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Management presentation - 9.00am
Audio Webcast
Slides
Dial in details
| UK: | 0871 700 0145 |
| International: | +44 (0) 1452 550 000 |
| USA: | 1 866 247 4222 |
| Replay access number: 40487409 | |
| Replay available until 17th May 2013 | |
Management Interview
Philip Hampton - Chairman
Highlights
- RBS reports a Q1 2013 pre-tax profit of £826 million
- Group operating profit(1) of £829 million, up from £553 million in Q4 2012
- Q1 2013 net attributable profit of £393 million
- Core Tier 1 ratio increases 50 basis points to 10.8%, or 8.2% on a fully loaded Basel III basis
- Tangible net asset value up 3% to 459p per share
Successful rebuild of financial strength
- RBS's Core Tier 1 ratio strengthened by 50 basis points to 10.8%, largely driven by the continuing reduction in Non-Core and Markets risk-weighted assets.
- On a fully loaded Basel III basis, the Group's Core Tier 1 ratio improved by 50 basis points to 8.2%.
- Non-Core funded assets were reduced by £6 billion at constant exchange rates to £53 billion and the division is on track to hit its target of £40 billion by the end of 2013.
- Continuing deposit inflows improved the loan:deposit ratio to 99%, and our liquidity pool of £158 billion covered short-term wholesale funding of £43 billion by 3.7 times.
- Risk elements in lending fell by 2% at constant exchange rates and provision coverage was further strengthened in Non-Core and Ulster Bank. The Group charge for loan impairments fell 20% versus prior year.
- Credit trends in Ireland are turning a corner, with Ulster Bank Core and Non-Core impairment losses down 27% from Q1 2012 and 29% from Q4 2012.
- Tangible net asset value per share increased 3% to 459p from 446p at 31 December 2012.
Operating performance is resilient
- Group pre-tax profit was £826 million, £577 million excluding own credit adjustments, compared with a loss of £2,227 million in Q4 2012. Group operating profit(1) was £829 million, up 50% from Q4 2012, driven by a reduction in Non-Core losses.
- Profit attributable to shareholders was £393 million, or £194 million excluding the impact of own credit adjustments.
- Core operating profit of £1,334 million compares with £1,495 million in Q4 2012 and £1,639 million in Q1 2012. Retail & Commercial profits were up 12% from Q1 2012 to £1,010 million, with Ulster Bank posting a material improvement. Markets showed a seasonal increase versus Q4 2012 to £278 million, though down significantly relative to the prior year's strong first quarter.
- Non-Core operating losses of £505 million were 46% lower than in Q4 2012, driven by a further reduction in impairments.
Good progress in business restructuring
- The sale of a further tranche of Direct Line Group shares in March took the Group's stake below 50%, in line with the European Commission (EC) state aid agreement.
- The Group continues to work towards a full separation and initial public offering of its branchbased business that is mandated for disposal by the EC. The business is profitable and wellfunded, and we continue to have discussions with potential investors in the business. We anticipate re-branding this business under the Williams & Glyn's name.
- As indicated in the Group's 2012 annual results announcement, the Markets business is being restructured with a 2014 target of reducing risk-weighted assets to £80 billion, on a Basel III basis. Our intention is to sustain the business's core strengths in fixed income products while focusing on serving our corporate and investor clients well.
Continuing commitment to customers
- RBS is committed to serving its customers well. Right across our business this is our top priority, to sustain and to improve what we do.
- Core lending to SMEs(2) rose 1% from Q4 2012 to £34 billion, while the wider market remained flat. UK residential mortgage lending remained broadly stable at £110.2 billion. UK Retail mortgage balances stand 33% above 2008 levels, although Q1 2013 volumes were affected by extensive staff retraining.
- During Q1 2013 RBS has been pleased to offer over £1.5 billion of discounted loans to SMEs and more than £327 million of mortgages to homebuyers in association with the Bank of England's Funding for Lending Scheme (FLS). Given its very strong liquidity position, RBS has had no need to draw on this public funding during the quarter.
- During the quarter RBS offered more than £13 billion of loans and facilities to UK businesses, including £8 billion to SMEs, and renewed nearly £7 billion of overdrafts, of which £2 billion was for SMEs.
- The average interest rate charged on RBS's SME loans was 3.88% in Q1 2013, down from 3.93% in the prior quarter and from 4.14% in Q1 2012.
- The Group has maintained broadly stable market shares across its major customer franchises. Net Promoter Scores improved slightly in Q1 2013 in a number of key areas.
- Efforts to simplify processes and improve customer experience continue; changes to the current account opening process are being piloted that have so far significantly reduced account opening times.
Outlook
- RBS expects continued good progress on all 'safety and soundness' measures including a fully loaded Basel III Core Tier 1 ratio of around 9% by the end of 2013.
- The Bank has strong ability to fund lending growth as customer demand grows.
- Operating results in Retail and Commercial banking are expected to be resilient with modest improvement in net interest margin, cost reduction and improving impairment trends. Income is likely to mirror customer activity levels.
- Markets-related income remains difficult to predict but we expect a muted year overall as the business transitions towards its revised steady-state shape and size.
- We expect to deliver Group operating costs (excluding Direct Line Group) below market consensus expectations of c.£13.2 billion this year, with further meaningful cost reductions in 2014 and 2015.
Notes:
(1) Operating profit before tax, own credit adjustments, Payment Protection Insurance costs, Interest Rate Hedging Products redress and related costs, regulatory fines, integration and restructuring costs, loss on redemption of own debt, write-down of goodwill and other intangible assets, Asset Protection Scheme, amortisation of purchased intangible assets, strategic disposals, bank levy and RFS Holdings minority interest and includes the results of Direct Line Group on a managed basis, which are included in the discontinued operations in the statutory results until 12 March 2013 and as an associated undertaking thereafter ('operating profit'). Statutory operating profit before tax was £826 million for the quarter ended 31 March 2013.
(2) Core SME lending excludes Non-Core and commercial property lending.
Key Financial Data
| Core Business: | ||
|---|---|---|
| Q1 13 | ||
| Operating profit1 | £1.3bn | Resilient start to year |
| Return on Equity2 | 8.2% | Core ex Ulster RoE 10.3% |
| R&C NIM | 2.90% | Broadly stable NIM, expect gentle uplift from here |
| Cost : income ratio4 | 64% | Costs down 10% YoY |
| Impairments | £0.6bn | Down 20% QoQ, Ulster down 39% YoY |
| Loan : deposit ratio5 | 90% | Strong position maintained |
| Group Progress: | ||
|---|---|---|
| Q1 13 | ||
| Operating Profit | £0.8bn | +50% QoQ driven by lower Non-Core losses and seasonally higher Markets |
| Non-Core funded assets | £53bn | Further £6bn reduction QoQ in constant currency driven by run-off and sales |
| Capital strength | 10.8% | CT1 ratio increased 50bps driven by RWA reduction. FLBIII CT1 ratio increased 50bps to 8.2% |
| Pre-tax profit | £0.8bn | QoQ reduction in below the line items supports profitability |
1 - Excluding own credit adjustment (OCA).
2 - Equity allocated based on share of Group tangible equity.
3 - Ongoing businesses.
4 - Adjusted C:I ratio net of insurance claims.
5 - Net of provisions.
2 - Equity allocated based on share of Group tangible equity.
3 - Ongoing businesses.
4 - Adjusted C:I ratio net of insurance claims.
5 - Net of provisions.