Earnings Call: Q4 2013

Feb 27, 2014

Morning, ladies and gentlemen. Today's conference call will be hosted by Nathan Bostock, Group Finance Director. Please go ahead, Nathan. Good morning. Thank you, Donna. Good morning, everyone. I would like to offer some brief comments on our full year 2013 financial performance, before leaving plenty of time to answer your questions. Joining me today are Richard O'Connor, our Head of Investor Relations, and Rajan Kapoor, our Group Chief Accountant. Just a quick housekeeping point. You will have seen that we have also released details of our strategic review this morning. Ross and I will present our strategic update and answer questions on it at 2:00 today. So we would like to limit questions this morning, please, solely to our full year 2013 financial results. The key features of the year were we reported a full year 2013 operating loss of GBP 2.3 billion. This loss includes the charges for establishing RBS Capital Resolution, or RCR. Operating profit pre-RCR charges was GBP 2.5 billion. Non-core completed and exceeded its asset reduction task ahead of plan. RCR is up and running, and our outperformance in non-core means we are off to a very good start on our RCR execution plan. The safety and soundness agenda is firmly embedded across the bank. Our funding and liquidity metrics are strong, and we have made excellent progress again this year in reducing RWAs and funded assets. Turning to our full year 2013 financial performance and the key lines of the P&L. Total income, excluding a GBP 333 million RCR-related valuation adjustment, was down 10% on last year. This largely reflects a GBP 1.2 billion income decline in markets as the balance sheet is scaled back. The retail and commercial businesses saw income down 4%, or nearly GBP 700 million, from lower activity levels in U.K. corporate, U.S. R&C, and international banking. Deposit repricing and reduction of lower yielding assets drove group NIM up nine basis points to 2.01% for the full year. Q4 NIM was 2.08%. Costs improved 4% year-over-year, reflecting a 19% reduction in market staff costs, while non-core saw total expenses down 36% year-over-year, as head count declined by 55%. The group's cost income ratio for the full year increased five percentage points to 68%, reflecting lower income. Excluding the GBP 4.5 billion RCR impairment charge, underlying impairments fell GBP 1.3 billion year-on-year to GBP 3.9 billion, and now represents circa 1% of total loans and advances. The main positive drivers of impairments were non-core and core Ulster, partially offset by small increases from international banking and U.S. R&C. Group coverage of non-performing loans was 64% at the year-end, up 12 percentage points in the last 12 months, reflecting RCR-related charges. Full-year operating profit, excluding RCR charges, was GBP 2.5 billion, down GBP 400 million on the previous year. The improvement in both Ulster and non-core operating losses was outweighed by the decline in markets. We recorded a full-year attributable loss of GBP 9 billion. This loss reflects the GBP 4.8 billion total charge to establish RCR, GBP 2.4 billion provisions for litigation and related conduct matters, GBP 1.5 billion of PPI and interest rate hedging product top-ups, and DTA and goodwill write-downs totaling GBP 1.8 billion. Tangible net asset value per share was 363p at the year end. Looking at our businesses, retail and commercial's full year 2013 operating profit, excluding RCR charges, was down 4% year-on-year. A positive performance from U.K. retail and a circa GBP 500 million improvement in Ulster's operating loss was outweighed by lower profits in U.K. corporate, international banking, and U.S. R&C. R&C's ROE in the fourth quarter was 9%. Markets operating profit, excluding RCR charges, was down 58% on last year, as income declined by 26% and costs were down 11%, as we reduced the balance sheet by GBP 72 billion. Non-core has now completed and exceeded its five-year objective to run off over GBP 200 billion of funded assets. At the year end, assets had declined to GBP 28 billion, ahead of the recently revised target of GBP 35 billion. Operating losses, excluding the RCR charge, were down 27% year-over-year. Turning to capital, we reiterate our target of a fully loaded Basel III core equity Tier 1 ratio of circa 11% by 2015 and 12% or greater by 2016. In January, we announced that we would provide GBP 2.9 billion of conduct and mitigation charges that were allowed for in our future capital planning scenarios. As a result, RBS's fully loaded Basel III core Tier 1 ratio was 8.6% at the year end, very slightly ahead of recent guidance. In 2013, we generated circa 2% of underlying fully loaded Basel III core Tier 1 capital, reflecting strong non-core and markets de-leveraging. Our future path to the 12% or greater core Tier 1 target remains clear. The successful IPO of Citizens, the successful rundown of RCR, as well as further targeted risk weighted asset reduction, will be the main drivers. Our leverage ratio continues to improve, up 40 basis points in the full year 2013 to 3.5%. Our long-term leverage ratio target is greater than 4%. Turning to RCR. RCR's starting point is assets of GBP 29 billion, better than originally envisaged, as a result of non-core asset reduction. Consequently, in H2, RCR related funded assets were reduced by GBP 18 billion. This reduction includes GBP 6 billion of disposals and GBP 5 billion of runoff. The rundown process to date has reduced RWAEs by GBP 72 billion. Today, we have firmed up on our future targets for RCR. We now target reducing assets to GBP 23 billion by the end of 2014, to GBP 11 billion-GBP 15 billion by the end of 2015, and less than GBP 6 billion by the end of 2016. We are confident that we can achieve these new targets, and we will update you on our progress throughout the coming periods. Before I hand over to the operator for questions, just two further items. First, we will provide a full restatement of RCR and the new reporting structure in Q2 of this year. Second, I want to remind you all that we will be holding an analyst and investor presentation on the RBS strategy update here at 280 Bishopsgate this afternoon at 2:00 P.M. to walk you through the detail. There will also be a live webcast. Thank you. Operator, we are now ready to take questions. Thank you. Ladies and gentlemen, if you would like to ask a question, please press the star key followed by the digit 1 on your telephone keypad. We will pause for a moment to give everyone an opportunity to signal for questions. Our first question comes from the line of Chira Barua from Sanford Bernstein. Please go ahead. Chira, your line is now open. Nathan, morning. Sorry about that. Are you taking questions on the cost plan or is that something for the afternoon? No. Sorry, that needs to really be this afternoon. I think we have to put all of these things into the complete context, and therefore be able to answer across the full range of the different aspects. So appreciate it may be frustrating for people for the call this morning, but we tried to break the two between results this morning, and the strategy presentation this afternoon. Okay. Nathan, just a quick question on NPLs and impairments. I have gone through your slides. Your NPLs are falling. Asset prices are increasing across most of the collateral coverages that you have. Your coverage is at 64%. In Q3, you said as a bank should run about 30 basis points of impairments, given that you have already taken the hit in, what do you call, IBV. Right now, why are you saying that impairment should be 40 to 60 basis points in the next 2 to 3 years? It would be great if you can just walk me through the risk profile right now. Where do you see the risk, where they have bought NPL and coverage risk across your asset classes? Yeah. I think over the period for, let us call it, the 2014-2016 period, I think you still have to be thinking in the sort of 40 to 60 basis point territory. We still do have within the likes of, say, something like a U.K. corporate, for instance. We have still got our concentrations around the likes of CRE, which we are bringing down, making good progress on those fronts. At the moment, those types of things for me would still lead us to be running at slightly higher than what I would think is the longer run. Chira, it is Rikki here. Just to add to that, the 2014 to 2016, we still got RCR, and we are flagging GBP 1 billion of impairments across those years in RCR, so that distorts the group ratio. We are still looking for the number you said around 30 basis points once RCR has gone. On NPLs, you saw a good Q4 trend underlying, as you can see on the slide. Clearly, we will be targeting going down to 2.5 to 3.5 as RCR runs off over the next 2, 3 years. So no change in guidance there. In terms of the market, we flagged that clearly the RCR team are pretty active and taking advantage of good market activity at the moment. So that is how we would sort of see that side of the equation. Thanks. Is there any revision to disposal guidances as well for the remaining book? No. No change to the disposal guidance. Yeah. Okay. Cool. Thank you. Our next question comes from Chin Joshi from Nomura. Please go ahead. Good morning. I'll try and focus on Q4. The first question is on risk-weighted assets. If you look across your book, where do you see the risk from PRA increasing risk weights across your portfolio? Because it seems to be something that's on their minds, and I just wanted to understand where you see risk for RBS for higher risk weights. The second question I have is on restructuring charges. If you could give us some kind of timeline of the cost to achieve, kind of how do we spread it across the coming years. Thank you. Okay. On risk-weighted assets, I actually believe that we've taken into account all of the major changes that I was expecting to come through. As you know, there's been multiple different ones that PRA have been interested in over the past periods. That includes things like the large corporate model type elements, et cetera. But for those things, those are done. I'm not expecting anything particularly major there. In terms of restructuring costs, we'll be talking through those this afternoon, and indeed, giving you the ability to have the guidance for each of the coming years. There's a restructuring cost slide, which sets it out, which you can look at ahead of the meeting this afternoon. Sure. Then if I could just ask one more then. In terms of net interest margin guidance for 2014, clearly we seem to be improving at 2.01% currently. Could you give us a sense of what kind of improvements we should expect for 2014? Yeah, I would expect it to be marginally up. I would expect it probably sort of range somewhere between 2.10%, 2.15%, something like that. That's great. Thanks. Okay. Our next question comes from Christopher Wheeler from Mediobanca. Please go ahead. Yes, good morning, gentlemen. Just a couple of quick questions. First of all, slide 15, the GBP 429 billion of fully loaded RWA. Can you give us an indication as to how much of that is now markets, including any of the securitization uplift, which I seem to remember was always separate from the famous GBP 80 billion target that you set yourself? That's the first question. The second question is just to give us whatever update you can on litigation and where you are in terms of progress on obviously things like foreign exchange, tidying up LIBOR, but also in terms of the Swiss issues around cross-border wealth management activity, which obviously got a lot of press yesterday. Thanks so much. Okay. Yes. In terms of the GBP 429 billion fully loaded, that includes circa GBP 100 billion for markets, RWAs, and that includes the various uplifts vis-a-vis securitization, et cetera. I think we actually do give the number for that on slide 17. So, the actual number is about GBP 19 billion. Right. Okay. Yeah, there too. Thank you. Yeah. Sorry, the second question again was? It was where you are on the litigation issues, and what is the. I know you are not going to give me a number, that is not like. Just give me some kind of timeline of where you think you are on these issues. Are they 2014 issues, 2015 issues? Well, like all these things, as you know, litigation and indeed regulatory type investigations, it is very hard to predict how long those types of things will take. The things like FX, you read all of the various things as well in the press, and you will know that these things have started, but I am sure will take some time to actually pan out. In terms of other items, we have dealt with a lot of those at the year-end. Again, we covered our U.S. type RMBS. I think most of those types of things are already on the blocks. There are a few things clearly that we all know that may come to gestate over time. But that is where I would see us at the moment. Chris, there's been no developments over the last two, three months of note. These things are trudging along, but they generally take quite a long time. Yes. I really love that. Thanks so much, guys. Thank you. Okay. Our next question comes from Manus Costello from Autonomous. Please go ahead. Good morning. I had a couple of questions on the balance sheet, please. I noticed, Nathan, that you are deciding to issue equity again to pay hybrid coupons. I just wondered why you're asking equity shareholders to pay up for those coupons yet again, and why you wouldn't just suspend those coupons going forward. It seems to be an ongoing feature that happens every year for you now. Secondly, your LCR you've given now is 102%. I think you just said over 100% previously. One of the arguments that's always been put forward for you guys is that you have a great deal of excess liquidity, and there's a lot you could do there. In the light of that LCR ratio, should we assume that actually the liquid asset balance that you've got at the moment is about right, and we shouldn't necessarily expect any reduction in your liquid asset buffer? Actually, Richard, do you want to pick up the first one? I'll do the first one, because as you say, it's been an ongoing theme. Look, it's something the board considers very carefully. It's certainly not ideal issuing equity, as we all know. However, we are active in the debt markets, and as you saw last year, we issued Tier 2 securities, and we'll look to carry on doing that this year. It would be very, very difficult for us to do that and continue with our capital management program if we were paying preference dividends. So it's a costly balance debate, and it's something which we weigh very carefully. Net-net, we think the benefits of paying the preference dividends in the round, given our overall capital management program and our debt market status outweighs the costs. But obviously, it is a cost to shareholders, and it's not one we take lightly. In an ideal world, we will move into attributable profit, and therefore we will just pay this out as cash. But obviously, this is something we have to balance. The board balances, and we discuss with the PRA each year. Would that be the trigger, Richard? That you'd have to actually You've obviously got quite big charges coming through in 2014 as well. If you have an attributable profit, you'll be able to pay these in cash? I think if you look at another institution, then you clearly look as how you move into attributable profit and when you would discuss with the PRA and then with your board Yeah when you would be able to turn off the equity program. That's something we would clearly look to do. We normally discuss this with the board and the PRA December, January, so those discussions will start again next December and January, no doubt. Okay. On the liquidity portfolio. Look, as you can see, the balance sheet will continue to come down. So our guidance on liquidity portfolios, it's still somewhat elevated by around GBP 20 billion. If we can lend that money out productively into our core businesses, then that will be good for the margin, and will be good overall. But in the meantime, the balance sheet continues to shrink, so we'd expect to still to have a very credible LCR ratio in the medium term. But that 20 billion of excess would, if you use that now, that would take you below the 100% LCR, right? It would if you did it immediately. But clearly, we're talking about GBP 20 billion over a couple of years. Sorry. RCR itself is coming down by that number. So the things tend to balance each other off. Understood. Thank you. Our next question comes from Fahed Kunwar from Redburn. Please go ahead. Hi. Morning. I just had a couple of questions around the markets business. I was looking at the compensation and the kind of cost trajectory of the markets business. The comp income ratio went from, I think, 14% last in 4Q 2012 to 31% in 4Q 2013. But it doesn't seem to have stopped the kind of losses in market share that we're seeing. Your revenue quarter-on-quarter is down 25% versus peers, fixed peers around the 5%. What is the trajectory for that business? Obviously, it's very important in terms of you guys getting to a reasonable ROTE. But if you are starting to pay staff, but you're still losing market share, how do you arrest those market share declines? Or is there something else driving the 25% fall Q on Q? I'm afraid I'll be the bad cop here again, because clearly this will be addressed in the meeting this afternoon by Ross and Nathan Bostock. The compensation ratio you quote, 4Q 2012 was distorted by, quite frankly, the LIBOR situation and clawbacks, so the ongoing compensation ratio you would expect to be in the mid-thirties. Okay. Clearly, that business has a very high overhead and infrastructure cost. If your income is not covering that overall cost base, then that's something which we have to address. As I say, we'll look to address that starting with this afternoon. Okay. The second question was just a clarification point. The GBP 1.9 billion you took on RMBSs, how much of that was related to FHFA redress, and how much was related to kind of a provision for potential civil litigation? No, well, we haven't broken that out, so it covers RMBS litigation more broadly. Oh, I see. But within that, there is FHFA, but there could be more to come. As I say, it covers RMBS litigation more broadly. Yeah. Okay. Perfect. All right. Thanks a lot. Cheers. Our next question comes from Rohith Chandra-Rajan from Barclays. Please go ahead. Morning. A few, if I could, please. First one just on the RCR. You have given some detailed guidance in terms of where you expect the assets to be. I was wondering if you could add any color on RWAs. Very much proportional. Yeah, very much proportional, yeah. To the current. Yeah? Okay. Just assuming the same risk weighting. Yeah. Within reason, yeah. Okay. Just like long core, they've already followed each other down. Yeah. Okay. Then just briefly on costs. Looking across most of the divisions, it was the sort of other directs, which seems to step up in the fourth quarter. Is there anything in particular behind that, or was there something unusual that happened in the fourth quarter? Because it doesn't necessarily look like normal seasonality. I think in the fourth quarter, there were some smaller conduct charges that would have gone into that particular line. Yeah. We split it out. It's GBP 179 million in Q4, and of that, GBP 60 million is in retail and about GBP 70 million is in corporate, so that distorts some of those lines. Okay. Thank you. Then the last thing, I don't know if you're willing to address this now, was just on the dividend access share. There's no progress reported on that. I just wonder if you could provide any color on what the expectation is there. Yeah, sorry. That's going to be another frustrating one. We can cover that this afternoon, I think. Yeah. Okay. All right. Thank you. Our next question comes from Jason Napier from Deutsche Bank. Please go ahead. Good morning. Thank you for taking questions. Two groups, if I may. The first just on conduct provisions. Your slide 14 this morning says that the charges taken were broadly in line with future capital plans. Can I just understand what a capital plan is supposed to denote? Given that this relates to historic conduct, why these weren't provided for in the past if they were already in your outlook for capital? Do you want to do that or shall I carry on? Yeah. Let's just cover that. I think the way I would look at these things is that if you are going to produce a capital plan and you are going to go to the market with targets that you absolutely intend to deliver, then it is important that in that capital plan, you run through a variety of different scenarios with potentially different outcomes, and you make sure that the plan is suitably robust. The way I think of it is, what sort of confidence level do you have around that delivery? That is exactly what we did. And we included in that a variety of different scenarios. With regard to the specific, the specific is we actually reached a point where from an accounting perspective, it was indeed right to recognize the potential. So it becomes into the estimatable, et cetera. Right. But you are not meaning to intimate the provisions now are in excess of what is required. It is still your base case that provisions are adequate in this regard? Yeah. Best estimate, yeah. Okay. Secondly, just around capital, and apologies if I have missed it. I clearly have not read all of the pages that you have put out today. But in terms of conversations that the press has reported that you have been having with the regulator on adequacy of capital, are you able to give us a sense as to whether you are clear that there will be no further discrete business disposals, things like Coutts, I guess, have been discussed? And are you going to be able to disclose a sense as to what level of capital you think the regulator requires of you, two of your peers have done that. And then lastly, on this topic, you mentioned Citizens as one of the clear building blocks in your plan to accrete capital going forward. Two questions. One is, assuming you got it listed at TNAV, just as a what if, what would that add to CT1? Secondly, from an accounting standpoint, does that happen at the point where you are below 50%, or at what point does that actually happen in the books of RBS? Thanks. Thinking about the latter one, in terms of Citizens, our view is that it is between 200 and 300 basis points that it contributes towards our capital journey. Again, we will cover that later today. In terms of the overall capital plan, again, this has been part and parcel of our conversations with our regulator, as you would normally expect. Indeed, again, we would not be coming out if we were not comfortable that they were suitably on board with it. On Citizens, you get the kicker when you go below 50%, so you are right. Okay. On your plans, that happens in 2015. That is correct, is not it? That is correct. That is correct. Yep. That is right. Okay. Thank you. Just to be clear, though, the 200-300 basis points, that is not a TNAV number. That assumes you get better than TNAV over the entire disposal period, right? No, it doesn't. No, I think the thing that, again, I will cover it this afternoon, but it's relevant to this morning. Sure. The reality is, as well, you have to think of the denominator and the size of the actual denominator changes over the life of the period 2013 through 2016. That can make a significant difference to the contribution to the ratio. Yeah. RWAs coming down, obviously, becomes a bigger proportionate benefit. Okay, great. Thank you. Our next question comes from Alastair Ryan from Bank of America. Please go ahead. Yeah. Thanks, good morning. It's sort of Citizens theme for a while. Just on, there's a bit of loan growth in the fourth quarter, whether that's forward-looking. There's a comment in the report about you've started buying in loans again, which I guess, hopefully, is different to buying in the loans last time around. But just whether there's some sustainable loan growth picking up. Secondly, obviously, one of Citizens' issues has been it's had a higher cost income than its peers. Whether that's you're basically expecting to amortize that away through growing revenues or whether there's more to come on the cost. Okay. On the loans, again, to the extent that we do buy in any loans, we have a very strong risk discipline that we've put in place. But you can expect loan growth to continue in the Citizens book. In terms of the cost income, I think, in reality for Citizens, they're going to be very focused on both the income and the cost. Yeah. Alastair, it's Richard. Yeah, just to say, the commercial business is performing pretty well over there at the moment, and we expect that to continue this year. As you know, for Citizens, it's as much a revenue problem as a cost problem. So I'd say that clearly, to get to our cost income ratio to down nearer to 60, about 60%-70% will come from revenues and the balance from costs. Thank you. Our next question comes from Chris Manners from Morgan Stanley. Please go ahead. Good morning, everyone. Morning. I just had a question just maybe on a little bit more about what's going on in the U.K. retail business. Because I saw quarter-on-quarter, the net interest margin looked like it went down a couple of basis points, seeing some of the peers actually reporting NIMS in U.K. retail ticking up. Just wondered maybe if you could talk a little bit about the outlook for that business just in terms of the loan growth you're expecting and potential for maybe a little bit better margin trajectory, because I was just a little bit surprised by that. Yeah. Thanks. Sure. I think the margin in the Q4 is really noise. I wouldn't- Yeah I wouldn't consider that to be an issue. I think, again, we're optimistic with regard to U.K. retail. In reality, our mortgage business is now doing better, and we would expect that to continue. There's a little bit of a drag around the unsecured side relative to that, but we would expect it to be net positive. Yeah. Chris, the outlook for the margin is broadly flat. By doing more mortgage business, you have a bit of a negative mix impact because obviously mortgage is a lower margin than the unsecured book. On the other hand, deposit pricing is still pretty benign. So broadly it's a flat outlook for margin. But we would expect some reasonable loan growth this year, primarily on the mortgage side. Okay. Thanks. Our next question comes from Jonathan Pierce from Exane. Please go ahead. Yeah, morning. Question is about the EU Resolution Fund. I know it is perhaps not so important in the context of your big cost moves over the coming years, but it is clearly important in terms of ongoing costs and particularly for other banks. My question is, the GBP 400 million uplift that you have identified, part of that is bringing the UK bank levy above the line, I think. How much have you allocated towards the Resolution Fund charge, and how are you calculating that? Is it, I do not know, 5 to 10 basis points of your entire deposit base? Just a bit more color on that, please. Well, we have allocated around about GBP 200 million to it, and to the bank levy. I think at the moment, let us call it more of an art view than a science, but we feel that it is appropriate. Yeah. Based on all the published documents, we are reading the same documents as you, Jonathan, and interpreting them, again, the same as you would. Okay, so about 5 basis points of your entire deposit base. Yeah. Thank you. Our next question comes from Michael Helsby from Bank of America. Please go ahead. Morning, everyone. I am done. I will see you this afternoon. Thank you. Our next question comes from the line of Sandy Chen from St. Louis. Please go ahead. Yeah. Morning, guys. Just two quick questions. One on slide 17. Could you talk me through some of the expected loss items, particularly the CVA, PVA, and offset restrictions? Page 17. Yeah, slide 17. Had a partly related question on FVA as well. Sandy, it's Richard here. The expected loss came down as a result of the creation of RCR. Yes, of course. But there are other moving parts. We've hit what we call an EL minus P floors, i.e., you can't go below zero in certain legal entities. Think Ireland. Understood. That's an offset of about GBP 600 million. What you've heard about and read about in the rest of the industry in terms of the interaction between CVA and PVA. We no longer get the CVA offset on EL, but then you get a PVA positive offset back. It's all set out on the table relatively clearly, as best as we can. Okay. Yeah. The CVA and the PVA effectively net themselves off. The offset is really Irish related in terms of the ELP floor? The CVA doesn't completely net off, but absolutely. Directionally, you're right. Yeah. Okay. The other question I had was on page 74 of the results. Just related to the Q4 versus Q3 lower income in treasury and other funding costs. Is that FVA related, or is that something else? Or does the FVA change show up in net interest income? No, it doesn't show up there. These are just the normal portfolios. It's a debit this quarter, and there was a credit previously. If you look at the year-on-year, it just happened to be a debit this quarter. So it's normal noise within treasury funding costs and volatile AFS items. All right. Thanks very much. That's it. Our next question comes from Joseph Dickerson from Jefferies. Please go ahead. Hi, good morning. Thank you for taking my call. I just have two quick questions, please. In terms of the excess liquidity amount that you mentioned, what is the appetite to do things like liability management at this point and clean up the capital stack a bit, firstly. Secondly, when I look at the tax cost, there was a GBP 700 million charge under the U.K. DTA that I wasn't expecting. I was just wondering what drove that. If you could give me some color on both of those, that would be great. Thank you. Yeah, I'll do the first, and Nathan will cover the more important second one. Look, on liability, as you know, we've been active in the markets over the last few years. We'll continue to look to do that to clearly optimize net interest income. But clearly, some of these prices in terms of day one losses are not attractive to us. So we'll look at it tactically, but there's nothing out there at the moment, anything more than tactical. If you look for more detail, there's a debt call tomorrow afternoon, and the debt specialist can talk about it then, but that would be our guidance at the moment. Yeah. The DTA write-off relates to RBS PLC. Obviously, tax very related to specific entities. What we've done there is we've clearly calculated our forward profits. It's the entity in which we book our markets and basically our wholesale related business. As you know, overall market revenues, et cetera, have been coming down. Also if you look forward on restructuring type costs and things to come, it was our view that the extended period that our DTAs would run out over, which was beyond the period we felt was reasonable and prudent. So we have written down our DTAs to a circa eight year usage period. Thank you. Our next question comes from Claire Kane from RBC. Please go ahead. Hi there. Maybe one quick follow-up to Joe's question first on the DTA. The deduction on slide 17 is unchanged. Has the total DTA not come down, so would not the reduction come down as well? Yes. I think this is probably related to the fact that we would have had increased DTAs as a result of the provisions, and that's the year-end. Basically, it just happens to be a rough offset in the actual amount. Okay. If we hadn't written it off, it would've been GBP 3 billion. Yeah. Oh, okay. Also just on your Pillar 2B, I guess the RCRs come down faster than you'd expected. Could you tell us if perhaps there's any reduction today versus your 1 percentage point impact for the Pillar 2B requirements? Also, would you disclose what your Pillar 2A requirement is today? Thank you. No, we don't disclose those particular aspects of our relationship with the regulator. Obviously, RCR and the reduction of the exposures in RCR remains, as we said previously, a critical part of us managing our forward capital stress position. Again, we've started in a very good position there off the back of the non-core. But it's too early to really work that through. Okay, thanks. Our next question comes from Edward Firth from Macquarie. Please go ahead. Yes, good morning. Could I just ask you about capital management? I guess the turn of my question is, you have given us some pretty good targets for 2015 and 2016. But if I look in your statement, four weeks ago, you were giving us quite a chunky range for Core Tier 1. In the event, you have actually come out a little bit even above that. I guess my question is, was there something particularly peculiar about the first quarter which made that uncertain? Or is it actually a quite indistinct science, and should we read into that you might have to carry some reasonably chunky buffers as you forecast your capital position going forward? I would not read into it that we need to carry any particular chunky buffers. I think it is like anything. A lot of the things that you are doing in your calculations, you have to run through all of the various different aspects in order to be able to close these things off at the year-end. At the point that we went out with the other information, we still had a lot of moving parts. I wanted to try to make sure that I was giving people as reasonable a position as anything. But if you think about it, even if you thought you were in the eight three and a 20 basis points either way is not actually that much relative to the size of some of the individual items. But I guess if we are looking out three years, those uncertainties must be magnified many times over, yeah? No, I do not think so. In reality, as we have said in the plan, there are key elements to our overall transition. Again, we will touch on them this afternoon. But those clearly do relate to the Citizens and the RCR and our overall RWA reductions. But I do not think the individual items that related to the range at the year-end are relevant to that longer-term picture. This was the first time we had actual CRD4. Clearly, as you said, there are more moving parts than normal. That will land more going forward. Okay. Thank you so much. Thank you. Our last question comes from Andrew Coombs from Citi. Please go ahead. Yes, good morning. A couple of questions, please. Firstly, looking at your customer deposits, they have declined by 4% quarter-on-quarter to GBP 418 billion. Digging into the divisions, it appears mainly to be due to markets and international banking. You talk about repricing deposit product suites. Perhaps you could elaborate on that. My second question, just with regards to the movement in the shareholders' equity quarter-on-quarter. You outline on page 88 to page 89. Obviously, the majority of the move is due to retained earnings. To some extent, you had previously flagged that. But also just interested in the FX reserve. You have another GBP 400 million charge on retranslation of net assets. I am just trying to get a feel for exactly what is driving that within the shareholders' equity movement. Thank you. Okay. Thank you. I will pick up the first one, and Richard will cover the second. The thing on the deposit side, what we have said is that we are focused on driving and maintaining a loan-to-deposit ratio of circa 100. We are actually below that at the moment, and therefore in a very strong position. However, it does not enable us to optimize our earnings as much as we would like. We have been very focused and proactive in ensuring that we are not overpaying for deposits that we do not need. In fact, what you are seeing is in that balance sheet reduction is precisely that activity, and precisely the activity that therefore also helps to drive NIM. Andrew, just on. You mentioned a page number. I would probably prefer everybody to page 83, where we go through the statement of comprehensive income. That sets out pretty clearly the movements between AFS reserves, cash flow hedges, and currency translation. Obviously, we are a sterling reporter. Our US dollar assets are substantial. Sterling strengthened versus the dollar, so therefore you have a translation loss. You also had a currency translation loss relating to movements in interest rates on interest rate hedges. Clearly, that can move up and down depending on interest rates. You guys can see the movements in interest rates on a daily basis. That will move around quarter-on-quarter. On the offset side, it will impact NIM as we all know. That tends to be offset by interest income, and translation will just move around based on primarily the sterling dollar rate. Perfect. Thank you. Thank you. Nathan, I will now hand the call back to you for closing comments. Okay. Well, thank you all very much for joining us this morning. It is appreciated. And for those of you who are going to join us this afternoon, I look forward to catching up then. Thank you very much indeed. Ladies and gentlemen, that will conclude today's call. Thank you for your participation. You may now disconnect.