TIDM61ZU
RNS Number : 6642H
Natwest Markets PLC
02 August 2019
Interim Results 2019
natwestmarkets.com
NatWest Markets Plc
Results for the half year ended 30 June 2019
The NatWest Markets Group (NWM Group) reported a profit for the
period of GBP205 million in H1 2019 compared with GBP966 million in
H1 2018, primarily reflecting lower income and the non-repeat of
profit from discontinued operations, offset by lower litigation and
conduct costs compared with H1 2018.
Highlights
Income, costs and legacy issues
-- Income was GBP506 million in H1 2019, compared with GBP553 million
income from continued operations in H1 2018. Customer activity remained
robust in difficult market conditions but the business was impacted
by higher funding costs associated with becoming a standalone non-ring
fenced bank.
-- Operating expenses of GBP411 million were down compared with GBP1,375
million in H1 2018, largely reflecting the non-repeat of the RMBS
settlement in H1 2018. Excluding litigation and conduct costs and
strategic costs, operating expenses reduced in H1 2019 relative to
H1 2018, due to the benefit of certain one-off cost recoveries in
Central items & other.
-- NatWest Markets Plc (NWM Plc or 'the Bank'), together with its parent
company the Royal Bank of Scotland Group plc (RBSG), reached settlements
totalling EUR275 million in connection with the European Commission
(EC) and certain other related investigations into competition law
breaches concerning foreign exchange (FX) trading. The aggregate
amount is fully covered by existing provisions in NWM Plc and is
due to be paid in Q3 2019.
Balance sheet, capital and RWAs
-- The NWM Group's total assets and liabilities increased by GBP32.5
billion and GBP33.0 billion to GBP280.4 billion and GBP271.8 billion
respectively at H1 2019, compared with 31 December 2018. The increases
primarily reflect client flow activity as well as derivative fair
values, driven by downward shifts in interest rate yields and weakening
of sterling against major currencies.
-- Issued GBP3.6 billion of term senior unsecured debt securities in
benchmark deals during H1 2019, including $1.3 billion 3.5 year fixed
and floating rate notes issued as part of the newly-established US
MTN programme, EUR1.0 billion 5 year fixed rate notes and EUR1.25
billion 2 year floating rate notes. H1 2019 issuance activity substantially
covers the GBP3-5 billion yearly funding target.
-- On 16 June 2019, NWM Plc acquired the RBS Group's 4.1% economic interest
in the newly merged Saudi British Bank (SABB) from NatWest Markets
N.V. (NWM N.V.) for GBP0.7 billion, to be carried at fair value through
other comprehensive income and an associated settlement liability
of GBP0.1 billion.
-- On 28 June 2019, NWM Plc paid an interim ordinary dividend to its
parent company, RBSG, of GBP400 million with the total dividend paid
in H1 2019 amounting to GBP500 million.
-- Total NWM Plc RWAs were down to GBP38.7 billion at 30 June 2019 from
GBP40.8 billion at 31 December 2018 due to reduced market risk and
operational risk RWAs. These reductions were partially offset by
an increase in credit risk RWAs following the acquisition of the
SABB shareholding. CRR leverage exposure was up from GBP148.5 billion
to GBP157.0 billion at 30 June 2019, primarily reflecting an increase
in trading assets and settlement balances at H1 2019 compared with
year end 2018.
-- NWM Plc Common Equity Tier 1 (CET1) ratio decreased from 15.6% at
31 December 2018 to 15.2% at 30 June 2019, reflecting dividends paid
and other reserve movements in the period, offset by the reductions
in RWAs. NWM Plc CRR leverage ratio decreased 60 basis points to
4.4% at 30 June 2019 (31 December 2018 - 5.0%).
-- The total regulatory capital and CRR-compliant MREL for NWM Plc at
30 June 2019 was GBP13.8 billion, or 35.7% of RWAs.
NatWest Markets N.V.
-- NWM N.V., the RBS Group's banking entity in the Netherlands, is expected
to become a subsidiary of NWM Plc in H2 2019, subject to regulatory
approval.
-- NWM N.V. began transacting new business on 25 March 2019 as part
of preparations to ensure continuity of service to European Economic
Area (EEA) customers when the United Kingdom leaves the European
Union.
-- As part of the commencement of new business, GBP5.3 billion of assets
and GBP5.7 billion of liabilities were transferred from NWM Plc to
NWM N.V. over the weekend of 23/24 March 2019. Further transfers
of GBP1.2 billion of assets and GBP1.5 billion of liabilities were
undertaken in Q2 2019.
-- On 16 June 2019, the merger of Alawwal bank and SABB was completed.
The RBS Group's economic interest in the merged entity, amounting
to 4.1%, was acquired by NWM Plc from NWM N.V..
Outlook (1)
Despite the near-term challenges faced by the business,
particularly in relation to the ongoing impact of Brexit
uncertainty and other macroeconomic factors, we retain the target
2020 capital and balance sheet metrics as provided in the NatWest
Markets 2018 Annual Report and Accounts.
Note:
(1) The targets, expectations and trends discussed in this section represent
management's current expectations and are subject to change, including
as a result of the factors described in the "Risk Factors" section
on pages 34 and 35 in this document and 124 to 133 of the NatWest
Markets 2018 Annual Report and Accounts. These statements constitute
forward-looking statements. Refer to Forward-looking statements
in this announcement.
Financial review
NWM Group business review
The segmental analysis of key income statement lines is set out
below.
Half year ended 30 Half year ended 30
June 2019 June 2018
======================= =========================
Central Central
items items
NatWest & NatWest &
Markets other Total Markets other Total
Income statement GBPm GBPm GBPm GBPm GBPm GBPm
===================================== ======= ======= ===== ======= ======= =======
Net interest income (116) 9 (107) 74 (140) (66)
Non-interest income 573 40 613 612 7 619
===================================== ======= ======= ===== ======= ======= =======
Total income 457 49 506 686 (133) 553
===================================== ======= ======= ===== ======= ======= =======
Strategic costs (45) - (45) (24) - (24)
Litigation and conduct costs 4 12 16 (9) (782) (791)
Other operating expenses (548) 166 (382) (553) (7) (560)
===================================== ======= ======= ===== ======= ======= =======
Operating expenses (589) 178 (411) (586) (789) (1,375)
===================================== ======= ======= ===== ======= ======= =======
Operating (loss)/profit before
impairments (132) 227 95 100 (922) (822)
Impairment releases/(losses) 34 2 36 (1) - (1)
===================================== ======= ======= ===== ======= ======= =======
Operating (loss)/profit before
tax (98) 229 131 99 (922) (823)
Tax credit 74 17
===================================== ======= ======= ===== ======= ======= =======
Profit/(loss) from continuing
operations 205 (806)
Profit from discontinued operations,
net of tax - 1,772
===================================== ======= ======= ===== ======= ======= =======
Profit for the period 205 966
===================================== ======= ======= ===== ======= ======= =======
Income
===================================== ======= ======= ===== ======= ======= =======
Rates 326 - 326 427 - 427
Currencies 225 - 225 199 - 199
Financing 197 - 197 211 - 211
Revenue share paid to other
RBSG segments (101) - (101) (107) - (107)
===================================== ======= ======= ===== ======= ======= =======
Core income excluding OCA 647 - 647 730 - 730
Legacy (143) - (143) (83) - (83)
Own credit adjustments (OCA) (47) - (47) 39 - 39
Other - 49 49 - (133) (133)
===================================== ======= ======= ===== ======= ======= =======
Total income 457 49 506 686 (133) 553
===================================== ======= ======= ===== ======= ======= =======
-- Operating profit before tax was GBP131 million compared with a loss
of GBP823 million from continuing operations in H1 2018. Total income
of GBP506 million was GBP47 million lower compared with H1 2018.
Customer activity remained robust in difficult market conditions
but the business was impacted by higher funding costs associated
with becoming a standalone non ring-fenced bank. Operating expenses
reduced by GBP964 million to GBP411 million in H1 2019, primarily
due to the non-repeat of litigation and conduct costs in H1 2018.
-- Net interest income was a net expense of GBP107 million compared
with a net expense of GBP66 million in H1 2018, principally driven
by higher funding costs which include interest expenses on increased
levels of external debt issuance and internal MREL when compared
to the prior period. Net interest expenses are largely reflected
in the NatWest Markets segment in H1 2019, compared with the prior
period which had the majority of these expenses within Central items
& other.
-- Non-interest income decreased by GBP6 million to GBP613 million compared
with GBP619 million in H1 2018. Within non-interest income, income
from trading activities reduced to GBP543 million in H1 2019 compared
with GBP663 million in the prior period reflecting the uncertain
market conditions. This was offset by other operating income of GBP74
million in H1 2019, compared with a loss of GBP82 million in H1 2018,
which included certain non-repeat disposal activity.
-- Operating expenses of GBP411 million were GBP964 million lower than
in H1 2018, principally due to litigation and conduct costs which
included the GBP1,040 million charge relating to the RMBS settlement
with the US Department of Justice (DoJ), offset by indemnity recoveries,
in the prior period. Strategic costs were GBP45 million in H1 2019
(H1 2018 - GBP24 million), with the increase primarily staff-related.
Other operating expenses decreased to GBP382 million from GBP560
million in H1 2018, largely due to certain cost recoveries in Central
items & other in H1 2019.
-- Impairment releases were GBP36 million compared with an impairment
loss of GBP1 million in H1 2018, largely due to an increase in expected
recoveries on IFRS 9 Stage 3 defaulted assets, as well as other credit
improvements.
-- NatWest Markets operating loss before tax was GBP98 million compared
with an operating profit of GBP99 million in H1 2018, with the reduction
primarily due to total income, which was GBP229 million lower at
GBP457 million in H1 2019 when compared with the prior period. Core
income reduced by GBP83 million to GBP647 million, despite customer
activity remaining robust in difficult market conditions but was
impacted by higher funding costs. Revenue share of GBP101 million
represents approximately half of the Core income earned with customers
of NatWest Holdings and RBS International. Legacy losses increased
to GBP143 million in H1 2019 from GBP83 million in H1 2018, largely
attributable to the absorption of interest expenses previously within
Central items & other. Total operating expenses increased moderately
to GBP589 million in H1 2019, as a GBP5 million reduction in other
operating expenses to GBP548 million, was offset by strategic costs
which were GBP21 million higher in H1 2019 than the corresponding
period. Own credit adjustments were a GBP47 million loss in H1 2019,
compared with gain of GBP39 million in H1 2018, due to the tightening
of spreads.
-- Central items & other operating profit was GBP229 million compared
with a loss of GBP922 million in H1 2018, largely as a result of
the non-repeat of significant litigation and conduct costs in H1
2018, one-off cost recoveries and net interest expenses being reflected
within the NatWest Markets segment in H1 2019.
Financial review
NWM Group business review
The table below sets out the performance key metrics and
ratios.
30 June 31 December
Performance key metrics and ratios (1) 2019 2018
======================================= ======= ===========
Liquidity coverage ratio (LCR) (%) (2) 205 457
Liquidity portfolio (GBPbn) 20.2 17.2
Total wholesale funding (GBPbn) (3) 23.3 19.8
Total funding including repo (GBPbn) 93.5 80.0
Common Equity Tier (CET1) ratio (%) 15.2 15.6
CRR leverage ratio (%) 4.4 5.0
Risk-weighted assets (RWAs) (GBPbn) 38.7 40.8
Total Capital ratio (%) 22.3 21.5
Total CRR-compliant MREL (GBPbn) 13.8 13.9
Total MREL ratio (%) 35.7 34.0
======================================= ======= ===========
Notes:
(1) Capital resources and RWAs are based on the PRA transitional arrangements
for NWM Plc. Regulatory capital is monitored and reported at solo
legal entity level for significant subsidiaries of the RBS Group.
Leverage is based on the CRR end-point minimum requirement.
(2) This metric has been presented for the NWM Plc solo legal entity
as managed internally. The LCR decreased to 205% at 30 June 2019
from 457% at 31 December 2018 as a result of an increase in liquidity
outflows, which were seasonally low at the prior year end. This
was offset partially by an increase in the liquidity portfolio due
to the proceeds of debt issuance in the period.
(3) Excluding derivative collateral and intra-RBS Group balances.
The segmental analysis of key balance sheet lines is set out
below.
30 June 2019 31 December 2018
======================= =======================
Central Central
NatWest items NatWest items
Markets & other Total Markets & other Total
Balance sheet GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
=================== ======= ======= ===== ======= ======= =====
Funded assets 132.0 0.6 132.6 111.2 2.4 113.6
of which: Core 128.3 0.6 128.9 107.1 2.4 109.5
of which: Legacy 3.7 - 3.7 4.1 - 4.1
Derivative assets 147.8 - 147.8 133.9 0.4 134.3
=================== ======= ======= ===== ======= ======= =====
Total assets 279.8 0.6 280.4 245.1 2.8 247.9
=================== ======= ======= ===== ======= ======= =====
-- Total assets and liabilities increased by GBP32.5 billion and 33.0
billion to GBP280.4 billion and GBP271.8 billion respectively at
30 June 2019, compared with GBP247.9 billion and GBP238.8 billion
at 31 December 2018. Funded assets, which exclude derivatives, increased
by GBP19.0 billion to GBP132.6 billion.
-- Cash and balances at central banks increased by GBP1.8 billion to
GBP12.9 billion, compared with GBP11.2 billion at 31 December 2018,
reflecting proceeds of issuance in the first half of the year.
-- Trading assets, which primarily includes securities and reverse repurchase
agreements relating to client-led activity, as well as derivative
collateral, increased by GBP7.8 billion to GBP82.8 billion at 30
June 2019, driven by increased levels of customer flow relative to
31 December 2018. Trading liabilities, comprising mainly of short
positions, repurchase agreements and derivative collateral, increased
by GBP11.0 billion to GBP83.3 billion at 30 June 2019.
-- Derivative assets and derivative liabilities were up GBP13.6 billion
to GBP147.8 billion and GBP14.5 billion to GBP144.4 billion respectively.
The movements in mark-to-market were driven by a downward shift in
interest rate yields, together with sterling having weakened against
major currencies since year end 2018.
-- Settlement balance assets and liabilities were up GBP4.4 billion
and GBP3.8 billion to GBP7.1 billion and GBP6.8 billion respectively,
reflecting increased trading compared with the low levels of client
activity leading up to 31 December 2018.
-- Other financial assets, which includes non-trading government debt
securities of GBP6.5 billion, increased to GBP13.0 billion. Other
financial liabilities increased to GBP18.6 billion (31 December 2018
- GBP16.3 billion) due to benchmark issuance activity in the period
with significant transactions including the dual-tranche $1.3 billion
3.5 year fixed and floating rate notes and the EUR1.0 billion 5 year
fixed and EUR1.25 billion 2 year floating rate issuances. These increases
were offset by maturities.
-- Amounts due from and to the holding company and fellow subsidiaries,
increased to GBP5.7 billion and GBP11.0 billion respectively, largely
as a result of risk transfers and funding balances with NWM N.V.
following the recommencement of client business in the NWM N.V. entity
during H1 2019.
-- Owners' equity decreased by GBP0.4 billion to GBP8.7 billion, primarily
due to dividends paid to RBSG and other reserves movements during
H1 2019.
Financial review
Balance sheet profile as at 30 June 2019
NWM Group balance sheet profile is summarised as follows:
Assets GBPbn GBPbn Liabilities
================================= ===== ===== =================================
Cash and balances at central
banks 12.9 -
Trading assets 82.8 83.3 Trading liabilities
================================= ===== ===== =================================
Securities 33.3 25.0 Short positions
Reverse repos (1) 27.4 32.0 Repos (2)
Derivative collateral (3) 20.5 22.6 Derivative collateral (4)
Other trading assets 1.6 3.7 Other trading liabilities
================================= ===== ===== =================================
Loans - amortised cost 9.9 5.9 Deposits - amortised cost
Settlement balances 7.2 6.8 Settlement balances
Amounts due from holding company Amounts due to holding company
and fellow subsidiaries 5.7 11.0 and fellow subsidiaries
Other financial assets 13.0 18.6 Other financial liabilities
Other assets 1.1 1.8 Other liabilities
================================= ===== ===== =================================
Funded assets 132.6 127.4 Liabilities excluding derivatives
Derivatives assets 147.8 144.4 Derivative liabilities
================================= ===== ===== =================================
Total assets 280.4 271.8 Total liabilities
of which: wholesale funding
23.3 (5)
of which: short-term wholesale
10.6 funding (5)
Net derivative assets 4.6 3.6 Net derivative liabilities
================================= ===== ===== =================================
Notes:
(1) Comprises bank reverse repos of GBP6.9 billion and customer reverse
repos of GBP20.5 billion.
(2) Comprises bank repos of GBP6.0 billion and customer repos of GBP26.0
billion.
(3) Comprises derivative collateral relating to banks of GBP7.8 billion
and customers of GBP12.7 billion.
(4) Comprises derivative collateral relating to banks of GBP13.1 billion
and customers of GBP9.5 billion.
(5) Excludes derivative collateral and intra-RBS Group balances, including
resolution-eligible instruments and subordinated liabilities issued
to RBSG.
(6) Based on the current legal entity structure of the NWM Group as
at 30 June 2019, which excludes NatWest Markets N.V..
Simplifying and de-risking
The table below presents a summary of NWM Group's balance sheet
exposure as at 30 June 2019. The legacy positions consist
predominantly of the residual exposures which were reported within
Capital Resolution until its closure after Q3 2017. These exposures
are primarily derivatives or loan agreements that are either being
sold or run down over time.
30 June 2019 31 December 2018
================ ==================
of which: of which:
Total Legacy Total Legacy
GBPbn GBPbn GBPbn GBPbn
=========================================== ===== ========= ====== ==========
RWAs 38.7 4.9 40.8 6.4
Total net credit exposures (banking book
and counterparty credit) 43.0 5.6 39.3 5.9
of which: net non-investment grade credit
exposures 2.7 1.3 1.8 1.1
of which: IFRS 9 Stage 3 exposures 0.7 0.7 0.7 0.7
and: IFRS 9 Stage 3 expected credit loss
(ECL) 0.1 0.1 0.1 0.1
=========================================== ===== ========= ====== ==========
Capital and risk management
Capital and leverage ratios
Capital resources, RWAs and leverage based on the PRA
transitional arrangements for NWM Plc are set out below. Regulatory
capital is monitored and reported at legal entity level for
significant subsidiaries of the RBS Group.
30 June 31 December
2019 2018
Capital adequacy ratios %%
============================= ======= ==========
CET1 (1) 15.2 15.6
Tier 1 17.7 18.0
Total 22.3 21.5
============================= ======= ===========
Capital GBPm GBPm
============================= ======= ===========
CET1 5,870 6,369
Tier 1 6,848 7,352
Total 8,655 8,757
============================= ======= ===========
Risk-weighted assets
============================= ======= ===========
Credit risk 10,074 9,234
Counterparty credit risk 13,229 13,285
Market risk 12,386 14,106
Operational risk 3,039 4,152
============================= ======= ===========
Total RWAs 38,728 40,777
============================= ======= ===========
Leverage (2,3)
============================= ======= ===========
CRR leverage exposure (GBPm) 156,996 148,502
Tier 1 capital (GBPm) 6,848 7,352
CRR leverage ratio (%) 4.4 5.0
============================= ======= ===========
Notes:
(1) Includes the impact of dividends paid in the period of
GBP0.5 billion (31 December 2018 - GBP2.6 billion).
(2) Leverage exposure is broadly aligned to the accounting value
of on and off-balance sheet exposures albeit subject to specific
adjustments for derivatives, securities financing positions and
off-balance sheet exposures.
(3) CRR end-point for UK banks set by the PRA is 10.5% minimum
total capital ratio, with a minimum CET1 ratio of 7.0%.
-- NWM Plc Common Equity Tier 1 (CET1) ratio decreased from
15.6% at 31 December 2018 to 15.2% at 30 June 2019, reflecting
dividends paid and other net movements in reserves in the period
offset by the reductions in RWAs. NWM Plc CRR leverage ratio
decreased 60 basis points to 4.4% at 30 June 2019 (31 December 2018
- 5.0%).
-- RWAs were down to GBP38.7 billion at 30 June 2019 from
GBP40.8 billion at 31 December 2018 due to reduced market risk RWAs
following a lowering of the capital multiplier and transfers to NWM
N.V.. Operational risk RWAs reduced following the annual
recalculation. These reductions were partially offset by an
increase in credit risk RWAs following the acquisition of the SABB
shareholding from NWM N.V..
-- CRR leverage exposure increased from GBP148.5 billion to
GBP157.0 billion at 30 June 2019, primarily reflecting increased
trading assets and settlement balances relative to year end
2018.
Capital and risk management
Capital resources (Within the scope of EY's review report)
Under Capital Requirements Regulation (CRR), regulators within
the European Union monitor capital on a legal entity basis, with
local transitional arrangements on the phasing in of end-point CRR.
The capital resources based on the PRA transitional basis for NWM
Plc are set out below.
30 June 31 December
2019 2018
Shareholders' equity (excluding non-controlling interests) GBPm GBPm
=============================================================== ======= ===========
Shareholders' equity 8,373 8,922
Other equity instruments (749) (749)
=============================================================== ======= ===========
7,624 8,173
Regulatory adjustments and deductions
=============================================================== ======= ===========
Own credit (134) (223)
Defined benefit pension fund adjustment (197) (197)
Cash flow hedging reserve (156) (114)
Prudential valuation adjustments (363) (450)
Expected losses less impairments (312) (351)
Instruments of financial sector entities where the institution
has a significant and non-significant investment (592) (445)
Other regulatory adjustments - (24)
=============================================================== ======= ===========
(1,754) (1,804)
CET1 capital 5,870 6,369
=============================================================== ======= ===========
Additional Tier 1 (AT1) capital
=============================================================== ======= ===========
Qualifying instruments and related share premium 749 749
Qualifying instruments and related share premium subject
to phase out 236 234
=============================================================== ======= ===========
985 983
Tier 1 deductions
=============================================================== ======= ===========
Instruments of financial sector entities where the institution
has a non-significant investment (7) -
=============================================================== ======= ===========
(7) -
Tier 1 capital 6,848 7,352
=============================================================== ======= ===========
Qualifying Tier 2 capital
=============================================================== ======= ===========
Qualifying instruments and related share premium 2,169 2,098
=============================================================== ======= ===========
Tier 2 deductions
=============================================================== ======= ===========
Instruments of financial sector entities where the institution
has a significant and non-significant investment (362) (693)
=============================================================== ======= ===========
Tier 2 capital 1,807 1,405
=============================================================== ======= ===========
Total regulatory capital 8,655 8,757
=============================================================== ======= ===========
Note:
(1) CRR as implemented by the Prudential Regulation Authority in
the UK, with effect from 1 January 2014. The capital resources are
on an end-point basis for the significant investment in financial
institutions capital deduction at 30 June 2019 compared with
capital deduction of 90% capital deduction and 10% RWAs at 31
December 2018. There continues to be CRR transition applied to
grandfathered capital.
Capital and risk management
Leverage exposure
The table below shows the leverage exposure based on the CRR
Delegated Act.
30 June 31 December
2019 2018
Leverage GBPm GBPm
============================================ ========= ===========
Cash and balances at central banks 12,874 11,095
Trading assets 64,784 61,990
Derivatives 147,840 134,291
Other financial assets 33,541 16,588
Other assets 8,339 18,077
============================================ ========= ===========
Total assets 267,378 242,041
Derivatives
- netting and variation margin (158,533) (140,796)
- potential future exposures 43,653 41,663
Securities financing transactions gross up 1,200 1,800
Undrawn commitments 6,757 7,306
Regulatory deductions and other adjustments (1,626) (1,557)
Exclusion of core UK-group exposures (1,833) (1,955)
============================================ ========= ===========
Leverage exposure 156,996 148,502
============================================ ========= ===========
Liquidity portfolio (Within the scope of EY's review report)
The table below shows the liquidity portfolio by product,
liquidity value and carrying value. Liquidity value is lower than
carrying value as it is stated after discounts (or haircuts)
applied to security instruments.
30 June 31 December
2019 2018
GBPm GBPm
================================= ====== ====== ===== ======= ===========
Cash and balances at central banks 12,783 11,005
Central and local government bonds
======================================================== ======= ===========
AAA rated governments 1,532 615
AA- to AA+ rated governments and US agencies 4,260 5,256
Below AA rated governments 1,274 -
======================================================== ======= ===========
Primary liquidity 19,849 16,876
Secondary liquidity (1) 344 344
======================================================== ======= ===========
Total liquidity value 20,193 17,220
======================================================== ======= ===========
Total carrying value 20,408 17,388
======================================================== ======= ===========
The table below shows the liquidity value of
the liquidity portfolio by currency.
GBP USD EUR Other Total
Total liquidity portfolio GBPm GBPm GBPm GBPm GBPm
================================= ====== ====== ===== ======= ===========
30 June 2019 7,030 3,459 8,430 1,274 20,193
31 December 2018 3,832 2,950 8,881 1,557 17,220
================================= ====== ====== ===== ======= ===========
Note:
(1) Comprises assets eligible for discounting at the Bank of England and other central banks.
Capital and risk management
Funding sources (Within the scope of EY's review report)
The table below shows NWM Group's carrying values of the principal funding
sources based on contractual maturity. Balance sheet captions include
balances held at all classifications under IFRS 9.
30 June 2019 31 December 2018
============================================= ============================================
Amounts Amounts
due due
to holding to holding
Short Long Short Long
term term Total company term term Total company
less more less more
than than third and fellow than than third and fellow
subsidiaries subsidiaries
1 year 1 year party (1) Total 1 year 1 year party (1) Total
By product GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================= ====== ====== ====== ============= ====== ====== ====== ====== ============ ======
Bank deposits
======================= ====== ====== ====== ============= ====== ====== ====== ====== ============ ======
Derivative cash
collateral 13,075 - 13,075 - 13,075 11,005 - 11,005 - 11,005
Other deposits (2) 1,712 1,488 3,200 3,249 6,449 2,587 6 2,593 2,542 5,135
======================= ====== ====== ====== ============= ====== ====== ====== ====== ============ ======
14,787 1,488 16,275 3,249 19,524 13,592 6 13,598 2,542 16,140
Debt securities in
issue
======================= ====== ====== ====== ============= ====== ====== ====== ====== ============ ======
Certificates of
deposit
(CDs) 1,062 6 1,068 - 1,068 1,006 - 1,006 - 1,006
Commercial paper 1,110 - 1,110 - 1,110 1,820 - 1,820 - 1,820
Medium-term notes
(MTNs) 6,699 10,581 17,280 - 17,280 3,598 10,099 13,697 - 13,697
======================= ====== ====== ====== ============= ====== ====== ====== ====== ============ ======
8,871 10,587 19,458 - 19,458 6,424 10,099 16,523 - 16,523
Subordinated
liabilities - 626 626 2,094 2,720 - 658 658 1,962 2,620
======================= ====== ====== ====== ============= ====== ====== ====== ====== ============ ======
Total notes in issue 8,871 11,213 20,084 2,094 22,178 6,424 10,757 17,181 1,962 19,143
======================= ====== ====== ====== ============= ====== ====== ====== ====== ============ ======
Wholesale funding 23,658 12,701 36,359 5,343 41,702 20,016 10,763 30,779 4,504 35,283
Customer deposits
======================= ====== ====== ====== ============= ====== ====== ====== ====== ============ ======
Derivative cash
collateral 9,535 - 9,535 - 9,535 9,124 - 9,124 - 9,124
Other deposits (3,4) 3,264 746 4,010 5,459 9,469 3,627 471 4,098 5,398 9,496
======================= ====== ====== ====== ============= ====== ====== ====== ====== ============ ======
Total customer deposits 12,799 746 13,545 5,459 19,004 12,751 471 13,222 5,398 18,620
Total funding excluding
repos 36,457 13,447 49,904 10,802 60,706 32,767 11,234 44,001 9,902 53,903
Total repos
======================= ====== ====== ====== ============= ====== ====== ====== ====== ============ ======
Central and other
banks 6,423 424 6,847 - 6,847 5,421 - 5,421 - 5,421
Other financial
institutions 24,222 - 24,222 - 24,222 20,083 - 20,083 - 20,083
Other corporate 1,749 - 1,749 - 1,749 565 - 565 - 565
======================= ====== ====== ====== ============= ====== ====== ====== ====== ============ ======
32,394 424 32,818 - 32,818 26,069 - 26,069 - 26,069
Total funding 68,851 13,871 82,722 10,802 93,524 58,836 11,234 70,070 9,902 79,972
======================= ====== ====== ====== ============= ====== ====== ====== ====== ============ ======
Of which: available
in resolution (5) - 626 626 7,237 7,863 - 658 658 7,084 7,742
======================= ====== ====== ====== ============= ====== ====== ====== ====== ============ ======
Notes:
(1) Amounts due to holding company and fellow subsidiaries which
relate to non-financial instruments of GBP239 million (31 December
2018 - GBP259 million) have been excluded from the table.
(2) Includes GBP478 million (31 December 2018 - GBP268 million)
of HFT deposits included in trading liabilities on the balance
sheet.
(3) Includes GBP1,719 million (31 December 2018 - GBP1,518
million) of HFT deposits included in trading liabilities on the
balance sheet.
(4) Total bank regulatory capital and CRR-compliant MREL was
GBP13.8 billion (31 December 2018 - GBP13.9 billion). Of the
GBP5,459 million internal customer deposits (31 December 2018 -
GBP5,398 million), the CRR-compliant MREL component totalled
GBP5,143 million (31 December 2018 - GBP5,125 million) and was
executed in the form of a loan from RBSG.
(5) Eligible liabilities (as defined in the Banking Act 2009 as
amended from time to time) that meet the eligibility criteria set
out in the regulations, rules, policies, guidelines, or statements
of the Bank of England including the Statement of Policy published
by the Bank of England in June 2018. All available in resolution
instruments for June 2019, including external subordinated
liabilities, internal subordinated liabilities and senior internal
MREL issued to RBSG, have a final contractual maturity of greater
than one year.
Key points
-- During H1 2019, the NWM Group accessed new markets (SEK and
JPY) via its EMTN and established a 144A MTN programme for US
investors.
-- Of the GBP3-5 billion target for 2019, GBP3.7 billion has
been issued across both programmes in private placement and
benchmark formats during H1.
-- Depending on market conditions in H2 2019, the NWM Group will
look to further diversify the investor base and build out new
markets and issuance programmes, and may explore pre-funding 2020
maturities.
-- The NWM Group also maintains a portfolio of bi-lateral
borrowing in different formats, including unsecured loans and notes
or loans secured primarily by banking book collateral.
Capital and risk management
Notes issued - residual maturity by profile note type (Within
the scope of EY's review report)
The table below shows NWM Group's debt securities in issue and subordinated
liabilities by residual maturity.
Debt securities in issue
============================
Commercial
paper Subordinated Total notes Total notes
and CDs MTNs Total liabilities in issue in issue
30 June 2019 GBPm GBPm GBPm GBPm GBPm %
========================= =========== ======= ====== ============ =========== ===========
Less than 1 year 2,172 6,699 8,871 - 8,871 40
1-3 years 3 5,992 5,995 356 6,351 29
3-5 years 3 3,234 3,237 149 3,386 15
More than 5 years - 1,355 1,355 121 1,476 7
========================= =========== ======= ====== ============ =========== ===========
Subtotal 2,178 17,280 19,458 626 20,084 91
Amounts due to holding
company
and fellow subsidiaries - - - 2,094 2,094 9
========================= =========== ======= ====== ============ =========== ===========
Total 2,178 17,280 19,458 2,720 22,178 100
========================= =========== ======= ====== ============ =========== ===========
31 December 2018
========================= =========== ======= ====== ============ =========== ===========
Less than 1 year 2,826 3,598 6,424 - 6,424 34
1-3 years - 6,768 6,768 98 6,866 36
3-5 years - 2,025 2,025 425 2,450 13
More than 5 years - 1,306 1,306 135 1,441 7
========================= =========== ======= ====== ============ =========== ===========
Subtotal 2,826 13,697 16,523 658 17,181 90
Amounts due to holding
company
and fellow subsidiaries - - - 1,962 1,962 10
========================= =========== ======= ====== ============ =========== ===========
Total 2,826 13,697 16,523 2,620 19,143 100
========================= =========== ======= ====== ============ =========== ===========
Credit risk - Trading activities
Asset quality (Within the scope of EY's
review report)
The table below shows the current and potential exposure by high level
asset class and asset quality. It represents total credit risk for assets
held in the banking book in addition to counterparty credit risk for
traded products.
Cash & Collateralised Uncollateralised
balances Sovereign Loans Other
at debt & other debt rate risk rate risk Repo & Off-balance
central reverse sheet
banks securities lending securities management management repo items Leasing Total
30 June
2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========== ======== ========== ======= ========== ============== ================ ======= =========== ======= ======
AQ1-AQ4 12,939 6,420 8,852 3,513 3,752 2,370 1,303 309 143 39,601
AQ5-AQ8 - - 1,102 79 576 738 217 53 1 2,766
AQ9 - - 22 2 2 - - 1 - 27
AQ10 - - 616 6 - 7 - 4 4 637
========== ======== ========== ======= ========== ============== ================ ======= =========== ======= ======
Current
exposure 12,939 6,420 10,592 3,600 4,330 3,115 1,520 367 148 43,031
Potential
exposure 12,939 6,420 19,192 3,600 14,953 6,566 2,543 1,966 148 68,327
========== ======== ========== ======= ========== ============== ================ ======= =========== ======= ======
31 December 2018
==================== ========== ======= ========== ============== ================ ======= =========== ======= ======
AQ1-AQ4 11,230 6,964 7,773 2,191 3,976 2,356 1,630 380 144 36,644
AQ5-AQ8 - - 896 4 354 536 157 59 - 2,006
AQ9 - - 23 3 2 - - - - 28
AQ10 - - 602 6 - 23 - 5 5 641
========== ======== ========== ======= ========== ============== ================ ======= =========== ======= ======
Current
exposure 11,230 6,964 9,294 2,204 4,332 2,915 1,787 444 149 39,319
Potential
exposure 11,230 6,964 18,516 2,204 15,097 6,634 2,882 2,594 149 66,270
========== ======== ========== ======= ========== ============== ================ ======= =========== ======= ======
Key point
-- Measured against NWM Group's asset quality scale, 92% (31
December 2018 - 93%) of total current exposure was rated in the
AQ1-AQ4 bands. When considered against external credit ratings,
94%, GBP40.3 billion (31 December 2018 - 95%, GBP37.5 billion) of
current exposure was equivalent to an investment grade rating (BBB-
or better).
Capital and risk management
Credit risk - Trading activities continued
Securities financing transactions and collateral (Within the
scope of EY's review report)
The table below shows securities funding transactions in the NWM
Group. Balance sheet captions include balances held at all
classifications under IFRS 9.
Reverse repos Repos
================================= =================================
Outside Outside
Of which: netting Of which: netting
can be can be
Total offset arrangements Total offset arrangements
30 June 2019 GBPm GBPm GBPm GBPm GBPm GBPm
==================================== ======== ========= ============ ======== ========= ============
Gross 69,432 66,421 3,011 74,822 72,425 2,397
IFRS offset (42,004) (42,004) - (42,004) (42,004) -
==================================== ======== ========= ============ ======== ========= ============
Carrying value 27,428 24,417 3,011 32,818 30,421 2,397
==================================== ======== ========= ============ ======== ========= ============
Master netting arrangements (1,191) (1,191) - (1,191) (1,191) -
Securities collateral (23,109) (23,109) - (29,230) (29,230) -
==================================== ======== ========= ============ ======== ========= ============
Potential for offset not recognised
under IFRS (24,300) (24,300) - (30,421) (30,421) -
==================================== ======== ========= ============ ======== ========= ============
Net 3,128 117 3,011 2,397 - 2,397
==================================== ======== ========= ============ ======== ========= ============
31 December 2018
==================================== ======== ========= ============ ======== ========= ============
Gross 56,143 53,157 2,986 57,445 56,288 1,157
IFRS offset (31,376) (31,376) - (31,376) (31,376) -
==================================== ======== ========= ============ ======== ========= ============
Carrying value 24,767 21,781 2,986 26,069 24,912 1,157
==================================== ======== ========= ============ ======== ========= ============
Master netting arrangements (762) (762) - (762) (762) -
Securities collateral (21,009) (21,009) - (24,150) (24,150) -
==================================== ======== ========= ============ ======== ========= ============
Potential for offset not recognised
under IFRS (21,771) (21,771) - (24,912) (24,912) -
==================================== ======== ========= ============ ======== ========= ============
Net 2,996 10 2,986 1,157 - 1,157
==================================== ======== ========= ============ ======== ========= ============
Key points
-- The increases in reverse repo and repo balances, on both a
gross and carrying value basis at 30 June 2019 relative to the
prior year, are largely due to higher client flow activity and
trading volumes.
-- Reverse repo and repo transactions are primarily backed by
highly-rated sovereign, supranational and government agency
collateral.
Debt securities (Within the scope of EY's review report)
The table below shows debt securities held at mandatory fair
value through profit or loss by issuer as well as ratings based on
the lowest of Standard & Poor's, Moody's and Fitch.
Central and local government Financial
================================
UK US Other institutions Corporate Total
30 June 2019 GBPm GBPm GBPm GBPm GBPm GBPm
===================== ========= ========= ========== ============ ========= ========
AAA - - 3,152 1,928 4 5,084
AA to AA+ 5,365 6,093 3,686 811 95 16,050
A to AA- - - 4,508 628 46 5,182
BBB- to A- - - 4,858 730 467 6,055
Non-investment grade - - 88 464 294 846
Unrated - - - 505 121 626
===================== ========= ========= ========== ============ ========= ========
Total 5,365 6,093 16,292 5,066 1,027 33,843
===================== ========= ========= ========== ============ ========= ========
Short positions (5,589) (1,773) (15,811) (1,652) (189) (25,014)
===================== ========= ========= ========== ============ ========= ========
31 December 2018
===================== ========= ========= ========== ============ ========= ========
AAA - - 2,093 1,459 7 3,559
AA to AA+ 6,834 4,689 3,161 773 120 15,577
A to AA- - - 4,571 482 51 5,104
BBB- to A- - - 3,592 802 285 4,679
Non-investment grade - - 81 832 237 1,150
Unrated - - - 570 8 578
===================== ========= ========= ========== ============ ========= ========
Total 6,834 4,689 13,498 4,918 708 30,647
===================== ========= ========= ========== ============ ========= ========
Short positions (6,394) (2,008) (13,500) (1,724) (201) (23,827)
===================== ========= ========= ========== ============ ========= ========
Capital and risk management
Credit risk - Trading activities continued
Derivatives (Within the scope of EY's review report)
The table below shows third party derivatives by type of
contract. The master netting agreements and collateral shown do not
result in a net presentation on the balance sheet under IFRS 9.
30 June 2019 31 December 2018
========================================================== ================================
Notional
==================================
GBP USD Euro Other Total Assets Liabilities Notional Assets Liabilities
GBPbn GBPbn GBPbn GBPbn GBPbn GBPm GBPm GBPbn GBPm GBPm
====================== ===== ===== ===== ===== ====== ========= =========== ======== ========= ===========
Gross exposure 147,528 142,817 135,133 131,173
IFRS offset (3,983) (4,211) (2,072) (2,438)
====================== ===== ===== ===== ===== ====== ========= =========== ======== ========= ===========
Carrying value 2,796 6,253 5,110 1,928 16,087 143,545 138,606 13,686 133,061 128,735
====================== ===== ===== ===== ===== ====== ========= =========== ======== ========= ===========
Of which:
Interest rate (1)
Interest rate swaps 90,052 86,278 81,622 73,933
Options purchased 17,865 - 14,478 -
Options written - 15,554 - 16,370
Futures and forwards 67 73 73 68
====================== ===== ===== ===== ===== ====== ========= =========== ======== ========= ===========
Total 2,413 4,511 4,518 871 12,313 107,984 101,905 10,247 96,173 90,371
====================== ===== ===== ===== ===== ====== ========= =========== ======== ========= ===========
Exchange rate
Spot, forwards and
futures 19,034 19,773 17,897 18,605
Currency swaps 9,947 10,055 11,283 11,978
Options purchased 6,306 - 7,319 -
Options written - 6,600 - 7,558
====================== ===== ===== ===== ===== ====== ========= =========== ======== ========= ===========
Total 382 1,735 581 1,057 3,755 35,287 36,428 3,422 36,499 38,141
====================== ===== ===== ===== ===== ====== ========= =========== ======== ========= ===========
Credit 1 6 11 - 18 266 252 16 346 208
Equity and commodity - 1 - - 1 8 21 1 43 15
====================== ===== ===== ===== ===== ====== ========= =========== ======== ========= ===========
Carrying value 16,087 143,545 138,606 13,686 133,061 128,735
====================== ===== ===== ===== ===== ====== ========= =========== ======== ========= ===========
Counterparty
mark-to-market
netting (115,521) (115,521) (106,762) (106,762)
Cash collateral (19,465) (16,479) (17,930) (15,224)
Securities collateral (3,935) (2,962) (4,469) (3,466)
====================== ===== ===== ===== ===== ====== ========= =========== ======== ========= ===========
Net exposure 4,624 3,644 3,900 3,283
====================== ===== ===== ===== ===== ====== ========= =========== ======== ========= ===========
Banks (2) 247 885 359 431
Other financial
institutions
(3) 1,189 1,041 857 1,068
Corporate (4) 2,846 1,637 2,436 1,749
Government (5) 342 81 248 35
====================== ===== ===== ===== ===== ====== ========= =========== ======== ========= ===========
Net exposure 4,624 3,644 3,900 3,283
====================== ===== ===== ===== ===== ====== ========= =========== ======== ========= ===========
UK 2,457 1,014 1,867 1,246
Europe 1,047 2,300 1,117 1,366
US 833 55 588 298
RoW 287 275 328 373
====================== ===== ===== ===== ===== ====== ========= =========== ======== ========= ===========
Net exposure 4,624 3,644 3,900 3,283
====================== ===== ===== ===== ===== ====== ========= =========== ======== ========= ===========
Notes:
(1) The notional amount of interest rate derivatives include
GBP7,541 billion (31 December 2018 - GBP5,679 billion) in respect
of contracts cleared through central clearing counterparties.
(2) Transactions with certain counterparties with whom the NWM
Group has netting arrangements but collateral is not posted on a
daily basis; certain transactions with specific terms that may not
fall within netting and collateral arrangements; derivative
positions in certain jurisdictions for example China where the
collateral agreements are not deemed to be legally enforceable.
(3) Transactions with securitisation vehicles and funds where
collateral posting is contingent on NWM Group's external
rating.
(4) Mainly large corporates with whom the NWM Group may have
netting arrangements in place, but operational capability does not
support collateral posting.
(5) Sovereigns and supranational entities with one-way collateral agreements in their favour.
Financial statements
Condensed consolidated income statement for the half year ended
30 June 2019 (unaudited)
Half year ended
=================
30 June 30 June
2019 2018
GBPm GBPm
================================================== ======== =======
Interest receivable 278 118
Interest payable (385) (184)
================================================== ======== =======
Net interest income (107) (66)
================================================== ======== =======
Fees and commissions receivable 181 169
Fees and commissions payable (185) (131)
Income from trading activities 543 663
Other operating income 74 (82)
================================================== ======== =======
Non-interest income 613 619
================================================== ======== =======
Total income 506 553
Operating expenses (411) (1,375)
================================================== ======== =======
Profit/(loss) before impairment releases/(losses) 95 (822)
Impairment releases/(losses) 36 (1)
================================================== ======== =======
Operating profit/(loss) before tax 131 (823)
Tax credit 74 17
================================================== ======== =======
Profit/(loss) from continuing operations 205 (806)
Profit from discontinued operations, net of tax - 1,772
================================================== ======== =======
Profit for the period 205 966
================================================== ======== =======
Attributable to:
Ordinary shareholders 175 965
Paid-in equity holders 30 -
Non-controlling interests - 1
================================================== ======== =======
205 966
================================================== ======== =======
Financial statements
Condensed consolidated statement of comprehensive income for the
half year ended 30 June 2019 (unaudited)
Half year ended
=================
30 June 30 June
2019 2018
GBPm GBPm
=============================================================== ======== =======
Profit for the period 205 966
=============================================================== ======== =======
Items that do not qualify for reclassification
Remeasurement of retirement benefit schemes
- contributions in preparation for ring-fencing (1) - (2,000)
(Loss)/profit on fair value of credit in financial liabilities
designated at fair value through
profit or loss due to own credit risk (39) 59
Fair value through other comprehensive income (FVOCI)
financial assets (5) 3
Tax 31 500
=============================================================== ======== =======
(13) (1,438)
=============================================================== ======== =======
Items that do qualify for reclassification
Fair value through other comprehensive income (FVOCI)
financial assets 5 202
Cash flow hedges 53 (549)
Currency translation 84 (18)
Tax (12) 104
=============================================================== ======== =======
130 (261)
=============================================================== ======== =======
Other comprehensive income/(loss) after tax 117 (1,699)
=============================================================== ======== =======
Total comprehensive income/(loss) for the period 322 (733)
=============================================================== ======== =======
Attributable to:
Ordinary shareholders 291 (735)
Paid-in equity holders 30 -
Non-controlling interests 1 2
=============================================================== ======== =======
322 (733)
=============================================================== ======== =======
Note:
(1) On 17 April 2018 RBS agreed a Memorandum of Understanding (MoU) with
the Trustees of the RBS Group Pension Fund in connection with the
requirements of ring-fencing. NatWest Markets Plc could not continue
to be a participant in the Main section and separate arrangements
were required for its employees. It also agreed to contribute GBP1.2
billion to the ring-fenced bank. Under the MoU, NatWest Plc made a
contribution of GBP2 billion on 9 October 2018 to strengthen funding
of the Main section in recognition of the changes in covenant. In
Q1 2019 NatWest Markets Plc paid a contribution of GBP53 million to
the new NatWest Markets section relating to the non-ring fenced bank.
Financial statements
Condensed consolidated balance sheet as at 30 June 2019
(unaudited)
30 June 31 December
2019 2018
GBPm GBPm
========================================================= ======= ===========
Assets
Cash and balances at central banks 12,939 11,188
Trading assets 82,813 74,972
Derivatives 147,802 134,250
Settlement balances 7,147 2,705
Loans to banks - amortised cost 935 626
Loans to customers - amortised cost 8,928 8,366
Amounts due from holding company and fellow subsidiaries 5,685 3,398
Other financial assets 13,029 11,268
Other assets 1,146 1,108
========================================================= ======= ===========
Total assets 280,424 247,881
========================================================= ======= ===========
Liabilities
Bank deposits 3,593 2,749
Customer deposits 2,291 2,580
Amounts due to holding company and fellow subsidiaries 11,041 10,161
Settlement balances 6,759 2,914
Trading liabilities 83,264 72,289
Derivatives 144,420 129,914
Other financial liabilities 18,588 16,279
Other liabilities 1,810 1,906
========================================================= ======= ===========
Total liabilities 271,766 238,792
========================================================= ======= ===========
Equity
========================================================= ======= ===========
Owners' equity 8,655 9,087
Non-controlling interests 3 2
========================================================= ======= ===========
Total equity 8,658 9,089
========================================================= ======= ===========
Total liabilities and equity 280,424 247,881
========================================================= ======= ===========
Financial statements
Condensed consolidated statement of changes in equity for the
half year ended 30 June 2019 (unaudited)
Half year ended
=================
30 June 30 June
2019 2018
GBPm GBPm
============================================================= ======= ========
Called up share capital - at beginning and end of period 400 6,609
============================================================= ======= ========
Share premium account - at beginning of period 1,759 26,807
Redemption of debt preference shares (1) - 885
============================================================= ======= ========
At end of period 1,759 27,692
============================================================= ======= ========
Paid-in equity - at beginning and end of period 749 -
============================================================= ======= ========
Merger reserve - at beginning and end of period - 10,881
============================================================= ======= ========
Fair value through other comprehensive income reserve
- at beginning of period 134 300
Implementation of IFRS 9 on 1 January 2018 - 30
Unrealised gains 4 206
Realised gains (166) (4)
Tax 20 (45)
============================================================= ======= ========
At end of period (8) 487
============================================================= ======= ========
Cash flow hedging reserve - at beginning of period 114 205
Amount recognised in equity 53 (191)
Amount transferred from equity to earnings - (358)
Tax (11) 148
============================================================= ======= ========
At end of period 156 (196)
============================================================= ======= ========
Foreign exchange reserve - at beginning of period 230 953
Retranslation of net assets 55 (115)
Foreign currency gains on hedges of net assets 28 17
Tax - 1
Recycled to profit or loss on disposal of businesses - 79
============================================================= ======= ========
At end of period 313 935
============================================================= ======= ========
Retained earnings - at beginning of period 5,701 (10,552)
Implementation of IFRS 9 on 1 January 2018 - (106)
Implementation of IFRS 16 on 1 January 2019 (2) (6) -
Profit/(loss) attributable to ordinary and equity preference
shareholders
- continuing operations 205 (803)
- discontinued operations - 1,768
Ordinary dividends paid (500) -
Paid-in equity dividends paid (30) -
Court approved distribution (3) - (23,064)
Remeasurement of retirement benefit schemes
- contributions in preparation for ring-fencing (4) - (2,000)
- tax - 516
Realised gains in period on FVOCI equity shares 162 3
Changes in fair value of credit in financial liabilities
designated as fair value through profit or loss
- gross (39) 59
- tax 10 (16)
Redemption of debt preference shares (1) - (885)
Shares issued under employee share schemes - (2)
Share-based payments (5) (217) 24
============================================================= ======= ========
At end of period 5,286 (35,058)
============================================================= ======= ========
Owners' equity at end of period 8,655 11,350
============================================================= ======= ========
Non-controlling interests - at beginning of period 2 57
Currency translation adjustments and other movements 1 1
Profit attributable to non-controlling interests
- continuing operations - (3)
- discontinued operations - 4
At end of period 3 59
============================================================= ======= ========
Total equity at end of period 8,658 11,409
============================================================= ======= ========
Total equity is attributable to:
Ordinary shareholders 7,906 11,350
Paid-in equity holders 749 -
Non-controlling interests 3 59
============================================================= ======= ========
8,658 11,409
============================================================= ======= ========
Notes:
(1) Issued by NWM Plc (formerly RBS plc) to the parent company RBSG
which were redeemed in April 2018.
(2) Refer to Note 2 for further information on IFRS 16 implementation.
(3) On 29 June 2018, the Court of Session in Edinburgh confirmed the
reduction of the share capital and the cancellation of the share
premium account and capital redemption reserve of NatWest Markets
Plc. The reduction included the return of capital to RBSG in the
form of the entire issued share capital of NatWest Holdings Limited
and a return of capital in cash for the remaining capital balance.
(4) On 17 April 2018 RBS agreed a Memorandum of Understanding (MoU)
with the Trustees of the RBS Group Pension Fund in connection with
the requirements of ring-fencing. NatWest Markets Plc could not
continue to be a participant in the Main section and separate arrangements
were required for its employees. It also agreed to contribute GBP1.2
billion to the ring-fenced bank. Under the MoU, NatWest Plc made
a contribution of GBP2 billion on 9 October 2018 to strengthen funding
of the Main section in recognition of the changes in covenant. In
Q1 2019 NatWest Markets Plc paid a contribution of GBP53 million
to the new NatWest Markets section relating to the non-ring fenced
bank.
(5) Includes adjustments to the allocation of deferred awards following
the implementation of ring-fencing and the impact of vesting during
the period.
Financial statements
Condensed consolidated cash flow statement for the half year
ended 30 June 2019 (unaudited)
Half year ended
=================
30 June 30 June
2019 2018
GBPm GBPm
============================================================== ======= ========
Operating activities
Operating profit/(loss) before tax from continuing operations 131 (823)
Profit before tax from discontinued operations - 2,501
Adjustments for non-cash items (406) 5,369
============================================================== ======= ========
Net cash (outflow)/inflow from trading activities (275) 7,047
Changes in operating assets and liabilities 8,172 (12,335)
============================================================== ======= ========
Net cash flows from operating activities before tax 7,897 (5,288)
Income taxes paid (7) (143)
============================================================== ======= ========
Net cash flows from operating activities 7,890 (5,431)
Net cash flows from investing activities (3,447) (3,447)
Net cash flows from financing activities (450) (1,082)
Effects of exchange rate changes on cash and cash equivalents 63 (61)
============================================================== ======= ========
Net increase/(decrease) in cash and cash equivalents 4,056 (10,021)
Cash and cash equivalents at beginning of period 26,127 25,683
============================================================== ======= ========
Cash and cash equivalents at end of period 30,183 15,662
============================================================== ======= ========
Notes
1. Basis of preparation
NWM Group's condensed consolidated financial statements have
been prepared in accordance with the Disclosure and Transparency
Rules of the Financial Conduct Authority and IAS 34 'Interim
Financial Reporting' as adopted in the EU. They should be read in
conjunction with the 2018 Annual Report and Accounts which were
prepared in accordance with International Financial Reporting
Standards issued by the International Accounting Standards Board
(IASB) and interpretations issued by the IFRS Interpretations
Committee of the IASB as adopted by the European Union (EU)
(together IFRS).
Going concern
NWM Group's business activities and financial position, and the
factors likely to affect its future development and performance are
discussed on pages 1 to 33. The risk factors which could materially
affect NWM Group's future results are described on pages 34 and
35.
Having reviewed NWM Group's forecasts, projections and other
relevant evidence, the directors have a reasonable expectation that
NWM Group will continue in operational existence for the
foreseeable future. Accordingly, the results for the half year
ended 30 June 2019 have been prepared on a going concern basis.
2. Accounting policies
NWM Group's principal accounting policies are as set out on
pages 66 to 70 of the 2018 Annual Report and Accounts and are
unchanged other than as presented below.
Revised Accounting policy 10 - Leases
NWM Group has adopted IFRS 16 'Leases' with effect from 1
January 2019, replacing IAS 17 'Leases'. NWM Group has applied IFRS
16 on a modified retrospective basis without restating prior years.
Accounting policy 10 presented in the NWM Group's 2018 Annual
Report and Accounts has been updated as follows:
As lessor
Finance lease contracts are those which transfer substantially
all the risks and rewards of ownership of an asset to a customer.
All other contracts with customers to lease assets are classified
as operating leases.
Loans to customers include finance lease receivables measured at
the net investment in the lease, comprising the minimum lease
payments and any unguaranteed residual value discounted at the
interest rate implicit in the lease. Interest receivable includes
finance lease income recognised at a constant periodic rate of
return before tax on the net investment. Unguaranteed residual
values are subject to regular review; if there is a reduction in
their value, income allocation is revised and any reduction in
respect of amounts accrued is recognised immediately.
Rental income from operating leases is recognised in other
operating income on a straight-line basis over the lease term
unless another systematic basis better represents the time pattern
of the asset's use. Operating lease assets are included within
Property, plant and equipment and depreciated over their useful
lives.
As lessee
On entering a new lease contract, NWM Group recognises a right
of use asset and a liability to pay future rentals. The liability
is measured at the present value of future lease payments
discounted at the applicable incremental borrowing rate. The right
of use asset is depreciated over the shorter of the term of the
lease and the useful economic life, subject to review for
impairment. Short term and low value leased assets are expensed on
a systematic basis.
Adoption of IFRS 16 resulted in the right of use assets of GBP56
million and lease liabilities of GBP62 million, and a decrease in
retained earnings of GBP6 million.
For further details see page 70 of the 2018 Annual Report and
Accounts.
Critical accounting policies and key sources of estimation
uncertainty
The judgements and assumptions that are considered to be the
most important to the portrayal of NWM Group's financial condition
are those relating to provisions for liabilities, deferred tax,
loan impairment provisions and fair value of financial instruments.
These critical accounting policies and judgements are described on
page 70 of the NWM Group's 2018 Annual Report and Accounts.
Notes
3. Operating expenses
Half year ended
=================
30 June 30 June
2019 2018
GBPm GBPm
====================================== ======== =======
Wages, salaries and other staff costs (243) (220)
Social security costs (30) (27)
Variable compensation (67) (35)
Pension costs (23) (41)
====================================== ======== =======
Staff costs (363) (323)
====================================== ======== =======
Premises and equipment (54) (51)
Depreciation and amortisation (6) (2)
Other administrative expenses (1) 12 (999)
====================================== ======== =======
Administrative expenses (48) (1,052)
====================================== ======== =======
(411) (1,375)
======== =======
Note:
(1) Includes litigation and conduct costs, net of amounts recovered.
Refer to Note 8 for further details.
4. Segmental analysis
The business is organised into the following reportable
segments:
-- NatWest Markets; and
-- Central items & other, which comprises corporate functions and
other activity not managed in the NatWest Markets segment during
the period. H1 2019 primarily includes certain one-off cost recoveries.
H1 2018 largely includes legacy litigation and interest expense
associated with liabilities prior to their transfer to the NWM
segment.
Analysis of operating profit/(loss)
The following tables provide a segmental analysis of operating profit/(loss)
by main income statement captions.
Other
Net non- Impairment
Net fees
interest and interest Total Operating releases/ Operating
income
(1) commissions income income expenses (losses) (loss)/profit
Half year ended 30 June
2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================== ======== =========== ======== ====== ========= ========== =============
NatWest Markets (116) (7) 580 457 (589) 34 (98)
Central items & other 9 3 37 49 178 2 229
======================== ======== =========== ======== ====== ========= ========== =============
Total (107) (4) 617 506 (411) 36 131
======================== ======== =========== ======== ====== ========= ========== =============
Half year ended 30 June
2018
======================== ======== =========== ======== ====== ========= ========== =============
NatWest Markets 74 12 600 686 (586) (1) 99
Central items & other (140) 26 (19) (133) (789) - (922)
======================== ======== =========== ======== ====== ========= ========== =============
Total (66) 38 581 553 (1,375) (1) (823)
======================== ======== =========== ======== ====== ========= ========== =============
Half year ended
======== ======= ================= ======= =====
30 June 2019 30 June 2018
========================= =========================
Inter Inter
External segment Total External segment Total
Total revenue GBPm GBPm GBPm GBPm GBPm GBPm
====================== ======== ======= ====== ========= ======= =====
NatWest Markets 1,049 433 1,482 887 236 1,123
Central items & other 27 (433) (406) (19) (236) (255)
====================== ======== ======= ====== ========= ======= =====
Total 1,076 - 1,076 868 - 868
====================== ======== ======= ====== ========= ======= =====
Note:
(1) Includes interest payable of GBP385 million and interest receivable
of GBP278 million (H1 2018 - GBP184 million and GBP118 million respectively).
Within the NatWest Markets segment, net interest income comprises
interest receivable on external lending activities, offset by net
interest payable on external funding activity managed by NatWest
Markets Treasury and inter-segmental charges. Net interest expense
in Central items & other in H1 2018 predominantly comprises external
interest costs associated with RBS Group Treasury managed liabilities
prior to their transfer to the NWM segment and the impact of inter-segmental
income.
Notes
4. Segmental analysis continued
Analysis of net fees and commissions
Central
items
NatWest Markets & other Total
Half year ended 30 June 2019 GBPm GBPm GBPm
===================================== =============== ======= =====
Fees and commissions receivable
- Underwriting fees 94 - 94
- Brokerage 41 - 41
- Lending (credit facilities) 36 - 36
- Other 7 3 10
===================================== =============== ======= =====
Total 178 3 181
===================================== =============== ======= =====
Fees and commissions payable (185) - (185)
===================================== =============== ======= =====
Net fees and commissions (7) 3 (4)
===================================== =============== ======= =====
Half year ended 30 June 2018
===================================== ===============================
Fees and commissions receivable
- Underwriting fees 92 - 92
- Brokerage 45 - 45
- Lending (credit facilities) 39 - 39
- Other 46 (53) (7)
===================================== =============== ======= =====
Total 222 (53) 169
===================================== =============== ======= =====
Fees and commissions payable (210) 79 (131)
===================================== =============== ======= =====
Net fees and commissions 12 26 38
===================================== =============== ======= =====
Total assets and liabilities
30 June 2019 31 December 2018
==================== ====================
Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm
============================= ======= =========== ======= ===========
NatWest Markets 279,832 271,283 245,060 236,121
Central items & other 592 483 2,821 2,671
============================= ======= =========== ======= ===========
Total 280,424 271,766 247,881 238,792
============================= ======= =========== ======= ===========
5. Tax
The actual tax charge differs from the expected tax
credit/(charge) computed by applying the standard rate of UK
corporation tax of 19% (2018 - 19%) as analysed below:
Half year ended
=================
30 June 30 June
2019 2018
GBPm GBPm
============================================================= ======== =======
Profit/(loss) before tax 131 (823)
============================================================= ======== =======
Expected tax (charge)/credit (25) 156
Losses and temporary differences in period where no deferred
tax asset recognised (2) 6
Foreign profits taxed at other rates (4) (8)
Items not allowed for tax
- losses on disposals and write-downs (6) (11)
- UK bank levy 2 (1)
- regulatory and legal actions 3 (152)
- other disallowable items (16) (5)
Non-taxable items 53 -
Losses brought forward and utilised 1 -
Banking surcharge 7 7
Adjustments in respect of prior periods 61 25
Actual tax credit 74 17
============================================================= ======== =======
At 30 June 2019, NWM Group has recognised a deferred tax
liability of GBP436 million (31 December 2018 - GBP487 million).
These amounts include a deferred tax asset recognised in respect of
UK trading losses of GBP151 million (31 December 2018 - GBP151
million). Under UK tax legislation, these UK losses can be carried
forward indefinitely. The Finance Act 2016 limited the offset of
the UK banking losses carried forward to 25% of taxable profits.
NWM Group has considered the carrying value of this asset as at 30
June 2019 and concluded that it is recoverable based on future
profit projections.
Notes
6. Trading assets and liabilities
Trading assets and liabilities comprise assets and liabilities
held at fair value in trading portfolios.
30 June 31 December
2019 2018
Assets GBPm GBPm
============================== ======= ===========
Loans
Reverse repos 27,386 24,758
Cash collateral given 20,553 18,898
Other loans 1,594 1,302
============================== ======= ===========
Total loans 49,533 44,958
============================== ======= ===========
Securities
Central and local government
- UK 5,365 6,834
- US 6,093 4,689
- other 16,292 13,498
Other securities 5,530 4,993
============================== ======= ===========
Total securities 33,280 30,014
============================== ======= ===========
Total 82,813 74,972
============================== ======= ===========
Liabilities
============================== ======= ===========
Deposits
Repos 31,948 25,645
Cash collateral received 22,610 20,129
Other deposits 2,197 1,786
============================== ======= ===========
Total deposits 56,755 47,560
============================== ======= ===========
Debt securities in issue 1,495 902
Short positions 25,014 23,827
============================== ======= ===========
Total 83,264 72,289
============================== ======= ===========
7. Financial instruments: classification
The following tables analyse NWM Group's financial assets and
liabilities in accordance with the categories of financial
instruments in IFRS 9. Assets and liabilities outside the scope of
IFRS 9 are shown within other assets and other liabilities.
Amortised Other
MFVTPL
(1) FVOCI (2) cost assets Total
Assets GBPm GBPm GBPm GBPm GBPm
=================================== ======= ========= ========= ====== =======
Cash and balances at central banks - - 12,939 12,939
Trading assets 82,813 - 82,813
Derivatives 147,802 147,802
Settlement balances 7,147 7,147
Loans to banks - amortised cost 935 935
Loans to customers - amortised
cost 8,928 8,928
Amounts due from holding company
and fellow subsidiaries 4,869 - 687 129 5,685
Other financial assets 755 7,825 4,449 13,029
Other assets 1,146 1,146
=================================== ======= ========= ========= ====== =======
30 June 2019 236,239 7,825 35,085 1,275 280,424
=================================== ======= ========= ========= ====== =======
Cash and balances at central banks - - 11,188 11,188
Trading assets 74,972 - 74,972
Derivatives 134,250 134,250
Settlement balances - - 2,705 2,705
Loans to banks - amortised cost 626 626
Loans to customers - amortised
cost 8,366 8,366
Amounts due from holding company
and fellow subsidiaries 1,177 - 1,991 230 3,398
Other financial assets 1,134 7,436 2,698 - 11,268
Other assets 1,108 1,108
=================================== ======= ========= ========= ====== =======
31 December 2018 211,533 7,436 27,574 1,338 247,881
=================================== ======= ========= ========= ====== =======
For the notes to this table refer
to the next page.
Notes
7. Financial instruments: classification continued
Held-for- Amortised Other
trading DFV (3) cost liabilities Total
Liabilities GBPm GBPm GBPm GBPm GBPm
=================================== ========= ======= ========= =========== =======
Bank deposits 3,593 3,593
Customer deposits 2,291 2,291
Amounts due to holding company and
fellow subsidiaries 2,108 - 8,703 230 11,041
Settlement balances - - 6,759 6,759
Trading liabilities 83,264 - 83,264
Derivatives 144,420 144,420
Other financial liabilities - 2,794 15,794 18,588
Other liabilities 1,810 1,810
=================================== ========= ======= ========= =========== =======
30 June 2019 229,792 2,794 37,140 2,040 271,766
=================================== ========= ======= ========= =========== =======
Bank deposits 2,749 2,749
Customer deposits 2,580 2,580
Amounts due to holding company and
fellow subsidiaries 419 - 9,485 257 10,161
Settlement balances - - 2,914 2,914
Trading liabilities 72,289 - 72,289
Derivatives 129,914 - 129,914
Other financial liabilities - 3,049 13,230 16,279
Other liabilities 1,906 1,906
=================================== ========= ======= ========= =========== =======
31 December 2018 202,622 3,049 30,958 2,163 238,792
=================================== ========= ======= ========= =========== =======
Notes:
(1) Mandatory fair value through profit or loss.
(2) Fair value through other comprehensive income.
(3) Designated as at fair value through profit or loss.
The above includes amounts due from/to the holding company
and fellow subsidiaries, as follows:
30 June 2019 31 December 2018
===================== =====================
Holding Fellow Holding Fellow
company subsidiaries company subsidiaries
GBPm GBPm GBPm GBPm
==================================== ======= ============ ======= ============
Assets
Loans to banks - amortised cost - 135 - 1,780
Loans to customers - amortised cost 383 154 144 67
Derivatives 419 3,838 376 813
Liabilities
Bank deposits - 1,140 - 2,125
Customer deposits 5,234 225 5,189 209
Subordinated liabilities 2,094 - 1,962 -
Derivatives 803 5,011 476 703
==================================== ======= ============ ======= ============
Notes
7. Financial instruments: classification continued
NWM Plc financial assets and liabilities include:
30 June 31 December
2019 2018
GBPm GBPm
================================================== ======= ===========
Reverse repos
Loans to customers - amortised cost 42 9
Trading assets 27,386 24,758
Repos
Bank deposits 870 424
Trading liabilities 31,948 25,645
================================================== ======= ===========
Valuation Hierarchy
Disclosures relating to the control environment, valuation
techniques and related aspects pertaining to financial instruments
measured at fair value are included in NWM Group's 2018 Annual
Report and Accounts. Valuation, sensitivity methodologies and
inputs at 30 June 2019 are consistent with those described in Note
12 to NWM Group's 2018 Annual Report and Accounts.
The tables below show financial instruments carried at fair
value on NWM Group's balance sheet by valuation hierarchy - level
1, level 2 and level 3 and related level 3 sensitivities.
30 June 2019 31 December 2018
====================== ======================
Level Level Level Level Level Level
1 2 3 1 2 3
Assets GBPm GBPm GBPm GBPm GBPm GBPm
================================ ====== ======= ===== ====== ======= =====
Trading assets
Loans - 49,259 274 - 44,838 120
Securities 24,197 8,744 339 22,003 7,312 699
Derivatives 5 146,076 1,721 - 132,346 1,904
Amount due from holding company
and fellow subsidiaries - 4,869 - - 1,177 -
Other financial assets
Loans - 91 63 - 374 86
Securities 6,203 2,012 211 6,706 959 445
================================ ====== ======= ===== ====== ======= =====
Total financial assets held
at fair value 30,405 211,051 2,608 28,709 187,006 3,254
================================ ====== ======= ===== ====== ======= =====
Liabilities
================================ ====== ======= ===== ====== ======= =====
Amount due to holding company
and fellow subsidiaries - 2,108 - - 413 6
Trading liabilities
Deposits - 56,454 301 - 47,183 377
Debt securities in issue - 1,415 80 - 790 112
Short positions 19,656 5,358 - 18,941 4,886 -
Derivatives 4 143,135 1,281 - 128,638 1,276
Other financial liabilities
Debt securities in issue - 2,232 156 - 2,344 280
Subordinated liabilities - 406 - - 425 -
================================ ====== ======= ===== ====== ======= =====
Total financial liabilities
held at fair value 19,660 211,108 1,818 18,941 184,679 2,051
================================ ====== ======= ===== ====== ======= =====
Notes:
(1) Level 1 - Instruments valued using unadjusted quoted prices in active
and liquid markets, for identical financial instruments. Examples
include government bonds, listed equity shares and certain exchange-traded
derivatives.
Level 2 - Instruments valued using valuation techniques that have
observable inputs. Examples include most government agency securities,
investment-grade corporate bonds, certain mortgage products, including
CLOs, most bank loans, repos and reverse repos, less liquid listed
equities, state and municipal obligations, most notes issued, and
certain money market securities and loan commitments and most OTC
derivatives.
Level 3 - Instruments valued using a valuation technique where at
least one input which could have a significant effect on the instrument's
valuation, is not based on observable market data. Examples include
cash instruments which trade infrequently, certain syndicated and
commercial mortgage loans, certain emerging markets and derivatives
with unobservable model inputs.
(2) Transfers between levels are deemed to have occurred at the beginning
of the quarter in which the instruments were transferred. There were
no significant transfers between level 1 and level 2.
Notes
7. Financial instruments: carried at fair value - valuation
hierarchy continued
30 June 2019 31 December 2018
=============================== ===============================
Level Level
3 Favourable Unfavourable 3 Favourable Unfavourable
Assets GBPm GBPm GBPm GBPm GBPm GBPm
============================== ===== ========== ============ ===== ========== ============
Trading assets
Loans 274 10 (10) 120 10 (10)
Securities 339 10 - 699 20 (10)
Derivatives
Interest rate 1,146 180 (180) 1,363 110 (110)
Foreign exchange 111 10 (10) 130 10 (10)
Other 464 50 (50) 411 40 (40)
Other financial assets
Loans 63 - - 86 - (10)
Securities 211 10 - 445 40 (20)
============================== ===== ========== ============ ===== ========== ============
Total financial assets held
at fair value 2,608 270 (250) 3,254 230 (210)
============================== ===== ========== ============ ===== ========== ============
Liabilities
============================== ===== ========== ============ ===== ========== ============
Amount due to holding company
and fellow subsidiaries - - - 6 - -
Trading liabilities
Deposits 301 30 (30) 377 40 (40)
Debt securities in issue 80 - - 112 10 (10)
Derivatives
Interest rate 761 100 (100) 805 70 (70)
Foreign exchange 304 10 (10) 279 10 (10)
Other 216 10 (10) 192 10 (10)
Other financial liabilities
Debt securities in issue 156 - - 280 10 (10)
============================== ===== ========== ============ ===== ========== ============
Total financial liabilities
held at fair value 1,818 150 (150) 2,051 150 (150)
============================== ===== ========== ============ ===== ========== ============
Movement in level 3 portfolios
Half year ended 2019 Half year ended 2018
Other Other
Trading financial Total Total Trading financial Total Total
assets assets assets assets
(2) (3) assets liabilities (2) (3) assets liabilities
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================== ======= ========= ====== =========== ======= ========= ====== ===========
At 1 January 2,723 531 3,254 2,051 2,681 282 2,963 2,096
Amount recorded in the income
statement (1) (85) 6 (79) 225 (67) 62 (5) (198)
Amount recorded in the statement
of
comprehensive income - 33 33 - - (2) (2) -
Level 3 transfers in 156 2 158 56 491 - 491 197
Level 3 transfers out (476) (133) (609) (239) (181) (1) (182) (107)
Issuances - - - 23 - - - 24
Purchases 368 - 368 272 596 - 596 191
Settlements (88) (6) (94) (142) (412) - (412) (104)
Sales (263) (157) (420) (428) (633) (76) (709) (134)
Foreign exchange and other
adjustments (1) (2) (3) - 2 1 3 -
================================== ======= ========= ====== =========== ======= ========= ====== ===========
At 30 June 2,334 274 2,608 1,818 2,477 266 2,743 1,965
================================== ======= ========= ====== =========== ======= ========= ====== ===========
Amounts recorded in the income
statement in
respect of balances held at
period end
- unrealised (85) 6 (79) 225 (46) 7 (39) (191)
- realised - - - - 1 10 11 7
================================== ======= ========= ====== =========== ======= ========= ====== ===========
Notes:
(1) Net losses on trading assets instruments of GBP320 million (30
June 2018 - GBP114 million gain) were recorded in income from
trading activities in continuing operations. Net gains on other
instruments of GBP16 million (30 June 2018 - GBP79 million gain)
were recorded in other operating income and interest income as
appropriate in continuing operations.
(2) Trading assets comprise assets held at fair value in trading
portfolios.
(3) Other financial assets comprise fair value through other comprehensive
income, designated as at fair value through profit or loss and
mandatory fair value through profit or loss.
Notes
7. Fair value of financial instruments not carried at fair
value
The following table shows the carrying value and fair value of
financial instruments carried at amortised cost on the balance
sheet.
Items where fair value
approximates Fair value hierarchy
level
======================
carrying Carrying
value value Fair value Level 2 Level 3
30 June 2019 GBPbn GBPbn GBPbn GBPbn GBPbn
=================================== ============ ======== ========== ========== ==========
Financial assets
Cash and balances at central banks 12.9
Settlement balances 7.1
Loans to banks 0.9 0.9 0.2 0.7
Loans to customers 8.9 8.9 0.2 8.7
Amounts due from holding company
and fellow subsidiaries 0.2 0.5 0.5 - 0.5
Other financial assets
Securities 4.4 4.5 2.7 1.8
=================================== ============ ======== ========== ========== ==========
Financial liabilities
Bank deposits 0.1 3.5 3.5 - 3.5
Customer deposits 0.8 1.5 1.5 - 1.5
Amounts due to holding company
and fellow subsidiaries 1.0 7.7 7.7 - 7.7
Settlement balances 6.8
Other financial liabilities
Debt securities in issue 15.6 17.1 17.1 -
Subordinated liabilities 0.2 0.2 0.2 -
=================================== ============ ======== ========== ========== ==========
31 December 2018
=================================== ============ ======== ========== ========== ==========
Financial assets
Cash and balances at central banks 11.2
Settlement balances 2.7
Loans to banks 0.6 0.6 0.3 0.3
Loans to customers 8.4 8.3 0.3 8.0
Amounts due from holding company
and fellow subsidiaries 0.3 1.7 1.6 - 1.6
Other financial assets
Securities 2.7 2.7 1.6 1.1
=================================== ============ ======== ========== ========== ==========
Financial liabilities
Bank deposits 2.7 2.7 - 2.7
Customer deposits 0.9 1.7 1.7 - 1.7
Amounts due to holding company
and fellow subsidiaries 3.9 5.6 5.6 - 5.6
Settlement balances 2.9
Other financial liabilities
Debt securities in issue 13.0 14.7 14.7 -
Subordinated liabilities 0.2 0.2 0.2 -
=================================== ============ ======== ========== ========== ==========
The fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Quoted market
values are used where available; otherwise, fair values have been
estimated based on discounted expected future cash flows and other
valuation techniques. These techniques involve uncertainties and
require assumptions and judgements covering prepayments, credit
risk and discount rates. Furthermore, there is a wide range of
potential valuation techniques. Changes in these assumptions would
significantly affect estimated fair values. The fair values
reported would not necessarily be realised in an immediate sale or
settlement.
Notes
8. Provisions for liabilities and charges
Litigation
and other
regulatory
(incl.
RMBS) Other (1) Total
GBPm GBPm GBPm
================================================ ========== ========= =====
At 1 January 2019 698 197 895
Implementation of IFRS 16 on 1 January 2019 (2) - (8) (8)
ECL impairment release - (1) (1)
Transfer (50) 50 -
Transfer in from accruals and other liabilities - 1 1
Currency translation and other movements (4) (1) (5)
Transfer from fellow subsidiaries - 1 1
Charge to income statement 11 8 19
Releases to income statement (40) (39) (79)
Provisions utilised (28) (50) (78)
================================================ ========== ========= =====
At 30 June 2019 587 158 745
================================================ ========== ========= =====
Notes:
(1) Materially comprises provisions relating to property closures and
restructuring costs.
(2) Refer to Note 2 for further information on the impact of IFRS 16
implementation.
9. Dividends
An interim initial ordinary dividend of GBP100 million and then
an ordinary dividend of GBP400 million was paid to NWM Plc's parent
company, RBSG, in H1 2019 (H1 2018 - nil).
10. Loan impairment provision
Portfolio summary
The table below shows gross loans and ECL, by segment and stage,
within the scope of the IFRS 9 ECL framework.
31 December
Central
items 2018
NWM & other Total Total
30 June 2019 GBPm GBPm GBPm GBPm
========================================== ======= ======= ======= ===========
Loans - amortised cost
Stage 1 8,779 306 9,085 8,088
Stage 2 174 - 174 365
Stage 3 679 - 679 671
Inter-Group - - 672 2,634
========================================== ======= ======= ======= ===========
Total 9,632 306 10,610 11,758
========================================== ======= ======= ======= ===========
ECL provisions (1)
Stage 1 6 - 6 6
Stage 2 8 - 8 8
Stage 3 52 - 52 62
========================================== ======= ======= ======= ===========
Total 66 - 66 76
========================================== ======= ======= ======= ===========
ECL provisions coverage (2)
Stage 1 (%) 0.07 - 0.07 0.07
Stage 2 (%) 4.60 - 4.60 2.19
Stage 3 (%) 7.66 - 7.66 9.24
========================================== ======= ======= ======= ===========
Total 0.69 - 0.66 0.83
========================================== ======= ======= ======= ===========
ECL charge (3)
Third party (35) - (35) (107)
Inter-Group - - (1) 5
========================================== ======= ======= ======= ===========
Total (35) - (36) (102)
========================================== ======= ======= ======= ===========
Impairment losses
ECL loss rate - annualised (basis points) (72.67) - (70.44) (117.27)
Amounts written-off 11 - 11 69
========================================== ======= ======= ======= ===========
Notes:
(1) Includes GBP1 million (31 December 2018 - GBP2 million) related to assets at FVOCI.
(2) ECL provisions coverage is ECL provisions divided by loans - amortised cost.
(3) Includes nil (31 December 2018 - GBP3 million charge)
related to other financial assets, of which a release of GBP1
million (31 December 2018 - GBP1 million charge) related to assets
at FVOCI; and nil (31 December 2018 - GBP3 million release) related
to contingent liabilities.
(4) ECL provisions on inter-Group loans were nil at 30 June 2019
(31 December 2018 - GBP0.2 million), which gave a provision
coverage of nil (31 December 2018 - 0.02%).
(5) Refer to Note 7 for balance sheet analysis of financial
assets that are classified as AC and FVOCI, the starting point for
IFRS 9 ECL framework assessment. The above table relates to gross
loans only and excludes amounts that are outside the scope of the
ECL framework, primarily related to non-credit risk assets. Other
financial assets within the scope of the IFRS 9 ECL framework at 30
June 2019 were cash at central banks totalling GBP12.9 billion and
debt securities of GBP11.4 billion (31 December 2018 - GBP11.2
billion and GBP9.8 billion respectively).
Key points
-- Total ECL provisions reduced in the first half of the year due to
write-offs of legacy Stage 3 exposures combined with no new material
defaults.
-- The reduction of exposure in Stage 2 was driven by cases returning
to Stage 1, in particular by counterparties coming off the Risk of
Credit Loss framework.
-- The ECL release of GBP35 million primarily relates to gains in purchased
or originated credit impaired exposures.
Notes
10. Loan impairment provision continued
Flow statement
The flow statement that follows shows the main ECL and related
income statement movements. It also shows the changes in ECL as
well as the changes in related financial assets used in determining
ECL. Due to differences in scope, exposures in this section may
therefore differ from those reported in other tables, principally
in relation to exposures in Stage 1 and Stage 2. These differences
do not have a material ECL impact because they relate to balances
at central banks. Other points to note:
-- Financial assets presented in the flow statements include
treasury liquidity portfolios, comprising balances at central banks
and debt securities, as well as loans. Both modelled and
non-modelled portfolios are included.
-- Stage transfers (for example, exposures moving from Stage 1
to Stage 2) are a key feature of ECL movements, with the net
re-measurement cost of transitioning to a worse stage being a
primary driver of income statement charges. Similarly there is an
ECL benefit for accounts improving stage.
-- Changes in risk parameters shows the reassessment of the ECL
within a given stage, including any ECL overlays and residual
income statement gains or losses at the point of write-off or
accounting write-down.
-- Other (P&L only items) includes any subsequent changes in
the value of written-down assets along with other direct write-off
items such as direct recovery costs. Other (P&L only items)
affects the income statement but does not affect balance sheet ECL
movements.
-- Amounts written-off - represent the gross asset written-down
against accounts with ECL, including the net asset write-down for
any debt sale activity.
Stage 1 Stage 2 Stage 3 Total
--------------- ---------------
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================ ========= ==== ========= ==== ========= ==== ========= ====
At 1 January 2019 32,499 6 670 11 647 67 33,816 84
Currency translation and other
adjustments 12 - (4) - - (1) 8 (1)
Inter-Group transfers (355) - 8 - 20 - (327) -
Transfers from Stage 1 to Stage
2 (190) - 190 - - - - -
Transfers from Stage 2 to Stage
1 276 2 (276) (2) - - - -
Net re-measurement of ECL on
stage transfer (2) 1 - (1)
Changes in risk parameters
(model inputs) (2) - (3) (5)
Other changes in net exposure (1,267) 2 (205) (2) 8 - (1,464) -
Other (P&L only items) - - (29) (29)
-------------------------------- --------- ---- --------- ---- --------- ---- --------- ----
Income statement releases (2) (1) (32) (35)
Amounts written off - - - - (11) (11) (11) (11)
At 30 June 2019 30,975 6 383 8 664 52 32,022 66
================================ ========= ==== ========= ==== ========= ==== ========= ====
Net carrying amount 30,969 375 612 31,956
================================ ========= ==== ========= ==== ========= ==== ========= ====
Key points
-- Stage 3 financial assets included GBP193 million (31 December 2018
- GBP166 million) purchased or originated credit impaired (POCI) assets.
No ECL impairment was held on these positions and a GBP27 million
impairment recovery was recognised on these POCI assets during H1
(included in other (P&L only items).
-- Stage 1 and Stage 2 changes to risk parameters reflected an improvement
in underlying credit risk metrics.
Notes
11. Contingent liabilities, commitments and guarantees
30 June 31 December
2019 2018
GBPm GBPm
======================================================= ======= ===========
Guarantees 220 278
Other contingent liabilities 172 186
Standby facilities, credit lines and other commitments 10,847 10,659
======================================================= ======= ===========
Contingent liabilities and commitments 11,239 11,123
======================================================= ======= ===========
Contingent liabilities arise in the normal course of NWM Group's
business; credit exposure is subject to NWM Plc's normal controls.
The amounts shown do not, and are not intended to, provide any
indication of NWM Group's expectation of future losses.
Risk sharing arrangements
During the period, NWM Plc and NWM N.V. have established limited
risk-sharing arrangements that facilitate the smooth provision of
services to NatWest Markets' customers. The arrangements
include:
-- The provision of a funded guarantee of up to GBP3.0 billion by NWM
Plc to NWM N.V. that limits NWM N.V.'s exposure to large individual
customer credits to 10% of NWM N.V.'s capital. Funding is provided
by NWM Plc deposits placed with NWM N.V. of not less than the guaranteed
amount. At 30 June 2019 the deposits amounted to GBP0.2 billion and
the guarantee fees in the period were GBP0.3 million.
-- The provision of a funded and an unfunded guarantee by NWM Plc in
respect of NWM N.V.'s Legacy portfolio. At 30 June 2019 the exposure
at default covered by the guarantees was approximately GBP0.4 billion
of which GBP0.2 billion was funded. The guarantee fees in the period
were GBP2 million.
Indemnity deed
In April 2019, NWM Plc and NatWest Bank entered into a cross
indemnity agreement for losses incurred within the entities in
relation to business transferred to or from the ring-fenced bank
under the RBS Group's structural re-organisation. Under the
agreement, NWM Plc is indemnified by NatWest Bank against losses
relating to the NatWest Bank transferring businesses and
ring-fenced bank obligations and NatWest Bank is indemnified by NWM
Plc against losses relating to the NWM Plc transferring businesses
and non ring-fenced bank obligations with effect from the relevant
transfer date.
12. Litigation, investigations and reviews
NWM Plc and its subsidiary and associated undertakings ('NWM
Group') are party to legal proceedings and the subject of
investigation and other regulatory and governmental action
('Matters') in the United Kingdom (UK), the United States (US), the
European Union (EU) and other jurisdictions.
NWM Group recognises a provision for a liability in relation to
these Matters when it is probable that an outflow of economic
benefits will be required to settle an obligation resulting from
past events, and a reliable estimate can be made of the amount of
the obligation.
In many proceedings and investigations, it is not possible to
determine whether any loss is probable or to estimate reliably the
amount of any loss, either as a direct consequence of the relevant
proceedings and investigations or as a result of adverse impacts or
restrictions on NWM Group's reputation, businesses and operations.
Numerous legal and factual issues may need to be resolved,
including through potentially lengthy discovery and document
production exercises and determination of important factual
matters, and by addressing novel or unsettled legal questions
relevant to the proceedings in question, before a liability can
reasonably be estimated for any claim. NWM Group cannot predict if,
how, or when such claims will be resolved or what the eventual
settlement, damages, fine, penalty or other relief, if any, may be,
particularly for claims that are at an early stage in their
development or where claimants seek substantial or indeterminate
damages.
There are situations where NWM Group may pursue an approach that
in some instances leads to a settlement agreement. This may occur
in order to avoid the expense, management distraction or
reputational implications of continuing to contest liability, or in
order to take account of the risks inherent in defending claims or
investigations, even for those Matters for which NWM Group believes
it has credible defences and should prevail on the merits. The
uncertainties inherent in all such Matters affect the amount and
timing of any potential outflows for both Matters with respect to
which provisions have been established and other contingent
liabilities.
Notes
12. Litigation, investigations and reviews continued
The future outflow of resources in respect of any Matter may
ultimately prove to be substantially greater than or less than the
aggregate provision that NWM Group has recognised. Where (and as
far as) liability cannot be reasonably estimated, no provision has
been recognised. NWM Group expects that in future periods,
additional provisions, settlement amounts and customer redress
payments will be necessary, in amounts that are expected to be
substantial in some instances.
For a discussion of certain risks associated with NWM Group's
litigation, investigations and reviews, see the Risk Factor
relating to legal, regulatory and governmental actions and
investigations set out in NWM Group's 2018 Annual Report and
Accounts on page 133.
Litigation
Residential mortgage-backed securities (RMBS) litigation in the
US
NatWest Markets Securities Inc. (NWMSI) and certain affiliates
continue to defend RMBS-related claims in the US in which
plaintiffs allege that certain disclosures made in connection with
the relevant offerings of RMBS contained materially false or
misleading statements and/or omissions regarding the underwriting
standards pursuant to which the mortgage loans underlying the RMBS
were issued. The remaining RMBS lawsuits against NWM Group
companies consist of cases filed by the Federal Home Loan Banks of
Boston and Seattle and the Federal Deposit Insurance Corporation
that together involve the issuance of less than US$1 billion of
RMBS issued primarily from 2005 to 2007. In addition, NWMSI
previously agreed to settle a purported RMBS class action entitled
New Jersey Carpenters Health Fund v. Novastar Mortgage Inc. et al.
for US$55.3 million, which was paid into escrow pending court
approval of the settlement, which was granted on 11 March 2019, but
which is now the subject of an appeal by a class member who does
not want to participate in the settlement.
London Interbank Offered Rate (LIBOR) and other rates
litigation
NWM Plc and certain other members of NWM Group, including RBSG,
are defendants in a number of class actions and individual claims
pending in the US (primarily in the United States District Court
for the Southern District of New York (SDNY)) with respect to the
setting of LIBOR and certain other benchmark interest rates. The
complaints allege that the NWM Group defendants and other panel
banks violated various federal laws, including the US commodities
and antitrust laws, and state statutory and common law, as well as
contracts, by manipulating LIBOR and prices of LIBOR-based
derivatives in various markets through various means.
Several class actions relating to USD LIBOR, as well as more
than two dozen non-class actions concerning USD LIBOR, are part of
a co-ordinated proceeding in the SDNY. In December 2016, the SDNY
held that it lacks personal jurisdiction over NWM Group defendants
with respect to certain claims. As a result of that decision, all
NWM Group defendants have been dismissed from each of the USD
LIBOR-related class actions (including class actions on behalf of
over-the-counter plaintiffs, exchange-based purchaser plaintiffs,
bondholder plaintiffs, and lender plaintiffs), but seven non-class
cases in the co-ordinated proceeding remain pending against NWM
Group defendants. The dismissal of NWM Group defendants for lack of
personal jurisdiction is the subject of a pending appeal to the
United States Court of Appeals for the Second Circuit.
Among the non-class claims dismissed by the SDNY in December
2016 were claims that the Federal Deposit Insurance Corporation
(FDIC) had asserted on behalf of certain failed US banks. In July
2017, the FDIC, on behalf of 39 failed US banks, commenced
substantially similar claims against NWM Plc, RBSG and others in
the High Court of Justice of England and Wales. The action alleges
that the defendants breached English and European competition law
as well as asserting common law claims of fraud under US law.
In addition, there are two class actions against NWM Group
defendants relating to JPY LIBOR and Euroyen TIBOR, both pending
before the same judge in the SDNY. In the first class action, which
relates to Euroyen TIBOR futures contracts, the court dismissed the
plaintiffs' antitrust claims in March 2014, but declined to dismiss
their claims under the Commodity Exchange Act for price
manipulation, and the case is proceeding in the discovery phase.
The second class action relates to other derivatives allegedly tied
to JPY LIBOR and Euroyen TIBOR. The court dismissed that case in
March 2017 on the ground that the plaintiffs lack standing. The
plaintiffs have commenced an appeal of that decision.
Notes
12. Litigation, investigations and reviews continued
There is also a class action relating to the Singapore Interbank
Offered Rate and Singapore Swap Offer Rate pending in the SDNY. In
that case, the court denied defendants' motion to dismiss on 5
October 2018 in a ruling that would have permitted certain
antitrust claims to proceed against NWM Plc and other non-NWM Group
defendants. However, on 26 July 2019, the court determined that the
named plaintiffs asserting such claims do not have standing and
therefore dismissed the case. The dismissal is subject to
appeal.
Four other class action complaints were filed against NWM Group
defendants in the SDNY, each relating to a different reference
rate. In the case relating to Pound Sterling LIBOR, the court
dismissed all claims against NWM Plc (the only NWM Group defendant
in that case), for various reasons, on 21 December 2018, and
plaintiffs are seeking reconsideration of that decision. In the
case relating to the Australian Bank Bill Swap Reference Rate, the
court dismissed all claims against NWM Group defendants for lack of
personal jurisdiction on 26 November 2018, but plaintiffs have
filed an amended complaint, which is the subject of a further
motion to dismiss. In the case relating to Euribor, the court
dismissed all claims against NWM Plc (the only NWM Group defendant
in that case) for lack of personal jurisdiction in February 2017,
but in June 2019, the plaintiffs commenced an appeal of that
decision. In the case relating to Swiss Franc LIBOR, the court
dismissed all claims against all defendants on various grounds in
September 2017, but held that it has personal jurisdiction over NWM
Plc and allowed the plaintiffs to replead their complaint.
Defendants' renewed motion to dismiss the amended complaint
relating to Swiss Franc LIBOR remains pending.
NWM Plc has also been named as a defendant in a motion to
certify a class action relating to LIBOR in the Tel Aviv District
Court in Israel. NWM Plc has filed a motion for cancellation of
service. If the motion is successful then the current action will
be brought to an end, although the claimants may seek to re-raise
the claim in the future.
NWM Plc is defending a claim in the High Court in London brought
by London Bridge Holdings Ltd and others, in which the claimants
allege LIBOR manipulation in connection with the sale of interest
rate hedging products. The quantified sum claimed in that case is
GBP446.7 million.
Details of UK litigation claims in relation to the alleged
mis-sale of interest rate hedging products (IRHPs) involving
LIBOR-related allegations are set out under 'Interest rate hedging
products and similar litigation' on page 30.
In January 2019, a class action antitrust complaint was filed in
the SDNY alleging that the defendants (USD ICE LIBOR panel banks
and affiliates) have conspired to suppress USD ICE LIBOR from 2014
to the present by submitting incorrect information to ICE about
their borrowing costs. The defendants include RBSG, NWM Plc, NWMSI
and NatWest Bank Plc.
FX antitrust litigation
NWM Plc, NWMSI and / or RBSG, are defendants in several cases
relating to NWM Plc's foreign exchange (FX) business, each of which
is pending before the same federal judge in the SDNY.
In 2015, NWM Plc paid US$255 million to settle the consolidated
antitrust class action on behalf of persons who entered into
over-the-counter FX transactions with defendants or who traded FX
instruments on exchanges. That settlement received final court
approval in August 2018. On 7 November 2018, some members of the
settlement class who opted out of the settlement filed their own
non-class complaint in the SDNY asserting antitrust claims against
NWM Plc, NWMSI and other banks. On 31 December 2018, some of the
same claimants, as well as others, filed proceedings in the High
Court in London, asserting competition claims against NWM Plc and
several other banks. The claim was served on 25 April 2019.
Two other FX-related class actions remain pending in the SDNY.
First, there is a class action on behalf of 'consumers and end-user
businesses,' which is proceeding against NWM Plc in the discovery
phase following the SDNY's denial of the defendants' motions to
dismiss in March 2018. Second, there is a class action on behalf of
'indirect purchasers' of FX instruments (which plaintiffs define as
persons who transacted FX instruments with retail foreign exchange
dealers that transacted directly with defendant banks). That case
is proceeding in discovery against NWMSI and other defendants
following the SDNY's denial of defendants' motion to dismiss on 25
October 2018. On 20 May 2019, NWM Plc was dismissed from the case
for lack of personal jurisdiction, but plaintiffs are seeking
permission to replead their complaint to establish
jurisdiction.
Notes
12. Litigation, investigations and reviews continued
On 27 May 2019, a class action was filed in the Federal Court of
Australia against NWM Plc and other banks on behalf of persons who
bought or sold currency through FX spots or forwards between 1
January 2008 and 15 October 2013 with a total transaction value
exceeding AUS $0.5m. RBSG has been named in the action as a 'cartel
party', but is not a defendant. The claim was served on 28 June
2019.
On 29 July 2019, an application for a collective proceedings
order was filed in the UK Competition Appeal Tribunal against RBSG,
NWM Plc and other banks on behalf of persons who, between 18
December 2007 and 31 January 2013, entered into a relevant FX spot
or outright forward transaction in the EEA with a relevant
financial institution or on an electronic communications
network.
Two motions to certify FX-related class actions have been filed
in the Tel Aviv District Court in Israel. RBSG and NWMSI have been
named as defendants in the first motion. The Royal Bank of Scotland
plc has been named in the second. These motions have not been
served.
Certain other foreign exchange transaction related claims have
been or may be threatened. NWM Group cannot predict whether any of
these claims will be pursued, but expects that some may.
Government securities antitrust litigation
NWMSI and certain other US broker-dealers are defendants in a
consolidated antitrust class action pending in the SDNY on behalf
of persons who transacted in US Treasury securities or derivatives
based on such instruments, including futures and options. The
plaintiffs allege that defendants rigged the US Treasury securities
auction bidding process to deflate prices at which they bought such
securities and colluded to increase the prices at which they sold
such securities to plaintiffs. The defendants' motion to dismiss
this matter remains pending.
Class action antitrust claims commenced in March 2019 are
pending in the SDNY against NWM Plc, NWMSI and other banks. The
complaints allege a conspiracy among dealers of Euro-denominated
bonds issued by European central banks (EGBs), to widen the bid-ask
spreads they quoted to customers, thereby increasing the prices
customers paid for the EGBs or decreasing the prices at which
customers sold the bonds. The class consists of those who purchased
or sold EGBs in the US between 2007 and 2012.
Swaps antitrust litigation
NWM Plc, NWMSI and RBSG, as well as a number of other interest
rate swap dealers, are defendants in several cases pending in the
SDNY alleging violations of the US antitrust laws in the market for
interest rate swaps. There is a consolidated class action complaint
on behalf of persons who entered into interest rate swaps with the
defendants, as well as non-class action claims by three swap
execution facilities (TeraExchange, Javelin, and trueEx). The
plaintiffs allege that the swap execution facilities would have
successfully established exchange-like trading of interest rate
swaps if the defendants had not unlawfully conspired to prevent
that from happening through boycotts and other means. Discovery in
these cases is ongoing.
In addition, in June 2017, TeraExchange filed a complaint
against NWM Plc, NWMSI and RBSG, as well as a number of other
credit default swap dealers, in the SDNY. TeraExchange alleges it
would have established exchange-like trading of credit default
swaps if the defendant dealers had not engaged in an unlawful
antitrust conspiracy. On 1 October 2018, the court dismissed all
claims against NWM Plc, NWMSI and RBSG.
Interest rate hedging products and similar litigation
NWM Plc is dealing with a number of active litigation claims in
the UK in relation to the alleged mis-selling of interest rate
hedging products (IRHPs). In general claimants allege that the
relevant IRHPs were mis-sold to them, with some also alleging that
misrepresentations were made in relation to LIBOR. Claims have been
brought by customers who were considered under the UK Financial
Conduct Authority (FCA) redress programme for IRHPs, as well as
customers who were outside of the scope of that programme, which
was closed to new entrants in March 2015. NWM Plc remains exposed
to potential claims from customers who were either ineligible to be
considered for redress or who are dissatisfied with their redress
offers.
Notes
12. Litigation, investigations and reviews continued
Property Alliance Group (PAG) v NatWest Markets Plc was the
leading case before the English High Court involving both IRHP
mis-selling and LIBOR misconduct allegations. The amount claimed
was GBP34.8 million. Following dismissal by the Court of all PAG's
claims in December 2016, PAG appealed to the Court of Appeal, which
dismissed the appeal in March 2018. In July 2018 the Supreme Court
declined the request from PAG for permission to appeal an aspect of
the judgment relating to implied representations of Sterling LIBOR
rates. The Court of Appeal's decision may impact other IRHP and
LIBOR-related cases currently pending in the English courts, some
of which involve substantial amounts.
Separately, NWM Plc is defending claims filed in France by five
French local authorities relating to structured interest rate
swaps. The plaintiffs allege, among other things, that the swaps
are void for being illegal transactions, that they were mis-sold,
and that information / advisory duties were breached. Of the
remaining claims, two are being appealed to the Supreme Court and
one remains to be heard before the lower court.
Tax dispute
HMRC issued a tax assessment in 2012 against RBSG for
approximately GBP86 million regarding a value-added-tax ('VAT')
matter in relation to the trading of European Union Allowances
('EUAs') by a joint venture subsidiary in 2009. RBSG has lodged an
appeal, which is still to be heard, before the First-tier Tribunal
(Tax), a specialist tax tribunal, challenging the assessment (the
'Tax Dispute'). In the event that the assessment is upheld,
interest and costs would be payable, and a penalty of up to 100 per
cent of the VAT held to have been legitimately denied by HMRC could
also be levied. Separately, NWM Plc is a named defendant in civil
proceedings before the High Court brought in 2015 by ten companies
(all in liquidation) (the 'Liquidated Companies') and their
respective liquidators (together, 'the Claimants'). The Liquidated
Companies previously traded in EUAs in 2009 and are alleged to be
defaulting traders within (or otherwise connected to) the EUA
supply chains forming the subject of the Tax Dispute. The Claimants
claim approximately GBP71.4 million plus interest and costs and
allege that NWM Plc dishonestly assisted the directors of the
Liquidated Companies in the breach of their statutory duties and/or
knowingly participated in the carrying on of the business of the
Liquidated Companies with intent to defraud creditors. The trial in
that matter concluded on 20 July 2018 and judgment is awaited.
US Anti-Terrorism Act litigation
NWM Plc, NatWest Markets N.V. and certain other financial
institutions are defendants in an action pending in the SDNY, filed
in November 2017 by a number of US nationals (or their estates,
survivors, or heirs), most of whom are or were US military
personnel, who were killed or injured in attacks in Iraq between
2003 and 2011. The attacks at issue in the case were allegedly
perpetrated by Hezbollah and certain Iraqi terror cells allegedly
funded by the Islamic Republic of Iran. According to the
plaintiffs' allegations, the defendants are liable for damages
arising from the attacks because they allegedly conspired with Iran
and certain Iranian banks to assist Iran in transferring money to
Hezbollah and the Iraqi terror cells, in violation of the US
Anti-Terrorism Act, by agreeing to engage in 'stripping' of
transactions initiated by the Iranian banks so that the Iranian
nexus to the transactions would not be detected. The claim was
dismissed on 28 March 2019. The dismissal is subject to repleading
by the plaintiffs or appeal.
Securities underwriting litigation
NWMSI is an underwriter defendant in several securities class
actions in the US in which plaintiffs generally allege that an
issuer of public debt or equity securities, as well as the
underwriters of the securities (including NWMSI), are liable to
purchasers for misrepresentations and omissions made in connection
with the offering of such securities.
Investigations and reviews
NWM Group's financial condition can be affected by the actions
of various governmental and regulatory authorities in the UK, the
US, the EU and elsewhere. NWM Group companies have engaged, and
will continue to engage, in discussions with relevant governmental
and regulatory authorities, including in the UK, the US, the EU and
elsewhere, on an ongoing and regular basis, and in response to
informal and formal inquiries or investigations, regarding
operational, systems and control evaluations and issues including
those related to compliance with applicable laws and regulations,
including consumer protection, business conduct,
competition/anti-trust, anti-bribery, anti-money laundering and
sanctions regimes.
NWM Group companies have been providing, and continue to
provide, information regarding a variety of matters, including, for
example, the setting of benchmark rates and related derivatives
trading, conduct in the foreign exchange market, and various issues
relating to the issuance, underwriting, and sales and trading of
fixed-income securities, including structured products and
government securities, some of which have resulted, and others of
which may result, in investigations or proceedings.
Notes
12. Litigation, investigations and reviews continued
Any matters discussed or identified during such discussions and
inquiries may result in, among other things, further inquiry or
investigation, other action being taken by governmental and
regulatory authorities, increased costs being incurred by NWM
Group, remediation of systems and controls, public or private
censure, restriction of NWM Group's business activities and/or
fines. Any of the events or circumstances mentioned in this
paragraph or below could have a material adverse effect on NWM
Group, its business, authorisations and licences, reputation,
results of operations or the price of securities issued by it.
NWM Group is co-operating fully with the investigations and
reviews described below.
US investigations relating to fixed-income securities
In the US, NWM Group companies, including NWMSI, and its
affiliates, have in recent years been involved in investigations
relating to, among other things, issuance, underwriting and trading
in RMBS and other mortgage-backed securities and collateralised
debt obligations (CDOs). Investigations by the US Department of
Justice (DoJ) and several state attorneys general relating to the
issuance and underwriting of RMBS were previously resolved. Certain
other state attorneys general have sought information regarding
similar issues, and NWM Group is aware that at least one such
investigation is ongoing.
In October 2017, NWMSI entered into a non-prosecution agreement
(NPA) with the United States Attorney for the District of
Connecticut (USAO) in connection with alleged misrepresentations to
counterparties relating to secondary trading in various forms of
asset-backed securities. In the NPA, the USAO agreed not to file
criminal charges relating to certain conduct and information
described in the NPA if NWMSI complies with the NPA's reporting and
conduct requirements during its term.
The NatWest Markets business is currently responding to a
criminal investigation concerning unrelated securities trading by
certain traders in 2018, which was reported to the USAO during the
course of the NPA. In April 2019, NWMSI agreed to a second
six-month extension of the NPA so that the USAO could review the
circumstances of that unrelated matter.
Foreign exchange related investigations
In May and June 2019, RBSG and NWM Plc reached settlements
totalling approximately EUR 275 million in connection with the EC
and certain other related competition law investigations into FX
trading. The aggregate amount is fully covered by existing
provisions in NWM Plc. NWM Plc continues to co-operate with ongoing
investigations from competition authorities on similar issues
relating to past FX trading. The exact timing and amount of future
financial penalties, related risks and collateral consequences
remain uncertain and may be material.
In 2014 and 2015, NWM Plc paid significant penalties to resolve
investigations into its FX business by the FCA, the CFTC, the DoJ,
and the Board of Governors of the Federal Reserve System (Federal
Reserve). As part of its plea agreement with the DoJ, NWM Plc pled
guilty to a one-count information charging an antitrust conspiracy
occurring between as early as December 2007 to at least April 2010.
NWM Plc admitted that it knowingly, through one of its Euro/US
dollar currency traders, joined and participated in a conspiracy to
eliminate competition in the purchase and sale of the Euro/US
dollar currency pair exchanged in the FX spot market. On 5 January
2017, the United States District Court for the District of
Connecticut imposed a sentence on NWM Plc consisting of a US$395
million fine and a three-year probation, which among other things,
prohibits NWM Plc from committing another crime in violation of US
law or engaging in the FX trading practices that form the basis for
the charged crime and requires NWM Plc to implement a compliance
program designed to prevent and detect the unlawful conduct at
issue and to strengthen its compliance and internal controls as
required by other regulators (including the FCA and the CFTC). A
violation of the terms of probation could lead to the imposition of
additional penalties.
As part of the settlement with the Federal Reserve, NWM Plc and
NWMSI entered into a cease and desist order (the FX Order). In the
FX Order, which is publicly available and will remain in effect
until terminated by the Federal Reserve, NWM Plc and NWMSI agreed
to take certain remedial actions with respect to FX activities and
certain other designated market activities, including the creation
of an enhanced written internal controls and compliance program, an
improved compliance risk management program, and an enhanced
internal audit program. NWM Plc and NWMSI are obligated to
implement and comply with these programs as approved by the Federal
Reserve, and are also required to conduct, on an annual basis, a
review of applicable compliance policies and procedures and a
risk-focused sampling of key controls.
Notes
12. Litigation, investigations and reviews continued
Systematic Anti-Money Laundering Programme assessment
In December 2018, the FCA commenced a Systematic Anti-Money
Laundering Programme assessment of RBS Group. The FCA provided its
written findings to RBS Group on 28 June 2019, and RBS Group is
considering these. It is not yet possible to assess the likely
impact of this matter.
US/Swiss tax programme
In December 2015, Coutts & Co Ltd., a member of NWM Group
incorporated in Switzerland, entered into a non-prosecution
agreement (the NPA) with the DoJ. This was entered into as part of
the DoJ's programme for Swiss banks, related to its investigations
of the role that Swiss banks played in concealing the assets of US
tax payers in offshore accounts (US related accounts). Coutts &
Co Ltd. paid a US$78.5 million penalty and acknowledged
responsibility for certain conduct set forth in a statement of
facts accompanying the agreement. Under the NPA, which has a term
of four years, Coutts & Co Ltd. is required, among other
things, to provide certain information, cooperate with the DoJ's
investigations, and commit no US federal offences. If Coutts &
Co Ltd. abides by the NPA, the DoJ will not prosecute it for
certain tax-related and monetary transaction offences in connection
with US related accounts.
Since the signing of the NPA in 2015, Coutts & Co Ltd
identified and disclosed to the DoJ a number of US related accounts
that were not included in its original submission supporting the
NPA. As a result of this, Coutts & Co Ltd agreed with the DoJ
to undertake additional review work, which began in October 2018
and is now largely complete. This additional review work identified
further US related accounts, which are being discussed with the
DoJ.
Enforcement proceedings and investigations in relation to Coutts
& Co Ltd
In February 2017, the Swiss Financial Market Supervisory
Authority (FINMA) took enforcement action against Coutts & Co
Ltd with regard to failures of money laundering checks and controls
on certain client accounts that were connected with the Malaysian
sovereign wealth fund, 1MDB, and were held with Coutts & Co
Ltd. FINMA accordingly required Coutts & Co Ltd to disgorge
profits of CHF 6.5 million. There are two administrative criminal
proceedings pending before the Swiss Finance Department against two
former employees of Coutts & Co Ltd. In addition, the Monetary
Authority of Singapore (MAS)'s supervisory examination of Coutts
& Co Ltd's Singapore branch revealed breaches of anti-money
laundering requirements. MAS imposed on Coutts & Co Ltd
financial penalties amounting to SGD 2.4 million in December
2016.
In addition, Coutts & Co Ltd continues to assist with
investigations and enquiries from authorities where requested to do
so.
Notes
13. Related party transactions
UK Government
The UK Government and bodies controlled or jointly controlled by
the UK Government and bodies over which it has significant
influence are related parties of the Group. The Group enters into
transactions with many of these bodies on an arm's length
basis.
Service entity
On 30 April 2018, in preparation for ring-fencing, NWM Plc
ceased to be the main provider of shared service activities for the
RBS Group.
14. Post balance sheet events
Other than as disclosed in this document there have been no
significant events between 30 June 2019 and the date of approval of
this announcement which would require a change to, or additional
disclosure in, the announcement.
15. Date of approval
The Interim results for the half year ended 30 June 2019 were
approved by the Board of directors on 1 August 2019.
Summary risk factors
Summary of our principal risks and uncertainties
Set out below is a summary of certain risks which could
adversely affect the NWM Group; it should be read in conjunction
with the Capital and risk management section of the NWM Group's
2018 Annual Report and Accounts. This summary should not be
regarded as a complete and comprehensive statement of all potential
risks and uncertainties or of the risk factor disclosures set forth
in the NWM Group's 2018 Annual Report and Accounts and the NWM
Group's Registration Document (as approved by the Financial Conduct
Authority on 22 March 2019 (as supplemented from time to time, the
"Registration Document")). A fuller description of these and other
risk factors is included on pages 124 to 133 of the 2018 Annual
Report and Accounts and pages 13-31 of the Registration
Document.
Financial resilience risk
-- The NWM Group is reliant on access to the global capital markets
to meet its funding requirements, both directly, and indirectly through
its parent for the purchase of its internal MREL.
-- The NWM Group may not meet the prudential regulatory requirements
for capital and liquidity.
-- The NWM Group may not manage its capital, liquidity and funding effectively,
which could have an adverse effect on its financial performance including
through the triggering of certain management actions or recovery
options.
-- The NWM Group may not meet financial targets or generate sustainable
returns.
-- Any reduction in the credit rating assigned to RBSG, any of its subsidiaries
(including the Bank or other NWM Group subsidiaries) or any of their
respective debt securities, could adversely affect the availability
of funding for the NWM Group, reduce the NWM Group's liquidity position
and increase its cost of funding.
-- The NWM Group operates in markets that are highly competitive, with
increasing competitive pressures and technology disruption.
-- The NWM Group may be adversely affected if the RBS Group fails to
meet the requirements of regulatory stress tests.
-- The NWM Group has significant exposure to counterparty and borrower
risk.
-- The NWM Group could incur losses or be required to maintain higher
levels of capital as a result of limitations or failure of various
models.
-- The NWM Group's financial statements are sensitive to the underlying
accounting policies, judgements, estimates and assumptions.
-- Changes in accounting standards may materially impact the NWM Group's
financial results.
-- The value or effectiveness of any credit protection that the NWM
Group has purchased depends on the value of the underlying assets
and the financial condition of the insurers and counterparties.
-- The RBS Group (including the NWM Group) may become subject to the
application of UK statutory stabilisation or resolution powers which
may result in, among other actions, the write-down or conversion
of the NWM Group's Eligible Liabilities.
Operational and IT resilience risk
-- The NWM Group is subject to increasingly sophisticated and frequent
cyberattacks.
-- Operational risks are inherent in the NWM Group's businesses, particularly
under its new ring-fenced structure.
-- The NWM Group's operations are highly dependent on its IT systems,
and any IT failure could adversely affect the NWM Group.
-- The NWM Group relies on attracting, retaining, developing and remunerating
senior management and skilled personnel (such as market trading specialists),
and is required to maintain good employee relations.
-- A failure in the NWM Group's risk management framework could adversely
affect the NWM Group, including its ability to achieve its strategic
objectives.
-- The NWM Group's operations are subject to inherent reputational risk.
Economic and political risk
-- The NWM Group faces market risk as a result of increased political
and economic risks and uncertainty in the UK and global markets.
-- Prevailing uncertainty on the terms of the UK's withdrawal from the
European Union is adversely affecting the NWM Group. The UK is currently
expected to leave the European Union on 31 October 2019.
-- The RBS Group has executed the core aspects of its plans for continuity
of business impacted by the UK's expected departure from the EU,
including obtaining certain regulatory permissions on which it will
rely going forward. There remains uncertainty (including in respect
of the volume and pace of business transfers to NWM NV) as to the
final scope and extent of the implementation of these plans and their
impact on the NWM Group due to the prevailing political uncertainty.
-- The NWM Group expects to face significant risks in connection with
climate change and the transition to a low carbon economy, which
may cause negative financial impacts for the NWM Group.
-- Continued low interest rates have affected and will continue to affect
the NWM Group's business and results.
-- Changes in foreign currency exchange rates may affect the NWM Group's
results and financial position.
-- HM Treasury (or UKGI on its behalf) could exercise a significant
degree of influence over the RBS Group and the NWM Group is controlled
by RBSG.
Summary risk factors
Legal, regulatory and conduct risk
-- The NWM Group's businesses are subject to substantial regulation
and oversight, which are constantly evolving and may adversely affect
the NWM Group.
-- The NWM Group is required to comply with regulatory requirements
in respect of its ongoing compliance with the UK ring-fencing regime
and to ensure operational continuity in resolution. This has had,
and will continue to have, a significant financial impact on the
Bank.
-- The NWM Group is subject to a number of legal, regulatory, and governmental
actions and investigations as well as associated remedial undertakings,
the outcomes of which are inherently difficult to predict, and which
could have an adverse effect on the NWM Group.
-- The NWM Group may not effectively manage the transition of LIBOR
and other IBOR rates to alternative risk free rates.
-- Changes in tax legislation or failure to generate future taxable
profits may impact the recoverability of certain deferred tax assets
recognised by the NWM Group.
Independent review report to NatWest Markets plc
We have been engaged by NatWest Markets plc ("the Company" or
"the Group") to review the condensed consolidated financial
statements in the half-yearly financial report for the six months
ended 30 June 2019 which comprise the condensed consolidated income
statement, the condensed consolidated statement of comprehensive
income, the condensed consolidated balance sheet, the condensed
consolidated statement of changes in equity, the condensed
consolidated cash flow statement, related Notes 1 to 15, and the
Capital and risk management disclosures on pages 5 to 11 for those
identified as within the scope of our review (together "the
condensed consolidated financial statements"). We have read the
other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed
consolidated financial statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
'Review of Interim Financial Information Performed by the
Independent Auditor of the Entity' issued by the Auditing Practices
Board. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company, for our
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in Note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed consolidated financial statements
included in this half-yearly financial report have been prepared in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed consolidated financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated financial
statements in the half-yearly financial report for the six months
ended 30 June 2019 are not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority
Ernst & Young LLP
Statutory Auditor
London, United Kingdom
1 August 2019
Statement of directors' responsibilities
We, the directors listed below, confirm that to the best of our
knowledge:
-- the condensed financial statements have been prepared in accordance
with IAS 34 'Interim Financial Reporting';
-- the interim management report includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the
first six months and description of principal risks and uncertainties
for the remaining six months of the year); and
-- the interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related parties' transactions
and changes therein).
By order of the Board
Frank Dangeard Chris Marks Richard Place
Chairman Chief Executive Chief Financial
Officer
1 August 2018
Board of directors
Chairman Executive directors Non-executive directors
Frank Dangeard Chris Marks Vivek Ahuja
Richard Place Brendan Nelson
Tamsin Rowe
Sarah Wilkinson
Presentation of information
NatWest Markets Plc (the 'Bank' or 'NWM Plc') is a wholly-owned
subsidiary of The Royal Bank of Scotland Group plc (the 'holding
company' or 'RBSG'). The 'NWM Group' comprises NWM Plc and its
subsidiary and associated undertakings. 'RBS Group' comprises the
holding company and its subsidiary and associated undertakings.
The Bank publishes its financial statements in pounds sterling
('GBP' or 'sterling'). The abbreviations 'GBPm' and 'GBPbn'
represent millions and thousands of millions of pounds sterling,
respectively, and references to 'pence' represent pence in the
United Kingdom ('UK'). Reference to 'dollars' or '$' are to United
States of America ('US') dollars. The abbreviations '$m' and '$bn'
represent millions and thousands of millions of dollars,
respectively, and references to 'cents' represent cents in the US.
The abbreviation 'EUR' represents the 'euro', and the abbreviations
'EURm' and 'EURbn' represent millions and thousands of millions of
euros, respectively.
Condensed consolidated financial statements
The unaudited condensed consolidated financial statements for
the half year ended 30 June 2019 comprise the following sections of
this document:
-- Statutory results on pages 12 to 33 comprising the condensed consolidated
income statement, condensed consolidated statement of comprehensive
income, condensed consolidated balance sheet, condensed consolidated
statement of changes in equity, condensed consolidated cash flow
statement and the related notes 1 to 15.
-- Capital and risk management section on pages 5 to 11 as indicated
within the scope of the independent review.
The above sections are within the scope of the independent
review performed by Ernst & Young LLP (EY). Refer to the
Independent review report to The Royal Bank of Scotland Group plc
on page 36 for further information.
NatWest Markets Plc legal entity
There is a distinction between the disclosure of the NatWest
Markets operating segment performance in the RBS Group's H1 2019
interim results and the NatWest Markets Plc legal entity
disclosures in this document:
-- NatWest Markets Plc legal entity includes the Central items
& other segment but excludes NatWest Markets N.V..
-- The RBS Group's H1 2019 interim results reports the NatWest
Markets segment, including NatWest Markets N.V., but excludes the
Central items & other segment.
Changes to the scope of the NWM Group's activities
Further changes are expected regarding the scope of the NWM
Group's activities in 2019 resulting from structural changes as
part of the RBS Group's strategy. The volume and pace of changes
will depend upon the terms and circumstances of the UK's exit from
the EU, as well as the specific contractual terms of the affected
products and agreement of certain customers, amongst other
variables. The main changes include:
Transfers of EEA customers from NWM Plc to NWM N.V.
-- NWM Plc's EEA customers outside the UK and not subject to
regulatory exemptions will be transferred to NWM N.V. in phases
throughout 2019, facilitated by a court-approved FSMA transfer
scheme. Phase I of the transfer scheme resulted in the transfer of
GBP5.3 billion of assets and GBP5.7 billion of liabilities from NWM
Plc to NWM N.V over the weekend of 23/24 March 2019.
-- NWM N.V. began transacting new business on 25 March 2019 as
part of the RBS Group's preparations to ensure continuity of
service to EEA customers when the UK leaves the EU. For a
significant portion of the transactions that NWM N.V. executes with
EEA transfer customers, a corresponding trade-level hedge
transaction will be entered into with NWM Plc in order that revenue
earned on EEA transfer customers is recognised in NWM Plc.
-- Phase II of the transfer scheme is expected to be implemented
throughout the remainder of 2019 and has resulted in a further
GBP1.2 billion of assets and GBP1.5 billion of liabilities having
been transferred from NWM Plc to NWM N.V. as at 30 June 2019.
Western European corporate portfolio
-- Over time, the RBS Group plans to transfer the majority of
its Western European corporate portfolio, which principally covers
term funding and revolving credit facilities, from NatWest Bank,
currently part of the ring-fenced bank, to both NWM N.V. and NWM
Plc. The majority expected to move to NWM N.V.. The Western
European portfolio transfers may occur on a bilateral basis as a
contract comes up for renewal or refinancing, subject to
counterparty agreement. The timing and volume of transfers to each
legal entity remains uncertain. As at 30 June 2019, GBP0.1 billion
of drawn and GBP0.1 billion of undrawn facilities have transferred
from NatWest Bank to NWM Plc.
Presentation of information
-- In connection with any transactions by (i) the Western
European corporate portfolio customers that are transferred from
NatWest to NWM N.V., and (ii) EEA transfer customers that are
transferred from NWM Plc to NWM N.V., in each case if such
transactions result in a default exposure of greater than 10% of
NWM N.V.'s capital, NWM Plc will provide to NWM N.V. a funded
guarantee of up to GBP3.0 billion in aggregate to serve as credit
protection for such surplus risk if losses are recognised on such
portfolio or transactions. NWM Plc will cash collateralise the
funded guarantee in full and deposit funds with NWM NV in an amount
equal to the relevant customer transaction exposure as and when
such customer transaction is transferred to NWM NV.
Acquisition of NWM N.V. by NWM Plc
-- On 16 June 2019 the merger between Alawwal bank and SABB was
completed, resulting in the transfer of the RBS Group's 4.1%
economic interest in the merged entity from NWM N.V. to NWM Plc as
well as the distribution of the remaining shares from NWM N.V. to
its consortium partners.
-- The transaction paves the way for NWM N.V. to become a
subsidiary of NWM Plc in H2 2019, subject to regulatory
approval.
Non-IFRS financial measures
As described in Note 1 on page 17, NWM Group prepares its
financial statements in accordance with IFRS as issued by the IASB
which constitutes a body of generally accepted accounting
principles (GAAP). The Interim Results contain a number of adjusted
or alternative performance measures, also known as non-GAAP or
non-IFRS performance measures. These measures are adjusted for
certain items which management believe are not representative of
the underlying performance of the business and which distort
period-on-period comparison. These non-IFRS measures are not
measures within the scope of IFRS and are not a substitute for IFRS
measures. These measures include:
-- Management analysis of the operating expenses shows strategic
costs and litigation and conduct costs in separate lines on Page 2.
These amounts are included in staff, premises and equipment and
other administrative expenses in the statutory analysis.
-- Funded assets defined as total assets less derivatives.
Funded assets are further segregated into core and legacy assets
for management view.
-- Management view of core and legacy for income, costs, risk
weighted assets and funded assets.
Statutory results
Financial information contained in this document does not
constitute statutory accounts within the meaning of section 434 of
the Companies Act 2006 ("the Act"). The statutory accounts for the
year ended 31 December 2018 have been filed with the Registrar of
Companies. The report of the auditor on those statutory accounts
was unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under section 498(2) or
(3) of the Act.
Contact
Richard Coombs NatWest Markets Investor Relations +44 (0) 20 7672 1768
=============== =================================== ====================
Forward-looking statements
This document contains forward-looking statements within the
meaning of the United States Private Securities Litigation Reform
Act of 1995, such as statements that include, without limitation,
the words 'expect', 'estimate', 'project', 'anticipate', 'commit',
'believe', 'should', 'intend', 'plan', 'could', 'probability',
'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective',
'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and
similar expressions or variations on these expressions. These
statements concern or may affect future matters, such as NWM
Group's future economic results, business plans and current
strategies. In particular, this document may include
forward-looking statements relating to NWM Group in respect of, but
not limited to NWM's regulatory capital position and related
requirements, its financial position, profitability and financial
performance (including financial, capital and operational targets),
its access to adequate sources of liquidity and funding, increasing
competition from new incumbents and disruptive technologies, its
ongoing compliance with the UK ring-fencing regime and ensuring
operational continuity in resolution, its credit exposures under
certain specified scenarios, substantial regulation and oversight,
ongoing legal, regulatory and governmental actions and
investigations, LIBOR, EURIBOR and other benchmark reform and NWM
Group's exposure to economic and political risks (including with
respect to Brexit and climate change), operational risk, conduct
risk, cyber and IT risk, key person risk and credit rating risk.
Forward-looking statements are subject to a number of risks and
uncertainties that might cause actual results and performance to
differ materially from any expected future results or performance
expressed or implied by the forward-looking statements. Factors
that could cause or contribute to differences in current
expectations include, but are not limited to, legislative,
political, fiscal and regulatory developments, accounting
standards, competitive conditions, technological developments,
interest and exchange rate fluctuations and general economic and
political conditions. These and other factors, risks and
uncertainties that may impact any forward-looking statement or the
NWM Group's actual results are discussed in the NWM Group's 2018
Annual Report and Accounts (ARA) and in the NWM Group's Interim
Results for H1 2019 (contained herein). The forward-looking
statements contained in this document speak only as of the date of
this document and NWM Group does not assume or undertake any
obligation or responsibility to update any of the forward-looking
statements contained in this document, whether as a result of new
information, future events or otherwise, except to the extent
legally required.
Legal Entity Identifier: RR3QWICWWIPCS8A4S074
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR EADPFEASNEAF
(END) Dow Jones Newswires
August 02, 2019 02:01 ET (06:01 GMT)
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