8th Dec 2005 07:02
Royal Bank of Scotland Group PLC08 December 2005 THE ROYAL BANK OF SCOTLAND GROUP PLC Pre-close Trading Update 8 December 2005 Introduction The Royal Bank of Scotland Group ('RBS') will be holding discussions withanalysts and investors ahead of its close period for the year ending 31 December2005. This statement sets out the information that will be covered in thosediscussions. Comments in this statement are based on expected trends between 2004 and 2005,as if IFRS had applied in full to our results for both 2004 and 2005. Commentsrelate to expected results for the full year, unless otherwise stated. Summary RBS has continued to perform well in 2005 and our results are expected to be inline with market expectations. Highlights of the Group results for 2005 areexpected to include good growth in income, both organically and in total, acontinuing high level of efficiency, good overall credit metrics and delivery ofthe expected benefits from recent acquisitions. Income and Margins Income mix: The mix of income in 2005 is expected to be similar to that in thefirst half, with a growing proportion coming from our various overseasactivities. It is expected that our income from unsecured lending to UKconsumers will continue to account for less than 10% of total income in 2005. Non-interest income: Non-interest income, which is expected to account for over60% of total income, has continued to grow strongly in 2005, reflecting goodgrowth in banking fee income, financial markets income and insurance premiumincome. Lending and deposit volumes: During 2005 the Group has continued to achieve goodgrowth in lending and deposits across its banking activities. Large corporateand mortgage lending have continued to expand more rapidly than unsecuredpersonal lending, where growth has slowed to more normal levels after stronggrowth in recent years. Margins: The Group's net interest margin in the full year 2005 is expected to beslightly lower than in the first half of 2005, principally due to proportionallyhigher growth in large corporate and mortgage lending and because the US yieldcurve has flattened further. Divisions Corporate Banking and Financial Markets continues to perform strongly, with 2005income benefiting from strong growth across a broad range of customers, productsand geographies. Retail Markets continues to achieve good growth in income, withslower growth in unsecured lending and good growth in deposits, reflecting thetransition in consumer behaviour which we anticipated. New business margins inpersonal banking products have shown signs of improvement in the second half. Citizens continues to perform well despite the reduction in margin caused by thefurther flattening of the US yield curve, and is making good progress on theintegration of Charter One. RBS Insurance has continued to grow its income, invery competitive conditions in motor insurance, and has completed theintegration of Churchill. Ulster Bank has seen continued strong growth in goodmarket conditions. Expenses The Group continues to focus on efficiency, and it is pleasing that we havemaintained our low cost:income ratio while achieving strong growth in volumesand investing across the Group to support current and future income growth. TheGroup's cost:income ratio for 2005 as a whole (excluding acquisitions) isexpected to be similar to the first half. Credit Quality and Provisions Overall credit metrics are expected to have improved in 2005, with the totalcharge for provisions representing a lower proportion of total loans andadvances. The total charge for provisions is expected to be in line with marketexpectations. In Retail Markets, the charge for provisions is expected to continue to reflectthe seasoning of unsecured lending which grew strongly in recent years, togetherwith very low provisions on the growing mortgage balances. There are signs thatthe increase in unsecured personal lending arrears may be levelling off, but itis too early to conclude that arrears have peaked. Small business credit qualityremains stable. In Corporate Banking and Financial Markets, credit conditionsremain benign and it is expected that CBFM credit metrics for 2005 will show animprovement from 2004. Integration Activity The integration of Churchill was completed successfully in September 2005, aheadof schedule. It has delivered the expected transaction benefits, and it isexpected that Churchill's profit in 2005 will be more than double its profit in2002, its last year before acquisition. The integrations of First Active andCharter One remain fully on track. Capital As indicated in August, the Group's Tier 1 capital ratio is expected to exceed7% at the end of 2005, reflecting the Group's continuing strong capitalgeneration. During 2005 total risk-weighted assets have maintained the goodunderlying growth trend achieved over recent years and, while there was anabove-trend spike in risk-weighted assets at 30 June, there is not expected tobe a similar phenomenon at the end of the year. Sir Fred Goodwin, Group Chief Executive, commented: "Whilst market conditions inthe UK have clearly changed during 2005, it is pleasing that as a result of thediversity of our income streams, the Group expects to be able to continue todeliver good results and strong financial metrics for the year." CONTACTS Sir Fred Goodwin Group Chief Executive 0131 523 2203Fred Watt Group Finance Director 0131 523 2028Richard O'Connor Head of Investor Relations 0207 672 1758For media enquiriesHoward Moody Group Director, Communications 0131 523 2056Carolyn McAdam Head of Media Relations 0131 523 2055 This announcement contains forward looking statements, including such statementswithin the meaning of Section 27A of the US Securities Act of 1933 and Section21E of the Securities Exchange Act of 1934. These statements concern or mayaffect future matters, such as RBS's future economic results, business plans andstrategies, and are based upon the current expectations of the directors. Theyare subject to a number of risks and uncertainties that might cause actualresults and events to differ materially from the expectations expressed in theforward looking statements. Factors that could cause or contribute todifferences in current expectations include, but are not limited to, regulatorydevelopments, competitive conditions, technological developments and generaleconomic conditions. These factors risks and uncertainties are discussed inRBS's SEC filings, including, but not limited to, RBS's report on Form 6-Kcontaining this announcement and certain sections of RBS's Annual Report on Form20-F. Information in this announcement of the price at which investments havebeen bought or sold in the past or the yield on investments cannot be reliedupon as a guide to future performance. RBS assumes no responsibility to updateany of the forward looking statements contained in this announcement. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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