NatWest Group plc

Ross Maxwell McEwan - Group Chief Executive Officer and Executive Director Ewen Stevenson - Chief Finance Officer and Executive Director

Michael Helsby - BofA Merrill Lynch, Research Division Chintan Joshi - Nomura Securities Co. Ltd., Research Division Chirantan Barua - Sanford C.

Bernstein & Co., LLC., Research Division Rohith Chandra-Rajan - Barclays Capital, Research Division Andrew P. Coombs - Citigroup Inc, Research Division Joseph Dickerson - Jefferies LLC, Research Division Martin Leitgeb - Goldman Sachs Group Inc., Research Division Thomas Rayner - Exane BNP Paribas, Research Division Michael Trippitt - Numis Securities Ltd., Research Division Edward Firth - Macquarie Research Manus Costello - Autonomous Research LLP

Thanks very much, and good morning, everyone. Thanks for joining us on our Q3 results call.

We have reported an attributable profit of nearly GBP 900 million, our third consecutive quarter of profit with strong growth in our Personal Banking and Commercial businesses, demonstrating, I think, that our strategy has started to deliver good results for our customers and shareholders. We're also publishing for the first time our customer service and advocacy scores for our key U.K.

customer franchises, which are also showing signs of early improvement. We are the biggest lender to British businesses, and it was particularly encouraging to see a year-on-year increase in lending to small businesses climb 29% on the year-to-date numbers.

And we are within reach of a GBP 9 billion target we set for ourselves to get out to new SME lending. We're making good progress in all of our other key business planned priorities for 2014.

Our profit, cost and capital mix, which have strengthened again, were also delivering on our plan to make RBS a smaller, but societal bank, and we are selling assets from RCR more quickly and at better prices than forecast. And Citizens was successfully offered on the New York Stock Exchange last month in what was the largest banking IPO in U.S.

history. We've also completed our review of the Ulster Bank and decided that it will remain core within RBS.

We believe this is the right decision for our customers, staff and shareholders, and it has a good strategic fit with our Retail & Commercial banking strategy and is on a path to producing positive returns in an economy which is recovering very fast. We continue to deliver on our commitment -- or the commitment I made in February to change our competitive positioning.

We've called time on teaser rates and 0 balance transfers that had eroded the trust of our customers, and we will continue to look at ways that we can put further pressure on practice in the U.K. banking sector that confuse and penalize customers.

But as has become customary over the last few quarters, let me sound that familiar note of caution. We're -- we are actively managing down a slight of significant legacy issues.

This includes significant conduct and litigation issues that will continue to head our profits in the quarters ahead. Today, we have announced a charge of nearly GBP 800 million, and Ewen will take you through this in detail in a minute.

So while we are pleased that we've had 3 strong quarters of financial performance, we are not complacent about the challenge ahead. There will be plenty of bumps in the road, and we have much more work to do.

But we are focused on our plan to make RBS the most trusted bank with the best customer service in the U.K. I'd now like to hand over to Ewen Stevenson to take you through the numbers before we open it up for questions.

Ewen, after you.

Thanks, Ross, and thanks to all for joining this morning. I've got a few summary comments on our Q3 results to talk through, and then we'll leave you plenty of time for questions.

Ross has talked about some of the positive progress we're making in executing upon our customer plans and the strategic progress we're continuing to deliver across a broad number of areas in the bank. We're also making some very good progress against the financial targets we set out in February.

For Q3, we reported an attributable profit of GBP 896 million. This was flatted by net impairment releases of just over GBP 800 million that helped offset higher conduct and litigation costs.

For the first 3 quarters, we've now earned attributable profits of GBP 2.3 billion and the return on tangible equity for the quarter was 8%. As part of these results, we've had good operating performances by our PBB and CBP (sic) [CPB] franchises, continued good execution by RCR in managing down the size and risk of its asset pool, but frankly, a weak quarter from CIB.

On capital, our Core Equity Tier 1 ratio is much stronger than the start of the year and improved further to 10.8% in this quarter, and our tangible net asset value per share was 388p at the end of the quarter. This is up 25p or 7% year-to-date.

Looking at our Q3 P&L performance in more detail. On income, our total income was GBP 4.4 billion in Q3.

This was down 11% on the previous quarter. A material part of this reflects the negative delta between some positive one-offs in Q2, such as the GBP 170 million gain we made on the sale of Citizens' Illinois franchise and the negative one-offs in Q3 due to the GBP 104 million of disposal losses we took on the sale of a pool of AFS securities that we mentioned in our trading statement last month and GBP 110 million accounting loss, which was largely attributable to IFRS volatility on some long-dated hedging on our loan portfolio.

But the weak performance also reflects the impact of a weaker quarter by our CIB franchise. CIB's revenues were down a disappointing 23% on the previous quarter.

This is due to a combination of further derisking and downsizing, including the ongoing wind-down of our U.S. asset-backed business; also due to subdued client activity in a number of our Core franchises, such as rates; and the nonrepeat of deleveraging gains that we saw in Q2.

I think it's also -- relative to peers, our business mix in CIB did not benefit from some of the better-performing FICC segments in Q3, such as leveraged finance and commodities. We are pleased, though, with the good progress our CIB team is continuing to make in reshaping that franchise towards a smaller, more focused and less volatile business.

This includes a rapid reduction in RWAs. RWAs and CIB are now down by over 16% year-to-date, a GBP 24 billion reduction, and this is in the context of a continuing challenging market backdrop and a dynamic regulatory and capital environment.

Looking into the revenue performance of our other businesses. There are some very encouraging trends.

Personal & Business Banking saw income up a further 3% this quarter, and CPB had more modest income growth of 1% versus Q2. Our net interest margin improved by 4 basis points to 2.26% in Q3.

That's some 25 basis points higher than a year ago. Further deposit repricing in PBB and Commercial Banking were the main drivers this quarter of the improvement in NIM.

On costs, total costs were up 5% quarter-on-quarter at GBP 3.9 billion. But if you exclude restructuring, litigation and conduct costs, our operating costs were down almost 5% on Q2.

We had very good expense control in CIB, and we're also benefiting from lower headcount in the bank overall. FTEs were down by a further 2,800 or more than 2% in the quarter.

We said in February that we would deliver GBP 1 billion of cost savings this year, and we're well on track to do this. On conduct and litigation costs, we took a total charge of GBP 780 million in the quarter.

This includes an additional GBP 100 million for PPI and early provisioning of GBP 400 million for certain pending FX-related charges. Restructuring costs were GBP 180 million in the quarter and now total almost GBP 700 million year-to-date.

We recognize restructuring costs will continue to be volatile, and we expect that restructuring costs will be higher in Q4. We continue to maintain our previous guidance of GBP 5 billion of restructuring costs for the 4 years to 2017.

Within this, this reflects the significant restructuring program we can foresee over the coming years as we continue to execute upon our current strategic plan, as we prepare for the 2016 separation of Williams & Glyn and as we prepare for ring-fencing that, as you know, will be required from 2019. On impairment provisions, we saw a net release of just over GBP 800 million in the quarter.

This compares to a GBP 93 million release in Q2. RCR saw around GBP 600 million of provision releases as it continues to benefit from favorable market conditions.

Ulster Bank also saw significant provision releases, supported by rising Irish real estate prices. And across the rest of our businesses, underlying default rates and new NPL formation continue to be very low.

Turning to the balance sheet. We saw good growth across a number of Core loan portfolios with customer loans and advances up 2% in the quarter.

Our Personal & Business Bank in the U.K. had net mortgage growth of GBP 800 million and continues to see its new business market share in mortgages ahead of our stock share.

Commercial & Private Banking had net lending growth of GBP 1.3 billion with the strongest growth in the mid and large corporate segments. As we signaled in our trading statement at the end of September, RCR is outperforming previous expectations, both in terms of cost to exit and for speed of runoff.

RCR saw assets declined by a further GBP 3 billion in the quarter, and RWAes were down by a further GBP 5 billion. Since inception at the beginning of the year, RCR's assets are now down 38% and RWAes by 41%.

On asset quality, it continues to rapidly improve. Our risk elements in lending to gross loans improved from 8.3% at the start of the quarter to 7.4% and, x the RCR portfolio, from 3.6% of gross lending to 3.4%.

However, we remain very sensitive to the overall macro outlook in the U.K. and Ireland with some GBP 20 billion of balance sheet loan loss provisions at the end of Q3.

On deposits, we continue to see decent deposit growth with GBP 4 billion of additional deposits or 1% growth in the quarter. And with a loan-to-deposit ratio of 97%, we continue to be very well positioned to support loan growth in our Core Markets.

On our capital and leverage positions, we finished the quarter with a Core Equity Tier 1 of 10.8%, up 70 basis points on the last quarter. This improvement was primarily driven by a 30-basis-point increase from Q3 earnings and a 30-basis-point improvement from the GBP 10 billion reduction in RWAs achieved in the quarter.

Our Core Equity Tier 1 has now strengthened by 220 basis points year-to-date, and we continue to remain on track to meet our Core Equity Tier 1 targets of 11% by the end of 2015 and greater than 12% by the end of 2016. Our leverage ratio improved 20 basis points to 3.9% in the quarter, and this is before the benefit of any new-style AT1 that we expect to begin issuing in 2015.

On the recent ECB stress tests, you will have seen that we passed the tests across all 3 of our banks subject to the stress testing, and this is despite the test being run off substantially weaker year-end 2013 Core capital and balance sheet risk positions than where we stand today. So in conclusion on our Q3 results, Ross and I are pleased with the continuing progress against our financial targets.

Q3 was our third quarter in a row of profits, and our return on equity was 8%. We're on track to deliver the GBP 1 billion of cost savings this year that we committed to in February, and we're achieving all of this while continuing to both substantially strengthen our Core capital and leverage ratios and undertaking a material derisking of our asset mix across a number of legacy businesses and asset portfolios.

Turning to our Q4 outlook. We expect it to be a tougher quarter for us relative to Q3.

We do not foresee the same benefit from loan loss impairment releases that we saw this quarter, but we do expect to continue to see modest levels of new impairment provisions in Q4 and into the start of 2015 based upon current impairment trends. We're likely to see a continued weak trading performance by CIB in Q4, given both market conditions and CIB's ongoing derisking.

And we expect restructuring charges to be higher in Q4 relative to year-to-date trends. As a quick reminder, we expect to take a bank levy charge in Q4 of a little under GBP 300 million, split approximately 40%, CPB; 35%, CIB; and 25%, PBB.

And as we said in our Q2 results, we remain very cautious on the potential significant costs associated with ongoing conduct and regulatory investigations, principally relating to the FX Markets and U.S. mortgage-backed securities.

Settlements or redress on these are likely to act as a material drag on earnings and Core capital generation over the coming quarters, and both the timing and quantum of any further settlements or redress remain uncertain and could be significant. So after bringing the conversation back to a slightly more somber tone, I'll now hand back over to Ross for a few remarks.

Thanks, Ewen. I think we just might open up for questions now.

I think it was a good summary of the financials, and let's open up for questions.

Just 2 questions for me, if that's all right. Firstly, just on CIB.

I think the 32% of your risk-weighted assets making 0 profit in the third quarter once we clean it up for restructuring and litigation. So I think RCR is increasingly in the rearview mirror, leaving CIB very much as the elephant left in the room.

I was just wondering if you could maybe go through what incremental things you can do over and above what you've already set out to improve the profitability of that division because it looks increasingly a lot like -- look -- looking like you need to do something. And secondly, just on center, there's a lot of volatility there on the revenue line.

I've got a reasonable amount of revenue, GBP 450 million, in the model for next year. So I was wondering if you could give us an idea of what the natural revenue is in that division, please, Ewen.

Do you want me to just do a quick run on the CIB? We did outline our plans early on this year to reshape this business towards a smaller and more focused business.

That's certainly underway, Michael. As you know, as you bring -- make these businesses smaller, you always lose the revenue first, and the cost have to come out.

I think Donald and the team in there have done a very good job of reducing costs. But as you say, that it's not performing to the level we wanted at, and each of the businesses we operate needs to get to its cost of capital.

You've seen us answering for the Coutts business. You've seen us answering for the Irish business, and we've still a lot of work to do on our CIB.

Still assets -- risk-weighted assets to take out of this business. We said we'd target around GBP 100 billion.

We think we'll be better than our 2014 target this year and well on our way to the GBP 100 billion. But look, as you say, still a lot of work to go in this business, and the other thing that we are answering for is around ring-fencing or ICB, which won't have an impact on this business.

So I think you're going to see a lot of work still to do on CIB as we make it a smaller business and a lesser percentage of our risk-weighted assets.

Yes. And perhaps I'd just add a couple of comments, Michael, to what Ross has said in sort of reacting to your comment that we're not doing anything.

We certainly are doing [indiscernible].

No, no. Clearly, you're doing something.

We've taken GBP 24 billion of RWAs out of our business this year or 16%. We are running down our asset-backed business in the U.S.

I think we've talked in the results about having taken GBP 12 billion of RWAs or about half of that business down. We do expect to be out of our asset-backed business by the end of Q1 next year.

And I would sort of echo what Ross says, we're solving for returns. So if we can't get the returns we need, we will continue to actively manage the business down, take cost out to get the returns up.

On your question on center income, look, I think, for modeling purposes, rather than assume GBP 450 million, I'd assume 0. I don't think you'll see ongoing security gains or losses, so we don't anticipate those next year.

There'll obviously be some volatility. I think, quarter-on-quarter, as you're aware, we had these long-dated hedges associated with some of our loan positions, which does produce, as it did produce this quarter, some IFRS volatility.

But I think that's going to fluctuate plus or minus 0.

Can I just come back on the CIB, Ewen? Clearly, I appreciate that you're doing a lot already.

So it just feels like incrementally, you need -- you're going to have to do more, and I think Ross seems to sort of agree with that. Is there a base level of RWA that you absolutely need to just maintain a footprint in that business?

I'm just trying to get a sense of what you could -- what incremental things you could do from a capital perspective.

Yes. Look, we've set out a target of GBP 100 billion.

It's becoming clear that it will be below that, and really what it needs to solve for is our U.K. franchise and our European franchise at this point in time, is what we need to make sure that we're looking after, and any services from CIB need to support that.

That was our original strategy that I put out in February. Now look, I'd just say, this is a tough market.

The team there are working very hard. They understand the challenge, and they also understand that we are solving for sort of ring-fencing all at the same time.

So I think a work in progress at this point, Michael, and watch the quarterly spaces. We do get this is a smaller business that does need to get to its cost of capital.

Actually, I just wanted to follow up on Michael's discussion there. When you gave us the strategic update, you had planned about GBP 300 billion of RWAs.

Now I take your comments on the CIB. I suspect it probably needs to be smaller.

But I just want to think about -- is that GBP 300 billion still relevant? Because I really struggle to get there.

I just can't see that kind of growth from the U.K. offsetting the reductions in CIB and Ulster.

And then second question, just a clarification. Within your capital calculation, I've seen -- I see expected losses have gone up.

Is this a result of releasing reserves? And how should we think about that line going forward?

Yes. Michael -- I'll just pick up on the CIB piece.

It -- look, it's becoming clear that the target we set for ourselves is around GBP 300 billion. Look, we may be below it.

We'll likely to be below that number. I can't give you any guidance on that at this point in time.

But I also said that CIB needed -- I think I said it was about 35% of our total. So as the numbers come down, I wouldn't see it being any more than 30% of our total RWAs.

So yes, I just think you are seeing the business trying to find a platform, and I think you'll find every market, international businesses doing exactly the same as the regulatory framework changes and the capital loads on these businesses change as well. So that's what we're solving for.

Still work to be done, and the team are working very hard at it. And as I say, still work to be done on this.

On your second question, on the expected loss, expected loss provision balance, I think, has fallen more quickly than expected loss, so we still expect this to be around GBP 1 billion in the medium term.

Okay. So it will continue to trend down, not go up, like it has gone this quarter?

Yes.

I have 2 quick questions. One is on Ulster.

Good to see that you've kept the franchise, but it'd be great if you could just lay out your strategy there, both in terms of the asset side of the balance sheet or -- and if you're looking at M&A or acquisition of assets as well. The second is on the AT1, Ewen.

You mentioned that 2015, you'll be in the market. We've been expecting that.

It'd be great if you could give some guidance around what's the quantum you're looking at and what kind of marks in pricing do you expect.

Yes. Look, I'll pick up the Ulster one and then pass on to -- as you asked [ph], to Ewen.

We've done an extensive review on the Ulster business. We did look at all sorts of options, including any likely M&A activity, purchasing of assets to bulk up sale of the business, the whole.

We looked at every option. And our view at the end of the day that the best strategy was to hold on to that business because we believe -- the question we were answering for, can it get to its return on capital in a reasonable period of time for shareholders?

And the answer to that in our mind is yes, helped a little bit by a growing market in Ireland, but also our -- the way we will structure that business is that the Northern Ireland portion will become more attached to our England and Wales business and will run the republic off our Core systems with the same model from a functional support model as we do for every part of this business, that it will become more of a challenger bank. It has the same issue that the overall bank does, it's too expensive, so it does need to reduce its costs.

And the team in Ulster are well aware of that coming out of this review. But that's the same issue across the entire RBS banking operation.

It's just a small part of it that has the same issue. We'll utilize services across the entire bank as we operate as 1 bank, but it needs to have its own regulatory framework and a CEO, CFO, Chief Risk Officer.

So the strategy is quite clear, it's very similar to the rest of the bank. It will follow the same strategy.

You are seeing some improvements in the growth in that business. We have been, I think, reasonably conservative in our assumptions around that business as we've modeled it for the next 4 to 5 years.

And still, we believe we can get it to a reasonable return on capital and worthwhile keeping for shareholders.

Yes. On your -- to your -- on your question on AT1 issuance.

Look, we're still working through it. I would think our best guess is to try and issue sort of GBP 1 billion to GBP 2 billion next year.

We've obviously got old-style AT1 on issue, some of which we could convert over time. We're obviously waiting for guidance on TLAC and leverage and, in terms of issuance price, as cheap as possible.

And it -- obviously, as we think about that, the more we progress into next year, the more our capital ratios continue to accrete. And I think the more that we get through some of the ongoing uncertainty around our litigation and conduct cost, particularly around FX and U.S.

RMBS, we would think that the clarity around those, plus capital strengthening, will help push the cost down for us. But there's obviously a number of benchmarks out in the market to look at.

I just wondered if I could follow up on the Ulster question actually, and thanks for the detail that you've already given. I'm just wondering in terms of sort of your expectations then of Ulster making its cost of equity, I mean, is that in the sort of 4- to 5-year time frame that you just talked about, Ross?

So those -- we have planned it out for that period of time. We thought -- I mean, there is a lot of -- quite a bit of work to be done in that business.

As you're aware, there's also a big tracker book that sits there and is quite punitive on our return on equity. So it does need some time to work through, but worthwhile.

But 4 to 5 years was the time frame we gave it.

Within that, obviously, we've still got quite a bit of work that we recognized to do on the cost structure. We're trying to get the cost structure down to a 60% or below cost income ratio over time.

And I think we do expect that we'll continue to see relatively low levels of impairments for the time being. We had a GBP 300 million write-back this quarter.

And as we look -- so again, the P&L -- or the returns will benefit from the non-normalization of provisions for some period of time, we think.

Okay. And then if I could just kind of put some of the pieces together in terms of -- the positives and negatives in terms of your medium-term ROE expectations.

So to Ulster, better than previously expected. CIB sounds like it's more challenging, but then you had much better than expected progression on the RCR.

But the 9% to 11% medium-term ROE doesn't look like it's changed. I mean, how do you think about that?

And should we expect any update on that maybe with the full year results?

That's on the CIB piece?

So putting those 3 things together, better Ulster, worse CIB, better RCR, but there's no change, the 9% to 11%. Should we expect some change?

No. I think, on our medium term, we gave the 9% to 11%; and the longer term, 12%.

We would -- we'd stick to the guidance.

Two questions. The first, just a clarification on litigation.

Of the GBP 562 million in the investment bank, GBP 400 million, you said, is the FX. Can you just clarify what the remaining GBP 162 million is?

Is that a top-up on FHFA? Is that a combination of things?

And perhaps if you could elaborate there. And also, on the GBP 400 million for FX, the provision you've taken, is that based on just the U.K.

settlement? Or is that your thoughts towards cross-border?

And then...

On the additional numbers in CIB, you'll see in our document, Page 42, we refer to a case, referred to as complex systems. Part of it relates to that, although we haven't disclosed numbers on that.

And there is a small U.S. RMBS provision in there, too.

But nothing -- no material incremental amount -- or no amount, frankly, in relation to FHFA. Just to remind people, we have about a $2.5 billion provision against FHFA.

Sorry, and the second question, Andrew?

I'm sorry. It is just a clarification on the FX provision as well, whether that's based on your thoughts [indiscernible] .

Yes. Sorry.

On FX, it's -- well, what we can say is it's in relation to the authorities that we're currently in discussions with. We don't think it represents a likely complete settlement of what we're going to need to provide against FX.

So people should assume, as we talk to more authorities, we will see more provisioning coming through in coming quarters.

And then my follow-up question was more of a strategic one. Within the investment bank, I mean, once again, your team revenues dip by a large amount in the cost reduction Q-on-Q.

I know it's obviously a very different business to your Retail & Commercial franchise. But given that you're seeing subdued industry growth in the U.K., you're guiding to interest margin stabilizing, ongoing asset margin pressure.

And unlike the investment bank, you're really only at the start of the cost restructuring plan there. So perhaps you could just outline any concerns you might have on revenue attrition or why you think that will be different to the experience you've had with the investment bank.

In U.K.?

In the U.K. specifically, yes, please.

And specifically related to the CIB business?

No, no, no. Sorry.

I -- yes, I was thinking more of the Retail & Commercial. And I know they're very different.

But given that you're further along the cost takeout trajectory in the investment bank and less far along in Retail, just what your thoughts are in the revenue implications?

Yes. Okay.

Well, first off, we're positive on the U.K. franchise because they're starting to grow again both in their loans and cost takeout.

So we are positive about those. Less are [ph] the Personal & Business Banking, as you see, is growing 3% to 4% this year, which has been good, off a base that we've been contracting for the last 5 years.

You're seeing the Corporate & Private Bank this year flatlining -- started to flatline on assets, which is, I think, a very good sign for that business because we've still got assets coming off there in the commercial real estate. And I would think you'll see very small growth in that business next year and reasonable good growth in [ph] the year after.

But you don't -- you are seeing already, as we concentrate on that business and its returns, its return on equity is starting to improve quarter-on-quarter. But I think you should expect to see that improve next year.

So the 2 Core U.K. franchises, I think, you can expect to see some growth, I think, modest.

But that's something that we haven't seen for some time, and you will see cost come out of those business. And the private bank, you're seeing us slim line that down to being a U.K.

bank. Its performance has been hampered by expansion into the international markets.

I think that's a 15-plus percent return on equity business. Again, you're starting to see, as we reduce the cost structure in that business and start focusing back on the customers that started to come through.

And I think you can expect to see that next year. And Ulster Bank, as you see, is one of our star performer this quarter, which is a bit of a surprise after 5 years of losses, but it's based on the write-backs.

So we're reasonably positive about our U.K. franchises.

It's CIB that's the one that we are having to put the effort into with the team.

Two questions. Firstly, the run rate of your restructuring cost is substantially below your guidance, and I appreciate that you'll probably spend more in Q4 per your guidance.

But could you give us some specifics as to why the overall net cost of this is going to remain in and around the GBP 5 billion range? In other words, what's kind of left to do?

Because if I look, your costs are already coming in quite a bit in the various businesses, and we're down 5% quarter-on-quarter across the group. So I was just wondering what are -- if you could enumerate some of the areas that are left?

Secondly, you've been incredibly capital-generative year-to-date. And if you think about a pro forma number for disposals, your Core capital is going to be around 13% for the first 9 months of the year.

Obviously, one appreciates future litigation costs, what have you. But when -- do you think you'll be in a place in the next 12 months to start talking about capital return?

I know you laughed at me the last time I asked that on the call, but I'd appreciate some update on that front, too.

Yes. Look, I'll lead in on the cost one.

As you've seen, we've -- I think we've done a very good job this year as we've concentrated everybody on just taking out some of the cost that should never have been there. Our run rate will be lumpy.

You will see some big hits being taken as we restructure businesses. You saw a wee bit of that in, I think, the second quarter as we took out one of our major properties, Bankside, which was quite a hit on us.

And there are others of those of that nature to come. So -- but we can take those only when we vacate those buildings.

So there's a bit of that. There was also, I think, the first cost takeout is the easiest bit.

In the next few years, it's going to need us, a, to do the investment in those as well. Williams & Glyn is a very big expense for us.

So that's included in the numbers. I think that will be GBP 1.5 billion probably on its own, the cost of takeout, and then the other side is we've got major cost to do the ring-fencing, which you've seen other firms talk up to GBP 1 billion or so.

I think -- without us giving you firm numbers, I think we're in that sort of GBP 750 million to GBP 1 billion of cost at the first blush before we really get heavily into it. So there's some pretty big cost there that you should take into consideration.

And all of that, just to be clear, Joseph, included in the GBP 5 billion. And that's why even though the run rate so far is below trend, but we continue to be cautious about trying to reforecast that number, given some of those major events we've got ahead of us.

That's very helpful on the granularity.

Ewen, I'd state also look, and close to that sort of GBP 1.5 billion for this year, we haven't walked away from that one. I think it will be around there.

On the dividends, Ewen and I continue to smile at each other on that. That would be lovely to be able to pay a dividend.

I wouldn't factor that into your calculations for the next 12 to 18 months. We've got a lot of work to do.

We've got to get through this litigation and conduct issues, and we've got to get ourselves well over the 12%. We said to you 12% plus, and I still believe we've got to get over that level to get to a position where we can start thinking about the dividend.

So on track, lots of heavy lifting to do yet on that.

But I'd like to be clear, when we do get in a position when we're able to pay dividends, we will pay dividends.

Absolutely.

I've got 3 questions, please. The first one is on the Irish write-backs.

Obviously, in this quarter, you benefited a lot from asset improvement in Ireland. And I was just trying to see if you could give us a sense for further write-backs going forward, if the market there continues to improve.

In particular, when I look at your RCR disclosure in terms of your commercial real estate exposure within Ulster Bank in RCR, do you see there the potential to sell larger blocks of commercial real estate loans there? And just looking at the provisioning level you have there specifically, could that be a significant source of write-backs going forward?

So I was just wondering if you could comment on plans on asset disposals there. Second, on litigation, you are obviously guiding that litigation is likely to continue to be a drag going forward.

And we're just trying to get a sense whether litigation with that you mean regulatory fines or civil fines or a combination thereof and -- or whether you can help us give a bit of light, I know it's difficult, on what your biggest concerns there are. Is that U.S.

mortgages and FX going forward? Or are there other issues you see as potentially significant there?

And finally, lastly, the third question on Williams & Glyn's, I was just wondering if you could provide an update on the progress, shape and time line of this disposal?

Yes. Look, I'll -- look, we'll start at the back and work our way back, if you like.

Williams & Glyn, we still are planning towards having it really for an IPO late 2016. We've got about 3,300 people working on the extraction of that business and taking it out.

It's as complicated as you'll ever find it, which is why I think people who have sort of chat about breaking up banks and distributing them all over the place, they should come and have a chat to us at some point in time on just how difficult these things are. So -- and we're still running for end of 2016, and it will be the end of 2016.

As I've just given you an indication of the costs, it's a very heavy piece of cost work for us and very labor-intensive, so no change in our guidance on that one. On the litigation drag, look, it is -- FHFA and FX are the biggest.

The other things fall -- pile on to sort of very small items after those 2. And it is both the regulatory actions and, I suspect, litigation that will come after some of those, as we saw with LIBOR.

What they will be, I've got no idea, but I'm sure people will legal up and lawyer up and have a go at all the banks on those issues. But look, we've -- we still have conversations to go with many regulatory authorities on those.

Those are the 2 big items. On RCR, just on bigger blocks, we would -- we are very happy to sell bigger blocks and have done so.

As you know, we've got a very efficient model that runs in RCR. At any one time, we've got about 150 groupings of assets for sale.

And then the marketplace is going very well, and we'll continue to push it pretty hard. And some of those will be Irish business -- Irish blocks of business as opposed to single items.

And Ewen, do you want to pick up on the write-backs on Irish?

Yes. Well, just -- so I'd just quickly go back in litigation just to clarify it for everyone.

We -- as of today, obviously, we've taken a GBP 400 million provision against FX. We have an existing provision against FHFA for mortgages of $2.5 billion.

On Ulster, as a sort of very broad rule of thumb, yes, for every 1% improvement in the house price index, we would expect to see write-backs in the order of GBP 25 million. But it is a very broad rule of thumb.

And as you saw, for example, over the last year, quite a broad distribution of house price improvements in Ireland with Dublin up 23% and the rest of the country up, on average, 7%. But -- so we do expect to see some write-backs potentially in Q4 getting more modest, I think, if any, into Q -- 2015.

Just kind of one clarification, please, and then one sort of actual question. Just on the restructuring, you confirmed GBP 1.5 billion for the full year.

Am I right that that's implying quite a pickup into the Q4 allocation? It looks like GBP 700 million, GBP 800 million to reconcile with the 9-month number.

What would be behind that?

Look, they are mainly associated with a property and IT write-downs at this point in time, Tom, if we can -- if we are in a position to be able to take them. So -- and it does require timing, and we would vacate a building so that we can take those.

So this is why we've said we'll stay with the GBP 5 billion. But I think we will use up a larger portion of the GBP 1.5 billion this year just looking at what's coming [ph].

That guidance was GBP 2 billion, wasn't it, at one point? Maybe that was brought down sort of...

Yes, it was GBP 2 billion, and then, Tom, we updated guidance as part of the Q2.

Yes, yes, yes. I knew that.

I knew that. The other question, please, just sort of going back to the restructuring, I mean, in CIB, I mean, it sounds as if you're following the sort of mantra that if the returns don't get to where they need to be, you'll still keep shrinking, keep finding other ways to improve that.

But can I ask what sort of stand-alone return you think is required? I mean, is it very much in line with the group targets?

Or is there any element that CIB has sort of flow benefits to other divisions, therefore, it's probably worth maintaining a certain structure, even if the stand-alone ROE might be a little bit lower than your sort of group targets? What's your thinking on that?

Yes. Look, you're right that they do give opportunities to Commercial Bank, and some of these are into Personal & Business Banking through foreign exchange and the likes.

But they -- look, they need to stand up on their own and get close to or around that 10%. And I think I gave guidance at the start that we'd have 2 businesses at 15% plus and the other one around the 10%.

And again, I -- that's my expectation of those businesses and this business as well. Look, it does need to solve for that, and we can't have major businesses with major drags on the business.

And I understand that. But I mean, ultimately, if you follow that to a conclusion, you might end up with a business which is upscaling.

You might as well shutoff, certainly, the markets bit within the CIB. I mean, is that -- I mean, are you prepared to be that radical if the economics suggest that's the right path?

Well, you've got to be in businesses that customers are prepared to pay for it, and you've got to have a cost structure that actually justifies it. We're solving for the cost structure piece here.

We've got a very heavy cost structure in this business. And as I've said and I keep saying, the revenues always come down faster than the cost, but we do need to get this to a level we're all very comfortable with that it is going to provide good longer-term results for our business.

Otherwise, we've got to find other ways of doing it. And capital load on each [ph] business is quite different to what it was 5 years ago, and we'll -- when we found out about leverage ratio and some of the other features, well, we'll have to solve for that as well.

We're not on our own on this one.

I mean, actually, the point, actually, I had is -- sorry.

We're not on our own on this one.

No. Certainly not.

Some questions, back on the -- sorry, on the same story, just Ulster and CIB. I just wonder, with Ulster, clearly, huge benefit releases, recoveries in Q3.

If you could just talk a bit more about the operational improvements that can be made before the recovery comes. I mean -- or does the ROE improvement really just come with economic recovery?

Thinking specifically on the margin, you've talked about deposit repricing. Is there any more benefit of that to come?

And then secondly, on CIB, I don't know if it's possible to do because, I mean, you -- I think you already mentioned a couple of times, very disappointing performance. At the same time, you've talked about derisking and deleveraging, and we know that Q3 was sort of a weak quarter, anyway, for the market.

Is there any aspect of the CIB performance, you think, was a distinct sort of underperformance or where you just simply kind of got it wrong in Q3 relative to the market?

Let me -- so I'll pick the Ulster one and give you a couple of comments on there. Costs are an issue for that business.

They are an issue for our total business. We've got to get that to, as Ewen said, a cost-to-income ratio of around 60%.

It's well over 70% at the moment. It's just too high, so we do need to take the costs out.

We will rely on the overall model of a shared function model for the entire bank to help with that wherever we can using -- staying within the regulatory frameworks of the Irish business. We are relying on a small uptick in margin.

When I say small we're not expecting this thing to be saved by the economic growth, right, but we're hoping to get some small uplift in the economic growth and margin lift on that business. But it's also a cost life [ph].

So it's no different to the rest of this business. And it's -- the business trends across there are very good, so I think it's worthwhile staying in that marketplace to benefit after 5 years of very hard work.

Yes. Ross, can I ask a follow-up?

Do you -- I know you -- I know you -- are you planning to give us sort of an idea now of having gone through this release recovery phase of a sort of an impairment run rate that seems reasonable for this business going forward?

Let me have a think about what I've put there, just on the -- a normal impairment run rate on that business will probably be no different to the guidance we've given on ours around the 40 to 60 basis points, wouldn't it be? If we do, it's a similar shape around...

Yes. We've gone on ahead [indiscernible].

Question is, when are you going to get there in Ireland?

I would've stayed on the -- around that 50, but we gave guidance, 40 to 60 on the overall business long term, and I think that's probably about right for Ireland as well. The thing you have to factor in when you look at Ireland is it used to grow, I mean, stupidly.

It was doing about EUR 30 billion a year in gross lending. It's now EUR 3 billion so -- across the whole market -- not in our businesses, across the market.

So you've got to build a business that actually works in that environment. But we do see, we can do that, and we can support that business with what we do across processes and efficiencies that we -- and our technology across other business -- parts of the business as well rather than having it constantly standing on its own.

And we also see that we can grow the mortgage book over there, but safely. Look, I don't want to be #1 in market share, but safely grow the mortgage book.

Again, when you look at that business, we are underdeveloped as far as the numbers of people we've got on the ground doing mortgages. And also, in other parts of the business that we're nearly nonexistent, in some of the other Personal product sets of the business that Jim [ph] and the team were working on as well.

And sorry to hog the question, but just -- does that -- the base rate tracker book, I think it was about EUR 10 billion. Is that still kind of just sitting there?

Yes, it is. EUR 12 billion, I think, isn't it?

EUR 11 billion or EUR 12 billion, yes.

And it is a drag.

On your questions on the performance of CIB in the Q3, look, yes, we do provide some segment analysis on income. And when you look at that, you can see that rates was down 19% quarter-on-quarter.

I think we were disappointed, I think, by the rates performance last quarter. Currencies was up 21%.

Credit was down 36%. And credit, in particular, I think we've been impacted by the rundown of our U.S.

ABB business, where compared to some of our peers, they had a very good quarter on the back of asset-backed businesses in the U.S. Our asset-backed business is now half the size it was when we started the runoff, and we expect to be up by the end of Q1.

We've taken -- about half of the GBP 24 billion in RWA reduction in CIB since the start of the year has come out of the asset-backed business. And then we're also not in some of the segments that are doing very, very well last quarter, like leverage finance and like commodities and emerging market credit.

So that there is an element of mix. There is an element of what we're deleveraging around ABB.

And if I was to call out sort of 1 business that I thought probably had a weaker quarter than what we had expected, it's the rates franchise.

I just had a quick question about, I guess, the broader provisioning policy or impairment policy because, I guess, if one looks over the course of this year, we -- you took this huge growth provision at the beginning of the year pretty much alone in the market. And since then, well, you've pretty much written it all back or, I guess, a good chunk of it back.

And I guess, my question is, what sort of lessons have been learned from that in terms of your approach to provisioning or -- and whether any lessons have been learned? I guess that was the first question.

And then just related to that, if I look at some areas of your litigation coverage, particularly things like PPI, at the moment, it looks quite a lot lower than peers. Are you expecting at some point -- or is there an opportunity at some point that you might approach that in a similar way to how you've approached your impairment charges?

I was here when we did take the additional provisions last year. It was when Nathan and I were in the roll [ph].

And if you -- it's been an interesting year when you consider what has happened in 12 months because when we were looking at the RCR book, one, we've been told, if you recall, numerous times by the Head of the Bank of England that our provisions were not high enough for years and years and years. We had a major review done off the book by an external party on behalf of the government who saw our markings on that book were okay.

So they didn't say we were over-provisioned. They said we were okay.

We then decided to bring forward the losses on that book because we were saying we were going to release them out in 2 to 3 years as opposed to 10 to 15 years. So we had to take the head on the book at that point in time.

And then -- so we went through and put the markers on that book and thought we had reasonably good provisions. But if we were going to push -- take them off the books faster, we'd have to take some additional provisions.

That's what -- that's the exercise we went through. We had that whole process audited by the external auditors, so I think it was a very clear process.

But then all of a sudden, remembering a lot of these assets are in Ireland, and you had a 25% uplift in 12 months in the Irish home loan book in the property prices in Dublin alone. And you're seeing a lot more money coming in because they see that market improving and remembering we took hits on that book right down until I think they were worth, what, 20p, 25p on the pound, pretty close to that.

And all of a sudden, you're getting some increases, so the increases did provide some uplift because they were so severe so quickly.

Yes. But you -- I mean, I think -- and some of this, you have to see in context.

If you sell an asset at GBP 0.28, and it's marked at GBP 0.25, you get a 10% uplift on where you've marked it. But ultimately, we can't be that smart.

I mean, I've checked with Ross a number of times that if he and I, a year ago, had taken a leverage bet on the Dublin house price index, he would be sitting on his dairy farms and me on the beach in New Zealand at the moment.

Yes. I'd like to be on the beach as well.

I guess the question is simply that, I guess, in January and February or March time, you may well have been selling assets at prices that now you subsequently regret because you had marked them down so aggressively, and now you find that actually you didn't have to mark them down at all.

I have no regrets whatsoever about the actions we have taken because you guys would be sitting there criticizing me if I hadn't, wouldn't you? We've actually regenerated massive amounts of capital over the time when we need it.

And at the time that the regulators are requiring us to have it, we've derisked this business massively, not just in Ireland, but right across with some of the work with Ewen and the team have done on the N.V. business.

So I think that this -- I have got no regrets about the moves. And look, in a year's time, if the property prices keep coming, you could say the same to me.

But to be quite honest, I'd rather have the capital in our bank as opposed to sitting out there in assets we were worried about.

Yes. I would say, overall, we feel pretty happy about the timing.

I think that we -- last quarter, we got out of a GBP 7 billion pool of European mortgage-backed securities. Had we done that a couple of months later, we wouldn't have been able to get out.

We IPO'd Citizens about 2 weeks ahead of some quite significant market volatility, where had that market volatility hit, we would've had to rethink the IPO timing, I think. So we're very, very happy to hit whenever the windows are open.

We're going to continue to derisk. On the PPI question, we don't feel that -- we do think that our book is better than others.

Yes, in terms of what we've just taken, the additional GBP 100 million, it represents just over 2 months of the current run rate. You all have seen that, I think, we ran down the provision by about GBP 143 million, I want to say, in the quarter, so it's just over 2 months of provisions.

We do think that, that is prudent. And when we compare to others, we're quite comfortable with the provisions we've got.

But I think you need to look at our book somewhat differently to the others. We haven't had to go back and rework a lot of prior claims that I think another -- a couple of the banks have had to do.

Our claims process has worked very, very well, so we haven't had to go back and remark a lot of the claims, which may be generating bigger provisions for some of the other banks.

It was just a couple of follow-ups, really. You said, Ewen, that you've got $2.5 billion against FHFA.

I just wondered if you could comment on some suggestions out of the U.S. that, that case might actually get chopped out on concerns over the timing of when it was filed.

I wondered if you had any considerations about that. And my second question relates to the asset-backed business, which you also called out.

You made just under GBP 1 billion of credit revenue so far year-to-date. How much of that was actually in the asset-backed business, which presumably goes to 0 next year?

Or to put it in another way, your year-over-year decline in revenues in CIB is now about 34%. Is that the kind of run rate we should be carrying through into next year, given the disappearance of those asset-backed revenues?

Yes. On the first question, on FHFA, you're right.

There has been some new case law emerging that potentially time limits the FHFA claims against us. Equally, there's been some other case law that is contradictory to some of that, so we continue to monitor it.

We continue to leave our provision in place. We would be obviously very happy if those claims did become timed out, but it's not our current planning assumption that they will be.

But we actively continue to monitor it. On the asset-backed business, I don't actually have the numbers to hand, but I would think that in relation to the U.S., the U.S.

business was about, I want to say, about GBP 600 million to GBP 800 million a year business in terms of revenues.

The other part of that business, too, we are holding on to is the U.K. and European business, which is about GBP 425 million of revenue.

So there will be some of the ABP business left but it will be the U.K. and European, which is, as you know, sort of where the focus of our business will be.

Happy to get you the numbers in detail, if you like, on what's coming out and what's going, but there will be a rundown of that -- the U.S. business over the next 6 months.

But all else equal, we should see about GBP 700 million be dropping out in number as the run rate or maybe even a bit more because I think there's some gains in Q1 booked in that asset-backed business wasn't there?

Yes, about GBP 700 million, or it's close to GBP 600 million to GBP 700 million. I'll just do a quick 2-second sum-up.

Thanks very much for your time this morning. We've set out this year to create a much more U.K.-, European-focused business that served our Personal customers, our mid-market Commercial customers and our Corporate customers.

We said that in doing so, we would take out GBP 1 billion of cost out of the structure this year, and we're on target to do that. We said we'd make a simpler business by restructuring it from 7 businesses down into 3.

We are not quite, but nearly finished that major piece of heavy restructuring of the business. It's been hard on our people.

It's been distracting. But our 2 Core franchises of the Personal & Business Banking and our Commercial & Private Banking are now starting to skip [ph] their feet, and you're starting to see some growth there in the businesses that they're operating, helped certainly by the U.K.

economy going well. We said we would get our -- much more resilient in our IT operations, and that's nearly finished as well.

It'd be finished by the end of this year. We'd said we'll build a plan for '15 to '17 that had all of the moving parts, and that'll be to the board later this year, and we'll give you some sights on that as it relates to our strategy next year.

And the big piece for this year was to rebuild the capital, which I think, you'll agree, we've done a very, very good job on. Our Citizens IPO'd, running down the RCR much faster than we had anticipated and put into the plans and also bringing down the risk-weighted asset, particularly in our CIB business where we didn't see the returns that were going to be there.

So I think all 3 quarters in, 3 quarters of profit, just take our warnings that there are some rocky stuff coming and what I'd describe it as a cold winter coming after a nice sunny summer, probably described the English weather and how we're feeling about what's coming at us. But we are creating a really good franchise here.

So thanks very much for your time, and all the best with putting the numbers together. We wait with interest to see how you -- what you put out.

Thanks for your time.