Interim Management Statement

RNS Number : 6780N
Royal Bank of Scotland Group PLC
28 October 2016
 




The Royal Bank of Scotland Group plc

Q3 2016 Results

 

Contents

Page



Introduction

1

Forward-looking statements

2

Highlights

3

Summary consolidated results

9

Analysis of results

11

Segment performance

18

Selected statutory financial statements

27

Notes

31

Appendix 1 - Parent company information


Appendix 2 - Segmental income statement reconciliation



 

Introduction

In this document, 'RBSG plc' or the 'parent company' refers to The Royal Bank of Scotland Group plc, and 'RBS' or the 'Group' refers to RBSG plc and its subsidiaries.

 

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 2015 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.

 

Key operating indicators

As described in Note 1 on page 31, RBS prepares its financial statements in accordance with IFRS as issued by the IASB which constitutes a body of generally accepted accounting principles ('GAAP'). This document contains a number of adjusted or alternative performance measures, also known as non-GAAP financial measures. These measure exclude certain items which management believe are not representative of the underlying performance of the business and which distort period-on-period comparison. These measures include:

●

'Adjusted' measures of financial performance, principally operating performance before own credit adjustments; gain or loss on redemption of own debt; strategic disposals; restructuring costs and litigation and conduct costs (refer to Appendix 2 for reconciliations of the statutory to adjusted basis);

●

'Return on tangible equity', 'adjusted return on tangible equity' and related RWA equivalents incorporating the effect of capital deductions (RWAes), total assets excluding derivatives (funded assets) and net interest margin (NIM) adjusted for designated at fair value through profit or loss items (non-statutory NIM) which are internal metrics used to measure business performance;

●

Personal & Business Banking (PBB) franchise, combining the reportable segments of UK Personal & Business Banking (UK PBB) and Ulster Bank RoI; and Commercial & Private Banking (CPB) franchise, combining the reportable segments of Commercial Banking, Private Banking and RBS International (RBSI); and

●

Cost savings progress and 2016 target calculated using operating expenses excluding litigation and conduct costs, restructuring costs, the impairment of other intangible assets, the operating costs of Williams & Glyn and the VAT recovery.


Introduction

 

Contacts

 

For analyst enquiries:



Alexander Holcroft

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 2016. Details are as follows:

 

Date:


Friday 28 October 2016

Time:


9.00 am UK time

Conference ID:


95686059

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

 

Available on www.rbs.com/results

●

Q3 2016 results and background slides;

●

Financial supplement containing income statement and balance sheet information for the five quarters ending 30 September 2016; and

●

Pillar 3 supplement at 30 September 2016.


 

 

Forward-looking statements

This document contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, including those related to RBS and its subsidiaries' regulatory capital position and requirements, financial position, future pension funding requirements, on-going litigation and regulatory investigations, profitability, impairment losses and credit exposures under certain specified scenarios. In addition, forward-looking statements may include, without limitation, statements typically containing words such as "intends", "expects", "anticipates", "targets", "plans", "believes", "risk", "estimates" and words of similar import. These statements concern or may affect future matters, such as RBS's future economic results, business plans and current strategies. Forward-looking statements are subject to a number of risks and uncertainties that might cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statements. Factors that could cause or contribute to differences in current expectations include, but are not limited to, legislative, fiscal and regulatory developments, accounting standards, competitive conditions, technological developments, exchange rate fluctuations and general economic conditions. These and other factors, risks and uncertainties that may impact any forward-looking statement or RBS's actual results are discussed in RBS's UK Annual Report and Accounts and materials filed with, or furnished to, the US Securities and Exchange Commission, including, but not limited to, RBS's Reports on Form 6-K and most recent Annual Report on Form 20-F. The forward-looking statements contained in this announcement speak only as of the date of this announcement and RBS does not assume or undertake any obligation or responsibility to update any of the forward-looking statements contained in this announcement, whether as a result of new information, future events or otherwise, except to the extent legally required.


Highlights

 

RBS reported an operating profit before tax of £255 million, and an attributable loss(1) of £469 million in Q3 2016 which included restructuring costs of £469 million, litigation and conduct costs of £425 million and a £300 million deferred tax asset impairment.

 

Across our Personal & Business Banking (PBB), Commercial & Private Banking (CPB) and Corporate & Institutional Banking (CIB) franchises, RBS reported an adjusted operating profit of £1,331 million. RBS has generated over £1 billion of adjusted operating profit across PBB, CPB and CIB in each quarter this year. Adjusted return on equity across PBB, CPB and CIB was 14% for Q3 2016.

 

Common Equity Tier 1 ratio of 15.0% increased by 50 basis points in the quarter and remains ahead of our 13% target. Leverage ratio increased by 40 basis points to 5.6% principally reflecting the £2 billion Additional Tier 1 (AT1) issuance.








Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September

Key metrics and ratios

2016 

2015 


2016 

2016 

2015 








Attributable (loss)/profit

(£2,514m)

£761m


(£469m)

(£1,077m)

£940m

Operating (loss)/profit

(£19m)

£247m


£255m

(£695m)

(£14m)

Operating profit - adjusted (2)

£2,489m

£3,719m


£1,333m

£716m

£826m

Net interest margin

2.18%

2.12%


2.17%

2.21%

2.09%

Cost:income ratio

94%

101%


88%

117%

103%

Cost:income ratio - adjusted (3,4)

66%

67%


58%

67%

75%

(Loss)/earnings per share from continuing operations







  - basic

(21.5p)

(3.2p)


(3.9p)

(9.3p)

(1.0p)

  - adjusted (3,4)

(1.6p)

24.1p


3.9p

2.6p

5.6p

Return on tangible equity (5,6)

(8.5%)

2.4%


(4.8%)

(11.0%)

9.0%

Return on tangible equity - adjusted (3,4,6)

(0.6%)

12.4%


4.6%

3.2%

16.3%

Average tangible equity (6)

£39,516m

£42,050m


£38,696m

£39,283m

£41,911m

Average number of ordinary shares







  outstanding during the period (millions)

11,668 

11,503 


11,724 

11,673 

11,546 

 







PBB, CPB & CIB







Total income - adjusted (3)

£8,916m

£8,750m


£3,115m

£2,986m

£2,852m

Operating profit - adjusted (2)

£3,401m

£3,558m


£1,331m

£1,047m

£1,119m

Return on tangible equity - adjusted (3,4,6)

12.0%

13.1%


14.2%

11.0%

12.6%






30 September

30 June

31 December

Balance sheet related key metrics and ratios

2016 

2016 

2015 





Tangible net asset value (TNAV) per ordinary share (6)

338p

345p

352p

Loan:deposit ratio (7,8)

91%

92%

89%

Short-term wholesale funding (7,9)

£14bn

£15bn

£17bn

Wholesale funding (7,9)

£56bn

£55bn

£59bn

Liquidity portfolio

£149bn

£153bn

£156bn

Liquidity coverage ratio (LCR) (10)

112%

116%

136%

Net stable funding ratio (NSFR) (11)

119%

119%

121%

Common Equity Tier 1 (CET1) ratio

15.0%

14.5%

15.5%

Risk-weighted assets (RWAs)

£235.2bn

£245.2bn

£242.6bn

Leverage ratio (12)

5.6%

5.2%

5.6%

Tangible equity (6)

£39,822m

£40,541m

£40,943m

Number of ordinary shares in issue (millions) (13)

11,792 

11,755 

11,625 

 

Notes:

(1)

Attributable to ordinary shareholders.

(2)

Operating profit before tax excluding own credit adjustments, (loss)/gain on redemption of own debt, strategic disposals, restructuring costs and litigation and conduct costs.

(3)

Excluding own credit adjustments, (loss)/gain on redemption of own debt and strategic disposals.

(4)

Excluding restructuring costs and litigation and conduct costs.

(5)

Calculated using (loss)/profit for the period attributable to ordinary shareholders.

(6)

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

(7)

Excludes repurchase agreements and stock lending.

(8)

Includes disposal groups.

(9)

Excludes derivative collateral.

(10)

On 1 October 2015 the LCR became the Prudential Regulation Authority's (PRA) primary regulatory liquidity standard; UK banks are required to meet a minimum standard of 80% initially, rising to 100% by 1 January 2018. The published LCR excludes Pillar 2 add-ons. RBS calculates the LCR using its own interpretation of the EU LCR Delegated Act, which may change over time and may not be fully comparable with that of other institutions.

(11)

NSFR for all periods have been calculated using RBS's current interpretations of the revised BCBS guidance on NSFR issued in late 2014. 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.

(12)

Based on end-point Capital Requirements Regulation (CRR) Tier 1 capital and leverage exposure under the CRR Delegated Act.

(13)

Includes 41 million treasury shares (30 June 2016 - 41 million; 31 December 2015 - 26 million).


Highlights

 

Q3 2016 RBS performance summary

●

RBS reported an attributable loss of £469 million in Q3 2016 compared with a profit of £940 million in Q3 2015 which included a £1,147 million gain on loss of control of Citizens. Q3 2016 included a £469 million restructuring cost, £425 million of litigation and conduct costs and a £300 million deferred tax asset impairment. The attributable loss for the first nine months of the year was £2,514 million and operating loss before tax was £19 million.

●

Q3 2016 operating profit of £255 million compared with an operating loss of £14 million in Q3 2015.  Adjusted operating profit of £1,333 million was £507 million, or 61%, higher than Q3 2015 reflecting increased income and reduced expenses.

●

Income across PBB and CPB was 2% higher than Q3 2015, adjusting for transfers(1), and was stable for the year to date, as increased lending volumes more than offset reduced margins. CIB adjusted income increased by 71% to £526 million, adjusting for transfers(1), the highest quarterly income for the year, driven by Rates, which benefited from sustained customer activity and favourable market conditions following the EU referendum and central bank actions.

●

NIM of 2.17% for Q3 2016 was 8 basis points higher than Q3 2015, as the benefit associated with the reduction in low yielding assets more than offset modest asset margin pressure and mix impacts across the core franchises. NIM fell 4 basis points compared with Q2 2016 reflecting asset and liability margin pressure.  

●

PBB and CPB net loans and advances have increased by 13% on an annualised basis since the start of 2016, with strong growth across both residential mortgages and commercial lending.

●

Excluding expenses associated with Williams & Glyn(2), write down of intangible assets and the Q2 VAT recovery, adjusted operating expenses have been reduced by £695 million for the year to date. Adjusted cost:income ratio for the year to date was 66% compared with 67% in the prior year. Across PBB, CPB and CIB cost:income ratio of 60% year to date was stable compared with 2015.

●

Restructuring costs were £469 million in the quarter, a reduction of £378 million compared with Q3 2015. Williams & Glyn restructuring costs of £301 million include £127 million of termination costs associated with the decision to discontinue the programme to create a cloned banking platform. 

●

Litigation and conduct costs of £425 million include an additional charge in respect of the recent settlement with the National Credit Union Administration Board to resolve two outstanding lawsuits in the United States relating to residential mortgage backed securities.

●

RBS has reviewed the recoverability of its deferred tax asset and, in light of the weaker economic outlook and recently enacted restrictions on carrying forward losses, an impairment of £300 million has been recognised in Q3 2016. This action has reduced TNAV per share by 3p.

●

TNAV per share reduced by 7p in the quarter to 338p principally reflecting the attributable loss, 4p, and a loss on redemption of preference shares, 4p, partially offset by gains recognised in foreign exchange reserves.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Refer to the following page for footnotes.

Highlights

 

PBB, CPB and CIB performance

●

Across our three customer facing businesses, PBB, CPB and CIB, adjusted operating profit of £1,331 million, was £212 million higher than Q3 2015.


○

UK Personal and Business Banking (UK PBB) adjusted operating profit of £591 million was £14 million higher than Q3 2015 as increased income and lower adjusted operating expenses more than offset increased impairment losses.    


○

Ulster Bank RoI adjusted operating profit of £68 million compared with £108 million in Q3 2015 reflecting one-off income gains in Q3 2015 and reduced impairment releases.  


○

Commercial Banking adjusted operating profit of £382 million was £7 million higher than Q3 2015, principally reflecting a 1% increase in income, adjusting for transfers(3).


○

Private Banking(4) adjusted operating profit of £53 million was £16 million higher than Q3 2015, benefiting from a £13 million VAT recovery, whilst RBS International (RBSI) was broadly stable at £53 million.


○

CIB adjusted income of £526 million was 71% higher than Q3 2015, adjusting for transfers(1), principally driven by Rates. Adjusted operating profit of £184 million compared with a loss of £30 million in Q3 2015.

 

Capital Resolution & Central items

●

Capital Resolution adjusted operating loss of £118 million compared with a loss of £245 million in Q3 2015. The Q3 2016 loss included a £190 million impairment loss on the shipping portfolio and a £160 million valuation adjustment gain. RWAs reduced by £3.7 billion in the quarter to £38.6 billion

●

Central items adjusted operating profit of £24 million compared with a loss of £163 million in Q3 2015 and included a £97 million foreign exchange (FX) reserve recycling gain and other gains partially offset by a £150 million charge in respect of IFRS volatility(5) (Q3 2015 - £125 million charge).

 

Progress on 2016 targets

 

Strategy goal

2016 target

Q3 2016 Progress

Strength and sustainability

Maintain Bank CET1 ratio of 13%

CET1 ratio of 15.0%

£2 billion AT1 issuance

£2.0 billion equivalent issued in Q3 2016

Capital Resolution RWAs around £30-35 billion

RWAs down £10.4 billion to £38.6 billion for the year to date

Customer experience

Narrow the gap to No.1 in Net Promoter Score (NPS) in every primary UK brand

Year on year Commercial Banking(6) has seen an improvement in NPS and is the highest it has ever been.

Simplifying the bank

Reduce operating expenses by £800 million

Operating expenses down £695 million(7)

Supporting growth

Net 4% growth in PBB and CPB customer loans

Net customer loans in PBB and CPB are up 13% on an annualised basis for the year to date

Employee engagement

Raise employee engagement to within two points of the GFS norm

Down 3 points to within 6 points of GFS norm

 

Notes:

(1)

CIB's results include the following financials for businesses subsequently transferred to Commercial Banking: total income of £98 million for nine months ended 2015 (Q3 2015 - £20 million).

(2)

Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and comprises RBS England and Wales branch-based businesses, along with certain small and medium enterprises and corporate activities across the UK.

(3)

The business transfers included: total income of £42 million (Q3 2015 - nil); operating expenses of £25 million (Q3 2015 - nil) and impairments of £7 million (Q3 2015 - nil).

(4)

Private Banking serves high net worth individuals through Coutts and Adam & Co.

(5)

IFRS volatility arises from the changes to fair value of hedges of loans which do not qualify for hedge accounting under IFRS.

(6)

£2m+ combination of NatWest & Royal Bank of Scotland in GB (954) Question: "How likely would you be to recommend (bank)". Base: Claimed main bank. Data weighted by region and turnover to be representative of businesses in Great Britain. 

(7)

Cost saving target and progress for the nine months ended 2016 calculated using operating expenses excluding restructuring costs £1,099 million (2015 - £2,317 million), litigation and conduct costs £1,740 (2015 - £1,444), write down of other intangible assets of £48 million (2015 - nil), the operating costs of Williams and Glyn £296 million (2015 - £252 million) and the VAT recovery £227 million.


Highlights

 

Building a stronger RBS

●

RBS is progressing with its plan to build a strong, simple, fair bank for customers and shareholders.

●

CET1 remains ahead of our 13% target at 15.0%, a 50 basis point increase compared with Q2 2016 driven by a £10.0 billion reduction in RWAs principally reflecting a £5.1 billion reduction in UK PBB, largely due to the unwind of mortgage risk parameter model uplifts taken in the first half, and £3.7 billion of disposals and run-off in Capital Resolution.

●

On 10 August 2016 RBS announced that it had successfully completed the pricing of US$2.65 billion 8.625% AT1 capital notes, with £4.0 billion equivalent now issued since August 2015. 

●

In addition, on 7 September 2016 we successfully issued US$2.65 billon seven year senior debt which is eligible to meet RBS's 'Minimum Requirement for Own Funds and Eligible Liabilities', with £4.2 billion equivalent issued this year. 

●

Leverage ratio increased by 40 basis points to 5.6% largely driven by the AT1 issuance.

●

Risk elements in lending (REIL) of £12.6 billion were 3.8% of gross customer loans, down from 4.5% at 30 September 2015.

●

In June 2016, the triennial funding valuation of the Main Scheme of The Royal Bank of Scotland Group Pension Fund was agreed which showed that as at 31 December 2015 the value of liabilities exceeded the value of assets by £5.8 billion. In March 2016, to mitigate this anticipated deficit, RBS made a cash payment of £4.2 billion. The next triennial valuation is due to occur at the end of 2018 with agreement on any additional contributions by the end of March 2020. As at 30 September 2016, the Main Scheme had an unrecognised surplus reflected by a ratio of asset to liabilities of c.115% under IAS19 valuation principles. The surplus is unrecognised because the trustee's power to enhance member benefits could consume that surplus meaning that RBS does not control its ability to realise an asset. The existence of the asset, albeit unrecognised, does limit RBS's exposure to changes in actuarial assumptions and investment performance.

 

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

●

RBS continued to deliver strong support for both household and business customers. Within UK PBB, gross new mortgage lending of £7.9 billion was 12% higher than Q3 2015. Our market share of gross new mortgage lending in Q3 2016 was approximately 12% compared with a stock share of 8.7%. Commercial Banking net loans and advances have grown by an annualised 12% since the start of the year.

●

The Reward account continues to show positive momentum and now has over one million fee-paying customers compared with 202,000 at 31 December 2015.

●

We continue to make better use of our digital channels to make it simpler to serve our customers and for them to do business with us. We now have more than 4.3 million customers regularly using our mobile app, with over 20% of our customers now exclusively using digital banking for their day to day banking needs. We anticipate that this number will continue to grow as we make more of our products and services available digitally. Our new 'Online Account Opening' service allows start up business customers to submit an application online in just ten minutes and get a sort code and account number in under an hour.

 

Highlights

 

Investment in subsidiaries and distributable reserves

●

As part of the Q3 2016 results we have reviewed the value of the investments in subsidiaries held in the parent company, RBSG plc, and in light of the deterioration in the economic outlook we have reduced the carrying value of the investments by £6.0 billion to £44.7 billion. This has the effect of reducing distributable reserves of RBSG plc by £6.0 billion to £7.2 billion. Whilst this level of distributable reserves does not impact upon our ability to pay coupons on existing securities, it is our intention to implement a capital reorganisation in 2017 in order to increase parent company distributable reserves, providing greater flexibility for future distributions and preference share redemptions. The capital reduction will be subject to shareholder approval (to be sought at the next Annual General Meeting) and court approval. The reorganisation in carrying value of the parent company's investment in its subsidiaries does not impact upon the Group's consolidated regulatory capital, including CET1, or tangible net asset value.    

 

Recent developments

●

Work has continued to explore means to achieve separation and divestment of the business previously described as Williams & Glyn. RBS has had positive discussions with a number of interested parties concerning a transaction related to substantially all of the business. These discussions are ongoing and may or may not lead to a viable transaction. However, none of the proposals under discussion can deliver full separation and divestment by 31 December 2017. RBS is therefore in discussion with HM Treasury, and expects further engagement with the European Commission, to agree a solution with regards to its State Aid obligations.


As we no longer intend to pursue divestment by way of an Initial Public Offering, on 21 October 2016 RBS redeemed the £600 million exchangeable bond issued to a consortium of investors, led by Centerbridge and Corsair, in 2013 in accordance with the terms of the bond.

 

Highlights

 

Outlook

●

The current low interest rate and low growth environment presents a range of uncertainties which could impact the performance of our core business. Whilst we remain committed to achieving our long term cost:income ratio and returns targets, set out in 2014, we now do not expect to achieve these by 2019 as previously indicated. We also recognise that the ongoing discussions around further tightening of regulatory capital rules could result in RWA inflation in the medium term.

●

We expect PBB and CPB income to be broadly stable in 2016 compared with 2015 as strong planned balance sheet growth, particularly in mortgages but also in core commercial lending, is balanced by headwinds from low interest rates and the uncertain macroeconomic environment. We now anticipate that CIB will report a modest increase in income in 2016 compared with 2015.

●

RBS remains on track to achieve an £800 million cost reduction in 2016 after achieving a £695 million reduction in the first nine months of the year. Core franchise profitability will be adversely impacted by the annual bank levy charge in Q4 2016, around £200 million, and expense inflation associated with weaker sterling. We retain our expectation that the adjusted cost:income ratio across our combined PBB, CPB and CIB businesses will improve in 2016 compared with 2015. We plan to provide further cost guidance for 2017 as part of the 2016 year end results.  

●

We do not anticipate a material change to the current impairment loss rate for 2016. The impairment charges taken during 2016 year to date largely relate to sector specific issues particularly in the shipping portfolio and oil and gas sector. We recognise the continuing risk of large single name/sector driven events across our portfolios given the uncertain macroeconomic environment. In the current environment there is an increased level of uncertainty; however it continues to be too early at this point to quantify the impact of potential credit losses that may result.

●

We now anticipate a restructuring charge of around £1.5 billion in 2016 compared with previous guidance of over £1.0 billion, as a result of additional Williams & Glyn charges in respect of the decision to discontinue the programme to create a cloned banking platform.

●

We now expect Capital Resolution disposal losses to total approximately £2.0 billion, up from the previous guidance of £1.5 billion. Total losses to date have been £997 million (of which 2015; £367 million and 2016 year to date; £630 million) including an impairment charge of £454 million in relation to the shipping portfolio during 2016 year to date. We anticipate that Capital Resolution RWAs will be in the range £30-£35 billion by the end of 2016. Excluding RBS's stake in Saudi Hollandi Bank (£7.9 billion at Q3 2016), we would expect RWAs to be in the range £15-£20 billion by end 2017.

●

We continue to deal with a range of uncertainties in the external environment and also manage conduct-related investigations and litigation, including US RMBS. Substantial additional charges and costs may be recognised in the coming quarters which would have an impact on the Group's level of capital.

●

In view of the above, the timing of returning excess capital to shareholders through dividends or buybacks remains uncertain.

 


Summary consolidated income statement for the period ended 30 September 2016

 

Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September


2016

2015*


2016

2016

2015*


£m

£m


£m

£m

£m

Net interest income

6,500 

6,605 


2,167 

2,177 

2,187 








Own credit adjustments

294 

424 


(156)

194 

136 

(Loss)/gain on redemption of own debt

(127)

- 


3 

(130)

- 

Strategic disposals

164 

(135)


(31)

201 

- 

Other operating income

2,543 

3,545 


1,327 

558 

860 








Non-interest income

2,874 

3,834 


1,143 

823 

996 








Total income

9,374 

10,439 


3,310 

3,000 

3,183 








Restructuring costs

(1,099)

(2,317)


(469)

(392)

(847)

Litigation and conduct costs

(1,740)

(1,444)


(425)

(1,284)

(129)

Other costs

(6,001)

(6,831)


(2,017)

(1,833)

(2,300)








Operating expenses

(8,840)

(10,592)


(2,911)

(3,509)

(3,276)








Profit/(loss) before impairment (losses)/releases

534 

(153)


399 

(509)

(93)

Impairment (losses)/releases

(553)

400 


(144)

(186)

79 








Operating (loss)/profit before tax

(19)

247 


255 

(695)

(14)

Tax (charge)/credit

(922)

(284)


(582)

(260)

3 








Loss from continuing operations

(941)

(37)


(327)

(955)

(11)

Profit from discontinued operations,







  net of tax

- 

1,451 


- 

- 

1,093 








(Loss)/profit for the period

(941)

1,414 


(327)

(955)

1,082 








Attributable to:







Non-controlling interests

37 

389 


7 

8 

45 

Other owners

343 

264 


135 

114 

97 

Dividend access share

1,193 

- 


- 

- 

- 

Ordinary shareholders

(2,514)

761 


(469)

(1,077)

940 















Memo:














Total income - adjusted (1)

9,043 

10,150 


3,494 

2,735 

3,047 

Operating expenses - adjusted (2)

(6,001)

(6,831)


(2,017)

(1,833)

(2,300)

Operating profit - adjusted (1,2)

2,489 

3,719 


1,333 

716 

826 








*Restated - refer to page 31 for further details







 

Notes:

(1)

Excluding own credit adjustments, (loss)/gain on redemption of own debt and strategic disposals.

(2)

Excluding restructuring costs and litigation and conduct costs.

 

Details of other comprehensive income are provided on page 28.


Summary consolidated balance sheet as at 30 September 2016

 

30 September

30 June 

31 December 


2016

2016

2015


£m

£m

£m





Cash and balances at central banks

69,254 

65,307 

79,404 

Net loans and advances to banks (1)

19,741 

21,763 

18,361 

Net loans and advances to customers (1)

326,736 

326,503 

306,334 

Reverse repurchase agreements and stock borrowing

45,955 

45,778 

39,843 

Debt securities and equity shares

80,512 

84,807 

83,458 

Assets of disposal groups (2)

13 

396 

3,486 

Other assets

27,118 

31,047 

22,008 





Funded assets

569,329 

575,601 

552,894 

Derivatives

283,049 

326,023 

262,514 





Total assets

852,378 

901,624 

815,408 





Bank deposits (3)

32,172 

31,377 

28,030 

Customer deposits (3)

358,844 

355,719 

343,186 

Repurchase agreements and stock lending

36,408 

40,881 

37,378 

Debt securities in issue

28,357 

27,148 

31,150 

Subordinated liabilities

19,162 

20,113 

19,847 

Derivatives

275,364 

322,390 

254,705 

Liabilities of disposal groups (2)

15 

252 

2,980 

Other liabilities

47,728 

50,017 

43,985 





Total liabilities

798,050 

847,897 

761,261 

Non-controlling interests

853 

820 

716 

Owners' equity

53,475 

52,907 

53,431 





Total liabilities and equity

852,378 

901,624 

815,408 





Contingent liabilities and commitments

151,394 

151,433 

153,752 

 

Notes:

(1)

Excludes reverse repurchase agreements and stock borrowing.

(2)

Primarily international private banking business at 31 December 2015.

(3)

Excludes repurchase agreements and stock lending.

 


 

Analysis of results

 

Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September

2016

2015


2016

2016

2015

Net interest income

£m

£m


£m

£m

£m








Net interest income (1)







RBS

6,500 

6,605 


2,167 

2,177 

2,187 








  - UK Personal & Business Banking

3,194 

3,122 


1,085 

1,090 

1,055 

  - Ulster Bank RoI

304 

280 


106 

93 

90 

  - Commercial Banking

1,601 

1,485 


534 

531 

504 

  - Private Banking

338 

328 


112 

113 

109 

  - RBS International

226 

225 


75 

76 

73 

  - Corporate & Institutional Banking

75 

59 


32 

24 

29 

  - Capital Resolution

195 

359 


27 

82 

78 

  - Williams & Glyn

488 

493 


164 

162 

167 

  - Central items & other

79 

254 


32 

6 

82 








Average interest-earning assets (IEA)







RBS

398,943 

415,463 


397,345 

396,118 

413,778 








  - UK Personal & Business Banking

140,696 

129,359 


145,649 

140,591 

131,406 

  - Ulster Bank RoI

24,835 

23,244 


26,026 

24,288 

23,456 

  - Commercial Banking

119,496 

104,686 


123,817 

119,768 

105,905 

  - Private Banking

16,621 

15,770 


16,978 

16,622 

15,878 

  - RBS International

22,073 

20,432 


23,332 

21,798 

20,244 

  - Corporate & Institutional Banking

11,817 

18,696 


11,960 

11,923 

18,686 

  - Capital Resolution

27,407 

67,659 


22,352 

29,157 

51,786 

  - Williams & Glyn

24,044 

22,810 


24,597 

24,172 

23,020 

  - Central items & other

11,954 

12,807 


2,634 

7,799 

23,397 








Yields, spreads and margins of the banking business














Gross yield on interest-earning assets







  of the banking business (2)

2.82%

2.92%


2.78%

2.87%

2.84%

Cost of interest-bearing liabilities of banking business

(0.98%)

(1.15%)


(0.92%)

(1.00%)

(1.09%)








Interest spread of banking business (3)

1.84%

1.77%


1.86%

1.87%

1.75%

Benefit from interest-free funds

0.34%

0.35%


0.31%

0.34%

0.34%








Net interest margin (1,4)







RBS

2.18%

2.12%


2.17%

2.21%

2.09%








  - UK Personal & Business Banking (5)

3.03%

3.23%


2.96%

3.12%

3.19%

  - Ulster Bank RoI (5)

1.64%

1.61%


1.62%

1.54%

1.52%

  - Commercial Banking (5)

1.79%

1.90%


1.72%

1.78%

1.89%

  - Private Banking (5)

2.72%

2.78%


2.62%

2.73%

2.72%

  - RBS International (5)

1.37%

1.47%


1.28%

1.40%

1.43%

  - Corporate & Institutional Banking

0.85%

0.42%


1.06%

0.81%

0.62%

  - Capital Resolution

0.95%

0.71%


0.48%

1.13%

0.60%

  - Williams & Glyn

2.71%

2.89%


2.65%

2.70%

2.88%

 

Third party customer rates (6)







Third party customer asset rate







  - UK Personal & Business Banking

3.90%

4.18%


3.79%

3.96%

4.15%

  - Ulster Bank RoI (7)

2.19%

2.29%


2.17%

2.07%

2.26%

  - Commercial Banking

2.81%

2.96%


2.74%

2.82%

2.93%

  - Private Banking

2.95%

3.18%


2.86%

2.97%

3.12%

  - RBS International

3.08%

3.10%


2.95%

3.02%

3.11%

Third party customer funding rate







  - UK Personal & Business Banking

(0.50%)

(0.68%)


(0.44%)

(0.46%)

(0.65%)

  - Ulster Bank RoI (7)

(0.53%)

(0.92%)


(0.46%)

(0.53%)

(0.82%)

  - Commercial Banking

(0.35%)

(0.38%)


(0.32%)

(0.36%)

(0.36%)

  - Private Banking

(0.20%)

(0.26%)


(0.18%)

(0.20%)

(0.25%)

  - RBS International

(0.15%)

(0.33%)


(0.10%)

(0.13%)

(0.25%)

 

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

Analysis of results

 

Notes:                                                                                                                                           

(1)

For the purpose of net interest margin (NIM) calculations, no decrease for the nine months ended 2016 (nine months ended 2015 - £12 million) and no decrease for Q3 2016 (Q2 2016 - nil; Q3 2015 - £4 million) was made in respect of interest on financial assets and liabilities designated as at fair value through profit or loss. Related average interest-earning assets and average interest-bearing liabilities have also been adjusted.

(2)

Gross yield is the interest earned on average interest-earning assets as a percentage of average interest-earning assets.

(3)

Interest spread is the difference between the gross yield and interest paid on average interest-bearing liabilities as a percentage of average interest-bearing liabilities.

(4)

Net interest margin is net interest income as a percentage of average interest-earning assets.

(5)

PBB NIM was 2.82% (nine months ended 2015 - 2.98%; Q3 2016 - 2.76%; Q2 2016 - 2.89%; Q3 2015 - 2.93%). CPB NIM was 1.83% (nine months ended 2015 - 1.93%; Q3 2016 - 1.75%; Q2 2016 - 1.83%; Q3 2015 - 1.92%).

(6)

Net interest margin includes Treasury allocations and interest on intercompany borrowings, which are excluded from third party customer rates.

(7)

Ulster Bank Ireland DAC manages its funding and liquidity requirements locally. Its liquid asset portfolios and non-customer related funding sources are included within its net interest margin, but excluded from its third party asset and liability rates.

 

Key points

·

Net interest income of £2,167 million decreased by £20 million, or 1%, compared with Q3 2015 principally driven by a £51 million reduction in Capital Resolution in line with the planned shrinkage of the balance sheet.  Across our PBB and CPB franchises, net interest income increased by £81 million, or 4%, reflecting increased lending.

·

NIM was 2.17% for Q3 2016, 8 basis points higher than Q3 2015 as the benefit associated with reductions in the low yielding 'non-core' assets has been partially offset by modest asset margin pressure and mix impacts across PBB and CPB.  

·

NIM decreased by 4 basis points compared with Q2 2016 reflecting asset and liability margin pressure across PBB and CPB and a release of previously suspended credit card interest in Q2 2016.

·

NIM across the combined PBB and CPB franchises was 2.27% in Q3 2016 compared with 2.45% in Q3 2015 and 2.37% in Q2 2016.

·

UK PBB, NIM decreased by 23 basis points to 2.96% reflecting the change in mix of our asset base towards mortgage lending from unsecured lending, mortgage customers switching from standard variable rate (SVR) and lower returns on current account structural hedges. SVR mortgages represented 12% of the mortgage book compared with 15% a year earlier.  Compared with Q2 2016, UK PBB NIM reduced by 16 basis points reflecting a £22 million reduction in suspended interest releases, 6 basis points, and asset and liability margin pressure. 

·

Commercial Banking NIM decreased by 17 basis points to 1.72%, compared with Q3 2015, principally reflecting asset margin pressure.

·

Structural hedges of £122 billion as at 30 September 2016 generated a benefit of £0.9 billion through net interest income for the year to date. Around 72% of these hedges are part of a five year rolling hedge programme that will progressively roll-off over the coming years.

 

 

Analysis of results








Nine months ended

Quarter ended


30 September

30 September


30 September

30 June

30 September

2016

2015*


2016

2016

2015*

Operating expenses

£m

£m


£m

£m

£m








Staff costs

3,457 

3,824 


1,128 

1,127 

1,281 

Premises and equipment

951 

1,061 


321 

315 

352 

Other administrative expenses

1,018 

1,338 


393 

179 

477 

Restructuring costs (see below)

1,099 

2,317 


469 

392 

847 

Litigation and conduct costs

1,740 

1,444 


425 

1,284 

129 








Administrative expenses

8,265 

9,984 


2,736 

3,297 

3,086 

Depreciation and amortisation

527 

608 


175 

174 

190 

Write down of intangible assets

48 

- 


- 

38 

- 








Operating expenses

8,840 

10,592 


2,911 

3,509 

3,276 








Adjusted operating expenses (1)

6,001 

6,831 


2,017 

1,833 

2,300 








Restructuring costs comprise:







  - staff expenses

525 

625 


159 

245 

281 

  - premises, equipment, depreciation and amortisation

57 

705 


33 

15 

375 

  - other

517 

987 


277 

132 

191 









1,099 

2,317 


469 

392 

847 

Of which: Williams & Glyn

646 

449 


301 

187 

190 








Staff costs as a % of total income

37%

37%


34%

38%

40%

Cost:income ratio

94%

101%


88%

117%

103%

Cost:income ratio - adjusted (2)

66%

67%


58%

67%

75%

Employee numbers (FTE - thousands)

82.5 

92.4 


82.5 

89.2 

92.4 

 

*Restated - refer to page 31 for further details.

 

Notes:

(1)

Excluding restructuring costs and litigation and conduct costs.

(2)

Excluding own credit adjustments, (loss)/gain on redemption of own debt, strategic disposals, restructuring costs and litigation and conduct costs.

 

Key points

·

Operating expenses of £2,911 million were £365 million, or 11%, lower than Q3 2015 reflecting a £378 million reduction in restructuring costs and a £283 million reduction in adjusted operating expenses, partially offset by a £296 million increase in litigation and conduct expenses.

·

Adjusted operating expenses reduced by £283 million, or 12%, compared with Q3 2015 to £2,017 million. Excluding expenses associated with Williams & Glyn, write down of intangible assets (£48 million) and a £227 million VAT recovery, adjusted expenses reduced by £695 million for the year to date, and we remain on target to achieve an £800 million reduction for the year.

·

Staff costs of £1,128 million were down £153 million, or 12%, compared with Q3 2015, reflecting a 9,900 reduction in FTEs.

·

Restructuring costs of £469 million compared with £847 million in Q3 2015. Williams & Glyn restructuring costs of £301 million include £127 million of termination costs associated with the decision to discontinue the programme to create a cloned banking system. 

·

Litigation and conduct costs of £425 million include an additional charge in respect of the recent settlement with the National Credit Union Administration Board to resolve two outstanding lawsuits in the United States relating to residential mortgage backed securities.

 

Analysis of results

 

Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September

2016

2015


2016

2016

2015

Impairment losses/(releases)

£m

£m


£m

£m

£m








Loan impairment losses/(releases)







  - individually assessed

575 

(135)


217 

172 

(15)

  - collectively assessed

219 

(8)


176 

27 

(13)

  - latent

(191)

(380)


(202)

(10)

(64)








Customer loans

603 

(523)


191 

189 

(92)

Bank loans

- 

(4)


- 

- 

(4)








Total loan impairment losses/(releases)

603 

(527)


191 

189 

(96)

Securities

(50)

127 


(47)

(3)

17 








Total impairment losses/(releases)

553 

(400)


144 

186 

(79)

 

30 September 

30 June 

31 December 

Credit metrics (1)

2016 

2016 

2015 





Gross customer loans

£332,917m

£333,017m

£315,111m

Loan impairment provisions

£6,181m

£6,456m

£7,139m

Risk elements in lending (REIL)

£12,625m

£11,789m

£12,157m

Provisions as a % of REIL

49%

55%

59%

REIL as a % of gross customer loans

3.8%

3.5%

3.9%

 

Note:

(1)

Includes disposal groups and excludes reverse repos.

 

Key points 

·

A net impairment loss of £144 million was reported in Q3 2016 compared with a release of £79 million in Q3 2015 and a loss of £186 million in Q2 2016. 

·

Capital Resolution reported a net impairment loss of £120 million in Q3 2016 compared with a release of £50 million in Q3 2015. The loss for the quarter included a £190 million charge (year to date - £454 million) in respect of the shipping portfolio reflecting difficult conditions in some parts of the sector.

·

Commercial Banking reported an impairment loss of £20 million for Q3 2016 compared with £16 million in Q3 2015 and £89 million in Q2 2016. Q2 2016 included a single name charge taken in respect of the oil and gas portfolio.

·

Ulster Bank RoI reported a net impairment release of €48 million in Q3 2016 compared with €75 million in Q3 2015. The Q3 2016 impairment release included a write back associated with the sale of a portfolio of loans partially offset by additional provisions in respect of mortgages. On completion in Q4 2016, the portfolio sale is expected to reduce gross customer loans in Ulster Bank RoI by €1.8 billion and reduce REIL as a percentage of gross customer loans by around 6 percentage points.

·

REIL increased by £836 million in the quarter to £12,625 million, principally relating to the shipping portfolio along with the implementation of a revised mortgage methodology in Ulster Bank RoI and foreign exchange movements. REIL represented 3.8% of gross customer loans compared with 3.5% at 30 June 2016 and 3.9% at 31 December 2015. Provision coverage was 49% compared with 55% at 30 June 2016 and 59% at 31 December 2015.


Analysis of results

 












Selected credit risk portfolios























30 September 2016


30 June 2016


31  December 2015


 CE (1)

PE (1)

EAD (2)


 CE (1)

PE (1)

EAD (2)


 CE (1)

PE (1)

EAD (2)

Natural resources

£m

£m

£m


£m

£m

£m


£m

£m

£m













Oil and gas

2,989 

6,000 

4,739 


3,298 

6,356 

5,039 


3,544 

6,798 

5,606 

Mining and metals

652 

1,782 

1,375 


816 

1,941 

1,608 


729 

1,823 

1,555 

Electricity

3,256 

8,466 

5,782 


3,374 

8,583 

5,940 


2,851 

7,683 

5,205 

Water and waste

5,875 

8,772 

7,381 


5,347 

8,665 

6,679 


4,657 

8,261 

5,873 














12,772 

25,020 

19,277 


12,835 

25,545 

19,266 


11,781 

24,565 

18,239 













Shipping

5,514 

6,043 

6,154 


6,765 

7,246 

7,496 


6,776 

7,301 

7,509 

 

Notes:

(1)

Current exposure (CE) and potential exposure (PE) are both net of impairment provisions and credit valuation adjustments and after the effect of risk transfer. For a full description of what is included and excluded from current and potential exposure refer to page 16 of Appendix 1 of the Interim Results 2016.

(2)

Exposure at default (EAD) reflects an estimate of the extent to which a bank will be exposed under a specific facility on the default of a customer or counterparty.

Uncommitted undrawn facilities are excluded from current exposure but included within EAD; therefore EAD can exceed current exposure.

 

Key points

·

Oil and gas - Exposure to the sector remained stable and there was no material change in the credit quality of the portfolio during the quarter. Provisions increased by £10 million to £167 million. AQ10 potential exposure, net of provisions, was £178 million (30 June 2016 - £207 million). Exposures classified as risk of credit loss were minimal.

·

Mining and metals - The sector continued to be affected by a slowdown in demand and the oversupply of key metal commodities. RBS's strategic focus in this sector is on investment grade customers and there was no material change in the credit quality during the quarter. Provisions also remained stable. AQ10 potential exposure, net of provisions was £56 million (30 June 2016 - £82 million). Exposures classified as risk of credit loss were minimal.

·

Shipping - The reduction in exposure was due to disposals and loan amortisation. Challenging market conditions continued to affect vessel values in the bulk and container sectors, where values remain severely depressed and close to historic lows, and also in the tanker sector, where values have reduced from recent highs. Portfolio credit quality deteriorated during the quarter as a result of the difficult market conditions. Impairment charges of £190 million partially offset by write offs of £58 million in Q3 2016 increased provisions by £126 million to £571 million (30 June 2016 - £445 million; 31 December 2015 - £181 million). AQ10 current exposure, net of provisions, was £1,031 million (30 June 2016 - £579 million). In addition £775 million of current exposure was classified as at risk of credit loss (30 June 2016 - £78 million).

 

 

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 


2016 

2016 

2015 


2016 

2016 

2015 

Risk asset ratios

% 

% 

% 


% 

% 

% 









CET1

15.0 

14.5 

15.5 


15.0 

14.5 

15.5 

Tier 1

16.7 

15.4 

16.3 


19.1 

17.7 

19.1 

Total

20.6 

19.0 

19.6 


24.1 

23.0 

24.7 









Capital

£m

£m

£m


£m

£m

£m









Tangible equity

39,822 

40,541 

40,943 


39,822 

40,541 

40,943 









Expected loss less impairment provisions

(862)

(831)

(1,035)


(862)

(831)

(1,035)

Prudential valuation adjustment

(734)

(603)

(381)


(734)

(603)

(381)

Deferred tax assets

(838)

(1,040)

(1,110)


(838)

(1,040)

(1,110)

Own credit adjustments

(435)

(587)

(104)


(435)

(587)

(104)

Pension fund assets

(209)

(209)

(161)


(209)

(209)

(161)

Cash flow hedging reserve

(1,565)

(1,603)

(458)


(1,565)

(1,603)

(458)

Other deductions

(9)

(14)

(86)


(9)

(14)

(64)









Total deductions

(4,652)

(4,887)

(3,335)


(4,652)

(4,887)

(3,313)









CET1 capital

35,170 

35,654 

37,608 


35,170 

35,654 

37,630 

AT1 capital

4,041 

1,997 

1,997 


9,662 

7,756 

8,716 

Tier 1 capital

39,211 

37,651 

39,605 


44,832 

43,410 

46,346 

Tier 2 capital

9,181 

9,028 

8,002 


11,773 

13,043 

13,619 









Total regulatory capital

48,392 

46,679 

47,607 


56,605 

56,453 

59,965 









Risk-weighted assets
















Credit risk








  - non-counterparty

166,600 

172,500 

166,400 





  - counterparty

25,100 

26,100 

23,400 





Market risk

17,800 

20,900 

21,200 





Operational risk

25,700 

25,700 

31,600 













Total RWAs

235,200 

245,200 

242,600 













Leverage (2)
















Derivatives

283,000 

326,000 

262,500 





Loans and advances

346,500 

348,500 

327,000 





Reverse repos

46,000 

45,800 

39,900 





Other assets

176,900 

181,300 

186,000 













Total assets

852,400 

901,600 

815,400 





Derivatives








  - netting and variation margin

(281,700)

(328,400)

(258,600)





  - potential future exposures

64,100 

75,500 

75,600 





Securities financing transactions gross up

2,200 

3,200 

5,100 





Undrawn commitments

62,100 

63,200 

63,500 





Regulatory deductions and other








  adjustments

4,100 

5,600 

1,500 













Leverage exposure

703,200 

720,700 

702,500 













Tier 1 capital

39,211 

37,651 

39,605 













Leverage ratio %

5.6 

5.2 

5.6 













Average leverage exposure (3)

717,056 

717,167 














Average Tier 1 capital (3)

38,919 

38,561 














Average leverage ratio % (3)

5.4 

5.4 






 

Notes:

(1)

CRR as implemented by the PRA in the UK, with effect from 1 January 2014. All regulatory adjustments and deductions to CET1 have been applied in full for both bases with the exception of unrealised gains on available-for-sale securities which have been included from 2015 under the PRA transitional basis.

(2)

Based on end-point CRR Tier 1 capital and leverage exposure under the CRR Delegated Act.

(3)

Based on averages of the last four quarter end positions.



Analysis of results

 

Key points

·

CET1 ratio decreased by 50 basis points in the nine months to 30 September 2016 to 15.0% primarily reflecting management actions to normalise the ownership structure and improve the long-term resilience of RBS. These actions included the final Dividend Access Share payment of £1.2 billion and the accelerated payment of £4.2 billion relating to the deficit on the Main Scheme of The Royal Bank of Scotland Group Pension Fund, both in March 2016. Litigation and conduct charges contributed to a £2.0 billion reduction in CET1 capital.

·

Tier 1 capital benefitted from the successful issuance of £2 billion of AT1 capital notes in August 2016. Total end-point CRR compliant AT1 capital now stands at £4.0 billion.

·

RWAs decreased by £7.4 billion to £235.2 billion during the nine months to 30 September 2016.


○

Credit risk RWAs have remained relatively flat as lending growth in UK PBB and Commercial Banking and the adverse impact of foreign exchange movements following the EU referendum were offset by reductions due to disposals and run-off in Capital Resolution.


○

The impact of market volatility throughout 2016 and implementation of new risk metric models in CIB and Capital Resolution led to an increase of £1.7 billion in counterparty credit risk RWAs.


○

Market risk RWAs reduced by £3.4 billion driven by disposals of securitisations and lower US dollar position in Treasury.


○

Operational risk RWAs decreased by £5.9 billion as a result of the annual recalculation and the removal of the element relating to Citizens following regulatory approval.

·

There was a 50 basis points increase in the CET1 ratio in Q3 2016 driven primarily by a £10.0 billion reduction in RWAs. RWA reduction reflected disposals and run-off in Capital Resolution, the unwind of mortgage model recalibrations booked by UK PBB in H1 2016 and lower non-modelled market risk.

·

Leverage ratio increased by 40 basis points in the period to 5.6% driven by the issuance of AT1 instruments in August 2016.

·

The proforma leverage ratio reflecting the post EU referendum measures announced by the Bank of England in Q3 2016 was estimated at 6.1%.

·

RBS's PRA minimum leverage ratio requirement of 3% has been supplemented with an additional GSII leverage ratio buffer of 0.13125%, equivalent to £923 million of CET1 capital at 30 September 2016.

 


Segment performance

Nine months ended 30 September 2016


PBB


CPB





Central




Ulster


Commercial

Private

RBS



Capital

Williams

 items &

Total


UK PBB

BankRoI


Banking

Banking

International


CIB

Resolution

& Glyn (1)

other (2)

RBS


£m

£m


£m

£m

£m


£m

£m

£m

£m

£m

Income statement













Net interest income

3,194 

304 


1,601 

338 

226 


75 

195 

488 

79 

6,500 

Other non-interest income

757 

132 


947 

158 

52 


1,132 

(325)

132 

(442)

2,543 

Total income - adjusted (3)

3,951 

436 


2,548 

496 

278 


1,207 

(130)

620 

(363)

9,043 

Own credit adjustments

- 

3 


- 

- 

- 


82 

142 

- 

67 

294 

Loss on redemption of own debt

- 

- 


- 

- 

- 


- 

- 

- 

(127)

(127)

Strategic disposals

- 

- 


- 

- 

- 


- 

(81)

- 

245 

164 

Total income

3,951 

439 


2,548 

496 

278 


1,289 

(69)

620 

(178)

9,374 

Direct expenses - staff costs

(529)

(150)


(392)

(115)

(33)


(192)

(79)

(190)

(1,777)

(3,457)

                           - other costs

(221)

(32)


(166)

(32)

(13)


(28)

(81)

(46)

(1,925)

(2,544)

Indirect expenses

(1,478)

(130)


(822)

(218)

(62)


(762)

(428)

(60)

3,960 

- 

Operating expenses - adjusted (4)

(2,228)

(312)


(1,380)

(365)

(108)


(982)

(588)

(296)

258 

(6,001)

Restructuring costs  - direct

(50)

(32)


(13)

(1)

(1)


(16)

(35)

(57)

(894)

(1,099)

                                  - indirect

(86)

(4)


(49)

(22)

(2)


(50)

(35)

- 

248 

- 

Litigation and conduct costs

(420)

(95)


(16)

(2)

1 


(62)

(257)

- 

(889)

(1,740)

Operating expenses

(2,784)

(443)


(1,458)

(390)

(110)


(1,110)

(915)

(353)

(1,277)

(8,840)

Profit/(loss) before impairment (losses)/releases

1,167 

(4)


1,090 

106 

168 


179 

(984)

267 

(1,455)

534 

Impairment (losses)/releases

(67)

66 


(123)

(5)

(11)


- 

(383)

(31)

1 

(553)

Operating profit/(loss)

1,100 

62 


967 

101 

157 


179 

(1,367)

236 

(1,454)

(19)

Operating profit/(loss) - adjusted (3,4)

1,656 

190 


1,045 

126 

159 


225 

(1,101)

293 

(104)

2,489 

Additional information













Return on equity (5)

17.0%

3.1%


8.5%

7.0%

15.4%


1.6%

nm

nm

nm

(8.5%)

Return on equity - adjusted (3,4,5)

26.4%

9.5%


9.4%

8.9%

15.6%


2.4%

nm

nm

nm

(0.6%)

Cost:income ratio

70%

101%


57%

79%

40%


86%

nm

57%

nm

94%

Cost:income ratio - adjusted (3,4)

56%

72%


54%

74%

39%


81%

nm

48%

71%

66%

Total assets (£bn)

155.4 

25.3 


152.6 

18.2 

26.9 


249.7 

176.7 

25.7 

21.9 

852.4 

Funded assets (£bn) (6)

155.4 

25.2 


152.6 

18.1 

26.9 


112.5 

34.9 

25.7 

18.0 

569.3 

Net loans and advances to customers (£bn)

129.6 

19.5 


99.8 

11.8 

8.7 


19.9 

16.7 

20.6 

0.1 

326.7 

Risk elements in lending (£bn)

2.1 

4.8 


2.1 

0.1 

0.1 


-  

2.9 

0.4 

0.1 

12.6 

Impairment provisions (£bn)

(1.4)

(2.3)


(1.0)

-  

-  


-  

(1.2)

(0.2)

-  

(6.1)

Customer deposits (£bn)

143.7 

15.1 


98.1 

25.3 

25.5 


9.7 

16.8 

24.0 

0.6  

358.8 

Risk-weighted assets (RWAs) (£bn)

31.9 

21.4 


77.6 

8.2 

9.6 


36.6 

38.6 

9.7 

1.6  

235.2 

RWA equivalent (£bn) (5)

35.4 

22.8 


82.3 

8.2 

9.6 


37.2 

39.8 

10.2 

1.9  

247.4 

Employee numbers (FTEs - thousands)

18.7 

3.2 


5.8 

1.8 

0.8 


1.3 

0.7 

5.0 

45.2  

82.5 














For the notes to this table refer to page 19. nm = not meaningful














 

Segment performance

Quarter ended 30 September 2016


PBB


CPB





Central




Ulster


Commercial

Private

RBS



Capital

Williams

 items &

Total


UK PBB

BankRoI


Banking

Banking

International


CIB

Resolution

& Glyn (1)

other (2)

RBS


£m

£m


£m

£m

£m


£m

£m

£m

£m

£m

Income statement













Net interest income

1,085 

106 


534 

112 

75 


32 

27 

164 

32 

2,167 

Other non-interest income

251 

40 


315 

53 

18 


494 

148 

45 

(37)

1,327 














Total income adjusted (3)

1,336 

146 


849 

165 

93 


526 

175 

209 

(5)

3,494 

Own credit adjustments

- 

- 


- 

- 

- 


(55)

(42)

- 

(59)

(156)

Gain on redemption of own debt

- 

- 


- 

- 

- 


- 

- 

- 

3 

3 

Strategic disposals

- 

- 


- 

- 

- 


- 

(30)

- 

(1)

(31)

Total income

1,336 

146 


849 

165 

93 


471 

103 

209 

(62)

3,310 

Direct expenses - staff costs

(168)

(53)


(127)

(38)

(11)


(61)

(17)

(65)

(588)

(1,128)

                           - other costs

(59)

(19)


(55)

(9)

(5)


(7)

(17)

(13)

(705)

(889)

Indirect expenses

(491)

(45)


(265)

(62)

(24)


(274)

(139)

(21)

1,321 

- 

Operating expenses - adjusted (4)

(718)

(117)


(447)

(109)

(40)


(342)

(173)

(99)

28 

(2,017)

Restructuring costs  - direct

1 

(8)


(12)

- 

- 


(6)

(23)

(12)

(409)

(469)

                                  - indirect

(26)

(3)


(9)

(3)

- 


(27)

(10)

- 

78 

- 

Litigation and conduct costs

1 

(3)


(6)

- 

1 


(6)

(231)

- 

(181)

(425)














Operating expenses

(742)

(131)


(474)

(112)

(39)


(381)

(437)

(111)

(484)

(2,911)














Profit/(loss) before impairment (losses)/releases

594 

15 


375 

53 

54 


90 

(334)

98 

(546)

399 

Impairment (losses)/releases

(27)

39 


(20)

(3)

- 


- 

(120)

(14)

1 

(144)














Operating profit/(loss)

567 

54 


355 

50 

54 


90 

(454)

84 

(545)

255 














Operating profit/(loss) - adjusted (3,4)

591 

68 


382 

53 

53 


184 

(118)

96 

24 

1,333 

Additional information













Return on equity (5)

27.1%

7.8%


9.5%

11.1%

15.4%


3.1%

nm

nm

nm

(4.8%)

Return on equity - adjusted (3,4,5)

28.3%

9.9%


10.4%

11.8%

15.1%


8.0%

nm

nm

nm

4.6%

Cost:income ratio

56%

90%


56%

68%

42%


81%

nm

53%

nm

88%

Cost:income ratio - adjusted (3,4)

54%

80%


53%

66%

43%


65%

99%

47%

nm

58%

Total assets (£bn)

155.4 

25.3 


152.6 

18.2 

26.9 


249.7 

176.7 

25.7 

21.9 

852.4 

Funded assets (£bn) (6)

155.4 

25.2 


152.6 

18.1 

26.9 


112.5 

34.9 

25.7 

18.0 

569.3 

Net loans and advances to customers (£bn)

129.6 

19.5 


99.8 

11.8 

8.7 


19.9 

16.7 

20.6 

0.1 

326.7 

Risk elements in lending (£bn)

2.1 

4.8 


2.1 

0.1 

0.1 


- 

2.9 

0.4 

0.1 

12.6 

Impairment provisions (£bn)

(1.4)

(2.3)


(1.0)

- 

- 


- 

(1.2)

(0.2)

- 

(6.1)

Customer deposits (£bn)

143.7 

15.1 


98.1 

25.3 

25.5 


9.7 

16.8 

24.0 

0.6 

358.8 

Risk-weighted assets (RWAs) (£bn)

31.9 

21.4 


77.6 

8.2 

9.6 


36.6 

38.6 

9.7 

1.6 

235.2 

RWA equivalent (£bn) (5)

35.4 

22.8 


82.3 

8.2 

9.6 


37.2 

39.8 

10.2 

1.9 

247.4 

Employee numbers (FTEs - thousands)

18.7 

3.2 


5.8 

1.8 

0.8 


1.3 

0.7 

5.0 

45.2 

82.5 

Notes:

(1)

Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and comprises RBS England and Wales branch-based businesses, along with certain small and medium enterprises and corporate activities across the UK.

(2)

Central items include unallocated transactions which principally comprise volatile items under IFRS.

(3)

Excluding own credit adjustments, (loss)/gain on redemption of own debt and strategic disposals.

(4)

Excluding restructuring costs and litigation and conduct costs.

(5)

RBS's CET 1 target is 13% but for the purposes of computing segmental return on equity (ROE), to better reflect the differential drivers of capital usage, segmental operating profit after tax and adjusted for preference dividends is divided by notional equity allocated at different rates of 11% (Commercial Banking and Ulster Bank RoI), 12% (RBS International) and 15% for all other segments, of the monthly average of segmental risk-weighted assets incorporating the effect capital deductions (RWAes). RBS Return on equity is calculated using profit for the period attributable to ordinary shareholders.

(6)

Funded assets exclude derivative assets.

 


 

Segment performance

 

Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September


2016

2015


2016

2016

2015

Total income by segment

£m

£m


£m

£m

£m








UK PBB







Personal advances

630 

570 


216 

210 

185 

Personal deposits

547 

566 


186 

195 

186 

Mortgages

1,733 

1,736 


596 

573 

591 

Cards

464 

481 


148 

174 

159 

Business banking

544 

546 


188 

181 

182 

Other

33 

47 


2 

7 

10 

Total

3,951 

3,946 


1,336 

1,340 

1,313 








Ulster Bank RoI







Corporate

142 

109 


43 

43 

38 

Retail

291 

246 


96 

95 

91 

Other

6 

79 


7 

(3)

35 








Total income

439 

434 


146 

135 

164 








Commercial Banking







Commercial lending

1,372 

1,223 


472 

464 

380 

Deposits

365 

352 


116 

124 

123 

Asset and invoice finance

537 

542 


181 

179 

184 

Other

274 

340 


80 

79 

113 

Total

2,548 

2,457 


849 

846 

800 








Private Banking







Investments

74 

65 


24 

22 

20 

Banking

422 

421 


141 

144 

140 

Total

496 

486 


165 

166 

160 








RBS International

278 

272 


93 

95 

87 








CIB







Rates

719 

557 


348 

258 

160 

Currencies

394 

295 


128 

122 

96 

Financing

183 

260 


78 

55 

32 

Other

(89)

(55)


(28)

(31)

20 

Total excluding own credit adjustments

1,207 

1,057 


526 

404 

308 

Own credit adjustments

82 

186 


(55)

73 

78 

Businesses transferred to Commercial Banking

- 

98 


- 

- 

20 

Total

1,289 

1,341 


471 

477 

406 








Capital Resolution







APAC portfolio (1)

(3)

68 


(5)

1 

17 

Americas portfolio

11 

52 


1 

3 

5 

EMEA portfolio (2)

27 

62 


8 

9 

15 

Legacy loan portfolio

(8)

155 


31 

(25)

22 

Shipping

37 

66 


6 

15 

21 

Markets

(177)

212 


212 

(360)

58 

Global Transaction Services

107 

277 


24 

35 

48 

Other

42 

(84)


11 

23 

(46)

Total excluding disposals and own credit







  adjustments

36 

808 


288 

(299)

140 

Disposal losses

(247)

(187)


(143)

(102)

(89)

Own credit adjustments

142 

180 


(42)

76 

38 

Total

(69)

801 


103 

(325)

89 








Williams & Glyn (3)







Retail

351 

355 


120 

116 

119 

Commercial

269 

270 


89 

90 

92 

Total

620 

625 


209 

206 

211 








Central items

(178)

77 


(62)

60 

(47)

Total RBS

9,374 

10,439 


3,310 

3,000 

3,183 

 

Notes:

(1)

Asia-Pacific portfolio.

(2)

European, the Middle East and African portfolio.

(3)

Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and comprises RBS England and Wales branch-based businesses, along with certain small and medium enterprises and corporate activities across the UK.



Segment performance

 

Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September


2016

2015


2016

2016

2015

Impairment losses/(releases) by segment

£m

£m


£m

£m

£m

UK PBB







Personal advances

46 

56 


26 

14 

12 

Mortgages

17 

(1)


(1)

14 

(9)

Business banking

(7)

(55)


(8)

1 

3 

Cards

11 

11 


10 

(5)

3 

Other

- 

9 


- 

- 

(7)

Total

67 

20 


27 

24 

2 








Ulster Bank RoI







Mortgages

59 

(94)


60 

(2)

(36)

Commercial real estate







 - investment

(23)

2 


(18)

- 

(1)

 - development

(19)

1 


(12)

(5)

(2)

Other lending

(83)

(40)


(69)

(7)

(15)

Total

(66)

(131)


(39)

(14)

(54)








Commercial Banking







Commercial real estate

(4)

10 

.

(6)

4 

4 

Asset and invoice finance

14 

1 


1 

10 

(2)

Private sector services (education, health etc)

1 

5 


- 

- 

2 

Banks & financial institutions

2 

1 


1 

1 

- 

Wholesale and retail trade repairs

9 

3 


10 

(4)

3 

Hotels and restaurants

20 

- 


21 

(1)

1 

Manufacturing

2 

1 


- 

1 

1 

Construction

5 

5 


- 

4 

3 

Other (1)

74 

16 


(7)

74 

4 

Total

123 

42 


20 

89 

16 








Private Banking

5 

1 


3 

- 

4 








RBS International

11 

- 


- 

9 

(1)








Corporate & Institutional Banking

- 

(5)


- 

- 

- 








Capital Resolution

383 

(369)


120 

67 

(50)








Williams & Glyn (2)







Retail

21 

15 


11 

5 

3 

Commercial

10 

(20)


3 

6 

2 

Total

31 

(5)


14 

11 

5 








Central items

(1)

47 


(1)

- 

(1)

Total RBS

553 

(400)


144 

186 

(79)












30 September

30 June

31 December





2016

2016

2015

Analysis of Capital Resolution RWAs by portfolio



£m

£m

£m

APAC portfolio (3)




0.1 

0.2 

0.5 

Americas portfolio




0.3 

0.3 

1.0 

EMEA portfolio (4)




1.2 

1.1 

1.2 

Legacy loan portfolio




2.0 

2.2 

3.7 

Shipping




3.5 

4.0 

4.5 

Markets




17.1 

19.2 

20.7 

Global Transaction Services




1.8 

2.5 

3.6 

Saudi Hollandi Bank




7.9 

7.9 

6.9 

Other




1.9 

2.1 

2.9 

Total credit and market risk RWAs




35.8 

39.5 

45.0 

Operational risk




2.8 

2.8 

4.0 

Total RWAs




38.6 

42.3 

49.0 

 

Notes:

(1)

Includes a single name charge taken in respect of the oil and gas portfolio.

(2)

Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and comprises RBS England and Wales branch-based businesses, along with certain small and medium enterprises and corporate activities across the UK.

(3)

Asia-Pacific portfolio.

(4)

European, the Middle East and Africa portfolio.



Segment Performance

 

30 September

30 June

31 December


2016

2016

2015

Loans and advances to customers (gross) by segment (1)

£bn

£bn

£bn

UK PBB




Personal advances

6.0 

6.0 

6.0 

Mortgages

114.7 

111.4 

104.8 

Business banking

6.4 

6.2 

5.3 

Cards

3.9 

3.9 

4.1 

Other

-  

-  

1.4 

Total

 131.0 

127.5 

121.6 





Ulster Bank RoI




Mortgages

16.0 

15.6 

13.8 

Commercial real estate




 - investment

1.0 

1.0 

0.7 

 - development

0.4 

0.4 

0.2 

 - other lending

4.4 

4.4 

3.9 

Total

21.8 

21.4 

18.6 





Commercial Banking




Commercial real estate

17.5 

17.8 

16.7 

Asset and invoice finance

15.0 

14.8 

14.4 

Private sector services (education, health etc)

6.9 

6.8 

6.7 

Banks & financial institutions

8.9 

8.2 

7.1 

Wholesale and retail trade repairs

8.2 

8.2 

7.5 

Hotels and restaurants

3.6 

3.6 

3.3 

Manufacturing

6.4 

7.0 

5.3 

Construction

2.0 

2.1 

2.1 

Other

32.3 

31.7 

28.9 

Total

100.8 

100.2 

92.0 





Private Banking




Personal advances

2.3 

2.5 

2.7 

Mortgages

6.7 

6.8 

6.5 

Other

2.8 

2.5 

2.0 

Total

11.8 

11.8 

11.2 





RBS International




Corporate

6.1 

5.9 

4.5 

Mortgages

2.6 

2.6 

2.5 

Other

- 

- 

0.4 

Total

8.7 

8.5 

7.4 





Capital Resolution

17.9 

21.0 

25.9 





Williams & Glyn (2)




Retail

12.2 

12.1 

11.6 

Commercial

8.6 

8.5 

8.7 

Total

20.8 

20.6 

20.3 





Central items

0.1 

0.5 

2.0 





Balance sheet




Corporate & Institutional Banking




Reverse repos

42.7 

43.1 

38.6 

Loans and advances to customer (gross)

19.9 

21.6 

16.1 

Loans and advances to banks (gross) (3)

5.9 

6.3 

5.7 

Securities

26.4 

30.1 

23.7 

Cash and eligible bills

6.4 

10.3 

14.3 

Other

11.2 

14.2 

4.9 

Total funded assets

112.5 

125.6 

103.3 

 

Notes:

(1)

Excludes reverse repurchase agreements and includes disposal groups.

(2)

Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and comprises RBS England and Wales branch-based businesses, along with certain small and medium enterprises and corporate activities across the UK.

(3)

Excludes disposal groups.


Segment performance

 

UK Personal & Business Banking

●

Operating profit was £567 million compared with £549 million in Q3 2015 with 2% income growth and a 3% reduction in operating expenses partially offset by a modestly higher impairment charge.  Compared with Q2 2016, adjusted operating profit improved by £57 million to £591 million principally due to a £42 million FSCS levy charge included in the prior quarter. Adjusted return on equity of 28% compared with 29% in Q3 2015.

●

UK PBB continued to deliver support for both personal and business customers with net loans and advances of £129.6 billion up £13.3 billion, or 11%, compared with Q3 2015, primarily due to mortgage growth. Gross new mortgage lending in the quarter of £7.9 billion was 12% higher with market share of new mortgages at approximately 12% supporting a growth in stock share to 8.7%.

●

The Reward proposition continues to show positive momentum and now has more than one million customer accounts with improved levels of customer engagement. In addition, we continue to make better use of digital channels, with over 4.3 million customers regularly using our mobile app.

●

Total income of £1,336 million was £23 million, or 2%, higher than Q3 2015. Net interest income increased by £30 million, or 3%, principally reflecting strong volume growth and savings re-pricing benefits partially offset by asset margin pressure.  Net interest margin declined by 23 basis points to 2.96% reflecting the change in mix of the asset base towards mortgage lending from unsecured lending, mortgage customers switching from standard variable rate (SVR) and lower returns on current account structural hedges. SVR mortgages represented 12% of the total mortgage book (Q3 2015 - 15%). Non-interest income reduced by £7 million, or 3%, primarily due to reduced credit card interchange fees, £13 million, and higher cash back payments on the Reward account. 

●

Adjusted expenses reduced by £16 million, or 2%, compared with Q3 2015 with a £43 million, or 16%, reduction in direct costs, primarily due to an 18% reduction in FTEs driving lower staff costs, partially offset by increased technology investment in the business. Compared with Q2 2016 adjusted expenses reduced by £64 million principally reflecting a £42 million FSCS levy charge in Q2 2016 and a £12 million reduction in staff costs as FTEs reduced a further 1,300 in the quarter. 

●

The net impairment charge of £27 million, which continues to reflect benign credit conditions, increased by £25 million compared with Q3 2015 primarily due to reduced portfolio provision releases. Default levels remain low across all portfolios.

●

RWAs were £1.4 billion, or 4%, lower than Q3 2015 with lending growth more than offset by improved overall credit quality. The reduction of £5.1 billion in the quarter principally reflects the unwind of mortgage risk parameter model recalibrations taken in H1 2016 and improved credit quality.


Segment performance

 

Ulster Bank RoI

●

Operating profit of €69 million was €74 million lower than Q3 2015 primarily reflecting a lower net impairment release and one-off income gains in Q3 2015. Adjusted operating profit of €81 million was €8 million higher than Q2 2016 as a €31 million increase in net impairment releases was partially offset by €19 million one-off accrual releases in Q2 2016.    

●

Ulster Bank RoI built upon its strong H1 2016 performance in mortgage lending, adding a further €0.3 billion of gross new lending in the quarter, up 51% compared with Q3 2015. The low yielding tracker mortgage portfolio declined by a further €0.3 billion to €11.1 billion.

●

Total income of €171 million was €57 million lower than Q3 2015 due to reduced income on free funds and one off in Q3 2015, including a €17 million profit on the sale of a buy-to-let mortgage portfolio, as well as a €33 million gain realised on the closure of a foreign exchange exposure.

●

Adjusted operating expenses reduced by €15 million, or 10%, compared with Q3 2015 to €138 million. Compared with Q2 2016 adjusted expenses increased by €22 million primarily due to one-off accrual releases of €19 million in Q2 2016.

●

The Q3 2016 impairment release of €48 million included a net impairment write back associated with the sale of a portfolio of loans, partially offset by additional provisions in respect of mortgages.

●

REILs were €5.6 billion in Q3 2016, increasing €0.4 billion on Q2 2016 primarily driven by a widening of the definition of non-performing loans which are considered to be impaired to include multiple forbearance arrangements and probationary mortgages. The amendment to the definition does not have a material impact on provisions. It is expected that the sale of a portfolio of loans will materially reduce Ulster Bank RoI REIL when complete in Q4 2016.

●

Credit metrics continue to benefit from the improving economic environment supporting a reduction in RWAs of 7% to €24.7 billion compared with Q3 2015. RWAs on the tracker mortgage portfolio reduced by €1.1 billion, or 10%, compared with Q3 2015 to €9.6 billion.

 

Commercial Banking

●

Operating profit of £355 million in Q3 2016 compared with £376 million in Q3 2015. Adjusted operating profit of £382 million was £7 million higher than Q3 2015 and was £122 million higher than Q2 2016, principally reflecting a single name impairment charge taken in respect of the oil and gas portfolio in Q2 2016. Adjusted return on equity of 10.4% compared with 12.3% in Q3 2015.

●

Total income increased by £49 million to £849 million compared with Q3 2015. Excluding the impact of business transfers(1), income increased by 1% largely reflecting increased asset and liability volumes. Net interest margin fell by 17 basis points from Q3 2015 to 1.72% driven by asset margin pressure in a competitive market and low rate environment.

●

Excluding business transfers(1), adjusted operating expenses increased by £13 million compared with Q3 2015 but reduced by £53 million compared to Q2 2016 reflecting cost efficiencies and a £25 million intangible asset write down in Q2 2016.

●

Net impairment losses of £20 million were £4 million higher than Q3 2015 and £69 million lower than Q2 2016 reflecting the non-repeat of a single name charge taken in respect of the oil and gas portfolio.

●

Net loans and advances, adjusting for the impact of business transfers(1), increased by £6.5 billion from Q3 2015, principally reflecting increased borrowing across mid and large corporate customers. Net loans and advances continued to grow in the quarter, up £0.6 billion, but at a slower rate than in H1 2016.

●

RWAs were £77.6 billion, an increase of £6.9 billion compared to Q3 2015, adjusting for business transfers(1), reflecting asset growth partially offset by reduced RWA intensity. 

 

 

Note:

(1)

The business transfers included: total income of £42 million (Q2 2016 - £53 million; Q3 2015 - nil); operating expenses of £25 million (Q2 2016 - £22 million; Q3 2015 - nil); impairments of £7 million (Q2 2016 £7 million; Q3 2015 - nil) net loans and advances to customers of £4.2 billion (30 June 2016 - £5.2 billion; 30 September 2015 - nil); and RWAs of £6.5 billion (30 June 2016 - £8.5 billion; 30 September 2015 - nil).



Segment performance

 

Private Banking

●

Operating profit of £50 million was £12 million higher than Q3 2015 and was £9 million higher than Q2 2016. Adjusted return on equity of 11.8% compared with 7.1% in Q3 2015.

●

Total income of £165 million increased by £5 million, 3%, compared with Q3 2015 as the benefit of increased asset volumes has been partially offset by reduced net interest margin, down 10 basis points to 2.62% reflecting the lower interest rate environment.

●

Adjusted operating expenses were 8% lower than Q3 2015 at £109 million principally reflecting management actions to reduce operational costs and a £13 million VAT recovery.

●

Net loans and advances increased 6% to £11.8 billion, due to increased mortgage lending, and customer deposits grew by 11% to £25.3 billion compared with Q3 2015. Assets under management(1) increased by £3.1 billion to £16.6 billion reflecting market and underlying growth. In addition, investment cash balances were included in assets under management for the first time in Q3 2016, excluding this, growth was £1.7 billion.

 

RBS International

●

Operating profit of £54 million was 8% higher than Q3 2015 driven by increased income. Adjusted return on equity of 15.1% compared with 18.8% in Q3 2015.

●

Total income increased 7% compared with Q3 2015 to £93 million driven by increased asset volumes partially offset by lower asset margins.

●

Net loans and advances to customers increased by £1.7 billion to £8.7 billion compared with Q3 2015 principally reflecting balance draw-downs in the funds sector lending portfolio and foreign exchange movements.

●

Customer deposits increased by £3.2 billion to £25.5 billion reflecting the transfer in of the Luxembourg branch from Capital Resolution in Q2 2016 and foreign exchange movements.

 

Corporate & Institutional Banking (CIB)

●

An operating profit of £90 million compared with an operating loss of £109 million in Q3 2015.   Adjusted operating profit of £184 million compared with an adjusted operating loss of £30 million in Q3 2015, with the improvement principally reflecting an increase in adjusted income.

●

Adjusted income, excluding a £20 million movement associated with the transfer of portfolios to Commercial Banking(2), increased by £218 million to £526 million. The increase was primarily driven by an increase in Rates, reflecting sustained customer activity and favourable market conditions following the EU referendum and central bank actions. Total income, which includes own credit adjustments, increased by £65 million, or 16%, to £471 million compared with £406 million in Q3 2015.

●

Operating expenses reduced by £134 million, or 26%, to £381 million compared with £515 million in Q3 2015 principally reflecting lower restructuring costs. Adjusted operating expenses fell by £16 million, or 4%, to £342 million as the business reshaping and FTE reductions were partially offset by the impact of investment spend that was previously capitalised.  

●

RWAs increased by £3.7 billion compared with Q3 2015 to £36.6 billion, adjusting for the impact of transfers to Commercial Banking(2), principally due to model updates and the impact of market volatility throughout 2016.

 

 

 

Notes:

(1)

AUM's constitute assets under management, assets under custody and investment cash.

(2)

CIB's results include the following financials for businesses subsequently transferred to Commercial Banking: total income of £98 million for nine months ended 2015 (Q3 2015 - £20 million) and RWAs of £5.9 billion as at 30 September 2015.


Segment performance

 

Capital Resolution

●

RWAs reduced by £3.7 billion in the quarter to £38.6 billion reflecting disposal activity, partially offset by an increase due to the weakening of sterling.

●

Funded assets reduced by £9.8 billion in Q3 2016 to £34.9 billion with the most significant reductions across Markets and GTS. 

●

An operating loss of £454 million in Q3 2016 compared with a loss of £798 million in Q3 2015 and a loss of £612 million in Q2 2016. 

●

Total income of £103 million increased by £428 million compared with Q2 2016 primarily due to a £160 million partial reversal of the £220 million additional funding valuation adjustment made in Q2 2016 following the EU referendum.

●

Adjusted operating expenses of £173 million were 50% lower than Q3 2015 principally reflecting a reduction in FTE and associated cost efficiencies. 

●

A net impairment loss of £120 million in the quarter, compared with £67 million in Q2 2016, and included a charge of £190 million in respect of the shipping portfolio. An impairment release of £50 million was reported in Q3 2015.

●

RWAs have fallen by £21.1 billion to £38.6 billion from Q3 2015, primarily due to run-off and loan portfolio disposals. Funded assets have reduced by £31.1 billion to £34.9 billion for the same period.

 

Williams & Glyn

●

Operating profit reduced by £31 million to £84 million compared with Q3 2015, whilst adjusted operating profit reduced by £19 million to £96 million.  Adjusted operating profit was in line with Q2 2016.

●

Total income was broadly stable compared with Q3 2015 at £209 million as the growth in the balance sheet has been more than offset by net interest margin reduction. Net interest margin of 2.65% was 23 basis points lower than Q3 2015 and was 5 basis points lower than Q2 2016. 

●

Adjusted operating expenses increased by £8 million, or 9%, to £99 million compared with Q3 2015, reflecting previous activity undertaken to create a standalone entity. Compared with Q2 2016, adjusted operating expenses were flat. 

●

A net impairment loss of £14 million was reported in Q3 2016 compared with a loss of £5 million in Q3 2015. 

●

Net loans and advances increased by £0.6 billion, or 3%, to £20.6 billion compared with Q3 2015.  Gross mortgage lending increased by £0.7 billion, or 7%, to £10.9 billion and commercial lending was £0.3 billion, or 3%, lower at £8.6 billion.

 

Central items & other

●

Central items not allocated represented a charge of £545 million in Q3 2016, an increase of £207 million compared with Q3 2015. Treasury funding costs were a charge of £177 million (compared with a charge of £117 million in Q3 2015) driven by a £150 million IFRS volatility charge. Restructuring costs in the quarter included £289 million relating to Williams & Glyn (Q3 2015 - £190 million). Partially offsetting this was a gain of £97 million was recognised arising from a partial recycling of the accumulated foreign exchange reserve triggered by a capital reduction in a foreign subsidiary.

 


Selected statutory financial statements

 

Condensed consolidated income statement for the period ended 30 September 2016 (unaudited)

 

Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September

2016

2015*


2016

2016

2015*


£m

£m


£m

£m

£m








Interest receivable

8,432 

9,070 


2,776 

2,827 

2,963 

Interest payable

(1,932)

(2,465)


(609)

(650)

(776)








Net interest income

6,500 

6,605 


2,167 

2,177 

2,187 








Fees and commissions receivable

2,519 

2,838 


843 

810 

880 

Fees and commissions payable

(592)

(558)


(200)

(180)

(195)

Income from trading activities

384 

1,045 


401 

(55)

170 

(Loss)/gain on redemption of own debt

(127)

- 


3 

(130)

- 

Other operating income

690 

509 


96 

378 

141 








Non-interest income

2,874 

3,834 


1,143 

823 

996 








Total income

9,374 

10,439 


3,310 

3,000 

3,183 








Staff costs

(3,982)

(4,449)


(1,287)

(1,372)

(1,562)

Premises and equipment

(1,006)

(1,380)


(354)

(328)

(635)

Other administrative expenses

(3,234)

(3,096)


(1,095)

(1,564)

(730)

Depreciation and amortisation

(529)

(994)


(175)

(176)

(282)

Write down of other intangible assets

(89)

(673)


- 

(69)

(67)








Operating expenses

(8,840)

(10,592)


(2,911)

(3,509)

(3,276)








Profit/(loss) before impairment (losses)/releases

534 

(153)


399 

(509)

(93)

Impairment (losses)/releases

(553)

400 


(144)

(186)

79 








Operating (loss)/profit before tax

(19)

247 


255 

(695)

(14)

Tax (charge)/credit

(922)

(284)


(582)

(260)

3 








Loss from continuing operations

(941)

(37)


(327)

(955)

(11)

Profit from discontinued operations, net of tax

- 

1,451 


- 

- 

1,093 








(Loss)/profit for the period

(941)

1,414 


(327)

(955)

1,082 







.

Attributable to:







Non-controlling interests

37 

389 


7 

8 

45 

Preference share and other dividends

343 

264 


135 

114 

97 

Dividend access share

1,193 

- 


- 

- 

- 

Ordinary shareholders

(2,514)

761 


(469)

(1,077)

940 








(Loss)/earnings per ordinary share (EPS) (1)







Basic EPS from continuing and discontinued operations

(21.5p)

6.6p


(3.9p)

(9.3p)

8.1p

Basic EPS from continuing operations

(21.5p)

(3.2p)


(3.9p)

(9.3p)

(1.0p)

 

*Restated - refer to page 31 for further details

 

Note:

(1)

There was no dilutive impact in any period.

 


Selected statutory financial statements

 

Condensed consolidated statement of comprehensive income for the period ended 30 September 2016 (unaudited)

 

Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September


2016

2015*


2016

2016

2015*


£m

£m


£m

£m

£m

(Loss)/profit for the period

(941)

1,414 


(327)

(955)

1,082 

Items that do not qualify for reclassification







(Loss)/gain on remeasurement of retirement benefit schemes

(1,047)

20 


(52)

(466)

3 

Tax

285 

(4)


12 

130 

(1)


(762)

16 


(40)

(336)

2 

Items that do qualify for reclassification







Available-for-sale financial assets

(162)

(95)


(67)

(87)

(50)

Cash flow hedges

1,515 

(302)


(66)

635 

408 

Currency translation

1,276 

(1,177)


205 

489 

(604)

Tax

(297)

106 


63 

(122)

(38)


2,332 

(1,468)


135 

915 

(284)

Other comprehensive income/(loss) after tax

1,570 

(1,452)


95 

579 

(282)








Total comprehensive income/(loss) for the period

629 

(38)


(232)

(376)

800 








Total comprehensive income/(loss) is attributable to:







Non-controlling interests

157 

357 


32 

53 

58 

Preference shareholders

192 

223 


79 

57 

80 

Paid-in equity holders

151 

41 


56 

57 

17 

Dividend access share

1,193 

 - 


 - 

 - 

 - 

Ordinary shareholders

(1,064)

(659)


(399)

(543)

645 


629 

(38)


(232)

(376)

800 

 

*Restated - refer to page 31 for further details


Selected statutory financial statements

 

Condensed consolidated balance sheet as at 30 September 2016 (unaudited)

 

30 September

30 June

31 December

2016

2016

2015


£m 

£m 

£m 





Assets




Cash and balances at central banks

69,254 

65,307 

79,404 

Net loans and advances to banks

19,741 

21,763 

18,361 

Reverse repurchase agreements and stock borrowing

12,251 

14,458 

12,285 

Loans and advances to banks

31,992 

36,221 

30,646 

Net loans and advances to customers

326,736 

326,503 

306,334 

Reverse repurchase agreements and stock borrowing

33,704 

31,320 

27,558 

Loans and advances to customers

360,440 

357,823 

333,892 

Debt securities

79,784 

84,058 

82,097 

Equity shares

728 

749 

1,361 

Settlement balances

10,298 

13,405 

4,116 

Derivatives

283,049 

326,023 

262,514 

Intangible assets

6,506 

6,525 

6,537 

Property, plant and equipment

4,490 

4,589 

4,482 

Deferred tax

1,684 

2,217 

2,631 

Prepayments, accrued income and other assets

4,140 

4,311 

4,242 

Assets of disposal groups

13 

396 

3,486 





Total assets

852,378 

901,624 

815,408 





Liabilities




Bank deposits

32,172 

31,377 

28,030 

Repurchase agreements and stock lending

6,557 

11,611 

10,266 

Deposits by banks

38,729 

42,988 

38,296 

Customer deposits

358,844 

355,719 

343,186 

Repurchase agreements and stock lending

29,851 

29,270 

27,112 

Customer accounts

388,695 

384,989 

370,298 

Debt securities in issue

28,357 

27,148 

31,150 

Settlement balances

10,719 

11,262 

3,390 

Short positions

19,882 

21,793 

20,809 

Derivatives

275,364 

322,390 

254,705 

Provisions, accruals and other liabilities

15,954 

15,627 

15,115 

Retirement benefit liabilities

526 

511 

3,789 

Deferred tax

647 

824 

882 

Subordinated liabilities

19,162 

20,113 

19,847 

Liabilities of disposal groups

15 

252 

2,980 





Total liabilities

798,050 

847,897 

761,261 





Equity




Non-controlling interests

853 

820 

716 

Owners' equity*




  Called up share capital

11,792 

11,756 

11,625 

  Reserves

41,683 

41,151 

41,806 





Total equity

54,328 

53,727 

54,147 





Total liabilities and equity

852,378 

901,624 

815,408 





*Owners' equity attributable to:




Ordinary shareholders

46,328 

47,066 

47,480 

Other equity owners

7,147 

5,841 

5,951 






53,475 

52,907 

53,431 


Selected statutory financial statements

 

Condensed consolidated statement of changes in equity for the period ended 30 September 2016 (unaudited)

 

Share








capital and




Total

Non



statutory

Paid-in

Retained

Other

owners'

controlling

Total


reserves

equity

earnings

reserves*

equity

 interests

equity


£m

£m

£m

£m

£m

£m

£m

At 1 January 2016

41,485 

2,646 

(4,020)

13,320 

53,431 

716 

54,147 

(Loss)/profit attributable to ordinary



(978)


(978)

37 

(941)

  shareholders and other equity owners








Other comprehensive income








 - amount recognised in equity



(1,047)

3,748 

2,701 

120 

2,821 

 - amount transferred from equity to profit or loss




(1,198)

(1,198)


(1,198)

 - recycled to profit or loss on








  disposal of businesses (1)




(41)

(41)


(41)

 - tax



285 

(297)

(12)


(12)

Dividend access share dividend



(1,193)


(1,193)


(1,193)

Preference share and other dividends paid



(343)


(343)


(343)

Shares and securities issued during the period (2)

405 

2,046 

(10)


2,441 


2,441 

Redemption of preference shares (3)



(1,160)


(1,160)


(1,160)

Redemption of paid-in equity (4)


(110)

(21)


(131)


(131)

Share-based payments - gross



(13)


(13)


(13)

Movement in own shares held

(29)




(29)


(29)

Equity withdrawn






(20)

(20)

At 30 September 2016

41,861 

4,582 

(8,500)

15,532 

53,475 

853 

54,328 
















30 September








2016

Total equity is attributable to:





£m

Non-controlling interests







853 

Preference shareholders







2,565 

Paid-in equity holders







4,582 

Ordinary shareholders







46,328 








54,328 

*Other reserves consist of:







Merger reserve







10,881 

Available-for-sale reserve







188 

Cash flow hedging reserve







1,565 

Foreign exchange reserve







2,898 








15,532 

 

Notes:

(1)

No tax impact.

(2)

AT1 capital notes totalling £2.0 billion issued in August 2016.

(3)

In September 2016, non-cumulative US dollar preference shares were redeemed at their original issue price of US$1.5 billon. The nominal value of £0.3 million was transferred from share capital to capital redemption reserve and ordinary owners' equity was reduced by £0.4 billion in respect of the movement in exchange rates since issue.

(4)

Paid-in equity reclassified to liabilities as a result of the call of RBS Capital Trust C in May 2016 (redeemed in July 2016).

 


Notes

 

1. Basis of preparation

The consolidated financial statements should be read in conjunction with RBS's 2015 Annual Report and Accounts which were prepared in accordance with International Financial Reporting Standards (IFRS) 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

RBS's principal accounting policies are set out on pages 267 to 280 of the 2015 Annual Report and Accounts. Amendments to IFRSs effective for 2016 have not had a material effect on RBS's Q3 2016 results.

 

Pensions

In Q4 2015, RBS changed its accounting policy for the recognition of surpluses in its defined benefit pension schemes: in particular, the policy for determining whether or not it has an unconditional right to a refund of surpluses in its employee pension funds. Where RBS has a right to a refund, this is not deemed unconditional if pension fund trustees can unilaterally enhance benefits for plan members. The amended policy was applied retrospectively and prior periods restated. For further details, refer to pages 267 to 268 of RBS's 2015 Annual Report and Accounts.

 

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 judgements are described on pages 276 to 279 of RBS's 2015 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 results for the period ended 30 September 2016 have been prepared on a going concern basis.

 

2. Pensions

In June 2016, the triennial funding valuation of the Main Scheme of The Royal Bank of Scotland Group Pension Fund was agreed which showed that at 31 December 2015 the value of liabilities exceeded the value of assets. In March 2016, to mitigate this anticipated deficit, RBS made a cash payment of £4.2 billion. The next triennial valuation is due to occur at the end of 2018 with agreement on any additional contributions by the end of March 2020.

 

As at 30 September 2016, the Main Scheme had an unrecognised surplus under IAS19 valuation principles. The surplus is unrecognised because the trustee's power to enhance member benefits could consume that surplus meaning that RBS does not control its ability to realise an asset.  The existence of the asset, albeit unrecognised, limits RBS's exposure to changes in actuarial assumptions and investment performance.

 

 

Notes

 

3. Provisions for liabilities and charges



Regulatory and legal actions





Interest







Payment

rate

Other

Foreign

Litigation




protection

hedging

 customer

exchange

and other

Property



insurance

products

 redress (1)

investigations

regulatory

and other

Total


£m

£m

£m

£m

£m

£m

£m








At 1 January 2016

996 

149 

672 

306 

3,985 

1,258 

7,366 

Transfer from accruals and other liabilities

- 

- 

- 

- 

- 

19 

19 

Transfer

- 

- 

21 

(35)

85 

(71)

- 

Currency translation and other movements

- 

- 

- 

10 

126 

28 

164 

Charge to income statement

- 

- 

11 

- 

34 

79 

124 

Releases to income statement

- 

- 

(8)

- 

(1)

(19)

(28)

Provisions utilised

(85)

(41)

(63)

- 

(24)

(69)

(282)

At 31 March 2016

911 

108 

633 

281 

4,205 

1,225 

7,363 

Transfer from accruals and other liabilities

- 

- 

35 

- 

5 

14 

54 

Transfer

50 

- 

(50)

- 

- 

- 

- 

Currency translation and other movements

- 

- 

8 

23 

336 

20 

387 

Charge to income statement

400 

- 

117 

- 

779 

233 

1,529 

Releases to income statement

- 

- 

(5)

- 

(12)

(95)

(112)

Provisions utilised

(114)

(30)

(50)

- 

(141)

(146)

(481)

At 30 June 2016

1,247 

78 

688 

304 

5,172 

1,251 

8,740 

Transfer from accruals and other liabilities

- 

- 

- 

- 

17 

- 

17 

Currency translation and other movements

- 

- 

- 

5 

94 

19 

118 

Charge to income statement

- 

- 

16 

- 

469 

191 

676 

Releases to income statement

- 

- 

(12)

- 

(48)

(8)

(68)

Provisions utilised

(102)

(10)

(69)

- 

(105)

(176)

(462)

At 30 September 2016

1,145 

68 

623 

309 

5,599 

1,277 

9,021 

 

Note:

(1)

Closing provision predominantly relates to investment advice, packaged accounts (including costs) and tracker mortgages.

 

There are uncertainties as to the eventual cost of redress in relation to certain of the provisions contained in the table above. Assumptions relating to these are inherently uncertain and the ultimate financial impact may be different from the amount provided. RBS will continue to monitor the position closely and refresh the underlying assumptions.

 

4. Litigation, investigations and reviews

 

RBS's 2016 interim results issued on 5 August 2016 included comprehensive disclosures about RBS's litigation, investigations and reviews in Note 15. Set out below are the material developments in these matters since the 2016 interim results were published. RBS generally does not disclose information about the establishment or existence of a provision for a particular matter where disclosure of the information can be expected to prejudice seriously RBS's position in the matter.

 

Litigation

 

Other securitisation and securities related litigation in the US

On 27 September 2016, RBS Securities Inc. (RBSSI) settled the two mortgage-backed securities (MBS) litigations that the National Credit Union Administration Board has been litigating on behalf of US Central Federal Credit Union and Western Corporate Federal Credit Union.  The settlement amount of US$1.1 billion was substantially covered by provisions existing at 30 June 2016.  

 

 

 

Notes

 

4. Litigation, investigations and reviews (continued)

 

RBS continues to litigate various other MBS-related civil claims identified in its 2016 interim results, including those of the Federal Housing Finance Agency, and to respond to investigations by the civil and criminal divisions of the U.S. Department of Justice and various other members of the RMBS Working Group of the Financial Fraud Enforcement Task Force (including several state attorneys general). MBS litigation and investigations may require provisions in future periods that in aggregate could be materially in excess of existing provisions.

 

London Interbank Offered Rate (LIBOR)

As previously disclosed, certain members of the Group have been named as defendants in a number of class actions and individual claims filed in the US with respect to the setting of LIBOR and certain other benchmark interest rates. On 16 August 2016, a class action complaint was filed in the United States District Court for the Southern District of New York against certain Group companies (including RBSG plc and The Royal Bank of Scotland N.V.) and a number of other financial institutions. The complaint alleges that the defendants conspired to manipulate the Australian Bank Bill Swap Reference Rate (BBSW) and asserts claims under the U.S. antitrust laws, the Commodity Exchange Act, RICO (Racketeer Influenced and Corrupt Organizations Act), and the common law. RBS anticipates making a motion to dismiss the complaint.

 

FX antitrust litigation

On 26 September 2016, a class action complaint was filed in the United States District Court for the Southern District of New York asserting claims on behalf of "indirect purchasers" of FX instruments.  The complaint defines "indirect purchasers" as persons who were indirectly affected by FX instruments that others entered into directly with defendant banks or on exchanges. It is alleged that certain RBS companies and other defendant banks caused damages to the "indirect purchasers" by conspiring to restrain trade in the FX spot market. The complaint seeks damages and other relief under federal, California, and New York antitrust laws. RBS anticipates making a motion to dismiss the complaint.

 

Investigations and reviews

 

Connecticut Department of Banking

As previously disclosed, in June 2016, RBSSI, a U.S. broker-dealer, reached an agreement in principle to resolve investigations by the office of the Attorney General of Connecticut on behalf of the Connecticut Department of Banking, concerning RBSSI's underwriting and issuance of mortgage-backed securities and the potential consequences to RBSSI of The Royal Bank of Scotland plc's (RBS plc's) May 2015 FX-related guilty plea.  The agreement became final on 3 October 2016 through the publication by the Department of Banking of two agreed consent orders without RBSSI admitting or denying the Department of Banking's allegations.  As required by the RMBS consent order, in addition to making certain undertakings, RBSSI has paid US$120 million to the State of Connecticut to resolve the investigation. The amount was covered by a provision that had previously been established. Pursuant to the FX consent order, RBSSI agreed, among other things, to certify to the Department of Banking its compliance with various obligations undertaken in connection with RBS plc's FX-related guilty plea and FX-related resolutions with the Commodity Futures Trading Commission and Board of Governors of the Federal Reserve System.

 

FCA review of RBS's treatment of SMEs

The FCA published an update on 4 October 2016 confirming that it had received the final Skilled Person's report and that there were a number of steps for the FCA to complete before being in a position to share its final findings. RBS has been given the opportunity to review that report.

 

 

Notes

 

4. Litigation, investigations and reviews (continued)

 

UK retail banking

On 9 August 2016, the Competition & Markets Authority (CMA) published its final report on retail banking. The CMA concluded that there are a number of competition concerns in the provision of personal current accounts (PCAs), business current accounts and SME lending, particularly around low levels of customers searching and switching, resulting in banks not being put under enough competitive pressure, and new products and new banks not attracting customers quickly enough.

The final report set out remedies to address these concerns. These include remedies to make it easier for customers to compare products, ensure customers benefit from technological advantages around open banking, improve the current account switching service and provide PCA overdraft customers with greater control over their charges, along with additional measures targeted at SME customers.

 

The CMA has also been reviewing the undertakings given by certain banks following the Competition Commission's 2002 investigation into SME banking (SME Undertakings). On 9 August 2016, the CMA announced its final decision, which is that the SME Undertakings should be revoked, with the exception of the prohibition on the ability of certain named banks, including RBS, to bundle (i.e. sell together) business current accounts and SME lending.

 

At this stage there remains uncertainty around the financial impact of the proposed remedies and it is not practicable to estimate the potential impact on RBS, which may be material. 

 

FCA wholesale sector competition review

On 18 October 2016, the FCA published its final report following its market study into investment and corporate banking. It found that whilst many clients feel well served by primary capital market services there were some areas where improvements could be made to encourage competition, particularly for smaller clients. It set out a package of remedies, including prohibiting the use of restrictive contractual clauses and ending league table misrepresentation by asking league table providers to review their recognition criteria. The FCA is to undertake further consultation with regards to the prohibition on restrictive contractual clauses. Subject to this consultation, the FCA expects to publish the final rules regarding these restrictive contractual clauses in early 2017.

 

Enforcement proceedings and investigations in relation to Coutts & Co Ltd

As previously disclosed, the Swiss Financial Market Supervisory Authority (FINMA) is taking enforcement proceedings against Coutts & Co Ltd (Coutts), a member of RBS incorporated in Switzerland, with regard to certain client accounts held with Coutts relating to allegations in connection with the Malaysian sovereign wealth fund 1MDB. The proceedings are at an advanced stage. Coutts is also cooperating with investigations, one of which is at an advanced stage and may conclude in the near term, and enquiries from authorities in other jurisdictions in relation to the same subject matter. The outcomes of such proceedings, investigations and enquiries are uncertain but may include financial penalties and/or regulatory sanctions.

 

5. Post balance sheet events

Other than matters disclosed, there have been no further significant events between 30 September 2016 and the date of approval of this announcement.


 

 

 

 

 

 

 

 

Appendix 1

 

Parent company information

 

 


Appendix 1 Parent company information

 

Balance sheet at 30 September 2016

 

30 September

31 December


2016

2015

£m

£m




Assets



Investments in Group undertakings

44,712 

52,129 

Loans to subsidiaries

28,782 

22,416 

Debt securities

418 

1,119 

Derivatives

576 

217 

Prepayments, accrued income and other assets

4 

3 




Total assets

74,492 

75,884 




Liabilities



Deposits from subsidiaries

935 

907 

Debt securities in issue

8,210 

5,049 

Derivatives

99 

65 

Provisions, accruals and other liabilities

1,057 

183 

Subordinated liabilities

10,394 

9,366 




Total liabilities

20,695 

15,570 

Owners' equity

53,797 

60,314 




Total liabilities and equity

74,492 

75,884 




Owners' equity



Called-up share capital

11,792 

11,625 

Paid-in equity

4,478 

2,438 

Share premium account

25,663 

25,425 

Cash flow hedging reserve

118 

32 

Capital redemption reserve

4,542 

4,542 

Retained earnings

7,204 

16,252 


53,797 

60,314 

 

Investments in Group undertakings

Investments in Group undertakings are carried at cost less impairment. Movements during the period were as follows:

2016

£m

At 1 January

52,129 

Currency translation and other adjustments

29 

Redemption of preference shares issued by RBS plc

(1,446)

Impairment of investment in RBS plc

(6,000)

At 30 September

44,712 

 

In Q3 2016 RBS reviewed the value of RBSG plc's (the parent company's) investments in subsidiaries and in light of the deterioration in the economic outlook reduced the carrying value of the investments by £6.0 billion to £44.7 billion. 

 

Distributable reserves 

Owners' equity includes £7.2 billion of distributable reserves at 30 September 2016 (31 December 2015 - £16.3 billion). The decrease in the period includes a £6.0 billion impairment to the carrying value of investments in subsidiaries in Q3 as described above, the redemption in Q3 of preference shares issued to third parties (£1.2 billion), the Dividend Access Share payment in Q1 (£1.2 billion) and other dividends paid (£0.3 billion). 


 

 

 

 

 

 

 

 

Appendix 2

 

Segmental income statement reconciliations

 

 


Appendix 2 Segmental income statement reconciliations

PBB


CPB





Central




Ulster


Commercial

Private

RBS



Capital

Williams

 items &

Total


UK PBB

BankRoI


Banking

Banking

International


CIB

Resolution

& Glyn

other

RBS

Nine months ended 30 September 2016

£m

£m


£m

£m

£m


£m

£m

£m

£m

£m














Income statement













Total income - statutory

3,951 

439 


2,548 

496 

278 


1,289 

(69)

620 

(178)

9,374 

Own credit adjustments

- 

(3)


- 

- 

- 


(82)

(142)

- 

(67)

(294)

Loss on redemption of own debt

- 

- 


- 

- 

- 


- 

- 

- 

127 

127 

Strategic disposals

- 

- 


- 

- 

- 


- 

81 

- 

(245)

(164)

Total income  - adjusted

3,951 

436 


2,548 

496 

278 


1,207 

(130)

620 

(363)

9,043 

Operating expenses - statutory

(2,784)

(443)


(1,458)

(390)

(110)


(1,110)

(915)

(353)

(1,277)

(8,840)

Restructuring costs  - direct

50 

32 


13 

1 

1 


16 

35 

57 

894 

1,099 

                                  - indirect

86 

4 


49 

22 

2 


50 

35 

- 

(248)

- 

Litigation and conduct costs

420 

95 


16 

2 

(1)


62 

257 

- 

889 

1,740 

Operating expenses - adjusted

(2,228)

(312)


(1,380)

(365)

(108)


(982)

(588)

(296)

258 

(6,001)

Impairment (losses)/releases

(67)

66 


(123)

(5)

(11)


- 

(383)

(31)

1 

(553)

Operating profit/(loss) - adjusted

1,656 

190 


1,045 

126 

159 


225 

(1,101)

293 

(104)

2,489 














Additional information













Return on equity (1)

17.0%

3.1%


8.5%

7.0%

15.4%


1.6%

nm

nm

nm

(8.5%)

Return on equity  - adjusted (1,2)

26.4%

9.5%


9.4%

8.9%

15.6%


2.4%

nm

nm

nm

(0.6%)

Cost income ratio

70%

101%


57%

79%

40%


86%

nm

57%

nm

94%

Cost income ratio - adjusted (2)

56%

72%


54%

74%

39%


81%

nm

48%

71%

66%














Nine months ended 30 September 2015*













Income statement













Total income - statutory

3,946 

434 


2,457 

486 

272 


1,341 

801 

625 

77 

10,439 

Own credit adjustments

- 

- 


- 

- 

- 


(186)

(180)

- 

(58)

(424)

Strategic disposals

- 

- 


- 

- 

- 


- 

14 

- 

121 

135 

Total income  - adjusted

3,946 

434 


2,457 

486 

272 


1,155 

635 

625 

140 

10,150 

Operating expenses - statutory

(2,606)

(322)


(1,291)

(439)

(120)


(1,938)

(2,955)

(252)

(669)

(10,592)

Restructuring costs - direct

7 

19 


12 

- 

- 


44 

359 

- 

1,876 

2,317 

                                 - indirect

73 

2 


3 

78 

5 


418 

844 

- 

(1,423)

- 

Litigation and conduct costs

365 

(9)


59 

2 

- 


373 

607 

- 

47 

1,444 

Operating expenses - adjusted

(2,161)

(310)


(1,217)

(359)

(115)


(1,103)

(1,145)

(252)

(169)

(6,831)

Impairment (losses)/releases

(20)

131 


(42)

(1)

- 


5 

369 

5 

(47)

400 

Operating profit/(loss) - adjusted

1,765 

255 


1,198 

126 

157 


57 

(141)

378 

(76)

3,719 














Additional information













Return on equity (1)

20.8%

13.1%


12.3%

2.0%

18.2%


(10.1%)

nm

nm

nm

2.4%

Return on equity  - adjusted (1,2)

28.3%

13.8%


13.2%

7.9%

18.8%


(0.5%)

nm

nm

nm

12.4%

Cost income ratio

66%

74%


53%

90%

44%


145%

nm

40%

nm

101%

Cost income ratio - adjusted (2)

55%

71%


50%

74%

42%


95%

nm

40%

nm

67%














*Restated - refer to page 31 of the main document for further details.


























For the notes to this table refer to page 3.















 

Appendix 2 Segmental income statement reconciliations

PBB


CPB





Central




Ulster


Commercial

Private

RBS



Capital

Williams

 items &

Total


UK PBB

BankRoI


Banking

Banking

International


CIB

Resolution

& Glyn

other

RBS

Quarter ended 30 September 2016

£m

£m


£m

£m

£m


£m

£m

£m

£m

£m














Income statement













Total income - statutory

1,336 

146 


849 

165 

93 


471 

103 

209 

(62)

3,310 

Own credit adjustments

- 

- 


- 

- 

- 


55 

42 

- 

59 

156 

Gain on redemption of own debt

- 

- 


- 

- 

- 


- 

- 

- 

(3)

(3)

Strategic disposals

- 

- 


- 

- 

- 


- 

30 

- 

1 

31 

Total income - adjusted

1,336 

146 


849 

165 

93 


526 

175 

209 

(5)

3,494 

Operating expenses - statutory

(742)

(131)


(474)

(112)

(39)


(381)

(437)

(111)

(484)

(2,911)

Restructuring costs  - direct

(1)

8 


12 

- 

- 


6 

23 

12 

409 

469 

                                  - indirect

26 

3 


9 

3 

- 


27 

10 

- 

(78)

- 

Litigation and conduct costs

(1)

3 


6 

- 

(1)


6 

231 

- 

181 

425 

Operating expenses - adjusted

(718)

(117)


(447)

(109)

(40)


(342)

(173)

(99)

28 

(2,017)

Impairment (losses)/releases

(27)

39 


(20)

(3)

- 


- 

(120)

(14)

1 

(144)

Operating profit/(loss) - adjusted

591 

68 


382 

53 

53 


184 

(118)

96 

24 

1,333 














Additional information













Return on equity (1)

27.1%

7.8%


9.5%

11.1%

15.4%


3.1%

nm

nm

nm

(4.8%)

Return on equity   - adjusted (1,2)

28.3%

9.9%


10.4%

11.8%

15.1%


8.0%

nm

nm

nm

4.6%

Cost income ratio

56%

90%


56%

68%

42%


81%

nm

53%

nm

88%

Cost income ratio - adjusted (2)

54%

80%


53%

66%

43%


65%

99%

47%

nm

58%














Quarter ended 30 June 2016













Income statement













Total income - statutory

1,340 

135 


846 

166 

95 


477 

(325)

206 

60 

3,000 

Own credit adjustments

- 

- 


- 

- 

- 


(73)

(76)

- 

(45)

(194)

Loss on redemption of own debt

- 

- 


- 

- 

- 


- 

- 

- 

130 

130 

Strategic disposals

- 

- 


- 

- 

- 


- 

45 

- 

(246)

(201)

Total income - adjusted

1,340 

135 


846 

166 

95 


404 

(356)

206 

(101)

2,735 

Operating expenses - statutory

(1,292)

(202)


(546)

(125)

(35)


(368)

(220)

(124)

(597)

(3,509)

Restructuring costs  - direct

38 

18 


- 

- 

1 


10 

5 

25 

295 

392 

                                  - indirect

51 

1 


41 

4 

1 


11 

16 

- 

(125)

- 

Litigation and conduct costs

421 

92 


8 

2 

- 


38 

16 

- 

707 

1,284 

Operating expenses - adjusted

(782)

(91)


(497)

(119)

(33)


(309)

(183)

(99)

280 

(1,833)

Impairment (loss)/releases

(24)

14 


(89)

- 

(9)


- 

(67)

(11)

- 

(186)

Operating profit/(loss) - adjusted

534 

58 


260 

47 

53 


95 

(606)

96 

179 

716 














Additional information













Return on equity (1)

(0.4%)

(8.2%)


4.9%

8.6%

15.0%


4.3%

nm

nm

nm

(11.0%)

Return on equity  - adjusted (1,2)

24.2%

9.0%


6.6%

9.9%

15.7%


3.5%

nm

nm

nm

3.2%

Cost income ratio

96%

150%


65%

75%

37%


77%

nm

60%

nm

117%

Cost income ratio - adjusted (2)

58%

67%


59%

72%

35%


76%

nm

48%

nm

67%














For the notes to this table refer to page 3.















 

Appendix 2 Segmental income statement reconciliations

PBB


CPB





Central




Ulster


Commercial

Private

RBS



Capital

Williams

 items &

Total


UK PBB

BankRoI


Banking

Banking

International


CIB

Resolution

& Glyn

other

RBS

Quarter ended 30 September 2015*

£m

£m


£m

£m

£m


£m

£m

£m

£m

£m














Income statement













Total income - statutory

1,313 

164 


800 

160 

87 


406 

89 

211 

(47)

3,183 

Own credit adjustments

- 

- 


- 

- 

- 


(78)

(38)

- 

(20)

(136)

Total income  - adjusted

1,313 

164 


800 

160 

87 


328 

51 

211 

(67)

3,047 

Operating expenses - statutory

(762)

(115)


(408)

(118)

(38)


(515)

(937)

(91)

(292)

(3,276)

Restructuring costs - direct

5 

3 


1 

(2)

- 


3 

190 

- 

647 

847 

                                 - indirect

23 

2 


(2)

1 

2 


148 

300 

- 

(474)

- 

Litigation and conduct costs

- 

- 


- 

- 

- 


6 

101 

- 

22 

129 

Operating expenses - adjusted

(734)

(110)


(409)

(119)

(36)


(358)

(346)

(91)

(97)

(2,300)

Impairment (losses)/releases

(2)

54 


(16)

(4)

1 


- 

50 

(5)

1 

79 

Operating profit/(loss) - adjusted

577 

108 


375 

37 

52 


(30)

(245)

115 

(163)

826 














Additional information













Return on equity (1)

27.2%

16.7%


12.3%

7.4%

18.0%


(6.4%)

nm

nm

nm

9.0%

Return on equity  - adjusted (1,2)

28.7%

17.5%


12.3%

7.1%

18.8%


(2.7%)

nm

nm

nm

16.3%

Cost income ratio

58%

70%


51%

74%

44%


127%

nm

43%

nm

103%

Cost income ratio - adjusted (2)

56%

67%


51%

74%

41%


109%

nm

43%

nm

75%














*Restated - refer to page 31 of the main document for further details.













 

Notes:

(1)

RBS's CET 1 target is 13% but for the purposes of computing segmental return on equity (ROE), to better reflect the differential drivers of capital usage, segmental operating profit after tax and adjusted for preference dividends is divided by notional equity allocated at different rates of 11% (Commercial Banking and Ulster Bank RoI), 12% (RBS International) and 15% for all other segments, of the monthly average of segmental risk-weighted assets incorporating the effect capital deductions (RWAes). RBS Return on equity is calculated using profit for the period attributable to ordinary shareholders.

(2)

Excluding own credit adjustments, (loss)/gain on redemption of own debt, strategic disposals, restructuring costs and litigation and conduct costs.

 


This information is provided by RNS
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