Segment performance NatWest Markets 2016 compared with 2015 ● An operating loss of £386 million compared with an operating loss of £837 million in 2015 and included litigation and conduct costs of £528 million. The adjusted operating profit was £201 million compared with a loss of £55 million in 2015. The increase was driven by lower adjusted operating expenses and increased income. ● Total income increased by £47 million to £1,574 million. Excluding the impact of transfers(1), adjusted income increased by £212 million, or 16%, to £1,521 million. The increase was driven by Rates and Currencies, reflecting sustained customer activity throughout the year and favourable market conditions following the EU referendum and subsequent central bank actions. ● Operating expenses decreased from £2,369 million to £1,960 million in 2016, driven by lowe r (1) restructuring costs and lower adjusted expenses. Excluding business transfers , adjusted expenses reduced by £116 million, or 8%, reflecting c.£250 million of cost reductions partially offset by higher investment spend. ● NatWest Markets are currently in the middle of a substantial investment programme which will equip the franchise for new regulatory requirements and provide opportunity to reduce back office support costs. We expect that NatWest Markets adjusted operating expenses will reduce by around £500 million over the next four years. ● Funded assets decreased by £2.4 billion compared with 2015 to £100.9 billion, as the business continues to work through re-shaping, despite the headwind from foreign exchange movements following the EU referendum and the substantial weakening of sterling. ● RWAs increased by £2.1 billion compared with 2015 to £35.2 billion principally due to business movements and the impact of the weakening of sterling. Q4 2016 compared with Q3 2016 ● An operating loss of £565 million compared with an operating profit of £90 million in Q3 2016 reflecting increased litigation and conduct charges. Adjusted operating loss of £24 million compared with an adjusted operating profit of £184 million in Q3 2016 primarily driven by lower income. ● Total income decreased by £186 million to £285 million. Adjusted income reduced by £212 million to £314 million following a particularly strong Q3 2016, which benefitted from sustained customer activity and favourable market conditions following the EU referendum and subsequent central bank actions, in Rates. ● Operating expenses increased by £469 million to £850 million. Adjusted operating expenses reduced by £4 million as lower investment spend, following the elevated Q3 2016 charge, more than offset the annual UK bank levy charge of £13 million. ● Funded assets decreased by £11.6 billion to £100.9 billion in the quarter reflecting seasonally low levels of activity at the end of the year. Q4 2016 compared with Q4 2015 ● An operating loss of £565 million compared with a loss of £245 million in Q4 2015 reflecting increased litigation and conduct charges. An adjusted operating loss of £24 million compared with a loss of £112 million in Q4 2015 reflecting higher income and lower adjusted operating expenses. ● Total income increased by £99 million to £285 million. Adjusted income increased by £62 million, or 25%, principally reflecting Currencies driven by heightened levels of customer activity around the US election. ● Operating expenses increased by £419 million to £850 million. Adjusted expenses decreased by £26 million principally due to lower staff costs and legal expenditure. Note: (1) NatWest Markets results include the following financials for businesses subsequently transferred to Commercial Banking for 2015: total income of £98 million and operating expenses of £31 million. 44 RBS – Annual results 2016