NatWest Group PLC (NWG) 2004 Q2 法說會逐字稿

Good morning and welcome, once again to this presentation of our interim results for 2004. I hope you will already have seen all the main aspects of our interim results in the Company Announcement and I should emphasize that these results are built on the progress that we have made in recent years in growing income, improving efficiency and completing acquisitions which improve the market positions and future earnings potential of our businesses.

In the first half of 2004 we increase our income by 20% to £10.940b. Our group operating profit was up 12% to £3.851b and our profit before tax was up by 17% to £3.381b. Our basic earnings for ordinary shares were up by 17% to 69.9p per share and our adjusted earnings per ordinary share were up by 10% to 84.4p per share. And in line with the policy, which we have followed over recent years, we have announced an interim dividend equivalent to one third of last year's total dividend. So our interim dividend will be 16.8p per share, which represents an increase of 15% over last year's interim dividend.

Now not surprisingly our agenda follows the usual pattern. Fred Watt will comment on our Group Results and the results from each of our divisions, then Sir Fred Goodwin will review our performance and look to the future. Fred.

It's hard to believe that that was just over a year ago given everything else that we've been doing, but there you go, that's the full year on year integration costs down, causing PBT to be up by 17% against our operating profit up by 12%. Focusing as ever on the operating profit number up 12%, looking at the analysis of how we get there, looking at it by lines at the overall group level first of all, we see income up strongly at 20% almost £2b income growth in six months, so that's up 20% year on year. Costs held to an increase of 14% against that, with a difference obviously [JAWS] having an effect on cost income ratios we'll see later. Net insurance claims obviously hugely impacted here by the acquisition of Churchill but, as again, we'll see later when you look at that divisions insurance claims up, basically in line with insurance premium increase.

Lastly, on this slide, provisions very flat year on year and whilst we have obviously been growing the balance sheet strongly in that period that flatness represents an improved credit quality position so for the group as a whole overall all of that together producing operating profit up £400m in the period or 12%.

Looking firstly that income growth line, that 20% growth number, where does that come from? Well, as ever, we see it nicely spread right across the group. We're seeing some strong growth in all of our divisions. As we begin to look at the divisional numbers we see some impact coming from Foreign Exchange, notably the citizens number reflects, obviously, a decline in the US Dollar year on year. The dollar down about 13% year on year remember. Obviously CBFM slightly impacted by the decline in the dollar also and also mainly two divisions here affected by acquisitions in the year, you'll see that RBS Insurance showing income growth up 89%, although that includes Churchill for the first time for a six month period. Churchill you recall was acquired last September. So this is the first half year that we have Churchill in full. The other division that's impacted acquisitions in the first half to any material extent is Ulster Bank. And we're showing here Ulster Bank's income up 25%, but again you will recall that we acquired First Active for Ulster Bank in January 2004. Overall, as I said a very good spread of income growth right across the pace. Some impact, by FX on the negative side, some impact by acquisitions.

Just looking in at that overall group number the 20%, how does that relate to an underlying rate? Well 20%, the first thing we would do is add back the currency impact which costs us about £200m in income terms year on year just translating the results of our US businesses into Sterling. But otherwise income would have been up about 23% year on year. That 23% then splits roughly 50/50 between acquisitions impact, the biggest part being Churchill coming in for the first time in the first half and organic growth still representing a very strong 11% income growth both stripping out FX and acquisitions impact. That 11% organic growth in income is very consistent with what we've been producing over the last certainly two half periods. In numbers actually, the first half of last year organically and the second half of last year a very similar picture indeed.

Okay, net interest margin. Briefly, just now, we will touch more on this later, but overall there's a headline level, a few basis points down as we said. Half of the four basis points reduction in net interest margin comes from the inclusion of First Active for the first time. First Active is principally a mortgage business which is, obviously, at finer margins overall, that has two basis points impact on the overall group margin. Two basis points down elsewhere in the group, again we'll cover this in detail, but effectively it's caused by the mix of business that we do, with the strong growth in mortgages across the rest of the book in particular. Again, more on that later. But in line with what we said and down only four points overall.

Looking briefly at expenses, we'll touch on this in more detail as we go through each division. Again a number of division distortion caused by Foreign Exchange and in particular by acquisitions clearly RBS Insurance and Ulster Bank again impacted again by expense growth in the acquired companies. I'll go through each of the expense lines in detail as we go through each division.

Overall with, as I said, income growing by 20% and expenses growing by 14% we see another step forward for the group in terms of cost income ratio. Overall group cost income ratio down from 43% at this time last year to 40.5% now. Even if you take out the acquisitions, again, the main one impacting these numbers being Churchill, an improvement in the group costing ratio from 43% to 42.5%, again we'll go through it with you later. There have been a number of investment initiatives borne in these numbers in other words reflected even in that cost income improvement which, obviously have an initial negative impact on cost income. But nonetheless very pleasing to see an overall improvement in cost income even after these investment initiatives.

Under supervision, as I said, there has been broad stability in our provisioning charge not just on the half, first half of last year, but also on the second half. So £751m full provisions charge in the P&L account almost identical to the charge we showed for the second half and the first half of last year

More importantly, that charge represents now a considerably smaller proportion of the book and this is really where the underlying credit metrics begin to show through. This time last year the charge represented some 59 basis points off the book when I announced around 51 basis points, so a lower percentage overall representing that improvement overall in the book. Another way of looking at provisions, as you know we focus on balance sheet coverage and balance sheet provisioning and overall provisions go slightly up year on year. But risk elements in lending showing a decrease.

From this time last year risk elements in lending and potential problem loans were just over £6b they are now down to just over £5.6b, so again down from June last year and down from December. Here again demonstrating as a percentage of the book, risk elements in lending and potential problem loans down from some 2.4% this time last year to under 2% now, so down at 1.92%, now reported. Overall with that decline in risk elements and lending, however, with a small increase in our overall provisioning that we're carrying the balance sheet, we are seeing coverage actually improve significantly from last years 65% up to a 71% high, a both strong and improving position on credit quality.

Just recapping on overall profitability then before we look at each division, as I said earlier, income up 20%, operating expenses up 14%, provisions flat and profit up 12%.

Coming now first of all to corporate banking in financial markets. Here again we see a very strong performance from CBFM. Income up 12% that would have been around 14% at [constant] currencies. Profit up 17% that would have been 20% at [constant] exchange rate. So very, very strong performance from CBFM.

Within these numbers, net interest income up strongly even after the increased cost of funding rental assets. The net interest income before rental asset growth had actually been up 10% year on year. Non-interest income interest up strongly, also. Up 14%, within that the rental income of I just referred to showing through as non-interest income, strong year on year growth there. Equally strong year on year growth in fees and commissions and wealth spread dealing revenues, dealing revenues up about 10% year on year within this division.

Strong, wealth spread across Foreign Exchange, across capital market related activities, across Greenwich, a very good position and good growth right across the board in dealing revenues, which as you know are customer driven revenues rather than proprietoryo trading and so very good, solid performance there. Strong customer momentum generally in that dealing profit line increasing penetration of our customer base, increasing our capability of products in that area.

Expenses growing by 15% within that some operating lease depreciation growth, stripping that out we see expense growth of about 14% in the division and that reflects strong growth in the some of our businesses, which have an inherently higher cost income ratio than the division as a whole. You know the division as a whole has a relatively low cost income ratio in the low 30s. Some of our businesses have been growing very strongly, such as capital markets and our overseas businesses, which have an inherently higher cost income ratio than the division as a whole.

And in addition to that we have been investing in some new business areas, for us, and in particular, and we'll touch on later, in particular our debt capital markets capability, not just in Europe, which as you know we've been extending in the last few years but now into the United States.

These numbers reflect some of that initial investment spend towards growing these very good businesses for us. So overall a very strong performance even before provisions. Provisions down, year on year, as we've seen credit metrics continue to improve in the corporate world and the contribution as I said very strong up 17%.

Turning the retail banking, again very good income growth coming through retail banking. Income overall up 8%. Particularly strong in mortgages in its first half. Obviously, mortgage growth means overall margin is down slightly given the finer margins you usually save on lower risk mortgages. But overall income very strong, up 8%. Costs up just 5% within division.

Provisions, as you will remember from last year, provisions have been growing in this division, principally as a result of growth in the NatWest book over the last three years since acquisition. Like last year where you will recall provisions were up about 30%, provisions up a little bit more than that, slightly more than 30, principally a small increase due to fraud, but by and large in line with what we were saying, we would see for a further period as a result of the growth in the NatWest book. The contribution overall from retail up a very good 6%.

Retail Direct another strong period from our non-branch based businesses both in the UK but increasingly, as you will have seen increasingly in Europe, where we have been expanding and more recently in the United States. Good growth and income across the board, good growth in cards, good growth in merchant acquiring, good growth in Tesco Personal Finance and good growth in the One Account Mortgage Business, which is still growing strongly.

They also very successfully introduced a new brand to the business in January. A new brand called MINT, which has been extremely successful, obviously, coming with that some short term margin effect, but nonetheless a very, very successful launch of that other new brand to replace the previous RBS Advanta Brand and are pleased with they way that that is going.

Some small individual contributions so far from the Peoples' Bank acquisition we announced back in January overall cards effect, cards businesses throughout the business going very strongly. Very good profit growth overall up 17%.

Coming to manufacturing, you'll see here we've actually included and restated some of the numbers from manufacturing to move into as we said we would set on the operations of the insurance business the manufacturing now provided a platform for day to day processing of the insurance activities and that obviously now includes Churchill.

I think an easier way to look at manufacturing is possibly on the next slide where I break down for you the overall increase in manufacturing costs. So, headline costs 17% and that includes for the first time, where we say acquisitions here, it's Churchill, for Churchill processing costs remain for the first time in manufacturing, remember they weren't in last years' numbers at all at this stage, adds about £50m to manufacturing prospects and takes it out of the Churchill base. Cost growth excluding that of about 11% and within that you will recall us discussing with you at the Manufacturing Presentation last October and also in February the Group proficiency programme that we kicked off last year and that has somel costs up front related to that, principally manufacturing.

They in this period amount to about an incremental £40m in the six months, underlying cost growth and manufacturing of about 7% and even within that that has been some investment spend, particularly in properties, upgrading properties for our people around the United Kingdom, underlying cost growth here probably closer to 5% supporting double digit volume growth in the UK.

Turning to wealth management, you'll recall from the second half of last year that we'd begun to see some recovery in income with the recovery in the markets last year in wealth management. Very pleasing to report that that recovery has continued through strongly into the first half of this year, particularly in fee related business, particularly those that are market related and also net interest income where we have grown our business there strongly. Again a small single digit contribution for the first time from Bank von Ernst, even taking that out, a very, very strong underlying position from wealth management and there is some currency impact here as well. We do have overseas businesses, which are either dollar or euro related and underlying contributions would actually been higher than this stripping these back out. So overall a very good and a very welcome return the profitable growth from wealth management.

RBS Insurance as I said earlier, clearly, impacted by Churchill and therefore, probably the next slide will have more relevance which I take Churchill out for you. So excluding Churchill, RBS Insurance showed very good income growth, with overall income growth up17%, expenses up 4% and contribution up 13%. Claims virtually in line with premium income here, some effect by mix of the business rather than anything else. So looking at these two slides back to back you would deduce, just on these two slides, that Churchill contributed over £100m in the six months, but remember the £50m that we're now taking in manufacturing, but nonetheless, a first time contribution from Churchill of some £57m with most of the integration benefits still to come, so a very, very good performance from both old Direct Line and new Churchill, combined RBS insurance going well.

That means Ulster Bank, as with RBS Insurance, impacted by acquisitions. First Active was acquired in January also we disposed of last year, you may remember, a business called NCB, a stockbroking business and that's mainly on the non-interest income line you'll see that move happening. So again stripping out for First Active and NCB we'll see that income up a good 9% and profit up 12% in this division. Both of these numbers would be higher by about 1% or 1 and a bit per cent, again caused by decline in the euro year on year. So again a very good performance from Ulster Bank and First Active making a good first contribution.

Lastly to Citizens, unusually no material impact in this period from acquisitions for Citizens. A couple of very small ones completing but no material impact on the numbers overall. But clearly impacted by as I said earlier the decline of the US dollar, so as ever chipping this Citizens number into back to dollars for you, we see very good income growth again from Citizens, up 11%. Within that you may recall last year in the first half in non-interest income there were higher than usual security gains within the first half of last year, taking that out underlying non-interest income growth still very strong year on year and overall contributions are a very good 13%, in dollars.

I think when we look at profit split by division you'll see a very well spread picture, all divisions contributing to our overall group, profit growth, some impact from FX, some from acquisitions but overall this next slide really captures the essence of what's happening. The group profit, you see the supporting growth about £400m up 12%. Currency impact of some £120m in the period year on year, 3%, in other words, profit at like for like currencies would have been up £520m or 15%. And within there acquisitions net of funding costs add only 3%, very strong organic growth and profitability over £400m up 12%.

Turning briefly to earnings per share as with profit before tax there is a difference between basic earnings per share and adjusting for goodwill and integration cost. The difference is narrowing clearly as integration costs have declined. Dividends up 15%, earnings up to 10% and that clearly creates a very small decrease in the dividend cover but still a very healthy almost five times covered at the half year stage.

And finally on capital, clearly capital ratio is ahead or our target ranges, that's given the placing that we did earlier this year in anticipation of the Charter One acquisition, so target range is exceeded this at the half year stage as a result of that, normal service will be resumed shortly, with the completion hopefully of Charter One by the end of Q4. That's all I have to say, I'll now hand you over to Fred Goodwin.

Morning everyone. Fred has gone through the results in some detail division by division and there's a whole lot more material obviously in the Company Announcement providing backup to that, so what I thought I would like to do is just try and provide some of the strategic context of what we've been doing, what we're trying to do and hopefully give some sense of direction.

In terms of strategic context, there's nothing more important to my mind that what we're doing with income. Our strategy does revolve around the development and growth of our income. There are other elements about cost, which I'll talk about too, but really income growth is it. And so you can see our strategy most clearly I think through what has been happening to our income. Up 20% as Fred mentioned and Fred has given some analysis between acquisition effect and divisional effect, but I thought another lens which we should look is a lens which is progressively more and more conditioning our strategic thinking is income growth by region.

You'll see here that the analysis of the 20%, it might not seem too impressive to be up only 6% in the US and down 10% in the rest of the world, but by putting things into local currency I think you'll get a better sense of what's happening on the ground and in the strategic context. There you can see the particularly strong growth we've been achieving in Europe and in the United States and as ever remember these figures exclude Charter One.

Stripping our the acquisition effect you still see pretty much the same picture, strong underlying business growth, continuing in the huge businesses we own in the United Kingdom, but getting progressively stronger in the many regions where we are now represented outside the United Kingdom. Income growth is one thing, it's always important to cross check it with reality, are we actually increasing the number of people we're doing business with because that's where the income comes from. Again, these are not the complete figures for each of the divisions, but these are representative figures for the divisions. Compared to where we were this time last year there are between 7.75 million and 8 million more customers with whom we do business and have business relationships. Stripping out the acquisition effect we end up with again strong growth across all of our businesses. Nearly 430,000 more customers in the retail bank. I'll talk a little bit more about what we're up to in Retail later on.

So, I get comfort from the fact that not only is the income growing, is the geographic diversity growing, but at it's most basic level we are adding significant numbers of new customers. These are net new customers not all customers we've added ignoring any customers who we may have lost, these are net new.

Another dimension on what we're doing to the business is what's happening to the balance sheet. Where is the growth coming from? You get a sense of a strong growth in mortgages this year. We've always said and maintained that we have felt able to grow mortgages, we're able but not willing to grow mortgages.

I think circumstances have changed somewhat, partly through the acquisition of First Active and some of the capabilities which come from there - partly because the interest rates have now started to go back up which I think will condition the duration of mortgages, which is in turn important for the amortization and economics of the acquisition costs which we incur and also I think we have seen more rational competition in the mortgage marketplace over the last six to nine months, than we have seen for some time. So strong growth in that area, again reinforcing the message not just that we're growing our income in different regions with more customers but we are actually adding balances to the balance sheet. Same figures here excluding acquisitions.

Looking at interest margin, another key indicator of health in the business, Fred has taken you through the bald figures the two basis point reductions, as we thought with the inclusion of First Active for the first time, which I think everyone had factored in and a further two basis point reduction as a result of other business activities.

I thought it might be helpful for you to see my road map through all of this, how I reconcile in my mind what's happening to the margin.

Firstly, the accounting treatment for rental assets causes the more rental business we do the more the margin depresses. We knew that as real depression of margin but on loss of margin, but in terms of how it's accounted for it does have that effect. Mortgage growth has driven the numbers down, it's quite backed by nature of mortgages being lower margin, albeit considerably lower risk.

MINT, this is a one of and reversible effect and we have not had any income from the MINT balances because it had begun within the last nine months and there's nine months' interest free in MINT, so come what may in MINT either the balances stay with us and pay interest or a degree of them will leave either way the margin impact of MINT reverses as we go forward.

Corporate banking as a result of the rather more subdued activity in large corporates being replaced by the clearly quite strong activity in mid-corporate commercial. That brings with it a margin benefit, as indeed do increasing interest rates. As we've said along, increasing interest rates quite suit us.

So net, net two basis points down to First Active, two basis down to the rest, which was the rest including a dramatic increase in our mortgage business and a pretty dramatic increase in credit card business with the launch of MINT. I think a very robust performance on the margin front.

As ever that's now history as of today, what's happening to margins going forward? Well, higher interest rates are the reality, I think it's inevitable here and in the United States. That said I don't think any of the scenarios that have been spoken about are particularly threatening or cause for concern in the bad debt sense. I think we do expect to see those higher interest rates feeding through into improvement in margins.

In terms of our business mix, a number of effects, our rental business continues to grow, our leasing business continues to grow so we would expect that effect to continue. The mortgage business in growing very strongly, a very good quality business, we'd expect to see a continuing pressure from that area. The MINT effect, I spoke about a moment ago, we expect to see that reversing. Mid-corporate versus large-corporate, it does rather depend what happens with large corporates but I'd expect that to be pretty much, at worst, flat. Acquisitions Charter One, bidding pretty much margin neutral as it comes in. Net net flat to possibly slightly down, nothing dramatic.

Looking at the diversity of income into another lens we've done geographic diversity just looking at by business activity, we've increased again a proportion of our income which comes from non-interest income up to 60%.

Looking at the main ingredients of that you get a sense of the main contributors. Net fees and commissions, 20% of it, general insurance about 22%, dealing profits before the cost of generating those dealing profits about 10%. A bit more analysis on dealing profits, where they come from, Greenwich Capital is about 4% of our total income, the 'normal' business that we do for our customers relating to Foreign Exchange interest protection and so on is the major component of the dealing profit.

As you look at it by proportion of income over the years you'll see it as very stable. I think importantly the bullet points at the bottom are key to understanding our dealing profits. We don't do any serious amount any by a matter of policy, get involved in proprietary trading, so there's a difference between the dealing profits we generate and those that are generated by many of our peers and competitors. Also the point at the bottom, we have not generated these dealing profits by moving further up the risk curve, in fact, average VAR for the year is rather more than it was last year, I think, treasury and trading VAR together on average is about £15m. So very low and actually has declined over the last year compared with the previous half year.

So I think good qualify dealing profits driven by business that we do for our customers.

Looking at the net interest income, pretty well balanced portfolio of interest streams. Looking over in more details at the ever topical personal lending in proportion that consumer lending represents of our total, I have introduced another column here, because some of you were interested to know this, that I haven't disclosed the shape at the full year results.

The 2% represents the other income that we make in relation to consumer lending, so that tells you that in total we earn 10% of our income from consumer lending in grant [indiscernible] worldwide, of that about 8% or 9% , not as much as 9% comes from the UK. Mortgages, still, as you see are a very low proportion of our total income.

The outlook for income growth is good. A strong organic income momentum across the Group. You will see that from the figures. Even more important, I think, is the fact that they have diversified income streams. If any of these particular activities run into the sand, we are not overly dependant on any one individual activity. I think that diversity has served us well over recent years and is part of the reason why our results have continued at such a smooth progression.

A theme which I would like to turn to a little bit more is that there is a lot going on here within the business that hasn't flowed through fully into the results. There are a lot of acquisitions which are a part way through. There are a lot of synergy benefits still to be delivered. And there are quite a number of strategic initiatives taking place within our business which are only just beginning to show through into the numbers.

I think there is a sense following the NatWest acquisition which is so much in everybody's mind, representing a huge non-business at usual activity, that somehow with that behind us, it is all business as usual now. It doesn't feel that way in the business. There is really a large amount going on. I want to be trying to give you some sense of that.

That said - first of all, improving efficiency, the cost income ratio - a subject as you know, dear to my heart and Fred covered the outline figures earlier on. Group down to 40.5%, even taking out the acquisition benefit, we are down to 42.5%. Giving a sense of how we came to be in that position, clearly the fact that our income is growing at a faster rate than our costs reduces our cost income ratio. The fact that we are actually spending money to increase further growth, and I will come on to some of the specifics of this in a minute, drives our cost income ration up. The things specifically being the Group efficiency program that we referred to in the last two of our announcements is driving the cost income ratio up - as we speak. And the acquisition of Churchill will help to drive the cost income ratio down. So a number of different moving parts here.

The Group efficiency program is one of the most important things which is going on at the moment and one about which you probably have least visibility. I put up the timetable at the full year results and that remains unchanged. I emphasize and would again emphasize that there are no below the line costs being charged for this. The full costs for this program are being taken above the line and I reconfirm the fact that the your former starting point with [indiscernible] would have taken our costing commission down below 40%. Clearly as we move through with acquisitions that reference point becomes more difficult to see. But our cost income ration will begin with a 3. I don't mean 39.99 before the end of this program.

To give you some sense of this and before you wince, it is not of my hand-made graphs, although I can see why you might think it is, the line - the almost horizontal line, RBS, is our actual cost income ratio over the last three half years. The other line is the actual cost income impact of the Group efficiency program, albeit these are not to scale. Clearly the Group is also very large and amounts being spent in the Group efficiency program are less during the early period. The purpose of the graph is to highlight that through to the end of 2004, the Group efficiency program is pushing our cost income ratio up. Although it is giving a positive contribution to profit, it is putting upward pressure on our cost income ratio, from the end of 2004 it starts to create downward pressure. The scale moves up quite markedly, so the size of this project is building as we go and the size of the benefit builds as we go until we get to a point where we stop spending on it and the cost savings, as well as generating income benefits, the cost savings we generate from the program are greater than the ongoing running costs of the income benefits that we generate. So it is a highly beneficial program and that is a trajectory of how the benefits will flow through.

I am not going to go through all the details. The only thing is to highlight is that this is not rocket science. The things we are doing to drive these efficiency savings are astonishingly mundane. If I pick out the one out at the bottom. By printing our branch reports to screen, we are saving 18 miles of paper every night. Now leaving aside the environmental benefits of that, actually getting the stuff, printing the stuff and getting it out to branches was a monstrous undertaking. So even something as seemingly mundane as that brings quite a worthwhile cost saving - not to mention labor saving in the branches themselves. There are heaps of things like this which we are still doing and I take great comfort from this, because even when the Group efficiency program is finished, I think it will be some time yet before we run out of silly things to stop doing.

Quite important ones, energy workflow is quite important for us now actively being ruled out. That does alter the way we do work and does alter the ability to absorb further operations as we go forward.

Also worth remembering in the context of efficiency is the point that there are a number of integrations still to be completed and are in the course of completion. Obviously Charter One being a significant one, which is still subject to approval.

Outlook then. As we bring Charter One on board, it will cause the Group cost income ratio to go up initially. It has a higher cost income ration than the Group and it will take a little time to feed the synergies through, so initially it will push the cost income ratio up. As I pointed out earlier the efficiency program itself has a positive impact from the end of 2004 and the various continuations just completing in line with the expectations of where they were created to forward drive cost income ratio down. So getting - actually in truth, getting below 40% doesn't look as ambitious now as it looked at the time that we made the announcement, because there are quite a number of things already happening. So the prospects for the Group efficiency program are, or the target costing commission are now better than they have ever been.

So where does that leave strategy? I know everyone knows and loves these charts. Maybe like me, you are getting slightly tired. Every time I try to think of another way to present, or give a sense of what we are thinking about, we keep coming back to something that looks a bit like these.

Nothing new then in the United Kingdom and Ireland. Nothing new to say on the outlook. It would be just undermining ourselves if we didn't make one of the tactical acquisitions that we have talked about as a possibility.

If we look at continental Europe, there is a change here and I want to choose my words very carefully, because I don't want to set any hairs on end, but over the piece we have always talked about cross-border transactions in Europe as being something which is really just a 'bridge too far'. I've always tempered my remarks with the comment with ' some day they will happen - or some day the timing will be right to make them happen', but it is not within the foreseeable future.

Well I have been caused to revisit that of late. I do think that the climate is changing a little bit in Europe. Not necessarily conditioned by good logic in every case, but I think that there are macro factors now, which as you talk to other chief executives around Europe, you get a sense that any time that [indiscernible] comes to Europe there is a panic that flows around the country, because what is Sir David going to buy? You will remember his visit to Germany earlier in the year and Colin mentioned as did Phil.

I think that people are beginning to - border on a macro level now - it is a certain size you need to be if you want to play and there are not many people in Europe of that size. So the conversation has changed. I think we were amongst the first to say that we didn't think that cross-border deals made sense when we said it and we may now be amongst the first to say that we think the horizon has possibly come a little bit closer. At least we are able now to see the horizon far enough. I don't think any deals imminent. I am conditionally expect us to do anything. I am not sure that the economic logic has changed so much, but I do now want to place on record that I think that it might alter the view that some of the macro pressures that are causing people to think about this in a way that they didn't think about it before. So I know it is perhaps not helpful to move away from ticks and crosses and dashes, but I think the question mark was the best I could think of to keep the ambiguity going. But that has changed a little bit from when we last spoke. And I would be interested during questions and afterwards to get your own thoughts on it.

But I think there is some palpable evidence of that. For our own part we have been plodding away against the areas we said were opportunities, activities where the relationship was built up with Tschibo. I mentioned it last time, it was in pilot mode - that is now going out into full scale roll out. The pilot was extremely successful in selling financial services products through Tschibo outlets in Germany. You will either will or will not know about Tschibo, it is difficult to explain in shorthand. But it is an extraordinary effective retailer. It is something of a phenomenon in the countries in which it operates and it is proving to be a very effective channel through which we distribute financial services.

Bibit is strictly for the 'anoraks' of merchant acquiring and internet merchant acquiring, but it gives us important strategic capabilities and market position in Europe, albeit I wouldn't necessarily expect you to ever have heard of it before or indeed hear of it again, other than results that come through in Retail Direct.

The United States, again just highlighting a change. I think that we are quite happy with the extended market, post Charter 1. It gives us an enormous footprint - a footprint, which is full of opportunity, both in terms of acquisition and organic growth, so I think for the time being, we are probably just parking market extension ambitions in the United States. The market that we have got is more than plenty to be getting on with.

That said that we have been very busy in the United States since we last spoke. Charter 1, you know all about. I will say a few words about Charter 1 in a moment. Larry Bolen another small bank, which you heard about earlier in the year and I do want to focus on the other items up here. Kroger People's Bank and Lynk Systems, which we announced this morning.

These represent significant enhancements in our business capability within Retail Direct. We are one of the largest card issuers in the planet and we are one of the largest merchant acquirers in the planet and we have no capability in either of these areas within the United States.

Since the beginning of this year we have addressed that. The People's Bank Credit Card business which we bought at the start of the year, gave us national manufacturing capability and gave us a prime, super-prime group to start with and it gave us a business which was already experienced in manufacturing and providing credit cards for some parties. I said, on the last that we are aiming to expand that business by building relationships with retailers. We have done that with our relationship with Kroger. Kroger is the second largest supermarket business in the United States that operates through 3,500 to 4,000 different outlets. Not all branded Kroger. And we will be selling initially credit cards through that channel, which we are quite excited about.

Lynk systems, which we announced today, gives us merchant acquiring capability in the United States and Lynk itself is linked ninth in terms of overall card acquiring capabilities within the United States and we are able to put some real energy behind that business. It already had a national sales force. That was one of the beauties of the Charter One acquisition and the Citizen's business that we already we own, is that cards are a largely un-ploughed furrow in both of those businesses. And they will all be moving their business into the capabilities, which we've acquired this year. So quite a significant strategic step change in the United States, run at low cost and with a low risk profile.

New slide again, simply to highlight the fact that we have been in Asia for a very long time. The business continues to go from strength to strength and just to highlight that we are putting resources into that. I suspect it will be a while before they put up the rest of the world. Income analysis that we're seeing huge income from this area. But again, to give you a sense that we are active now in these areas and we are actively deploying further resource into profit banking and financial markets, wealth management - Tokyo, Honk Kong, Singapore, which places we've been some time, Australia where we've moved recently, particularly we needed a project finance, and in China.

If I give a bit more flesh on the bones, balance just ticks and crosses, which are, you know, only take you so far. I thought I might just have a very quick run through what we might call the divisional dance card. What the divisions are actually up to of note. I'm not going to bother talking about organic income growth as usual since that is the ticket to the game and the guys are all permanently fully engaged in that. I just want to pick out one or two things that we are doing that I think are out of the ordinary and alter our income generating capability.

The moving of the financial markets business in the United States from New York to the responsibility of Greenwich Capital, that had a-- it might sound like a, something or relevance to furniture removers than anything else, but this is quite a significant up-gearing of what we're able to do. The Greenwich platform gives us significant opportunity to look at the format but at a different level. You have also seen us recruiting quite a number of capital market specialists in the United States and we've done quite a significant further investment in that business, which Johnny will be happy to fill in the details on that later on.

Retail banking, it might all sound terribly mundane, just putting another thousand people into the branches and expanding our direct sales capability. But guess what, the big issue in retail banking, and our other branches are still queuing, the customer numbers grow and continue to grow. We have become more and more committed to the model that allows people to actually speak to us face to face, or speaking directly to an individual of their choice. And that is helping the income along just quite wonderfully at the moment. So, it all somehow sounds mundane to be saying this, but a lot of these mortgage sales, for example, were achieved by people through the branch. When you set that channel to a task, it goes about it in an extremely effective way of distributing financial services.

Retail direct, I've covered a lot of this already so I'll not dwell on this, but you know when you take, together with MINT, together with Tschibo, the Bibit acquisition, Lynk acquisition, the Kroger joint venture, people saw a huge repositioning of that business against a backdrop, but it's currently delivering a very strong financial performance.

Wealth management, again there's two extremes here, you've got bank one end, the acquisitions bank one end, I'm getting a fully integrated and it's occupying minds. Going back to the old basics and putting private bankers into the region so they can actually go and speak to wealthy customers. It's about as low-tech as it gets in wealth management. But guess what, it's extremely effective in terms of picking up business. And if we're taking people back into commercial banking, an area where we've got a strong lead across between commercial banking and wealth management, for a limited number of customers.

RBS Insurance, this again might sound relatively mundane, just completing the IT conversion, the integration of Churchill. But, you know, there's a huge amount of energy has been deployed within RBS Insurance at the moment on the integration task. And yet my colleagues have already got to a situation where if you buy something with a red phone on it or a dog on it, then it is on the Direct Line platform. A huge proportion of the IT integration is already complete, but there's still quite a bit to do in some of the peripheral areas and, of course, in driving out the revenue and cost synergies in full. You may have seen the Joanna Lumley ads last night, which are the initial salvo in the re-launch of Privilege into the market to reposition that brand and give us a further active business development channel.

Ulster Bank, as well as being engaged in its IT integration and the general integration of the business, a non-trivial activity. And we've also launched the First Active brand in the United Kingdom, with a direct channel for mortgage acquisition. And we will be rolling out quite a number of new products in the First Active branches over the next six months of so, and I know Cormack will be happy to pick up any questions on that later.

Citizens, Charter One is pretty much the complete focus at the moment. We're enjoying very huge co-operation with Charter One. There's a lot happening on the ground, notwithstanding that the it has not yet had regulatory or shareholder approval, albeit those are on track.

Maybe just a word or two on Charter One. Most of you have already seen its first half result. Just to pick a couple of points out of that. Strong income growth and the overall branch openings are going extremely well. We are picking up - they are I should say to be correct, picking up a lot of new customers. The business has performed a 53% increase in operating profit, excluding securities, gains and so on, and demonstrates that the business that we have really bought in there is performing very well.

Also highlighting here that they are actively de-risking the business as they go, so before anything comes round to us, the mortgage-backed securities, for instance, available for sale, are going to be reduced dramatically from where they were this time last year. And again, to emphasize the point we made at the time of the announcement, we will be moving this business to have a positive bias towards rising rates as part of the acquisition process.

Capital. Fred took you through the numbers, I don't want to add very much here. I actually wanted to remind that capital generation remains strong and is getting stronger and we worked comfortably within our target range, post the acquisition of Charter One. And all the things, all the previous guidance on use of capital and deployment of capital stands. I am not proposing to go back through it all again today. I think we have covered it ad nauseam. But if anyone has any questions then obviously we will be very happy to cover those.

So income. And income is continuing. We have seen very strong income momentum across all of our businesses. Efficiency is improving and continues to improve, and I think we are feeling more positive about that than we have felt, although that's not quite right, we've always felt very positively about that. But the goal of getting below 40% in the longer seems all that challenging, it's just a question of how far below 40% we get, rather than if we get below. And we have achieved a significant strategic enhancement of the business outside the UK. Charter One acquisition completes, here a third of our income, of our profit before tax will come from outside the United Kingdom.

There are a great many benefits still to flow through. We are not in business as usual at the moment. The business is quite energized, absorbing a number of new initiatives and acquisitions and the benefits of those are still flowing through into our numbers. We are set to benefit from rising rates. And we do believe that we are well positioned for the future. So on that note, thank you very much and we would be happy to take any questions.

Thanks Fred. Could I now take questions with the usual caveats, if there's a microphone available could you please identify yourself?

Peter Thurmond from Morgan Stanley.

Fred, I think you are quoted on the news wires as saying that your views on Abbey National haven't changed, but I wondered if your views on mercy killings might have changed?

Yes, and I think we're steering well clear of the Abbey subject for the very obvious reason that I don't want to spend half an hour in front of the panel explaining what we have or haven't said.

But mercy killings. Underneath the question of priorities Peter, even a mercy killing absorbs capital and absorbs time. As I look across the options and the opportunities that are available to the group at the moment, I wonder whether a mercy killing would be the best use of that capital at that time.

I also wonder, you know, what strategic or even tactical capabilities mercy killing would bring us. We have demonstrated-- most of the mercy killings people assumed that they were talking about were, you know, involved building societies with mortgage capability.

I think the numbers we have seen in the first half demonstrate that, you know, when the circumstances are right, we can add mortgage balances and feel the dramatic amounts. I have no doubt that we can add mortgage balances pretty much at will, depending if we are prepared to take the margin consequences and the financial consequences, which at the moment are not as drastic as they would have been. So mercy killings are probably still out there, but in terms of priorities for the Royal Bank Group right now they feel like something that isn't a priority.

I have two questions. Okay? The first question was on consumer provisions in the retail bank. Clearly they are well ahead of balance sheet growth and I guess that's doubly surprising given that mortgages as well, the stronger growth was coming through. So you would expect the mix to have benefited you not hindered you. And you refer to the fraud, but can you give some indication of roughly how much the fraud was but also give us some sort of sense of what the underlying picture was excluding the fraud and how you see the outlook?

I will get Fred to kick off on it and then if any of you want to just chip in.

I mean clearly you've found some mortgage growth and that is in this period, but what we have been saying over the last few years is growth in the unsecured break-off in the last three or four years with NatWest, so the mortgage point may be more relevant going forward, but not necessarily relevant to this period's charge -- But Fred why don't you -

Yes, I'll just remind you of the guidance I gave at the year end, which was precisely that this year would be the year in which the, if you like, the overrun of provisions versus asset growth would in fact peak. And that going into 2005, the growth of provisions would be in line with the growth in assets. I would stick by that guidance and I don't think anything's changed on that front.

The only modest change to that has been the fraud, first party fraud, which appears in the provisions line was a little higher than we expected, but the power from trajectory of [SIDs] is exactly where I suggested it would be at the year end.

Okay, I just have one other question, which is perhaps a somewhat tricky issue. Just talking about litigation risk. I saw you put in a note in the accounts, but obviously in the first and second quarter, we saw some quite big charges from I think JP Morgan and Citigroup in respect of US business. And I wondered if you could just, obviously I suspect you're somewhat limited in what you can say, but you can give us some sort of compare and contrast on your positions versus theirs. And perhaps, if possible, give us some idea of a worstcase scenario.

You need to understand Ed why we can't do any of the above. But I would draw your attention to the note that appears in the Company announcement made today, which is identical to the note we put into the accounts and represents a complete view of the position.

Okay, Peter? Simon.

Simon Samuels with Citigroup. I have got two questions. One is sort of strategic and one is just the operational.

The operational one is the Group cost income ratio excluding acquisitions, the 42.5 from 43 prior year roughly looks like it's the same as it was in the second half of last year. And you have obviously indicated the efficiency program has a net benefit next year rather than this year. I just wanted to see whether you would be prepared to confirm that you would expect the cost income ratio to, excluding acquisitions, to continue to improve essentially in the second half of the current year?

The strategic question is obviously you have invited a question on the high position of the universal bank in Europe. I was wondering if you would be prepared to, well obviously talk a little bit more specifics about countries because there's lots of different countries in Europe. And also when you describe the deal as not imminent, is that not imminent because you're preoccupied with Charter One or not imminent because you don't see the other parties as being prepared to see you as a merger or as an acquirer?

I think you've probably confirmed my worst fears Simon already. The year is already firmly down the path here. I would decline to discuss any specific countries.

In the context of the debate we have been trying to have and the dialogue we've been trying to have through these ticks and crosses and I accept it's not the most sophisticated tool or technique. But it's just to try and condition your understanding of how we see the world. I do think how we would look at the world in Europe has changed a little since we were last together, and not encouraging anyone to think that we're going to go out and do something or that there's something about to happen. But I do think that the climate has changed a little bit and I'm going to be interested in views you guys would have as well.

But there is a conversation which comes up more rather than less, and to my mind it's significantly more-- or that increase is significant. But what I know, I don't have a shopping list of where in old Europe or new Europe of things we want to go out and do, but I think there's a frame of mind out there which is different. And I think that's the first sign of the change because once people are willing to think about it then you get followed down the path. Previously people weren't even willing to dream about it, let alone think about it.

Simon Moore at Kleinworts. Two questions if I may. First of all, could you expand upon the investment in CBFM and particularly in the US? Perhaps if you can give us an idea of the scale and the timing of the payback of that investment?

And my second question concerns MINT. Perhaps you could just explain to us the rationale for the launch of that separate brand and what benefits it brings to the Group beyond starting to receive interest income.

The scale of the investment in the context of CBFM as a whole is not large but it inevitably really gets more comment than most things. Capital markets tend to be our sort of shop window, if you will. But we have just started to do it, we are talking sort of 40 people, that sort of thing in the States. The significant thing I think is that they wouldn't have joined us if we hadn't had the Greenwich platform, in both senses of the word - platform in terms of trading floor and platform in terms of very, very loyal US investor base. So I think we have an opportunity to do something there that many other banks wouldn't have.

And we, the chart, the impact-- the graph Fred put up about the cost income ratio we're certainly in negative territory at the moment, i.e. costs exceed income and I am hoping that we will be break-even next year and move towards a more sensible cost income ratio over the two or three years after that. But the numbers, in the CBFM context as whole, are not huge. Chris?

Yes, MINT. A couple of reasons. I think the view on our Advanta brand was a little tired and we'd seen significant attrition within the base of the credit card business under the Advanta brand. In addition we had a license agreement with Advanta to use them for a certain period of time. So we took the view at that time, the end of last year, that probably it was time for something new, something, if you excuse the expression, a little bit fresh. And we came up with the view of MINT.

It's been very positive for us. We achieved significant new customer growth in the first three months, way ahead of what we planned. Some of the interesting aspects in [indiscernible] loops in the fact that it affected the group name to a certain degree because we obviously had to fund a significant amount of new balances. But what I think was more significant was that it was a credit card that people were taking off us and being used more than other credit cards, so it had a very positive effect on fee income in the first half. And that gave us a lot of positive view on what's going to happen with that credit card as we go forward and when it re-prices.

As another interesting aspect about the card itself and the customer base it's attracted, we were particularly looking at sort of 20 to 50 year old range of customers and that's exactly the customer base that's been attracted. A significant number of more internet applications than we normally would have expected, and higher quality of credit as well. So lots of advantages, and we envisage expanding the brand into other products.

That's with a low acquisition cost as well. You know, the only paying element of MINT has really just been the [inaudible].

Yes, it's Nick Lloyd from Deutsche Bank. I just wondered if I could come back on the comments you made about European Universal Bank and your thoughts there. First of all, I just wondered if there was any change in your thoughts on the industrial logic of such a deal and what the industrial logic of such a deal would be.

And secondly if what you're highlighting to us here is just that CEOs across Europe are talking more about this, possibly exchange in regulatory structures or technology that would make the industrial logic of two universal banks in Europe merging more concrete.

Not a huge amount of change Nick, in the industrial logic. There's more of the fact that the unthinkable is now being thought about, which is in some respects the more profound, the more difficult aspect of change if you are wanting to go out and make something. The industrial logic is still not overwhelming to my mind and you know, it's more often unattractive rather than attractive. But the fact that people are thinking about it and it's been conditioned by macro-factors I think is interesting and is a change.

And already people are regretting ever mentioning this, the type of dialogue is too subtle altogether.

Yes, it's Tom Rayner, Citigroup Smith Barney. Can I just come back to the consumer divisions and a fraud issue, that was asked about before. I think the guidance is very clear on divisions growing in line with assets from sort of next year. But I guess we have already heard that mortgages are growing faster, so this, I take it implies some deterioration in non-mortgage provisioning. I just wonder if you could sort of clarify that.

And the second thing on the fraud costs, and obviously the first party costs you say are going through bad debts, but how significant are sort of third party fraud costs, which I guess are going through the cost line? Could you comment on that as well please?

First of all I think Fred already made the allusion that the mortgage business we are doing today has no impact whatsoever on the provisions line today. Even in consumer lending there is typically an 18-month lag between selling business and the peak of provisioning against that business.

So, the guidance is very much accurate, in that what we were talking about is the unsecured lending book in Nat West, which started when we acquired Nat West, with the very low starting point in terms of provisions. And, also we re-invigorated the sales force and modified the risk appetite to be in line with RBS. And, so exactly what we said at the year-end has happened. That the growth that we saw last year, which was in excess of asset growth, would continue into this year, but then moderate as we go into the back end of this year, and into next year it will be in line with asset growth. So, that part is exactly what we said would happen.

But, clearly again, as Fred Watt alluded to, the fact that we've grown the mortgage book strongly this year is a sign of growing very good quality assets, where provisions are likely to be very low, with respect to the applicants' assets.

As far as the fraud line is concerned; clearly it's an industry issue. And, third party Fraud Force are across as opposed to provision. The first party are - is divisions line. Neither are usual material in terms of our P&L, but they certainly have been higher than expected.

There in the context. And, within the provisions laws of around 59, there's probably 10, 12, 15 of fraud related with average with bank lines where we said we would be. So, we're not talking big numbers here, but obviously at a very low base to compare that number with.

Great. Thanks.

Good morning, thank you. It's Michael Leiber at CSFB. I've got two questions. One on the US and one on the UK. On the US, although you've not acquired Charter One yet, I wonder if you could give us a little bit more of your thought in terms of the sort of future development of the mortgage market trends in the US. I mean, clearly there has been some concern expressed in local bank prices about what is likely to happen to the mortgage market.

The UK question is quite different. It relates to reports I read recently about the Government, yet again, putting its oar in, in train leasing, intervening in the pricing decisions. And, I wondered if you could give some comment on that, and whether the Government's intervention is likely to spread to potentially other areas?

Well, I'll take the first one, and then Johnnie will take the train thing one, and that can be the Government more general.

The mortgage - I think the mortgage -- It is interesting in the US just know, and I think it is starting - as you say Michael, it's starting to flow through into the valuation of some of the other banks. There are many people who are best become one trick ponies - organizations who have been able to - inflate may be too strong a word to use, but not far off, their financial performance by diving into mortgage-backed securities and building a business out of it, which is now turning to dust before their eyes. We were certainly very clear of that. It was less clearly visible in pricing at the time we did Charter One, it's become, I think, much clearer since.

We take great comfort from the Charter One core business, as I put some figures up about earlier that it doesn't apply there. I think by the time we get around to looking for any more infill acquisitions, which will be some time on, I think it will be entirely transparent as to who has a real business, and whose business was just puffed up out of - not quite thin air, but getting on for it.

I mean, on the railway business - obviously it's a pretty political subject there's been a lot going on there. I think the vast majority of participants would say that the train leasing companies are the one bit of the railway system that is clearly not broken. That's a little common view in the industry, and it's the only - it's a recent article that you're referring to in the Sunday papers I think, that's the only snippet I've seen around this topic. So, I don't - I'm not particularly concerned by it. But, having said that, it's worth noting that there are - fleet is one bill that's obviously going to have very long contractual terms. The vast majority of our leasing fleet is contracted out for really a very long time indeed. So, there's nothing that's going to - even in the very, very worst scenario, which I don't expect to occur - yeah, it's a long way off.

I think you'll find in Government in general, your guess is as good as mine Michael.

Thank you very much.

Thanks, good morning. It's Mike Sugar at HSBC. I had a question on the CBFM bad debt charge, which has come down, at a time when you're still getting good asset growth. I just wondered if you could give a bit more background as to what's happening there - in terms of the impact of any releases or recoveries. Or, have we seen the sort of fixed asset write-offs dry up? I'm really just trying to get an idea of kind of a run-rate in CBFM bad debt charge going forward.

I think, what you see is what you get here. That is, the figures are a very accurate reflection of how it feels, which I think is your question.

The bad debt rises over the previous years would tend to be rather lumpy and large names in the large corporate arena. Mid-market businesses being steady throughout - although slightly improved - it's been very steady throughout the period over the last three years just recently.

So, what you see is what you get. The provision charge is down, and that reflects improving metrics across the board.

Can I just follow-up then? I mean is - to be a bit more specific, is the gross and new specifics within CBFM, is that coming down?

The gross--?

And new specific charges within CBFM?

That's what that is. It's not a question of recoveries, it is fundamentally new specifics coming down, yes.

Okay. Thanks.

Thanks, it's Mark Thomas of Keith Burratt(ph). I notice a pick-up in terms of pension charge. Does that fully reflect what you're expecting in terms of the tri-annual review?

Secondly, the Government's trying to reduce volatility in short-term UK money markets. Will that have any impact in terms of income going forward?

And finally, could I request that the domestic disclosure on factorial breakdown of loans and provisions be reinstated in the 20-F. Thank you.

The tri-annual review is due with us in about September time. It's not meant to be there as a kind of guess forward. It reflects a whole host of pension group schemes that we have around the Group. And, there's generally as you know, a pick-up in pension costs. There's a lot of running pension schemes, so no surprise there.

On the--

20-F.

Clearly 20-F is a full-year disclosure and we'll be looking at that separately. We've given you - I think, very full disclosure as we do. But anything that we have [indiscernible] we'll clearly look at, I'm happy to do that.

[inaudible] The Bank of England and since the third quarter of last year I think, tightening up of conditions in the overnight market. And, the great bulk of the effect is already in the numbers. We have had some impact, but that's in our numbers for the first half of this year. But we don't expect it to get any worse.

Thanks, it's Richard State from Stock Gen(ph). Can I get you to comment on the UK credit card market, do you think pricing is rational at the moment? Is it more competitive now than it was a year or 18 months ago? I'm just wondering if you're being a bit optimistic in thinking that your customers are going to stay with you after 9 months. Are they not going to simply transfer to another very long interest-free period?

I'll pass onto Chris for the general one, but I don't think we're being - I don't think we've evidenced any opinion at the moment, other than the fact that even if they grow that helps margin. So, it's minor really as far as margin is concerned. So, I think the margin effect will come about one way or another. But Chris - as to the generality on that.

I think - I'll just read you what I've said before. There are certain behavioral characteristics within the credit card user that are an indication of how likely they are to stay with you. And, the credit card characteristics evidenced within the MINT days are very positive indeed.

Just with the general state of the market. Is it more competitive or less competitive?

It's very competitive - it's very competitive. Is it more competitive than a year ago? I'm not sure. I think pricing is realistic. I think you will see people start to move up, and I suspect part of your question is that Richard, is why are we not seeing base rate increases come through into pricing? I think historically the card market has been very slow to follow base rates in either direction. But, I would expect you will see people following it. [indiscernible] happen.

Thank you. Martin Cross, Tether & Greenwood. There hasn't been a question about the interest margin yet, which is surprising, every other bank gets asked about it, so I'll ask it. I want to tie it in with your summary slide, which said that you saw the Group as a beneficiary in a rising interest rate environment.

On page 26 of the release, in the discussion of the net interest margin movements, it would appear that the benefit of rising UK rates has been offset by decreased volumes, presumably of current accounts. But, the benefit to the margin from rising interest rates has come in the overseas margin. Could I ask you, when you refer to the Group being a beneficiary of interest rate movements going forward, are you thinking primarily of the UK, the higher rate environment there feeding through? Or are you thinking of dollar interest rates?

I'm thinking generally Martin. I think we would expect the rate to go up in the US and in the UK. And, in both instances we think that in general that will be a positive impact for our business.

You'll remember in recent years we spoke of the interest rates are coming down, of the floor effect, and the compression effect on our margin. Well a simple removal of that creates benefit for us. I wouldn't necessarily leap to the conclusions you've leapt to off of page 26. I find page 26 quite difficult to tie-up sometimes to the underlying dynamics of the business. But, I'm not - we're not trying to be clever about the wording. I think we would generally consider ourselves to be beneficiaries in that position - ourselves to be beneficiaries of rising rates.

Sorry to intrude but, unlike some other banks, we don't have hedges against - or not to the same extent - against rising rates.

Not hedges that create the comment - if you follow the hedges around. But the comment arises from the basic impact on rates we set for our customers.

Good morning, it's James Hamilton from West LB. If I could sort of lead you down a sort of hypothetical path for a moment. If we assume that the competition commission won't permit a UK - a large UK bank from acquiring Abbey, and we therefore assume that a foreign buyer acquires it. What scope do you think there is for a domestic player to form a joint venture with the foreign buyer?

We're thinking in the areas of assumptions, aren't we?

Extreme hypotheticals. I guess it would depend on who the hypothetical participant or the hypothetical asset would be, and the terms of any hypothetical joint venture. But to be crystal clear, we have no agreements, contracts, understandings or anything else with the hypothetical parties that I think you're thinking about.

Okay. One last question.

Hi, it's John here from Credit Suisse. Two very quick ones, if that's all right on retail. The net credit card accounts, ex-acquisitions went up 480,000 in one of the slides we were shown. But MINT cards themselves added 560,000, so I was wondering what's going on in the Nat West and Royal Bank of Scotland higher spread back books on credit cards?

Sorry, there's a quick answer to that one. That was the existing Advanta cards that were there to start with. So, they were re-branded as MINT. So, the total number of MINT cards that ended the year were not all new-new to the Group. They were all new to MINT, but the net increase - some of the net increase to the Group is less, because some of them were transferred across from Advanta.

Okay. So the other brand cards were also going up in numbers?

There was a - in January we purged a number of dormant accounts out of the Nat West and MINT cards as well. There were about 300,000 cards which we purged out, which have actually reduced the number of cards in that arena, that we're now starting to put more energy into, in particular the Nat West [card] - the Nat West brand, where we do have some significant opportunities we think.

In the Advanta book, actually the advent of MINT has already begun to increase the numbers of old Advanta customers that are using their cards, and also a number of people within that particular sector.

Okay, and just secondly, quickly on mortgages. The net share, in the first half, from what I can tell from the balance sheet and other information, looks to be north of 10%. I was just wondering whether moving forwards you'd expect that - it's also - I mean it's well above your share of stock, whether that will continue and consequently whether that sort of 4 basis points impact on the margin is likely to continue?

I think, as was indicated in the chart, there's certainly a negative effect going forward, which we think will continue. To precisely where we'll pitch it, is it'll depend on market responses. We're not hell bent on growing mortgage market share at any cost. We've been very conservative in recent years around mortgages, we remain inherently conservative around mortgages. So, I would expect there to continue to be a negative effect on margin from growing mortgages, albeit on profit, there's certainly a satisfactory side. But, as to whether we stay at the current levels or not, we shall see.

Okay. Thank you very much ladies and gentlemen.