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Name | Symbol | Market | Type |
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Natwest Mk.33 | LSE:83NF | London | Medium Term Loan |
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TIDM83NF
RNS Number : 4730R
Natwest Markets PLC
27 October 2023
NatWest Markets Group
Q3 2023
Interim Management Statement
ci.natwest.com
NatWest Markets Group (NWM Group)
Results for Q3 2023
Q3 Overview
We have continued to focus on our strengths in supporting our customers' evolving needs with financing and risk solutions in the third quarter of 2023. As part of the NatWest Group Commercial & Institutional segment, we are making progress in unlocking further opportunities for growth and building even deeper relationships with NatWest Group customers.
Our business performance has been in line with management's plan over the current period and we have maintained our robust capital and liquidity position. We continue to support our customers as they navigate macroeconomic uncertainty, including the impacts of high inflation and elevated interest rates.
Financial review
NWM Group reported a loss of GBP57 million for Q3 2023, compared with a loss of GBP138 million in Q2 2023 and a loss of GBP133 million in Q3 2022. Total income increased to GBP215 million in Q3 2023, driven by higher net interest income largely reflecting growth in lending activity and interest rate movements. Operating expenses increased to GBP294 million, driven by higher litigation and conduct costs.
Financial performance
- Total income of GBP215 million in Q3 2023 was up by GBP50 million compared with GBP165 million in Q2 2023 and up by GBP71 million compared with GBP144 million in Q3 2022. The increases were mainly driven by higher net interest income largely reflecting growth in lending activity and interest rate movements, and higher Currencies revenues, partially offset by lower own credit adjustments. - Operating expenses of GBP294 million in Q3 2023 were up by GBP45 million compared with GBP249 million in Q2 2023 and up by GBP7 million compared with GBP287 million in Q3 2022. Litigation and conduct costs of GBP37 million were up by GBP53 million compared with GBP16 million credit in Q2 2023 and by GBP24 million compared with GBP13 million in Q3 2022, reflecting ongoing progress in closing legacy matters. Other operating expenses of GBP257 million were down by GBP8 million compared with GBP265 million in Q2 2023, largely driven by lower staff costs, and down by GBP17 million compared with GBP274 million in Q3 2022, largely due to one-off items recognised in the comparative period. - NWM Group's total assets and liabilities increased by GBP11.2 billion and GBP11.5 billion to GBP201.0 billion and GBP194.7 billion respectively at 30 September 2023, compared with 31 December 2022. Increases in funded assets including settlement balances and cash and balances at central banks were offset by lower derivative fair values, largely driven by market volatility across major currencies and increases in interest rates.
Capital and leverage
- Total NWM Plc RWAs were GBP23.4 billion at 30 September 2023, compared with GBP20.2 billion at 30 June 2023 and GBP21.4 billion at 31 December 2022. The increase in the current quarter was primarily due to higher market risk, reflecting increased regulatory Value-at-Risk (VaR) and Stressed Value-at-Risk (SVaR) from risk positioning and the higher interest rate environment. - NWM Plc's Common Equity Tier 1 (CET1) ratio was 15.1% at 30 September 2023, compared with 17.2% at 31 December 2022. The decrease in the nine months to 30 September 2023 was largely driven by the increase in RWAs, in addition to reserve movements. - Total MREL for NWM Plc at 30 September 2023 was GBP7.5 billion, or 31.9% of RWAs, down from GBP8.7 billion or 40.4% of RWAs at 31 December 2022. The decrease in total MREL in the nine months to 30 September 2023 was largely due to the redemption of a $0.6 billion internal Tier 2 instrument, decrease in senior unsecured debt driven by a $0.6 billion instrument now classified as ineligible, and other reserve movements. - NWM Plc's leverage ratio at 30 September 2023 was 4.9%, compared with 5.4% at 31 December 2022.
Liquidity and funding
- NWM Plc's liquidity portfolio at 30 September 2023 was GBP19.2 billion with an LCR of 229% (31 December 2022 - GBP18.6 billion with LCR 253%). - NWM Plc issued public benchmark transactions amounting to GBP2.4 billion in the nine months ended 30 September 2023 versus guidance of GBP3 billion to GBP5 billion for FY 2023. Transactions comprised three issuances under the EMTN programme being EUR1.5 billion, CHF0.25 billion, and GBP0.5 billion of notes respectively, and an issuance under the AUD debt issuance programme of AUD0.6 billion of notes. NWM Plc also raised funding in other formats throughout the period including, but not limited to, structured note issuance.
ESG highlights
Climate and sustainable funding and financing have continued to perform well, and as at the end of Q3 2023 we had delivered GBP25.7 billion towards the NatWest Group climate and sustainable funding and financing target(1) of GBP100 billion between 1 July 2021 and the end of 2025.
(1) This comprises funding and financing for climate and sustainable finance to support transition towards a net-zero and climate-resilient economy. NatWest Group uses its climate and sustainable funding and financing inclusion criteria (CSFFI criteria) to determine the assets, activities and companies that are eligible to be counted towards its climate and sustainable funding and financing targets.
Outlook (1)
We retain the Outlook guidance provided in the NatWest Markets Plc 2022 Annual Report and Accounts.
(1) The guidance, targets, expectations and trends discussed in this section represent management's current expectations and are subject to change, including as a result of the factors described in the 'Risk Factors' section in the NatWest Markets Plc 2022 Annual Report and Accounts, and the 'Summary Risk Factors' in the NatWest Markets Plc 2023 Interim Results. These statements constitute forward-looking statements. Refer to 'Forward-looking statements' in this announcement
Financial review
The table below presents an analysis of key lines of NWM Group's income statement. Commentary refers to the table below as well as the consolidated income statement shown on page 6.
Nine months ended Quarter ended 30 September 30 September 30 September 30 June 30 September 2023 2022 2023 2023 2022 Income statement (1) GBPm GBPm GBPm GBPm GBPm --------------------------------- ------------ ------------ ------------ ------- ------------ Net interest income 201 62 123 43 33 Non-interest income 444 520 92 122 111 --------------------------------- ------------ ------------ ------------ ------- ------------ Total income 645 582 215 165 144 --------------------------------- ------------ ------------ ------------ ------- ------------ Litigation and conduct costs (29) (33) (37) 16 (13) Other operating expenses (799) (794) (257) (265) (274) --------------------------------- ------------ ------------ ------------ ------- ------------ Operating expenses (828) (827) (294) (249) (287) --------------------------------- ------------ ------------ ------------ ------- ------------ Operating loss before impairment releases/losses (183) (245) (79) (84) (143) Impairment releases/(losses) 3 (10) (2) 3 (5) --------------------------------- ------------ ------------ ------------ ------- ------------ Operating loss before tax (180) (255) (81) (81) (148) Tax (charge)/credit (25) 36 24 (57) 15 --------------------------------- ------------ ------------ ------------ ------- ------------ Loss for the period (205) (219) (57) (138) (133) --------------------------------- ------------ ------------ ------------ ------- ------------ Income (2) --------------------------------- ------------ ------------ ------------ ------- ------------ Fixed Income 137 35 32 35 12 Currencies 351 394 124 109 114 Capital Markets 332 305 114 107 88 Capital Management Unit & other (3) (26) (72) 3 (37) (25) --------------------------------- ------------ ------------ ------------ ------- ------------ Income including shared revenue before OCA 794 662 273 214 189 Revenue shared with or paid to fellow NatWest Group subsidiaries (151) (140) (51) (52) (53) --------------------------------- ------------ ------------ ------------ ------- ------------ Income excluding OCA 643 522 222 162 136
Own credit adjustments (OCA) 2 60 (7) 3 8 Total income 645 582 215 165 144 --------------------------------- ------------ ------------ ------------ ------- ------------
(1) A presentational change was made in Q1 2023 whereby NWM Group no longer separately reports the performance of the NatWest Markets operating segment and Central items & other.
(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 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 was set up in Q3 2020 to manage capital usage and optimisation across all parts of NatWest Markets, with the income materially relating to legacy positions. Other mainly related to asset disposal/strategic risk reduction costs that were separately disclosed prior to Q1 2023.
Nine months ended 30 September 2023 performance
- Net interest income was GBP201 million for the nine months ended 30 September 2023, compared with GBP62 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 2022 largely reflects growth in lending activity, interest rate movements and other one-off items. - Non-interest income of GBP444 million decreased by GBP76 million compared with GBP520 million in the nine months ended 30 September 2022, largely driven by one-off items, a weaker performance in Currencies as FX volatility levels reduced in the current period, and lower own credit adjustments reflecting the impact of widening credit spreads in the comparative period. - Operating expenses were GBP828 million in the nine months ended 30 September 2023, up by GBP1 million from GBP827 million in the comparative period. Litigation and conduct costs of GBP29 million reflected ongoing progress on closing legacy matters and were down by GBP4 million from GBP33 million in the comparative period. Other operating expenses of GBP799 million were up by GBP5 million compared with GBP794 million in the nine months ended 30 September 2022. - Tax charge of GBP25 million on the loss before tax of GBP180 million is higher than the expected UK corporation tax rate of 23.5%, primarily due to adjustments in respect of prior periods.
Q3 2023 performance
- Net interest income of GBP123 million in Q3 2023 increased by GBP80 million compared with GBP43 million in Q2 2023 and by GBP90 million compared with GBP33 million in Q3 2022, largely reflecting growth in lending activity, interest rate movements and other one-off items. - Non-interest income of GBP92 million in Q3 2023 decreased by GBP30 million compared with GBP122 million in Q2 2023 and by GBP19 million compared with GBP111 million in Q3 2022, largely driven by one-off items and lower own credit adjustments, partially offset by higher Currencies revenues. - Operating expenses were GBP294 million in Q3 2023, compared with GBP249 million in Q2 2023 and GBP287 million in Q3 2022. Litigation and conduct costs of GBP37 million in Q3 2023 reflected ongoing progress on closing legacy matters and were up by GBP53 million compared with GBP16 million credit in Q2 2023 and up by GBP24 million compared with GBP13 million in Q3 2022. Other operating expenses of GBP257 million in Q3 2023 were down by GBP8 million compared with GBP265 million in Q2 2023, largely driven by lower staff costs, and by GBP17 million compared with GBP274 million in Q3 2022, largely due to one-off items recognised in the comparative period.
Financial review
Balance sheet profile as at 30 September 2023
NWM Group's balance sheet profile is summarised below. Commentary refers to the table below as well as the consolidated balance sheet on page 8.
Assets Liabilities ------------------------------------------------------ ------------------------------------------------------ 30 September 31 December 30 September 31 December 2023 2022 2023 2022 GBPbn GBPbn GBPbn GBPbn --------------------------- ------------ ----------- ------------ ----------- --------------------------- Cash and balances at central banks 23.1 17.0 Securities 18.7 9.9 11.4 9.5 Short positions Reverse repos (1) 20.0 21.5 29.0 23.7 Repos (2) Derivative cash collateral Derivative cash collateral given (3) 10.0 12.7 16.1 17.7 received (4) Other trading assets 0.8 1.2 1.8 1.9 Other trading liabilities --------------------------- ------------ ----------- ------------ ----------- --------------------------- Total trading assets 49.5 45.3 58.3 52.8 Total trading liabilities Deposits - amortised Loans - amortised cost 12.2 11.3 13.1 6.7 cost Settlement balances 11.1 2.6 11.3 2.0 Settlement balances Amounts due from holding Amounts due to holding company company and fellow subsidiaries 1.7 0.7 6.3 6.2 and fellow subsidiaries Other financial assets 14.5 11.9 24.1 21.1 Other financial liabilities Other assets 0.7 0.8 0.5 0.8 Other liabilities Liabilities excluding Funded assets 112.8 89.6 113.6 89.6 derivatives Derivative assets 88.2 100.2 81.1 93.6 Derivative liabilities --------------------------- ------------ ----------- ------------ ----------- --------------------------- Total assets 201.0 189.8 194.7 183.2 Total liabilities --------------------------- ------------ ----------- ------------ ----------- --------------------------- of which: 26.1 23.5 wholesale funding (5) short-term wholesale 10.4 7.7 funding (5) --------------------------- ------------ ----------- ------------ ----------- --------------------------- (1) Comprises bank reverse repos of GBP5.4 billion (31 December 2022 - GBP4.6 billion) and customer reverse repos of GBP14.6 billion (31 December 2022 - GBP16.9 billion). (2) Comprises bank repos of GBP4.0 billion (31 December 2022- GBP1.6 billion) and customer repos of GBP25.0 billion (31 December 2022 - GBP22.1 billion). (3) Comprises derivative cash collateral given relating to banks of GBP4.3 billion (31 December 2022 - GBP4.6 billion) and customers of GBP5.7 billion (31 December 2022 - GBP8.1 billion). (4) Comprises derivative cash collateral received relating to banks of GBP6.6 billion (31 December 2022 - GBP7.5 billion) and customers of GBP9.5 billion (31 December 2022 - GBP10.2 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 GBP11.2 billion and GBP11.5 billion to GBP201.0 billion and GBP194.7 billion respectively at 30 September 2023, compared with GBP189.8 billion and GBP183.2 billion at 31 December 2022. Funded assets, which exclude derivatives, increased by GBP23.2 billion to GBP112.8 billion, largely driven by higher cash and balances at central banks and higher settlement balances. Derivative fair values decreased in the period, largely driven by market volatility across major currencies and increases in interest rates. - Cash and balances at central banks increased by GBP6.1 billion to GBP23.1 billion at 30 September 2023, largely driven by an increase in funding and customer deposits . - Trading assets were up by GBP4.2 billion to GBP49.5 billion at 30 September 2023, driven by an increase in securities, partially offset by decreases in derivative cash collateral posted and reverse repos. Trading liabilities increased by GBP5.5 billion to GBP58.3 billion at 30 September 2023, driven by increases in repos and short positions, partially offset by a decrease in derivative cash collateral received. - Derivative assets and derivative liabilities were down by GBP12.0
billion to GBP88.2 billion and GBP12.5 billion to GBP81.1 billion respectively at 30 September 2023, largely driven by market volatility across major currencies and increases in interest rates. - Settlement balance assets and liabilities were up by GBP8.5 billion and GBP9.3 billion to GBP11.1 billion and GBP11.3 billion respectively, largely due to increased trading compared with the seasonally lower levels of customer activity leading up to 31 December 2022 . - Other financial assets increased by GBP2.6 billion to GBP14.5 billion at 30 September 2023, mainly driven by an increase in held-to-collect securities purchased to support customer primary issuance. - Customer deposits increased by GBP6.9 billion to GBP10.5 billion in the nine months ended 30 September 2023, in line with our strategy to increase customer deposits to match planned banking book activity. - Other financial liabilities increased by GBP3.0 billion to GBP24.1 billion (31 December 2022 - GBP21.1 billion), driven by new issuance in the period, partially offset by maturities. The balance at 30 September 2023 includes GBP17.3 billion of medium-term notes issued. - Owners' equity was down by GBP0.4 billion to GBP6.2 billion ( 31 December 2022 - GBP6.6 billion), largely driven by 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 12.
Capital, liquidity and funding risk
Introduction
NWM Group takes a comprehensive approach to the management of capital, liquidity and funding, underpinned by frameworks, risk appetite and policies, to manage and mitigate capital, liquidity and funding risks. The framework ensures the tools and capability are in place to facilitate the management and mitigation of risk ensuring that NWM Group operates within its regulatory requirements and risk appetite.
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 NWM Plc.
30 September 30 June 31 December 2023 2023 2022 Capital adequacy ratios (1,2) % % % ------------------------------ ------------ ------- ----------- CET1 15.1 17.6 17.2 Tier 1 18.0 20.9 20.4 Total 20.6 24.0 25.7 Total MREL 31.9 38.8 40.4 ------------------------------ Capital (1,2) GBPm GBPm GBPm ------------------------------ ------------ ------- ----------- CET1 3,523 3,542 3,682 Tier 1 4,202 4,221 4,361 Total 4,828 4,841 5,502 Total MREL (3) 7,456 7,822 8,652 ------------------------------ Risk-weighted assets ------------------------------ ------------ ------- ----------- Credit risk 7,444 6,864 7,110 Counterparty credit risk 6,528 6,287 5,682 Market risk 8,098 5,686 7,152 Operational risk 1,322 1,322 1,478 ------------------------------ ------- Total RWAs 23,392 20,159 21,422 ------------------------------ ------------ ------- ----------- (1) NWM Plc's total capital ratio requirement is 11.6%, comprising the minimum capital requirement of 8%, supplemented with the capital conservation buffer of 2.5% and the institution specific countercyclical buffer (CCyB) of 1.1%. The minimum CET1 ratio is 8.1%, including the minimum capital requirement of 4.5%. The CCyB is based on the weighted average of NWM Plc's geographical exposures. (2) In addition, NWM Plc is subject to Pillar 2A requirements for CET1, AT1 and Tier 2. Refer to the NWM Plc Pillar 3 report for further details on these additional capital requirements. (3) Includes senior internal debt instruments issued to NatWest Group plc with a regulatory value of GBP2.6 billion (30 June 2023 - GBP3.0 billion; 31 December 2022 - GBP3.2 billion).
Leverage
The leverage ratio has been calculated in accordance with the Leverage Ratio (CRR) part of the PRA rulebook.
30 September 30 June 31 December 2023 2023 2022 Leverage exposure (GBPm) (1) 85,706 78,064 81,083 Tier 1 capital (GBPm) 4,202 4,221 4,361 Leverage ratio (%) 4.9 5.4 5.4 ----------------------------- ------------ ------- -----------
(1) 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.
Liquidity and funding
30 September 30 June 31 December 2023 2023 2022 Liquidity coverage ratio (LCR) (%) 229 249 253 Liquidity portfolio (GBPbn) 19.2 19.5 18.6 Total wholesale funding (GBPbn) (1) 26.1 24.3 23.5 Total funding including repo (GBPbn) 89.8 84.9 77.0 ------------------------------------- ------------ ------- -----------
(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 2023 (unaudited)
Nine months ended Quarter ended 30 September 30 September 30 September 30 June 30 September 2023 2022 2023 2023 2022 GBPm GBPm GBPm GBPm GBPm Interest receivable 1,509 475 614 482 232 Interest payable (1,308) (413) (491) (439) (199) Net interest income 201 62 123 43 33 --------------------------------------- ------------ ------------ ------------ ------- ------------ Fees and commissions receivable 279 260 93 86 80 Fees and commissions payable (119) (126) (45) (37) (49) Income from trading activities 329 352 78 83 56 Other operating income (45) 34 (34) (10) 24 Non-interest income 444 520 92 122 111 --------------------------------------- Total income 645 582 215 165 144 --------------------------------------- Staff costs (316) (308) (94) (109) (95) Premises and equipment (47) (41) (16) (16) (16) Other administrative expenses (455) (465) (181) (120) (174) Depreciation and amortisation (10) (13) (3) (4) (2) Operating expenses (828) (827) (294) (249) (287) --------------------------------------- Loss before impairment releases/losses (183) (245) (79) (84) (143) Impairment releases/(losses) 3 (10) (2) 3 (5) --------------------------------------- Operating loss before tax (180) (255) (81) (81) (148) Tax (charge)/credit (25) 36 24 (57) 15 Loss for the period (205) (219) (57) (138) (133) --------------------------------------- ------------ ------------ ------------ ------- ------------ Attributable to: Ordinary shareholders (257) (271) (74) (155) (151) Paid-in-equity holders 52 52 17 17 19 Non-controlling interests - - - - (1) (205) (219) (57) (138) (133) --------------------------------------- ------------ ------------ ------------ ------- ------------
Condensed consolidated statement of comprehensive income
for the period ended 30 September 2023 (unaudited)
Nine months ended Quarter ended -------------------------- 30 September 30 September 30 September 30 June 30 September 2023 2022 2023 2023 2022 GBPm GBPm GBPm GBPm GBPm ------------ ------------ ------------ ------- ------------ Loss for the period (205) (219) (57) (138) (133) ------------------------------------------- ------- Items that do not qualify for reclassification Remeasurement of retirement benefit schemes (2) (1) (2) - - Changes in fair value of credit in financial liabilities designated at fair value through profit or loss (FVTPL) (26) 102 (22) 2 11 Fair value through other comprehensive income (FVOCI) financial assets 9 (3) 6 1 (4) Tax 2 (10) 3 (1) (1) (17) 88 (15) 2 6 ------------------------------------------- ------- Items that do qualify for reclassification FVOCI financial assets 6 (35) 2 2 (18) Cash flow hedges (48) (575) 56 (158) (321) Currency translation (76) 336 68 (91) 166 Tax (33) 174 (17) (2) 96 (151) (100) 109 (249) (77) ------------------------------------------- ------- Other comprehensive (loss)/income after tax (168) (12) 94 (247) (71) Total comprehensive (loss)/income for the period (373) (231) 37 (385) (204) ------------------------------------------- ------- Attributable to: Ordinary shareholders (425) (283) 20 (402) (223) Paid-in equity holders 52 52 17 17 19 Non-controlling interests - - - - - (373) (231) 37 (385) (204) ------------------------------------------- ------------ ------------ ------------ ------- ------------
Condensed consolidated balance sheet as at 30 September 2023 (unaudited)
30 September 31 December 2023 2022 GBPm GBPm Assets Cash and balances at central banks 23,086 17,007 Trading assets 49,542 45,291 Derivatives 88,232 100,154 Settlement balances 11,079 2,558 Loans to banks - amortised cost 1,306 1,146 Loans to customers - amortised cost 10,856 10,171 Amounts due from holding company and fellow subsidiaries 1,722 740 Other financial assets 14,508 11,870 Other assets 621 832 Total assets 200,952 189,769 ---------------------------------------------------------- ------------ ----------- Liabilities Bank deposits 2,591 3,069 Customer deposits 10,475 3,614 Amounts due to holding company and fellow subsidiaries 6,256 6,217 Settlement balances 11,322 2,010 Trading liabilities 58,290 52,792 Derivatives 81,084 93,585 Other financial liabilities 24,093 21,103 Other liabilities 607 816 ---------------------------------------------------------- ----------- Total liabilities 194,718 183,206 ---------------------------------------------------------- ------------ ----------- Owners' equity 6,236 6,565 Non-controlling interests (2) (2) ---------------------------------------------------------- ------------ ----------- Total equity 6,234 6,563 ---------------------------------------------------------- ------------ ----------- Total liabilities and equity 200,952 189,769 ---------------------------------------------------------- ------------ -----------
Condensed consolidated statement of changes in equity
for the period ended 30 September 2023 (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 2023 2,346 904 3,374 (59) 6,565 (2) 6,563 Loss attributable to ordinary shareholders and paid-in equity holders (205) (205) - (205) Other comprehensive income - Changes in fair value of credit in financial liabilities designated at FVTPL due to own credit risk (26) (26) (26) - Unrealised gains: FVOCI 15 15 15 - Remeasurement of retirement benefit schemes (2) (2) (2) - Amounts recognised in equity: cash flow hedges (177) (177) (177) - Foreign exchange reserve movement (76) (76) (76) - Amounts transferred from equity to earnings 129 129 129 - Tax 4 (35) (31) (31) Capital contribution (1) 115 115 115 Paid-in equity dividends paid (52) (52) (52) Share-based payments (19) (19) (19) -------------------------------------- ------- ------- -------- --------- ----------- At 30 September 2023 2,346 904 3,189 (203) 6,236 (2) 6,234 ------- ------ 30 September 2023 Attributable to: GBPm -------------------------------------------------------- -------- --------- ------- ----------- Ordinary shareholders 5,332 Paid-in equity holders 904 Non-controlling interests (2) -------------------------------------- ------- ------- 6,234 -------------------------------------- ------- ------- -------- --------- ------- ----------- ------ *Other reserves consist of: FVOCI reserve 16
Cash flow hedging reserve (375) Foreign exchange reserve 156 -------------------------------------- ------- ------- -------- --------- ------- ----------- ------ (203) -------------------------------------- ------- ------- -------- --------- ------- ----------- ------
(1) During H1 2023, NatWest Markets invoked a claim against the parent, NatWest Group plc, in respect of a legacy (non-trading) matter which was covered by an indemnity agreement. This resulted in a capital contribution.
Notes
1. Presentation of condensed consolidated financial statements
The condensed consolidated financial statements should be read in conjunction with NatWest Markets Plc's 2022 Annual Report
and Accounts. The accounting policies are the same as those applied in the consolidated financial statements.
The directors have prepared the condensed consolidated financial statements 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.
Amendments to IFRS effective from 1 January 2023 had no material effect on the condensed consolidated financial statements.
2. Trading assets and liabilities
Trading assets and liabilities comprise assets and liabilities held at fair value in trading portfolios.
30 September 31 December 2023 2022 GBPm GBPm ---------------------------------------- ------------ ----------- Assets Loans Reverse repos 19,968 21,537 Collateral given 10,058 12,719 Other loans 783 1,113 Total loans 30,809 35,369 ---------------------------------------- ------------ ----------- Securities Central and local government - UK 3,186 2,205 - US 5,980 2,345 - Other 5,639 2,799 Financial institutions and Corporate 3,928 2,573 ---------------------------------------- Total securities 18,733 9,922 ---------------------------------------- ------------ ----------- Total 49,542 45,291 ---------------------------------------- ------------ ----------- Liabilities Deposits Repos 29,028 23,740 Collateral received 16,067 17,663 Other deposits 1,109 1,068 Total deposits 46,204 42,471 ---------------------------------------- ------------ ----------- Debt securities in issue 735 797 Short positions 11,351 9,524 ---------------------------------------- ------------ ----------- Total 58,290 52,792 ---------------------------------------- ------------ -----------
3. Other financial liabilities
30 September 31 December 2023 2022 GBPm GBPm Customer deposits - designated as at fair value through profit or loss (FVTPL) 1,157 1,050 Debt securities in issue - Medium-term notes 17,309 16,418 - Commercial paper and certificates of deposit 5,375 3,169 Subordinated liabilities - Designated as at FVTPL 215 345 - Amortised cost 37 121 Total 24,093 21,103 -------------------------------------------------------- ------------ -----------
4. Amounts due to holding company and fellow subsidiaries
30 September 31 December 2023 2022 GBPm GBPm Bank deposits - amortised cost 39 108 Customer deposits - amortised cost 116 51 Settlement balances 490 26 Trading liabilities 1,426 1,129 Other financial liabilities - subordinated liabilities 1,003 1,519 MREL instruments issued to NatWest Group plc 3,098 3,173 Other liabilities 84 211 Total 6,256 6,217 ------------------------------------------------------- ------------ -----------
Notes
5. Litigation and other matters
NatWest Markets Plc's Interim Results 2023, issued on 28 July 2023 , included disclosures about NWM Group's litigation and regulatory matters in Note 11. Set out below are the material developments in those matters (all of which have been previously disclosed) since publication of the Interim Results 2023.
Litigation
London Interbank Offered Rate (LIBOR) and other rates litigation
In August 2020, a complaint was filed in the United States District Court for the Northern District of California by several United States retail borrowers against the USD ICE LIBOR panel banks and their affiliates (including NatWest Group plc, NWM Plc, NatWest Markets Securities Inc. (NWMSI) and NWB Plc), alleging (i) that the very 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 retail loans. In September 2022, the district court dismissed the complaint. The plaintiffs filed an amended complaint, but in October 2023, the district court dismissed that complaint as well, and indicated that further amendment would not be permitted. The district court's decision is subject to appeal by the plaintiffs.
FX litigation
In September 2023, second summonses were served by Stichting FX Claims on NWM N.V., NatWest Group plc and NWM Plc, for claims on behalf of a new group of parties. The summonses seek declarations from the Dutch court concerning liability for anti-competitive FX market conduct described in decisions of the European Commission (EC) of 16 May 2019 and 2 December 2021, along with unspecified damages.
Government securities antitrust litigation
Class action antitrust claims commenced in March 2019 are pending in the United States District Court for the Southern District of New York (SDNY) against NWM Plc, NWMSI and other banks in respect of Euro-denominated bonds issued by various European central banks (European government bonds or EGBs). The complaint alleges a conspiracy among dealers of EGBs to widen the bid-ask spreads they quoted to customers, thereby increasing the prices customers paid for the EGBs or decreasing the prices at which customers sold EGBs. The class consists of those who purchased or sold EGBs in the US between 2007 and 2012. Previously, in March 2022, the SDNY dismissed the claims against NWM Plc and NWMSI on the ground that the complaint's conspiracy allegations were insufficient. However, in September 2023, the SDNY ruled that new allegations which plaintiffs have included in an amended complaint are sufficient to bring those NatWest entities back into the case as defendants.
1MDB litigation
A Malaysian court claim was served in Switzerland in November 2022 by 1MDB, a Sovereign Wealth Fund, in which Coutts & Co Ltd was named, along with six others, as a defendant in respect of losses allegedly incurred by 1MDB. It is claimed that Coutts & Co Ltd is liable as a constructive trustee for having dishonestly assisted the directors of 1MDB in the breach of their fiduciary duties by failing (amongst other alleged claims) to undertake due diligence in relation to a customer of Coutts & Co Ltd, through which funds totalling c.US$1 billion were received and paid out between 2009 and 2011. The claimant seeks the return of that amount plus interest. Coutts & Co Ltd filed an application in January 2023 challenging the validity of service and the Malaysian court's jurisdiction to hear the claim.
In April 2023, the claimant filed a notice of discontinuance of its claim against certain defendants including Coutts & Co Ltd. The claimant subsequently indicated that it intended to issue further replacement proceedings. Coutts & Co Ltd challenged the claimant's ability to take that step and a hearing took place in the Malaysian High Court in June 2023. In August 2023, the court disallowed the discontinuation of the claim by the claimant and directed that the application by Coutts & Co Ltd challenging the validity of the proceedings should proceed to a hearing. In September 2023, the claimant filed a notice to appeal that decision.
Coutts & Co Ltd (a subsidiary of RBS Netherlands Holdings B.V., which in turn is a subsidiary of NatWest Markets Plc) is a company registered in Switzerland and is in wind-down following the announced sale of its business assets in 2015.
6. Post balance sheet events
On 16 October 2023, the Trustee of the Group Pension Fund entered into a buy-in transaction for the AA Section with a third-party insurer. This is an insurance policy that gives the Fund protection against demographic and investment risks, so improves the security of member benefits. The transaction will not affect the income statement for 2023. It will cause a reduction in the disclosed surplus at 2023 year end.
Other than as disclosed in this document, there have been no other significant events between 30 September 2023 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. 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 own credit adjustments. This measure is used to show underlying income generation in NatWest Markets excluding the impact of 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.
- 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.
Non-IFRS financial measures
Operating expenses - management view
Nine months ended -------------------------------------------------------------------- 30 September 2023 30 September 2022 --------------------------------- --------------------------------- Litigation Other Statutory Litigation Other Statutory and conduct operating operating and conduct operating operating costs expenses expenses costs expenses expenses GBPm GBPm GBPm GBPm GBPm GBPm ------------------------------ ----------- --------- --------- ----------- --------- --------- Staff costs 8 308 316 3 305 308 Premises and equipment - 47 47 - 41 41 Depreciation and amortisation - 10 10 - 13 13 Other administrative expenses 21 434 455 30 435 465 Total 29 799 828 33 794 827 ------------------------------ ----------- --------- --------- ----------- --------- --------- Quarter ended --------------------------------- 30 September 2023 --------------------------------- Litigation Other Statutory and conduct operating operating costs expenses expenses GBPm GBPm GBPm ------------------------------ ----------- --------- --------- ----------- --------- --------- Staff costs 4 90 94 Premises and equipment - 16 16 Depreciation and amortisation - 3 3 Other administrative expenses 33 148 181 Total 37 257 294 ------------------------------ ----------- --------- --------- ----------- --------- --------- Quarter ended --------------------------------- 30 June 2023 --------------------------------- Litigation Other Statutory and conduct operating operating costs expenses expenses GBPm GBPm GBPm ------------------------------ ----------- --------- --------- ----------- --------- --------- Staff costs 3 106 109 Premises and equipment - 16 16 Depreciation and amortisation - 4 4 Other administrative expenses (19) 139 120 Total (16) 265 249 ------------------------------ ----------- --------- --------- ----------- --------- --------- Quarter ended --------------------------------- 30 September 2022 --------------------------------- Litigation Other Statutory and conduct operating operating costs expenses expenses GBPm GBPm GBPm ------------------------------ ----------- --------- --------- ----------- --------- --------- Staff costs - 95 95 Premises and equipment - 16 16 Depreciation and amortisation - 2 2 Other administrative expenses 13 161 174 Total 13 274 287 ------------------------------ ----------- --------- --------- ----------- --------- ---------
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.
NWM N.V. supervision
As of 30 September 2023, NWM N.V. surpassed a balance sheet total of EUR30 billion at the regulatory consolidated level for the second consecutive quarter. By exceeding this threshold, NWM N.V. will most likely qualify as a 'significant institution' in the foreseeable future, which may result in changes to supervision and regulations applicable to it. This could impact NWM Group's business strategy, operating model and prudential requirements.
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 2022 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
Cautionary statement regarding forward-looking statements
Certain sections in this document contain 'forward-looking statements' as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include 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. In particular, this document includes forward-looking targets and guidance relating to financial performance measures, such as income growth, operating expense, cost reductions, impairment loss rates, balance sheet reduction, including the reduction of RWAs, CET1 ratio (and key drivers of the CET1 ratio, including timing, impact and details), Pillar 2 and other regulatory buffer requirements and MREL and non-financial performance measures, such as climate and ESG-related performance ambitions, targets and metrics, including in relation to initiatives to transition to a net zero economy, Climate and Sustainable Funding and Financing and financed emissions. In addition, this document includes forward-looking statements relating, but not limited to: planned cost reductions, disposal losses and strategic costs; implementation of NatWest Group's, NWM Group's strategy and other strategic priorities (including in relation to investment programmes relating to digital transformation of their operations and services and inorganic opportunities); the timing and outcome of litigation and government and regulatory investigations; funding plans and credit risk profile; managing its capital position; liquidity ratio; portfolios; net interest margin; and drivers related thereto; lending and income growth, product share and growth in target segments; impairments and write-downs; restructuring and remediation costs and charges; NWM Group's exposure to political risk, economic assumptions and risk, climate, environmental and sustainability risk, operational risk, conduct risk, financial crime risk, cyber, data and IT risk and credit rating risk and to various types of market risk, including interest rate risk, foreign exchange rate risk and commodity and equity price risk; customer experience, including our Net Promoter Score; employee engagement and gender balance in leadership positions.
Limitations inherent to forward-looking statements
These statements are based on current plans, expectations, estimates, targets and projections, and are subject to significant inherent risks, uncertainties and other factors, both external and relating to NatWest Group's and NWM Group's strategy or operations, which may result in NWM Group being unable to achieve the current plans, expectations, estimates, targets, projections and other anticipated outcomes expressed or implied by such forward-looking statements. In addition, certain of these disclosures are dependent on choices relying on key model characteristics and assumptions and are subject to various limitations, including assumptions and estimates made by management. By their nature, certain of these disclosures are only estimates and, as a result, actual future results, gains or losses could differ materially from those that have been estimated. Accordingly, undue reliance should not be placed on these statements. The forward-looking statements contained in this document speak only as of the date we make them and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein, whether to reflect any change in our expectations with regard thereto, any change in events, conditions or circumstances on which any such statement is based, or otherwise, except to the extent legally required.
Important factors that could affect the actual outcome of the forward-looking statements
We caution you that a large number of important factors could adversely affect our results or our ability to implement our strategy, cause us to fail to meet our targets, predictions, expectations and other anticipated outcomes or affect the accuracy of forward-looking statements described in this document. These factors include, but are not limited to, those set forth in the risk factors and the other uncertainties described in NatWest Markets Plc's Annual Report and its other public filings. The principal risks and uncertainties that could adversely NWM Group's future results, its financial condition and/or prospects and cause them to be materially different from what is forecast or expected, include, but are not limited to: economic and political risk (including in respect of: economic and political risks and uncertainties in the UK and global markets, including as a result of high inflation and rising interest rates, supply chain disruption, and the Russian invasion of Ukraine; changes in interest rates and foreign currency exchange rates; uncertainty regarding the effects of Brexit; and HM Treasury's ownership of NatWest Group plc); strategic risk (including in respect of: NatWest Group's purpose-led strategy and NatWest Group's recent creation of its Commercial & Institutional franchise (of which NWM Group forms part); financial resilience risk (including in respect of: NWM Group's ability to meet targets, generate returns or implement its strategy effectively; prudential regulatory requirements for capital and MREL; NWM Group's reliance on access to capital markets directly or indirectly through its parent (NatWest Group); capital, funding and liquidity risk; reductions in the credit ratings; the competitive environment; the requirements of regulatory stress tests; counterparty and borrower risk; model risk; sensitivity to accounting policies, judgments, estimates and assumptions ( and the economic, climate, competitive and other forward looking information affecting those judgments, estimates and assumptions ); changes in applicable accounting standards; the adequacy of NatWest Group's resolution plans; and the application of UK statutory stabilisation or resolution powers to NatWest Group); climate and sustainability risk (including in respect of: risks relating to climate change and sustainability-related risks; both the execution and reputational risk relating to NatWest Group's climate change-related strategy, ambitions, targets and transition plan; climate and sustainability-related data and model risk; the failure to implement climate change resilient governance, procedures, systems and controls; increasing levels of climate, environmental, human rights and other sustainability-related laws, regulation and oversight; climate, environmental, human rights and other sustainability-related litigation, enforcement proceedings, investigations and conduct risk; and reductions in ESG ratings); operational and IT resilience risk (including in respect of: operational risks (including reliance on third party suppliers); cyberattacks; the accuracy and effective use of data; attracting, retaining and developing senior management and skilled personnel; complex IT systems; NWM Group's risk management framework; and NWM Group's reputational risk); and legal, regulatory and conduct risk (including in respect of: the impact of substantial regulation and oversight; the outcome of legal, regulatory and governmental actions and investigations as well as remedial undertakings; the transition of LIBOR and other IBOR rates to replacement risk-free rates; and changes in tax legislation or failure to generate future taxable profits).
Climate and ESG disclosures
Climate and ESG disclosures in this document are not measures within the scope of International Financial Reporting Standards ('IFRS'), use a greater number and level of judgements, assumptions and estimates, including with respect to the classification of climate and sustainable funding and financing activities, than our reporting of historical financial information in accordance with IFRS. These judgements, assumptions and estimates are highly likely to change over time, and, when coupled with the longer time frames used in these disclosures, make any assessment of materiality inherently uncertain. In addition, our climate risk analysis, net zero strategy, including the implementation of our climate transition plan, remain under development, and the data underlying our analysis and strategy remain subject to evolution over time. The process we have adopted to define, gather and report data on our performance on climate and ESG measures is not subject to the formal processes adopted for financial reporting in accordance with IFRS and there are currently limited industry standards or globally recognised established practices for measuring and defining climate and ESG related metrics. As a result, we expect that certain climate and ESG disclosures made in this document are likely to be amended, updated, recalculated or restated in the future. Please also refer to the cautionary statement in the section entitled 'Climate-related and other forward-looking statements and metrics' of the NatWest Group 2022 Climate-related Disclosures Report.
Cautionary statement regarding Non-IFRS financial measures and APMs
NWM Group prepares its financial statements in accordance with generally accepted accounting principles ('GAAP'). This document may contain financial measures and ratios not specifically defined under GAAP or IFRS ('Non-IFRS') and/or alternative performance measures ('APMs') as defined in European Securities and Markets Authority ('ESMA') guidelines. Non-IFRS measures and APMs are adjusted for notable and other defined items which management believes are not representative of the underlying performance of the business and which distort period-on-period comparison. Non-IFRS measures provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. Any Non-IFRS measures and/or APMs included in this document, are not measures within the scope of IFRS, are based on a number of assumptions that are subject to uncertainties and change, and are not a substitute for IFRS measures.
The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or a solicitation of an offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.
Legal Entity Identifier: RR3QWICWWIPCS8A4S074
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