The Royal Bank of Scotland Group H1 2013 Results 2 nd August 2013 - PowerPoint PPT Presentation

The Royal Bank of Scotland Group H1 2013 Results 2 nd August 2013

Important Information 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’, ‘believes’, ‘should’, ‘intend’, ‘plan’, ‘could’, ‘probability’, ‘risk’, ‘Value-at-Risk (VaR)’, ‘target’, ‘goal’, ‘objective’, ‘will’, ‘endeavour’, ‘outlook’, ‘optimistic’, ‘prospects’ and similar expressions or variations on such expressions. In particular, this document includes forward-looking statements relating, but not limited to: the Group’s restructuring plans, divestments, capitalisation, portfolios, net interest margin, capital ratios, liquidity, risk weighted assets (RWAs), return on equity (ROE), profitability, cost:income ratios, leverage and loan:deposit ratios, funding and risk profile; discretionary coupon and dividend payments; certain ring-fencing proposals; sustainability targets; the Group’s future financial performance; the level and extent of future impairments and write-downs, including sovereign debt impairments; and the Group’s potential exposures to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity and equity price risk. These statements are based on current plans, estimates and projections, and are subject to inherent risks, uncertainties and other factors which could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements. For example, certain market risk disclosures are dependent on choices about key model characteristics and assumptions and are subject to various limitations. By their nature, certain of the market risk disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated. Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to: the global economic and financial market conditions and other geopolitical risks, and their impact on the financial industry in general and on the Group in particular; the ability to implement strategic plans on a timely basis, or at all, including the disposal of certain Non-Core assets and assets and businesses required as part of the State Aid restructuring plan; organisational restructuring, including any adverse consequences of a failure to transfer, or delay in transferring, certain business assets and liabilities from RBS N.V. to RBS; the ability to access sufficient sources of liquidity and funding; deteriorations in borrower and counterparty credit quality; litigation and regulatory investigations including investigations relating to the setting of LIBOR and other interest rates; costs or exposures borne by the Group arising out of the origination or sale of mortgages or mortgage-backed securities in the United States; the extent of future write-downs and impairment charges caused by depressed asset valuations; the value and effectiveness of any credit protection purchased by the Group; unanticipated turbulence in interest rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices, equity prices and basis, volatility and correlation risks; changes in the credit ratings of the Group; ineffective management of capital or changes to capital adequacy or liquidity requirements; changes to the valuation of financial instruments recorded at fair value; competition and consolidation in the banking sector; the ability of the Group to attract or retain senior management or other key employees; regulatory or legal changes (including those requiring any restructuring of the Group’s operations) in the United Kingdom, the United States and other countries in which the Group operates or a change in United Kingdom Government policy; changes to regulatory requirements relating to capital and liquidity; changes to the monetary and interest rate policies of central banks and other governmental and regulatory bodies; changes in UK and foreign laws, regulations, accounting standards and taxes, including changes in regulatory capital regulations and liquidity requirements; the implementation of recommendations made by the Independent Commission on Banking (ICB) and their potential implications; impairments of goodwill; pension fund shortfalls; general operational risks; HM Treasury exercising influence over the operations of the Group; insurance claims; reputational risk; the ability to access the contingent capital arrangements with HM Treasury; the conversion of the B Shares in accordance with their terms; limitations on, or additional requirements imposed on, the Group’s activities as a result of HM Treasury’s investment in the Group; the outcome of the review being undertaken by HM Treasury into whether RBS should be split into "good" and "bad" banks including any state aid implications; and the success of the Group in managing the risks involved in the foregoing. The forward-looking statements contained in this document speak only as of the date of this announcement, and the Group does not undertake to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. 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 solicitation of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.

Introduction Philip Hampton, Chairman

Business Highlights & Review Stephen Hester, Group Chief Executive

Business highlights Group pre-tax profit of £1,374m vs. loss of £(1,682)m in H112 Strong improvements in capital position: � Core Tier 1 ratio up 30bps to 11.1%, ‘fully loaded’ Basel III ratio up 50bps to 8.7% � Target over 9% ‘fully loaded’ ratio by end 2013 and approaching 10% by end 2014 � ‘Fully loaded’ Basel III leverage ratio improved to 3.4% vs. 3.1% at FY12 Robust Safety and Soundness � Funding and liquidity metrics remain at ‘gold standard’ targets � Total funded assets £720bn below peak, £86bn down YoY Core Business – performance resilient: � R&C continues to ‘run hard to stand still’ given environment. 9.4% RoE ex. Ulster � Ulster H113 loss narrowed 41% (£226m) YoY on lower credit costs � Markets adjusting to re-shape and re-sizing Non-Core – further reduction achieved: � Funded assets reduced by £12bn in H113 to £45.4bn; FY13 improved target of £36-38bn � Non-Core losses falling and already 92% below H1 2009 peak Tackling legacy conduct issues: � Regulatory provisions, PPI top-up and litigation items substantially offset by bond gains, LME gains Focused on serving customers well: � Sustained strong customer franchises across our Core business. Net promoter scores stable/slightly up 1

Financial highlights Core Business: H113 1 Operating profit £2.5bn R&C businesses saw a moderate top line decline as economic activity remains muted 2 Core ex Ulster RoE 9.4%; YoY decline reflects transition stage of Markets restructuring Return on Equity 7.4% NIM trend remains favourable R&C NIM 2.91% 63% Cost : income ratio Absolute costs down 6% YoY Impairments £1.3bn Down 15% YoY, Ulster down 30% YoY 3 88% Loan : deposit ratio Strong position maintained; seeking loan growth Group Progress: H113 Operating profit +5% (£75m) YoY and up £184m QoQ £1.7bn Non-Core funded £45.4bn Further £7.5bn reduction QoQ driven by run-off and sales assets Capital strength 11.1% CT1 ratio up 30bps driven by RWA reduction. FLBIII CT1 ratio increased 50bps to 8.7% Pre-tax profit £1.4bn Versus £1.7bn loss in H112 1 Excluding own credit adjustment (OCA). 2 Equity allocated based on share of Group tangible equity. 3 Net of provisions. 2

UK lending update Supporting Homeowners Mortgage applications UK gross mortgage balances, £bn Mortgage applications (£bn) 8 +35% +72% 109.3 102.5 6 81.0 4 2 Q112 Q212 Q312 Q412 Q113 Q213 2008 Q212 Q213 Support for Small Businesses � UK mortgage balances have risen 35% since SME loan and overdraft applications (£m) 2008 to £109.3bn in Q213 in a market that has grown by only 3% 1,100 � Significant increase in mortgage applications (up 1,018 984 72% QoQ) after dip for retraining and 1,000 917 accreditation programme for mortgage advisors 914 893 861 in Q1 900 � Signs of improvement in SME loan demand with 800 the value of Q213 loan and overdraft applications up 8% QoQ Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 3