NatWest Group PLC (NWG) 2018 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. This afternoon's conference call will be hosted by Katie Murray, Deputy Chief Financial Officer; and Robert Begbie, Treasurer. Please go ahead.

Thanks, Sophie, and thank you for joining the call. On the line, you have Katie Murray, Deputy CFO of RBS; and I'm joined by Robert Begbie, our Treasurer; Rupert Mingay, NatWest Markets Treasurer; and Paul Pybus, Head of Debt Investor Relations.

We've put some fixed income slides onto our IR website, which Robert and I will now talk you through. I'll provide a quick review of H1 results that were out earlier today and then focus on some of our credit messages. And Robert will provide an overview of our balance sheet performance for H1. And then, we'll open up the call for Q&A.

Today, we've posted our H1 results. I'm pleased to report an operating profit of GBP 1.8 billion for the half year, continuing the trend from the full year. Excluding one-off and NatWest Markets, our income remains stable half-on-half despite continuing significant market pressure and margin pressure in some areas and in more difficult operating conditions. This reflects continued good volume growth in various segments including our mortgage business, where we saw our Q2 flow share move back up to 11.5% versus our stock share of 10%. We also saw continued growth in U.K. PBB and Private Banking deposits, up 4% and 5%, respectively.

NIM for H1 was 16 bps lower than H1 2017, with Q2 NIM down a further 3 bps on Q1. Relative to our expectations going into the year, front book spreads in several segments continue to be weaker than planned, particularly in mortgages and parts of the commercial book. And we're holding significant liquidity buffers which Robert will come to shortly.

NatWest Markets also had one of its weaker quarters relative to recent years with difficult market conditions in Q2 this year compared to a strong Q2 2017, although underlying customer activity is broadly stable.

Underlying core income for the quarter was just over GBP 300 million and around GBP 700 million for H1. The bank's operating costs continue to come down. Stripping out one-off GBP 51 million of VAT recovery in H1 2017, other expenses were 3.6% lower than 2017, including a further 5,000 reduction in headcount.

Impairments continued to remain low at only 9% in H1, although as we have said before, we expect this to normalize to 30 bps to 40 bps through the credit cycle.

Turning to Slide 2. You've seen today in our results, a further positive CET1 build in Q2. Excluding the impact of the DOJ settlement in principle, the GBP 2 billion pension top-up and the accrual of the intended interim dividend, our underlying CET1 ratio improved 110 bps to 16.1% in Q2, largely as we reduced RWAs and generate underlying operating profits. We expect this ratio to continue to build in H2 with RWAs expected to further reduce from end Q2 levels to a range of GBP 191 billion to GBP 196 billion. In the near to medium term, we expect to operate with a CET1 ratio in excess of 13%, as we work through the impact of various issues including IFRS 9 volatility under stress, the impact of Brexit and RWA inflation from Basel 3 reform.

As you've seen from today's announcement, we've announced an intention to declare an interim dividend of 2p per share, with the plan to formally declare this dividend post the finalizing of the DOJ settlements.

With our existing capital buffer expected -- with our existing CET1 capital buffer, expected further capital builds and modest RWA growth, our target is to build towards a regular payout ratio of around 40% of attributable profits. We will consider further distributions in addition to regular dividend payouts subject to the agreement with the PRA and passing the 2018 Bank of England stress test. As such, we wouldn't expect any such additional distributions until 2019.

Turning to Slide 3. Finally, on 2020 targets. I have already touched on our CET1 target, and we remain committed to our 12% plus return on total equity and our sub-50% cost income ratio targets. However, with the Brexit deadline approaching, there remains a lot of uncertainty with the risk of -- the balance of risk is skewed to the downside.

On the income side, to achieve our 2020 targets, our income forecasts are a mix of benefits from improved rates and relatively modest underlying income growth. While the rate outlook has deteriorated in Q2, it remains better than we had built into our forecast at the end of last year, and we welcome yesterday's base rate rise.

Despite current margin pressure, we believe our business model can offset this with volume growth ahead of market growth rates where we choose to grow. On operating costs, we've previously said that we expected the 2018 cost reduction to be lower than trend, requiring higher levels of cost reduction in each of 2019 and 2020. Based on our current multiyear plans, we remain confident in our ability to deliver this. On strategic costs, we previously said that we expect a total of GBP 2.5 billion over the next 2 years and our guidance remains the same, with H1 charge being GBP 350 million.

On conduct costs, H1 results were heavily impacted by the additional GBP 1 billion DOJ charge partially offset by GBP 241 million being the recovery we had in the quarter on one RMBS indemnity claim, and we can clearly see that the legacy conduct costs are now trending lower.

With that, let me hand over to Robert.

Thanks, Katie, and again, good afternoon all, and thanks for joining today's call.

As Treasurer, I'm very pleased to be able to talk to you today from the position of the bank delivering strong capital and liquidity ratios, particularly as we settle legacy issues and as Katie mentioned a few moments ago, continue the full year '17 trends of operating profitability.

The progress we have made on resolving our legacy issues have been reflected both in the relative performance of our credit stress and by our ratings with each of the 3 main credit rating agencies. Last month, we received an upgrade to our baseline credit assessment from Moody's, which moved our senior HoldCo ratings to Baa2 with positive outlook across all entities with each of Moody's, Standard & Poor's and Fitch.

And finally, in relation to structural reform, we have completed a number of key milestones on our ring-fencing plans and are well placed for full compliance with legislative requirements by the year-end.

Turning to Slide 9 and an overview of the balance sheet metrics. We have maintained a solid set of key balance sheet metrics in H1. As Katie touched on, our CET1 ratio increased in H1 to 16.1% against our longer-term target of at least 13%. Our loan-to-deposit ratio was 87%, reflecting strong deposit growth in our core businesses and our liquidity coverage ratio was increased to 167%, reflecting the success of our H1 issuance program and continuing deposit gathering. And whilst I recognize we are managing liquidity levels above regular to de minima, I think it is prudent that we continue to run a conservative liquidity position for the foreseeable future. As we said, our outstanding litigation conduct costs, made contributions to the pension fund, commenced repayment of the Term Funding Scheme, complete ring-fencing and prepare the banks for Brexit.

Turning to Slide 10. As expected, following the announcement of the civil settlement in principle with the Department of Justice and the Memorandum of Understanding reached with the Pension Fund Trustees, we saw a positive action on our ratings from all 3 agencies during the half year.

Most recently, in July, Moody's upgraded the senior unsecured ratings of the Royal Bank of Scotland Group to Baa2 from Baa3 and placed all entities on a positive outlook. This follows earlier rating changes to our OpCos to reflect Moody's view of the entity's post ring-fencing. Standard & Poor's upgraded the ratings of the ring-fence OpCos, and RBS International affirmed the ratings of NatWest Markets plc and assigned a positive outlook to all entities. And Fitch upgraded the ratings of NatWest Bank and Ulster Bank Limited and assigned a final rating to the newly renamed The Royal Bank of Scotland plc.

Turning to Slide 11. In June, the Bank of England published indicative MREL requirements for the U.K.'s globally systemically important banks. For RBS, this will be 28% fully phased including CRD IV buffers, slightly higher than the previous guidance but still equated to approximately GBP 24 billion of bail-in securities. Obviously, this is subject to the banks and balance sheet size and final capital requirements.

For the full year I guided that we plan to issue GBP 4 billion to GBP 6 billion selling equivalent senior HoldCo in 2018. I'm pleased that we have executed 5 well-received transactions during the first half of the year, starting around GBP 5 billion, and I'd like to thank those investors who participated in our deals. That brings us to a total of GBP 12.8 billion of MREL-eligible issuance since 2016, and I reiterate our guidance on MREL requirements of GBP 4 billion to GBP 6 billion annually as we build out our MREL stack. And delivery at best, we will continue to look at a range of currencies and maturities.

And on internal MREL, as we near completion of ring-fencing implementation, we're working through the requirements of the downstreaming of our HoldCo issuance to our subsidiaries.

On Slide 12, to give you an overview of how we see issuance requirements for each of our legal entities following the ring-fencing structure -- restructuring. In addition to senior MREL, we issued GBP 3.6 billion equivalent NatWest Markets plc senior and we entered the RMBS market with a EUR 1 billion transaction from Ulster Bank.

Looking ahead, given the deposit-funded nature of the ring-fenced OpCos, we see no need for senior issuance from those entities at the current time, although we will keep this under review from both secured issuance and funding diversification purposes. In addition, we will continue to issue senior unsecured from NatWest Markets plc as that entity is stood up as a stand-alone bank with a potential GBP 1 billion to GBP 1.5 billion over the remainder of 2018 subject to market conditions.

Turning to Slide 13. As we normalize our CET1 ratio towards our target, we will also evaluate our regulatory capital stack ahead of our 2022 requirements. Although we have prioritizations of new MREL and operational ring-fencing this year, I've been consistent in messaging that we manage our legacy capital stack for value and we've been actively managing during legacy Tier 1, reducing from GBP 10.7 billion at the end of 2014 to around GBP 3.6 billion today. Of the remaining GBP 3.6 billion, we will continue to evaluate calls of those securities through the lenses of current and future regulatory value, relative funding costs, capital-impact of calls and rating agency value.

Touching explicitly on the utility of our legacy stack, after 2022, I would like to reiterate that, as we said before, we take a conservative approach and we have not changed our assumptions around its qualification as either compliant CRR or MREL eligibility from previous guidance.

On new issuance, given the balance sheet structure and capital requirements outlook, we do not foresee the need to issue additional Tier 1 or Tier 2 for the remainder of 2018.

And finally, I'm pleased with the progress we've made on structural reform this year, which has been highly complex and operationally challenging. Earlier this year, the first transfer scheme was implemented, under which a number of retail and commercial activities and the covered bond program were transferred across the ring-fenced entities and a number of subsidiaries were renamed including the former RBS plc to NatWest Markets plc.

In July, the capital structure of NatWest Markets plc was restructured to affect the separation of the ring-fenced subgroup from NatWest Markets plc.

In H2, the second transfer scheme is expected to be implemented in August when certain customers' derivatives will be transferred from NatWest Bank to NatWest Markets plc.

We will finalize the standing up of the 3 treasury functions across the group including NatWest Bank as a wholesale Counterparty, set up stand-alone liquidity buffer for NatWest Markets plc and complete the down streaming of MREL requirements to the OpCos as of 1 Jan '19.

And on Brexit, we continue to plan for continuation of service with our EU-based customers through the repurposing of our NatWest Markets NV entity.

And with that, Sophie, we'll open up the call to Q&A.

(Operator Instructions) We will take our first question from Lee Street from Citigroup.

I have 3 questions for you please. Just, firstly, on your ratings, also your ratings are still a little bit lower than some of your other U.K. peers. Just wondering if you have a sort of target ratings level in mind that you'd like to achieve at the HoldCo level? And obviously, can you talk about some of the legacy stuff (inaudible) you consider ratings as a consideration? Do you have a target ratings level for the HoldCo, where you'd like to get to? Secondly, just -- obviously you're very clear, you say you've got a target CET1 ratios of in excess of 13% for 2020. Obviously by my expectation has shifted. There's a minimum of 13% in there. I was just wondering why you -- how you calibrate the 13% and why that's the appropriate level because obviously, there's a bit of risk even here of lackluster U.K. growth. We're talking of the rates rising, high levels of consumer debt et cetera, so why is 13% the appropriate sort of minimum level. And then, finally, a bit more on the technical one. Just on the recent paper on MREL from the Bank of England. This section provides the eligibility of external MREL. So my question is, do you regard -- you got a few bonds that were issued under foreign law or U.S. law, do you regard their existence, as something which may represents an impediment to resolution as per your read of that paper? That would be my 3 questions.

Okay. Just thanks for those questions, Lee. I'll just kind of take them in order. I think from a ratings perspective, I'm probably a bit of (inaudible) trying to guide a target rating and a timescale. I think what we believe and what we're seeing is that once we resolve the legacy issues and I think once that we -- the rating agencies could see not only we have dealt the legacy issues, but we were becoming capital-accretive and consistently profitable on an ongoing basis, that we will start to see some movement. And I think we have seen some movement. I think in some cases, we've probably been pleasantly surprised at the timing of it, especially the Moody's recent upgrade at HoldCo levels. So well, I mean, we look at this in the context of where our business model is and will be returning to a normalized bank. But we are conscious the rating agencies have got a process to go through. They will look at our results on a quarter-on-quarter basis. But I think the fact we're on an upgrade with all 3 is a positive sign, and certainly over the next 18 months, if we continue to deliver against our strategic plan and our targets that Katie laid out, we see no reason to see that gap narrowing further at a HoldCo level. On the CET1 ratio, I'll kick off and Katie can jump in. I mean, I think over the past number of quarters, we've guided to kind of 13% or above. I think we laid out a number of different factors that would lead us to believe that in the short term, we'd certainly be trending above 13%, notwithstanding the 5% and the 16.1% at the moment. And then I think a number of them have been ticked off in relation to DOJ and, clearly, the pension liability. But the 2 -- and I think you had touched on them this morning, is still the impact of IFRS 9 and really walking through what does that really mean and what does it mean through a full cycle and a stress test. And probably less so but clearly upcoming at some point in the future will be the impact of Basel IV in terms of what does that mean. That's probably more of a '22-type impact. I think the other parts of this really comes down to the stress testing aspect of it. We've always said that with an internal risk outside, we never want to go below 9%, and at 1 in 100, we believed that we should trend towards a 4% stress delta with a normalized operating environment for us as a bank. Now we've just come to the end of that major restructuring. There's still some restructuring still to be done and things like Alawwal and so on are still to be fully disposed of. So this year, when we get stress test results, clearly, there'll be a cleaner stress delta than there's been in previous years because some of the big-ticket items are no longer in that stress, but we still wouldn't see us being in a normalized stress delta environment. So I think until we calibrate that 4% better then I think we would naturally be thinking that we should be running in excess of 13%.

Yes, and -- I mean, I think, Robert, that, that more or less covers it. I mean, certainly, we reiterated our year-end guidance, that we would look to run ahead of that 13% in the medium term. It really is an interplay of we've agreed to our pension contributions. We still have yet to make them and also the interplay with the capital buffers that the bank runs in terms of the investment risk, that is being run in the pension scheme. And there's a series of RWA inflation events that are coming, whether it be IFRS 16, the mortgage floor or the Basel 3 amendments. And also, I think Ulster and many other many banks are getting used to what IFRS 9 actually means. We've only had 2 quarters of reporting and I think what we've all seen as we've all looked at our own results and others, that the impairment levels are still at very low levels. And I think we like others to get a bit more used to how they actually play out as we move through different economics and cycles. I think the other thing that we've referenced both this morning and on this call, is also the impact of Brexit's March and '19 date is getting closer. And so I think with all of those things combined, and we look how they might impact our stress test, in the medium term, we look to run a little bit ahead of our target. Do you want to take up the MREL?

Yes. And just lastly, on your point on eligibility, yes, I mean, we've obviously seen the same paper as you did. I think we're -- we'll probably await a little bit further guidance and dialogue just in terms of how bail-in really is going to work and how resolution is going to work in practice. I mean, clearly, the Bank of England set the rules. And if they see it as an impediment to the ability to affect resolution, then we would expect to have to take action on that. And we're also mindful of the clean HoldCo requirements, albeit there seems to be a little bit of a relaxation in terms of the implementation time line for that. So it gives us a little bit of time to work through any potential actions we might have to take on any of the bonds that could be perceived as an impediment.

Our next question today comes from the line of Robert Smalley from UBS.

Just following up on Brexit potentially. Looking at the presentation from earlier this morning on Slide 24 on the net interest margin, there's 11 basis points of give on -- due to increased liquidity. Could you talk about that, what that is and what that was in the first half? And given that we're seeing articles about stockpiling in the U.K., will you have to stockpile more liquidity going into this event? And how are you approaching it?

Yes. That's a great question. Thanks. Thanks, Robert. Yes. I mean, in the first half of the year, you have seen, as you said, our LCR go up to 167%. Three main factors: one, being we still haven't paid the Department of Justice the $4.9 billion. I think there was a link in there to obviously, the intention to pay a dividend, but the final paperwork is still being worked through with the lawyers. So we haven't actually paid that out the door. So clearly, that will impact us and when we pay. We talked about the pension funds commitment in terms of the GBP 2 billion. Again, that will be an element of cash that will go out the door. Secondly, we mindfully accelerated our issuance plans in the first half of the year. In total, across all different categories, we had about GBP 12 billion of issuance to do this year. We've done GBP 9 billion of it in the first half. That was an intentional given that the markets themselves we feel were conducive, albeit on certain days, were more tricky than others. But we felt like there was positive headwinds behind our story as well with the Department of Justice announcement. So we feel we're in a reasonable place from an issuance perspective having done the majority of our issuance in H1. But clearly, that adds to the liquidity position. The third one is really the business mix. We're ahead on deposits and slightly behind on loans so that net differential between the 2 has added to it. Now, if you think about on a go-forward, well, the first one of them we will pay out those cash elements at some point. I would expect in H 2. We still have GBP 19 billion of term funding scheme on our balance sheet that we drew down as part of the TFS. At some point, that has to be repaid. And we would hope, and this is all to your point about Brexit, Brexit conditioned hope that the economy will continue to do well and that our lending would [extra per] deposit growth. So those things would kind of guide us to see it coming down over time. We haven't intentionally stockpiled liquidity because of Brexit. We might have to start stockpiling French champagne or something like that but certainly, no, liquidity at this stage. But it was just really I think a prudent -- getting the funding done in the first half so we don't need to worry about what market conditions are in the second half.

Yes. And I think Robert, as we look at the Brexit outlook, although growth is lower at sub-2%, what we do know and we will see there is still certainly appetite. So we want to make sure that we're able to meet the appetite as we move forward. But I don't think we're actually quite at the stockpiling stage by any stretch of the imagination.

Robert, should we take the question that's on the web from Graham Wade at Z Investment Management? It would be great to get an update on thinking around legacy Tier 1. Previously, the FX was an impediment to further redemptions. Does your view on this change, now that you have so much excess capital? And how should we think about your decision process?

Yes. I mean, I think, to put it in the context of H1, I think I've been fairly consistent in saying that in H1 this year, we had a significant amount of restructuring to do within the group, driven by ring-fencing. We've been moving significant legal entities, balance sheets, capital funding liquidity around the group, and that really looking at the legacy securities wasn't certainly near the top of the agenda for this half. Now clearly given our capital and liquidity position, then it makes sense to start to look at this. FX, it -- really, FX is not an impediment as such. We know what the FX rates are. We know where they were issued at and we know where the current revaluation of it is. But I think we've looked at it in the context of both the use of capital and also any kind of refinancing rates that would associate with that. So we know we still got a bit to do. We know we've got a little bit of time to do it, but certainly, it will become more of a focus in H2 than it has been in H1.

Your next question today comes from the line of David Herrington from Insight Investment.

I've just got a couple of questions on NatWest Markets, if I could. Performance in Q2 was quite weak, GBP 50 million loss, having had GBP 100 million profit in Q1. What -- can you give a bit of color around that? And is this the sort of earnings volatility we should expect from this entity post ring-fencing completion? And in that regard, with the target you put out, 40%, CET1, 4% leverage, does that earnings volatility imply there should be a little bit -- or more of a management buffer on those figures? And also, I mean, you've mentioned wanting to do more issuance out of that entity. But spreads currently are quite close between NatWest Markets and the HoldCo bonds and then euros. So how do you think about that relative value? Would you still be issuing NatWest Markets OpCos when the spreads are close to the HoldCo?

So I'll let Rupert answer the first 2 and then between the 2 of us, we can probably answer the third one.

Sure. Thanks very much, and hello, everyone on the line. I'm Rupert Mingay, I've recently joined as NatWest Markets' Treasurer and I'm very excited to have done so. I think exactly as the question says, Q2 was a weaker quarter. It was weaker relative to a strong quarter this time last year and also weaker relative to a strong quarter in Q1. But from our point of view, as Katie said, volumes were holding up. There was just less volatility in the market and there were 1 or 2 issues in the bond markets where the performance wasn't as strong as we would've hoped. So I think on a forward-looking basis, we are looking at the income in the order of GBP 700 million and we're comfortable in terms of that -- how that would sustain a return with the cost base in the order of a little more than GBP 1 billion.

And I think, Rupert, if we look at NatWest Markets over the last 2 years, it's so, 1,400, 1,500, 1,600. And we've talked with the market this -- around about the 1,500 is somewhere that's good for you to think of in your models. And I think our performance this year is not out of line with that guidance at all.

I think that's true, obviously, I'm conscious we've got some disclosed on a franchise basis that would include some non-legal entity in plc and obviously the plc entity itself has some non-NatWest Markets business in it. So I also think that you will get a clearer line of sight over the coming couple of quarters. Just on the capital point, we are going to be what -- we shall be a non-ring-fenced bank, and therefore, we shall take our capital from our parent and that will be in the form of CET1. That'll be in the form of AT1 Tier 2 and some MREL support, but we will be looking to issue unsecured debt to the markets, and I think that will just be a part of the normal funding structure. So we're already driven I think by a different consideration between those 2 different kinds of security types. What I would say is, our rating is on positive outlook from all 3 agencies. As you well know, the ratings for NatWest Markets from a Moody's point of view is a little more of a fundamental rating, and the rating from the other 2 agencies is a little more of a top-down. But clearly, we would have a focus and expect that with the business performing well in the future, those ratings on an upward trajectory would move towards the A category. And just in terms of the funding for the balance of the year, we've guided I think previously at about GBP 2 billion to GBP 4 billion of issuance per year. Clearly, with this transitional phase and with the kind of factors going on that Robert was talking to, there may be a slightly different number that we look to issue as we are launching. But effectively, what we're looking to do is set up a self-supporting, self-sustaining balance sheet that will be adequately capitalized for BAU and for stress. And just a word on future issuance also. Appreciate we've issued in the euro markets 3 times so far this year. Obviously, we're looking to those markets to support us in the future but equally to diversify and find other sources of funding, other markets to tap over time.

Anything to add on MREL?

No. I think it's linked to Rupert's point really, that, I mean, if we issue as a Holding Company, it would have to be MREL. And so and -- we do want the operating companies to be self-sufficient from a day-to-day perspective in terms of the funding that comes.

So it would still make sense to issue OpCos from NatWest Markets even if spreads are the same as the HoldCo?

Yes. I think so because I think they're for 2 different purposes really. I mean, we clearly would issue an MREL to meet a group MREL target and also to then downstream MREL from a resolution perspective and into the individual operating companies. I think you can see by the tenor of the securities themselves, our MREL issuance has tended to be 5 years and out, and the NatWest Markets issuance has tended to be kind of 4 years and in. So they really are for different purposes.

(Operator Instructions) And your next question today comes from the line of Joe Hopkins from Morgan Stanley.

A couple of follow-up questions on liquidity. So can you give some guidance on where you expect LCR to settle in a steady state once you're through these -- once you're through the DOJ settlement, et cetera? And then, secondly, what sort of positive impact would that have on your NIM?

Yes. So I think what you see is the group disclosed LCR metric, which includes a number of different things. What you don't see is the internal LCR metrics in terms of Teller II add-ons from the TRA and other things that impact the overall risk appetite in the bank itself. So while it looks elevated and it's elevated relative to where we would expect it to be, that's not -- kind of not the whole story really. As I said, I think if you look at the business drivers behind how we would see LCR coming down, if you put to one side, we've got, let's call it, the equivalent of GBP 4 billion going to the DOJ and you've got a couple of billion going to the pension funds. So that's our -- that's definite outflows. The other things that are clearly available to us, we have some covered bonds in the plan for the rest of this year. I think given what our liquidity position is, it's unlikely we would come to the market with those other things -- all other things being equal. So you've got another couple of billion there. As we talked about this morning on the equity call, our mortgage business has picked up, certainly, in the last quarter. And ideally, what we want to do is as lender, we add to that surplus. The other point to this is really linked into interest rate moves because we have an interest-rate sensitive balance sheet which we're quite comfortable with and, certainly, we were very comfortable yesterday as base rate went up. By running surplus liquidity, it certainly gives us options around repricing deposits as rates move up and not having to necessarily chase the competition if rates start to move up more aggressively because of higher rates. But also as we start to see the refinancing of the term funding schemes starting to potentially kick into the deposit market. So for all of those things, I'm comfortable, as I said, running a long liquidity position. You should expect to see that coming down from where we are now. But given some of the uncertainties and so on with -- we wouldn't look to guide to an absolute number.

Katie, I'll now hand the call back to you for closing comments.

Lovely. Thanks. Before we do that, I'll just take the one question that's just come through on the web. It's from Folkert Jan Van Der Veer from Cairn Capital. What is the current status with Alawwal Bank? And in relation to that, what is your view on the capital position of RBS NV once the RWAs related to Alawwal Bank fall away? Rupert, do you want to start and we can jump in?

Absolutely. I think I'm not going to comment on current status because it probably is being governed by discussions with third parties that -- and whatever's in the public domain is the current status. But we're holding in the order of GBP 6 billion of RWAs, 6 billion Sterling for the effective consolidating the RWA onto our books. So effectively, that will fall away. Clearly, at that point, on the simple prudential capital measure, I would expect RBS would be relatively overcapitalized. And subject to discussions with the regulator, we'd expect that, that capital would be released up through the system. But what I would say is that more broadly speaking, RBS NV is -- or NatWest Markets NV as I think we'll be thinking of it going forward, would be an important part of our Brexit solution. So within the franchise, we're thinking of NV as being part of NatWest Markets, and therefore, we'd look to normalize the capital, again, subject to regulatory approval to support the business we'd be running in the future.

Thanks, Rupert. And I guess, what I would add to that, as we look at the transaction, what we think, it's something that at this stage is likely to take effect in Q1 2019. We've always talked about the group RWA targets for this year, what we said that we would see a reduction of 5 to 10 across the group in the year. What we would say is, we're likely at this point to be at the lower end of that range at 5 as Alawwal Bank now looks like it will move into the next year.

So to conclude, we're pleased with our H1 results set against a backdrop of less supportive operating conditions and the resolution of the major legacy issues in H1 reinforces our confidence in our improving investment story. We continue to generate an attributable profit in H1, continuing from full year 2017 and we delivered a strong 16.1% CET1 ratio despite absorbing significant CET1 impacts from pensions, DOJ provisioning and after accruing for our intended 2p dividend. We remain confident in our 2020 targets. However, we note the increasing uncertainty around Brexit and the resulting downside risk. We end H1 with a strong investment case. We've derisked the bank, delivered a safe and sustainable balance sheet and are seeing positive momentum on ratings. I would like to reiterate Robert's appreciation to those of you who continue to support our investment case.

So thank you, Sophie, and thank you all for joining the call today. If you have any follow-up questions, please contact Paul in our debt IR team. Thank you very much.

Thank you.

Ladies and gentlemen, that will conclude this afternoon's call. Thank you for your participation. You may now disconnect.