NatWest Group plc

Ewen Stevenson – CFO John Cummins – Treasurer

Corinne Cunningham – Autonomous Research David Paulson [ph] – Axe Investments [ph] Robert Smalley – UBS

Thank you. And many thanks for joining this call to discuss our second quarter results that we published earlier today.

As you know, this follows on from our summarized preliminary results that we published last Friday. And I have John Cummins here, our Treasurer.

We will quickly run through the highlights of the second quarter and then leave plenty of time at the end to follow-up on any of your questions. In terms of the results today, we posted another solid set of results.

We reported an attributable profit of GBP 230 million, which includes an accrual of GBP 320 million for the initial repayment of the Dividend Access Share. A milestone for us.

This is our second consecutive quarter of reported profits this year. While we are clearly pleased with this quarter’s results, we recognized that revenues have been flatted by some one-offs and impairments have been exceptionally low.

As a result, we will remain cautious about the direct read across of these trends into the second half and also anticipate higher conduct and litigation expenses in the coming quarters. This attributable profit combined with good progress and reducing RWAs in both RCR and CIB, allowed our Core Tier-1 ratio to strengthen a further 70 basis points in the quarter to 10.1%.

Our Core Tier-1 ratio is now up 150 basis year-to-date. Year-on-year revenues were down 10% reflecting the ongoing reduction of the Bank’s balance sheet over the same period in comparison funded assets declined 13% and RWAs by 17%.

We continue to make good progress underling our operating costs and reiterate our target to reduce 2014 costs by GBP 1 billion. The reported second quarter cost income ratio was down 1 percentage point year-on-year to 75%.

Restructuring spend increased by over GBP 250 million in the quarter to GBP 385 million as we start to step-up the pace of our restructuring efforts. Looking forward, we expect restructuring costs to be in the order of GBP 1.5 billion this year versus our previous guidance of GBP 2 billion.

We still anticipate an overall restructuring spend of around GBP 5 billion across 2014 to 2017. On conduct charges, we took an additional PPI provision of GBP 150 million in the quarter, as well as a further GBP 100 million provision for interest rate hedging products.

Impairments were exceptionally low in the second quarter with a net provision release of nearly GBP 100 million. The strong quarter-on-quarter improvement of nearly GBP 0.5 billion reflects a very supportive credit environment, driving both provision releases and lower new default cases across all our businesses.

This positive macro environment that we now see in the U.K. and Ireland means that we now expect lower impairments in the order of GBP 1 billion for the full year.

Risk elements in lending have fallen 110 basis points in the first half to 8.3% from 9.4% at the end of 2013. This has been driven primarily by disposals in RCR and an improvement in credit metrics across the core book.

With that, I’ll now hand over to John to talk through the balance sheet and capital.

Thanks Ewen. We reaffirm our targets of a fully loaded Basel III Core Tier-1 ratio of 11% by the end of 2015 and at least 12% by the end of 2016.

Under U.K. transitional Basel III rules, improvement in our Core Tier-1 ratio helped improve our total cap ratio to 15.6%.

Increasing our total cap ratio from 15.6% to a target above 17% will primarily driven by the build-up of CT1, Core Tier-1 ratio to 12% with some optimization of supporting the debt stack as we go down the road. Our liquidity position remains strong with the LCR standing at 104% and the liquidity buffer is up slightly on the quarter primarily related to further deleveraging in RCR and CRD.

Our short-term wholesale funding remains modest of GBP 34 billion versus our liquid asset buffer at GBP 138 billion, and we continue this opportunity to reduce the buffer whilst remaining prudent. In the half year, we’ve issued GBP 1.4 billion public benchmarks senior debt from the holding company and GBP 2.2 billion of subordinated debt.

We have achieved our stated target on our comfortable with both the levels of liquidity and the amount of subordinated debt issue for 2014. As such, we expect little to no further issuance for remainder of the year.

On additional Tier-1, we continue to monitor market conditions below expectations in 2014. And with that, I’ll hand back to Ewen.

Thanks, John. So to summarize, another good quarter for us in terms of profitability, capital build and risk reduction, but we do remain cautious on the outlook given potential headwinds such as further anticipated conduct and litigation costs in the coming quarters.

With that, I’d like to open up for your questions.

Hello John. Quick one please.

You just mentioned some optimization at the capital stack. What sort of things have you got in mind there?

What we have in mind there is managing our amortization profile and looking to make sure the capital stack stays in compliance with the new and changing regulatory environment we have. So it’s very much about making sure as things amortize over the period, we continue to have issuance levels which are appropriate for our profile.

So we do expect next year to issue couple of GBP 2 billion AT1, and we expect a modest amount of senior debt in the holding company as well.

And would that – AT1, would you do that as a clean issue or would you contemplating and exchange Barclays recently?

I can’t comment on what other banks have done. I wouldn’t like to give guidance whether we do LME or not.

We do have to take a lot of things into account when we look at the timing of this particular issue. So probably I can’t give any more guidance on that.

Thank you very much.

Hi. Pardon me if I missed the subject in your comments.

Where are you considering Citizens to divest for an IPO or otherwise?

Well it’s Ewen here, David. So we’re in a grace period with the SEC.

I think, so there is not a lot I can say on what we’ve currently said in market disclosure around our IPO trends, either than to say that we’re on track with those plans.

What is – when did you feel like you started this process of really trying to bring it to market and like what would be like a fair period in order to get it off the ground?

Yes, so we filed the S-1 on May. As I said, there is not a lot I can say.

I mean I can sort of to mention May. The other end point I can give you is that we have a European Commission requirement to have fully exited Citizens by the end of 2016.

Okay. And how much – what’s the range of capital help that you may receive from – like if it happened today or soon, what’s your estimate of what kind of capital buffer that would provide?

Yes, I think we previously said 200 basis points to 300 basis points of guidance. The 200 basis points is more guidance on today’s RWAs, the 300 basis points is more guidance on where the RWAs end up to, because we are also running down RCR in some other portfolios.

So a meaningful increment in terms of capital structure.

Thank you very much.

Hi. Couple of questions.

One operationally. You in the deck talked about SME growth.

Could you talk a little bit about where that was? Was that just really green suits sporadic or is that something that’s more of a trend.

I know that’s an area that you’ve been positioning yourself to take advantage of, and one that where you feel that you can potentially outgrow the growth in the economy given your franchise. So are you starting to see that now?

Yes, look Robert, I can say the way we’re seeing the growth. Well maybe a couple of things.

Firstly, in terms of our CPP business where we are seeing – we’ve got a mix of things going on. There is some portfolios that we’re running off, for example commercial real estate, we continue to run that business down.

So what you actually see in the combined figures is negative overall growth in the loan portfolio, but underneath that as you point out, there is growth in the book that we want to grow. We’re seeing pretty broad brush growth I would say.

When I describe it as green suits, don’t know, but there is certainly emerging demand. Would we like it to be stronger?

Yes. Do we think that it still feels like the economy is generally deleveraging?

Yes.

And in terms of going back to a couple of questions before, you had mentioned manage on Tier-2s I think it was, managing the amortization profiles. I am taking that mean that those that are within – you’re looking at potentially doing something around with those Tier-2 securities that are less than five years and therefore amortizing, or potentially those that maybe going through the 10-year amortization period in Tier-1s into Tier-2s.

Could you give us a little bit more detail on what you meant by that, and where is the real sweet spot for you in terms of getting capital treatment versus maturity there?

Okay. I’d say that the main focus we will continue to have is to manage all regulatory capital process so that we have a consistent capital stack.

And in terms of sweet spot, it is very much driven by what market opportunities present themselves at the time. If you ask me to give you exact clarities as to what we’re going to do in terms of step-ups or compliance step up, we’ve got a very clear delineation that we have to take the decisions on calling any of these securities on an economic basis across the board in terms of all the different factors we look on.

It’s hard for me to give you specific guidance on any new one issue. We are definitely clear we want a 5% capital stack not to be made up of Tier-1 and Tier-2.

As we have maturities coming through and things are not good for regulatory requirements, we look at this along with other factors that will impact the securities which may be useful for other funding requirements other than just regulatory capital.

Okay. That’s helpful.

Last one. One of your competitors talked about – disclosed what their Pillar 2 requirements were, you see they have nice growth in capital here potential talk about AT1.

Is that something you’re going to disclose and when?

Okay. This remains the private number between us and the regulator.

Obviously the peers, I have disclosed those which we required [indiscernible] part of AT1 issuance. We will look at this as and when we consider similar issuances.

So it’s a match which we would drive as part of the issuance process.

That’s great. That makes sense.

Thanks very much.

Thank you all for joining the call. I appreciate.

It’s a Friday afternoon for some of you and a nice summers’ day in London, but as I said we are pleased with this quarter. It’s not often we can say that.

And it’s the second quarter in a row that we’ve been pleased. We do think we are making very good progress.

We’re particularly pleased with the buildup in our capital ratios of 150 basis points since the end of last year, which is really sort of fundamentally I think shifted us from, into a much stronger capital position than we had anticipated at this point. So thank you all for joining the call, and if you do have any follow-up questions, please go through the normal Investor Relation channels.

Thank you.

Thank you much for your time. Have a great weekend.