Interim Management Statement

RNS Number : 7759V
Royal Bank of Scotland Group PLC
31 October 2014
 




The Royal Bank of Scotland Group plc

Q3 2014 Results

 

Contents

Page 



Introduction

1

Highlights

2

Analysis of results

10

Customer franchise and segment performance

18

Statutory results

34

 


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', 'believe', '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 Royal Bank of Scotland Group's (RBS) restructuring and strategic plans, divestments, capitalisation, portfolios, net interest margin, capital and leverage ratios, liquidity, risk-weighted assets (RWAs), RWA equivalents (RWAe), return on equity (ROE), profitability, cost:income ratios, loan:deposit ratios, funding and risk profile; litigation, government and regulatory investigations including investigations relating to the setting of interest rates and foreign exchange trading and rate setting activities; costs or exposures borne by RBS arising out of the origination or sale of mortgages or mortgage-backed securities in the US; RBS's future financial performance; the level and extent of future impairments and write-downs; and RBS's exposure to political risks, credit rating risk and 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: global and UK economic and financial market conditions and other geopolitical risks, and their impact on the financial industry in general and on RBS in particular; the ability to implement strategic plans on a timely basis, or at all, including the on-going simplification of RBS's structure, rationalisation of and investment in its IT systems and the reliability and resilience of those systems, the divestment of Citizens Financial Group and the exiting of assets in RBS Capital Resolution as well as the disposal of certain other assets and businesses as announced or required as part of the State Aid restructuring plan; the achievement of capital and costs reduction targets; ineffective management of capital or changes to capital adequacy or liquidity requirements; organisational restructuring in response to legislation and regulation in the United Kingdom (UK), the European Union (EU) and the United States (US); the ability to access sufficient sources of capital, liquidity and funding when required; deteriorations in borrower and counterparty credit quality; the extent of future write-downs and impairment charges caused by depressed asset valuations; the value and effectiveness of any credit protection purchased by RBS; 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 RBS; changes to the valuation of financial instruments recorded at fair value; competition and consolidation in the banking sector; the ability of RBS to attract or retain senior management or other key employees; regulatory or legal changes (including those requiring any restructuring of RBS's operations) in the UK, the US and other countries in which RBS operates or a change in UK 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; impairments of goodwill; pension fund shortfalls; general operational risks; HM Treasury exercising influence over the operations of RBS; reputational risk; the conversion of the B Shares issued by RBS in accordance with their terms; limitations on, or additional requirements imposed on, RBS's activities as a result of HM Treasury's investment in RBS; and the success of RBS 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 RBS 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

 

Presentation of information

The financial information on pages 4 to 33, prepared using RBS's accounting policies, shows the operating performance of The Royal Bank of Scotland Group (RBS) on a non-statutory basis which excludes own credit adjustments, gain on redemption of own debt, write down of goodwill, strategic disposals and RFS Holdings minority interest (RFS MI). Such information is provided to give a better understanding of the results of RBS's operations.

 

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 2013 have been 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.

 

Contacts

 

For analyst enquiries:



Richard O'Connor

Head of Investor Relations

+44 (0) 20 7672 1758




For media enquiries:



RBS Press Office


+44 (0) 131 523 4205

 

Analysts and investors conference call

RBS will hold an audio Q&A session for analysts and investors on the results for the quarter ended 30 September 2014. Details are as follows:

 

Date:


Friday 31 October 2014

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

 

 

Announcement and slides

This announcement and the background slides are available on www.rbs.com/results

 

Financial supplement

A financial supplement containing income statement and balance sheet information for the nine quarters ending 30 September 2014 is available on www.rbs.com/results


Highlights

 

RBS reports a third successive quarterly profit, improved capital and further progress in de-risking.

 

Q3 2014 attributable profit was £896 million, up from £230 million in Q2 2014 and a loss of £828 million in Q3 2013. Profit before tax was £1,270 million compared with £1,010 million in Q2 2014 and a loss of £634 million in Q3 2013.

 

The quarter included net impairment provision releases of £801 million, principally in Ulster Bank and RBS Capital Resolution, and litigation and conduct costs of £780 million.

 

RBS continues to make excellent progress in building its capital ratios. The Common Equity Tier 1 ratio has strengthened 220 basis points since the year end and 70 basis points in the quarter to 10.8%.

 

Capital build was supported by further excellent progress in the nine months to 30 September in de-risking the balance sheet, including:

·      Further disposals and run-off in RCR, with funded assets down £11 billion.

·      A 16% reduction in RWAs in Corporate & Institutional Banking, including running down our US-backed product franchise.

·      The sale of €9 billion of securities in the RBS N.V. liquidity portfolio.

 

Personal & Business Banking continued to perform strongly with income growth of 3% in the quarter. Operating profit in Q3 2014 was £881 million, up 66% on Q2 2014.

 

Commercial & Private Banking had an improved performance with income up 1% compared with Q2 2014. Operating profit in Q3 2014 was £471 million, up 23% on Q2 2014.

 

Corporate & Institutional Banking had a weak quarter with an operating loss of £557 million which reflected litigation and conduct costs of £562 million, including £400 million relating to potential costs following investigations into the foreign exchange market, and significantly lower income.

 

Further progress has been made on improving efficiency, with adjusted operating expenses down 5% over the quarter. RBS remains on track to deliver its £1 billion operating cost reduction target for 2014, at constant foreign exchange rates.

 

The quarter saw RBS achieve the largest ever IPO of a US bank, listing 28.75% of Citizens Financial Group. We continue to target an IPO of Williams & Glyn towards the end of 2016.

 

RBS confirms it will retain Ulster Bank following completion of the strategic review. Ulster Bank remains a core part of RBS, offering a good strategic fit with our focused retail and commercial banking strategy. We have a good market position and believe that Ulster Bank can deliver attractive returns, with appropriate investment.

Highlights

 

Ross McEwan, Chief Executive, said:

"In February I placed trust at the heart of my new strategy for our bank. We have taken the first steps towards that goal, with early progress in making RBS simpler, clearer and fairer.

 

We are reducing costs, and are on track to achieve our capital targets.

 

UK and Ireland are showing signs of growth, and impairment trends are significantly better than we had anticipated at the start of the year.

 

We have confirmed today that Ulster Bank remains a core part of our bank. We have a good market position and believe that, with investment, Ulster Bank can deliver attractive shareholder returns in the future.

 

But we know we still have a long list of conduct and litigation issues to deal with and much, much more to do to restore our customers' trust in us."


Highlights

 

Summary consolidated income statement

for the period ended 30 September 2014








Quarter ended


Nine months ended


30 September 

30 June 

30 September 


30 September 

30 September 


2014 

2014 

2013*


2014 

2013*


£m 

£m 

£m 


£m 

£m 








Net interest income

2,863 

2,798 

2,783 


8,359 

8,225 

Non-interest income

1,496 

2,127 

2,111 


5,978 

7,277 








Total income

4,359 

4,925 

4,894 


14,337 

15,502 








Staff and non-staff expenses

(2,923)

(3,065)

(3,325)


(9,267)

(10,184)

Restructuring costs

(180)

(385)

(205)


(694)

(476)

Litigation and conduct costs

(780)

(250)

(349)


(1,030)

(969)








Operating expenses

(3,883)

(3,700)

(3,879)


(10,991)

(11,629)








Operating profit before impairment releases/(losses)

476 

1,225 

1,015 


3,346 

3,873 

Impairment releases/(losses)

801 

93 

(1,170)


532 

(3,320)








Operating profit/(loss)

1,277 

1,318 

(155)


3,878 

553 

Own credit adjustments

49 

(190)

(496)


(2)

(120)

Gain on redemption of own debt

- 

- 

13 


20 

204 

Write down of goodwill

- 

(130)

- 


(130)

- 

Strategic disposals

- 

- 

(7)


191 

(7)

RFS Holdings minority interest

(56)

12 

11 


(35)

110 








Profit/(loss) before tax

1,270 

1,010 

(634)


3,922 

740 

Tax charge

(333)

(371)

(81)


(1,066)

(759)








Profit/(loss) from continuing operations

937 

639 

(715)


2,856 

(19)

Profit/(loss) from discontinued operations, net of tax

3 

26 

(5)


38 

133 








Profit/(loss) for the period

940 

665 

(720)


2,894 

114 

Non-controlling interests

53 

(23)

(6)


11 

(123)

Other owners' dividends

(97)

(92)

(102)


(264)

(284)

Dividend access share dividend

- 

(320)

- 


(320)

- 








Profit/(loss) attributable to ordinary and







  B shareholders

896 

230 

(828)


2,321 

(293)








*Restated - see page 39.







 








Quarter ended


Nine months ended


30 September 

30 June

30 September 


30 September 

30 September 

Key metrics and ratios

2014 

2014 

2013 


2014 

2013 








Net interest margin

2.26%

2.22%

2.01%


2.20%

1.98%

Cost:income ratio

89%

75%

79%


77%

75%

Earnings/(loss) per share from continuing operations







  - basic

7.9p

1.9p

(7.4p)


20.4p

(3.6p)

  - adjusted (1)

7.5p

4.3p

(3.9p)


19.6p

(4.5p)

Return on tangible equity (2)

8.2%

2.2%

(6.9%)


7.3%

(0.8%)

Average tangible equity (2)

£43,536m

£42,122m

£48,282m


£42,231m

£49,025m

Average number of ordinary shares and equivalent B







  shares outstanding during the period (millions)

11,384 

11,335 

11,223 


11,333 

11,176 

 

Notes:

(1)

Adjusted earnings excludes own credit adjustments, gain on redemption of own debt, write down of goodwill, strategic disposals and RFS MI.

(2)

Tangible equity is equity attributable to ordinary and B shareholders less intangible assets.

 

Details of other comprehensive income are provided on page 35.


Highlights

 

Summary consolidated balance sheet at 30 September 2014

 

30 September 

30 June 

31 December 


2014 

2014 

2013 


£m 

£m 

£m 





Cash and balances at central banks

67,900 

68,670 

82,659 

Net loans and advances to banks (1,2)

29,090 

28,904 

27,555 

Net loans and advances to customers (1,2)

392,969 

385,554 

390,825 

Reverse repurchase agreements and stock borrowing

75,491 

81,705 

76,413 

Debt securities and equity shares

115,078 

120,628 

122,410 

Intangible assets

12,454 

12,173 

12,368 

Other assets (3)

39,107 

38,568 

27,609 





Funded assets

732,089 

736,202 

739,839 

Derivatives

314,021 

274,906 

288,039 





Total assets

1,046,110 

1,011,108 

1,027,878 





Bank deposits (2,4)

38,986 

39,179 

35,329 

Customer deposits (2,4)

405,367 

401,226 

414,396 

Repurchase agreements and stock lending

75,101 

83,262 

85,134 

Debt securities in issue

53,487 

59,087 

67,819 

Subordinated liabilities

24,412 

24,809 

24,012 

Derivatives

310,361 

270,087 

285,526 

Other liabilities (3)

73,558 

72,495 

56,447 





Total liabilities

981,272 

950,145 

968,663 

Non-controlling interests

2,747 

618 

473 

Owners' equity

62,091 

60,345 

58,742 





Total liabilities and equity

1,046,110 

1,011,108 

1,027,878 





Contingent liabilities and commitments

238,248 

239,121 

242,009 






30 September 

30 June 

31 December

Key metrics and ratios

2014 

2014 

2013 





Tangible net asset value per ordinary and B share (5)

388p

376p

363p

Loan:deposit ratio

97%

96%

94%

Short-term wholesale funding (6)

£31bn

£34bn

£32bn

Wholesale funding (6)

£94bn

£102bn

£108bn

Liquidity portfolio

£143bn

£138bn

£146bn

Liquidity coverage ratio (7)

102%

104%

102%

Net stable funding ratio (8)

110%

111%

118%

Common Equity Tier 1 ratio

10.8%

10.1%

8.6%

Risk-weighted assets

£381.7bn

£392.1bn

£429.1bn

Tangible equity (9)

£44,345m

£42,880m

£41,082m

Number of ordinary shares and equivalent B shares in issue (millions) (10)

11,421 

11,400 

11,303 

 

Notes:

(1)

Excludes reverse repurchase agreements and stock borrowing.

(2)

Excludes disposal groups.

(3)

Includes disposal groups.

(4)

Excludes repurchase agreements and stock lending.

(5)

Tangible net asset value per ordinary and B share represents total tangible equity divided by the number of ordinary shares and equivalent B shares in issue.

(6)

Excludes derivative collateral.

(7)

In January 2013, the BCBS published its final guidance for calculating LCR currently expected to come into effect from January 2015 on a phased basis. Pending the finalisation of the LCR rules within the EU, RBS monitors LCR based on its interpretation of current guidance available for EU LCR reporting. The reported LCR will change over time with regulatory developments. Due to differences in interpretation, RBS's ratio may not be comparable with those of other financial institutions.

(8)

NSFR for all periods has been calculated using RBS's current interpretations of the existing rules relating to various BCBS guidance to date. BCBS is expected to issue revised guidance on NSFR towards the end of 2014 or early in 2015. Therefore, reported NSFR will change over time with regulatory developments. Due to differences in interpretation, RBS's ratio may not be comparable with those of other financial institutions.

(9)

Tangible equity is equity attributable to ordinary and B shareholders less intangible assets.

(10)

Includes 33 million Treasury shares (30 June 2014 - 33 million; 31 December 2013 - 34 million).


Highlights

 

Q3 2014 performance

●

Operating profit(1) was £1,277 million compared with £1,318 million in Q2 2014 and a loss of £155 million in Q3 2013. Restructuring costs totalled £180 million, down from £385 million in the prior quarter, while litigation and conduct costs, including £400 million of potential conduct costs following investigations into the foreign exchange market and an additional £100 million provision for Payment Protection Insurance, were £780 million compared with £250 million in Q2 2014.



●

Operating profit(1) excluding restructuring costs and litigation and conduct costs (adjusted operating profit) improved to £2,237 million from £1,953 million in Q2 2014 and £399 million in Q3 2013.



●

Total income was 11% lower at £4,359 million, mostly driven by the scaling back of activity in CIB, the non-repeat of the £170 million gain on CFG's sale of the Illinois franchise in Q2 2014, and £104 million(2) losses recorded on the disposal of available-for-sale debt securities in the RBS N.V. liquidity portfolio. These were partly offset by a £65 million improvement in net interest income resulting from better deposit margins and a £121 million quarter on quarter improvement in RCR non-interest income principally driven by disposal gains. Income was up 3% in PBB and 1% in CPB.



●

Operating expenses were up 5% at £3,883 million. Excluding restructuring costs and litigation and conduct costs totalling £960 million (Q2 2014 - £635 million), operating expenses were down 5% compared with Q2 2014. RBS remains on track to deliver £1 billion of cost reductions in 2014.



●

A net release of impairment provisions of £801 million in the quarter compares with a net release of £93 million in Q2 2014. These were recorded primarily in RCR and Ulster Bank, reflecting the sustained improvements in economic and asset market conditions in the UK and especially Ireland. While net impairment charges increased in UK PBB and in CPB as a result of lower latent provision releases than in Q2 2014, underlying credit conditions remain benign. Risk elements in lending declined by 11% or £3.6 billion in the quarter; the reduction from the beginning of the year was £8.9 billion, or 23%.



●

Profit before tax, which includes a gain on own credit of £49 million, was £1,270 million, up 26% from Q2 2014. 



●

Profit attributable to ordinary and B shareholders was £896 million, up from £230 million in Q2 2014.



●

Tangible net asset value per ordinary and B share was 388p at 30 September 2014, compared with 376p at 30 June 2014.

 

Balance sheet and capital

●

Funded assets fell by £4.1 billion to £732.1 billion at 30 September 2014. Growth in lending in the core business was more than offset by disposals and run-off in RCR, disposals of available-for-sale securities, and continuing risk reduction in CIB. These balance sheet reductions, partially offset by the impact of the strengthening US currency on dollar-denominated balances, resulted in a 3% reduction in risk-weighted assets (RWAs) to £381.7 billion.



●

Total assets increased by £35.0 billion, driven by increases in the market value of derivatives. The increase in derivative assets and liabilities mostly related to foreign exchange contracts: primarily due to the strengthening of the US dollar but also reflecting somewhat higher trading volumes following an upsurge in currency volatility. The value of interest rate derivatives also increased, driven largely by the downward shift in yields.

 

 

Notes:

(1)

Operating profit before tax, own credit adjustments, gain on redemption of own debt, write down of goodwill, strategic disposals and RFS Holdings minority interest ("operating profit"). Statutory operating profit before tax was £1,270 million for the quarter ended 30 September 2014 and £3,922 million for the nine months ended 30 September 2014.

(2)

An additional £73 million loss attributable to other shareholders is included within RFS Holdings minority interest.

 

 

Highlights

 

Balance sheet and capital (continued)

●

Loans and advances to customers grew by £7.4 billion, or 2%, to £393.0 billion.


○

UK PBB loans and advances to customers grew by £0.6 billion, with net mortgage growth of £0.8 billion partially offset by declining card balances.  


○

Commercial Banking loans and advances grew by £1.1 billion, with demand strongest in the mid- and large corporate segments.


○

CIB's loans and advances increased by £4.1 billion driven by a combination of lending to large corporates, and collateral movements.   


○

By the end of September 2014, pro-active 'Statements of Appetite' had been issued to more than 300,000 SME customers, offering in excess of £12.2 billion of new or additional funding. Gross new lending to SMEs (including customers in both PBB and CPB) totalled £2.6 billion in Q3 2014, up 24% from Q3 2013.

●

Customer deposits grew by £4.1 billion, or 1%, to £405.4 billion, mostly reflecting CFG's growth in money markets and term deposits, amplified by the strengthening of the US dollar.



●

CET1 ratio strengthened to 10.8%, compared with 10.1% at 30 June 2014 and 8.6% at 31 December 2013. The improvement reflects the attributable profit for the quarter together with favourable movements in cash flow and foreign currency reserves along with a 3% reduction in risk-weighted assets. The leverage ratio improved by 20 basis points to 3.9%.



●

RBS's results in the European Banking Authority's stress test, which was based on data from the end of 2013, were satisfactory. These results do not reflect the significant de-risking and good capital accretion that has taken place in the first three quarters of 2014 during which time the CET1 ratio has increased by 220 basis points to 10.8%.

 

Performance measures(1)

 

Measure

FY 2013

Q3 2014

Medium-term

Long-term

People

Great place to work

78%

72%


Engagement index ≥ GFS norm(2)

Efficiency

Cost:income ratio

95%

89%

~55%

~50%


Adjusted cost:income ratio(3)

72%

67%



Returns

Return on tangible equity(4)

Negative

8%

~9-11%

~12%+

Capital strength(5)

Common Equity Tier 1 ratio

8.6%

10.8%

≥12%

≥12%


Leverage ratio

3.4%

3.9%

3.5-4.0%

≥4.0%

 

Notes:

(1)

This table contains forecasts with significant contingencies. Please refer to 'Forward-looking statements'.

(2)

Global Financial Services (GFS) norm currently stands at 82%.

(3)

Excluding restructuring costs and litigation and conduct costs.

(4)

Calculated with tangible equity limited to a CET1 ratio of 12%.

(5)

Based on end-point CRR basis Tier 1 capital and revised 2014 Basel leverage framework.


 

Highlights

 

Building the number one bank for customer service, trust and advocacy in the UK

 



NatWest

RBS

Net Promoter Score (NPS)

Personal Banking

6 month rolling

Sept 2013

Sept 2014

Sept 2013

Sept 2014

Score

4

7

(17)

(4)

Current gap to be clear #1(1)


24pts


30pts

Business Banking

4 quarter rolling

Q3 2013

Q3 2014

Q3 2013

Q3 2014

Score

(12)

(13)

(35)

(27)

Current gap to be clear #1


37pts


59pts

Commercial Banking

4 quarter rolling

Q3 2013

Q3 2014

Q3 2013

Q3 2014

Score

(3)

15

(5)

0

Current gap to be clear #1


4pts


19pts

 

Note:

Personal: GfK FRS 6 month roll data. Latest base sizes NatWest England & Wales (3614) RBS  Scotland (541)

Question: "How likely is it that you would to recommend (brand) to a relative, friend or colleague in the next 12 months for current account banking?"

(1)

Current gap to be clear #1 is defined as the improvement in NPS required from the current score to establish a statistically significant lead over the current number one in each market or the improvement needed to establish a clear lead in a situation where our score is too close to another bank's to claim sole position as number one in the market. The gap is based on sample numbers as at 6 months ending September 2014 (Market: Main Financial Institutions which are either, banks or building societies with a national network of branded outlets and providing all main categories of financial products).


Business Banking: Charterhouse Business Banking Survey. Latest Base: NatWest England & Wales  1356, RBS Scotland 441.

Commercial Banking: Charterhouse Research GB Business Banking Survey, based on interviews with businesses with annual turnover between £2 million and £25 million, 12 month roll data (524 NatWest main bank customers, 225 RBS), weighted by region and turnover to be representative of businesses in GB.

 

●

Our purpose is to serve customers well.  Our actions are beginning to have an impact. 



●

We are seeing early signs of results from becoming simpler and clearer. Our 'Instant Saver with Savings Goals' product is the first, and only, banking product to achieve the 5-star Fairbanking Mark and we intend to achieve Fairbanking Marks for our other products.



●

While NatWest's NPS is flat for Personal Banking, it has made strong progress in Commercial Banking where no other bank scored more highly in Q3 2014. For the RBS brand, NPS scores recovered from minus seventeen to minus four in Personal Banking and from minus five to zero in Commercial Banking. However, we have much more to do in order to reach our goal of being number one for service, trust and advocacy by 2020.

 

Highlights

 

Outlook

These results reflect improvements in economic activity and asset values in RBS's core UK and Irish markets so far in 2014.  Economic growth in our core markets is expected to continue, although the pace looks likely to moderate into 2015. Against this backdrop, we anticipate further credit impairment releases in Q4 2014 offset by modest new impairments. The outlook for 2015 remains relatively benign, albeit with some risks to the downside. At such low levels of impairments there may be volatility in any quarter.

 

The net interest margin in Q4 2014 is expected to remain at around Q3 2014 levels, with modest asset margin pressure balanced by lower funding costs.

 

Income from the fixed income product suite is expected to remain weak during Q4, reflecting our ongoing balance sheet reduction programme, lower risk appetite, costs associated with exiting legacy portfolios and a weaker than anticipated trading performance during October.

 

RBS remains on track to deliver its targeted £1 billion of cost reductions in 2014 on a constant currency basis. Restructuring costs in Q4 2014 are expected to be higher, with some potential write-downs, as we reduce our footprint and simplify our systems and product set. Previous guidance on restructuring costs in the four year period to 2017 remains unchanged at £5 billion.

 

RCR guidance remains unchanged from the 30 September 2014 Trading Statement and, if market conditions remain favourable, we expect continuing strong progress in balance sheet and risk reductions and an accelerated timetable to achieve its wind-down goals.

 

Ongoing conduct and regulatory investigations and litigation continue to present challenges and are expected to be a material drag on both earnings and capital generation over the coming quarters. The timing and amounts of any further settlements or redress however remain uncertain and could be significant.


 

Analysis of results

 

Income








Quarter ended


Nine months ended


30 September 

30 June 

30 September 


30 September 

30 September 


2014 

2014 

2013 


2014 

2013 

Net interest income

£m 

£m 

£m 


£m 

£m 








Net interest income

2,863 

2,798 

2,783 


8,359 

8,225 








Average interest-earning assets







  - RBS

501,383 

502,347 

539,396 


505,285 

550,599 

    - Personal & Business Banking

155,818 

155,848 

158,527 


155,133 

159,605 

    - Commercial & Private Banking

93,021 

93,669 

92,551 


93,280 

93,402 

    - Citizens Financial Group

69,520 

68,234 

65,065 


68,409 

65,137 








Gross yield on interest-earning assets of banking







  business

3.04%

3.05%

3.07%


3.03%

3.09%

Cost of interest-bearing liabilities of banking business

(1.10%)

(1.16%)

(1.38%)


(1.16%)

(1.43%)








Interest spread of banking business

1.94%

1.89%

1.69%


1.87%

1.66%

Benefit from interest free funds

0.32%

0.33%

0.32%


0.33%

0.32%








Net interest margin (1,2)







  - RBS

2.26%

2.22%

2.01%


2.20%

1.98%

    - Personal & Business Banking

3.47%

3.40%

3.24%


3.41%

3.18%

    - Commercial & Private Banking

2.96%

2.91%

2.91%


2.92%

2.77%

    - Citizens Financial Group

2.82%

2.93%

2.94%


2.89%

2.92%

 

Non-interest income














Net fees and commissions

1,094 

1,063 

1,144 


3,212 

3,392 

Income from trading activities

235 

626 

599 


1,717 

2,489 

Other operating income

167 

438 

368 


1,049 

1,396 








Total non-interest income

1,496 

2,127 

2,111 


5,978 

7,277 








Total income

4,359 

4,925 

4,894 


14,337 

15,502 

 

Notes:

For the purposes of net interest margin calculations the following adjustments have been made.

(1)

Net interest income has been reduced by £7 million in Q3 2014 (Q2 2014 - £14 million; Q3 2013 - £19 million) and by £35 million in the nine months ended 30 September 2014 (nine months ended 30 September 2013 - £57 million) in respect of interest on financial assets and liabilities designated as at fair value through profit or loss.

(2)

Net interest income has been reduced by £38 million in Q3 2013 and £7 million in the nine months ended 30 September 2013 in respect of non-recurring adjustments.

 

Q3 2014 compared with Q2 2014

·

Net interest income increased by 2% to £2,863 million with improvements in deposit margins in UK PBB and Commercial Banking, supported by the quarter's higher day count.



·

Net interest margin (NIM) increased by four basis points to 2.26% supported by deposit re-pricing initiatives in UK PBB and Commercial Banking. CFG's reduced NIM was driven by: lower commercial lending spreads; higher borrowing costs resulting from the growth in money market accounts, term deposits and the issue of subordinated debt; and the impact of the Illinois franchise sale in Q2 2014.



·

Non-interest income totalled £1,496 million, down 30% from £2,127 million in Q2 2014. Within this, income from trading activities declined by £391 million, reflecting the strategic decision to concentrate on core product areas in CIB. Other operating income reduced by £271 million compared with Q2 2014, reflecting a non-repeat of the £170 million gain in Q2 2014 on the sale of the Illinois franchise by CFG, and losses of £104 million(1) on the disposal of available-for-sale debt securities.  

 

Note:

(1)

An additional £73 million loss attributable to other shareholders is included within RFS Holdings minority interest.

 

Analysis of results

 

Operating expenses








Quarter ended


Nine months ended


30 September 

30 June 

30 September 


30 September 

30 September 


2014 

2014 

2013 


2014 

2013 


£m 

£m 

£m 


£m 

£m 








Staff expenses

1,611 

1,693 

1,758 


4,951 

5,343 

Premises and equipment

490 

485 

540 


1,569 

1,619 

Other

516 

605 

683 


1,808 

2,162 

Restructuring costs*

180 

385 

205 


694 

476 

Litigation and conduct costs

780 

250 

349 


1,030 

969 








Administrative expenses

3,577 

3,418 

3,535 


10,052 

10,569 

Depreciation and amortisation

306 

282 

344 


857 

1,060 

Write down of other intangible assets

- 

- 

- 


82 

- 








Operating expenses

3,883 

3,700 

3,879 


10,991 

11,629 








Adjusted operating expenses (1)

2,923 

3,065 

3,325 


9,267 

10,184 








*Restructuring costs comprise:







  - staff expenses

79 

153 

137 


275 

279 

  - premises and equipment

53 

137 

4 


249 

29 

  - other

48 

95 

64 


170 

168 








Restructuring costs

180 

385 

205 


694 

476 








Staff costs as a % of total income

37%

34%

36%


35%

34%

Cost:income ratio

89%

75%

79%


77%

75%

Cost:income ratio - adjusted (1)

67%

62%

68%


65%

66%

Employee numbers (FTEs - thousands)

110.8 

113.6 

120.3 


110.8 

120.3 

 

Note:

(1)

Excluding restructuring costs and litigation and conduct costs.

 

Q3 2014 compared with Q2 2014

·

Operating expenses increased by 5% to £3,883 million, principally reflecting a £530 million increase in litigation and conduct costs to £780 million, which was partly offset by lower restructuring costs, down £205 million.



·

Litigation and conduct costs in Q3 2014 included £400 million of potential conduct costs following investigations into the foreign exchange market and an additional £100 million charge for PPI reflecting higher than expected reactive complaint volumes.



·

Adjusted operating expenses declined to £2,923 million, down £142 million or 5%. The fall was primarily attributable to tight control of discretionary expenditure, lower incentive accruals in CFG and CIB in particular, and the impact of the sale of the Illinois branches in Q2 2014. Adjusted operating expenses for the first nine months of the year were 9% lower than the comparable period in 2013.



·

The cost:income ratio was 89% compared with 75% in Q2 2014 reflecting higher litigation and conduct costs along with lower income. The adjusted cost:income ratio was 67%, up from 62% for Q2 2014, as lower income, primarily in CIB and Centre, outweighed the decline in operating expenses.

 

 

Analysis of results








Impairment (releases)/losses








Quarter ended


Nine months ended


30 September 

30 June 

30 September 


30 September 

30 September 


2014 

2014 

2013 


2014 

2013 


£m 

£m 

£m 


£m 

£m 








Loans

(803)

(89)

1,120 


(532)

3,281 

Securities

2 

(4)

50 


- 

39 








Total impairment (releases)/losses

(801)

(93)

1,170 


(532)

3,320 








Loan impairment (releases)/losses







  - individually assessed

(410)

(42)

580 


(297)

2,052 

  - collectively assessed

52 

221 

287 


400 

1,021 

  - latent

(445)

(258)

253 


(625)

217 








Customer loans

(803)

(79)

1,120 


(522)

3,290 

Bank loans

- 

(10)

- 


(10)

(9)








Loan impairment (releases)/losses

(803)

(89)

1,120 


(532)

3,281 








RBS excluding RCR/Non-Core

(193)

36 

584 


97 

1,842 

RCR

(610)

(125)

n/a


(629)

n/a

Non-Core

n/a

n/a

536 


n/a

1,439 








RBS loan impairment (releases)/losses

(803)

(89)

1,120 


(532)

3,281 








Customer loan impairment charge as a % of







  gross loans and advances (1)







RBS

(0.8%)

(0.1%)

1.0%


(0.2%)

1.0%

RBS excluding RCR/Non-Core

(0.2%)

- 

0.6%


- 

0.6%

RCR

(9.5%)

(1.7%)

n/a


(3.3%)

n/a

Non-Core

n/a

n/a

5.2%


n/a

4.7%

 

30 September 

30 June 

31 December 


2014 

2014 

2013 





Loan impairment provisions

£20.0bn

£22.4bn

£25.2bn

Risk elements in lending

£30.5bn

£34.1bn

£39.4bn

Provisions as a % of REIL




  - RBS

66%

66%

64%

  - RBS excluding RCR/Non-Core

57%

59%

56%

  - RCR

72%

71%

n/a

  - Non-Core

n/a

n/a

73%

REIL as a % of gross customer loans




  - RBS

7.4%

8.3%

9.4%

  - RBS excluding RCR/Non-Core

3.4%

3.6%

5.3%

  - RCR

67.6%

68.1%

n/a

  - Non-Core

n/a

n/a

51.8%

Note:

(1)

Excludes reverse repurchase agreements and includes disposals groups.

 

Analysis of results

 

Q3 2014 compared with Q2 2014

·

A net loan impairment release of £803 million was recorded in Q3 2014, £714 million higher than in Q2 2014. This included a £610 million release in RCR driven by the improved economic environment and rising asset values in the UK and especially Ireland, together with net provision releases in Ulster Bank supported by rising Irish residential property prices and proactive debt management. While UK PBB's net impairment charge increased as a result of lower latent releases, underlying credit conditions remain benign.



·

REIL decreased by £3.6 billion to £30.5 billion during Q3 2014. Of the reduction, £3.0 billion was in RCR which continued its strategy of disposing of non-performing assets. Continued favourable market conditions resulted in some disposals being achieved at prices above net book value. The £0.6 billion reduction in non-RCR was primarily in Commercial Banking portfolios due to repayments and write-offs.



·

REIL as a percentage of gross customer loans declined, both in RCR, to 67.6%, and in the rest of RBS to 3.4%.

 

Analysis of results

 








Risk elements in lending (REIL) and loan impairment provisions











Quarter ended 30 September 2014


REIL


Impairment provisions (1)


RBS




RBS




excl. RCR

RCR

Total


excl. RCR

RCR

Total


£m

£m

£m


£m

£m

£m









At beginning of period

13,653 

20,428 

34,081 


8,041 

14,405 

22,446 

Currency translation and other adjustments

(72)

(258)

(330)


(41)

(190)

(231)

Additions

808 

445 

1,253 





Repayments and disposals and transfers to performing book

(840)

(2,187)

(3,027)


- 

(6)

(6)

Transfers between REIL and potential problem loans

(91)

(18)

(109)





Amounts written-off

(403)

(962)

(1,365)


(403)

(962)

(1,365)

Recoveries of amounts previously written-off





43 

3 

46 

Net release to the income statement - continuing operations





(193)

(610)

(803)

Unwind of discount (2)





(29)

(27)

(56)









At end of period

13,055 

17,448 

30,503 


7,418 

12,613 

20,031 










Nine months ended 30 September 2014


REIL


Impairment provisions (1)


RBS




RBS




excl. RCR

RCR

Total


excl. RCR

RCR

Total


£m

£m

£m


£m

£m

£m









At beginning of period

15,276 

24,116 

39,392 


8,716 

16,500 

25,216 

Currency translation and other adjustments

(239)

(916)

(1,155)


(159)

(585)

(744)

Additions

3,081 

2,332 

5,413 





Repayments and disposals and transfers to performing book

(3,580)

(5,537)

(9,117)


- 

(6)

(6)

Transfers between REIL and potential problem loans

(212)

34 

(178)





Amounts written-off

(1,271)

(2,581)

(3,852)


(1,271)

(2,581)

(3,852)

Recoveries of amounts previously written-off





127 

17 

144 

Net charge/(release) to the income statement - continuing operations





97 

(629)

(532)

Unwind of discount (2)





(92)

(103)

(195)









At end of period

13,055 

17,448 

30,503 


7,418 

12,613 

20,031 

 

Notes:

(1)

Includes provisions relating to loans and advances to banks (refer to the following page).

(2)

Recognised in interest income.

 

Analysis of results

 

Loans and related credit metrics: Loans, REIL, provisions and impairments

The table below analyses gross loans and advances to banks and customers (excluding reverse repos) and related credit metrics by sector and geography (by location of lending office).

 




Credit metrics


Quarter ended

30 September 2014 (1)




REIL as a

Provisions

Provisions


Impairment


Gross



% of gross

as a %

as a % of


charge/

Amounts

loans

REIL

Provisions

loans

of REIL

gross loans


(releases)

written-off

£m

£m

£m

%

%

%


£m

£m











Central and local government

8,490 

1 

1 

- 

100 

- 


(4)

- 

Finance

37,552 

454 

280 

1.2 

62 

0.7 


(15)

2 

Personal

- mortgages

149,505 

5,722 

1,579 

3.8 

28 

1.1 


(61)

60 


- unsecured

28,592 

2,038 

1,700 

7.1 

83 

5.9 


101 

178 

Property

54,236 

14,582 

10,261 

26.9 

70 

18.9 


(295)

708 

Construction

6,178 

1,146 

722 

18.5 

63 

11.7 


3 

48 

Manufacturing

22,854 

526 

378 

2.3 

72 

1.7 


16 

109 

Finance leases (2)

13,798 

184 

138 

1.3 

75 

1.0 


1 

10 

Retail, wholesale and repairs

18,430 

1,010 

698 

5.5 

69 

3.8 


(23)

27 

Transport and storage

15,200 

1,179 

552 

7.8 

47 

3.6 


(31)

62 

Health, education and leisure

15,404 

775 

422 

5.0 

54 

2.7 


24 

80 

Hotels and restaurants

8,099 

1,265 

712 

15.6 

56 

8.8 


(33)

19 

Utilities

5,429 

123 

56 

2.3 

46 

1.0 


(14)

2 

Other

30,314 

1,456 

1,138 

4.8 

78 

3.8 


(27)

51 

Latent

- 

- 

1,354 

- 

- 

- 


(445)

n/a












414,081 

30,461 

19,991 

7.4 

66 

4.8 


(803)

1,356 











of which:










UK










  - residential mortgages

113,064 

1,590 

233 

1.4 

15 

0.2 


(22)

30 

  - personal lending

16,116 

1,722 

1,538 

10.7 

89 

9.5 


77 

131 

  - property

38,740 

6,219 

3,573 

16.1 

57 

9.2 


(158)

566 

  - construction

4,569 

832 

466 

18.2 

56 

10.2 


(10)

46 

  - other

112,986 

3,260 

2,230 

2.9 

68 

2.0 


(122)

166 

Europe










  - residential mortgages

15,759 

3,210 

1,196 

20.4 

37 

7.6 


(54)

(5)

  - personal lending

1,160 

112 

101 

9.7 

90 

8.7 


1 

18 

  - property

9,732 

8,278 

6,642 

85.1 

80 

68.2 


(139)

139 

  - construction

1,107 

304 

247 

27.5 

81 

22.3 


12 

3 

  - other

21,120 

3,247 

2,703 

15.4 

83 

12.8 


(425)

164 

US










  - residential mortgages

20,320 

907 

148 

4.5 

16 

0.7 


16 

36 

  - personal lending

10,272 

188 

42 

1.8 

22 

0.4 


24 

28 

  - property

4,991 

60 

21 

1.2 

35 

0.4 


2 

3 

  - construction

465 

2 

1 

0.4 

50 

0.2 


- 

1 

  - other

29,605 

230 

624 

0.8 

271 

2.1 


1 

26 












RoW

14,075 

300 

226 

2.1 

75 

1.6 


(6)

4 














414,081 

30,461 

19,991 

7.4 

66 

4.8 


(803)

1,356 












Banks

29,146 

42 

40 

0.1 

95 

0.1 


- 

9 

 

Notes:

(1)

Includes disposal groups.

(2)

Includes instalment credit.

 

Analysis of results

 

Capital and leverage ratios









End-point CRR basis (1)


PRA transitional basis


30 September 

30 June 

31 December 


30 September 

30 June 

31 December 


2014 

2014 

2013 (2)


2014 

2014 

2013 (2)

Risk asset ratios

% 

% 

% 


% 

% 

% 









CET1 (3)

10.8 

10.1 

8.6 


10.8 

10.1 

8.6 

Tier 1

10.8 

10.1 

8.6 


12.7 

12.1 

10.3 

Total

13.1 

12.4 

10.6 


16.3 

15.6 

13.6 









Capital

£bn 

£bn 

£bn 


£bn 

£bn 

£bn 









Tangible equity

44.3 

42.9 

41.1 


44.1 

42.9 

41.1 

Expected loss less impairment provisions

(1.6)

(1.3)

(1.7)


(1.6)

(1.3)

(1.7)

Prudential valuation adjustment (PVA)

(0.4)

(0.5)

(0.8)


(0.4)

(0.5)

(0.8)

Deferred tax assets

(1.6)

(1.7)

(2.3)


(1.6)

(1.7)

(2.3)

Own credit adjustments

0.6 

0.6 

0.6 


0.6 

0.6 

0.6 

Pension fund assets

(0.2)

(0.2)

(0.2)


(0.2)

(0.2)

(0.2)

Other deductions

0.1 

(0.1)

0.1 


0.2 

(0.1)

0.1 









Total deductions

(3.1)

(3.2)

(4.3)


(3.0)

(3.2)

(4.3)









CET1 capital

41.2 

39.7 

36.8 


41.1 

39.7 

36.8 

AT1 capital

- 

- 

- 


7.5 

7.6 

7.5 

Tier 1 capital

41.2 

39.7 

36.8 


48.6 

47.3 

44.3 

Tier 2 capital

8.8 

9.0 

8.7 


13.6 

13.9 

13.8 









Total regulatory capital

50.0 

48.7 

45.5 


62.2 

61.2 

58.1 









Risk-weighted assets

£bn

£bn

£bn


£bn

£bn

£bn









Credit risk








  - non-counterparty

277.0 

283.3 

317.9 


277.0 

283.3 

317.9 

  - counterparty

38.2 

38.6 

39.1 


38.2 

38.6 

39.1 

Market risk

29.7 

33.4 

30.3 


29.7 

33.4 

30.3 

Operational risk

36.8 

36.8 

41.8 


36.8 

36.8 

41.8 









Total RWAs

381.7 

392.1 

429.1 


381.7 

392.1 

429.1 









Leverage

£bn

£bn

£bn













Derivatives

314.0 

274.9 

288.0 





Loans and advances

422.1 

414.5 

418.4 





Reverse repos

75.5 

81.7 

76.4 





Other assets

234.5 

240.0 

245.1 













Total assets

1,046.1 

1,011.1 

1,027.9 





Derivatives








  - netting

(254.5)

(217.5)

(227.3)





  - potential future exposures

106.2 

102.5 

128.0 





Securities financing transactions gross up

72.9 

77.5 

59.8 





Undrawn commitments

98.7 

98.0 

100.2 





Regulatory deductions and other








  adjustments

(1.4)

(1.4)

(6.6)













Leverage exposure

1,068.0 

1,070.2 

1,082.0 













Leverage ratio % (4)

3.9 

3.7 

3.4 





 

Notes:

(1)

Capital Requirements Regulation (CRR) as implemented by the Prudential Regulation Authority in the UK, with effect from 1 January 2014.

(2)

Estimated end-point CRR basis.

(3)

Common Equity Tier 1 (CET1) ratio includes the benefit of the retained profit for the period.

(4)

Based on end-point CRR Tier 1 capital and revised 2014 Basel III leverage ratio framework.

 

Analysis of results

 

Q3 2014 compared with Q2 2014

·

The end-point CRR CET1 ratio improved to 10.8% from 10.1%, principally driven by retained earnings and favourable movements in cash flow and foreign currency reserves, and the continuing reduction in RWAs.



·

RWA reductions of £10.4 billion were achieved during the quarter, particularly in RCR (down £4.5 billion), CIB (down £4.6 billion) and Ulster Bank (down £3.8 billion). These were partially offset by an increase in CFG (up £3.7 billion) which was amplified by the strengthening of the US dollar. 



·

The leverage ratio improved by 20 basis points reflecting increased attributable profit as leverage exposure remained broadly stable.

 


Customer franchise and segment performance

 

Quarter ended 30 September 2014


PBB


CPB


CIB







Ulster



Commercial

Private




Central



Total


UK PBB

Bank

Total


Banking

Banking

Total



 items (1)

CFG

RCR

RBS


£m

£m

£m


£m

£m

£m


£m

£m

£m

£m

£m















Income statement














Net interest income

1,198 

163 

1,361 


521 

172 

693 


230 

109 

493 

(23)

2,863 

Non-interest income

345 

51 

396 


290 

98 

388 


601 

(249)

215 

145 

1,496 















Total income

1,543 

214 

1,757 


811 

270 

1,081 


831 

(140)

708 

122 

4,359 















Direct expenses














  - staff costs

(223)

(57)

(280)


(124)

(79)

(203)


(179)

(657)

(255)

(37)

(1,611)

  - other costs

(78)

(20)

(98)


(54)

(19)

(73)


(50)

(836)

(231)

(24)

(1,312)

Indirect expenses

(481)

(61)

(542)


(196)

(105)

(301)


(593)

1,460 

- 

(24)

- 

Restructuring costs














  - direct

(2)

- 

(2)


- 

- 

- 


(22)

(143)

(13)

- 

(180)

  - indirect

(63)

(12)

(75)


(18)

(7)

(25)


6 

98 

- 

(4)

- 

Litigation and conduct costs

(118)

- 

(118)


- 

- 

- 


(562)

(100)

- 

- 

(780)















Operating expenses

(965)

(150)

(1,115)


(392)

(210)

(602)


(1,400)

(178)

(499)

(89)

(3,883)















Profit/(loss) before impairment losses

578 

64 

642 


419 

60 

479 


(569)

(318)

209 

33 

476 

Impairment (losses)/releases

(79)

318 

239 


(12)

4 

(8)


12 

(1)

(46)

605 

801 















Operating profit/(loss)

499 

382 

881 


407 

64 

471 


(557)

(319)

163 

638 

1,277 















Additional information














Operating expenses - adjusted (£m) (2)

(782)

(138)

(920)


(374)

(203)

(577)


(822)

(33)

(486)

(85)

(2,923)

Operating profit/(loss) - adjusted (£m) (2)

682 

394 

1,076 


425 

71 

496 


21 

(174)

176 

642 

2,237 

Return on equity (3)

26.9%

42.2%

30.6%


16.0%

13.3%

15.5%


(11.0%)

nm

5.6%

nm

8.2%

Return on equity - adjusted (2,3)

36.8%

43.5%

37.4%


16.7%

14.8%

16.4%


0.4%

nm

6.1%

nm

16.0%

Cost:income ratio

63%

70%

63%


48%

78%

56%


168%

nm

71%

nm

89%

Cost:income ratio - adjusted (2)

51%

64%

52%


46%

75%

53%


99%

nm

69%

nm

67%

Funded assets (£bn)

134.2 

26.3 

160.5 


89.7 

21.0 

110.7 


274.9 

87.6 

80.5 

17.9 

732.1 

Total assets  (£bn)

134.2 

26.5 

160.7 


89.7 

21.1 

110.8 


572.9 

89.5 

80.9 

31.3 

1,046.1 

Risk-weighted assets (£bn)

44.7 

23.9 

68.6 


64.9 

12.2 

77.1 


123.2 

17.8 

64.4 

30.6 

381.7 

Employee numbers (FTEs - thousands)

25.2 

4.5 

29.7 


6.8 

3.5 

10.3 


4.0 

48.5 

17.5 

0.8 

110.8 















nm = not meaningful




























For the notes to this table refer to page 20.















 

Customer franchise and segment performance

 

Quarter ended 30 June 2014


PBB


CPB


CIB







Ulster



Commercial

Private




Central



Total


UK PBB

Bank

Total


Banking

Banking

Total



 items (1)

CFG

RCR

RBS


£m

£m

£m


£m

£m

£m


£m

£m

£m

£m

£m















Income statement














Net interest income

1,152 

169 

1,321 


511 

174 

685 


186 

100 

499 

7 

2,798 

Non-interest income

347 

42 

389 


287 

98 

385 


890 

44 

391 

28 

2,127 















Total income

1,499 

211 

1,710 


798 

272 

1,070 


1,076 

144 

890 

35 

4,925 















Direct expenses














  - staff costs

(225)

(62)

(287)


(133)

(80)

(213)


(217)

(664)

(261)

(51)

(1,693)

  - other costs

(93)

(18)

(111)


(60)

(14)

(74)


(140)

(781)

(252)

(14)

(1,372)

Indirect expenses

(458)

(63)

(521)


(189)

(104)

(293)


(587)

1,433 

- 

(32)

- 

Restructuring costs














  - direct

(6)

8 

2 


(40)

(2)

(42)


(9)

(267)

(69)

- 

(385)

  - indirect

(23)

(20)

(43)


(21)

(1)

(22)


(143)

208 

- 

- 

- 

Litigation and conduct costs

(150)

- 

(150)


(50)

- 

(50)


(50)

- 

- 

- 

(250)















Operating expenses

(955)

(155)

(1,110)


(493)

(201)

(694)


(1,146)

(71)

(582)

(97)

(3,700)















Profit/(loss) before impairment losses

544 

56 

600 


305 

71 

376 


(70)

73 

308 

(62)

1,225 

Impairment (losses)/releases

(60)

(10)

(70)


9 

(1)

8 


45 

13 

(31)

128 

93 















Operating profit/(loss)

484 

46 

530 


314 

70 

384 


(25)

86 

277 

66 

1,318 















Additional information














Operating expenses - adjusted (£m) (2)

(776)

(143)

(919)


(382)

(198)

(580)


(944)

(12)

(513)

(97)

(3,065)

Operating profit/(loss) - adjusted (£m) (2)

663 

58 

721 


425 

73 

498 


177 

145 

346 

66 

1,953 

Return on equity (3)

25.3%

4.6%

17.4%


12.4%

14.5%

12.8%


(0.5%)

nm

9.8%

nm

2.2%

Return on equity - adjusted (2,3)

34.7%

5.8%

23.6%


16.8%

15.1%

16.5%


3.3%

nm

12.2%

nm

6.8%

Cost:income ratio

64%

73%

65%


62%

74%

65%


107%

nm

65%

nm

75%

Cost:income ratio - adjusted (2)

52%

68%

54%


48%

73%

54%


88%

nm

58%

nm

62%

Funded assets (£bn)

133.6 

26.6 

160.2 


88.6 

20.8 

109.4 


278.7 

91.3 

75.7 

20.9 

736.2 

Total assets (£bn)

133.6 

26.7 

160.3 


88.6 

20.8 

109.4 


537.6 

93.3 

76.1 

34.4 

1,011.1 

Risk-weighted assets (£bn)

47.0 

27.7 

74.7 


63.0 

11.8 

74.8 


127.8 

19.0 

60.7 

35.1 

392.1 

Employee numbers (FTEs - thousands)

25.7 

4.5 

30.2 


7.1 

3.5 

10.6 


4.3 

49.9 

17.7 

0.9 

113.6 















RWAs - FLB3 basis at 1 January 2014 (£bn)

49.7 

28.2 

77.9 


61.5 

12.0 

73.5 


147.1 

23.3 

60.6 

46.7 

429.1 















For the notes to this table refer to the following page.















 

Customer franchise and segment performance















Quarter ended 30 September 2013*


PBB


CPB


CIB







Ulster



Commercial

Private




Central



Total


UK PBB

Bank

Total


Banking

Banking

Total



 items (1)

CFG

Non-Core

RBS


£m

£m

£m


£m

£m

£m


£m

£m

£m

£m

£m















Income statement














Net interest income

1,141 

153 

1,294 


511 

168 

679 


162 

205 

485 

(42)

2,783 

Non-interest income

349 

60 

409 


281 

102 

383 


1,090 

43 

263 

(77)

2,111 















Total income

1,490 

213 

1,703 


792 

270 

1,062 


1,252 

248 

748 

(119)

4,894 















Direct expenses














  - staff costs

(232)

(64)

(296)


(129)

(81)

(210)


(262)

(674)

(270)

(46)

(1,758)

  - other costs

(121)

(15)

(136)


(57)

(22)

(79)


(138)

(915)

(253)

(46)

(1,567)

Indirect expenses

(485)

(63)

(548)


(206)

(112)

(318)


(614)

1,565 

(32)

(53)

- 

Restructuring costs














  - direct

(21)

(3)

(24)


(3)

(3)

(6)


(17)

(159)

(2)

3 

(205)

  - indirect

(29)

(3)

(32)


(8)

(2)

(10)


(112)

156 

- 

(2)

- 

Litigation and conduct costs

(250)

- 

(250)


- 

- 

- 


(99)

- 

- 

- 

(349)















Operating expenses

(1,138)

(148)

(1,286)


(403)

(220)

(623)


(1,242)

(27)

(557)

(144)

(3,879)















Profit/(loss) before impairment losses

352 

65 

417 


389 

50 

439 


10 

221 

191 

(263)

1,015 

Impairment (losses)/releases

(138)

(204)

(342)


(93)

(1)

(94)


(28)

(66)

(59)

(581)

(1,170)















Operating profit/(loss)

214 

(139)

75 


296 

49 

345 


(18)

155 

132 

(844)

(155)















Additional information














Operating expenses - adjusted (£m) (2)

(838)

(142)

(980)


(392)

(215)

(607)


(1,014)

(24)

(555)

(145)

(3,325)

Operating profit/(loss) - adjusted (£m) (2)

514 

(133)

381 


307 

54 

361 


210 

158 

134 

(845)

399 

Return on equity (3)

10.2%

(11.8%)

2.2%


11.1%

9.9%

10.9%


(0.3%)

nm

4.9%

nm

(6.9%)

Return on equity - adjusted (2,3)

24.6%

(11.3%)

11.1%


11.5%

10.9%

11.4%


3.8%

nm

5.0%

nm

(3.4%)

Cost:income ratio

76%

69%

76%


51%

81%

59%


99%

nm

74%

nm

79%

Cost:income ratio - adjusted (2)

56%

67%

58%


49%

80%

57%


81%

nm

74%

nm

68%

Funded assets (£bn)

131.9 

29.2 

161.1 


88.9 

21.0 

109.9 


309.6 

116.4 

71.5 

37.3 

805.8 

Total assets (£bn)

131.9 

29.4 

161.3 


88.9 

21.1 

110.0 


625.9 

118.0 

71.9 

42.3 

1,129.4 

Risk-weighted assets (£bn) (4)

52.2 

31.8 

84.0 


66.4 

12.1 

78.5 


129.0 

21.5 

56.1 

40.9 

410.0 

Employee numbers (FTEs - thousands)

26.8 

4.8 

31.6 


7.2 

3.6 

10.8 


4.8 

52.7 

18.6 

1.8 

120.3 

 

*Restated - refer to page 39.

 

Notes:

(1)

Central items include unallocated income and expenses which principally comprise profits/losses on the sale of the Treasury AFS portfolio (quarter ended 30 September 2014 - £72 million loss; 
quarter ended 30 June 2014 - £13 million profit; quarter ended 30 September 2013 - £150 million profit) and profit and loss on hedges that do not qualify for hedge accounting.

(2)

Excluding restructuring costs and litigation and conduct costs.

(3)

Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of divisional RWAs; 2013 RWAs are on a Basel 2.5 basis).

(4)

RWAs at 30 September 2013 are on a Basel 2.5 basis.

 


Segment performance

 

Q3 2014 compared with Q2 2014

 

UK Personal & Business Banking

●

Operating profit increased by 3% to £499 million primarily reflecting higher income. Adjusted operating profit increased by 3% to £682 million. 



●

Total income grew by 3% to £1,543 million, supported by improvements in deposit margins. Operating expenses remained broadly stable at £965 million.



●

Net impairment losses increased by £19 million primarily reflecting lower latent releases. However, underlying default charges continued to decrease, down 5% in the quarter with continued improvements in asset quality.



●

Gross new mortgage lending totalled £5.3 billion. Net mortgage growth was £0.8 billion with strong retention in fixed rate roll-offs and higher repayments.



●

Business Banking gross new lending increased by 44% in the year to date compared with the same period in 2013. The recent launch of the Small Business Fund demonstrates the business's continued commitment to this market sector.

 

Ulster Bank

●

Operating profit increased by £336 million to £382 million, primarily due to further net impairment releases supported by rising Irish residential property prices coupled with proactive debt management. The potential exists for further releases in the future if market conditions continue to improve. Restructuring costs were stable. Adjusted operating profit increased by £336 million to £394 million.



●

Total income grew by 1% to £214 million. Proactive re-pricing of deposits has contributed to the improvement in net interest margin since Q3 2013. In both Q2 2014 and Q3 2014 net interest margin benefited from the recognition of interest income on non-performing assets. Management continues to focus on implementing cost saving initiatives but expenses during 2014 have been adversely impacted by a number of additional regulatory charges and levies. 



●

Trading conditions improved further during Q3 2014 supported by GDP growth, lower unemployment and a recovery in property values but the business environment remains challenging. Ulster Bank has seen an increase in demand for new lending, from both personal and business customers throughout 2014.

 

Commercial Banking

●

Commercial Banking continues to focus on simplifying the way customers do business with the bank. The business improved the online customer lending process, streamlined its product range, reduced the average account opening time by ten days and implemented a further 56 'simplifying customer life' ideas.



●

Progress has been made on integrating the Commercial and Private businesses resulting in an increase in referrals and helping to ensure that customers' broadest needs are met.



●

Operating profit grew by 30% to £407 million quarter on quarter, primarily reflecting the absence of litigation and conduct costs during the quarter and lower restructuring costs (down 70%). Adjusted operating profit remained stable with higher income and lower operating expenses offset by modest net impairment charges compared with net impairment release in Q2 2014.



●

Total income grew by 2% to £811 million partly as a result of margin expansion, primarily from deposit re-pricing. Cost saving initiatives resulted in an 8% reduction in direct expenses.


 

Segment performance

 

Q3 2014 compared with Q2 2014 (continued)

 

Commercial Banking (continued)

●

Net impairment losses totalled £12 million compared with a £9 million net release in Q2 2014 as a result of lower releases of latent provisions.



●

Deposit balances decreased by £1.0 billion to £87.0 billion reflecting active management of the bank's funding surplus, while net loans and advances to customers grew by £1.1 billion across a number of sectors to £85.0 billion. RWAs increased by £1.9 billion primarily from a change in methodology.

 

Private Banking

●

Following a review of the high net worth business, RBS has decided to exit the international business. This exit will be carried out with a focus on minimising client and business disruption while maximising value and certainty of execution. Private Banking UK remains a core business with a significant opportunity to integrate and leverage the franchise within Commercial & Private Banking.



●

Operating profit decreased by 9% to £64 million principally due to higher restructuring costs. Adjusted operating profit declined by 3% to £71 million.



●

Total income decreased by 1% to £270 million while operating expenses excluding restructuring costs increased by 3% to £203 million primarily due to remediation expenses.



●

Net impairment releases totalled £4 million compared with a £1 million net impairment charge in Q2 2014.



●

Client assets and liabilities grew by £0.7 billion in Q3 2014 with increases across all categories. This includes growth of £0.2 billion in assets under management to £28.9 billion across the UK and international businesses.

 

Corporate & Institutional Banking

●

Corporate & Institutional Banking continued to make progress on reducing RWAs and controlling discretionary expenditure during Q3 2014, focusing on strengths in core product areas to serve its customers better whilst moving to a lower risk model.



●

Operating loss grew by £532 million to £557 million reflecting higher litigation and conduct charges partly offset by lower restructuring costs. Adjusted operating profit was subdued, declining by £156 million to £21 million, driven by lower income, partially offset by lower operating expenses as the business continued to manage down discretionary expenditure. Adjusted operating profit was £570 million in the year to date compared with £506 million in the same period in 2013.



●

Total income declined by 23% to £831 million in Q3 2014. Rates performance was relatively muted, falling 19% to £240 million. Credit fell by £111 million, primarily due to Asset Backed Products, where resources deployed by the business continued to reduce in line with the strategic decision to concentrate on core product areas. RWAs in Assets Backed Products have almost halved to £12 billion in 2014.



●

RWAs were £123.2 billion, down £4.6 billion compared with end Q2 2014, reflecting both risk reduction and business mitigation actions, and despite adverse currency movements of £1.3 billion.


Segment performance

 

Q3 2014 compared with Q2 2014 (continued)

 

Citizens Financial Group

●

The initial public offering of Citizens Financial Group (CFG) was successfully completed with shares priced at $21.50 per share, and trading began on the New York Stock Exchange on 24 September. Given the trading strength of the stock, the underwriters also exercised their overallotment option, resulting in a total of $3.5 billion of common stock being sold. As a result, RBS's holding in CFG stood at 71.25% as of 30 September and was reduced to 70.5% of shares outstanding following a buyback by CFG on 8 October.



●

Operating profit for Q3 2014 was $271 million. Excluding the $283 million net gain on the sale of the Illinois franchise in Q2 2014 and restructuring costs, operating profit was down $5 million or 2% from Q2 2014.



●

Total income was down 21% from Q2 2014, principally driven by the impact of the Illinois franchise sale.



●

Operating expenses, excluding restructuring costs, decreased by 6% largely due to the impact of the Illinois franchise sale as well as lower incentive accruals and higher consumer regulatory compliance costs in Q2 2014.



●

Loans and advances were up 2%, driven by higher commercial loans, auto loan organic growth and purchases and a strategic initiative to purchase residential mortgages. Customer deposits have also increased by 2% from the prior quarter maintaining a 98% loan:deposit ratio.

 

RBS Capital Resolution

●

RCR funded assets were £18 billion, down £11 billion or 38% since inception on 1 January 2014; with £3 billion of the reduction in the current quarter driven by disposals and run-off.



●

RWA equivalent (RWAe)(1) decreased to £38 billion, a reduction of £27 billion or 41% since 1 January 2014. The RWAe reduction of £5.2 billion in the quarter reflects a combination of disposals and run-off partially offset by the impact of impairment releases.



●

Operating profit for the quarter was £638 million, up £572 million compared with Q2 2014, including £605 million of net provision releases reflecting improving economic conditions.



●

RCR has been capital accretive since its formation on 1 January 2014.

 

Central items

●

Operating loss in Central items in Q3 2014 was £319 million compared with an £86 million operating profit in Q2 2014. In Q3 2014, RBS took advantage of improved market prices to dispose of €9 billion of available-for-sale debt securities at a loss of £104 million(2) and recognised a loss of £110 million primarily relating to IFRS volatility arising from interest rate movements. Q2 2014 benefited from a number of small gains on asset realisations.

 

 

Notes:

(1)

RWA equivalent (RWAe) is an internal metric that measures the equity capital employed in segments. RWAe converts both performing and non-performing exposures into a consistent capital measure, being the sum of the regulatory RWAs and the regulatory capital deductions, the latter converted to RWAe by applying a multiplier of 10.

(2)

An additional £73 million loss attributable to other shareholders is included within RFS Holdings minority interest.

 


UK Personal & Business Banking







 


Quarter ended


Nine months ended

 


30 September

30 June

30 September


30 September

30 September

 


2014 

2014 

2013 


2014 

2013 

 

Income statement

£m 

£m 

£m 


£m 

£m 

 








 

Net interest income

1,198 

1,152 

1,141 


3,474 

3,341 

 








 

Net fees and commissions

335 

304 

344 


972 

968 

 

Other non-interest income

10 

43 

5 


59 

10 

 








 

Non-interest income

345 

347 

349 


1,031 

978 

 








 

Total income

1,543 

1,499 

1,490 


4,505 

4,319 

 








 

Direct expenses







 

  - staff costs

(223)

(225)

(232)


(672)

(698)

 

  - other costs

(78)

(93)

(121)


(298)

(321)

 

Indirect expenses

(481)

(458)

(485)


(1,463)

(1,435)

 

Restructuring costs







 

  - direct

(2)

(6)

(21)


(8)

(91)

 

  - indirect

(63)

(23)

(29)


(76)

(68)

 

Litigation and conduct costs

(118)

(150)

(250)


(268)

(410)

 








 

Operating expenses

(965)

(955)

(1,138)


(2,785)

(3,023)

 








 

Profit before impairment losses

578 

544 

352 


1,720 

1,296 

 

Impairment losses

(79)

(60)

(138)


(227)

(394)

 








 

Operating profit

499 

484 

214 


1,493 

902 

 








 

Operating profit - adjusted (1)

682 

663 

514 


1,845 

1,471 

 








 

Analysis of income by product







 

Personal advances

231 

232 

233 


698 

676 

 

Personal deposits

194 

160 

125 


496 

352 

 

Mortgages

657 

649 

663 


1,944 

1,940 

 

Cards

187 

176 

213 


561 

632 

 

Business banking

261 

245 

245 


751 

726 

 

Other

13 

37 

11 


55 

(7)

 








 

Total income

1,543 

1,499 

1,490 


4,505 

4,319 

 








 

Analysis of impairments by sector







 

Personal advances

46 

40 

34 


125 

118 

 

Mortgages

(8)

4 

18 


(3)

44 

 

Business banking

20 

1 

56 


50 

143 

 

Cards

21 

15 

30 


55 

89 

 








 

Total impairment losses

79 

60 

138 


227 

394 

 








 

Performance ratios







 

Return on equity (2)

26.9%

25.3%

10.2%


26.1%

14.3%

 

Return on equity - adjusted (1,2)

36.8%

34.7%

24.6%


32.2%

23.4%

 

Net interest margin

3.72%

3.64%

3.60%


3.65%

3.54%

 

Cost:income ratio

63%

64%

76%


62%

70%

 

Cost:income ratio - adjusted (1)

51%

52%

56%


54%

57%

 






30 September 

30 June 

31 December 


2014 

2014 

2013 

Capital and balance sheet

£bn 

£bn 

£bn 





Funded assets

134.2 

133.6 

132.2 

Total assets

134.2 

133.6 

132.2 

Net loans and advances to customers

127.0 

126.4 

124.8 

Risk elements in lending

4.1 

4.2 

4.7 

Impairment provisions

(2.7)

(2.8)

(3.0)

Customer deposits

146.0 

146.0 

144.9 

Risk-weighted assets (3)

44.7 

47.0 

51.2 

 

Notes:

(1)

Excluding restructuring costs and litigation and conduct costs.

(2)

Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of segmental RWAs; 2013 RWAs are on a Basel 2.5 basis).

(3)

RWAs reported as at 31 December 2013 are on a Basel 2.5 basis. RWAs on an FLB3 basis as at 1 January 2014 are set out on page 20.


Ulster Bank

 

Quarter ended


Nine months ended

 


30 September 

30 June 

30 September 


30 September 

30 September 

 


2014 

2014 

2013 


2014 

2013 

 

Income statement

£m 

£m 

£m 


£m 

£m 

 








 

Net interest income

163 

169 

153 


486 

455 

 








 

Net fees and commissions

35 

34 

35 


101 

104 

 

Other non-interest income

16 

8 

25 


39 

98 

 








 

Non-interest income

51 

42 

60 


140 

202 

 








 

Total income

214 

211 

213 


626 

657 

 








 

Direct expenses







 

  - staff costs

(57)

(62)

(64)


(182)

(188)

 

  - other costs

(20)

(18)

(15)


(55)

(42)

 

Indirect expenses

(61)

(63)

(63)


(187)

(188)

 

Restructuring costs







 

  - direct

- 

8 

(3)


8 

(18)

 

  - indirect

(12)

(20)

(3)


(34)

(9)

 

Litigation and conduct costs

- 

- 

- 


- 

(25)

 








 

Operating expenses

(150)

(155)

(148)


(450)

(470)

 








 

Profit before impairment losses

64 

56 

65 


176 

187 

 

Impairment releases/(losses)

318 

(10)

(204)


261 

(707)

 








 

Operating profit/(loss)

382 

46 

(139)


437 

(520)

 








 

Operating profit/(loss) - adjusted (1)

394 

58 

(133)


463 

(468)

 








 

Analysis of income by product







 

Corporate

65 

65 

76 


199 

246 

 

Retail

111 

100 

101 


301 

310 

 

Other

38 

46 

36 


126 

101 

 








 

Total income

214 

211 

213 


626 

657 

 








 

Analysis of impairments by sector







 

Mortgages

(168)

16 

30 


(133)

211 

 

Commercial real estate







 

  - investment

(18)

1 

104 


(9)

201 

 

  - development

(9)

(3)

12 


(15)

38 

 

Other corporate

(130)

(9)

51 


(122)

237 

 

Other lending

7 

5 

7 


18 

20 

 








 

Total impairment (releases)/losses

(318)

10 

204 


(261)

707 

 








 

Performance ratios







 

Return on equity (2)

42.2%

4.6%

(11.8%)


14.9%

(14.0%)

 

Return on equity - adjusted (1,2)

43.5%

5.8%

(11.3%)


15.8%

(12.6%)

 

Net interest margin

2.32%

2.35%

1.83%


2.32%

1.82%

 

Cost:income ratio

70%

73%

69%


72%

72%

 

Cost:income ratio - adjusted (1)

64%

68%

67%


68%

64%

 






30 September 

30 June 

31 December 


2014 

2014 

2013 

Capital and balance sheet

£bn 

£bn 

£bn 





Funded assets

26.3 

26.6 

28.0 

Total assets

26.5 

26.7 

28.2 

Net loans and advances to customers

22.0 

22.4 

26.0 

Risk elements in lending

4.8 

4.9 

8.5 

Impairment provisions

(2.9)

(3.3)

(5.4)

Customer deposits

19.7 

20.7 

21.7 

Risk-weighted assets (3)

23.9 

27.7 

30.7 





For the notes to this table refer to page 24.





Commercial Banking

Quarter ended


Nine months ended

 


30 September 

30 June 

30 September 


30 September 

30 September 

 


2014 

2014 

2013 


2014 

2013 

 

Income statement

£m 

£m 

£m 


£m 

£m 

 








 

Net interest income

521 

511 

511 


1,520 

1,447 

 








 

Net fees and commissions

220 

227 

232 


668 

709 

 

Other non-interest income

70 

60 

49 


191 

185 

 








 

Non-interest income

290 

287 

281 


859 

894 

 








 

Total income

811 

798 

792 


2,379 

2,341 

 








 

Direct expenses







 

  - staff costs

(124)

(133)

(129)


(390)

(381)

 

  - other costs

(54)

(60)

(57)


(176)

(201)

 

Indirect expenses

(196)

(189)

(206)


(598)

(610)

 

Restructuring costs







 

  - direct

- 

(40)

(3)


(40)

(17)

 

  - indirect

(18)

(21)

(8)


(40)

(23)

 

Litigation and conduct costs

- 

(50)

- 


(50)

(25)

 








 

Operating expenses

(392)

(493)

(403)


(1,294)

(1,257)

 








 

Profit before impairment losses

419 

305 

389 


1,085 

1,084 

 

Impairment (losses)/releases

(12)

9 

(93)


(43)

(375)

 








 

Operating profit

407 

314 

296 


1,042 

709 

 








 

Operating profit - adjusted (1)

425 

425 

307 


1,172 

774 

 








 

Analysis of income by business







 

Commercial lending

459 

448 

468 


1,353 

1,430 

 

Deposits

95 

81 

56 


248 

144 

 

Asset and invoice finance

188 

186 

169 


554 

503 

 

Other

69 

83 

99 


224 

264 

 








 

Total income

811 

798 

792 


2,379 

2,341 

 








 

Analysis of impairments by sector







 

Commercial real estate

(1)

(17)

36 


(7)

198 

 

Asset and invoice finance

2 

- 

5 


4 

11 

 

Private sector services (education, health, etc)

2 

- 

34 


(8)

97 

 

Banks & financial institutions

(1)

(1)

4 


- 

6 

 

Wholesale and retail trade repairs

2 

2 

3 


16 

6 

 

Hotels and restaurants

2 

(4)

(1)


1 

18 

 

Manufacturing

2 

4 

2 


9 

(2)

 

Construction

4 

2 

- 


8 

(1)

 

Other

- 

5 

10 


20 

42 

 








 

Total impairment losses/(releases)

12 

(9)

93 


43 

375 

 








 

Performance ratios







 

Return on equity (2)

16.0%

12.4%

11.1%


13.7%

8.7%

 

Return on equity - adjusted (1,2)

16.7%

16.8%

11.5%


15.4%

9.6%

 

Net interest margin

2.78%

2.73%

2.75%


2.72%

2.60%

 

Cost:income ratio

48%

62%

51%


54%

54%

 

Cost:income ratio - adjusted (1)

46%

48%

49%


49%

51%

 






30 September 

30 June 

31 December 


2014 

2014 

2013 

Capital and balance sheet

£bn 

£bn 

£bn 





Funded assets

89.7 

88.6 

87.9 

Total assets

89.7 

88.6 

87.9 

Net loans and advances to customers

85.0 

83.9 

83.5 

Risk elements in lending

2.6 

2.9 

4.3 

Impairment provisions

(1.0)

(1.2)

(1.5)

Customer deposits

87.0 

88.0 

90.7 

Risk-weighted assets (3)

64.9 

63.0 

65.8 

 

For the notes to this table refer to page 24.

Private Banking

 

Quarter ended


Nine months ended

 


30 September 

30 June 

30 September 


30 September 

30 September 

 


2014 

2014 

2013 


2014 

2013 

 

Income statement

£m 

£m 

£m 


£m 

£m 

 








 

Net interest income

172 

174 

168 


516 

485 

 








 

Net fees and commissions

85 

84 

90 


257 

270 

 

Other non-interest income

13 

14 

12 


42 

46 

 








 

Non-interest income

98 

98 

102 


299 

316 

 








 

Total income

270 

272 

270 


815 

801 

 








 

Direct expenses







 

  - staff costs

(79)

(80)

(81)


(239)

(254)

 

  - other costs

(19)

(14)

(22)


(51)

(51)

 

Indirect expenses

(105)

(104)

(112)


(310)

(341)

 

Restructuring costs







 

  - direct

- 

(2)

(3)


(2)

(4)

 

  - indirect

(7)

(1)

(2)


(8)

(6)

 








 

Operating expenses

(210)

(201)

(220)


(610)

(656)

 








 

Profit before impairment losses

60 

71 

50 


205 

145 

 

Impairment releases/(losses)

4 

(1)

(1)


4 

(8)

 








 

Operating profit

64 

70 

49 


209 

137 

 








 

Operating profit - adjusted (1)

71 

73 

54 


219 

147 

 








 

Analysis of income by business







 

Investments

44 

45 

49 


134 

146 

 

Banking

226 

227 

221 


681 

655 

 








 

Total income

270 

272 

270 


815 

801 

 








 

Performance ratios







 

Return on equity (2)

13.3%

14.5%

9.9%


14.5%

9.2%

 

Return on equity - adjusted (1,2)

14.8%

15.1%

10.9%


15.1%

9.9%

 

Net interest margin

3.65%

3.73%

3.54%


3.70%

3.40%

 

Cost:income ratio

78%

74%

81%


75%

82%

 

Cost:income ratio - adjusted (1)

75%

73%

80%


74%

81%

 






30 September 

30 June 

31 December 


2014 

2014 

2013 

Capital and balance sheet

£bn 

£bn 

£bn 





Funded assets

21.0 

20.8 

21.0 

Total assets

21.1 

20.8 

21.2 

Net loans and advances to customers

16.7 

16.5 

16.7 

Risk elements in lending

0.2 

0.2 

0.3 

Impairment provisions

(0.1)

(0.1)

(0.1)

Customer deposits

36.2 

35.9 

37.2 

Risk-weighted assets (3)

12.2 

11.8 

12.0 





For the notes to this table refer to page 24.





Corporate & Institutional Banking







 


Quarter ended


Nine months ended

 


30 September 

30 June 

30 September 


30 September 

30 September 

 


2014 

2014 

2013 


2014 

2013 

 

Income statement

£m 

£m 

£m 


£m 

£m 

 








 

Net interest income from banking activities

230 

186 

162 


595 

476 

 








 

Net fees and commissions

263 

247 

288 


753 

844 

 

Income from trading activities

329 

597 

772 


1,811 

2,525 

 

Other operating income

9 

46 

30 


99 

115 

 








 

Non-interest income

601 

890 

1,090 


2,663 

3,484 

 








 

Total income

831 

1,076 

1,252 


3,258 

3,960 

 








 

Direct expenses







 

  - staff costs

(179)

(217)

(262)


(666)

(841)

 

  - other costs

(50)

(140)

(138)


(300)

(421)

 

Indirect expenses

(593)

(587)

(614)


(1,773)

(1,941)

 

Restructuring costs







 

  - direct

(22)

(9)

(17)


(44)

(51)

 

  - indirect

6 

(143)

(112)


(163)

(161)

 

Litigation and conduct costs

(562)

(50)

(99)


(612)

(509)

 








 

Operating expenses

(1,400)

(1,146)

(1,242)


(3,558)

(3,924)

 








 

(Loss)/profit before impairment losses

(569)

(70)

10 


(300)

36 

 

Impairment releases/(losses)

12 

45 

(28)


51 

(251)

 








 

Operating loss

(557)

(25)

(18)


(249)

(215)

 








 

Operating profit - adjusted (1)

21 

177 

210 


570 

506 

 








 

Analysis of income by product







 

Rates

240 

297 

406 


896 

873 

 

Currencies

193 

159 

232 


544 

711 

 

Credit

198 

309 

304 


972 

1,296 

 

Global Transaction Services

207 

214 

229 


628 

654 

 

Portfolio

164 

156 

144 


482 

467 

 








 

Total (excluding revenue share and run-off







 

  businesses)

1,002 

1,135 

1,315 


3,522 

4,001 

 

Inter-segment revenue share

(58)

(59)

(63)


(177)

(204)

 

Run-off businesses

(113)

- 

- 


(87)

163 

 








 

Total income

831 

1,076 

1,252 


3,258 

3,960 

 








 

Performance ratios







 

Return on equity (2)

(11.0%)

(0.5%)

(0.3%)


(1.5%)

(1.2%)

 

Return on equity - adjusted (1,2)

0.4%

3.3%

3.8%


3.5%

2.9%

 

Net interest margin

1.08%

0.90%

0.79%


0.95%

0.74%

 

Cost:income ratio

168%

107%

99%


109%

99%

 

Cost:income ratio - adjusted (1)

99%

88%

81%


84%

81%

 






30 September 

30 June 

31 December 


2014 

2014 

2013 

Capital and balance sheet

£bn 

£bn 

£bn 





Funded assets

274.9 

278.7 

268.6 

Total assets

572.9 

537.6 

551.2 

Reverse repos

72.9 

78.8 

76.2 

Net loans and advances to customers

73.1 

69.0 

68.2 

Net loans and advances to banks

19.5 

19.4 

20.5 

Securities

65.6 

67.9 

72.1 

Risk-weighted assets (3)

123.2 

127.8 

120.4*

  - credit risk




    - non-counterparty

48.5 

58.4 

61.8 

    - counterparty

37.2 

28.9 

17.5 

  - market risk

25.7 

28.7 

26.4 

  - operational risk

11.8 

11.8 

14.7 

 

*On a fully loaded Basel 3 basis risk-weighted assets at 1 January were £147.1 billion.

 

For the notes to this table refer to page 24.


Citizens Financial Group (US dollar)

 

Quarter ended


Nine months ended

 


30 September 

30 June 

30 September 


30 September 

30 September 

 


2014 

2014 

2013 


2014 

2013 

 

Income statement

$m 

$m 

$m 


$m 

$m 

 








 

Net interest income

824 

838 

748 


2,471 

2,197 

 








 

Net fees and commissions

291 

305 

302 


875 

892 

 

Other non-interest income

68 

353 

101 


520 

392 

 








 

Non-interest income

359 

658 

403 


1,395 

1,284 

 








 

Total income

1,183 

1,496 

1,151 


3,866 

3,481 

 








 

Direct expenses







 

  - staff costs

(425)

(439)

(415)


(1,280)

(1,298)

 

  - other costs

(388)

(423)

(388)


(1,223)

(1,132)

 

Indirect expenses

- 

- 

(49)


- 

(123)

 

Restructuring costs

(22)

(115)

(3)


(137)

(8)

 








 

Operating expenses

(835)

(977)

(855)


(2,640)

(2,561)

 








 

Profit before impairment losses

348 

519 

296 


1,226 

920 

 

Impairment losses

(77)

(53)

(91)


(251)

(169)

 








 

Operating profit

271 

466 

205 


975 

751 

 








 

Operating profit - adjusted (1)

293 

581 

208 


1,112 

759 

 








 

Average exchange rate - US$/£

1.669 

1.683 

1.551 


1.669 

1.543 

 








 

Analysis of impairments by sector







 

Residential mortgages

2 

10 

24 


3 

43 

 

Home equity

6 

25 

43 


63 

99 

 

SBO home equity

(9)

(28)

- 


(3)

- 

 

Corporate and commercial

28 

(2)

(21)


41 

(74)

 

Other consumer

50 

45 

38 


144 

94 

 

Securities

- 

3 

7 


3 

7 

 








 

Total impairment losses

77 

53 

91 


251 

169 

 








 

Performance ratios







 

Return on equity (2)

5.6%

9.8%

4.9%


6.9%

6.1%

 

Return on equity - adjusted (1,2)

6.1%

12.2%

5.0%


7.8%

6.1%

 

Net interest margin

2.82%

2.93%

2.94%


2.89%

2.92%

 

Cost:income ratio

71%

65%

74%


68%

74%

 

Cost:income ratio - adjusted (1)

69%

58%

74%


65%

73%

 






30 September 

30 June 

31 December 


2014 

2014 

2013 

Capital and balance sheet

$bn 

$bn 

$bn 





Funded assets

130.7 

129.5 

117.9 

Total assets

131.2 

130.1 

118.6 

Net loans and advances to customers

90.4 

88.4 

83.2 

Risk elements in lending

2.0 

2.2 

1.7 

Impairment provisions

(0.8)

(0.9)

(0.4)

Customer deposits (excluding repos)

92.4 

90.5 

91.1 

Risk-weighted assets (3)

104.5 

103.8 

92.8 





Spot exchange rate

1.622 

1.711 

1.654 

 

For the notes to this table refer to page 24.


RBS Capital Resolution

 

RCR is managed and analysed by four asset management groups - Ulster Bank (RCR Ireland), Real Estate Finance, Corporate and Markets. Real Estate Finance excludes commercial real estate lending in Ulster Bank.




Nine months 


Quarter ended

ended 

30 September 

30 June

31 March 

30 September 


2014 

2014 

2014 

2014 


£m 

£m 

£m 

£m 






Income statement





Net interest (expense)/income

(18)

16 

(5)

(7)






Net fees and commissions

12 

17 

14 

43 

Income from trading activities (1)

42 

(69)

16 

(11)

Other operating income (1)

86 

71 

48 

205 






Non-interest income

140 

19 

78 

237 






Total income

122 

35 

73 

230 






Direct expenses





  - staff costs

(37)

(51)

(38)

(126)

  - other costs

(24)

(14)

(18)

(56)

Indirect expenses

(24)

(32)

(23)

(79)

Restructuring costs

(4)

- 

- 

(4)






Operating expenses

(89)

(97)

(79)

(265)






Profit/(loss) before impairment losses

33 

(62)

(6)

(35)

Impairment releases/(losses) (1)

605 

128 

(108)

625 






Operating profit/(loss)

638 

66 

(114)

590 






Operating profit/(loss) - adjusted (2)

642 

66 

(114)

594 






Total income





Ulster Bank

(29)

14 

(13)

(28)

Real Estate Finance

67 

13 

83 

163 

Corporate

72 

(12)

(2)

58 

Markets

12 

20 

5 

37 






Total income

122 

35 

73 

230 






Impairment (releases)/losses





Ulster Bank

(379)

(67)

52 

(394)

Real Estate Finance

(159)

(123)

89 

(193)

Corporate

(70)

73 

(34)

(31)

Markets

3 

(11)

1 

(7)






Total impairment (releases)/losses

(605)

(128)

108 

(625)






Loan impairment charge as % of gross loans and advances (3)





Ulster Bank

(12.0%)

(1.9%)

1.3%

(4.2%)

Real Estate Finance

(11.6%)

(6.6%)

4.1%

(4.7%)

Corporate

(4.0%)

3.7%

(1.5%)

(0.6%)

Markets

(0.6%)

(3.6%)

- 

(1.9%)






Total

(9.5%)

(1.7%)

1.2%

(3.3%)

 

Notes:

(1)

Q3 2014 results include £332 million (Q2 2014 - £225 million; Q1 2014 - £56 million) of net gains from the disposal of assets, comprising £97 million gain (Q2 2014 - £6 million gain; Q1 2014 - £5 million loss) in income from trading activities, £3 million gain (Q2 2014 - £38 million; Q1 2014 - £3 million) in other operating income and £232 million (Q2 2014 - £257 million; Q1 2014 - £64 million) release of impairment provisions.

(2)

Excluding restructuring costs.

(3)

Includes disposal groups.

 

RBS Capital Resolution

 

30 September 

30 June 

31 March 

2014 

2014 

2014 


£bn 

£bn 

£bn 





Capital and balance sheet




Loans and advances to customers (gross) (1)

25.8 

30.0 

34.0 

Loan impairment provisions

(12.6)

(14.4)

(15.7)





Net loans and advances to customers

13.2 

15.6 

18.3 





Debt securities

1.7 

1.9 

2.2 

Funded assets

17.9 

20.9 

24.3 

Total assets

31.3 

34.4 

38.8 





Risk elements in lending (1)

17.4 

20.4 

23.0 

Provision coverage (2)

72%

71%

68%

Risk-weighted assets




  - Credit risk




    - non-counterparty

18.7 

22.6 

29.6 

    - counterparty

8.2 

8.2 

5.7 

  - Market risk

3.7 

4.3 

5.2 






30.6 

35.1 

40.5 





Gross loans and advances to customers (1)




Ulster Bank

12.6 

13.9 

15.5 

Real Estate Finance

5.5 

7.4 

8.6 

Corporate

7.0 

7.8 

9.1 

Markets

0.7 

0.9 

0.8 






25.8 

30.0 

34.0 





Funded assets - Ulster Bank




Commercial real estate - investment

1.5 

1.9 

2.4 

Commercial real estate - development

0.7 

0.7 

0.8 

Other corporate

0.7 

0.9 

1.2 






2.9 

3.5 

4.4 





Funded assets - Real Estate Finance




UK

3.2 

4.4 

4.7 

Germany

0.8 

1.0 

1.4 

Spain

0.5 

0.5 

0.6 

Other

0.9 

0.8 

1.0 






5.4 

6.7 

7.7 





Funded assets - Corporate




Structured finance

1.7 

2.0 

2.2 

Shipping

1.9 

1.9 

2.0 

Other

3.1 

3.5 

4.4 






6.7 

7.4 

8.6 





Funded assets - Markets




Securitised products

2.3 

2.7 

3.0 

Emerging markets

0.6 

0.6 

0.6 






2.9 

3.3 

3.6 

 

Notes:

(1)

Includes disposal groups.

(2)

Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.

 


RBS Capital Resolution

 

Funded assets







1 July





30 September

2014 

Net run-off 

Disposals (1)

Impairments 

Other

2014 

Quarter ended 30 September 2014

£bn 

£bn 

£bn 

£bn 

£bn

£bn 








Ulster Bank

3.5 

- 

(0.8)

0.4 

(0.2)

2.9 

Real Estate Finance

6.7 

(0.5)

(0.8)

0.1 

(0.1)

5.4 

Corporate

7.4 

(0.6)

(0.4)

0.1 

0.2 

6.7 

Markets

3.3 

(0.4)

(0.1)

- 

0.1 

2.9 








Total

20.9 

(1.5)

(2.1)

0.6 

- 

17.9 

 

Risk-weighted assets







1 July



Risk


Other (3)

30 September

2014 

Net run-off 

Disposals (1)

parameters (2)

Impairments

2014 

Quarter ended 30 September 2014

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 









Ulster Bank

2.3 

- 

- 

(0.1)

- 

(0.1)

2.1 

Real Estate Finance

6.4 

(0.3)

- 

(0.5)

- 

- 

5.6 

Corporate

15.1 

(0.9)

(0.8)

(0.1)

- 

0.7 

14.0 

Markets

11.3 

(0.7)

(0.9)

(0.8)

- 

- 

8.9 









Total

35.1 

(1.9)

(1.7)

(1.5)

- 

0.6 

30.6 

 

Capital deductions






1 July

Net run-off 


Risk

Impairments 

Other (3)

30 September

2014 

Disposals (1)

parameters (2)

2014 

Quarter ended 30 September 2014

£m

£m

£m

£m

£m

£m

£m









Ulster Bank

217 

- 

(47)

(18)

120 

- 

272 

Real Estate Finance

405 

(68)

(382)

299 

112 

(1)

365 

Corporate

156 

(56)

(26)

(69)

64 

12 

81 

Markets

64 

(1)

(1)

(7)

1 

- 

56 









Total

842 

(125)

(456)

205 

297 

11 

774 

 

RWA equivalent (4)






1 July

Net run-off 


Risk

Impairments 

Other (3)

30 September

2014 

Disposals (1)

parameters (2)

2014 

Quarter ended 30 September 2014

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 









Ulster Bank

4.5 

- 

(0.5)

(0.3)

1.2 

(0.1)

4.8 

Real Estate Finance

10.5 

(1.0)

(3.8)

2.4 

1.1 

- 

9.2 

Corporate

16.6 

(1.4)

(1.0)

(0.8)

0.6 

0.8 

14.8 

Markets

11.9 

(0.7)

(0.9)

(0.8)

- 

- 

9.5 









Total

43.5 

(3.1)

(6.2)

0.5 

2.9 

0.7 

38.3 

 

Notes:

(1)

Includes all effects relating to disposals, including associated removal of deductions from regulatory capital.

(2)

Principally reflects credit migration and other technical adjustments.

(3)

Includes fair value adjustments and foreign exchange movements.

(4)

RWA equivalent (RWAe) is an internal metric that measures the equity capital employed in segments. RWAe converts both performing and non-performing exposures into a consistent capital measure, being the sum of the regulatory RWAs and the regulatory capital deductions, the latter converted to RWAe by applying a multiplier. RBS applies a CET1 ratio of 10%; this results in an end point CRR RWAe conversion multiplier of 10.

 

RBS Capital Resolution









Gross loans and advances, REIL and impairments


















Credit metrics


Quarter ended





REIL as a

Provisions

Provisions


Impairment



Gross



% of gross

as a %

as a % of


(releases)/

Amounts


loans

REIL

Provisions

loans

of REIL

gross loans


charge (2)

written-off

30 September 2014 (1)

£bn

£bn

£bn

%

%

%


£m

£m











By sector:










Commercial real estate










  - investment

8.4 

6.0 

3.5 

71 

58 

42 


(299)

572 

  - development

7.1 

6.7 

5.9 

94 

88 

83 


(127)

105 

Asset finance

2.4 

0.8 

0.4 

33 

50 

17 


7 

21 

Other corporate

7.8 

3.9 

2.8 

50 

72 

36 


(165)

255 

Other

0.1 

- 

- 

- 

- 

- 


(21)

- 












25.8 

17.4 

12.6 

67 

72 

49 


(605)

953 











By donating segment










  and sector










Ulster Bank










Commercial real estate










 - investment

3.8 

3.5 

2.5 

92 

71 

66 


(168)

86 

 - development

6.4 

6.2 

5.6 

97 

90 

88 


(116)

77 

Other corporate

2.4 

2.2 

1.7 

92 

77 

71 


(95)

11 











Total Ulster Bank

12.6 

11.9 

9.8 

94 

82 

78 


(379)

174 











Commercial Banking










Commercial real estate










  - investment

1.6 

0.8 

0.3 

50 

38 

19 


(44)

62 

  - development

0.5 

0.4 

0.2 

80 

50 

40 


(16)

20 

Asset finance

- 

- 

- 

- 

- 

- 


- 

1 

Other corporate

1.2 

0.6 

0.4 

50 

67 

33 


(38)

36 

Other

- 

- 

- 

- 

- 

- 


(3)

- 











Total Commercial Banking

3.3 

1.8 

0.9 

55 

50 

27 


(101)

119 











CIB










Commercial real estate










  - investment

3.0 

1.7 

0.7 

57 

41 

23 


(87)

424 

  - development

0.2 

0.1 

0.1 

50 

100 

50 


5 

8 

Asset finance

2.4 

0.8 

0.4 

33 

50 

17 


7 

20 

Other corporate

4.2 

1.1 

0.7 

26 

64 

17 


(32)

208 

Other

0.1 

- 

- 

- 

- 

- 


(18)

- 











Total CIB

9.9 

3.7 

1.9 

37 

51 

19 


(125)

660 











Total

25.8 

17.4 

12.6 

67 

72 

49 


(605)

953 











Of which:










UK

11.3 

6.3 

4.1 

56 

65 

36 


(245)

630 

Europe

13.4 

10.7 

8.3 

80 

78 

62 


(357)

302 

US

0.3 

0.1 

- 

33 

- 

- 


(1)

18 

RoW

0.8 

0.3 

0.2 

38 

67 

25 


(2)

3 











Customers

25.8 

17.4 

12.6 

67 

72 

49 


(605)

953 

Banks

0.6 

- 

- 

- 

- 

- 


- 

9 











Total

26.4 

17.4 

12.6 

66 

72 

48 


(605)

962 

 

Notes:

(1)

Includes disposal groups.

(2)

Impairment losses/(releases) include those relating to AFS securities; sector analyses above include allocation of latent impairment charges.


Selected condensed statutory financial statements

 

Condensed consolidated income statement for the period ended 30 September 2014








Quarter ended


Nine months ended


30 September 

30 June 

30 September 


30 September 

30 September 

2014 

2014 

2013 


2014 

2013 


£m 

£m 

£m 


£m 

£m 








Interest receivable

3,839 

3,821 

4,207 


11,460 

12,767 

Interest payable

(976)

(1,023)

(1,427)


(3,104)

(4,550)








Net interest income

2,863 

2,798 

2,780 


8,356 

8,217 








Fees and commissions receivable

1,296 

1,314 

1,382 


3,901 

4,090 

Fees and commissions payable

(202)

(251)

(238)


(689)

(698)

Income from trading activities

268 

541 

444 


1,761 

2,508 

Gain on redemption of own debt

- 

- 

13 


20 

204 

Other operating income

127 

345 

35 


1,163 

1,367 








Non-interest income

1,489 

1,949 

1,636 


6,156 

7,471 








Total income

4,352 

4,747 

4,416 


14,512 

15,688 








Staff costs

(1,690)

(1,845)

(1,895)


(5,226)

(5,622)

Premises and equipment

(543)

(622)

(544)


(1,818)

(1,648)

Other administrative expenses

(1,344)

(951)

(1,103)


(3,006)

(3,284)

Depreciation and amortisation

(306)

(282)

(338)


(860)

(1,074)

Write down of goodwill and other intangible assets

- 

(130)

- 


(212)

- 








Operating expenses

(3,883)

(3,830)

(3,880)


(11,122)

(11,628)








Profit before impairment releases/(losses)

469 

917 

536 


3,390 

4,060 

Impairment releases/(losses)

801 

93 

(1,170)


532 

(3,320)








Operating profit/(loss) before tax

1,270 

1,010 

(634)


3,922 

740 

Tax charge

(333)

(371)

(81)


(1,066)

(759)








Profit/(loss) from continuing operations

937 

639 

(715)


2,856 

(19)

Profit/(loss) from discontinued operations, net of tax

3 

26 

(5)


38 

133 








Profit/(loss) for the period

940 

665 

(720)


2,894 

114 

Non-controlling interests

53 

(23)

(6)


11 

(123)

Preference share and other dividends

(97)

(412)

(102)


(584)

(284)








Profit/(loss) attributable to ordinary and







  B shareholders

896 

230 

(828)


2,321 

(293)








Earnings/(loss) per ordinary and equivalent







 B share (EPS) (1)







Basic EPS from continuing and discontinued operations

7.9p

2.0p

(7.4p)


20.5p

(2.6p)

Basic EPS from continuing operations

7.9p

1.9p

(7.4p)


20.4p

(3.6p)

 

Note:

(1)

Diluted EPS for the quarter ended 30 September 2014 was 0.1p lower (quarter ended 30 June 2014 - 0.1p lower) and for the nine months ended 30 September 2014 was 0.2p lower than basic EPS. There was no dilutive impact on all other comparative periods.

 

Items excluded from the operating performance of reportable segments are recorded in the condensed consolidated income statement as follows:

Quarter ended


Nine months ended


30 September 

30 June 

30 September 


30 September 

30 September 


2014 

2014 

2013 


2014 

2013 


£m 

£m 

£m 


£m 

£m 








Own credit adjustments







  - income from trading activities

33 

(84)

(155)


44 

20 

  - other operating income

16 

(106)

(341)


(46)

(140)

Gain on redemption of own debt







  - non-interest income

- 

- 

13 


20 

204 

Write down of goodwill







  - write down of goodwill and other intangible assets

- 

(130)

- 


(130)

- 

Strategic disposals







  - other operating income

- 

- 

(7)


191 

(7)

RFS Holdings minority interest

(56)

12 

11 


(35)

110 


Selected condensed statutory financial statements

 

Consolidated statement of comprehensive income

for the period ended 30 September 2014

Quarter ended


Nine months ended


30 September 

30 June

30 September 


30 September 

30 September 


2014 

2014 

2013 


2014 

2013 


£m 

£m 

£m 


£m 

£m 








Profit/(loss) for the period

940 

665 

(720)


2,894 

114 








Items that do not qualify for reclassification







Tax

- 

- 

(163)


- 

(163)








Items that qualify for reclassification







Available-for-sale financial assets

79 

265 

430 


608 

(303)

Cash flow hedges

207 

(47)

(88)


455 

(1,624)

Currency translation

616 

(598)

(1,211)


(117)

99 

Tax

(31)

(72)

85 


(191)

811 








Other comprehensive income/(loss) after tax

871 

(452)

(947)


755 

(1,180)








Total comprehensive income/(loss) for the period

1,811 

213 

(1,667)


3,649 

(1,066)








Total comprehensive income/(loss) is







  attributable to:







Non-controlling interests

12 

6 

(13)


42 

121 

Preference shareholders

91 

75 

98 


231 

250 

Paid-in equity holders

6 

17 

4 


33 

34 

Dividend access share

- 

320 

- 


320 

- 

Ordinary and B shareholders

1,702 

(205)

(1,756)


3,023 

(1,471)









1,811 

213 

(1,667)


3,649 

(1,066)

 

●

The movement in available-for-sale financial assets during the quarter predominantly reflects realised losses arising on the disposal of securities in the liquidity portfolio. In the nine months ended 30 September 2014, the movement primarily arises on unrealised gains on Spanish and US bonds.



●

Cash flow hedging gains in both the quarter and nine months largely result from decreases in the Sterling and Euro swap rates.



●

Currency translation gains in the quarter are principally due to the weakening of Sterling against the US dollar.  The losses in the nine months are driven by the strengthening of Sterling against the Euro, partly offset by the weakening against the US dollar.


Selected condensed statutory financial statements

 

Condensed consolidated balance sheet at 30 September 2014

30 September 

30 June 

31 December

  

2014 

2014 

2013 


£m 

£m 

£m 





Assets




Cash and balances at central banks

67,900 

68,670 

82,659 

Net loans and advances to banks

29,090 

28,904 

27,555 

Reverse repurchase agreements and stock borrowing

24,860 

28,163 

26,516 

Loans and advances to banks

53,950 

57,067 

54,071 

Net loans and advances to customers

392,969 

385,554 

390,825 

Reverse repurchase agreements and stock borrowing

50,631 

53,542 

49,897 

Loans and advances to customers

443,600 

439,096 

440,722 

Debt securities

106,769 

112,794 

113,599 

Equity shares

8,309 

7,834 

8,811 

Settlement balances

20,941 

19,682 

5,591 

Derivatives

314,021 

274,906 

288,039 

Intangible assets

12,454 

12,173 

12,368 

Property, plant and equipment

6,985 

7,115 

7,909 

Deferred tax

2,843 

3,107 

3,478 

Prepayments, accrued income and other assets

7,185 

7,418 

7,614 

Assets of disposal groups

1,153 

1,246 

3,017 





Total assets

1,046,110 

1,011,108 

1,027,878 





Liabilities




Bank deposits

38,986 

39,179 

35,329 

Repurchase agreements and stock lending

30,799 

31,722 

28,650 

Deposits by banks

69,785 

70,901 

63,979 

Customer deposits

405,367 

401,226 

414,396 

Repurchase agreements and stock lending

44,302 

51,540 

56,484 

Customer accounts

449,669 

452,766 

470,880 

Debt securities in issue

53,487 

59,087 

67,819 

Settlement balances

21,049 

15,128 

5,313 

Short positions

34,499 

39,019 

28,022 

Derivatives

310,361 

270,087 

285,526 

Accruals, deferred income and other liabilities

14,618 

14,876 

16,017 

Retirement benefit liabilities

2,629 

2,742 

3,210 

Deferred tax

491 

605 

507 

Subordinated liabilities

24,412 

24,809 

24,012 

Liabilities of disposal groups

272 

125 

3,378 





Total liabilities

981,272 

950,145 

968,663 

Equity




Non-controlling interests

2,747 

618 

473 

Owners' equity* - called up share capital

6,832 

6,811 

6,714 

                           - reserves

55,259 

53,534 

52,028 





Total equity

64,838 

60,963 

59,215 





Total liabilities and equity

1,046,110 

1,011,108 

1,027,878 





* Owners' equity attributable to:




Ordinary and B shareholders

56,799 

55,053 

53,450 

Other equity owners

5,292 

5,292 

5,292 






62,091 

60,345 

58,742 





Contingent liabilities and commitments

238,248 

239,121 

242,009 


Selected condensed statutory financial statements

 

Condensed consolidated statement of changes in equity

for the period ended 30 September 2014

 

Quarter ended


Nine months ended


30 September 

30 June 

30 September 


30 September 

30 September 


2014 

2014 

2013 


2014 

2013 


£m 

£m 

£m 


£m 

£m 








Called-up share capital







At beginning of period

6,811 

6,752 

6,632 


6,714 

6,582 

Ordinary shares issued

21 

59 

65 


118 

115 








At end of period

6,832 

6,811 

6,697 


6,832 

6,697 








Paid-in equity







At beginning and end of period

979 

979 

979 


979 

979 








Share premium account







At beginning of period

24,885 

24,760 

24,483 


24,667 

24,361 

Ordinary shares issued

49 

125 

145 


267 

267 








At end of period

24,934 

24,885 

24,628 


24,934 

24,628 








Merger reserve







At beginning and end of period

13,222 

13,222 

13,222 


13,222 

13,222 








Available-for-sale reserve







At beginning of period

138 

(62)

(714)


(308)

(346)

Unrealised (losses)/gains

(37)

411 

592 


807 

606 

Realised losses/(gains)

52 

(148)

(164)


(314)

(769)

Tax

28 

(63)

34 


(40)

367 

Transfer to retained earnings

(9)

- 

- 


(9)

- 

Recycled to profit or loss on disposal of businesses (1)

- 

- 

- 


36 

(110)








At end of period

172 

138 

(252)


172 

(252)








Cash flow hedging reserve







At beginning of period

94 

141 

491 


(84)

1,666 

Amount recognised in equity

575 

315 

163 


1,543 

(696)

Amount transferred from equity to earnings

(368)

(362)

(251)


(1,088)

(928)

Tax

(44)

- 

44 


(114)

405 

Transfer to retained earnings

34 

- 

- 


34 

- 








At end of period

291 

94 

447 


291 

447 








Foreign exchange reserve







At beginning of period

2,963 

3,551 

5,201 


3,691 

3,908 

Retranslation of net assets

776 

(702)

(1,338)


(96)

92 

Foreign currency gains on hedges of net assets

(161)

123 

148 


(6)

17 

Tax

(15)

(9)

7 


(26)

4 

Transfer to retained earnings

(390)

- 

- 


(390)

- 

Recycled to profit or loss on disposal of businesses

- 

- 

- 


- 

(3)








At end of period

3,173 

2,963 

4,018 


3,173 

4,018 








Capital redemption reserve







At beginning and end of period

9,131 

9,131 

9,131 


9,131 

9,131 








Contingent capital reserve







At beginning and end of period

- 

- 

(1,208)


- 

(1,208)

 

For the notes to this table refer the following page.

Selected condensed statutory financial statements

 

Condensed consolidated statement of changes in equity

for the period ended 30 September 2014

 

Quarter ended


Nine months ended


30 September

30 June

30 September


30 September

30 September


2014 

2014 

2013 


2014 

2013 


£m

£m

£m


£m

£m








Retained earnings







At beginning of period

2,258 

1,986 

11,105 


867 

10,596 

Profit/(loss) attributable to ordinary and B 







   shareholders and other equity owners







  - continuing operations

999 

627 

(723)


2,894 

(116)

  - discontinued operations

(6)

15 

(3)


11 

107 

Equity preference dividends paid

(91)

(75)

(98)


(231)

(250)

Dividend access share dividend

- 

(320)

- 


(320)

- 

Paid-in equity dividends paid, net of tax

(6)

(17)

(4)


(33)

(34)

Transfer from available-for-sale reserve

9 

- 

- 


9 

- 

Transfer from cash flow hedging reserve

(34)

- 

- 


(34)

- 

Transfer from foreign exchange reserve

390 

- 

- 


390 

- 

Costs relating to CFG IPO

(45)

- 

- 


(45)

- 

Actuarial losses recognised in retirement







  benefit schemes







  - tax

- 

- 

(163)


- 

(163)

Loss on disposal of own shares held

- 

- 

- 


- 

(18)

Shares released for employee benefits

- 

(5)

- 


(41)

(1)

Share-based payments







  - gross

18 

47 

26 


26 

22 

  - tax

1 

- 

4 


- 

1 








At end of period

3,493 

2,258 

10,144 


3,493 

10,144 








Own shares held







At beginning of period

(136)

(136)

(139)


(137)

(213)

Disposal of own shares

- 

- 

1 


1 

74 

Shares released for employee benefits

- 

- 

- 


- 

1 








At end of period

(136)

(136)

(138)


(136)

(138)








Owners' equity at end of period

62,091 

60,345 

67,668 


62,091 

67,668 








Non-controlling interests







At beginning of period

618 

612 

475 


473 

1,770 

Currency translation adjustments and other movements

1 

(19)

(21)


(15)

(7)

(Loss)/profit attributable to non-controlling interests







  - continuing operations

(62)

12 

8 


(38)

97 

  - discontinued operations

9 

11 

(2)


27 

26 

Movements in available-for-sale securities







  - unrealised (losses)/gains

(4)

(1)

2 


(6)

11 

  - realised losses

68 

3 

- 


74 

- 

  - tax

- 

- 

- 


- 

(1)

  - recycled to profit or loss on disposal of discontinued







    operations (2)

- 

- 

- 


- 

(5)

Equity raised (3)

2,117 

- 

- 


2,232 

- 

Equity withdrawn and disposals

- 

- 

- 


- 

(1,429)








At end of period

2,747 

618 

462 


2,747 

462 








Total equity at end of period

64,838 

60,963 

68,130 


64,838 

68,130 

 

Notes:

(1)

Net of tax - £11 million in the nine months ended 30 September 2014 (nine months ended 30 September 2013 - £35 million).

(2)

Net of tax - £1 million in the nine months ended 30 September 2013.

(3)

Includes £2,117 million relating to the initial public offering of Citizens Financial Group.

 


Notes

 

1. Basis of preparation

The condensed consolidated financial statements should be read in conjunction with RBS's 2013 Annual Report and Accounts which were prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) and interpretations issued by the IFRS Interpretations Committee of the IASB as adopted by the European Union (EU) (together IFRS).

 

Accounting policies

There have been no significant changes to RBS's principal accounting policies as set out on pages 377 to 386 of the 2013 Annual Report and Accounts. The adoption of a number of amendments to IFRSs effective for 2014 has not had a material effect on RBS's results.

 

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 RBS's financial condition are those relating to pensions, goodwill, provisions for liabilities, deferred tax, loan impairment provisions and fair value of financial instruments. These critical accounting policies and judgments are described on pages 386 to 389 of RBS's 2013 Annual Report and Accounts.

 

Going concern

Having reviewed RBS's forecasts, projections and other relevant evidence, the directors have a reasonable expectation that RBS will continue in operational existence for the foreseeable future. Accordingly, the Interim Management Statement for the period ended 30 September 2014 has been prepared on a going concern basis.

 

Restatements

On 27 February 2014, RBS announced the reorganisation of the previously reported operating divisions into

three franchises. In addition, in order to present a more complete picture of funding, operational and business costs of the franchises and operating segments, certain reporting changes were implemented.

 

For further information on these changes refer to the Q2 2014 Restatement Document dated 21 July 2014, available on www.investors.rbs.com/restatement


Notes

 

2. Income

 

Quarter ended


Nine months ended


30 September 

30 June 

30 September 


30 September 

30 September 


2014 

2014 

2013 


2014 

2013 


£m 

£m 

£m 


£m 

£m 








Loans and advances to customers

3,571 

3,543 

3,829 


10,632 

11,469 

Loans and advances to banks

94 

89 

106 


272 

328 

Debt securities

174 

189 

272 


556 

970 








Interest receivable

3,839 

3,821 

4,207 


11,460 

12,767 








Customer accounts

467 

471 

692 


1,454 

2,269 

Deposits by banks

24 

41 

95 


119 

318 

Debt securities in issue

237 

270 

315 


794 

1,013 

Subordinated liabilities

226 

220 

223 


658 

670 

Internal funding of trading businesses

22 

21 

102 


79 

280 








Interest payable

976 

1,023 

1,427 


3,104 

4,550 








Net interest income

2,863 

2,798 

2,780 


8,356 

8,217 








Fees and commissions receivable







  - payment services

316 

325 

375 


963 

1,064 

  - credit and debit card fees

237 

245 

284 


737 

813 

  - lending (credit facilities)

345 

371 

335 


1,048 

1,033 

  - brokerage

97 

102 

117 


304 

369 

  - investment management

100 

100 

109 


306 

319 

  - trade finance

87 

71 

73 


225 

226 

  - other

114 

100 

89 


318 

266 








Fees and commissions receivable

1,296 

1,314 

1,382 


3,901 

4,090 

Fees and commissions payable

(202)

(251)

(238)


(689)

(698)








Net fees and commissions

1,094 

1,063 

1,144 


3,212 

3,392 








Foreign exchange

171 

202 

198 


591 

648 

Interest rate

17 

424 

248 


689 

650 

Credit

136 

41 

116 


533 

996 

Own credit adjustments

33 

(84)

(155)


44 

20 

Other

(89)

(42)

37 


(96)

194 








Income from trading activities (1)

268 

541 

444 


1,761 

2,508 








Gain on redemption of own debt

- 

- 

13 


20 

204 








Operating lease and other rental income

98 

87 

125 


276 

381 

Own credit adjustments

16 

(106)

(341)


(46)

(140)

Changes in the fair value of FVTPL financial assets







  and liabilities and related derivatives

41 

9 

36 


70 

65 

Changes in the fair value of investment properties

6 

(31)

(7)


(37)

(23)

(Loss)/profit on sale of:







  - securities

(114)

132 

167 


229 

739 

  - property, plant and equipment

23 

16 

10 


63 

33 

  - subsidiaries, networks and associates

1 

171 

(21)


364 

(3)

Dividend income

6 

17 

6 


36 

41 

Share of results of associates

31 

28 

73 


86 

277 

Other income

19 

22 

(13)


122 

(3)








Other operating income

127 

345 

35 


1,163 

1,367 








Total non-interest income

1,489 

1,949 

1,636 


6,156 

7,471 








Total income

4,352 

4,747 

4,416 


14,512 

15,688 

 

Note:

(1)

The analysis of income from trading activities is based on how the business is organised and the underlying risks managed. Income from trading activities comprises gains and losses on financial instruments held for trading, both realised and unrealised, interest income, dividends and the related hedging and funding costs in the trading book.

 


Notes

 

3. Earnings per ordinary and equivalent B share

Following agreement between RBS and Her Majesty's Treasury for the retirement of the Dividend Access Share (DAS), earnings per share for periods ended after 25 June 2014 only reflect DAS dividends recognised before the end of a reporting period: £320 million was recognised in the quarter ended 30 June 2014. For periods ending on or before 31 March 2014 earnings are allocated solely to the DAS and earnings per ordinary and equivalent B share for such periods are therefore nil.  The DAS does not share in losses.  For periods prior to 25 June 2014, adjusted earnings per ordinary and equivalent B share excludes the rights of the dividend access share.


 

4. Provisions for liabilities and charges



Other


Other








 customer


regulatory






PPI

IRHP

 redress

LIBOR

provisions

Litigation

Property

Other

Total


£m

£m

£m

£m

£m

£m

£m

£m

£m











At 1 January 2014

926 

1,077 

337 

416 

150 

2,018 

379 

186 

5,489 

Currency translation and other










  movements

- 

- 

- 

(2)

(2)

(61)

(2)

- 

(67)

Charge to income statement










  - continuing operations

150 

100 

51 

- 

- 

68 

151 

174 

694 

Releases to income statement










  - continuing operations

- 

- 

(8)

- 

- 

(35)

(15)

- 

(58)

Provisions utilised

(490)

(417)

(79)

(414)

(5)

(80)

(129)

(71)

(1,685)











At 30 June 2014

586 

760 

301 

- 

143 

1,910 

384 

289 

4,373 

Currency translation and other










  movements

- 

- 

- 

- 

- 

102 

(1)

- 

101 

Charge to income statement










  - continuing operations

100 

- 

19 

- 

500 

135 

28 

95 

877 

Releases to income statement










  - continuing operations

- 

- 

(4)

- 

- 

(4)

- 

- 

(8)

Provisions utilised

(143)

(207)

(50)

- 

(4)

(335)

(14)

(31)

(784)











At 30 September 2014

543 

553 

266 

- 

639 

1,808 

397 

353 

4,559 


 

5. Litigation, investigations and reviews

Except for the developments noted below, there have been no material changes to litigation, investigations and reviews as disclosed in the Interim Results for the six months ended 30 June 2014. Other regulatory provisions increased by £500 million (see Note 4) during the three month period ended 30 September 2014, £400 million of which was in connection with the investigations and reviews around foreign exchange trading. Although RBS has established a provision with respect to these investigations, the effect of the outcome of these investigations, any regulatory findings and any related developments, including the timing and amount of fines or settlements, could result in the future outflow of resources in respect of these investigations ultimately proving to be substantially greater than or less than the aggregate provision RBS has recognised.

 

Litigation

 

ISDAFIX antitrust litigation

In September and October 2014, The Royal Bank of Scotland plc (RBS plc) and a number of other financial institutions were named as defendants in three purported class action complaints alleging manipulation of USD ISDAFIX rates, to the detriment of persons who entered into transactions that referenced those rates.  The complaints were filed in the United States District Court for the Southern District of New York and contain claims for unjust enrichment and violations of the U.S. antitrust laws and the Commodities Exchange Act.

Notes

 

5. Litigation, investigations and reviews (continued)

 

Complex Systems

As previously disclosed, The Royal Bank of Scotland N.V. (RBS N.V.) was a defendant in an action heard in the United States District Court for the Southern District of New York filed by Complex Systems, Inc (CSI). The plaintiff alleged that RBS N.V. had since late 2007 been using the plaintiff's back-office trade finance processing software without a valid licence, in violation of the US Copyright Act. RBS N.V. and CSI have now reached a settlement of the action, and RBS N.V. has paid the agreed settlement sum to CSI. This brings an end to the proceedings and provides RBS companies with an on-going, perpetual licence to use the software at issue.

 

Investigations and reviews

 

LIBOR and other trading rates

On 21 October 2014, the European Commission (EC) announced its findings that RBS and one other financial institution had participated in a bilateral cartel aimed at influencing the Swiss franc Libor benchmark interest rate between March 2008 and July 2009. RBS agreed to settle the case with the EC and received full immunity from fines for revealing the existence of the cartel to the EC and co-operating closely with the EC's ongoing investigation. Also on 21 October 2014, the EC announced its findings that RBS and three other financial institutions had participated in a related cartel on bid-ask spreads of Swiss franc interest rate derivatives in the European Economic Area (EEA). Again, RBS received fullimmunity from fines for revealing the existence of the cartel to the EC and co-operating closely with the EC's ongoing investigation.

 

Foreign exchange trading

Various governmental and regulatory authorities in different countries have been conducting investigations into foreign exchange trading and sales activities apparently involving multiple financial institutions. RBS is under investigation by, has received enquiries from and/or is in discussion with certain of these authorities including, among others, the FCA and Serious Fraud Office in the UK, and the Department of Justice and certain other financial regulatory authorities in the United States. RBS is reviewing communications and procedures relating to certain currency exchange benchmark rates as well as foreign exchange trading and sales activity.

 

Technology incident in June 2012

As previously disclosed, on 19 June 2012, RBS was affected by a technology incident, as a result of which the processing of certain customer accounts and payments were subject to considerable delay. RBS agreed to reimburse customers for any loss suffered as a result of the incident and RBS made a provision of £175 million in 2012.

 

On 9 April 2013, the UK Financial Conduct Authority (FCA) announced that it had commenced an enforcement investigation into the incident. This was a joint investigation conducted by the FCA together with the UK Prudential Regulation Authority (PRA) and enforcement proceedings have since commenced.  Separately the Central Bank of Ireland (CBI) initiated an investigation and has issued enforcement proceedings against Ulster Bank Ireland Limited, an RBS company. Ulster Bank Ireland Limited anticipates entering into settlement discussions with the CBI before the end of the year. 

 

Notes

 

5. Litigation, investigations and reviews (continued)

 

Multilateral interchange fees

As previously disclosed, in 2007, the EC issued a decision that, while interchange is not illegal per se, MasterCard's multilateral interchange fee (MIF) arrangements for cross border payment card transactions with MasterCard and Maestro branded consumer credit and debit cards in the EEA were in breach of competition law. MasterCard appealed against the decision to the General Court, which upheld the EC's original decision. MasterCard appealed further to the Court of Justice and RBS intervened in those appeal proceedings. On 11 September 2014, the Court rejected MasterCard's appeal and confirmed the EC's original decision. MasterCard had negotiated interim cross border MIF levels to apply for the duration of the General Court and Court of Justice proceedings and further negotiation is expected in light of the Court's decision.

 

Investigation into advised mortgage sales

 

On 27 August 2014 the FCA announced that it had fined RBS £14.47 million in relation to an investigation into advised mortgage sales made by RBS plc and NatWest in the period June 2011 to March 2013 inclusive.


 

6. Risk factors

A summary of the principal risks which could adversely affect RBS are included on pages 135 to 137 of the Interim Results 2014.


 

7. Recent developments

 

CFG

On 8 October 2014, in a US$334 million capital exchange transaction, CFG repurchased 14.3 million common shares from RBSG International Holdings Limited and issued US$334 million of subordinated debt to The Royal Bank of Scotland Group plc. As a result, RBS's holding in CFG declined from 71.25% as at 30 September 2014 to 70.5% of shares outstanding.

 

On 24 October 2014, CFG declared a quarterly common stock dividend of US$0.10 per share. This dividend will be paid on 20 November 2014 and will amount to US$55 million in aggregate.

 

2014 EBA EU-wide stress test

On 26 October, 2014, the European Banking authority (EBA) announced the results of the 2014 EBA EU-wide stress test. RBSG plc and its subsidiaries Ulster Bank Ireland Limited and RBS N.V. all reported capital ratios above the respective post-stress minimum requirements.


 

8. Post balance sheet events

There have been no significant events between 30 September 2014 and the date of approval of this announcement which would require a change to or additional disclosure in the announcement.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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