TIDMSAN
RNS Number : 4798I
Santander UK Plc
09 August 2019
Santander UK plc
Announcement of Half Yearly Financial Report for the six months
ended 30 June 2019.
Santander UK plc is pleased to announce the publication of its
Half Yearly Financial Report for the six months ended 30 June 2019
(the 'Half Yearly Financial Report'), in compliance with Disclosure
Guidance & Transparency Rule (DTR) 4.2.
The Half Yearly Financial Report may be accessed via the
Investor Relations section of Santander UK's website at
www.aboutsantander.co.uk. A copy of the Half Yearly Financial
Report has also been submitted to the National Storage
Mechanism.
The following information is extracted from the Half Yearly
Financial Report.
This announcement constitutes the material required by DTR 6.3.5
to be communicated to the media in unedited full text through a
Regulatory Information Service. This material is not a substitute
for reading the Half Yearly Financial Report in full.
Form 6-K
It should be noted that the financial results for the six months
ended 30 June 2019 will be included in the Half Yearly Financial
Report on Form 6-K that will be filed with the SEC and will be
available online at www.sec.gov.
Forward- Looking Statements
Santander UK plc and its ultimate parent Banco Santander SA
caution that this announcement may contain forward-looking
statements. Such forward looking-statements are found in various
places throughout this announcement with respect to the financial
condition, results, operations and business including future
business development and economic performance.
These statements and forecasts involve risk and uncertainty
because they relate to events and depend upon circumstances that
will occur in the future. There are a number of factors that could
cause actual results or developments to differ materially from
those expressed or implied by these forward-looking statements and
forecasts.
No statement financial or otherwise should be construed as a
profit forecast.
Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge these
Condensed Consolidated Interim Financial Statements have been
prepared in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union,
and that the half-year management report herein includes a fair
review of the information required by Disclosure Guidance and
Transparency Rules 4.2.7R and 4.2.8R, namely:
- An indication of important events that have occurred during the six
months ended 30 June 2019 and their impact on the Condensed Consolidated
Interim Financial Statements, and a description of the principal risks
and uncertainties for the remaining six months of the financial year,
and
- Material related party transactions in the six months ended 30 June
2019 and any material changes in the related party transactions described
in the last Annual Report.
Principal risks
As a financial services provider, managing risk is a core part
of our day-to-day activities. To be able to manage our business
effectively, it is critical that we understand and control risk in
everything we do. We aim to use a prudent approach and advanced
risk management techniques to help us deliver robust financial
performance and build sustainable value for our stakeholders. We
aim to keep a predictable medium-low risk profile, consistent with
our business model. This is key to achieving our strategic
objectives.
30 June 2019 compared to 31 December 2018
There were no significant changes in our risk governance,
including how we define risk and our key risk types, as described
in the 2018 Annual Report.
In H119, we also renamed 'Strategic risk' as 'Strategic and
Business risk' to reflect that its scope includes the risk of
underperformance against planned objectives.
Financial review
Income statement review
SUMMARISED CONSOLIDATED INCOME STATEMENT
Half year Half year
to to
30 June 30 June
2019 2018(2)
GBPm GBPm
Net interest income 1,668 1,811
Non-interest income(1) 453 501
=============================================================== ========= ==========
Total operating income 2,121 2,312
=============================================================== ========= ==========
Operating expenses before credit impairment losses, provisions
and charges (1,257) (1,283)
=============================================================== ========= ==========
Credit impairment losses (69) (91)
Provisions for other liabilities and charges (206) (33)
=============================================================== ========= ==========
Total operating credit impairment losses, provisions and
charges (275) (124)
=============================================================== ========= ==========
Profit before tax 589 905
Tax on profit (170) (233)
=============================================================== ========= ==========
Profit after tax for the period 419 672
=============================================================== ========= ==========
Attributable to:
Equity holders of the parent 410 660
Non-controlling interests 9 12
=============================================================== ========= ==========
Profit after tax for the period 419 672
=============================================================== ========= ==========
(1) Comprised of Net fee and commission income and Net trading and other
income.
(2) Adjusted to reflect the amendment to IAS 12, as described in Note 1
to the Condensed Consolidated Interim Financial Statements.
A more detailed Consolidated Income Statement is contained in
the Condensed Consolidated Interim Financial Statements.
H119 compared to H118
By income statement line item, the movements were:
- Net interest income was down 8%, largely impacted by pressure from the
mortgage back book and GBP2.1bn of SVR attrition (Q219: GBP0.5bn).
- Non-interest income was down 10%, largely due to GBP63m of ring-fencing
perimeter changes in CIB, partially offset by GBP15m additional consideration
received in connection with the 2017 Vocalink sale. Following a change
in accounting treatment of operating leases consumer (auto) finance
income also increased.
- Operating expenses before credit impairment losses, provisions and charges
were down 2%, largely due to GBP41m of ring-fencing perimeter changes
and GBP28m of Banking Reform costs from H118, as well as GBP13m of transformation
costs this year.
We also incurred higher depreciation costs related to prior year investment
projects and the change in accounting treatment of operating leases
in consumer (auto) finance. These increases were partially offset by
lower employee costs.
- Credit impairment losses decreased 24%, with a release from a significant
risk transfer (SRT) securitisation in June 2019 and single name charges
in CIB which were not repeated this year. All portfolios continue to
perform very well.
- Provisions for other liabilities and charges were up GBP173m to GBP206m,
with GBP100m of transformation programme charges (predominantly restructuring
costs) in Corporate Centre and GBP70m PPI provision charge in Retail
Banking.
- Profit before tax was down 35% to GBP589m, for the reasons outlined
above.
- Tax on profit decreased GBP63m to GBP170m, as a result of lower taxable
profits in H119, with PPI charges not tax deductible.
PPI provision charge
- At 30 June 2019, the remaining provision for redress and related costs
was GBP248m (2018: GBP246m). This includes a provision for PPI redress
as well as our best estimate of liability for a specific portfolio which
was disclosed in our 2018 Annual Report.
- We made an additional provision of GBP70m in Q219 reflecting an increase
in PPI claims volumes, additional industry activities and having considered
guidance provided by the FCA, in advance of the PPI claims deadline
on 29 August 2019.
- We will continue to monitor our provision levels, and take account of
the impact of any further change in claims received and FCA guidance.
PROFIT BEFORE TAX BY SEGMENT
The segmental information in this Half Yearly Financial Report
reflects the reporting structure in place at the reporting date.
For more, see Note 2 to the Condensed Consolidated Interim
Financial Statements.
- Retail Banking offers a wide range of products and financial services
to individuals and small businesses through a network of branches and
ATMs, as well as through telephony, digital and intermediary channels.
Retail Banking includes business banking customers, small businesses
with an annual turnover up to GBP6.5m, and Santander Consumer Finance,
predominantly a vehicle finance business.
- Corporate & Commercial Banking covers businesses with an annual turnover
of GBP6.5m to GBP500m. Corporate & Commercial Banking offers a wide
range of products and financial services provided by relationship teams
that are based in a network of regional CBCs and through telephony and
digital channels.
- Corporate & Investment Banking services corporate clients with an annual
turnover of GBP500m and above. CIB clients require specially tailored
solutions and value-added services due to their size, complexity and
sophistication. We provide these clients with products to manage currency
fluctuations, protect against interest rate risk, and arrange capital
markets finance and specialist trade finance solutions, as well as providing
support to the rest of Santander UK's business segments.
- Corporate Centre mainly includes the treasury, non-core corporate and
legacy portfolios, including Crown Dependencies. Corporate Centre is
also responsible for managing capital and funding, balance sheet composition,
structure, pension and strategic liquidity risk. To enable a more targeted
and strategically aligned apportionment of capital and other resources,
revenues and costs incurred in Corporate Centre are allocated to the
three business segments. The non-core corporate and legacy portfolios
are being run-down and/or managed for value.
Half year to 30 June 2019 Retail Corporate Corporate Corporate Total
Banking & & Investment Centre GBPm
GBPm Commercial Banking GBPm
Banking GBPm
GBPm
Net interest income/(expense) 1,465 189 32 (18) 1,668
Non-interest income(1) 353 38 47 15 453
-------------------------------------------- -------- ----------- ------------- --------- -------
Total operating income/(expense) 1,818 227 79 (3) 2,121
-------------------------------------------- -------- ----------- ------------- --------- -------
Operating expenses before credit impairment
losses, provisions and charges (1,011) (138) (83) (25) (1,257)
-------------------------------------------- -------- ----------- ------------- --------- -------
Credit impairment (losses)/releases (63) (9) 4 (1) (69)
Provisions for other liabilities and
charges (95) (1) (11) (99) (206)
-------------------------------------------- -------- ----------- ------------- --------- -------
Total operating credit impairment losses,
provisions and (charges)/releases (158) (10) (7) (100) (275)
-------------------------------------------- -------- ----------- ------------- --------- -------
Profit/(loss) before tax 649 79 (11) (128) 589
-------------------------------------------- -------- ----------- ------------- --------- -------
Half year to 30 June 2018(2)
-------------------------------------------- -------- ----------- ------------- --------- -------
Net interest income 1,565 202 33 11 1,811
Non-interest income(1) 304 40 115 42 501
============================================ ======== =========== ============= ========= =======
Total operating income 1,869 242 148 53 2,312
============================================ ======== =========== ============= ========= =======
Operating expenses before credit impairment
losses, provisions and charges (957) (134) (145) (47) (1,283)
============================================ ======== =========== ============= ========= =======
Credit impairment (losses)/releases (52) (22) (18) 1 (91)
Provisions for other liabilities and
(charges)/releases (34) 8 (2) (5) (33)
============================================ ======== =========== ============= ========= =======
Total operating credit impairment losses,
provisions and charges (86) (14) (20) (4) (124)
============================================ ======== =========== ============= ========= =======
Profit/(loss) before tax 826 94 (17) 2 905
============================================ ======== =========== ============= ========= =======
(1) Comprised of Net fee and commission income and Net trading and other
income.
(2) Restated to reflect the resegmentation of our short term markets business
to Corporate Centre as described in Note 2 to the Condensed Consolidated
Interim Financial Statements.
H119 compared to H118
For Retail Banking, profit before tax was lower, largely
impacted by pressure from the mortgage back book and GBP2.1bn of
SVR attrition. Following a change in accounting treatment of
operating leases, higher non-interest income was partially offset
by higher operating expenses.
For Corporate & Commercial Banking, profit before tax was
lower, largely due to the interest expense related to the 2018 SRT
securitisations. Credit impairment losses decreased GBP13m, as a
result of a release from the completion of the June 2019 SRT
securitisation.
For Corporate & Investment Banking, profit before tax was
lower largely reflecting the changes in the statutory perimeter,
following the transfers of activities to Banco Santander London
Branch as part of ring-fence implementation.
For Corporate Centre, loss before tax was largely due to
transformation programme investment of GBP113m, as well as the
impact of holding higher liquidity and lower yields on non-core
assets. Following ring-fence implementation, some short-term
markets activity is now accounted for in net interest income,
rather than non-interest income.
Balance sheet review
SUMMARISED CONSOLIDATED BALANCE SHEET
30 June 31 December
2019 2018
GBPbn GBPbn
Assets
Cash and balances at central banks 21,936 19,747
Financial assets at fair value through profit or loss 6,190 10,876
Financial assets at amortised cost 234,127 232,444
Financial assets at fair value through other comprehensive
income 13,438 13,302
Interest in other entities 96 88
Property, plant and equipment 2,069 1,832
Retirement benefit assets 779 842
Tax, intangibles and other assets 5,892 4,241
Total assets 284,527 283,372
=========================================================== ======= ===========
Liabilities
Financial liabilities at fair value through profit or
loss 3,408 7,655
Financial liabilities at amortised cost 260,096 256,514
Retirement benefit obligations 252 114
Tax, other liabilities and provisions 4,707 3,180
Total liabilities 268,463 267,463
=========================================================== ======= ===========
Equity
Total shareholders' equity 15,905 15,758
Non-controlling interests 159 151
=========================================================== ======= ===========
Total equity 16,064 15,909
=========================================================== ======= ===========
Total liabilities and equity 284,527 283,372
=========================================================== ======= ===========
A more detailed Consolidated Balance Sheet is contained in the
Condensed Consolidated Interim Financial Statements.
30 June 2019 compared to 31 December 2018
Assets
Cash and balances at central banks
Cash and balances at central banks increased by 11% to
GBP21,936m at 30 June 2019 (2018: GBP19,747m) due to higher
balances with the Bank of England, partially offset by lower cash
balances in the retail branches.
Financial assets at fair value through profit or loss:
Financial assets at fair value through profit or loss decreased
by 43% to GBP6,190m at 30 June 2019 (2018: GBP10,876m), mainly due
to:
- GBP2.1bn of senior tranches of credit linked notes, which were previously
classified as other financial assets at fair value through profit or
loss, are now presented on a net basis. For more information see Note
9 to the Condensed Consolidated Interim Financial Statements.
- The maturity of non-trading reverse repurchase agreements held at FVTPL,
which totalled GBP2.3bn at 31 December 2018.
Financial assets at amortised cost:
Financial assets at amortised cost increased by 1% to
GBP234,127m at 30 June 2019 (2018: GBP232,444m), mainly due to:
- Customer loans increased GBP0.7bn, with higher mortgage and consumer
(auto) finance lending partially offset by a reduction in Corporate
& Investment Banking and CRE exposures.
- Reverse repurchase agreements - non trading increasing by GBP1.3bn,
reflecting the classification of all non-trading reverse repurchase
agreements at amortised cost in line with our ring-fenced model and
as part of normal liquidity risk management.
These increases were partially offset by a decrease of GBP0.7bn
in loans and advances to banks.
Property, plant and equipment
Property, plant and equipment increased by 13% to GBP2,069m at
30 June 2019 (2018: GBP1,832m) mainly due to the application of
IFRS 16 with effect from 1 January 2019.
Retirement benefit assets
Retirement benefit assets decreased by 7% to GBP779m at 30 June
2019 (2018: GBP842m). This was mainly due to actuarial losses in
the period driven by a fall in gilt yields and a narrowing of
credit spreads, partially offset by asset growth mainly driven by
the increase in gilt values.
Tax, intangibles and other assets
Tax, intangibles and other assets increased by 39% to GBP5,892m
at 30 June 2019 (2018: GBP4,241m), mainly due to the settlement
timings of financial transactions with payment agents in the normal
course of business.
Liabilities
Financial liabilities at fair value through profit or loss:
Financial liabilities at fair value through profit or loss
decreased by 55% to GBP3,408m at 30 June 2019 (2018: GBP7,655m),
mainly due to:
- GBP2.1bn of senior cash deposits, which were previously classified as
other financial liabilities at fair value through profit or loss, are
now presented on a net basis. For more information see Note 16 to the
Condensed Consolidated Interim Financial Statements.
- The maturity of non-trading repurchase agreements held at FVTPL, which
totalled GBP2.1bn at 31 December 2018.
These decreases were partially offset by a small increase in the
carrying value of derivative liabilities.
Financial liabilities at amortised cost
Financial liabilities at amortised cost increased by 1% to
GBP260,096m at 30 June 2019 (2018: GBP256,514m). This was mainly
due to the following:
- Repurchase agreements - non trading increased by GBP3.9bn reflecting
the classification of all non-trading repurchase agreements at amortised
cost in line with our ring-fenced model and as part of normal liquidity
risk management.
- Customer deposits increased GBP2.4bn, driven by higher corporate deposits
as well as increased savings and business banking deposits in Retail
Banking.
- Deposits by banks decreased by GBP0.7bn due to a reduction in the deposits
placed with Banco Santander and lower balances held as cash collateral.
- Debt securities in issue decreased by GBP2.1bn, reflecting maturities
in the period, partially offset by covered bond issuances of GBP1bn
in February 2019 and EUR1bn in May 2019, as well as a senior unsecured
issuance of $1bn in June 2019.
Retirement benefit obligations
Retirement benefit obligations increased by GBP138m to GBP252m
at 30 June 2019 (2018: GBP114m). This was mainly due to actuarial
losses in the period driven by a fall in gilt yields and a
narrowing of credit spreads, partially offset by asset growth
mainly driven by the increase in gilt values.
Tax, other liabilities and provisions
Tax, other liabilities and provisions increased by 48% to
GBP4,707m at 30 June 2019 (2018: GBP3,180m) mainly due to the
settlement timings of financial transactions with payment agents in
the normal course of business.
Equity
Total shareholders' equity
Total shareholders' equity increased slightly by 1% to
GBP15,905m at 30 June 2019 (2018: GBP15,758m). This net increase
was principally due to retained profits for the period and
increases in the fair value of effective cash flow hedges,
partially offset by reductions in the defined benefit surplus and
own credit adjustments.
Customer balances
Consolidated
30 June 31 December
2019 2018
GBPbn GBPbn
Customer loans 200.3 199.6
Other assets 84.2 83.8
Total assets 284.5 283.4
============================= ======= ===========
Customer deposits 169.7 167.3
Medium Term Funding (MTF) 46.9 48.9
Other liabilities 51.8 51.2
Total liabilities 268.4 267.4
Shareholders' equity 15.9 15.8
Non-controlling interest 0.2 0.2
============================= ======= ===========
Total liabilities and equity 284.5 283.4
============================= ======= ===========
Further analyses of credit risk on customer loans, and on our
funding strategy, are included in the Credit risk and Liquidity
risk sections of the Risk review.
30 June 2019 compared to 31 December 2018
- Customer loans increased GBP0.7bn, with higher mortgage and consumer
(auto) finance lending partially offset by a reduction in CIB and CRE
exposures.
- Customer deposits increased by GBP2.4bn, driven by higher corporate
deposits, as well as increased savings and business banking deposits
in Retail Banking.
- The MTF balance decreased, reflecting maturities in the period, partially
offset by covered bond issuances of GBP1bn in February 2019 and EUR1bn
in May 2019, as well as a senior unsecured issuance of $1bn in June
2019.
Retail Banking
30 June 31 December
2019 2018
GBPbn GBPbn
Mortgages 159.4 158.0
Business banking 1.8 1.8
Consumer (auto) finance 7.8 7.3
Other unsecured lending 5.6 5.7
========================== ======= ===========
Customer loans 174.6 172.8
========================== ======= ===========
Current accounts 67.8 68.4
Savings 57.0 56.0
Business banking accounts 12.1 11.9
Other retail products 5.9 5.8
========================== ======= ===========
Customer deposits 142.8 142.1
========================== ======= ===========
Corporate & Commercial Banking
30 June 2019 31 December
GBPbn 2018
GBPbn
Trading businesses 11.6 11.5
Commercial Real Estate 5.8 6.2
======================= ============ ===========
Customer loans 17.4 17.7
======================= ============ ===========
Customer deposits 18.0 17.6
======================= ============ ===========
Corporate & Investment Banking
30 June 2019 31 December
GBPbn 2018
GBPbn
Customer loans 4.1 4.6
Customer deposits 6.1 4.8
================== ============ ===========
Corporate Centre
30 June 2019 31 December
GBPbn 2018
GBPbn
Customer loans 4.2 4.5
- of which Social Housing 3.6 3.8
- of which non-core 0.6 0.7
Customer deposits 2.8 2.8
============================ ============ ===========
Capital
30 June 31 December
2019 2018
GBPbn GBPbn
Capital and leverage
Total qualifying regulatory capital 15.8 15.9
Total capital ratio 21.1% 20.3%
RWAs 74.7 78.5
==================================== ======= ===========
(1) Segmental RWAs for 2018 have been restated to reflect the transfer of
our short term markets activity from CIB to Corporate Centre and the
reallocation of an equity stake in a joint venture from Corporate Centre
to Retail Banking.
Analysis of capital is included in the Capital risk section of
the Risk review.
30 June 2019 compared to 31 December 2018
- RWAs reduced largely as a result of the June 2019 SRT securitisation
and lower lending in our corporate business as we continue to focus
on risk-weighted returns. This was partially offset by increased
RWAs in Retail Banking with lending growth in mortgages and consumer
(auto) finance.
- We take a prudent approach to risk and our calculation of RWAs uses
through-the-cycle modelling of unexpected losses. As a result we
have a higher mortgage RWA translation ratio than other large UK
banks. Following implementation of planned PRA changes by 1 January
2021, RWA calculation models will have to use a hybrid of through-the-cycle
and point-in-time assumptions and as a result we expect a significant
decrease in our RWAs.
Liquidity
30 June 31 December
2019 2018
GBPbn GBPbn
Santander UK Domestic Liquidity Sub Group (RFB DoLSub)
Liquidity Coverage Ratio (LCR) 155% 164%
LCR eligible liquidity pool 49.0 54.1
======================================================= ======= ===========
Analysis of liquidity is included in the Liquidity risk section
of the Risk review.
30 June 2019 compared to 31 December 2018
- We continue to maintain high levels of liquidity to ensure we are
well prepared for potential Brexit uncertainty later in the year.
- The RFB DoLSub LCR and LCR eligible liquidity pool both decreased
following the transfer of our Isle of Man and Jersey businesses (Crown
Dependencies) into ANTS as part of ring-fencing implementation.
Proposed changes to our operating companies' structure
- As part of ring-fencing implementation, Santander UK Group Holdings
plc adopted a wide ring-fenced bank model with most of our operations
within Santander UK plc, the ring-fenced bank. ANTS is outside the
RFB and also holds wealth management businesses in the Crown Dependencies,
which are not permitted within the ring-fence as they are located
outside the UK.
- To optimise our overall funding structure, Santander UK Group Holdings
plc is considering the transfer of some RFB assets to ANTS to enable
more efficient use of Crown Dependencies deposits.
Forward-looking statements
The Company and its subsidiaries (together Santander UK) may
from time to time make written or oral forward-looking statements.
The Company makes written forward-looking statements in this Half
Yearly Financial Report and may also make forward-looking
statements in its periodic reports to the SEC on Forms 20-F and
6-K, in its offering circulars and prospectuses, in press releases
and other written materials and in oral statements made by its
officers, directors or employees to third parties. By their very
nature, forward-looking statements are not statements of historical
or current facts; they cannot be objectively verified, are
speculative and involve inherent risks and uncertainties, both
general and specific, and risks exist that the predictions,
forecasts, projections and other forward-looking statements will
not be achieved. Santander UK cautions readers that a number of
important factors could cause actual results to differ materially
from the plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements made by Santander UK
or on its behalf. For more, see 'Forward-looking statements' in the
Shareholder information section of the 2018 Annual Report. Please
also refer to our latest filings with the SEC (including, without
limitation, our Annual Report on Form 20-F for the year ended 31
December 2018) for a discussion of certain risk factors and
forward-looking statements. Undue reliance should not be placed on
forward-looking statements when making decisions with respect to
any Santander UK member and/or its securities. Investors and others
should take into account the inherent risks and uncertainties of
forward-looking statements and should carefully consider the
non-exhaustive list of important factors in the 2018 Annual Report.
Forward-looking statements speak only as of the date on which they
are made and are based on the knowledge, information available and
views taken on the date on which they are made; such knowledge,
information and views may change at any time. Santander UK does not
undertake any obligation to update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise.
Glossary
Our glossary of industry and other main terms is available on
our website:
www.santander.co.uk/uk/about-santander-uk/investor-relations-glossary.
The definition of Net Promoter Score is as follows:
Term Definition
Net Promoter Score NPS measures customer experience and predicts business
(NPS) growth. This proven metric provides the core measurement
for customer experience management programs and the
loyalty of customers to a company.
Business and corporate NPS is measured by the MarketVue
Business Banking from Savanta. This is an ongoing telephone
based survey designed to monitor usage and attitude
of UK businesses towards banks. 15,000 structured telephone
interviews are conducted each year among businesses
of all sizes from new start-ups to large corporates.
The data is based upon 9,925 interviews made in twelve
months ended 30 June 2019 with businesses turning over
from GBP0 - GBP500m per annum and are weighted by region
and turnover to be representative of businesses in
Great Britain. NPS - recommendation score is based
on an 11 point scale (%Top 2 - %Bottom 7). The competitor
set included in this analysis is Barclays, RBS, HSBC,
Lloyds Bank, TSB and NatWest.
The Financial Research Survey (FRS) is a monthly personal
finance survey of around 5,000 consumers prepared by
the independent market research agency, IPSOS MORI.
The NPS is based on a 11-point scale (%Top2 - %Bottom
7) across mortgages, savings, main current accounts,
home insurance, UPLs and credit cards, based on a weighting
of those products calculated to reflect the average
product distribution across Santander UK and competitor
brands. Data shown is for the twelve months ended 30
June 2019, based on 13,803 interviews and compared
against twelve months ended data for the period as
indicated. The competitor set used to calculate the
product weights is Barclays, Halifax, HSBC, Lloyds
Bank, Nationwide, NatWest, TSB and RBS. The competitor
set included in this analysis for the ranking and highest
performing peers is Barclays, Halifax, HSBC, Lloyds
Bank, Nationwide, NatWest, TSB and RBS.
------------------------------------------------------------
Financial statements
Consolidated Income Statement (unaudited)
For the half year to 30 June 2019 and the half year to 30 June
2018
Notes Half year Half year
to to
30 June 30 June
2019 2018(1)
GBPm GBPm
============================================= ===== ========== =========
Interest and similar income 2,970 3,001
Interest expense and similar charges (1,302) (1,190)
============================================= ===== ========== =========
Net interest income 1,668 1,811
============================================= ===== ========== =========
Fee and commission income 539 584
Fee and commission expense (204) (204)
============================================= ===== ========== =========
Net fee and commission income 335 380
============================================= ===== ========== =========
Net trading and other income 3 118 121
============================================= ===== ========== =========
Total operating income 2,121 2,312
============================================= ===== ========== =========
Operating expenses before credit impairment
losses, provisions and charges 4 (1,257) (1,283)
============================================= ===== ========== =========
Credit impairment losses 5 (69) (91)
Provisions for other liabilities and charges 5 (206) (33)
============================================= ===== ========== =========
Total operating credit impairment losses,
provisions and charges (275) (124)
============================================= ===== ========== =========
Profit before tax 589 905
Tax on profit 6 (170) (233)
============================================= ===== ========== =========
Profit after tax for the period 419 672
============================================= ===== ========== =========
Attributable to:
Equity holders of the parent 410 660
Non-controlling interests 26 9 12
============================================= ===== ========== =========
Profit after tax for the period 419 672
============================================= ===== ========== =========
(1) Adjusted to reflect the amendment to IAS 12, as described in Note 1.
The accompanying Notes to the Financial Statements form an
integral part of these Condensed Consolidated Interim Financial
Statements.
Consolidated Statement of Comprehensive Income (unaudited)
For the half year to 30 June 2019 and the half year to 30 June
2018
Half year Half year
to to
30 June 30 June
2019 2018(1)
GBPm GBPm
========================================================= ========== =========
Profit after tax for the period 419 672
========================================================= ========== =========
Other comprehensive income that may be reclassified
to profit or loss subsequently:
Movement in fair value reserve (debt instruments):
* Change in fair value 167 (94)
* Income statement transfers (152) 67
* Taxation (4) 6
========================================================= ========== =========
11 (21)
========================================================= ========== =========
Cash flow hedges:
* Effective portion of changes in fair value 360 84
* Income statement transfers (42) (190)
* Taxation (82) 21
========================================================= ========== =========
236 (85)
========================================================= ========== =========
Net other comprehensive income that may be reclassified
to profit or loss subsequently 247 (106)
========================================================= ========== =========
Other comprehensive income that will not be reclassified
to profit or loss subsequently:
Pension remeasurement:
* Change in fair value (280) 529
* Taxation 70 (132)
========================================================= ========== =========
(210) 397
========================================================= ========== =========
Own credit adjustment:
* Change in fair value (58) (31)
* Taxation 15 8
========================================================= ========== =========
(43) (23)
========================================================= ========== =========
Net other comprehensive income that will not be
reclassified to profit or loss subsequently (253) 374
========================================================= ========== =========
Total other comprehensive income for the period
net of tax (6) 268
========================================================= ========== =========
Total comprehensive income for the period 413 940
========================================================= ========== =========
Attributable to:
Equity holders of the parent 405 927
Non-controlling interests 8 13
========================================================= ========== =========
Total comprehensive income for the period 413 940
========================================================= ========== =========
(1) Adjusted to reflect the amendment to IAS 12, as described in Note 1.
The accompanying Notes to the Financial Statements form an
integral part of these Condensed Consolidated Interim Financial
Statements.
Consolidated Balance Sheet (unaudited)
At 30 June 2019 and 31 December 2018
Notes 30 June 31 December
2019 2018
GBPm GBPm
============================================================== ===== ======= ===========
Assets
Cash and balances at central banks 21,936 19,747
Financial assets at fair value through profit or
loss:
- Derivative financial instruments 8 5,445 5,259
Other financial assets at fair value through
- profit or loss 9 745 5,617
Financial assets at amortised cost:
- Loans and advances to customers 10 202,516 201,289
- Loans and advances to banks 2,065 2,799
- Reverse repurchase agreements - non trading 12 22,409 21,127
- Other financial assets at amortised cost 13 7,137 7,229
Financial assets at fair value through other comprehensive
income 14 13,438 13,302
Interests in other entities 15 96 88
Intangible assets 1,793 1,808
Property, plant and equipment 2,069 1,832
Current tax assets 180 153
Retirement benefit assets 22 779 842
Other assets 3,919 2,280
Total assets 284,527 283,372
============================================================== ===== ======= ===========
Liabilities
Financial liabilities at fair value through profit
or loss:
- Derivative financial instruments 8 1,775 1,369
Other financial liabilities at fair value
- through profit or loss 16 1,633 6,286
Financial liabilities at amortised cost:
- Deposits by customers 17 180,617 178,090
- Deposits by banks 18 16,489 17,221
- Repurchase agreements - non trading 19 14,771 10,910
- Debt securities in issue 20 44,574 46,692
- Subordinated liabilities 3,645 3,601
Other liabilities 3,904 2,448
Provisions 21 547 509
Deferred tax liabilities 256 223
Retirement benefit obligations 22 252 114
Total liabilities 268,463 267,463
============================================================== ===== ======= ===========
Equity
Share capital 3,105 3,119
Share premium 5,620 5,620
Other equity instruments 1,991 1,991
Retained earnings 4,658 4,744
Other reserves 531 284
============================================================== ===== ======= ===========
Total shareholders' equity 15,905 15,758
Non-controlling interests 26 159 151
============================================================== ===== ======= ===========
Total equity 16,064 15,909
============================================================== ===== ======= ===========
Total liabilities and equity 284,527 283,372
============================================================== ===== ======= ===========
The accompanying Notes to the Financial Statements form an
integral part of these Condensed Consolidated Interim Financial
Statements.
Consolidated Cash Flow Statement (unaudited)
For the half year to 30 June 2019 and the half year to 30 June
2018
Notes Half year Half year
to to
30 June 30 June
2019 2018(1)
GBPm GBPm
=================================================== ====== =========== =========
Cash flows from operating activities
Profit after tax for the period 419 672
Adjustments for:
Non-cash items included in profit 86 187
Change in operating assets 1,135 (2,644)
Change in operating liabilities 1,328 (1,176)
Corporation taxes paid (166) (236)
Effects of exchange rate differences (334) 583
=================================================== ====== =========== =========
Net cash flows from operating activities 2,468 (2,614)
=================================================== ====== =========== =========
Cash flows from investing activities
Investments in other entities 15 - (66)
Purchase of property, plant and equipment
and intangible assets (66) (350)
Proceeds from sale of property, plant and
equipment and intangible assets 32 13
Purchase of financial assets at amortised
cost and financial assets at fair value
through other comprehensive income (4,141) (5,047)
Proceeds from sale and redemption of financial
assets at amortised cost and financial
assets at fair value through other comprehensive
income 4,259 1,301
=================================================== ====== =========== =========
Net cash flows from investing activities 84 (4,149)
=================================================== ====== =========== =========
Cash flows from financing activities
Issue of debt securities and subordinated
notes 2,770 6,452
Issuance costs of debt securities and subordinated
notes (9) (13)
Repayment of debt securities and subordinated
notes (4,693) (4,601)
Repurchase of preference shares and other
equity instruments (14) -
Dividends paid on ordinary shares 7 (164) (250)
Dividends paid on preference shares and
other equity instruments (80) (90)
Dividends paid on non-controlling interests - -
=================================================== ====== =========== =========
Net cash flows from financing activities (2,190) 1,498
=================================================== ====== =========== =========
Change in cash and cash equivalents 362 (5,265)
=================================================== ====== =========== =========
Cash and cash equivalents at beginning
of the period 26,029 42,226
Effects of exchange rate changes on cash
and cash equivalents 3 206
=================================================== ====== =========== =========
Cash and cash equivalents at the end of
the period 26,394 37,167
=================================================== ====== =========== =========
Cash and cash equivalents consist of:
Cash and balances at central banks 21,936 21,342
Less: regulatory minimum cash balances (670) (631)
=================================================== ====== =========== =========
21,266 20,711
=================================================== ====== =========== =========
Net trading other cash equivalents - 2,591
Net non-trading other cash equivalents 5,128 13,865
=================================================== ====== =========== =========
Cash and cash equivalents at the end of
the period 26,394 37,167
=================================================== ====== =========== =========
(1) Adjusted to reflect the amendment to IAS 12, as described in Note 1.
The accompanying Notes to the Financial Statements form an
integral part of these Condensed Consolidated Interim Financial
Statements.
Consolidated Statement of Changes in Equity
For the half year to 30 June 2019 and the half year to 30 June
2018
Other reserves Non-controlling
interests
GBPm
======== ======= ============ ---------------------------------------------- ============ ======= ================ =======
Other Available- Fair Cash Currency
Share Share equity for-sale(1) value(1) flow translation Retained
capital premium instruments GBPm GBPm hedging GBPm earnings(2) Total Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================================ ======== ======= ============ ============ ======== ======== ============ ============ ======= ================ =======
At 1 January 2019 3,119 5,620 1,991 23 256 5 4,744 15,758 151 15,909
Profit after tax - - - - - - 410 410 9 419
Other comprehensive
income, net of tax:
* Fair value reserve (debt instruments) - - - 11 - - - 11 - 11
* Cash flow hedges - - - - 236 - - 236 - 236
* Pension remeasurement - - - - - - (209) (209) (1) (210)
* Own credit adjustment - - - - - - (43) (43) - (43)
Total comprehensive
income - - - 11 236 - 158 405 8 413
============================================ ======== ======= ============ ============ ======== ======== ============ ============ ======= ================ =======
Repurchase of preference
shares and other
equity instruments (14) - - - - - - (14) - (14)
Dividends on ordinary
shares - - - - - - (164) (164) - (164)
Dividends on preference
shares and other
equity instruments - - - - - - (80) (80) - (80)
At 30 June 2019 3,105 5,620 1,991 34 492 5 4,658 15,905 159 16,064
============================================ ======== ======= ============ ============ ======== ======== ============ ============ ======= ================ =======
At 31 December 2017 3,119 5,620 2,281 68 228 5 4,732 16,053 152 16,205
Adoption of IFRS
9 - - - (68) 63 - - (187) (192) - (192)
============================================ ======== ======= ============ ============ ======== ======== ============ ============ ======= ================ =======
At 1 January 2018 3,119 5,620 2,281 - 63 228 5 4,545 15,861 152 16,013
============================================ ======== ======= ============ ============ ======== ======== ============ ============ ======= ================ =======
Profit after tax - - - - - - 660 660 12 672
Other comprehensive
income, net of tax:
* Fair value reserve (debt instrument) - - - (21) - - - (21) - (21)
* Cash flow hedges - - - - (85) - - (85) - (85)
* Pension remeasurement - - - - - - 396 396 1 397
* Own credit adjustment - - - - - - (23) (23) - (23)
============================================ ======== ======= ============ ============ ======== ======== ============ ============ ======= ================ =======
Total comprehensive
income - - - (21) (85) - 1,033 927 13 940
============================================ ======== ======= ============ ============ ======== ======== ============ ============ ======= ================ =======
Other - - - - - - (45) (45) - (45)
Dividends on ordinary
shares - - - - - - (250) (250) - (250)
Dividends on preference
shares and other
equity instruments - - - - - - (90) (90) - (90)
At 30 June 2018 3,119 5,620 2,281 42 143 5 5,193 16,403 165 16,568
============================================ ======== ======= ============ ============ ======== ======== ============ ============ ======= ================ =======
(1) Following the adoption of IFRS 9, a fair value reserve was introduced
to replace the available-for-sale reserve, as described in Note 1 to
the Consolidated Financial Statements in the 2018 Annual Report.
(2) Adjusted to reflect the amendment to IAS 12, as described in Note 1.
The accompanying Notes to the Financial Statements form an
integral part of these Condensed Consolidated Interim Financial
Statements.
1. Accounting policies
The financial information in these Condensed Consolidated
Interim Financial Statements does not constitute statutory accounts
as defined in section 434 of the UK Companies Act 2006. Statutory
accounts for the year ended 31 December 2018 have been delivered to
the Registrar of Companies. The auditor's report on those accounts
was unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under section 498(2) of
the UK Companies Act 2006.
The Condensed Consolidated Interim Financial Statements reflect
all adjustments that, in the opinion of management, are necessary
for a fair statement of the results of operations for the interim
period. All such adjustments to the financial information are of a
normal, recurring nature. Because the results from common banking
activities are so closely related and responsive to changes in
market conditions, the results for any interim period are not
necessarily indicative of the results that can be expected for the
year.
The Condensed Consolidated Interim Financial Statements have
been prepared in accordance with International Accounting Standard
(IAS) 34 'Interim Financial Reporting', as issued by the
International Accounting Standards Board (IASB) and adopted by the
European Union, and the Disclosure Guidance and Transparency Rules
sourcebook of the Financial Conduct Authority (FCA). They do not
include all the information and disclosures normally required for
full annual financial statements and should be read in conjunction
with the Consolidated Financial Statements of Santander UK plc (the
Santander UK group) for the year ended 31 December 2018 which were
prepared in accordance with International Financial Reporting
Standards as adopted by the European Union. Those Consolidated
Financial Statements were also prepared in accordance with
International Financial Reporting Standards as issued by the IASB
including interpretations issued by the IFRS Interpretations
Committee (IFRIC) of the IASB (together IFRS). The Santander UK
group has also complied with its legal obligation to comply with
International Financial Reporting Standards as adopted by the
European Union as there are no applicable differences between the
two frameworks for the periods presented.
Except as noted below, the same accounting policies,
presentation and methods of computation are followed in these
Condensed Consolidated Interim Financial Statements as were applied
in the presentation of the Santander UK group's 2018 Annual
Report.
Recent accounting developments
IFRS 16
On 1 January 2019 the Santander UK group adopted IFRS 16
'Leases' (IFRS 16) and the revised accounting policies as lessee
which have been applied from 1 January 2019 are set out below.
Comparatives have not been restated. The impact of applying IFRS 16
is disclosed in section (ii).
i) Accounting policy change
The Santander UK group as lessee
The Santander UK group assesses whether a contract is or
contains a lease at the inception of the contract and recognises a
right-of-use (ROU) asset representing its right to use the
underlying leased asset and a lease liability representing its
obligation to make lease payments for all leases, except for leases
with a term of 12 months or less which are expensed in the income
statement on a straight-line basis over the lease terms. Lease
payments exclude irrecoverable VAT which is expensed in the income
statement as lease payments are made.
The lease liability, which is included within Other liabilities
on the balance sheet, is initially measured at the present value of
the lease payments that are not paid at the commencement date,
discounted using the incremental borrowing rate appropriate to the
lease term. The lease liability is subsequently measured at
amortised cost using the effective interest rate method.
Remeasurement of the lease liability occurs if there is a change in
the lease payments (when a corresponding adjustment is made to the
ROU asset), the lease term or in the assessment of an option to
purchase the underlying asset.
At inception, the ROU asset, which is included within Property,
plant and equipment on the balance sheet, comprises the lease
liability, initial direct costs and the obligations to restore the
asset, less any incentives granted by the lessor. The ROU asset is
depreciated over the shorter of the lease term or the useful life
of the underlying asset and is reviewed for indications of
impairment as for owned assets. The obligation to restore the asset
is included within Provisions on the balance sheet.
ii) Impact of adoption
IFRS 16 became effective for periods beginning on or after 1
January 2019. The standard sets out the principles for the
recognition, measurement, presentation and disclosure of leases for
both lessees and lessors. For lessee accounting, IFRS 16 introduces
a single lessee accounting model which requires the recognition of
a ROU asset representing the lessee's right to use the underlying
leased asset and a lease liability representing its obligation to
make lease payments. For lessor accounting, IFRS 16 substantially
carries forward the requirements from the previous leasing standard
(IAS 17) and a lessor continues to classify its leases as operating
leases or finance leases and to account for those two types of
leases differently.
The Santander UK group elected to apply the modified
retrospective approach whereby the ROU asset at the date of initial
application was measured at an amount equal to the lease liability.
The ROU asset was adjusted for any prepaid lease payments and
incentives relating to the relevant leases that were recognised on
the balance sheet at 31 December 2018 and included an estimate of
the costs of restoring the underlying assets to the condition
required by the terms of the lease.
The application of IFRS 16 at 1 January 2019 increased property,
plant and equipment by GBP211m (being the net increase in ROU
assets referred to above), reduced other assets by GBP12m,
increased other liabilities by GBP182m from recognising lease
liabilities, and increased provisions by GBP17m (see Note 21).
There was no impact on shareholders' equity. The amount of the
lease liabilities above differed from the amount of operating lease
commitments disclosed in Note 32 to the Consolidated Financial
Statements in the 2018 Annual Report due to the effects of
discounting the lease liabilities and excluding short-term leases
that are outside the scope of IFRS 16.
In addition to the choice of transition approach, the
determination of the discount rate is the most significant area of
judgement. The Santander UK group applies an incremental borrowing
rate (based on 3-month GBP LIBOR plus a credit spread to reflect
the cost of raising unsecured funding in the wholesale markets)
appropriate to the relevant remaining lease term.
IAS 12
The Santander UK group has also applied the amendment to IAS 12
'Income Taxes' (part of 'Annual Improvements to IFRS Standards
2015-2017 Cycle') in these Condensed Consolidated Interim Financial
Statements. The amendment clarifies that the income tax
consequences of dividends on financial instruments classified as
equity should be recognised according to where the past
transactions or events that generated distributable profits were
recognised. This means that, to the extent that profits from which
dividends on equity instruments were recognised in the income
statement, the income tax consequences would be similarly
recognised in the same statement. The amendment, which has been
applied retrospectively, reduces the effective tax rate where the
tax relief on dividends in respect of other equity instruments is
recognised in the income statement rather than in equity. There was
no impact on shareholders' equity from applying the amendment to
IAS 12 at 1 January 2019. The impact of the amendment to IAS 12 on
the income statement for H119 was to reduce tax on profit by GBP21m
(H118: GBP23m), increasing profit after tax by the same amount.
Going Concern
After making enquiries, the Directors have a reasonable
expectation that Santander UK has adequate resources to continue in
operational existence for at least twelve months from the date that
the balance sheet is signed. Having reassessed the principal risks
and uncertainties, the Directors consider it appropriate to adopt
the 'going concern' basis of accounting in preparing the Condensed
Consolidated Interim Financial Statements.
CRITICAL JUDGEMENTS AND ACCOUNTING ESTIMATES
The preparation of the Condensed Consolidated Interim Financial
Statements requires management to make judgements and accounting
estimates that affect the reported amount of assets and liabilities
at the date of the Condensed Consolidated Interim Financial
Statements and the reported amount of income and expenses during
the reporting period. Management evaluates its judgements and
accounting estimates, which are based on historical experience and
on various other factors that are believed to be reasonable under
the circumstances, on an ongoing basis. Actual results may differ
from these accounting estimates under different assumptions or
conditions.
In the course of preparing the Condensed Consolidated Interim
Financial Statements, no significant judgements have been made in
the process of applying the accounting policies, other than those
involving estimations about credit impairment losses, conduct
remediation and pensions.
There have been no significant changes in the basis upon which
judgements and accounting estimates have been determined compared
to that applied in the 2018 Annual Report.
a) Credit impairment allowance
Sensitivity of ECL allowance
At 30 June 2019, the probability-weighted ECL allowance totalled
GBP817m (2018: GBP807m), of which GBP801m (2018: GBP789m) related
to exposures in Retail Banking, Corporate & Commercial Banking
and Corporate Centre, and GBP16m (2018: GBP18m) related to
exposures in Corporate & Investment Banking.
Probability weights
The amounts shown in the tables below illustrate the ECL
allowances that would have arisen had management applied a 100%
weighting to each economic scenario, and were calculated using the
same methodology described in Note 1 to the Consolidated Financial
Statements, and the Credit risk section of the Risk review, within
the 2018 Annual Report.
ECL for Retail Banking, Corporate Upside Upside Base case Downside Downside
& Commercial Banking and Corporate 2 1 GBPm 1 2
Centre GBPm GBPm GBPm GBPm
30 June 2019 601 629 667 861 1,726
==================================== ====== ====== ========= ======== ========
31 December 2018 554 596 648 843 1,930
==================================== ====== ====== ========= ======== ========
Upside Base case Downside
ECL for Corporate & Investment Banking(1) GBPm GBPm GBPm
30 June 2019 7 14 23
============================================ ====== ========= ========
31 December 2018 8 17 27
============================================ ====== ========= ========
(1) As described in more detail in the 'Santander UK Group Level - Credit
Risk Management' section in the 2018 Annual Report, our Corporate &
Investment Banking segment uses three forward-looking economic scenarios,
whereas our other segments use five scenarios. The results of the 100%
weighting ECL for the Corporate & Investment Banking segment are therefore
presented separately.
b) Provisions
Sensitivity of PPI conduct remediation provision
At 30 June 2019, the remaining provision for redress and related
costs was GBP248m (2018: GBP246m). We made an additional provision
of GBP70m in Q219 reflecting an increase in PPI claims volumes,
additional industry activities and having considered guidance
provided by the FCA, in advance of the PPI claims deadline on 29
August 2019.
Had management used different assumptions around future expected
claims, a larger or smaller provision charge would have resulted
that could have had a material impact on the Santander UK group's
reported profit before tax. For more on the provision for PPI
conduct remediation, including details on the future expected
claims assumption, and the associated sensitivity, see Note 21.
2. SEGMENTS
The Santander UK group's business is managed and reported on the
basis of the following segments: Retail Banking, Corporate &
Commercial Banking, Corporate & Investment Banking and
Corporate Centre. The segments are strategic business units that
offer different products and services. They are managed separately
because each business has different customers and requires
different technology and marketing strategies. The segmental basis
of presentation in these Condensed Consolidated Interim Financial
Statements has been changed, and the prior period has been
restated, for the following:
- To report our short term markets business in Corporate Centre rather
than in Corporate & Investment Banking. This reflects the run down or
transfer to Banco Santander London Branch of the prohibited part of
the business in 2018, as part of the transition to our ring-fenced model,
with the remaining permitted business forming part of our liquidity
risk management function.
- As reflected in the Consolidated Financial Statements in the 2018 Annual
Report, to report our Jersey and Isle of Man branches in Corporate Centre
rather than in Retail Banking, as a result of their transfer from Santander
UK plc to ANTS in December 2018.
Results by segment
Half year to 30 June 2019 Retail Corporate Corporate Corporate Total
Banking & & investment Centre GBPm
GBPm Commercial Banking GBPm
Banking GBPm
GBPm
============================================= ======== =========== ============== ========= =======
Net interest income/(expense) 1,465 189 32 (18) 1,668
Non-interest income 353 38 47 15 453
============================================= ======== =========== ============== ========= =======
Total operating income/(expense) 1,818 227 79 (3) 2,121
============================================= ======== =========== ============== ========= =======
Operating expenses before credit
impairment losses, provisions
and
charges (1,011) (138) (83) (25) (1,257)
============================================= ======== =========== ============== ========= =======
Credit impairment (losses)/releases (63) (9) 4 (1) (69)
Provisions for other liabilities
and charges (95) (1) (11) (99) (206)
============================================= ======== =========== ============== ========= =======
Total operating credit impairment
losses, provisions and charges (158) (10) (7) (100) (275)
============================================= ======== =========== ============== ========= =======
Profit/(loss) before tax 649 79 (11) (128) 589
============================================= ======== =========== ============== ========= =======
Revenue from external customers 2,166 281 85 (411) 2,121
Inter-segment revenue (348) (54) (6) 408 -
============================================= ======== =========== ============== ========= =======
Total operating income/(expense) 1,818 227 79 (3) 2,121
============================================= ======== =========== ============== ========= =======
Revenue from external customers
includes the following fee and
commission income disaggregated
by income type:(1)
* Current account and debit card fees 345 15 14 - 374
* Insurance, protection and investments 37 - - - 37
* Credit cards 42 - - - 42
* Non-banking and other fees(2) 36 26 24 - 86
============================================= ======== =========== ============== ========= =======
Total fee and commission income 460 41 38 - 539
Fee and commission expense (184) (12) (7) (1) (204)
============================================= ======== =========== ============== ========= =======
Net fee and commission income 276 29 31 (1) 335
============================================= ======== =========== ============== ========= =======
30 June 2019
============================================= ======== =========== ============== ========= =======
Customer loans 174,590 17,365 4,060 4,343 200,358
Total assets(3) 182,785 17,365 4,929 79,448 284,527
============================================= ======== =========== ============== ========= =======
Customer deposits 142,814 18,021 6,059 2,855 169,749
Total liabilities 143,788 18,045 6,946 99,684 268,463
============================================= ======== =========== ============== ========= =======
(1) The disaggregation of fees and commission income as shown above is not
included in reports provided to the chief operating decision maker but
is provided to show the split by reportable segments.
(2) Non-banking and other fees include mortgages, consumer finance, commitment
commission, asset finance, invoice finance and trade finance.
(3) Includes customer loans, net of credit impairment loss allowances.
Half year to 30 June 2018(1) Retail Corporate Corporate Corporate Total
Banking & & investment Centre GBPm
GBPm Commercial Banking GBPm
Banking GBPm
GBPm
============================================= ======== =========== ============== ========= =======
Net interest income 1,565 202 33 11 1,811
Non-interest income 304 40 115 42 501
============================================= ======== =========== ============== ========= =======
Total operating income 1,869 242 148 53 2,312
============================================= ======== =========== ============== ========= =======
Operating expenses before credit impairment
losses, provisions and charges (957) (134) (145) (47) (1,283)
============================================= ======== =========== ============== ========= =======
Credit impairment (losses)/releases (52) (22) (18) 1 (91)
Provisions for other liabilities and
charges (34) 8 (2) (5) (33)
============================================= ======== =========== ============== ========= =======
Total operating credit impairment losses,
provisions and (charges)/releases (86) (14) (20) (4) (124)
============================================= ======== =========== ============== ========= =======
Profit/(loss) before tax 826 94 (17) 2 905
============================================= ======== =========== ============== ========= =======
Revenue from external customers 2,183 322 177 (370) 2,312
Inter-segment revenue (314) (80) (29) 423 -
============================================= ======== =========== ============== ========= =======
Total operating income/(expense) 1,869 242 148 53 2,312
============================================= ======== =========== ============== ========= =======
Revenue from external customers includes
the following fee and commission income
disaggregated by income type: (2)
* Current account and debit card fees 311 13 14 - 338
* Insurance, protection and investments 46 - - - 46
* Credit cards 45 - - - 45
* Non-banking and other fees(3) 67 32 50 6 155
Total fee and commission income 469 45 64 6 584
Fee and commission expense (183) (13) (8) - (204)
============================================= ======== =========== ============== ========= =======
Net fee and commission income 286 32 56 6 380
============================================= ======== =========== ============== ========= =======
31 December 2018
============================================= ======== =========== ============== ========= =======
Customer loans 172,747 17,702 4,613 4,524 199,586
Total assets(4) 179,572 17,702 8,607 77,491 283,372
============================================= ======== =========== ============== ========= =======
Customer deposits 142,065 17,606 4,853 2,791 167,315
Total liabilities 142,839 17,634 8,885 98,105 267,463
============================================= ======== =========== ============== ========= =======
(1) Restated to reflect the resegmentation of our short term markets business
and our Jersey and Isle of Man branches to Corporate Centre.
(2) The disaggregation of fees and commission income as shown above is not
included in reports provided to the chief operating decision maker but
is provided to show the split by reportable segments.
(3) Non-banking and other fees include mortgages, consumer finance, commitment
commission, asset finance, invoice finance and trade finance.
(4) Includes customer loans, net of credit impairment loss allowances.
3. NET TRADING AND OTHER INCOME
Half year Half year
to to
30 June 30 June
2019 2018
GBPm GBPm
Net trading and other income 118 121
============================= ========= =========
Included in net trading and other income in H119 is additional
consideration of GBP15m in connection with the 2017 Vocalink
Holdings Limited shareholding sale.
In H119 and H118, the Santander UK group did not repurchase any
of its debt instruments.
4. OPERATING EXPENSES BEFORE CREDIT IMPAIRMENT LOSSES,
PROVISIONS AND CHARGES
Half year Half year
to to
30 June 30 June
2019 2018
GBPm GBPm
--------- ---------
Staff costs 641 691
Other administration expenses 356 411
Depreciation, amortisation and impairment 260 181
========================================== ========= =========
1,257 1,283
========================================== ========= =========
5. Credit IMPAIRMENT LOSSES AND PROVISIONS
Half year Half year
to to
30 June 30 June
2019 2018
GBPm GBPm
--------- ---------
Credit impairment losses:
Loans and advances to customers (See Note 10) 108 102
Recoveries of loans and advances, net of collection costs (38) (21)
Off-balance sheet exposures (See Note 21) (1) 10
============================================================= ========= =========
69 91
============================================================= ========= =========
Provisions for other liabilities and charges (excluding
off-balance sheet credit exposures) (See Note 21) 205 33
Provisions for residual value (RV) and voluntary termination
(See Note 10) 1 -
206 33
275 124
============================================================= ========= =========
There were no material credit impairment losses on loans and
advances to banks, non-trading reverse repurchase agreements, other
financial assets at amortised cost and financial assets at fair
value through other comprehensive income.
6. TAXATION
Half year Half year
to to
30 June 30 June
2019 2018(1)
GBPm GBPm
--------- ---------
Profit before tax 589 905
=============================================================== ========= =========
Tax calculated at a tax rate of 19% (H118: 19%) 112 172
Bank surcharge on profits 39 64
Non-deductible preference dividends paid 5 5
Non-deductible UK Bank Levy 13 13
Non-deductible conduct remediation, fines and penalties 11 (2)
Net disallowable items and non-taxable income 11 10
Tax relief on dividends in respect of other equity instruments (21) (23)
Adjustment to prior period provisions - (6)
=============================================================== ========= =========
Tax charge 170 233
=============================================================== ========= =========
(1) Adjusted to reflect the amendment to IAS 12, as described in Note 1.
Interim period corporation tax is accrued based on the estimated
average annual effective corporation tax for the year of 28.9%
(H118: 25.7%). The standard rate of UK corporation tax was 27% for
banking entities and 19% for non-banking entities (2018: 27% for
banking entities and 19% for non-banking entities) following the
introduction of an 8% surcharge to be applied to banking companies
from 1 January 2016. Taxation for other jurisdictions is calculated
at the rates prevailing in the relevant jurisdictions. The Finance
Act 2016, introduced a further reduction in the standard rate of
corporation tax rate to 17% from 2020. The effects of this future
change in tax rates is included in the deferred tax balances at
both 30 June 2019 and 31 December 2018.
7. DIVIDS ON ORDINARY SHARES
An interim dividend of GBP164m was declared on 18 June 2019 and
paid on 27 June 2019 on the Company's ordinary shares in issue
(H118: GBP250m).
8. DERIVATIVE FINANCIAL INSTRUMENTS
30 June 2019 31 December
2018
-------- -------------------- -------- --------------------
Fair value Fair value
-------------------- --------------------
Notional Assets Liabilities Notional Assets Liabilities
amount GBPm GBPm amount GBPm GBPm
GBPm GBPm
Derivatives held for trading
Exchange rate contracts 17,087 861 710 13,830 454 351
Interest rate contracts 50,698 793 284 79,038 1,421 1,105
Equity and credit contracts 2,586 272 150 2,762 251 168
================================= ======== ======= =========== ======== ======= ===========
Total derivatives held for
trading 70,371 1,926 1,144 95,630 2,126 1,624
================================= ======== ======= =========== ======== ======= ===========
Derivatives held for hedging
================================= ============================== ======== ======= ===========
Designated as fair value hedges:
Exchange rate contracts 1,542 229 14 3,010 357 -
Interest rate contracts 91,598 1,020 1,636 86,422 1,065 1,315
Equity derivative contracts - - - - - -
================================= ======== ======= =========== ======== ======= ===========
93,140 1,249 1,650 89,432 1,422 1,315
================================= ======== ======= =========== ======== ======= ===========
Designated as cash flow hedges:
Exchange rate contracts 32,870 3,334 203 33,901 3,537 200
Interest rate contracts 19,333 197 39 18,808 46 102
Equity derivative contracts - - - - - -
================================= ======== ======= =========== ======== ======= ===========
52,203 3,531 242 52,709 3,583 302
================================= ======== ======= =========== ======== ======= ===========
Total derivatives held for
hedging 145,343 4,780 1,892 142,141 5,005 1,617
================================= ======== ======= =========== ======== ======= ===========
Derivative netting(1) (1,261) (1,261) (1,872) (1,872)
================================= ======== ======= =========== ======== ======= ===========
Total derivatives 215,714 5,445 1,775 237,771 5,259 1,369
================================= ======== ======= =========== ======== ======= ===========
(1) Derivative netting excludes the effect of cash collateral, which is
offset against the gross derivative position. The amount of cash collateral
received that had been offset against the gross derivative assets was
GBP218m (2018: GBP9m) and the amount of cash collateral paid that had
been offset against the gross derivative liabilities was GBP756m (2018:
GBP354m).
9. other FINANCIAL ASSETS AT FAIR VALUE through profit or
loss
30 June 31 December
2019 2018
GBPm GBPm
------- -----------
Loans and advances to customers:
Loans to housing associations 13 13
Other loans 81 81
============================================ ======= ===========
94 94
Debt securities 651 3,251
Equity securities - -
Reverse repurchase agreements - non trading - 2,272
============================================ ======= ===========
745(1) 5,617(1)
============================================ ======= ===========
(1) Comprised of GBP13m (2018: GBP1,095m) of financial assets designated
at FVTPL and GBP732m (2018: GBP4,522m) of financial assets mandatorily
at FVTPL.
In H119 GBP2.1bn of senior tranches of credit linked notes,
which were previously classified as debt securities in the table
above, were presented on a net basis. This followed a deed of
amendment, including a legal right of set-off between the principal
amounts of the senior tranches of credit linked notes and the
senior cash deposits included as collateral in Note 16. At 30 June
2019 the amount of this netting was GBP1.8bn.
10. LOANS AND ADVANCES TO CUSTOMERS
30 June 2019 31 December
GBPm 2018
GBPm
------------ -----------
Net loans and advances to customers 202,516 201,289
==================================== ======= =======
Movement in credit impairment loss allowances:
Loans secured Corporate Finance Other Total
on residential loans leases unsecured GBPm
properties GBPm GBPm loans
GBPm GBPm
At 1 January 2019 234 226 85 206 751
(Release)/charge to the income statement (18) 30 18 78 108
Write-offs and other items (6) (7) (17) (69) (99)
========================================= =============== ========= ======= ========== =====
At 30 June 2019 210 249 86 215 760
========================================= =============== ========= ======= ========== =====
At 31 December 2017 225 490 46 179 940
Adoption of IFRS 9(1) 47 99 11 54 211
Re-allocation of expected credit losses
(ECL) on off-balance sheet exposures(1) (3) (25) - (22) (50)
========================================= =============== ========= ======= ========== =====
At 1 January 2018 269 564 57 211 1,101
(Release)/charge to the income statement (13) 24 17 74 102
Write-offs and other items (7) (318) (15) (71) (411)
========================================= =============== ========= ======= ========== =====
At 30 June 2018 249 270 59 214 792
========================================= =============== ========= ======= ========== =====
(1) The adjustment for the adoption of IFRS 9 related to the re-measurement
of loss allowances on loans and advances to customers at amortised cost.
The re-allocation of ECL on off-balance sheet exposures was a transfer
to provisions following the adoption of a methodology to enable their
separate identification from ECL on drawn exposures.
11. SECURITISATIONS AND COVERED BONDS
The information in this Note relates to securitisations and
covered bonds for consolidated structured entities, used to obtain
funding or collateral. It excludes unconsolidated structured
entities, including credit protection vehicles that are described
in more detail in Note 15.
The gross assets securitised, or for the covered bond programme
assigned, at 30 June 2019 and 31 December 2018 were:
30 June 2019 31 December
GBPm 2018
GBPm
Mortgage-backed master trust structures:
* Holmes 4,256 4,414
* Fosse 4,200 4,646
* Langton 2,671 3,034
11,127 12,094
================================================= ============ ===========
Other asset-backed securitisation structures:
* Motor 737 1,055
* Auto ABS UK Loans 1,358 1,468
================================================= ============ ===========
2,095 2,523
================================================= ============ ===========
Total securitisation programmes 13,222 14,617
================================================= ============ ===========
Covered bond programme:
* Euro 35bn Global Covered Bond Programme 23,157 21,578
Total securitisation and covered bond programmes 36,379 36,195
================================================= ============ ===========
The following table sets out the internal and external issuances
and redemptions for the half year ended 30 June 2019 and the half
year ended 30 June 2018 for each securitisation and covered bond
programme.
Internal External Internal External
issuances issuances redemptions redemptions
============================================== -------------- -------------- -------------- --------------
H119 H118 H119 H118 H119 H118 H119 H118
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
============================================== ====== ====== ====== ====== ====== ====== ====== ======
Mortgage-backed master trust structures:
* Holmes - - - 1.0 - - 0.8 -
* Fosse - - - - - - - 0.4
Other asset-backed securitisation structures:
* Motor - - - - 0.1 0.1 0.2 -
* Auto ABS UK Loans - - - - - - 0.1 -
Covered bond programme - - 1.9 2.4 - 0.5 - 1.9
============================================== ====== ====== ====== ====== ====== ====== ====== ======
- - 1.9 3.4 0.1 0.6 1.1 2.3
============================================== ====== ====== ====== ====== ====== ====== ====== ======
21. PROVISIONS
Conduct remediation
---------------------
PPI Other FSCS and Property Off-balance Regulatory Total
GBPm products Bank Levy GBPm sheet and other GBPm
GBPm GBPm ECL GBPm
GBPm
================================ ======= ============ ======== =========== ========== =====
At 31 December 2018 246 30 45 37 56 95 509
Adoption of IFRS 16 (see
Note 1) - - - 17 - - 17
================================ ======= ============ ========== ======== =========== ========== =====
At 1 January 2019 246 30 45 54 56 95 526
Additional provisions
(see Note 5) 70 - - 38 - 114 222
Provisions released (see
Note 5) - - (2) (8) (1) (7) (18)
Utilisation (68) (1) (41) (4) - (69) (183)
At 30 June 2019 248 29 2 80 55 133 547
================================ ======= ============ ========== ======== =========== ========== =====
At 31 December 2017 356 47 57 39 59 558
Reallocation of ECL on
off-balance sheet exposures(1) - - - - 50 - 50
================================ ======= ============ ========== ======== =========== ========== =====
At 1 January 2018 356 47 57 39 50 59 608
Additional provisions
(see Note 5) - - - 11 10 54 75
Provisions released (see
Note 5) - (14) (4) - - (14) (32)
Utilisation (55) (2) (37) (7) - (46) (147)
At 30 June 2018 301 31 16 43 60 53 504
================================ ======= ============ ========== ======== =========== ========== =====
(1) ECL on off-balance sheet exposures following the adoption of a methodology
to enable their separate identification from ECL on drawn exposures.
See Note 10.
Conduct remediation
At 30 June 2019, the remaining provision for Payment Protection
Insurance (PPI) redress and related costs was GBP248m. This
includes a provision for PPI redress as well as our best estimate
of liability for a specific portfolio which was disclosed in our
2018 Annual Report.
For every additional 25,000 inbound PPI complaints above the
future expected claims of c.311k from June to the end of the
industry deadline, we would expect an additional charge of
GBP6.9m.
30 June 2019 compared to 31 December 2018
We made an additional provision of GBP70m in Q219 reflecting an
increase in PPI claims volumes, additional industry activities and
having considered guidance provided by the FCA, in advance of the
PPI claims deadline on 29 August 2019.
We will continue to monitor our provision levels and take
account of the impact of any further change in claims received and
FCA guidance.
Property
Property provisions include vacant property provisions, as
described in Note 30 to the Consolidated Financial Statements in
the 2018 Annual Report, and property dilapidation provisions within
the scope of IFRS 16.
Property provisions were impacted by GBP38m of transformation
charges in H119. These relate to a multi-year project to deliver on
our strategic priorities and enhance efficiency in order for us to
better serve our customers and meet our medium term targets. Q119
charges largely related to restructuring of our branch network
associated with the announcement made earlier in the year to
reshape our branch network.
Regulatory and other
Regulatory and other provisions were impacted by GBP62m of
transformation charges in H119, also relating to the multi-year
project described above. In addition to the Q119 charges largely
related to the restructuring of our branch network, further charges
in Q219 were largely associated with the announced plans to reshape
our Corporate & Commercial Banking business.
22. RETIREMENT BENEFIT PLANS
The amounts recognised in the balance sheet were as follows:
30 June 31 December
2019 2018
GBPm GBPm
------- -----------
Assets/(liabilities)
Funded defined benefit pension scheme - surplus 779 842
Funded defined benefit pension scheme - deficit (213) (75)
Unfunded defined benefit pension scheme (39) (39)
================================================ ======= ===========
Total net assets 527 728
================================================ ======= ===========
a) Defined contribution pension plans
An expense of GBP34m (H118: GBP23m) was recognised for defined
contribution plans in the period and is included in staff costs
classified within operating expenses (see Note 4). None of this
amount was recognised in respect of key management personnel for
H119 and H118.
b) Defined benefit pension schemes
The total amount charged to the income statement was GBP10m
(H118: GBP22m).
Movements in the present value of defined benefit obligations
and fair value of scheme assets in H119 and H118 were as
follows:
Half year Half year
to to
30 June 30 June 2018
2019 GBPm
GBPm
Return on plan assets (excluding amounts included in
net interest expense) (916) 72
Actuarial (gains)/losses arising from experience adjustments (5) 39
Actuarial losses/(gains) arising from changes in financial
assumptions 1,201 (640)
============================================================= ========= =============
Pension remeasurement 280 (529)
============================================================= ========= =============
The net assets recognised in the balance sheet were determined
as follows:
30 June 31 December
2019 2018
GBPm GBPm
Present value of defined benefit obligations (11,980) (10,804)
Fair value of scheme assets 12,507 11,532
============================================= ======== ===========
Net defined benefit assets 527 728
============================================= ======== ===========
Actuarial assumptions
There have been no significant changes to the methods for
setting the principal actuarial assumptions used as set out in Note
31 to the Consolidated Financial Statements in the 2018 Annual
Report.
23. CONTINGENT LIABILITIES AND COMMITMENTS
30 June 31 December
2019 2018 GBPm
GBPm
Guarantees given to third parties 1,055 1,610
Formal standby facilities, credit lines and other commitments 41,851 40,111
============================================================== ======= ===========
42,906 41,721
============================================================== ======= ===========
Other legal actions and regulatory matters
Santander UK engages in discussion, and co-operates, with the
FCA, PRA and other regulators and government agencies in various
jurisdictions in their supervision and review of Santander UK
including reviews exercised under statutory powers, regarding its
interaction with past and present customers, both as part of
general thematic work and in relation to specific products,
services and activities. During the ordinary course of business,
Santander UK is also subject to complaints and threatened legal
proceedings brought by or on behalf of current or former employees,
customers, investors or other third parties, in addition to legal
and regulatory reviews, challenges and tax or enforcement
investigations or proceedings in various jurisdictions. All such
matters are assessed periodically to determine the likelihood of
Santander UK incurring a liability.
In those instances where it is concluded that it is not yet
probable that a quantifiable payment will be made, for example
because the facts are unclear or further time is required to fully
assess the merits of the case or to reasonably quantify the
expected payment, no provision is made. In addition where it is not
currently practicable to estimate the possible financial effect of
these matters, no provision is made.
Payment Protection Insurance
Note 21 details our provisions including those in relation to
PPI. In relation to a specific PPI portfolio of complaints, a legal
dispute regarding allocation of liability is ongoing. There are
factual issues to be resolved which may have legal consequences
including in relation to liability. These issues create
uncertainties which mean that it is difficult to reliably predict
the resolution of the matter including timing or the significance
of the possible impact. The PPI provision includes our best
estimate of Santander UK's liability to the specific portfolio.
Further information has not been provided on the basis that it
would be seriously prejudicial.
German dividend tax arbitrage transactions
Santander UK plc, ANTS and Cater Allen International Limited
(all subsidiaries of Santander UK Group Holdings plc) are currently
under investigation by the Cologne Criminal Prosecution Office and
the German Federal Tax Office in relation to historical involvement
in German dividend tax arbitrage transactions (known as cum/ex
transactions). We are cooperating with the German authorities and
are conducting our own internal investigation into the matters in
question. There are factual issues to be resolved which may have
legal consequences including potentially material financial
penalties. These issues create uncertainties which mean that it is
difficult to predict with reasonable certainty the resolution of
the matter including timing or the significance of the possible
impact.
27. RELATED PARTY DISCLOSURES
The financial position and performance of the Santander UK group
have not been materially affected in H119 by any related party
transactions, or changes to related party transactions. These
transactions were made in the ordinary course of business, on
substantially the same terms as for comparable transactions with
third party counterparties, and within limits acceptable to the
PRA. Such transactions do not involve more than the normal risk of
collectability or present any unfavourable features. In addition,
transactions with pension schemes operated by the Santander UK
group are described in Note 31 to the Consolidated Financial
Statements in the 2018 Annual Report.
28. FINANCIAL INSTRUMENTS
a) Measurement basis of financial assets and liabilities
Financial assets and financial liabilities are measured on an
ongoing basis either at fair value or at amortised cost. Note 1 to
the Consolidated Financial Statements in the 2018 Annual Report
describes how the classes of financial instruments are measured,
and how income and expenses, including fair value gains and losses,
are recognised.
At 30 June 2019 and 31 December 2018, the Santander UK group
categorised assets and liabilities measured at fair value within
the fair value hierarchy based on the fair value measurement and
hierarchy, and valuation techniques, described in Note 41(b) and
(c) to the Consolidated Financial Statements in the 2018 Annual
Report.
b) Fair values of financial instruments carried at amortised
cost
The following table analyses the fair value of the financial
instruments carried at amortised cost at 30 June 2019 and 31
December 2018. It does not include fair value information for
financial assets and financial liabilities carried at amortised
cost if the carrying amount is a reasonable approximation of fair
value. Details of the valuation methodology of the financial assets
and financial liabilities carried at amortised cost can be found in
Note 41(e) to the Consolidated Financial Statements in the 2018
Annual Report.
30 June 2019 31 December 2018
-------------------- --------------------
Fair value Carrying Fair value Carrying
GBPm value GBPm value
GBPm GBPm
Assets
Loans and advances to customers 207,080 202,516 204,061 201,289
Loans and advances to banks 2,065 2,065 2,799 2,799
Reverse repurchase agreements- non trading 22,416 22,409 21,130 21,127
Other financial assets at amortised cost 7,168 7,137 7,111 7,229
238,729 234,127 235,101 232,444
=========================================== ========== ======== ========== ========
Liabilities
Deposits by customers 180,777 180,617 178,181 178,090
Deposits by banks 16,500 16,489 17,232 17,221
Repurchase agreements- non trading 14,779 14,771 10,923 10,910
Debt securities in issue 45,664 44,574 47,787 46,692
Subordinated liabilities 4,235 3,645 3,877 3,601
261,955 260,096 258,000 256,514
=========================================== ========== ======== ========== ========
c) Fair values of financial instruments measured at fair
value
The following tables summarise the fair values of the financial
assets and liabilities accounted for at fair value at 30 June 2019
and 31 December 2018, analysed by their levels in the fair value
hierarchy - Level 1, Level 2 and Level 3.
30 June 31 December
2019 2018
------ ------- -------------- ------ ------- --------------
Level Level Level Total Level Level Level Total Valuation
1 2 3 GBPm 1 2 3 GBPm technique
GBPm GBPm GBPm GBPm GBPm GBPm
Assets
Exchange rate
Derivatives contracts - 4,402 22 4,424 - 4,323 25 4,348 A
Interest rate
contracts - 2,005 5 2,010 - 2,526 6 2,532 A & C
Equity and credit
contracts - 210 62 272 - 188 63 251 B & D
Netting - (1,261) - (1,261) - (1,872) - (1,872)
=================================== ====== ======= ===== ======= ====== ======= ===== ======= ==========
- 5,356 89 5,445 - 5,165 94 5,259
=================================== ====== ======= ===== ======= ====== ======= ===== ======= ==========
Other financial
assets at Loans and advances
FVTPL to customers - - 94 94 - 12 82 94 A
================
A, B
Debt securities 17 72 562 651 18 2,339 894 3,251 & D
Reverse repurchase
agreements - non
trading - - - - - 2,272 - 2,272 A
=================================== ====== ======= ===== ======= ====== ======= ===== ======= ==========
17 72 656 745 18 4,623 976 5,617
=================================== ====== ======= ===== ======= ====== ======= ===== ======= ==========
Financial
assets at
FVOCI Debt securities 12,781 588 - 13,369 12,487 742 - 13,229 D
Loans and advances
to customers - - 69 69 - - 73 73 D
===================================
12,781 588 69 13,438 12,487 742 73 13,302
===================================
Total assets at fair value 12,798 6,016 814 19,628 12,505 10,530 1,143 24,178
====== ======= ===== ======= ====== ======= ===== ======= ==========
Liabilities
Exchange rate
Derivatives contracts - 926 1 927 - 528 23 551 A
Interest rate
contracts - 1,951 8 1,959 - 2,515 7 2,522 A & C
Equity and credit
contracts - 121 29 150 - 132 36 168 B & D
Netting - (1,261) - (1,261) - (1,872) - (1,872)
=================================== ====== ======= ===== ======= ====== ======= ===== ======= ==========
- 1,737 38 1,775 - 1,303 66 1,369
=================================== ====== ======= ===== ======= ====== ======= ===== ======= ==========
Other financial
liabilities Debt securities
at FVTPL in issue - 1,065 7 1,072 - 983 7 990 A
Structured deposits - 104 29 133 - 104 29 133 A
Repurchase agreements
- non trading - - - - - 2,110 - 2,110 A
Collateral and
associated financial
guarantees - 407 21 428 - 3,040 13 3,053 D
=================================== ====== ======= ===== ======= ====== ======= ===== ======= ==========
- 1,576 57 1,633 - 6,237 49 6,286
=================================== ====== ======= ===== ======= ====== ======= ===== ======= ==========
Total liabilities at fair
value - 3,313 95 3,408 - 7,540 115 7,655
====== ======= ===== ======= ====== ======= ===== ======= ==========
d) Fair value adjustments
The internal models incorporate assumptions that Santander UK
believes would be made by a market participant to establish fair
value. Fair value adjustments are adopted when Santander UK
considers that there are additional factors that would be
considered by a market participant that are not incorporated in the
valuation model.
Santander UK classifies fair value adjustments as either
'risk-related' or 'model-related'. The fair value adjustments form
part of the portfolio fair value and are included in the balance
sheet values of the product types to which they have been applied.
The magnitude and types of fair value adjustment are listed in the
following table:
30 June 31 December
2019 2018
GBPm GBPm
Risk-related:
* Bid-offer and trade specific adjustments 17 13
* Uncertainty 37 36
* Credit risk adjustment 8 9
* Funding fair value adjustment 5 4
============
67 62
============
Model-related 1 5
68 67
e) Internal models based on information other than market data
(Level 3)
Reconciliation of fair value measurement in Level 3 of the fair
value hierarchy
The following table sets out the movements in Level 3 financial
instruments in H119 and H118:
Assets Liabilities
Derivatives Other Financial Financial Assets Total Derivatives Other Liabilities Total
GBPm financial assets investments held GBPm GBPm financial held GBPm
assets at FVOCI GBPm for liabilities for
at GBPm sale at FVTPL sale
FVTPL GBPm GBPm GBPm
GBPm
At 1 January 2019 94 976 73 - 1,143 (66) (49) - (115)
Total gains/(losses)
recognised in profit
or loss:
* Fair value movements 7 1 - - 8 (3) (5) - (8)
* Foreign exchange/other movements - 3 - - 3 - (3) - (3)
Transfers in - 11 - - 11 - - - -
Additions 3 188 - - 191 - (2) - (2)
Settlements (15) (523) (4) - (542) 31 2 - 33
At 30 June 2019 89 656 69 - 814 (38) (57) - (95)
Gains/(losses) recognised
in profit or loss
relating to assets
and liabilities
held at the end
of the period 7 4 - - 11 (3) (8) - (11)
At 31 December 2017 64 240 53 - 357 (63) (6) - (69)
Adoption of IFRS
9 - 598 199 (53) - 744 - - - -
At 1 January 2018 64 838 199 - 1,101 (63) (6) - (69)
Total gains/(losses)
recognised in profit
or loss:
* Fair value movements 26 (5) (4) - 17 4 - - 4
* Foreign exchange/other movements (5) - - - (5) 5 - - 5
Transfers in - 19 - - 19 - - - -
Transfer to held
for sale (2) (146) - 148 - 1 - (1) -
Additions - - 17 - 17 - - - -
Sales - (23) - - (23) - - - -
Settlements (21) - (37) - (58) 15 - - 15
At 30 June 2018 62 683 175 148 1,068 (38) (6) (1) (45)
Gains/(losses) recognised
in profit or loss
on assets and liabilities
held at the end
of the period 21 (5) (4) 12 9 - - 9
29. EVENTS AFTER THE BALANCE SHEET DATE
There have been no significant events between 30 June 2019 and
the date of approval of these financial statements which would
require a change to or additional disclosure in the financial
statements.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR CKFDNOBKDFFK
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