RBS 2013 Annual Report Download - page 11

09
Our business model and strategy
Strategic review
On 1 November 2013 RBS announced a full
review of its customer-facing businesses, its
IT and operations, and its organisational and
decision-making structures. As a result of
this review, we have announced a refreshed
strategic direction with the ambition of building
a bank that earns its customers’ trust by
serving them better than any other bank.
Business structure
RBS will be structured to deliver this ambition
by organising itself around the needs of its
customers, so as to combine customer groups
with similar needs into business units able
to deliver co-ordinated services. The seven
existing operating divisions will be realigned
into three businesses:
• Personal & Business Banking will serve
UK personal and affluent customers
together with small businesses (generally
reporting up to £2 million turnover), with
more business bankers moving back into
branches.
• Commercial & Private Banking will
serve commercial and mid-corporate
customers and high net worth individuals,
deepening relationships with commercial
clients operating overseas through
its market-leading trade and foreign
exchange services while connecting our
private banking brands more effectively
to successful business owners and
entrepreneurs.
• Corporate & Institutional Banking will serve
our corporate and institutional clients
primarily in the UK and Western Europe, as
well as those US and Asian multinationals
with substantial trade and investment links
in the region, with debt financing, risk
management and trade services, focusing
on core product capabilities that are of most
relevance to our clients.
Ulster Bank in Northern Ireland will benefit
from a closer integration with our personal,
business and commercial franchises in Great
Britain, while continuing to operate under the
Ulster Bank brand. We are continuing to
review our business in the Republic of Ireland
with a view to being a challenger to the
systemic banks in Ireland.
The reorganised bank will be a UK-focused
retail and corporate bank with an international
footprint to drive its corporate business. It will
be managed as one bank, with one strategy.
Each of the three businesses is built on
franchises that have the potential to be the
number one bank for their respective customer
groups. Each is designed to:
• Serve customer needs better than the
existing operating divisions.
• Help eliminate duplication of costs in front
and back offices.
• Position RBS to deliver a sustainable overall
return on tangible equity of 12% plus in the
long term.
A more detailed review of component business
lines continues within each business, and
further updates will be provided over the
course of the year.
Addressing costs and returns
Key to achieving this is a significant reduction
in RBS’s costs and complexity. Transforming
the bank to deliver this involves rationalising
and simplifying systems, based on a target
architecture with improved resilience.
Examples of these measures include:
• The number of technology platforms we use
will be reduced by over 50%.
• We will move from 50 core banking systems
to around 10.
• From 80 payment systems currently
maintained we will move to approximately 10.
• Our property portfolio will be reduced from
25 million square feet to 18 million square
feet, including significant reductions in
central London.
• We will maintain a similar level of investment
spending but directed at customer-
facing process improvements, instead of
maintaining inefficient legacy infrastructure.
This simplification is intended to deliver
significant improvements to services delivered
to our customers but at the same time serves
as the cornerstone of a programme designed
to bring our cost base down from £13.3 billion
in 2013 to £8 billion in the medium term,
including the impact of business exits such
as Citizens Financial Group and Williams &
Glyn, the bank levy, restructuring costs and,
from 2015, the EU resolution fund charge.
This plan will take RBS towards a cost:income
ratio of around 55%, moving towards 50% in
the longer term. Bringing our cost base back
into alignment with the reduced scale of our
business underpins our potential to deliver
improved returns in future years.
The costs to achieve this plan will total
approximately £5 billion over 2014 to 2017;
of this approximately £1 billion has already
been committed to previous plans related
primarily to Citizens, Williams & Glyn and the
previous restructuring announced for Markets.
Approximately £0.6 billion relates to the costs
of achieving asset reductions and realisations
in Markets as we reshape this business over
the next three to five years.
Personal & Commercial & Corporate &
Business Banking Private Banking Institutional Banking
CEO Les Matheson Alison Rose Donald Workman
RWAs profile (%) (1) ~35% ~30% ~35%
Operating profit profile (%) (1) ~50% ~30% ~20%
Target RoE (1) 15%+ 15%+ ~10% (2)
Notes
(1) All business targets refer to steady state performance 2018 – 2020.
(2) 7-8% medium-term.