Well, good morning, ladies and gentlemen, and welcome to our Full Year Results for 2015. You will notice that this is somewhat earlier than in recent years, which is expressly to allow Ross and Ewen to get to the slopes before the ski season ends. Before we started, can I remind you please to switch off your mobile phones? Thank you. I took over as Chairman in September of last year, so for most of the year under review Philip Hampton was in the Chair, so I’d to begin by thanking him for his service to the Company from 2009 to last year. This latest set of results represents another year of progress for RBS. We’ve accelerate the rundown of non-strategic assets; we exited Citizens successfully. There are also signs that the underlying strength of the core business are beginning to show, with encouraging mortgage and business-lending growth. I’m also pleased that we are able today to announce an intention to pay the final dividend on the Dividend Access Share during the first half of this year, subject to final Board and PRA approval. And that’s an important step in our progress towards being able to return capital to shareholders. We know that we still have considerable obstacles to overcome. Two of the most challenging are a resolution to our litigation issues in the U.S. on RMBS, related to RMBS activity from 2005 to 2007; and also, the need to divest Williams & Glyn by the end of 2017, to meet our mandated deadline from the European Commission. We’re very aware that completing a settlement to the RMBS activity is a key factor in creating a clearer investment case for the Bank. Although we’ve already put aside material provisions, it’s not possible, at this point, to forecast when these cases…

Thank you, Howard. At our 2014 full-year results, I said that progress we’ve made on our plan would allow us to go further and faster in 2015; and we’ve done what we said we would do. Today, I’ll take you through our progress, and outline our 2016 goals; then, Ewen will walk you through the details, the financials, in much more detail. The pace of progress in 2015 has resulted in a set of financials that are a lot noisier than any of us would like, but three things do stand out. The first is we’ve made strong progress in selling and running down assets that don’t support our strategy, and including the accelerated sale of Citizens in the United States and the sale of the international private banking operation. Secondly, we have given a much clearer picture of the risks we face by provisioning more for conduct and litigation issues, writing down the goodwill in private banking, and addressing a large part of our pension risk. I know that none of these are pleasant for shareholders, but they are essential for moving RBS forward. And thirdly, we’ve got great brands in NatWest, the Royal Bank of Scotland, Ulster, and Coutts, and they’re helping us to grow the business in the markets we like, which are, namely, UK mortgages and the commercial markets. The results of our progress in 2015 is a stronger and simpler bank, and, I hope, for you as investors, it’s a clearer investment case. We remain focused on improving our strongest businesses, and clearing the path for future capital distributions, which are, of course, subject to PRA and our own Board approval. We are clearly in phase 2 of our plan. This year, the second year of this phase, we’re aiming to complete the bulk of…

Thanks, Ross. My second full-year results, and despite this being my second annual attributable loss, I can see that we’re making real progress with our plan. For 2016, I think we need to do just two things well, firstly, progress further towards our sustainably great customer Bank; and secondly, continue to address our residual hurdles to be able to return to capital distributions. For full-year 2015, we made an attributable loss of £2 billion. Backing out a number of one-offs, our adjusted operating profit was £4.4 billion. Our income was £12.9 billion, down £2.2 billion, or 15%, on 2014. £1.3 billion of this reduction was due to capital resolution for CIB. Excluding transfers to commercial banking, revenues were down around £300 million, which was in line with our planned repositioning of the business. And for UK PBB, despite the mortgage volume growth, income declined by 4%. This was largely due to the ongoing shift from standard variable rate to fixed-rate mortgages, as well as the impact in the reduction and interchange fees. A clear target for us this year is to stabilize revenues across PBB and CPB, while seeing only modest income erosion in CIB. On costs, ex-restructuring and conduct costs, operating costs were £9.4 billion, down 10% on 2014. This exceeded our 2015 target for operating costs reduction. Restructuring costs were £2.9 billion, leaving just over £2 billion to go of the £5 billion restructuring program out to 2019. As part of this, we do expect to incur further significant restructuring charges over the next two to three quarters, as we continue to move fast with our restructuring. Conduct costs were £3.6 billion last year, with the major items being additional provisions for FX, U.S. RMBS, and PPI. And as we continue to caution, we do expect further substantial…

Thank you very much, Ewen. So we’ll now go to Q&A. We’ll, no doubt, have some from the web, but we ought to begin with those who have come along in person. It would be helpful for me if you could identify yourselves. Because although from my previous job I know most of the insurance analysts, I know the banking analysts less well. And, of course, I know you regard yourselves as a cut above the insurance folk.

Our first question comes from the line of Raul Sinha from JPMorgan.

Can I have three, please? Just the first one on Williams & Glyn, if you can give us a little bit more detail on what’s changed in the last maybe one or two months that has caused you to obviously rethink the timetable on capital returns. And the next two, just on the PBB and commercial top-line, please. These are two businesses that are growing, that you obviously want to invest to grow. They’re growing their balance sheet quite materially year on year, as well as quarter on quarter, but the revenues keep falling. Even when I adjust for the headwinds on a year-on-year basis, when I look quarter on quarter I think commercial revenues are flat and PBB earnings are minus 4%. So if you could give us some indication of at what point in 2016 you expect them to stabilize, or what are the requirements for them to stabilize, that would be really great. Thank you.

Okay, we will allow three, given the size of your balance sheet. So, Ewen?

Sure. Why don’t I start on the back end of those questions, and I might hand over to Ross on Williams & Glyn. But on PBB and CPB, I think we have give pretty clear guidance that we expect it to stabilize this year. What are the offsetting elements on that? I think it’s continued good volume growth. We are going to continue to see, I think, continued margin pressure. A lot of that margin pressure, frankly, is coming from ongoing mix change in the mortgage book, which we saw last year. Mortgages – the standard variable rate book was down to 17% by the end of the year; we think that’s going to continue to drift down as a percentage of total book by the end of the year. And we’ve still got to about another £40 million to £50 million hit from interchange fees to come through. But if you do the math, I think we were trying to signal, pretty clearly, that we expect income to stabilize through a combination of bond growth, margin pressure, and some loss on non-interest income. And then, what I said earlier, we do expect that to then start translating in to top-line growth in 2017, onwards.

When does the interchange roll off, please, Ewen?

When it does it finish?

Yes, in terms of the drag?

Well, there’s about another two quarters, I think.

So, it’s about £40 million to £50 million of additional interchange that comes off in the next year. I think it was £70 million last year, and I think there’s another £40 million to £50 million, Les is nodding at me, in the first half of 2016, and then it’s out.

Do you want to do Williams & Glyn?

Yes, Williams & Glyn, I’ve always said this is probably the most complex thing of taking a bank from inside a bank, and we are finding that. Just to give you a level of the complexity of this thing, there’s something like 50,000 to 60,000 project pieces associated with getting this out. So if anyone’s got any other ideas about getting banks out of banks, send them our way. There are 700 systems, there’s 190 product sets coming out. And this is retail, right through to commercial. So it’s highly complex, and that’s what we’re working with. That’s not to say that progress hasn’t been made, because I think a lot of progress has been made in extracting it. To date, we’ve had the first level, I think, it was about 400-odd of our main systems that have come out and gone to testing; and then, we’ve got about 103 I think it is, Simon, of our mid-range systems that have gone now in to testing. And each one of those shows you how close you’re getting to getting it out. The next major stage in point for us is getting them from testing in to production, which will be later on in 2016. But each time we do a piece we learn more. And some of that timeframe has slipped, and that’s what we’re signaling quite clearly here.

How does the complexity of separation of Williams & Glyn form your opinion on ring-fencing? I guess they’re obviously quite different, but are you deriving any comfort from the work that you’re already putting into Williams & Glyn that would inform what you do on ring-fencing? Or is that totally different?

No, a really good point. Our view at this point is we’re planning for ring-fencing. It is much less complex than Williams & Glyn itself. But what we have is we’re dealing with the same people, having to do the same pieces of work, so that’s why one follows on to the other. And remembering too that our plan, we’re taking Williams & Glyn out of the RBS systems stack. And that will also be a stack that we have to deal with for ICB. So the work we’re doing at the moment on behalf of the Board is all of the programming of both of those pieces of work.

Thanks, Ross.

Jonathan Pierce, Exane. I’ve got two questions. The first is a broader question on Group targets in 2019. If we just look at the core businesses at the moment, £11.4 billion of revenue, £7.4 billion of costs. In moving to a 50% cost-to-income ratio, sounds like it’s going to be very little in the way of income in 2016, costs reduction. By the time we get through to 2019, how do you see the shape of that? Previously, you’ve talked about maybe £13 billion of revenue, £6.5 costs, is that still your thinking?

Yes, thanks, Jonathan, as I said earlier, nothing’s changed in terms of our 50% cost-to-income. We really need to get down low in to the individual business because each of them have got quite different dynamics. For CIB, at the investor seminar a few months ago we talked about getting down to a cost structure of about £700 million or £800 million, which I think most of the cost-to-income ratio improvement in CIB is, frankly, going to come out of costs rather than revenue over the next few years. You go in to Ulster Bank and private banking, both of them are sitting with cost-to-income ratios today around 80%. There’s clearly a costs problem in both of them. We think with private we should also be able to grow revenues. And then, the more that you get into the three businesses, commercial, RBS international, and personal banking, there will be some cost take out. But I think we’re really assuming that we will be able to drive significant cost-to-income ratio improvement in commercial and UK PBB through volume and revenue growth over the next few years, once we’re through the trough and stabilization of revenues this year. But if you do the math, you can get to similar numbers to what you’ve just talked about.

Okay. And just to clarify in terms of the cost reduction this year, how much of the £800 million is coming from the core businesses?

The majority of it is still coming from really running down capital resolution. But there is a decent minority part of that, that comes from the core businesses.

Thank you. Okay. And then the second one on capital, the £36 billion of RWA reduction you flagged this year, including the Citizens stump, how confident are you of taking that out this year within previous loss estimates? And is there going to be any significant offset elsewhere in the Group in terms of RWA increases? Or will the mix shift toward mortgages offset the volume growth do you think?

Yes, firstly, with CIB capital resolution, I think we’re pretty confident in putting out those types of numbers, that we can achieve them. I think it’s important to recognize that some of it is just coming down from running down the GTS platform, and running down various line portfolios and the markets business. And not all of that involves having to sell things in order to achieve those numbers. The other thing with our capital ratios where they, frankly, if we got bids on the shipping business that we didn’t like we can always hold it to maturity now. But we’re pretty confident with the overall guidance of £30 billion. In terms of the £1.5 billion of disposable losses that we’ve talked about in the past, we’ve spent just under £400 million of that so far through 2015. I think we continue to guide that £1.5 billion as a decent estimate of what it will take to exit.

David Lock, Deutsche Bank. A couple on the Ulster Bank business, please. Firstly, when I look at the risk weighting of that business it’s come down, I think, from 120% last year to about 116%. It’s still about double the risk weighting of any other Irish bank that I can see. I was wondering how you expect that to roll off. Is there going to be a cliff effect when model changes come through? Or is this just a 1% per quarter reduction over time? And the second one on that business, other Irish banks are starting to grow their balance sheets in Ireland, and are getting income growth from that. I was wondering if you could update us on your ambitions of the Bank, given where that economy is growing at the moment. Thank you.

Yes, sure. I think it’s, as you do your RWA comparisons, we have to abide by PRA requirements, rather than Central Bank of Ireland requirements; and there are quite significant differences, therefore, between a UK-regulated Irish bank and an Irish-regulated Irish bank in terms of RWA modelling. I think it’ll continue to drip down, but don’t assume that there’s a big cliff effect there at some point that brings us in line with the Irish banks. When you look at the book in Ireland, you have to, firstly, back out the tracker mortgage book, and then there’s about another £4 billion or so of NPLs in Ireland. So only about 40%, 45% of the book is a core line book that we’re seeking to grow. I think it had decent growth last year. Mortgage volume was up about 50-odd-% over the previous year, and commercial lending was up about 65%. So it is growing, but it’s important to see that growth in the context of the 40%, 45%. And you’ve still got other parts with the tracker mortgage book, etc., coming off quite sharply.

And just as a follow up, as the NPLs roll off in Ulster Bank we shouldn’t expect that to flow through to the risk rating materially?

Yes, it will have some benefit. We are seeing substantially less capital being held against legacy, because you’ve got a combination of HTR improvements, together with a falling book, and this is having a compounding effect on capital. But it will have some benefit, but I don’t think it’s going to be transformational for the Bank overall.

Thank you.

Michael Helsby, Bank of America Merrill Lynch. I’ve got a couple of questions, actually. First, on commercial, it’s quite striking in a flat market that the two market leaders, being yourselves and Lloyds, are actually the ones growing their loan book. I was just wondering if you could maybe talk to what you’re doing differently versus the market. And if you could also, against that backdrop, because I’m conscious that some of the smaller banks are growing quite quickly, just talk about the competitive environment, and maybe the margin outlook in commercial. And then, the second question would be in the retail business. Two strands to this. Firstly, on unsecured, Ross, you’ve been very vocal, historically, about not wanting to chase unsecured business, because it just doesn’t make any sense at these prices. But I do know that you’ve cut your prices, certainly on the screen, very materially, so I’d be keen to get an update on that. And then just on the current account, the Reward, I’ve got one myself, it’s great. It does strike me, though, that it’s quite expensive. So what’s the annual cost of that in 2016? Is it cost effective? I appreciate it’s probably stemmed some lost customers, but just give us an update on that. Thank you.

I think we need to go to the cheap seats in the front here. Alison, could you deal with the commercial one; and then, Les.

On the commercial side, what are we doing differently? We’re focusing on our strategy, which is around our customers. We’re training our bankers. We have a full training program for our bankers; up-tiering, upgrading what they’re doing, and focusing on a needs-led approach. So, we’re basically doing a better job with our existing customers. We have market-leading products. If you look at our Lombard brand, our invoice financing business they’re market leaders. We’re increasingly addressing the needs of our customers to ensure we’re dealing with that, and that’s driving the growth that you’re seeing in our commercial business of new lending of around £3.2 billion. So we’re seeing good momentum, good improvement in our performance from that perspective. On the margin outlook, like all of the other banks, the market is incredibly competitive. We’re seeing margin compression. We’re making sure that we’re doing the right business with our customers. It’s about building sustainable growth. If you look at the RWA intensity across our book, we’re making sure we are writing good quality business, but we will continue to compete effectively across the market.

Thank you. Les?

Thank you. Well, I’m happy to hear that you’re a satisfied Reward customer. For everybody else, if you don’t have a Reward account, do take a hard look. To answer the question specifically, I mean, how do we actually make money from that sort of account, the first thing is, because it’s all to do with how you use the account, people tend to actually hold more money in their current account so that they can pay all their bills, so, the average amount of money that you have in the current account is greater. So, that’s the first thing. Obviously, it’s not fantastic in a low-interest rate environment, but maybe that will change in time. So, the first thing is you actually have more funds in the current account. Maybe that’s the case with you; maybe it’s not. Have a look. Second thing is what happens is as people start to use the account and they like it, and they use the mobile and they find that it’s easier to use the account, they actually take out another account. I don’t know, in your case. Have you taken out any other accounts with us? Well, have a look and you will find that – what we find is, on average, the number of accounts that people have goes up. I think, as you mentioned, the attrition rate of people who have Reward is a lot lower, so a lot better, so people become more loyal. The other thing that we’re finding is, perhaps like you, we tend to get more mass-affluent customers who are using the Reward account. Unlike many of our competitors, there aren’t any tricks, so you can – depending on how big your household bills are you still get 3%. So, we tend to get a better quality of customer. So, for all those reasons I won’t go into the exact amount that it’s going to cost us this year, but what I would say is it’s certainly helping to reduce the attrition. The other thing, if you think about it, in current accounts, ultimately, what we want is we want to get to a place where everybody pays a little bit. Shouldn’t be a – I know in the UK that’s a slightly unusual concept, to pay for your current account, but we now have hundreds of thousands of people, including you, who are now paying every month for their current account. And why you’re doing that is because you’re getting good value. So, enthusiastic about that. Your first question in terms of unsecured, you’re right, we have reduced our rate, particularly on loans. But we are still significantly above the market, if you look at where the market’s actually dropped even lower. The cost of funds that we have, have allowed us to do that. So the return that we’re making is still greater than 15% ROE.

Thank you. I’m going to take one from the web now. Gary Greenwood, Shore Capital. What still needs to be done before you can separate Williams & Glyn? And what has caused the additional delay? We’ve sort of partly covered that.

Well, Simon, do you want to say – Simon McNamara?

Yes, I think. a big program with a lot of moving parts. There are about 70,000 milestones that make up this project. A number of them are behind us. We’ve already stood up the mainframe environment, and we’ve started this test environment that Ross mentioned, as well. What’s ahead of us is the establishment of the full production environment, and that’s the work that’s currently underway. So that’s setting up, essentially, the destination in a full sense. That’s what we’ll be doing over the next few months, looking to complete by the end of the summer. And then post that, if you can imagine taking 2 million customers from our business today over a weekend and having them fully functional and operating on a Monday morning in a new bank, there’s a lot of testing and proving. We’ll spend a significant amount of time making sure that as we migrate those customers from the existing systems to the destination systems that we do that, that they fully function on the Monday morning; that the 190 products that they have with us are fully functional through that transition. So that’s essentially it: it’s standing up for production environment fully, and then the testing and proving, and then the cutover.

Thank you. The Board is very focused on this. We have a deadline, but, of course, also we have to do this safely. We can’t possibly envisage a situation in which 2 million customers get lost in translation.

Thank you.

Thanks, its Manus Costello from Autonomous. Can I just follow up on Jonathan’s question, please, about the cost-to-income ratio guidance, because I wonder what your rate assumptions are now embedded within that? We heard from Lloyds yesterday that they’ve pushed out their rate assumptions. I wonder if you’ve done the same, because it would implicitly seem that you have a potentially higher yield curve when you set that target than it is now.

Yes, look, I mean, we’ve obviously reconfirmed the target today, in today’s rate environment. So we’re obviously cognizant, Manus, of the fact the rate environment has moved. And in terms of our modeling, we use consensus, so.

So we should assume that you’re just assuming more volume then to offset it?

And we have to take more cost out of this organization. We’ve shown our ability to do that. We have to tough it up, and do it even further, given the rate environment going forward. Never an easy task. As you get a simpler business, you start to see in to that business and, well, we find things out all the time in this organization. But it’s a tough task. But that’s what we’ve said we’re going to do, and we’ve shown that we will do that to date. We have to do it again this year, but it gets tougher.

Thank you.

[Indiscernible] thanks.

Good morning. Martin Leitgeb from Goldman. Two questions, please. The first one on your PBB growth target. You are targeting 4% net loan growth in 2016. If I compare that to what you achieved, particularly on the domestic mortgage side, I’m just trying to square that up with how should we think of mortgage growth from here over the next 12 months, 24 months. You mentioned you kept pricing, so you haven’t flexed that yet. Should we assume that continues from here? Or could we assume that, given the infrastructures now in place, you could accelerate it potentially, or keep it at the same level? And the second question would be on your corporate loan book. Just given the slowdown in macro we see in different parts of the world, where would you see the biggest risk for RBS here, going forward, in terms of credit cost? Thank you.

Thanks. Well, once again, Les first, and then Alison.

If I take the mortgage growth, I think what you should just expect is more of the same. We’ll be aiming to grow our volume at roughly the same rate that you’ve seen us able to grow it last year, and you shouldn’t expect us to change our stance on pricing. We’re going to be doing that through the way in which we’re selling the product through making sure that we’re delivering good service; we’re not going to be reducing our pricing in any way.

Alison, on credit?

Yes, in terms of how we’re managing the book across the corporate side, we have a pretty active sector-risk framework and portfolio framework. You saw last year we reduced our balance sheet by £2.2 billion, so we actively managed the risk cycle in the different elements of our book. In terms of our RWA intensity, you can see that’s broadly consistent. So we’re just actively managing that. You saw we’ve reduced oil and gas exposure quite significantly, and those are elements we’ll continue to do. In terms of what we have in our plan, I’m pretty comfortable we’re actually managing the credit risk across the book.

If I may follow up, are there any elements within the corporate book where you see a deterioration of trends, whether that’s NPL ratio, credit cards, whether that’s shipping, or whether there’s anything.

No, I don’t have any concerns in terms of how we’re managing at the moment.

Yes, shipping sits away from Alison’s business, Martin, but it would be one area that we are watching. I think the other thing important to remember in terms of the 4% across PBB and CPB, it is a net number. I talked about earlier Alison’s got £9 billion of commercial RWAs that she’s seeking to run off, so the gross growth that we’re anticipating is higher than the 4%.

Thanks. Yes, second row middle.

Morning. It’s Andrew Coombs, Citigroup. Two questions as well, please. The first is just a follow up on the £0.8 billion cost reduction. We know that £0.2 billion of that comes from the international private bank as that drops out. But of the £0.8 billion, you’ve previously clarified that the majority of that relates to the legacy operations, so presumably the bulk of it is capital resolution.

No. We’ve currently got a cost structure and capital resolution of about £1.5 billion last year. And as part of that seminar we had in November last year, at some point that £1.5 billion has to go to zero.

Okay. I’m just trying to get a feel. If the majority of it does relate to the legacy items to capital resolution and there’s less of that cost take ups coming from the core business, you’re guiding to stable revenues from PBB and CPB, and some further revenue erosion from CIB, and yet positive jaws for the overall core bank. So just trying to drill down to which of the divisions you think is going to deliver the positive jaws…

We’re not going to take you down to that level of specificity. But you can assume that we did the math to assume that when we made a statement about positive jaws that we had done the math to figure out that, that statement was correct.

Okay. And then just drilling down to PBB in a bit more detail, you just talked about the 4% net loan growth. Obviously, there’s some off-selling pressures from interest margins. But just doing the math and plugging in 4% it would look like you’re assuming less of a margin pressure this year versus last year. And yet, when we look at Q4 the margin pressure was accelerating rather than decelerating. Why should that trend change going in to next year? Is it purely because you’re expecting less SVR churn? What’s the major delta?

Firstly, I think the Q3 versus Q4 comparison was unflattering because there were some one-offs that benefited Q3. So it didn’t accelerate in the way you suggest in Q4. And I think, as I said, the standard variable rate book is now down to about 17%. We do think that, that – we’ve talked about previously that plateauing at around 10%; I think that’s still our best guidance at this point. So we do think that you’ll see less pressure this year relative to last year from that switching.

The SVR book is down to 15% now. And we’re going to have to look at the other side of the balance sheet around the liabilities, the pricing, to actually make sure we don’t lose a lot more margin. But I see there will be a trending off in the margin, as we’ve said.

Hi, Chintan Joshi from Nomura. Two questions, please. One on – you touched upon this a little bit: you’ve got £1.9 billion cost in the non-core division, most of it is in capital resolution. Can you give us some color on how much of this is allocated costs, or indirect cost; and also, more importantly, the confidence in running that out, or the risks of not being able to run that out?

They’re all sitting in front of you. And they have to take their share, because a fair bit of it is on an allocated basis. We are running a functional model, and everybody has their targets this year that they have to go after to support, particularly CIB’s business. Because Chris runs a front-end business supported by services and functions, and the services and functions need to take the cost out on behalf of Chris. And that’s what we’re targeting.

And then, Mark Bailie and his team have got it pretty well mapped out. And we are trying to get out of 25 countries. Some of those countries we’re selling, the teams go. Mizuho last year, when they bought the portfolio, took 300 people off us. Some of it – and even though that is a functionalized cost, it is cost that’s sitting within a country and as you sell the country the cost goes. Some of it does involve, as Ross said, all of us who are in services and functions, sitting there and working through what share of that cost we need to take out of our teams.

Mark, can I ask you to comment on that?

Can Mark Bailie just make a few comments? He’s running the capital resolution.

In terms of the conversation we went back to the CIB Investor Day last November, it’s broadly one-third, one-third, one-third direct people; one-third people in region; and one third allocated. Most of those people now, of the £1.5 billion, relate to GTS, which is in the full-scale wind down now. All clients have their termination dates this year. As that client activity comes off, it’s mapped to line-by-line headcount numbers in every country, and it will flow out as the client activity goes. We’re entirely comfortable the cost base is coming out.

And one on litigation, please. In your annual report you talk about £43 billion of issuances under litigation. What is the outstanding amount that is under litigation other than the issuance amount that was issued between 2005 and 2007? And I just want to confirm that this excludes the FHFA of £32 billion, but includes the NCUA of £3.25 billion.

No, the £43 billion includes NCUA, includes FHFA, in that number. So the bulk of that, £32 billion old is FHFA.

Okay. So then we have the outstanding information on the FHFA and the NCUA. The balance, how much is outstanding? I can take it up later, if you…

Yes, in terms of the outstanding principal balance, it’s about £7 billion-ish.

£7 billion?

Yes. Across about 16-odd different pieces of litigation.

And we touched upon this with the pre-announcement call, but I don’t want to take…

What are you trying to figure out?

The loss rate, simply. We don’t want to look at the NCUA settlement you did late last year, because that’s a pretty high loss rate for reasons you explained. But I’m just trying to get a sense of how much of that £7 billion is at risk from…

Well, some of it is at risk. But it’s very, very, hard, without getting in to the individual cases, to begin to give you a reasonable basis for estimating what the loss rates are.

Okay. Thank you.

Yes. In the middle…

Yes. Thank you, very much. It’s Tom Rayner, from Exane BNP Paribas. Could I just ask you a question about how you view the regulatory environment currently? Because this is the fourth UK bank meeting I’ve sat in this week, and we’ve heard various things: one sort of message is that the Bank of England is generally happy with the level of capital in the system and, therefore, we shouldn’t really worry about Basel IV RWA inflation. Same, I think, was said for a potential countercyclical buffer. There will be offsets to these things: one bank even said IFRS 9 is not a material issue. And a couple of these banks fairly generous payout ratios, I would say, with equity Tier 1 ratio significantly below where you are. I notice your Pillar 2A has gone up again, and this is possibly one areas regulators might look at to find some offset to some of these capital pressures. I just wondered if you could give us your thoughts, is that possible or likely? Are some of your peers being perhaps too optimistic, or are you guys perhaps being too pessimistic with some of your comments? A comment, please. Thank you.

I’ll ask Ewen to comment on the specifics of Pillar 2A. But I think the way you describe the other banks’ views of the overall environment, it seems to be about right to me. We hear from the Bank of England that they would like to stabilize the regime, they’re not thinking major changes now, and they are broadly comfortable with the amount of capital in the system. And as you will know, we were not required to make any capital actions following our stress test this year. So I think your broad description of where banks see the regulators as being sounds to be one I recognize. But on the specifics of the Pillar 2A?

Yes, I’d echo what Howard said: we obviously don’t suffer from having a too high a payout ratio at the moment. But the – we were encouraged by what – where Lloyds seemed to get to yesterday in terms of their discussions with the PRA, as it relates to a potential future outcome for us. On Pillar 2A, remember that we’ve just done an accelerated, or just about to do an accelerated, £4.2 billion payment in to our pension plan. That should come through in terms of a Pillar 2A deduct from January 1, 2017. I think the 13% – I think all of that, in terms of Basel IV, we get exactly the same messaging, which is the PRA will be pragmatic about it for the sector as a whole. When we look at our business mix, we’re not overly invested in wholesale banking, we’re not overly invested in mortgages, so if there is an overall impact we think we’ll be in the middle of the fairway. But the PRA is definitely indicating that they will moderate their buffer requirements, depending on what happens with the RWA rules. So the 13% target I think we’re very comfortable with. In fact, we could image, post the CIB restructuring, there comes a point in time where we might be able to lower that number, too.

Okay, could I just quick follow up then? Because if I look at your slide where you had your tick box, all the things you have to achieve before you can start paying, and let’s skip forward to that point in time, whenever that might be, middle of 2017. Are you going to look at it maybe the way that Lloyds did, which is you might start an ordinary and then look at any difference between where you are in the 13% as the potential for a special? How are the Board – or is it too early for the Board to be really discussing that at this stage?

I can answer you factually: it is too early for the Board to discuss. We have not had that discussion, because we want to get the other side of the RMBS settlement, in particular, before I think it’s appropriate or realistic for us to have that debate. But clearly, the different options are on the table.

But Ross and I, I think, have been relatively open in the past about the fact that we would start, we think, out with a relatively modest dividend payment, growing over a period of time; and seek to maximize our buyback capacity to the extent that HMT wished us to participate in buybacks from their existing stake. We think that helps reduce some of the overhang, given their privatization program. But as Howard said, it’s a relatively nascent thought process at moment.

Yes. Done, all right. Thanks.

Peter Toeman from HSBC. Could you venture what the Pillar 2A buffer might look like in 2017 now that you’ve picked a pension deficit? Should I assume that the £4.2 billion is going to come off the £6 billion that’s in the Pillar 2 buffer?

No, because it depends on how the trustee invests the £4.2 billion. The more that they invested in equities, the lower the benefit. And we would quite like them to invest in a manner consistent with producing higher investment returns and reducing the deficit through investment return. So you can’t just do simple math, but something in the order of probably about half that number, half of the £4.2 billion. It’s premature to discuss, because we don’t know how the trustee is going to invest the funds at this point. There was somebody, sorry I can’t see your hand.

Hi, it Jo Dickerson from Jefferies. I just have one question. Why does Williams & Glyn get added to the milestones for capital return now, it only has £10 billion of risk-weighted assets? If you could discuss that, that would be great. Thank you.

A very good question. I think it was just one of those things that we have to deliver, on as part of the commitments that I think the PRA were very interested in us removing, as part of normalizing the Bank was why it ended up there.

And it’s also the last of our state-aided requirements, going back to the recapitalization. So, as the timetable has drifted back, it has become an issue that we think we need to solve.

But I think you’re right, that it doesn’t specifically link to available capital. I think it’s more that the regulators want us to achieve these various things and then they’ll talk to us about distribution. Anybody else? And there’s nobody else from the web, not on this, am I right? In which case, thank you very much, all, for coming. Nice to see HSBC is here and not down the line from Hong Kong, so well done.