NatWest Group plc

Ross McEwan - CEO Ewen Stevenson - CFO

Jonathan Pierce - Exane Andrew Coombs - Citi Michael Helsby - Bank of America Merrill Lynch Raul Sinha - JPMorgan Rohith Chandra-Rajan - Barclays Chris Cant - Autonomous Fahed Kunwar - Redburn David Lock - Deutsche Bank Claire Kane - Credit Suisse

Thanks Lawrence and good afternoon everybody. [indiscernible] has been a busy day with Barclays reporting as well, so thanks for joining me, like normally would have been the case.

I will just give you a brief update on how we are progressing since we last spoke no February, and then hand over to Ewen, before leaving -- this time, plenty of time for questions and answers. But we are pleased to be posting a bottom line profit of GBP259 million for Q1.

These reflect very much what we have talked about at full year. Firstly, a strong and improving Core bank, and secondly, fewer legacy issues.

Core income is up on last year, adjusted costs are down, and we are making better use of our capital. These drove a 38.8% adjusted return on equity and improving productivity in the Core bank and the important steps on our path to profitability.

Looking at our business performance in Q1, six Core businesses made an adjusted operating profit of GBP1.3 billion. RBS has now averaged an adjusted Core operating profit of over GBP1 billion for the last nine quarters.

This is a further demonstration of the earnings power of this business, that following the strong quarter, we expect returns to temper slightly, as we have had a softer start to Q2 in NatWest markets. We reaffirm though our full year guidance.

Analyzed lending growth of our personal and business banking and Commercial and private banking franchise to 5.6%. This compares well to our 3% target for the year, and in context of the U.K.

economy, which continued to grow at a modest rate in the first quarter, I think this is a good result. At the same time, is growing lending the market, which we like.

We have improved our capital efficiency as we run down our legacy RWAs and reduce operational risk of the bank. In addition, actions in repricing deposits and asset pricing discipline are starting to flow to our financial performance.

RWAs are coming down steadily with a GBP4 billion in capital resolution and GBP2 billion from the Core bank, we are down GBP7 billion in the quarter overall, that common equity tier-1 ratio is up to 14.1 as a result of these moves. We say this quarter of results is another step towards delivering a bank, that we will become in 2020.

I said it at four year results in February, that we were going further on cost reduction and faster on digital transformation, and we have continued to make good progress in both. As our Core bank simplifies and our customer experience improves, our Core bank results strengthen as well.

We have reduced costs by GBP278 million so far this year, with an additional GBP51 million from the VAT refund that is not included in these numbers, and we are on track to deliver GBP750 million savings for this year. The GBP750 million will come from improving productivity in the Core bank, and shrinking our legacy issues.

A good example of this is our property strategy, we are committed to using our existing buildings more efficiently, and making better use of lower cost locations, and we see further efficiency gains in this area to come. We exited 135 Bishop Gate recently, and this quarter we announced plans to exit another of our London City properties, Premier Place.

This will mean, we have reduced our London office space by approximately 6,500 desks. So to reiterate, our guidance on costs, we are still targeting a GBP750 million reduction this year, despite the strong start and we remain confident of delivering a GBP2 billion reduction target from 217 through to 220.

At the same time as reducing costs, we are improving our products and customer service. We continue to grow our mortgage book, winning 13% of new business compared to our 9% stock share.

Our mobile app, despite it having a little bit of problem running slowly today, has been voted by customers as the best in the U.K. and it continues to improve in its functionality and see increased usage.

It already delivers over a third of our personal product sales. As this channel grows in importance, we were able to meet over 1 million customer needs through our mobile app this year.

The improvements we are making on customer service are flowing through to our net promoter scores. Our NatWest personal net promoter score was plus 15 in Q1.

This is the highest it has ever been and Commercial bank is a market leader with a score of plus 21, and we are pulling clear away from the other competitors in this area. We are aware that we still have a lot of work to do, to improve our net promoter scores across some of our other brands though.

There is plenty more improvement going on elsewhere in the business. We have launched the Royal Bank Assist, an artificial intelligence online support tool for customers, which is now answering 80 of the most frequently asked questions.

This is a U.K. banking first.

We are rolling out a new small business lending platform, that allows us to complete small loans much quicker and shows pre-approved lending limits to customers alongside their online banking, and we are also preparing for a full migration of customers to our new best in class bank loan platform later this quarter for larger Commercial clients. Now turning to our two significant remaining legacy issues on RMBS, we have no further update to provide today.

We remain in discussions with FHFA on their primary RMBS litigation claim and we have nothing more to say on any engagement with the Department of Justice. You will have also seen the European Commission's announcement about the consultation on HM Treasury's alternative plan for Williams & Glyn.

We are pleased with this progress and we expect to continue to have positive discussions with HMT and the EC, as a results of these consultation exercises received. Subject to dealing with RMBS and Williams & Glyn, this year, we anticipate being profitable in 2018 and we do remain committed to delivering our 2020 financial and customer targets.

RBS is well placed in the U.K. banking industry, with leading market positions across the country for all types of customers and a range of strong brands.

Today's results are only a snapshot, that showed that we are delivering for our customers and shareholders at the same time. I want to reiterate what I said to you in February.

This bank has a very strong Core, with great potential, and we believe that by going further on costs and faster on digital transformation, we will deliver a simpler, safer and even more customer focused bank with a compelling investment [indiscernible]. I will now hand over to Ewen, who will take you through the financials in a little bit more detail.

Thanks Ross. It's good to see our first bottom line quarterly profit since Q3 2015, even better are the underlying trends we saw this quarter.

As part of our recent full year results, we said we'd deliver four things in 2017 before returning to bottom line profits in 2018, and as part of our overall progress towards our 2020 targets. For 2017, for the Core bank, we said we'd grow income, we'd cut costs and we'd do it with less capital, and for our legacy issues that we seek to largely complete the job this year.

Namely, that will seek to resolve RMBS, both the FHFA litigation and the Department of Justice regulatory investigations that we'd agree a solution for Williams & Glyn, and that we will wind up capital resolution at year end. And with our Q1 performance, we think we significantly derisked full year delivery against these targets.

For the Core bank, we think this is a good quarter, and very much in line with building towards our 2020 targets. This quarter was much stronger than Q1 2016.

Good growth, we are taking market share, where we want to take share. Adjusted income was up 12% and adjusted operating profit at over GBP1.3 billion, is up 30%.

Also important for us is the increasing stability of our Core income and earnings. For the last nine quarters, adjusted pre-tax operating profits, have been on average over GBP1 billion.

In income, U.K. personal and business banking continues to deliver strong growth.

Mortgage volumes up 12% versus Q1 2016. We also saw good growth in business banking with Q1 on Q1 growth of 4.7%, excluding transfers and overall U.K.

personal and business banking at adjusted income growth of 8%. Commercial banking, has, as we had said, we'd do; being more selectively targeting, where it wants to grow.

So adjusted income growth was more modest at 1.4%. And for NatWest markets, it had a strong quarter.

Adjusted income at GBP508 million was up 83% on Q1 2016, with a strong performance by the rate franchise in particular. While we expect Q2 to be weaker, we remain on track to deliver our guidance for this year.

Overall, in the Core bank, net interest income was up 7.3% on Q1 2016, and that's despite the Core bank NIM being modestly down eight basis points on Q1 2016. On cost cutting, our program continues on track, excluding the GBP51 million off of VAT recovery this quarter.

We achieved GBP278 million of additional cost saves, 37% of the GBP750 million of cost saves we said we'd do this year. Capital resolutions, Q1 operating costs were now down to GBP69 million, that's 70% lower than Q1 2016.

For the remainder of the year, we expect the rate of decline and capital resolution costs to moderate, meeting much more of the overall cost reduction in the final three quarters should benefit the Core bank. As we previously said, we expect around half of the cost saves this year to benefit the Core bank, helping drive what we expect to be strong operating [indiscernible].

In payment, trends continue to remain benign at this point and the Core bank and payments were 11 basis points on an annualized basis, but still up on 2016, due to some single name Commercial impairments across several sectors, and a reduced benefit from impairment releases. Restructuring costs were GBP577 million this quarter, that's just over half of the GBP1 billion of restructuring costs we are forecasting for the full year.

So you would expect the next three quarters to see a much lower run rate. This quarter included GBP235 million of profit restructuring costs, that includes part of an ongoing material reduction in our London head office footprint, and an already announced further branch reduction plan for this year, both in the U.K.

and Ireland. On capital in the Core bank, we achieved a gross reduction in RWAs of GBP3.2 billion, primarily from Commercial banking and NatWest markets.

This reflects the start of the -- at least GBP20 billion of gross RWA reduction that we have targeted from the Core bank through the end of 2018. So in the Core bank, with adjusted income up 12%, adjusted costs down 1% and RWAs down 2%, adjusted operating profits were up 30% on Q1 2016, and the adjusted return on equity rose to 13.8% from 10.9%.

Turning to our legacy issues, on U.S. RMBS, as Ross said; we are in discussions with FHFA.

But otherwise, nothing new to report this quarter. I would continue to caution, that we could see further material potential settlement costs for RMBS this year, above and beyond existing provisions.

On Williams & Glyn, I think you know where we stand with the European Commission and HM Treasury. Financially, Williams & Glyn income was broadly flat on Q1 2016, and adjusted operating profits of GBP111 million were up 10%.

On capital resolution, it's on track to deliver it's RWA reduction target for the year. With RWAs down GBP4 billion in the quarter to GBP30.5 billion, and you will also have seen this week's announcement from Alawwal Bank, regarding its merger talks.

On disposal losses and capital resolution; disposal losses of GBP50 million in the quarter were largely offset by GBP45 million of impairment write-backs. So over the next three quarters, expect to see most of the remaining GBP800 million of further forecast lifetime losses being incurred.

On other one-offs, there were much more modest one-offs in income this quarter. But you should note, that we had GBP105 million of losses in the unwind of securitization losses relating to exiting certain London properties.

On the balance sheet, our common equity tier-1 rose 70 basis points to 14.1% and our TNAV per share rose 1p to 297p. So overall, with only two months since we last updated you, we think we significantly derisked 2017 guidance, following a strong first quarter.

We are pleased to be reporting our first profit in six quarters, and we are happy with the underlying performance trends. Our Core bank had a good quarter, relative to Q1 2016.

Adjusted income, operating profits, and returns are all well up; and on our legacy, we continue to make steady progress. We want this year to be our final year of substantive clean up for IT returning to bottom line profitability in 2018.

Thanks and with that, if we could open up for some Q&A please.

Hi Jonathan.

Hi Jonathan.

Afternoon. You are pretty sounding far more upbeat than I think I have heard RBS management sounding in a very long time.

And my question is really around -- this is a longer term guidance. The market, obviously isn't believing you on your 2020 target.

The latest consensus is, you had about 26p reported in that year and I think your target is more consistent with sort of 32p, 33p. And I guess, the market is probably not believing you can get GBP2 billion of costs out, whilst growing revenue through GBP13 billion.

So my question is really, whether you can help me, as I run a few things past you on the revenue bridge; I mean, if we take the first quarter and annualize it and normalize it, for a more sort of normal GBP1.4 billion odd of revenue in NatWest markets; you are starting at GBP12.5 billion. Just check these three things please, firstly, as we move forward, what sort of TFS usage do you expect to get to, and if you could confirm what you did in the first quarter, that would be helpful.

Do you want me to give you the other two points, or do you want to do these in turn?

No, no. Let's get your all three, Jonathan.

The second is on the alt-pay debt. It is about GBP20 billion that I think matures by 2020, and that's currently costing you 170 basis points I think of weighted average spread.

What was your sort of thinking within your internal projections, as to what you can get that reissued at? And then thirdly, can I just check if this is right, I think in March, you served a redemption notice on about GBP3 billion of very expensive tier-2 that was issued in 2012.

I think this average spread on that stuff was 8% to 9%. So it didn't redeem until 16th of March.

So will we see in Q2, an effective additional GBP250 million worth of annualized revenue coming through net interest income, because this is all booked to think above the line? I am really just trying to get a sense, as to whether these are three key components to this revenue going up from where we are at the moment?

Thanks.

Okay. So -- [indiscernible].

Maybe if I just stab both [ph]Jonathan. I mean, [indiscernible] in the wood go, no one has believed that we take the cost out of this business.

So we are just taking 3.1 out today. We have signaled we are taking GBP2 billion out, but said we will take GBP750 out this year, which we have already taken out GBP278 million.

So kind of just say, we are committed to taking out the GBP2 billion over the next four years, and we will get GBP750 million out this year. So it does come down to the revenue.

We have said we will get a slight increase in revenue income this year and over the next two years, to get us to an -- the income level. I will leave Ewen to take you through all the numbers, the TFS to-date is I think GBP14 billion Ewen?

And I will leave you on the risk, the OpCo did [indiscernible].

So on page 4 of the IMS, Jonathan, we have got some disclosure on TFS. But as Ross said, it's now at GBP14 billion.

We have drawn down, I think an additional GBP9 billion this quarter, and I don't think it will go up significantly from here. I think the -- and if you look at the average funding cost of U.K.

deposits at the moment, it's actually lower than where we are funding with TFS. I think on the OpCo debt, you are right, that will continue to run down.

But the only thing I would say is, we have still got a lot of [indiscernible] over the coming years, so I think some people have been signaling amongst the peer group that they expect the net of that to result in increased funding costs. For us, we think it's a sort of wash with us more.

And on the tier-2, you are right, in terms of the income benefits that we should see coming through from that. But I think as we go out, Jonathan, I guess, what we have -- as you would not be surprised by, a more bullish view on our continuing ability to capture market share and grow volumes faster than market, and as you get into outing years, that becomes more of a delta of this consensus.

But these sort of liability things, as a purely mechanical improvement or driver of revenue, they are broadly correct, are they? The math is right, GBP250 million odd on that sub debt alone?

Yes.

Okay. Thanks very much.

Thanks.

Hi Andy.

Yeah, good afternoon. A couple of questions from me, one on global markets, one on the PBB volumes.

On global markets, you had already said that you expected to beat the GBP1.3 billion to GBP1.4 billion four year guidance. Q1, GBP0.5 billion, you have already done well over a third of GBP1.4 billion, 36%.

So you are on track to certainly [ph] pass that, but you do talk that's after Q2. Can you give us about a feel for just how much the Q1 strength was one-off in nature, positioning, for example, versus volumes, how much we can extract, like going forward?

That will be the first question. The second question on the U.K.

volumes, up 3% Q-on-Q, since you have already hit your four year target there. Is it a case of, you might step back slightly in that market and focus more on margins again, or do you just think that volume growth can continue to surpass expectations?

Thank you.

Yeah. On global markets, we would typically expect to do about 30% of our annual income in Q1, and you know, it tends to be pretty seasonal.

If you look over the last nine quarters, I think we fluctuated between about GBP250 million and GBP500 million in any given quarter. We did have a very good Q3 last year, that was significantly higher than we would have expected.

So look overall, I think last year we did about GBP1.5 billion of income in the business, and that's above the GBP1.3 billion to GBP1.4 billion guidance, if you sort of say, three more quarters to go, I think that sort of feels like a reasonable place for us to guide to at the moment. On PBB volumes, I think we always said that that 3% was across PBB and CPB.

I think we have talked about the fact that, on Commercial, we are being more selective, and we do expect that more of the gross RWA reduction will be coming out of Commercial. So we may see, on a net basis, very modest growth in Commercial this year.

We would, however, still continue to see ourselves outperforming the market and growth, and particularly, the mortgage business Andy. We have built very strong distribution there, and it is working well for us.

We are not playing the pricing game, flagship, anything. We have just been quietly adjusting prices slightly up.

So we do expect to outperform the growth in that market, particularly in mortgages. On the unsecured side, Lisa is doing a good job on the unsecured personal lending.

Not so in the cards business, and for obvious reasons, we stepped back out of the zero balance. But we are also doing pretty well in the small business market, as well.

We are still getting quite good growth there. It is the biggest small business franchise, and we are performing in that area.

Yeah and but -- yeah, mathematically, you're right Andy. In the first quarter, I think we have done just under, half of the growth that we said we'd deliver for the full year across PBB and CPB.

It has been strong.

Great. Thanks.

Hi Michael.

Hello there. Thanks gents and thanks for taking the question.

For some reason, I didn't get [indiscernible] on Barclays. So I have got two please; so it's just where you left off actually, because the performance in PBB was very good, and that 13% share of the gross mortgage market in a -- what I can observe was probably the most competitive market we have seen, post crisis.

So to be gaining share, that's particularly good. So I guess the question is, do you have, what market share aspirations do you have?

Can it be higher than 13 or is 13 about where you want to run with? And also, you know, I am a keen follower of your reward accounts.

I was wondering if you could tell me how many reward customers you have got at the end of Q1? That's not in your release, and it normally is.

So that's the first question. And second one is, just more broadly on I think where Jonathan was going, on your target.

I am just conscious that, since the year end, and you put out your targets at five and 10 year swaps of rolled over, and I know the well off the low is about -- that for a decent headwind, if things don't change from where they are today, on your GBP1.2 billion of hedge contribution. So the question really is, of that GBP1.2 billion, how much have you allowed for in your 2020 cost income target?

Thank you.

You are making up, I am not getting the questions at the --

I am yeah. Yeah.

Thanks for that. Look, on PBB mortgages, we did have a very good quarter.

It was very strong for us. I think we have -- at 2013, look, I would have thought we were aiming at the next four years to be at a 12% stock.

If we can run it somewhere between 11% and 12% over that period of time, we'd be very pleased with ourselves. That was said on the last caller with Andy, we have been building distribution very strongly there, and it is working for us; because it was something that this bank traditionally did not have.

So I have been very strong, it's working. Our service delivery is very-very good.

So I would say, let us be happy with our double digit growth, and we would be aiming, probably to 12% of stock within the next four odd years.

And remember, that on top of that, if the Williams & Glyn proposal is accepted by the European Commission, Michael; we will add about a percent of market share as well that Williams & Glyn currently has in the mortgage market.

So Ross, since a lot of the numbers are the same, so the 11% to 12%, you are talking about, is that off flow?

Yes, off flow. For the first quarter, we ran up 13%, which is very strong.

I think we will -- as long as we are in double digits --

Yeah, okay. Thank you.

And it is a point around pricing as well. We do not plan to lead this market on price at all, but we will take a bit of a price benefit of where we can and we are doing that right now.

On the reward account, we are up to 1.29 million reward accounts, so that's -- I think we finished the end of last year about 1 million. We are 100,000 up on this year.

You may have received your little notice, Michael, on the changes being made to the account. If you haven't, you should read it.

The price of it actually going down to 2%, but also the benefits are only going to be 2%, not 3%, but it's still a pretty compelling offer, as you and I know.

And you can see, some of the benefit of that product now coming through in the growth that we saw in personal current accounts, which was very strong over the last year.

Yeah.

Then your question on the impact on the structural hedges, Michael, you're right. I think we talked what would have been consensus at the time we came out with those targets.

As I have said a couple of times on these calls, we think of them as flaws, not targets. So you should assume that we have some margin for error in stating those targets in 2020.

But they were based off consensus at the time.

Okay. So you are not going to give us a number then?

No, no. But we did go out today, and we haven't sought to change 2020 targets.

No, no. I appreciate that.

I guess people are trying to do all the building blocks, and that's clearly a very big building block, so it would be useful. But that's fine, thank you.

Thanks Michael.

Afternoon gents.

Hi Raul.

Can I have two maybe follow-ups as well please? Just firstly, staying on U.K.

PBB; I think this thing that really stands out in the performance here is obviously very strong growth in balances; but quite a big pickup in NIM as well, I think it was 3.01 from 2.94 in the last quarter. And so, I guess a large part of that is probably driven by your liability side action along with the TFS.

Could you maybe give us some indication of, how much more juice there is on the liability side, and does this 3.01 NIM kind of remain stable from here, or do you expect that to kind of drift, as balance sheet growth picks up?

Well you can see in our reporting, I think we have set out asset-liability spreads on page 9 in the IMS. But we did a big repricing of liabilities in Q4, and we got the full benefit of that in Q1.

So the U.K. PBB liability spread declined by about 11 basis points in the quarter.

But I think, you can also see, that there is sort of continuing asset side pressure in U.K. PBB.

I think that is moderating, because the standard variable rate book has largely stabilized now. So the last three quarters, it has been 12%, 12%, 11% this quarter.

Yeah, we are continuing to run down unsecured, you can see the credit card book has fallen again, but it's becoming less of an issue for us, given the growth in secured versus unsecured. But we do think at a sort of overall bank level, and you can just segregate further back out, that you will see a gentle reduction in NIM over the remainder of the year.

Thanks. That's truly helpful Ewen.

Can I have two separate sort of -- on different areas, very quickly. The cost saves in the Core bank, you mentioned previously that about half of them will benefit the Core bank.

Could you maybe give us some indication of which divisions should we see the bulk of the moves for this year? And then I have got one on RCR, just trying to understand what capability [ph] on hitting the GBP800 million of losses, given this very strong performance in Q1?

Is it just -- you don't want to change your guidance, because you have just set it out a couple of months ago, or is there something really big in terms of losses ahead? I am just trying to understand that?

So on the cost save, I mean, if you think about the cost guidance we have given on way of capital resolution now is, capital resolution is running at just under GBP70 million of costs in the quarter. You annualize that, and I think we previously talked about getting that cost structure to below GBP100 in 2020, so we have got -- call it just over GBP200 million or so of costs to come out of capital resolution.

That implies, as the bulk of cost savings from here, is all going to go against the Core bank, and it's going to be pretty widespread. We have talked about reducing NatWest market's cost base by GBP500 million, and the [indiscernible] that has happened over the last year, and look up where that's come out.

Again, to give you an indication, that it's a pretty broad based cost reduction plan.

Okay. And then lastly, the GBP800 million cost, I mean, it's really hard to see you hitting that?

Yeah, I mean, look, the capital resolution and before that CR team [ph], have been we had this for a long time. So they have got a pretty detailed understanding on an asset by asset basis, what's still to go and what the costs are to exit that.

It's obviously bouncing around [indiscernible], like the shipping markets improved somewhat from three or four months ago. But it's just -- it's a timing issue more than anything.

Some of the losses that we thought we might take in Q1, and more likely to occur now in the next three quarters.

Okay. Thanks very much.

Cheers.

Hi Rohith.

Hi. Afternoon there.

I have a couple as well, if that's okay please. The first one is just returning to U.K.

mortgages. You talked a lot about volumes.

I was -- the thing that also stood out for me was in the overall mortgage margin, it looks like it has been stable in the quarter. You touched on the [indiscernible] earlier, but in terms of new business pricing, could you just talk a little bit about what you are seeing there, relative to the market, and how RBS is delivering this very strong growth, without really coming to the pricing pressure that's potentially there in the broader market?

That would be the first one. And then the second one, just very briefly, just understand your degree of confidence on reaching a settlement with the DoJ on U.S.

RMBS this year? Thank you.

Yeah, just going back to the U.K. mortgage market, I think their growth has been strong.

But I keep going back to, we have got very good distribution. And for some reason, people sort of keep putting it back to a pricing point.

Liz [ph] plays a pricing issue in there around being in the market. And right now at the moment, it is actually tweaking prices up a little bit, because of the volumes that we have been receiving and as I say, 13% flow in the first quarter.

He has been quietly tweaking up a wee bit. But we do want to grow at a great level in the marketplace.

But we have got very good distribution. Our service delivery, I think in that market is now second to none, and I think we are going to surprise on the upside of that service delivery over the next 12 to 24 months as well, with some of the things we are doing.

And as we get better at it, our costs come out as well. So we are looking end to end in a lot of these processes, and there is plenty to take out, as we get better.

I am sorry, I'd say we will continue -- my view is, we will continue to outgrow the market inflow. And mortgages, we will stay in the market on price.

We have been playing, I think, a very good game on this. We spent two or three years of losing NIM on this book, as our SVR market disappeared and went on to fixed.

That's just not the case today. Most of our business is on fixed.

We don't have a back book that we are protecting, and we are enjoying growing in the market.

Are there particular market segments or LTV bands or type of buyer that you have focused on, or is this really just about distribution?

Distribution. We haven't really changed the -- our LTV hasn't changed quarter on last year.

I think it has played broadly pretty much, exactly the same. We have --

I mean, about 70% of our distribution is through brokers. So in the first couple of months of the quarter, we were running actually comfortably ahead of where we thought we would be.

We tweaked pricing up into February, beginning of March, to take back margin a bit. And we saw slightly lower flows in March, as a result.

But it -- I know we keep delivering mortgage rate quarter-on-quarter and everyone says why? But it does fundamentally come down to a dramatically improved service delivery, a better product offering and better operational capabilities to deliver higher volumes.

I think the other thing we have cracked is, just the sheer consistency in this marketplace, which consumers like and the brokers certainly enjoy.

On the second question, on the DoJ. I mean, as you know, when the administration changes, a lot of the senior folk at the Department of Justice change.

Those appointments, I think a number of them have been identified, but not yet appointed. So it's really the lack of a counterparty to engage with at the moment.

But yeah, there is no reason at this point for us to think that we are not able to get that resolved this year.

Okay. Thanks very much.

Hi Chris. Are you there Chris?

Sorry, I had my line on mute. I just want to come back to the customer rates you referred to on page 9.

Could I just check -- are those your swapped out yields, or is that the headline rate that you are charging to customers? And if I could just follow-up on the discussion around front book mortgage pricing, could you give us an idea of the spreads you are seeing on front book products for example underoccupied mortgage, and example [indiscernible] mortgage please?

Thank you.

We'd just have to grab those numbers out of the report.

Yeah, so those are -- the customer rates that we are charging.

So this is pre the swaps you would put against those where they are fixed?

Yeah, pre the swaps we would put against them.

Okay. And in terms of the front book spreads you see?

Slightly lower than back book spreads. But that differential is closing now quite substantially.

Could you give us a sense of the [indiscernible]?

Yeah, it's not a lot. It's probably in the order o 20 basis points or something.

In terms of the front book, back book gap you mean?

Yes.

Okay, fine. All right.

That's very helpful. Thank you.

Good morning, I am sorry, afternoon. On the CDM, would you mind telling what the deposit rate is on your stock at the end of the quarter, on your deposit balance at the moment?

I think your average during 2016 was about 30 basis points. So of the action taken in 4Q 2016, where is that deposit rate at the moment?

Yeah. If you look on page 9 of our IMS, that represents I think a pretty good indication of where deposit rates are, because we repriced them in Q4, and I don't think there has been any material pricing action in Q1.

And again, there is quite a bit of spread around that. So in the U.K., most of our deposits, both in Commercial and retail are priced at or below 10 basis points.

There is a certain amount sitting in the special incentive saving deposits, which go in at a slightly higher rate.

Okay. And --

I think what that does show you thought is that, there is very limited capacity from here we think to reprice deposits down.

Yeah. That is the case.

Okay. On your markets business, obviously really good performance, how much of that comes from your corporate franchise, and how much is institutional business?

I asked, because I imagine that corporate side is stickier revenues, and therefore kind of [indiscernible] more comfortable putting that forward into our future forecasts?

Yeah. Look, I think you should assume that the majority offered is classic financial intermediary business.

But there is a decent amount of corporate flow in there. But that is a minority of the lots [ph].

Yeah. We haven't in the past disclosed that number either.

Okay. Thank you.

Hi David.

Afternoon. And just wanted to stick on page 9 actually please; I know a lot of the questions have been about the U.K.

business, and one thing that struck me is, slightly strange when I look at the customer funding rate, is how high off the bank is. I think the way I see deposit rates are kind of going at about 20 bps at the moment for new deposits in Ireland.

So was wondering if there is any potential further cuts that you could be making in the Irish business and how you are seeing margin, because they were up very strongly quarter-on-quarter? And then my second question and sticking with Ulster Bank actually, I think over the last four quarters, every quarter, the risk weight density seems to have dropped about 3%.

Is that something we should just continue to extrapolate going forward, or is that kind of a lumpy model change that's been kind of coming through, that we shouldn't expect to reoccur? Thank you.

Yeah. On the NIM and Ulster in Q1, if you look on page 22, there was a one-off income recognition on some non-performing loans, which contributed significantly to the margin increase.

But rather than focus, I think, on the liability margin, it's better to focus on what's going on, on the asset side in Ulster Bank. We have got a continuing significant run-off of -- about 55% of the book is either the attractive mortgage book or an NPL book, with very low margins.

And then on the other side, we have got 45% of a good Core bank, where the front book margins frankly are very attractive, and every quarter you are seeing a significant shift away from back book to front book from the legacy to the Core, which is having a material impact on asset margins, and we think that will continue. On RWA density, I think for the time being, you can assume that RWA density over there is going to continue to improve, given what's going on, on the property markets.

And as we continue to run down, what is a very RWA heavy track of [indiscernible] book.

Okay. Thank you very much.

Hi guys. I didn't want to let you go so early, so I just like -- Friday afternoon.

Can we talk about Williams & Glyn, because I think there was some comments from the European Commission recently, in terms of some initial response to the proposal, and they mentioned a range of costs, up to GBP1.5 billion. How will you receive that?

What are your thoughts around what they are saying, in terms of Williams & Glyn?

Yeah, Look I mean, I think -- well that's important, I would sort of compare it like an apple with a pear. The apple is the GBP750 million of provisions that we took into Q4, which is the cost we think of addressing the remedy, and the pear, on top of that, they have then speculated what the loss on income was, that we would suffer, as a result of implementing that remedy.

I think Treasury came up with a different number, different lower number. There obviously will be some impact on income, as customers try to -- Commercial customers transfer from us to some of the challenger banks.

But overall, you have seen the public consultation. I think we were encouraged by some of it, at least the initial comments from the European Commission.

There will obviously be a lot of noise in the market from various challenger banks. So we should all just expect that to be the case.

But overall, we are encouraged, at least with the initial consultations.

Also I believe it is the best way to create more competition in this marketplace, because instead of one player getting our book, you are opening it up for all of the challenger banks to actually improve their capability. So at the expense of RBS it's a GBP750 million cost for us, that I think doubly [ph] gets transferred across the challenger banks, who wouldn't be happy with that.

So we want to see what happens with consultation. It has still got a few months to go, and as we see in third or fourth quarter, we should have a result from that.

Great. That's really helpful.

Thank you.

Hi Chris.

Remembered to unmute my line this time. So I'd just ask for more things, but [indiscernible].

The ringfencing proposals obviously are looming. I just wanted to discuss, if possible, how you are thinking about the relative capital stats for the ring fence bank and the non-ring fence bank?

And in particular, given that the ring fence bank is likely to have a greater proportion of the pillar-II capital, and you also face a potential inefficiency, due to the fact your systemic risk buffer is likely to be higher than your G-SII buffer, which will introduce a higher PRA buffer in the non-ring fenced bank as well. Are you likely to run with a slightly lower management buffer in the ring fence bank to avoid creating sort of a high capital requirement at a group level?

Thank you.

Yeah. So look, we are obviously still working through those, both ourselves and with the regulator at the moment.

But I think we are very comfortable at a Group level, with a 13% target that we put out. As you say, there is likely to be different capital requirements between what we -- remember, we have got two non-ring fenced banks and one ring fenced bank.

But, I think overall, we are very comfortable with the 13% Core tier-1 guidance we have got out in the market at the moment.

In terms of the non-ringfenced bank, in the past, you talked about looking to capitalize that to around 15%, if you want to achieve the necessary ratings to be a derivatives counterparty. How are you thinking about that now please?

Well I think, I am not aware, that recognized the 15% number. I think we sort of would be below that, much closer to probably somewhere between 13% and 14%, but the -- again, I think we are very comfortable, based on the work we are doing.

We will get to the right ratings outcome on NatWest markets.

I think your divisional equity allocation for NatWest markets is currently 15%. At least, that's what was in your divisional restatement document last year.

Yeah, but that doesn't mean that -- remember, that's a divisional number that doesn't include capital resolution, for example. And is pre a ringfencing split, which has -- in terms of where some of the buffers go.

So I wouldn't read that 15% as our view on what the capital requirements are for NatWest markets.

Okay. Thank you.

Hi Claire.

Hi. Good afternoon.

I have a couple of questions please. I know who started off by saying that consensus doesn't really believe the targets.

But I think the earnings upgrades have come through and they are not too far off on the revenue and cost line. But I guess, when you get down to the bottom line, we are not close to the 12% return on tangible equity, and I just wondered, if you could give us bit of an update on what the leverage levels you might expect for the business.

So any update on your mortgage risk rates inflation, expectation, where you see the net level of risk weighted assets moving over the period? And really, what kind of level of net profits you might think that that -- you need to deliver that 12%?

And then, my second question really is about your consumer credit strategy. I know you have been quite vocal, you don't like [indiscernible] balance transfer market, and the banking industry [ph] seems to agree with you there.

They also are quite focused on the unsecured personal lending market and the low rates that are there [ph]. Could you may be talk about your risk tolerance levels on what your expectations are, for how they might to increase capital requirements for that type of lending?

Thank you.

Just on the unsecured move, we start the -- we haven't changed our risk tolerance on their unsecured business Claire. What we have -- I think our growth in that area, we have said, certainly smartened up our service delivery of that area, and using all our own scoring engines, made it a lot easier for customers to come and put the details in themselves, and given the amount that we have been concentrating on our customers, not new ones, that have been able -- we understand them and [indiscernible] analytics to actually get them much quicker out and get the money into their accounts, usually within 24 hours.

So that has helped us grow that business. We haven't again used the pricing lever of anything.

We are probably 1% higher than most in the marketplace. If you look at the starting point on unsecured.

So we haven't made moves other than changing the service delivery on that at all. We -- as you say, we stayed.

We are in the credit card market, but not at the zero balance. And therefore, we have seen a drop-off in the amount of business that we are doing in that.

And look, I have said to the team, they can go back into their market, but they have to answer the questions that I have had for them. From a customer behavior perspective, around how do you get the money back?

How do you make sure that all those issues around customers knowing what their pricing point is going to be when they come off the zero balance. No tricks on the way through with the fees that they get and the change that they get ahead if they miss a month.

Those are the things I want [indiscernible] to actually sort through, and if they can do that, we will come into that market. But at this stage, it's work in progress for them.

On the RWA question, I mean, firstly, I think it's a bit generous to describe consensus as being in line with this. Last time I checked, consensus was about GBP6.9 billion of costs in 2020, and we have been guiding to 6.4%.

So there is still about GBP0.5 billion gap in consensus. But on the RWAs, in terms of what we have talked about, we have said, we are going to strip out at least GBP20 billion of RWAs out of the Core bank on a gross basis.

We did GBP3.2 billion in the first quarter, so we are well on track to deliver that. We have talked about the impact of mortgage risk weights of being sort of GBP12 billion to GBP15 billion impact, and we'd be at the low end of that today.

We haven't, to our end numbers, built some RWA inflation for Basel 3.5 or 4, or whatever you want to call it. Also, I assume that a decent chunk of Williams & Glyn comes back in.

On capital resolution, we have talked about being down to GBP15 billion to GBP20 billion, the Saudi stake by the end of this year. Comfortably on track to do that, and that will continue to moderately roll-off over the coming years, and you saw earlier this week, the announcement -- preliminary merger announcement in Saudi Arabia.

I think that does give us a path, probably over several years, but definitely it creates a path now for us to be able to exit that stake at some point, within a timeframe out to 2020. So I don't think it's all on RWAs, and the thing I'd go back to, which I said at the start of the call too.

We continue to be confident. As I think you heard today, on our ability to consistently grow volumes, where we want to grow volumes above market growth rates in the coming years.

And again, I think, that is the gap to consensus.

Okay. Thank you very much.

Thanks.