The Royal Bank of Scotland Group plc, H1 2014 Guidance/Update Call, Jul 25, 2014

Jul.25.14 | About: The Royal (RBS)

The Royal Bank of Scotland Group plc (NYSE:RBS)

July 25, 2014 4:00 am ET

Executives

Ross Maxwell McEwan - Group Chief Executive Officer, Executive Director and Member of Executive Committee

Ewen Stevenson - Chief Finance Officer and Executive Director

Analysts

Michael Helsby - BofA Merrill Lynch, Research Division

Raul Sinha - JP Morgan Chase & Co, Research Division

Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division

Andrew P. Coombs - Citigroup Inc, Research Division

Rohith Chandra-Rajan - Barclays Capital, Research Division

Joseph Dickerson - Jefferies LLC, Research Division

Thomas Rayner - Exane BNP Paribas, Research Division

Michael Trippitt - Numis Securities Ltd., Research Division

Christopher Wheeler - Mediobanca Securities, Research Division

Peter Toeman - HSBC, Research Division

Alastair Ryan - BofA Merrill Lynch, Research Division

David Lock - Deutsche Bank AG, Research Division

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

Operator

Good morning, ladies and gentlemen. Today's conference call will be hosted by Ross McEwan, RBS Chief Executive.

Ross Maxwell McEwan

Thanks very much, and good morning, everybody. Thanks for joining us a little bit earlier than expected for our preliminary H1 results. I appreciate everyone joining at such short notice. A special welcome to Ewen Stevenson, our CFO. It's his first results announcement, and I'll get him to make a few comments very shortly.

We had to release our results a week earlier because of our significantly stronger than the market was expecting. Better than expected market conditions, much lower in payment costs, significant improvements in nonperforming loans than the pace that we've been able to take assets from RCR, our bad bank off the book, mean that we have returned a GBP 2.6 billion operating profit and a bottom line profit of GBP 1.4 billion, as the results we are posting today show that -- show the steady progress we are making as we take the steps to be a much simpler, smaller entity or bank. These results show that underneath all the noise and huge restructuring of recent years, RBS is fundamentally a stronger bank that can deliver good results for shareholders and to customers.

There is progress on all our key priorities. Capital is stronger, costs are lower and customer activity is gradually improving, although we've only just started with our program to make it an -- it easier for customers to do more business with us.

I just want to sound [ph] a note of caution, as I did in the first quarter, we are actively managing down a slope of significant legacy issues. This includes significant conduct and litigation issues that will hit our profits in the months and years to come. I'm pleased to -- we've had 2 good quarters, but no one should get ahead of themselves here. There are bumps in the road ahead of us. Today's results are pleasing, but no one at this bank is complacent about the challenges ahead.

I'd like to hand over to Ewen and just to take you through some of the headline numbers, and then we'll open up for questions.

Ewen Stevenson

Thanks, Ross, and thanks, again, for joining us at short notice. Earlier today, we released our preliminary interim results. We will publish our full IMS under our new segmental reporting format on the 1st of August, next Friday. I will offer some brief comments on our second quarter results before leaving plenty of time for Ross and I to answer your questions.

Key features of the second quarter were an attributable profit of GBP 230 million, including an accrual of GBP 320 million for the initial repayment of the DAS, a milestone for us. This is our second consecutive quarter of reported profits this year.

While we're clearly pleased with this quarter's result, we recognize that revenues have been flattened by some one-offs and impairments have been exceptionally low. As a result, we remain cautious about a direct read-across of these trends into the second half and also anticipate conduct and litigation expenses to be higher in the coming quarters.

We reported a second quarter operating profit of GBP 1.3 billion. Excluding restructuring and conduct costs, our adjusted operating profit was GBP 2 billion. The return on tangible equity for the first half was 7%. Our core Tier 1 ratio further strengthened in the quarter to 10.1%, reflecting both the quarter's bottom line profit and the further material RWA reduction, which more than offset the impact of the initial DAS payment. Since the start of the year, our core Tier 1 ratio has improved by 150 basis points. Tangible net asset value per share was 376p at the end of the quarter.

Looking at our second quarter P&L performance in more detail. Total income was GBP 4.9 billion, down just 3% on the last quarter despite lower seasonal revenues in our CIB franchise; however, second quarter revenues were flattered by just over GBP 200 million of one-off items, the largest item being a GBP 170 million pretax gain on sale from the disposal of settlements Illinois branch network that were also just over GBP 200 million of AFS disposable gains in the first quarter to take into account when analyzing first half performance.

Year-on-year, revenues were down 10%, reflecting the ongoing reduction of the bank's balance sheet. Over the same period, funded assets were down 13% and RWAs by 17%. The net interest margin increased 22 basis points year-on-year and 10 basis points quarter-on-quarter to 2.22%. The quarter-on-quarter improvement was primarily driven by deposit repricing initiatives, as well as the reduction of low-yielding RCR assets.

Total costs were up 9% versus the first quarter, but down 11% year-on-year. Excluding restructuring and conduct charges, costs improved 7% on the previous quarter. And adjusting for one-offs, largely an GBP 80 million intangible write-off in the first quarter, underlying costs were down 3% quarter-on-quarter. We are pleased with this cost reduction, reflecting good cost discipline across all our businesses. We expect to deliver additional cost savings in the second half from the continued implementation of further cost-reduction plans. Note that we do anticipate taking a full year 2014 bank levy charge of approximately GBP 300 million in the fourth quarter, charged to the relevant businesses and not below the line. We are on track to deliver our 2014 cost savings target of GBP 1 billion.

Our restructuring spend increased by over GBP 250 million in the quarter to the GBP 385 million, as we start to step up the pace of our restructuring efforts. Looking forward, we expect restructuring costs to be in the order of GBP 1.5 billion for this year versus our previous guidance of GBP 2 billion. We do still anticipate an overall restructuring spend of around GBP 5 billion across 2014 to 2017.

On conduct charges, we took an additional BDI provision of GBP 150 billion (sic) [GBP 150 million] in the quarter, as well as a further GBP 100 million provision for interest rate hedging products.

The reported second quarter cost income ratio was down one percentage point year-on-year to 75%. Adjusted for restructuring, conduct and litigation costs, our cost income ratio was also down one percentage point year-on-year to 62%. Our medium-term target remains 55%, and our longer-term target remains at 50%.

Impairments were exceptionally low in the second quarter with a net provision release of nearly GBP 100 million. The second quarter improvement of nearly $0.5 billion reflects a very supportive credit environment, driving both provision releases and lower new default cases across all our businesses. The positive macro environment that we now see in the U.K. and Ireland means that we now expect lower impairments in the order of GBP 1 billion for the full year.

Other items in the quarter included GBP 130 million goodwill write-off in CIB, as a result of the transfer of assets to this business as part of our divisional reorganization. There was also a GBP 80 million deferred tax write-off relating to our U.S. business, triggered by the further scaling down of our markets' operations.

Turning to the balance sheet. Funded assets fell GBP 10 billion in the second quarter to GBP 736 billion. This is down GBP 106 billion year-on-year. Net loans and advances were GBP 387 billion at the end of the quarter, and within this grace [ph] mortgage volumes were GBP 5 billion in the quarter, representing a flow market share of more than 10%. During the quarter, RCR saw assets decline by a further GBP 3 billion and RWAs by a further GBP 5 billion. In the first 6 months of the rundown of RCR, it has been GBP 2 billion accretive to our core Tier 1 capital.

On our capital position, we finished the quarter with a fully loaded Basel III core Tier 1 ratio of 10.1%, up 70 basis points from the previous quarter. This improvement includes a 20-basis-point increase from earnings and a 50-basis-point gain from a reduction in RWAs. RWAs were down GBP 22 billion quarter-on-quarter to GBP 392 billion with further reductions in CIB and RCR acting as the main drivers. We reaffirm our targets of a fully loaded Basel III core Tier 1 ratio of 11% of the end of 2015 and greater than 12% by the end of 2016.

To conclude, we are pleased with this set of quarterly results. We have made further progress towards simplifying our business, reducing risk and regrowing the go-forward bank. While we caution against the read-across into the second half, we believe we have made an encouraging start over the last 2 quarters towards our medium-term financial targets, and we remain confident we are on track to deliver them.

Thank you, and I'll now hand over back to Ross.

Ross Maxwell McEwan

Thanks so much, Ewen. I think we just open straight up to questions, and we'll leave it to the audience.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question today comes from the line of Michael Helsby from Bank of America.

Michael Helsby - BofA Merrill Lynch, Research Division

Yes. Just 3 quickies for me, if I can. A small one really on Ulster Bank, to start off with. I think, Q1, you warned about some technical factors in the net interest income that were going to push NII down for the rest of the year, and that's clearly not happened, and so I was wondering if you could just give us an update on that; second question would be on litigation. Clearly, this is a big factor for the industry, and you quite rightly flagged the uncertainty around it. I was wondering if you could just give us any qualitative comments around how you think about in terms of potential magnitude. And you were talking about FX last week on the radio. So just a bit more color so we can think about that in the context of your capital base, and then finally, on RCR, it's clear that rising asset prices, the losses are a lot lower than what you provisioned for. I'm surprised actually, that your guidance hasn't improved a bit more then what you've done. So it's just a clarification. Have you effectively marked-to-market the asset prices as at the end of June, and that's your new guidance? So -- and if -- can you give us any rule of thumb about the impact of rising asset prices from here, which feels probable? Is there, what, any baseline sensitivity you can give us on CRE prices in the U.K. and Ireland? That would be helpful.

Ross Maxwell McEwan

Ewen, do you want to start? And I can chip in or...

Ewen Stevenson

Yes. Michael, look, on Ulster bank, I think what you're missing is a GBP 15 million interest on -- interest expense [ph], which came into the interest income in the second quarter, which offset the additional liquidity that we had to put with the CIB, and I think when you factor that in, that's probably a significant part of why the interest margin went up in the Ulster. On RCR, look, we haven't marked-to-market, and -- I mean, as you've seen today, we've taken the guidance for the remaining cost to exit down from GBP 4 billion to GBP 4.5 billion, down by GBP 1.5 billion. I think about 1/3 of that really relates to the fact that we think -- as we set the business up, we looked at the trajectory of the business. We think operating costs will be lower, and about 2/3 relates to the fact that we think that realization proceeds will be about GBP 1 billion lower. So -- and I -- a bit -- a little bit caution on the fact that we still bought about GBP 21 billion at the end of the quarter. So our ability to be 5% smart in terms of ultimate asset realizations out of it. I mean, there is still, I think, quite a bit of variability, yes. Hence, the caution.

Ross Maxwell McEwan

Just from the litigation ones, we haven't got any further guidance than what we gave in the first quarter. I think you covered off on all the issues that are in front us, as they are in front of most of the industry. We still, I think, quite a bit of work to be done on the FX, as we said in the end of the first quarter. I just want you to know it [indiscernible] is this feeling more and more like a LIBOR-type activity, but look, lots of water go under the bridge on that one, and the other one's just no more of those. Sorry, I just can't give you any update. We just don't have it. We are watching every case that comes through, and we're -- as I said, we've got a 12 to 18 months of these things still coming at us, probably up to [ph] 24 months.

Michael Helsby - BofA Merrill Lynch, Research Division

Is there -- can I just -- on the U.S. mortgage side, because that's clearly a big area for you guys. Is there any merit in looking at the more recent settlements from the U.S. banks and trying to read across to you guys? Is that something that you've done or think is just completely inappropriate?

Ross Maxwell McEwan

Look, each one is -- each time there is a case that gets settled over there. We do, do a read-across, so there's -- we haven't changed any of our views at this point in time. We do keep an eye on every one of them, and we are involved in some smaller ones over there, but there's no change to our guidance from the first quarter.

Operator

And we will take our next question from the line of Raul Sinha from JPMorgan.

Raul Sinha - JP Morgan Chase & Co, Research Division

Can I also have 2, please, and then a quick follow-up?

Ross Maxwell McEwan

Try to squeeze in with these 2 and a follow-up.

Raul Sinha - JP Morgan Chase & Co, Research Division

Okay. Well, I'll try and stick to 2, and then I'll come back if you've got more time for me later. Firstly, on Ross, if I can steer on litigation. It's pretty clear from what you're saying that you expect a pretty challenging environment for RBS or the remaining part of this year and next year on this issue. I'm just surprised to see that your provisions in this quarter are so low on litigation relative to what you have done previously, and I just wanted to get your thoughts on why haven't actually taken more litigation provisions while you're clearly seeing write-backs in other areas that might actually position you slightly better when it comes to the volatility that you will see in this area going forward. So that's the first one, and then the second one, obviously, on RCR, you said you're GBP 2 billion accretive to capital. Can you actually tell us what assets you've sold in the first half that have generated the capital or maybe give us some description of those assets, and then maybe what's -- a little bit on what's actually remaining within the portfolio, and how we should think about that going forward?

Ross Maxwell McEwan

Maybe if I take the first one and then Ewen can take the second. Just on the first, around litigation. Look, we just haven't seen any change in the facts so, therefore, we can't change any of our provisions. If we saw anything that changed the fact by -- and if so, we could do the read-across all the cases in the life. But as it change our views, well, we would have to and would -- well, no have to. We would change our provisioning, but we just haven't seen anything that says that we should or could or can. So that's why we've made no change to our litigation other than the PPI and a bit on the swaps, which were -- the PPI one was -- we did a write-out to clients around a single premium product. In the second quarter, of course, we saw a spike up in those and those -- they'll come back to a normality. So we took an additional piece there to cover that. So unfortunately, I just don't have any other facts that I can do anymore provisioning on.

Raul Sinha - JP Morgan Chase & Co, Research Division

How many months of cover do you have remaining on PPI? That was my follow-up.

Ross Maxwell McEwan

Let's see, about 5 or 6 months, but we can get you the exact, but I think it's 5 to 6 months. On that one there, we are see -- as you've seen the Ombudsman's steps come off 50%. Now I'm not saying that's happening in our book, but we are seeing the numbers starting to trend down as we predicted on there, but we do review it on a quarterly basis.

Ewen Stevenson

Yes, the provision at the end of the second quarter will be just under GBP 600 million.

Raul Sinha - JP Morgan Chase & Co, Research Division

Okay. And RCR?

Ewen Stevenson

Yes. On the question on RCR, we sold about -- just under GBP 4 billion of assets in the quarter, 300 asset pools really across-the-board. Ireland, I think, has surprised us. There was a small disposable [ph] gain of about GBP 150 million, I think, when we produce our segmental reporting next week, we'll have more color on RCR there for you to look at.

Raul Sinha - JP Morgan Chase & Co, Research Division

But is that mainly commercial real estate in Ireland that seems to be driving the gains?

Ewen Stevenson

Yes.

Ross Maxwell McEwan

Across-the-board, U.K. and Ireland is commercial real estate.

Ewen Stevenson

And so you have properties in Continental Europe as well.

Ross Maxwell McEwan

Yes. So you are seeing an uptick. The economy is picking up. People are after these assets, and that is certainly helping us. We saw that trend in the first quarter, which we called out, and we've revised upward our second -- after our second quarter experience, and as you know, we've got a very, very experienced team there that have got really good skills to it, and we've got a good market now.

Operator

And we will take our next question from the line of Chira Barua from Sanford Bernstein.

Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division

Just had -- if you could just give me an update on Citizens on one side and the strategy in Ulster on the other side. What's the latest thinking on both?

Ross Maxwell McEwan

Yes. First off, on Citizens, we put the H1 out recently. There's not anything more I can say on that process, other than it is staying on timetable, because we're obviously in a period of quiet time now with Citizens. You've seen the results that Bruce and the team have put out there, progress being made on the business and the IPO is as per our original timetable. I just don't know Ulster Bank itself. It counts [ph] like a few comments on that one. Look, we've supported this business through some pretty tough times. It is a fully fledged bank in Ireland, being both a retail and a commercial bank, from that 15% market share. Look, our position on this is we believe we want to create a really strong franchise. The issue that we're trying to solve for here, and this is why we're doing the review on this business, is how do we get it like every other business that I operate, getting over its cost of capital. And that's the thing we're solving for, for this business. We were -- our full executive team were over in Ireland 2 weeks ago. We were, I think, buoyed by a very good economy over there. Our management team, I think, are doing a very good job, but the issue that we've asked them to solve for us and with us is how do we get you, our shareholders, a return that I expect out of every part of our business, and that's what we're looking at, at the moment, but we want to be there. We want a strong franchise. The question is, how do we do that? This business -- both Ewen and I come out of an economy with the same population as Ireland, [indiscernible] New Zealand. We ran a bank with the same percentage of the market. We should be able to turn this into a profitable bank. The question is getting a plan that will do that, and that's what we're solving for.

Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division

Ross, just in the -- I really appreciate it. Going back to your earlier comments. So if you have 15% market share in Australia, your return on equity would be higher than cost of capital, right? So which line is working to your disadvantage in Ireland?

Ross Maxwell McEwan

Yes. Remembering we've taken out the assets that have gone on to RCRs. So we're running those down, and remembering we've got a big trackable; that's about GBP 10 billion, it is producing a return -- well, it's got a NIM of about 1%. I think I'm looking at Ewen now, and say it's about 1%, yes.

Ewen Stevenson

And I think at a time, you try in all of the arrears and management costs associated with that, too. It's effectively an unprofitable book for us. So even when you look at the core franchise in Ulster, I think you have to be careful about drawing the wrong conclusion on sustainable returns, because as that book continues to track down, I think, what you'll see is fundamentally that sort of go-forward Core business is probably we'll be able to produce returns above the cost of capital over time, but that's what we're trying to prove out at the moment here.

Ross Maxwell McEwan

And obviously, as we brought this business to a much smaller size, we've got to address the cost issues. So these are the things we're examining at the moment with the team and with the support of that team. I want to create a really good bank. The -- but every part of that business needs to get itself over the hurdle rates, and that's what we're pushing every part of that business to do.

Operator

Well, we will take our next question from the line of Andrew Coombs from Citigroup.

Andrew P. Coombs - Citigroup Inc, Research Division

Two questions for me, please. Just firstly on loan loss ratio. Your guidance for GBP 1 billion for the full year would imply GBP 730 million for the second half, which is approximately about a 37 basis points loan loss ratio. So slightly below your long-term target of 40 to 60-basis-points. So I guess my question would be, do you think the second half is more reflective of a normalized period? Or do you still think you will see an increase as you kick base rates rise towards that 40 to 60 basis points range? And that's the first question; the second question's just a technical question; you've obviously printed a very good statutory profit; your tangible NAV is flat. So I'm assuming there are some offsetting charges there direct to equity. So perhaps you could elaborate on that.

Ross Maxwell McEwan

Yes, Ewen?

Ewen Stevenson

On the -- just to take the second one very quickly. I think, again, we'll provide more disclosure in our IMS next week, but it's largely due a negative FX reserve movement of just under GBP 600 million, which offset the attributable profit. Yes, the way that we manage RWA risk, and you will see that there is a benefit in our RWAs this quarter because of FX moves. So I think that that's the missing -- principally, the missing item that means that the tangible net asset value per share has stayed flat at 376p. On the line loss reserve, yes, we've -- as you've calculated, we are below the range that we've guided to. I think for the time being, we are seeing relatively low levels of new NPLs coming into the book across-the-board. Difficult sort of read into that, where that takes us into 2015, but certainly for the remainder of 2014, I think we are guiding to be below the range that we've previously indicated.

Operator

And we'll take our next question from the line of Rohith Chandra-Rajan from Barclays.

Rohith Chandra-Rajan - Barclays Capital, Research Division

I've got couple as well, please, if that's okay. The first one is just following up on one of Andrew's questions actually, just on the provision charge. So the GBP 700 million for the second half suggests something pretty much similar, I guess, to the Q1 run rate. I'm just wondering if you could talk a little bit more about that, given your -- the policy of comments that you've made on improving credit conditions in the U.K. and Ireland, generally and sort of falling default levels. What leads you to not expect an improvement on the Q1 level? So that was my first question; the second was on just on asset and RWA reduction in the second half of the year. For RCR, you've guided to sort of GBP 15 billion to GBP 18 billion assets at the end of the year. I'm assuming that the RWA reduction would be proportional to the asset reduction. Just want to check if that's the case, and also, we saw quite a step-down in CIB RWAs in Q2, so wondering just what your expectations are for the second half there, please?

Ross Maxwell McEwan

Thanks. So look, on the provisioning charge, I think what makes us cautious, I guess, going into the second half is just that we really had no large single-name write-offs in the first quarter. So I think if you adjust for that, we are assuming, probably on a like-for-like basis, a slightly low improved picture into the second half relative to the first quarter. It was quite an unusual first 6 months for us to have no single large write-offs in the book. On RWA reductions and RCR, I think your assumption on balance sheet declines -- equating to RWA declines on a proportional basis is a reasonable basis. On CIB, I think -- remember that in the first -- in the second quarter, there were some FX benefits in the decline. I think we did, though, continue to expect that the RWAs in that business are going to rundown. We are running down our asset-backed business in the U.S. I think when we look at the returns on the business, management are doing a very, very good job, I think, in managing down our RWAs, 9% down on the quarter. But do we expect to see the same pace of runoff in the second-half? I don't think so, but we would certainly expect our RWAs to be materially lower by the end of the year.

Rohith Chandra-Rajan - Barclays Capital, Research Division

Okay. And can you quantify the FX impact on the CIB RWAs? So how much of the GBP 12 billion was FX?

Ross Maxwell McEwan

Yes, I would say potentially about 1/3 of that is FX-related.

Operator

Now we will take our next question from the line of Joseph Dickerson from Jefferies.

Joseph Dickerson - Jefferies LLC, Research Division

You've had fairly strong capital generation and earnings year-to-date, and you'd -- you'll get a deconsolidation benefit from Citizens in terms of capital. Now that you've paid the Dividend Access Share or that process has started, when can we expect an update vis-à-vis your appetite for both dividends and potentially share repurchase, in other words, your capital return aspirations?

Ewen Stevenson

Yes.

Ross Maxwell McEwan

Well, I'd like to hear you answer this one, Ewen.

Ewen Stevenson

A question I didn't think I'd have to be answering on my field.

Ross Maxwell McEwan

Dividend and stuff [ph].

Ewen Stevenson

The -- you're right. Look, the capital position has improved 150 basis points core Tier 1 this year, which we're very pleased with. I don't think -- yes, given the caution that we've been expressing around litigation and conduct costs, I don't think we're looking to reguide people to anywhere than other than where we have guided to, 11% at the end of 2015, and 12% -- or I reckon 12% by the end of 2016. We've obviously made very clear commitments. We obviously are in discussions with PRA around those commitments. I think it would be a very optimistic -- you'd have to get very optimistic before I think you would see us paying dividends here, but it still feels like that is a discussion for several calls away in terms of our call -- analyst calls.

Ross Maxwell McEwan

Yes. I'd stick with -- where we've got, Joseph, as far as the 11% and 12% capital position over the next 2 years. We'll take it as it comes from there.

Ewen Stevenson

I think that it is fair to say that, look, over the -- so for medium to longer term, we will obviously be active capital managers as and when we find ourselves in that privileged position.

Operator

Now we will take our next question from the line of Tom Rayner from Exane.

Thomas Rayner - Exane BNP Paribas, Research Division

Q1 results were, I think, generally better. Nathan Bostock insisted that we not read across into the rest of the year. Second quarter is even better still, and I guess a positive profit warning is a good thing, but it is still a profit warning, and I just wonder, is -- how much confidence do you have in your ability to give guidance on some of these issues with the sort of availability and volatility such as in the Non-Core? So that's my sort of first question, I mean, how much confidence can we really have in the guidance that you're sort of giving out today? And the second question really is just get a better feel for the sustainability of some of the trends, I mean, the improvement in the core impairments, I'd like to understand maybe how much of that is about the low rate environment? How much is about sort of tighter underwriting post the financial crisis? Or any other sort of driver that might be in? And the same with sort of revenue. The revenue underlying feels a little bit better as well. And I'm just wondering, you're guiding for 30 flat margins, whether there's any other issues on the revenue side that you could maybe point us to.

Ross Maxwell McEwan

Maybe if I take up a few things, start here on the first quarter with Nathan. So it is much to me as Nathan, and I do recall saying at that time that RCR was going very, very well, and on any endless sessions I had after that first quarter when people asked me about that, I said, "No, RCR is going very well." And you've seen that in the second quarter. I am always cautionary on assets such as those because they are some of the more difficult assets. So I'm sorry, I -- we've given you as much guidance as we think we can and of what we're seeing. It may prove to be either too volatile, 5% [indiscernible] color [ph]. The other thing that I did say in the first quarter as well was around impairments. We traditionally have a really good quarter, first quarter of impairments, and I said I would rather call out the second quarter than first quarter, when we've seen a trend in that, and that's what you're seeing in the second quarter. It has been a lot better with a lot of write-backs coming into it, and that's why we're guiding you towards the full GBP 1 billion for the year with GBP 700-odd million in the second half. Again, we are seeing a lot of change in this environment. We've got a lot of assets in here that we're bringing off. You're finally seeing some growth coming into the marketplace, which is helping. So there's a lot of change going on at the moment, and having lost money for the last 5 years, I've got to tell you, this is a quite a cautious organization. So we are examining each of the loans that are coming through and questioning those so that we can get our forecasting better, but there's a lot of change still going on in this business. The revenue pace, can I just pick up, we are -- I did again in the first quarter, say to you that we were starting to see growth coming through for the first time in 5 years in our retail bank. You're seeing those at around a 3-odd percent, which is much better than what we've seen. In the first quarter, I called out the -- with the stabilizing of the assets within our corporate bank at that time. You're seeing those more stable now than they've been for 5 years. I still think we've got a bit of runoff in that book between now and the end of the year before we start seeing the assets growing again. So I give you that piece, but I do expect to start seeing next year, it start to grow but ever so slightly, because we still got some runoff in the book. So look, that's where I give you guidance to, and then I'll put your hand over to Ewen just on some of the other charges.

Ewen Stevenson

Just to finish on first half revenues. I think it's important to remember, firstly, that fixed income franchises obviously is seasonal. So we disclosed today that the rates guarantee in credit business had 25% lower revenues in quarter 2 versus quarter 1, and we think quarter 2 -- and we would expect that that to sort of continue to sort of trim downwards as we're managing down the balance sheet in CIB. We also had around GBP 425 million of one-offs in the first half, over GBP 200 million of AFS gains, GBP 170 million pretax gain from selling the Illinois branch out of -- branches out of Compass and a GBP 40 million gain on sale from selling half our stake in the market idea. So I would be cautious about reading first half revenues as a trend for second half. Sorry, and your question on impairments, Tom?

Thomas Rayner - Exane BNP Paribas, Research Division

Yes. Just to sort of get a sense about this improvement, not in the Non-Core, but in -- across the Core businesses. How much is sort of interest rate driven? How much is possibly tighter underwriting standards post for crisis? So we're now seeing some seasoning effects coming through, I mean, I'm just trying to get a feel for what you think is driving this better sort of Core impairment performance?

Ewen Stevenson

Okay. Yes, I think a number of factors, I mean, the underwriting quality in the last few years, I guess, has been very, very good. That's translating into sort of very low new debt flow. Interest rates continue to be low, which means that people can continue to easily service their loans, and economic crisis starting to come through. As I say, we are seeing very limited new impairments into our -- across our business is sublime. But -- reading that into the future, I guess we continue to be cautious on the back of potential rising rate environment in the U.K.

Thomas Rayner - Exane BNP Paribas, Research Division

Are you also -- just finding [ph] now -- are you also seeing lower sort of loss expectations on the new NPLs because possibly these have been written up with a higher profits or higher levels of collateral-backing the lift [ph]? Is it an element of that? Or is it really that the NPL trends are sort of slowing? Trying to get a feel for that one.

Ewen Stevenson

Well, we've definitely seen that impact in relation to RCR, for example, but also, look, I think it's important that people remember that we're still sitting on a pool of REILs of GBP 34 billion, against which we've got balance sheet provisions of GBP 22 billion. So our ability to be pinpoint-accurate on some of this forecasting, we just do it by as an element of caution.

Ross Maxwell McEwan

There also, I think, a change in the mix of our business as well. So you are seeing more mortgages on a [ph] secured business is up, and you're seeing the unsecured part of book coming down. So you are seeing a bit of a switch-around in the mix, which will give you a different outcome as well.

Operator

And we will get our next question from the line of Mike Trippitt from Numis.

Michael Trippitt - Numis Securities Ltd., Research Division

Two quick questions. Could -- I sort of get the general drift of what you're saying on guidance around impairments. But just specific specifically within the commercial banking business, which was a sort of positive in terms of the core set of impairments, is there anything -- how much of the write-backs were in commercial? And second question, just a sort of pinkie point on capital, which I know you'll cover next week. What's the movement in the deferred tax asset? How much of a benefit has that been to your fully loaded CET1?

Ewen Stevenson

Yes. Just in terms of the provision releases in the second quarter, I think -- firstly, about half of it was related to RCR and half across the other businesses, and then for corporate, I want to say about half of the half, so 25% of it, relates to corporate franchise.

Michael Trippitt - Numis Securities Ltd., Research Division

And corporate within the CIB business or within Commercial Banking?

Ewen Stevenson

Commercial.

Michael Trippitt - Numis Securities Ltd., Research Division

In commercial, okay.

Ross Maxwell McEwan

And just around the DTA's movement, DTA.

Ewen Stevenson

DTA is about GBP 100 million.

Michael Trippitt - Numis Securities Ltd., Research Division

Further reduction in the quarter?

Ross Maxwell McEwan

Yes.

Operator

And we'll take our next question from the line of Christopher Wheelia -- Wheeler from Mediobanca.

Christopher Wheeler - Mediobanca Securities, Research Division

Again, of course, 2 questions as per instructions. The first one is on the CIB RWA, which we've talked about already. Can you perhaps give us a clue as to where you've got to in terms of the old target that you gave us back in the spring in terms of markets? You're going to push it down to around GBP 50 billion, and I wondered whether or not you could give us a clue where we were? I think they were on GBP 73.8 billion at the end of the last quarter, if I remember rightly. And the second question, really, it's around the RCR 33% decline in equipment RWA. I just wondered if you can give us any color on the nature of the assets in terms of the fact that you took that big GBP 4.5 billion, I think it was a write-down, in the fourth quarter and facilitate the acceleration of the reduction of the book, not just in getting it smaller, but the ability to sell down at a gain. Can you give us a clue as to whether what proportion of that, if you want, has been used up in the first half of the year? Because, obviously, that will give us a clue as to how much you can get away, perhaps, in the rest of the year.

Ewen Stevenson

Just checking on the first question around CIB and the old markets business, what were the reduction? Yes, look, I don't think at this stage, we're planning to sort of reforecast on the GBP 50 billion target. That's still where we're trending towards. We're probably trending towards it faster than would have been the case 6 months ago. Currency benefits are obviously helping us a bit in relation to that. On the question on RCR...

Ross Maxwell McEwan

We'll probably give you the detail of that next week when we bring the full IMS out. You get all that -- we'll give you the update on that one next week, I think.

Christopher Wheeler - Mediobanca Securities, Research Division

Okay. [indiscernible] I mean, can you say -- I mean, in terms of the CIB, would it be fair to say that the greatest element of acceleration is in the old markets business rather than the international banking business, which I think is a big part of the rest of the RWA?

Ross Maxwell McEwan

Generally, I'd say yes, but we are examining some of the parts of the old international banking businesses as well. I think, again, at the first quarter, I might have [ph] said to you that I was examining every part of the businesses. We weren't getting a good return on the input on [ph] what we had invested, and there were parts of that, that I suspected then, the teams speak to -- I'm just not getting us a return. So we are examining that part of the business. So it's a full CIB review on RWAs that we are doing, and Donald and Peter well over it.

Operator

And we take our next question from the line of Peter Toeman from HSBC.

Peter Toeman - HSBC, Research Division

I just -- I wanted to just to -- Page 9 of your release gives the movements in margins and the sort of 10 basis points improvement over the first quarter at the group level, but the margin movements in the individual divisions are much more restrained, and the -- I just want to know what one could infer from that. And also, it seems to let your comment about the RCR rundown and the number of small recoveries impacting the NIM. I wondered if you could give us some color on that?

Ewen Stevenson

Sure. Look, in relation to the NIM over the first half, you had a whole bunch of offsetting factors in place, I mean, firstly, there was some deposit repricing; secondly, I think you are seeing some sort of change or pressure, I described it, on new business margins; thirdly, there's a change of mix going on, particularly in the mortgage business, for example, we're shifting very heavily from what was a sort of evenly matched fixed floating [ph] book in terms of stock. 80% of the new business we're now running is fixed, which is being done on lowest rates in the floating [ph] book, and offsetting that is a sort of continued -- the benefit of the continued rundown on RCR and other very low-yielding legacy asset pools, yes. That's why I think as we sort of look out into the second half, again, we're sort of cautious at predicting that there would be a similar improvement in NIM, largely because the deposit repricing has largely been now captured.

Operator

And we'll take our next question from the line of Alastair Ryan from Bank of America.

Alastair Ryan - BofA Merrill Lynch, Research Division

Briefly, you mentioned GBP 150 million write-back before from RCR. Is that a revenue item? Or a net-off in provision in some way? And second, I suspect I know this answer to this, but I might as well ask it anyway. Do you still have to sell Citizen's [ph] and if you're capital keeps building this quickly?

Ross Maxwell McEwan

Can I answer the last one? Yes. And then we'll work on the next one, which is the GBP 150 million. We haven't changed our plan.

Ewen Stevenson

Okay. I think the GBP 150 million is both in the revenue line and also in the impairment line, but again, we'll try to give more color next week in the IMS.

Operator

And we'll take our next question from the line of David Lock from Deutsche Bank.

David Lock - Deutsche Bank AG, Research Division

Two quick questions for me. First one, just on the Ulster Bank. In terms of the peak to trough assumptions that you're using in the Ulster Bank business, what are you using for mortgages and CRE? Because clearly, we've had quite a rally off the bottom for mortgages, in particular. And I'm aware that some of the domestic banks are using a 55% peak to trough assumption, and we're currently at about 45%. So just trying to understand where you are on your assumptions in that book? And then secondly, when we think about the future pipeline of sales, clearly, the first half, you've had a large volume of assets which are being sold across -- particularly the Irish market, and you mentioned it was a buoyant market, I mean, do you see that trend? And do you anticipate that trend continuing for the rest of this year? Or do you think it's more just an acceleration of the second half into the first half?

Ross Maxwell McEwan

Just on the second question, I mean, we've got the same -- there are only so many deals that one can do in a week, so I think the trend will continue on its current run rate, but we are getting into tougher assets. To be quite honest, [indiscernible] you want to [ph] sell the easy, ones so you can get the capital up first. So I think we're still getting a very good market out there. So we've given the indication of what we think the book will look like by the end of the year from an asset end, from an RWA perspective. So that will give you a fairly good idea of what we think the trend is.

Ewen Stevenson

And I think we're certainly incented to try and move this as quickly as possible, given what we see in the markets at the moment, and we will move as quickly as we can. And I've sort of -- as long as the realization proceeds are sensible relative to what we think the valuation of those assets are. Look, I wasn't quite sure where you were going with your question on peak to trough falls in commercial real estate, whether that was a question around stress testing or...

David Lock - Deutsche Bank AG, Research Division

It's more around the fact that I think -- on the mortgages, in particular, the market overall in Ireland, they have been using a provision assumption around 55% peak to trough, and clearly there's been a rally in the asset prices. So I'm just wondering if some of the releases that we're seeing are because you've reanalyzed your assumptions, or whether actually you're still using a 55% peak to trough assumption?

Ewen Stevenson

Yes. Look, I think approximately, I don't [ph] think we have significantly changed any of our assumptions. We're obviously benefiting there, I think, from recovering collateral values. Ireland is a good market at the moment.

Operator

We take our final question from the line of Chintan Joshi from Nomura.

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

Two questions for me, please. Wanted to ask your view on the leverage ratio consultation. If we are indeed heading towards the leverage ratio of 6%, and by no means that is clearer as yet, I wonder what that means for the mortgage market and mortgage margin down the line? And also if you have formed a view around where you think minimum requirements are going on that? Second question is, there's a material improvement in Citizens' revenue driven by the OOI line. Could you tell us what that is driven by?

Ewen Stevenson

Yes. look, on the second point, I think because of the nature of the fact that we were not selling a business, we've been selling a set of branches, what you'll see in the noninterest line of Citizens is the GBP 283 million gain or about GBP 170 million from the sale of those branches. So I think that probably explains the outperformance in that line. On leverage ratio, well, 6%, I think, is a new high. I'd be intrigue to see that calculations, but look, I mean, we obviously have -- are studying the FPC consultation paper. Yes, when we look at the mix of our business. Yes, because we do have much greater -- RWA density, and I think some of the more mortgage focused [ph] franchises here in the U.K. I think that we don't see the leverage ratio as being a particular challenge for our business here.

Operator

Now we'll have [indiscernible] for closing comments.

Ross Maxwell McEwan

Taylor, thanks very much. Thanks for joining us this morning, and again, apologies for having to bring it forward a week. We just thought it was important, given the numbers that were emerging. We are pleased that we've had 2 good quarters. Andrew and McLaughlin's team have had to get the thesaurus [ph] out and work out what names for -- pleasing areas [ph] as opposed to what we've had for 5 years, which has been more rather the disappointing. It's nice to get 2 to good quarters out. We are becoming a much stronger bank that can deliver good customers, I think the customers and shareholders.

No one in this bank is complacent about the challenges they hit. There will be bumps in the road that we've described to you today, and these bumps will be as we actively managed down the legacy issues. We are very focused on the plan that we put out earlier on this year to make RBS a much better bank for customers, trusted by customers, but also a much better bank for shareholders as well.

And thank you very much for joining us on the call. You get the full pack [ph] out next week, and I'm sure the team are quite happy to take some questions around that when it comes out. Thanks for your time this morning.

Operator

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

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