Delivering a leading bank for customers and investors Ross McEwan, Chief Executive Officer Bank of America Merrill Lynch conference London 27 September 2016
Agenda Core (1) bank doing well, but environment tougher H1 2016 results represent halfway point in our 5-year plan Driving value and performance Concluding remarks 2 (1) ‘Core’ comprises the Personal and Business Banking, Commercial and Private Banking and Corporate and Institutional Banking divisions
Key messages We maintain strong positions in our target markets, supported by product and service improvements The fundamentals of our Plan remain unchanged. However, we are now operating in a more uncertain environment Progress against our Plan has made us more resilient to deal with this uncertainty Our capital, liquidity and funding positions give us capacity to lend Our core bank continued to deliver solid results in Q2 Addressing conduct and litigation issues as quickly and prudently as we can 3
Our blueprint for success 4 (1) Excluding litigation and conduct costs, restructuring costs, write down of goodwill and other intangible assets and the operating costs of Williams & Glyn
Delivery goals for 2016 5 (1) Excluding litigation and conduct costs, restructuring costs, write down of goodwill and other intangible assets and the operating costs of Williams & Glyn
Delivering on the second phase of our plan Phase 1 – Complete Phase 3 – 2017 onwards Phase 2 – Now Building financial strength Becoming #1 Improve our core businesses • Rebuild capital • Cement customer- strength – CET1 ratio centric positioning – +260bps #1 for customer • Accelerate the transformation during 2014 service, trust and of our core businesses advocacy by 2020 • De-risk – US Asset Backed Products, • Achieve material RWA • Achieve attractive, RCR, NPLs, liquidity balanced and reduction from our Capital portfolio sustainable financial Resolution exit (Citizens returns – target 12+% • Start cost reduction divestment, Capital Resolution RoTE plan – £1.1bn savings run-down) achieved • Discussions around resumption • Address material remaining • Simplify our of dividends / buy- organisational conduct and litigation issues backs (1) structure • Pay out surplus capital above 13% CET1 ratio subject to PRA approval (1) (1) Earliest possible timing is likely to be later than Q1 2017, subject to Board and PRA approval. Key milestones before seeking PRA approval for capital distributions would include, among other 6 considerations, maintaining the 13% CET1 ratio target, passing regulatory capital requirements, pass 2016 Bank of England stress test (including Individual Capital Guidance hurdle) and operating within capital risk appetite, peak of litigation and conduct costs passed including US RMBS, confidence in sustainable profitability, and Williams & Glyn exit assured
Phase 3 – becoming #1 for customers & shareholders Phase 2 Phase 3 – 2017 onwards Improve our core businesses Becoming #1 • Accelerate the transformation of our • Cement customer-centric positioning – #1 for core businesses customer service, trust and advocacy by 2020 • Achieve material RWA reduction from our Capital • Achieve attractive, balanced and sustainable financial Resolution exit returns – target 12+% RoTE (Citizens divestment, Capital Resolution run-down) • Discussions around resumption of dividends / buy- • Address material backs (1) remaining conduct and litigation issues • Pay out surplus capital above 13% CET1 ratio subject to PRA approval (1) (1) Earliest possible timing is likely to be later than Q1 2017, subject to Board and PRA approval. Key milestones before seeking PRA approval for capital distributions would include, among other 7 considerations, maintaining the 13% CET1 ratio target, passing regulatory capital requirements, pass 2016 Bank of England stress test (including Individual Capital Guidance hurdle) and operating within capital risk appetite, peak of litigation and conduct costs passed including US RMBS, confidence in sustainable profitability, and Williams & Glyn exit assured
Simplified and streamlined Property Structure Products Countries # CPB and CIB # London properties # subsidiaries # front book countries of active operation 416 (2) 2013 11 1,107 38 36% 40% 19% 66% H1 2016 7 (1) 666 339 13 13 Target 5 ~500 <300 (1) Excluding property occupied by Williams & Glyn (2) FY 2014 8
Increasingly focused on UK Retail & Commercial RWAs in Personal, Business & Commercial Income from UK 90% ~90% ~85% 81% 79% 63% FY 2013 H1 2016 Target FY 2013 H1 2016 Target 9
Core – stable operating profit with attractive returns Adjusted return on 11% 11% 11% equity 4.1 Adjusted operating profit (£bn) 1.0 1.0 FY 2015 Q1 2016 Q2 2016 10
Continued growth across core businesses Net loans & advances to customers (£bn) UK PBB Commercial Banking +5% +9% 126.0 99.2 119.8 91.3 FY 2015 H1 2016 FY 2015 H1 2016 Private Banking RBS International +5% +16% 11.8 8.5 11.2 7.3 FY 2015 H1 2016 FY 2015 H1 2016 11
Supporting growth – a well positioned balance sheet Key ratios at H1 2016: Loan to Deposit Net Stable Funding Liquidity Coverage 92% 119% 116% 12
Mortgages – competing on service, not price RBS/ Natwest 60% LTV 2yr Fixed vs. Weighted Average Market Price (“WAMP”) 60% LTV 2 Year Fixed 2.20% 2.15% 2.10% 2.05% 2.00% 1.95% 1.90% 1.85% 1.80% 1.75% RBS/NatWest 2 YR Fixed, LTV 60% WAMP 13
Agenda Core bank doing well, but environment tougher H1 results represent halfway point in our 5-year plan Driving value and performance Concluding remarks 14
We continue to deliver on our targets Priorities 2016 Goals H1 2016 progress Maintain Bank CET1 ratio of 13% CET1 ratio of 14.5% Strength & Successfully issued $2.65 billion of AT1 £2 billion AT1 issuance capital notes (£2 billion equivalent) sustainability Capital Resolution RWAs around £30 - £35 RWAs down £6.7 billion to £42.3 billion in H1 billion at the end of 2016 (1) 2016. Year on year Royal Bank of Scotland Customer Narrow the gap to No.1 in Net Promoter Business (Scotland) has narrowed the gap. experience Scores in every primary UK brand NatWest Personal and RBSG Commercial have seen improvements in NPS Simplifying the Operating expenses down £404 million (2) and Reduce operating expenses by £800 million (2) we remain on track to achieve our target bank Supporting Net 4% growth in PBB and CPB customer Net lending in PBB and CPB up 15% on an annualised basis in the half year growth loans Employee Raise employee engagement to within two Reviewed annually during Q3 points of the GFS norm engagement (1) Revised target following the EU Referendum, and the resultant significant weakening of sterling (2) Excluding litigation and conduct costs, restructuring costs, write down of other intangible assets, the 15 operating costs of Williams & Glyn
Lowered costs by over £2.5bn over the last 2.5 years Reduction in Adjusted Operating Costs from 2013 - H1 2016 (£bn) (1) (1.5) 11.9 (1.0) (2) 10.4 (0.8) (3) 9.4 8.6 2.1 Other 7.3 Core 2014 2013 2015 2016 Target (1) £0.4bn is made up of the benefit of lower intangible asset write-offs of 2013-£344m, 2014-£146m as well as the year on year benefit of FX (2) This includes £71m lower intangible write offs offset by £29m 16 growth in W&G (3) Excluding litigation and conduct costs, restructuring costs, write down of goodwill and other intangible assets and the operating costs of Williams & Glyn
Legacy – significant reduction of businesses & portfolios Legacy business & portfolios (RWAs) (£bn) (69%) Citizens 176 Williams & Glyn W&G IPB 68 Capital Resolution Residual 10 central items 2 and other 65 4 55 (15%) 10 1 10 95 10 48 42 ~30-35 3 2 0 FY 2014 Q1 2016 Q2 2016 FY 2016 revised Target (1) 17 (1) Capital Resolution expected to reduce RWAs to around £30-35bn by the end of 2016, W&G RWAs expected to be broadly stable
Williams & Glyn update Decision taken to stop work on the plan to create a cloned bank for the separation and divestment of W&G Focus on alternative means to achieve divestment, including asset or business sale to third parties More uncertain economic outlook, and lower-for-longer rate environment, undermine the standalone viability of the entity Alternative options remain under consideration Deadline set by the European Commission for the end of 2017 remains in place No change to restructuring cost guidance at this stage – will update as and when these become clearer 18
Outstanding issues RMBS (DoJ, NCUA, FHFA, and other small claims) Williams & Glyn UK 2008 rights issue shareholder litigation FCA SME treatment review Other various UK and Ireland customer redress issues 19
Agenda Core bank doing well, but environment tougher H1 results represent halfway point in our 5-year plan Driving value and performance Concluding remarks 20
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