Royal Bk Scot.Grp. RBS Interim Management Statement - Part 3 of 7

  Royal Bk Scot.Grp. (RBS) - Interim Management Statement - Part 3 of 7

RNS Number : 1668Q
Royal Bank of Scotland Group PLC
02 November 2012






Divisional performance



The operating profit/(loss)^(1) of each division is shown below.



                                 Quarter ended            Nine months ended
                                  30     30         30          30         30
                          September  June September   September September

                               2012  2012      2011        2012      2011
                                 £m    £m        £m         £m        £m
                                                                        
Operating profit/(loss)
before

 impairment losses by
division                                                                
UK Retail                       605   577       705      1,814     2,160
UK Corporate                    615   693       659      1,976     2,075
Wealth                           73    76        49        204       187
International Banking           187   194       242        513       715
Ulster Bank                      87    78       119        249       306
US Retail & Commercial          244   257       208        622       621
                                                                       
Retail & Commercial           1,811 1,875     1,982      5,378     6,064
Markets                         289   270      (353)      1,385       989
Direct Line Group               109   135       123        328       329
Central items                   176   (34)        82         32       104
                                                                       
Core                          2,385 2,246     1,834      7,123     7,486
Non-Core                       (162)  (261)      (296)       (417)       229
                                                                       
Group operating profit
before

 impairment losses           2,223 1,985     1,538      6,706     7,715
                                                                       
Impairment
losses/(recoveries) by
division                                                                
UK Retail                       141   140       195        436       597
UK Corporate                    247   181       230        604       557
Wealth                            8    12         4         30        12
International Banking            12    27        14         74       112
Ulster Bank                     329   323       327      1,046     1,057
US Retail & Commercial           21    28        85         68       261
                                                                       
Retail & Commercial             758   711       855      2,258     2,596
Markets                          (6)    19        (5)         15       (19)
Central items                     -    (2)         4         32         2
                                                                       
Core                            752   728       854      2,305     2,579
Non-Core                        424   607       682      1,520     3,168
                                                                       
Group impairment losses       1,176 1,335     1,536      3,825     5,747



Note:

(1) Operating profit/(loss) before  own credit  adjustments, Asset  Protection 
    Scheme, Payment  Protection Insurance  costs, sovereign  debt  impairment, 
    amortisation of purchased intangible assets, integration and restructuring
    costs, (loss)/gain on redemption of  own debt, strategic disposals,  bonus 
    tax,  interest  rate  hedge  adjustments  on  impaired  available-for-sale 
    sovereign debt and RFS Holdings minority interest.



Divisional performance (continued)



                                Quarter ended             Nine months ended
                                30                  30          30         30
                        September 30 June September   September September

                             2012    2012      2011        2012      2011
                               £m      £m        £m         £m        £m
                                                                        
Operating profit/(loss)
by division                                                             
UK Retail                     464     437       510      1,378     1,563
UK Corporate                  368     512       429      1,372     1,518
Wealth                         65      64        45        174       175
International Banking         175     167       228        439       603
Ulster Bank                  (242)    (245)      (208)       (797)      (751)
US Retail & Commercial        223     229       123        554       360
                                                                       
Retail & Commercial         1,053   1,164     1,127      3,120     3,468
Markets                       295     251      (348)      1,370     1,008
Direct Line Group             109     135       123        328       329
Central items                 176     (32)        78          -       102
                                                                       
Core                        1,633   1,518       980      4,818     4,907
Non-Core                     (586)    (868)      (978)     (1,937)    (2,939)
                                                                       
Group operating profit      1,047     650         2      2,881     1,968



                                  Quarter ended           Nine months ended
                                   30    30         30          30         30
                           September June September   September September

                                2012 2012      2011        2012      2011
                                   %    %         %          %         %
                                                                        
Net interest margin by                                 
division                                                                 
UK Retail                       3.53 3.57      3.94       3.57      4.02
UK Corporate                    2.99 3.17      2.98       3.08      3.07
Wealth                          3.88 3.69      2.96       3.74      3.18
International Banking           1.70 1.65      1.71       1.65      1.76
Ulster Bank                     1.92 1.82      1.96       1.87      1.87
US Retail & Commercial          2.99 3.02      3.08       3.02      3.07
                                                                        
Retail & Commercial             2.92 2.94      2.94       2.92      2.99
Non-Core                        0.41 0.24      0.50       0.32      0.69
                                                                        
Group net interest margin       1.94 1.95      1.84       1.93      1.94



                                 30 September 30 June 31 December

                                        2012    2012        2011
                                         £bn     £bn         £bn
                                                                
Total funded assets by division                                   
UK Retail                               116.7   116.9       114.5
UK Corporate                            111.8   113.7       114.2
Wealth                                   21.4    21.2        21.6
International Banking                    58.4    61.4        69.9
Ulster Bank                              30.8    33.1        34.6
US Retail & Commercial                   74.2    74.3        74.9
Markets                                 304.4   302.4       313.9
Other (primarily Group Treasury)        125.1   132.9       139.1
                                                                
Core                                    842.8   855.9       882.7
Non-Core                                 65.1    72.1        93.7
                                                                
                                        907.9   928.0       976.4
RFS Holdings minority interest            0.8     0.8         0.8
                                                                
Total                                   908.7   928.8       977.2



Divisional performance (continued)



                         30 September 30 June           31 December

                                2012    2012                2011       
                                 £bn     £bn Change          £bn Change
                                                                       
Risk-weighted assets by
division                                                                
UK Retail                        47.7    47.4     1%         48.4    (1%)
UK Corporate                     82.1    79.4     3%         79.3     4%
Wealth                           12.3    12.3      -         12.9    (5%)
International Banking            49.7    46.0     8%         43.2    15%
Ulster Bank                      35.1    37.4    (6%)         36.3    (3%)
US Retail & Commercial           56.7    58.5    (3%)         59.3    (4%)
                                                                       
Retail & Commercial             283.6   281.0     1%        279.4     2%
Markets                         108.0   107.9      -        120.3   (10%)
Other                            13.9    12.7     9%         12.0    16%
                                                                       
Core                            405.5   401.6     1%        411.7    (2%)
Non-Core                         72.2    82.7   (13%)         93.3   (23%)
                                                                       
Group before benefit of
Asset Protection

 Scheme                        477.7   484.3    (1%)        505.0    (5%)
Benefit of Asset
Protection Scheme               (48.1)   (52.9)    (9%)        (69.1)   (30%)
                                                                       
Group before RFS
Holdings minority

 interest                      429.6   431.4      -        435.9    (1%)
RFS Holdings minority
interest                          3.3     3.3      -          3.1     6%
                                                                       
Group                           432.9   434.7      -        439.0    (1%)





Employee numbers by division (full time    30 September 30 June 31 December
equivalents in continuing operations
rounded to the nearest hundred)                    2012    2012        2011
                                                                          
UK Retail                                        27,100  27,500      27,700
UK Corporate                                     13,100  13,100      13,600
Wealth                                            5,400   5,600       5,700
International Banking                             4,600   4,800       5,400
Ulster Bank                                       4,700   4,500       4,200
US Retail & Commercial                           14,600  14,500      15,400
                                                              
Retail & Commercial                              69,500  70,000      72,000
Markets                                          11,900  12,500      13,900
Direct Line Group                                14,700  15,100      14,900
Group Centre                                      6,800   6,900       6,200
                                                              
Core                                            102,900 104,500     107,000
Non-Core                                          3,300   3,800       4,700
                                                              
                                               106,200 108,300     111,700
Business Services                                33,300  33,500      34,000
Integration and restructuring                       800   1,000       1,100
                                                              
Group                                           140,300 142,800     146,800



UK Retail



                                Quarter ended             Nine months ended
                                30                  30          30         30
                        September 30 June September   September September

                             2012    2012      2011        2012      2011
                               £m      £m        £m         £m        £m
                                                                       
Income statement                                                        
Net interest income           990     988     1,086      2,979     3,270
                                                                       
Net fees and
commissions                   231     214       259        682       824
Other non-interest
income                         21      28        33         78       105
                                                                       
Non-interest income           252     242       292        760       929
                                                                       
Total income                1,242   1,230     1,378      3,739     4,199
                                                                       
Direct expenses                                                         
 - staff                    (196)    (210)      (206)       (613)      (639)
 - other                     (94)    (110)      (102)       (283)      (321)
Indirect expenses            (347)    (333)      (365)     (1,029)    (1,079)
                                                                       
                            (637)    (653)      (673)     (1,925)    (2,039)
                                                                       
Operating profit before
impairment losses             605     577       705      1,814     2,160
Impairment losses            (141)    (140)      (195)       (436)      (597)
                                                                       
Operating profit              464     437       510      1,378     1,563
                                                                       
                                                                       
Analysis of income by
product                                                                 
Personal advances             230     222       260        688       813
Personal deposits             158     168       236        511       747
Mortgages                     598     596       576      1,757     1,700
Cards                         218     212       231        649       712
Other                          38      32        75        134       227
                                                                       
Total income                1,242   1,230     1,378      3,739     4,199
                                                                       
                                                                       
Analysis of impairments
by sector                                                               
Mortgages                      29      24        34         87       150
Personal                       77      84       120        243       321
Cards                          35      32        41        106       126
                                                                       
Total impairment losses       141     140       195        436       597
                                                                       
                                                                       
                                                                        
Loan impairment charge
as % of gross

customer loans and
advances

(excluding reverse
repurchase

agreements) by sector                                                 
Mortgages                    0.1%    0.1%      0.1%       0.1%      0.2%
Personal                     3.5%    3.7%      4.7%       3.6%      4.2%
Cards                        2.5%    2.3%      2.9%       2.5%      3.0%
                                                                       
Total                        0.5%    0.5%      0.7%       0.5%      0.7%



UK Retail (continued)



Key metrics

                          Quarter ended                 Nine months ended
                                   30           30            30           30
                30 September   June   September     September   September

                        2012   2012        2011          2012        2011
                                                                        
Performance                                        
ratios                                                                   
Return on                                          
equity (1)             23.8%  22.5%       25.0%         23.5%       25.1%
Net interest                                       
margin                 3.53%  3.57%       3.94%         3.57%       4.02%
Cost:income                                        
ratio                    51%    53%         49%           51%         49%



                         30 September 30 June           31 December

                                2012    2012                2011       
                                 £bn     £bn Change          £bn Change
                                                                       
Capital and balance
sheet                                                                   
Loans and advances to
customers (gross) (2)                                                   
 - mortgages                    98.4    98.1      -         95.0     4%
 - personal                      8.9     9.2    (3%)         10.1   (12%)
 - cards                         5.6     5.7    (2%)          5.7    (2%)
                                                                       
                               112.9   113.0      -        110.8     2%
Customer deposits (2)           105.9   106.5    (1%)        101.9     4%
Assets under management
(excluding

 deposits)                       6.1     5.8     5%          5.5    11%
Risk elements in lending
(2)                               4.6     4.6      -          4.6      -
Loan:deposit ratio
(excluding repos)                104%    104%      -         106% (200bp)
Risk-weighted assets             47.7    47.4     1%         48.4    (1%)



Notes:

(1) Divisional return on equity is based on divisional operating profit  after 
    tax divided  by average  notional  equity (based  on  10% of  the  monthly 
    average of divisional RWAs, adjusted for capital deductions).
(2) Includes disposal  groups:  gross loans  and  advances to  customers  £7.6 
    billion (30 June 2012  - £7.5 billion; 31  December 2011 - £7.3  billion), 
    risk elements in lending £0.5 billion (30 June 2012 and 31 December 2011 -
    £0.5 billion) and  customer deposits  £8.5 billion  (30 June  2012 -  £8.6 
    billion; 31 December 2011 - £8.8 billion).



Key points

UK Retail operating profit increased £27 million or 6%, despite the prevailing
weak macroeconomic environment. A strong  performance on costs, which fell  by 
£16 million in the quarter, continues to drive long-term benefits.



In Q3 2012, UK  Retail welcomed a  new chief executive,  Ross McEwan, who  has 
reiterated the need to make  it 'simple and easy'  for customers to bank  with 
us, including  ensuring staff  have more  time to  spend with  customers.  One 
example of this is the simplification of UK Retail's savings offerings  during 
the quarter, with the number of  instant access savings accounts reduced  from 
eleven to one simple product, and total savings products available falling  to 
eight, making it easier for customers to identify the product they need.



The division has also continued to introduce and refresh innovative  solutions 
to provide customers with access to  the services and assistance they  require 
as easily as possible. For example,  the enhanced functionality of Webchat  on 
the RBS and  NatWest online  banking platforms  allows customers  access to  a 
customer advisor, in real-time and direct from their computer, who can  answer 
queries and action basic account services, 24 hours a day.



UK Retail (continued)



Key points (continued)

As an  early supporter  of the  Bank of  England's Funding  for Lending  (FLS) 
scheme, which  banks  could  draw  from  since  August  2012,  UK  Retail  has 
successfully launched new  mortgages with lower  rates, specifically aimed  at 
cutting the  cost  for  first  time  buyers  and  reducing  rental  prices  on 
buy-to-let properties. By  the end of  September, these mortgages  represented 
c.14% of UK Retail's total mortgage applications in the month and continue  on 
a positive trend.



Q3 2012 compared with Q2 2012

· Operating profit of £464  million is up 6%,  despite economic pressures  and 
  continued changes in consumer behaviours,  largely driven by a 2%  reduction 
  in total costs.
· The loan to deposit ratio remained stable at 104%.
  ○ Customer deposits have fallen marginally, with a successful instant access
    savings campaign more than offset by a large bond maturity in the quarter.
  ○ Mortgage balances  continued  to grow  in  Q3 2012,  although  the  market 
    remained subdued.

· Income growth  remains challenging  in the  current weak  economic, and  low 
  interest rate, environment.
  ○ Net interest margin declined by 4  basis points as improved asset  pricing 
    only partially offset the impact of lower rates on current account hedges.
  ○ Non-interest income  increased  by  £10 million  in  the  quarter,  partly 
    reflecting a seasonal increase in transaction volumes. However, persistent
    changes in customer  behaviour continue  to put downward  pressure on  fee 
    income.
· Costs have fallen  by 2%  primarily due to  lower headcount  and an  ongoing 
  continued simplification of processes across the business.

· Impairment losses were  broadly flat  in Q3 2012,  reflecting the  continued 
  impact of tightened risk appetite.

· Risk-weighted assets were broadly flat as credit quality remained stable.



Q3 2012 compared with Q3 2011

· Operating profit fell by  £46 million as  a decrease in  income of 10%  more 
  than offset decreases in costs and impairments.

· Strong deposit growth drove an improvement in the loan to deposit ratio from
  109% to 104%.

· Net interest income  was £96 million  lower than Q3  2011, reflecting  lower 
  unsecured balances and continued pressure on current account margins  partly 
  offset by strong mortgage growth. These combined pressures drove a 41  basis 
  points decline in net interest margin.
· Non-interest income fell by £40 million, 14%, reflecting lower transactional
  and overdraft fees,  as continued  weakness in the  economy drives  cautious 
  customer behaviour.

· Costs were 5% lower due to  ongoing efficiency savings in discretionary  and 
  staff costs.

· Tightened risk appetite, a shift in  asset mix towards mortgage assets,  and 
  lower default rates drove a 28% decrease in impairment losses.



UK Corporate



                                Quarter ended             Nine months ended
                                30                  30          30         30
                        September 30 June September   September September

                             2012    2012      2011        2012      2011
                               £m      £m        £m         £m        £m
                                                                        
Income statement                                                        
Net interest income           729     772       753      2,257     2,334
                                                                       
Net fees and
commissions                   334     346       353      1,016     1,034
Other non-interest
income                         75      93       100        277       318
                                                                       
Non-interest income           409     439       453      1,293     1,352
                                                                       
Total income                1,138   1,211     1,206      3,550     3,686
                                                                       
Direct expenses                                                         
 - staff                    (224)    (232)      (221)       (701)      (691)
 - other                     (91)     (89)      (102)       (265)      (291)
Indirect expenses            (208)    (197)      (224)       (608)      (629)
                                                                       
                            (523)    (518)      (547)     (1,574)    (1,611)
                                                                       
Operating profit before
impairment losses             615     693       659      1,976     2,075
Impairment losses            (247)    (181)      (230)       (604)      (557)
                                                                       
Operating profit              368     512       429      1,372     1,518
                                                                       
                                                                       
Analysis of income by
business                                                                
Corporate and
commercial lending            613     664       641      1,964     2,020
Asset and invoice
finance                       176     171       176        509       491
Corporate deposits            141     174       175        481       523
Other                         208     202       214        596       652
                                                                       
Total income                1,138   1,211     1,206      3,550     3,686
                                                                       
                                                                       
Analysis of impairments
by sector                                                               
Financial institutions          8       2         6         12        22
Hotels and restaurants          6       8        22         29        43
Housebuilding and
construction                   14      79        29        118        76
Manufacturing                  20      19         9         39        21
Private sector
education, health,
social work,

 recreational and
community services             (8)      21        20         35        32
Property                      117      34        82        181       151
Wholesale and retail
trade, repairs                 16      16        24         65        56
Asset and invoice
finance                        10      11         -         30        24
Other                          64      (9)        38         95       132
                                                                       
Total impairment losses       247     181       230        604       557



UK Corporate (continued)



                                Quarter ended             Nine months ended
                                30                  30          30         30
                        September 30 June September   September September

                             2012    2012      2011        2012      2011
                                                                        
Loan impairment charge
as % of gross

customer loans and
advances

(excluding reverse
repurchase

agreements) by sector                                                 
Financial institutions       0.6%    0.1%      0.4%       0.3%      0.5%
Hotels and restaurants       0.4%    0.5%      1.4%       0.7%      0.9%
Housebuilding and
construction                 1.6%    9.0%      2.9%       4.5%      2.5%
Manufacturing                1.7%    1.6%      0.8%       1.1%      0.6%
Private sector
education, health,
social work,

 recreational and
community services          (0.4%)    0.9%      0.9%       0.5%      0.5%
Property                     1.8%    0.5%      1.1%       0.9%      0.7%
Wholesale and retail
trade, repairs               0.7%    0.7%      1.0%       1.0%      0.8%
Asset and invoice
finance                      0.4%    0.4%         -       0.4%      0.3%
Other                        0.7%   (0.1%)      0.4%       0.4%      0.5%
                                                                       
Total                        0.9%    0.7%      0.8%       0.7%      0.7%



Key metrics

                          Quarter ended                 Nine months ended
                                   30           30            30           30
                30 September   June   September     September   September

                        2012   2012        2011          2012        2011
                                                                        
Performance
ratios                                                                  
Return on
equity (1)             11.9%  16.8%       13.7%        15.0%       15.8%
Net interest
margin                 2.99%  3.17%       2.98%        3.08%       3.07%
Cost:income
ratio                    46%    43%         45%          44%         44%



                         30 September 30 June           31 December

                                2012    2012                2011       
                                 £bn     £bn Change          £bn Change
                                                                       
Capital and balance
sheet                                                                   
Total third party assets        111.8   113.7    (2%)        114.2    (2%)
Loans and advances to
customers (gross) (2)                                                   
 - financial
institutions                      5.1     6.1   (16%)          5.8   (12%)
 - hotels and
restaurants                       5.9     6.1    (3%)          6.1    (3%)
 - housebuilding and
construction                      3.5     3.5      -          3.9   (10%)
 - manufacturing                 4.7     4.9    (4%)          4.7      -
 - private sector
education, health,
social

 work, recreational
and community services            8.8     8.9    (1%)          8.7      1%
 - property                     26.0    26.9    (3%)         28.2    (8%)
 - wholesale and retail
trade, repairs                    8.9     8.9      -          8.7      2%
 - asset and invoice
finance                          10.9    10.7     2%         10.4      5%
 - other                        34.5    34.1     1%         34.2      1%
                                                                       
                               108.3   110.1    (2%)        110.7    (2%)
                                                                       
Customer deposits (2)           126.8   127.5    (1%)        126.3      -
Risk elements in lending
(2)                               5.5     4.9    12%          5.0    10%
Loan:deposit ratio
(excluding repos)                 84%     85% (100bp)          86% (200bp)
Risk-weighted assets             82.1    79.4     3%         79.3     4%



Notes:

(1) Divisional return on equity is based on divisional operating profit  after 
    tax, divided  by average  notional equity  (based on  10% of  the  monthly 
    average of divisional RWAs, adjusted for capital deductions).
(2) Includes disposal groups:  loans and advances  to customers £11.7  billion 
    (30 June 2012  - £11.9 billion;  31 December 2011  - £12.2 billion),  risk 
    elements in lending £0.9 billion (30 June 2012 - £0.9 billion; 31 December
    2011 - £1.0 billion) and customer  deposits £12.9 billion (30 June 2012  - 
    £13.1 billion; 31 December 2011- £13.0 billion).



UK Corporate (continued)



Key points

UK Corporate faced a  challenging market environment in  Q3 2012, with  margin 
pressures, competition  for  deposits  and  a  small  number  of  single  name 
impairments. The  division  continued  its commitment  to  supporting  the  UK 
economy.



Through the Funding for  Lending Scheme (FLS), which  launched in Q3 2012,  UK 
Corporate had,  by 30  September 2012,  supported over  4,300 SMEs  with  £597 
million of  allocated  funds.  Over  the  full  lifetime  of  the  scheme,  UK 
Corporate's SME customers are  expected to save  £100 million through  reduced 
interest  rates  and   the  removal   of  arrangement   fees.  Corporate   and 
Institutional Banking  is  using  the  FLS  to  provide  targeted  support  to 
mid-sized manufacturers where, in some cases, it is reducing interest rates by
more than 1%.



Q3 2012 compared with Q2 2012

· Operating profit decreased by £144 million, 28%, predominantly due to  lower 
  income and increased impairments.
 
· Net interest income decreased by 6% due to an 18 basis point fall in the net
  interest margin.  This  was driven  by  the non-repeat  of  income  deferral 
  revisions in Q2 2012, deposit margin compression reflecting tightening Libor
  spreads and increased competition. Loans  and advances to customers fell  by 
  2% as  a  result of  the  repayment of  a  small number  of  specific  large 
  corporate loans at the  end of the quarter,  with SME lending broadly  flat. 
  Deposits fell marginally and the loan to deposit ratio was 84%.
 
· Non-interest income decreased  7% primarily  due to  a decline  in the  fair 
  value of a property-related investment of £25 million.
 
· Impairments increased 36%, £66 million,  primarily driven by a small  number 
  of significant individual corporate cases.
 
· Risk-weighted assets increased 3% mainly  as a result of regulatory  changes 
  to capital  models,  primarily  a  slotting  approach  in  the  real  estate 
  portfolio.



Q3 2012 compared with Q3 2011

· Operating profit fell by £61  million, 14%, largely reflecting lower  income 
  (down £68 million)  and increased  impairments (up  £17 million),  partially 
  offset by a £24 million decrease in costs.
 
· Net interest  income decreased  by 3%,  primarily driven  by deposit  margin 
  compression. A 4%  fall in lending  volumes was broadly  offset by  improved 
  asset margins.
 
· Non-interest income declined  by 10%,  mainly due to  lower Markets  revenue 
  share income as volumes remained subdued, as well as the decline in the fair
  value of a property-related investment.
 
· Total  costs  decreased  by   4%  due  to   continued  tight  control   over 
  discretionary spending.
 
· Impairments increased  by  7%  reflecting  a  small  number  of  significant 
  individual corporate cases in Q3 2012.
 
· The loan to deposit ratio improved by 500  basis points to 84%, due to a  2% 
  growth in deposits and a 10% decline in property-related lending.



Wealth



                                Quarter ended             Nine months ended
                                         30         30          30         30
                        30 September June September   September September

                                2012 2012      2011        2012      2011
                                  £m   £m        £m         £m        £m
                                                                        
Income statement                                                        
Net interest income              185  178       152        542       477
                                                                       
Net fees and
commissions                       94   90        95        277       286
Other non-interest
income                            13   35        23         66        61
                                                                       
Non-interest income              107  125       118        343       347
                                                                       
Total income                     292  303       270        885       824
                                                                       
Direct expenses                                                         
 - staff                       (104) (116)      (106)       (337)      (317)
 - other                        (57)  (56)       (57)       (173)      (152)
Indirect expenses                (58)  (55)       (58)       (171)      (168)
                                                                       
                               (219) (227)      (221)       (681)      (637)
                                                                       
Operating profit before
impairment losses                 73   76        49        204       187
Impairment losses                 (8)  (12)        (4)        (30)       (12)
                                                                       
Operating profit                  65   64        45        174       175
                                                                       
Analysis of income                                                      
Private banking                  237  252       218        726       670
Investments                       55   51        52        159       154
                                                                       
Total income                     292  303       270        885       824



Key metrics

                          Quarter ended                 Nine months ended
                                   30           30            30           30
                30 September   June   September     September   September

                        2012   2012        2011          2012        2011
                                                                        
Performance                                        
ratios                                                                   
Return on                                          
equity (1)             14.3%  13.8%        9.4%         12.5%       12.4%
Net interest                                       
margin                 3.88%  3.69%       2.96%         3.74%       3.18%
Cost:income                                        
ratio                    75%    75%         82%           77%         77%



                         30 September 30 June           31 December

                                2012    2012                2011       
                                 £bn     £bn Change          £bn Change
                                                                       
Capital and balance
sheet                                                                   
Loans and advances to
customers (gross)                                                       
 - mortgages                     8.7     8.6     1%          8.3     5%
 - personal                      5.5     5.6    (2%)          6.9   (20%)
 - other                         2.8     2.8      -          1.7    65%
                                                                       
                                17.0    17.0      -         16.9     1%
Customer deposits                38.7    38.5     1%         38.2     1%
Assets under management
(excluding

 deposits)                      29.5    30.6    (4%)         30.9    (5%)
Risk elements in lending          0.2     0.2      -          0.2      -
Loan:deposit ratio
(excluding repos)                 44%     44%      -          44%      -
Risk-weighted assets             12.3    12.3      -         12.9    (5%)



Note:

(1) Divisional return on equity is based on divisional operating profit  after 
    tax divided  by average  notional  equity (based  on  10% of  the  monthly 
    average of divisional RWAs, adjusted for capital deductions).



Wealth (continued)



Key points

Q3 2012 saw a solid performance. Interest margins continued to improve,  while 
costs and impairments fell.



The division  made  further  progress in  implementing  the  refreshed  Coutts 
strategy across all jurisdictions. This  included two new appointments to  the 
Board of Coutts & Co Ltd Zurich, who will work closely with senior  management 
on the development of  the business and enhancements  to the client  franchise 
and product offering, in line with Coutts strategy of growth in the region.



In the UK,  Coutts is finalising  preparations for the  implementation of  the 
Financial Services Authority's  Retail Distribution Review  regulations by  31 
December 2012. Significant work has been undertaken to ensure clients continue
to receive  the  best  service  and advice  based  on  their  specific  needs, 
including the introduction of revised private banker and wealth manager  roles 
and  the  development  of  refreshed  products  to  reflect  the  new   advice 
proposition.



Q3 2012 compared with Q2 2012

· Operating profit increased by  £1 million, 2%, to  £65 million in the  third 
  quarter. Higher net interest income, lower impairments and the non-repeat of
  client redress costs in Q2 2012 were partly offset by the non-repeat of  the 
  Q2 2012 gain on sale of the Latin American and African business.
 
· Income declined  by  4%  due  to a  14%  decrease  in  non-interest  income, 
  primarily reflecting the gain of £15  million on sale of the Latin  American 
  and African business in Q2  2012. Excluding the gain,  income grew by 1%  as 
  improved net interest income reflected increases in lending margins.
 
· Expenses fell by  4% principally due  to the non-recurrence  of the Q2  2012 
  client redress expense following a past business review into the sale of the
  ALICO Enhanced Variable Rate Fund, announced in November 2011.
 
· Client assets and liabilities  managed by the  division declined 1%.  Assets 
  under management declined by £1.1 billion, with £1.5 billion of net outflows
  of low margin custody assets in international markets only partially  offset 
  by favourable market movements of £0.4 billion. Lending and deposit  volumes 
  were broadly stable.
 
· Impairments were £8 million,  down £4 million, reflecting  a lower level  of 
  specific impairments.



Q3 2012 compared with Q3 2011

· Operating profit rose 44% principally reflecting strong growth in income.
 
· Income increased by 8% driven by strong  growth in net interest income as  a 
  result of improved lending margins and growth in divisional treasury income.
  Deposit income increased  with a  £1.3billion growth  in volumes  and a  10 
  basis points improvement  in margins. Non-interest  income declined 9%  with 
  continued volatile markets subduing client demand for transactions,  leading 
  to reduced brokerage and foreign exchange income.
 
· Expenses  decreased  by  1%  largely  reflecting  favourable  exchange  rate 
  movements, assisted by continued close management of discretionary costs.
 
· Client assets  and liabilities  managed  by the  division increased  by  1%, 
  driven by the increase in deposits.  Assets under management declined by  1% 
  as favourable market movements, accounting  for £2billion of the  movement, 
  were offset by net new business outflows of low margin custody assets.



International Banking



                       Quarter ended                        Nine months ended
 30 September The story has been truncated,
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