, but increased relative to GBP182 million in Q3 2019
due to the non-repeat of reimbursement under indemnification agreements.
-- Net interest income was a net expense of GBP18 million in Q3 2020 compared
with net income of GBP4 million in Q2 2020 and net expense of GBP54
million Q3 2019.
-- Non-interest income of GBP293 million increased by GBP28 million compared
with GBP265 million in Q2 2020 despite market activity and primary
issuance levels having eased, but was offset by lower asset disposals
and own credit adjustments. Non-interest income was significantly higher
than Q3 2019 (GBP160 million), a period that included elevated hedging
costs.
-- Operating expenses were GBP264 million in Q3 2020, compared with GBP359
million in Q2 2020 and GBP182 million in Q3 2019. Strategic costs reduced
to GBP32 million, compared with GBP80 million in Q2 2020 and GBP53
million in Q3 2019. Litigation and conduct costs were GBP14 million
in Q3 2020, compared with GBP9 million in Q2 2020 and a credit of GBP138
million in Q3 2019 which included reimbursement under indemnification
agreements. Other operating expenses reduced to GBP218 million in Q3
2020 from GBP270 million in Q2 2020 and GBP267 million in Q3 2019,
reflecting cost reductions following the strategic announcements in
February 2020.
-- Impairment releases were GBP3 million in Q3 2020 (Q2 2020 - GBP50 million
loss; Q3 2019 - GBP3 million release), largely driven by an improvement
in IFRS 9 probabilities of default, resulting in certain exposures
having moved from Stage 2 to Stage 1.
-- NatWest Markets operating loss before tax was GBP47 million compared
with losses of GBP136 million and GBP198 million in Q2 2020 and Q3
2019 respectively. Income excluding asset disposals and own credit
adjustments of GBP282 million was down compared with Q2 2020 mainly
due to lower levels of market activity and primary issuance, but increased
compared with Q3 2019 which included elevated hedging costs, particularly
within Fixed Income. Asset disposal losses of GBP12 million were down
compared with GBP63 million in the prior quarter, and own credit adjustments
of (GBP34) million in Q3 2020 reflected the tightening of spreads.
Operating expenses of GBP285 million in Q3 2020 were lower than GBP360
million in Q2 2020 and GBP326 million in Q3 2019 reflecting cost reductions
following the strategic announcement in February 2020.
-- Central items & other operating profit before tax was GBP61 million,
with income largely relating to the transfer of a service subsidiary
to NatWest Holdings Limited as well as to various expense credits.
This compared with a GBP4 million loss in Q2 2020 and an operating
profit of GBP125 million in Q3 2019, a period that included reimbursement
under indemnification agreements and certain one-off cost recoveries.
Financial review
The segmental analysis of key income statement lines for the
nine months ended 30 September 2020 is set out below.
Nine months ended
--------------------------------------------------
30 September 2020 30 September 2019
Central Central
NatWest items NatWest items
& &
Markets other Total Markets other Total
Income statement GBPm GBPm GBPm GBPm GBPm GBPm
------- ------- ------- ------- ------- -----
Net interest income (59) 2 (57) (171) 10 (161)
Non-interest income 1,104 37 1,141 751 22 773
--------------------------------- ------- -------
Total income 1,045 39 1,084 580 32 612
------- ------- ------- -----
Strategic costs (164) 20 (144) (93) (5) (98)
Litigation and conduct costs (4) (123) (127) (3) 157 154
Other operating expenses (834) 27 (807) (819) 170 (649)
--------------------------------- ------- -------
Operating expenses (1,002) (76) (1,078) (915) 322 (593)
------- ------- ------- -----
Operating profit/(loss) before
impairments 43 (37) 6 (335) 354 19
Impairment (losses)/releases (38) (4) (42) 39 - 39
--------------------------------- ------- -------
Operating profit/(loss) before
tax 5 (41) (36) (296) 354 58
Tax (charge)/ credit (58) 127
--------------------------------- ------- ------- ------- ------- ------- -----
(Loss)/profit for the period (94) 185
Income
--------------------------------- ------- -------
Fixed Income (1,2) 528 - 528 323 - 323
Currencies (2) 462 - 462 343 - 343
Capital Markets (1,2) 294 - 294 276 - 276
Capital Management Unit & other
(2,3) (43) 39 (4) (152) 32 (120)
Revenue share paid to other
NatWest Group segments (140) - (140) (152) - (152)
--------------------------------- ------- ------- ------- ------- ------- -----
Income excluding Asset disposals
and OCA 1,101 39 1,140 638 32 670
Asset disposals/Strategic risk
reduction (4) (75) - (75) - - -
Own credit adjustments (OCA) 19 - 19 (58) - (58)
--------------------------------- ------- -------
Total income 1,045 39 1,084 580 32 612
--------------------------------- ------- ------- ------- ------- ------- -----
Notes:
(1) Fixed income comprises Rates and Credit trading. Rates
income of GBP558 million (nine months ended 30 September 2019 -
GBP291 million) was previously presented as a separate business in
prior NWM Group results publications. Credit trading and Capital
Markets were previously reported as Financing.
(2) Income of GBP3 million, GBP1 million and GBP12 million
relating to business previously within Fixed Income, Currencies and
Capital Markets respectively has been reallocated to Capital
Management Unit in the nine months ended 30 September 2020.
Comparatives have not been restated. The equivalent amounts were
GBP(1) million, nil and GBP36 million in the nine months ended 30
September 2019.
(3) Capital Management Unit was set up in Q3 2020 to manage the
capital usage and optimisation across all parts of NatWest Markets.
The income shown here relates to legacy assets.
(4) Asset disposals/Strategic risk reduction in 2020 relates to
the costs of exiting positions, and the impact of risk reduction
transactions entered into, in respect of the strategic
announcements of 14 February 2020. Prior to this date, disposal
losses were primarily reflected in legacy and are presented within
Capital Management Unit & Other in the table above. Refer to
further information on page 13.
-- Operating loss before tax was GBP36 million for the nine months ended
30 September 2020, compared with an operating profit of GBP58 million
for the nine months ended 30 September 2019. Total income was up by
GBP472 million to GBP1,084 million, driven by increased levels of
customer activity as the market reacted to the Covid-19 pandemic,
although these levels eased in the third quarter. Operating expenses
of GBP1,078 million were higher relative to the comparative period,
reflecting increased strategic costs and litigation and conduct costs
as well as the non-repeat of reimbursement under indemnification agreements
and certain one-off cost recoveries in the nine months ended 30 September
2019.
-- Net interest income was a net expense of GBP57 million for the nine
months ended 30 September 2020 compared with GBP161 million net expense
in the comparative period.
-- Non-interest income of GBP1,141 million increased by GBP368 million
driven by strong customer activity in response to the Covid-19 crisis,
although market activity and primary issuance levels eased in the
third quarter. This compared with GBP773 million for the nine months
ended 30 September 2019, which included challenging trading conditions
and elevated hedging costs, most notably within Fixed Income. Asset
disposals/strategic risk reduction was a GBP75 million loss for the
period, following the strategic announcements in February 2020. Own
credit adjustments were GBP19 million for the nine months ended 30
September 2020 (nine months ended 30 September 2019 - GBP(58) million)
reflecting the widening of spreads.
-- Operating expenses were GBP1,078 million for the nine months ended
30 September 2020, an increase of GBP485 million relative to the comparative
period. Strategic costs increased GBP46 million to GBP144 million.
Litigation and conduct costs of GBP127 million for the nine months
ended 30 September 2020 were primarily related to historical trading
activities of a joint venture subsidiary, whereas the prior year credit
of GBP154 million largely reflected reimbursement under indemnification
agreements. Other operating expenses increased to GBP807 million (nine
months ended 30 September 2019 - GBP649 million) due to the non-repeat
of certain one-off cost recoveries.
-- Impairment losses were GBP42 million for the nine months ended 30
September 2020, largely due to the impact of expected credit losses
recognised following the Covid-19 pandemic, compared with a release
of GBP39 million in the prior period.
-- NatWest Markets operating profit before tax was GBP5 million compared
with a loss of GBP296 million for the nine months ended 30 September
2019. Income excluding asset disposals and own credit adjustments
was GBP1,101 million (nine months ended 30 September 2019 - GBP638
million) driven by strong customer activity in response to the Covid-19
crisis, although market activity and primary issuance levels eased
in the third quarter. Operating expenses were up by GBP87 million
to GBP1,002 million, mainly reflecting increased strategic costs.
-- Central items & other operating loss before tax was GBP41 million,
compared with a GBP354 million operating profit for the nine months
ended 30 September 2019. This was largely driven by litigation and
conduct costs partially offset by income relating to the transfer
of a service subsidiary to NatWest Holdings Limited and various expense
credits. The nine months ended 30 September 2019 included certain
one-off cost recoveries and reimbursement under indemnification agreements.
Financial review
The segmental analysis of key balance sheet lines for NWM Group
is set out below. Commentary refers to the table below as well as
the consolidated balance sheet on page 8 for the period 30
September 2020 compared with 31 December 2019.
30 September 2020 30 June 2020 31 December 2019
------------------------- ----------------------- -----------------------
Central Central Central
NatWest items NatWest items NatWest items
Markets & other Total Markets & other Total Markets & other Total
Balance sheet GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
--------------------------- -------- -------- ----- ------- ------- ----- ------- ------- -----
Funded assets 123.1 - 123.1 124.8 - 124.8 117.4 - 117.4
Derivative assets 163.2 - 163.2 182.3 - 182.3 148.7 - 148.7
Total assets 286.3 - 286.3 307.1 - 307.1 266.1 - 266.1
--------------------------- -------- -------- ----- ------- ------- ----- ------- ------- -----
Liabilities
excl. derivatives 119.0 - 119.0 120.5 - 120.5 112.1 112.1
Derivative liabilities 157.5 - 157.5 176.7 - 176.7 144.1 - 144.1
-------- -------- ----- ------- ------- ----- ------- ------- -----
Total liabilities 276.5 - 276.5 297.2 - 297.2 256.2 - 256.2
--------------------------- -------- -------- ----- ------- ------- ----- ------- ------- -----
-- Total assets and liabilities increased by GBP20.2 billion and GBP20.3
billion to GBP286.3 billion and GBP276.5 billion respectively at
30 September 2020, compared with GBP266.1 billion and GBP256.2 billion
at 31 December 2019. Funded assets, which exclude derivatives, increased
by GBP5.7 billion to GBP123.1 billion.
-- Cash and balances at central banks increased by GBP4.0 billion to
GBP16.7 billion, compared with GBP12.7 billion at 31 December 2019,
reflecting surplus liquidity following a reduction in trading assets
at 30 September 2020.
-- Trading assets were down by GBP5.9 billion to GBP70.6 billion at
30 September 2020 driven by a reduction in reverse repos as positions
continued to be managed within limits, partially offset by an increase
in derivative cash collateral posted. Trading liabilities decreased
by GBP0.9 billion to GBP73.0 billion as reductions in repurchase
agreements were partially offset by increases in derivative cash
collateral received at 30 September 2020.
-- Derivative assets and derivative liabilities were up GBP14.5 billion
to GBP163.2 billion and GBP13.4 billion to GBP157.5 billion respectively
at 30 September 2020. The movements in mark-to-market were driven
by a downward shift in interest rate yields, together with sterling
having weakened against major currencies since year end 2019.
-- Settlement balance assets and liabilities were up GBP6.6 billion
and GBP5.8 billion to GBP10.9 billion and GBP9.8 billion respectively,
due to increased trading compared with the seasonally lower levels
of customer activity leading up to 31 December 2019.
-- Loans to customers - amortised cost were up GBP1.7 billion to GBP10.1
billion, reflecting new corporate lending and draw downs on existing
facilities, as well as increased margin balances with exchanges and
clearing houses following market volatility.
-- Other financial assets, which include non-trading government debt
securities of GBP6.0 billion, decreased to GBP11.2 billion at 30
September 2020. Other financial liabilities increased to GBP19.0
billion (31 December 2019 - GBP18.4 billion) and includes GBP13.4
billion of medium term notes issued .
-- Owners' equity was broadly unchanged at GBP9.9 billion (31 December
2019 - GBP9.9 billion).
Capital and leverage ratios
Capital resources, RWAs and leverage based on the PRA
transitional arrangements for NWM Plc are set out below.
30 September 30 June 31 December
2020 2020 2019
Capital adequacy ratios % % %
--------------------------------- ------------ ------- -----------
CET1 22.3 18.9 17.3
Tier 1 25.5 21.7 19.9
Total 30.9 26.5 24.2
--------------------------------- ------------ ------- -----------
Capital (1) GBPm GBPm GBPm
--------------------------------- ------------ ------- -----------
CET1 6,293 6,203 6,097
Tier 1 7,189 7,110 7,003
Total 8,715 8,687 8,501
--------------------------------- ------------ ------- -----------
Risk-weighted assets
--------------------------------- ------------ ------- -----------
Credit risk 8,581 9,092 9,825
Counterparty credit risk 9,133 11,134 11,060
Market risk 8,075 10,153 11,229
Operational risk 2,382 2,382 3,039
--------------------------------- ------------ ------- -----------
Total RWAs 28,171 32,761 35,153
--------------------------------- ------------ ------- -----------
Leverage (2)
--------------------------------- ------------ ------- -----------
CRR leverage exposure (GBPm) (3) 133,177 133,897 136,505
Tier 1 capital (GBPm) 7,189 7,110 7,003
CRR leverage ratio (%) 5.4 5.3 5.1
--------------------------------- ------------ ------- -----------
Notes:
(1) CRR for UK banks set by the PRA is 10.5% minimum total
capital ratio (excluding Pillar 2 requirement), with a minimum CET1
ratio of 7.0%.
(2) Leverage exposure is broadly aligned to the accounting value
of on and off-balance sheet exposures albeit subject to specific
adjustments for derivatives, securities financing positions and
off-balance sheet exposures.
(3) CRR leverage exposure at 30 September 2020 and 30 June 2020
includes netting of regular way deals pending settlement in line
with CRR amendments that came into effect in June 2020. Prior
periods have not been restated.
Condensed consolidated income statement for the period ended 30 September 2020 (unaudited)
Nine months ended Quarter ended
-------------------------- -----------------------------------
30 September 30 September 30 September 30 June 30 September
2020 2019 2020 2020 2019
GBPm GBPm GBPm GBPm GBPm
Interest receivable 428 496 152 124 218
Interest payable (485) (657) (170) (120) (272)
-------------------------------- ------------ ------------ ------------ ------- ------------
Net interest income (57) (161) (18) 4 (54)
-------------------------------- ------------ ------------ ------------ ------- ------------
Fees and commissions receivable 411 263 134 185 82
Fees and commissions payable (348) (280) (146) (126) (95)
Income from trading activities 1,026 721 250 177 178
Other operating income 52 69 55 29 (5)
Non-interest income 1,141 773 293 265 160
-------------------------------- ------------ ------------ ------------ ------- ------------
Total income 1,084 612 275 269 106
Operating expenses (1,078) (593) (264) (359) (182)
-------------------------------- ------------ ------------ ------------ ------- ------------
Profit/(loss) before impairment
(losses)/releases 6 19 11 (90) (76)
Impairment (losses)/releases (42) 39 3 (50) 3
-------------------------------- ------------ ------------ ------------ ------- ------------
Operating (loss)/profit before
tax (36) 58 14 (140) (73)
Tax (charge)/credit (58) 127 21 3 53
(Loss)/profit for the period (94) 185 35 (137) (20)
-------------------------------- ------------ ------------ ------------ ------- ------------
Attributable to:
Ordinary shareholders (79) 140 17 (150) (35)
Paid-in equity holders 51 45 17 17 15
Non-controlling interests (66) - 1 (4) -
(94) 185 35 (137) (20)
-------------------------------- ------------ ------------ ------------ ------- ------------
Condensed consolidated statement of comprehensive income for the
period ended 30 September 2020 (unaudited)
Nine months ended Quarter ended
-------------------------- -----------------------------------
30 September 30 September 30 September 30 June 30 September
2020 2019 2020 2020 2019
GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------- ------------
(Loss)/profit for the period (94) 185 35 (137) (20)
------------------------------------------- ------------ ------------ ------------ ------- ------------
Items that do not qualify for
reclassification
Remeasurement of retirement
benefit schemes (3) - - (1) -
Profit/(loss) on fair value
of credit in financial liabilities
designated as at FVTPL due
to own credit risk 20 (50) (63) (105) (11)
FVOCI financial assets (152) (180) 24 48 (175)
Tax 17 23 14 23 (8)
(118) (207) (25) (35) (194)
------------------------------------------- ------------ ------------ ------------ ------- ------------
Items that do qualify for reclassification
FVOCI financial assets (7) (2) 11 (7) (7)
Cash flow hedges 132 116 (22) 31 63
Currency translation 174 105 (84) 57 21
Tax (38) (26) 4 (4) (14)
261 193 (91) 77 63
------------------------------------------- ------------ ------------ ------------ ------- ------------
Other comprehensive income/(loss)
after tax 143 (14) (116) 42 (131)
Total comprehensive income/(loss)
for the period 49 171 (81) (95) (151)
------------------------------------------- ------------ ------------ ------------ ------- ------------
Attributable to:
Ordinary shareholders 49 125 (100) (109) (166)
Paid-in equity holders 51 45 17 17 15
Non-controlling interests (51) 1 2 (3) -
49 171 (81) (95) (151)
------------------------------------------- ------------ ------------ ------------ ------- ------------
Condensed consolidated balance sheet as at 30 September 2020
(unaudited)
30 September 31 December
2020 2019
GBPm GBPm
Assets
Cash and balances at central banks 16,692 12,729
Trading assets 70,602 76,540
Derivatives 163,221 148,696
Settlement balances 10,946 4,339
Loans to banks - amortised cost 1,210 1,088
Loans to customers - amortised cost 10,054 8,361
Amounts due from holding company and fellow subsidiaries 1,719 1,231
Other financial assets 11,215 12,305
Other assets 631 847
--------------------------------------------------------- ------------ -----------
Total assets 286,290 266,136
Liabilities
Bank deposits 2,425 2,089
Customer deposits 4,725 3,703
Amounts due to holding company and fellow subsidiaries 8,725 8,300
Settlement balances 9,839 4,022
Trading liabilities 72,952 73,836
Derivatives 157,499 144,142
Other financial liabilities 18,972 18,445
Other liabilities 1,327 1,689
--------------------------------------------------------- ------------ -----------
Total liabilities 276,464 256,226
Equity
--------------------------------------------------------- ------------ -----------
Owners' equity 9,874 9,907
Non-controlling interests (48) 3
Total equity 9,826 9,910
--------------------------------------------------------- ------------ -----------
Total liabilities and equity 286,290 266,136
--------------------------------------------------------- ------------ -----------
Condensed consolidated statement of changes in equity for the
period ended 30 September 2020 (unaudited)
Share
capital Total Non
and
statutory Paid-in Retained Other owners' controlling Total
reserves equity earnings reserves* equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2020 2,159 904 6,764 80 9,907 3 9,910
Loss attributable to ordinary
shareholders
and paid-in equity holders - - (28) - (28) (66) (94)
Other comprehensive income
- Realised losses in period
on FVOCI
equity shares (1) - - (65) 65 - - -
- Remeasurement of retirement
benefit schemes - - (3) - (3) - (3)
- Changes in fair value
of credit in financial
liabilities at FVTPL - - 20 - 20 - 20
- Other amounts recognised
in equity - - - 84 84 15 99
- Amount transferred from
equity to earnings - - - 71 71 - 71
- Recycled to profit or
loss on disposal of business - - - (23) (23) - (23)
- Tax - - 18 (39) (21) - (21)
Paid-in equity dividends
paid - - (51) - (51) - (51)
Distribution - - (40) - (40) - (40)
Capital contribution - - 22 - 22 - 22
Share-based payments - - (64) - (64) - (64)
------------------------------- --------- ------- -------- --------- ------- ----------- ------
At 30 September 2020 2,159 904 6,573 238 9,874 (48) 9,826
30 September
2020
Attributable to: GBPm
--------------------------------------------------- -------- --------- ------- ----------- ------
Ordinary shareholders 8,970
Paid-in equity holders 904
Non-controlling interests (48)
9,826
------------------------------- --------- ------- -------- --------- ------- ----------- ------
*Other reserves consist of:
------------------------------------------
FVOCI reserve (228)
Cash flow hedging reserve 230
Foreign exchange reserve 236
------------------------------- --------- ------- -------- --------- ------- ----------- ------
238
------------------------------- --------- ------- -------- --------- ------- ----------- ------
Note:
(1) The loss was a result of the sale of Saudi British Bank shares in September 2020.
Notes
1. Basis of preparation
The condensed consolidated financial statements should be read
in conjunction with NatWest Markets Plc's 2019 Annual Report and
Accounts which were prepared in accordance with International
Financial Reporting Standards (IFRS) 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).
Going concern
Having reviewed NWM Group's forecasts, projections, the
potential impact of Covid-19 and other relevant evidence, the
directors have a reasonable expectation that NWM Group will
continue in operational existence for the foreseeable future.
Accordingly, the results for the period ended 30 September 2020
have been prepared on a going concern basis.
2. Accounting policies
NWM Group's principal accounting policies are as set out on
pages 83 to 87 of NatWest Markets Plc's 2019 Annual Report and
Accounts and are unchanged other than as presented below.
Accounting policy changes effective 1 January 2020
Amendments to IFRS 3 Business Combinations (IFRS 3) - Changes to
the definition of a business
The IASB amended IFRS 3 to provide additional guidance on the
definition of a business. The amendment aims to help entities when
determining whether a transaction should be accounted for as a
business combination or as an asset acquisition. The amendments are
in line with our current accounting policy and therefore did not
affect the financial statements.
Definition of material - Amendments to IAS 1 - Presentation of
Financial Statements (IAS 1) and IAS 8 - Accounting Policies,
Changes in Accounting Estimates and Errors (IAS 8)
The IASB clarified the definition of 'material' and aligned the
definition of material used in the Conceptual Framework and in
other IFRS standards. The amendments clarify that materiality will
depend on the nature or magnitude of information. Under the amended
definition of materiality, an entity will need to assess whether
the information, either individually or in combination with other
information, is material in the context of the financial
statements. A misstatement of information is material if it could
reasonably be expected to influence decisions made by the primary
users. NWM Group's definition and application of materiality is in
line with the definition in the amendments.
Interest Rate Benchmark Reform (IBOR reform) Phase 1 amendments
to IFRS 9 and IAS 39
The IASB issued 'Interest Rate Benchmark Reform (Amendments to
IFRS 9, IAS 39 and IFRS 7)' as a first reaction to the potential
effects the IBOR reform could have on financial reporting. The
amendments focused on hedge accounting and allow hedge
relationships affected by the IBOR reform to be accounted for as
continuing hedges. Amendments are effective for annual reporting
periods beginning on or after 1 January 2020 with early application
permitted. NWM Group early adopted these amendments for the annual
period ending on 31 December 2019.
Interest Rate Benchmark Reform (IBOR reform) Phase 2 amendments
to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
Phase 2 of the IASB's IBOR project addresses the wider
accounting issues arising from the IBOR reform. This was published
in August 2020 and is awaiting endorsement. The amendments are
effective for annual reporting periods beginning on or after 1
January 2021 with early application permitted. NWM Group intends to
early adopt Phase 2 of the standard once endorsed. The IBOR
transition program remains on-track and key milestones have been
met. Conversion from LIBOR to alternative risk-free rates (RFRs) is
expected to increase as RFR-based products become more widely
available and key market-driven conversion events occur.
Amendment to IFRS effective 1 June 2020
Covid-19 amendments on lease modifications - Amendments to IFRS
16 - Leases (IFRS 16)
The IASB published 'amendments to IFRS 16 covering
Covid-19-Related Rent Concessions'. These provide lessees with an
exemption from assessing whether a Covid-19 related rent concession
is a lease modification. The amendment is effective for annual
reporting periods beginning on or after 1 June 2020. The effect of
the amendment on NatWest Markets Group's financial statements is
immaterial and will be adopted from 1 January 2021.
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 NWM Group's financial condition
are those relating to provisions for liabilities and charges,
deferred tax, loan impairment provisions and fair value of
financial instruments. These critical accounting policies and
judgements are described on page 87 of the NatWest Markets Plc's
2019 Annual Report and Accounts. Estimation uncertainty has been
affected by the Covid-19 pandemic during the first three quarters
of 2020. Management's consideration of this source of uncertainty
is outlined in the relevant sections of this Interim Management
Statement (as applicable), including the ECL estimate for the
period in the Capital and Risk Management section contained in the
NWM Group Interim Results 2020.
Notes
2. Accounting policies continued
Information used for significant estimates
The Covid-19 pandemic has continued to cause significant
economic and social disruption during the quarter ended 30
September 2020. Key financial estimates are based on a range of
anticipated future economic conditions described by internally
developed scenarios. Measurement of valuation reserves and expected
credit losses are highly sensitive to reasonably possible changes
in those anticipated conditions. Refer to further information under
'The impact of Covid-19' section in this Interim Management
Statement. Other reasonably possible assumptions about the future
include a prolonged financial effect of the Covid-19 pandemic on
the economy of the UK and other countries. Changes in judgements
and assumptions could result in a material adjustment to those
estimates in the next reporting periods (refer to the risk factors
in the NWM Group's 2019 Annual Report and Accounts and the summary
risk factors contained in NWM Group's Q1 2020 Interim Management
Statement and NWM Group's Interim Results 2020).
Tax charge
The tax charge is mainly attributable to non-deductible
regulatory matters, a decrease in the carrying value of deferred
tax assets in respect of losses and the UK Government decision to
reverse the previously enacted reduction in the UK tax rate
change.
3. Trading assets and liabilities
Trading assets and liabilities comprise assets and liabilities
held at fair value in trading portfolios.
30 September 31 December
2020 2019
Assets GBPm GBPm
------------ -----------
Loans
- Reverse repos 16,985 24,095
- Collateral given 21,729 20,467
- Other loans 1,990 1,854
-------------------------------------- ------------ -----------
Total loans 40,704 46,416
-------------------------------------- ------------ -----------
Securities
Central and local government
- UK 5,580 4,897
- US 4,671 5,458
- other 16,492 14,902
Financial institutions and Corporate 3,155 4,867
Total securities 29,898 30,124
-------------------------------------- ------------ -----------
Total 70,602 76,540
Liabilities
-------------------------------------- ------------ -----------
Deposits
- Repos 20,906 27,885
- Collateral received 23,667 21,506
- Other deposits 1,995 1,496
Total deposits 46,568 50,887
-------------------------------------- ------------ -----------
Debt securities in issue 1,779 1,762
Short positions 24,605 21,187
Total 72,952 73,836
-------------------------------------- ------------ -----------
4. Other financial liabilities
30 September 31 December
2020 2019
GBPm GBPm
Customer deposits
- designated as at fair value through profit or loss 713 -
Debt securities in issue
- designated as at fair value through profit or loss 1,713 2,256
- amortised cost 15,447 15,053
Subordinated liabilities
- designated as at fair value through profit or loss 770 724
- amortised cost 329 412
------------------------------------------------------ ------------ -----------
Total 18,972 18,445
------------------------------------------------------ ------------ -----------
Notes
5. Amounts due to holding company and fellow subsidiaries
30 September 31 December
2020 2019
Liabilities GBPm GBPm
Bank and customer deposits
- held-for-trading 561 491
- amortised cost 437 498
CRR-compliant internal MREL instruments issued to
NatWest Group plc 5,382 5,120
Subordinated liabilities
- amortised cost 2,131 2,020
Other liabilities 214 171
-------------------------------------------------- ------------ -----------
Total 8,725 8,300
-------------------------------------------------- ------------ -----------
6. Litigation, investigations and reviews
NWM Group's 2020 Interim Results, issued on 31 July 2020,
included disclosures about NWM Group's litigation, investigations
and reviews in Note 12. Set out below are the material developments
in those matters since the 2020 Interim Results were published.
Litigation
Residential mortgage-backed securities litigation in the US
In September 2020, NatWest Markets Securities Inc. (NWMSI)
settled residential mortgage-backed securities (RMBS) claims by the
Federal Home Loan Bank of Seattle. The settlement amount, which has
been paid, was covered by an existing provision.
In September 2020, a complaint was served on NWMSI by the State
of New Mexico, which claims, in a case pending in state court in
New Mexico, that certain New Mexico state agencies suffered US$119
million in damages resulting from misrepresentations concerning
RMBS they purchased from NWMSI and six other banks primarily from
2005-2007.
London Interbank Offered Rate (LIBOR) and other rates
litigation
On 18 August 2020, a complaint was filed in the United States
District Court for the Northern District of California by several
United States consumer borrowers against the USD ICE LIBOR panel
banks and their affiliates, alleging that the normal process of
setting USD ICE LIBOR amounts to illegal price-fixing, and also
that banks in the United States have illegally agreed to use LIBOR
as a component of price in variable consumer loans. The NatWest
Group defendants are NatWest Group plc, NWM Plc, NWMSI and National
Westminster Bank Plc. The plaintiffs seek damages and to prevent
the enforcement of LIBOR-based instruments.
EUA trading litigation
Following judgment against NWM Plc in March 2020, the High Court
on 2 October 2020 quantified damages against NWM Plc at GBP45
million plus interest and costs, and permitted it to appeal to the
Court of Appeal.
Investigations and reviews
US investigations relating to fixed-income securities
In September 2020, NWM Group reached a settlement in principle,
subject to documentation, with the State of Maryland concerning its
investigation of the issuance and underwriting of RMBS. The amount
of the tentative settlement, which will be paid by RBS Financial
Products Inc., is covered by an existing provision.
7. Post balance sheet events
Other than as disclosed there have been no other significant
events between 30 September 2020 and the date of approval of these
accounts which would require a change to or additional disclosure
in the condensed consolidated financial statements.
Presentation of information
NatWest Markets Plc ('NWM Plc') is a wholly-owned subsidiary of
NatWest Group plc or 'the ultimate holding company'. The NatWest
Markets Group ('NWM Group') comprises NWM Plc and its subsidiary
and associated undertakings. The term 'NatWest Group' comprises
NatWest Group plc and its subsidiary and associated undertakings.
The term 'NWH Group' refers to NatWest Holdings Limited ('NWH') and
its subsidiary and associated undertakings. The term 'NatWest Bank
Plc' or 'NWB Plc' refers to National Westminster Bank Plc.
NWM Plc publishes its financial statements in pounds sterling
('GBP' or 'sterling'). The abbreviations 'GBPm' and 'GBPbn'
represent millions and thousands of millions of pounds sterling,
respectively, and references to 'pence' represent pence in the
United Kingdom ('UK'). Reference to 'dollars' or '$' are to United
States of America ('US') dollars. The abbreviations '$m' and '$bn'
represent millions and thousands of millions of dollars,
respectively, and references to 'cents' represent cents in the US.
The abbreviation 'EUR' represents the 'euro', and the abbreviations
'EURm' and 'EURbn' represent millions and thousands of millions of
euros, respectively.
Western European corporate portfolio
In order to best serve its customers in an efficient manner and
in light of Brexit planning, and consistent with its strategy, NWM
Group expects that NatWest Group's Western European corporate
portfolio, principally including term funding and revolving credit
facilities, may remain in NatWest Bank Plc and not be transferred
to NWM Group. Some or all of the portfolio already held in NWM
Group may be transferred to NatWest Bank Plc. The timing and
quantum of such transfers is uncertain.
NatWest Markets Group legal entity disclosures
There is a distinction between the disclosure of the NatWest
Markets operating segment performance in the NatWest Group's Q3
2020 Interim Management Statement and the NatWest Markets Group's
results presented in this document, with differences primarily as
follows:
-- NatWest Markets Group's results include its part of the Central items & other segment.
-- NatWest Group's Q3 2020 results reports the NatWest Markets
segment excluding Central items & other.
Non-IFRS financial measures
As described in Note 1 on page 10, NWM Group 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 or
non-IFRS financial measures. These measures are adjusted for
certain items which management believe are not representative of
the underlying performance of the business and which distort
period-on-period comparison. These non-IFRS financial measures are
not measures within the scope of IFRS and are not a substitute for
IFRS measures. These measures include:
-- Management analysis of the operating expenses shows strategic
costs and litigation and conduct costs in separate lines on page 4.
These amounts are included in staff, premises and equipment and
other administrative expenses in the statutory analysis.
-- Funded assets defined as total assets less derivative assets.
-- Management view of income by business, including separate
itemisation of own credit adjustments, asset disposals/strategic
risk reduction and income excluding asset disposals and own credit
adjustments. Asset disposals/strategic risk reduction includes the
costs of exiting positions and the impact of risk reduction
transactions entered into as part of the optimisation of the
entity's capital usage, following the strategic announcements of 14
February 2020. Own credit adjustments are applied to positions
where it is believed that the counterparties would consider NWM
Group's creditworthiness when pricing trades. The fair value of
certain issued debt securities, including structured notes, is
adjusted to reflect the changes in own credit spreads and the
resulting gain or loss recognised in income.
Statutory results
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 2019 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.
Contact
Paul Pybus NatWest Group Investor Relations +44 (0) 7769161183
----------- --------------------------------- ------------------
Forward-looking statements
This document contains forward-looking statements within the
meaning of the United States Private Securities Litigation Reform
Act of 1995, such as statements that include, without limitation,
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. These
statements concern or may affect future matters, such as NWM
Group's future economic results, business plans and current
strategies. In particular, this document may include
forward-looking statements relating to NWM Group in respect of, but
not limited to NWM Plc's regulatory capital position and related
requirements, its financial position, profitability and financial
performance (including financial, capital and operational targets),
its access to adequate sources of liquidity and funding, increasing
competition from new incumbents and disruptive technologies, its
exposure to third party risks, its ongoing compliance with the UK
ring-fencing regime and ensuring operational continuity in
resolution, its credit exposures under certain specified scenarios,
substantial regulation and oversight, ongoing legal, regulatory and
governmental actions and investigations, the transition of LIBOR
and other IBOR rates to alternative risk free rates and NWM Group's
exposure to economic and political risks (including with respect to
Brexit and climate change), operational risk, conduct risk, cyber
and IT risk, key person risk and credit rating risk.
Forward-looking statements are subject to a number of risks and
uncertainties that might cause actual results and performance to
differ materially from any expected future results or performance
expressed or implied by the forward-looking statements. Factors
that could cause or contribute to differences in current
expectations include, but are not limited to, legislative,
political, fiscal and regulatory developments, accounting
standards, competitive conditions, technological developments,
interest and exchange rate fluctuations, general economic and
political conditions and the uncertainty surrounding the Covid-19
pandemic and its impact on NWM Group. These and other factors,
risks and uncertainties that may impact any forward-looking
statement or NWM Group's actual results are discussed in NWM Plc's
2019 Annual Report and Accounts (ARA), NWM Plc's 2020 Registration
Document, NWM Plc's Interim Results for Q1 2020 and NWM Plc's
Interim Results for H1 2020 and other public filings. The
forward-looking statements contained in this document speak only as
of the date of this document and NWM Group does not assume or
undertake any obligation or responsibility to update any of the
forward-looking statements contained in this document, whether as a
result of new information, future events or otherwise, except to
the extent legally required.
Legal Entity Identifier: RR3QWICWWIPCS8A4S074
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