living in a 1% world/media/files/r/rbs-ir-v2/...slide 3 living in a 1% world implications for rbs...
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Living in a 1% WorldLiving in a 1% WorldLiving in a 1% World
Fred GoodwinFred GoodwinGroup Chief ExecutiveGroup Chief Executive
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Slide 2
Living in a 1% World
� Stakeholder pensions
� Sandler regulated products
1% World
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Slide 3
Living in a 1% World
Implications for RBS
� Lower margins on long term savings
Less than 1% of RBS income from long term savings
� Higher volumes of distribution of long term savings
Simpler products, processes better for bank distribution
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Slide 4
Living in a 1% World
What are the required characteristics for growth?
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Slide 5
Required Characteristics for Growth
� Organic growth– Large distribution capacity– Multiple brands– Low market shares– Effective sales processes– Able to grow new businesses– Diversity of income
� Acquisitions– Able to make good acquisitions– Good at integration of acquisitions
� Efficiency– Able to improve efficiency
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Slide 6
Large Distribution Capacity
Distribution Channels UK Ranking
� Branches #1
� Supermarkets #1
� Telephone #1 =
� Internet #? (large)
� ATMs #1
� Relationship Managers #1
Source: Company Accounts, CACI and Link
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Slide 7
Multiple Brands
Multi-Brand, Multiple ChannelStrategy
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Slide 8
Multiple Brands
Multi-Brand, Multiple Channel Strategy
� Appeals to different customer groups
� Allows different product variants, pricing
� Gives flexibility for future
� Allows management autonomy
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Slide 9
Low Market Shares
UK Market Shares Total RBS
Current accounts 21%Savings accounts 8%Personal loans 10%Mortgages 5%Credit cards 17%Life insurance 2%Motor insurance 16%*Home insurance 13%*Small business relationships 30%Corporate lead relationships 33%Source: NOP 2002, NFO 2002, RBS estimates* Including Churchill
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Slide 10
Effective Sales Processes
NatWest Packaged Accounts
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Jun 99
Dec 99
Jun 00
Dec 00
Jun 01
Dec 01
Jun 02
Dec 02
Jun 03
000s
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Slide 11
Effective Sales Processes
0 5 10 15 20
RBS
Bank of Scotland
Abbey National
HSBC
Standard Chartered
Halifax
Woolwich
Lloyds TSB
Barclays
NatWest
Alliance & Leicester
% paIncome excluding exceptional items
UK Banks Average Growth in Income 1992 - 1999
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Slide 12
Effective Sales Processes
0 5 10 15 20
RBS
HBOS
HSBC
Lloyds TSB
Barclays
Standard Chartered
Alliance & Leicester
Abbey National
% pa
UK Banks Average Growth in Income 1999 - 2002
Income excluding exceptional items
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Slide 13
Able to Grow New Businesses
Examples of UK Financial Commenced Profit/(Loss)Services New Entrants 2002Scottish Widows Bank 1995 £8mGoldfish 1996 (£40m)The One Account 1997 £20mSainsbury’s Bank 1997 £22mTesco Personal Finance (RBS JV) 1997 £96mEgg 1998 (£17m)Standard Life Bank 1998 (£10m)Direct Line Rescue 1998 £19mMarbles 1999 not reportedSmile 1999 not reportedCahoot 2000 (£25m)Intelligent Finance 2000 (£147m)Zurich Bank 2001-03 (£108m)Profit/(loss) before exceptional items
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Slide 14
Diversity of Income
RBS Income Mix 1H03
Net Interest Income 44%
Non-Interest Income 56%
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Slide 15
Diversity of IncomeNon-Interest Income
Non-Interest Incometo Total Income
1H03
RBS 56%Lloyds TSB 48%
Barclays 46%
HSBC 39%
HBOS 38%
Standard Chartered 38%
Abbey National* 35%As reported* Personal Financial Services Trading
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Slide 16
Diversity of IncomeNon-Interest Income
Non-Interest Income % of Total Income1H03
Net fees and commissions 24%
General insurance premium income 13%
Dealing profits (before associated costs) 11%
Other operating income 8%
Non-interest income to total income 56%
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Slide 17
Diversity of IncomeNon-Interest Income
Dealing Profits Reflect Customer-driven Activities
1H03
Foreign exchange & interest rate products 7%
RBS Greenwich Capital
– Mortgage-backed securities 2%– Other products 2%
Dealing profits (before associated costs) 11%
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Slide 18
Diversity of Income
RBS Income Mix 1H03
Net Interest Income 44%
Non-Interest Income 56%
Deposits20%
Assets24%
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Slide 19
Diversity of IncomeNet Interest Income
Net Interest Income % of Total Income1H03
Personal deposits 12%
Personal lending 12%
Business deposits 8%
Business lending 12%
Net interest income to total income 44%
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Slide 20
Diversity of IncomeNet Interest Income
Consumer finance 10%
Mortgages 2%
Personal lending 12%
Not Too Dependent on Personal Lending
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Slide 21
Able to Make Good Acquisitions
� Expect to generate surplus capital
� Can add to operations in– UK + Ireland
– Continental Europe
– United States
� Track record of good acquisitions
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Slide 22
�104�486
Able to Make Good Acquisitions
2002
Date Acquisition Division
1999Oct State Street (commercial banking) Citizens $350Nov Green Flag Direct Line £223
2000Jan UST Corporation Citizens $1,400Mar NatWest RBS £21,000
2001Jul Balance of Virgin One Retail Direct £100Aug International Aviation Management CBFM £16Sept Euro Sales Finance CBFM £70Sept Allstate Corporation (motor insurance, Germany/Italy) Direct Line $20Dec Mellon Regional Franchise Citizens $2,200
Jan Royal Insurance (motor insurance, Italy) Direct Line �20May Dixon Motors CBFM £118Oct Medford Bancorp Citizens $2732003Jan Commonwealth Bancorp Citizens $450Jul Port Financial Corporation Citizens $285Jun Nordisk Renting CBFMJul Santander Direkt Bank (credit cards, personal loans) Retail DirectSept Churchill Insurance Group Direct Line £1,100Jul* Community Bancorp Citizens $116Sept* Roxborough Manayunk Bank $136
* Announced not completed
Consideration (m)
Citizens
Balance of Citizens (23.5% from Bank of Ireland)
First Active Ulster Bank �887Oct*
1998Sep Citizens $750
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Slide 23
Good at Integration of Acquisitions
Approach
� Minimal disruption to customer-facing activities
� Retain separate brands, if appropriate
� De-duplication of IT, processing and central functions
� Deliver promised revenue benefits and cost savings
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Slide 24
Good at Integration of Acquisitions
RBS + NatWest
Citizens + Mellon
� Large, complex integrations
� Substantial IT conversions
� Completed ahead of schedule
� Delivered cost savings and revenue benefits,ahead of expectations
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Slide 25
Able to Improve Efficiency
UK Banks Cost:Income Ratio
1H03
HBOS 42.1%
RBS 43.0%Lloyds TSB 48.6%
HSBC 51.3%
Barclays 52.8%
Standard Chartered 53.4%
Abbey National* 53.7%As reported* Personal Financial Services Trading
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Slide 26
Able to Improve Efficiency
Advantages of Manufacturing Division
� Single platform supporting multiple brands and channels
� Economies of scale, benefits of specialisation
� Able to implement new technologies across Group
� Able to deliver cost savings associated with acquisitions
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Slide 27
Able to Improve Efficiency
� Further progress expected
� Continue to centralise Manufacturing e.g. RBS Insurance
� Simplify processes e.g. image and workflow
� Projects under way– Specific objectives with income/cost benefits
– Self-financing programme
Outlook
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Slide 28
Required Characteristics for Growth
� Organic growth– Large distribution capacity �
– Multiple brands �– Low market shares �– Effective sales processes �– Able to grow new businesses �– Diversity of income �
� Acquisitions– Able to make good acquisitions �– Good at integration of acquisitions �
� Efficiency– Able to improve efficiency �
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Slide 29
Living in a 1% World
� Well placed to continue growth,whatever the external environment
� Strategy diversity, flexibility
� Range of strategic options
Summary
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First ActiveFirst ActiveFirst Active
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Slide 31
First Active
Offer
� Cash offer of �6.20 per share
� Values First Active at �887 million
� Recommended by First Active Board
� Accretive to RBS earnings
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Slide 32
First Active
Branch Network
First Active
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Slide 33
First Active
Branch Networks
First Active
Ulster Bank
9090BranchesBranches
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Slide 34
First Active
First Active
Branches 51
Customers 335,000
Market shares– Mortgages 12%– Savings accounts 3%– Personal loans 1%
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Slide 35
First Active
Ulster Bank First ActiveRepublic of Ireland
Branches 122 51
Customers 506,000 335,000
Market shares– Mortgages 3% 12%– Savings accounts 4% 3%– Personal loans 3% 1%– Personal current accounts 9% –– Credit cards 7% –– SME accounts 14% –
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Slide 36
First Active
Ulster Bank +First ActiveRepublic of Ireland
Branches 173
Customers approx 800,000
Market shares– Mortgages 15%– Savings accounts 7%– Personal loans 4%– Personal current accounts 9%– Credit cards 7%– SME accounts 14%
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Slide 37
First Active
Mortgages MarketRanking
Irish Life & Permanent #1
Ulster Bank + First Active #2
Bank of Ireland #3=
AIB #3=
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Slide 38
First Active
Savings Accounts MarketRanking
AIB #1
Bank of Ireland #2
Irish Life & Permanent #3=
Ulster Bank + First Active #3=
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Slide 39
First Active
Ulster Bank First Active1H03 1H03
Profit before tax �191m �34m
Loans to customers �14.9bn �7.6bn*
Customer deposits �12.9bn �3.9bn
* Gross of securitisation of �2.7bn
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Slide 40
First Active
Strategy� Retain First Active and Ulster Bank brands and branch
networks
Cost Savings� Combine technology, processing activities, central functions
� Leverage Group functions
� Lower funding costs
Revenue Benefits� Strengthen Ulster Bank’s mortgage offering
� Broaden First Active’s product range
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Fred GoodwinGroup Chief Executive
Fred GoodwinFred GoodwinGroup Chief ExecutiveGroup Chief Executive