Ann: CYBG PLC Third Quarter 2019 Trading Update, page-153

Admittedly, I've struggled to reconcile this reported underlying post-tax RoTE figure of 10.4% to any earnings figures disclosed in the accounts?

@Jausty1919

So have I, indeed, but I think I’ve finally got it. Here it goes:

Underlying RoTE = [Underlying Profit After Tax]/[Tangible Equity minus AT1 Capital]

where [Underlying Profit After Tax] is calculated from [Underlying Profit Before Tax] adjusted by the Normalised Tax Rate of 19% (corresponding to the UK flat Corporate Tax Rate) minus AT1 Distributions (grossed up at the Normalised Tax Rate).

So, we have the following:

Underlying Profit Before Tax (annualised) = 286.0m*2 = 572.0m GBP

Normalised Tax = 19%*572m = 108.7m GBP

AT1 Distributions (annualised + grossed up @ 19%) = 12m*2/(1-19%) = 29.6m GBP

Underlying Profit After Tax = 572.0m-108.7m-29.6m= 433.7m GBP

Total Equity = 5,358.0m GBP

Intangibles = 495.0m GBP

AT1 Capital = 697.0m GBP

Tangible Equity minus AT1 Capital = 5,358.0m-495.0m-697.0m = 4,166.0m GBP

Therefore:

Underlying RoTE = 433.7m/4,166.0m = 10.4%

In particular, it is not necessary to adjust for Minority Interests, because the adjustments would have to be made both at the numerator and at the denominator, hence cancelling each other out; in other words, the percentage return is independent of minority interests, which makes conceptually sense (thus, the pre-tax return calculation in my previous post was incorrect).

In any event, the statutory RoTE is aimed at >12% from FY22, and based on my observation of management's performance to date (on items within their control), I rate this as a reasonable target to model for the longer term return on our tangible equity

I agree with you, provided that:

a) The realisation of synergies and cost savings proceeds broadly according to plan

b) NIM does not compress too much from its current levels, as a consequence of the ongoing tightening in mortgage rates

c) Current provisions for bad loans, PPI settlements, etc. are broadly reflective of future realised losses

Of course, a successful implementation of a) could potentially largely compensate for sub-par outcomes in b) and c).

Cheers