NatWest Group plc

Nathan Bostock - Executive Director Richard O’Connor - Head of Investor Relations

Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division Chintan Joshi - Nomura Securities Co.

Ltd., Research Division Christopher Wheeler - Mediobanca Securities, Research Division Manus Costello - Autonomous Research LLP Fahed Kunwar - Redburn Partners LLP, Research Division Rohith Chandra-Rajan - Barclays Capital, Research Division Jason Napier - Deutsche Bank AG, Research Division Frederik Thomasen - Goldman Sachs Group Inc., Research Division Alastair Ryan - BofA Merrill Lynch, Research Division Chris Manners - Morgan Stanley, Research Division Jonathan Pierce - Exane BNP Paribas, Research Division Michael Helsby - BofA Merrill Lynch, Research Division Sandy Chen - Cenkos Securities plc., Research Division Joseph Dickerson - Jefferies LLC, Research Division Claire Kane - RBC Capital Markets, LLC, Research Division Edward Firth - Macquarie Research Andrew P. Coombs - Citigroup Inc, Research Division

Good morning. Thank you, Donna.

Good morning, everyone. I would like to offer some brief comments on our full year 2013 financial performance before leaving plenty of time to answer your questions.

Joining me today are Richard O'Connor, our Head of Investor Relations; and Rajan Kapoor, our Group Chief Accountant. Just a quick housekeeping point, you will have seen that we have also released details of our strategic review this morning.

Ross and I will present our strategic update and answer questions on it at 2:00 today, so we would like to limit questions this morning, please, solely to our full year 2013 financial results. The key features of the year were: We reported a full year 2013 operating loss of GBP 2.3 billion.

This loss includes the charges for establishing RBS Capital Resolution or RCR. Operating profit pre-RCR charges was GBP 2.5 billion.

Non-Core completed and exceeded its asset reduction task ahead of plan. RCR is up and running and our outperformance in Non-Core means we are off to a very good start on our RCR execution plan.

The safety and soundness agenda is firmly embedded across the bank. Our funding and liquidity metrics are strong, and we have made excellent progress again this year in reducing RWAs and funded assets.

Turning to our full year 2013 financial performance and the key lines of the P&L. Total income excluding a GBP 333 million RCR-related valuation adjustment was down 10% on last year.

This largely reflects a GBP 1.2 billion income decline in Markets as the balance sheet is scaled back. The Retail & Commercial businesses saw income down 4% or nearly GBP 700 million from lower activity levels in U.K.

Corporate, U.S. R&C and International Banking.

Deposit repricing and reduction of lower yielding assets drove group NIM up 9 basis points to 2.01% for the full year. Q4 NIM was 2.08%.

Cost improved 4% year-over-year, reflecting a 19% reduction in Markets staff cost while Non-Core saw total expenses down 36% year-over-year as headcount declined by 55%. The group's cost income ratio for the full year increased 5 percentage points to 68%, reflecting lower income.

Excluding the GBP 4.5 billion RCR impairment charge, underlying impairments fell GBP 1.3 billion year-on-year to GBP 3.9 billion and now represents circa 1% of total loans and advances. The main positive drivers of impairments were Non-Core and Core Ulster, partially offset by small increases from International Banking and U.S.

R&C. Group coverage of nonperforming loans was 64% at the year end, up 12 percentage points in the last 12 months, reflecting RCR-related charges.

Full year operating profit excluding RCR charges was GBP 2.5 billion, down GBP 400 million on the previous year. The improvement in both Ulster and Non-Core operating losses was outweighed by the decline in Markets.

We recorded a full year attributable loss of GBP 9 billion. This loss reflects the GBP 4.8 billion total charge to establish RCR, GBP 2.4 billion provisions for litigation-related conduct matters, GBP 1.5 billion of PPI and interest rate hedging product top ups and DTA and goodwill write-downs totaling GBP 1.8 billion.

Tangible net asset value per share was 363p at the year end. Looking at our businesses, Retail & Commercial's full year '13 operating profit excluding RCR charges was down 4% year-on-year.

A positive performance from U.K. Retail and a circa GBP 500 million improvement in Ulster's operating loss was outweighed by lower profits in U.K.

Corporate, International Banking and U.S. R&C.

R&C's ROE in the fourth quarter was 9%. Markets operating profit excluding RCR charges was down 58% on last year as income declined by 26% and costs were down 11% as we reduced the balance sheet by GBP 72 billion.

Non-Core has now completed and exceeded its 5-year objective to run off over GBP 200 billion of funded assets. At the year end, assets had declined to GBP 28 billion ahead of the recently revised target of GBP 35 billion.

Operating losses excluding the RCR charge were down 27% year-over-year. Turning to capital.

We reiterate our target of the fully loaded Basel III Core equity Tier 1 ratio of circa 11% by 2015 and 12% or greater by 2016. In January, we announced that we would provide GBP 2.9 billion of conduct and litigation charges that were allowed for in our future capital planning scenarios.

As a result, RBS's fully loaded Basel III Core Tier 1 ratio was 8.6% at the year end, very slightly ahead of recent guidance. In 2013, we generated circa 2% of underlying fully loaded Basel III Core Tier 1 capital, reflecting strong Non-Core and Markets deleveraging.

Our future path to the 12% or greater Core Tier 1 target remains clear. The successful IPO of Citizens, the successful rundown of RCR, as well as further targeted risk-weighted asset reduction will be the main drivers.

Our leverage ratio continues to improve, up 40 basis points in the full year '13 to 3.5%. Our long-term leverage ratio target is greater than 4%.

Turning to RCR. RCR's starting point is assets of GBP 29 billion, better than originally envisaged as a result of Non-Core asset reduction.

Consequently in H2, RCR-related funded assets were reduced by GBP 18 billion. This reduction includes GBP 6 billion of disposals and GBP 5 billion of runoff.

The rundown process to date has reduced RWAes by GBP 72 billion. Today, we have firmed up on our future target for RCR.

We now target reducing assets to GBP 23 billion by the end of 2014, to GBP 11 billion to GBP 15 billion by the end of 2015, and less than GBP 6 billion by the end of 2016. We are confident that we can achieve these new targets, and we will update you on our progress throughout the coming periods.

Before I hand over to the operator for questions, just 2 further items. First, we will provide a full restatement of RCR and the new reporting structure in Q2 of this year.

And second, I want to remind you, all, that we will be holding an Analyst and Investor Presentation on the RBS strategy update here at 280 Bishopsgate this afternoon at 2 p.m. to walk you through the detail.

There will also be a live webcast. Thank you.

Operator, we're now ready to take questions.

Nathan, are you taking questions on the cost plan? Or is that something for the afternoon?

No, I'm sorry, that needs to really be this afternoon, so I think we have to put all of these things into the complete context and, therefore, be able to answer across the full range of the different aspects. So I appreciate it may be frustrating for people for the call this morning, but we try to break the 2 between results this morning and the strategy presentation this afternoon.

Okay. Then, Nathan, just a quick question on NPLs and impairments.

I've gone through your slides here. NPLs are falling.

Asset prices are increasing across most of the collateral coverages that you have. You have coverages at 64%.

In Q3, you said as a bank should run about 30 basis points of impairments given that you've already taken the hit in, what you call, IBB. So right now, why are you saying that impairment should be 40 to 60 basis points in the next kind of 2 to 3 years?

So it would be great if you can just walk me through kind of the risk profile right now. Where do you see the risk?

Where there both NPL and coverage risk across the asset classes?

So I think -- yes, so I think over the period for, let's call it the 2014, 2016 period, I think you still have to be thinking in the sort of 40 to 60 basis point territory. We still do have within the likes of say, something like a U.K.

Corporate for instance, we've still got our concentrations around the likes of CRE, which we're bringing down, making good progress on those fronts. But at the moment, those types of things for me would still lead us to be running at slightly higher than what I would think is the longer run.

Chira, just to add to that. '14 to '16, we've still the RCR and we're flagging GBP 1 billion of impairments across those years in RCR, so that distorts the group ratio.

We're still looking for the number you said around 30 basis points once RCR has gone. On NPLs, you saw a good Q4 trend underlying, as you can see on the slide.

And clearly, we'll be targeting going down to 2.5% to 3.5% as RCR runs off over the next 2, 3 years, so no change in guidance there. And in terms of the market, we flagged that clearly.

The RCR team are pretty active and taking advantage of good market activity at the moment. So that's how we would sort of see the -- that side of the equation.

Is there any revision to disposal guidance as well for the remaining book?

No. No change to the disposal guidance.

I'll try and focus on Q4. Can you -- the first question is on risk-weighted assets.

If you look across your book, where do you see the risk from PRA increasing risk weights across your portfolio? Because it seems to be something that's on their minds, and I just wanted to understand where you see risk for RBS for higher risk weights.

And the second question I have is on restructuring charges. If you could give us some kind of time line of -- for the cost to achieve, kind of how do we spread it across the coming years?

Okay. So on risk-weighted assets, I actually believe that we've taken into account all of the major changes that I was expecting to come through.

I mean, as you know, there's been multiple different ones that PRA has been interested in over the past periods. So that includes things like the large corporate model type elements, et cetera.

But for those things, those are done. And so I'm not expecting anything particularly major there.

In terms of restructuring costs, we'll be talking through those this afternoon and indeed, giving you the ability to have the guidance for the -- each of the coming years.

There's a restructuring cost slide, which sets it out, which you can look at ahead of the meeting this afternoon.

Sure. Then, if I could just ask one more then, in terms of net interest margin guidance for 2014, I mean, clearly, we seem to be improving, 2.01% currently.

Could you give us a sense of what kind of improvements we should expect for 2014?

Yes, I would expect it to be yet to be marginally up. I would expect it probably sort of range somewhere between 2.10%, 2.15%, something like that.

Just a couple of quick questions. First of all, Slide 15.

The GBP 429 billion of fully loaded RWA. Can you give us an indication as to how much of that is now Markets including any of the securitization uplift, which I seem to remember was always set in the famous GBP 80 billion target that you set yourself.

That's the first question. The second question is just to give us whatever update you can on litigation, where you are in terms of progress on, obviously, things like foreign exchange, the tidying up LIBOR, but also in terms of the Swiss issues around cross-border wealth management activity, which obviously, got a lot of press yesterday.

Okay. Yes, in terms of the GBP 429 billion fully loaded, that includes circa GBP 100 billion for Markets RWAs, and that includes the various uplifts vis-à-vis securitization, et cetera.

And I think we actually do give the number for that on Slide 17. So the actual number is about GBP 19 billion, okay.

In terms -- sorry, the second question again?

It was where you are on the litigation issues and so what sort -- I mean, I know you're not going to give me a number. That's not like -- but just give me some kind of time line on where you think you are on these issues.

Are they 2014 issues, 2015 issues?

Well, like all these things, as you know, litigation and indeed sort of regulatory-type investigations, it's very hard to predict how long those types of things will take. So the things like FX, I mean, you read all of the various things as well in the press and you'll know that these things have started, but I'm sure will take some time to actually pan out.

In terms of other items, we've dealt with a lot of those at the year end. So again, we covered the -- our U.S.

type RMBS. So I think most of those types of things have -- are already sort of on the blocks.

There are a few things clearly that we all know that may come to sort of gestate over time. But that's sort of where I would see us at the moment.

Chris, there's no developments over the last 2, 3 months of note. These things are trotting along, but they generally take quite a long time.

I had a couple of questions on the balance sheet, please. I noticed, Nathan, that you are deciding to issue equity again to pay hybrid coupons.

I just wondered why you're asking equity shareholders to pay up for those coupons yet again and why you wouldn't just suspend those coupons going forward. It seems to be an ongoing feature that happens every year for you now.

And secondly, your LCR you've given now is 102%. I think you just said over 100% previously.

And one of the arguments that this was put forward for you guys is that you have much -- a great deal of excess liquidity and there's a lot you could do there. In the light of that LCR ratio, should we assume that actually the liquid asset balance that you've got at the moment is about right and we shouldn't necessarily expect any reduction in your liquid asset buffer?

Actually, Richard, do you want to pick up the first one?

I'll do the first one because this, as you say, it's been an ongoing thing. Look, it's something the board considers very carefully.

It's certainly not ideal issuing equity, as we all know. However, we are active in the debt markets.

And as you saw last year, we issued Tier 2 securities and we'll look to carry on doing that this year. And we will be very, very difficult for us to do that and continue with our governmental [ph] program if you were paying preference dividends.

So it's a costly balance debate and it's something which we weigh very carefully. Net-net, we think the benefits of paying the preference dividends in the round [ph] given our overall capital management program and our debt market status outweighs the costs but obviously, it is a cost to shareholders and it's not one we take lightly.

In an ideal world, we're all moving to attributable profit and therefore, we would just paid it out as cash. But obviously, this is something we have to balance and the board balances and we discuss with the PRA each year.

And would that be the trigger, Richard, that you'd have to actually -- you obviously got quite big charges coming through in '14 as well. If you have an attributable profit, you'll be able to pay these in cash?

I think, if you look at another institution, then you'll clearly look as how you move into attributable profit. And when you would discuss with the PRA and then with your board when you would be able to turn off the equity program, and that's something we would -- we clearly look to do.

We normally discuss this with the board and the PRA December, January, so those discussions will start again next December and January, no doubt. And on the liquidity portfolio, look, as you can see, the balance sheet will continue to come down.

So our guidance on liquidity portfolio is it's still somewhat elevated by around GBP 20 billion. And if we can lend that money out productively into our Core businesses, then that will be good for the margin and will be good overall.

And -- but in the meantime, the balance sheet continues to shrink [ph] so we'd expect still to have a very credible LCR ratio in the medium term.

That GBP 20 billion of excess would -- if you used that now, that would take you below the 100% LCR, right?

It would if it is immediate. But clearly, we're talking about GBP 20 billion over a couple years and RCR itself is coming down by that number, so the things tend to balance each other off.

I have like a couple of questions, well, around the Markets business. I was looking at the compensation and the kind of cost projection in your Markets business.

So the cost income ratio went from, I think, 14% last 4Q '12 to 31% in 4Q '13. But it doesn't seem to have stopped the kind of losses in market shares that we're seeing.

So your revenue kind of quarter-on-quarter is down 25% versus peers, 6 peers around the 5%. So what is the kind of trajectory for that business?

And obviously, it's very important in you guys getting to a reasonable ROTE [ph]. But if you are starting to pace up but you're still losing market share, I mean, how do you arrest those market share declines?

Or was there something else driving the kind of 25% for Q-on-Q?

I'm afraid, I'll be the bad cop here, again, because clearly this will be addressed in the meeting this afternoon by Ross and Nathan. The compensation ratio you quote, Q4 '12, was distorted by quite frankly the LIBOR situation and clawbacks, and so the ongoing compensation ratio, you would expect to be in the mid-30s.

But clearly, that business has a very high overhead and infrastructure cost. So if your income is not covering that overall cost base, then that's something which we have to address.

And as I say, we'll look to address that starting with this afternoon.

Okay, and the second question was just a clarification point. The GBP 1.9 billion you took on RMBSs, how much of that was related to FHFA redress?

And how much is related to kind of provision for potential civil litigation?

No, well, we haven't broken that out. So it covers RMBS litigation more broadly.

I see, so but within that, there is FHFA, but there could be more to come.

As I say, it covers RMBS litigation more broadly. Yes.

A few if I could, please. First one just on the RCR.

You've given some detailed guidance in terms of where you expect the assets to be. I was wondering if you add any color on RWAs.

Very much proportional.

Yes, very much proportional, yes, to the -- yes...

Okay, so just assume the same risk weighting?

Yes.

Within reason, yes.

Just like Non-Core, they broadly followed each other down, yes.

Okay, and then just briefly on costs. Looking across most of the divisions, it was the sort of other direct, which seems to step up in the fourth quarter.

Is there anything in particular behind that? Was there something unusual that happened in the fourth quarter?

It doesn't necessarily look like normal seasonality.

I think in the fourth quarter, there were some smaller conduct charges that would've gone into that particular line.

Yes, we split it out. It's GBP 179 million in Q4.

And of that, GBP 60 million is in Retail and about and GBP 70 million is in corporate. So that distorts some of those lines.

Okay. And then the last thing, I don't know if you're willing to address this now.

It was just on the dividend access share. There's no progress reported on that.

I just wonder if you could provide any color on what the expectation is there.

Yes. Sorry, it's going to be another frustrating one, but we can cover that this afternoon, I think.

Yes.

Sort of 2 groups, if I may. The first just on conduct provisions.

Your Slide 14 this morning says that the charges taken were broadly in line with future capital plans. Can I just sort of understand what a capital plan is supposed to denote and given that this relates to historic sort of conduct, why these weren't provided for in the past if they were already in your outlook for capital?

And then, do want to do that or shall I...

Yes, let's just cover that. So I think the way I would look at these things is that if you're going to produce a capital plan and you're going to go to the market with targets that you absolutely intend to deliver, then it's important that in that capital plan, you run through a variety of different scenarios with potentially different outcomes and you make sure that the plan is suitably robust.

So the way I think of it is what sort of confidence level do you have around that delivery. That's exactly what we did, and we included in that a variety of different scenarios.

With regard to the specific, the specific is we actually reached a point where, from an accounting perspective, it was indeed right to recognize the potential. So it becomes into the estimatable, et cetera.

Right. But so you're not meaning to intimate the provisions now are in excess of what's required?

It's still your base case that provisions are adequate in this regard?

Yes. Best estimate, yes.

Okay. Secondly, just around sort of capital, and apologies if I've missed it.

I clearly haven't read all of the pages that you put out today. But in terms of conversations that the press has reported that you've been having with the regulator on adequacy of capital, are you able to give us a sense as to whether you're clear that there'll be no further sort of discrete business disposals?

Things like Coutts, I guess, have been discussed. And are you going to able to disclose a sort of sense as to what level of capital you think the regulator requires of you?

Two of your peers have sort of done that. And then lastly on this topic, you mentioned Citizens as one of the clear building blocks in your plan to accrete capital going forward.

Two questions: One is, assuming that you've got it listed at TNAV, just as a what if, what would that add to CET1? And then secondly, from an accounting standpoint, does that happen at the point where you are below 50%?

Or at what point does that actually happen in the books of RBS?

So thinking about the latter one. In terms of Citizens, our view is that it's between 200 and 300 basis points that it contributes towards our capital journey.

Again, we'll cover that later today. In terms of the overall capital plan, again, this has been part and parcel of our conversations with our regulator, as you would normally expect.

And indeed again, we wouldn't be coming out if we weren't comfortable that they were suitably on board with it.

On Citizens, you get the kicker when you go below 50%, so you're right.

Okay, and on your plans, that happens in 2015, and so that's correct, isn't it?

That's correct.

That's correct, yes.

That's right.

Just to be clear though, the 200 to 300 basis points, that's not a TNAV number. That assumes you get better than TNAV over the entire disposal period, right?

No, it doesn't. No, I think the thing that -- again, I will cover it this afternoon, but it's relevant to this morning.

The reality is as well, you have to think of the denominator, and the size of the actual denominator changes over the life of the period 2013 through 2016. And that can make a significant difference to the contribution to the ratio.

All [ph] the rate coming down, obviously, it becomes a bigger proportion of benefit.

It's sort of Citizen thing for a while. Just on -- there's a bit of loan growth in the fourth quarter, whether that's forward looking.

There's a comment in the report about you started buying in loans again, which I guess hopefully different to buying in the loans last time around. But just whether there's some sustainable loan growth picking up.

And secondly, obviously, one of Citizen's issues has been it's had a higher cost income than its peers, whether that's -- you're basically expecting to amortize that way through growing revenues [ph] or whether there's more to come on the costs.

Okay. So well, on the loans again, to the extent that we do buy in any loans, we have a very strong risk discipline that we put in place.

But you can expect loan growth to continue in the Citizens book. In terms of the cost income, I think in reality for Citizens, they're going to be very focused on both the income and the costs, yes.

Alastair, it's Richard here. I'd just say the Commercial business is performing pretty well over there at the moment, and we expect that to continue this year.

And as you know for Citizens, it's much a revenue problem as a cost problem. So I would say that clearly, to get to our cost income ratio to down near 60% -- about 60% to 70% will come from revenues and the balance from costs.

I just had a question just maybe on a little bit more about mostly on the U.K. Retail business.

First of all, so quarter-on-quarter, the net interest margin looked like it -- so it went down a couple of basis points. Seems some of the peers actually putting [ph] sort of NIMs in U.K.

Retail ticking up. Just wondered maybe if you could talk a little bit about outlook for that business just in terms of the loan growth you're expecting and potential for maybe a little bit better margin trajectory.

So just a little bit surprised by that.

Yes. So well, I think the margin in the Q4 is really noise, so I wouldn't -- yes, I wouldn't consider that to be an issue.

And I think again, we're optimistic with regard to U.K. Retail.

In reality, our mortgage business is now doing better, and we would expect that to continue. There's a little bit of a drag around the unsecured side relative to that, but we would expect it to be net positive, yes.

Chris, the outlook for the margin is broadly flat. By doing more mortgage business, you have of bit of a negative mix impact because obviously, mortgages are lower margins than the unsecured book.

But on the other hand, deposit pricing is still pretty benign. So broadly, it's a flat outlook for margin, but we would expect some reasonable loan growth this year primarily on the mortgage side.

Questions about the resolution fund. I know it's perhaps not so important in the context of your big cost moves over the coming years but it's clearly important in terms of ongoing costs, and particularly for other banks.

So my question is, the GBP 400 million uplift that you've identified, part of that's bringing the U.K. bank levy above the line, I think.

How much have you allocated toward the resolution fund charge? And how are you calculating that?

Is it a, I don't know, 5 to 10 basis points of your entire deposit base? So just a little bit more color on that, please.

Well, we've allocated around about GBP 200 million to it, the -- and to the bank levy. And I think at the moment, sort of, let's call it more of an art, yes?

More of an art view than a science, but we feel that it's appropriate, yes.

Based on all the published documents, we're reading the same documents as you, Jonathan, and interpreting them again the same as you would.

Okay, so about 5 basis points of your entire deposit base?

Yes.

Yes.

So I’m done.

Just 2 quick questions. One on Slide 17, just could you talk me through the -- some of the expected loss items, particularly the CVA, PVA and offset restrictions?

Page 17.

Yes, Slide 17. And then I had a partly related question on FVA as well.

Sandy, it's Richard here. Look, the expected loss came down as a result of the creation of RCR, but there are other moving parts.

We've hit what we call an EL minus P floors, i.e. you can't go below 0 in certain legal entities, think Ireland, and that's an offset of about GBP 600 million.

And then what you've heard about and read about the rest in terms of the interaction within CVA and PVA, we no longer get the CVA offset on EL, but then you get a PVA positive offset back. So it's all set out on the table relatively clearly as best as we can.

Okay, yes, so the CVA and the PVA effectively net themselves off. The offset is really Irish-related in terms of the EL - P floor?

Exactly. The CVA doesn't completely [indiscernible].

Directionally, you're right, yes.

Okay, and then the other question I had was on Page 74 of the results. Just related to the Q4 versus Q3 increased -- sorry, lower income in Treasury and other funding costs.

Is that FVA related or is that something else? Or is the FVA change show up in net interest income?

No, it doesn't show up there. These are just the normal [indiscernible].

It's a debit this quarter and it was credits previously. If you look at the year-on-year, it just happened to be a debit this quarter.

It's normal noise within Treasury funding costs and volatile IFRS items.

I just have 2 quick questions, please. In terms of the excess liquidity amount that you mentioned, what is the appetite to do things like liability management at this point and clean up the capital stack a bit, firstly?

And then secondly, when I look at the tax cost, there was a GBP 700 million charge under the U.K. DTA that I wasn't expecting.

I was just wondering what drove that. If you can give me some color both of those, that would be great.

I'll do the first and Nathan will cover the more important [ph] one. Look, on -- as you know, we've been active in the markets over the last few years.

We'll continuously look to do that to clearly optimize net interest income. But clearly, some of these prices in terms of day 1 losses are not attractive to us.

So we'll look at it tactically, but there's nothing out there at the moment anything more than tactical. And terms -- if you look for little more details, there's a debt call tomorrow afternoon and, really, the debt specialist could talk about it then, but that would be our guidance at the moment.

Yes. And the DTA write-off relates to RBS plc, obviously, tax very related to a specific entity.

What we've done there is we've clearly calculated sort of our forward profits. It's the entity in which we book our Markets and basically, our wholesale-related business.

As you know, overall market revenues, et cetera and that have been coming down. But also, if you look forward on restructuring type costs and that and things to come, it was our view that the extended period that had DTAs would run out over, which was beyond the period we felt was reasonable and prudent.

So we have written down our DTI -- DTAs to sort of a circa 8-year usage period.

Maybe one quick follow-up to Joe's question first on the DTA. The deduction on Slide 17 is unchanged.

Is that -- has the total DTA not come down, so the reduction come down as well?

I think this is probably related to the fact that we would have increased, yes, DTAs as a result of the provisions and that for the year end. And basically, it just happens to be sort of a rough offset in the actual amount.

If we hadn't written it off, it would've been GBP 3 billion.

Yes.

Okay, okay. And then also, just on your Pillar 2B.

I guess the RCR has come down faster than you'd expected. Could you tell us if perhaps there's any reduction today versus your 1 percentage point impact for the Pillar 2B requirements?

And also, would you disclose what your Pillar 2A requirement is today?

No. I mean, we don't disclose those particular aspects of our sort of relationship with the regulator.

Obviously, RCR and the reduction of the exposures in RCR remains, as we said previously, a critical part of us managing our forward capital stress position. And again, we've started in a very good position there off the back of the Non-Core, yes.

But it's too early to really work that through.

Can I just ask you about capital management? And I guess the turn of my question is you've given us some pretty good targets for '15 and '16.

But if I look in your statement, what, 4 weeks ago, you were giving us quite a chunky range for Core Tier 1. And in the event you've actually come out a little bit even above that.

So I guess my question is, what to find [ph] particularly peculiar about the first quarter which made that uncertain? Or is that actually a quite indistinct science and should we read into that, that you might have to carry some reasonably chunky buffers as you forecast your capital position going forward?

I wouldn't read into it that we need to carry any particular chunky buffers. I think it's like anything, a lot of the things that you're doing in your calculations, you have to run through all of the various different aspects in order to be able to close these things off at the year end.

And at the point that we went out with the other information, we still had a lot of moving, yes, a lot of moving parts. And so I wanted to try to make sure that I was giving people as reasonable a position as anything.

But if you think about it, if you -- even if you thought you were in the sort of the 83 [ph] and the 20 basis points, either way, it's not actually that much relative to the size of some of the individual items, yes.

But I guess if we're looking out 3 years, that must be -- those uncertainties must be magnified many times over?

No, I don't think so. In reality, I mean, as we've said in the plan, there are key elements to our overall transition.

And again, we'll touch on them this afternoon. But those clearly do relate to the Citizens and the RCR and our overall risk-weighted asset reductions.

But I don't think the individual items that related to the range at the yearend are relevant to that longer-term picture.

This is the first time we had actual CRD IV. So clearly, as you say, there's more moving parts than normal, and that will land more going forward.

A couple of questions, please. Just firstly looking at your customer deposits, they've declined by 4% quarter-on-quarter to GBP 418 billion.

I'm digging into divisions; it is mainly to be due to Markets and International Banking, and you talk about repricing deposit products suite. Perhaps you could elaborate on that.

My second question just with regards to the movement in the shareholders equity quarter-on-quarter you outlined on Page 88 to Page 89. Obviously, the majority of the move is due to retained earnings, to some extent you'd previously flagged that.

But also just interested in the FX reserve. You have another GBP 400 million charge on the translation of net assets.

I'm just trying to get a feel for exactly what's driving that within the shareholders equity movement.

Okay, thank you. I'll pick up the first one, and Richard will cover the second.

On the thing on the deposit side, what we said is that we're focused on driving and maintaining a sort of the loan-to-deposit ratio of circa 100%. We're actually below that at the moment and therefore, in a very strong position.

However, it doesn't enable us to optimize our earnings as much as we would like. We have been very focused and proactive in ensuring that we're not overpaying for deposits that we don't need.

And in fact, what you're seeing is in that balance sheet, reduction is precisely that activity and precisely the activity that, therefore, also helps to drive NIM.

Andrew, just -- and you mentioned the page number. I really prefer everybody reads Page 83 where we go through the statement of comprehensive income.

That sets out pretty clearly the movements between AFS reserves, cash flow hedges and currency translation. Obviously, we are a sterling reporter.

Our U.S. dollar assets are substantial.

Sterling strengthened versus the dollar, so therefore, you have a translation loss. You also had a currency translation loss relating to movements in interest rates on interest rate hedges.

Clearly, that can move up and down depending on the interest rates. And you guys can see the movements in interest rates on a daily basis.

So -- but that will move around quarter-on-quarter. And on the offset side it will impact NIM, as we all know.

So that's essentially offset by interest income and translation will just move around based on these -- primarily the sterling/dollar rate.

Okay. Well, thank you, all, very much for joining us this morning.

It's appreciated. And for those of you who are going to join us this afternoon, I look forward to catching up then.

Thank you very much indeed.