Annual Report • Feb 25, 2010
Annual Report
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(1) Loss before tax, purchased intangibles amortisation, integration and restructuring costs, gain on redemption of own debt, strategic disposals, write-down of goodwill and other intangible assets, gains on pensions curtailment, bonus tax and RFS Holdings minority interest. Statutory operating loss before tax of £2.6 billion.
| Year ended | ||
|---|---|---|
| 31 December | 31 December | |
| 2009 | 2008 | |
| £m | £m | |
| Core | ||
| Total income (1) | 31,726 | 23,631 |
| Operating expenses (2) | (14,954) | (13,505) |
| Insurance net claims | (3,769) | (3,217) |
| Operating loss before impairment losses | 13,003 | 6,909 |
| Impairment losses | (4,678) | (2,496) |
| Core operating profit (3) | 8,325 | 4,413 |
| Non-Core operating loss (3) | (14,557) | (11,351) |
| Total Group operating loss (3) | (6,232) | (6,938) |
| Group operating loss before tax (4) | (1,928) | (8,296) |
| Loss attributable to ordinary and B shareholders | (3,607) | (24,306) |
| 31 December 2009 |
31 December 2008 |
Change | |
|---|---|---|---|
| Capital and balance sheet | |||
| Total assets | £1,522.5bn | £2,218.7bn | (31%) |
| Funded balance sheet (5) | £1,084.3bn | £1,227.2bn | (12%) |
| Loan:deposit ratio (Group - net of provisions) | 135% | 151% | (1,600bp) |
| Core Tier 1 ratio | 11.0% | 5.9% | 510bp |
| Net tangible equity per ordinary and B share | 51.3p | 73.8p | (30%) |
"We are one year into our five-year turnaround plan and have taken significant steps along the path to recovery. The strengths of our Core business are becoming clearer, while the legacy of losses and exposures from the crisis is running off. RBS is being restructured and run to serve customers well, to be safe and stable and to restore sustainable shareholder value for all. That is our legal duty and it is our intention and desire. It is also the only way taxpayers will recover the support they have given us.
"We have exceeded all the principal milestones we set for the first year of our plan. An £8.3 billion profit for 2009 in our Core businesses provides evidence that the new RBS can deliver sustainable earnings. RBS is also becoming safer and smaller more quickly than we expected. We have already completed 70% of our planned balance sheet reduction. Most importantly, our customer base remains loyal as we implement the changes to our business.
"In 2010, we will continue to focus on the recovery factors we can control, while effectively navigating the factors we cannot. The case for investment in our Group will become simpler and clearer as our strategy and actions show continuing results."
The Royal Bank of Scotland Group (RBS) reported a 2009 net attributable loss of £3,607 million, compared with a loss of £24,306 million in 2008. On a pro forma basis, the Group reported a 2009 operating loss of £6,232 million, compared with a loss of £6,938 million in 2008. Excluding movements in the fair value of own debt, Group operating profit before impairment losses improved to £7,809 million, compared with an operating loss of £738 million in 2008.
Core bank operating profit rose to £8,325 million from £4,413 million in 2008. The improvement largely reflected the turnaround in Global Banking & Markets (GBM) trading profits, with a very strong first quarter and more sustainable levels of revenue over the remainder of the year. Pre-impairment profits in the Core retail and commercial banking businesses remained robust with margins improving in the second half, but impairments increased markedly from 2008. US Retail & Commercial recorded an operating loss, but has successfully refocused on its core customer franchises, with an improvement in margins and stable impairments in the second half. RBS Insurance operating profit was severely affected by rising bodily injury claims.
Non-Core achieved a reduction of £57 billion in third party assets, excluding derivatives, ahead of its announced targets, by running down exposures and pursuing opportunities to dispose of loan portfolios. Losses on trading activities declined as underlying asset prices rallied, but impairment losses increased to £9,221 million.
Integration and restructuring costs of £1,286 million were offset by a £3,790 million gain on the redemption of the Group's own debt and by gains of £2,148 million arising from the curtailment of prospective pension benefits, leaving a pre-tax loss of £1,928 million, compared with an £8,296 million loss in 2008. After minority interests, preference share dividends and goodwill write-downs, the loss attributable to ordinary and B shareholders was £3,607 million, compared with a loss of £24,306 million in 2008.
Net tangible equity amounted to 51.3p per ordinary and B share at 31 December 2009, compared with 59.4p per share at 30 September 2009 and 73.8p at 31 December 2008, primarily reflecting the issuance of B shares, the conversion of preference shares to ordinary shares and attributable losses over the course of the year.
Net interest income declined by 14% as Group net interest margin narrowed by 32 basis points to 1.76%. Deposit margins have remained under pressure, with strong competition particularly for longer term deposits and rates on many products already at floors in the current low interest rate environment. Asset margins have been gradually rebuilt over the course of the year, helping to stem the erosion of net interest margin experienced over recent years, and overall net interest margins in the Core retail and commercial banking divisions started to recover in the second half.
Non-interest income increased to £15,858 million from £4,835 million in 2008, largely reflecting the sharp improvement in income from trading activities, as improved asset valuations led to lower credit market losses and GBM benefited from the restructuring of its business to focus on core customer franchises. However, fees and commissions fell as a result of the withdrawal of the single premium payment protection insurance product and the restructuring of UK current account overdraft fees.
The Core bank cost:income ratio, net of insurance claims, improved to 53.5% from 66.2% in 2008. The Group has launched a substantial investment programme, targeting cost efficiencies across the Core divisions, enhanced customer service platforms and improved control systems. A Core bank cost:income ratio, net of insurance claims, of below 50% is the target for 2013.
Impairment losses increased to £13,899 million from £7,432 million in 2008, with Core bank impairments rising by £2,182 million and Non-Core by £4,285 million. Signs that impairments might have peaked appear to have been borne out in the fourth quarter, and there are indications that the pace of downwards credit rating migration for corporates is slowing. Nonetheless, the financial circumstances of many consumers and businesses remain fragile, and rising refinancing costs, whether as a result of monetary tightening or of increased regulatory capital requirements, could expose some customers to further difficulty.
Significant progress has been achieved in reducing the Group balance sheet to a sustainable scale. Total assets have been cut by £696 billion over the course of 2009 to £1,522 billion at 31 December 2009. Funded assets have declined by £143 billion, with both the Non-Core division and Global Banking & Markets making good progress in reducing exposures. Non-Core has exceeded its previously announced target for third party asset run-off in 2009 by £15 billion. Group risk-weighted assets have been reduced by £140 billion during the year, including £128 billion benefit from the APS.
Following the issue of B shares to the UK Government and accession to the Asset Protection Scheme in December 2009, the Group's core tier 1 capital ratio has increased to 11.0%, from 5.9% at 31 December 2008 and 5.5% at 30 September 2009. The year-end core tier 1 ratio benefits by 160 basis points from the APS, with risk-weighted asset relief provided by the Scheme partially offset by related core tier 1 deductions.
Group operating loss in the fourth quarter of 2009 declined to £1,353 million from £1,525 million in the third quarter, with Core operating profit of £1,183 million offset by Non-Core operating losses of £2,536 million. Operating profit before impairment losses, adjusted for the movement in fair value of own debt, was £1,476 million, a decrease from the third quarter, driven in part by weak earnings in RBS Insurance, which included a £335 million charge for increased bodily injury claims reserving and bad weather.
Group net interest margin improved to 1.83%, with recovering asset margins partially offset by continued pressure on liability margins.
Impairments declined to £3,099 million from £3,279 million in 3Q09, with Core bank impairments up by £75 million and Non-Core down by £255 million. Risk elements in lending were flat on 3Q09 at £35.0 billion.
Total assets were reduced during the quarter by £158 billion and funded assets by £44 billion.
| For analyst enquiries: | ||
|---|---|---|
| Richard O'Connor | Head of Investor Relations | +44 (0) 20 7672 1758 |
| For media enquiries: | ||
| Group Media Centre | +44 (0) 131 523 4205 |
The Royal Bank of Scotland Group (RBS) will be hosting a live webcast and audio call following the release of the results for the year ended 31 December 2009. The details are as follows:
| Date: | Thursday 25 February 2010 |
|---|---|
| Time: | 9:30am UK Time |
| Webcast: | www.investors.rbs.com |
| Dial in details: | International – +44 (0) 1452 568 172 UK Free Call – 0800 694 8082 |
Slides accompanying this document will be available on www.rbs.com/ir
| Page | |
|---|---|
| Forward-looking statements | 3 |
| Presentation of information | 4 |
| Results summary – pro forma | 6 |
| Results summary – statutory | 8 |
| Chairman's statement | 9 |
| Group Chief Executive's letter to shareholders | 13 |
| Business and strategic update | 17 |
| Description of business | 25 |
| Pro forma results | 27 |
| Summary consolidated income statement | 27 |
| Condensed consolidated statement of comprehensive income | 29 |
| Summary consolidated balance sheet | 29 |
| Key metrics | 30 |
| Results summary | 32 |
| Divisional performance UK Retail UK Corporate Wealth Global Banking & Markets Global Transaction Services Ulster Bank US Retail & Commercial RBS Insurance Central items Non-Core |
43 46 50 53 55 59 61 64 69 72 73 |
| Allocation methodology for indirect costs | 78 |
| Average balance sheet | 80 |
| Condensed consolidated balance sheet | 82 |
| Commentary on condensed consolidated balance sheet | 83 |
| Condensed consolidated statement of changes in equity | 85 |
| Notes | 88 |
| Page | |
|---|---|
| Risk and capital management | 112 |
| Presentation of information | 112 |
| Risk capital and liquidity management | 112 |
| Capital resources | 114 |
| Credit risk | 117 |
| Funding and Liquidity risk | 139 |
| Market risk | 145 |
| Market turmoil exposures | 151 |
| Statutory results | 172 |
| Condensed consolidated income statement | 173 |
| Condensed consolidated statement of comprehensive income | 174 |
| Financial review | 175 |
| Condensed consolidated balance sheet | 176 |
| Commentary on condensed consolidated balance sheet | 177 |
| Condensed consolidated statement of changes in equity | 179 |
| Condensed consolidated cash flow statement | 182 |
| Notes | 183 |
| Average balance sheet | 210 |
| Analysis of non-interest income, expenses and impairment losses | 211 |
| Capital resources and ratios | 212 |
| Additional information | 213 |
| Other information | 213 |
| Statutory results | 213 |
| Appendix 1 Reconciliations of pro forma to statutory income statements and balance sheets |
|
| Appendix 2 Analysis by quarter | |
| Appendix 3 Asset Protection Scheme | |
| Appendix 4 Businesses outlined for disposal | |
| Appendix 5 Revisions |
Certain sections in this document contain 'forward-looking statements' as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words 'expect', 'estimate', 'project', 'anticipate', 'believes', 'should', 'intend', 'plan', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective', 'will', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on such expressions.
In particular, this document includes forward-looking statements relating, but not limited, to the Group's restructuring plans, capitalisation, portfolios, capital ratios, liquidity, risk weighted assets, return on equity, cost:income ratios, leverage and loan:deposit ratios, funding and risk profile; the Group's future financial performance; the level and extent of future impairments and write-downs; the protection provided by the APS; and the Group's potential exposures to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity and equity price risk. Such statements are subject to risks and uncertainties. For example, certain of the market risk disclosures are dependent on choices about key model characteristics and assumptions and are subject to various limitations. By their nature, certain of the market risk disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated.
Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to: general economic conditions in the UK and in other countries in which RBS has significant business activities or investments, including the United States; developments in the current crisis in the global financial markets, and their impact on the financial industry in general and on RBS in particular; the full nationalisation of RBS or other resolution procedures under the Banking Act 2009; the monetary and interest rate policies of the Bank of England, the Board of Governors of the Federal Reserve System and other G7 central banks; inflation; deflation; unanticipated turbulence in interest rates, foreign currency exchange rates, commodity prices and equity prices; changes in UK and foreign laws, regulations and taxes, including changes in regulatory capital regulations; a change of UK Government or changes to UK Government policy; changes in RBS's credit ratings; RBS's participation in the Asset Protection Scheme (APS) and the effect of such Scheme on RBS's financial and capital position; the conversion of the B Shares in accordance with their terms; the ability to access the contingent capital from HM Treasury; limitations on, or additional requirements imposed on, RBS's activities as a result of HM Treasury's investment in RBS; changes in competition and pricing environments; the financial stability of other financial institutions, and RBS's counterparties and borrowers; the value and effectiveness of any credit protection purchased by RBS; the extent of future write-downs and impairment charges caused by depressed asset valuations; the ability to achieve revenue benefits and cost savings from the integration of certain of ABN AMRO's businesses and assets; natural and other disasters; the inability to hedge certain risks economically; the ability to access sufficient funding to meet liquidity needs; the ability to complete restructurings on a timely basis, or at all, including the disposal of certain noncore assets and assets and businesses required as part of the EC State Aid approval; the adequacy of loss reserves; acquisitions or restructurings; technological changes; changes in consumer spending and saving habits; and the success of RBS in managing the risks involved in the foregoing.
The forward-looking statements contained in this document speak only as of the date of this announcement, and the Group does not undertake to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.
On 17 October 2007, RFS Holdings B.V. ('RFS Holdings'), a company jointly owned by The Royal Bank of Scotland Group plc ('RBS'), Fortis Bank Nederland (Holding) N.V. ('Fortis') and Banco Santander S.A. ('Santander') (together, the 'Consortium Members'), completed the acquisition of ABN AMRO Holding N.V. ('ABN AMRO').
The Consortium Members have implemented an orderly separation of the business units of ABN AMRO with RBS retaining the following former ABN AMRO business units:
Some other remaining assets will continue to be shared by the Consortium Members until their orderly disposal or transfer.
On 3 October 2008, the State of the Netherlands acquired Fortis Bank Nederland (Holding) N.V. including Fortis's participation in RFS Holdings that represented the acquired activities of ABN AMRO.
The separation of the main platform shared between RBS and its Dutch state-owned partner was completed in 2009 and in February 2010 the majority of the businesses of ABN AMRO acquired by Dutch State were legally demerged from the RBS-acquired businesses. The Group expects that, subject to legal process and regulatory approvals, the full legal separation of the constituent parts of ABN AMRO will be completed in April. From that point RBS will cease to consolidate the Consortium Members' interests in ABN AMRO in its statutory results.
Pro forma results have been prepared to include only those business units of ABN AMRO that will be retained by RBS. The business and strategic update, divisional performance and discussion of risk and capital management in this announcement focus on the pro forma results. The basis of preparation of the pro forma results is detailed on page 88.
RFS Holdings is jointly owned by the Consortium Members. It is controlled by RBS and is therefore fully consolidated in its audited statutory financial statements. The interests of the State of the Netherlands and Santander in RFS Holdings are included in minority interests.
Divisional results for 2008 have been restated to reflect the Group's new organisational structure that includes a Non-Core division comprising individual assets, portfolios and lines of business that the Group intends to run off or dispose. The Non-Core division is reported separately from the divisions which form the Core Group. In addition, separate reporting of Business Services (formerly Group Manufacturing) and Centre results has changed and, with the exception of certain items of a one off nature, costs incurred are now allocated to the customer-facing divisions and shown as 'indirect expenses' and are included in the measurement of the returns which they generate. These changes do not affect the Group's results. Comparatives have been restated accordingly.
The pro forma and statutory results for 2008 have also been restated for the amendment to IFRS 2 'Share-based Payment'. This has resulted in an increase in staff costs amounting to £97 million for the fourth quarter of 2008 and £169 million for the full year 2008.
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2009 | 2008 | 2009 | 2009 | 2008 | ||
| £m | £m | £m | £m | £m | ||
| Core | ||||||
| Total income (1) | 31,726 | 23,631 | 7,432 | 7,040 | 2,293 | |
| Operating expenses (2) | (14,954) | (13,505) | (3,788) | (3,669) | (2,968) | |
| Insurance net claims | (3,769) | (3,217) | (1,173) | (1,019) | (864) | |
| Operating profit/(loss) before impairment | ||||||
| losses (3) | 13,003 | 6,909 | 2,471 | 2,352 | (1,539) | |
| Impairment losses | (4,678) | (2,496) | (1,288) | (1,213) | (1,312) | |
| Operating profit/(loss) (3) | 8,325 | 4,413 | 1,183 | 1,139 | (2,851) | |
| Non-Core | ||||||
| Total income (1) | (2,301) | (3,032) | 108 | 54 | (1,930) | |
| Operating expenses (2) | (2,447) | (2,683) | (685) | (526) | (767) | |
| Insurance net claims | (588) | (700) | (148) | (126) | (192) | |
| Operating loss before impairment losses (3) | (5,336) | (6,415) | (725) | (598) | (2,889) | |
| Impairment losses | (9,221) | (4,936) | (1,811) | (2,066) | (3,361) | |
| Operating loss (3) | (14,557) | (11,351) | (2,536) | (2,664) | (6,250) | |
| Total* | ||||||
| Total income (1) | 29,425 | 20,599 | 7,540 | 7,094 | 363 | |
| Operating expenses (2) | (17,401) | (16,188) | (4,473) | (4,195) | (3,735) | |
| Insurance net claims | (4,357) | (3,917) | (1,321) | (1,145) | (1,056) | |
| Operating profit/(loss) before impairment | ||||||
| losses (3) | 7,667 | 494 | 1,746 | 1,754 | (4,428) | |
| Impairment losses | (13,899) | (7,432) | (3,099) | (3,279) | (4,673) | |
| Operating loss (3) | (6,232) | (6,938) | (1,353) | (1,525) | (9,101) | |
| Integration and restructuring costs | (1,286) | (1,357) | (228) | (324) | (752) | |
| Gain on redemption of own debt | 3,790 | - | - | - | - | |
| Gains on pensions curtailment | 2,148 | - | 2,148 | - | - | |
| Other | (348) | (1) | (433) | (228) | 380 | |
| Operating (loss)/profit before tax (4) | (1,928) | (8,296) | 134 | (2,077) | (9,473) | |
| * Includes fair value of own debt impact | (142) | 1,232 | 270 | (483) | (861) |
For definitions of the notes see page 31.
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| Performance ratios | |||||
| Core | |||||
| - Net interest margin | 2.12% | 2.45% | 2.06% | 2.10% | 2.34% |
| - Cost:income ratio (5) | 47.1% | 57.1% | 51.0% | 52.1% | 129.4% |
| - Adjusted cost:income ratio (6) | 53.5% | 66.2% | 60.5% | 60.9% | 207.7% |
| Non-Core | |||||
| - Net interest margin | 0.69% | 0.87% | 1.17% | 0.55% | 1.36% |
| - Cost:income ratio (5) | (106.3%) | (88.5%) | 634.3% | 974.1% | (39.7%) |
| - Adjusted cost:income ratio (6) | (84.7%) | (71.9%) | (1,712.5%) | (730.6%) | (36.2%) |
| Group | |||||
| - Net interest margin | 1.76% | 2.08% | 1.83% | 1.75% | 2.11% |
| - Cost:income ratio (5) | 59.1% | 78.6% | 59.3% | 59.1% | - |
| - Adjusted cost:income ratio (6) | 69.4% | 97.0% | 71.9% | 70.5% | - |
| Continuing operations: | |||||
| Basic loss per ordinary and B share (7) | (6.3p) | (146.2p) | (1.2p) | (3.2p) | (100.5p) |
| 31 December | 30 September | 31 December | |||
|---|---|---|---|---|---|
| 2009 | 2009 | Change | 2008 | Change | |
| Capital and balance sheet | |||||
| Total assets | £1,522.5bn | £1,680.3bn | (9.4%) | £2,218.7bn | (31.4%) |
| Funded balance sheet (8) | £1,084.3bn | £1,127.8bn | (3.9%) | £1,227.2bn | (11.6%) |
| Loan:deposit ratio (Core - net of provisions) Loan:deposit ratio (Non-Core - net of |
104% | 108% | (400bp) | 118% | (1,400bp) |
| provisions) | 1,121% | 937% | 18,400bp | 683% | 43,800bp |
| Loan:deposit ratio (Group - net of provisions) | 135% | 139% | (400bp) | 151% | (1,600bp) |
| Risk-weighted assets - Gross | £565.8bn | £594.7bn | (5%) | £577.8bn | (2%) |
| Benefit of APS | (£127.6bn) | - | - | - | - |
| Risk-weighted assets | £438.2bn | £594.7bn | (26%) | £577.8bn | (24%) |
| Total equity | £80.0bn | £58.9bn | 35.8% | £64.3bn | 24.4% |
| Core Tier 1 ratio | 11.0% | 5.5% | 550bp | 5.9% | 510bp |
| Tier 1 ratio | 14.4% | 8.0% | 640bp | 9.9% | 450bp |
| Tier 1 leverage ratio (9) | 17.0x | 23.4x | (27%) | 21.2x | (20%) |
| Tangible equity leverage ratio (10) | 5.2% | 3.0% | 220bp | 2.4% | 280bp |
| Net tangible equity per share | 51.3p | 59.4p | (14%) | 73.8p | (31%) |
For definitions of the notes see page 31.
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Total income | 38,690 | 25,868 | 8,769 | 8,080 | 2,064 |
| Operating expenses * Operating profit/(loss) before impairment |
(21,478) | (54,202) | (4,035) | (5,552) | (38,162) |
| losses | 12,355 | (32,764) | 3,220 | 1,319 | (37,293) |
| Impairment losses | (14,950) | (8,072) | (3,402) | (3,488) | (5,014) |
| Operating loss before tax Loss attributable to ordinary and B |
(2,595) | (40,836) | (182) | (2,169) | (42,307) |
| shareholders | (3,607) | (24,306) | (765) | (1,800) | (24,350) |
| * Includes write-down of goodwill and other intangible assets |
(363) | (32,581) | (52) | - | (32,581) |
2009 was a year of profound change and substantial challenges for The Royal Bank of Scotland Group. But, in the course of the year, we have put in place the building blocks of our recovery plan and have begun the process of restoring the company to good health.
The economic backdrop was the most difficult for very many years, though there was a gradual improvement as the year progressed. Viewed in that context, there are resilient aspects of our performance in another disappointing year of overall losses. At the heart of the Group are excellent businesses, thousands of talented people and millions of loyal customers.
The Board knows that while much was achieved in 2009, there is still much to do to rebuild our performance. We have no doubts that we will achieve this. The Group now has appropriate levels of new capital and our job is to make that capital work on behalf of shareholders.
Last year was a tumultuous one for the global economy. In our most important market, the UK, gross domestic product shrank by 4.8 per cent in real terms. Significant contractions were also registered in the USA and, in particular, in Ireland.
The recession hurt many of our customers, with unemployment rising sharply and corporate profitability coming under severe pressure, which in turn led to a marked deterioration in credit quality. In addition, lower interest rates squeezed margins on many of our savings products.
More positively, the economic environment started to improve in the second half of the year, with the USA and UK emerging from recession, and many asset prices rising sharply. Expectations for growth in 2010 are muted, and important adjustments still need to take place in the global economy. We plan for the future on a conservative basis. But we take comfort from the fact that we appear to be moving into the recovery phase.
The benefits to RBS of political involvement, in the widest possible sense, are significantly larger than the costs. Put simply, if RBS hadn't received government support, it wouldn't be here today. Moreover, the extent of the support it received means RBS is in a position to rebuild carefully on our strengths.
This support has come at a price, most notably the divestments we are required to make as part of our settlement with the European Commission. These partly relate to the Commission's views on market share, with a particular focus on our SME business in the UK, and will lead to the sale of the RBS branch network in England and Wales and the NatWest branches in Scotland. Other divestments are intended to act as a deterrent to companies seeking state aid, most notably the required sale of our insurance business.
This is not how we would have chosen to change RBS, because our absolute priority is restoring value for investors, including the UK taxpayer. Collectively, the businesses we will sell represent under 15% of the Group, and the disposals are a distraction we would have preferred to avoid. However, we have four years to make all our disposals. In that timeframe, we are confident we can minimise any adverse impact and we expect to get proper value for shareholders.
The APS comes with a high price tag, but is a worthwhile investment on two counts. First, it enables us to pass the Financial Services Authority's stress tests. The insurance element of the scheme is the only way we could realistically achieve that. Second, it fills the hole in our capital ratios created by the losses we made in 2009, the further charges we expect to make in 2010, and the associated increase in risk-weighted assets from procyclicality and regulatory change. We need the support of the APS if we are to accomplish our goals.
It is the Board's view that the restructured terms of the APS, which were endorsed by independent shareholders in December 2009, represent a better outcome for shareholders than the outline agreement reached in February 2009, when market conditions were much more uncertain and difficult. It insures fewer assets and costs less. This means that we do not expect to claim losses under the APS, but it does provide valuable protection in the event of more challenging economic conditions. We have also agreed how, if we wish to do so, we can cancel the scheme at any stage. Finally, the fees have substantially reduced and we retain our deferred tax assets.
We know that we have to rebuild confidence and trust with investors. We believe the best way to do that is to combine clear performance targets with improved disclosure. Enhanced transparency will enable shareholders – both Government and private – to measure and judge performance as we work to restore the Group's financial performance. UKFI has been a demanding, engaged and active shareholder, most prominently in remuneration issues. However, it has at all times acted in a manner consistent with its status as an arm's length, commercial investor, which intends to sell its interests in RBS at the earliest attractive time.
Throughout 2009, one of the biggest challenges we faced was balancing public and political concerns on bankers' pay with the long-term interests of all our shareholders. We share the public's concerns and we understand that it is impossible to defend some of the historic pay practices of the industry. Reform is needed. We said we would lead that reform and I believe we have: our policies on clawback and deferral of bonuses, announced in February 2009, went further than other banks and further than the subsequent G20 proposals.
The losses the Group has recorded this year are driven by the legacy of actions taken in the past for which responsibility has been allocated. The relevant people are no longer with the Group. The bonus payments made this year are targeted at the staff who are tasked with the job of returning the group to profitability by delivering sustainable growth in our Core business and managing down the legacy exposures in our Non-Core division.
On bonus payments for 2009, we were guided by a policy to pay the minimum necessary to retain and motivate staff who are critical to the recovery of RBS. The Board believes it would have undermined the profitable core of the business and damaged shareholder value had we recommended less. It is essential that talented people do not feel disadvantaged in working to restore value to RBS, compared with other banks. Nonetheless, the Board believes the position we have reached – developed by the Remuneration Committee, endorsed by the Board and accepted by UKFI, who for one year only held a legal right to consent – strikes an appropriate balance.
With regard to our Group Chief Executive, Stephen Hester was recruited 15 months ago to lead the RBS turnaround, which represents one of the largest corporate restructurings ever undertaken. The Board's Remuneration Committee considers that Stephen Hester significantly outperformed the targets he was set for 2009 and intended to award a bonus commensurate with that view. He decided to waive this bonus award, given public controversy on banking pay and the potential for his bonus to divert attention from and weaken support for the RBS turnaround and recovery. However, it remains the Board's intention over the course of the recovery period to reward the Chief Executive fairly, appropriately and at market levels for achievement against the targets we have published to make the bank safe, successful and valuable again. Gordon Pell, Deputy Chief Executive, who retires at the end of March 2010, also waived any bonus award for 2009.
We have made comprehensive changes to Board and Executive Management. The Board is now the right size – smaller – and combines the skills and experience we need to rebuild the company. Sir Sandy Crombie, Bruce van Saun, and Phillip Scott all joined in 2009, while Penny Hughes joined in 2010. On the Executive Committee, all nine members are new to their posts although, pleasingly, half of them were promoted from within the organisation.
Our strategy involves the introduction of new management disciplines to ensure that the RBS of tomorrow will be fundamentally different from the RBS of yesterday – in risk, in focus on customers and in accountability. Our new Board Risk Committee is a good example of the changes we have already set in motion. It will regularly analyse the risk profile of the Group, identify any longer term threats and make recommendations to the Board as appropriate.
We are acutely aware of our responsibility to repay the support we've received, to enable the UK taxpayer to exit from the investment in RBS. But there is more we can do to support our customers and the wider communities we serve. For example, we've been at the forefront of measures taken to minimise mortgage repossessions and to guarantee overdraft prices for small businesses.
The Group is justly proud of its MoneySense programme, now in its sixteenth year, which strives to increase financial capability and inclusion. This programme has a special focus on schools, with 600 RBS employees delivering new lessons to over one third of a million pupils each year.
Finally, we are satisfied that we are fulfilling both the letter and the spirit of our lending commitments, which were to make an additional £9 billion available to the mortgage market and £16 billion to creditworthy businesses. On the former, we have beaten our target. On the latter, we have achieved £60 billion of gross new lending to businesses, including £39 billion to small and medium enterprises, but, in the current economic environment, many customers have been strongly focused on reducing their borrowings. Moreover, the withdrawal of foreign lenders has been less pronounced than anticipated, there has been a sharp increase in capital market issuance and demand has been weak in the teeth of the recession. As a result we have not achieved our £16 billion net lending target. Even so, we are ready, willing and able to lend, and have approved 85% of loan applications during 2009, a level consistent with previous years.
We are moving purposefully to a new phase for RBS. We have a focused team and a clear strategy. We have removed the main barriers that were in our way. If we do the right things for our customers we'll be doing the right things for our shareholders. I hope that the Group's results give you the clarity about our performance and direction that enables you to share the confidence I have in the brighter future for RBS.
Philip Hampton Chairman 24 February 2010
This is my first full year report to RBS shareholders since joining the Bank in November 2008, and it has been quite a year. Everyone at RBS is conscious of the responsibilities that lie with us to ensure recovery of the support the Bank has received. In that context it is pleasing to be able to report some big steps on our recovery path, which I outline below. These come after an unpalatable starting point in January 2009, when the share price fell to 10p and we warned of a net loss of £24 billion for 2008. Just as important as 2009's progress, the path ahead for RBS is now well signposted and we have greater confidence in meeting our goals.
Put simply, we have three overriding objectives:
The riskiest part of RBS's journey is now behind us. There are four years left of our recovery plan. Each year we expect to report strong measurable progress.
Our strategy is simple and its concepts are well tested in this and other industries. Its implementation, however, constitutes one of the largest and most far-reaching company restructurings yet seen globally.
We aim to remake RBS as one of the world's most admired, valuable and stable universal banks. Driven by market-leading businesses in large customer-driven markets, RBS targets 15%+ sustainable returns on equity from a stable AA category risk profile and balance sheet.
We are concentrating RBS around the competitive strengths we enjoy in each of our Core Business Divisions. We are focusing on what we are good at and making it better. At the same time we are reducing our balance sheet, risk and funding exposures through massive restructuring and are reducing both scale and scope in areas where we are not naturally strong. We are re-engineering cost structures and have embarked on overdue business investment. Cross-cutting management and cultural change has also been comprehensive.
2009 has seen pleasing progress toward our three principal goals. On every published measure the Group is ahead of our Strategic Plan at this stage. However, the challenges of the starting point mean it will take until the end of our Plan period for overall profitability to meet our aspirations.
In 2009 our Core Businesses have sustained their market positions, with customer numbers steady or growing across the Group's major retail and corporate business lines, thereby confirming the essential health and value that underpins RBS's businesses. This is also a testimony to the efforts and endurance of our people. We can and must do better still, however. The 'new' RBS will be known for its unswerving focus on customers.
We have also made substantial progress in restoring strength and improved risk management to RBS – both under our own steam and thanks to Government support and improving markets. Our overall balance sheet is already £696 billion below its peak and the funded balance sheet is £351 billion lower, in constant currency terms; 70% of our targeted reduction is behind us. Our funding and liquidity resilience has dramatically improved. Our loan:deposit ratio is down from its 154% peak to 135%, and in our Core Business is just 104% compared with our 2013 target of c.100%. Our Core Tier 1 capital ratio is a robust 11.0%, which we expect to be enough to meet the further challenges we anticipate in 2010 before the expected recovery takes stronger hold in 2011, and to take account of the direction of regulatory change.
UK Government support has enabled our capital improvement. This support also encompasses the Asset Protection Scheme (APS) and related Contingent Capital Line finalised in December, and accompanied by European Union sign-off, subject to agreed remedies. We do not expect to receive any net payment under the APS or to have to convert contingent capital into equity, and we target an exit from the arrangements by 2012/13 (subject to regulatory approval). They do, however, provide valuable tail risk protection whilst we exit the remaining excess risk exposures and until economic recovery is completely established.
Goal number three, restoration of sustainable shareholder value, will take the longest, though its prospect is becoming clearer. To achieve this goal we need to make sure that our Core Business improvement measures succeed and to complete the Non-Core exit; we also need economic recovery. Nevertheless, progress in 2009 was encouraging. Our Core Business posted operating profit of £8.3 billion (up 89% on 2008). £5.7 billion of these profits came from Global Banking & Markets, our investment banking arm, which successfully took advantage of buoyant markets despite the handicaps of its own radical restructuring. While we expect this level of core profits to decrease in 2010 as GBM's markets normalise, our Retail and Commercial businesses, which we believe reached their cyclical trough in 2009, should bounce back in the coming years, eventually constituting a stable two thirds of Group profits.
In our Non-Core Division, rapid progress on divestments, asset run-off and sales has reduced total third party assets by 36% in 2009 (ahead of Plan) to £221 billion, including derivatives. Doing so crystallised losses, and further losses are likely to occur in coming years, albeit steadily declining. In the second half of 2009, Non-Core losses reduced 44% from the first half, providing encouragement to this trend. After some one-off gains, RBS Group had net attributable losses of £3.6 billion overall.
We see the outlook as cautiously encouraging for RBS and the economies we serve, although with clear risks. It looks as if loan impairments may have peaked in 2009 and our net interest margin, despite continued squeeze on liability margins and higher liquidity costs, has now shown two quarters of improvement. Our progress in 2009 gives increased comfort in our ability to execute the restructuring challenges that remain.
Nonetheless, there are important areas of uncertainty today that should become clearer over the course of 2010. How these resolve will make the value case for RBS more certain.
There are several necessary ingredients on the journey from failed institution to recovery story, and in the end to market leader. Perhaps the most crucial of these ingredients is people.
We needed to make comprehensive changes at the top and throughout our organisation, and we have implemented these changes decisively. On-going challenges from efficiency measures and business reduction are manifest. Finally the sheer magnitude and intensity of institutional change, the pressure on morale of backward-looking commentary and customer uncertainty, the dents to pride and personal savings all take a toll. Our people face significant headwinds. Yet good, motivated, well managed people are a vital necessity for achieving each of our three overriding goals.
RBS's recovery is a work in progress. Management's greatest task is human renewal and motivation. We have experienced damaging losses of skilled people and will continue to do so. But to date the overall signs are positive. The transition we need to make is ahead of schedule. Our people, new and old, are doing their jobs, and doing them well. Compliments are due to them for this.
Change is needed and is happening. As a large, diversified, systemic bank, and as a poster child for what needed reforming, RBS is both affected and constructively engaged.
Three strands of change are discernible. The changes in process around the Basel rules on quality and quantity of capital, on risk weighting and on liquidity are generally well conceived and appropriate. However, their combination needs careful calibration to ensure the right balance between effectiveness and jeopardising economic growth and industry stability. Similarly a measured timetable for implementation is vital. Done properly, we welcome the direction of change; it fits our own selfadministered change and should be accommodated within our plans for the coming years.
The Basel changes are designed to reduce the probability of default in financial services. That leaves another critical strand of work around what happens in the case of default (even if much less likely to happen than before). We must make sure that our industry does not need the level of systemic and specific support called upon in 2008/09 in any future crisis. To enable banks to fail without a seizingup of our financial system or a disastrous domino effect is a complex re-engineering challenge, especially when the scenario in question is not individual bank failure but systemic threat to many banks. I believe the answer lies in devising a 'Chapter 11' regime for banks, a clearer and swifter loss attribution mechanism beyond equity and a reduction in counterparty risk. Size and shape of themselves are a red herring, as surely all the facts of the crisis bear out. In any event, change in the area of crisis resolution is a must. But the consequences may be far-reaching and may have unforeseen side effects. We need thoughtful, purposeful dialogue leading to reform that works and we need to avoid rushed measures that distract.
Finally the financial services industry must do more on the issue of cultural change: reconnection with customers and communities; restoration of management excellence; reform of pay structures that have become hard to defend. The financial services industry is integral to our economic system. As such its weakening comes at considerable peril to society's broader wealth creation and stability. But our more intangible licence to operate from society is at present rather battered. Our integral role requires that we restore it.
RBS is being restructured and run to serve customers well, to be safe and stable and to restore sustainable shareholder value for all. It is our legal duty. It is our intention and desire. It is also the only way by which taxpayers will recover the support they have entrusted us with.
As we go through implementation of RBS's Strategic Plan, RBS's value will be determined by the improved sustainable earnings power of our Core Business. The losses from the Non-Core wind-down will continue for a time, but should increasingly be seen as catered for in our financial structure. As confidence grows, we will be able to resolve the complexities in our capital structure and the Government will have opportunities to sell down its stake, thereby adding clarity and reducing the risk discount that is perceived today.
At the beginning of 2010 RBS is still a complex story. It will become simpler, clearer and more valuable as our strategy and actions show more results. We believe we can do this, to the benefit of all.
Stephen Hester Group Chief Executive 24 February 2010
RBS has made a strong start on the implementation of the strategic plan first announced in February 2009, with good progress made against the targets set out for the Group. The Group has sharply reduced risk in its balance sheet through rapid run-off of Non-Core exposures, disposals both of asset portfolios and of whole businesses, and enhancements to its risk control framework. At the same time, the core business franchises have shown resilience through difficult economic conditions, and are increasingly well positioned as the major economies in which they operate start to recover. Detailed plans for further improvements to the efficiency of these core businesses have been developed and are expected to yield both cost reductions and enhanced customer service over the next three years.
There remain, however, many uncertainties in the economic environment and the Group expects the process of rebuilding standalone strength and shareholder value to take several years.
Significant progress has been achieved in reducing the Group balance sheet to a sustainable scale. Total assets have been cut by £696 billion over the course of 2009 to £1,522 billion at 31 December 2009. Funded assets have declined by £143 billion, with both the Non-Core division and Global Banking & Markets (GBM) making good progress in reducing exposures. Excluding Sempra, Non-Core has exceeded its previously announced target for third party asset run-off in 2009 by £15 billion. Group risk-weighted assets have decreased by £140 billion during the year, including a £128 billion benefit from the Asset Protection Scheme.
The Group's customer franchises have remained resilient through a difficult year. RBS has sustained its position in its core retail and corporate markets, with customer numbers steady or growing across the Group's major businesses.
The Core Bank performed strongly in 2009, with operating profit rebounding from 2008's weak levels to £8,325 million, despite an 87% increase in impairments to £4,678 million.
The principal driver of the Core Bank performance was the turnaround in the performance of GBM, which was loss-making in 2008. Although the exceptionally buoyant market conditions experienced in the first quarter levelled off over the course of the year, the restructuring of the business to focus on core customer franchises has been successful, with returns improving as a result of disciplined use of capital to support targeted clients.
The retail and commercial banking divisions also made good progress in reshaping their businesses to benefit from economic recovery, with improvements to product offerings and customer service contributing to their performance. Each business has taken steps to stem the erosion of net interest margin experienced over recent years, and although the strong competition for deposits has substantially reduced liability margins, efforts to rebuild asset pricing have begun to bear fruit. Net interest margin for the Core retail and commercial banking divisions recovered to 3.04% in the fourth quarter, significantly better than 2.70% in the first quarter.
Signs that impairments might have peaked appear to have been borne out in the fourth quarter, and there are indications that the pace of downwards credit rating migration for corporates is slowing. Nonetheless, the financial circumstances of many consumers and businesses remain fragile, and rising refinancing costs, whether as a result of monetary tightening or of increased regulatory capital requirements, could expose some customers to further difficulty.
Efficiency has improved substantially, with the Core Bank cost:income ratio, net of insurance claims, improving to 53.5% from 66.2% in 2008. The Group has launched a substantial investment programme, targeting cost efficiencies across the Core divisions, enhanced customer service platforms and improved control systems. A Core Bank cost:income ratio, net of insurance claims, below 50% is the target for 2013.
Group and detailed divisional targets, published in August 2009, have been reviewed and updated in the light of the APS and the EU-mandated disposals, although the impact of the Basel Committee's proposals for changes to the bank capital regime has yet to be fully assessed, as has the effect of further changes to the regulatory environment. The targets are generally unchanged, except for the 2011 cost:income ratio target for Global Transaction Services, which has been revised in view of the planned disposal of Global Merchant Services, the Group's leading card acquisition business.
These targets do not constitute forecasts, but it is the Group's intention to make measurable progress towards these goals in the period covered.
| Risk measures (Group) | Worst point | 2009 | 2013 target | |
|---|---|---|---|---|
| Value drivers | Group | Core | Core | |
| Return on equity | (31%)(1) | 13% (2) | >15%(2 | |
| Cost/income ratio net of claims | 97%(3) | 53% | <50% | |
| Risk measures (Group) | ||||
| Core Tier 1 capital ratio | 4%(4) | 11.0% | >8% | |
| Loan:Deposit ratio (net of provisions) | 154%(5) | 134% | c.100% | |
| Wholesale funding reliance (6) | £343bn(7) | £250bn | <£150bn | |
| Liquidity reserves (8) | £90bn(7) | £171bn | c.£150bn | |
| Leverage ratio (9) | 28.7x(10) | 17.0x | <20x |
Notes:
(7) As at December 2008.
(10) As at June 2008.
| Return on equity | Cost:income | Loan:deposit | |
|---|---|---|---|
| Divisional targets | % | % | % |
| UK Retail | |||
| 2008 actual | 13 | 62 | 116 |
| 2009 actual | 4 | 60 | 115 |
| 2011 | >1 | <60 | <120 |
| 2013 | >15 | c.50 | <105 |
| UK Corporate | |||
| 2008 actual | 18 | 44 | 142 |
| 2009 actual | 10 | 43 | 126 |
| 2011 | >5 | <45 | <135 |
| 2013 | >15 | <35 | <130 |
| GBM | |||
| 2008 actual | (8) | 147 | |
| 2009 actual | 31 | 42 | |
| 2011 | c15 | <65 | |
| 2013 | 15-20 | c.55 | |
| GTS | |||
| 2008 actual | n.m. | 57 | 25 |
| 2009 actual | n.m. | 59 | 21 |
| 2011 | n.m. | <60 | <25 |
| 2013 | n.m. | <50 | <20 |
| Wealth | |||
| 2008 actual | n.m. | 66 | 36 |
| 2009 actual | n.m. | 59 | 38 |
| 2011 | n.m. | <60 | <35 |
| 2013 | n.m. | <50 | <30 |
| Ulster Bank | |||
| 2008 actual | 10 | 69 | 179 |
| 2009 actual | (13) | 73 | 177 |
| 2011 | >0 | <75 | <175 |
| 2013 | >15 | c.50 | <150 |
| US Retail and Commercial | |||
| 2008 actual | 8 | 63 | 96 |
| 2009 actual | (2) | 78 | 80 |
| 2011 | c.10 | <70 | <90 |
| 2013 | >15 | <55 | <90 |
| Cost:income less | |||
|---|---|---|---|
| Return on equity | claims | ||
| % | % | ||
| Insurance | |||
| 2008 actual | 18 | 55 | |
| 2009 actual | 2 | 92 | |
| 2011 | >15 | <70 | |
| 2013 | >20 | <60 |
To comply with the state aid requirements of the European Commission (EC), RBS has agreed to undertake a further set of restructuring measures, in addition to those set out in its original strategic plan.
These measures include a number of divestments by the end of 2013:
Other measures required by the EC include:
In addition to the disposals required by the EC, RBS disposed of a number of holdings in 2009, despite difficult market conditions, including its equity stake in Bank of China, the 50% shareholding in Linea Directa, and parts of its retail and commercial banking operations in a number of Asian markets.
Since the end of the year, agreement has been reached on the sale of parts of RBS Asset Management to Aberdeen Asset Management.
Note:
(1) Subject to adjustments. If RBS misses 2013 targeted reduction, further divestments will be required. For further details see Appendix 4.
The Group Remuneration Committee has approved remuneration proposals in respect of 2009. Following its right under the Remuneration Commitments and the Accession Agreement of the Asset Protection Scheme, UK Financial Investments (UKFI) has given its consent to these proposals.
These proposals are consistent with the framework the Board has established to put RBS at the leading edge of pay reform. The basis of the framework is:
The pay awards agreed result in a compensation ratio of 27% for GBM, or 28% if adjusted for past and current year deferral accounting.
.
RBS is unambiguously open for business and the Group has many initiatives under way to promote this to its customers, many of whom are understandably nervous about financial matters in these challenging economic times. In February 2009, as a pre-requisite to participation in the APS, the Group agreed to make available an additional £25 billion of UK lending (£9 billion of mortgage lending and £16 billion of business lending) to creditworthy customers on commercial terms, and subject to market demand, over the ensuing 12 months. Potential adjustments to the lending commitments to reflect economic circumstances over the 12 months from March 2010 are currently under discussion with the UK Government.The Group has the funding, the capital and the desire to make this lending available to customers, subject necessarily to their credit profile and to market pricing.
RBS believes that the lending commitments are being met. However, their impact is currently masked by the fact that, in the current economic environment, many customers are reducing their borrowings. As a result, demand for lending is subdued, especially from business customers. This phenomenon is being seen across most industrialised countries.
Since entering into this commitment, RBS has achieved strong results in the UK mortgage market:
In business markets, RBS has achieved gross new lending of £60.2 billion in 2009. However, after taking account of loan repayments and overdraft movements, RBS's business lending balances at 31 December 2009 totalled £151.2 billion, a decline of 8% since the end of 2008.
In the SME segment, gross lending in 2009 was £38.6 billion. Demand remains subdued, with term loan applications down 23% by value. In addition, repayments increased significantly in the year (term loan repayments were 53% higher than in 2008) with businesses accelerating their repayments of existing borrowings.
The acceptance rate across all categories of SME credit remains stable at over 85%. The average interest rate on new lending to SMEs has fallen to 3.04% in the fourth quarter, compared with 5.86% in the fourth quarter of 2008. Overdraft utilisation rates across the SME and mid-corporate segments have reduced to 41% at the end of December 2009 from 43% at the end of June, providing further evidence that businesses are voluntarily reducing borrowings.
Among larger corporates, RBS advanced £21.6 billion of gross new lending in 2009. Demand continues to be impacted by the macroeconomic environment and many larger corporates are actively deleveraging to repair their balance sheets. Larger corporate customers had access to undrawn committed facilities of more than £42 billion at the end of 2009.
Within this context, RBS has been a significant player in facilitating access to the debt and equity markets for its larger clients. During the year, RBS was bookrunner for more debt issues by UK corporates than any other bank and participated in over 80% of the equity issues by UK corporates. Much of this finance raised has been used to pay back bank borrowing.
| 31 December | 31 December | Gross lending | Net lending | |
|---|---|---|---|---|
| 2008 | 2009 | during 2009 | during 2009 | |
| £bn | £bn | £bn | £bn | |
| Mortgages | 80.1 | 91.9 | 19.3 | 11.8 |
| Total Business | 163.4 | 151.2 | 60.2 | (12.2) |
| - SME | 68.0 | 67.0 | 38.6 | (1.0) |
| - Mid-corporate | 49.3 | 44.4 | 15.2 | (4.9) |
| - Large Corporate | 46.1 | 39.8 | 6.4 | (6.3) |
| Total lending | 243.5 | 243.1 | 79.5 | (0.4) |
Following a comprehensive strategic review, changes were made to the Group's operating segments in 2009. A Non-Core division was created comprising those lines of business, portfolios and individual assets that the Group intends to run off or sell. Furthermore, Business Services (formerly Group Manufacturing) is no longer reported as a separate division and its costs are now allocated to the customer-facing divisions along with certain central costs. UK Retail & Commercial Banking has been split into three segments (UK Retail, UK Corporate and Wealth). Ulster Bank has become a specific segment. The remaining elements of Europe & Middle East Retail & Commercial Banking, Asia Retail & Commercial Banking and RBS's portion of shared ABN AMRO assets form part of Non-Core. The segmental measure is now Operating profit/(loss) before tax which differs from Contribution (used previously) and which excludes strategic disposals. Comparative data have been restated accordingly.
UK Retail offers a comprehensive range of banking products and related financial services to the personal market. It serves customers through the RBS and NatWest networks of branches and ATMs in the United Kingdom, and also through telephone and internet channels.
UK Corporate is a leading provider of banking, finance, and risk management services to the corporate and SME sector in the United Kingdom. It offers a full range of banking products and related financial services through a nationwide network of relationship managers, and also through telephone and internet channels. The product range includes asset finance through the Lombard brand.
Wealth provides private banking and investment services in the UK through Coutts & Co and Adam & Company; offshore banking through RBS International, NatWest Offshore and Isle of Man Bank; and international private banking through RBS Coutts.
Global Banking & Markets (GBM) is a leading banking partner to major corporations and financial institutions around the world, providing an extensive range of debt and equity financing, risk management and investment services to its customers. The division is organised along six principal business lines: money markets; rates flow trading; currencies and commodities; equities; credit markets and portfolio management & origination.
Global Transaction Services ranks among the top five global transaction services providers, offering global payments, cash and liquidity management, and trade finance and commercial card products and services. It includes the Group's corporate money transmission activities in the United Kingdom and the United States as well as Global Merchant Services, the Group's United Kingdom and international merchant acquiring business.
Ulster Bank is the leading retail and commercial bank in Northern Ireland and the third largest banking group on the island of Ireland. It provides a comprehensive range of financial services through both its Retail Markets division, which has a network of branches and operates in the personal and bancassurance sectors, and its Corporate Markets division, which provides services to SME business customers, corporates and institutional markets.
US Retail & Commercial provides financial services primarily through the Citizens and Charter One brands. US Retail & Commercial is engaged in retail and corporate banking activities through its branch network in 12 states in the United States and through non-branch offices in other states. It ranks among the top five banks in New England.
RBS Insurance sells and underwrites retail and SME insurance over the telephone and internet, as well as through brokers and partnerships. Its brands include Direct Line, Churchill and Privilege, which sell general insurance products direct to the customer, as well as Green Flag and NIG. Through its international division, RBS Insurance sells general insurance, mainly motor, in Germany and Italy. The Intermediary and Broker division sells general insurance products through independent brokers.
Business Services (formerly Group Manufacturing) supports the customer-facing businesses and provides operational technology, customer support in telephony, account management, lending and money transmission, global purchasing, property and other services. Business Services drives efficiencies and supports income growth across multiple brands and channels by using a single, scalable platform and common processes wherever possible. It also leverages the Group's purchasing power and is the Group's centre of excellence for managing large-scale and complex change.
Central Functions comprises group and corporate functions, such as treasury, funding and finance, risk management, legal, communications and human resources. The Centre manages the Group's capital resources and Group-wide regulatory projects and provides services to the operating divisions.
Non-Core Division manages separately assets that the Group intends to run off or dispose. The division contains a range of businesses and asset portfolios primarily from the GBM division, including RBS Sempra Commodities, linked to proprietary trading, higher risk profile asset portfolios including excess risk concentrations, and other illiquid portfolios. It also includes a number of other portfolios and businesses, including regional markets businesses, that the Group has concluded are no longer strategic.
In the income statements set out below, amortisation of purchased intangible assets, gain on redemption of own debt, strategic disposals, write-down of goodwill and other intangible assets, integration and restructuring costs, gains on pensions curtailment and bonus tax are shown separately. In the statutory condensed consolidated income statement on page 173, these items are included in income and operating expenses as appropriate. Data for 2008 have been restated for the amendment to IFRS 2 'Share-based Payment'.
| Year ended | |||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Core* | |||||
| Net interest income | 12,319 | 14,116 | 2,935 | 3,035 | 3,745 |
| Non-interest income (excluding insurance net | |||||
| premium income) | 14,925 | 4,792 | 3,360 | 2,877 | (2,642) |
| Insurance net premium income | 4,482 | 4,723 | 1,137 | 1,128 | 1,190 |
| Non-interest income | 19,407 | 9,515 | 4,497 | 4,005 | (1,452) |
| Total income (1) | 31,726 | 23,631 | 7,432 | 7,040 | 2,293 |
| Operating expenses (2) | (14,954) | (13,505) | (3,788) | (3,669) | (2,968) |
| Profit/(loss) before other operating | |||||
| charges | 16,772 | 10,126 | 3,644 | 3,371 | (675) |
| Insurance net claims | (3,769) | (3,217) | (1,173) | (1,019) | (864) |
| Operating profit/(loss) before impairment | |||||
| losses | 13,003 | 6,909 | 2,471 | 2,352 | (1,539) |
| Impairment losses | (4,678) | (2,496) | (1,288) | (1,213) | (1,312) |
| Operating profit/(loss) (3) | 8,325 | 4,413 | 1,183 | 1,139 | (2,851) |
| * Includes fair value of own debt impact | (142) | 1,232 | 270 | (483) | (861) |
| Non-Core | |||||
| Net interest income | 1,248 | 1,648 | 511 | 226 | 682 |
| Non-interest income (excluding insurance net | |||||
| premium income) | (4,333) | (5,666) | (574) | (345) | (2,861) |
| Insurance net premium income | 784 | 986 | 171 | 173 | 249 |
| Non-interest income | (3,549) | (4,680) | (403) | (172) | (2,612) |
| Total income (1) | (2,301) | (3,032) | 108 | 54 | (1,930) |
| Operating expenses (2) | (2,447) | (2,683) | (685) | (526) | (767) |
| Loss before other operating charges Insurance net claims |
(4,748) (588) |
(5,715) (700) |
(577) (148) |
(472) (126) |
(2,697) (192) |
| Operating loss before impairment | |||||
| losses | (5,336) | (6,415) | (725) | (598) | (2,889) |
| Impairment losses | (9,221) | (4,936) | (1,811) | (2,066) | (3,361) |
| Operating loss (3) | (14,557) | (11,351) | (2,536) | (2,664) | (6,250) |
For definitions of the notes see page 31.
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Total | |||||
| Net interest income | 13,567 | 15,764 | 3,446 | 3,261 | 4,427 |
| Non-interest income (excluding insurance net premium income) |
10,592 | (874) | 2,786 | 2,532 | (5,503) |
| Insurance net premium income | 5,266 | 5,709 | 1,308 | 1,301 | 1,439 |
| Non-interest income | 15,858 | 4,835 | 4,094 | 3,833 | (4,064) |
| Total income (1) Operating expenses (2) |
29,425 (17,401) |
20,599 (16,188) |
7,540 (4,473) |
7,094 (4,195) |
363 (3,735) |
| Profit/(loss) before other operating charges Insurance net claims |
12,024 (4,357) |
4,411 (3,917) |
3,067 (1,321) |
2,899 (1,145) |
(3,372) (1,056) |
| Operating profit/(loss) before impairment losses (3) Impairment losses |
7,667 (13,899) |
494 (7,432) |
1,746 (3,099) |
1,754 (3,279) |
(4,428) (4,673) |
| Operating loss (3) Amortisation of purchased intangible assets Integration and restructuring costs Gain on redemption of own debt Strategic disposals Gains on pensions curtailment Bonus tax |
(6,232) (272) (1,286) 3,790 132 2,148 (208) |
(6,938) (443) (1,357) - 442 - - |
(1,353) (59) (228) - (166) 2,148 (208) |
(1,525) (73) (324) - (155) - - |
(9,101) (62) (752) - 442 - - |
| Operating (loss)/profit before tax (4) Tax credit/(charge) |
(1,928) 339 |
(8,296) 1,280 |
134 (649) |
(2,077) 576 |
(9,473) 1,701 |
| Loss from continuing operations (Loss)/profit from discontinued operations, net |
(1,589) | (7,016) | (515) | (1,501) | (7,772) |
| of tax | (72) | (86) | (7) | (7) | 1 |
| Loss for the period | (1,661) | (7,102) | (522) | (1,508) | (7,771) |
| Minority interests | (648) | (412) | (47) | (47) | (221) |
| Preference share and other dividends | (935) | (596) | (144) | (245) | (162) |
| Loss attributable to ordinary and B shareholders before write-down of goodwill and other intangible assets Write-down of goodwill and other intangible assets, net of tax |
(3,244) (363) |
(8,110) (16,196) |
(713) (52) |
(1,800) - |
(8,154) (16,196) |
| Loss attributable to ordinary and B shareholders |
(3,607) | (24,306) | (765) | (1,800) | (24,350) |
For definitions of the notes see page 31.
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Loss for the year | (2,024) | (23,298) | (574) | (1,508) | (23,967) |
| Other comprehensive income | |||||
| Available-for-sale financial assets | 1,847 | (7,270) | 619 | 2,861 | (3,599) |
| Cash flow hedges | 893 | (405) | 217 | 155 | (185) |
| Currency translation | (2,018) | 7,327 | (230) | 659 | 4,903 |
| Actuarial losses on defined benefit plans | (3,756) | (1,807) | (3,756) | - | (1,807) |
| Tax on other comprehensive income | 406 | 2,572 | 844 | (846) | 1,583 |
| Other comprehensive income for the | |||||
| year, net of tax | (2,628) | 417 | (2,306) | 2,829 | 895 |
| Total comprehensive income for the | |||||
| year | (4,652) | (22,881) | (2,880) | 1,321 | (23,072) |
| Attributable to: | |||||
| Minority interests | 160 | 267 | 29 | 78 | 275 |
| Preference shareholders | 878 | 536 | 126 | 242 | 129 |
| Paid-in equity holders | 57 | 60 | 18 | 3 | 33 |
| Ordinary and B shareholders | (5,747) | (23,744) | (3,053) | 998 | (23,509) |
| (4,652) | (22,881) | (2,880) | 1,321 | (23,072) |
| 31 December | 30 September | 31 December | |
|---|---|---|---|
| 2009 | 2009 | 2008 | |
| £m | £m | £m | |
| Loans and advances to banks | 83,874 | 97,464 | 129,499 |
| Loans and advances to customers | 595,694 | 631,459 | 731,265 |
| Debt securities and equity shares | 265,055 | 268,111 | 275,357 |
| Other assets | 139,659 | 130,816 | 91,077 |
| Funded assets | 1,084,282 | 1,127,850 | 1,227,198 |
| Derivatives | 438,199 | 552,466 | 991,495 |
| Total assets | 1,522,481 | 1,680,316 | 2,218,693 |
| Owners' equity | 77,736 | 56,666 | 58,879 |
| Minority interests | 2,227 | 2,185 | 5,436 |
| Subordinated liabilities | 31,538 | 33,085 | 43,678 |
| Deposits by banks | 153,648 | 178,400 | 262,609 |
| Customer accounts | 482,604 | 493,234 | 518,461 |
| Derivatives, settlement balances and short positions | 472,409 | 609,413 | 1,023,673 |
| Other liabilities | 302,319 | 307,333 | 305,957 |
| Total liabilities and equity | 1,522,481 | 1,680,316 | 2,218,693 |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| Performance ratios | |||||
| Core | |||||
| - Net interest margin | 2.12% | 2.45% | 2.06% | 2.10% | 2.34% |
| - Cost:income ratio (5) | 47.1% | 57.1% | 51.0% | 52.1% | 129.4% |
| - Adjusted cost:income ratio (6) | 53.5% | 66.2% | 60.5% | 60.9% | 207.7% |
| Non-Core | |||||
| - Net interest margin | 0.69% | 0.87% | 1.17% | 0.55% | 1.36% |
| - Cost:income ratio (5) | (106.3%) | (88.5%) | 634.3% | 974.1% | (39.7%) |
| - Adjusted cost:income ratio (6) | (84.7%) | (71.9%) | (1,712.5%) | (730.6%) | (36.2%) |
| Group | |||||
| - Net interest margin | 1.76% | 2.08% | 1.83% | 1.75% | 2.11% |
| - Cost:income ratio (5) | 59.1% | 78.6% | 59.3% | 59.1% | - |
| - Adjusted Group cost:income ratio (6) | 69.4% | 97.0% | 71.9% | 70.5% | - |
| Continuing operations: | |||||
| Basic loss per ordinary and B share (7) | (6.3p) | (146.2p) | (1.2p) | (3.2p) | (100.5p) |
For definitions of the notes see page 31.
| 31 December | 30 September | 31 December | |||
|---|---|---|---|---|---|
| 2009 | 2009 | Change | 2008 | Change | |
| Capital and balance sheet | |||||
| Funded balance sheet (8) | £1,084.3bn | £1,127.8bn | (3.9%) | £1,227.2bn | (11.6%) |
| Total assets | £1,522.5bn | £1,680.3bn | (9.4%) | £2,218.7bn | (31.4%) |
| Risk-weighted assets - Gross | £565.8bn | £594.7bn | (5%) | £577.8bn | (2%) |
| Benefit of APS | (£127.6bn) | - | - | - | - |
| Risk-weighted assets | £438.2bn | £594.7bn | (26%) | £577.8bn | (24%) |
| Core Tier 1 ratio | 11.0% | 5.5% | 550bp | 5.9% | 510bp |
| Tier 1 ratio | 14.4% | 8.0% | 640bp | 9.9% | 450bp |
| Risk elements in lending (REIL) | £35.0bn | £35.0bn | - | £18.8bn | 86% |
| Risk elements in lending as a % of loans and | |||||
| advances | 6.11% | 5.77% | 34bp | 2.68% | 343bp |
| Provision balance as % of REIL/PPL | 43% | 43% | - | 50% | (700bp) |
| Loan:deposit ratio (Core – net of | |||||
| provisions) | 104% | 108% | (400bp) | 118% | (1,400bp) |
| Loan:deposit ratio (Non-Core - net of | |||||
| provisions) | 1,121% | 937% | 18,400bp | 683% | 43,800bp |
| Loan:deposit ratio (Group - net of provisions) | 135% | 139% | (400bp) | 151% | (1,600bp) |
| Tier 1 leverage ratio (9) | 17.0x | 23.4x | (27%) | 21.2x | (20%) |
| Tangible equity leverage ratio (10) | 5.2% | 3.0% | 220bp | 2.4% | 280bp |
| Net tangible equity per share | 51.3p | 59.4p | (14%) | 73.8p | (30%) |
Notes:
(1) Excluding gain on redemption of own debt and strategic disposals.
(2) Excluding purchased intangibles amortisation, write-down of goodwill and other intangible assets, integration and restructuring costs, gains on pensions curtailment and bonus tax.
(3) Operating (loss)/profit before tax, purchased intangibles amortisation, integration and restructuring costs, gain on redemption of own debt, strategic disposals, write-down of goodwill and other intangible assets and gains on pensions curtailment and bonus tax.
(4) Excluding write-down of goodwill and other intangible assets.
(5) The cost:income ratio for Core operations and Group is based on total income and operating expenses as defined in (1) and (2) above.
(6) The adjusted cost:income ratio is based on total income and operating expenses as defined in (1) and (2) above and after netting insurance claims against income.
(7) (Loss)/profit from continuing operations attributable to ordinary and B shareholders divided by weighted average number of ordinary and B shares in issue.
(8) Funded balance sheet is defined as total assets less derivatives.
(9) The Tier 1 leverage ratio is based on total tangible assets (after netting derivatives) divided by Tier 1 capital.
(10) The tangible equity leverage ratio is based on total tangible equity divided by total tangible assets (after netting derivatives).
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| Net interest income | £m | £m | £m | £m | £m |
| Net interest income (1) | 13,283 | 15,320 | 3,340 | 3,197 | 4,277 |
| Net interest margin | |||||
| - Group | 1.76% | 2.08% | 1.83% | 1.75% | 2.11% |
| - Global Banking & Markets | 1.38% | 1.34% | 0.89% | 1.08% | 1.99% |
| - Rest of Core Group | 2.41% | 2.97% | 2.46% | 2.51% | 2.52% |
| - Non-Core | 0.69% | 0.87% | 1.17% | 0.55% | 1.36% |
| Selected average balances | |||||
| Loans and advances to banks | 51,757 | 47,523 | 51,076 | 56,984 | 57,696 |
| Loans and advances to customers | 575,473 | 596,177 | 543,373 | 554,047 | 624,416 |
| Debt securities | 125,806 | 94,393 | 136,315 | 118,791 | 130,513 |
| Interest earning assets | 753,036 | 738,093 | 730,764 | 729,822 | 811,815 |
| Deposits by banks | 131,190 | 154,828 | 121,887 | 119,317 | 212,248 |
| Customer accounts | 354,963 | 386,322 | 339,180 | 350,298 | 384,423 |
| Subordinated liabilities | 35,348 | 34,867 | 33,002 | 35,922 | 37,987 |
| Interest bearing liabilities | 672,449 | 692,704 | 647,690 | 665,290 | 780,022 |
| Non-interest bearing deposits | 36,489 | 34,021 | 37,164 | 35,464 | 41,110 |
| Selected average yields (%) | |||||
| Loans and advances to banks | 1.61 | 4.82 | 1.20 | 1.38 | 5.17 |
| Loans and advances to customers | 3.71 | 5.89 | 3.53 | 3.35 | 5.58 |
| Debt securities | 3.34 | 5.08 | 3.05 | 2.98 | 4.19 |
| Interest earning assets | 3.50 | 5.72 | 3.28 | 3.13 | 5.33 |
| Deposits by banks | 2.17 | 3.96 | 1.66 | 1.92 | 3.11 |
| Customer accounts | 1.31 | 3.40 | 1.12 | 1.10 | 3.07 |
| Subordinated liabilities | 3.71 | 5.11 | 3.62 | 3.11 | 4.45 |
| Interest bearing deposits | 1.95 | 3.88 | 1.63 | 1.52 | 3.36 |
| Non-interest bearing deposits as a | |||||
| percentage of interest earning assets | 4.85 | 4.61 | 5.09 | 4.86 | 4.41 |
Note:
(1) Refer to notes on page 80.
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| Non-interest income | £m | £m | £m | £m | £m |
| Net fees and commissions | 5,948 | 6,434 | 1,459 | 1,374 | 1,475 |
| Income/(loss) from trading activities | 3,806 | (8,829) | 711 | 1,051 | (6,762) |
| Other operating income | 838 | 1,521 | 616 | 107 | (216) |
| Non-interest income (excluding insurance | |||||
| premiums)* | 10,592 | (874) | 2,786 | 2,532 | (5,503) |
| Insurance net premium income | 5,266 | 5,709 | 1,308 | 1,301 | 1,439 |
| Total non-interest income | 15,858 | 4,835 | 4,094 | 3,833 | (4,064) |
| * Includes fair value of own debt | |||||
| (Loss)/income from trading activities | (193) | 255 | (79) | (245) | (1,311) |
| Other operating income | 51 | 977 | 349 | (238) | 450 |
| Fair value of own debt | (142) | 1,232 | 270 | (483) | (861) |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| Operating expenses | £m | £m | £m | £m | £m |
| Staff costs | 9,081 | 7,990 | 2,246 | 2,175 | 1,286 |
| Premises and equipment | 2,468 | 2,099 | 618 | 619 | 566 |
| Other | 3,979 | 4,267 | 1,075 | 943 | 1,360 |
| Administrative expenses | 15,528 | 14,356 | 3,939 | 3,737 | 3,212 |
| Depreciation and amortisation | 1,873 | 1,832 | 534 | 458 | 523 |
| Operating expenses | 17,401 | 16,188 | 4,473 | 4,195 | 3,735 |
| General insurance | 4,223 | 3,733 | 1,304 | 1,054 | 940 |
| Bancassurance | 134 | 184 | 17 | 91 | 116 |
| Insurance net claims | 4,357 | 3,917 | 1,321 | 1,145 | 1,056 |
| Staff costs as a percentage of total | |||||
| income | 30.9% | 38.8% | 29.8% | 30.7% | 354.3% |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| Impairment losses | £m | £m | £m | £m | £m |
| Impairment losses by division | |||||
| UK Retail | 1,679 | 1,019 | 451 | 404 | 292 |
| UK Corporate | 927 | 319 | 190 | 187 | 169 |
| Wealth | 33 | 16 | 10 | 1 | 8 |
| Global Banking & Markets | 640 | 522 | 130 | 272 | 502 |
| Global Transaction Services | 39 | 54 | 4 | 22 | 40 |
| Ulster Bank | 649 | 106 | 348 | 144 | 71 |
| US Retail & Commercial | 702 | 437 | 153 | 180 | 177 |
| RBS Insurance | 8 | 42 | - | 2 | 42 |
| Central items | 1 | (19) | 2 | 1 | 11 |
| Core | 4,678 | 2,496 | 1,288 | 1,213 | 1,312 |
| Non-Core | 9,221 | 4,936 | 1,811 | 2,066 | 3,361 |
| 13,899 | 7,432 | 3,099 | 3,279 | 4,673 | |
| Impairment losses by asset category | |||||
| Loans and advances | 13,090 | 6,478 | 3,032 | 3,262 | 4,049 |
| Available-for-sale securities | 809 | 954 | 67 | 17 | 624 |
| 13,899 | 7,432 | 3,099 | 3,279 | 4,673 | |
| Loan impairment charge as % of gross loans and advances excluding reverse repurchase |
|||||
| agreements | 2.30% | 0.92% | 2.13% | 2.14% | 2.31% |
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2009 | 2008 | 2009 | 2009 | 2008 | ||
| Credit and other market losses (1) | £m | £m | £m | £m | £m | |
| Monoline exposures | 2,387 | 3,093 | 734 | 106 | 864 | |
| CDPCs | 957 | 615 | 111 | 276 | 374 | |
| Asset-backed products (2) | 288 | 4,778 | (102) | (147) | 1,394 | |
| Other credit exotics | 558 | 947 | (30) | 46 | 716 | |
| Equities | 47 | 948 | 13 | 12 | 780 | |
| Leveraged finance | - | 1,088 | - | - | 189 | |
| Banking book hedges | 1,727 | (1,642) | 262 | 426 | (1,074) | |
| Other | 188 | 268 | 91 | 55 | 410 | |
| 6,152 | 10,095 | 1,079 | 774 | 3,653 |
Notes:
(1) Included in 'Income from trading activities' on page 34.
(2) Includes super senior asset-backed structures and other asset-backed products.
● Credit and other market losses were £305 million higher in Q4 primarily reflecting the effect of restructuring certain monoline exposures partly offset by the effect of tighter credit spreads on the instruments underlying CDPCs and lower losses on banking book hedges.
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| Other non-operating items | £m | £m | £m | £m | £m |
| Amortisation of purchased intangible assets | (272) | (443) | (59) | (73) | (62) |
| Integration and restructuring costs | (1,286) | (1,357) | (228) | (324) | (752) |
| Gain on redemption of own debt | 3,790 | - | - | - | - |
| Strategic disposals | 132 | 442 | (166) | (155) | 442 |
| Gains on pensions curtailment | 2,148 | - | 2,148 | - | - |
| Bonus tax | (208) | - | (208) | - | - |
| 4,304 | (1,358) | 1,487 | (552) | (372) |
| 31 December | 30 September | 31 December | |
|---|---|---|---|
| Capital resources and ratios | 2009 | 2009 | 2008 |
| Core Tier 1 capital | £48.2bn | £33.0bn | £34.0bn |
| Tier 1 capital | £62.9bn | £47.6bn | £57.1bn |
| Total capital | £71.3bn | £62.1bn | £82.2bn |
| Risk-weighted assets – Gross | £565.8bn | £594.7bn | £577.8bn |
| Benefit of APS | (£127.6bn) | - | - |
| Risk-weighted assets | £438.2bn | £594.7bn | £577.8bn |
| Core Tier 1 ratio | 11.0% | 5.5% | 5.9% |
| Tier 1 ratio | 14.4% | 8.0% | 9.9% |
| Total capital ratio | 16.3% | 10.4% | 14.2% |
● RWAs decreased by £157 billion in 4Q09 due to the APS, £128 billion, de-leveraging, £37 billion and exchange rate movements of £1 billion. These were offset in part by increases due to pro-cyclicality of £6 billion and market risk of £3 billion.
| Balance sheet | 31 December 2009 £bn |
30 September 2009 £bn |
31 December 2008 £bn |
|---|---|---|---|
| Funded balance sheet | 1,084.3 | 1,127.8 | 1,227.2 |
| Total assets | 1,522.5 | 1,680.3 | 2,218.7 |
| Loans and advances to customers (excluding reverse repurchase agreements and stock borrowing) |
554.7 | 588.0 | 692.0 |
| Customer accounts (excluding repurchase agreements and stock lending) |
414.3 | 423.8 | 460.3 |
| Loan:deposit ratio (Core - net of provisions) | 104% | 108% | 118% |
| Loan:deposit ratio (Non-Core - net of provisions) | 1,121% | 937% | 683% |
| Loan:deposit ratio (Group - net of provisions) | 135% | 139% | 151% |
A further analysis of the Group's funding and liquidity positions is included on pages 139 to 144.
The operating profit/(loss) of each division before amortisation of purchased intangible assets, writedown of goodwill and other intangible assets, integration and restructuring costs, gain on redemption of own debt, strategic disposals, gains on pensions curtailments and bonus tax is shown below.
| Year ended | |||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Operating profit/(loss) before impairment losses by division |
|||||
| UK Retail | 1,908 | 1,742 | 579 | 468 | 381 |
| UK Corporate | 2,052 | 2,100 | 530 | 566 | 487 |
| Wealth | 453 | 364 | 99 | 120 | 77 |
| Global Banking & Markets | 6,349 | (1,274) | 1,001 | 593 | (2,817) |
| Global Transaction Services | 1,012 | 1,056 | 228 | 275 | 285 |
| Ulster Bank | 281 | 324 | 73 | 59 | 36 |
| US Retail & Commercial | 589 | 965 | 134 | 137 | 312 |
| RBS Insurance | 66 | 626 | (170) | 13 | 176 |
| Central items | 293 | 1,006 | (3) | 121 | (476) |
| Core | 13,003 | 6,909 | 2,471 | 2,352 | (1,539) |
| Non-Core | (5,336) | (6,415) | (725) | (598) | (2,889) |
| Group operating profit/(loss) before | |||||
| impairment losses | 7,667 | 494 | 1,746 | 1,754 | (4,428) |
| Included in the above are movements in fair value of own debt of |
|||||
| Global Banking & Markets | (49) | 357 | 106 | (320) | (875) |
| Central items | (93) | 875 | 164 | (163) | 14 |
| (142) | 1,232 | 270 | (483) | (861) | |
| Impairment losses by division | |||||
| UK Retail | 1,679 | 1,019 | 451 | 404 | 292 |
| UK Corporate | 927 | 319 | 190 | 187 | 169 |
| Wealth | 33 | 16 | 10 | 1 | 8 |
| Global Banking & Markets | 640 | 522 | 130 | 272 | 502 |
| Global Transaction Services | 39 | 54 | 4 | 22 | 40 |
| Ulster Bank | 649 | 106 | 348 | 144 | 71 |
| US Retail & Commercial | 702 | 437 | 153 | 180 | 177 |
| RBS Insurance | 8 | 42 | - | 2 | 42 |
| Central items | 1 | (19) | 2 | 1 | 11 |
| Core | 4,678 | 2,496 | 1,288 | 1,213 | 1,312 |
| Non-Core | 9,221 | 4,936 | 1,811 | 2,066 | 3,361 |
| Group impairment losses | 13,899 | 7,432 | 3,099 | 3,279 | 4,673 |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Operating profit/(loss) by division | |||||
| UK Retail | 229 | 723 | 128 | 64 | 89 |
| UK Corporate | 1,125 | 1,781 | 340 | 379 | 318 |
| Wealth | 420 | 348 | 89 | 119 | 69 |
| Global Banking & Markets | 5,709 | (1,796) | 871 | 321 | (3,319) |
| Global Transaction Services | 973 | 1,002 | 224 | 253 | 245 |
| Ulster Bank | (368) | 218 | (275) | (85) | (35) |
| US Retail & Commercial | (113) | 528 | (19) | (43) | 135 |
| RBS Insurance | 58 | 584 | (170) | 11 | 134 |
| Central items | 292 | 1,025 | (5) | 120 | (487) |
| Core | 8,325 | 4,413 | 1,183 | 1,139 | (2,851) |
| Non-Core | (14,557) | (11,351) | (2,536) | (2,664) | (6,250) |
| Group operating loss | (6,232) | (6,938) | (1,353) | (1,525) | (9,101) |
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2009 | 2008 | 2009 | 2009 | 2008 | ||
| % | % | % | % | % | ||
| Net interest margin by division | ||||||
| UK Retail | 3.59 | 3.58 | 3.74 | 3.47 | 3.73 | |
| UK Corporate | 2.22 | 2.40 | 2.47 | 2.38 | 2.20 | |
| Wealth | 4.38 | 4.51 | 3.94 | 4.34 | 4.56 | |
| Global Banking & Markets | 1.38 | 1.34 | 0.89 | 1.08 | 1.99 | |
| Global Transaction Services | 9.22 | 8.25 | 9.81 | 9.63 | 8.00 | |
| Ulster Bank | 1.87 | 1.89 | 1.83 | 1.74 | 1.67 | |
| US Retail & Commercial | 2.37 | 2.68 | 2.45 | 2.37 | 2.70 | |
| Non-Core | 0.69 | 0.87 | 1.17 | 0.55 | 1.36 | |
| Group | 1.76 | 2.08 | 1.83 | 1.75 | 2.11 |
| 31 December | 30 September | 31 December | |||
|---|---|---|---|---|---|
| 2009 | 2009 | Change | 2008 | Change | |
| £bn | £bn | % | £bn | % | |
| Risk-weighted assets by division | |||||
| UK Retail | 51.3 | 51.6 | (1%) | 45.7 | 12% |
| UK Corporate | 90.2 | 91.0 | (1%) | 85.7 | 5% |
| Wealth | 11.2 | 10.7 | 5% | 10.8 | 4% |
| Global Banking & Markets | 123.7 | 121.5 | 2% | 151.8 | (19%) |
| Global Transaction Services | 19.1 | 18.9 | 1% | 17.4 | 10% |
| Ulster Bank | 29.9 | 28.5 | 5% | 24.5 | 22% |
| US Retail & Commercial | 59.7 | 62.8 | (5%) | 63.9 | (7%) |
| Other | 9.4 | 9.0 | 4% | 7.1 | 32% |
| Core | 394.5 | 394.0 | - | 406.9 | (3%) |
| Non-Core | 171.3 | 200.7 | (15%) | 170.9 | - |
| 565.8 | 594.7 | (5%) | 577.8 | (2%) | |
| Benefit of APS | (127.6) | - | - | - | - |
| Total | 438.2 | 594.7 | (26%) | 577.8 | (24%) |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Income statement | |||||
| Net interest income | 3,452 | 3,187 | 939 | 848 | 856 |
| Net fees and commissions - banking Other non-interest income (net of insurance |
1,244 | 1,524 | 283 | 303 | 345 |
| claims) | 251 | 227 | 60 | 69 | 54 |
| Non-interest income | 1,495 | 1,751 | 343 | 372 | 399 |
| Total income | 4,947 | 4,938 | 1,282 | 1,220 | 1,255 |
| Direct expenses - staff - other Indirect expenses |
(845) (421) (1,773) |
(924) (421) (1,851) |
(211) (105) (387) |
(206) (99) (447) |
(236) (101) (537) |
| (3,039) | (3,196) | (703) | (752) | (874) | |
| Operating profit before impairment losses Impairment losses |
1,908 (1,679) |
1,742 (1,019) |
579 (451) |
468 (404) |
381 (292) |
| Operating profit | 229 | 723 | 128 | 64 | 89 |
| Analysis of income by product Personal advances Personal deposits Mortgages Bancassurance Cards Other |
1,192 1,349 1,214 246 869 77 |
1,244 2,037 500 217 831 109 |
273 279 415 56 228 31 |
303 319 319 69 225 (15) |
296 470 186 51 208 44 |
| Total income | 4,947 | 4,938 | 1,282 | 1,220 | 1,255 |
| Analysis of impairment by sector Mortgages Personal Cards |
124 1,023 532 |
31 568 420 |
35 282 134 |
26 247 131 |
9 169 114 |
| Total impairment | 1,679 | 1,019 | 451 | 404 | 292 |
| Loan impairment charge as % of gross customer loans and advances by sector Mortgages Personal |
0.15% 7.52% |
0.04% 3.71% |
0.17% 8.29% |
0.13% 6.81% |
0.05% 4.42% |
| Cards | 8.58% | 6.67% | 8.65% | 8.59% | 7.24% |
| 1.63% | 1.09% | 1.75% | 1.60% | 1.24% |
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2009 | 2008 | 2009 | 2009 | 2008 | ||
| Performance ratios | ||||||
| Return on equity (1) | 4.2% | 13.1% | 9.3% | 4.6% | 6.5% | |
| Net interest margin | 3.59% | 3.58% | 3.74% | 3.47% | 3.73% | |
| Cost:income ratio | 59.8% | 62.4% | 54.1% | 57.4% | 63.8% |
| 31 December | 30 September | 31 December | |||
|---|---|---|---|---|---|
| 2009 | 2009 | Change | 2008 | Change | |
| £bn | £bn | % | £bn | % | |
| Capital and balance sheet | |||||
| Loans and advances to customers – gross | |||||
| - mortgages | 83.2 | 80.3 | 4% | 72.2 | 15% |
| - personal | 13.6 | 14.5 | (6%) | 15.3 | (11%) |
| - cards | 6.2 | 6.1 | 2% | 6.3 | (2%) |
| Customer deposits (excluding | |||||
| bancassurance) | 87.2 | 85.6 | 2% | 78.9 | 11% |
| Assets under management – excluding | |||||
| deposits | 5.3 | 5.0 | 6% | 5.7 | (7%) |
| Risk elements in lending | 4.6 | 4.7 | (2%) | 3.8 | 21% |
| Loan:deposit ratio (excluding repos) | 115% | 115% | 40bp | 116% | (131bp) |
| Risk-weighted assets | 51.3 | 51.6 | (1%) | 45.7 | 12% |
Note:
(1) Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 7% of divisional risk-weighted assets, adjusted for capital deductions).
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Income statement | |||||
| Net interest income | 2,292 | 2,448 | 626 | 607 | 588 |
| Net fees and commissions | 858 | 829 | 222 | 223 | 215 |
| Other non-interest income | 432 | 460 | 100 | 106 | 107 |
| Non-interest income | 1,290 | 1,289 | 322 | 329 | 322 |
| Total income | 3,582 | 3,737 | 948 | 936 | 910 |
| Direct expenses | |||||
| - staff | (753) | (801) | (212) | (174) | (210) |
| - other | (268) | (318) | (77) | (71) | (73) |
| Indirect expenses | (509) | (518) | (129) | (125) | (140) |
| (1,530) | (1,637) | (418) | (370) | (423) | |
| Operating profit before impairment losses | 2,052 | 2,100 | 530 | 566 | 487 |
| Impairment losses | (927) | (319) | (190) | (187) | (169) |
| Operating profit | 1,125 | 1,781 | 340 | 379 | 318 |
| Analysis of income by business | |||||
| Corporate and commercial lending | 2,401 | 2,166 | 661 | 616 | 529 |
| Asset and invoice finance | 232 | 241 | 68 | 59 | 53 |
| Corporate deposits | 985 | 1,266 | 191 | 241 | 338 |
| Other | (36) | 64 | 28 | 20 | (10) |
| Total income | 3,582 | 3,737 | 948 | 936 | 910 |
| Analysis of impairment by sector | |||||
| Banks and financial institutions | 15 | 9 | 6 | 4 | 10 |
| Hotels and restaurants | 98 | 25 | 40 | 7 | 13 |
| Housebuilding and construction | 106 | 42 | (13) | 58 | 31 |
| Manufacturing | 51 | 14 | 28 | 2 | 6 |
| Other | 150 | 53 | 12 | 31 | 35 |
| Private sector education, health, social work, | |||||
| recreational and community services | 59 | 15 | 23 | (4) | 10 |
| Property | 259 | 24 | 30 | 69 | 6 |
| Wholesale and retail trade, repairs | 76 | 37 | 23 | 16 | 19 |
| Asset and invoice finance | 113 | 100 | 41 | 4 | 39 |
| Total impairment | 927 | 319 | 190 | 187 | 169 |
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2009 | 2008 | 2009 | 2009 | 2008 | ||
| Loan impairment charge as % of gross customer loans and advances (excluding reverse repurchase |
||||||
| agreements) by sector Banks and financial Institutions |
0.29% | 0.17% | 0.46% | 0.33% | 0.74% | |
| Hotels and restaurants | 1.75% | 0.41% | 2.86% | 0.49% | 0.85% | |
| Housebuilding and construction | 3.12% | 0.81% | (1.53%) | 5.95% | 2.38% | |
| Manufacturing | 1.38% | 0.26% | 3.03% | 0.21% | 0.45% | |
| Other | 0.36% | 0.14% | 0.11% | 0.29% | 0.37% | |
| Private sector education, health, social work, | ||||||
| recreational and community services | 0.80% | 0.20% | 1.24% | (0.21%) | 0.54% | |
| Property | 0.93% | 0.08% | 0.43% | 0.97% | 0.08% | |
| Wholesale and retail trade, repairs | 0.97% | 0.41% | 1.18% | 0.76% | 0.84% | |
| Asset and invoice finance | 1.33% | 1.18% | 1.93% | 0.18% | 1.84% | |
| 0.83% | 0.27% | 0.67% | 0.66% | 0.58% |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| Performance ratios | |||||
| Return on equity (1) | 10.3% | 18.0% | 12.4% | 13.7% | 12.9% |
| Net interest margin | 2.22% | 2.40% | 2.47% | 2.38% | 2.20% |
| Cost:income ratio | 42.7% | 43.8% | 44.1% | 39.5% | 46.5% |
| 31 December | 30 September | 31 December | |||
|---|---|---|---|---|---|
| 2009 | 2009 | Change | 2008 | Change | |
| £bn | £bn | % | £bn | % | |
| Capital and balance sheet | |||||
| Total assets | 114.9 | 117.3 | (2%) | 121.0 | (5%) |
| Loans and advances to customers – gross | |||||
| - Banks and financial institutions | 5.2 | 4.8 | 8% | 5.4 | (4%) |
| - Hotels and restaurants | 5.6 | 5.7 | (2%) | 6.1 | (8%) |
| - Housebuilding and construction | 3.4 | 3.9 | (13%) | 5.2 | (35%) |
| - Manufacturing | 3.7 | 3.9 | (5%) | 5.3 | (30%) |
| - Other | 42.0 | 42.3 | (1%) | 38.1 | 10% |
| - Private sector education, health, social | |||||
| work, recreational and community services | 7.4 | 7.6 | (3%) | 7.4 | - |
| - Property | 28.0 | 28.5 | (2%) | 31.8 | (12%) |
| - Wholesale and retail trade, repairs | 7.8 | 8.4 | (7%) | 9.1 | (14%) |
| - Asset and invoice finance | 8.5 | 8.8 | (3%) | 8.5 | - |
| Customer deposits | 87.8 | 86.7 | 1% | 82.0 | 7% |
| Risk elements in lending | 2.3 | 2.5 | (8%) | 1.3 | 77% |
| Loan:deposit ratio | 126% | 130% | (435bp) | 142% | (1,621bp) |
| Risk-weighted assets | 90.2 | 91.0 | (1%) | 85.7 | 5% |
Note:
(1) Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 8% of divisional risk-weighted assets, adjusted for capital deductions).
| Year ended | |||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Income statement | |||||
| Net interest income | 663 | 578 | 161 | 168 | 160 |
| Net fees and commissions | 363 | 405 | 91 | 92 | 96 |
| Other non-interest income | 83 | 76 | 22 | 19 | 19 |
| Non-interest income | 446 | 481 | 113 | 111 | 115 |
| Total income | 1,109 | 1,059 | 274 | 279 | 275 |
| Direct expenses | |||||
| - staff | (357) | (377) | (107) | (82) | (97) |
| - other | (139) | (156) | (37) | (35) | (51) |
| Indirect expenses | (160) | (162) | (31) | (42) | (50) |
| (656) | (695) | (175) | (159) | (198) | |
| Operating profit before impairment losses | 453 | 364 | 99 | 120 | 77 |
| Impairment losses | (33) | (16) | (10) | (1) | (8) |
| Operating profit | 420 | 348 | 89 | 119 | 69 |
| Analysis of income | |||||
| Private Banking | 916 | 819 | 223 | 232 | 221 |
| Investments | 193 | 240 | 51 | 47 | 54 |
| Total income | 1,109 | 1,059 | 274 | 279 | 275 |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| Performance ratios | |||||
| Net interest margin | 4.38% | 4.51% | 3.94% | 4.34% | 4.56% |
| Cost:income ratio | 59.2% | 65.6% | 63.9% | 57.0% | 72.0% |
| 31 December | 30 September | 31 December | |||
|---|---|---|---|---|---|
| 2009 | 2009 | Change | 2008 | Change | |
| £bn | £bn | % | £bn | % | |
| Capital and balance sheet | |||||
| Loans and advances to customers – gross | |||||
| - mortgages | 6.5 | 6.1 | 7% | 5.3 | 23% |
| - personal | 4.9 | 4.8 | 2% | 5.0 | (2%) |
| - other | 2.3 | 2.5 | (8%) | 2.1 | 10% |
| Customer deposits | 35.7 | 36.3 | (2%) | 34.1 | 5% |
| Assets under management – excluding | |||||
| deposits | 30.7 | 31.7 | (3%) | 34.7 | (12%) |
| Risk elements in lending | 0.2 | 0.2 | - | 0.1 | - |
| Loan:deposit ratio | 38% | 37% | 145bp | 36% | 201bp |
| Risk-weighted assets | 11.2 | 10.7 | 5% | 10.8 | 4% |
| Year ended | |||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | Quarter ended 30 September |
31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Income statement | |||||
| Net interest income from banking activities | 2,243 | 2,440 | 324 | 447 | 1,054 |
| Net fees and commissions receivable | 1,335 | 1,223 | 286 | 340 | 190 |
| Income/(loss) from trading activities | 7,763 | (743) | 1,522 | 1,028 | (3,322) |
| Other operating income (net of related | |||||
| funding costs) | (332) | (206) | (63) | (70) | (122) |
| Non-interest income | 8,766 | 274 | 1,745 | 1,298 | (3,254) |
| Total income | 11,009 | 2,714 | 2,069 | 1,745 | (2,200) |
| Direct expenses | |||||
| - staff | (2,930) | (2,056) | (641) | (721) | (18) |
| - other | (965) | (1,269) | (247) | (240) | (397) |
| Indirect expenses | (765) | (663) | (180) | (191) | (202) |
| (4,660) | (3,988) | (1,068) | (1,152) | (617) | |
| Operating profit/(loss) before impairment | |||||
| losses | 6,349 | (1,274) | 1,001 | 593 | (2,817) |
| Impairment losses | (640) | (522) | (130) | (272) | (502) |
| Operating profit/(loss) | 5,709 | (1,796) | 871 | 321 | (3,319) |
| Analysis of income by product | |||||
| Rates - money markets | 1,714 | 1,641 | 108 | 287 | 748 |
| Rates - flow | 3,142 | 1,386 | 615 | 694 | 16 |
| Currencies & Commodities | 1,277 | 1,539 | 175 | 147 | 413 |
| Equities | 1,474 | 368 | 457 | 282 | (214) |
| Credit markets | 2,255 | (3,435) | 232 | 475 | (2,341) |
| Portfolio management and origination | 1,196 | 858 | 376 | 180 | 53 |
| Fair value of own debt | (49) | 357 | 106 | (320) | (875) |
| Total income | 11,009 | 2,714 | 2,069 | 1,745 | (2,200) |
| Analysis of impairment by sector | |||||
| Manufacturing and infrastructure | 91 | 39 | 19 | 33 | 39 |
| Property and construction | 49 | 12 | (1) | - | - |
| Transport | 3 | - | - | 2 | - |
| Banks and financial institutions | 348 | 186 | 68 | 237 | 194 |
| Other | 149 | 285 | 44 | - | 269 |
| Total impairment | 640 | 522 | 130 | 272 | 502 |
| Loan impairment charge as % of gross | |||||
| customer loans and advances | |||||
| (excluding reverse repurchase | |||||
| agreements) | 0.59% | 0.29% | 0.59% | 0.60% | 1.13% |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| Performance ratios | |||||
| Return on equity (1) | 30.7% | (8.4%) | 18.7% | 7.2% | (61.9%) |
| Net interest margin | 1.38% | 1.34% | 0.89% | 1.08% | 1.99% |
| Cost:income ratio | 42.3% | 146.9% | 51.6% | 66.0% | (28.1%) |
| 31 December | 30 September | 31 December | |||
|---|---|---|---|---|---|
| 2009 | 2009 | Change | 2008 | Change | |
| £bn | £bn | % | £bn | % | |
| Capital and balance sheet | |||||
| Loans and advances (including banks) | 127.8 | 156.3 | (18%) | 224.2 | (43%) |
| Reverse repos | 73.3 | 75.4 | (3%) | 88.8 | (17%) |
| Securities | 106.0 | 117.6 | (10%) | 127.5 | (17%) |
| Cash and eligible bills | 74.0 | 63.8 | 16% | 20.2 | - |
| Other | 31.1 | 46.0 | (32%) | 38.0 | (18%) |
| Total third party assets (excluding derivatives | |||||
| mark to market) | 412.2 | 459.1 | (10%) | 498.7 | (17%) |
| Net derivative assets (after netting) | 68.0 | 84.3 | (19%) | 121.0 | (44%) |
| Customer deposits (excluding repos) | 46.9 | 56.8 | (17%) | 87.8 | (47%) |
| Risk elements in lending | 1.8 | 1.6 | 13% | 0.9 | 100% |
| Loan:deposit ratio | 194% | 194% | (30bp) | 192% | 173bp |
| Risk-weighted assets | 123.7 | 121.5 | 2% | 151.8 | (19%) |
Note:
(1) Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 10% of divisional risk-weighted assets, adjusted for capital deductions).
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Income statement | |||||
| Net interest income | 912 | 937 | 233 | 234 | 249 |
| Non-interest income | 1,575 | 1,494 | 404 | 388 | 407 |
| Total income | 2,487 | 2,431 | 637 | 622 | 656 |
| Direct expenses | |||||
| - staff | (371) | (362) | (102) | (87) | (93) |
| - other | (161) | (149) | (51) | (37) | (42) |
| Indirect expenses | (943) | (864) | (256) | (223) | (236) |
| (1,475) | (1,375) | (409) | (347) | (371) | |
| Operating profit before impairment losses | 1,012 | 1,056 | 228 | 275 | 285 |
| Impairment losses | (39) | (54) | (4) | (22) | (40) |
| Operating profit | 973 | 1,002 | 224 | 253 | 245 |
| Analysis of income by product | |||||
| Domestic cash management | 805 | 795 | 197 | 202 | 210 |
| International cash management | 734 | 722 | 203 | 183 | 200 |
| Trade finance | 290 | 241 | 67 | 71 | 70 |
| Merchant acquiring* | 528 | 554 | 134 | 134 | 145 |
| Commercial cards | 130 | 119 | 36 | 32 | 31 |
| Total income | 2,487 | 2,431 | 637 | 622 | 656 |
* Comprises the Global Merchant Services business (see Appendix 4) and the Global Travel Money Services business. The Global Merchant Services business outlined in Appendix 4 includes business units in the Non-Core and Ulster Bank divisions.
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| Performance ratios | |||||
| Net interest margin | 9.22% | 8.25% | 9.81% | 9.63% | 8.00% |
| Cost:income ratio | 59.3% | 56.6% | 64.2% | 55.8% | 56.6% |
| 31 December | 30 September | 31 December | ||||
|---|---|---|---|---|---|---|
| 2009 | 2009 | Change | 2008 | Change | ||
| £bn | £bn | % | £bn | % | ||
| Capital and balance sheet | ||||||
| Total third party assets | 18.4 | 21.4 | (14%) | 22.2 | (17%) | |
| Loans and advances | 12.7 | 14.5 | (12%) | 14.8 | (14%) | |
| Customer deposits | 61.8 | 58.6 | 5% | 61.8 | - | |
| Risk elements in lending | 0.2 | 0.2 | - | 0.1 | - | |
| Loan:deposit ratio | 21% | 25% | (452bp) | 25% | (401bp) | |
| Risk-weighted assets | 19.1 | 18.9 | 1% | 17.4 | 10% |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Income statement | |||||
| Net interest income | 780 | 773 | 194 | 176 | 174 |
| Net fees and commissions | 228 | 238 | 98 | 45 | 60 |
| Other non-interest income | 26 | 28 | (7) | 10 | (6) |
| Non-interest income | 254 | 266 | 91 | 55 | 54 |
| Total income | 1,034 | 1,039 | 285 | 231 | 228 |
| Direct expenses | |||||
| - staff | (325) | (330) | (76) | (79) | (87) |
| - other | (85) | (93) | (18) | (20) | (24) |
| Indirect expenses | (343) | (292) | (118) | (73) | (81) |
| (753) | (715) | (212) | (172) | (192) | |
| Operating profit before impairment losses | 281 | 324 | 73 | 59 | 36 |
| Impairment losses | (649) | (106) | (348) | (144) | (71) |
| Operating (loss)/profit | (368) | 218 | (275) | (85) | (35) |
| Analysis of income by business | |||||
| Corporate | 580 | 618 | 146 | 134 | 139 |
| Retail | 412 | 396 | 114 | 104 | 92 |
| Other | 42 | 25 | 25 | (7) | (3) |
| Total income | 1,034 | 1,039 | 285 | 231 | 228 |
| Analysis of impairment by sector | |||||
| Mortgages | 74 | 17 | 20 | 30 | 4 |
| Corporate | |||||
| - Property | 306 | 37 | 233 | (2) | 37 |
| - Other | 203 | 7 | 83 | 89 | 6 |
| Other | 66 | 45 | 12 | 27 | 24 |
| Total impairment | 649 | 106 | 348 | 144 | 71 |
| Loan impairment charge as % of gross | |||||
| customer loans and advances (excluding reverse repurchase agreements) by |
|||||
| sector | |||||
| Mortgages | 0.46% | 0.09% | 0.49% | 0.72% | 0.10% |
| Corporate | |||||
| - Property | 3.03% | 0.34% | 9.23% | (0.09%) | 1.36% |
| - Other | 1.85% | 0.05% | 3.02% | 3.04% | 0.19% |
| Other | 2.75% | 2.14% | 2.00% | 5.40% | 4.60% |
| 1.63% | 0.24% | 3.51% | 1.42% | 0.65% |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| Performance ratios | |||||
| Return on equity (1) | (13.3%) | 10.1% | (39.8%) | (12.7%) | (6.5%) |
| Net interest margin | 1.87% | 1.89% | 1.83% | 1.74% | 1.67% |
| Cost:income ratio | 72.8% | 68.8% | 74.4% | 74.5% | 84.2% |
| 31 December | 30 September | 31 December | |||
| 2009 | 2009 | Change | 2008 | Change | |
| £bn | £bn | % | £bn | % | |
| Capital and balance sheet | |||||
| Loans and advances to customers – gross | |||||
| - mortgages | 16.2 | 16.7 | (3%) | 18.1 | (10%) |
| - corporate | |||||
| - property | 10.1 | 10.2 | (1%) | 10.9 | (7%) |
| - other | 11.0 | 11.7 | (6%) | 12.9 | (15%) |
| - other | 2.4 | 2.0 | 20% | 2.1 | 14% |
| Customer deposits | 21.9 | 20.9 | 5% | 24.3 | (10%) |
| Risk elements in lending | |||||
| - mortgages | 0.6 | 0.5 | 20% | 0.3 | - |
| - corporate | |||||
| - property | 0.7 | 0.6 | 17% | 0.5 | 40% |
| - other | 0.8 | 0.7 | 14% | 0.3 | - |
| - other | 0.2 | 0.2 | - | 0.1 | - |
| Loan:deposit ratio | 177% | 191% | (1,420bp) | 179% | (148bp) |
| Risk-weighted assets | 29.9 | 28.5 | 5% | 24.5 | 22% |
Note:
(1) Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 7% of divisional risk-weighted assets, adjusted for capital deductions).
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Income statement | |||||
| Net interest income | 1,775 | 1,726 | 423 | 410 | 512 |
| Net fees and commissions | 714 | 664 | 148 | 159 | 183 |
| Other non-interest income | 235 | 197 | 73 | 65 | 84 |
| Non-interest income | 949 | 861 | 221 | 224 | 267 |
| Total income | 2,724 | 2,587 | 644 | 634 | 779 |
| Direct expenses | |||||
| - staff | (776) | (645) | (200) | (174) | (175) |
| - other | (593) | (354) | (130) | (132) | (120) |
| Indirect expenses | (766) | (623) | (180) | (191) | (172) |
| (2,135) | (1,622) | (510) | (497) | (467) | |
| Operating profit before impairment losses | 589 | 965 | 134 | 137 | 312 |
| Impairment losses | (702) | (437) | (153) | (180) | (177) |
| Operating (loss)/profit | (113) | 528 | (19) | (43) | 135 |
| Analysis of income by product | |||||
| Mortgages and home equity | 499 | 375 | 115 | 112 | 112 |
| Personal lending and cards | 451 | 333 | 115 | 116 | 90 |
| Retail deposits | 828 | 1,000 | 195 | 200 | 279 |
| Commercial lending | 542 | 405 | 134 | 127 | 128 |
| Commercial deposits | 398 | 377 | 108 | 97 | 111 |
| Other | 6 | 97 | (23) | (18) | 59 |
| Total income | 2,724 | 2,587 | 644 | 634 | 779 |
| Average exchange rate – US\$/£ | 1.566 | 1.853 | 1.633 | 1.640 | 1.570 |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Analysis of impairment by sector | |||||
| Residential mortgages | 72 | 41 | 8 | 29 | 13 |
| Home equity | 167 | 67 | 13 | 82 | 22 |
| Corporate & Commercial | 326 | 181 | 92 | 65 | 87 |
| Other consumer | 137 | 148 | 40 | 4 | 55 |
| Total impairment | 702 | 437 | 153 | 180 | 177 |
| Loan impairment charge as % of gross customer loans and advances (excluding reverse repurchase agreements) by sector |
|||||
| Residential mortgages | 1.11% | 0.43% | 0.46% | 1.68% | 0.55% |
| Home equity | 1.08% | 0.36% | 0.34% | 2.05% | 0.47% |
| Corporate & Commercial | 1.67% | 0.76% | 1.89% | 1.27% | 1.46% |
| Other consumer | 1.84% | 1.51% | 2.13% | 0.20% | 2.24% |
| 1.44% | 0.71% | 1.25% | 1.41% | 1.15% |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| Performance ratios | |||||
| Return on equity (1) | (1.8%) | 7.7% | (1.2%) | (2.5%) | 7.9% |
| Net interest margin | 2.37% | 2.68% | 2.45% | 2.34% | 2.59% |
| Cost:income ratio | 78.3% | 62.7% | 79.2% | 78.4% | 60.0% |
| 31 December | 30 September | 31 December | ||||
|---|---|---|---|---|---|---|
| 2009 | 2009 | Change | 2008 | Change | ||
| £bn | £bn | % | £bn | % | ||
| Capital and balance sheet | ||||||
| Total assets | 74.8 | 76.9 | (3%) | 87.5 | (15%) | |
| Loans and advances to customers (gross): | ||||||
| - residential mortgages | 6.5 | 6.9 | (6%) | 9.5 | (32%) | |
| - home equity | 15.4 | 16.0 | (4%) | 18.7 | (18%) | |
| - corporate and commercial | 19.5 | 20.5 | (5%) | 23.7 | (18%) | |
| - other consumer | 7.5 | 7.8 | (4%) | 9.8 | (23%) | |
| Customer deposits (excluding repos) | 60.1 | 62.0 | (3%) | 63.9 | (6%) | |
| Risk elements in lending | ||||||
| - retail | 0.4 | 0.3 | - | 0.2 | - | |
| - commercial | 0.2 | 0.2 | - | 0.2 | - | |
| Loan:deposit ratio | 80% | 81% | (122bp) | 96% | (1,543bp) | |
| Risk-weighted assets | 59.7 | 62.8 | (5%) | 63.9 | (7%) | |
| Spot exchange rate - US\$/£ | 1.622 | 1.599 | 1.460 |
Note:
(1) Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 7% of divisional risk-weighted assets, adjusted for capital deductions).
| Year ended | |||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | Quarter ended 30 September |
31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| \$m | \$m | \$m | \$m | \$m | |
| Income statement | |||||
| Net interest income | 2,777 | 3,200 | 690 | 680 | 837 |
| Net fees and commissions | 1,119 | 1,231 | 245 | 266 | 294 |
| Other non-interest income | 368 | 362 | 120 | 104 | 142 |
| Non-interest income | 1,487 | 1,593 | 365 | 370 | 436 |
| Total income | 4,264 | 4,793 | 1,055 | 1,050 | 1,273 |
| Direct expenses | |||||
| - staff | (1,214) | (1,194) | (325) | (289) | (278) |
| - other | (929) | (654) | (215) | (219) | (201) |
| Indirect expenses | (1,196) | (1,157) | (294) | (313) | (277) |
| (3,339) | (3,005) | (834) | (821) | (756) | |
| Operating profit before impairment losses | 925 | 1,788 | 221 | 229 | 517 |
| Impairment losses | (1,099) | (811) | (252) | (296) | (304) |
| Operating (loss)/profit | (174) | 977 | (31) | (67) | 213 |
| Analysis of income by product | |||||
| Mortgages and home equity | 781 | 695 | 188 | 186 | 183 |
| Personal lending and cards | 706 | 617 | 188 | 190 | 143 |
| Retail deposits | 1,296 | 1,853 | 320 | 329 | 451 |
| Commercial lending | 848 | 751 | 219 | 210 | 211 |
| Commercial deposits Other |
624 9 |
698 179 |
176 (36) |
160 (25) |
179 106 |
| Total income | 4,264 | 4,793 | 1,055 | 1,050 | 1,273 |
| Analysis of impairment by sector | |||||
| Residential mortgages | 113 | 76 | 14 | 47 | 22 |
| Home equity | 261 | 125 | 23 | 131 | 38 |
| Corporate & Commercial | 510 | 335 | 150 | 107 | 151 |
| Other consumer | 215 | 275 | 65 | 11 | 93 |
| Total impairment | 1,099 | 811 | 252 | 296 | 304 |
| Loan impairment charge as % of gross | |||||
| customer loans and advances (excluding | |||||
| reverse repurchase agreements) by | |||||
| sector | |||||
| Residential mortgages | 1.07% | 0.55% | 0.53% | 1.69% | 0.63% |
| Home equity | 1.04% | 0.46% | 0.37% | 2.05% | 0.56% |
| Corporate & Commercial | 1.61% | 0.97% | 1.90% | 1.31% | 1.74% |
| Other consumer | 1.77% | 1.92% | 2.15% | 0.34% | 2.60% |
| 1.39% | 0.90% | 1.27% | 1.45% | 1.35% |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| Performance ratios | |||||
| Return on equity (1) | (1.7%) | 9.7% | (1.2%) | (2.5%) | 8.5% |
| Net interest margin | 2.37% | 2.68% | 2.45% | 2.37% | 2.70% |
| Cost:income ratio | 78.3% | 62.7% | 79.1% | 78.2% | 59.4% |
| 31 December 30 September |
31 December | |||||
|---|---|---|---|---|---|---|
| 2009 | 2009 | Change | 2008 | Change | ||
| \$bn | \$bn | % | \$bn | % | ||
| Capital and balance sheet | ||||||
| Total assets | 121.3 | 122.9 | (1%) | 127.8 | (5%) | |
| Loans and advances to customers (gross): | ||||||
| - residential mortgages | 10.6 | 11.0 | (4%) | 13.9 | (24%) | |
| - home equity | 25.0 | 25.6 | (2%) | 27.2 | (8%) | |
| - corporate and commercial | 31.6 | 32.7 | (3%) | 34.7 | (9%) | |
| - other consumer | 12.1 | 12.5 | (3%) | 14.3 | (15%) | |
| Customer deposits (excluding repos) | 97.4 | 99.1 | (2%) | 93.4 | 4% | |
| Risk elements in lending | ||||||
| - retail | 0.6 | 0.5 | 20% | 0.3 | - | |
| - commercial | 0.4 | 0.3 | 33% | 0.2 | - | |
| Loan:deposit ratio | 80% | 81% | (122bp) | 96% | (1,543bp) | |
| Risk-weighted assets | 96.9 | 100.4 | (3%) | 93.2 | 4% |
Note:
(1) Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 7% of divisional risk-weighted assets, adjusted for capital deductions).
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2009 | 2008 | 2009 | 2009 | 2008 | ||
| £m | £m | £m | £m | £m | ||
| Income statement | ||||||
| Earned premiums | 4,519 | 4,512 | 1,149 | 1,145 | 1,121 | |
| Reinsurers' share | (165) | (206) | (37) | (43) | (48) | |
| Insurance net premium income | 4,354 | 4,306 | 1,112 | 1,102 | 1,073 | |
| Net fees and commissions | (366) | (396) | (84) | (95) | (93) | |
| Other income | 472 | 520 | 148 | 112 | 146 | |
| Total income | 4,460 | 4,430 | 1,176 | 1,119 | 1,126 | |
| Direct expenses | ||||||
| - staff | (267) | (286) | (61) | (67) | (77) | |
| - other | (222) | (225) | (54) | (47) | (54) | |
| Indirect expenses | (270) | (261) | (75) | (64) | (72) | |
| (759) | (772) | (190) | (178) | (203) | ||
| Gross claims | (3,690) | (3,136) | (1,175) | (941) | (788) | |
| Reinsurers' share | 55 | 104 | 19 | 13 | 41 | |
| Net claims | (3,635) | (3,032) | (1,156) | (928) | (747) | |
| Operating profit/(loss) before impairment | ||||||
| losses | 66 | 626 | (170) | 13 | 176 | |
| Impairment losses | (8) | (42) | - | (2) | (42) | |
| Operating profit/(loss) | 58 | 584 | (170) | 11 | 134 | |
| Analysis of income by product | ||||||
| Own-brand | ||||||
| - Motor | 2,005 | 1,942 | 516 | 517 | 491 | |
| - Household and life | 849 | 806 | 221 | 214 | 206 | |
| Partnerships and broker | ||||||
| - Motor | 577 | 686 | 146 | 141 | 166 | |
| - Household and life | 330 | 354 | 88 | 78 | 85 | |
| Other (international, commercial and central) | 699 | 642 | 205 | 169 | 178 | |
| Total income | 4,460 | 4,430 | 1,176 | 1,119 | 1,126 |
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2009 | 2008 | 2009 | 2009 | 2008 | ||
| In-force policies (thousands) | ||||||
| - Motor own-brand | 4,858 | 4,492 | 4,858 | 4,894 | 4,492 | |
| - Own-brand non-motor (home, pet, rescue, | ||||||
| HR24) | 6,307 | 5,560 | 6,307 | 6,150 | 5,560 | |
| - Partnerships & broker (motor, home, pet, | ||||||
| rescue, HR24) | 5,328 | 5,898 | 5,328 | 5,371 | 5,898 | |
| - Other (International, commercial and | ||||||
| central) | 1,217 | 1,206 | 1,217 | 1,212 | 1,206 | |
| Gross written premium (£m) | 4,480 | 4,384 | 1,024 | 1,186 | 1,002 | |
| Performance ratios | ||||||
| Return on equity (1) | 1.6% | 18.3% | (19.1%) | 1.2% | 16.8% | |
| Cost:income ratio | 17.0% | 17.4% | 16.2% | 15.9% | 18.0% | |
| Adjusted cost:income ratio (2) | 92.0% | 55.2% | 950.0% | 93.2% | 53.6% | |
| Balance sheet | ||||||
| General insurance reserves – total (£m) | 7,030 | 6,672 | 7,030 | 6,839 | 6,672 |
Notes:
(1) Based on divisional operating profit after tax, divided by divisional notional equity (based on regulatory capital).
(2) Based on total income and operating expenses above and after netting insurance claims against income.
Key points (continued)
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 30 September | 31 December 2008 |
||
| 2009 | 2008 2009 |
2009 | |||
| £m | £m | £m | £m | £m | |
| Fair value of own debt | (93) | 875 | 164 | (163) | 14 |
| Other | 385 | 150 | (169) | 283 | (501) |
| Central items not allocated | 292 | 1,025 | (5) | 120 | (487) |
• Unallocated central items amounted to a net cost of £5 million during the quarter. The Group's credit spreads widened during the quarter, resulting in a reduction in the carrying value of own debt. This was partially offset by a number of other specific corporate costs including certain APS fees and IFRS volatility.
| Year ended | |||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | Quarter ended 30 September |
31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Income statement | |||||
| Net interest income from banking activities | 1,534 | 2,156 | 578 | 287 | 765 |
| Net fees and commissions receivable | 510 | 912 | 129 | 130 | 163 |
| Loss from trading activities | (5,161) | (7,739) | (781) | (579) | (2,916) |
| Insurance net premium income | 784 | 986 | 171 | 173 | 249 |
| Other operating income | 32 | 653 | 11 | 43 | (191) |
| Non-interest income | (3,835) | (5,188) | (470) | (233) | (2,695) |
| Total income | (2,301) | (3,032) | 108 | 54 | (1,930) |
| Direct expenses | |||||
| - staff | (851) | (988) | (247) | (150) | (270) |
| - other | (1,044) | (1,156) | (297) | (244) | (345) |
| Indirect expenses | (552) | (539) | (141) | (132) | (152) |
| (2,447) | (2,683) | (685) | (526) | (767) | |
| Operating loss before other operating | |||||
| charges and impairment losses | (4,748) | (5,715) | (577) | (472) | (2,697) |
| Insurance net claims | (588) | (700) | (148) | (126) | (192) |
| Impairment losses | (9,221) | (4,936) | (1,811) | (2,066) | (3,361) |
| Operating loss | (14,557) | (11,351) | (2,536) | (2,664) | (6,250) |
| Analysis of income | |||||
| Banking & Portfolio | (1,338) | 2,324 | 37 | (271) | 538 |
| International Businesses & Portfolios | 2,262 | 2,980 | 493 | 537 | 689 |
| Markets | (3,225) | (8,336) | (422) | (212) | (3,157) |
| (2,301) | (3,032) | 108 | 54 | (1,930) | |
| Key metrics | |||||
| Performance ratios | |||||
| Net interest margin | 0.69% | 0.87% | 1.17% | 0.55% | 1.36% |
| Cost:income ratio | (106.3%) | (88.5%) | 634.3% | 974.1% | (39.7%) |
| 31 December | 30 September | 31 December | |||
| 2009 | 2009 | Change | 2008 | Change | |
| £bn | £bn | % | £bn | % | |
| Capital and balance sheet (1) Total third party assets |
|||||
| (including derivatives) (2) | 220.9 | 233.0 | (5%) | 342.9 | (36%) |
| Loans and advances to customers - gross | 149.5 | 159.1 | (6%) | 191.4 | (22%) |
| Customer deposits | 12.6 | 16.0 | (21%) | 27.4 | (54%) |
| Risk elements in lending | 22.9 | 23.3 | (2%) | 11.1 | 106% |
| Loan:deposit ratio | 1,121% | 937% | 18,397bp | 683% | 43,807bp |
| Risk-weighted assets (3) | 171.3 | 200.7 | (15%) | 170.9 | - |
| Notes: |
(1) Includes disposal groups.
(2) Derivatives were £19.9 billion at 31 December 2009 (30 September 2009 - £30.9 billion; 31 December 2008 - £85.0 billion).
(3) Includes Sempra: 31 December 2009 Third Party Assets (TPAs) £14.2 billion, RWAs £10.2 billion; (31 December 2008 TPAs £17.8billion, RWAs £10.6 billion).
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2009 | 2008 | 2009 | 2009 | 2008 | ||
| £m | £m | £m | £m | £m | ||
| Credit and other market write-downs (1) | ||||||
| Monoline exposures | 2,387 | 3,121 | 679 | 37 | 870 | |
| CDPCs | 947 | 615 | 101 | 277 | 373 | |
| Asset backed products (2) | 288 | 3,220 | (105) | (148) | 1,146 | |
| Other credit exotics | 558 | 935 | (16) | 38 | 551 | |
| Equities | 47 | 947 | 9 | 13 | 824 | |
| Leveraged finance | - | 1,088 | - | - | 189 | |
| Banking book hedges | 1,613 | (1,690) | 231 | 386 | (1,174) | |
| Other | (679) | (497) | (118) | (24) | 137 | |
| 5,161 | 7,739 | 781 | 579 | 2,916 | ||
| Impairment losses | ||||||
| Banking & Portfolio | 4,215 | 938 | 895 | 1,347 | 714 | |
| International Businesses & Portfolios | 4,494 | 1,832 | 902 | 1,234 | 945 | |
| Markets | 512 | 2,166 | 14 | (515) | 1,702 | |
| 9,221 | 4,936 | 1,811 | 2,066 | 3,361 | ||
| Loan impairment charge as % of gross customer loans and advances (3) Banking & Portfolio International Businesses & Portfolios Markets |
4.91% 6.56% 5.34% |
0.90% 2.28% 13.32% |
4.14% 5.27% 0.44% |
6.01% 6.90% (126.77%) |
2.71% 4.70% 48.33% |
|
| Total | 5.66% | 2.18% | 4.63% | 5.41% | 6.09% | |
| £bn | £bn | £bn | £bn | £bn | ||
| Gross customer loans and advances | ||||||
| Banking & Portfolio | 82.0 | 97.0 | 82.0 | 88.2 | 97.0 | |
| International Businesses & Portfolios | 65.6 | 79.9 | 65.6 | 68.3 | 79.9 | |
| Markets | 1.9 | 14.5 | 1.9 | 2.6 | 14.5 | |
| 149.5 | 191.4 | 149.5 | 159.1 | 191.4 | ||
| Risk-weighted assets | ||||||
| Banking & Portfolio | 58.2 | 63.1 | 58.2 | 61.1 | 63.1 | |
| International Businesses & Portfolios | 43.8 | 50.1 | 43.8 | 46.1 | 50.1 | |
| Markets | 69.3 | 57.7 | 69.3 | 93.5 | 57.7 | |
| 171.3 | 170.9 | 171.3 | 200.7 | 170.9 |
Note:
(1) Included in 'Loss from trading activities' on page 73.
(2) Asset backed products include super senior asset backed structures and other asset backed products.
(3) Includes disposal groups
| Year ended | |||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | Quarter ended 30 September |
31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Loan impairment losses by donating division and sector |
|||||
| UK Retail | |||||
| Mortgages | 5 | 1 | 2 | 1 | - |
| Personal | 48 | 42 | 5 | 11 | 12 |
| Other | - | 62 | - | - | 18 |
| Total UK Retail | 53 | 105 | 7 | 12 | 30 |
| UK Corporate | |||||
| Manufacturing & infrastructure | 87 | 42 | 41 | 14 | 30 |
| Property & construction | 637 | 281 | 163 | 162 | 208 |
| Transport | 10 | (3) | 2 | 5 | 3 |
| Banks & financials | 101 | 4 | - | 1 | 2 |
| Lombard | 122 | 61 | 13 | 27 | 23 |
| Invoice finance | 3 | - | 1 | 2 | (1) |
| Other | 717 | 142 | 120 | 33 | 70 |
| Total UK Corporate | 1,677 | 527 | 340 | 244 | 335 |
| Global Banking & Markets | |||||
| Manufacturing & infrastructure | 1,405 | 1,280 | 84 | 309 | 1,192 |
| Property & construction | 1,413 | 710 | 683 | 141 | 455 |
| Transport | 178 | 12 | 5 | 5 | 12 |
| Telecoms, media & technology | 545 | 55 | 2 | 23 | 39 |
| Banks & financials | 567 | 870 | 97 | 270 | 638 |
| Other | 619 | 177 | 38 | 84 | 80 |
| Total Global Banking & Markets | 4,727 | 3,104 | 909 | 832 | 2,416 |
| Ulster Bank | |||||
| Mortgages | 42 | 6 | 16 | 7 | 3 |
| Commercial investment & development | 302 | 9 | 256 | 20 | 6 |
| Residential investment & development | 716 | 229 | (33) | 406 | 196 |
| Other | 217 | 60 | 33 | 148 | 33 |
| Other EMEA | 107 | 116 | 20 | 27 | 69 |
| Total Ulster Bank | 1,384 | 420 | 292 | 608 | 307 |
| US Retail & Commercial | |||||
| Auto & consumer | 136 | 140 | 27 | 49 | 60 |
| Cards | 130 | 63 | 26 | 33 | 21 |
| SBO/home equity | 445 | 321 | 85 | 69 | 102 |
| Residential mortgages | 55 | 6 | 13 | 20 | 3 |
| Commercial real estate | 228 | 54 | 51 | 85 | 15 |
| Commercial & other | 85 | 20 | 8 | 39 | 8 |
| Total US Retail & Commercial | 1,079 | 604 | 210 | 295 | 209 |
| Other | |||||
| Wealth | 251 | 174 | 38 | 50 | 60 |
| Global Transaction Services | 49 | (2) | 14 | 25 | (1) |
| Central items | 1 | 4 | 1 | - | 5 |
| Total Other | 301 | 176 | 53 | 75 | 64 |
| Total impairment losses | 9,221 | 4,936 | 1,811 | 2,066 | 3,361 |
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2009 | 2008 | 2009 | 2009 | 2008 | ||
| £bn | £bn | £bn | £bn | £bn | ||
| Gross loans and advances to customers by donating division and sector (excluding reverse repurchase agreements) |
||||||
| UK Retail | ||||||
| Mortgages | 1.9 | 2.2 | 1.9 | 2.0 | 2.2 | |
| Personal | 0.7 | 1.1 | 0.7 | 0.8 | 1.1 | |
| Other | - | - | - | (0.1) | - | |
| Total UK Retail | 2.6 | 3.3 | 2.6 | 2.7 | 3.3 | |
| UK Corporate | ||||||
| Manufacturing & infrastructure | 0.3 | 0.3 | 0.3 | 0.3 | 0.3 | |
| Property & construction | 10.8 | 11.3 | 10.8 | 13.0 | 11.3 | |
| Lombard | 2.7 | 3.7 | 2.7 | - | 3.7 | |
| Invoice finance | 0.4 | 0.7 | 0.4 | - | 0.7 | |
| Other | 20.7 | 22.1 | 20.7 | 22.2 | 22.1 | |
| Total UK Corporate | 34.9 | 38.1 | 34.9 | 35.5 | 38.1 | |
| Global Banking & Markets | ||||||
| Manufacturing & Infrastructure | 17.5 | 17.5 | ||||
| Property & construction | 25.7 | 25.7 | ||||
| Transport | 5.8 | 5.8 | ||||
| Telecoms, media & technology | 3.2 | 3.2 | ||||
| Banks & financials | 16.0 | 16.0 | ||||
| Other | 13.5 | 13.5 | ||||
| Total Global Banking & Markets | 81.7 | 104.8 | 81.7 | 87.8 | 104.8 | |
| Ulster Bank | ||||||
| Mortgages | 6.0 | 6.5 | 6.0 | 6.3 | 6.5 | |
| Commercial investment & development | 3.0 | 2.9 | 3.0 | 2.8 | 2.9 | |
| Residential investment & development | 5.6 | 5.9 | 5.6 | 5.9 | 5.9 | |
| Other | 1.1 | 1.1 | 1.1 | 1.1 | 1.1 | |
| Other EMEA | 1.0 | 1.3 | 1.0 | 1.1 | 1.3 | |
| Total Ulster Bank | 16.7 | 17.7 | 16.7 | 17.2 | 17.7 | |
| US Retail & Commercial | ||||||
| Auto & consumer | 3.2 | 4.2 | 3.2 | 3.4 | 4.2 | |
| Cards | 0.5 | 0.7 | 0.5 | 0.6 | 0.7 | |
| SBO/home equity | 3.7 | 5.2 | 3.7 | 4.0 | 5.2 | |
| Residential mortgages | 0.8 | 1.1 | 0.8 | 0.9 | 1.1 | |
| Commercial real estate | 1.9 | 3.0 | 1.9 | 2.1 | 3.0 | |
| Commercial & other | 0.9 | 1.4 | 0.9 | 0.9 | 1.4 | |
| Total US Retail & Commercial | 11.0 | 15.6 | 11.0 | 11.9 | 15.6 | |
| Other | ||||||
| Wealth | 2.6 | 3.6 | 2.6 | 2.7 | 3.6 | |
| Global Transaction Services | 0.8 | 1.4 | 0.8 | 0.8 | 1.4 | |
| RBS Insurance Central items |
0.2 (3.2) |
0.2 - |
0.2 (3.2) |
0.2 (2.6) |
0.2 - |
|
| Total Other | 0.4 | 5.2 | 0.4 | 1.1 | 5.2 | |
| Total loans and advances to customers | 147.3 | 184.7 | 147.3 | 156.2 | 184.7 |
Business Services and Group Centre directly attributable costs have been allocated to the operating divisions, based on their service usage. Where services span more than one division, an appropriate measure is used to allocate the costs on a basis which management considers reasonable. Business Services costs are fully allocated and there are no residual unallocated costs. The residual unallocated costs remaining in the Group centre relate to volatile corporate items that do not naturally reside within a division.
Business Services costs were flat on a constant currency basis, compared with 2008. The increase in property costs was principally due to the impact of expanded Group premises in London and the US.
Treasury costs are allocated to operating divisions as follows: term funding costs are allocated or rewarded based on long-term funding gap or surplus; liquidity buffer funding costs are allocated based on share of overall liquidity buffer derived from divisional stresses; and capital cost or benefit is allocated based on share of divisional risk-adjusted RWAs.
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Business Services costs | |||||
| Property | 1,931 | 1,705 | 474 | 497 | 464 |
| Operations | 1,471 | 1,474 | 366 | 370 | 399 |
| Technology services and support functions | 1,828 | 1,795 | 510 | 389 | 464 |
| 5,230 | 4,974 | 1,350 | 1,256 | 1,327 | |
| Allocated to divisions: | |||||
| UK Retail | (1,579) | (1,639) | (401) | (381) | (438) |
| UK Corporate | (436) | (449) | (111) | (106) | (119) |
| Wealth | (121) | (123) | (31) | (29) | (33) |
| Global Banking & Markets | (532) | (472) | (121) | (134) | (126) |
| Global Transaction Services | (876) | (811) | (238) | (207) | (216) |
| Ulster Bank | (306) | (255) | (111) | (63) | (68) |
| US Retail & Commercial | (691) | (560) | (158) | (173) | (150) |
| RBS Insurance | (227) | (227) | (60) | (54) | (60) |
| Non-Core | (462) | (438) | (119) | (109) | (117) |
| - | - | - | - | - | |
| Group centre costs | 851 | 799 | 147 | 232 | 315 |
| Allocated to divisions: | |||||
| UK Retail | (194) | (212) | 14 | (66) | (99) |
| UK Corporate | (73) | (69) | (18) | (19) | (21) |
| Wealth | (39) | (39) | - | (13) | (17) |
| Global Banking & Markets | (233) | (191) | (59) | (57) | (76) |
| Global Transaction Services | (67) | (53) | (18) | (16) | (20) |
| Ulster Bank | (37) | (37) | (7) | (10) | (13) |
| US Retail & Commercial | (75) | (63) | (22) | (18) | (22) |
| RBS Insurance | (43) | (34) | (15) | (10) | (12) |
| Non-Core | (90) | (101) | (22) | (23) | (35) |
| - | - | - | - | - |
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2009 | 2008 | 2009 | 2009 | 2008 | ||
| £m | £m | £m | £m | £m | ||
| Treasury funding costs | 1,402 | 1,372 | 314 | 334 | 395 | |
| Allocated to divisions: | ||||||
| UK Retail | (192) | (182) | (48) | (66) | (40) | |
| UK Corporate | (257) | (213) | (46) | (47) | (64) | |
| Wealth | 96 | (86) | 29 | 28 | (19) | |
| Global Banking & Markets | 241 | (165) | 23 | 24 | (86) | |
| Global Transaction Services | 154 | 93 | 47 | 48 | 24 | |
| Ulster Bank | (49) | (76) | (23) | (23) | (21) | |
| US Retail & Commercial | (132) | (91) | (47) | (48) | (18) | |
| RBS Insurance | (42) | (25) | (12) | (12) | (4) | |
| Non-Core | (1,221) | (627) | (237) | (238) | (167) | |
| - | - | - | - | - |
| Year ended 31 December 2009 |
Year ended 31 December 2008 |
||||||
|---|---|---|---|---|---|---|---|
| Average | Average | ||||||
| Balance | Interest | Rate | Balance | Interest | Rate | ||
| £m | £m | % | £m | £m | % | ||
| Assets | |||||||
| Loans and advances to banks | 51,757 | 831 | 1.61 | 47,523 | 2,289 | 4.82 | |
| Loans and advances to | |||||||
| customers | 575,473 | 21,357 | 3.71 | 596,177 | 35,115 | 5.89 | |
| Debt securities | 125,806 | 4,202 | 3.34 | 94,393 | 4,793 | 5.08 | |
| Interest-earning assets – | |||||||
| banking business | 753,036 | 26,390 | 3.50 | 738,093 | 42,197 | 5.72 | |
| Trading business | 291,092 | 425,454 | |||||
| Non-interest earning assets | 815,468 | 660,628 | |||||
| Total assets | 1,859,596 | 1,824,175 | |||||
| Liabilities | |||||||
| Deposits by banks | 131,190 | 2,852 | 2.17 | 154,828 | 6,137 | 3.96 | |
| Customer accounts | 354,963 | 4,637 | 1.31 | 386,322 | 13,117 | 3.40 | |
| Debt securities in issue | 226,077 | 4,816 | 2.13 | 220,441 | 10,015 | 4.54 | |
| Subordinated liabilities | 35,348 | 1,310 | 3.71 | 34,867 | 1,782 | 5.11 | |
| Internal funding of trading | |||||||
| business | (75,129) | (508) | 0.68 | (103,754) | (4,174) | 4.02 | |
| Interest-bearing liabilities – | |||||||
| banking business | 672,449 | 13,107 | 1.95 | 692,704 | 26,877 | 3.88 | |
| Trading business | 331,380 | 466,610 | |||||
| Non-interest-bearing liabilities | |||||||
| - demand deposits | 36,489 | 34,021 | |||||
| - other liabilities | 761,975 | 572,296 | |||||
| Shareholders' equity | 57,303 | 58,544 | |||||
| Total liabilities and | |||||||
| shareholders' equity | 1,859,596 | 1,824,175 |
Notes:
(1) Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities.
(2) Interest-earning assets and interest-bearing liabilities exclude the Retail bancassurance long-term assets and liabilities, attributable to policyholders, in view of their distinct nature. As a result, interest income has been increased by £20 million (2008 - £84 million).
(3) Changes in the fair value of interest-bearing financial instruments designated as at fair value through profit or loss are recorded in other operating income in the consolidated income statement. In the average balance sheet shown above, interest includes increased interest income and interest expense related to these instruments of £46 million (2008 - £332 million) and £350 million (2008 - £860 million) respectively and the average balances have been adjusted accordingly.
| Year ended | ||
|---|---|---|
| 31 December | 31 December | |
| 2009 | 2008 | |
| % | % | |
| Average yields, spreads and margins of the banking business | ||
| Gross yield on interest-earning assets of banking business | 3.50 | 5.72 |
| Cost of interest-bearing liabilities of banking business | (1.95) | (3.88) |
| Interest spread of banking business | 1.55 | 1.84 |
| Benefit from interest-free funds | 0.21 | 0.24 |
| Net interest margin of banking business | 1.76 | 2.08 |
| Average interest rates | ||
| The Group's base rate | 0.64 | 4.67 |
| London inter-bank three month offered rates | ||
| - Sterling | 1.21 | 5.51 |
| - Eurodollar | 0.69 | 2.92 |
| - Euro | 1.21 | 4.63 |
| 31 December | 30 September | 31 December | |
|---|---|---|---|
| 2009 | 2009 | 2008 | |
| £m | £m | £m | |
| Assets | |||
| Cash and balances at central banks | 51,548 | 36,567 | 11,830 |
| Net loans and advances to banks | 48,777 | 60,274 | 70,728 |
| Reverse repurchase agreements and stock borrowing | 35,097 | 37,190 | 58,771 |
| Loans and advances to banks | 83,874 | 97,464 | 129,499 |
| Net loans and advances to customers | 554,654 | 587,996 | 691,976 |
| Reverse repurchase agreements and stock borrowing | 41,040 | 43,463 | 39,289 |
| Loans and advances to customers | 595,694 | 631,459 | 731,265 |
| Debt securities | 249,095 | 251,281 | 253,159 |
| Equity shares | 15,960 | 16,830 | 22,198 |
| Settlement balances | 12,024 | 28,634 | 17,812 |
| Derivatives | 438,199 | 552,466 | 991,495 |
| Intangible assets | 14,786 | 15,339 | 16,415 |
| Property, plant and equipment | 17,773 | 18,208 | 17,181 |
| Deferred taxation | 6,492 | 7,667 | 5,786 |
| Prepayments, accrued income and other assets | 18,604 | 19,664 | 21,573 |
| Assets of disposal groups | 18,432 | 4,737 | 480 |
| Total assets | 1,522,481 | 1,680,316 | 2,218,693 |
| Liabilities | |||
| Bank deposits | 115,642 | 138,584 | 178,943 |
| Repurchase agreements and stock lending | 38,006 | 39,816 | 83,666 |
| Deposits by banks | 153,648 | 178,400 | 262,609 |
| Customer deposits | 414,251 | 423,769 | 460,318 |
| Repurchase agreements and stock lending | 68,353 | 69,465 | 58,143 |
| Customer accounts | 482,604 | 493,234 | 518,461 |
| Debt securities in issue | 246,329 | 266,213 | 269,458 |
| Settlement balances and short positions | 50,875 | 71,891 | 54,264 |
| Derivatives | 421,534 | 537,522 | 969,409 |
| Accruals, deferred income and other liabilities | 24,624 | 20,754 | 24,140 |
| Retirement benefit liabilities | 2,715 | 1,410 | 1,564 |
| Deferred taxation | 2,161 | 3,275 | 3,177 |
| Insurance liabilities | 7,633 | 7,480 | 7,480 |
| Subordinated liabilities | 31,538 | 33,085 | 43,678 |
| Liabilities of disposal groups | 18,857 | 8,201 | 138 |
| Total liabilities | 1,442,518 | 1,621,465 | 2,154,378 |
| Equity | |||
| Minority interests | 2,227 | 2,185 | 5,436 |
| Owners' equity* | 77,736 | 56,666 | 58,879 |
| Total equity | 79,963 | 58,851 | 64,315 |
| Total liabilities and equity | 1,522,481 | 1,680,316 | 2,218,693 |
| * Owners' equity attributable to: | |||
| Ordinary and B shareholders | 69,890 | 48,820 | 45,525 |
| Other equity owners | 7,846 | 7,846 | 13,354 |
| 77,736 | 56,666 | 58,879 |
Total assets of £1,522.5 billion at 31 December 2009 were down £696.2 billion, 31%, compared with 31 December 2008, principally reflecting substantial repayments of customer loans and advances, as corporate customer demand fell and corporates looked to deleverage their balance sheets. Lending to banks also fell in line with significantly reduced wholesale funding activity. There were also significant falls in the value of derivative assets, with a corresponding reduction in derivative liabilities.
Cash and balances at central banks were up £39.7 billion to £51.5 billion due to the placing of shortterm cash surpluses, including the proceeds from the issue of B shares in December, with central banks.
Loans and advances to banks decreased by £45.6 billion, 35%, to £83.9 billion with reverse repurchase agreements and stock borrowing ('reverse repos') down by £23.7 billion, 40% to £35.1 billion and lower bank placings, down £22.0 billion, 31%, to £48.8 billion, largely as a result of reduced wholesale funding activity in Global Banking & Markets.
Loans and advances to customers were down £135.6 billion, 19%, at £595.7 billion. Within this, reverse repos increased by 4%, £1.8 billion to £41.0 billion. Excluding reverse repos, lending decreased by £137.3 billion to £554.7 billion or by £131.6 billion, 19%, before impairment provisions. This reflected reductions in Global Banking & Markets of £71.4 billion, and planned reductions in Non-Core of £30.1 billion, including a £3.2 billion transfer to disposal groups in respect of RBS Sempra Commodities and the Asian and Latin American businesses. There were also reductions in US Retail & Commercial, £7.4 billion; UK Corporate & Commercial, £5.4 billion; Ulster Bank, £1.8 billion; and the effect of exchange rate movements, £22.8 billion, following the strengthening of sterling during the year, partially offset by growth in UK Retail of £9.2 billion, and in Wealth of £1.4 billion.
Debt securities decreased by £4.1 billion, 2%, to £249.1 billion and equity shares decreased by £6.2 billion, 28%, to £16.0 billion, principally due to the sale of the Bank of China investment and lower holdings in Global Banking & Markets and Non-Core, largely offset by growth in Group Treasury, in part reflecting an £18.0 billion increase in the gilt liquidity portfolio.
Settlement balances were down £5.8 billion, 32%, at £12.0 billion as a result of lower customer activity.
Movements in the value of derivative assets, down £553.3 billion, 56%, to £438.2 billion, and liabilities, down £547.9 billion, 57%, to £421.5 billion, reflect the easing of market volatility, the strengthening of sterling and significant tightening in credit spreads in the continuing low interest rate environment.
Increases in assets and liabilities of disposal groups reflect the inclusion of the RBS Sempra Commodities business and the planned sale of a number of the Group's retail and commercial activities in Asia and Latin America.
Deposits by banks declined by £109.0 billion, 41%, to £153.6 billion, due to a decrease in repurchase agreements and stock lending ('repos'), down £45.7 billion, 55%, to £38.0 billion and reduced interbank deposits, down £63.3 billion, 35%, to £115.6 billion, principally in Global Banking & Markets reflecting reduced reliance on wholesale funding.
Customer accounts were down £35.9 billion, 7%, to £482.6 billion. Within this, repos increased £10.2 billion, 18%, to £68.4 billion. Excluding repos, deposits were down £46.1 billion, 10%, to £414.3 billion, primarily due to reductions in Global Banking & Markets, down £43.6 billion; Non-Core, £13.0 billion, including the transfer of £8.9 billion to disposal groups; and Ulster Bank, £1.2 billion; together with exchange rate movements, £11.3 billion, offset in part by growth across all other divisions, up £23.0 billion.
Debt securities in issue were down £23.1 billion, 9% to £246.3 billion, mainly as a result of movements in exchange rates together with reductions in Global Banking & Markets and Non-Core.
Retirement benefit liabilities increased by £1.2 billion, 74%, to £2.7 billion, with net actuarial losses of £3.8 billion, arising from lower discount rates and higher assumed inflation, partially offset by curtailment gains of £2.1 billion due to changes in prospective pension benefits.
Subordinated liabilities were down £12.1 billion, 28% to £31.5 billion, reflecting the redemption of £5.0 billion undated loan capital, £1.5 billion trust preferred securities and £2.7 billion dated loan capital, together with the effect of exchange rate movements and other adjustments, £2.9 billion.
Equity minority interests decreased by £3.2 billion, 59%, to £2.2 billion. Equity withdrawals of £3.1 billion, due to the disposal of the investment in the Bank of China attributable to minority shareholders and the redemption, in part, of certain trust preferred securities, the recycling of related available-forsale reserves to income, £0.4 billion, and dividends paid of £0.3 billion, were partially offset by attributable profits of £0.6 billion.
Owners' equity increased by £18.9 billion, 32% to £77.7 billion. The issue of B shares to HM Treasury in December 2009 raised £25.1 billion, net of expenses, and was offset in part by the creation of a £1.2 billion reserve in respect of contingent capital B shares. The placing and open offer in April 2009 raised £5.3 billion to fund the redemption of the £5.0 billion preference shares issued to HM Treasury in December 2008. Actuarial losses, net of tax, of £2.7 billion, the attributable loss for the period, £2.7 billion, exchange rate movements of £1.9 billion, the payment of other owners' dividends of £0.9 billion including £0.3 billion to HM Treasury on the redemption of preference shares, and partial redemption of paid-in equity, £0.3 billion, were partly offset by increases in available-for-sale reserves, £1.8 billion, cash flow hedging reserves, £0.6 billion, and the equity owners gain on withdrawal of minority interests, net of tax, of £0.5 billion arising from the redemption of trust preferred securities.
| 31 December 2009 |
30 September 2009 |
31 December 2008 |
|
|---|---|---|---|
| £m | £m | £m | |
| Called-up share capital | |||
| At beginning of period | 9,898 | 9,898 | 2,530 |
| Ordinary shares issued in respect of placing and open offers | 4,227 | 4,227 | 5,728 |
| Ordinary shares issued in respect of rights issue | - | - | 1,531 |
| Ordinary shares issued in respect of capitalisation issue | - | - | 101 |
| B shares issued | 510 | - | - |
| Preference shares issued in respect of placing and open offer Other shares issued during the period |
- - |
- - |
5 3 |
| Preference shares redeemed during the period | (5) | (5) | - |
| At end of period | 14,630 | 14,120 | 9,898 |
| Paid-in equity | |||
| At beginning of period | 1,073 | 1,073 | 1,073 |
| Securities redeemed during the period | (308) | (308) | - |
| Transfer to retained earnings | (200) | (200) | - |
| At end of period | 565 | 565 | 1,073 |
| Share premium account | |||
| At beginning of period | 27,471 | 27,471 | 17,322 |
| Ordinary shares issued in respect of placing and open offer, | |||
| net of £95 million expenses | 1,047 | 1,047 | - |
| Ordinary shares issued in respect of rights issue, net of £246 million expenses |
- | - | 10,469 |
| Ordinary shares issued in respect of capitalisation issue | - | - | (101) |
| Expenses of placing and open offer | - | - | (265) |
| Other shares issued during the year | - | - | 46 |
| Preference shares redeemed during the period | (4,995) | (4,995) | - |
| At end of period | 23,523 | 23,523 | 27,471 |
| Merger reserve | |||
| At beginning of period | 10,881 | 10,881 | 10,881 |
| Issue of B shares, net of £399 million expenses | 24,591 | - | - |
| Placing and open offer | - | - | 14,273 |
| Transfer to retained earnings | (9,950) | - | (14,273) |
| At end of period | 25,522 | 10,881 | 10,881 |
| Available-for-sale reserves | |||
| At beginning of period | (3,561) | (3,561) | 1,032 |
| Unrealised gains/(losses) in the period | 1,202 | 698 | (6,808) |
| Realised losses in the period | 981 | 866 | 842 |
| Taxation | (377) | (202) | 1,373 |
| At end of period | (1,755) | (2,199) | (3,561) |
| Cash flow hedging reserve | |||
| At beginning of period | (876) | (876) | (555) |
| Amount recognised in equity during the period | 380 | 437 | (603) |
| Amount transferred from equity to earnings in the period | 513 | 239 | 198 |
| Taxation | (269) | (189) | 84 |
| At end of period | (252) | (389) | (876) |
for the year ended 31 December 2009 – pro forma (continued)
| 31 December | 30 September | 31 December | |
|---|---|---|---|
| 2009 | 2009 | 2008 | |
| £m | £m | £m | |
| Foreign exchange reserve | |||
| At beginning of period | 6,385 | 6,385 | (426) |
| Retranslation of net assets | (2,322) | (2,041) | 11,970 |
| Foreign currency gains/(losses) on hedges of net assets | 456 | 387 | (5,801) |
| Taxation | 9 | (47) | 642 |
| At end of period | 4,528 | 4,684 | 6,385 |
| Capital redemption reserve | |||
| At beginning and end of period | 170 | 170 | 170 |
| Contingent capital reserve | |||
| At beginning of period | - | - | - |
| Contingent capital agreement - consideration payable | (1,208) | - | - |
| At end of period | (1,208) | - | - |
| Retained earnings | |||
| At beginning of period | 7,542 | 7,542 | 21,072 |
| Loss attributable to ordinary and B shareholders and other equity owners | (2,672) | (2,051) | (23,710) |
| Ordinary dividends paid | - | - | (2,312) |
| Equity preference dividends paid | (878) | (752) | (536) |
| Paid-in equity dividends paid, net of tax | (57) | (39) | (60) |
| Transfer from paid-in equity | 200 | 200 | - |
| Equity owners gain on withdrawal of minority interest | |||
| - gross | 629 | 629 | - |
| - taxation | (176) | (176) | - |
| Transfer from merger reserve | 9,950 | - | 14,273 |
| Actuarial losses recognised in retirement benefit schemes | |||
| - gross | (3,756) | - | (1,807) |
| - taxation | 1,043 | - | 472 |
| Net cost of shares bought and used to satisfy share-based payments | (16) | (15) | (19) |
| Share-based payments | |||
| - gross | 325 | 95 | 177 |
| - taxation | - | - | (8) |
| At end of period | 12,134 | 5,433 | 7,542 |
| Own shares held | |||
| At beginning of period | (104) | (104) | (61) |
| Shares purchased during the period | (33) | (33) | (64) |
| Shares issued under employee share schemes | 16 | 15 | 21 |
| At end of period | (121) | (122) | (104) |
| Owners' equity at end of period | 77,736 | 56,666 | 58,879 |
for the year ended 31 December 2009 – pro forma (continued)
| 31 December | 30 September | 31 December | |
|---|---|---|---|
| 2009 | 2009 | 2008 | |
| £m | £m | £m | |
| Minority interests | |||
| At beginning of period | 5,436 | 5,436 | 5,391 |
| Currency translation adjustments and other movements | (152) | (134) | 1,158 |
| Profit attributable to minority interests | 648 | 601 | 412 |
| Dividends paid | (313) | (326) | (285) |
| Movements in available-for-sale securities | |||
| - unrealised gains/(losses) in the period | 23 | 23 | (1,304) |
| - realised gains in the period | (359) | (359) | - |
| - taxation | - | - | 1 |
| Equity raised | 9 | 9 | 1,071 |
| Equity withdrawn and disposals | (2,436) | (2,436) | (1,008) |
| Transfer to retained earnings | (629) | (629) | - |
| At end of period | 2,227 | 2,185 | 5,436 |
| Total equity at end of period | 79,963 | 58,851 | 64,315 |
| Total comprehensive income recognised in the statement of changes in equity is attributable as follows: |
|||
| Minority interests | 160 | 131 | 267 |
| Preference shareholders | 878 | 752 | 536 |
| Paid-in equity holders | 57 | 39 | 60 |
| Ordinary and B shareholders | (5,747) | (2,694) | (23,744) |
| (4,652) | (1,772) | (22,881) |
The pro forma financial information shows the underlying performance of the Group including the results of the ABN AMRO businesses to be retained by the Group. This information is prepared using the Group's accounting policies and is being provided to give a better understanding of the results of the RBS operations excluding the results attributable to the other Consortium Members.
Group operating profit on a pro forma basis excludes:
Operating loss is stated after charging loan impairment losses of £13,090 million (9 months ended 30 September 2009 - £10,058 million; year ended 31 December 2008 - £6,478 million). The balance sheet loan impairment provisions increased in the year ended 31 December 2009 from £9,451 million to £15,173 million, and the movements thereon were:
| 31 December 2009 | 31 December 2008 £m |
||||
|---|---|---|---|---|---|
| Core £m |
Non-Core £m |
Total £m |
30 September 2009 £m |
||
| At beginning of period | 4,269 | 5,182 | 9,451 | 9,451 | 4,972 |
| Transfers to disposal groups | (16) | (305) | (321) | (312) | - |
| Currency translation and other adjustments | 423 | (851) | (428) | (428) | 1,007 |
| Disposals | (62) | (3) | (65) | - | (178) |
| Amounts written-off | (2,286) | (4,192) | (6,478) | (3,622) | (2,897) |
| Recoveries of amounts previously written-off | 189 | 136 | 325 | 254 | 261 |
| Charge to income statement | 4,567 | 8,523 | 13,090 | 10,058 | 6,478 |
| Unwind of discount | (163) | (238) | (401) | (277) | (192) |
| 6,921 | 8,252 | 15,173 | 15,124 | 9,451 |
Provisions at 31 December 2009 include £157 million (30 September 2009 - £151 million; 31 December 2008 - £127 million) in respect of loans and advances to banks. The charge to the income statement in the table above excludes £809 million (9 months ended 30 September 2009 - £742 million; year ended 31 December 2008 - £954 million) relating to available-for-sale financial assets (See Note 3).
Available-for-sale financial assets are initially recognised at fair value plus directly related transaction costs and subsequently measured at fair value with changes in fair value reported in shareholders' equity until disposal, at which stage the cumulative gain or loss is recognised in profit or loss. When there is objective evidence that an available-for-sale financial asset is impaired, any decline in its fair value below original cost is removed from equity and recognised in profit or loss.
Impairment losses are recognised when there is objective evidence of impairment. The Group reviews its portfolios of available-for-sale financial assets for such evidence which includes: default or delinquency in interest or principal payments; significant financial difficulty of the issuer or obligor; and it becoming probable that the issuer will enter bankruptcy or other financial reorganisation. However, the disappearance of an active market because an entity's financial instruments are no longer publicly traded is not evidence of impairment. Furthermore, a downgrade of an entity's credit rating is not, of itself, evidence of impairment, although it may be evidence of impairment when considered with other available information. A decline in the fair value of a financial asset below its cost or amortised cost is not necessarily evidence of impairment. Determining whether objective evidence of impairment exists requires the exercise of management judgment. The unrecognised losses on the Group's available for sale debt securities are concentrated in its portfolios of mortgage-backed securities. The losses reflect the widening of credit spreads as a result of the reduced market liquidity in these securities and the current uncertain macro-economic outlook in US and Europe. The underlying securities remain unimpaired.
During 2009 impairment losses of £809 million (2008 - £954 million) were charged to profit or loss and net unrealised gains of £1,202 million (2008 - £6,808 million loss) were recognised directly in equity on available-for-sale financial assets. Available-for-sale reserves at 31 December 2009 amounted to net losses of £1,755 million (2008 - net losses £3,561 million), and the movements were as follows:
| 31 December | 30 September | 31 December | ||
|---|---|---|---|---|
| 2009 | 2009 | 2008 | ||
| Available-for-sale reserves | £m | £m | £m | |
| At beginning of period | (3,561) | (3,561) | 1,032 | |
| Unrealised gains/(losses) in the period | 1,202 | 698 | (6,808) | |
| Realised losses in the period | 981 | 866 | 842 | |
| Taxation | (377) | (202) | 1,373 | |
| At end of period | (1,755) | (2,199) | (3,561) |
The above excludes movements attributable to minority interest of £336 million (9 months ended 30 September 2009 - £336 million; year ended 31 December 2008 - £1,304 million).
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2009 | 2008 | 2009 | 2009 | 2008 | ||
| £m | £m | £m | £m | £m | ||
| Gain on sale of investments in: | ||||||
| - Bank of China (1) | 236 | - | - | (5) | - | |
| - Linea Directa | 214 | - | 2 | - | - | |
| - Tesco Personal Finance | - | 442 | - | - | 442 | |
| Provision for loss on disposal of: | ||||||
| - Asian branches and businesses | (159) | - | (9) | (150) | - | |
| - Latin American business | (159) | - | (159) | - | - | |
| 132 | 442 | (166) | (155) | 442 |
Note:
(1) Including £359 million attributable to minority interests.
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2009 | 2008 | 2009 | 2009 | 2008 | ||
| £m | £m | £m | £m | £m | ||
| Write-down of goodwill and other intangible | ||||||
| assets | 363 | 16,911 | 52 | - | 16,911 | |
| Less: tax | - | (715) | - | - | (715) | |
| 363 | 16,196 | 52 | - | 16,196 |
The write-down of goodwill for the year ended 31 December 2009 principally relates to ABN AMRO and NatWest goodwill allocated to Non-Core businesses.
Pension costs, excluding curtailment gains, for the year ended 31 December 2009 amounted to £653 million (year ended 31 December 2008 - £536 million; quarter ended 31 December 2009 - £110 million; quarter ended 30 September 2009 - £204 million; quarter ended 31 December 2008 - £94 million). Defined benefit schemes charges are based on the actuarially determined pension cost rates at 31 December 2008. At 31 December 2009, increased benefit obligations reflecting lower discount rates and higher assumed inflation, have been partially offset by increased asset values. This has resulted in net actuarial losses of £3,756 million at 31 December 2009 (30 September 2009 - nil; 31 December 2008 - £1,807 million).
The most recent funding valuation of the main UK scheme, as at 31 March 2007, showed a surplus of assets over liabilities of £0.7 billion. The next valuation is due as at 31 March 2010 and the Group expects this valuation to show that liabilities exceed the value of the assets. Following this valuation, the Group and scheme Trustees will agree the level of contributions to be paid to the scheme. This could result in the amount of contributions payable in 2010 and subsequent years being materially different from the current rates based on the previous valuation.
Curtailment gains of £2,148 million have been recognised in 2009 arising from changes to pension benefits in the main UK scheme and certain other subsidiary schemes due to the capping of future salary increases that will count for pension purposes to the lower of 2% or the rate of inflation in any year.
The credit for taxation differs from the tax credit computed by applying the standard UK corporation tax rate of 28% (2008 – 28.5%) as follows:
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| (Loss)/profit before tax | (1,928) | (8,296) | 134 | (2,077) | (9,473) |
| Expected tax (credit)/charge at 28% | |||||
| (2008 – 28.5%) | (540) | (2,364) | 38 | (582) | (2,700) |
| Unrecognised timing differences | (274) | 274 | (67) | (223) | 186 |
| Other non-deductible items | 508 | 371 | 400 | 35 | 169 |
| Non-taxable items: | |||||
| - Gain on redemption of own debt | (693) | - | - | - | - |
| - Other | (410) | (491) | (208) | (27) | (232) |
| Taxable foreign exchange movements | (1) | 80 | 13 | 9 | 64 |
| Foreign profits taxed at other rates | 332 | 271 | 159 | 126 | 206 |
| Losses in year not recognised | 715 | 942 | 448 | 83 | 907 |
| Losses brought forward and utilised | (94) | (11) | (65) | (6) | (11) |
| Adjustments in respect of prior periods | 118 | (352) | (69) | 9 | (290) |
| Actual tax (credit)/charge | (339) | (1,280) | 649 | (576) | (1,701) |
The Group has recognised a deferred tax asset at 31 December 2009 of £6,492 million (30 September 2009 - £7,667 million; 31 December 2008 - £5,786 million), of which £4,803 million (30 September 2009 - £6,032 million; 31 December 2008 - £4,706 million) relates to carried forward trading losses in the UK. Under UK tax legislation, these UK losses can be carried forward indefinitely to be utilised against profits arising in the future. The Group has considered the carrying value of this asset as at 31 December 2009 and concluded that it is recoverable based on base case future profit projections.
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Trust preferred securities | 39 | 65 | (8) | 2 | 5 |
| Investment in Bank of China | 359 | 78 | - | - | 5 |
| Sempra | 234 | 164 | 55 | 35 | 96 |
| ABN AMRO | 4 | 91 | - | 2 | 113 |
| Other | 12 | 14 | - | 8 | 2 |
| Profit attributable to minority interests | 648 | 412 | 47 | 47 | 221 |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Preference shareholders | |||||
| Non-cumulative preference shares of US\$0.01 | 342 | 293 | 63 | 100 | 72 |
| Non-cumulative preference shares of €0.01 | 201 | 183 | 63 | 81 | 59 |
| Non-cumulative preference shares of £1: | |||||
| - issued to UK Financial Investments Limited (1) | 274 | - | - | - | - |
| - other | 61 | 60 | - | 61 | - |
| Paid-in equity holders | |||||
| Interest on securities classified as equity, net | |||||
| of tax | 57 | 60 | 18 | 3 | 31 |
| 935 | 596 | 144 | 245 | 162 |
Note:
(1) Includes £50 million redemption premium on repayment of preference shares.
Earnings per ordinary and B share have been calculated based on the following:
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2009 | 2008 | 2009 | 2009 | 2008 | ||
| £m | £m | £m | £m | £m | ||
| Earnings | ||||||
| Loss from continuing operations attributable | ||||||
| to ordinary and B shareholders | (3,535) | (24,220) | (758) | (1,793) | (24,351) | |
| Gain on redemption of paid-in equity | 200 | - | - | - | - | |
| Adjusted loss from continuing operations | ||||||
| attributable to ordinary and B shareholders | (3,335) | (24,220) | (758) | (1,793) | (24,351) | |
| (Loss)/profit from discontinued operations | ||||||
| attributable to ordinary and B shareholders | (72) | (86) | (7) | (7) | 1 | |
| Ordinary shares in issue during the period | 51,494 | 16,563 | 56,227 | 56,230 | 24,241 | |
| B shares in issue during the period | 1,397 | - | 5,543 | - | - | |
| Weighted average number of ordinary | ||||||
| and B shares in issue during the | ||||||
| period (millions) | 52,891 | 16,563 | 61,770 | 56,230 | 24,241 | |
| Basic loss per ordinary and B share from | ||||||
| continuing operations | (6.3p) | (146.2p) | (1.2p) | (3.2p) | (100.5p) | |
| Intangibles amortisation | 0.4p | 2.1p | 0.1p | 0.1p | 0.2p | |
| Write-down of goodwill and other intangible | ||||||
| assets | 0.7p | 97.8p | 0.1p | - | 66.8p | |
| Integration and restructuring costs Gain on redemption of own debt (1) |
1.6p (6.8p) |
5.9p - |
0.3p - |
0.4p - |
2.3p - |
|
| Strategic disposals | (0.2p) | (2.7p) | 0.3p | 0.3p | (1.8p) | |
| Gains on pensions curtailment | (3.0p) | - | (2.6p) | - | - | |
| Bonus tax | 0.4p | - | 0.3p | - | - | |
| Adjusted loss per ordinary and B share | ||||||
| from continuing operations | (13.2p) | (43.1p) | (2.7p) | (2.4p) | (33.0p) | |
| Loss from Non-Core divisions attributable to | ||||||
| ordinary and B shareholders | 24.9p | 63.0p | 4.9p | 3.1p | 27.9p | |
| Core adjusted earnings/(loss) per ordinary | ||||||
| and B share from continuing operations | 11.7p | 19.9p | 2.2p | 0.7p | (5.1p) | |
| Core impairment losses | 7.7p | 13.3p | 2.2p | 1.6p | 5.7p | |
| Pre-impairment Core adjusted earnings | ||||||
| per ordinary and B share | 19.4p | 33.2p | 4.4p | 2.3p | 0.6p | |
| Basic loss per ordinary and B share from | ||||||
| discontinued operations | (0.1p) | (0.5p) | - | - | - |
Note:
(1) Gain on redemption of own debt includes gains on redemption of instruments classified as equity which are included in basic earnings.
The tables below provide an analysis of the divisional profit/(loss) for the years ended 31 December 2009 and 2008 and the quarter ended 31 December 2009, by main income statement captions. The pro forma divisional income statements on pages 46 to 73 reflect certain presentational reallocations as described in the notes below. These do not affect the overall operating profit/(loss).
| Net | Non | Insurance | |||||
|---|---|---|---|---|---|---|---|
| interest | interest | Total | Operating | net | Impairment | Operating | |
| income | income | income | expenses | claims | losses | profit/(loss) | |
| £m | £m | £m | £m | £m | £m | £m | |
| Year ended 31 December 2009 | |||||||
| UK Retail (1) | 3,452 | 1,629 | 5,081 | (3,039) | (134) | (1,679) | 229 |
| UK Corporate | 2,292 | 1,290 | 3,582 | (1,530) | - | (927) | 1,125 |
| Wealth | 663 | 446 | 1,109 | (656) | - | (33) | 420 |
| Global Banking & Markets (2) | 2,375 | 8,634 | 11,009 | (4,660) | - | (640) | 5,709 |
| Global Transaction Services | 912 | 1,575 | 2,487 | (1,475) | - | (39) | 973 |
| Ulster Bank | 780 | 254 | 1,034 | (753) | - | (649) | (368) |
| US Retail & Commercial | 1,775 | 949 | 2,724 | (2,135) | - | (702) | (113) |
| RBS Insurance | 354 | 4,106 | 4,460 | (759) | (3,635) | (8) | 58 |
| Central items | (284) | 524 | 240 | 53 | - | (1) | 292 |
| Core | 12,319 | 19,407 | 31,726 | (14,954) | (3,769) | (4,678) | 8,325 |
| Non-Core (3) | 1,248 | (3,549) | (2,301) | (2,447) | (588) | (9,221) | (14,557) |
| Amortisation of purchased | |||||||
| intangible assets | - | - | - | (272) | - | - | (272) |
| Write-down of goodwill | - | - | - | (363) | - | - | (363) |
| Integration and restructuring costs | - | - | - | (1,286) | - | - | (1,286) |
| Gain on redemption of own debt | - | 3,790 | 3,790 | - | - | - | 3,790 |
| Strategic disposals | - | 132 | 132 | - | - | - | 132 |
| Gains on pensions curtailment | - | - | - | 2,148 | - | - | 2,148 |
| Bonus tax | - | - | - | (208) | - | - | (208) |
| 13,567 | 19,780 | 33,347 | (17,382) | (4,357) | (13,899) | (2,291) | |
| (500) | (1,051) | (304) | |||||
| RFS Holdings minority interest | 2,937 | 2,406 | 5,343 | (4,096) |
Notes:
(1) Reallocation of netting of bancassurance claims of £134 million from non-interest income.
(2) Reallocation of £49 million between net interest income and non-interest income in respect of funding costs of rental assets, and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £181 million.
(3) Reallocation of £256 million between net interest income and non-interest income in respect of funding costs of rental assets and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £30 million.
| Net | Non | Insurance | |||||
|---|---|---|---|---|---|---|---|
| interest | interest | Total | Operating | net | Impairment | Operating | |
| income | income | income | expenses | claims | losses | profit/(loss) | |
| £m | £m | £m | £m | £m | £m | £m | |
| Year ended 31 December 2008 | |||||||
| UK Retail (1) | 3,187 | 1,935 | 5,122 | (3,196) | (184) | (1,019) | 723 |
| UK Corporate | 2,448 | 1,289 | 3,737 | (1,637) | - | (319) | 1,781 |
| Wealth | 578 | 481 | 1,059 | (695) | - | (16) | 348 |
| Global Banking & Markets (2) | 2,326 | 388 | 2,714 | (3,988) | - | (522) | (1,796) |
| Global Transaction Services | 937 | 1,494 | 2,431 | (1,375) | - | (54) | 1,002 |
| Ulster Bank (3) | 708 | 331 | 1,039 | (715) | - | (106) | 218 |
| US Retail & Commercial | 1,726 | 861 | 2,587 | (1,622) | - | (437) | 528 |
| RBS Insurance | 496 | 3,934 | 4,430 | (772) | (3,032) | (42) | 584 |
| Central items | 1,710 | (1,198) | 512 | 495 | (1) | 19 | 1,025 |
| Core | 14,116 | 9,515 | 23,631 | (13,505) | (3,217) | (2,496) | 4,413 |
| Non-Core (4) | 1,648 | (4,680) | (3,032) | (2,683) | (700) | (4,936) | (11,351) |
| Amortisation of purchased | |||||||
| intangible assets | - | - | - | (443) | - | - | (443) |
| Write-down of goodwill and other | |||||||
| intangible assets | - | - | - | (32,581) | - | - | (32,581) |
| Integration and restructuring costs | - | - | - | (1,357) | - | - | (1,357) |
| Strategic disposals | - | 442 | 442 | - | - | - | 442 |
| 15,764 | 5,277 | 21,041 | (50,569) | (3,917) | (7,432) | (40,877) | |
| RFS Holdings minority interest | 2,911 | 1,916 | 4,827 | (3,633) | (513) | (640) | 41 |
| Total statutory | 18,675 | 7,193 | 25,868 | (54,202) | (4,430) | (8,072) | (40,836) |
Notes:
(1) Reallocation of netting of bancassurance claims of £184 million from non-interest income.
(2) Reallocation of £64 million between net interest income and non-interest income in respect of funding costs of rental assets, and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £50 million.
(3) Reallocation of £65 million between net interest income and non-interest income in respect of interest on financial assets and liabilities designated as at fair value through profit or loss.
(4) Reallocation of £380 million between net interest income and non-interest income in respect of funding costs of rental assets and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £128 million.
| Net interest income |
Non interest income |
Total income |
Operating expenses |
Insurance net claims |
Impairment losses |
Operating profit/(loss) |
|
|---|---|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | £m | £m | |
| Quarter ended 31 December 2009 | |||||||
| UK Retail (1) | 939 | 360 | 1,299 | (703) | (17) | (451) | 128 |
| UK Corporate | 626 | 322 | 948 | (418) | - | (190) | 340 |
| Wealth | 161 | 113 | 274 | (175) | - | (10) | 89 |
| Global Banking & Markets (2) | 406 | 1,663 | 2,069 | (1,068) | - | (130) | 871 |
| Global Transaction Services | 233 | 404 | 637 | (409) | - | (4) | 224 |
| Ulster Bank | 194 | 91 | 285 | (212) | - | (348) | (275) |
| US Retail & Commercial | 423 | 221 | 644 | (510) | - | (153) | (19) |
| RBS Insurance | 86 | 1,090 | 1,176 | (190) | (1,156) | - | (170) |
| Central items | (133) | 233 | 100 | (103) | - | (2) | (5) |
| Core | 2,935 | 4,497 | 7,432 | (3,788) | (1,173) | (1,288) | 1,183 |
| Non-Core (3) | 511 | (403) | 108 | (685) | (148) | (1,811) | (2,536) |
| Amortisation of purchased | |||||||
| intangible assets | - | - | - | (59) | - | - | (59) |
| Write-down of goodwill | - | - | - | (52) | - | - | (52) |
| Integration and restructuring costs | - | - | - | (228) | - | - | (228) |
| Strategic disposals | - | (166) | (166) | - | - | - | (166) |
| Gains on pensions curtailment | - | - | - | 2,148 | - | - | 2,148 |
| Bonus tax | - | - | - | (208) | - | - | (208) |
| 3,446 | 3,928 | 7,374 | (2,872) | (1,321) | (3,099) | 82 | |
| RFS Holdings minority interest | 821 | 574 | 1,395 | (1,163) | (193) | (303) | (264) |
| Total statutory | 4,267 | 4,502 | 8,769 | (4,035) | (1,514) | (3,402) | (182) |
(1) Reallocation of netting of bancassurance claims of £17 million from non-interest income.
(2) Reallocation of £10 million between net interest income and non-interest income in respect of funding costs of rental assets, and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £92 million.
(3) Reallocation of £64 million between net interest income and non-interest income in respect of funding costs of rental assets and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £3 million.
The following tables analyse the Group's financial assets and liabilities in accordance with the categories of financial instruments in IAS 39 'Financial Instruments: Recognition and Measurement'. Assets and liabilities outside the scope of IAS 39 are shown separately.
| Other | ||||||||
|---|---|---|---|---|---|---|---|---|
| Designated | financial | |||||||
| at fair value | instruments | Other | ||||||
| Held-for | through | Available | Loans and | (amortised | Finance | assets/ | ||
| trading | profit or loss | for-sale | receivables | cost) | leases | liabilities | Total | |
| 2009 | £m | £m | £m | £m | £m | £m | £m | £m |
| Cash and balances at | ||||||||
| central banks | - | - | - | 51,548 | - | - | - | 51,548 |
| Loans and advances to | ||||||||
| banks | 45,449 | - | - | 38,425 | - | - | - | 83,874 |
| Loans and advances to | ||||||||
| customers | 41,684 | 1,981 | - | 538,669 | - | 13,360 | - | 595,694 |
| Debt securities | 111,413 | 2,429 | 125,382 | 9,871 | - | - | - | 249,095 |
| Equity shares | 11,318 | 2,083 | 2,559 | - | - | - | - | 15,960 |
| Settlement balances | - | - | - | 12,024 | - | - | - | 12,024 |
| Derivatives (1) | 438,199 | - | - | - | - | - | 438,199 | |
| Intangible assets | - | - | - | - | - | - | 14,786 | 14,786 |
| Property, plant and | ||||||||
| equipment | - | - | - | - | - | - | 17,773 | 17,773 |
| Deferred taxation | - | - | - | - | - | - | 6,492 | 6,492 |
| Prepayments, accrued | ||||||||
| income and other assets | - | - | - | 1,421 | - | - | 17,183 | 18,604 |
| Assets of disposal groups | - | - | - | - | - | - | 18,432 | 18,432 |
| Total assets | 648,063 | 6,493 | 127,941 | 651,958 | - | 13,360 | 74,666 1,522,481 | |
| Deposits by banks | 53,609 | - | - | - | 100,039 | - | - | 153,648 |
| Customer accounts | 52,737 | 5,256 | - | - | 424,611 | - | - | 482,604 |
| Debt securities in issue | 3,925 | 41,444 | - | - | 246,329 | |||
| 200,960 | - | - | ||||||
| Settlement balances and | ||||||||
| short positions | 40,463 | - | - | - | 10,412 | - | - | 50,875 |
| Derivatives (1) | 421,534 | - | - | - | - | - | - | 421,534 |
| Accruals, deferred income | ||||||||
| and other liabilities | - | - | - | - | 1,888 | 467 | 22,269 | 24,624 |
| Retirement benefit | - | - | - | - | - | - | 2,715 | 2,715 |
| liabilities | ||||||||
| Deferred taxation | - | - | - | - | - | - | 2,161 | 2,161 |
| Insurance liabilities | - | - | - | - | - | - | 7,633 | 7,633 |
| Subordinated liabilities | - | 1,277 | - | - | 30,261 | - | - | 31,538 |
| Liabilities of disposal | ||||||||
| groups | - | - | - | - | - | - | 18,857 | 18,857 |
| Total liabilities | 572,268 | 47,977 | - | - | 768,171 | 467 | 53,635 1,442,518 | |
| Equity | 79,963 |
Note: (1) Held-for-trading derivatives include hedging derivatives.
| Designated | Other financial |
|||||||
|---|---|---|---|---|---|---|---|---|
| at fair value | instruments | Other | ||||||
| Held-for | through | Available | Loans and | (amortised | Finance | assets/ | ||
| trading | profit or loss | for-sale | receivables | cost) | leases | liabilities | Total | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
| 2008 | ||||||||
| Cash and balances at | ||||||||
| central banks | - | - | - | 11,830 | - | - | - | 11,830 |
| Loans and advances to | ||||||||
| banks | 56,234 | - | - | 73,265 | - | - | - | 129,499 |
| Loans and advances to | ||||||||
| customers | 51,501 | 2,141 | - | 663,170 | - | 14,453 | - | 731,265 |
| Debt securities | 116,159 | 5,294 | 118,722 | 12,984 | - | - | - | 253,159 |
| Equity shares | 13,314 | 2,075 | 6,809 | - | - | - | - | 22,198 |
| Settlement balances | - | - | - | 17,812 | - | - | - | 17,812 |
| Derivatives (1) | 991,495 | - | - | - | - | - | - | 991,495 |
| Intangible assets | - | - | - | - | - | - | 16,415 | 16,415 |
| Property, plant and | ||||||||
| equipment | - | - | - | - | - | - | 17,181 | 17,181 |
| Deferred taxation | - | - | - | - | - | - | 5,786 | 5,786 |
| Prepayments, accrued | ||||||||
| income and other assets | - | - | - | 1,326 | - | - | 20,247 | 21,573 |
| Assets of disposal groups | - | - | - | - | - | - | 480 | 480 |
| Total assets | 1,228,703 | 9,510 | 125,531 | 780,387 | - | 14,453 | 60,109 | 2,218,693 |
| Deposits by banks | 81,154 | - | - | - | 181,455 | - | - | 262,609 |
| Customer accounts | 55,926 | 4,349 | - | - | 458,186 | - | - | 518,461 |
| Debt securities in issue | 3,992 | 46,022 | - | - | 219,444 | - | - | 269,458 |
| Settlement balances and | ||||||||
| short positions | 42,536 | - | - | - | 11,728 | - | - | 54,264 |
| Derivatives (1) | 969,409 | - | - | - | - | - | - | 969,409 |
| Accruals, deferred income | ||||||||
| and other liabilities | 260 | - | - | - | 1,619 | 22 | 22,239 | 24,140 |
| Retirement benefit liabilities | - | - | - | - | - | - | 1,564 | 1,564 |
| Deferred taxation | - | - | - | - | - | - | 3,177 | 3,177 |
| Insurance liabilities | - | - | - | - | - | - | 7,480 | 7,480 |
| Subordinated liabilities | - | 1,410 | - | - | 42,268 | - | - | 43,678 |
| Liabilities of disposal | ||||||||
| groups | - | - | - | - | - | - | 138 | 138 |
| Total liabilities | 1,153,277 | 51,781 | - | - | 914,700 | 22 | 34,598 | 2,154,378 |
| Equity | 64,315 | |||||||
| 2,218,693 |
Note:
(1) Held-for-trading derivatives include hedging derivatives.
Certain aspects relating to the valuation of financial instruments carried at fair value are discussed below.
When valuing financial instruments in the trading book, adjustments are made to mid-market valuations to cover bid-offer spread, liquidity, credit risk and future administrative costs.
Valuation reserves and adjustments comprise:
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| Credit valuation adjustments: | ||
| Monoline insurers | 3,796 | 5,988 |
| CDPCs | 499 | 1,311 |
| Other counterparties | 1,588 | 1,738 |
| 5,883 | 9,037 | |
| Bid-offer and liquidity reserves | 2,814 | 3,260 |
| 8,697 | 12,297 | |
| Debit valuation adjustments: | ||
| Debt securities in issue | (2,331) | (2,373) |
| Derivatives | (467) | (450) |
| Total debit valuation adjustments | (2,798) | (2,823) |
| Total reserves (net) | 5,899 | 9,474 |
Credit valuation adjustments (CVA) represent an estimate of the adjustment to fair value that a market participant would make to incorporate the credit risk inherent in counterparty derivative exposures. The Group makes such credit adjustments to derivative exposures it has to counterparties, as well as debit valuation adjustments (DVA) to liabilities issued by the Group. CVA is discussed in Risk and capital management - Market turmoil - Credit valuation adjustments (page 157). Bid-offer and liquidity reserves and own credit (page 100) are discussed below.
Fair value positions are adjusted to bid or offer levels, by marking individual cash based positions directly to bid or offer or by taking bid-offer reserves calculated on a portfolio basis for derivatives exposures.
Bid-offer and liquidity reserves reduced during the year, driven mainly by the tightening of spreads across all asset classes in the first half of the year and risk reductions in the second half of the year, most notably in interest rate trading business, partly offset by additional reserves reflecting the implementation of a revised derivative discounting approach.
In accordance with IFRS, when valuing financial liabilities recorded at fair value, the Group takes into account the effect of its own credit standing. The categories of financial liabilities on which own credit spread adjustments are made are issued debt, including structured notes, and derivatives. An own credit adjustment is applied to positions where it is believed that counterparties would consider the Group's creditworthiness when pricing trades.
For issued debt and structured notes, this adjustment is based on independent quotes from market participants for the debt issuance spreads above average inter-bank rates (at a range of tenors), which the market would demand when purchasing new senior or sub-debt issuances from the Group. Where necessary, these quotes are interpolated using a curve shape derived from CDS prices.
The reserve movement between periods will not equate to the reported profit or loss for own credit. The balance sheet reserves are stated by conversion of underlying currency balances at spot rates for each period whereas the income statement includes intra-period foreign exchange sell-offs.
The table below shows the own credit spread adjustments on liabilities recorded during the year.
| Debt securities in issue | |||||
|---|---|---|---|---|---|
| Designated at fair | |||||
| Held-for | value through | Derivatives (2) £m |
|||
| -trading (1) | profit and loss | Total | Total | ||
| £m | £m | £m | £m | ||
| Cumulative own credit adjustment | |||||
| 2009 | 1,237 | 1,094 | 2,331 | 467 | 2,798 |
| 2008 | 1,346 | 1,027 | 2,373 | 450 | 2,823 |
| £bn | £bn | £bn | £bn | £bn | |
| Book value of underlying liabilities | |||||
| 2009 | 36.6 | 13.3 | 49.9 | 16.8 | 66.7 |
| 2008 | 25.5 | 16.9 | 42.4 | 43.5 | 85.9 |
Notes:
(1) The held-for-trading portfolio consists of wholesale and retail note issuances.
(2) The effect of changes in foreign exchange rates, new issues and redemptions are not captured separately.
The table below analyses financial instruments carried at fair value by valuation method.
| Total | Level 1 | Level 2 | Level 3 | Level 3 sensitivity (2) | ||
|---|---|---|---|---|---|---|
| 2009 | £bn | £bn | £bn | £bn | £m | £m |
| Assets | ||||||
| Loans and advances: | ||||||
| - banks | 45.4 | - | 45.4 | - | - | - |
| - customers | 43.7 | - | 42.6 | 1.1 | 80 | (40) |
| Debt securities | ||||||
| - government | 134.1 | 118.2 | 15.9 | - | - | - |
| - RMBS | 57.1 | - | 56.6 | 0.5 | 30 | (10) |
| - CMBS | 4.1 | - | 4.0 | 0.1 | 30 | - |
| - CDOs | 3.6 | - | 2.6 | 1.0 | 130 | (80) |
| - CLOs | 8.8 | - | 8.0 | 0.8 | 80 | (50) |
| - other ABS | 6.1 | - | 5.2 | 0.9 | 120 | (40) |
| - corporate | 10.5 | - | 9.9 | 0.6 | 70 | (20) |
| - other (3) | 14.9 | - | 14.7 | 0.2 | 10 | (30) |
| 239.2 | 118.2 | 116.9 | 4.1 | 470 | (230) | |
| Equity shares | 16.0 | 12.2 | 2.5 | 1.3 | 260 | (200) |
| Derivatives | ||||||
| - foreign exchange | 68.3 | - | 68.1 | 0.2 | 10 | - |
| - interest rate | 321.5 | 0.3 | 319.7 | 1.5 | 80 | (100) |
| - equities | 6.4 | 0.3 | 5.8 | 0.3 | 20 | (20) |
| - commodities | 0.3 | - | 0.3 | - | - | - |
| - credit - APS | 1.4 | - | - | 1.4 | 1,370 | (1,540) |
| - credit - other | 40.3 | 0.1 | 37.2 | 3.0 | 420 | (360) |
| 438.2 | 0.7 | 431.1 | 6.4 | 1,900 | (2,020) | |
| Total assets | 782.5 | 131.1 | 638.5 | 12.9 | 2,710 | (2,490) |
| Liabilities | ||||||
| Deposits: | ||||||
| - banks | 53.6 | - | 53.6 | - | - | - |
| - customers | 58.0 | - | 57.9 | 0.1 | - | (10) |
| Debt securities in issue | 45.4 | - | 43.1 | 2.3 | 50 | (10) |
| Short positions | 40.5 | 27.1 | 13.2 | 0.2 | 10 | (20) |
| Derivatives | ||||||
| - foreign exchange | 63.6 | - | 63.6 | - | - | - |
| - interest rate | 309.3 | 0.1 | 308.4 | 0.8 | 40 | (60) |
| - equities | 9.3 | 0.8 | 8.3 | 0.2 | 20 | (70) |
| - commodities | 0.2 | - | 0.2 | - | - | - |
| - credit - other | 39.1 | - | 38.2 | 0.9 | 80 | (100) |
| 421.5 | 0.9 | 418.7 | 1.9 | 140 | (230) | |
| Other financial liabilities (4) | 1.3 | - | 1.3 | - | - | - |
| Total liabilities | 620.3 | 28.0 | 587.8 | 4.5 | 200 | (270) |
For notes refer to page 104.
| Total | Level 1 | Level 2 | Level 3 | Level 3 sensitivity (2) | ||
|---|---|---|---|---|---|---|
| 2008 | £bn | £bn | £bn | £bn | £m | £m |
| Assets | ||||||
| Loans and advances: | ||||||
| - banks | 56.2 | - | 56.2 | - | - | - |
| - customers | 53.5 | - | 50.4 | 3.1 | 70 | (50) |
| Debt securities | ||||||
| - government | 95.7 | 67.6 | 28.1 | - | - | - |
| - RMBS | 73.3 | - | 72.8 | 0.5 | 40 | (90) |
| - CMBS | 3.9 | - | 3.3 | 0.6 | 30 | (30) |
| - CDOs | 8.6 | - | 6.9 | 1.7 | 410 | (440) |
| - CLOs | 8.7 | - | 7.7 | 1.0 | 40 | (40) |
| - other ABS | 8.2 | - | 6.7 | 1.5 | 10 | (10) |
| - corporate | 17.1 | 0.2 | 15.6 | 1.3 | 40 | (40) |
| - other (3) | 24.8 | 2.9 | 21.6 | 0.3 | - | - |
| 240.3 | 70.7 | 162.7 | 6.9 | 570 | (650) | |
| Equity shares | 22.2 | 13.7 | 7.4 | 1.1 | 80 | (160) |
| Derivatives | ||||||
| - foreign exchange | 172.9 | 2.2 | 170.6 | 0.1 | - | - |
| - interest rate | 654.3 | 0.4 | 652.4 | 1.5 | 80 | (80) |
| - equities | 9.0 | 0.3 | 8.6 | 0.1 | - | (10) |
| - commodities: Sempra | 11.6 | - | 11.0 | 0.6 | 50 | (50) |
| - commodities: other | 1.4 | - | 1.4 | - | - | - |
| - credit | 142.3 | 0.8 | 133.5 | 8.0 | 1,030 | (1,200) |
| 991.5 | 3.7 | 977.5 | 10.3 | 1,160 | (1,340) | |
| Total assets | 1,363.7 | 88.1 | 1,254.2 | 21.4 | 1,880 | (2,200) |
| Liabilities | ||||||
| Deposits: | ||||||
| - banks | 81.1 | - | 81.1 | - | - | - |
| - customers | 60.3 | - | 60.0 | 0.3 | - | - |
| Debt securities in issue | 50.0 | - | 45.6 | 4.4 | 190 | (170) |
| Short positions | 42.5 | 35.4 | 7.1 | - | - | - |
| Derivatives | ||||||
| - foreign exchange | 172.8 | 2.2 | 170.6 | - | - | - |
| - interest rate | 639.7 | 0.4 | 638.4 | 0.9 | 90 | (90) |
| - equities | 12.1 | 0.8 | 11.2 | 0.1 | - | - |
| - commodities: Sempra | 10.9 | - | 10.5 | 0.4 | 30 | (30) |
| - commodities: other | 1.2 | - | 1.2 | - | - | - |
| - credit | 132.8 | 0.1 | 130.1 | 2.6 | 180 | (160) |
| 969.5 | 3.5 | 962.0 | 4.0 | 300 | (280) | |
| Other financial liabilities (4) | 1.6 | - | 1.3 | 0.3 | 60 | (40) |
| Total liabilities | 1,205.0 | 38.9 | 1,157.1 | 9.0 | 550 | (490) |
For notes refer to page 104.
| Total | Level 1 | Level 2 | Level 3 | Level 3 sensitivity (2) | ||
|---|---|---|---|---|---|---|
| £bn | £bn | £bn | £bn | £m | £m | |
| 2009 | ||||||
| Debt securities | 125.4 | 58.2 | 65.9 | 1.3 | 90 | (50) |
| Equity shares | 2.6 | 0.3 | 1.6 | 0.7 | 100 | (90) |
| 128.0 | 58.5 | 67.5 | 2.0 | 190 | (140) | |
| 2008 | ||||||
| Debt securities | 118.6 | 18.0 | 97.5 | 3.1 | 90 | (120) |
| Equity shares | 6.7 | 4.6 | 1.8 | 0.3 | 60 | (110) |
| 125.3 | 22.6 | 99.3 | 3.4 | 150 | (230) |
Notes:
(1) Level 1: valued using quoted prices in active markets, examples include G10 government securities, listed equity shares, certain exchange-traded derivatives, and certain US agency securities.
Level 2: includes most government agency securities, investment-grade corporate bonds, certain mortgage products, certain bank and bridge loans, repos and reverse repos, less liquid listed equities, state and municipal obligations, most physical commodities, investment contracts issued by the Group's life assurance businesses and certain money market securities and loan commitments and most OTC derivatives.
Level 3: includes cash instruments which trade infrequently, certain syndicated and commercial mortgage loans, unlisted equity shares, certain residual interests in securitisations, super senior tranches of high grade and mezzanine CDOs, other mortgage-based products and less liquid debt securities, certain structured debt securities in issue, and OTC derivatives where valuation depends upon unobservable inputs such as certain credit and exotic derivatives. No gain or loss is recognised on the initial recognition of a financial instrument valued using a technique incorporating significant unobservable data.
During 2008, as permitted by amended IAS 39, the Group reclassified certain financial assets from the held-for-trading and available-for-sale categories into the loans and receivables category and from the held-for-trading category into the available-for-sale category. There were further reclassifications from the held-for-trading category to the loans and receivables category during 2009. The following tables detail the effect of the reclassifications and the balance sheet values of the assets.
| Reduction in profit or increase in loss as a result of reclassifications for the year ended 2009 |
||||||
|---|---|---|---|---|---|---|
| Reclassified in: | ||||||
| Total | 2009 £m |
2008 £m |
||||
| £m | ||||||
| From held-for-trading to: | ||||||
| Available-for-sale | 1,280 | - | 1,280 | |||
| Loans and receivables | 1,705 | 37 | 1,668 | |||
| 2,985 | 37 | 2,948 |
| Assets | ||||||
|---|---|---|---|---|---|---|
| reclassified in | 2009 | 2008 | ||||
| 2009: | All reclassifications | All reclassifications (1) | ||||
| Carrying value | Carrying value | Fair value | Carrying value | Fair value | ||
| £m | £m | £m | £m | £m | ||
| From held-for-trading to: | ||||||
| Available-for-sale | - | 7,629 | 7,629 | 12,047 | 12,047 | |
| Loans and receivables | 1,995 | 12,933 | 10,644 | 20,774 | 16,628 | |
| 1,995 | 20,562 | 18,273 | 32,821 | 28,675 | ||
| From available-for-sale to: | ||||||
| Loans and receivables | - | 869 | 745 | 1,016 | 956 | |
| 1,995 | 21,431 | 19,018 | 33,837 | 29,631 |
Note:
(1) 31 December 2008 amounts have been restated.
During the year ended 31 December 2009, the balance sheet value of reclassified assets decreased by £12.4 billion. This was primarily due to disposals and repayments of £12.1 billion across a range of asset backed securities and loans, including disposals through restructures of £3.4 billion on real estate and leverage financed positions. Other movements include impairment charges of £1.7 billion, foreign exchange rate losses of £2.0 billion, offset by gains taken to the available-for-sale reserve of £1.1 billion and reclassifications of £2.0 billion in 2009.
For assets reclassified from held-for-trading to available-for-sale, net unrealised losses recorded in equity at 31 December 2009 were £0.6 billion (2008 - £2.2 billion).
| Other | ||||||||
|---|---|---|---|---|---|---|---|---|
| UK central | US central | central and | Bank and | Asset | ||||
| and local | and local | local | building | backed | ||||
| government | government | government | society | securities Corporate | Other | Total | ||
| £m | £m | £m | £m | £m | £m | £m | £m | |
| 31 December 2009 | ||||||||
| Held-for-trading | 8,128 | 10,427 | 50,150 | 6,103 | 28,820 | 6,892 | 893 111,413 | |
| Designated as at fair value | ||||||||
| through profit or loss | 122 | 3 | 385 | 418 | 394 | 1,087 | 20 | 2,429 |
| Available-for-sale | 18,350 | 12,789 | 33,727 | 7,472 | 50,464 | 2,550 | 30 125,382 | |
| Loans and receivables | 1 | - | - | - | 7,924 | 1,853 | 93 | 9,871 |
| 26,601 | 23,219 | 84,262 | 13,993 | 87,602 | 12,382 | 1,036 249,095 | ||
| 30 September 2009 | ||||||||
| Held-for-trading | 4,811 | 13,888 | 54,452 | 8,076 | 29,611 | 6,897 | 502 118,237 | |
| Designated as at | ||||||||
| fair value through | ||||||||
| profit or loss | 374 | 3 | 391 | 453 | 377 | 1,101 | 6 | 2,705 |
| Available-for-sale | 11,940 | 9,146 | 31,506 | 10,111 | 51,787 | 4,303 | 439 119,232 | |
| Loans and receivables | 11 | - | 1 | 41 | 8,848 | 2,174 | 32 | 11,107 |
| 17,136 | 23,037 | 86,350 | 18,681 | 90,623 | 14,475 | 979 251,281 | ||
| 31 December 2008 | ||||||||
| Held-for-trading | 5,373 | 9,858 | 37,519 | 10,947 | 39,879 | 11,013 | 1,570 116,159 | |
| Designated as at | ||||||||
| fair value through | ||||||||
| profit or loss | 2,085 | 510 | 456 | - | 236 | 1,551 | 456 | 5,294 |
| Available-for-sale | 11,330 | 6,145 | 21,735 | 11,650 | 62,067 | 4,588 | 1,207 118,722 | |
| Loans and receivables | - | - | - | 114 | 8,961 | 3,749 | 160 | 12,984 |
| 18,788 | 16,513 | 59,710 | 22,711 | 111,143 | 20,901 | 3,393 253,159 |
| 31 December 2009 | 30 September 2009 | 31 December 2008 | |||||
|---|---|---|---|---|---|---|---|
| Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | ||
| £m | £m | £m | £m | £m | £m | ||
| Exchange rate contracts | |||||||
| Spot, forwards and futures | 26,559 | 24,763 | 34,228 | 34,628 | 82,963 | 83,433 | |
| Currency swaps | 25,221 | 23,337 | 30,838 | 30,053 | 53,231 | 54,413 | |
| Options purchased | 16,572 | - | 18,528 | - | 36,688 | - | |
| Options written | - | 15,499 | - | 16,998 | - | 34,946 | |
| Interest rate contracts | |||||||
| Interest rate swaps | 263,902 | 251,829 | 337,824 | 327,217 | 547,566 | 530,843 | |
| Options purchased | 55,471 | - | 64,191 | - | 99,176 | - | |
| Options written | - | 55,462 | - | 64,547 | - | 102,210 | |
| Futures and forwards | 2,088 | 2,033 | 2,989 | 2,772 | 7,600 | 6,620 | |
| Credit derivatives | 41,748 | 39,127 | 49,019 | 42,512 | 142,367 | 132,734 | |
| Equity and commodity | |||||||
| contracts | 6,638 | 9,484 | 14,849 | 18,795 | 21,904 | 24,210 | |
| 438,199 | 421,534 | 552,466 | 537,522 | 991,495 | 969,409 |
| 31 December 2009 | |||||
|---|---|---|---|---|---|
| Core Non-Core | Total | 30 September 2009 | 31 December 2008 | ||
| £m | £m | £m | £m | £m | |
| Contingent liabilities | |||||
| Guarantees and assets pledged as | |||||
| collateral security | 33,300 | 3,279 | 36,579 | 39,654 | 45,931 |
| Other contingent liabilities | 12,651 | 759 | 13,410 | 13,992 | 21,765 |
| 45,951 | 4,038 | 49,989 | 53,646 | 67,696 | |
| Commitments | |||||
| Undrawn formal standby facilities, credit | |||||
| lines and other commitments to lend | 255,555 | 33,580 | 289,135 | 304,702 | 349,417 |
| Other commitments | 730 | 2,753 | 3,483 | 3,656 | 6,876 |
| 256,285 | 36,333 | 292,618 | 308,358 | 356,293 | |
| Total contingent liabilities and | |||||
| Commitments | 302,236 | 40,371 | 342,607 | 362,004 | 423,989 |
Additional contingent liabilities arise in the normal course of the Group's business. It is not anticipated that any material loss will arise from these transactions.
The Financial Services Compensation Scheme (FSCS), the UK's statutory fund of last resort for customers of authorised financial services firms, pays compensation if a firm is unable to meet its obligations. The FSCS funds compensation for customers by raising management expenses levies and compensation levies on the industry. In relation to protected deposits, each deposit-taking institution contributes towards these levies in proportion to their share of total protected deposits on 31 December of the year preceding the scheme year (which runs from 1 April to 31 March), subject to annual maxima set by the Financial Services Authority (FSA). In addition, the FSCS has the power to raise levies ('exit levies') on firms who have ceased to participate in the scheme and are in the process of ceasing to be authorised for the amount that the firm would otherwise have been asked to pay during the relevant levy year.
FSCS has borrowed from HM Treasury to fund the compensation costs associated with Bradford & Bingley, Heritable Bank, Kaupthing Singer & Friedlander, Landsbanki 'Icesave' and London Scottish Bank plc. These borrowings are on an interest-only basis until September 2011. The annual limit on the FSCS management expenses levy for the three years from September 2008 in relation to these institutions has been capped at £1 billion per annum.
The FSCS will receive funds from asset sales, surplus cash flow, or other recoveries in relation to these institutions which will be used to reduce the principal amount of the FSCS's borrowings. Only after the interest only period, which is expected to end in September 2011, will a schedule for repayment of any remaining principal outstanding (after recoveries) on the borrowings be agreed between the FSCS and HM Treasury. It is expected that, from that point, the FSCS will begin to raise compensation levies (principal repayments). No provision has been made for these levies as the amount is not yet known and is unlikely to be determined before 2011.
The Group has accrued £135 million for its share of FSCS management expenses levies for the 2009/10 and 2010/11 scheme years
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2009 | 2008 | 2009 | 2009 | 2008 | ||
| £m | £m | £m | £m | £m | ||
| Fees and commissions receivable Fees and commissions payable |
8,738 | 8,845 | 2,353 | 1,919 | 2,058 | |
| - banking | (2,424) | (2,010) | (810) | (450) | (487) | |
| - insurance related | (366) | (401) | (84) | (95) | (96) | |
| Net fees and commissions | 5,948 | 6,434 | 1,459 | 1,374 | 1,475 | |
| Foreign exchange | 2,339 | 1,927 | 572 | 108 | 802 | |
| Interest rate | 3,931 | 1,174 | (386) | 1,460 | (402) | |
| Credit | (4,147) | (12,191) | 109 | (837) | (6,760) | |
| Other | 1,683 | 261 | 416 | 320 | (402) | |
| Income from trading activities | 3,806 | (8,829) | 711 | 1,051 | (6,762) | |
| Operating lease and other rental income | 1,323 | 1,469 | 341 | 320 | 309 | |
| Changes in the fair value of own debt | 51 | 977 | 349 | (238) | 450 | |
| Changes in the fair value of securities and other | ||||||
| financial assets and liabilities | 42 | (1,364) | 54 | 45 | (1,286) | |
| Changes in the fair value of investment | ||||||
| properties | (117) | (86) | 36 | (6) | (84) | |
| Profit on sale of securities | (56) | 113 | 92 | 26 | (9) | |
| Profit on sale of property, plant and equipment | 40 | 177 | 13 | 2 | 81 | |
| Profit on sale of subsidiaries and associates | (57) | 501 | (38) | (8) | (20) | |
| Life business profits/(losses) | 156 | (52) | 24 | 108 | 42 | |
| Dividend income | 74 | 275 | 17 | 18 | 59 | |
| Share of profits less losses of associated entities | (150) | 10 | (83) | (13) | 7 | |
| Other income | (468) | (499) | (189) | (147) | 235 | |
| Other operating income | 838 | 1,521 | 616 | 107 | (216) | |
| Non-interest income (excluding insurance | ||||||
| premiums) | 10,592 | (874) | 2,786 | 2,532 | (5,503) | |
| Insurance net premium income | 5,266 | 5,709 | 1,308 | 1,301 | 1,439 | |
| Total non-interest income | 15,858 | 4,835 | 4,094 | 3,833 | (4,064) | |
| Staff costs | ||||||
| - wages, salaries and other staff costs | 7,826 | 6,884 | 1,957 | 1,840 | 1,061 | |
| - social security costs | 602 | 570 | 179 | 131 | 131 | |
| - pension costs | 653 | 536 | 110 | 204 | 94 | |
| Premises and equipment | 2,468 | 2,099 | 618 | 619 | 566 | |
| Other | 3,979 | 4,267 | 1,075 | 943 | 1,360 | |
| Administrative expenses | 15,528 | 14,356 | 3,939 | 3,737 | 3,212 | |
| Depreciation and amortisation | 1,873 | 1,832 | 534 | 458 | 523 | |
| Operating expenses | 17,401 | 16,188 | 4,473 | 4,195 | 3,735 |
| 18. Analysis of non-interest income, expenses and impairment losses (continued) | ||
|---|---|---|
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2009 | 2008 | 2009 | 2009 | 2008 | ||
| £m | £m | £m | £m | £m | ||
| General insurance | 4,223 | 3,733 | 1,304 | 1,054 | 940 | |
| Bancassurance | 134 | 184 | 17 | 91 | 116 | |
| Insurance net claims | 4,357 | 3,917 | 1,321 | 1,145 | 1,056 | |
| Loan impairment losses Impairment of available-for-sale securities |
13,090 809 |
6,478 954 |
3,032 67 |
3,262 17 |
4,049 624 |
|
| Impairment losses | 13,899 | 7,432 | 3,099 | 3,279 | 4,673 |
Note:
(1) The data above exclude purchased intangibles amortisation, integration and restructuring costs, gain on redemption of own debt, strategic disposals, write-down of goodwill and other intangible assets, gains on pensions curtailment and bonus tax.
The data in this section excludes RFS Holdings minority interest unless otherwise indicated.
Conditions during the year continued to prove challenging as the ongoing deterioration in economic conditions and financial markets seen during 2008 continued into 2009. Market stress peaked during the first quarter of 2009 with broad improvement since then. This reflects a global effort by many governments and central banks to ease monetary conditions, increase liquidity within the financial system and support banks with a combination of increased capital, guarantees and strengthened deposit insurance. One resulting benefit for banks generally has been a significant improvement in the liquidity of money and debt markets. At the same time regulatory oversight of the banking sector has increased globally and is expected to continue at a heightened level.
More recently the major economies have started to demonstrate a gradually improving macroeconomic position although conditions remain fragile. Areas of particular uncertainty include possible effects from governments ending their financial stimulus initiatives and central banks moving to exit from positions of historically very low interest rates, as well as reversing quantitative easing. These look likely to occur against a backdrop of heightened personal and corporate insolvency as well as rising unemployment.
The Group has been developing and adapting to an evolving economic environment, against a background of the strategic review which includes a clearly stated ambition to achieve standalone strength. The core aims of the strategic plan are to improve the risk profile of the Group and to reposition the balance sheet around the Group's core strengths. The Group level risk appetite statements and limits have been reviewed to ensure they are in line with the strategy. Any potential areas of misalignment between risk appetite and the Group strategy have been discussed by the Executive Risk Forum and remediation plans have been put in place.
Enhancements have been made to a number of the risk frameworks, including:
Credit impairments in 2009 were materially higher than the previous year. As the year progressed, the level of impairments moderated, with the highest quarterly charge incurred in the second quarter. It is expected that the results for 2010 and 2011 will continue to be affected by a heightened level of credit impairments as exposures in the Non-Core division are managed down and the economic environment continues to impact the Core businesses. The risk weightings applied to assets are also expected to increase due to procyclicality and as a result the amount of capital that banks generally are required to hold will increase. Future regulatory changes are also expected to increase the capital requirements of the banking sector. Against this background, the Non-Core portfolio is reducing and the Group has materially strengthened its capital base through the B share issuance in December 2009.
The Group aims to maintain an appropriate level of capital to meet business needs and regulatory requirements. Capital adequacy and risk management are closely aligned. The Group's regulatory capital resources as calculated in accordance with FSA definitions are set out on the following page.
| 31 December | 30 September | 31 December | |
|---|---|---|---|
| 2009 | 2009 | 2008 | |
| Composition of regulatory capital (Proportional) | £m | £m | £m |
| Tier 1 | |||
| Ordinary shareholders' equity | 69,890 | 48,820 | 45,525 |
| Minority interests | 2,227 | 2,185 | 5,436 |
| Adjustments for: | |||
| - Goodwill and other intangible assets - continuing | (14,786) | (15,339) | (16,386) |
| - Goodwill and other intangible assets of discontinued businesses | (238) | - | - |
| - Unrealised losses on available-for-sale (AFS) debt securities | 1,888 | 2,317 | 3,687 |
| - Reserves: revaluation of property and unrealised gains on AFS equities | (207) | (145) | (984) |
| - Reallocation of preference shares and innovative securities | (656) | (656) | (1,813) |
| - Other regulatory adjustments | (950) | (711) | 9 |
| Less excess of expected losses over provisions net of tax | (2,558) | (2,313) | (770) |
| Less securitisation positions | (1,353) | (1,187) | (663) |
| Less APS first loss | (5,106) | - | - |
| Core Tier 1 capital | 48,151 | 32,971 | 34,041 |
| Preference shares | 11,265 | 11,313 | 16,655 |
| Innovative Tier 1 securities | 2,772 | 2,800 | 6,436 |
| Tax on the excess of expected losses over provisions | 1,020 | 922 | 308 |
| Less deductions from Tier 1 capital | (310) | (388) | (316) |
| Total Tier 1 capital | 62,898 | 47,618 | 57,124 |
| Tier 2 | |||
| Reserves: revaluation of property and unrealised gains on AFS equities | 207 | 145 | 984 |
| Latent impairment provisions | 796 | 850 | 666 |
| Perpetual subordinated debt | 4,200 | 4,230 | 9,079 |
| Term subordinated debt | 18,120 | 18,830 | 20,282 |
| Minority and other interests in Tier 2 capital | 11 | 11 | 11 |
| Less deductions from Tier 2 capital | (5,241) | (4,810) | (2,055) |
| Less APS first loss | (5,106) | - | - |
| Total Tier 2 capital | 12,987 | 19,256 | 28,967 |
| Tier 3 | - | - | 260 |
| Supervisory deductions | |||
| Unconsolidated Investments | |||
| - RBS Insurance | (4,068) | (4,273) | (3,628) |
| - Other investments | (404) | (431) | (416) |
| Other | (93) | (77) | (111) |
| Deductions from total capital | (4,565) | (4,781) | (4,155) |
| Total regulatory capital | 71,320 | 62,093 | 82,196 |
| Risk weighted assets | |||
| Credit risk | 410,400 | 416,500 | 433,400 |
| Counterparty risk | 56,500 | 82,000 | 61,100 |
| Market risk | 65,000 | 62,300 | 46,500 |
| Operational risk | 33,900 | 33,900 | 36,800 |
| 565,800 | 594,700 | 577,800 | |
| APS relief | (127,600) | - | - |
| 438,200 | 594,700 | 577,800 |
| 31 December | 31 December | ||
|---|---|---|---|
| 2009 | 2008 | ||
| Risk asset ratio | % | % | |
| Core Tier 1 | 11.0 | 5.9 | |
| Tier 1 | 14.4 | 9.9 | |
| Total | 16.3 | 14.2 |
The Group has seen a continuation of challenging financial market and economic conditions during 2009. Although some signs of improvement have started to emerge, the performance of key economies remains uncertain and the Group has continued to experience material impairment losses and credit market write-downs, including further write-downs in respect of monoline exposures. The majority of these are in the Non-Core division, which in time will be run down, significantly reducing the size of the Group's balance sheet and associated capital requirements.
In April 2009, £5 billion of preference shares were redeemed and replaced by ordinary shares using the proceeds of the Second Placing and Open Offer. This strengthened the Group's Core Tier 1 capital, enhancing its financial stability during a tough economic and market period.
As an interim measure pending full compliance with Basel 2, the Group, with the agreement of the regulators, consolidates the RWAs of ABN AMRO on the basis of Basel 1 plus an adjustment factor. The Group is advanced in its preparation for moving to a Basel 2 compliant approach for the ABN AMRO businesses it will retain. As part of this transition the Group has agreed with the FSA to increase the adjustment factor with effect from 31 December 2009 to reflect changing circumstances. This change has increased RWAs by approximately £8 billion thereby reducing the Core Tier 1 ratio at 31 December 2009 by 20 basis points.
On 22 December 2009, RBS acceded to the Asset Protection Scheme ('APS' or 'the Scheme'). The key commercial terms and details of the assets covered by the Scheme are set out in Appendix 3 of this document.
Following the accession to the APS, HM Treasury provides loss protection against potential losses arising in a pool of assets. HM Treasury also subscribed to £25.5 billion of capital in the form of B shares and a Dividend Access Share, with a further £8 billion of capital in the form of B shares, potentially available as contingent capital. The Group pays annual fees in respect of the protection and contingent capital. The Group has the option, subject to HM Treasury consent, to pay the annual premium, contingent capital and the exit fee payable in connection with any termination of the Group's participation in the APS, in whole or in part, by waiving the entitlements of members of the Group to certain UK tax reliefs.
Following accession to the APS, arrangements were put in place within the Group that extended effective APS protection to all other regulated entities holding assets covered by the APS.
On 19 January 2009, the FSA announced that it expects each bank participating in the UK Government's recapitalisation scheme to have a minimum Core Tier 1 ratio of 4% on a stressed basis. As at 31 December 2009 the Group's Core Tier 1 ratio was 11.0% (2008 - 5.9%). While the RWA relief from the APS scheme enabled the Group to maintain robust capital ratios, it is clear that the next few years pose continuing challenges in respect of impairment levels, trading performance and the return to profitability, RWA volatility including procyclical effects, and increasing regulatory demands.
The subscription for £25.5 billion of B shares and APS improved the Group's Core Tier 1 capital ratio by 580 basis points at 31 December 2009.
The Group is undertaking the necessary preparations to comply with the new European Directives which will, or are expected to, come into force on or before 1 January 2011. These deal with inter alia, the eligibility of hybrid capital; restrictions on large exposures; enhanced risk management of securitisation exposures (including a requirement that banks cannot invest in a securitisation where the originator has not retained an economic interest); higher capital requirements for re-securitisations; and strengthening capital requirements for the trading book.
In December 2009, the Basel Committee issued proposals to strengthen capital and liquidity of banks. The key elements include: raising the quality, consistency and transparency of regulatory capital; increased capital requirements for counterparty exposures on derivatives, repurchase agreements and securities financing activities; the introduction of a leverage ratio; promotion of countercyclical measures to encourage build up of capital buffers and a more forward-looking provisioning based on expected losses instead of the current 'incurred loss' provisioning model; and the introduction of a global minimum liquidity standard for internationally active banks, including a short-term liquidity coverage ratio requirement underpinned by a longer-term structural liquidity ratio. The Committee is carrying out an impact assessment in the first part of 2010 to calibrate the new requirements before issuing final proposals by the end of 2010 for phased implementation commencing in 2012.
The Group is working with the trade bodies in responding to the various consultations and will participate fully in the impact assessment.
Credit risk is the risk arising from the possibility that the Group will incur losses owing to the failure of customers to meet their financial obligations. The quantum and nature of credit risk assumed in the Group's different businesses varies considerably, while the overall credit risk outcome usually exhibits a high degree of correlation to the macroeconomic environment.
Credit risk assets consist of loans and advances (including overdraft facilities), instalment credit, finance lease receivables and traded instruments across all customer types. Reverse repurchase agreements and issuer risk (primarily debt securities - see page 106) are excluded. Where relevant, and unless otherwise stated, data reflect the effect of credit mitigation techniques.
| 31 December | 30 September | 31 December | |
|---|---|---|---|
| 2009 | 2009 | 2008 (1) | |
| £m | £m | £m | |
| UK Retail | 103,029 | 101,066 | 97,069 |
| UK Corporate | 109,908 | 111,453 | 126,736 |
| Wealth | 15,951 | 15,525 | 17,604 |
| Global Banking & Markets | 224,355 | 256,670 | 450,321 |
| Global Transaction Services | 7,152 | 7,532 | 8,995 |
| Ulster Bank | 42,042 | 44,621 | 64,695 |
| US Retail & Commercial | 52,104 | 55,155 | 82,862 |
| Other | 2,981 | 3,117 | 6,594 |
| Core | 557,522 | 595,139 | |
| Non-Core | 151,264 | 155,521 | |
| Group | 708,786 | 750,660 | 854,876 |
Note:
(1) The 2008 split between Core and Non-Core is not available.
The Group defines four key areas of concentration in credit risk that are monitored, reported and managed at both Group and divisional levels. These are single name, industry/sector, country and product/asset class. Frameworks to address single name, industry/sector and country concentrations are established and continue to be enhanced and embedded into business processes across the Group. Aspects of the product/asset class framework are in place whilst others will be developed during the course of 2010.
Country risk arises from sovereign events (for example, default or restructuring); economic events (for example, contagion of sovereign default to other parts of the economy, cyclical economic shock); political events (for example, convertibility restrictions and expropriation or nationalisation); and natural disaster or conflict. Losses are broadly defined and include credit, market, liquidity, operational and franchise risk related losses.
The Group's appetite for country risk is set by the Executive Risk Forum in the form of limits by country risk grade, with sub-limits on term exposure. Countries where exposures exceed this limit framework are approved by the ERF while authority is delegated to the Group Country Risk Committee (GCRC) to manage exposures within the framework. Specific limits are set for each country based on a risk assessment taking into account the Group's franchise and business mix in that country. Additional limitations – on product types with higher loss potential, for example – are established to address specific vulnerabilities in the context of a country's outlook and/or the Group's business strategy in a particular country. A country watch list framework is in place to proactively monitor emerging issues and facilitate the development of mitigation strategies.
The country risk table below shows credit risk assets exceeding £1 billion by borrowers domiciled in countries with an external rating of A+ and below from either Standard & Poor's or Moody's, and is stated gross of mitigating action which may have been taken to reduce or eliminate exposure to country risk events.
| 2009 | 2008 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Personal | Sovereign | institutions Banks and financial |
Corporate | Total | Core | Non-Core | Personal | Sovereign | Banks and institutions financial |
Corporate | Total | |
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| Italy | 27 | 104 | 1,999 | 5,636 | 7,766 | 3,827 | 3,939 | 23 | 131 | 3,263 | 7,555 10,972 | |
| India | 547 | 5 | 476 | 2,578 | 3,606 | 2,887 | 719 | 1,020 | 6 | 738 | 3,800 | 5,564 |
| Russia | 41 | - | 395 | 2,928 | 3,364 | 2,803 | 561 | 51 | - | 362 | 5,361 | 5,774 |
| South Korea | 1 | - | 1,038 | 2,308 | 3,347 | 3,238 | 109 | 2 | - | 1,743 | 1,104 | 2,849 |
| Turkey | 11 | 301 | 590 | 1,906 | 2,808 | 2,412 | 396 | 25 | 364 | 603 | 3,035 | 4,027 |
| Poland | 6 | 62 | 113 | 1,840 | 2,021 | 1,847 | 174 | 7 | 38 | 309 | 1,309 | 1,663 |
| China | 21 | 49 | 798 | 1,096 | 1,964 | 1,695 | 269 | 25 | 61 | 1,146 | 2,027 | 3,259 |
| Romania | 512 | 47 | 452 | 874 | 1,885 | 64 | 1,821 | 584 | 145 | 160 | 917 | 1,806 |
| Portugal | 5 | 42 | 281 | 1,119 | 1,447 | 943 | 504 | 6 | 34 | 405 | 1,914 | 2,359 |
| Chile | - | 41 | 447 | 865 | 1,353 | 526 | 827 | - | 26 | 384 | 1,251 | 1,661 |
| Brazil | 3 | - | 767 | 439 | 1,209 | 1,151 | 58 | 4 | - | 1,012 | 642 | 1,658 |
| Mexico | 1 | 7 | 227 | 934 | 1,169 | 740 | 429 | 4 | 57 | 211 | 2,000 | 2,272 |
| Kazakhstan | 45 | 15 | 365 | 646 | 1,071 | 91 | 980 | 69 | 17 | 901 | 859 | 1,846 |
| Hungary | 3 | 23 | 56 | 956 | 1,038 | 579 | 459 | 5 | 74 | 101 | 831 | 1,011 |
Most economies enter 2010 in a tentative recovery phase, attributed largely to official stimulus, resilient consumption and global restocking. International prospects vary and significant risks remain, particularly around exiting government support, advanced sovereign debt levels and rising inflationary pressures. Currently low yields may not last as these trends play out. Asia remains the best performing region, thanks to limited sovereign and corporate leverage. However, growth prospects remain linked to global trade flows. Middle East sovereigns are generally strong, but the private sector continues to feel the impact of weakness in real estate and construction. Latin America proved relatively insulated from the crisis, and policy gains look set to be sustained. Peripheral Euro zone sovereigns with heavy debt burdens face increased risks, with credible adjustment programmes needed. Eastern Europe has made some progress in addressing key weaknesses, but vulnerabilities in some countries remain and growth prospects are modest.
Industry analysis plays an important part in assessing potential concentration risk in the loan portfolio. Particular attention is given to industry sectors where the Group believes there is a high degree of risk or potential for volatility in the future.
The table below analyses credit risk assets by industry sector and geography.
| 2009 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Western Europe |
|||||||||
| (excl. | North | Asia | Latin | of which | |||||
| UK | UK) | America | Pacific | America | Other (1) | Total | Core | 2008(3) | |
| £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| Personal | 120,720 | 23,530 | 37,680 | 2,948 | 63 | 1,361 186,302 165,562 | 197,888 | ||
| Banks & financial institutions | 38,775 | 66,698 | 18,817 | 13,158 | 10,216 | 5,305 152,969 133,900 | 180,504 | ||
| Property | 61,779 | 27,736 | 8,315 | 2,478 | 2,924 | 507 103,739 | 57,073 | 112,980 | |
| Transport and storage (2) | 14,565 | 7,954 | 7,514 | 5,841 | 2,917 | 7,370 | 46,161 | 30,863 | 58,995 |
| Manufacturing | 9,309 | 14,646 | 7,965 | 3,627 | 1,643 | 3,948 | 41,138 | 31,199 | 67,846 |
| Wholesale and retail trade | 15,584 | 7,458 | 5,497 | 945 | 829 | 1,704 | 32,017 | 25,180 | 35,180 |
| Telecom, media & technology | 8,956 | 7,956 | 5,312 | 2,232 | 804 | 1,528 | 26,788 | 18,554 | 42,374 |
| Public sector | 11,091 | 4,448 | 6,016 | 2,109 | 279 | 760 | 24,703 | 21,823 | 39,890 |
| Building | 10,303 | 7,494 | 1,852 | 836 | 183 | 1,098 | 21,766 | 16,642 | 29,297 |
| Tourism and leisure | 11,396 | 3,268 | 2,700 | 755 | 586 | 481 | 19,186 | 15,583 | 19,528 |
| Power, water & waste | 4,745 | 6,197 | 3,502 | 1,179 | 1,215 | 941 | 17,779 | 12,055 | 26,628 |
| Natural resources and nuclear | 2,554 | 3,546 | 5,511 | 1,861 | 844 | 2,895 | 17,211 | 12,479 | 25,318 |
| Business services | 8,981 | 2,056 | 2,324 | 675 | 1,029 | 588 | 15,653 | 13,395 | 14,497 |
| Agriculture and fisheries | 921 | 618 | 1,671 | 18 | 64 | 82 | 3,374 | 3,214 | 3,951 |
| 2009 Total | 319,679 183,605 114,676 | 38,662 | 23,596 | 28,568 708,786 557,522 | 854,876 | ||||
| of which Core | 271,758 133,824 | 89,487 | 28,718 | 14,048 | 19,687 557,522 | ||||
| 2008 Total | 326,639 225,870 178,139 | 56,074 | 31,235 | 36,919 854,876 |
Notes:
(3) Certain sector and sub-sector classes were refined in 2009.
(1) Other comprises Central and Eastern Europe, Middle East, Central Asia and Africa.
(2) Excludes net investment in operating leases in Shipping and Aviation portfolios as they are accounted for as part of property, plant and equipment; however operating leases are included in the monitoring and management of these portfolios.
During the first half of the year, the Group implemented an enhanced framework to address the risk arising from concentrations of exposure to related groups of borrowers. Despite market illiquidity that reduced the scope for exposure management strategies against certain assets and negative credit migration that created additional cases in excess of the framework's parameters, some progress was made against exceptions arising from the framework. Overall there were 9% fewer exceptions at the end of the period than at the beginning. Plans have been developed and continue to be refined to deliver alignment with the framework over the course of the Group's strategic plan.
Internal reporting and oversight of risk assets is principally differentiated by credit grades. Customers are assigned credit grades, based on various credit grading models that reflect the key drivers of default for the customer type. All credit grades across the Group map to both a Group level asset quality scale, used for external financial reporting, and a master grading scale for wholesale exposures used for internal management reporting across portfolios. Accordingly, measurement of risk is easily aggregated and can be reported at increasing levels of granularity depending on audience and business need.
| 2009 | |||||||
|---|---|---|---|---|---|---|---|
| Asset quality Probability of default |
Core | Non-Core | Total | 2008 Total | |||
| band | range | £m | £m | £m | % | £m | % |
| AQ1 | 0% - 0.03% | 124,172 | 20,570 | 144,742 | 20.3 | 208,033 | 24.4 |
| AQ2 | 0.03% - 0.05% | 13,470 | 1,958 | 15,428 | 2.2 | 29,939 | 3.5 |
| AQ3 | 0.05% - 0.10% | 27,456 | 6,462 | 33,918 | 4.8 | 44,724 | 5.2 |
| AQ4 | 0.10% - 0.38% | 84,594 | 17,032 | 101,626 | 14.3 | 159,067 | 18.6 |
| AQ5 | 0.38% - 1.08% | 107,960 | 27,135 | 135,095 | 19.1 | 157,138 | 18.5 |
| AQ6 | 1.08% - 2.15% | 78,048 | 19,050 | 97,098 | 13.7 | 107,191 | 12.5 |
| AQ7 | 2.15% - 6.09% | 42,611 | 14,449 | 57,060 | 8.1 | 48,271 | 5.6 |
| AQ8 | 6.09% - 17.22% | 21,484 | 4,479 | 25,963 | 3.7 | 25,682 | 3.0 |
| AQ9 | 17.22% - 100% | 10,597 | 5,845 | 16,442 | 2.3 | 12,034 | 1.4 |
| AQ10 | 100% | 16,316 | 23,118 | 39,434 | 5.6 | 19,130 | 2.2 |
| Other (1) | 30,814 | 11,166 | 41,980 | 5.9 | 43,667 | 5.1 | |
| 557,522 | 151,264 | 708,786 | 100.0 | 854,876 | 100.0 |
Note:
(1) 'Other' largely comprises assets covered by the standardised approach for which a probability of default (PD) equivalent to those assigned to assets covered by the internal ratings based approach is not available.
Credit risk (continued)
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| UK Retail: | ||
| - Mortgage | 85,529 | 74,528 |
| - Cards, loans and overdrafts | 20,316 | 22,475 |
| Ulster Bank: | ||
| - Mortgage | 22,304 | 24,531 |
| - Other personal | 1,172 | 1,350 |
| Citizens: | ||
| - Mortgage | 26,534 | 34,394 |
| - Auto and cards | 6,917 | 9,126 |
| - Other (1) | 4,205 | 5,286 |
| EMEA and Asia Pacific Non-Core | 3,084 | 3,942 |
| Other (2) | 16,241 | 22,256 |
| 186,302 | 197,888 |
Notes:
(1) Mainly student loans and recreational vehicles/marine.
(2) Personal exposures in other divisions, including Wealth and RBS Insurance.
Credit risk (continued)
The table below analyses the distribution of residential mortgages by loan-to-value (LTV) (indexed).
| Residential mortgages (1) | UK Retail | Ulster Bank | Citizens | ||||
|---|---|---|---|---|---|---|---|
| distribution by average | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |
| loan-to-value (2) (indexed) | % | % | % | % | % | % | |
| <= 50% | 39.2 | 46.0 | 40.7 | 47.1 | 26.3 | 29.7 | |
| > 50% and <= 60% | 10.1 | 10.9 | 7.6 | 8.7 | 7.9 | 9.0 | |
| > 60% and <= 70% | 10.9 | 10.6 | 7.6 | 8.4 | 9.0 | 10.7 | |
| > 70% and <= 80% | 13.3 | 10.6 | 7.5 | 8.6 | 12.7 | 16.3 | |
| > 80% and <= 90% | 11.2 | 9.2 | 8.0 | 9.6 | 14.5 | 15.5 | |
| > 90% and <= 100% | 7.6 | 7.8 | 9.0 | 8.5 | 12.2 | 9.5 | |
| > 100% | 7.7 | 4.9 | 19.6 | 9.1 | 17.4 | 9.3 | |
| Total portfolio average LTV | |||||||
| at 31 December 2009 | 59.1 | 54.5 | 62.5 | 54.3 | 72.0 | 69.1 | |
| Average LTV on new | |||||||
| originations during the year | 67.2 | 67.2 | 72.8 | 71.1 | 62.4 | 64.3 |
Notes:
(1) Analysis covers the main mortgage brands in each of the Group's three main consumer markets and covers 96% of total mortgage portfolio.
(2) LTV averages calculated by transaction volume.
The table below details the residential mortgages three months or more in arrears (by volume).
| 2009 | 2008 | |
|---|---|---|
| % | % | |
| UK Retail(1) | 1.8 | 1.5 |
| Ulster Bank | 3.3 | 1.6 |
| Citizens | 1.5 | 0.9 |
Note:
(1) UK Retail analysis covers the Royal Bank and NatWest brands and 77% of the UK Retail mortgage portfolio (the remainder operates under the same credit policies).
Credit risk (continued)
The UK mortgage portfolio totalled £85.5 billion at 31 December 2009, an increase of 15% from 31 December 2008, due to strong growth and lower redemption rates. Of the total portfolio, 98% is designated as Core business with the primary brands being the Royal Bank, NatWest, the One Account, and First Active. The assets comprise prime mortgage lending and include 6.6% (£5.6 billion) of exposure to residential buy-to-let. There is a small legacy self certification book (0.4% of total assets) which was withdrawn from sale in 2004.
UK net new mortgage lending in 2009 was strong at £11 billion and the Group has exceeded its commitment to the UK Government on net mortgage lending. The average LTV for new business during 2009 was unchanged at 67.2%. The maximum LTV available to new customers remains at 90%.
The arrears rate (three or more payments missed) on the combined Royal Bank of Scotland and NatWest brands was 1.8% at 31 December 2009. After a period of deterioration driven by the economic environment this stabilised in the second half of 2009 (arrears rate stood at 1.8% as at 30 June 2009 and 1.5% as at 31 December 2008). The arrears rate on the buy-to-let portfolio was 1.6% at 31 December 2009 (1.6% at 30 June 2009 and 1.5% at 31 December 2008).
The mortgage impairment charge was £129 million in 2009 compared with £33 million in 2008, attributable to declining house prices driving lower recoveries and an increase in defaults reflecting the difficult economic environment. Default rates remain sensitive to economic developments, notably unemployment rates. Provisions as a proportion of balances at 31 December 2009 were 0.3% and 0.2% at 31 December 2008.
A number of initiatives aimed at increasing the levels of support to customers experiencing difficulties were implemented in 2008 and will continue in 2010. The Group does not initiate repossession proceedings for at least six months after arrears are evident and participates in various Governmentled initiatives such as the mortgage rescue scheme and homeowner mortgage support.
The residential mortgage portfolio across the Ulster Bank and First Active brands totalled £22.3 billion at 31 December 2009; 91% is in the Republic of Ireland and 9% in Northern Ireland. This represents a decline of 4% in the Republic of Ireland and an increase of 13% in Northern Ireland from 31 December 2008. 27% of the portfolio is in Non-Core.
The arrears rate increased to 3.3% at 31 December 2009 from 1.6% at 31 December 2008. As a result, the impairment charge for 2009 was £115 million versus £23 million for 2008. Repossessions totalled 96 in 2009, compared with 37 in 2008 with the majority of these being voluntary.
Credit risk (continued)
Key credit portfolios (continued)
During 2009 new business originations in the Republic of Ireland were very low across all segments. The bank introduced new products - Momentum and SecureStep - in both Northern Ireland and the Republic of Ireland which aim to support market activity for new build properties. In Northern Ireland, lending increased in the second half of 2009 as a degree of confidence returned to the property market.
Citizens total residential real estate portfolio totalled \$42 billion at 31 December 2009 (2008 - \$50 billion). The real estate portfolio comprises \$11 billion of first lien mortgages and \$31 billion of home equity loans and lines (Core portfolio 48% first lien). 83% of the portfolio is Core business; \$10 billion of mortgages and \$25 billion of home equity loans and lines (48% of the latter being first lien). The serviced by others (SBO) portfolio (96% second lien) is the largest component of the Non-Core portfolio.
Citizens has focused its origination efforts in the more mature and stable markets of New England and Mid Atlantic (Citizens 'footprint states'), targeting low risk products and adopting conservative risk policies. Loan acceptance criteria were tightened during 2009 to address deteriorating economic and market conditions. As at 31 December 2009, the portfolio consisted of \$34 billion (80% of the total portfolio) in these footprint states.
The SBO portfolio consists of purchased pools of home equity loans and lines whose current LTV (95.6% on a weighted average basis at 31 December 2009) and geographic profiles (74% outside of Citizens footprint states and a 30% concentration in California, Arizona and Nevada) have, in the current economic climate, resulted in an annualised write-off rate of 10.7% in 2009. The SBO book has been closed to new purchases since the third quarter of 2007 and is in run-off, with exposure down from \$7.0 billion at 31 December 2008 to \$5.5 billion at 31 December 2009.
The current weighted average LTV of the real estate portfolio rose slightly during the year to 72.0% at 31 December 2009 (67.5% excluding the SBO portfolio), driven by significant price declines throughout the US. Based on the latest Case-Shiller forecast for the US market, economists still anticipate significant decreases in the first half of 2010 with improvements expected in late 2010 or early 2011.
The arrears rate increased significantly from 0.9% at 31 December 2008 to 1.5% at 31 December 2009. In part, this reflects the contraction of the portfolio caused by fewer new loans added, Citizens choosing to exercise its option to sell certain mortgages to the secondary market under long-term agreements, and higher run-off or pay-down rates across all residential products.
The Group's personal lending portfolio includes credit cards, unsecured loans, auto finance and overdrafts. The majority of personal lending exposures exist in the UK and the US. New defaults as a proportion of average loans and receivables were:
| 2009 | 2008 | ||||
|---|---|---|---|---|---|
| Impairment | Impairment | ||||
| charge as a % | charge as a % | ||||
| Average loans | of loans | Average loans | of loans | ||
| & receivables | & receivables | & receivables | & receivables | ||
| millions | % | millions | % | ||
| UK Personal lending: (1) | |||||
| UK Retail cards | £6,101 | 8.7 | £6,617 | 6.4 | |
| UK Retail loans | £12,062 | 5.9 | £13,545 | 3.3 | |
| US Personal lending: (2) | |||||
| Citizens cards | \$2,286 | 8.9 | \$2,275 | 4.9 | |
| Citizens auto loans | \$9,759 | 1.2 | \$11,386 | 1.1 |
Notes:
(1) The charge for UK Retail assets refers to impairment on assets in the year.
(2) The charge for Citizens assets refers to charge-offs in the year net of recoveries realised in the year.
The UK personal lending portfolio, of which 97% is in Core businesses, comprises credit cards, unsecured loans and overdrafts and totalled £20.3 billion at 31 December 2009, a decrease of 10% from 31 December 2008 (£22.5 billion) due to general market trend of customers repaying debt on credit cards and loan balances and a reduction in new lending.
Risk appetite continues to be actively managed across all unsecured products, reflecting the challenging economic environment. Support continues for customers in financial difficulties through breathing space initiatives on all unsecured products, whereby a thirty day breathing space allows customers to work with a not-for-profit debt advice agency to establish a debt repayment plan. During this time the Group suspends collection activity. A further extension of thirty days can be granted if progress is made and discussions are continuing. Investment in collection and recovery processes continues addressing both the continued support for our customers and the management of impairments.
Default rates on both cards and loans in the UK increased in 2009, driven by the deterioration in economic environment and, to a lesser extent, the reduction in total balances. Default rates are still sensitive to economic developments, notably unemployment rates.
The Citizens credit card portfolio totalled US\$2.3 billion, at 31 December 2009. Core assets comprised 58% of the portfolio.
The Citizens cards business adopts conservative risk strategies compared to the US market as illustrated by the business generally performing better than industry benchmarks (provided by VISA). The latest available metrics (December 2009) show the rate for 60+ days delinquency as a percentage of total outstandings at 4.4% (compared to an industry figure of 4.7%) and net contractual charge-offs as a percentage of total outstandings at 7.1 % (compared to an industry figure of 7.4%).
For new customers, lending criteria have been tightened and initial credit lines reduced. Existing customers are regularly monitored for changes in asset quality and behaviour and, where appropriate, proactive measures are taken to limit or reduce credit exposure.
Citizens is a leading provider of retail auto financing to US consumers through a network of 3,500 auto dealers located in 23 US states. It maintains a conservative, prime indirect auto lending credit programme with loss rates that have historically been below national averages. Current outstanding retail auto loan balances totalled \$8.8 billion as of 31 December 2009, with the 30-day delinquency rate at 2.6%. This compares to data reported by the American Bankers' Association (latest available is at 30 September 2009) showing the nationwide indirect auto lending delinquency rate at 2.8%. Citizens recently shifted its focus on auto financing, moving from a nationwide emphasis to its regional lending footprint. This, together with enhanced collection activities, has resulted in better than expected loss results. Total portfolio losses fell from \$129.6 million in 2008 to \$120.6 million in 2009.
This section discusses the components of property, transport and storage (automotive, shipping, aviation) and retail sectors, given their significance in the current market environment.
The Group's exposure to the wholesale property sector totals £104 billion, of which £85 billion is commercial property financing and analysed in detail below. The remainder comprises lending to property related sectors, including housing associations, estate agents and management companies, and non-lending exposures on off-balance sheet instruments and FX/derivatives.
The commercial property lending portfolio totalled £85 billion at 31 December 2009, an £11 billion or 12% decrease during the year. The Non-Core portion of the portfolio totalled £38 billion or 44% of the portfolio.
| 2009 | 2008 | |||
|---|---|---|---|---|
| Domicile of obligor | £m | % | £m | % |
| UK | 55,904 | 66 | 55,986 | 58 |
| Western Europe | 19,212 | 22 | 28,439 | 30 |
| Americas | 6,520 | 8 | 7,996 | 8 |
| RoW | 3,575 | 4 | 4,250 | 4 |
| 85,211 | 100 | 96,671 | 100 |
| 2009 | ||||
|---|---|---|---|---|
| Segment | £m | % | £m | % |
| Investment: | ||||
| - commercial | 47,371 | 56 | 54,028 | 56 |
| - residential | 12,921 | 15 | 13,937 | 14 |
| 60,292 | 71 | 67,965 | 70 | |
| Development: | ||||
| - commercial | 11,081 | 13 | 11,843 | 12 |
| - residential | 11,271 | 13 | 12,154 | 13 |
| 22,352 | 26 | 23,997 | 25 | |
| Other | 2,567 | 3 | 4,709 | 5 |
| 85,211 | 100 | 96,671 | 100 |
Speculative lending represents less than 1% of the portfolio. The Group's appetite for originating speculative commercial property lending is limited and any such business requires exceptional approval under the credit approval framework.
The decrease in asset valuations has placed pressure on the portfolio with more clients seeking renegotiations of LTV covenants in the context of granting structural enhancements or equity injections. The average LTV is 91% while the average interest coverage ratios for GBM and UK Corporate originated investment portfolios (Core and Non-Core combined) are 1.60 times and 1.64 times respectively.
Whilst asset valuations stabilised during the latter part of 2009, the outlook remains challenging with liquidity to support refinancing still reduced and high levels of concern regarding tenant failures. Wherever feasible, the Group works closely with clients to restructure loans while achieving mutual benefits.
Portfolios are subject to close monitoring within the originating division and a dedicated unit in the GRG focuses on commercial real estate to ensure that expertise is readily available to manage this portfolio actively on a coordinated basis globally.
The automotive, shipping and aviation portfolios form part of the transport and storage industry sector which stood at £46.2 billion at 31 December 2009, down 22% during the year. The remainder of the portfolio largely comprises land-based freight, storage and logistics companies.
Exposure to the automotive sector decreased from £13.3 billion at 31 December 2008 to £8.9 billion at 31 December 2009.
| 2009 | 2008 | |||||
|---|---|---|---|---|---|---|
| Core Non-Core | Total | |||||
| Segment | £m | £m | £m | % | £m | % |
| Original equipment manufacturers (OEMs) | 1,204 | 60 | 1,264 | 14 | 2,681 | 20 |
| Captive finance companies | 609 | 84 | 693 | 8 | 1,131 | 9 |
| Component suppliers | 750 | 81 | 831 | 9 | 1,854 | 14 |
| Retailers/services | 4,040 | 766 | 4,806 | 54 | 5,099 | 38 |
| Rental | 1,150 | 147 | 1,297 | 15 | 2,533 | 19 |
| 7,753 | 1,138 | 8,891 | 100 | 13,298 | 100 |
| 2009 | 2008 | |||||
|---|---|---|---|---|---|---|
| Core Non-Core | Total | |||||
| Domicile of obligor | £m | £m | £m | % | £m | % |
| Americas | 1,325 | 402 | 1,727 | 19 | 3,520 | 26 |
| Central Eastern Europe, Middle East and Africa | 373 | 152 | 525 | 6 | 872 | 7 |
| UK | 3,530 | 426 | 3,956 | 45 | 3,884 | 29 |
| Western Europe | 1,949 | 97 | 2,046 | 23 | 4,098 | 31 |
| Asia | 576 | 61 | 637 | 7 | 924 | 7 |
| 7,753 | 1,138 | 8,891 | 100 | 13,298 | 100 |
The global automotive industry continues to face long-term structural challenges of overcapacity, weakened consumer demand owing to economic conditions, reduced credit availability and high input costs. The global OEMs are experiencing changing demand patterns with a greater focus on developing markets versus their established markets. Shifting production capacity to lower cost overseas locations remains a priority but one that risks labour force issues. The industry is also challenged by increasingly stringent environmental legislation that is forcing a shift to smaller, lower emission vehicles. In 2009 the automotive industry benefited from considerable government support in the form of direct intervention (US manufacturers) and other forms (for example, car scrappage schemes). Whilst there are some emerging signs of recovery and stability, albeit with volumes at historically low levels, the outlook remains fragile as government support is withdrawn and with underlying demand likely to remain subdued.
The portfolio has reduced in size by a third since 31 December 2008 and whilst average credit quality was impacted by the restructuring of the large US manufacturers at the start of 2009, this restructuring provided a degree of stability to the portfolio that was largely maintained for the remainder of the year. Impairment provisions to date have not been material.
| 2009 | 2008 | ||||||
|---|---|---|---|---|---|---|---|
| Sector | Core Non-Core £m |
% | £m | % | |||
| £m | £m | ||||||
| Dry bulk | 2,568 | 777 | 3,345 | 28 | 3,775 | 28 | |
| Tankers | 3,103 | 1,640 | 4,743 | 39 | 4,975 | 37 | |
| Container | 756 | 685 | 1,441 | 12 | 1,256 | 10 | |
| Gas/offshore | 137 | 1,851 | 1,988 | 16 | 1,786 | 13 | |
| Other | 168 | 419 | 587 | 5 | 1,549 | 12 | |
| Total | 6,732 | 5,372 | 12,104 | 100 | 13,341 | 100 |
Note:
(1) Figures shown relate to direct shipping financing exposure and do not include related operating lease and counterparty exposures of £1.1 billion in 2009 and £3.3 billion in 2008.
The Group's shipping portfolio, is primarily focussed on fully secured mortgage finance business in the dry bulk and tanker sectors with a limited exposure to container vessels.
The performance of the sector over the past twelve months has been materially impacted by both the global downturn and the high volume of new capacity that has been delivered and will continue to come on stream into 2011.
The Group's strategy is to focus on cash flows relating to the ships financed and to work with longterm industry participants in Europe and North America where the Group has long-standing relationships and where the companies have a demonstrated ability to withstand cyclical downturns. Asset selection has been to focus on modern tonnage (average vessel age is eight years).
The performance of the portfolio reflects a rising level of stress with a number of transactions restructured in response to asset price reductions and security covenant breaches. The value of the fleet is reviewed on a quarterly basis and a large majority of deals remain fully secured. There have been few instances of payment default and in the majority of cases owners have supported transactions through cash injections. Cases on the Group's watch list that are more closely monitored and controlled have increased and now stand at £1 billion, or 7% of the total portfolio.
| 2009 | ||||||
|---|---|---|---|---|---|---|
| Core | Non-Core | Total | ||||
| £m | £m | £m | % | £m | % | |
| Operating leases (1) | - | 7,126 | 7,126 | 46 | 10,270 | 50 |
| Secured debt | 1,360 | 3,352 | 4,712 | 30 | 5,252 | 26 |
| Sovereign guaranteed debt | - | 2,774 | 2,774 | 18 | 3,324 | 17 |
| Unsecured debt | 910 | - | 910 | 6 | 1,093 | 5 |
| Other | - | - | - | - | 405 | 2 |
| 2,270 | 13,252 | 15,522 | 100 | 20,344 | 100 |
Note:
(1) Operating lease assets, which are included in property, plant and equipment, represents the net investment in aircraft owned and on order. A smaller figure, £1 billion, is included within credit risk assets, representing the risk of customer default on lease arrangements.
The aviation portfolio comprises a number of activities, but is primarily focussed on the Dublin based Aviation Capital business, which has been designated as Non-Core.
The aviation sector has been under considerable pressure owing to the global downturn and compounded by the impact of the H1N1 virus (particularly in South America), overcapacity (notably in India and North America) and intense competition. Despite the publicised failure of several airlines, within the Group's portfolio there have been very low incidences of payment defaults and exposures requiring restructuring.
The Group's strategy is to focus on modern assets that are widely used across airlines and to maintain relationships with the strongest operators with the most flexible cost base. The majority of the portfolio is secured on modern aircraft and, although asset prices have weakened, exposures remain fully secured.
Aviation exposure on the Group's watch list, where there is an increased level of management control and oversight, totalled £1.4 billion at 31 December 2009. Notwithstanding reduced passenger volumes, the leased fleet remains fully utilised. The young age and commodity nature of the assets and the quality of the lessees result in a limited expectation of aircraft being returned.
| 2009 | 2008 | |||||
|---|---|---|---|---|---|---|
| Core Non-Core | Total | |||||
| Domicile | £m | £m | £m | % | £m | % |
| Americas | 2,406 | 146 | 2,552 | 15 | 4,088 | 22 |
| Central Eastern Europe, Middle East and Africa | 394 | 74 | 468 | 3 | 589 | 3 |
| UK | 6,810 | 1,180 | 7,990 | 49 | 7,483 | 41 |
| Western Europe | 3,160 | 1,889 | 5,049 | 31 | 5,531 | 30 |
| Asia | 211 | 64 | 275 | 2 | 643 | 4 |
| 12,981 | 3,353 | 16,334 | 100 | 18,334 | 100 |
| 2009 | 2008 | |||||
|---|---|---|---|---|---|---|
| Core Non-Core | Total | |||||
| Segment | £m | £m | £m | % | £m | % |
| Household goods | 2,127 | 338 | 2,465 | 15 | 3,117 | 17 |
| Food, beverages and tobacco | 3,191 | 162 | 3,353 | 21 | 4,235 | 23 |
| Clothing and footwear | 1,176 | 379 | 1,555 | 9 | 2,345 | 13 |
| Pharmaceutical, health and beauty | 1,424 | 236 | 1,660 | 10 | 2,049 | 11 |
| Other retail | 5,063 | 2,238 | 7,301 | 45 | 6,588 | 36 |
| 12,981 | 3,353 | 16,334 | 100 | 18,334 | 100 |
The Group's exposure to the retail sector was £16.3 billion at 31 December 2009, down 11% on the prior year. The portfolio is well spread geographically and across sub-sectors.
Economic weakness and reduced consumer confidence is affecting the sector, with the impact most severe for stores reliant on high discretionary spend and for smaller retailers. Food retailers generally fared well during the year, as did the 'value' end of the sector in the context of reduced household spending.
Whilst there has been some flow of retail customers into the Global Restructuring Group, the total value of debt managed by that team remains low. Economic conditions are increasingly bringing to light those in the sector with poor operating models and stretched balance sheets. The more successful operators continue to adapt their customer proposition, operating models and capital structure to the new environment whilst keeping tight control on working capital.
Analysis of debt securities by external ratings, mapped onto Standard & Poor's ratings scale are set out below.
| UK and US government |
Other government |
Bank and building society |
Asset-backed securities |
Corporate | Other | Total | |
|---|---|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | £m | £m | |
| 2009 | |||||||
| AAA | 49,820 | 44,396 | 4,012 | 65,067 | 2,263 | - | 165,558 |
| BBB- and above | - | 39,009 | 9,523 | 17,071 | 5,476 | - | 71,079 |
| Non-investment grade | - | 353 | 169 | 3,515 | 2,042 | - | 6,079 |
| Unrated | - | 504 | 289 | 1,949 | 2,601 | 1,036 | 6,379 |
| 49,820 | 84,262 | 13,993 | 87,602 | 12,382 | 1,036 | 249,095 | |
| 2008 | |||||||
| AAA | 35,301 | 43,197 | 8,126 | 93,853 | 3,953 | - | 184,430 |
| BBB- and above | - | 15,862 | 13,013 | 11,437 | 10,172 | - | 50,484 |
| Non-investment grade | - | 242 | 127 | 3,678 | 2,259 | - | 6,306 |
| Unrated | - | 409 | 1,445 | 2,175 | 4,517 | 3,393 | 11,939 |
| 35,301 | 59,710 | 22,711 | 111,143 | 20,901 | 3,393 | 253,159 |
The table below sets out the Group's loans that are classified as REIL and PPL.
| 30 September | 31 December | ||||
|---|---|---|---|---|---|
| 31 December 2009 | 2009 | 2008 | |||
| Core | Non-Core | Total | Total | Total | |
| £m | £m | £m | £m | £m | |
| Loans accounted for on a non-accrual basis: | |||||
| Domestic | 6,348 | 7,221 | 13,569 | 12,857 | 8,579 |
| Foreign | 4,383 | 13,859 | 18,242 | 18,945 | 8,503 |
| 10,731 | 21,080 | 31,811 | 31,802 | 17,082 | |
| Accruing loans which are contractually overdue 90 days or more as to principal interest: |
|||||
| Domestic | 1,135 | 1,089 | 2,224 | 2,492 | 1,201 |
| Foreign | 223 | 731 | 954 | 714 | 508 |
| 1,358 | 1,820 | 3,178 | 3,206 | 1,709 | |
| Total REIL | 12,089 | 22,900 | 34,989 | 35,008 | 18,791 |
| PPL | |||||
| Domestic | 137 | 287 | 424 | 605 | 218 |
| Foreign | 135 | 365 | 500 | 14 | 8 |
| Total PPL | 272 | 652 | 924 | 619 | 226 |
| Total REIL and PPL | 12,361 | 23,552 | 35,913 | 35,627 | 19,017 |
| REIL as a % of gross lending to customers excluding reverse repos (1) |
2.8% | 15.1% | 6.1% | 5.7% | 2.7% |
| REIL and PPL as a % of gross lending to customers excluding reverse repos (1) |
2.9% | 15.5% | 6.2% | 5.8% | 2.7% |
Note:
(1) Includes gross loans relating to disposal groups.
| Total | ||||||
|---|---|---|---|---|---|---|
| Total | provision | |||||
| REIL | Total | provision as | as % of | |||
| REIL | PPL | & PPL | provision | % of REIL | REIL & PPL | |
| £m | £m | £m | £m | % | % | |
| 31 December 2009 | ||||||
| UK Retail | 4,641 | - | 4,641 | 2,677 | 58 | 58 |
| UK Corporate | 2,330 | 97 | 2,427 | 1,271 | 55 | 52 |
| Wealth | 218 | 38 | 256 | 55 | 25 | 21 |
| Global Banking & Markets | 1,800 | 131 | 1,931 | 1,289 | 72 | 67 |
| Global Transaction Services | 197 | 4 | 201 | 189 | 96 | 94 |
| Ulster Bank | 2,260 | 2 | 2,262 | 962 | 43 | 43 |
| US Retail & Commercial | 643 | - | 643 | 478 | 74 | 74 |
| Core | 12,089 | 272 | 12,361 | 6,921 | 57 | 56 |
| Non-Core | 22,900 | 652 | 23,552 | 8,252 | 36 | 35 |
| 34,989 | 924 | 35,913 | 15,173 | 43 | 42 | |
| 31 December 2008 | ||||||
| UK Retail | 3,832 | - | 3,832 | 2,086 | 54 | 54 |
| UK Corporate | 1,254 | 74 | 1,328 | 696 | 56 | 52 |
| Wealth | 107 | 24 | 131 | 34 | 32 | 26 |
| Global Banking & Markets | 869 | 18 | 887 | 621 | 71 | 70 |
| Global Transaction Services | 53 | - | 53 | 43 | 81 | 81 |
| Ulster Bank | 1,196 | 1 | 1,197 | 491 | 41 | 41 |
| US Retail & Commercial | 424 | - | 424 | 298 | 70 | 70 |
| Core | 7,735 | 117 | 7,852 | 4,269 | 55 | 54 |
| Non-Core | 11,056 | 109 | 11,165 | 5,182 | 47 | 46 |
| 18,791 | 226 | 19,017 | 9,451 | 50 | 50 |
The following table shows total impairment losses charged to the income statement.
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2009 | 2008 | 2009 | 2009 | 2008 | ||
| £m | £m | £m | £m | £m | ||
| New loan impairment losses | 14,224 | 7,693 | 3,170 | 3,393 | 4,747 | |
| less: recoveries of amounts previously written-off | (325) | (261) | (71) | (114) | (74) | |
| Charge to income statement | 13,899 | 7,432 | 3,099 | 3,279 | 4,673 | |
| Comprising: | ||||||
| Loan impairment losses | 13,090 | 6,478 | 3,032 | 3,262 | 4,049 | |
| Impairment losses on available-for-sale securities | 809 | 954 | 67 | 17 | 624 | |
| Charge to income statement | 13,899 | 7,432 | 3,099 | 3,279 | 4,673 |
| Year ended | |||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| UK Retail | 1,679 | 1,019 | 451 | 404 | 292 |
| UK Corporate | 927 | 319 | 190 | 187 | 169 |
| Wealth | 33 | 16 | 10 | 1 | 8 |
| Global Banking & Markets | 640 | 522 | 130 | 272 | 502 |
| Global Transaction Services | 39 | 54 | 4 | 22 | 40 |
| Ulster Bank | 649 | 106 | 348 | 144 | 71 |
| US Retail & Commercial | 702 | 437 | 153 | 180 | 177 |
| RBS Insurance | 8 | 42 | - | 2 | 42 |
| Central items | 1 | (19) | 2 | 1 | 11 |
| Core | 4,678 | 2,496 | 1,288 | 1,213 | 1,312 |
| Non-Core | 9,221 | 4,936 | 1,811 | 2,066 | 3,361 |
| Group impairment losses | 13,899 | 7,432 | 3,099 | 3,279 | 4,673 |
| Year ended | |||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2009 | 2008 | 2009 | 2009 | 2008 | |
| £m | £m | £m | £m | £m | |
| Latent loss | 1,184 | 769 | 224 | 236 | 494 |
| Collectively assessed | 3,994 | 2,391 | 956 | 1,035 | 815 |
| Individually assessed (1) | 7,878 | 3,200 | 1,842 | 1,975 | 2,622 |
| Charge to income statement (2) | 13,056 | 6,360 | 3,022 | 3,246 | 3,931 |
| Charge as a % of customer loans and | |||||
| advances – gross (3) | 2.3% | 0.9% | 2.1% | 2.1% | 2.2% |
Notes:
(1) Excludes loan impairment charge against loans and advances to banks of £34 million (2008 - £118 million).
(2) Excludes impairment of available-for-sale securities of £809 million (2008 - £954 million).
(3) Gross of provisions and excluding reverse repurchase agreements. Includes gross loans relating to disposal groups.
| 31 December 2009 | 31 December | |||
|---|---|---|---|---|
| Core | Non-Core | Total | 2008 | |
| £m | £m | £m | £m | |
| Latent loss | 2,005 | 735 | 2,740 | 1,719 |
| Collectively assessed provision | 3,509 | 1,266 | 4,775 | 3,692 |
| Individually assessed provision | 1,272 | 6,229 | 7,501 | 3,913 |
| Total (1) | 6,786 | 8,230 | 15,016 | 9,324 |
Note:
(1) Excludes £157 million relating to loans and advances to banks (2008 - £127 million).
The following table shows the movement in the provision for impairment losses for loans and advances to customers and banks.
| 2009 | ||||||
|---|---|---|---|---|---|---|
| Individually assessed | Collectively | |||||
| Banks | Customers | Assessed | Latent | Total | 2008 | |
| £m | £m | £m | £m | £m | £m | |
| At 1 January | 127 | 3,913 | 3,692 | 1,719 | 9,451 | 4,972 |
| Transfers to disposal groups | - | (152) | (111) | (58) | (321) | - |
| Currency translation and other | ||||||
| adjustments | (4) | (263) | (56) | (105) | (428) | 1,007 |
| Disposals | - | (65) | - | - | (65) | (178) |
| Amounts written-off | - | (3,609) | (2,869) | - | (6,478) | (2,897) |
| Recoveries of amounts previously | ||||||
| written-off | - | 38 | 287 | - | 325 | 261 |
| Charge to income statement | 34 | 7,878 | 3,994 | 1,184 | 13,090 | 6,478 |
| Discount unwind | - | (239) | (162) | - | (401) | (192) |
| At 31 December | 157 | 7,501 | 4,775 | 2,740 | 15,173 | 9,451 |
The Group's liquidity policy is designed to ensure that the Group can at all times meet its obligations as they fall due.
Liquidity management within the Group addresses the overall balance sheet structure and the control, within prudent limits, of risk arising from the mismatch of maturities across the balance sheet and from exposure to undrawn commitments and other contingent obligations.
Following a difficult first quarter of 2009, most indicators of stress in financial markets are close to or better than in late 2008. Liquidity conditions in money and debt markets have improved significantly since the beginning of the second quarter of 2009. Contributing to the improvement has been a combination of ongoing central bank and other official liquidity support schemes, guarantee schemes and rate cuts. Signs of underlying macroeconomic trends such as stabilisation of the UK economy also helped to sustain a recovery in debt markets.
The Group regularly evaluates its structural liquidity risk and applies a variety of balance sheet management and term funding strategies to maintain this risk within its policy parameters. The degree of maturity mismatch within the overall long-term structure of the Group's assets and liabilities is managed within internal policy guidelines, aimed at ensuring term asset commitments are funded on an economic basis over their life. In managing its overall term structure, the Group analyses and takes into account the effect of retail and corporate customer behaviour on actual asset and liability maturities where they differ materially from the underlying contractual maturities.
The Group targets diversification in its funding sources to reduce funding risk. A key source of funds for the Group is core customer deposits gathered by its retail banking, private client, corporate and small and medium enterprises franchises. The Group's multi-brand offering and strong client focus is a key part of the funding strategy and continues to benefit the Group's funding position.
The Group also accesses the wholesale funding market to provide additional flexibility in funding sources. The Group has actively sought to manage its liquidity position through increasing the duration of wholesale funding, continued diversification of wholesale debt investors and depositors, supplemented by long-term issuance, government guaranteed debt, and a programme of ensuring that assets held are eligible as collateral to access central bank liquidity schemes.
The short-term maturity structure of the Group's liabilities and assets is managed daily to ensure that all material or potential cash flows, undrawn commitments and other contingent obligations can be met. The primary focus of the daily management activity is to ensure access to sufficient liquidity to meet cash flow obligations within key time horizons, including out to one month ahead and FSA target horizons such as 90 days.
Potential sources of liquidity include cash inflows from maturing assets, new borrowings or the sale of various debt securities held. Short-term liquidity risk is generally managed on a consolidated basis with liquidity mismatch limits in place for subsidiaries and non-UK branches which have material local treasury activities, thereby assuring that the daily maintenance of the Group's overall liquidity risk position is not compromised.
The Group also actively monitors and manages future business volumes to assess funding and liquidity requirements and ensure that the Group operates within the risk appetite and metrics set by the Board. This includes management of undrawn commitments, conduits and liquidity facilities within acceptable levels.
The Group holds a diversified stock of highly marketable liquid assets including highly rated central government debt that can be used as a buffer against unforeseen impacts on cash flows or in stressed environments. The make up of this portfolio of assets is sub-divided into tiers on the basis of asset liquidity with haircuts applied to ensure that realistic liquidation values are used in key metrics. This portfolio includes a centrally held buffer against severe liquidity stresses and locally held buffers to meet self sufficiency needs.
The Group performs stress tests to simulate how events may impact its funding and liquidity capabilities. Such tests assist in the planning of the overall balance sheet structure, help define suitable limits for control of the risk arising from the mismatch of maturities across the balance sheet and from undrawn commitments and other contingent obligations, and feed into the risk appetite and contingency funding plan. The form and content of stress tests are updated where required as market conditions evolve. These stresses include the following scenarios:
Contingency funding plans have been developed which incorporate early warning indicators to monitor market conditions. The Group reviews its contingency funding plans in the light of evolving market conditions and stress test results. The contingency funding plans cover: the available sources of contingent funding to supplement cash flow shortages; the lead times to obtain such funding; the roles and responsibilities of those involved in the contingency plans, the communication and escalation requirements when early warning indicators signal deteriorating market conditions; and the ability and circumstances within which the Group accesses central bank liquidity.
Liquidity risk is constantly monitored to evaluate the Group's position having regard to its risk appetite and key metrics. Daily, weekly and monthly monitoring and control processes are in place, which allow management to take appropriate action. Actions taken to improve the liquidity risk include a focus on reducing the loan to deposit ratio, issuing longer-term wholesale funding, both guaranteed and unguaranteed, and the size of the conduit commitments. Metrics include, but are not limited to:
As the wholesale funding markets have improved over the course of 2009 the Group has been better able to manage both its short and longer-term funding requirements and has significantly reduced its reliance on central bank funding. In 2009, the Group issued £21 billion of public, private and structured unguaranteed debt securities with a maturity greater than one year, including issuances with maturities of ten years and five years of £3 billion and £2 billion respectively. To provide protection from liquidity risk in these markets the Group targets the ratio of wholesale funding greater than one year. The proportion of outstanding debt instruments issued with a remaining maturity of greater than 12 months has increased from 45% at 31 December 2008 to 50% at 31 December 2009, reflecting a lengthening of the maturity profile of debt issuance over the period. The Group is also targeting an absolute funding reliance (unsecured wholesale funding with a residual maturity of less than one year) of less than £150 billion by 2013. The 2013 target can also be segmented further into bank deposits of less than £65 billion and other unsecured wholesale funding of less than £85 billion. The reliance on wholesale funding has improved from £343 billion as at 31 December 2008 to £249 billion at 31 December 2009 (and this figure includes £109 billion of bank deposits).
In common with other UK banks, the Group has benefited from the UK Government's scheme to guarantee debt issuance. At 31 December 2009 the Group had issued debt securities amounting to £52 billion (2008 - £32 billion), which is approximately 38% of the total UK Government guaranteed debt.
The Group monitors the loan to deposit ratio as a key metric. This ratio has decreased from 118% at 31 December 2008 to 104% at 31 December 2009 for Core and from 151% at 31 December 2008 to 134% at 31 December 2009 for the Group. The Group has a target of 100% for 2013. The gap between customer loans and customer deposits (excluding repos) narrowed by £91 billion from £233 billion as at 31 December 2008 to £142 billion as at 31 December 2009.
Undrawn commitments: The Group has been actively managing down the amount of undrawn commitments that it is exposed to. Undrawn commitments have decreased from £349 billion as at 31 December 2008 to £289 billion as at 31 December 2009.
Conduit commitments: The Group has taken additional measures to improve the balance sheet structure. One area of focus has been reducing the size of the multi-seller conduits business, which relies upon funding assets through the issuance of short-term asset backed commercial paper. Total facilities have declined by £17.9 billion to £25.0 billion at 31 December 2009. This has reduced the liquidity risk to the Group through the commitments provided for this type of business.
Liquidity reserves: The total stock of liquid assets has increased by £81 billion during 2009 from £90 billion at 31 December 2008 to £171 billion at 31 December 2009; this reflects the injection of £25.5 billion of B Shares at the end of December 2009 provided as treasury bills and cash. The Group is targeting a liquidity pool of £150 billion by 2013. The table below shows the breakdown of these assets. In addition to available liquid assets, the Group has a pool of unencumbered assets that are available for securitisation to raise funds if and when required.
| 31 December 2009 |
30 September 2009 |
31 December 2008 |
|
|---|---|---|---|
| Liquidity reserves | £m | £m | £m |
| Government securities | 57,407 | 41,976 | 27,303 |
| Cash and central bank balances | 51,500 | 37,000 | 11,830 |
| Unencumbered collateral (1) | 42,055 | 35,852 | 30,054 |
| Other liquid assets | 19,699 | 25,221 | 20,647 |
| 170,661 | 140,049 | 89,834 |
Note:
(1) Includes secured assets which are eligible for discounting at central banks.
Repo agreements: At 31 December 2009 the Group had £68 billion of customer secured funding and £38 billion of bank secured funding, which includes borrowing using central bank funding schemes. With markets continuing to stabilise through the course of 2009, the Group has significantly reduced its reliance on secured funding from central bank liquidity schemes.
The table below shows the composition of the Group's sources of wholesale funding. The Group has implemented its funding strategy of reducing its reliance on short-term wholesale funding. Deposits by banks have decreased by £63 billion to £116 billion; comprising 14.3% of total funding sources as at 31 December 2009, down from 18.8% as at 31 December 2008. Short term debt securities such as commercial paper and certificates of deposits in issue have also reduced by £41 billion to £103 billion as at 31 December 2009 from £144 billion as at 31 December 2008.
| 31 December 2009 | 30 September 2009 | 31 December 2008 | ||||
|---|---|---|---|---|---|---|
| £m | % | £m | % | £m | % | |
| Deposits by banks (1) | 115,642 | 14.3 | 138,584 | 16.1 | 178,943 | 18.8 |
| Debt securities in issue: | ||||||
| - Commercial paper | 44,307 | 5.5 | 45,508 | 5.3 | 69,891 | 7.3 |
| - Certificates of deposits | 58,195 | 7.2 | 79,305 | 9.2 | 73,925 | 7.8 |
| - Medium term notes and other bonds | 125,800 | 15.6 | 124,531 | 14.4 | 108,529 | 11.4 |
| - Securitisations | 18,027 | 2.2 | 16,869 | 2.0 | 17,113 | 1.8 |
| 246,329 | 30.5 | 266,213 | 30.9 | 269,458 | 28.3 | |
| Subordinated debt | 31,538 | 3.9 | 33,085 | 3.8 | 43,678 | 4.6 |
| Total wholesale funding | 393,509 | 48.7 | 437,882 | 50.8 | 492,079 | 51.7 |
| Customer deposits (1) | 414,251 | 51.3 | 423,769 | 49.2 | 460,318 | 48.3 |
| 807,760 | 100.0 | 861,651 | 100.0 | 952,397 | 100.0 |
Note:
(1) Excluding repurchase agreements and stock lending.
The total level of the Group's wholesale funding has reduced year on year by £99 billion with the majority of the reduction attributable to a reduced reliance on inter-bank funding.
The table below shows the maturity profile of the Group's debt securities in issue and subordinated debt. The composition of the profile reflects the increased proportion of the Group's debt securities in issue of greater than 1 year maturity. Debt securities with a remaining maturity of less than 1 year has reduced by £33 billion to £139 billion as at 31 December 2009 down from £172 billion as at 31 December 2008.
| 31 December 2009 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Debt | ||||||||
| securities | Subordinated | |||||||
| in issue | debt | Total | 30 September 2009 | 31 December 2008 | ||||
| £m | £m | £m | % | £m | % | £m | % | |
| Less than one year | 136,901 | 2,144 | 139,045 | 50.0 | 162,427 | 54.3 | 172,234 | 55.0 |
| 1-5 years | 70,437 | 4,235 | 74,672 | 26.9 | 75,227 | 25.1 | 61,842 | 19.8 |
| More than 5 years | 38,991 | 25,159 | 64,150 | 23.1 | 61,644 | 20.6 | 79,060 | 25.2 |
| Total | 246,329 | 31,538 | 277,867 | 100.0 | 299,298 | 100.0 | 313,136 | 100.0 |
The net stable funding ratio shown below is assessed using the proposed Basel measure. This measure seeks to show the proportion of structural term assets which are funded by stable funding including customer deposits, long-term wholesale funding, and equity. Through the course of 2009, the measure has improved from 79% at 31 December 2008 to 90% at 31 December 2009. Over time this will be reviewed as proposals are developed and industry standards implemented.
| 2009 | 2008 | ||||
|---|---|---|---|---|---|
| ASF(1) | ASF(1) | Weighting | |||
| £bn | £bn | £bn | £bn | % | |
| Equity | 80 | 80 | 62 | 62 | 100 |
| Wholesale lending > 1 year | 144 | 144 | 149 | 149 | 100 |
| Wholesale lending < 1 year | 249 | - | 343 | - | - |
| Derivatives | 422 | - | 969 | - | - |
| Repos | 106 | - | 142 | - | - |
| Customer deposits | 415 | 353 | 460 | 391 | 85 |
| Others (deferred tax, insured liabilities, etc) | 106 | - | 94 | - | - |
| Total liabilities and equity | 1,522 | 577 | 2,219 | 602 | |
| Cash | 52 | - | 12 | - | - |
| Inter bank lending | 49 | - | 71 | - | - |
| Government and corporate bonds | 249 | 50 | 253 | 51 | 20 |
| Derivatives | 438 | - | 991 | - | - |
| Reverse repos | 76 | - | 98 | - | - |
| Advances < 1 year | 139 | 69 | 173 | 87 | 50 |
| Advances >1 year | 416 | 416 | 518 | 518 | 100 |
| Others (Prepayments, accrued income, deferred | |||||
| taxation) | 103 | 103 | 103 | 103 | 100 |
Total assets 1,522 638 2,219 759
Net stable funding ratio 90% 79%
Note:
(1) ASF means available stable funding.
Whilst there have been improvements in the state of the global economy over the course of 2009, the outlook for 2010 remains uncertain. In line with meeting the objectives of the Strategic Plan, the Group is actively focusing on closing the customer funding gap, continuing to exit Non-Core businesses and focusing on reducing undrawn and contingent commitments. This will reduce the absolute need for wholesale funding, with the Group targeting £150 billion in 2013. In addition, the Group will continue to make progress in terming out its remaining wholesale funding. The Group will continue to reduce reliance on government supported schemes, and be governed by the state of the markets and the economies in which it operates. These strategies will ensure that the Group will be more resilient to any further disruptions in the market and will be better placed to take advantage of favourable trading conditions as they return.
Market risk arises from changes in interest rates, foreign currency, credit spread, equity prices and risk related factors such as market volatilities. The Group manages market risk centrally within its trading and non-trading portfolios through a comprehensive market risk management framework. This framework includes limits based on, but not limited to VaR, scenario analysis, position and sensitivity analyses.
At the Group level the risk appetite is expressed in the form of a combination of VaR, sensitivity and scenario limits. VaR is a technique that produces estimates of the potential change in the market value of a portfolio over a specified time horizon at given confidence levels. For internal risk management purposes, the Group's VaR assumes a time horizon of one trading day and in June 2009 the Group changed the VaR confidence level from 95% to 99% as it considers this provides greater clarity in respect of more severe potential economic outcomes. The Group's VaR model is based on a historical simulation model, utilising data from the previous two years trading results.
The VaR disclosure is broken down into trading and non-trading, where trading VaR relates to the main trading activities of the Group and non-trading reflects the VaR associated with reclassified assets, money market business and the management of internal funds flow within the Group's businesses.
As part of the Strategic Review, the designation of assets between Core and Non-Core divisions was completed during 2009. As the Non-Core division was not established until the conclusion of the Strategic Review in the first quarter of 2009, constitution of the average, maximum and minimum VaR for Core and Non-Core has been prepared on a best efforts basis as these measures require daily data.
All VaR models have limitations, which include:
These limitations mean that the Group cannot guarantee that losses will not exceed the VaR.
The VaR for the Group's 2009 trading portfolios segregated by type of market risk exposure is shown below.
| 2009 | 2008 | |||||||
|---|---|---|---|---|---|---|---|---|
| Average | Period end Maximum Minimum | Average Period end Maximum | Minimum | |||||
| £m | £m | £m | £m | £m | £m | £m | £m | |
| Interest rate | 57.0 | 50.5 | 112.8 | 28.1 | 38.7 | 54.4 | 94.0 | 18.2 |
| Credit spread | 148.3 | 174.8 | 231.2 | 66.9 | 71.5 | 61.5 | 130.8 | 51.7 |
| Currency | 17.9 | 20.7 | 35.8 | 9.2 | 7.6 | 17.0 | 18.0 | 3.5 |
| Equity | 13.0 | 13.1 | 23.2 | 2.7 | 22.4 | 18.3 | 42.6 | 11.0 |
| Commodity | 14.3 | 8.9 | 32.1 | 6.5 | 9.9 | 10.0 | 25.8 | 0.2 |
| Diversification | (86.1) | (52.4) | ||||||
| 155.2 | 181.9 | 229.0 | 76.8 | 82.3 | 108.8 | 155.7 | 49.3 | |
| Core | 101.5 | 127.3 | 137.8 | 54.8 | ||||
| CEM (1) | 29.7 | 38.6 | 41.3 | 11.5 | ||||
| Core excluding CEM | 86.7 | 97.4 | 128.5 | 54.9 | ||||
| Non-Core | 86.3 | 84.8 | 162.1 | 29.3 |
Note:
(1) CEM: Counterparty exposure management.
(2) The VaR above excludes super senior tranches of asset backed CDOs as VaR no longer produces an appropriate measure of risk for these exposures due to the illiquidity and opaqueness of the pricing of these instruments over an extended period. For these exposures, the maximum potential loss is equal to the aggregate net exposure, which was £910 million as at 31 December 2009.
The VaR for the Group's non-trading portfolios and segregated by type of market risk exposure, is shown below.
| 2009 | 2008 | |||||||
|---|---|---|---|---|---|---|---|---|
| Average Period end Maximum Minimum | Average Period end Maximum | Minimum | ||||||
| £m | £m | £m | £m | £m | £m | £m | £m | |
| Interest rate | 15.5 | 16.5 | 26.1 | 9.5 | 10.6 | 24.4 | 32.9 | 5.2 |
| Credit spread | 211.2 | 213.3 | 270.3 | 65.4 | 10.5 | 65.2 | 65.2 | 5.5 |
| Currency | 1.4 | 0.6 | 7.0 | 0.2 | 0.6 | 2.2 | 5.7 | 0.1 |
| Equity | 3.6 | 2.3 | 7.2 | 1.7 | 3.4 | 7.0 | 8.0 | 0.8 |
| Diversification | (26.0) | (22.7) | ||||||
| 207.1 | 206.7 | 274.9 | 76.1 | 14.8 | 76.1 | 76.1 | 7.7 | |
| Core | 105.1 | 129.4 | 142.7 | 55.0 | ||||
| Non-Core | 112.6 | 87.6 | 145.3 | 20.2 |
Non-trading interest rate VaR for the Group's retail and commercial banking activities at a 99% confidence level was £101.3 million at 31 December 2009 (2008 - £76.7 million). During 2009, the maximum VaR was £123.2 million (2008 - £197.4 million), the minimum was £53.3 million (2008 - £76.7 million) and the average was £85.5 million (2008 - £130.0 million). A breakdown by currency of the Group's non-trading VaR (including RFS Holdings minority interest) is shown below.
| 2009 £m |
2008 £m |
|
|---|---|---|
| EUR | 32.2 | 30.9 |
| GBP | 111.2 | 26.0 |
| USD | 42.1 | 57.9 |
| Other | 9.0 | 14.0 |
At year end the GBP VaR was increased by the impact of the B share issuance.
There have been no material changes to the Group's measurement of, and management philosophy towards, the sensitivity of net interest income to movement in interest rates. The Group aims to be relatively neutral to directional shifts in interest rates and it seeks to mitigate the effect of prospective interest movements which could reduce future net interest income, whilst balancing the cost of such hedging activities on the current net revenue stream. The following table shows the sensitivity of net interest income over the next twelve months to an immediate up and down 1% change to all interest rates.
| 2009 £m |
2008 £m |
|
|---|---|---|
| + 100bp shift in yield curves | 510 | 139 |
| – 100bp shift in yield curves | (687) | (234) |
The base case projected net interest income is based on the Group's current balance sheet, forward rate paths implied by the yield curve as at 31 December and using contractual repricing dates. Where contractual repricing dates are not held an estimate of the likely timing and extent of any rate change is used. The projection also includes the expected effects of behavioural options such as the prepayment of residential mortgages. The above sensitivities show how this projected NII would change in response to an immediate parallel shift to all market rates.
The scenarios used are simplified in that they assume all interest rates for all currencies and maturities move at the same time and by the same amount and therefore do not reflect the potential effect on net interest income of some rates changing whilst others remain the same. The scenarios also do not incorporate actions that would be taken by the business units to mitigate the effect of this interest rate risk.
The projections do not take into account the effect on net interest income of anticipated differences in changes between interest rates and interest rates linked to other bases (such as central bank rates or product rates for which the entity has discretion over the timing and extent of rate changes). The projections make other simplifying assumptions, including that all positions run to maturity and that there are no negative interest rates.
The Group's asset sensitive position has increased in 2009. The primary contributors to the change are enhanced modelling of embedded deposit floors, active position management to benefit from the impact of a tightening US monetary policy regime by Citizens and the impact of not fully hedging the interest rate exposure related to the APS capital proceeds which were received in late December.
The Group does not maintain material non-trading open currency positions other than the structural foreign currency translation exposures arising from its investments in foreign subsidiaries and associated undertakings and their related currency funding. The Group's policy in relation to structural positions is to match fund the structural foreign currency exposure arising from net asset value, including goodwill in foreign subsidiaries, equity accounted investments and branches, except where to do so would materially increase the sensitivity of either the Group's or the subsidiary's regulatory capital ratios to currency movements. The policy requires structural foreign exchange positions to be reviewed regularly by Group Asset and Liability Committee. Foreign exchange differences arising on the translation of foreign operations are recognised directly in equity, together with the effective portion of foreign exchange differences arising on hedging instruments. Equity classification of foreign currency denominated preference share issuances means that these shares are recorded on the balance sheet at historic cost. Consequently, these share issuances have the effect of increasing the Group's structural foreign currency position.
| Net | Structural | |||
|---|---|---|---|---|
| Net assets | investments | Net | foreign | |
| of overseas | Minority | in foreign | investment | currency |
| operations | interests | operations | hedges | exposures |
| £m | £m | £m | £m | £m |
| 15,589 | (2) | 15,591 | (3,846) | 11,745 |
| 21,900 | 13,938 | 7,962 | (2,351) | 5,611 |
| 5,706 | 511 | 5,195 | (4,001) | 1,194 |
| 43,195 | 14,447 | 28,748 | (10,198) | 18,550 |
| 17,480 | (19) | 17,499 | (3,659) | 13,840 |
| 26,943 | 15,431 | 11,512 | (7,461) | 4,051 |
| 3,928 | 1,898 | 2,030 | (1,082) | 948 |
| 5,088 | 621 | 4,467 | (3,096) | 1,371 |
| 53,439 | 17,931 | 35,508 | (15,298) | 20,210 |
The tables below set out the Group's structural foreign currency exposures.
These disclosures provide information on certain elements of the Group's business activities affected by the unprecedented market events of the second half of 2007 and through 2008 and 2009, the majority of which reside within Non-Core and, to a lesser extent, Global Banking & Markets ('GBM'), US Retail & Commercial and Group Treasury. For certain disclosures the information presented has been analysed into the Group's Core and Non-Core businesses.
The Group structures, originates, distributes and trades debt in the form of loan, bond and derivative instruments, in all major currencies and debt capital markets in North America, Western Europe, Asia and major emerging markets. The carrying value of the Group's debt securities at 31 December 2009 was £249.1 billion (2008 - £253.2 billion). This comprised:
| 2009 | 2008 | ||||
|---|---|---|---|---|---|
| Group before | |||||
| Group before | RFS | ||||
| RFS Holdings | Holdings | ||||
| minority | minority | ||||
| interest | Group | interest | Group | ||
| £bn | £bn | £bn | £bn | ||
| Securities issued by central and local governments | 134.1 | 146.9 | 95.1 | 105.8 | |
| Asset-backed securities | 87.6 | 88.1 | 111.1 | 111.1 | |
| Securities issued by corporates, US federal agencies and other entities | 13.4 | 14.4 | 24.3 | 26.2 | |
| Securities issued by banks and building societies | 14.0 | 17.8 | 22.7 | 24.4 | |
| Total debt securities | 249.1 | 267.2 | 253.2 | 267.5 |
This section focuses on asset-backed securities, an area of interest following the market dislocations in 2007 and 2008. Asset-backed securities (ABS) are securities with an interest in an underlying pool of referenced assets. The risks and rewards of the referenced pool are passed onto investors by the issue of securities with varying seniority, by a special purpose entity.
The Group has exposures to ABS which are predominantly debt securities but can also be held in derivative form. These positions had been acquired primarily through the Group's activities in the US leveraged finance market which expanded during 2007. These include residential mortgage backed securities (RMBS), commercial mortgage backed securities (CMBS), ABS collateralised debt obligations (CDOs) and collateralised loan obligations (CLOs) and other ABS. In many cases the risk on these assets is hedged by way of credit derivative protection, purchased over the specific asset or relevant ABS indices. The counterparty to some of these hedge transactions are monoline insurers (see Monoline insurers on page 157).
The following table summarises the gross and net exposures and carrying values of these securities by geography – US, UK, other Europe and rest of the world (RoW) and by the measurement classification – held-for-trading (HFT), available-for-sale (AFS), loans and receivables (LAR) and designated at fair value through profit or loss (DFV) - of the underlying assets at 31 December 2009.
| Other | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| US | UK | Europe (4) | RoW | Total | HFT | AFS | LAR | DFV | |
| £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| 2009 | |||||||||
| Gross exposure:(1) | |||||||||
| RMBS: G10 governments(2) | 26,693 | 314 | 16,594 | 94 | 43,695 | 13,536 | 30,159 | - | - |
| RMBS: prime | 2,965 | 5,276 | 4,567 | 222 | 13,030 | 6,274 | 5,761 | 848 | 147 |
| RMBS: non-conforming | 1,341 | 2,138 | 128 | - | 3,607 | 635 | 1,498 | 1,474 | - |
| RMBS: sub-prime | 1,668 | 724 | 195 | 561 | 3,148 | 1,632 | 1,020 | 479 | 17 |
| CMBS | 3,422 | 1,781 | 1,420 | 75 | 6,698 | 2,936 | 1,842 | 1,711 | 209 |
| CDOs | 12,382 | 329 | 571 | 27 | 13,309 | 9,080 | 3,923 | 305 | 1 |
| CLOs | 9,092 | 166 | 2,169 | 1,173 | 12,600 | 5,346 | 6,581 | 673 | - |
| Other ABS | 3,587 | 1,980 | 5,031 | 1,569 | 12,167 | 2,912 | 5,252 | 3,985 | 18 |
| Total | 61,150 | 12,708 | 30,675 | 3,721 | 108,254 | 42,351 | 56,036 | 9,475 | 392 |
| Carrying value: | |||||||||
| RMBS: G10 governments(2) | 27,034 | 305 | 16,183 | 33 | 43,555 | 13,397 | 30,158 | - | - |
| RMBS: prime | 2,697 | 4,583 | 4,009 | 212 | 11,501 | 5,133 | 5,643 | 583 | 142 |
| RMBS: non-conforming | 958 | 1,957 | 128 | - | 3,043 | 389 | 1,180 | 1,474 | - |
| RMBS: sub-prime | 977 | 314 | 146 | 387 | 1,824 | 779 | 704 | 324 | 17 |
| CMBS | 3,237 | 1,305 | 924 | 43 | 5,509 | 2,279 | 1,638 | 1,377 | 215 |
| CDOs | 3,275 | 166 | 400 | 27 | 3,868 | 2,064 | 1,600 | 203 | 1 |
| CLOs Other ABS |
6,736 2,886 |
112 1,124 |
1,469 4,369 |
999 1,187 |
9,316 9,566 |
3,296 1,483 |
5,500 4,621 |
520 3,443 |
- 19 |
| Total | 47,800 | 9,866 | 27,628 | 2,888 | 88,182 | 28,820 | 51,044 | 7,924 | 394 |
| Net exposure:(3) | |||||||||
| RMBS: G10 governments(2) | 27,034 | 305 | 16,183 | 33 | 43,555 | 13,397 | 30,158 | - | - |
| RMBS: prime | 2,436 | 3,747 | 3,018 | 172 | 9,373 | 3,167 | 5,480 | 584 | 142 |
| RMBS: non-conforming | 948 | 1,957 | 128 | - | 3,033 | 379 | 1,180 | 1,474 | - |
| RMBS: sub-prime | 565 | 305 | 137 | 290 | 1,297 | 529 | 427 | 324 | 17 |
| CMBS | 2,245 | 1,228 | 595 | 399 | 4,467 | 1,331 | 1,556 | 1,377 | 203 |
| CDOs | 743 | 124 | 382 | 26 | 1,275 | 521 | 550 | 203 | 1 |
| CLOs | 1,636 | 86 | 1,104 | 39 | 2,865 | 673 | 1,672 | 520 | - |
| Other ABS | 2,117 | 839 | 4,331 | 1,145 | 8,432 | 483 | 4,621 | 3,309 | 19 |
| Total | 37,724 | 8,591 | 25,878 | 2,104 | 74,297 | 20,480 | 45,644 | 7,791 | 382 |
For notes to this table refer to page 153.
The table below summarises ABS carrying values and net exposures by geography and measurement classification at 31 December 2008.
| Other | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Europe | |||||||||
| US | UK | (4) | RoW | Total | HFT | AFS | LAR | DFV | |
| £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| 2008 | |||||||||
| Carrying value: | |||||||||
| RMBS: G10 governments (2) | 33,508 | 321 | 17,682 | 46 | 51,557 | 18,631 | 32,926 | - | - |
| RMBS: prime | 5,623 | 4,754 | 6,154 | 246 | 16,777 | 7,272 | 8,769 | 570 | 166 |
| RMBS: non-conforming | 1,111 | 2,906 | - | - | 4,017 | 352 | 2,183 | 1,482 | - |
| RMBS: sub-prime | 1,824 | 445 | 439 | 381 | 3,089 | 1,594 | 913 | 566 | 16 |
| CMBS | 2,145 | 1,395 | 1,646 | 141 | 5,327 | 2,751 | 1,126 | 1,437 | 13 |
| CDOs | 8,275 | 259 | 441 | 45 | 9,020 | 4,389 | 4,280 | 351 | - |
| CLOs | 6,428 | 329 | 2,605 | 255 | 9,617 | 3,385 | 5,299 | 933 | - |
| Other ABS | 3,582 | 1,622 | 5,098 | 1,437 | 11,739 | 1,505 | 6,572 | 3,621 | 41 |
| 62,496 | 12,031 | 34,065 | 2,551 | 111,143 | 39,879 | 62,068 | 8,960 | 236 | |
| Net exposure: (3) | |||||||||
| RMBS: G10 governments (2) | 33,508 | 321 | 17,682 | 46 | 51,557 | 18,631 | 32,926 | - | - |
| RMBS: prime | 5,548 | 3,667 | 5,212 | 215 | 14,642 | 5,138 | 8,768 | 570 | 166 |
| RMBS: non-conforming | 1,106 | 2,906 | - | - | 4,012 | 346 | 2,184 | 1,482 | - |
| RMBS: sub-prime | 358 | 408 | 380 | 313 | 1,459 | 346 | 571 | 526 | 16 |
| CMBS | 1,147 | 1,225 | 1,095 | 79 | 3,546 | 1,178 | 918 | 1,437 | 13 |
| CDOs | 2,402 | 127 | 311 | - | 2,840 | 1,618 | 873 | 349 | - |
| CLOs | 874 | 259 | 2,139 | 171 | 3,443 | 845 | 1,665 | 933 | - |
| Other ABS | 3,507 | 1,367 | 4,299 | 1,256 | 10,429 | 196 | 6,572 | 3,621 | 40 |
| 48,450 | 10,280 | 31,118 | 2,080 | 91,928 | 28,298 | 54,477 | 8,918 | 235 |
Notes:
(1) Gross exposures represent the principal amounts relating to asset-backed securities.
(2) RMBS: G10 government securities comprises securities that are:
(a) Guaranteed or effectively guaranteed by the US government, by way of its support for US federal agencies and Government sponsored enterprises (GSEs);
(3) Net exposures represent the carrying value after taking account of hedge protection purchased from monoline insurers and other counterparties but exclude the effect of counterparty credit valuation adjustments. The hedges provide credit protection of principal and interest cashflows in the event of default by the counterparty. The value of this protection is based on the underlying instrument being protected.
(4) Includes prime RMBS in RFS Holdings minority interests at 31 December 2009 comprising gross exposure: £558 million, carrying value: £579 million, and net exposure: £579 million. There was no ABS in RFS Holdings minority interest at 31 December 2008.
The table below summarises the ratings and valuation hierarchy levels of ABS carrying values.
| Ratings (1) | Of which carried at fair value (2) | |||||||
|---|---|---|---|---|---|---|---|---|
| BBB- | Non | Not | ||||||
| AAA | rated and | Investment | publicly | |||||
| rated (1) | above (1) | grade | rated | Total | Level 2 | Level 3 | Total | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
| 2009 | ||||||||
| RMBS: G10 governments | 43,005 | 550 | - | - | 43,555 | 43,555 | - | 43,555 |
| RMBS: prime | 9,211 | 1,731 | 558 | 1 | 11,501 | 10,696 | 221 | 10,917 |
| RMBS: non-conforming | 1,980 | 467 | 594 | 2 | 3,043 | 1,549 | 21 | 1,570 |
| RMBS: sub-prime | 578 | 514 | 579 | 153 | 1,824 | 1,371 | 128 | 1,499 |
| CMBS | 3,440 | 1,920 | 147 | 2 | 5,509 | 4,000 | 134 | 4,134 |
| CDOs | 616 | 2,141 | 849 | 262 | 3,868 | 2,640 | 1,025 | 3,665 |
| CLOs | 2,718 | 5,232 | 636 | 730 | 9,316 | 7,978 | 818 | 8,796 |
| Other ABS | 4,099 | 4,516 | 152 | 799 | 9,566 | 5,177 | 946 | 6,123 |
| 65,647 | 17,071 | 3,515 | 1,949 | 88,182 | 76,966 | 3,293 | 80,259 | |
| 2008 | ||||||||
| RMBS: G10 governments | 51,548 | - | - | 9 | 51,557 | 51,322 | 235 | 51,557 |
| RMBS: prime | 15,252 | 1,417 | 106 | 2 | 16,777 | 16,061 | 146 | 16,207 |
| RMBS: non-conforming | 3,532 | 337 | 146 | 2 | 4,017 | 2,486 | 50 | 2,536 |
| RMBS: sub-prime | 1,362 | 936 | 790 | 1 | 3,089 | 2,459 | 64 | 2,523 |
| CMBS | 3,702 | 1,586 | 38 | 1 | 5,327 | 3,315 | 574 | 3,889 |
| CDOs | 4,510 | 2,041 | 2,088 | 381 | 9,020 | 6,922 | 1,748 | 8,670 |
| CLOs | 7,299 | 1,601 | 268 | 449 | 9,617 | 7,721 | 963 | 8,684 |
| Other ABS | 6,649 | 3,519 | 242 | 1,329 | 11,739 | 6,676 | 1,442 | 8,118 |
| 93,854 | 11,437 | 3,678 | 2,174 | 111,143 | 96,962 | 5,222 | 102,184 |
Notes:
(1) Credit ratings are based on those from rating agency Standard & Poor's (S&P). Moody's and Fitch have been mapped onto the S&P scale.
(2) Fair value hierarchy levels 2 and 3 as defined by IFRS.
CVA represents an estimate of the adjustment to arrive at fair value that a market participant would make to incorporate the credit risk inherent in counterparty derivative exposures. The Group makes credit adjustments to derivative exposures it has to counterparties as well as debit valuation adjustments (DVA) to liabilities issued by the Group. The Group's methodology used for deriving DVA is different to that used for CVA and is discussed within Note 13 Financial Instruments – own credit on page 100.
The Group has purchased protection on its asset-backed exposures from monoline insurers ('monolines'), credit derivative product companies (CDPCs) and other counterparties. The Group makes CVAs to exposures it has to these counterparties. The CVAs at 31 December 2009 are set out below.
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| Monoline insurers | 3,796 | 5,988 |
| CDPCs | 499 | 1,311 |
| Other counterparties | 1,588 | 1,738 |
| Total CVA adjustments | 5,883 | 9,037 |
The Group has purchased protection from monolines, mainly against specific asset-backed securities. Monolines specialise in providing credit protection against the principal and interest cash flows due to the holders of debt instruments in the event of default by the debt instrument counterparty. This protection is typically held in the form of derivatives such as credit default swaps (CDSs) referencing underlying exposures held directly or synthetically by the Group.
The gross mark-to-market of the monoline protection depends on the value of the instruments against which protection has been bought. A positive fair value, or a valuation gain, in the protection is recognised if the fair value of the instrument it references decreases. For the majority of trades the gross mark-to-market of the monoline protection is determined directly from the fair value price of the underlying reference instrument. For the remainder of the trades the gross mark-to-market is determined using industry standard models.
The methodology employed to calculate the monoline CVA uses CDS spreads and recovery levels to determine the market implied level of expected loss on monoline exposures of different maturities. CVA is calculated at a trade level by applying the expected loss corresponding to each trade's expected maturity to the gross mark-to-market of the monoline protection. The expected maturity of each trade reflects the scheduled notional amortisation of the underlying reference instruments and whether payments due from the monoline insurer are received at the point of default or over the life of the underlying reference instruments.
The table below summarises the Group's exposure to monolines, all of which are in the Non-Core division.
| 2009 £m |
2008 £m |
|
|---|---|---|
| Gross exposure to monolines Hedges with financial institutions Credit valuation adjustment |
6,170 (531) (3,796) |
11,581 (789) (5,988) |
| Net exposure to monolines | 1,843 | 4,804 |
| CVA as a % of gross exposure | 62% | 52% |
The table below summarises monoline exposures by rating.
| Notional | ||||||
|---|---|---|---|---|---|---|
| amount: | Fair value: | Credit | Net exposure | |||
| protected | protected | Gross | valuation | to monoline | ||
| assets | assets | exposure | adjustment | Hedges | insurers | |
| £m | £m | £m | £m | £m | £m | |
| 2009 | ||||||
| AA rated | 7,143 | 5,875 | 1,268 | 378 | - | 890 |
| Sub-investment grade | 12,598 | 7,696 | 4,902 | 3,418 | 531 | 953 |
| Total | 19,741 | 13,571 | 6,170 | 3,796 | 531 | 1,843 |
| Of which: | ||||||
| CDOs | 2,284 | 797 | 1,487 | 1,059 | ||
| RMBS | 82 | 66 | 16 | 2 | ||
| CMBS | 4,253 | 2,034 | 2,219 | 1,562 | ||
| CLOs | 10,007 | 8,584 | 1,423 | 641 | ||
| Other ABS | 2,606 | 1,795 | 811 | 410 | ||
| Other | 509 | 295 | 214 | 122 | ||
| 19,741 | 13,571 | 6,170 | 3,796 | |||
| 2008 | ||||||
| AA rated | 8,937 | 6,537 | 2,400 | 1,067 | - | 1,333 |
| BBB rated | 16,895 | 8,396 | 8,499 | 4,426 | 768 | 3,305 |
| Sub-investment grade | 2,188 | 1,506 | 682 | 495 | 21 | 166 |
| Total | 28,020 | 16,439 | 11,581 | 5,988 | 789 | 4,804 |
| Of which: | ||||||
| CDOs | 5,779 | 1,395 | 4,384 | 2,201 | ||
| RMBS | 93 | 65 | 28 | 10 | ||
| CMBS | 4,849 | 2,388 | 2,461 | 1,429 | ||
| CLOs | 12,865 | 9,673 | 3,192 | 1,556 | ||
| Other ABS | 3,666 | 2,460 | 1,206 | 617 | ||
| Other | 768 | 458 | 310 | 175 | ||
| 28,020 | 16,439 | 11,581 | 5,988 |
Credit ratings are based on those from rating agencies Standard & Poor's (S&P) and Moody's. Where the ratings differ, the lower of the two is taken.
A number of debt instruments with monoline protection were reclassified from held-for-trading to available-for-sale with effect from 1 July 2008. Changes in the fair value since the reclassification are only recognised in the income statement to the extent that they are considered impairments. Changes in the fair value of the related monoline protection continue to be recorded in the income statement. Higher prices of these debt securities in 2009 gave rise to net losses from the corresponding decrease in the gross mark-to-market of the related monoline protection. The reclassification gave rise to profits in 2008. A summary of the reclassified debt securities held at 31 December 2009 is shown in the table below:
| £m | |
|---|---|
| Fair value at 1 July 2008 (1) | 6,248 |
| Fair value at 31 December 2009 (2) | 5,022 |
Notes:
If the debt securities had not been reclassified, all changes in fair value would have been recognised in the income statement and would be off-set by changes in the fair value of the related monoline CDS. The extent to which the level of impairments recorded differs from the fair value changes gives rise to a net profit or loss that, but for the reclassification, would have been recorded for accounting purposes.
The net income statement effect relating to monoline exposures is shown below.
| £m | |
|---|---|
| Credit valuation adjustment at 1 January 2009 | (5,988) |
| Credit valuation adjustment at 31 December 2009 | (3,796) |
| Decrease in credit valuation adjustment | 2,192 |
| Net debit relating to realisation, hedges, foreign exchange and other movements | (3,290) |
| Net debit relating to reclassified debt securities | (1,468) |
| Net debit to income statement (1) | (2,566) |
Note:
(1) Comprises a loss of £2,387 million recorded as income from trading activities, £239 million of impairment losses and £60 million of other income relating to reclassified debt securities.
The Group also has indirect exposures to monoline insurers through wrapped securities and other assets with credit enhancement monoline insurers. These securities are traded with the benefit of this credit enhancement. Any deterioration in the credit rating of the monoline is reflected in the fair value of these assets.
A CDPC is a company that sells protection on credit derivatives. CDPCs are similar to monoline insurers, however they are not regulated as insurers.
The Group has purchased credit protection from CDPCs through tranched and single name credit derivatives. The Group's exposure to CDPCs is predominantly due to tranched credit derivatives (tranches). A tranche references a portfolio of loans and bonds and provides protection against total portfolio default losses exceeding a certain percentage of the portfolio notional (the attachment point) up to another percentage (the detachment point). The Group has predominantly traded senior tranches with CDPCs, the average attachment and detachment points are 15% and 51% respectively (2008 – 16% and 50% respectively), and the majority of the loans and bonds in the reference portfolios are investment grade.
The gross mark-to-market of the CDPC protection is determined using industry standard models. The methodology employed to calculate the CDPC CVA is different to that outlined above for monolines, as there are no market observable credit spreads and recovery levels for these entities. The level of expected loss on CDPC exposures is estimated by analysing the underlying trades and the cost of hedging expected default losses in excess of the capital available in each vehicle.
A summary of the Group's exposure to CDPCs is detailed below:
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| Gross exposure to CDPCs | 1,275 | 4,776 |
| Credit valuation adjustment | (499) | (1,311) |
| Net exposure to CDPCs | 776 | 3,465 |
| CVA as a % of gross exposure | 39% | 27% |
| Notional amount: protected assets £m |
Fair value: protected reference assets £m |
Gross exposure £m |
Credit valuation adjustment £m |
Net exposure to CDPCs £m |
|
|---|---|---|---|---|---|
| 2009 | |||||
| AAA rated | 1,658 | 1,637 | 21 | 5 | 16 |
| BBB rated | 1,070 | 1,043 | 27 | 9 | 18 |
| Sub-investment grade | 17,696 | 16,742 | 954 | 377 | 577 |
| Rating withdrawn | 3,926 | 3,653 | 273 | 108 | 165 |
| 24,350 | 23,075 | 1,275 | 499 | 776 | |
| 2008 | |||||
| AAA rated | 6,351 | 4,780 | 1,571 | 314 | 1,257 |
| AA rated | 12,741 | 10,686 | 2,055 | 594 | 1,461 |
| A rated | 1,546 | 1,321 | 225 | 79 | 146 |
| BBB rated | 4,601 | 3,676 | 925 | 324 | 601 |
| 25,239 | 20,463 | 4,776 | 1,311 | 3,465 |
The table below summarises CDPC exposures by rating.
The net income statement effect arising from CDPC exposures is shown below.
| £m | |
|---|---|
| Credit valuation adjustment at 1 January 2009 | (1,311) |
| Credit valuation adjustment at 31 December 2009 | (499) |
| Decrease in credit valuation adjustment | 812 |
| Net debit relating to hedges, foreign exchange and other movements | (1,769) |
| Net debit to income statement (income from trading activities) | (957) |
CVA for all other counterparties is calculated on a portfolio basis reflecting an estimate of the amount a third party would charge to assume the credit risk.
Expected losses are determined from market implied probability of defaults and internally assessed recovery levels. The probability of default is calculated with reference to observable credit spreads and observable recovery levels. For counterparties where observable data does not exist, the probability of default is determined from the average credit spreads and recovery levels of baskets of similarly rated entities. A weighting of 50% to 100% is applied to arrive at the CVA. The weighting reflects portfolio churn and varies according to the counterparty credit quality.
Expected losses are applied to estimated potential future exposures which are modelled to reflect the volatility of the market factors which drive the exposures and the correlation between those factors. Potential future exposures arising from vanilla products (including interest rate and foreign exchange derivatives) are modelled jointly using the Group's Core counterparty risk systems. At 31 December 2009, over 75% of the Group's CVA held in relation to other counterparties arises on these vanilla products. The exposures arising from all other product types are modelled and assessed individually. The potential future exposure to counterparties is the aggregate of the exposures arising on the underlying product types.
Correlation between exposure and counterparty risk is also incorporated within the CVA calculation where this risk is considered significant. The risk primarily arises on trades with emerging market counterparties where the gross mark-to-market value of the trade, and therefore the counterparty exposure, increases as the strength of the local currency declines.
Collateral held under a credit support agreement is factored into the CVA calculation. In such cases where the Group holds collateral against counterparty exposures, CVA is held to the extent that residual risk remains.
CVA is held against exposures to all counterparties with the exception of the CDS protection that the Group has purchased from HM Treasury, as part of its participation in the Asset Protection Scheme, due to the unique features of this derivative.
The net income statement effect arising from the change in level of CVA for all other counterparties and related trades is shown in the table below.
| £m | |
|---|---|
| Credit valuation adjustment at 1 January 2009 | (1,738) |
| Credit valuation adjustment at 31 December 2009 | (1,588) |
| Decrease in credit valuation adjustment | 150 |
| Net debit relating to hedges, foreign exchange and other movements | (841) |
| Net debit to income statement (income from trading activities) | (691) |
Leveraged finance is commonly employed to facilitate corporate finance transactions, such as acquisitions or buy-outs, and is so called due to the high ratio of debt to equity (leverage) common in such transactions. A bank acting as a lead manager for a leveraged finance transaction will typically underwrite a loan, alone or with others, and then syndicate the loan to other participants. The Group typically held a portion of these loans as part of its long-term portfolio once primary syndication is completed ('hold portfolio'). Most of the leveraged finance loans held as part of syndicated lending portfolio were reclassified from held-for-trading to loans and receivables with effect from 1 July 2008.
Leveraged finance provided by the Group that has been drawn down by the counterparty is reported on the balance sheet in loans and advances. Undrawn amounts of the facility provided to the borrower are reported in memorandum items - commitments to lend.
The table below shows the Group's global markets sponsor-led leveraged finance exposures by industry and geography. The gross exposure represents the total amount of leveraged finance committed by the Group (drawn and undrawn). The net exposure represents the balance sheet carrying values of drawn leveraged finance and the total undrawn amount. The difference between gross and net exposures is principally due to the cumulative effect of impairment provisions and historic write-downs on assets prior to reclassification.
| 2009 | 2008 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Other | Other | |||||||||
| Americas | UK | Europe | RoW | Total | Americas | UK | Europe | RoW | Total | |
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| Gross exposure: | ||||||||||
| TMT (2) | 1,781 | 1,656 | 1,081 | 605 | 5,123 | 2,507 | 1,484 | 2,001 | 535 | 6,527 |
| Industrial | 1,584 | 1,523 | 1,781 | 207 | 5,095 | 1,686 | 1,612 | 1,924 | 188 | 5,410 |
| Retail | 17 | 476 | 1,354 | 71 | 1,918 | 268 | 1,285 | 1,440 | 89 | 3,082 |
| Other | 244 | 1,527 | 1,168 | 191 | 3,130 | 487 | 1,391 | 1,282 | 126 | 3,286 |
| 3,626 | 5,182 | 5,384 | 1,074 | 15,266 | 4,948 | 5,772 | 6,647 | 938 | 18,305 | |
| Net exposure: | ||||||||||
| TMT (2) | 1,502 | 1,532 | 1,045 | 590 | 4,669 | 2,247 | 1,385 | 1,982 | 534 | 6,148 |
| Industrial | 524 | 973 | 1,594 | 205 | 3,296 | 607 | 1,157 | 1,758 | 186 | 3,708 |
| Retail | 17 | 445 | 1,282 | 68 | 1,812 | 223 | 978 | 1,424 | 89 | 2,714 |
| Other | 244 | 1,461 | 1,147 | 191 | 3,043 | 484 | 1,307 | 1,281 | 127 | 3,199 |
| 2,287 | 4,411 | 5,068 | 1,054 | 12,820 | 3,561 | 4,827 | 6,445 | 936 | 15,769 | |
| Of which: | ||||||||||
| Drawn | 1,944 | 3,737 | 3,909 | 950 | 10,540 | 2,511 | 4,125 | 5,159 | 824 | 12,619 |
| Undrawn | 343 | 674 | 1,159 | 104 | 2,280 | 1,050 | 702 | 1,286 | 112 | 3,150 |
| 2,287 | 4,411 | 5,068 | 1,054 | 12,820 | 3,561 | 4,827 | 6,445 | 936 | 15,769 |
Notes:
(1) All the above exposures are in Non-Core.
(2) Telecommunications, media and technology.
(3) There were no held-for-trading exposures at 31 December 2009 (2008 - £102 million).
The table below analyses the movements in leveraged finance exposures for the year ended 31 December 2009.
| Drawn | Undrawn | Total | |
|---|---|---|---|
| £m | £m | £m | |
| Balance at 1 January 2009 | 12,619 | 3,150 | 15,769 |
| Transfers in (from credit trading business) | 563 | 41 | 604 |
| Sales | (247) | (144) | (391) |
| Repayments and facility reductions | (934) | (392) | (1,326) |
| Funded deals | 166 | (166) | - |
| Lapsed/collapsed deals | - | (19) | (19) |
| Changes in fair value | (31) | - | (31) |
| Accretion of interest | 100 | - | 100 |
| Impairment provisions | (1,041) | - | (1,041) |
| Exchange and other movements | (655) | (190) | (845) |
| Balance at 31 December 2009 | 10,540 | 2,280 | 12,820 |
Not included in the table above are:
The Group arranges securitisations to facilitate client transactions and undertakes securitisations to sell financial assets or to fund specific portfolios of assets. The Group also acts as an underwriter and depositor in securitisation transactions involving both client and proprietary transactions. In a securitisation, assets, or interests in a pool of assets, are transferred generally to a special purpose entity (SPE) which then issues liabilities to third party investors. SPEs are vehicles established for a specific, limited purpose, usually do not carry out a business or trade and typically have no employees. They take a variety of legal forms – trusts, partnerships and companies – and fulfil many different functions. As well as being a key element of securitisations, SPEs are also used in fund management activities to segregate custodial duties from the fund management advice provided by the Group.
The table below sets out the asset categories together with the carrying amount of the assets and associated liabilities for those securitisations and other asset transfers, other than conduits (discussed below), where the assets continue to be recorded on the Group's balance sheet.
| 2009 | 2008 | |||
|---|---|---|---|---|
| Assets £m |
Liabilities | Assets | Liabilities | |
| £m | £m | £m | ||
| Residential mortgages | 69,927 | 15,937 | 55,714* | 20,075 |
| Credit card receivables | 2,975 | 1,592 | 3,004 | 3,197 |
| Other loans | 36,448 | 1,010 | 1,679 | 1,071 |
| Finance lease receivables | 597 | 597 | 1,077 | 857 |
* revised
Group-sponsored conduits can be divided into multi-seller conduits and own-asset conduits. The Group consolidates both types of conduit where the substance of the relationship between the Group and the conduit vehicle is such that the vehicle is controlled by the Group. The total assets held by Group-sponsored conduits were £27.4 billion at 31 December 2009 (2008 - £49.9 billion). Liquidity commitments from the Group to the conduit exceed the nominal amount of assets funded by the conduit as liquidity commitments are sized to cover the funding cost of the related assets.
Multi-seller conduits account for 43% of the total liquidity and credit enhancements committed by the Group at 31 December 2009 (2008 - 69.4%).
The Group's own-asset conduit programmes have been established to diversify the Group's funding sources. The conduits allow the Group to access central government funding schemes and the external ABCP market.
The Group holds three own-asset conduits which have assets that have previously been funded by the Group. These vehicles represent 56% (2008 - 25%) of the Group's conduit business (as a percentage of the total liquidity and credit enhancements committed by the Group), with £7.7 billion of ABCP outstanding at 31 December 2009 (2008 - £14.8 billion). The Group's maximum exposure to loss on its own-asset conduits is £34.2 billion (2008 - £15.9 billion), being the total drawn and undrawn amount of the Group's liquidity commitments to these conduits. This comprises committed liquidity of \$40.8 billion (£25.1 billion) to an own-asset conduit established to access the Bank of England's open market operations and £9.1 billion to other own-asset conduits. One of these conduits was established for contingent funding and at 31 December 2009 it had no commercial paper outstanding, the Group's liquidity commitment to this conduit is not included in the table below.
The exposure to conduits which are consolidated by the Group is set out below.
| 2009 | ||||
|---|---|---|---|---|
| Core | Non-Core | Total | 2008 | |
| £m | £m | £m | £m | |
| Total assets held by the conduits | 23,409 | 3,957 | 27,366 | 49,857 |
| Commercial paper issued | 22,644 | 2,939 | 25,583 | 48,684 |
| Liquidity and credit enhancements: | ||||
| Deal specific liquidity: | ||||
| - drawn | 738 | 1,059 | 1,797 | 1,172 |
| - undrawn | 28,628 | 3,852 | 32,480 | 57,929 |
| PWCE (1) | 1,167 | 341 | 1,508 | 2,391 |
| 30,533 | 5,252 | 35,785 | 61,492 | |
| Maximum exposure to loss (2) | 29,365 | 4,911 | 34,276 | 59,101 |
Notes:
During the period both multi-seller and own asset conduit assets have been reduced in line with the wider Group balance sheet management.
The Group also extends liquidity commitments to multi-seller conduits sponsored by other banks, but typically does not consolidate these entities as the Group does not retain the majority of risks and rewards.
(1) Programme-wide credit enhancement.
(2) Maximum exposure to loss is determined as the Group's total liquidity commitments to the conduits and additionally programme-wide credit support which would absorb first loss on transactions where liquidity support is provided by a third party. Third party maximum exposure to loss is reduced by repo trades conducted with an external counterparty.
The Group's exposure from third-party conduits is analysed below.
| 2009 | ||||
|---|---|---|---|---|
| Core | Non-Core | Total | 2008 | |
| £m | £m | £m | £m | |
| Liquidity and credit enhancements: | ||||
| Deal specific liquidity: | ||||
| - drawn | 223 | 120 | 343 | 3,078 |
| - undrawn | 206 | 38 | 244 | 198 |
| Programme-wide liquidity: | ||||
| - drawn | - | - | - | 102 |
| - undrawn | - | - | - | 504 |
| 429 | 158 | 587 | 3,882 | |
| Maximum exposure to loss (1) | 429 | 158 | 587 | 3,882 |
Note:
The Group does not sponsor any structured investment vehicles.
The Group has established and manages a number of money market funds for its customers. When a new money market fund is launched, the Group typically provides a limited amount of seed capital to the funds. The Group has investments in these funds of £776 million at 31 December 2009 (2008 - £107 million). The investors in both money market and non-money market funds have recourse to the assets of the funds only. These funds are not consolidated by the Group. At 31 December 2009 the Group had exposure to one fund amounting to £145 million (2008 - £144 million).
The Group's money market funds held assets of £9.6 billion at 31 December 2009 (2008 - £13.6 billion).
The Group has also established a number of non-money market funds to enable investors to invest in a range of assets including bonds, equities, hedge funds, private equity and real estate. The Group's non-money market funds had total assets of £14.9 billion at 31 December 2009 (2008 - £18.7 billion). In January 2010, the Group entered into a sale agreement with Aberdeen Asset Management plc for assets of £13.3 billion in these funds.
(1) Maximum exposure to loss is determined as the Group's total liquidity commitments to the conduits and additionally programme-wide credit support which would absorb first loss on transactions where liquidity support is provided by a third party.
The condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of changes in equity, condensed consolidated cash flow statement and related notes presented on pages 173 to 209 inclusive are on a statutory basis and include the results and financial position of ABN AMRO. The interests of the State of the Netherlands and Santander in RFS Holdings are included in minority interests.
In the income statement below, amortisation of purchased intangible assets and integration and restructuring costs are included in operating expenses. Data for 2008 has been restated for the amendment to IFRS 2 'Share-based Payment'.
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| Interest receivable | 33,836 | 49,522 |
| Interest payable | (17,332) | (30,847) |
| Net interest income | 16,504 | 18,675 |
| Fees and commissions receivable | 9,831 | 9,831 |
| Fees and commissions payable | (2,822) | (2,386) |
| Income/(loss) from trading activities | 3,881 | (8,477) |
| Gain on redemption of own debt | 3,790 | - |
| Other operating income (excluding insurance premium income) | 1,962 | 1,899 |
| Insurance net premium income | 5,544 | 6,326 |
| Non-interest income | 22,186 | 7,193 |
| Total income | 38,690 | 25,868 |
| Staff costs | ||
| - excluding pension schemes curtailment gains | (11,783) | (10,410) |
| - pension schemes curtailment gains | 2,148 | - |
| Premises and equipment | (3,087) | (2,593) |
| Other administrative expenses Depreciation and amortisation |
(5,584) (2,809) |
(5,464) (3,154) |
| Write-down of goodwill and other intangible assets | (363) | (32,581) |
| Operating expenses* | (21,478) | (54,202) |
| Profit/(loss) before other operating charges and impairment losses | 17,212 | (28,334) |
| Insurance net claims | (4,857) | (4,430) |
| Impairment losses | (14,950) | (8,072) |
| Operating loss before tax | (2,595) | (40,836) |
| Tax credit | 371 | 2,323 |
| Loss from continuing operations | (2,224) | (38,513) |
| (Loss)/profit from discontinued operations, net of tax | (99) | 3,971 |
| Loss for the year | (2,323) | (34,542) |
| Minority interests | (349) | 10,832 |
| Preference shareholders | (878) | (536) |
| Paid-in equity holders | (57) | (60) |
| Loss attributable to ordinary and B shareholders | (3,607) | (24,306) |
| *Operating expenses include: | ||
| Integration and restructuring costs | ||
| - administrative expenses | 1,268 | 1,321 |
| - depreciation and amortisation | 18 | 36 |
| 1,286 | 1,357 | |
| Amortisation of purchased intangible assets | 272 | 443 |
| 1,558 | 1,800 |
| 2009 £m |
2008 £m |
|
|---|---|---|
| Loss for the year | (2,323) | (34,542) |
| Other comprehensive income: | ||
| Available-for-sale financial assets | 2,016 | (7,406) |
| Cash flow hedges | 684 | (1,456) |
| Currency translation | (3,300) | 15,425 |
| Actuarial losses on defined benefit plans | (3,665) | (2,287) |
| Tax on other comprehensive income | 430 | 2,786 |
| Other comprehensive (loss)/income for the year, net of tax | (3,835) | 7,062 |
| Total comprehensive loss for the year | (6,158) | (27,480) |
| Attributable to: | ||
| Minority interests | (1,346) | (4,332) |
| Preference shareholders | 878 | 536 |
| Paid-in equity holders | 57 | 60 |
| Ordinary and B shareholders | (5,747) | (23,744) |
| (6,158) | (27,480) |
Operating loss before tax for the year was £2,595 million compared with a loss of £40,836 million in 2008.
Total income increased 50% to £38,690 million in 2009.
Net interest income decreased by 12% to £16,504 million.
Non-interest income increased to £22,186 million from £7,193 million in 2008. This included a gain on redemption of own debt of £3,790 million. Excluding the gain on redemption of own debt, noninterest income increased by £11,203 million primarily due to the increase in income from trading activities.
Operating expenses decreased from £54,202 million in 2008 to £21,478 million of which integration and restructuring costs were £1,286 million compared with £1,357 million in 2008. Write-down of goodwill and other intangible assets was £363 million compared with £32,581 million in 2008.
Bancassurance and general insurance claims, after reinsurance, increased by 10% to £4,857 million.
Impairment losses were £14,950 million, compared with £8,072 million in 2008.
The effective tax rate for 2009 was 14.3% compared with 5.7% in 2008.
Basic earnings per ordinary and B share, including discontinued operations, improved from a loss of 146.7p to a loss of 6.4p.
Capital ratios at 31 December 2009 were 11.0% (Core Tier 1), 14.1% (Tier 1) and 16.1% (Total).
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| Assets | ||
| Cash and balances at central banks | 52,261 | 12,400 |
| Net loans and advances to banks | 56,656 | 79,426 |
| Reverse repurchase agreements and stock borrowing | 35,097 | 58,771 |
| Loans and advances to banks | 91,753 | 138,197 |
| Net loans and advances to customers | 687,353 | 835,409 |
| Reverse repurchase agreements and stock borrowing | 41,040 | 39,313 |
| Loans and advances to customers | 728,393 | 874,722 |
| Debt securities | 267,254 | 267,549 |
| Equity shares | 19,528 | 26,330 |
| Settlement balances | 12,033 | 17,832 |
| Derivatives | 441,454 | 992,559 |
| Intangible assets | 17,847 | 20,049 |
| Property, plant and equipment | 19,397 | 18,949 |
| Deferred taxation | 7,039 | 7,082 |
| Prepayments, accrued income and other assets | 20,985 | 24,402 |
| Assets of disposal groups | 18,542 | 1,581 |
| Total assets | 1,696,486 | 2,401,652 |
| Liabilities | ||
| Bank deposits | 104,138 | 174,378 |
| Repurchase agreements and stock lending | 38,006 | 83,666 |
| Deposits by banks | 142,144 | 258,044 |
| Customer deposits | 545,849 | 581,369 |
| Repurchase agreements and stock lending | 68,353 | 58,143 |
| Customer accounts | 614,202 | 639,512 |
| Debt securities in issue | 267,568 | 300,289 |
| Settlement balances and short positions | 50,876 | 54,277 |
| Derivatives | 424,141 | 971,364 |
| Accruals, deferred income and other liabilities | 30,327 | 31,482 |
| Retirement benefit liabilities Deferred taxation |
2,963 2,811 |
2,032 4,165 |
| Insurance liabilities | 10,281 | 9,976 |
| Subordinated liabilities | 37,652 | 49,154 |
| Liabilities of disposal groups | 18,890 | 859 |
| Total liabilities | 1,601,855 | 2,321,154 |
| Equity | ||
| Minority interests | 16,895 | 21,619 |
| Owners' equity* | ||
| Called up share capital | 14,630 | 9,898 |
| Reserves | 63,106 | 48,981 |
| Total equity | 94,631 | 80,498 |
| Total liabilities and equity | 1,696,486 | 2,401,652 |
| *Owners' equity attributable to: | ||
| Ordinary and B shareholders | 69,890 | 45,525 |
| Other equity owners | 7,846 | 13,354 |
| 77,736 | 58,879 |
Total assets of £1,696.5 billion at 31 December 2009 were down £705.2 billion, 29%, compared with 31 December 2008, principally reflecting substantial repayments of customer loans and advances as corporate customer demand fell and corporates looked to deleverage their balance sheets. Lending to banks also fell in line with significantly reduced wholesale funding activity. There were also significant falls in the value of derivative assets, with a corresponding fall in derivative liabilities.
Cash and balances at central banks were up £39.9 billion to £52.3 billion due to the placing of shortterm cash surpluses, including the proceeds from the issue of B shares in December, with central banks.
Loans and advances to banks decreased by £46.4 billion, 34%, to £91.8 billion with reverse repurchase agreements and stock borrowing ('reverse repos') down by £23.7 billion, 40% to £35.1 billion and lower bank placings, down £22.7 billion, 29%, to £56.7 billion largely as a result of reduced wholesale funding activity in Global Banking & Markets.
Loans and advances to customers were down £146.3 billion, 17%, at £728.4 billion. Within this, reverse repos increased by 4%, £1.7 billion to £41.0 billion. Excluding reverse repos, lending decreased by £148.0 billion, 18%, to £687.4 billion or by £141.8 billion, 17%, before impairment provisions. This reflected reductions in Global Banking & Markets of £71.4 billion, and planned reductions in Non-Core of £30.1 billion, including a £3.2 billion transfer to disposal groups in respect of RBS Sempra Commodities and the Asian and Latin American businesses. Reductions were also experienced in US Retail & Commercial, £7.4 billion; UK Corporate & Commercial, £5.4 billion; Ulster Bank, £1.8 billion; and the effect of exchange rate movements, £33.1 billion, following the strengthening of sterling during the year, partially offset by growth in UK Retail of £9.2 billion, and in Wealth of £1.4 billion.
Debt securities were flat at £267.3 billion and equity shares decreased by £6.8 billion, 26%, to £19.5 billion, principally due to the sale of the Bank of China investment and lower holdings in Global Banking & Markets and Non-Core, largely offset by growth in Group Treasury, in part reflecting an £18.0 billion increase in the gilt liquidity portfolio, and in the RFS Holdings minority interest.
Settlement balances were down £5.8 billion, 33%, at £12.0 billion as a result of lower customer activity.
Movements in the value of derivative assets, down £551.1 billion, 56%, to £441.5 billion, and liabilities, down £547.2 billion, 56%, to £424.1 billion, reflect the easing of market volatility, the strengthening of sterling and significant tightening in credit spreads in the continuing low interest rate environment.
Increases in assets and liabilities of disposal groups reflect the inclusion of the RBS Sempra Commodities business and the planned sale of a number of the Group's retail and commercial activities in Asia and Latin America.
Deposits by banks declined by £115.9 billion, 45%, to £142.1 billion due to a decrease in repurchase agreements and stock lending ('repos'), down £45.7 billion, 55%, to £38.0 billion and reduced interbank deposits, down £70.2 billion, 40% to £104.1 billion principally in Global Banking & Markets, reflecting reduced reliance on wholesale funding, and in the RFS Holdings minority interest.
Customer accounts were down £25.3 billion, 4%, to £614.2 billion. Within this, repos increased £10.2 billion, 18%, to £68.4 billion. Excluding repos, deposits were down £35.5 billion, 6%, to £545.8 billion, primarily due to; reductions in Global Banking & Markets, down £43.6 billion; Non-Core, £13.0 billion; including the transfer of £8.9 billion to disposal groups; and Ulster Bank, £1.2 billion; together with exchange rate movements, £21.3 billion, offset in part by growth across all other divisions, up £23.0 billion, and in the RFS Holdings minority interest, up £20.6 billion.
Debt securities in issue were down £32.7 billion, 11% to £267.6 billion mainly as a result of movements in exchange rates, together with reductions in Global Banking & Markets, Non-Core and the RFS Holdings minority interest.
Retirement benefit liabilities increased by £0.9 billion, 46%, to £3.0 billion, with net actuarial losses of £3.7 billion, arising from lower discount rates and higher assumed inflation, partially offset by curtailment gains of £2.1 billion due to changes in prospective pension benefits.
Subordinated liabilities were down £11.5 billion, 23% to £37.7 billion, reflecting the redemption of £5.0 billion undated loan capital, £1.5 billion trust preferred securities and £2.7 billion dated loan capital, together with the effect of exchange rate movements and other adjustments, £2.9 billion, partly offset by the issue of £2.3 billion undated loan capital within the RFS Holdings minority interest.
Equity minority interests decreased by £4.7 billion, 22%, to £16.9 billion. Equity withdrawals of £3.1 billion, due to the disposal of the investment in the Bank of China attributable to minority shareholders and the redemption, in part, of certain trust preferred securities, exchange rate movements of £1.4 billion, the recycling of related available-for-sale reserves to income, £0.5 billion, and dividends paid of £0.3 billion, were partially offset by attributable profits of £0.3 billion.
Owners' equity increased by £18.9 billion, 32% to £77.7 billion. The issue of B shares to HM Treasury in December 2009 raised £25.1 billion, net of expenses, and was offset in part by the creation of a £1.2 billion reserve in respect of contingent capital B shares. The placing and open offer in April 2009 raised £5.3 billion to fund the redemption of the £5.0 billion preference shares issued to HM Treasury in December 2008. Actuarial losses, net of tax, of £2.7 billion; the attributable loss for the period, £2.7 billion; exchange rate movements of £1.9 billion; the payment of other owners dividends of £0.9 billion including £0.3 billion to HM Treasury on the redemption of preference shares, and partial redemption of paid-in equity £0.3 billion were partly offset by increases in available-for-sale reserves, £1.8 billion; cash flow hedging reserves, £0.6 billion; and the equity owners gain on withdrawal of minority interests, net of tax, of £0.5 billion arising from the redemption of trust preferred securities.
for the year ended 31 December 2009
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| Called-up share capital | ||
| At beginning of year | 9,898 | 2,530 |
| Ordinary shares issued in respect of placing and open offers | 4,227 | 5,728 |
| Ordinary shares issued in respect of rights issue | - | 1,531 |
| Ordinary shares issued in respect of capitalisation issue | - | 101 |
| B shares issued | 510 | - |
| Preference shares issued in respect of placing and open offer | - | 5 |
| Other shares issued during the year | - | 3 |
| Preference shares redeemed during the year | (5) | - |
| At end of year | 14,630 | 9,898 |
| Paid-in equity | ||
| At beginning of year | 1,073 | 1,073 |
| Securities redeemed during the year | (308) | - |
| Transfer to retained earnings | (200) | - |
| At end of year | 565 | 1,073 |
| Share premium account | ||
| At beginning of year | 27,471 | 17,322 |
| Ordinary shares issued in respect of placing and open offer, | ||
| net of £95 million expenses | 1,047 | - |
| Ordinary shares issued in respect of rights issue, | ||
| net of £246 million expenses | - | 10,469 |
| Ordinary shares issued in respect of capitalisation issue | - | (101) |
| Expenses of placing and open offer | - | (265) |
| Other shares issued during the year | - | 46 |
| Preference shares redeemed during the year | (4,995) | - |
| At end of year | 23,523 | 27,471 |
| Merger reserve | ||
| At beginning of year | 10,881 | 10,881 |
| Issue of B shares, net of £399 million expenses | 24,591 | - |
| Placing and open offer | - | 14,273 |
| Transfer to retained earnings | (9,950) | (14,273) |
| At end of year | 25,522 | 10,881 |
| Available-for-sale reserves | ||
| At beginning of year | (3,561) | 1,032 |
| Unrealised gains/(losses) in the year | 1,202 | (6,808) |
| Realised losses in the year | 981 | 842 |
| Taxation | (377) | 1,373 |
| At end of year | (1,755) | (3,561) |
| Cash flow hedging reserve | ||
| At beginning of year | (876) | (555) |
| Amount recognised in equity during the year | 380 | (603) |
| Amount transferred from equity to earnings in the year | 513 | 198 |
| Taxation | (269) | 84 |
| At end of year | (252) | (876) |
for the year ended 31 December 2009 (continued)
| 2009 | 2008 | |
|---|---|---|
| Foreign exchange reserve | £m | £m |
| At beginning of year | 6,385 | (426) |
| Retranslation of net assets | (2,322) | 11,970 |
| Foreign currency gains/(losses) on hedges of net assets | 456 | (5,801) |
| Taxation | 9 | 642 |
| At end of year | 4,528 | 6,385 |
| Capital redemption reserve | ||
| At beginning and end of year | 170 | 170 |
| Contingent capital reserve | ||
| At beginning of year | - | - |
| Contingent capital agreement - consideration payable | (1,208) | - |
| At end of year | (1,208) | - |
| Retained earnings | ||
| At beginning of year | 7,542 | 21,072 |
| Loss attributable to ordinary and B shareholders and other equity owners | (2,672) | (23,710) |
| Ordinary dividends paid | - | (2,312) |
| Equity preference dividends paid | (878) | (536) |
| Paid-in equity dividends paid, net of tax | (57) | (60) |
| Transfer from paid-in equity | 200 | - |
| Equity owners gain on withdrawal of minority interest | ||
| - gross | 629 | - |
| - taxation | (176) | - |
| Transfer from merger reserve | 9,950 | 14,273 |
| Actuarial losses recognised in retirement benefit schemes | ||
| - gross | (3,756) | (1,807) |
| - taxation | 1,043 | 472 |
| Net cost of shares bought and used to satisfy share-based payments Share-based payments |
(16) | (19) |
| - gross | 325 | 177 |
| - taxation | - | (8) |
| At end of year | 12,134 | 7,542 |
| Own shares held | ||
| At beginning of year | (104) | (61) |
| Shares purchased during the year | (33) | (64) |
| Shares issued under employee share schemes | 16 | 21 |
| At end of year | (121) | (104) |
| Owners' equity at end of year | 77,736 | 58,879 |
for the year ended 31 December 2009 (continued)
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| Minority interests | ||
| At beginning of year | 21,619 | 38,388 |
| Currency translation adjustments and other movements | (1,434) | 9,256 |
| Acquisition of ABN AMRO | - | 356 |
| Profit/(loss) attributable to minority interests | 349 | (10,832) |
| Dividends paid | (313) | (285) |
| Movements in available-for-sale securities | ||
| - unrealised gains/(losses) in the year | 299 | (1,288) |
| - realised gains in the year | (466) | (152) |
| - taxation | (36) | (7) |
| Movements in cash flow hedging reserves | ||
| - amount recognised in equity during the year | (209) | (1,015) |
| - amount transferred from equity to earnings in the year | - | (36) |
| - taxation | 59 | 220 |
| Actuarial gains/(losses) recognised in retirement benefit schemes | ||
| - gross | 91 | (480) |
| - taxation | 1 | 2 |
| Equity raised | 9 | 1,071 |
| Equity withdrawn and disposals | (2,445) | (13,579) |
| Transfer to retained earnings | (629) | - |
| At end of year | 16,895 | 21,619 |
| Total equity at end of year | 94,631 | 80,498 |
| Total comprehensive income recognised in the statement of changes in equity is attributable as follows: |
||
| Minority interests | (1,346) | (4,332) |
| Preference shareholders | 878 | 536 |
| Paid-in equity holders | 57 | 60 |
| Ordinary and B shareholders | (5,747) | (23,744) |
| (6,158) | (27,480) |
for the year ended 31 December 2009
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| Operating activities | ||
| Operating loss before tax | (2,595) | (40,836) |
| Operating (loss)/profit before tax on discontinued operations | (101) | 4,208 |
| Adjustments for non-cash items | 18,387 | 5,049 |
| Net cash inflow/(outflow) from trading activities | 15,691 | (31,579) |
| Changes in operating assets and liabilities | (15,964) | (42,219) |
| Net cash flows from operating activities before tax | (273) | (73,798) |
| Income taxes paid | (719) | (1,540) |
| Net cash flows from operating activities | (992) | (75,338) |
| Net cash flows from investing activities | 54 | 16,997 |
| Net cash flows from financing activities | 18,791 | 15,102 |
| Effects of exchange rate changes on cash and cash equivalents | (8,592) | 29,209 |
| Net increase/(decrease) in cash and cash equivalents | 9,261 | (14,030) |
| Cash and cash equivalents at beginning of year | 134,925 | 148,955 |
| Cash and cash equivalents at end of year | 144,186 | 134,925 |
The directors have reviewed the Group's forecasts, projections and other relevant evidence. The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, the results for the year ended 31 December 2009 have been prepared on a going concern basis.
The annual accounts of the Group are prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (together "IFRS") as adopted by the European Union ("EU"). It also complies with IFRS as issued by the IASB.
The Group has implemented Vesting Conditions and Cancellation amendments to IFRS 2 Sharebased Payment. The amendments change the way the cancellation of share schemes by an employee are treated. Previously, cancellations resulted in credits as the charge was trued up to reflect the reduction in the number of shares that vest. Under the amendments, cancellations result in the amount that would otherwise have been recognised over the remainder of the vesting period being charged to profit or loss immediately. Implementation of these amendments has increased the charge for the Group's share schemes in 2009 by £325 million. The Group's income statement, related notes and cash flow statement for the year ended 31 December 2008 has been restated increasing loss before tax by £169 million. There is no effect on the Group's balance sheet at 31 December.
IAS 1 (Revised 2007) Presentation of Financial Statements has introduced a number of changes in the format and content of financial statements including a statement of changes in equity (showing the components of changes in equity for the period) as a primary financial statement and a statement of comprehensive income immediately following the income statement.
The Group has adopted Improving Disclosures about Financial Instruments (Amendments to IFRS 7 Financial Instruments: Disclosures. They expand disclosures required about fair value measurement and liquidity risk.
The Group has extended its accounting policy on derecognition to cover the redemption or settlement of issued debt:
On the redemption or settlement of debt securities (including subordinated liabilities) issued by the Group, the Group derecognises the debt instrument and records a gain or loss being the difference between the debt's carrying amount and the cost of redemption or settlement. The same treatment applies where the debt is exchanged for a new debt issue that has terms substantially different from those of the existing debt. The assessment of whether the terms of the new debt instrument are substantially different takes into account qualitative and quantitative characteristics including a comparison of the discounted present value of the cash flows under the new terms with the discounted present value of the remaining cash flows of the original debt issue.
There are a number of other changes to IFRS that were effective from 1 January 2009. They have had no material effect on the Group's financial statements.
Divisional results for 2008 have been restated to reflect the Group's new organisational structure that includes a Non-Core division comprising individual assets, portfolios and lines of business that the Group intends to run off or dispose. The Non-Core division is reported separately from the divisions which form the Core Group. In addition, separate reporting of Business Services (formerly Group Manufacturing) and Centre results has changed and, with the exception of certain items of a one off nature, costs incurred are now allocated to the customer-facing divisions and included in the measurement of the returns which they generate. The changes do not affect the Group's results. Comparatives have been restated accordingly.
The statutory results for 2008 have been restated for the amendment to IFRS 2 'Share-based Payment'. This has resulted in an increase in staff costs amounting to £169 million in 2008.
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| Amortisation and write-down of goodwill and other intangible assets | 363 | 32,581 |
The write-down of goodwill for the year ended 31 December 2009 principally relates to ABN AMRO and NatWest goodwill allocated to Non-Core businesses.
| 2009 | 2008 | |
|---|---|---|
| Net pension deficit/(surplus) | £m | £m |
| At 1 January | 1,996 | (115) |
| Currency translation and other adjustments | (114) | 144 |
| Income statement | ||
| - Curtailment gains | (2,148) | - |
| - Pension cost | 659 | 490 |
| Net actuarial losses | 3,665 | 2,287 |
| Contributions by employer | (1,153) | (810) |
| At 31 December | 2,905 | 1,996 |
| Net assets of schemes in surplus | (58) | (36) |
| Net liabilities of schemes in deficit | 2,963 | 2,032 |
Curtailment gains of £2,148 million have been recognised in 2009 arising from changes to pension benefits in the main UK scheme and certain other subsidiaries schemes due to the capping of future salary increases that will count for pension purposes to the lower of 2% or the rate of inflation in any year.
| Pension costs (excluding curtailment gains) | 2009 £m |
2008 £m |
|---|---|---|
| Defined benefit schemes | 659 | 490 |
| Defined contribution schemes | 126 | 148 |
| 785 | 638 |
Excluding curtailment gains, total pension costs for the year ended 31 December 2009 amounted to £785 million (2008 - £638 million). Defined benefit schemes charges are based on the actuarially determined pension cost rates at 31 December 2008.
At 31 December 2009, increased benefit obligations, reflecting lower discount rates and higher assumed inflation, have been partially offset by increased asset values. This has resulted in net actuarial losses for the year of £3,665 million (2008 - £2,287 million) and net defined benefit pension liabilities of £2,905 million at 31 December 2009 (2008 - £1,996 million).
The most recent funding valuation of the main UK scheme, as at 31 March 2007, showed a surplus of assets over liabilities of £0.7 billion. The next valuation is due as at 31 March 2010 and the Group expects this valuation to show that liabilities exceed the value of the assets. Following this valuation, the Group and scheme Trustees will agree the level of contributions to be paid to the scheme. This could result in the amount of contributions payable in 2010 and subsequent years being materially different from the current rates based on the previous valuation.
Operating loss is stated after charging loan impairment losses of £14,134 million (2008 - £7,091 million). The balance sheet loan impairment provisions increased in the year from £11,016 million to £17,283 million and the movements thereon were:
| 2009 | 2008 | |
|---|---|---|
| £m | ||
| At beginning of year | 11,016 | 6,452 |
| Transfers to disposal groups | (324) | (767) |
| Currency translation and other adjustments | (530) | 1,441 |
| Disposals | (65) | (178) |
| Amounts written-off | (6,939) | (3,148) |
| Recoveries of amounts previously written-off | 399 | 319 |
| Charge to income statement | 14,134 | 7,091 |
| Unwind of discount | (408) | (194) |
| 17,283 | 11,016 |
The provision at 31 December 2009 includes £157 million (2008 - £127 million) in respect of loans and advances to banks. The charge to the income statement in the table above excludes £816 million (2008 - £981 million) relating to available-for-sale securities.
The credit for taxation differs from the tax credit computed by applying the standard UK corporation tax rate of 28% (2008 - 28.5%) as follows:
| 2009 £m |
2008 £m |
|
|---|---|---|
| Loss before tax from continuing operations | (2,595) | (40,836) |
| Expected tax credit at 28% (2008 – 28.5%) | (727) | (11,638) |
| Non-deductible goodwill impairment | 102 | 8,292 |
| Unrecognised timing differences | (274) | 274 |
| Other non-deductible items | 508 | 378 |
| Non-taxable items: | ||
| - gain on redemption of own debt | (693) | - |
| - other | (410) | (491) |
| Taxable foreign exchange movements | (1) | 80 |
| Foreign profits taxed at other rates | 320 | 203 |
| Losses in year not recognised | 780 | 942 |
| Losses brought forward and utilised | (94) | (11) |
| Adjustments in respect of prior periods | 118 | (352) |
| Actual tax credit | (371) | (2,323) |
| 2009 £m |
2008 £m |
|
|---|---|---|
| Trust preferred securities | 39 | 65 |
| Investment in Bank of China | 359 | 78 |
| Sempra | 234 | 164 |
| ABN AMRO | (295) | (11,153) |
| Other | 12 | 14 |
| Profit/(loss) attributable to minority interests | 349 | (10,832) |
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| Preference shareholders | ||
| Non-cumulative preference shares of US\$0.01 | 342 | 293 |
| Non-cumulative preference shares of €0.01 | 201 | 183 |
| Non-cumulative preference shares of £1 | ||
| - issued to UK Financial Investments Limited (1) | 274 | - |
| - other | 61 | 60 |
| Paid-in equity holders | ||
| Interest on securities classified as equity, net of tax | 57 | 60 |
| 935 | 596 |
Note:
(1) Includes £50 million redemption premium on repayment of preference shares.
Earnings per ordinary and B share have been calculated based on the following:
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| Earnings | ||
| Loss from continuing operations attributable to ordinary and B shareholders Gain on redemption of paid-in equity |
(3,535) 200 |
(24,220) - |
| Adjusted loss from continuing operations attributable to ordinary and B shareholders Add back finance on dilutive convertible securities |
(3,335) - |
(24,220) - |
| Diluted loss from continuing operations attributable to ordinary and B shareholders | (3,335) | (24,220) |
| Loss from discontinued operations attributable to ordinary and B shareholders | (72) | (86) |
| Number of shares (millions) | ||
| Ordinary shares in issue during the year | 51,494 | 16,563 |
| B shares in issue during the year | 1,397 | - |
| Weighted average number of ordinary and B shares in issue during the year | 52,891 | 16,563 |
| Effect of dilutive share options and convertible securities | 438 | - |
| Diluted weighted average number of ordinary and B shares in issue during the year | 53,329 | 16,563 |
| Basic loss per ordinary and B share from continuing operations | (6.3p) | (146.2p) |
| Diluted loss per ordinary and B share from continuing operations | (6.3p) | (146.2p) |
| Basic loss per ordinary and B share from discontinued operations | (0.1p) | (0.5p) |
| Diluted loss per ordinary and B share from discontinued operations | (0.1p) | (0.5p) |
The Group has undertaken that, unless otherwise agreed with the European Commission, neither the company nor any of its direct or indirect subsidiaries (excluding companies in the ABN AMRO Group) will pay external investors any dividends or coupons on existing hybrid capital instruments (including preference shares, B shares and upper and lower tier 2 instruments) from a date starting not later than 30 April 2010 and for a period of two years thereafter ("the Deferral period"), or exercise any call rights in relation to these capital instruments between 24 November 2009 and the end of the deferral period, unless there is a legal obligation to do so. Hybrid capital instruments issued after 24 November 2009 will generally not be subject to the restriction on dividend or coupon payments or call options.
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| Discontinued operations: | ||
| Total income | - | 2,571 |
| Operating expenses | - | (1,407) |
| Impairment losses | - | (564) |
| Profit before tax | - | 600 |
| Gain on disposal | - | 3,859 |
| Operating profit before tax | - | 4,459 |
| Tax on profit | - | (204) |
| Tax on gain on disposal | - | (33) |
| Profit after tax | - | 4,222 |
| Business acquired exclusively with a view to disposal: | ||
| Loss after tax | (99) | (251) |
| (Loss)/profit from discontinued operations, net of tax | (99) | 3,971 |
Discontinued operations for 2008 reflect the results of Banco Real sold to Santander on 24 July 2008.
Businesses acquired exclusively with a view to disposal comprise those ABN AMRO businesses, including Banca Antonveneta, Asset Management and Private Equity, classified as disposal groups on the acquisition of ABN AMRO on 17 October 2007. The Asset Management business was sold to Fortis on 3 April 2008. Banca Antonveneta, excluding its subsidiary Interbanca, was sold to Banca Monte dei Paschi de Siena S.p.A. on 30 May 2008.
| 2009 | ||||
|---|---|---|---|---|
| Sempra | Other | Total | 2008 | |
| £m | £m | £m | £m | |
| Assets of disposal groups | ||||
| Cash and balances at central banks | - | 129 | 129 | - |
| Loans and advances to banks | 314 | 74 | 388 | - |
| Loans and advances to customers | 306 | 2,910 | 3,216 | - |
| Debt securities and equity shares | 56 | 848 | 904 | - |
| Derivatives | 6,361 | - | 6,361 | - |
| Intangible assets | 238 | - | 238 | - |
| Settlement balances | 1,579 | - | 1,579 | - |
| Property, plant and equipment | 92 | 44 | 136 | 66 |
| Other assets | 5,257 | 160 | 5,417 | - |
| Discontinued operations and other disposal groups | 14,203 | 4,165 | 18,368 | 66 |
| Assets acquired exclusively with a view to disposal | - | 174 | 174 | 1,515 |
| 14,203 | 4,339 | 18,542 | 1,581 | |
| Liabilities of disposal groups | ||||
| Deposits by banks | 560 | 58 | 618 | - |
| Customer accounts | 1,961 | 6,946 | 8,907 | - |
| Derivatives | 6,262 | 421 | 6,683 | - |
| Settlement balances | 950 | - | 950 | - |
| Subordinated liabilities | - | 6 | 6 | - |
| Other liabilities | 1,260 | 415 | 1,675 | - |
| Discontinued operations and other disposal groups | 10,993 | 7,846 | 18,839 | - |
| Liabilities acquired exclusively with a view to disposal | - | 51 | 51 | 859 |
| 10,993 | 7,897 | 18,890 | 859 |
At 31 December 2009, disposal groups comprise the assets and liabilities of:
At 31 December 2008, disposal groups related principally to the assets and liabilities of the remaining ABN AMRO business, primarily Private Equity, classified as disposal groups on the acquisition of ABN AMRO.
The following tables analyse the Group's financial assets and liabilities in accordance with the categories of financial instruments in IAS 39 'Financial Instruments: Recognition and Measurement'. Assets and liabilities outside the scope of IAS 39 are shown separately.
| Designated | Other | |||||||
|---|---|---|---|---|---|---|---|---|
| at fair value | financial | Non | ||||||
| through | instruments | financial | ||||||
| Held-for | profit or | Available | Loans and | (amortised | Finance | assets/ | ||
| trading | loss | for-sale | receivables | cost) | leases | liabilities | Total | |
| 2009 | £m | £m | £m | £m | £m | £m | £m | £m |
| Cash and balances at | ||||||||
| central banks | - | - | - | 52,261 | - | - | - | 52,261 |
| Loans and advances to | ||||||||
| banks | 45,449 | - | - | 46,304 | - | - | - | 91,753 |
| Loans and advances to | ||||||||
| customers | 42,277 | 1,981 | - | 671,037 | - | 13,098 | - | 728,393 |
| Debt securities | 111,482 | 2,603 | 143,298 | 9,871 | - | - | - | 267,254 |
| Equity shares | 14,443 | 2,192 | 2,893 | - | - | - | - | 19,528 |
| Settlement balances | - | - | - | 12,033 | - | - | - | 12,033 |
| Derivatives (1) | 441,454 | - | - | - | - | - | - | 441,454 |
| Intangible assets | - | - | - | - | - | - | 17,847 | 17,847 |
| Property, plant and | ||||||||
| equipment | - | - | - | - | - | - | 19,397 | 19,397 |
| Deferred taxation | - | - | - | - | - | - | 7,039 | 7,039 |
| Prepayments, accrued | ||||||||
| income and other assets | - | - | - | 1,421 | - | - | 19,564 | 20,985 |
| Assets of disposal groups | - | - | - | - | - | - | 18,542 | 18,542 |
| Total assets | 655,105 | 6,776 | 146,191 | 792,927 | - | 13,098 | 82,389 1,696,486 | |
| Deposits by banks | 53,609 | - | - | - | 88,535 | - | - | 142,144 |
| Customer accounts | 52,868 | 8,580 | - | - | 552,754 | - | - | 614,202 |
| Debt securities in issue | 3,925 | 41,537 | - | - | 222,106 | - | - | 267,568 |
| Settlement balances and | ||||||||
| short positions | 40,463 | - | - | - | 10,413 | - | - | 50,876 |
| Derivatives (1) | 424,141 | - | - | - | - | - | - | 424,141 |
| Accruals, deferred income | ||||||||
| and other liabilities | - | - | - | - | 1,889 | 467 | 27,971 | 30,327 |
| Retirement benefit liabilities | - | - | - | - | - | - | 2,963 | 2,963 |
| Deferred taxation | - | - | - | - | - | - | 2,811 | 2,811 |
| Insurance liabilities | - | - | - | - | - | - | 10,281 | 10,281 |
| Subordinated liabilities | - | 1,277 | - | - | 36,375 | - | - | 37,652 |
| Liabilities of disposal | ||||||||
| groups | - | - | - | - | - | - | 18,890 | 18,890 |
| Total liabilities | 575,006 | 51,394 | - | - | 912,072 | 467 | 62,916 1,601,855 | |
| Equity | 94,631 | |||||||
| 1,696,486 |
Note:
(1) Held-for-trading derivatives include hedging derivatives.
| Designated | Other | |||||||
|---|---|---|---|---|---|---|---|---|
| at fair value | financial | Non | ||||||
| through | instruments | financial | ||||||
| Held-for | profit or | Available | Loans and | (amortised | Finance | assets/ | ||
| trading | loss | for-sale | receivables | cost) | leases | liabilities | Total | |
| 2008 | £m | £m | £m | £m | £m | £m | £m | £m |
| Cash and balances at | ||||||||
| central banks | - | - | - | 12,400 | - | - | - | 12,400 |
| Loans and advances to banks | 56,234 | - | - | 81,963 | - | - | - | 138,197 |
| Loans and advances to | ||||||||
| customers | 51,501 | 2,141 | - | 806,627 | - | 14,453 | - | 874,722 |
| Debt securities | 116,280 | 5,428 | 132,856 | 12,985 | - | - | - | 267,549 |
| Equity shares | 17,054 | 2,101 | 7,175 | - | - | - | - | 26,330 |
| Settlement balances | - | - | - | 17,832 | - | - | - | 17,832 |
| Derivatives (1) | 992,559 | - | - | - | - | - | - | 992,559 |
| Intangible assets | - | - | - | - | - | - | 20,049 | 20,049 |
| Property, plant and equipment | - | - | - | - | - | - | 18,949 | 18,949 |
| Deferred taxation | - | - | - | - | - | - | 7,082 | 7,082 |
| Prepayments, accrued income | ||||||||
| and other assets | - | - | - | 1,326 | - | - | 23,076 | 24,402 |
| Assets of disposal groups | - | - | - | - | - | - | 1,581 | 1,581 |
| Total assets | 1,233,628 | 9,670 | 140,031 | 933,133 | - | 14,453 | 70,737 2,401,652 | |
| Deposits by banks | 81,154 | - | - | - | 176,890 | - | - | 258,044 |
| Customer accounts | 55,926 | 8,054 | - | - | 575,532 | - | - | 639,512 |
| Debt securities in issue | 3,992 | 47,451 | - | - | 248,846 | - | - | 300,289 |
| Settlement balances and short | ||||||||
| positions | 42,536 | - | - | - | 11,741 | - | - | 54,277 |
| Derivatives (1) | 971,364 | - | - | - | - | - | - | 971,364 |
| Accruals, deferred income and | ||||||||
| other liabilities | 260 | - | - | - | 1,619 | 22 | 29,581 | 31,482 |
| Retirement benefit liabilities | - | - | - | - | - | - | 2,032 | 2,032 |
| Deferred taxation | - | - | - | - | - | - | 4,165 | 4,165 |
| Insurance liabilities | - | - | - | - | - | - | 9,976 | 9,976 |
| Subordinated liabilities | - | 1,509 | - | - | 47,645 | - | - | 49,154 |
| Liabilities of disposal groups | - | - | - | - | - | - | 859 | 859 |
| Total liabilities | 1,155,232 | 57,014 | - | - 1,062,273 | 22 | 46,613 2,321,154 | ||
| Equity | 80,498 | |||||||
| 2,401,652 |
Note:
(1) Held-for-trading derivatives include hedging derivatives.
Certain aspects relating to the valuation of financial instruments carried at fair value are discussed below.
When valuing financial instruments in the trading book, adjustments are made to mid-market valuations to cover bid-offer spread, liquidity, credit risk and future administrative costs.
Valuation reserves and adjustments comprise:
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| Credit valuation adjustments: | ||
| Monoline insurers | 3,796 | 5,988 |
| CDPCs | 499 | 1,311 |
| Other counterparties | 1,588 | 1,738 |
| 5,883 | 9,037 | |
| Bid-offer and liquidity reserves | 2,814 | 3,260 |
| 8,697 | 12,297 | |
| Debit valuation adjustments: | ||
| Debt securities in issue | (2,331) | (2,373) |
| Derivatives | (467) | (450) |
| Total debit valuation adjustments | (2,798) | (2,823) |
| Total reserves | 5,899 | 9,474 |
Credit valuation adjustments (CVA) represent an estimate of the adjustment to fair value that a market participant would make to incorporate the credit risk inherent in counterparty derivative exposures. The Group makes such credit adjustments to derivative exposures it has to counterparties, as well as debit valuation adjustments (DVA) to liabilities issued by the Group. CVA is discussed in Risk and capital management - Market turmoil - Credit valuation adjustments (page 157). Bid-offer, liquidity reserves and own credit are discussed below.
Fair value positions are adjusted to bid or offer levels by marking individual cash based positions directly to bid or offer or by taking bid-offer reserves calculated on a portfolio basis for derivatives exposures.
Bid-offer and liquidity reserves reduced during the year, driven mainly by the tightening of spread across all asset classes in the first half of the year and risk reductions in the second half of the year, most notably in the interest rate trading business, partly off-set by additional reserves reflecting the implementation of a revised derivative discounting approach.
In accordance with IFRS, when valuing financial liabilities recorded at fair value, the Group takes into account the effect of its own credit standing. The categories of financial liabilities on which own credit spread adjustments are made are issued debt, including issued structured notes, and derivatives. An own credit adjustment is applied to positions where it is believed that counterparties would consider the Group's creditworthiness when pricing trades.
For issued debt and structured notes, this adjustment is based on independent quotes from market participants for the debt issuance spreads above average inter-bank rates, (at a range of tenors) which the market would demand when purchasing new senior or sub-debt issuances from the Group. Where necessary, these quotes are interpolated using a curve shape derived from CDS prices.
The reserve movement between periods will not equate to the reported profit or loss for own credit. The balance sheet reserves are stated by conversion of underlying currency balances at spot rates for each period, however the income statement includes intra-period foreign exchange sell-offs.
The table below shows the own credit spread adjustments on liabilities recorded during the year ended 31 December 2009.
| Debt securities in issue | |||||
|---|---|---|---|---|---|
| Designated at fair Held-for value through |
|||||
| -trading (1) £m |
profit and loss £m |
Total £m |
Derivatives (2) £m |
Total £m |
|
| Cumulative own credit adjustment: 2009 |
1,237 | 1,094 | 2,331 | 467 | 2,798 |
| 2008 | 1,346 | 1,027 | 2,373 | 450 | 2,823 |
| £bn | £bn | £bn | £bn | £bn | |
| Book value of underlying liabilities: | |||||
| 2009 | 36.6 | 13.3 | 49.9 | 16.8 | 66.7 |
| 2008 | 25.5 | 16.9 | 42.4 | 43.5 | 85.9 |
Notes:
(1) The held-for-trading portfolio consists of wholesale and retail note issuances.
(2) The effect of changes in foreign exchange rates, new issues and redemptions are not captured separately.
The table below shows the financial instruments carried at fair value, by valuation method.
| Total | Level 1 | Level 2 | Level 3 | Level 3 sensitivity | ||
|---|---|---|---|---|---|---|
| 2009 | £bn | £bn | £bn | £bn | £m | £m |
| Assets | ||||||
| Loans and advances: | ||||||
| - banks | 45.4 | - | 45.4 | - | - | - |
| - customers | 44.3 | - | 43.2 | 1.1 | 80 | (40) |
| Debt securities | ||||||
| - government | 146.8 | 130.1 | 16.7 | - | - | - |
| - RMBS | 57.7 | - | 57.2 | 0.5 | 30 | (10) |
| - CMBS | 4.1 | - | 4.0 | 0.1 | 30 | - |
| - CDOs | 3.6 | - | 2.6 | 1.0 | 130 | (80) |
| - CLOs | 8.8 | - | 8.0 | 0.8 | 80 | (50) |
| - other ABS | 6.1 | - | 5.2 | 0.9 | 120 | (40) |
| - corporate | 11.4 | - | 10.8 | 0.6 | 70 | (20) |
| - other (3) | 18.9 | 0.2 | 18.5 | 0.2 | 10 | (30) |
| 257.4 | 130.3 | 123.0 | 4.1 | 470 | (230) | |
| Equity shares | 19.5 | 15.4 | 2.6 | 1.5 | 280 | (220) |
| Derivatives | ||||||
| - foreign exchange | 69.4 | - | 69.2 | 0.2 | 10 | - |
| - interest rate | 323.6 | 0.3 | 321.8 | 1.5 | 80 | (100) |
| - equities | 6.5 | 0.4 | 5.8 | 0.3 | 20 | (20) |
| - commodities | 0.3 | - | 0.3 | - | - | - |
| - credit – APS | 1.4 | - | - | 1.4 | 1,370 | (1,540) |
| - credit – other | 40.3 | 0.1 | 37.2 | 3.0 | 420 | (360) |
| 441.5 | 0.8 | 434.3 | 6.4 | 1,900 | (2,020) | |
| Total assets | 808.1 | 146.5 | 648.5 | 13.1 | 2,730 | (2,510) |
| Liabilities | ||||||
| Deposits: | ||||||
| - banks | 53.6 | - | 53.6 | - | - | - |
| - customers | 61.4 | - | 61.3 | 0.1 | - | (10) |
| Debt securities in issue | 45.5 | - | 43.2 | 2.3 | 50 | (10) |
| Short positions | 40.5 | 27.1 | 13.2 | 0.2 | 10 | (20) |
| Derivatives | ||||||
| - foreign exchange | 63.9 | - | 63.9 | - | - | - |
| - interest rate | 311.3 | 0.1 | 310.4 | 0.8 | 40 | (60) |
| - equities | 9.5 | 1.0 | 8.3 | 0.2 | 20 | (70) |
| - commodities | 0.2 | - | 0.2 | - | - | - |
| - credit | 39.2 | - | 38.2 | 1.0 | 80 | (100) |
| 424.1 | 1.1 | 421.0 | 2.0 | 140 | (230) | |
| Other financial liabilities (4) | 1.3 | - | 1.3 | - | - | - |
| Total liabilities | 626.4 | 28.2 | 593.6 | 4.6 | 200 | (270) |
| Total | Level 1 | Level 2 | Level 3 | Level 3 sensitivity | ||
|---|---|---|---|---|---|---|
| 2008 | £bn | £bn | £bn | £bn | £m | £m |
| Assets | ||||||
| Loans and advances: | ||||||
| - banks | 56.2 | - | 56.2 | - | - | - |
| - customers | 53.6 | - | 50.5 | 3.1 | 70 | (50) |
| Debt securities | ||||||
| - government | 105.9 | 68.7 | 37.2 | - | - | - |
| - RMBS | 72.8 | - | 72.3 | 0.5 | 40 | (90) |
| - CMBS | 3.9 | - | 3.3 | 0.6 | 30 | (30) |
| - CDOs | 8.6 | - | 6.9 | 1.7 | 410 | (440) |
| - CLOs | 8.7 | - | 7.7 | 1.0 | 40 | (40) |
| - other ABS | 8.1 | - | 6.6 | 1.5 | 10 | (10) |
| - corporate | 18.0 | 0.9 | 15.8 | 1.3 | 40 | (40) |
| - other (3) | 28.5 | 4.1 | 24.1 | 0.3 | - | - |
| 254.5 | 73.7 | 173.9 | 6.9 | 570 | (650) | |
| Equity shares Derivatives |
26.4 | 15.4 | 9.9 | 1.1 | 80 | (160) |
| - foreign exchange | 173.3 | 2.2 | 171.0 | 0.1 | - | - |
| - interest rate | 654.8 | 0.4 | 652.9 | 1.5 | 80 | (80) |
| - equities | 9.2 | 0.5 | 8.6 | 0.1 | - | (10) |
| - commodities: Sempra | 11.6 | - | 11.0 | 0.6 | 50 | (50) |
| - commodities : other | 1.4 | - | 1.4 | - | - | - |
| - credit | 142.3 | 0.8 | 133.5 | 8.0 | 1,030 | (1,200) |
| 992.6 | 3.9 | 978.4 | 10.3 | 1,160 | (1,340) | |
| Total assets | 1,383.3 | 93.0 | 1,268.9 | 21.4 | 1,880 | (2,200) |
| Liabilities | ||||||
| Deposits: | ||||||
| - banks | 81.1 | - | 81.1 | - | - | - |
| - customers | 64.0 | - | 63.7 | 0.3 | - | - |
| Debt securities in issue | 51.4 | - | 47.0 | 4.4 | 190 | (170) |
| Short positions | 42.5 | 36.0 | 6.5 | - | - | - |
| Derivatives | ||||||
| - foreign exchange | 173.4 | 2.2 | 171.2 | - | - | - |
| - interest rate | 641.0 | 0.4 | 639.7 | 0.9 | 90 | (90) |
| - equities | 12.2 | 0.9 | 11.2 | 0.1 | - | - |
| - commodities: Sempra | 10.9 | - | 10.5 | 0.4 | 30 | (30) |
| - commodities: other | 1.2 | - | 1.2 | - | - | - |
| - credit | 132.7 | 0.1 | 130.0 | 2.6 | 180 | (160) |
| 971.4 | 3.6 | 963.8 | 4.0 | 300 | (280) | |
| Other financial liabilities (4) | 1.8 | - | 1.5 | 0.3 | 60 | (40) |
| Total liabilities | 1,212.2 | 39.6 | 1,163.6 | 9.0 | 550 | (490) |
Amounts classified as available-for-sale comprise:
| Total | Level 1 | Level 2 | Level 3 | Level 3 sensitivity | ||
|---|---|---|---|---|---|---|
| £bn | £bn | £bn | £bn | £m | £m | |
| 2009 | ||||||
| Debt securities | 143.3 | 70.3 | 71.7 | 1.3 | 90 | (50) |
| Equity shares | 2.9 | 0.5 | 1.7 | 0.7 | 100 | (90) |
| 146.2 | 70.8 | 73.4 | 2.0 | 190 | (140) | |
| 2008 | ||||||
| Debt securities | 132.8 | 20.9 | 108.9 | 3.0 | 90 | (120) |
| Equity shares | 7.2 | 4.8 | 2.1 | 0.3 | 60 | (110) |
| 140.0 | 25.7 | 111.0 | 3.3 | 150 | (230) |
Notes:
(1) Level 1: valued using quoted prices in active markets, examples include G10 government securities listed equity shares, certain exchange-traded derivatives, and certain US agency securities.
Level 2: most government agency securities, investment-grade corporate bonds, most traded loans, repos and reverse repos, less liquid listed equities, state and municipal obligations, certain MBS, including CDOs and CLOs, most physical commodities, investment contracts issued by the Group's life assurance businesses and certain money market securities and loan commitments and most OTC derivatives.
Level 3: includes cash instruments which trade infrequently, certain syndicated and commercial mortgage loans, unlisted equity shares, certain residual interests in securitisations, super senior tranches of high grade and mezzanine CDOs, other mortgage-based products and less liquid debt securities, certain structured debt securities in issue, and OTC derivatives where valuation depends upon unobservable inputs such as certain credit and exotic derivatives. No gain or loss is recognised on the initial recognition of a financial instrument valued using a technique incorporating significant unobservable data.
During 2008, as permitted by amended IAS 39, the Group reclassified financial assets from the heldfor-trading and available-for-sale categories into the loans and receivables category and from the heldfor-trading category into the available-for-sale category. There were further reclassifications from the held-for-trading category to the loans and receivables category during 2009. The following tables detail the effect of the reclassifications and the balance sheet values of the assets.
| Reduction in profit or loss as a result of reclassifications for the year ended 2009 |
||||||
|---|---|---|---|---|---|---|
| Reclassified in: | ||||||
| Total | 2009 | 2008 £m |
||||
| £m | £m | |||||
| From held-for-trading to: | ||||||
| Available-for-sale | 1,280 | - | 1,280 | |||
| Loans and receivables | 1,705 | 37 | 1,668 | |||
| 2,985 | 37 | 2,948 |
| Assets reclassified in |
2009 | 2008 | ||||
|---|---|---|---|---|---|---|
| 2009: | All reclassifications | All reclassifications (1) | ||||
| Carrying value | Carrying value | Fair value | Carrying value | Fair value | ||
| £m | £m | £m | £m | £m | ||
| From held-for-trading to: | ||||||
| Available-for-sale | - | 7,629 | 7,629 | 12,047 | 12,047 | |
| Loans and receivables | 1,995 | 12,933 | 10,644 | 20,774 | 16,628 | |
| 1,995 | 20,562 | 18,273 | 32,821 | 28,675 | ||
| From available-for-sale to: | ||||||
| Loans and receivables | - | 869 | 745 | 1,016 | 956 | |
| 1,995 | 21,431 | 19,018 | 33,837 | 29,631 |
Note:
(1) 31 December 2008 amounts have been restated
During the year ended 31 December 2009, the balance sheet value of reclassified assets reduced by £12.4 billion. This was primarily due to disposals and repayments of £12.1 billion across a range of asset backed securities and loans including disposals through restructures of £3.4 billion on real estate and leverage financed positions. Other movements include impairment charges of £1.7 billion, foreign exchange rate losses of £2.0 billion offset by gains taken to the available-for-sale reserve of £1.1 billion, and reclassifications of £2.0 billion in 2009.
For assets reclassified from held-for-trading to available-for-sale, net unrealised losses recorded in equity at 31 December 2009 were £0.6 billion (2008 - £2.2 billion).
| UK central and local |
US central and local |
Other central and local |
Bank and building |
Asset backed |
||||
|---|---|---|---|---|---|---|---|---|
| government | government | government | society | securities Corporate | Other | Total | ||
| £m | £m | £m | £m | £m | £m | £m | £m | |
| 2009 | ||||||||
| Held-for-trading | 8,128 | 10,427 | 50,219 | 6,103 | 28,820 | 6,892 | 893 | 111,482 |
| Designated as at fair value through profit or |
||||||||
| loss | 122 | 3 | 402 | 483 | 394 | 1,178 | 21 | 2,603 |
| Available-for-sale | 19,071 | 12,972 | 45,512 | 11,210 | 51,044 | 3,365 | 124 | 143,298 |
| Loans and receivables | 1 | - | - | - | 7,924 | 1,853 | 93 | 9,871 |
| 27,322 | 23,402 | 96,133 | 17,796 | 88,182 | 13,288 | 1,131 | 267,254 | |
| 2008 | ||||||||
| Held-for-trading | 5,372 | 9,859 | 37,519 | 11,021 | 39,879 | 11,057 | 1,573 | 116,280 |
| Designated as at fair value through profit or |
||||||||
| loss | 2,085 | 510 | 472 | 89 | 236 | 1,580 | 456 | 5,428 |
| Available-for-sale | 11,330 | 6,152 | 32,480 | 13,139 | 62,067 | 5,400 | 2,288 | 132,856 |
| Loans and receivables | - | - | - | 114 | 8,961 | 3,749 | 161 | 12,985 |
| 18,787 | 16,521 | 70,471 | 24,363 | 111,143 | 21,786 | 4,478 | 267,549 |
| 2009 | 2008 | |||
|---|---|---|---|---|
| Assets | Liabilities | Assets | Liabilities | |
| £m | £m | £m | £m | |
| Exchange rate contracts | ||||
| Spot, forwards and futures | 26,744 | 24,898 | 83,065 | 83,568 |
| Currency swaps | 25,883 | 23,466 | 53,398 | 54,728 |
| Options purchased | 16,656 | - | 36,762 | - |
| Options written | - | 15,555 | - | 35,017 |
| Interest rate contracts | ||||
| Interest rate swaps | 265,528 | 253,793 | 548,040 | 532,180 |
| Options purchased | 55,976 | - | 99,192 | - |
| Options written | - | 55,589 | - | 102,216 |
| Futures and forwards | 2,088 | 2,033 | 7,600 | 6,620 |
| Credit derivatives | 41,748 | 39,127 | 142,366 | 132,734 |
| Equity and commodity contracts | 6,831 | 9,680 | 22,136 | 24,301 |
| 441,454 | 424,141 | 992,559 | 971,364 |
The Group enters into master netting agreements in respect of its derivatives activities. These arrangements, which give the Group a legal right to set-off derivative assets and liabilities with the same counterparty, do not result in a net presentation in the Group's balance sheet for which IFRS requires an intention to settle net or to realise the asset and settle the liability simultaneously as well as a legally enforceable right to set off. They are, however, effective in reducing the Group's credit exposure from derivative assets. The Group has executed master netting agreements with the majority of its derivative counterparties resulting in a significant reduction in its net exposure to derivative assets. Of the £441 billion derivatives assets shown above, £359 billion (2008 - £834 billion) were subject to such agreements. Furthermore the Group holds substantial collateral against this net derivative asset exposure.
Available-for-sale financial assets are initially recognised at fair value plus directly related transaction costs and subsequently measured at fair value with changes in fair value reported in shareholders' equity until disposal, at which stage the cumulative gain or loss is recognised in profit or loss. When there is objective evidence that an available-for-sale financial asset is impaired, any decline in its fair value below original cost is removed from equity and recognised in profit or loss.
Impairment losses are recognised when there is objective evidence of impairment. The Group reviews its portfolios of available-for-sale financial assets for such evidence which includes: default or delinquency in interest or principal payments; significant financial difficulty of the issuer or obligor; and it becoming probable that the issuer will enter bankruptcy or other financial reorganisation. However, the disappearance of an active market because an entity's financial instruments are no longer publicly traded is not evidence of impairment. Furthermore, a downgrade of an entity's credit rating is not, of itself, evidence of impairment, although it may be evidence of impairment when considered with other available information. A decline in the fair value of a financial asset below its cost or amortised cost is not necessarily evidence of impairment. Determining whether objective evidence of impairment exists requires the exercise of management judgment. The unrecognised losses on the Group's available for sale debt securities are concentrated in its portfolios of mortgage-backed securities. The losses reflect the widening of credit spreads as a result of the reduced market liquidity in these securities and the current uncertain macro-economic outlook in US and Europe. The underlying securities remain unimpaired.
During 2009 impairment losses of £816 million (2008 - £981 million) were charged to profit or loss and net unrealised gains of £1,202 million (2008 - £6,808 million loss) were recognised directly in equity on available-for-sale financial assets. Available-for-sale reserves at 31 December 2009 amounted to net losses of £1,755 million (2008 - net losses £3,561 million).
The Group's regulatory capital resources at 31 December in accordance with Financial Services Authority (FSA) definitions were as follows:
| 2009 | 2008 | |
|---|---|---|
| Composition of regulatory capital | £m | £m |
| Tier 1 | ||
| Ordinary and B shareholders' equity | 69,890 | 45,525 |
| Minority interests | 16,895 | 21,619 |
| Adjustments for: | ||
| Goodwill and other intangible assets – continuing | (17,847) | (20,049) |
| Goodwill and other intangible assets – discontinued business | (238) | - |
| Unrealised losses on available-for-sale debt securities | 1,888 | 3,687 |
| Reserves arising on revaluation of property and unrealised gains | ||
| on available-for-sale equities | (207) | (984) |
| Reallocation of preference shares and innovative securities | (656) | (1,813) |
| Other regulatory adjustments | (1,184) | (362) |
| Less expected losses over provisions | (2,558) | (770) |
| Less securitisation positions | (1,353) | (663) |
| Less APS first loss | (5,106) | - |
| Core Tier 1 capital | 59,524 | 46,190 |
| Preference shares | 11,265 | 16,655 |
| Innovative Tier 1 securities | 5,213 | 7,383 |
| Tax on the excess of expected losses over provisions | 1,020 | 308 |
| Less deductions from Tier 1 capital | (601) | (689) |
| Total Tier 1 capital | 76,421 | 69,847 |
| Tier 2 | ||
| Reserves arising on revaluation of property and unrealised gains | ||
| on available-for-sale equities | 207 | 984 |
| Collective impairment allowances | 796 | 666 |
| Perpetual subordinated debt | 4,950 | 9,829 |
| Term subordinated debt | 20,063 | 23,162 |
| Minority and other interests in Tier 2 capital | 11 | 11 |
| Less deductions from Tier 2 capital | (5,532) | (2,429) |
| Less APS first loss | (5,106) | - |
| Total Tier 2 capital | 15,389 | 32,223 |
| Tier 3 | - | 260 |
| Supervisory deductions | ||
| Unconsolidated investments | (4,472) | (4,044) |
| Other deductions | (93) | (111) |
| Deductions from total capital | (4,565) | (4,155) |
| Total regulatory capital | 87,245 | 98,175 |
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| Contingent liabilities | ||
| Guarantees and assets pledged as collateral security | 40,008 | 49,262 |
| Other contingent liabilities | 14,012 | 22,275 |
| 54,020 | 71,537 | |
| Commitments | ||
| Undrawn formal standby facilities, credit lines and other commitments to lend | 291,634 | 352,398 |
| Other commitments | 6,007 | 9,326 |
| 297,641 | 361,724 | |
| Total contingent liabilities and commitments | 351,661 | 433,261 |
Additional contingent liabilities arise in the normal course of the Group's business. It is not anticipated that any material loss will arise from these transactions.
As a participant in the financial services industry, RBS Group operates in a legal and regulatory environment that exposes it to potentially significant litigation risks. As a result, RBS plc and other members of RBS Group are involved in various disputes and legal proceedings in the United Kingdom, the United States and other jurisdictions, including litigation. Such cases are subject to many uncertainties, and their outcome is often difficult to predict, particularly in the earlier stages of a case.
Other than as set out below in this section -"Litigation", so far as RBS Group is aware, neither RBS plc nor any member of RBS Group is or has been engaged in or has pending or threatened any governmental, legal or arbitration proceedings, which may have or have had in the recent past (covering the 12 months immediately preceding the date of this document) a significant effect on RBS Group's financial position or profitability.
In common with other banks in the United Kingdom, RBS plc and NatWest have received claims and complaints from a large number of customers in the United Kingdom seeking refunds of unarranged overdraft charges (the "Charges"). The vast majority of these claims and complaints have challenged the Charges on the basis that they contravene the Unfair Terms in Consumer Contracts Regulations 1999 (the "Regulations") or are unenforceable under the common law penalty doctrine (or both).
In July 2007, the Office of Fair Trading ("OFT") issued proceedings in a test case in the English High Court against the banks which was intended to determine certain issues concerning the legal status and enforceability of contractual terms relating to the Charges. The test case concluded in November 2009 with a judgment of the Supreme Court in favour of the banks. As a result of the court rulings made in the test case, RBS Group expects substantially all of the customer claims and complaints it has received relating to the Charges to fail. RBS Group cannot at this stage predict with any certainty the final outcome of all customer claims and complaints. It is unable reliably to estimate any liability that may arise as a result of or in connection with these matters or its effect on RBS Group's consolidated net assets, operating results or cash flows in any particular period.
RBS Group and a number of its subsidiaries and certain individual officers and directors have been named as defendants in a class action filed in the United States District Court for the Southern District of New York. The consolidated amended complaint alleges certain false and misleading statements and omissions in public filings and other communications during the period 1 March 2007 to 19 January 2009, and variously asserts claims under Sections 11, 12 and 15 of the Securities Act 1933, Sections 10 and 20 of the Securities Exchange Act 1934 and Rule 10b-5 thereunder.
The putative class is composed of (1) all persons who purchased or otherwise acquired RBS Group securities between 1 March 2007 and 19 January 2009; and/or (2) all persons who purchased or otherwise acquired RBS Series Q, R, S, T and/or U non-cumulative dollar preference shares issued pursuant or traceable to the 8 April 2005 SEC registration statement and were damaged thereby. Plaintiffs seek unquantified damages on behalf of the putative class.
RBS Group has also received notification of similar prospective claims in the United Kingdom and elsewhere but no court proceedings have been commenced in relation to these claims.
RBS Group considers that it has substantial and credible legal and factual defences to these claims and will defend them vigorously. RBS Group is unable reliably to estimate the liability, if any, that might arise or its effect on RBS Group's consolidated net assets, operating results or cash flows in any particular period.
RBS Group companies have been named as defendants in a number of purported class action and other lawsuits in the United States that relate to the securitisation and securities underwriting businesses. In general, the cases involve the issuance of mortgage backed securities, collateralised debt obligations, or public debt or equity where the plaintiffs have brought actions against the issuers and underwriters of such securities (including RBS Group companies) claiming that certain disclosures made in connection with the relevant offerings of such securities were false or misleading with respect to alleged "sub-prime" mortgage exposure. RBS Group considers that it has substantial and credible legal and factual defences to these claims and will continue to defend them vigorously. RBS Group cannot at this stage reliably estimate the liability, if any, that may arise as a result of or in connection with these lawsuits, individually or in the aggregate, or their effect on RBS Group's consolidated net assets, operating results or cash flows in any particular period.
In November 2009 the Supreme Court in the Netherlands gave a declaratory judgment against World Online International NV, Goldmans Sachs International and ABN AMRO Bank NV in relation to claims arising out of the World Online initial public offering of 2000. It held that these Defendants had committed certain wrongful acts in connection with the initial public offering. The judgment does not establish liability or the amount of any loss. RBS Group does not believe that any final liability or loss will have a significant effect on RBS Group's financial position or profitability.
Members of RBS Group are engaged in other litigation in the United Kingdom and a number of overseas jurisdictions, including the United States, involving claims by and against them arising in the ordinary course of business. RBS Group has reviewed these other actual, threatened and known potential claims and proceedings and, after consulting with its legal advisers, does not expect that the outcome of these other claims and proceedings will have a material adverse effect on RBS Group's financial position or profitability in any particular period.
RBS Group's businesses and financial condition can be affected by the fiscal or other policies and other actions of various governmental and regulatory authorities in the United Kingdom, the European Union, the United States and elsewhere. RBS Group has engaged, and will continue to engage, in discussions with relevant regulators, including in the United Kingdom and the United States, on an ongoing and regular basis informing them of operational, systems and control evaluations and issues as deemed appropriate or required. It is possible that any matters discussed or identified may result in investigatory actions by the regulators, increased costs being incurred by RBS Group, remediation of systems and controls, public or private censure or fines. Any of these events or circumstances could have a material adverse impact on RBS Group, its business, reputation, results of operations or the price of securities issued by it.
In particular there is continuing political and regulatory scrutiny of the operation of the retail banking and consumer credit industries in the United Kingdom and elsewhere. The nature and impact of future changes in policies and regulatory action are not predictable and are beyond RBS Group's control but could have an adverse impact on RBS Group's businesses and earnings.
In the European Union, regulatory actions included an inquiry into retail banking initiated on 13 June 2005 in all of the then 25 member states by the European Commission's Directorate General for Competition. The inquiry examined retail banking in Europe generally. On 31 January 2007, the European Commission announced that barriers to competition in certain areas of retail banking, payment cards and payment systems in the European Union had been identified. The European Commission indicated that it will consider using its powers to address these barriers and will encourage national competition authorities to enforce European and national competition laws where appropriate.
In 2007, the European Commission issued a decision that while interchange is not illegal per se, MasterCard's current multilateral interchange fee ("MIF") arrangement for cross border payment card transactions with MasterCard and Maestro branded consumer credit and debit cards in the European Union are in breach of competition law. MasterCard was required by the decision to withdraw the relevant cross-border MIFs (i.e. set these fees to zero) by 21 June 2008.
MasterCard appealed against the decision to the European Court of First Instance on 1 March 2008, and the Group has intervened in the appeal proceedings. In addition, in Summer 2008, MasterCard announced various changes to its scheme arrangements. The EC Commission was concerned that these changes might be used as a means of circumventing the requirements of the infringement decision. In April 2009 MasterCard agreed an interim settlement on the level of cross-border MIF with the European Commission pending the outcome of the appeal process and, as a result, the European Commission has advised it will no longer investigate the non-compliance issue (although MasterCard is continuing with its appeal).
Visa's cross-border MIFs were exempted in 2002 by the European Commission for a period of five years up to 31 December 2007 subject to certain conditions. On 26 March 2008, the European Commission opened a formal inquiry into Visa's current MIF arrangements for cross border payment card transactions with Visa branded debit and consumer credit cards in the European Union and on 6 April 2009 the European Commission announced that it had issued Visa with a formal Statement of Objections. At the same time Visa announced changes to its interchange levels and introduced some changes to enhance transparency. There is no deadline for the closure of the inquiry.
In the UK, the OFT has carried out investigations into Visa and MasterCard domestic credit card interchange rates. The decision by the OFT in the MasterCard interchange case was set aside by the Competition Appeal Tribunal (the "CAT") in June 2006. The OFT's investigations in the Visa interchange case and a second MasterCard interchange case are ongoing. On 9 February 2007, the OFT announced that it was expanding its investigation into domestic interchange rates to include debit cards. In January 2010 the OFT advised that it did not anticipate issuing a Statement of Objections prior to the European Court's judgment, although it has reserved the right to do so if it considers it appropriate.
The outcome of these investigations is not known, but they may have an impact on the consumer credit industry in general and, therefore, on RBS Group's business in this sector.
Having conducted a market study relating to Payment Protection Insurance ("PPI"), on 7 February 2007 the OFT referred the PPI market to the Competition Commission ("CC") for an in-depth inquiry. The CC published its final report on 29 January 2009 and announced its intention to order a range of remedies, including a prohibition on actively selling PPI at point of sale of the credit product (and for 7 days thereafter), a ban on single premium policies and other measures to increase transparency (in order to improve customers' ability to search and improve price competition). Barclays Bank PLC subsequently appealed certain CC findings to the Competition Appeal Tribunal ("CAT"). On 16 October 2009, the CAT handed down a judgment quashing the ban on selling PPI at the point of sale of credit products and remitted the matter back to the CC for review. The CC's current Administrative Timetable is to publish a supplementary report by Summer 2010 and give further consideration to its full range of recommended remedies and a draft order to implement them during Autumn 2010.
The FSA has been conducting a broad industry thematic review of PPI sales practices and in September 2008, the FSA announced that it intended to escalate its level of regulatory intervention. Substantial numbers of customer complaints alleging the mis-selling of PPI policies have been made to banks and to the FOS and many of these are being upheld by the FOS against the banks.
In September 2009, the FSA issued a consultation paper on guidance on the fair assessment of PPI mis-selling complaints and, where necessary, the provision of an appropriate level of redress. The consultation also covers proposed rules requiring firms to re-assess (against the new guidance) all PPI mis-selling complaints received and rejected since 14 January 2005. A policy statement containing final guidance and rules is expected in early 2010. Separately, discussions continue between the FSA and RBS Group in respect of concerns expressed by the FSA over certain categories of historical PPI sales.
On 16 July 2008, the OFT published the results of its market study into personal current accounts in the United Kingdom. The OFT found evidence of competition and several positive features in the personal current account market but believes that the market as a whole is not working well for consumers and that the ability of the market to function well has become distorted.
On 7 October 2009, the OFT published a follow-up report summarising the initiatives agreed between the OFT and personal current account providers to address the OFT's concerns about transparency and switching, following its market study. Personal current account providers will take a number of steps to improve transparency, including providing customers with an annual summary of the cost of their account and making charges prominent on monthly statements. To improve the switching process, a number of steps are being introduced following work with BACS, the payment processor, including measures to reduce the impact on consumers of any problems with transferring direct debits.
On 22 December 2009, the OFT published a further report in which it stated that it continued to have significant concerns about the operation of the personal current account market in the United Kingdom, in particular in relation to unarranged overdrafts, and that it believed that fundamental changes are required for the market to work in the best interests of bank customers. The OFT stated that it would discuss these issues intensively with banks, consumer groups and other organisations, with the aim of reporting on progress by the end of March 2010.
In connection with a previously disclosed investigation of ABN AMRO's New York Branch by US regulatory authorities, ABN AMRO and members of ABN AMRO's management continue to provide information to the United States Department of Justice relating to ABN AMRO's dollar clearing activities, United States Department of Treasury compliance procedures and other Bank Secrecy Act of 1970 compliance matters. ABN AMRO has reached an agreement in principle with the United States Department of Justice that would resolve all presently known aspects of the ongoing investigation, although no written agreement has yet been reached and negotiations continue. Under the terms of the agreement in principle, ABN AMRO and the United States would enter into a deferred prosecution agreement in which ABN AMRO would waive indictment and agree to the filing of information in the United States District Court charging it with certain violations of federal law based on information disclosed in an agreed factual statement. ABN AMRO would also agree to continue cooperating in the United States' ongoing investigation and to settle all known civil and criminal claims currently held by the United States for the sum of US\$500 million. The precise terms of the deferred prosecution agreement are still under negotiation.
The New York State Attorney General has issued subpoenas to a wide array of participants in the securitisation and securities industry, focusing on the information underwriters obtained as part of the due diligence process from the independent due diligence firms. RBS Securities Inc. has produced documents requested by the New York State Attorney General, principally related to loans that were pooled into one securitisation transaction and will continue to cooperate with the investigation. More recently, the Massachusetts Attorney General has issued a subpoena to RBS Securities Inc. seeking information related to residential mortgage lending practices and sales and securitisation of residential mortgage loans. These respective investigations are in the early stages and therefore it is difficult to predict the potential exposure from any such investigation. RBS Group and its subsidiaries are cooperating with these various investigations and requests.
In the UK, the OFT has been investigating RBS Group for alleged conduct in breach of Article 101 of the Treaty on the Functioning of the European Union and/or the Chapter 1 prohibition of the Competition Act 1998 relating to the provision of loan products to professional services firms. RBS Group is co-operating fully with the OFT's investigation.
In April 2009 the FSA notified RBS Group that it was commencing a supervisory review of the acquisition of ABN AMRO in 2007 and the 2008 capital raisings and an investigation into conduct, systems and controls within the Global Banking & Markets division of the Group. RBS Group and its subsidiaries are cooperating fully with this review and investigation.
In November 2009, the FSA informed RBS Group that it was commencing an investigation into certain aspects of the policies of, and training and controls within, certain of RBS Group's UK subsidiaries relating to compliance with UK money laundering regulations during the period from December 2007 to December 2008. RBS Group and its subsidiaries are cooperating fully with this investigation.
In January 2010, the FSA informed RBS Group that it intended to commence an investigation into certain aspects of the handling of customer complaints. The scope of the proposed investigation (including which businesses and subsidiaries are affected) is not yet clear. RBS Group and its subsidiaries intend to co-operate fully with this investigation.
In the United States, RBS Group and certain subsidiaries have received requests for information from various governmental agencies, self-regulatory organisations, and state governmental agencies including in connection with sub-prime mortgages and securitisations, collateralised debt obligations and synthetic products related to sub-prime mortgages. In particular, during March 2008, RBS Group was advised by the US Securities and Exchange Commission that it had commenced a non-public, formal investigation relating to RBS Group's United States sub-prime securities exposures and United States residential mortgage exposures. RBS Group and its subsidiaries are cooperating with these various requests for information and investigations.
The Financial Services Compensation Scheme (FSCS), the UK's statutory fund of last resort for customers of authorised financial services firms, pays compensation if a firm is unable to meet its obligations. The FSCS funds compensation for customers by raising management expenses levies and compensation levies on the industry. In relation to protected deposits, each deposit-taking institution contributes towards these levies in proportion to their share of total protected deposits on 31 December of the year preceding the scheme year (which runs from 1 April to 31 March), subject to annual maxima set by the Financial Services Authority (FSA). In addition, the FSCS has the power to raise levies ('exit levies') on firms who have ceased to participate in the scheme and are in the process of ceasing to be authorised for the amount that the firm would otherwise have been asked to pay during the relevant levy year.
FSCS has borrowed from HM Treasury to fund the compensation costs associated with Bradford & Bingley, Heritable Bank, Kaupthing Singer & Friedlander, Landsbanki 'Icesave' and London Scottish Bank plc. These borrowings are on an interest-only basis until September 2011. The annual limit on the FSCS management expenses levy for the three years from September 2008 in relation to these institutions has been capped at £1 billion per annum.
The FSCS will receive funds from asset sales, surplus cash flow, or other recoveries in relation to these institutions which will be used to reduce the principal amount of the FSCS's borrowings. Only after the interest only period, which is expected to end in September 2011, will a schedule for repayment of any remaining principal outstanding (after recoveries) on the borrowings be agreed between the FSCS and HM Treasury. It is expected that, from that point, the FSCS will begin to raise compensation levies (principal repayments). No provision has been made for these levies as the amount is not yet known and is unlikely to be determined before 2011.
Full details of the Group's related party transactions for the year ended 31 December 2009 are included in the Group's 2009 Annual Report and Accounts.
This announcement was approved by the Board of directors on 24 February 2010.
A report on Form 20-F will be filed with the Securities and Exchange Commission in the United States.
| 2009 | 2008 | |||||
|---|---|---|---|---|---|---|
| Average | Average | |||||
| Balance | Interest | Rate | Balance | Interest | Rate | |
| £m | £m | % | £m | £m | % | |
| Assets | ||||||
| Interest-earning assets – banking | ||||||
| business | 903,838 | 33,902 | 3.75 | 887,194 | 49,938 | 5.63 |
| Trading business | 291,092 | 425,454 | ||||
| Non-interest earning assets | 828,550 | 728,037 | ||||
| Total assets | 2,023,480 | 2,040,685 | ||||
| Liabilities | ||||||
| Interest-bearing liabilities – banking | ||||||
| business | 818,422 | 17,682 | 2.16 | 832,350 | 31,707 | 3.81 |
| Trading business | 331,380 | 466,610 | ||||
| Non-interest-bearing liabilities | ||||||
| - demand deposits | 43,605 | 37,421 | ||||
| - other liabilities | 772,770 | 645,760 | ||||
| Shareholders' equity | 57,303 | 58,544 | ||||
| Total liabilities | 2,023,480 | 2,040,685 |
| Average yields, spreads and margins of the banking business | 2009 % |
2008 % |
|---|---|---|
| Gross yield on interest-earning assets of banking business | 3.75 | 5.63 |
| Cost of interest-bearing liabilities of banking business | (2.16) | (3.81) |
| Interest spread of banking business | 1.59 | 1.82 |
| Benefit from interest-free funds | 0.20 | 0.23 |
| Net interest margin of banking business | 1.79 | 2.05 |
Notes:
(1) Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities.
| Analysis of non-interest income, expenses and impairment losses - statutory | ||||
|---|---|---|---|---|
| 2009 £m |
2008 £m |
|
|---|---|---|
| Fees and commissions receivable Fees and commissions payable |
9,831 | 9,831 |
| - banking - insurance related |
(2,456) (366) |
(1,985) (401) |
| Net fees and commissions | 7,009 | 7,445 |
| Foreign exchange Interest rate Credit Other |
2,465 3,875 (4,108) 1,649 |
1,994 1,454 (12,200) 275 |
| Income/(loss) from trading activities | 3,881 | (8,477) |
| Gain on redemption of own debt | 3,790 | - |
| Operating lease and other rental income Changes in the fair value of own debt Changes in the fair value of securities and other financial assets and liabilities Changes in the fair value of investment properties Profit on sale of securities Profit on sale of property, plant and equipment (Loss)/profit on sale of subsidiaries and associates Life business profits/(losses) Dividend income Share of profits less losses of associated entities Other income |
1,391 51 101 (117) 294 43 (135) 156 86 (195) 287 |
1,525 977 (1,730) (86) 342 167 943 (52) 281 69 (537) |
| Other operating income | 1,962 | 1,899 |
| Non-interest income (excluding insurance premiums) | 16,642 | 867 |
| Insurance net premium income | 5,544 | 6,326 |
| Total non-interest income | 22,186 | 7,193 |
| Staff costs - wages, salaries and other staff costs - bonus tax - social security costs - pension costs |
10,063 208 727 |
9,076 - 696 |
| - gains on pensions curtailment - other Premises and equipment Other |
(2,148) 785 3,087 5,584 |
- 638 2,593 5,464 |
| Administrative expenses Write-down of goodwill and other intangible assets Depreciation and amortisation |
18,306 363 2,809 |
18,467 32,581 3,154 |
| Operating expenses | 21,478 | 54,202 |
| General insurance Bancassurance |
4,223 634 |
3,733 697 |
| Insurance net claims | 4,857 | 4,430 |
| Loan impairment losses Impairment of available-for-sale securities |
14,134 816 |
7,091 981 |
| Impairment losses | 14,950 | 8,072 |
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| Capital base | ||
| Core Tier 1 capital | 59,524 | 46,190 |
| Preference shares and tax deductible securities | 16,478 | 24,038 |
| Deductions from Tier 1 capital net of tax credit on expected losses | 419 | (381) |
| Tier 1 capital | 76,421 | 69,847 |
| Tier 2 capital | 15,389 | 32,223 |
| Tier 3 capital | - | 260 |
| 91,810 | 102,330 | |
| Less: Supervisory deductions | (4,565) | (4,155) |
| Total regulatory capital | 87,245 | 98,175 |
| Risk-weighted assets | ||
| Credit risk | 513,200 | 551,300 |
| Counterparty risk | 56,500 | 61,100 |
| Market risk | 65,000 | 46,500 |
| Operational risk | 33,900 | 36,900 |
| 668,600 | 695,800 | |
| APS relief | (127,600) | - |
| 541,000 | 695,800 | |
| Risk asset ratio | ||
| Core Tier 1 | 11.0% | 6.6% |
| Tier 1 | 14.1% | 10.0% |
| Total | 16.1% | 14.1% |
| Other information | 2009 | 2008 |
|---|---|---|
| Ordinary share price | £0.292 | £0.494 |
| Number of ordinary shares in issue | 56,366m | 39,456m |
| Market capitalisation | £16.5bn | £19.5bn |
| Net asset value per ordinary share | £0.67 | £1.15 |
| Employee numbers in continuing operations (full time equivalents rounded to the nearest hundred) |
||
| UK Retail | 25,500 | 28,400 |
| UK Corporate | 12,300 | 13,400 |
| Wealth | 4,600 | 5,200 |
| Global Banking & Markets | 16,800 | 16,500 |
| Global Transaction Services | 3,500 | 3,900 |
| Ulster Bank | 4,500 | 5,400 |
| US Retail & Commercial | 15,500 | 16,200 |
| RBS Insurance | 13,900 | 14,500 |
| Group Centre | 4,200 | 4,300 |
| Core | 100,800 | 107,800 |
| Non-Core | 15,100 | 19,000 |
| 115,900 | 126,800 | |
| Business services | 44,200 | 47,600 |
| Integration | 500 | 900 |
| RFS Holdings minority interest | 23,100 | 24,500 |
| Group total | 183,700 | 199,800 |
Financial information contained in this document does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006 ('the Act'). The statutory accounts for the year ended 31 December 2009 will be filed with the Registrar of Companies following the company's Annual General Meeting. The auditors have reported on these accounts: their report was unqualified and did not contain a statement under section 498(2) or (3) of the Act.
| Adjustments | ||||
|---|---|---|---|---|
| RFS Minority | Reallocation | |||
| Pro forma | interest | of one-off items | Statutory | |
| £m | £m | £m | £m | |
| Net interest income | 13,567 | 2,937 | - | 16,504 |
| Non-interest income (excluding insurance net premium | ||||
| income) | 10,592 | 2,128 | 3,922 | 16,642 |
| Insurance net premium income | 5,266 | 278 | - | 5,544 |
| Non-interest income | 15,858 | 2,406 | 3,922 | 22,186 |
| Total income | 29,425 | 5,343 | 3,922 | 38,690 |
| Operating expenses | (17,401) | (4,096) | 19 | (21,478) |
| Profit before other operating charges | 12,024 | 1,247 | 3,941 | 17,212 |
| Insurance net claims | (4,357) | (500) | - | (4,857) |
| Operating profit/(loss) before impairment losses | 7,667 | 747 | 3,941 | 12,355 |
| Impairment losses | (13,899) | (1,051) | - | (14,950) |
| Operating (loss)/profit | (6,232) | (304) | 3,941 | (2,595) |
| Amortisation of purchased intangible assets | (272) | - | 272 | - |
| Write-down of goodwill and other intangible assets | (363) | - | 363 | - |
| Integration and restructuring costs | (1,286) | - | 1,286 | - |
| Gain on redemption of own debt | 3,790 | - | (3,790) | - |
| Strategic disposals | 132 | - | (132) | - |
| Gains on pensions curtailment | 2,148 | - | (2,148) | - |
| Bonus tax | (208) | - | 208 | - |
| Operating loss before tax | (2,291) | (304) | - | (2,595) |
| Tax | 339 | 32 | - | 371 |
| Loss from continuing operations | (1,952) | (272) | - | (2,224) |
| Loss from discontinued operations, net of tax | (72) | (27) | - | (99) |
| Loss for the period | (2,024) | (299) | - | (2,323) |
| Minority interests | (648) | 299 | - | (349) |
| Preference share and other dividends | (935) | - | - | (935) |
| Loss attributable to ordinary shareholders | (3,607) | - | - | (3,607) |
| Adjustments | ||||
|---|---|---|---|---|
| RFS Minority | Reallocation | |||
| Pro forma | interest | of one-off items | Statutory | |
| £m | £m | £m | £m | |
| Net interest income | 15,764 | 2,911 | - | 18,675 |
| Non-interest income (excluding insurance net premium | ||||
| income) | (874) | 1,299 | 442 | 867 |
| Insurance net premium income | 5,709 | 617 | - | 6,326 |
| Non-interest income | 4,835 | 1,916 | 442 | 7,193 |
| Total income | 20,599 | 4,827 | 442 | 25,868 |
| Operating expenses | (16,188) | (19,303) | (18,711) | (54,202) |
| Profit/(loss) before other operating charges | 4,411 | (14,476) | (18,269) | (28,334) |
| Insurance net claims | (3,917) | (513) | - | (4,430) |
| Operating profit/(loss) before impairment losses | 494 | (14,989) | (18,269) | (32,764) |
| Impairment losses | (7,432) | (640) | - | (8,072) |
| Operating loss | (6,938) | (15,629) | (18,269) | (40,836) |
| Amortisation of purchased intangible assets | (443) | - | 443 | - |
| Write-down of goodwill and other intangible assets | (16,911) | - | 16,911 | - |
| Integration and restructuring costs | (1,357) | - | 1,357 | - |
| Strategic disposals | 442 | - | (442) | - |
| Operating loss before tax | (25,207) | (15,629) | - | (40,836) |
| Tax | 1,995 | 328 | - | 2,323 |
| Loss from continuing operations | (23,212) | (15,301) | - | (38,513) |
| (Loss)/profit from discontinued operations, net of tax | (86) | 4,057 | - | 3,971 |
| Loss for the period | (23,298) | (11,244) | - | (34,542) |
| Minority interests | (412) | 11,244 | - | 10,832 |
| Preference share and other dividends | (596) | - | - | (596) |
| Loss attributable to ordinary shareholders | (24,306) | - | - | (24,306) |
| RFS Minority | Reallocation | |||
|---|---|---|---|---|
| Pro forma | interest | of one-off items | Statutory | |
| £m | £m | £m | £m | |
| Net interest income | 3,446 | 821 | - | 4,267 |
| Non-interest income (excluding insurance net premium | ||||
| income) | 2,786 | 431 | (166) | 3,051 |
| Insurance net premium income | 1,308 | 143 | - | 1,451 |
| Non-interest income | 4,094 | 574 | (166) | 4,502 |
| Total income | 7,540 | 1,395 | (166) | 8,769 |
| Operating expenses | (4,473) | (1,163) | 1,601 | (4,035) |
| Profit before other operating charges | 3,067 | 232 | 1,435 | 4,734 |
| Insurance net claims | (1,321) | (193) | - | (1,514) |
| Operating profit before impairment losses | 1,746 | 39 | 1,435 | 3,220 |
| Impairment losses | (3,099) | (303) | - | (3,402) |
| Operating (loss)/profit | (1,353) | (264) | 1,435 | (182) |
| Amortisation of purchased intangible assets | (59) | - | 59 | - |
| Write-down of goodwill and other intangible assets | (52) | - | 52 | - |
| Integration and restructuring costs | (228) | - | 228 | - |
| Strategic disposals | (166) | - | 166 | - |
| Gains on pensions curtailment | 2,148 | - | (2,148) | - |
| Bonus tax | (208) | - | 208 | - |
| Operating loss before tax | 82 | (264) | - | (182) |
| Tax | (649) | (18) | - | (667) |
| Loss from continuing operations | (567) | (282) | - | (849) |
| Loss from discontinued operations, net of tax | (7) | (11) | - | (18) |
| Loss for the period | (574) | (293) | - | (867) |
| Minority interests | (47) | 293 | - | 246 |
| Preference share and other dividends | (144) | - | - | (144) |
| Loss attributable to ordinary shareholders | (765) | - | - | (765) |
| RFS Minority | Adjustments Reallocation |
|||
|---|---|---|---|---|
| Pro forma | interest | of one-off items | Statutory | |
| £m | £m | £m | £m | |
| Net interest income | 3,261 | 602 | - | 3,863 |
| Non-interest income (excluding insurance net premium | ||||
| income) | 2,532 | 568 | (155) | 2,945 |
| Insurance net premium income | 1,301 | (29) | - | 1,272 |
| Non-interest income | 3,833 | 539 | (155) | 4,217 |
| Total income | 7,094 | 1,141 | (155) | 8,080 |
| Operating expenses | (4,195) | (960) | (397) | (5,552) |
| Profit/(loss) before other operating charges | 2,899 | 181 | (552) | 2,528 |
| Insurance net claims | (1,145) | (64) | - | (1,209) |
| Operating profit/(loss) before impairment losses | 1,754 | 117 | (552) | 1,319 |
| Impairment losses | (3,279) | (209) | - | (3,488) |
| Operating loss | (1,525) | (92) | (552) | (2,169) |
| Amortisation of purchased intangible assets | (73) | - | 73 | - |
| Integration and restructuring costs | (324) | - | 324 | - |
| Strategic disposals | (155) | - | 155 | - |
| Operating loss before tax | (2,077) | (92) | - | (2,169) |
| Tax | 576 | 21 | - | 597 |
| Loss from continuing operations | (1,501) | (71) | - | (1,572) |
| Loss from discontinued operations, net of tax | (7) | (12) | - | (19) |
| Loss for the period | (1,508) | (83) | - | (1,591) |
| Minority interests | (47) | 83 | - | 36 |
| Preference share and other dividends | (245) | - | - | (245) |
| Loss attributable to ordinary shareholders | (1,800) | - | - | (1,800) |
| RFS Minority | Adjustments Reallocation |
|||
|---|---|---|---|---|
| Pro forma | interest | of one-off items | Statutory | |
| £m | £m | £m | £m | |
| Net interest income | 4,427 | 763 | - | 5,190 |
| Non-interest income (excluding insurance net premium | ||||
| income) | (5,503) | 312 | 442 | (4,749) |
| Insurance net premium income | 1,439 | 184 | - | 1,623 |
| Non-interest income | (4,064) | 496 | 442 | (3,126) |
| Total income | 363 | 1,259 | 442 | 2,064 |
| Operating expenses | (3,735) | (16,702) | (17,725) | (38,162) |
| Loss before other operating charges | (3,372) | (15,443) | (17,283) | (36,098) |
| Insurance net claims | (1,056) | (139) | - | (1,195) |
| Operating loss before impairment losses | (4,428) | (15,582) | (17,283) | (37,293) |
| Impairment losses | (4,673) | (341) | - | (5,014) |
| Operating loss | (9,101) | (15,923) | (17,283) | (42,307) |
| Amortisation of purchased intangible assets | (62) | - | 62 | - |
| Write-down of goodwill and other intangible assets | (16,911) | - | 16,911 | - |
| Integration and restructuring costs | (752) | - | 752 | - |
| Strategic disposals | 442 | - | (442) | - |
| Operating Loss before tax | (26,384) | (15,923) | - | (42,307) |
| Tax | 2,416 | 359 | - | 2,775 |
| Loss from continuing operations | (23,968) | (15,564) | - | (39,532) |
| Profit from discontinued operations, net of tax | 1 | 210 | - | 211 |
| Loss for the period | (23,967) | (15,354) | - | (39,321) |
| Minority interests | (221) | 15,354 | - | 15,133 |
| Preference share and other dividends | (162) | - | - | (162) |
| Loss attributable to ordinary shareholders | (24,350) | - | - | (24,350) |
| Pro forma | Transfers | Statutory | |
|---|---|---|---|
| £m | £m | £m | |
| Assets | |||
| Cash and balances at central banks | 51,548 | 713 | 52,261 |
| Net loans and advances to banks | 48,777 | 7,879 | 56,656 |
| Reverse repurchase agreements and stock borrowing | 35,097 | - | 35,097 |
| Loans and advances to banks | 83,874 | 7,879 | 91,753 |
| Net loans and advances to customers | 554,654 | 132,699 | 687,353 |
| Reverse repurchase agreements and stock borrowing | 41,040 | - | 41,040 |
| Loans and advances to customers | 595,694 | 132,699 | 728,393 |
| Debt securities | 249,095 | 18,159 | 267,254 |
| Equity shares | 15,960 | 3,568 | 19,528 |
| Settlement balances | 12,024 | 9 | 12,033 |
| Derivatives | 438,199 | 3,255 | 441,454 |
| Intangible assets | 14,786 | 3,061 | 17,847 |
| Property, plant and equipment | 17,773 | 1,624 | 19,397 |
| Deferred taxation | 6,492 | 547 | 7,039 |
| Prepayments, accrued income and other assets | 18,604 | 2,381 | 20,985 |
| Assets of disposal groups | 18,432 | 110 | 18,542 |
| Total assets | 1,522,481 | 174,005 | 1,696,486 |
| Liabilities | |||
| Bank deposits | 115,642 | (11,504) | 104,138 |
| Repurchase agreements and stock lending | 38,006 | - | 38,006 |
| Deposits by banks | 153,648 | (11,504) | 142,144 |
| Customer deposits | 414,251 | 131,598 | 545,849 |
| Repurchase agreements and stock lending | 68,353 | - | 68,353 |
| Customer accounts | 482,604 | 131,598 | 614,202 |
| Debt securities in issue | 246,329 | 21,239 | 267,568 |
| Settlement balances and short positions | 50,875 | 1 | 50,876 |
| Derivatives | 421,534 | 2,607 | 424,141 |
| Accruals, deferred income and other liabilities | 24,624 | 5,703 | 30,327 |
| Retirement benefit liabilities | 2,715 | 248 | 2,963 |
| Deferred taxation | 2,161 | 650 | 2,811 |
| Insurance liabilities | 7,633 | 2,648 | 10,281 |
| Subordinated liabilities | 31,538 | 6,114 | 37,652 |
| Liabilities of disposal groups | 18,857 | 33 | 18,890 |
| Total liabilities | 1,442,518 | 159,337 | 1,601,855 |
| Equity | |||
| Minority interests | 2,227 | 14,668 | 16,895 |
| Owners' equity | 77,736 | - | 77,736 |
| Total equity | 79,963 | 14,668 | 94,631 |
| Total liabilities and equity | 1,522,481 | 174,005 | 1,696,486 |
| Pro forma | Transfers | Statutory | |
|---|---|---|---|
| £m | £m | £m | |
| Assets | |||
| Cash and balances at central banks | 36,567 | 580 | 37,147 |
| Net loans and advances to banks | 60,274 | 8,584 | 68,858 |
| Reverse repurchase agreements and stock borrowing | 37,190 | - | 37,190 |
| Loans and advances to banks | 97,464 | 8,584 | 106,048 |
| Net loans and advances to customers | 587,996 | 137,770 | 725,766 |
| Reverse repurchase agreements and stock borrowing | 43,463 | - | 43,463 |
| Loans and advances to customers | 631,459 | 137,770 | 769,229 |
| Debt securities | 251,281 | 19,085 | 270,366 |
| Equity shares | 16,830 | 3,764 | 20,594 |
| Settlement balances | 28,634 | 5 | 28,639 |
| Derivatives | 552,466 | 2,606 | 555,072 |
| Intangible assets | 15,339 | 3,192 | 18,531 |
| Property, plant and equipment | 18,208 | 1,692 | 19,900 |
| Deferred taxation | 7,667 | 700 | 8,367 |
| Prepayments, accrued income and other assets | 19,664 | 2,721 | 22,385 |
| Assets of disposal groups | 4,737 | 140 | 4,877 |
| Total assets | 1,680,316 | 180,839 | 1,861,155 |
| Liabilities | |||
| Bank deposits | 138,584 | (12,033) | 126,551 |
| Repurchase agreements and stock lending | 39,816 | - | 39,816 |
| Deposits by banks | 178,400 | (12,033) | 166,367 |
| Customer deposits | 423,769 | 132,319 | 556,088 |
| Repurchase agreements and stock lending | 69,465 | - | 69,465 |
| Customer accounts | 493,234 | 132,319 | 625,553 |
| Debt securities in issue | 266,213 | 26,206 | 292,419 |
| Settlement balances and short positions | 71,891 | 61 | 71,952 |
| Derivatives | 537,522 | 2,483 | 540,005 |
| Accruals, deferred income and other liabilities | 20,754 | 8,048 | 28,802 |
| Retirement benefit liabilities | 1,410 | 398 | 1,808 |
| Deferred taxation | 3,275 | 815 | 4,090 |
| Insurance liabilities | 7,480 | 2,633 | 10,113 |
| Subordinated liabilities | 33,085 | 4,578 | 37,663 |
| Liabilities of disposal groups | 8,201 | 31 | 8,232 |
| Total liabilities | 1,621,465 | 165,539 | 1,787,004 |
| Equity | |||
| Minority interests | 2,185 | 15,300 | 17,485 |
| Owners' equity | 56,666 | - | 56,666 |
| Total equity | 58,851 | 15,300 | 74,151 |
| Total liabilities and equity | 1,680,316 | 180,839 | 1,861,155 |
| Pro forma | Transfers | Statutory | |
|---|---|---|---|
| £m | £m | £m | |
| Assets | |||
| Cash and balances at central banks | 11,830 | 570 | 12,400 |
| Net loans and advances to banks | 70,728 | 8,698 | 79,426 |
| Reverse repurchase agreements and stock borrowing | 58,771 | - | 58,771 |
| Loans and advances to banks | 129,499 | 8,698 | 138,197 |
| Net loans and advances to customers | 691,976 | 143,433 | 835,409 |
| Reverse repurchase agreements and stock borrowings | 39,289 | 24 | 39,313 |
| Loans and advances to customers | 731,265 | 143,457 | 874,722 |
| Debt securities | 253,159 | 14,390 | 267,549 |
| Equity shares | 22,198 | 4,132 | 26,330 |
| Settlement balances | 17,812 | 20 | 17,832 |
| Derivatives | 991,495 | 1,064 | 992,559 |
| Intangible assets | 16,415 | 3,634 | 20,049 |
| Property, plant and equipment | 17,181 | 1,768 | 18,949 |
| Deferred taxation | 5,786 | 1,296 | 7,082 |
| Prepayments, accrued income and other assets | 21,573 | 2,829 | 24,402 |
| Assets of disposal groups | 480 | 1,101 | 1,581 |
| Total assets | 2,218,693 | 182,959 | 2,401,652 |
| Liabilities | |||
| Bank deposits | 178,943 | (4,565) | 174,378 |
| Repurchase agreements and stock lending | 83,666 | - | 83,666 |
| Deposits by banks | 262,609 | (4,565) | 258,044 |
| Customer deposits | 460,318 | 121,051 | 581,369 |
| Repurchase agreements and stock lending | 58,143 | - | 58,143 |
| Customer accounts | 518,461 | 121,051 | 639,512 |
| Debt securities in issue | 269,458 | 30,831 | 300,289 |
| Settlement balances and short positions | 54,264 | 13 | 54,277 |
| Derivatives | 969,409 | 1,955 | 971,364 |
| Accruals, deferred income and other liabilities | 24,140 | 7,342 | 31,482 |
| Retirement benefit liabilities | 1,564 | 468 | 2,032 |
| Deferred taxation | 3,177 | 988 | 4,165 |
| Insurance liabilities | 7,480 | 2,496 | 9,976 |
| Subordinated liabilities | 43,678 | 5,476 | 49,154 |
| Liabilities of disposal groups | 138 | 721 | 859 |
| Total liabilities | 2,154,378 | 166,776 | 2,321,154 |
| Equity | |||
| Minority interests | 5,436 | 16,183 | 21,619 |
| Owners' equity | 58,879 | - | 58,879 |
| Total equity | 64,315 | 16,183 | 80,498 |
| Total liabilities and equity | 2,218,693 | 182,959 | 2,401,652 |
| 2008 2009 |
Q4 2009 vs. | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Q4 £m |
Q1 £m |
Q2 £m |
Q3 £m |
Q4 £m |
Q4 2008 | Q3 2009 | |||
| Net interest income | 4,427 | 3,538 | 3,322 | 3,261 | 3,446 | (22%) | 6% | ||
| Non-interest income (excluding insurance net premium income) Insurance net premium income |
(5,503) 1,439 |
3,776 1,356 |
1,498 1,301 |
2,532 1,301 |
2,786 1,308 |
(151%) (9%) |
10% 1% |
||
| Non-interest income | (4,064) | 5,132 | 2,799 | 3,833 | 4,094 | - | 7% | ||
| Total income Operating expenses |
363 (3,735) |
8,670 (4,667) |
6,121 (4,066) |
7,094 (4,195) |
7,540 (4,473) |
- 20% |
6% 7% |
||
| Profit/(loss) before other operating charges Insurance net claims |
(3,372) (1,056) |
4,003 (966) |
2,055 (925) |
2,899 (1,145) |
3,067 (1,321) |
(191%) 25% |
6% 15% |
||
| Operating profit/(loss) before impairment losses Impairment losses |
(4,428) (4,673) |
3,037 (2,858) |
1,130 (4,663) |
1,754 (3,279) |
1,746 (3,099) |
(139%) (34%) |
- (5%) |
||
| Group operating (loss)/profit* Amortisation of purchased intangible assets Integration and restructuring costs Gain on redemption of own debt Strategic disposals |
(9,101) (62) (752) - 442 |
179 (85) (379) - 241 |
(3,533) (55) (355) 3,790 212 |
(1,525) (73) (324) - (155) |
(1,353) (59) (228) - (166) |
(85%) (5%) (70%) - (138%) |
(11%) (19%) (30%) - 7% |
||
| Gains on pensions curtailment Bonus tax |
- - |
- - |
- - |
- - |
2,148 (208) |
- - |
- - |
||
| Profit/ (loss) before tax Tax |
(9,473) 1,701 |
(44) (228) |
59 640 |
(2,077) 576 |
134 (649) |
(101%) (138%) |
(106%) - |
||
| (Loss)/profit from continuing operations From discontinued operations, net of tax |
(7,772) 1 |
(272) (45) |
699 (13) |
(1,501) (7) |
(515) (7) |
(93%) - |
(66%) - |
||
| (Loss)/profit for the period Minority interests Preference share and other dividends |
(7,771) (221) (162) |
(317) (471) (114) |
686 (83) (432) |
(1,508) (47) (245) |
(522) (47) (144) |
(93%) (79%) (11%) |
(65%) - (41%) |
||
| (Loss) attributable to ordinary shareholders before write-down of goodwill and |
|||||||||
| other intangible assets Write-down of goodwill and other intangible assets, net of tax |
(8,154) (16,196) |
(902) - |
171 (311) |
(1,800) - |
(713) (52) |
(91%) (100%) |
(60%) - |
||
| Loss attributable to ordinary shareholders |
(24,350) | (902) | (140) | (1,800) | (765) | (97%) | (58%) |
*profit/(loss) before tax, purchased intangibles amortisation, integration and restructuring costs, and write-down of goodwill and other intangible assets.
| 2008 | 2009 | Q4 2009 vs. | ||||||
|---|---|---|---|---|---|---|---|---|
| Key metrics | Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | |
| Net interest margin | 2.11% | 1.78% | 1.70% | 1.75% | 1.83% | (28bp) | 8bp | |
| Cost:income ratio | 1,028.9% | 53.8% | 66.4% | 59.1% | 59.3% | - | (19bp) | |
| Risk-weighted assets - Gross | £577.8bn | £575.7bn £547.3bn | £594.7bn | £565.8bn | (2%) | (5%) | ||
| Benefit of APS | - | - | - | - (£127.6bn) | - | - | ||
| Risk-weighted assets | £577.8bn | £575.7bn £547.3bn | £594.7bn | £438.2bn | (24%) | (26%) | ||
| Risk elements In lending | £18.8bn | £23.7bn | £30.7bn | £35.0bn | £35.0bn | 86% | - | |
| Provision balance as % of | ||||||||
| REIL/PPL* | 50% | 45% | 44% | 43% | 42% | (800bp) | (100bp) |
* includes disposal groups.
Note:
2008 data have been restated for the amendment to IFRS 2 'Share-based Payment'.
The profit/(loss) of each division before amortisation of purchased intangible assets, write-down of goodwill and other assets, integration and restructuring costs, and after allocation of Business Services and Group Centre costs is shown below. The Group manages costs where they arise. Customer-facing divisions control their direct expenses whilst Business Services is responsible for shared costs.
| 2008 | 2009 | Q4 2009 vs. | ||||||
|---|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | ||
| £m | £m | £m | £m | £m | ||||
| Operating profit/(loss) before | ||||||||
| impairment losses | ||||||||
| UK Retail | 381 | 371 | 490 | 468 | 579 | 52% | 24% | |
| UK Corporate | 487 | 421 | 535 | 566 | 530 | 9% | (6%) | |
| Wealth | 77 | 100 | 134 | 120 | 99 | 29% | (18%) | |
| Global Banking & Markets | (2,817) | 3,737 | 1,018 | 593 | 1,001 | (136%) | 69% | |
| Global Transaction Services | 285 | 240 | 269 | 275 | 228 | (20%) | (17%) | |
| Ulster Bank | 36 | 71 | 78 | 59 | 73 | 103% | 24% | |
| US Retail & Commercial | 312 | 182 | 136 | 137 | 134 | (57%) | (2%) | |
| RBS Insurance | 176 | 81 | 142 | 13 | (170) | (197%) | - | |
| Central items | (476) | 486 | (311) | 121 | (3) | (99%) | (102%) | |
| Core | (1,539) | 5,689 | 2,491 | 2,352 | 2,471 | - | 5% | |
| Non-Core | (2,889) | (2,652) | (1,361) | (598) | (725) | (75%) | 21% | |
| Operating profit/(loss) before | ||||||||
| impairment losses | (4,428) | 3,037 | 1,130 | 1,754 | 1,746 | (139%) | - | |
| Included in the above are | ||||||||
| movements in fair value of own debt: |
||||||||
| Global Banking & Markets | (875) | 647 | (482) | (320) | 106 | (112%) | (133%) | |
| Central items | 14 | 384 | (478) | (163) | 164 | - | - | |
| (861) | 1,031 | (960) | (483) | 270 | (131%) | (156%) | ||
| Impairment losses by division | ||||||||
| UK Retail | 292 | 354 | 470 | 404 | 451 | 54% | 12% | |
| UK Corporate | 169 | 100 | 450 | 187 | 190 | 12% | 2% | |
| Wealth | 8 | 6 | 16 | 1 | 10 | 25% | - | |
| Global Banking & Markets | 502 | 269 | (31) | 272 | 130 | (74%) | (52%) | |
| Global Transaction Services | 40 | 9 | 4 | 22 | 4 | (90%) | (82%) | |
| Ulster Bank | 71 | 67 | 90 | 144 | 348 | - | 142% | |
| US Retail & Commercial | 177 | 223 | 146 | 180 | 153 | (14%) | (15%) | |
| RBS Insurance | 42 | 5 | 1 | 2 | - | - | - | |
| Central items | 11 | (3) | 1 | 1 | 2 | (82%) | 100% | |
| Core | 1,312 | 1,030 | 1,147 | 1,213 | 1,288 | (2%) | 6% | |
| Non-Core | 3,361 | 1,828 | 3,516 | 2,066 | 1,811 | (46%) | (12%) | |
| Total impairment losses | 4,673 | 2,858 | 4,663 | 3,279 | 3,099 | (34%) | (5%) |
| 2008 | 2009 | Q4 2009 vs. | |||||
|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | |
| £m | £m | £m | £m | £m | |||
| Operating (loss)/profit by division | |||||||
| UK Retail | 89 | 17 | 20 | 64 | 128 | 44% | 100% |
| UK Corporate | 318 | 321 | 85 | 379 | 340 | 7% | (10%) |
| Wealth | 69 | 94 | 118 | 119 | 89 | 29% | (25%) |
| Global Banking & Markets | (3,319) | 3,468 | 1,049 | 321 | 871 | (126%) | 171% |
| Global Transaction Services | 245 | 231 | 265 | 253 | 224 | (9%) | (11%) |
| Ulster Bank | (35) | 4 | (12) | (85) | (275) | - | - |
| US Retail & Commercial | 135 | (41) | (10) | (43) | (19) | (114%) | (56%) |
| RBS Insurance | 134 | 76 | 141 | 11 | (170) | - | - |
| Central items | (487) | 489 | (312) | 120 | (5) | (99%) | (104%) |
| Core | (2,851) | 4,659 | 1,344 | 1,139 | 1,183 | (141%) | 4% |
| Non-Core | (6,250) | (4,480) | (4,877) | (2,664) | (2,536) | (59%) | (5%) |
| Group operating (loss)/profit | (9,101) | 179 | (3,533) | (1,525) | (1,353) | (85%) | (11%) |
| Loan impairment losses | 4,049 | 2,276 | 4,520 | 3,262 | 3,032 | (25%) | (7%) |
| Impairment losses on available-for | |||||||
| -sale securities | 624 | 582 | 143 | 17 | 67 | (89%) | - |
| 4,673 | 2,858 | 4,663 | 3,279 | 3,099 | (34%) | (5%) | |
| Loan impairment charge as % of gross loans and advances excluding reverse repurchase |
|||||||
| agreements | 2.31% | 1.34% | 2.98% | 2.16% | 2.13% | (18bp) | (3bp) |
| 2008 | 2009 | 31 Dec 2009 vs. | |||||
|---|---|---|---|---|---|---|---|
| 31 Dec £bn |
31 Mar £bn |
30 June £bn |
30 Sept £bn |
31 Dec £bn |
31 Dec 2008 |
30 Sept 2009 |
|
| Risk-weighted assets by division | |||||||
| UK Retail | 45.7 | 49.6 | 54.0 | 51.6 | 51.3 | 12% | (1%) |
| UK Corporate | 85.7 | 86.2 | 89.5 | 91.0 | 90.2 | 5% | (1%) |
| Wealth | 10.8 | 10.6 | 10.3 | 10.7 | 11.2 | 4% | 5% |
| Global Banking & Markets | 151.8 | 137.9 | 112.5 | 121.5 | 123.7 | (19%) | 2% |
| Global Transaction Services | 17.4 | 18.7 | 16.7 | 18.9 | 19.1 | 10% | 1% |
| Ulster Bank | 24.5 | 26.2 | 26.2 | 28.5 | 29.9 | 22% | 5% |
| US Retail & Commercial | 63.9 | 64.3 | 55.6 | 62.8 | 59.7 | (7%) | (5%) |
| Other | 7.1 | 7.8 | 8.5 | 9.0 | 9.4 | 32% | 4% |
| Core | 406.9 | 401.3 | 373.3 | 394.0 | 394.5 | (3%) | - |
| Non-Core | 170.9 | 174.4 | 174.0 | 200.7 | 171.3 | - | (15%) |
| 577.8 | 575.7 | 547.3 | 594.7 | 565.8 | (2%) | (5%) | |
| Benefit of APS | - | - | - | - | (127.6) | - | - |
| Total | 577.8 | 575.7 | 547.3 | 594.7 | 438.2 | (24%) | (26%) |
| 2008 | 2009 | Q4 2009 vs. | |||||
|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | |
| £m | £m | £m | £m | £m | |||
| Income statement | |||||||
| Net interest income | 856 | 797 | 868 | 848 | 939 | 10% | 11% |
| Net fees and commissions – | |||||||
| banking | 345 | 337 | 321 | 303 | 283 | (18%) | (7%) |
| Other non-interest income (net of | |||||||
| insurance claims) | 54 | 53 | 69 | 69 | 60 | 11% | (13%) |
| Non-interest income | 399 | 390 | 390 | 372 | 343 | (14%) | (8%) |
| Total income | 1,255 | 1,187 | 1,258 | 1,220 | 1,282 | 2% | 5% |
| Direct expenses | |||||||
| - staff | (236) | (214) | (214) | (206) | (211) | (11%) | 2% |
| - other | (101) | (115) | (102) | (99) | (105) | 4% | 6% |
| Indirect expenses | (537) | (487) | (452) | (447) | (387) | (28%) | (13%) |
| (874) | (816) | (768) | (752) | (703) | (20%) | (7%) | |
| Operating profit before impairment | |||||||
| losses | 381 | 371 | 490 | 468 | 579 | 52% | 24% |
| Impairment losses | (292) | (354) | (470) | (404) | (451) | 54% | 12% |
| Operating profit | 89 | 17 | 20 | 64 | 128 | 44% | 100% |
| Analysis of income by product | |||||||
| Personal advances | 296 | 305 | 311 | 303 | 273 | (8%) | (10%) |
| Personal deposits | 470 | 397 | 354 | 319 | 279 | (41%) | (13%) |
| Mortgages | 186 | 207 | 273 | 319 | 415 | 123% | 30% |
| Bancassurance | 51 | 52 | 69 | 69 | 56 | 10% | (19%) |
| Cards Other |
208 44 |
204 22 |
212 39 |
225 (15) |
228 31 |
10% (30%) |
1% - |
| Total income | 1,255 | 1,187 | 1,258 | 1,220 | 1,282 | 2% | 5% |
| Analysis of impairment by | |||||||
| sector | |||||||
| Mortgages | 9 | 22 | 41 | 26 | 35 | - | 35% |
| Personal | 169 | 195 | 299 | 247 | 282 | 67% | 14% |
| Cards | 114 | 137 | 130 | 131 | 134 | 18% | 2% |
| Total impairment | 292 | 354 | 470 | 404 | 451 | 54% | 12% |
| Loan impairment charge as | |||||||
| % of gross customer loans | |||||||
| and advances by sector | |||||||
| Mortgages | 0.05% | 0.12% | 0.21% | 0.13% | 0.17% | 12bp | 4bp |
| Personal | 4.42% | 5.20% | 8.31% | 6.81% | 8.29% | 388bp | 148bp |
| Cards | 7.24% | 9.13% | 8.52% | 8.59% | 8.65% | 141bp | 5bp |
| 1.24% | 1.50% | 1.94% | 1.60% | 1.75% | 51bp | 15bp |
| 2008 2009 |
Q4 2009 vs. | ||||||
|---|---|---|---|---|---|---|---|
| Key metrics | Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 |
| Performance ratios | |||||||
| Return on equity (1) | 6.5% | 1.2% | 1.4% | 4.6% | 9.3% | 288bp | 478bp |
| Net interest margin | 3.73% | 3.46% | 3.69% | 3.47% | 3.74% | 1bp | 27bp |
| Cost:income ratio | 63.8% | 69.0% | 59.6% | 57.4% | 54.1% | 963bp | 324bp |
| 2008 2009 |
31 Dec 2009 vs. | |||||||
|---|---|---|---|---|---|---|---|---|
| 31 Dec | 31 Mar | 30 June | 30 Sept | 31 Dec | 31 Dec 2008 30 Sept 2009 | |||
| £bn | £bn | £bn | £bn | £bn | ||||
| Capital and balance sheet Loans and advances to customers |
||||||||
| gross | ||||||||
| - mortgages | 72.2 | 73.3 | 76.6 | 80.3 | 83.2 | 15% | 4% | |
| - personal | 15.3 | 15.0 | 14.4 | 14.5 | 13.6 | (11%) | (6%) | |
| - cards | 6.3 | 6.0 | 6.1 | 6.1 | 6.2 | (2%) | 2% | |
| Customer deposits (excluding | ||||||||
| bancassurance) | 78.9 | 80.3 | 83.4 | 85.6 | 87.2 | 11% | 2% | |
| AUMs – excluding deposits | 5.7 | 4.6 | 4.7 | 5.0 | 5.3 | (7%) | 6% | |
| Risk elements in lending | 3.8 | 4.1 | 4.5 | 4.7 | 4.6 | 21% | (2%) | |
| Loan:deposit ratio (excluding | ||||||||
| repos) | 116% | 115% | 113% | 115% | 115.0% | (131bp) | 40bp | |
| Risk-weighted assets | 45.7 | 49.6 | 54.0 | 51.6 | 51.3 | 12% | (1%) |
Note:
(1) Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 7% of divisional risk-weighted assets, adjusted for capital deductions).
| 2008 | 2009 | Q4 2009 vs. | |||||
|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | |
| £m | £m | £m | £m | £m | |||
| Income statement | |||||||
| Net interest income | 588 | 499 | 560 | 607 | 626 | 6% | 3% |
| Net fees and commissions | 215 | 194 | 219 | 223 | 222 | 3% | - |
| Other non-interest income | 107 | 117 | 109 | 106 | 100 | (7%) | (6%) |
| Non-interest income | 322 | 311 | 328 | 329 | 322 | - | (2%) |
| Total income | 910 | 810 | 888 | 936 | 948 | 4% | 1% |
| Direct expenses | |||||||
| - staff | (210) | (185) | (182) | (174) | (212) | 1% | 22% |
| - other | (73) | (74) | (46) | (71) | (77) | 5% | 8% |
| Indirect expenses | (140) | (130) | (125) | (125) | (129) | (8%) | 3% |
| (423) | (389) | (353) | (370) | (418) | (1%) | 13% | |
| Operating profit before impairment | |||||||
| losses | 487 | 421 | 535 | 566 | 530 | 9% | (6%) |
| Impairment losses | (169) | (100) | (450) | (187) | (190) | 12% | 2% |
| Operating profit | 318 | 321 | 85 | 379 | 340 | 7% | (10%) |
| Analysis of income by business | |||||||
| Corporate and commercial lending | 529 | 538 | 586 | 616 | 661 | 25% | 7% |
| Asset and invoice finance | 53 | 48 | 57 | 59 | 68 | 28% | 15% |
| Corporate deposits Other |
338 (10) |
290 (66) |
263 (18) |
241 20 |
191 28 |
(43%) - |
(21%) 40% |
| Total income | 910 | 810 | 888 | 936 | 948 | 4% | 1% |
| Analysis of impairment by sector |
|||||||
| Banks and financial institutions | 10 | 2 | 3 | 4 | 6 | (40%) | 50% |
| Hotels and restaurants | 13 | 15 | 36 | 7 | 40 | - | - |
| Housebuilding and construction | 31 | 6 | 55 | 58 | (13) | (142%) | (122%) |
| Manufacturing | 6 | 4 | 17 | 2 | 28 | - | - |
| Other | 35 | 19 | 88 | 31 | 12 | (66%) | (61%) |
| Private sector education, health, social work, recreational and |
|||||||
| community services | 10 | 8 | 32 | (4) | 23 | 130% | - |
| Property | 6 | 11 | 149 | 69 | 30 | - | (57%) |
| Wholesale and retail trade, | |||||||
| repairs | 19 | 14 | 23 | 16 | 23 | 21% | 44% |
| Asset and invoice finance | 39 | 21 | 47 | 4 | 41 | 5% | - |
| Total impairment | 169 | 100 | 450 | 187 | 190 | 12% | 2% |
| 2008 2009 |
Q4 2009 vs. | |||||||
|---|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | ||
| Loan impairment charge as % | ||||||||
| of gross customer loans and | ||||||||
| advances (excluding reverse | ||||||||
| repurchase agreements) by sector |
||||||||
| Banks and financial institutions | 0.74% | 0.15% | 0.27% | 0.33% | 0.46% | (28bp) | 13bp | |
| Hotels and restaurants | 0.85% | 1.15% | 2.53% | 0.49% | 2.86% | 200bp | 237bp | |
| Housebuilding and construction | 2.38% | 0.52% | 5.00% | 5.95% | (1.53%) | (391bp) | (748bp) | |
| Manufacturing | 0.45% | 0.34% | 1.58% | 0.21% | 3.03% | 257bp | 282bp | |
| Other | 0.37% | 0.18% | 0.90% | 0.29% | 0.11% | (25bp) | (18bp) | |
| Private sector education, health, social work, recreational and |
||||||||
| community services | 0.54% | 0.43% | 1.73% | (0.21%) | 1.24% | 70bp | 145bp | |
| Property | 0.08% | 0.14% | 1.99% | 0.97% | 0.43% | 35bp | (54bp) | |
| Wholesale and retail trade, | ||||||||
| repairs | 0.84% | 0.62% | 1.07% | 0.76% | 1.18% | 34bp | 42bp | |
| Asset and invoice finance | 1.84% | 0.99% | 2.19% | 0.18% | 1.93% | 9bp | 175bp | |
| 0.58% | 0.34% | 1.60% | 0.66% | 0.67% | 9bp | 1bp | ||
| 2008 | 2009 | Q4 2009 vs. | ||||||
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | ||
| Key metrics | ||||||||
| Performance ratios | ||||||||
| Return on equity (1) | 12.9% | 12.7% | 3.2% | 13.7% | 12.4% | (44bp) | (127bp) | |
| Net interest margin | 2.20% | 1.88% | 2.17% | 2.38% | 2.47% | 27bp | 9bp | |
| Cost:income ratio | 46.5% | 48.0% | 39.8% | 39.5% | 44.1% | 239bp | (456bp) |
(1) Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 8% of divisional risk-weighted assets, adjusted for capital deductions).
| 2008 | 2009 | 31 Dec 2009 vs. | |||||
|---|---|---|---|---|---|---|---|
| 31 Dec | 31 Mar | 30 June | 30 Sept | 31 Dec | 31 Dec 2008 30 Sept 2009 | ||
| £bn | £bn | £bn | £bn | £bn | |||
| Capital and balance sheet | |||||||
| Total assets | 121.0 | 120.1 | 116.2 | 117.3 | 114.9 | (5%) | (2%) |
| Loans and advances to customers gross |
|||||||
| Banks and financial institutions | 5.4 | 5.3 | 4.5 | 4.8 | 5.2 | (4%) | 8% |
| Hotels and restaurants | 6.1 | 5.2 | 5.7 | 5.7 | 5.6 | (8%) | (2%) |
| Housebuilding and construction | 5.2 | 4.6 | 4.4 | 3.9 | 3.4 | (35%) | (13%) |
| Manufacturing | 5.3 | 4.7 | 4.3 | 3.9 | 3.7 | (30%) | (5%) |
| Other | 38.1 | 41.1 | 39.1 | 42.3 | 42.0 | 10% | (1%) |
| Private sector education, health, social work, recreational |
|||||||
| and community services | 7.4 | 7.4 | 7.4 | 7.6 | 7.4 | - | (3%) |
| Property | 31.8 | 30.8 | 30.0 | 28.5 | 28.0 | (12%) | (2%) |
| Wholesale and retail trade, | |||||||
| repairs | 9.1 | 9.1 | 8.6 | 8.4 | 7.8 | (14%) | (7%) |
| Asset and invoice finance | 8.5 | 8.5 | 8.6 | 8.8 | 8.5 | - | (3%) |
| Customer deposits | 82.0 | 82.9 | 85.6 | 86.7 | 87.8 | 7% | 1% |
| Risk elements in lending | 1.3 | 2.0 | 2.4 | 2.5 | 2.3 | 77% | (8%) |
| Loan:deposit ratio (excluding | |||||||
| repos) | 142% | 139% | 130% | 130% | 126% | (1,621bp) | (435bp) |
| Risk-weighted assets | 85.7 | 86.2 | 89.5 | 91.0 | 90.2 | 5% | (1%) |
| 2008 | 2009 | Q4 2009 vs. | |||||
|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | |
| £m | £m | £m | £m | £m | |||
| Income statement | |||||||
| Net interest income | 160 | 158 | 176 | 168 | 161 | 1% | (4%) |
| Net fees and commissions | 96 | 90 | 90 | 92 | 91 | (5%) | (1%) |
| Other non-interest income | 19 | 21 | 21 | 19 | 22 | 16% | 16% |
| Non-interest income | 115 | 111 | 111 | 111 | 113 | (2%) | 2% |
| Total income | 275 | 269 | 287 | 279 | 274 | - | (2%) |
| Direct expenses | |||||||
| - staff | (97) | (90) | (78) | (82) | (107) | 10% | 30% |
| - other | (51) | (33) | (34) | (35) | (37) | (27%) | 6% |
| Indirect expenses | (50) | (46) | (41) | (42) | (31) | (38%) | (26%) |
| (198) | (169) | (153) | (159) | (175) | (12%) | 10% | |
| Operating profit before impairment | |||||||
| losses | 77 | 100 | 134 | 120 | 99 | 29% | (18%) |
| Impairment losses | (8) | (6) | (16) | (1) | (10) | 25% | - |
| Operating profit | 69 | 94 | 118 | 119 | 89 | 29% | (25%) |
| Analysis of income | |||||||
| Private Banking | 221 | 219 | 242 | 232 | 223 | 1% | (4%) |
| Investments | 54 | 50 | 45 | 47 | 51 | (6%) | 9% |
| Total income | 275 | 269 | 287 | 279 | 274 | - | (2%) |
| Key metrics | |||||||
| Performance ratios | |||||||
| Net interest margin | 4.56% | 4.47% | 4.82% | 4.34% | 3.94% | (62bp) | (40bp) |
| Cost:income ratio | 72.0% | 62.8% | 53.3% | 57.0% | 63.9% | 813bp | (688bp) |
| 2008 | 2009 | 31 Dec 2009 vs. | |||||
| 31 Dec £bn |
31 Mar £bn |
30 June £bn |
30 Sept £bn |
31 Dec £bn |
31 Dec 2008 30 Sept 2009 | ||
| Capital and balance sheet | |||||||
| Loans and advances to customers | |||||||
| gross | |||||||
| - mortgages | 5.3 | 5.5 | 5.6 | 6.1 | 6.5 | 23% | 7% |
| - personal | 5.0 | 4.6 | 4.7 | 4.8 | 4.9 | (2%) | 2% |
| - other | 2.1 | 2.2 | 2.1 | 2.5 | 2.3 | 10% | (8%) |
| Customer deposits | 34.1 | 34.9 | 35.3 | 36.3 | 35.7 | 5% | (2%) |
| AUMs – excluding deposits | 34.7 | 31.3 | 29.8 | 31.7 | 30.7 | (12%) | (3%) |
| Risk elements in lending | 0.1 | 0.1 | 0.2 | 0.2 | 0.2 | - | - |
| Loan:deposit ratio (excluding | |||||||
| repos) | 36% | 35% | 35% | 37% | 38% | 201bp | 145bp |
| Risk-weighted assets | 10.8 | 10.6 | 10.3 | 10.7 | 11.2 | 4% | 5% |
| 2008 | 2009 | Q4 2009 vs. | ||||||
|---|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | ||
| £m | £m | £m | £m | £m | ||||
| Income statement | ||||||||
| Net interest income from banking | ||||||||
| activities | 1,054 | 812 | 660 | 447 | 324 | (69%) | (28%) | |
| Net fees and commissions | ||||||||
| receivable | 190 | 297 | 412 | 340 | 286 | 51% | (16%) | |
| Income/(loss) from trading | ||||||||
| activities | (3,322) | 4,081 | 1,132 | 1,028 | 1,522 | (146%) | 48% | |
| Other operating income (net of | ||||||||
| related funding costs) | (122) | (98) | (101) | (70) | (63) | (48%) | (10%) | |
| Non-interest income | (3,254) | 4,280 | 1,443 | 1,298 | 1,745 | (154%) | 34% | |
| Total income | (2,200) | 5,092 | 2,103 | 1,745 | 2,069 | (194%) | 19% | |
| Direct expenses | ||||||||
| - staff | (18) | (888) | (680) | (721) | (641) | - | (11%) | |
| - other | (397) | (274) | (204) | (240) | (247) | (38%) | 3% | |
| Indirect expenses | (202) | (193) | (201) | (191) | (180) | (11%) | (6%) | |
| (617) | (1,355) | (1,085) | (1,152) | (1,068) | 73% | (7%) | ||
| Operating profit/(loss) before | ||||||||
| impairment losses | (2,817) | 3,737 | 1,018 | 593 | 1,001 | (136%) | 69% | |
| Impairment losses | (502) | (269) | 31 | (272) | (130) | (74%) | (52%) | |
| Operating profit/(loss) | (3,319) | 3,468 | 1,049 | 321 | 871 | (126%) | 171% | |
| Analysis of income by product | ||||||||
| Rates - money markets | 748 | 853 | 466 | 287 | 108 | (86%) | (62%) | |
| Rates - flow | 16 | 1,297 | 536 | 694 | 615 | - | (11%) | |
| Currencies & Commodities | 413 | 539 | 416 | 147 | 175 | (58%) | 19% | |
| Equities Credit markets |
(214) (2,341) |
371 858 |
364 690 |
282 475 |
457 232 |
- (110%) |
62% (51%) |
|
| Portfolio management and | ||||||||
| origination | 53 | 527 | 113 | 180 | 376 | - | 109% | |
| Fair value of own debt | (875) | 647 | (482) | (320) | 106 | (112%) | (133%) | |
| Total income | (2,200) | 5,092 | 2,103 | 1,745 | 2,069 | (194%) | 19% | |
| Analysis of impairment by | ||||||||
| sector | ||||||||
| Manufacturing and infrastructure | 39 | 16 | 23 | 33 | 19 | (51%) | (42%) | |
| Property and construction | - | 46 | 4 | - | (1) | - | - | |
| Transport | - | - | 1 | 2 | - | - | - | |
| Banks and financial institutions Others |
194 269 |
4 203 |
39 (98) |
237 - |
68 44 |
(65%) (84%) |
(71%) - |
|
| Total impairment | 502 | 269 | (31) | 272 | 130 | (74%) | (52%) | |
| Loan impairment charge as % | ||||||||
| of gross customer loans and advances (excluding reverse |
||||||||
| repurchase agreements) | 1.13% | 0.68% | (0.11%) | 0.60% | 0.59% | (54bp) | (1bp) | |
| Key metrics | 2008 | 2009 | Q4 2009 vs. | ||||
|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | |
| Performance ratios | |||||||
| Return on equity (1) | (61.9%) | 68.8% | 24.8% | 7.2% | 18.7% | 8,062bp | 1,157bp |
| Net interest margin | 1.99% | 2.02% | 1.48% | 1.08% | 0.89% | (110bp) | (19bp) |
| Cost:income ratio | (28.1%) | 26.6% | 51.6% | 66.0% | 51.6% | (7,967bp) | 1,440bp |
| 2008 | 2009 | 31 Dec 2009 vs. | |||||
|---|---|---|---|---|---|---|---|
| 31 Dec £bn |
31 Mar £bn |
30 June £bn |
30 Sept £bn |
31 Dec £bn |
31 Dec 2008 30 Sept 2009 | ||
| Capital and balance sheet | |||||||
| Loans and advances (including | |||||||
| banks) | 224.2 | 205.3 | 155.2 | 156.3 | 127.8 | (43%) | (18%) |
| Reverse repos | 88.8 | 80.6 | 75.2 | 75.4 | 73.3 | (17%) | (3%) |
| Securities | 127.5 | 124.3 | 115.5 | 117.6 | 106.0 | (17%) | (10%) |
| Cash and eligible bills | 20.2 | 28.6 | 51.5 | 63.8 | 74.0 | - | 16% |
| Other assets | 38.0 | 37.4 | 40.5 | 46.0 | 31.1 | (18%) | (32%) |
| Total third party assets (excluding | |||||||
| derivatives mark to market) | 498.7 | 476.2 | 437.9 | 459.1 | 412.2 | (17%) | (10%) |
| Net derivative assets (after netting) | 121.0 | 99.8 | 80.7 | 84.3 | 68.0 | (44%) | (19%) |
| Customer deposits (excluding | |||||||
| repos) | 87.8 | 80.1 | 63.4 | 56.8 | 46.9 | (47%) | (17%) |
| Risk elements in lending | 0.9 | 0.8 | 1.1 | 1.6 | 1.8 | 100% | 13% |
| Loan:deposit ratio (excluding | |||||||
| Repos and including equity | |||||||
| deposits) | 192% | 196% | 186% | 194% | 194% | 173bp | (30bp) |
| Risk-weighted assets | 151.8 | 137.9 | 112.5 | 121.5 | 123.7 | (19%) | (2%) |
Note:
(1) Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 10% of divisional risk-weighted assets, adjusted for capital deductions).
| 2008 2009 |
Q4 2009 vs. | ||||||
|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | |
| £m | £m | £m | £m | £m | |||
| Income statement | |||||||
| Net interest income | 249 | 220 | 225 | 234 | 233 | (6%) | - |
| Non-interest income | 407 | 385 | 398 | 388 | 404 | (1%) | 4% |
| Total income | 656 | 605 | 623 | 622 | 637 | (3%) | 2% |
| Direct expenses | |||||||
| - staff | (93) | (95) | (87) | (87) | (102) | 10% | 17% |
| - other | (42) | (35) | (38) | (37) | (51) | 21% | 38% |
| Indirect expenses | (236) | (235) | (229) | (223) | (256) | 8% | 15% |
| (371) | (365) | (354) | (347) | (409) | 10% | 18% | |
| Operating profit before impairment | |||||||
| losses | 285 | 240 | 269 | 275 | 228 | (20%) | (17%) |
| Impairment losses | (40) | (9) | (4) | (22) | (4) | (90%) | (82%) |
| Operating profit | 245 | 231 | 265 | 253 | 224 | (9%) | (11%) |
| Analysis of income by product Domestic cash management |
210 | 202 | 204 | 202 | 197 | (6%) | (2%) |
| International cash management | 200 | 169 | 179 | 183 | 203 | 2% | 11% |
| Trade finance | 70 | 75 | 77 | 71 | 67 | (4%) | (6%) |
| Merchant acquiring | 145 | 129 | 131 | 134 | 134 | (8%) | - |
| Commercial cards | 31 | 30 | 32 | 32 | 36 | 16% | 13% |
| Total income | 656 | 605 | 623 | 622 | 637 | (3%) | 2% |
| Key metrics | |||||||
| Performance ratios | |||||||
| Net interest margin | 8.00% | 8.29% | 9.23% | 9.63% | 9.81% | 181bp | 18bp |
| Cost:income ratio | 56.6% | 60.3% | 56.8% | 55.8% | 64.2% | (766bp) | (842bp) |
| 2008 | 2009 | 31 Dec 2009 vs. | |||||
| 31 Dec | 31 Mar | 30 June | 30 Sept | 31 Dec | 31 Dec 2008 30 Sept 2009 | ||
| £bn | £bn | £bn | £bn | £bn | |||
| Capital and balance sheet | |||||||
| Total third party assets | 22.2 | 21.1 | 19.4 | 21.4 | 18.4 | (17%) | (14%) |
| Loans and advances | 14.8 | 14.7 | 13.5 | 14.5 | 12.7 | (14%) | (12%) |
| Customer deposits | 61.8 | 58.3 | 54.0 | 58.6 | 61.8 | - | 5% |
| Risk elements in lending | 0.1 | 0.1 | 0.1 | 0.2 | 0.2 | - | - |
| Loan:deposit ratio (excluding | |||||||
| repos) | 25% | 26% | 26% | 25% | 21% | (401bp) | (452bp) |
Risk-weighted assets 17.4 18.7 16.7 18.9 19.1 10% 1%
| 2008 | 2009 | Q4 2009 vs. | |||||
|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | |
| £m | £m | £m | £m | £m | |||
| Income statement | |||||||
| Net interest income | 174 | 202 | 208 | 176 | 194 | 11% | 10% |
| Net fees and commissions | 60 | 46 | 39 | 45 | 98 | 63% | 118% |
| Other non-interest income | (6) | 11 | 12 | 10 | (7) | 17% | (170%) |
| Non-interest income | 54 | 57 | 51 | 55 | 91 | 69% | 65% |
| Total income | 228 | 259 | 259 | 231 | 285 | 25% | 23% |
| Direct expenses | |||||||
| - staff | (87) | (89) | (81) | (79) | (76) | (13%) | (4%) |
| - other | (24) | (22) | (25) | (20) | (18) | (25%) | (10%) |
| Indirect expenses | (81) | (77) | (75) | (73) | (118) | 46% | 62% |
| (192) | (188) | (181) | (172) | (212) | 10% | 23% | |
| Operating profit before impairment | |||||||
| losses Impairment losses |
36 (71) |
71 (67) |
78 (90) |
59 (144) |
73 (348) |
103% - |
24% 142% |
| Operating (loss)/profit | (35) | 4 | (12) | (85) | (275) | - | - |
| Analysis of income by business Corporate Retail Other |
139 92 (3) |
162 93 4 |
138 101 20 |
134 104 (7) |
146 114 25 |
5% 24% - |
9% 10% - |
| Total income | 228 | 259 | 259 | 231 | 285 | 25% | 23% |
| Analysis of impairment by sector |
|||||||
| Mortgages | 4 | 14 | 10 | 30 | 20 | - | (33%) |
| Corporate Other |
43 24 |
40 13 |
66 14 |
87 27 |
316 12 |
- (50%) |
- (56%) |
| Total impairment | 71 | 67 | 90 | 144 | 348 | - | 142% |
| Loan impairment charge as % of gross customer loans and advances excluding reverse repurchase agreements by sector |
|||||||
| Mortgages | 0.10% | 0.32% | 0.25% | 0.72% | 0.49% | 40bp | (22bp) |
| Corporate | 0.72% | 0.71% | 1.23% | 1.59% | 5.99% | 527bp | 440bp |
| Other | 4.60% | 2.58% | 3.50% | 5.40% | 2.00% | (260bp) | (340bp) |
| 0.65% | 0.64% | 0.92% | 1.42% | 3.51% | 286bp | 209bp |
| Key metrics | 2008 | Q4 2009 vs. | |||||
|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | |
| Performance ratios | |||||||
| Return on equity (1) | (6.5%) | 0.7% | (2.0%) | (12.7%) | (39.8%) | (3,337bp) | (2,717bp) |
| Net interest margin | 1.67% | 1.87% | 2.03% | 1.74% | 1.83% | 16bp | 9bp |
| Cost:income ratio | 84.2% | 72.6% | 69.9% | 74.5% | 74.4% | 982bp | 7bp |
| 2008 | 2009 | 31 Dec 2009 vs. | |||||
|---|---|---|---|---|---|---|---|
| 31 Dec | 31 Mar | 30 June | 30 Sept | 31 Dec | 31 Dec 2008 30 Sept 2009 | ||
| £bn | £bn | £bn | £bn | £bn | |||
| Capital and balance sheet | |||||||
| Loans and advances to customers gross |
|||||||
| - mortgages | 18.1 | 17.4 | 16.0 | 16.7 | 16.2 | (10%) | (3%) |
| - corporate | 23.8 | 22.8 | 21.2 | 21.9 | 21.1 | (11%) | (4%) |
| - other | 2.1 | 2.0 | 1.8 | 2.0 | 2.4 | 14% | 20% |
| Customer deposits | 24.3 | 19.5 | 18.9 | 20.9 | 21.9 | (10%) | 5% |
| Risk elements in lending: | |||||||
| - mortgages | 0.3 | 0.4 | 0.4 | 0.5 | 0.6 | - | 20% |
| - corporate | 0.8 | 1.0 | 1.1 | 1.3 | 1.5 | 88% | 15% |
| - other | 0.1 | 0.1 | 0.1 | 0.2 | 0.2 | - | - |
| Loan:deposit ratio (excluding | |||||||
| repos) | 179% | 213% | 203% | 191% | 177% | (148bp) | (1,420bp) |
| Risk-weighted assets | 24.5 | 26.2 | 26.2 | 28.5 | 29.9 | 22% | 5% |
Note:
(1) Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 7% of divisional risk-weighted assets, adjusted for capital deductions).
| 2008 | 2009 | Q4 2009 vs. | |||||
|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | |
| £m | £m | £m | £m | £m | |||
| Income statement | |||||||
| Net interest income | 512 | 494 | 448 | 410 | 423 | (17%) | 3% |
| Net fees and commissions | 183 | 198 | 209 | 159 | 148 | (19%) | (7%) |
| Other non-interest income | 84 | 52 | 45 | 65 | 73 | (13%) | 12% |
| Non-interest income | 267 | 250 | 254 | 224 | 221 | (17%) | (1%) |
| Total income | 779 | 744 | 702 | 634 | 644 | (17%) | 2% |
| Direct expenses | |||||||
| - staff | (175) | (218) | (184) | (174) | (200) | 14% | 15% |
| - other | (120) | (143) | (188) | (132) | (130) | 8% | (2%) |
| Indirect expenses | (172) | (201) | (194) | (191) | (180) | 5% | (6%) |
| (467) | (562) | (566) | (497) | (510) | 9% | 3% | |
| Operating profit before impairment | |||||||
| losses | 312 | 182 | 136 | 137 | 134 | (57%) | (2%) |
| Impairment losses | (177) | (223) | (146) | (180) | (153) | (14%) | (15%) |
| Operating (loss)/profit | 135 | (41) | (10) | (43) | (19) | (114%) | (56%) |
| Average exchange rate - US\$/£ | 1.570 | 1.436 | 1.551 | 1.640 | 1.633 | ||
| Analysis of income by product Mortgages and home equity |
112 | 142 | 130 | 112 | 115 | 3% | 3% |
| Personal lending and cards | 90 | 107 | 113 | 116 | 115 | 28% | (1%) |
| Retail deposits | 279 | 231 | 202 | 200 | 195 | (30%) | (3%) |
| Commercial lending | 128 | 141 | 140 | 127 | 134 | 5% | 6% |
| Commercial deposits | 111 | 104 | 89 | 97 | 108 | (3%) | 11% |
| Other | 59 | 19 | 28 | (18) | (23) | (139%) | 28% |
| Total income | 779 | 744 | 702 | 634 | 644 | (17%) | 2% |
| Analysis of impairment by sector |
|||||||
| Residential mortgages | 13 | 23 | 12 | 29 | 8 | (38%) | (72%) |
| Home equity | 22 | 29 | 43 | 82 | 13 | (41%) | (84%) |
| Corporate & commercial | 87 | 108 | 61 | 65 | 92 | 6% | 42% |
| Other | 55 | 63 | 30 | 4 | 40 | (27%) | - |
| Total impairment | 177 | 223 | 146 | 180 | 153 | (14%) | (15%) |
| Loan impairment charge as % | |||||||
| of gross customer loans and advances (excluding reverse repurchase agreements) by |
|||||||
| sector | |||||||
| Residential mortgages | 0.55% | 1.00% | 0.66% | 1.68% | 0.49% | (6bp) | (119bp) |
| Home equity | 0.47% | 0.62% | 1.08% | 2.05% | 0.34% | (13bp) | (171bp) |
| Corporate & commercial | 1.46% | 1.79% | 1.19% | 1.27% | 1.89% | 43bp | 61bp |
| Other | 2.24% | 2.57% | 1.45% | 0.20% | 2.15% | (10bp) | 194bp |
| 1.15% | 1.44% | 1.12% | 1.41% | 1.25% | 10bp | (16bp) | |
| Key metrics | 2008 | Q4 2009 vs. | |||||
|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | |
| Performance ratios | |||||||
| Return on equity (1) | 7.9% | (2.4%) | (0.7%) | (2.5%) | (1.2%) | (903bp) | 136bp |
| Net interest margin | 2.59% | 2.33% | 2.30% | 2.34% | 2.45% | (14bp) | 11bp |
| Cost:income ratio | 60.0% | 75.4% | 80.6% | 78.4% | 79.2% | (1,924bp) | (80bp) |
| 2008 | 2009 | 31 Dec 2009 vs. | |||||
|---|---|---|---|---|---|---|---|
| 31 Dec | 31 Mar | 30 June | 30 Sept | 31 Dec | 31 Dec 2008 30 Sept 2009 | ||
| £bn | £bn | £bn | £bn | £bn | |||
| Capital and balance sheet | |||||||
| Total assets | 87.5 | 94.9 | 75.6 | 76.9 | 74.8 | (15%) | (3%) |
| Loans and advances to customers gross |
|||||||
| - residential mortgages | 9.5 | 9.2 | 7.3 | 6.9 | 6.5 | (32%) | (6%) |
| - home equity | 18.7 | 18.8 | 15.9 | 16.0 | 15.4 | (18%) | (4%) |
| - corporate and commercial | 23.7 | 24.2 | 20.5 | 20.5 | 19.5 | (18%) | (5%) |
| - other consumer | 9.8 | 9.8 | 8.3 | 7.8 | 7.5 | (23%) | (4%) |
| Customer deposits | 64.4 | 67.9 | 60.2 | 62.1 | 60.1 | (6%) | (3%) |
| Risk elements in lending | |||||||
| - retail | 0.2 | 0.3 | 0.3 | 0.3 | 0.4 | - | - |
| - commercial | 0.2 | 0.1 | 0.1 | 0.2 | 0.2 | - | - |
| Loan:deposit ratio (excluding | |||||||
| repos) | 96% | 91% | 86% | 81% | 80% | (1,543bp) | (122bp) |
| Risk-weighted assets | 63.9 | 64.3 | 55.6 | 62.8 | 59.7 | (7%) | (5%) |
| Spot exchange rate - US\$/£ | 1.460 | 1.433 | 1.644 | 1.599 | 1.622 |
Note:
(1) Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 7% of divisional risk-weighted assets, adjusted for capital deductions).
| 2008 | 2009 | Q4 2009 vs. | ||||||
|---|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | ||
| \$m | \$m | \$m | \$m | \$m | ||||
| Income statement | ||||||||
| Net interest income | 837 | 711 | 696 | 680 | 690 | (18%) | 1% | |
| Net fees and commissions | 294 | 284 | 324 | 266 | 245 | (17%) | (8%) | |
| Other non-interest income | 142 | 75 | 69 | 104 | 120 | (15%) | 15% | |
| Non-interest income | 436 | 359 | 393 | 370 | 365 | (16%) | (1%) | |
| Total income | 1,273 | 1,070 | 1,089 | 1,050 | 1,055 | (17%) | - | |
| Direct expenses | ||||||||
| - staff | (278) | (313) | (287) | (289) | (325) | 17% | 12% | |
| - other | (201) | (206) | (289) | (219) | (215) | 7% | (2%) | |
| Indirect expenses | (277) | (288) | (301) | (313) | (294) | 6% | (6%) | |
| (756) | (807) | (877) | (821) | (834) | 10% | 2% | ||
| Operating profit before impairment | ||||||||
| losses | 517 | 263 | 212 | 229 | 221 | (57%) | (3%) | |
| Impairment losses | (304) | (320) | (231) | (296) | (252) | (17%) | (15%) | |
| Operating (loss)/profit | 213 | (57) | (19) | (67) | (31) | (115%) | (54%) | |
| Analysis of income by product Mortgages and home equity Personal lending and cards Retail deposits Commercial lending Commercial deposits Other Total income |
183 143 451 211 179 106 1,273 |
204 154 332 202 150 28 1,070 |
203 174 315 217 138 42 1,089 |
186 190 329 210 160 (25) 1,050 |
188 188 320 219 176 (36) 1,055 |
3% 31% (29%) 4% (2%) (134%) (17%) |
1% (1%) (3%) 4% 10% 44% - |
|
| Analysis of impairment by sector |
||||||||
| Residential mortgages | 22 | 33 | 19 | 47 | 14 | (36%) | (70%) | |
| Home equity | 38 | 42 | 65 | 131 | 23 | (39%) | (82%) | |
| Corporate & commercial | 151 | 154 | 99 | 107 | 150 | (1%) | 40% | |
| Other | 93 | 91 | 48 | 11 | 65 | (30%) | - | |
| Total impairment | 304 | 320 | 231 | 296 | 252 | (17%) | (15%) | |
| Loan impairment charge as % of gross customer loans and advances (excluding reverse repurchase agreements) by sector |
||||||||
| Residential mortgages | 0.63% | 1.00% | 0.63% | 1.69% | 0.53% | (10bp) | (116bp) | |
| Home equity | 0.56% | 0.62% | 1.00% | 2.05% | 0.37% | (19bp) | (168bp) | |
| Corporate & commercial | 1.74% | 1.78% | 1.18% | 1.31% | 1.90% | 16bp | 58bp | |
| Other | 2.60% | 2.58% | 1.41% | 0.34% | 2.15% | (46bp) | 180bp | |
| 1.35% | 1.44% | 1.08% | 1.45% | 1.27% | (8bp) | (18bp) |
| Key metrics | 2008 | 2009 | Q4 2009 vs. | ||||
|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | |
| Performance ratios | |||||||
| Return on equity (1) | 8.5% | (2.3%) | (0.8%) | (2.5%) | (1.2%) | (967bp) | 129bp |
| Net interest margin | 2.70% | 2.33% | 2.32% | 2.37% | 2.45% | (25bp) | 8bp |
| Cost:income ratio | 59.4% | 75.4% | 80.5% | 78.2% | 79.1% | (1,965bp) | (85bp) |
| 2008 | 2009 | 31 Dec 2009 vs. | ||||||
|---|---|---|---|---|---|---|---|---|
| 31 Dec | 31 Mar | 30 June | 30 Sept | 31 Dec | 31 Dec 2008 30 Sept 2009 | |||
| \$bn | \$bn | \$bn | \$bn | \$bn | ||||
| Capital and balance sheet | ||||||||
| Total assets | 127.8 | 136.0 | 124.4 | 122.9 | 121.3 | (5%) | (1%) | |
| Loans and advances to customers gross |
||||||||
| - residential mortgages | 13.9 | 13.2 | 12.0 | 11.0 | 10.6 | (24%) | (4%) | |
| - home equity | 27.2 | 26.9 | 26.1 | 25.6 | 25.0 | (8%) | (2%) | |
| - corporate and commercial | 34.7 | 34.7 | 33.6 | 32.7 | 31.6 | (9%) | (3%) | |
| - other consumer | 14.3 | 14.1 | 13.7 | 12.5 | 12.1 | (15%) | (3%) | |
| Customer deposits | 94.0 | 97.4 | 99.0 | 99.3 | 97.5 | 4% | (2%) | |
| Risk elements in lending | ||||||||
| - retail | 0.3 | 0.4 | 0.4 | 0.5 | 0.6 | - | 20% | |
| - commercial | 0.2 | 0.2 | 0.3 | 0.3 | 0.4 | - | - | |
| Loan:deposit ratio (excluding | ||||||||
| repos) | 96% | 91% | 86% | 81% | 80% | (1,543bp) | (122bp) | |
| Risk-weighted assets | 93.2 | 92.1 | 91.3 | 100.4 | 96.9 | 4% | (3%) |
Note:
(1) Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 7% of divisional risk-weighted assets, adjusted for capital deductions).
| 2008 | 2009 | Q4 2009 vs. | |||||
|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | |
| £m | £m | £m | £m | £m | |||
| Income statement | |||||||
| Earned premiums | 1,121 | 1,106 | 1,119 | 1,145 | 1,149 | 2% | - |
| Reinsurers' share | (48) | (45) | (40) | (43) | (37) | (23%) | (14%) |
| Insurance premium income | 1,073 | 1,061 | 1,079 | 1,102 | 1,112 | 4% | 1% |
| Net fees and commissions | (93) | (92) | (95) | (95) | (84) | (10%) | (12%) |
| Other income | 146 | 108 | 104 | 112 | 148 | 1% | 32% |
| Total income | 1,126 | 1,077 | 1,088 | 1,119 | 1,176 | 4% | 5% |
| Direct expenses | |||||||
| - staff | (77) | (70) | (69) | (67) | (61) | (21%) | (9%) |
| - other | (54) | (67) | (54) | (47) | (54) | - | 15% |
| Indirect expenses | (72) | (66) | (65) | (64) | (75) | 4% | 17% |
| (203) | (203) | (188) | (178) | (190) | (6%) | 7% | |
| Gross claims | (788) | (798) | (776) | (941) | (1,175) | 49% | 25% |
| Reinsurers' share | 41 | 5 | 18 | 13 | 19 | (54%) | 46% |
| Net claims | (747) | (793) | (758) | (928) | (1,156) | 55% | 25% |
| Operating (loss)/profit before | |||||||
| impairment losses | 176 | 81 | 142 | 13 | (170) | (197%) | - |
| Impairment losses | (42) | (5) | (1) | (2) | - | - | - |
| Operating (loss)/profit | 134 | 76 | 141 | 11 | (170) | - | - |
| Analysis of income by product | |||||||
| Motor own-brands | 491 | 477 | 495 | 517 | 516 | 5% | - |
| Household and Life own-brands | 206 | 204 | 210 | 214 | 221 | 7% | 3% |
| Motor partnerships and broker Household and Life, partnerships |
166 | 145 | 145 | 141 | 146 | (12%) | 3% |
| and broker | 85 | 83 | 81 | 78 | 88 | 4% | 13% |
| Other (International, commercial | |||||||
| and central) | 178 | 168 | 157 | 169 | 205 | 15% | 21% |
| Total income | 1,126 | 1,077 | 1,088 | 1,119 | 1,176 | 4% | 5% |
| In-force policies (thousands) | |||||||
| - Own-brand motor | 4,492 | 4,601 | 4,789 | 4,894 | 4,858 | 8% | (1%) |
| - Own-brand non-motor (home, | |||||||
| rescue, pet, HR24) | 5,560 | 5,643 | 5,890 | 6,150 | 6,307 | 13% | 3% |
| - Partnerships & broker (motor, | |||||||
| home, rescue, pet, HR24) | 5,898 | 5,750 | 5,609 | 5,371 | 5,328 | (10%) | (1%) |
| - Other (international, commercial | |||||||
| and central) | 1,206 | 1,211 | 1,210 | 1,212 | 1,217 | 1% | - |
| General insurance reserves – total | |||||||
| (£m) | 6,672 | 6,630 | 6,601 | 6,839 | 7,030 | 5% | 3% |
| 2008 Q4 |
2009 | Q4 2009 vs. | |||||
|---|---|---|---|---|---|---|---|
| Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | ||
| Key business metrics | |||||||
| Return on equity (1) | 16.8% | 9.5% | 17.7% | 1.2% | (19.1%) | (3,587bp) | (2,029bp) |
| Cost:income ratio | 18.0% | 18.9% | 17.3% | 15.9% | 16.2% | 187bp | (25bp) |
| Adjusted cost:income ratio (2) | 53.6% | 71.5% | 57.0% | 93.2% | 950.0% | (89,644bp) | (85,681bp) |
| Gross written premiums (£m) | 1,002 | 1,123 | 1,147 | 1,186 | 1,024 | 2% | (14%) |
Notes:
(1) Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on regulatory capital).
(2) Adjusted cost:income ratio is based on total income and operating expenses after netting insurance claims against total income.
| 2008 | 2009 | Q4 2009 vs. | |||||
|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | |
| £m | £m | £m | £m | £m | |||
| Fair value of own debt | 14 | 384 | (478) | (163) | 164 | - | - |
| Other | (501) | 105 | 166 | 283 | (169) | (66%) | (160%) |
| Central items not allocated | (487) | 489 | (312) | 120 | (5) | (99%) | (104%) |
| 2008 | 2009 | Q4 2009 vs. | |||||
|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | |
| £m | £m | £m | £m | £m | |||
| Income statement | |||||||
| Net interest income from banking | |||||||
| activities | 765 | 395 | 274 | 287 | 578 | (24%) | 101% |
| Net fees and commissions | |||||||
| receivable | 163 | 172 | 79 | 130 | 129 | (21%) | (1%) |
| Income/(loss) from trading | |||||||
| activities | (2,916) | (2,617) | (1,184) | (579) | (781) | (73%) | 35% |
| Insurance net premium income | 249 | 244 | 196 | 173 | 171 | (31%) | (1%) |
| Other operating income (net of | |||||||
| related funding costs) | (191) | 30 | (52) | 43 | 11 | (106%) | (74%) |
| Non-interest income | (2,695) | (2,171) | (961) | (233) | (470) | (83%) | 102% |
| Total income | (1,930) | (1,776) | (687) | 54 | 108 | (106%) | 100% |
| Direct expenses | |||||||
| - staff | (270) | (301) | (153) | (150) | (247) | (9%) | 65% |
| - other | (345) | (256) | (247) | (244) | (297) | (14%) | 22% |
| Indirect expenses | (152) | (142) | (137) | (132) | (141) | (7%) | 7% |
| (767) | (699) | (537) | (526) | (685) | (11%) | 30% | |
| Operating loss before other | |||||||
| operating charges and | |||||||
| impairment losses | (2,697) | (2,475) | (1,224) | (472) | (577) | (79%) | 22% |
| Insurance net claims Impairment losses |
(192) (3,361) |
(177) (1,828) |
(137) (3,516) |
(126) (2,066) |
(148) (1,811) |
(23%) (46%) |
17% (12%) |
| Operating loss | (6,250) | (4,480) | (4,877) | (2,664) | (2,536) | (59%) | (5%) |
| Key metrics | |||||||
| Performance ratios | |||||||
| Net interest margin | 1.36% | 0.61% | 0.45% | 0.55% | 1.17% | (19bp) | 62bp |
| Cost:income ratio | (39.7%) | (39.4%) | (78.2%) | 974.1% | 634.3% | (67,400bp) | 33,981bp |
| 2008 31 Dec |
31 Mar | 2009 30 June |
30 Sept | 31 Dec | 31 Dec 2009 vs. 31 Dec 2008 30 Sept 2009 |
||
| £bn | £bn | £bn | £bn | £bn | |||
| Capital and balance sheet | |||||||
| Total third party assets (including | |||||||
| derivatives) | 342.9 | 314.7 | 246.5 | 233.0 | 220.9 | (36%) | (5%) |
| Loans and advances to customers | |||||||
| gross | 191.4 | 183.7 | 164.1 | 159.1 | 149.5 | (22%) | (6%) |
| Customer deposits | 27.4 | 23.7 | 15.0 | 16.0 | 12.6 | (54%) | (21%) |
| Risk elements in lending | 11.1 | 14.7 | 20.5 | 23.3 | 22.9 | 106% | (2%) |
| Loan:deposit ratio | 683% | 764% | 1,084% | 937% | 1,121% | 43,807bp | 18,397bp |
Risk-weighted assets 170.9 174.4 174.0 200.7 171.3 - (15%)
| 2008 | 2009 | Q4 2009 vs. | ||||||
|---|---|---|---|---|---|---|---|---|
| Q4 | Q1 | Q2 | Q3 | Q4 | Q4 2008 | Q3 2009 | ||
| £m | £m | £m | £m | £m | ||||
| Analysis of income | ||||||||
| Banking & Portfolio | 538 | (131) | (973) | (271) | 37 | (93%) | (114%) | |
| International Businesses & | ||||||||
| Portfolios | 689 | 662 | 570 | 537 | 493 | (28%) | (8%) | |
| Markets | (3,157) | (2,307) | (284) | (212) | (422) | (87%) | 99% | |
| Total income | (1,930) | (1,776) | (687) | 54 | 108 | (106%) | 100% | |
| Impairment losses | ||||||||
| Banking & Portfolio | 714 | 818 | 1,155 | 1,347 | 895 | 25% | (34%) | |
| International Businesses & | ||||||||
| Portfolios Markets |
945 1,702 |
720 290 |
1,638 723 |
1,234 (515) |
902 14 |
(5%) (99%) |
(27%) (103%) |
|
| Total impairment | 3,361 | 1,828 | 3,516 | 2,066 | 1,811 | (46%) | (12%) | |
| Loan impairment charge as % | ||||||||
| of gross customer loans and | ||||||||
| advances (1) | ||||||||
| Banking & Portfolio | 2.71% | 3.18% | 4.67% | 6.01% | 4.14% | 143bp | (187bp) | |
| International Businesses & | ||||||||
| Portfolios | 4.70% | 3.66% | 8.93% | 6.90% | 5.27% | 57bp | (163bp) | |
| Markets | 48.33% | (61.60%) | 301.20% (126.77%) | 0.44% | (4,789bp) | (12,633bp) | ||
| 6.09% | 2.81% | 8.19% | 5.41% | 4.63% | (146bp) | (78bp) | ||
| £bn | £bn | £bn | £bn | |||||
| Gross customer loans and | ||||||||
| advances | ||||||||
| Banking & Portfolio | 97.0 | 103.3 | 92.1 | 88.2 | 82.0 | (15%) | (7%) | |
| International Businesses & | ||||||||
| Portfolios | 79.9 | 78.6 | 69.4 | 68.3 | 65.6 | (18%) | (4%) | |
| Markets | 14.5 | 1.8 | 2.6 | 2.6 | 1.9 | (87%) | (27%) | |
| 191.4 | 183.7 | 164.1 | 159.1 | 149.5 | (22%) | (6%) | ||
| Note: | ||||||||
| (1) Including disposal groups. | ||||||||
| Risk-weighted assets | ||||||||
| Banking & Portfolio | 63.1 | 70.9 | 57.5 | 61.1 | 58.2 | (8%) | (5%) | |
| International Businesses & | ||||||||
| Portfolios | 50.1 | 51.4 | 48.5 | 46.1 | 43.8 | (12%) | (5%) | |
| Markets | 57.7 | 52.1 | 68.0 | 93.5 | 69.3 | 20% | (26%) | |
| 170.9 | 174.4 | 174.0 | 200.7 | 171.3 | - | (15%) |
| Page | ||
|---|---|---|
| 1. | Key aspects of the Scheme | 2 |
| 2. | Basis of asset selection | 3 |
| 3. | Covered assets | |
| 3.1 Roll forward to 31 December 2009 | 4 | |
| 3.2 Credit impairments and write downs | 5 | |
| 3.3 First loss utilisation | 6 | |
| 3.4 Risk-weighted assets | 7 | |
| 3.5 Divisional analysis | 8 | |
| 3.6 Asset classes | 9 | |
| 3.7 Sector analysis | 12 | |
| 3.8 Geographical breakdown | 13 | |
| 3.9 Currency breakdown | 13 | |
| 3.10 Risk elements in lending and potential problem loans | 14 | |
| 3.11 Credit quality of loans | 14 |
On 22 December 2009, the Group acceded to the Asset Protection Scheme ('APS' or 'the Scheme') with HM Treasury acting on behalf of the UK Government. Under the Scheme, the Group purchased credit protection over a portfolio of specified assets and exposures ("covered assets") from HM Treasury. The portfolio of covered assets had a par value of approximately £282 billion as at 31 December 2008 and the protection is subject to a first loss of £60 billion and covers 90% of, subsequent losses. Once through the first loss, when a covered asset has experienced a trigger event(1) losses and recoveries in respect of that asset are included in the balance receivable under the APS. Receipts from HM Treasury will, over time, amount to 90% of cumulative losses (net of cumulative recoveries) on the portfolio of covered assets less the first loss amount.
The Group has the right to terminate the Scheme at any time provided that the Financial Services Authority has confirmed in writing to HM Treasury that it has no objection to the proposed termination. On termination, the Group is liable to pay HM Treasury a termination fee. The termination fee would be the difference between £2.5 billion (or, if higher, a sum related to the economic benefit of regulatory capital relief obtained as a result of having entered APS) and the aggregate fees paid. In addition, the Group would have to repay any amounts received from HM Treasury under the terms of the APS (or as otherwise agreed with HM Treasury). In consideration for the protection provided by the APS, the Group paid an initial premium of £1.4 billion on 31 December 2009 for the years 2009 and 2010. A further premium of £700 million is payable on 1 January 2011 and subsequently annual premiums of £500 million until the earlier of 31 December 2099 or the termination of the agreement.
The APS is a single contract providing credit protection in respect of a portfolio of financial assets: the unit of account is the contract as a whole. Under IFRS, credit protection is either treated as a financial guarantee contract ('FGC') or a derivative depending on the terms of the agreement and the nature of the protected assets and exposures. The portfolio contains more than an insignificant element of derivatives and limited recourse assets, and hence the contract does not meet the definition of an FGC. The APS contract is therefore treated as a derivative and is recognised at fair value, with changes in fair value recognised in profit or loss. The APS derivative did not have any effect on the Group's 2009 income statement; however in future period's changes in value of the APS derivative will have an effect on the Group's profit or loss.
There is no change in the recognition and measurement of the covered assets as a result of the APS. Impairment provisions on covered assets measured at amortised cost are assessed and charged in accordance with the Group's accounting policy; held-for-trading assets, assets designated at fair value and available-for-sale assets within the APS portfolio continue to be measured at fair value with no adjustments to reflect the protection provided by the APS. There is no change in how gains and losses on the covered assets are recognised in the income statement or in other comprehensive income.
The selection of assets was carried out primarily between February and April 2009 and was driven by three principal criteria:
The approach for high volume commercial and retail exposures was on a portfolio basis. Selection for large corporates and GBM was at the counterparty/asset level. Set out below are the selection criteria for the contributing divisions.
| Global Banking & Markets (GBM)* |
Banking book: selection by individual asset pool (corporate loans, real estate finance, and leveraged finance), Global Restructuring Group work-out unit counterparties/assets and high risk counterparties/assets. Additional counterparties/assets were selected through an individual risk review of the total portfolio. Trading book: selection by individual assets (monolines, derivatives, mortgage trading). |
||||||
|---|---|---|---|---|---|---|---|
| UK Corporate* | Commercial & Corporate real estate: all defaulted assets in the work out/restructuring unit or in high risk bands. |
||||||
| Corporate: all defaulted assets in the work-out/restructuring unit. Corporate banking clients in high risk sectors or with high concentration risk. |
|||||||
| Business Banking: portfolios in the work out/restructuring unit or in high risk bands. |
|||||||
| UK Retail* | Mortgages: assets with a higher loan-to-value (LTV) and in higher risk segments (e.g. LTV >97% on general book, LTV >85% on buy-to-let book), and those assets in arrears (at 31 December 2008). |
||||||
| Loans and overdrafts: higher risk customers based on internal bandings, and those assets in arrears (at 31 December 2008). |
|||||||
| Ulster Bank* (Corporate & |
Mortgages: assets with a greater than 85% LTV, broker mortgages and interest only with a higher probability of default. |
||||||
| Retail) | Retail: portfolios of accounts in default, >1 month arrears, <2 years old and a higher probability of default. |
||||||
| Corporate: counterparties/assets in work-out/restructuring groups or in high risk bands, and other assets identified as part of an individual review of cases. |
* including assets transferred to Non-Core division
The table below details the movement in covered assets in the year.
| £bn | |
|---|---|
| Covered assets at 31 December 2008 – at accession to the Scheme | 282.0 |
| Disposals | (3.0) |
| Non-contractual early repayments | (8.9) |
| Amortisations | (9.4) |
| Maturities | (16.7) |
| Rollovers and covered amount cap adjustments | (1.7) |
| Effect of foreign currency movements | (11.8) |
| Covered assets at 31 December 2009 | 230.5 |
Note:
(1) The covered amount at 31 December 2009 above includes approximately £2.1 billion of assets in the derivatives and structured finance asset classes which, for technical reasons, do not currently satisfy, or are anticipated at some stage not to satisfy, the eligibility requirements of the Scheme. HMT and the Group continue to negotiate in good faith whether (and, if so, to what extent) coverage should extend to these assets. Also, the Group and HMT are in discussion over the HMT classifications of some structured credit assets and this may result in adjustments to amounts for some asset classes; however underlying risks will be unchanged.
The table below analyses the cumulative credit impairment losses and adjustments to par value (including AFS reserves) relating to covered assets:
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| Loans and advances | 14,240 | 7,705 |
| Debt securities | 7,816 | 7,942 |
| Derivatives | 6,834 | 6,575 |
| 28,890 | 22,222 | |
| By division: | ||
| UK Retail | 2,431 | 1,492 |
| UK Corporate | 1,007 | 285 |
| Global Banking & Markets | 1,628 | 1,640 |
| Ulster Bank | 486 | 234 |
| Non-Core | 23,338 | 18,571 |
| 28,890 | 22,222 |
Note:
(1) Total available-for-sale reserves on debt securities of £1,113 million at 31 December 2009 (£1,315 million as at 31 December 2008 was previously included in undrawn commitments and other adjustments).
• Of the increase in cumulative losses of £6,668 million, the largest was loan impairments in Non-Core.
The triggered amount is equivalent to the aggregate outstanding principal amount on the trigger date excluding interest, fees, premium or any other non-principal sum that is accrued or payable, except where it was capitalised on or before 31 December 2008. At trigger date, in economic terms, there is an exchange of assets, with the Group receiving a two year interest bearing government receivable in exchange for the asset.
APS recoveries include any return of value on a triggered asset, although these are only recognised for Scheme reporting purposes when they are realised in cash. The net triggered amount at any point in time, therefore, only takes into account cash recoveries to date. The capturing of triggered amounts has required extensive new processes and controls to be put in place. These continue to be work in progress. Additionally, as with any bespoke and highly complex legal agreement there are various areas of interpretation which still need to be clarified and agreed between the Group and the Asset Protection Agency ('APA'), some of which could have a material impact on the triggered amount identified to date. Also as part of the APS terms and conditions it was agreed to re-characterise certain assets and their closely related hedges under the scheme and the Group continues to negotiate with APA in good faith to finalise this.
The Scheme Rules are designed to allow for data correction over the life of the scheme, and the Group has a grace period during 2010 to implement processes to capture triggers and restate quarterly claims statements to HMT retrospectively.
The table below summarises the total triggered amount and related cash recoveries by division at 31 December 2009.
| Triggered Cash recoveries |
|||
|---|---|---|---|
| amount | to date | amount | |
| £m | £m | £m | |
| UK Retail | 3,340 | 129 | 3,211 |
| UK Corporate | 3,570 | 604 | 2,966 |
| Global Banking & Markets | 1,748 | 108 | 1,640 |
| Ulster Bank | 704 | 47 | 657 |
| Non-Core | 18,905 | 777 | 18,128 |
| 28,267 | 1,665 | 26,602 |
Note:
(1) The triggered amount on a covered asset is calculated when an asset is triggered (due to bankruptcy, failure to pay after a grace period, and restructuring with an impairment) and is the lower of the covered amount and the outstanding amount for each covered asset. Given the grace period for triggering assets, the Group expects additional assets to trigger based on the current risk rating and level of impairments on covered assets.
Risk-weighted assets were as follows:
| 2009 | 2008 | |
|---|---|---|
| £m | £m | |
| APS | 127.6 | 158.7 |
| Non-APS | 438.2 | 419.1 |
| Group before APS benefit | 565.8 | 577.8 |
| 31 December 2009 | |||||||
|---|---|---|---|---|---|---|---|
| APS | Non APS | Total | |||||
| Risk-weighted assets by division: | £m | £m | £m | ||||
| UK Retail | 16.3 | 35.0 | 51.3 | ||||
| UK Corporate | 31.0 | 59.2 | 90.2 | ||||
| Global Banking & Markets | 19.9 | 103.8 | 123.7 | ||||
| Ulster | 8.9 | 21.0 | 29.9 | ||||
| Non-Core | 51.5 | 119.8 | 171.3 | ||||
| Other divisions | n/a | 99.4 | 99.4 | ||||
| Group before APS benefit | 127.6 | 438.2 | 565.8 |
• Over the year RWAs covered by APS declined overall due to the restructuring of certain exposures,, including monoline related assets, and decrease in covered amount partly off-set by credit downgrade and procyclicality,
The following table analyses covered assets by the asset classes defined by the Scheme conditions and by division:
| Global | ||||||
|---|---|---|---|---|---|---|
| UK | UK | Banking & | Ulster | Covered | ||
| Retail | Corporate | Markets | Bank | Non-Core | amount | |
| £m | £m | £m | £m | £m | £m | |
| 2009 | ||||||
| Residential mortgages | 9,646 | - | 113 | 2,512 | 1,934 | 14,205 |
| Consumer finance | 11,596 | 24,818 | - | 5,538 | 11,309 | 53,261 |
| Commercial real estate finance | - | 9,143 | - | 1,073 | 21,921 | 32,137 |
| Leveraged finance | - | 4,899 | 621 | 291 | 17,465 | 23,276 |
| Lease finance | - | 449 | - | - | 1,080 | 1,529 |
| Project finance | - | - | 255 | - | 1,562 | 1,817 |
| Structured finance | - | - | 4,114 | - | 11,061 | 15,175 |
| Loans | - | 9,918 | 25,815 | 2,237 | 16,972 | 54,942 |
| Bonds | - | - | 153 | - | 545 | 698 |
| Derivatives | - | - | 12,946 | 218 | 20,326 | 33,490 |
| 21,242 | 49,227 | 44,017 | 11,869 | 104,175 | 230,530 | |
| 2008 | ||||||
| Residential mortgages | 10,280 | - | 128 | 2,837 | 2,182 | 15,427 |
| Consumer finance | 11,609 | 25,031 | - | 5,776 | 12,127 | 54,543 |
| Commercial real estate finance | - | 12,436 | - | 1,268 | 26,146 | 39,850 |
| Leveraged finance | - | 4,978 | 993 | 329 | 21,434 | 27,734 |
| Lease finance | - | 594 | - | - | 1,844 | 2,438 |
| Project finance | - | - | 425 | - | 1,818 | 2,243 |
| Structured finance | - | - | 6,897 | - | 12,294 | 19,191 |
| Loans | - | 9,097 | 45,610 | 2,663 | 22,607 | 79,977 |
| Bonds | - | - | 455 | - | 1,108 | 1,563 |
| Derivatives | - | - | 16,349 | 229 | 22,415 | 38,993 |
| 21,889 | 52,136 | 70,857 | 13,102 | 123,975 | 281,959 | |
| Movements | ||||||
| Residential mortgages | (634) | - | (15) | (325) | (248) | (1,222) |
| Consumer finance | (13) | (213) | - | (238) | (818) | (1,282) |
| Commercial real estate finance | - | (3,293) | - | (195) | (4,225) | (7,713) |
| Leveraged finance | - | (79) | (372) | (38) | (3,969) | (4,458) |
| Lease finance | - | (145) | - | - | (764) | (909) |
| Project finance | - | - | (170) | - | (256) | (426) |
| Structured finance | - | - | (2,783) | - | (1,233) | (4,016) |
| Loans | - | 821 | (19,795) | (426) | (5,635) | (25,035) |
| Bonds | - | - | (302) | - | (563) | (865) |
| Derivatives | - | - | (3,403) | (11) | (2,089) | (5,503) |
| (647) | (2,909) | (26,840) | (1,233) | (19,800) | (51,429) |
Notes:
(1) Per the Scheme rules, the definition of consumer finance includes personal loans, as well as business and commercial loans to SMEs
(2) UK Corporate leveraged finance does not include lending to sponsors but, reflects certain loans to corporate customers per Scheme rules.
(3) The net increase in UK Corporate loans reflects transfers of shipping assets from GBM.
(4) There have been some minor divisional refinements to 31 December 2008 data, primarily between Core businesses and Non-Core division.
The following tables detail the balances by asset classes, as defined by the Scheme, with underlying product categories, at 31 December 2009 and 31 December 2008.
| Undrawn | |||||
|---|---|---|---|---|---|
| Carrying | Provisions and adjustments to |
commitments and other |
Covered | ||
| value (2) | par value (3) | Par value (4) | adjustments (5) | Amount | |
| £m | £m | £m | £m | £m | |
| 2009 | (a) | (b) | (a)+(b)=(c) | (d) | (c)+(d)=(e) |
| Residential mortgages | 14,092 | 253 | 14,345 | (140) | 14,205 |
| Consumer finance | 38,101 | 4,574 | 42,675 | 10,586 | 53,261 |
| - personal loans | 7,986 | 2,610 | 10,596 | 2,613 | 13,209 |
| - business and commercial loans | 30,115 | 1,964 | 32,079 | 7,973 | 40,052 |
| Commercial real estate finance | 28,777 | 1,656 | 30,433 | 1,704 | 32,137 |
| Leveraged finance | 16,045 | 4,425 | 20,470 | 2,806 | 23,276 |
| Lease finance | 1,229 | 232 | 1,461 | 68 | 1,529 |
| Project finance | 1,601 | 44 | 1,645 | 172 | 1,817 |
| Structured finance | 6,884 | 7,677 | 14,561 | 614 | 15,175 |
| - structured loans | 625 | 17 | 642 | 29 | 671 |
| - RMBS | 1,251 | 1,657 | 2,908 | 55 | 2,963 |
| - CMBS | 1,281 | 466 | 1,747 | (6) | 1,741 |
| - CDOs & CLOs | 1,568 | 4,641 | 6,209 | 119 | 6,328 |
| - other ABS | 2,159 | 896 | 3,055 | 417 | 3,472 |
| Loans | 34,375 | 3,039 | 37,414 | 17,528 | 54,942 |
| Bonds (6) | 545 | 156 | 701 | (3) | 698 |
| Derivatives | 12,510 | 6,834 | 19,344 | 14,146 | 33,490 |
| - monoline insurers | 2,607 | 6,335 | 8,942 | 10,852 | 19,794 |
| - other counterparties | 9,903 | 499 | 10,402 | 3,294 | 13,696 |
| 154,159 | 28,890 | 183,049 | 47,481 | 230,530 | |
| Further analysed: | |||||
| Loans and advances | 134,845 | 14,240 | 149,085 | 32,753 | 181,838 |
| Debt securities | 6,804 | 7,816 | 14,620 | 582 | 15,202 |
| Derivatives | 12,510 | 6,834 | 19,344 | 14,146 | 33,490 |
| 154,159 | 28,890 | 183,049 | 47,481 | 230,530 | |
| By division: | |||||
| UK Retail | 16,599 | 2,431 | 19,030 | 2,212 | 21,242 |
| UK Corporate | 37,710 | 1,007 | 38,717 | 10,510 | 49,227 |
| Global Banking & Markets | 26,141 | 1,628 | 27,769 | 16,248 | 44,017 |
| Ulster Bank | 10,152 | 486 | 10,638 | 1,231 | 11,869 |
| Non-Core | 63,557 | 23,338 | 86,895 | 17,280 | 104,175 |
| 154,159 | 28,890 | 183,049 | 47,481 | 230,530 |
| Carrying value (2) £m |
Provisions and adjustments to par value (3) £m |
Par value (4) £m |
Undrawn Commitments and other adjustments (5) £m |
Covered amount £m |
|
|---|---|---|---|---|---|
| 2008 | (a) | (b) | (a)+(b)=(c) | (d) | (c)+(d)=(e) |
| Residential mortgages | 15,283 | 144 | 15,427 | - | 15,427 |
| Consumer finance | 45,691 | 2,346 | 48,037 | 6,506 | 54,543 |
| - personal loans | 10,267 | 1,687 | 11,954 | 1,440 | 13,394 |
| - business and commercial loans | 35,424 | 659 | 36,083 | 5,066 | 41,149 |
| Commercial real estate finance | 32,131 | 847 | 32,978 | 6,872 | 39,850 |
| Leveraged finance | 19,792 | 2,875 | 22,667 | 5,067 | 27,734 |
| Lease finance | 2,012 | 138 | 2,150 | 288 | 2,438 |
| Project finance | 1,761 | 58 | 1,819 | 424 | 2,243 |
| Structured finance | 10,370 | 8,012 | 18,382 | 809 | 19,191 |
| - structured loans | 2,761 | 155 | 2,916 | 597 | 3,513 |
| - RMBS | 1,232 | 1,547 | 2,779 | - | 2,779 |
| - CMBS | 1,481 | 371 | 1,852 | - | 1,852 |
| - CDOs & CLOs | 2,390 | 5,168 | 7,558 | 212 | 7,770 |
| - other ABS | 2,506 | 771 | 3,277 | - | 3,277 |
| Loans | 50,563 | 1,142 | 51,705 | 28,272 | 79,977 |
| Bonds (6) | 1,467 | 85 | 1,552 | 11 | 1,563 |
| Derivatives | 21,093 | 6,575 | 27,668 | 11,325 | 38,993 |
| - monoline insurers | 5,620 | 5,892 | 11,512 | 10,758 | 22,270 |
| - other counterparties | 15,473 | 683 | 16,156 | 567 | 16,723 |
| 200,163 | 22,222 | 222,385 | 59,574 | 281,959 | |
| Further analysed: | |||||
| Loans and advances | 169,994 | 7,705 | 177,699 | 48,026 | 225,725 |
| Debt securities | 9,076 | 7942 | 17,018 | 223 | 17,241 |
| Derivatives | 21,093 | 6,575 | 27,668 | 11,325 | 38,993 |
| 200,163 | 22,222 | 222,385 | 59,574 | 281,959 | |
| By division: | |||||
| UK Retail | 18,982 | 1,492 | 20,474 | 1,415 | 21,889 |
| UK Corporate | 39,608 | 285 | 39,893 | 12,243 | 52,136 |
| Global Banking & Markets | 47,230 | 1,640 | 48,870 | 21,987 | 70,857 |
| Ulster Bank | 11,705 | 234 | 11,939 | 1,163 | 13,102 |
| Non-Core | 82,638 | 18,571 | 101,209 | 22,766 | 123,975 |
| 200,163 | 22,222 | 222,385 | 59,574 | 281,959 |
Notes:
The tables below analyse covered assets by sector and division; and by sector and HMT asset class at 31 December 2009 and 31 December 2008.
| 2009 | |||||||
|---|---|---|---|---|---|---|---|
| UK | Ulster | Covered | 2008 | ||||
| UK Retail | Corporate | GBM | Bank | Non-Core | amount | ||
| £m | £m | £m | £m | £m | £m | £m | |
| Financial institutions | - | 1,427 | 11,303 | 35 | 35,985 | 48,750 | 64,027 |
| Manufacturing | - | 1,673 | 6,849 | 230 | 8,127 | 16,879 | 20,053 |
| Natural resources | - | 629 | 2,530 | 45 | 2,117 | 5,321 | 8,122 |
| Property | - | 9,990 | 8,349 | 1,550 | 27,931 | 47,820 | 60,217 |
| Retail and leisure | - | 4,292 | 4,608 | 964 | 4,305 | 14,169 | 17,975 |
| Services | - | 1,885 | 1,159 | 324 | 2,689 | 6,057 | 8,484 |
| TMT | - | 608 | 3,985 | 263 | 5,852 | 10,708 | 14,535 |
| Transport | - | 3,962 | 5,118 | 116 | 3,579 | 12,775 | 15,726 |
| Personal and SME | 21,242 | 24,761 | 116 | 8,342 | 13,590 | 68,051 | 72,820 |
| 21,242 | 49,227 | 44,017 | 11,869 | 104,175 | 230,530 | 281,959 |
| Residential mortgage |
Consumer finance |
Commercial real estate |
Leveraged finance |
Lease finance | finance Project |
Structured finance |
Loan | Bonds | Derivative | Covered amount |
|
|---|---|---|---|---|---|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| 2009 | |||||||||||
| Financial institutions | - | - | 818 | 1,620 | 18 | - | 13,769 | 9,741 | 337 | 22,447 | 48,750 |
| Manufacturing | - | - | - | 5,906 | 120 | 6 | 6 | 9,782 | 48 | 1,011 | 16,879 |
| Natural resources | - | - | - | 1,260 | 41 | 1,065 | 9 | 2,458 | 46 | 442 | 5,321 |
| Property | - | - | 30,636 | 1,810 | 564 | 298 | 486 | 9,058 | 53 | 4,915 | 47,820 |
| Retail and leisure | - | - | 616 | 3,510 | 40 | 142 | 369 | 7,819 | 74 | 1,599 | 14,169 |
| Services | - | - | 29 | 3,213 | 320 | 104 | 191 | 1,572 | 6 | 622 | 6,057 |
| TMT | - | - | - | 5,490 | 9 | - | 3 | 3,908 | 11 | 1,287 | 10,708 |
| Transport | - | - | 35 | 465 | 273 | 202 | 342 10,171 | 123 | 1,164 | 12,775 | |
| Personal and SME | 14,205 | 53,261 | 3 | 2 | 144 | - | - | 433 | - | 3 | 68,051 |
| 14,205 | 53,261 | 32,137 | 23,276 1,529 | 1,817 | 15,175 54,942 | 698 | 33,490 | 230,530 | |||
| 2008 | |||||||||||
| Financial Institutions | - | ||||||||||
| Manufacturing | - | - - |
638 - |
4,196 4,895 |
28 196 |
138 14 |
17,288 15,478 7 13,233 |
514 60 |
25,747 1,648 |
64,027 | |
| Natural resources | - | - | - | 1,484 | 60 | 1,261 | 11 | 4,699 | 53 | 554 | 8,122 |
| Property | - | - | 38,467 | 2,188 | 876 | 388 | 550 12,289 | 128 | 5,331 | ||
| Retail and leisure | - | - | 679 | 4,067 | 63 | 151 | 443 10,417 | 165 | 1,990 | 20,053 60,217 17,975 |
|
| Services | - | - | 31 | 3,773 | 556 | 66 | 519 | 2,832 | 13 | 694 | 8,484 |
| TMT | - | - | - | 6,591 | 13 | - | 3 | 5,918 | 406 | 1,604 | 14,535 |
| Transport | - | - | 35 | 537 | 369 | 225 | 370 12,619 | 149 | 1,422 | 15,726 | |
| Personal and SME | 15,427 | 54,543 | - | 3 | 277 | - | - | 2,492 | 75 | 3 | 72,820 |
The table below provides a geographical breakdown of covered assets, based on the country of domicile or incorporation of the obligor, and by HM Treasury asset class.
| Residential mortgage £m |
Consumer finance £m |
Commercial real estate £m |
Leveraged finance £m |
Lease finance £m |
finance Project £m |
Structured finance £m |
Loan £m |
Bonds £m |
Derivative £m |
Covered amount £m |
|
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2009 | |||||||||||
| United Kingdom | 10,102 | 46,027 | 15,285 | 8,406 | 997 | 167 | 2,433 | 15,879 | 53 | 8,379 | 107,728 |
| Western Europe | 3,971 | 6,814 | 12,080 | 9,448 | 485 | 904 | 2,963 | 21,273 | 105 | 2,369 | 60,412 |
| North America | 118 | 46 | 1,702 | 4,039 | 2 | 228 | 3,406 | 8,019 | 25 17,325 | 34,910 | |
| Latin America | 1 | 282 | 2,042 | 476 | 17 | 40 | 5,628 | 2,593 | 7 | 4,068 | 15,154 |
| Other | 13 | 92 | 1,028 | 907 | 28 | 478 | 745 | 7,178 | 508 | 1,349 | 12,326 |
| 14,205 | 53,261 | 32,137 | 23,276 | 1,529 | 1,817 | 15,175 | 54,942 | 698 33,490 | 230,530 | ||
| 2008 | |||||||||||
| United Kingdom | 10,799 | 46,459 | 20,127 | 9,617 | 1,537 | 264 | 2,778 | 21,050 | 115 10,074 | 122,820 | |
| Western Europe | 4,468 | 7,654 | 13,848 | 11,685 | 845 | 1,004 | 4,226 | 31,461 | 370 | 3,231 | 78,792 |
| North America | 139 | 46 | 2,381 | 4,880 | 4 | 261 | 4,187 | 12,493 | 499 19,567 | 44,457 | |
| Latin America | 1 | 287 | 2,201 | 601 | 19 | 45 | 6,550 | 4,365 | 18 | 4,486 | 18,573 |
| Other | 20 | 97 | 1,293 | 951 | 33 | 669 | 1,450 | 10,608 | 561 | 1,635 | 17,317 |
| 15,427 | 54,543 | 39,850 | 27,734 | 2,438 | 2,243 | 19,191 | 79,977 | 1,563 38,993 | 281,959 |
| 2009 £m |
2008 £m |
|
|---|---|---|
| GBP | 107,731 | 121,440 |
| Euro | 56,586 | 72,989 |
| USD | 58,489 | 77,298 |
| AUD | 3,276 | 3,981 |
| JPY | 1,725 | 2,157 |
| Other | 2,723 | 4,094 |
| 230,530 | 281,959 |
This analysis by currency does not reflect any hedges that the Group may have in place.
Risk elements in lending (REIL) and potential problem loans (PPL) for the Group and the amount relating to assets in the Scheme are set out below.
| 2009 | 2008 | ||||
|---|---|---|---|---|---|
| Group | APS | Group | APS | ||
| £m | £m | £m | £m | ||
| Non-performing loans | 31,811 | 22,335 | 17,082 | 12,679 | |
| Other REIL | 3,178 | 2,092 | 1,709 | 1,498 | |
| Total REIL | 34,989 | 24,427 | 18,791 | 14,177 | |
| PPL | 924 | 580 | 226 | 187 | |
| REIL and PPL | 35,913 | 25,007 | 19,017 | 14,364 | |
| Core | 12,361 | 7,170 | |||
| Non-Core | 23,552 | 17,837 | |||
| REIL and PPL | 35,913 | 25,007 |
● Approximately 70% of the Group and 76% of Non-Core REIL and PPL loans are covered by the scheme.
The table below analyses the credit quality of the Group's credit risk assets by risk bands and the proportion relating to assets in the Scheme.
| 2009 | 2008 | |||||
|---|---|---|---|---|---|---|
| % relating to | % relating to | |||||
| assets in | assets in | |||||
| Asset quality band | Probability of default | Group | scheme | Group | scheme | |
| AQ1 | 0% - 0.034% | 95 | 2% | 127 | 3% | |
| AQ2 | 0.034% - 0.048% | 12 | 9% | 26 | 16% | |
| AQ3 | 0.048% - 0.095% | 29 | 7% | 38 | 17% | |
| AQ4 | 0.095% - 0.381% | 97 | 12% | 150 | 15% | |
| AQ5 | 0.381% - 1.076% | 130 | 24% | 148 | 28% | |
| AQ6 | 1.076% - 2.153% | 95 | 28% | 103 | 36% | |
| AQ7 | 2.153% - 6.089% | 55 | 37% | 46 | 52% | |
| AQ8 | 6.089% - 17.222% | 23 | 44% | 26 | 46% | |
| AQ9 | 17.222% - 100% | 15 | 66% | 12 | 69% | |
| AQ10 | 100% | 38 | 76% | 18 | 72% | |
| Other (1) | 41 | 5% | 41 | 8% | ||
| 630 | 23% | 735 | 24% |
Note:
(1) 'Other' largely comprises assets covered by the standardised approach for which a probability of default (PD) equivalent to those assigned to assets covered by the internal ratings based approach is not available.
Reverse repurchase agreements, carrying value relating to net derivative positions and debt securities are excluded from both Group numbers and APS covered assets above.
RBS Group – 2009 Annual results
To comply with EC State Aid requirements the Group agreed to make a series of divestments to be completed within four years from December 2009: the sale of RBS Insurance, Global Merchant Services and RBS Sempra Commodities. The Group also agreed to dispose of the RBS branch based business in England and Wales, the NatWest branch network in Scotland, along with the Direct SME customers across the UK (termed below 'UK Retail and UK Corporate businesses outlined for disposal'). The disposal of UK Retail and UK Corporate business banking businesses will reduce the Group's market share by 2% of the UK retail market, 5% in the SME market and 5% of the midcorporate market.
RBS Insurance is being prepared for disposal by way of a trade sale or public flotation targeted for 2012. It will continue to be managed and reported as a separate division for the foreseeable future.
The sale of Global Merchant Services has already attracted considerable interest. We anticipate a sale during the second half of this year, and the transfer of the business to Non-Core division during the first half of 2010.
Negotiations for the sale of RBS Sempra Commodities were well advanced at the end of 2009 and the business was transferred to the Non-Core division from GBM in December 2009. On 16 February the Group announced that RBS Sempra Commodities had reached the agreement to sell the Oil, Metals, European Power and Gas businesses to JP Morgan Chase. Alternatives for the remaining North American Power and Gas businesses are being considered.
The UK retail and business banking businesses are currently being structured for disposal; we do not expect to complete a sale until 2011. These activities will continue to be included in UK Retail and UK Corporate as appropriate. It is estimated that the income of these businesses for the year ended 31 December 2009 was approximately £946 million and that, broadly, they broke even during the year before the allocation of Business Services and Central costs. Estimated loans and deposits as at 31 December 2009 for these businesses are £23.5 billion and £22.5 billion respectively.
The table below shows the estimated Total income and Operating profit of RBS Insurance, Global Merchant Services, RBS Sempra Commodities and the UK Retail and UK Corporate businesses that have been outlined for disposal.
| Operating profit before | |||||||
|---|---|---|---|---|---|---|---|
| Total income | impairments | Operating profit/(loss) | |||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | ||
| Businesses outlined for disposal | £m | £m | £m | £m | £m | £m | |
| RBS Insurance (1) | 4,460 | 4,430 | 66 | 626 | 58 | 584 | |
| Global Merchant Services (2) | 527 | 535 | 266 | 281 | 249 | 267 | |
| RBS Sempra Commodities (3) | 746 | 765 | 52 | 212 | 52 | 209 | |
| UK Retail and UK Corporate | |||||||
| businesses outlined for disposal (4) | 946 | 1,082 | 468 | 567 | (146) | 347 | |
| Total | 6,679 | 6,812 | 852 | 1,686 | 213 | 1,407 |
The table below shows the estimated associated risk-weighted assets, total assets and estimated capital of the businesses currently identified for disposal.
| RWAs | Total assets | Estimated capital | |||||
|---|---|---|---|---|---|---|---|
| Businesses outlined for disposal | 2009 £bn |
2008 £bn |
2009 £bn |
2008 £bn |
2009 £bn |
2008 £bn |
|
| RBS Insurance (1) | n/m | n/m | 11.8 | 10.8 | 4.1 | 3.6 | |
| Global Merchant Services (2) | 1.6 | 1.5 | 1.6 | 1.5 | 0.1 | 0.1 | |
| RBS Sempra Commodities (3) UK Retail and UK Corporate |
10.2 | 10.7 | 14.2 | 17.8 | 1.0 | 1.0 | |
| businesses outlined for disposal (4) | 18.2 | 14.5 | 23.5 | 24.2 | 1.5 | 1.2 | |
| Total | 30.0 | 26.7 | 51.1 | 54.3 | 6.7 | 5.9 |
Notes:
.
(1) As reported in the Annual Results for the year ended 31 December 2009 and excluding non-core business. Estimated capital includes approximately £1.0 billion of goodwill.
(2) Global Merchant Services business units are reported within the Global Transaction Services, Ulster Bank and Non-Core divisions. Estimated notional capital based on 7% of RWAs.
(3) Sempra Commodities was acquired in April 2008 and the 2008 income statement data are from the date of acquisition. The figures shown, other than total income, are net of the minority interest attributable to Sempra for the years ended 31 December 2009 and 2008. The operating profit before minority interest of the business was £286 million and £373 million respectively for the periods shown. Estimated capital is based on the Group's cost of its 51% interest.
(4) Estimated notional equity based upon 8% of RWAs.
The full income statement of RBS Sempra Commodities business is set out below.
| 2009 | 2008 Q4 |
||||
|---|---|---|---|---|---|
| Q1 | Q2 | Q3 | Q4 | ||
| Income statement | £m | £m | £m | £m | £m |
| Net fees and commissions payable | (6) | (3) | (2) | (2) | (3) |
| Income from trading activities | 248 | 206 | 156 | 160 | 404 |
| Other operating income | 5 | 4 | (40) | 20 | 3 |
| Total income | 247 | 207 | 114 | 178 | 404 |
| Direct expenses | |||||
| - staff | (113) | (82) | (39) | (111) | (160) |
| - other | (26) | (27) | (21) | (41) | (24) |
| Total expenses | (139) | (109) | (60) | (152) | (184) |
| Operating profit before impairment | |||||
| losses | 108 | 98 | 54 | 26 | 220 |
| Impairment losses | - | - | - | - | (3) |
| Operating profit | 108 | 98 | 54 | 26 | 217 |
See also Appendix 5 for the effect on previously published data of the transfer of RBS Sempra Commodities from GBM to Non-Core in December 2009.
Other measures required by the EC include:
The European Commission will appoint a Monitoring Trustee to ensure compliance with EU restructuring requirements and behavioural conditions. We expect this appointment to be completed by March.
Divisional results have been revised to reflect the transfer of RBS Sempra Commodities to Non-Core from GBM. These changes do not affect the Group's results.
| Quarter ended 30 September 2009 | Quarter ended 30 June 2009 | |||||
|---|---|---|---|---|---|---|
| Previously | Previously | |||||
| reported | Adjustment | Revised | reported | Adjustment | Revised | |
| Global Banking & Markets | £m | £m | £m | £m | £m | £m |
| Net interest income | 447 | - | 447 | 660 | - | 660 |
| Non-interest income | 1,412 | (114) | 1,298 | 1,650 | (207) | 1,443 |
| Direct expenses | ||||||
| - staff costs | (760) | 39 | (721) | (762) | 82 | (680) |
| - other costs | (261) | 21 | (240) | (231) | 27 | (204) |
| Impairment losses | (272) | - | (272) | 31 | - | 31 |
| Operating profit | 375 | (54) | 321 | 1,147 | (98) | 1,049 |
| £bn | £bn | £bn | £bn | £bn | £bn | |
| Loans and advances (including banks) | 157.0 | (0.7) | 156.3 | 156.0 | (0.8) | 155.2 |
| Reverse repos | 75.4 | - | 75.4 | 75.2 | - | 75.2 |
| Securities | 117.6 | - | 117.6 | 115.5 | - | 115.5 |
| Cash and eligible bills | 63.8 | - | 63.8 | 51.5 | - | 51.5 |
| Other | 50.8 | (4.8) | 46.0 | 46.2 | (5.7) | 40.5 |
| Total third party assets (excluding | ||||||
| derivatives mark to market) | 464.6 | (5.5) | 459.1 | 444.4 | (6.5) | 437.9 |
| Customer deposits (excluding repos) | 58.1 | (1.3) | 56.8 | 65.0 | (1.6) | 63.4 |
| Risk-weighted assets | 131.9 | (10.4) | 121.5 | 122.4 | (9.9) | 112.5 |
| Quarter ended 31 March 2009 | Quarter ended 31 December 2008 | |||||
|---|---|---|---|---|---|---|
| Previously | Previously | |||||
| reported | Adjustment | Revised | reported | Adjustment | Revised | |
| Global Banking & Markets | £m | £m | £m | £m | £m | £m |
| Net interest income | 812 | - | 812 | 1,054 | - | 1,054 |
| Non-interest income | 4,527 | (247) | 4,280 | (2,850) | (404) | (3,254) |
| Direct expenses | ||||||
| - staff costs | (1,001) | 113 | (888) | (178) | 160 | (18) |
| - other costs | (300) | 26 | (274) | (421) | 24 | (397) |
| Impairment losses | (269) | - | (269) | (505) | 3 | (502) |
| Operating profit/(loss) | 3,576 | (108) | 3,468 | (3,102) | (217) | (3,319) |
| Loans and advances (including banks) | 206.5 | (1.2) | 205.3 | 225.5 | (1.3) | 224.2 |
| Reverse repos | 80.6 | - | 80.6 | 88.8 | - | 88.8 |
| Securities | 124.3 | - | 124.3 | 127.5 | - | 127.5 |
| Cash and eligible bills | 28.6 | - | 28.6 | 20.2 | - | 20.2 |
| Other | 43.1 | (5.7) | 37.4 | 42.9 | (4.9) | 38.0 |
| Total third party assets (excluding | ||||||
| derivatives mark to market) | 483.1 | (6.9) | 476.2 | 504.9 | (6.2) | 498.7 |
| Customer deposits (excluding repos) | 81.8 | (1.7) | 80.1 | 88.6 | (0.8) | 87.8 |
| Risk-weighted assets | 148.6 | (10.7) | 137.9 | 162.4 | (10.6) | 151.8 |
| Quarter ended 30 September 2009 | Quarter ended 30 June 2009 | |||||
|---|---|---|---|---|---|---|
| Previously | Previously | |||||
| Reported | Adjustment | Revised | reported | Adjustment | Revised | |
| Non-Core | £m | £m | £m | £m | £m | £m |
| Net interest income | 287 | - | 287 | 274 | - | 274 |
| Non-interest income | (347) | 114 | (233) | (1,168) | 207 | (961) |
| Direct expenses | ||||||
| - staff costs | (111) | (39) | (150) | (71) | (82) | (153) |
| - other costs | (223) | (21) | (244) | (220) | (27) | (247) |
| Impairment losses | (2,066) | - | (2,066) | (3,516) | - | (3,516) |
| Operating loss | (2,718) | 54 | (2,664) | (4,975) | 98 | (4,877) |
| £bn | £bn | £bn | £bn | £bn | £bn | |
| Total third party assets (including | ||||||
| derivatives) | 220.2 | 12.8 | 233.0 | 231.9 | 14.6 | 246.5 |
| Loans and advances to customers - gross | 158.7 | 0.4 | 159.1 | 163.6 | 0.5 | 164.1 |
| Customer deposits | 14.7 | 1.3 | 16.0 | 13.4 | 1.6 | 15.0 |
| Risk-weighted assets | 190.3 | 10.4 | 200.7 | 164.1 | 9.9 | 174.0 |
| Quarter ended 31 March 2009 | Quarter ended 31 December 2008 | |||||
|---|---|---|---|---|---|---|
| Previously reported |
Adjustment | Revised | Previously Reported |
Adjustment | Revised | |
| Non-Core | £m | £m | £m | £m | £m | £m |
| Net interest income | 395 | - | 395 | 765 | - | 765 |
| Non-interest income | (2,418) | 247 | (2,171) | (3,099) | 404 | (2,695) |
| Direct expenses | ||||||
| - staff costs | (188) | (113) | (301) | (110) | (160) | (270) |
| - other costs | (230) | (26) | (256) | (321) | (24) | (345) |
| Impairment losses | (1,828) | - | (1,828) | (3,358) | (3) | (3,361) |
| Operating loss | (4,588) | 108 | (4,480) | (6,467) | 217 | (6,250) |
| Total third party assets (including derivatives) |
297.1 | 17.6 | 314.7 | 325.1 | 17.8 | 342.9 |
| Loans and advances to customers - gross | 183.1 | 0.6 | 183.7 | 190.6 | 0.8 | 191.4 |
| Customer deposits | 21.9 | 1.8 | 23.7 | 26.6 | 0.8 | 27.4 |
| Risk-weighted assets | 163.7 | 10.7 | 174.4 | 160.3 | 10.6 | 170.9 |
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