Report of Foreign Private Issuer

 

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

 

12 November 2015

 

 

 Form 6-K

 

The Royal Bank of Scotland Group plc

 

 

Gogarburn

PO Box 1000

Edinburgh EH12 1HQ

Scotland

United Kingdom

 

(Address of principal executive offices)

 

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F  X                                              Form 40-F     

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):__

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):__

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes                                                                 No  X  

 

If "Yes" is marked, indicate below the file number assigned to

the registrant in connection with Rule 12g3-2(b): 82-             

 

This report on Form 6-K shall be deemed incorporated by reference into the company's Registration Statement on Form F-3 (File Nos. 333-184147 and 333-184147-01) and to be a part thereof from the date which it was filed, to the extent not superseded by documents or reports subsequently filed or furnished.

 

 

 

 


 

 

The Royal Bank of Scotland Group plc

 

Contents

Page 

 

 

Forward-looking statements

2

Presentation of information

3

Condensed consolidated income statement

5

Condensed consolidated balance sheet

6

Highlights

7

Analysis of results

12

Segment performance

21

Selected statutory financial statements

30

Notes

35

 

 

Additional information

 

Share information

40

Other financial data

41

 

 

Appendix 1 - Additional segment information

 

Appendix 2 - Go-forward business profile

 

 

 

Signature page

 

 

1

 


 

 

Forward-looking statements

 

Certain sections in this document contain ‘forward-looking statements’ as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words ‘expect’, ‘estimate’, ‘project’, ‘anticipate’, ‘believe’, ‘should’, ‘intend’, ‘plan’, ‘could’, ‘probability’, ‘risk’, ‘Value-at-Risk (VaR)’, ‘target’, ‘goal’, ‘objective’, ‘may’, ‘endeavour’, ‘outlook’, ‘optimistic’, ‘prospects’ and similar expressions or variations on these expressions.

 

In particular, this document includes forward-looking statements relating, but not limited to: The Royal Bank of Scotland Group plc’s (RBS) transformation plan (which includes RBS’s 2013/2014 strategic plan relating to the implementation of its new divisional and functional structure and the continuation of its balance sheet reduction programme including its proposed divestments of CFG and Williams & Glyn, RBS’s information technology and operational investment plan, the proposed restructuring of RBS’s CIB business and the restructuring of RBS as a result of the implementation of the regulatory ring-fencing regime, together the “Transformation Plan”), as well as restructuring, capital and strategic plans, divestments, capitalisation, portfolios, net interest margin, capital and leverage ratios, liquidity, risk-weighted assets (RWAs), RWA equivalents (RWAe), return on equity (ROE), profitability, cost:income ratios, loan:deposit ratios, AT1 and other capital raising plans, funding and risk profile; litigation, government and regulatory investigations including investigations relating to the setting of interest rates and foreign exchange trading and rate setting activities; costs or exposures borne by RBS arising out of the origination or sale of mortgages or mortgage-backed securities in the US; investigations relating to business conduct and the costs of resulting customers redress and legal proceedings; RBS’s future financial performance; the level and extent of future impairments and write-downs; and RBS’s exposure to political risks, credit rating risk and to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity and equity price risk. These statements are based on current plans, estimates, targets and projections, and are subject to inherent risks, uncertainties and other factors which could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements. For example, certain market risk and other disclosures are dependent on choices relying on key model characteristics and assumptions and are subject to various limitations. By their nature, certain of the market risk disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated.

 

Other factors that could adversely affect our results and the accuracy of forward-looking statements in this document include the risk factors and other uncertainties discussed in RBS’s 2014 Annual Report on Form 20-F and this document. These include the significant risks for RBS presented by the execution of the Transformation Plan; RBS’s ability to successfully implement the various initiatives that are comprised in the Transformation Plan, particularly the balance sheet reduction programme including the divestment of Williams & Glyn and its remaining stake in CFG, the proposed restructuring of its CIB business and the significant restructuring undertaken by RBS as a result of the implementation of the ring fence; whether RBS will emerge from implementing the Transformation Plan as a viable, competitive, customer focused and profitable bank; RBS’s ability to achieve its capital targets which depend on RBS’s success in reducing the size of its business; the cost and complexity of the implementation of the ring-fence and the extent to which it will have a material adverse effect on RBS; the risk of failure to realise the benefit of RBS’s substantial investments in its information technology and operational infrastructure and systems, the significant changes, complexity and costs relating to the implementation of the Transformation Plan, the risks of lower revenues resulting from lower customer retention and revenue generation as RBS refocuses on the UK as well as increasing competition. In addition, there are other risks and uncertainties. These include RBS’s ability to attract and retain qualified personnel; uncertainties regarding the outcomes of legal, regulatory and governmental actions and investigations that RBS is subject to (including active civil and criminal investigations) and any resulting material adverse effect on RBS of unfavourable outcomes; heightened regulatory and governmental scrutiny and the increasingly regulated environment in which RBS operates; uncertainty relating to the referendum on the UK’s membership of the EU and the consequences arising from it; operational risks that are inherent in RBS’s business and that could increase as RBS implements its Transformation Plan; the potential negative impact on RBS’s business of actual or perceived global economic and financial market conditions and other global risks; how RBS will be increasingly impacted by UK developments as its operations become gradually more focused on the UK; uncertainties regarding RBS exposure to any weakening of economies within the EU and renewed threat of default or exit by certain countries in the Eurozone; the risks resulting from RBS implementing the State Aid restructuring plan including with respect to the disposal of certain assets and businesses as announced or required as part of the State Aid restructuring plan; the achievement of capital and costs reduction targets; ineffective management of capital or changes to regulatory requirements relating to capital adequacy and liquidity; the ability to access sufficient sources of capital, liquidity and funding when required; deteriorations in borrower and counterparty credit quality; the extent of future write-downs and impairment charges caused by depressed asset valuations; the value and effectiveness of any credit protection purchased by RBS; the impact of unanticipated turbulence in interest rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices, equity prices; basis, volatility and correlation risks; changes in the credit ratings of RBS; changes to the valuation of financial instruments recorded at fair value; competition and consolidation in the banking sector; regulatory or legal changes (including those requiring any restructuring of RBS’s operations); changes to the monetary and interest rate policies of central banks and other governmental and regulatory bodies and continued prolonged periods of low interest rates; changes in UK and foreign laws, regulations, accounting standards and taxes; impairments of goodwill; the high dependence of RBS’s operations on its information technology systems and its increasing exposure to cyber security threats; the reputational risks inherent in RBS’s operations; the risk that RBS may suffer losses due to employee misconduct; pension fund shortfalls; the recoverability of deferred tax assets; HM Treasury exercising influence over the operations of RBS; limitations on, or additional requirements imposed on, RBS’s activities as a result of HM Treasury’s investment in RBS; and the success of RBS in managing the risks involved in the foregoing.

 

The forward-looking statements contained in this document speak only as of the date of this announcement, and RBS does not undertake to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 

The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.

2

 


 

 

Presentation of information

 

Non-GAAP financial information

The directors manage RBS’s performance by class of business, before certain reconciling items, as is presented in the segment performance on pages 21 to 25 (the “non-statutory basis”). The following are reported as reconciling items: own credit adjustments, gain/(loss) on redemption of own debt, write-down of goodwill and strategic disposals. RFS Holdings minority interest was a reconciling item for the periods ended 30 September 2014.

 

Discussion of RBS’s performance in this report presents RBS’s results on a non-statutory basis as management believes that such measures allow a more meaningful analysis of RBS’s financial condition and the results of its operations. These measures are non-GAAP financial measures. A body of generally accepted accounting principles such as IFRS is commonly referred to as ‘GAAP’. A non-GAAP financial measure is defined as one that measures historical or future financial performance, financial position or cash flows but which excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure. Reconciliations of these non-GAAP measures to the closest equivalent GAAP measure are presented throughout this document and in the segment performance on pages 21 to 25. These non-GAAP financial measures are not a substitute for GAAP measures.

 

The presentation of Personal & Business Banking (“PBB”) which combines the reportable segments of UK Personal & Business Banking and Ulster Bank and the presentation of Commercial and Private Banking (“CPB”) which combines the reportable segments of Commercial Banking and Private Banking are non- GAAP financial measures. In addition the presentation of operating profit, operating expenses and other performance measures excluding the impact of restructuring costs and litigation and conduct costs is a non-GAAP financial measure and is not a substitute for the equivalent GAAP measure.

 

RBS is committed to becoming a leaner, less volatile business based around its core franchises of PBB and CPB. A number of initiatives have been announced which include, but are not limited to, the following:

·

the restructuring of Corporate & Institutional Banking (CIB) into “CIB Go-forward” and “CIB Capital Resolution” elements. The split is subject to further refinement, and reference to these businesses are non-GAAP measures as CIB remains a single reportable segment.

 

 

·

the sale of the “International Private Banking” business which has been reclassified to disposal groups (the retained business “Private Banking UK” is within the Go-forward Bank). References to these businesses are non-GAAP measures as Private Banking remains a single reportable segment.

 

 

·

the exit of Williams & Glyn which is mainly included within UK PBB and is presented on a carve out basis using management analysis and does not reflect the cost base, funding and capital profile of a standalone bank. References to this business are non-GAAP measures as UK PBB remains a single reportable segment see appendix 2 for more information.

 

In addition the following are also included within the Exit Bank

·

the divestment of the remaining stake in Citizens Financial Group, now classified as an associated undertaking within Central items

 

 

·

the continued run down of RCR which is a reportable segment

 

Significant progress towards these exits is expected in 2015. This document contains some information to illustrate the impact on certain key performance measures of these initiatives by showing the future profile of the bank (the ‘Go-forward Bank’ (UK PBB excluding W&G, Ulster Bank, Commercial Banking, CIB Go-forward and Private Banking Go-forward)) and the segments, businesses and portfolios which it intends to exit (the ‘Exit-Bank’(CIB Capital Resolution, W&G, international private banking, Citizens and RCR)). References to these combinations of business are non-GAAP measures.

3

 


 

 

Presentation of information

 

This information is presented to illustrate the strategy and its impact on the business and is on a non-statutory basis and should be read in conjunction with the notes attached as well as the section titled “Forward-looking Statements”.

 

Citizens

On 31 December 2014 Citizens was classified as a disposal group and a discontinued operation: its

aggregate assets were presented in Assets of disposal groups and its aggregate liabilities in Liabilities of

disposal groups. Prior period results were re-presented. From 3 August 2015, when RBS’s interest fell to 20.9%, Citizens has been accounted for as an associate classified as held for sale. Citizens Financial Group is no longer a reportable segment; the non-statutory operating results and operating segment disclosures for all periods have been restated accordingly

 

Recent developments

 

Citizens Financial Group

On 30 October 2015 RBS announced that it sold its remaining holding of approximately 110 million shares, of Citizens common stock, at a price per share of US$23.38. The sale resulted in an estimated accounting gain on sale (before tax) in Q4 2015 of approximately £100 million.

Following completion of this sale, RBS has fully divested its stake in Citizens and will therefore no longer consolidate it for regulatory reporting purposes.

 

Visa Europe Shareholding

On 2 November 2015, Visa Inc.  announced the proposed acquisition of Visa Europe Limited ("VE") to create a single global payments business under the VISA brand.

 

RBS is a member and shareholder of VE. RBS's share of the sale proceeds will comprise cash, convertible preferred stock (with conversion contingent), and contingent earn-out consideration which is potentially payable in 2020, subject to performance.

 

RBS expects to report an initial pre-tax gain of approximately £200 million on completion of the transaction which is currently forecast to occur in the second quarter of 2016.

 

4

 


 

 

Condensed consolidated income statement for the period ended 30 September 2015

 

  

Nine months ended

  

Quarter ended

  

30 September

30 September

  

30 September

30 June

30 September

2015

2014

  

2015

2015

2014

  

£m

£m

  

£m

£m

£m

  

  

  

  

  

  

  

Interest receivable

9,070 

9,841 

  

2,963 

3,031 

3,297 

Interest payable

(2,465)

(2,965)

  

(776)

(816)

(927)

  

  

  

  

  

  

  

Net interest income

6,605 

6,876 

  

2,187 

2,215 

2,370 

  

  

  

  

  

  

  

Fees and commissions receivable

2,838 

3,359 

  

880 

969 

1,116 

Fees and commissions payable

(558)

(671)

  

(195)

(186)

(196)

Income from trading activities

1,045 

1,688 

  

170 

545 

238 

Gain on redemption of own debt

20 

  

Other operating income

509 

913 

  

141 

194 

108 

  

  

  

  

  

  

  

Non-interest income

3,834 

5,309 

  

996 

1,522 

1,266 

  

  

  

  

  

  

  

Total income

10,439 

12,185 

  

3,183 

3,737 

3,636 

  

  

  

  

  

  

  

Staff costs

(4,401)

(4,432)

  

(1,546)

(1,530)

(1,435)

Premises and equipment

(1,380)

(1,601)

  

(635)

(326)

(475)

Other administrative expenses

(3,096)

(2,569)

  

(730)

(1,027)

(1,212)

Depreciation and amortisation

(994)

(727)

  

(282)

(200)

(261)

Write down of goodwill and other intangible assets

(673)

(212)

  

(67)

(606)

  

  

  

  

  

  

  

Operating expenses

(10,544)

(9,541)

  

(3,260)

(3,689)

(3,383)

  

  

  

  

  

  

  

(Loss)/profit before impairment releases

(105)

2,644 

  

(77)

48 

253 

Impairment releases

400 

682 

  

79 

192 

847 

  

  

  

  

  

  

  

Operating profit before tax

295 

3,326 

  

240 

1,100 

Tax charge

(294)

(869)

  

(1)

(100)

(277)

  

  

  

  

  

  

  

Profit from continuing operations

2,457 

  

140 

823 

Profit from discontinued operations, net of tax

1,451 

437 

  

1,093 

674 

117 

  

  

  

  

  

  

  

Profit for the period

1,452 

2,894 

  

1,094 

814 

940 

Non-controlling interests

(389)

11 

  

(45)

(428)

53 

Preference shares

(223)

(231)

  

(80)

(73)

(91)

Other owners

(41)

(33)

  

(17)

(20)

(6)

Dividend access share

(320)

  

  

  

  

  

  

  

  

Profit attributable to ordinary and B shareholders

799 

2,321 

  

952 

293 

896 

  

  

  

  

  

  

  

Earnings/(loss) per ordinary and equivalent

  

  

  

  

  

  

 B share (EPS) (1)

  

  

  

  

  

  

Basic EPS from continuing and discontinued operations

6.9p

20.5p

  

8.2p

2.5p

7.9p

Basic EPS from continuing operations

(2.8p)

16.9p

  

(0.9p)

0.2p

6.9p

 

Note:

(1)

Diluted EPS from continuing operations and from continuing and discontinued operations were less than basic EPS in the nine months ended 30 September 2014 (0.2p) and the quarter ended 30 September 2014 (0.1p). There was no dilution in any other period.

 

 

5

 


 

 

Condensed consolidated balance sheet at 30 September 2015

 

  

30 September

30 June

31 December

2015

2015

2014

  

£m

£m

£m

  

  

  

  

Assets

  

  

  

Cash and balances at central banks

77,220 

81,900 

74,872 

Net loans and advances to banks

22,681 

20,714 

23,027 

Reverse repurchase agreements and stock borrowing

15,255 

20,807 

20,708 

Loans and advances to banks

37,936 

41,521 

43,735 

Net loans and advances to customers

311,383 

314,993 

334,251 

Reverse repurchase agreements and stock borrowing

36,545 

46,799 

43,987 

Loans and advances to customers

347,928 

361,792 

378,238 

Debt securities

81,307 

77,187 

86,649 

Equity shares

2,199 

3,363 

5,635 

Settlement balances

9,397 

9,630 

4,667 

Derivatives

296,019 

281,857 

353,590 

Intangible assets

7,151 

7,198 

7,781 

Property, plant and equipment

4,607 

4,874 

6,167 

Deferred tax

1,434 

1,479 

1,540 

Prepayments, accrued income and other assets

4,928 

4,829 

5,878 

Assets of disposal groups

6,300 

89,071 

82,011 

  

  

  

  

Total assets

876,426 

964,701 

1,050,763 

  

  

  

  

Liabilities

  

  

  

Bank deposits

30,543 

30,978 

35,806 

Repurchase agreements and stock lending

12,800 

21,612 

24,859 

Deposits by banks

43,343 

52,590 

60,665 

Customer deposits

346,267 

342,023 

354,288 

Repurchase agreements and stock lending

30,555 

44,750 

37,351 

Customer accounts

376,822 

386,773 

391,639 

Debt securities in issue

37,360 

41,819 

50,280 

Settlement balances

8,401 

7,335 

4,503 

Short positions

20,108 

24,561 

23,029 

Derivatives

288,905 

273,589 

349,805 

Accruals, deferred income and other liabilities

14,324 

13,962 

13,346 

Retirement benefit liabilities

1,955 

1,869 

2,579 

Deferred tax

376 

363 

500 

Subordinated liabilities

20,184 

19,683 

22,905 

Liabilities of disposal groups

6,401 

80,388 

71,320 

  

  

  

  

Total liabilities

818,179 

902,932 

990,571 

  

  

  

  

Equity

  

  

  

Non-controlling interests

703 

5,705 

2,946 

Owners’ equity*

  

  

  

  Called up share capital

6,984 

6,981 

6,877 

  Reserves

50,560 

49,083 

50,369 

  

  

  

  

Total equity

58,247 

61,769 

60,192 

  

  

  

  

Total liabilities and equity

876,426 

964,701 

1,050,763 

  

  

  

  

* Owners’ equity attributable to:

  

  

  

Ordinary and B shareholders

51,593 

51,117 

52,149 

Other equity owners

5,951 

4,947 

5,097 

  

  

  

  

  

57,544 

56,064 

57,246 

 

 

 

 

6

 


 

 

 

Highlights

 

The Royal Bank of Scotland Group (RBS) continues to deliver on its plan to build a stronger, simpler and fairer bank for both customers and shareholders; on track for 2015 targets.

 

Q3 profit attributable to ordinary and B shareholders was £952 million, up slightly from £896 million in Q3 2014. Restructuring costs remained high at £847 million as the Go-forward Bank transforms, while litigation and conduct costs were £129 million compared with £780 million in Q3 2014.

Profit attributable to ordinary and B shareholders included (in profit from discontinued operations) the gain on loss of control of Citizens (£1,147 million). The principal component of this gain was a reclassification of foreign exchange reserves of £962 million to profit or loss with no effect on RBS's net asset value.

Q3 operating profit before tax was £2 million, down from an operating profit before tax of £1,100 million in Q3 2014. Operating profit excluding restructuring costs of £847 million (Q3 2014 - £167 million) and litigation and conduct costs of £129 million (Q3 2014 £780 million) was £978 million (Q3 2014 £2,047million), after £126 million of losses relating to IFRS volatility, and £77 million of CIB disposal losses.

 

Total income was £453 million lower than in Q3 2014, principally driven by a £394 million decline in Corporate & Institutional Banking (CIB), reflecting its planned reshaping. Income pressures were also seen in UK Personal & Business Banking (UK PBB) and Commercial Banking where good loan volume growth was offset by continued competitive pressure on asset margins.

 

Operating expenses of £3,260 were £123 million lower  with headcount down and restructuring benefits feeding through to a lower cost base Operating expenses, excluding restructuring costs of £847 million (Q3 2014 - £167 million) and litigation and conduct costs of £129 million (Q3 2014 £780 million), were £152 million lower.

 

Credit quality remained good, with net impairment releases of £79 million, £768 million lower than the high levels of releases recorded in Q3 2014.

 

Good progress on 2015 targets

RBS remains well on track to achieve substantially all its priority targets for 2015. The cost savings target for the year has already been exceeded and strong improvements were recorded in the bank’s annual employee engagement survey.

 

 

 

 

Strategy goal

2015 target

Q3 2015 Progress

Strength and sustainability

Reduce risk-weighted assets (RWAs) to <£300 billion

£316 billion, a reduction of £10 billion in the quarter

RCR exit substantially completed

Funded assets down 83% since initial pool of assets identified

Citizens deconsolidation

Further sale in August 2015 takes holding to 20.9%; de-consolidated for accounting purposes

£2 billion AT1 issuance

Successfully priced US$3.15 billion AT1 capital notes (£2 billion equivalent)

Customer experience

Improve NPS in every UK franchise

Year-on-year, significant improvement in NatWest Business Banking, RBS Business Banking and Ulster Bank Personal Banking (NI)

Simplifying the bank

Reduce costs by £800 million(1)

Target exceeded by Q3 2015, target increased to >£900 million

Supporting growth

Lending growth in strategic segments ≥ nominal UK GDP growth

4.6% annualised growth in the first nine months of 2015 in UK PBB and Commercial Banking

Employee engagement

Raise employee engagement index to within 8% of Global Financial Services (GFS) norm

Surpassed employee engagement goal, up six points to within three points of GFS

 

For the note to this table refer to the following page  

7

 


 

 

Highlights

 

Building a stronger RBS

RBS is on track with its plan to build a stronger, simpler, fairer bank for customers and shareholders.

 

Capital strength continued to build with the Common Equity Tier 1 ratio strengthening to 12.7% at 30 September 2015, up 40 basis points from 30 June 2015 and 150 basis points from 31 December 2014. RBS’s leverage ratio rose from 4.6% at 30 June 2015 to 5.0% at 30 September 2015, assisted by the successful issue of US$3.15 billion (£2 billion) of Additional Tier 1 capital notes in August 2015.

 

We continue to develop our technology capabilities to make it simpler for us to serve our customers and for them to do business with us. A new automated account-opening system is being rolled out and will increase the efficiency of our onboarding processes, reducing end-to-end account opening times by 50% for business banking customers and 30% for Commercial Banking customers. Our Pay on Your Mobile (PAYM) capability has been enhanced, with customers now able to both send and receive payments. We continue to simplify our core technology platforms with 245 applications decommissioned year-to-date.

 

We are seeking to build customer engagement with a market-leading current account that enables customers to receive 3% cash back on their household bills for a monthly account fee of £3. The initial launch of the Reward account to existing private and packaged account holders has attracted around one million customers with the majority of these moving additional direct debits to their RBS and NatWest accounts. We are also extending our stand against teaser rates by offering three year fixed rates on home insurance, breaking with insurance industry practice.

 

RBS delivered good support for both household and business customers. UK PBB net mortgage lending totalled £3.8 billion in Q3 2015, with a strong applications pipeline and gross lending up 42% from Q3 2014 to £7.4 billion. Our flow market share in Q3 2015 was 12.1% of the UK market, compared with RBS’s stock share of 8.5%. Net new lending in Commercial Banking totalled £1.5 billion in the quarter with growth across most of the customer segments. Further support was provided to small businesses with the opening of three new business accelerator hubs in Brighton, Leeds and Bristol in partnership with Entrepreneurial Spark: seven hubs are now open.

 

Return on equity for RBS on an annualised basis for the first nine months of 2015 was 2.4%. Adjusted return on equity(2,3) in the Go-forward Bank on an annualised basis for the first nine months of 2015 is estimated at 13%. IFRS volatility had a minimal impact on the adjusted return on equity during the first nine months of 2015.

 

 

Notes:

(1)

Excluding restructuring costs and litigation and conduct costs, write off of intangible assets and operating expenses of Williams & Glyn.

(2)

Calculated using operating profit after tax on a non-statutory basis excluding restructuring costs and litigation and conduct costs adjusted for preference share dividends divided by average notional equity (based on 13% of average RWA equivalent (RWAe)).

(3)

Provided to illustrate the impact on the RBS ROE of the strategic initiatives announced in February 2015 by showing the ‘Go-forward Bank’ profile which is a non-GAAP measure and should be read in conjunction with the notes attached as well as the section titled “Forward-looking Statements”. See presentation of information on page 3 and appendix 2 for more information.

   

8

 


 

 

Highlights

 

Accelerated run-down of the Exit Bank

RBS has maintained good momentum in the run-down of its Exit Bank, with RWAs(1,2) down by approximately £31 billion since the start of 2015 to £141 billion at 30 September 2015.

 

 

RBS Capital Resolution (RCR) total assets have fallen from £29.0 billion at 31 December 2014 to £12.9 billion at 30 September 2015. RCR total assets, excluding derivatives of £6.4 billion have fallen to £6.5 billion at 30 September 2015, down 83% since the initial pool of assets was identified. This leaves it on track to achieve its targeted 85% reduction in funded assets by the end of 2015, a year ahead of schedule. Within CIB RWAs were reduced by £10 billion during Q3 2015. This included reductions in CIB Capital Resolution where good progress was also recorded with RWAs reduced by £6.7 billion to £38.7 billion in Q3 2015 with the reduction since the start of 2015 totalling £25.4 billion.

 

 

The sale of a further 109 million shares in August 2015 reduced RBS’s stake in Citizens to 20.9%. Following this significant reduction in its voting interest RBS no longer controls Citizens for accounting purposes and ceased to consolidate it, classifying its remaining investment as an associate held for sale. Citizens remains fully consolidated for regulatory capital purposes. RBS continues to target a complete exit by the end of 2015, subject to market conditions.

 

 

Williams & Glyn submitted its banking licence application to the UK regulatory authorities in October 2015. RBS continues to work towards its separation in the summer of 2016 and an initial public offering by the end of 2016.

 

UK Government ownership

On 4 August 2015, HM Treasury sold 630 million RBS ordinary shares, its first sale since its initial investment in 2008. The sale of the 5.4% stake reduced HM Treasury’s economic interest in RBS to 72.9%. 

 

 

On 8 October 2015, HM Treasury gave notice of its intention to convert 51 billion B shares it held into 5.1 billion ordinary shares, a move that helps normalise the ownership structure of RBS. These new ordinary shares have now been admitted to the London Stock Exchange. HM Treasury’s economic interest in RBS remains unchanged at 72.9%. The Dividend Access Share (DAS) remains outstanding and may be retired at any time following the payment of dividends amounting to £1,180 million (with interest starting to accrue on this amount from 1 January 2016).

  

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes:

(1)

Provided to illustrate the impact on the RBS ROE of the strategic initiatives announced in February 2015 by showing the ‘Exit Bank’ profile which is a non-GAAP measure and should be read in conjunction with the notes attached as well as the section titled “Forward-looking Statements”. See presentation of information on page 3 and appendix 2 for more information.

(2)

RBS RWAs of £316 billion down by approximately  £39.9 billion since the start of 2015.

9

 


 

 

Highlights

 

Customer

RBS remains committed to achieving its target of being number one bank for customer service, trust and advocacy by 2020. In recent years, RBS has launched a number of initiatives to make it simpler, fairer and easier to do business with, and it continues to deliver on the commitments that it made to its customers in 2014.

 

We use independent surveys to measure our customers’ experience and track our progress against our goal in each of our markets.

 

Net promoter score (NPS)

Customers are asked how likely they would be to recommend their bank to a friend or colleague, and respond based on a 0-10 scale with 10 indicating ‘extremely likely’ and 0 indicating ‘not at all likely’. Customers scoring 0 to 6 are termed detractors and customers scoring 9 to 10 are termed promoters. NPS is established by subtracting the proportion of detractors from the proportion of promoters.

 

The table below lists all of the businesses for which we have a NPS for Q3 2015. Year-on-year, NatWest Business Banking, RBS Business Banking and Ulster Bank (Northern Ireland) Personal Banking have seen significant improvements in NPS.

 

 

 

Q3 2014

Q2 2015

Q3 2015

Year end 2015 target

Personal Banking

NatWest (England & Wales)(1)

7

8

8

9

Royal Bank of Scotland (Scotland)(1)

-4

-10

-9

-10

Ulster Bank (Northern Ireland)(2)

-29

-11

-9

-21

Ulster Bank (Republic of Ireland)(2)

-19

-14

-15

-15

Business Banking

NatWest (England & Wales)(3)

-13

4

6

-7

Royal Bank of Scotland (Scotland)(3)

-26

-17

-12

-21

Commercial Banking(4)

10

10

9

15

 

Customer trust

We also use independent experts to measure our customers’ trust in the bank. Each quarter we ask customers to what extent they trust or distrust their bank to do the right thing. The score is a net measure of those customers that trust their bank (a lot or somewhat) minus those that distrust their bank (a lot or somewhat).

 

Trust in the RBS brand in Q2 2015 was impacted by the IT incident on 17 June 2015, current quarter scores return to pre-incident levels.

 

 

 

Q3 2014

Q2 2015

Q3 2015

Year end 2015 target

Customer trust(5)

NatWest (England & Wales)(1)

45%

48%

44%

46%

Royal Bank of Scotland (Scotland)

8%

-2%

11%

11%

 

Notes:

(1)

Source: GfK FRS six month rolling data. Latest base sizes: NatWest (England & Wales) (3392) Royal Bank of Scotland (Scotland) (545). Based on the question: "How likely is it that you would recommend (brand) to a relative, friend or colleague in the next 12 months for current account banking?”

(2)

Source: Coyne Research 12 MAT data. Latest base sizes: Ulster Bank NI (305) Question: “Please indicate to what extent you would be likely to recommend (brand) to your friends or family using a scale of 0 to 10 where 0 is not at all likely and 10 is extremely likely”

(3)

Source: Charterhouse Research Business Banking Survey, based on interviews with businesses with an annual turnover up to £2 million. Quarterly rolling data. Latest base sizes: NatWest England & Wales (1289), RBS Scotland (429). Weighted by region and turnover to be representative of businesses in England & Wales/Scotland.

(4)

Source: Charterhouse Research Business Banking Survey, based on interviews with businesses with annual turnover between £2 million and £1 billion. Latest base size: RBSG Great Britain (878). Weighted by region and turnover to be representative of businesses in Great Britain.

(5)

Source: Populus. Latest quarter’s data. Measured as a net of those that trust RBS/NatWest to do the right thing, less those that do not. Latest base sizes: NatWest, England & Wales (925), RBS Scotland (214).

10

 


 

 

Highlights

 

Outlook

The credit environment is expected to remain relatively benign, with modest underlying impairment charges. Competitive pressure on asset margins is likely to continue, with limited opportunities for offsetting deposit repricing. In addition, non-interest income from fee-related products remains subdued due to modest volume growth, and specific regulatory impacts such as the change in interchange fees in the cards business.

 

Our estimate of overall restructuring and disposal losses guidance for 2015 to 2019 remains unchanged. In the fourth quarter of 2015, we expect restructuring costs to remain high as we continue to implement our core bank transformation and disposal losses to be elevated within the overall guidance on disposal losses, although the timing and quantum of these losses are subject to market conditions.

 

Whilst legacy issues continue to be addressed, material further and incremental costs and provisions in respect of conduct and litigation related matters are expected, and could be substantially greater than the aggregate provisions RBS has recognised. The timing and quantum of any future costs, provisions and settlements, however, remain uncertain.

11

 


 

 

Analysis of results

 

The following table reconciles non-statutory net interest income (a non-GAAP financial measure) to the statutory basis.

  

Nine months ended

  

Quarter ended

  

30 September

30 September

  

30 September

30 June

30 September

  

2015 

2014 

  

2015 

2015 

2014 

Net interest income

£m

£m

  

£m

£m

£m

  

  

  

  

  

  

  

Net interest income

  

  

  

  

  

  

  - UK Personal & Business Banking

3,460 

3,474 

  

1,170 

1,147 

1,198 

  - Ulster Bank

392 

486 

  

127 

132 

163 

  - Commercial Banking

1,673 

1,520 

  

565 

562 

521 

  - Private Banking

377 

516 

  

123 

126 

172 

  - Corporate & Institutional Banking

518 

595 

  

142 

174 

230 

  - Central items

227 

312 

  

77 

88 

109 

  - RCR

(42)

(24)

  

(17)

(14)

(23)

  - non-statutory basis

6,605 

6,879 

  

2,187 

2,215 

2,370 

  - RFS Holdings minority interest

(3)

  

  

  

Net interest income - statutory basis

6,605 

6,876 

  

2,187 

2,215 

2,370 

  

  

  

  

  

  

  

Average interest-earning assets

  

  

  

  

  

  

  - RBS

415,352 

436,700 

  

413,670 

417,135 

431,697 

  - UK Personal & Business Banking

129,422 

127,101 

  

131,299 

128,569 

127,896 

  - Ulster Bank

27,621 

28,033 

  

27,825 

27,404 

27,922 

  - Commercial Banking

78,559 

74,611 

  

79,689 

78,880 

74,339 

  - Private Banking

15,752 

18,669 

  

15,557 

15,729 

18,681 

  - Corporate & Institutional Banking

63,634 

83,821 

  

48,612 

69,437 

83,903 

  - Central items

85,006 

70,486 

  

99,418 

82,358 

69,706 

  - RCR

15,358 

33,979 

  

11,270 

14,758 

29,250 

  

  

  

  

  

  

  

Gross yield on interest-earning assets of banking

  

  

  

  

  

  

   business

2.92%

3.01%

  

2.84%

2.91%

3.03%

Cost of interest-bearing liabilities of banking business

(1.18%)

(1.28%)

  

(1.11%)

(1.17%)

(1.22%)

  

  

  

  

  

  

  

Interest spread of banking business

1.74%

1.73%

  

1.73%

1.74%

1.81%

Benefit from interest free funds

0.39%

0.38%

  

0.37%

0.39%

0.37%

  

  

  

  

  

  

  

Net interest margin

  

  

  

  

  

  

  - RBS

2.13%

2.11%

  

2.10%

2.13%

2.18%

  - UK Personal & Business Banking

3.57%

3.65%

  

3.54%

3.58%

3.72%

  - Ulster Bank

1.90%

2.32%

  

1.81%

1.93%

2.32%

  - Commercial Banking

2.85%

2.72%

  

2.81%

2.86%

2.78%

  - Private Banking

3.20%

3.70%

  

3.14%

3.21%

3.65%

  - Corporate & Institutional Banking

1.09%

0.95%

  

1.16%

1.00%

1.08%

  - Central items

0.36%

0.59%

  

0.31%

0.43%

0.62%

  - RCR

(0.37%)

(0.09%)

  

(0.60%)

(0.38%)

(0.31%)

  

  

  

  

  

  

  

12

 


 

 

Analysis of results

 

Key points

·

Net interest income of £2,187 million was down £183 million from Q3 2014. While there has been good volume growth in some segments during the quarter, average interest-earnings assets remain 4% lower than Q3 2014. Higher yielding assets such as credit card balances and personal unsecured loans have declined in volume, reflecting RBS’s positioning in these products. Good progress in the run-down of CIB Capital Resolution assets has amplified the bank’s excess liquidity position.

 

 

·

NIM for RBS of 2.10% continues to compress modestly, down 3 basis points from Q2 2015 and 8 basis points from Q3 2014. RBS’s previously reported NIM included Citizens, whose exclusion results in a lower bank NIM.

 

 

·

In UK PBB, NIM declined by 4 basis points during Q3 2015, principally reflecting more competitive front book pricing in combination with increased switching from the standard variable rate book (15% of the overall mortgage book at 30 September 2015 compared with 23% a year earlier and 18% at the end of Q2 2015).

 

 

 

13

 


 

 

Analysis of results

 

The following table reconciles non-statutory non-interest income (a non-GAAP financial measure) to the statutory basis.

  

Nine months ended

  

Quarter ended

  

30 September

30 September

  

30 September

30 June

30 September

  

2015 

2014 

  

2015 

2015 

2014 

Non-interest income

£m

£m

  

£m

£m

£m

  

  

  

  

  

  

  

Net fees and commissions

2,280 

2,688 

  

685 

783 

920 

  

  

  

  

  

  

  

Income from trading activities

  

  

  

  

  

  

  - non-statutory basis

747 

1,644 

  

82 

430 

205 

  - own credit adjustments

298 

44 

  

88 

115 

33 

  - RFS Holdings minority interest

  

  

  

  

  

  

  

  

Statutory basis

1,045 

1,688 

  

170 

545 

238 

  

  

  

  

  

  

  

Gain on redemption of own debt - statutory basis

20 

  

  

  

  

  

  

  

  

Other operating income

  

  

  

  

  

  

  - non-statutory basis

518 

799 

  

93 

141 

148 

  - own credit adjustments

126 

(46)

  

48 

53 

16 

  - strategic disposals

(135)

191 

  

  - RFS Holdings minority interest

(31)

  

(56)

  

  

  

  

  

  

  

Statutory basis

509 

913 

  

141 

194 

108 

  

  

  

  

  

  

  

Total non-interest income - non-statutory basis

3,545 

5,131 

  

860 

1,354 

1,273 

  

  

  

  

  

  

  

Total non-interest income - statutory basis

3,834 

5,309 

  

996 

1,522 

1,266 

 

 

Key points

·

Non-interest income totalled £996 million, down £270 million from Q3 2014. This was principally driven by the planned reshaping of CIB (down £306 million) and reduced trading income and disposal gains in RCR (down £144 million). Equity gains were also lower in Commercial Banking, which had recorded significant disposal gains in previous quarters. These movements were offset by a gain in own credit adjustments of £87 million. Interchange fee income in UK PBB remains under pressure. On a non-statutory basis non-interest income totalled £860 million down £413 million from Q3 2014.

 

 

·

Compared with Q2 2015, non-interest income was £526 million lower. This included a movement of £331 million in volatile items under IFRS, which represented a charge of £126 million in the quarter compared with a credit of £205 million in Q2 2015. On a non-statutory basis non-interest income totalled £494 million lower.

14

 


 

 

  

Analysis of results

 

The following table reconciles non-statutory operating expenses (a non-GAAP financial measure) to the statutory basis.

  

Nine months ended

  

Quarter ended

  

30 September

30 September

  

30 September

30 June

30 September

  

2015 

2014 

  

2015 

2015 

2014 

Operating expenses

£m

£m

  

£m

£m

£m

  

  

  

  

  

  

  

Staff costs

  

  

  

  

  

  

  - non-statutory basis

(3,776)

(4,184)

  

(1,265)

(1,242)

(1,356)

  - restructuring costs

(625)

(248)

  

(281)

(288)

(79)

  - RFS Holdings minority interest

  

  

  

  

  

  

  

  

Statutory basis

(4,401)

(4,432)

  

(1,546)

(1,530)

(1,435)

  

  

  

  

  

  

  

Premises and equipment

  

  

  

  

  

  

  - non-statutory basis

(1,061)

(1,360)

  

(352)

(298)

(423)

  - restructuring costs

(319)

(241)

  

(283)

(28)

(52)

  

  

  

  

  

  

  

Statutory basis

(1,380)

(1,601)

  

(635)

(326)

(475)

  

  

  

  

  

  

  

Other administrative expenses

  

  

  

  

  

  

  - non-statutory basis

(1,338)

(1,418)

  

(477)

(481)

(396)

  - litigation and conduct costs

(1,444)

(1,030)

  

(129)

(459)

(780)

  - restructuring costs

(314)

(120)

  

(124)

(87)

(36)

  - RFS Holdings minority interest

(1)

  

  - depreciation and amortisation

  

  

  

  

  

  

  

  

  

  

  

  

  

Statutory basis

(3,096)

(2,569)

  

(730)

(1,027)

(1,212)

  

  

  

  

  

  

  

Depreciation and amortisation

  

  

  

  

  

  

  - non-statutory basis

(608)

(724)

  

(190)

(186)

(261)

  - restructuring costs

(386)

(3)

  

(92)

(14)

  

  

  

  

  

  

  

Statutory basis

(994)

(727)

  

(282)

(200)

(261)

  

  

  

  

  

  

  

Restructuring costs (1)

  

  

  

  

  

  

  - non-statutory basis

(2,317)

(612)

  

(847)

(1,023)

(167)

  - staff costs

625 

248 

  

281 

288 

79 

  - premises and equipment

319 

241 

  

283 

28 

52 

  - other administrative expenses

314 

120 

  

124 

87 

36 

  - write off of intangible assets

673 

  

67 

606 

  - depreciation and amortisation

386 

  

92 

14 

  

  

  

  

  

  

  

Statutory basis

  

  

  

  

  

  

  

  

Litigation and conduct costs (1)

  

  

  

  

  

  

  - non-statutory basis

(1,444)

(1,030)

  

(129)

(459)

(780)

  - other administrative expenses

1,444 

1,030 

  

129 

459 

780 

  

  

  

  

  

  

  

Statutory basis

  

  

  

  

  

  

  

  

Write down of goodwill and other intangible assets

  

  

  

  

  

  

  - non-statutory basis

(82)

  

  - write off of goodwill and other intangible assets

(130)

  

  - restructuring costs

(673)

  

(67)

(606)

  

  

  

  

  

  

  

Statutory basis

(673)

(212)

  

(67)

(606)

  

  

  

  

  

  

  

Operating expenses - non-statutory basis

(10,544)

(9,410)

  

(3,260)

(3,689)

(3,383)

  

  

  

  

  

  

  

Operating expenses - statutory basis

(10,544)

(9,541)

  

(3,260)

(3,689)

(3,383)

 

Note:

(1)

Items reallocated to other expense lines, not reconciling items.

 

 

15

 


 

 

Analysis of results

 

Key points

·

Staff costs totalled £1,546 million, up £111 million or 8%, compared with Q3 2014, the reductions from a lower head count were more than offset by a £202 million increase in restructuring costs principally relating to CIB and to Williams & Glyn separation. On a non-statutory basis staff costs totalled £1,265 million, down £91 million or 7%, compared with Q3 2014, principally driven by declining headcount. Premises and equipment expenses were up £160 million from Q3 2014 due to an increase of £231 million in restructuring costs. On a non-statutory basis premises and equipment expenses were down £71 million from Q3 2014 as RBS’s property portfolio is managed down.

 

 

·

Operating expenses in the nine months ended 30 September 2015 totalled £10,544 million, up £1,003 million or 11% compared with the same period in 2014. Operating expenses excluding restructuring costs of £2,317 million and litigation and conduct costs of £1,444 million in the nine months ended 30 September 2015 totalled £6,783 million, down £1,116 million or 14%, compared with the same period of 2014. RBS expects to exceed £900 million of cost savings for the full year. However, Q4 2015 will include the annual bank levy charge; in addition, £190 million of accrual reversals were recorded in Q4 2014.

 

 

·

Restructuring costs totalled £847 million for Q3 2015, principally relating to CIB (£637 million, including £276 million of property related charges) and to Williams & Glyn separation (£190 million). Restructuring costs in the first nine months of 2015 were £2.3 billion, approaching half of the expected c.£5 billion of total restructuring costs from 2015 to 2019.

 

 

·

Litigation and conduct costs of £129 million for Q3 2015 were lower than recorded in recent quarters and related principally to a charge in CIB in relation to certain mortgage-backed securities litigation.

 

 

16

 


 

 

Analysis of results

 

  

Nine months ended

  

Quarter ended

  

30 September

30 September

  

30 September

30 June

30 September

2015 

2014 

  

2015 

2015 

2014 

Impairment (releases)/losses

£m

£m

  

£m

£m

£m

  

  

  

  

  

  

  

Loan impairment (releases)/losses

  

  

  

  

  

  

  - individually assessed

(135)

(321)

  

(15)

(105)

(415)

  - collectively assessed

(8)

293 

  

(13)

(7)

16 

  - latent

(380)

(642)

  

(64)

(91)

(450)

  

  

  

  

  

  

  

Customer loans

(523)

(670)

  

(92)

(203)

(849)

Bank loans

(4)

(10)

  

(4)

  

  

  

  

  

  

  

Total loan impairment releases

(527)

(680)

  

(96)

(203)

(849)

Securities

127 

(2)

  

17 

11 

  

  

  

  

  

  

  

Total impairment releases

(400)

(682)

  

(79)

(192)

(847)

 

  

30 September 

30 June 

31 December 

Credit metrics (1)

2015 

2015 

2014 

  

  

  

  

Gross customer loans

£322,957m

£390,781m

£412,801m

Loan impairment provisions

£9,277m

£11,303m

£18,040m

Risk elements in lending (REIL)

£14,643m

£18,714m

£28,219m

Provisions as a % of REIL

63%

60%

64%

REIL as a % of gross customer loans

4.5%

4.8%

6.8%

 

Note:

(1)

Includes disposal groups. Citizens is included in disposal groups at 30 June 2015 and 31 December 2014.

 

Key points 

·

Loan impairment releases in Q3 2015 were £96 million compared with £849 million in Q3 2014.

 

 

·

Provision coverage increased from 60% at 30 June 2015 to 63% at 30 September 2015, largely reflecting the £2.8 billion reduction in REIL, principally driven by RCR disposals.

 

17

 


 

 

 

Analysis of results

 

Selected credit risk portfolios

  

  

  

  

  

  

  

  

  

  

30 September 2015

  

30 June 2015 (1)

  

31 December 2014 (1)

  

CRA (2)

TCE (2)

EAD (2)

  

CRA (2)

TCE (2)

EAD (2)

  

CRA (2)

TCE (2)

EAD (2)

Natural resources

£m

£m

£m

  

£m

£m

£m

  

£m

£m

£m

  

  

  

  

  

  

  

  

  

  

  

  

Oil and gas

4,632 

9,181 

7,224 

  

6,664 

15,499 

11,318 

  

9,421 

22,014 

15,877 

Mining and metals

1,397 

2,516 

1,934 

  

1,717 

2,914 

2,543 

  

2,660 

4,696 

3,817 

Electricity

3,323 

9,145 

6,282 

  

4,361 

11,935 

7,933 

  

4,927 

16,212 

9,984 

Water and waste

4,901 

5,955 

5,906 

  

5,006 

6,174 

6,041 

  

5,281 

6,718 

6,466 

  

  

  

  

  

  

  

  

  

  

  

  

Natural resources

14,253 

26,797 

21,346 

  

17,748 

36,522 

27,835 

  

22,289 

49,640 

36,144 

  

  

  

  

  

  

  

  

  

  

  

  

Commodity traders (3)

884 

1,239 

1,355 

  

1,136 

1,835 

1,996 

  

1,968 

2,790 

3,063 

Of which: natural resources

662 

915 

922 

  

706 

1,083 

1,197 

  

1,140 

1,596 

1,852 

Shipping

7,937 

8,568 

8,266 

  

8,258 

8,874 

8,616 

  

10,087 

10,710 

10,552 

 

Notes:

(1)

Prior period data excludes Citizens for comparative purposes: Citizens totals for natural resources and shipping were 30 June 2015 - TCE £4.4 billion, EAD £3.6 billion; 31 December 2014 - TCE £4.2 billion, EAD £3.4 billion.

(2)

Credit risk assets (CRA) consist of lending gross of impairment provisions, derivative exposures after netting and contingent obligations. Total committed exposure (TCE) comprises CRA, securities financing transactions after netting, banking book debt securities and committed undrawn facilities. Exposure at default (EAD) is gross of credit provisions and is after credit risk mitigation. 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 TCE but included within EAD; therefore EAD can exceed TCE.

(3)

Commodity traders represents customers in a number of industry sectors, predominately natural resources above.

 

Key points

·

Oil and gas: total exposure has more than halved during 2015 and decreased significantly during Q3 2015. This primarily reflected continued loan sales and run-off across the CIB portfolio in Asia-Pacific and the US.

·

Mining and metals: the reduction in exposure during 2015 reflected proactive management of more vulnerable sub-sectors. The majority of the exposure is to large international customers and matures within five years.

·

Commodity traders: total exposure has more than halved during 2015 and is primarily to the largest physical commodity traders, the exposure is predominantly short-dated, collateralised and uncommitted facilities used for working capital.

·

Shipping: exposure is in CIB Capital Resolution and RCR. The decrease in exposure in Q3 2015 principally reflected sales in RCR.

 

  

  

  

  

  

  

  

  

  

  

30 September 2015

  

30 June 2015

  

31 December 2014

  

Balance

Total

  

Balance

Total

  

Balance

Total

  

sheet

exposure

  

sheet

exposure

  

sheet

exposure

Emerging markets (1)

£m

£m

  

£m

£m

  

£m

£m

  

  

  

  

  

  

  

  

  

India

1,952 

2,456 

  

1,680 

2,225 

  

1,989 

2,628 

China

1,588 

1,651 

  

2,358 

2,510 

  

3,548 

4,079 

Russia

953 

1,028 

  

1,618 

1,709 

  

1,830 

1,997 

 

Note:

(1)

Balance sheet and total exposures include banking and trading book debt securities and are net of impairment provisions in respect of lending - refer to the Country risk section of the RBS’s 2014 Annual Report on Form 20-F..

 

 

Key point

·

Exposure to most emerging markets decreased in 2015 as RBS continues to implement its strategy to withdraw from non-strategic countries. The drop in Chinese exposure in Q3 2015 reflected corporate loan sales and reductions in cash collateral due to reduced volumes of foreign exchange trading. Total exposure to Russia has halved during 2015 and the reduction in Q3 2015 was mostly due to corporate loan sales.

18

 


 

 

 

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 

  

2015 

2015 

2014 

  

2015 

2015 

2014 

Risk asset ratios

  

  

  

  

  

  

  

  

  

CET1

12.7 

12.3 

11.2 

  

12.7 

12.3 

11.1 

Tier 1

13.3 

12.3 

11.2 

  

15.5 

14.3 

13.2 

Total

16.0 

14.8 

13.7 

  

19.8 

18.5 

17.1 

  

  

  

  

  

  

  

  

Capital

£m

£m

£m

  

£m

£m

£m

  

  

  

  

  

  

  

  

Tangible equity

44,442 

43,919 

44,368 

  

44,442 

43,919 

44,368 

Expected loss less impairment provisions

(1,185)

(1,319)

(1,491)

  

(1,185)

(1,319)

(1,491)

Prudential valuation adjustment

(392)

(366)

(384)

  

(392)

(366)

(384)

Deferred tax assets

(1,159)

(1,206)

(1,222)

  

(1,159)

(1,206)

(1,222)

Own credit adjustments

208 

345 

500 

  

208 

345 

500 

Pension fund assets

(256)

(250)

(238)

  

(256)

(250)

(238)

Other deductions

(1,478)

(1,070)

(1,614)

  

(1,456)

(1,047)

(1,884)

  

  

  

  

  

  

  

  

Total deductions

(4,262)

(3,866)

(4,449)

  

(4,240)

(3,843)

(4,719)

  

  

  

  

  

  

  

  

CET1 capital

40,180 

40,053 

39,919 

  

40,202 

40,076 

39,649 

AT1 capital

1,997 

  

8,716 

6,709 

7,468 

Tier 1 capital

42,177 

40,053 

39,919 

  

48,918 

46,785 

47,117 

Tier 2 capital

8,331 

8,181 

8,717 

  

13,742 

13,573 

13,626 

  

  

  

  

  

  

  

  

Total regulatory capital

50,508 

48,234 

48,636 

  

62,660 

60,358 

60,743 

  

  

  

  

  

  

  

  

Risk-weighted assets

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Credit risk

  

  

  

  

  

  

  

  - non-counterparty

237,800 

245,000 

264,700 

  

237,800 

245,000 

264,700 

  - counterparty

26,900 

27,500 

30,400 

  

26,900 

27,500 

30,400 

Market risk

19,700 

22,300 

24,000 

  

19,700 

22,300 

24,000 

Operational risk

31,600 

31,600 

36,800 

  

31,600 

31,600 

36,800 

  

  

  

  

  

  

  

  

Total RWAs

316,000 

326,400 

355,900 

  

316,000 

326,400 

355,900 

  

  

  

  

  

  

  

  

Leverage (2)

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Derivatives

296,500 

282,300 

354,000 

  

  

  

  

Loans and advances

402,300 

402,800 

419,600 

  

  

  

  

Reverse repos

52,100 

67,800 

64,700 

  

  

  

  

Other assets

207,700 

211,800 

212,500 

  

  

  

  

  

  

  

  

  

  

  

  

Total assets

958,600 

964,700 

1,050,800 

  

  

  

  

Derivatives

  

  

  

  

  

  

  

  - netting

(280,300)

(266,600)

(330,900)

  

  

  

  

  - potential future exposures

82,200 

83,500 

98,800 

  

  

  

  

Securities financing transactions gross up

6,600 

6,200 

25,000 

  

  

  

  

Undrawn commitments

78,900 

84,700 

96,400 

  

  

  

  

Regulatory deductions and other

  

  

  

  

  

  

  

  adjustments

500 

2,000 

(600)

  

  

  

  

  

  

  

  

  

  

  

  

Leverage exposure

846,500 

874,500 

939,500 

  

  

  

  

  

  

  

  

  

  

  

  

Tier 1 capital

42,177 

40,053 

39,919 

  

  

  

  

  

  

  

  

  

  

  

  

Leverage ratio %

5.0 

4.6 

4.2 

  

  

  

  

 

Notes:

(1)

Capital Requirements Regulation (CRR) as implemented by the Prudential Regulation Authority in the UK, with effect from 1 January 2014. All regulatory adjustments and deductions to CET1 have been applied in full for the end-point CRR basis with the exception of unrealised gains on AFS securities which has been included from 2015 under the PRA transitional basis.

(2)

Based on end-point CRR Tier 1 capital and leverage exposure under the revised 2014 Basel III leverage ratio framework and the CRR Delegated Act.

 

19

 


 

 

Analysis of results

 

Key points

·

RBS’s CET1 ratio strengthened to 12.7% at 30 September 2015, up 40 basis points from 30 June 2015 and 150 basis points since the start of the year. The increase was principally driven by a further reduction in RWAs, which fell by £10.4 billion during Q3 2015. The decrease in RWAs in relation to asset reductions was £14.9 billion partially offset by a £4.5 billion increase in relation to movements in both the US dollar and euro exchange rates.

 

 

·

CIB RWAs were reduced by £10 billion during Q3 2015 and have fallen by £29 billion since 31 December 2014, The business has now achieved its previously announced target of a £25 billion reduction in 2015 three months ahead of schedule. CIB Capital Resolution RWAs decreased by £6.7 billion from 30 June 2015 due to portfolio reduction of £7 billion, including further sale to Mizuho of £1.3 billion and ongoing GTS exit activity of £1.5 billion, partly offset by foreign exchange movements as sterling weakened against the dollar.

 

 

·

CIB Go-forward(1) RWAs decreased by £3.3 billion from 30 June 2015 principally due to a decrease of £2.2 billion in market risk RWAs.

 

 

·

RCR RWAs reduced by £2.0 billion from 30 June 2015 reflecting ongoing disposal and run-off strategy.

 

 

·

The leverage ratio improved to 5.0% at 30 September 2015, up 40 basis points from 30 June 2015, assisted by the successful issue of US$3.15 billion (£2 billion) Additional Tier 1 capital notes in August 2015 and reduced leverage exposure driven by lower reverse repos and undrawn commitments.

 

Notes:

(1)

Provided to illustrate the impact of the strategic initiatives announced in February 2015 by showing the ‘CIB Go-forward’ profile and ‘CIB Capital Resolution’ which is a non-GAAP measure and should be read in conjunction with the notes attached as well as the section titled “Forward-looking Statements”. See presentation of information on page 3 and appendix 2 for more information

 

 

20

 


 

 

Segment performance

 

On 3 August 2015, RBS’s interest in Citizens fell to 20.9% and Citizens Financial Group (CFG) ceased to be a reportable segment. The following segment disclosures have been restated accordingly. Refer to pages 3 and 35 for further information.

 

 

Nine months ended 30 September 2015

  

PBB

  

CPB

  

CIB

  

Non-

  

  

  

  

Ulster

  

  

Commercial

Private

  

  

  

Central

  

statutory

Reconciling

Statutory

  

UK PBB

Bank

Total

  

Banking

Banking

Total

  

  

 items (1)

RCR

total

 items* 

total

  

£m

£m

£m

  

£m

£m

£m

  

£m

£m

£m

£m

£m

£m

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Income statement

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Net interest income

3,460 

392 

3,852 

  

1,673 

377 

2,050 

  

518 

227 

(42)

6,605 

6,605 

Non-interest income

920 

190 

1,110 

  

871 

248 

1,119 

  

1,243 

(114)

187 

3,545 

289 

3,834 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Total income

4,380 

582 

4,962 

  

2,544 

625 

3,169 

  

1,761 

113 

145 

10,150 

289 

10,439 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Direct expenses

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  - staff costs

(694)

(179)

(873)

  

(377)

(209)

(586)

  

(461)

(1,778)

(78)

(3,776)

(625)

(4,401)

  - other costs**

(221)

(54)

(275)

  

(166)

(49)

(215)

  

(209)

(2,294)

(14)

(3,007)

(3,136)

(6,143)

Indirect expenses

(1,379)

(196)

(1,575)

  

(657)

(289)

(946)

  

(1,571)

4,139 

(47)

Restructuring costs

  

  

  

  

  

  

  

  

  

  

  

  

  - direct

(5)

(21)

(26)

  

(11)

(1)

(12)

  

(404)

(1,875)

(2,317)

2,317 

  - indirect

(72)

(3)

(75)

  

(8)

(83)

(91)

  

(1,258)

1,428 

(4)

Litigation and conduct costs

(362)

(356)

  

(59)

(28)