NatWest Group plc

Ross McEwan – Chief Executive Officer Ewen Stevenson – Chief Financial Officer

Raul Sinha – JPMorgan Michael Helsby – Merrill Lynch Chirantan Barua – Bernstein Andrew Coombs – Citigroup Martin Leitgeb – Goldman Sachs Chintan Joshi – Mediobanca Tom Jenkins – Jefferies Jonathan Pierce – Exane David Lock – Deutsche Bank Joseph Dickerson – Jefferies Chris Cant – Autonomous Rohith Chandra Rajan – Barclays

Thanks, Jenny. With me as well I've got Ewen Stevenson joining us for the Third Quarter Results Announcement.

We're just over halfway through our five-year strategic plan. We've said previously that 2015 and 2016 would be noisy as we deal with as many of the conduct and litigation issues as possible and also restructure the Bank to align with the future shape of the Bank.

This is the most challenging part of the plan as we work through more of our legacy issues in the coming quarters. We remain focused on building a better bank for customers, on clearing up as many of the past issues that continue to cloud this Company.

We continue to successfully deal with these items within our control. We are reducing assets that we no longer want.

We've exited 25 countries. We're in the process of finally closing our global transaction service business and we sold Citizens Financial Group.

With this background in mind, it's unsurprising that we continue to be impacted by a large number of one-off items. Our ambition remains the same though: to become a sector-leading, lower cost, lower risk, customer-centric UK and Irish bank that delivers solid returns for our shareholders.

I'll talk for a few minutes on our progress in this quarter and then I'm going to pass over to Ewen who will walk you through the detail before we take any of the questions. On our path to profitability it will not be smooth but this is the best quarter since 2014 for the core business.

As you will have all seen, our core business delivered a good result with a 14% adjusted return on equity and a £1.3 billion adjusted operating profit. The core business has now delivered, on average, over £1 billion in adjusted operating profit a quarter since 2014.

Overall, we made a £469 million bottom-line attributable loss for the quarter, with our £1.3 billion core adjusted operating profit offset mainly by £0.5 billion in restructuring costs, £400 million in conduct charges and £300 million in deferred tax asset write off. This takes us to a £2.5 billion loss for the year so far.

On the core business the bottom-line loss reflects continued progress in restructuring the business and addressing some of our legacy issues and we will continue to talk to you about these. With income under pressure, due to lower interest rates, we have to continue to improve efficiency and reduce costs.

We still have considerable work to do but we are making progress. We've saved £695 million so far this year and are on track to meeting our cost target of £80 million for the third consecutive year.

And, at the same time as taking out costs, we need to continue to improve the core Bank. Last month we refocused our main customer-facing brands.

Some of you may have seen our new adverts on TV and social media and we will continue to invest in these to win more business. We also provided clarity on our proposed plans for the structure of the Bank under ring-fencing legislation and regulation.

Customers continue to change the way they bank with us. More customers than ever are using our digital channels.

Users of our mobile app are up 26% year-on-year. New app releases have improved the application process for a number of our products and we are now delivering more personalized prompts than ever before.

This has more than doubled the number of loan, overdraft and mortgage applications on mobiles since the start of the year. And, as we establish these services, our mobile app increasingly deepens and enriches our interactions with customers.

It's fair to say we have gone beyond the tipping point in the way banking is now being done with already over 20 times more digital interactions with customers than face-to-face ones and over one-third of our sales are now done through our digital channels. We want our colleagues spending as much time as possible speaking to customers about their needs rather than being tied down in low-level administrative tasks.

And, to help this, we will be piloting a web chat adviser powered by artificial intelligence to deal with simple customer queries. And next year we'll start rolling out a new technology tool to allow customers to make their own investment advice decisions.

We've also introduced technology that allows new business customers to receive their bank account number and sort code in under an hour. This used to take eight days.

And we still can get better. But these initiatives and innovations show that we're responding to the way customers want to do business with us and bank for the future.

I'll let Ewen give you the detailed divisional financial performance, but this engagement with our customers flows through to the financials. In UK PBB net mortgage lending is up £3.6 billion for the quarter and we're consistently growing market share with a 12% share of new business compared to a stock share of 8.7%.

By differentiating on service, we're writing this business within risk appetite and at a good price. Across our franchises the strong lending performance in the first half of the year has stood us in good stead.

We're still comfortably on track to surpass our lending growth target for the year in personal business banking and commercial with lending growth of 9%; well above our 4% target. We saw sustained high customer activity in CIB as we helped our customers deal with the post-Brexit volatility, resulting in a good income performance in this quarter.

This is the best quarterly performance from our CIB franchise since the start of 2014. Costs are still too high but they continue to come down steadily in this business, as we had planned.

However, the impact on income and a lower-for-longer interest rate environment is a challenge faced by our core business and the industry. At the same time, you're all familiar with ring fencing, proposed future Basel regulations and the uncertainty of Brexit.

For RBS the impact of these issues are compounded by the Williams & Glyn disposal and other conduct and litigation issues that we face. The open banking initiatives also bring both opportunities and challenge.

And the potential to provide a wide range of fee-based services through owning the customer relationship will become increasingly important for banks. Over the 2.5 years since we launched our plan to turn the Bank around, key measures on colleague engagement leadership, clarity of direction and pride have all improved, signaling the long-term shift we are making on changing our culture.

Overall, while recognizing there are significant challenges ahead, we've continued to reduce costs, grow lending and deliver a solid performance from the core customer-facing businesses. I know that you're all interested in our progress in resolving the key issues that face this Bank.

We're pleased to announce the settlement of the NCUA earlier this month, settling for $1.1 billion U.S. dollars.

This is the smallest of our three large RMBS cases but it is good to have it behind us. On the two other material cases, FHFA and DoJ, we have nothing to update you on this time, although we'll let you know as soon as we do.

These issues continue to hang over the Bank and, of course, will have an impact on our capital when they do finally land. On GRG, the FCA has now received the Section 166 Skilled Persons report for their review into our treatment of distressed business customers and we await them publishing their findings.

We've seen nothing to support the allegations that we artificially distressed SME customers for our own gain. I am keen to work through this matter and to get it behind us and our SME customers who were in GRG.

The sooner we can do this, the better. Turning to our final EC divestment obligation, that's Williams & Glyn, we've wound down our separation operation from a team of 7,000 to a core team of 350, who will remain to support any alternative divestment.

We've also redeemed the £600 million exchangeable bond issued to a consortium of investors in 2013. The bond was issued to support the planned IPO of Williams & Glyn business and would have converted into equity at IPO.

Given the decision not to progress with an IPO, it made sense to redeem this now. We are grateful to Corsair, Centerbridge and the other investors for their support over the last three years.

They've actually been very good and constructive partners. We continue to pursue discussions with interested parties and we'll update more when we can.

However, we cannot, under any options, see full divestment by the end of 2017. We are in discussions with HMT and expect further engagement with the EC to agree a solution to regards to our state aid obligations.

Though the timing of many of these issues are not within our control, we're hopeful of seeing good progress on as many as possible over the coming quarters. As we work our way through these, we remain focused on what we can control; getting the core Bank in the best shape possible and delivering even better service to customers.

We need to continue to focus on improving the core business. We know that income will be harder to come in the future and there are also other headwinds, which are faced by all banks.

This only reinforces the need to be both unrelentingly focused on costs and strive to the best Bank for customers so they choose us and not the competition. We are growing in the markets we like and tens of thousands of our colleagues get out of bed each day to do the right thing for our customers.

This is a pleasing set of core business results but there's clearly still a lot to do for us to become a simpler, smaller and customer-centric Bank. We look forward to giving you a fuller account of the next phase of our plan when we present our full-year results next February.

With that, I'll hand over to you, Ewen, for more detail on the results themselves.

Thanks, Ross. Consistent with the trends we've been seeing in recent quarters, the core business continues to do well.

The run-off of our legacy portfolios and de-risking of legacy NPLs continues and we're making steady progress against our conduct issues. Overall, we made an attributable loss for the quarter of £469 million and an adjusted operating profit of £1.3 billion.

The attributable loss included £1.2 billion of one-offs, relating to three items; namely restructuring costs of £469 million, litigation and conduct costs of £425 million and a write-off of deferred tax assets of £300 million. Underneath this, the six core franchises are performing well and that's despite a tougher market outlook since the summer.

Overall, for the six franchises our best quarter since 2014. Adjusted operating profit of £1.3 billion, adjusted return on equity of 14% and adjusted income was up 2% on the first nine months of 2015.

Across PBB and CPB we're continuing to be able to offset a decline in their NIMs through strong volume growth; 13% annualized in the first nine months. The UK PBB mortgage franchise continues to do well; 12% flow share in Q3, with its stock share now up to 8.7%.

However, we do recognize that this interest rate environment is presenting new challenges that we're beginning to address. These include the challenge to returns and pricing models for our liability franchises and certain customer segments where asset returns are weaker.

We do expect core NIM to continue to be under pressure. As a reminder, at end Q3 we had structural hedges in place of some £122 billion.

These hedges have provided us a net interest income benefit of £0.9 billion in the first nine months and around 72% of these hedges are part of a five-year rolling hedging program that will progressively roll off over the coming years. CIB had a very good quarter, particularly the rates franchise.

Total income excluding own credit adjustments was up 30% on Q2 and over 70% on Q3 2015. So, on the back of this quarter, we now expect full-year 2016 income for CIB to be modestly up on 2015.

Costs continue to come down. We've now reduced by some £995 million this year, against our target of £800 million for the full year.

And over the last 11 quarters we've reduced costs by £2.8 billion in nominal terms. At an overall bank level in Q3 our adjusted cost-to-income ratio was 58% and across the six franchises 57%.

While these continue to improve and absolute costs continue to come down, Ross and I clearly recognize they remain too high so we're very focused on achieving further material cost reductions from here. As part of this we'd expect to provide you with another annual cost-reduction target for 2017 as part of our full-year 2016 results announcement.

We also expect to incur a charge for the bank levy in Q4. In 2015 this was £230 million and we'd expect it to be modestly below this in 2016.

The recent sharp devaluation of sterling will add some headwinds to our cost-reduction program, while benefiting those franchises with non-sterling income. Overall, CIB should benefit with the greater percent of its costs than income in sterling, as will Ulster Bank ROI via income translation benefits of the now much stronger euro and a significant part of its indirect costs in sterling.

But the reverse is true for CPB and UK PBB, given a partially off-shored cost structure for both. Impairments continue to be relatively benign in the core books for the Bank overall; £144 million for the quarter but this included £190 million of further provisions against our legacy shipping book.

While we are more cautious on the outlook for credit, to date it is difficult to point to lead indicators to support that conclusion. On de-risking, ex Ulster Bank ROI and capital resolution, risk elements in lending are now just 1.7% of gross loans.

The increase in risk elements in lending during the quarter was driven by shipping and capital resolution and modeling changes in Ulster Bank ROI that broadened the definition of its risk elements in lending. On Ulster Bank ROI we recently announced the sale of a €1.8 billion portfolio.

On a pro-forma basis this would have reduced Ulster Bank ROI's risk elements in lending to gross loan ratios by around 6 percentage points. The rundown of capital resolution continues.

A further £3.7 billion or 9% reduction in RWAs in Q3 and, despite adverse currency movements, we remain on track to be below £35 billion of RWAs by year end. Ex the stake in Saudi Hollandi Bank that carried some £7.9 billion of RWAs at end Q3, we would expect capital resolution's RWAs to have reduced to some £15 billion to £20 billion by end 2017 and we intend to wind up capital resolution at that point.

However, the environment to sell and run off non-core books has deteriorated and we now expect total disposal costs for capital resolution to be in the order of £2 billion versus the previous guidance of £1.5 billion. On Williams & Glyn we took restructuring costs of £301 million in Q3, including £127 million in relation to the stand-down of developing the cloned IT system.

As you can see from today's results, Williams & Glyn's core operating business continues to do well, with an adjusted operating profit of £96 million. As a reminder on pensions, given its topicality for others, we made a top-up contribution of £4.2 billion in Q1 and, as part of that, agreed with the trustee that the next triennial valuation would occur at end 2018 with any further agreement on additional contributions needing to be agreed by end Q1 2020.

On conduct, this quarter we took additional conduct provisions of £425 million. Note there was no incremental charge within this for PPI this quarter, given the top-up we took on PPI in Q2.

We did take some additional provisions for US RMBS. In Q3 we settled our second largest piece of US RMBS litigation, NTUA.

On our remaining RMBS litigation, over 85% of the original principal balances left to resolve relate to our FHFA exposure. On the US Department of Justice, for RMBS nothing new to update you on.

The DoJ's criminal and civil investigations of RBS are ongoing. We're not in active settlement talks and, to remind you, we've no existing provisions against settlement costs for DoJ.

We've also several other large conduct issues that remain in focus over the coming quarters, including the GRG review by the FCA and the 2008 rights issue shareholder litigation that comes to court for the first time in March 2017. On core capital, largely driven by a £10 billion reduction in RWAs, our Core Tier 1 ratio increased by a further 50 basis points to 15.0% but we do continue to recognize the potential impact on our core capital from large one-off costs and charges.

On the carrying values of our RBS Group subsidiaries, and consistent with the more subdued outlook, we've taken a £6 billion write-down today that you'll see noted in our IMS. As you know, this has no impact on our core capital but does lower our distributable reserves.

At end Q3 post this write-off these stood at £7.2 billion. And, as we've noted in the IMS, we're at an early stage of planning to undertake a capital reorganization in order to create additional distributable reserves and plan to put a proposal to our next AGM.

So, overall, a good quarter for the core business; our best since 2014, £1.3 billion adjusted operating profits, 14% adjusted return on equity. We continue to de-risk our past.

Legacy NPLs are being managed down, legacy asset pools are reducing and legacy conduct issues are getting progressively addressed. But all of this is given with a note of caution.

The operating outlook has got tougher in recent months and the potential for further substantial one-off costs to clean up our past remains. And, as a result of this changed outlook and despite just posting a good quarter for the core bank, as previously indicated we no longer expect to meet our long-term targets by 2019; namely a 12-plus-% return on equity and a sub-50% cost-to-income ratio.

But we do remain committed to achieving these targets. We'll be back to you as part of our full-year 2016 results with more detail on how we plan to deliver these.

And, with that, I'll hand back to Ross to host some Q&A.

Thanks very much, Ewen. Jenny, let's open the lines up for questions, please.

Hi, good morning, gents.

Hi, Raul.

Good performance in the core bank so maybe if I could start on that and ask you about the NIM going forward. I guess there's a lot of deposit – there might be some deposit re-pricing to come so is that something we should keep in mind in terms of the profile?

And how should we expect that very strong performance in the PBB and CPB top line to move over the next quarter or two? That's my first one and I've got a couple more, if that's okay.

Okay. So look, in terms of the deposit profile I think, post the 25 basis point cut, we did go out and significantly re-price a lot of the remaining deposit base.

So much of our deposit base now is sitting at or below 10 basis points. So there is, I think, some but relatively limited ability to re-price further.

As you know, in terms of what's been going on over the last year or so, we've had good underlying growth and average interest- earning assets they're up about 10% Q3 on Q3 and we've almost halved the non-core piece of our interest-earning assets. So we're now down to under £50 billion of non-core assets.

And that run-off has been providing a boost to our NIM because, while core NIM has been coming down, the overall bank NIM is increasing. So I think that tradeoff will begin to moderate now.

I don't think you should expect NIM to continue to accrete from here. As I said earlier, there's also the impact of the progressive rolling off of the structural hedges, which should provide about an annualized benefit this year of about £1.2 billion.

So I think you'll see a gradual reduction in NIM over the next few quarters. In terms of volume growth, mortgages slowed down a bit immediately after the vote, picked up again towards the end of the quarter.

I think we continue to be pretty positive about our ability to take share in mortgages. I think in the commercial side we've become a bit more cautious on the large corporate sector but we're still seeing good growth in mid-corporates.

So I think commercial growth overall will probably moderate a bit, as you saw in Q3. And also remember within commercial we've also got a pool of what we've previously described as non-growable that we're continuing to manage down and manage for value.

So overall I think we've signaled that we expect income to be flat across PBB and CPB. We're obviously up 2% in the first nine months.

I think that represents pretty cautious guidance, as we said today, looking into Q4.

Okay.

The other thing you’ve gone on then there's just the re-pricing that we have done after the Bank of England change. Won't flow through into Q4 but will probably neutralize itself out as we've moved SVR, which we didn't have a huge amount left of, and reduced our deposits.

So they'll flow through in different ways in the book in the next quarter.

Okay. If I can just follow up on this write-down of the reserves the fact that your now distributable reserves are down to £7 billion-ish, should we be concerned about that, Ewen, given the size of the litigation risks you're facing?

And I'm just wondering if there might be a scenario where, if you did face a big penalty, would you have the flexibility of being able to move up your reserves at short notice without approval so as to not put any coupon payments in jeopardy?

Yes. I mean firstly you should have seen that we've made assumptions on conduct and litigation costs in the numbers in the valuation and use of the subsidiaries already.

Because – so you would have to be talking about numbers that were not part of our modeling assumptions. We would need to go through an EGM.

We would need to go through a court process after that. But we've added into the document, to the IMS, appendix 1, which you can look at.

You can see there that we've got over £25 billion in the share premium account and just under £5 billion in the capital redemption reserves. So, subject to court approval, there's plenty of reserves that can be reallocated into distributable reserves.

Sure, okay. So basically the £7 billion is – one way to look at it is also sort of a worst-case estimate that you don't think will be exceeded in terms of litigation costs?

Well, as I said before, embedded in that is our central planning assumptions on conduct and litigation already.

Fantastic, thanks. And just a last one from me before I sign off, on Williams & Glyn.

I think last quarter you made a comment that you didn't think it would have a viable business model in this environment, given the requirement to grow its loan book substantially to cover its cost of capital. But, obviously, you are seeing some pretty strong growth, even after the referendum.

So I was just wondering if you still think that comment is valid.

No, Raul, that comment was based on us separating out Williams & Glyn as a standalone business. When we separated it out, it goes from advanced to standardized modeling, which means that we'd have to put in about another £500 million of capital into it.

Its cost structure, it's about one-tenth of the size of our UK business, so it suffers significant cost disadvantages as a standalone business. And that's why I think the right thing for the business is to be owned as part of a larger group, who can both get to advanced modeling and can take cost synergies out.

And also, Raul, one of the advantages also becomes its disadvantage. It is a broadly spread retail and commercial bank that needed systems, applications and operations to support that.

And, as you see, it makes about £100 million a quarter sitting inside RBS because it shares that burden of costs with us. But standing on its own, as Ewen said, becomes very problematic.

I was just thinking what it might mean for a challenger bank who might be looking to acquire Williams & Glyn, given the kind of scenario you're describing. But that's really helpful.

Thank you very much.

I think inside another bank, actually it probably has some very attractive features because you move the assets across and you don't end up with what we had with an IPO of Williams & Glyn; all of its IT and infrastructural costs on top of it.

Sure.

Hello, Michael.

Hi, good morning, gents. You're going to be disappointed because I'm not going to market your reward account for you this morning, but no, I've done it too many times.

But what I am going to do is ask you about your mortgage business because that's one area where you've been doing extremely well, from a market share point of view, and in a way when you've not been, to your usual slide, competing aggressively on price. So I was actually quite surprised the other day when you cut your prices through the NatWest channel, through the intermediary channel, by quite a lot, actually, by up to 75 basis points.

So I was wondering if that is just a reflection of the market. Or is it a reflection of you being even more geared into growing your mortgage book, or what?

Thank you.

Thanks, Mike. Disappointed you're not going to push the reward accounts, so I will.

We know it's a great account, everyone should have one at £3 a month. Just on the mortgage business, that was more a reflection of the market.

Les and the team had moved their pricing up to test the flexibility in the marketplace, actually just prior to the Brexit vote. And it did start knocking around our growth and, therefore, they did move to pricing down again.

But they are, I think, being quite careful on where they price. We do not want to lead the market down; we want to follow it, if anything else.

There is a band you have to be within to actually get the business. The other thing that we have been doing, and it's showing through quite nicely now, is the growth of our own direct distribution through our own branch network, through the online and our telephone sales, and soon to be video sales.

That's going very, very well so we're getting growth on all fronts at the moment. Good profitable business, actually just had a review at the Board risk committee recently, and staying within our risk appetite as well.

So, look, we like the business. You do have to be careful with it, you don't want to chase the market too much but I think it's our distribution service levels that are showing through.

Okay, thank you. Very clear.

Thanks very much.

Thanks, Michael.

Hi. Ewen, a quick question for you.

You mentioned that PBB and CPB has a non-sterling cost base, which I can understand in middle office, back office probably. If you'd just give us what size is that which is kind of a headwind?

And the second question is again going back to the mortgage, sorry to pain this, but in a flat mortgage market, very strong growth. £3 billion-plus you're clocking.

Can you give us some breakup of where this net – so the net must be £3.5 billion, £4 billion at least. So where are you getting these mortgages from?

What segments? Are you taking significant shares off a certain back book?

And how long can this go on if we don't have tailwinds in the market?

So, for the Bank overall, about 20% of our cost structure is non- sterling. So you can use that math.

But remember within that we've got things like Ulster Bank, parts of the commercial bank that obviously sit outside the UK in addition to the back office. Ross, do want to take the mortgage question?

On the mortgage we're picking up quite a bit of the refinance that's going on in the market. Remembering we have very little of our own SVR book left to churn, for anybody to churn, we're down to about 12%, but there's still a lot of other players that actually have held up the SVRs on their mortgage, have been trying to hold onto them.

We've been picking up quite a bit of that business. And we still think there's probably two or three years to go off quite good recycling of refinancing of business coming through there.

I think that's probably –

Yes, the other thing, Chira, remember that – you've seen in the performance of others this week that there are – I guess other people have different strategies in the mortgage market at the moment. Just as a reminder that only 12% of our existing book is in standard variable rate at the moment.

So we're not trying to protect back book. So you have got an unusual dynamic in the market at the moment with – so it's not – we took 12% share in Q3 against a natural market share of current accounts of around 16%.

And, as an advanced modeler, we're clearly not incentive relative to some of the standardized modelers in terms of higher risk lending.

Got it. Thank you.

Two questions from me, please; one on the markets business and one on risk-weighted assets. And on the markets business, obviously another strong result for rates in the quarter.

You referenced the referendum and the Central Bank actions once more as being favorable market conditions. Just trying to get a feel for the run rate going forward, whether you do think there is a big atypical component to the Q3 result, what you think is more of a likely underlying run rate there.

And then the second question on risk-weighted assets is just the unwind of the mortgage parameters. Obviously, that's been quite beneficial in terms of the risk-weighted asset lease.

Is that just a natural function of a rolling time period? Or have you specifically reviewed components for the model?

Just trying to get a feel if there's more to come on that or if you think that's one-off in nature. Thank you.

On Q3 for CIB, obviously, as you observed, it was a good quarter, particularly for the rates franchise. Other parts of it, like financing, also had a very, very good quarter as well but a relatively smaller contributor to that increase.

I think, going forward, we previously guided to about £1.3 billion of income. I think the only new dynamic to keep in mind, about 40% of the income of CIB is non-sterling based.

So that previous guidance was under previous exchange rates so today it's probably modestly a bit higher than that going forward. But I would certainly not take Q3 and draw conclusions from that.

And, as you know with your own franchise, Andrew, we had a very, very good quarter across the Street in Q3. On the modeling adjustments, that was really an unwind from Q2.

It didn't represent any change in the underlying models. I think the biggest influence, frankly, on RWAs for the mortgage franchise going forward is the likely change in mortgage RWA risk weights that will come out of the PRA at some point.

Our best estimate of that at the moment is probably about a £12 billion to £15 billion increase in RWAs when it's introduced. So call that from 2019 onwards.

But the quarter-on-quarter change was really just an unwind of something that occurred in the models in Q2.

Just to be clear, the £10 billion to £15 billion inflation that you mentioned coming through from the PRA, that's as a function of the Basel Credit laws? Or this is something separate?

The mortgage consultation paper that's out.

The mortgage consultation paper. Okay, very good.

Thanks.

That's also one of the reasons why Ewen and I have been cautious about our returns going forward and starting to just re- forecast because there are some changes of that nature coming through that you're starting to see and you see the impact on the business.

On Basel 3.5, IV, if people have a good estimate of what that is we'd be delighted to know.

Very good. Thank you.

Yes. Good morning.

I've got three questions, please, and two are related to Williams & Glyn and I was trying to get a sense on how your market share in SME lending has evolved from 2009 onward. And now do you think it is roughly stable or did you have a meaningful shrinkage there over the years, which leads me to the next question?

I'm just trying to get a sense to what degree trade sale is the main way forward here or whether there is any potential alternative solutions which could work. And the background, just looking at some comparable restructurings in Europe which were European Commission mandated, we have seen some of the other banks being mandated to run down assets instead and, just looking at the spirit of the initial state aid requirement, that would be somewhat contrarian to it in terms of fostering competition.

I was wondering whether a waiver altogether could be also on the table or up for discussion. And lastly, to the extent possible that you can comment, I was just wondering whether you have received an initial demand from the DoJ with regards to RMBS or whether that's pending the criminal leg of the investigation.

Thank you.

Maybe if I pick those ones up, start with the latter one. We haven't had a demand from the DoJ so there's nothing more to update on that.

We still, obviously, have conversations with them in the normal course of them doing their investigation and they haven't made their mind up whether it's criminal or civil or both or – so we're still having those conversations. On the next one, just on Williams & Glyn.

Our market share in the SME mid-market is down from our calculations from about the time you're talking about, Martin, about 5% over the last seven years. And this is through our sales of assets and the like.

So we're down about 5% on our calculation. And then your third one, just on whether a trade sale.

As we've clearly said in our Q3 results that we are talking to interested parties in a trade sale, let's see where that goes to on the alternatives, would they waiver this and say no? I don't think so.

I think there is an obligation here that needs to be fulfilled and that's the spirit with which we're looking at it. But we do need to look with HMT, who have the agreement with the European Commission, on what could those alternatives be if we were not able to trade sale this business out and that's what we are doing at the moment.

But I think, in the spirit of the agreement, I don't think there'll be a waiver. I'd be delighted if there was but I just can't see that.

And any case, there has to be some fulfillment of this and that's what we're working towards.

Thank you very much.

Hi, good morning. Can I revisit the margin versus volume debate here?

When I look at consensus just for the UK PBB and CPB lines, and thanks for giving that doubt in consensus, you've got revenues going down 1% from 2016 to 2018. Now if you look at your average interest-earning asset growth in those divisions, it is clearly high-single digits at the moment.

It might moderate down. Even taking into account structural hedge that suggests that NIM should be down something like 8% from current levels, are you seeing that kind of NIM pressure coming through if rates don't move further lower?

That's the first question. And then I have a couple more.

Yes. So if you're asking me my views on consensus.

You can do the math in terms of the roll off of the structural hedge, which is obviously benefiting net interest income at the moment. I think, as you would expect, we are probably more bullish than the market on our ability to sustain volume growth, so I think that's what you'd have to reflect on.

But if rates don't go further lower when do you see NIMs dropping? I won't ask you where, but when do you see it dropping?

Well no, on that structural hedge it progressively rolls off the – the product hedge rolls off on a – it amortizes over a five-year basis and the equity hedge rolls off on a 10-year basis. So you should expect that over the next five years there's quite a sharp decline which will be offset, we think, by volume growth.

And excluding the hedge, are you saying that NIMs are where they should be going forward.

Yes, if you look at the structure of the book, I think most of the big shifts that we've seen in the book over the last few years – so the big shift from unsecured to secured has largely, I think, played out. The big shift within secured from standard variable rate to fix rate has largely played out.

There is some pressure in the large corporates but that would probably be of benefit to NIM if we reduced our exposure and increased exposure to the mid and smaller end of commercial. So I don't think you'll see core underlying NIM, by the time you strip out the hedge, of being under substantial pressure, any substantial pressure, from here.

Okay, that's good to hear. Can I take up restructuring charges and disposal losses?

On restructuring charges I see a new guidance for 2016. What are the variables for 2017?

How should we think about that? You had accumulative guidance before, which I understand no longer stands.

So just wondering how we should think about restructuring charges for the next year or so. And then on disposal losses, I take your higher guidance £2 billion but, again longer term, is there anything else we should worry about?

What are the main drivers of the delta here?

Yes. So on restructuring charges I think we'll be back to you as part of full-year 2016 results.

Any observation I would make is do think about the fact that we haven't backed off our cost-to-income target. So, as you think about that, I think people previously had worked back from a number in the mid-£6 billions.

I don't think anyone is out there forecasting £13 billion of income today. So to get to a 50% cost-to-income ratio probably means we're confident in our ability to be below £6.5 billion on costs.

But the offset for that is potentially some incremental restructuring charges. But we'll give you more detail on that at the full year.

On the £3 billion – we're now down to £38 billion, £39 billion of residual RWAs sitting in capital resolution. A lot of that amortizes.

We scrub the numbers pretty carefully every quarter, so there has been a deterioration in the shipping book. Embedded in that is a view of probably trying to accelerate post the end of 2017 some of the residual £15 billion to £20 billion of RWAs in terms of the timetable to get out of those.

So I think we're comfortable that, as of having scrubbed it over the last few weeks, it's as good an estimate as we can provide at this point. And then in terms of other disposable losses, you'll have to factor in your own views on Williams & Glyn.

Okay. And one final one.

We've got an investor seminar in December. I hear a lot of things that you'll declare with your full-year results.

So just wondering what we expect to hear from the investor seminar.

I think you'd expect to hear a bit about Ulster Bank, a bit about private banking and a bit about RBS international.

And these are three businesses that I don't think the market's heard much about and they have all got new CEOs over the last 12 to 18 months and good businesses, core businesses for us.

Thank you.

Just I'm going to go on a slightly different tack here. I want to talk about RBS N.V., if I may.

I think back in July you signed an agreement with Saudi Hollandi to compensate Saudi Hollandi on a sale should it go ahead. I wonder if you could give us an update on the progress of that sale, it being a major asset in N.V.

And then maybe if that does look like it's imminent or soon, what you guys intend to do with the capital and debt in that structure once it's been concluded. I know in the past you've talked about winding down N.V.

and returning the license, so I just wondered if you'd perhaps give us an update on that part of the business.

So really you're right in terms of the status of the outstanding dispute that we had with Saudi Hollandi has been resolved. There's really no update on getting out of the Saudi Hollandi stake.

I don't think you should assume that that's going to be in any way imminent. The target has always been, I think, to work towards a licensed hand back of RBS N.V.

over time. The biggest part of that, obviously, as you've observed, is the Saudi Hollandi stake.

So we're continuing to work towards that and we haven't really given any guidance beyond that at this point.

Okay. So in the meantime we'd just expect the balance sheet to stay relatively similar with that excess capital there as well.

Yes. There'll be a slow wind down of some of the other portfolios that sit in the residual balance sheet at the N.V.

Because there's some of the old international portfolio that sits through the N.V., as they're wound down they flow back through N.V. and back to ourselves.

Super. Thanks, gents.

I wanted to come back on this mortgage stuff. First, just to clarify something, it looked like pretty much all of that £5.1 billion reduction in RWAs was due to the recalibration.

Is that right?

Yes.

Okay. That would suggest, just looking at the Pillar 3 document from the interims, that the mortgage risk weight in RBS plc and NatWest plc is back down at about 7% now.

Yes, which is where it was – as you know, yes.

So then it's really to follow up on this point you raised about the PRA consultation paper. Because if you're – did you say £12 billion to £15 billion or £10 billion to £15 billion?

Just I didn't get –

£10 billion to £15 billion. It was the New Zealand accent, Jonathan.

If we take that on the exposure at defaults across RBS and NatWest, that implies about another 10 percentage points on the mortgage risk weight. So are you essentially suggesting that your reading of what's going on is your mortgage risk weight outside of Ulster Bank, so in RBS and NatWest, could go up to the 17%-type level?

And if that is the correct interpretation, could you give us an idea as to why you think that is and what level of confidence you have in that?

So I would just say it's our best estimate as we currently sit here today. So I would shy away from putting a degree of confidence around it but your math is right, Jonathan, so.

But your portfolio has relatively low LTVs and PD experience and these sorts of things. I just think people might be a bit surprised to hear that mortgage risk weights, according to one of the major players in the UK, could be going up to that sort of level.

What, 15% to 17%?

17%, yes.

For average risk weights, it doesn't sound excessive.

It still is a consultative document so it will be interesting to see. But at this stage, having read it, that's what the team think it could end up being.

And the other players, obviously, Jonathan, you could get caught anyway is if there's output floors out of the buzz or standardized capital paper.

Can I press you on something else, then, because you do tend to be very good at talking about some of these issues ahead of others? IFRS 9, are you willing yet to put a number on that?

No. I had a chat to the IFRS 9 team a few days ago.

I think Q2 is when we would expect, next year, to give you a view on the quantitative impact of IFRS 9. We may talk more qualitatively about it as part of the full-year results.

All right. Well that's helpful.

Thanks for that.

Thanks, Jonathan. Thanks for getting on but also thanks for talking about core business.

Good morning. Two questions from me, please.

First one is on Williams & Glyn. I know in the past you have obviously tried to target an end state with Williams & Glyn where it's completely off your balance sheet and you don't have any liabilities connected to it.

I just wondered, given that the European Commission may now be involved if it does run beyond the end of 2017, is a potential TSA now on the cards for getting rid of this business that you think you might have to face a longer term drag from this business if they require you to get on with the sale of it? And I have a second one, which is on Ireland.

Ross, I noticed press commentary a few weeks ago suggesting that after about 12 months' time you may look at potential acquisitions in Ireland, given the cost base in Ireland is obviously still very elevated. And I wondered, given the position you're facing on litigation and Williams & Glyn, how we might think about the steps in going towards that.

Because I'd have thought the European Commission and HMT would be perhaps caution about you going and acquiring anything if you're still trying to get rid of Williams & Glyn. Thank you very much.

I'll start with the back one and Ewen can pick up the other. You're absolutely right on Ireland.

It was a common decision, given the shape of the business now, would you look at some stage at acquisitions? I see we've got lots to do to clean up this business before I'd look at that but at some point in time in the future we would if we were ready.

We can't do major acquisitions while we've got commitments around Williams & Glyn. There's a cap on what we can do.

We've said that the Irish business is attractive. We're getting it back into shape.

At some point it needs to start growing again safely, can I just say again safely, not like we did last time. But, at some point in time, if we're ready and we've got a cleaned up business, well, I'm open to it but it won't be at the moment.

On the TSA, it's possible there will be some bits and pieces that would require a TSA in terms of services from us to a potential purchaser on certain products, certain systems. But the general construct that you would imagine around, say, the Lloyds TSA around TSB is not something that would be involved.

So if there is it would be relatively de minimis.

And we're used to these TSAs of smaller nature. We still have a couple in place with ex- subsidiaries of ours that are now standing on their own.

There are some things that we still provide, not much now, and we may end up having to do this for a purchasing party. But I wouldn't like to see it being large TSAs.

They are quite burdensome on all parties.

I guess the root of the question is, given where we are after however many years, does a larger TSA now look more likely than before because it may have been a stumbling block?

No. We're both very clear on that.

We've examined that. The answer is no.

It's actually more complicated than people think.

I'll take your word for it. Thank you.

Hi, good morning gentleman. Thank you for taking my call A few things.

How has the recent curve steepening impacted the roll off of your hedges, firstly? Secondly, Ewen, you mentioned in your comments something around challenges to liability re-pricing.

Could you elaborate on that? Are you referring to systems or just the overall rate environment, where we are and where the liabilities are priced?

Some clarification there would be helpful. And then, lastly, you talk about deterioration in the economic outlook and that's one of the things that led you to take down your distributable reserves by 44%.

But what in the economic outlook is deteriorating? The GDP print in the UK has been better, unemployment's at a multi-decade low and rates are nearly zero.

So I'd like to know what in the economic outlook has deteriorated. Thanks.

So the terms to the liability pricing is really a reference to the fact that we have about just under £90 billion of either on-demand deposits or current account money. Obviously, in this rate environment it is challenging with a current account product where you don't pay fees.

And if you all you do every month is putting your monthly pay check, draw it down, do the same thing, I think most current account franchises in the UK are suffering with that pricing model. So all of that I think – so all of the banks in the UK have the same issue with the historic structure of how they charge for liabilities.

That's all that's a reference to. On the economic outlook, I guess maybe I'm more cautious but, certainly, if you look at pre-Brexit forecasts versus today, even with the GDP bounce that you've just seen, I think most market commentators still have GDP forecast as being weaker for next year and 2018 than what they were pre-Brexit.

Certainly, the interest rate environment is in a very different place in outlook to where it was pre- Brexit, even with the recent bounce. It's had no impact on our hedging strategy.

It's a rolling hedge that we progressively take off and put on. So it's not driven by interest rate movements at any particular time.

We don't try and pick the market. We don't think we're smarter than the market in trying to understand forward interest rate curves.

So basically the recent move in the curve steepening is not going to have an impact on the roll-off of the hedges?

No.

Okay.

And the other ones worth chatting about, Joseph, too just RWA inflation, Basel III unknowns, ICB. The industry's still got to go through ICB and the separation of companies and assets and customers.

All of those coming in the next couple of years certainly, I think, will have an impact on banks' results.

Yes, I know. I don't disagree.

It was just more the references to the economic outlook. And I completely agree there's idiosyncrasies to the sector but it was just more on the economic outlook.

Yes. Okay

Hi, good morning. I just wanted to follow up on the comments you've given on the outlook for CPB and PBB income overall being broadly stable on the year.

Ewen, you said that it's up 2% for nine months and I think that guidance is cautious. But, even if I assume by broadly stable you mean up slightly but by less than 2%, it appears to imply quite a meaningful tick down into the fourth quarter.

And if you were to annualize that 4Q number it would imply quite a meaningful downgrade to consensus revenue expectations. So I just wanted to understand whether that is a reasonable piece of math to do in light of some of your other comments.

On margin you said core margin, ex the hedge, will not be under substantial pressure. But does that mean there is some pressure, plus pressure from the hedge, with softening volume growth, given your remarks on stepping back from large corporate?

Thank you.

I'll just repeat that flat guidance for the year, given where we are through Q3, is pretty conservative at this point. I wouldn't overegg the precise wording to such a minutiae detail.

So I think we are, as we said today, pretty confident at meeting that guidance. I think in the personal bank mortgage volume growth certainly through September was very good.

So if that continues I see no issues in UK PBB. I think in commercial it's very much a strategic choice for us through a combination of which segments of the market we want to play in and what we want to do with the legacy run-off book that we've got on that within commercial.

But, overall, going back to the 2% guidance, the 2% through nine months, do I think we'll be able to achieve flat plus? Yes, for the full year.

Okay. Thank you.

Just remember, too, fourth quarter we've got the banking levy wandering its way through as well.

Good morning. Just a couple of quick ones from me, please.

The first one, actually, is just following up on a comment that you've just made and which was a follow on to previous ones. Just on the mortgage growth outlook.

You just commented, Ewen, that September was decent in terms of volumes, which is slightly, I guess, at odds with the applications data that you showed with the Q2 results. Just wondering what the applications look like going into Q3?

So what sort of pipeline – sorry, going into Q4. So what sort of pipeline is visible to you for the rest of the year?

So you saw good volumes in September. Was there also a pickup in applications which gives you confidence on the pipeline?

That was the first one. And the second one was just a clarification.

Could you remind us, within the £5.6 billion litigation and regulatory provision how much of that relates to US RMBS, please?

Maybe I'll just make a comment on the pipeline. It is actually quite strong going into fourth quarter, given our September numbers.

The volumes have picked up quite considerably since July, August and it's across all of our channels as well. So I would still be confident we're going to get reasonably good growth in this fourth quarter, given what we've seen coming so far.

Of the £4.6 billion RMBS is – was it £3.9 billion or £4 billion?

We said as part of full year 2015 that we had £5.6 billion of RMBS provisions. And then, from that, I think you need to back out something for NCUA, not the full £1.1 billion because we've obviously just topped that up, and the just topped that up, and the £120 million settlement that we've had with the State Attorney in Connecticut.

So that would imply the majority of that litigation provision relates to RMBS still.

Okay. Thank you very much.

Okay, Jenny I think we're time bound now. So just if I make a few comments in close.

We always said that 2015 and 2016 would be noisy as we work through these legacy issues and transform the Bank for our customers and I think these results do reflect on that noise. But we've made very good progress with the core bank posting £1.3 billion of underlying profit and a 14% ROE.

It is the best quarterly performance for this Bank since 2014, which shows the real strength of the underlying businesses. Our strategy hasn't changed.

We just want to be a simpler, smaller and customer-obsessed bank here in the key markets for the UK and Ireland. And I think our strategy's the right one for this Bank.

Thank you very much for your time and I'm sure you'll be talking to our IR team and Ewen and myself over the next few months.

Thanks a lot.