TIDM83NF
RNS Number : 0792C
Natwest Markets PLC
18 February 2022
NatWest Markets Group
2021 Annual Results
NWM Group ci.natwest.com
Financial review
NWM Group reported a loss for the year ended 31 December 2021 of
GBP491 million compared with a loss of GBP327 million for the year
ended 31 December 2020. Lower income reflected under-performance in
Fixed Income in 2021 and the exceptional market activity in the
prior year in response to the COVID-19 pandemic. Operating expenses
for the current year were lower than in 2020, largely reflecting
lower litigation and conduct costs and progress on underlying cost
reductions.
Highlights
Financial performance
- Income was GBP401 million in 2021, compared with GBP1,158 million
in 2020, driven by under-performance in Fixed Income, in contrast
to the prior year which benefitted from exceptional levels of market
activity generated by the initial spread of the COVID-19 virus.
- Operating expenses of GBP1,150 million were GBP281 million lower compared
with GBP1,431 million in 2020. Litigation and conduct costs of GBP17
million credit reflected progress in closing legacy matters and were
GBP151 million lower than GBP134 million in 2020. Strategic costs
were GBP248 million, up from GBP191 million in the prior year, as
work continued on the refocusing of NWM Group. Other operating expenses
of GBP919 million were GBP187 million lower than in 2020, reflecting
progress on underlying cost reductions.
- Impairment releases were GBP35 million in 2021, largely driven by
credit improvements and releases on individual IFRS 9 Stage 2 and
Stage 3 counterparties, compared with losses of GBP42 million in the
prior year which were largely due to the credit deterioration of an
individual counterparty and the impact of expected credit losses recognised
following the COVID-19 pandemic.
- NWM Group's total assets and liabilities decreased by GBP70.1 billion
and GBP68.2 billion to GBP203.0 billion and GBP195.6 billion respectively
at 31 December 2021, compared with the prior year. The decreases primarily
reflect lower derivative fair values, largely driven by increases
in interest rates across major currencies during the year.
- Total dividends paid to NatWest Group plc during the year ended 31
December 2021 amounted to GBP1.0 billion. On 17 February 2022, the
NWM Plc Board approved a further interim dividend of GBP250 million,
to be declared and payable to NatWest Group plc on 18 February 2022.
There has been no adjustment to the year-end statutory financial statements,
however a GBP250 million foreseeable dividend deduction has been applied
to the year-end regulatory capital position.
Capital and leverage
- Total NWM Plc RWAs reduced to GBP22.7 billion at 31 December 2021
from GBP25.6 billion at 31 December 2020, reflecting lower levels
of credit, counterparty credit, market and operational 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.
- NWM Plc's Common Equity Tier 1 (CET1) ratio was 17.9% at 31 December
2021, compared with 21.7% at 31 December 2020. The decrease in the
year reflected the impact of dividends paid to NatWest Group plc and
other reserve movements, partly offset by the reduction in RWAs. The
CRR leverage ratio decreased to 4.3% from 5.2% at 31 December 2020.
- Total MREL for NWM Plc at 31 December 2021 was GBP9.6 billion, or
42.1% of RWAs, down from GBP12.7 billion or 49.6% of RWAs at 31 December
2020. The decrease in the year was largely due to the redemption of
a $1.5 billion internal instrument issued to NatWest Group plc and
the reduction in CET1 capital.
Liquidity and funding
- NWM Plc's liquidity portfolio at 31 December 2021 was GBP16.1 billion
with an LCR of 205%, compared with GBP19.4 billion and an LCR of 268%
at 31 December 2020. Stressed coverage ratio was 146% at 31 December
2021, compared with 207% at 31 December 2020.
- NWM Plc issued GBP4.3 billion of term senior unsecured debt securities
during 2021, including two benchmark transactions under the US MTN
programme amounting to $2.55 billion of notes, two benchmark transactions
under the EMTN programme amounting to EUR2.25 billion of notes, and
other private placements.
Financial review continued
Outlook(1,5)
We aim to generate sustainable and attractive returns over the
medium term, with efficient capital usage.
2022 outlook
NWM Plc 2022 funding plan targets GBP4-5 billion of public
benchmark issuance.
Medium-term outlook:
Metric (2) Estimate
---------------- ---------
CET1 ratio(3) 14%
MREL ratio(4) > 30%
Leverage ratio > 4%
---------------- ---------
(1) This supersedes all prior guidance.
(2) All metrics presented relate to NWM Plc.
(3) NWM Plc expects to run above the 15% target on a solo basis in 2022.
(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 179 to 200 of NatWest Markets Plc 2021 Annual Report and
Accounts. These statements constitute forward-looking statements.
Refer to 'Forward-looking statements' in this announcement.
Chief Executive's statement
Financial performance
Our total income was GBP401 million and the operating loss for
the year was GBP714 million. This reflected a weak performance in
Fixed Income, contrasting with the exceptional levels of market
activity in the prior period caused by the pandemic, and ongoing
strategic costs associated with restructuring the business and
strengthening the balance sheet. We continued to reduce operating
costs in line with the strategic announcement in February 2020 and
progressed in closing legacy matters.
We returned GBP1 billion capital to NatWest Group via dividends
during the year up to 31 December 2021, with a further GBP250
million to be declared and payable to NatWest Group plc on 18
February. We have also made significant progress in rightsizing our
cost and capital base to support a sustainable and profitable
future business. Our risk-weighted asset (RWA) reduction is largely
complete with a decrease of cGBP2.9 billion during the year
reflected in a strong CET1 ratio of 17.9% and leverage ratio of
4.3%. Performance in Capital Markets and Currencies was in line
with expectations, but the under-performance in Fixed Income was
driven by the continued reshaping of the business as well as an
unfavourable market environment.
Supporting our customers
Our clear growth plans, with increased collaboration across
NatWest Group, have already started to deliver benefits. We have
strengthened our overall foreign exchange (FX) and international
payments proposition so that more customers can benefit from our
market-leading service. We collaborated across RBSI, NatWest
Markets and Commercial Banking to establish a team to grow our
offering to the investment management sector enabling us to provide
a more integrated experience for our funds and sponsors customer
base. Our business in Europe, which is in collaboration with
Commercial Banking, is strong and primed for growth.
Simplifying our business, innovating and working with
partners
Following the announcement of our plans in February 2020, the
transformation of NatWest Markets is largely complete. I believe
this is a great achievement against the backdrop of a global
pandemic and is testament to the expertise and dedication of our
colleagues. To enable becoming a more sustainable business, we have
leveraged NatWest Group investment in technology both for
colleagues and customers. I'm pleased that our first API
(application programming interface) product, Indicative FX Rates,
has been added to the NatWest bank of APIs, enhancing our ability
to connect with our customers and partners. We also progressed the
development of our digital bond capability, completing a pilot
trade of a 'blockchain bond' in the secondary market. To build on
this progress and support the growth of the business will require
continued significant investment in our technology transformation.
This investment is expected to have an impact on our 2022 results,
as will the incurrence of further costs, if any, associated with
litigation and regulatory matters.
Sharpening our capital allocation
Our Capital Management unit has actively managed capital
allocation and optimisation across our businesses. We have reduced
market-risk RWAs and counterparty-risk RWAs across the trading
businesses, allowing for reallocation of capital to support our
growth priorities and we have returned capital to NatWest Group via
dividends.
Climate and ESG
We've had a strong year supporting our customers' climate and
ESG-related finance needs, with product innovation across bonds,
FX, interest rate derivatives and private finance. In 2021, we
completed GBP9.7 billion of Climate and Sustainable Funding and
Financing, including GBP3.3 billion in H2 2021 which will
contribute towards the new NatWest Group target of GBP100 billion
between 1 July 2021 and the end of 2025. A great example of our
support for renewables is on Vineyard Wind 1, the first commercial
scale offshore wind farm in the US where our regional expertise
supported other NatWest Group teams. And we've also been able to
tap into the Asia investor base, supporting Hitachi Capital (UK)
Plc with its first green bond.
With NatWest Group a principal partner for COP26, I was
delighted to attend the conference and be involved in industry
events such as the International Emissions Trading Association
(IETA) CEO Roundtable and Global Financial Alliance for Zero
(GFANZ) events. Our thought leadership in this area, as well as our
commitment to customers, ensures we remain a leading underwriter
for green, social and sustainability (GSS) bonds issued by UK
corporates and sterling-denominated GSS bonds across all
sectors.
Chief Executive's statement continued
Colleagues and ways of working
I'm proud of the way colleagues have adapted to the changes in
ways of working, while also keeping our culture front of mind. Our
purpose is helping to drive our culture and we've been running a
dedicated programme for colleagues to explore and understand the
role they play in delivering Purpose and how it shapes our
business. This engagement and connection to our purpose is vital to
the success of our growth ambition and strategy. This year, we have
also stepped up our focus on developing a culture that champions
diversity and creates an inclusive workplace that gives all of our
people the best opportunity to succeed and grow their careers. I
look forward to seeing more progress in this crucial area of
diversity, equity and inclusion in the coming months.
As I reflect on the year, I'm delighted by how we've progressed
our transformation to a sustainable business. I believe that the
creation of the new Commercial and Institutional franchise will
further enhance our plans for sustainable growth and enable us to
deepen our relationships with customers and support their growth
ambitions - helping them, as ever, to thrive.
Robert Begbie
CEO, NatWest Markets
Business performance summary
The table below presents a segmental analysis of key lines of
NWM Group's income statement for the quarter ended 31 December
2021. Commentary refers to the table below as well as the
consolidated income statement shown on page 10.
Q4 2021 Q3 2021 Q4 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 13 - 13 (1) - (1) (3) - (3)
Non-interest income 11 (11) - 96 (3) 93 76 1 77
----------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Total income 24 (11) 13 95 (3) 92 73 1 74
Strategic costs (95) (4) (99) (52) (2) (54) (43) (4) (47)
Litigation and conduct costs - (24) (24) (2) (25) (27) - (7) (7)
Other operating expenses (252) 2 (250) (214) (2) (216) (272) (27) (299)
----------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Operating expenses (347) (26) (373) (268) (29) (297) (315) (38) (353)
Operating loss before
impairments (323) (37) (360) (173) (32) (205) (242) (37) (279)
Impairment releases/(losses) 16 - 16 3 - 3 (2) 2 -
----------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Operating loss before tax (307) (37) (344) (170) (32) (202) (244) (35) (279)
Tax credit 136 38 46
----------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Loss for the period (208) (164) (233)
----------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Income (5)
Fixed Income (1,2) (69) - (69) (38) - (38) (17) - (17)
Currencies 121 - 121 101 - 101 121 - 121
Capital Markets 80 - 80 90 - 90 90 - 90
Capital Management Unit
& other (1,2,3) (55) (11) (66) 7 (3) 4 (17) 1 (16)
Income before Revenue share
paid,
Asset disposals and OCA 77 (11) 66 160 (3) 157 177 1 178
Revenue share with other
Natwest Group
segments (44) - (44) (55) - (55) (53) - (53)
----------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
Income excluding Asset
disposals and
OCA 33 (11) 22 105 (3) 102 124 1 125
Asset disposals/Strategic
risk reduction (4) (12) - (12) (12) - (12) (8) - (8)
Own credit adjustments (OCA) 3 - 3 2 - 2 (43) - (43)
Total income 24 (11) 13 95 (3) 92 73 1 74
----------------------------- ------- ------- ----- ------- ------- ----- ------- ------- -----
(1) Income of GBP(21) million relating to business previously
within Fixed Income has been reallocated to Capital Management Unit
in Q4 2021. Comparatives have not been restated. The equivalent
amounts were GBP(12) million in Q3 2021 and nil in Q4 2020.
(2) Fixed Income for Q4 2020 includes income of GBP(11) million
relating to miscellaneous balances that from Q2 2021 have been
included in Capital Management Unit & other.
(3) 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 and other
miscellaneous balances.
(4) Asset disposals/Strategic risk reduction relates to the
costs of exiting positions, which includes changes in carrying
value to align to the expected exit valuation, and the impact of
risk reduction transactions entered into, in respect of the
strategic announcements of 14 February 2020.
(5) Product performance includes gross income earned on a
NatWest group-wide basis, including amounts contributed to other
segments.
- Net interest income was GBP13 million in Q4 2021 compared with
net expense of GBP1 million in Q3 2021 and net expense of GBP3
million in Q4 2020.
- Non-interest income was nil for Q4 2021, compared with GBP93
million in Q3 2021 and GBP77 million in Q4 2020, largely reflecting
continued under-performance in Fixed Income which was impacted by
the re-shaping of the business.
- Operating expenses of GBP373 million in Q4 2021 were up
compared with GBP297 million in Q3 2021 and GBP353 million in Q4
2020. Strategic costs of GBP99 million were up by GBP45 million
from GBP54 million in Q3 2021 and by GBP52 million compared with
GBP47 million in Q4 2020, as work continued on the refocusing of
NWM Group. Other operating expenses of GBP250 million increased by
GBP34 million from GBP216 million in Q3 2021, partly due to one-off
costs including the annual bank levy charge, but decreased by GBP49
million from GBP299 million in Q4 2020, reflecting ongoing progress
on underlying cost reductions.
- NatWest Markets operating loss before tax was GBP307 million
in Q4 2021, compared with GBP170 million in Q3 2021 and GBP244
million in Q4 2020. Income excluding asset disposals and own credit
adjustments of GBP33 million was down compared with GBP105 million
in Q3 2021 and GBP124 million in Q4 2020, largely reflecting
continued under-performance in Fixed Income which was impacted by
the re-shaping of the business. Operating expenses of GBP347
million in Q4 2021 were GBP79 million higher than GBP268 million in
Q3 2021, reflecting higher strategic costs and one-off expenses
including the annual bank levy charge, and GBP32 million higher
than GBP315 million in Q4 2020, driven by higher strategic
costs.
- Central items & other operating loss before tax was GBP37
million, compared with GBP32 million in Q3 2021 and GBP35 million
in Q4 2020.
Business performance summary continued
The table below presents a segmental analysis of key lines of
NWM Group's income statement for the year ended 31 December 2021.
Commentary refers to the table below as well as the consolidated
income statement shown on page 10.
Year ended
----------------------------------------------------
31 December 2021 31 December 2020
------------------------- -------------------------
Central Central
NatWest items & NatWest items &
Markets other Total Markets other Total
Income statement GBPm GBPm GBPm GBPm GBPm GBPm
Net interest income 8 - 8 (62) 2 (60)
Non-interest income 401 (8) 393 1,180 38 1,218
---------------------------------- ------- ------- ------- ------- ------- -------
Total income 409 (8) 401 1,118 40 1,158
Strategic costs (236) (12) (248) (207) 16 (191)
Litigation and conduct costs - 17 17 (4) (130) (134)
Other operating expenses (921) 2 (919) (1,106) - (1,106)
---------------------------------- ------- ------- ------- ------- ------- -------
Operating expenses (1,157) 7 (1,150) (1,317) (114) (1,431)
Operating loss before impairments (748) (1) (749) (199) (74) (273)
Impairment releases/(losses) 35 - 35 (40) (2) (42)
---------------------------------- ------- ------- ------- ------- ------- -------
Operating loss before tax (713) (1) (714) (239) (76) (315)
Tax credit/(charge) 223 (12)
---------------------------------- ------- ------- ------- ------- ------- -------
Loss for the year (491) (327)
---------------------------------- ------- ------- ------- ------- ------- -------
Income (8)
Fixed Income (1,2,3,4,5) (64) - (64) 511 - 511
Currencies (2,4) 427 - 427 583 - 583
Capital Markets (2,3,4) 336 - 336 384 - 384
Capital Management Unit &
other (1,2,5,6) (35) (8) (43) (60) 40 (20)
---------------------------------- ------- ------- ------- ------- ------- -------
Income before Revenue share
paid, Asset
disposals and OCA 664 (8) 656 1,418 40 1,458
Revenue share with other
NatWest Group
segments (197) - (197) (193) - (193)
---------------------------------- ------- ------- ------- ------- ------- -------
Income excluding Asset disposals
and OCA 467 (8) 459 1,225 40 1,265
Asset disposals/Strategic
risk reduction (7) (64) - (64) (83) - (83)
Own credit adjustments (OCA) 6 - 6 (24) - (24)
Total income 409 (8) 401 1,118 40 1,158
---------------------------------- ------- ------- ------- ------- ------- -------
(1) Income of GBP(12) million reported within Fixed Income
relates to business subsequently reallocated to Capital Management
Unit during 2021. Comparatives have not been restated. The full
year equivalent amount for 2020 was GBP1 million.
(2) Income of GBP(42) million, GBP(8) million and GBP(14)
million reported within Fixed Income, Currencies and Capital
Markets respectively in 2020 relates to business that was
subsequently reallocated to Capital Management Unit during
2020.
(3) Income of GBP33 million reported within Capital Markets in
2020 relates to business that was subsequently transferred to Fixed
Income during 2020.
(4) Income of GBP59 million and GBP8 million reported within
Fixed Income in 2020 relates to business that was subsequently
transferred to Currencies and Capital Markets respectively during
2020.
(5) Fixed Income includes income of GBP(7) million (2020: GBP37
million) relating to miscellaneous balances that from Q2 2021 have
been included in Capital Management Unit & other.
(6) 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 and other
miscellaneous balances.
(7) Asset disposals/Strategic risk reduction relates to the
costs of exiting positions, which includes changes in carrying
value to align to the expected exit valuation, and the impact of
risk reduction transactions entered into, in respect of the
strategic announcements of 14 February 2020.
(8) Product performance includes gross income earned on a
NatWest group-wide basis, including amounts contributed to other
segments.
Business performance summary continued
- Net interest income was GBP8 million for 2021, compared with net
interest expense of GBP60 million in 2020. Net interest income largely
represents interest income from lending activity and capital hedges,
offset by interest expense from the funding costs of the business.
The movement in the year primarily reflected reduced funding costs
for the business driven by the ongoing repayment of legacy debt .
- Non-interest income decreased by GBP825 million to GBP393 million,
compared with GBP1,218 million in 2020. Income from trading activities
decreased to GBP263 million from GBP1,088 million in 2020, reflecting
under-performance in Fixed Income which was impacted by the re-shaping
of the business, in contrast to the prior year which benefitted from
the exceptional market activity generated by the initial spread of
the COVID-19 virus. Asset disposals/Strategic risk reduction was
a GBP64 million loss for the year, compared with a GBP83 million
loss in the prior year following the strategic announcements in February
2020.
- Operating expenses of GBP1,150 million in the current year were GBP281
million lower than GBP1,431 million in 2020. Litigation and conduct
costs credit of GBP17 million for the year reflected continued progress
in closing legacy matters and were down GBP151 million from GBP134
million in 2020. Strategic costs were GBP248 million in 2021 compared
with GBP191 million in 2020, as work continued on the refocusing
of NWM Group. Other operating expenses decreased to GBP919 million
from GBP1,106 million in 2020, primarily reflecting ongoing progress
on underlying cost reductions .
- Impairment releases were GBP35 million in 2021, largely driven by
credit improvements and releases on individual IFRS 9 Stage 2 and
Stage 3 exposures, compared with losses of GBP42 million in 2020,
which were largely due to the credit deterioration of an individual
counterparty and the increased expected credit losses recognised
following the COVID-19 pandemic.
- NatWest Markets operating loss before tax was GBP713 million compared
with a loss of GBP239 million in 2020. Income excluding asset disposals
and own credit adjustments of GBP467 million was GBP758 million lower
than in 2020, reflecting under-performance in Fixed Income which
was impacted by the re-shaping of the business, and the increased
customer activity in the prior year as the market reacted to COVID-19.
Operating expenses of GBP1,157 million were GBP160 million lower
than GBP1,317 million in 2020, largely driven by a decrease in other
operating expenses reflecting continued progress on underlying cost
reductions.
- Central items & other operating loss before tax was GBP1 million
compared with a loss of GBP76 million in 2020. Litigation and conduct
costs of GBP17 million credit reflected progress in closing legacy
matters and were down GBP147 million from GBP130 million in 2020
.
Business performance summary continued
Balance sheet profile as at 31 December 2021
NWM Group's balance sheet profile is summarised below.
Commentary refers to the tables below as well as the consolidated
balance sheet on page 11.
Assets Liabilities
------------------------------------------- ------------------------------------------
2021 2020 2021 2020
GBPbn GBPbn GBPbn GBPbn
Cash and balances at
central banks 16.6 15.8
Securities 25.0 29.2 25.0 26.8 Short positions
Reverse repos (1) 20.7 19.4 19.4 19.0 Repos (2)
Derivative cash collateral Derivative cash collateral
posted (3) 12.0 18.5 17.6 23.2 received (4)
Other trading assets 1.4 1.6 2.5 3.3 Other trading liabilities
----------------------------- ----- ----- ----- ----- ----------------------------
Total trading assets 59.1 68.7 64.5 72.3 Total trading liabilities
Deposits - amortised
Loans - amortised cost 8.4 9.4 4.1 4.4 cost
Settlement balances 2.1 2.3 2.1 2.2 Settlement balances
Amounts due from holding Amounts due to holding
company company
and fellow subsidiaries 1.5 1.6 6.1 8.1 and fellow subsidiaries
Other financial assets 8.8 9.0 19.3 18.2 Other financial liabilities
Other assets 0.9 0.7 1.0 1.3 Other liabilities
----------------------------- ----- ----- ----- ----- ----------------------------
Liabilities excluding
Funded assets 97.4 107.5 97.1 106.5 derivatives
Derivative assets 105.6 165.6 98.5 157.3 Derivative liabilities
----------------------------- ----- ----- ----- ----- ----------------------------
Total assets 203.0 273.1 195.6 263.8 Total liabilities
----- ----- ----- -----
of which:
21.1 20.6 wholesale funding (5)
short-term wholesale
9.2 9.5 funding (5)
Net derivative assets 3.6 4.7 2.9 3.6 Net derivative liabilities
----------------------------- ----- ----- ----- ----- ----------------------------
(1) Comprises bank reverse repos of GBP3.9 billion (2020 -
GBP2.2 billion) and customer reverse repos of GBP16.8 billion (2020
- GBP17.2 billion).
(2) Comprises bank repos of GBP0.8 billion (2020 - GBP1.0
billion) and customer repos of GBP18.6 billion (2020 - GBP18.0
billion).
(3) Comprises derivative cash collateral posted relating to
banks of GBP4.3 billion (2020 - GBP7.5 billion) and customers of
GBP7.7 billion (2020 - GBP11.0 billion).
(4) Comprises derivative cash collateral received relating to
banks of GBP8.1 billion (2020 - GBP11.8 billion) and customers of
GBP9.5 billion (2020 - GBP11.4 billion).
(5) Predominantly comprises bank deposits (excluding repos),
debt securities in issue and third party subordinated
liabilities.
- Total assets and liabilities decreased by GBP70.1 billion and
GBP68.2 billion to GBP203.0 billion and GBP195.6 billion
respectively at 31 December 2021, compared with GBP273.1 billion
and GBP263.8 billion at 31 December 2020. The decreases primarily
reflect lower derivative fair values, largely driven by increases
in interest rates across major currencies. Funded assets, which
exclude derivatives, decreased by GBP10.1 billion to GBP97.4
billion at 31 December 2021.
- Trading assets , which primarily relate to client-led activity
as well as derivative cash collateral posted, decreased to GBP59.1
billion at 31 December 2021 from GBP68.7 billion at 31 December
2020, driven by decreases in derivative cash collateral posted and
securities, partially offset by an increase in reverse repos as the
balance sheet was managed within limits. Trading liabilities
decreased by GBP7.8 billion to GBP64.5 billion at 31 December 2021
(2020 - GBP72.3 billion), driven largely by a reduction in
derivative cash collateral received.
- Derivative assets and derivative liabilities were down GBP60.0
billion to GBP105.6 billion and GBP58.8 billion to GBP98.5 billion
respectively compared with year end 2020. The decreases in
mark-to-market were largely driven by increases in interest rates
across major currencies during the year.
- Other financial liabilities increased to GBP19.3 billion from
GBP18.2 billion at 31 December 2020, driven by new issuance
partially offset by maturities, and includes GBP12.4 billion of
medium term notes issued.
Capital, liquidity and funding risk
Capital, RWAs and leverage
Capital resources, RWAs and leverage based on the PRA
transitional arrangements for NWM Plc are set out below. Regulatory
capital is monitored and reported at legal entity level for large
subsidiaries of NatWest Group.
31 December 30 September 31 December
2021 2021 2020
Capital adequacy ratios % % %
CET1 17.9 19.4 21.7
Tier 1 21.0 22.3 25.2
Total 25.9 27.6 30.3
Total MREL 42.1 43.5 49.6
------------------------------------- ----------- ------------ -----------
Capital (1) GBPm GBPm GBPm
CET1 (2) 4,072 4,553 5,547
Tier 1 4,755 5,231 6,433
Total 5,870 6,463 7,753
Total MREL (3) 9,555 10,191 12,679
------------------------------------- ----------- ------------ -----------
Risk-weighted assets
Credit risk 6,878 7,111 6,902
Counterparty credit risk 6,854 7,395 8,130
Market risk 6,934 6,919 8,150
Operational risk 2,020 2,020 2,382
------------------------------------- ----------- ------------ -----------
Total RWAs 22,686 23,445 25,564
------------------------------------- ----------- ------------ -----------
Leverage (4)
CRR leverage exposure (GBPm) 110,603 122,124 123,927
Tier 1 capital (GBPm) 4,755 5,231 6,433
CRR leverage ratio (%) 4.3 4.3 5.2
------------------------------------- ----------- ------------ -----------
Liquidity and funding
31 December 30 September 31 December
2021 2021 2020
------------------------------------- ----------- ------------ -----------
Liquidity coverage ratio (LCR) (%) 205 241 268
Liquidity portfolio (GBPbn) 16.1 16.2 19.4
Total wholesale funding (GBPbn) (5) 21.1 20.1 20.6
Total funding including repo (GBPbn) 68.8 70.0 75.9
------------------------------------- ----------- ------------ -----------
(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) CET1 includes GBP250 million foreseeable ordinary dividend deduction.
(3) Includes senior internal debt instruments issued to NatWest
Group plc with a regulatory value of GBP3.7 billion (30 September
2021 - GBP3.8 billion, 31 December 2020 - GBP4.9 billion).
(4) 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.
(5) Predominantly comprises bank deposits (excluding repos),
debt securities in issue and third party subordinated
liabilities.
Consolidated income statement for the period ended 31 December
2021
Year ended Quarter ended
------------------------ --------------------------------------
31 December 31 December 31 December 30 September 31 December
2021 2020 2021 2021 2020
GBPm GBPm GBPm GBPm GBPm
Interest receivable 343 531 85 79 103
Interest payable (335) (591) (72) (80) (106)
---------------------------------- ----------- ----------- ----------- ------------ -----------
Net interest income 8 (60) 13 (1) (3)
Fees and commissions receivable 262 386 68 48 (25)
Fees and commissions payable (104) (287) (23) (19) 61
Income from trading activities 263 1,088 (37) 74 62
Other operating income (28) 31 (8) (10) (21)
---------------------------------- ----------- ----------- ----------- ------------ -----------
Non-interest income 393 1,218 - 93 77
Total income 401 1,158 13 92 74
---------------------------------- ----------- ----------- ----------- ------------ -----------
Staff costs (498) (670) (128) (118) (151)
Premises and equipment (110) (107) (51) (22) (19)
Other administrative expenses (522) (629) (189) (152) (175)
Depreciation and amortisation (20) (25) (5) (5) (8)
Operating expenses (1,150) (1,431) (373) (297) (353)
---------------------------------- ----------- ----------- ----------- ------------ -----------
Operating loss before impairments (749) (273) (360) (205) (279)
Impairment releases/(losses) 35 (42) 16 3 -
Operating loss before tax (714) (315) (344) (202) (279)
Tax credit/(charge) 223 (12) 136 38 46
---------------------------------- ----------- ----------- ----------- ------------ -----------
Loss for the period (491) (327) (208) (164) (233)
---------------------------------- ----------- ----------- ----------- ------------ -----------
Attributable to:
Ordinary shareholders (593) (328) (224) (180) (249)
Paid-in equity holders 63 68 16 16 17
Non-controlling interests 39 (67) - - (1)
(491) (327) (208) (164) (233)
---------------------------------- ----------- ----------- ----------- ------------ -----------
Consolidated statement of comprehensive income for the period
ended
31 December 2021
Year ended Quarter ended
======================== ======================================
31 December 31 December 31 December 30 September 31 December
2021 2020 2021 2021 2020
GBPm GBPm GBPm GBPm GBPm
(Loss) for the period (491) (327) (208) (164) (233)
------------------------------------------- ----------- ----------- ----------- ------------ -----------
Items that do not qualify for
reclassification
Remeasurement of retirement benefit
schemes 36 (21) 36 1 (18)
(Loss) on fair value of credit
in financial liabilities
designated as at fair value
through profit or loss
(FVTPL) due to own credit risk (29) (52) - (4) (72)
Fair value through other comprehensive
income
(FVOCI) financial assets 2 (210) 4 (1) (58)
Tax (10) 42 (15) 1 25
(1) (241) 25 (3) (123)
------------------------------------------- ----------- ----------- ----------- ------------ -----------
Items that do qualify for reclassification
FVOCI financial assets (2) 2 1 5 9
Cash flow hedges (206) 92 (49) (54) (40)
Currency translation (124) 62 (31) 19 (112)
Tax 45 (28) 24 14 10
(287) 128 (55) (16) (133)
------------------------------------------- ----------- ----------- ----------- ------------ -----------
Other comprehensive loss after
tax (288) (113) (30) (19) (256)
Total comprehensive loss for
the period (779) (440) (238) (183) (489)
Attributable to:
Ordinary shareholders (885) (459) (254) (199) (508)
Paid-in equity holders 63 68 16 16 17
Non-controlling interests 43 (49) - - 2
(779) (440) (238) (183) (489)
------------------------------------------- ----------- ----------- ----------- ------------ -----------
Consolidated balance sheet as at 31 December 2021
31 December 30 September 31 December
2021 2021 2020
GBPm GBPm GBPm
Assets
Cash and balances at central banks 16,645 15,743 15,771
Trading assets 59,101 66,299 68,689
Derivatives 105,550 103,026 165,619
Settlement balances 2,139 8,138 2,296
Loans to banks - amortised cost 962 1,877 1,003
Loans to customers - amortised cost 7,471 7,074 8,444
Amounts due from holding company and fellow subsidiaries 1,479 1,585 1,587
Other financial assets 8,786 8,150 9,041
Other assets 878 769 688
--------------------------------------------------------- ----------- ------------ -----------
Total assets 203,011 212,661 273,138
Liabilities
Bank deposits 1,808 2,156 1,808
Customer deposits 2,268 2,214 2,618
Amounts due to holding company and fellow subsidiaries 6,126 6,120 8,134
Settlement balances 2,068 7,792 2,248
Trading liabilities 64,482 70,696 72,252
Derivatives 98,497 96,651 157,332
Other financial liabilities 19,255 18,042 18,170
Other liabilities 1,055 1,042 1,234
--------------------------------------------------------- ----------- ------------ -----------
Total liabilities 195,559 204,713 263,796
Equity
--------------------------------------------------------- ----------- ------------ -----------
Owners' equity 7,455 7,951 9,388
Non-controlling interests (3) (3) (46)
Total equity 7,452 7,948 9,342
--------------------------------------------------------- ----------- ------------ -----------
Total liabilities and equity 203,011 212,661 273,138
--------------------------------------------------------- ----------- ------------ -----------
Consolidated statement of changes in equity for the period ended
31 December 2021
Year ended Quarter ended
------------------------ --------------------------------------
31 December 31 December 31 December 30 September 31 December
2021 2020 2021 2021 2020
GBPm GBPm GBPm GBPm GBPm
Called up share capital - at beginning
and end of period 400 400 400 400 400
--------------------------------------- ----------- ----------- ----------- ------------ -----------
Share premium account - at 1 January 1,759 1,759 1,946 1,759 1,759
Redemption of Preference Shares 187 - - 187 -
At 31 December 1,946 1,759 1,946 1,946 1,759
--------------------------------------- ----------- ----------- ----------- ------------ -----------
Paid-in equity - at beginning
and end of period 904 904 904 904 904
--------------------------------------- ----------- ----------- ----------- ------------ -----------
FVOCI reserve - at 1 January 34 (134) 29 27 (228)
Unrealised (losses)/gains (1) (221) 5 4 (53)
Realised losses/(gains) 1 389 - (1) 315
Tax (1) - (1) (1) -
At 31 December 33 34 33 29 34
--------------------------------------- ----------- ----------- ----------- ------------ -----------
Cash flow hedging reserve - at
1 January 201 137 71 110 230
Amount recognised in equity (207) 18 (45) (44) (52)
Amount transferred from equity
to earnings 1 74 (4) (10) 12
Tax 52 (28) 25 15 11
At 31 December 47 201 47 71 201
--------------------------------------- ----------- ----------- ----------- ------------ -----------
Foreign exchange reserve - at
1 January 121 77 18 (1) 236
Retranslation of net assets (158) 98 (49) 22 (117)
Foreign currency gains/(losses)
on hedges of net assets 20 (31) 8 (3) 2
Tax (6) - - - -
Recycled to profit or loss on
disposal of businesses 10 (23) 10 - -
At 31 December (13) 121 (13) 18 121
--------------------------------------- ----------- ----------- ----------- ------------ -----------
Retained earnings - at 1 January 5,969 6,764 4,583 4,945 6,573
(Loss) attributable to ordinary
shareholders
and other equity owners (530) (260) (208) (164) (232)
Ordinary dividends paid (1,000) - (250) - -
Paid-in equity dividends paid (63) (68) (16) (16) (17)
Redemption of Preference Shares (188) - - (188) -
Remeasurement of the retirement
benefit schemes
- gross 36 (21) 36 1 (18)
- tax (13) (1) (15) - (12)
Realised (losses)/gains on FVOCI
equity shares (1)
- gross - (376) - 1 (311)
- tax - 35 - - 27
Changes in fair value of credit
in financial liabilities designated
at FVTPL
- gross (29) (52) - (4) (72)
- tax 3 8 - 1 9
Share based payments (2) (47) (42) 8 7 22
Distribution - (40) - - -
Capital contribution - 22 - - -
At 31 December 4,138 5,969 4,138 4,583 5,969
--------------------------------------- ----------- ----------- ----------- ------------ -----------
Consolidated statement of changes in equity for the period ended
31 December 2021
Year ended Quarter ended
------------------------ --------------------------------------
31 December 31 December 31 December 30 September 31 December
2021 2020 2021 2021 2020
GBPm GBPm GBPm GBPm GBPm
Owners' equity at 31 December 7,455 9,388 7,455 7,951 9,388
-------------------------------------------- ----------- ----------- ----------- ------------ -----------
Non-controlling interests - at
1 January (46) 3 (3) (3) (48)
Currency translation adjustments
and other movements 4 18 - - 3
Gain/(Loss) attributable to non-controlling
interests 39 (67) - - (1)
At 31 December (3) (46) (3) (3) (46)
-------------------------------------------- ----------- ----------- ----------- ------------ -----------
Total equity at 31 December 7,452 9,342 7,452 7,948 9,342
Attributable to:
Ordinary shareholders 6,551 8,484 6,551 7,047 8,484
Paid-in equity holders 904 904 904 904 904
Non-controlling interests (3) (46) (3) (3) (46)
-------------------------------------------- ----------- ----------- ----------- ------------ -----------
7,452 9,342 7,452 7,948 9,342
-------------------------------------------- ----------- ----------- ----------- ------------ -----------
(1) During 2020 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.
(2) Share based payments includes a tax credit of GBP4 million.
Consolidated cash flow statement for the period ended 31
December 2021
31 December 31 December
2021 2020
GBPm GBPm
Operating activities
Operating loss before tax (714) (315)
Adjustments for non-cash items 725 (354)
-------------------------------------------------------------- ----------- -----------
Net cash flows from trading activities 11 (669)
Changes in operating assets and liabilities 2,460 (3,248)
-------------------------------------------------------------- ----------- -----------
Net cash flows from operating activities before tax 2,471 (3,917)
Income taxes received/(paid) 28 (73)
Net cash flows from operating activities 2,499 (3,990)
Net cash flows from investing activities 40 3,271
Net cash flows from financing activities (2,675) (785)
Effects of exchange rate changes on cash and cash equivalents (994) 841
-------------------------------------------------------------- ----------- -----------
Net decrease in cash and cash equivalents (1,130) (663)
Cash and cash equivalents at 1 January 26,380 27,043
Cash and cash equivalents at 31 December 25,250 26,380
-------------------------------------------------------------- ----------- -----------
Notes
1. Presentation of condensed consolidated financial
statements
The condensed consolidated financial statements should be read
in conjunction with NatWest Markets Plc's 2021 Annual Report and
Accounts which were prepared in accordance with UK adopted
International Accounting Standards (IAS), International Financial
Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB) and IFRS as adopted by the
European Union.
Going concern
Having reviewed NWM Group's principal risks, 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 twelve
months from the date the financial statements are approved.
Accordingly, the results for the year ended 31 December 2021 have
been prepared on a going concern basis (see the Report of the
directors, page 89, NatWest Market plc 2021 Annual Report and
Accounts).
2. Accounting policies
NWM Group's principal accounting policies are as set out on
pages 110 to 114 of the NatWest Markets Plc 2021 Annual Report and
Accounts.
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 noted on pages 113 and 114 of the NatWest Markets
Plc's 2021 Annual Report and Accounts. Estimation uncertainty
continues to be affected by the COVID-19 pandemic.
Information used for significant estimates
The COVID-19 pandemic continued to cause significant economic
and social disruption during the year ended 31 December 2021. 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 or greater economic effect as countries and companies
implement plans to counter climate risks. Changes in judgements and
assumptions could result in a material adjustment to those
estimates in the next reporting periods. (Refer to the NatWest
Markets Plc Risk factors in the 2021 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 December 31 December
2021 2020
Assets GBPm GBPm
Loans
- Reverse repos 20,742 19,404
- Collateral given 11,990 18,459
- other loans 1,414 1,611
----------- -----------
Total loans 34,146 39,474
---------------------------------------- ----------- -----------
Securities
Central and local government
- UK 6,919 4,184
- US 3,329 5,149
- other 10,929 16,436
Financial institutions and Corporate 3,778 3,446
Total securities 24,955 29,215
---------------------------------------- ----------- -----------
Total 59,101 68,689
Liabilities
---------------------------------------- ----------- -----------
Deposits
- Repos 19,389 19,036
- Collateral received 17,619 23,226
- other deposits 1,536 1,803
Total deposits 38,544 44,065
---------------------------------------- ----------- -----------
Debt securities in issue 974 1,408
Short positions 24,964 26,779
Total 64,482 72,252
---------------------------------------- ----------- -----------
4. Other financial liabilities
31 December 31 December
2021 2020
GBPm GBPm
Customer deposits - designated as at fair value through
profit or loss 568 796
Debt securities in issue
- designated as at fair value through profit or loss 1,103 1,607
- amortised cost 16,621 14,662
Subordinated liabilities
- designated as at fair value through profit or loss 703 793
- amortised cost 260 312
-------------------------------------------------------- ----------- -----------
Total 19,255 18,170
-------------------------------------------------------- ----------- -----------
5. Amounts due to holding company and fellow subsidiaries
31 December 31 December
2021 2020
Liabilities GBPm GBPm
------------------------------------------------------- ----------- -----------
Bank deposits - amortised cost 120 145
Customer deposits - amortised cost 155 144
Trading liabilities 348 636
Other financial liabilities - subordinated liabilities 1,464 1,753
MREL instruments issued to NatWest Group plc 3,858 5,181
Other liabilities 181 275
Total 6,126 8,134
------------------------------------------------------- ----------- -----------
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.
(b) In accordance with IAS 24, transactions or balances between
NWM Group entities that have been eliminated on consolidation are
not reported.
(c) NWM Group is recharged from other NatWest Group entities,
mainly NWB Plc which provides the majority of shared services
(including technology) and operational processes.
(d) 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. Other net income/(expenses) represents
the share of post-tax results of associates and joint ventures,
profit (or loss) on disposal of subsidiaries, associates and joint
ventures, and gains on acquisitions.
Full details of NWM Group's related party transactions for year
ended 31 December 2021 are included in NatWest Markets Plc 2021
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 25 in
the NatWest Markets Plc 2021 Annual Report and Accounts, issued on
18 February 2022 and available at nwm.com (Note 25), discusses the
Matters in which NWM Group is currently involved and material
developments. Other than the Matters discussed in Note 25, 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 25
that have occurred since the Q3 2021 Interim Management Statement
was issued on 29 October 2021, include, but are not limited to,
those set out below.
Litigation
London Interbank Offered Rate (LIBOR) and other rates
litigation
NWM Plc and certain other members of NatWest Group, including
NatWest Group plc, are defendants in several class actions, as well
as more than two dozen non-class actions, relating to alleged
historical artificial suppression of USD LIBOR, each of which is
part of a co-ordinated proceeding in the United States District
Court for the Southern District of New York (SDNY). In December
2021, the United States Court of Appeals for the Second Circuit (US
Court of Appeals), reversing a December 2016 decision of the SDNY,
held that plaintiffs in these cases have adequately alleged the
court's personal jurisdiction over NWM Plc and other non-US banks,
including with respect to antitrust class action claims on behalf
of over-the-counter plaintiffs and exchange-based purchaser
plaintiffs. In the same decision, the appellate court affirmed the
SDNY's prior decision that plaintiffs who purchased LIBOR-based
instruments from third parties (as opposed to the defendants) lack
antitrust standing to pursue such claims. The appellate court
remanded these matters to the SDNY for further proceedings in light
of its rulings.
In January 2019, a class action antitrust complaint was filed in
the SDNY alleging that the defendants (USD ICE LIBOR panel banks
and affiliates) have conspired to suppress USD ICE LIBOR from 2014
to the present by submitting incorrect information to ICE about
their borrowing costs. The defendants include NatWest Group plc,
NWM Plc, NWMSI and NWB Plc. The defendants made a motion to dismiss
this case, which was granted by the court in March 2020. One
plaintiff sought to appeal the dismissal, but on 14 February 2022,
the US Court of Appeals dismissed the appeal because that plaintiff
lacks standing to maintain the appeal.
FX litigation
NWM Plc, NWMSI and / or NatWest Group plc are defendants in
several cases relating to NWM Plc's foreign exchange (FX) business.
In December 2021, a claim was issued in the Netherlands against
NatWest Group plc, NWM Plc and NWM N.V. by Stichting FX Claims,
seeking a declaration from the court that anti-competitive FX
market conduct described in decisions of the European Commission of
16 May 2019 is unlawful, along with unspecified damages. The
claimant has indicated that it may seek to amend its claim to also
refer to the December 2021 decision by the EC (described below
under "Foreign exchange related investigations"). A hearing is
scheduled for June 2022.
Spoofing litigation
In December 2021, three substantially similar class actions
complaints were filed in federal court in the United States against
NWM Plc and NWMSI alleging Commodity Exchange Act and common law
unjust enrichment claims arising from manipulative trading known as
spoofing. The complaints refer to NWM Plc's December 2021
spoofing-related guilty plea (described below under "US
investigations relating to fixed-income securities") and purport to
assert claims on behalf of those who transacted in US Treasury
securities and futures and options on US Treasury securities
between 2008 and 2018. The three complaints are pending in the
United States District Court for the Northern District of
Illinois.
Notes
7. Litigation and regulatory matters continued
Regulatory matters
US investigations relating to fixed-income securities
In December 2021, NWM Plc pled guilty in United States District
Court for the District of Connecticut to one count of wire fraud
and one count of securities fraud in connection with historical
spoofing conduct by former employees in US Treasuries markets
between January 2008 and May 2014 and, separately, during
approximately three months in 2018.
The 2018 trading occurred during the term of a non-prosecution
agreement (NPA) between NWMSI and the United States Attorney's
Office for the District of Connecticut (USAO CT), under which
non-prosecution was conditioned on NWMSI and affiliated companies
not engaging in criminal conduct during the term of the NPA. The
relevant trading in 2018 was conducted by two NWM traders in
Singapore and breached that NPA.
The plea agreement reached with the US Department of Justice and
the USAO CT resolves both the spoofing conduct and the breach of
the NPA.
As required by the resolution and sentence imposed by the court,
NWM Plc is subject to a three-year period of probation and has paid
a US$25.2 million criminal fine, approximately US$2.8 million in
criminal forfeiture and approximately US$6.8 million in restitution
out of existing provisions. The plea agreement also imposes an
independent corporate monitor. In addition, NWM Plc has committed
to compliance programme reviews and improvements and agreed to
reporting and co-operation obligations.
Other material adverse collateral consequences may occur as a
result of this matter, as further described in the Risk Factor
relating to legal, regulatory and governmental actions and
investigations set out on page 198 of the NatWest Markets Plc 2021
Annual Report and Accounts.
Foreign exchange related investigations
In recent years, NWM Plc paid significant penalties to resolve
investigations into its FX business by the FCA, the Commodity
Futures Trading Commission, the US Department of Justice, the Board
of Governors of the Federal Reserve System, the European Commission
(EC) and others. In December 2021, the EC announced that a
settlement had been reached with NatWest Group plc, NWM Plc and
other banks in relation to its investigation into past breaches of
competition law regarding spot foreign exchange trading. NatWest
Group plc and NWM Plc were fined EUR 32.5 million in total relating
to conduct that took place between 2011 and 2012. The fine was
covered by existing provisions. This concludes the EC's
investigations into NatWest Group's past spot foreign exchange
trading activity.
FCA investigation into NatWest Group's compliance with the Money
Laundering Regulations 2007
Following an FCA investigation, commenced in 2017, into
potential breaches of the UK Money Laundering Regulations 2007
('MLR 2007'), NWB Plc pled guilty in October 2021 to three offences
under regulation 45(1) of the MLR 2007 for failure to comply with
regulation 8(1) between 7 November 2013 and 23 June 2016, and
regulations 8(3) and 14(1) between 8 November 2012 and 23 June
2016. These regulations required the firm to determine, conduct and
demonstrate risk sensitive due diligence and ongoing monitoring of
its relationships with its customers for the purposes of preventing
money laundering. The offences relate to operational weaknesses
between 2012 and 2016, during which period NWB Plc did not
adequately monitor the accounts of a UK incorporated customer. In
December 2021, NWB Plc was fined GBP264.8 million, incurred a
confiscation order and was ordered to pay costs. This was met by
NWB Plc from existing provisions, with a small additional provision
taken in Q4 2021.
Systematic Anti-Money Laundering Programme assessment
In December 2018, the FCA commenced a Systematic Anti-Money
Laundering Programme assessment of NatWest Group. In August 2019,
the FCA instructed NatWest Group to appoint a Skilled Person under
section 166 of the Financial Services and Markets Act 2000 to
provide assurance on financial crime governance arrangements in
relation to two financial crime change programmes. The Skilled
Person's final report was received in January 2022.
8. Post balance sheet events
On 17 February 2022, the NWM Plc Board approved an interim
dividend of GBP250 million, or GBP0.625 per share, to be declared
and payable to NatWest Group plc on 18 February 2022. There has
been no adjustment to the 31 December 2021 statutory financial
statements. For regulatory reporting purposes, a GBP250 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 2021 and the date of
approval of these accounts which would require a change to or
additional disclosure.
Non-IFRS financial measures
NWM Group prepares its financial statements in accordance
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. These
non-IFRS financial measures are not measures within the scope of
IFRS and are not a substitute for IFRS measures. These measures
include:
- Management analysis of the operating expenses shows strategic
costs and litigation and conduct costs in separate lines on pages 5
and 6. These amounts are included in staff, premises and equipment
and other administrative expenses in the statutory analysis. The
use of the other expenses performance measure in non-statutory
analysis aims to remove more volatile items within strategic costs
and litigation and conduct costs.
- Funded assets are defined as total assets less derivative
assets. This measure allows review of balance sheet trends
exclusive of the volatility associated with derivative fair
values.
- Management view of income by business before revenue share and
excluding own credit adjustments and asset disposals/strategic risk
reduction. This measure is used to show underlying income
generation in NWM excluding the impact of disposal losses and own
credit adjustments.
- Revenue share refers to income generated by NatWest Markets
products from customers that have their primary relationship with
other NatWest Group segments, a proportion of which is shared
between NatWest Markets and those segments.
- Asset disposals/strategic risk reduction includes the costs of
exiting positions, which includes changes in carrying value to
align to the expected exit valuation, 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
Non-statutory analysis
Year ended
------------------------------------------------------------------------------------------
31 December 2021 31 December 2020
-------------------------------------------- --------------------------------------------
Litigation Other Statutory Litigation Other Statutory
Strategic and conduct operating operating Strategic and conduct operating operating
Operating expenses costs costs expenses expenses costs costs expenses expenses
Staff costs 135 - 363 498 121 - 549 670
Premises and equipment 40 - 70 110 19 - 88 107
Other administrative
expenses 72 (17) 467 522 51 134 444 629
Depreciation and
amortisation 1 - 19 20 - - 25 25
Total 248 (17) 919 1,150 191 134 1,106 1,431
------------------------ --------- ----------- --------- --------- --------- ----------- --------- ---------
Quarter ended
--------------------------------------------
31 December 2021
--------------------------------------------
Litigation Other Statutory
Strategic and conduct operating operating
Operating expenses costs costs expenses expenses
Staff costs 38 - 90 128
Premises and equipment 36 - 15 51
Other administrative
expenses 25 24 140 189
Depreciation and
amortisation - - 5 5
Total 99 24 250 373
------------------------ --------- ----------- --------- --------- --------- ----------- --------- ---------
Quarter ended
--------------------------------------------
30 September 2021
--------------------------------------------
Litigation Other Statutory
Strategic and conduct operating operating
Operating expenses costs costs expenses expenses
Staff costs 32 - 86 118
Premises and equipment 1 - 21 22
Other administrative
expenses 20 27 105 152
Depreciation and
amortisation 1 - 4 5
Total 54 27 216 297
------------------------ --------- ----------- --------- --------- --------- ----------- --------- ---------
Quarter ended
--------------------------------------------
31 December 2020
--------------------------------------------
Litigation Other Statutory
Strategic and conduct operating 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
------------------------ --------- ----------- --------- --------- --------- ----------- --------- ---------
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 2021.
We, the directors listed below, confirm that to the best of our
knowledge:
- The financial statements, prepared in accordance with UK
adopted International Accounting Standards, International Financial
Reporting Standards as issued by the International Accounting
Standards Board and IFRS as adopted European Union, 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 Report of the directors
(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
17 February 2022
Board of directors
Chairman Executive directors Non-executive directors
Frank Dangeard Robert Begbie Vivek Ahuja
David King 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' or 'we'
refers to 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
('GBP'), 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').
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 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 2021 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 RBSFinance0000012Secret
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
targets and guidance relating to financial performance measures,
such as income growth, operating expense, cost reductions,
impairment loss rates, balance sheet reduction, including the
reduction of RWAs, CET1 ratio (and key drivers of the CET1 ratio,
including timing, impact and details), Pillar 2 and other
regulatory buffer requirements and MREL and non-financial
performance measures, such as climate and ESG-related performance
ambitions, targets and metrics, including in relation to
initiatives to transition to a net zero economy, Climate and
Sustainable Funding and Financing (CSFF) and financed emissions. In
addition, this document includes forward-looking statements
relating, but not limited to: the COVID-19 pandemic and its impact
on NWM Group; planned cost reductions, disposal losses and
strategic costs; implementation of NatWest Group's, NWM Group's
strategy and other strategic priorities (including in relation to
investment programmes relating to digital transformation of their
operations and services and inorganic opportunities); the timing
and outcome of litigation and government and regulatory
investigations; funding plans and credit risk profile; managing its
capital position; liquidity ratio; portfolios; net interest margin;
and drivers related thereto; lending and income growth, product
share and growth in target segments; impairments and write-downs;
restructuring and remediation costs and charges; NWM Group's
exposure to political risk, economic assumptions and risk, climate,
environmental and sustainability risk, operational risk, conduct
risk, financial crime risk, cyber, data and IT risk and credit
rating risk and to various types of market risk, 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: economic and political risk
(including in respect of: the impact of the COVID-19 pandemic on
NWM Group and its customers; political and economic risks and
uncertainty in the UK and global markets; uncertainty regarding the
effects of Brexit; changes in interest rates and foreign currency
exchange rates; and HM Treasury's ownership of NatWest Group plc);
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; the effect of the COVID-19 pandemic on NWM
Group's strategic objects and targets); 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 and liquidity 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 net zero economy; the implementation of NatWest Group's and
NWM Group's climate change strategy and climate change resilient
systems, controls and procedures; climate-related data and 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 transition of LIBOR
other IBOR rates to alternative risk-free rates;) and changes in
tax legislation or failure to generate future taxable profits).
Caution about climate and sustainable funding and financing
(CSFF) information.
Climate and ESG disclosures in this report use a greater number
and level of judgements, assumptions and estimates, including with
respect to the classification of climate and sustainable funding
and financing activities, than our reporting of historical
financial information. These judgements, assumptions and estimates
are highly likely to change over time, and, when coupled with the
longer time frames used in these disclosures, make any assessment
of materiality inherently uncertain. In addition, our climate risk
analysis and net zero strategy remain under development, and the
data underlying our analysis and strategy remain subject to
evolution over time. As a result, we expect that certain climate
and ESG disclosures made in this report are likely to be amended,
updated, recalculated or restated in the future. This
forward-looking statement should be read together with the
'Climate-related and other forward-looking statements and metrics'
of the NatWest Group 2021 Climate-related Disclosures Report.
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
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END
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