NatWest Group PLC (NWG) 2006 Q2 法說會逐字稿

Good morning ladies and gentlemen and welcome to our 2006 interim results presentation. It's a special pleasure for me to welcome you today as this is our first set of results since my taking over as chairman.

The past nine months have been really fascinating for me personally as I've learned about RBS and how it operates. What I've found is a truly impressive company with a focus on creating opportunities for growth then realizing those opportunities through speed and excellence and execution.

I believe today's results, based as they are purely on organic growth, amply demonstrate these fundamental strengths and the sustainability of the Group. Guy and Fred will take you through the results in more detail so I only have one slide summarizing the headlines. In fact you must all be suffering from slide fatigue at the end of a long, difficult week. So we'll try and move along smartly and get to the discussion as quickly as possible.

Total income for the first half rose by 10% to 13.642 billion pounds. Coupled to the significant productivity gains, this resulted in Group operating profit rising by 15% to over 4.6 billion and adjusted earnings per share rising 10% to 0.95.2 pounds. The financial strength of the Group has enabled the Board to continue its dividend policy of announcing an interim dividend of one third of the previous year's total resulting in a dividend of 0.24.2 pounds, an increase of 25%. During the first six months 200 million pounds worth of shares were also repurchased and it's our intention to complete the remainder of the 1 billion pound repurchase announced earlier this year during the next period.

So I'll now hand over to Guy to take you through the results in more detail.

Thank you very much, Tom. Good morning, welcome, nice to see you all here. No doubt pretty much all of you in the audience by now will have seen the company announcement we put out a little over two and a half hours ago and in that I think you will see what we consider to be an excellent set of results with a strong performance across all of the divisions of the Group. And what I would like to do over the next, maybe, 15 or 20 minutes is spend some time, not just talking about the numbers, but also just talking about the main themes that have come out of that for the Group as a whole, and also across our major operating divisions, and then hand it over to Fred who will share with you some of his thoughts about the company and its direction and what the outlook will be for the future.

As Tom has mentioned, a very good set of numbers with -- led off by strong income growth up 10% to 13.64 billion pounds. Combined with good expense discipline and a very strong credit performance and we saw operating profit up 15% or 603 million pounds to 4,603 million pounds. After intangibles and integration costs and of course a sizeable tax bill our attributable profit to shareholders was 2.978 billion pounds, up 18% over the prior year; basic EPS at 93.1p, up 17%, adjusted up 10% at 95.2; our tier 1 capital, stable in the mid 7s at 7.6%, and return on equity 18.5, up from 18.2 full year 2005.

The income grew by just under 1.2 billion pounds in the first half of 2006. Within that our UK businesses grew by 643 million pounds, up 7% over the prior year; our international activities contributed 17% growth or 545 million pounds more than in the prior year. Our net interest income grew 9% to 5.19 billion pounds; our net interest margin coming down, just 5 basis points from the second half of last year to 245, very much in line with the guidance that we gave you at the full year results, and very much in line with our plans and expectations for the year. Net interest income was stable at 38% of Group income. Our non-interest income grew 780 million pounds or 10% to 8.448 billion pounds principally made up of fees, trading activities, operating leases, insurance gains and other. The proportion at 62%, again the same as in 2005.

Our income grew by 1.88 billion, it was supported on a cost base, but only grew 8% of 463 million pounds, allowing our cost income ratio to fall from 42.2 to 41.9%. You'll notice a large part of that, or a big contributor to that, was the manufacturing costs which grew just 3%, I think very much demonstrating the strength of the business model that we have. And in a departure, at least from prior results, if you had time to look at the company announcement, you will see that for the first time we've made some attribution of those manufacturing costs into each of the divisions. In part in a response to queries and questions that you have raised, but also as a way of demonstrating, I think, the business model that we have more effectively.

The way we run the company is unchanged; each of the divisions remains responsible for its income and its direct expenses, but the shared costs of operations, technology, purchasing and property remain managed as a single number within manufacturing. I think it clearly demonstrates, if you look at that 3% rise, the contribution to 8% cost growth with the benefit of having a scalable platform and those productivity gains have allowed us to continue to make investments across all the divisions in our service and customer facing activities. Operating profit, pre-impairment losses, grew 13% over the prior year.

The credit environment has been strong; we have a quality book; we have a very good risk control environment. Our impairment losses grew 5% over the prior year, or 40 million pounds, up to 887 million pounds. On a book of 352 billion sterling our risk elements in lending and potential problem loans were up just 449 million pounds and now represent 1.64% of the book. Little change from the same period last year when it was 1.63%.

Our provision coverage at 63% is very similar to the 65% that it was at the end of last year and we're very pleased with the overall performance of our credit across the entire portfolio. Whilst it's a strong overall number there are three distinct elements to the book. In the US our exposures are dominated by retail activities; there we participate in the prime segments only. We are -- I think we probably have the highest quality portfolio amongst the top 20 US banking groups, and we're seeing no stress appearing within those portfolios and impairments, up 11%, are very much in line with underlying balance sheet growth.

The corporate sector is very benign; impairment losses actually fell from 185 million in the first half of 2005 to 97 million in the first half of 2006, a drop of 48 percentage points. The recovery number is broadly similar and it really does reflect the very benign corporate environment that we are currently experiencing. Corporate cash flows remain strong and there are no emerging signs of stress at this point in time. The portfolio quality is broadly stable year-over-year and is well diversified by industry and by geography.

In the UK, you can see from our retail markets business our losses grew 19% year-over-year. This is all driven by Retail Unsecured and I'd just like to take a moment to talk about that. UK unsecured lending costs rose 20% year-over-year; you can see from the left-hand side of that slide that the pace of those losses appears to have slowed at this point having risen 43% in the first half of '05; 47% in the second half. The drop to 40 -- no, to 20% in the first half of '06 was very welcome.

There are two books within the unsecured portfolio; there's a cards book and a personal loans book and there are slightly different patterns emerging in each of those. Within the cards portfolio losses grew 14% year-over-year and I think if you look at those top lines you can see us sort of divergent from the market, but actually stable at this point in time. We think if you look back the period covers May of 2005 up until May of this year; you can see that that portfolio appears to have stabilized and I think, presuming the macroeconomic environment remains broadly where it is, we think in the case of the cards book, which is about a third of the unsecured portfolio the worst is, at this stage, behind us.

On the personal loans side, things feel a little better, but it's probably too early at this point to declare complete victory. Our losses rose 22% year-over-year and the right -- the little bottom right-hand graph there on personal loans really shows the flow of loans that are currently impaired versus the size of the portfolio 18 months ago. And that's a sort of typical emergence period for problem loans in the personal sector and it does show that arrears are still rising. It shows that that pace of increase is moderating and I think, as Gordon maybe said about this time a year ago, he thought it was perhaps an 18 months to two year workout to get through this in the personal sector. And it feels sort of like that with a very astute forward-looking comment and that's broadly speaking where we feel we are at this point in time.

So if you add all of those things up I think we are very pleased with the quality; we're very pleased with the depth of the earnings that we have achieved in the first half. We have positive growth across all parts of the company; we've made very good franchise developments in each of our divisions; we've got strong income, good expense control, good credit performance and a very pleasing operating profit up 15%, of which 43% came from our international operations, up from 41% this time a year ago.

I just want to spend a few minutes now running through the main divisions. Corporate Markets; hard to imagine was actually established on January 1 this year, two divisions, Global Banking and Markets, focusing on international financing and risk management to large top tier corporations and institutions around the world, and UK Corporate Banking, UKCB, the leading corporate bank in the United Kingdom.

Corporate Markets grew income 508 million pounds in the first half of the year, expenses by just 220 million pounds and saw operating profit with a favorable credit performance up 21% to just over 2.7 billion pounds. Within that two divisions, GBM had a terrific first half; gained leadership positions in underwriting sterling bonds with the leading underwriter of US mortgage backed securities, was the number two in asset backed securities in the United States and for the first time moved into the top five globally in all bonds and loans underwritten.

Our European business grew 40%, our fees grew 36% within that, underwriting fees up over 70 and operating profit up 24% to just over 1.8 billion pounds. Our income from trading activities with a stable and low VaR of 13 million pounds went up 15% in the time period.

UK Corporate Banking; income up 9%, credit again a positive story, and operating profit up 14% at 907 million pounds with good growth in loans and deposits. Credit losses falling from 95 to 78 million in a like period and the quality and metrics of that portfolio also remaining strong.

In Retail Markets; income growth of 6%, discipline costs helping offset some of the rise in impairment losses from 570 to 680 million pounds saw our operating profit growing by 6% to 1.26 billion pounds.

For the first time in a long time our deposits actually outgrew our lending in the retail divisions, and two things drove that. Firstly, changing consumer behavior; a greater propensity to save and a slightly lesser propensity to borrow, but also in part a conscious decision on our part to focus on assets that offered attractive risk/return characteristics particularly when using intermediary channels. So our mortgages year-over-year grew 10%, but the larger part of that growth was in the second half of last year, and we've dialed back that in the first half of this year as pricing and risk/return options look less attractive and we chose to focus our lending elsewhere. Our small business lending grew 10% over the time period. Our personal unsecured loans were pretty much flat.

Growth in current accounts, and particularly in savings accounts, saw our deposit base rise 9% and the combination of that helped keep our net interest margin stable with just a couple of basis points lower over the period.

Sales and Investment products were strong, our Bancassurance APE up 88%; we continue to make investments in the financial planners and in business banking.

Our Wealth Management division produced an operating profit of 179 million pounds, up 27% over the prior period with the principal driver of that being strong investment management fee growth.

Ulster Bank; I think the phrase is, a buoyant economy and growing nicely in that buoyant environment, income up 63 million pounds or 15%. We continue to invest in expanding our branch distribution and our business centers; we are building our retail business, particularly in the south of Ireland, in the Republic, and also investing heavily in our corporate banking business; expenses up 23 million pounds or 18%. Credit costs very much in line with portfolio growth up 7 million pounds or 23% and the operating profit at 182 million pounds, up 20% over the prior year. We're a long way through a major project to integrate the Ulster bank operating platform into the Group, IT technology program, there has been some initial tests of that that work and it is progressing well. And that will deliver, I think, enhanced product capability and also productivity gains for the future when it is completed later this year.

Headline numbers for the Citizens Group, we're up 8% over the prior year. For those watchers of foreign exchange markets, the half-over-half average FX rates 2005/2006 were 187 versus 179 this year, so in US dollar terms, headline income grew 4%, expenses grew 3%, impairments, as I said earlier, very much in line with expectations, and operating profit overall up 4.

The customer side of our business continues to make extremely good progress; personal lending up 11%, period-over-period; business lending up 14% and deposits up 5% on an average basis, up 10% on a spot basis over the middle of last year. Customer satisfaction numbers are up, attrition levels are down. But the environment remains challenging. It's a very, very competitive environment; the rise in interest rates that has taken place since the middle of 2004 has introduced a much higher degree of sensitivity in our customers about deposit pricing. That, aligned with the competitive situation, means that there is significant margin compression that is taking place particularly on the liability side of the balance sheet, and net interest income overall is flat on the year-over-year basis. Our non-interest income in the period has grown 11%, principally fuelled by corporate and retail fees, some gains and also an increasing proportion of foreign exchange and interest rate derivative activity, as well as the growing cash management function.

Credit portfolio remains good, as I said earlier; it's a prime portfolio, FICO scores an average 700 plus, 650 typically being the [cus] point, a very strong portfolio, 95% of which is secured. We continue to manage the cost very aggressively, investing in opportunities particularly around growing some of our cards businesses, customer numbers up 25% year-over-year; our merchant acquiring business, RBS Lynk, is up 17% year-over-year; we continue to invest in business banking across the region from small business through to mid and top tier corporates working very closely with RBS in New York and with our partners at Greenwich Capital.

In RBS Insurance it's a tight market, and in a tight market we grew income by 3%; we kept expenses flat with productivity gains offsetting an increment in marketing expenditure. Again a little bit similar to the mortgage story; we're maintaining a very disciplined approach to pricing in the marketplace. We are focusing on areas and segments of the market that we find attractive; we're working hard to mitigate the claims inflation by better risk profiling and by higher excesses. So claims inflation again at 5% has outstripped growth in premium income, but with the measures we've taken we've contained our claims inflation to 3 percentage points. Our combined operating ratio at 93.8 remains the lowest in the industry although it's up slightly from the 93.5 -- 93.3 I'm sorry, that we achieved in 2005.

We're making good progress on our commercial and small business policies and we're very pleased with the 14% growth that we've seen in Europe contributing to a 17% rise in income in Spain, Italy and Germany.

And finally, amongst the divisions, our Manufacturing Division. I think again the demonstrable strength of the business model of the group, [total] expenses growth to just 3%. Three main areas here, technology, purchasing and property and customer support. Technology costs grew 1%. Within that our production support was down 2% and we continue to invest in development which was up 3. Our property upgrades; we talked at the full year results about a program of city centre consolidation and continuous branch improvement. We continue to make those investments and property expenditure grew 11% over the time period, but our core operations and customer support costs were flat. Despite increasing volumes we put 10% more cash through our ATMs; we've put 11% more deposit accounts on the books; we made staggeringly over 1 billion BACS payment, up 7% year-over-year and all those increased volumes fully funded through productivity gains. And you saw the power of that coming through into the growth of the operating profit earlier on.

From a capital position, risk related assets grew 5% on a spot basis over the period, balance sheet emphasis very much on origination and also increasingly on distribution. We kept our ratio stable at 7.6, flat to the year end. Total capital of 11.9. And for those of you who follow the core tier 1 number we achieved 5% up from 4% in the prior period and 4.9 at the end of the year.

First half capital generation supported balance sheet growth; it supported a final dividend payment of 1.7 billion pounds and is also funded 200 million pounds of our share buyback program. We announced a 1 billion program at the full year results which the chairman alluded to and we remain on track to buy the balance of that or 800 million pounds in the second half of the year.

And with that I'll pass over to you, Fred, to make your remarks. Thank you.

Thanks, Guy, and good morning everyone. Hopefully from the company announcement and from Guy's presentation you'll have got a pretty good sense for the numbers themselves. I think they are a particularly straightforward set of numbers; there are no new splits in terms of the divisions; IFRS is in both periods; there are no legs of an acquisition in one way or another, so a straightforward a set of results as we've issued probably for some time.

I don't propose to go over a lot of the ground which Guy covered, happy to go over anything in questions. What I would like to do is principally address myself to the topic of outlook, although before doing that there are just a couple of always housekeeping topics which if I could just briefly go through them. Customarily at this point in proceedings I would give some sense of the Group strategy, what we were thinking, where we were going. I don't really feel a great need to do that at this point, I think it's very well understood. We circulated or reproduced a slide here from last year. The key message I guess is that, there are no changes in what we're proposing to do. If I pick out a couple of elements from the content of that slide.

We do see the opportunity to evolve some of our strategic direction. For instance in global banking and markets, some of the product areas we're in, we'd like to deepen our involvement, a little broadening here and there, but nothing drastic, nothing to write home about and certainly we have no plans for any large acquisitions. So the main message are the two words at the bottom, no change on strategic direction.

It's very much about leveraging the platform that we're on, which brings me neatly, I think, the second point. And Guy has covered most of this, but again I would just like to emphasize that a big feature of these results and a big feature of the results for some years now has been the manufacturing platform. By virtue, I guess, of there not been any acquisitions involved this year, and none of the [accountages], this is the first opportunity I think to see manufacturing in the round. We had an investor presentation a few years ago now which featured manufacturing; I think some of you then began to see the potential for manufacturing. I think the results we're presenting today let you see in full the reality of manufacturing.

Costs up 3%; if we're to take out some of the property costs associated with our expansion in Asia for instance and some of the expansion in the UK we've actually got flat technology costs and flat customer support costs, against a backdrop where we grew our income by 10%. And in many of the volume areas, the day-to-day money transmission processing for instance, volumes were up very significantly. And whilst we can't guarantee forever to keep these costs flat, in fact we hopefully can guarantee not to keep them flat because the growth in the business would be too much, but a very significant [majority] in this platform and does give us a real competitive advantage.

One of the things we have done, and Guy touched on this as well, is we've allocated the cost; I know this is a subject that many of you -- we've had dialogue about this over the years. I think two separate aspects to this. We do not allocate these costs internally. It's very important, and has been a big cultural step for us, not to maintain and support the industry which usually goes with cost allocation at a detailed level, and not to support the sort of internecine warfare which often goes on within the organization associated with arguments about that allocation. So we're very comfortable with the culture and behaviors which are generated within the organization and how we go about our day-to-day business of managing the cost base. And the responsibilities there are very clear and we're not signaling any change in that backdrop.

However, it does clearly make life a little easier and in fact, to be selfish about it, it does help us to get the message across I think about the manufacturing platform, if we make an allocation. I would stress that this is a top down allocation, and it's an allocation which we think is reasonable. I've put the figures there; you will all have worked these out already, but just in case anyone hasn't, you'll see that the basis we've used in '05 for the comparatives is the same as the basis we've used in '06. There's reasonably round numbers here; it's not the only allocation you could come up with, it's probably not the only reasonable allocation, it's simply the allocation which we think is reasonable. I hope that it's helpful; we've chosen to do this in a way which is transparent, so you can see the manufacturing cost allocation on the face of the divisional P&L. So for those of you who preferred the old model it's still there for you to see, but for those who want it in allocation it's there. I'm sure it does facilitate comparison of other divisions with other business units, and our competitors.

Also under the miscellaneous business heading, just a brief update on China. I think you've all followed the success of the Bank of China IPO; I don't think there's anything else I need to say about that. There's nothing reflected in any of the P&L numbers that we've spoken about today or indeed in the -- it sort of washes through the balance sheet, it's not driving the capital ratios or anything else. So the figures are there for you to see.

On the business cooperation front things move along really quite well. We've issued about 450,000 or so credit cards out of the joint venture; corporate banking moving ahead, we've done a number of deals together and there's very much a sense of, once you've done one deal in a particular area like in shipping or in aircraft, it makes the next several deals considerably easier. So good progress being made there. Wealth Management we'd expect to have pilot sites open in Beijing and Shanghai very shortly, and insurance has started to pick up quite a lot of pace of late. And as we signaled at the outset, we're providing quite a lot of support to Bank of China in risk management, IT, HR, etc. So it's all moving along well and I'm sure it's a subject we'll talk more about in the future.

I said, though, my principal objective today was to talk about outlook. I always find it very hard to talk about outlook, and even to think about outlook without conditioning it by some view of the economic outlook. This is not the time or the place, and I'm certainly not the person to present an economics lecture, it's not my thing. But I can't really go on to talk about outlook for the business without sharing some sense of how we see the world. I think our view of the world's fairly unremarkable; our view of the world would appear to be very similar to the views expressed by many of your own economists and analysts. The consensus figures we've got there, I think, are remarkable, mainly in the sense that there's a very tight dispersal or dispersion of estimates around them. We would find ourselves very comfortable with those consensus numbers for '06 and '07.

But, of course, we're predicting future events here; we're trying to predict -- to boil down large economies into a single number. But in terms of setting an economic context, all I would take away from that slide is that, if we could buy those numbers just now, I think we would buy them. That looks not an unsatisfactory economic outlook or backdrop at all, so we would feel it's certainly one which is positive for the business.

In the time-honored fashion, though, any economic outlook or any future predication has to hedged or couched around with some of the risks, and these are only some of the risks. Again I wouldn't presume to stand here today and tell you what all of the risk are, but these seem to be the obvious ones. And funnily enough this slide was prepared before yesterday's rate announcement, but clearly it's highly topical.

But in looking at those risks I'm struck by the following that, these are not new risks; if we were having a conversation about risks a year ago those would have been the risks. Probably two years ago we would have been talking about the same things. They're not new risks, and actually all of those economies where I put up growth figures previously have come through this not too badly so far; they have been pretty resilient. And the policymakers have built up something of a track record, and I know it’s fashionable to highlight that Mr. Bernanke hasn't yet built up a track record, but he's not a one-man band there. And I think the behavior of the regulators have, and the policymakers, has actually been quite reassuring. So not unbridled joy in the economic outlook front, but I think there is a basis there for cautious optimism about the economic outlook, near term.

So what does that mean for RBS? Well again, to think about outlook I suppose you've got to work out where your starting from. Fairly simple to give a reminder -- I haven’t got nice easy numbers to remember, but we've just delivered a six month period of purely organic growth, 10% income growth, operating profit up 10%, EPS up 10%. And what does that mean about our ability to prosper and grow against economic backdrop I've just described? Well I think we still need a little bit more of a lens in that performance. And the first lens I would offer is a track record; track record of economic growth down at the bottom -- of organic growth I should say, down at the bottom of that slide. Leaving out -- taking out all of the acquisitions, we've been delivering organic growth and income like this for the last five years, very, very consistent organic growth leaving aside all of the acqusitions.

We've also been delivering strong operating profit growth with this year's operating growth actually being at the stronger end of the range in terms of organic operating profit growth. So an organization that's accustomed to driving organic growth out through economic circumstances, which if we cast our mind back to 2002 we've been through, up and down a few hills and dales since then.

Also those results didn't all come from the same places. A number of different stories in here as to where that contribution growth came from. I'm not proposing today again to go back through it all, it's a bit of a history lesson. But I stood at this podium and talked about business performance which has varied quite markedly across these various divisions during that period, but the Group has delivered very, very consistent performance, or very consistent organic performance during that period.

Partly, and you've heard me in this theme before, that's because our income streams and our businesses are pretty well diversified. None of us can predict future events; none of us really know what's going to happen in the future, but one of the best ways we believe to prepare ourselves for it is to give ourselves options, to give ourselves choices. And one of the best ways to do that, we believe, is to have diversity. And so you see, as you look down the chart there, you'll see how our income is spread quite widely across differing ranges of activities. Most of our income is non-interest income, that percentage continues to grow.

Of the net interest income, significant uptake this time in the proportion which comes from deposits. Customer behavior has shifted; we are responding and growing our deposits strongly, you would see that in the numbers and in the company announcement. And on the non-interest income front, I think we've got some very good quality income streams in there. So if you pick up one in particular on this theme of quality, I'd pick up the trading -- income from trading activities, down at the bottom there, which makes up round about 11% of our income.

And just have a look at the history there and where that's come from. Again you've heard me on this theme before, but it certainly stands repeating in the current context. We have -- we do have income from trading activities; we're in businesses which generate income from trading activities. But we view them as businesses; we view them as businesses that we're building on a sustainable basis; we generate the trading activities; we're involved in our activities principally on behalf of customers. We've got a strong customer franchise behind the income which we generate from these businesses and so we're very pleased and proud of the progress which has been achieved.

But it's not a one-off; it's not a boom or burst, it's been a steady build across quite a wide range of activities. You'll see, down at the bottom there, both that this has remained a pretty constant, pretty steady, in fact remarkably steady -- we haven't set out to make it always this proportion of our total income, but it is interesting, I think, that it bears a pretty constant relationship to our total income as our business has grown, as our customer franchise has grown, we do more of this business.

Also I think interesting is the bottom line figures there that the VaR; VaR's not a perfect measure but it's as a rule of thumb, as a sense of the amount of risk we're prepared to take, you'll see that that has remained pretty constant through all of this as well. So sometimes people look at this type of income stream and think that's not very good quality, it's not very sustainable. I put it to you that this is very high quality trading income and it has a good sustainability characteristic, as those figures show you.

Also I think our performance over the period and our ability going forward to generate strong growth is conditioned by the markets in which we do business. We have as you know been working to grow the proportion of our income which comes from outside of the United Kingdom, and again the results we're showing today demonstrate further progress on that front.

But to give a sense of the pie and how it's changing shape I'd like to just go -- give you a sense of what the growth rates are in each of those. This is now cutting across some of the divisional analysis because clearly in global banking and markets there's some activity in the United States and some of the other businesses have activity in the United States. It's not all about purely what goes on in Citizens.

You'll see from that slide a very clear picture that actually we're growing much more strongly outside of the United Kingdom than we are inside, nowhere more so funnily enough than Europe, and I'll come back to that in a moment. But looking first at the United States, Citizen's growth rates in local currency and Corporate Markets. Very strong growth in Corporate Markets, and whilst it's smaller than Citizens, it's about half the size of Citizens now, this is a non-trivial business that we're building in the United States in Corporate Markets. And it's a business that in conjunction with Citizens we anticipate getting meaningfully larger, but again through doing business with real customers and building a sustainable franchise. But 17% growth in Corporate Markets in dollars, round about 22%, that translates into sterling.

In Europe, 40% growth in our income in Corporate Markets. Spread around in Europe quite well, but a business that we started off from practically nothing not so many years ago now. Very significant momentum. But also to pick up some of the others here; Guy covered off the Ulster Bank story, but the RBS Insurance in Europe grew 17% in the first half. Those have actually been quite small businesses that we've plugged away at for a while; they're not quite so small any more and they're starting to pick up momentum quite meaningfully. Also our consumer finance business in Europe is in Retail Markets has started to pick up more strongly than it has for some time. So a good picture emerging in Europe also.

Finally Asia Pacific; the numbers are very small. Corporate Markets number very much less than we would anticipate showing to you in due course in Asia Pacific. Asia Pacific's a very particular focus for Corporate Markets, so one to watch as we go forward. A very good progress in the Wealth Management business, but at this stage the number's quite modest in absolute terms.

So I think a picture of diversity of growth, a track record of growth, a range of options going forward. It's all very well just to talk in terms of income growth and profit growth, but all of that has also enabled us to deliver earnings per share growth over a very long period now. So we're well on track to continue that trend this year. So it's not just about profit and it's not just about income and it's not just about growth, it is about returns. Similarly on the return on equity slide, you'll see our return in equity has moved ahead in the first half and we would anticipate that trend continuing also.

So it leaves me, and I hope more importantly to leave you with a sense that the outlook for the Group is a positive one. The economic outlook is net positive. Yes, there are risks out there, there are always risks out there. The risks that are out there funnily enough feel like lesser risks because they're recognized and they've been around for some time and they're on pretty much everyone's agenda. That to my mind helps diminish them and creates a greater likelihood that they will be managed through in a way which is sensible and constructive.

We have scale; we have the ability to grow our business at very attractive cost income ratios. The Manufacturing platform amongst other things ensures that and has got considerable scope to have on it far more transactions than it currently has without a corresponding step up in cost. Ulster Bank; moving onto that platform is the next imminent step in that process.

We have momentum; it's all very well having good metrics, but you've got to actually be moving. It's all very well saying that organic income growth is important, but you have to be able to deliver it and I think our track record shows that very clearly in the same way that these results show very clearly that we can deliver organic growth. In challenging market conditions, you would again get a clear sense from Guy's slide, that it has not all beer and skittles out there in the first half.

We have diversified income streams, very important. The more options we have the greater the prospects of us delivering good growth and good organic growth and of course the quality of those income streams. Yes, we're involved in trading activities for example, but they're good quality sustainable repeatable income streams and that's important. So you'll not be surprised to hear me conclude after all of that, I hope, that we do have options for growth and we feel that we're very well positioned to pursue them, and I think the results that we're presenting to you today are a very clear endorsement of all of that.

So thank you very much, and now is the opportunity for questions and we're very happy to try and pick up any questions you’ve got and if we can't answer them here, or if my colleagues who are coming up onto the platform to join us can't answer them, then we'll try and get and answer for you. Thank you.

Yes, good morning it's James Eden from Dresdner. Your Global Markets business managed 24% profit growth which is obviously good, but Barclays Capital managed 66%. And the most favorable interpretation would be that you're building a sustainable customer centric business model while they're punting it about. But I'm not sure there's much evidence to support that view and I wondered if you could try and build a business so it looks a bit more like [Bob Diamond's]?

I wouldn't for a moment, James, think of accusing Barclays of punting it about, but I think you've partly answered your own question in the sense that, where we're in similar businesses to Bar Cap I think we're very happy with the metrics relative to Bar Cap. The Bar Cap are in some businesses which are different from ours and the businesses which we're not, we're not not in them by accident, we have chosen not be in them. But I think Johnny would be far better placed than me to pick that up.

The reaction you all gave to those results doesn’t particularly encourage me to build a business like that would be one answer.

We could have taken a different path over the last five years, but we took a path to build for sustainable growth. I'm very, very comfortable and happy with the platform we built in GBM. We are, as I said at the presentation we made on Corporate Markets at the end of last year, we've built a global platform in most of the key products and all of the key areas; it's paying off very well. I think our results in GBM are absolutely first class for the businesses we're in. I'm very comfortable with where we are. I really don’t want to get into whether we could do better or differently and compare ourselves to what Bar Cap did, but I think the results speak for themselves and particularly I think the consistency result over what effectively is ten consecutive halves there, also speaks for itself. But there are things we can do more, and we will do more, that's part of the excitement. We have further things that we can grow and do more in, as Fred indicated.

Okay. Lots of interest, where will we go? We'll go to the front here.

Thanks, good morning. It's Simon Samuels from Citigroup. I've actually got three questions, the first two are just sort of housekeeping and there's a big one at the end.

Just on the housekeeping, first of all in terms of the margin for the - or the margin guidance, it's been a long week so my memory might be failing, but I seem to recall at the full year results where you had a Group margin of 255, but you were indicating lowish double-digit basis point from that full year number, but you now seem to be suggesting your guidance is unchanged. Is it now sort of from that second half of '05 number because the margin came down a lot during the course of the last year?

255 was average for 2005; 260 first half, 250 second half. We talked about ten to 15 basis points down over the year.

But from which number?

'05, '06, 255, so we thought in the 240 to 245 range on a full year average for 2006 --

And that’s unchanged?

And we are 245 for the first half and we feel that's going to be - set a pretty good forecast.

Okay, thank you. The second question is, apologies if disclose those, can't see it, is can you just quantify what you've done in the first half of the year by way of securitization, and maybe what your aspirations are for the second half?

Yes, we did mortgage securitization of around 4.7 billion pounds, so about 2.4 billion pounds of risk asset reduction and a corporate securitization for a little over 3 billion pounds. I think those two -- absent those two, you'd have seen spot [inaudible] growing 7% instead of 5%. But obviously I think securitization is also very much part of our capital management programme now and going forward.

And any quantification of your plans for the second half of this year?

I'm not going to make any forward-looking numbers, but we have a number of deals that we have in different asset classes we are looking at with mortgages, cards and the like would be typical sorts of things to think about.

Okay thank you. And the third one, which I guess is for Fred actually, is sort of 2% jaws; it's been a while, I can't actually remember exactly how long, but it's been a while I think since you've delivered 2% jaws. I think it's probably been at least a couple of years. I guess the question is, is this a first half '06 blip and -- because in the past you've tried to condition us away from expecting positive jaws and saying it's better if the absolute revenue and cost growth is higher. So is this just a particularly good first half and there are things on the cost and revenue side that sell nicely, or is positive jaws now something that we should be expecting going forward?

I'm looking around for Robert Law, here. This jaws thing has now taken on --- has become an industry standard measure. When I think about jaws, you talk about 2% jaws, I talk about the gap because I'm thinking of jaws in terms of 60% or getting on towards 60%. In other words the gap between a pound of income we generate and what it costs us to produce it. Earlier on we picked up -- there was a slide here with 1.1 billion extra income at a cost of 460 million or thereby. Those are the sort of jaws that I think about. And does that feel -- those feel like jaws that are pretty wide open and if you like we're sailing through the world and hailing income up here and only costing [is] distribution. They feel like wide enough open. We could open them a little bit further and indeed, depending on which businesses we get involved in, we could open them a lot further or close them. I think at this stage in the proceedings we're at a point where, and looking to take the Group forward, we've got to make - select the businesses that we're in based on the returns that they generate and risk adjusted returns that they generate.

For instance many of Johnny's businesses would have a cost income ratio attached to them that is higher than the overall Group cost income ratio, so if we get into those businesses it would drive the cost income ratio up. Actually I'd be very happy; we are in those businesses and I'm very happy at the growth we're having in them. So this is a long rambling way, Simon, of saying there's a mix element in here as well. I can easily see the mix changing and causing the thing to move around. I'm very happy with the improvement in the cost income ratio in the first half. I don't view it as a blip, but there are mix effects in here as well which we need to be cogniscent of. Moving around a few basis points in the cost income ratio one way or another, I don't think we should read too much into it. We continue -- we go through life with our foot firmly on the throat of costs, but at the same time recognizing that to grow a business you need to spend more money. 0% cost growth isn't something that we aspire to because it would -- it's difficult for it to come without a very low percent income growth.

Yes, we'll take this one here. Mark?

Thanks. It's Mark Thomas of Keefe Bruyette. Two questions, one of which will definitely be for Guy. In terms of the strategy one first; what do you see as being the synergies and the operational risk of integrating Citizens into Group Manufacturing?

I don't -- I think in the first instance, Mark, we're not planning to integrate it on a wholesale basis. What we would propose to do is to create something in the United States that's akin to Group Manufacturing. All of Larry's businesses are already on a single IT platform; that's been one of the strengths of what we've always done -- our integration process has also entailed. The GBM businesses in the United States are on a platform and it's a completely different platform, so we wouldn't be proposing to bring that -- those sets of businesses together. So there's not a big IT integration in the offing, which scores off one of the potential risks. It feels, in fact, more like an opportunity for us, in terms of -- we're into areas like how we manage our properties, how we go about procurement, although already quite a significant part of that procurement is brought through Group purchasing which comes under [mark]. I don't know, Mark, whether you want to say anything about that?

Yes, it's about replicating the model, I think, rather than trying to share the underlying platform; the Citizens platform works very well for Citizens in its context, but working with Larry's people we are now starting to look at how we do share on the strategies -- operational strategies. You saw the lean manufacturing referred to in our results which is starting to come through quite well, and Larry's people are starting to look at the same things. So it's much more at that level than it is about physical bringing together. There's no doubt that the distance makes that an operationally risky thing to do. Not impossible, the things where we can; global purchasing, IT architectures, IT security we've already done, largely, at a global level.

Okay. And the one for Guy is, I still think a lot of us are still feeling our way round IAS accounting. I think that it's very noticeable that yourself and Lloyds with the lowest nominal increase in retail charges were the banks that had the highest [unlined] discount in terms of last year. I'm just wondering, is there -- has there been any change or volatility associated with the IAS accounting, particularly in terms of how that discount that would mean that the two of you would have a lower nominal increase in charge compared to the rest of the sector?

No. Short answer to that, no. It would -- they're a comparable we did under full IAS accounting at this time last year, so the period to period numbers are very comparable.

And could you say whether the discount factor has actually changed materially? In terms of -- were the nominal discounting effects more or less or -- ?

Pretty unchanged.

And here, just behind?

Good morning. It's Jonathan Pierce from Credit Suisse. I've got two actually. Can I ask Johnny a question which I asked at the full year stage, actually, on other income within global banking and markets. I think, at the time, given the spike up in the 2005 figure, I believe to 744, I asked what a sustainable level might be and you guided us to the average of '04 and '05 which I think is about 550-ish. And the first half of the year that's come in at 4 -- slightly north of 400. And I'm wondering, therefore, could you give us a bit of flavor as to what's in the -- I don't -- I'm not clear whether there's an element of Doncasters in there, whether there is, how big that is? And also, can you tell us whether the property gains which are detailed later in the statement are in that line as well?

Yes, I think we've said -- we talked about 500 plus or minus and then [we get] quite a wide range of about that number and I think we'll come out the top end for the full year, the top end of the sort of range I had in mind at that -- when I said that. We have got an ongoing business that generates other income; we take warrants in mezzanine; we do a number of transactions where we take on positions and then sell them pretty soon for capital gains. So there's a mix of long-term gains and short-term gains in that business and obviously I expect the short-term gains -- the short-term -- the businesses that generate the short-term gains to continue going forward. The specific answer to your question is that there is a bit of Doncaster in there, there's a bit of Doncaster in the second half of '05 as well because we have mark to market as you know, those private equity investments, so there's a bit in the last half of last year and the first half of this year. But we still have a book of both private equity investments, property investments and, as I say, the continuing business that generates these gains. So plus or minus, it should continue.

And, sorry, were the property gains in there as well, and if they weren't, perhaps Guy could tell us where the property gains did fall? There's 100 million or so property gains somewhere.

I think they're in there.

They're in that line.

They are in that line?

Yes.

Okay, thank you. The second question, sorry to keep going on about gains, is on Citizens. Noting the comments made and obviously the text in the release, I was just wondering how material and whether you can quantify the gains in the non-interest income line of Citizens?

Yes. The -- we have, like Johnny, a certain number of gains that are recurring; we have a venture capital subsidiary; we have a student loan business that produces gains; we've securitization activities, but we did do one large transaction in the first half of the year which was a sale leaseback of a couple hundred of our branches to bring the Charter One franchise in line with Citizens' ratio of properties that are owned and properties that are leased. And it was very fortuitous; we took advantage of very high liquidity in the States and the transaction was enormously successful.

A little color; in terms of sequential year-over-year gains in Citizens, it's about a 20 million pound difference in -- combined -- if you add up all the pluses and minuses and ins and outs in that line, it's mid twenties.

Yes? Yes?

Morning. It's Ian Gordon from Dresdner. Just a question on the dividends, please. You're very clear, as always, in your announcement that the interim dividend is an arithmetic consequence of the final year dividend, so there's no explicit guidance there. But what we're always encouraged to look at, or what we're always told the Board looks at when setting dividend and distribution policy, is current year performance and outlook. And what we have today is strong performance notwithstanding a challenged contribution from Citizens. We see that story underpinned with costs falling on the back half of '05 in Manufacturing; we see a bad debt performance which is the envy of your UK peers. Given all that, on a consensus spreadsheet you're going to have surplus capital generation in '07 and beyond of 3.5 to 4 billion, more than that on real numbers. Are you able to give us any steer now, or do we have to wait 'til February for the good news in terms of dividend hikes and/or the rolling dividend buyback program? Thank you.

Well, I'm pleased you've recognized the qualities of our performance and I'm sure the Board will take all of these into consideration as we get to the end of the year, but we haven't done -- we've followed strictly our policy, that's something the Board will be dealing with at the end of the year. But I'm so happy that you're -- yes? Just along here.

Yes, thanks very much. It's Tom Rayner at Citigroup. Two questions, please. The first one comes all the way back to the very first question, to Johnny, inviting him to compare GBM with Bar Cap. I'm not going to ask you to do that, but I think that one difference is where your competitor is perhaps very willing to talk up their future prospects. You guys seem to be far more conservative always. You've mentioned a deepening and a broadening of product range, could you give us a bit more color on that, where currently you feel you're subscale to where you might be, given your infrastructure in your franchise?

Well, I think we're making good progress in equity derivatives, for example, but there's still a long way to go. We have a nice, but relatively small business there; we've definitely got plans to build that up and I think that was an important part of Bar Cap's results. And commodities as well, we're subscale. We have a very modest business there, and again, we're looking at ways that we might get into that, although we're mindful that prices are high at the moment, so if we did do something, we would, again, be taking a sensible approach as we always do. Those are just two off the cuff examples of products, I would say.

Geographically, as Fred has already indicated, we're underweight in Asia, and we've added people in Asia in the first half of this year. I'm delighted to say that recruiting people to global banking markets is, while never easy, and it's a very competitive market, it's a place people want to come to, so we're getting some very good people.

Okay, thank you. My second question just refers to note 8 on the litigation which, it looks to me is a complete re-paste from what was said at the full year. There has been some concerns in the market this morning regarding the Enron settlement, is there anything you can say this morning to update us and give us confidence that there's nothing that has changed there regarding that situation?

There's note 8, Tom, that's all there is.

Thank you.

Yes?

Good morning and thank you, it's Ian Ian Smillie from ABN Amro. Four questions of detail all on RBS Insurance please.

Why don’t we put you together? No everyone wants to hear, please go ahead.

Firstly, could you just remind us of any seasonality that comes through there? Secondly can you tell us what goes into the other income, which seems to be the driver of the top line? Thirdly, can you tell us if there's any reserves releases coming through? And fourthly, could you give us an update on the outlook for pricing in the motor market which you comment remains competitive?

Hello Ian, if I can remember your questions. So seasonality; it is a seasonal business, it does depend on weather factors this business. Obviously people have more claims, more accidents in the winter period than they do the summer period, and so inevitably that does affect our results. If you compare this half compared to last year's first half, particularly on the household account, we've had a more benign year in that the weather has, as you will have noticed, the weather has been a lot better, but also if you remember at the first part of last year, we did have some experience with some bad storms and floods, so those obviously impacted our result last year and we've haven't seen those this year, so there is that affect on seasonality.

In terms of other income, the various lines that come through there in terms of our -- in terms of our investment income, some from our investment portfolio, from other fees that we charge to customers that are not strictly premium and so on, so there's a range of things that come into other income, and obviously we have been enjoying some good results in that area.

Third one, reserve releases. In general our stance is that we ensure that our reserving is prudent, and an ongoing basis is consistent and on a year-on-year basis if you look at our results, then we have seen reserve releases. As I say, if you look historically we have seen reserve releases because of the prudent nature of our reserves, there's nothing specific to report in that area to bring your attention to.

In terms of the outlook on pricing; as Guy has already mentioned, we've seen claims inflation of -- for motor insurance of around 5% which is again is pretty much consistent to what we've seen in previous years and we expect to continue within that slight increase in terms of the percentage of bodily injury claims that are occurring. We -- although we have seen some drop off in frequency, it's pretty flat or slightly falling in terms of frequency.

Pricing has been pretty flat; we are now in the fourth year where premiums have not risen as much as claims, but we are seeing some green shoots in there. We have been posting price increases ahead of the market and we are seeing flat pricing in general, although notably from a change from previous insurance cycles that we haven't seen price decreases. So we are continuing to take a prudent approach to what we're doing.

Thank you very much.

Yes at the back.

Good morning, it's David Williams from Morgan Stanley. A follow-up question for Johnny with relation to your comment that you're looking to build up equity derivatives and commodities. Nine months ago when you held the CBFM investor day I think you said at the time that you're a corporate bank not an investment bank, and that you actually have no interest in the equity products at all because, I think the exact words you used were conflict of interest. Does this signal then a change in strategy of what CBFM wants to be and where it's going?

No absolutely not, I was explicitly referring to cash equities business and brokerage business which I view as building a major equity business, underwriting new issues of equities and working with companies on their equity -- on the equity side which we have absolutely no intention of getting into. Where equity derivatives is relevant is that our corporate customers, and importantly our retail customers look for equity derivative products, as I think everybody in the room will be aware and that's the business we're looking to build up, with absolutely equity derivatives, not a mainstream cash equity business.

Thanks, did you have a timeframe in which --

One of the big challenges for Johnny and [Brian Crowe] and their colleagues is to build the business in a way that retains the culture that Johnny and the guys went on about at some length at the corporate presentation about, and yet enables them to get into these markets. We don't want to get to a place where you go out and hire 1,000 people and then fire 1,000 people, so that introduces a considerable element of complexity in what you're trying to do.

And timeframe for that, for building out the equity derivatives platform?

I'm sorry, I didn't quite catch that.

Timeframe for building out the equity?

We have an equity derivatives platform, and it makes a significant sum of money, so I don't want to underplay what we've already got. It's just -- and nor do I want to overemphasize it. I was asked a question and I said, these are two examples off the cuff. I actually -- I was just looking at a memo I wrote this morning where we have 12 significant projects that we're thinking about, looking at, considering, maybe we'll do, maybe we won't, but there are lots of things still to do in GBM. We've come along way, as I said earlier, and I'll just repeat one thing Guy said, is that we are fifth in the league table for underwriting all bonds on all loans globally in the first half of this year and that is a great place to be, the three American banks and Deutsche are ahead of us. It's a great company and that is the really important point, that I would emphasize, is that we've got the platform, but there still plenty of things to do which is -- I look on as good news.

James?

It's James Alexander from M&G. It's a question for maybe Fred and Larry, it's about Citizens. It must be a bit disappointing for the Group as a whole that Citizens is not really showing much momentum; I've got a fall versus the second half in operating profit in the first half. And this is at a time when you should, I would imagine, have been getting very strong growth from old Citizens, very strong growth that was seen at Charter One and then the synergies on top of that. So this ALN stuff that's going on must be really viciously nasty to outweigh what should be really strong numbers coming through from Citizens.

I'll pass you to Larry in a minute, but I think you've summed the situation up really quite neatly, James. Charter One moves well, Citizens moves well, but as you look around the comparator banks in the US you are seeing a very strong effect. You'll see in the company announcement reference that some of the growth in business activity that is going on, and it's very strong, but it's -- if we had last year's margin we would be sitting here having a celebration about Citizens results. We don't have last year's margin for the reasons you described. Larry you’ve got all the --

I think that -- James I think that's very perceptive. The business is going well, deposits are up strongly versus our principal competitors; we're growing at almost twice their rate. Our loans are up strongly, especially corporate lending, expenses are under control, non-interest income, fees in many categories are growing very nicely. We have a flat to inverted yield curve, and we have higher interest rates, and the effect is two fold. One, you have customers, both retail and commercial, moving from lower cost deposits to higher cost deposits, and you have diminution of balances. Customers moving into financial assets as opposed to safer and steady bank liabilities, and that puts tremendous pressure on the margin in the short-term.

So I think our performance was quite solid, and I'm very pleased with the way the business is going and the curve will change, it always does. So I think the important thing is that we don't make any mistakes here, that we're not in sub-prime lending; we don't do investment banking; we don't take big market positions. Many of you know Citizens from many, many years; it's a low risk business in a flat yield curve at the moment and we just have to make sure we continue to grow the business and eventually it will get better.

Yes at the back? In fact there are two at the back, we'll take this one and then the one along.

Hi, it's Ed Firth here from Socgen. I guess it's another question relating to Citizens, and I expect -- I guess it's largely a valuation question. But one of the mysteries, I suppose, of the Royal Bank share prices that if you at US retail banks they all trade at a huge premium to UK banks, and yet if you look at the Royal Bank premium you're trading at a discount, justified in part by some people on your US exposure. And I guess my question is how long are you comfortable letting that situation continue before you might be tempted to perhaps make steps to either realize part of that value and get a more direct comparison?

I think this is an old chestnut that goes round. Some of the valuation premiums you're seeing in the US retail banks are a reasonably transient phenomenon as I think -- as I hope is the valuation of RBS. Citizens represents a very attractive return on the capital we have invested in it. It opens up a significant range of options for us for growth in the United States, as I touched on, on previous occasions and touched on briefly in my presentation earlier on. Citizens is a -- offers very attractive growth opportunities for us and attractive returns and those are things that we are in the market looking for.

The United States is a very attractive market; it's a very stable market; it's a very significant economy, and it's one in which we are the sixth largest bank in the United States. Opens up a huge range of options for, not just for Larry's business, but Larry's business in conjunction with Johnny's business. So PE values on banks are transient phenomena and it would be I think a key strategic mistake at this point to harbor any belief that we should not carry on with the strategy we've been on now since 1988 so successfully with Citizens.

I mean what we can do is run the business very effectively and communicate accurately on the performance of the business. The market creates the valuation and over time if we deliver consistent high quality performance then the options for future growth that are clearly there in a business like Citizens should get factored in properly. So I think it's very dangerous if you respond to any particular moment in time to a valuation question. You've got to run the business the best way you know possible and communicate accurately and let the market come to its view. And I believe it will come to a reliable view of that.

Thank you, it's Michael Helsby from Fox-Pitt --

Oh, sorry, I'll take that one first then come to you.

Sorry. It's just a question for Gordon really on the retail bank. Just on the comments on mortgages, I see in the direct channel you were very, very aggressive last year with First Active. Your mortgage balances have actually dropped in the first half versus the second half of last year. I know you've moved away from unsecured last year, so I'm just wondering the future direction in terms of near-term strategy for the retail bank? Where you see that moving? I know versus the second half of the last year the revenue momentum's pretty much dried up within retail markets in general. So it's just a broader question on where you see the business going in the next 12 to 18 months?

Sure I think there's two questions lurking in there. If we deal with the mortgage one first. I said last year we saw mortgages as an interesting opportunity, but I was not religious; it's on a market share grab, it was looking for profitable business. Last year a couple of the big boys more or less came out of the market which gave us an excellent opportunity to come in and take volume. Maybe they had discussions with you guys, I don't know. But anyway, in the first quarter of this year we saw a couple of big gorillas out in the jungle. When you've got 5% market share you don't get caught in that meat grinder, so we stood back. We came back in, in May and June; we stayed in, in July.

So last year you had a rather sort of two halves -- a year of two halves. Very, very strong first half, stabilization second half, I think you might find this year looks a little bit like a negative of last year. Though that's all dependent again on the fact of life is with a limited amount of unsecured lending available; those who are sort of landlocked strategically have got to go to the mortgage market haven't they? So I'm not going to get caught in that particular grip unless I can make money. But at the moment I'm doing reasonable volumes, I'm very happy with the situation.

The second question there was, the income growth has not dried up from the second half of last year. The income growth -- we had a very funny half year, a very funny year of two halves last year in retail market. First half profit growth was zero, second half was fixed, average was three, and we've kicked off with five into the first half of this year. So I didn't really believe zero; I didn't really believe six either. I think the nice base for the last year would have been something like four and a half, so I'm perfectly happy at five.

There's plenty to go for in this business, but actually market conditions are more challenging, I think you'll have heard that from all our peers, that have turned in five. And actually now we're allocating Mark's cost too actually it's six on a pure comparative. I think Richard O'Connor allowed me to say, best of the bunch, that was the agreed statement. I had something slightly more aggressive, but he vetoed that one; I think he said something like twice everyone else. But he vetoed that one, so I think 6%.

He vetoed that one, but I think -- and by that I've thrown in other people's private bankings into that, just in case anyone thinks they'd like to discount Wealth. Wealth is 70% of banking business, is mortgage credit cards and loans to rich people. Many of you who bank at Coutts will know, it's not real; it's not an investment flogging business. So I regard Wealth as actually an integral part of our retail markets proposition. So I regard 6% profit growth as a very nice base, and certainly nothing is drying up. But consumer credit markets are very tight; you've seen that in everyone else's figures. The beauty we've got is we're very diversified, we've got plenty of other levers to pull.

Can I just follow-up on that? So, can you just talk a little bit more about your -- what you're going to do in the savings franchise, Bancassurance and on the deposit side?

Yes, well what we've seen is, obviously we've sort of gone full reversal from asset growth of 15% a year and liability growth at 5 or 6. We've crossed the situation now where we're looking at our liability growth and savings actually now in double-digits. And the beauty about that is we're actually doing that at sensible margins; we're not out there with 10 basis point margins. This is convenience balances placed with us because we are -- we provide sensible rates and we provide the convenience of the money transition. We've been very careful over the last three years to protect our market share of money transition.

When I came here our market share of personal current accounts was 20% and being realistic, our market share of current accounts is still 20%. There's not too many people who could actually say that when they're all -- at that point we were 5% below the leader, I'd say we're now sort of 5 basis points below the leader. So while protecting that market share of current accounts you maintain your premium for convenience on savings. And that's what -- so our margin has remained flat despite growing our savings by 11%. Now that's the proposition as far as savings are concerned.

But looking at some of the other levers we've got, I made this point before, we had 29% of ABs in this country compared with 20% of our overall costs -- 20% overall market share. That shows particularly through in the strong growth we've seen at Coutts and our other private banks. There's a big lever there that we haven't really pulled in the retail bank. And taking some of those skills, products and expertise, and taking that down to the next level in a way that you can actually make money. And I'm reasonably convinced we can do that, so watch this space on that.

On business banking we've still maintained our market share at about 26% despite endless attempts to come into this market. There's another lever there. Working with Johnny's people; we've taken some of Johnny's people; we've taken some of Johnny's systems; we're working now as a much more integrated operation, and I think we've got great potential in business banking as well. The single credits nice, but being realistic it's going to be a quiet few years, [band], file it, move on, find something else to do.

And sorry, can I just have one more? Just the -- sorry -- the unsecured slides that you put up in terms of the arrears rate, you've put some market data on there. Where did you get that from?

It comes from Apax. It's credit card date, it's freely available from Apax so it's not some sort of survey of ten people passing in the street, stuff which I've seen in some of the other slides. Actually Fred's handed me a note, he said you weren't aggressive enough, Gordon, your pre-tax operating profit was actually in double-digits. Pre-impairment operating profit was actually in double-digits, find me another one. Okay, is that alright?

Okay, we've time for one last question, we'll take it here.

Peter Toeman from HSBC. You've highlighted the shift in the business next towards corporate lending and mortgages as the primary reason why the margin came down and also the US yield curve. It seems to me that both those factors may shift and the yield curves are going to be continuing. So I wondered why you're so confident the margin is going to stabilize in the second half?

Guy do you want to take that up in the first instance?

I think it comes out of -- the margins comprise two parts, the asset side and the liability side. Certainly on the asset side an increasing mix of mortgages and corporates would bring that margin down, but increasingly, as we saw in Gordon's numbers, that being funded by customer deposits is obviously a more cost effective form of funding than going out into the wholesale unsecured markets. And so I think, say, looking at a) the stock of business we have and then the expected flow of new business that will come on to that, we’re very comfortable with the 10 to 15 basis point year-over-year guidance that we gave at the full year and stand by that.

Well, thank you very much everyone for coming along this morning and for your questions. There will be coffee served outside and an opportunity to meet with colleagues. Thank you.