Good afternoon Ladies and Gentlemen and welcome to the 2019 Annual General Meeting of our Company and to our headquarters here at Gogarburn.
I am sure most of you will have seen that this morning, Ross McEwan announced his resignation as CEO. For the past five and a half years Ross has worked tirelessly to make the bank stronger and safer and played a central role in delivering a return to profitability and dividend payments to shareholders. The Board and I are grateful for the significant contribution Ross has made in one of the toughest jobs in banking. Ross’s successful execution of his strategy to refocus this bank back on its core markets here in the UK and Ireland has helped complete one of the biggest UK corporate turnarounds in history.
Thanks to Ross, RBS is well positioned to succeed in the future in what is a rapidly evolving landscape for the banking sector. He will leave with our thanks and best wishes for the future. We will be conducting an internal and external search for Ross’s successor, which will commence immediately.
Ross will update you shortly on our financial and strategic performance. I will open by saying a few words from a Board perspective.
Let me first introduce you to the Board. From your left to right we have Frank Dangeard, Dr Lena Wilson, Baroness Noakes, Brendan Nelson, Patrick Flynn, Katie Murray, Ross McEwan, Mark Seligman, Robert Gillespie, Alison Davis, Mike Rogers and Morten Friis. To my left is Aileen Taylor, the Company Secretary.
This is Brendan Nelson’s last AGM as a member of the RBS Board, although he will continue to sit on the Board of NatWest Markets. Brendan stepped down from his role as Chairman of the Group Audit Committee on 31 March and will not be seeking re-election at this AGM. The Board and RBS as a whole have benefited from his extensive knowledge and expertise since he joined in 2010. His contribution to the RBS Board will be greatly missed.
Patrick Flynn joined the Board in June last year, and he has taken up Brendan’s role as Chairman of the Group Audit Committee. Patrick has a huge amount of relevant experience, most recently as Chief Financial Officer of ING Group.
We also have a new Chief Financial Officer in Katie Murray, who joined the Board on 1 January, replacing Ewen Stevenson. Katie has nearly 30 years of finance and accounting experience. She has contributed significantly to RBS since joining the bank over three years ago and is already making her mark as CFO.
I would also like to welcome four non-executive members of our ring-fenced bank Board, NatWest Holdings: Graham Beale, Francesca Barnes, Ian Cormack and Yasmin Jetha. They are not members of the Group Board so are not on the platform. Overseeing the bank is a team effort and they are an integral part of that team.
Turning to the bank’s performance, our share price closed yesterday at 257 pence, up almost 20% since the start of the year.
It is slightly below the 271 pence per share that the Government sold at back in June 2018. That sell-down raised total proceeds of £2.5bn, while reducing the Government’s stake in the company to 62.4% at that time. The timing and quantity of any future sales is entirely a matter for the Government. The Chancellor, however, has said that the Government intends to sell all its shares in RBS by 2024.
At this meeting, we are seeking a renewal for 12 months of the authority you provided in February to use some of the bank’s excess capital to buy back up to 4.99% of our shares from the Government, at a time agreed with the Treasury. This would be a positive use of our capital by helping to facilitate our return to private ownership.
In 2018 the bank’s financial performance was good, despite an uncertain economic outlook and a highly competitive environment. Bottom line profits were more than double what we achieved on our return to profitability in 2017. We can also point to a very robust capital position, with Common Equity Tier One capital of over 16 percent, the strongest position of all the major UK banks.
As a result, we were able to pay our first ordinary dividend in a decade of 2 pence per share at our 2018 interim results. Subject to your approval today, we will pay a final dividend of 3.5 pence per share and a special dividend of 7.5 pence per share. Taken together, that will provide over £1.6 billion of capital returns to shareholders since dividends resumed, including almost £1bn being repaid to the UK taxpayer.
In future, we expect to maintain ordinary dividends at around 40% of attributable profit.
Last year, in addition to re-starting capital returns, we also achieved our first clear pass in the Bank of England stress test and resolved our major remaining legacy issue - reaching settlement with the US Department of Justice over its investigations into our historic activities in the US mortgage market. While settling that long-running case was welcome, the £3.6 billion we paid was a stark reminder of how, in the past, RBS engaged in highly risky transactions a long way from its core mission of supporting the UK economy.
We await publication of the FCA’s final report on GRG, although a summary of its findings was published last year. That summary confirmed no regulatory action would be taken against the bank or any individuals. The FCA once again confirmed that no evidence was found to support allegations that RBS artificially distressed and transferred otherwise viable businesses to GRG to profit from selling them, or from their restructuring or insolvency. It also found no evidence that any member of GRG’s senior management behaved in any way that could call their honesty and integrity into question.
The bank has long accepted that, nonetheless, some SME customers did not receive the treatment they should have done while in GRG and has apologised for that. We continue to focus on putting things right for these customers through our complaints process, independently overseen by a retired High Court Judge, Sir William Blackburne.
Turning to the state of the economy, the prospect is more than usually uncertain. The UK economy has proved remarkably resilient but lack of clarity about our future relations with the EU is undoubtedly having an impact, with consumer confidence muted and many businesses pausing on investment. That will affect our income.
Throughout the Brexit process, our priority has been to ensure that we can sustain our EU business. Our NatWest Markets subsidiary in Amsterdam is fully operational. We could not wait any longer to put these plans into action without jeopardising our ability to meet the potential future needs of our customers. In total, we expect to have around 250 people working across the EU in NatWest Markets NV, between 100 and 150 of whom will be in Amsterdam. Many of these roles already exist and fewer than 100 will be transferring from the UK. We have also received approval for licences in Frankfurt, which will allow us to maintain access to euro facilities.
The Board is also concerned about other dimensions of sustainability. Just before last year’s AGM, we announced that we will not lend directly to new coal power, coal mining, oil sands and arctic oil projects, or to mining or power companies with more than 40% involvement in coal. We aim to be a leading supporter of the low carbon transition, in line with UK and global climate goals, and have financed more renewable energy transactions in the UK over the last decade than any other UK bank. To meet the challenges ahead, we have established a project to integrate climate risks and opportunities across our business and risk frameworks - under the direction of our Group Chief Risk Officer.
You will have seen that a resolution has been requisitioned by a small number of shareholders seeking to create a shareholder committee. The Board’s opinion remains unchanged on that issue. We do not think it would be in the interests of the company and we are recommending that you reject it once again. Shareholders rejected it last year, with 98.65% of votes cast against the resolution.
The Board has made a considered effort to listen to the views of all shareholders and to build on our existing channels of engagement. Last year, we held retail shareholder events in Glasgow and Birmingham and we plan to hold more in 2019, with a London event scheduled for September and a virtual event in November. Further details on these events and how to participate will be made available on our website nearer the time.
We have also responded to the Government’s challenge to all companies to ensure employees views are heard by the Board. We designated Dr Lena Wilson as the Board member with that responsibility and set up a Colleague Advisory Panel which is working well.
There has been a lot of attention recently on the level of executive pay – and especially pension contributions – across all industries in the UK. The remuneration policy for our Executive Directors was approved at our AGM in 2017, and is due for renewal next year. The 2017 policy allows for pension funding of up to 35% of salary for existing executive directors and up to 25% for new ones. Katie Murray was appointed CFO in January, with a pension funding rate of 10% of salary. This is in line with emerging best practice under the UK Corporate Governance Code and investor guidelines and indicates the expected direction of travel under our new pay policy. We will start consulting with shareholders later this year ahead of putting a new policy to a vote at next year’s AGM.
For the second consecutive year, we have reported the average pay gap between male and female colleagues in the bank. The bank’s mean gender pay gap in the UK for 2018 was 36.6%, a slight improvement on the year before. Our gender pay gap reflects an under-representation of females in senior roles, as well as the fact that women are more likely to be employed in part time roles. Addressing this imbalance is a priority for us. We appointed Katie Murray as our first female CFO; Alison Rose as Deputy CEO of NatWest Holdings, and Vanessa Bailey as Chief Risk Officer of NatWest Holdings. In 2014, we set ourselves a target to have at least 30% female representation at the three most senior levels in each of our businesses by 2020. Our latest figures show 9 of our 12 businesses are already at 30% or more and we are at 37% in aggregate across the bank. We aspire to achieve full gender balance at all levels of our business by 2030.
We also disclosed our ethnicity pay gap for the first time in this year’s annual report, ahead of any formal requirement to do so. Our mean ethnicity pay gap for 2018 was 10.7%. The figures have not received anything like the level of attention of the gender pay figures. They should do.
We have more to do to close this gap. In 2017 we set ourselves an ambitious target to have 14% non-white colleagues in our leadership population by 2025 and we are already making good progress. Ross has signed the Race At Work charter, an initiative backed by the Prime Minister to address ethnic disparities in the workplace – one of the initiatives was to report on the ethnicity pay gap.
To conclude, I would like to reiterate the Board’s support for our current strategy and for the excellent work Ross and his leadership team are doing. The bank is now delivering sustainable financial returns and supporting its customers in difficult economic circumstances. And in 2018, at last, we were able to start returning capital to you, our shareholders. It has been a long time coming.
The bank is now in a position to focus fully on the future, relatively unencumbered by the issues of the past.