NatWest Group plc (NWG) Earnings Call Transcript & Summary

[Presentation]

Thank you. Good afternoon. I'm Michael Crow. As you'll no doubt be aware, in light of the ongoing restrictions relating to the COVID-19 pandemic and the current loss preventing gatherings, we've decided that the 2021 Annual General Meeting should follow the same format as last year's meeting. Shareholder attendance is limited to the minimum quorum required under our Articles of Association, and other shareholders are not permitted to attend the AGM. As a result, we are holding this virtual event to provide you with the opportunity to hear from our Chairman, CEO and other Board members and ask questions before you vote on the resolutions that have been put to our 2021 AGM. Voting is due to close at 2 p.m. U.K. time on the 26th of April 2021. In a moment, I'll pass over to Howard and Alison, who will each deliver a short speech before we focus on the Q&A. We've received a number of questions in advance of today's event. And if you wish, you can also ask a question during the event via the Q&A button. We will do our best to answer as many of them as we can today, and answers to questions from shareholders on key themes will be displayed on our website as soon as possible. If you have any follow-up questions further to today's event, you can e-mail them to [email protected]. Howard, can I pass over to you?

Thank you, Michael, and good afternoon, and welcome from me. As Michael said, we are holding a virtual event again this year. But in the light of the feedback we received last year, we've decided to hold this question-and-answer session before the meeting so that people can reflect on what we -- and -- what Alison and I have said and other Board members before you vote on the resolutions formally. Maintaining frequent engagement with our shareholders is an important priority for the Board. This meeting builds on our activity in 2020, which included virtual events for retail shareholders and Board sessions with institutional shareholders. Before Alison talks about business developments, I should explain a number of changes to the Board. Baroness Noakes stepped down as a Nonexecutive Director in July of last year after 9 years with Morten Friis succeeding her as Chair of the Group Board Risk Committee. Morten has been on the committee since 2014, so that transition was very smooth. Alison Davis also left the Board in March 2020 after 9 years, Yasmin Jetha was reappointed as a Nonexecutive Director on the first of April and succeeded Alison as Chair of the Technology and Innovation Committee as well as becoming a member of the Group Sustainable Banking Committee. Yasmin was previously a member of the ring-fenced bank Board. I'd like to thank Sheila and Alison for their outstanding contributions over many years. And I'd also like to welcome Yasmin back to the Board and thank all of my colleagues for their continued dedication in very challenging circumstances. Effective oversight is especially critical at times like these. And from the start of the pandemic, we quickly established a rhythm of weekly Board meetings to receive updates from the management team on our response to COVID-19 and how the implementation of our purpose was helping to meet the needs of customers, colleagues and the communities we serve. We were able to reduce the frequency later when things settled down. Despite the tough operating environment, the bank is making good progress on its strategy. We continue to grow in key areas of focus. We're simplifying our business and accelerating our digital transformation to serve our customers better at every stage of their lives, and we have strong capital and liquidity. Of course, it's always unfortunate to report a loss even if our performance in 2020 was largely driven by an impairment provision of more than GBP 3 billion. Most of that relates to potential future loan losses, the full extent of which will not be known until the impact of the pandemic on the economy becomes clearer. And although the persistent low interest rate environment and ongoing COVID-19 restrictions will continue to challenge the financial performance of all U.K. banks for the foreseeable future, your group is well positioned to support its customers and to drive sustainable returns for shareholders. In December of last year, the Prudential Regulation Authority made the welcome announcement that it was lifting its restrictions on capital return, subject to certain sensible guardrails. Following that decision and having considered a range of factors, we announced a final dividend of 3p per share at our full year results. And subject to permission from the regulators at the appropriate time, we plan to distribute at least GBP 800 million annually to 2023 through a combination of ordinary and special dividends, maintaining our 40% payout ratio for ordinary dividends. With a common equity Tier 1 ratio of over 18% at the end of last year, we're operating well above our target range of 13% to 14%. Our intention remains to return capital to shareholders, and we've now set out a clear path to reach our target by 2023 while retaining the flexibility to pursue other options that create value such as our acquisition of a mortgage book from Metro Bank at the end of last year. Share prices across the U.K. banking sector saw a marked decline through 2020. That was to be expected given the prevailing economic conditions. There has, however, been positive momentum in recent months as a Brexit deal was reached and the vaccination programs have been rolled out. Over the last 12 months, our share price is up by more than 80%. Last month, we were able to use some of our excess capital to buy back almost 600 million government shares through an off-market placement at a total cost of the bank of GBP 1.1 billion. That directed buyback could only take place with the agreement of the Treasury and the PRA. We believe it's a good use of capital for the bank and our shareholders. It helps make progress against the stated ambition of both the government and the bank to reduce the government shareholding, which, as a result, now stands at just below 60%. The directed buyback from the government also triggered a GBP 500 million pretax pension payment in line with the Memorandum of Understanding announced with our pension trustees in April 2018. Last month, we also heard the disappointing news that the Financial Conduct Authority has launched criminal proceedings against the bank for alleged failures to comply with anti-money laundering regulations. We take these matters extremely seriously, and the bank has cooperated fully through the FCA's investigation. As set out in their statement, the case arises from the handling of funds deposited into accounts operated by a U.K. incorporated customer of NatWest. An adjournment of the initial hearing was agreed by the court at the request of both parties to allow for a detailed consideration of the case by NatWest in an appropriate time frame, and that initial hearing is now set to take place on May 26. Detecting and preventing financial crime to protect people, families and businesses is a key priority for the group. Today, we have over 4,000 colleagues dedicated to that task, and over the past 3 years alone, the bank has invested almost GBP 0.5 billion in anti-money laundering systems and controls. But we cannot tackle financial crime alone. We work with all the other organizations, including industry bodies, law enforcement agencies, regulators and governments to help find solutions to this shared problem and to improve our own approach. To conclude, I'd like to thank Alison Rose and her team for the commitment and energy they have displayed in remarkably challenging circumstances. As a Board, we firmly believe that this bank has in place a well-balanced leadership with the necessary experience and expertise to deliver on our purpose, which, to remind you, is that we champion potential, helping people, families and businesses to thrive. By embedding that purpose at the core of our business, we signaled our intention to build a relationship bank for the digital world, to make a positive contribution to society and to drive sustainable returns for our shareholders. Finally, I'd like to wish you all the best in these difficult times, and I'll now hand over to Alison.

Thank you, Howard. And may I add my welcome to everyone here today. We are pleased to have the opportunity to update you on our progress over the last year. In February 2020, we launched our purpose to champion potential of people, families and business, and it has been tested and proven over the last year. We're breaking down barriers and building financial confidence so our 19 million customers can rebuild and thrive. Our purpose is all about balancing the needs of all of our stakeholders, our customers, colleagues and communities because when they succeed, so do we. Our focus on 3 purpose areas are: commercial imperatives. climate, enterprise and learning. We know our activity in these areas will increase resilience and long-term value for those we serve and drive sustainable returns to you, our shareholders. Importantly, we have also made strong investments in the executive team who are leading on our purpose and strategy, attracting significant talent from the U.K. and internationally and injecting new energy and insight to our collective priorities and planning. The bank began last year in a strong financial position and has delivered a resilient performance through the strength of our core franchises and brands in a challenging environment. As Howard said, our attributable loss of GBP 753 million for 2020 reflects an impairment charge of GBP 3.2 billion. This is below our guided range, and a significant proportion relates to future potential losses under IFRS 9. Before impairments, we made an operating profit of GBP 2.9 billion. We also reduced operating costs by GBP 277 million, exceeding our GBP 250 million target, which reflects effective acceleration of our bank-wide transformation. We continue to operate with one of the strongest capital ratios of our European peer group at 18.5%, and this capital strength gives us the flexibility to navigate the continuing uncertainty, return capital to shareholders and consider options for creating shareholder value. In announcing a final dividend of 3p per share at our full year results, we intend to pay out GBP 347 million to shareholders, of which GBP 208 million will go to the U.K. government. As Howard covered in detail, we were able to participate in a directed buyback last month, which we believe is a good use of our capital for the bank and shareholders and further puts us on the path to private ownership. We have significant capacity to grow, and our lending is well diversified with limited exposure to unsecured loans. We have seen net lending across our retail and commercial businesses increased by 7%, exceeding our 3% target, and this includes our acquisition of a mortgage book from Metro Bank, representing effective use of our strong capital position in a key area of focus. In all, amidst considerable disruption, we are making determined progress against the strategy I set out in February 2020, which prioritizes our transformation across 4 key areas: serving customers across lifetime to deepen relationships and generate growth; powering the organization through innovation and partnerships; a productive blend of the right people, technology and insights; simplifying and digitizing our business to improve customer experience, increase efficiency and reduce costs; and sharpening our capital allocation to get our capital working efficiently and being deployed effectively to maximize returns. For example, the teams in NatWest markets reduced the risk-weighted assets by GBP 11 billion to around GBP 27 billion, well below our original target. In addition, we announced the conclusion of our strategic review on Ulster Bank. As Ulster Bank's business in the Republic of Ireland will not be able to generate sustainable long-term returns, we have decided to make a phased withdrawal over the coming years. We expect this withdrawal to be capital accretive over the duration of the process, and this decision has no impact on Ulster Bank in Northern Ireland. During the pandemic, we stepped up to become part of the solution for customers, making possible well over 0.25 million mortgage repayment holidays and innovating new products at speed such as our companion card for vulnerable or isolated customers. We kept 95% of our branch network open, which meant thousands of branch staff helping customers on our high streets, whilst others made over 400,000 calls to customers at home. Use of our digital channels has accelerated. Last January, for example, we did around 100 video conference calls with customers each week, and we're now doing around 15,000 a week. We also now have 9.4 million active digital users and 7.7 million active users of our mobile app. In fact, 58% of our retail customers now use only digital channels, a 12% increase compared to 2019. There are other important upward trends. We've helped 600,000 customers to start saving and have had nearly 3 million interactions on financial capability. For example, through our new financial flex program to increase confidence and understanding in talking about money. We also provided GBP 31.5 billion of gross new mortgage lending in 2020 in retail banking, which includes over 1,200 green mortgages, incentivizing those whose homes are more energy efficient as part of our commitment to help customers transition to a low-carbon economy. We also recognize that this has been an incredibly tough period for many businesses, and we have stepped up to deliver new government lending schemes. And over the year, the approved lending amounted to GBP 14 billion. As part of our ongoing targeted support for enterprise and climate, we have also provided GBP 1 billion of ring-fenced debt financing for female entrepreneurs and GBP 12 billion of climate and sustainable financing whilst, at the same time, maintaining intelligent risk management throughout. Going forward, we are making targeted contributions to business recovery and growth, partnering government and drawing on our own expertise to break down key barriers. We're committing GBP 6 billion to support SMEs increase their productivity and sustainability, and we are working through our regional boards to relaunch and deliver our market-leading enterprise proposition. This provides more local businesses the support, training or growth opportunities they need. We also pivoted our enterprise initiatives to be delivered digitally. And by full year results this February, our 12 accelerator hubs had held over 1,000 virtual events for more than 45,000 attendees. Earlier this month, I was on a virtual visit to the Southwest, marking the partnership of NatWest Group with Bristol Green Climate Partnership and Bristol Council to launch their climate action program. This aligns with our ambition to facilitate faster, simpler transition to a low-carbon future for business customers. We're also providing billions of new green financing and have also joined forces with Microsoft, whose cloud, data and AI platform, combined with our customer relationships and insights, can help more companies to better understand and reduce their emissions. Last year, we achieved net zero in our own operations and have done extensive work to analyze and mitigate our portfolio of climate risk. We have committed to be climate positive by 2025. And last year, NatWest Markets helped issue 36 green bonds, raising GBP 23 billion for environmental activities. And this year-to-date, we've already lead managed 20 green bonds, totaling GBP 21 billion. As the principal banking sponsor of COP26 and a leading lender for renewables, we are proactively supporting the transition and the critical greening of U.K. industries. We could not have achieved all this, however, without the extraordinary efforts of our colleagues who rallied to work in new ways and be there when our customers needed us the most. We set up 50,000 colleagues to work remotely and have since brought in a raft of additional support from a new 24/7 GP line to the SilverCloud well-being platform to the launch of our Learning Academy. We've also introduced a number of COVID secure measures in branches and office sites to keep each other safe. Meanwhile, colleagues themselves have done a great deal to support community services. For example, we repurposed part of our Gogarburn campus to become one of the U.K.'s biggest food banks, both for surrounding communities and in the evening for NHS Lothian staff. We've also opened up our Younger Building in Edinburgh as a mass vaccination center and became a corporate patron of the National Emergencies Trust, raising GBP 10 million last year by match-funding customer donations. We have also announced a GBP 1 million fund for SafeLives to support survivors of economic and domestic abuse. I'm extremely proud of the compassion and initiative of colleagues across the business. finding new ways to improve the strength and well-being of our communities, and I would like to thank all of them. Our people are at the heart of our bank. They bring our purpose and strategy to life. In the past year, we have found new ways to support our customers at pace whilst exceeding the core financial targets we set in February 2020 around lending growth and cost efficiency. I have great confidence in the team we have assembled on the Executive Committee who are leading on a plan we set out to the market this February, including our ROTE target of 9% to 10% by 2023. We are working together as one bank to secure sustainable growth through our strategy. One bank means collaboration across the group to identify and deliver the right priorities, delivering fantastic customer experiences and being simpler to deal with and, most importantly, also to create value for our shareholders. This is how we will champion the potential of people, families and businesses and drive sustainable returns. Thank you very much.

Thank you, Alison. Okay. Let's move on to the Q&A. On the panel, we have Howard and Alison. Also joining us are Morten Friis, Chair of the Board Risk Committee; and Robert Gillespie, Chair of the Remuneration Committee. Welcome Morten. Welcome, Robert. As I mentioned earlier, we have received a number of questions from shareholders. Thank you to those of you that have taken the time to submit these. We will do our best to work through as many as possible in the time allowed. As you'll appreciate, we aren't able to discuss customer issues or complaints in this public setting, and we're also unable to discuss anything covered in our Q1 results as we are currently in a closed period ahead of the announcement to be made next week. So let's move on to the questions. First question to you, Howard, comes in from [ Bettina Lindstrom ]. And the question is, does the company demonstrate leadership in running every decision and action through a green filter by making things less damaging for the planet, looking at the materials of bank cards, paper, ink and reducing all single-use items in all areas and encouraging green leadership? Howard?

Thank you, [ Bettina ], for that question. And I could be rather simple and save us time by answering simply yes and yes to that question, but you might think that wasn't quite enough. We do apply what we, in fact, call a purpose filter to every decision through a revised yes check and our Board committee templates. And climate is, as Alison explained earlier, 1 of the 3 focus areas of our purpose. We recognize it's absolutely essential that we use our own resources in a way which is green and sustainable, and that includes our supply chain. We are net zero in our own operations as of last year, and we're working to be climate positive by 2025. We have a target by then to reduce paper consumption by 70% of a baseline set in 2015. Since 2015, in fact, our overall paper consumption has fallen by 56% already. But perhaps even more importantly, we are committed to delivering GBP 20 billion of climate and sustainable funding and financing over 2020 and 2021. We are already the leading lender to renewables in the U.K. and have been, in fact, for the last decade, and we are providing incentivizing products such as green mortgages and looking at innovations to accelerate the switch to electric vehicles. So I think overall, I am proud of our record in this area, but I would acknowledge that we are learning all the time, and we are pleased to have suggestions from staff, from shareholders and from customers as to where we can improve. Thank you.

Okay. Thank you, Howard. Thank you, [ Bettina ]. Another question on climate change actually. This time from Gabriel Vogt, who's property representative of ShareAction. Howard, I'll bring this to you as well. So the question is, we'd like to congratulate NatWest on its leading commitment to progressively withdraw support from non-net zero aligned activity in the coal, oil and gas sectors if they do not have credible transition plans in line with the Paris Agreement by the end of 2021. So the question is, how does NatWest intend to assess the quality of these transition plans? And can the bank disclose whether it is factoring the use of nature-based offsets in its assessments of the transition plans at the fossil fuel companies? And is it planning on engaging on issues of wildlife where absolute reductions cannot be achieved? Howard?

Thank you. We're always happy to have congratulations, but your question is actually quite a difficult one. And the honest answer is that it does require quite a bit of judgment in the process of assessing whether transition plans are robust and viable. But the position is that large corporate customers with gross lending exposure of GBP 2 billion at December last year have been identified as requiring Paris-aligned and credible transition plans by the end of this year. That includes the oil and gas majors and also people who are using coal, whether for mining, power generation or whatever. And during the last year, we've worked with Baringa, a leading external climate change modeling and consultancy group, to define a methodology for us for assessing whether these transition plans are credible. And that includes a quantitative assessment using the climate scenario temperature alignment model to evaluate whether their plans are consistent with temperature scenarios aligned to the goals of the 2015 Paris Agreement and also a qualitative assessment of the credibility of customers' transition plans, which involves a lot of work by our relationship managers of individual businesses to assess what they are putting forward. So we're reviewing the strategies of all of the customers in scope and expect to complete that assessment by the end of this year, and we will have to then carry out a dive into the strategy of each of the companies to make sure we reach a balanced judgment. If their strategy includes nature-based offsets, that would be considered as part of the review. So a lot of work underway, but a lot of work still to be done. Thank you.

Okay. Thank you, Howard. All right. Alison, I'm going to come to you next. There's another question from [ Bettina Lindstrom ]. Do all staff feel that as an employer, NatWest Group is taking and demonstrating strong leadership in equality issues? Has a survey been taken? And is there positive action to encourage an equality culture at every level of the organization? Alison?

Thank you, [ Bettina ]. And absolutely critical that we create a healthy, diverse and inclusive workforce. It is a core part of our strategy and our culture within the organization, and it is vital that we also take a stand against racism and any form of inequality. We've been tracking this for some time, and we do undertake extensive surveys with our staff and have targets at all levels through the organization. In 2015, we set out a series of commitments and goals to create an inclusive workplace, and they address across a wide range of factors. including gender balance, disability and all elements of diversity. And our positive action approach is benchmarked externally as well. So we're making sure that we hold our standards up to the external market and ensures that it becomes a critical part of how we attract, recruit and retain talent within our organization. Whilst there's more to do, we are making good progress. We have increased representation from women and ethnic minorities in senior roles. We have improved customer experience. For example, the Royal National Institute for the Blind accredited mobile banking app. And we've signed up to a range of external commitments such as business in the community, race at work and women in finance charters. And we are recognized externally in a number of external benchmarks, top 10 employer in the ethnicity 100-plus list, top -- Times Top 50 Employer for Women, Top Global Stonewall Employer and leader level in the government's Disability Confidence scheme. But I think what's important is we're also not complacent. Earlier last year, in light of very tragic events, I established a task force, which was led by the co-Chairs of our multi-cultural network, to help understand the barriers faced by Black, Asian and minority ethnic colleagues, customers and communities. It was an extensive piece of work, and the task force published a report setting out 10 commitments and our new goal to have 3% Black colleagues in our U.K. senior roles in the same time frame as the existing target of 14% Black, Asian and minority ethnic colleagues in the top 4 U.K. leadership levels by 2025. We do have an annual survey to -- and we listen to colleagues to promote equality and inclusion. We have an annual colleague survey, and we also have a very active and diverse employee-led network as well who advocate for our colleagues and come and talk to both the executive team and the Board on a regular basis.

Great. Thank you, Alison, and thank you, [ Bettina ], for both of your questions. All Right. Robert, I'm going to come to you now. A question from [ Sally McGoldrick ]. Does your remuneration policy enable you to attract high-quality candidates to the bank? Robert?

Well, [ Sally ], thank you for your question, and thank you to all shareholders because last year, we put forward every 3-year remuneration policy, and more than 90% of the votes cast [indiscernible] for which I'm grateful. If the inference of the question is that as a CEO and CFO, both of whom were appointed relatively recently and were both internal promotions, would lead you to believe that there was some problem recruiting externally, then that wouldn't be a correct inference. Both processes were run with extensive internal and external searches, and through them, we attracted a number of high-quality candidates. And the outcome of both processes was because we felt the 2 internal candidates were the best candidates in every respect. As Alison has already mentioned, since our appointment, she has made a number of senior appointments based from the U.K. and from abroad at the ExCo level. And the ExCo remuneration pulse package is almost identical to the directors' package, and we've had no difficulty in that regard attracting and recruiting exceptional candidates. Looking more broadly across the bank, we make every effort to make sure that our remuneration policy is simple, straightforward and well understood by the workforce and linked to market basis of remuneration. We are committed to ensuring that our colleagues are paid fairly for the work that they do. Finally, people of the talent at every level are attracted to NatWest not just because of the financial package we offer but also because of the group's purpose and culture, which we consider to be very compelling in the current market conditions. Obviously, we continue to review our market position and ensure that we've taken after and that we reached the conclusion. If that was no longer the case, we would come and talk to you about it. Thank you.

Great. Thank you very much, Robert. Okay. Morten, I'm going to come to you with this question from [ Adam Thomas ]. The question is, with the growing move towards greater need for customer due diligence and compliance, how is the bank viewing appetite to cryptocurrencies where challenger banks like Revoluts are currently gaining market share? Morten?

Thanks, Adam, for that question. So I guess, in summary, we think of cryptocurrencies as high risk, and we're taking, for that reason, a cautious approach to this. It's an area where regulation is very much in evolution, and we'll obviously respond to that as the -- as things change. But in terms of an appetite. I guess, there are sort of 2 prongs to this. Number one, we have no appetite for dealing with customers, whether they're taking them on as new clients or having an ongoing relationship with people whose main businesses act as an exchange for cryptocurrencies or otherwise have transacting in cryptocurrencies as their main activity. In terms of personal customers who may want to look at cryptocurrencies as an opportunity to invest or transact, we want to be careful, and the issues here are really twofold. One is one of conduct and making sure that it's a suitable activity both in risk and amount for the customers. And then along the lines of financial crime, it's also an area where, as you indicated in your question, the customer due diligence is critical to make sure we properly screen for financial crime risk for customers who are active in that area. So we expect to continue to take a cautious approach, but we'll watch how the market evolves. Thank you.

Great. Thank you, Morten. Right, Howard, coming back to you. A question in from [ Andrew Bagshaw ]. How has the recent share dealing with the government impacted NatWest Group as a business?

Thank you. It's a good question. One answer to it is not at all because I can say, and I've now been Chairman for over 5.5 years, that the government does not interfere in commercial decisions of this bank. They operate on an arm's length basis as a large shareholder, so they are very interested in dividend policy just as you are. They're interested in our remuneration policy just as you are, but they do not interfere in the commercial decisions of this bank. And whether they are at 62% or 59%, that doesn't make any difference. However, it was welcome that the government restarted the process of selling down. They have long had a commitment to get their ownership down. In fact, they don't wish to be in the commercial banking business at all. So this was, in our view, a positive move. We think it's a sensible use of our capital to buy back shares from the government. We have now made further progress. As you have heard, the government is now below 60%. The total amount that's now been returned to the government through share sales is GBP 5.7 billion, and we've paid them dividends of GBP 3.6 billion. So about GBP 9.3 billion of government support has been repaid. Indeed, we -- additionally, we paid GBP 1.5 billion to cancel the dividend excess shares. Of the shares we recently bought, 200 million were transferred into our Treasury to deal with the requirements of future employee share plans, which would probably last us until 2025, the beginning of 2025. We retain a very strong capital position, well above our target range after this repurchase. And I think we are in a very strong capital position, which is a good thing to be in present circumstances. But we do hope the government can make further progress. As I've said, the government doesn't think it should be in the commercial banking business, and full private ownership would be a recognition that the bank had fully recovered from the problems it's encountered over a decade ago.

Thank you, Howard. And can I just remind people, you can ask a question during the event by using the Q&A button. So I'm just going to move on to the next pre-submitted question. Alison, I'm going to bring this one to you. It's from [ James Liu ]. What's the group's strategy on the money-losing investment bank?

Yes. I mean we announced a new strategy for reshaping NatWest Markets in February and very much about reducing the amount of capital that, that business was absorbing and also aligning it much more closely to our core customer base within the bank with an aim to create long-term value and sustainable returns. So refocusing our efforts there on NatWest Group customers, and we set a target to reduce RWAs to GBP 20 billion. That means that the NatWest Markets becomes a much more integrated provider of services and products to our core corporate and institutional and commercial customers. It's a much more narrow product offering but also less volatile income stream as well. The team in NatWest Markets, we put a new management team in there, have made very good progress on the transformation plan. Over the course of the year, they've reduced RWAs by GBP 11 billion, and we expect them to be broadly meeting their GBP 20 billion target by the end of this year, which will be ahead of plan. And as part of that strategy, NatWest Markets will be returning capital back to the group, and in fact, GBP 0.5 billion dividend was paid to the group in February. So the refocused strategy and transformation is underway to deliver real value.

Okay. Thanks, Alison. Right. A question just in from [ Adam MacGibbon ]. It's a climate change question, Howard, so I'm going to bring it to you. Climate change risk for banks, both reputation and material, continues to escalate. Increasingly, banks that fund fossil fuels will draw the ire of regulators, investors, civil society and customers. As fossil fuel funding becomes less and less important to NatWest Group and with the bank planning to only support oil and gas companies with credible transition plans, a clear opportunity exists. Will the bank lay out a road map to becoming Britain's first fossil fuel-free high street bank? Howard?

Thank. You, Adam. It's a very topical question. I've said a few things already about the transition plans and the way we assess them, so I won't go into that again. And I'd also add that we are the financial sponsor for the COP26 conference, and so we're very closely involved in preparing that at the moment. And indeed, today, we committed to net zero banking as part of the Glasgow Alliance for Net Zero. You may have seen that referred to in the newspapers today. In fact, that a number of banks are committing to that, and that now includes us. So you've heard about how we're evaluating fossil fuel companies' transition plans. We have less exposure than other banks, and we have more exposure to renewable energy. And we are collectively managing the financing of the transition to net zero banking. And the Alliance for Net Zero announced today under the aegis of Mark Carney, I think, will help us make further progress on that.

Okay. Thank you, Howard. A question from [ Jillian Collinge ]. Morten, I'm going to bring this to you. What are the biggest risks facing the bank in the aftermath of the COVID-19 pandemic?

Thank you. So that's obviously a question that both the Board and the Board Risk Committee has spent a lot of time on over the last year. And I guess, first of all, I'm happy to say that the risk profile for the group remains stable, well within risk appetite. Our lending portfolio is well diversified. The balance sheet is strong with good levels of both capital and liquidity. So we're well equipped to handle the challenges that we're going through, and we're obviously also benefiting from the support for both personal and business customers coming from the government. On COVID specifically, as Howard mentioned in his comments, the primary impact there has been the impairments we've taken over the last year that they have been significant but, as we noted, largely related to potential future losses rather than actual losses. And where we go from here remains rather than uncertain. I mean it is entirely possible that some of the provisions we have taken will not be needed. It's equally quite likely that we won't see as variants take hold or if the pandemic takes longer to resolve than we would hope that additional provisions will be required. We take a conservative and appropriate approach in this area. And we're also, in the context of lending in a COVID environment, acutely aware of the conduct issues, and we then manage the debt management issues with both personal and business customers as these loans start to roll off. From an economy standpoint, there are some sectors that if the pandemic is over and the opening up of the economy goes as we would have hoped, it will come back quickly and strongly. There are other sectors where there are longer-term impacts and businesses may face difficulties. We're managing these issues carefully as a large bank to both personal customers and businesses in the U.K. We'll obviously see the impact across the economy and work it back to let people to manage that. Aside from COVID directly, as Howard mentioned at length on international crime generally and money laundering specifically, is a huge component of the issues we face in managing legal and regulatory risk. We're making huge investments in resourcing and developing our capabilities to manage that effectively as the environment involves. Climate change, as the previous question highlighted, we are working actively with quite ambitious targets to make sure that our impact on the economy is reducing and that our loan portfolio is attuned to the climate issues. We're also very much looking at this as an area where we have to work with our customers to help them transition. So there's a bit of a balancing act on how we manage that. And I guess, finally, some risks do not go away, and cyber risk and operational resilience are large areas of risk where, if we are not well equipped to manage them, can have significant impact on the bank, and I think we're well equipped in that area, but it is something that requires constant management and evolution. And then finally, in terms of the economic environment, the area of low interest rates looks like it's going to continue for quite a while. The possibility of negative interest rate remains, and we are trying to make sure that we're ready to deal with the challenges that those areas may give rise to. But on the whole, as I said at the outset, the risk profile, I think, is stable and strong. And I feel a bit between the Board and risk management and the first line, we're well equipped to handle the challenges.

Great. Thank you, Morten. Right. A couple of live questions just coming. I'm going to group them together because they're both similar or cover the same area. So Alison, I'm going to come to you with these. First one is [ Jerry Crowley ]. Do you have an update on the exit of the bank from Ireland? And the second one from [ Neil Brown ], considering the comments around staff being central to the organization and the strategic exit from the Republic of Ireland, would Alison like to comment on the news today regarding the FSU's engagement with the devolved government in Northern Ireland and the option to offset some of the job losses in Northern Ireland by marking staff to NatWest Group?

Thank you. Well, in terms of the phased withdrawal that we talked about, we have nothing to update beyond what I talked about in our year-end results. We'll obviously update the market as soon as there is something to say, and we're considering the interest of all of our stakeholders when we do that. In terms of our employees in Ireland and job losses, I mean, obviously, we will talk to our colleagues first, and we're working to find a solution and options that work for our colleagues as well, and that will be part of our consideration as we manage our phased withdrawal.

Great. Thank you, Alison. Okay. On to another pre-submitted question now. This is coming from [ Robert Barrett ]. Howard, I'm going to bring it to you. So I understand the need to conserve cash on your capital requirements after running an operating loss during 2020-2021, and you might have to pay a minimum feasible dividend at a level that meets the dividend requirements for most institutional investors. Accordingly, could you please withdraw the relevant resolutions relating to capital? Also for the political donations resolutions, how much do you want for political donations? And is it intended for lobbying -- only for lobbying legislators, government ministers and officials? Howard?

Thank you. Well, no, we don't plan to withdraw our resolutions on capital. Let me explain why not. We've asked shareholders to renew authorities to issue shares and to participate in an on-market buyback and a directed buyback of government shares. Those authorities will last for 12 months until our next AGM and provide us with the flexibility to participate in a further buyback next year should the Board judge it to be in the bank's best interest, and that's a judgment we would have to reach at the time. And of course, also the Treasury would need to be happy that they wanted to sell. We think it is prudent to retain the flexibility to issue shares should the need arise. I've explained the utilization that we make of those shares. And as far as political donations are concerned, I think just to be clear, this is only a precautionary measure. The group has no intention of making any political donation or incurring any political expenditure. But, and this is common to many companies, the definitions of political donations and political expenditure in the Companies Act are very widely drafted and could include activities such as allowing staff paid leave to act as local counselors or stand for election in local government elections. As our employment policies do allow paid leave in these circumstances, we're proposing the resolution to ensure we do not inadvertently bridge the legal requirements around political donations.

Okay. Thank you, Howard. Next question, Alison, I'm going to bring to you. It's from [ Derek French ]. I am disappointed in the CEO's brief and misleading references to the branch network coverage and the community responsibility in the annual report. Why has the NatWest Group not negotiated more than just 2 disparate locations for the current industry trial of bank hubs? And will it press for an extension and rollout beyond the 6 months given the COVID restrictions' impact on customer behavior? Alison?

Thank you for the question, and we recognize the importance of access to cash and how many people and businesses up and down the country continue to rely on cash for everyday transactions. We're actually leading the collaboration across the industry to deliver a sustainable future for cash, both financially and environmentally. We're a founding signatory of the U.K. cash industry charter, which sets out a series of commitments and targets that seek to establish a really collaborative approach and a road map of initiatives to tackle the climate impact of the cash industry with particular focus on areas such as energy, plastics and carbon. We are also, as you can imagine, very committed to responding to changing customer demand thoughtfully but also innovatively as well so we can bring the best solutions. And we're looking forward to seeing the outcome of the community access to cash pilots, which you mentioned, as well as the experience of other scheme participants, which is going to inform our strategy going forward. Now just to clarify, the locations of those community access to cash pilots were decided through a very well-publicized community-led application process, and the locations were driven by the community voice and need. There are 9 pilots, and in 2 of these, a banking hub was deemed the right match for the customer needs and viable in terms of building availability. So we're very actively involved and are continuing to work very collaboratively on this matter.

Great. Thank you, Alison. Okay. We're going to go to another pre-submitted question and, again, from Gabriel Vogt, who's a proxy representative of ShareAction. Robert, I'm going to come to you with this question. And Gabriel says, I am delighted that NatWest remains an accredited living wage employer. The Living Wage Foundation has launched the Living Hours standard, which presents living wage employers with the opportunity to go further and provide staff with security and stability. Can the Board give an overview of NatWest's approach to its employment contracts? And would it be willing to meet with ShareAction and the Living Wage Foundation to discuss the Living Hours standard in more detail? Robert?

Thank you. Thank you for the question. And as you know, we've been an accredited Living Wage employer for a number of years and fully and very supportive of the scheme. And the short answer to your question is yes, we do intend to reach out to Living Wage Foundation and then more of our recent publication on Living Hours. But we do feel that in substance, we're already in reasonably good shape on that front. To go through the sort of starting point of where are we with contracts, the vast overwhelming majority of our employees not only in the U.K. but also in the Republic of Ireland, in Poland and India, which is where we have significant bodies in place, are employed under standard contracts that are based around 35 hours per week. There are some colleagues who are on shorter hours than 35 hours a week, but those agreed on a mutual basis with the individual. Where our junior colleagues work additional hours is usually junior colleagues who supplies to, they will be paid for the additional hours at a rate which is higher than their normal hourly rate standard of 35 hours. Where it's necessary around shift systems, we make every effort to give as much notice as possible. And in our recent employee survey, 89% of our colleagues felt that our work pattern allowed sufficient flexibility to meet their personal and family needs, which is 12% ahead of the financial services norm and 7% global high-performing norm. And as I said in my earlier answer, we are focused on fair pay for colleagues, and we are open and transparent about our pay approach, including publishing salary arrangements and engaging regularly with our employer representatives, including the trades unions. We've recently published a fair pay charter, which sets out our broader approach to pay. During the pandemic, we went beyond our normal approach. And as well as the number of well-being initiatives, we guarantee pay for colleagues from April to September in 2020, regardless of whether we're able to work or not given much the uncertainty to all. We've continued to support colleagues within our extensive flexible working policies over recent months. And for some colleagues who required additional help, we've provided systems for additional transport costs and allow us to cover unusually higher launch costs and things like that. So to summarize, yes, we will talk to the Living Wage Foundation about their latest initiative. We're supportive of what they're doing, but we feel we're in reasonably good shape on that matter already. Thank you.

Great. Thank you very much, Robert. Okay. A live question come in from [ John Needham ]. Alison, I'm going to bring this one to you. So we have seen the bank become more London-centric in recent years following the financial crash in 2008. Does the increased evidence of effective home working during the pandemic provide a significant opportunity to reduce our portfolio of expensive London office space? Alison?

Thank you for the question. Well, we've actually significantly reduced our London footprint. And as you may know, we have offices up and down the country and operate a regional model structure with teams based around the country in the communities where our customers are. I actually announced the closure of one of our major London buildings last year. So we actually have a significant reduction in our London footprint. We have 2 offices, one at the Strand and one at 250 Bishopsgate. So most of our properties are diverse. As you say, the pandemic has accelerated working from home. We have over 50,000 colleagues as we responded to the pandemic to be able to work remotely. And I think that will be -- provide continuing benefits and optionality for our colleagues. But office space will continue to be important for collaboration and bringing teams together to make sure that we're continuing to work well together, but we will always continue to evolve our working practices and some of the additional uses of technology and flexibility that has been such a positive for some of our colleagues over this period.

Great. Thank you, Alison. Okay. Final question. The question comes from [ Catherine Berman ]. Howard, to you. When you -- will you be able to start paying dividends again?

Thank you, Catherine. Well, as part of our 2020 full year results, we announced our intention to pay a final ordinary dividend of 3p a share subject to shareholder approval at the AGM, and that equates to a total dividend payment of GBP 346 million. If it's approved by shareholders, it will be paid on the 4th of May. We did restart dividends in 2018, and since then, we've paid GBP 3.6 billion in total, and we aim to distribute GBP 800 million a year in each of the next 3 years through a combination of ordinary and special dividends. And I've also explained that it's our intention to participate in buybacks of our shares of the government's stake, if at all possible. So we are back paying dividends. It is a modest ordinary dividend this year. But as I explained, earlier, the regulator set out certain guidelines and guardrails for dividend policy, and we needed to fit within those at this year because they understandably were concerned that banks should conserve capital to be able to lend to businesses at a very difficult time. And therefore, there is a constraint that all banks in the U.K., and indeed, I've to say the rest of Europe, too, are under in paying dividends. And we are paying a dividend that's consistent with that regulatory guidance, but there's more to come.

Okay. Thank you very much, Howard, and thank you, Alison, Morten and Robert as well, and thank you to everyone who sent in questions. That concludes our Q&A session. For any shareholders who have follow-up questions, please do submit them to [email protected], and we will endeavor to respond as soon as possible. We intend to run further shareholder events later in the year, and information on these will be made available on the Shareholder Information section of natwestgroup.com in due course. Thank you for joining today, and we hope you and your families continue to stay safe and well in these challenging times. Thank you.