Annual Report • Nov 1, 2013
Annual Report
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| Page | |
|---|---|
| Highlights | 1 |
| Chief Executive's message | 4 |
| Relationship with HM Treasury | 9 |
| Internal Bad Bank | 10 |
| Contacts | 13 |
| Presentation of information | 14 |
| Summary consolidated results | 16 |
| Analysis of results | 19 |
| Divisional performance | 27 |
| Statutory results | 66 |
| Condensed consolidated income statement | 66 |
| Condensed consolidated statement of comprehensive income | 67 |
| Condensed consolidated balance sheet | 68 |
| Average balance sheet | 69 |
| Condensed consolidated statement of changes in equity | 72 |
| Notes | 74 |
| Risk and balance sheet management | 89 |
| Presentation of information | 89 |
| Capital management | 89 |
| Capital and leverage ratios | 89 |
| Capital resources | 90 |
| Risk-weighted assets flow statement | 92 |
| Liquidity, funding and related risks | 93 |
| Overview | 93 |
| Funding sources | 94 |
| Liquidity portfolio | 95 |
| Basel III liquidity ratios and other metrics | 95 |
| Credit risk | 96 |
| Loans and related credit metrics | 96 |
| Debt securities: IFRS measurement classification by issuer | 100 |
| Derivatives | 101 |
| Market risk | 102 |
| Country risk | 104 |
| Risk factors | 107 |
| Additional information | 111 |
| Share information | 111 |
| Statutory results | 111 |
| Financial calendar | 111 |
| Appendix 1 Risk management supplement Appendix 2 Income statement reconciliations and Segmental analysis |
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', 'could', '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 and new strategic plans, divestments, capitalisation, portfolios, net interest margin, capital ratios, liquidity, risk-weighted assets (RWAs), return on equity (ROE), profitability, cost:income ratios, leverage and loan:deposit ratios, funding and risk profile; discretionary coupon and dividend payments; certain ring-fencing proposals; sustainability targets; regulatory investigations; the Group's future financial performance; the level and extent of future impairments and write-downs, including sovereign debt impairments; and the Group's potential exposure to political risks and to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity and equity price risk. These statements are based on current plans, estimates and projections, and are subject to inherent risks, uncertainties and other factors which could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements. For example, certain 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: global economic and financial market conditions and other geopolitical risks, and their impact on the financial industry in general and on the Group in particular; the ability to implement strategic plans on a timely basis, or at all, including the disposal of assets to be included in the internal "bad bank" and the disposal of certain other assets and businesses as stated in the new strategic plan or required as part of the State Aid restructuring plan; the achievement of capital and costs reduction targets; ineffective management of capital or changes to capital adequacy or liquidity requirements; organisational restructuring in response to legislative and regulatory proposals in the United Kingdom (UK), European Union (EU) and United States (US); the ability to access sufficient sources of capital, liquidity and funding when required; deteriorations in borrower and counterparty credit quality; litigation, government and regulatory investigations including investigations relating to the setting of LIBOR and other interest rates and foreign exchange trading activities; costs or exposures borne by the Group arising out of the origination or sale of mortgages or mortgage-backed securities in the US; the extent of future write-downs and impairment charges caused by depressed asset valuations; the value and effectiveness of any credit protection purchased by the Group; unanticipated turbulence in interest rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices, equity prices and basis, volatility and correlation risks; changes in the credit ratings of the Group; changes to the valuation of financial instruments recorded at fair value; competition and consolidation in the banking sector; the ability of the Group to attract or retain senior management or other key employees; regulatory or legal changes (including those requiring any restructuring of the Group's operations) in the UK, the US and other countries in which the Group operates or a change in UK Government policy; changes to regulatory requirements relating to capital and liquidity; changes to the monetary and interest rate policies of central banks and other governmental and regulatory bodies; changes in UK and foreign laws, regulations, accounting standards and taxes, including changes in regulatory capital regulations and liquidity requirements; the implementation of recommendations made by the Independent Commission on Banking and their potential implications and equivalent EU legislation; impairments of goodwill; pension fund shortfalls; general operational risks; HM Treasury exercising influence over the operations of the Group; reputational risk; the ability to access the contingent capital arrangements with HM Treasury; the conversion of the B Shares in accordance with their terms; limitations on, or additional requirements imposed on, the Group's activities as a result of HM Treasury's investment in the Group; and the success of the Group 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.
RBS announces actions to accelerate capital strengthening and enhance strategic focus
Full review of bank to improve customer service reporting February 2014
Q3 2013 pre-tax loss £634 million, after £496 million accounting charge for improved own credit
Core Tier 1 ratio up to 11.6%, or 9.1% on a fully loaded Basel III basis
We see signs that the UK economic recovery is gaining traction and have observed higher levels of activity and confidence among our customers. Nevertheless, we expect a continued muted performance from our core businesses in the short term, due primarily to the continued effects of low interest rates, excess liquidity, a smaller balance sheet, and lower securities gains from our liquidity portfolio. We expect Markets performance in Q4 2013 to reflect normal seasonal trends. Our strategic review will start to drive cost reductions and improve efficiencies from our core businesses during 2014 but will take two to three years to embed.
We expect margins to be stable or slightly up, our underlying cost base to be at c.£13 billion for 2013 (excluding penalties and fines). Non-Core is forecast to be below £35 billion of funded assets, well ahead of our recent guidance. Whilst timings are uncertain, conduct and litigation charges are expected to continue as we work through the remaining outstanding issues.
In light of the new strategy to deal with our high risk assets we expect a significant increase in impairments in Q4 2013 which is likely to result in the Group reporting a substantial loss for the full year. The effect on the Group's Core Tier 1 ratio is however anticipated to be minimal.
Note:
(1) Operating profit before tax, own credit adjustments, Payment Protection Insurance costs, regulatory and legal actions, integration and restructuring costs, gain on redemption of own debt, amortisation of purchased intangible assets, strategic disposals and RFS Holdings minority interest ('operating profit'). Statutory operating loss before tax was £634 million for the quarter ended 30 September 2013.
This is my first message to you as Chief Executive. I took on the job because I believe we can make this a great bank for our customers. That's also the best way to make RBS an attractive investment and a good place to work for all our employees. As I write today, we still have a long way to travel to achieve all of these goals.
We are a bank with a significant international reach but the UK is our home. It accounts for the majority of our income and it's where our reputation for customer service, community support and corporate governance will be won or lost. It is also the place where we have the most opportunity to build long-term shareholder value. We have unique responsibilities to the UK and meeting them will have financial rewards for our business.
Our purpose is to serve our customers and to meet more of their financial needs. And we need to find a way to serve them from a more efficient, effective and agile business platform than the one we have today. I will provide full details in February 2014 on how we intend to do this. Today, I want to set out my assessment of our current performance and the management actions we must take on capital and risk to ensure nothing distracts us from the task of making this a great customer bank again.
Our third quarter results show the areas where the bank is making progress and those where we still have more to do. I joined RBS just over a year ago because I respect Stephen Hester and admired the work he and his team had done to bring this bank back from the brink. I have seen at first hand both the scale of the challenge they took on and the success they had in what will go down as a remarkable corporate rescue. This has been a major achievement.
I know, however, that a balance sheet clean-up does not make a great bank on its own. We have posted our seventh consecutive quarterly operating profit today. But for the most part our improved profitability is driven by a fall in impairments rather than an increase in income. Revenue growth in our main business franchise - UK Retail and Commercial - is not what we would like it to be at this point in our recovery. I'm encouraged that costs are down 8% on last year, but they are still unsustainably high. Our Core Return on Equity was 7.7% in Q3 2013 - down from 8.9% and 9.3% for the full year 2012 and 2011 rspectively. We must do better and we can do better.
RBS is a very complex business that is difficult for our employees and the outside world to navigate. But the heart of our performance problem is quite easy to understand: we make it too hard for customers to do business with us and too hard for our people to serve those customers well.
Our personal customers do only part of their everyday banking with us and there is no reason why we can't do more to support more of our customers' needs. We still receive far too many complaints, often on issues that would never arise if our systems and processes were more effective. We are the biggest backer of small businesses in the UK. Every year we speak to thousands of potential new small business customers but at the moment we don't convert enough of those conversations into actual new loans. And we haven't made the most of the opportunities in our international network by connecting the different parts of our corporate franchise to the needs of our customers. There is a big opportunity here and we are already beginning to seize it. The restructuring of our investment bank to lower its risk profile is in full swing and it is encouraging to see some signs of delivery from the business focus on our corporate and institutional customers.
No-one is more frustrated by this gap between our potential and our performance than our own people. I will make turning this situation around the top priority of everyone at RBS. We must become a company that knows what it means to obsess about our customers. This is a fundamental challenge that will involve the whole organisation.
So realising the full potential of our customer businesses is now our major challenge and opportunity. I am confident that we can do it. The potential I saw in the Retail Bank exists across the other businesses - strong market positions, stable businesses and good staff who are eager to serve the customer better. I have launched a full review of our ongoing businesses that places the needs of our customers at its centre. It will consider three broad areas:
The business review will also capture the tough calls on costs where they are needed to improve the performance and effectiveness of the bank. We currently have a cost:income ratio of 65%. That means we only have 35p left from every £1 we earn to invest in making our business better for customers and improving returns for shareholders. Our cost:income percentage needs to be down in the mid 50s. I will announce a new plan for the way the bank serves its customers around the time of our full year results in February 2014. That plan will require full focus from all our people.
While everyone at RBS has been working hard for the last five years and the vast bulk of our balance sheet restructuring is now complete, we still have some hard work ahead of us. An important early challenge for me is to resolve the remaining legacy issues that have taken up a lot of the top management's time for the last few years. Without doing so we will not make the most of the plan I will set out in February.
Five years ago, our Non-Core assets totalled £258 billion. Through the good bank/bad bank review we have, over the last few months, been working with our major shareholder, the UK Government and their advisers to assess how far we've come in tackling the assets that continue to be a drag on our performance. We have a richer shared understanding of where we are today than we would have if we had not applied the rigour of this process. It is important for investors, regulators, and the management of the company that we have an agreed, robust assessment of our problematic assets.
We worked closely with HM Treasury and their advisers and identified a pool of £38 billion that we agreed would be a drag on our performance. These assets consume 20% of our capital and are made up predominantly of the most high risk assets we have in RBS.
Through this review it has become clear that the effort, risk and expense involved in the creation of an external bad bank is not justified. The good bank/bad bank review has from the start been carried out in conjunction with the Prudential Regulation Authority (PRA). This has allowed us to address our shared objective of identifying ways in which to strengthen the capital position of the bank, speed up the recovery in our core UK businesses and accelerate the path to privatisation. The options open to the Group have been debated extensively by the Board and the Board has decided that RBS should take the actions we are announcing today.
One of the first steps we are taking is to create an internal "bad bank" to manage these assets down so as to release capital. Our goal is to remove between 55% and 70% of these assets over the next two years. While there is inevitable uncertainty associated with running down such assets, we have a clear aspiration to remove all these assets from the balance sheet in three years. Our track record in delivering the Non-Core run-down to date should give everyone confidence that we can deliver on this plan. It will be called RBS Capital Resolution Group and will have strong and transparent governance and disclosure via an oversight committee which reports regularly to the main Board.
Disposing of these assets over a shorter timeframe will reduce the value we can expect to recover, and will lead to accelerated and increased impairments. This will result in an immediate reduction in our expected loss capital deduction. The net impact of this on our CT1 capital ratio today is a reduction of c.10 basis points. However, by the end of 2016 we anticipate an incremental £35 billion reduction in RWAs; and a net incremental improvement in our CT1 ratio and a strong improvement in our stressed capital ratio. This is the right thing to do as we sharpen our focus on our customer businesses, which account for over 90% of our assets.
Great banks have strong liquidity and capital positions. Our liquidity position is already strong without question. I also want to dispel any impression that RBS is travelling light on capital.
The Board has decided to lift our capital targets and take new actions in order to meet them. There are three drivers of our decisions:
There is a range of possible outcomes on the actual capital position at different points in time. It is our prudent judgment that RBS should now be targeting a fully loaded Basel III Core Tier 1 ratio of c.11% by the end of 2015, rising to 12% or beyond by the end of 2016 - an increase of 300 basis points from our current position.
In order to meet our new capital targets we are announcing several new actions today:
Like all of our businesses, Ulster Bank will form part of our February 2014 review. Subject to regulatory approval, a number of Ulster Bank assets (approximately £9 billion) will be managed by the "bad bank" and run down. But we also need to have full confidence that the rest of the Ulster Bank business is doing all it can for its customers and is playing its part within the wider company. We need to ensure that we have a viable and sustainable business model for Ulster Bank as part of this review. It's an important business for the whole island of Ireland and we understand the need to get this right.
We are in advanced discussions with the UK Government about the removal of the Dividend Access Share. We are making very good progress in dealing with this issue which I know is important to many current and prospective investors in the company.
Today Sir Andrew Large will publish the summary of his review into lending to small and medium-sized businesses, which we commissioned earlier this year. The picture he will paint will not be an entirely comfortable one, but it's one we have to confront. I know that a successful, vibrant, and well-regarded SME bank is central to the overall value and reputation of this company. We must ensure our policies, processes and systems help our people to do the best job they can for customers and shareholders in this area. Our aim is to become the number one bank for SME customer service in the UK – including as measured in a new survey of SMEs by the Federation of Small Businesses and the British Chambers of Commerce – and to grow our lending along the way.
We have taken a number of steps to change and improve the way we do business but the Large review will show that there is significantly more we can do to expand our lending to small and medium-sized businesses. More recently, some of our competitors have managed to increase their lending in this area while we continue to contract. The detailed report will be published in one month's time. Its thematic findings are difficult to argue with and we will address all of the detailed issues it raises in the comprehensive business review I mentioned earlier in this letter.
We now have a shared vision for the bank that includes the Board, our principal prudential regulator and the UK Government. I believe this is beneficial for all of our shareholders. The actions we are announcing today, when complete, will create a less complex, more effective customer business capable of delivering returns that will be attractive to prospective shareholders. They will create a bank that can reward the faith of UK taxpayers and all our investors.
RBS has made a lot of progress since 2009. As ever with any long and difficult job, a degree of weariness and even defensiveness has crept in. We have got to move on as a company. The bar has been set at a higher level for RBS than for other UK banks because we were rescued at the public's expense. I have asked all our people to embrace the higher expectations that people have placed on our bank. That's the only way we will build a really great business for our customers, our people and our shareholders. That's my aim.
Ross McEwan
Following the Report from the UK Parliamentary Commission on Banking Standards in June 2013, HMT announced its intention to conduct a "good bank"/"bad bank" review in relation to RBS. Throughout this review, the Group worked closely with HMT and its advisors to consider whether the separation and transfer of a pool of the Group's assets into an external "bad bank" was in the interests of the Group, HMT and the Group's other shareholders. As the review progressed, it became clear that the benefit of removing those assets from the Group to an external bad bank would not justify the effort, risk and expense which such separation would entail.
During this process, HMT and the PRA proposed certain actions for consideration by the Board. Key elements of these proposals were already being contemplated by the Board. In conjunction the Group has also been having discussions, initiated by the PRA, in relation to its capital planning and actions which the Group might take to enhance its capital position.
Separately, the Group's new executive management team has been reviewing with the Board, and continues to review, the Group's strategy including its business mix, operating structure and cost base. This has included a review of the Group's current capital plan and market guidance with a view to improving the Group's capital strength in the light of potential regulatory changes, conduct and litigation headwinds and other developments which may impact the Group's future capital position.
Throughout this period, the Board has met several times to discuss these issues, determine how best to approach them and ultimately to take decisions in the interests of all of the Group's shareholders and other stakeholders in accordance with its statutory duties. Today's announcements relating to the Group's strategy as well as revised guidance on the Group's capital targets reflect the Board's decisions.
Analysis of the estimated funded assets and RWAe of the IBB at 31 December 2013 and the related position at 30 June 2013 (the starting point for the identification of the portfolios of the IBB) are set out below.
| 31 December 2013 | 30 June 2013 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Forecast total | Non-performing | Performing | Total | |||||||||
| Gross | Net | Gross | Net | Gross | Net | Gross | Net | |||||
| TPA | TPA | RWAe | TPA | TPA | RWAe | TPA | TPA | RWAe | TPA | TPA | RWAe | |
| £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | |
| Non-Core | ||||||||||||
| - CRE | 10.4 | 8.4 | 17.5 | 7.2 | 4.8 | 14.2 | 6.1 | 6.1 | 13.2 | 13.3 | 10.9 | 27.4 |
| - Ulster Bank | 10.9 | 4.6 | 15.6 | 12.5 | 5.3 | 20.8 | - | - | - | 12.5 | 5.3 | 20.8 |
| - Corporate | 4.6 | 3.7 | 17.1 | 1.6 | 1.0 | 3.0 | 4.8 | 4.7 | 7.6 | 6.4 | 5.7 | 10.6 |
| - Asset Finance | 2.9 | 2.7 | 4.8 | 0.6 | 0.4 | 1.2 | 2.4 | 2.5 | 4.2 | 3.0 | 2.9 | 5.4 |
| - Markets | 4.1 | 4.1 | 5.8 | 0.4 | 0.3 | 0.2 | 4.6 | 4.6 | 6.6 | 5.0 | 4.9 | 6.8 |
| Total Non-Core | 32.9 | 23.5 | 60.8 | 22.3 | 11.8 | 39.4 | 17.9 | 17.9 | 31.6 | 40.2 | 29.7 | 71.0 |
| Core | ||||||||||||
| Ulster Bank | 6.2 | 4.1 | 17.4 | 5.1 | 2.8 | 12.9 | 1.4 | 1.4 | 5.2 | 6.5 | 4.2 | 18.1 |
| UK Corporate | ||||||||||||
| - CRE | 2.1 | 1.8 | 5.5 | 1.5 | 1.2 | 3.6 | 1.8 | 1.8 | 5.7 | 3.3 | 3.0 | 9.3 |
| - Asset Finance | 2.2 | 2.2 | 5.0 | 1.0 | 1.0 | 3.5 | 1.4 | 1.4 | 2.5 | 2.4 | 2.4 | 6.0 |
| - Corporate | 1.6 | 1.5 | 4.1 | 0.4 | 0.3 | 0.5 | 1.4 | 1.4 | 4.1 | 1.8 | 1.7 | 4.6 |
| Total UK Corporate | 5.9 | 5.5 | 14.6 | 2.9 | 2.5 | 7.6 | 4.6 | 4.6 | 12.3 | 7.5 | 7.1 | 19.9 |
| International Banking | 2.9 | 2.6 | 7.3 | 0.9 | 0.6 | 3.2 | 2.4 | 2.4 | 4.8 | 3.3 | 3.0 | 8.0 |
| Markets | 2.7 | 2.6 | 15.5 | - | - | - | 2.8 | 2.8 | 19.8 | 2.8 | 2.8 | 19.8 |
| Total Core | 17.7 | 14.8 | 54.8 | 8.9 | 5.9 | 23.7 | 11.2 | 11.2 | 42.1 | 20.1 | 17.1 | 65.8 |
| Total IBB | 50.6 | 38.3 | 115.6 | 31.2 | 17.7 | 63.1 | 29.1 | 29.1 | 73.7 | 60.3 | 46.8 | 136.8 |
Notes:
(1) The amounts at 31 December 2013 are based on the July 2013 forecast of the 31 December 2013 balance sheet.
(2) Funded assets or third party assets excluding derivatives (TPA) are shown gross and net of impairment provisions.
(3) Performing assets are shown gross and net of latent provisions and valuation adjustments.
(4) RWAs and RWA equivalent (RWAe) are on a fully loaded Basel III basis. RWAe include RWA equivalent of capital deductions.
(5) Non-Core Ulster Bank predominantly comprises commercial real estate lending (CRE).
(6) Core Ulster Bank comprises corporate and CRE lending.
| 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 will be hosting a presentation for analysts and investors following the release of the results for the quarter ended 30 September 2013. This will also be available via a live webcast and audio call. The details are as follows:
| Date: | Friday 1 November 2013 |
|---|---|
| Time: | 9.00 am UK time |
| Webcast: | www.rbs.com/results |
| Dial in details: | International – +44 (0) 1452 568 172 UK Free Call – 0800 694 8082 US Toll Free – 1 866 966 8024 |
* Note: We will take questions from the phone lines and the webcast.
Slides accompanying this presentation will be available on www.rbs.com/results
A financial supplement containing income and balance sheet information for the last nine quarters will be available on www.rbs.com/results
The financial information on pages 16 to 65 prepared using the Group's accounting policies, shows the underlying performance of the Group on a managed basis which excludes certain one-off and other items. Information is provided in this form to give a better understanding of the results of the Group's operations. Group operating profit/(loss) on this basis excludes:
The ceding of control following the partial disposal of the Group's shareholding in Direct Line Group (DLG) resulted in the Group no longer treating DLG as an operating segment. Consequently, prior period data for 2012 on a managed basis (including disclosures relating to our Core business and segmental analysis) have been restated to exclude DLG. These restatements resulted in a decrease in Group operating profit of £110 million for the quarter ended 30 September 2012 and £285 million for the nine months ended 30 September 2012. They have no impact on the Group's statutory results. For further information on the restatements refer to the announcement dated 24 July 2013, available on www.rbs.com/ir
The condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of changes in equity and related notes presented on pages 66 to 88 inclusive are on a statutory basis. Reconciliations between the managed basis and statutory basis are included in Appendix 2.
The Group sold the first tranche of ordinary shares representing 34.7% of the share capital of DLG in October 2012 via an Initial Public Offering. On 13 March 2013, the Group sold a further 16.8% of ordinary shares in DLG and ceded control. This fulfilled the Group's plan to cede control of DLG by the end of 2013. On 20 September 2013, the Group sold a further 20% of the ordinary shares in DLG which is a further step towards complete disposal by the end of 2014, as required by the European Commission.
The Group now holds 28.5% of the issued ordinary share capital of DLG. Consequently, in the Group results DLG is treated as a discontinued operation until 12 March 2013 and as an associated undertaking thereafter, with associate income reported in Group Centre from 13 March 2013.
In the first quarter of 2013, the Group reclassified certain costs between direct and indirect expenses for all divisions. Comparatives have been restated accordingly; the revision did not affect total expenses or operating profit.
The Group implemented IAS 19 with effect from 1 January 2013. IAS 19 requires: the immediate recognition of all actuarial gains and losses; interest cost to be calculated on the net pension liability or asset at the longterm bond rate, such that an expected rate of return will no longer be applied to assets; and all past service costs to be recognised immediately when a scheme is curtailed or amended. Implementation of IAS 19 resulted in an increase in the loss after tax of £21 million for the quarter ended 30 September 2012 and £63 million for the nine months ended 30 September 2012. Prior periods have been restated accordingly.
The Group implemented IFRS 10 with effect from 1 January 2013. IFRS 10 adopts a single definition of control: a reporting entity controls another entity when the reporting entity has the power to direct the activities of that other entity so as to vary returns for the reporting entity. IFRS 10 requires retrospective application. Following implementation of IFRS 10, certain entities that have trust preferred securities in issue are no longer consolidated by the Group. As a result there has been a reduction in non-controlling interests of £0.5 billion with a corresponding increase in Owners' equity (Paid-in equity); prior periods have been restated accordingly.
| Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | ||||
| 2013 | 2013 | 2012 | 2013 | 2012 | ||
| £m | £m | £m | £m | £m | ||
| Net interest income | 2,783 | 2,770 | 2,811 | 8,225 | 8,641 | |
| Non-interest income | 2,111 | 2,677 | 2,747 | 7,277 | 8,602 | |
| Total income (1) | 4,894 | 5,447 | 5,558 | 15,502 | 17,243 | |
| Operating expenses (2) | (3,286) | (3,399) | (3,473) | (10,066) | (10,906) | |
| Operating profit before impairment losses (3) | 1,608 | 2,048 | 2,085 | 5,436 | 6,337 | |
| Impairment losses | (1,170) | (1,117) | (1,176) | (3,320) | (3,825) | |
| Operating profit (3) | 438 | 931 | 909 | 2,116 | 2,512 | |
| Own credit adjustments | (496) | 127 | (1,455) | (120) | (4,429) | |
| Payment Protection Insurance costs | (250) | (185) | (400) | (435) | (660) | |
| Interest Rate Hedging Products redress and | ||||||
| related costs | - | - | - | (50) | - | |
| Regulatory and legal actions | (99) | (385) | - | (484) | - | |
| Integration and restructuring costs | (205) | (149) | (229) | (476) | (848) | |
| Gain/(loss) on redemption of own debt | 13 | 242 | (123) | 204 | 454 | |
| Other items | (35) | (33) | (70) | (15) | (79) | |
| Operating (loss)/profit before tax | (634) | 548 | (1,368) | 740 | (3,050) | |
| Tax charge | (81) | (328) | (3) | (759) | (402) | |
| (Loss)/profit from continuing operations | (715) | 220 | (1,371) | (19) | (3,452) | |
| (Loss)/profit from discontinued operations, net of tax | ||||||
| - Direct Line Group | - | - | 62 | 127 | 167 | |
| - Other | (5) | 9 | 5 | 6 | 6 | |
| (Loss)/profit from discontinued operations, | ||||||
| net of tax | (5) | 9 | 67 | 133 | 173 | |
| (Loss)/profit for the period | (720) | 229 | (1,304) | 114 | (3,279) | |
| Non-controlling interests | (6) | 14 | 3 | (123) | 28 | |
| Other owners' dividends | (102) | (101) | (104) | (284) | (186) | |
| (Loss)/profit attributable to ordinary and | ||||||
| B shareholders | (828) | 142 | (1,405) | (293) | (3,437) |
For the notes to this table refer to the following page.
| Quarter ended | Nine months ended | ||||||
|---|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||||
| 2013 | 2013 | 2012 | 2013 | 2012 | |||
| £m | £m | £m | £m | £m | |||
| Net interest income | 2,826 | 2,751 | 2,732 | 8,286 | 8,450 | ||
| Non-interest income | 2,187 | 2,423 | 2,776 | 6,969 | 8,473 | ||
| Total income (1) | 5,013 | 5,174 | 5,508 | 15,255 | 16,923 | ||
| Operating expenses (2) | (3,141) | (3,243) | (3,261) | (9,600) | (10,169) | ||
| Operating profit before impairment losses (3) | 1,872 | 1,931 | 2,247 | 5,655 | 6,754 | ||
| Impairment losses | (589) | (719) | (752) | (1,908) | (2,305) | ||
| Operating profit (3) | 1,283 | 1,212 | 1,495 | 3,747 | 4,449 | ||
| Core performance ratios | |||||
|---|---|---|---|---|---|
| - Net interest margin | 2.24% | 2.21% | 2.15% | 2.21% | 2.15% |
| - Cost:income ratio | 63% | 63% | 59% | 63% | 60% |
| - Return on equity | 7.7% | 7.2% | 8.8% | 7.5% | 9.2% |
| - Adjusted earnings per ordinary and B share | 4.0p | 5.6p | 5.1p | 14.9p | 13.7p |
| - Adjusted earnings per ordinary and B share | |||||
| assuming a normalised tax rate of 23.25% | |||||
| (2012 - 24.5%) | 7.9p | 7.4p | 9.3p | 23.2p | 29.0p |
Notes:
(1) Excluding own credit adjustments, gain/(loss) on redemption of own debt, Asset Protection Scheme, strategic disposals and RFS Holdings minority interest.
(2) Excluding PPI costs, IRHP redress and related costs, regulatory and legal actions, integration and restructuring costs, amortisation of purchased intangible assets and RFS Holdings minority interest.
(3) Operating profit before tax, own credit adjustments, PPI costs, IRHP redress and related costs, regulatory and legal actions, integration and restructuring costs, gain/(loss) on redemption of own debt, Asset Protection Scheme, amortisation of purchased intangible assets, strategic disposals and RFS Holdings minority interest.
Analysis of results is set out on pages 19 to 26.
| 30 September 2013 £m |
30 June 2013 £m |
31 December 2012 £m |
|
|---|---|---|---|
| Cash and balances at central banks | 87,066 | 89,613 | 79,290 |
| Net loans and advances to banks (1,2) | 28,206 | 30,241 | 29,168 |
| Net loans and advances to customers (1,2) | 406,927 | 418,792 | 430,088 |
| Reverse repurchase agreements and stock borrowing | 95,971 | 99,283 | 104,830 |
| Debt securities and equity shares | 133,249 | 149,625 | 172,670 |
| Settlement balances | 18,099 | 17,966 | 5,741 |
| Intangible assets | 13,742 | 13,997 | 13,545 |
| Other assets (3) | 22,519 | 23,020 | 35,060 |
| Funded assets | 805,779 | 842,537 | 870,392 |
| Derivatives | 323,657 | 373,692 | 441,903 |
| Total assets | 1,129,436 | 1,216,229 | 1,312,295 |
| Bank deposits (2,4) | 38,601 | 45,287 | 57,073 |
| Customer deposits (2,4) | 434,305 | 437,097 | 433,239 |
| Repurchase agreements and stock lending | 105,384 | 123,740 | 132,372 |
| Debt securities in issue | 71,781 | 79,721 | 94,592 |
| Settlement balances | 18,514 | 17,207 | 5,878 |
| Short positions | 31,020 | 27,979 | 27,591 |
| Subordinated liabilities | 23,720 | 26,538 | 26,773 |
| Other liabilities (3) | 18,517 | 18,955 | 29,996 |
| Liabilities excluding derivatives | 741,842 | 776,524 | 807,514 |
| Derivatives | 319,464 | 370,047 | 434,333 |
| Total liabilities | 1,061,306 | 1,146,571 | 1,241,847 |
| Non-controlling interests | 462 | 475 | 1,770 |
| Owners' equity | 67,668 | 69,183 | 68,678 |
| Total liabilities and equity | 1,129,436 | 1,216,229 | 1,312,295 |
| Memo: Tangible equity (5) | 48,634 | 49,894 | 49,841 |
Notes:
(1) Excludes reverse repurchase agreements and stock borrowing.
(2) Excludes disposal groups.
(3) Includes disposal groups.
(4) Excludes repurchase agreements and stock lending.
(5) Tangible equity is equity attributable to ordinary and B shareholders less intangible assets.
due to decreases in fair values of interest rate contracts driven by upward shifts in interest rate yield curves.
| Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | ||||
| 2013 | 2013 | 2012 | 2013 | 2012 | ||
| Net interest income | £m | £m | £m | £m | £m | |
| Net interest income (1) | 2,726 | 2,748 | 2,804 | 8,161 | 8,641 | |
| Average interest-earning assets (1) | 539,396 | 552,072 | 576,833 | 550,599 | 603,240 | |
| Net interest margin | ||||||
| - Group | 2.01% | 2.00% | 1.93% | 1.98% | 1.91% | |
| - Retail & Commercial (2) | 2.95% | 2.92% | 2.91% | 2.92% | 2.92% | |
| - Non-Core | (0.35%) | 0.15% | 0.41% | (0.15%) | 0.32% |
Notes:
(1) For further analysis and details refer to pages 69 to 71.
(2) Retail & Commercial (R&C) comprises the UK Retail, UK Corporate, Wealth, International Banking, Ulster Bank and US R&C divisions.
Group net interest margin (NIM) increased by 1 basis point in Q3 2013. Reduced funding costs in Markets and the margin improvement in R&C were partially offset by the non-repeat of the Non-Core recovery in Q2 2013.
Group net interest income decreased by £78 million, 3%, largely due to a decline in interest earning assets, down 6%, partially offset by deposit repricing.
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| Non-interest income | £m | £m | £m | £m | £m |
| Net fees and commissions | 1,144 | 1,142 | 1,191 | 3,392 | 3,746 |
| Income from trading activities | 599 | 874 | 769 | 2,489 | 2,962 |
| Other operating income | 368 | 661 | 787 | 1,396 | 1,894 |
| Total non-interest income | 2,111 | 2,677 | 2,747 | 7,277 | 8,602 |
Disposal gains on available-for-sale securities, primarily in Group Treasury, were £251 million lower at £168 million.
Lower non-interest income primarily reflects the targeted reduction in Markets balance sheet and riskweighted assets.
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| Operating expenses | £m | £m | £m | £m | £m |
| Staff expenses | 1,758 | 1,764 | 1,882 | 5,343 | 5,998 |
| Premises and equipment | 540 | 526 | 510 | 1,619 | 1,572 |
| Other | 683 | 801 | 716 | 2,162 | 2,214 |
| Administrative expenses | 2,981 | 3,091 | 3,108 | 9,124 | 9,784 |
| Depreciation and amortisation | 305 | 308 | 365 | 942 | 1,122 |
| Operating expenses | 3,286 | 3,399 | 3,473 | 10,066 | 10,906 |
| Staff costs as a % of total income | 36% | 32% | 34% | 34% | 35% |
| Cost:income ratio - Core | 63% | 63% | 59% | 63% | 60% |
| Cost:income ratio - Group | 67% | 62% | 62% | 65% | 63% |
The deterioration in the Group cost:income ratio was principally driven by reduced income in Non-Core. The Core cost:income ratio was stable at 63%.
Staff costs were 7% lower, driven by the Markets headcount reductions implemented since Q3 2012. Markets' compensation ratio in the first nine months of the year was 37%, an increase of 1% compared with the same period of 2012.
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| Impairment losses | £m | £m | £m | £m | £m |
| Loan impairment losses | 1,120 | 1,125 | 1,183 | 3,281 | 3,913 |
| Securities | 50 | (8) | (7) | 39 | (88) |
| Group impairment losses | 1,170 | 1,117 | 1,176 | 3,320 | 3,825 |
| Loan impairment losses | |||||
| - individually assessed | 580 | 826 | 661 | 2,052 | 2,351 |
| - collectively assessed | 287 | 293 | 562 | 1,021 | 1,691 |
| - latent | 253 | 15 | (40) | 217 | (153) |
| Customer loans | 1,120 | 1,134 | 1,183 | 3,290 | 3,889 |
| Bank loans | - | (9) | - | (9) | 24 |
| Loan impairment losses | 1,120 | 1,125 | 1,183 | 3,281 | 3,913 |
| Core | 584 | 659 | 751 | 1,842 | 2,266 |
| Non-Core | 536 | 466 | 432 | 1,439 | 1,647 |
| Group | 1,120 | 1,125 | 1,183 | 3,281 | 3,913 |
| Customer loan impairment charge as a % of gross loans and advances to customers (1) |
|||||
| Group | 1.0% | 1.0% | 1.0% | 1.0% | 1.1% |
| Core | 0.6% | 0.7% | 0.7% | 0.6% | 0.8% |
| Non-Core | 5.2% | 4.0% | 2.8% | 4.7% | 3.6% |
Note:
(1) Customer loan impairment charge as a percentage of gross loans and advances to customers excludes reverse repurchase agreements and includes disposal groups.
For further details of the Group's exposures and provisioning refer to page 96 and Appendix 1.
| Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September | 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | ||
| One-off and other items | £m | £m | £m | £m | £m | |
| Payment Protection Insurance costs | (250) | (185) | (400) | (435) | (660) | |
| Interest Rate Hedging Products redress and | ||||||
| related costs | - | - | - | (50) | - | |
| Regulatory and legal actions | (99) | (385) | - | (484) | - | |
| Integration and restructuring costs | (205) | (149) | (229) | (476) | (848) | |
| Gain/(loss) on redemption of own debt | 13 | 242 | (123) | 204 | 454 | |
| Other items | ||||||
| - Asset Protection Scheme | - | - | 1 | - | (44) | |
| - Amortisation of purchased intangible assets | (39) | (38) | (47) | (118) | (146) | |
| - Strategic disposals** | (7) | 6 | (23) | (7) | 129 | |
| - RFS Holdings minority interest | 11 | (1) | (1) | 110 | (18) | |
| (576) | (510) | (822) | (1,256) | (1,133) | ||
| Own credit adjustments* | (496) | 127 | (1,455) | (120) | (4,429) | |
| One-off and other items | (1,072) | (383) | (2,277) | (1,376) | (5,562) | |
| * Own credit adjustments impact: | ||||||
| Income from trading activities | (155) | 76 | (435) | 20 | (1,715) | |
| Other operating income | (341) | 51 | (1,020) | (140) | (2,714) | |
| Own credit adjustments | (496) | 127 | (1,455) | (120) | (4,429) | |
| ** Strategic disposals | ||||||
| (Loss)/gain on sale and provision for loss on | ||||||
| disposal of investments in: | ||||||
| - Direct Line Group | (13) | - | - | (13) | - | |
| - RBS Aviation Capital | - | - | - | - | 197 | |
| - Other | 6 | 6 | (23) | 6 | (68) | |
| (7) | 6 | (23) | (7) | 129 |
The Group does not allocate one-off and other items to individual divisions. However, of the one-off and other items of significance, Regulatory and legal actions of £484 million in the first nine months of 2013 relate predominantly to Markets and Payment Protection Insurance (PPI) costs of £435 million relate mainly to UK Retail. Of the total integration and restructuring costs of £476 million, UK Retail accounts for c.30%, Markets account for c.25%, Centre c.15% and other divisions <10% each.
• The significant reduction in one-off items principally reflected a smaller charge for OCA and lower PPI redress charges.
| 30 September | 30 June | 31 December | |
|---|---|---|---|
| Capital resources and ratios | 2013 | 2013 | 2012 |
| Core Tier 1 capital | £48bn | £48bn | £47bn |
| Tier 1 capital | £57bn | £58bn | £57bn |
| Total capital | £67bn | £69bn | £67bn |
| Risk-weighted assets (RWAs) | £410bn | £436bn | £460bn |
| Core Tier 1 ratio | 11.6% | 11.1% | 10.3% |
| Tier 1 ratio | 13.8% | 13.3% | 12.4% |
| Total capital ratio | 16.2% | 15.8% | 14.5% |
For further details of the Group's capital resources refer to page 90.
| 30 September | 30 June | 31 December | |
|---|---|---|---|
| Balance sheet | 2013 | 2013 | 2012 |
| Funded balance sheet (1) | £806bn | £843bn | £870bn |
| Total assets | £1,129bn | £1,216bn | £1,312bn |
| Loans and advances to customers (2) | £408bn | £420bn | £432bn |
| Customer deposits (3) | £434bn | £437bn | £434bn |
| Loan:deposit ratio - Core (4) | 87% | 88% | 90% |
| Loan:deposit ratio - Group (4) | 94% | 96% | 100% |
| Tangible net asset value per ordinary and B share (5) | 431p | 445p | 446p |
| Tier 1 leverage ratio (6) | 14.0x | 14.3x | 15.0x |
| Tangible equity leverage ratio (7) | 6.1% | 6.0% | 5.8% |
| Funding and liquidity metrics | 30 September 2013 |
30 June 2013 |
31 December 2012 |
|---|---|---|---|
| Deposits (1) | £473bn | £482bn | £491bn |
| Deposits as a percentage of funded balance sheet | 59% | 57% | 56% |
| Short-term wholesale funding (2) | £35bn | £37bn | £42bn |
| Wholesale funding (2) | £114bn | £129bn | £150bn |
| Short-term wholesale funding as a percentage of funded balance sheet | 4% | 4% | 5% |
| Short-term wholesale funding as a percentage of total wholesale funding | 31% | 29% | 28% |
| Liquidity portfolio | £151bn | £158bn | £147bn |
| Liquidity portfolio as a percentage of funded balance sheet | 19% | 19% | 17% |
| Liquidity portfolio as a percentage of short-term wholesale funding | 431% | 427% | 350% |
| Net stable funding ratio | 119% | 120% | 117% |
Notes:
(1) Excludes repurchase agreements and stock lending and includes disposal groups.
(2) Excludes derivative collateral.
For further details of the Group's funding and liquidity metrics refer to page 93.
The operating profit/(loss)(1) of each division is shown below.
| Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | ||||
| 2013 | 2013 | 2012 | 2013 | 2012 | ||
| £m | £m | £m | £m | £m | ||
| Operating profit/(loss) before impairment | ||||||
| losses by division | ||||||
| UK Retail | 599 | 566 | 605 | 1,722 | 1,814 | |
| UK Corporate | 572 | 589 | 615 | 1,704 | 1,976 | |
| Wealth | 61 | 58 | 71 | 180 | 197 | |
| International Banking | 111 | 141 | 187 | 401 | 513 | |
| Ulster Bank | 72 | 98 | 87 | 246 | 249 | |
| US Retail & Commercial | 201 | 206 | 244 | 615 | 622 | |
| Retail & Commercial | 1,616 | 1,658 | 1,809 | 4,868 | 5,371 | |
| Markets | 209 | 136 | 289 | 639 | 1,385 | |
| Central items | 47 | 137 | 149 | 148 | (2) | |
| Core | 1,872 | 1,931 | 2,247 | 5,655 | 6,754 | |
| Non-Core | (264) | 117 | (162) | (219) | (417) | |
| Group operating profit before impairment losses | 1,608 | 2,048 | 2,085 | 5,436 | 6,337 | |
| Impairment losses/(recoveries) by division UK Retail |
89 | 141 | 436 | |||
| UK Corporate | 82 150 |
194 | 247 | 251 529 |
604 | |
| Wealth | 1 | 2 | 8 | 8 | 30 | |
| International Banking | 28 | 99 | 12 | 182 | 74 | |
| Ulster Bank | 204 | 263 | 329 | 707 | 1,046 | |
| US Retail & Commercial | 59 | 32 | 21 | 110 | 68 | |
| Retail & Commercial | 524 | 679 | 758 | 1,787 | 2,258 | |
| Markets | (1) | 43 | (6) | 58 | 15 | |
| Central items | 66 | (3) | - | 63 | 32 | |
| Core | 589 | 719 | 752 | 1,908 | 2,305 | |
| Non-Core | 581 | 398 | 424 | 1,412 | 1,520 | |
| Group impairment losses | 1,170 | 1,117 | 1,176 | 3,320 | 3,825 |
Note:
(1) Operating profit/(loss) before own credit adjustments, Payment Protection Insurance costs, Interest Rate Hedging Products redress and related costs, regulatory and legal actions, integration and restructuring costs, gain/(loss) on redemption of own debt, Asset Protection Scheme, amortisation of purchased intangible assets, strategic disposals and RFS Holdings minority interest.
| Quarter ended | Nine months ended | ||||||
|---|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||||
| 2013 | 2013 | 2012 | 2013 | 2012 | |||
| £m | £m | £m | £m | £m | |||
| Operating profit/(loss) by division | |||||||
| UK Retail | 517 | 477 | 464 | 1,471 | 1,378 | ||
| UK Corporate | 422 | 395 | 368 | 1,175 | 1,372 | ||
| Wealth | 60 | 56 | 63 | 172 | 167 | ||
| International Banking | 83 | 42 | 175 | 219 | 439 | ||
| Ulster Bank | (132) | (165) | (242) | (461) | (797) | ||
| US Retail & Commercial | 142 | 174 | 223 | 505 | 554 | ||
| Retail & Commercial | 1,092 | 979 | 1,051 | 3,081 | 3,113 | ||
| Markets | 210 | 93 | 295 | 581 | 1,370 | ||
| Central items | (19) | 140 | 149 | 85 | (34) | ||
| Core | 1,283 | 1,212 | 1,495 | 3,747 | 4,449 | ||
| Non-Core | (845) | (281) | (586) | (1,631) | (1,937) | ||
| Group operating profit | 438 | 931 | 909 | 2,116 | 2,512 |
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| % | % | % | % | % | |
| Net interest margin by division | |||||
| UK Retail | 3.62 | 3.56 | 3.53 | 3.56 | 3.57 |
| UK Corporate | 3.09 | 3.05 | 2.99 | 3.05 | 3.08 |
| Wealth | 3.56 | 3.41 | 3.88 | 3.51 | 3.74 |
| International Banking | 1.47 | 1.62 | 1.70 | 1.61 | 1.65 |
| Ulster Bank | 1.86 | 1.85 | 1.92 | 1.85 | 1.87 |
| US Retail & Commercial | 2.99 | 2.91 | 2.96 | 2.94 | 3.00 |
| Retail & Commercial | 2.95 | 2.92 | 2.91 | 2.92 | 2.92 |
| Non-Core | (0.35) | 0.15 | 0.41 | (0.15) | 0.32 |
| Group net interest margin | 2.01 | 2.00 | 1.93 | 1.98 | 1.91 |
| 30 September 2013 |
30 June | 31 December | |
|---|---|---|---|
| 2013 | 2012 | ||
| £bn | £bn | £bn | |
| Total funded assets by division | |||
| UK Retail | 117.0 | 116.1 | 117.4 |
| UK Corporate | 107.0 | 107.6 | 110.2 |
| Wealth | 21.0 | 21.3 | 21.4 |
| International Banking | 53.3 | 51.9 | 53.0 |
| Ulster Bank | 29.2 | 30.3 | 30.6 |
| US Retail & Commercial | 71.4 | 74.1 | 72.1 |
| Retail & Commercial | 398.9 | 401.3 | 404.7 |
| Markets | 248.2 | 267.9 | 284.5 |
| Central items | 120.5 | 126.9 | 110.3 |
| Core | 767.6 | 796.1 | 799.5 |
| Non-Core | 37.3 | 45.4 | 57.4 |
| 804.9 | 841.5 | 856.9 | |
| Direct Line Group | - | - | 12.7 |
| RFS Holdings minority interest | 0.9 | 1.0 | 0.8 |
|---|---|---|---|
| Group | 805.8 | 842.5 | 870.4 |
| 30 September 2013 |
30 June 2013 |
31 December 2012 |
|||
|---|---|---|---|---|---|
| £bn | £bn | Change | £bn | Change | |
| Risk-weighted assets by division | |||||
| UK Retail | 44.8 | 44.1 | 2% | 45.7 | (2%) |
| UK Corporate | 87.2 | 88.1 | (1%) | 86.3 | 1% |
| Wealth | 12.1 | 12.5 | (3%) | 12.3 | (2%) |
| International Banking | 48.4 | 49.7 | (3%) | 51.9 | (7%) |
| Ulster Bank | 31.8 | 33.9 | (6%) | 36.1 | (12%) |
| US Retail & Commercial | 56.1 | 58.2 | (4%) | 56.5 | (1%) |
| Retail & Commercial | 280.4 | 286.5 | (2%) | 288.8 | (3%) |
| Markets | 73.2 | 86.8 | (16%) | 101.3 | (28%) |
| Other (primarily Group Treasury) | 11.6 | 12.3 | (6%) | 5.8 | 100% |
| Core | 365.2 | 385.6 | (5%) | 395.9 | (8%) |
| Non-Core | 40.9 | 46.3 | (12%) | 60.4 | (32%) |
| Group before RFS Holdings minority interest | 406.1 | 431.9 | (6%) | 456.3 | (11%) |
| RFS Holdings minority interest | 3.9 | 4.1 | (5%) | 3.3 | 18% |
| Group | 410.0 | 436.0 | (6%) | 459.6 | (11%) |
| Employee numbers by division | 30 September | 30 June | 31 December |
|---|---|---|---|
| (full time equivalents rounded to the nearest hundred) | 2013 | 2013 | 2012 |
| UK Retail | 23,900 | 25,300 | 26,000 |
| UK Corporate | 13,700 | 13,800 | 13,300 |
| Wealth | 5,000 | 5,100 | 5,100 |
| International Banking | 4,800 | 4,800 | 4,600 |
| Ulster Bank | 4,800 | 4,800 | 4,500 |
| US Retail & Commercial | 18,300 | 18,500 | 18,700 |
| Retail & Commercial | 70,500 | 72,300 | 72,200 |
| Markets | 10,900 | 11,200 | 11,300 |
| Group Centre | 7,300 | 6,700 | 6,800 |
| Core | 88,700 | 90,200 | 90,300 |
| Non-Core | 1,900 | 2,200 | 3,100 |
| 90,600 | 92,400 | 93,400 | |
| Business Services | 29,500 | 29,000 | 29,100 |
| Integration and restructuring | 200 | 300 | 500 |
| Group | 120,300 | 121,700 | 123,000 |
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| £m | £m | £m | £m | £m | |
| Income statement | |||||
| Net interest income | 1,013 | 987 | 990 | 2,965 | 2,979 |
| Net fees and commissions | 243 | 215 | 231 | 670 | 682 |
| Other non-interest income | 11 | 10 | 21 | 35 | 78 |
| Non-interest income | 254 | 225 | 252 | 705 | 760 |
| Total income | 1,267 | 1,212 | 1,242 | 3,670 | 3,739 |
| Direct expenses | |||||
| - staff | (177) | (180) | (201) | (535) | (625) |
| - other | (137) | (115) | (93) | (364) | (282) |
| Indirect expenses | (354) | (351) | (343) | (1,049) | (1,018) |
| (668) | (646) | (637) | (1,948) | (1,925) | |
| Operating profit before impairment losses | 599 | 566 | 605 | 1,722 | 1,814 |
| Impairment losses | (82) | (89) | (141) | (251) | (436) |
| Operating profit | 517 | 477 | 464 | 1,471 | 1,378 |
| Analysis of income by product | |||||
| Personal advances | 233 | 220 | 230 | 676 | 688 |
| Personal deposits | 125 | 124 | 158 | 352 | 511 |
| Mortgages | 664 | 649 | 598 | 1,941 | 1,757 |
| Cards | 213 | 210 | 218 | 632 | 649 |
| Other | 32 | 9 | 38 | 69 | 134 |
| Total income | 1,267 | 1,212 | 1,242 | 3,670 | 3,739 |
| Analysis of impairments by sector | |||||
| Mortgages | 18 | 15 | 29 | 43 | 87 |
| Personal | 34 | 50 | 77 | 119 | 243 |
| Cards | 30 | 24 | 35 | 89 | 106 |
| Total impairment losses | 82 | 89 | 141 | 251 | 436 |
| Loan impairment charge as % of gross | |||||
| customer loans and advances (excluding | |||||
| reverse repurchase agreements) by sector | |||||
| Mortgages | 0.1% | 0.1% | 0.1% | 0.1% | 0.1% |
| Personal | 1.7% | 2.4% | 3.5% | 2.0% | 3.6% |
| Cards | 2.1% | 1.7% | 2.5% | 2.1% | 2.5% |
| Total | 0.3% | 0.3% | 0.5% | 0.3% | 0.5% |
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| Performance ratios | |||||
| Return on equity (1) | 28.0% | 26.1% | 23.8% | 26.5% | 23.5% |
| Net interest margin | 3.62% | 3.56% | 3.53% | 3.56% | 3.57% |
| Cost:income ratio | 53% | 53% | 51% | 53% | 51% |
| 30 September | 30 June | 31 December | |||
|---|---|---|---|---|---|
| 2013 | 2013 | 2012 | |||
| £bn | £bn | Change | £bn | Change | |
| Capital and balance sheet | |||||
| Loans and advances to customers (gross) | |||||
| - mortgages | 98.9 | 98.3 | 1% | 99.1 | - |
| - personal | 8.1 | 8.3 | (2%) | 8.8 | (8%) |
| - cards | 5.7 | 5.6 | 2% | 5.7 | - |
| 112.7 | 112.2 | - | 113.6 | (1%) | |
| Loan impairment provisions | (2.2) | (2.5) | (12%) | (2.6) | (15%) |
| Net loans and advances to customers | 110.5 | 109.7 | 1% | 111.0 | - |
| Risk elements in lending | 3.8 | 4.3 | (12%) | 4.6 | (17%) |
| Provision coverage (2) | 59% | 58% | 100bp | 58% | 100bp |
| Customer deposits | |||||
| - Current accounts | 31.5 | 31.2 | 1% | 28.9 | 9% |
| - Savings | 81.9 | 80.4 | 2% | 78.7 | 4% |
| Total customer deposits | 113.4 | 111.6 | 2% | 107.6 | 5% |
| Assets under management (excluding deposits) | 5.9 | 5.8 | 2% | 6.0 | (2%) |
| Loan:deposit ratio (excluding repos) | 97% | 98% | (100bp) | 103% | (600bp) |
| Risk-weighted assets (3) | |||||
| - Credit risk (non-counterparty) | 37.0 | 36.3 | 2% | 37.9 | (2%) |
| - Operational risk | 7.8 | 7.8 | - | 7.8 | - |
| Total risk-weighted assets | 44.8 | 44.1 | 2% | 45.7 | (2%) |
Notes:
(1) Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).
(2) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(3) Divisional RWAs are based on a long-term conservative average secured mortgage probability of default methodology rather than the current lower point in time basis required for regulatory reporting.
UK Retail continues to work towards being the best retail bank in the UK. In August 2013, it was announced that the division's then CEO, Ross McEwan, would take up the position of RBS Group CEO and a comprehensive internal and external search for his successor commenced. Les Matheson (previously Managing Director of Products and Marketing) has been appointed as interim CEO of UK Retail to lead the business in achieving its goals.
The division's newly retrained mortgage advisors continued to make good progress with new mortgage lending, growing application values by a further 14% in Q3 2013 following a 72% rebound in Q2 2013. Completion values increased by 64% following the high volume of applications in Q2 2013. RBS was the first bank to be ready to deliver the second phase of the Government's Help to Buy scheme, launched in early October 2013, and the very strong early response from customers has further reinforced UK Retail's determination to help young people and families across Britain buy their next home.
During Q3 2013, the division also continued to focus on making banking simple and easy for customers. The pricing on Cash/Instant Access ISAs was simplified, with fewer interest rate tiers and improved entry level interest rates.
Cashback Plus rewarding customers with a cash rebate for using their debit card in selected stores was launched for current account holders in the quarter. This is the first free debit card cashback scheme to launch in the UK, offering something innovative to RBS and NatWest customers. Over 400,000 customers had signed up for Cashback Plus by the end of Q3 2013. In addition, more than one million credit card customers were using the Your Points loyalty scheme by the quarter end, receiving a variety of benefits for transacting on their card.
Risk-weighted assets increased as a result of volume growth and minor model recalibrations, primarily in mortgages.
Operating profit increased by 11% with lower impairment losses and higher income, partly offset by increased costs.
grown strongly, however, this has been more than offset by lower rates on hedges.
| Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | ||||
| 2013 | 2013 | 2012 | 2013 | 2012 | ||
| £m | £m | £m | £m | £m | ||
| Income statement | ||||||
| Net interest income | 725 | 715 | 729 | 2,146 | 2,257 | |
| Net fees and commissions | 328 | 335 | 334 | 984 | 1,016 | |
| Other non-interest income | 59 | 92 | 75 | 208 | 277 | |
| Non-interest income | 387 | 427 | 409 | 1,192 | 1,293 | |
| Total income | 1,112 | 1,142 | 1,138 | 3,338 | 3,550 | |
| Direct expenses | ||||||
| - staff | (229) | (226) | (229) | (683) | (714) | |
| - other | (90) | (113) | (91) | (308) | (265) | |
| Indirect expenses | (221) | (214) | (203) | (643) | (595) | |
| (540) | (553) | (523) | (1,634) | (1,574) | ||
| Operating profit before impairment losses | 572 | 589 | 615 | 1,704 | 1,976 | |
| Impairment losses | (150) | (194) | (247) | (529) | (604) | |
| Operating profit | 422 | 395 | 368 | 1,175 | 1,372 | |
| Analysis of income by business | ||||||
| Corporate and commercial lending | 631 | 665 | 613 | 1,918 | 1,964 | |
| Asset and invoice finance | 169 | 170 | 176 | 503 | 509 | |
| Corporate deposits | 88 | 83 | 141 | 244 | 481 | |
| Other | 224 | 224 | 208 | 673 | 596 | |
| Total income | 1,112 | 1,142 | 1,138 | 3,338 | 3,550 | |
| Analysis of impairments by sector | ||||||
| Financial institutions | 5 | (1) | 8 | 6 | 12 | |
| Hotels and restaurants | 7 | 12 | 6 | 37 | 29 | |
| Housebuilding and construction | 9 | 6 | 14 | 27 | 118 | |
| Manufacturing | 17 | 5 | 20 | 30 | 39 | |
| Private sector education, health, social work, | ||||||
| recreational and community services | 36 | 44 | (8) | 105 | 35 | |
| Property | 41 | 93 | 117 | 203 | 181 | |
| Wholesale and retail trade, repairs | 20 | 7 | 16 | 59 | 65 | |
| Asset and invoice finance | 5 | 5 | 10 | 11 | 30 | |
| Shipping | (1) | 24 | 29 | 31 | 40 | |
| Other | 11 | (1) | 35 | 20 | 55 | |
| Total impairment losses | 150 | 194 | 247 | 529 | 604 |
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| Loan impairment charge as % of gross customer loans and advances (excluding reverse repurchase agreements) by sector |
|||||
| Financial institutions | 0.4% | (0.1%) | 0.6% | 0.2% | 0.3% |
| Hotels and restaurants | 0.5% | 0.9% | 0.4% | 0.9% | 0.7% |
| Housebuilding and construction | 1.2% | 0.8% | 1.6% | 1.2% | 4.5% |
| Manufacturing | 1.6% | 0.5% | 1.7% | 0.9% | 1.1% |
| Private sector education, health, social work, | |||||
| recreational and community services | 1.7% | 2.0% | (0.4%) | 1.6% | 0.5% |
| Property | 0.7% | 1.5% | 1.8% | 1.2% | 0.9% |
| Wholesale and retail trade, repairs | 1.0% | 0.3% | 0.7% | 0.9% | 1.0% |
| Asset and invoice finance | 0.2% | 0.2% | 0.4% | 0.1% | 0.4% |
| Shipping | (0.1%) | 1.3% | 1.5% | 0.6% | 0.7% |
| Other | 0.2% | - | 0.5% | 0.1% | 0.3% |
| Total | 0.6% | 0.7% | 0.9% | 0.7% | 0.7% |
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| Performance ratios | |||||
| Return on equity (1) | 12.4% | 11.8% | 11.9% | 11.7% | 15.0% |
| Net interest margin | 3.09% | 3.05% | 2.99% | 3.05% | 3.08% |
| Cost:income ratio | 49% | 48% | 46% | 49% | 44% |
Note:
(1) Divisional return on equity is based on divisional operating profit after tax, divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).
| 30 September | 30 June | 31 December | |||
|---|---|---|---|---|---|
| 2013 | 2013 | 2012 | |||
| £bn | £bn | Change | £bn | Change | |
| Capital and balance sheet | |||||
| Loans and advances to customers (gross) | |||||
| - financial institutions | 4.7 | 4.6 | 2% | 5.8 | (19%) |
| - hotels and restaurants | 5.5 | 5.5 | - | 5.6 | (2%) |
| - housebuilding and construction | 2.9 | 2.9 | - | 3.4 | (15%) |
| - manufacturing | 4.3 | 4.4 | (2%) | 4.7 | (9%) |
| - private sector education, health, social | |||||
| work, recreational and community services | 8.6 | 8.7 | (1%) | 8.7 | (1%) |
| - property | 23.1 | 24.1 | (4%) | 24.8 | (7%) |
| - wholesale and retail trade, repairs | 8.4 | 8.2 | 2% | 8.5 | (1%) |
| - asset and invoice finance | 11.6 | 11.6 | - | 11.2 | 4% |
| - shipping | 7.0 | 7.3 | (4%) | 7.6 | (8%) |
| - other | 27.7 | 27.3 | 1% | 26.7 | 4% |
| 103.8 | 104.6 | (1%) | 107.0 | (3%) | |
| Loan impairment provisions | (2.3) | (2.4) | (4%) | (2.4) | (4%) |
| Net loans and advances to customers | 101.5 | 102.2 | (1%) | 104.6 | (3%) |
| Total third party assets | 107.0 | 107.6 | (1%) | 110.2 | (3%) |
| Risk elements in lending | 6.0 | 6.2 | (3%) | 5.5 | 9% |
| Provision coverage (1) | 39% | 39% | -. | 45% | (600bp) |
| Customer deposits | 124.9 | 126.2 | (1%) | 127.1 | (2%) |
| Loan:deposit ratio (excluding repos) | 81% | 81% | -. | 82% | (100bp) |
| Risk-weighted assets | |||||
| - Credit risk (non-counterparty) | 78.8 | 79.7 | (1%) | 77.7 | 1% |
| - Operational risk | 8.4 | 8.4 | - | 8.6 | (2%) |
| 87.2 | 88.1 | (1%) | 86.3 | 1% |
Note:
(1) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
UK Corporate continues to pursue new initiatives to deliver on its commitment to UK businesses and the communities it operates in.
As part of the division's concerted effort to support its SME customers, UK Corporate is proactively reviewing the business needs of SME customers to understand if they could benefit from the offer of additional facilities. By the end of September 2013, over 10,000 customers had been identified for additional funding under UK Corporate's 'Statements of Appetite' initiative with over £3.8 billion of funding offered to customers.
In Q3 2013 UK Corporate received more lending applications from SME customers than in any other period of 2013. For our larger customers UK Corporate has set aside £1.25 billion of funding for targeted support to housing associations, education sector clients and strategic infrastructure projects.
The division has continued to support the government-backed Funding for Lending Scheme (FLS). Surpassing its original FLS commitment, UK Corporate has now allocated in excess of £4.6 billion of new FLS-related lending to over 26,000 customers, £2.9 billion of which has been drawn. Mid-sized manufacturers are being offered targeted support, with interest rates reduced by more than 1% in some cases. SME customers have benefited from both lower interest rates and the removal of arrangement fees.
In July 2013, RBS announced an independent review by Sir Andrew Large of the lending standards and practices used by RBS and NatWest. The detailed findings of Sir Andrew's report will be addressed in full in the Group's comprehensive business review. UK corporate is committed to adopting a revised strategy and capabilities to enhance support to SMEs and the wider UK economic recovery while maintaining safe and sound lending practices.
Over 8,000 members of the public have benefited from UK Corporate's Business Banking Enterprise Programme in 2013. Through its combination of nationwide start-up surgeries, mobile business schools and business academies, the programme offers support and advice to aspiring entrepreneurs, start-up businesses and established SMEs looking to grow.
Risk-weighted assets were £1 billion lower as reduced asset volumes offset the increase resulting from the implementation of regulatory capital model change for shipping exposures.
Operating profit improved by 15%, principally driven by lower impairment charges.
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| £m | £m | £m | £m | £m | |
| Income statement | |||||
| Net interest income | 169 | 162 | 185 | 500 | 542 |
| Net fees and commissions | 90 | 91 | 94 | 270 | 277 |
| Other non-interest income | 12 | 19 | 13 | 46 | 66 |
| Non-interest income | 102 | 110 | 107 | 316 | 343 |
| Total income | 271 | 272 | 292 | 816 | 885 |
| Direct expenses | |||||
| - staff | (102) | (110) | (103) | (320) | (334) |
| - other | (30) | (27) | (43) | (81) | (128) |
| Indirect expenses | (78) | (77) | (75) | (235) | (226) |
| (210) | (214) | (221) | (636) | (688) | |
| Operating profit before impairment losses | 61 | 58 | 71 | 180 | 197 |
| Impairment losses | (1) | (2) | (8) | (8) | (30) |
| Operating profit | 60 | 56 | 63 | 172 | 167 |
| Analysis of income | |||||
| Private banking | 222 | 223 | 237 | 669 | 726 |
| Investments | 49 | 49 | 55 | 147 | 159 |
| Total income | 271 | 272 | 292 | 816 | 885 |
| Key metrics | Quarter ended | Nine months ended | |||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| Performance ratios | |||||
| Return on equity (1) | 13.1% | 12.1% | 13.8% | 12.4% | 12.0% |
| Net interest margin | 3.56% | 3.41% | 3.88% | 3.51% | 3.74% |
| Cost:income ratio | 77% | 79% | 76% | 78% | 78% |
Note:
(1) Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).
| 30 September 2013 |
30 June 2013 |
31 December 2012 |
|||
|---|---|---|---|---|---|
| £bn | £bn | Change | £bn | Change | |
| Capital and balance sheet | |||||
| Loans and advances to customers (gross) | |||||
| - mortgages | 8.7 | 8.7 | - | 8.8 | (1%) |
| - personal | 5.6 | 5.7 | (2%) | 5.5 | 2% |
| - other | 2.6 | 2.7 | (4%) | 2.8 | (7%) |
| 16.9 | 17.1 | (1%) | 17.1 | (1%) | |
| Loan impairment provisions | (0.1) | (0.1) | - | (0.1) | - |
| Net loans and advances to customers | 16.8 | 17.0 | (1%) | 17.0 | (1%) |
| Risk elements in lending | 0.3 | 0.3 | - | 0.2 | 50% |
| Provision coverage (1) | 38% | 39% | (100bp) | 44% | (600bp) |
| Assets under management (excluding deposits) | 30.5 | 31.1 | (2%) | 28.9 | 6% |
| Customer deposits | 38.1 | 38.9 | (2%) | 38.9 | (2%) |
| Loan:deposit ratio (excluding repos) | 44% | 44% | - | 44% | - |
| Risk-weighted assets | |||||
| - Credit risk (non-counterparty) | 10.1 | 10.6 | (5%) | 10.3 | (2%) |
| - Market risk | 0.1 | - | 100% | 0.1 | - |
| - Operational risk | 1.9 | 1.9 | - | 1.9 | - |
| 12.1 | 12.5 | (3%) | 12.3 | (2%) |
Note:
(1) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
In Q3 2013, Coutts made further progress in implementing its UK strategy. The new advice proposition, post the UK's Retail Distribution Review, has delivered over £2 billion of assets under advice year to date.
Coutts continues to streamline client-facing processes and drive greater benefits from its global technology platform. It recently announced a reduction in the London property footprint from 11 buildings to 2 in order to drive further synergies. Good progress continues with the restructuring and investment in the international trust business including the closure of the Berne office in Q3 2013.
• Impairments were £1 million lower, as the credit quality of the loan book remained strong.
| Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | ||||
| 2013 | 2013 | 2012 | 2013 | 2012 | ||
| £m | £m | £m | £m | £m | ||
| Income statement | ||||||
| Net interest income | 166 | 177 | 227 | 540 | 721 | |
| Non-interest income | 288 | 291 | 308 | 864 | 917 | |
| Total income | 454 | 468 | 535 | 1,404 | 1,638 | |
| Direct expenses | ||||||
| - staff | (137) | (136) | (134) | (407) | (477) | |
| - other | (41) | (34) | (48) | (113) | (144) | |
| Indirect expenses | (165) | (157) | (166) | (483) | (504) | |
| (343) | (327) | (348) | (1,003) | (1,125) | ||
| Operating profit before impairment losses | 111 | 141 | 187 | 401 | 513 | |
| Impairment losses | (28) | (99) | (12) | (182) | (74) | |
| Operating profit | 83 | 42 | 175 | 219 | 439 | |
| Of which: | ||||||
| Ongoing businesses | 83 | 42 | 171 | 219 | 452 | |
| Run-off businesses | - | - | 4 | - | (13) | |
| Analysis of income by product | ||||||
| Cash management | 189 | 177 | 224 | 553 | 738 | |
| Trade finance | 77 | 71 | 76 | 218 | 221 | |
| Loan portfolio | 188 | 220 | 228 | 632 | 658 | |
| Ongoing businesses | 454 | 468 | 528 | 1,403 | 1,617 | |
| Run-off businesses | - | - | 7 | 1 | 21 | |
| Total income | 454 | 468 | 535 | 1,404 | 1,638 | |
| Analysis of impairments by sector | ||||||
| Manufacturing and infrastructure | - | 87 | 2 | 127 | 21 | |
| Property and construction | 20 | 9 | - | 15 | 7 | |
| Transport and storage | 8 | - | - | 32 | (4) | |
| Telecommunications, media and technology | - | (7) | - | (7) | 9 | |
| Banks and financial institutions | - | - | 12 | - | 43 | |
| Other | - | 10 | (2) | 15 | (2) | |
| Total impairment losses | 28 | 99 | 12 | 182 | 74 | |
| Loan impairment charge as % of gross | ||||||
| customer loans and advances (excluding | ||||||
| reverse repurchase agreements) | 0.3% | 1.0% | 0.1% | 0.6% | 0.2% |
| Key metrics | Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||||
| 2013 | 2013 | 2012 | 2013 | 2012 | |||
| Performance ratios (ongoing businesses) | |||||||
| Return on equity (1) | 4.7% | 2.3% | 10.3% | 4.1% | 9.5% | ||
| Net interest margin | 1.47% | 1.62% | 1.70% | 1.61% | 1.65% | ||
| Cost:income ratio | 76% | 70% | 65% | 71% | 67% | ||
| 30 September | 30 June | 31 December | |||||
| 2013 | 2013 | 2012 | |||||
| £bn | £bn | Change | £bn | Change | |||
| Capital and balance sheet | |||||||
| Loans and advances to customers (gross) (2) | |||||||
| - manufacturing and infrastructure | 15.0 | 16.6 | (10%) | 15.8 | (5%) | ||
| - property and construction | 2.2 | 2.4 | (8%) | 2.4 | (8%) | ||
| - transport and storage | 3.2 | 3.5 | (9%) | 2.5 | 28% | ||
| - telecommunications, media and technology | 2.3 | 1.7 | 35% | 2.2 | 5% | ||
| - banks and financial institutions | 8.4 | 7.7 | 9% | 9.1 | (8%) | ||
| - other | 10.8 | 8.7 | 24% | 10.2 | 6% | ||
| 41.9 | 40.6 | 3% | 42.2 | (1%) | |||
| Loan impairment provisions | (0.3) | (0.4) | (25%) | (0.4) | (25%) | ||
| Net loans and advances to customers | 41.6 | 40.2 | 3% | 41.8 | - | ||
| Loans and advances to banks | 5.5 | 5.6 | (2%) | 4.8 | 15% | ||
| Securities | 2.4 | 2.5 | (4%) | 2.6 | (8%) | ||
| Cash and eligible bills | 0.3 | 0.2 | 50% | 0.5 | (40%) | ||
| Other | 3.5 | 3.4 | 3% | 3.3 | 6% | ||
| Total third party assets (excluding derivatives | |||||||
| mark-to-market) | 53.3 | 51.9 | 3% | 53.0 | 1% | ||
| Risk elements in lending | 0.5 | 0.5 | - | 0.4 | 25% | ||
| Provision coverage (3) | 64% | 75% | (1,100bp) | 93% | (2,900bp) | ||
| Customer deposits (excluding repos) | 47.6 | 46.0 | 3% | 46.2 | 3% | ||
| Bank deposits (excluding repos) | 5.3 | 6.1 | (13%) | 5.6 | (5%) | ||
| Loan:deposit ratio (excluding repos) | 87% | 87% | - | 91% | (400bp) | ||
| Risk-weighted assets | |||||||
| - Credit risk (non-counterparty) | 43.7 | 45.0 | (3%) | 46.7 | (6%) | ||
| - Operational risk | 4.7 | 4.7 | - | 5.2 | (10%) | ||
| 48.4 | 49.7 | (3%) | 51.9 | (7%) |
Notes:
(1) Divisional return on equity is based on divisional operating profit after tax, divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions), for the ongoing businesses.
(2) Excludes disposal groups.
(3) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| £m | £m | £m | £m | £m | |
| Run-off businesses (1) | |||||
| Total income | - | - | 7 | 1 | 21 |
| Direct expenses | - | - | (3) | (1) | (34) |
| Operating profit/(loss) | - | - | 4 | - | (13) |
Note:
(1) Run-off businesses consist of the exited corporate finance business.
International Banking remains focused on serving customers through its country network using its core strengths: debt financing, risk management and transaction services. Business conditions remained difficult during Q3 2013, with persistent low interest rates and broader margin compression.
In Q3 2013, International Banking continued to strengthen its balance sheet. Despite an underlying increase from the ongoing roll out of credit models, the division's risk-weighted assets were down 3% year on year.
Return on equity was 5% compared with 2% in Q2 2013.
Operating profit decreased by £92 million as a result of a decline in income and increased impairments, partially offset by lower costs.
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| £m | £m | £m | £m | £m | |
| Income statement | |||||
| Net interest income | 154 | 154 | 163 | 462 | 488 |
| Net fees and commissions | 35 | 35 | 36 | 104 | 109 |
| Other non-interest income | 25 | 53 | 14 | 98 | 36 |
| Non-interest income | 60 | 88 | 50 | 202 | 145 |
| Total income | 214 | 242 | 213 | 664 | 633 |
| Direct expenses | |||||
| - staff | (64) | (67) | (54) | (188) | (161) |
| - other | (15) | (12) | (13) | (42) | (35) |
| Indirect expenses | (63) | (65) | (59) | (188) | (188) |
| (142) | (144) | (126) | (418) | (384) | |
| Operating profit before impairment losses | 72 | 98 | 87 | 246 | 249 |
| Impairment losses | (204) | (263) | (329) | (707) | (1,046) |
| Operating loss | (132) | (165) | (242) | (461) | (797) |
| Analysis of income by business | |||||
| Corporate | 76 | 88 | 85 | 246 | 275 |
| Retail | 101 | 120 | 93 | 310 | 267 |
| Other | 37 | 34 | 35 | 108 | 91 |
| Total income | 214 | 242 | 213 | 664 | 633 |
| Analysis of impairments by sector | |||||
| Mortgages | 30 | 91 | 155 | 211 | 511 |
| Commercial real estate | |||||
| - investment | 104 | 51 | 78 | 201 | 169 |
| - development | 12 | 12 | 14 | 38 | 38 |
| Other corporate | 51 | 111 | 75 | 237 | 292 |
| Other lending | 7 | (2) | 7 | 20 | 36 |
| Total impairment losses | 204 | 263 | 329 | 707 | 1,046 |
| Loan impairment charge as % of gross | |||||
| customer loans and advances (excluding | |||||
| reverse repurchase agreements) by sector | |||||
| Mortgages | 0.6% | 1.8% | 3.3% | 1.5% | 3.6% |
| Commercial real estate | - | ||||
| - investment | 11.6% | 5.7% | 8.7% | 7.4% | 6.3% |
| - development | 6.9% | 6.9% | 8.0% | 7.2% | 7.2% |
| Other corporate | 2.8% | 5.9% | 3.9% | 4.4% | 5.1% |
| Other lending | 2.3% | (0.6%) | 2.2% | 2.2% | 3.7% |
| Total | 2.6% | 3.2% | 4.1% | 3.0% | 4.3% |
| Key metrics | Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | ||||
| 2013 | 2013 | 2012 | 2013 | 2012 | ||
| Performance ratios | ||||||
| Return on equity (1) | (12.0%) | (14.1%) | (20.4%) | (13.2%) | (22.0%) | |
| Net interest margin | 1.86% | 1.85% | 1.92% | 1.85% | 1.87% | |
| Cost:income ratio | 66% | 60% | 59% | 63% | 61% |
| 30 September | 30 June | 31 December | |||
|---|---|---|---|---|---|
| 2013 £bn |
2013 £bn |
Change | 2012 £bn |
Change | |
| Capital and balance sheet | |||||
| Loans and advances to customers (gross) | |||||
| Mortgages | 19.2 | 19.8 | (3%) | 19.2 | - |
| Commercial real estate | |||||
| - investment | 3.6 | 3.6 | - | 3.6 | - |
| - development | 0.7 | 0.7 | - | 0.7 | - |
| Other corporate | 7.2 | 7.5 | (4%) | 7.8 | (8%) |
| Other lending | 1.2 | 1.3 | (8%) | 1.3 | (8%) |
| 31.9 | 32.9 | (3%) | 32.6 | (2%) | |
| Loan impairment provisions | (4.5) | (4.4) | 2% | (3.9) | 15% |
| Net loans and advances to customers | 27.4 | 28.5 | (4%) | 28.7 | (5%) |
| Risk elements in lending | |||||
| Mortgages Commercial real estate |
3.3 | 3.4 | (3%) | 3.1 | 6% |
| - investment | 2.1 | 1.9 | 11% | 1.6 | 31% |
| - development | 0.4 | 0.5 | (20%) | 0.4 | - |
| Other corporate | 2.5 | 2.6 | (4%) | 2.2 | 14% |
| Other lending | 0.2 | 0.2 | - | 0.2 | - |
| Total risk elements in lending | 8.5 | 8.6 | (1%) | 7.5 | 13% |
| Provision coverage (2) | 52% | 52% | - | 52% | - |
| Customer deposits | 22.2 | 23.1 | (4%) | 22.1 | - |
| Loan:deposit ratio (excluding repos) | 123% | 123% | - | 130% | (700bp) |
| Risk-weighted assets | |||||
| - Credit risk | |||||
| - non-counterparty | 29.6 | 31.3 | (5%) | 33.6 | (12%) |
| - counterparty | 0.4 | 0.6 | (33%) | 0.6 | (33%) |
| - Market risk | 0.1 | 0.3 | (67%) | 0.2 | (50%) |
| - Operational risk | 1.7 | 1.7 | - | 1.7 | - |
| 31.8 | 33.9 | (6%) | 36.1 | (12%) | |
| Spot exchange rate - €/£ | 1.196 | 1.169 | 1.227 |
Notes:
(1) Divisional return on equity is based on divisional operating loss after tax divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).
(2) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
Operating results showed further improvement in Q3 2013 primarily due to lower impairment losses. Ulster Bank's investment in programmes to assist customers in financial difficulty has resulted in six consecutive months of declining mortgage arrears and this, coupled with stabilising economic conditions, has driven an improved impairment performance.
Ulster Bank is committed to supporting economic recovery across the island of Ireland. The bank continued to re-affirm its commitment to serving customers well, supporting business and giving back to the communities where it operates. A number of new initiatives were delivered in Q3 2013 that demonstrate Ulster Bank's core values.
● Ulster Bank has invested strategically in people, systems and a suite of tailored solutions to make it easier for customers to enter into arrangements to stay in their homes and remain economically active. Customers in financial difficulty are continuously encouraged to engage with the bank.
remained elevated with a small number of significant charges on individual counterparty exposures.
● The loan:deposit ratio remained steady at 123%. Loan balances fell by 1% on a constant currency basis reflecting limited new lending due to low levels of demand. Retail and SME deposit balances were stable during the quarter, although total deposit balances declined by 2% on a constant currency basis driven by a reduction in Corporate Term balances.
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| £m | £m | £m | £m | £m | |
| Income statement | |||||
| Net interest income | 493 | 473 | 488 | 1,437 | 1,467 |
| Net fees and commissions | 197 | 192 | 197 | 579 | 594 |
| Other non-interest income | 66 | 86 | 95 | 254 | 290 |
| Non-interest income | 263 | 278 | 292 | 833 | 884 |
| Total income | 756 | 751 | 780 | 2,270 | 2,351 |
| Direct expenses | |||||
| - staff | (264) | (278) | (254) | (821) | (786) |
| - other | (249) | (231) | (247) | (726) | (751) |
| - litigation settlement | - | - | - | - | (88) |
| Indirect expenses | (42) | (36) | (35) | (108) | (104) |
| (555) | (545) | (536) | (1,655) | (1,729) | |
| Operating profit before impairment losses | 201 | 206 | 244 | 615 | 622 |
| Impairment losses | (59) | (32) | (21) | (110) | (68) |
| Operating profit | 142 | 174 | 223 | 505 | 554 |
| Average exchange rate - US\$/£ | 1.551 | 1.536 | 1.581 | 1.543 | 1.578 |
| Analysis of income by product | |||||
| Mortgages and home equity | 109 | 123 | 139 | 358 | 406 |
| Personal lending and cards | 106 | 104 | 101 | 310 | 300 |
| Retail deposits | 197 | 189 | 213 | 576 | 653 |
| Commercial lending | 175 | 167 | 144 | 510 | 455 |
| Commercial deposits | 103 | 98 | 109 | 303 | 333 |
| Other | 66 | 70 | 74 | 213 | 204 |
| Total income | 756 | 751 | 780 | 2,270 | 2,351 |
| Analysis of impairments by sector | |||||
| Residential mortgages | 16 | 10 | (5) | 28 | (3) |
| Home equity | 27 | 18 | 40 | 64 | 82 |
| Corporate and commercial Other consumer |
(13) 24 |
(11) 15 |
(35) 21 |
(48) 61 |
(57) 41 |
| Securities | 5 | - | - | 5 | 5 |
| Total impairment losses | 59 | 32 | 21 | 110 | 68 |
| Loan impairment charge as % of gross | |||||
| customer loans and advances (excluding | |||||
| reverse repurchase agreements) by sector | |||||
| Residential mortgages | 1.1% | 0.7% | (0.3%) | 0.6% | (0.1%) |
| Home equity | 0.9% | 0.5% | 1.2% | 0.7% | 0.8% |
| Corporate and commercial | (0.2%) | (0.2%) | (0.6%) | (0.3%) | (0.3%) |
| Other consumer | 1.1% | 0.7% | 1.0% | 0.9% | 0.7% |
| Total | 0.4% | 0.2% | 0.2% | 0.3% | 0.2% |
| Key metrics | Quarter ended | Nine months ended | |||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| Performance ratios | |||||
| Return on equity (1) | 6.3% | 7.7% | 9.7% | 7.4% | 8.1% |
| Adjusted return on equity (2) | 6.3% | 7.7% | 9.7% | 7.4% | 8.8% |
| Net interest margin | 2.99% | 2.91% | 2.96% | 2.94% | 3.00% |
| Cost:income ratio | 73% | 73% | 69% | 73% | 74% |
| Adjusted cost:income ratio (2) | 73% | 73% | 69% | 73% | 71% |
| 30 September | 30 June | 31 December | |||
| 2013 | 2013 | 2012 | |||
| £bn | £bn | Change | £bn | Change | |
| Capital and balance sheet | |||||
| Loans and advances to customers (gross) | |||||
| - residential mortgages | 5.6 | 5.8 | (3%) | 5.8 | (3%) |
| - home equity | 12.5 | 13.5 | (7%) | 13.3 | (6%) |
| - corporate and commercial | 24.1 | 25.2 | (4%) | 23.8 | 1% |
| - other consumer | 8.6 | 8.8 | (2%) | 8.4 | 2% |
| 50.8 | 53.3 | (5%) | 51.3 | (1%) | |
| Loan impairment provisions | (0.3) | (0.3) | - | (0.3) | - |
| Net loans and advances to customers | 50.5 | 53.0 | (5%) | 51.0 | (1%) |
| Total third party assets | 71.9 | 74.6 | (4%) | 72.8 | (1%) |
| Investment securities | 12.9 | 11.5 | 12% | 12.0 | 8% |
| Risk elements in lending | |||||
| - retail | 0.9 | 0.9 | - | 0.8 | 13% |
| - commercial | 0.2 | 0.2 | - | 0.3 | (33%) |
| Total risk elements in lending | 1.1 | 1.1 | - | 1.1 | - |
| Provision coverage (3) | 25% | 23% | 200bp | 25% | - |
| Customer deposits (excluding repos) | 58.0 | 60.1 | (3%) | 59.2 | (2%) |
| Bank deposits (excluding repos) | 0.7 | 1.6 | (56%) | 1.8 | (61%) |
| Loan:deposit ratio (excluding repos) | 87% | 88% | (100bp) | 86% | 100bp |
| Risk-weighted assets | |||||
| - Credit risk | |||||
| - non-counterparty | 50.6 | 52.7 | (4%) | 50.8 | - |
| - counterparty | 0.6 | 0.6 | - | 0.8 | (25%) |
| - Operational risk | 4.9 | 4.9 | - | 4.9 | - |
| 56.1 | 58.2 | (4%) | 56.5 | (1%) | |
| Spot exchange rate - US\$/£ | 1.618 | 1.520 | 1.616 |
Notes:
(1) Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).
(2) Excludes the litigation settlement in Q1 2012 and net gain on sale of Visa B shares in Q2 2012.
(3) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
end level.
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| \$m | \$m | \$m | \$m | \$m | |
| Income statement | |||||
| Net interest income | 760 | 726 | 771 | 2,217 | 2,315 |
| Net fees and commissions | 302 | 295 | 313 | 892 | 938 |
| Other non-interest income | 101 | 133 | 150 | 392 | 457 |
| Non-interest income | 403 | 428 | 463 | 1,284 | 1,395 |
| Total income | 1,163 | 1,154 | 1,234 | 3,501 | 3,710 |
| Direct expenses | |||||
| - staff | (406) | (428) | (401) | (1,267) | (1,240) |
| - other | (382) | (356) | (393) | (1,119) | (1,187) |
| - litigation settlement | - | - | - | - | (138) |
| Indirect expenses | (65) | (54) | (56) | (167) | (164) |
| (853) | (838) | (850) | (2,553) | (2,729) | |
| Operating profit before impairment losses | 310 | 316 | 384 | 948 | 981 |
| Impairment losses | (91) | (48) | (33) | (169) | (107) |
| Operating profit | 219 | 268 | 351 | 779 | 874 |
| Analysis of income by product | |||||
| Mortgages and home equity | 168 | 189 | 219 | 552 | 641 |
| Personal lending and cards | 164 | 159 | 159 | 478 | 473 |
| Retail deposits | 302 | 291 | 336 | 888 | 1,029 |
| Commercial lending | 269 | 257 | 228 | 787 | 718 |
| Commercial deposits | 159 | 151 | 173 | 468 | 526 |
| Other | 101 | 107 | 119 | 328 | 323 |
| Total income | 1,163 | 1,154 | 1,234 | 3,501 | 3,710 |
| Analysis of impairments by sector | |||||
| Residential mortgages | 24 | 16 | (8) | 43 | (5) |
| Home equity | 43 | 27 | 64 | 99 | 129 |
| Corporate and commercial | (21) | (17) | (55) | (74) | (89) |
| Other consumer | 38 | 22 | 32 | 94 | 65 |
| Securities | 7 | - | - | 7 | 7 |
| Total impairment losses | 91 | 48 | 33 | 169 | 107 |
| Loan impairment charge as % of gross | |||||
| customer loans and advances (excluding | |||||
| reverse repurchase agreements) by sector | |||||
| Residential mortgages | 1.1% | 0.7% | (0.3%) | 0.6% | (0.1%) |
| Home equity | 0.9% | 0.5% | 1.2% | 0.7% | 0.8% |
| Corporate and commercial | (0.2%) | (0.2%) | (0.6%) | (0.3%) | (0.3%) |
| Other consumer | 1.1% | 0.7% | 1.0% | 0.9% | 0.7% |
| Total | 0.4% | 0.2% | 0.2% | 0.3% | 0.2% |
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| Performance ratios | |||||
| Return on equity (1) | 6.3% | 7.7% | 9.7% | 7.4% | 8.1% |
| Adjusted return on equity (2) | 6.3% | 7.7% | 9.7% | 7.4% | 8.8% |
| Net interest margin | 2.99% | 2.91% | 2.96% | 2.94% | 3.00% |
| Cost:income ratio | 73% | 73% | 69% | 73% | 74% |
| Adjusted cost:income ratio (2) | 73% | 73% | 69% | 73% | 71% |
| 30 September | 30 June | 31 December | |||
|---|---|---|---|---|---|
| 2013 | 2013 | 2012 | |||
| \$bn | \$bn | Change | \$bn | Change | |
| Capital and balance sheet | |||||
| Loans and advances to customers (gross) | |||||
| - residential mortgages | 9.1 | 8.9 | 2% | 9.4 | (3%) |
| - home equity | 20.2 | 20.4 | (1%) | 21.5 | (6%) |
| - corporate and commercial | 39.0 | 38.3 | 2% | 38.5 | 1% |
| - other consumer | 13.9 | 13.4 | 4% | 13.5 | 3% |
| 82.2 | 81.0 | 1% | 82.9 | (1%) | |
| Loan impairment provisions | (0.4) | (0.4) | - | (0.5) | (20%) |
| Net loans and advances to customers | 81.8 | 80.6 | 1% | 82.4 | (1%) |
| Total third party assets | 116.4 | 113.3 | 3% | 117.7 | (1%) |
| Investment securities | 20.9 | 17.4 | 20% | 19.5 | 7% |
| Risk elements in lending | |||||
| - retail | 1.4 | 1.3 | 8% | 1.3 | 8% |
| - commercial | 0.3 | 0.4 | (25%) | 0.6 | (50%) |
| Total risk elements in lending | 1.7 | 1.7 | - | 1.9 | (11%) |
| Provision coverage (3) | 25% | 23% | 200bp | 25% | - |
| Customer deposits (excluding repos) | 93.9 | 91.4 | 3% | 95.6 | (2%) |
| Bank deposits (excluding repos) | 1.1 | 2.4 | (54%) | 2.9 | (62%) |
| Loan:deposit ratio (excluding repos) | 87% | 88% | (100bp) | 86% | 100bp |
| Risk-weighted assets | |||||
| - Credit risk | |||||
| - non-counterparty | 81.9 | 79.9 | 3% | 82.0 | - |
| - counterparty | 0.9 | 1.0 | (10%) | 1.4 | (36%) |
| - Operational risk | 8.0 | 7.5 | 7% | 7.9 | 1% |
| 90.8 | 88.4 | 3% | 91.3 | (1%) |
Notes:
(1) Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 10% of monthly average of divisional RWAs, adjusted for capital deductions).
(2) Excludes the litigation settlement in Q1 2012 and net gain on sale of Visa B shares in Q2 2012.
(3) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
In Q3 2013, US R&C continued to make progress in developing a differentiated customer proposition across both its consumer and commercial activities. We continue to make significant investments to deliver enhanced products and services to customers, to improve our operating platforms, and to increase efficiency. We have commenced our IPO preparation and are developing and implementing plans to improve operating performance and to prepare for public company readiness.
Consumer Banking continued to improve customer service with the installation of an additional 357 intelligent deposit machines in the quarter. Consumer Banking also continued to grow and deepen customer relationships, evidenced by the upward trends in online banking usage and online bill payments. Moreover, our mobile banking application was ranked the "highest customer rated" app on both Android and iOS platforms by Extreme Labs in July 2013.
Commercial Banking continued to see results from investments in its value proposition, which is based on thought leadership and product capabilities. Specifically, Q2 2013 Greenwich Middle Market Syndicated Study results versus Q1 2013 showed an increase for client satisfaction, increasing from 66% to 75%, an increase in Lead Relationships as a percentage of customers, increasing from 54% to 59% and an increase in Proactively Provides Advice & Solutions, increasing from 58% to 68%. Our US Middle Market Syndications Bookrunner most recent ranking also improved from #10 in Q1 2013 to #9.
Commercial Banking also launched several growth initiatives, including expanding the Mid-Corporate segment nationally as well as growing the Franchise Finance, Lender Finance, Commercial Real Estate and other key industry verticals. While initial efforts have been focused on securing approvals and on-boarding new talent, the initiatives have already led to incremental loan growth.
Impairment losses remained relatively low at \$91 million, or 0.4% of loans and advances to customers. The credit environment remained broadly stable in the quarter. The increase in impairment losses was driven by a moderate increase in consumer charge-offs and a lower level of reserve release.
Operating profit of \$219 million decreased by \$132 million, or 38%, largely driven by lower income and an increase in impairment losses. The operating environment and market conditions remained challenging, with intense competition for loans and an extended period of low short-term rates.
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| £m | £m | £m | £m | £m | |
| Income statement | |||||
| Net interest income from banking activities | 41 | 26 | 11 | 97 | 67 |
| Net fees and commissions receivable | 50 | 49 | 77 | 176 | 277 |
| Income from trading activities | 730 | 747 | 933 | 2,393 | 3,398 |
| Other operating income (net of related funding costs) | 13 | - | 21 | 30 | 100 |
| Non-interest income | 793 | 796 | 1,031 | 2,599 | 3,775 |
| Total income | 834 | 822 | 1,042 | 2,696 | 3,842 |
| Direct expenses | |||||
| - staff | (299) | (301) | (396) | (985) | (1,366) |
| - other | (148) | (207) | (163) | (537) | (515) |
| Indirect expenses | (178) | (178) | (194) | (535) | (576) |
| (625) | (686) | (753) | (2,057) | (2,457) | |
| Operating profit before impairment losses | 209 | 136 | 289 | 639 | 1,385 |
| Impairment recoveries/(losses) | 1 | (43) | 6 | (58) | (15) |
| Operating profit | 210 | 93 | 295 | 581 | 1,370 |
| Of which: | |||||
| Ongoing businesses (1) | 217 | 92 | 317 | 563 | 1,162 |
| Run-off and recovery businesses | (7) | 1 | (22) | 18 | 208 |
| Analysis of income by product | |||||
| Rates | 390 | 246 | 384 | 864 | 1,599 |
| Currencies | 257 | 306 | 202 | 786 | 568 |
| Asset backed products | 125 | 166 | 394 | 739 | 1,153 |
| Credit markets | 187 | 152 | 178 | 556 | 578 |
| Total income ongoing businesses | 959 | 870 | 1,158 | 2,945 | 3,898 |
| Inter-divisional revenue share | (162) | (149) | (161) | (480) | (539) |
| Run-off and recovery businesses | 37 | 101 | 45 | 231 | 483 |
| Total income | 834 | 822 | 1,042 | 2,696 | 3,842 |
| Memo - Fixed income and currencies | |||||
| Total income ongoing businesses | 959 | 870 | 1,158 | 2,945 | 3,898 |
| Less: primary credit markets | (146) | (136) | (113) | (433) | (414) |
| Total fixed income and currencies | 813 | 734 | 1,045 | 2,512 | 3,484 |
Note:
(1) The ongoing businesses include the Rates, Currencies, Asset backed products and Credit markets areas.
| Key metrics | Quarter ended | Nine months ended | |||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| Performance ratios | |||||
| Return on equity (1) | 7.0% | 2.8% | 7.6% | 5.9% | 11.5% |
| Cost:income ratio | 75% | 83% | 72% | 76% | 64% |
| Compensation ratio (2) | 36% | 37% | 38% | 37% | 36% |
| 30 September 30 June |
31 December | |||||
|---|---|---|---|---|---|---|
| 2013 | 2013 | 2012 | ||||
| £bn | £bn | Change | £bn | Change | ||
| Capital and balance sheet | ||||||
| Loans and advances to customers (gross) | 24.4 | 28.2 | (13%) | 29.8 | (18%) | |
| Loan impairment provisions | (0.2) | (0.2) | - | (0.2) | - | |
| Net loans and advances to customers | 24.2 | 28.0 | (14%) | 29.6 | (18%) | |
| Net loans and advances to banks | 15.5 | 16.0 | (3%) | 16.6 | (7%) | |
| Reverse repos | 95.6 | 98.9 | (3%) | 103.8 | (8%) | |
| Securities | 71.4 | 84.9 | (16%) | 92.4 | (23%) | |
| Cash and eligible bills | 19.6 | 18.0 | 9% | 30.2 | (35%) | |
| Other | 21.9 | 22.1 | (1%) | 11.9 | 84% | |
| Total third party assets (excluding derivatives | ||||||
| mark-to-market) | 248.2 | 267.9 | (7%) | 284.5 | (13%) | |
| Net derivative assets (after netting) | 18.6 | 21.0 | (11%) | 21.9 | (15%) | |
| Provision coverage (3) | 77% | 78% | (100bp) | 77% | - | |
| Customer deposits (excluding repos) | 25.8 | 26.4 | (2%) | 26.3 | (2%) | |
| Bank deposits (excluding repos) | 29.3 | 34.0 | (14%) | 45.4 | (35%) | |
| Risk-weighted assets | ||||||
| - Credit risk | ||||||
| - non-counterparty | 10.5 | 12.5 | (16%) | 14.0 | (25%) | |
| - counterparty | 26.5 | 30.8 | (14%) | 34.7 | (24%) | |
| - Market risk | 26.4 | 33.7 | (22%) | 36.9 | (28%) | |
| - Operational risk | 9.8 | 9.8 | - | 15.7 | (38%) | |
| 73.2 | 86.8 | (16%) | 101.3 | (28%) |
Notes:
(1) Divisional return on equity is based on divisional operating profit after tax, divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).
(2) Compensation ratio is based on staff costs as a percentage of total income.
(3) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
| Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| 30 September 2013 |
2013 | 30 June 30 September 2012 |
30 September 30 September 2013 |
2012 | ||
| Income statement (ongoing business) | £m | £m | £m | £m | £m | |
| Total income | 800 | 724 | 1,004 | 2,475 | 3,385 | |
| Direct expenses | (408) | (464) | (508) | (1,397) | (1,655) | |
| Indirect expenses | (176) | (176) | (192) | (528) | (570) | |
| Impairment recoveries | 1 | 8 | 13 | 13 | 2 | |
| Operating profit | 217 | 92 | 317 | 563 | 1,162 | |
| Performance ratios (ongoing business) | ||||||
| Return on equity (1) | 9.3% | 3.6% | 10.2% | 7.4% | 12.3% | |
| Cost:income ratio | 73% | 88% | 70% | 78% | 66% | |
| Compensation ratio (2) | 34% | 38% | 36% | 37% | 36% | |
| 30 September | 30 June | 31 December | ||||
| 2013 | 2013 | 2012 | ||||
| Balance sheet (ongoing business) | £bn | £bn | £bn | |||
| Total third party assets (excluding derivatives mark-to-market) | 231.4 | 247.5 | 259.3 | |||
| Risk-weighted assets | 56.9 | 68.6 | 79.1 |
Notes:
(1) Divisional return on equity is based on divisional operating profit after tax, divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions), for ongoing businesses.
(2) Compensation ratio is based on staff costs as a percentage of total income.
Markets operating profit recovered in Q3 2013, compared with the prior quarter, despite subdued client activity remaining subdued. The trading performance in the Rates business improved and Credit benefitted from a strong performance in Corporate Debt Capital Markets. Costs were significantly lower than both Q2 2013 and Q3 2012, reflecting headcount reductions and tight control of discretionary expenditure.
Markets continued to focus on reducing its balance sheet and managing risk. Third party assets were £36 billion lower than at 31 December 2012 and risk-weighted assets were down £28 billion, consistent with the previously announced objective of reaching £80 billion Basel III risk-weighted assets by the end of 2014.
• Markets continued to make significant progress in reducing the scale of its balance sheet and capital. Third party assets fell by a further £20 billion. Risk-weighted assets also fell, by £14 billion, driven by management action to reduce exposures and mitigate risk.
| Quarter ended | Nine months ended | ||||||
|---|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||||
| 2013 | 2013 | 2012 | 2013 | 2012 | |||
| £m | £m | £m | £m | £m | |||
| Central items not allocated | (19) | 140 | 149 | 85 | (34) |
Note:
(1) Costs/charges are denoted by brackets.
Funding and operating costs have been allocated to operating divisions based on direct service usage, the requirement for market funding and other appropriate drivers where services span more than one division.
Residual unallocated items relate to volatile corporate items that do not naturally reside within a division.
The movement was primarily due to lower gains of £150 million on disposals of available-for-sale securities, down £205 million compared with Q2 2013, and a one-off impairment charge of £65 million in Q3 2013 in respect of a real estate loan. These reductions were partially offset by a £38 million increase in investment income to £55 million and a £50 million reduction in the charge for litigation and conduct matters to £45 million from £95 million in Q2 2013.
Central items not allocated represented a debit of £19 million compared with a credit of £149 million in Q3 2012.
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| £m | £m | £m | £m | £m | |
| Income statement | |||||
| Net interest income | (33) | 30 | 86 | (31) | 287 |
| Net fees and commissions | 6 | 18 | 17 | 44 | 77 |
| (Loss)/income from trading activities | (109) | 134 | (203) | 70 | (604) |
| Other operating income | |||||
| - rental income | 40 | 33 | 73 | 121 | 374 |
| - other (1) | (23) | 58 | 77 | 43 | 186 |
| Non-interest income | (86) | 243 | (36) | 278 | 33 |
| Total income | (119) | 273 | 50 | 247 | 320 |
| Direct expenses | |||||
| - staff | (50) | (55) | (71) | (166) | (226) |
| - operating lease depreciation | (17) | (14) | (43) | (58) | (195) |
| - other | (30) | (36) | (30) | (94) | (117) |
| Indirect expenses | (48) | (51) | (68) | (148) | (199) |
| (145) | (156) | (212) | (466) | (737) | |
| Operating (loss)/profit before impairment losses | (264) | 117 | (162) | (219) | (417) |
| Impairment losses | (581) | (398) | (424) | (1,412) | (1,520) |
| Operating loss | (845) | (281) | (586) | (1,631) | (1,937) |
Note:
(1) Includes (losses)/gains on disposals (Q3 2013 - £73 million loss; Q2 2013 - £11 million loss; Q3 2012 - £42 million loss; nine months ended 30 September 2013 - £141 million loss; nine months ended 30 September 2012 - £101 million gain).
| Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | ||||
| 2013 | 2013 | 2012 | 2013 | 2012 | ||
| £m | £m | £m | £m | £m | ||
| Analysis of (loss)/income by business | ||||||
| Banking and portfolios | (84) | 152 | 91 | 60 | 151 | |
| International businesses | (31) | 27 | 60 | 41 | 221 | |
| Markets | (4) | 94 | (101) | 146 | (52) | |
| Total (loss)/income | (119) | 273 | 50 | 247 | 320 | |
| (Loss)/income from trading activities | ||||||
| Monoline exposures | (21) | 25 | 21 | (3) | (170) | |
| Credit derivative product companies | (9) | 6 | (199) | - | (206) | |
| Asset-backed products | 7 | 16 | 17 | 43 | 85 | |
| Other credit exotics | 13 | - | 16 | 28 | (33) | |
| Equities | 1 | 1 | 1 | 2 | 3 | |
| Banking book hedges | - | - | (14) | 3 | (36) | |
| Other | (100) | 86 | (45) | (3) | (247) | |
| (109) | 134 | (203) | 70 | (604) | ||
| Impairment losses | ||||||
| Banking and portfolios (1) | 589 | 415 | 433 | 1,445 | 1,623 | |
| International businesses | 4 | 4 | 16 | 10 | 41 | |
| Markets | (12) | (21) | (25) | (43) | (144) | |
| Total impairment losses | 581 | 398 | 424 | 1,412 | 1,520 | |
| Loan impairment charge as % of gross customer loans and advances (excluding |
||||||
| reverse repurchase agreements) (2) | ||||||
| Banking and portfolios (3) | 5.2% | 4.0% | 2.8% | 4.7% | 3.6% | |
| International businesses | 4.0% | 2.0% | 4.5% | 3.3% | 3.9% | |
| Markets | - | - | 0.4% | - | (1.6%) | |
| Total | 5.2% | 4.0% | 2.8% | 4.7% | 3.6% |
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| Performance ratio | |||||
| Net interest margin | (0.35%) | 0.15% | 0.41% | (0.15%) | 0.32% |
Notes:
(1) Includes Ulster Bank impairment losses of £398 million (Q2 2013 - £189 million; Q3 2012 - £164 million; nine months ended 30 September 2013 - £829 million; nine months ended 30 September 2012 - £619 million).
(2) Includes disposal groups.
(3) Ulster Bank - 13.2% (Q2 2013 - 5.9%; Q3 2012 - 5.0%; nine months ended 30 September 2013 - 9.1%; nine months ended 30 September 2012 - 6.3%). Banking and portfolios excluding Ulster Bank - 1.9% (Q2 2013 - 3.3%; Q3 2012 - 2.1%; nine months ended 30 September 2013 - 2.8%; nine months ended 30 September 2012 - 2.8%).
| 30 September 30 June |
31 December | |||||
|---|---|---|---|---|---|---|
| 2013 | 2013 | 2012 | ||||
| £bn | £bn | Change | £bn | Change | ||
| Capital and balance sheet | ||||||
| Loans and advances to customers (gross) (1) | 40.4 | 46.4 | (13%) | 55.4 | (27%) | |
| Loan impairment provisions | (11.3) | (11.4) | (1%) | (11.2) | 1% | |
| Net loans and advances to customers | 29.1 | 35.0 | (17%) | 44.2 | (34%) | |
| Total third party assets (excluding derivatives) | 37.3 | 45.4 | (18%) | 57.4 | (35%) | |
| Total third party assets (including derivatives) | 41.1 | 50.0 | (18%) | 63.4 | (35%) | |
| Risk elements in lending (1) | 19.8 | 20.9 | (5%) | 21.4 | (7%) | |
| Provision coverage (2) | 57% | 55% | 200bp | 52% | 500bp | |
| Customer deposits (1) | 2.4 | 2.7 | (11%) | 2.7 | (11%) | |
| Risk-weighted assets | ||||||
| - Credit risk | ||||||
| - non-counterparty | 29.2 | 33.0 | (12%) | 45.1 | (35%) | |
| - counterparty | 6.5 | 7.8 | (17%) | 11.5 | (43%) | |
| - Market risk | 4.0 | 4.3 | (7%) | 5.4 | (26%) | |
| - Operational risk | 1.2 | 1.2 | - | (1.6) | 175% | |
| 40.9 | 46.3 | (12%) | 60.4 | (32%) |
(1) Excludes disposal groups.
(2) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
| 30 September | 30 June | 31 December | |
|---|---|---|---|
| 2013 | 2013 | 2012 | |
| £bn | £bn | £bn | |
| Gross customer loans and advances | |||
| Banking and portfolios | 40.0 | 45.6 | 54.5 |
| International businesses | 0.4 | 0.8 | 0.9 |
| 40.4 | 46.4 | 55.4 | |
| Risk-weighted assets | |||
| Banking and portfolios | 36.7 | 41.4 | 53.3 |
| International businesses | 1.0 | 1.4 | 2.4 |
| Markets | 3.2 | 3.5 | 4.7 |
| 40.9 | 46.3 | 60.4 | |
| Third party assets (excluding derivatives) | |||
| Banking and portfolios | 34.8 | 41.1 | 51.1 |
| International businesses | 0.4 | 0.8 | 1.2 |
| Markets | 2.1 | 3.5 | 5.1 |
| 37.3 | 45.4 | 57.4 |
| Quarter ended 30 September 2013 | 30 June 2013 £bn |
Run-off £bn |
Disposals/ restructuring £bn |
Drawings/ roll overs £bn |
Impairments £bn |
FX £bn |
30 September 2013 £bn |
|---|---|---|---|---|---|---|---|
| Commercial real estate | 18.3 | (1.1) | (0.5) | - | (0.5) | (0.2) | 16.0 |
| Corporate | 19.9 | (2.0) | (1.0) | 0.2 | - | (0.6) | 16.5 |
| SME | 0.5 | (0.1) | - | - | - | - | 0.4 |
| Retail | 3.0 | (0.1) | (0.6) | - | (0.1) | (0.1) | 2.1 |
| Other | 0.2 | - | - | - | - | - | 0.2 |
| Markets | 3.5 | (0.1) | (1.1) | - | - | (0.2) | 2.1 |
| Total (excluding derivatives) | 45.4 | (3.4) | (3.2) | 0.2 | (0.6) | (1.1) | 37.3 |
| 31 March | Disposals/ | Drawings/ | 30 June 2013 |
||||
|---|---|---|---|---|---|---|---|
| 2013 | Run-off | restructuring | Impairments | FX | |||
| Quarter ended 30 June 2013 | £bn | £bn | £bn | £bn | £bn | £bn | £bn |
| Commercial real estate | 20.1 | (0.7) | (0.8) | - | (0.4) | 0.1 | 18.3 |
| Corporate | 23.9 | (3.1) | (0.9) | 0.2 | - | (0.2) | 19.9 |
| SME | 0.8 | (0.1) | (0.2) | - | - | - | 0.5 |
| Retail | 3.2 | (0.2) | - | - | - | - | 3.0 |
| Other | 0.3 | (0.1) | - | - | - | - | 0.2 |
| Markets | 4.6 | - | (1.1) | - | - | - | 3.5 |
| Total (excluding derivatives) | 52.9 | (4.2) | (3.0) | 0.2 | (0.4) | (0.1) | 45.4 |
| 30 June | Disposals/ | Drawings/ | 30 September | ||||
|---|---|---|---|---|---|---|---|
| 2012 | Run-off | restructuring | roll overs | Impairments | FX | 2012 | |
| Quarter ended 30 September 2012 | £bn | £bn | £bn | £bn | £bn | £bn | £bn |
| Commercial real estate | 26.9 | (0.9) | (0.4) | - | (0.4) | (0.2) | 25.0 |
| Corporate | 32.8 | (2.7) | (1.1) | 0.4 | - | (0.4) | 29.0 |
| SME | 1.6 | (0.2) | (0.1) | - | - | - | 1.3 |
| Retail | 4.0 | (0.1) | - | - | - | (0.1) | 3.8 |
| Other | 0.4 | - | - | - | - | - | 0.4 |
| Markets | 6.4 | (0.2) | (0.6) | 0.1 | - | (0.1) | 5.6 |
| Total (excluding derivatives) | 72.1 | (4.1) | (2.2) | 0.5 | (0.4) | (0.8) | 65.1 |
Note:
(1) Disposals of £0.2 billion have been signed as at 30 September 2013 but are pending completion (30 June 2013 - £0.4 billion; 30 September 2012 - £0.2 billion).
| 30 September | 30 June | 31 December | ||
|---|---|---|---|---|
| 2013 | 2013 | 2012 | ||
| Commercial real estate third party assets | £bn | £bn | £bn | |
| UK (excluding NI) | 5.6 | 6.5 | 8.9 | |
| Ireland (ROI and NI) | 4.7 | 5.3 | 5.8 | |
| Spain | 1.2 | 1.4 | 1.4 | |
| Rest of Europe | 4.0 | 4.4 | 4.9 | |
| USA | 0.5 | 0.7 | 0.9 | |
| RoW | - | - | 0.2 | |
| Total (excluding derivatives) | 16.0 | 18.3 | 22.1 |
| Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | ||||
| 2013 | 2013 | 2012 | 2013 | 2012 | ||
| £m | £m | £m | £m | £m | ||
| Impairment losses by donating division | ||||||
| and sector (1) | ||||||
| UK Retail | ||||||
| Personal | - | - | 1 | (1) | 4 | |
| Total UK Retail | - | - | 1 | (1) | 4 | |
| UK Corporate | ||||||
| Manufacturing and infrastructure | (3) | (5) | 4 | (6) | 18 | |
| Property and construction | 16 | 63 | 2 | 139 | 80 | |
| Transport | 2 | 25 | - | 36 | 14 | |
| Financial institutions | - | (7) | (13) | (8) | (15) | |
| Lombard | 2 | 2 | 11 | 4 | 33 | |
| Other | 9 | 6 | 37 | 17 | 54 | |
| Total UK Corporate | 26 | 84 | 41 | 182 | 184 | |
| Ulster Bank | ||||||
| Commercial real estate | ||||||
| - investment | 29 | 82 | 61 | 158 | 197 | |
| - development | 356 | 88 | 93 | 599 | 355 | |
| Other corporate | 12 | 16 | 10 | 66 | 61 | |
| Other EMEA | 1 | 3 | - | 6 | 6 | |
| Total Ulster Bank | 398 | 189 | 164 | 829 | 619 | |
| US Retail & Commercial | ||||||
| Auto and consumer | 15 | 15 | 10 | 43 | 30 | |
| Cards | - | - | (1) | - | 3 | |
| SBO/home equity | 14 | 19 | 46 | 60 | 108 | |
| Residential mortgages | 5 | 1 | 10 | 8 | 17 | |
| Commercial real estate | 4 | 7 | (9) | 10 | (10) | |
| Commercial and other | 1 | - | (8) | (1) | (15) | |
| Total US Retail & Commercial | 39 | 42 | 48 | 120 | 133 | |
| International Banking | ||||||
| Manufacturing and infrastructure | 9 | (49) | (5) | (43) | - | |
| Property and construction | 92 | 124 | 205 | 301 | 527 | |
| Transport | (1) | (1) | 1 | 5 | 148 | |
| Telecoms, media and technology | 1 | 1 | - | 5 | 27 | |
| Financial institutions | (17) | (20) | (19) | (47) | (133) | |
| Other | 33 | 30 | (13) | 61 | 10 | |
| Total International Banking | 117 | 85 | 169 | 282 | 579 | |
| Other | ||||||
| Wealth | - | (1) | 1 | - | 1 | |
| Central items | 1 | (1) | - | - | - | |
| Total Other | 1 | (2) | 1 | - | 1 | |
| Total impairment losses | 581 | 398 | 424 | 1,412 | 1,520 |
Note:
(1) Impairment losses include those relating to AFS securities; sector analyses above include allocation of latent impairment charges.
| Gross loans and advances to customers (excluding reverse repurchase agreements) by donating division and sector UK Corporate Manufacturing and infrastructure - - Property and construction 2.2 2.4 Transport 3.7 3.5 Financial institutions - 0.1 Lombard 0.2 0.3 Other 0.9 1.4 Total UK Corporate 6.8 7.9 Ulster Bank Commercial real estate - investment 3.4 3.4 - development 7.4 7.2 Other corporate 1.5 1.6 Other EMEA - 0.3 Total Ulster Bank 12.1 12.7 US Retail & Commercial Auto and consumer 0.2 0.6 SBO/home equity 1.7 1.9 Residential mortgages 0.4 0.3 Commercial real estate 0.2 0.3 Commercial and other 0.1 0.1 3.3 Total US Retail & Commercial 2.5 International Banking Manufacturing and infrastructure 1.6 2.1 Property and construction 9.2 10.5 Transport 1.6 1.4 Telecoms, media and technology 0.8 0.7 Financial institutions 3.4 4.3 Other 2.4 3.2 Total International Banking 18.9 22.3 Other Wealth 0.1 0.1 Central items - 0.1 Total Other 0.1 0.2 |
30 September 2013 |
30 June 2013 |
31 December 2012 |
|---|---|---|---|
| £bn | £bn | £bn | |
| 0.1 | |||
| 3.6 | |||
| 3.8 | |||
| 0.2 | |||
| 0.4 | |||
| 4.2 | |||
| 12.3 | |||
| 3.4 | |||
| 7.6 | |||
| 1.6 | |||
| 0.3 | |||
| 12.9 | |||
| 0.6 | |||
| 2.0 | |||
| 0.4 | |||
| 0.4 | |||
| 0.1 | |||
| 3.5 | |||
| 3.9 | |||
| 12.3 | |||
| 1.7 | |||
| 0.4 | |||
| 4.7 | |||
| 3.7 | |||
| 26.7 | |||
| - | |||
| - | |||
| - | |||
| Gross loans and advances to customers (excluding reverse | |||
| repurchase agreements) 40.4 46.4 |
55.4 |
Non-Core third party assets fell to £37 billion, a reduction of £8 billion, or 18%, during the quarter and an overall reduction to date of £221 billion, or 86%, since the division was set up. This has been achieved through a mixture of disposals, run-off and impairments. As at 30 September 2013, the Non-Core funded balance sheet was c.5% of the Group's funded balance sheet compared with 21% when the division was created.
Impairment losses were up £183 million to £581 million. The increase related to Ulster Bank CRE development properties.
Third party assets fell by £28 billion, or 43%, largely reflecting run-off of £16 billion and disposals of £12 billion, which also led to a reduction in risk-weighted assets, down £31 billion.
| Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | ||||
| 2013 | 2013 | 2012* | 2013 | 2012* | ||
| £m | £m | £m | £m | £m | ||
| Interest receivable | 4,207 | 4,281 | 4,456 | 12,767 | 14,091 | |
| Interest payable | (1,427) | (1,514) | (1,647) | (4,550) | (5,462) | |
| Net interest income | 2,780 | 2,767 | 2,809 | 8,217 | 8,629 | |
| Fees and commissions receivable | 1,382 | 1,392 | 1,400 | 4,090 | 4,335 | |
| Fees and commissions payable | (238) | (250) | (209) | (698) | (589) | |
| Income from trading activities | 444 | 949 | 334 | 2,508 | 1,201 | |
| Gain/(loss) on redemption of own debt | 13 | 242 | (123) | 204 | 454 | |
| Other operating income/(loss) | 35 | 720 | (252) | 1,367 | (692) | |
| Non-interest income | 1,636 | 3,053 | 1,150 | 7,471 | 4,709 | |
| Total income | 4,416 | 5,820 | 3,959 | 15,688 | 13,338 | |
| Staff costs | (1,895) | (1,840) | (1,987) | (5,622) | (6,532) | |
| Premises and equipment | (544) | (548) | (550) | (1,648) | (1,640) | |
| Other administrative expenses | (1,103) | (1,418) | (1,193) | (3,284) | (3,087) | |
| Depreciation and amortisation | (338) | (349) | (421) | (1,074) | (1,304) | |
| Operating expenses | (3,880) | (4,155) | (4,151) | (11,628) | (12,563) | |
| Profit/(loss) before impairment losses | 536 | 1,665 | (192) | 4,060 | 775 | |
| Impairment losses | (1,170) | (1,117) | (1,176) | (3,320) | (3,825) | |
| Operating (loss)/profit before tax | (634) | 548 | (1,368) | 740 | (3,050) | |
| Tax charge | (81) | (328) | (3) | (759) | (402) | |
| (Loss)/profit from continuing operations | (715) | 220 | (1,371) | (19) | (3,452) | |
| (Loss)/profit from discontinued operations, net of tax | ||||||
| - Direct Line Group | - | - | 62 | 127 | 167 | |
| - Other | (5) | 9 | 5 | 6 | 6 | |
| (Loss)/profit from discontinued operations, | ||||||
| net of tax | (5) | 9 | 67 | 133 | 173 | |
| (Loss)/profit for the period | (720) | 229 | (1,304) | 114 | (3,279) | |
| Non-controlling interests | (6) | 14 | 3 | (123) | 28 | |
| Preference share and other dividends | (102) | (101) | (104) | (284) | (186) | |
| (Loss)/profit attributable to ordinary and | ||||||
| B shareholders | (828) | 142 | (1,405) | (293) | (3,437) | |
| Basic and diluted (loss)/earnings per ordinary and B | ||||||
| share from continuing operations | (7.4p) | 1.2p | (13.3p) | (3.6p) | (32.8p) | |
| Basic and diluted (loss)/earnings per ordinary and B | ||||||
| share from continuing and discontinued operations | (7.4p) | 1.2p | (12.7p) | (2.6p) | (31.3p) |
* Restated - see page 75.
Note:
(1) In the income statement above, one-off and other items as shown on page 23 are included in the appropriate captions. A reconciliation between the income statement above and the managed view income statement on page 16 is given in Appendix 2 to this announcement.
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012* | 2013 | 2012* | |
| £m | £m | £m | £m | £m | |
| (Loss)/profit for the period | (720) | 229 | (1,304) | 114 | (3,279) |
| Items that do not qualify for reclassification | |||||
| Income tax on items that do not qualify for | |||||
| reclassification | (163) | - | (39) | (163) | (77) |
| Items that do qualify for reclassification | |||||
| Available-for-sale financial assets | 430 | (1,009) | 124 | (303) | 715 |
| Cash flow hedges | (88) | (1,502) | 437 | (1,624) | 1,132 |
| Currency translation | (1,211) | 113 | (573) | 99 | (1,069) |
| Income tax on items that do qualify for reclassification | 85 | 678 | (52) | 811 | (270) |
| (784) | (1,720) | (64) | (1,017) | 508 | |
| Other comprehensive (loss)/income after tax | (947) | (1,720) | (103) | (1,180) | 431 |
| Total comprehensive loss for the period | (1,667) | (1,491) | (1,407) | (1,066) | (2,848) |
| Total comprehensive loss is attributable to: | |||||
| Non-controlling interests | (13) | (15) | (6) | 121 | (25) |
| Preference shareholders | 98 | 81 | 98 | 250 | 174 |
| Paid-in equity holders | 4 | 20 | 6 | 34 | 12 |
| Ordinary and B shareholders | (1,756) | (1,577) | (1,505) | (1,471) | (3,009) |
| (1,667) | (1,491) | (1,407) | (1,066) | (2,848) |
* Restated - see page 75.
| 30 September | 30 June | 31 December | |
|---|---|---|---|
| 2013 | 2013 | 2012* | |
| £m | £m | £m | |
| Assets | |||
| Cash and balances at central banks | 87,066 | 89,613 | 79,290 |
| Net loans and advances to banks | 28,206 | 30,241 | 29,168 |
| Reverse repurchase agreements and stock borrowing | 33,757 | 37,540 | 34,783 |
| Loans and advances to banks | 61,963 | 67,781 | 63,951 |
| Net loans and advances to customers | 406,927 | 418,792 | 430,088 |
| Reverse repurchase agreements and stock borrowing | 62,214 | 61,743 | 70,047 |
| Loans and advances to customers | 469,141 | 480,535 | 500,135 |
| Debt securities | 122,886 | 138,202 | 157,438 |
| Equity shares | 10,363 | 11,423 | 15,232 |
| Settlement balances | 18,099 | 17,966 | 5,741 |
| Derivatives | 323,657 | 373,692 | 441,903 |
| Intangible assets | 13,742 | 13,997 | 13,545 |
| Property, plant and equipment | 8,476 | 9,300 | 9,784 |
| Deferred tax | 3,022 | 3,344 | 3,443 |
| Interests in associated undertakings | 1,852 | 2,500 | 776 |
| Prepayments, accrued income and other assets | 6,734 | 6,563 | 7,044 |
| Assets of disposal groups | 2,435 | 1,313 | 14,013 |
| Total assets | 1,129,436 | 1,216,229 | 1,312,295 |
| Liabilities | |||
| Bank deposits | 38,601 | 45,287 | 57,073 |
| Repurchase agreements and stock lending | 32,748 | 34,419 | 44,332 |
| Deposits by banks | 71,349 | 79,706 | 101,405 |
| Customer deposits | 434,305 | 437,097 | 433,239 |
| Repurchase agreements and stock lending | 72,636 | 89,321 | 88,040 |
| Customer accounts | 506,941 | 526,418 | 521,279 |
| Debt securities in issue | 71,781 | 79,721 | 94,592 |
| Settlement balances | 18,514 | 17,207 | 5,878 |
| Short positions | 31,020 | 27,979 | 27,591 |
| Derivatives | 319,464 | 370,047 | 434,333 |
| Accruals, deferred income and other liabilities | 14,157 | 14,376 | 14,801 |
| Retirement benefit liabilities | 3,597 | 3,579 | 3,884 |
| Deferred tax | 514 | 694 | 1,141 |
| Subordinated liabilities | 23,720 | 26,538 | 26,773 |
| Liabilities of disposal groups | 249 | 306 | 10,170 |
| Total liabilities | 1,061,306 | 1,146,571 | 1,241,847 |
| Equity | |||
| Non-controlling interests | 462 | 475 | 1,770 |
| Owners' equity* | |||
| Called up share capital | 6,697 | 6,632 | 6,582 |
| Reserves | 60,971 | 62,551 | 62,096 |
| Total equity | 68,130 | 69,658 | 70,448 |
| Total liabilities and equity | 1,129,436 | 1,216,229 | 1,312,295 |
| * Owners' equity attributable to: | |||
| Ordinary and B shareholders | 62,376 | 63,891 | 63,386 |
| Other equity owners | 5,292 | 5,292 | 5,292 |
| 67,668 | 69,183 | 68,678 |
|---|---|---|
* Restated - see page 75.
| Quarter ended | Nine months ended | |||
|---|---|---|---|---|
| 30 September | 30 June | 30 September 30 September | ||
| 2013 | 2013 | 2013 | 2012* | |
| % | % | % | % | |
| Average yields, spreads and margins of the | ||||
| banking business | ||||
| Gross yield on interest-earning assets of banking business | 3.07 | 3.11 | 3.09 | 3.12 |
| Cost of interest-bearing liabilities of banking business | (1.38) | (1.44) | (1.43) | (1.49) |
| Interest spread of banking business | 1.69 | 1.67 | 1.66 | 1.63 |
| Benefit from interest-free funds | 0.32 | 0.33 | 0.32 | 0.28 |
| Net interest margin of banking business | 2.01 | 2.00 | 1.98 | 1.91 |
| Average interest rates | ||||
| The Group's base rate | 0.50 | 0.50 | 0.50 | 0.50 |
| London inter-bank three month offered rates | ||||
| - Sterling | 0.51 | 0.51 | 0.51 | 0.92 |
| - Eurodollar | 0.26 | 0.28 | 0.28 | 0.47 |
| - Euro | 0.22 | 0.21 | 0.21 | 0.65 |
* Restated - see page 75.
| Quarter ended 30 September 2013 |
Quarter ended 30 June 2013 |
|||||
|---|---|---|---|---|---|---|
| Average balance |
Interest | Rate | Average balance |
Interest | Rate | |
| £m | £m | % | £m | £m | % | |
| Assets | ||||||
| Loans and advances to banks | 74,222 | 106 | 0.57 | 78,277 | 114 | 0.58 |
| Loans and advances to customers | 397,184 | 3,791 | 3.79 | 402,679 | 3,809 | 3.79 |
| Debt securities | 67,990 | 273 | 1.59 | 71,116 | 359 | 2.02 |
| Interest-earning assets | ||||||
| - banking business (1,3,5) | 539,396 | 4,170 | 3.07 | 552,072 | 4,282 | 3.11 |
| - trading business (4) | 209,517 | 227,401 | ||||
| Non-interest earning assets | 434,797 | 512,610 | ||||
| Total assets | 1,183,710 | 1,292,083 | ||||
| Memo: Funded assets | 836,564 | 865,621 | ||||
| Liabilities | ||||||
| Deposits by banks | 21,413 | 92 | 1.70 | 24,233 | 104 | 1.72 |
| Customer accounts | 336,285 | 692 | 0.82 | 339,095 | 740 | 0.88 |
| Debt securities in issue | 52,216 | 334 | 2.54 | 60,424 | 368 | 2.44 |
| Subordinated liabilities | 23,906 | 224 | 3.72 | 25,712 | 225 | 3.51 |
| Internal funding of trading business | (17,216) | 102 | (2.35) | (21,078) | 97 | (1.85) |
| Interest-bearing liabilities | ||||||
| - banking business (1,2) | 416,604 | 1,444 | 1.38 | 428,386 | 1,534 | 1.44 |
| - trading business (4) | 220,871 | 232,873 | ||||
| Non-interest-bearing liabilities | ||||||
| - demand deposits | 78,912 | 77,593 | ||||
| - other liabilities | 398,516 | 483,310 | ||||
| Owners' equity | 68,807 | 69,921 | ||||
| Total liabilities and owners' equity | 1,183,710 | 1,292,083 |
Notes:
| Nine months ended 30 September 2013 |
Nine months ended 30 September 2012* |
|||||
|---|---|---|---|---|---|---|
| Average balance |
Interest | Rate | Average balance |
Interest | Rate | |
| £m | £m | % | £m | £m | % | |
| Assets | ||||||
| Loans and advances to banks | 74,493 | 328 | 0.59 | 75,283 | 379 | 0.67 |
| Loans and advances to customers | 403,383 | 11,431 | 3.79 | 433,877 | 12,249 | 3.77 |
| Debt securities | 72,723 | 973 | 1.79 | 94,080 | 1,474 | 2.09 |
| Interest-earning assets | ||||||
| - banking business (1,3,5) | 550,599 | 12,732 | 3.09 | 603,240 | 14,102 | 3.12 |
| - trading business (4) | 224,936 | 243,159 | ||||
| Non-interest earning assets | 492,094 | 613,302 | ||||
| Total assets | 1,267,629 | 1,459,701 | ||||
| Memo: Funded assets | 863,696 | 959,817 | ||||
| Liabilities | ||||||
| Deposits by banks | 24,616 | 310 | 1.68 | 40,938 | 461 | 1.50 |
| Customer accounts | 338,044 | 2,269 | 0.90 | 334,177 | 2,650 | 1.06 |
| Debt securities in issue | 58,130 | 1,072 | 2.47 | 100,043 | 1,737 | 2.32 |
| Subordinated liabilities | 24,591 | 640 | 3.48 | 21,865 | 504 | 3.08 |
| Internal funding of trading business | (17,912) | 280 | (2.09) | (7,986) | 109 | (1.82) |
| Interest-bearing liabilities | ||||||
| - banking business (1,2,3) | 427,469 | 4,571 | 1.43 | 489,037 | 5,461 | 1.49 |
| - trading business (4) | 231,349 | 253,299 | ||||
| Non-interest-bearing liabilities | ||||||
| - demand deposits | 77,525 | 74,106 | ||||
| - other liabilities | 461,781 | 568,833 | ||||
| Owners' equity | 69,505 | 74,426 | ||||
| Total liabilities and owners' equity | 1,267,629 | 1,459,701 |
* Restated - see page 75.
Notes:
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012* | 2013 | 2012* | |
| £m | £m | £m | £m | £m | |
| Called-up share capital | |||||
| At beginning of period | 6,632 | 6,619 | 6,528 | 6,582 | 15,318 |
| Ordinary shares issued | 65 | 13 | 53 | 115 | 196 |
| Share capital sub-division and consolidation | - | - | - | - | (8,933) |
| At end of period | 6,697 | 6,632 | 6,581 | 6,697 | 6,581 |
| Paid-in equity | |||||
| At beginning and end of period | 979 | 979 | 979 | 979 | 979 |
| Share premium account | |||||
| At beginning of period | 24,483 | 24,455 | 24,198 | 24,361 | 24,001 |
| Ordinary shares issued | 145 | 28 | 70 | 267 | 267 |
| At end of period | 24,628 | 24,483 | 24,268 | 24,628 | 24,268 |
| Merger reserve | |||||
| At beginning and end of period | 13,222 | 13,222 | 13,222 | 13,222 | 13,222 |
| Available-for-sale reserve (1) | |||||
| At beginning of period | (714) | (10) | (450) | (346) | (957) |
| Unrealised gains/(losses) | 592 | (568) | 651 | 606 | 1,803 |
| Realised gains | (164) | (441) | (528) | (769) | (1,110) |
| Tax | 34 | 305 | 36 | 367 | (27) |
| Recycled to profit or loss on disposal of businesses (2) | - | - | - | (110) | - |
| At end of period | (252) | (714) | (291) | (252) | (291) |
| Cash flow hedging reserve | |||||
| At beginning of period | 491 | 1,635 | 1,399 | 1,666 | 879 |
| Amount recognised in equity | 163 | (1,118) | 713 | (696) | 1,931 |
| Amount transferred from equity to earnings | (251) | (384) | (276) | (928) | (799) |
| Tax | 44 | 358 | (90) | 405 | (265) |
| At end of period | 447 | 491 | 1,746 | 447 | 1,746 |
| Foreign exchange reserve | |||||
| At beginning of period | 5,201 | 5,072 | 4,314 | 3,908 | 4,775 |
| Retranslation of net assets | (1,338) | 44 | (637) | 92 | (1,203) |
| Foreign currency gains on hedges of net assets | 148 | 70 | 68 | 17 | 156 |
| Tax | 7 | 15 | 2 | 4 | 22 |
| Recycled to profit or loss on disposal of businesses | - | - | - | (3) | (3) |
| At end of period | 4,018 | 5,201 | 3,747 | 4,018 | 3,747 |
| Capital redemption reserve | |||||
| At beginning of period | 9,131 | 9,131 | 9,131 | 9,131 | 198 |
| Share capital sub-division and consolidation | - | - | - | - | 8,933 |
| At end of period | 9,131 | 9,131 | 9,131 | 9,131 | 9,131 |
| Contingent capital reserve | |||||
| At beginning and end of period | (1,208) | (1,208) | (1,208) | (1,208) | (1,208) |
* Restated - see page 75.
(1) Analysis provided on page 85.
(2) Net of tax - £35 million charge.
(3) Net of tax - £1 million charge.
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012* | 2013 | 2012* | |
| £m | £m | £m | £m | £m | |
| Retained earnings | |||||
| At beginning of period | 11,105 | 10,949 | 16,615 | 10,596 | 18,929 |
| (Loss)/profit attributable to ordinary and B | |||||
| shareholders and other equity owners | |||||
| - continuing operations | (723) | 241 | (1,364) | (116) | (3,416) |
| - discontinued operations | (3) | 2 | 63 | 107 | 165 |
| Equity preference dividends paid | (98) | (81) | (98) | (250) | (174) |
| Paid-in equity dividends paid, net of tax | (4) | (20) | (6) | (34) | (12) |
| Actuarial losses recognised in retirement benefit schemes | |||||
| - tax | (163) | - | (39) | (163) | (77) |
| Loss on disposal of own shares held | - | (18) | - | (18) | (196) |
| Shares released for employee benefits | - | (1) | (1) | (1) | (130) |
| Share-based payments | |||||
| - gross | 26 | 33 | 44 | 22 | 136 |
| - tax | 4 | - | 2 | 1 | (9) |
| At end of period | 10,144 | 11,105 | 15,216 | 10,144 | 15,216 |
| Own shares held | |||||
| At beginning of period | (139) | (211) | (206) | (213) | (769) |
| Disposal/(purchase) of own shares | 1 | 71 | (2) | 74 | 447 |
| Shares released for employee benefits | - | 1 | 1 | 1 | 115 |
| At end of period | (138) | (139) | (207) | (138) | (207) |
| Owners' equity at end of period | 67,668 | 69,183 | 73,184 | 67,668 | 73,184 |
| Non-controlling interests | |||||
| At beginning of period | 475 | 532 | 652 | 1,770 | 686 |
| Currency translation adjustments and other movements | (21) | (1) | (4) | (7) | (19) |
| Profit/(loss) attributable to non-controlling interests | |||||
| - continuing operations | 8 | (21) | (7) | 97 | (36) |
| - discontinued operations | (2) | 7 | 4 | 26 | 8 |
| Movements in available-for-sale securities | |||||
| - unrealised gains | 2 | - | 3 | 11 | 4 |
| - realised (gains)/losses | - | - | (2) | - | 18 |
| - tax | - | - | - | (1) | - |
| - recycled to profit or loss on disposal of business (3) | - | - | - | (5) | - |
| Equity raised | - | - | - | - | 1 |
| Equity withdrawn and disposals | - | (42) | - | (1,429) | (16) |
| At end of period | 462 | 475 | 646 | 462 | 646 |
| Total equity at end of period | 68,130 | 69,658 | 73,830 | 68,130 | 73,830 |
| Total comprehensive income/(loss) recognised | |||||
| in the statement of changes in equity is | |||||
| attributable to: | |||||
| Non-controlling interests | (13) | (15) | (6) | 121 | (25) |
| Preference shareholders | 98 | 81 | 98 | 250 | 174 |
| Paid-in equity holders | 4 | 20 | 6 | 34 | 12 |
| Ordinary and B shareholders | (1,756) | (1,577) | (1,505) | (1,471) | (3,009) |
| (1,667) | (1,491) | (1,407) | (1,066) | (2,848) |
* Restated - see page 75.
For the notes to this table refer to page 72.
The Group's condensed consolidated financial statements should be read in conjunction with the 2012 annual accounts which were prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) and interpretations issued by the IFRS Interpretations Committee of the IASB as adopted by the European Union (EU) (together IFRS).
In accordance with IFRS 5, Direct Line Group was classified as a discontinued operation in 2012, and prior periods represented.
Having reviewed the Group's forecasts, projections and other relevant evidence, the directors have a reasonable expectation that the Group will continue in operational existence for the foreseeable future. Accordingly, the Interim Management Statement for the period ended 30 September 2013 has been prepared on a going concern basis.
There have been no significant changes to the Group's principal accounting policies as set out on pages 360 to 371 of the 2012 Annual Report and Accounts apart from the adoption of a number of new and revised IFRSs that are effective from 1 January 2013 as described below.
IFRS 11 'Joint Arrangements', which supersedes IAS 31 'Interests in Joint Ventures', distinguishes between joint operations and joint ventures. Joint operations are accounted for by the investor recognising its assets and liabilities including its share of any assets held and liabilities incurred jointly and its share of revenues and costs. Joint ventures are accounted for in the investor's consolidated accounts using the equity method. IFRS 11 requires retrospective application.
IAS 27 'Separate Financial Statements' comprises those parts of the existing IAS 27 that deal with separate financial statements. IAS 28 'Investments in Associates and Joint Ventures' covers joint ventures as well as associates; both must be accounted for using the equity method. The mechanics of the equity method are unchanged.
IFRS 12 'Disclosure of Interests in Other Entities' mandates the disclosures in annual financial statements in respect of investments in subsidiaries, joint arrangements, associates and structured entities that are not controlled by the Group.
IFRS 13 'Fair Value Measurement' sets out a single IFRS framework for defining and measuring fair value. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also requires disclosures about fair value measurements.
'Disclosures - Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7)' amended IFRS 7 to require disclosures about the effects and potential effects on an entity's financial position of offsetting financial assets and financial liabilities and related arrangements.
Amendments to IAS 1 'Presentation of Items of Other Comprehensive Income' require items that will never be recognised in profit or loss to be presented separately in other comprehensive income from those items that are subject to subsequent reclassification.
'Annual Improvements 2009-2011 Cycle' also made a number of minor changes to IFRSs.
Implementation of the standards above has not had a material effect on the Group's results.
IAS 19 'Employee Benefits' (revised) requires: the immediate recognition of all actuarial gains and losses; interest cost to be calculated on the net pension liability or asset at the long-term bond rate, such that an expected rate of return will no longer be applied to assets; and all past service costs to be recognised immediately when a scheme is curtailed or amended. Implementation of IAS 19 resulted in an increase in the loss after tax of £21 million for the quarter ended 30 September 2012 and £63 million for the nine months ended 30 September 2012. Prior periods have been restated accordingly.
IFRS 10 'Consolidated Financial Statements' replaces SIC-12 'Consolidation - Special Purpose Entities' and the consolidation elements of the existing IAS 27 'Consolidated and Separate Financial Statements'. IFRS 10 adopts a single definition of control: a reporting entity controls another entity when the reporting entity has the power to direct the activities of that other entity so as to vary returns for the reporting entity. IFRS 10 requires retrospective application. Following implementation of IFRS 10, certain entities that have trust preferred securities in issue are no longer consolidated by the Group. As a result there was a reduction in Non-controlling interests of £0.5 billion with a corresponding increase in Owners' equity (Paid-in equity) as at 30 September 2012. This resulted in an increase in the loss attributable to non-controlling interests of £6 million for the quarter ended 30 September 2012 and £12 million for the nine months ended 30 September 2012, with corresponding increases in the profit attributable to paid-in equity holders. There was no impact on the profit/(loss) attributable to ordinary and B shareholders. Prior periods have been restated accordingly.
The reported results of the Group are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of its financial statements. The judgements and assumptions that are considered to be the most important to the portrayal of the Group's financial condition are those relating to pensions; goodwill; provisions for liabilities; deferred tax; loan impairment provisions and financial instrument fair values. These critical accounting policies and judgments are described on pages 368 to 371 of the Group's 2012 Annual Report and Accounts.
The IASB published:
The Group is reviewing these requirements to determine their effect, if any, on its financial reporting.
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012* | 2013 | 2012* | |
| £m | £m | £m | £m | £m | |
| Loans and advances to customers | 3,829 | 3,809 | 3,938 | 11,469 | 12,249 |
| Loans and advances to banks | 106 | 114 | 106 | 328 | 379 |
| Debt securities | 272 | 358 | 412 | 970 | 1,463 |
| Interest receivable | 4,207 | 4,281 | 4,456 | 12,767 | 14,091 |
| Customer accounts | 692 | 740 | 859 | 2,269 | 2,645 |
| Deposits by banks | 95 | 107 | 131 | 318 | 478 |
| Debt securities in issue | 315 | 345 | 410 | 1,013 | 1,619 |
| Subordinated liabilities | 223 | 225 | 204 | 670 | 611 |
| Internal funding of trading businesses | 102 | 97 | 43 | 280 | 109 |
| Interest payable | 1,427 | 1,514 | 1,647 | 4,550 | 5,462 |
| Net interest income | 2,780 | 2,767 | 2,809 | 8,217 | 8,629 |
| Fees and commissions receivable | |||||
| - payment services | 375 | 355 | 335 | 1,064 | 1,051 |
| - credit and debit card fees | 284 | 275 | 273 | 813 | 808 |
| - lending (credit facilities) | 335 | 345 | 397 | 1,033 | 1,112 |
| - brokerage | 117 | 143 | 145 | 369 | 431 |
| - investment management | 109 | 97 | 130 | 319 | 365 |
| - trade finance | 73 | 75 | 79 | 226 | 250 |
| - other | 89 | 102 | 41 | 266 | 318 |
| 1,382 | 1,392 | 1,400 | 4,090 | 4,335 | |
| Fees and commissions payable - banking | (238) | (250) | (209) | (698) | (589) |
| Net fees and commissions | 1,144 | 1,142 | 1,191 | 3,392 | 3,746 |
| Foreign exchange | 198 | 255 | 133 | 648 | 568 |
| Interest rate | 248 | 203 | 378 | 650 | 1,476 |
| Credit | 116 | 328 | 232 | 996 | 619 |
| Own credit adjustments | (155) | 76 | (435) | 20 | (1,715) |
| Other | 37 | 87 | 26 | 194 | 253 |
| Income from trading activities | 444 | 949 | 334 | 2,508 | 1,201 |
| Gain/(loss) on redemption of own debt | 13 | 242 | (123) | 204 | 454 |
| Operating lease and other rental income | 125 | 118 | 163 | 381 | 725 |
| Own credit adjustments | (341) | 51 | (1,020) | (140) | (2,714) |
| Changes in the fair value of: | |||||
| - securities and other financial assets and liabilities | 36 | 17 | 72 | 65 | 127 |
| - investment properties | (7) | (7) | (20) | (23) | (76) |
| Profit on sale of securities | 167 | 419 | 492 | 739 | 909 |
| Profit/(loss) on sale of: | |||||
| - property, plant and equipment | 10 | 5 | (1) | 33 | 36 |
| - subsidiaries and associated undertakings | (21) | 24 | (27) | (3) | 116 |
| Dividend income | 6 | 21 | 12 | 41 | 42 |
| Share of profits less losses of associated undertakings | 73 | 27 | 7 | 277 | 8 |
| Other income | (13) | 45 | 70 | (3) | 135 |
| Other operating income | 35 | 720 | (252) | 1,367 | (692) |
* Restated - see page 75.
| Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | ||||
| 2013 | 2013 | 2012* | 2013 | 2012* | ||
| £m | £m | £m | £m | £m | ||
| Total non-interest income | 1,636 | 3,053 | 1,150 | 7,471 | 4,709 | |
| Total income | 4,416 | 5,820 | 3,959 | 15,688 | 13,338 | |
| Staff costs | 1,895 | 1,840 | 1,987 | 5,622 | 6,532 | |
| Premises and equipment | 544 | 548 | 550 | 1,648 | 1,640 | |
| Other (1) | 1,103 | 1,418 | 1,193 | 3,284 | 3,087 | |
| Administrative expenses | 3,542 | 3,806 | 3,730 | 10,554 | 11,259 | |
| Depreciation and amortisation | 338 | 349 | 421 | 1,074 | 1,304 | |
| Operating expenses | 3,880 | 4,155 | 4,151 | 11,628 | 12,563 | |
| Loan impairment losses | 1,120 | 1,125 | 1,183 | 3,281 | 3,913 | |
| Securities | 50 | (8) | (7) | 39 | (88) | |
| Impairment losses | 1,170 | 1,117 | 1,176 | 3,320 | 3,825 |
* Restated - see page 75.
Note:
(1) Includes Payment Protection Insurance costs, Interest Rate Hedging Products redress and related costs and regulatory and legal action costs. See below for further details.
Refer to Appendix 2 for a reconciliation between the managed and statutory bases for key line items.
The Group increased its provision for PPI in Q3 2013 by £250 million (Q2 2013 - £185 million; Q3 2012 - £400 million). The cumulative charge in respect of PPI is £2.6 billion, of which £1.9 billion (73%) in redress and expenses had been paid by 30 September 2013. Of the £2.6 billion cumulative charge, £2.3 billion relates to redress and £0.3 billion to administrative expenses.
| Quarter ended | Nine months ended | ||||
|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | |||
| 2013 | 2013 | 2012 | 2013 | 2012 | |
| £m | £m | £m | £m | £m | |
| At beginning of period | 704 | 705 | 588 | 895 | 745 |
| Charge to income statement | 250 | 185 | 400 | 435 | 660 |
| Utilisations | (217) | (186) | (304) | (593) | (721) |
| At end of period | 737 | 704 | 684 | 737 | 684 |
The remaining provision provides coverage for approximately ten months for redress and administrative expenses, based on the current average monthly utilisation.
The principal assumptions underlying the Group's provision in respect of PPI sales relate to: assessment of the total number of complaints that the Group will receive; the proportion of these that will result in redress; and the average cost of such redress. The number of complaints has been estimated from an analysis of the Group's portfolio of PPI policies sold by vintage and by product. Estimates of the percentage of policyholders that will lodge complaints (the take up rate) and of the number of these that will be upheld (the uphold rate) have been established based on recent experience, guidance in the FSA policy statements and expected rate of responses from proactive customer contact. The average redress assumption is based on recent experience, the calculation rules in the FSA statement and the expected mix of claims.
The table below shows the sensitivity of the provision to changes in the principal assumptions (all other assumptions remaining the same).
| Sensitivity | |||||
|---|---|---|---|---|---|
| Assumption | Actual to date | Current assumption |
Change in assumption % |
Consequential change in provision £m |
|
| Past business review take up rate | 34% | 38% | +/-5 | +/-45 | |
| Uphold rate | 68% | 69% | +/-5 | +/-20 | |
| Average redress | £1,736 | £1,674 | +/-5 | +/-21 |
Interest that will be payable on successful complaints has been included in the provision as has the estimated cost to the Group of administering the redress process. The Group expects the majority of the cash outflows associated with this provision to have occurred by the end of Q2 2014. There are uncertainties as to the eventual cost of redress which will depend on actual complaint volumes, take up and uphold rates and average redress costs. Assumptions relating to these are inherently uncertain and the ultimate financial impact may be different than the amount provided. The Group will continue to monitor the position closely and refresh its assumptions.
Following an industry-wide review conducted in conjunction with the Financial Services Authority (now being dealt with by the Financial Conduct Authority (FCA)), a charge of £700 million was booked in Q4 2012 for redress in relation to certain interest rate hedging products sold to small and medium-sized businesses classified as retail clients under FSA rules. £575 million was earmarked for client redress and £125 million for administrative expenses. The estimate for administrative costs was increased by £50 million in Q1 2013 following development of the plan for administering this process in accordance with FSA guidelines. Customers may also be entitled to be compensated for any consequential losses they may have suffered. The Group is not able to measure reliably any liability it may have and has accordingly not made any provision.
The Group is now making steady progress after a challenging start with its review of sales of IRHP and expects to complete this and provide basic redress to all customers who are entitled to it by the end of May 2014. On 23 October 2013, the Group announced that it would split redress payments for all customers who may have been mis-sold IRHP. Customers will receive redress monies without having to wait for the assessment of any additional consequential loss claims which are outside the allowance for such claims included in the 8% interest on redress due.
The Group continues to monitor the level of provision given the uncertainties over the number of transactions that will qualify for redress and the nature and cost of that redress.
| Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | ||||
| 2013 | 2013 | 2012 | 2013 | 2012 | ||
| £m | £m | £m | £m | £m | ||
| At beginning of period | 670 | 702 | - | 676 | - | |
| Charge to income statement | - | - | - | 50 | - | |
| Utilisations | (39) | (32) | - | (95) | - | |
| At end of period | 631 | 670 | - | 631 | - |
The Group is party to certain legal proceedings and regulatory investigations and continues to co-operate with a number of regulators. All such matters are periodically reassessed with the assistance of external professional advisers, where appropriate, to determine the likelihood of the Group incurring a liability and to evaluate the extent to which a reliable estimate of any liability can be made. An additional charge of £385 million was booked in Q2 2013 and £99 million in Q3 2013 in respect of these matters.
Operating (loss)/profit is stated after charging loan impairment losses of £1,120 million (Q2 2013 - £1,125 million; Q3 2012 - £1,183 million). The balance sheet loan impairment provisions decreased in the quarter ended 30 September 2013 from £21,753 million to £21,421 million and the movements thereon were:
| Quarter ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 30 September 2013 | 30 June 2013 | 30 September 2012 | |||||||||
| Non- | Non- | Non | |||||||||
| Core | Core | Total | Core | Core | Total | Core | Core | Total | |||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | |||
| At beginning of period | 10,358 | 11,395 | 21,753 | 10,266 | 11,228 | 21,494 | 8,944 | 11,353 | 20,297 | ||
| Currency translation and other adjustments | (98) | (211) | (309) | 71 | 75 | 146 | (5) | (186) | (191) | ||
| Disposals | - | (77) | (77) | - | - | - | - | - | - | ||
| Amounts written-off | (728) | (302) | (1,030) | (626) | (341) | (967) | (466) | (454) | (920) | ||
| Recoveries of amounts previously written-off | 40 | 30 | 70 | 41 | 15 | 56 | 34 | 31 | 65 | ||
| Charge to income statement | |||||||||||
| - continuing operations | 584 | 536 | 1,120 | 659 | 466 | 1,125 | 751 | 432 | 1,183 | ||
| Unwind of discount | |||||||||||
| (recognised in interest income) | (55) | (51) | (106) | (53) | (48) | (101) | (55) | (61) | (116) | ||
| At end of period | 10,101 | 11,320 | 21,421 | 10,358 | 11,395 | 21,753 | 9,203 | 11,115 | 20,318 |
| Nine months ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 30 September 2013 | 30 September 2012 | ||||||||
| Non- | Non | ||||||||
| Core | Core | Total | Core | Core | Total | ||||
| £m | £m | £m | £m | £m | £m | ||||
| At beginning of period | 10,062 | 11,188 | 21,250 | 8,414 | 11,469 | 19,883 | |||
| Currency translation and other adjustments | 109 | 130 | 239 | (4) | (502) | (506) | |||
| Disposals | - | (77) | (77) | - | - | - | |||
| Amounts written-off | (1,883) | (1,270) | (3,153) | (1,457) | (1,388) | (2,845) | |||
| Recoveries of amounts previously written-off | 130 | 61 | 191 | 161 | 84 | 245 | |||
| Charge to income statement | |||||||||
| - continuing operations | 1,842 | 1,439 | 3,281 | 2,266 | 1,647 | 3,913 | |||
| Unwind of discount (recognised in interest income) | (159) | (151) | (310) | (177) | (195) | (372) | |||
| At end of period | 10,101 | 11,320 | 21,421 | 9,203 | 11,115 | 20,318 |
Provisions at 30 September 2013 include £69 million in respect of loans and advances to banks (30 June 2013 - £83 million; 30 September 2012 - £117 million). The tables above exclude impairments relating to securities.
The actual tax charge differs from the expected tax credit/(charge) computed by applying the standard UK corporation tax rate of 23.25% (2012 - 24.5%).
| Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| 30 September | 30 June | 30 September | 30 September | 30 September | ||
| 2013 | 2013 | 2012* | 2013 | 2012* | ||
| £m | £m | £m | £m | £m | ||
| (Loss)/profit before tax | (634) | 548 | (1,368) | 740 | (3,050) | |
| Expected tax credit/(charge) | 147 | (127) | 335 | (172) | 747 | |
| Losses in period where no deferred tax | ||||||
| asset recognised | (75) | (44) | (129) | (191) | (382) | |
| Foreign profits taxed at other rates | (32) | (32) | (95) | (152) | (306) | |
| UK tax rate change impact | (197) | - | (89) | (197) | (135) | |
| Unrecognised timing differences | 10 | (15) | 3 | (2) | 17 | |
| Items not allowed for tax | ||||||
| - losses on disposals and write-downs | (5) | - | (8) | (5) | (8) | |
| - UK bank levy | (12) | (9) | (16) | (41) | (53) | |
| - regulatory and legal actions | - | (90) | - | (90) | - | |
| - employee share schemes | (7) | (7) | (15) | (21) | (44) | |
| - other disallowable items | (21) | (45) | (37) | (103) | (113) | |
| Non-taxable items | ||||||
| - gain on sale of RBS Aviation Capital | - | - | - | - | 27 | |
| - other non-taxable items | 29 | 31 | 18 | 115 | 44 | |
| Taxable foreign exchange movements | (12) | (4) | 1 | (14) | (1) | |
| Losses brought forward and utilised | (4) | 22 | 1 | 23 | 12 | |
| Reduction in carrying value of deferred tax asset in | ||||||
| respect of losses in Australia | - | - | - | - | (182) | |
| Adjustments in respect of prior periods | 98 | (8) | 28 | 91 | (25) | |
| Actual tax charge | (81) | (328) | (3) | (759) | (402) |
* Restated - see page 75.
The high tax charge for the period ended 30 September 2013 reflects profits in high tax regimes (principally US) and losses in low tax regimes (principally Ireland), losses in overseas subsidiaries for which a deferred tax asset has not been recognised (principally Ireland) and the effect of the reduction of 3% in the rate of UK corporation tax enacted in July 2013.
The Group has recognised a deferred tax asset at 30 September 2013 of £3,022 million (30 June 2013 - £3,344 million; 31 December 2012 - £3,443 million) and a deferred tax liability at 30 September 2013 of £514 million (30 June 2013 - £694 million; 31 December 2012 - £1,141 million). These include amounts recognised in respect of UK trading losses of £2,578 million (30 June 2013 - £2,900 million; 31 December 2012 - £3,072 million). 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 30 September 2013 and concluded that it is recoverable based on future profit projections.
| Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | ||||
| 2013 | 2013 | 2012* | 2013 | 2012* | ||
| £m | £m | £m | £m | £m | ||
| RBS Sempra Commodities JV | 1 | - | (2) | (1) | 2 | |
| RFS Holdings BV Consortium Members | 5 | - | 4 | 118 | (31) | |
| Direct Line Group | - | - | - | 19 | - | |
| Other | - | (14) | (5) | (13) | 1 | |
| Profit/(loss) attributable to non-controlling interests | 6 | (14) | (3) | 123 | (28) |
* Restated - see page 75.
Dividends paid to preference shareholders and paid-in equity holders are as follows:
| Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | ||||
| 2013 | 2013 | 2012* | 2013 | 2012* | ||
| £m | £m | £m | £m | £m | ||
| Preference shareholders | ||||||
| Non-cumulative preference shares of US\$0.01 | 69 | 45 | 67 | 185 | 110 | |
| Non-cumulative preference shares of €0.01 | 29 | 35 | 27 | 64 | 60 | |
| Non-cumulative preference shares of £1 | - | 1 | 4 | 1 | 4 | |
| Paid-in equity holders | ||||||
| Interest on securities classified as equity, net of tax | 4 | 20 | 6 | 34 | 12 | |
| 102 | 101 | 104 | 284 | 186 |
* Restated - see page 75.
The Group has now resumed payments on all discretionary non-equity capital instruments following the end of the European Commission ban in 2012 for RBSG and 2013 for RBS N.V. Future coupons and dividends on hybrid capital instruments will only be paid subject to, and in accordance with, the terms of the relevant instruments.
In the context of prior macro-prudential policy discussions, the Board of RBSG has decided to partially neutralise any impact on Core Tier 1 capital of coupon and dividend payments in respect of RBSG hybrid capital instruments and the RBS N.V. Trust Preferred Securities through an equity issuance of c.£300 million. Of this, approximately £205 million has been raised through the issue of new ordinary shares which has been completed by 30 September 2013. A further £44 million has been raised through the sale of surplus shares held by the Group's Employee Benefit Trust during Q2 2013. RBSG expects to issue a further c.£50 million of new ordinary shares over the remainder of the year.
Earnings per ordinary and B share have been calculated based on the following:
| Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | ||||
| 2013 | 2013 | 2012* | 2013 | 2012* | ||
| Earnings | ||||||
| (Loss)/profit from continuing operations attributable | ||||||
| to ordinary and B shareholders (£m) | (825) | 140 | (1,468) | (400) | (3,602) | |
| (Loss)/profit from discontinued operations | ||||||
| attributable to ordinary and B shareholders (£m) | (3) | 2 | 63 | 107 | 165 | |
| Ordinary shares outstanding during the period (millions) | 6,123 | 6,073 | 5,975 | 6,076 | 5,867 | |
| Effect of convertible B shares in issue during | ||||||
| the period (millions) | 5,100 | 5,100 | 5,100 | 5,100 | 5,100 | |
| Weighted average number of ordinary | ||||||
| shares and effect of convertible B shares | ||||||
| outstanding during the period (millions) | 11,223 | 11,173 | 11,075 | 11,176 | 10,967 | |
| Effect of dilutive share options and convertible | ||||||
| securities (millions) | - | 114 | - | - | - | |
| Diluted weighted average number of ordinary and | ||||||
| B shares outstanding during the period (millions) | 11,223 | 11,287 | 11,075 | 11,176 | 10,967 | |
| Basic (loss)/earnings per ordinary and B | ||||||
| share from continuing operations | (7.4p) | 1.2p. | (13.3p) | (3.6p) | (32.8p) | |
| Own credit adjustments | 3.8p. | (0.8p) | 10.1p. | 1.2p. | 31.5p. | |
| Payment Protection Insurance costs | 1.7p. | 1.3p. | 2.8p. | 3.0p. | 4.6p. | |
| Interest Rate Hedging Products redress and related | ||||||
| costs | - | - | - | 0.3p. | - | |
| Regulatory fines | 0.5p. | 3.4p. | - | 3.9p. | - | |
| Integration and restructuring costs | 1.4p. | 1.1p. | 1.6p. | 3.4p. | 6.0p. | |
| (Gain)/loss on redemption of own debt | - | (2.1p) | 0.8p. | (1.7p) | (3.2p) | |
| Asset Protection Scheme | - | - | - | - | 0.3p. | |
| Amortisation of purchased intangible assets | 0.3p. | 0.2p. | 0.3p. | 0.8p. | 1.0p. | |
| Strategic disposals | 0.1p. | (0.1p) | 0.2p. | 0.1p. | (1.1p) | |
| Adjusted earnings per ordinary and | ||||||
| B share from continuing operations | 0.4p. | 4.2p. | 2.5p. | 7.4p. | 6.3p. | |
| Loss from Non-Core division attributable to | ||||||
| ordinary shareholders | 3.6p. | 1.4p. | 2.6p. | 7.5p. | 7.4p. | |
| Core adjusted earnings per ordinary and | ||||||
| B share | 4.0p. | 5.6p. | 5.1p. | 14.9p. | 13.7p. | |
| Memo: Core adjusted earnings per | ||||||
| ordinary and B share assuming normalised | ||||||
| tax rate of 23.25% (2012 - 24.5%) | 7.9p. | 7.4p. | 9.3p. | 23.2p. | 29.0p. | |
| Diluted (loss)/earnings per ordinary and B | ||||||
| share from continuing operations | (7.4p) | 1.2p. | (13.3p) | (3.6p) | (32.8p) |
* Restated - see page 75.
For a description of the Group's valuation methodologies refer to the Group's 2012 Annual Report and Accounts.
When valuing financial instruments in the trading book, adjustments are made to mid-market valuations to cover bid-offer spread, liquidity and credit risk. The following table shows credit valuation adjustments and other valuation reserves. Valuation adjustments represent an estimate of the adjustment to fair value that a market participant would make to incorporate the risk inherent in derivative exposures.
| 30 September | 30 June | 31 December | |
|---|---|---|---|
| 2013 £m 199 1,790 1,989 |
2013 | 2012 | |
| £m | £m | ||
| Credit valuation adjustments (CVA) | |||
| - monoline insurers and credit derivative product companies (CDPC) | 288 | 506 | |
| - other counterparties | 1,969 | 2,308 | |
| 2,257 | 2,814 | ||
| Other valuation reserves | |||
| - bid-offer | 464 | 535 | 625 |
| - funding valuation adjustment (FVA) | 355 | 472 | 475 |
| - product and deal specific | 759 | 790 | 763 |
| - other | 26 | 75 | 134 |
| 1,604 | 1,872 | 1,997 | |
| Valuation reserves | 3,593 | 4,129 | 4,811 |
The cumulative own credit adjustment (OCA) recorded on held-for-trading (HFT) and designated as at fair value through profit or loss (DFV) debt securities issued and derivative liabilities are set out below.
| Debt securities in issue (2) | Subordinated liabilities |
|||||||
|---|---|---|---|---|---|---|---|---|
| Cumulative OCA DR/(CR) (1) | HFT £m |
DFV £m |
Total £m |
DFV £m |
Total Derivatives £m £m |
Total (3) £m |
||
| 30 September 2013 | (548) | (42) | (590) | 295 | (295) | 95 | (200) | |
| 30 June 2013 | (488) | 244 | (244) | 380 | 136 | 309 | 445 | |
| 31 December 2012 | (648) | 56 | (592) | 362 | (230) | 259 | 29 | |
| Carrying values of underlying liabilities | £bn | £bn | £bn | £bn | £bn | |||
| 30 September 2013 | 9.4 | 17.4 | 26.8 | 0.9 | 27.7 | |||
| 30 June 2013 | 9.3 | 20.7 | 30.0 | 0.9 | 30.9 | |||
| 31 December 2012 | 10.9 | 23.6 | 34.5 | 1.1 | 35.6 |
Notes:
(1) The OCA does not alter cash flows and is not used for performance management. It is disregarded for regulatory capital reporting purposes and will reverse over time as the liabilities mature.
(2) Includes wholesale and retail note issuances.
(3) The reserve movement between periods will not equate to the reported profit or loss for own credit. The balance sheet reserve is stated by conversion of underlying currency balances at spot rates for each period, whereas the income statement includes intra-period foreign exchange sell-offs.
| Quarter ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| 30 September | 30 June 30 September | 30 September 30 September | ||||
| 2013 | 2013 | 2012 | 2013 | 2012 | ||
| Available-for-sale reserve | £m | £m | £m | £m | £m | |
| At beginning of period | (714) | (10) | (450) | (346) | (957) | |
| Unrealised gains/(losses) | 592 | (568) | 651 | 606 | 1,803 | |
| Realised gains | (164) | (441) | (528) | (769) | (1,110) | |
| Tax | 34 | 305 | 36 | 367 | (27) | |
| Reclassified to profit or loss on disposal of businesses | - | - | - | (110) | - | |
| At end of period | (252) | (714) | (291) | (252) | (291) |
| 30 September 2013 | 30 June 2013 | 31 December 2012 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Core | Non-Core | Total | Core | Non-Core | Total | Core | Non-Core | Total | ||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | ||
| Contingent liabilities | ||||||||||
| Guarantees and assets pledged | ||||||||||
| as collateral security | 20,650 | 727 | 21,377 | 19,099 | 885 | 19,984 | 18,251 | 913 | 19,164 | |
| Other | 6,699 | 96 | 6,795 | 9,980 | 73 | 10,053 | 10,628 | 69 | 10,697 | |
| 27,349 | 823 | 28,172 | 29,079 | 958 | 30,037 | 28,879 | 982 | 29,861 | ||
| Commitments | ||||||||||
| Undrawn formal standby facilities, credit lines and other commitments |
||||||||||
| to lend | 209,138 | 2,640 | 211,778 | 213,909 | 2,983 | 216,892 | 209,892 | 5,916 | 215,808 | |
| Other | 2,577 | 1 | 2,578 | 1,368 | 2 | 1,370 | 1,971 | 5 | 1,976 | |
| 211,715 | 2,641 | 214,356 | 215,277 | 2,985 | 218,262 | 211,863 | 5,921 | 217,784 | ||
| Contingent liabilities and | ||||||||||
| commitments | 239,064 | 3,464 | 242,528 | 244,356 | 3,943 | 248,299 | 240,742 | 6,903 | 247,645 |
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.
Except for the developments noted below, there have been no material changes to litigation, investigations and reviews as disclosed in the Interim Results for the six months ended 30 June 2013.
As previously disclosed, RBS and certain of its subsidiaries, together with certain current and former officers and directors were named as defendants in purported class actions filed in the United States District Court for the Southern District of New York involving holders of RBS preferred shares (the Preferred Shares litigation) and holders of American Depositary Receipts (the ADR claims).
In September 2012, the Court dismissed the Preferred Shares litigation with prejudice. The plaintiffs appealed. On 25 September 2013, the United States Court of Appeals for the Second Circuit affirmed the lower Court's dismissal of the litigation.
In September 2012, the Court dismissed the ADR claims with prejudice. On 5 August 2013, the court denied the plaintiffs' motions for reconsideration and for leave to re-plead their case. The plaintiffs have initiated an appeal to the United States Court of Appeals for the Second Circuit.
As previously disclosed, Group companies have been named as defendants in their various roles as issuer, depositor and/or underwriter in a number of claims in the United States that relate to the securitisation and securities underwriting businesses. Among these lawsuits are six cases filed in September 2011 by the US Federal Housing Finance Agency (FHFA) as conservator for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The primary FHFA lawsuit remains pending in the United States District Court for the District of Connecticut, and it relates to approximately US\$32 billion of mortgage-backed securities (MBS) for which Group entities acted as sponsor/depositor and/or lead underwriter or co-lead underwriter. Of these approximately US\$10.7 billion were outstanding at 30 September 2013 with cumulative losses of approximately US\$0.9 billion (being the loss of principal value suffered by security holders). On 30 September 2013, the Court denied the defendants' motion to dismiss FHFA's amended complaint in this case. Discovery, which the Court had permitted to proceed before ruling on the motion to dismiss, is ongoing.
As previously disclosed, in June 2013, RBS was listed amongst the 20 banks found by the Monetary Authority of Singapore (MAS) to have deficiencies in the governance, risk management, internal controls and surveillance systems relating to benchmark submissions following a finding by the MAS that certain traders made inappropriate attempts to influence benchmarks in the period 2007 - 2011. RBS was ordered at that time to set aside additional statutory reserves with the MAS of SGD1-1.2 billion and to formulate a remediation plan. RBS has now submitted a remediation plan to the MAS.
The Group is co-operating with investigations and new and ongoing requests for information by various other governmental and regulatory authorities, including in the UK, US and Asia into its submissions, communications and procedures relating to a number of trading rates, including LIBOR and other interest rate settings, ISDAFIX and non-deliverable forwards.
In addition, various governmental and regulatory authorities have commenced investigations into foreign exchange trading activities apparently involving multiple financial institutions. The Group has received enquiries from certain of these authorities including the FCA. The Group is reviewing communications and procedures relating to certain currency exchange benchmark rates as well as foreign exchange trading activity and is cooperating with these investigations. At this stage, the Group cannot estimate reliably what effect, if any, the outcome of the investigation may have on the Group.
On 22 August 2013, the FCA announced that Card Protection Plan Limited ("CPP") and 13 banks and credit card issuers, including the Group, had agreed to a compensation scheme in relation to the sale of card and/or identity protection insurance to certain retail customers. CPP has now written to affected policyholders to confirm the details of the proposed scheme, which requires approval by a policyholder vote and by the High Court of England and Wales. A creditors' meeting has been scheduled for 7 January 2014. The ultimate level of redress that the Group may be required to pay under the scheme cannot be estimated.
As previously disclosed, the OFT announced its market study on competition in banking for SMEs in England and Wales, Scotland and Northern Ireland on 19 June 2013. The OFT has been seeking views on the scope of the market study and on 27 September 2013 published an update paper setting out its proposed scope. The OFT expects to report on the market study in early 2014.
On 5 July 2013, the rating agency, Moody's Investors Service (Moody's) placed on review for possible downgrade the long term ratings of the Group and its subsidiaries The Royal Bank of Scotland plc, National Westminster Bank Plc and RBS N.V. Short term ratings were affirmed as unchanged and are not subject to Moody's' review. The rating action was prompted by the UK Government's announcement that it would examine the merit of splitting up the Group by placing its bad assets in a separate legal entity under a 'Good Bank/Bad Bank' split. Moody's expect to conclude their rating review on the Group in the autumn following publication of the Government's conclusion to its 'Good Bank/Bad Bank' assessment. Ulster Bank Limited and Ulster Bank Ireland Limited's long and short term ratings were also placed on review for possible downgrade.
On the same date Moody's upgraded, by three notches, three series of the Group's Trust Preferred Securities (RBS Capital Funding Trust V, RBS Capital Funding Trust VI and RBS Capital Funding Trust VII) to 'Ba3' from 'B3' upon the announcement that the Group would resume coupon payments on these securities following expiration of the European Commission payments ban.
As a result of its rating action on the Group, on 8 July 2013, Moody's also placed on review for possible downgrade the long term ratings of RBS Citizens N.A. and Citizens Bank of Pennsylvania. Short term ratings were affirmed as unchanged.
On 16 July 2013, the rating outlooks of Ulster Bank Limited and Ulster Bank Ireland Limited were revised to Negative from Stable by the rating agency, Standard & Poor's (S&P). The rating actions were prompted by the announcement of the 'Good Bank/Bad Bank' review.
On 19 September 2013, Fitch Ratings ('Fitch') affirmed its ratings on the Group and key subsidiaries as unchanged.
Current Group and subsidiary ratings are shown in the table below:
| Moody's | S&P | Fitch | ||||
|---|---|---|---|---|---|---|
| Long-term | Short-term | Long-term | Short-term | Long-term | Short-term | |
| RBS Group plc | Baa1 | P-2 | A- | A-2 | A | F1 |
| The Royal Bank of Scotland plc | A3 | P-2 | A | A-1 | A | F1 |
| National Westminster Bank Plc | A3 | P-2 | A | A-1 | A | F1 |
| RBS N.V. | A3 | P-2 | A | A-1 | A | F1 |
| RBS Citizens, N.A/Citizens Bank of Pennsylvania |
A3 | P-2 | A | A-1 | A- | F1 |
| Ulster Bank Ltd/Ulster Bank Ireland Ltd |
Baa2 | P-2 | BBB+ | A-2 | A- | F1 |
This announcement was approved by the Board of directors on 31 October 2013.
Save as detailed below, there have been no significant events between 30 September 2013 and the date of approval of this announcement which would require a change to or additional disclosure in the announcement.
The Group today has announced the establishment of an internal 'bad bank' to run down a pool of assets totalling £38 billion over the next three years. We have also announced our intention to accelerate the IPO of Citizens to 2014 with full divestment intended by the end of 2016.
In the balance sheet, the assets and liabilities of disposal groups are presented as a single line as required by IFRS. In the risk and balance sheet management section, balances and exposures relating to disposal groups are included within risk measures for all periods presented as permitted by IFRS.
The Group's capital, risk-weighted assets (RWAs) and risk asset ratios, calculated in accordance with Prudential Regulation Authority (PRA) definitions, are set out below.
| Current rules | 30 September 2013 |
30 June 2013 |
31 December 2012 |
|---|---|---|---|
| Capital | £bn | £bn | £bn |
| Core Tier 1 | 47.5 | 48.4 | 47.3 |
| Tier 1 | 56.6 | 57.8 | 57.1 |
| Total | 66.6 | 68.8 | 66.8 |
| Credit risk | |||
|---|---|---|---|
| - non-counterparty | 303.1 | 315.7 | 323.2 |
| - counterparty | 34.5 | 40.2 | 48.0 |
| Market risk | 30.6 | 38.3 | 42.6 |
| Operational risk | 41.8 | 41.8 | 45.8 |
| 410.0 | 436.0 | 459.6 | |
| Risk asset ratios | % | % | % |
| Core Tier 1 | 11.6 | 11.1 | 10.3 |
| Tier 1 | 13.8 | 13.3 | 12.4 |
| Total | 16.2 | 15.8 | 14.5 |
| Fully loaded Capital Requirements Regulations (CRR) estimates (1) | 30 September 2013 |
30 June 2013 |
31 December 2012 |
|---|---|---|---|
| Common Equity Tier 1 capital | £41.1bn | £41.2bn | £38.1bn |
| RWAs | £452.5bn | £471.5bn | £494.6bn |
| Fully loaded Basel III basis Core Tier 1 ratio | 9.1% | 8.7% | 7.7% |
| Leverage ratio | 3.6% | 3.4% | 3.1% |
Note:
(1) Calculated on the same basis as disclosed on page 136 of the Group's 2012 Annual Report and Accounts.
• The CRR leverage ratio improved by 50 basis points to date; 20 basis points in Q3, primarily reflecting balance sheet reduction.
Capital resources
The Group's regulatory capital resources in accordance with PRA definitions were as follows:
| 30 September | 30 June | 31 December | |
|---|---|---|---|
| 2013 | 2013 | 2012 | |
| £m | £m | £m | |
| Shareholders' equity (excluding non-controlling interests) | |||
| Shareholders' equity | 67,668 | 69,183 | 68,678 |
| Preference shares - equity | (4,313) | (4,313) | (4,313) |
| Other equity instruments | (979) | (979) | (979) |
| 62,376 | 63,891 | 63,386 | |
| Non-controlling interests | |||
| Non-controlling interests | 462 | 475 | 1,770 |
| Adjustments to non-controlling interests for regulatory purposes | - | - | (1,367) |
| 462 | 475 | 403 | |
| Regulatory adjustments and deductions | |||
| Own credit | 762 | 447 | 691 |
| Defined benefit pension fund adjustment | 667 | 628 | 913 |
| Unrealised losses on available-for-sale (AFS) debt securities | 358 | 800 | 410 |
| Unrealised gains on AFS equity shares | (106) | (86) | (63) |
| Cash flow hedging reserve | (447) | (491) | (1,666) |
| Other adjustments for regulatory purposes | (115) | (140) | (198) |
| Goodwill and other intangible assets | (13,742) | (13,997) | (13,545) |
| 50% excess of expected losses over impairment provisions (net of tax) | (1,801) | (2,032) | (1,904) |
| 50% of securitisation positions | (889) | (1,051) | (1,107) |
| (15,313) | (15,922) | (16,469) | |
| Core Tier 1 capital | 47,525 | 48,444 | 47,320 |
| Other Tier 1 capital | |||
| Preference shares - equity | 4,313 | 4,313 | 4,313 |
| Preference shares - debt | 919 | 1,112 | 1,054 |
| Innovative/hybrid Tier 1 securities | 4,330 | 4,427 | 4,125 |
| 9,562 | 9,852 | 9,492 | |
| Tier 1 deductions | |||
| 50% of material holdings (1) | (1,003) | (1,124) | (295) |
| Tax on excess of expected losses over impairment provisions | 546 | 616 | 618 |
| (457) | (508) | 323 | |
| Total Tier 1 capital | 56,630 | 57,788 | 57,135 |
For the note to this table refer to the following page.
Components of capital (Basel 2.5)
| 30 September | 30 June | 31 December | |
|---|---|---|---|
| 2013 | 2013 | 2012 | |
| £m | £m | £m | |
| Qualifying Tier 2 capital | |||
| Undated subordinated debt | 2,103 | 2,136 | 2,194 |
| Dated subordinated debt - net of amortisation | 11,896 | 13,530 | 13,420 |
| Unrealised gains on AFS equity shares | 106 | 86 | 63 |
| Collectively assessed impairment provisions | 386 | 415 | 399 |
| 14,491 | 16,167 | 16,076 | |
| Tier 2 deductions | |||
| 50% of securitisation positions | (889) | (1,051) | (1,107) |
| 50% excess of expected losses over impairment provisions | (2,347) | (2,648) | (2,522) |
| 50% of material holdings (1) | (1,003) | (1,124) | (295) |
| (4,239) | (4,823) | (3,924) | |
| Total Tier 2 capital | 10,252 | 11,344 | 12,152 |
| Supervisory deductions | |||
| Unconsolidated investments | |||
| - Direct Line Group (1) | - | - | (2,081) |
| - Other investments | (39) | (39) | (162) |
| Other deductions | (209) | (271) | (244) |
| (248) | (310) | (2,487) | |
| Total regulatory capital | 66,634 | 68,822 | 66,800 |
The table below analyses the movement in Core Tier 1, Other Tier 1 and Tier 2 capital during the nine months ended 30 September 2013.
| Supervisory | |||||
|---|---|---|---|---|---|
| Core Tier 1 Other Tier 1 | Tier 2 | deductions | Total | ||
| £m | £m | £m | £m | £m | |
| At 1 January 2013 | 47,320 | 9,815 | 12,152 | (2,487) | 66,800 |
| Attributable loss net of movements in fair value of own credit | (222) | - | - | - | (222) |
| Share capital and reserve movements in respect of employee | |||||
| share schemes | 256 | - | - | - | 256 |
| Ordinary shares issued | 205 | - | - | - | 205 |
| Foreign exchange reserve | 110 | - | - | - | 110 |
| Foreign exchange movements | - | (4) | 243 | - | 239 |
| Increase in non-controlling interests | 59 | - | - | - | 59 |
| Decrease/(increase) in capital deductions (1) | 321 | (780) | (315) | 2,239 | 1,465 |
| Increase in goodwill and intangibles | (197) | - | - | - | (197) |
| Defined benefit pension fund | (246) | - | - | - | (246) |
| Dated subordinated debt issues | - | - | 652 | - | 652 |
| Dated subordinated debt maturities, redemptions and amortisation | - | - | (2,293) | - | (2,293) |
| Other movements | (81) | 74 | (187) | - | (194) |
| At 30 September 2013 | 47,525 | 9,105 | 10,252 | (248) | 66,634 |
Note:
(1) From 1 January 2013 material holdings in insurance companies are deducted 50% from Tier 1 and 50% from Tier 2.
The table below analyses the movement in credit risk, market risk and operational risk RWAs by key drivers during the nine months ended 30 September 2013.
| Credit risk | Operational | Gross | |||
|---|---|---|---|---|---|
| Non-counterparty | Counterparty | risk | risk | RWAs £bn |
|
| £bn | £bn | £bn | £bn | ||
| At 1 January 2013 | 323.2 | 48.0 | 42.6 | 45.8 | 459.6 |
| Business and market movements (1) | (27.3) | (13.5) | (11.8) | (4.0) | (56.6) |
| Disposals | (5.6) | - | - | - | (5.6) |
| Model changes (2) | 12.8 | - | (0.2) | - | 12.6 |
| At 30 September 2013 | 303.1 | 34.5 | 30.6 | 41.8 | 410.0 |
Notes:
(1) Represents changes in book size, composition, position changes and market movements including foreign exchange impacts.
(2) Refers to implementation of a new model or modification of an existing model after approval from the PRA and changes in model scope.
Liquidity risk depends on factors such as the maturity profile and composition of the Group's assets and liabilities, the quality and market value of its liquidity buffer and broader market factors, such as wholesale market circumstances alongside depositor and investor behaviour.
The table below shows the Group's principal funding sources excluding repurchase agreements.
| 30 September 2013 | 30 June 2013 | 31 December 2012 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Less than 1 year |
More than 1 year |
Total | 1 year | Less than More than 1 year |
Total | 1 year | Less than More than 1 year |
Total | |
| £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| Deposits by banks | |||||||||
| derivative cash collateral | 20,548 | - | 20,548 | 22,176 | - | 22,176 | 28,585 | - | 28,585 |
| other deposits | 16,203 | 1,850 | 18,053 | 18,084 | 5,027 | 23,111 | 18,938 | 9,551 | 28,489 |
| 36,751 | 1,850 | 38,601 | 40,260 | 5,027 | 45,287 | 47,523 | 9,551 | 57,074 | |
| Debt securities in issue | |||||||||
| commercial paper | 2,690 | - | 2,690 | 2,526 | - | 2,526 | 2,873 | - | 2,873 |
| certificates of deposit | 2,120 | 84 | 2,204 | 2,264 | 336 | 2,600 | 2,605 | 391 | 2,996 |
| medium-term notes | 11,014 | 38,438 | 49,452 | 12,013 | 43,129 | 55,142 | 13,019 | 53,584 | 66,603 |
| covered bonds | 1,871 | 7,249 | 9,120 | 185 | 9,140 | 9,325 | 1,038 | 9,101 | 10,139 |
| securitisations | 10 | 8,305 | 8,315 | 807 | 9,321 | 10,128 | 761 | 11,220 | 11,981 |
| 17,705 | 54,076 | 71,781 | 17,795 | 61,926 | 79,721 | 20,296 | 74,296 | 94,592 | |
| Subordinated liabilities | 667 | 23,053 | 23,720 | 857 | 25,681 | 26,538 | 2,351 | 24,951 | 27,302 |
| Notes issued | 18,372 | 77,129 | 95,501 | 18,652 | 87,607 | 106,259 | 22,647 | 99,247 | 121,894 |
| Wholesale funding | 55,123 | 78,979 | 134,102 | 58,912 | 92,634 | 151,546 | 70,170 | 108,798 | 178,968 |
| Customer deposits | |||||||||
| derivative cash collateral | 7,671 | - | 7,671 | 8,179 | - | 8,179 | 7,949 | - | 7,949 |
| other deposits | 409,661 | 17,076 | 426,737 | 409,521 | 19,506 | 429,027 | 400,012 | 26,031 | 426,043 |
| Total customer deposits | 417,332 | 17,076 | 434,408 | 417,700 | 19,506 | 437,206 | 407,961 | 26,031 | 433,992 |
| Total funding | 472,455 | 96,055 | 568,510 | 476,612 | 112,140 | 588,752 | 478,131 | 134,829 | 612,960 |
The table below shows the Group's wholesale funding by source.
| Short-term wholesale funding (1) |
Total wholesale funding |
Net inter-bank funding (2) |
|||||
|---|---|---|---|---|---|---|---|
| Excluding derivative collateral £bn |
Including derivative collateral £bn |
Excluding derivative collateral £bn |
Including derivative collateral £bn |
Deposits £bn |
Loans (3) £bn |
Net inter-bank funding £bn |
|
| 30 September 2013 | 34.6 | 55.1 | 113.6 | 134.1 | 18.1 | (16.6) | 1.5 |
| 30 June 2013 | 36.7 | 58.9 | 129.4 | 151.5 | 23.1 | (17.1) | 6.0 |
| 31 March 2013 | 43.0 | 70.9 | 147.2 | 175.1 | 26.6 | (18.7) | 7.9 |
| 31 December 2012 | 41.6 | 70.2 | 150.4 | 179.0 | 28.5 | (18.6) | 9.9 |
| 30 September 2012 | 48.5 | 77.2 | 158.9 | 187.6 | 29.4 | (20.2) | 9.2 |
Notes:
(1) Short-term wholesale balances denote those with a residual maturity of less than one year and include longer-term issuances.
(2) Excludes derivative cash collateral.
(3) Primarily short-term balances.
The table below analyses the Group's liquidity portfolio by product and by liquidity value. Liquidity value is lower than carrying value principally as it is stated after the discounts applied by the Bank of England and other central banks to instruments, within the secondary liquidity portfolio, eligible for discounting.
| Liquidity value | ||||||||
|---|---|---|---|---|---|---|---|---|
| Period end | Average | |||||||
| 30 September | 30 June 31 December | Q3 | Q2 | Full year | ||||
| 2013 | 2013 | 2012 | 2013 | 2013 | 2012 | |||
| £m | £m | £m | £m | £m | £m | |||
| Cash and balances at central banks | 78,855 | 81,737 | 70,109 | 82,237 | 85,751 | 81,768 | ||
| Central and local government bonds | 14,550 | 18,385 | 20,691 | 16,851 | 19,250 | 30,972 | ||
| Treasury bills | 11 | 650 | 750 | 214 | 665 | 202 | ||
| Primary liquidity | 93,416 | 100,772 | 91,550 | 99,302 | 105,666 | 112,942 | ||
| Secondary liquidity (1) | 57,434 | 56,841 | 55,619 | 56,753 | 56,486 | 41,978 | ||
| Total liquidity value | 150,850 | 157,613 | 147,169 | 156,055 | 162,152 | 154,920 | ||
| Total carrying value | 188,102 | 198,217 | 187,942 |
Note:
(1) Includes assets eligible for discounting at the Bank of England and other central banks.
| 30 September. | 30 June. 31 December. | ||
|---|---|---|---|
| 2013. | 2013. | 2012. | |
| %. | %. | %. | |
| Stressed outflow coverage (1) | 147 | 136 | 128 |
| Liquidity coverage ratio (LCR) (2) | >100. | >100. | >100. |
| Net stable funding ratio (NSFR) (2) | 119 | 120 | 117 |
Notes:
Credit risk is the risk of financial loss due to the failure of a customer or counterparty to meet its obligation to settle outstanding amounts.
The tables below analyse gross loans and advances (excluding reverse repos) and the related credit metrics by division. For a description of the Group's early problem debt identification and problem debt management refer to pages 172 to 180 of the Group's 2012 Annual Report and Accounts.
| Credit metrics | ||||||||
|---|---|---|---|---|---|---|---|---|
| REIL as a % | ||||||||
| of gross | Provisions | Year-to-date | ||||||
| Gross loans to | loans to | as a % | Impairment | Amounts | ||||
| Banks | Customers | REIL | Provisions | customers | of REIL | charge | written-off | |
| 30 September 2013 | £m | £m | £m | £m | % | % | £m | £m |
| UK Retail | 1,043 | 112,739 | 3,800 | 2,247 | 3.4 | 59 | 251 | 609 |
| UK Corporate | 925 | 103,847 | 6,019 | 2,348 | 5.8 | 39 | 529 | 603 |
| Wealth | 1,320 | 16,895 | 261 | 100 | 1.5 | 38 | 8 | 15 |
| International Banking | 5,550 | 41,996 | 520 | 332 | 1.2 | 64 | 182 | 239 |
| Ulster Bank | 634 | 31,894 | 8,535 | 4,479 | 26.8 | 52 | 707 | 154 |
| US Retail & Commercial | 67 | 50,783 | 1,074 | 266 | 2.1 | 25 | 105 | 217 |
| Retail & Commercial | 9,539 | 358,154 | 20,209 | 9,772 | 5.6 | 48 | 1,782 | 1,837 |
| Markets | 15,644 | 24,443 | 341 | 263 | 1.4 | 77 | (4) | 46 |
| Other | 2,739 | 5,287 | 1 | 66 | - | nm | 64 | - |
| Core | 27,922 | 387,884 | 20,551 | 10,101 | 5.3 | 49 | 1,842 | 1,883 |
| Non-Core | 427 | 41,522 | 19,815 | 11,320 | 47.7 | 57 | 1,439 | 1,270 |
| Group | 28,349 | 429,406 | 40,366 | 21,421 | 9.4 | 53 | 3,281 | 3,153 |
| 31 December 2012 | ||||||||
| UK Retail | 695 | 113,599 | 4,569 | 2,629 | 4.0 | 58 | 529 | 599 |
| UK Corporate | 746 | 107,025 | 5,452 | 2,432 | 5.1 | 45 | 836 | 514 |
| Wealth | 1,545 | 17,074 | 248 | 109 | 1.5 | 44 | 46 | 15 |
| International Banking | 4,827 | 42,342 | 422 | 391 | 1.0 | 93 | 111 | 445 |
| Ulster Bank | 632 | 32,652 | 7,533 | 3,910 | 23.1 | 52 | 1,364 | 72 |
| US Retail & Commercial | 435 | 51,271 | 1,146 | 285 | 2.2 | 25 | 83 | 391 |
| Retail & Commercial | 8,880 | 363,963 | 19,370 | 9,756 | 5.3 | 50 | 2,969 | 2,036 |
| Markets | 16,805 | 29,787 | 396 | 305 | 1.3 | 77 | 25 | 109 |
| Other | 3,196 | 2,125 | - | 1 | - | - | 1 | - |
| Core | 28,881 | 395,875 | 19,766 | 10,062 | 5.0 | 51 | 2,995 | 2,145 |
| Non-Core | 477 | 56,343 | 21,374 | 11,200 | 37.9 | 52 | 2,320 | 2,121 |
| Direct Line Group | 2,036 | 881 | - | - | - | - | - | - |
| Group | 31,394 | 453,099 | 41,140 | 21,262 | 9.1 | 52 | 5,315 | 4,266 |
nm = not meaningful
Gross loans and advances to customers excluding reverse repos
• Mortgage lending decreased by £1.1 billion to £148.6 billion.
The table below analyses the major mortgage portfolios and includes both Core and Non-Core.
| 30 September 31 December | ||
|---|---|---|
| 2013 | 2012 | |
| £m | £m | |
| UK Retail | 98,903 | 99,062 |
| Ulster Bank | 19,227 | 19,162 |
| RBS Citizens | 19,943 | 21,538 |
| Wealth | 8,665 | 8,786 |
| 30 September 2013 | 31 December 2012 | |||||||
|---|---|---|---|---|---|---|---|---|
| Investment | Development | Total | Investment | Development | Total | |||
| By division (1) | £m | £m | £m | £m | £m | £m | ||
| Core | ||||||||
| UK Corporate | 21,566 | 3,530 | 25,096 | 22,504 | 4,091 | 26,595 | ||
| Ulster Bank | 3,577 | 716 | 4,293 | 3,575 | 729 | 4,304 | ||
| US Retail & Commercial | 3,996 | 1 | 3,997 | 3,857 | 3 | 3,860 | ||
| International Banking | 879 | 196 | 1,075 | 849 | 315 | 1,164 | ||
| Markets | 150 | 6 | 156 | 630 | 57 | 687 | ||
| 30,168 | 4,449 | 34,617 | 31,415 | 5,195 | 36,610 | |||
| Non-Core | ||||||||
| UK Corporate | 1,561 | 878 | 2,439 | 2,651 | 983 | 3,634 | ||
| Ulster Bank | 3,378 | 7,191 | 10,569 | 3,383 | 7,607 | 10,990 | ||
| US Retail & Commercial | 282 | - | 282 | 392 | - | 392 | ||
| International Banking | 8,114 | 14 | 8,128 | 11,260 | 154 | 11,414 | ||
| 13,335 | 8,083 | 21,418 | 17,686 | 8,744 | 26,430 | |||
| Total | 43,503 | 12,532 | 56,035 | 49,101 | 13,939 | 63,040 |
Note:
(1) Excludes commercial real estate lending in Wealth as these loans are generally supported by personal guarantees in addition to collateral. This portfolio, which totalled £1.4 billion at 30 September 2013 (31 December 2012 - £1.4 billion), continued to perform in line with expectations and required minimal provision.
| Total | Non-Core | ||||
|---|---|---|---|---|---|
| 30 September | 31 December | 30 September | 31 December | ||
| 2013 | 2012 | 2013 | 2012 | ||
| Lending (gross) | £56.0bn | £63.0bn | £21.4bn | £26.4bn | |
| Of which REIL | £21.9bn | £22.1bn | £16.0bn | £17.1bn | |
| Provisions | £10.6bn | £10.1bn | £8.6bn | £8.3bn | |
| REIL as a % of gross loans to customers | 39.1% | 35.1% | 74.8% | 64.8% | |
| Provisions as a % of REIL | 48% | 46% | 54% | 49% |
Note:
(1) Excludes property related lending to customers in other sectors managed by Real Estate Finance.
The table below analyses debt securities by issuer and IFRS measurement classifications. US central and local government includes US federal agencies; financial institutions include US government sponsored agencies and securitisation entities, the latter principally relating to asset-backed securities (ABS).
| Other | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Central and local government | financial | Of which | ||||||||
| UK | US | Other | Banks | institutions | Corporate | Total | ABS | |||
| 30 September 2013 | £m | £m | £m | £m | £m | £m | £m | £m | ||
| Held-for-trading (HFT) | 6,871 | 9,614 | 23,788 | 1,650 | 15,320 | 1,925 | 59,168 | 11,895 | ||
| Designated as at fair value | - | - | 106 | 6 | 57 | 1 | 170 | 56 | ||
| Available-for-sale (AFS) | 6,819 | 15,066 | 11,864 | 6,162 | 19,955 | 180 | 60,046 | 27,213 | ||
| Loans and receivables | 10 | - | - | 180 | 3,159 | 179 | 3,528 | 3,059 | ||
| Long positions | 13,700 | 24,680 | 35,758 | 7,998 | 38,491 | 2,285 | 122,912 | 42,223 | ||
| Of which US agencies | - | 5,526 | - | - | 15,104 | - | 20,630 | 19,253 | ||
| Short positions (HFT) | (2,856) | (9,317) | (14,104) | (1,124) | (1,497) | (821) | (29,719) | (50) | ||
| Available-for-sale | ||||||||||
| Gross unrealised gains | 339 | 538 | 562 | 73 | 519 | 7 | 2,038 | 611 | ||
| Gross unrealised losses | - | (88) | (15) | (254) | (665) | (1) | (1,023) | (1,005) | ||
| 31 December 2012 | ||||||||||
| Held-for-trading | 7,692 | 17,349 | 27,195 | 2,243 | 21,876 | 2,015 | 78,370 | 18,619 | ||
| Designated as at fair value | - | - | 123 | 86 | 610 | 54 | 873 | 516 | ||
| Available-for-sale | 9,774 | 19,046 | 16,155 | 8,861 | 23,890 | 3,167 | 80,893 | 30,743 | ||
| Loans and receivables | 5 | - | - | 365 | 3,728 | 390 | 4,488 | 3,707 | ||
| Long positions | 17,471 | 36,395 | 43,473 | 11,555 | 50,104 | 5,626 | 164,624 | 53,585 | ||
| Of which US agencies | - | 5,380 | - | - | 21,566 | - | 26,946 | 24,828 | ||
| Short positions (HFT) | (1,538) | (10,658) | (11,355) | (1,036) | (1,595) | (798) | (26,980) | (17) | ||
| Available-for-sale | ||||||||||
| Gross unrealised gains | 1,007 | 1,092 | 1,187 | 110 | 660 | 120 | 4,176 | 764 | ||
| Gross unrealised losses | - | (1) | (14) | (509) | (1,319) | (4) | (1,847) | (1,817) | ||
The table below analyses the fair value of the Group's derivatives by type of contract. Master netting arrangements in respect of mark-to-market (mtm) positions and collateral shown below do not result in a net presentation in the Group's balance sheet under IFRS.
| 30 September 2013 | 31 December 2012 | ||||||
|---|---|---|---|---|---|---|---|
| Notional (1) | Assets | Liabilities | Notional (1) | Assets | Liabilities | ||
| £bn | £m | £m | £bn | £m | £m | ||
| Interest rate (2) | 37,411 | 248,609 | 237,127 | 33,483 | 363,454 | 345,565 | |
| Exchange rate | 5,117 | 63,852 | 67,944 | 4,698 | 63,067 | 70,481 | |
| Credit | 357 | 7,793 | 7,678 | 553 | 11,005 | 10,353 | |
| Equity and commodity | 87 | 3,404 | 6,716 | 111 | 4,392 | 7,941 | |
| 323,658 | 319,465 | 441,918 | 434,340 | ||||
| Counterparty mtm netting | (271,828) | (271,828) | (373,906) | (373,906) | |||
| 51,830 | 47,637 | 68,012 | 60,434 | ||||
| Cash collateral | (26,240) | (21,171) | (34,099) | (24,633) | |||
| Securities collateral | (5,564) | (5,082) | (5,616) | (8,264) | |||
| 20,026 | 21,384 | 28,297 | 27,537 |
(1) Includes exchange traded contracts of £2,399 billion (31 December 2012 - £2,497 billion), principally interest rate. Trades are margined daily hence carrying values were insignificant: assets - £75 million (31 December 2012 - £41 million) and liabilities - £293 million (31 December 2012 - £255 million).
(2) Interest rate notional includes £22,580 billion (31 December 2012 - £15,864 billion) in respect of contracts with central clearing counterparties to the extent related assets and liabilities are offset.
For a description of the Group's basis of measurement and methodologies, refer to pages 243 to 247 of the Group's 2012 Annual Report and Accounts.
| Year ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 30 September 2013 | Nine months ended | 30 September 2012 | 31 December 2012 | |||||||||
| Average Period end | Maximum | Minimum | Average | Period end | Maximum | Minimum | Average | Period end | Maximum | Minimum | ||
| Trading VaR | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m |
| Interest rate | 38.8 | 32.8 | 78.2 | 24.6 | 63.7 | 44.8 | 95.7 | 43.6 | 62.6 | 75.6 | 95.7 | 40.8 |
| Credit spread | 66.5 | 44.9 | 86.8 | 44.9 | 69.4 | 67.2 | 94.9 | 44.9 | 69.2 | 74.1 | 94.9 | 44.9 |
| Currency | 9.5 | 7.6 | 20.6 | 4.3 | 11.4 | 8.9 | 21.3 | 5.3 | 10.3 | 7.6 | 21.3 | 2.6 |
| Equity | 6.3 | 4.5 | 12.8 | 4.2 | 6.3 | 8.2 | 12.5 | 3.3 | 6.0 | 3.9 | 12.5 | 1.7 |
| Commodity | 1.0 | 0.6 | 3.7 | 0.3 | 1.9 | 2.7 | 6.0 | 0.9 | 2.0 | 1.5 | 6.0 | 0.9 |
| Diversification (1) | (31.3) | (40.8) | (55.4) | |||||||||
| Total | 86.1 | 59.1 | 118.8 | 54.5 | 99.0 | 91.0 | 137.0 | 66.5 | 97.3 | 107.3 | 137.0 | 66.5 |
| Core | 70.7 | 46.3 | 104.6 | 44.2 | 74.2 | 69.4 | 118.0 | 47.4 | 74.6 | 88.1 | 118.0 | 47.4 |
| Non-Core | 20.5 | 17.6 | 24.9 | 17.5 | 32.3 | 26.5 | 41.9 | 22.1 | 30.1 | 22.8 | 41.9 | 22.0 |
| CEM (2) | 62.7 | 42.8 | 85.4 | 40.1 | 77.7 | 74.3 | 84.2 | 73.3 | 78.5 | 84.9 | 86.0 | 71.7 |
| Total (excluding CEM) | 41.2 | 26.7 | 60.4 | 25.4 | 46.4 | 46.6 | 76.4 | 32.2 | 47.1 | 57.6 | 76.4 | 32.2 |
(1) The Group benefits from diversification as it reduces risk by allocating positions across various financial instrument types, currencies and markets. The extent of diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time.
(2) For a description of counterparty exposure management (CEM) activities, refer to page 248 of the Group's 2012 Annual Report and Accounts.
The average VaR for the Group's non-trading portfolio, predominantly comprising available-for-sale portfolios in Markets and Non-Core was £10.0 million for the first nine months of 2013 compared with £12.6 million in the same period in 2012. Changes to the call assumptions on some Dutch residential mortgage-backed securities implemented in March 2013 extended their weighted average life and as a result the period end VaR at 30 June 2013 increased to £12.3 million. During Q3, as the issuer bought back some of these securities, the period end VaR at 30 September 2013 fell to £7.1 million (31 December 2012 - £9.5 million).
The structured credit portfolio in Non-Core is measured on a notional and fair value basis because of its illiquid nature. Notional and fair value decreased to £1.0 billion and £0.8 billion respectively (Q4 2012 - £2.0 billion and £1.5 billion), reflecting the sale of underlying assets from collateralised debt obligations and legacy multi-seller conduits.
Country risk is the risk of material losses arising from significant country-specific events such as sovereign events (defaults or restructurings); economic events (contagion of sovereign default to other parts of the economy, cyclical economic shock); political events (transfer or convertibility restrictions, expropriation or nationalisation); and conflict.
Comments below relate to trends over the nine months to 30 September 2013, unless stated otherwise.
| 30 September 2013 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CDS | ||||||||||||||||||
| Lending | Debt securities | Off- | notional | |||||||||||||||
| Central | Other Other | Total | Of which | AFS | HFT | Net | Balance | balance | Total | less fair | Gross | |||||||
| Govt | banks banks | FI Corporate Personal lending | Non-Core and LAR | (net) Derivatives Repos | sheet | sheet | exposure | value Derivatives Repos | ||||||||||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| Eurozone | ||||||||||||||||||
| Ireland | 40 | 78 | 83 | 999 | 17,614 | 17,871 | 36,685 | 9,845 | 271 | 304 | 1,440 | 175 | 38,875 | 2,982 | 41,857 | (161) | 3,475 | 7,907 |
| Spain | - | - | 1 | 10 | 3,348 | 327 | 3,686 | 2,256 | 5,385 | 141 | 1,273 | - | 10,485 | 1,610 | 12,095 | (394) | 4,320 | 3,203 |
| Italy | - | 22 | 17 | 232 | 1,242 | 25 | 1,538 | 792 | 539 | 388 | 1,963 | - | 4,428 | 1,986 | 6,414 | (647) | 7,862 | - |
| Portugal | - | - | 1 | - | 213 | 6 | 220 | 208 | 192 | 35 | 420 | - | 867 | 241 | 1,108 | (102) | 496 | 26 |
| Greece | - | 3 | 1 | 1 | 115 | 14 | 134 | 59 | - | - | 267 | - | 401 | 26 | 427 | 1 | 495 | - |
| Cyprus | - | - | - | - | 223 | 12 | 235 | 112 | - | 3 | 29 | - | 267 | 31 | 298 | - | 45 | 51 |
| Germany | - | 8,448 | 500 | 157 | 3,056 | 87 | 12,248 | 2,388 | 5,877 | 3,093 | 8,178 | 469 | 29,865 | 6,804 | 36,669 | (790) | 40,009 | 8,759 |
| Netherlands | 13 | 1,083 | 531 | 1,188 | 3,919 | 23 | 6,757 | 1,403 | 5,614 | 713 | 7,071 | 73 | 20,228 | 10,638 | 30,866 | (679) | 17,219 | 2,901 |
| France | 418 | - | 1,910 | 131 | 1,938 | 77 | 4,474 | 982 | 1,768 | 3,050 | 5,826 | 506 | 15,624 | 9,255 | 24,879 | (1,459) | 33,301 15,955 | |
| Luxembourg | - | 16 | 47 | 995 | 1,915 | 4 | 2,977 | 749 | 57 | 48 | 1,319 | 147 | 4,548 | 2,538 | 7,086 | (56) | 2,554 | 5,386 |
| Belgium | - | - | 86 | 157 | 382 | 20 | 645 | 241 | 438 | (76) | 2,525 | 31 | 3,563 | 1,427 | 4,990 | (135) | 3,593 | 1,367 |
| Other | 92 | - | 12 | 45 | 682 | 15 | 846 | 84 | 502 | 489 | 1,151 | 15 | 3,003 | 1,165 | 4,168 | (169) | 3,952 | 1,073 |
| Other countries | ||||||||||||||||||
| Japan | - | 610 | 331 | 136 | 625 | 17 | 1,719 | 60 | 753 | 1,417 | 1,152 | 198 | 5,239 | 348 | 5,587 | (51) | 8,412 16,298 | |
| India | - | 60 | 1,150 | 14 | 1,942 | 72 | 3,238 | 78 | 580 | 216 | 110 | - | 4,144 | 771 | 4,915 | (53) | 232 | 91 |
| China | - | 144 | 2,292 | 171 | 547 | 34 | 3,188 | 27 | 128 | 15 | 267 | 64 | 3,662 | 1,239 | 4,901 | 2 | 267 | 3,796 |
| South Korea | - | 6 | 695 | 62 | 634 | 1 | 1,398 | - | 131 | 144 | 245 | 31 | 1,949 | 699 | 2,648 | 166 | 522 | 1,098 |
| Brazil | - | - | 1,107 | - | 112 | 3 | 1,222 | 57 | - | 313 | 43 | - | 1,578 | 160 | 1,738 | 33 | 74 | - |
| Russia | - | 42 | 646 | 2 | 507 | 48 | 1,245 | 45 | 154 | 7 | 21 | - | 1,427 | 232 | 1,659 | (144) | 21 | 2 |
| Turkey | 72 | 119 | 89 | 41 | 869 | 15 | 1,205 | 134 | 76 | 22 | 108 | - | 1,411 | 342 | 1,753 | (31) | 153 | 510 |
(1) These tables show the Group's exposure, by country of incorporation of the counterparty, at 30 September 2013, except exposures to individuals and governments which are shown by country of residence. Countries shown are those where the Group's balance sheet exposure (as defined in this section) to counterparties incorporated (or individuals residing) within them exceeded £1 billion and countries had ratings of A+ or below from Standard and Poor's, Moody's or Fitch at 30 September 2013, as well as selected eurozone countries. The exposures are stated before taking into account risk mitigants, such as guarantees, insurance or collateral (with the exception of reverse repos) which may have been put in place to reduce or eliminate exposure to country risk events. Exposures relating to ocean-going vessels are not included as they cannot be meaningfully assigned to specific countries from a country risk perspective. For a description of the governance, monitoring and management of the Group's country risk framework and definitions, refer to pages 254 and 255 of the Group's 2012 Annual Report and Accounts.
| 31 December 2012 | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CDS | |||||||||||||||||||
| Lending | Debt securities | Off- notional |
|||||||||||||||||
| Central | Other | Other | Total | Of which | AFS | HFT | Net | Balance | balance | Total | less fair | Gross | |||||||
| Govt | banks | banks | FI | Corporate | Personal | lending | Non-Core | and LAR | (net) | Derivatives | Repos | sheet | sheet | exposure | value | Derivatives | Repos | ||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||
| Eurozone | |||||||||||||||||||
| Ireland | 42 | 73 | 98 | 532 | 17,921 | 17,893 | 36,559 | 9,506 | 424 | 363 | 1,692 | 579 | 39,617 | 2,958 | 42,575 | (137) | 17,066 | 7,994 | |
| Spain | - | 6 | 1 | 59 | 4,260 | 340 | 4,666 | 2,759 | 4,871 | 503 | 1,754 | - | 11,794 | 1,624 | 13,418 | (375) | 5,694 | 610 | |
| Italy | 9 | 21 | 200 | 218 | 1,392 | 23 | 1,863 | 900 | 977 | 630 | 2,297 | - | 5,767 | 2,616 | 8,383 | (492) | 9,597 | 3 | |
| Portugal | - | - | - | - | 336 | 7 | 343 | 251 | 180 | 35 | 514 | - | 1,072 | 258 | 1,330 | (94) | 618 | 26 | |
| Greece | - | 7 | - | 1 | 179 | 14 | 201 | 68 | - | 1 | 360 | - | 562 | 27 | 589 | (4) | 623 | - | |
| Cyprus | - | - | - | 2 | 274 | 15 | 291 | 121 | - | 4 | 35 | - | 330 | 47 | 377 | - | 54 | 15 | |
| Germany | - | 20,018 | 660 | 460 | 3,756 | 83 | 24,977 | 2,817 | 9,263 | 3,500 | 9,476 | 323 | 47,539 | 7,294 | 54,833 | (1,333) | 57,202 | 8,407 | |
| Netherlands | 7 | 1,822 | 496 | 1,785 | 3,720 | 26 | 7,856 | 2,002 | 7,800 | 647 | 9,089 | 354 | 25,746 | 11,473 | 37,219 | (1,470) | 23,957 | 10,057 | |
| France | 494 | 9 | 2,498 | 124 | 2,426 | 71 | 5,622 | 1,621 | 2,242 | 3,581 | 7,422 | 450 | 19,317 | 9,460 | 28,777 | (2,197) | 44,920 | 14,324 | |
| Luxembourg | - | 13 | 99 | 717 | 1,817 | 4 | 2,650 | 973 | 59 | 192 | 1,462 | 145 | 4,508 | 2,190 | 6,698 | (306) | 3,157 | 5,166 | |
| Belgium | - | - | 186 | 249 | 414 | 22 | 871 | 368 | 844 | 564 | 3,140 | 50 | 5,469 | 1,308 | 6,777 | (233) | 4,961 | 1,256 | |
| Other | 126 | - | 19 | 90 | 856 | 14 | 1,105 | 88 | 576 | 666 | 1,737 | 11 | 4,095 | 1,269 | 5,364 | (194) | 6,029 | 2,325 | |
| Other countries | |||||||||||||||||||
| Japan | - | 832 | 315 | 193 | 319 | 15 | 1,674 | 123 | 1,548 | 4,890 | 2,883 | 199 | 11,194 | 622 | 11,816 | (70) | 13,269 | 16,350 | |
| India | - | 100 | 1,021 | 48 | 2,628 | 106 | 3,903 | 170 | 683 | 391 | 64 | - | 5,041 | 914 | 5,955 | (43) | 167 | 108 | |
| China | 2 | 183 | 829 | 48 | 585 | 29 | 1,676 | 33 | 201 | 61 | 903 | 94 | 2,935 | 739 | 3,674 | 50 | 903 | 3,833 | |
| South Korea | - | 22 | 771 | 71 | 289 | 2 | 1,155 | 2 | 144 | 163 | 221 | 30 | 1,713 | 704 | 2,417 | (60) | 616 | 449 | |
| Brazil | - | - | 950 | - | 125 | 3 | 1,078 | 60 | 14 | 582 | 73 | - | 1,747 | 189 | 1,936 | 393 | 85 | - | |
| Russia | - | 53 | 848 | 14 | 494 | 55 | 1,464 | 56 | 160 | 249 | 23 | - | 1,896 | 391 | 2,287 | (254) | 23 | - | |
| Turkey | 115 | 163 | 82 | 94 | 928 | 12 | 1,394 | 258 | 56 | 125 | 93 | - | 1,668 | 481 | 2,149 | (36) | 114 | 449 |
The principal risks and uncertainties facing the Group are unchanged from those disclosed on pages 503 to 515 of the 2012 Annual Report & Accounts (the 2012 R&A), however the operational, legal and regulatory landscape in which the Group operates has continued to evolve since the 2012 R&A was approved and since the 2013 Interim Results were approved in August. Set out in further detail below is the Summary of our Principal Risks and Uncertainties. The Group is amending the risk factor relating to the execution of its strategic plan (see below) as a result of the actions being announced today.
Set out below is a summary of certain risks which could adversely affect the Group. These should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties. The summary should be read in conjunction with the Risk and balance sheet management section on pages 107 to 293 of the 2012 R&A, which also includes a fuller description of these and other risk factors.
The Group is amending the risk factor relating to its ability to execute its strategic plan as a result of the new actions being announced today.
Since the global economic and financial crisis that began in 2008 and the changed global economic outlook, the Group has been engaged in a financial and core business restructuring which focused on achieving appropriate risk-adjusted returns under these changed circumstances, reducing reliance on wholesale funding and lowering exposure to capital-intensive businesses. A key part of the restructuring programme announced in February 2009 was to run-down and sell the Group's non-core assets and businesses and the continued review of the Group's portfolio to identify further disposals of certain non-core assets and businesses. Assets identified for this purpose and allocated to the Group's Non-Core division totalled £258 billion, excluding derivatives, at 31 December 2008. By 30 September 2013, this total had reduced to £37.3 billion (31 December 2012 - £57.4 billion), excluding derivatives, as further progress was made in business disposals and portfolio sales during the course of 2013. This balance sheet reduction programme continues alongside the disposals under the State Aid restructuring plan approved by the European Commission. During 2012 the Group implemented changes to its wholesale banking operations, including the reorganisation of its wholesale businesses and the exit and downsizing of selected existing activities (including cash equities, corporate banking, equity capital markets, and mergers and acquisitions).
During Q3 2013, the Group has worked with HM Treasury as part of its assessment of the merits of creating an external "bad bank" to hold certain assets of the Group. Although the review concluded that the establishment of an external "bad bank" was not in the best interests of all stakeholders, the Group has committed to take a series of actions to further de-risk its business and strengthen its capital position. These actions include:
In addition to the actions above, the Group has also announced today that it is undertaking a full review of the Group's Customer-facing businesses, IT and operations and its organisational and decision-making structures to develop detailed plans on how the Group can realign its cost base with a target of reducing our cost:income percentage into the mid 50s, down from 65% currently. The outcome of this review will be announced at the time of the Group's 2013 year-end results in February 2014 The outcome of such review could result in additional actions to those identified above, including asset sales, restructuring of businesses and other similar actions.
Because the ability to dispose of businesses and assets and the price achieved for such disposals will be dependent on prevailing economic and market conditions, which remain volatile, there is no assurance that the Group will be able to sell or run-down (as applicable) the businesses it has planned to sell or exit or asset portfolios it is seeking to sell either on favourable economic terms to the Group or at all. Material tax or other contingent liabilities could arise on the disposal or run-down of assets or businesses and there is no assurance that any conditions precedent agreed will be satisfied, or consents and approvals required will be obtained in a timely manner, or at all. There is consequently a risk that the Group may fail to complete such disposals within time frames envisaged by the Group.
The Group may be exposed to deteriorations in businesses or portfolios being sold between the announcement of the disposal and its completion, which period may be lengthy and may span many months. In addition, the Group may be exposed to certain risks, including risks arising out of ongoing liabilities and obligations, breaches of covenants, representations and warranties, indemnity claims, transitional services arrangements and redundancy or other transaction related costs.
The occurrence of any of the risks described above could negatively affect the Group's ability to implement its new strategic plan and achieve its capital targets and could have a material adverse effect on the Group's business, results of operations, financial condition and cash flows.
| 30 September 2013 |
30 June 2013 |
31 December 2012 |
|
|---|---|---|---|
| Ordinary share price | 359.9p | 273.5p | 324.5p |
| Number of ordinary shares in issue | 6,186m | 6,121m | 6,071m |
Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ('the Act'). The statutory accounts for the year ended 31 December 2012 have been filed with the Registrar of Companies. The report of the auditor on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.
The Q3 2013 results have not been audited or reviewed by the auditors.
2013 annual results 27 February 2014
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