TIDM83NF
RNS Number : 7038P
Natwest Markets PLC
19 February 2021
NatWest Markets Group
2020 Annual Results
NWM Group ci.natwest.com
Financial Review
NWM Group reported a loss for the year ended 31 December 2020 of
GBP327 million compared with a loss of GBP121 million for the year
ended 31 December 2019. Higher income from increased levels of
customer activity as the market reacted to the COVID-19 pandemic
was offset by Asset disposal/Strategic risk reduction losses
following the strategic announcements in February 2020, higher
operating expenses and impairment losses.
Highlights
Income, costs and legacy issues
-- Income was GBP1,158 million in 2020, compared with GBP719 million
in 2019, driven by increased levels of customer activity as the market
reacted to the COVID-19 pandemic, although these levels eased in the
second half of the year, and reflecting the impact of the consolidation
of the full year results of NatWest Markets N.V. (NWM N.V.) following
acquisition on 29 November 2019. In addition, income in 2019 was affected
by challenging market conditions, particularly within Fixed Income
due to elevated hedging costs caused by reduced liquidity and wider
bid-offer spreads as the market experienced sustained curve flattening
across global fixed income markets, most notably during Q3 2019.
-- Operating expenses of GBP1,431 million were higher compared with GBP997
million in 2019, largely as a result of increased litigation and conduct
costs and strategic costs, and the non-repeat of reimbursement under
indemnification agreements with third parties and other one-off cost
recoveries in Central items & other during 2019.
-- Operating expenses for NatWest Markets segment, excluding litigation
and conduct costs and strategic costs, of GBP1,106 million were GBP7
million higher than in 2019, reflecting the impact of the consolidation
of the full year results of NWM N.V.; offset by cost reductions in
the current year.
-- Litigation and conduct costs of GBP134 million in 2020 relate primarily
to historical trading activities of a joint venture subsidiary.
-- Impairment losses were GBP42 million in 2020, compared with releases
of GBP48 million in the prior year, largely due to the credit deterioration
of an individual counterparty during the year, and the impact of expected
credit losses recognised following the COVID-19 pandemic.
Balance sheet, capital and risk-weighted assets (RWAs)
-- NWM Group's total assets and liabilities increased by GBP7.0 billion
and GBP7.6 billion to GBP273.1 billion and GBP263.8 billion respectively
at 31 December 2020, compared with the prior year. The increases primarily
reflect higher derivative fair values, driven by downward shifts in
interest rate yields and FX rate fluctuation across major currencies
during the year.
-- NWM Plc issued GBP2.5 billion of term senior unsecured debt securities
in benchmark and private placement formats during 2020, lower than
the initial guidance of GBP3-5 billion due to ongoing risk reduction
following the strategic announcements made in 2020.
-- Total NWM Plc RWAs reduced to GBP25.6 billion at 31 December 2020
from GBP35.2 billion at 31 December 2019 reflecting lower levels of
credit, counterparty credit and market risk which have trended downwards
as the business seeks to reduce RWAs through the execution of capital
optimisation actions, including strategic risk reduction transactions
and exit activity.
-- On 18th February 2021, the NWM Plc Board approved an interim dividend
of GBP500 million, to be declared and payable to NatWest Group plc
on 19 February 2021. There has been no adjustment to the year-end
statutory financial statements, however a GBP500 million foreseeable
dividend deduction has been applied to the year-end regulatory capital
position.
-- NWM Plc's Common Equity Tier 1 (CET1) ratio increased to 21.7% from
17.3% at 31 December 2019, primarily reflecting reserve movements
in the year, the reduction in RWAs and the impact of the foreseeable
dividend deduction to regulatory capital. The CRR leverage ratio increased
to 5.2% (2019 - 5.1%).
-- The total regulatory capital and CRR-compliant MREL for NWM Plc at
31 December 2020 was GBP12.7 billion, or 49.6% of RWAs.
Progress on strategic change
-- Throughout 2020, NWM Group has made progress on the new strategy announced
in February 2020, creating greater alignment with NatWest Group customers
as well as refining products and services offered.
-- The front office operating model was reorganised to focus on NatWest
Group's customers, and some customer facing roles were transferred
to NatWest Holdings Limited. A Capital Management Unit was established
in Q3 2020 to safely manage the capital reduction and optimisation.
-- As part of the transformation programme, some support functions including
Risk and Treasury were transferred from NWM Group to NatWest Holdings
Limited. Following transfer, the services performed by these functions
are provided to NWM Group by way of intra-group agreements. NWM Plc's
Board has approved key performance indicators by which to monitor
delivery of the outsourced services for Risk and Treasury activity,
which will be reported to NWM Plc Board at regular intervals in order
to ensure proper oversight of service levels.
The impact of COVID-19 Business resilience
-- 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 working remotely since the onset of the
pandemic in Q1 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 continued
Capital, funding and liquidity
-- NWM Plc RWAs decreased to GBP25.6 billion from GBP35.2 billion at
31 December 2019, reflecting lower levels of credit, counterparty
credit and market risk which have trended downwards as the business
seeks to reduce RWAs.
-- Market risk capital requirements - In March 2020, 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. During the year, NWM Plc utilised a temporary approach
offered by the PRA to mitigate the impact on market risk capital
requirements. As at 31 December 2020, this temporary approach was
no longer in force and NWM Plc instead utilised the provisions of
Regulation (EU) 2020/873, which the European Parliament passed in
June 2020 as an amended regulation to the CRR in response to the
pandemic ("the CRR COVID-19 Amendment"). Under the provisions of
this amendment, NWM Plc has been granted permission by the PRA to
exclude back-testing exceptions that occurred on five days in March
2020 when calculating its minimum capital requirements for market
risk. For more information, refer to the Market risk section in
the NatWest Markets Plc 2020 Annual Report and Accounts.
-- During 2020, the European Commission amended the prudent valuation
Regulatory Technical Standard such that, due to the exceptional
levels of market volatility, the aggregation factor was increased
from 50% to 66% until 31 December 2020 inclusive. This has reduced
NWM Plc's Prudential Valuation Adjustment (PVA) deduction by c.GBP115
million.
-- NWM Group was well-capitalised at 31 December 2020, with a NWM Plc
CET1 ratio of 21.7%, within guidance of above 15%. The liquidity
position was also strong, with NWM Plc's liquidity portfolio of
GBP19.4 billion and LCR of 268%.
-- Capital, funding and liquidity remained closely monitored, with
increased tracking and scenario analysis to ensure balance sheet
strength.
Fair value
-- Valuation reserves, comprising credit valuation adjustments (CVA),
funding valuation adjustments (FVA), bid-offer and product and deal
specific reserves decreased to GBP803 million at 31 December 2020
from GBP953 million at 31 December 2019.
-- FVA reserves decreased to GBP121 million at 31 December 2020 from
GBP193 million at 31 December 2019, driven by a reduction in exposures,
partly due to trade novation activity, together with reductions
in both the level of initial margin posting requirements (driven
by the NWM Plc rating upgrade) and the types of initial margin posting
requirements assessed as part of FVA.
-- Product and deal specific reserves decreased to GBP172 million at
31 December 2020 from GBP238 million at 31 December 2019, driven
by a reduction in IFRS inception P&L reserves (due to time amortisation
and trade unwind activity), certain negative exposures increasing
(driven by interest rate and FX market moves) and a reallocation
of reserves that are now included within modelled derivative trade
valuations.
-- CVA reserves increased to GBP388 million at 31 December 2020 from
GBP384 million at 31 December 2019. CVA reserves increased significantly
in Q1 2020 due to credit spreads widening at the outset of the crisis
but have since reduced to levels comparable with 2019.
Risk
-- Risk management activities have continued to focus on the safety
and soundness of the business. There was an additional emphasis
on the oversight of initiatives to support customers following the
onset of the COVID-19 pandemic in Q1 2020 as well as of the transformation
work that was executed throughout 2020.
-- A COVID-19 risk register was established in the early stages of
the pandemic 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. COVID-19 related risks have since been integrated
into standard management and governance processes.
-- In response to the pandemic, a number of macro-economic scenarios
were developed at NatWest Group level to assess the range of potential
medium-term impacts. These were benchmarked against the Bank of
England's illustrative scenario and continually updated throughout
the year. The outputs of these analyses were used to develop continuity
plans for NWM Group's critical services.
-- The Risk function also provided oversight of adjustments to working
practices and processes in some areas to facilitate working from
home arrangements. These were introduced to ensure appropriate supervision
of colleagues and to maintain service continuity for customers.
-- Operational resilience remained a key focus, but the pandemic highlighted
NWM Group's strong ability to respond to a major disruption event.
-- Internal traded VaR for NWM Group was GBP26 million at peak and
GBP16 million average during the year. Stressed VaR was GBP196 million
at peak and GBP97 million on an average basis.
Impairments
-- The unprecedented nature of the COVID-19 crisis prompted a change
of approach to formulating multiple economic scenarios (MES). The
incorporation of these stresses resulted in a probability of default
(PD) deterioration across models and sectors, leading to an increase
in IFRS 9 Stage 2 exposures and associated expected credit loss
(ECL) provisioning.
Financial Review continued
The table below sets out the performance key metrics and
ratios.
31 December 31 December
Performance key metrics and ratios (1) 2020 2019
--------------------------------------- ----------- -----------
Liquidity coverage ratio (LCR) (%) (2) 268 254
Liquidity portfolio (GBPbn) (2) 19.4 16.1
Stressed coverage ratio (%) (2) 207 153
Total wholesale funding (GBPbn) (3) 20.6 21.9
Total funding including repo (GBPbn) 75.9 85.0
Common Equity Tier (CET1) ratio (%) 21.7 17.3
CRR leverage ratio (%) (2) 5.2 5.1
Risk-weighted assets (RWAs) (GBPbn) 25.6 35.2
Total Capital ratio (%) 30.3 24.2
Total CRR-compliant MREL (GBPbn) (4) 12.7 13.5
Total MREL ratio (%) 49.6 38.4
--------------------------------------- ----------- -----------
Notes:
(1) Capital, leverage and RWAs are based on the PRA transitional arrangements
for NWM Plc. Regulatory capital is monitored and reported at NWM
Plc level.
(2) These liquidity metrics have been presented for NWM Plc as they
are monitored and reported for regulatory purposes.
(3) Excludes derivative cash collateral received, customer deposits,
repo and intra-NatWest Group balances.
(4) Includes senior internal debt instruments issued to NatWest Group
plc with a regulatory value of GBP4.9 billion (31 December 2019
- GBP4.9 billion).
Outlook(1,5)
NatWest Markets, like all companies, continues to deal with a
range of significant risks and uncertainties in the external
economic, political and regulatory environment. We will continue to
actively monitor market conditions.
NatWest Markets continues to refocus the business in line with
the strategy announced in February 2020. We expect NWM Group exit
and disposal costs will be around GBP0.2 billion in 2021. NWM Group
expects to achieve the majority of the remaining expected medium
term RWA reduction in NWM Plc by the end of 2021.
NWM Plc is targeting the following in the medium-term:
Metric (2) Estimate
--------------- -------------
CET1 ratio(3) Above 15%
MREL ratio(4) At least 30%
Leverage ratio At least 4%
--------------- -------------
NWM Plc expects to have limited term senior unsecured issuance
requirements in 2021, as it continues to refocus the business and
reduce RWAs.
Notes:
(1) This supersedes all prior guidance.
(2) All metrics presented relate to NatWest Markets Plc.
(3) NWM Plc expects to run above the 15% target on a solo basis in 2021.
(4) Includes total regulatory capital, non-eligible capital plus downstreamed
internal MREL.
(5) 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 156 to 172 of NatWest Markets Plc 2020 Annual Report and
Accounts. These statements constitute forward-looking statements.
Refer to 'Forward-looking statements' in this announcement.
Chief Executive's statement
2020 was a year like no other. We announced a new, refocused
strategy before the pandemic took hold, then pivoted to very
different ways of working while witnessing some of the most extreme
and volatile market conditions we've ever seen. Throughout this
uncertainty, and with the majority of our business working
remotely, we have stayed true to our purpose, safely managed risk
and delivered critical funding and financial markets access to our
customers while supporting our colleagues in need with care and
compassion.
Our business has remained resilient, our balance sheet robust,
and we have delivered a strong income performance, making excellent
progress to reshape our business and be better aligned with NatWest
Group.
Financial Performance
NatWest Markets delivered a strong income performance,
demonstrating resilience across our core capabilities in
Currencies, Fixed Income and Capital Markets, delivering total
income (excluding asset disposals/strategic risk reduction and own
credit adjustments) of GBP1.265 billion. The overall operating loss
for the year was GBP315 million, primarily reflecting the costs
associated with restructuring the business and strengthening the
balance sheet in line with the new strategy.
Through discipline and focus, we strengthened our balance sheet
throughout the year and significantly reduced RWAs by GBP9.6
billion down from GBP35.2 billion in 2019. This is reflected in the
strong Common Equity Tier 1 ratio at 21.7% and Liquidity Coverage
Ratio at 268% for the NatWest Markets Plc legal entity.
In 2020 Fitch upgraded the senior ratings of NatWest Markets Plc
and NatWest Markets N.V. by 1 notch to A+ to reflect expectation
that external senior creditors will benefit from resolution funds
ultimately raised by NatWest Group and which are designed to
protect subsidiaries' senior creditors in a group failure. Both
Fitch and S&P revised the outlook for all NatWest Group
entities to negative from stable, in line with most of the sector.
Moody's long-term deposit and senior unsecured debt ratings of
NatWest Markets Plc and NatWest Markets N.V. entities were upgraded
by two notches to A3 from Baa2, retaining positive outlook. This
upgrade recognises the successful delivery of our transformation
programme to date. It is also a further signal of confidence to our
customers and stakeholders as we become a more sustainable business
and are better placed to help them thrive.
We also mobilised and executed the next phase of our Brexit plan
following on from 2019, ensuring we were able to support our
customers and their businesses throughout through our fully
functioning NatWest Markets N.V. (NWM N.V.) entity in the
Netherlands.
Response to the pandemic
As our customers navigated the uncertainty of the pandemic, we
played a market-leading role in helping them achieve their
financing, liquidity and risk management needs. We have delivered a
number of important transactions - including the Debt Management
Office's 2061 GBP7 billion gilt issuance and financing the
construction of the first two phases of the Dogger Bank Wind Farm -
and have continued to help corporates, banks, financial
institutions, governments and the economies that we serve to
rebuild. Through excellent partnership with NatWest Group's
Commercial Banking business we were quick to support customers
needing to access the COVID Corporate Financing Facility,
delivering access to a total of GBP9.47 billion gross financing via
this scheme.
During the height of the crisis, extensive and robust
preparation ensured we were able to quickly mobilise business
continuity plans and continue to support customers and protect
colleagues, with the vast majority of our workforce working
remotely throughout the year. Despite the significant change in
ways of working, colleagues across our global locations responded
quickly and have demonstrated exceptional resilience and
determination throughout.
Refocused strategy
We made excellent progress in delivering our refocused strategy
to better serve NatWest Group's customers and create a more
sustainable business as part of NatWest Group.
A key aspect of this strategy was sharpening our capital
allocation and reducing RWAs. We exceeded our target for the year,
reducing RWAs by GBP9.6 billion, alongside establishing a Capital
Management Unit to further accelerate our efforts and ensure we
maintain continued discipline around our capital allocation.
I made a number of leadership appointments during 2020 and have
a new team to drive our refocused business forward. We changed how
our customer-facing teams operate, creating a more customer-centric
model better aligned to supporting NatWest Group's customers. We
refined our product offering, building on our core capabilities and
exiting a number of product lines to focus on the things we do best
and that matter most to our customers. We also brought a number of
our functional and services teams together with teams across
NatWest Group, leveraging shared resources and promoting a One Bank
approach to customers.
Chief Executive's statement continued
Climate
Climate and Environmental, Social and Corporate Governance (ESG)
is a key component of our strategy and a critical focus for our
business. During 2020, we made a significant contribution to
NatWest Group's progress towards meeting its climate-related
targets while collaborating across the industry to enhance
understanding of climate considerations within financial
markets.
Having lead managed GBP7.2 billion of green bond issuances and
loans in 2020 with a total notional amount of GBP27.3 billion, I am
pleased that NatWest Group is committed to reaching its GBP20
billion climate-related financing target during 2021. Our #1
ranking acting as lead manager for Green, Social and Sustainability
(GSS) bonds issued by UK Corporates in 2020 (1) is an outstanding
achievement and a clear reflection of our commitment to support the
UK's transition to a low-carbon economy.
Whether through COVID-19 response bonds, green securitisations
or bespoke transition financing, 2020 has been pivotal in
demonstrating the crucial role that ESG plays in repairing our
economies and rebuilding better. I am excited to see our ESG
capabilities and expertise develop as we support more customers to
create a better and more sustainable future.
A sustainable future
Our refocused business is now better placed to support our
customers and colleagues and help them realise their potential. I
am pleased with the outcome of our income performance, balance
sheet resilience and transformation programme to date which
wouldn't have been possible without the commitment, professionalism
and resilience shown by my colleagues throughout this period - I am
proud and inspired to work with such talented and dedicated
people.
We now have a fantastic opportunity to build on these strong
foundations. With a clear plan built around our priorities, I look
forward to leading and building an increasingly sustainable,
Purpose-led business as part of NatWest Group.
Robert Begbie
CEO, NatWest Markets
Note:
(1) Source: Dealogic, 31 December 2020
Business performance summary
The segmental analysis of NWM Group's key income statement lines
is set out below. Commentary refers to the tables below as well as
the consolidated income statement shown on page 12.
Q4 2020 Q3 2020 Q4 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 (3) - (3) (20) 2 (18) 11 - 11
Non-interest income 76 1 77 256 37 293 99 (3) 96
----------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Total income 73 1 74 236 39 275 110 (3) 107
Strategic costs (43) (4) (47) (59) 27 (32) (69) (4) (73)
Litigation and conduct
costs - (7) (7) (2) (12) (14) (15) (45) (60)
Other operating expenses (272) (27) (299) (224) 6 (218) (280) 9 (271)
----------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Operating expenses (315) (38) (353) (285) 21 (264) (364) (40) (404)
Operating (loss)/profit
before impairments (242) (37) (279) (49) 60 11 (254) (43) (297)
Impairment (losses)/releases (2) 2 - 2 1 3 9 - 9
----------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Operating (loss)/profit
before tax (244) (35) (279) (47) 61 14 (245) (43) (288)
Tax credit/(charge) 46 21 (18)
----------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
(Loss)/profit for the period (233) 35 (306)
Income
Fixed Income (1,2,3) (17) - (17) 125 - 125 92 - 92
Currencies (3) 121 - 121 126 - 126 84 - 84
Capital Markets (1,3) 90 - 90 75 - 75 68 - 68
Capital Management Unit
& other (2,4) (17) 1 (16) 1 39 40 (56) (3) (59)
Revenue share paid to other
NWG segments (53) - (53) (45) - (45) (56) - (56)
----------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Income excluding asset
disposals and OCA 124 1 125 282 39 321 132 (3) 129
Asset disposals/Strategic
risk reduction (5) (8) - (8) (12) - (12) - -
Own credit adjustments
(OCA) (43) - (43) (34) - (34) (22) - (22)
Total income 73 1 74 236 39 275 110 (3) 107
----------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Notes:
(1) Fixed Income comprises Rates and Credit trading. Rates
income of GBP(17) million (Q3 2020: GBP107 million, Q4 2019: GBP83
million) was presented as a separate business in NWM Group results
publications prior to the Q3 2020 Interim Management Statement.
Credit trading and Capital Markets were previously reported as
Financing.
(2) Income of nil relating to business previously within Fixed
Income has been reallocated to Capital Management Unit in Q4 2020.
Comparatives have not been restated. The equivalent amounts were
GBP(2) million in Q3 2020 and GBP(6) million in Q4 2019.
(3) Income of GBP2 million and GBP11 million relating to
business previously reported within Fixed Income has been
reallocated to Capital Markets and Currencies respectively in Q4
2020. Comparatives have not been restated. The equivalent amounts
were GBP3 million and GBP12 million in Q3 2020 and GBP4 million and
GBP8 million in Q4 2019.
(4) Capital Management Unit was set up in Q3 2020 to manage
capital usage and optimisation across all parts of NatWest Markets.
The income shown here relates to legacy assets. Other relates to
income booked to the Central items & other operating
segment.
(5) 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 and Other in the table above.
Business performance summary continued
-- Operating loss before tax was GBP279 million compared with a GBP14
million operating profit in Q3 2020 and a GBP288 million loss in
Q4 2019. Total income of GBP74 million was down compared to both
Q3 2020 and Q4 2019, as activity levels in the Fixed Income business
slowed towards the end of the year. Operating expenses of GBP353
million in Q4 2020 increased compared with Q3 2020 (GBP264 million),
but were lower than Q4 2019 (GBP404 million).
-- Net interest income was a net expense of GBP3 million in Q4 2020
compared with net expense of GBP18 million in Q3 2020 and net income
of GBP11 million in Q4 2019 .
-- Non-interest income of GBP77 million decreased by GBP216 million
compared with GBP293 million in Q3 2020, and by GBP19 million compared
with GBP96 million in Q4 2019, driven by a weaker performance in
the Fixed Income business amid lower levels of customer activity.
Own credit adjustments of GBP(43) million in Q4 2020 were lower than
Q3 2020 (GBP(34) million) and Q4 2019 (GBP(22) million) due to the
tightening of spreads.
-- Operating expenses were GBP353 million in Q4 2020, compared with
GBP264 million in Q3 2020 and GBP404 million in Q4 2019.The increase
of GBP89 million in Q4 2020 relative to Q3 2020 was partly due to
lower strategic costs in Q3, and one-off costs recognised in other
operating expenses in Q4, including the annual bank levy charge.
Other operating expenses of GBP272 million within NatWest Markets
segment were up GBP48 million from Q3 2020, but down GBP8 million
from Q4 2020, reflecting progress on cost reductions in the year
.
-- Impairments were nil in Q4 2020, compared with impairment releases
of GBP3 million in Q3 2020 and GBP9 million in Q4 2019.
-- NatWest Markets operating loss before tax was GBP244 million compared
with GBP47 million and GBP245 million in Q3 2020 and Q4 2019 respectively.
Total income of GBP73 million was down compared to both Q3 2020 (GBP236
million) and Q4 2019 (GBP110 million). Operating expenses of GBP315
million increased relative to Q3 2020 (GBP285 million), due to one-off
costs incurred in the quarter, but were lower compared to Q4 2019
(GBP364 million) reflecting progress on cost reductions following
the strategic announcements in February 2020.
-- Central items & other operating loss before tax was GBP35 million
in Q4 2020 compared with operating profit of GBP61 million
in Q3 2020 and GBP43 million loss in Q4 2019. The operating loss
in Q4 2020 was largely driven by one-off costs within other operating
expenses, whilst the operating profit in Q3 2020 was driven by income
arising on the transfer of a service subsidiary to NatWest Holdings
Limited and various expense credits. The loss in Q4 2019 was largely
due to litigation and conduct costs .
Business performance summary continued
Year ended
--------------------------------------------------
31 December 2020 31 December 2019
------------------------- -----------------------
Central Central
NatWest items NatWest items
& &
Markets other Total Markets other Total
Income statement GBPm GBPm GBPm GBPm GBPm GBPm
Net interest income (62) 2 (60) (160) 10 (150)
Non-interest income 1,180 38 1,218 850 19 869
--------------------------------- ------- ------- ------- ------- ------- -----
Total income 1,118 40 1,158 690 29 719
Strategic costs (207) 16 (191) (162) (9) (171)
Litigation and conduct costs (4) (130) (134) (18) 112 94
Other operating expenses (1,106) - (1,106) (1,099) 179 (920)
--------------------------------- ------- ------- ------- ------- ------- -----
Operating expenses (1,317) (114) (1,431) (1,279) 282 (997)
Operating (loss)/profit
before impairments (199) (74) (273) (589) 311 (278)
Impairment (losses)/releases (40) (2) (42) 48 - 48
--------------------------------- ------- ------- ------- ------- ------- -----
Operating (loss)/profit
before tax (239) (76) (315) (541) 311 (230)
Tax (charge)/credit (12) 109
--------------------------------- ------- ------- ------- ------- ------- -----
Loss for the year (327) (121)
Income
Fixed Income (1,2,3,4) 511 - 511 415 - 415
Currencies (2,4) 583 - 583 427 - 427
Capital Markets (1,2,3,4) 384 - 384 344 - 344
Capital Management Unit
& other (2,5) (60) 40 (20) (208) 29 (179)
Revenue share paid to other
NWG segments (193) - (193) (208) - (208)
--------------------------------- ------- ------- ------- ------- ------- -----
Income excluding asset disposals
and OCA 1,225 40 1,265 770 29 799
Asset disposals/Strategic
risk reduction (6) (83) - (83) - - -
Own credit adjustments (OCA) (24) - (24) (80) - (80)
Total income 1,118 40 1,158 690 29 719
--------------------------------- ------- ------- ------- ------- ------- -----
Notes:
(1) Fixed Income comprises Rates and Credit trading. Rates
income of GBP541 million (2019: GBP374 million) was presented as a
separate business in NWM Group results publications prior to the Q3
2020 Interim Management Statement. Credit trading and Capital
Markets were previously reported as Financing.
(2) Income of GBP(42) million, GBP(8) million and GBP(14)
million reported within Fixed Income, Currencies and Capital
Markets respectively relates to business subsequently reallocated
to Capital Management Unit during 2020. Comparatives have not been
restated. The full year equivalent amounts for 2019 were GBP14
million, GBP(8) million and GBP8 million respectively.
(3) Business that was reported within Fixed Income for 2019 was
transferred to Capital Markets for Q1 2020 and Q2 2020, before
returning to Fixed Income from Q3 2020. Income from this business
reported within Capital Markets in 2020 was GBP33 million.
(4) Income of GBP8 million and GBP59 million reported within
Fixed Income relates to business that was subsequently transferred
to Capital Markets and Currencies respectively during 2020.
Comparatives have not been restated. The full year equivalent
amounts for 2019 were GBP71 million and GBP77 million
respectively.
(5) 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. Other relates to
income booked to the Central items & other operating
segment.
(6) 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 and Other in the table above.
Business performance summary continued
-- Operating loss before tax was GBP315 million compared with a loss
of GBP230 million in 2019. Total income of GBP1,158 million was up
by GBP439 million from 2019, driven by strong customer activity in
response to the COVID-19 crisis, and lower trading income in challenging
market conditions in the prior year. Operating expenses increased
by GBP434 million to GBP1,431 million in 2020, largely as a result
of increased litigation and conduct costs and strategic costs, and
the non-repeat of reimbursement under indemnification agreements
with third parties and other one-off cost recoveries in Central items
& other during 2019.
-- Net interest income was a net expense of GBP60 million compared with
a net expense of GBP150 million in 2019. Net interest expenses largely
represent funding costs of the business, offset partially by interest
income from lending activity and capital hedges.
-- Non-interest income increased by GBP349 million to GBP1,218 million,
compared with GBP869 million in 2019. Income from trading activities
increased to GBP1,088 million from GBP805 million in 2019, driven
by strong customer activity in response to the COVID-19 crisis, and
challenging trading conditions and elevated hedging costs in the
prior year that particularly affected Fixed income. Asset disposals/Strategic
risk reduction was a GBP83 million loss for the year, following the
strategic announcements in February 2020. Own credit adjustments
of GBP(24) million in 2020 (2019 - GBP(80) million) reflect the tightening
of spreads .
-- Operating expenses of GBP1,431 million were GBP434 million higher
than in 2019. Litigation and conduct costs of GBP134 million for
the year primarily related to historical trading activities of a
joint venture subsidiary and were up GBP228 million from the credit
of GBP94 million in 2019, which included GBP162 million reimbursement
under indemnification agreements with third parties. Strategic costs
increased by GBP20 million to GBP191 million in 2020, driven by the
refocusing of NWM Group following the strategic announcements of
14 February 2020. Other operating expenses increased to GBP1,106
million from GBP920 million in 2019, largely due to the non-repeat
of certain one-off cost recoveries.
-- Impairments were a GBP42 million loss in 2020 compared with releases
of GBP48 million in 2019, largely due to the credit deterioration
of an individual counterparty during the year, and the impact of
expected credit losses recognised following the COVID-19 pandemic.
-- NatWest Markets operating loss before tax was GBP239 million compared
with a loss of GBP541 million in 2019, driven by higher income of
GBP428 million due to strong customer activity in response to the
COVID-19 crisis and challenging market conditions in the prior year.
Operating expenses increased by GBP38 million to GBP1,317 million
in 2020, mainly due to increased strategic costs. Other operating
expenses of GBP1,106 million were GBP7 million higher than 2019,
reflecting the impact of consolidation of the full year results of
NatWest Markets N.V., offset by cost reductions in the current year
.
-- Central items & other the operating loss before tax was GBP76 million
compared with a profit of GBP311 million in 2019. Litigation and
conduct costs of GBP130 million primarily related to historical trading
activities of a joint venture subsidiary and were up GBP242 million
compared with the credit of GBP112 million in 2019, which included
GBP162 million in reimbursement under indemnification agreements
with third parties. Other operating expenses of nil were GBP179 million
higher than credits of GBP179 million in 2019, which included certain
one-off cost recoveries.
Business performance summary continued
The table below presents a segmental analysis of key balance
sheet lines for NWM Group. Commentary refers to the table below as
well as the consolidated balance sheet on page 13 for the period 31
December 2020 compared with 31 December 2019.
31 December 2020 30 September 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 107.5 - 107.5 123.1 - 123.1 117.4 - 117.4
Derivative assets 165.6 - 165.6 163.2 - 163.2 148.7 - 148.7
----------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Total assets 273.1 - 273.1 286.3 - 286.3 266.1 - 266.1
----------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Liabilities
excl. derivatives 106.5 - 106.5 119.0 - 119.0 112.1 - 112.1
Derivative liabilities 157.3 - 157.3 157.5 - 157.5 144.1 - 144.1
----------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Total liabilities 263.8 - 263.8 276.5 - 276.5 256.2 - 256.2
----------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
-- Total assets and liabilities increased by GBP7.0 billion and GBP7.6
billion to GBP273.1 billion and GBP263.8 billion respectively at
31 December 2020, compared with GBP266.1 billion and GBP256.2 billion
at 31 December 2019. Funded assets , which exclude derivatives, decreased
by GBP9.9 billion to GBP107.5 billion at 31 December 2020.
-- Cash and balances at central banks of GBP15.8 billion at 31 December
2020 were up by GBP3.1 billion compared with GBP12.7 billion in 2019,
reflecting surplus liquidity following a reduction in trading assets
in 2020.
-- Trading assets which primarily relate to client-led activity as
well as derivative cash collateral posted, decreased to GBP68.7 billion
at 31 December 2020 from GBP76.5 billion at 31 December 2019, driven
by a reduction in reverse repos as the balance sheet was managed
within limits, and a decrease in derivative cash collateral posted.
Trading liabilities decreased by GBP1.5 billion to GBP72.3 billion
at 31 December 2020 (2019 - GBP73.8 billion).
-- Settlement balance assets and liabilities decreased to GBP2.3 billion
and GBP2.2 billion respectively, reflecting lower year end trading
volumes (2019 - GBP4.3 billion and GBP4.0 billion respectively).
-- Derivative assets and derivative liabilities were up GBP16.9 billion
to GBP165.6 billion and GBP13.2 billion to GBP157.3 billion respectively
compared with year end 2019. The increases in mark-to-market were
driven by a downward shift in interest rate yields and FX rate fluctuation
across major currencies during the year.
-- Other financial assets decreased by GBP3.3 billion to GBP9.0 billion
at 31 December 2020 (2019 - GBP12.3 billion). Other financial liabilities
decreased to GBP18.2 billion (2019 - GBP18.4 billion) and includes
GBP12.8 billion of medium term notes issued.
Capital and leverage ratios
Capital resources, RWAs and leverage based on the PRA
transitional arrangements for NWM Plc are set out below.
31 December 30 September 31 December
2020 2020 2019
Capital adequacy ratios % % %
CET1 21.7 22.3 17.3
Tier 1 25.2 25.5 19.9
Total 30.3 30.9 24.2
--------------------------------- ----------- ------------ -----------
Capital (1) GBPm GBPm GBPm
CET1 5,547 6,293 6,097
Tier 1 6,433 7,189 7,003
Total 7,753 8,715 8,501
--------------------------------- ----------- ------------ -----------
Risk-weighted assets
Credit risk 6,902 8,581 9,825
Counterparty credit risk 8,130 9,133 11,060
Market risk 8,150 8,075 11,229
Operational risk 2,382 2,382 3,039
--------------------------------- ----------- ------------ -----------
Total RWAs 25,564 28,171 35,153
--------------------------------- ----------- ------------ -----------
Leverage (2)
CRR leverage exposure (GBPm) (3) 123,927 133,177 136,505
Tier 1 capital (GBPm) 6,433 7,189 7,003
CRR leverage ratio (%) 5.2 5.4 5.1
--------------------------------- ----------- ------------ -----------
Notes:
(1) CRR end-point for UK banks set by the PRA is 10.5% minimum
total capital ratio, 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 31 December 2020 and 30 September
2020 includes netting of regular way deals pending settlement in
line with CRR amendments that came into effect in June 2020. 31
December 2019 has not been restated.
Consolidated income statement for the period ended 31 December
2020
Year ended Quarter ended
------------------------ --------------------------------------
31 December 31 December 31 December 30 September 31 December
2020 2019 2020 2020 2019
GBPm GBPm GBPm GBPm GBPm
Interest receivable 531 697 103 152 201
Interest payable (591) (847) (106) (170) (190)
-------------------------------- ----------- ----------- ----------- ------------ -----------
Net interest income (60) (150) (3) (18) 11
Fees and commissions receivable 386 324 (25) 134 61
Fees and commissions payable (287) (337) 61 (146) (57)
Income from trading activities 1,088 805 62 250 84
Other operating income 31 77 (21) 55 8
-------------------------------- ----------- ----------- ----------- ------------ -----------
Non-interest income 1,218 869 77 293 96
Total income 1,158 719 74 275 107
-------------------------------- ----------- ----------- ----------- ------------ -----------
Staff costs (670) (691) (151) (142) (154)
Premises and equipment (107) (111) (19) (13) (36)
Other administrative expenses (629) (177) (175) (106) (208)
Depreciation and amortisation (25) (18) (8) (3) (6)
Operating expenses (1,431) (997) (353) (264) (404)
-------------------------------- ----------- ----------- ----------- ------------ -----------
Operating (loss)/profit before
impairments (273) (278) (279) 11 (297)
Impairment (losses)/releases (42) 48 - 3 9
Operating (loss)/profit before
tax (315) (230) (279) 14 (288)
Tax (charge)/credit (12) 109 46 21 (18)
-------------------------------- ----------- ----------- ----------- ------------ -----------
(Loss)/profit for the period (327) (121) (233) 35 (306)
-------------------------------- ----------- ----------- ----------- ------------ -----------
Attributable to:
Ordinary shareholders (328) (181) (249) 17 (321)
Paid-in equity holders 68 60 17 17 15
Non-controlling interests (67) - (1) 1 -
(327) (121) (233) 35 (306)
-------------------------------- ----------- ----------- ----------- ------------ -----------
Consolidated statement of comprehensive income for the period
ended 31 December 2020
Year ended Quarter ended
======================== ======================================
31 December 31 December 31 December 30 September 31 December
2020 2019 2020 2020 2019
GBPm GBPm GBPm GBPm GBPm
(Loss)/profit for the period (327) (121) (233) 35 (306)
------------------------------------------- ----------- ----------- ----------- ------------ -----------
Items that do not qualify for
reclassification
Remeasurement of retirement
benefit schemes (21) (50) (18) - (50)
(Loss)/profit on fair value
of credit in financial liabilities
designated as at FVTPL due
to own credit risk (52) (13) (72) (63) 37
FVOCI financial assets (210) (122) (58) 24 58
Tax 42 32 25 14 9
(241) (153) (123) (25) 54
------------------------------------------- ----------- ----------- ----------- ------------ -----------
Items that do qualify for reclassification
FVOCI financial assets 2 5 9 11 7
Cash flow hedges 92 28 (40) (22) (88)
Currency translation 62 (152) (112) (84) (257)
Tax (28) (4) 10 4 22
128 (123) (133) (91) (316)
------------------------------------------- ----------- ----------- ----------- ------------ -----------
Other comprehensive loss after
tax (113) (276) (256) (116) (262)
Total comprehensive loss for
the period (440) (397) (489) (81) (568)
Attributable to:
Ordinary shareholders (459) (458) (508) (100) (583)
Paid-in equity holders 68 60 17 17 15
Non-controlling interests (49) 1 2 2 -
(440) (397) (489) (81) (568)
------------------------------------------- ----------- ----------- ----------- ------------ -----------
Consolidated balance sheet as at 31 December 2020
31 December 30 September 31 December
2020 2020 2019
GBPm GBPm GBPm
Assets
Cash and balances at central banks 15,771 16,692 12,729
Trading assets 68,689 70,602 76,540
Derivatives 165,619 163,221 148,696
Settlement balances 2,296 10,946 4,339
Loans to banks - amortised cost 1,003 1,210 1,088
Loans to customers - amortised cost 8,444 10,054 8,361
Amounts due from holding company and fellow subsidiaries 1,587 1,719 1,231
Other financial assets 9,041 11,215 12,305
Other assets 688 631 847
--------------------------------------------------------- ----------- ------------ -----------
Total assets 273,138 286,290 266,136
Liabilities
Bank deposits 1,808 2,425 2,089
Customer deposits 2,618 4,725 3,703
Amounts due to holding company and fellow subsidiaries 8,134 8,725 8,300
Settlement balances 2,248 9,839 4,022
Trading liabilities 72,252 72,952 73,836
Derivatives 157,332 157,499 144,142
Other financial liabilities 18,170 18,972 18,445
Other liabilities 1,234 1,327 1,689
--------------------------------------------------------- ----------- ------------ -----------
Total liabilities 263,796 276,464 256,226
Equity
--------------------------------------------------------- ----------- ------------ -----------
Owners' equity 9,388 9,874 9,907
Non-controlling interests (46) (48) 3
Total equity 9,342 9,826 9,910
--------------------------------------------------------- ----------- ------------ -----------
Total liabilities and equity 273,138 286,290 266,136
--------------------------------------------------------- ----------- ------------ -----------
Consolidated statement of changes in equity for the period ended
31 December 2020
Year ended Quarter ended
------------------------ --------------------------------------
31 December 31 December 31 December 30 September 31 December
2020 2019 2020 2020 2019
GBPm GBPm GBPm GBPm GBPm
Called up share capital - at beginning
and end of period 400 400 400 400 400
--------------------------------------- ----------- ----------- ----------- ------------ -----------
Share premium account - at beginning
and end of period 1,759 1,759 1,759 1,759 1,759
--------------------------------------- ----------- ----------- ----------- ------------ -----------
Paid-in equity - at 1 January 904 749 904 904 749
Securities issued during the year - 155 - - 155
At 31 December 904 904 904 904 904
--------------------------------------- ----------- ----------- ----------- ------------ -----------
FVOCI reserve - at 1 January (134) 134 (228) (326) (204)
Unrealised (losses)/gains (221) (126) (53) 28 52
Realised losses/(gains) (2) 389 (151) 315 73 19
Tax - 9 - (3) (1)
At 31 December 34 (134) 34 (228) (134)
--------------------------------------- ----------- ----------- ----------- ------------ -----------
Cash flow hedging reserve - at
1 January 137 114 230 246 203
Amount recognised in equity 18 98 (52) (40) (18)
Amount transferred from equity
to earnings 74 (70) 12 18 (70)
Tax (28) (5) 11 6 22
At 31 December 201 137 201 230 137
--------------------------------------- ----------- ----------- ----------- ------------ -----------
Foreign exchange reserve - at 1
January 77 230 236 321 334
Retranslation of net assets 98 (180) (117) (69) (256)
Foreign currency (losses)/gains
on hedges of net assets (31) 27 2 2 (1)
Tax - - - - -
Recycled to profit or loss on disposal
of businesses (23) - - (18) -
At 31 December 121 77 121 236 77
--------------------------------------- ----------- ----------- ----------- ------------ -----------
Retained earnings - at 1 January 6,764 5,701 6,573 6,649 5,248
Implementation of IFRS 16 on 1
January 2019 - (6) - - -
(Loss)/profit attributable to ordinary
shareholders and other equity owners (260) (121) (232) 34 (306)
Ordinary dividends paid - (500) - - -
Paid-in equity dividends paid (68) (60) (17) (17) (15)
Capital contribution (1) 22 1,845 - - 1,845
Realised (losses)/gains on FVOCI
equity shares (2)
- gross (376) 160 (311) (66) (6)
- tax 35 - 27 8 -
Remeasurement of the retirement
benefit schemes
- gross (21) (50) (18) - (50)
- tax (1) 4 (12) - 4
Changes in fair value of credit
in financial liabilities designated
at FVTPL
- gross (52) (13) (72) (63) 37
- tax 8 20 9 7 6
Share based payments (42) (216) 22 21 1
Distribution (40) - - - -
At 31 December 5,969 6,764 5,969 6,573 6,764
--------------------------------------- ----------- ----------- ----------- ------------ -----------
Consolidated statement of changes in equity for the period ended
31 December 2020
Year ended Quarter ended
------------------------ --------------------------------------
31 December 31 December 31 December 30 September 31 December
2020 2019 2020 2020 2019
GBPm GBPm GBPm GBPm GBPm
Owners' equity at 31 December 9,388 9,907 9,388 9,874 9,907
-------------------------------------------- ----------- ----------- ----------- ------------ -----------
Non-controlling interests - at
1 January 3 2 (48) (50) 3
Currency translation adjustments
and other movements 18 1 3 1 -
(Loss)/gain attributable to non-controlling
interests (67) - (1) 1 -
At 31 December (46) 3 (46) (48) 3
-------------------------------------------- ----------- ----------- ----------- ------------ -----------
Total equity at 31 December 9,342 9,910 9,342 9,826 9,910
Attributable to:
Ordinary shareholders 8,484 9,003 8,484 8,970 9,003
Paid-in equity holders 904 904 904 904 904
Non-controlling interests (46) 3 (46) (48) 3
-------------------------------------------- ----------- ----------- ----------- ------------ -----------
9,342 9,910 9,342 9,826 9,910
-------------------------------------------- ----------- ----------- ----------- ------------ -----------
Notes:
(1) A capital contribution of GBP1,845 million was received from NatWest
Group on 29 November 2019 to facilitate the acquisition of RBS Holdings
N.V..
(2) During the year NWM Plc sold its entire equity holding in Saudi British
Bank (SABB) leading to a realised loss of GBP337 million after tax
which was recognised through other comprehensive income and reclassified
to retained earnings.
Consolidated cash flow statement for the period ended 31
December 2020
31 December 31 December
2020 2019
GBPm GBPm
Operating activities
Operating loss before tax (315) (230)
Adjustments for non-cash items (354) 719
-------------------------------------------------------------- ----------- -----------
Net cash outflow from trading activities (669) 489
Changes in operating assets and liabilities (3,248) (1,127)
-------------------------------------------------------------- ----------- -----------
Net cash flows from operating activities before tax (3,917) (638)
Income taxes (paid)/received (73) 315
Net cash flows from operating activities (3,990) (323)
Net cash flows from investing activities 3,271 3,014
Net cash flows from financing activities (785) (822)
Effects of exchange rate changes on cash and cash equivalents 841 (953)
-------------------------------------------------------------- ----------- -----------
Net (decrease)/increase in cash and cash equivalents (663) 916
Cash and cash equivalents at beginning of year 27,043 26,127
Cash and cash equivalents at end of year 26,380 27,043
-------------------------------------------------------------- ----------- -----------
Notes
1. Basis of preparation
NWM Group's consolidated financial statements should be read in
conjunction with the NatWest Markets Plc 2020 Annual Report and
Accounts which were prepared in accordance with International
Accounting Standards in conformity with the requirements of the
Companies Act 2006 and with International Financial Reporting
Standards(IFRS) adopted pursuant to Regulation (EC) No 1606/2002 as
it applies in the European Union.
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 year ended 31 December 2020 have
been prepared on a going concern basis.
2. Accounting policies
NWM Group's principal accounting policies are as set out on
pages 93 to 97 of the NatWest Markets Plc 2020 Annual Report and
Accounts. From 1 January 2020, the accounting policies have been
updated to reflect the adoption of the below.
Amendments to IFRS 3 Business Combinations (IFRS 3) - Changes to
the definition of a business
The International Accounting Standards Board (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 accounts. 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 year
ended 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 (published in August 2020)
addresses the wider accounting issues arising from the IBOR reform.
The amendments are effective for annual reporting periods beginning
on or after 1 January 2021 with early application permitted. As NWM
Group early adopted these amendments for the annual period ending
on 31 December 2020, which have been endorsed by the EU and UK in
January 2021, NWM Group has applied International Accounting
Standards, which have been adopted for use within the UK. NWM
Group's IBOR transition program remains on-track and key milestones
have been met. Conversion from rates subject to reform 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.
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 deferred tax, fair value of financial
instruments, loan impairment provisions and provisions for
liabilities and charges. These critical accounting policies and
judgements are described on page 97 of the NatWest Markets Plc 2020
Annual Report and Accounts. Estimation uncertainty has been
affected by the COVID-19 pandemic during the year. The COVID-19
pandemic has continued to cause significant economic and social
disruption during 2020. Key financial estimates are based on
management's latest five-year revenue and cost forecasts.
Measurement of deferred tax and expected credit losses are highly
sensitive to reasonably possible changes in those anticipated
conditions. 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. Management's consideration
of this source of uncertainty is outlined in the relevant sections
of the NatWest Markets Plc 2020 Annual Report and Accounts,
including the ECL estimate for the period in the Risk and capital
management section contained in the NatWest Markets Plc 2020 Annual
Report and Accounts.
Notes
2. Accounting policies continued
Information used for significant estimates
The COVID-19 pandemic has continued to cause significant
economic and social disruption during year ended 31 December 2020.
Key financial estimates are based on management's latest five-year
revenue and cost forecasts . Measurement of valuation reserves and
expected credit losses are highly sensitive to reasonably possible
changes in economic outlook assumptions. Refer to further
information under 'The impact of COVID-19' section in the Risk and
capital management section of the NatWest Markets Plc 2020 Annual
Report and Accounts . Changes in judgements and assumptions could
result in a material adjustment to those estimates in the next
reporting periods (refer to Risk factors in the NatWest Markets Plc
2020 Annual Report and Accounts ).
3. Trading assets and liabilities
Trading assets and liabilities comprise assets and liabilities
held at fair value in trading portfolios.
31 December 31 December
2020 2019
Assets GBPm GBPm
Loans
- Reverse repos 19,404 24,095
- Collateral given 18,459 20,467
- other loans 1,611 1,854
----------- -----------
Total loans 39,474 46,416
--------------------------------------- ----------- -----------
Securities
Central and local government
- UK 4,184 4,897
- US 5,149 5,458
- other 16,436 14,902
Financial institutions and Corporate 3,446 4,867
Total securities 29,215 30,124
--------------------------------------- ----------- -----------
Total 68,689 76,540
Liabilities
--------------------------------------- ----------- -----------
Deposits
- Repos 19,036 27,885
- Collateral received 23,226 21,506
- other deposits 1,803 1,496
Total deposits 44,065 50,887
--------------------------------------- ----------- -----------
Debt securities in issue 1,408 1,762
Short positions 26,779 21,187
Total 72,252 73,836
--------------------------------------- ----------- -----------
4. Other financial liabilities
31 December 31 December
2020 2019
GBPm GBPm
Customer deposits - designated as at fair value through
profit or loss 796 -
Debt securities in issue
- designated as at fair value through profit or loss 1,607 2,256
- amortised cost 14,662 15,053
Subordinated liabilities
- designated as at fair value through profit or loss 793 724
- amortised cost 312 412
-------------------------------------------------------- ----------- -----------
Total 18,170 18,445
-------------------------------------------------------- ----------- -----------
5. Amounts due to holding company and fellow subsidiaries
31 December 31 December
2020 2019
Liabilities GBPm GBPm
------------------------------------------------------- ----------- -----------
Bank deposits - amortised cost 145 424
Customer deposits - amortised cost 144 74
CRR-compliant internal MREL instruments issued to
NatWest Group plc 5,181 5,120
Trading liabilities 636 491
Other financial liabilities - subordinated liabilities 1,753 2,020
Other liabilities 275 171
------------------------------------------------------- ----------- -----------
Total 8,134 8,300
------------------------------------------------------- ----------- -----------
Notes
6. Related parties
UK Government
The UK Government, bodies controlled or jointly controlled by
the UK Government and bodies over which it has significant
influence are related parties of NWM Group. NWM Group enters into
transactions with many of these bodies. NWM Group's other
transactions with the UK Government include the payment of taxes,
principally UK corporation tax and value added tax; national
insurance contributions; local authority rates; and regulatory fees
and levies (including the bank levy and FSCS levies).
Bank of England facilities
In the ordinary course of business, NWM Group may from time to
time access market-wide facilities provided by the Bank of
England.
Other related parties
(a) In their roles as providers of finance, NWM Group companies
provide development and other types of capital support to
businesses. These investments are made in the normal course of
business. In some instances, the investment may extend to ownership
or control over 20% or more of the voting rights of the investee
company. However, these investments are not considered to give rise
to transactions of a materiality requiring disclosure under IAS
24.
(b) In accordance with IAS 24, transactions or balances between
NWM Group entities that have been eliminated on consolidation are
not reported.
(c) The captions in the primary financial statements of the
parent company include amounts attributable to subsidiaries. These
amounts have been disclosed in aggregate in the relevant notes to
the financial statements.
Full details of NWM Group's related party transactions for the
year ended 31 December 2020 are included in the NatWest Markets Plc
2020 Annual Report and Accounts.
7. Litigation and regulatory matters
NWM Plc and certain members of NWM Group are party to legal
proceedings and involved in regulatory matters, including as the
subject of investigations and other regulatory and governmental
action ("Matters") in the United Kingdom (UK), the United States
(US), the European Union (EU) and other jurisdictions. Note 26 in
the NatWest Markets Plc 2020 Annual Report and Accounts, issued on
19 February 2021 and available at nwm.com ("Note 26"), discusses
the Matters in which NWM Group is currently involved and
developments to those matters. Other than the Matters discussed in
Note 26, no member of NWM Group is or has been involved in
governmental, legal, or regulatory proceedings (including those
which are pending or threatened) that are expected to be material,
individually or in aggregate. Recent developments in the Matters
identified in Note 26 that have occurred since the Q3 2020 Interim
Management Statement was issued on 29 October 2020, include, but
are not limited to, those set out below.
Litigation
London Interbank Offered Rate (LIBOR) and other rates
litigation
NWM Plc is a defendant in a class action relating to alleged
manipulation of Swiss Franc LIBOR that was dismissed by the
district court but is currently on appeal to the United States
Court of Appeals for the Second Circuit. NWM Plc and the plaintiffs
reached a settlement in principle of this matter in February 2021.
The amount of the settlement, which remains subject to final
documentation and court approval, is covered by an existing
provision.
FX litigation
In November 2020, proceedings were issued in the High Court of
Justice of England and Wales against NWM Plc by a claimant who
seeks an account of profits or damages in respect of alleged
historic FX trading misconduct. The claimant has also issued
similar proceedings against a number of other banks. The claim
against NWM Plc makes allegations of fraud, deceit and dishonesty,
as well as breaches of contract, fiduciary duties, duties of
confidence and other matters, in respect of FX services provided by
NWM Plc during the period 2006 to 2010. NWM Plc awaits service of
the claim.
Regulatory matters
US investigations relating to fixed-income securities
In December 2020, RBS Financial Products, Inc. agreed to pay
US$18.2 million to resolve the State of Maryland's investigation of
NatWest Group's issuance and underwriting of residential
mortgage-backed securities. RBS Financial Products, Inc. has paid
the settlement amount, which was covered by an existing
provision.
8. Post balance sheet events
On 18 February 2021, the NWM Plc Board approved an interim
dividend of GBP500 million, or GBP1.25 per share, to be declared
and payable to NWG plc on 19 February 2021. There has been no
adjustment to the 31 December 2020 statutory financial statements.
For regulatory reporting purposes, a GBP500 million foreseeable
dividend deduction has been applied to the year-end regulatory
capital position.
Other than as disclosed in the accounts, there have been no
other significant events between 31 December 2020 and the date of
approval of these accounts which would require a change to or
additional disclosure.
Non-IFRS measures
As described in the Accounting policies, NatWest Markets Group
prepares its financial statements in accordance with the basis set
out in the accounting policies, page 16 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 performance measures. These
measures are adjusted for certain items which management believes
are not representative of the underlying performance of the
business and which distort period-on-period comparison. The
non-IFRS measures provide users of the financial statements with a
consistent basis for comparing business performance between
financial periods and information on elements of performance that
are one-off in nature. The non-IFRS measures also include the
calculation of metrics that are used throughout the banking
industry. These non-IFRS 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 pages 6
and 8. 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.
Operating expenses analysis
Statutory analysis (1,2)
Year ended Quarter ended
------------------------ --------------------------------------
31 December 31 December 31 December 30 September 31 December
2020 2019 2020 2020 2019
Operating expenses GBPm GBPm GBPm GBPm GBPm
Staff costs 670 691 151 142 154
Premises and equipment 107 111 19 13 36
Other administrative expenses 629 177 175 106 208
Depreciation and amortisation 25 18 8 3 6
Total operating expenses 1,431 997 353 264 404
------------------------------ ----------- ----------- ----------- ------------ -----------
Non-statutory analysis
Year ended
----------------------------------------------------------------------------------------
31 December 2020 31 December 2019
------------------------------------------- -------------------------------------------
Litigation Statutory Litigation Statutory
Strategic and conduct Other operating Strategic and conduct Other operating
Operating expenses costs costs expenses expenses costs costs expenses expenses
Staff costs 121 - 549 670 90 - 601 691
Premises and equipment 19 - 88 107 8 - 103 111
Other administrative
expenses 51 134 444 629 73 (94) 198 177
Depreciation and
amortisation - - 25 25 - - 18 18
Total 191 134 1,106 1,431 171 (94) 920 997
-------------------------- --------- ----------- -------- --------- --------- ----------- -------- ---------
Quarter ended
----------------------------------------------------------------------------------------
31 December 2020 30 September 2020
------------------------------------------- -------------------------------------------
Litigation Statutory Litigation Statutory
Strategic and conduct Other operating Strategic and conduct Other operating
Operating expenses costs costs expenses expenses costs costs expenses expenses
Staff costs 29 - 122 151 34 - 108 142
Premises and equipment 1 - 18 19 (4) - 17 13
Other administrative
expenses 17 7 151 175 2 14 90 106
Depreciation and
amortisation - - 8 8 - - 3 3
Total 47 7 299 353 32 14 218 264
-------------------------- --------- ----------- -------- --------- --------- ----------- -------- ---------
Quarter ended
-------------------------------------------
31 December 2019
-------------------------------------------
Litigation Statutory
Strategic and conduct Other operating
Operating expenses costs costs expenses expenses
Staff costs 39 - 115 154
Premises and equipment 3 - 33 36
Other administrative
expenses 31 60 117 208
Depreciation and
amortisation - - 6 6
Total 73 60 271 404
-------------------------- --------- ----------- -------- ---------
Notes:
(1) On a statutory, or GAAP, basis, strategic costs are included
within staff, premises and equipment and other administrative
expenses. Strategic costs relate to restructuring provisions,
related costs and projects that are transformational in nature.
(2) On a statutory, or GAAP, basis, litigation and conduct costs
are included within other administrative expenses.
Statement of directors' responsibilities
The responsibility statement below has been prepared in
connection with NWM Group's full Annual Report and Accounts for the
year ended 31 December 2020.
We, the directors listed below, confirm that to the best of our
knowledge:
-- The financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of NWM Plc and the undertakings included in the consolidation
taken as a whole; and
-- The Strategic Report and Directors' report (incorporating the
Financial review) include a fair review of the development and
performance of the business and the position of NWM Plc and the
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face.
By order of the Board
Frank Dangeard Robert Begbie David King
Chairman Chief Executive Officer Chief Financial Officer
18 February 2021
Board of directors
Chairman Executive directors Non-executive directors
Frank Dangeard Robert Begbie Vivek Ahuja
David King Brendan Nelson
Tamsin Rowe
Anne Simpson
Sarah Wilkinson
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, and references to 'cents' represent cents in
the European Union ('EU').
To aid readability, this document retains references to EU
legislative and regulatory provisions in effect in the UK before 1
January 2021 that have now been implemented in UK domestic law.
These references should be read and construed as including
references to the applicable UK implementation measures with effect
from 1 January 2021.
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 Annual
Report and Accounts 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 2020 results reports the NatWest Markets
segment excluding Central items & other.
MAR - Inside Information
This announcement contains information that qualified or may
have qualified as inside information for NatWest Markets Plc, for
the purposes of Article 7 of the Market Abuse Regulation (EU)
596/2014 (MAR) as it forms part of domestic law by virtue of the
European Union (Withdrawal) Act 2018 for NatWest Markets Plc. This
announcement is made by Paul Pybus, Head of Investor Relations for
NatWest Markets Plc.
Non-IFRS financial measures
As described in the Accounting policies, NatWest Markets Group
prepares its financial statements in accordance with the basis set
out in the accounting policies, page 16 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 performance measures, see page
19 for further details.
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 2020 will be 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
Cautionary statement regarding forward-looking statements
Certain sections in this document contain 'forward-looking
statements' as that term is defined in the United States Private
Securities Litigation Reform Act of 1995, such as statements that
include the words 'expect', 'estimate', 'project', 'anticipate',
'commit', 'believe', 'should', 'intend', 'will', 'plan', 'could',
'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal',
'objective', 'may', 'endeavour', 'outlook', 'optimistic',
'prospects' and similar expressions or variations on these
expressions. In particular, this document includes forward-looking
statements relating, but not limited to: the COVID-19 pandemic and
its impact on NWM Group; future profitability and performance,
including financial performance targets (such as RoTE); ESG and
climate-related targets, including in relation to sustainable
financing and financed emissions; planned cost savings;
implementation of NatWest Group's and NWM Group's strategy,
including in relation to the digitisation of their operations and
services; the timing and outcome of litigation and government and
regulatory investigations; balance sheet reduction, including the
reduction of RWAs; capital, liquidity and leverage ratios and
requirements, including CET1 Ratio, RWAs, Pillar 2 and other
regulatory buffer requirements and MREL; funding plans and credit
risk profile; capitalisation; portfolios; net interest margin;
customer loan and income growth and market share; impairments and
write-downs; restructuring and remediation costs and charges; NWM
Group's exposure to political risk, economic risk, climate,
environmental and sustainability risk, operational risk, conduct
risk, cyber and IT risk and credit rating risk and to various types
of market risks, including interest rate risk, foreign exchange
rate risk and commodity and equity price risk; customer experience,
including our Net Promotor Score (NPS); employee engagement and
gender balance in leadership positions.
Limitations inherent to forward-looking statements
These statements are based on current plans, expectations,
estimates, targets and projections, and are subject to significant
inherent risks, uncertainties and other factors, both external and
relating to NatWest Group's and NWM Group's strategy or operations,
which may result in NWM Group being unable to achieve the current
plans, expectations, estimates, targets, projections and other
anticipated outcomes expressed or implied by such forward-looking
statements. In addition, certain of these disclosures are dependent
on choices relying on key model characteristics and assumptions and
are subject to various limitations, including assumptions and
estimates made by management. By their nature, certain of these
disclosures are only estimates and, as a result, actual future
results, gains or losses could differ materially from those that
have been estimated. Accordingly, undue reliance should not be
placed on these statements. The forward-looking statements
contained in this document speak only as of the date we make them
and we expressly disclaim any obligation or undertaking to update
or revise any forward-looking statements contained herein, whether
to reflect any change in our expectations with regard thereto, any
change in events, conditions or circumstances on which any such
statement is based, or otherwise, except to the extent legally
required.
Important factors that could affect the actual outcome of the
forward-looking statements
We caution you that a large number of important factors could
adversely affect our results or our ability to implement our
strategy, cause us to fail to meet our targets, predictions,
expectations and other anticipated outcomes or affect the accuracy
of forward-looking statements described in this document. These
factors include, but are not limited to, those set forth in the
risk factors and the other uncertainties described in NatWest
Markets Plc's Annual Report and its other public filings. The
principal risks and uncertainties that could adversely NWM Group's
future results, its financial condition and prospects and cause
them to be materially different from what is forecast or expected,
include, but are not limited to: risks relating to the COVID-19
pandemic (including in respect of: the effects on the global
economy and financial markets, and NWM Group's customers; increased
counterparty risk; NatWest Group's and NWM Group's ability to meet
its targets and strategic objectives; increased operational and
control risks; and increased funding risk); strategic risk
(including in respect of: the
implementation of NatWest Group's and NWM Group's strategy and
NWM Group's ability to achieve its targets); economic and political
risk (including in respect of: uncertainty regarding the effects of
Brexit; increased political and economic risks and uncertainty in
the UK and global markets; changes in interest rates and foreign
currency exchange rates; and HM Treasury's ownership of NatWest
Group plc); financial resilience risk (including in respect of: NWM
Group's ability to meet targets; the competitive environment;
counterparty risk; prudential regulatory requirements for capital
and MREL; funding risk; changes in the credit ratings; the adequacy
of NatWest Group's resolution plans; the requirements of regulatory
stress tests; model risk; sensitivity to accounting policies,
judgments, assumptions and estimates; changes in applicable
accounting standards; and the application of UK statutory
stabilisation or resolution powers); climate and sustainability
risk (including in respect of: risks relating to climate change and
the transitioning to a low carbon economy; the implementation of
NatWest Group's and NWM Group's climate change strategy and climate
change resilient systems, controls and procedures; increased model
risk; the failure to adapt to emerging climate, environmental and
sustainability risks and opportunities; changes in ESG ratings;
increasing levels of climate, environmental and sustainability
related regulation and oversight; and climate, environmental and
sustainability related litigation, enforcement proceedings and
investigations); operational and IT resilience risk (including in
respect of: operational risks (including reliance on third party
suppliers); cyberattacks; the accuracy and effective use of data;
complex IT systems (including those that enable remote working);
attracting, retaining and developing senior management and skilled
personnel; NWM Group's risk management framework; and reputational
risk); and legal, regulatory and conduct risk (including in respect
of: the impact of substantial regulation and oversight; compliance
with regulatory requirements; the outcome of legal, regulatory and
governmental actions and investigations; the replacement of LIBOR,
EURIBOR and other IBOR rates; heightened regulatory and
governmental scrutiny (including by competition authorities); and
changes in tax legislation or failure to generate future taxable
profits).
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 a solicitation of an offer to
buy any securities or financial instruments or any advice or
recommendation with respect to such securities or other financial
instruments
Legal Entity Identifier: RR3QWICWWIPCS8A4S074
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR DKCBDPBKKABD
(END) Dow Jones Newswires
February 19, 2021 02:04 ET (07:04 GMT)
Natwest Mk.33 (LSE:83NF)
Historical Stock Chart
From Jun 2024 to Jul 2024
Natwest Mk.33 (LSE:83NF)
Historical Stock Chart
From Jul 2023 to Jul 2024
