Earnings Call: Q4 2018

Feb 15, 2019

Good. Thank you. Good morning, ladies and gentlemen. Thank you for coming. In 2018, the bank delivered, in our view, a good financial performance despite an uncertain economic outlook and a highly competitive environment, especially in the mortgage market. Paying a dividend for the first time in a decade showed the progress we have made in building a stronger, safer bank that is capable of delivering improving returns for shareholders. We also managed a smooth transition from our excellent previous CFO, Ewen Stevenson, to his equally outstanding former deputy, Katie Murray. Last year, the bank resolved its last remaining major legacy issues. The final settlement with the U.S. Department of Justice relating to RMBS, strengthening the bank's pension fund, and the progress made on alternative solutions, reducing our market share in the small business market, the former Williams & Glyn program, were all important steps in putting the steps in the past behind us. With those problems resolved, there are now three key areas of focus for the board and management team. Cost reduction, improving customer service, and continuing capital distributions. They are all vital to the future success of the bank. The first two, costs and customer service, are closely linked. Customers' expectations of all service providers are high, and the range of competitors in the market using diverse, mainly digital delivery mechanisms, is as wide as it has ever been. To compete effectively, the bank has to continue to focus on reducing costs so that we can invest more in delivering better service, and at the same time, continue to simplify processes that are too cumbersome for our customers. On capital distributions, we are giving more detail today on the proposed dividend payout for 2018, and it was good to receive approval from our shareholders last week to participate in share buybacks should the Treasury deem that appropriate. We are grateful for the support we have received from all our shareholders and are pleased we are now in a position to reward them tangibly for their support. The Brexit process continues, and we have planned for a range of scenarios associated with exiting the EU. We now have a subsidiary in Amsterdam that will be operational at the beginning of April and have applied for licenses to operate in Frankfurt, which we expect to be functioning at the same time. These entities will allow us to continue to serve our large corporate and financial customers in Western Europe and continue to clear euro payments. As a predominantly U.K. and Republic of Ireland-focused bank, our performance and lending growth in the future will broadly reflect the development of those economies. U.K. economic growth remained below its long-term average in 2018, and the prospect for this year is of continued below-trend growth. The inflationary pressure induced by sterling's depreciation after the EU referendum has subsided, and wage growth has been stronger, but consumer confidence remains fragile. It remains to be seen what fiscal and monetary policy levers the Treasury and the Bank of England will pull in the event of a sharper economic downturn, but lower interest rates for longer would affect the bank's ability to deliver significant income growth. Overall, the board was pleased with the bank's performance in 2018. We still have more work to do to reach our 2020 ambitions, but we continue to make good progress on improving returns for shareholders and delivering better service for customers. I will now hand over to Ross, and then subsequently to Katie for more detail on the results. Thanks very much, Howard, and good morning, everyone, and welcome to our new presentation room. We will be exiting 280 Bishopsgate, the building next door, by the end of 2019, with a saving to the bank of GBP 25 million a year. This is just one of the ways that we continue to simplify this bank and make it far more efficient. It certainly feels like a different bank to the one I took over five and a half years ago. As I recall, four years ago, I spent the majority of this presentation speaking about our past or the problems that we faced. It is great that today, with the turnaround complete, we can focus on the future. Speaking to the simpler, more efficient, and digitally focused bank we are building. In 2018, we have delivered a pre-tax operating profit of GBP 3.4 billion, which is up 50% on the full year 2017, with income resilient and costs down. An attributable full-year profit of 1.6 billion, more than double that we achieved in 2017. A pre-tax operating profit of 572 million for Q4 2018, and this is our first fourth quarter bottom line profit in eight years of 286 million. A proposal to pay a final dividend of 3.5p and a special dividend of 7.5p. This will take our total dividend payments for shareholders in 2018 to 1.6 billion, of which around one billion will be paid back to the U.K. taxpayer. We finished with a very strong capital position with a 16.2 common equity Tier 1 post-dividend payments. With our balance sheet reshaping largely complete, we are focused on growing lending in our target markets and continuing to improve the returns of this bank. This is a good performance in the face of economic and political uncertainty, and we recognize that the potential impacts this uncertainty will have on the delivery of our 2020 sub 50% cost to income target ratio. Turning to Brexit, as Howard mentioned, we have put in place plans that will enable us to continue to serve our customers. We stand ready and willing to support customers from a position of capital and liquidity strength. In 2018, we have delivered 30.4 billion in gross new U.K. mortgage lending in the U.K. PBB. We've made or renewed commitments of around GBP 30 billion of term lending facilities to mainly U.K. businesses, and our commercial and business banking businesses supported total lending of over GBP 100 billion. Given the Brexit uncertainty, we also made GBP 3 billion of funding available through our Growth Fund to help businesses ready their supply chains for the U.K.'s departure from the EU. I don't think I'm alone in saying that the political uncertainty around Brexit has gone on far too long. Our corporate clients are pausing before making financial decisions. This is, of course, damaging the U.K. economy and will affect our income performance. While our financial performance is more assured, we are aware that there is a significant gap to achieve our ambitions to be the best bank for U.K. customers. Today, CMA scores provide further evidence of that. We must do better and we will do better. We've taken the difficult but necessary decision to reshape our branch network over the last few years in response to customers shifting to our digital channels. This continues to have a negative impact on our scores, and the Royal Bank brand also carries a reputational drag from our past legacy issues. We have to get our core services right first time more consistently, and we're investing GBP 1 billion in 2019 to upgrade legacy infrastructure and deliver better products and service for our customers. There are some positive signs of encouragement in some of the CMA scores, where our mobile and online, NatWest has improved by ranking two places. Now, looking at the overall financial performance in more detail. In a highly competitive market, we continue to see unprecedented pressure on margins across the business. In this context, our income, excluding NatWest Markets and one-offs, is resilient on 2017. Costs are down for the group by GBP 278 million or 3.6% against 2017. In the last five years, we've removed over GBP 4 billion from the operating cost base of this bank. We know we still have much more to do to get the bank's cost base to a more sustainable level, and we'll focus hard on cost control again this year. Our full year bottom line attributable profit of 1.6% represents a return on tangible equity of 4.8%. It's worth noting that excluding the conduct litigation and strategic costs, our full year cost to income ratio had been around 54.5%, and our return on equity would have been 10.9%. In recent Bank of England stress test, we obtained a clear pass, a good example of how our strategy of de-risking the balance sheet is paying off. Finally, our capital position remains very strong with a common equity Tier 1 capital position post dividend payments, 16.2%. In our U.K. PBB, gross mortgage lending was GBP 30.4 billion in the year. This represents 11.3% mortgage market share, supporting a stock share of around the 10%, and while maintaining an average stock LTV of circa 56%. We are piloting a new innovation in our mobile app, which allows our customers to access pre-approved unsecured lending of up to GBP 25,000. Personal loan growth in U.K. PBB was up 7%, and it was off GBP 500 million, and it's compared to our full year in 2017. Our exposure in the credit card market remains low at GBP 4 billion or 2% of U.K. PBB's gross lending. Supported by the launch of RBS and NatWest FX Free Credit Card in May 2018, new business account volume increased 31% compared to 2017. The new management team and Ulster Bank are taking tough but necessary actions to continue to drive change in their business. In the past two years, Ulster has reduced its portfolio of non-performing loans by 41%. At full year 2018, both NPLs and tracker portfolio taken together now represent less than half of the total loans and advances. Ulster also achieved good lending growth in 2018, with new mortgage lending up 13% compared to the full year 2017. In commercial banking, we have reshaped the balance sheet through capital initiatives. We have removed lending which fares under stress and grown lending with a lower RWA intensity. We have achieved strong underlying net growth with GBP 3.5 billion increase in 2018. Our private banking continued to improve its performance and delivered financial targets a year ahead of schedule, delivering return on equity of 15.4% and net lending growth of GBP 900 million. This is a really strong business. 2018 was an important year for NatWest Markets as it became a standalone non-ring-fence bank. In line with competitors, performance was impacted by tough market conditions, particularly in fixed income in Q4 2018. NatWest Markets is now nearly at the end of its legacy portfolio rundown and continues to reduce costs and invest in the core business as it delivers its transformation plan that we set out back in 2015. I know many of you will be keen to understand more on our capital distribution strategy. We paid our first dividend in a decade of two pence per share at our interim results, and we are pleased today we can deliver further returns to shareholders. We are proposing to pay a final dividend of 3.5 pence per share and a special dividend of 7.5. Looking ahead, we intend to progress towards a circa 14% common equity Tier 1 capital ratio by the end of 2021. We are committed to returning more capital to shareholders in 2019, and will update the market at the appropriate time. In 2018, we continued to invest in our infrastructure, improving systems resilience and migrating to the latest in cloud technologies. In 2018, we experienced 19 critical one incidents, compared to 318 four years ago. You can see on the slide examples of how customers continue to shift to our digital channels. We are building a high-tech, high-touch customer proposition. In U.K. PBB, we now have 6.4 million regular mobile app users. That is up 16% on 2017. Today, close to three-quarters of active current account customers in the U.K. PBB are regular digital users. Sales through our digital channels in U.K. PBB are up 19% on last year, and now represent almost half of all product sales. Only four years ago, this figure was 26%. In 2018, our U.K. PBB customers sent 57 million more payments via the mobile app. That is up 43% on 2017 volumes. This channel has the lowest marginal cost to serve our customers, it is the fastest, and has the great Net Promoter Score of +41% for NatWest. We are the first U.K. bank to take the paper out of mortgage applications. Customers like the speed and efficiency, generating Net Promoter Scores of +57. It has helped us maintain our market share despite the competitive rate environment that we operate in. It is a similar story in our commercial bank for our commercial customers. We have upgraded Bankline with improvements, including the reduction in the time to make a payment, circa 30%, and this is proving popular with our customers. Not only are we improving our products, we are also investing in our colleagues. Our NatWest relationship managers have market-leading customer satisfaction scores. Engaged colleagues are also more productive. Income per RM has increased from GBP 1 million in 2014 to GBP 1.4 million in 2018. Customers' expectations continue to rise. They want a proactive, easy, and personal service which is available to them when they need it. We have taken a dual approach to our innovation strategy. Firstly, we are looking at our customer journeys in the core bank and seeing how we can simplify, automate, and digitize these to improve for customers. I have already mentioned paperless mortgages as one example, but we have many more. Cora is our artificial intelligence chatbot, which we launched in partnership with IBM Watson. She now handles an average of 83,000 queries per week. Our innovations are focusing on making our customers' lives easier. NatWest Nemo is a good example of this. It is a new app we are piloting that complements our main app, giving customers peace of mind when it comes to their finances by providing personal insights around income and things like day-to-day spending, subscriptions, and utilities. For commercial customers, we have taken the great services from Bankline and put them into a mobile app. Bankline Mobile offers core Bankline services, but with the convenience and accessibility of the mobile phone. Although early days, this is proving very popular with customers, with a 4.7 out of five rating in the Apple App Store. In NatWest Markets, FXmicropay makes it simpler for businesses operating globally to accept payments in multi currencies, reducing costs and increasing revenues. We now have made it available on SAP's Commerce Cloud, a business-to-business e-commerce platform to support their customers with multi-currency payments. Secondly, we are innovating outside the core business to meet more customer needs. I would like to share a few of those with you today. Last year, we purchased FreeAgent. This provides cost-effective cloud-based accounting software to our business customers. FreeAgent are the U.K.'s first accounting software platform to offer open banking feeds, and it is proving a really popular tool, and enables our RMs to broaden the range of services we can offer, with 15,000 NatWest and Royal Bank of Scotland customers choosing to take out the service since acquisition. It is also driving positive advocacy. For example, following adoption of FreeAgent, the average customer Net Promoter Score is 25 points higher than customers without FreeAgent. Our digital lending platform, Esme, shows again that when we get the product and service offering right, we can generate strong customer advocacy. We have taken the learnings from Esme and applied these to the core. For instance, over half of all business and commercial banking accounts are now opened within five days. We can also now offer pre-assessed loans to existing customers up to GBP 750,000. This is the largest value offered by a U.K. commercial bank, giving customers rapid digital access to funding decisions, with close to 50% of the loan applications given a decision in principle under 24 hours. In the personal bank, we are piloting a home agent in partnership with Zoopla. This innovation focuses not just on mortgages, but the wider home buying process. For instance, home agent helps customers set a budget, find their next home, and apply for a mortgage. We also strengthened post-purchase customer loyalty through the latest pricing information and helping customers manage their new mortgage. We are also piloting Bó and Mettle as two standalone digital banks. Bó is our digital personal bank targeted at helping people to manage their money better, and Mettle is our digital bank for business customers. We are taking key learnings and applying them back into the core bank. I want to be clear that not everything we pilot will be a complete success, but as long as we learn as we go, we are very comfortable with this approach. I am sure many of you will recognize this triangle. It is our plan on a page, and has served this bank well for the last five years. Focusing on priorities with specific 2019 goals, this will help us deliver on our ambition. In 2019, we want to do the following: move closer to a greater than 12% return on tangible equity, progress towards our circa 14% common equity Tier 1 capital ratio, close the gap to number one for service, trust, and advocacy by achieving a two place improvement in CMA rankings for both NatWest and Royal Bank brands, take a further circa GBP 300 million out of our operating cost base, grow net lending in CPB and PBB by 2%-3%, and of course, continue to improve our colleague engagement. Taken together, these represent a strong investment case for this bank. We are building a leading U.K. retail and commercial bank with strong non-ring-fenced banks in NatWest Markets and RBS International. Strong brands supporting growth in key markets, a lower cost, customer-led, digitally enabled model. All of this is underpinned by the strong financial targets that I have outlined. I would like to echo Howard's thanks to shareholders for their continued support, and it is pleasing to be able to repay their patience with further capital returns. With that, I will hand over to Katie for the detailed run through of the financials. Thank you. Thanks, Ross. Good morning, everybody. It is a good set of results. The last time we had a Q4 operating profit was eight years ago, and we have achieved that today. Not only that, we have achieved it in a highly competitive market and against the backdrop of continued economic uncertainty. Our operating profit was up, our return was up. Our bottom line profit more than doubled versus last year, and we delivered a strong build in our core capital ratio. We have sorted our key legacy issues, and we passed the BOE stress test. That has allowed us to pay our first dividend in 10 years. Today, we are clarifying our medium term CET1 guidance to circa 14%, and we aim to reach this in 2021. We expect to get there through capital distributions over the coming years, and we will do this using the most appropriate method that the board sees fit at that time. Our 2020 targets are a below 50% cost income ratio and a return on tangible equity of more than 12% as we progress towards a circa 14% level in 2021. There are growing risks to income as Brexit, global trade issues, and economic uncertainties continue, and we now carry additional costs to deal with the ongoing operational costs of Brexit and ring-fencing. We also need to continue to innovate and invest in our business to meet our customers' needs. We are, however, comfortable on our 12% plus RoTE target. In the round, these are challenging targets to achieve. Having given you the overview, let me take you into some detail. We continued to execute against our four priorities during 2018. Resilient income, continuing cost reduction, actively managing capital, and delivering capital returns. If I look at income first, excluding notable items, NatWest Markets, and central items, income was broadly stable, and this was despite the challenging markets. We are growing in the areas that we like, with the mix heavily weighted towards secured lending. Looking at costs, cost reduction continues. Excluding the VAT recoveries, we have taken GBP 278 million out in 2018. This makes GBP 4.2 billion over the last five years. This is an ongoing significant change in our cost base by any standards. If I focus on capital, our RWAs are down GBP 12 billion, or 6% in 2018 at GBP 189 billion. This is ahead of our guidance, and we have come to the end of this phase of active capital management. We are comfortable that we have exited the areas that we wanted to. We have ended the year on a CET1 ratio of 16.2%. You will be aware that we are subject to IFRS 16, which deals with the accounting treatment for leases. It requires us to bring our lease commitments onto our balance sheet as at 1 January 2019. This will take our CET1 ratio to a pro forma of 16%. As a result of our strong capital build, we have been able to propose a final dividend of 3.5 pence, supplemented by a special dividend of 7.5 pence. Of course, both subject to shareholder approval. That is a distribution of over GBP 1.3 billion to taxpayers and shareholders, or GBP 1.6 billion if you include the interim dividend. Or looking at it another way, 97% payout ratio for the year. Following last week's general meeting, we are in a position to do a directed buyback of shares from the government of up to 4.99% of our market cap over a 12-month rolling period, should the opportunity arise. Finally, as we previously outlined, we intend to target a regular payout ratio of around 40% of attributable profits via ordinary dividends. Let me get into our financials on a line-by-line basis. Our income was 2% higher than 2017. Although, to be fair, the comparison is impacted by a number of positive one-off items. In reality, underlying income was down 5%. This was largely driven by NatWest Markets. Excluding this and central items, underlying income was in fact flat. This was despite a very competitive environment and uncertain economic times. In short, I believe that this is a real testament to the resilience of our franchises. Q4 NIM was a little better than when we last discussed it, as the management of our excess liquidity helped offset ongoing competitive pressures in the market. As I mentioned, excluding VAT recoveries, our costs reduced by a further 3.6%, or GBP 278 million, bringing our other costs down to GBP 7.4 billion. As a result, our all-in cost-income ratio fell from 79% in 2017 to 72% in 2018. Looking at impairments, they are still at historically low levels, only 13 bps in 2018. To finish on the P&L, there was GBP 1 billion of strategic costs in the year, GBP 1.3 billion of conduct and litigation, which was primarily related to the DOJ. Taking all of these together, we produced a very strong operating profit of GBP 3.4 billion, up 50% on the prior year. Let me spend a few minutes looking at Q4 income by franchise. UK PBB's total income decreased by GBP 7 million versus Q3, primarily due to a net charge of GBP 80 million following the annual review of mortgage customer behavior. This was combined with lower credit card fee income and partially offset by a debt sale of GBP 35 million. On lending, we maintained our prudent risk approach and priced into a very competitive market. Q4 mortgage flow share was approximately 12%, supporting a stable stock share of 10%, and our Q4 approval share was 14%. Our momentum continued in personal advances, which were up 7% in 2018. This increase was largely driven by our investment in technology, making it easier for our customers to do business with us. Ulster's total income decreased by EUR 4 million as a result of a reduction in NPL income following a portfolio sale. This was also combined with reduced fees. In commercial, after adjusting for transfers, total income increased by GBP 80 million, primarily reflecting higher fee income, fair value gains, and lower disposal losses. As you know, we have been actively managing our capital at the same time as reshaping this portfolio. Excluding the planned capital initiatives, underlying lending growth was strong, up GBP 3.5 billion in 2018, or 3.8%. Private banking is a great improvement story. It generated a 12.3% ROE in Q4, and 15.4% for the full year. That is up from 6.4% in 2017. Income was broadly stable, reflecting higher deposit income. This was offset by asset margin pressure and lower investment income from AUMs, driven by the market volatility we all saw in Q4. RBSi has seen its business change significantly this year as we completed our restructuring as a result of ring-fencing. However, during this time, income has remained broadly stable versus Q3, and RBSi generated a 20% ROE in Q4 2018, and a 24.4% for the full year. NatWest Markets had a challenging Q4, driven by market conditions in the credit and rates business, which similarly affected our peers. Total Q4 income decreased by GBP 470 million versus Q3, which you will recall benefited from GBP 165 million of insurance indemnity recovery. Overall for the franchise in 2018, income increased from GBP 1.1 billion to GBP 1.4 billion due to lower legacy disposals and the insurance gain, which offset the reduction in the core business. If we turn our attention to NIM, Q4 2018 net interest margin was 195 bps, or 197 bps excluding one-offs, up two bips compared with Q3 2018. This was the result of the management of our excess liquidity, which more than offset competitive pressures. Going forward, there are a number of factors presenting both tailwinds and headwinds to NIM. To name some, we are very sensitive to interest rate rises. These benefit us via the managed margin as well as the structural hedge. The hedge income benefit will depend on the market rate movements and the reinvestment of historical hedges. We will continue to manage our liquidity position in response to market conditions, as we have done this quarter. Furthermore, the mortgage market, of course, continues to be very competitive, and we do not expect that to change in the near term. Costs continue to come down. We have taken GBP 4.2 billion of other operating costs out over the last five years, with FTE down 11,000 in the last two years. Conduct and litigation have also materially reduced. As we put the larger legacy issues behind us, the GBP 1.3 billion full year charge includes GBP 1 billion for the DOJ and an offset for the GBP 241 million RMBS litigation indemnity release, as well as a GBP 200 million PPI top-up that you will recall we took in Q3. You will see in our financial statements that we have a number of smaller legacy issues we are dealing with. So we continue to expect to incur conduct costs that would not represent our long-term expectations of these costs on a normalized basis. On strategic costs this year, we have utilized GBP 1 billion out of the GBP 2.5 billion guidance for 2018 and 2019. On RWAs, we are down GBP 12 billion from last year at GBP 189 billion, ahead of our target range of GBP 191 billion-GBP 196 billion. This is without the benefit of the Alawwal RWAs coming off. This reflected reductions in NatWest Markets, the impact of the actions in commercial banking, and the asset sale in Ulster Bank. As I said, we are comfortable we have exited the areas we wanted to. Turning to capital generation. 2018 was another strong year. A very healthy CET1 ratio of 16.2%, or 16% following the pro forma IFRS 16 impact. This strong capital position is after we have taken account of GBP 4.1 billion of payments in relation to pensions, dividends, and the DOJ settlement in the year. Excluding these items, the CET1 ratio increased by 240 bps in 2018, driven by profits of 130 bps and reduced RWAs of 110 bps. This confirms, again, the inherent capital-generating nature of our franchises. It is quite clear that we have built a very strong capital position through organic capital build and optimizing our capital usage. We are in a very good place to generate and distribute sustainable returns. We have achieved a 40% ordinary payout ratio in 2018, but that won't be enough to distribute capital down to a level we think is appropriate for this bank. Therefore, as we have done this year-end, we will look to other ways of giving capital back. We also want to help the government reduce its stake, should the opportunity present itself to do so. I thought it might be helpful if we put all of our current guidance on one page. Our 2020 targets, a cost income ratio of less than 50% and a return on tangible equity of more than 12% as we progress towards a circa 14% CET1 level in 2021. There are growing risks on the downside on this, as the lack of ongoing certainty on the Brexit way forward continues to elude us. While we are not seeing issues occurring in our financials today, what we do see is our customers seeking approval for funding and then delaying actually using these facilities as they wait for certainty. This clearly impacts on us as well. On other costs, we plan to reduce other expenses by a further GBP 300 million in 2019, and we will see this growing into 2020 as the actions we are taking today bear fruit. We are now also required to carry additional extra costs, which are around GBP 100 million per annum, as a result of Brexit and ring-fencing. Of course, we continue to innovate and invest in our business. Altogether, these are challenging targets for the business, and we do continue to drive the organization towards these targets aggressively. But the current environment does make them ambitious. On strategic costs, we expect these to be around GBP 1.2 billion-GBP 1.5 billion in 2019. On RWAs, as we move into 2019, you will see further reduction as a result of the Alawwal transaction being completed. We would expect to see a gentle rise in RWAs from that point, such that we end the year in the GBP 185 billion-GBP 190 billion range. Specifically, on the NatWest Markets franchise, we guided you to RWAs of GBP 35 billion, with GBP 30 billion in the core and GBP 5 billion in legacy. However, given our Brexit plans, this has increased to GBP 39 billion going forward as we transfer our Western European business into NatWest Markets over time. This, of course, has no impact on the total RWAs of the group. Our previous guidance on RWAs beyond 2020 was an estimated 10% increase in 2021 relating to the Basel III amendments. In addition to RWA inflation as a result of IFRS 16 of GBP 1.3 billion in 2019, and the Bank of England mortgage floors, which we now estimate to be GBP 10.5 billion in 2020. We now expect the overall impact of Basel III amendments to be in the range of 5%-10% and phased across 2021 to 2023. The details are still subject to significant regulatory uncertainty. Finally, on capital, today we clarified our medium-term CET1 ratio guidance to circa 14%, which we aim to reach in 2021. We remain comfortable on our 12-plus percentage return on total equity target by 2020. To summarize, we are pleased with our full-year results. A doubling of profits in the year, continuing cost reduction, very strong capital generation, and the substantial cleanup of our balance sheet being complete. We have started the process of significant capital return to our loyal shareholders, and we remain grateful for your years of support. We are driving towards our 2020 financial targets, recognizing the challenges existing in the economic and political landscape and the inherent ambition of these targets. With that, ladies and gentlemen, I will now hand back to Howard to host some Q&A. Thank you. Thank you very much, Katie, and Ross. We now come to your questions, which is always the most interesting part of the morning. You've just about won on the hands-up competition. Go for it. It's coming to you. Yes, good morning. It's Martin Leitgeb from Goldman Sachs. I would like to ask you, a first question, if you could elaborate a little bit on your earlier comments on Brexit and how Brexit is impacting customer behavior. You touched on commercial clients holding on with some investments decision. I was wondering, do you also see some change in behavior on the consumer side at this stage or on the overall book of the bank? The second question is related a little bit in terms of risk cost. I was just wondering, risk cost obviously historically low in 2018. I was just wondering if there's pockets of risk, whether it's within consumer, whether it's within select corporates, where you have seen a deterioration over the last couple of weeks or months. Thank you. Thanks. On the first question, both corporate and retail side, I'm going to ask Alison to say briefly about what she's seeing on the corporate side, and then Les on the personal side. Thanks. Thank you. On the commercial side, as Howard and Ross mentioned, what we're seeing is a pause in investment. We've seen that slow down really since post the summer last year. Inevitably with uncertainty, people can't make investment decisions. We're seeing a lot of pausing. What we're seeing on the other side is, however, a drawdown of funds which are not yet being committed funds, but not being drawn down as people prepare. There's a sort of bubble of lots of investment paused, and I think that's an inevitable action given the uncertainty of people waiting to make investment decisions. That's really accelerated over the last 3 months. In some pockets, we've also seen people divesting assets and sitting on cash rather than reinvesting it. We've seen that particularly in the large commercial real estate side of the market. I'm not sure we've seen a huge impact on the personal side, but Les can say that in a more interesting way. Well, that's a bit of a tough ask, obviously. Yeah, look, as Howard says, we have really not seen very much impact. If I look even at the first month and a half or so, we're seeing largely the market staying the same. Mortgages are slightly subdued, but really not that different from where we've been coming from. Maybe to make it slightly more interesting, although actually probably not. If I take your second question in terms of any pockets of pressure on the portfolio, the answer is no. We're not seeing anything really in any area whether it's secured or unsecured, we're not seeing pressure right now. On the risk point. Certainly as we look at impairments for the year, 13 bps charge compared to the 16 bps in last year. Last year you'll recall we had a couple of tall trees that came through. We haven't had them to the same extent this year. We are one of the biggest lenders in the country, and so we know that as things happen, we will ultimately get a ding on one of them at some stage. But we have done such huge amount of work in the capital management of that portfolio that we think that that sets us in quite good stead in terms of where we are just now. But we're not seeing anything particularly flaring in any part of the portfolio. Thanks. Could you come back around to the next question, right immediately next door? Thanks. Good morning. It's Raul Sinha from JP Morgan. If I can have two areas, please. The first one on, obviously you flagged that the 50% cost income ratio target is increasingly challenging for the business to deliver. I was wondering if you could maybe talk about whether the challenges come predominantly from the income side or from the cost side. If you could give us some sense of how much additional cost you think the business might have to put through because of what you're flagging. The second question is on the income outlook. I think you talked about 2%-3% loan growth for 2019. But when I look at the outlook for NIM, I think we've talked a lot about NIM in the past, but it's fair to assume that liquidity management probably doesn't help NII going forward. So what will remain within the business is the competitive pressure versus the rate outlook. So I was wondering if you think that the NII outlook is actually still upward tilted for the business in 2019. Is there any other sort of moving parts in the income line, volumes, or anything else that we need to be aware of? Thank you. Katie, do you want to pick up the first? I think that was about six questions in there, but I'll do my best. Go for it. Shall I go? Yeah. Then you can pile in, Ross, if I head off and lose myself in this election. If I start off at the 50% income ratio. The cost income ratio, there are two halves to it. I think we can all see the challenges in the market at the moment, and we will continue to deal with them as we go through, making sure that we are able to adapt. On costs, we as a bank have delivered GBP 4.2 billion of cost savings. It is something that we drive, have driven very aggressively. We will continue to drive that. What I think I am flagging today is you know that structurally, we continue to have to add extra costs into the organization. We have estimated them for you. It is about an additional 100 million. That doesn't mean to say we are not going to go after that 100 million, but it is hard. The more hundreds that you get added on, it just is increasingly challenged. But we have a great reputation in this space. But it is a reality. If I look to loan growth, we have talked to 2%-3% net lending growth in 2019. We have got comfort in that number. If we look at the mortgage market, it has grown by 2%+ for the last few years. Unsecured lending, we grew at 7% last year. Underlying growth in the commercial group was 3.8%. We have grown well in our private banking. Overall together, that gives us really a lot of comfort in that 2%-3% guidance. We are comfortable in that space. I think there is a difference between the 2%-3% is net lending growth. Yes, you are going to get some contraction across the book in some areas and maybe some expansion, but the net lending growth we see as 2%-3% for us is realistic. We have been doing it in the past, and we continue to do so. But the NIM pressure is the one that I won't give you any projections on. Who knows what is going on? Yeah. Lazar's think will be. We'll ask you. We'll ask Lazar, and he can give you that. On the cost to income ratio, we're still going after that. But we are signaling. We set that target back in 2014, and it stood a pretty good stead, as is the 12%+ return on tangible. But we've taken on board. We've now got two Treasury systems because of ring-fencing. We've got an operation in Amsterdam that we were getting rid of under the old structure. We've got two branch structures now up in Frankfurt. We've got six branches across Europe. Passporting was a wonderful thing for the U.K., and we no longer have that, likely. So we're having to get ready for those, and that's probably an embedded GBP 100 million that's just been those two measures alone. We'll go hard at it, as you know we've done in the past. And we're signaling a circa 300 takeout this year, which when you look across the marketplace is pretty good considering wage inflation, all the other things going on. So we're okay out there. We'll take the third of this triumvirate. Hi, thank you. It's Joe Dickerson from Jefferies. You had in Q4 about a four basis point tailwind of the net interest margin from liquidity management. And when I look at the liquidity book, it actually grew by GBP 3 billion. So I'm wondering what's the ability to actually bring down that portfolio over time? Or what explains the current levels of liquidity you're holding? And is this tailwind just the start of something more once we get past Brexit or whatever else you need to hold liquidity for? Thanks. Katie? Yep, absolutely. As I look at liquidity, I mean, you are absolutely right. We had liquidity coverage ratio of 158 at the end of Q3, and we are at the same place at the end of Q4. In fact, our spot liquidity has grown by GBP 3 billion in that time. In that time, we took a number of actions. We paid back GBP 5 billion of TFS. We paid back GBP 2.5 billion in terms of some of our legacy preference securities. We also paid GBP 2 billion to the pension scheme. We are managing it. The reality is that we are also generating quite a lot of liquidity. We will continue to manage it. The small matter of the dividend we declared today will obviously have a bit of an impact on that as we kind of continue to pay it out. But it is a number that we continue to manage down. But we were pleased with those actions that we took, that they helped the NIM a little bit this quarter. But we are much more interested in balancing the entire books rather than just the focusing on the NIM number. The other point that we are holding higher liquidity levels is wait and see what happens with Brexit. Absolutely. We have put this bank over the last five years, I think, in a fantastic position for whatever comes, good or bad. We are not about to give that away going into probably one of the most uncertain times in 40 years with Brexit. Let us see what comes out of that before we start giving the liquidity back. But our intention is to reduce liquidity, and the NIM against that factor will move up. I think we are going to be cautious over the next three to four months to see what happens. Thanks. We'll move over to the left. Thanks. Hi. Alvaro Serrano from Morgan Stanley. Two questions for me, please. You've paid out 97% payout, GBP 1.6 billion, which was higher than anybody expected despite the Brexit uncertainty. That's not going away. But on that 97%, that GBP 1.6 billion, I would actually add the GBP 700 billion of the cost to buy back the prefs. Which on my numbers comes to, give or take, 140% payout. Is that something doable when we look forward, with all the caveats of we don't know when and if the government will place, et cetera. But is that a reasonable outcome going forward? The second question is on the mortgage market competition. If you could give us a bit more color about front book spreads. In the PBB presentation in September, I think you gave a back book margin of, I think it was around 1.8%. I don't know if you can maybe share with us how that's come down in the second half. Thank you. Greg, just one brief comment from me before I hand over to Katie. From the board's perspective, up to last June when we settled our RMBS, we were sitting with a very difficult-to-quantify obligation there. Therefore, our bias was let's keep the firepower so that we can survive whatever the outcome of that turns out to be. As you know, it was $4.9 billion, which was not the occasion to throw a party. It's a huge figure, but it could have been considerably worse. We were in a position where we had retained a very high capital ratio in potential expectation of a very large penalty. So we were in an unusual position, and therefore, I think that explains why we can do what we've done now. But as to the future, I think that's a rather different matter. Katie. Yes. No, I will try to give you a relatively fulsome answer on capital returns. I dare say it is going to crop up a few times as we go through this morning. We are sitting at 16% today after taking account of the impact of IFRS 16. We are guiding you that we are seeking to get to 14% in 2021. We know, just looking at this year, that we are a very naturally generative business in terms of additional CET1. 130 bps this year in terms of what we have added from that. We have highlighted relatively small amounts of RWA progression in 2019. A little bit more in 2020 as we get to the mortgage floors. What I would say is, as we look at it is very hard to get tied up in what payout ratio you should expect here and there. We know that the actions we want to take will be lumpy by their very nature. If we manage to execute on the directed buyback, that is important, but it will be a transaction that will naturally be lumpy in the way it comes out. I think you need to look at the round of where we are, what we produce, what Alawwal will give us back, which we know is an extra 40 bps that will come back through. Then sort of think what might look like a reasonable end capital payout ratio. I think the really important thing today is that at Q3, we said to you we would look at specials, and we would look to get our position in directed buybacks. We have done both of those things, and actually, I think we have really signaled our intent very strongly today. You are in, I think, a good position on that side of things. Thank you. Just a question on the mortgage. Mortgage market. Yep. Yeah. Mortgage book. At the moment, Les, it is around 80, 85 basis points front book. I know some have been saying it is lower than that in the marketplace, but that is about where we are at at the moment. I am looking at Les giving confirmation. It is closer to 90. Closer to 90. It's been 100 for the year. We're not seeing what we have observed in others in recent announcements as well. We're comfortable where we are, and the front to back book mortgage has remained fairly static since we did the update with Les earlier in the year. Yeah. It's a very competitive marketplace, and we are seeing some of the very small players actually pausing and staying out of it. It's competitive. The team I think are doing a very good job in a competitive market. Our issue in that market is retention. It's not putting it on the front book, it's the retention that the team are working through. We're comfortable that at the end of Q4, we've really built our retention up nicely. We retain about 70% of the book, and that's kind of what we're interested in. The important thing with our mortgage book is to look at the margin, which is important, but also really important is to look at the ROE, and this is very strong ROE business both today and it will remain very strong once we add the mortgage floors on as well. It's business that we like and we do well. Back up to the same row. Next one. Thanks. Good morning. It's Chris Manners from Barclays. Just one question, if I may. You've raised your capital target from sort of greater than 13% to circa 14%. Could you just explain to us how you get to that 14%? How you make that up? Presumably, that is fully loaded for the PRA mortgage review. It's fully loaded for Basel III finalization. If those things are actually going to jack up the density, presumably your capital requirement could actually fall because there's a few add-ons for that. Just understanding how we get to that 14%. Yeah, sure. Happy to. What I would really like to signal it as it's not actually a kind of a new number, it's much more of a confirmation of the number that we had. When we spoke to you throughout last year, we said, "Look, for the medium term, we're going to run above 13%." Above that 13% because of things like IFRS 9, Brexit, the Basel IV, where was that going to go exactly, the mortgage floors. What we felt was it would be actually helpful this year to clarify to you, when we talk about above 13%, what are we actually talking about? Really, it's circa 14% in the medium term. I don't think we're saying that's where we are forever. It's very much the kind of the guidance to 2021, and we'll continue to update you on that as and when there's something to update. For the moment, ourselves and the board are very comfortable that that feels like the right place to land. Doesn't that leave you with a pretty chunky management buffer or stress buffer, any way we think about that? Or should we be thinking about something in Pillar 2B that it's harder for us to absorb? No, we're not kind of trying to hide anything within that. I think that we are in a period of uncertainty. We have a lot of capital that we need to return, and while we are also very capital generative, that almost makes it more challenging to return the level of capital. It's as much to say, look, we know there are some things that are coming towards us in terms of changes of rules and regulations, and to give you some guidance of when we talk about above 13%, what do we actually mean? And we feel that circa 14 gets you to the right kind of number. Thank you. Just along. Two along, yeah. Thanks. Morning, Guy Stebbings from Exane BNP Paribas. Two questions if I can, please. The first one on NatWest Markets, obviously quite a tough quarter, mostly so in rates. I am just trying to understand the extent to which it is you trying to take actively risk out of that business, which is driving a tough revenue performance, or it is just the competitive environment itself, and how we should think about that going forward. Secondly, on mortgages. Approval share up again in Q4, continue to prioritize secured over other areas. Are you pleased at all by what you are seeing in pricing, or is it still a very difficult environment and your prioritization towards secured over other areas is purely perhaps less appetite elsewhere rather than any changes that you are seeing in the mortgage market itself? Thank you. I will go for Chris and then Les. Chris Marks from NatWest Markets. Thank you. Yes, so Q4 was a challenging quarter. As Katie and Ross have said, a large part of the business is in the European fixed income markets. It was very turbulent, particularly in December. We saw some real outside moves in periods of low liquidity. You have seen that sort of track across a number of our competitors, too. So we have come in the pack, really, in terms of that performance. In terms of how we are managing the book, we look to hedge it carefully and well. That obviously can have an impact. A lot of our risk, obviously, is in VAR, and therefore, as we manage the book carefully with turbulent times, we run daily stress tests. We know what the impact could be of unforeseen events as well as foreseen events. We are able to run our capital more efficiently, and that is sort of built into the plan Katie has talked about. Our plan sees us trending towards the GBP 39 billion of RWAs once we get to 2020. We have been working to improve the way that we take risk, the way we manage risk, and also the throughput and velocity of the capital that we employ in the organization. That is what you are seeing play through in terms of the market risk numbers. Les on mortgage and non-secured. Yeah. Look, as far as mortgages are concerned, the pricing is relatively stable compared to the fourth quarter, and we are not really seeing much change. As Ross pointed out, we have seen one or two small competitors actually stop lending. We take that quite positively, and it may be that there is an opportunity to move pricing up a little bit. That is not happening yet, but we are not seeing any deterioration. What I would say in mortgages is there are one or two pockets where we have not been growing as much last year, where we may be able to grow a little more this year in a couple of areas where we are actually underweight. The other thing I would say on unsecured, we are not seeing any dramatic change there. You should expect to see us continuing to grow somewhat above the marketplace. Thanks, Les. Yeah. One directly behind there, and then we will come back on the other side. Morning. It is David Lock from Deutsche. I have got one on capital and one on costs. On capital, I just wondered, probably Ross, if you could just give us an update on Ireland. I think you got a 78% risk weight there, even after the NPL sale. It is clearly very high. I think if you were to compare it with some of the locals, you are probably holding maybe GBP 5 billion more RWAs there. I just wondered how fast you could perhaps get those risk-weighted assets out, and to clarify whether that is in your guidance for 2019 and 2020. Secondly, just on costs, I wonder if you could update us on what you see as a normal year for remediation costs once we have got through PPI for this year. Because I appreciate there's cost pressures, but do you think those remediation costs should come down over time as the positive lending and the cultural changes that you've been putting through over the last few years kind of come through? Thank you. On Ireland, we've got a new management team in there led by Jane Howard doing a very good job. There are a series of remediation pieces that they're working through that will take, I'd say, most of this year. The big ones will be done by half year. I don't think we'll get capital relief out of that business until we get a lot of those concluded, particularly ones around the mortgage book and SMEs. But we're on track there, working very hard to get those done. The bank itself needs to get rid of those, then start focusing on a go forward bank. You saw I gave you some stats about the mortgage growth there. It's starting to happen, but it's got a long way to go. I think between us and the regulator up there, they've got a program of work that they want to see us deliver before we get capital out. I would assume for your modeling to think more 2020 than 2019. It's probably safer to think that. We'll endeavor to get some out this year, but I would say 2020. A lot of that work is in our hands that we need to deliver, but we've started well the year. On costs, on conduct litigation, look, it's very hard to know what that number is. But if you think about last year, this year, and going forward, the number will decline. I think it's somewhere around the GBP 200 million to GBP 300 million is probably a more normal number. But you get one big one, and that gets blown out, and you get nothing. It's a pretty hard number to pick, but I think around the GBP 200 million to GBP 300 million on an annual basis nowadays for a bank our size. That could be made up of one larger one or multiple small ones, but I think that's the world we're in. Okay, we will come back on this side. Back row, gray sweater. Back row, gray sweater. That is it. Thank you. Morning, it is Jonathan Pierce from Numis. I got two questions. The first, coming back to liquidity. The four basis point improvement in the group margin in the quarter is a lot in terms of absolute revenue, 150 million GBP a year or something. Moving away from the question on the actual quantum of the liquidity portfolio, looks like there is quite a big mix shift going on within it. Is that what is driving this improvement in revenue there? Is that an area you would continue to explore moving forwards? The second question on the 2020 return on tangible equity target. Clearly, you are still comfortable with that, despite challenges on the cost-income ratio. I am just trying to get a feel for your thinking on impairments next year. The stage 3 gross charge in the 2018 full year was only about 12 basis points through the cycle, 30 to 40. What are you implicitly baking, I guess, into your numbers for next year on that line? That would be helpful. Thank you. Can I just say before I hand over to Katie on those ones, given that we did get a NIM increase, I could cheekily ask for the 5% price decrease you took out of the share price last year, or last quarter. Please, could you give it back again, seeing it is gone up, the NIM? Katie, we have been doing a lot of work on the liquidity of the bank and therefore NIM. Yep, sure. Absolutely. Look, as we look at the NIM, we will continue to manage our liquidity position. I have talked already about what we have done, and I think we will continue to look at ways that we can manage that to improve the return. We are comfortable at the levels that we are holding today, and comfortable that some of the actions we have taken will continue to flow through into Q1. What we know is there is rate sensitivity, reduction in liquidity, as well as the asset and liability pressure in terms of the mix on that. In terms of looking at impairments, I think that we could all say as we look at it, 13 bps, given we had entered this whole new IFRS 9 world feels actually lower than I think than we were expecting. It really is reflecting what is happening in the business today. You would not expect in IFRS 9 to see that massively accelerating, because we should be considering everything that is in the book at the moment already. You would certainly, in our own plans, we would expect a bit of deterioration in there. It would be foolish not to as we move forward. I think the one other item you might want to just think about in your model, is around also our preference costs. That is GBP 300 million for next year as we move forward. That I think is a number, given the repayment that we did, GBP 140 million of saving. It is quite good just to make sure you get that logged into your numbers as well. Thank you. There is one just in front. Two in front. Yeah. Just one new question and one clarification. Starting with the clarification to Chris' previous question. The 14% or circa 14% common equity Tier 1 ratio target in the medium term, you've said there was a target for 2021. Is that pro forma for the 5%-10% RWA inflation, or is it as reported? Second question, just on the point about Net Promoter Scores. The CMA table, talking about trying to uplift by a couple of places. Overlapping that with the digital dashboard that you've got in the appendix. You're still seeing branch transactions coming down quite substantially. We've just seen one of your largest competitors announce another series of branch closures. You previously said you didn't plan to do any more, in part because you wanted to improve your Net Promoter Score. Just trying to tie those two together, what your latest thought process is there and what that also means for the cost outlook, both in 2019 but also 2020. Katie, you do the first and then I'm sure Ross will answer. Yeah, no. The first one's a very simple, quick answer. It's as reported. Well, on the branches, we are pretty comfortable with the branch network we have. It actually does remain one of the largest branch networks in the U.K., which probably showed it was a bit out of shape beforehand. We have taken those steps in the last two years. They have been very painful, both for our customers and for us to readjust to. We think we have put in place other moves that are quite good for customers in the sense that we do run the largest fleet of mobile vans around the countryside to 700 sites. We have got more community bankers than anybody else. We have connected with the Post Office with 11,000 positions. But it was a change for our customers, and many of them did not like it, and it has hit our Net Promoter Score. We have said there will be no more branch closures in 2019. The last ones we announced in 2018 closed in January. Just so we are clear about that, those were the ones announced last year, and they were to do with the Williams & Glyn changes that were made. So that has happened, and there will be no more in 2019. There will be movements of branches. There is one in the building next door that needs to be moved across here. But when I say changes, we are not closing any more. In 2020, we have no plans. So we think we have got a network for the short to medium term that is fine. But let us see what customers do. As you have seen, the transfer, the way customers are now doing payments and the likes is a dramatic shift. But we need to be there. Cash is the same. Cash is no longer the number one medium of payment, but it is clearly the second medium of payment. So we need to be there on cash. 63,500 ATMs out there in the marketplace, of which we have got about 3,200 of them. 11,000 Post Offices people can get cash in and out of. Supermarkets, people get their cash at the end of the counter. Those are the things where it is starting to happen now. So we do need to make those shifts. But they have been very painful for our colleagues and also for our customers. Now we are focused very much on getting that faith back in a structure that we can maintain. Okay. Let us go on this side. Yeah. Morning, Ian Gordon, Investec. Two, please. One Capital, one Williams & Glyn. On Capital, very clear what plan A is in terms of the GBP 1.5 billion of directed per annum, then join the dots for the ordinaries and specials. However, if we get a continued standoff, if your share price stays low, if the government's an unwilling seller, do you maintain your religious objection to doing accretive buybacks in the market? Secondly, just on Williams & Glyn, can you refresh my memory on how long you think it's going to take to transfer the accounts out? The expectations of some of the would-be acquirers seem to be a bit quicker than what I'd understood from your full-time scales. I'll pick up on the W&G, and Katie, do you want to take on the Capital? Sure. Maybe if I start with Williams & Glyn. My understanding is the program of work that offers go out to customer starts at the end of this month. We had thought that it would take probably 12 to 18 months for that to happen. But if the other players are thinking it'll happen faster, we stand ready to deliver. There'd be nothing nicer for us than to get that over and done with. But we suspect it'll probably be an 18 to even 24-month timeframe. We have been communicating strongly with our customers, letting them know these changes are coming and that there will be offers being made. We've got tens of thousands of them registered. I think that group could move quite quickly, but where they haven't registered, it becomes a bit more difficult. It's going to be person to person contact with them to make offers. We believe from our end, we're ready to go. The reintegration of all of the other facilities of Williams & Glyn is pretty much finished, Simon. Yeah. The team have done a very good. The last one was the branches because it enabled us to close down one system that was pretty old. We have done, I think, a superb job on that and credit to Les, Simon, and the teams that have worked on that and all their teams because it has been a big HR exercise as well. The religious question I will put to Sister Katie. Thank you, Father Howard. I think, and what I tried to guide a little bit in with my script is that we will return capital in any way that the board sees fit at that time. We have not ruled anything out. We really sought last week in terms of the directed buyback to give ourselves as much flexibility as we could, because I think we can all accept that this is going to be an interesting journey as we wind our way through. We will go on that journey merrily seeking the counsel and advice and the input from all of our shareholders as well as we make that transition. Thanks. Can I just reiterate the other thing Katie said, that it is very likely to be very lumpy, just because of the types of transaction that will happen, but our intention is there. Third row in middle. No. That's not third, is it? Anyway. Third row. Third from the back, Howard, apparently. You weren't clear. Hello, good morning. It's Fahad Changazi from Mediobanca. Could I just ask a follow-up question to commercial? It was mentioned that clients are being cautious. Could you just give an idea of the quantum of drawdown versus actually committing? No. Okay. The other question was, I was just curious to understand the interplay in terms of keeping the powder dry for the directed buyback versus doing the special. Going forward, as we go forward, is there any sort of level that you're happy that the government is half, in which case they can go to the market themselves, be it 30%, 20%? I think on the first question that we won't share where we are in terms of drawdown and facilities. Those are obviously conversations we have with our customers. In terms of the shape that it might take and the level that it might take, I'm a willing buyer. The government needs to obviously do what they can to get to the position. They've been very clear that their desire is to sell down over the next four years, and that's been very helpful. I think, as I said, we'll go through this as we go through the journey with them and with our other shareholders. I can't, unfortunately, give you any more guidance or thoughts on percentages. I don't think it's, unfortunately, as easy for any of us to be able to give you that level of guidance. Yeah. That's it. Great. Thank you. Just getting back to your recalibrated RWA intensity uplift expectations accruing from the Basel III final reforms package. Sorry, it's John Cronin from Goodbody, by the way. There you go, John. That slight change in the guidance or slightly more favorable guidance, is that in any way likely to potentially influence you directionally more towards mortgages in terms of your thinking about new flows from a lending perspective? Just with reference to your ROE comments on that as well influencing the question. And then secondly, Katie, I recall you calling out that newer entrants into the U.K. banking market have resulted in a slight diminution in the average current account balances. Is that trend continuing to play out? Is there anything material to call out there as a consequence of new competition, whether it be outright attrition or just reducing average balances? Do you want to deal with the first, and then I'll get Les back in for the second. Yeah. Great. No, thanks very much. As we look at the recalibration, the 5%-10% from where we were last year is literally just better and more understanding and a little bit more guidance. The item that impacts more on mortgages is actually the BOE mortgage floors, which we're pretty comfortable on. They're sort of GBP 10.5 billion, which will come in in 2020. That's a slight improvement again from where we were a year ago when we said GBP 12 billion. But the reality is actually that's kind of beginning to start to flow into our numbers via the economics. There's no particular change. So I don't think that we'll view our changes in our current views on one lending source over another. We're very focused on the ROE as well as capital consumption of all of these different products. Les? Yeah. It's a quick answer. There hasn't really been any material impact on our deposits from the entry of the digital banks. If you look at our current accounts, our volume's up about 1% last year, and on savings accounts, it's up about 2%. So it's about in line with the market. What I would say is what you're seeing is that those digital banks that are offering really high rates are attracting the hot money within the marketplace, if you like, which generally circulates, but it's not really having any impact, at least on us. That's not a comment on Marcus, is it? Not particularly. No, not at all. The blue sweater right at the back. Thanks. Great. Thanks very much. It is Ed Firth from KBW. Can I just bring you back to this return on tangible target, which I guess, I am struggling a little bit with. If I look at consensus, which I guess is maybe +10%, but you are pretty predictable these days, so it is not going to be a million miles away. Then in order to get to 12%, you need to be starting next year with an equity base of about GBP 28 billion, it seems to me. Anything much over that, you cannot get near the 12%. So that implies somewhere around, what, between GBP 5 billion and GBP 7 billion of capital return this year. So I guess my question is, firstly, do you recognize my numbers or have I picked up something wrong? Secondly, can you just confirm, this 12%, we are not going to get thrown a sort of adjusted capital return or an adjusted return on tangible halfway through the year, or excluding restructuring or with normalized provisions or something. It is an all-in, like what everybody considers to be a proper 12%. I suppose that was my first question. I will take that. Forgive me, having covered the bank sector for a while, I am getting a little tired of how we hit targets these days. That was just question one. The second one was, I think in the past, you talked about NatWest Markets having a normalized revenue level of around GBP 1.4 billion. Yeah. I might have got that wrong, but I think it was. You are currently at about GBP 1.2, I think, if I strip out the 165 indemnity. Again, tell me if that is wrong. Are we still looking at GBP 1.4? Are we now therefore saying that for NatWest Markets, we are looking at growing revenue and falling costs? I mean, a lot of investment banks tell us that, but I do not think I have ever seen it. Is that really what you are expecting in terms of your 12%? Thanks. Ross on the first one, then we will pick up. Yeah. First off, it is all in. We gave up doing all those excludings and addings and taking aways last year when we started doing the accounts. The biggest feature really is making sure that we can get some capital out of the business because that's the piece that does it most rather than even cost. The income has to be okay. We will continue to take cost out, but our numbers show that still we can get to that 12 or 12 plus in 2020. Those are the numbers we're working towards, but it does rely on a capital level lower than we are sitting at the moment. Just to follow up. My numbers, you recognize those? They sound like I mean, obviously not to the GBP 100 million. No Broadly speaking, those sound like the right ballpark. Well, as I said, we've been working on an income level, a cost level, and a capital level that get us to 12 plus. As Katie Murray said, if you follow the dots, particularly on the capital, down to sort of circa 14 odd percent by end 2021. That sort of gets us to those numbers. Chris. Yeah. I'll correct your numbers just a little bit. I think our core numbers are 1.3 for the year. The write-back was actually in our legacy numbers. So we've obviously got a difference with franchise and core that obviously play through. I think the key point, we're not moving away from the GBP 1.4-GBP 1.6 guidance that we've given historically. Last year, we made in 2017, we made GBP 1.7. And we continue to improve the business as we go. Actually, whilst revenues were down in 2018, our customer volumes, the amount of trades and transactions we completed with customers went up by 6%. So we're very confident that we can hit that range with the capital that we have, and as we continue to make the refinements that I talked about earlier. We're on a good trajectory. Thank you. We're almost out of time. I can take one more if there is. Otherwise, I'm going to ask Ross to. No, perhaps we're done. In which case, Ross, do you want to just summarize as we close? Yeah. Look, thanks very much for the questions. I think they've been really good, and we did think that we'd get lots of questions on the capital position, and thank you for those. I think this has been a very good performance from this bank in really uncertain times. Doubling of profit from last year, and giving a position on this bank going forward. Probably the best thing that we saw here was the start of capital returns and the fact that we're putting really close to GBP 1 billion back in the hands of the government, who've been, I think, a very, very good shareholder for us. We are a simpler, safer bank. And we will continue to work on how do we continue to make this a much, much better bank for our customers. Now, that's what we need to focus on 2019. But can I say it is a completely different bank to what we started with five years ago, and it's starting to feel like that internally. The conversations are quite different. So I look forward to catching up with you on the quarterly results. Thanks very much for joining us here, and look forward to catching up. Thank you. We close now.