TIDM83NF
RNS Number : 9892W
Natwest Markets PLC
29 April 2021
NatWest Markets Group
Q1 2021
Interim Management Statement
NWM Group ci.natwest.com
NatWest Markets Group (NWM Group)
Q1 2021 Interim Management Statement
Building a sustainable Markets business
We have continued to make good progress on refocusing to better
support NatWest Group's customers and to create a more sustainable
business. During the quarter we maintained our strong performance
in climate and sustainability financing delivering GBP3 billion of
financing towards NatWest Group's 2021 target. Building on the
momentum gained in 2020, we announced further changes to simplify
how we operate in the first quarter of 2021, and we updated the
business on our plans to consolidate our operational footprint in
Asia. We also announced the last part of our One Bank operating
model to bring teams and expertise together from across NatWest
Group.
Financial review
NWM Group reported a loss of GBP61 million for Q1 2021, compared
with a loss of GBP233 million in Q4 2020 and a profit of GBP8
million in Q1 2020. Total income increased to GBP188 million in Q1
2021, driven by an improved performance in the Fixed Income
business and higher own credit adjustments compared with the prior
quarter. Operating expenses decreased to GBP272 million, reflecting
the non-repeat of one-off charges recognised in Q4 2020 and
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 increased to GBP190 million in Q1 2021, from GBP125
million in Q4 2020, driven by an improved performance in the Fixed
Income business. However, this was a significant decrease compared
to GBP385 million in Q1 2020, a period that included increased customer
activity in the latter part of the quarter as the COVID-19 crisis
developed. Own credit adjustments were GBP2 million in Q1 2021 compared
with GBP(43) million in Q4 2020. Own credit adjustments of GBP155
million in Q1 2020 were driven by the widening of credit spreads across
the market at the onset of the COVID-19 crisis. Total income was GBP188
million in Q1 2021, compared with GBP74 million in Q4 2020 and GBP540
million in Q1 2020.
-- Operating expenses of GBP272 million in Q1 2021 were down GBP81 million
from GBP353 million in Q4 2020, largely due to one-off charges recognised
in Q4 2020 including the annual bank levy charge and continued progress
on cost reductions; and down GBP183 million from GBP455 million in
Q1 2020, largely due to litigation and conduct costs recognised in
Q1 2020 in relation to historical trading activities of a joint venture
subsidiary.
Balance sheet, capital and RWAs
-- NWM Group's total assets and liabilities decreased by GBP42.9 billion
and GBP42.1 billion to GBP230.2 billion and GBP221.7 billion respectively
at 31 March 2021, compared with 31 December 2020. The decreases primarily
reflect lower derivative fair values, largely driven by increases
in interest rates across major currencies.
-- Total NWM Plc RWAs were GBP24.7 billion at 31 March 2021, compared
with GBP25.6 billion at 31 December 2020 and GBP35.3 billion at 31
March 2020. The decrease in the quarter reflected lower levels of
credit, counterparty credit and operational risk, offset by an increase
in market risk.
-- NWM Plc's Common Equity Tier 1 (CET1) ratio was 21.1% at 31 March
2021, compared with 21.7% at 31 December 2020 and 15.7% at 31 March
2020. The decrease in Q1 2021 principally reflected reserve movements
in the period, partially offset by the reduction in RWAs.
-- Total MREL for NWM Plc at 31 March 2021 was GBP11.1 billion, or 44.8%
of RWAs, down from GBP12.7 billion or 49.6% of RWAs at December 2020.
The reduction in the quarter was largely due to the redemption of
a $1.5 billion internal instrument issued to NatWest Group plc and
the reduction in CET1 capital.
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 continuing to work remotely in Q1 2021.
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 GBP24.7 billion (31 December 2020 - GBP25.6
billion, 31 March 2020 - GBP35.3 billion), reflecting lower levels
of credit, counterparty credit and operational risk, offset by an
increase in market risk. NWM Group remained well-capitalised, with
a NWM Plc CET1 ratio of 21.1%, in line with guidance of above 15%.
NWM Plc's liquidity portfolio was GBP16.5 billion with LCR of 233%
at 31 March 2021.
-- 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. As at 31 March 2021, NWM
Plc's Prudential Valuation Adjustment (PVA) deduction has increased
by c.GBP123 million due to the reversion of the aggregation factor
to 50%.
Fair value
-- Valuation reserves, comprising credit valuation adjustments (CVA),
funding valuation adjustments (FVA), bid-offer and product and deal
specific reserves decreased to GBP719 million at 31 March 2021 (31
December 2020 - GBP803 million, 31 March 2020 - GBP1,020 million).
The decrease was across CVA, FVA and bid-offer reserves and was driven
by reduced exposures, due to increases in interest rates and trade
exit activity.
Risk
-- Risk management activities continued to focus on the safety and soundness
of NWM Group during Q1. Risks related to COVID-19 have been integrated
into standard management and governance processes.
-- To ensure appropriate supervision of colleagues and maintain service
continuity for customers, NWM Group's Risk function provided oversight
of adjusted working practices and processes.
-- Internal traded VaR for NWM Group was GBP16 million at peak and GBP12
million average during Q1 2021 (Q4 2020 - GBP20 million and GBP15
million respectively). Stressed VaR was GBP175 million at peak and
GBP102 million on an average basis (Q4 2020 - GBP143 million and GBP87
million respectively).
Impairments
-- The impairment release for Q1 2021 was GBP6 million, mainly due to
releases on individual IFRS 9 Stage 2 and Stage 3 exposures.
NWM Group business review
The table below sets out the performance key metrics and
ratios.
31 March 31 December 31 March
Performance key metrics and ratios (1) 2021 2020 2020
--------------------------------------- -------- ----------- --------
Liquidity coverage ratio (LCR) (%) (2) 233 268 287
Liquidity portfolio (GBPbn) (2) 16.5 19.4 16.6
Total wholesale funding (GBPbn) (3) 18.8 20.6 22.0
Total funding including repo (GBPbn) 67.9 75.9 96.8
Common Equity Tier 1 (CET1) ratio (%) 21.1 21.7 15.7
CRR leverage ratio (%) (2) 4.9 5.2 4.3
Risk-weighted assets (RWAs) (GBPbn) 24.7 25.6 35.3
Total Capital ratio (%) 29.8 30.3 22.8
Total MREL (GBPbn) (4) 11.1 12.7 13.3
Total MREL ratio (%) 44.8 49.6 37.8
--------------------------------------- -------- ----------- --------
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) These 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 GBP3.7 billion (31 December
2020 - GBP4.9 billion).
Outlook (1)
We retain the medium-term target capital metrics, including RWA
reduction, as set out in NWM Group's 2020 Annual Report and
Accounts. NWM Plc is planning a moderate amount of term issuance to
support business initiatives with the rest of the NatWest Group and
to maintain flexibility for further opportunities.
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 156 to 172 of NatWest Markets Plc's
2020 Annual Report and Accounts. These statements constitute
forward-looking statements. Refer to Forward-looking statements in
this announcement.
Financial review
The segmental analysis of NWM Group's key income statement lines
for the quarter ended 31 March 2021 is set out below. Commentary
refers to the tables below as well as the consolidated income
statement shown on page 5.
Q1 2021 Q4 2020 Q1 2020
----------------------- ----------------------- -----------------------
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 (7) - (7) (3) - (3) (43) - (43)
Non-interest income 195 - 195 76 1 77 583 - 583
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Total income 188 - 188 73 1 74 540 - 540
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Strategic costs (30) (2) (32) (43) (4) (47) (30) (2) (32)
Litigation and conduct costs - (13) (13) - (7) (7) (2) (102) (104)
Other operating expenses (229) 2 (227) (272) (27) (299) (325) 6 (319)
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Operating expenses (259) (13) (272) (315) (38) (353) (357) (98) (455)
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Operating (loss)/profit before
impairments (71) (13) (84) (242) (37) (279) 183 (98) 85
Impairment releases/(losses) 6 - 6 (2) 2 - 5 - 5
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Operating (loss)/profit before
tax (65) (13) (78) (244) (35) (279) 188 (98) 90
Tax credit/(charge) 17 46 (82)
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
(Loss)/profit for the period (61) (233) 8
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Income
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Fixed Income (1,2,3,4) 38 - 38 (17) - (17) 177 - 177
Currencies (2,4) 118 - 118 121 - 121 194 - 194
Capital Markets (1,2,3,4) 74 - 74 90 - 90 88 - 88
Capital Management Unit &
other (2,5) 8 - 8 (17) 1 (16) (27) - (27)
Revenue share paid to other
NatWest Group segments (48) - (48) (53) - (53) (47) - (47)
--------------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Income excluding Asset disposals
and OCA 190 - 190 124 1 125 385 - 385
Asset disposals/Strategic
risk reduction (6) (4) - (4) (8) - (8) - - -
Own credit adjustments (OCA) 2 - 2 (43) - (43) 155 - 155
---------------------------------
Total income 188 - 188 73 1 74 540 - 540
--------------------------------- ------- ------- ----- ======= ======= ===== ------- ------- -----
Notes:
(1) Fixed Income comprises Rates and Credit trading. Rates was
presented as a separate business in NWM Group results publications
prior to the Q3 2020 Interim Management Statement (Q1 2020: GBP276
million). Credit trading and Capital Markets were previously
reported as Financing.
(2) Income of GBP(41) million, GBP(8) million and GBP(19)
million reported within Fixed Income, Currencies and Capital
Markets respectively at Q1 2020 relates to business that was
subsequently transferred to Capital Management Unit during
2020.
(3) Income of GBP12 million reported within Capital Markets at
Q1 2020 relates to business that was subsequently transferred to
Fixed Income during 2020.
(4) Income of GBP10 million and GBP2 million reported within
Fixed Income at Q1 2020 relates to business that was subsequently
transferred to Currencies and Capital Markets respectively during
2020.
(5) 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.
(6) Asset disposals/Strategic risk reduction 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.
-- Operating loss before tax was GBP78 million in Q1 2021 compared with
a loss of GBP279 million in Q4 2020 and profit of GBP90 million in
Q1 2020. Total income of GBP188 million was up compared to GBP74 million
in Q4 2020, but significantly lower than Q1 2020, a period that included
increased levels of customer activity and elevated own credit adjustments
in the early stages of the COVID-19 crisis. Operating expenses of GBP272
million in Q1 2021 were lower compared with GBP353 million in Q4 2020,
which included one-off costs including the annual bank levy charge,
and GBP455 million in Q1 2020, which included litigation and conduct
costs related to the historical trading activities of a joint venture
subsidiary.
-- Net interest income was a net expense of GBP7 million in Q1 2021 compared
with net expense of GBP3 million in Q4 2020 and net expense of GBP43
million in Q1 2020.
-- Non-interest income of GBP195 million increased by GBP118 million compared
with GBP77 million in Q4 2020, driven by improved performance in Fixed
Income and higher own credit adjustments. Non-interest income was significantly
lower than Q1 2020 (GBP583 million), a period that included increased
levels of customer activity and elevated own credit adjustments at
the onset of the COVID-19 crisis.
-- Operating expenses were GBP272 million in Q1 2021, compared with GBP353
million in Q4 2020 and GBP455 million in Q1 2020. Strategic costs were
GBP32 million in Q1 2021, compared with GBP47 million in Q4 2020 and
GBP32 million in Q1 2020. Litigation and conduct costs were GBP13 million
in Q1 2021, up from GBP7 million in Q4 2020 but down significantly
compared with GBP104 million in Q1 2020, which largely related to the
historical trading activities of a joint venture subsidiary. Other
operating expenses reduced to GBP227 million in Q1 2021 from GBP299
million in Q4 2020 and GBP319 million in Q1 2020, reflecting the non-repeat
of one-off costs from the prior quarter including the annual bank levy
charge, and continued reductions in underlying costs in line with the
strategic announcements made in February 2020.
-- Impairment releases were GBP6 million in Q1 2021 (Q4 2020 - nil; Q1
2020 - GBP5 million release), largely driven by releases on individual
IFRS 9 Stage 2 and Stage 3 exposures.
-- NatWest Markets operating loss before tax was GBP65 million compared
with a loss of GBP244 million in Q4 2020 and profit of GBP188 million
in Q1 2020. Income excluding asset disposals and own credit adjustments
of GBP190 million was up compared with GBP124 million in Q4 2020, mainly
due to improved performance in Fixed Income, but down compared with
GBP385 million in Q1 2020, which included increased levels of customer
activity at the onset of the COVID-19 crisis. Own credit adjustments
of GBP2 million in Q1 2021 were significantly lower than GBP155 million
in Q1 2020, which were driven by widening credit spreads across the
market in the early stages of the COVID-19 crisis. Operating expenses
of GBP259 million in Q1 2021 were lower than GBP315 million in Q4 2020
and GBP357 million in Q1 2020, reflecting the non-repeat of one-off
costs from the prior quarter and continued reductions in underlying
costs in line with the strategic announcements made in February 2020.
-- Central items & other operating loss before tax was GBP13 million,
compared with a GBP35 million loss in Q4 2020 which was largely driven
by one-off costs, and GBP98 million loss in Q1 2020, which included
litigation and conduct costs related to the historical trading activities
of a joint venture subsidiary.
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 6 for the period 31 March
2021 compared with 31 December 2020.
31 March 2021 31 December 2020 31 March 2020
------------------------- ----------------------- -----------------------
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 108.1 - 108.1 107.5 - 107.5 131.5 - 131.5
Derivative assets 122.1 - 122.1 165.6 - 165.6 207.5 - 207.5
Total assets 230.2 - 230.2 273.1 - 273.1 339.0 - 339.0
--------------------------- -------- -------- ----- ------- ------- ----- ------- ------- -----
Liabilities
excl. derivatives 107.6 - 107.6 106.5 - 106.5 127.3 - 127.3
Derivative liabilities 114.1 - 114.1 157.3 - 157.3 201.7 - 201.7
-------- -------- ----- ------- ------- ----- ------- ------- -----
Total liabilities 221.7 - 221.7 263.8 - 263.8 329.0 - 329.0
--------------------------- -------- -------- ----- ------- ------- ----- ------- ------- -----
-- Total assets and liabilities decreased by GBP42.9 billion and GBP42.1
billion to GBP230.2 billion and GBP221.7 billion respectively at
31 March 2021, compared with GBP273.1 billion and GBP263.8 billion
at 31 December 2020. Funded assets, which exclude derivatives, increased
by GBP0.6 billion to GBP108.1 billion at 31 March 2021.
-- Cash and balances at central banks decreased by GBP1.3 billion to
GBP14.5 billion, compared with GBP15.8 billion at 31 December 2020,
driven by liquidity and capital management actions.
-- Trading assets were down by GBP3.2 billion to GBP65.5 billion at
31 March 2021, driven by reductions in derivative cash collateral
posted and reverse repos as the balance sheet was managed within
limits; offset partially by an increase in securities driven by increased
levels of customer flow trading. Trading liabilities decreased by
GBP1.9 billion to GBP70.4 billion as a reduction in derivative cash
collateral received was partially offset by an increase in short
positions.
-- Derivative assets and derivative liabilities were down GBP43.5 billion
to GBP122.1 billion and GBP43.2 billion to GBP114.1 billion respectively
at 31 March 2021, largely driven by increases in interest rates across
major currencies in the quarter.
-- Settlement balance assets and liabilities were up GBP5.7 billion
and GBP5.9 billion to GBP8.0 billion and GBP8.2 billion respectively,
due to increased trading compared with the seasonally lower levels
of customer activity leading up to 31 December 2020.
-- Other financial liabilities decreased by GBP1.7 billion to GBP16.5
billion, largely driven by maturities in the quarter. The balance
at 31 March 2021 includes GBP11.2 billion of medium-term notes issued
.
-- Owners' equity was down GBP0.9 billion to GBP8.5 billion (31 December
2020 - GBP9.4 billion), driven by the interim dividend payment of
GBP0.5 billion to NatWest Group plc on 19 February 2021 and other
reserve movements in the quarter.
Capital and leverage ratios
Capital resources, RWAs and leverage based on the PRA
transitional arrangements for NWM Plc are set out below.
31 March 31 December 31 March
2021 2020 2020
Capital adequacy ratios % % %
--------------------------------- -------- ----------- --------
CET1 21.1 21.7 15.7
Tier 1 24.7 25.2 18.3
Total 29.8 30.3 22.8
--------------------------------- -------- ----------- --------
Capital (1) GBPm GBPm GBPm
--------------------------------- -------- ----------- --------
CET1 5,208 5,547 5,550
Tier 1 6,105 6,433 6,462
Total 7,356 7,753 8,050
--------------------------------- -------- ----------- --------
Risk-weighted assets
--------------------------------- -------- ----------- --------
Credit risk 6,344 6,902 9,327
Counterparty credit risk 7,576 8,130 12,293
Market risk 8,750 8,150 11,311
Operational risk 2,020 2,382 2,382
--------------------------------- -------- ----------- --------
Total RWAs 24,690 25,564 35,313
--------------------------------- -------- ----------- --------
Leverage (2)
--------------------------------- -------- ----------- --------
CRR leverage exposure (GBPm) (3) 123,431 123,927 151,247
Tier 1 capital (GBPm) 6,105 6,433 6,462
CRR leverage ratio (%) 4.9 5.2 4.3
--------------------------------- -------- ----------- --------
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 March 2021 and 31 December 2020
includes netting of regular way deals pending settlement in line
with CRR amendments that came into effect in June 2020. 31 March
2020 has not been restated.
Condensed consolidated income statement for the period ended 31 March 2021 (unaudited)
Quarter ended
-------------------------------
31 March 31 December 31 March
2021 2020 2020
GBPm GBPm GBPm
--------
Interest receivable 98 103 152
Interest payable (105) (106) (195)
----------------------------------------- -------- ----------- --------
Net interest income (7) (3) (43)
----------------------------------------- -------- ----------- --------
Fees and commissions receivable 77 (25) 92
Fees and commissions payable (36) 61 (76)
Income from trading activities 173 62 599
Other operating income (19) (21) (32)
--------
Non-interest income 195 77 583
----------------------------------------- -------- ----------- --------
Total income 188 74 540
----------------------------------------- -------- ----------- --------
Staff costs (134) (151) (190)
Premises and equipment (19) (19) (30)
Other administrative expenses (114) (175) (228)
Depreciation and amortisation (5) (8) (7)
--------
Operating expenses (272) (353) (455)
----------------------------------------- -------- ----------- --------
(Loss)/profit before impairment releases (84) (279) 85
Impairment releases 6 - 5
----------------------------------------- -------- ----------- --------
Operating (loss)/profit before tax (78) (279) 90
Tax credit/(charge) 17 46 (82)
----------------------------------------- --------
(Loss)/profit for the period (61) (233) 8
----------------------------------------- -------- ----------- --------
Attributable to:
Ordinary shareholders (77) (249) 54
Paid-in equity holders 16 17 17
Non-controlling interests - (1) (63)
--------
(61) (233) 8
----------------------------------------- -------- ----------- --------
Condensed consolidated statement of comprehensive income for the
period ended 31 March 2021 (unaudited)
Quarter ended
-------------------------------
31 March 31 December 31 March
2021 2020 2020
GBPm GBPm GBPm
-------- ----------- --------
(Loss)/profit for the period (61) (233) 8
--------------------------------------------------- -------- ----------- --------
Items that do not qualify for reclassification
Remeasurement of retirement benefit schemes (1) (18) (2)
(Loss)/profit on fair value of credit in financial
liabilities
designated as at FVTPL due to own credit risk (7) (72) 188
FVOCI financial assets 3 (58) (224)
Tax (1) 25 (20)
-------- ----------- --------
(6) (123) (58)
--------------------------------------------------- -------- ----------- --------
Items that do qualify for reclassification
FVOCI financial assets - 9 (11)
Cash flow hedges (90) (40) 123
Currency translation (138) (112) 201
Tax 23 10 (38)
-------- ----------- --------
(205) (133) 275
--------------------------------------------------- -------- ----------- --------
Other comprehensive (loss)/income after tax (211) (256) 217
-------- ----------- --------
Total comprehensive (loss)/income for the period (272) (489) 225
--------------------------------------------------- -------- ----------- --------
Attributable to:
Ordinary shareholders (288) (508) 258
Paid-in equity holders 16 17 17
Non-controlling interests - 2 (50)
-------- ----------- --------
(272) (489) 225
--------------------------------------------------- -------- ----------- --------
Condensed consolidated balance sheet as at 31 March 2021
(unaudited)
31 March 31 December
2021 2020
GBPm GBPm
-------- -----------
Assets
Cash and balances at central banks 14,480 15,771
Trading assets 65,507 68,689
Derivatives 122,136 165,619
Settlement balances 8,010 2,296
Loans to banks - amortised cost 727 1,003
Loans to customers - amortised cost 7,477 8,444
Amounts due from holding company and fellow subsidiaries 2,340 1,587
Other financial assets 8,841 9,041
Other assets 694 688
--------------------------------------------------------- -------- -----------
Total assets 230,212 273,138
-------- -----------
Liabilities
Bank deposits 1,631 1,808
Customer deposits 2,412 2,618
Amounts due to holding company and fellow subsidiaries 7,340 8,134
Settlement balances 8,186 2,248
Trading liabilities 70,378 72,252
Derivatives 114,088 157,332
Other financial liabilities 16,509 18,170
Other liabilities 1,168 1,234
--------------------------------------------------------- -------- -----------
Total liabilities 221,712 263,796
-------- -----------
Equity
--------------------------------------------------------- -------- -----------
Owners' equity 8,546 9,388
Non-controlling interests (46) (46)
-------- -----------
Total equity 8,500 9,342
--------------------------------------------------------- -------- -----------
Total liabilities and equity 230,212 273,138
--------------------------------------------------------- -------- -----------
Condensed consolidated statement of changes in equity for the
period ended 31 March 2021 (unaudited)
Share
capital Total Non
and
share Paid-in Retained Other owners' controlling Total
premium equity earnings reserves* equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ------- -------- --------- ------- ----------- ------
At 1 January 2021 2,159 904 5,969 356 9,388 (46) 9,342
Loss attributable to ordinary
shareholders
and paid-in equity holders - - (61) - (61) - (61)
Other comprehensive income
- Realised losses in period
on FVOCI
equity shares - - (3) 3 - - -
- Remeasurement of retirement
benefit schemes - - (1) - (1) - (1)
- Changes in fair value
of credit in financial
liabilities at FVTPL - - (7) - (7) - (7)
- Other amounts recognised
in equity - - - (241) (241) - (241)
- Amount transferred from
equity to earnings - - - 16 16 - 16
- Tax - - 1 21 22 - 22
Ordinary share dividends
paid - - (500) - (500) - (500)
Paid-in equity dividends
paid - - (16) - (16) - (16)
Share-based payments - - (54) - (54) - (54)
------------------------------- ------- ------- -------- --------- ------- ----------- ------
At 31 March 2021 2,159 904 5,328 155 8,546 (46) 8,500
31 March
2021
Attributable to: GBPm
------------------------------------------------- -------- --------- ------- ----------- ------
Ordinary shareholders 7,642
------
Paid-in equity holders 904
Non-controlling interests (46)
------------------------------- ------- ------- ------
8,500
------
*Other reserves consist of:
---------------------------------------- ------
FVOCI reserve 37
Cash flow hedging reserve 135
Foreign exchange reserve (17)
------------------------------- ------- ------- -------- --------- ------- ----------- ------
155
------
Notes
1. Basis of preparation
The condensed consolidated financial statements should be read
in conjunction with 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.
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 a period of not less than
twelve months. Accordingly, the results for the period ended 31
March 2021 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 2021, the accounting policies have been
updated to reflect the adoption of amendments to IFRS 16 (Leases)
covering COVID-19 Related Rent Concessions. The effect of the
amendment on NWM Plc's accounts is immaterial.
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 referenced on page 97 of the NatWest Markets Plc
2020 Annual Report and Accounts. Estimation uncertainty has been
affected by the COVID-19 pandemic. Management's consideration of
this source of uncertainty is outlined in the relevant sections of
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.
It was announced in the UK Government's Budget on 3 March 2021
that the main UK corporation tax rate will increase from 19% to 25%
from 1 April 2023. This legislative change has not yet been
substantively enacted. The UK Government has also announced a
review of the current bank surcharge rate of 8% to ensure that the
combined rate of corporation tax, applicable to banking entities,
does not increase substantially from its current level when the
proposed change to the main UK corporation tax rate comes into
effect. NWM Group has not made an estimate of the impact of the
post balance sheet date change in the main UK corporation tax rate
on the basis that it is uncertain what the combined rate of
corporation tax, applicable to banking entities from 1 April 2023,
will be until the UK Government has completed its review of the
bank surcharge.
Information used for significant estimates
The COVID-19 pandemic has continued to cause significant
economic and social disruption. 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 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 (refer to NatWest
Markets Plc Risk factors in the 2020 Annual Report and Accounts
).
Notes
3. Trading assets and liabilities
Trading assets and liabilities comprise assets and liabilities
held at fair value in trading portfolios.
31 March 31 December
2021 2020
Assets GBPm GBPm
-------- -----------
Loans
- Reverse repos 18,620 19,404
- Collateral given 13,854 18,459
- Other loans 1,302 1,611
------------------------------------- -------- -----------
Total loans 33,776 39,474
------------------------------------- -------- -----------
Securities
Central and local government
- UK 4,217 4,184
- US 4,255 5,149
- Other 20,173 16,436
Financial institutions and Corporate 3,086 3,446
Total securities 31,731 29,215
------------------------------------- -------- -----------
Total 65,507 68,689
Liabilities
------------------------------------- -------- -----------
Deposits
- Repos 18,654 19,036
- Collateral received 18,687 23,226
- Other deposits 1,571 1,803
Total deposits 38,912 44,065
------------------------------------- -------- -----------
Debt securities in issue 1,387 1,408
Short positions 30,079 26,779
Total 70,378 72,252
------------------------------------- -------- -----------
4. Other financial liabilities
31 March 31 December
2021 2020
GBPm GBPm
Customer deposits
- designated as at fair value through profit or loss 713 796
Debt securities in issue
- designated as at fair value through profit or loss 1,343 1,607
- amortised cost 13,400 14,662
Subordinated liabilities
- designated as at fair value through profit or loss 741 793
- amortised cost 312 312
------------------------------------------------------ -------- -----------
Total 16,509 18,170
------------------------------------------------------ -------- -----------
Notes
5. Amounts due to holding company and fellow subsidiaries
31 March 31 December
2021 2020
Liabilities GBPm GBPm
Bank deposits - amortised cost 1,003 145
Customer deposits - amortised cost 128 144
MREL instruments issued to NatWest Group plc 3,845 5,181
Trading liabilities 419 636
Other financial liabilities - subordinated liabilities 1,663 1,753
Other liabilities 282 275
------------------------------------------------------- -------- -----------
Total 7,340 8,134
------------------------------------------------------- -------- -----------
6. Litigation and regulatory matters
NatWest Markets Plc's 2020 Annual Report and Accounts, issued on
19 February 2021, included disclosures about NWM Group's litigation
and regulatory matters in Note 26. Set out below are the material
developments in those matters since publication of the 2020 Annual
Report and Accounts.
Litigation
London Interbank Offered Rate (LIBOR) and other rates
litigation
NWM Plc is a defendant in a class action relating to alleged
manipulation of the Singapore Interbank Offered Rate and Singapore
Swap Offer Rate, pending in the United States District Court for
the Southern District of New York (SDNY). In July 2019, the SDNY
dismissed the complaint for lack of subject matter jurisdiction,
but on 17 March 2021, that decision was reversed by the United
States Court of Appeals for the Second Circuit. The case will now
return to the SDNY for further litigation.
Government securities antitrust litigation
NatWest Markets Securities Inc. and certain other US
broker-dealers are defendants in a consolidated antitrust class
action pending in the SDNY on behalf of persons who transacted in
US Treasury securities or derivatives based on such instruments,
including futures and options. The complaint was dismissed on 31
March 2021, subject to the right of the plaintiffs to replead their
case.
EUA trading litigation
Following judgment against NWM Plc in March 2020 in the claim by
ten companies (all in liquidation) and their respective
liquidators, the High Court in October 2020, quantified damages
against NWM Plc at GBP45 million plus interest and costs and
permitted NWM Plc to appeal its judgment to the Court of Appeal.
The appeal hearing took place in March 2021 and judgment is
awaited.
Regulatory matters
FCA investigation into NatWest Group's compliance with the Money
Laundering Regulations 2007
In July 2017, the FCA notified NatWest Group that it was
undertaking an investigation into NatWest Group's compliance with
the UK Money Laundering Regulations 2007 ("MLR 2007") in relation
to certain money service businesses and related parties. NatWest
Group is co-operating with the investigation, including responding
to information requests from the FCA.
On 15 March 2021, the FCA notified NatWest Group that it had
commenced criminal proceedings against NWB Plc for offences under
regulation 45(1) of the MLR 2007 for alleged failures to comply
with regulations 8(1), 8(3) and 14(1) of the MLR 2007 between 11
November 2011 and 19 October 2016, arising from the handling of the
accounts of a UK incorporated customer. NWB Plc will be required to
attend an initial hearing at Westminster Magistrates' Court on 26
May 2021. Material adverse collateral consequences, in addition to
further substantial costs and the recognition of provisions, may
occur as a result of these criminal proceedings and may affect
members of NWM Group.
7. Post balance sheet events
Other than as disclosed there have been no other significant
events between 31 March 2021 and the date of approval of these
accounts which would require a change to or additional disclosure
in the condensed consolidated financial statements.
Non-IFRS measures
As described in the Accounting policies on page 9, NWM Group
prepares its financial statements in accordance with 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 believe 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 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.
Operating expenses analysis
Statutory analysis (1, 2)
Quarter ended
-------------------------------
31 March 31 December 31 March
2021 2020 2020
Operating expenses GBPm GBPm GBPm
Staff costs 134 151 190
Premises and equipment 19 19 30
Other administrative expenses 114 175 228
Depreciation and amortisation 5 8 7
Total operating expenses 272 353 455
------------------------------ -------- ----------- --------
Non-statutory analysis
Quarter ended
-------------------------------------------
31 March 2021
-------------------------------------------
Litigation Statutory
Strategic and conduct Other operating
Operating expenses costs costs expenses expenses
------------------------------ --------- ----------- -------- ---------
Staff costs 25 - 109 134
Premises and equipment 1 - 18 19
Other administrative expenses 6 13 95 114
Depreciation and amortisation - - 5 5
Total 32 13 227 272
------------------------------ --------- ----------- -------- ---------
Quarter ended
-------------------------------------------
31 December 2020
-------------------------------------------
Litigation Statutory
Strategic and conduct Other operating
Operating expenses costs costs expenses expenses
------------------------------ --------- ----------- -------- ---------
Staff costs 29 - 122 151
Premises and equipment 1 - 18 19
Other administrative expenses 17 7 151 175
Depreciation and amortisation - - 8 8
Total 47 7 299 353
------------------------------ --------- ----------- -------- ---------
Quarter ended
-------------------------------------------
31 March 2020
-------------------------------------------
Litigation Statutory
Strategic and conduct Other operating
Operating expenses costs costs expenses expenses
------------------------------ --------- ----------- -------- ---------
Staff costs 21 - 169 190
Premises and equipment - - 30 30
Other administrative expenses 11 104 113 228
Depreciation and amortisation - - 7 7
Total 32 104 319 455
------------------------------ --------- ----------- -------- ---------
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.
Additional information
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 customers in an efficient manner, NatWest
Group and NWM Group are evaluating whether NatWest Group's Western
European corporate portfolio, principally including term funding
and revolving credit facilities, will remain in the ring-fenced
subgroup of NatWest Group or be transferred to NWM Group. Some or
all of the portfolio already held in NWM Group may be transferred
to the ring-fenced subgroup of NatWest Group. The timing and
quantum of such transfers, if any, 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 Q1
2021 results and the NatWest Markets Group's results presented in
this document, with differences primarily as follows:
-- NatWest Markets Group's Q1 2021 results include its part of the Central items & other segment.
-- NatWest Group's Q1 2021 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.
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
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', '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. 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: the impact of the COVID-19 pandemic, NWM Plc's
regulatory capital position and related requirements, its financial
position, profitability and financial performance (including
financial, capital, cost savings and operational targets), the NWM
Group refocusing and implementation of NatWest Group's Purpose-led
strategy, its ESG and climate-related 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, the impact of the
COVID-19 pandemic, the outcome of legal, regulatory and
governmental actions and investigation, legislative, political,
fiscal and regulatory developments, accounting standards,
competitive conditions, technological developments, interest and
exchange rate fluctuations, general economic and political
conditions and the impact of climate related risks and the
transitioning to a low carbon economy. 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
2020 Annual Report and Accounts (ARA), NWM Plc's 2021 Registration
Document, NWM Plc's Interim Results for Q1 2021 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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