TIDMRBS
RNS Number : 9836Q
Royal Bank of Scotland Group PLC
23 June 2015
The Royal Bank of Scotland Group plc
Annual General Meeting Statements
23 June 2015
The Royal Bank of Scotland Group plc will hold its Annual
General Meeting at 2.00 pm today. The meeting will deal with the
proposed resolutions as set out in the Notice previously issued to
shareholders. The following is an extract from the remarks to be
made by Philip Hampton, Chairman, and Ross McEwan, Chief Executive,
at the meeting.
This is my seventh and final AGM since I joined the RBS Board in
January 2009. I had intended to be welcoming Howard Davies to the
Board, today. However, as you may have gathered from our company
announcement yesterday, given his ongoing commitment to the work of
the Airports' Commission, Howard has asked that his appointment as
a non-executive director be deferred until the Commission's final
report is published. It remains the intention for Howard to succeed
me as Chairman on 1(st) September. Accordingly, Resolution 8 is no
longer required and will be withdrawn. Nonetheless, I am delighted
that Howard has been able to join us today to experience first hand
an RBS AGM before chairing next year's meeting.
I would like to say a few words about the changes at RBS since
the financial crisis, but before I do that I will talk about our
progress in 2014. I will also ask Ross to give you an overview of
our plans between now and 2019.
At the beginning of 2014, under Ross's leadership, we set out a
new plan for the business designed to deliver value to shareholders
through even more focus on core strengths. It marked a new phase in
the rebuilding of RBS, helped by the big reductions in risk profile
in the previous few years, but recognising that our strategy would
have to change to reflect continuing capital constraints,
especially to deal with the new stress tests.
I have talked at previous AGM's about the complexity of managing
an organisation that by 2008 had a vast balance sheet, with global
reach across numerous product areas, massive risks and ultimately
catastrophic returns for our shareholders of the time. The strategy
we have today is dealing decisively with those areas that the Board
and management identified as needing further focus in order to make
RBS an attractive investment, built on strong financial
foundations.
It has at its core one simple aim. To make RBS a great bank for
our customers; a bank that will earn back their trust, and in turn
win more of their business. It is designed to make RBS an
attractive investment, a great place to work, and a bank that is
focused on our markets in the UK and Ireland.
So how are we doing? In my view 2014 was a year of good progress
in terms of reshaping and simplifying the business, while
continuing the job of putting customers at the heart of what we do.
We achieved our best operating profits since 2010.
It was also another year of significant charges for
restructuring, conduct and litigation issues with additional
provisions and a GBP4 billion charge to write down the value of
Citizens in the United States - additional to the GBP4.4 billion
charge we took for Citizens in 2008. These provisions and write
downs led to a bottom line loss of -GBP3.5 billion.
As we began 2014, we set out what we had to achieve around cost,
complexity, capital and customer trust. Across each of those areas,
significant progress has been made by Ross and his team. To provide
a sense of what has been delivered in reshaping the business I
would highlight the following achievements:
1) Capital - we increased our CET1 ratio by 260bps to 11.2% ahead of target
2) Reducing complexity through moving from seven operating
divisions to three customer facing businesses
3) Removing GBP1.1bn of costs from the business - Our cost to
income ratio fell from 72% in 2013 to 68% in 2014 . We know we
still have much more to do.
4) Citizens IPO -the largest bank IPO in U.S history
5) RBS Capital Resolution - RCR was well ahead of schedule in
running down its various portfolios during 2014.
6) Ulster Bank Group - we completed a strategic review of Ulster
Bank and set out a new dual strategy for the business in both
Northern Ireland and the Republic.
7) Dividend Access Share (DAS) - we reached agreement with HM
Treasury on the retirement of the DAS - an important step in
normalising the capital structure of the bank.
8) Investment in our systems - as last week's processing delays
showed, whilst we have invested heavily in rationalising and
simplifying our systems and processes, we need to continue to
improve overall performance.
9) Customer focus - we made concrete changes to our business to
help ensure we deliver a better, customer centric service.
I am pleased to report that the operating performance of the
business last year was our best since 2010, with operating profits
of GBP3.5 billion up from an operating loss of GBP7.5 billion in
2013. It illustrates the earning power of our core franchises and
reinforces the reason for our strategic focus on these substantial
customer facing businesses. This performance and the 2014
achievements indicate that our strategy and direction of travel are
right.
On that note I would like to ask Ross to provide you with an
update on the strategy, and the milestones that will be passed in
the next few years.
Thank you Philip for those comments.
I am grateful for the opportunity to talk about our strategy. At
its centre is a clear ambition - to be the number one bank for
customers - and our purpose, our values and our priorities have all
been aligned behind that goal.
The achievements that Philip described underline the progress we
have made so far. We delivered against every commitment we made in
2014, giving us a platform to go further, faster with our strategy,
as we set out in February.
At that time we made a clear distinction between the parts of
the bank we want to keep - the go-forward bank, and the parts that
no longer fit our plans, the exit bank.
Between now and 2019, the exit bank will occupy a diminishing
amount of our time, allowing us to increasingly focus on becoming a
substantially UK and Ireland focused retail and commercial bank
with a core wholesale banking offer.
At that point we will be operating from a much lower risk
profile, and be capable of delivering solid, sustainable
returns.
It's important to note that as we reduce risk, and make expected
divestments over the coming years, we anticipate a substantial
increase in our capital as a result.
Subject to approval, we intend to return any surplus capital to
our shareholders.
We have started to improve our customers' experience, but we
still have a long way to go to become number one. Over time, our
intention is to build deeper, and more valuable relationships
across our customer base, which will support better returns for
shareholders. But our actions will always be based on what is right
for customers.
Mortgages are a good example of an area where we can support
customers and improve returns. Around half of all mortgage
customers in the UK are still on Standard Variable Rates. So, we
have an opportunity to help them save money, while also meeting our
aim of growing market share.
We also bank around a quarter of small businesses in the UK, and
are investing in improving the service we provide to Commercial
customers. Pleasingly, we're now growing our net business lending
into the real economy, which is exactly what RBS should be all
about. In Ireland we have good positions on either side of the
border - and our latest plan for Ulster bank will enable us to
capitalise on both.
We are also evolving the business in response to changing
customer behaviour. This means in some instances we need to make
the difficult decision to close a branch. It is never an easy or
quick decision to do this, but it reflects the shift in branch
usage - where we've seen a 36% decline since 2010 as more of our
customers choose do deal with us online.
That said, our branch network is, and will remain, a fundamental
part of our business. Since 2012, we've invested hundreds of
millions of pounds transforming our branches for customers. And
we've got more mobile banks, expanded access across the Post Office
network, plus many more 'points of presence' in the areas of
highest footfall such as train stations to increase
convenience.
This is all supported by work behind the scenes to simplify and
improve our systems, processes and products so they're reliable,
easy to use and much more efficient.
These are just some of the improvements we're making for
customers, and as our plan to transform the bank takes hold, there
will be much more to come.
We have a very clear plan behind our long term ambition to be
No.1 - which I break down into three distinct phases.
The 1st phase in 2014 was about Building financial strength. We
ended the year with capital up 260bps and costs down by GBP1.1bn,
moved from 7 divisions to 3 customer businesses, and improved
resilience in our systems. Delivering on our goals built market
confidence in the team and the bank.
These achievements gave us the platform to move onto the 2nd
phase: Improving our core business and accelerating our exit
bank.
This phase has three key elements - Firstly, to progress the
run-down of the exit bank. Secondly, to deal with as many
outstanding conduct and litigation issues as possible. And thirdly,
to accelerate the transformation of our go-forward bank so we can
realise the potential of the great customer franchises we have in
RBS. This phase includes the repositioning of our investment bank -
as we set out in February. It will be significantly reduced, both
in terms of size and risk profile.
As I said to the market in Q1, we are actively working through
this phase, and hope to have made sufficient progress over the next
year or so to allow us to move onto phase 3.
Phase 3 is still ahead of us - At this point, with our biggest
barriers behind us, we can significantly accelerate our push to
become the number one UK bank for customers.
As we work through these phases we will, at the appropriate
point, repay the final GBP1.18bn payment to HM Treasury to remove
the Dividend Access Share. And as referred to earlier, once we have
achieved our ambition we will target returning surplus capital
above our target of 13% Core Equity Tier 1.
To get RBS to where we want it to be by 2019 and to regain
trust, we need to put the interests of our customers at the heart
of the business and its culture. We also need the right leadership
skillset.
Without the right culture and without the right leadership, we
cannot, and will not complete the journey. That is why I have
placed such an emphasis on establishing a core set of values that
apply universally across the bank and provide the foundation of how
we work at RBS. These values are at the heart of the behaviours we
expect from everyone at RBS.
Central to reshaping the culture of the business is ensuring
that we have diversity of thought which, in turn, improves employee
engagement, innovation and decision making.
That is why we have set the challenging new goal of having, in
every division, at least 30% female representation in the bank's
top three leadership levels (around 600 roles) by 2020.
There are other encouraging signs emerging of the bank that RBS
is becoming. We are making a step change in how we support
entrepreneurial talent and high growth businesses. As part of this
we have stated our intention to be the UK's leading supporter of
enterprise, and announced that in partnership with Entrepreneurial
Spark we will open eight enterprise hubs across the UK.
Indeed, when you return for next year's AGM I hope you will be
able to visit the hub and the many budding entrepreneurs, so
central to our economy, who will soon call the Gogarburn campus
their home.
We are also determined to do even more to support women to
unlock their enterprise potential. That is why RBS has developed
its Women in Business Accreditation in partnership with the
Chartered Banker - something no other bank offers and which equips
our customer-facing teams with specialist expertise and
understanding of the needs and the unique challenges faced by women
in business.
I am also delighted to be able to confirm that RBS is joining,
in full, the living wage movement and is now an accredited Living
Wage employer by the Living Wage Foundation. It will cover not only
our operations and employees, but crucially also our suppliers.
By themselves these initiatives may seem small in comparison to
the scale of RBS. To me they speak of a business that is determined
to rebuild trust and fully play its part in supporting the UK.
In summary, RBS is in a much, much better shape than it was just
a year ago. We are now in a position where we can accelerate our
strategy while taking clear actions to address areas where returns
are not sustainable. As a result, the wind down of our exit bank
will be substantially achieved by the end of 2016.
We are on track to deliver against our 2015 targets and
everything we do is aligned to the goal of delivering on our
ambition to be number one for customer service and advocacy.
To paint the picture of the bank we aspire to be by 2019: RBS
will be a UK-centred bank with a focused international capability
with around 85% of our assets in retail and commercial banking, and
the remainder in corporate and institutional banking. Our cost to
income ratio will be less than 50% with a Return of Tangible Equity
of at least 12%. Achieving this will mean that we are able to
reward you, our shareholders, for your support by the
re-distribution of capital and the sustainably earned profits we
hope to earn. We are firmly on track to achieve this.
I will now hand back to Philip
Thank you for those comments, Ross.
Before I open for questions I would like to offer some
reflections on RBS since I joined the Board in January 2009,
especially in the light of the Chancellor's recent announcement
that the UK Government plans to begin selling its holding in the
business.
I think Dickens captured recent years perfectly in his famous
quote from A Tale of Two Cities: "It was the best of times, it was
the worst of times, it was the age of wisdom, it was the age of
foolishness, it was the epoch of belief, it was the epoch of
incredulity..." As Chairman of RBS I have certainly had more than
one occasion to relate to all those sentiments in addressing the
financial crisis at this bank.
In 2009 RBS was the largest bank in the world by assets, active
in 53 countries and with almost 200,000 employees. The bank had
been offering products and services where it did not have the scale
to compete. RBS was over-stretched, over-exposed and underpowered
in key areas. We had to reassure our customers, our shareholders
and our regulators that the bank was not going to fail again.
The RBS of today is very different from the bank of 2009. It has
been transformed and repositioned with a focus on the quality of
our earnings and the control of our risks. There is still, of
course, work to be done to get RBS into a position where it will
deliver an acceptable return on equity as Ross has explained.
In building a stronger, simpler and fairer bank there have been
three pillars to the RBS transformation:
Building capital and reducing risk - making the bank safer. The
assumption in the immediate aftermath of the financial crisis was
that a Core Tier 1 capital ratio of more than 8% by 2013 would be
sufficient to constitute undoubted financial strength in the minds
of both markets and regulators; today we have increased our capital
target to 13%. Between 2009 and 2012 over GBP900 billion of gross
assets were taken off the balance sheet, a truly astounding scale
of change, and further important reductions are imminent, most
notably by the deconsolidation of Citizens.
Creating a smaller and more manageable bank. One of the biggest
decisions we made was to restructure our investment bank. Early in
our restructuring we identified the trend of declining investment
banking revenues and increases in regulatory capital needs and we
have reduced the scale of our investment banking activities hugely.
We have reviewed every product, every market and every business
line to get the right combination for our customers and investors.
In addition to the changes to investment banking, we have exited
from dozens of countries where we had insufficient scale and in
future will operate in 14 countries, with a strong focus on the UK
and Ireland.
Defining a new culture. The determination of RBS employees to
succeed, against the backdrop of one of the largest and most
complex corporate restructuring jobs ever undertaken has been
remarkable. Culture in banks has been widely criticised and RBS has
certainly had failings, but the determination and resilience of our
people have been vital strengths, and I think it's important to
recognise that. We should also recognise that there is still work
to do across the industry to improve culture. The recent fines
enforced on banks including RBS, for Foreign Exchange and Libor
manipulation speak to that and are examples of behaviour that
cannot be tolerated. There is no place for that behaviour in this
bank.
The dramatic changes in the business and regulatory climate
following the financial crisis have required big changes to our
strategy. But I believe there is a degree of consensus that
strategically we have done the right things. Although there have
been economic ups and downs since the bank was recapitalised in
2008-09, two issues have had a major impact on the evolution of the
business.
This first is conduct fines and customer redress: I can plainly
say that we did not anticipate the nearly GBP10 billion of
regulatory fines, litigation charges and customer redress we have
incurred, so far, for conduct and business failings. The scale of
the conduct issues faced by RBS has markedly reduced our ability to
retain earnings, delaying our capital re-build and directly
reducing shareholder value.
Regulatory change and public policy: when the bank was
recapitalised it received unprecedented amounts of State Aid, but
as a consequence, was required by the European Commission to sell
important assets in fixed timescales and pay substantial cash sums
to the UK Government. This has reduced the long-term capital build,
especially the ability of the business to generate capital from
operations.
As we have said many times a key task for RBS is to create the
conditions in which the Government can begin to sell its shares. In
working towards that end we are also furthering the interests of
RBS's other shareholders, as the beginning of the sell-down will
undoubtedly be a turning point for RBS, and welcomed by
investors.
It has been a privilege to serve as Chairman of RBS. When I
joined the Board of RBS the shares traded at 9p, equivalent to 90p
today. As I alluded to in my opening remarks, there have been highs
and lows along the way, but overall RBS has made great progress
since 2009. It has been fundamentally rebuilt - it is now a bank
that is much safer in capital strength, in structure and
increasingly on behaviour.
The good businesses that sit within RBS are beginning to realise
their potential, and deliver value to their customers. That is the
only way to make a bank that is sustainably profitable. I believe
the focus of management on customers and customer service will make
this a better organisation for all stakeholders, most especially
customers, staff and shareholders. I am confident that the Board
and the many outstanding people in the bank will continue to work
with dedication to restore its standing.
In closing, I would like to thank all my colleagues who have
served on the RBS Board, both past and present for their support
and dedication over the years in managing the unique challenges
that come with RBS. I am sure shareholders do appreciate that being
on the board of a bank, especially a bank with the issues faced by
RBS in recent years, is a tough challenge, and your Board has been
exceptionally committed to that challenge. This year, I would
especially like to thank Philip Scott, who stepped down from the
Board last year, and chaired the Risk Committee following the
financial crisis, and again to welcome Howard Davies in
anticipation of his chairmanship, which begins on 1(st)
September.
Important Information
Certain sections in this presentation contain 'forward-looking
statements', such as statements that include the words 'expect',
'estimate', 'project', 'anticipate', 'believes', 'should',
'intend', 'plan', 'probability', 'risk', 'target', 'goal',
'objective', 'will', 'outlook', 'optimistic', 'prospects' and
similar expressions or variations on such expressions.
In particular, this presentation includes forward-looking
statements relating, but not limited, to: the Group's future
financial performance; the continued reduction in non-core assets;
the achievement of certain key performance targets, including those
related to Core Tier 1 Capital; the Group's strategy and business
plans, including future capital raisings; and the further
realignment of businesses in line with the Group's strategy. These
statements are based on current plans, estimates and projections,
and are subject to inherent risks, uncertainties and other factors
which could cause actual results to differ materially from the
future results expressed or implied by such forward-looking
statements.
Factors that could cause actual results to differ materially
from those estimated by the forward-looking statements contained in
this presentation include, but are not limited to: general
geopolitical and economic conditions in the UK and in other
countries in which the Group has significant business activities or
investments, including the United States, which may result in
instability in the global financial markets or otherwise impact the
financial industry in general and on the Group in particular; the
ability to access sufficient sources of liquidity and funding; the
ability to implement strategic plans on a timely basis, or at all,
including the disposal of certain non-core assets and assets and
businesses required as part of the State Aid restructuring plan;
deteriorations in borrower and counterparty credit quality; the
extent of future write-downs and impairment charges caused by
depressed asset valuations; the value and effectiveness of any
credit protection purchased by the Group; unanticipated turbulence
in interest rates, yield curves, foreign currency exchange rates,
credit spreads, bond prices, commodity prices, equity prices and
basis, volatility and correlation risks; changes in the credit
ratings of the Group; ineffective management of capital or changes
to capital adequacy or liquidity requirements; litigation and
regulatory investigations; changes to the valuation of financial
instruments recorded at fair value; competition and consolidation
in the banking sector; the ability of the Group to attract or
retain senior management or other key employees; regulatory or
legal changes (including those requiring any restructuring of the
Group's operations) in the United Kingdom, the United States and
other countries in which the Group operates or a change in United
Kingdom Government policy; changes to regulatory requirements
relating to capital and liquidity; changes to the monetary and
interest rate policies of central banks and other governmental and
regulatory bodies; impairments of goodwill; pension fund
shortfalls; general operational risks; HM Treasury exercising
influence over the operations of the Group; insurance claims;
reputational risk; the ability to access the contingent capital
arrangements with HM Treasury; limitations on, or additional
requirements imposed on, the Group's activities as a result of HM
Treasury's investment in the Group; and the success of the Group in
managing the risks involved in the foregoing.
The forward-looking statements contained in this presentation
speak only as of the date of this presentation, and the Group does
not undertake to update any forward-looking statement to reflect
events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
The information, statements and opinions contained in this
presentation do not constitute a public offer under any applicable
legislation or an offer to sell or solicitation of any offer to buy
any securities or financial instruments or any advice or
recommendation with respect to such securities or other financial
instruments.
This information is provided by RNS
The company news service from the London Stock Exchange
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