TIDM83NF
RNS Number : 4142E
Natwest Markets PLC
28 October 2022
NatWest Markets Group
Q3 2022
Interim Management Statement
ci.natwest.com
NatWest Markets Group (NWM Group)
Results for Q3 2022
Q3 Overview
In Q3 2022, we have improved connectivity across the newly
formed NatWest Group Commercial and Institutional franchise
(C&I), as we look forward in 2023 to unlocking further
opportunities and increased penetration with NatWest Group
customers.
In volatile market conditions we have continued to support our
customers by providing financing and risk management solutions. We
continue to monitor the evolving economic outlook, particularly any
impacts on NWM Group and any changes to customers' behaviour due to
inflation and recent pressure on sterling, gilts and pension fund
liquidity. Against this challenging backdrop, we have delivered on
a solid third quarter compared to the same period in 2021 and
maintained our robust capital and liquidity position.
Our business's focus on climate and sustainable funding and
financing means that as at the end of Q3 2022 we had delivered
GBP13.8 billion towards the NatWest Group climate and sustainable
funding and financing target of GBP100 billion between 1 July 2021
and the end of 2025.
Financial review
NWM Group reported a loss of GBP133 million for Q3 2022,
compared with a loss of GBP46 million in Q2 2022 and a loss of
GBP164 million in Q3 2021. Total income decreased to GBP144 million
in Q3 2022, largely reflecting weaker performance in Fixed Income,
which was impacted by challenging market conditions, and lower
customer activity levels. Operating expenses increased to GBP287
million, largely due to lower technology investment costs
recognised in the prior period.
Financial performance
- Total income was GBP144 million in Q3 2022, compared with GBP219 million
in Q2 2022 and GBP92 million in Q3 2021. Income excluding asset disposals/strategic
risk reduction and own credit adjustments of GBP138 million was down
by GBP72 million from GBP210 million in Q2 2022, largely reflecting
weaker performance in Fixed Income, which was impacted by challenging
market conditions, and lower customer activity levels in Currencies
and Capital Markets, but was up by GBP36 million compared with GBP102
million in Q3 2021, largely reflecting a relatively weaker performance
in Fixed Income in the comparative period.
- Operating expenses were GBP287 million in Q3 2022, compared with GBP249
million in Q2 2022 and GBP297 million in Q3 2021. The increase compared
with the prior quarter was largely driven by lower technology investment
costs recognised in the prior period.
- NWM Group's total assets and liabilities increased by GBP45.0 billion
and GBP45.7 billion to GBP248.0 billion and GBP241.3 billion respectively
at 30 September 2022, compared with 31 December 2021. The increases
primarily reflect higher derivative fair values, largely driven by
market volatility including the strengthening of USD and movements
in interest rates across major currencies since year end 2021.
Capital and leverage
- Total NWM Plc RWAs were GBP24.9 billion at 30 September 2022, compared
with GBP23.5 billion at 30 June 2022 and GBP22.7 billion at 31 December
2021. The increase since year end 2021 reflects higher levels of credit,
counterparty credit and market risk, largely driven by market volatility
in the period, partially offset by a decrease in operational risk.
- NWM Plc's Common Equity Tier 1 (CET1) ratio was 14.9% at 30 September
2022, compared with 16.4% at 30 June 2022 and 17.9% at 31 December
2021. The decrease in the nine months to 30 September 2022 was largely
driven by the increase in RWAs, dividends paid to NatWest Group plc
and other reserve movements.
- Total MREL for NWM Plc at 30 September 2022 was GBP8.8 billion, or
35.3% of RWAs, down from GBP9.6 billion or 42.1% of RWAs at 31 December
2021. The reduction in the period was largely due to the redemption
of a EUR1.1 billion internal instrument issued to NatWest Group plc.
- NWM Plc's leverage ratio at 30 September 2022 of 4.4% has been calculated
in accordance with changes to the UK's leverage ratio framework introduced
by the PRA which came into effect from 1 January 2022. As at 31 December
2021, the UK leverage ratio was 4.8%, which was calculated under the
prior year's UK leverage methodology.
Liquidity and funding
- NWM Plc's liquidity portfolio at 30 September 2022 was GBP18.0 billion
with an LCR of 199% (31 December 2021 - GBP16.1 billion with LCR 205%).
- NWM Plc retains full year 2022 guidance of GBP4-5 billion of public
benchmark issuance. NWM Plc issued GBP3.6 billion of public benchmark
transactions in the nine months ended 30 September 2022, including
a benchmark transaction under the US MTN programme of $1.5 billion
of notes, three benchmark transactions under the EMTN programme of
EUR1.0 billion, CHF0.3 billion, and EUR1.25 billion of notes respectively,
and an inaugural transaction under the AUD debt issuance programme
of AUD0.6 billion of notes. NWM Plc also raised funding in other formats
throughout the period such as private placements and secured note
transactions.
Outlook (1)
We affirm the medium term outlook guidance provided in NatWest
Markets Plc 2021 Annual Report and Accounts. Having reported a CET1
ratio of 14.9% as at 30 September 2022, we expect a ratio of c.15%
at 31 December 2022.
Depending on market conditions in Q4 2022, NWM Group intends to
continue its plans to issue GBP4-5 billion in public benchmark
issuance in 2022.
(1) The targets, expectations and trends discussed in this
section represent management's current expectations and are subject
to change, noting recent heightened volatility, including as a
result of the factors described in the Risk Factors section in the
NatWest Markets Plc 2021 Annual Report and Accounts and 2022
Registration Document, and the Summary Risk Factors in the NatWest
Markets Plc 2022 Interim Results. These statements constitute
forward-looking statements. Refer to Forward-looking statements in
this announcement.
Financial review
The table below presents a segmental analysis of key lines of
NWM Group's income statement for the nine months ended 30 September
2022. Commentary refers to the table below as well as the
consolidated income statement shown on page 7.
Nine months ended
------------------------------------------------
30 September 2022 30 September 2021
----------------------- -----------------------
Central Central
NatWest items NatWest items
& &
Markets other Total Markets other Total
Income statement GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------- ------- ------- ----- ------- ------- -----
Net interest income 62 - 62 (5) - (5)
Non-interest income 527 (7) 520 390 3 393
------------------------------------------- ------- ------- ----- ------- ------- -----
Total income 589 (7) 582 385 3 388
------------------------------------------- ------- ------- ----- ------- ------- -----
Litigation and conduct costs (12) (21) (33) - 41 41
Other operating expenses (1) (762) (32) (794) (810) (8) (818)
------------------------------------------- ------- ------- ----- ------- ------- -----
Operating expenses (774) (53) (827) (810) 33 (777)
------------------------------------------- ------- ------- ----- ------- ------- -----
Operating (loss)/profit before impairments (185) (60) (245) (425) 36 (389)
Impairment (losses)/releases (10) - (10) 19 - 19
------------------------------------------- ------- ------- ----- ------- ------- -----
Operating (loss)/profit before tax (195) (60) (255) (406) 36 (370)
Tax credit 36 87
------------------------------------------- ------- ------- ----- ------- ------- -----
Loss for the period (219) (283)
------------------------------------------- ------- ------- ----- ------- ------- -----
Income (2)
------------------------------------------- ------- ------- ----- ------- ------- -----
Fixed Income (3) 35 - 35 5 - 5
Currencies 394 - 394 306 - 306
Capital Markets 305 - 305 256 - 256
Capital Management Unit & other (3,4) (31) (7) (38) 20 3 23
------------------------------------------- ------- ------- ----- ------- ------- -----
Income including shared revenue,
before asset disposals and OCA 703 (7) 696 587 3 590
Revenue shared with or paid to fellow
NatWest Group subsidiaries (140) - (140) (153) - (153)
------------------------------------------- ------- ------- ----- ------- ------- -----
Income excluding asset disposals and
OCA 563 (7) 556 434 3 437
Asset disposals/Strategic risk reduction
(5) (34) - (34) (52) - (52)
Own credit adjustments (OCA) 60 - 60 3 - 3
-------------------------------------------
Total income 589 (7) 582 385 3 388
------------------------------------------- ------- ------- ----- ------- ------- -----
(1) A presentational change was made in Q1 2022 whereby
strategic costs are included within Other operating expenses and
not reported separately.
(2) Product performance includes gross income earned on a
NatWest group-wide basis, including amounts contributed to other
NatWest Group subsidiaries. Income including shared revenue, before
asset disposals and OCA includes revenue share from other NatWest
Group subsidiaries but before revenue share is paid to or
contributed to those subsidiaries.
(3) Fixed Income for the nine months ended 30 September 2022
includes income of GBP(6) million relating to business that was
transferred to Capital Management Unit during Q3. Comparatives have
not been restated. The equivalent amount for the nine months ended
30 September 2021 was GBP(4) million.
(4) Capital Management Unit was set up in Q3 2020 to manage
capital usage and optimisation across all parts of NatWest Markets.
The income shown here materially relates to legacy positions. Other
relates to income booked to the Central items & other operating
segment.
(5) Asset disposals/Strategic risk reduction relates to the
costs of exiting positions, which includes changes in carrying
value to align to the expected exit valuation, and the impact of
risk reduction transactions entered into, in respect of the
strategic announcements of 14 February 2020.
- Net interest income was GBP62 million for the nine months ended 30
September 2022, compared with net expense of GBP5 million in the comparative
period. Net interest income largely represents interest income from
lending activity and capital hedges, offset by interest expense from
the funding costs of the business. The movement compared with the nine
months ended 30 September 2021 largely reflects growth in lending activity
and reduced funding costs for the business driven by the ongoing repayment
of legacy debt.
- Non-interest income of GBP520 million increased by GBP127 million compared
with GBP393 million in the nine months ended 30 September 2021, largely
driven by stronger performance in Currencies, as FX volatility heightened
in the current period, and in Capital Markets. Fixed Income performance
was up from the comparative period but continued to be impacted by
unfavourable market conditions. Capital Management Unit performance
in the current period was largely driven by market movements on inflation
positions. Own credit adjustments of GBP60 million reflected the widening
of credit spreads in the period.
- Operating expenses were GBP827 million in the current period, compared
with GBP777 million in the nine months ended 30 September 2021. Litigation
and conduct costs of GBP33 million were up by GBP74 million from GBP41
million credit in the comparative period, which largely reflected progress
in closing legacy matters. Other operating expenses of GBP794 million
in the current period were down by GBP24 million compared with GBP818
million in the nine months ended 30 September 2021, largely reflecting
higher technology investment costs recognised in the comparative period.
- NatWest Markets operating loss before tax was GBP195 million in the
nine months ended 30 September 2022, compared with GBP406 million in
the comparative period. Income excluding asset disposals and own credit
adjustments of GBP563 million was up by GBP129 million compared with
GBP434 million in the comparative period, largely driven by stronger
performance in Currencies, as FX volatility heightened in the period,
and in Capital Markets. Operating expenses of GBP774 million in the
current period were GBP36 million lower than GBP810 million in the
nine months ended 30 September 2021, largely reflecting higher technology
investment costs recognised in the comparative period .
- Central items & other operating loss before tax was GBP60 million,
compared with a profit of GBP36 million in the nine months ended 30
September 2021. Litigation and conduct costs of GBP41 million credit
in the comparative period largely reflected progress in closing legacy
matters. Other operating expenses of GBP32 million in the current period
largely comprised one-off items.
Financial review
The table below presents a segmental analysis of key lines of
NWM Group's income statement for the quarter ended 30 September
2022. Commentary refers to the tables below as well as the
consolidated income statement shown on page 7.
Q3 2022 Q2 2022 Q3 2021
----------------------- ----------------------- -----------------------
Central Central Central
NatWest items NatWest items NatWest items
& & &
Markets other Total Markets other Total Markets other Total
Income statement GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------- ------- ----- ------- ------- ----- ------- ------- -----
Net interest income 33 - 33 15 - 15 (1) - (1)
Non-interest income 109 2 111 210 (6) 204 96 (3) 93
------------------------------ ------- ------- ----- ------- ------- ----- ------- ------- -----
Total income 142 2 144 225 (6) 219 95 (3) 92
------------------------------ ------- ------- ----- ------- ------- ----- ------- ------- -----
Litigation and conduct
costs (6) (7) (13) (4) (8) (12) (2) (25) (27)
Other operating expenses
(1) (257) (17) (274) (230) (7) (237) (266) (4) (270)
------------------------------ ------- ------- ----- ------- ------- ----- ------- ------- -----
Operating expenses (263) (24) (287) (234) (15) (249) (268) (29) (297)
------------------------------ ------- ------- ----- ------- ------- ----- ------- ------- -----
Operating loss before
impairments (121) (22) (143) (9) (21) (30) (173) (32) (205)
Impairment (losses)/releases (5) - (5) (4) - (4) 3 - 3
------------------------------ ------- ------- ----- ------- ------- ----- ------- ------- -----
Operating loss before
tax (126) (22) (148) (13) (21) (34) (170) (32) (202)
Tax credit/(charge) 15 (12) 38
------------------------------ ------- ------- ----- ------- ------- ----- ------- ------- -----
Loss for the period (133) (46) (164)
------------------------------ ------- ------- ----- ------- ------- ----- ------- ------- -----
Income (2)
------------------------------ ------- ------- ----- ------- ------- ----- ------- ------- -----
Fixed Income (3) 12 - 12 38 - 38 (38) - (38)
Currencies 114 - 114 122 - 122 101 - 101
Capital Markets 88 - 88 96 - 96 90 - 90
Capital Management Unit
& other (3,4) (25) 2 (23) 8 (6) 2 7 (3) 4
------------------------------ ------- ------- ----- ------- ------- ----- ------- ------- -----
Income including shared
revenue,
before asset disposals
and OCA 189 2 191 264 (6) 258 160 (3) 157
Revenue shared with or
paid to fellow
NatWest Group subsidiaries (53) - (53) (48) - (48) (55) - (55)
------------------------------ ------- ------- ----- ------- ------- ----- ------- ------- -----
Income excluding asset
disposals and
OCA 136 2 138 216 (6) 210 105 (3) 102
Asset disposals/Strategic
risk reduction (5) (2) - (2) (25) - (25) (12) - (12)
Own credit adjustments
(OCA) 8 - 8 34 - 34 2 - 2
------------------------------
Total income 142 2 144 225 (6) 219 95 (3) 92
------------------------------ ------- ------- ----- ------- ------- ----- ------- ------- -----
(1) A presentational change was made in Q1 2022 whereby
strategic costs are included within Other operating expenses and
not reported separately.
(2) Product performance includes gross income earned on a
NatWest group-wide basis, including amounts contributed to other
NatWest Group subsidiaries. Income including shared revenue, before
asset disposals and OCA includes revenue share from other NatWest
Group subsidiaries but before revenue share is paid to or
contributed to those subsidiaries.
(3) Capital Management Unit for Q3 2022 includes income of
GBP(33) million relating to business that was previously reported
within Fixed Income. Comparatives have not been restated. The
equivalent amounts were GBP(2) million in Q2 2022 and GBP(3)
million in Q3 2021.
(4) Capital Management Unit was set up in Q3 2020 to manage
capital usage and optimisation across all parts of NatWest Markets.
The income shown here materially relates to legacy positions. Other
relates to income booked to the Central items & other operating
segment.
(5) Asset disposals/Strategic risk reduction relates to the
costs of exiting positions, which includes changes in carrying
value to align to the expected exit valuation, and the impact of
risk reduction transactions entered into, in respect of the
strategic announcements of 14 February 2020.
- Net interest income was GBP33 million in Q3 2022, compared
with GBP15 million in Q2 2022 and net expense of GBP1 million in Q3
2021. Net interest income largely represents interest income from
lending activity and capital hedges, offset by interest expense
from the funding costs of the business. The movement compared with
Q2 2022 and Q3 2021 largely reflects growth in lending activity and
reduced funding costs for the business driven by the ongoing
repayment of legacy debt.
- Non-interest income of GBP111 million in Q3 2022 decreased by
GBP93 million compared with GBP204 million in Q2 2022 and increased
by GBP18 million compared with GBP93 million in Q3 2021. Fixed
Income performance was down compared with the prior quarter,
largely reflecting challenging market conditions, but was up
compared with Q3 2021. Currencies and Capital Markets income levels
were down from the prior quarter, largely reflecting lower levels
of customer activity, but remained robust compared with the prior
year. Capital Management Unit performance in the current quarter
was largely driven by market movements on inflation positions.
- Operating expenses were GBP287 million in Q3 2022, compared
with GBP249 million in Q2 2022 and GBP297 million in Q3 2021.
Litigation and conduct costs were GBP13 million in Q3 2022,
compared with GBP12 million in Q2 2022 and GBP27 million in Q3
2021. Other operating expenses of GBP274 million in Q3 2022
increased by GBP37 million compared with GBP237 million in Q2 2022,
largely reflecting lower technology investment costs recognised in
the prior quarter, and increased by GBP4 million compared with
GBP270 million in Q3 2021.
- NatWest Markets operating loss before tax was GBP126 million
in Q3 2022, compared with GBP13 million in Q2 2022 and GBP170
million in Q3 2021. Income excluding asset disposals and own credit
adjustments of GBP136 million was down compared with GBP216 million
in Q2 2022, largely reflecting challenging market conditions and
lower levels of customer activity in the current quarter, and up
compared with GBP105 million in Q3 2021, largely reflecting a
relatively weaker performance in Fixed Income in the comparative
period. Operating expenses of GBP263 million in Q3 2022 were higher
than GBP234 million in Q2 2022, largely reflecting lower technology
investment costs recognised in the prior quarter, and down from
GBP268 million in Q3 2021.
- Central items & other operating loss before tax was GBP22
million, compared with GBP21 million in Q2 2022 and GBP32 million
in Q3 2021. Other operating expenses of GBP17 million in the
current quarter largely comprised one-off items.
Financial review
Balance sheet profile as at 30 September 2022
NWM Group's balance sheet profile is summarised below.
Commentary refers to the table below as well as the consolidated
balance sheet on page 9.
Assets Liabilities
------------------------------------------------------ ------------------------------------------------------
30 September 31 December 30 September 31 December
2022 2021 2022 2021
GBPbn GBPbn GBPbn GBPbn
--------------------------- ------------ ----------- ------------ ----------- ---------------------------
Cash and balances at
central banks 15.6 16.6
Securities 14.9 25.0 14.2 25.0 Short positions
Reverse repos (1) 24.1 20.7 26.4 19.4 Repos (2)
Derivative cash collateral Derivative cash collateral
given (3) 17.7 12.0 21.7 17.6 received (4)
Other trading assets 1.0 1.4 2.2 2.5 Other trading liabilities
--------------------------- ------------ ----------- ------------ ----------- ---------------------------
Total trading assets 57.7 59.1 64.5 64.5 Total trading liabilities
Deposits - amortised
Loans - amortised cost 12.1 8.4 8.1 4.1 cost
Settlement balances 7.4 2.1 6.9 2.1 Settlement balances
Amounts due from holding Amounts due to holding
company company
and fellow subsidiaries 0.9 1.5 6.4 6.1 and fellow subsidiaries
Other financial assets 11.8 8.8 19.7 19.3 Other financial liabilities
Other assets 0.9 0.9 0.7 1.0 Other liabilities
Liabilities excluding
Funded assets 106.4 97.4 106.3 97.1 derivatives
Derivative assets 141.6 105.6 135.0 98.5 Derivative liabilities
--------------------------- ------------ ----------- ------------ ----------- ---------------------------
Total assets 248.0 203.0 241.3 195.6 Total liabilities
------------ ----------- ------------ -----------
of which:
22.9 21.1 wholesale funding (5)
short-term wholesale
8.6 9.2 funding (5)
--------------------------- ------------ ----------- ------------ ----------- ---------------------------
(1) Comprises bank reverse repos of GBP7.3 billion (31 December 2021
- GBP3.9 billion) and customer reverse repos of GBP16.8 billion
(31 December 2021 - GBP16.8 billion).
(2) Comprises bank repos of GBP1.8 billion (31 December 2021- GBP0.8
billion) and customer repos of GBP24.6 billion (31 December 2021
- GBP18.6 billion).
(3) Comprises derivative cash collateral given relating to banks of
GBP7.6 billion (31 December 2021 - GBP4.3 billion) and customers
of GBP10.1 billion (31 December 2021 - GBP7.7 billion).
(4) Comprises derivative cash collateral received relating to banks
of GBP8.9 billion (31 December 2021 - GBP8.1 billion) and customers
of GBP12.8 billion (31 December 2021 - GBP9.5 billion).
(5) Wholesale funding predominantly comprises bank deposits (excluding
repos), debt securities in issue and third party subordinated liabilities,
of which short-term wholesale funding is the amount with contractual
maturity of one year or less.
- Total assets and liabilities increased by GBP45.0 billion and GBP45.7
billion to GBP248.0 billion and GBP241.3 billion respectively at 30
September 2022, compared with GBP203.0 billion and GBP195.6 billion
at 31 December 2021. The increases primarily reflect higher derivative
fair values, largely driven by market volatility including the strengthening
of USD and movements in interest rates across major currencies since
year end 2021. Funded assets, which exclude derivatives, increased
by GBP9.0 billion to GBP106.4 billion.
- Trading assets were down by GBP1.4 billion to GBP57.7 billion at 30
September 2022, with a decrease in securities largely driven by risk
management activity in the current period offset by increases in derivative
cash collateral posted and reverse repos. Trading liabilities were
GBP64.5 billion, consistent with 31 December 2021, with a decrease
in short positions largely driven by risk management activity in the
current period offset by increases in repos and derivative cash collateral
received.
- Derivative assets and derivative liabilities were up by GBP36.0 billion
to GBP141.6 billion and GBP36.5 billion to GBP135.0 billion respectively
at 30 September 2022, largely driven by market volatility including
the strengthening of USD and movements in interest rates since year
end 2021.
- Settlement balance assets and liabilities were up by GBP5.3 billion
and GBP4.8 billion to GBP7.4 billion and GBP6.9 billion respectively,
due to increased trading compared with the seasonally lower levels
of customer activity leading up to 31 December 2021 .
- Loans to customers - amortised cost were up by GBP2.6 billion to GBP10.1
billion, largely reflecting new lending.
- Other financial liabilities increased by GBP0.4 billion to GBP19.7
billion (31 December 2021 - GBP19.3 billion), as new issuance in the
period was largely offset by maturities. The balance at 30 September
2022 includes GBP15.0 billion of medium-term notes issued.
- Owners' equity was down by GBP0.8 billion to GBP6.7 billion ( 31 December
2021 - GBP7.5 billion), driven by interim dividend payments to NatWest
Group plc totalling GBP0.4 billion, and other reserve movements in
the period.
Non-IFRS measures
This document contains a number of non-IFRS measures. For
details of the basis of preparation and reconciliations, where
applicable, refer to the non-IFRS measures section on page 14.
Capital, liquidity and funding risk
Capital, RWAs and leverage
Capital resources, RWAs and leverage based on the PRA
transitional arrangements for NWM Plc are set out below. Regulatory
capital is monitored and reported at legal entity level for large
subsidiaries of NatWest Group.
30 September 30 June 31 December
2022 2022 2021
Capital adequacy ratios % % %
------------------------- ------------ ------- -----------
CET1 14.9 16.4 17.9
Tier 1 17.7 19.2 21.0
Total 22.3 23.9 25.9
Total MREL 35.3 36.8 42.1
-------------------------
Capital (1) GBPm GBPm GBPm
------------------------- ------------ ------- -----------
CET1 3,714 3,837 4,072
Tier 1 4,393 4,514 4,755
Total 5,538 5,597 5,870
Total MREL (2) 8,787 8,638 9,555
-------------------------
Risk-weighted assets
------------------------- ------------ ------- -----------
Credit risk 7,736 7,603 6,878
Counterparty credit risk 7,538 7,028 6,854
Market risk 8,121 7,347 6,934
Operational risk 1,478 1,478 2,020
------------------------- -------
Total RWAs 24,873 23,456 22,686
------------------------- ------------ ------- -----------
(1) CRR end-point for UK banks set by the PRA is 10.5% minimum
total capital ratio, with a minimum CET1 ratio of 7.0%, of which
the minimum capital requirement is 4.5% and capital conservation
buffer is 2.5%.
(2) Includes senior debt instruments issued to NatWest Group plc
with a regulatory value of GBP3.2 billion (30 June 2022 - GBP3.0
billion, 31 December 2021 - GBP3.7 billion).
Leverage
The leverage ratio for September and June 2022 has been
calculated in accordance with the Leverage Ratio (CRR) part of the
PRA rulebook. The comparatives for December 2021 reflect the
previous CRR framework which was applicable prior to 1 January
2022.
30 September 30 June 31 December
2022 2022 2021
Leverage exposure (GBPm) (3) 99,515 102,238 110,603
Tier 1 capital (GBPm) 4,393 4,514 4,755
Leverage ratio (%) (4) 4.4 4.4 4.3
----------------------------- ------------ ------- -----------
(3) Leverage exposure is broadly aligned to the accounting value
of on and off-balance sheet exposures albeit subject to specific
adjustments for derivatives, securities financing positions and
off-balance sheet exposures.
(4) Following the Financial Policy Committee's planned review of
the UK's leverage ratio framework, the PRA has introduced changes
to the framework from 1 January 2022. The leverage ratios for 30
September 2022 and 30 June 2022 in the above table reflects the UK
leverage ratio for NWM Plc, as per the new framework. As at 31
December 2021, the UK leverage ratio was 4.8%, which was calculated
under the prior year's PRA UK leverage methodology.
Liquidity and funding
30 September 30 June 31 December
2022 2022 2021
Liquidity coverage ratio (LCR) (%) 199 206 205
Liquidity portfolio (GBPbn) 18.0 18.2 16.1
Total wholesale funding (GBPbn) (1) 22.9 23.2 21.1
Total funding including repo (GBPbn) 84.2 82.5 68.8
------------------------------------- ------------ ------- -----------
(1) Predominantly comprises bank deposits (excluding repos),
debt securities in issue and third party subordinated liabilities
.
Condensed consolidated income statement for the period ended 30
September 2022 (unaudited)
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2022 2021 2022 2022 2021
GBPm GBPm GBPm GBPm GBPm
Interest receivable 475 258 232 142 79
Interest payable (413) (263) (199) (127) (80)
Net interest income 62 (5) 33 15 (1)
----------------------------------------- ------------ ------------ ------------ ------- ------------
Fees and commissions receivable 260 194 80 84 48
Fees and commissions payable (126) (81) (49) (36) (19)
Income from trading activities 352 300 56 155 74
Other operating income 34 (20) 24 1 (10)
Non-interest income 520 393 111 204 93
----------------------------------------- ------------
Total income 582 388 144 219 92
----------------------------------------- ------------
Staff costs (308) (370) (95) (80) (118)
Premises and equipment (41) (59) (16) (1) (22)
Other administrative expenses (465) (333) (174) (161) (152)
Depreciation and amortisation (13) (15) (2) (7) (5)
Operating expenses (827) (777) (287) (249) (297)
----------------------------------------- ------------
Loss before impairment (losses)/releases (245) (389) (143) (30) (205)
Impairment (losses)/releases (10) 19 (5) (4) 3
-----------------------------------------
Operating loss before tax (255) (370) (148) (34) (202)
Tax credit/(charge) 36 87 15 (12) 38
Loss for the period (219) (283) (133) (46) (164)
----------------------------------------- ------------ ------------ ------------ ------- ------------
Attributable to:
Ordinary shareholders (271) (369) (151) (64) (180)
Paid-in equity holders 52 47 19 17 16
Non-controlling interests - 39 (1) 1 -
------------
(219) (283) (133) (46) (164)
----------------------------------------- ------------ ------------ ------------ ------- ------------
Condensed consolidated statement of comprehensive income for the
period ended
30 September 2022 (unaudited)
Nine months ended Quarter ended
--------------------------
30 September 30 September 30 September 30 June 30 September
2022 2021 2022 2022 2021
GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------- ------------
Loss for the period (219) (283) (133) (46) (164)
------------------------------------------- ------------ ------- ------------
Items that do not qualify for
reclassification
Remeasurement of retirement benefit
schemes (1) - - - 1
Changes in fair value of credit
in financial liabilities
designated at fair value through
profit or loss (FVTPL)
due to own credit risk 102 (29) 11 52 (4)
Fair value through other comprehensive
income (FVOCI)
financial assets (3) (2) (4) (2) (1)
Tax (10) 5 (1) (4) 1
88 (26) 6 46 (3)
------------------------------------------- ------------ ------- ------------
Items that do qualify for reclassification
FVOCI financial assets (35) (3) (18) (2) 5
Cash flow hedges (575) (157) (321) (101) (54)
Currency translation 336 (93) 166 134 19
Tax 174 21 96 29 14
(100) (232) (77) 60 (16)
------------------------------------------- ------------ ------- ------------
Other comprehensive (loss)/income
after tax (12) (258) (71) 106 (19)
Total comprehensive (loss)/income
for the period (231) (541) (204) 60 (183)
------------------------------------------- ------------ ------- ------------
Attributable to:
Ordinary shareholders (283) (631) (223) 43 (199)
Paid-in equity holders 52 47 19 17 16
Non-controlling interests - 43 - - -
------------------------------------------- ------------ ------------ ------------ ------- ------------
(231) (541) (204) 60 (183)
------------------------------------------- ------------ ------------ ------------ ------- ------------
Condensed consolidated balance sheet as at 30 September 2022
(unaudited)
30 September 31 December
2022 2021
GBPm GBPm
Assets
Cash and balances at central banks 15,581 16,645
Trading assets 57,725 59,101
Derivatives 141,636 105,550
Settlement balances 7,429 2,139
Loans to banks - amortised cost 2,004 962
Loans to customers - amortised cost 10,082 7,471
Amounts due from holding company and fellow subsidiaries 863 1,479
Other financial assets 11,818 8,786
Other assets 887 878
Total assets 248,025 203,011
--------------------------------------------------------- ------------ -----------
Liabilities
Bank deposits 3,904 1,808
Customer deposits 4,146 2,268
Amounts due to holding company and fellow subsidiaries 6,422 6,126
Settlement balances 6,930 2,068
Trading liabilities 64,481 64,482
Derivatives 134,950 98,497
Other financial liabilities 19,686 19,255
Other liabilities 793 1,055
Total liabilities 241,312 195,559
--------------------------------------------------------- ------------ -----------
Equity
--------------------------------------------------------- -----------
Owners' equity 6,716 7,455
Non-controlling interests (3) (3)
Total equity 6,713 7,452
--------------------------------------------------------- ------------ -----------
Total liabilities and equity 248,025 203,011
--------------------------------------------------------- ------------ -----------
Condensed consolidated statement of changes in equity for the
period ended 30 September 2022 (unaudited)
Share
capital Total Non
and
share Paid-in Retained Other owners' controlling Total
premium equity earnings reserves* equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ------- -------- --------- ------- ----------- ------
At 1 January 2022 2,346 904 4,138 67 7,455 (3) 7,452
Loss attributable to ordinary
shareholders and paid-in equity
holders (219) (219) - (219)
Other comprehensive income
- Realised gain in period
on FVOCI equity shares 6 (6) - -
- Changes in fair value of
credit in
financial liabilities designated
at FVTPL
due to own credit risk 102 102 102
- Unrealised losses: FVOCI (45) (45) - (45)
- Remeasurement of retirement
benefit schemes (1) (1) (1)
- Amounts recognised in equity:
cash flow hedges (544) (544) (544)
- Foreign exchange reserve
movement 336 336 - 336
- Amounts transferred from
equity to
earnings (24) (24) (24)
- Tax (12) 176 164 164
Ordinary share dividends paid (430) (430) - (430)
Paid-in equity dividends paid (52) (52) (52)
Share-based payments (26) (26) (26)
-------------------------------------- ------- ------- -------- --------- ------- ----------- ------
At 30 September 2022 2,346 904 3,506 (40) 6,716 (3) 6,713
30 September
2022
Attributable to: GBPm
-------------------------------------------------------- -------- --------- ------- -----------
Ordinary shareholders 5,812
Paid-in equity holders 904
Non-controlling interests (3)
-------------------------------------- ------- -------
6,713
------
*Other reserves consist of:
FVOCI reserve -
Cash flow hedging reserve (363)
Foreign exchange reserve 323
-------------------------------------- ------- ------- -------- --------- ------- ----------- ------
(40)
------
Notes
1. Presentation of condensed consolidated financial
statements
The condensed consolidated financial statements should be read
in conjunction with NatWest Markets Plc's 2021 Annual Report and
Accounts. The directors have prepared these on a going concern
basis after assessing the principal risks, forecasts, projections
and other relevant evidence over the twelve months from the date
they are approved.
2. Accounting policies
NWM Group's principal accounting policies are as set out on
pages 110 to 114 of NatWest Markets Plc's 2021 Annual Report and
Accounts. Amendments to IFRS effective from 1 January 2022 had no
material effect on the condensed consolidated financial
statements.
Critical accounting policies and key sources of estimation
uncertainty
The judgements and assumptions that are considered to be the
most important to the portrayal of NWM Group's financial condition
are those relating to deferred tax, fair value of financial
instruments, loan impairment provisions and provisions for
liabilities and charges. These critical accounting policies and
judgements are noted on pages 113 and 114 of NatWest Markets Plc's
2021 Annual Report and Accounts.
Information used for significant estimates
Key financial estimates are based on management's latest
five-year revenue and cost forecasts. Measurement of deferred tax
and expected credit losses are highly sensitive to reasonably
possible changes in those anticipated conditions. Changes in
judgements and assumptions could result in a material adjustment to
those estimates in future reporting periods. (Refer to the Summary
Risk Factors included in NatWest Markets Plc's Interim Results 2022
and the Risk Factors included in the 2021 Annual Report and
Accounts).
On 17 October 2022, the Chancellor of the Exchequer confirmed
that in line with the previously enacted legislation, the UK
corporation tax rate will increase to 25% from 1 April 2023. HM
Treasury are expected to confirm the future bank corporation tax
surcharge rate at the Autumn Statement scheduled for 17 November
2022. Based on the current enacted legislation, the Bank
Corporation Tax Surcharge rate will reduce from 8% to 3% from 1
April 2023. In line with the requirements of IAS 12, enacted tax
rates have been used to determine the deferred tax balances.
Notes
3. Trading assets and liabilities
Trading assets and liabilities comprise assets and liabilities
held at fair value in trading portfolios.
30 September 31 December
2022 2021
Assets GBPm GBPm
------------ -----------
Loans
- Reverse repos 24,118 20,742
- Collateral given 17,672 11,990
- Other loans 1,049 1,414
Total loans 42,839 34,146
--------------------------------------- ------------ -----------
Securities
Central and local government
- UK 3,400 6,919
- US 3,766 3,329
- Other 4,332 10,929
Financial institutions and Corporate 3,388 3,778
Total securities 14,886 24,955
Total 57,725 59,101
--------------------------------------- ------------ -----------
Liabilities
--------------------------------------- ------------ -----------
Deposits
- Repos 26,412 19,389
- Collateral received 21,697 17,619
- Other deposits 1,320 1,536
Total deposits 49,429 38,544
--------------------------------------- ------------ -----------
Debt securities in issue 821 974
Short positions 14,231 24,964
Total 64,481 64,482
--------------------------------------- ------------ -----------
4. Other financial liabilities
30 September 31 December
2022 2021
GBPm GBPm
Customer deposits - designated as at FVTPL 1,103 568
Debt securities in issue
- designated as at FVTPL 1,250 1,103
- amortised cost 16,880 16,621
Subordinated liabilities
- designated as at FVTPL 323 703
- amortised cost 130 260
Total 19,686 19,255
------------------------------------------- ------------ -----------
5. Amounts due to holding company and fellow subsidiaries
30 September 31 December
2022 2021
Liabilities GBPm GBPm
Bank deposits - amortised cost 77 120
Customer deposits - amortised cost 159 155
Settlement balances 55 -
Trading liabilities 1,167 348
Other financial liabilities - subordinated liabilities 1,555 1,464
MREL instruments issued to NatWest Group plc 3,221 3,858
Other liabilities 188 181
Total 6,422 6,126
------------------------------------------------------- ------------ -----------
Notes
6. Litigation and regulatory matters
NatWest Markets Plc's Interim Results 2022, issued on 29 July
2022, included disclosures about NWM Group's litigation and
regulatory matters in Note 12. Set out below are the material
developments in those matters (all of which have been previously
disclosed) since publication of the Interim Results 2022 .
Litigation
London Interbank Offered Rate (LIBOR) and other rates
litigation
In September 2020, the United States District Court for the
Southern District of New York (SDNY) dismissed, on various grounds,
all claims against NWM Plc and other NatWest Group companies in the
class action alleging that manipulation of JPY LIBOR and Euroyen
TIBOR impacted the price of Euroyen TIBOR futures contracts. In
October 2022, that decision was affirmed by the United States Court
of Appeals for the Second Circuit.
A complaint was filed in August 2020 in the United States
District Court for the Northern District of California by several
United States consumer borrowers against the USD ICE LIBOR panel
banks and their affiliates (including NatWest Group plc, NWM Plc,
NatWest Markets Securities Inc. and NWB Plc), alleging (i) that the
normal process of setting USD ICE LIBOR amounts to illegal
price-fixing; and (ii) that banks in the United States have
illegally agreed to use LIBOR as a component of price in variable
consumer loans. In September 2022, the district court dismissed the
complaint, subject to re-pleading by the plaintiffs. Plaintiffs
filed an amended complaint in October 2022, which defendants will
again seek to have dismissed.
FX litigation
An FX-related class action, on behalf of 'consumers and end-user
businesses', is proceeding in the SDNY against NWM Plc and others.
In March 2022, the SDNY denied the plaintiffs' motion for class
certification. Plaintiffs sought an immediate appeal of the
decision but the appellate court declined to review the decision.
As a result, the case is proceeding on an individual, non-class
basis.
In July and December 2019, two separate applications seeking
opt-out collective proceedings orders were filed in the UK
Competition Appeal Tribunal (CAT) against NatWest Group plc, NWM
Plc and other banks. Both applications were brought on behalf of
persons who, between 18 December 2007 and 31 January 2013, entered
into a relevant FX spot or outright forward transaction in the EEA
with a relevant financial institution or on an electronic
communications network. In March 2022, the CAT declined to certify
as collective proceedings either of the applications. In October
2022, the CAT granted permission for the applicants to appeal that
decision to the Court of Appeal.
7. Post balance sheet events
Other than as disclosed, there have been no other significant
events between 30 September 2022 and the date of approval of these
accounts that would require a change to or additional disclosure in
the condensed consolidated financial statements.
Non-IFRS measures
NWM Group prepares its financial statements in accordance with
IFRS as issued by the IASB which constitutes a body of generally
accepted accounting principles (GAAP). This document contains a
number of adjusted or alternative performance measures, also known
as non-GAAP or non-IFRS performance measures. These measures are
adjusted for certain items which management believe are not
representative of the underlying performance of the business and
which distort period-on-period comparison. These non-IFRS measures
are not measures within the scope of IFRS and are not a substitute
for IFRS measures. These measures include:
- Management analysis of operating expenses shows litigation and
conduct costs on a separate line on page 3 and 4. These amounts are
included within staff costs and other administrative expenses in
the statutory analysis. Other operating expenses excludes
litigation and conduct costs which are more volatile and may
distort comparisons with prior periods.
- Funded assets are defined as total assets less derivative
assets. This measure allows review of balance sheet trends
exclusive of the volatility associated with derivative fair
values.
- Management view of income by business including shared revenue
and before asset disposals/strategic risk reduction and own credit
adjustments. This measure is used to show underlying income
generation in NatWest Markets excluding the impact of disposal
losses and own credit adjustments.
- Revenue share refers to income generated by NatWest Markets
products from customers that have their primary relationship with
other NatWest Group subsidiaries, a proportion of which is shared
between NatWest Markets and those subsidiaries.
- Asset disposals/strategic risk reduction includes the costs of
exiting positions, which includes changes in carrying value to
align to the expected exit valuation, and the impact of risk
reduction transactions entered into as part of the optimisation of
the entity's capital usage, following the strategic announcements
of 14 February 2020.
- Own credit adjustments are applied to positions where it is
believed that the counterparties would consider NWM Group's
creditworthiness when pricing trades. The fair value of certain
issued debt securities, including structured notes, is adjusted to
reflect the changes in own credit spreads and the resulting gain or
loss recognised in income.
Operating expenses - management view
Nine months ended Nine months ended
--------------------------------- ---------------------------------
30 September 2022 30 September 2021
--------------------------------- ---------------------------------
Litigation Other Statutory Litigation Other Statutory
and conduct operating operating and conduct operating operating
costs expenses expenses costs expenses expenses
Operating expenses GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ----------- --------- --------- ----------- --------- ---------
Staff costs 3 305 308 - 370 370
Premises and equipment - 41 41 - 59 59
Other administrative expenses 30 435 465 (41) 374 333
Depreciation and amortisation - 13 13 - 15 15
Total 33 794 827 (41) 818 777
------------------------------ ----------- --------- --------- ----------- --------- ---------
Quarter ended
---------------------------------
30 September 2022
---------------------------------
Litigation Other Statutory
and conduct operating operating
costs expenses expenses
Operating expenses GBPm GBPm GBPm
------------------------------ ----------- --------- --------- ----------- --------- ---------
Staff costs - 95 95
Premises and equipment - 16 16
Other administrative expenses 13 161 174
Depreciation and amortisation - 2 2
Total 13 274 287
------------------------------ ----------- --------- --------- ----------- --------- ---------
Quarter ended
---------------------------------
30 June 2022
---------------------------------
Litigation Other Statutory
and conduct operating operating
costs expenses expenses
Operating expenses GBPm GBPm GBPm
------------------------------ ----------- --------- --------- ----------- --------- ---------
Staff costs 2 78 80
Premises and equipment - 1 1
Other administrative expenses 10 151 161
Depreciation and amortisation - 7 7
Total 12 237 249
------------------------------ ----------- --------- --------- ----------- --------- ---------
Quarter ended
---------------------------------
30 September 2021
---------------------------------
Litigation Other Statutory
and conduct operating operating
costs expenses expenses
Operating expenses GBPm GBPm GBPm
------------------------------ ----------- --------- --------- ----------- --------- ---------
Staff costs - 118 118
Premises and equipment - 22 22
Other administrative expenses 27 125 152
Depreciation and amortisation - 5 5
Total 27 270 297
------------------------------ ----------- --------- --------- ----------- --------- ---------
Additional information
Presentation of information
NatWest Markets Plc ('NWM Plc') is a wholly-owned subsidiary of
NatWest Group plc or 'the ultimate holding company'. The NatWest
Markets Group ('NWM Group') comprises NWM Plc and its subsidiary
and associated undertakings. The term 'NatWest Group' comprises
NatWest Group plc and its subsidiary and associated undertakings.
The term 'NWH Group' refers to NatWest Holdings Limited ('NWH') and
its subsidiary and associated
undertakings. The term 'NatWest Bank Plc' or 'NWB Plc' refers to National Westminster Bank Plc.
NWM Plc publishes its financial statements in pounds sterling
('GBP' or 'sterling'). The abbreviations 'GBPm' and 'GBPbn'
represent millions and thousands of millions of pounds sterling,
respectively, and references to 'pence' or 'p' represent pence in
the United Kingdom ('UK'). References to 'dollars' or '$' are to
United States of America ('US') dollars. The abbreviations '$m' and
'$bn' represent millions and thousands of millions of dollars,
respectively. The abbreviation 'EUR' represents the 'euro', and the
abbreviations 'EURm' and 'EURbn' represent millions and thousands
of millions of euros, respectively.
MAR - Inside Information
This announcement contains information that qualified or may
have qualified as inside information for NatWest Markets Plc, for
the purposes of Article 7 of the Market Abuse Regulation (EU)
596/2014 (MAR) as it forms part of domestic law by virtue of the
European Union (Withdrawal) Act 2018 for NatWest Markets Plc. This
announcement is made by Paul Pybus, Head of Investor Relations for
NWM Plc.
Statutory results
Financial information contained in this document does not
constitute statutory accounts within the meaning of section 434 of
the Companies Act 2006 ("the Act"). The statutory accounts for the
year ended 31 December 2021 have been filed with the Registrar of
Companies. The report of the auditor on those statutory accounts
was unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under section 498(2) or
(3) of the Act.
Contact
Paul Pybus Investor Relations +44 (0) 7769161183
----------- -------------------------------------- ------------------
Forward-looking statements
This document contains forward-looking statements within the
meaning of the United States Private Securities Litigation Reform
Act of 1995, such as statements that include, without limitation,
the words 'expect', 'estimate', 'project', 'anticipate', 'commit',
'believe', 'should', 'intend', 'will', 'plan', 'could',
'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal',
'objective', 'may', 'endeavour', 'outlook', 'optimistic',
'prospects' and similar expressions or variations on these
expressions. These statements concern or may affect future matters,
such as NWM Group's future economic results, business plans and
strategies. In particular, this document may include
forward-looking statements relating to NWM Group in respect of, but
not limited to: its economic and political risks (including due to
high inflation, supply chain disruption and the Russian invasion of
Ukraine), the impact of the COVID-19 pandemic, its regulatory
capital position and related requirements, its financial position,
profitability and financial performance (including financial,
capital, cost savings and operational targets), NWM Group's
strategic and structural change and implementation of NatWest
Group's purpose-led strategy, its ESG and climate related targets,
its access to adequate sources of liquidity and funding, increasing
competition from new incumbents and disruptive technologies, its
exposure to third party risks, its ongoing compliance with the UK
ring-fencing regime and ensuring operational continuity in
resolution, its impairment losses and credit exposures under
certain specified scenarios, substantial regulation and oversight,
ongoing legal, regulatory and governmental actions and
investigations, the transition of LIBOR and IBOR rates to
alternative risk free rates and NWM Group's exposure to operational
risk, conduct risk, cyber, data and IT risk, financial crime risk,
key person risk and credit rating risk. Forward-looking statements
are subject to a number of risks and uncertainties that might cause
actual results and performance to differ materially from any
expected future results or performance expressed or implied by the
forward-looking statements. Factors that could cause or contribute
to differences in current expectations include, but are not limited
to, the outcome of legal, regulatory and governmental actions and
investigations, the level and extent of future impairments and
write-downs, legislative, political, fiscal and regulatory
developments, accounting standards, competitive conditions,
technological developments, interest and exchange rate
fluctuations, general economic and political conditions, the impact
of climate related risks and the transitioning to a net zero
economy. These and other factors, risks and uncertainties that may
impact any forward-looking statement or NWM Group's actual results
are discussed in NWM Plc's 2021 Annual Report and Accounts (ARA),
NWM Plc's Interim Results for the six months ended 30 June 2022 (H1
Report), NWM Plc's Registration Document and other public filings.
The forward-looking statements contained in this document speak
only as of the date of this document and NWM Group does not assume
or undertake any obligation or responsibility to update any of the
forward-looking statements contained in this document, whether as a
result of new information, future events or otherwise, except to
the extent legally required.
Legal Entity Identifier: RR3QWICWWIPCS8A4S074
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END
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