TIDMRBS
RNS Number : 1665Q
Royal Bank of Scotland Group PLC
02 November 2012
Highlights
RBS reports a Q3 2012 operating profit(1) of GBP1,047
million
Core RBS Q3 2012 operating profit GBP1,633 million
Year-to-date Core return on tangible equity 10%
Q3 2012 net attributable loss of GBP1,384 million, after
GBP1,455 million
pre-tax accounting charge for improved own credit
Core Tier 1 ratio 11.1%, loan:deposit ratio 102%, Non-Core
assets down to GBP65 billion
"The RBS restructuring programme continues to make excellent
progress as we take the action needed to make the bank safer and
stronger. Our funding and capital position has been transformed, we
have repaid all emergency loans from the Government and central
banks, and we recently exited the Asset Protection Scheme without
ever making a claim.
At the same time, we are working to make sure the needs of our
customers are central in our decision making. Economic pressures
are restraining customer activity levels and as a result banks are
running hard to stand still in this environment. Nevertheless,
resilient Core bank performance at RBS provides resources for
customers and for our cleanup, whilst signposting shareholder value
in the future."
Stephen Hester, Group Chief Executive
Highlights
Continued progress in the RBS recovery plan
-- Continued momentum in strengthening the Group's balance sheet:
-- Funded assets declined again to GBP909 billion, a reduction
of GBP68 billion from the start of 2012.
-- Core Tier 1 ratio remained strong at 11.1% whilst absorbing
uplifts from regulatory changes; 10.4% excluding the capital
relief provided by the Asset Protection Scheme (APS).
-- The Group's loan:deposit ratio improved further to 102%.
-- Usage of short-term wholesale funding has more than halved
since the start of 2012 to GBP49 billion.
-- RBS's credit profile has strengthened markedly in the traded debt markets
reflecting the success of RBS restructuring efforts. CDS spreads have
halved since their 2011 peak, and secondary bond spreads on five year
maturity have narrowed from c.450 basis points to c.100 basis points
on a year-to-date basis. This strengthening has resulted in an accounting
charge for improved own credit of GBP4,429 million year-to-date, including
GBP1,455 million in Q3.
Delivering against major milestones
-- Direct Line Group was successfully floated in October 2012, raising
GBP911 million from the sale of a 34.7% stake in the company.
-- The exit from the UK Government's APS on 18 October 2012 provides a
further demonstration of the Group's progress in rebuilding a strong
and stable balance sheet. The exit also marks a major UK fiscal benefit,
with the Government's original GBP200 billion contingent exposure now
extinguished.
-- While Santander's decision to pull out of its agreed purchase of certain
of the Group's UK branch-based businesses was disappointing, much of
the work to separate this profitable and well-funded business has already
been completed, and RBS has recommenced its efforts to divest the business,
which utilises some 2% of the Group's capital resources.
Highlights (continued)
Operating performance stable in Q3 2012
-- Q3 2012 Group operating profit improved to GBP1,047 million from GBP650
million in Q2 and GBP2 million in Q3 2011, with Core operating profit
up 8% from Q2 and 67% from Q3 2011. There was a further reduction in
operating losses from Non-Core.
-- Core operating profit was GBP1,633 million, with a solid performance
in Markets offset by lower income and a small number of single name
impairments in UK Corporate.
-- Core return on tangible equity (ROTE) for the first nine months of
2012 was 10%. Markets' return on equity (ROE) over this period was
12.0%.
-- Group net interest margin was stable at 1.94%, with Core Retail & Commercial
NIM also steady at 2.92%.
-- Group expenses were reduced by 6% versus prior quarter to GBP3,639
million, with Core R&C down 3% to GBP2,389 million and Markets down
5% to GBP753 million. The Core cost:income ratio improved to 59%, with
UK Retail now at 51%.
-- Staff costs were 5% lower than in Q2 at GBP1,943 million, with headcount
down by 9,900, 7%, from a year earlier.
-- Group impairment losses totalled GBP1,176 million in Q3 2012, down
GBP159 million from the prior quarter. Non-Core impairments, mostly
in real estate finance, were GBP183 million lower. Total Ulster Bank
(Core and Non-Core) impairments were GBP493 million, compared with
GBP514 million in Q2 2012.
Continuing commitment to customers in difficult times
-- Maintaining support for the Group's core UK retail and commercial customers
is a key priority. RBS has supported over 350,000 SMEs with GBP28.6
billion of lending, including overdrafts, so far this year. RBS has
also helped more than 43,000 customers buy their home, including 14,000
first time buyers, with GBP11 billion of gross new mortgage lending
in the first nine months of 2012.
-- RBS continues to work hard to remedy a number of past issues. Q3 2012
results include an additional GBP400 million provision in relation
to Payment Protection Insurance, bringing the cumulative charge to
GBP1.7 billion.
-- The Group is determined to continue to strengthen its management disciplines
and culture in order to ensure that serving customers well becomes
more deeply embedded as the Bank's core purpose. Key points of focus
are:
-- Better performance against Customer Charter targets.
-- Widening the scope of training programmes for front-line
staff.
-- Overhauling service offerings to align them more closely
to customers' needs.
-- Realigning incentive structures to ensure they take proper
account of customer interest.
Note:
(1) Operating profit before tax, own credit adjustments, Asset
Protection Scheme, Payment Protection Insurance costs, amortisation
of purchased intangible assets, integration and restructuring
costs, loss on redemption of own debt, strategic disposals
and RFS Holdings minority interest ('operating profit').
Statutory operating loss before tax was GBP2,763 million
for the nine months ended 30 September 2012.
Key financial data
Quarter ended Nine months ended
===================================
30 September 30 June 30 September 30 September 30 September
2012 2012 2011 2012 2011
GBPm GBPm GBPm GBPm GBPm
================================ ============ ======= ============ ============ ============
Core
Total income (1) 6,408 6,437 6,028 19,707 20,522
Operating expenses (2) (3,427) (3,615) (3,498) (10,763) (10,853)
Insurance net claims (596) (576) (696) (1,821) (2,183)
Operating profit before
impairment losses (3) 2,385 2,246 1,834 7,123 7,486
Impairment losses (4) (752) (728) (854) (2,305) (2,579)
Core operating profit
(3) 1,633 1,518 980 4,818 4,907
Non-Core operating loss
(3) (586) (868) (978) (1,937) (2,939)
Group operating profit
(3) 1,047 650 2 2,881 1,968
Own credit adjustments (1,455) (518) 2,622 (4,429) 2,386
Asset Protection Scheme 1 (2) (60) (44) (697)
Payment Protection Insurance
costs (400) (135) - (660) (850)
Sovereign debt impairment - - (142) - (875)
Other items (5) (451) (96) (418) (511) (722)
(Loss)/profit before tax (1,258) (101) 2,004 (2,763) 1,210
Preference share dividends (98) (76) - (174) -
(Loss)/profit attributable
to ordinary and B shareholders (1,384) (466) 1,226 (3,374) (199)
================================ ============ ======= ============ ============ ============
30 September 30 June 31 December
2012 2012 2011
====================================== ============ ======== ===========
Capital and balance sheet
Funded balance sheet (6) GBP909bn GBP929bn GBP977bn
Loan:deposit ratio (Group) (7) 102% 104% 108%
Loan:deposit ratio (Core) (7) 91% 92% 94%
Core Tier 1 ratio 11.1% 11.1% 10.6%
Tangible net asset value per ordinary
and B share (8) 476p 489p 501p
====================================== ============ ======== ===========
Notes:
(1) Excluding own credit adjustments, Asset Protection Scheme, (loss)/gain
on redemption of own debt, strategic disposals and RFS Holdings minority
interest.
(2) Excluding Payment Protection Insurance costs, amortisation of purchased
intangible assets, integration and restructuring costs, bonus tax and
RFS Holdings minority interest.
(3) Operating profit before tax, own credit adjustments, Asset Protection
Scheme, Payment Protection Insurance costs, sovereign debt impairment
and other items (see note 5 below).
(4) Excluding sovereign debt impairment and related interest rate hedge
adjustments.
(5) Other items comprise amortisation of purchased intangible assets, integration
and restructuring costs, (loss)/gain on redemption of own debt, strategic
disposals, bonus tax, interest rate hedge adjustments on impaired available-for-sale
sovereign debt and RFS Holdings minority interest. Refer to page 17
of the main announcement for further details.
(6) Funded balance sheet is total assets less derivatives.
(7) Net of provisions, including disposal groups and excluding repurchase
agreements.
(8) Tangible net asset value per ordinary and B share is total tangible
equity divided by the number of ordinary shares in issue and the effect
of convertible B shares. Data for 2011 have been adjusted for the sub-division
and one-for-ten consolidation of ordinary shares, which took effect
in June 2012.
Comment
Stephen Hester, Group Chief Executive, commented:
The extraordinary challenges which RBS faced following the
financial crisis are being worked through successfully. The five
year restructuring Plan is now in its later stages with important
work still to do, including an emphasis on dealing with
reputational issues now that the Bank's safety and soundness has
advanced so well. We passed two other important milestones in
October with our exit from the APS and a very encouraging flotation
of Direct Line Group and are within touching distance of matching
every GBP1 of lending with a GBP1 of customer deposits.
Beneath these headlines our people have been working hard at
supporting our customers and rebuilding the capabilities of the
core business, the future RBS that is emerging from our work. In
doing this we face the same strong economic and regulatory
challenges as other banks and are having to work very hard to stand
still in the face of these challenges. But underlying performance
has already improved enough to be generally comparable to peers. We
aspire to achieve much more; in short, to be running a really good
RBS.
At the heart of any truly successful company is the DNA that
clearly sets the company's purpose as to serve customers well and
understands that good performance for shareholders and career
prospects for staff come from achieving that purpose. The banking
industry, including RBS, too often came to be seen as reversing
that sequence, with short-term gain put ahead of long-term
excellence for customers. Getting this balance right is not done
through splashy announcements or sweeping actions. Rather it is a
multi-faceted journey involving all our people, the tools and
management direction they work with every day. We are unambiguously
clear at RBS about the importance of making this journey. We have
already made much progress, though clearly not enough, and our
reputation will take time and facts to recover from past events
which are still being accounted for. Nevertheless, this work is
going with the grain at RBS. Our people want to serve customers
well. Most of the time we succeed in doing precisely that. And we
all understand the need to reject failings and keep improving for
customers and for the institution's future success.
In tough economic times there is understandable debate about
what economies need in order to achieve growth. In this debate we
can be clear and unambiguous: RBS has the funding, capital and
human resources to support our customers and meet their needs as
the economy starts to grow again; and we have repaid the liquidity
and credit support that was needed from government at the start of
our restructuring journey. We have many challenges left, and much
to improve. And the world still has uncertainties and risks of
setback. The need to avoid repeating past credit mistakes and to
make sustainable returns on a more conservative business model are
also crucial aspects we need to balance in the face of many
pressures.
So the goals that have been our abiding focus since 2009 are
unchanged, though they will continue to be applied pragmatically as
external realities evolve. They are founded in a solid and coherent
strategy and a track record of focused implementation. Through
these tools we seek:
- to serve customers well, and better
- to operate with safety and soundness for all who rely on us
- to rebuild sustainable value for all shareholders, and thereby
to facilitate the sale of taxpayers' shareholding in the Bank.
Highlights
Third quarter results summary
The Royal Bank of Scotland Group (RBS) reported a Group
operating profit of GBP1,047 million for the third quarter of 2012,
up GBP397 million from Q2 2012 and up GBP1,045 million compared
with Q3 2011. The result reflected a steady improvement in the Core
bank's operating results, combined with a further reduction in
operating losses from the Non-Core division.
Core operating profit totalled GBP1,633 million, up 8% from Q2
2012 and 67% from Q3 2011. For the first nine months of 2012 Core
operating profit totalled GBP4,818 million, in line with the same
period of 2011, delivering a return on tangible equity of 10.0%.
Core income in Q3 was flat versus Q2 at GBP6,408 million, with
expenses down 5% at GBP3,427 million and impairments 3% higher at
GBP752 million.
-- Retail & Commercial (R&C) operating profits were down 10% from Q2 due
to a deterioration in UK Corporate, largely reflecting lower income
and a small number of single name impairments, partially offset by
good performances in UK Retail and International Banking driven primarily
by sound cost control. R&C return on equity in the first nine months
of 2012 was 9.6%, or 14.0% excluding Ulster Bank.
-- Markets saw a 2% decline in revenues relative to Q2 due to continued
uncertainty in the Eurozone along with subdued client activity. However,
the ongoing focus on costs generated an 18% increase in operating profit
to GBP295 million. Year to date ROE is 12.0%.
-- Direct Line Group Q3 2012 operating profit of GBP109 million was down
GBP26 million, 19% from Q2, as a stable technical result was more than
offset by lower investment returns. Year to date ROTE is 10.3%.
Non-Core operating loss decreased by GBP282 million versus Q2 to
GBP586 million as favourable market conditions led to improvements
in asset prices and tightening of credit spreads over the quarter.
Non-Core impairment losses fell by GBP183 million during the
quarter reflecting the non-repeat of a significant provision in the
Project Finance portfolio in Q2 2012.
Non-operating items and statutory results
A further provision of GBP400 million was recorded for Payment
Protection Insurance claims, reflecting the Group's current
experience. This brings the cumulative charge taken to GBP1.7
billion, of which GBP1.0 billion (c.60%) in redress had been paid
by 30 September 2012. Integration and restructuring costs totalled
GBP257 million in Q3, compared with GBP213 million in Q2. A loss of
GBP123 million was recorded on the redemption of GBP4.4 billion of
debt securities.
RBS's credit spreads continued to narrow in debt markets, with
its five year credit default swap spread tightening over the
quarter by 57 basis points, reflecting improved investor
perceptions of the Group's strength. This resulted in a Q3 own
credit charge of GBP1,455 million, compared with GBP518 million in
the prior quarter. Excluding own credit adjustments, Group Q3 2012
pre-tax profit was GBP197 million and attributable loss GBP268
million.
Statutory pre-tax loss in Q3 was GBP1,258 million and statutory
attributable loss was GBP1,384 million. Tangible net asset value
per share fell by 3% to 476 pence reflecting the own credit
adjustment.
Highlights (continued)
Income
Core income in Q3 2012 totalled GBP6,408 million, in line with
Q2 2012 and up 6% from the prior year period. Core R&C net
interest income was 1% lower than Q2 2012 at GBP2,786 million, with
continuing pressure on deposit margins in the core UK Retail and
Corporate franchises and in International Banking's Cash Management
business. Non-interest income in R&C was down 6% at GBP1,414
million, partly reflecting the non-recurrence of a GBP47 million
gain recorded in Q2 on the sale of Visa B shares as well as a
decline in the fair value of a property-related investment in UK
Corporate of GBP25 million. Markets non-interest income totalled
GBP1,031 million, in line with Q2 and up 128% compared with Q3
2011. Realised bond gains increased by GBP325 million compared with
Q2 as the Group re-positioned its liquidity portfolio, offset by
higher unallocated volatility costs in Group Treasury of GBP95
million.
Efficiency
Core expenses were down 5% in the quarter to GBP3,427 million,
with R&C reducing expenses by 3% to GBP2,389 million and
Markets delivering a 5% reduction to GBP753 million. Provisions
totalling GBP125 million recorded in Group Centre included an
additional GBP50 million to cover customer redress arising from the
technology incident that affected the Group's systems in June.
Core staff expenses were 4% lower at GBP1,874 million, with
headcount down by 7,900 over the past 12 months to 137,000,
principally in Markets and International Banking. The Core
compensation ratio year-to-date was 30%, compared with 31% in the
prior year, with the Markets compensation ratio 34%, compared with
41% in the prior year.
Core cost:income ratio in Q3 improved to 59% from 62% in Q2 and
66% in Q3 2011. R&C cost:income ratio was stable at 57%, with
UK Retail improving to 51%.
Risk
Group impairment losses totalled GBP1,176 million in Q3 2012,
down 12% from the prior quarter and 23% from Q3 2011.
Core impairments totalled GBP752 million, up 3% from Q2 2012 but
12% lower than Q3 2011, with UK Retail and US R&C losses stable
but UK Corporate impairments up GBP66 million, largely reflecting a
handful of single corporate cases. Non-Core impairments, mostly in
real estate finance, were GBP183 million lower than in Q2 2012.
Total Ulster Bank (Core and Non-Core) impairments were GBP493
million, compared with GBP514 million in Q2 2012.
Core annualised loan impairments represented 0.7% of loans and
advances to customers, in line with Q2. Group risk elements in
lending totalled GBP40.1 billion at 30 September 2012, compared
with GBP39.7 billion at 30 June 2012 and GBP40.8 billion at 31
December 2011, with provision coverage stable at 51%.
Highlights (continued)
Balance sheet
RBS maintained good momentum in the restructuring and reduction
of its balance sheet, with Group funded assets down GBP20 billion
in the quarter to GBP909 billion. Non-Core funded assets fell to
GBP65 billion, a reduction of GBP7 billion during the quarter and
an overall reduction of 75% since its establishment. Non-Core
remains on target to exit approximately 85% of its original
portfolio by the end of 2013.
Since the end of 2008 the Group has reduced its funded balance
sheet by GBP318 billion, with total assets reduced by GBP841
billion.
Liquidity and funding
RBS has achieved a largely deposit-funded balance sheet, with
further reductions in the use of short-term wholesale funding and
the maintenance of a very strong liquidity buffer. With substantial
excess liquidity available to it during the quarter, the Group took
advantage of improved market conditions to repurchase GBP4.4
billion of more expensive outstanding senior unsecured wholesale
debt.
RBS's credit profile has strengthened markedly in traded
markets, reflecting the significant improvement in the robustness
and resilience of its balance sheet, as well as the substantial
reduction in the Group's wholesale funding requirements and a more
general improvement in financial market conditions. The Group's
credit default swap spreads tightened by 121 basis points in the
first nine months of 2012, with 57 basis points of the improvement
coming in Q3. Secondary market prices for RBS bonds have tightened
even further, with spreads on a benchmark five year issue coming in
from c.450 basis points at the start to 2012 to c.100 basis points
at the end of Q3.
The Group loan:deposit ratio strengthened further to 102%,
compared with a worst point of 154% in October 2008. The Core
loan:deposit ratio was 91%, with customer deposits stable at GBP431
billion.
The Group continued to reduce its usage of short-term wholesale
funding, which fell by GBP13.8 billion during the quarter to GBP49
billion at 30 September 2012, enabling the Group to reduce the
costs associated with its substantial liquid asset portfolio.
Short-term wholesale funding was covered three times by the Group's
liquidity buffer, which totalled GBP147 billion.
Capital
The Group's Core Tier 1 ratio remained strong at 11.1%, or 10.4%
excluding the capital relief provided by the UK Government's Asset
Protection Scheme, which the Group exited with effect from 18
October 2012. APS capital benefit, which amounted to 160 basis
points at the end of 2009, had diminished in line with the
reduction in the portfolio of covered assets, which had fallen from
GBP282 billion at inception to GBP104 billion at the point of
exit.
Risk-weighted assets (before APS relief) declined by GBP6.6
billion, with a substantial reduction in Non-Core offsetting the
effect of regulatory uplifts in International Banking and in UK
Corporate. Non-Core's RWAs fell by GBP11 billion to GBP72 billion,
benefiting from lower market risk and the active reduction and
restructuring of derivative exposures.
The Group's Tier 1 leverage ratio was 15.4x.
Highlights (continued)
Disposals
RBS completed the successful initial public offering of Direct
Line Group in October 2012, representing another important
milestone in RBS's restructuring plan.
RBS Group sold 520.8 million ordinary shares in Direct Line
Group, representing 34.7% of the total share capital, generating
gross proceeds of GBP911 million. This was consistent with the
previously communicated plan to divest control of Direct Line Group
in stages with control ceded by the end of 2013, and complete
disposal by the end of 2014, in line with the European Commission's
state aid requirements. The disposals of Global Merchant Services
and RBS Sempra Commodities JV businesses have already been
completed.
On 12 October 2012 RBS announced that it had received
notification of Santander's decision to pull out of its agreed
purchase of certain of the Group's UK branch-based businesses.
While the decision was disappointing, much of the work to separate
this profitable and well-funded business has already been
completed, and RBS has recommenced its effort to divest the
business and fulfil its obligations to the European Commission.
Core UK franchise
Banks cannot serve customers well without operating from a
position of balance sheet safety and soundness, and that has been a
key priority for RBS in the first three and a half years of its
2009-13 restructuring plan. The Group's significant achievements in
this area mean that even more attention can now be focused on those
elements that will make RBS a healthy and competitive bank over the
long term, rather than merely ensuring survival. These elements are
based on ensuring that the bank is built, first and foremost,
around serving customers well and sustainably.
This focus on serving customers better has been an integral
component of the Group's restructuring plan, and some major changes
have already been implemented, notwithstanding the worsening
economic environment:
-- The Retail Customer Charter was launched in 2010 and has been refreshed
annually since then. The focus of "Helpful Banking" has remained integral,
with intentionally demanding and stretching targets derived from what
customers said they valued the most.
-- New principles for incentives within UK Retail have been designed to
promote superior customer service and ensure customer requirements
explicitly drive the product sales and offerings. This is a move away
from the sales-based approach of the past.
-- To reach the standards of professionalism and expertise that customers
expect, RBS has piloted an internal retraining and accreditation programme
for relationship managers in Business & Commercial Banking.
Highlights (continued)
Core UK franchise (continued)
These actions represent only a starting point, and while the
changes will have increasing visibility as they bed in over the
coming months and years there is a lot more still to do to persuade
customers that the organisation has changed and that it puts their
interests first. A few of the main areas management will be
focusing on next are:
-- Better performance against Customer Charter targets. Since launch,
the bar has been raised on some of the Retail targets but performance
has fallen short on some. The use of charters will be extended into
other divisions and they will be made even more demanding.
-- Widening the scope of internal training programmes for front-line staff.
A programme similar to the Business & Commercial course is now running
in the Wealth business and this area will continue to attract a great
deal of focus.
-- An overhaul of service offerings across the Group's retail, corporate
and markets divisions to ensure they are explicitly customer-driven
and based on the needs and priorities of the retail, corporate and
institutional customers that RBS serves.
RBS has maintained its lending support to UK businesses and
homebuyers through difficult economic times. RBS has supported
government schemes, such as the Funding for Lending Scheme (FLS),
with internal initiatives to ensure that credit remained
appropriately available to its customers.
RBS's performance in the mortgage market remains strong and well
in excess of its historic market share. Gross new mortgage lending
totalled GBP11.4 billion year-to-date, with GBP3.7 billion in Q3
2012, holding flat from Q2. Of this, 16% was to first-time buyers
and Q3 gross new lending to these customers increased by 5% on the
previous quarter.
Business demand for credit has remained weak, with investment
intentions constrained by uncertainty over future UK growth
prospects. This led to a drop of 25% in SME loan applications in
Q3, compared with Q3 2011, with activity further muted by the
effect of the Olympic Games. RBS continues to approve over 90% of
all SME loan and overdraft applications, with over 31,000 small
businesses approved for credit during the quarter.
The overall flow of business lending remained strong, with
GBP62.9 billion of gross new lending to UK businesses in the first
nine months of 2012, of which GBP28.6 billion was to SME customers.
In Q3 2012, gross new lending increased 3% compared with Q2, which
was impacted by relationship managers efforts being diverted from
lending due to the Group technology incident. Loan repayments also
remained strong, with many customers continuing to focus on
deleveraging. SME overdraft utilisation remained below 50% in Q3,
and SMEs chose to retain strong cash balances, with Business &
Commercial customer deposits increasing by GBP500 million during
Q3.
Highlights (continued)
Core UK franchise (continued)
Overall SME net drawn balances, excluding real estate, held
steady quarter-on-quarter, with the strongest growth coming in
asset finance, where balances have increased each quarter in 2012,
up 6% year-to-date. Asset finance has proved particularly
attractive to customers in current economic circumstances because
of its cash flow benefits, with products such as hire purchase,
asset-secured debt and leasing providing flexible and committed
lines of funding tailored to each business's needs. RBS Invoice
Finance has also seen good growth in its asset-based lending
business, with net advances up 6%, compared with Q3 2011, to GBP3.2
billion.
The Funding for Lending Scheme (FLS) opened for drawings in
August and RBS was quick to launch FLS-related offerings to
homebuyers and businesses. RBS's own funding of UK lending is not a
constraint. However, FLS does provide an opportunity to offer
interest rate benefits to customers. Net figures will also give
insight to the price sensitivity of lending demand at these
interest rate levels relative to other business confidence issues.
Over GBP500 million of mortgages had been offered under the scheme
by the end of September 2012, and c.14% of applications received by
UK Retail in September related to the new products launched under
the scheme. UK Corporate reduced the price of SME loans and removed
arrangement fees on these offerings. Over 4,300 customers benefited
from this offer by the end of Q3 2012, with around GBP600 million
of funds allocated. Given normal lags between approval and
drawdown, these advances are not expected to feed into drawn
balances until later in the year. Much of the SME lending to date
is substituting for existing higher cost borrowings.
RBS has made further good progress in running down high risk and
non-strategic exposures in its Non-Core division and in reducing
its excessive exposures to the real estate and construction
sectors. Non-Core balances are included within the scope of FLS,
and FLS-eligible Non-Core exposures were reduced by GBP750 million
during Q3. Within the Core UK Corporate division, property
exposures also continued their managed and necessary decline,
falling by GBP0.9 billion during the quarter and by GBP2.2 billion
year-to-date. At a Group level, excluding Non-Core and commercial
real estate lending, total RBS core FLS-eligible balances increased
by around GBP300 million to 30 September 2012, while declining when
these risk concentrations are included. The faster-growing Lombard
and RBS Invoice Finance businesses are excluded from FLS
statistics.
Highlights (continued)
Strategic Plan
Worst Medium-
Key Measures point Q2 2012 Q3 2012 term target
============================================= =========== ======== ======== ============
Value drivers Core Core Core
* Return on equity (1) (31%)(2) 9.3% 9.7% >12%
* Cost:income ratio (3) 97%(4) 62% 59% <55%
Risk measures Group Group Group
* Core Tier 1 ratio 4%(5) 11.1% 11.1% >10%
* Loan:deposit ratio 154%(6) 104% 102% c.100%
* Short-term wholesale funding (STWF) GBP297bn(7) GBP62bn GBP49bn <10% TPAs(8)
* Liquidity portfolio (9) GBP90bn(7) GBP156bn GBP147bn >1.5x STWF
* Leverage ratio (10) 28.7x(11) 15.6x 15.4x <18x
============================================= =========== ======== ======== ============
Notes:
(1) Based on indicative Core attributable profit taxed at standard rates
and Core average tangible equity per the average balance sheet (c.85% of
Group tangible equity based on RWAs at 30 September 2012); (2) Group return
on tangible equity for 2008; (3) Cost:income ratio net of insurance claims;
(4) Year ended 31 December 2008; (5) As at 1 January 2008; (6) As at October
2008; (7) As at December 2008; (8) Third party assets (TPAs); (9) Eligible
assets held for contingent liquidity purposes including cash, Government
issued securities and other eligible securities with central banks; (10)
Funded tangible assets divided by total Tier 1 capital; (11) As at June
2008.
Regulatory investigations and reviews
The Group continues to cooperate fully with a number of
regulatory investigations and reviews as described in the note on
Litigation, investigations and reviews on page 87 of the main
announcement. In some of these investigations the Group believes
that the likely outcome is that it will incur financial penalties
or provide redress, and these may be significant.
Outlook
The external economic, market and regulatory challenges we face
are likely to continue for the rest of this year and into 2013. We
will continue to focus on maintaining a strong balance sheet and
capital position, as well as judicious management of our expense
base.
We anticipate trends in our Core Retail & Commercial
businesses to be generally consistent with the third quarter,
although our Markets business is likely to exhibit normal seasonal
variations in Q4. The Group's net interest margin over the second
half is expected to be broadly stable compared with the first half
of the year.
Non-Core continues to make good progress, achieving asset
reduction targets with losses in line with our expectations. We
expect to further reduce assets in Q4, although the Q4 loss is
likely to be higher than in Q3. The 'below the line' itemised
charges are likely to remain elevated during Q4, though the own
credit adjustment should be materially lower.
Having made strong progress, RBS targets most of the
restructuring actions from its 2009 strategic plan to be
substantially completed in the next 15-18 months, with the Group
thereby positioned to be a cleaner and better performing bank in
future years.
Contacts
For analyst enquiries:
Richard O'Connor Head of Investor Relations +44 (0) 20 7672 1758
For media enquiries:
Group Media Centre +44 (0) 131 523 4205
==================================================== ====================
Results presentation
The Royal Bank of Scotland Group plc will be hosting a
conference call and live audio webcast following the release of the
results for the quarter ended 30 September 2012.
The details are as follows:
Date: Friday 2 November 2012
Time: 9.00 am UK time
Webcast: www.rbs.com/results
Dial in details: International - +44 (0) 1452 568 172
UK Free Call - 0800 694 8082
US Toll Free - 1 866 966 8024
Slides
Slides accompanying this document will be available on
www.rbs.com/results
Financial supplement
A financial supplement will be available on www.rbs.com/results
This supplement shows published income and balance sheet financial
information by quarter for the last nine quarters to assist
analysts for modelling purposes.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IMSBBBJTMBBMTFT
Natwest (LSE:NWG)
Historical Stock Chart
From May 2024 to Jun 2024
Natwest (LSE:NWG)
Historical Stock Chart
From Jun 2023 to Jun 2024