TIDMRBS
RNS Number : 1334X
Royal Bank of Scotland Group PLC
25 April 2019
The Royal Bank of Scotland Group plc
Annual General Meeting Statements
25 April 2019
The Royal Bank of Scotland Group plc will hold its Annual
General Meeting at 2.00pm today. The meeting will deal with the
proposed resolutions as set out in the Notice previously issued to
shareholders. The following is an extract from the remarks to be
made by Howard Davies, Chairman, and Ross McEwan, Chief Executive,
at the meeting.
Howard Davies
Good afternoon Ladies and Gentlemen and welcome to the 2019
Annual General Meeting of our Company and to our headquarters here
at Gogarburn.
I am sure most of you will have seen that this morning, Ross
McEwan announced his resignation as CEO. For the past five and a
half years Ross has worked tirelessly to make the bank stronger and
safer and played a central role in delivering a return to
profitability and dividend payments to shareholders. The Board and
I are grateful for the significant contribution Ross has made in
one of the toughest jobs in banking. Ross's successful execution of
his strategy to refocus this bank back on its core markets here in
the UK and Ireland has helped complete one of the biggest UK
corporate turnarounds in history.
Thanks to Ross, RBS is well positioned to succeed in the future
in what is a rapidly evolving landscape for the banking sector. He
will leave with our thanks and best wishes for the future. We will
be conducting an internal and external search for Ross's successor,
which will commence immediately.
Ross will update you shortly on our financial and strategic
performance. I will open by saying a few words from a Board
perspective.
Let me first introduce you to the Board. From your left to right
we have Frank Dangeard, Dr Lena Wilson, Baroness Noakes, Brendan
Nelson, Patrick Flynn, Katie Murray, Ross McEwan, Mark Seligman,
Robert Gillespie, Alison Davis, Mike Rogers and Morten Friis. To my
left is Aileen Taylor, the Company Secretary.
This is Brendan Nelson's last AGM as a member of the RBS Board,
although he will continue to sit on the Board of NatWest Markets.
Brendan stepped down from his role as Chairman of the Group Audit
Committee on 31 March and will not be seeking re-election at this
AGM. The Board and RBS as a whole have benefited from his extensive
knowledge and expertise since he joined in 2010. His contribution
to the RBS Board will be greatly missed.
Patrick Flynn joined the Board in June last year, and he has
taken up Brendan's role as Chairman of the Group Audit Committee.
Patrick has a huge amount of relevant experience, most recently as
Chief Financial Officer of ING Group.
We also have a new Chief Financial Officer in Katie Murray, who
joined the Board on 1 January, replacing Ewen Stevenson. Katie has
nearly 30 years of finance and accounting experience. She has
contributed significantly to RBS since joining the bank over three
years ago and is already making her mark as CFO.
I would also like to welcome four non-executive members of our
ring-fenced bank Board, NatWest Holdings: Graham Beale, Francesca
Barnes, Ian Cormack and Yasmin Jetha. They are not members of the
Group Board so are not on the platform. Overseeing the bank is a
team effort and they are an integral part of that team.
Turning to the bank's performance, our share price closed
yesterday at 257 pence, up almost 20% since the start of the
year.
It is slightly below the 271 pence per share that the Government
sold at back in June 2018. That sell-down raised total proceeds of
GBP2.5bn, while reducing the Government's stake in the company to
62.4% at that time. The timing and quantity of any future sales is
entirely a matter for the Government. The Chancellor, however, has
said that the Government intends to sell all its shares in RBS by
2024.
At this meeting, we are seeking a renewal for 12 months of the
authority you provided in February to use some of the bank's excess
capital to buy back up to 4.99% of our shares from the Government,
at a time agreed with the Treasury. This would be a positive use of
our capital by helping to facilitate our return to private
ownership.
In 2018 the bank's financial performance was good, despite an
uncertain economic outlook and a highly competitive environment.
Bottom line profits were more than double what we achieved on our
return to profitability in 2017. We can also point to a very robust
capital position, with Common Equity Tier One capital of over 16
percent, the strongest position of all the major UK banks.
As a result, we were able to pay our first ordinary dividend in
a decade of 2 pence per share at our 2018 interim results. Subject
to your approval today, we will pay a final dividend of 3.5 pence
per share and a special dividend of 7.5 pence per share. Taken
together, that will provide over GBP1.6 billion of capital returns
to shareholders since dividends resumed, including almost GBP1bn
being repaid to the UK taxpayer. In future, we expect to maintain
ordinary dividends at around 40% of attributable profit.
Last year, in addition to re-starting capital returns, we also
achieved our first clear pass in the Bank of England stress test
and resolved our major remaining legacy issue - reaching settlement
with the US Department of Justice over its investigations into our
historic activities in the US mortgage market. While settling that
long-running case was welcome, the GBP3.6 billion we paid was a
stark reminder of how, in the past, RBS engaged in highly risky
transactions a long way from its core mission of supporting the UK
economy.
We await publication of the FCA's final report on GRG, although
a summary of its findings was published last year. That summary
confirmed no regulatory action would be taken against the bank or
any individuals. The FCA once again confirmed that no evidence was
found to support allegations that RBS artificially distressed and
transferred otherwise viable businesses to GRG to profit from
selling them, or from their restructuring or insolvency. It also
found no evidence that any member of GRG's senior management
behaved in any way that could call their honesty and integrity into
question.
The bank has long accepted that, nonetheless, some SME customers
did not receive the treatment they should have done while in GRG
and has apologised for that. We continue to focus on putting things
right for these customers through our complaints process,
independently overseen by a retired High Court Judge, Sir William
Blackburne.
Turning to the state of the economy, the prospect is more than
usually uncertain. The UK economy has proved remarkably resilient
but lack of clarity about our future relations with the EU is
undoubtedly having an impact, with consumer confidence muted and
many businesses pausing on investment. That will affect our
income.
Throughout the Brexit process, our priority has been to ensure
that we can sustain our EU business. Our NatWest Markets subsidiary
in Amsterdam is fully operational. We could not wait any longer to
put these plans into action without jeopardising our ability to
meet the potential future needs of our customers. In total, we
expect to have around 250 people working across the EU in NatWest
Markets NV, between 100 and 150 of whom will be in Amsterdam. Many
of these roles already exist and fewer than 100 will be
transferring from the UK. We have also received approval for
licences in Frankfurt, which will allow us to maintain access to
euro facilities.
The Board is also concerned about other dimensions of
sustainability. Just before last year's AGM, we announced that we
will not lend directly to new coal power, coal mining, oil sands
and arctic oil projects, or to mining or power companies with more
than 40% involvement in coal. We aim to be a leading supporter of
the low carbon transition, in line with UK and global climate
goals, and have financed more renewable energy transactions in the
UK over the last decade than any other UK bank. To meet the
challenges ahead, we have established a project to integrate
climate risks and opportunities across our business and risk
frameworks - under the direction of our Group Chief Risk
Officer.
You will have seen that a resolution has been requisitioned by a
small number of shareholders seeking to create a shareholder
committee. The Board's opinion remains unchanged on that issue. We
do not think it would be in the interests of the company and we are
recommending that you reject it once again. Shareholders rejected
it last year, with 98.65% of votes cast against the resolution.
The Board has made a considered effort to listen to the views of
all shareholders and to build on our existing channels of
engagement. Last year, we held retail shareholder events in Glasgow
and Birmingham and we plan to hold more in 2019, with a London
event scheduled for September and a virtual event in November.
Further details on these events and how to participate will be made
available on our website nearer the time.
We have also responded to the Government's challenge to all
companies to ensure employees views are heard by the Board. We
designated Dr Lena Wilson as the Board member with that
responsibility and set up a Colleague Advisory Panel which is
working well.
There has been a lot of attention recently on the level of
executive pay - and especially pension contributions - across all
industries in the UK. The remuneration policy for our Executive
Directors was approved at our AGM in 2017, and is due for renewal
next year. The 2017 policy allows for pension funding of up to 35%
of salary for existing executive directors and up to 25% for new
ones. Katie Murray was appointed CFO in January, with a pension
funding rate of 10% of salary. This is in line with emerging best
practice under the UK Corporate Governance Code and investor
guidelines and indicates the expected direction of travel under our
new pay policy. We will start consulting with shareholders later
this year ahead of putting a new policy to a vote at next year's
AGM.
For the second consecutive year, we have reported the average
pay gap between male and female colleagues in the bank. The bank's
mean gender pay gap in the UK for 2018 was 36.6%, a slight
improvement on the year before. Our gender pay gap reflects an
under-representation of females in senior roles, as well as the
fact that women are more likely to be employed in part time roles.
Addressing this imbalance is a priority for us. We appointed Katie
Murray as our first female CFO; Alison Rose as Deputy CEO of
NatWest Holdings, and Vanessa Bailey as Chief Risk Officer of
NatWest Holdings. In 2014, we set ourselves a target to have at
least 30% female representation at the three most senior levels in
each of our businesses by 2020. Our latest figures show 9 of our 12
businesses are already at 30% or more and we are at 37% in
aggregate across the bank. We aspire to achieve full gender balance
at all levels of our business by 2030.
We also disclosed our ethnicity pay gap for the first time in
this year's annual report, ahead of any formal requirement to do
so. Our mean ethnicity pay gap for 2018 was 10.7%. The figures have
not received anything like the level of attention of the gender pay
figures. They should do.
We have more to do to close this gap. In 2017 we set ourselves
an ambitious target to have 14% non-white colleagues in our
leadership population by 2025 and we are already making good
progress. Ross has signed the Race At Work charter, an initiative
backed by the Prime Minister to address ethnic disparities in the
workplace - one of the initiatives was to report on the ethnicity
pay gap.
To conclude, I would like to reiterate the Board's support for
our current strategy and for the excellent work Ross and his
leadership team are doing. The bank is now delivering sustainable
financial returns and supporting its customers in difficult
economic circumstances. And in 2018, at last, we were able to start
returning capital to you, our shareholders. It has been a long time
coming.
The bank is now in a position to focus fully on the future,
relatively unencumbered by the issues of the past.
Ross McEwan
Thank you for the kind words Howard, and good afternoon.
When I took on the job in 2013 the bank had been stabilised
following the aftermath of the financial crisis, but we were still
a long way from recovery.
I focused on five key priorities where we had to improve, if we
were going to compete and deliver returns to shareholders:
1. Making the bank simpler, safer and more UK focused,
2. Operating with a more efficient cost base,
3. Supporting sustainable growth,
4. Improving employee engagement,
5. And finally and most importantly, improving customer experience.
We've made substantial progress in each area.
-- The balance sheet has reduced by a third from over GBP1 trillion to GBP694 billion.
-- Our capital position is stronger - CET1 ratio from 8.6% to
over 16%. This has helped us pass the Bank of England Stress test
for the first time and restart dividend payments.
-- We've resolved over 20 material conduct and litigation issues
and addressed the historical deficit in the Group Pension Fund.
-- We've refocused on our home markets. 92% of our revenue is from the UK up from 80% in 2014.
-- Costs are down over GBP4bn, we've reduced the number of
employees from 118k in 2013 to 67k and exited over 20
countries.
-- We've continued to undertake significant restructuring, some
of it mandated by the conditions of the bailout, others through
strategic choice:
Ø We divested Citizens, completing the largest US bank IPO in
history in the process,
Ø We reshaped NatWest Markets to focus on rates, currencies and
financing,
Ø We have run off substantial non-core assets, including RBS
capital resolution which started with GBP137 billion in risk
weighted assets, and
Ø We're progressing with the alternative remedies package for
the business that was formerly known as Williams & Glyn.
One of the things I am most proud of is despite this significant
restructuring, our colleague engagement is at its highest level
since we started recording in 2002. This shows the resilience and
determination of our employees.
At the same time undertaking this significant restructuring we
have strived to get closer to our ambition to be the best bank for
customers in the UK & Ireland. We still have a long way to
travel to get there but I am still convinced that was the right
aspiration to set.
With our major legacy issues now behind us we are able to focus
fully on becoming a much better bank for our customers. There is
still much more to do, and the CMA scores and our own NPS data show
this, but we are making progress.
Turning to 2018.
I'm pleased to be able to report that, for the second year
running, we have delivered a strong financial performance.
The strategic plan we set out in 2014 continues to deliver. 2018
represented another year of progress towards our goal to be a
customer focused bank that is financially strong, and delivers good
returns to shareholders.
This progress has not been easy, and has involved a number of
difficult decisions along the way. You - our shareholders - have
remained patient and committed throughout, and I'd like to thank
you for your support while we have restructured the bank.
Let me talk you through our performance in a little more
detail.
As our Q1 results will be announced to the market tomorrow
morning, I am unable to discuss those with you today. I will
instead refer you back to our annual results which were announced
in early February.
In those results, we reported a pre-tax operating profit of
GBP3.4 billion, up 50% on full year 2017, and an attributable
profit of GBP1.6 billion, more than double what was achieved the
previous year.
We took a further GBP278 million of costs out of the business in
2018. We have now taken out over GBP4 billion of operating costs
over the last five years - a target that many thought was
impossible.
It is worth noting that excluding conduct and litigation and
strategic costs our full year cost: income ratio would have been
54.5%, and our Return on Equity would have been 10.9%.
Finally, as Howard mentioned, in the last Bank of England stress
tests we obtained a clear pass - a good example of how our strategy
of de-risking the balance sheet is paying off.
Our financial results were welcomed by the market, and our stock
has traded well so far in 2019.
All of this has been delivered in the face of unprecedented
political and economic uncertainty.
We have a key role to play in supporting the UK economy. As
Howard mentioned earlier, our focus has been to continue serving
customers throughout this uncertainty.
Last year we delivered GBP30.4 billion in gross new mortgage
lending in UK Personal & Business Banking.
We also made or renewed commitments of around GBP30 billion of
term lending facilities to mainly UK businesses.
And our Commercial and Business Banking operation supported
total lending of over GBP100 billion.
This is what we mean when we talk about supporting sustainable
growth.
Touching briefly on the Brexit negotiations, the continued
uncertainty is holding back the UK economy, with the most recent
forecasts pointing to subdued GDP growth rates relative to historic
trends.
As a large predominantly UK focused bank, our results will of
course reflect the economic performance of the UK.
Away from this, we will continue to support our customers with
lending - where there is demand and within risk appetite, as well
as provide advice on how they can prepare for Brexit.
In light of this, this week we announced that we have doubled
the level of funding available through our Growth Fund to help
businesses ready their supply chains for the UK's departure from
the EU - taking the total fund to GBP6 billion.
Aside from the current economic situation, we are also dealing
with the most significant disruption in the banking sector for many
years - this being the rise of technology. Customer expectations
are high and they are changing the way they want to bank with
us.
We continue to see a decrease in traditional payment methods
such as cash and cheques as customers embrace our digital channels
at an increasing pace.
To be clear, our branches remain a core part of our service and
we are investing in them. We will not be closing any further
branches in 2019 and have no plans to reduce the branch network in
2020.
This will give customers, colleagues and communities certainty
about where they want to bank. We know that physical interaction
remains important, especially for small businesses looking to
deposit cash.
And on the topic of cash, we do not see the demise of cash in
the UK, but we do see it playing a much lesser part in day to day
transactions. We are committed to ensuring the availability of cash
in the UK and will look for alternative ways of providing customers
with access to it.
This is why we are partnering with two other large banks to
create the first group of UK shared business banking hubs this
year. This pilot looks at creating shared centres where small
businesses can deposit their cash.
In addition we have partnered with the Post Office to ensure our
customers have 11,000 points of presence to pay cash and cheques in
and to take cash out. Our fleet of mobile branch vans also make 700
stops every week in villages and towns where we do not have a
branch.
Having said that, digital adoption continues to increase
exponentially. We now have 6.4 million regular mobile app users, an
increase of 16% on last year.
We are also seeing customers taking out products via digital
channels at an increasing rate. Almost half of all personal product
sales are now completed this way. That's up 19% on last year.
So it's imperative we continue to evolve. Our focus for the core
bank is to build solutions to allow customers to do their banking
simply, whenever and wherever they want.
As we look ahead to our 2020 goals, it's clear that we are a
long way from our ambition to be number 1 for customers. Our latest
CMA scores were published alongside our annual results and they
show little improvement for both Royal Bank and NatWest, though we
did see some marginal gains in both the online and mobile
space.
Our ambition remains to be number one for customer service,
trust and advocacy. We have a lot to do to get there, but it is
right that we retain this ambition, and the full focus of the
organisation is now on serving customers well, without the
distractions this bank has had for the last five years.
We're looking at how we can simplify, automate and digitise the
key customer processes and journeys in the core bank. Our paperless
mortgage process- a UK first - is just one example. We also have
Cora, our AI Chat Bot who now handles on average 83,000 customer
queries per week.
For commercial customers, we have upgraded our online platform -
Bankline - and reduced the time it takes to make a payment by
around 30%. We have taken the great services from Bankline and put
them in a convenient mobile app. Although early days, this is
proving popular with customers. It currently has a 4.6 out of 5
rating in the Apple App store.
These innovations are helping us to drive positive customer
advocacy while at the same time lowering our costs. It's vital that
we continue to take this approach in the future if we are to
achieve our ambition.
NatWest Markets continues to focus on customer service and is
increasingly using technology to enhance the way it provides
innovative financial solutions. For example, FX micropay makes it
simpler for businesses operating globally to accept payments in
multiple currencies, reducing costs and increasing revenues for our
customers. Our success in harnessing technology has been recognised
with two major industry awards.
Outside of the core bank we are piloting Bó and Mettle as two
standalone digital banks. Bó is a digital personal bank targeted at
helping people to manage their money better. Mettle is a digital
banking platform for SME business customers.
We are taking key learnings from these and applying them across
to the core bank. It is clear that not everything we pilot will be
a complete success. But as long as we learn as we go, we are
comfortable with our approach.
Of course, as larger numbers of our customers adopt digital ways
of banking, we must continue to innovate and invest to protect
customers against fraud and our systems against increasingly
sophisticated cyber attacks.
We have signed up to the new Financial Sector Cyber
Collaboration Centre which will see a more concerted industry
response by the UK's banks and law enforcement to commit resources
and to work together against this common threat.
Turning our attention to this year. We will continue to focus on
our priorities, with specific goals for 2019 which will help us
keep up the momentum on our ambition.
This year, we want to:
-- continue to improve our colleague engagement;
-- move closer to a greater than 12% Return on Tangible Equity;
-- move towards a circa 14% Common Equity Tier 1 capital ratio;
-- close the gap to number 1 for service, trust and advocacy by
achieving a 2 place improvement in the CMA ranking for both NatWest
and Royal Bank Brands;
-- take a further circa GBP300 million out of our operating cost base; and
-- grow net lending in our Commercial and Private Banking, and
Personal Banking franchises by 2-3%.
We are determined to build a great place to work and a
sustainable bank.
Despite everything that has happened over the last 10 years, and
the enormous effort that has been required to turn the bank around,
colleague engagement is at an all time high.
I am very encouraged by these results. We know we still have a
lot more change to go through to get RBS fit for the future - so we
must continue to lead and support our colleagues.
I'd like to thank all of my colleagues for their efforts and
resilience again during 2018. They are what makes RBS a special
bank.
So, to summarise:
-- Our strategy is working.
-- The balance sheet is stronger, our financial performance
improved, and colleague engagement is at an all time high.
-- We have resumed dividends to you, our shareholders, and will
continue to look at ways of returning excess capital.
-- And finally, we have a clear ambition to serve customers
well. We have new goals for 2019 - we will focus on lowering cost
and improving our service for customers.
It is never easy to leave somewhere like RBS. With much of the
restructuring done and the bank on a strong, stable and profitable
footing, I have delivered the strategy that I set out in 2013 and
now feels like the right time for me to step aside and for a new
CEO to lead the bank. I will be around for a while yet to ensure an
orderly handover. However, as the banking industry transforms to
deal with changes in customer behaviour and the evolving
technological landscape, a new set of challenges are emerging for
whomever has the honour to become the next CEO. I have every
confidence that they will rise to the challenge.
Forward-looking statements
This document contains forward-looking statements within the
meaning of the United States Private Securities Litigation Reform
Act of 1995, such as statements that include, without limitation,
the words 'expect', 'estimate', 'project', 'anticipate', 'commit',
'believe', 'should', 'intend', 'plan', 'could', 'probability',
'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective',
'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and
similar expressions or variations on these expressions. These
statements concern or may affect future matters, such as RBSG's
future economic results, business plans and current strategies. In
particular, this document includes forward-looking statements
relating to RBSG in respect of, but not limited to: its regulatory
capital position and related requirements, its financial position,
profitability and financial performance (including financial,
capital and operational targets), its access to adequate sources of
liquidity and funding, increasing competition from new incumbents
and disruptive technologies, its impairment losses and credit
exposures under certain specified scenarios, substantial regulation
and oversight, ongoing legal, regulatory and governmental actions
and investigations, LIBOR, EURIBOR and other benchmark reform and
RBSG's exposure to economic and political risks (including with
respect to Brexit and climate change), operational risk, conduct
risk, cyber and IT risk and credit rating risk. Forward-looking
statements are subject to a number of risks and uncertainties that
might cause actual results and performance to differ materially
from any expected future results or performance expressed or
implied by the forward-looking statements. Factors that could cause
or contribute to differences in current expectations include, but
are not limited to, legislative, political, fiscal and regulatory
developments, accounting standards, competitive conditions,
technological developments, interest and exchange rate fluctuations
and general economic conditions. These and other factors, risks and
uncertainties that may impact any forward-looking statement or
RBSG's actual results are discussed in RBSG's UK 2018 Annual Report
and Accounts (ARA) and materials filed with, or furnished to, the
US Securities and Exchange Commission, including, but not limited
to, RBSG's most recent Annual Report on Form 20-F and Reports on
Form 6-K. The forward-looking statements contained in this document
speak only as of the date of this document and RBSG does not assume
or undertake any obligation or responsibility to update any of the
forward-looking statements contained in this document, whether as a
result of new information, future events or otherwise, except to
the extent legally required.
Legal Entity Identifier: 2138005O9XJIJN4JPN90
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END
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