I did not realise RoTE was calculated on a pre-tax basis, thank you for pointing this out (I hadn't actually ever thought about how this was calculated)
RoTE actually does use Underlying profit after tax. You can find its exact definition at page 246 of the 2018 Annual Report (see picture below):
What I meant in my previous post was that, simply annualising the earnings figures from the March 2018 semester, it is the Underlying profit before tax that currently generates a return on net tangible assets of just over 10% pa.
In numbers (for the semester ending on March 31st 2018):
Underlying profit before tax: 286m GBP
Net Assets: 5,358m GBP
Intangible Assets: 495m GBP
Minority Interests: 422m GBP
Therefore, the annualised return on tangible equity (adjusted by minority interests) is:
286m*2/(5,358m-495m)*(1-422m/(5,358m-495m)) = 10.7%
That happens to be very close to the reported Underlying RoTE of 10.4% because the effective tax rate for the semester was very low, but it is not going to remain that low once all the integration costs (and other one-off items) are out of the way.
So, I personally find it easier to think in terms of a current pre-tax return of 10%-11% pa on tangible book value, for modelling purposes.
Let me know if there is anything unclear.
Cheers
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