RBS 2014 Annual Report Download - page 53

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RBS – Interim Results 2015
Corporate & Institutional Banking
Key points
Corporate & Institutional Banking (CIB) announced its new business strategy in February 2015 and plans to
restructure into CIB Go-forward and CIB Capital Resolution are well advanced. Reviews of the business are
complete and the new management teams are in place, however, the business continues to be managed as
a single reportable segment.
The CIB Go-forward business is currently undergoing a multi-year transformation, implementing a simpler
operating model to support two main lines of business: debt financing and risk management. The business
has completed its client communication programme outlining a commitment to maintaining strong market
positions in the UK and Western Europe. Assuming normal seasonal trends, we expect the CIB Go-forward
business will generate full year income in the region of £1.3 billion excluding revenues of approximately £400
million relating to the UK and European large corporate business which have been or will be transferred
during the second half of 2015 to Commercial Banking, and the UK GTS business which will transfer in
2016. We now expect the steady state RWAs of the CIB Go-forward business to be around £30 billion.
Following February’s announcement, CIB Capital Resolution will run down certain parts of the CIB business,
removing risk from the balance sheet. CIB Capital Resolution is currently ahead of both its cost reduction
and RWA rundown targets. The first half of the year saw substantial progress in the sale of corporate loan
portfolios including a substantial proportion of the North American portfolio to Mizuho Bank and the majority
of the Australian and United Arab Emirates portfolios. A partnership with BNP Paribas was also announced
to offer existing international customers an alternative Global Transaction Services (GTS) provider as the
business is refocused.
As part of the restructuring, effective from 1 May 2015, the UK Corporate loan portfolio transferred to
Commercial Banking(1) accounting for £2 billion of funded assets and £2.1 billion of RWAs at the date of
transfer. Work is also underway to transfer the Go-forward Western European loan portfolio to Commercial
Banking accounting for £4 billion of assets and £5 billion of RWAs at 30 June 2015. The UK Transaction
Services business will transfer to Commercial Banking in 2016.
H1 2015 compared with H1 2014
●
A
n operating loss of £2,075 million was reported in H1 2015, compared with a profit of £308 million in
H1 2014, impacted by litigation and conducts costs of £873 million and a heightened level o
f
restructuring costs totalling £1,025 million following the strategic announcement in February. Adjusted
operating loss in the first half of the year was £177 million, a fall from a profit of £549 million in H1
2014. This reflected lower income partly offset by lower adjusted expenses.
● Total income decreased by £1,103 million to £1,324 million compared with H1 2014. This is broadly in
line with expectations given CIB’s reduction in scale and scope. The bulk of the income reduction was
in CIB Capital Resolution where: Markets income fell from £683 million in H1 2014 to £116 million in
H1 2015 (primarily due to the wind down of US asset-backed products); Portfolio income fell from
£184 million in H1 2014 to £165 million in H1 2015; Transaction Services income fell from £292 million
in H1 2014 to £230 million in H1 2015; disposal losses of £141 million were incurred in H1 2015 (nil in
H1 2014). Within the Go-forward business Rates and Credit were impacted by uncertainty in the
Eurozone while Currencies incurred a loss when the Swiss central bank removed unexpectedly the
Swiss Franc’s peg to the Euro.
Note:
(1) The business transfer from CIB to CPB was effective from 1 May 2015. Comparatives were not restated and for the whole period the financials of the UK large corporate
business were: total income of £32 million in H1 2015 (H1 2014 - £31 million; Q2 2015 - £19 million; Q1 2015 - £15 million; Q2 2014 - £16 million); operating expenses o
f
£2 million in H1 2015 (H1 2014 - £4 million; Q2 2015 - £1 million; Q1 2015 - £1 million; Q2 2014 - £2 million); net loans and advances to customers of £2.1 billion (31
March 2015 - £2.0 billion; 31 December 2014 - £1.8 billion); and RWAs of £2.3 billion (31 March 2015 - £2.1 billion; 31 December 2014 - £2.1 billion).