REG - Royal Bk Scot.Grp. - Interim Management Statement - Part 3 of 6

Fri May 4, 2012 2:01am EDT

* Reuters is not responsible for the content in this press release.

RNS Number : 7225C
Royal Bank of Scotland Group PLC
04 May 2012
 



 

Divisional performance

 

The operating profit/(loss)(1) of each division is shown below.

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£m 

£m 

£m 

 

 

 

 

Operating profit/(loss) before impairment losses by division

 

 

 

UK Retail

632 

649 

712 

UK Corporate

668 

642 

724 

Wealth

55 

86 

75 

International Banking

132 

208 

220 

Ulster Bank

84 

94 

96 

US Retail & Commercial

121 

242 

205 

 

 

 

 

Retail & Commercial

1,692 

1,921 

2,032 

Markets

826 

(52)

1,029 

Direct Line Group

84 

125 

67 

Central items

(110)

85 

(32)

 

 

 

 

Core

2,492 

2,079 

3,096 

Non-Core

(531)

(16)

 

 

 

 

Group operating profit before impairment losses

2,498 

1,548 

3,080 

 

 

 

 

Impairment losses/(recoveries) by division

 

 

 

UK Retail

155 

191 

194 

UK Corporate

176 

236 

107 

Wealth

10 

13 

International Banking

35 

56 

(6)

Ulster Bank

394 

327 

461 

US Retail & Commercial

19 

65 

111 

 

 

 

 

Retail & Commercial

789 

888 

872 

Markets

57 

Central items

34 

(4)

 

 

 

 

Core

825 

941 

872 

Non-Core

489 

751 

1,075 

 

 

 

 

Group impairment losses

1,314 

1,692 

1,947 

 

Note:

(1)

Operating profit/(loss) before own credit adjustments, Asset Protection Scheme, Payment Protection Insurance costs, sovereign debt impairment, amortisation of purchased intangible assets, integration and restructuring costs, gain on redemption of own debt, strategic disposals, bonus tax, bank levy, write-down of goodwill and other intangible assets, interest rate hedge adjustments on impaired available-for-sale Greek government bonds and RFS Holdings minority interest.

 



 

Divisional performance (continued)

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£m 

£m 

£m 

 

 

 

 

Operating profit/(loss) by division

 

 

 

UK Retail

477 

458 

518 

UK Corporate

492 

406 

617 

Wealth

45 

73 

70 

International Banking

97 

152 

226 

Ulster Bank

(310)

(233)

(365)

US Retail & Commercial

102 

177 

94 

 

 

 

 

Retail & Commercial

903 

1,033 

1,160 

Markets

824 

(109)

1,029 

Direct Line Group

84 

125 

67 

Central items

(144)

89 

(32)

 

 

 

 

Core

1,667 

1,138 

2,224 

Non-Core

(483)

(1,282)

(1,091)

 

 

 

 

Group operating profit/(loss)

1,184 

(144)

1,133 

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

 

 

 

 

Net interest margin by division

 

 

 

UK Retail

3.61 

3.74 

4.08 

UK Corporate

3.09 

3.02 

3.19 

Wealth

3.67 

3.39 

3.24 

International Banking

1.60 

1.64 

1.83 

Ulster Bank

1.87 

1.87 

1.84 

US Retail & Commercial

3.06 

3.04 

3.00 

 

 

 

 

Retail & Commercial

2.91 

2.90 

3.05 

Non-Core

0.31 

0.42 

0.72 

 

 

 

 

Group net interest margin

1.89 

1.84 

2.03 

 

 

31 March 

2012 

31 December 

2011 

Total funded assets

£m 

£m 

 

 

 

UK Retail

116,255 

114,469 

UK Corporate

113,134 

114,098 

Wealth

21,265 

21,628 

International Banking

63,684 

69,901 

Ulster Bank

33,450 

34,637 

US Retail & Commercial

72,945 

74,925 

Markets

300,574 

313,882 

Direct Line Group

13,430 

12,912 

Central items

130,742 

126,336 

 

 

 

Core

865,479 

882,788 

Non-Core

83,278 

93,657 

 

 

 

 

948,757 

976,445 

RFS Holdings minority interest

910 

804 

 

 

 

 

949,667 

977,249 



 

Divisional performance (continued)

 

 

31 March 

2012 

31 December 

2011 

 

 

31 March 

2011 

 

 

£bn 

£bn 

Change 

 

£bn 

Change 

 

 

 

 

 

 

 

Risk-weighted assets by division

 

 

 

 

 

 

UK Retail

48.2 

48.4 

 

50.3 

(4%)

UK Corporate

76.9 

79.3 

(3%)

 

82.3 

(7%)

Wealth

12.9 

12.9 

 

12.6 

2% 

International Banking

41.8 

43.2 

(3%)

 

45.7 

(9%)

Ulster Bank

38.4 

36.3 

6% 

 

31.7 

21% 

US Retail & Commercial

58.6 

59.3 

(1%)

 

54.0 

9% 

 

 

 

 

 

 

 

Retail & Commercial

276.8 

279.4 

(1%)

 

276.6 

Markets

115.6 

120.3 

(4%)

 

114.3 

1% 

Other

11.0 

12.0 

(8%)

 

15.8 

(30%)

 

 

 

 

 

 

 

Core

403.4 

411.7 

(2%)

 

406.7 

(1%)

Non-Core

89.9 

93.3 

(4%)

 

128.5 

(30%)

 

 

 

 

 

 

 

Group before benefit of Asset Protection Scheme

493.3 

505.0 

(2%)

 

535.2 

(8%)

Benefit of Asset Protection Scheme

(62.2)

(69.1)

(10%)

 

(98.4)

(37%)

 

 

 

 

 

 

 

Group before RFS Holdings minority interest

431.1 

435.9 

(1%)

 

436.8 

(1%)

RFS Holdings minority interest

3.2 

3.1 

3% 

 

2.9 

10% 

 

 

 

 

 

 

 

Group

434.3 

439.0 

(1%)

 

439.7 

(1%)

 

For the purposes of the divisional return on equity ratios, notional equity has been calculated as a percentage of the monthly average of divisional risk-weighted assets, adjusted for capital deductions. Historically, notional equity was allocated at 9% for the Retail & Commercial divisions and 10% for Global Banking & Markets. A consistent 10% is now applied to the Retail & Commercial and Markets divisions.

 

Employee numbers by division (full time equivalents in continuing operations rounded to the nearest hundred)

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

 

 

 

UK Retail

27,600 

27,700 

28,100 

UK Corporate

13,400 

13,600 

13,200 

Wealth

5,700 

5,700 

5,400 

International Banking

5,400 

5,400 

5,500 

Ulster Bank

4,500 

4,200 

4,300 

US Retail & Commercial

14,700 

15,400 

15,600 

 

 

 

 

Retail & Commercial

71,300 

72,000 

72,100 

Markets

13,200 

13,900 

15,600 

Direct Line Group

15,100 

14,900 

14,900 

Group Centre

6,600 

6,200 

4,800 

 

 

 

 

Core

106,200 

107,000 

107,400 

Non-Core

4,300 

4,700 

6,700 

 

 

 

 

 

110,500 

111,700 

114,100 

Business Services

33,600 

34,000 

34,100 

Integration and restructuring

1,000 

1,100 

300 

 

 

 

 

Group

145,100 

146,800 

148,500 

 



 

UK Retail

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£m 

£m 

£m 

 

 

 

 

Income statement

 

 

 

Net interest income

1,001 

1,032 

1,086 

 

 

 

 

Net fees and commissions

237 

242 

270 

Other non-interest income

29 

35 

34 

 

 

 

 

Non-interest income

266 

277 

304 

 

 

 

 

Total income

1,267 

1,309 

1,390 

 

 

 

 

Direct expenses

 

 

 

  - staff

(207)

(200)

(215)

  - other

(79)

(116)

(113)

Indirect expenses

(349)

(344)

(350)

 

 

 

 

 

(635)

(660)

(678)

 

 

 

 

Operating profit before impairment losses

632 

649 

712 

Impairment losses

(155)

(191)

(194)

 

 

 

 

Operating profit

477 

458 

518 

 

 

 

 

 

 

 

 

Analysis of income by product

 

 

 

Personal advances

236 

276 

275 

Personal deposits

185 

214 

254 

Mortgages

563 

577 

543 

Cards

219 

238 

238 

Other

64 

80 

 

 

 

 

Total income

1,267 

1,309 

1,390 

 

 

 

 

 

 

 

 

Analysis of impairments by sector

 

 

 

Mortgages

34 

32 

61 

Personal

82 

116 

95 

Cards

39 

43 

38 

 

 

 

 

Total impairment losses

155 

191 

194 

 

 

 

 

 

 

 

 


 

 

 

Loan impairment charge as % of gross customer loans and advances

  (excluding reverse repurchase agreements) by sector

 

 

 

Mortgages

0.1% 

0.1% 

0.3% 

Personal

3.5% 

4.6% 

3.3% 

Cards

2.8% 

3.0% 

2.7% 

 

 

 

 

Total

0.6% 

0.7% 

0.7% 

 



 

UK Retail (continued)

 

Key metrics

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

 

 

 

Performance ratios

 

 

 

Return on equity (1)

24.0% 

22.8% 

24.5% 

Net interest margin

3.61% 

3.74% 

4.08% 

Cost:income ratio

50% 

50% 

49% 

 

 

 

31 March 

2012 

31 December 

2011 

 

 

31 March 

2011 

 

 

£bn 

£bn 

Change 

 

£bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet

 

 

 

 

 

 

Loans and advances to customers (gross) (2)

 

 

 

 

 

 

  - mortgages

97.5 

95.0 

3% 

 

93.0 

5% 

  - personal

9.4 

10.1 

(7%)

 

11.4 

(18%)

  - cards

5.6 

5.7 

(2%)

 

5.6 

 

 

 

 

 

 

 

 

112.5 

110.8 

2% 

 

110.0 

2% 

Customer deposits (2)

104.2 

101.9 

2% 

 

96.1 

8% 

Assets under management (excluding

  deposits)

5.8 

5.5 

5% 

 

5.8 

Risk elements in lending (2)

4.6 

4.6 

 

4.6 

Loan:deposit ratio (excluding repos)

105% 

106% 

(100bp)

 

112% 

(700bp)

Risk-weighted assets

48.2 

48.4 

 

50.3 

(4%)

 

Notes:

(1)

Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).

(2)

Includes disposal groups: loans and advances to customers £7.3 billion; risk elements in lending £0.5 billion; customer deposits £8.7 billion (31 December 2011 - loans and advances to customers £7.3 billion; risk elements in lending £0.5 billion; customer deposits £8.8 billion).

 

Key points

In Q1 2012 UK Retail continued to focus on our commitment to customers to be the UK's most Helpful Bank.

 

On 28 March 2012, the Customer Charter 2011 results were published and showed encouraging improvements. The results were independently assessed, and, of the twenty-five goals set out in the Charter, we achieved twenty-three. This result demonstrates the progress that has been made, and has been recognised by customers, but there is still work to be done to deliver improvements in service and resolve complaints fairly, consistently and promptly.

 

In 2012, the Charter has evolved so it is even more relevant to customers, with simplified commitments categorised under the following four key themes: knowledgeable staff will put customer needs first, we will do more to help customers when they need it most, we will provide convenient and quick service to our customers and we will continue to help strengthen the communities in which we live and work.



 

UK Retail (continued)

 

Key points (continued)

 

Q1 2012 compared with Q4 2011

·

UK Retail continued to deliver strong returns in Q1 2012. The division continued to achieve strong franchise growth, gaining market share on both sides of the balance sheet and increasing return on equity in the face of challenging economic conditions.

 


·

The division further reduced the loan to deposit ratio in the quarter to 105%.


Customer deposits grew 2%, driven by increases in both savings balances, 1%, and current account balances, 5%.


Gross mortgage lending market share of 11% continues above our stock position of 8%.


Unsecured lending contracted by 5% as the Group actively sought to improve its risk profile and customer deleveraging continued.

 


·

Income growth is proving challenging in the current economic environment.

 

Net interest margin declined 13 basis points as lower long term swap rates combined with competitive savings rates put pressure on liability margins.

 

Consumer spending has remained subdued over the quarter resulting in lower transactional fees on cards.

 

Customer behaviour continues to evolve supported by Helpful Banking initiatives, including the "Act Now" text alerts. This is reducing the level of late and overdraft fees.

 


·

The division continued to focus on strong cost discipline with good results.

 

Headcount was further reduced, although staff costs were slightly higher as Q4 2011 included a reduction in full year incentive compensation accruals.

 

Other costs were lower as strict cost control and efficiency measures delivered further benefits.

·

Impairment losses decreased 19% reflecting the impact of risk appetite tightening. Impairments are expected to remain stable subject to normal seasonal fluctuations and the economic environment.

 


 

Mortgage impairment losses were broadly in line with the previous quarter with arrears rates and provision coverage levels remaining stable.

 

The unsecured portfolio charge fell 24% with slightly lower default volumes and improved collections performance. The recoveries performance also gave rise to a small provision release from the defaulted book. Industry benchmarks for cards arrears remain stable, with RBS continuing to perform better than the market.

 


·

Risk-weighted assets were broadly stable, with volume growth in lower risk secured mortgages more than offset by a decrease in the unsecured portfolio. Asset quality remains stable.

 

Q1 2012 compared with Q1 2011

·

Net interest income fell driven by lower liability margins, due to a continued decline in long-term swap rates and competitive pricing on savings.



·

Non-interest income declined as Helpful Banking initiatives and subdued consumer spending continued to depress card transaction volumes.



·

Overall expenses decreased with direct staff costs down largely due to headcount reductions. Other direct expenses decreased reflecting a number of cost saving initiatives.



·

Risk appetite tightening, combined with Helpful Banking initiatives are helping to reduce default levels, contributing to impairment losses decreasing by 20%.



 

UK Corporate

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£m 

£m 

£m 

 

 

 

 

Income statement

 

 

 

Net interest income

756 

758 

811 

 

 

 

 

Net fees and commissions

336 

341 

345 

Other non-interest income

109 

78 

106 

 

 

 

 

Non-interest income

445 

419 

451 

 

 

 

 

Total income

1,201 

1,177 

1,262 

 

 

 

 

Direct expenses

 

 

 

  - staff

(245)

(231)

(235)

  - other

(85)

(99)

(104)

Indirect expenses

(203)

(205)

(199)

 

 

 

 

 

(533)

(535)

(538)

 

 

 

 

Operating profit before impairment losses

668 

642 

724 

Impairment losses

(176)

(236)

(107)

 

 

 

 

Operating profit

492 

406 

617 

 

 

 

 

 

 

 

 

Analysis of income by business

 

 

 

Corporate and commercial lending

687 

623 

722 

Asset and invoice finance

162 

169 

151 

Corporate deposits

166 

171 

174 

Other

186 

214 

215 

 

 

 

 

Total income

1,201 

1,177 

1,262 

 

 

 

 

 

 

 

 

Analysis of impairments by sector

 

 

 

Financial institutions

(2)

Hotels and restaurants

15 

16 

Housebuilding and construction

25 

27 

32 

Manufacturing

13 

Other

40 

39 

Private sector education, health, social work, recreational and

  community services

22 

81 

11 

Property

30 

19 

18 

Wholesale and retail trade, repairs

33 

29 

16 

Asset and invoice finance

14 

10 

 

 

 

 

Total impairment losses

176 

236 

107 

 



 

UK Corporate (continued)

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

 

 

 

Loan impairment charge as % of gross customer loans and advances

  (excluding reverse repurchase agreements) by sector

 

 

 

Financial institutions

0.1% 

(0.1%)

0.2% 

Hotels and restaurants

1.0% 

1.0% 

0.5% 

Housebuilding and construction

2.7% 

2.8% 

2.8% 

Manufacturing

1.1% 

0.5% 

Other

0.5% 

0.5% 

Private sector education, health, social work, recreational and

  community services

1.0% 

3.7% 

0.5% 

Property

0.4% 

0.3% 

0.2% 

Wholesale and retail trade, repairs

1.5% 

1.3% 

0.7% 

Asset and invoice finance

0.3% 

0.5% 

0.4% 

 

 

 

 

Total

0.6% 

0.9% 

0.4% 

 

Key metrics

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

 

 

 

Performance ratios

 

 

 

Return on equity (1)

16.2% 

13.0% 

19.2% 

Net interest margin

3.09% 

3.02% 

3.19% 

Cost:income ratio

44% 

45% 

43% 

 

 

31 March 

2012 

31 December 

2011 

 

 

31 March 

2011 

 

 

£bn 

£bn 

Change 

 

£bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet

 

 

 

 

 

Total third party assets

114.2 

(1%)

 

117.7 

(4%)

Loans and advances to customers (gross) (2)

 

 

 

 

 

  - financial institutions

5.8 

7% 

 

6.1 

2% 

  - hotels and restaurants

6.1 

(2%)

 

6.7 

(10%)

  - housebuilding and construction

3.9 

(5%)

 

4.5 

(18%)

  - manufacturing

4.7 

 

5.2 

(10%)

  - other

34.2 

1% 

 

33.6 

2% 

  - private sector education, health, social

    work, recreational and community services

8.7 

(1%)

 

8.9 

(3%)

  - property

28.2 

(5%)

 

30.2 

(12%)

  - wholesale and retail trade, repairs

8.7 

5% 

 

9.8 

(7%)

  - asset and invoice finance

10.3 

10.4 

(1%)

 

9.8 

5% 

 

 

 

 

 

 

 

 

110.7 

(1%)

 

114.8 

(4%)

 

 

 

 

 

 

Customer deposits (2)

126.3 

(2%)

 

124.4 

Risk elements in lending (2)

5.0 

(2%)

 

4.6 

7% 

Loan:deposit ratio (excluding repos)

87% 

86% 

100bp 

 

91% 

(400bp)

Risk-weighted assets

76.9 

79.3 

(3%)

 

82.3 

(7%)

 

Notes:

(1)

Divisional return on equity is based on divisional operating profit after tax, divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).

(2)

Includes disposal groups: loans and advances to customers £12.0 billion; risk elements in lending £1.0 billion; customer deposits £12.7 billion (31 December 2011 - loans and advances to customers £12.2 billion; risk elements in lending £1.0 billion; customer deposits £13.0 billion).

 



 

UK Corporate (continued)

 

Key points

In Q1 2012 UK Corporate continued to demonstrate its commitment to customers and to supporting recovery in the UK economy.

 

As part of the 'Ahead for Business' promise, fast, reliable service and customer proximity remain at the forefront of UK Corporate's proposition. In February 2012 the division launched a new iPhone app enabling business banking customers to keep track of their finances and effectively manage opportunities and risks within their business. The division also enhanced its telephony proposition with an extended and faster service, providing expert advice to smaller businesses.

 

By the end of Q1 2012, RBS staff had undertaken 4,883 'Working with You' visits, spending two days at a time working in their customers' businesses, demonstrating how serious UK Corporate is about understanding and sharing its customers' ambitions.

 

Q1 2012 saw the launch of the National Loan Guarantee Scheme (NLGS). As part of the scheme UK Corporate offers a 1% pricing discount on loans, including asset finance facilities provided through the Lombard brand, to a large number of clients. RBS Group is the only bank to extend the discount for the complete range of loans, from £1,000 up to £25 million. Furthermore, UK Corporate demonstrated its continued support of the manufacturing sector by launching the 8th tranche of a £1 billion Manufacturing Fund in the quarter. The division also participated in a number of other UK Government supported schemes:

 

·

the Regional Growth Fund, allowing businesses to safeguard and create new jobs across the country;

 


·

the Business Growth Fund, an equity investment fund established to help Britain's fast-growing small and medium sized businesses; and

 


·

the Enterprise Finance Guarantee, for small firms with viable business proposals that are unable to obtain a conventional loan due to lack of security.

 

Q1 2012 compared with Q4 2011

·

UK Corporate delivered a strong performance, with return on equity of 16.2% and operating profit increasing 21% to £492 million, driven by non-interest income growth and lower impairments.

 


·

Net interest income was broadly flat while net interest margin increased 7 basis points, benefiting from a revision to deferred income recognition assumptions and increased customer margins, partially offset by higher funding costs.

 


·

Non-interest income increased 6% largely reflecting valuation movements and lower derivative close out costs associated with impaired assets.

 


·

Total costs were slightly lower, reflecting lower revenue related costs and cost efficiencies achieved in non-staff discretionary spend, largely offset by the phasing of staff incentive costs.

 


·

Impairments at £176 million were down 25%, primarily as a result of lower individual and collectively assessed provisions.

 


·

Risk-weighted assets decreased £2.4 billion reflecting improved risk parameters and marginally lower net lending, primarily property which more than offset growth in other sectors.

 



 

UK Corporate (continued)

 

Key points (continued)

 

Q1 2012 compared with Q1 2011

·

Operating profit decreased by £125 million, or 20%, with lower net interest income combined with an increase in impairments, partially offset by lower costs.

 


·

Net interest income decreased by 7% largely reflecting the higher impact from revisions made to deferred income recognition assumptions in Q1 2011 compared with Q1 2012. Excluding these revisions, net interest income fell 4% whilst net interest margin decreased 2 basis points reflecting higher net funding costs and lower lending. Lending decreased £5 billion, including targeted reductions in the property sector.

 


·

Non-interest income decreased 1%, largely reflecting strong refinancing activity in Q1 2011, not repeated in Q1 2012, partially offset by increased operating lease activity and Markets revenue share income.

 


·

Total costs declined £5 million, 1%, with reductions in non-staff discretionary spending, largely offset by increased staff costs relating to strategic investment and control initiatives.

 


·

Impairments were 64% higher primarily driven by the significant release of latent provisions in Q1 2011.

 


·

Risk-weighted assets decreased £5.4 billion as the result of improved risk parameters and lower lending balances.

 



 

Wealth

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£m 

£m 

£m 

 

 

 

 

Income statement

 

 

 

Net interest income

179 

168 

157 

 

 

 

 

Net fees and commissions

93 

89 

97 

Other non-interest income

18 

23 

17 

 

 

 

 

Non-interest income

111 

112 

114 

 

 

 

 

Total income

290 

280 

271 

 

 

 

 

Direct expenses

 

 

 

  - staff

(117)

(96)

(100)

  - other

(60)

(43)

(44)

Indirect expenses

(58)

(55)

(52)

 

 

 

 

 

(235)

(194)

(196)

 

 

 

 

Operating profit before impairment losses

55 

86 

75 

Impairment losses

(10)

(13)

(5)

 

 

 

 

Operating profit

45 

73 

70 

 

 

 

 

Analysis of income

 

 

 

Private banking

237 

232 

221 

Investments

53 

48 

50 

 

 

 

 

Total income

290 

280 

271 

 

Key metrics

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

 

 

 

Performance ratios

 

 

 

Return on equity (1)

9.5% 

15.2% 

15.0% 

Net interest margin

3.67% 

3.39% 

3.24% 

Cost:income ratio

81% 

69% 

72% 

 

 

31 March 

2012 

31 December 

2011 

 

 

31 March 

2011 

 

 

£bn 

£bn 

Change 

 

£bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet

 

 

 

 

 

 

Loans and advances to customers (gross)

 

 

 

 

 

 

  - mortgages

8.4 

8.3 

1% 

 

7.8 

8% 

  - personal

6.8 

6.9 

(1%)

 

7.0 

(3%)

  - other

1.7 

1.7 

 

1.7 

 

 

 

 

 

 

 

 

16.9 

16.9 

 

16.5 

2% 

Customer deposits (2)

38.3 

38.2 

 

37.5 

2% 

Assets under management (excluding

  deposits) (2)

31.4 

30.9 

2% 

 

34.4 

(9%)

Risk elements in lending

0.2 

0.2 

 

0.2 

Loan:deposit ratio (excluding repos) (2)

44% 

44% 

 

44% 

Risk-weighted assets

12.9 

12.9 

 

12.6 

2% 

 

Notes:

(1)

Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).

(2)

31 March 2011 comparatives were revised in Q3 2011 to reflect the current reporting methodology.



 

Wealth (continued)

 

Key points

Q1 2012 saw further progress in the implementation of the refreshed Coutts divisional strategy across all jurisdictions.

 

·

Reshaping of the UK business progressed to the next phase with the restructure of key professionals in client servicing. The restructure will enable the division to provide class leading banking and wealth management propositions and assists in the preparations for the implementation of Retail Distribution Review (RDR) regulations. Revised Private Banker and Wealth Manager roles will ensure clients receive the best service and advice based on their specific needs.

 

 

·

On the international front, Coutts announced the sale of the Latin American, Caribbean and African business to RBC Wealth Management. The business has client assets in the region of £1.5 billion, representing approximately 2% of Coutts' total client assets. This decision followed from the 2011 divisional strategy to focus the Coutts growth strategy on key geographies. These include the UK, Switzerland, Middle East, Russia/Commonwealth of Independent States and selected countries in Asia.

 

 

·

Coutts continued to prepare the deployment of a single global technology platform with the UK rollout completed in Q1 2012. The bank's strategic investment will enable the business to operate as a global organisation on a single IT platform, transforming the way clients are served.

 

Q1 2012 compared with Q4 2011

·

Operating profit decreased 38% to £45 million, with a 4% increase in income more than offset by increased expenses.

 

 

·

Income growth of £10 million largely reflects improved deposit margins and strong treasury income.

 

 

·

Expenses increased 21% largely driven by phasing in Financial Services Compensation Scheme levies and the timing of incentive accruals. The division also incurred an £8.75 million fine from the Financial Services Authority (FSA) relating to Anti Money Laundering control processes during the period from December 2007 to November 2010.

 

 

·

Client assets and liabilities managed by the division increased by 1%. Assets under management increased by 2%, benefiting from a recovery in the markets in Q1 2012, and positive net new business, particularly in Asia where an improved sales management framework has been introduced.

 



 

Wealth (continued)

 

Key points (continued)

 

Q1 2012 compared with Q1 2011

·

Operating profit decreased by 36% with a 7% growth in income more than offset by higher expenses and impairments.

 

 

·

Net interest income increased 14% with growth in lending volumes and margins, particularly within the UK, as well as sustained improvement in divisional treasury income. The decline in non-interest income reflected lower assets under management and a reduction in brokerage income.

 

 

·

Expenses increased 20% largely reflecting continued investment in International front office recruitment, strategic technology initiatives, including the new Avaloq based wealth management platform in the UK, regulatory projects and changes in bonus accounting methodology. Q1 2012 also included the FSA fine.

 

 

·

Client assets and liabilities managed by the division decreased by 2%. Customer deposits grew 2% and lending volumes increased by 2% in response to continued customer demand, particularly for UK mortgages, reflecting high interest in London property. Assets under management declined 9%, as a result of negative market movements and fund outflows occurring in the second half of 2011.



 

International Banking

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£m 

£m 

£m 

 

 

 

 

Income statement

 

 

 

Net interest income from banking activities

260 

293 

303 

Non-interest income

282 

300 

344 

 

 

 

 

Total income

542 

593 

647 

 

 

 

 

Direct expenses

 

 

 

  - staff

(187)

(160)

(195)

  - other

(48)

(51)

(61)

Indirect expenses

(175)

(174)

(171)

 

 

 

 

 

(410)

(385)

(427)

 

 

 

 

Operating profit before impairment losses

132 

208 

220 

Impairment (losses)/recoveries

(35)

(56)

 

 

 

 

Operating profit

97 

152 

226 

 

 

 

 

Of which:

 

 

 

Ongoing businesses

113 

145 

235 

Run-off businesses

(16)

(9)

 

 

 

 

Analysis of income by product

 

 

 

Cash management

268 

241 

216 

Trade finance

72 

67 

62 

Portfolio

197 

257 

353 

 

 

 

 

Ongoing businesses

537 

565 

631 

Run-off businesses

28 

16 

 

 

 

 

Total income

542 

593 

647 

 

 

 

 

Analysis of impairments by sector

 

 

 

Manufacturing and infrastructure

(17)

(75)

(32)

Property and construction

(6)

Transport and storage

(9)

Telecommunications, media and technology

(9)

Banks and financial institutions

(12)

Other

(1)

19 

52 

 

 

 

 

Total impairment (losses)/recoveries

(35)

(56)

 

 

 

 

Loan impairment charge as % of gross customer loans and advances

  (excluding reverse repurchase agreements)

0.3% 

0.4% 

           

Key metrics

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

 

 

 

Performance ratios (ongoing businesses)

 

 

 

Return on equity (1)

7.5% 

9.1% 

13.2% 

Net interest margin

1.60% 

1.64% 

1.83% 

Cost:income ratio

72% 

64% 

64% 

                       

Note:

(1)

Divisional return on equity is based on divisional operating profit after tax, divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions), for the ongoing businesses.



 

International Banking (continued)

 

 

31 March 

2012 

31 December 

2011 

 

 

31 March 

2011 

 

 

£bn 

£bn 

Change 

 

£bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet

 

 

 

 

 

 

Loans and advances to customers

52.3 

56.9 

(8%)

 

62.6 

(16%)

Loans and advances to banks

3.9 

3.4 

15% 

 

3.8 

3% 

Securities

4.0 

6.0 

(33%)

 

5.9 

(32%)

Cash and eligible bills

0.3 

0.3 

 

1.0 

(70%)

Other

3.2 

3.3 

(3%)

 

3.5 

(9%)

 

 

 

 

 

 

 

Total third party assets (excluding derivatives mark-to-market)

63.7 

69.9 

(9%)

 

76.8 

(17%)

Customer deposits (excluding repos)

45.0 

45.1 

 

44.1 

2% 

Risk elements in lending

0.9 

1.6 

(44%)

 

1.5 

(40%)

Loan:deposit ratio (excluding repos)

116% 

126% 

(1,000bp)

 

142% 

(2,600bp)

Risk-weighted assets

41.8 

43.2 

(3%)

 

45.7 

(9%)

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£m 

£m 

£m 

 

 

 

 

Run-off businesses (1)

 

 

 

 

 

 

 

Total income

28 

16 

Direct expenses

(21)

(21)

(25)

 

 

 

 

Operating (loss)/profit

(16)

(9)

 

Note:

(1)

Run-off businesses consist of the exited corporate finance business.

 

Key points

The formation of International Banking in January 2012 created a significant and integrated client focused business, well placed to serve clients' financing, working capital and risk management needs internationally. Cash management and trade finance, both in the UK and internationally, remain key offerings for the Group's customers and, overall, International Banking continues to invest in improving existing products and in developing new ones.

 

Since the restructure, substantial progress has been made on the integration. The senior management team is in place. Early engagement with clients on the integrated proposition has been positive and management are reviewing a number of revenue enhancing opportunities arising from leveraging the Group's network coverage and product capabilities.

 

Q1 2012 compared with Q4 2011

·

Operating profit was down £55 million, reflecting lower income and increased expenses, partially offset by lower impairments.

·

Excluding run-off businesses, income was £28 million lower reflecting the uncertain and volatile macroeconomic backdrop and the continued low interest rate environment. Net interest margin decreased by 4 basis points mainly due to a reduction in higher priced Portfolio assets.


Portfolio income fell by £60 million reflecting the managed reduction in average assets in order to improve capital efficiency and liquidity levels.


Trade finance income was 7% higher due to increased guarantee fee income, mainly in Asia.


Cash management income was 11% higher than Q4 2011, despite weak European activity and lower global payments, and due to a higher funding surplus arising from lower liquidity buffer requirements.



 

International Banking (continued)

 

Key points (continued)

 

Q1 2012 compared with Q4 2011 (continued)

·

Expenses increased by £25 million, largely reflecting the timing of incentive accruals and reduced pension accruals in Q4 2011 following actuarial valuations.

 


·

Impairments of £35 million related to a small number of specific provisions.

 


·

Third party assets decreased by 9% due to managed reductions in the Portfolio loan book of £5 billion, reflecting capital management discipline, (which also resulted in a decrease in undrawn commitments) and reduced collateral required for Japanese business activities.

 


·

Customer deposits remained flat despite an increasingly competitive environment and the adverse impact of Sterling:Euro exchange rate.

 


·

The loan to deposit ratio improved from 126% to 116% mainly driven by reductions in the loan book.

 

Q1 2012 compared with Q1 2011

·

Operating profit was down £129 million reflecting lower Portfolio income and higher impairments, partially offset by lower discretionary expenses.

 


·

Income decreased by £105 million due to a managed reduction in average assets and lower business volumes. Net interest margin decreased by 23 basis points primarily reflecting a reduction in higher yielding Portfolio assets.


Portfolio income was 44% lower largely reflecting an active reduction in third party assets, down 17%, and higher funding costs. Corporate product volumes fell as activity in the debt market remained subdued, and a low inflation environment also reduced hedging activity.


Trade finance income grew 16% as a result of strong growth in trade funded assets and trade guarantees, mainly in Asia.


Cash management was 24% higher, as customer deposits grew by £1 billion following the success of deposit gathering initiatives, partially offset by adverse exchange rate movements and lower interest rates.



·

Expenses decreased by 4% driven by lower headcount, continued cost saving initiatives including tight management control over discretionary non-staff related costs.

 


·

Impairments in Q1 2011 included a significant write back of latent provisions within Portfolio.

 


·

The Portfolio loan book fell by £10 billion due to repayments and active capital management. This drove a 17% reduction in third party assets and a 9% reduction in risk-weighted assets.



 

Ulster Bank

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£m 

£m 

£m 

 

 

 

 

Income statement

 

 

 

Net interest income

165 

177 

181 

 

 

 

 

Net fees and commissions

38 

28 

36 

Other non-interest income

11 

21 

15 

 

 

 

 

Non-interest income

49 

49 

51 

 

 

 

 

Total income

214 

226 

232 

 

 

 

 

Direct expenses

 

 

 

  - staff

(52)

(53)

(56)

  - other

(12)

(15)

(18)

Indirect expenses

(66)

(64)

(62)

 

 

 

 

 

(130)

(132)

(136)

 

 

 

 

Operating profit before impairment losses

84 

94 

96 

Impairment losses

(394)

(327)

(461)

 

 

 

 

Operating loss

(310)

(233)

(365)

 

 

 

 

 

 

 

 

Analysis of income by business

 

 

 

Corporate

102 

98 

113 

Retail

88 

101 

113 

Other

24 

27 

 

 

 

 

Total income

214 

226 

232 

 

 

 

 

 

 

 

 

Analysis of impairments by sector

 

 

 

Mortgages

215 

133 

233 

Corporate

 

 

 

  - property

54 

83 

97 

  - other corporate

114 

100 

120 

Other lending

11 

11 

11 

 

 

 

 

Total impairment losses

394 

327 

461 

 

 

 

 

 

 

 

 

Loan impairment charge as % of gross customer loans and advances

  (excluding reverse repurchase agreements) by sector

 

 

 

Mortgages

4.3% 

2.7% 

4.3% 

Corporate

 

 

 

  - property

4.4% 

6.9% 

7.2% 

  - other corporate

5.8% 

5.2% 

5.5% 

Other lending

3.4% 

2.8% 

2.9% 

 

 

 

 

Total

4.6% 

3.8% 

5.0% 

 



 

Ulster Bank (continued)

 

Key metrics

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

 

 

 

Performance ratios

 

 

 

Return on equity (1)

(25.8%)

(20.7%)

(36.8%)

Net interest margin

1.87% 

1.87% 

1.84% 

Cost:income ratio

61% 

58% 

59% 

 

 

31 March 

2012 

31 December 

2011 

 

 

31 March 

2011 

 

 

£bn 

£bn 

Change 

 

£bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet

 

 

 

 

 

 

Loans and advances to customers (gross)

 

 

 

 

 

 

  - mortgages

19.8 

20.0 

(1%)

 

21.5 

(8%)

  - corporate

 

 

 

 

 

 

     - property

4.9 

4.8 

2% 

 

5.4 

(9%)

     - other corporate

7.9 

7.7 

3% 

 

8.8 

(10%)

  - other lending

1.3 

1.6 

(19%)

 

1.5 

(13%)

 

 

 

 

 

 

 

 

33.9 

34.1 

(1%)

 

37.2 

(9%)

Customer deposits

21.0 

21.8 

(4%)

 

23.8 

(12%)

Risk elements in lending

 

 

 

 

 

 

  - mortgages

2.5 

2.2 

14% 

 

1.8 

39% 

  - corporate

 

 

 

 

 

 

     - property

1.3 

1.3 

 

1.0 

30% 

     - other corporate

1.9 

1.8 

6% 

 

1.6 

19% 

  - other lending

0.2 

0.2 

 

0.2 

 

 

 

 

 

 

 

Total risk elements in lending

5.9 

5.5 

7% 

 

4.6 

28% 

Loan:deposit ratio (excluding repos)

147% 

143% 

400bp 

 

147% 

Risk-weighted assets

38.4 

36.3 

6% 

 

31.7 

21% 

 

 

 

 

 

 

 

Spot exchange rate - €/£

1.200 

1.196 

 

1.131 

6% 

 

Note:

(1)

Divisional return on equity is based on divisional operating loss after tax divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).

 

Key points

Economic conditions in Ireland remain challenging. Despite growth in the export sector, the domestic economy continues to be weak, unemployment remains elevated and residential property values continue to decline. These conditions adversely affected financial performance in Q1 2012, particularly the level of impairments on the residential mortgage portfolio.

 

Ulster Bank remains focused on the recovery of the business and on the rebuilding of a sustainable franchise into the future. Ulster Bank also continues to support the changing needs of customers, in difficult economic conditions, through the provision of a range of restructuring solutions.

 

Deposit gathering remains a priority and the implementation of a number of cost management initiatives across the business is progressing.



 

Ulster Bank (continued)

 

Key points (continued)

 

Q1 2012 compared with Q4 2011

·

Operating profit before impairment losses fell by £10 million in the quarter reflecting the impact of higher funding costs on income. Impairment losses increased by 20%, primarily due to deteriorating credit metrics of the retail mortgage portfolio, in line with market trends.

 


·

Income decreased by £12 million due to the impact of intense deposit competition. Net interest margin remained stable at 1.87% with the benefit of loan pricing initiatives, coupled with a reduced stock of liquid assets offsetting the impact of higher funding costs.

 


·

Expenses decreased by £2 million with further progress made on cost initiatives across the business, with particular focus on reducing staff costs and marketing expenditure.

 


·

Impairment losses increased by £67 million in the quarter, largely due to rising arrears rates on the residential mortgage portfolio and the continued deterioration in asset quality as property prices declined further.

 


·

Retail and SME deposit balances remained stable in the quarter despite the competitive market. However, there were further outflows of wholesale balances. Loans and advances to customers fell marginally.

 


·

Risk-weighted assets increased by £2.1 billion, mainly as a result of deterioration in mortgage credit metrics.

 

Q1 2012 compared with Q1 2011

·

Operating loss decreased by £55 million to £310 million, with lower impairment losses partly offset by lower income.

 


·

Income fell by 8% reflecting the impact of a reducing loan book coupled with higher funding costs. Net interest margin increased by 3 basis points primarily driven by the benefit of initiatives to improve asset margins implemented during 2011 coupled with a reduction in the stock of liquid assets.

 


·

Expenses decreased by 4%, with a 14% fall in direct expenses, primarily driven by tight management of discretionary spend. Management continued to focus on implementing cost saving initiatives.

 


·

Impairment losses fell by 15% but credit conditions in Ireland remain challenging and overall, credit quality has deteriorated over the period driven by asset price deflation and affordability issues.

 


·

Loans and advances to customers declined by 4% in constant currency terms reflecting further amortisation and ongoing weak demand for credit.

 


·

Customer deposit balances declined by 8% on a constant currency basis with growth in retail and SME balances of 2%, more than offset by lower wholesale balances.

 



 

US Retail & Commercial (£ Sterling)

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£m 

£m 

£m 

 

 

 

 

Income statement

 

 

 

Net interest income

496 

496 

452 

 

 

 

 

Net fees and commissions

195 

199 

202 

Other non-interest income

65 

95 

73 

 

 

 

 

Non-interest income

260 

294 

275 

 

 

 

 

Total income

756 

790 

727 

 

 

 

 

Direct expenses

 

 

 

  - staff

(223)

(216)

(201)

  - other

(116)

(137)

(126)

  - litigation settlement

(88)

Indirect expenses

(208)

(195)

(195)

 

 

 

 

 

(635)

(548)

(522)

 

 

 

 

Operating profit before impairment losses

121 

242 

205 

Impairment losses

(19)

(65)

(111)

 

 

 

 

Operating profit

102 

177 

94 

 

 

 

 

 

 

 

 

Average exchange rate - US$/£

1.571 

1.573 

1.601 

 

 

 

 

Analysis of income by product

 

 

 

Mortgages and home equity

134 

128 

109 

Personal lending and cards

99 

100 

112 

Retail deposits

220 

237 

218 

Commercial lending

160 

148 

138 

Commercial deposits

114 

110 

99 

Other

29 

67 

51 

 

 

 

 

Total income

756 

790 

727 

 

 

 

 

Analysis of impairments by sector

 

 

 

Residential mortgages

Home equity

22 

20 

39 

Corporate and commercial

(16)

19 

Other consumer

21 

20 

Securities

12 

27 

 

 

 

 

Total impairment losses

19 

65 

111 

 

 

 

 

Loan impairment charge as % of gross customer loans and advances

  (excluding reverse repurchase agreements) by sector

 

 

 

Residential mortgages

0.4% 

0.3% 

0.4% 

Home equity

0.6% 

0.5% 

1.1% 

Corporate and commercial

(0.3%)

0.1% 

0.4% 

Other consumer

0.2% 

1.1% 

1.3% 

 

 

 

 

Total

0.1% 

0.4% 

0.7% 

 

 



 

US Retail & Commercial (£ Sterling) (continued)

 

Key metrics

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

 

 

 

Performance ratios

 

 

 

Return on equity (1)

4.5% 

8.0% 

4.5% 

Return on equity - excluding litigation settlement (1)

8.4% 

8.0% 

4.5% 

Net interest margin

3.06% 

3.04% 

3.00% 

Cost:income ratio

84% 

69% 

72% 

Cost:income ratio - excluding litigation settlement

72% 

69% 

72% 

 

 

 

31 March 

2012 

31 December 

2011 

 

 

31 March 

2011 

 

 

£bn 

£bn 

Change 

 

£bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet

 

 

 

 

 

 

Total third party assets

73.7 

75.8 

(3%)

 

71.8 

3% 

Loans and advances to customers (gross)

 

 

 

 

 

 

  - residential mortgages

6.0 

6.1 

(2%)

 

5.6 

7% 

  - home equity

14.2 

14.9 

(5%)

 

14.7 

(3%)

  - corporate and commercial

22.6 

22.9 

(1%)

 

20.3 

11% 

  - other consumer

8.1 

7.7 

5% 

 

6.4 

27% 

 

 

 

 

 

 

 

 

50.9 

51.6 

(1%)

 

47.0 

8% 

Customer deposits (excluding repos)

58.7 

60.0 

(2%)

 

57.2 

3% 

Risk elements in lending

 

 

 

 

 

 

  - retail

0.6 

0.6 

 

0.5 

20% 

  - commercial

0.3 

0.4 

(25%)

 

0.5 

(40%)

 

 

 

 

 

 

 

Total risk elements in lending

0.9 

1.0 

(10%)

 

1.0 

(10%)

Loan:deposit ratio (excluding repos)

86% 

85% 

100bp 

 

81% 

500bp 

Risk-weighted assets

58.6 

59.3 

(1%)

 

54.0 

9% 

 

 

 

 

 

 

 

Spot exchange rate - US$/£

1.599 

1.548 

 

 

1.605 

 

 

Note:

(1)

Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).

 

Key points

·

While sterling strengthened by 3% relative to the dollar at 31 March 2012 compared with 31 December 2011, the average sterling:dollar exchange rate was stable in Q1 2012.

 

 

·

Performance is described in full in the US dollar-based financial statements set out on pages 41 and 42.

 



 

US Retail & Commercial (US Dollar)

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

$m 

$m 

$m 

 

 

 

 

Income statement

 

 

 

Net interest income

779 

781 

724 

 

 

 

 

Net fees and commissions

307 

314 

324 

Other non-interest income

102 

148 

116 

 

 

 

 

Non-interest income

409 

462 

440 

 

 

 

 

Total income

1,188 

1,243 

1,164 

 

 

 

 

Direct expenses

 

 

 

  - staff

(350)

(339)

(322)

  - other

(182)

(216)

(203)

  - litigation settlement

(138)

Indirect expenses

(327)

(307)

(312)

 

 

 

 

 

(997)

(862)

(837)

 

 

 

 

Operating profit before impairment losses

191 

381 

327 

Impairment losses

(31)

(102)

(177)

 

 

 

 

Operating profit

160 

279 

150 

 

 

 

 

 

 

 

 

Analysis of income by product

 

 

 

Mortgages and home equity

211 

202 

175 

Personal lending and cards

156 

157 

179 

Retail deposits

346 

373 

349 

Commercial lending

251 

233 

221 

Commercial deposits

179 

173 

158 

Other

45 

105 

82 

 

 

 

 

Total income

1,188 

1,243 

1,164 

 

 

 

 

Analysis of impairments by sector

 

 

 

Residential mortgages


Home equity

35 

31 

63 

Corporate and commercial

(25)

13 

30 

Other consumer

33 

32 

Securities

19 

43 

 

 

 

 

Total impairment losses

31 

102 

177 

 

 

 

 

Loan impairment charge as % of gross customer loans and advances

  (excluding reverse repurchase agreements) by sector

 

 

 

Residential mortgages

0.4% 

0.3% 

0.4% 

Home equity

0.6% 

0.5% 

1.1% 

Corporate and commercial

(0.3%)

0.1% 

0.4% 

Other consumer

0.2% 

1.1% 

1.2% 

 

 

 

 

Total

0.1% 

0.4% 

0.7% 

 



 

US Retail & Commercial (US Dollar) (continued)

 

Key metrics

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

 

 

 

Performance ratios

 

 

 

Return on equity (1)

4.5% 

8.0% 

4.5% 

Return on equity - excluding litigation settlement (1)

8.4% 

8.0% 

4.5% 

Net interest margin

3.06% 

3.04% 

3.00% 

Cost:income ratio

84% 

69% 

72% 

Cost:income ratio - excluding litigation settlement

72% 

69% 

72% 

 

 

31 March 

2012 

31 December 

2011 

 

 

31 March 

2011 

 

 

$bn 

$bn 

Change 

 

$bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet

 

 

 

 

 

 

Total third party assets

117.9 

117.3 

1% 

 

115.2 

2% 

Loans and advances to customers (gross)

 

 

 

 

 

 

  - residential mortgages

9.5 

9.4 

1% 

 

9.1 

4% 

  - home equity

22.6 

23.1 

(2%)

 

23.6 

(4%)

  - corporate and commercial

36.2 

35.3 

3% 

 

32.2 

12% 

  - other consumer

13.2 

12.0 

10% 

 

10.5 

26% 

 

 

 

 

 

 

 

 

81.5 

79.8 

2% 

 

75.4 

8% 

Customer deposits (excluding repos)

93.9 

92.8 

1% 

 

91.8 

2% 

Risk elements in lending

 

 

 

 

 

 

  - retail

0.9 

1.0 

(10%)

 

0.8 

13% 

  - commercial

0.6 

0.6 

 

0.8 

(25%)

 

 

 

 

 

 

 

Total risk elements in lending

1.5 

1.6 

(6%)

 

1.6 

(6%)

Loan:deposit ratio (excluding repos)

86% 

85% 

100bp 

 

81% 

500bp 

Risk-weighted assets

93.7 

91.8 

2% 

 

86.7 

8% 

 

Note:

(1)

Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 10% of monthly average of divisional RWAs, adjusted for capital deductions).

 

Key points

In Q1 2012 US R&C continued to focus on its back-to-basics strategy, with the goal of increasing profitability through developing the customer franchise, managing expenses, and enhancing credit quality.

 

Consumer Banking accelerated the roll-out of its four core customer commitments to the entire branch footprint, finishing ahead of schedule. The aim of the commitments is to enhance the customer experience and further strengthen the Citizens brand, and is built around feedback received from customers.

 

Q1 2012 also saw Treasury Solutions (Domestic Global Transaction Services) reintegrated into the Commercial Banking Division. This reintegration will strengthen the cross-sell of Treasury Solutions products to the Commercial client base and follows the formation of a consolidated Consumer Banking division in H2 2011, aimed at strengthening the retail alignment and improving efficiencies.

 

A continued focus on strengthening and growing valued customer and client relationships has delivered results. For example, in Consumer Banking, the penetration of on-line banking customers, a key indicator of customer retention, continued to improve in Q1 2012 and the penetration of loan products to deposit households has shown a steady increase over the past eleven consecutive quarters.

US Retail & Commercial (US Dollar) (continued)

 

Key points (continued)

In Commercial Banking, a recent Greenwich Associates survey indicated strong year-on-year improvements. Clients placed Citizens number one or number two versus peers in several key categories, including 'values long-term relationships', 'understanding of your industry', 'likelihood to recommend bank' and 'likelihood to continue using for future banking needs'.

 

Q1 2012 compared with Q4 2011

·

Operating profit of $160 million compares with $279 million in the prior quarter, a decrease of $119 million, or 43%, reflecting the settlement of an outstanding litigation matter. Excluding the litigation settlement, operating profit increased by $19 million or 7%, to $298 million reflecting lower impairment losses partially offset by lower gains on the sale of securities.

 

 

·

The macroeconomic operating environment remained challenging, with low rates, high unemployment, a soft housing market, sluggish consumer activity and the continuing impact of legislative changes.

 

 

·

Net interest income was down $2 million reflecting reducing asset yields offset by lower funding costs. Net interest margin was up 2 basis points from the prior quarter.

 

 

·

Loans and advances were up $1.7 billion, or 2%, due to strong growth in commercial loan volumes and the purchase of a $1 billion auto loan portfolio, partly offset by the planned run-off of long term fixed rate consumer products.

 

 

·

Non-interest income was down $53 million, or 11%, largely reflecting lower securities gains.

 

 

·

Total expenses were up $135 million, or 16%, reflecting a litigation settlement of $138 million in Q1 2012. A settlement has been reached in a class action lawsuit relating to how overdraft fees were assessed on customer accounts prior to 2010. Citizens was one of more than 30 banks included in these class action lawsuits.

 

 

·

Excluding the litigation settlement, total expenses were down $3 million reflecting a mortgage servicing rights recapture, lower costs related to regulatory projects and the elimination of the Everyday Points rewards programme for consumer debit card customers, partially offset by the phasing of the annual incentive plan accruals, and a seasonal increase in payroll taxes.

 

 

·

Impairment losses were down $71 million, or 70%, reflecting an improved credit environment and lower impairments related to securities. REIL decreased from $1.6 billion to $1.5 billion.

 

Q1 2012 compared with Q1 2011

·

Operating profit increased to $160 million from $150 million, an increase of $10 million, or 7%, substantially driven by significantly lower impairments and increased income, largely offset by the settlement of an outstanding litigation. Excluding the litigation settlement operating profit increased by $148 million, or 99%, to $298 million.

 

 

·

Net interest income was up $55 million, or 8%, driven by commercial loan growth, deposit pricing discipline and lower funding costs, partially offset by consumer loan run off.

 

 

·

Customer deposits were up 2% with strong growth achieved in checking balances. Consumer checking balances grew by 3% while small business checking balances grew by 9% over the year.



 

US Retail & Commercial (US Dollar) (continued)

 

Key points (continued)

 

Q1 2012 compared with Q1 2011 (continued)

·

Non-interest income was down $31 million, or 7%, reflecting lower debit card fees, as a result of the Durbin Amendment legislation, and lower gains on the sale of securities, partially offset by strong mortgage banking fees.

 

 

·

The Durbin Amendment became effective on 1 October 2011 and lowers the allowable interchange on debit transactions by approximately 50% to $0.23 - $0.24 per transaction.

 

 

·

Total expenses excluding the litigation settlement were up $22 million, or 3% reflecting a change in accrual methodology related to the annual incentive plan during Q1 2011, partially offset by a mortgage servicing rights recapture and the elimination of the Everyday Points rewards programme for consumer debit card customers in Q1 2012.

 

 

·

Impairment losses declined by $146 million, or 82%, reflecting an improved credit environment as well as lower impairments related to securities.



 

Markets

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£m 

£m 

£m 

 

 

 

 

Income statement

 

 

 

Net interest income from banking activities

24 

23 

56 

 

 

 

 

Net fees and commissions receivable

127 

62 

207 

Income from trading activities

1,548 

580 

1,817 

Other operating income (net of related funding costs)

35 

27 

28 

 

 

 

 

Non-interest income

1,710 

669 

2,052 

 

 

 

 

Total income

1,734 

692 

2,108 

 

 

 

 

Direct expenses

 

 

 

  - staff

(544)

(354)

(727)

  - other

(166)

(197)

(166)

Indirect expenses

(198)

(193)

(186)

 

 

 

 

 

(908)

(744)

(1,079)

 

 

 

 

Operating profit/(loss) before impairment losses

826 

(52)

1,029 

Impairment losses

(2)

(57)

 

 

 

 

Operating profit/(loss)

824 

(109)

1,029 

 

 

 

 

Of which:

 

 

 

Ongoing businesses

861 

(96)

1,039 

Run-off businesses

(37)

(13)

(10)

 

 

 

 

 

 

 

 

Analysis of income by product

 

 

 

Rates

801 

396 

749 

Currencies

246 

259 

241 

Asset backed products

427 

29 

617 

Credit markets

313 

36 

430 

Investor products and equity derivatives

123 

118 

216 

 

 

 

 

Total income continuing businesses

1,910 

838 

2,253 

Inter-divisional revenue share

(186)

(177)

(208)

Run-off businesses

10 

31 

63 

 

 

 

 

Total income

1,734 

692 

2,108 

 

 

 

 

Memo - Fixed income and currencies

 

 

 

Rates/currencies/ABP/credit markets

1,785 

718 

2,038 

Less: primary credit markets

(171)

(134)

(229)

 

 

 

 

Total fixed income and currencies

1,614 

584 

1,809 

 

 



 

Markets (continued)

 

Key metrics

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

 

 

 

Performance ratios (ongoing businesses)

 

 

 

Return on equity (1)

21.1% 

(2.4%)

26.0% 

Cost:income ratio

50% 

106% 

49% 

Compensation ratio (2)

29% 

49% 

33% 

 

 

 

31 March 

2012 

31 December 

2011 

 

 

31 March 

2011 

 

 

£bn 

£bn 

Change 

 

£bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet (ongoing

  businesses)

 

 

 

 

 

 

Loans and advances

50.5 

61.2 

(17%)

 

67.5 

(25%)

Reverse repos

90.8 

100.4 

(10%)

 

104.9 

(13%)

Securities

106.6 

108.1 

(1%)

 

128.7 

(17%)

Cash and eligible bills

24.2 

28.1 

(14%)

 

33.9 

(29%)

Other

27.7 

14.8 

87% 

 

31.6 

(12%)

 

 

 

 

 

 

 

Total third party assets (excluding derivatives mark-to-market)

299.8 

312.6 

(4%)

 

366.6 

(18%)

Net derivative assets (after netting)

29.3 

37.0 

(21%)

 

34.5 

(15%)

Risk-weighted assets

115.6 

120.3 

(4%)

 

114.3 

1% 

 

Notes:

(1)

Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions), for the ongoing businesses.

(2)

Compensation ratio is based on staff costs as a percentage of total income.

 

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£m 

£m 

£m 

 

 

 

 

Run-off businesses (1)

 

 

 

 

 

 

 

Total income

10 

31 

63 

Direct expenses

(47)

(44)

(73)

 

 

 

 

Operating loss

(37)

(13)

(10)

 

Balance sheet

£bn 

£bn 

£bn 

 

 

 

 

Total third party assets (excluding derivatives mark to market)

0.8 

1.3 

3.0 

 

Note:

(1)

Run-off businesses consist of the exited cash equities, corporate broking and equity capital markets operations.



 

Markets (continued)

 

Key points

Good progress has been made on the restructure announced in January 2012. The sale of Hoare Govett has been completed and sales of other businesses designated for exit are well advanced. The Markets management team and governance structure is in place and implementation of the new structure through the lower levels of the organisation is underway.

 

Markets benefited from a traditionally strong first quarter of the year as investors returned boosted by the ECB's Long Term Refinancing Operation (LTRO) programme and a re-emergence of confidence. However, overall activity and risk appetite remained tempered by continued concerns over the economic outlook, especially in Europe.

 

Q1 2012 compared with Q4 2011

·

Markets returned to profit during Q1 2012, reflecting seasonally improved trading conditions and greater investor confidence.

 

 

·

Rates benefited from the increased liquidity and normalisation in the markets following the success of the ECB's LTRO.

 

 

·

Currencies fell back as client activity declined. In response, client interaction has been increased through a more extensive programme of trading and research contact.

 

 

·

Asset backed products recovered strongly from a poor performance in Q4 2011. Trading volumes for non-agency products doubled, driven by strong investor demand, partly reflecting an improving macroeconomic environment in the United States.

 

 

·

Capital Markets benefited from the improved credit environment following the ECB's LTRO and a seasonal recovery in origination activity. The EMEA origination business completed two large transactions during the quarter, generating significant fees. Flow credit trading benefited from a rally in corporate credit and inflows from US and European investors contrasting sharply with Q4 2011, when client activity and investor confidence were both weak.

 

 

·

Total expenses increased by 22%, with staff costs up 54%, reflecting a higher incentive compensation accrual related to increased revenue compared with Q4 2011, partially offset by reduced headcount. Other costs declined as cost saving programmes continued to take effect. Improvement in the cost:income ratio, and a reduction in the compensation ratio largely reflected improved revenue performance.

 

 

·

Impairments in both Q1 2012 and Q4 2011 reflected a small number of individual provisions.

 

 

·

Markets continued to carefully manage the balance sheet, with third party assets falling by 4% compared with the end of 2011, well on track to meet previously disclosed funded balance sheet targets.

 

 

·

Return on equity for the ongoing businesses was 21%, a significant improvement on the prior quarter due to the recovery in revenue.

 



 

Markets (continued)

 

Key points (continued)

 

Q1 2012 compared with Q1 2011

·

Both Q1 2012 and Q1 2011 benefited from seasonally high levels of investor activity, with Q1 2012 reflecting a significant recovery from prior quarter activity levels.

 


·

Operating profit of the ongoing businesses fell 17%, driven by lower revenue, partly offset by lower costs.


The largest absolute fall in revenue was in Asset Backed Products where the recovery in client demand in Q1 2012, though significant, was not as strong as Q1 2011. Balance sheet usage was materially reduced, despite an increase in 'pass-through' trading volumes following the reorganisation of the agency desk.


Similarly, Credit Markets also recovered in the quarter, although the increase in confidence and activity was less pronounced than Q1 2011.


Investor Products and Equity Derivatives weakened significantly compared with a particularly strong Q1 2011, falling by 43%, as client volumes were significantly below the levels of a year ago.

·

Costs also declined, reflecting a lower level of incentive rewards and the implementation of cost saving measures, driving reduced headcount.

 


·

Active balance sheet management has lowered third party assets by 18% with an emphasis on reducing levels of short-term unsecured wholesale funding, improving the stability of the funding base.

 


·

Risk-weighted assets increased by 1% driven by the implementation of CRD III at the end of 2011, partially offset by lower levels of market risk across the period.

 


·

Return on equity for the ongoing businesses fell from 26% to 21% reflecting lower revenue, combined with higher risk-weighted assets.

 



 

Direct Line Group

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£m 

£m 

£m 

 

 

 

 

Income statement

 

 

 

Earned premiums

1,020 

1,043 

1,065 

Reinsurers' share

(82)

(71)

(54)

 

 

 

 

Net premium income

938 

972 

1,011 

Fees and commissions

(109)

(161)

(75)

Instalment income

31 

33 

35 

Other income

16 

19 

35 

 

 

 

 

Total income

876 

863 

1,006 

Net claims

(649)

(589)

(784)

 

 

 

 

Underwriting profit

227 

274 

222 

 

 

 

 

Staff expenses

(79)

(75)

(76)

Other expenses

(91)

(79)

(87)

 

 

 

 

Total direct expenses

(170)

(154)

(163)

Indirect expenses

(63)

(55)

(56)

 

 

 

 

 

(233)

(209)

(219)

 

 

 

 

Technical result

(6)

65 

Investment income

90 

60 

64 

 

 

 

 

Operating profit

84 

125 

67 

 

 

 

 

Analysis of income by product

 

 

 

Personal lines motor excluding broker

 

 

 

  - own brands

411 

425 

440 

  - partnerships

31 

34 

73 

Personal lines home excluding broker

 

 

 

  - own brands

116 

119 

117 

  - partnerships

88 

81 

98 

Personal lines rescue and other excluding broker

 

 

 

  - own brands

45 

46 

46 

  - partnerships

42 

(16)

46 

Commercial

79 

81 

74 

International

84 

89 

80 

Other (1)

(20)

32 

 

 

 

 

Total income

876 

863 

1,006 

 

For the notes to this table refer to page 51.



 

Direct Line Group (continued)

 

Key metrics

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

 

 

 

In-force policies (000s)

 

 

 

Personal lines motor excluding broker

 

 

 

  - own brands

3,827 

3,787 

4,071 

  - partnerships

322 

320 

559 

Personal lines home excluding broker

 

 

 

  - own brands

1,812 

1,811 

1,776 

  - partnerships

2,520 

2,497 

2,501 

Personal lines rescue and other excluding broker

 

 

 

  - own brands

1,803 

1,844 

1,971 

  - partnerships

7,493 

7,307 

7,909 

Commercial

417 

422 

383 

International

1,412 

1,387 

1,234 

Other (1)

43 

418 

 

 

 

 

Total in-force policies (2)

19,649 

19,376 

20,822 

 

 

 

 

Gross written premium (£m)

 

 

 

Personal lines motor excluding broker

 

 

 

  - own brands

398 

348 

390 

  - partnerships

37 

28 

37 

Personal lines home excluding broker

 

 

 

  - own brands

110 

112 

112 

  - partnerships

136 

132 

138 

Personal lines rescue and other excluding broker

 

 

 

  - own brands

43 

40 

42 

  - partnerships

41 

44 

40 

Commercial

107 

102 

112 

International

173 

142 

169 

Other (1)

(3)

 

 

 

 

Total gross written premium

1,046 

950 

1,037 

 

For the notes to this table refer to page 51.



 

Direct Line Group (continued)

 

Key metrics (continued)

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

 

 

 

Performance ratios

 

 

 

Return on tangible equity (3)

7.4% 

11.0% 

6.3% 

Loss ratio (4)

69% 

61% 

78% 

Commission ratio (5)

12% 

17% 

7% 

Expense ratio (6)

25% 

22% 

22% 

Combined operating ratio (7)

106% 

100% 

107% 

 

 

 

 

Balance sheet

 

 

 

Total insurance reserves - (£m) (8)

8,132 

7,284 

7,617 

 

Notes:

(1)

'Other' predominantly consists of the personal lines broker business and from Q1 2012 business previously reported in Non-Core.

(2)

Total in-force policies include travel and creditor policies sold through RBS Group. These comprise travel policies included in bank accounts e.g. Royalties Gold Account, and creditor policies sold with bank products including mortgage, loan and card payment protection.

(3)

Return on tangible equity is based on annualised operating profit after tax divided by average tangible equity. Q1 2012 tangible equity has been adjusted for a £300 million dividend paid to RBS Group on 27 March 2012.

(4)

Loss ratio is based on net claims divided by net premium income.

(5)

Commission ratio is based on fees and commissions divided by net premium income.

(6)

Expense ratio is based on expenses divided by net premium income.

(7)

Combined operating ratio is the sum of the loss, commission and expense ratios.

(8)

Consists of general and life insurance liabilities, unearned premium reserve and liability adequacy reserve. Q1 2012 includes business previously reported in Non-Core.

 

Key points

Direct Line Group continues to make good progress ahead of its divestment from the RBS Group. Q1 2012 operating profit of £84 million was negatively affected by adverse weather, but benefited from reserve releases from prior years.

 

The second phase of Direct Line Group's transformation plan - to rebuild competitive advantage - is continuing and tangible benefits are beginning to be delivered. During Q1 2012, Direct Line Group began renewing own brand Home policies on its new rating engine as part of the ongoing roll out of increased functionality. Additionally, since July last year, over 200,000 claims have been registered on the new claims management system and over 1,500 new claims are now processed every day. The rationalisation of sites continues as planned with one further location exited during Q1 2012.

 

In the period from 2009 to 2011 Motor in-force policies decreased by 27%, in line with the de-risking and exit of certain business lines during the first phase of Direct Line Group's transformation plan. During Q1 2012 Motor in-force policies grew by 1% marking a stabilisation of the portfolio. This was achieved whilst maintaining underwriting discipline.



 

Direct Line Group (continued)

 

Key points (continued)

During Q1 2012 Direct Line Group made progress with a number of partnership arrangements, which represent a significant portion of the Home segment. Expanding on the established relationship with Nationwide Building Society, a contract was signed to extend the provision of home insurance until the end of 2015. Direct Line Group is also concluding terms with UK Retail division for an arm's length, five year distribution agreement for the continued provision of general insurance products to its customers after the divestment of Direct Line Group. Additionally, following the launch of the Sainsbury's Bank car insurance partnership, during Q1 2012 the contract was extended to provide home insurance for Sainsbury's customers.

 

Following a period of strong growth, the International division consolidated its position in the quarter. Growth in Italy arose primarily from price increases, while in Germany a contract was signed with Check24 to expand Direct Line Group's market reach.

 

Commercial maintained underwriting discipline in a difficult market and work continued to improve the product offering and service to brokers.

 

Investment markets remained challenging with continued low yields. Direct Line Group's investment portfolio is composed primarily of cash, investment grade corporate bonds and gilts with minimal exposure to periphery Eurozone nations. At 31 March 2012, there was no exposure to debt issued in Portugal or Greece and a total exposure of £57 million, less than 1% of the portfolio, to debt issued in Ireland, Italy and Spain.

 

Separation update

Ahead of the planned divestment from RBS Group, which is targeted to commence in the second half of 2012 by way of a public flotation, subject to market conditions, Direct Line Group has continued with activities in readiness for standalone status. The first stage of the separation programme is progressing as Direct Line Group begins the novation or transfer of contracts with RBS Group suppliers, and where necessary, commencement of the tendering process for new contracts. Standalone head office and other control functions are being established and key senior management have been appointed. On 23 March 2012 the appointment of Mike Biggs as Chairman of Direct Line Group was announced. He brings with him extensive industry experience and a successful track record.

 

A significant milestone was reached for Direct Line Group's principal underwriting entity, U K Insurance Limited, being assigned an inaugural credit rating of A, with a stable outlook, from Standard and Poor's and an A2 rating, with a stable outlook, from Moody's Investors Service. Following publication of these ratings, Direct Line Group issued £500 million of Tier 2 subordinated debt on 27 April 2012.

 

Overall, Direct Line Group has powerful brands and is focused on delivering a disciplined, profitable business while maintaining a robust balance sheet. It has continued to make progress in executing the second phase of its business transformation plan, rebuilding competitive advantage.

 



 

Direct Line Group (continued)

 

Key points (continued)

 

Q1 2012 compared with Q4 2011

·

Operating profit of £84 million was £41 million, 33%, lower compared with Q4 2011, due to higher weather related claims experienced during Q1 2012 and increased expenses resulting from the timing of marketing expenditure, partially offset by higher investment income. Q1 2012 includes the results of insurance business previously reported in Non-Core, which overall had a negligible impact on operating result.

 

 

·

Gross written premium of £1,046 million rose by £96 million, or 10%, primarily as a result of the Motor sales campaign with enhanced Direct Line and Churchill marketing activity and an increase in International gross written premium, where a significant proportion of policies on the German book start on 1 January each year.

 

 

·

Total income of £876 million rose £13 million, or 2%, primarily due to the non-repeat of £57 million profit share paid to UK Retail during Q4 2011, which was partially offset by commissions payable relating to business previously reported in Non-Core and lower net premium income.

 

 

·

Net claims of £649 million were £60 million, or 10%, higher partly due to the adverse weather experienced early in Q1 2012 and the non-repeat of a release from creditor insurance reserves in Q4 2011, which was matched by a similar payment to UK Retail within fees and commissions.

 

 

·

Total direct expenses of £170 million were £16 million, or 10%, higher mainly due to the timing of marketing expenditure associated with the new Churchill advertising campaign.

 

 

·

Investment income of £90 million was £30 million, or 50%, higher than Q4 2011 largely as a result of the inclusion of business previously reported in Non-Core and investment gains arising from portfolio management initiatives.

 

 

·

Total in-force policies grew by 1% due to Rescue and other personal lines, Motor and International. Rescue and other personal lines business grew as a result of a one-off migration of UK Retail customers to packaged current accounts, increasing the uptake of bundled travel insurance. Additionally 43,000 in-force policies relate to business moved across from Non-Core during Q1 2012 in preparation for separation.

 



 

Direct Line Group (continued)

 

Key points (continued)

 

Q1 2012 compared with Q1 2011

·

Operating profit rose by £17 million, or 25%, compared with Q1 2011 due to an improvement in loss ratio and higher investment income, which was partially offset by higher commissions payable and increased direct expenses relating to the timing of marketing and to the preparation for separation.

 

 

·

Gross written premiums rose by £9 million, or 1%, driven by Motor as a result of sale and marketing campaigns and due to price increases in International.

 

 

·

Total income fell by £130 million, or 13%, reflecting lower volumes written during the previous year following planned de-risking and higher commissions payable, partly due to the inclusion of business previously reported within Non-Core.

 

 

·

Net claims decreased by £135 million, or 17%, through a combination of reduced exposure on Motor and the exit of certain business lines. Additionally Q1 2012 includes reserve releases from prior years.

 

 

·

Total direct expenses increased by £7 million or 4%, due to the marketing expenditure associated with the new Churchill advertising campaign, and activity to support separation.

 

 

·

Investment income rose by £26 million, or 41%, compared with Q1 2011 due to the inclusion of business previously reported within Non-Core and investment gains arising from portfolio management initiatives.

 

 

·

Combined operating ratio improved by 1 percent compared with Q1 2011 due to lower claims offset by higher expenses and commissions payable. For continuing business only (excluding personal lines broker and business previously reported in Non-Core) the combined operating ratio was 104% in Q1 2012 compared to 106% in Q1 2011.



 

Central items

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£m 

£m 

£m 

 

 

 

 

Central items not allocated

(144)

89 

(32)

 

Note:

(1)

Costs/charges are denoted by brackets.

 

Funding and operating costs have been allocated to operating divisions based on direct service usage, the requirement for market funding and other appropriate drivers where services span more than one division.

 

Residual unallocated items relate to volatile corporate items that do not naturally reside within a division.

 

Key points

 

Q1 2012 compared with Q4 2011

·

Central items not allocated represented a debit of £144 million, a decrease of £233 million compared with Q4 2011. The debit primarily results from unallocated volatility costs in Group Treasury.

 

 

·

Q4 2011 benefited from higher securities gains and a VAT recovery.

 

Q1 2012 compared with Q1 2011

·

Central items not allocated represented a debit of £144 million, a decrease of £112 million compared with Q1 2011.

 

 

·

The decrease was largely as a result of lower securities gains in Q1 2012, £90 million compared with £158 million.

 



 

Non-Core

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£m 

£m 

£m 

 

 

 

 

Income statement

 

 

 

Net interest income

115 

155 

252 

 

 

 

 

Net fees and commissions

31 

(47)

47 

Loss from trading activities

(270)

(407)

(298)

Insurance net premium income

138 

Other operating income

 

 

 

  - rental income

168 

163 

192 

  - other (1)

225 

(151)

104 

 

 

 

 

Non-interest income

154 

(433)

183 

 

 

 

 

Total income/(loss)

269 

(278)

435 

 

 

 

 

Direct expenses

 

 

 

  - staff

(71)

(82)

(91)

  - operating lease depreciation

(83)

(91)

(87)

  - other

(41)

(57)

(69)

Indirect expenses

(68)

(84)

(76)

 

 

 

 

 

(263)

(314)

(323)

 

 

 

 

Operating profit/(loss) before other operating charges and impairment

  losses

(592)

112 

Insurance net claims

61 

(128)

Impairment losses

(489)

(751)

(1,075)

 

 

 

 

Operating loss

(483)

(1,282)

(1,091)

 

Note:

(1)

Includes gains/(losses) on disposals (Q1 2012 - £182 million gain; Q4 2011 - £36 million loss; Q1 2011 - £34 million loss).

 

 



 

Non-Core (continued)

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£m 

£m 

£m 

 

 

 

 

Analysis of income/(loss) by business

 

 

 

Banking and portfolios

177 

(142)

556 

International businesses

85 

92 

81 

Markets

(228)

(202)


 

 

 

Total income/(loss)

269 

(278)

435 


 

 

 

Loss from trading activities

 

 

 

Monoline exposures

(128)

(243)

(130)

Credit derivative product companies

(38)

(19)

(40)

Asset-backed products (1)

31 

(22)

66 

Other credit exotics

20 

(8)

(168)

Equities

(1)

Banking book hedges

(36)

(29)

Other

(154)

(80)

 

 

 

 

 

(270)

(407)

(298)

 

 

 

 

Impairment losses

 

 

 

Banking and portfolios

484 

714 

1,058 

International businesses

11 

30 

20 

Markets

(6)

(3)

 

 

 

 

Total impairment losses

489 

751 

1,075 

 

 

 

 

Loan impairment charge as % of gross customer loans and advances

  (excluding reverse repurchase agreements) (2)

 

 

 

Banking and portfolios

2.8% 

3.6% 

4.1% 

International businesses

2.1% 

5.3% 

2.1% 

Markets

(0.8%)

(8.8%)

(0.1%)

 

 

 

 

Total

2.7% 

3.7% 

4.0% 

 

Notes:

(1)

Asset-backed products include super senior asset-backed structures and other asset-backed products.

(2)

Includes disposal groups.

 

 



 

Non-Core (continued)

 

Key metrics

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

 

 

 

Performance ratios

 

 

 

Net interest margin

0.31% 

0.42% 

0.72% 

Cost:income ratio

98% 

nm 

74% 

Adjusted cost:income ratio

98% 

nm 

105% 

 

 

31 March 

2012 

31 December 

2011 

 

 

31 March 

2011 

 

 

£bn 

£bn 

Change 

 

£bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet

 

 

 

 

 

 

Total third party assets (excluding

  derivatives) (1)

83.3 

93.7 

(11%)

 

124.8

(33%)

Total third party assets (including

  derivatives)

91.8 

104.7 

(12%)

 

137.1 

(33%)

Loans and advances to customers (gross) (2)

72.7 

79.4 

(8%)

 

101.0 

(28%)

Customer deposits (2)

3.1 

3.5 

(11%)

 

7.1 

(56%)

Risk elements in lending (2)

23.5 

24.0 

(2%)

 

24.0 

(2%)

Risk-weighted assets (1)

89.9 

93.3 

(4%)

 

128.5 

(30%)

 

nm = not meaningful

 

Notes:

(1)

Includes RBS Sempra Commodities JV (31 March 2012 third party assets, excluding derivatives (TPAs) nil, RWAs £1.0 billion, 31 December 2011 TPAs £0.1 billion, RWAs £2.4 billion, 31 March 2011 TPAs £3.9 billion, RWAs £1.6 billion).

(2)

Excludes disposal groups.

 

 

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£bn 

£bn 

£bn 

 

 

 

 

Gross customer loans and advances

 

 

 

Banking and portfolios

70.8 

77.3 

98.0 

International businesses

1.9 

2.0 

2.9 

Markets

0.1 

0.1 

 

 

 

 

 

72.7 

79.4 

101.0 

 

 

 

 

Risk-weighted assets

 

 

 

Banking and portfolios

66.1 

64.8 

76.5 

International businesses

3.8 

4.1 

5.1 

Markets

20.0 

24.4 

46.9 

 

 

 

 

 

89.9 

93.3 

128.5 

 

 

 

 

Third party assets (excluding derivatives)

 

 

 

Banking and portfolios

73.2 

81.3 

105.4 

International businesses

2.7 

2.9 

3.8 

Markets

7.4 

9.5 

15.6 

 

 

 

 

 

83.3 

93.7 

124.8 

 



 

Non-Core (continued)

 

Third party assets (excluding derivatives)

 

Quarter ended 31 March 2012

 

 

31 December 

2011 

Run-off 

Disposals/ 

restructuring 

Drawings/ 

roll overs 

Impairments 

FX 

31 March 

2012 

 

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

 

 

 

 

 

 

 

 

Commercial real estate

31.5 

(1.5)

(0.4)

0.1 

(0.4)

(0.2)

29.1 

Corporate

42.2 

(0.8)

(1.1)

0.4 

(0.1)

(0.5)

40.1 

SME

2.1 

(0.3)

0.1 

1.9 

Retail

6.1 

(0.2)

(1.6)

(0.1)

4.2 

Other

1.9 

(1.2)

(0.1)

0.6 

Markets

9.8 

(0.2)

(2.1)

0.1 

(0.2)

7.4 

 

 

 

 

 

 

 

 

Total (excluding derivatives)

93.6 

(4.2)

(5.2)

0.7 

(0.5)

(1.1)

83.3 

Markets - RBS Sempra

  Commodities JV

0.1 

(0.1)

 

 

 

 

 

 

 

 

Total (1)

93.7 

(4.3)

(5.2)

0.7 

(0.5)

(1.1)

83.3 

 

Quarter ended 31 December 2011

 

 

30 September 

2011 

Run-off 

Disposals/ 

restructuring 

Drawings/ 

roll overs 

Impairments 

FX 

31 December 

2011 

 

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

 

 

 

 

 

 

 

 

Commercial real estate

35.3 

(1.8)

(1.1)

0.1 

(0.6)

(0.4)

31.5 

Corporate

46.9 

(1.6)

(3.6)

0.6 

(0.1)

42.2 

SME

2.4 

(0.3)

0.1 

(0.1)

2.1 

Retail

7.4 

(0.2)

(1.1)

6.1 

Other

1.9 

1.9 

Markets

10.9 

(0.2)

(1.0)

0.1 

9.8 

 

 

 

 

 

 

 

 

Total (excluding derivatives)

104.8 

(4.1)

(6.8)

0.8 

(0.8)

(0.3)

93.6 

Markets - RBS Sempra

  Commodities JV

0.3 

(0.2)

0.1 

 

 

 

 

 

 

 

 

Total (1)

105.1 

(4.1)

(7.0)

0.8 

(0.8)

(0.3)

93.7 

 

Note:

(1)

Disposals of £5 billion have been signed as at 31 March 2012 but are pending completion (31 December 2011 - £0.2 billion; 31 March 2011 - £7 billion).

 



 

Non-Core(continued)

 

 

Quarter ended

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£m 

£m 

£m 

 

 

 

 

Impairment losses by donating division and sector

 

 

 

 

 

 

 

UK Retail

 

 

 

Mortgages

Personal

(28)

(3)

 

 

 

 

Total UK Retail

(28)

 

 

 

 

UK Corporate

 

 

 

Manufacturing and infrastructure

26 

-

Property and construction

55 

83 

13 

Transport

(2)

20 

Financial institutions

Lombard

10 

20 

18 

Other

21 

11 

 

 

 

 

Total UK Corporate

77 

157 

65 

 

 

 

 

Ulster Bank

 

 

 

Commercial real estate

 

 

 

  - investment

84 

151 

223 

  - development

142 

77 

503 

Other corporate

34 

15 

107 

Other EMEA

 

 

 

 

Total Ulster Bank

264 

245 

839 

 

 

 

 

US Retail & Commercial

 

 

 

Auto and consumer

25 

Cards

(7)

SBO/home equity

18 

33 

53 

Residential mortgages

Commercial real estate

(3)

14 

19 

Commercial and other

(4)

(3)

 

 

 

 

Total US Retail & Commercial

28 

64 

91 

 

 

 

 

International Banking

 

 

 

Manufacturing and infrastructure

42 

(2)

Property and construction

86 

241 

105 

Transport

13 

10 

(6)

Telecoms, media and technology

16 

18 

(11)

Banking and financial institutions

(12)

(31)

Other

29 

(8)

 

 

 

 

Total International Banking

118 

309 

79 

 

 

 

 

Other

 

 

 

Wealth

(1)

Central items

 

 

 

 

Total Other

 

 

 

 

Total impairment losses

489 

751 

1,075 

 



 

Non-Core (continued)

 

 

31 March 

2012 

31 December 

2011 

31 March 

2011 

 

£bn 

£bn 

£bn 

 

 

 

 

Gross loans and advances to customers (excluding reverse

  repurchase agreements) by donating division and sector

 

 

 

 

 

 

 

UK Retail

 

 

 

Mortgages

1.4 

1.6 

Personal

0.1 

0.1 

0.3 

 

 

 

 

Total UK Retail

0.1 

1.5 

1.9 

 

 

 

 

UK Corporate

 

 

 

Manufacturing and infrastructure

0.1 

0.1 

0.2 

Property and construction

4.8 

5.9 

8.0 

Transport

4.3 

4.5 

5.1 

Financial institutions

0.6 

0.6 

0.8 

Lombard

0.9 

1.0 

1.5 

Other

7.0 

7.5 

7.5 

 

 

 

 

Total UK Corporate

17.7 

19.6 

23.1 

 

 

 

 

Ulster Bank

 

 

 

Commercial real estate

 

 

 

  - investment

3.7 

3.9 

3.9 

  - development

8.0 

8.5 

8.9 

Other corporate

1.7 

1.6 

2.0 

Other EMEA

0.4 

0.4 

0.5 

 

 

 

 

Total Ulster Bank

13.8 

14.4 

15.3 

 

 

 

 

US Retail & Commercial

 

 

 

Auto and consumer

0.8 

0.8 

2.4 

Cards

0.1 

0.1 

0.1 

SBO/home equity

2.4 

2.5 

2.9 

Residential mortgages

0.5 

0.6 

0.7 

Commercial real estate

0.9 

1.0 

1.4 

Commercial and other

0.4 

0.4 

 

 

 

 

Total US Retail & Commercial

4.7 

5.4 

7.9 

 

 

 

 

International Banking

 

 

 

Manufacturing and infrastructure

5.8 

6.6 

8.9 

Property and construction

15.4 

15.3 

19.1 

Transport

2.4 

3.2 

4.5 

Telecoms, media and technology

0.7 

0.7 

1.1 

Banking and financial institutions

5.7 

5.6 

11.1 

Other

6.4 

7.0 

8.4 

 

 

 

 

Total International Banking

36.4 

38.4 

53.1 

 

 

 

 

Other

 

 

 

Wealth

0.2 

0.2 

0.4 

Direct Line Group

0.1 

Central items

(0.3)

(0.2)

(1.0)

 

 

 

 

Total Other

(0.1)

(0.5)

 

 

 

 

Gross loans and advances to customers (excluding reverse

  repurchase agreements)

72.6 

79.3 

100.8 

 



 

Non-Core (continued)

 

Key points

Non-Core has maintained momentum from 2011 and delivered further reductions in third party assets, impairments and costs during Q1 2012.

 

Third party assets fell to £83 billion in the first quarter, a reduction of £11 billion driven principally by disposals of £5 billion and run-off of £4 billion. The division has also signed, but not yet completed, a further £5 billion of disposals, including the sale of RBS Aviation Capital.

 

The division continues to focus upon reducing exposures to current and future capital intensive positions. Risk-weighted assets decreased by £3 billion resulting from foreign exchange and mark-to-market movements of £4 billion, sales and run-off of £2 billion and market risk movements of £2 billion, largely offset by higher operational risk RWAs, up £4 billion. Restructuring and disposal activity also reduced Non-Core deductions to the capital base by £0.8 billion in Q1 2012.

 

An operating loss of £483 million in Q1 2012 was £799 million lower than Q4 2011. Income increased as the losses associated with restructuring monoline exposures and valuation movements on equity positions in Q4 2011 were not repeated. In addition, trading income increased as a result of tightening spreads and favourable market conditions. Impairments declined by £262 million which reflected improvements across the portfolio in general, although Ulster Bank charges remain elevated.

 

Q1 2012 compared with Q4 2011

·

The lower operating loss of £483 million reflected improvements in income, costs and impairments.

 


·

Trading losses decreased by £137 million, principally reflecting lower losses resulting from restructuring activity focussed on reducing capital intensive positions. Trading revenues also improved, as prices rallied and spreads tightened. Other income of £225 million was £376 million favourable to Q4 2011 due to positive equity valuation movements as well as gains on disposal of £182 million compared with losses of £36 million in Q4 2011.

 


·

Third party assets fell by £11 billion to £83 billion in Q1 2012 principally reflecting disposals of £5 billion and run-off of £4 billion.

 

Q1 2012 compared with Q1 2011

·

Third party assets of £83 billion were £42 billion lower than Q1 2011 principally reflecting disposals of £22 billion and run-off of £19 billion.

 


·

Risk-weighted assets decreased by £39 billion between Q1 2011 and Q1 2012. The decrease principally reflects the restructuring of monoline exposures in 2011 which totalled £15 billion, and sales and run-off of £14 billion. A further £9 billion reduction was due to market risk reductions as a result of de-risking activities. These were partially offset by an increase in operational risk RWAs.

 


·

The Q1 2012 operating loss of £483 million was £608 million favourable to Q1 2011 principally due to lower impairments incurred in relation to the Ulster Bank portfolio and reduced costs due to the ongoing run-down of the division, partially offset by lower revenues relate to the reduction of the balance sheet.

 


·

Since Q1 2011 headcount has reduced by approximately 2,400, 36%, reflecting business and country exits and run-down, specifically in India, China, RBS Sempra Commodities and Non-Core Insurance.

 


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