Earnings Call: Q4 2019

Feb 14, 2020

Well, good morning ladies and gentlemen. Thank you for joining us. I was going to wish you a happy Valentine's Day, but then I recall that emotion plays no part in the lives of banking analysts. I will, however, say that yesterday morning, Katie Murray was our CFO, and she is still our CFO this morning, just to underline that continuity. Today we have a slightly different running order from our usual results presentations as we set out our plans for the future under Alison's leadership. I will make some brief opening remarks about the current economic environment and our performance in that context. Then Alison and Katie will cover 2019. They will then set out our plans and strategic direction for the coming years, and I will return and open it up for questions. First of all, you will have noticed that today we have announced that we are renaming the parent company NatWest Group plc later this year. As we outline our plans for the future, and with our legacy issues behind us, the board have agreed that it is the right time to align the parent company name with the brand under which the large majority of our business is delivered. It is important to know that customers will not see a change in their products or services and will continue to be served through the brands they recognize today, including the Royal Bank of Scotland. Similarly, our employees will see no change to the way they work. Looking back to last year, 2019 was another year of positive progress set against ongoing political and economic uncertainty. Further cost reduction, increased lending to our personal and business customers, and more dividends for shareholders are all good outcomes. On capital distributions, we are proposing to pay a final ordinary dividend of 3 pence a share and a special dividend of 5 pence a share. Taken together with our interim payments, that means GBP 2.7 billion of returns to shareholders in 2019. The bank's capital ratio remains well above target, with scope for further capital distributions through dividends or buybacks from the U.K. government at the appropriate time. Our private shareholders, whom we have consulted extensively, agree that share buybacks from the government are the best use of surplus capital at this stage. Turning to the economy, the consensus forecast suggests that U.K. GDP will remain below trend, and there are signs of a wider global slowdown. The continued low interest rate environment also poses a challenge to income growth for all U.K. and European banks. On the more positive side, the U.K. labor market remains fairly robust, with record low unemployment helping to keep impairments at low levels. With our strong market positions, we still see good opportunities for volume growth that is within our risk appetite to offset some of the income pressure. The future terms of trade between the U.K. and EU remain to be determined. Clarity for our customers is crucial, and we continue to plan for a range of potential outcomes from negotiations on the future relationship. We remain well-placed with strong capital and liquidity positions to support our customers as we make the transition. Looking to the future then, today marks an exciting and important moment for the bank as we explain how our strategy will evolve over the coming years. Alison and Katie will give us more detail in a moment, but the plan we are describing represents an important shift for this bank, with a new focus on the economic and social purpose of our work. It will mean seeking to balance the interests of all our stakeholders and implies building longer lasting relationships with our customers rather than taking a transaction-based approach. It also means recognizing the need to lend sustainably in an environment of global warming. All of that will require a shift in how we conduct our business, and it will take many years to implement fully. We are setting out some clear targets today that will steer us. By building on solid foundations, putting our focus on purpose at the center of our decision making, and refreshing our approach to delivering a better service for customers, we will create a more sustainable bank and, in turn, more sustainable returns for our shareholders. The board is fully behind this approach and excited by the dynamism and enthusiasm that Alison and her evolving team have already brought to the revised strategy. With that, I will hand over to her and then subsequently to Katie. Alison. Thank you, Howard. I am delighted to be here as Chief Executive and privileged to take on the role. Today, I am going to start by running through our solid performance in 2019 and then return to set out my long-term vision for the bank. In 2019, we delivered an operating profit before tax of GBP 4.2 billion, up 26% on 2018 in an uncertain economic and low interest rates environment. Our attributable profit, including a number of one-offs, was GBP 3.1 billion, up 93% on 2018. Most importantly, however, we grew lending in attractive segments of the market, with net loan growth across our retail and commercial businesses of 3.7%, exceeding our 2019 growth target without changing our risk appetite. We remain the biggest supporter of U.K. businesses, with GBP 19.5 billion in gross new lending to our commercial banking customers and GBP 33.3 billion gross new mortgage lending in our U.K. Personal Banking as we continue to support our customers in a challenging environment. At the same time, we reduced costs by GBP 310 million, meaning we have reduced costs by GBP 4.5 billion in aggregate since 2014. This will be the foundation on which we continue to deliver further efficiency improvements. As Howard mentioned, we remain committed to returning capital to shareholders. If our dividend proposals are approved, total dividends will be GBP 2.7 billion this year. We have significantly strengthened the bank's culture in recent years, and this will be a key strength for the future. We have moved from bottom quartile to top quartile on the independent Banking Standards Board survey. We are the first bank to be awarded corporate chartered status by the Chartered Banker Institute, recognizing our investment in the professional skills of our colleagues. On customer advocacy, our momentum is encouraging. We perform well in our commercial bank. NatWest was voted best mortgage provider at the British Bank Awards in 2019. However, we do recognize that there is room to improve across our personal and business banking franchises. We have also continued to up the pace on innovation to the benefit of our customers. We launched our digital banks, Bó for retail, Mettle for business, and reentered the merchant acquiring space with Tyl. Our rollout of Bankline Mobile continues at pace. We completed over GBP 10 billion of transactions through the channel last year. We are continually testing and learning inside and outside the bank and taking a disciplined approach to decision-making across our innovation agenda. In summary, we start from a position of strength but see significant opportunities to deliver more. Today, we have strong customer franchises and market-leading positions in many product categories. We will evolve our propositions to serve more of our customer needs at every life stage. This will maximize our customers' potential and deliver returns for the bank. We have a track record of consistent cost reduction, which we will build upon. We still remain too complex and see further opportunities for re-engineering and simplification of our core customer journeys. This will improve customer experience and reduce costs in key segments. We have rapidly launched a broad range of innovation assets to defend our core franchises and enter new spaces. We will continue to test and learn with customers while scaling these assets, as well as leveraging partnerships to accelerate our efforts. Finally, we have a strong balance sheet. With that, I will hand over to Katie to discuss the financial results. I will return to talk about the vision for the bank and expand on the opportunities I have highlighted here. Thank you, Alison. Good morning, everybody. I am going to give you a brief overview of our financial performance in Q4 and the full year. As we look at the bank, we feel it was a good result in a tough operating environment. All our targets were met that we laid down at the start of the year. We have been very capital generative, allowing us to recognize GBP 2.7 billion of distributions to shareholders. Let me talk you through the P&L. I am going to focus mainly on Q4 results this morning. On income, as we had discussed throughout H2, income was going to be noisy, with an FX recycling gain of GBP 1.2 billion in the last quarter, along with other notable items of GBP 74 million. After excluding these items and OCA, Q4 income was GBP 10 million lower than Q4 2018 and GBP 56 million or 2% higher than Q3 2019. This reduction compared to prior years represents two main areas. The first, within UKPB, being driven down GBP 51 million, primarily driven by mortgage margin pressure, the representation of our interest and suspense recoveries, and lower debt sale gains. Secondly, across the bank, the impact of lower deposit income. On cost, 2019 was another good performance. Excluding conduct and strategic costs, other operating costs reduced by GBP 117 million in Q4, taking the full year cost reduction to GBP 310 million, ahead of the GBP 300 million target. We had GBP 537 million of strategic costs, GBP 85 million of litigation and conduct costs in Q4, with no changes being made to PPI charge that we took in Q3. Within impairments, our Q4 charge of GBP 160 million represents 19 basis points of gross loans in the quarter. While we have experienced more single name charges in commercial banking, we have not seen any material signs of a deterioration in trend of our loan books. We maintain our guidance of a through-the-cycle impairment loss rate of 30 to 40 basis points. But note that based on core economic forecasts, we do expect to be slightly below that level in the medium term. Our tax charge includes an GBP 86 million charge relating to reducing the carrying value of the deferred tax assets within NatWest Markets in respect of losses in the U.K., coupled with a tax credit relating to the FX recycling adjustments. Headline Q4 attributable profit was GBP 1.4 billion. Excluding the FX recycling gains, Q4 attributable profit was GBP 176 million. On returns, the full year headline ROTE was 9.4%, which included significant litigation and conduct charges, as well as strategic costs. Excluding these recycling gains, the ROTE was 4.7% for the year and 2.2% for the quarter. In the appendix, there is a slide that shows you the full-year results, excluding the FX recycling gains. These are a more sensible base from which you should forecast from. Q4 NIM was 193 basis points. This was four basis points lower than Q3 2019, primarily reflecting competitive pressures in the mortgage business, as front book margins naturally remain lower than back book. UKPB NIM decreased 12 basis points in Q4, with very strong mortgage frontbook volumes of GBP 10.4 billion in the quarter. This clearly has had an impact. The positive revenue impact of this additional volume offsetting margin pressures that we saw in Q3 has continued into Q4. As we've talked about previously, our frontbook new to bank mortgage margins have been in the range of 80 to 100 basis points this year. In both Q3 and Q4, we were slightly above that, and we would expect to continue to operate within that range into 2020. Within one-offs, we have two compensating items that you should understand at a business level. A four basis point negative in relation to the customer behavioral life adjustment in personal banking that we spoke about at Q3, and coincidentally, a four basis point positive in commercial in relation to customer repayment charges. So while the impact is zero at group, the numbers are of course important at a business level. Leaving the P&L and moving on to balance sheet growth. Our lending across UKPB, Ulster, Commercial, and Private was 3.7% in 2019. This is comfortably ahead of our 2%-3% target. Ulster had a strong performance, reflecting good lending in both retail and commercial sectors, partially offset by concluding the sale of a portfolio of non-performing loans and the continued reduction of the tracker book mortgage of EUR 0.7 billion in the year. Private net lending increased by GBP 1.2 billion, or an impressive 8.4%, mainly due to growth in mortgage lending. On RBSI, net lending increased by 0.8 billion or 6%. This includes the business transfer of 0.5 billion from NatWest Markets, along with higher volumes in institutional and local banking. Looking at U.K. personal and commercial banking and loan growth in more detail, mortgage new business market share increased to approximately 12.5% in 2019, supporting a stock share of 10.2%, up from 9.8% in 2018. Q4 represented the strongest mortgage lending in 2019 and the best growth in the quarter in many years. Gross new mortgage lending was 10.4 billion in Q4, representing approximately 15% new business market share. While we saw a slight movement in new mortgage frontbook loans and values, which were 70% in Q4 2019 versus 69% in 2018, we are very comfortable with the level of risk that we are taking as we grow this book. Momentum also continued in personal advances and credit cards, increasing by 11.8% and 7.5% respectively. We are attracting new customers to the bank. In 2019, we added 60,000 personal current accounts in net terms. Commercial lending remained broadly stable as planned reductions were offset by growth across the business. Within business banking, SME, mid-corporate, and specialized business lending increased by GBP 1.1 billion during 2019 or 2.1%. We have done that without compromising on risk appetite or lending margins. With commercial RWA intensity down from 76% at the full year to 71% currently. Looking forward, we continue to target net lending growth across our retail and commercial businesses at attractive returns. Crucially, we are writing new business within our risk appetite and focusing on intelligent risk-taking. Overall, we believe that this is a good performance on lending growth as we continue to deal with the range of uncertainties in the economic and regulatory environment, and it is a testament to the strength of our customer businesses. Let me spend some time on capital. We have ended the year with a robust 16.2% CET1 capital ratio. This was partially driven by our lower RWAs of 179.2 billion, below the guided range of 185 billion to 190 billion, which is a result of continued strong capital management and modeling improvements in our commercial business. A reduction of market and counterparty risk in our NatWest Markets positions during the quarter. Excluding the impact of the Alawwal merger and PPI, we generated 110 basis points of capital from profits in 2019 and 60 basis points from a reduction in RWAs and other capital movements. Our diluted TNAV was 267 pence, down 19 pence on 2018, which is largely as a result of the capital distributions we have made during the year. To summarize the full year 2019 results, we continue to execute against the key pillars of our plan. This year, we have grown our lending by 3.7%, exceeding our 2%-3% target. We have reduced costs by a further GBP 310 million versus a GBP 300 million target. We have generated 110 basis points of capital from profits, excluding Alawwal and PPI. We have reduced RWAs by GBP 9.5 billion, reflecting continued capital optimization. Finally, as you know, we are well-placed to participate in any future government sell-down in 2020, and we would hope that this is the start of a multi-year buyback program. With that, let me hand over to Alison to talk more about the future. Thank you, Casey. Today marks the start of a new era for our bank. As Howard mentioned, we have announced our intention to change our parent company name to NatWest Group plc, and we are also announcing our new purpose, to champion potential, helping people, families, and businesses to thrive. This means recognizing that the way people live their lives has changed, and that people now task business with a broader set of expectations, looking to companies not only to deliver financial performance, but also benefiting customers, communities, and shareholders. At the same time, and to ensure the bank is well placed for the future, we are taking action to improve our customer proposition, taking out cost, injecting greater discipline in our approach to capital allocation, and refocusing NatWest Markets to reduce RWAs by almost half. Taken together, this will result in a safe, simple, and smart bank that will generate sustainable returns for our shareholders. Let me take you through some of the details behind our plan. Firstly, we have a very strong foundation in place from which to deliver our plans. We are a leading U.K. and Irish bank with 19 million customers, supporting people, families, and businesses to achieve their ambitions, to grow, and to keep their assets safe and secure. In the personal bank, we are proud to have supported over 40,000 first time home buyers. Indeed, our 2019 mortgage performance was the best in many years. Our commercial bank supports one in four U.K. businesses, and we supported over 65,000 new businesses last year. We have a robust balance sheet and a capital accretive business. This broad customer base, good market positions, strong culture, and a strong balance sheet provide a clear springboard for our strategy, a bank that is safe, simple, and smart. In every area of the country, our professionally qualified staff in branches, call centers, and delivering specialist support, are working hard to meet the needs of customers and regional economies. Indeed, GBP 6 in every GBP 10 we lent to U.K. mortgage and SME customers was to regions outside of London and the Southeast. We are the biggest supporter of manufacturing, with 29,000 customers in this sector. We provide support to all businesses, from startups to the largest corporates, to help them thrive, contributing to economic growth across the country. Our 12 accelerator hubs deliver market leading advice and support to entrepreneurs. Our regional board network ensures we are well connected to the local market, listening, learning, and reacting to the key customer needs and issues in the local economy. Put together, our deep relevance across the U.K. and Republic of Ireland provides a powerful local platform for serving customers and meeting their changing needs. There is no doubt that the coming years will bring sweeping changes to the way our customers live their lives and radically reshape their communities. We are actively getting ahead of these structural long-term shifts to ensure we stay relevant to our customers and position the bank for the future. For example, demographic trends show an aging population with over half of potential future retirement income locked in properties. The number of private renters under 45 years of age are expected to overtake mortgage holders by 2029, which will have a knock-on effect on the mortgage market. The nature of work is being reshaped with up to 16% of U.K. adults expected to be self-employed by 2025 and almost 3 in 10 jobs at risk from automation. Upskilling and reskilling will be critical. Climate change is a profound threat, with 85% of Britons concerned by it. Communities and families expect organizations like ours to react and take a leading role in addressing these changes and the impact it will have on their lives and communities. Against this backdrop, we see clear commercial opportunities for us as a bank if we stay close to our customers' changing needs and are at the forefront of helping them navigate these complex issues that face us all. Our success in the long term requires us to embrace these challenges, which will be good for our business, good for our customers, and good for our shareholders. We do not exist simply to deliver financial products. Our actions have an impact on all our stakeholders, and our ongoing license to operate requires us to take a broad view. We will support our customers more effectively through their lives. We'll use our insights about customers at each life stage to adapt our propositions and preempt their needs. We believe this will unlock significant growth opportunities. We will re-engineer our systems and processes to become a simpler bank to deal with. This will result in improved customer and colleague experience, as well as boosting efficiency. We will use our innovation assets and leverage partnerships to power our strategy. We recognize we can accelerate our execution and create better solutions if we look beyond our own boundaries. We will take a much sharper approach to capital allocation, focusing our franchises more tightly against our customer priorities. The actions we lay out for NatWest Markets are a good example of this. Getting this right will ensure we are well positioned strategically, operationally, and financially, enabling us to deliver on our ROTE target of 9%-11% and CET1 ratio of 13%-14% in the medium to long term. Our purpose will create longer-term, deeper relationships with our customers. When our customers succeed, our economy thrives, and we will succeed as a result. We have looked externally and worked closely with a Blueprint for Better Business as we've shaped our purpose, directly connecting our purpose with our core values. This will sit at the heart of our core decision-making, and we will aspire to live by it every day. We build on a rich heritage of embedding these values in our day-to-day actions, and we are amplifying them and holding ourselves to a higher standard today and into the future. We have also embedded purpose into remuneration, starting from myself, from my leadership team, and for our broader organization, and we will be held accountable for delivering it. As Howard mentioned, this is the start of a longer journey, and we commit to moving the whole organization forward in this way. In line with our purpose, we are focusing on three core areas where we believe we can make a unique contribution to the broader issues that are impacting the lives of our customers and communities. These are addressing barriers to enterprise and business creation, skill building, particularly around financial confidence, and climate change and supporting the necessary transition to a low-carbon economy. On enterprise, we are already the largest supporter of U.K. business and offer a wide range of services to those who either want to start a new business or scale up. Indeed, almost 19,000 entrepreneurs have benefited from our various programs, and we have launched a GBP 1 billion fund focused on female entrepreneurs. We are now setting targets to support more aspiring entrepreneurs, helping to create an additional 50,000 new businesses across the U.K. by 2023, and supporting over half a million people to consider entrepreneurship as a career opportunity, with a particular focus outside of London and the South East. On learning, we will continue to take a leading role in helping people improve their financial confidence and wellbeing. We have set targets to reach 2.5 million people each year to build capability, and are committed to helping our customers increase their savings. We will also continue to build skills in our frontline and ensure young people have better access to opportunities. To do so, we are extending our digital apprenticeship program across the country. Finally, on climate change. This is the defining issue of our generation. We have a responsibility to play an active role in helping find solutions. We know this is increasingly important for our colleagues and our shareholders. As a bank, that also means helping our customers make the necessary transitions. Today, I am setting a bold new ambition to be a leading bank helping to address the climate challenge by making our own operations climate positive by 2025 and driving a material shift in our financing activity over the next 10 years as we support the transition to a low-carbon economy. I want to be absolutely clear, I am setting this bank up to take the 10-year view and matching our ambitions accordingly. We are setting ourselves the challenge to at least halve the climate impact of our financing activity by 2030. We are also determined to lead on the industry-wide collaboration that will be so critical to influencing and financing the transition to a low-carbon economy. We know that there will be significant investment required to support this transition. The International Energy Agency estimates a doubling of the annual global energy sector investment, and we want to be at the forefront of making that happen. There is a clear market appetite to shift to more energy efficient buildings, as well as for greater use of renewables and electric vehicles. However, demand is not met with supply. Our strong market positions and expertise in these sectors requiring transitional investment, be it agriculture or transport, means we are well-placed to play a leading role in this transformation and the financing requirements. As we set our bold ambition in the short term, we have put in place the following targets, which we will evolve as solutions develop. In order to help accelerate the speed of transition, we will contribute by moving away from coal financing activity, engaging with our customers as we do so to help them. We will also support 50% of our mortgage customers to achieve an EPC Band C rating for their properties by 2030. To champion climate solutions by 2022, we will double our funding and financing support to sustainable energy to GBP 20 billion. We will transform the impact of our own operations with a commitment to be climate positive by 2025. In the context of the structural shifts I discussed earlier, we must do better for our customers at every life stage. By acting purposefully and taking a life cycle view, we will better preempt our customers' needs. For instance, it is notable that 85% of businesses in the U.K. are family businesses. These are customers who interact with Bó, our personal and commercial businesses, and we need to be able to serve them seamlessly. We also recognize the growing number of self-employed and gig economy workers and the different ways they want to access short-term borrowing, and we are working to reflect that in our propositions. In addition, people are living longer, requiring more income in retirement, creating opportunities for decumulation propositions to help unlock wealth tied in property. We also see growing demand for investment products from our mass affluent customers, and we are enhancing our digital wealth propositions and evolving our premier proposition to meet these needs. Our scale customer franchises in personal, private, and commercial enable us to capture the value of these customer insights. We see a number of areas of opportunity. For instance, across short-term borrowing and investments for our personal customers, and in fee-based products and adjacent services for our business customers. We believe these opportunities allow us, over time, to protect and diversify our income in the face of ongoing economic uncertainties and disruption. Consumers also want their bank to be simple to deal with, and this is reflected by the growth in digital, which is now the predominant channel for our customers. However, helping our customers means being there when they need us, Bó in the digital world, but also to evolve our physical interactions. In 2019, more than 70% of our personal customers were digitally active, and in the commercial bank, this was more like 90%. For many customers, speaking to an advisor will always be required in certain situations. We have over 16,000 physical points of service, be it branches, post offices, community bankers, or our mobile vans, and we will continue to evolve our physical footprint and how we use it. We are also improving our support to vulnerable customers through better use of data, centers of expertise, and human support networks, and our strategic partnerships, for example, SafeLives, to help tackle financial abuse, financial hardship, and later life learning. We do, however, remain too complex, and this negatively impacts the experience of our customers and our colleagues, and it is highly inefficient. We are going to focus on simplifying and re-engineering our processes, which will make us a simpler bank to deal with for our customers, reduce costs, and over time, support income growth. We are driving greater adoption of our digital tools and equipping our colleagues to support customers in successfully changing how they interact with us. We are continuing to invest in our systems and using predictive analytics to reduce handoffs and eliminate stalling points that drive complexity and cost that can also result in lost income. These actions will help ongoing operating cost reductions in our business and contribute to our GBP 250 million cost reduction target in 2020. We will also continue to innovate and look to partner with third parties to develop solutions for our customers in this period of uncertainty and disruption. We are starting to build a good track record in innovation delivery. Over the past two years, we have launched to market a digital lender, Esme, a business bank, Mettle, a personal bank, Bó, and a digital HR advisor, Path, amongst many others. We are also very proud of our re-entry into the merchant acquiring via our new proposition, Tyl, which is an innovation that is already making a difference to our customers. Working with partners, we identified a customer need and designed Tyl to make it easier for customers to run their business. Straightforward onboarding, simple pricing, smart data insights, and next working day settlement recently launched. There is positive customer advocacy, over 1 million transactions processed, and over 1,000 merchants onboarded, and this is a really positive start. At the same time, however, we will remain highly disciplined in how we approach Bó innovation and partnering. It must be matched by the financial discipline to call time on ventures that aren't delivering sufficient impact for our customers and our shareholders. Turning to NatWest Markets, we have taken the decision to refocus this business. We will provide solutions for our core customers, which will result in Markets having a sustainable future within the group. We assessed various options and arrived at this decision to reflect our customers' needs and the challenging returns in this business. As a result, we plan to halve the size of the business by RWAs to circa 20 billion over the medium term. Once the restructuring is complete, the business is expected to comprise of around 10% of the group's RWAs from its current level of 21%. Our current plan assumes CET1 capital allocated to NatWest Markets will reduce by circa GBP 3 billion. We also assume this reduction to capital will be capital ratio accretive in year one and through the transition plan, and we will continue to refine the plan over the transition period. Sharpening our capital discipline and focus means we need to be much smarter in how we run our businesses across the group, and this is broader than NatWest Markets and includes parts of our commercial bank and how we get the best out of Ulster Bank. The restructuring of NatWest Markets has been centered around the needs of our corporate and institutional customers. We want to remove complexity and be a simpler bank to deal with. A slimmer product suite will serve our focused set of core customers across financing and risk management. An operating model that is better integrated with our core banking infrastructure and better aligned with the group. Less duplication and better service. This is a multi-year restructuring plan, but we have a strong track record of execution and a robust balance sheet that puts us in a position to make these decisions. We expect illustrative returns for our corporate and institutional customers to be around 8% in the medium to long term. In summary, we are putting purpose at the core of everything we do, and doing so will create a sustainable and resilient long-term future with medium to long-term ROCE of 9%-11% on a CET1 capital ratio of 13%-14%. We will support our customers at every stage of their lives, thereby building deeper, longer lasting relationships and greater revenue opportunities to counteract a low rate environment and continuing disruption. In 2020, we will target greater than 3% lending across our retail and commercial businesses. We commit to being a simpler bank, resulting in a cost reduction target of GBP 250 million in 2020. We will continue to invest to create future revenue opportunities through innovation and partnership to open up the bank and bring the best solutions to our customers. We are refocusing our NatWest Markets business to meet the needs of our customers and to optimize group capital and returns. We will be a safe, simple, smart bank that will help all of our stakeholders succeed. I will now hand over to Katie to talk through some of the key financials to support our strategy. Thank you, Alison. Alison has reminded you of the solid foundations of our customer businesses, and where we will start the next chapter of our journey from. Over the next couple of slides, I will cover the financial aspects of our future plans. We have a sound balance sheet. We continue to invest in transforming the bank. We have a proven track record of cost reduction. We will refocus NatWest Markets on serving our corporate customer needs. Finally, we will continue to generate and distribute capital from a financially and operationally resilient bank, targeting a medium to long term ROE of 9%-11%, supported by a capital ratio of 13%-14%, again, in the medium to long term. We start the year with a solid set of balance sheet metrics. Our CET1 ratio is 16.2%, comfortably above our end 2021 target of 14%, supported by our strong organic capital build. Our LCR for the year was 152%, and a total liquidity pool of GBP 199 billion. Our LDR remains a healthy 89% with our customer lending supported by a solid core deposit base. We will continue to manage our liquidity position in response to market conditions. This is a strong balance sheet by any measure, which has also been well demonstrated in the recent Bank of England stress test. Looking at our customer businesses, they have performed well in a challenging environment, and we enter this new strategic phase from a position of strength. UKPB delivered a solid ROE of 21%, excluding PPI, driven by strong lending growth, offsetting margin pressures, particularly in the latter part of the year. Ulster's operating performance is improving. We are seeing good lending growth and front book margins. Legacy trackers continue to reduce and costs are coming down. NPLs continue to decline, and we are on track to be at around 5% level, in line with the EBA guidelines by the end of this year. We will build returns from here. However, as we have said, Ulster's repositioning will take time. We are pleased with the progress that Jane and her team are making, including the return of a further EUR 500 million dividend that was delivered in December to the group. We are the leading commercial business in the U.K., banking one in four of all U.K. businesses. Our lending remained stable this year against the backdrop of increased uncertainty. We are growing in the areas we like. Business banking, SME, mid-corp, and specialized lending were together up GBP 1.1 billion or 2.1% this year. Private continues to be a very successful business, 15% ROE in 2019. Income is up, other expenses are down, and Bó lending and assets under management are growing and present further opportunities for growth. Turning to RBSI. This is a small part of the group, but it is a business with excellent returns, 26% ROE in 2019. We have made strong progress in the funds business over the last year, and we see more opportunities to continue to grow. I will cover NatWest Markets in more detail on the following slides. Together, we have a strong set of connected businesses from which to build and grow. Turning to investments. We have consistently invested over GBP 1 billion in our business. What has changed is the mix of the spend. Over the last few years, our spend has been dominated by mandatory and regulatory programs, including things like ring-fencing. We are now investing more in new technology and to really change our focus to innovation in our core businesses. If you look at something like mortgages, back in 2014, it was all about the Mortgage Market Review and getting ready to fix our GMS system. What we're now spending resources on in mortgages is new capability and improving our customer experiences. We've talked a lot about the paperless mortgage journey before. We have now also automated the way that more of our customers get their property valuations, making it quicker and easier for them to get their mortgage offers. Looking at how this business is changing. Back in 2014, only 26% of UKPB sales were digital. To date, 53%. 63% of personal unsecured loan sales, 66% of credit card accounts, and 56% of current accounts were opened via the digital channel. Going forward, our investment will be directed towards our strategic priorities where they can have the most impact, focusing on growth to future-proof the business and on reducing costs to offer shareholders and customers better value. We have built a very strong track record on costs, GBP 4.5 billion out since 2014. That is over a third of our starting cost base. We are very focused on taking costs out as quickly as we can without damaging either our customer businesses or our control environment. When we talk about cost takeout going forward, we will be looking at other operating expenses, excluding operating lease depreciation. This year, we will take out a further GBP 250 million, or 3.6% of our cost base, reducing our other operating expenses to GBP 6.7 billion, excluding the operating lease depreciation. If we were to look at our 2019 reduction on a comparable basis, the 2019 cost takeout would have been GBP 327 million. Going forward, cost takeout will mostly be about process re-engineering. That is a much better quality cost reduction. It reduces the run rate much more immediately versus the large scale property reductions, which take time to pay back. Of course, it is also a kind of cost reduction that is more difficult to achieve. We will focus on transforming our top customer journeys. We will deliver this by building on our successes to date and enhancing the way we work to accelerate delivery. Importantly, this process re-engineering will allow us to take costs out and result in better and simpler customer experiences and improve satisfaction. We are also today updating our guidance on strategic costs. These will be GBP 0.8 billion to GBP 1 billion for the group, including NatWest Markets in 2020. We expect these to trend to around GBP 300 million over time. Our focus is on, and will continue to be on, reducing the cost base of this business. Let me walk you through the detail around the NatWest Markets refocusing Alison has talked about. This business will be going from 21% to around 10% of the group's RWAs. It will be refocused on activities which are directly supporting our core customers, significantly reducing the capital allocators to our rates business. Importantly, the areas that we are reducing are where we have experienced higher volatility as proven by the 2019 performance. At the end of this, we will have a customer-focused business with a more stable and consistent income stream, which supports our position as the leading supporter of British businesses. To give you the numbers, we have previously guided you to NatWest Markets RWAs to be up to GBP 39 billion. Our current plan assumes that NatWest Markets in the medium term will be around GBP 20 billion of RWAs, utilizing half of the GBP 6 billion of capital it does today. We expect this capital reduction to be CET1 capital ratio accretive in year one and over the course of the transition period. We will, of course, continue to refine our plan over this period. NatWest Markets restructuring and disposal costs will be GBP 0.6 billion in 2020. We estimate 0.4 of these costs will come through as disposal losses in the income line, and 0.2 as strategic costs within the cost line. As some of you may have seen this morning already, NatWest Markets legal entity has a CET1 ratio of 17.3% at year-end 2019, or GBP 6.1 billion of capital, which is above its 15% target. It is well capitalized as we start this process of change. You also heard Alison talk to our view of customer via a corporate and institutional customer lens. This view takes our large and mid corporate customers combined with the NatWest Markets product suite that they use. We target an illustrative ROE of this customer view in the medium to long term of around 8%, excluding strategic and conduct costs. It is important to understand the results we get from servicing our customers across the bank and not just by individual businesses. I will share this view with you periodically. We will, however, continue to report the businesses of commercial and NatWest Markets to you as the business view. Turning to capital generation and distributions. We have ended the year with a robust 16.2% CET1 ratio, post an ordinary dividend of three pence and a special dividend of five pence. We are today updating our medium to long-term CET1 ratio target to 13%-14%, as key uncertainties have reduced and reflecting a more normal retail and commercial-focused bank with a smaller and less volatile NatWest Markets. That's a medium to long-term target, and we will get there first by getting our capital down to 14% at the end of 2021. To achieve this, we will use a combination of distributions as the board, Alison and myself feel appropriate at the time, all using at their base, the continuation of an ordinary dividend payout ratio of around 40% of attributable profits. As you are aware, there are a number of capital headwinds in the next couple of years. These include things like RWA inflation. We said we expect the Bank of England mortgage floors to increase RWAs by 10.5 billion at the end of 2020. Pension contributions linked to dividends with payments starting from 2020, which are capped at GBP 500 million per year, up to a total of GBP 1.5 billion. Noting that we have reflected year one in our 2019 CET1 ending position with a capital impact of 20 basis points. Basel III amendments, which we anticipate to be at the lower end of the 5%-10% range we have talked about, and phased across 2021-2023, with the timings and details still subject to regulatory uncertainty. As we have discussed, we aim to take around 18 billion of RWAs out of NatWest Markets after consideration of the Basel III amendments. I am conscious we've given you a lot of numbers today, so I thought it might be helpful to put all of our financial targets and outlook on one page based on the economic outlook as we see it today. Starting with costs, we are targeting to take another 250 million or 3.6% out in 2020, excluding the operating lease depreciation. We would expect ongoing cost takeouts in the medium to long term. We will do this while continuing to invest around GBP 1 billion in the business per annum, which as we go forward, becomes more and more allocated to long-term value investment spend versus mandatory remediation and regulatory spend. On lending, we are targeting over 3% across our retail and commercial businesses in 2020. On capital, we are targeting to get to 14% by end 2021, on our way to our updated medium to long-term target of 13%-14%. Looking at returns in the current economic and low rate environment, we believe that in the medium to long term, NatWest Group, forgive me, will be generating a return of tangible equity in the range of 9%-11%. There are also a few items in our outlook statement I want to ensure that I have landed as well. Throughout last year, we talked much about the regulatory changes in personal banking and their expected impact on income in 2020. You should think of this number as around GBP 200 million in 2020 and growing to a full year run rate of GBP 300 million in 2021, depending on customer volumes and behaviors in responses to the change. We expect to incur GBP 0.8 billion-GBP 1 billion of strategic costs during the full year 2020, resulting from the refocusing of NatWest Markets and the continued resizing of the group's cost base. On impairments, we maintain our guidance of a normalized long-term loss rate of 30-40 basis points. However, the potential impact on the real economy and broader uncertainty could, of course, affect our credit loss outcome. The threat from single name and sector-driven events always remains. Turning to capital, we expect to end 2020 with RWAs in the range of GBP 185 billion-GBP 190 billion. In the medium term within NatWest Markets, we anticipate that RWAs will reduce by around GBP 18 billion. Finally, the key points of our investment case. Our purpose will lead to a long-term sustainable business. We have solid customer businesses with an ability to grow. We will become simpler to deal with. Our business model is powered by innovation and partnerships. We have a robust balance sheet with strong capital generation and returns to our shareholders. With that, I will now hand back to Howard to host some Q&A. Thank you very much, Katie. You have been very patient through a rather long set of presentations, but we can now move straight to questions. You are eagerly on the phone. So if you can give your name and institution, that would be helpful. Thank you. If you could be quick as you can with the Thank you. Jenny Cook, Exane. Could I ask for a little bit more color on the ongoing operating cost takeout? Because if I take your GBP 12 billion revenue base and I pro forma for a significant loss of the rates income, the regulatory impact Bó 2020 and 2021, and the fact that you're factoring in a rate cut, it gets me closer to around an GBP 11 billion revenue base. So in order to kind of reach your, certainly the low end of your ROTE targets, you're looking at operating cost takeout of around three times what you have outlined for 2020. So if we could get a little bit more color in terms of that ongoing operating cost takeout, that would be quite useful. Thank you. Then- Katie. Sorry, Jenny, you had another one. Sorry. Secondly, just on the phasing. If you give a little bit more color around the phasing of when you would expect to lose those revenues in NatWest Markets takeout, that would be quite useful just to size up the run rate PBT drag that we're going to have coming through over the next few years. Thank you. Thank you, Katie. Yep, sure. Thanks very much, Howard. If we look at our cost takeout, what we have done in the last couple of years is a number that's been around 4%. The 250 million number is 3.6%. We would expect to continue at those kind of levels as we move forward. We certainly don't see this as the end of the cost journey, so I would continue to take them forward within your model. In terms of the phasing within NatWest Markets, what we've said today is that we'll take GBP 6 billion-GBP 8 billion of the revenues out in 2020 with an intention to get down to GBP 20 billion over the medium to longer term. When you look at the revenues within your financial supplement, and I know we gave you about 1,600 bits of paper this morning, but page 31 is a really good place to go in the financial supplement when you get back to the office. What it does is it shows you the revenues split out by currency, financing, and rates. What you can see is the currency and financing business is relatively stable over time. We wouldn't expect that to change. When I look at the rates business, it's gone from 650 to 450 over the last couple of years. That's the business that we said that we're going to shrink substantially. I think from there, with the takeout this year and the planned one, you can estimate what that might mean for revenue in terms of phasing of that business. I think that was it. Thank you. Thank you. Next. Yep. Third row, first one. Thank you. Hi, it's Joe Dickerson from Jefferies. You referenced at the, I believe it was the half year results, some recycling of legacy instruments from NatWest coming through and being a benefit to income. You referenced also in that commentary that I think Q1 2020, there was a sizable chunk. How can we expect that to impact the NIM in the near term? Secondly, a question for Alison, which is, we heard a little bit about repositioning of Ulster, but what's really the strategic future of Ulster? Okay. Well, why don't I take Ulster and then, Katie can answer your first question. Ulster Bank, Jane and her team are doing a very good job there. You can see the progress that we're making. I think the plan to continue to restructure that business is ongoing. We've seen our tracker books coming down. We've now started to get capital out of that business with a dividend at the end of last year, and our non-performing loans are coming down. We're also getting some growth in the mortgage business there. I think what I would assume on that business is a continuing, steady restructuring of that business, and Jane and her team continue to refocus that business. Yeah, sure. Katie. Thanks, Alison. In terms of the recycling of some of the legacy debt, you'll recall that about GBP 1.9 billion of that came off the books at Q3, which was the main portion. At the end of Q1, there's another GBP 1 billion, and then over Q2 and Q3, there's actually another GBP 1.1 billion. In terms of coupons we pay on that, it's about 5.5%. We'd expect to replace that at numbers that are half that level within NatWest Markets. The bad news is, Joe, it doesn't have any benefit on NIM, because you'll recall that last year I moved the NIM to exclude NatWest Markets because of the fact that its expense and everything comes through in NII, but its income comes through in non-interest income. It will not itself have a direct pick up on the NIM number. Thanks, Joe. Immediately next to Joe, I think. Hi, good morning. It's Raul Sinha from J.P. Morgan. Thanks for taking my questions. Maybe a couple of these. First, a strategic one. I'm really struggling to understand the NatWest Markets standalone division as a strategy which is half its size currently. I wonder if you can talk about the option of merging that with commercial. Is the only reason that it stands outside the ring fence, and that is why you have to maintain this division, because obviously it is going to distort the profitability of the group significantly. So that's a strategic question. I guess related to that, what should we think about, I don't know if, Katie, you're going to hazard a P&L, as Ross used to give us GBP 1.3 billion of top line, GBP 1 billion of cost. What is the future outlook for NatWest Markets? Because I think that is something the market would really like to understand to get a sense of your long-term ROTE. I've got a second one just very quickly. Maybe a third one. We are supposed to be able to count. On capital. A lot of your excess capital is trapped in Ulster. If I assume that 10.5 billion of RWAs is going to eat up most of your surplus capital outside of Ulster, then essentially getting down to 14% CET1 requires you to get capital out of Ulster. What are the risks to that strategy in the next three years? I think in a way you answered your first question yourself on the ring fence. There are certain products and certain customers with whom we cannot in which we can't transact or with whom we can't transact within the ring fence. So that requires you to have some of it. But I think as we've said, we are increasingly trying to look at it from a corporate and institutional banking perspective whilst respecting the ring fence, but nonetheless looking at the totality of the business we do with those customers and bringing those teams more closely together than they have been in the past. So that's part of your first question. Alison. Yeah, what I would just add to that is obviously NatWest Markets, when I took over, was one of the key strategic areas of focus, which is why I launched a strategic review in that business. We looked at all of the options. So as Howard said, the ring fencing is key here. But we think that the shape and size of that business is really then going to provide the products and services to support our core businesses, and we think that is the right shape and size going forward. Obviously, that was one of the first things I addressed. Katie, do you want to pick up the P&L? Yeah. I'll try and give you a Ross lookalike P&L without actually giving you one, because clearly I would have given it to you if I was going to. But let me help you. Thank you for the question. Thank you for the question. But look, let me help you a little bit. It is complicated, I do accept that. If we look at today, they earned GBP 1.1 billion in terms of core income. As you look at the currency numbers and the financing numbers and the revenue share, I would look at them going forward modeling what you think economics might do to them and take them forward as you go through. You then expect the rates business to substantially decline. When we look at this business in the medium to long term, I guess we view it as basically a break even type business. Your incomes will reduce, excepting the RWA change, and your costs are more or less going to match it. If you can crack the income code, you'll get to a cost picture. Then it's important to say, actually, and this is why the corporate and institutional customer view is really important. The reason we have this business is absolutely, as Alison says, it's so important for the way that our corporate customers interact. The ring-fence, we're not looking to change it, but it makes the view of it a little bit unrealistic. When we talked about that being an 8% returning business, after we do the resizing. The way I would think about that is there's 20 billion of RWAs that sit within NatWest Markets, and there's about 40 billion of the RWAs that are allocated to corporate, which are people that actively use that. That combined returns an 8% return in these economic kind of conditions. I'll probably let you build something out. You also asked about Ireland and the trapped capital. We got EUR 500 million from Ireland in December. That was something we were very pleased to receive coming back. If I look back to 2018, we also received a significant dividend in 2018. I think the reality in terms of the Irish story, it's slow, but it's delivering. We are getting the capital out. I would expect to get more out later this year, and I'd probably expect to get more out again into next year. I think it's a question of patience rather than deep concern. Thank you very much. Thanks. I'm going to take one from in the ether, because it was very much adjacent to what we've just been talking about, from Gary Greenwood of Shore Capital. If you only expect to achieve an ROE of 8% for the C&I business over the medium term to long term, why don't you just close it down? Thank you for the question. As I said, NatWest Markets, it was the most important thing on my desk when I took over as CEO. Having run the strategic review, I think this is a business that provides key products and services to our very strong commercial, corporate, and institutional set of customers. We think that the products and services reshaped, delivered in a different way, mean that this is the right shape and size for the business. We're obviously moving more of our capital into our retail and commercial franchise, which is a higher rated, more stable income business. I think 8%, based on the current economic outlook and assumptions, is a realistic scenario. Therefore, I'm comfortable that this is the right shape and size to support our core business. Thank you. I think we should go over here. A second row here. Thanks. Yes, good morning. It is Martin Leitgeb from Goldman Sachs. Morning. First on capital distribution. Just looking back a year ago, the quarter one ratio was 16%, the target for 2021, 14%, and I think the implicit assumption was a kind of a gradual step down over the years. Today, the quarter one ratio is up. The dividend is slightly less than consensus, but obviously, there is the focus on the buyback during the year. I was just wondering, is there anything which, according to your plan, has slowed down somewhat the kind of distribution of excess capital, whether that is Alsar, whether that is something else in terms of headwind, or should we just think this of being bulky and the trajectory to the 14% 2021 still pretty much unchanged? Yeah. Now, Sorry, two things. Another question? The second question is just on the exit cost in NatWest Markets. Thinking back when you went from, I think, 100 billion or 107 billion NatWest Markets down to around 30, the implied exit costs were around 5% of risk-weighted assets all in. What you show now on, I think it's slide 40, is that at least the exit costs in year one are meaningfully higher. I was just wondering, is that just a front loading of some of the exit costs occur earlier and we should think of wholly similar exit costs overall? What I'm trying to get is essentially what is the net capital freed up from the exercise at NatWest Markets? Thank you. On the first of your questions, I'll hand over to Alison for the second. I think that the political economic environment has changed somewhat. Since December, with the election of majority government, and with its stated aim to return the bank to the private sector, we do now see greater potential to take part in share buybacks in the short term. We also think that that should become a recurring feature of our distributions over a number of years. I think that is part of the background. Just more broadly on the capital distribution, no, there's nothing that we're struggling with or holding us back. We always said our capital distributions would be non-linear. As Katie mentioned, we have a number of positives. We're generating capital, which is good from our businesses, which are doing that. We have some headwinds. The mortgage floors that are coming in, the pensions, the Basel 3. So we always said it would be non-linear and lumpy. As Howard mentioned, we want to participate in any government sell down. So that's the answer for that. Yes. Next. Oh, sorry, we didn't make- Sorry. In terms of the exit cost. The exit cost. Look, I would use the guidance we've given you for year one as a good indication of what it might take to get down to the 20 billion of assets. We're not giving you anything more specific, and we're not planning to, but that would be, I think, a fair proxy. We will update you, obviously, as we go through that process. Yes. Just that one. Thank you. And then immediately behind you. Hi. Alvaro Serrano from Morgan Stanley. I just wanted to follow up on the cost question. Katie, I think you said during the presentation that reengineering the processes has a faster payback. When I look at the strategic cost, you said GBP 800 million to GBP 1.2 billion, GBP 200 million of that presumably is NatWest Markets. You are only expecting kind of the GBP 250 million run rate of cost takeout. Can you maybe just give us a bit of color of what you are spending the money or investing the money in terms of those GBP 800 million and GBP 1 billion, which areas, and could we expect more, or why shouldn't we expect more? Thank you. So, as we look at it, GBP 250 million is the target that we have given you. I think our past has said that we really do try to give you honest targets, in terms of we said 300, we did 310. That certainly is the number. I wouldn't go back and take my 250 and double it or anything like that. That would be foolish. I think in terms of the guidance we have. When you look at the cost, what we have done this year, we spent of the strategic cost, the GBP 1.4 billion, about GBP 500 million of that was on big property exits. We have exited about 13 big buildings around the country this year, and those are really important things to do. They are important not just because you are exiting the building, but you are also naturally reducing headcount to enable you to exit those buildings. They take a long time to pay back. It's over a GBP 70 million to GBP 80 million run rate we have got into this year from that GBP 500 million of spend that you do get. There will still be some, as I look at the GBP 800 million to GBP 1 billion, you are right, GBP 200 million is NatWest Markets. Of that piece, there is still some portions in relation to properties, much less significant than it has been in the past. Obviously, when you are doing cost reduction, you have got three levers. There are properties, the technology, and processes within there, and people that you can deal with in terms of the levers that you can pull. We have also in our strategic cost, there is still a little bit of leftover of some of the regulatory. I think we are all surprised that the ongoing kind of payments regulation that continues to change. We had felt that we would have finished that last year. There is probably between that and the cost of Libor, there is probably about GBP 100 million in there that was really focused at some of the regulatory type engagement that we continue to have to deal with as we move forward. Thank you. And overall. Directly behind. Thank you. Hello, it's Claire Kane from Credit Suisse. Hi, Claire. I have three questions, please. The first is on NatWest Markets, and the P&L development there. The quote you give or the target to get up to 8% return on C&I on a GBP 60 billion base, I think that implies, broadly speaking, about a GBP 450 million net profit improvement. If we consider the break even target for NatWest Markets, can we assume the majority really is borne within NatWest Markets in the sense that you will take out a lot of costs there, given you will probably lose half of the GBP 450 million rates income, and you have already got GBP 200 million of surplus costs relative to the existing revenue base? That is my first question. That was three questions in one, Claire. Sorry. I have got loads. Generally you can- My second one is just broadly speaking on the 9%-11% group target. Can you just maybe talk us through why you have a range in there, given you had previously hoped to be above 11%? If we look at your kind of longer term GBP 200 billion RWA target for the group, that would suggest a range of net profits of about GBP 2.8 billion-GBP 3.5 billion at 14%. I just wondered if that's kind of where you're thinking the group could end up in terms of earnings power. My final one is just a really small follow-up on Ulster Bank capital distribution. Good to hear you're expecting a further dividend at the end of the year. Is that really just dependent on delivering the 5% NPL? Going forward, do you think there's any risk to the distribution out of that entity, given the change in political party, perhaps in Ireland? Thanks. Okay. Thank you. I'll start and then Katie can pick up a few of the others. Look on NatWest Markets, as we restructure and refocus that business, we're going to significantly be streamlining the cost base in that business, as you would expect, as we make use of leveraging some of the capabilities that we have in the core bank as well in terms of our platforms and our technology. As we reduce our product suite and make it much more focused on our core corporate and institutional customers. As we make use of some of the technology improvements from electronic trading and such like, you will see a much smaller, simpler business in terms of supporting the corporate and institutional customers. We will be taking quite a lot of costs out of that business as you would expect, and we will come back and update you later in the year on those developments of those execution plans, and Robert and Paul can talk you through how they are doing on that as the business collaborates more closely together. Katie, do you want to take the next one? I am going to try to go around the circle, and then if I miss something else, please do jump in. I guess NatWest Markets in terms of the numbers, certainly there is going to be significant cost takeout there. We do talk about it as a break even business going forward. Just to try to help you on the 8% numbers. If I look at that business today, it absorbs with the appropriate portion of the mid and large corp together, they are about GBP 75 billion of RWAs. They earn about a 2% return. By the time you reduce the NatWest Markets piece, you would expect probably a little bit of growth in the mid to large corps as well. You kind of get to a sort of GBP 60 billion type number on the 8% piece. As you work through the kind of income guidance we have given you and what that means for the cost base, I think that will kind of help you hopefully get to some sort of the appropriate kind of answer. In terms of the range of the 9%-11%, we believe that that is the right range we should be aiming for. There are a lot of things we will do in the short term, and we felt it was more appropriate to give you a range that we were very comfortable. Within there, I think, I am sure we will have more conversations around what you might think of income in the medium to long term. We have also tried to give you some guidance on where capital will be going in that space. We have talked about continuing cost reduction beyond this year. We are kind of comfortable that within that range is where you should think of us. Then in terms of capital distribution, there is no link to a specific kind of transaction. You have heard us as a group a number of years ago talking about before we could deliver capital distributions, we had these three or four things that we had agreed with the PRA. We do not have that same situation in Ulster. What I think we just need to do is continue improvement, continue commitment on our plans, and we will get there. In terms of risk from politics, I have to admit, I will leave that to the politicians, and then we will see where we go. Let me just pick up that because, one, there's a considerable uncertainty about what the government will be. We've no idea at this point. Secondly, just as a factual point, this is a bank regulated by the ECB. It is not regulated for prudential purposes by the Central Bank of Ireland. The capital distribution is in the hands of Frankfurt, not of Dublin. Thanks. Yeah, I think we should go right to the back actually, just to be geographically even-handed. We're doing some leveling up here. Yep. Thank you. It's Andrew Coombs from Citi. I actually wanted to touch on the net interest margin. It wouldn't be a complete without a question on NIM. If I look at the decline quarter-on-quarter, you've had another four basis points, actually slightly better run rate than the prior quarter. My question is, it really comes down to three elements in this. The first is, can you just provide the usual guidance you give on front versus back book spreads for our analysis? The second was that Q3 you said there might be a one-off EIR adjustment, and I can't see any reference to that. Is that still to come? I guess the third part on the NIM is Should we read anything into the fact you've increased your loan growth numbers? What does that mean in terms of your pricing? The final question, sorry, I know there's a few here, but on the 200 number you give with a 300 exit run rate for PB, can you just remind us the split of that, the main elements and how it's divided up between NII and OOI? Katie. Shall I start? Sure. Favorite topic. My favorite topic, yes, absolutely. I am delighted it took to 22 minutes past 10 to get there. If we look at the NIM number, you are obviously down four basis points in the quarter, three basis points in terms of the competitive pressure, and one basis point because of the one-off that we had in Q3. When we talked in Q3, we talked much more about the fact that actually that competitive pressure was a real blend of mortgages and also the pressure on deposits. What we did not see in the fourth quarter was that pressure from deposits. It really was a mortgage story, which was both the falling of the rate, but also the add-on of the greater volume that we had in that quarter. We say that we are kind of comfortable to operate in this kind of 80 to 100 basis points corridor. If I look at the, and I think this is a full year number, we rolled over the whole year at about 98, 99 basis points, a little bit higher in the last couple of quarters. When you look at the back book to the front book, our exiting at Q4, our back book is about 145 basis points. Obviously, you have got to remember that you do not take the whole book all the way down to the 80 to 100 because there is SVR, there is buy to let, there is switchers. I always sort of say to people, think of a number kind of in between the middle of those two, and you will probably get to a fairly comfortable pace, but I am not going to give you the specific detail. In terms of the one-off adjustment, that was in relation to the negative four basis points that we got within the retail space. There is not something else to come. That has come through. Loan growth. Look, I think Les is doing a tremendous job with his team on loan growth. What is really pleasing is the volume that they have been able to do, 15% in the last quarter. We talked earlier last year and previously that actually if it went to 15%, are we in the right place from our system and processes? Could as a bank, could we actually push that much business down the pipe? It has been really pleasing to see the sort of NPS scores in that space and actually what we are able to push down without compromising. Not saying that we are targeting 15% going further. What we've said is our stock share now at 10.2% and our kind of natural share. We're very happy to take the volume. We're happy with the margins that we're earning on it and the fact that we can get the volume to kind of offset that margin loss. So very pleased to see what that business is delivering. In terms of the GBP 200 million for this year, it was the kind of the basket of differences, whether it be the overdraft, the High-Cost Credit Review, the interchange fees on European payments. We're not really going to split that number down for you. What I would say is that think of the GBP 200 million for the year. It comes more into impact after April than it is at the beginning of the year. By the time you get into 2021, you should think of it as a full year number. So closer to GBP 300 million probably gets you into the right basis. Undoubtedly, we will call it out as we go through the quarters of what we actually see kind of happening in that business. Very helpful. Thanks. I'm going to just take one another from the internet. Jonathan Pearce of Numis. Does the guidance just given of a GBP 250 million reduction in group costs per year going forward include the impact of lower costs in the NatWest Markets businesses being run off? Yes. Yes. Thank you. Yeah, third right here in the middle. Thank you very much. Morning, it's Aman Rakkar from Barclays. Just had two questions, actually. Just one point of clarification on NatWest Markets. You've typically historically talked about the proportion of NatWest Markets' revenues that come from the commercial business. I was wondering on the new kind of target GBP 20 billion of RWAs, is it still a kind of third of revenues coming from commercial? The sense I get is that number is presumably a lot higher now. So if you could clarify that'd be good. The second was just on Bó, just in terms of what your intention is for that business and whether you think there's any repositioning that's required from here. Great. Thank you. So NatWest Markets, obviously as we refocus that business and have it more focused on our corporate and institutional clients, you would expect that to be more strategically aligned. The whole point of the refocus is we want to make it much more connected to the group and our core customers. So you will expect that to increase. On Bó. Bó is one of a suite of innovations that we have. Our strategy is always on our innovations to buy, build and partner and to test and learn with our customers. That is out in the market now relatively recently. We're testing with our customers. We have a minimum viable product out there and that will continue to evolve as we get feedback from our customers. So we'll apply the same discipline and approach as we do to all of our innovations. Cool. Can I just follow up on the NatWest Markets revenue then? So if 30% of it currently comes from commercial, are we talking about that being a kind of broadly even split now in terms of what's- I think I would take you to my favorite page of page 31 in the financial supplement. There you can kind of see just in terms of currencies had GBP 432 of income in the year, financing GBP 403, and the revenue share was about GBP 208. Most of that revenue share comes from those businesses, which are the businesses that's going forward. The reason for that is because naturally the rates business is so much more capital intensive that it doesn't fluctuate the revenue share particularly. I think those are a good base from which you could, it's probably good to model forward. Thanks. Yeah. Next on same row. Just thanks. Good morning. It's Chris Cant from Autonomous. Thank you for taking my questions. I wanted to ask about slide 41 and your capital and RWA guidance. You've given us a GBP 200 billion medium to long-term RWA number, and you mentioned in discussing that slide, your RWA guidance, at least in relation to markets, has taken into account the Basel III amendments. Is that GBP 200 billion number your post Basel IV or Basel 3.1, or however we're referring to it these days, is that post that impact? Because you previously guided for that to be 5%-10% inflation, basically, at least as an initial hit. So is that included in there? And if so, is the 13%-14% you're now targeting over time your post Basel IV capital target? Because the regulator would indicate that Pillar 2A, for instance, should come down in response to the RWA inflation. If I think about your 13%-14% range, that wouldn't seem to take any of that into consideration. If I could also ask one on NatWest Markets, please. Back in the annals of history, and I'm talking about the CEO who preceded your predecessor, and probably a markets restructuring the one before last. We were told to expect something like 30-50 cents back on the dollar in terms of net capital release from a restructuring of the markets business. So you've given us the GBP 2.7 billion gross capital release figure. Just wondered if you'd like to comment on that historical point of reference. Thank you. Shall I answer the third question first? I'm probably not going to comment on the CEO before the CEO, before the CEO. I think the structure that we've given you in terms of resizing and reshaping that business and the transition plan to bring that down is what we think is a realistic plan, and one that will allow us to protect the revenues and the core franchise that we want to support, as well as an orderly reduction of the RWAs that are not there for the future. You wouldn't expect me to comment on previous assumptions. Katie, do you just want to pick up the capital? Yeah, we do. The capital number, look, the 200 it's a guide, it's not a target. Clearly, there's a lot of different things that kind of happen within there. But what we're trying to say to you is if you look at what we know is coming, that's a fair place for you to end up. You should assume that that does. Think of what Basel III amendments are. The risk department tell me it's Basel III, not IV amendments. If that helps. Then 13%-14% should also be after those considerations. We've tried to build all of those in. We accept that the timing may move, in terms of from whether it comes in from 2021 to 2023 or a little bit later. That would have a bit of an impact on there. I think you can kind of take us from where we are now, build in your NatWest Markets and build in the mortgage floors and our kind of Basel III guidance, and a bit of growth you'll get to the right kind of place. Thanks. Thanks very much. Thank you. Yeah, second row here. Hello. Good morning. It's Fahad Changazi from Mediobanca. Could I just ask on your greater than 3% lending growth, is that primarily related just to mortgages, or are we now looking for a bit more happening on commercial lending? Just following on from that, last year commercial non-interest income collapsed or went down significantly. I was just wondering, given the election, have you seen some signs of where that might be going or any anecdotal evidence there? Thank you. So in terms of our lending growth, obviously as you can see, we exceeded our lending growth target for 2019 at 3.6%, and we had very strong growth, obviously, in our mortgage business, growing gross lending by GBP 33.3 billion. Our commercial business also grew in the sectors that we wanted to grow it in. We've always said that we will be very targeted in the sectors we want to grow and the areas we want to grow, but also apply a very strong capital distribution lens to that business. So we took out a lot of capital from that business as well. So overall, we expect retail and commercial to grow as part of our 3% loan growth target that we set this year. We will continue to grow within our risk appetite. I think that is a very strong message when you look at the growth we contributed last year. The quality of the assets that we're putting on our book are within risk appetite and of a good credit quality. We are very cognizant of that. Growth across Bó sides from that perspective. In terms of pipeline and how the business is performing since the election, we had a very good finish to the year, and we're seeing good volume growth continuing. I think any improvement in business confidence and reduction of uncertainty helps. We certainly had good growth and good pipeline at the start of the year. There is still quite a lot of uncertainty out there. Whilst there is a degree of improvement in our pipeline, it's too early to say whether you're seeing a significant bounce. Our job is to keep really close to our customers as they're looking at the opportunities, and we're certainly doing that and seeing good momentum. Business confidence will be affected by uncertainty, and so we'll continue to keep a close eye on that. Thanks. I'm going to take another one from the internet, from Robin Down of HSBC, who says the quarterly rate of reduction in the retail margin, even allowing for the mortgage accounting changes in Q4 of 2019, has been relatively rapid. How do you see this shaping up in 2020? Can you give some color on the dynamics, Katie? Sure. Thanks very much. Look, I'm conscious obviously with the questions on the web, you often ask them and we've answered much of them as we go through. I think there, the key things to remember are around the 80 to 100 basis points corridor that we're writing at this kind of top end of that, and the kind of exit rate of the whole kind of book at the 145. Just one thing I would add to that is that in our plans, we do assume that there is a rate fall. I'm not sure if that's something that you've all necessarily picked up on. We are assuming in line with sort of consensus as it was, as we struck it, that it happens in Q2 of this year. That will have a little bit of an impact naturally on NIM if and when it happens. We'll see what kind of comes forward from there. That's kind of important thing to remember. One of the ways that I kind of work around NIM quite simply is, if you take a GBP 10 million change in your NII, it's one basis point of NIM that you lose in terms of that piece or a GBP 2 billion movement of your average interest earning assets also has the same piece. As you try to model NIM, bear that in mind and also the rate cut. We've given you in the accounts and in the analysis, what that kind of does in terms of the various product margins and things as well, which will help you model that piece of NIM going forward. Okay. Yeah. Row 4 there. Just behind you, please. Can you move the mic? Good morning. Thank you for taking my questions. It's Ben Toms from RBC. You've given a range for the potential strategic costs in the year of GBP 0.8 billion to GBP 1 billion. Is there a range then on the amount of cost cutting you can do, i.e., is there upside to the GBP 250 million cost you can take out this year? I think you should take the 250 as the 250. We'll always try to out-deliver, but you've got a track record with us of being very transparent. 250 is the target we're expecting to deliver this year. And, yeah, just over there. Thank you. Thank you. It's John Cronin from Goodbody. John. Just two questions from me. One is on the mortgages. I'm not going to ask again about your share development going forward. But if I can ask about the ROEs you're printing when you superimpose the mortgage floors on new flow, and how you think about how far you'd be willing to go in terms of price compression from here, perhaps to maintain share at current flow share. Then secondly, just more broadly on terms of funding conditions, in the year to date, what are you experiencing and how do you think about that in the context of NIM evolution in Q1? Thank you. Yep, sure. Shall I take that, Alison? Okay. As we look at it in terms of the ROEs, and that's exactly the way that we should really look at this business, given the repricing in terms of the NIM. Today we'd say the book is comfortably earning above 20% ROE. When you bring in the extra 10.5 billion, we're comfortably above 15%. Then you kind of think to yourself, well, if you're writing closer to the 100%, you're a bit higher. If you're writing closer down to the 80% in terms of the corridor, you'll be a bit closer to that 15%. But in that corridor that we kind of seek to operate within, we're comfortable that we write our business above that kind of level of ROE at that kind of level. We're not looking for any particular price compression, but we kind of internally think of the 80 to 100. You will recall that in the early part of last year, we were much closer to the 80 until the swap curve moved. In terms of funding for NIM evolution, I've probably said as much as I'll say about NIM evolution as we go into next year, and we'll talk more about it when we get together in a few short weeks' time for Q1 results. I've got one more on the screen from Edward Firth of KBW. Looking at your presentation from this time last year, you were targeting a 12% ROAE for 2020. I think by you he means the other bloke whose name I've just forgotten. I know. Who was that? He was the really tall- Just the big guy. Yeah. He was really tall. Just the big guy. Where has he gone? We are now looking at mid-single digits, and I guess the big change is that restructuring never seems to come down as you hope. I guess my question is, what gives you the confidence that this program is the final one and that 2022 will be a promised land? Why don't I take that? We have set our targets based on the current economic conditions and outlook. There is a degree of uncertainty in terms of that outlook. We are in a lower for longer rate environment. We have all seen what has happened with the yield curve. We think that the targets that we have given you are a realistic set of assumptions based on the current economic scenarios and, as Katie Murray mentioned, the consensus on which we base our plan. I am comfortable that that is a realistic scenario that we have given you with that condition. In terms of the restructuring costs, obviously what I am focused on is building a bank that can withstand the changes and trends, and I talked a little bit about them at the beginning, in terms of how customer behavior is disrupting, and also the opportunities that exist within our customer base. We are not only restructuring our business, we are investing significantly in it so that we can identify and continue to grow the potential that we see within our business. Obviously there are restructuring charges related to NatWest Markets. I think that was the burning issue in my in-tray when I took over. Therefore I think it is appropriate we restructure that business to make it a sustainable part of the group going forward, with more of a focus on retail and commercial, which are more stable returns, less volatile. Obviously, as we re-engineer our processes, as we invest in technology, as we invest in new propositions, there are going to be restructuring charges that come with that. That is about building the bank that is able to deal with the future trends and the future opportunities that we are looking at. Thank you. Yes, just over there. Good. Hi, it is Claire Kane again from Credit Suisse. Just to follow up on restructuring charges or strategic costs. You say they should trend down to about GBP 300 million over time, which is about the level of underlying cost takeout. I just wondered, is there a point in time where we should expect that total costs, including those restructuring costs, actually come down, and that is not just a perpetual restructuring below the line? Just on the phasing of NatWest Markets restructuring, given a large portion of that is through income losses, what is your expectation on those developments? Do you get rid of most of the assets at the beginning or, I know the RWA takeout is a bit slower on your plan, but really those losses, is that quite an area of uncertainty, we think, forward? Thanks. Let me take that second question. As we have looked at the plan for NatWest Markets, Robin and his team are obviously focused on building that business so it can focus on our core customers. We are very mindful about the phasing of that. Obviously, we have got quite a lot of experience of restructuring businesses of this nature. The challenge is always managing the revenue line and the cost line so that one does not run ahead of the other. In our phasing and transition plan, we are very mindful of how we manage that. What we have said to you is it will be capital ratio accretive in year one. You can expect us to bring you updates as that transition plan goes through. We are very mindful of the phasing of that. Thanks, Alison. Just on the cost piece of it, we do expect it to trend down over time. I think we have taken the cost down, and we try very hard not to talk about costs on an adjusted basis. We do like to keep them into other operating strategic costs. Many of you said, I talked about it last week, I'd quite like to get rid of that number, but I'm conscious that the year I do that will claim great successes on cost takeout, and actually we'll have done nothing except a few lines together. But the intention is continual cost takeout. What you hope is that in one year, the cost you took out that year, you have a great run rate into the following year, and it just continues to deliver. That's certainly the mantra that we have in the organization and one that I think Alison and I are very strong on. That it has to be a continued cost reduction journey. I have another one on screen from Fahed Kunwar from Redburn. I appreciate you don't own the business relative to consensus, but the dividend was lower than expectations. Also, given your surplus capital, why now, I think that probably should be net not. Why not set the ordinary dividend on statutory rather than underlying profits? So, we've talked about our capital distribution story a little bit in terms of our capital walk. Obviously, we're starting from a very strong base at the 16.2%. I think we're very pleased to be able to pay a dividend today, bearing in mind we only started relatively recently. I think we're starting to distribute that capital back to you. And with our plans for getting to 14% and then 13%-14%, you have a walk in terms of what we intend to do. Our intention is to distribute capital. We also know that actually being well prepared to take part in a government sale of RBS shares is a good use of our distribution and plan. I would certainly hope that we see greater potential to take part in share buybacks, not just in the short term, but we also hope that will become a recurring feature of our distributions over a multi-year period. I think we've declared the dividend. That's GBP 2.7 billion back. There's a capital walk that we've given you. It won't be linear, but our intention is to continue to focus on using all the means that we're comfortable delivering to you between the board and myself and Katie. Thank you. Should I just pick up that last point because it is important. In terms of our dividend, we really do look to do it on a typical profits available to equity shareholders. It really is on that statutory profit level. What we had this year was this really odd thing where there was GBP 1.5 billion of FX recycling gains that we basically took out of one line in the reserves and brought it into the income statement. We did adjust for that. We made no other adjustments. We didn't try to back out any other costs. The idea is that we do 40% of that bottom line number, but it didn't feel appropriate to do it on what was actually a bit of accounting, maneuvering of a balance sheet rather than actual real generated profits. Yep. Anybody else? I'm not seeing any more hands, and I'm not seeing anything else on the screen. Thank you very much for coming in. Quite a long session, but quite a lot to get through, and we hope that you take all the 16,000 pages we've given you and digest them over the weekend. Have fun. Happy Valentine's Day