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Edited Transcript of RBS.L earnings conference call or presentation 24-Feb-17 1:30pm GMT

Thomson Reuters StreetEvents

Full Year 2016 Royal Bank of Scotland Group PLC Earnings Call (Fixed Income Investors)

Edinburgh Feb 24, 2017 (Thomson StreetEvents) -- Edited Transcript of Royal Bank of Scotland Group PLC earnings conference call or presentation Friday, February 24, 2017 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ewen Stevenson

The Royal Bank of Scotland Group plc - CFO

* Robert Begbie

The Royal Bank of Scotland Group plc - Treasurer

* Matt Richardson

The Royal Bank of Scotland Group plc - Head of Fixed Income IR Team

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Conference Call Participants

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* Sameer Adadia

Citigroup - Analyst

* Greg Case

Morgan Stanley - Analyst

* Corinne Cunningham

Autonomouos Research - Analyst

* Robert Smalley

UBS - Analyst

* Tom Jenkins

Jefferies & Co. - Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. This afternoon's conference will be hosted by Ewen Stevenson, Chief Financial Officer. Please go ahead, Ewen.

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Ewen Stevenson, The Royal Bank of Scotland Group plc - CFO [2]

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Thanks, Steve. And thanks, all, for joining this afternoon or this morning, wherever you are in the world. It's Ewen here. I'm joined by Robert Begbie, our new Treasurer. For those of you who've not met Robert yet, he's been Deputy Treasurer here for the last two years and a very long-standing member of our Treasury team. I'm also joined Matt Richardson, who, no doubt, most of you know, Head of Fixed Income Investor Relations team.

We've put some slides onto our Investor Relations website, which Robert and I are now planning to step you through. I'll provide a quick overview of our full-year results that were out earlier today, then focus on our key credit messages. Robert will provide an overview of our balance sheet along with our issuance plans. And then we're happy to take your questions.

Turning to slide 3 of that presentation, you'll all have seen our results this morning. Look, it's clearly never pleasant to have to announce a full-year loss of this magnitude of GBP7 billion. But it does reflect a further GBP10 billion of one-off costs in 2016 that include the final dividend excess share payment to HM Treasury, further conduct and restructuring costs and additional capital resolution disposal costs.

But underlying our poor headline results is a lot of progress last year, progress with both our core Bank and progress with our legacy issues. We're targeting 2017 to be our final year of substantive cleanup. And subject to this being achieved, we're seeking to return to bottom-line profits in 2018.

For our three core businesses, 2016 was another good year of progress. Adjusted income growth of 4%, underpinned by strong deposit and lending volume growth in the UK, together with robust customer flows in network markets. Combined adjusted operating profits were GBP4.2 billion. That's up 4% on 2015, and that's despite a tougher rate environment. And an adjusted return on equity of 11.1%, the second year running we've achieved adjusted returns above 11%.

Against all of our announced financial targets, we've delivered again. This underpins our confidence in the achievability of our future targets.

So, turning to look at those targets on slide 4, as you may have heard, we confirmed this morning that, while recognizing the increased macro and regulatory uncertainty that exists at the moment, we're sticking to our medium-term targets, a 12%-plus return on equity and a sub 50% cost income ratio. We're targeting achieving these in the 2020 financial year. That's a year later than previously signaled.

Over the last three years, and excluding Williams & Glyn, we've reduced operating cost by over GBP3 billion. And over the next four years we've got increasingly robust plans to reduce it by a further GBP2 billion. And that includes a commitment to reduce cost by GBP750 million this year.

By the end of 2018 we're also targeting to reduce gross RWAs across our three core businesses by at least GBP20 billion or 11% of their combined RWAs at the end of 2016. This will underpin both further balance sheet resilience for us and improved balance sheet optimization.

On the next slide, we've an increasingly confident set of credit messages based around four key themes. Firstly, given our business mix spanning retail through to wholesale, we've got a well-diversified income stream. We're not overly reliant on any single customer or product segment. Secondly, piercing the noise that drives our bottom-line losses, our combined he three core businesses are already generating attractive returns and have been consistently doing so over the last eight quarters.

Thirdly, we're well progressed on our legacy cleanup. Our bad bank capital resolution shrunk its RWAs by a further 30% in 2016. And post a further targeted reduction during this year we expect to wind up capital resolution at the end of the year. This in turn will help complete our journey back to a resilient balance sheet.

And, fourthly, we continue to derisk our loan exposures. Over the last three years, we've materially reduced the percentage of our legacy non-performing assets. Our percentage of risk elements in lending are down by more than two-thirds over that period. And several of our higher-risk lending sectors, like shipping metals and mining, oil and gas, have all been materially reduced. And looking forward with our three core businesses, our risk appetite limits are positioned for the more uncertain economic outlook.

On slide 6 we've broken out the 2016 income across seven different segments. You can see from that what differentiates our credit story relative to UK peers is our spread of income, spanning personal, private, business, commercial and wholesale banking. No single segment driving more than 40% of our income, with wholesale banking only 13%. From this diversified income stream we can see good opportunities to grow further in sectors offering attractive risk-adjusted returns, with continued significant operating leverage as we deliver further on our cost program.

On the next slide, if you look at our three core businesses we've been generating attractive and stable returns for each of the last two years. In 2015, GBP4.1 billion of adjusted operating profits and an 11% adjusted return on equity. In 2016, GBP4.2 billion of adjusted operating profits, up 4% on 2015 and an 11% adjusted return on equity. This is the Bank we're restructuring ourselves back to, stable and consistent profit generation, not overly reliant on a single customer or product segment.

On slide 8, while we've made a lot of good progress in 2016 in resolving legacy issues, we recognize that we've got to deliver again this year. On restructuring costs, we expect to incur a further GBP2 billion over the next three years of which around GBP1 billion is expected to be incurred in 2017.

For capital resolution, we expect this to be the final year of peak disposal costs. Of the GBP2 billion of expected disposal costs we've previously identified, we've incurred GBP1.2 billion to date, and expect to expense the great bulk of the remainder during 2017.

On Williams & Glyn, the GBP750 million provision we've taken is our best estimate today of meeting the cost of the proposal that we outlined last week but not the cost of reintegrating and rationalizing the remainder of Williams & Glyn. If the proposal is accepted by the European Commission, we would expect to see some incremental restructuring provisioning at that point. On the timing of Williams & Glyn from here, if the proposal is accepted by the European Commission, HM Treasury will need to renegotiate and sign a new state aid agreement, and realistically that will not happen until Q4 of this year at the earliest.

On conduct costs, we've consistently talked of five significant legacy issues that need to be resolved; namely, US RMBS, the 2008 rights issue shareholder litigation, the FCA review into our treatment of our distressed SME customers, PPI, and FX. As reflected in the substantial conduct cost taken in last year's financial results, we made good progress against these in 2016.

I was not planning to cover in my remarks any of IFRS 9 structure reform and Brexit planning, and Robert will cover our proposed capital reorganization to create additional distributable reserves, but we're happy to pick up on any of those topics in Q&A. So, while 2016 saw substantial one-off costs and we expect 2017 to see further elevated one-off costs, we can now more confidently foresee that these are coming to an end. This in turn will drive substantially improved balance sheet resilience, translating into what we would expect to be progressively improving stress test results.

On the next slide, over the last three years, despite absorbing significant one-off costs, including a further GBP10 billion in 2016, our core Tier 1 ratio has built up by 480 basis points from a weak 8.6% to 13.4% at Q4 2016, 40 basis points above our 13% target. Over the same three-year period, our leverage ratio increased from 3.4% to 5.1%, including raising GBP4 billion equivalent of AG1 since Q3 2015.

With the further rundown in capital resolution, some GBP34.5 billion of RWAs at Q4 2016, and the additional GBP20 billion of gross RWA optimization we announced today in the core Bank, we've significant further gross core Tier 1 release as these RWAs are taken off our balance sheet. And together with the ongoing core earnings generation, we expect material additional CET1 buffers to be generated over the next few years to absorb any further one-off costs as we complete our restructuring.

Finally, for me on slide 10, alongside all of the one-off legacy cleanup we've been doing, less noticed is the substantive change in the profile of our risk elements in lending over the last three years. This has been a key plank of improving our balance sheet resilience. At the end of 2003, risk elements in lending represented 9.4% of gross loans or some GBP39.4 billion.

At the end of 2016, this had been reduced to 3.1% of gross loans, down two-thirds, or some GBP10.3 billion remaining. And if you back out two remaining legacy non-performing portfolios and capital resolution and Ulster Bank Republic of Ireland, our underlying core risk elements in lending as a percentage of gross loans is now just 1.5%.

Looking forward, our recent growth in credit has been predominantly in the secured sectors and within our risk appetite limits. So with that, I'll now hand back over to Robert.

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Robert Begbie, The Royal Bank of Scotland Group plc - Treasurer [3]

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Thanks, Ewen, and good afternoon, all. A few key messages to begin with. Ewen has highlighted the strategic progress we have made at the Bank and our focus on driving efficiency. My agenda in Treasury is no different.

The good news is that we built from a solid base of funding and liquidity metrics, along with a much improved capital position. This, combined with the issuance we completed last year, simplifies our needs in 2017. We target GBP3 billion to GBP5 billion of senior HoldCo debt with no need for further AT1 or Tier 2 this year.

In addition, Ewen has already highlighted the targeted balance show we are achieving at our CPB franchises. And to support this growth we target a progressive return to other forms of funding.

Turning first to an overview of the balance sheet on slide 13, we have maintained a solid set of key balance sheet metrics over the year. The loan to deposit ratio rose from 89% to 91%, primarily reflecting our lending growth. While LCR declined from 136% to 123%, this in part reflected the strategic progress we have made during the year, most notably the cash payment of GBP4.2 billion contribution to the pension scheme.

Ewen already touched on the major movements in our capital position during the year, so let's turn to look at the regulatory requirement changes on slide 14. We were pleased to confirm a reduction in our pillar 2A requirement in December which reduced in total from 5% to 3.8%. This reflects the progress we have made in restructuring, most notably the contribution to our pension scheme.

However, I would note pillar 2 remains subject to change. We continue to run stress risk and we continue to monitor future regulatory buffer requirements. So, while this reduction is good news for investor as it reduces our MDA floor, we have not changed our target CET1 ratio, maintaining this at 13%.

Turning to look at MDA in more detail on slide 15, a chart you will recognize from previous presentations. This outlines how regulatory buffers continue to phase in. It's worth noting, our GSIB requirement reduced to 1% from 1.5% at the start of this year. We are often asked if we expect to solve to zero. While we believe our end state suggests it would, final discretion is in the hands of the regulators.

Regulatory discretion is a point which extends more broadly to our final MDA requirements. For example, we anticipate the counter cyclical buffer will be reintroduced and final calibration will remain sensitive to pillar 2A. Irrespective, we continue to believe that delivery of our strategic plan should deliver an improved credit profile. And the timing of this should coincide with the higher MDA hurdle rate.

Turning to slide 16 and our ability to service coupons, 2016 saw a reduction in the distributable reserves of our Holding Company, reflecting the impact of distributions to repay the dividend access share, equity preference share redemptions, and a reduction in the carrying value of our subsidiaries. That leaves us a at GBP8 billion as at full year 2016. However, to put this in context, annual new sale AT1 coupons are GBP290 million and outstanding legacy equity denominated press are just below GBP5 billion.

Nonetheless, we have plan to increase our distributable reserves. As announced at Q3, we intend to reorganize the reserves of our group Holding Company over the course of 2017 through a legal process described as a capital reduction. This will reclassify the non-distributable reserves and the share premium and capital redemption reserve accounts, crediting GBP30 billion to P&L reserve, which is ultimately distributable. This process requires 75% of shareholders voting in favor at our next AGM, then subsequent court approval, which we would hope so receive over the course of the summer.

Now let's look at our issuance plans on slide 17. As I noted at the outset, the strategic progress we have made makes our issuance plans relatively straightforward. We have GBP4 billion of AT1 already in issue which we believe broadly meets our immediate needs. And we have no need for Tier 2 in 2017, so our issuance focus will be primarily on building our ML stack, which I will discuss in more detail next.

We also intend to be more active in the funding markets with issuance designed to support the targeted growth we are seeing in our CPB and PBB franchises. So, expect us to be a progressive covered bond issuer and to consider the securitization markets whilst also participating in the TFS scheme.

Turning to slide 18, we received greater clarity on final MREL requirements during the second half of last year, and we have attempted to show the implications for us in this slide. This simplistically applies future MREL requirements against our current regulatory ratios while assuming a GBP200 billion RWA denominator. Needless to say, from the outset both regulatory requirements and RWAs are subject to change.

Under this illustration, we would require approximately GBP23 billion of MREL over and above our CRR capital requirements by 2022. This would require GBP3 billion to GBP5 billion HoldCo senior issuance per annum. This issuance will be offset in part as OpCo senior continues to roll off.

Consistent with previous disclosures, we have shown MREL value of our existing non CR compliance instruments in the stack on the right. This covers HoldCo senior and legacy Tier 1 and 2 debt. However, this should not be taken as a statement of future approach to these instruments. And there is no change in policy of managing our stacks for value, balancing amongst other things regulatory value, comparative cost, while keeping an eye on the rating agency value.

Finally, on slide 19, a reminder on our future structure. No new news here. We continue to solve to a broad ring fence with HoldCo the issuing entity of bill and debt, while OpCos will be used for tactical funding where required.

The real news is we are getting on with that, and we continue to target broader structural compliance in 2018 ahead of full implementation in 2019. We transferred 11 legal entities at the start of the year and created a Holding Company, NatWest Holdings Limited, for the ring-fence bank. And we have removed RBS assets from our covered bond pool in preparation for shifting the program over to the NatWest entity in 2018. With that, let's hand back to Steve to open up for any questions you have.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Thank you. The first we have today comes from [Sameer Adadia] from Citi. Please go ahead.

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Sameer Adadia, Citigroup - Analyst [2]

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Hi. Good afternoon, thanks for the call. Three questions from us. Firstly, why would you looking at issuing tactical OpCo given your liquidity position -- tactical senior unsecured? Secondly, beyond US RMBS, is there any other matters in 2017 that would lead to one-off charges? And, finally, do you expect significant change in your operational risk rates once the US RMBS settles?

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Robert Begbie, The Royal Bank of Scotland Group plc - Treasurer [3]

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I'll take the first one. I would say our MREL requirements, as I touched on, I think we view certainly returning to the securitization markets as a good way to build a diverse set of funding options for us on a go forward basis. Ewen's touched on the good targeted growth we've seen in the retail bank and the corporate SME space. And it's quite natural to see secured markets as a vehicle if we're able to minimize the funding cost of funding that alongside our use of TFS.

Outside of that, really, any other unsecured issuance will really be partly to prepare for ring fencing as we make sure we've got the right levels of funding in each of the entities. We have to split off NatWest markets as a standalone non ring-fence bank, and managing that process around the funding of that entity as we move into that period is really what's behind that rather than any fundamental need to issue.

I think the other part to this is that people look at LDR as being the only -- or not the only but certainly a predominant -- metric which it is in terms of our funding position, but you've also got to look at the relative liquidity value of your funding sources, as well. Both TFS and secured funding offer liquidity cost benefit ways of funding our book.

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Ewen Stevenson, The Royal Bank of Scotland Group plc - CFO [4]

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Then on, is US RMBS the only outstanding litigation and conduct issue that we have, clearly not. You can see in our litigation and regulatory review disclosures in the annual report there's quite an extensive list of issues. So, no, is the short answer.

And, secondly, although I went through the list previously of what our five major issues have been that we've consistently talked about, so that gives you some guidance of what other issues are that we actively are working through. And then on at risk, I don't think settlement per se of US RMBS changes our view on at risk RWA requirements.

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Robert Begbie, The Royal Bank of Scotland Group plc - Treasurer [5]

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I think the other part to that, and Ewen touched on it this morning, is clearly Basel IV and what happens and how that ends up landing and by when in terms of the operational risk piece. But we have no more information than the rest of the market in that respect.

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Sameer Adadia, Citigroup - Analyst [6]

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Thank you.

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Operator [7]

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Thank you very much. The next question today comes from the line of Greg Case from Morgan Stanley. Please go ahead.

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Greg Case, Morgan Stanley - Analyst [8]

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Hi, guys. Afternoon. Thanks again for the call. Just a few from me. Firstly, just on issuance, I appreciate you're essentially using the guidance from the CRA documentation at the moment for MREL. But is there anything more concrete in terms of specific guidance that the PRA are giving you yet or are we still waiting there?

Also, just as a function of that, in the more medium, longer term, is there a level of AT1 and Tier 2 as a percentage of RWAs that you want to be running at? Is that the bare minimum pillar 1 and pillar 2 requirements?

And then, also, just on the distributable reserve changes all around that, that all makes sense to me. Just a query on the up to language. Should we assume you're going to move as much as you possibly can into distributable reserves or there a number that you're targeting there? Thank you.

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Robert Begbie, The Royal Bank of Scotland Group plc - Treasurer [9]

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Thanks, Greg. Let me cover number one and then we can look at the distributable reserves. And I assume neither have other banks had specific feedback on our MREL requirements yet. My understanding is we are expecting it at some point shortly, in the first half of the year. We've based it on, clearly, as others have, in terms of the guidance that was given in the second half of the year, which we found very helpful and very constructive in terms of the way the Bank of England had approached the build of the MREL requirements.

In terms of future requirements for AT1 and Tier 2, there's a lot of moving parts on that, notwithstanding size of balance sheet and future shape. So, I'm not going to give any future guidance in terms of where we think AT1 will be but we're certainly comfortable with where we are for the immediate term. Distributable reserves, Ewen?

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Ewen Stevenson, The Royal Bank of Scotland Group plc - CFO [10]

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In terms of distributable reserves, I think our aspiration -- I wouldn't read too much into that language. We are seeking to do significantly all or all of what we can do in relation to creating additional reserves. On the AT1 and Tier 2 requirements, I think in terms of targeting AT1 to round about 2% of or RWAs -- Robert?

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Robert Begbie, The Royal Bank of Scotland Group plc - Treasurer [11]

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Yes.

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Greg Case, Morgan Stanley - Analyst [12]

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Okay. Thanks, guys, I appreciate that.

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Matt Richardson, The Royal Bank of Scotland Group plc - Head of Fixed Income IR Team [13]

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Next up we've got a question from the web. It's Robert Montague. The question's around the write-down in our investments in subsidiaries. What investments did we write down and how much of that, and how did you take into consideration US RMBS? And would we anticipate further write-downs if litigation costs were higher.

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Ewen Stevenson, The Royal Bank of Scotland Group plc - CFO [14]

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We do a value and use calculation for all of the principal operating subsidiaries that are in, and we also take estimations of future conduct costs and restructuring costs. We already have a central estimate in that calculation for future US RMBS settlement cost. A settlement per se should not trigger an adjustment in value and use calculations.

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Robert Begbie, The Royal Bank of Scotland Group plc - Treasurer [15]

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Great. Hand back to the operator if we've got more from the lines.

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Operator [16]

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Thank you very much. The next question comes from Corinne Cunningham from Autonomous. Please go ahead.

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Corinne Cunningham, Autonomouos Research - Analyst [17]

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Thank you very much. Good afternoon, everyone. A couple of questions. First one just on the capital reorganization. Does that have any implications for your ability to shuffle capital around the group in a post ring-fencing world or is that really a bit of a red herring on my part?

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Ewen Stevenson, The Royal Bank of Scotland Group plc - CFO [18]

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That one, no, it has no impact.

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Corinne Cunningham, Autonomouos Research - Analyst [19]

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Okay. Thank you. And the second one was you've said you'll be loss making in 2017. Would you use that as an opportunity to remove any of the, for example, some of the dollar press where, to buy those back, you would have FX hits? Would this be an opportunity to clean up some of the capital stack there? Or is it more going back to what you were saying earlier, it depends what your capital position looks like at the time and whether you've got capacity to do it?

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Robert Begbie, The Royal Bank of Scotland Group plc - Treasurer [20]

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I'll take that one, Corrine. We have an ongoing way of looking at this and I think we've gone through that, both in this presentation and historically. We are aware of the FX movements especially in the related securities. We're conscious of that in terms of both looking at it but also as within our plans, as well, in terms of what we look at.

So, I don't think it changes any of the way that we look at whether to call securities or not and whether we would look to call in 2017 or not. But it is a tradeoff of cost versus payback and there's a number of different lenses we look through to get to that position.

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Corinne Cunningham, Autonomouos Research - Analyst [21]

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Thank you.

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Operator [22]

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(Operator Instructions)

The next question comes interest the line of Robert Smalley from UBS. Please go ahead.

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Robert Smalley, UBS - Analyst [23]

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Hi. Thanks for doing the call. Greatly appreciated. A number of quick questions. One, in terms of issuing more covered bonds and secured debt, do you have any guidelines or given any thought to guidelines around encumbrance and where you want to be with that? That's the first question.

Second, thank you for the detail on future issuance. It looks like you're more or less replacing maturities for the next couple of years out of the OpCo into the HoldCo. At what point do we finally see the upgrade from the rating agencies? And have you talked to them about that?

Also, on the distributable reserves, just want to know if there's any difference in the time line or anything that's come about around that plan, if there's anything different. And then, finally, and it's kind of a blue sky question, but have you thought about your GSIB designation? And does it make sense to try and move to no longer be a globally systemic institution, given your size and given your scope?

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Ewen Stevenson, The Royal Bank of Scotland Group plc - CFO [24]

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Robert, it's Ewen, maybe I'll handle the last one first. We don't have any burning aspirations to be a GSIB. But I think for the time being, given what our business is, we're quite high up in the bucket one designation. So, I think it's unlikely that we will drop out of being a GSIB any time soon, even if we don't aspire to be one.

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Robert Begbie, The Royal Bank of Scotland Group plc - Treasurer [25]

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Maybe just work backwards on the questions, then. Distributable reserves, I think I outlined the time line part of that is our own internal process that needs to go through the AGM which is in May, and then through the court process. I think we've outlined before this is not something that hasn't been done before. There's a number of different financial institutions -- Standard Life, Clydesdale, Bank of Scotland -- have all gone through this process. Clearly it is a court process and we need to go through it. But we don't expect any undue delay as a result of that and we're still targeting the summer period to see the conclusion of that.

Again, working backwards, rating agencies -- look, we have a daily dialogue with rating agencies through our rating agency team. Ewen and I meet them regularly. I think they've been fairly consistent in their feedback in that they recognize the cleanup, they recognize dealing with the legacy positions. I think you'll have seen possibly the notes based on the Williams & Glyn's announcement last week, which I think was, again, viewed as positive in terms of that journey.

They really want to see, one, us get to the end of that journey; and, two, which is related to that, return to being a profitable bank. And I think Ewen's laid out that journey earlier on today, Ewen and Ross. And I think at that point we'd certainly expect to be having all sorts of discussions. But I think it's difficult to see before that, whilst we haven't gotten to that point, rating agencies making any significant moves.

Just the last one, just in terms of our secured covered bond piece, our encumbrance ratio is pretty low at the moment. Obviously we would keep an eye on that as we build that up. We're not talking about mass issuance here. We're talking about progressive return to the markets. One would be in this market for a number of years, so we need to build back our presence and our investor outreach, which we'll be looking to do over the course of the coming months. And there are, as I've said, access to other forms of funding, both our MREL but also we are participating and will continue to participate in the TFS scheme.

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Matt Richardson, The Royal Bank of Scotland Group plc - Head of Fixed Income IR Team [26]

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And, Robert, just as hopefully a useful tool, we've included within our annual report page 184, when you get to it, some information on the role of profile of our various funding tools alongside the Tier 2 profile, as well.

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Robert Smalley, UBS - Analyst [27]

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That's great. Thanks very much.

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Matt Richardson, The Royal Bank of Scotland Group plc - Head of Fixed Income IR Team [28]

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Next up we've got two questions off the web. First of all, how do we expect the pillar 2A requirement to evolve from here? And then, secondly, how dependent are your plans for NV on resolution of your stake in a Saudi Arabian Bank?

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Robert Begbie, The Royal Bank of Scotland Group plc - Treasurer [29]

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Look, we can't, we don't make any future outlook statements around pillar 2A. It's fundamentally going to the regulator. We focus on delivering the strategy and we believe that will represent us as a bettered credit than we are today. We talked about the primary driver of the reduction being the contribution to the pension fund and we're pleased to have got that out of the way and to have p seen that feed through in 2A numbers.

It's subject to change annually through, obviously, the [OCAR] process. And as we have currently said, we're not proposing any change to the 13% core Tier 1 target. I think I'll leave it there and pass over to Ewen.

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Ewen Stevenson, The Royal Bank of Scotland Group plc - CFO [30]

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On Alawwal Bank, as Saudi Hollandi Bank has now been renamed in recent months, we continue to work towards seeking to exit our stake there. I don't think it will have -- I think we're equally working on ways of continuing on with our plans to debank obvious NV with or without selling that stake. So, it should not have a significant impact on our ability to debank the NV.

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Operator [31]

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(Operator Instructions)

We have a follow-up question here from Greg Case from Morgan Stanley.

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Greg Case, Morgan Stanley - Analyst [32]

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Just a couple more, if you don't mind. On one of the first questions, just around the non ring-fence bank, did I understand that you may be looking to do some unsecured from the non ring-fence bank or at least the OpCo in the near future? And, also, just connected to that, is there a time line we can think about when we might see some proposed ratings for the non ring-fence bank? That would be, I think, pretty useful.

And then, also I see you guys are looking to do additional equity issuance again this year to cover the Tier 1 payments. I assume that wouldn't change if you were to take legacy Tier 1s out. I think it's probably across the whole piece of the Tier 1 capital structure. But if you could just confirm that those two aren't linked, that would be great, as well. Thank you.

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Ewen Stevenson, The Royal Bank of Scotland Group plc - CFO [33]

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On the last one, Greg, I think you should assume that until we return to making equity distributions, we will continue with the program of equity issuance that we've been doing as part of immunization for capital security coupons. We've been issuing GBP300 million of equity a year and we'll continue doing that for the foreseeable future.

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Robert Begbie, The Royal Bank of Scotland Group plc - Treasurer [34]

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I think on the other two, Greg, probably just to be clear on the unsecured stuff, if you think about at the moment the non ring-fence bank does not exist as an issuing entity. So, any issuance we do out of the operating companies will be out of the SPLC, those existing entities that are already there. We may be over-playing this. This is just really in terms of, if you like, operating cash as we move to a ring-fence bank structure. So, there's no change really in that respect.

I think in terms of the agencies themselves, again, similarly to the previous question on rating agencies, we have a regular dialogue with them. Their own thinking on ICB and how they're going to treat a ring-fence bank, non ring-fence bank ratings, it continues to evolve. We're part of that discussion with them and we're working through that. And, again, we'll work with them and in due course look at what those ratings will emerge.

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Greg Case, Morgan Stanley - Analyst [35]

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Thank you. Is it fair to assume that we won't see public benchmark type trades from the OpCos? Or is that something we should be thinking about for this year?

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Robert Begbie, The Royal Bank of Scotland Group plc - Treasurer [36]

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Yes, there's no plans to do any public benchmark type trades. It would really just be, as I say, more private placement type operational funding.

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Greg Case, Morgan Stanley - Analyst [37]

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Okay, got you. Thank you.

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Operator [38]

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Thank you very much. The next question we have comes from the line of Tom Jenkins from Jefferies. Please go ahead.

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Tom Jenkins, Jefferies & Co. - Analyst [39]

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Hello there. Thanks, everybody. Just a quick one following up on the NV question that was sent in from your anonymous e-mailer. If you're talking about other ways of getting rid of the stake in Alawwal, which I'm guessing would rather be sold back to the group or put into an [STV] or some similar structure, firstly, assuming that happens, say, within the next year or two, are you then able to look at collapsing the remaining NV structure over, say, a period of a further two or three years? Or how long would that take in order to get access to the excess trapped capital there?

And, in that vein, have you given any thoughts that you can share on how you would plan to collapse the liability structure within NV post a removal of the Alawwal and the handing back of the license? Thank you.

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Robert Begbie, The Royal Bank of Scotland Group plc - Treasurer [40]

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On the last bit, we've obviously given it thought but haven't talked about it publicly. In terms of the Alawwal stake, I don't think you should assume it's going to take several years after exiting that stake or otherwise restructuring it for us to be able to deal with the NV. That can happen relatively quickly, I think.

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Matt Richardson, The Royal Bank of Scotland Group plc - Head of Fixed Income IR Team [41]

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And needless to say, on the timing of any license handback, et cetera, around the NV entity is subject to the conversations we have with those regulators, as well.

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Tom Jenkins, Jefferies & Co. - Analyst [42]

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Super, thanks very much.

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Operator [43]

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Thank you very much. There are no more questions in the queue, Ewen. I'll hand back to you for closing comments.

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Ewen Stevenson, The Royal Bank of Scotland Group plc - CFO [44]

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Thanks, Steve, and thanks, everyone, for joining the call today. What we want you to take away from today's call is our confident message on our credit story. We are rapidly changing. The headline loss in 2016 is a clear sign that we're rapidly moving away from a bank that's been heavily encumbered by legacy issues to a bank that's got a very well diversified set of income streams. It's built around three core businesses, predominantly in the UK and Ireland, producing already stable and attractive returns over the last eight quarters, and a prudent a approach towards the risk we're seeking to take.

So, thanks for your time today. If you've got follow-up questions please contact Matt and the rest of our Fixed Income Investor Relations team. Thanks for your time. Thanks, Steve, for operating the call.

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Operator [45]

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Thank you very much, ladies and gentlemen. That will conclude this afternoon's call. Thank you for participating. You may all disconnect