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CEO 'sorry' over Scots HQ remark

NatWest RBS posts loss, plans dividend, Coutts slides

RBS and Alison Rose

Alison Rose: ‘strong progress’

NatWest (RBS) has announced an operating loss of £351 million for the year and an attributable loss of £753m but will restore its dividend as CEO Alison Rose says the underlying business remains strong.

The operating loss for the year to the end of December 2020 compares to a profit of £4.23 billion in the previous year.

It reported a £2.9bn operating profit before tax and £3.2bn impairment charge set aside for bad loans. The bank proposes a final dividend for FY’20 of 3p per share. Of the £364m total payout £225m will go to the UK Government.

The bank has confirmed that its Ulster Bank subsidiary will withdraw from the Republic of Ireland. Ulster Bank’s business in Northern Ireland is unaffected.

Asked in a radio interview this morning if the bank is still “Scottish” following its re-brand last year, Ms Rose said: “Scotland is a hugely important part of our business”.

Later, in a conference call with the media, Daily Business asked if this meant Edinburgh was now just an outpost of a London-based bank and if this would now be “formalised”.

She said she apologised if her comments were misconstrued to suggest Edinburgh was no longer the head office.

“There is no change to our head office,” she said, adding that RBS supports one in three businesses in Scotland, one in five people and one in seven households. “We are one of the largest private sector employers in Scotland. I was emphasising how important Scotland is to us,” she said.

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She was asked twice about the future of Edinburgh-based private bank Adam & Co which is said to be up for sale, but replied: “I have no comment on that.”

On the future of the company’s offices she said: “It will not go back to where it was before. We are looking at a hybrid approach.”

Chairman Howard Davies said there were no plans to repeat last year’s decision by the board to take voluntary pay cuts in view of the pressures caused by the pandemic. The bonus pool is a third lower than in 2019.

Coutts and Adam & Co slide

Profits at the private banking arms Coutts and Adam & Co slid 30% as NatWest wrote-down £100m on the expected hit from Covid-19.

The division saw profit fall from £297m to £208m as it warned about the ‘deterioration of the economic outlook’.

Revenue fell slightly from £777m to £763m, while operating expenses fell 6.4% to £455m.

CEO statement

In the statement on the annual figures, Ms Rose said: “The past year presented some extraordinary challenges for our customers, colleagues and communities. 

“We provided exceptional levels of support to those who needed it, including the approval of over £14 billion of lending under UK Government schemes.

“Despite reporting a loss for the year, NatWest Group delivered a resilient underlying performance in a challenging operating environment.

“The bank continued to grow in key areas such as mortgages and commercial lending and our balance sheet remains strong, with one of the highest capital ratios amongst our UK and European peers.

“We have today announced our intention to pay a final dividend whilst reaffirming our commitment to regular capital returns for shareholders in the future.

“We made strong progress in executing the strategy we set out in February 2020 as we build a relationship bank for a digital world; a bank that will meet the rapidly evolving needs of our customers at different stages of their lives through an ever-increasing focus on digital and transformation. In turn, this will drive sustainable, long-term returns to our shareholders.

“We cannot be certain of the long-term impact of the pandemic.

“But we can be certain that our bank will continue to support those who need it most as we build back better. By championing potential and helping people, families and businesses to rebuild and thrive, we will succeed together.”

Withdrawal from RoI

NatWest Group has concluded that Ulster Bank’s business in the Republic of Ireland will not be in a position to achieve an acceptable level of sustainable returns over the bank’s “planning horizon”. 

As a result, it will begin a phased withdrawal from the Republic of Ireland over an unspecified number of years.

Allied Irish Banks will take on a €4bn portfolio of performing commercial loans, and staff wholly or mainly assigned to this loan book.  

The bank is also in early discussions with Permanent TSB and other strategic banking counter-parties about their potential interest in buying certain retail and SME assets, liabilities and operations.

Market reaction

AJ Bell investment director Russ Mould said the latest move to shake off some “excess weight” this might eventually release some capital, but the process of withdrawing from Ireland looks set to take some time.

“The rest of the report card on Natwest’s results would be a bit mixed, as dividends were reinstated at the maximum level stipulated by the regulator and provisions for bad loans were slightly below expectations but margins and overall returns looked pretty weak.

“Natwest wants to place the focus on its medium-term ambitions to boost returns by increasing lending in its core UK market and reducing costs, while benefiting from an anticipated reduction in impairments.  

“These are laudable ambitions but chief executive Alison Rose, in post for a little more than a year, wouldn’t be the first person at the helm to attempt a revival of Natwest’s fortunes and yet, for all these efforts, it remains 62% owned by the state.”

FY’20 financials

Operating profit before tax and impairment charge – £2.9bn

Impairment charge – £3.2bn

  • Q4’20 impairment charge – £130m
  • Below full year impairment charge guided range of £3.5-£4.5 billion
  • Much of the impairment charge is forward-looking under IFRS9
    • Only £616m of £3.2bn impairment charge is in Stage 3 under IFRS9 (credit-impaired financial assets)
  • Limited unsecured exposure:
    • 93% of personal book is secured
    • Average LTV of 57% in Group mortgage book

Operating loss before tax – £351m

  • Q4 operating profit before tax – £64m

Attributable loss – £753m

CET1 ratio – 18.5%

  • Up from 18.2% at Q3’20

Capital returns

Proposed final dividend for FY’20 of 3p/share

  • £364m, of which £225m would go to the UK Government
  • Payment is the maximum allowed within the ‘guardrails’ set out by the Bank of England in December
  • Subject to regulatory approval, NWG plans to distribute at least £800m/year to 2023 through a combination of ordinary and special dividends, maintaining the 40% pay out ratio for ordinary dividends

Bonus pool

NWG bonus pool – £206m

  • Down 1/3 from £307m in 2019

Exceeded all FY’20 financial targets

Growth – Net lending – grew 7% in 2020, including government schemes 

  • 3% excluding government schemes
  • Against >3% FY’20 target

Costs – Reduced costs by £277m in 2020

  • Against £250m FY’20 target

Capital (NatWest Markets) – Risk Weighted Assets – £26.9bn

  • Down £11bn, ahead of £32.0bn FY’20 target (set at FY’19)
  • Down from £30.0bn at Q3’20

Capital (NatWest Group) – Risk Weighted Assets of £170.3bn

  • Down from £173.9bn at Q3’20
  • Below previously guided range of £185-195 billion by FY’20

New financial targets

Growth – targeting above market rate lending across our UK and RBS International commercial and retail businesses each year to 2023

Costs – expect to reduce costs by around 4% each year to 2023, excluding impact of the phased withdrawal from the Republic of Ireland

Capital – aim to operate with CET1 capital ratio of 13% – 14% by 2023

Returns – 9% – 10% ROTE by 2023

Covid-19 support and customer activity

Approved £14.1bn of commercial lending through Government schemes 

  • £8.6bn BBLS
  • £4.2bn CBILS
  • £1.3bn CLBILS

Approximately 258k customers helped with mortgage repayment holidays

  • 94% of mortgage holidays have now ended in Retail Banking
  • More than 97% of these now paying as normal
  • 95% of branches kept open through the pandemic
  • 9.4m – digitally active customers (up 8% on FY’19)
  • 7.7m – active mobile app users (up 12% on FY’19)
  • 15k video banking meetings/week in Jan’21 – up fewer than 100/week at start of 2020. 
  • 9m interactions with AI chatbot Cora – up 68% on FY’19 

More than 50,000 colleagues enabled to work from home, with 37,000 tech bundles delivered to homes



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