Good afternoon ladies and gentlemen and welcome to the 2018 Annual General Meeting of our Company and to our headquarters here at Gogarburn.
Over the past year, we have seen the bank move closer to achieving sustainable profitability, reporting our first bottom-line profit for a decade and making very good progress in putting our major legacy issues behind us.
Our Chief Executive, Ross McEwan, will update you shortly on our financial and strategic performance as well as our future targets and investment in digital and innovation but I will open by saying a few words from a Board perspective.
We have one new face on the stage this year. Dr Lena Wilson who joined on 1 January. Lena brings strong commercial and public sector experience, having previously served as the Chief Executive of Scottish Enterprise and as a Senior Investment Advisor to the World Bank.
Also with effect from 1 January, Sandy Crombie stepped down from the Board. Sandy was, as Senior Independent Director, a great support to my predecessor and to me. Penny Hughes will also be standing down from the conclusion of this meeting. Penny has led the Remuneration and latterly the Sustainable Banking Committee with great skill and enthusiasm. We wish them both well for the future. Following Sandy’s departure, Mark Seligman has become the Senior Independent Director.
Following our announcement this morning, Ewen Stevenson our CFO will be leaving the business but he will stand for re-election today as he will remain on the Board. The effective date of Ewen’s departure will be confirmed in due course.
Yasmin Jetha joined the Board in 2017, however, as planned she stepped down on 30 April of this year to hold the position of Non-executive Director on the boards of our Ring-Fenced Bank Entities. So Resolution 10, which recommended Yasmin’s appointment, is no longer required and will be withdrawn.
We have also announced that Patrick Flynn will be appointed to the Board and to the boards of our Ring-Fenced Bank Entities, with effect from 1 June. Patrick’s banking experience, latterly as Chief Financial Officer of ING Group, will further strengthen the Board.
I would like to thank each of my colleagues on the Board for their continued dedication and determination over the past year. This bank is in a much better position as a result of their efforts.
I am pleased to say that the additional layers of governance required to implement the Government’s ring-fencing scheme are now in place.
In April, we announced changes to the composition of the Boards of our ring-fenced entities and the creation of a Board for NatWest Markets plc, which will be outside the ring-fence. These changes included a number of external appointments who will not join the Group Board. With the majority of the bank sitting within the ring-fence, I will chair the Boards of both the Group and the ring-fenced entities – subject to your approval, of course – while Frank Dangeard has been appointed Chairman of the NatWest Markets Board.
The weekend after our first quarter Results was a significant moment, as we completed various transfers to implement our ring-fencing arrangements.
These changes will allow us to continue to serve our customers with little or no change to their day-to-day banking. It was a hugely complex piece of work though it went largely unnoticed, which is a testament to the hard work of our staff.
Turning to the Bank’s performance, the share price increased more than 20% in 2017, outperforming our UK banking peers. With our first full-year profit in a decade followed by a £792m bottom-line profit for the first quarter, the strength of this business is beginning consistently to show through. We welcomed last year’s Treasury announcement that it will restart the privatisation process by the end of March next year.
We recently announced that we have reached a settlement in principle to pay the Department of Justice in the US $4.9bn to resolve its investigation in relation to past subprime mortgage activity. This was a significant milestone for our bank. The size of the settlement, while at the lower end of analyst expectations, is a stark reminder of what happened to RBS in its past, when it focused too heavily on its global ambitions. The bank, its shareholders and the British taxpayer have paid a heavy price for those poor decisions. The scale and culture of the bank is of course much changed today.
The settlement, when finalised, will remove the last major hurdle to paying dividends to our shareholders. But dividends remain subject to regulatory approval. We have always said that any dividend payments will start small and grow incrementally. In my view, that remains the most sensible approach.
Aside from RMBS, we have made progress on, or resolved, all of the other legacy issues I talked to you about last year.
We have improved the funding position of our main defined benefit pension scheme by making a £2bn payment before the end of next year and up to £1.5bn of further payments linked to future capital distributions. The new payments substantially address the Fund’s historical funding weakness. The central expectation of both RBS and the Pension Fund Trustee is that no further deficit contributions to the Main Scheme will be required.
Last September, the European Commission agreed to revise the terms of our European State Aid obligations, replacing the need to divest the business formerly described as Williams & Glyn.
The new scheme involves the creation of a capability fund to benefit challenger banks, alongside incentivised transfers of some of our small business customers.
The Treasury recently announced the independent body designed to implement the package. This solution brings to an end an issue that has weighed heavily on the bank for a number of years.
The 2008 Rights Issue litigation has also been resolved. The settlement announced last June brought the proceedings to an end with no admission of liability and was a positive outcome for the bank.
The year also saw the publication of the FCA’s section 166 report into the actions of our Global Restructuring Group from 2008 – 2013.
The report confirmed the summary findings that had been published previously by the FCA and that the most serious allegations made against the bank were not upheld.
However, it made for very difficult reading for us and highlighted the many areas where we could have done better for customers.
We have apologised for these mistakes and taken steps to put them right. In November 2016, we announced an automatic refund of complex fees and a complaints process overseen by an Independent Third Party, retired High Court Judge, Sir William Blackburne, which the FCA confirmed were appropriate steps. The refund of complex fees took place last year, with around £115m of offers made to customers. We have now received a total of 1,344 eligible complaints and have issued 647 decisions. 137 customers have appealed to Sir William.
In his latest report, Sir William was positive about the quality of the decision making and the steps we have taken to speed up the process. He has also now agreed in principle to extend his oversight of the complaints process to include an independent appeals procedure for consequential loss claims.
We have today published details of changes to the scheme and have also named the Prince’s Trust as the charity set to receive payments as a result of the bank’s decision not to benefit from any money it receives as creditor for an upheld complaint.
You will be aware that a resolution has been requisitioned by a small number of shareholders to create a shareholder committee. It is the unanimous recommendation of the Board that our shareholders reject this resolution. The concept of a shareholder committee was one idea presented in the Government’s Green Paper on Corporate Governance Reforms but was dropped following a lack of support during the consultation.
The Board shares the concerns raised by the Government in response to the consultation and does not consider that the creation of such a committee would be in the best interests of the Company. It is the role of the Board, directly elected by shareholders, to promote the success of the Company for the benefit of its members as a whole. The Board has made a considered effort to listen to the views of all shareholders and to build on our existing channels of engagement, as evidenced by the retail shareholder events held this year in Glasgow and Birmingham.
You may also have noticed that yesterday we announced changes to our lending policies in relation to the energy sector. I know this an issue close to many of your hearts. As of now, the bank will not provide project-specific finance to:
• New coal fired power stations
• New thermal coal mines
• Oil sands projects
• Arctic oil projects or
• Unsustainable vegetation or peatland clearance projects
Nor will it provide finance to:
• Mining companies generating more than 40% of their revenues from thermal coal or
• Power companies generating more than 40% of their electricity from coal
We want to help build a cleaner, more sustainable economy for the future, and these policy changes form part of our broader approach to this significant challenge.
To close, I would like to emphasise that the bank’s strategy is working. Ross and his leadership team continue to have the full support of the Board. This has been a landmark year for RBS; the end of a decade-long journey to return this bank to normality.