NatWest Group plc

Howard Davies - Chairman Ross McEwan - Chief Executive Officer Ewen Stevenson - Chief Financial Officer Simon McNamara - Chief Administrative Officer Les Matheson - Chief Executive Officer, Personal & Business Banking Alison Rose - Chief Executive Officer, Commercial & Private Banking Chris Marks - Chief Executive Officer, NatWest Markets

Michael Helsby - Bank of America Merrill Lynch Claire Kane - Crédit Suisse AG David Lock - Deutsche Bank AG Raul Sinha - JPMorgan Chase Tom Rayner - Exane BNP Paribas Andrew Coombs - Citi Chris Cant - Autonomous Chris Manners - Barclays Andrew Hollingworth - Holland Advisors Ian Gordon - Investec James Invine - Société Générale Fahed Kunwar - Redburn

Good morning, ladies and gentlemen. Thank you for coming.

Today we are announcing our first annual profit since 2008. Achieving profitability is clearly an important milestone on the bank's recovery journey and the board acknowledged the hard work done Ross, Ewen and all their colleagues to get us to this point.

They deserve much credit for that. But it's not the moment to declare final victory; we still have costly legacies issues to resolve in particular, the US Department of Justice's investigation of our historic RMBS activity.

We continue to hope to be able to resolve that in the coming months, but as you know the time table and the process are not under our control and we don't have any further update on that provide to you today. We also have work to do to rebuild confidence among customers both retail and commercial and especially amongst smaller businesses.

The GRG 166 report published in parliament on Tuesday made uncomfortable reading and we have apologized to customers who were not well treated. We've set up a compliant scheme overseen by an independent former High Court Judge which is working through individual cases and we've already taken an automatic refund of complex fee arrangements.

We've provided £400 million for that redress activity in 2016, which is when we first saw the report. As well as rebuilding trust, we must also accelerate our transition to digital banking.

We're making good progress but there is much more to do on that. And Brexit presents a challenge to our European business, the regulatory outcome remains uncertain.

We have a contingency plan to enlarge our footprint in Amsterdam to allow us to continue to serve our NatWest markets customers. The timing of its implementation will depend on the nature and the length of the transition period on which we expect to hear more from the government and the European Commission soon.

But in spite of these challenges we're confident that the bank is now in good shape for the future, most of the legacy issues have now been resolved and we've refocused our activity on products and markets in which we have a strong competitive position. For more detail I now hand you over to my two digital human Ross and Ewen.

Thank you, Howard, and good morning, everyone. I'm pleased that today we're announcing the profit pre-tax of £2.2 billion and our very first full year bottom line profit in 10 years of £752 million, this is a clear indication that the progress we're making and contouring [ph] to put the past behind this bank while at the same time investing to build a bank which delivers both our customers and for our shareholders.

This morning's results showed that the strategy that we build for this bank back in 2014 is working. Our costs are down again.

Our income is up and that is driving positive operating JAWS of 12%. Our capital position continues to strengthen as we run down RWAs and make profits.

Customers are responding to the investments we've made in product and service improvements and that is helping us grow in our chosen markets. And lastly, but I think really importantly our colleagues engagement is at a ten-year high despite significant restructuring in all of our businesses.

Our progress over the last few years has given us a strong platform to compete in a rapidly changing marketplace. We're investing now to sit ourselves up for future success.

This investment and innovation will slow our progress on cost reduction in the medium term before we see the benefits in the later years and given this, we're no longer guiding to an absolute 220 cost base, we're however retaining our target cost to income ratio of sub 50% and return on equity at or above 12%. Ewen will take you through the details on our restructuring and innovation investment in a moment.

Our performance reflects the economies that we serve. The UK mortgage market witnessed a marked slowdown towards the end of 2017, with approvals for new lending heading a two-year low of £59,000 in December.

We're not immune to the slowdown with our pipeline of approvals down 15% compared to December in 2016. In January, approvals return to trend with volumes in line with 2017 but with considerable pressure on new business margins.

Margin pressure in the mortgage market continued throughout 2017 and despite a base rate rise in November average mortgage rates are at or close to historic lows. Set against this backdrop, our income and lending growth shows how getting the customer experience right can drive returns despite a very challenging market.

The appetite for new lending in the UK businesses were stable across 2017 again our lending performance reflects us with growth and targeted segments. Offset reductions in other areas as we focus our capital on where we can see scope for sustainable long-term returns.

Business investment decisions were driven by a number of factors and in line with wider market commentary, we're seeing evidence that uncertainty over the terms of trade between UK and the EU post Brexit are effecting our clients investment decisions. Given this in the wider macroeconomic environment we remained cautious in our outlook, while maintaining prudent learning standards and strong relationships with our customers.

We're pleased to report that despite a small number of larger write-offs in 2017 we've seen no significant deterioration in credit quality. To reiterate, we're growing in the markets that we like and we're within our risk appetite.

So let's turn to the financial highlights. A pre-tax profit of £2.2 billion for the bottom line profit of £752 million.

This combined with continued RWA reduction has increased our Common Equity Tier 1 position by 250 basis points taking us to 15.9% at full year 2017. For the fourth consecutive year, we've exceeded our cost reduction target for the full year of £810 million reduction compared to our target of £750 million.

We've now reduced cost by £3.9 billion in four years. Our focus on customer has enabled us to deliver another year of balance sheet growth in PBB and CPB.

Robust capital strength cost down and growth in the markets we like are supporting income generating and bottom line profitability. This is bank that we said we would build for you.

Underpinning this bank are some of the best brands and customer franchises in the marketplace. Looking at each of these in turn.

UKPBB delivered £31 billion of gross new mortgage lending in 2017 and took a share of new mortgage market to 12%, supporting growth and stock share to 10%. We also continued to see positive momentum across business banking, lending with net lending up 3% on full year 2016, with a total adjusted profit of £3 billion that's up 18% onto 2016.

UKPBB continues to be a key profit driver for the bank. Ulster Bank continues to reposition itself for better returns in 2017.

Existing legacy exposures while achieving operating cost reductions delivered an adjusted operating profit of £109 million. On commercial banking, commercial banking remains ahead of its main competitors on customer advocacy in 2017 with a Net Promoter Score of plus 21.

This unique position allowed commercial to grow lending and targeted segments, offsetting reductions and other low returning sectors. Commercial banking delivered an adjusted operating profit of £1.3 billion that's up 2.7% on 2016.

Private banking net loans and advances increased by 10.7% and assets under management increased by 14.4% adjusting for transfers. With balance sheet growth and cost down private banking grew adjusted operating profits by 52% on 2016 to £227 million.

Excluding the historic capital resolution assets NatWest Markets core business operating profit increased by £427 million to £41 million. We expect operating cost in the markets division to reduce significantly over the next few years as we wind up the historic Cap Res assets and continue to reshape this business.

In 2017, RBS International also faced cost headwinds associated with ring-fencing. We expect returns to improve as the funds and trustee depositary business transferred in from Commercial Banking these generated around £150 million of income and £60 million of costs in 2017.

In 2017, our simplification strategy continued. In the year we removed 1,000 systems and applications and we exited 28 non-branch properties.

We have still more heavy lifting to do this year and I'm sure many of you noticed that in January, we announce that we will exit this building 280, Bishopsgate over 2018 and 2019. We know that restructuring can affect our colleagues, morale and engagement and possibly impact productivity.

However, our most recent engagements scores highest in 10 years, that was despite the fact that in 2017, 6,600 of our colleagues left the bank. Despite our good progress on simplifying on business we still are far too complex.

At the same time, we need to invest the position the bank for the rapid changes we're seeing in customer behavior and provide the platform to exponentially improve our service to customers in the future and as a result of this, we will in 2018 and 2019 refocusing on really three main areas. Firstly, maximizing the opportunities presented by digital innovation.

We want to dramatically increase the advances we've already made in areas like artificial intelligence. Secondly, developing a nimbler, more flexible operating model indeed this has already begun the changes to the way that we're working, we're building agile teams around end-to-end customer journeys.

And finally, we want to shift our focus away from existing technology and property assets to create a digital first bank. This will impact our cost reduction in the near term and mean higher restructuring cost, but we retain our sub-50% cost to income ratio target for 2020 and we're confident that this plan will deliver the kind of flexibility we will need to compete given the pace of change across this industry.

This slide represents the key elements of our digital strategy. In short, we want to be high-tech and high touch as an organization.

Simple and easy to use, but there with the best expertise in the market when our customers needed, but what does it really mean in practice. Safety and security, this underpins everything we do for customers.

Research shows that our customers trust us with their information and they rely on us to deliver for them day in and day out. Unlike many new entrants to the market we have millions of customers relying on this bank every day.

Since 2014, we have been investing to improve the safety and resilience of our operating systems and our progress is stuck. In 2014, we have 318 Critical 1 incidents in this bank that's an incident where actually impacts customers by comparison in 2017 we had just 20.

November and December are often our busiest months for retail customers obviously given the festive period and we had no Critical 1 incidents in the bank in these months in 2017 and before in the last six months of 2017. We have a significant responsibility to keep our millions of customers safe and secure when it comes to the banking.

Simplified and automated, I've mentioned before that we're transforming our main end-to-end processes and making it much easier for customers. This remains one of our most significant opportunities in the bank.

Despite growing in the mortgage market over the last few years, we've recognized that our customer experience should be significantly better than it is today. In 2017, we introduced paperless mortgages.

A UK first, this is better and quicker for customers. It reduces costs and it improves our control environment.

More than 90% of our new commercial customers can now access our self-service account opening processes. On average this saves customers 30 minutes, compared to applying over the telephone.

And since launch, more than 85% of new customers have opened an account themselves. I'll repeat that, since launch more than 85% of our customers, the new customers have opened the account themselves.

A clear indication that the impairing our customers through technological change can both reduce cost and improve the customer experience. We've also transformed our business lending approvals process; business customers can now self-serve and get a loan up to £50,000 unsecured within a risk appetite within 24 hours.

These were just a few of the examples, but we're looking at all of our core processes in the same way. Front to back, end-to-end, investing now to make our customer experience simpler and more automated.

And finally our digital strategy, it will be innovative. Since 2014 we have seen total payment volumes grow by 5%, during this time branch transactions are down 36%, ATM transactions are down 35% and checks are down 39%.

All of the growth in our payment volumes has come from our digital platforms where volumes are up 14%. Customers are using our digital channels at an unprecedented rate and increasingly digital no longer means online, it's all about mobile.

A few years ago, we had no mobile app, today we have 5.5 million personal customers who are logging on and sending close to four payments per second. We're supporter of the shift, mobile is simple and it's safe, it's secure and customers like it.

And our mobile app has a Net Promoter Score of plus 51%. We do expect more customers to move to mobile as we increase the apps functionality.

Today 68% of every day banking are available via the app, that's up from 50% just 12 months ago and we plan to increase close to 85% by the end of 2018. Customers are also turning to digital channels to purchase our products.

Digital sales volumes increased 11% in 2017, with personal loans up 20%, that's representing half of our sales through mobile. We know, this is an area where we can't stand still, our customers and our competitors certainly aren't.

Currently 90,000 of our commercial customers are active users of Bankline and we have migrated 14,000 customers to new Bankline platform. New Bankline provide simpler payment journeys and pro search capabilities and is a more efficient and ensured of system, but we'll go further into 2018 with the launch of Bankline mobile for our larger commercial customers.

This is a new service, will act as a companion to our bank loan technology and these are just some of the new products and services that will help customers with their needs on a day-to-day basis. Over the last few years, we've invested in building our global partners and scouting network.

One area we believe we have real benefits of collaborating is in artificial intelligence and partnership with IBM, we've developed our own chatbot called Cora. Cora will be a key part of the future operating model of the bank, releasing colleagues to focus on more value added activities than proving our controlled environment through consistent recorded advice.

Since the first quarter of 2017 Cora has handled over 414,000 customer interactions answering 228 different questions. We're investing now to build on next evolution of Cora, in partnership with Soul Machines we're giving Cora visual avatar acting as the interface with customers.

We're currently trialing the new avatar Cora with customers, the feedback so far has been excellent. The possibilities of this technology are very, very exciting.

Who knows, in a few years we might be having the avatar help, Ewen and myself delivering these results for you. It's probably going to be a much better experience, than the real thing.

We're taking what we've learnt from our customer innovation and applying these internally as well. On AI we have our own internal chatbot called Archie which we launched in September and so far, have had 23,000 conversations internally with Archie.

A more fundamental shift is in moving our internal process onto the workday platform. This means that 500 processes that are currently manual will soon be down on mobile.

So colleagues can work more flexibly across the range of locations. More data storage will transfer to the cloud reducing the need for large data centers.

Productivity will increase significantly as other support sanctions go through a similar transformation. I'd like to finish by returning to our strategy.

You'll be familiar with the slide, it's our plan on a page. And we've deliberately stayed consistent on how we've talked about our strategy over the last five years.

As we look to 2020, we've again set ourselves some ambitious targets centered on our strategic priorities. Before I hand over to you and take you through the numbers in a bit more detail.

I'd like to leave you with just some key takeaways. Firstly, our strategic plan is working and we've delivered an operating profit before tax of £2.2 billion at the first time in 10 years, we've delivered a full year attributable profit of £752 million.

We have a lot more to do we know that, but we're making good progress. Secondly, costs are down.

Income is up, our capital position is stronger. We're growing in the markets we like and really importantly our colleague engagement is very high.

Thirdly as we continue to put the past behind us, we're giving ourselves a great platform to become a much safer, simpler and innovative bank for our customers. Fourthly, customer behavior is changing and it's changing rapidly and the market is more competitive than ever.

We're responding proactively by investing in digital innovation. And finally, as the number of our legacy issues reduces and our business performance improves the investment case for this bank is clearer and the prospect of us rewarding our shareholders is getting closer.

Thank you all and I'll hand over to Ewen for the details.

Thanks Ross. Morning all.

In summary a good set of results, our best set of full year results for many years. Operating profits and returns are up materially.

We've achieved the bottom line profit and we had a very strong core capital ratio build. As Ross and I set out a year ago, we had four objectives for last year to grow income, to cut cost, to reduce risk weighted assets and to substantially resolve legacy issues.

On income, adjusted income was up 4% more than offsetting the pressure we saw on NIM down 5 basis points over the full year. We like how we're achieving our growth, mixed heavily weighted towards secure lending.

On adjusted cost, £810 million of further cost out, that's an 8% reduction in nominal terms. We saw operating JAWS of 12%, our adjusted cost income ratio fell from 66% to 58%.

On RWAs they were down £27 billion, a 12% reduction and that included £21 billion reduction or 11% in our core business. As you recall, we set ourselves a target of £20 billion gross reduction now to the end of 2018, so we're a year ahead schedule on that.

This helped drive a 250 basis point improvement in our Core Tier 1 ratio and adjusting for the 30 basis points of pro forma benefit from IFRS 9 on the 1, January will be 16.2%. With good JAWS delivery, adjusted operating profits were up 31% and coupled with good discipline on RWA reduction, adjusted return on equity improved by 7 percentage points to 8.8%.

on our legacy issue, we continue to make substantial progress three years ago when I stood up to talk about how our capital was allocation for every £1 we had allocated on the call, we also had £1 allocated towards legacy. Today we have eight times more capital invested in the call relative to legacy.

A significant event for us last year was agreeing the alternative remedy for Williams & Glyn that's now fully reincorporated back into our UK personal and business banking numbers. Risk elements on lending are down to 2.7% of total lending that's down three quarters from where that ratio stood just four years ago.

Most major litigation is now resolved including settling with FHFA on US RMBS and with the claimants in relation to our 2008 rights issue. And as you can see from today's results we're continuing to also resolve other legacy Conduct issues.

Another key milestone in 2017, all three agencies now have holdco senior ratings as investment grade that helped our credit spreads strongly outperform peers last year. On our Q4 results relative to other quarters, Q4 was weaker £579 million attributable loss that was driven by £1.3 billion of restructuring in Conduct cost.

Structurally Q4, as you know we'll always be weaker for us. We've got the annual bank levy to pay some £215 million last year and it's seasonally normally the weakest quarter for NatWest Market as it was again in 2017.

On the positive side, income held up relative to our expectations in the quarter and that's despite lower business volumes than we planned. At 204 basis points, NIM was slightly better than expected in part due to the base rate rise in November, but also to due to pricing discipline in mortgages that impacted our application share in the quarter.

There were a number of large one-offs in our Q4 income, £173 million IFRS volatility charge, £112 million of capital resolution disposal losses and previously disclosed £161 million gain on sale from our selling our stake in Euroclear. Excluding the impact of the bank levy, adjusted costs in the quarter were up £122 million that included the non-repeat of £55 million of VAT and other releases that were in Q3.

Together with increased investment innovation and marketing spend in the quarter. Cost reduction for us is very closely correlated to headcount reduction and this continues to fall down 2,400 FTEs or 3.3% in the quarter and an 8% reduction over the full year.

Impairments were higher in the quarter £234 million or 29 basis points really that reflected two things firstly higher impairments in commercial banking, with a very few specific large one-off items responsible for nearly all of the total provision. And secondly we've taken a decision to accelerate at some of our NPLs in Ireland, we're reviewing larger portfolio sale for later on, on the year that would reduce our non-performing loans by around third in Ireland.

There were £531 million of restructuring charges in the quarter and £764 million of Conduct costs. The three largest Conduct items were an additional £175 million for PPI, $584 million of additional US RMBS provisions and €153 million in Ulster Bank.

And on current trading, we had a positive start to 2018. As Ross raised earlier and as you can read in our outlook statement, we're making some changes to our guidance today.

We're sticking to our 2020 targets on cost income and returns. That's up 50% cost income ratio and a 12% plus return on tangible equity.

But we're removing guidance for both near term cost reduction and previously had £6.4 billion target for all-in cost in 2020. We also now expect restructuring charges to be around £1.5 billion higher over 2018 and 2019 relative to previous guidance.

To give you some color on why we're adjusting guidance and how our latest views set against current consensus there were five points, I wanted to make. Firstly, we continue to be confident about our income growth potential that's a combination of targeting lending volumes above market growth rates and segments we want to grow in and a much better rate environment than a few months ago, that in turn materially improves our structural hedging unwind.

You should note due to the steeping of the yield curve, we're now much more optimistic on NIM than we would have been a few months ago. So as you model forward, we see some modest income growth across personal and business banking and commercial and private banking as a core part of delivering our 2020 sub-50% cost income ratio.

Secondly, operating cost will be down this year but the rate of reduction will be lower than last year. Various things will push cost up for us in 2018; accelerated investment and innovation spend.

We're planning to be up about 30% on the spend relative to last year. There's ongoing cost of remediation on certain items.

There's higher operating cost driven ring-fencing and Brexit and some higher inflation in previous assumptions. So while the gross cost takeout this year will still be significant, the overall cost reduction from 2017 to 2018 will be materially lower.

We think though with very strong track record on costs, just a reminder £4 billion of cost out on the last four years, that's over a third of our cost base. Ross and I remained very focused on taking cost out as quickly as we can without damaging our customer franchises or our control environment by 2020.

We're committing to reduce our all-in cost income ratio below 50% and we're not at this point seeking to adjust consensus for use on adjusted costs for 2020 which is at £6.4 billion. Thirdly, on restructuring costs.

We're guiding for these to be materially higher, but we think largely for the right reasons that should be viewed as helping deliver much lower operating cost by 2020 and beyond. Off the extra £1.5 billion we've announced today £300 million related to Williams & Glyn both the remedy and reintegration.

Restructuring cost for this were not in the previous guidance. We think this will help drive a significant cost takeout opportunity for us and is very value accretive restructuring spend.

Off the remaining £1.2 billion of additional restructuring costs around two-thirds of that is for accelerated transformation. We do believe this is in the longer term interest of shareholders and the bank and we expect it will deliver over the longer term, a much more flexible and lower cost base.

For the remainder, we're guiding to some higher costs on existing restructuring. These primarily relate to high cost associated with the implementation of ring-fencing and preparations for Brexit and higher costs in relation to some of the countries and properties we're exiting.

Fourthly, we continue to be cautious on how quickly higher Conduct costs will tail off as evidenced by a number of smaller Conduct costs we saw in our Q4 results. Away from the DOJ settlement, we expect there's still to be ongoing significant Conduct costs in 2018 and 2019 before tailing off in 2020 to a lower level.

And lastly, as I'll now turn to we think RWAs through 2020 will be lower than currently modeled in consensus. For our Core Tier 1 generation and RWA trajectory we've still got some complexity ahead of us on both on Core Tier 1 as you can see on the slide.

We think we've given you most of the inputs you need with our 2020 financial targets and restructuring cost guidance. There's really just two large items for you to be modeling away from this, in addition to some further smaller come back costs.

Firstly, the eventual final cost of any DoJ settlement and secondly the impact on our Core Tier 1 of continuing to meet our defined benefit pension obligations. We've given you more disclosures today and the Annual Report and accounts to help you model this.

On risk weighted asset, it's a near term positive story but with longer term headwind starting in the second half of 2020. We expect RWAs to be £5 billion to £10 billion lower by this year end.

In Q1, 2019 there's a model stop lift as a result of IFRS 16 some £2 billion to £3 billion. In the second half of 2020, there is the impact of the mortgage flows as we previously guided our best estimate for that at the moment there's a £12 billion uplift and from end 2021, onwards the impact of the new Basel 3 reforms.

For us, we think that represents a combination of higher credit and operational risk RWAs and depending on the combined impact of those potentially the impact of the upward flow. We're still working through the Basel 3 reforms and as part of this, we're obviously need to make a number of assumptions.

But our working estimate for planning purposes continues to be 10% uplift in RWAs from the end of 2021 onwards. And as per our outlook given the number of material parts of just moving parts, I've just covered and greater CE1 stress volatility that's caused as a result of IFRS 9 until we have additional clarity on some of the items I've just gone through we do intend to run our Core Tier 1 ratio above our 13% target.

So to conclude, we consider these to be our best results for many years. First bottom line profit in a decade, a bank is back doing what it was supposed to be doing.

We're growing volumes, we're growing income. We're not stretching risk appetite.

We're continuing to drive absolute cost down. This in turn is driving significant operating leverage.

JAWS of 12%, our adjusted cost income ratio fell from 66% to 58% last year. And our adjusted operating profits were up 31%.

Together with materially lower RWAs, adjusted returns grew to 8.8%, but still recognized we've got a lot to do over the coming years, return on equity in 2017 was 2%, our 2020 target is to exceed 12%. We're now accelerating investment and transforming the bank.

Successful banks in the future will be data-driven and digital first. Active embraces of the power of new technology to deliver exponentially better customer experiences.

But the cost of those transformation resulting in a more flexible and lower longer term cost base will be higher investment and restructuring costs in the near term. And finally on capital distributions, we do want to return to paying these.

You know the issues that we've got ahead of us, but in the interim. The operating performance of the bank is much stronger and our core capital ratio is increasingly robust.

With that, I'll now pass back to Howard as a reminder. We have various members of our Executive team in the first row, who are also delighted to take some of your questions.

Thanks very much. Both Ross and Ewen and let's move to straight to questions.

I warn you we'll have some on the web probably, but we'll go in the hall first. Thanks.

The most eager hand was there. Thank you.

Thank you. It's Michael Helsby from Bank of America Merrill Lynch.

Two questions, please. One for Rossbot and one for you and bot.

first Rossbot.

It have to be within the 228 questions, Michael. Well I'll give you 414,000 answers.

Just under your digital presentation, I was wondering if you could take a step back and just give us a view on where you think you're relative to the other big banks in the old process and with open banking clearly now upon us, whether you think that's going to lead to reduction in pricing across the industry and whether you can offset that potentially by getting market share in places. That's question one.

And Ewen for you, I think you gave some good explanations about why maybe revenues could be better. But clearly you push your costs up a bit, your cost income ratio is, guidance stayed the same.

So I was just wondering, is it margin that's changed? Is that big delta and also, if you still got the same conviction on your 30p earnings or greater than 30p earnings?

Thank you.

Maybe if I start. It's been quite interesting watching the other banks do their presentations over the last week around technology and innovation.

The market is moving very quickly as you've seen from our statistics, the customers are moving to mobile very, very quickly and what's happening on the mobile, they're doing more and more. The other day I took out a credit card, as soon as you can populate everything on my digital device.

I'll take a credit card out with you. I did it all myself the other day and you know I'm a Luddite on technology.

I did the whole thing myself in about, a minute and a half. Credit card delivered in two days, but I did the whole thing using a mobile device that was just not possible sometime ago.

The reason why I put up the Critical 1 incidents for you. I think it's really important that you started the understand this is not the same bank technology-wise as that had the problems back in 2012 and we've never talked it up.

I've always said to the team don't worry about it, we'll quietly build it. But the underlying platforms that we operate now that Simon and his team have built a completely different to what we had, we've reduced platforms from over 5,500 down to 2,500 that makes an incredible difference to how quickly this bank spends the - and we still got a lot of work to do with another 1,000 to 15 to 100 coming out.

I think people have underestimated the work that we've done to put in the platform that you can build off the top, that we did not have four years ago. I think what I'm starting to see in the marketplace others have striped cost out, but they haven't put the effort into the base underlying technology and while we were one of the first banks in the market to have open banking really up and going because of what we did over the last four years and I say complement to Simon, but we spend the money you see nothing until you actually how quickly can you move in the market, maybe it's worthwhile to Simon, just talking about where open banking goes because we've prepared ourselves for that.

I think there will be some challenges for those banks that are really forward. But I think it will be a slow build or a slow drop off, the customers are very reluctant to move the details and remember the ones with all the money are the ones, that won't move it quickly.

So maybe Simon, just if you want to give a quick update.

No so we had to deliver on sort of regulatory obligations for us, so that was the first thing and it's proved quite challenging. So I think the beginning of January was when everybody was supposed to be ready and it was a bit of sort of rolling start.

So we're definitely ahead of pack in terms of the delivery of those, we've actually completed everything we had to. We're also working with a bunch of third parties.

So actually testing out new capabilities. I do think it will be a bit of slow burn, but we have got the start up and running and actually working with third parties as they develop capabilities that will be to the advantage of our customers.

So one of the nice things about it. I mean you can see it as a threat.

But it is actually other people are building services for our customers that reinforce the fact they bank with us. And we intend to have our services working as well and not better than others.

And I think you know as Ross said earlier, the investment is been made over the last four, five years has given us a solid foundation where we once had one that was very fragile, you don't go from over 300 criticality 1 outages to a period of 120 days without one. Without engineering in some capabilities.

So we've literally refinished the entirety of this infrastructure and one of the things that I observe historically is the cost is often taken out of organizations through actually under investment in the infrastructure. It's an easy place to go for a lot of organizations and that's essentially what we took on board here which was under invested sort of infrastructure.

You'll see that our investment through this cycle is actually increased rather than decreased, so as we've taken £4 billion out of the cost base of the organization, it's not been for the expense of investment. In fact, the investment is increased.

So this sort of things to look for, but I think it's a very solid foundation to actually deliver bunch of very good competitive capabilities in banking world.

Thanks, Simon. Ewen you deal with the second one.

Well without sounding excessively defensive, we're still we're undertaking to take out £1.2 billion of cost over the next three years to get to the £6.4 billion consensus which is still significantly more than other UKP [ph] is a committing to. But on the income side, firstly on NatWest Markets I mean I think we've previously guided to £1.5 billion of income.

I think our confidence in that continuous build. This is the third year in a row, we've gone 1.4, 1.5, 1.6 so I think people were sceptical a couple of years ago about our ability to continue to deliver that.

I think it's third-year row, so people should take some comfort from that. You may or may not have got to our IFRS 9 transition report that was out today, but on Page 24 of that you'll see what our five-year planning assumptions were.

It was based on two base rate rises really from 2018 through 2022. As of last night, current consensus was sitting at five.

We've also put in some additional disclosure into the Annual Report the multi-year impact of base rate rises. So I think as I said earlier, I think we're a lot more confident today that we will see significant income benefits coming as a result of a much better yield environment in a much better swap good.

Yes, the woman next to him. Thank you.

Hi, it's Claire Kane from Crédit Suisse. Two questions please.

Just to clarify on the cost the £6.4 billion versus your previous your previous £6.1 billion is that just the extra investment spends that you're thinking 2020. And then versus your original £6.7 billion you had said you thought around £300 million of below the line items and just wondered, how that's changed based on your assumption of the conduct, cost moderation plan?

And then secondly, on the new disclosure on the pension sensitivity 25 bps, £2.4 billion would it be additive for 50 bps change? And also what's your plan in assumption there on the potential discount rates change in the new triennial review.

And are you factoring any of that into the TNAV for this 12% RET? Thanks.

So on the current consensus is sitting about £6.4 billion for adjusted operating cost, a £200 million for Conduct and well under £100 million for restructuring changes. So I will think the restructuring charge number looks very light to us.

On the £6.4 billion that does compare to the £6.1 billion previously. So I think when you put all that together you get high sixes probably.

On the disclosure that we've put around pensions, for those of you who haven't got to it yet, the last time the trustee gave some guidance on what the actuarial surplus was in June last year about £1.7 billion surplus. On an actuarial basis, markets have been good since then to should have seen probably there's been some benefit in terms of investment outperformance.

The pension plan is currently being discounted that might fund 150 basis point over swap. I think most trustees would be targeting some over the long-term of about 150 basis points below that.

we've got some benefit from mortality assumptions, some benefit probably from higher or earlier redemptions than we previously would have anticipated, some of the residual deficit that you get to we're assuming does get met through investment return and some of we made up of additional contributions. So we think you've got enough there to sort of come up with a reasonable estimate now.

Thanks. Yes.

So directly behind. Thank you.

So we're not going to say we're trying to negotiate with the trustee to in Q1, 2020, but you can.

Thanks sure.

Hi, it's David Lock from Deutsche Bank. I've got a question on Slide 29 please.

So just looking on the right-hand side the balance sheet growth, you were targeting 3% for 2017, you come in at 2.2%. just wondering if you could talk a little bit about which areas you're looking into 2018 to be growing in because although NIM is obviously stabilized in the fourth quarter.

It was like loan growth was a little bit weaker. I also just wanted to clarify, the second question.

The NPL sale in Ireland, are there any risk weighted assets associated with that? And are there included in £5 billion to £10 billion.

Thank you.

Just on the RWA reduction Page 29. Income growth.

We might actually just get Alison to have chat and Les just about where they're seeing the market, their business to give you that indication. Les on mortgages on the growth and same with Alison because we are as we said, we're cycling through from a capital perspective lot of what's going on the commercial business and concentrating on some segments.

So Les, do you want to start on mortgages or do you - Alison start on and?

Yes, I mean I think as far as mortgage is concerned, you saw us growing at 7% last year with market at about, three - we've got a stock share of 10%. Forward flow share was a bit lower in Q4 at about 12%.

We're aiming to be around 12% maybe a little bit more through 2018. I think what you can see from the last - from Q4 is that we're very careful in terms of our pricing, what we don't want to do is pull pricing down in the marketplace and as the yield curve starts to change you should see us start to move pricing up, you all have seen that actually in the last week.

So from PBB perspective you're still seeing pretty good volume on the unsecured side. We're seeing good loan growth, but our credit cards is still an area that we're - that's relatively flatter slightly down.

It's not an area we're pushing but on personal loans and actually on some more business loans, you're seeing growth little ahead of the market and that's continuing into the first month or two of this year.

Thanks. Deposit growth has also continued to be very strong and surprise we've given the interest rate environment that it's been very strong.

Alison just on the commercial side.

Yes, on the commercial side. We're continuing to see growth in targeted segment.

So what do you see into course of this year is really robust capital discipline making sure we're growing in the areas we want to, so we've had good like-for-like growth in our commercial area. So small commercial up to mid corporate very disciplined use of capital in our large corporate space and we'll continue to have that view into this year.

And we continue to recycle capital deployed in commercial real estate which goes from very small to large. So we expect to continue to grow at or above market in our chosen segments.

We're still seeing that momentum and we're still seeing good confidence in volume growth in that market. So it will be very targeted from that perspective.

In terms of pricing you've seen to the course of this year good pricing discipline applied across our asset work, that is continuing to attain and we'll continue to test that going forward. On our private banking side, obviously we've seen lending in AUM growth as we've bought that business back into a normalized position that will continue to accelerate within very tight risk appetite areas.

Ewen on the second.

Yes on the RWA question, I mean what principally drives. I mean there are obviously some RWAs associated with the portfolio so what principally drives the RWA reduction is the continued rundown of the X capital resolution assets.

There was just over £20 billion of RWAs just under seven of that relates to the Alawwal stake. And you should have seen that we're going to continue to rundown those RWAs on the capital resolutions assets over the next few years.

Within the guidance we've given on that with markets for 2020. We're assuming that sort of £21 billion of RWAs get to about £5 billion in 2020.

Thank you. One immediately next to him.

Yes. And then I'll come over here.

Good morning, it's Raul Sinha from JPMorgan. Two please.

And maybe the first one on NIM. If you can have a discussion about the relative change in stance.

Ewen I think we last time we talked to relatively bearish about the outlook for NIM and there seems to be a quite a big shift. Thanks very much for the disclosure on the Page 31 which shows the big uplift in NIM that's coming from structural hedge sensitivity.

So if was to ask you to talk about NIM outlook for 2018 assuming say one rate hike, would you give us any more clarity on where you think it would trend from here?

Well I might stretch as far as Q1. So we think, it will be broadly neutral in Q1 and then you can make your assumptions of what happens to base rates beyond that.

But I think what we are seeing is a combination of actually structural hedging now where we are with the structural hedge and base rate increase expectations the competitive pressures we're seeing in the mortgage market largely getting offset by increased spreads in our liability margins.

Is that why on Slide 30 when you competitive pressure is zero in Q4, despite your commentary that front book pricing in mortgages is very competitive. Net effectively you've got zero headwind from competition, is that the reason why?

It's because of offsets coming through on the liability management, yes.

Right. Thanks very much.

And then the second one I guess, a little bit more detail but also for Ross is to understand where the incremental restructuring or let's say investment is going into within the IT budget. Are you structurally changing your approach to what you previously had in terms of simplifying your IT system before you really get to upgrading it or are you sort of let's say becoming a little bit more aggressive in the areas.

And if you can talk about the areas where the money is going in that will be really helpful.

Like Simon talked about, there are couple of things that we're looking at or come to board in the first half of this year, with three, four years ago and we set up, we didn't anticipate in our planning that this much would go declared as it is in the price differential you could get from doing that. We're certainly investigating that in a serious way that does now alluded to it in my talk with just about the fixed interest rate, should it be then need to be removed data centers the likes which are pretty heavy cost items but also take time to get out and so to make those moves you really need to think five years forward.

But if you don't make those moves today and take the heads on today in 2023, you've got another five-year lease, you're going to get yourself through. So there are some of those things that we're doing on the technology side.

And it's also taking down some of the heavy fixed infrastructure that as you quickly go to technology drive, you've got some pretty heavy cost take out, he's one of them, you sitting in it. These things got to lease until 2037 probably over market pricing.

To come out ahead because we don't need until 2018-2019 it's £200 million. Restructuring because we've digitized more than we just don't need it, is that balance.

Maybe Simon, if you can talk about from a technology perspective just, where it's moved in the last four years.

Pretty much cover it Ross. But I think when we kicked off the transformation of the platform here we went to the software we were running for ourselves and we talked to little bit to the cloud agenda, but we weren't really ready for it.

We think we can accelerate the progress of our infrastructure into the cloud so that's why [indiscernible] said that then, leave some data center that we won't be needing ourselves, so we'll sort some of that. But there's also some investments and some accelerated capabilities the foundation we now have allows us to build some new capabilities and so we've got a number of initiatives on the way currently, which are looking to exploit that.

we've built a pretty decent network to scout new capabilities well so alongside that so, it's sort of combination of acceleration of really the refresh of their underlying infrastructure and the facilities it sits in and then ways of working, in the way that we utilized new capabilities to compete, so that's it.

I think it's quite - we're thinking about and working on different ways of dealing with customers and how they want to be dealt with us well and one of those examples we gave last year that started to come into fruition and activity this year, is around [indiscernible] so electronic SME sitting on an Israeli platform that will go head-to-head to peer-to-peer market and the pieces we like, not the best we don't like because we actually feed customers into that platform. But we've have allowed the business over the next 12 to 18 months to pick up on a number of those sorts of initiatives that I think will long-term add some real value to the business.

I know you take that, you take a new take £1 and say it's a negative 10. I get that.

But unless this business starts thinking forward on wise customers want to deal, we just don't have the growth going forward. So there are number of things at this business had to come out of and we had to sell some business.

I'm not proposing we go back in the same way. I think that was then, now is a different thing, but with technology there are ways we're starting to think about.

Are there other ways of serving customers? Using data or connecting data within to make a better offer to them.

We're - I'm allowing the business over the next 12 to 18 months to actually to do some work around those, which starts to take a cost drag on the business. But unless we do those things I think you'll find that it's a pretty old bank and another five years [indiscernible] disappointed.

In the middle here.

Thank you very much. It's Tom Rayner from Exane BNP Paribas.

I hear what you're saying Ross on the need to invest in technology and everything else. Just on the 2020 cost target there, I think when you drop a high profile financial target there is a risk, that the market will now be reluctant maybe to fully believe in any further targets and I wonder if you could just give a bit more color or some of things you've talked about the investment and everything else.

What that's going to mean for the metrics beyond 2020? So are we eventually going to see that cost income not being below 50, but maybe dropping down to below 45.

I mean is there any further color and the same for the restructuring charge. I mean we obviously got big restructuring charges in the next couple of years.

You'd assume at some point that's going to lead an improving cost efficiency or revenue productivity. The targets we have, we're not seeing that in 2020, so again if you could add some color to beyond that, I think that will be helpful.

Thank you.

I'll start with the cost base because I know Ewen and I have driven hard off giving you fixed numbers to go after every year and we've done it for four years and as Ewen said, maybe £4 billion come out. And every time I've given you number, we've taken out.

What I'm saying this to you Tom, it's sort of bit more normal we want to feel that, we're going to take cost out of this business. We have to.

And we've target it sub 50% and once we've got the sub 50% we have to keep going to stay and what will be a changed financial service world, where digital banking is taken over and people are doing it more for themselves. And if we don't do it, well somebody else is going to do it on their customer's behalf.

So don't think we're walking away from taking cost out of this business, we're - I'm just trying to be a bit more normal and put some more flex in this business at the same time. On the restructuring there are some things that we didn't get right when we set out on the price of pulling down the business.

some of the properly costs were much harder than we'd even anticipate at the start, but the pace with which we've gone through and removed you know our colleagues out of the business, we've reshaped it, just being quicker as well. So I think that has been a bit of surprise, but it has triggered from the move from a technology perspective because we know can.

I think we need to be considering those issues of getting to the cloud. We didn't plan on that four years ago and I don't think you would have anticipated, we should have because they weren't many going that way, but today we have to really seriously consider and it's a cost, but that then starts to bite under a good cost position until 2023, which is I know a long way away, but again got five-year leases.

So unless I make those decisions with the board this year, you don't get it in 2023, you're going to be waiting another five years beyond that because we'll have to roll on the leases. So those are the decisions we've bought forward and we're going to make this year and there's some pretty chunk cost there, but some nice settings we make out of that as well.

Assumption Tom is that we're going to have to continue to drive cost down in nominal terms beyond 2020.

Directly behind, if you just pass it behind. Yes, thanks.

Thank you. It's Andrew Coombs from Citi.

I'll stay on the same theme, please. The first question would be how do you disaggregate between strategic investment that you do pin your adjusted expenses and the restructuring costs which you strip out of your adjusted expenses?

The second question would then be, you've guided to higher restructuring charges in 2018, 2019 you're talking about potentially high 6s for 2020, all-in cost so another give or take £0.5 billion restructuring cost in 2020, does that then. Okay, please correct me if I'm wrong.

Does that drop in way in 2021 or should we think of restructuring cost more or like being strategic investment and therefore continues?

Now look I see, we have got some purely restructuring costs that are quite heavy on this business tool for the next couple of years. I can say this, but I don't believe we'll be there because you can only take so many properties out, once it's gone, it's gone.

And once you've taken out data centers they're gone. So you're in a different cost base position at that point.

The question you asked us that, is really have more strategic cost basis verses restructuring cost? As we get to a more digital world and we do have less people, we've gone to the cloud, those of us - was that restructuring or is that actually a move towards a more digital world and that's the thing we've sort of questioned ourselves.

Because if you took all hours, we're moving to a digital world, we're probably spending £1.5 billion to £2 billion a year on the bank moving to digital. We're taking up physical and we're taking a lot of physical out of the place, so it's quite hard, but we're spending a lot on our technology now that we're in much better shape.

And we will do something - allow the business do some things that are much more innovative for the future because if we don't, we list out losing the customer data and we lose the ability to then provide services to customers.

Andy, I think we also want to sort of Ross and I want to move away from trying to distinguish between whether there's something restructuring cost or investment cost and just talked to you about total cost. I think it's a better way to think about it.

But I think the other thing that we're trying to tell you is part of what we're doing is, we're really trying to shift the cost base which is quite a heavy fixed cost base today. There's a fixed cost infrastructure that we're dealing with and technology and property and people to a much more flexible, variable cost base in the future.

But in order to do that, we need to take out a lot of existing technology and property to get there.

Next one over here.

Hi, it's Chris Cant from Autonomous. I just wanted to circle back on margins please.

I think in the past you've talked about a 40 basis point differential between your front book mortgage pricing and back book mortgage pricing, creating a 4 to 5-basis point headwinds to NIM per quarter for memory. In the release you talk about pricing having got worse by 14 basis points in the fourth quarter alone, so does that mean there is now a 50 to 60 bps differential between your front and backward pricing.

Am I interpreting that correctly? And are you then you saying you can effectively offset a bigger than 4 to 5 basis point headwind from mortgage pricing going forward because of the other factors you're talking about, so how's that 4 to 5 bps quarter going to up?

Thank you.

I'll give Les it feasible, so he can talk about what's happening on the front book and what's happened margin, Les?

We have seen in fourth quarter you have seen further reduction, but as Ewen was saying, you've seen on the - and we're seeing as we get into the end of the fourth quarter and beginning of the first quarter we're seeing an offset from the structural hedge. So when you look at the NIM we're expecting that to be flat Q1 to Q4 and we don't talk about any further quarters.

Well trying, Les. But we're starting to see finally I made the comment.

That we're seeing some of the lowest margins in this business at the moment. That have been there for a long period of time, but we're starting to see a couple of the bigger players, starting to push the pricing back up again because I think everybody has realized, this is a lose-lose.

The other thing that's coming off TFS finished in February and I suspect that people have to start funding themselves because some players have got very, very high levels of TFS and if you go through their book and see how the hell are they going to fund that. I think the people will probably start pushing pricing in a different direction.

Got a few of those, everybody keep moving, yes okay to the left wing from my perspective.

It's Chris Manners from Barclays. I had a question for you on NatWest Markets which was thank you for sprucing out the legacy and the core business there.

I had a question just if we look a bit further forward of the legacy, how much does we think is going to stick around in NatWest Markets maybe you've got smarter ways that are going to be quite durable, maybe some cost and it might take a little more time to squeeze out and when we add those back in or there will be a drag on the ROE. I know before you've been talking about 10% sort of ROE ambition for NatWest Markets will that means that it's going to be depressed for longer always the sort of revenue tailwind and the business growth that Ewen was speaking about earlier, can offset that.

But maybe just a bit of comment on the shape of that business. Thank you.

I think it will be good to hear from Chris on that because I've been very pleased with the results that have start to come out of that, business in the last two years. You know we're still sort of £1.3 billion to £1.4 billion revenue it's produced over £1.5 billion which has been great and you know, lot of works and maybe talk about what's coming out from the Cap Res.

Sure. I mean I'll try to answer directly to your question because you talked a bit more [indiscernible].

I think Ewen has already mentioned that we're targeting about £5 billion of RWAs by the end of 2020, so that's the sort of rundown structure rate. It's not the cost, really aren't that high.

There's about 100 people transferred to NatWest Markets from Cap Res who were managing those positions. The nature of the kind of positions they are I mean they are very similar to the kind of things we're doing in NatWest Markets anyway.

So the infrastructure the middle back office is and always well as the NatWest Markets infrastructure. So the cost will go down as we reduce those exposures and clearly there is some lumpy elements to it, like [indiscernible] which Ewen's has already mentioned which has seen a very significant component part of it.

So yes, it has a drag but it's in the plan and always was in the plan, was in the numbers since we sort of start and did our analyst presentation back in 2015 and those numbers really haven't changed other than the fact, as Ewen mentioned earlier, we've been increasing revenues year-on-year. so you've seen in the last couple of years we've been trending about what we said, we hope to be able to do and the cost reductions across the businesses is on plan and continues to be so.

And it's a very pretty detailed plan as it takes because we're working on it three years and a large component of our cost base state always the amount of investment we're making in transforming it. So not similar to what you've heard around personal, non-personal business.

It's exactly the same approach. We're investing heavily spent over £200 million since 2017, similar kind of number of in 2018 and once - and we're expensing all of that investment as you know once that starts reduce which it will do pretty significant after 2019 then obviously the cost base comes down and they delivery of what we're changing actually starts to play through, which is a much simpler, much more efficient, much more automated business which some of the benefits you're seeing already hence why the costs are coming down anyway, but they will really start to buy once we complete the transformation.

Thank you and we'll take a question from the online where there are couple actually but quite quick. Gary Greenwood from Shore Capital.

One is the 10% increase in the RWA is from Basel 3 reform spot Q1, 2022 increase or phased in until 2027. And the second, slightly broader question do you think the benefits of digital investments can be retained by banks or will they just be competed away in lower prices, but maybe Ewen can do the first one and then.

Yes on the first question of when, well we don't know I guess is the answer to that because we don't know how it's going to be implemented. But and I guess somewhat cynically the market always asks even if it's 2027 number, where are you relative to future?

Well for RWA requirements. So we've just assumed for planning purposes it's from the end of 2021.

If it's better than that, it will be up so.

I think on the second question, which is do you think the benefits of digital investments can be retained by banks or will they be competed in lower price. I think there is a bit of both.

I think some of us will be competed away in lower price, just to [indiscernible] a very well-functioning market. On the other hand as we get better and better with digital and the data more importantly the data, it's what we do with that data to help customers out and what other things can we do as a bank that we can make revenues out of - with support of customer, those are the things we're looking at to actually grow our revenue polls as well.

but there were some negative, you all share some of this with customers that the market will make sure that happens, but I think there are some areas that we can, we're investigating and actually can help grow our revenues because of the data we get and goes back to my investment point. at least we invest, somebody else will have that data and that's really important, so you'll see some investments that we'll do that are around the data and retention or getting more data, so we can put better propositions to customer as well because without their data I think there will be problem and people have remembered it coming down from the payment structures, that's where they've gone to and what they get that grabs a lot of data and we want to maintain and hold on to it, as much as of that as we can, so we put off back to customers that are relevant across the board.

Thank you. Next just by there.

Thank you.

Andrew Hollingworth from Holland Advisors. Just a couple quick questions.

So part of the capital build you've had this year is obviously retained earnings and part of it is reduction and risk weighted assets. So can you just talk about how that might go from now on?

Is there much talk to be done in terms of capital build? Due to risk weighted assets coming down or all will now be about retained earnings going forward.

And the second thing is, maybe I'm missing something but in certain parts of the presentation it talks about ROE, in certain part it talks about RoTE the target is obviously of return on tangible equity, should all of those references be return on tangible equity and for example the slide that goes to.

Yes.

Okay, so Slide 34 for example talks about adjusted ROE by division that should be adjusted RoTE by division, yes?

Yes.

Okay, I'm just clarifying because some backed you as one measure, some [indiscernible] other.

On the RWAs so as we said, assume they're down £5 billion to £10 billion this year. I think you should assume they're flattish in 2019, when you get into 2020 you've got the impact of the mortgage flows and at the tail end of the year plus whatever growth we've gotten that year, plus when you get into 2021 the Basel 3 reforms.

But certainly the trajectory through until you get on mortgage flow should be down and comfortably down from where your current consensus is.

It comes from two, one - if there's still a little bit of Cap Res left we've got Alawwal, we've got some small areas of commercial that we still want to divest, we've got some areas in Ulster Bank that we want to take out as well as Ewen said for next two years we can see that path until it's starts kicking back up again.

So I've just one follow-up on the returns target 2020. So you've given target I saw return on tangible I get that, but in terms of assume to full tax rate, but your actual cash tax rate in that period of time will likely be what?

Yes, it will assume whatever the full tax rate is in terms of the bigger [ph].

Your cash tax rate during that period of time, when your used unrealized losses will be?

We don't have a lot of benefits from unrealized losses.

Okay, fair enough. Thank you.

There's little forest cops of hands here in the middle, if you could hand that over. There thank you.

The first one there. Good.

Thanks.

Thanks. Ian Gordon, Investec.

Just one question please and like I said it's slightly perverse one capital really. You've given us near term guidance, yet you still got 13% in your Slide 20, 2020 goals.

If I assume that when the conversation becomes relevant your own has I preference for directed buybacks or rather obvious reasons over dividends. Clearly I could just go see the exceptional line to get to 13%, but what I want to know is how confident you are of getting down to 13%, by 2020, which presumably drives your math for the reckoned 12% RoTE target?

No it doesn't, but the - I mean there's a number of variables which I talked about earlier that we just don't know today so we think we're going to see significant RWA inflation what we've talked about and that assumes no more risk in the portfolio, so that should allow us, if you go back philosophically for how we think about capital we want under extreme stress to have a Core Tier 1 no less than 9% and then build out from there in terms of what the appropriate stress buffer is, so we haven't, a lot of RWA inflation worth no offset in risk. We have the impact of IFRS 9 which will increase risk volatility.

I mean my assumption as we get to understand IFRS 9 overtime we'll be out of reduced that stress volatility and we also have obviously a period out to 2022, where we get the ability for well you're not going to get the full impact of IFRS 9 volatility anyway stress testing. We've also got the interplay on the pension plan 2 where the higher the contributions that we got into the pension plan the lower the investment risk, therefore the lower the buffer we need to hold against investment risk, the less contributions we put in, the more capital we need to hold to manage that investment risk.

So it's a complex story of which way of just signaled for the time being we're going to be about 13%. I think until we understand some of those offsets and tradeoffs better.

Next to you. Thanks.

James Invine here from SocGen. I've got two please, the first is on branches.

Ewen had some pretty big closures just to tail end of last year and I guess that's driven by your current level of digitization. So I was just wondering as you implement the exciting plans you talked about today, are we going to see more branch closures, are they already kind of budgeted?

And then the second question was just the fact you chose to abandon your 2020 cost target rather than revise it? And I was just wondering if that means that the 2020 outcome is more variable perhaps then it once was and if that's just because you don't quite know what the investment cost will be or you don't know whether you can turn off legacy systems.

Thanks.

I think Ewen gave you pretty good guidance around what 2020 cost would look like. I like that word abandoned.

In fact that I just haven't given you the target this year. I know you're very disappointed, but so be it.

We will taking cost out. We have to keep taking cost out of this business and my executive team sitting in the front row, know that well and truly clearly.

So we'll be taking cost out of, just chosen not to keep giving the market. The number out there and putting the dots on everybody's heads.

This bank has to keep taking cost out, we have to start growing our revenues at the same time and it just gives us a different position as we head in 2020. I mean we're still confident we'll get to those numbers otherwise, we wouldn't have given it to you.

I mean I do think we were finding as we were getting closer to 2020. If we were solving for an absolute cost number, we would have taken sub-economic decisions and we would have because a number of things we're doing such as when Ross talked about the data centers will deliver a lot of value for us in 2022, 2023 we could chose not to do them, we could chose to have a lot of cost structure in 2020 and a higher cost structure for further out.

So one of the things we're trying to do is, to give us more flexibility to actually manage the bank for value. Then say £44 billion [ph] all-in cost target would have given us.

I think we trapped ourselves we bid into that, Ewen is right. There is some things we want to invest and we think it would be good for the bank longer term.

And I think we got to get away from a very short-term approach. And I know we do quarterly results, but would love to stop doing those.

I think they're ridiculous for banks to be doing. We should be just getting to a longer term approach what's really good for customers and for our shareholders at the end of the day.

On the branches we have made some significant changes. And I should put Les on the spot for this, but I'm not going to.

We have made some significant, we started with a branch network of probably closer to 1,800 without the Williams & Glyn what we call the Williams & Glyn which is Royal Bank of Scotland. They're just not being used.

And then we've taken a lot of flake over this. But what the problem was, as we went out to close that one customers went over to this one and then in the next year we came in and closed that one and they sold on, why didn't you tell us you were going to close that one as well?

so that was starting to happen more and more, so we were really upsetting our customers by sending them somewhere only to find its closed. So we're through this.

What is the structure of the network look like that gives us some certainty for a couple of years. We have still got to deal with, we're going to call William & Glyn braches 275 of them.

They were redacted not to drop below 275, so that's why they're in the shape, but we've got 190,000 SME customers we're going to be hopefully making offers two to go away as part of the mandated program. So we don't need that number so we're going to have go through that exercise in 2018 to actually right-size those branches as well, which we will do and we'll communicate really well with customers.

Again our technology now allows our Royal Bank of Scotland customers to get into a networks branch and be served and vice versa. For 17 years of fantastic integration of that bank that was completely impossible, all right.

And those teams actually connected them up so that they can be served in a branch that is of a different brand that we're in. so we're making quite big changes in there, which allows customers to go into other branches and be served, so some pretty big things being done in the last couple of years.

And we're running tight on time, so straight behind you. Thanks.

John Cronan [ph] [indiscernible] and couple of questions. Firstly getting back to Slide number 25 in terms of RWA reduction profile over the coming years and just on the final point in relation to the 2021 move on the back of the impending Basel 3 reforms.

And do you perceive there to be a risk that shift will lead to a transitioned in advance of 2021 and in the context of your engagement of the PRA. And second question is, in relation to the Ulster Bank sale process or not that one necessarily begun, but your reference to that potential large portfolio sale process later this year, just came to understand better what drove that change intact essentially, was it in response to ECB engagement or indeed or participating banks and the positive soundings that they've been received in terms of by your interest in their processes and then just finally in relation to the PPI move and anything to call out in walk-ins would be helpful.

I'll do the Ulster Bank one, we started many years ago with 60% non-performing, it was a disaster. It's down to about 16.7% non-performing and the ECB want all the European banks down sub 5 over a period of time.

We wanted to get it back into earnings volatility and to do that, we needed to get the non-performing down, we reworked the cost base of that business so it was our plan anyway. We do believe there were couple of portfolios that we can successfully sell and that's why we took a provision at the end last year.

Still a lot of work to be done, but we still believe we can get those away this year, which will get it down below 10. And then we'll look and see whether we take other portfolios whether are some value to take other portfolio or whether it will market increases of go in the good book.

This is the flow of the others that will get us to 5 in the next three to four years reward. But we just want a nice clean bank in Ireland.

It's been a long, long haul. It's a pretty tough market over there from a regulatory and government perspective.

So we're trying to create a good simple business, but the NPL is getting down. We're getting into earnings volatility for us as well.

Yes, on Basel 3 reforms there's very little engagement with the PRA at this point because it's still - until Brexit's determined for example, we still don't know what the host, how this is going to be adopted into the UK. So we're having to make a number of assumptions as to how it will be adoptive, how it impacts us?

We do think it's a material number, so we do think it's beneficial to talk about it. I know others would have taken a different view on that, but it's our best estimate at the moment.

On PPI, there's a balance sheet provision of about £1.05 billion post £175 million top up, about £250 million of that relates to playwin [ph] another provisioning required, so if you look at the Q4 run rate it was about £101 million of cash. So it gives us about eight quarters of coverage from here.

The claims inquiry is pretty volatile at the moment. It goes up when the FCA advertises it comes down again, which magazine put out some stuff on PPI, it went up again and came down again.

So I'm loathed to admit to the fact that it won't be more PPI provisions, but it's' sort of best estimate today.

Thank you. We're going to run for another five minutes because but we do have a gig after this.

So I'm take, you next. Thanks.

Fahed Kunwar from Redburn sort of question about the kind of health the UK corporate. I think from the commercial banking in business and comments have seen pretty good, but then you mentioned Brexit has left you some corporate changing behavior, you obviously had a lot of profit warnings in the UK as well.

I'm just wondering things seem fine right now, but how are you thinking about kind of next six months - as you get corporate and how often they are, what kind of loan losses you could see and second question is just on the investment, so we think about investment. Is it more a case of stopping profitability going down in the future or is it genuinely all about profitability going up?

Because it sounds lot like the investments just stop the digitalization process happening at the moment from big banks to losing a lot of their margins or is that a wrong way to think about it. Thanks.

Thanks. I'm going to ask Alison to talk a little bit about health of corporate sector briefly and then Ewen can pick up on the other if you can.

I mean as we said when we look at the impairments and health of the book it looks pretty stable. But we're seeing obviously a lot of macro trends, we've seen real pressure in the outsourcing sector, in the construction sector which we're keeping a very close eye on.

So we have tweaked our risk appetite in different sectors just to beyond high alert to some of the macro trends that we might be seeing, we're obviously keeping a very close eye on consumer spending behavior and how that might knock into buying power. But overall we're seeing corporate UK in good health with some warning signs and some of the obvious sectors that we've mentioned.

We're making sure that when we look at obviously we track very closely all the indicators on early warning and profit warnings. In terms of Brexit impact and what that's doing to confidence and change of behavior.

Really what we're seeing is some of the longer term investment decisions where there is a great uncertainty maybe a little bit of pause in that space, but in the short to medium term, investment trends particularly in commercial and corporate remain very high and very normalized. We're seeing people actually investing in some of the digital and disruption trends that we're seeing in our own industry about making sure they're investing in a supply chain, in innovation, in robotics to manage their cost place and sort of real inflation impact that they're seeing.

So that would be how we're looking at the whole sector.

On the investment piece, it is both. There are some areas that you margined under threat and the volumes are under threat because of other parties having in wasted and come through.

You see that a wee bit under for example foreign exchange and you get to point where you step into the marketplace and you put your own vehicles and we happen to have one of the best FX vehicles in the marketplace through NatWest Markets, so we're monitoring those sort of activity and some point in time we may choose to be a competitor for some of those digital players as well. And we do have some opportunities in this marketplace that now that we're in much better shape.

I think we can actually step into the marketplace and do things worth. It's only because we have invested quite heavily in the platforms that we've got that we can put our lives on the top.

Open banking will give us some opportunities because we will be able to get the data as well anybody else customer base and I think we can do some pretty good things. But it's going to be a slight burn [ph].

I think we probably going have to call it quits at that point. Since its 5 past 11.

And anyone saying about conclusion.

Thank you very much. I think today is a very symbolic day for this bank.

It's been 10 very, very hard years. I'm not saying it's over but to finally make a profit.

You should not underestimate what that means to 71,000 people in this organization and also I suspect a lot of public at large have put a lot of money in. our costs are down, our income is up.

Our capital has been built well. We are going to continue to attack the cost base, but we're going to invest in this business to make sure beyond 2020 you've got great business as well.

And if we don't start doing that now, as you've seen there is some things that will take that five years. I think our strategy is working.

We've been very clear that we're going to UK Republic of Ireland incentive business, with a markets business, that serves our customer offshore and financial institutions. Digital is taking over faster and we need to get on top of that.

We're building a simple, safe, bank. So also I think really clear to the UK economy £30 billion plus of lending and mortgages into this marketplace last year.

We have £100 billion out to small, medium, sized businesses in this marketplace and are big part of it. And finally we're doing our job, so thank you very much.