RBS 2013 Annual Report Download - page 28

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RBS has earned credibility for the execution of
our financial restructuring. The same discipline
and focus is now needed on our day-to-day
operating performance to better deliver for
the customer. The costs that subdue our
performance need to be intelligently removed
and redirected towards activities that enhance
our earnings.
Our new strategy
We now have a strategy to deliver a
sustainable bank with a clear ambition: we
want to be number one for customer service,
trust and advocacy, in every one of our
chosen business areas by 2020.
Our ambition aims to deliver a bank that is
more trusted than others in the UK. We will
earn the trust of customers by serving them
better than any other bank.
Quality service leads to repeat business and
customer advocacy. Repeat business and
higher advocacy leads to sustainable income.
We won’t compromise on this logic.
The bank will be structured to deliver this
ambition by organising around the needs of
our customers.
We will collapse seven operating divisions
into three customer businesses that can
understand our customers’ needs and provide
appropriate, consistent services far better
than we can across current silos.
Our support functions will be smaller,
more expert and dedicated to helping the
businesses succeed for customers. We will
run highly disciplined and well managed
conduct and risk functions to maintain safety
and soundness.
This will be a highly effective bank and
in the medium term we will aim to deliver
a cost:income ratio (including bank levy,
restructuring charges and, from 2015, the EU
resolution fund charge) of around 55%, falling
in the long term to around 50%.
The frontline of this bank is where we’ll stand
out. Accountable, trusted professionals will
staff the perimeter of the bank and drive it
forward. They will be supported by simple,
effective processes on a sound technology
platform.
Only 30% of our people today deal directly
with the customer. By 2017 more than half will
deal directly with the customer and all our
people will be measured against our success
in improving customer advocacy.
Our focus will be determined by where our
customers need us, and where we can serve
their needs better than anyone else.
The UK is our home market and our strongest
market. It is also our biggest advantage. Our
corporate customer trade flows mean we need
a strong European and US presence, so this
is where we will be. Our UK clients rely on
inward investment, so we’ll retain a presence
in Asia.
Our three customer businesses will cover
Personal & Business Banking, Commercial &
Private Banking, and Corporate & Institutional
Banking. Across the businesses we will have
one management team, working to one joined-
up plan.
The businesses will be built on franchises that
can be number one for customers. We have a
family of brands across the bank and will use
these to deliver on our ambition.
Not every business in our current structure
will be best placed to deliver on our strategy.
Technology investment will enable some to
improve service at a rate that outpaces the
market, but others will not.
For those activities where we can’t see a clear
path to being number one, we will review on
the basis of ‘fix, close or dispose’. These will
become clear as each of our three businesses
defines its new customer franchises over the
coming months.
The three businesses of the go-forward bank
have been designed against a number of
goals. Firstly, they will better serve customer
needs than the existing operating divisions.
Secondly, they will help eradicate duplication
of cost in both the front and back office.
Thirdly, they will position us to deliver a
sustainable return on equity in each business.
Update on capital plan
We announced in November that we will target
a fully loaded Basel III Common Equity Tier
1 ratio of 12% or greater by the end of 2016
which will principally be delivered through the
Capital Resolution Group.
Ahead of results, we announced that we would
take an additional £2.9 billion of charges for
litigation and conduct related matters. While
these charges were in our future capital plan,
provisions were recognised in 2013 and
reduced our fully loaded Basel III Common
Equity Tier 1 ratio to 8.6% at the end of 2013.
So how do we get to our 12% 2016 target?
This will primarily be due to the successful
run-down of RCR and the IPO of Citizens, as
well as further targeted risk-weighted asset
reduction, which will continue to be the main
drivers of our plan to deliver our 12% target by
the end of 2016.
Citizens Financial Group: The cornerstone
of the capital plan is the IPO of Citizens
Financial Group in the United States. We have
appointed advisers and this is on schedule for
later this year.
RCR: The creation of RCR from 1 January
2014 originally identified £38 billion of third
party assets that were highly capital intensive.
This represented 5% of our funded balance
sheet but used up 20% of our capital.
Mainly as a result of the increased
impairments we have taken and significantly
higher levels of disposals in Non-Core than
had been forecast, the opening balance is
£29 billion of third party assets and £65 billion
of risk-weighted asset equivalents (RWAe).
This reduction in assets has also resulted in a
corresponding decrease in the bank’s funding
requirements.
UK branch divestment: To meet our EC-
mandated branch divestment, the Williams &
Glyn brand will return to the high street via an
IPO over the coming years. To achieve this we
signed a deal with a consortium of investors
led by Corsair Capital and Centerbridge
Partners in September 2013. The business will
require separation from RBS and this process
is well under way.
Ulster Bank: The thinking behind every
aspect of our new strategy applies to our
business in the island of Ireland.
Consumers and businesses across the
island of Ireland deserve a better banking
service. To achieve this, however, we must
change the way we currently organise our
business in the Irish market place. We took
the first major step at the end of 2013 when we