Annual Report • Feb 26, 2015
Annual Report
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| Page | |
|---|---|
| Introduction | 1 |
| Highlights | 2 |
| Chairman's letter to shareholders | 5 |
| Chief Executive's message | 6 |
| Customer | 13 |
| Summary consolidated results | 17 |
| Analysis of results | 21 |
| Current period segment performance | 29 |
| Statutory results | 68 |
| Condensed consolidated income statement | 68 |
| Consolidated statement of comprehensive income | 69 |
| Condensed consolidated balance sheet | 70 |
| Average balance sheet | 71 |
| Condensed consolidated statement of changes in equity | 73 |
| Condensed consolidated cash flow statement | 76 |
| Notes | 77 |
| Summary risk factors | 123 |
| Statement of directors' responsibilities | 127 |
| Additional information | 128 |
| Share information | 128 |
| Statutory results | 128 |
| Financial calendar | 128 |
| Appendix 1 Capital and risk management |
Appendix 2 Income statement reconciliations and balance sheet pre and post disposal groups
Appendix 3 Comparative period segment performance
Appendix 4 Go-forward business profile
Appendix 5 Risk factors
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', 'believe', 'should', 'intend', 'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on these expressions.
In particular, this document includes forward-looking statements relating, but not limited to: The Royal Bank of Scotland Group's (RBS) transformation plan (which includes RBS's 2013/2014 strategic plan relating to the implementation of its new divisional and functional structure and the continuation of its balance sheet reduction programme including its proposed divestments of Williams & Glyn and Citizens, RBS's information technology and operational investment plan, the proposed restructuring of RBS's CIB business and the restructuring of RBS as a result of the implementation of the regulatory ring-fencing regime), as well as restructuring, capital and strategic plans, divestments, capitalisation, portfolios, net interest margin, capital and leverage ratios, liquidity, risk-weighted assets (RWAs), RWA equivalents (RWAe), Pillar 2A, Maximum Distributable Amount (MDA), total loss absorbing capital (TLAC), minimum requirements for eligible liabilities (MREL), return on equity (ROE), profitability, cost:income ratios, loan:deposit ratios, funding and risk profile; litigation, government and regulatory investigations including investigations relating to the setting of interest rates and foreign exchange trading and rate setting activities; costs or exposures borne by RBS arising out of the origination or sale of mortgages or mortgage-backed securities in the US; RBS's future financial performance; the level and extent of future impairments and write-downs; and RBS's exposure to political risks, credit rating risk 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, targets 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 relying on 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 adversely affect our results and the accuracy of forward-looking statements in this document include the risk factors and other uncertainties discussed in Appendix 5 to this document. These include the significant risks for RBS presented by the execution of the transformation plan; RBS's ability to successfully implement the various initiatives that are comprised in the transformation plan, particularly the balance sheet reduction programme including the divestment of Williams & Glyn and its remaining stake in CFG, the proposed restructuring of its CIB business and the significant restructuring undertaken by RBS as a result of the implementation of the ring fence; whether RBS will emerge from implementing the transformation plan as a viable, competitive, customer-focused and profitable bank; RBS's ability to achieve its capital targets which depend on RBS's success in reducing the size of its business; the cost and complexity of the implementation of the ring-fence and the extent to which it will have a material adverse effect on RBS; the risk of failure to realise the benefit of RBS's substantial investments in its information technology and operational infrastructure and systems, the significant changes, complexity and costs relating to the implementation of the transformation plan, the risks of lower revenues resulting from lower customer retention and revenue generation as RBS refocuses on the UK as well as increasing competition. In addition, there are other risks and uncertainties. These include RBS's ability to attract and retain qualified personnel; uncertainties regarding the outcomes of legal, regulatory and governmental actions and investigations that RBS is subject to and any resulting material adverse effect on RBS of unfavourable outcomes; heightened regulatory and governmental scrutiny and the increasingly regulated environment in which RBS operates; uncertainty relating to how policies of the new government elected in the May 2015 UK election may impact RBS including a possible referendum on the UK's membership of the EU; operational risks that are inherent in RBS's business and that could increase as RBS implements its transformation plan; the potential negative impact on RBS's business of actual or perceived global economic and financial market conditions and other global risks; how RBS will be increasingly impacted by UK developments as its operations become gradually more focused on the UK; uncertainties regarding RBS exposure to any weakening of economies within the EU and renewed threat of default by certain counties in the Eurozone; the risks resulting from RBS implementing the State Aid restructuring plan including with respect to the disposal of certain assets and businesses as announced 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 regulatory requirements relating to capital adequacy and liquidity; the ability to access sufficient sources of capital, liquidity and funding when required; deteriorations in borrower and counterparty credit quality; the extent of future write-downs and impairment charges caused by depressed asset valuations; the value and effectiveness of any credit protection purchased by RBS; the impact of unanticipated turbulence in interest rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices, equity prices; basis, volatility and correlation risks; changes in the credit ratings of RBS; changes to the valuation of financial instruments recorded at fair value; competition and consolidation in the banking sector; regulatory or legal changes (including those requiring any restructuring of RBS's operations); 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; impairments of goodwill; the high dependence of RBS's operations on its information technology systems and its increasing exposure to cyber security threats; the reputational risks inherent in RBS's operations; the risk that RBS may suffer losses due to employee misconduct; pension fund shortfalls; the recoverability of deferred tax assets by the Group; HM Treasury exercising influence over the operations of RBS; limitations on, or additional requirements imposed on, RBS's activities as a result of HM Treasury's investment in RBS; and the success of RBS in managing the risks involved in the foregoing.
The forward-looking statements contained in this document speak only as of the date of this announcement, and RBS 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.
The financial information on pages 17 to 67, prepared using the Group's accounting policies, shows the operating performance of RBS on a non-statutory basis which excludes own credit adjustments, gain on redemption of own debt, write-down of goodwill, strategic disposals and RFS Holdings minority interest (RFS MI) and includes the results of Citizens, which are included in discontinued operations in the statutory results. Information is provided in this form to give a better understanding of the results of RBS's operations.
On 27 February 2014, RBS announced the reorganisation of the previously reported operating divisions into three franchises. In addition, in order to present a more complete picture of funding, operational and business costs of the franchises and operating segments, certain reporting changes were implemented.
For further information on these changes refer to the Q2 2014 Restatement Document dated 21 July 2014, available on
The condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of changes in equity, condensed consolidated cash flow statement and related Notes presented on pages 68 to 122 inclusive are on a statutory basis. Reconciliations between the non-statutory basis and statutory basis are included in Appendix 2.
| Group Media Centre | +44 (0) 131 523 4205 | |
|---|---|---|
| For media enquiries: | ||
| Richard O'Connor | Head of Investor Relations | +44 (0) 20 7672 1758 |
| For analyst enquiries: |
RBS will be hosting a presentation for analysts and investors, also available via live webcast and audio call. The details are as follows:
| Date: | Thursday 26 February 2015 |
|---|---|
| Time: | 9.30 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 |
This announcement and background slides are available on www.rbs.com/results
A financial supplement containing income statement and balance sheet information for the nine quarters ending 31 December 2014 is available on www.rbs.com/results
RBS reports an attributable loss of £3,470 million in 2014, compared with a loss of £8,995 million in 2013. The result included a loss from discontinued operations of £3,445 million, which reflected a £3,994 million fair value write-down in relation to the reclassification of Citizens to disposal groups, and a tax charge of £1.9 billion which included a £1.5 billion write-off of deferred tax assets.
Operating profit totalled £3,503 million for 2014, compared with an operating loss of £7,500 million in 2013. This reflected improved operating results from the core domestic businesses together with significant impairment releases in Ulster Bank and RBS Capital Resolution (RCR). These results include £1,257 million of restructuring costs compared with £656 million in 2013, and £2,194 million of litigation and conduct costs compared with £3,844 million in the prior year.
UK Personal & Business Banking (UK PBB) delivered a good performance built on strong growth from a reinvigorated mortgage business. Commercial Banking's efforts to stimulate demand resulted in a resumption of loan book growth; together with active management of cost and capital, this supported a significant improvement in profitability. Corporate & Institutional Banking (CIB) made good progress towards a lower risk model with a further £40 billion reduction in risk-weighted assets (RWAs) on a fully loaded Basel III basis.
Statutory operating profit before tax, which excludes results from discontinued operations, was £2,643 million compared with an operating loss of £8,849 million in 2013.
2014 was a year of significant progress for the bank, in which we delivered against all our commitments. In line with the new strategy it set out in 2014, RBS has:
Notes:
(1) Operating profit before tax, own credit adjustments, gain on redemption of own debt, write-down of goodwill, strategic disposals and RFS Holdings minority interest and includes the results of Citizens on a non-statutory basis, which are included in discontinued operations in the statutory results.
(2) Private banking and wealth management activities where the primary relationship management is conducted outside the British Isles.
Within the overall strategic shape outlined for CIB in 2014, RBS is making further changes to improve its medium-term returns, building a stronger, safer and more sustainable business, focused mainly on UK and Western European customers, both corporates and financial institutions, supported by trading and distribution platforms in the UK, US and Singapore.
These changes will create a more focused corporate and institutional bank built on existing product and service strengths. RBS will have a strong, client-focused product offering in sterling, US dollar and euro, including:
CIB will reduce its geographical footprint to approximately 13 countries, compared with 38 at the end of 2014, though RBS will also retain its back office operations in Poland and India. In addition to its main distribution and trading hubs in the UK, US and Singapore, RBS will remain present in a number of Western European countries with coverage teams. A small sales team will be retained in Japan. US operations will shrink, while retaining the presence required to support the US dollar needs of RBS's UK and Western European customers. Priority client sectors will be targeted in infrastructure, transportation, financial institutions, energy and resources.
CIB will continue to reduce its balance sheet and risk profile. RWAs will be reduced by 60% from £107 billion at 31 December 2014 to £35-£40 billion in 2019, with a reduction of more than £25 billion targeted in 2015. Third party assets will be reduced from £241 billion at the end of 2014 to £75-£80 billion in 2019.
This CIB strategy leaves RBS well-placed to meet the ring-fencing requirements of the Banking Reform Act 2013. As previously indicated, RBS intends to place most banking services inside the ring fence. CIB's remaining "Markets" activities, the operations of RBS International and some corporate banking activity are expected to remain outside the ring-fenced bank in separate legal entities.
For 2015 RBS intends to:
Notes: (1) During the period of CIB restructuring.
(2) Excluding restructuring, conduct and litigation costs, write off of intangible assets and operating expenses of CFG and Williams & Glyn.
"Last year we identified the areas we needed to improve in order to deliver our strategy - cost, complexity, capital and trust from our customers. The energy and resolve of our people have resulted in significant progress on each, and we have delivered on the goals we set for 2014."
| Measure | 2013 | 2014 | Long-term | |
|---|---|---|---|---|
| People | Great place to work | 78% | 72% | Employee |
| engagement index | ||||
| ≥ GFS norm(2) | ||||
| Efficiency | Cost:income ratio | 95% | 87% | <50% |
| Adjusted cost:income ratio(3) | 72% | 68% | ||
| Returns | Return on tangible equity | Negative | Negative | 12%+ |
| Capital strength(4) | Common Equity Tier 1 ratio | 8.6% | 11.2% | 13%(5) |
Notes:
(1) This table contains forecasts with significant contingencies. Please refer to 'Forward-looking statements' and 'Risk factors'.
(2) Global Financial Services (GFS) norm currently stands at 83%.
(3) Excluding restructuring costs and litigation and conduct costs.
(4) Based on end-point CRR basis Tier 1 capital and revised 2014 Basel leverage framework.
(5) During the period of CIB restructuring.
We expect our core UK/Irish businesses to continue to perform well, but with some income headwinds.
Income in CIB is likely to decline substantially faster than cost takeout at this point in its restructuring. Income in the year to date is lower than for the comparable period last year.
We will maintain our rigorous cost discipline and are targeting reductions of £800 million in 2015, in our underlying(1) operating expenses.
Our overall credit profile has improved but we do not expect the significant impairment recoveries experienced in 2014 in Ulster Bank and RCR to continue this year.
We continue to deal with various conduct and litigation issues. Whilst we cannot predict when these will be resolved it is possible that the costs relating to settling these could be substantial in 2015.
Our restructuring costs are expected to be materially higher than in 2014 reflecting the costs relating to the core bank transformation, CIB restructuring and preparing for Williams & Glyn exit and for ICB.
We are targeting RWAs to be less than £300 billion by the end of 2015, driven by RCR and CIB run-offs and the partial de-consolidation of Citizens.
Note: (1) Excluding restructuring, conduct and litigation costs, write off of intangible assets and operating expenses of CFG and Williams & Glyn.
2014 was a year of significant progress for RBS, with a much improved operating profit and major achievements in terms of business reorganisation, cost reduction, capital build and improved IT capability. As Ross McEwan has set out in his letter, the business continues to simplify and improve, focusing on putting its customers at the heart of its activities.
The bank has delivered a good operating profit of £3.5 billion for 2014, but the costs associated with completing the restructuring of RBS mean we are still reporting a bottom line attributable loss. Although the huge changes to the size, shape and risk profile of the business since the financial crisis are largely complete or in hand, the further substantial restructuring of our markets operations and international spread will require careful management in 2015.
Of course your Board is pleased to see the improved operating performance, which in our view reflects the underlying strength of the business. Looking back, however, we must acknowledge that we did not fully recognise the scale of the challenge that awaited us in 2009. At the time, we assumed that a Core Tier 1 capital ratio of more than 8% by 2013 would be sufficient to constitute undoubted financial strength in the minds of markets and regulators; today we have increased our capital target to 13%. We must also acknowledge that we did not anticipate the more than £9 billion of regulatory fines and customer redress we have borne so far as we paid, and will continue to pay, the price for our past conduct failings. These conduct issues have delayed the re-build of our capital and directly reduced shareholder value. They have also caused continuing reputational damage. I hope as we move beyond these issues we can fully rebuild the trust of our customers, and by doing so win more of their business.
The need to continue to rebuild capital strength means it has taken longer than we had expected to reach a point at which the Government could be in a position to start selling down its stake in RBS. The decision on timing rests with the Government, through UK Financial Investments, which manages its shareholding, but our task is to create the conditions in which it can do so. In working towards that end we are also furthering the interests of RBS's other shareholders, as we believe that the beginning of the sell-down will be welcomed by investors.
As announced previously I will be leaving RBS in 2015. The Board is pleased to announce today that Howard Davies will succeed me as Chairman, and we welcome him to RBS. He will join the Board at the end of June and take over from me on 1 September. On the day I joined the Board in January 2009, the shares traded at 9p, equivalent to 90p today, and the implications of the bank's financial distress were unknowable. RBS has transformed itself over the last several years and continues to do so. The renewed focus on customer and customer service will make this a better organisation for all stakeholders, most especially customers, staff and shareholders.
I would like to thank my colleagues on the RBS Board for their support and dedication in dealing with the unusual challenges of being a majority government-owned listed company. In particular, I would like to thank Nathan Bostock, Tony Di Iorio and Philip Scott, who all stepped down from the Board in 2014 after providing valuable service, and to welcome Morten Friis and Ewen Stevenson, who have joined the Board.
It has been a privilege to serve as Chairman of RBS and I am confident that the Board and the many outstanding people in the bank will continue to work with dedication to restore the bank's standing.
Philip Hampton Chairman
This is my first letter to you since we launched a new strategy for RBS last year. It is a strategy that sets out to deliver one very simple aim. To make this a great bank for our customers; a bank that will earn back their trust, and in turn win more of their business.
It's a strategy that provides the fundamental building blocks to make RBS an attractive investment, a great place to work for our people, and a UK focused bank that the country can be proud of.
Last year we identified the areas we needed to improve in order to deliver our strategy - cost, complexity, capital, and trust from our customers. The energy and resolve of our people has resulted in significant progress on these, and we have delivered on the goals we set for 2014.
As well as being a stronger, simpler and fairer bank, I said that we would also be a very different bank. No longer chasing global market share, but instead focusing squarely on our core strength, namely our home market places in the UK and the Republic of Ireland (RoI).
Our 2014 performance shows a strategy that is working. It demonstrates the forensic approach we have taken to evaluate our businesses against the returns they provide to shareholders. The strong execution against the targets we set now gives us a platform to go further, faster.
Today, as well as a review of our current performance I will set out exactly what this bank will become, what we will do and what we will not do as we seek to improve shareholder value and secure our market leading positions. It involves an acceleration of our strategy to build on our domestic strengths and a further reshaping of our CIB business as we seek to address its unacceptable returns.
We have five ambitious new goals for the second year of our plan and new financial targets so that you, our shareholders, can hold us to account for our performance.
The earning power of our key customer businesses lies at the heart of the strong financial progress RBS made during 2014. What you can see from these results is that underneath all the noise of conduct, litigation and restructuring charges, we have strong performing customer businesses that are geared towards delivering sustainable returns for investors.
We made an operating profit of £3.5 billion in 2014, the highest since 2010 and a vast improvement on 2013. Great progress on cost reduction countered a fall in total income - which primarily reflected a smaller risk profile and lower income from trading activities in CIB - and led to an overall improvement in operating efficiency.
Our attributable loss of £3.5 billion, includes £1.3 billion of restructuring charges, £2.2 billion in litigation and conduct provisions, a £1.5 billion net deferred tax asset write-off, the initial £320 million dividend for the Dividend Access Share and a write-down of £4 billion anticipating the disposal of Citizens.
It is increasingly clear what is driving underlying performance at RBS - PBB and CPB. PBB and CPB are now more important to RBS's performance than at any time in the past decade. This year they generated 61% of our income, compared with c.37% for equivalent businesses in 2009. And they have been at the forefront of progress towards our goal of increased operating efficiency, reducing adjusted operating expense by 2.6% over the year whilst income was up 2.3%. ROEs of 17.5% and 11.9% respectively demonstrate their value to RBS today.
These franchises are also the custodians of our core strengths - serving the everyday banking needs of over 18 million personal and business customers in the UK and RoI, and helping these customers meet their ambitions. We're investing in these franchises with a view to exceeding customers' expectations and generating sustainable returns.
The performance of CIB reflects the big changes this business is going through, and the tough macroeconomic conditions and increasingly high costs of regulation it faces. Income decreased alongside lower adjusted operating expenses as we reduced CIB's risk profile in accordance with our strategy, with restructuring, litigation and conduct costs pushing the business to an operating loss. But CIB has a strong customer franchise serving our leading UK and Western European clients; increasingly it is these clients we intend to focus on. I will set out later in this letter the steps we will take to do this.
An overarching part of delivering sustainable returns is controlling operating costs. When I announced our cost target last year it was described by some as the most ambitious cost target in Europe. Well, through our drive across the bank for greater simplicity we have over-delivered, and surpassed our target of £1 billion of operating cost savings for the bank. With a cost:income ratio for the year of 68% on an adjusted basis, we are still behind our peers on cost efficiency; and there is work to do to fulfil our desire to take it below 50%. But we have a strong track record on delivery, and there is resolve across this bank to get this done.
I am very pleased with the progress we have made in 2014 against our stated objectives. While that progress is evident in the operating profit line of the results announced today, we are still posting an attributable loss to our shareholders. This is an accounting consequence of one of our 2014 achievements the successful flotation of Citizens on the New York Stock Exchange.
Now the deconsolidation of Citizens is finally within sight, accounting rules require us to write it down to its estimated disposal value. This write-down substantially represents the goodwill previously attached to Citizens. While I realise that the headlines this generates are disappointing it is important to emphasise that this particular accounting loss does not change our regulatory capital or tangible net asset value.
A core question for any bank seeking the trust of its customers is whether it's safe and strong and focused and able to support customers and the economy. The progress we have made should mean that it is no longer in any doubt. The CET1 ratio has improved by 260 basis points to 11.2% over the course of the year, up from 8.6% as at 31 December 2013. We reached our full year 2015 CET1 target of 11% one year ahead of schedule, and we are on track to achieve a revised CET1 target of 13%, which we have set in place for the period of the CIB restructuring.
We now have considerably more high quality capital than we had when the financial crisis hit and this bank was bailed out by the taxpayer. But we need to meet and exceed the expectations of the Prudential Regulation Authority (PRA) and of our shareholders and bondholders. Stress test results show it's not just how much capital you have, but how your balance sheet behaves under extreme economic scenarios.
This year our team in RBS Capital Resolution has managed to accelerate the removal of some of our most capital intensive assets, and we are on track to complete our 2014-2016 RCR run-down targets by the end of 2015, one year ahead of the original target we set for ourselves. Our capital strength will be bolstered further when Citizens Financial Group in the USA is deconsolidated from our balance sheet. This is also expected in 2015.
In 2015, we also plan to start a programme of issuing Basel III compliant Additional Tier 1 capital instruments.
It has taken far longer than anyone realised to root out all the past problems, practices and related fines, and we still have challenges on the horizon. We are changing the culture of this bank; our aim is that shareholders are not exposed to this scale of conduct risk again.
What you will have seen from me over the last year is the way I will be open and honest with you and our customers when dealing with these issues; the way we continue to approach FX is a good example of this. I will not hide. I will talk openly about the hurt this wrongdoing causes me and the many thousands of people within this bank. I will detail the things we are doing to put things right for our customers, and the challenge and change we are driving through the culture and conduct of our staff.
We are determined to learn the lessons from the wrongdoings of the past and ensure that those responsible are held to account.
I said this time last year that the days when global domination mattered more to RBS than great customer service are well and truly over. Well, we are not just talking about being a UK-centred bank; we are a UKcentred bank. 80% of our revenues are generated in the UK. At the time of the 2008 financial crisis this number was 48%. Seven years after the crisis we still have top 3 market positions in the following UK segments:
We are building on this strength to manage value for shareholders and deliver the most resilient future returns.
In last year's letter, I told you that where a business can't deliver value to our shareholders in a reasonable time period we will take decisive action. We have put international private banking activities(1) up for sale and we are now going further, faster in reshaping parts of our CIB business.
The investment bank was over-stretched both in range of product and geography. There was too much risk for too little return. Given the increasing regulatory requirements on this business, it was a strategy that now has little hope of delivering acceptable returns to shareholders.
Note:
(1) Private banking and wealth management activities where the primary relationship management is conducted outside the British Isles.
To be a number 1 bank means providing a full service offering to UK and Western European corporate and financial institution clients. It means providing a first class platform to process payments in the UK and Europe. And it means having the expertise to help customers raise finance on the debt capital markets and manage the high level risks they face. Serving customers in these areas is an undisputed area of strength for us - they are our core capabilities, and are essential to us providing a first class service. In addition, trading and distribution hubs in Singapore and the US will ensure the corridors of commerce remain open to allow our customers access to investors in those regions.
We plan to fully exit our Markets businesses in Central and Eastern Europe, the Middle East and Africa, and substantially reduce our presence in Asia Pacific and the US. We will exit our cash management services outside the UK and RoI. These businesses are not essential to our go-forward client franchise, and their standalone returns are not sufficient to justify an exception.
In doing so we will be free to grow and improve the services our customers value most. And by serving customers better this franchise can reinforce its competitive position and deliver sustainable returns above the cost of equity for our shareholders.
This is a plan for a smaller, more focused, but ultimately more valuable bank with the vast majority of its assets in the UK, and for RBS marks the end of the standalone global investment bank model.
What I have just outlined will require an enormous amount of effort from our people. And I do not for one second take that for granted. We have a proven track record of delivering change in our business.
Much has been written and discussed about the root causes of the financial crisis. For me it came down to one big problem - a failure to put the customers' interest at the heart of our business and its culture. For too long market share mattered more than customer care.
It is why over the last year our people have worked hard to embed this 'customer first' mentality into everything we do as a bank.
There are some concrete achievements we can call out for 2014 including: faster account opening times, a simplified product range and a clearer pricing structure. And we went against the rest of the industry and took a calculated risk by ending teaser rates, and we now offer our best rates to new and existing customers across our product range. We may have lost customers and income as a result, but we still believe that this was the right thing to do and will deliver long term value for shareholders.
I want to assure our customers that the positive changes we made in 2014 are not one-off. We strive to do better for our customers every day, and when we spot an opportunity to serve customers better, we will act. For example, customers shouldn't be penalised because they lose track of the date and are hit with an unexpected overdraft charge for the first time. And if we can do more to help customers through both the ups and downs in their finances, it is absolutely our responsibility to do so.
But we recognise that these are chipping away at the edges, and more radical change is needed if we are to establish real upward momentum and achieve our targets. We have to be constantly asking ourselves what a really good bank for customers would look like, and to be constantly improving what we do to take us towards that goal. In our financial reporting we will include full details of the progress we have made as well as providing clear, independent measures of the bank's customer trust and advocacy scores.
We may have started from further back than some, but we are determined to reach our aspiration of being number 1 for customer service, trust and advocacy. It won't be easy, but I firmly believe it is doable.
Critical though it is that we build a bank that is safe, in capital strength, in structure and on behaviour, it must also be profitable.
There are good businesses within RBS that are capable of delivering real value to their customers. If we do that, our customers will be happy for us to make a fair and sustainable profit.
Without sustainable profitability we cannot ensure our future safety; profit is the best form of self-replenishing capital.
We remain acutely conscious of how much was invested to ensure our continued survival by our private shareholders and, critically, by the Government. As we reduce the tail risks our bank is exposed to, repair our overall profitability and reshape CIB we are creating the potential to build up excess capital, paving the way for distributions to the Government and other shareholders.
Our strategy envisages a capital benefit net of restructuring costs from 2016. We intend to return all capital to shareholders above a CET1 ratio of 13%. This capital return, which remains subject to regulatory approval at the time, will only be made once the significant legacy conduct hurdles are behind us. We see this as another important step towards repaying the support of our shareholders, including the UK tax payer.
I have set out in the table below five new ambitious business goals for the second year of our strategic plan to simplify and restructure this bank, achieving them will stand us in good stead to reach our goals. We have also published a revised set of financial and business targets. These are consistent with the other changes set out in this letter, and will enable you, our shareholders, to continue to track our progress and hold us to account.
By 2019 RBS intends to be a low cost business focused on effective, efficient delivery for our customers. It will be a bank based in the UK and RoI, with a presence in Western Europe, the US and Singapore. It intends to be a bank with leading market positions in each of our chosen business areas, and a bank that can generate attractive returns for shareholders on a sustainable basis.
| Our long-term targets | Our 2015 goals | |
|---|---|---|
| Strength and sustainability |
CET1 ratio = 13% during the period of CIB restructuring |
Reduce RWAs to <£300bn |
| Customer experience | No. 1 for service, trust and advocacy | Improve NPS in every UK franchise |
| Simplifying the bank | Cost: income ratio of <50% | Reduce costs by £800m(1) |
| Supporting growth | Leading market positions in every franchise |
Lending growth in strategic segments ≥ nominal UK GDP growth |
| Employee engagement | Employee engagement index ≥ GFS norm(2) |
Raise employee engagement index to within 8% of GFS norm(2) |
Notes:
(1) Excludes restructuring, conduct and litigation costs, intangible write-off charges as well as the operating costs of Citizens Financial Group and Williams & Glyn.
(2) Global Financial Services (GFS) norm currently stands at 83%.
I would like to take this opportunity to thank our Chairman, Sir Philip Hampton, as he takes part in his final Annual Results with the bank. Philip joined in 2009 amid the global financial crisis and immediately brought a clear sense of purpose and direction for the bank at a time of incredible uncertainty, both for the UK and RBS. His dedication to making this a great bank for the country served him well through the tremendous, but positive, change that RBS has undergone during his tenure. I want to express my personal gratitude to Philip for guiding me during my first year as CEO, and playing a key role in implementing the strategy that will take us forward. There is still work to do, but Philip will leave on a positive note, with RBS firmly focussed on serving its customers, and shareholders.
What you see today is a bank on track and delivering on its plan. A bank that is determined to earn the trust of its customers every day. A bank that helps the smallest enterprises through to the largest companies grow and prosper. A bank that is determined to reward its shareholders for their support. And a bank that is able to deliver on our ambition to be number one for customer service and advocacy in the UK and RoI.
We use independent surveys to measure our customers' experience and track our progress against our goal in each of our markets.
Customers are asked how likely they would be to recommend their bank to a friend or colleague, and respond based on a 0-10 scale with 10 indicating 'extremely likely' and 0 indicating 'not at all likely'. Customers scoring 0 to 6 are termed detractors and customers scoring 9 to 10 are termed promoters. The Net Promoter Score (NPS) is established by subtracting the proportion of detractors from the proportion of promoters.
In 2014, we have seen some positive NPS movements in some of our franchises and our plans for 2015 will help to gather momentum across the bank.
| Year end 2013 Year end 2014 |
||||
|---|---|---|---|---|
| target | ||||
| NatWest (England & Wales)(1) | 5 | 6 | 9 | |
| Personal | RBS (Scotland)(1) | -16 | -13 | -10 |
| Banking | Ulster Bank (Northern Ireland)(2) | -31 | -24 | -21 |
| Ulster Bank (Republic of Ireland)(2) |
-20 | -18 | -15 | |
| NatWest (England & Wales)(3) | -11 | -11 | -7 | |
| Business | RBS (Scotland)(3) | -38 | -23 | -21 |
| Banking | Ulster Bank (Northern Ireland)(4) | -47 | -44 | -34 |
| Ulster Bank (Republic of Ireland)(4) |
-21 | -17 | -15 | |
| Commercial Banking(5) | -1 | 12 | 15 |
Notes:
(2) Source: Coyne Research 12 month rolling data. Question: "Please indicate to what extent you would be likely to recommend (brand) to your friends or family using a scale of 0 to 10 where 0 is not at all likely and 10 is extremely likely".
(3) Source: Charterhouse Research Business Banking Survey, based on interviews with businesses with an annual turnover up to £2 million. 12 month rolling data. Latest base sizes: NatWest England & Wales (529), RBS Scotland (399). Weighted by region and turnover to be representative of businesses in England & Wales/Scotland.
(4) Source: PwC Business Banking Tracker. Question: "I would like you to continue thinking about your main business bank and the service they provide. Can you tell me how likely or unlikely would you be to do the following? Again please use a scale of 1 to 10, where 1 is very unlikely and 10 is very likely. How likely are you to recommend them to another business?"
(5) Source: Charterhouse Research Business Banking Survey, based on interviews with businesses with annual turnover between £2 million and £1 billion. Latest base size: RBSG Great Britain (972). Weighted by region and turnover to be representative of businesses in Great Britain.
The only NPS improvements in 2014 that are statistically significant are for Business Banking (RBS Scotland) and Commercial Banking.
(1) Source: GfK FRS 6 month rolling data. Latest base sizes: NatWest England & Wales (3,511) RBS Scotland (547). Based on the question: "How likely is it that you would recommend (brand) to a relative, friend or colleague in the next 12 months for current account banking?"
We also use independent experts to measure our customers' trust in the bank. Each quarter we ask customers to what extent they trust or distrust their bank to do the right thing. The score is a net measure of those customers that trust their bank (a lot or somewhat) minus those that distrust their bank (a lot or somewhat).
| Year end 2013 | Year end 2014 | Year end 2015 target |
||
|---|---|---|---|---|
| Customer Trust(6) | NatWest (England & Wales) |
35% | 41% | 46% |
| RBS (Scotland) | -16% | 2% | 11% |
(6) Source: Populus (2014) and PSB (2013). Latest quarter's data. Measured as a net of those that trust RBS/NatWest to do the right thing, less those that do not. Latest base sizes: NatWest England & Wales (927), RBS Scotland (206).
The year-on-year improvement in RBS customer trust is largely a reversion to its longer-term trend: there were issues in late 2013 that impacted the bank's reputation and customer trust. There are early signs that customer trust in RBS is stabilising and starting to improve. NatWest has consistently performed competitively, and has shown early signs of improvement.
We will continue to aim for improvement through a secure, consistent and reliable service, and an unrelenting focus on our customers.
In February 2014, we made a series of commitments to our RBS and NatWest customers.
| Customer commitment | Progress |
|---|---|
| We will stop offering deals to new customers that we | We now offer our best rates to new and existing |
| are not prepared to offer to our existing customers. | customers across our product range. There is |
| now no Personal Banking or Business Banking | |
| deal that is not available to existing customers. | |
| We will also ban teaser rates, including zero per cent | We have banned teaser rates. We run a fair and |
| balance transfers in our credit card business. | transparent credit card business for our customers. |
| We will stop offering different rates to customers who | Across our RBS and NatWest brands, pricing is |
| apply online, in branch or by phoning our call centres. | consistent. |
| We will use simple language in our customer letters, on | Customer letters and emails have been simplified |
| our websites and in our branches. | for our personal and business customers so they |
| are straightforward and transparent. We have | |
| reduced the number of pages on our personal | |
| banking website by over 60%. In branches we | |
| have fewer, shorter brochures making it easier | |
| for customers to find information. | |
| By the end of 2014 we will cut in half the number of | We have reduced the number of Personal and |
| personal and SME products on offer. | SME products on offer by 50%. We are |
| becoming a smaller, simpler bank to do business | |
| with. | |
| We will improve the clarity of our language to |
Fees and charges are explained on one side of |
| customers. By the end of 2014 we will be able to explain | A4 for both our personal and business customers |
| all of our personal and SME charges on one side of A4. | and will be communicated via our internet sites |
| by the end of February 2015. We have a duty to | |
| our customers to provide a straightforward |
|
| breakdown of all charges. | |
| We will speed up our account opening process for | All customers applying for a personal current |
| personal customers. We will cut how long it takes to | account who have the required ID and pass our |
| open a personal current account from five days to next | fraud and credit checks can now open their |
| day. | account the next working day. |
| We will also improve the process to open a personal | All customers applying for a personal current |
| current account online so customers can upload their | account who have the required ID and pass our |
| identification, such as their passport, and open their | fraud and credit checks can complete their |
| entire account from home. | application online and, where required, are able |
| to upload key ID documents from home. |
| Customer commitment | Progress | ||
|---|---|---|---|
| By the end of 2014, customers will have access to Mobile | All Personal and Business Banking customers | ||
| Banking and Online Banking within one day. | now have access to online banking by the next | ||
| working day. Existing customers with a debit | |||
| card now have access to mobile banking the | |||
| next working day. | |||
| We will put Business Bankers back on the high street. We | 82% of Business Banking frontline staff are | ||
| will have hundreds of Business Bankers help small | immediately above/next to our branches. This | ||
| business people open accounts, apply for loans and get | equates to 1,335 Business Banking specialists | ||
| the help they need. | in branch today. We are simplifying processes | ||
| so that Business Bankers can spend more time | |||
| with customers, providing help and advice in | |||
| branch or via telephone. | |||
| We will start making small business lending decisions in | We are processing lending decisions quicker. | ||
| five days. | In almost all cases, lending decisions are made | ||
| and communicated to the customer in five days | |||
| or less with two-thirds of business lending | |||
| decisions made locally and/or by sector |
|||
| specialists. |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2014 | 2013 | 2014 | 2014 | 2013 | |
| £m | £m | £m | £m | £m | |
| Net interest income | 11,274 | 10,992 | 2,915 | 2,863 | 2,767 |
| Non-interest income | 6,923 | 8,450 | 945 | 1,496 | 1,173 |
| Total income | 18,197 | 19,442 | 3,860 | 4,359 | 3,940 |
| Operating expenses | (15,849) | (18,510) | (4,858) | (3,883) | (6,881) |
| Profit/(loss) before impairment losses | 2,348 | 932 | (998) | 476 | (2,941) |
| Impairment releases/(losses) | 1,155 | (8,432) | 623 | 801 | (5,112) |
| Operating profit/(loss) (1) | 3,503 | (7,500) | (375) | 1,277 | (8,053) |
| Own credit adjustments | (146) | (120) | (144) | 49 | - |
| Gain on redemption of own debt | 20 | 175 | - | - | (29) |
| Write down of goodwill | (130) | (1,059) | - | - | (1,059) |
| Strategic disposals | 191 | 161 | - | - | 168 |
| Citizens discontinued operations | (771) | (606) | (175) | (170) | (104) |
| RFS Holdings minority interest | (24) | 100 | 11 | (56) | (10) |
| Operating profit/(loss) before tax | 2,643 | (8,849) | (683) | 1,100 | (9,087) |
| Tax (charge)/credit | (1,909) | (186) | (1,040) | (277) | 403 |
| Profit/(loss) from continuing operations | 734 | (9,035) | (1,723) | 823 | (8,684) |
| (Loss)/profit from discontinued operations, net of tax | |||||
| - Citizens (2) | (3,486) | 410 | (3,885) | 114 | 78 |
| - Other | 41 | 148 | 3 | 3 | 15 |
| (Loss)/profit from discontinued operations, net of tax | (3,445) | 558 | (3,882) | 117 | 93 |
| (Loss)/profit for the period | (2,711) | (8,477) | (5,605) | 940 | (8,591) |
| Non-controlling interests | (60) | (120) | (71) | 53 | 3 |
| Other owners' dividends | (379) | (398) | (115) | (97) | (114) |
| Dividend access share | (320) | - | - | - | - |
| (Loss)/profit attributable to ordinary | |||||
| and B shareholders | (3,470) | (8,995) | (5,791) | 896 | (8,702) |
| Memo: | |||||
| Operating expenses - adjusted (3) | (12,398) | (14,010) | (3,131) | (2,923) | (3,826) |
| Operating profit/(loss) - adjusted (3) | 6,954 | (3,000) | 1,352 | 2,237 | (4,998) |
| Year ended | Quarter ended | ||||
| 31 December | 31 December | 31 December 30 September | 31 December | ||
| Key metrics and ratios | 2014 | 2013 | 2014 | 2014 | 2013 |
| Key metrics and ratios | 2014 | 2013 | 2014 | 2014 | 2013 |
|---|---|---|---|---|---|
| Net interest margin | 2.23% | 2.01% | 2.32% | 2.26% | 2.08% |
| Cost:income ratio | 87% | 95% | 126% | 89% | 175% |
| - adjusted (3) | 68% | 72% | 81% | 67% | 97% |
| Earnings/(loss) per share from continuing operations (4) | |||||
| - basic | 0.5p | (85.0p) | (16.2p) | 6.9p | (78.0p) |
| - adjusted (5) | 0.8p | (77.7p) | (15.1p) | 6.5p | (69.9p) |
| Return on tangible equity (6) | (8.0%) | (18.7%) | (49.6%) | 8.2% | (76.3%) |
| Average tangible equity (6) | 43,357 | 48,179 | 46,720 | 43,536 | 45,640 |
| Average number of ordinary shares and equivalent B | |||||
| shares outstanding during the period (millions) | 11,356 | 11,196 | 11,422 | 11,384 | 11,256 |
Notes:
(1) Operating profit/(loss) before tax, own credit adjustments, gain on redemption of own debt, write down of goodwill, strategic disposals and RFS MI, and includes the results of Citizens, which is classified as a discontinued operation.
(2) Included within Citizens discontinued operations are the results of the reportable operating segment Citizens Financial Group (CFG), the loss provision for CFG on transfer to disposal groups, certain Citizens related activities in Central items and related one-off and other items.
(3) Excluding restructuring costs and litigation and conduct costs.
(4) Refer to Note 10 on page 90.
(5) Adjusted earnings excludes own credit adjustments, gain on redemption of own debt, write down of goodwill, strategic disposals and RFS MI.
(6) Tangible equity is equity attributable to ordinary and B shareholders less intangible assets.
Details of other comprehensive income are provided on page 69.
| 31 December 30 September | 31 December | ||
|---|---|---|---|
| 2014 | 2014 | 2013 | |
| £m | £m | £m | |
| Cash and balances at central banks | 74,872 | 67,900 | 82,659 |
| Net loans and advances to banks (1,2) | 23,027 | 29,090 | 27,555 |
| Net loans and advances to customers (1,2) | 334,251 | 392,969 | 390,825 |
| Reverse repurchase agreements and stock borrowing | 64,695 | 75,491 | 76,413 |
| Debt securities and equity shares | 92,284 | 115,078 | 122,410 |
| Intangible assets | 7,781 | 12,454 | 12,368 |
| Assets of disposal groups (3) | 82,011 | 1,153 | 3,017 |
| Other assets | 18,252 | 37,954 | 24,592 |
| Funded assets | 697,173 | 732,089 | 739,839 |
| Derivatives | 353,590 | 314,021 | 288,039 |
| Total assets | 1,050,763 | 1,046,110 | 1,027,878 |
| Bank deposits (2,4) | 35,806 | 38,986 | 35,329 |
| Customer deposits (2,4) | 354,288 | 405,367 | 414,396 |
| Repurchase agreements and stock lending | 62,210 | 75,101 | 85,134 |
| Debt securities in issue | 50,280 | 53,487 | 67,819 |
| Subordinated liabilities | 22,905 | 24,412 | 24,012 |
| Derivatives | 349,805 | 310,361 | 285,526 |
| Liabilities of disposal groups (3) | 71,320 | 272 | 3,378 |
| Other liabilities | 43,957 | 73,286 | 53,069 |
| Total liabilities | 990,571 | 981,272 | 968,663 |
| Non-controlling interests | 2,946 | 2,747 | 473 |
| Owners' equity | 57,246 | 62,091 | 58,742 |
| Total liabilities and equity | 1,050,763 | 1,046,110 | 1,027,878 |
Notes:
(1) Excludes reverse repurchase agreements and stock borrowing.
(2) Excludes disposal groups.
(3) Primarily Citizens at 31 December 2014 – refer to Note 12 on page 97.
(4) Excludes repurchase agreements and stock lending.
| 31 December 30 September | 31 December | ||
|---|---|---|---|
| Key metrics and ratios | 2014 | 2014 | 2013 |
| Tangible net asset value per ordinary and B share (1) | 387p | 388p | 363p |
| Tangible equity (2) | £44,368m | £44,345m | £41,082m |
| Common Equity Tier 1 ratio | 11.2% | 10.8% | 8.6% |
| Risk-weighted assets (3) | £355.9bn | £381.7bn | £429.1bn |
| Loan:deposit ratio (4) | 95% | 97% | 94% |
| Short-term wholesale funding (5) | £28bn | £31bn | £32bn |
| Wholesale funding (5) | £90bn | £94bn | £108bn |
| Liquidity portfolio | £151bn | £143bn | £146bn |
| Liquidity coverage ratio (6) | 112% | 102% | 102% |
| Net stable funding ratio (7) | 121% | 111% | 120% |
| Number of ordinary shares and equivalent B shares in issue (millions) (8) | 11,466 | 11,421 | 11,303 |
Notes:
(1) Tangible net asset value per ordinary and B share represents tangible equity divided by the number of ordinary shares and equivalent B shares in issue.
(2) Tangible equity is equity attributable to ordinary and B shareholders less intangible assets.
(3) Risk-weighted assets for all periods are based on a Basel III basis.
(4) Includes disposal groups.
(5) Excludes derivative collateral.
(6) In January 2013, the Basel Committee on Banking Supervision (BCBS) issued its revised final guidance for calculating the liquidity coverage ratio (LCR) with a proposed implementation timeline of 1 January 2015. Within the EU, the LCR is currently expected to come into effect from the later date of 1 October 2015 on a phased basis; subject to the finalisation of the EU Delegated Act, which RBS expects to replace the current Prudential Regulation Authority (PRA) regime. Pending guidance from the PRA, RBS monitors the LCR based on the EU Delegated Act, and its internal interpretations of the rules. Consequently, RBS's ratio may change over time and may not be comparable with those of other financial institutions.
(7) BCBS issued its final recommendations for the implementation of net stable funding ratio (NSFR) in October 2014, proposing an implementation date of 1 January 2018. Pending further guidelines from the EU and the PRA, RBS uses definitions and proposals from the BCBS paper, and internal interpretations, to calculate the NSFR. Consequently, RBS's ratio may change over time and may not be comparable with those of other financial institutions.
(8) Includes 28 million Treasury shares (30 September 2014 - 33 million; 31 December 2013 - 34 million).
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2014 | 2013 | 2014 | 2014 | 2013 | |
| Net interest income | £m | £m | £m | £m | £m |
| Net interest income | 11,274 | 10,992 | 2,915 | 2,863 | 2,767 |
| Average interest-earning assets | |||||
| - RBS | 502,830 | 543,881 | 495,546 | 501,383 | 523,946 |
| - Personal & Business Banking | 155,352 | 159,159 | 156,002 | 155,818 | 157,838 |
| - Commercial & Private Banking | 93,256 | 93,115 | 93,184 | 93,021 | 92,264 |
| - Citizens Financial Group | 69,895 | 64,935 | 74,302 | 69,520 | 64,336 |
| Net interest margin (1,2) | |||||
| - RBS | 2.23% | 2.01% | 2.32% | 2.26% | 2.08% |
| - Personal & Business Banking | 3.42% | 3.21% | 3.46% | 3.47% | 3.30% |
| - Commercial & Private Banking | 2.93% | 2.81% | 2.96% | 2.96% | 2.95% |
| - Citizens Financial Group | 2.88% | 2.91% | 2.86% | 2.82% | 2.91% |
Notes:
For the purposes of net interest margin calculations the following adjustments have been made.
(1) Net interest income has been decreased by £47 million in 2014 (2013 - £79 million) and by £12 million in Q4 2014 (Q3 2014 - £7 million; Q4 2013 - £22 million) in respect of interest on financial assets and liabilities designated as at fair value through profit or loss.
(2) Net interest income has been decreased by £7 million in the year ended 31 December 2013 in respect of non-recurring adjustments.
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2014 | 2013 | 2014 | 2014 | 2013 | ||
| Non-interest income | £m | £m | £m | £m | £m | |
| Net fees and commissions | 4,248 | 4,518 | 1,036 | 1,094 | 1,126 | |
| Income/(loss) from trading activities | 1,422 | 2,651 | (295) | 235 | 162 | |
| Other operating income | 1,253 | 1,281 | 204 | 167 | (115) | |
| Total non-interest income | 6,923 | 8,450 | 945 | 1,496 | 1,173 |
• Non-interest income declined by £551 million or 37%, principally reflecting lower income in RCR and CIB and higher risk management costs.
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2014 | 2013 | 2014 | 2014 | 2013 | ||
| Operating expenses | £m | £m | £m | £m | £m | |
| Staff expenses | 6,406 | 6,882 | 1,455 | 1,611 | 1,539 | |
| Premises and equipment | 2,094 | 2,233 | 525 | 490 | 614 | |
| Other | 2,635 | 3,147 | 827 | 516 | 985 | |
| Restructuring costs* | 1,257 | 656 | 563 | 180 | 180 | |
| Litigation and conduct costs | 2,194 | 3,844 | 1,164 | 780 | 2,875 | |
| Administrative expenses | 14,586 | 16,762 | 4,534 | 3,577 | 6,193 | |
| Depreciation and amortisation | 1,107 | 1,404 | 250 | 306 | 344 | |
| Write down of intangible assets | 156 | 344 | 74 | - | 344 | |
| Operating expenses | 15,849 | 18,510 | 4,858 | 3,883 | 6,881 | |
| Memo item | ||||||
| Adjusted operating expenses (1) | 12,398 | 14,010 | 3,131 | 2,923 | 3,826 | |
| *Restructuring costs comprise: | ||||||
| - staff expenses | 409 | 280 | 134 | 79 | 1 | |
| - premises and equipment | 280 | 115 | 31 | 53 | 86 | |
| - other | 568 | 261 | 398 | 48 | 93 | |
| Restructuring costs | 1,257 | 656 | 563 | 180 | 180 | |
| Staff costs as a % of total income (1) | 35% | 35% | 38% | 37% | 39% | |
| Cost:income ratio | 87% | 95% | 126% | 89% | 175% | |
| Cost:income ratio - adjusted (1) | 68% | 72% | 81% | 67% | 97% | |
| Employee numbers (FTE - thousands) | 108.7 | 118.6 | 108.7 | 110.8 | 118.6 |
Note:
(1) Excluding restructuring costs and litigation and conduct costs.
Note: (1) Average full time employees, rounded to the nearest hundred, for continuing operations was 95,600 (2013 - 102,000).
• Operating expenses increased by £975 million or 25% to £4,858 million. Litigation and conduct costs were up 49% to £1,164 million and included provisions for PPI redress (£400 million), provisions relating to investigations into the foreign exchange market (£320 million), Interest Rate Hedging Product redress (£85 million) and other costs (£359 million) including provisions relating to certain packaged accounts and investment products. Adjusted operating expenses increased by £208 million or 7% to £3,131 million primarily reflecting a UK bank levy charge of £250 million. Restructuring costs increased by £383 million to £563 million, including a £247 million write-off of intangible assets and £174 million in relation to Williams & Glyn.
• Operating expenses decreased by £2,023 million or 29%. Litigation and conduct costs were down 60% to £1,164 million and included provisions for PPI redress (£400 million), provisions relating to investigations into the foreign exchange market (£320 million), Interest Rate Hedging Product redress (£85 million) and other costs (£359 million). Adjusted operating expenses decreased by £695 million or 18% primarily reflecting reductions in operating expenses across a number of businesses, principally CIB.
| Year ended | |||||
|---|---|---|---|---|---|
| 31 December 31 December | Quarter ended 31 December 30 September 31 December |
||||
| 2014 | 2013 | 2014 | 2014 | 2013 | |
| Impairment (releases)/losses | £m | £m | £m | £m | £m |
| Loans | (1,170) | 8,412 | (638) | (803) | 5,131 |
| Securities | 15 | 20 | 15 | 2 | (19) |
| Total impairment (releases)/losses | (1,155) | 8,432 | (623) | (801) | 5,112 |
| Loan impairment (releases)/losses | |||||
| - individually assessed | (799) | 6,919 | (502) | (410) | 4,867 |
| - collectively assessed | 315 | 1,464 | (85) | 52 | 443 |
| - latent | (676) | 44 | (51) | (445) | (173) |
| Customer loans | (1,160) | 8,427 | (638) | (803) | 5,137 |
| Bank loans | (10) | (15) | - | - | (6) |
| Loan impairment (releases)/losses | (1,170) | 8,412 | (638) | (803) | 5,131 |
| RBS excluding RCR/Non-Core | 150 | 3,766 | 53 | (193) | 1,924 |
| RCR | (1,320) | n/a | (691) | (610) | n/a |
| Non-Core | n/a | 4,646 | n/a | n/a | 3,207 |
| RBS | (1,170) | 8,412 | (638) | (803) | 5,131 |
| Customer loan impairment (releases)/charge as a % of gross loans and advances (1) |
|||||
| RBS | (0.3%) | 2.0% | (0.6%) | (0.8%) | 4.9% |
| RBS excluding RCR/Non-Core | - | 1.0% | 0.1% | (0.2%) | 2.0% |
| RCR | (6.0%) | n/a | (12.6%) | (9.5%) | n/a |
| Non-Core | n/a | 12.8% | n/a | n/a | 35.3% |
| 2014 | 31 December 30 September 2014 |
31 December 2013 |
|
|---|---|---|---|
| Loan impairment provisions | |||
| - RBS | £18.0bn | £20.0bn | £25.2bn |
| - RBS excluding RCR/Non-Core | £7.1bn | £7.4bn | £11.4bn |
| - RCR | £10.9bn | £12.6bn | n/a |
| - Non-Core | n/a | n/a | £13.8bn |
| Risk elements in lending | |||
| - RBS | £28.2bn | £30.5bn | £39.4bn |
| - RBS excluding RCR/Non-Core | £12.8bn | £13.1bn | £20.4bn |
| - RCR | £15.4bn | £17.4bn | n/a |
| - Non-Core | n/a | n/a | £19.0bn |
| Provisions as a % of REIL | |||
| - RBS | 64% | 66% | 64% |
| - RBS excluding RCR/Non-Core | 55% | 57% | 56% |
| - RCR | 71% | 72% | n/a |
| - Non-Core | n/a | n/a | 73% |
| REIL as a % of gross customer loans | |||
| - RBS | 6.8% | 7.4% | 9.4% |
| - RBS excluding RCR/Non-Core | 3.3% | 3.4% | 5.3% |
| - RCR | 70.3% | 67.6% | n/a |
| - Non-Core | n/a | n/a | 51.8% |
Note:
(1) Excludes reverse repurchase agreements and includes disposals groups.
• Net impairment releases of £1,155 million were recorded in 2014 compared with a net impairment charge of £8,432 million in the prior year, which included £4,490 million provisions related to the creation of RCR. Releases were recorded principally in RCR (£1,306 million) and in Ulster Bank (£365 million), which benefited from favourable economic and market conditions, supported by rising Irish property values and proactive debt management. Excluding these releases, the underlying charge was low at just over £500 million.
• Net impairment releases totalled £623 million, down £178 million, again principally in RCR and Ulster Bank. Underlying bad debt flows remained low.
• Net impairment releases totalled £623 million compared with a net impairment charge of £5,112 million in Q4 2013, which included £4,290 million related to the creation of RCR.
| End-point CRR basis (1) | PRA transitional basis (1) | ||||||
|---|---|---|---|---|---|---|---|
| 31 December 30 September 31 December | 31 December 30 September 31 December | ||||||
| 2014 | 2014 | 2013 (2) | 2014 | 2014 | 2013 (2) | ||
| Risk asset ratios | % | % | % | % | % | % | |
| CET1 | 11.2 | 10.8 | 8.6 | 11.1 | 10.8 | 8.6 | |
| Tier 1 | 11.2 | 10.8 | 8.6 | 13.2 | 12.7 | 10.3 | |
| Total | 13.7 | 13.1 | 10.6 | 17.1 | 16.3 | 13.6 | |
| Capital | £bn | £bn | £bn | £bn | £bn | £bn | |
| Tangible equity | 44.4 | 44.3 | 41.1 | 44.4 | 44.1 | 41.1 | |
| Expected loss less impairment provisions | (1.5) | (1.6) | (1.7) | (1.5) | (1.6) | (1.7) | |
| Prudential valuation adjustment (PVA) | (0.4) | (0.4) | (0.8) | (0.4) | (0.4) | (0.8) | |
| Deferred tax assets | (1.2) | (1.6) | (2.3) | (1.2) | (1.6) | (2.3) | |
| Own credit adjustments | 0.5 | 0.6 | 0.6 | 0.5 | 0.6 | 0.6 | |
| Pension fund assets | (0.2) | (0.2) | (0.2) | (0.2) | (0.2) | (0.2) | |
| Other deductions | (1.7) | 0.1 | 0.1 | (2.0) | 0.2 | 0.1 | |
| Total deductions | (4.5) | (3.1) | (4.3) | (4.8) | (3.0) | (4.3) | |
| CET1 capital | 39.9 | 41.2 | 36.8 | 39.6 | 41.1 | 36.8 | |
| AT1 capital | - | - | - | 7.5 | 7.5 | 7.5 | |
| Tier 1 capital | 39.9 | 41.2 | 36.8 | 47.1 | 48.6 | 44.3 | |
| Tier 2 capital | 8.7 | 8.8 | 8.7 | 13.6 | 13.6 | 13.9 | |
| Total regulatory capital | 48.6 | 50.0 | 45.5 | 60.7 | 62.2 | 58.2 | |
| Risk-weighted assets | £bn | £bn | £bn | £bn | £bn | £bn | |
| Credit risk | |||||||
| - non-counterparty | 264.7 | 277.0 | 317.9 | 264.7 | 277.0 | 317.9 | |
| - counterparty | 30.4 | 38.2 | 39.1 | 30.4 | 38.2 | 39.1 | |
| Market risk | 24.0 | 29.7 | 30.3 | 24.0 | 29.7 | 30.3 | |
| Operational risk | 36.8 | 36.8 | 41.8 | 36.8 | 36.8 | 41.8 | |
| Total RWAs | 355.9 | 381.7 | 429.1 | 355.9 | 381.7 | 429.1 | |
| Leverage (3) | £bn | £bn | £bn | ||||
| Derivatives | 354.0 | 314.0 | 288.0 | ||||
| Loans and advances | 419.6 | 422.1 | 418.4 | ||||
| Reverse repos | 64.7 | 75.5 | 76.4 | ||||
| Other assets | 212.5 | 234.5 | 245.1 | ||||
| Total assets | 1,050.8 | 1,046.1 | 1,027.9 | ||||
| Derivatives | |||||||
| - netting | (330.9) | (254.5) | (227.3) | ||||
| - potential future exposures | 98.8 | 106.2 | 128.0 | ||||
| Securities financing transactions gross up | 25.0 | 72.9 | 59.8 | ||||
| Weighted undrawn commitments | 96.4 | 98.7 | 100.2 | ||||
| Regulatory deductions and other | |||||||
| adjustments | (0.6) | (1.4) | (6.6) | ||||
| Leverage exposure | 939.5 | 1,068.0 | 1,082.0 | ||||
| Leverage ratio % | 4.2 | 3.9 | 3.4 |
Notes:
(1) Capital Requirements Regulation (CRR) as implemented by the Prudential Regulation Authority in the UK, with effect from 1 January 2014. All regulatory adjustments and deductions to CET1 have been applied in full for the end-point CRR basis with the exception of unrealised gains on AFS securities which has been included from 2015 for the PRA transitional basis.
(2) Estimated.
(3) Based on end-point CRR Tier 1 capital and revised 2014 Basel III leverage ratio framework.
Refer to Appendix 1 for further details on capital and leverage.
The tables on pages 29 and 30 summarise the results and key metrics for each operating segment and franchise for the year and quarter ended 31 December 2014. Comparative period data are detailed in Appendix 3.
| Ye de d 3 ar en |
1 D be r 2 ec em |
01 4 |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| PB B |
CP B |
CIB | |||||||||
| Uls ter |
Co ial mm erc |
Pri te va |
Ce al ntr |
To tal |
|||||||
| UK PB B |
Ba nk |
To tal |
Ba nk ing |
Ba nk ing |
To tal |
ite ( 1) ms |
CF G |
RC R |
RB S |
||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| Inc tat t om e s em en |
|||||||||||
| Ne t in ter est in co me |
4, 68 3 |
63 6 |
5, 31 9 |
2, 04 1 |
69 1 |
2, 73 2 |
81 7 |
44 0 |
2, 01 3 |
( 47 ) |
11 27 4 , |
| No n-i nte t in res co me |
1, 35 4 |
19 4 |
1, 54 8 |
1, 16 9 |
39 1 |
1, 56 0 |
3, 13 2 |
( 7) 47 |
1, 06 8 |
92 | 6, 92 3 |
| To tal inc om e |
6, 03 7 |
83 0 |
6, 86 7 |
3, 21 0 |
1, 08 2 |
4, 29 2 |
3, 94 9 |
( ) 37 |
3, 08 1 |
45 | 18 19 7 , |
| Dir ect ex pe nse s |
|||||||||||
| sta ff c ost s - |
( 89 2) |
( 24 7) |
( 1, 13 9 ) |
( 50 8 ) |
( 31 7) |
( 82 5 ) |
( 72 9 ) |
( 2, 51 6 ) |
( 1, 03 0 ) |
( 16 7) |
( 6, 40 6 ) |
| oth ts er cos - |
( ) 38 0 |
( ) 74 |
( 4) 45 |
( ) 24 9 |
( ) 72 |
( 1) 32 |
( ) 40 0 |
( 2) 3, 74 |
( ) 99 0 |
( ) 85 |
( 2) 5, 99 |
| Ind ire ct ex pe nse s |
( 2, 02 7) |
( 26 5 ) |
( 2, 29 2) |
( 88 2) |
( 43 9 ) |
( 1, 32 1) |
( 2, 43 2) |
6, 14 9 |
- | ( 10 4) |
- |
| Re str uct uri ts ng cos |
|||||||||||
| dir ect - |
( 10 ) |
8 | ( 2) |
( 40 ) |
( 8 ) |
( 48 ) |
( 93 ) |
( 1, 01 1) |
( 10 3 ) |
- | ( 1, 25 7) |
| ind ire ct - |
( ) 92 |
( ) 30 |
( 2) 12 |
( ) 53 |
( ) 10 |
( ) 63 |
( 2) 20 |
39 4 |
- | ( 7) |
- |
| Liti tio nd nd uct sts ga n a co co |
( 91 8 ) |
19 | ( 89 9 ) |
( 11 2) |
( 90 ) |
( 20 2) |
( 99 4) |
( 99 ) |
- | - | ( 2, 19 4) |
| Op tin era g e xp en se s |
( 4, 31 9 ) |
( 58 9 ) |
( 4, 90 8 ) |
( 1, 84 4) |
( 93 6 ) |
( 2, 78 0 ) |
( 4, 85 0 ) |
( 82 5 ) |
( 2, 12 3 ) |
( 36 3 ) |
( 15 84 9 ) , |
| Pro fit/ ( los s) be for e i air nt los mp me se s |
1, 71 8 |
24 1 |
1, 95 9 |
1, 36 6 |
14 6 |
1, 51 2 |
( 90 1) |
( 86 2) |
95 8 |
( 31 8 ) |
2, 34 8 |
| Im irm t ( los s) /re lea pa en se se s |
( 26 8 ) |
36 5 |
97 | ( 76 ) |
4 | ( 72 ) |
9 | 12 | ( 19 7) |
1, 30 6 |
1, 15 5 |
| Op tin rof it/( los s) era g p |
1, 45 0 |
60 6 |
2, 05 6 |
1, 29 0 |
15 0 |
1, 44 0 |
( 89 2) |
( 85 0 ) |
76 1 |
98 8 |
3, 50 3 |
| Ad dit ion al inf ati orm on |
|||||||||||
| Op tin ad jus ted ( £m ) ( 2) era g e xp en se s - |
( 3, 29 9 ) |
( 58 6 ) |
( 3, 88 5 ) |
( 1, 63 9 ) |
( 82 8 ) |
( 2, 46 7) |
( 3, 56 1) |
( 10 9 ) |
( 2, 02 0 ) |
( 35 6 ) |
( 12 39 8 ) , |
| Op tin rof it/( los s) dju ste d ( £m ) ( 2) era g p - a |
2, 47 0 |
60 9 |
3, 07 9 |
1, 49 5 |
25 8 |
1, 75 3 |
39 7 |
( 13 4) |
86 4 |
99 5 |
6, 95 4 |
| Re tur ity ( 3) n o n e qu |
19 .4% |
16 .1% |
17 .5% |
12 .6% |
7.8 % |
11 .9% |
( 4.2 % ) |
nm | 6.6 % |
nm | ( 8.0 % ) |
| Re tur ity dju ste d ( 2, 3) n o n e qu - a |
33 .1% |
16 .2% |
26 .2% |
14 .6% |
13 .4% |
14 .4% |
1.9 % |
nm | 7.5 % |
nm | ( 1.3 % ) |
| Co st: inc ati om e r o |
72 % |
71 % |
71 % |
57 % |
87 % |
65 % |
12 3% |
nm | 69 % |
nm | 87 % |
| Co st: inc atio dju ste d ( 2) om e r - a |
55 % |
71 % |
57 % |
51 % |
77 % |
57 % |
90 % |
nm | 66 % |
nm | 68 % |
| Fu nd ed set s ( £b n) as |
13 4.3 |
27 .5 |
16 1.8 |
89 .4 |
20 .4 |
10 9.8 |
24 1.1 |
84 .7 |
84 .5 |
14 .9 |
69 6.8 |
| To tal ets ( £b n) ass |
13 4.3 |
27 .6 |
16 1.9 |
89 .4 |
20 .5 |
10 9.9 |
57 7.2 |
87 .9 |
84 .9 |
29 .0 |
1, 05 0.8 |
| Ris k-w eig hte d a ts ( £b n) sse |
42 .8 |
23 .8 |
66 .6 |
64 .0 |
11 .5 |
75 .5 |
10 7.1 |
16 .3 |
68 .4 |
22 .0 |
35 5.9 |
| Em loy mb ( FT Es - t ho nd s) p ee nu ers usa |
24 .8 |
4.4 | 29 .2 |
6.2 | 3.4 | 9.6 | 3.7 | 48 .1 |
17 .4 |
0.7 | 10 8.7 |
nm = not meaningful
| Qu art de d 3 er en |
1 D be ec em |
r 2 01 4 |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| PB B |
CP B |
CIB | |||||||||
| Uls ter |
Co ial mm erc |
Pri te va |
Ce al ntr |
To tal |
|||||||
| UK PB B |
Ba nk |
To tal |
Ba nk ing |
Ba nk ing |
To tal |
ite ( 1) ms |
CF G |
RC R |
RB S |
||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| Inc tat t om e s em en |
|||||||||||
| Ne t in ter est in co me |
1, 20 9 |
15 0 |
1, 35 9 |
52 1 |
17 5 |
69 6 |
22 2 |
12 8 |
53 3 |
( 23 ) |
2, 91 5 |
| No n-i nte t in res co me |
32 3 |
54 | 37 7 |
31 0 |
92 | 40 2 |
46 9 |
( 37 4) |
23 3 |
( 16 2) |
94 5 |
| To tal inc om e |
1, 53 2 |
20 4 |
1, 73 6 |
83 1 |
26 7 |
1, 09 8 |
69 1 |
( 24 6 ) |
76 6 |
( 18 5 ) |
3, 86 0 |
| Dir ect ex pe nse s |
|||||||||||
| sta ff c ost s - |
( 22 0 ) |
( 65 ) |
( 28 5 ) |
( 11 8 ) |
( 78 ) |
( 19 6 ) |
( 63 ) |
( 60 7) |
( 26 3 ) |
( 41 ) |
( 1, 45 5 ) |
| oth ts er cos - |
( 82 ) |
( 19 ) |
( 10 1) |
( 73 ) |
( 21 ) |
( 94 ) |
( 10 0 ) |
( 1, 09 4) |
( 25 8 ) |
( 29 ) |
( 1, 67 6 ) |
| Ind ire ct ex pe nse s |
( 56 4) |
( 78 ) |
( 64 2) |
( 28 4) |
( 12 9 ) |
( 41 3 ) |
( 65 9 ) |
1, 73 9 |
- | ( 25 ) |
- |
| Re str uct uri ts ng cos |
|||||||||||
| dir ect - |
( 2) |
- | ( 2) |
- | ( 6 ) |
( 6 ) |
( 49 ) |
( 48 5 ) |
( 21 ) |
- | ( 56 3 ) |
| ind ire ct - |
( 16 ) |
4 | ( 12 ) |
( 13 ) |
( 2) |
( 15 ) |
( 39 ) |
69 | - | ( 3 ) |
- |
| Liti tio nd nd uct sts ga n a co co |
( 65 0 ) |
19 | ( 63 1) |
( 62 ) |
( 90 ) |
( 15 2) |
( 38 2) |
1 | - | - | ( 1, 16 4) |
| Op tin era g e xp en se s |
( 1, 53 4) |
( 13 9 ) |
( 1, 67 3 ) |
( 55 0 ) |
( 32 6 ) |
( 87 6 ) |
( 1, 29 2) |
( 37 7) |
( 54 2) |
( 98 ) |
( 4, 85 8 ) |
| Pro fit/ ( los s) be for e i air nt los mp me se s |
( 2) |
65 | 63 | 28 1 |
( 59 ) |
22 2 |
( 60 1) |
( 62 3 ) |
22 4 |
( 28 3 ) |
( 99 8 ) |
| Im irm t ( los s) /re lea pa en se se s |
( 41 ) |
10 4 |
63 | ( 33 ) |
- | ( 33 ) |
( 42 ) |
1 | ( 47 ) |
68 1 |
62 3 |
| Op tin rof it/( los s) era g p |
( 43 ) |
16 9 |
12 6 |
24 8 |
( 59 ) |
18 9 |
( 64 3 ) |
( 62 2) |
17 7 |
39 8 |
( 37 5 ) |
| Ad dit ion al inf ati orm on |
|||||||||||
| Op tin ad jus ted ( £m ) ( 2) era g e xp en se s - |
( 86 6 ) |
( 16 2) |
( 1, 02 8 ) |
( 47 5 ) |
( 22 8 ) |
( 70 3 ) |
( 82 2) |
38 | ( 52 1) |
( 95 ) |
( 3, 13 1) |
| Op tin rof it/( los s) dju ste d ( £m ) ( 2) era g p - a |
62 5 |
14 6 |
77 1 |
32 3 |
39 | 36 2 |
( 17 3 ) |
( 20 7) |
19 8 |
40 1 |
1, 35 2 |
| Re tur ity ( 3) n o n e qu |
( 2.5 % ) |
20 .1% |
4.7 % |
9.6 % |
( 12 .5% ) |
6.2 % |
( 13 .6% ) |
nm | 5.7 % |
nm | ( 49 .6% ) |
| Re tur ity dju ste d ( 2, 3) n o n e qu - a |
35 .7% |
17 .3% |
28 .5% |
12 .5% |
8.2 % |
11 .8% |
( 3.7 % ) |
nm | 6.4 % |
nm | ( 37 .3% ) |
| Co st: inc ati om e r o |
10 0% |
68 % |
96 % |
66 % |
12 2% |
80 % |
18 7% |
nm | 71 % |
nm | 12 6% |
| Co st: inc atio dju ste d ( 2) om e r - a |
57 % |
79 % |
59 % |
57 % |
85 % |
64 % |
11 9% |
nm | 68 % |
nm | 81 % |
| Fu nd ed set s ( £b n) as |
13 4.3 |
27 .5 |
16 1.8 |
89 .4 |
20 .4 |
10 9.8 |
24 1.1 |
84 .7 |
84 .5 |
14 .9 |
69 6.8 |
| To tal ets ( £b n) ass |
13 4.3 |
27 .6 |
16 1.9 |
89 .4 |
20 .5 |
10 9.9 |
57 7.2 |
87 .9 |
84 .9 |
29 .0 |
1, 05 0.8 |
| Ris k-w eig hte d a ts ( £b n) sse |
42 .8 |
23 .8 |
66 .6 |
64 .0 |
11 .5 |
75 .5 |
10 7.1 |
16 .3 |
68 .4 |
22 .0 |
35 5.9 |
| Em loy mb ( FT Es - t ho nd s) p ee nu ers usa |
24 .8 |
4.4 | 29 .2 |
6.2 | 3.4 | 9.6 | 3.7 | 48 .1 |
17 .4 |
0.7 | 10 8.7 |
nm = not meaningful
For the notes to this table refer to Appendix 3.
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2014 | 2013 | 2014 | 2014 | 2013 | ||
| £m | £m | £m | £m | £m | ||
| Income statement | ||||||
| Net interest income | 4,683 | 4,490 | 1,209 | 1,198 | 1,149 | |
| Net fees and commissions | 1,287 | 1,309 | 315 | 335 | 341 | |
| Other non-interest income | 67 | 14 | 8 | 10 | 4 | |
| Non-interest income | 1,354 | 1,323 | 323 | 345 | 345 | |
| Total income | 6,037 | 5,813 | 1,532 | 1,543 | 1,494 | |
| Direct expenses | ||||||
| - staff costs | (892) | (928) | (220) | (223) | (230) | |
| - other costs | (380) | (524) | (82) | (78) | (203) | |
| Indirect expenses | (2,027) | (1,954) | (564) | (481) | (519) | |
| Restructuring costs | ||||||
| - direct | (10) | (118) | (2) | (2) | (27) | |
| - indirect | (92) | (109) | (16) | (63) | (41) | |
| Litigation and conduct costs | (918) | (860) | (650) | (118) | (450) | |
| Operating expenses | (4,319) | (4,493) | (1,534) | (965) | (1,470) | |
| Profit before impairment losses | 1,718 | 1,320 | (2) | 578 | 24 | |
| Impairment losses | (268) | (501) | (41) | (79) | (107) | |
| Operating profit/(loss) | 1,450 | 819 | (43) | 499 | (83) | |
| Operating expenses - adjusted (1) | (3,299) | (3,406) | (866) | (782) | (952) | |
| Operating profit - adjusted (1) | 2,470 | 1,906 | 625 | 682 | 435 |
Note:
(1) Excluding restructuring costs and litigation and conduct costs.
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December 2014 |
31 December 2013 |
31 December 2014 |
30 September 2014 |
31 December 2013 |
|
| £m | £m | £m | £m | £m | |
| Analysis of income by product | |||||
| Personal advances | 920 | 923 | 222 | 231 | 247 |
| Personal deposits | 706 | 468 | 210 | 194 | 116 |
| Mortgages | 2,600 | 2,605 | 656 | 657 | 665 |
| Cards | 730 | 838 | 169 | 187 | 206 |
| Business banking | 1,021 | 973 | 270 | 261 | 247 |
| Other | 60 | 6 | 5 | 13 | 13 |
| Total income | 6,037 | 5,813 | 1,532 | 1,543 | 1,494 |
| Analysis of impairments by sector | |||||
| Personal advances | 161 | 179 | 36 | 46 | 61 |
| Mortgages | (26) | 31 | (23) | (8) | (13) |
| Business banking | 53 | 177 | 3 | 20 | 34 |
| Cards | 80 | 114 | 25 | 21 | 25 |
| Total impairment losses (1) | 268 | 501 | 41 | 79 | 107 |
| Loan impairment charge as % of gross | |||||
| customer loans and advances (excluding | |||||
| reverse repurchase agreements) by sector | |||||
| Personal advances | 2.2% | 2.2% | 1.9% | 2.5% | 3.0% |
| Mortgages | - | - | (0.1%) | - | (0.1%) |
| Business banking | 0.4% | 1.2% | 0.1% | 0.5% | 0.9% |
| Cards | 1.6% | 2.0% | 2.0% | 1.6% | 1.7% |
| Total | 0.2% | 0.4% | 0.1% | 0.2% | 0.3% |
Note:
(1) Includes £2 million in Q4 2013 pertaining to the creation of RCR and related strategy.
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2014 | 2013 | 2014 | 2014 | 2013 | ||
| Performance ratios | ||||||
| Return on equity (1) | 19.4% | 9.8% | (2.5%) | 26.9% | (4.0%) | |
| Return on equity - adjusted (1,2) | 33.1% | 22.8% | 35.7% | 36.8% | 21.1% | |
| Net interest margin | 3.68% | 3.56% | 3.74% | 3.72% | 3.62% | |
| Cost:income ratio | 72% | 77% | 100% | 63% | 98% | |
| Cost:income ratio - adjusted (2) | 55% | 59% | 57% | 51% | 64% |
Notes:
(1) Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of RWAs; RWAs in 2013 are on a Basel 2.5 basis).
(2) Excluding restructuring costs and litigation and conduct costs.
(3) From Q1 2015 business segment return on equity will be calculated based on operating profit after tax adjusted for preference share dividends divided by average notional equity (based on 13% of the monthly average RWAes). At 31 December 2014 the RWAes on this basis were £46.6 billion and the return on equity 16%.
| 31 December | 30 September | 31 December | |||
|---|---|---|---|---|---|
| 2014 £bn |
2014 £bn |
Change | 2013 £bn |
Change | |
| Capital and balance sheet | |||||
| Loans and advances to customers (gross) | |||||
| - personal advances | 7.4 | 7.3 | 1% | 8.1 | (9%) |
| - mortgages | 103.2 | 102.7 | - | 99.3 | 4% |
| - business | 14.3 | 14.6 | (2%) | 14.6 | (2%) |
| - cards | 4.9 | 5.1 | (4%) | 5.8 | (16%) |
| Total loans and advances to customers (gross) | 129.8 | 129.7 | - | 127.8 | 2% |
| Loan impairment provisions | (2.6) | (2.7) | (4%) | (3.0) | (13%) |
| Net loans and advances to customers | 127.2 | 127.0 | - | 124.8 | 2% |
| Funded assets | 134.3 | 134.2 | - | 132.2 | 2% |
| Total assets | 134.3 | 134.2 | - | 132.2 | 2% |
| Risk elements in lending | 3.8 | 4.1 | (7%) | 4.7 | (19%) |
| Provision coverage (1) | 69% | 67% | 200bp | 63% | 600bp |
| Customer deposits | |||||
| - personal current accounts | 35.9 | 34.9 | 3% | 32.5 | 10% |
| - personal savings | 81.0 | 79.9 | 1% | 82.3 | (2%) |
| - business/commercial | 31.8 | 31.2 | 2% | 30.1 | 6% |
| Total customer deposits | 148.7 | 146.0 | 2% | 144.9 | 3% |
| Assets under management (excluding deposits) | 4.9 | 5.0 | (2%) | 5.8 | (16%) |
| Loan:deposit ratio (excluding repos) | 86% | 87% | (1%) | 86% | - |
| Risk-weighted assets (2) | |||||
| - Credit risk (non-counterparty) | 33.4 | 35.3 | (5%) | 41.4 | (19%) |
| - Operational risk | 9.4 | 9.4 | - | 9.8 | (4%) |
| Total risk-weighted assets | 42.8 | 44.7 | (4%) | 51.2 | (16%) |
Notes:
(1) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(2) Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis. RWAs on the end-point CRR basis as at 1 January 2014 were £49.7 billion.
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2014 | 2013 | 2014 | 2014 | 2013 | |
| £m | £m | £m | £m | £m | |
| Income statement | |||||
| Net interest income | 636 | 619 | 150 | 163 | 164 |
| Net fees and commissions | 139 | 141 | 38 | 35 | 37 |
| Other non-interest income | 55 | 99 | 16 | 16 | 1 |
| Non-interest income | 194 | 240 | 54 | 51 | 38 |
| Total income | 830 | 859 | 204 | 214 | 202 |
| Direct expenses | |||||
| - staff costs | (247) | (239) | (65) | (57) | (51) |
| - other costs | (74) | (63) | (19) | (20) | (21) |
| Indirect expenses | (265) | (263) | (78) | (61) | (75) |
| Restructuring costs | |||||
| - direct | 8 | (27) | - | - | (9) |
| - indirect | (30) | (12) | 4 | (12) | (3) |
| Litigation and conduct costs | 19 | (90) | 19 | - | (65) |
| Operating expenses | (589) | (694) | (139) | (150) | (224) |
| Profit/(loss) before impairment losses | 241 | 165 | 65 | 64 | (22) |
| Impairment releases/(losses) | 365 | (1,774) | 104 | 318 | (1,067) |
| Operating profit/(loss) | 606 | (1,609) | 169 | 382 | (1,089) |
| Operating expenses - adjusted (1) | (586) | (565) | (162) | (138) | (147) |
| Operating profit/(loss) - adjusted (1) | 609 | (1,480) | 146 | 394 | (1,012) |
Note:
(1) Excluding restructuring costs and litigation and conduct costs.
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December 2014 |
31 December 2013 |
31 December 2014 |
30 September 2014 |
31 December 2013 |
|
| £m | £m | £m | £m | £m | |
| Analysis of income by business | |||||
| Corporate | 268 | 315 | 69 | 65 | 69 |
| Retail | 401 | 408 | 100 | 111 | 98 |
| Other | 161 | 136 | 35 | 38 | 35 |
| Total income | 830 | 859 | 204 | 214 | 202 |
| Analysis of impairments by sector | |||||
| Mortgages | (172) | 235 | (39) | (168) | 24 |
| Commercial real estate | |||||
| - investment | (16) | 593 | (7) | (18) | 392 |
| - development | (11) | 153 | 4 | (9) | 115 |
| Other corporate | (186) | 771 | (64) | (130) | 534 |
| Other lending | 20 | 22 | 2 | 7 | 2 |
| Total impairment (releases)/losses (1) | (365) | 1,774 | (104) | (318) | 1,067 |
| Loan impairment charge as % of gross customer loans and advances (excluding reverse repurchase agreements) by sector |
|||||
| Mortgages | (1.0%) | 1.2% | (0.9%) | (3.8%) | 0.5% |
| Commercial real estate | |||||
| - investment | (1.6%) | 17.4% | (2.8%) | (7.2%) | 46.1% |
| - development | (3.7%) | 21.9% | 5.3% | (9.0%) | 65.7% |
| Other corporate | (3.8%) | 10.9% | (5.2%) | (10.4%) | 30.1% |
| Other lending | 2.0% | 1.8% | 0.8% | 3.1% | 0.7% |
| Total | (1.5%) | 5.6% | (1.7%) | (5.1%) | 13.6% |
Note:
(1) Includes £892 million in Q4 2013 pertaining to the creation of RCR and related strategy.
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2014 | 2013 | 2014 | 2014 | 2013 | ||
| Performance ratios | ||||||
| Return on equity (1) | 16.1% | (33.2%) | 20.1% | 42.2% | (97.8%) | |
| Return on equity - adjusted (1,2) | 16.2% | (30.6%) | 17.3% | 43.5% | (90.9%) | |
| Net interest margin | 2.27% | 1.88% | 2.14% | 2.32% | 2.04% | |
| Cost:income ratio | 71% | 81% | 68% | 70% | 111% | |
| Cost:income ratio - adjusted (2) | 71% | 66% | 79% | 64% | 73% |
Notes:
(1) Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of RWAs; RWAs in 2013 are on a Basel 2.5 basis).
(2) Excluding restructuring costs and litigation and conduct costs.
(3) From Q1 2015 business segment return on equity will be calculated based on operating profit after tax adjusted for preference share dividends divided by average notional equity (based on 13% of the monthly average RWAes). At 31 December 2014 the RWAes on this basis were £22.3 billion and the return on equity 17.2%.
| 31 December 30 September 2014 2014 |
31 December 2013 |
||||
|---|---|---|---|---|---|
| £bn | £bn | Change | £bn | Change | |
| Capital and balance sheet | |||||
| Loans and advances to customers (gross) | |||||
| Mortgages | 17.5 | 17.6 | (1%) | 19.0 | (8%) |
| Commercial real estate | |||||
| - investment | 1.0 | 1.0 | - | 3.4 | (71%) |
| - development | 0.3 | 0.4 | (25%) | 0.7 | (57%) |
| Other corporate | 4.9 | 5.0 | (2%) | 7.1 | (31%) |
| Other lending | 1.0 | 0.9 | 11% | 1.2 | (17%) |
| Total loans and advances to customers (gross) | 24.7 | 24.9 | (1%) | 31.4 | (21%) |
| Loan impairment provisions | |||||
| - mortgages | (1.4) | (1.4) | - | (1.7) | (18%) |
| - commercial real estate | |||||
| - investment | (0.2) | (0.2) | - | (1.2) | (83%) |
| - development - other corporate |
(0.2) (0.8) |
(0.2) (0.9) |
- (11%) |
(0.3) (2.0) |
(33%) (60%) |
| - other lending | (0.1) | (0.2) | (50%) | (0.2) | (50%) |
| Total loan impairment provisions | (2.7) | (2.9) | (7%) | (5.4) | (50%) |
| Net loans and advances to customers (1) | 22.0 | 22.0 | - | 26.0 | (15%) |
| Funded assets | 27.5 | 26.3 | 5% | 28.0 | (2%) |
| Total assets | 27.6 | 26.5 | 4% | 28.2 | (2%) |
| Risk elements in lending | |||||
| - Mortgages | 3.4 | 3.3 | 3% | 3.2 | 6% |
| - Commercial real estate | |||||
| - investment | 0.3 | 0.2 | 50% | 2.3 | (87%) |
| - development | 0.2 | 0.2 | - | 0.5 | (60%) |
| - Other corporate | 0.8 | 0.9 | (11%) | 2.3 | (65%) |
| - Other lending | 0.1 | 0.2 | (50%) | 0.2 | (50%) |
| Total risk elements in lending | 4.8 | 4.8 | - | 8.5 | (44%) |
| Provision coverage (2) | 57% | 60% | (300bp) | 64% | (700bp) |
| Customer deposits | 20.6 | 19.7 | 5% | 21.7 | (5%) |
| Loan:deposit ratio (excluding repos) | 107% | 112% | (500bp) | 120% | (1,300bp) |
| Risk-weighted assets (3,4) - Credit risk |
|||||
| - non-counterparty | 22.2 | 22.2 | - | 28.2 | (21%) |
| - counterparty | 0.1 | 0.1 | - | 0.3 | (67%) |
| - Market risk | - | 0.1 | (100%) | 0.5 | (100%) |
| - Operational risk | 1.5 | 1.5 | - | 1.7 | (12%) |
| Total risk-weighted assets | 23.8 | 23.9 | - | 30.7 | (22%) |
| Spot exchange rate - €/£ | 1.285 | 1.285 | 1.201 |
Notes:
(1) 31 December 2014 includes £11.4 billion in relation to legacy tracker mortgages.
(2) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(3) Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis. RWAs on the end-point CRR basis as at 1 January 2014 were £28.2 billion.
(4) 31 December 2014 includes £10.7 billion in relation to legacy tracker mortgages.
Following completion of a strategic review, Ulster Bank was confirmed as a core part of RBS reflecting its fit with RBS's retail and commercial strategy; 2014 saw a return to profitability with significant progress made addressing legacy issues and the strengthening of its core business for the future.
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2014 | 2013 | 2014 | 2014 | 2013 | ||
| £m | £m | £m | £m | £m | ||
| Income statement | ||||||
| Net interest income | 2,041 | 1,962 | 521 | 521 | 515 | |
| Net fees and commissions | 885 | 944 | 217 | 220 | 235 | |
| Other non-interest income | 284 | 251 | 93 | 70 | 66 | |
| Non-interest income | 1,169 | 1,195 | 310 | 290 | 301 | |
| Total income | 3,210 | 3,157 | 831 | 811 | 816 | |
| Direct expenses | ||||||
| - staff costs | (508) | (513) | (118) | (124) | (132) | |
| - other costs | (249) | (269) | (73) | (54) | (68) | |
| Indirect expenses | (882) | (891) | (284) | (196) | (281) | |
| Restructuring costs | ||||||
| - direct | (40) | (18) | - | - | (1) | |
| - indirect | (53) | (37) | (13) | (18) | (14) | |
| Litigation and conduct costs | (112) | (247) | (62) | - | (222) | |
| Operating expenses | (1,844) | (1,975) | (550) | (392) | (718) | |
| Profit before impairment losses | 1,366 | 1,182 | 281 | 419 | 98 | |
| Impairment losses | (76) | (652) | (33) | (12) | (277) | |
| Operating profit/(loss) | 1,290 | 530 | 248 | 407 | (179) | |
| Operating expenses - adjusted (1) | (1,639) | (1,673) | (475) | (374) | (481) | |
| Operating profit - adjusted (1) | 1,495 | 832 | 323 | 425 | 58 |
Note:
(1) Excluding restructuring costs and litigation and conduct costs.
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2014 | 2013 | 2014 | 2014 | 2013 | |
| £m | £m | £m | £m | £m | |
| Analysis of income by business | |||||
| Commercial lending | 1,830 | 1,911 | 477 | 459 | 481 |
| Deposits | 353 | 208 | 105 | 95 | 64 |
| Asset and invoice finance | 740 | 671 | 186 | 188 | 168 |
| Other | 287 | 367 | 63 | 69 | 103 |
| Total income | 3,210 | 3,157 | 831 | 811 | 816 |
| Analysis of impairments by sector | |||||
| Commercial real estate | (2) | 431 | 5 | (1) | 233 |
| Asset and invoice finance | 11 | 31 | 7 | 2 | 20 |
| Private sector education, health, social work, | |||||
| recreational and community services | (8) | 125 | - | 2 | 28 |
| Banks & financial institutions | - | 10 | - | (1) | 4 |
| Wholesale and retail trade repairs | 20 | 9 | 4 | 2 | 3 |
| Hotels and restaurants | 7 | 28 | 6 | 2 | 10 |
| Manufacturing | 10 | 1 | 1 | 2 | 3 |
| Construction | 9 | (2) | 1 | 4 | (1) |
| Other | 29 | 19 | 9 | - | (23) |
| Total impairment losses (1) | 76 | 652 | 33 | 12 | 277 |
| Loan impairment charge as % of gross | |||||
| customer loans and advances by sector | |||||
| Commercial real estate | - | 2.1% | 0.1% | - | 4.6% |
| Asset and invoice finance | 0.1% | 0.3% | 0.2% | 0.1% | 0.7% |
| Private sector education, health, social work, | |||||
| recreational and community services | (0.1%) | 1.6% | - | 0.1% | 1.4% |
| Banks & financial institutions | - | 0.1% | - | (0.1%) | 0.2% |
| Wholesale and retail trade repairs | 0.3% | 0.2% | 0.3% | 0.1% | 0.2% |
| Hotels and restaurants | 0.2% | 0.8% | 0.7% | 0.2% | 1.1% |
| Manufacturing | 0.3% | - | 0.1% | 0.2% | 0.3% |
| Construction | 0.5% | (0.1%) | 0.2% | 0.8% | (0.2%) |
| Other | 0.1% | 0.1% | 0.1% | - | (0.4%) |
| Total | 0.1% | 0.8% | 0.2% | 0.1% | 1.3% |
Note:
(1) Includes £123 million in 2013 pertaining to the creation of RCR and related strategy.
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2014 | 2013 | 2014 | 2014 | 2013 | ||
| Performance ratios | ||||||
| Return on equity (1) | 12.6% | 4.9% | 9.6% | 16.0% | (6.7%) | |
| Return on equity - adjusted (1,2) | 14.6% | 7.7% | 12.5% | 16.7% | 2.1% | |
| Net interest margin | 2.74% | 2.64% | 2.77% | 2.78% | 2.76% | |
| Cost:income ratio | 57% | 63% | 66% | 48% | 88% | |
| Cost:income ratio - adjusted (2) | 51% | 53% | 57% | 46% | 59% |
Notes:
(1) Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of RWAs; RWAs in 2013 are on a Basel 2.5 basis).
(2) Excluding restructuring costs and litigation and conduct costs.
(3) From Q1 2015 business segment return on equity will be calculated based on operating profit after tax adjusted for preference share dividends divided by average notional equity (based on 13% of the monthly average RWAes). At 31 December 2014 the RWAes on this basis were £69.8 billion and the return on equity 9.5%.
| 31 December | 30 September | 31 December | |||
|---|---|---|---|---|---|
| 2014 £bn |
2014 £bn |
Change | 2013 £bn |
Change | |
| Capital and balance sheet | |||||
| Loans and advances to customers (gross) | |||||
| - Commercial real estate | 18.3 | 18.6 | (2%) | 20.2 | (9%) |
| - Asset and invoice finance | 14.2 | 14.3 | (1%) | 11.7 | 21% |
| - Private sector education, health, social work, | |||||
| recreational and community services | 6.9 | 7.1 | (3%) | 7.9 | (13%) |
| - Banks & financial institutions | 7.0 | 7.0 | - | 6.9 | 1% |
| - Wholesale and retail trade repairs | 6.0 | 6.0 | - | 5.8 | 3% |
| - Hotels and restaurants | 3.4 | 3.4 | - | 3.6 | (6%) |
| - Manufacturing | 3.7 | 3.9 | (5%) | 3.7 | - |
| - Construction | 1.9 | 1.9 | - | 2.1 | (10%) |
| - Other | 24.7 | 23.8 | 4% | 23.1 | 7% |
| Total loans and advances to customers (gross) | 86.1 | 86.0 | - | 85.0 | 1% |
| Loan impairment provisions | (1.0) | (1.0) | - | (1.5) | (33%) |
| Net loans and advances to customers (1) | 85.1 | 85.0 | - | 83.5 | 2% |
| Funded assets | 89.4 | 89.7 | - | 87.9 | 2% |
| Total assets | 89.4 | 89.7 | - | 87.9 | 2% |
| Risk elements in lending | 2.5 | 2.6 | (4%) | 4.3 | (42%) |
| Provision coverage (2) | 38% | 40% | (200bp) | 38% | - |
| Customer deposits | 86.8 | 87.0 | - | 90.7 | (4%) |
| Loan:deposit ratio (excluding repos) | 98% | 98% | - | 92% | 600bp |
| Risk-weighted assets (3) | |||||
| - Credit risk (non-counterparty) | 57.6 | 58.5 | (2%) | 59.7 | (4%) |
| - Operational risk | 6.4 | 6.4 | - | 6.1 | 5% |
| Total risk-weighted assets | 64.0 | 64.9 | (1%) | 65.8 | (3%) |
Notes:
(1) December 2014 includes £15 billion third party assets and £12 billion risk-weighted asset equivalents in relation to the run-down legacy book.
(2) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(3) Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis. RWAs on the end-point CRR basis as at 1 January 2014 were £61.5 billion.
Commercial Banking implemented a simplified and delayered management structure in 2014. With over 120 products removed from sale and over 400 process improvements implemented, the segment is becoming easier to do business with.
Tangible progress is being made via a bank-wide strategic lending programme which will transform the endto-end customer lending experience, ensuring faster decisions and a smoother application process. Over the year there has been an improvement in the Net Promoter Score and rating of overall service quality across the business, together with a continuing fall in complaints.
Commercial Banking continues to back UK businesses and communities, with over 8,400 Statement of Appetite letters issued in 2014 at a total value of £4.7 billion. As part of our plan to support entrepreneurs across the UK, the first of eight accelerator hubs opened in February 2015, offering free space, support and advice to high growth business owners. A series of customer campaigns were launched, proactively engaging customers on their international and asset finance needs.
Significant progress has been made to drive connectivity across the bank, with a focus on providing employees with the skills and tools they need to serve customers better. This has included investment in professional qualifications as well as the development of a suite of banking tools to be rolled out in 2015. The alignment of Commercial & Private Banking continues to yield benefits, with a pilot resulting in over 140 referrals between the businesses.
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2014 | 2013 | 2014 | 2014 | 2013 | ||
| £m | £m | £m | £m | £m | ||
| Income statement | ||||||
| Net interest income | 691 | 658 | 175 | 172 | 173 | |
| Net fees and commissions | 335 | 355 | 78 | 85 | 85 | |
| Other non-interest income | 56 | 64 | 14 | 13 | 18 | |
| Non-interest income | 391 | 419 | 92 | 98 | 103 | |
| Total income | 1,082 | 1,077 | 267 | 270 | 276 | |
| Direct expenses | ||||||
| - staff costs | (317) | (317) | (78) | (79) | (63) | |
| - other costs | (72) | (84) | (21) | (19) | (33) | |
| Indirect expenses | (439) | (475) | (129) | (105) | (134) | |
| Restructuring costs | ||||||
| - direct | (8) | (18) | (6) | - | (14) | |
| - indirect | (10) | (9) | (2) | (7) | (3) | |
| Litigation and conduct costs | (90) | (206) | (90) | - | (206) | |
| Operating expenses | (936) | (1,109) | (326) | (210) | (453) | |
| Profit/(loss) before impairment losses | 146 | (32) | (59) | 60 | (177) | |
| Impairment releases/(losses) | 4 | (29) | - | 4 | (21) | |
| Operating profit/(loss) | 150 | (61) | (59) | 64 | (198) | |
| Operating expenses - adjusted (1) | (828) | (876) | (228) | (203) | (230) | |
| Operating profit - adjusted (1) | 258 | 172 | 39 | 71 | 25 | |
| Of which: international private banking activities (2) | ||||||
| Total income | 230 | 267 | 55 | 53 | 61 | |
| Operating expenses | (257) | (357) | (76) | (62) | (161) | |
| Impairment losses | - | (20) | - | - | (20) | |
| Operating loss | (27) | (110) | (21) | (9) | (120) |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2014 | 2013 | 2014 | 2014 | 2013 | |
| £m | £m | £m | £m | £m | |
| Analysis of income by business | |||||
| Investments | 176 | 198 | 42 | 44 | 52 |
| Banking | 906 | 879 | 225 | 226 | 224 |
| Total income | 1,082 | 1,077 | 267 | 270 | 276 |
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2014 | 2013 | 2014 | 2014 | 2013 | ||
| Performance ratios | ||||||
| Return on equity (3) | 7.8% | (3.1%) | (12.5%) | 13.3% | (41.0%) | |
| Return on equity - adjusted (1,3) | 13.4% | 8.7% | 8.2% | 14.8% | 5.2% | |
| Net interest margin | 3.71% | 3.47% | 3.74% | 3.65% | 3.68% | |
| Cost:income ratio | 87% | 103% | 122% | 78% | 164% | |
| Cost:income ratio - adjusted (1) | 77% | 81% | 85% | 75% | 83% |
Notes:
(1) Excluding restructuring costs and litigation and conduct costs.
(2) Private banking and wealth management activities outside of the British Isles, broadly indicative of the businesses being exited.
(3) Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of RWAs; RWAs in 2013 are on a Basel 2.5 basis).
(4) From Q1 2015 business segment return on equity will be calculated based on operating profit after tax adjusted for preference share dividends divided by average notional equity (based on 13% of the monthly average RWAes). At 31 December 2014 the RWAes on this basis were £11.5 billion and the return on equity 6.1%.
| 31 December 2014 £bn |
30 September 2014 £bn |
Change | 31 December 2013 £bn |
Change | |
|---|---|---|---|---|---|
| Capital and balance sheet Loans and advances to customers (gross) |
|||||
| - personal | 5.4 | 5.6 | (4%) | 5.5 | (2%) |
| - mortgages | 8.9 | 8.8 | 1% | 8.7 | 2% |
| - other | 2.3 | 2.4 | (4%) | 2.6 | (12%) |
| Total loans and advances to customers (gross) Loan impairment provisions |
16.6 (0.1) |
16.8 (0.1) |
(1%) - |
16.8 (0.1) |
(1%) - |
| Loans and advances to customers | 16.5 | 16.7 | (1%) | 16.7 | (1%) |
| Funded assets | 20.4 | 21.0 | (3%) | 21.0 | (3%) |
| Total assets | 20.5 | 21.1 | (3%) | 21.2 | (3%) |
| Assets under management | 28.3 | 28.9 | (2%) | 29.7 | (5%) |
| Risk elements in lending | 0.2 | 0.2 | - | 0.3 | (33%) |
| Provision coverage (1) | 34% | 35% | (100bp) | 43% | (900bp) |
| Customer deposits | 36.1 | 36.2 | - | 37.2 | (3%) |
| Loan:deposit ratio (excluding repos) | 46% | 46% | - | 45% | 100bp |
| Risk-weighted assets (2) - Credit risk |
|||||
| - non-counterparty | 9.5 | 10.2 | (7%) | 10.0 | (5%) |
| - counterparty | 0.1 | 0.1 | - | - | - |
| - Market risk | - | - | - | 0.1 | (100%) |
| - Operational risk | 1.9 | 1.9 | - | 1.9 | - |
| Total risk-weighted assets | 11.5 | 12.2 | (6%) | 12.0 | (4%) |
| Of which: international private banking activities (3) | |||||
| Net loans and advances to customers | 3.0 | 3.1 | (3%) | 3.1 | (3%) |
| Assets under management | 14.5 | 15.0 | (3%) | 15.6 | (7%) |
| Customer deposits (excluding repos) | 7.3 | 7.8 | (6%) | 8.0 | (9%) |
| Risk-weighted assets (2) | 2.2 | 2.6 | (15%) | 2.5 | (12%) |
Notes:
(1) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(2) Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis. RWAs on the end-point CRR basis at 1 January 2014 were £12.0 billion.
(3) Private banking and wealth management activities outside of the British Isles, broadly indicative of the businesses being exited.
During 2014, Private Banking has continued to provide excellent service to clients against the background of a major business review and significant organisational change.
Following the announcement of RBS's new strategy in February 2014, Private Banking set out a new vision and strategic direction in August. Coutts and Adam & Company will focus on growing the UK based high net worth client franchise. All private banking and wealth management activities where the primary relationship management is conducted outside the British Isles will be exited to align better with RBS's stated UK focus.
The ambition of the business is to be the leading UK based private bank and wealth manager for wealthy individuals seeking exceptional private banking and wealth management. Private Banking has gathered significant momentum behind its ambition, supported by a straightforward plan centred around five key priorities: an improved banking proposition; a refocused advice and wealth management model; an enhanced proposition for international clients managed from the UK; an integrated client approach across RBS; and increased client engagement.
Since September, good progress has been made towards the sale of the business outside the British Isles. A primary focus of the transaction is to execute the deal with minimal disruption for clients and staff.
Private Banking has made tangible steps towards working more closely with Commercial Banking, which includes an energetic approach to client cross referrals as well as functional synergies.
The business has progressed well against key priorities in 2014. Improvements are evidenced by several industry awards including: 'Best private bank in the UK' (PWM/The Banker) and 'Most innovative digital offering' (Private Banker International). Coutts continues to be recognised as a leader in philanthropy, with its' \$1 million donors' report receiving significant media coverage, and its expertise as an adviser for family businesses and exiting entrepreneurs remains a strong point of differentiation.
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December 2014 |
31 December 2013 |
31 December 2014 |
30 September 2014 |
31 December 2013 |
||
| £m | £m | £m | £m | £m | ||
| Income statement | ||||||
| Net interest income from banking activities | 817 | 684 | 222 | 230 | 208 | |
| Net fees and commissions | 972 | 1,109 | 219 | 263 | 265 | |
| Income from trading activities | 2,023 | 3,074 | 212 | 329 | 549 | |
| Other operating income | 137 | 141 | 38 | 9 | 26 | |
| Non-interest income | 3,132 | 4,324 | 469 | 601 | 840 | |
| Total income | 3,949 | 5,008 | 691 | 831 | 1,048 | |
| Direct expenses | ||||||
| - staff costs | (729) | (979) | (63) | (179) | (138) | |
| - other costs | (400) | (688) | (100) | (50) | (267) | |
| Indirect expenses | (2,432) | (2,900) | (659) | (593) | (959) | |
| Restructuring costs | ||||||
| - direct | (93) | (76) | (49) | (22) | (25) | |
| - indirect | (202) | (126) | (39) | 6 | 35 | |
| Litigation and conduct costs | (994) | (2,441) | (382) | (562) | (1,932) | |
| Operating expenses | (4,850) | (7,210) | (1,292) | (1,400) | (3,286) | |
| Loss before impairment losses | (901) | (2,202) | (601) | (569) | (2,238) | |
| Impairment releases/(losses) | 9 | (680) | (42) | 12 | (429) | |
| Operating loss | (892) | (2,882) | (643) | (557) | (2,667) | |
| Operating expenses - adjusted (1) | (3,561) | (4,567) | (822) | (822) | (1,364) | |
| Operating profit/(loss) - adjusted (1) | 397 | (239) | (173) | 21 | (745) |
Note:
(1) Excluding restructuring costs and litigation and conduct costs.
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December 31 December | 31 December 30 September 31 December | |||||
| 2014 | 2013 | 2014 | 2014 | 2013 | ||
| £m | £m | £m | £m | £m | ||
| Analysis of income by product | ||||||
| Rates | 975 | 1,075 | 79 | 240 | 202 | |
| Currencies | 754 | 903 | 210 | 193 | 192 | |
| Credit | 1,088 | 1,639 | 116 | 198 | 343 | |
| Global Transaction Services | 818 | 881 | 190 | 207 | 227 | |
| Portfolio | 653 | 623 | 171 | 164 | 156 | |
| Total (excluding revenue share and run-off businesses) | 4,288 | 5,121 | 766 | 1,002 | 1,120 | |
| Inter-segment revenue share | (236) | (261) | (59) | (58) | (57) | |
| Run-off businesses | (103) | 148 | (16) | (113) | (15) | |
| Total income | 3,949 | 5,008 | 691 | 831 | 1,048 |
| Key metrics | Year ended | Quarter ended | |||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2014 | 2013 | 2014 | 2014 | 2013 | |
| Performance ratios | |||||
| Return on equity (1) | (4.2%) | (12.9%) | (13.6%) | (11.0%) | (53.1%) |
| Return on equity - adjusted (1,2) | 1.9% | (1.1%) | (3.7%) | 0.4% | (14.9%) |
| Net interest margin | 0.99% | 0.80% | 1.11% | 1.08% | 0.97% |
| Cost:income ratio | 123% | 144% | 187% | 168% | 314% |
| Cost:income ratio - adjusted (2) | 90% | 91% | 119% | 99% | 130% |
Notes:
(1) Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of RWAs; RWAs in 2013 are on a Basel 2.5 basis).
(2) Excluding restructuring costs and litigation and conduct costs.
(3) From Q1 2015 business segment return on equity will be calculated based on operating profit after tax adjusted for preference share dividends divided by average notional equity (based on 13% of the monthly average RWAes). At 31 December 2014 the RWAes on this basis were £108.9 billion and the return on equity (4.8%).
| 31 December 30 September 2014 2014 |
31 December 2013 |
|||||
|---|---|---|---|---|---|---|
| £bn | £bn | Change | £bn | Change | ||
| Capital and balance sheet | ||||||
| Loans and advances to customers (gross, excluding reverse repos) |
73.0 | 73.3 | - | 69.1 | 6% | |
| Loan impairment provisions | (0.2) | (0.2) | - | (0.9) | (78%) | |
| Total loans and advances to customers (excluding reverse repos) |
72.8 | 73.1 | - | 68.2 | 7% | |
| Net loans and advances to banks (excluding reverse | ||||||
| repos) (1) | 16.9 | 19.5 | (13%) | 20.5 | (18%) | |
| Reverse repos | 61.6 | 72.9 | (16%) | 76.2 | (19%) | |
| Securities | 57.0 | 65.6 | (13%) | 72.1 | (21%) | |
| Cash and eligible bills | 23.2 | 18.9 | 23% | 20.6 | 13% | |
| Other | 9.6 | 24.9 | (61%) | 11.0 | (13%) | |
| Funded assets | 241.1 | 274.9 | (12%) | 268.6 | (10%) | |
| Total assets | 577.2 | 572.9 | 1% | 551.2 | 5% | |
| Provision coverage (2) | 105% | 175% | (7,000bp) | 59% | 4,600bp | |
| Customer deposits (excluding repos) | 59.4 | 57.1 | 4% | 64.8 | (8%) | |
| Bank deposits (excluding repos) | 33.3 | 32.2 | 3% | 30.2 | 10% | |
| Repos | 61.1 | 67.2 | (9%) | 74.8 | (18%) | |
| Debt securities in issue | 14.1 | 15.8 | (11%) | 21.5 | (34%) | |
| Loan:deposit ratio (excluding repos) | 122% | 128% | (600bp) | 105% | 1,700bp | |
| Risk-weighted assets (3) - Credit risk |
||||||
| - non-counterparty | 51.3 | 57.2 | (10%) | 61.8 | (17%) | |
| - counterparty | 25.1 | 28.5 | (12%) | 17.5 | 43% | |
| - Market risk | 18.9 | 25.7 | (26%) | 26.4 | (28%) | |
| - Operational risk | 11.8 | 11.8 | - | 14.7 | (20%) | |
| Total risk-weighted assets | 107.1 | 123.2 | (13%) | 120.4 | (11%) |
Notes:
(1) Excludes disposal groups.
(2) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(3) Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis. On the end-point CRR basis risk-weighted assets at 1 January 2014 were £147.1 billion.
Corporate & Institutional Banking (CIB) focused on its strengths in core product areas during 2014, reducing the scale of the business and simplifying the operating model. This allowed CIB to better serve customers while deploying fewer resources. The commitment to customers was demonstrated by the award of The Banker's Most Innovative Bank in Risk Management in Q3 2014 and by winning IFR magazine's Sterling Bond House of the year award in Q4 2014. The drive to concentrate on core products is evidenced by the 27% fall in RWAs (compared with 1 January 2014 on a CRR basis) and the 22% year on year fall in adjusted expenses (excluding litigation and conduct costs and restructuring costs).
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2014 | 2013 | 2014 | 2014 | 2013 | |
| £m | £m | £m | £m | £m | |
| Central items not allocated | (850) | 647 | (622) | (319) | (61) |
Funding and operating costs have been allocated to operating segments based on direct service usage, the requirement for market funding and other appropriate drivers where services span more than one segment.
Residual unallocated items relate to volatile corporate items that do not naturally reside within a division.
• Central items not allocated represented a charge of £850 million compared with a credit of £647 million in 2013. The change includes lower gains on the disposal of available-for-sale securities in Treasury, which were down £575 million to £149 million in 2014, along with a £309 million higher restructuring charge relating to the Williams & Glyn franchise. In addition 2014 includes a charge of £247 million write-down of previously capitalised software development expenditure and £134 million lower income from investments in associates. In addition, unallocated Treasury funding costs, including volatile items under IFRS, were £437 million in the year versus £282 million in 2013.
• Central items not allocated represented a charge of £622 million in Q4 2014 compared with a charge of £319 million in Q3 2014. Q4 included a £247 million software write-down. In addition, unallocated Treasury funding costs, including volatile items under IFRS, were £323 million in the quarter versus £111 million in Q3 2014. The previous quarter also included £72 million of available-for-sale disposal losses.
• Central items not allocated represented a charge of £622 million in Q4 2014 compared with a charge of £61 million in Q4 2013. This reflected the software write off, higher restructuring charges relating to the Williams & Glyn franchise and lower gains on the disposal of available-for-sale securities in Treasury, which were down £108 million to £6 million in Q4 2014.
| Year ended | Quarter ended | ||||||
|---|---|---|---|---|---|---|---|
| 31 December 2014 |
31 December 2013 |
31 December 2014 |
30 September 2014 |
31 December 2013 |
|||
| £m | £m | £m | £m | £m | |||
| Income statement | |||||||
| Net interest income | 2,013 | 1,892 | 533 | 493 | 468 | ||
| Net fees and commissions | 709 | 761 | 185 | 174 | 182 | ||
| Other non-interest income | 359 | 312 | 48 | 41 | 58 | ||
| Non-interest income | 1,068 | 1,073 | 233 | 215 | 240 | ||
| Total income | 3,081 | 2,965 | 766 | 708 | 708 | ||
| Direct expenses | |||||||
| - staff costs | (1,030) | (1,091) | (263) | (255) | (249) | ||
| - other costs | (990) | (986) | (258) | (231) | (251) | ||
| Indirect expenses | - | (111) | - | - | (31) | ||
| Restructuring costs | (103) | (16) | (21) | (13) | (11) | ||
| Operating expenses | (2,123) | (2,204) | (542) | (499) | (542) | ||
| Profit before impairment losses | 958 | 761 | 224 | 209 | 166 | ||
| Impairment losses | (197) | (156) | (47) | (46) | (46) | ||
| Operating profit | 761 | 605 | 177 | 163 | 120 | ||
| Operating expenses - adjusted (1) | (2,020) | (2,188) | (521) | (486) | (531) | ||
| Operating profit - adjusted (1) | 864 | 621 | 198 | 176 | 131 | ||
| Average exchange rate - US\$/£ | 1.647 | 1.565 | 1.582 | 1.669 | 1.619 |
Note:
(1) Excluding restructuring costs.
| Key metrics | Year ended | Quarter ended | |||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2014 | 2013 | 2014 | 2014 | 2013 | |
| Performance ratios | |||||
| Return on equity (1) | 6.6% | 5.7% | 5.7% | 5.6% | 4.7% |
| Return on equity - adjusted (1,2) | 7.5% | 5.8% | 6.4% | 6.1% | 5.1% |
| Net interest margin | 2.88% | 2.91% | 2.86% | 2.82% | 2.91% |
| Cost:income ratio | 69% | 74% | 71% | 71% | 77% |
| Cost:income ratio - adjusted (2) | 66% | 74% | 68% | 69% | 75% |
| Loan impairment charge as % of gross customer | |||||
| loans and advances | 0.3% | 0.3% | 0.3% | 0.3% | 0.4% |
Notes:
(1) Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of RWAs; RWAs in 2013 are on a Basel 2.5 basis).
(2) Excluding restructuring costs.
(3) From Q1 2015 business segment return on equity will be calculated based on operating profit after tax adjusted for preference share dividends divided by average notional equity (based on 13% of the monthly average RWAes). At 31 December 2014 the RWAes on this basis were £68.6 billion and the return on equity 6.1%.
| 31 December 2014 £bn |
30 September 2014 £bn |
Change | 31 December 2013 £bn |
Change | |
|---|---|---|---|---|---|
| Capital and balance sheet | |||||
| Loans and advances to customers (gross) | |||||
| - residential mortgages | 7.7 | 7.1 | 8% | 5.8 | 33% |
| - home equity | 12.0 | 11.8 | 2% | 12.1 | (1%) |
| - SBO home equity | 1.2 | 1.2 | - | - | 100% |
| - corporate and commercial | 27.9 | 25.8 | 8% | 24.1 | 16% |
| - other consumer | 11.3 | 10.3 | 10% | 8.6 | 31% |
| Total loans and advances to customers (gross) | 60.1 | 56.2 | 7% | 50.6 | 19% |
| Loan impairment provisions | (0.5) | (0.5) | - | (0.3) | 67% |
| Net loans and advances to customers | 59.6 | 55.7 | 7% | 50.3 | 18% |
| Funded assets | 84.5 | 80.5 | 5% | 71.3 | 19% |
| Total assets | 84.9 | 80.9 | 5% | 71.7 | 18% |
| Investment securities | 15.8 | 15.3 | 3% | 12.9 | 22% |
| Risk elements in lending | |||||
| - retail | 1.2 | 1.1 | 9% | 0.9 | 33% |
| - commercial | 0.1 | 0.2 | (50%) | 0.1 | - |
| Total risk elements in lending | 1.3 | 1.3 | - | 1.0 | 30% |
| Provision coverage (1) | 40% | 41% | (100bp) | 26% | 1,400bp |
| Customer deposits (excluding repos) | 60.6 | 56.9 | 7% | 55.1 | 10% |
| Bank deposits (excluding repos) | 5.1 | 4.3 | 19% | 2.0 | 155% |
| Loan:deposit ratio (excluding repos) | 98% | 98% | - | 91% | 700bp |
| Risk-weighted assets (2) | |||||
| - Credit risk | |||||
| - non-counterparty | 62.4 | 58.6 | 6% | 50.7 | 23% |
| - counterparty | 0.9 | 0.7 | 29% | 0.5 | 80% |
| - Operational risk | 5.1 | 5.1 | - | 4.9 | 4% |
| Total risk-weighted assets | 68.4 | 64.4 | 6% | 56.1 | 22% |
| Spot exchange rate - US\$/£ | 1.562 | 1.622 | 1.654 |
Notes:
(1) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(2) Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis. RWAs on the end-point CRR basis as at 1 January 2014 were £60.6 billion.
● Sterling weakened during the year, with the spot exchange rate at 31 December 2014 decreasing 6%.
● Performance is described in full in the US dollar-based financial statements set out on pages 56 to 59.
| Year ended | Quarter ended | ||||||
|---|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |||
| 2014 | 2013 | 2014 | 2014 | 2013 | |||
| \$m | \$m | \$m | \$m | \$m | |||
| Income statement | |||||||
| Net interest income | 3,317 | 2,960 | 846 | 824 | 763 | ||
| Net fees and commissions | 1,168 | 1,190 | 293 | 291 | 298 | ||
| Other non-interest income | 589 | 489 | 69 | 68 | 97 | ||
| Non-interest income | 1,757 | 1,679 | 362 | 359 | 395 | ||
| Total income | 5,074 | 4,639 | 1,208 | 1,183 | 1,158 | ||
| Direct expenses | |||||||
| - staff costs | (1,697) | (1,707) | (417) | (425) | (409) | ||
| - other costs | (1,631) | (1,544) | (408) | (388) | (412) | ||
| Indirect expenses | - | (173) | - | - | (50) | ||
| Restructuring costs | (169) | (24) | (32) | (22) | (16) | ||
| Operating expenses | (3,497) | (3,448) | (857) | (835) | (887) | ||
| Profit before impairment losses | 1,577 | 1,191 | 351 | 348 | 271 | ||
| Impairment losses | (324) | (244) | (73) | (77) | (75) | ||
| Operating profit | 1,253 | 947 | 278 | 271 | 196 | ||
| Operating expenses - adjusted (1) | (3,328) | (3,424) | (825) | (813) | (871) | ||
| Operating profit - adjusted (1) | 1,422 | 971 | 310 | 293 | 212 |
Note:
(1) Excluding restructuring costs.
| Years ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December 30 September | 31 December | |||
| 2014 | 2013 | 2014 | 2014 | 2013 | ||
| Performance ratios | ||||||
| Return on equity (1) | 6.6% | 5.7% | 5.7% | 5.6% | 4.7% | |
| Return on equity - adjusted (1,2) | 7.5% | 5.8% | 6.4% | 6.1% | 5.1% | |
| Net interest margin | 2.88% | 2.91% | 2.86% | 2.82% | 2.91% | |
| Cost:income ratio | 69% | 74% | 71% | 71% | 77% | |
| Cost:income ratio - adjusted (2) | 66% | 74% | 68% | 69% | 75% | |
| Loan impairment charge as a % of gross customer | ||||||
| loans and advances | 0.3% | 0.3% | 0.3% | 0.3% | 0.4% |
Notes:
(1) Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of RWAs; RWAs in 2013 are on a Basel 2.5 basis).
(2) Excluding restructuring costs.
| 31 December 2014 \$bn |
30 September 2014 \$bn |
Change | 31 December 2013 \$bn |
Change | |
|---|---|---|---|---|---|
| Capital and balance sheet | |||||
| Loans and advances to customers (gross) | |||||
| - residential mortgages | 12.1 | 11.5 | 5% | 9.6 | 26% |
| - home equity | 18.8 | 19.1 | (2%) | 20.1 | (6%) |
| - SBO home equity | 1.8 | 1.9 | (5%) | - | 100% |
| - corporate and commercial | 43.6 | 41.8 | 4% | 39.8 | 10% |
| - other consumer | 17.6 | 16.9 | 4% | 14.1 | 25% |
| Total loans and advances to customers (gross) | 93.9 | 91.2 | 3% | 83.6 | 12% |
| Loan impairment provisions | (0.8) | (0.8) | - | (0.4) | 100% |
| Net loans and advances to customers | 93.1 | 90.4 | 3% | 83.2 | 12% |
| Funded assets | 132.0 | 130.7 | 1% | 117.9 | 12% |
| Total assets | 132.6 | 131.2 | 1% | 118.6 | 12% |
| Investment securities | 24.7 | 24.9 | (1%) | 21.3 | 16% |
| Risk elements in lending | |||||
| - retail | 1.8 | 1.8 | - | 1.5 | 20% |
| - commercial | 0.3 | 0.2 | 50% | 0.2 | 50% |
| Total risk elements in lending | 2.1 | 2.0 | 5% | 1.7 | 24% |
| Provision coverage (1) | 40% | 41% | (100bp) | 26% | 1,400bp |
| Customer deposits (excluding repos) | 94.6 | 92.4 | 2% | 91.1 | 4% |
| Bank deposits (excluding repos) | 8.0 | 7.0 | 14% | 3.3 | 142% |
| Loan:deposit ratio (excluding repos) | 98% | 98% | - | 91% | 700bp |
| Risk-weighted assets (2) | |||||
| - Credit risk | |||||
| - non-counterparty | 97.4 | 95.0 | 3% | 83.8 | 16% |
| - counterparty | 1.4 | 1.2 | 17% | 0.8 | 75% |
| - Operational risk | 8.0 | 8.3 | (4%) | 8.2 | (2%) |
| Total risk-weighted assets | 106.8 | 104.5 | 2% | 92.8 | 15% |
Notes:
(1) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(2) Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis. RWAs on the end-point CRR basis as at 1 January were \$100.2 billion.
In accordance with a commitment to the EC to sell Citizens by 31 December 2016, RBS disposed of 29.5% of its interest in Citizens Financial Group, Inc. during the second half of 2014 primarily through an initial public offering in the USA. In accordance with IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations', Citizens is presented with effect from 31 December 2014 as a discontinued operation, with comparatives restated, and as a disposal group.
Although CFG has been reclassified as a discontinued operation it continues to be a reportable operating segment.
FY 2014 and Q4 2014 results are not directly comparable with prior year periods; prior year results exclude Non-Core operations and include indirect expenses. In the context of the planned disposal of Citizens Financial Group, indirect expenses are no longer allocated to the segment.
RCR is managed and analysed in four asset management groups - Ulster Bank (RCR Ireland), Real Estate Finance, Corporate and Markets. Real Estate Finance excludes commercial real estate lending in Ulster Bank.
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 30 September | 30 June | 31 March | |
| 2014 | 2014 | 2014 | 2014 | 2014 | |
| £m | £m | £m | £m | £m | |
| Income statement | |||||
| Net interest income | (24) | (17) | (18) | 16 | (5) |
| Net fees and commissions | 58 | 15 | 12 | 17 | 14 |
| Income from trading activities (1) | (218) | (207) | 42 | (69) | 16 |
| Other operating income (1) | 229 | 24 | 86 | 71 | 48 |
| Non-interest income | 69 | (168) | 140 | 19 | 78 |
| Total income | 45 | (185) | 122 | 35 | 73 |
| Direct expenses | |||||
| - staff costs | (167) | (41) | (37) | (51) | (38) |
| - other costs | (85) | (29) | (24) | (14) | (18) |
| Indirect expenses | (104) | (25) | (24) | (32) | (23) |
| Restructuring costs | (7) | (3) | (4) | - | - |
| Operating expenses | (363) | (98) | (89) | (97) | (79) |
| (Loss)/profit before impairment losses | (318) | (283) | 33 | (62) | (6) |
| Impairment releases/(losses) (1) | 1,306 | 681 | 605 | 128 | (108) |
| Operating profit/(loss) | 988 | 398 | 638 | 66 | (114) |
| Operating expenses - adjusted (2) | (356) | (95) | (85) | (97) | (79) |
| Operating profit/(loss) - adjusted (2) | 995 | 401 | 642 | 66 | (114) |
| Total income | |||||
| Ulster Bank | (20) | 8 | (29) | 14 | (13) |
| Real Estate Finance | 222 | 59 | 67 | 13 | 83 |
| Corporate | (17) | (75) | 72 | (12) | (2) |
| Markets | (140) | (177) | 12 | 20 | 5 |
| Total income | 45 | (185) | 122 | 35 | 73 |
| Impairment (releases)/losses | | |
<br> |
` | ||
| Ulster Bank | (1,106) | (712) | (379) | (67) | 52 |
| Real Estate Finance | (183) | 10 | (159) | (123) | 89 |
| Corporate | (21) | 10 | (70) | 73 | (34) |
| Markets | 4 | 11 | 3 | (11) | 1 |
| Total impairment (releases)/losses | (1,306) | (681) | (605) | (128) | 108 |
| Loan impairment charge as % of gross loans | |||||
| and advances (3) | |||||
| Ulster Bank | (10.1%) | (25.9%) | (12.0%) | (1.9%) | 1.3% |
| Real Estate Finance | (4.5%) | 1.0% | (11.6%) | (6.6%) | 4.1% |
| Corporate | (0.3%) | 0.6% | (4.0%) | 3.7% | (1.5%) |
| Markets | (1.7%) | - | (0.6%) | (3.6%) | - |
| Total | (6.0%) | (12.6%) | (9.5%) | (1.7%) | 1.2% |
Notes:
(1) Asset disposals contributed £291 million (Q3 2014 - £332 million; Q2 2014 - £225 million; Q1 2014 - £56 million) to RCR's operating profit: impairment provision releases of £321 million (Q3 2014 - £232 million; Q2 2014 - £257 million; Q1 2014 - £64 million); £11 million loss in income from trading activities (Q3 2014 - £97 million gain; Q2 2014 - £6 million gain; Q1 2014 - £5 million loss) and £19 million loss in other operating income (Q3 2014 - £3 million gain; Q2 2014 - £38 million; Q1 2014 - £3 million). (2) Excluding restructuring costs.
(3) Includes disposal groups.
| £bn £bn £bn £bn Capital and balance sheet Loans and advances to customers (gross) (1) 21.9 25.8 30.0 34.0 Loan impairment provisions (10.9) (12.6) (14.4) (15.7) Net loans and advances to customers 11.0 13.2 15.6 18.3 Debt securities 1.0 1.7 1.9 2.2 Funded assets 14.9 17.9 20.9 24.3 Total assets 29.0 31.3 34.4 38.8 Risk elements in lending (1) 15.4 17.4 20.4 23.0 Provision coverage (2) 71% 72% 71% 68% Risk-weighted assets - Credit risk - non-counterparty 13.6 18.7 22.6 29.6 - counterparty 4.0 8.2 8.2 5.7 - Market risk 4.4 3.7 4.3 5.2 Total risk-weighted assets 22.0 30.6 35.1 40.5 Gross loans and advances to customers (1) Ulster Bank 11.0 12.6 13.9 15.5 Real Estate Finance 4.1 5.5 7.4 8.6 Corporate 6.2 7.0 7.8 9.1 Markets 0.6 0.7 0.9 0.8 21.9 25.8 30.0 34.0 Funded assets - Ulster Bank Commercial real estate - investment 1.2 1.5 1.9 2.4 Commercial real estate - development 0.7 0.7 0.7 0.8 Other corporate 0.7 0.7 0.9 1.2 2.6 2.9 3.5 4.4 Funded assets - Real Estate Finance UK 2.5 3.2 4.4 4.7 Germany 0.4 0.8 1.0 1.4 Spain 0.5 0.5 0.5 0.6 Other 0.8 0.9 0.8 1.0 4.2 5.4 6.7 7.7 Funded assets - Corporate Structured finance 1.7 1.7 2.0 2.2 Shipping 1.8 1.9 1.9 2.0 Other 2.3 3.1 3.5 4.4 5.8 6.7 7.4 8.6 Funded assets - Markets Securitised products 1.8 2.3 2.7 3.0 Emerging markets 0.5 0.6 0.6 0.6 2.3 2.9 3.3 3.6 |
31 December 2014 |
30 September 2014 |
30 June 2014 |
31 March 2014 |
|---|---|---|---|---|
Notes:
(1) Includes disposal groups.
(2) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
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| 31 De mb 20 14 ce er |
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4.7 | 4.7 | 6.7 | 7.2 | ( ) 49 |
6.9 | 5.8 | 8.3 | 7.2 | 11 2 |
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0.1 | 0.1 | 0.1 | - | 12 | 2.2 | 2.2 | 9.2 | 8.8 | 41 | 2.3 | 2.3 | 9.3 | 8.8 | 53 |
| To tal RC R |
16 .2 |
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9.6 | 9.5 | 21 .2 |
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| 30 Ju 20 14 ne |
|||||||||||||||
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14 .1 |
3.5 | 4.5 | 2.3 | 21 7 |
| Re al Es tat e F ina nce |
5.0 | 2.7 | 4.1 | 0.3 | 38 9 |
4.1 | 4.0 | 6.4 | 6.1 | 16 | 9.1 | 6.7 | 10 .5 |
6.4 | 40 5 |
| Co rat rpo e |
2.6 | 1.2 | 1.8 | - | 184 | 6.3 | 6.2 | 14 .8 |
15 .1 |
( 28 ) |
8.9 | 7.4 | 16 .6 |
15 .1 |
156 |
| Ma rke ts |
0.1 | 0.1 | 0.5 | 0.2 | 34 | 3.2 | 3.2 | 11 .4 |
11 .1 |
30 | 3.3 | 3.3 | 11 .9 |
11 .3 |
64 |
| RC To tal R |
20 .7 |
6.6 | 10 .8 |
0.5 | 1, 05 3 |
14 .7 |
14 .3 |
32 .7 |
34 .6 |
( 1) 21 |
35 .4 |
20 .9 |
43 .5 |
35 .1 |
84 2 |
| 1 J 20 14 an ua ry |
|||||||||||||||
| Uls ter Ba nk |
14 .8 |
3.7 | 7.6 | 0.2 | 73 8 |
1.4 | 1.1 | 1.3 | 3.1 | ( 179 ) |
16 .2 |
4.8 | 8.9 | 3.3 | 55 9 |
| Re al Es tat e F ina nce |
7.2 | 4.2 | 6.1 | 0.3 | 58 0 |
5.8 | 5.3 | 12 .5 |
13 .2 |
( 75 ) |
13 .0 |
9.5 | 18 .6 |
13 .5 |
50 5 |
| Co rat rpo e |
3.3 | 1.7 | 2.9 | 0.2 | 26 9 |
8.1 | 8.1 | 18 .2 |
16 .2 |
20 8 |
11 .4 |
9.8 | 21 .1 |
16 .4 |
47 7 |
| Ma rke ts |
0.2 | 0.1 | 0.6 | - | 58 | 4.7 | 4.7 | 15 .8 |
13 .5 |
23 3 |
4.9 | 4.8 | 16 .4 |
13 .5 |
29 1 |
| To tal RC R |
25 .5 |
9.7 | 17 .2 |
0.7 | 1, 64 5 |
20 .0 |
19 .2 |
47 .8 |
46 .0 |
187 | 45 .5 |
28 .9 |
65 .0 |
46 .7 |
1, 83 2 |
Notes:
(1) Performing assets are those with an internal asset quality band of AQ1 - A9; and non-performing assets are in AQ10 with a probability of default being 100%.
(2) RWA equivalent (RWAe) is an internal metric that measures the equity capital employed in segments. RWAe converts both performing and non-performing exposures into a consistent capital measure, being the sum of the regulatory RWAs and the regulatory capital deductions, the latter converted to RWAe by applying a multiplier. RBS applies a CET1 ratio of 10% for RCR; this results in an end point CRR RWAe conversion multiplier of 10.
(3) The most significant component of capital deductions relate to expected loss less impairment provisions of £518 million (30 June 2014 - £823 million; 1 January 2014 - £1,774 million). The negative capital deductions for performing exposures are a result of the latent loss provisions held in respect of the performing portfolio.
| Beginning | End of | |||||
|---|---|---|---|---|---|---|
| of period | Repayments | Disposals (1) Impairments | Other | period | ||
| Year ended 31 December 2014 | £bn | £bn | £bn | £bn | £bn | £bn |
| Ulster Bank | 4.8 | (0.2) | (2.8) | 1.1 | (0.3) | 2.6 |
| Real Estate Finance | 9.5 | (2.3) | (2.9) | 0.1 | (0.2) | 4.2 |
| Corporate | 9.8 | (2.3) | (1.9) | - | 0.2 | 5.8 |
| Markets | 4.8 | (1.1) | (1.5) | - | 0.1 | 2.3 |
| Total | 28.9 | (5.9) | (9.1) | 1.2 | (0.2) | 14.9 |
| Quarter ended 31 December 2014 | ||||||
| Ulster Bank | 2.9 | - | (1.0) | 0.7 | - | 2.6 |
| Real Estate Finance | 5.4 | (0.2) | (1.0) | - | - | 4.2 |
| Corporate | 6.7 | (0.2) | (0.8) | - | 0.1 | 5.8 |
| Markets | 2.9 | (0.1) | (0.5) | - | - | 2.3 |
| Total | 17.9 | (0.5) | (3.3) | 0.7 | 0.1 | 14.9 |
| Quarter ended 30 September 2014 | ||||||
| Ulster Bank | 3.5 | - | (0.8) | 0.4 | (0.2) | 2.9 |
| Real Estate Finance | 6.7 | (0.5) | (0.8) | 0.1 | (0.1) | 5.4 |
| Corporate | 7.4 | (0.6) | (0.4) | 0.1 | 0.2 | 6.7 |
| Markets | 3.3 | (0.4) | (0.1) | - | 0.1 | 2.9 |
| Total | 20.9 | (1.5) | (2.1) | 0.6 | - | 17.9 |
| Beginning | Risk | End of | |||||
|---|---|---|---|---|---|---|---|
| of period Repayments Disposals (1) | parameters (2) Impairments Other (3) | period | |||||
| Year ended 31 December 2014 | £bn | £bn | £bn | £bn | £bn | £bn | £bn |
| Ulster Bank | 3.3 | (0.5) | (0.5) | (0.9) | - | (0.1) | 1.3 |
| Real Estate Finance | 13.5 | (2.2) | (1.4) | (5.2) | - | - | 4.7 |
| Corporate | 16.4 | (2.2) | (3.0) | (4.1) | (0.4) | 0.5 | 7.2 |
| Markets | 13.5 | (2.7) | (2.7) | 0.2 | - | 0.5 | 8.8 |
| Total | 46.7 | (7.6) | (7.6) | (10.0) | (0.4) | 0.9 | 22.0 |
| Quarter ended 31 December 2014 | |||||||
| Ulster Bank | 2.1 | - | (0.4) | (0.4) | - | - | 1.3 |
| Real Estate Finance | 5.6 | (0.1) | (0.7) | (0.2) | - | 0.1 | 4.7 |
| Corporate | 14.0 | (0.4) | (1.2) | (5.4) | - | 0.2 | 7.2 |
| Markets | 8.9 | (0.2) | (0.5) | - | - | 0.6 | 8.8 |
| Total | 30.6 | (0.7) | (2.8) | (6.0) | - | 0.9 | 22.0 |
| Quarter ended 30 September 2014 | |||||||
| Ulster Bank | 2.3 | - | - | (0.1) | - | (0.1) | 2.1 |
| Real Estate Finance | 6.4 | (0.3) | - | (0.5) | - | - | 5.6 |
| Corporate | 15.1 | (0.9) | (0.8) | (0.1) | - | 0.7 | 14.0 |
| Markets | 11.3 | (0.7) | (0.9) | (0.8) | - | - | 8.9 |
| Total | 35.1 | (1.9) | (1.7) | (1.5) | - | 0.6 | 30.6 |
For the notes to this table refer to the following page.
| Beginning | Risk | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| of period Repayments Disposals (1) | parameters (2) Impairments Other (3) | End of period |
|||||||
| Year ended 31 December 2014 | £m | £m | £m | £m | £m | £m | £m | ||
| Ulster Bank | 559 | (30) | (226) | (116) | 81 | (10) | 258 | ||
| Real Estate Finance | 505 | (396) | (683) | 621 | 78 | (14) | 111 | ||
| Corporate | 477 | (192) | (113) | 17 | (102) | 25 | 112 | ||
| Markets | 291 | (15) | (80) | (139) | 1 | (5) | 53 | ||
| Total | 1,832 | (633) | (1,102) | 383 | 58 | (4) | 534 | ||
| Quarter ended 31 December 2014 | |||||||||
| Ulster Bank | 272 | (2) | (62) | 20 | 24 | 6 | 258 | ||
| Real Estate Finance | 365 | (36) | (213) | 49 | (57) | 3 | 111 | ||
| Corporate | 81 | (42) | (42) | 148 | (56) | 23 | 112 | ||
| Markets | 56 | (5) | - | 3 | - | (1) | 53 | ||
| Total | 774 | (85) | (317) | 220 | (89) | 31 | 534 | ||
| Quarter ended 30 September 2014 | |||||||||
| Ulster Bank | 217 | - | (47) | (18) | 120 | - | 272 | ||
| Real Estate Finance | 405 | (68) | (382) | 299 | 112 | (1) | 365 | ||
| Corporate | 156 | (56) | (26) | (69) | 64 | 12 | 81 | ||
| Markets | 64 | (1) | (1) | (7) | 1 | - | 56 | ||
| Total | 842 | (125) | (456) | 205 | 297 | 11 | 774 |
| Beginning | Risk | End of | |||||
|---|---|---|---|---|---|---|---|
| of period Repayments Disposals (1) | parameters (2) Impairments Other (3) | period | |||||
| Year ended 31 December 2014 | £bn | £bn | £bn | £bn | £bn | £bn | £bn |
| Ulster Bank | 8.9 | (0.8) | (2.7) | (2.1) | 0.7 | (0.1) | 3.9 |
| Real Estate Finance | 18.6 | (6.2) | (8.2) | 0.9 | 0.7 | - | 5.8 |
| Corporate | 21.1 | (4.0) | (4.0) | (4.0) | (1.4) | 0.6 | 8.3 |
| Markets | 16.4 | (2.8) | (3.5) | (1.1) | - | 0.3 | 9.3 |
| Total | 65.0 | (13.8) | (18.4) | (6.3) | - | 0.8 | 27.3 |
| Quarter ended 31 December 2014 | |||||||
| Ulster Bank | 4.8 | - | (1.0) | (0.2) | 0.2 | 0.1 | 3.9 |
| Real Estate Finance | 9.2 | (0.5) | (2.8) | 0.3 | (0.6) | 0.2 | 5.8 |
| Corporate | 14.8 | (0.8) | (1.6) | (4.0) | (0.5) | 0.4 | 8.3 |
| Markets | 9.5 | (0.2) | (0.5) | - | - | 0.5 | 9.3 |
| Total | 38.3 | (1.5) | (5.9) | (3.9) | (0.9) | 1.2 | 27.3 |
| Quarter ended 30 September 2014 | |||||||
| Ulster Bank | 4.5 | - | (0.5) | (0.3) | 1.2 | (0.1) | 4.8 |
| Real Estate Finance | 10.5 | (1.0) | (3.8) | 2.4 | 1.1 | - | 9.2 |
| Corporate | 16.6 | (1.4) | (1.0) | (0.8) | 0.6 | 0.8 | 14.8 |
| Markets | 11.9 | (0.7) | (0.9) | (0.8) | - | - | 9.5 |
| Total | 43.5 | (3.1) | (6.2) | 0.5 | 2.9 | 0.7 | 38.3 |
Notes:
(1) Includes all effects relating to disposals, including associated removal of deductions from regulatory capital.
(2) Principally reflects credit migration and other technical adjustments.
(3) Includes fair value adjustments and foreign exchange movements.
(4) RWA equivalent (RWAe) is an internal metric that measures the equity capital employed in segments. RWAe converts both performing and non-performing exposures into a consistent capital measure, being the sum of the regulatory RWAs and the regulatory capital deductions, the latter converted to RWAe by applying a multiplier. RBS applies a CET1 ratio of 10% for RCR; this results in an end point CRR RWAe conversion multiplier of 10.
| Credit metrics | Year-to-date | |||||||
|---|---|---|---|---|---|---|---|---|
| REIL as a | Provisions | Provisions | Impairment | |||||
| Gross | % of gross | as a % | as a % of | (releases)/ | Amounts | |||
| loans | REIL | Provisions | loans | of REIL | gross loans | losses (2) | written-off | |
| 31 December 2014 (1) | £bn | £bn | £bn | % | % | % | £m | £m |
| By sector: | ||||||||
| Commercial real estate | ||||||||
| - investment | 6.2 | 4.9 | 2.8 | 79 | 57 | 45 | (553) | 1,911 |
| - development | 6.4 | 6.2 | 5.3 | 97 | 85 | 83 | (611) | 560 |
| Asset finance | 2.3 | 0.9 | 0.4 | 39 | 44 | 17 | 37 | 80 |
| Other corporate | 7.0 | 3.4 | 2.4 | 49 | 71 | 34 | (169) | 1,032 |
| Total | 21.9 | 15.4 | 10.9 | 70 | 71 | 50 | (1,296) | 3,583 |
| By donating segment | ||||||||
| and sector | ||||||||
| Ulster Bank | ||||||||
| Commercial real estate | ||||||||
| - investment | 3.0 | 2.9 | 2.0 | 97 | 69 | 67 | (450) | 445 |
| - development | 5.8 | 5.8 | 5.1 | 100 | 88 | 88 | (608) | 425 |
| Other corporate | 2.2 | 2.0 | 1.5 | 91 | 75 | 68 | (48) | 256 |
| Total Ulster Bank | 11.0 | 10.7 | 8.6 | 97 | 80 | 78 | (1,106) | 1,126 |
| Commercial Banking | ||||||||
| Commercial real estate | ||||||||
| - investment | 1.2 | 0.7 | 0.2 | 58 | 29 | 17 | (5) | 228 |
| - development | 0.4 | 0.3 | 0.1 | 75 | 33 | 25 | (11) | 104 |
| Other corporate | 1.0 | 0.5 | 0.3 | 50 | 60 | 30 | - | 192 |
| Total Commercial Banking | 2.6 | 1.5 | 0.6 | 58 | 40 | 23 | (16) | 524 |
| CIB | ||||||||
| Commercial real estate | ||||||||
| - investment | 2.0 | 1.3 | 0.6 | 65 | 46 | 30 | (98) | 1,238 |
| - development | 0.2 | 0.1 | 0.1 | 50 | 100 | 50 | 8 | 31 |
| Asset finance | 2.3 | 0.9 | 0.4 | 39 | 44 | 17 | 37 | 80 |
| Other corporate | 3.8 | 0.9 | 0.6 | 24 | 67 | 16 | (121) | 584 |
| Total CIB | 8.3 | 3.2 | 1.7 | 39 | 53 | 20 | (174) | 1,933 |
| Total | 21.9 | 15.4 | 10.9 | 70 | 71 | 50 | (1,296) | 3,583 |
| Of which: | ||||||||
| UK | 10.0 | 6.2 | 4.1 | 62 | 66 | 41 | (402) | 2,266 |
| Europe | 10.9 | 8.9 | 6.6 | 82 | 74 | 61 | (875) | 1,267 |
| US | 0.3 | 0.1 | - | 33 | - | - | (19) | 26 |
| RoW | 0.7 | 0.2 | 0.2 | 29 | 100 | 29 | - | 24 |
| Customers | 21.9 | 15.4 | 10.9 | 70 | 71 | 50 | (1,296) | 3,583 |
| Banks | 0.5 | - | - | - | - | - | (10) | 8 |
| Total | 22.4 | 15.4 | 10.9 | 69 | 71 | 49 | (1,306) | 3,591 |
For the notes to this table refer to the following page.
| Credit metrics | Quarter ended | |||||||
|---|---|---|---|---|---|---|---|---|
| Gross loans |
REIL | Provisions | REIL as a % of gross loans |
Provisions as a % of REIL |
Provisions as a % of gross loans |
Impairment (releases)/ losses (2) |
Amounts written-off |
|
| 30 September 2014 (1) | £bn | £bn | £bn | % | % | % | £m | £m |
| By sector: | ||||||||
| Commercial real estate | ||||||||
| - investment | 8.4 | 6.0 | 3.5 | 71 | 58 | 42 | (299) | 572 |
| - development | 7.1 | 6.7 | 5.9 | 94 | 88 | 83 | (127) | 105 |
| Asset finance | 2.4 | 0.8 | 0.4 | 33 | 50 | 17 | 7 | 21 |
| Other corporate | 7.8 | 3.9 | 2.8 | 50 | 72 | 36 | (165) | 255 |
| Other | 0.1 | - | - | - | - | - | (21) | - |
| 25.8 | 17.4 | 12.6 | 67 | 72 | 49 | (605) | 953 | |
| By donating segment | ||||||||
| and sector | ||||||||
| Ulster Bank | ||||||||
| Commercial real estate | ||||||||
| - investment | 3.8 | 3.5 | 2.5 | 92 | 71 | 66 | (168) | 86 |
| - development | 6.4 | 6.2 | 5.6 | 97 | 90 | 88 | (116) | 77 |
| Other corporate | 2.4 | 2.2 | 1.7 | 92 | 77 | 71 | (95) | 11 |
| Total Ulster Bank | 12.6 | 11.9 | 9.8 | 94 | 82 | 78 | (379) | 174 |
| Commercial Banking | ||||||||
| Commercial real estate | ||||||||
| - investment | 1.6 | 0.8 | 0.3 | 50 | 38 | 19 | (44) | 62 |
| - development | 0.5 | 0.4 | 0.2 | 80 | 50 | 40 | (16) | 20 |
| Asset finance | - | - | - | - | - | - | - | 1 |
| Other corporate | 1.2 | 0.6 | 0.4 | 50 | 67 | 33 | (38) | 36 |
| Other | - | - | - | - | - | - | (3) | - |
| Total Commercial Banking | 3.3 | 1.8 | 0.9 | 55 | 50 | 27 | (101) | 119 |
| CIB | ||||||||
| Commercial real estate | ||||||||
| - investment | 3.0 | 1.7 | 0.7 | 57 | 41 | 23 | (87) | 424 |
| - development | 0.2 | 0.1 | 0.1 | 50 | 100 | 50 | 5 | 8 |
| Asset finance | 2.4 | 0.8 | 0.4 | 33 | 50 | 17 | 7 | 20 |
| Other corporate Other |
4.2 0.1 |
1.1 - |
0.7 - |
26 - |
64 - |
17 - |
(32) (18) |
208 - |
| Total CIB | 9.9 | 3.7 | 1.9 | 37 | 51 | 19 | (125) | 660 |
| Total | 25.8 | 17.4 | 12.6 | 67 | 72 | 49 | (605) | 953 |
| Of which: | ||||||||
| UK | 11.3 | 6.3 | 4.1 | 56 | 65 | 36 | (245) | 630 |
| Europe | 13.4 | 10.7 | 8.3 | 80 | 78 | 62 | (357) | 302 |
| US RoW |
0.3 0.8 |
0.1 0.3 |
- 0.2 |
33 38 |
- 67 |
- 25 |
(1) (2) |
18 3 |
| Customers | 25.8 | 17.4 | 12.6 | 67 | 72 | 49 | (605) | 953 |
| Banks | 0.6 | - | - | - | - | - | - | 9 |
| Total | 26.4 | 17.4 | 12.6 | 66 | 72 | 48 | (605) | 962 |
Notes:
(1) Includes disposal groups.
(2) Impairment (releases)/losses include those relating to AFS securities; sector analyses above include allocation of latent impairment charges.
Notes:
(1) Capital equivalent: £3.8 billion at an internal CET1 ratio of 10%.
(2) Capital equivalent: £1.1 billion at an internal CET1 ratio of 10%.
| Year ended | |||||
|---|---|---|---|---|---|
| 31 December | 31 December | Quarter ended 31 December 30 September |
31 December | ||
| 2014 | 2013 | 2014 | 2014 | 2013 | |
| £m | £m | £m | £m | £m | |
| Interest receivable | 13,079 | 14,488 | 3,238 | 3,297 | 3,437 |
| Interest payable | (3,821) | (5,471) | (856) | (927) | (1,154) |
| Net interest income | 9,258 | 9,017 | 2,382 | 2,370 | 2,283 |
| Fees and commissions receivable | 4,414 | 4,678 | 1,055 | 1,116 | 1,183 |
| Fees and commissions payable | (875) | (923) | (204) | (196) | (240) |
| Income from trading activities | 1,285 | 2,571 | (403) | 238 | 175 |
| Gain on redemption of own debt | 20 | 175 | - | - | (29) |
| Other operating income | 1,048 | 1,219 | 135 | 108 | (7) |
| Non-interest income | 5,892 | 7,720 | 583 | 1,266 | 1,082 |
| Total income | 15,150 | 16,737 | 2,965 | 3,636 | 3,365 |
| Staff costs | (5,757) | (6,086) | (1,325) | (1,435) | (1,291) |
| Premises and equipment | (2,081) | (2,038) | (480) | (475) | (622) |
| Other administrative expenses | (4,568) | (6,692) | (1,999) | (1,212) | (3,785) |
| Depreciation and amortisation | (930) | (1,247) | (203) | (261) | (321) |
| Write down of goodwill and other intangible assets | (523) | (1,403) | (311) | - | (1,403) |
| Operating expenses | (13,859) | (17,466) | (4,318) | (3,383) | (7,422) |
| Profit/(loss) before impairment losses | 1,291 | (729) | (1,353) | 253 | (4,057) |
| Impairment releases/(losses) | 1,352 | (8,120) | 670 | 847 | (5,030) |
| Operating profit/(loss) before tax | 2,643 | (8,849) | (683) | 1,100 | (9,087) |
| Tax (charge)/credit | (1,909) | (186) | (1,040) | (277) | 403 |
| Profit/(loss) from continuing operations | 734 | (9,035) | (1,723) | 823 | (8,684) |
| (Loss)/profit from discontinued operations, net of tax | |||||
| - Citizens (2) | (3,486) | 410 | (3,885) | 114 | 78 |
| - Other | 41 | 148 | 3 | 3 | 15 |
| (Loss)/profit from discontinued operations, | |||||
| net of tax | (3,445) | 558 | (3,882) | 117 | 93 |
| (Loss)/profit for the period | (2,711) | (8,477) | (5,605) | 940 | (8,591) |
| Non-controlling interests | (60) | (120) | (71) | 53 | 3 |
| Preference share and other dividends | (379) | (398) | (115) | (97) | (114) |
| Dividend access share | (320) | - | - | - | - |
| (Loss)/profit attributable to ordinary and | |||||
| B shareholders | (3,470) | (8,995) | (5,791) | 896 | (8,702) |
| (Loss)/earnings per ordinary and equivalent | |||||
| B share (EPS) (3) | |||||
| Basic EPS from continuing and discontinued operations | (30.6p) | (80.3p) | (50.7p) | 7.9p | (77.3p) |
| Basic EPS from continuing operations | 0.5p | (85.0p) | (16.2p) | 6.9p | (78.0p) |
Notes:
(1) A reconciliation between the statutory income statement above and the non-statutory income statement on page 17 is given in Appendix 2 to this announcement. (2) Included within Citizens discontinued operations are the results of the reportable operating segment Citizens Financial Group (CFG), the loss on transfer of CFG to
disposal groups, certain Citizens related activities in Central items and related one-off and other items.
(3) Diluted EPS in the quarter ended 30 September 2014 was 0.1p lower than basic EPS. There was no dilutive impact in any other period.
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | |
| 2014 | 2013 | 2014 | 2014 | 2013 | |
| £m | £m | £m | £m | £m | |
| (Loss)/profit for the period | (2,711) | (8,477) | (5,605) | 940 | (8,591) |
| Items that do not qualify for reclassification | |||||
| Actuarial (losses)/gains on defined benefit plans | (108) | 446 | (108) | - | 446 |
| Income tax on items that do not qualify for | |||||
| reclassification | (36) | (246) | (36) | - | (83) |
| (144) | 200 | (144) | - | 363 | |
| Items that qualify for reclassification | |||||
| Available-for-sale financial assets | 807 | (406) | 199 | 79 | (103) |
| Cash flow hedges | 1,413 | (2,291) | 958 | 207 | (667) |
| Currency translation | 307 | (229) | 424 | 616 | (328) |
| Tax | (455) | 1,014 | (264) | (31) | 203 |
| Other comprehensive income/(loss) after tax | 1,928 | (1,712) | 1,173 | 871 | (532) |
| Total comprehensive (loss)/income for the period | (783) | (10,189) | (4,432) | 1,811 | (9,123) |
| Total comprehensive (loss)/income is attributable to: |
|||||
| Non-controlling interests | 246 | 137 | 204 | 12 | 16 |
| Preference shareholders | 330 | 349 | 99 | 91 | 99 |
| Paid-in equity holders | 49 | 49 | 16 | 6 | 15 |
| Dividend access share | 320 | - | - | - | - |
| Ordinary and B shareholders | (1,728) | (10,724) | (4,751) | 1,702 | (9,253) |
| (783) | (10,189) | (4,432) | 1,811 | (9,123) |
at 31 December 2014
| 31 December | 30 September | 31 December | |
|---|---|---|---|
| 2014 | 2014 | 2013 | |
| £m | £m | £m | |
| Assets | |||
| Cash and balances at central banks | 74,872 | 67,900 | 82,659 |
| Net loans and advances to banks | 23,027 | 29,090 | 27,555 |
| Reverse repurchase agreements and stock borrowing | 20,708 | 24,860 | 26,516 |
| Loans and advances to banks | 43,735 | 53,950 | 54,071 |
| Net loans and advances to customers | 334,251 | 392,969 | 390,825 |
| Reverse repurchase agreements and stock borrowing | 43,987 | 50,631 | 49,897 |
| Loans and advances to customers | 378,238 | 443,600 | 440,722 |
| Debt securities | 86,649 | 106,769 | 113,599 |
| Equity shares | 5,635 | 8,309 | 8,811 |
| Settlement balances | 4,667 | 20,941 | 5,591 |
| Derivatives | 353,590 | 314,021 | 288,039 |
| Intangible assets | 7,781 | 12,454 | 12,368 |
| Property, plant and equipment | 6,167 | 6,985 | 7,909 |
| Deferred tax | 1,540 | 2,843 | 3,478 |
| Prepayments, accrued income and other assets | 5,878 | 7,185 | 7,614 |
| Assets of disposal groups | 82,011 | 1,153 | 3,017 |
| Total assets | 1,050,763 | 1,046,110 | 1,027,878 |
| Liabilities | |||
| Bank deposits | 35,806 | 38,986 | 35,329 |
| Repurchase agreements and stock lending | 24,859 | 30,799 | 28,650 |
| Deposits by banks | 60,665 | 69,785 | 63,979 |
| Customer deposits | 354,288 | 405,367 | 414,396 |
| Repurchase agreements and stock lending | 37,351 | 44,302 | 56,484 |
| Customer accounts | 391,639 | 449,669 | 470,880 |
| Debt securities in issue | 50,280 | 53,487 | 67,819 |
| Settlement balances | 4,503 | 21,049 | 5,313 |
| Short positions | 23,029 | 34,499 | 28,022 |
| Derivatives | 349,805 | 310,361 | 285,526 |
| Accruals, deferred income and other liabilities | 13,346 | 14,618 | 16,017 |
| Retirement benefit liabilities | 2,579 | 2,629 | 3,210 |
| Deferred tax | 500 | 491 | 507 |
| Subordinated liabilities | 22,905 | 24,412 | 24,012 |
| Liabilities of disposal groups | 71,320 | 272 | 3,378 |
| Total liabilities | 990,571 | 981,272 | 968,663 |
| Equity | |||
| Non-controlling interests | 2,946 | 2,747 | 473 |
| Owners' equity* | |||
| Called up share capital | 6,877 | 6,832 | 6,714 |
| Reserves | 50,369 | 55,259 | 52,028 |
| Total equity | 60,192 | 64,838 | 59,215 |
| Total liabilities and equity | 1,050,763 | 1,046,110 | 1,027,878 |
| * Owners' equity attributable to: | |||
| Ordinary and B shareholders | 52,149 | 56,799 | 53,450 |
| Other equity owners | 5,097 | 5,292 | 5,292 |
| 57,246 | 62,091 | 58,742 |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | ||
| 2014 | 2013 | 2014 | 2014 | ||
| % | % | % | % | ||
| Average yields, spreads and margins of the banking business |
|||||
| Gross yield on interest-earning assets of banking business | 3.04 | 3.07 | 3.06 | 3.04 | |
| Cost of interest-bearing liabilities of banking business | (1.13) | (1.38) | (1.05) | (1.10) | |
| Interest spread of banking business | 1.91 | 1.69 | 2.01 | 1.94 | |
| Benefit from interest-free funds | 0.32 | 0.32 | 0.31 | 0.32 | |
| Net interest margin of banking business | 2.23 | 2.01 | 2.32 | 2.26 | |
| Average interest rates | |||||
| Base rate | 0.50 | 0.50 | 0.50 | 0.50 | |
| London inter-bank three month offered rates | |||||
| - Sterling | 0.54 | 0.52 | 0.56 | 0.56 | |
| - Eurodollar | 0.23 | 0.24 | 0.24 | 0.23 | |
| - Euro | 0.21 | 0.27 | 0.08 | 0.16 |
| Year ended | Year ended | ||||||
|---|---|---|---|---|---|---|---|
| 31 December 2014 | 31 December 2013 | ||||||
| Average | Average | ||||||
| balance | Interest | Rate | balance | Interest | Rate | ||
| £m | £m | % | £m | £m | % | ||
| Assets | |||||||
| Loans and advances to banks | 69,371 | 370 | 0.53 | 74,706 | 430 | 0.58 | |
| Loans and advances to customers | 379,422 | 14,188 | 3.74 | 399,856 | 15,087 | 3.77 | |
| Debt securities | 54,037 | 736 | 1.36 | 69,319 | 1,189 | 1.72 | |
| Interest-earning assets | |||||||
| - banking business (1,3,4,5) | 502,830 | 15,294 | 3.04 | 543,881 | 16,706 | 3.07 | |
| - trading business (6) | 166,643 | 216,211 | |||||
| Non-interest earning assets | 371,881 | 467,274 | |||||
| Total assets | 1,041,354 | 1,227,366 | |||||
| Memo: Funded assets | 735,828 | 845,506 | |||||
| Liabilities | |||||||
| Deposits by banks | 16,590 | 141 | 0.85 | 23,474 | 395 | 1.68 | |
| Customer accounts | 298,061 | 1,879 | 0.63 | 336,069 | 2,831 | 0.84 | |
| Debt securities in issue | 41,658 | 1,069 | 2.57 | 55,923 | 1,389 | 2.48 | |
| Subordinated liabilities | 23,659 | 887 | 3.75 | 24,188 | 856 | 3.54 | |
| Internal funding of trading business | (20,061) | 91 | (0.45) | (19,564) | 329 | (1.68) | |
| Interest-bearing liabilities | |||||||
| - banking business (1,2,4,5) | 359,907 | 4,067 | 1.13 | 420,090 | 5,800 | 1.38 | |
| - trading business (6) | 177,156 | 223,264 | |||||
| Non-interest-bearing liabilities | |||||||
| - demand deposits | 84,875 | 76,607 | |||||
| - other liabilities | 357,841 | 438,856 | |||||
| Owners' equity (7) | 61,575 | 68,549 | |||||
| Total liabilities and owners' equity | 1,041,354 | 1,227,366 |
Notes:
(1) Interest receivable has been increased by £11 million (2013 - £4 million) and interest payable has been increased by £58 million (2013 - £83 million) to record interest on financial assets and liabilities designated as at fair value through profit or loss. Related interest-earning assets and interest-bearing liabilities have also been adjusted. (2) Interest payable has been decreased by £3 million (2013 - £11 million) to exclude RFS Holdings minority interest. Related interest-bearing liabilities have also been
adjusted. (3) Interest receivable has been decreased by nil (2013 - £38 million) and interest payable has been decreased by nil (2013 - £31 million) in respect of non-recurring adjustments.
(4) Interest income includes amounts (unwind of discount) recognised on impaired loans and receivables. The average balances of such loans are included in average loans and advances to banks and loans and advances to customers.
(5) Interest receivable has been increased by £2,204 million (2013 - £2,252 million) and interest payable has been increased by £191 million (2013 - £288 million) to include the discontinued operations of Citizens. Related interest-earning assets and interest-bearing liabilities have also been adjusted.
(6) Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities.
(7) Including equity attributable to ordinary and B shareholders of £55,351 million (2013 - £62,011 million).
| Quarter ended 31 December 2014 |
Quarter ended 30 September 2014 |
||||||
|---|---|---|---|---|---|---|---|
| Average balance £m |
Interest £m |
Rate % |
Average balance £m |
Interest £m |
Rate % |
||
| Assets | |||||||
| Loans and advances to banks | 68,264 | 98 | 0.57 | 71,017 | 94 | 0.53 | |
| Loans and advances to customers | 375,951 | 3,549 | 3.75 | 377,180 | 3,578 | 3.76 | |
| Debt securities | 51,331 | 178 | 1.38 | 53,186 | 175 | 1.31 | |
| Interest-earning assets | |||||||
| - banking business (1,2,3) | 495,546 | 3,825 | 3.06 | 501,383 | 3,847 | 3.04 | |
| - trading business (4) | 149,147 | 165,337 | |||||
| Non-interest earning assets | 405,795 | 378,400 | |||||
| Total assets | 1,050,488 | 1,045,120 | |||||
| Memo: funded assets | 704,929 | 747,480 | |||||
| Liabilities | |||||||
| Deposits by banks | 14,890 | 25 | 0.67 | 17,725 | 24 | 0.54 | |
| Customer accounts | 291,860 | 425 | 0.58 | 296,204 | 467 | 0.63 | |
| Debt securities in issue | 38,201 | 232 | 2.41 | 40,598 | 251 | 2.45 | |
| Subordinated liabilities | 22,609 | 228 | 4.00 | 24,371 | 227 | 3.70 | |
| Internal funding of trading business | (18,681) | 12 | (0.25) | (21,061) | 22 | (0.41) | |
| Interest-bearing liabilities | |||||||
| - banking business (1,3) | 348,879 | 922 | 1.05 | 357,837 | 991 | 1.10 | |
| - trading business (4) | 156,927 | 181,347 | |||||
| Non-interest-bearing liabilities | |||||||
| - demand deposits | 94,422 | 82,328 | |||||
| - other liabilities | 386,335 | 361,580 | |||||
| Owners' equity (5) | 63,925 | 62,028 | |||||
| Total liabilities and owners' equity | 1,050,488 | 1,045,120 |
Notes:
(1) Interest receivable has been increased by £2 million (Q3 2014 - £8 million) and interest payable has been increased by £14 million (Q3 2014 - £15 million) to record interest on financial assets and liabilities designated as at fair value through profit or loss. Related interest-earning assets and interest-bearing liabilities have also been adjusted.
(2) Interest income includes amounts (unwind of discount) recognised on impaired loans and receivables. The average balances of such loans are included in average loans and advances to banks and loans and advances to customers.
(3) Interest receivable has been increased by £585 million (Q3 2014 - £542 million) and interest payable has been increased by £52 million (Q3 2014 - £49 million) to include the discontinued operations of Citizens. Related interest-earning assets and interest-bearing liabilities have also been adjusted.
(4) Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities.
(5) Including equity attributable to ordinary and B shareholders of £57,613 million (Q3 2014 - £55,870 million).
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December 31 December | 31 December | 30 September 31 December | ||||
| 2014 | 2013 | 2014 | 2014 | 2013 | ||
| £m | £m | £m | £m | £m | ||
| Called-up share capital | ||||||
| At beginning of period | 6,714 | 6,582 | 6,832 | 6,811 | 6,697 | |
| Ordinary shares issued | 163 | 132 | 45 | 21 | 17 | |
| At end of period | 6,877 | 6,714 | 6,877 | 6,832 | 6,714 | |
| Paid-in equity | ||||||
| At 1 January | 979 | 979 | 979 | 979 | 979 | |
| Reclassification (1) | (195) | - | (195) | - | - | |
| At end of period | 784 | 979 | 784 | 979 | 979 | |
| Share premium account | ||||||
| At beginning of period | 24,667 | 24,361 | 24,934 | 24,885 | 24,628 | |
| Ordinary shares issued | 385 | 306 | 118 | 49 | 39 | |
| At end of period | 25,052 | 24,667 | 25,052 | 24,934 | 24,667 | |
| Merger reserve At beginning and end of period |
13,222 | 13,222 | 13,222 | 13,222 | 13,222 | |
| Available-for-sale reserve | ||||||
| At beginning of period | (308) | (346) | 172 | 138 | (252) | |
| Unrealised gains/(losses) Realised (gains)/losses |
980 (333) |
607 (891) |
173 (19) |
(37) 52 |
1 (122) |
|
| Tax | (67) | 432 | (27) | 28 | 65 | |
| Recycled to profit or loss on disposal of businesses (2) | 36 | (110) | - | - | - | |
| Transfer to retained earnings | (9) | - | - | (9) | - | |
| At end of period | 299 | (308) | 299 | 172 | (308) | |
| Cash flow hedging reserve At beginning of period |
(84) | 1,666 | 291 | 94 | 447 | |
| Amount recognised in equity | 2,871 | (967) | 1,328 | 575 | (271) | |
| Amount transferred from equity to earnings | (1,458) | (1,324) | (370) | (368) | (396) | |
| Tax | (334) | 541 | (220) | (44) | 136 | |
| Transfer to retained earnings | 34 | - | - | 34 | - | |
| At end of period | 1,029 | (84) | 1,029 | 291 | (84) | |
| Foreign exchange reserve | ||||||
| At beginning of period | 3,691 | 3,908 | 3,173 | 2,963 | 4,018 | |
| Retranslation of net assets | 113 | (325) | 209 | 776 | (417) | |
| Foreign currency gains/(losses) on hedges of net assets | 108 | 105 | 114 | (161) | 88 | |
| Tax | (30) | 6 | (4) | (15) | 2 | |
| Recycled to profit or loss on disposal of businesses | - | (3) | - | - | - | |
| Transfer to retained earnings | (399) | - | (9) | (390) | - | |
| At end of period | 3,483 | 3,691 | 3,483 | 3,173 | 3,691 | |
| Capital redemption reserve | ||||||
| At beginning and end of period | 9,131 | 9,131 | 9,131 | 9,131 | 9,131 | |
| Contingent capital reserve | ||||||
| At beginning of period | - | (1,208) | - | - | (1,208) | |
| Transfer to retained earnings | - | 1,208 | - | - | 1,208 | |
| At end of period | - | - | - | - | - |
For the notes to this table refer to page 75.
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December 31 December | 31 December 30 September 31 December | |||||
| 2014 | 2013 | 2014 | 2014 | 2013 | ||
| £m | £m | £m | £m | £m | ||
| Retained earnings | ||||||
| At beginning of period | 867 | 10,596 | 3,493 | 2,258 | 10,144 | |
| Profit/(loss) attributable to ordinary and | ||||||
| B shareholders and other equity owners | ||||||
| - continuing operations | 756 | (9,118) | (1,741) | 887 | (8,670) | |
| - discontinued operations | (3,527) | 521 | (3,935) | 106 | 82 | |
| Equity preference dividends paid | (330) | (349) | (99) | (91) | (99) | |
| Paid-in equity dividends paid, net of tax | (49) | (49) | (16) | (6) | (15) | |
| Dividend access share dividend | (320) | - | - | - | - | |
| Citizens Financial Group initial public offering | ||||||
| - Transfer from available-for-sale reserve | 9 | - | - | 9 | - | |
| - Transfer from cash flow hedging reserve | (34) | - | - | (34) | - | |
| - Transfer from foreign exchange reserve | 399 | - | 9 | 390 | - | |
| Costs relating to Citizens Financial Group initial | ||||||
| public offering | (45) | - | - | (45) | - | |
| Transfer from contingent capital reserve | - | (1,208) | - | - | (1,208) | |
| Termination of contingent capital agreement | - | 320 | - | - | 320 | |
| Actuarial (losses)/gains recognised in retirement | ||||||
| benefit schemes | ||||||
| - gross | (108) | 446 | (108) | - | 446 | |
| - tax | (36) | (246) | (36) | - | (83) | |
| Loss on disposal of own shares held | (8) | (18) | (8) | - | - | |
| Shares issued under employee share schemes | (91) | (77) | (50) | - | (76) | |
| Share-based payments | ||||||
| - gross | 29 | 48 | 3 | 18 | 26 | |
| - tax | 3 | 1 | 3 | 1 | - | |
| Reclassification of paid-in equity | (33) | - | (33) | - | - | |
| At end of period | (2,518) | 867 | (2,518) | 3,493 | 867 | |
| Own shares held | ||||||
| At beginning of period | (137) | (213) | (136) | (136) | (138) | |
| Disposal of own shares | 1 | 75 | - | - | 1 | |
| Shares issued under employee share schemes | 23 | 1 | 23 | - | - | |
| At end of period | (113) | (137) | (113) | (136) | (137) | |
| Owners' equity at end of period | 57,246 | 58,742 | 57,246 | 62,091 | 58,742 |
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December 31 December | 31 December 30 September 31 December | ||||
| 2014 | 2013 | 2014 | 2014 | 2013 | |
| £m | £m | £m | £m | £m | |
| Non-controlling interests | |||||
| At beginning of period | 473 | 1,770 | 2,747 | 618 | 462 |
| Currency translation adjustments and other movements | 86 | (6) | 101 | 1 | 1 |
| (Loss)/profit attributable to non-controlling interests | |||||
| - continuing operations | (22) | 83 | 18 | (64) | (14) |
| - discontinued operations | 82 | 37 | 53 | 11 | 11 |
| Dividends paid | (4) | (5) | (4) | - | (5) |
| Movements in available-for-sale securities | |||||
| - unrealised gains/(losses) | 36 | 8 | 42 | (4) | (3) |
| - realised gains | 77 | 21 | 3 | 68 | 21 |
| - tax | (13) | (1) | (13) | - | - |
| - recycled to profit or loss on disposal of businesses (3) | - | (5) | - | - | - |
| Movements in cash flow hedging reserve | |||||
| - amount recognised in equity | 18 | - | 18 | - | - |
| - amounts transferred from equity to earnings | (18) | - | (18) | - | - |
| Equity raised (4) | 2,232 | - | - | 2,117 | - |
| Equity withdrawn and disposals | (1) | (1,429) | (1) | - | - |
| At end of period | 2,946 | 473 | 2,946 | 2,747 | 473 |
| Total equity at end of period | 60,192 | 59,215 | 60,192 | 64,838 | 59,215 |
| Total equity is attributable to: | |||||
| Non-controlling interests | 2,946 | 473 | 2,946 | 2,747 | 473 |
| Preference shareholders | 4,313 | 4,313 | 4,313 | 4,313 | 4,313 |
| Paid-in equity holders | 784 | 979 | 784 | 979 | 979 |
| Ordinary and B shareholders | 52,149 | 53,450 | 52,149 | 56,799 | 53,450 |
| 60,192 | 59,215 | 60,192 | 64,838 | 59,215 |
Notes:
(1) Paid-in equity reclassified to liabilities as a result of the call of RBS Capital Trust III on 23 December 2014.
(2) Net of tax - £11 million in the year ended 31 December 2014 (2013 - £35 million).
(3) 2013 - net of tax of £1 million).
(4) Includes £2,117 million relating to the initial public offering of Citizens Financial Group.
| Year ended | ||
|---|---|---|
| 31 December 2014 £m |
31 December 2013 £m |
|
| Operating activities | ||
| Operating profit/(loss) before tax on continuing operations | 2,643 | (8,849) |
| Operating (loss)/profit before tax on discontinued operations | (3,207) | 783 |
| Adjustments for non-cash items | (1,461) | 6,561 |
| Net cash outflow from trading activities | (2,025) | (1,505) |
| Changes in operating assets and liabilities | (17,948) | (28,780) |
| Net cash flows from operating activities before tax | (19,973) | (30,285) |
| Income taxes paid | (414) | (346) |
| Net cash flows from operating activities | (20,387) | (30,631) |
| Net cash flows from investing activities | 6,609 | 21,183 |
| Net cash flows from financing activities | (404) | (2,728) |
| Effects of exchange rate changes on cash and cash equivalents | 909 | 512 |
| Net decrease in cash and cash equivalents | (13,273) | (11,664) |
| Cash and cash equivalents at beginning of year | 121,177 | 132,841 |
| Cash and cash equivalents at end of year | 107,904 | 121,177 |
The condensed consolidated financial statements should be read in conjunction with RBS's 2014 Annual Report and 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).
Having reviewed RBS's forecasts, projections and other relevant evidence, the directors have a reasonable expectation that RBS will continue in operational existence for the foreseeable future. Accordingly, the Annual Results for the year ended 31 December 2014 have been prepared on a going concern basis.
On 27 February 2014, RBS announced the reorganisation of the previously reported operating divisions into three franchises. In addition, in order to present a more complete picture of funding, operational and business costs of the franchises and operating segments, certain reporting changes were implemented.
For further information on these changes refer to the Q2 2014 Restatement Document dated 21 July 2014, available on
Citizens was classified as a disposal group on 31 December 2014 and its assets and liabilities at that date have been aggregated and presented as separate lines in accordance with IFRS 5. Citizens was also reclassified as a discontinued operation with comparative year results and cash flows re-presented accordingly.
There have been no significant changes to the Group's principal accounting policies as set out on pages 377 to 386 of the 2013 Annual Report and Accounts apart from the adoption of new and revised IFRSs that were effective from 1 January 2014:
'Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32)' adds application guidance to IAS 32 to address inconsistencies identified in the application of the standard's criteria for offsetting financial assets and financial liabilities.
'Investment Entities (amendments to IFRS 10, IFRS 12 and IAS 27)' applies to investment entities; such entities should account for their subsidiaries (other than those that provide services related to the entity's investment activities) at fair value through profit or loss.
IFRIC 21 'Levies' provides guidance on accounting for levies payable to public authorities if certain conditions are met on a particular date.
IAS 36 'Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36)' aligns IAS 36's disclosure requirements about recoverable amounts with IASB's original intentions.
IAS 39 'Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39)' provides relief from discontinuing hedge accounting on novation of a derivative designated as a hedging instrument.
The implementation of these requirements has not had a material effect on the Group's financial statements.
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 fair value of financial instruments. These critical accounting policies and judgments are described on pages 386 to 389 of the Group's 2013 Annual Report and Accounts.
In July 2014 the IASB published IFRS 9 'Financial Instruments'. IFRS 9 replaces the current financial instruments standard IAS 39, setting out new accounting requirements in a number of areas. First, there are revisions to the classification and measurement of financial instruments. There are new restrictions on the ability to account for financial assets at amortised cost and a prohibition on the bifurcation of embedded derivatives from financial assets. Accounting for financial liabilities is largely unchanged except for the treatment of changes in the fair value of liabilities designated as at fair value through profit or loss attributable to own credit risk; these are recognised in other comprehensive income. Secondly, there are amended requirements for hedge accounting designed to align the accounting more closely to the risk management framework and remove or simplify some of the rule-based requirements of IAS 39. The basic mechanics of hedge accounting: fair value, cash flow and net investment hedges are retained. Finally, there is a new approach to credit impairment provisions moving from IAS 39's incurred loss model to an expected loss model. An expected loss model will result in the recognition of credit impairment losses earlier than an incurred loss model. Subject to EU endorsement, IFRS 9 is applicable for periods beginning on or after 1 January 2018.
IFRS 9 makes major and fundamental changes to accounting for financial instruments. The Group is continuing its assessment of its effect on the Group's financial statements.
The IASB also published:
Annual Improvements to IFRS 2012 - 2014 cycle was issued in September 2014 making a number of minor amendments to IFRS. Its effective date is 1 January 2016.
Amendments to IFRS 10 'Consolidated Financial Statements', IFRS 12 'Disclosure of Interests in Other Entities' and IAS 28 'Investments in Associates and Joint Ventures' were issued in September 2014 to clarify the accounting for sales between an investor, its associates or joint ventures, and in December 2014 to clarify the application of the investment entity consolidation exception. Their effective date is 1 January 2016.
An amendment to IAS 1 'Presentation of Financial Statements' was issued in December 2014 to clarify the application of materiality to financial statements. Its effective date is 1 January 2016.
The Group is reviewing these requirements to determine their effect, if any, on its financial reporting.
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 30 September | 31 December | ||
| 2014 | 2013 | 2014 | 2014 | 2013 | ||
| £m | £m | £m | £m | £m | ||
| Loans and advances to customers | 12,339 | 13,165 | 3,086 | 3,109 | 3,192 | |
| Loans and advances to banks | 367 | 433 | 72 | 103 | 107 | |
| Debt securities | 373 | 890 | 80 | 85 | 138 | |
| Interest receivable | 13,079 | 14,488 | 3,238 | 3,297 | 3,437 | |
| Customer accounts | 1,769 | 2,682 | 392 | 438 | 535 | |
| Deposits by banks | 75 | 277 | 10 | 7 | 63 | |
| Debt securities in issue | 1,010 | 1,306 | 217 | 237 | 293 | |
| Subordinated liabilities | 876 | 877 | 225 | 223 | 214 | |
| Internal funding of trading businesses | 91 | 329 | 12 | 22 | 49 | |
| Interest payable | 3,821 | 5,471 | 856 | 927 | 1,154 | |
| Net interest income | 9,258 | 9,017 | 2,382 | 2,370 | 2,283 | |
| Fees and commissions receivable | ||||||
| - payment services | 989 | 1,090 | 241 | 244 | 291 | |
| - credit and debit card fees | 822 | 892 | 215 | 193 | 221 | |
| - lending (credit facilities) | 1,250 | 1,291 | 281 | 319 | 321 | |
| - brokerage | 321 | 397 | 78 | 77 | 88 | |
| - investment management | 391 | 434 | 96 | 97 | 127 | |
| - trade finance | 280 | 269 | 75 | 80 | 66 | |
| - other | 361 | 305 | 69 | 106 | 69 | |
| 4,414 | 4,678 | 1,055 | 1,116 | 1,183 | ||
| Fees and commissions payable | (875) | (923) | (204) | (196) | (240) | |
| Net fees and commissions | 3,539 | 3,755 | 851 | 920 | 943 | |
| Foreign exchange | 849 | 821 | 281 | 162 | 198 | |
| Interest rate | 339 | 515 | (300) | (4) | (48) | |
| Credit | 284 | 998 | (249) | 136 | 2 | |
| Own credit adjustments | (40) | 35 | (84) | 33 | 15 | |
| Other | (147) | 202 | (51) | (89) | 8 | |
| Income from trading activities | 1,285 | 2,571 | (403) | 238 | 175 | |
| Gain on redemption of own debt | 20 | 175 | - | - | (29) | |
| Operating lease and other rental income | 380 | 484 | 104 | 98 | 103 | |
| Own credit adjustments | (106) | (155) | (60) | 16 | (15) | |
| Changes in the fair value of FVTPL financial assets | ||||||
| and liabilities and related derivatives (1) | 83 | (26) | 13 | 41 | (91) | |
| Changes in fair value of investment properties | (25) | (281) | 12 | 6 | (258) | |
| Profit on sale of: | ||||||
| - securities | 227 | 737 | 14 | (115) | 75 | |
| - property, plant and equipment | 137 | 35 | 74 | 23 | 2 | |
| - subsidiaries, networks and associates | 192 | 168 | (2) | 1 | 171 | |
| Dividend income | 30 | 67 | 10 | 1 | 42 | |
| Share of results of associates | 126 | 320 | 40 | 31 | 43 | |
| Other income | 4 | (130) | (70) | 6 | (79) | |
| Other operating income | 1,048 | 1,219 | 135 | 108 | (7) |
Note:
(1) Fair value through profit and loss
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 2014 | 31 December 31 December 2013 |
2014 | 31 December 30 September 31 December 2014 |
2013 | |
| Total non-interest income | £m 5,892 |
£m 7,720 |
£m 583 |
£m 1,266 |
£m 1,082 |
| Total income | 15,150 | 16,737 | 2,965 | 3,636 | 3,365 |
| Staff costs Premises and equipment Other (1) |
(5,757) (2,081) (4,568) |
(6,086) (2,038) (6,692) |
(1,325) (480) (1,999) |
(1,435) (475) (1,212) |
(1,291) (622) (3,785) |
| Administrative expenses Depreciation and amortisation Write down of goodwill Write down of other intangible assets |
(12,406) (930) - (523) |
(14,816) (1,247) (1,059) (344) |
(3,804) (203) - (311) |
(3,122) (261) - - |
(5,698) (321) (1,059) (344) |
| Operating expenses | (13,859) | (17,466) | (4,318) | (3,383) | (7,422) |
| Loan impairment (releases)/losses Securities |
(1,364) 12 |
8,105 15 |
(684) 14 |
(849) 2 |
5,049 (19) |
| Impairment (releases)/losses | (1,352) | 8,120 | (670) | (847) | 5,030 |
Note:
(1) Includes PPI costs, Interest Rate Hedging Products redress and related costs and litigation and conduct costs - see Note 4 for further details.
| Staff expenses | 2014 | 2013 | Change |
|---|---|---|---|
| £m | £m | % | |
| Salaries | 3,503 | 3,661 | (4) |
| Variable compensation | 408 | 548 | (26) |
| Temporary and contract costs | 526 | 650 | (19) |
| Social security costs | 379 | 422 | (10) |
| Share based compensation | 43 | 49 | (12) |
| Pension costs | |||
| - defined benefit schemes | 462 | 508 | (9) |
| - curtailment and settlement gains | - | (7) | (100) |
| - defined contribution schemes | 87 | 76 | 14 |
| Severance | 196 | 69 | 184 |
| Other | 153 | 110 | 39 |
| Staff expenses | 5,757 | 6,086 | (5) |
The following tables analyse RBS and CIB variable compensation awards for 2014(1).
| RBS | CIB | ||||||
|---|---|---|---|---|---|---|---|
| 2014 | 2013 | 2014 | 2013 | Change | |||
| £m | £m | % | £m | £m | % | ||
| Non-deferred cash awards (2) | 66 | 62 | 6 | 5 | 7 | (29) | |
| Non-deferred share awards | - | - | nm | - | - | nm | |
| Total non-deferred variable compensation | 66 | 62 | 6 | 5 | 7 | (29) | |
| Deferred bond awards | 168 | 168 | - | 30 | 47 | (36) | |
| Deferred share awards | 187 | 306 | (39) | 79 | 191 | (59) | |
| Total deferred variable compensation | 355 | 474 | (25) | 109 | 238 | (54) | |
| Total variable compensation (3) | 421 | 536 | (21) | 114 | 245 | (53) | |
| Variable compensation as a % of operating profit (4) | 6% | 24% | 23% | 30% | |||
| Proportion of variable compensation that is deferred | 84% | 88% | 96% | 97% | |||
| - Of which deferred bond awards | 47% | 35% | 28% | 20% | |||
| - Of which deferred share awards | 53% | 65% | 72% | 80% |
For the notes to these tables refer to the following page.
Variable compensation decreased by 21% to £421 million for RBS and by 53% to £114 million for CIB. Total variable compensation as a percentage of operating profit(4) has decreased from 24% to 6% reflecting both the reduction in variable compensation and operating profit improvement. The proportion of variable compensation that is deferred has reduced to 84% for RBS and remained broadly flat at 96% for CIB. The proportion of deferred variable compensation delivered to employees in shares has remained high at 53% for RBS and 72% for CIB.
| 2014 | 2013 | |||
|---|---|---|---|---|
| Reconciliation of variable compensation awards to income statement charge | £m | £m | ||
| Variable compensation awarded | 421 | 536 | ||
| Less: deferral of charge for amounts awarded for current year | (150) | (230) | ||
| Income statement charge for amounts awarded in current year | 271 | 306 | ||
| Add: current year charge for amounts deferred from prior years | 201 | 279 | ||
| Less: forfeiture of amounts deferred from prior years | (64) | (37) | ||
| Income statement charge for amounts deferred from prior year | 137 | 242 | ||
| Income statement charge for variable compensation (3) | 408 | 548 | ||
| Actual | Expected | |||
| 2015 | ||||
| Year in which income statement charge is expected to be taken for | 2013 | 2014 | 2015 | and beyond |
| deferred variable compensation | £m | £m | £m | £m |
| Variable compensation deferred from 2012 and earlier | 289 | 42 | 20 | 2 |
| Variable compensation deferred from 2013 | - | 162 | 44 | 21 |
| Clawback of variable compensation | (10) | (3) | - | - |
| Less: Forfeiture of amounts deferred from prior years | (37) | (64) | - | - |
| Variable compensation for 2014 deferred | - | - | 123 | 28 |
Notes:
(1) The tables above relate to continuing businesses only; variable compensation relating to discontinued businesses in 2014 totalled £62 million (2013 – £40 million).
(2) Cash payments to all employees are limited to £2,000.
(3) Excludes other performance related compensation.
(4) Reported operating profit excluding Citizens Financial Group before variable compensation expense and one-off and other items. 2013 also excludes the impact of the creation of RCR.
242 137 187 51
| Other | ||||||||
|---|---|---|---|---|---|---|---|---|
| customer | FX | regulatory | Property | |||||
| PPI | IRHP | investigation | provisions | Litigation | and other | Total | ||
| £m | £m | £m | £m | £m | £m | £m | £m | £m |
| 926 | 1,077 | 337 | 416 | - | 150 | 2,018 | 565 | 5,489 |
| - | - | 52 | - | - | - | - | 10 | 62 |
| - | - | (7) | (2) | 2 | 4 | 107 | (7) | 97 |
| 650 | 208 | 444 | - | 720 | 100 | 236 | 528 | 2,886 |
| - | - | - | - | - | - | 4 | - | 4 |
| - | (23) | (18) | - | - | - | (33) | (75) | (149) |
| - | - | - | - | - | - | (30) | - | (30) |
| (777) | (838) | (175) | (414) | (402) | (71) | (493) | (358) (3,528) | |
| - | - | (53) | - | - | - | (4) | - | (57) |
| 799 | 424 | 580 | - | 320 | 183 | 1,805 | 663 | 4,774 |
| 543 | 553 | 266 | - | 400 | 239 | 1,808 | 750 | 4,559 |
| - | - | 52 | - | - | - | - | 10 | 62 |
| - | - | (7) | - | 2 | 6 | 66 | (4) | 63 |
| 400 | 108 | 374 | - | 320 | - | 34 | 81 | 1,317 |
| - | - | - | - | - | - | 3 | - | 3 |
| - | (23) | (6) | - | - | - | (22) | (61) | (112) |
| - | - | - | - | - | - | (2) | - | (2) |
| (144) | (214) | (46) | - | (402) | (62) | (78) | (113) (1,059) | |
| - | - | (53) | - | - | - | (4) | - | (57) |
| 799 | 424 | 580 | - | 320 | 183 | 1,805 | 663 | 4,774 |
| Other redress LIBOR |
Regulatory and legal actions |
An additional charge of £400 million has been recognised for PPI in Q4 2014 as a result of the expected persistency of customer complaint volumes, bringing the total charge for the year to £650 million. The cumulative charge in respect of PPI is £3.7 billion, of which £2.9 billion (79%) in redress and expenses had been utilised by 31 December 2014. Of the £3.7 billion cumulative charge, £3.4 billion relates to redress and £0.3 billion to administrative expenses.
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 |
|
| Single premium book past business review take up rate | 49% | 52% | +/-5 | +/-56 | |
| Uphold rate (1) | 90% | 89% | +/-5 | +/-25 | |
| Average redress | £1,700 | £1,660 | +/-5 | +/-26 |
Note:
(1) Uphold rate excludes claims where no PPI policy was held.
Interest that will be payable on successful complaints has been included in the provision as has the estimated cost of administering the redress process. RBS expects the majority of the cash outflows associated with the remaining provision to have occurred by Q2 2016. 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 from the amount provided. We 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)), RBS agreed to provide redress to customers in relation to certain interest rate hedging products sold to small and medium-sized businesses classified as retail clients under FSA rules. An additional charge of £85 million has been recognised in Q4 2014 bringing the total net charge for the year to £185 million, principally reflecting a marginal increase in our redress experience compared to expectations and the cost of a small number of consequential loss claims over and above interest offered as part of basic redress. We have now agreed outcomes with the independent reviewer on all cases. A cumulative charge of £1.4 billion has been recognised, of which £1.1 billion relates to redress and £0.3 billion relates to administrative expenses. We continue to monitor the level of provision given the remaining uncertainties over the eventual cost of redress, including the cost of consequential loss claims.
RBS 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 RBS incurring a liability and to evaluate the extent to which a reliable estimate of any liability can be made. Additional charges of £1,500 million in 2014 (2013 - £2,944 million) include anticipated costs following investigations into the foreign exchange market (£720 million), provisions relating to investment advice in retail and private banking (£190 million), provisions relating to packaged accounts (£150 million) and the fine relating to the 2012 IT incident (£59 million).
RBS sponsors a number of pension schemes in the UK and overseas whose assets are independent of RBS's finances.
The Royal Bank of Scotland Group Pension Fund (the Main scheme), accounting for 87% (2013 - 86%) of the Group's retirement benefit obligations, was closed to new entrants in 2006. Since 2009, pensionable salary increases in the Main scheme and certain other UK and Irish schemes have been limited to 2% per annum or CPI inflation if lower. Also, with effect from 1 October 2012, the normal pension age for future benefits was increased to 65 unless members elected to make a contribution to maintain a normal pension age of 60.
| 31 December 2014 |
31 December 2013 |
|
|---|---|---|
| Pension costs | £m | £m |
| Defined benefit schemes | 462 | 501 |
| Defined contribution schemes | 87 | 76 |
| Pension costs - continuing operations | 549 | 577 |
| 31 December | 31 December | |
| 2014 | 2013 | |
| Net pension deficit | £m | £m |
| At 1 January | 2,996 | 3,740 |
| Currency translation and other adjustments | (25) | 13 |
| Income statement | ||
| - continuing operations | 462 | 501 |
| - discontinued operations | 4 | 9 |
| Experience gains and losses | (5,189) | (1,273) |
| Actuarial (gains)/losses due to changes in financial assumptions | 4,806 | 589 |
| Actuarial (gains)/losses due to changes in demographic assumptions | 491 | 238 |
| Contributions by employer | (1,065) | (821) |
| Transfer to disposal groups | (196) | - |
| At 31 December | 2,284 | 2,996 |
| Net assets of schemes in surplus | (295) | (214) |
| Net liabilities of schemes in deficit | 2,579 | 3,210 |
In 2014 the bank paid £1.1 billion (2013 - £0.8 billion) in employer contributions to the various pension schemes. These cash contributions reflect the regular ongoing accrual of benefits and running costs of the schemes based on the IAS 19 accounting valuations, and also reflect additional contributions agreed with the trustees of those schemes which are in deficit, as part of the triennial actuarial funding valuation. £0.5 billion (2013 - £0.5 billion) of the employer contributions represented the P&L cost of the pension plans; the remainder of the contribution served to reduce the net liabilities of the schemes which on an IAS 19 basis fell from £3.0 billion in 2013 to £2.3 billion this year end (2013 - fell from £3.7 billion to £3.0 billion) as a result of the employer contributions and £0.1 billion (2013 - £0.4 billion net gain) net actuarial and experience gains which are not reflected in the income statement.
In May 2014, the triennial funding valuation of the Main scheme was agreed which showed that the value of the liabilities exceeded the value of assets by £5.6 billion at 31 March 2013, a ratio of 82%. To eliminate this deficit, RBS will pay annual contributions of £650 million from 2014 to 2016 and £450 million (indexed in line with inflation) from 2017 to 2023. These contributions are in addition to regular annual contributions of approximately £270 million in respect of the ongoing accrual of benefits as well as contributions to meet the expenses of running the scheme.
Interim valuations of the Group's pensions schemes under IAS 19 'Employee Benefits' were prepared at 31 December with the support of independent actuaries, using the following assumptions:
| Main scheme | All schemes | ||||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 31 December | ||
| 2014 | 2013 | 2014 | 2013 | ||
| Principal actuarial assumptions (weighted average) | % | % | % | % | |
| Discount rate (1) | 3.7 | 4.7 | 3.6 | 4.5 | |
| Expected return on plan assets (1) | 3.7 | 4.7 | 3.6 | 4.5 | |
| Rate of increase in salaries | 1.8 | 1.8 | 1.8 | 1.8 | |
| Rate of increase in pensions in payment | 2.8 | 3.1 | 2.7 | 2.9 | |
| Inflation assumption | 3.0 | 3.3 | 2.8 | 3.2 |
Note:
(1) The discount rate and the expected return on plan assets for the Main scheme as at 31 December 2013 was 4.65%.
| 31 December 31 December | ||
|---|---|---|
| Post-retirement mortality assumptions (Main scheme) | 2014 | 2013 |
| Longevity at age 60 for current pensioners (years) | ||
| Males | 28.0 | 27.6 |
| Females | 30.0 | 29.5 |
| Longevity at age 60 for future pensioners currently aged 40 (years) | ||
| Males | 29.3 | 28.6 |
| Females | 31.6 | 30.8 |
The Group discounts its defined benefit pension obligations at discount rates determined by reference to the yield on high quality corporate bonds.
The sterling yield curve (applied to 91% of the Group's defined benefit obligations) is constructed by reference to yields on 'AA' corporate bonds. Significant judgement is required when setting the criteria for bonds to be included in the population from which the yield curve is derived. The criteria include issue size, quality of pricing and the exclusion of outliers.
The assets of the Main scheme, which represent 88% of plan assets at 31 December 2014 (2013 - 85%), are invested in a diversified portfolio of quoted and private equity, government and corporate fixed-interest and index-linked bonds, and other assets including property and hedge funds.
The Main scheme also employs derivative instruments, where appropriate, to achieve a desired asset class exposure or to match assets more closely to liabilities.
The table below sets out the sensitivities of the pension cost for the year and the present value of defined benefit obligations at 31 December to a change in the principal actuarial assumptions:
| All schemes | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Decrease)/Increase | ||||||||
| in pension cost for year | in obligation at 31 December | |||||||
| 31 December | 31 December | 31 December | 31 December | |||||
| 2014 | 2013 | 2014 | 2013 | |||||
| £m | £m | £m | £m | |||||
| 0.25% increase in the discount rate | (79) | (80) | (1,695) | (1,379) | ||||
| 0.25% increase in inflation | 63 | 58 | 1,334 | 1,000 | ||||
| 0.25% additional rate of increase pensions in payment | 49 | 48 | 1,107 | 844 | ||||
| 0.25% additional rate of increase in deferred pensions | 24 | 21 | 476 | 383 | ||||
| 0.25% additional rate of increase in salaries | 12 | 12 | 131 | 110 | ||||
| Longevity increase of one year | 42 | 39 | 1,053 | 801 |
Operating profit is stated after net loan impairment releases from continuing operations of £1,364 million for the year ended 31 December 2014 (2013 - £8,105 million losses). The balance sheet loan impairment provisions decreased in the year ended 31 December 2014 from £25,216 million to £17,500 million and the movements thereon were:
| Year ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 31 December 2014 | 31 December 2013 | ||||||||
| RBS excl. RCR £m |
RCR £m |
Total £m |
RBS excl. Non-Core £m |
Non-Core £m |
Total £m |
||||
| At beginning of period (1) | 8,716 | 16,500 | 25,216 | 10,062 | 11,188 | 21,250 | |||
| Transfers to disposal groups | (536) | (17) | (553) | (9) | - | (9) | |||
| Currency translation and other adjustments | (129) | (538) | (667) | 81 | 40 | 121 | |||
| Disposals | - | (6) | (6) | - | (77) | (77) | |||
| Amounts written-off | (1,687) | (3,591) | (5,278) | (2,490) | (1,856) | (4,346) | |||
| Recoveries of amounts previously written-off | 166 | 39 | 205 | 168 | 88 | 256 | |||
| (Releases)/charges to income statement | |||||||||
| - continuing operations | (44) | (1,320) | (1,364) | 3,615 | 4,490 | 8,105 | |||
| - discontinued operations | 194 | - | 194 | 151 | 156 | 307 | |||
| Unwind of discount (recognised in interest income) | (126) | (121) | (247) | (201) | (190) | (391) | |||
| At end of period | 6,554 | 10,946 | 17,500 | 11,377 | 13,839 | 25,216 |
| Quarter ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 31 December 2014 | 30 September 2014 | 31 December 2013 | |||||||
| RBS excl. RCR |
RCR | Total | RBS excl. RCR |
RCR | Total | RBS excl. Non-Core |
Non- Core |
Total | |
| £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| At beginning of period (1) | 7,418 | 12,613 | 20,031 | 8,041 | 14,405 | 22,446 | 10,101 | 11,320 | 21,421 |
| Transfers to disposal groups | (536) | (17) | (553) | - | - | - | (9) | - | (9) |
| Currency translation and other | |||||||||
| adjustments | 30 | 47 | 77 | (41) | (190) | (231) | (28) | (90) | (118) |
| Disposals | - | - | - | - | (6) | (6) | - | - | - |
| Amounts written-off | (416) | (1,010) | (1,426) | (403) | (962) | (1,365) | (607) | (586) | (1,193) |
| Recoveries of amounts previously | |||||||||
| written-off | 39 | 22 | 61 | 43 | 3 | 46 | 38 | 27 | 65 |
| (Releases)/charges to income statement | |||||||||
| - continuing operations | 7 | (691) | (684) | (239) | (610) | (849) | 1,878 | 3,171 | 5,049 |
| - discontinued operations | 46 | - | 46 | 46 | - | 46 | 46 | 36 | 82 |
| Unwind of discount | |||||||||
| (recognised in interest income) | (34) | (18) | (52) | (29) | (27) | (56) | (42) | (39) | (81) |
| At end of period | 6,554 | 10,946 | 17,500 | 7,418 | 12,613 | 20,031 | 11,377 | 13,839 | 25,216 |
Note:
(1) As a result of the creation of RCR on 1 January 2014, £855 million of provisions were transferred from Non-Core to the original donating divisions and £16,500 million of provisions were transferred to RCR, £12,984 million from Non-Core and £3,516 million from other divisions.
Provisions at 31 December 2014 include £40 million in respect of loans and advances to banks (30 September 2014 - £40 million; 31 December 2013 - £63 million).
Refer to Appendix 1 for analyses of loan impairments by segment, sector and geographical region.
The actual tax (charge)/credit differs from the expected tax (charge)/credit computed by applying the standard UK corporation tax rate of 21.5% (2013 - 23.25%), as analysed below.
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December 31 December | 31 December 30 September 31 December | ||||
| 2014 | 2013 | 2014 | 2014 | 2013 | |
| £m | £m | £m | £m | £m | |
| Profit/(loss) before tax | 2,643 | (8,849) | (683) | 1,100 | (9,087) |
| Expected tax (charge)/credit | (568) | 2,057 | 147 | (237) | 2,112 |
| Losses in year where no deferred tax | |||||
| asset recognised | (86) | (879) | 7 | (71) | (688) |
| Foreign profits taxed at other rates | 76 | (117) | 48 | 66 | (32) |
| UK tax rate change impact | - | (313) | - | - | (116) |
| Unrecognised timing differences | (3) | (8) | (12) | (4) | (6) |
| Non-deductible goodwill impairment | (28) | (247) | - | - | (247) |
| Items not allowed for tax | |||||
| - losses on disposals and write-downs | (12) | (20) | (6) | (1) | (15) |
| - UK bank levy | (54) | (47) | (10) | (14) | (6) |
| - regulatory and legal actions | (182) | (144) | (71) | (111) | (54) |
| - other disallowable items | (191) | (212) | (88) | (34) | (88) |
| Non-taxable items | |||||
| - gain on sale of Direct Line Insurance Group | 41 | - | - | - | - |
| - gain on sale of WorldPay (Global Merchant Services) | - | 37 | - | - | 37 |
| - other non-taxable items | 79 | 153 | 64 | 2 | 52 |
| Taxable foreign exchange movements | 21 | (25) | 8 | 9 | (11) |
| Losses brought forward and utilised | 225 | 36 | 112 | 68 | 13 |
| (Reduction)/increase in carrying value of deferred | |||||
| tax asset in respect of: | |||||
| - UK losses | (850) | (701) | (850) | - | (701) |
| - US losses and temporary differences | (775) | - | (699) | - | - |
| - Ireland losses | 153 | - | 153 | - | - |
| Adjustments in respect of prior periods | 245 | 244 | 157 | 50 | 153 |
| Actual tax (charge)/credit | (1,909) | (186) | (1,040) | (277) | 403 |
The tax charge for the year ended 31 December 2014 reflects a reduction in the carrying value of the deferred tax asset in respect of UK tax losses (£850 million) and US temporary differences (£775 million) reflecting the impact of the decision to restructure CIB, partially offset by an increase in the carrying value of the deferred tax asset in respect of Irish tax losses, the benefit of previously unrecognised Irish tax losses being offset against profits arising in Ireland during the year and the impact of certain conduct charges that do not qualify for tax relief.
At 31 December 2014, the Group has recognised a deferred tax asset of £1,540 million (30 September 2014 - £2,843 million; 31 December 2013 - £3,478 million) and a deferred tax liability of £500 million (30 September 2014 - £491 million; 31 December 2013 - £507 million). These balances include £1,257 million (30 September 2014 - £1,931 million; 31 December 2013 - £2,411 million) relating to carried forward trading losses in the UK.
Under UK tax legislation, these UK losses can be carried forward indefinitely to be utilised against profits arising in the future. In his 2014 Autumn Statement, the UK Chancellor of the Exchequer announced proposals to restrict the use of losses carried forward by UK banks to a maximum of 50% of profits in periods from April 2015 onwards. A longer recovery period of the deferred tax asset associated with UK tax losses will therefore arise, assuming that these proposals are enacted by Parliament in 2015. International Accounting Standards require the recoverability of deferred tax assets to be considered by reference to legislation in force at the balance sheet reporting date.
The Group has considered the carrying value of the deferred tax asset as at 31 December 2014 and concluded that it is recoverable based on future profit projections. The proposed UK tax law change referred to above, if enacted, is not expected to have a material impact on the recovery period of the deferred tax asset.
| Year ended | Quarter ended | ||||
|---|---|---|---|---|---|
| 31 December 2014 |
31 December 2013 |
31 December 2014 |
30 September 2014 |
31 December 2013 |
|
| £m | £m | £m | £m | £m | |
| RBS Sempra Commodities JV | (1) | (3) | (1) | - | (2) |
| RFS Holdings BV Consortium Members | 3 | 113 | 22 | (57) | (5) |
| Direct Line Group | - | 19 | - | - | - |
| Citizens Financial Group | 53 | - | 51 | 2 | - |
| Other | 5 | (9) | (1) | 2 | 4 |
| Profit/(loss) attributable to non-controlling interests | 60 | 120 | 71 | (53) | (3) |
| Year ended | |||||
|---|---|---|---|---|---|
| 31 December | 31 December | 30 September | 31 December | ||
| 2014 | 2013 | 2014 | 2014 | 2013 | |
| £m | £m | £m | £m | £m | |
| Preference shareholders | |||||
| Non-cumulative preference shares of US\$0.01 | 213 | 226 | 43 | 65 | 41 |
| Non-cumulative preference shares of €0.01 | 115 | 121 | 55 | 26 | 57 |
| Non-cumulative preference shares of £1 | 2 | 2 | 1 | - | 1 |
| 330 | 349 | 99 | 91 | 99 | |
| Paid-in equity holders | |||||
| Interest on securities classified as equity, net of tax | 49 | 49 | 16 | 6 | 15 |
| 379 | 398 | 115 | 97 | 114 |
The Group has resumed payments on all discretionary non-equity capital instruments following the end of the European Commission ban in 2012 for RBS 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 macro-prudential policy discussions, the Board decided to partially neutralise any impact on CET1 capital of coupon and dividend payments for 2013 and 2014. £300 million of new equity was issued during the course of 2014 and the Board has decided a further £300 million of new equity will be issued during the course of 2015 to again partially neutralise the CET1 impact of coupon and dividend payments.
Following agreement between RBS and HM Treasury for the retirement of the Dividend Access Share (DAS), earnings per share for periods ended after 25 June 2014 only reflect DAS dividends recognised before the end of a reporting period: £320 million was recognised in the quarter ended 30 June 2014. For periods ending on or before 31 March 2014 earnings are allocated solely to the DAS and earnings per ordinary and equivalent B share for such periods are therefore nil. The DAS does not share in losses. For periods prior to 25 June 2014, adjusted earnings per ordinary and equivalent B share excludes the rights of the DAS.
| Year ended | Quarter ended | |||||
|---|---|---|---|---|---|---|
| 31 December 31 December | 31 December 30 September 31 December | |||||
| 2014 | 2013 | 2014 | 2014 | 2013 | ||
| Earnings | ||||||
| Profit/(loss) from continuing operations attributable | ||||||
| to ordinary and B shareholders (£m) | 57 | (9,516) | (1,856) | 790 | (8,784) | |
| (Loss)/profit from discontinued operations attributable to | ||||||
| ordinary and B shareholders (£m) | (3,527) | 521 | (3,935) | 106 | 82 | |
| (Loss)/profit attributable to ordinary and B | ||||||
| shareholders (£m) | (3,470) | (8,995) | (5,791) | 896 | (8,702) | |
| Ordinary shares outstanding during the period (millions) | 6,256 | 6,096 | 6,322 | 6,284 | 6,156 | |
| Equivalent 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 equivalent B shares outstanding during the period (millions) |
11,356 | 11,196 | 11,422 | 11,384 | 11,256 | |
| Effect of dilutive share options and convertible | ||||||
| securities (millions) | 91 | 115 | 87 | 108 | 110 | |
| Diluted weighted average number of ordinary | ||||||
| shares and equivalent B shares outstanding | ||||||
| during the period (millions) | 11,447 | 11,311 | 11,509 | 11,492 | 11,366 | |
| Basic earnings/(loss) per ordinary and equivalent B share (EPS) |
||||||
| Basic EPS from continuing operations | 0.5p | (85.0p) | (16.2p) | 6.9p | (78.0p) | |
| Basic EPS from discontinued operations | (31.1p) | 4.7p | (34.5p) | 1.0p | 0.7p | |
| Basic EPS from continuing and discontinued | ||||||
| operations | (30.6p) | (80.3p) | (50.7p) | 7.9p | (77.3p) | |
| Adjusted EPS from continuing operations | ||||||
| Basic EPS from continuing operations | 0.5p | (85.0p) | (16.2p) | 6.9p | (78.0p) | |
| Own credit adjustments | 1.1p | 1.0p | 1.1p | (0.4p) | - | |
| Gain on redemption of own debt | (0.2p) | (1.7p) | - | - | 0.2p | |
| Write down of goodwill | 1.1p | 9.4p | - | - | 9.4p | |
| Strategic disposals | (1.7p) | (1.4p) | - | - | (1.5p) | |
| Adjusted EPS from continuing operations | 0.8p | (77.7p) | (15.1p) | 6.5p | (69.9p) |
Note:
(1) Diluted EPS from continuing operations for the quarter ended 30 September 2014 was 0.1p lower than basic EPS. Diluted EPS from discontinued operations for the year ended 31 December 2013 was 0.1p lower than basic EPS. There was no dilutive impact in any other period.
In 2014, the previously reported operating divisions were reorganised into three franchises:
RBS Capital Resolution (RCR) was established with effect from 1 January 2014 by the transfer of capital intensive and higher risk assets from existing divisions. Non-Core was dissolved on 31 December 2013. No business lines moved to RCR and so comparative data have not been restated.
RBS will continue to manage and report RBS Capital Resolution (RCR) separately until disposal or winddown. Although CFG has been reclassified as a discontinued operation, it continues to be a reportable operating segment.
A number of previously reported reconciling items (PPI costs, Interest Rate Hedging Products redress and related costs, regulatory and legal actions, restructuring costs, amortisation of purchased intangible assets and bank levy) have now been allocated to the reportable segments.
As part of its internal reorganisation, RBS has also centralised all services and functions. The costs relating to Services and Functions previously reported as direct expenses in the divisions are now reallocated to businesses using appropriate drivers and reported as indirect expenses in the segmental income statements. In addition, the basis of allocation of Treasury costs has been amended to align the recovery of funding and hedging costs across RBS and for the transfer of certain assets and their associated costs out of Treasury.
Comparatives have been restated accordingly.
The following tables provide a segmental analysis of operating profit/(loss) by main income statement captions. The segmental income statements on pages 29 to 67 reflect certain presentational reallocations as described in the notes below each table. These do not affect the overall operating profit.
| Year ended 31 December 2014 | Net interest income £m |
Non- interest income £m |
Total income £m |
Operating expenses £m |
Impairment (losses)/ releases £m |
Operating profit/(loss) £m |
|---|---|---|---|---|---|---|
| UK Personal & Business Banking | 4,683 | 1,354 | 6,037 | (4,319) | (268) | 1,450 |
| Ulster Bank | 636 | 194 | 830 | (589) | 365 | 606 |
| Personal & Business Banking | 5,319 | 1,548 | 6,867 | (4,908) | 97 | 2,056 |
| Commercial Banking | 2,041 | 1,169 | 3,210 | (1,844) | (76) | 1,290 |
| Private Banking | 691 | 391 | 1,082 | (936) | 4 | 150 |
| Commercial & Private Banking | 2,732 | 1,560 | 4,292 | (2,780) | (72) | 1,440 |
| Corporate & Institutional Banking | 817 | 3,132 | 3,949 | (4,850) | 9 | (892) |
| Central items | 440 | (477) | (37) | (825) | 12 | (850) |
| Citizens Financial Group | 2,013 | 1,068 | 3,081 | (2,123) | (197) | 761 |
| RCR (1) | (47) | 92 | 45 | (363) | 1,306 | 988 |
| Non-statutory basis | 11,274 | 6,923 | 18,197 | (15,849) | 1,155 | 3,503 |
| Reconciling items: | ||||||
| Own credit adjustments (2) | - | (146) | (146) | - | - | (146) |
| Gain on redemption of own debt | - | 20 | 20 | - | - | 20 |
| Write down of goodwill | - | - | - | (130) | - | (130) |
| Strategic disposals | - | 191 | 191 | - | - | 191 |
| Citizens discontinued operations (3) | (2,013) | (1,078) | (3,091) | 2,123 | 197 | (771) |
| RFS Holdings minority interest | (3) | (18) | (21) | (3) | - | (24) |
| Statutory basis | 9,258 | 5,892 | 15,150 | (13,859) | 1,352 | 2,643 |
Notes:
(1) Reallocation of £23 million between net interest income and non-interest income in respect of funding costs of rental assets.
(2) Comprises £40 million gain included in 'Income from trading activities' and £106 million gain included in 'Other operating income' on a statutory basis.
(3) Included within Citizens discontinued operations are the results of the reportable operating segment of Citizens Financial Group (CFG) and certain CFG related activities in Central items and related one-off and other items. Analysis provided in Note 12.
| Net | Non- | Impairment | ||||
|---|---|---|---|---|---|---|
| interest | interest | Total | Operating | (losses)/ | Operating | |
| income | income | income | expenses | releases | profit/(loss) | |
| Year ended 31 December 2013* | £m | £m | £m | £m | £m | £m |
| UK Personal & Business Banking | 4,490 | 1,323 | 5,813 | (4,493) | (501) | 819 |
| Ulster Bank | 619 | 240 | 859 | (694) | (1,774) | (1,609) |
| Personal & Business Banking | 5,109 | 1,563 | 6,672 | (5,187) | (2,275) | (790) |
| Commercial Banking | 1,962 | 1,195 | 3,157 | (1,975) | (652) | 530 |
| Private Banking | 658 | 419 | 1,077 | (1,109) | (29) | (61) |
| Commercial & Private Banking | 2,620 | 1,614 | 4,234 | (3,084) | (681) | 469 |
| Corporate & Institutional Banking | 684 | 4,324 | 5,008 | (7,210) | (680) | (2,882) |
| Central items | 783 | 126 | 909 | (198) | (64) | 647 |
| Citizens Financial Group | 1,892 | 1,073 | 2,965 | (2,204) | (156) | 605 |
| Non-Core | (96) | (250) | (346) | (627) | (4,576) | (5,549) |
| Non-statutory basis | 10,992 | 8,450 | 19,442 | (18,510) | (8,432) | (7,500) |
| Reconciling items: | ||||||
| Own credit adjustments (1) | - | (120) | (120) | - | - | (120) |
| Gain on redemption of own debt | - | 175 | 175 | - | - | 175 |
| Write down of goodwill | - | - | - | (1,059) | - | (1,059) |
| Strategic disposals | - | 161 | 161 | - | - | 161 |
| Citizens discontinued operations (2) | (1,964) | (1,056) | (3,020) | 2,102 | 312 | (606) |
| RFS Holdings minority interest | (11) | 110 | 99 | 1 | - | 100 |
| Statutory basis | 9,017 | 7,720 | 16,737 | (17,466) | (8,120) | (8,849) |
*Restated
Notes:
(1) Comprises £35 million gain included in 'Income from trading activities' and £155 million loss included in 'Other operating income' on a statutory basis.
(2) Included within Citizens discontinued operations are the results of the reportable operating segment of Citizens Financial Group (CFG) and certain CFG related activities in Central items and related one-off and other items. Analysis provided in Note 12.
| Quarter ended 31 December 2014 | Net interest income £m |
Non- interest income £m |
Total income £m |
Operating expenses £m |
Impairment (losses)/ releases £m |
Operating (loss)/profit £m |
|---|---|---|---|---|---|---|
| UK Personal & Business Banking | 1,209 | 323 | 1,532 | (1,534) | (41) | (43) |
| Ulster Bank | 150 | 54 | 204 | (139) | 104 | 169 |
| Personal & Business Banking | 1,359 | 377 | 1,736 | (1,673) | 63 | 126 |
| Commercial Banking | 521 | 310 | 831 | (550) | (33) | 248 |
| Private Banking | 175 | 92 | 267 | (326) | - | (59) |
| Commercial & Private Banking | 696 | 402 | 1,098 | (876) | (33) | 189 |
| Corporate & Institutional Banking | 222 | 469 | 691 | (1,292) | (42) | (643) |
| Central items | 128 | (374) | (246) | (377) | 1 | (622) |
| Citizens Financial Group | 533 | 233 | 766 | (542) | (47) | 177 |
| RCR (1) | (23) | (162) | (185) | (98) | 681 | 398 |
| Non-statutory basis | 2,915 | 945 | 3,860 | (4,858) | 623 | (375) |
| Reconciling items: | ||||||
| Own credit adjustments (2) | - | (144) | (144) | - | - | (144) |
| Citizens discontinued operations (3) | (533) | (231) | (764) | 542 | 47 | (175) |
| RFS Holdings minority interest | - | 13 | 13 | (2) | - | 11 |
| Statutory basis | 2,382 | 583 | 2,965 | (4,318) | 670 | (683) |
Notes:
(1) Reallocation of £6 million between net interest income and non-interest income in respect of funding costs of rental assets.
(2) Comprises £84 million gain included in 'Income from trading activities' and £60 million gain included in 'Other operating income' on a statutory basis.
(3) Included within Citizens discontinued operations are the results of the reportable operating segment of Citizens Financial Group (CFG) and certain CFG related activities in Central items and related one-off and other items. Analysis provided in Note 12.
| Net | Non- | Impairment | ||||
|---|---|---|---|---|---|---|
| interest | interest | Total | Operating | (losses)/ | Operating | |
| income | income | income | expenses | releases | profit/(loss) | |
| Quarter ended 30 September 2014 | £m | £m | £m | £m | £m | £m |
| UK Personal & Business Banking | 1,198 | 345 | 1,543 | (965) | (79) | 499 |
| Ulster Bank | 163 | 51 | 214 | (150) | 318 | 382 |
| Personal & Business Banking | 1,361 | 396 | 1,757 | (1,115) | 239 | 881 |
| Commercial Banking | 521 | 290 | 811 | (392) | (12) | 407 |
| Private Banking | 172 | 98 | 270 | (210) | 4 | 64 |
| Commercial & Private Banking | 693 | 388 | 1,081 | (602) | (8) | 471 |
| Corporate & Institutional Banking | 230 | 601 | 831 | (1,400) | 12 | (557) |
| Central items | 109 | (249) | (140) | (178) | (1) | (319) |
| Citizens Financial Group | 493 | 215 | 708 | (499) | (46) | 163 |
| RCR (1) | (23) | 145 | 122 | (89) | 605 | 638 |
| Non-statutory basis | 2,863 | 1,496 | 4,359 | (3,883) | 801 | 1,277 |
| Reconciling items: | ||||||
| Own credit adjustments (2) | - | 49 | 49 | - | - | 49 |
| Citizens discontinued operations (3) | (493) | (223) | (716) | 500 | 46 | (170) |
| RFS Holdings minority interest | - | (56) | (56) | - | - | (56) |
| Statutory basis | 2,370 | 1,266 | 3,636 | (3,383) | 847 | 1,100 |
Notes:
(1) Reallocation of £5 million between net interest income and non-interest income in respect of funding costs of rental assets.
(2) Comprises £33 million gain included in 'Income from trading activities' and £16 million gain included in 'Other operating income' on a statutory basis.
(3) Included within Citizens discontinued operations are the results of the reportable operating segment of Citizens Financial Group (CFG) and certain CFG related activities in Central items and related one-off and other items. Analysis provided in Note 12.
| Net | Non- | Impairment | ||||
|---|---|---|---|---|---|---|
| interest | interest | Total | Operating | (losses)/ | Operating | |
| income | income | income | expenses | releases | (loss)/profit | |
| Quarter ended 31 December 2013* | £m | £m | £m | £m | £m | £m |
| UK Personal & Business Banking | 1,149 | 345 | 1,494 | (1,470) | (107) | (83) |
| Ulster Bank | 164 | 38 | 202 | (224) | (1,067) | (1,089) |
| Personal & Business Banking | 1,313 | 383 | 1,696 | (1,694) | (1,174) | (1,172) |
| Commercial Banking | 515 | 301 | 816 | (718) | (277) | (179) |
| Private Banking | 173 | 103 | 276 | (453) | (21) | (198) |
| Commercial & Private Banking | 688 | 404 | 1,092 | (1,171) | (298) | (377) |
| Corporate & Institutional Banking | 208 | 840 | 1,048 | (3,286) | (429) | (2,667) |
| Central items | 127 | (138) | (11) | (49) | (1) | (61) |
| Citizens Financial Group | 468 | 240 | 708 | (542) | (46) | 120 |
| Non-Core | (37) | (556) | (593) | (139) | (3,164) | (3,896) |
| Non-statutory basis | 2,767 | 1,173 | 3,940 | (6,881) | (5,112) | (8,053) |
| Reconciling items: | ||||||
| Gain on redemption of own debt | - | (29) | (29) | - | - | (29) |
| Write-down of goodwill | - | - | (1,059) | - | (1,059) | |
| Strategic disposals | - | 168 | 168 | - | - | 168 |
| Citizens discontinued operations (1) | (481) | (223) | (704) | 518 | 82 | (104) |
| RFS Holdings minority interest | (3) | (7) | (10) | - | - | (10) |
| Statutory basis | 2,283 | 1,082 | 3,365 | (7,422) | (5,030) | (9,087) |
*Restated
(1) Included within Citizens discontinued operations are the results of the reportable operating segment of Citizens Financial Group (CFG) and certain CFG related activities in Central items and related one-off and other items. Analysis provided in Note 12.
| 31 December 2014 | 30 September 2014 | 31 December 2013* | ||||
|---|---|---|---|---|---|---|
| Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | |
| £m | £m | £m | £m | £m | £m | |
| UK Personal & Business Banking | 134,257 | 150,481 | 134,203 | 147,544 | 132,154 | 146,256 |
| Ulster Bank | 27,596 | 24,657 | 26,451 | 23,091 | 28,183 | 27,047 |
| Personal & Business Banking | 161,853 | 175,138 | 160,654 | 170,635 | 160,337 | 173,303 |
| Commercial Banking | 89,382 | 88,987 | 89,676 | 89,548 | 87,899 | 93,200 |
| Private Banking | 20,480 | 36,793 | 21,088 | 36,877 | 21,148 | 37,564 |
| Commercial & Private Banking | 109,862 | 125,780 | 110,764 | 126,425 | 109,047 | 130,764 |
| Corporate & Institutional Banking | 577,230 | 536,243 | 572,896 | 528,555 | 551,200 | 512,691 |
| Central items | 86,947 | 69,394 | 88,690 | 75,290 | 103,470 | 84,279 |
| Citizens Financial Group | 84,932 | 71,258 | 80,884 | 67,805 | 71,738 | 61,289 |
| RCR | 29,030 | 12,683 | n/a | n/a | n/a | n/a |
| Non-Core | n/a | n/a | 31,311 | 12,481 | 31,177 | 6,100 |
| RFS Holdings minority interest | 909 | 75 | 911 | 81 | 909 | 237 |
| Statutory basis | 1,050,763 | 990,571 | 1,046,110 | 981,272 | 1,027,878 | 968,663 |
*Restated
Note:
In accordance with a commitment to the European Commission to sell Citizens Financial Group, Inc. (Citizens) by 31 December 2016, RBS disposed of 29.5% of its interest in Citizens during the second half of 2014 primarily through an initial public offering in the USA. RBS plans to cede control by the end of 2015 and therefore, in accordance with IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations', Citizens is presented with effect from 31 December 2014 as a discontinued operation, with comparatives represented, and as a disposal group.
On reclassification to disposal groups at 31 December 2014, the carrying value of Citizens exceeded its fair value less costs to sell (based on the quoted price of shares in Citizens Financial Group, Inc.) by £3,994 million and the carrying value of the assets and liabilities of the disposal group has been adjusted by this amount. This loss has been attributed to the intangible assets of the disposal group.
| Year ended | |||||
|---|---|---|---|---|---|
| 31 December 31 December | Quarter ended 31 December 30 September 31 December |
||||
| 2014 | 2013 | 2014 | 2014 | 2013 | |
| £m | £m | £m | £m | £m | |
| Citizens | |||||
| Interest income | 2,204 | 2,252 | 585 | 542 | 536 |
| Interest expense | (191) | (288) | (52) | (49) | (55) |
| Net interest income | 2,013 | 1,964 | 533 | 493 | 481 |
| Other income | 1,043 | 1,056 | 196 | 223 | 223 |
| Total income | 3,056 | 3,020 | 729 | 716 | 704 |
| Operating expenses | (2,123) | (2,102) | (542) | (500) | (518) |
| Profit before impairment losses | 933 | 918 | 187 | 216 | 186 |
| Impairment losses | (197) | (312) | (47) | (46) | (82) |
| Operating profit before tax | 736 | 606 | 140 | 170 | 104 |
| Tax charge | (228) | (196) | (31) | (56) | (26) |
| Profit after tax | 508 | 410 | 109 | 114 | 78 |
| Provision for loss on disposal | (3,994) | - | (3,994) | - | - |
| (Loss)/profit from Citizens discontinued operations, | |||||
| net of tax | (3,486) | 410 | (3,885) | 114 | 78 |
| Other | |||||
| Net premium income | - | 699 | - | - | - |
| Other income from insurance business | - | 62 | - | - | - |
| Insurance income | - | 761 | - | - | - |
| Other income | 24 | 26 | 6 | 6 | 11 |
| Total other income | 24 | 787 | 6 | 6 | 11 |
| Operating expenses | (2) | (172) | - | (1) | (2) |
| Profit before insurance net claims and impairment losses | 22 | 615 | 6 | 5 | 9 |
| Insurance net claims | - | (445) | - | - | - |
| Operating profit before tax | 22 | 170 | 6 | 5 | 9 |
| Tax charge | (10) | (29) | (3) | (2) | (6) |
| Profit after tax | 12 | 141 | 3 | 3 | 3 |
| Businesses acquired exclusively with a view to disposal | |||||
| Profit after tax | 29 | 7 | - | - | 12 |
| Profit from other discontinued operations, net of tax | 41 | 148 | 3 | 3 | 15 |
Other discontinued operations reflect the results of Direct Line Insurance Group plc which was presented as a discontinued operation until 12 March 2013 and as an associate thereafter, and the results of RFS Holdings attributable to the State of the Netherlands and Santander following the legal separation of ABN AMRO Bank N.V. on 1 April 2010. The profit from discontinued operations includes a gain of £82 million (2013 - £37 million) attributable to non-controlling interests.
| 31 December 2014 | 31 December | |||
|---|---|---|---|---|
| Citizens | Other | Total | 2013 | |
| £m | £m | £m | £m | |
| Assets of disposal groups | ||||
| Cash and balances at central banks | 622 | - | 622 | 2 |
| Loans and advances to banks | 1,728 | 17 | 1,745 | 63 |
| Loans and advances to customers | 59,606 | 944 | 60,550 | 1,765 |
| Debt securities and equity shares | 15,865 | - | 15,865 | 24 |
| Derivatives | 402 | - | 402 | 1 |
| Intangible assets | 555 | 28 | 583 | 30 |
| Property, plant and equipment | 503 | 46 | 549 | 32 |
| Interests in associates | - | - | - | 879 |
| Other assets | 1,686 | 9 | 1,695 | 58 |
| Discontinued operations and other disposal groups | 80,967 | 1,044 | 82,011 | 2,854 |
| Assets acquired exclusively with a view to disposal | - | - | - | 163 |
| 80,967 | 1,044 | 82,011 | 3,017 | |
| Liabilities of disposal groups | ||||
| Deposits by banks | 6,794 | - | 6,794 | - |
| Customer accounts | 61,256 | 33 | 61,289 | 3,273 |
| Debt securities in issue | 1,625 | - | 1,625 | - |
| Derivatives | 144 | - | 144 | 1 |
| Subordinated liabilities | 226 | - | 226 | - |
| Other liabilities | 1,223 | 19 | 1,242 | 102 |
| Discontinued operations and other disposal groups | 71,268 | 52 | 71,320 | 3,376 |
| Liabilities acquired exclusively with a view to disposal | - | - | - | 2 |
| 71,268 | 52 | 71,320 | 3,378 |
Citizens is included in disposal groups at 31 December 2014 along with some remaining elements of the RBS N.V. business.
Disposal groups at 31 December 2013 predominately comprise the Chicago area retail branches, small business operations and select middle market relationships in the Chicago market which formed part of Citizens Financial Group and the interest in associates in Direct Line Group. No adjustment was required to the carrying value of these assets and liabilities on reclassification and comparatives were not restated.
The following tables analyse the financial assets and liabilities in accordance with the categories of financial instruments in IAS 39 with assets and liabilities outside the scope of IAS 39 shown separately.
| Non | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Financial instruments | financial | |||||||||
| Amortised Finance | assets/ | |||||||||
| 31 December 2014 | £m | £m | £m | £m | HFT (1) DFV (2) HD (3) AFS (4) LAR (5) HTM (6) £m |
£m | cost £m |
£m | leases liabilities £m |
Total £m |
| Assets | ||||||||||
| Cash and balances at central banks | - | - | - | 74,872 | - | 74,872 | ||||
| Loans and advances to banks | ||||||||||
| - reverse repos | 18,129 | - | - | 2,579 | - | 20,708 | ||||
| - other | 11,773 | - | - | 11,254 | - | 23,027 | ||||
| Loans and advances to customers | ||||||||||
| - reverse repos | 43,018 | - | - | 969 | - | 43,987 | ||||
| - other | 23,038 | 61 | - 307,002 | - | 4,150 | 334,251 | ||||
| Debt securities | 49,226 | 117 | 29,673 | 3,096 | 4,537 | 86,649 | ||||
| Equity shares | 4,821 | 301 | 513 | - | - | 5,635 | ||||
| Settlement balances | - | - | - | 4,667 | - | 4,667 | ||||
| Derivatives | 348,149 | 5,441 | 353,590 | |||||||
| Intangible assets | 7,781 | 7,781 | ||||||||
| Property, plant and equipment | 6,167 | 6,167 | ||||||||
| Deferred tax | 1,540 | 1,540 | ||||||||
| Prepayments, accrued income and | ||||||||||
| other assets | - | - | - | - | - | 5,878 | 5,878 | |||
| Assets of disposal groups | 82,011 | 82,011 | ||||||||
| 498,154 | 479 5,441 30,186 404,439 | 4,537 | 4,150 | 103,377 1,050,763 | ||||||
| Liabilities | ||||||||||
| Deposits by banks | ||||||||||
| - repos | 23,990 | - | 869 | 24,859 | ||||||
| - other | 26,118 | - | 9,688 | 35,806 | ||||||
| Customer accounts | ||||||||||
| - repos | 35,985 | - | 1,366 | 37,351 | ||||||
| - other | 15,308 | 4,731 | 334,249 | 354,288 | ||||||
| Debt securities in issue | 6,490 10,216 | 33,574 | 50,280 | |||||||
| Settlement balances | - | - | 4,503 | 4,503 | ||||||
| Short positions | 23,029 | - | 23,029 | |||||||
| Derivatives | 346,184 | 3,621 | 349,805 | |||||||
| Accruals, deferred income and | ||||||||||
| other liabilities | - | - | 1,801 | - | 11,545 | 13,346 | ||||
| Retirement benefit liabilities | 2,579 | 2,579 | ||||||||
| Deferred tax | 500 | 500 | ||||||||
| Subordinated liabilities | - | 863 | 22,042 | 22,905 | ||||||
| Liabilities of disposal groups | 71,320 | 71,320 | ||||||||
| 477,104 15,810 3,621 | 408,092 | - | 85,944 | 990,571 | ||||||
| Equity | 60,192 | |||||||||
| 1,050,763 | ||||||||||
For the notes to this table refer to the following page.
| Non | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Financial instruments | financial | ||||||||
| Amortised | Finance | assets/ | |||||||
| HFT (1) | DFV (2) | HD (3) | AFS (4) | LAR (5) | cost | leases liabilities | Total | ||
| 31 December 2013 | £m | £m | £m | £m | £m | £m | £m | £m | £m |
| Assets | |||||||||
| Cash and balances at central banks | - | - | - | 82,659 | 82,659 | ||||
| Loans and advances to banks | |||||||||
| - reverse repos | 25,795 | - | - | 721 | 26,516 | ||||
| - other | 9,952 | - | - | 17,603 | 27,555 | ||||
| Loans and advances to customers | |||||||||
| - reverse repos | 49,897 | - | - | - | 49,897 | ||||
| - other | 19,170 | 49 | - | 364,772 | 6,834 | 390,825 | |||
| Debt securities | 56,582 | 122 | 53,107 | 3,788 | 113,599 | ||||
| Equity shares | 7,199 | 400 | 1,212 | 8,811 | |||||
| Settlement balances | - | - | - | 5,591 | 5,591 | ||||
| Derivatives | 283,508 | 4,531 | 288,039 | ||||||
| Intangible assets | 12,368 | 12,368 | |||||||
| Property, plant and equipment | 7,909 | 7,909 | |||||||
| Deferred tax | 3,478 | 3,478 | |||||||
| Prepayments, accrued income and | |||||||||
| other assets | - | - | - | - | 7,614 | 7,614 | |||
| Assets of disposal groups | 3,017 | 3,017 | |||||||
| 452,103 | 571 | 4,531 | 54,319 | 475,134 | 6,834 | 34,386 1,027,878 | |||
| Liabilities | |||||||||
| Deposits by banks | |||||||||
| - repos | 23,127 | - | 5,523 | 28,650 | |||||
| - other | 19,764 | - | 15,565 | 35,329 | |||||
| Customer accounts | |||||||||
| - repos | 52,300 | - | 4,184 | 56,484 | |||||
| - other | 10,236 | 5,862 | 398,298 | 414,396 | |||||
| Debt securities in issue | 8,560 | 15,848 | 43,411 | 67,819 | |||||
| Settlement balances | - | - | 5,313 | 5,313 | |||||
| Short positions | 28,022 | - | 28,022 | ||||||
| Derivatives | 281,299 | 4,227 | 285,526 | ||||||
| Accruals, deferred income and | |||||||||
| other liabilities | - | - | 1,764 | 19 | 14,234 | 16,017 | |||
| Retirement benefit liabilities | 3,210 | 3,210 | |||||||
| Deferred tax | 507 | 507 | |||||||
| Subordinated liabilities | - | 868 | 23,144 | 24,012 | |||||
| Liabilities of disposal groups | 3,378 | 3,378 | |||||||
| 423,308 | 22,578 | 4,227 | 497,202 | 19 | 21,329 | 968,663 | |||
| Equity | 59,215 | ||||||||
| 1,027,878 |
Notes: (1) Held-for-trading. (2) Designated as at fair value. (3) Hedging derivatives.
(4) Available-for-sale.
(5) Loans and receivables.
(6) Held to maturity
Apart from the reclassification of £3.6 billion of Treasury debt securities from AFS to HTM in Q1 2014, there were no other reclassifications in the year ended 31 December 2014.
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 table below shows credit valuation adjustments (CVA) and other valuation reserves. CVA represents an estimate of the adjustment to fair value that a market participant would make to incorporate the risk inherent in derivative exposures.
| 31 December | 31 December | |
|---|---|---|
| 2014 | 2013 | |
| £m | £m | |
| Credit valuation adjustments | 1,414 | 1,766 |
| - of which: monoline insurers and credit derivative product companies (CDPC) | 47 | 99 |
| Other valuation reserves | ||
| - bid-offer | 398 | 513 |
| - funding valuation adjustment | 718 | 424 |
| - product and deal specific | 657 | 753 |
| 1,773 | 1,690 | |
| Valuation reserves | 3,187 | 3,456 |
The table below analyses CVA relating to counterparties other than monoline insurers and CDPCs by rating and sector.
| 31 December | 31 December | |
|---|---|---|
| 2014 | 2013 | |
| Ratings: | £m | £m |
| AAA | 82 | 104 |
| AA to AA+ | 35 | 13 |
| A to AA- | 78 | 168 |
| BBB- to A- | 401 | 446 |
| Non-investment grade and unrated | 771 | 936 |
| 1,367 | 1,667 | |
| Counterparty: | ||
| Banks | 32 | 89 |
| Other financial institutions | 203 | 199 |
| Corporate | 938 | 1,126 |
| Government | 194 | 253 |
| 1,367 | 1,667 |
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 in issue, subordinated liabilities and derivative liabilities are set out below.
| Subordinated | |||||||
|---|---|---|---|---|---|---|---|
| Debt securities in issue (2) | liabilities | ||||||
| HFT | DFV | Total | DFV | Total | Derivatives | Total (3) | |
| Cumulative OCA (CR)/DR (1) | £m | £m | £m | £m | £m | £m | £m |
| 31 December 2014 | (397) | (123) | (520) | 221 | (299) | 12 | (287) |
| 31 December 2013 | (467) | (33) | (500) | 256 | (244) | 96 | (148) |
| Carrying values of underlying | |||||||
| liabilities | £bn | £bn | £bn | £bn | £bn | ||
| 31 December 2014 | 6.5 | 10.4 | 16.9 | 0.9 | 17.8 | ||
| 31 December 2013 | 8.6 | 15.8 | 24.4 | 0.9 | 25.3 |
Notes:
(1) The OCA does not alter cash flows and is not used for performance management.
(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.
| 31 December 2014 | 31 December 2013 | ||||||
|---|---|---|---|---|---|---|---|
| RBS | RBS excl. | ||||||
| excl. RCR | RCR | Total | Non-Core | Non-Core | Total | ||
| £m | £m | £m | £m | £m | £m | ||
| Contingent liabilities | |||||||
| Guarantees and assets pledged as collateral security | 16,574 | 147 | 16,721 | 19,563 | 616 | 20,179 | |
| Other | 9,401 | 180 | 9,581 | 5,893 | 98 | 5,991 | |
| 25,975 | 327 | 26,302 | 25,456 | 714 | 26,170 | ||
| Commitments | |||||||
| Undrawn formal standby facilities, credit lines and other | |||||||
| commitments to lend | 211,462 | 1,315 | 212,777 | 210,766 | 2,280 | 213,046 | |
| Other | 2,106 | 1 | 2,107 | 2,793 | - | 2,793 | |
| 213,568 | 1,316 | 214,884 | 213,559 | 2,280 | 215,839 | ||
| Contingent liabilities and commitments | 239,543 | 1,643 | 241,186 | 239,015 | 2,994 | 242,009 |
Additional contingent liabilities arise in the normal course of the Group's business. It is not anticipated that any material loss will arise from these transactions.
The company and certain members of the Group are party to legal proceedings and the subject of investigation and other regulatory and governmental action in the United Kingdom, the European Union, the United States and other jurisdictions.
RBS recognises a provision for a liability in relation to these matters when it is probable that an outflow of economic benefits will be required to settle an obligation resulting from past events, and a reliable estimate can be made of the amount of the obligation. While the outcome of the legal proceedings, investigations and regulatory and governmental matters in which RBS is involved is inherently uncertain, the directors believe that, based on the information available to them, appropriate provisions have been made in respect of legal proceedings, investigations and regulatory and governmental matters as at 31 December 2014 (see Note 4). The aggregate provisions for litigation and regulatory proceedings of £1,500 million recognised in 2014, included a provision of £720 million related to the foreign exchange related investigations, of which £320 million was taken in the last quarter of 2014. The future outflow of resources in respect of any matter may ultimately prove to be substantially greater than or less than the aggregate provision that RBS has recognised.
In many proceedings, it is not possible to determine whether any loss is probable or to estimate the amount of any loss. Numerous legal and factual issues may need to be resolved, including through potentially lengthy discovery and document production exercises and determination of important factual matters, and by addressing novel or unsettled legal questions relevant to the proceedings in question, before a liability can be reasonably estimated for any claim. RBS cannot predict if, how, or when such claims will be resolved or what the eventual settlement, damages, fine, penalty or other relief, if any, may be, particularly for claims that are at an early stage in their development or where claimants seek substantial or indeterminate damages.
There are also situations where RBS may enter into a settlement agreement. This may occur in order to avoid the expense, management distraction or reputational implications of continuing to contest liability, or in order to take account of the risks inherent in defending claims or investigations even for those matters for which RBS believes it has credible defences and should prevail on the merits. The uncertainties inherent in all such matters affect the amount and timing of any potential outflows for both matters with respect to which provisions have been established and other contingent liabilities. The future outflow of resources in respect of any matter may ultimately prove to be substantially greater than or less than the aggregate provision that RBS has recognised for that matter.
Other than those discussed below, no member of the Group is or has been involved in governmental, legal or regulatory proceedings (including those which are pending or threatened) that are expected to be material individually or in aggregate.
RBS and certain of its subsidiaries, together with certain current and former officers and directors were named as defendants in a purported class action filed in the United States District Court for the Southern District of New York involving holders of American Depositary Receipts (the ADR claims).
A consolidated amended complaint asserting claims under Sections 10 and 20 of the US Securities Exchange Act of 1934 and Sections 11, 12 and 15 of the Securities Act was filed in November 2011 on behalf of all persons who purchased or otherwise acquired the Group's American Depositary Receipts (ADRs) from issuance through 20 January 2009. In September 2012, the Court dismissed the ADR claims with prejudice. In August 2013, the Court denied the plaintiffs' motions for reconsideration and for leave to re-plead their case. The plaintiffs appealed the dismissal of this case to the Second Circuit Court of Appeals and that appeal was heard on 19 June 2014. A decision in respect of the appeal has not yet been issued.
Between March and July 2013, claims were issued in the High Court of Justice of England and Wales by sets of current and former shareholders, against RBS (and in one of those claims, also against certain former individual officers and directors) alleging that untrue and misleading statements and/or improper omissions were made in connection with the rights issue announced by RBS on 22 April 2008 in breach of the Financial Services and Markets Act 2000. In July 2013 these and other similar threatened claims were consolidated by the Court via a Group Litigation Order. RBS's defence to the claims was filed on 13 December 2013. Since then, further High Court claims have been issued against RBS under the Group Litigation Order. At a case management conference in December 2014 the judge ordered that trial commence in December 2016.
RBS 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. These cases include actions by individual purchasers of securities and purported class action suits. Together, the pending individual and class action cases involve the issuance of more than US\$46 billion of mortgage-backed securities (MBS) issued primarily from 2005 to 2007. In general, plaintiffs in these actions claim that certain disclosures made in connection with the relevant offerings contained materially false or misleading statements and/or omissions regarding the underwriting standards pursuant to which the mortgage loans underlying the securities were issued. RBS companies remain as defendants in more than 30 lawsuits brought by purchasers of MBS, including the purported class action identified below.
Among these MBS lawsuits are two 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 MBS for which RBS entities acted as sponsor/depositor and/or lead underwriter or co-lead underwriter. Of these approximately US\$9.5 billion were outstanding at 31 December 2014 with cumulative write downs to date of approximately US\$1.09 billion (being the recognised loss of principal value suffered by security holders). In September 2013, the Court denied the defendants' motion to dismiss FHFA's amended complaint in this case. Discovery is ongoing and is scheduled to be substantially completed by the end of 2015.
The other remaining FHFA lawsuit that involves RBS (in which the primary defendant is Nomura Holding America Inc. and subsidiaries) names RBS Securities Inc. as a defendant by virtue of the fact that it was an underwriter of some of the securities at issue. Trial in this matter is scheduled to commence in March 2015 in the United States District Court for the Southern District of New York. Three other FHFA lawsuits (against JP Morgan, Morgan Stanley and Countrywide) in which RBS Securities Inc. was an underwriter defendant were settled without any contribution from RBS Securities Inc. On 19 June 2014, another FHFA lawsuit in which RBS Securities Inc. was an underwriter defendant (against Ally Financial Group) was settled by RBS Securities Inc. by payment of US\$99.5 million.
Other MBS lawsuits against RBS companies include three cases filed by the National Credit Union Administration Board (on behalf of US Central Federal Credit Union, Western Corporate Federal Credit Union, Southwest Corporate Federal Credit Union, and Members United Corporate Federal Credit Union), five cases filed by the Federal Home Loan Banks of Boston, Chicago, Seattle and San Francisco, and a case filed by the Commonwealth of Virginia on behalf of the Virginia Retirement System.
RBS companies are also defendants in a purported MBS class action entitled New Jersey Carpenters Health Fund v. Novastar Mortgage Inc. et al., which remains pending in the United States District Court for the Southern District of New York.
The status of the previously disclosed settlements in the other MBS class actions in which RBS companies were defendants is as follows: In re IndyMac Mortgage-Backed Securities Litigation (the court indicated its intention to approve settlement at the final settlement hearing held on 3 February 2015), New Jersey Carpenters Vacation Fund et al. v. The Royal Bank of Scotland plc et al. (final court approval of the settlement granted in November 2014), and Luther v. Countrywide Financial Corp. et al. and related class action cases (final court approval of the settlement granted in December 2013). In the latter matter, several members of the settlement class are appealing the court-approved settlement to the United States Court of Appeals for the Ninth Circuit.
Certain other claims on behalf of public and private institutional investors have been threatened against RBS in connection with various mortgage-related offerings. RBS cannot predict whether any of these threatened claims will be pursued, but expects that several may. If such claims are asserted and were successful, the amounts involved may be material.
In many of the securitisation and securities related cases in the US, RBS has or will have contractual claims to indemnification from the issuers of the securities (where an RBS company is underwriter) and/or the underlying mortgage originator (where an RBS company is issuer). The amount and extent of any recovery on an indemnification claim, however, is uncertain and subject to a number of factors, including the ongoing creditworthiness of the indemnifying party a number of whom are or may be insolvent.
Certain members of the Group have been named as defendants in a number of class actions and individual claims filed in the US with respect to the setting of LIBOR and certain other benchmark interest rates. The complaints are substantially similar and allege that certain members of the Group and other panel banks individually and collectively violated various federal laws, including the US commodities and antitrust laws, and state statutory and common law, as well as contracts, by manipulating LIBOR and prices of LIBORbased derivatives in various markets through various means.
Most of the USD LIBOR-related actions in which RBS companies are defendants, including all purported class actions relating to USD LIBOR, have been transferred to a coordinated proceeding in the United States District Court for the Southern District of New York. In the coordinated proceeding, consolidated class action complaints were filed on behalf of (1) exchange-based purchaser plaintiffs, (2) over-the-counter purchaser plaintiffs, and (3) corporate debt purchaser plaintiffs. In orders dated 29 March 2013 and 23 June 2014, the Court dismissed plaintiffs' antitrust claims and claims under RICO (Racketeer Influenced and Corrupt Organizations Act), but declined to dismiss (a) certain Commodities Exchange Act claims on behalf of persons who transacted in Eurodollar futures contracts and options on futures contracts on the Chicago Mercantile Exchange (on the theory that defendants' alleged persistent suppression of USD LIBOR caused loss to plaintiffs), and (b) certain contract and unjust enrichment claims on behalf of over-the-counter purchaser plaintiffs who transacted directly with a defendant. Over 35 other USD LIBOR-related actions involving RBS, including purported class actions on behalf of lenders and mortgage borrowers, are subject to motions to dismiss that are being litigated. Discovery has been stayed in all cases in the coordinated proceeding pending further order from the Court. On 21 January 2015, the U.S. Supreme Court held in Gelboim v. Bank of America Corp. that plaintiffs in the class action on behalf of corporate debt purchasers do not need to wait until there is a final judgment in the coordinated proceeding before they can appeal the dismissal of their antitrust claims to the United States Court of Appeals for the Second Circuit.
Certain members of the Group have also been named as defendants in class actions relating to (i) JPY LIBOR and Euroyen TIBOR (the "Yen action"), (ii) Euribor, and (iii) Swiss Franc LIBOR, all three of which are pending in the United States District Court for the Southern District of New York. On 28 March 2014, the Court in the Yen action dismissed the plaintiffs' antitrust claims, but refused to dismiss their claims under the Commodity Exchange Act for price manipulation.
Details of LIBOR investigations and their outcomes affecting RBS are set out under 'Investigations and reviews' on page 110.
Beginning in September 2014, RBS plc and a number of other financial institutions were named as defendants in several purported class action complaints (now consolidated into one complaint) alleging manipulation of USD ISDAFIX rates, to the detriment of persons who entered into transactions that referenced those rates. The complaints were filed in the United States District Court for the Southern District of New York and contain claims for unjust enrichment and violations of the U.S. antitrust laws and the Commodities Exchange Act. This matter is subject to pre-discovery motions to dismiss some or all of the claims against the defendants.
Certain members of the Group, as well as a number of other financial institutions, are defendants in a consolidated antitrust class action pending in the United States District Court for the Southern District of New York. The plaintiffs generally allege that defendants violated the U.S. antitrust laws by restraining competition in the market for credit default swaps through various means and thereby causing inflated bid-ask spreads for credit default swaps. On 4 September 2014, the Court largely denied the defendants' motion to dismiss this matter.
Certain members of the Group, as well as a number of other financial institutions, are defendants in a consolidated antitrust class action on behalf of U.S. based plaintiffs that is pending in the United States District Court for the Southern District of New York. The plaintiffs in this action allege that the defendants violated the U.S. antitrust laws by conspiring to manipulate the foreign exchange market by manipulating benchmark foreign exchange rates. On 28 January 2015, the court denied the defendants' motion to dismiss this action. On the same day, the court dismissed two similar class action complaints that had been filed on behalf of non-U.S. plaintiffs in Norway and South Korea on the principal ground that such claims are barred by the Foreign Trade Antitrust Improvements Act. On 23 February 2015, an additional class action complaint was filed in the United States District Court for the Southern District of New York on behalf of investors that transacted in exchange-traded foreign exchange futures contracts and/or options on foreign exchange futures contracts. The complaint contains allegations that are substantially similar to those contained in the consolidated antitrust class action, and it asserts both antitrust claims and claims under the Commodities Exchange Act.
In December 2010, Irving Picard, as trustee for the bankruptcy estates of Bernard L. Madoff and Bernard L. Madoff Investment Securities LLC., filed a clawback claim against The Royal Bank of Scotland N.V. (RBS N.V.) in the New York bankruptcy court. The trustee seeks to recover US\$75.8 million in redemptions that RBS N.V. allegedly received from certain Madoff feeder funds and US\$162.1 million that RBS N.V. allegedly received from its swap counterparties at a time when RBS N.V. allegedly 'knew or should have known of Madoff's possible fraud'. The Trustee alleges that those transfers were preferences or fraudulent conveyances under the US bankruptcy code and New York law and he asserts the purported right to claw them back for the benefit of Madoff's estate. A further claim, for US\$21.8 million, was filed in October 2011. This matter is subject to pre-discovery motions to dismiss the claims against RBS N.V..
RBS Securities Inc. and certain other RBS companies, as well as several other financial institutions, are defendants in an adversary proceeding filed in the U.S. bankruptcy court in Maryland by the trustee for TMST, Inc. (formerly known as Thornburg Mortgage, Inc.). The trustee seeks recovery of transfers made under certain restructuring agreements as, among other things, avoidable fraudulent and preferential conveyances and transfers. On 25 September 2014, the Court largely denied the defendants' motion to dismiss this matter and as a result, discovery has commenced.
CPDO claims have been served on RBS N.V. in England, the Netherlands and Australia relating to the sale of a type of structured financial product known as a constant proportion debt obligation (CPDO). In November 2012, the Federal Court of Australia issued a judgment against RBS N.V. and others in one such case holding that RBS N.V. and others committed certain wrongful acts in connection with the rating and sale of the CPDO. In March 2013, RBS N.V. was ordered to pay A\$19.7 million. RBS N.V. appealed this decision and the appeal court found against RBS N.V. in May 2014. The decision is not being further appealed. RBS N.V. made the required payments totalling A\$19.7 million in March and April 2013. The judgment may potentially have significance to the other claims served and to any future similar claims.
RBS is dealing with a large number of active litigation claims in the UK in relation to the sale of interest rate hedging products. In general claimants allege that the relevant interest rate hedge products were mis-sold to them, with some also alleging RBS made misrepresentations in relation to LIBOR. Claims have been brought by customers who are being considered under the UK Financial Conduct Authority (FCA) redress programme, as well as customers who are outside of the scope of that programme. RBS is encouraging those customers that are eligible to seek redress under the FCA redress programme to participate in that programme. RBS remains exposed to potential claims from customers who were either ineligible to be considered for redress or who are dissatisfied with their redress offers.
NatWest is defending a lawsuit filed by a number of United States nationals (or their estates, survivors, or heirs) who were victims of terrorist attacks in Israel. The plaintiffs allege that NatWest is liable for damages arising from those attacks pursuant to the U.S. Antiterrorism Act because NatWest previously maintained bank accounts and transferred funds for the Palestine Relief & Development Fund, an organisation which plaintiffs allege solicited funds for Hamas, the alleged perpetrator of the attacks. On 28 March 2013, the trial court (the United States District Court for the Eastern District of New York) granted summary judgment in favour of NatWest on the issue of scienter, but on 22 September 2014, that summary judgment ruling was vacated by the United States Court of Appeals for the Second Circuit. The appeals court returned the case to the trial court for consideration of NatWest's other asserted grounds for summary judgment and, if necessary, for trial.
On 10 November 2014, RBS N.V. and certain other financial institutions (HSBC, Barclays, Standard Chartered, Credit Suisse, and Bank Saderat) were named as defendants in a complaint filed by a number of United States nationals (or their estates, survivors, or heirs), most of whom are or were United States military personnel, who were killed or injured in more than 70 attacks in Iraq between 2004 and 2011. The attacks were allegedly perpetrated by Hezbollah and certain Iraqi terror cells allegedly funded by the Islamic Republic of Iran. According to the complaint, RBS N.V. and the other defendants are liable for damages arising from the attacks because they allegedly conspired with Iran and certain Iranian banks to assist Iran in transferring money to Hezbollah and the Iraqi terror cells, in violation of the U.S. Antiterrorism Act, by agreeing to engage in "stripping" of transactions initiated by the Iranian banks so that the Iranian nexus to the transactions would not be detected. The defendants will move to dismiss the complaint.
RBS's businesses and financial condition can be affected by the fiscal or other policies and actions of various governmental and regulatory authorities in the United Kingdom, the European Union (EU), the United States and elsewhere. RBS has engaged, and will continue to engage, in discussions with relevant governmental and regulatory authorities, including in the United Kingdom, the EU, the United States and elsewhere, on an ongoing and regular basis regarding operational, systems and control evaluations and issues including those related to compliance with applicable laws and regulations, including consumer protection, competition, anti-bribery, anti-money laundering and sanctions regimes. It is possible that any matters discussed or identified may result in investigatory or other action being taken by governmental and regulatory authorities, increased costs being incurred by RBS, remediation of systems and controls, public or private censure, restriction of RBS's business activities or fines. Any of the events or circumstances mentioned below could have a material adverse effect on RBS, its business, authorisations and licences, reputation, results of operations or the price of securities issued by it.
RBS is co-operating fully with the investigations and reviews described below.
In February 2013, RBS announced settlements with the Financial Services Authority (FSA) in the United Kingdom, the United States Commodity Futures Trading Commission and the United States Department of Justice (DOJ) in relation to investigations into submissions, communications and procedures around the setting of LIBOR. RBS agreed to pay penalties of £87.5 million, US\$325 million and US\$150 million to these authorities respectively to resolve the investigations. As part of the agreement with the DOJ, RBS plc entered into a Deferred Prosecution Agreement in relation to one count of wire fraud relating to Swiss Franc LIBOR and one count for an antitrust violation relating to Yen LIBOR. In addition, on 12 April 2013, RBS Securities Japan Limited entered a plea of guilty to one count of wire fraud relating to Yen LIBOR and on 6 January 2014, the US District Court for the District of Connecticut entered a final judgment in relation to the conviction of RBS Securities Japan Limited pursuant to the plea agreement.
In February 2014, RBS paid settlement penalties of approximately EUR 260 million and EUR 131 million to resolve investigations by the European Commission (EC) into Yen LIBOR competition infringements and EURIBOR competition infringements respectively.
In July 2014, RBS entered into an Enforceable Undertaking with the Australian Securities and Investments Commission (ASIC) in relation to potential misconduct involving the Australian Bank Bill Swap Rate. RBS undertakes in the Enforceable Undertaking to (a) comply with its existing undertakings arising out of the February 2013 settlement with the United States Commodity Futures Trading Commission as they relate to Australian Benchmark Interest Rates, (b) implement remedial measures with respect to its trading in Australian reference bank bills and (c) appoint an independent compliance expert to review and report on RBS's implementation of such remedial measures. The remediation measures include ensuring appropriate records retention, training, communications surveillance and trading reviews are in place. As part of the Enforceable Undertaking, RBS also agreed to make a voluntary contribution of A\$1.6 million to fund independent financial literacy projects in Australia.
On 21 October 2014, the EC announced its findings that RBS and one other financial institution had participated in a bilateral cartel aimed at influencing the Swiss franc LIBOR benchmark interest rate between March 2008 and July 2009. RBS agreed to settle the case with the EC and received full immunity from fines for revealing the existence of the cartel to the EC and co-operating closely with the EC's ongoing investigation. Also on 21 October 2014, the EC announced its findings that RBS and three other financial institutions had participated in a related cartel on bid-ask spreads of Swiss franc interest rate derivatives in the European Economic Area (EEA). Again, RBS received full immunity from fines for revealing the existence of the cartel to the EC and co-operating closely with the EC's ongoing investigation.
RBS 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, and non-deliverable forwards. RBS is providing information and documents to the CFTC and the DOJ as part of an investigation into the setting of USD, EUR and GBP ISDAFIX and related trading activities. RBS is also under investigation by competition authorities in a number of jurisdictions stemming from the actions of certain individuals in the setting of LIBOR and other trading rates, as well as interest raterelated trading. At this stage, RBS cannot estimate reliably what effect, if any, the outcome of these investigations may have on RBS.
In November 2014, RBS plc reached a settlement with the FCA in the United Kingdom and the United States Commodity Futures Trading Commission (CFTC) in relation to investigations into failings in the bank's Foreign Exchange businesses within its Corporate & Institutional Banking (CIB) segment. RBS plc agreed to pay penalties of £217 million to the FCA and \$290 million to the CFTC to resolve the investigations. Payment of the fines was made on 19 November 2014.
As previously disclosed, RBS remains in discussions with other governmental and regulatory authorities on similar issues relating to failings in the Bank's Foreign Exchange business within its CIB segment, including settlement discussions regarding the criminal investigation being conducted by the DOJ and certain other financial regulatory authorities. The timing and amounts of any further settlements and related litigation risks and consequences remain uncertain and could be material.
On 21 July 2014, the Serious Fraud Office announced that it was launching a criminal investigation into allegations of fraudulent conduct in the foreign exchange market, apparently involving multiple financial institutions.
In June 2012, RBS was affected by a technology incident, as a result of which the processing of certain customer accounts and payments were subject to considerable delay. RBS agreed to reimburse customers for any loss suffered as a result of the incident and RBS made a provision of £175 million in 2012.
In April 2013, the FCA announced that it had commenced an enforcement investigation into the incident. This was a joint investigation conducted by the FCA together with the UK Prudential Regulation Authority (PRA). Enforcement proceedings were then commenced. On 20 November 2014, RBS announced that it had reached agreement with the FCA and the PRA over failings in relation to the incident. RBS agreed a penalty of £42 million with the FCA and £14 million with the PRA. Separately the Central Bank of Ireland initiated an investigation and issued enforcement proceedings against Ulster Bank Ireland Limited (UBIL), an RBS company. On 12 November 2014, the Central Bank of Ireland announced that it had fined UBIL EUR3.5 million in relation to its investigation.
In June 2012, following an industry wide review, the FSA announced that RBS and other UK banks had agreed to a redress exercise and past business review in relation to the sale of interest rate hedging products to some small and medium sized businesses who were classified as retail clients or private customers under FSA rules. In January 2013 the FSA issued a report outlining the principles to which it wished RBS and other UK banks to adhere in conducting the review and redress exercise. This exercise is being scrutinised by an independent reviewer, who is reviewing and approving all redress outcomes, and the FCA is overseeing this. RBS has reached agreement with the independent reviewer in relation to redress outcomes for in scope customers. RBS and the independent reviewer are now focussing on customer responses to review outcomes, securing acceptance of offers and assessing ancillary issues such as consequential loss claims. The FCA has announced that the review and redress exercise will be closed to new entrants on 31 March 2015.
The Central Bank of Ireland also requested UBIL, along with a number of Irish banks, to undertake a similar exercise and past business review in relation to the sale of interest rate hedging products to retail designated small and medium sized businesses in the Republic of Ireland. RBS also agreed to undertake a similar exercise and past business review in respect of relevant customers of RBS International. The review of the sale of interest rate hedging products to eligible RBS International customers is complete, and the review of the sale of interest rate hedging products to eligible Republic of Ireland customers is expected to be completed during Q1 2015.
RBS has made provisions in relation to the above redress exercises totalling £1.4 billion to date for these matters, including £0.2 billion in 2014, of which £1 billion had been utilised at 31 December 2014.
In February 2013, the FSA announced the results of a mystery shopping review it undertook into the investment advice offered by banks and building societies to retail clients. As a result of that review the FSA announced that firms involved were cooperative and agreed to take immediate action. RBS was one of the firms involved.
The action required included a review of the training provided to advisers, considering whether changes are necessary to advice processes and controls for new business, and undertaking a past business review to identify any historic poor advice (and where breaches of regulatory requirements are identified, to put this right for customers).
Subsequent to the FSA announcing the results of its mystery shopping review, the FCA has required RBS to carry out a past business review and customer contact exercise on a sample of historic customers that received investment advice on certain lump sum products through the UK Financial Planning channel of the Personal & Business Banking (PBB) segment of RBS, which includes RBS plc and NatWest, during the period from March 2012 until December 2012. This review is being conducted under section 166 of the Financial Services and Markets Act, under which a skilled person has been appointed to carry out the exercise. Redress is currently being offered to certain customers in this sample group. In addition, RBS has agreed with the FCA that it will carry out a remediation exercise, for a specific customer segment who were sold a particular structured product, in response to concerns raised by the FCA with regard to (a) the target market for the product and (b) how the product may have been described to customers by certain advisers. A pilot customer communications exercise to certain cohorts of customers was undertaken between November 2014 and January 2015 with a further communication exercise to the remaining cohorts due to be completed by mid 2015.
In August 2013, the FCA announced that Card Protection Plan Limited and 13 banks and credit card issuers, including RBS, had agreed to a compensation scheme in relation to the sale of card and/or identity protection insurance to certain retail customers. The closing date before which any claims under the compensation scheme must have been submitted has now passed and only exceptional cases will be dealt with prior to a final closure date for the scheme of 28 February 2015. RBS has made appropriate provision based on its estimate of ultimate exposure.
As a result of an uplift in packaged account complaints, RBS has proactively put in place dedicated resource to investigate and resolve complaints on an individual basis.
In November 2013, a report by Lawrence Tomlinson, entrepreneur in residence at the UK Government's Department for Business Innovation and Skills, was published (Tomlinson Report). The Tomlinson Report was critical of RBS's Global Restructuring Group's treatment of SMEs. The Tomlinson Report was passed to the PRA and FCA. Shortly thereafter, the FCA announced that an independent skilled person would be appointed under Section 166 of the Financial Services and Markets Act to review the allegations in the Tomlinson Report. On 17 January 2014, Promontory Financial Group and Mazars were appointed as the skilled person. RBS is fully cooperating with the FCA in its investigation.
Separately, in November 2013 RBS instructed the law firm Clifford Chance to conduct an independent review of the principal allegation made in the Tomlinson Report: RBS's Global Restructuring Group was alleged to be culpable of systematic and institutional behaviour in artificially distressing otherwise viable businesses and through that putting businesses into insolvency. Clifford Chance published its report on 17 April 2014 and concluded that there was no evidence to support the principal allegation.
A separate independent review of the principal allegation, led by Mason Hayes & Curran, Solicitors, was conducted in the Republic of Ireland. The report was published in December 2014 and found no evidence to support the principal allegation.
On 11 September 2014, the Court of Justice upheld earlier decisions by the EU Commission and the General Court that MasterCard's multilateral interchange fee (MIF) arrangements for cross border payment card transactions with MasterCard and Maestro branded consumer credit and debit cards in the EEA are in breach of competition law.
In April 2013, the EC announced it was opening a new investigation into interchange fees payable in respect of payments made in the EEA by MasterCard cardholders from non-EEA countries.
In May 2013, the EC announced it had reached an agreement with Visa regarding immediate cross border credit card MIF rates. This agreement has now been market tested and was made legally binding on 26 February 2014. The agreement is to last for four years.
In addition, the EC has proposed a draft regulation on interchange fees for card payments. The draft regulation is subject to a consultation process, prior to being finalised and enacted. It is currently expected that the regulation will be enacted during the first half of 2015. The current draft regulation proposes the capping of both cross-border and domestic MIF rates for debit and credit consumer cards. The draft regulation also sets out other proposals for reform including to the Honour All Cards Rule so merchants will be required to accept all cards with the same level of MIF but not cards with different MIF levels.
In the UK, the Office of Fair Trading (OFT) had previously opened investigations into domestic interchange fees applicable in respect of Visa and MasterCard consumer and commercial credit and debit card transactions. On 4 November 2014, the successor body to the OFT, the Competition & Markets Authority (CMA), announced that it would not proceed with its investigations. The CMA took this decision primarily based on the expected implementation of the draft EC regulation on interchange fees for card payments, coupled with some commitments made by Visa and MasterCard around its implementation in the UK. Whilst not currently proceeding, the CMA's investigations do formally remain open and CMA has noted that, if the EC regulation on interchange fees did not address its concerns, it would then look again at continuing with its investigations.
The outcomes of these ongoing investigations, proceedings and proposed regulation are not yet known, but they may have a material adverse effect on the structure and operation of four party card payment schemes in general and, therefore, on RBS's business in this sector.
Since 2011, RBS has been implementing a policy statement agreed with the FCA for the handling of complaints about the mis-selling of Payment Protection Insurance (PPI). RBS has made provisions totalling £3.7 billion to date for this matter, including £0.7 billion in 2014, of which £2.9 billion has been utilised at 31 December 2014.
Since initiating an inquiry into retail banking in the EU in 2005, the EC continues to keep retail banking under review. In late 2010 the EC launched an initiative pressing for greater transparency of bank fees and is currently proposing to legislate for increased harmonisation of terminology across Member States. RBS cannot predict the outcome of these actions at this stage.
Following the OFT's publication of a market study report into the Personal Current Account (PCA) market in July 2008, the OFT launched a follow up review of the PCA market in July 2012. This review was intended to consider whether certain initiatives agreed by the OFT with banks in light of the July 2008 report, primarily around transparency, unarranged overdrafts and customers in financial difficulty, had been successful and whether the market should be referred to the Competition Commission (CC) for a fuller market investigation.
The OFT's PCA report following this July 2012 launch was published in January 2013. The OFT acknowledged some specific improvements in the market since its last review but concluded that further changes were required to tackle ongoing concerns, including a lack of switching, the ability of consumers to compare products and the complexity of overdraft charges. The OFT decided not to refer the market to the CC but said that it expected to return to the question of a referral to the CC in 2015, or earlier. The OFT also announced that it would be carrying out behavioural economic research on the way consumers make decisions and engage with retail banking service, and would study the operation of payment systems as well as the SME banking market.
On 11 March 2014, the successor body to the OFT and CC, the CMA, announced that in addition to its pending SME review (see below), it would be undertaking an update of the OFT's 2013 PCA review. On 18 July 2014 the CMA published its preliminary findings in respect of both the PCA and SME market studies. The CMA provisionally decided to make a market investigation reference (MIR) for both the PCA and SME market studies. The provisional decision on both PCAs and SMEs was then subject to a consultation period until 17 September 2014. Following this period of consultation, on 6 November 2014, the CMA made its final decision to proceed with a MIR. The MIR will be a wide-ranging 18-24 month Phase 2 inquiry but at this stage it is not possible to estimate potential impacts on RBS.
The OFT announced its market study on competition in banking for SMEs in England and Wales, Scotland and Northern Ireland on 19 June 2013. Following a consultation on the scope of the market study, the OFT published an update paper on 27 September 2013 setting out its proposed scope. On 11 March 2014, the OFT set out some competition concerns on SME banking and also announced that its successor body, the CMA, would continue the review. As discussed above, the CMA has decided to make a MIR for the SME market study in addition to the PCA study. As regards SMEs, the CMA concluded that it would be more appropriate to make a MIR than accept a set of undertakings in lieu put forward by RBS, Barclays, HSBC and Lloyds. Alongside the MIR, the CMA will also be reviewing the previous undertakings given following the CC's investigation into SME banking in 2002 and whether these undertakings need to be varied. At this stage it is not possible to estimate potential impacts on RBS.
On 9 July 2014, the FCA launched a review of competition in the wholesale sector to identify any areas which may merit further investigation through an in-depth market study.
The initial review was an exploratory exercise and focused primarily on competition in wholesale securities and investment markets, and related activities such as corporate banking. It commenced with a three month consultation exercise, including a call for inputs from stakeholders. Following this consultation period, the FCA published its feedback statement on 19 February 2015. The FCA now intends to undertake a market study into investment and corporate banking (to launch in Spring 2015) and potentially into asset management (to launch late 2015 if undertaken).
RBS is a party to the EC's antitrust investigation into the CDS information market. RBS has received and responded to a Statement of Objections from the EC and continues to co-operate fully with the EC's ongoing investigation. In general terms, the EC has raised concerns that a number of banks, Markit and ISDA may have jointly prevented exchanges from entering the CDS market. At this stage, RBS cannot estimate reliably what effect the outcome of the investigation may have on RBS, which may be material.
In the United States, RBS is involved in reviews, investigations and proceedings (both formal and informal) by federal and state governmental law enforcement and other agencies and self-regulatory organisations, including the DOJ and various other members of the RMBS Working Group of the Financial Fraud Enforcement Task Force relating to, among other things, issuance, underwriting and trading in mortgagebacked securities, collateralised debt obligations (CDOs), and synthetic products. In connection with these inquiries, Group companies have received requests for information and subpoenas seeking information about, among other things, the structuring of CDOs, financing to loan originators, purchase of whole loans, sponsorship and underwriting of securitisations, due diligence, representations and warranties, communications with ratings agencies, disclosure to investors, document deficiencies, trading activities and practices and repurchase requests.
In November 2013, RBS announced that it had settled with the US Securities and Exchange Commission (SEC) over its investigation of RBS Securities Inc. relating to due diligence conducted in connection with a 2007 offering of residential mortgage-backed securities and corresponding disclosures. Pursuant to the settlement, RBS Securities Inc., without admitting or denying the SEC's allegations, consented to the entry of a final judgment ordering certain relief, including an injunction and the payment of approximately US\$153 million in disgorgement, penalties, and interest. The settlement was subsequently approved by the United States District Court for the District of Connecticut. RBS co-operated fully with the SEC throughout the investigation.
In 2007, the New York State Attorney General issued subpoenas to a wide array of participants in the securitisation and securities industry, focusing on the information underwriters obtained from the independent firms hired to perform due diligence on mortgages. RBS completed its production of documents requested by the New York State Attorney General in 2008, principally producing documents related to loans that were pooled into one securitisation transaction. In May 2011, the New York State Attorney General requested additional information about RBS's mortgage securitisation business and, following the formation of the RMBS Working Group, has focused on the same or similar issues as the other state and federal RMBS Working Group investigations described above. The investigation is ongoing and RBS continues to respond to requests for information.
RBS's CIB business in North America has been a purchaser of non-agency US residential mortgages in the secondary market, and an issuer and underwriter of non-agency residential mortgage-backed securities (RMBS). CIB did not originate or service any US residential mortgages and it was not a significant seller of mortgage loans to government sponsored enterprises (GSEs) (e.g. the Federal National Mortgage Association and the Federal Home Loan Mortgage Association).
In issuing RMBS, CIB generally assigned certain representations and warranties regarding the characteristics of the underlying loans made by the originator of the residential mortgages; however, in some circumstances, CIB made such representations and warranties itself. Where CIB has given those or other representations and warranties (whether relating to underlying loans or otherwise), CIB may be contractually required to repurchase such loans or indemnify certain parties against losses for certain breaches of such representations and warranties. In certain instances where it is required to repurchase loans or related securities, CIB may be able to assert claims against third parties who provided representations or warranties to CIB when selling loans to it, although the ability to recover against such parties is uncertain. Between the start of 2009 and 31 December 2014, CIB received approximately US\$741 million in repurchase demands in respect of loans made primarily from 2005 to 2008 and related securities sold where obligations in respect of contractual representations or warranties were undertaken by CIB. However, repurchase demands presented to CIB are subject to challenge and rebuttal by CIB.
Citizens Financial Group, Inc (Citizens) has not been an issuer or underwriter of non-agency RMBS. However, Citizens is an originator and servicer of residential mortgages, and it routinely sells such mortgage loans in the secondary market and to GSEs. In the context of such sales, Citizens makes certain representations and warranties regarding the characteristics of the underlying loans and, as a result, may be contractually required to repurchase such loans or indemnify certain parties against losses for certain breaches of the representations and warranties concerning the underlying loans. Between the start of 2009 and 31 December 2014, Citizens received US\$257 million in repurchase demands and indemnification payment requests in respect of loans originated primarily since 2003. However, repurchase demands presented to Citizens are subject to challenge and rebuttal by Citizens.
Although there has in recent times been disruption in the ability of certain financial institutions operating in the United States to complete foreclosure proceedings in respect of US mortgage loans in a timely manner or at all (including as a result of interventions by certain states and local governments), to date, Citizens has not been materially impacted by such disruptions and RBS has not ceased making foreclosures.
RBS cannot currently estimate what the ultimate exposure may be with respect to repurchase demands. Furthermore, RBS is unable to estimate the extent to which the matters described above will impact it, and future developments may have an adverse impact on RBS's net assets, operating results or cash flows in any particular period.
The activities of Citizens' two US bank subsidiaries - Citizens Bank, N.A. and Citizens Bank of Pennsylvania - are subject to extensive US laws and regulations concerning unfair or deceptive acts or practices in connection with customer products. Certain of the bank subsidiaries' practices with respect to overdraft protection and other consumer products have not met applicable standards. The bank subsidiaries have implemented and are continuing to implement changes to improve and bring their practices into compliance with regulatory guidance. In April 2013, the bank subsidiaries consented to the issuance of orders by their respective primary federal banking regulators, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) (Consent Orders). In the Consent Orders (which are publicly available and will remain in effect until terminated by the regulators), the bank subsidiaries neither admitted nor denied the regulators' findings that they had engaged in deceptive marketing and implementation of the bank's overdraft protection programme, checking rewards programmes, and stop-payment process for preauthorised recurring electronic fund transfers.
In connection with the Consent Orders, the bank subsidiaries paid a total of US\$10 million in civil monetary penalties. The Consent Orders also require the bank subsidiaries to develop plans to provide restitution to affected customers (the amount of which is anticipated to be approximately US\$8 million), to cease and desist any operations in violation of Section 5 of the Federal Trade Commission Act, and to submit to the regulators periodic written progress reports regarding compliance with the Consent Orders.
In addition, Citizens Bank, N.A. agreed to take certain remedial actions to improve its compliance risk management systems and to create a comprehensive action plan designed to achieve compliance with the relevant Consent Order. Restitution plans have been prepared and submitted for approval, and Citizens Bank, N.A. has submitted for approval and is in the process of implementing its action plan for compliance with the Consent Order, as well as updated policies, procedures and programmes related to its compliance risk management systems. In addition to the above, the bank subsidiaries could face further formal administrative enforcement actions from their federal supervisory agencies, including the assessment of civil monetary penalties and restitution, relating to issues identified by Citizens arising from other consumer products and related practices and policies, and they could face potential civil litigation.
In July 2011, RBS agreed with the Board of Governors of the Federal Reserve System, the New York State Banking Department, the Connecticut Department of Banking, and the Illinois Department of Financial and Professional Regulation to enter into a consent Cease and Desist Order (Governance Order) to address deficiencies related to governance, risk management and compliance systems and controls in RBS plc and RBS N.V. branches. In the Governance Order, RBS agreed to create the following written plans or programmes:
The Governance Order (which is publicly available) identified specific items to be addressed, considered, and included in each proposed plan or programme. RBS also agreed in the Governance Order to adopt and implement the plans and programmes after approval by the regulators, to fully comply with the plans and programmes thereafter, and to submit to the regulators periodic written progress reports regarding compliance with the Governance Order. RBS has created, submitted, and adopted plans and/or programmes to address each of the areas identified above. In connection with RBS's efforts to implement these plans and programmes, it has, among other things, made investments in technology, hired and trained additional personnel, and revised compliance, risk management, and other policies and procedures for RBS's U.S. operations. RBS continues to test the effectiveness of the remediation efforts undertaken by RBS to ensure they are sustainable and meet regulators' expectations. Furthermore, RBS continues to work closely with the regulators in its efforts to fulfil its obligations under the Governance Order, which will remain in effect until terminated by the regulators.
RBS may be subject to formal and informal supervisory actions and may be required by its US banking supervisors to take further actions and implement additional remedial measures with respect to these and additional matters. RBS's activities in the United States may be subject to significant limitations and/or conditions.
In December 2013 RBS and The Royal Bank of Scotland plc agreed a settlement with the Board of Governors of the Federal Reserve System (Fed), the New York State Department of Financial Services (DFS), and the Office of Foreign Assets Control (OFAC) with respect to The Royal Bank of Scotland plc's historical compliance with US economic sanction regulations outside the US. As part of the settlement, RBS and The Royal Bank of Scotland plc entered into a consent Cease and Desist Order with the Fed (US Dollar Processing Order), which remains in effect until terminated by the Fed. The US Dollar Processing Order (which is publicly available) indicated, among other things, that RBS and The Royal Bank of Scotland plc lacked adequate risk management and legal review policies and procedures to ensure that activities conducted outside the United States comply with applicable OFAC regulations. RBS agreed to create an OFAC compliance programme to ensure compliance with OFAC regulations by RBS's global business lines outside of the United States, and to adopt, implement, and comply with the programme. Prior to and in connection with the US Dollar Processing Order, RBS has made investments in technology, hired and trained personnel, and revised compliance, risk management, and other policies and procedures. RBS also agreed in the US Dollar Processing Order (as part of the OFAC compliance programme) to hire an independent consultant to conduct an annual OFAC compliance review of compliance policies and their implementation and an appropriate risk-focused sampling of U.S. dollar payments.
In August 2013, the DOJ announced a programme for Swiss banks (the Programme), to settle the longrunning dispute between the US tax authorities and Switzerland regarding the role of Swiss banks in concealing the assets of US tax payers in offshore accounts. The Programme provides Swiss banks with an opportunity to obtain resolution, through non-prosecution agreements or non-target letters, concerning their status in connection with the DOJ's investigations.
Coutts & Co Ltd, a member of the Group incorporated in Switzerland, notified the DOJ that it intended to participate in the Programme based on the possibility that some of its clients may not have declared their assets in compliance with US tax laws. The Programme required a detailed review of all US related accounts. The results of Coutts & Co Ltd's review were presented to the DOJ in June 2014. Coutts & Co Ltd has now completed the collection of evidence of the tax status of all US related account holders, including those US account holders participating in an offshore voluntary disclosure programme. The results of the review were presented by Coutts to the DOJ on 5 November 2014. Coutts continues to cooperate with the DOJ pursuant to the terms of the Programme. Coutts expects to reach resolution with the DOJ in 2015, under the terms of the Programme. Provision has been made for the estimated liability arising from this programme/review.
A prosecuting authority in Germany is undertaking an investigation into Coutts & Co Ltd in Switzerland, and current and former employees, for alleged aiding and abetting of tax evasion by certain Coutts & Co Ltd clients. Coutts & Co Ltd is cooperating with the authority.
In 2013 the FCA conducted a thematic review of the advice processes across the UK wealth management industry. As a result of this review, Coutts & Co, a member of the Group incorporated in England and Wales, decided to undertake a past business review into the suitability of investment advice provided to its clients. This review is ongoing. Coutts & Co is in the process of contacting clients and redress is being offered in appropriate cases. Provision has been made for the estimated liability arising from this programme/review.
The Enterprise Finance Guarantee (EFG) is a government lending initiative for small businesses with viable business proposals that lack security for conventional lending. RBS has identified a number of instances where it has not properly explained to customers how borrower and guarantor liabilities work under the EFG scheme and will now undertake a review of affected and potentially affected customers to determine whether affected customers should be offered redress. From 2009 to the end of 2014, RBS provided over £940 million of lending under the EFG scheme.
| 2014 | 2013 | |
|---|---|---|
| £m | £m | |
| Assets | ||
| Loans and advances to banks | 24,490 | 24,574 |
| Loans and advances to customers | 299 | 153 |
| Debt securities | 911 | 1,517 |
| Investments in Group undertakings | 54,858 | 54,813 |
| Derivatives | 179 | 164 |
| Prepayments, accrued income and other assets | 193 | 36 |
| Assets of disposal groups | - | 842 |
| Total assets | 80,930 | 82,099 |
| Liabilities | ||
| Deposits by banks | 1,202 | 1,490 |
| Customer accounts | - | 740 |
| Debt securities in issue | 7,510 | 7,015 |
| Derivatives | 30 | 62 |
| Accruals, deferred income and other liabilities | 165 | 49 |
| Subordinated liabilities | 10,708 | 12,426 |
| Total liabilities | 19,615 | 21,782 |
| Owners' equity* | 61,315 | 60,317 |
| Total liabilities and equity | 80,930 | 82,099 |
| *Owners' equity | ||
| Retained earnings | 17,483 | 17,033 |
| Other reserves | 43,832 | 43,284 |
| 61,315 | 60,317 |
On 3 February 2015, Standard & Poor's Rating Services (S+P) downgraded the long term credit rating of The Royal Bank of Scotland Group plc (RBSG plc) to 'BBB-'/'A-3' from 'BBB'+/'A-2'. The long term outlook for RBSG plc was changed to stable from negative, reflecting S&P's view that RBS has made strong progress over the past 12-18 months in executing its restructuring plan. The long term ratings of The Royal Bank of Scotland plc (RBS plc) and certain of its affiliates were placed on CreditWatch with negative implications.
This action was not specific to RBS but reflected S&P's view that extraordinary government support is now unlikely in the case of UK non-operating bank holding companies, and is likely to become less predictable for bank operating companies in the UK under newly enacted legislation that fully implemented the bail-in rules enshrined in the EU's Bank Recovery and Resolution Directive with effect from 1 January 2015.
The long term ratings of Citizens Bank, N.A. and its subsidiary Citizens Bank of Pennsylvania were not impacted as Citizens Bank, N.A. is now considered an insulated subsidiary of RBS plc. Ratings are on a negative outlook.
The ratings for the subordinated, junior subordinated and capital instruments of all RBS entities were also not impacted, as they do not benefit from government support.
| Moody's | S&P | Fitch | |||||
|---|---|---|---|---|---|---|---|
| Long term | Short term | Long term | Short term | Long term | Short term | ||
| The Royal Bank of Scotland Group plc |
Baa2 | P-2 | BBB- | A-3 | A | F1 | |
| The Royal Bank of Scotland plc | Baa1 | P-2 | A- | A-2 | A | F1 | |
| National Westminster Bank Plc | Baa1 | P-2 | A- | A-2 | A | F1 | |
| Royal Bank of Scotland N.V. | Baa1 | P-2 | A- | A-2 | A | F1 | |
| Citizens Bank, N.A. | A3 | P-2 | A- | A-2 | BBB+ | F2 | |
| Citizens Bank of Pennsylvania | A3 | P-2 | A- | A-2 | BBB+ | F2 | |
| RBS Securities Inc. | - | - | A- | A-2 | A- | F1 | |
| Ulster Bank Ltd | Baa3 | P-3 | BBB+ | A-2 | A- | F1 | |
| Ulster Bank Ireland Ltd | Baa3 | P-3 | BBB+ | A-2 | BBB+ | F2 |
Current RBSG plc and subsidiary ratings are shown in the table below:
This announcement was approved by the Board of directors on 25 February 2015.
There have been no significant events between 31 December 2014 and the date of approval of this announcement which would require a change to or additional disclosure in the announcement.
Set out below is a summary of certain risks which could adversely affect the Group; it should be read in conjunction with the Capital and Risk Management Appendix 1. This summary should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties. A fuller description of these and other risk factors is included in Appendix 5.
The level of structural change required to implement the Group's Transformation Plan is likely to be disruptive and increase operational and people risks for the Group. In addition, the Group will incur significant costs in implementing the Transformation Plan and its revenues may also be impacted by lower levels of customer retention and revenue generation following the restructuring of its business and activities. Further, the competitive landscape in which the Group operates is constantly evolving and recent regulatory and legal changes, including ring-fencing, are likely to result in new market participants. These changes, combined with the changes to the Group's structure and business as a result of the implementation of the Transformation Plan, may result in increased competitive pressures on the Group.
Substantial investments are being made in the Group's IT and operational structure through targeted investment and rationalisation programmes as part of the IT and Operational Investment Plan. Any failure by the Group to realise the benefits of this IT and Operational Investment Plan, whether on time or at all, could have a material adverse effect on the Group's business and its ability to retain or grow its customer business and remain competitive.
The responsibility statement below has been prepared in connection with the Group's full Annual Report and Accounts for the year ended 31 December 2014.
We, the directors listed below, confirm that to the best of our knowledge:
By order of the Board
Philip Hampton Ross McEwan Ewen Stevenson Chairman Chief Executive Chief Financial Officer
25 February 2015
Board of directors
Philip Hampton Ross McEwan
Ewen Stevenson
Sandy Crombie Alison Davis Morten Friis Robert Gillespie Penny Hughes Brendan Nelson Baroness Noakes
| 31 December 2014 |
30 September 2014 |
31 December 2013 |
|
|---|---|---|---|
| Ordinary share price | 394.4p | 368.2p | 338.1p |
| Number of ordinary shares in issue | 6,366m | 6,321m | 6,203m |
| Number of equivalent B shares in issue | 5,100m | 5,100m | 5,100m |
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 2013 have been filed with the Registrar of Companies and those for the year ended 31 December 2014 will be filed with the Registrar of Companies following the company's Annual General Meeting. 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.
| 2015 first quarter interim management statement | 30 April 2015 |
|---|---|
| 2015 interim results | 30 July 2015 |
| Presentation of information | 1 |
|---|---|
| General overview and key developments | 2 |
| Capital management | |
| Overview | 5 |
| Capital resources | 6 |
| Leverage exposure | 9 |
| Risk-weighted assets | 10 |
| Liquidity and funding risk | |
| Overview | 14 |
| Liquidity risk | 15 |
| Funding risk | 17 |
| Balance sheet encumbrance | 20 |
| Credit risk | |
| Overview | 23 |
| Financial assets | 24 |
| Loans and related credit metrics | 29 |
| Debt securities | 34 |
| Derivatives | 36 |
| Key loan portfolios | 38 |
| Market risk | |
| Overview | 49 |
| Trading portfolios | 50 |
| Non-trading portfolios | 52 |
| Country risk | |
| Overview | 56 |
| Summary of country exposures | 59 |
The assets of disposal groups are presented as a single line in the consolidated balance sheet as required by IFRS. As allowed by IFRS, exposures, measures and ratios in this Appendix include disposal groups, primarily relating to Citizens Financial Group, on a line-by-line basis. A summary of this presentation is set out in Appendix 2.
RBS's main risks are described in 'Risk and balance sheet management - Risk coverage' in the 2014 Annual Report and Accounts. The table below summarises the key developments during 2014 for these risks.
| Risk type | Overview |
|---|---|
| Capital and leverage Key milestones achieved in 2014 included the sell down of the first tranche of CFG; run down of the RCR and CIB assets; and the sell down of the RBS N.V. AFS portfolio. A £3.1 billion improvement in CET1 capital and a £73 billion reduction in RWAs resulted in the CET1 ratio improving during the year by 260 basis points from 8.6% to 11.2%. Risk reduction strategies contributed to the RWA reduction, £40 billion in CIB and £25 billion in RCR. |
|
| RBS's current Pillar 2A requirement is 3.5% of RWAs at 31 December 2014. From 1 January 2015, 56% of the total Pillar 2A or 2.0% of RWAs will be met from CET1 capital. |
|
| Based on capital that is required to be held to meet the overall financial adequacy rule, including holding current estimates of Pillar 2A constant, RBS estimates that its 'fully phased' CET1 maximum distributable amount (MDA) requirement would be 10.5% in 2019. Assuming a 13% a steady state CET1 capital ratio is achieved, RBS currently estimates that it would have a 2.5% headroom to MDA trigger in 2019. |
|
| A significant reduction of £142 billion or 13% in the leverage exposure to £940 billion and a year on year increase in Tier 1 capital (100% CET1 currently) contributed to an 80 basis points improvement in leverage ratio from 3.4% to 4.2%. Full implementation of the 2014 Basel III leverage ratio framework, particularly on securities financing transactions, also contributed to the leverage exposure reduction. |
|
| Liquidity and funding Liquidity metrics remained strong reflecting balance sheet and risk reduction as well as growth in UK PBB deposits: the liquidity coverage ratio improved to 112%; the net stable funding ratio was 121%; and the liquidity portfolio of £151 billion covered short term and total wholesale funding of £28 billion and £90 billion by more than five and 1.5 times respectively. Based on its assessment of the Financial Stability Board's proposals, RBS may issue £3 - £5 billion per annum of qualifying debt between 2015 - 2019 to meet future total loss absorbing capital requirements. |
|
| Conduct and legal | RBS continued to remediate historical conduct issues, while also restructuring its customer-facing businesses and support functions around the needs of its customers. Actions taken by RBS to address underlying control deficiencies included strengthening significantly the systems and controls governing RBS's LIBOR submissions, and simplifying RBS's retail product offering and sales processes. The conduct risk framework was also further developed, with the embedding of a new Conduct and Regulatory Affairs (C&RA) operating model, and the orientation of C&RA's assurance coverage and testing towards customer outcomes. |
| The impact of conduct issues resulted in litigation and conduct costs remaining high at £2.2 billion in 2014, albeit lower than the £3.8 billion recorded in 2013. |
| Risk type | Overview |
|---|---|
| Credit | RBS's credit risk portfolio continued to improve with an overall reduction in exposure, an improvement in credit quality and a material provision release in 2014. These improvements were driven by supportive economic and market conditions in the UK and Ireland, better liquidity and increased collateral values, and also reflected improvements in credit risk measurement. Balance sheet credit exposure after credit mitigation decreased by 9% to £353 billion and credit RWAs fell by £62 billion or 17% to £295 billion primarily reflecting risk reduction and RCR disposal strategy. The wind down of CIB's US asset-backed products business contributed to a £13 billion decrease in asset-backed securities, now at £25 billion, an £86 billion reduction on the 2008 peak of £111 billion. |
| Impairment provisions of £18.0 billion, down £7.2 billion, covered risk elements in lending of £28.2 billion, down £11.2 billion, by 64%. Commercial real estate lending fell by £9.3 billion to £43.3 billion, of which £13.3 billion was in REIL with a provision coverage of 68%. Favourable market conditions, particularly in Ireland, resulted in impairment releases of £3.6 billion more than offsetting new impairment charges of £2.4 billion. This lead to a net release of £1.2 billion, of which £1.3 billion was in RCR and £0.4 billion in Ulster Bank, partly offset by net impairment charges of £0.3 billion in UK PBB and £0.2 billion in CFG. |
|
| Market | RBS's traded market risk profile decreased significantly, with market risk limits being reduced across all businesses, in some instances by 50-60%. Average trading VaR decreased significantly during the year to £27.8 million, 35% of the 2013 average, reflecting risk reductions in CIB and RCR, as well as the effect of a more comprehensive economic view of risk from the incorporation of credit and funding valuation adjustments in the VaR calculation. Market risk RWAs also decreased by £6.3 billion to £24.0 billion |
| Country | RBS maintained a cautious stance as many clients continued to reduce debt levels. Total eurozone net balance sheet exposure decreased by £5 billion or 5% to £98 billion. Within this amount, eurozone periphery exposures decreased by £10 billion, or 25%, to £31 billion, primarily in Spain reflecting the disposal of legacy liquidity portfolio bonds, and in Ireland and Italy. Total exposure to Greece was £0.4 billion but £120 million after the effect of collateral and guarantees. Limits for Russia and Ukraine were adjusted, additional credit restrictions were placed on new business and exposures were reviewed against international sanctions. |
| Pension | The triennial actuarial funding valuation of the Main scheme was agreed in May 2014 and showed an excess in the value of liabilities over the value of assets of £5.6 billion at 31 March 2013; a ratio of 82%. In 2014, various pension stress-testing initiatives were undertaken, both on internally defined scenarios and those to meet integrated PRA and European Banking Authority stress testing requirements. |
| Risk type | Overview |
|---|---|
| Operational | RBS's transformation plan is material and complex affecting all business areas and functions simultaneously and so has the potential to increase operational risk profile at least in the short term. Significant investments were made to improve technology resilience for core banking services, operating practices and risk management across the three lines of defence. In particular, enhancements were made to cyber security programmes, mitigating a number of vulnerabilities. |
| Regulatory | The level of regulatory risk remains high as policymakers and regulators continue to strengthen regulations and supervision in response to the events of 2007 and 2008. RBS will in future focus CIB's business model on its leading positions in UK rates, debt capital markets and foreign exchange; this will leave RBS well-placed to implement the ring-fencing requirements, in 2019. |
| Reputational | The most material threat to RBS's reputation continued to originate from historical and more recent conduct deficiencies. RBS has been the subject of investigations and review by a number of regulators, some of which have resulted in fines and public censure. |
| Business | RBS reduced its business risk profile as it curtailed riskier activities in CIB, made disposals through RCR, and announced an intensified cost management programme. |
| Strategic | In early 2014, RBS announced the results of a strategic review with a defined plan to shift the business mix towards the UK and the retail and commercial banking segments, with the aim of a lower risk profile. The year saw good progress, with results in general exceeding targets and run-down or sell-off of non-core assets ahead of schedule. Capital ratios increased considerably, a significant step towards targeted levels of financial strength which, when attained, will provide RBS with more strategic options. However, RBS continued to work through the impact of tougher regulatory regime on banks. |
RBS aims to maintain an appropriate level of capital to meet its business needs and regulatory requirements, and operates within an agreed risk appetite. The appropriate level of capital is determined based on the dual aims of: (i) meeting minimum regulatory capital requirements; and (ii) ensuring RBS maintains sufficient capital to uphold customer, investor and rating agency confidence in the organisation, thereby supporting its business franchises and funding capacity.
RBS's current Pillar 2A requirement is 3.5% of RWAs at 31 December 2014. From 1 January 2015, 56% of the total Pillar 2A or 2.0% of RWAs is required to be met from CET1 capital. Pillar 2A is a point in time assessment of the amount of capital that is required to be held to meet the overall financial adequacy rules. The PRA assessment may change over time, including as a result of at least an annual assessment and supervisory review of RBS's Internal Capital Adequacy Assessment Process.
RBS's capital risk appetite framework, which informs its capital targets, includes consideration of the MDA requirements. These requirements are expected to be phased in from 2016, with full implementation by 2019.
Based on current capital requirements, including holding current estimates of Pillar 2A constant for illustrative purposes, RBS estimates that its 'fully phased' CET1 MDA requirement would be 10.5% in 2019, assuming RBS's current risk profile. It should be noted that this estimate does not reflect the anticipated impact of RBS's planned restructuring and balance sheet risk reduction programmes, changes in the regulatory framework or other factors that could impact target CET1 ratios. This estimated MDA requirement comprises:
Based on the assumptions above, assuming a 13% steady state CET1 capital ratio is achieved, RBS currently estimates that it would have headroom of 2.5% to fully phased MDA trigger in 2019. This headroom will be subject to ongoing review to accommodate regulatory and other changes.
| End-point CRR (1) | PRA transitional basis (1) | ||||||
|---|---|---|---|---|---|---|---|
| 31 December 30 September | 31 December | 31 December 30 September | 31 December | ||||
| 2014 | 2014 | 2013 (2) | 2014 | 2014 | 2013 (2) | ||
| £m | £m | £m | £m | £m | £m | ||
| Shareholders' equity (excluding | |||||||
| non-controlling interests) | |||||||
| Shareholders' equity | 57,246 | 62,091 | 58,742 | 57,246 | 62,091 | 58,742 | |
| Preference shares - equity | (4,313) | (4,313) | (4,313) | (4,313) | (4,313) | (4,313) | |
| Other equity instruments | (784) | (979) | (979) | (784) | (979) | (979) | |
| 52,149 | 56,799 | 53,450 | 52,149 | 56,799 | 53,450 | ||
| Regulatory adjustments and deductions | |||||||
| Own credit | 500 | 616 | 601 | 500 | 616 | 601 | |
| Defined benefit pension fund | |||||||
| adjustment | (238) | (198) | (172) | (238) | (198) | (172) | |
| Cash flow hedging reserve | (1,029) | (291) | 84 | (1,029) | (291) | 84 | |
| Deferred tax assets | (1,222) | (1,565) | (2,260) | (1,222) | (1,565) | (2,260) | |
| Prudential valuation adjustments | (384) | (438) | (781) | (384) | (438) | (781) | |
| Goodwill and other intangible assets | (7,781) | (12,454) | (12,368) | (7,781) | (12,454) | (12,368) | |
| Expected losses less impairments | (1,491) | (1,596) | (1,731) | (1,491) | (1,596) | (1,731) | |
| Other regulatory adjustments | (585) | 353 | (55) | (855) | 215 | (55) | |
| (12,230) | (15,573) | (16,682) | (12,500) | (15,711) | (16,682) | ||
| CET1 capital | 39,919 | 41,226 | 36,768 | 39,649 | 41,088 | 36,768 | |
| Additional Tier 1 (AT1) capital | |||||||
| Qualifying instruments and related | |||||||
| share premium subject to phase out | - | - | - | 5,820 | 5,820 | 5,831 | |
| Qualifying instruments issued by | |||||||
| subsidiaries and held by third parties | - | - | - | 1,648 | 1,665 | 1,749 | |
| AT1 capital | - | - | - | 7,468 | 7,485 | 7,580 | |
| Tier 1 capital | 39,919 | 41,226 | 36,768 | 47,117 | 48,573 | 44,348 | |
| Qualifying Tier 2 capital | |||||||
| Qualifying instruments and related | |||||||
| share premium | 5,542 | 5,361 | 3,582 | 6,136 | 5,956 | 4,431 | |
| Qualifying instruments issued by | |||||||
| subsidiaries and held by third parties | 3,175 | 3,454 | 5,151 | 7,490 | 7,705 | 9,374 | |
| Tier 2 capital | 8,717 | 8,815 | 8,733 | 13,626 | 13,661 | 13,805 | |
| Total regulatory capital | 48,636 | 50,041 | 45,501 | 60,743 | 62,234 | 58,153 |
Notes:
(1) Capital Requirements Regulation (CRR) as implemented by the Prudential Regulation Authority in the UK, with effect from 1 January 2014. All regulatory adjustments and deductions to CET1 have been applied in full for the end-point CRR basis with the exception of unrealised gains on AFS securities which has been included from 2015 for the PRA transitional basis.
(2) Estimated.
The table below analyses the movement in end-point CRR CET1 and Tier 2 capital for the year.
| CET1 | Tier 2 | Total | |
|---|---|---|---|
| £m | £m | £m | |
| At 1 January 2014 | 36,768 | 8,733 | 45,501 |
| Loss for the year including reclassification of CFG, net of movements in fair value of own credit | (3,571) | - | (3,571) |
| Share capital and reserve movements in respect of employee share schemes | 205 | - | 205 |
| Ordinary shares issued | 300 | - | 300 |
| Foreign exchange reserve | (208) | - | (208) |
| AFS reserves | 607 | - | 607 |
| Decrease in goodwill and intangibles deduction | 4,032 | - | 4,032 |
| Deferred tax assets (DTA) | 1,038 | - | 1,038 |
| Prudential valuation adjustments (PVA) | 397 | - | 397 |
| Excess of expected loss over impairment provisions (EL-P) | 240 | - | 240 |
| Dated subordinated debt issues | - | 2,159 | 2,159 |
| Net dated subordinated debt/grandfathered instruments | - | (1,537) | (1,537) |
| Foreign exchange movements | - | (638) | (638) |
| Other movements | 111 | - | 111 |
| At 31 December 2014 | 39,919 | 8,717 | 48,636 |
In accordance with the PRA's Policy Statement PS7/2013 issued in December 2013 on the implementation of CRD IV, all regulatory adjustments and deductions to CET1 have been applied in full (end-point CRR basis) with the exception of unrealised gains on AFS securities which will be included from 2015 (PRA transitional basis).
CRD IV and Basel III impose a minimum CET1 ratio of 4.5%. Further, CET1 requirements will be imposed through buffers in the CRD. There are three buffers that will affect RBS: the capital conservation buffer set at 2.5% of RWAs; the counter-cyclical capital buffer (up to 2.5% of RWAs), which will be calculated as the weighted average of the countercyclical capital buffer rates applied in the countries where RBS has relevant credit exposures; and the highest of Global-Systemically Important Institution (G-SII), Other-Systemically Important Institution (O-SII) or Systemic Risk Buffers set by the supervisory authorities. RBS has been provisionally allocated a G-SII buffer of 1.5%. The regulatory target capital requirements will be phased in through CRR, and are expected to apply in full from 1 January 2019. Until then, using national discretion the PRA can apply a top-up. As set out in the PRA's Supervisory Statement SS3/13, RBS and other major UK banks and building societies are required to maintain a CET1 ratio of 7%, after taking into account certain adjustments set by the PRA.
From 1 January 2015, RBS must meet at least 56% of its Pillar 2A capital requirement with CET1 capital and the balance with Additional Tier 1 and/or Tier 2 capital. The Pillar 2A capital requirement is the additional capital that RBS must hold, in addition to meeting its Pillar 1 requirements in order to comply with the PRA's overall financial adequacy rule.
Measures in relation to end-point CRR basis, including RWAs, are based on the current interpretation, expectations, and understanding, of the CRR requirements, as well as further regulatory clarity and implementation guidance from the UK and EU authorities (end-point CRR basis above). The actual end-point CRR impact may differ when the final technical standards are interpreted and adopted.
The leverage exposure set out on page 27 of the main announcement is based on the revised 2014 Basel III leverage ratio framework. The leverage ratio as originally included in the CRR is aligned with the internationally agreed ratio from January 2015.
Additional analysis of derivative notionals and undrawn commitments, two of the major components outside the balance sheet contributing to the leverage exposure is set out below.
Derivative potential future exposures (PFE) are calculated based on the notional value of the contracts and is dependent on the type of contract. For contracts other than credit derivatives the PFE is based on the type and maturity of the contract after the effect of netting arrangements.
The PFE on credit derivatives is based on add-on factors determined by the asset quality of the referenced instrument. Qualifying credit derivatives attract a PFE add-on of 5% and have reference securities issued by public sector entities, multilateral development banks or other investment grade issuers. Non-qualifying credit derivatives attract a PFE add-on of 10%.
The table below analyses the derivative notionals by maturity for contracts other than credit derivatives and credit derivatives by qualifying and not.
| Credit derivatives | ||||||
|---|---|---|---|---|---|---|
| Derivatives other than credit derivatives | Non- | |||||
| 31 December 2014 | <1 year £bn |
1-5 years £bn |
>5 years £bn |
Qualifying £bn |
qualifying £bn |
Total £bn |
| Interest rate | 11,069 | 10,423 | 5,839 | 27,331 | ||
| Exchange rate | 3,649 | 720 | 306 | 4,675 | ||
| Equity | 42 | 33 | 2 | 77 | ||
| Commodities | 1 | - | - | 1 | ||
| Credit | 99 | 26 | 125 | |||
| Total | 14,761 | 11,176 | 6,147 | 99 | 26 | 32,209 |
| 31 December 2013 | ||||||
| Interest rate | 10,582 | 16,212 | 8,795 | 35,589 | ||
| Exchange rate | 3,261 | 814 | 480 | 4,555 | ||
| Equity | 43 | 35 | 1 | 79 | ||
| Commodities | - | 1 | 1 | 2 | ||
| Credit | 189 | 64 | 253 | |||
| Total | 13,886 | 17,062 | 9,277 | 189 | 64 | 40,478 |
| Ulster | Commercial | Private | Central | ||||||
|---|---|---|---|---|---|---|---|---|---|
| UK PBB | Bank | Banking | Banking | CIB | items | CFG | RCR | Total | |
| 31 December 2014 | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn |
| Unconditionally cancellable items (1) | 3.1 | 0.1 | 1.0 | 0.2 | 2.4 | - | 1.8 | - | 8.6 |
| Items with a 20% CCF | 0.4 | - | 0.7 | 0.1 | 3.2 | - | 0.4 | - | 4.8 |
| Items with a 50% CCF | 4.8 | 1.0 | 9.8 | 1.4 | 36.8 | 1.6 | 7.8 | 0.5 | 63.7 |
| Items with a 100% CCF | 0.1 | 0.3 | 2.2 | 0.8 | 10.2 | 3.9 | 1.5 | 0.3 | 19.3 |
| 8.4 | 1.4 | 13.7 | 2.5 | 52.6 | 5.5 | 11.5 | 0.8 | 96.4 | |
| 31 December 2013 | |||||||||
| Unconditionally cancellable items (1) | 3.1 | 0.2 | 0.4 | 0.1 | 0.7 | - | 1.7 | - | 6.2 |
| Items with a 20% CCF | 0.4 | - | 0.6 | 0.6 | 1.5 | - | 0.2 | - | 3.3 |
| Items with a 50% CCF | 5.8 | 1.0 | 12.5 | 1.0 | 41.9 | 2.7 | 7.1 | 0.7 | 72.7 |
| Items with a 100% CCF | 0.1 | 0.3 | 2.4 | 1.4 | 12.0 | - | 1.6 | 0.2 | 18.0 |
| 9.4 | 1.5 | 15.9 | 3.1 | 56.1 | 2.7 | 10.6 | 0.9 | 100.2 |
Note:
(1) Based on a 10% credit conversion factor.
The table below analyses the movement in credit risk RWAs by key drivers during the year.
| Credit risk | |||||
|---|---|---|---|---|---|
| Non-counterparty £bn |
Counterparty £bn |
Total £bn |
|||
| At 1 January 2014 (Basel 2.5 basis) | 291.1 | 22.3 | 313.4 | ||
| CRR impact | 26.8 | 16.8 | 43.6 | ||
| At 1 January 2014 (CRR basis) | 317.9 | 39.1 | 357.0 | ||
| Foreign exchange movement | 1.5 | - | 1.5 | ||
| Business movements | (21.6) | (13.9) | (35.5) | ||
| Risk parameter changes | (11.7) | - | (11.7) | ||
| Methodology changes | (17.9) | 5.2 | (12.7) | ||
| Model updates | (2.7) | - | (2.7) | ||
| Other changes | (0.8) | - | (0.8) | ||
| At 31 December 2014 (CRR basis) | 264.7 | 30.4 | 295.1 | ||
| Modelled (1) | 163.2 | 26.6 | 189.8 | ||
| Non-modelled | 101.5 | 3.8 | 105.3 | ||
| 264.7 | 30.4 | 295.1 |
The table below analyses movements in market and operational risk RWAs during the year.
| Market risk | Operational | ||||
|---|---|---|---|---|---|
| CIB | Other | Total | risk | Total | |
| £bn | £bn | £bn | £bn | £bn | |
| At 1 January 2014 (Basel 2.5 and CRR bases) | 22.4 | 7.9 | 30.3 | 41.8 | 72.1 |
| Business and market movements | (15.4) | (2.8) | (18.2) | (5.0) | (23.2) |
| Methodology changes | 11.9 | - | 11.9 | - | 11.9 |
| At 31 December 2014 (CRR basis) | 18.9 | 5.1 | 24.0 | 36.8 | 60.8 |
| Modelled (1) | 14.9 | 3.3 | 18.2 | 18.2 | |
| Non-modelled | 4.0 | 1.8 | 5.8 | 36.8 | 42.6 |
| 18.9 | 5.1 | 24.0 | 36.8 | 60.8 |
Note:
(1) Modelled refers to advanced internal ratings (AIRB) basis for non-counterparty credit risk, internal model method (IMM) for counterparty credit risk, and value-at-risk and related models for market risk. These principally relate to CIB (£83 billion) and Commercial Banking (£48 billion).
The table below analyses RWA movements by segment during the year.
| Ulster | Commercial | Private | Central | Non | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Total RWAs | UK PBB £bn |
Bank £bn |
£bn | Banking Banking £bn |
CIB £bn |
items £bn |
CFG £bn |
RCR £bn |
Core £bn |
Total £bn |
| At 31 December 2013 (Basel 2.5 basis) Impact of dissolution of Non-Core and |
51.2 | 30.7 | 65.8 | 12.0 | 120.4 | 20.1 | 56.1 | - | 29.2 | 385.5 |
| creation of RCR | - | (1.9) | (2.7) | - | (10.0) | 0.1 | 2.0 | 41.7 | (29.2) | - |
| CRR impact | (1.5) | (0.6) | (1.6) | - | 36.7 | 3.1 | 2.5 | 5.0 | - | 43.6 |
| At 1 January 2014 (CRR basis) | 49.7 | 28.2 | 61.5 | 12.0 | 147.1 | 23.3 | 60.6 | 46.7 | - | 429.1 |
| Foreign exchange movement | - | (1.1) | - | - | (1.0) | - | 3.6 | - | - | 1.5 |
| Business movements | (0.3) | 0.3 | - | - | (36.8) | (6.1) | 4.2 | (20.0) | - | (58.7) |
| Risk parameter changes (1) | (5.0) | (3.6) | 0.2 | - | - | - | - | (3.3) | - | (11.7) |
| Methodology changes (2) | - | - | 1.7 | (0.2) | (2.0) | - | - | (0.3) | - | (0.8) |
| Model updates (3) | (1.6) | - | 0.6 | - | (0.2) | (0.4) | - | (1.1) | - | (2.7) |
| Other changes | - | - | - | (0.3) | - | (0.5) | - | - | - | (0.8) |
| At 31 December 2014 (CRR basis) | 42.8 | 23.8 | 64.0 | 11.5 | 107.1 | 16.3 | 68.4 | 22.0 | - | 355.9 |
Notes:
(1) Risk parameter changes relate to changes in credit quality metrics of customers and counterparties such as probability of default (PD) and loss given default (LGD). They comprise:
UK PBB and Ulster Bank: primarily reflects recalibration of PD and LGD models reflecting improvements to the UK economy.
RCR: decrease in defaulted assets (£1.0 billion) and internal rating upgrades for certain counterparties (£0.8 billion).
(2) Methodology changes included:
Commercial Banking: revisions to both currency netting and maturity dates for securitisation liquidity facilities.
CIB: £2.0 billion primarily represents inclusion of hedges in the CVA calculation. In addition there were offsetting movements of £11.4 billion reflecting transition of trading book securitisations from credit risk to market risk; and £7.5 billion reflecting reclassification of new CRR related charges, primarily asset value correlation and certain exchange traded derivatives from non-counterparty credit risk to counterparty credit risk.
(3) The following models were updated during the year:
UK PBB: revised retail LGD model. Commercial Banking and RCR: new large corporate PD model.
CIB: reduction due to the impact of EAD model £2.6 billion was offset by the new large corporate PD model.
In relation to RWA density:
The tables below analyse exposure at default (EAD) after credit risk mitigation (CRM), RWAs, and related RWA density (RWAs as a percentage of EAD) by sector cluster. RWAs at 31 December 2014 are under current rules and 31 December 2013 are on a Basel 2.5 basis.
| EAD post CRM (1) | RWAs | RWA density | |||||||
|---|---|---|---|---|---|---|---|---|---|
| AIRB | STD | Total | AIRB | STD | Total | AIRB | STD | Total | |
| 31 December 2014 | £m | £m | £m | £m | £m | £m | % | % | % |
| Sector cluster | |||||||||
| Sovereign | |||||||||
| Central banks | 44,007 | 50,539 | 94,546 | 1,632 | 78 | 1,710 | 4 | - | 2 |
| Central government | 16,373 | 9,944 | 26,317 | 1,775 | 61 | 1,836 | 11 | 1 | 7 |
| Other sovereign | 4,936 | 6,548 | 11,484 | 1,250 | 386 | 1,636 | 25 | 6 | 14 |
| Total sovereign | 65,316 | 67,031 | 132,347 | 4,657 | 525 | 5,182 | 7 | 1 | 4 |
| Financial institutions (FI) | |||||||||
| Banks | 32,777 | 2,081 | 34,858 | 15,089 | 488 | 15,577 | 46 | 23 | 45 |
| Other FI (2) | 41,420 | 22,535 | 63,955 | 15,585 | 9,960 | 25,545 | 38 | 44 | 40 |
| SSPEs (3) | 17,504 | 2,634 | 20,138 | 6,216 | 4,410 | 10,626 | 36 | 167 | 53 |
| Total FI | 91,701 | 27,250 | 118,951 | 36,890 | 14,858 | 51,748 | 40 | 55 | 44 |
| Corporates | |||||||||
| Property | |||||||||
| - UK | 48,081 | 3,463 | 51,544 | 23,736 | 3,390 | 27,126 | 49 | 98 | 53 |
| - Ireland | 7,541 | 31 | 7,572 | 1,283 | 33 | 1,316 | 17 | 106 | 17 |
| - Other Western Europe | 4,625 | 431 | 5,056 | 2,321 | 445 | 2,766 | 50 | 103 | 55 |
| - US | 1,334 | 7,481 | 8,815 | 722 | 7,551 | 8,273 | 54 | 101 | 94 |
| - RoW | 2,048 | 284 | 2,332 | 1,296 | 249 | 1,545 | 63 | 88 | 66 |
| Total property | 63,629 | 11,690 | 75,319 | 29,358 | 11,668 | 41,026 | 46 | 100 | 54 |
| Natural resources | |||||||||
| - Oil and gas | 15,704 | 1,876 | 17,580 | 6,864 | 1,665 | 8,529 | 44 | 89 | 49 |
| - Mining and metals | 3,744 | 635 | 4,379 | 2,602 | 660 | 3,262 | 69 | 104 | 74 |
| - Other | 16,173 | 1,070 | 17,243 | 6,367 | 861 | 7,228 | 39 | 80 | 42 |
| Transport | |||||||||
| - Shipping | 8,332 | 2,571 | 10,903 | 5,790 | 2,575 | 8,365 | 69 | 100 | 77 |
| - Other | 21,268 | 3,297 | 24,565 | 9,176 | 2,865 | 12,041 | 43 | 87 | 49 |
| Manufacturing | 29,450 | 8,430 | 37,880 | 12,673 | 8,257 | 20,930 | 43 | 98 | 55 |
| Retail and leisure | 24,564 | 8,262 | 32,826 | 14,940 | 8,027 | 22,967 | 61 | 97 | 70 |
| Services | 23,489 | 8,426 | 31,915 | 13,327 | 8,350 | 21,677 | 57 | 99 | 68 |
| TMT (4) | 13,555 | 2,790 | 16,345 | 7,079 | 2,806 | 9,885 | 52 | 101 | 60 |
| Total corporates | 219,908 | 49,047 | 268,955 | 108,176 | 47,734 | 155,910 | 49 | 97 | 58 |
| Personal | |||||||||
| Mortgages | |||||||||
| - UK | 113,884 | 7,794 | 121,678 | 10,651 | 3,121 | 13,772 | 9 | 40 | 11 |
| - Ireland | 15,544 | 37 | 15,581 | 13,137 | 18 | 13,155 | 85 | 49 | 84 |
| - Other Western Europe | 193 | 311 | 504 | 16 | 124 | 140 | 8 | 40 | 28 |
| - US | 131 | 21,088 | 21,219 | 10 | 10,352 | 10,362 | 8 | 49 | 49 |
| - RoW | 407 | 589 | 996 | 39 | 232 | 271 | 10 | 39 | 27 |
| Total mortgages | 130,159 | 29,819 | 159,978 | 23,853 | 13,847 | 37,700 | 18 | 46 | 24 |
| Other personal | 31,628 | 15,971 | 47,599 | 13,233 | 11,805 | 25,038 | 42 | 74 | 53 |
| Total personal | 161,787 | 45,790 | 207,577 | 37,086 | 25,652 | 62,738 | 23 | 56 | 30 |
| Other items | 4,465 | 18,363 | 22,828 | 3,012 | 16,580 | 19,592 | 67 | 90 | 86 |
| Total | 543,177 | 207,481 | 750,658 | 189,821 | 105,349 | 295,170 | 35 | 51 | 39 |
For the notes to this table refer to the following page.
| EAD post CRM (1) | RWAs | RWA density | |||||||
|---|---|---|---|---|---|---|---|---|---|
| AIRB | STD | Total | AIRB | STD | Total | AIRB | STD | Total | |
| 31 December 2013 | £m | £m | £m | £m | £m | £m | % | % | % |
| Sector cluster | |||||||||
| Sovereign | |||||||||
| Central banks | 34,809 | 59,351 | 94,160 | 1,289 | 180 | 1,469 | 4 | - | 2 |
| Central government | 17,940 | 8,401 | 26,341 | 2,418 | 30 | 2,448 | 13 | - | 9 |
| Other sovereign | 5,323 | 5,525 | 10,848 | 1,451 | 149 | 1,600 | 27 | 3 | 15 |
| Total sovereign | 58,072 | 73,277 | 131,349 | 5,158 | 359 | 5,517 | 9 | - | 4 |
| Financial institutions (FI) | |||||||||
| Banks | 37,718 | 2,769 | 40,487 | 11,922 | 689 | 12,611 | 32 | 25 | 31 |
| Other FI (2) | 43,460 | 14,033 | 57,493 | 16,391 | 7,940 | 24,331 | 38 | 57 | 42 |
| SSPEs (3) | 21,564 | 2,523 | 24,087 | 5,827 | 2,189 | 8,016 | 27 | 87 | 33 |
| Total FI | 102,742 | 19,325 | 122,067 | 34,140 | 10,818 | 44,958 | 33 | 56 | 37 |
| Corporates | |||||||||
| Property | |||||||||
| - UK | 50,250 | 2,771 | 53,021 | 27,904 | 2,461 | 30,365 | 56 | 89 | 57 |
| - Ireland | 10,338 | 107 | 10,445 | 3,087 | 136 | 3,223 | 30 | 127 | 31 |
| - Other Western Europe | 8,764 | 143 | 8,907 | 4,937 | 130 | 5,067 | 56 | 91 | 57 |
| - US | 1,126 | 6,527 | 7,653 | 600 | 6,272 | 6,872 | 53 | 96 | 90 |
| - RoW | 3,579 | 317 | 3,896 | 2,817 | 253 | 3,070 | 79 | 80 | 79 |
| Total property | 74,057 | 9,865 | 83,922 | 39,345 | 9,252 | 48,597 | 53 | 94 | 58 |
| Natural resources | 29,403 | 2,826 | 32,229 | 15,586 | 2,435 | 18,021 | 53 | 86 | 56 |
| Transport | 31,677 | 3,024 | 34,701 | 21,678 | 2,709 | 24,387 | 68 | 90 | 70 |
| Manufacturing | 24,649 | 7,775 | 32,424 | 13,607 | 7,599 | 21,206 | 55 | 98 | 65 |
| Retail and leisure | 23,974 | 7,744 | 31,718 | 18,302 | 7,591 | 25,893 | 76 | 98 | 82 |
| Services | 22,716 | 8,757 | 31,473 | 15,972 | 8,382 | 24,354 | 70 | 96 | 77 |
| TMT (4) | 13,550 | 2,222 | 15,772 | 8,470 | 2,198 | 10,668 | 63 | 99 | 68 |
| Total corporates | 220,026 | 42,213 | 262,239 | 132,960 | 40,166 | 173,126 | 60 | 95 | 66 |
| Personal | |||||||||
| Mortgages | |||||||||
| - UK | 110,470 | 7,841 | 118,311 | 14,412 | 3,267 | 17,679 | 13 | 42 | 15 |
| - Ireland | 17,148 | 33 | 17,181 | 16,108 | 12 | 16,120 | 94 | 36 | 94 |
| - Other Western Europe | 202 | 507 | 709 | 25 | 202 | 227 | 12 | 40 | 32 |
| - US | 121 | 19,717 | 19,838 | 15 | 9,756 | 9,771 | 12 | 49 | 49 |
| - RoW | 396 | 242 | 638 | 50 | 107 | 157 | 13 | 44 | 25 |
| Total mortgages | 128,337 | 28,340 | 156,677 | 30,610 | 13,344 | 43,954 | 24 | 47 | 28 |
| Other personal | 33,358 | 14,521 | 47,879 | 15,286 | 10,703 | 25,989 | 46 | 74 | 54 |
| Total personal | 161,695 | 42,861 | 204,556 | 45,896 | 24,047 | 69,943 | 28 | 56 | 34 |
| Other items | 4,756 | 19,189 | 23,945 | 4,061 | 15,798 | 19,859 | 85 | 82 | 83 |
| Total | 547,291 | 196,865 | 744,156 | 222,215 | 91,188 | 313,403 | 41 | 46 | 42 |
Notes:
(1) Exposure at default post credit risk mitigation reflects an estimate of the extent to which a bank will be exposed under a specific facility, in the event of the default of a counterparty; AIRB: advanced internal ratings based; STD: standardised.
(2) Non-bank financial institutions, such as US agencies, insurance companies, pension funds, hedge and leverage funds, broker-dealers and non-bank subsidiaries of banks. (3) Securitisation structured purpose entities primarily relate to securitisation related vehicles.
(4) Telecommunications, media and technology.
Liquidity and funding risk is the risk that RBS is unable to meet its financial obligations, including financing wholesale maturities or customer deposit withdrawals, as and when they fall due. The risk arises through the maturity transformation role that banks perform. It is dependent on RBS specific factors such as maturity profile, composition of sources and uses of funding, the quality and size of the liquidity portfolio as well as broader market factors, such as wholesale market conditions alongside depositor and investor behaviour. For a description of the liquidity and funding risk framework, governance and basis of preparation refer to the Risk and balance sheet management section of the 2014 Annual Report and Accounts.
The table below sets out the key liquidity and related metrics monitored by RBS.
| 31 December | 30 September | 31 December | |
|---|---|---|---|
| 2014 | 2014 | 2013 | |
| Liquidity portfolio | £151bn | £143bn | £146bn |
| Stressed outflow coverage (1) | 186% | 182% | 145% |
| Liquidity coverage ratio (LCR) (2) | 112% | 102% | 102% |
| Net stable funding ratio (NSFR) (3) | 121% | 111% | 120% |
Notes:
(1) RBS's liquidity risk appetite is measured by reference to the liquidity portfolio as a percentage of stressed contractual and behavioural outflows under the worst of three severe stress scenarios of a market-wide stress, an idiosyncratic stress and a combination of both in RBS's Individual Liquidity Adequacy Assessment. This assessment is performed in accordance with PRA guidance.
(2) In January 2013, the Basel Committee on Banking Supervision (BCBS) issued its revised final guidance for calculating liquidity coverage ratio with a proposed implementation date of 1 January 2015. Within the EU, the LCR is currently expected to come into effect from the later date of 1 October 2015 on a phased basis, subject to the finalisation of the EU Delegated Act, which RBS expects to replace the current PRA regime. Pending guidance from the PRA, RBS monitors the LCR based on the EU Delegated Act and its internal interpretations of the expected final rules. Consequently RBS's ratio may change over time and may not be comparable with those of other financial institutions.
(3) BCBS issued its final recommendations for the implementation of the net stable funding ratio in October 2014, proposing an implementation date of 1 January 2018. Pending further guidelines from the EU and the PRA, RBS uses the definitions and proposals from the BCBS paper and internal interpretations, to calculate the NSFR. Consequently RBS's ratio may change over time and may not be comparable with those of other financial institutions.
The table below shows RBS's liquidity portfolio by product, liquidity value and carrying value. Liquidity value is lower than carrying value as it is stated after 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 | |||||||||
| UK DLG (1) | CFG | Other | Total | Quarter | Year | |||||
| 31 December 2014 | £m | £m | £m | £m | £m | £m | ||||
| Cash and balances at central banks | 66,409 | 1,368 | 633 | 68,410 | 61,777 | 61,956 | ||||
| Central and local government bonds | ||||||||||
| AAA rated governments | 5,609 | - | 2,289 | 7,898 | 8,729 | 5,935 | ||||
| AA- to AA+ rated governments and US agencies | 6,902 | 9,281 | 1,448 | 17,631 | 16,589 | 12,792 | ||||
| Below AA rated governments | - | - | 100 | 100 | - | - | ||||
| Local government | - | - | 82 | 82 | 79 | 21 | ||||
| 12,511 | 9,281 | 3,919 | 25,711 | 25,397 | 18,748 | |||||
| Primary liquidity | 78,920 | 10,649 | 4,552 | 94,121 | 87,174 | 80,704 | ||||
| Secondary liquidity (2) | 53,055 | 2,290 | 1,189 | 56,534 | 57,582 | 56,017 | ||||
| Total liquidity value | 131,975 | 12,939 | 5,741 | 150,655 | 144,756 | 136,721 | ||||
| Total carrying value | 167,016 | 13,914 | 6,055 | 186,985 |
For the notes to this table refer to the following page.
| Liquidity value | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Period end | Average | ||||||||||
| 31 December 2013 | UK DLG (1) £m |
CFG £m |
Other £m |
Total £m |
Quarter £m |
Year £m |
|||||
| Cash and balances at central banks Central and local government bonds |
71,121 | 824 | 2,417 | 74,362 | 76,242 | 80,933 | |||||
| AAA rated governments and US agencies | 3,320 | - | - | 3,320 | 3,059 | 5,149 | |||||
| AA- to AA+ rated governments | 5,822 | 6,369 | 96 | 12,287 | 13,429 | 12,423 | |||||
| Below AA rated governments | - | - | - | - | - | 151 | |||||
| Local government | - | - | - | - | 7 | 148 | |||||
| 9,142 | 6,369 | 96 | 15,607 | 16,495 | 17,871 | ||||||
| Treasury bills | - | - | - | - | 6 | 395 | |||||
| Primary liquidity | 80,263 | 7,193 | 2,513 | 89,969 | 92,743 | 99,199 | |||||
| Secondary liquidity (2) | 48,718 | 4,968 | 2,411 | 56,097 | 56,869 | 56,589 | |||||
| Total liquidity value | 128,981 | 12,161 | 4,924 | 146,066 | 149,612 | 155,788 | |||||
| Total carrying value | 159,743 | 17,520 | 6,970 | 184,233 |
Notes:
(1) The PRA regulated UK Defined Liquidity Group (UK DLG) comprises the RBS's five licensed deposit taking UK banks: The Royal Bank of Scotland plc, National Westminster Bank Plc, Ulster Bank Limited, Coutts & Company and Adam & Company. In addition, certain of the RBS's significant operating subsidiaries - RBS N.V., Citizens Financial Group Inc. and Ulster Bank Ireland Limited - hold liquidity portfolios of liquid assets that comply with local regulations that may differ from PRA rules. (2) Comprises assets eligible for discounting at the Bank of England and other central banks.
The table below shows the liquidity value of the liquidity portfolio by currency.
| Total liquidity portfolio | GBP £m |
USD £m |
EUR £m |
Other £m |
Total £m |
|---|---|---|---|---|---|
| 31 December 2014 | 93,861 | 40,556 | 16,238 | - | 150,655 |
| 31 December 2013 | 100,849 | 33,365 | 10,364 | 1,488 | 146,066 |
The composition of RBS's balance sheet is a function of the broad array of product offerings and diverse markets served by its businesses. Active management of both asset and liability portfolios is designed to optimise the liquidity profile, while ensuring adequate coverage of all cash requirements under extreme stress conditions.
The table below summarises the key funding metrics.
| 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 |
|
| 31 December 2014 | 27.8 | 53.3 | 90.5 | 116.0 | 15.4 | (13.3) | 2.1 |
| 30 September 2014 | 31.4 | 53.9 | 94.4 | 116.9 | 16.5 | (18.2) | (1.7) |
| 30 June 2014 | 33.6 | 55.1 | 101.6 | 123.1 | 17.7 | (19.3) | (1.6) |
| 31 March 2014 | 31.0 | 50.8 | 101.5 | 121.3 | 15.6 | (18.1) | (2.5) |
| 31 December 2013 | 32.4 | 51.5 | 108.1 | 127.2 | 16.2 | (17.3) | (1.1) |
Notes:
(1) Short-term wholesale funding is funding with a residual maturity of less than one year.
(2) Excludes derivative cash collateral.
(3) Principally short-term balances.
The table below shows RBS's principal funding sources excluding repurchase agreements (repos).
| 31 December 2014 | 31 December 2013 | |||||
|---|---|---|---|---|---|---|
| Short-term | Long-term | Short-term | Long-term | |||
| less than | more than | less than | more than | |||
| 1 year | 1 year | Total | 1 year | 1 year | Total | |
| £m | £m | £m | £m | £m | £m | |
| Deposits by banks | ||||||
| derivative cash collateral | 25,503 | - | 25,503 | 19,086 | - | 19,086 |
| other deposits | 13,137 | 2,294 | 15,431 | 14,553 | 1,690 | 16,243 |
| 38,640 | 2,294 | 40,934 | 33,639 | 1,690 | 35,329 | |
| Debt securities in issue | ||||||
| commercial paper | 625 | - | 625 | 1,583 | - | 1,583 |
| certificates of deposit | 1,695 | 149 | 1,844 | 2,212 | 65 | 2,277 |
| medium-term notes | 7,741 | 29,007 | 36,748 | 10,385 | 36,779 | 47,164 |
| covered bonds | 1,284 | 5,830 | 7,114 | 1,853 | 7,188 | 9,041 |
| securitisations | 10 | 5,564 | 5,574 | 514 | 7,240 | 7,754 |
| 11,355 | 40,550 | 51,905 | 16,547 | 51,272 | 67,819 | |
| Subordinated liabilities | 3,274 | 19,857 | 23,131 | 1,350 | 22,662 | 24,012 |
| Notes issued | 14,629 | 60,407 | 75,036 | 17,897 | 73,934 | 91,831 |
| Wholesale funding | 53,269 | 62,701 | 115,970 | 51,536 | 75,624 | 127,160 |
| Customer deposits | ||||||
| derivative cash collateral (1) | 13,003 | - | 13,003 | 7,082 | - | 7,082 |
| financial institution deposits | 46,359 | 1,422 | 47,781 | 44,621 | 2,265 | 46,886 |
| personal deposits | 185,781 | 6,121 | 191,902 | 183,799 | 8,115 | 191,914 |
| corporate deposits | 159,782 | 2,403 | 162,185 | 167,100 | 4,687 | 171,787 |
| Total customer deposits | 404,925 | 9,946 | 414,871 | 402,602 | 15,067 | 417,669 |
| Total funding excluding repos | 458,194 | 72,647 | 530,841 | 454,138 | 90,691 | 544,829 |
Note:
(1) Cash collateral includes £12,036 million (31 December 2013 - £6,720 million) from financial institutions.
| 31 December 2014 | 31 December 2013 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| GBP | USD | EUR | Other | Total | GBP | USD | EUR | Other | Total | ||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||
| Deposits by banks | 6,501 | 10,869 | 20,715 | 2,849 | 40,934 | 7,418 | 8,337 | 17,004 | 2,570 | 35,329 | |
| Debt securities in issue | |||||||||||
| - commercial paper | - | 73 | 525 | 27 | 625 | 4 | 897 | 682 | - | 1,583 | |
| - certificates of deposit | 910 | 747 | 185 | 2 | 1,844 | 336 | 1,411 | 476 | 54 | 2,277 | |
| - medium-term notes | 4,592 | 11,292 | 16,672 | 4,192 | 36,748 | 6,353 | 11,068 | 23,218 | 6,525 | 47,164 | |
| - covered bonds | 1,090 | - | 6,024 | - | 7,114 | 984 | - | 8,057 | - | 9,041 | |
| - securitisations | 1,245 | 1,895 | 2,434 | - | 5,574 | 1,897 | 2,748 | 3,109 | - | 7,754 | |
| Subordinated liabilities | 1,718 | 13,360 | 6,372 | 1,681 | 23,131 | 1,857 | 10,502 | 8,984 | 2,669 | 24,012 | |
| Wholesale funding | 16,056 | 38,236 | 52,927 | 8,751 | 115,970 | 18,849 | 34,963 | 61,530 | 11,818 | 127,160 | |
| % of wholesale funding | 14% | 33% | 46% | 7% | 100% | 15% | 28% | 48% | 9% | 100% | |
| Customer deposits | 276,039 | 89,068 | 39,526 | 10,238 | 414,871 | 272,304 | 86,727 | 49,116 | 9,522 | 417,669 | |
| Total funding excluding repos 292,095 | 127,304 | 92,453 | 18,989 | 530,841 | 291,153 | 121,690 | 110,646 | 21,340 | 544,829 | ||
| % of total funding | 55% | 24% | 17% | 4% | 100% | 54% | 22% | 20% | 4% | 100% |
The table below analyses repos by counterparty type.
| 31 December | 31 December 2013 |
|
|---|---|---|
| 2014 £m 26,525 28,703 9,354 |
£m | |
| Financial institutions | ||
| - central and other banks | 28,650 | |
| - other financial institutions | 52,945 | |
| Government and corporate | 3,539 | |
| 64,582 | 85,134 |
The table below shows customer loans, deposits, loan:deposit ratios (LDR) and funding surplus/(gap) by reporting segment.
| 31 December 2014 | 31 December 2013 | |||||||
|---|---|---|---|---|---|---|---|---|
| Funding | Funding | |||||||
| Loans (1) | Deposits (2) | LDR surplus/(gap) | Loans (1) | Deposits (2) | LDR | surplus/(gap) | ||
| £m | £m | % | £m | £m | £m | % | £m | |
| UK PBB | 127,244 | 148,658 | 86 | 21,414 | 124,828 | 144,841 | 86 | 20,013 |
| Ulster Bank | 22,008 | 20,561 | 107 | (1,447) | 26,068 | 21,651 | 120 | (4,417) |
| PBB | 149,252 | 169,219 | 88 | 19,967 | 150,896 | 166,492 | 91 | 15,596 |
| Commercial Banking | 85,053 | 86,830 | 98 | 1,777 | 83,454 | 90,883 | 92 | 7,429 |
| Private Banking | 16,523 | 36,105 | 46 | 19,582 | 16,644 | 37,173 | 45 | 20,529 |
| CPB | 101,576 | 122,935 | 83 | 21,359 | 100,098 | 128,056 | 78 | 27,958 |
| CIB | 72,751 | 59,402 | 122 | (13,349) | 68,148 | 64,734 | 105 | (3,414) |
| Central items | 613 | 1,583 | 39 | 970 | 289 | 1,081 | 27 | 792 |
| CFG | 59,606 | 60,550 | 98 | 944 | 50,279 | 55,118 | 91 | 4,839 |
| RCR | 11,003 | 1,182 | nm | (9,821) | n/a | n/a | n/a | n/a |
| Non-Core | n/a | n/a | n/a | n/a | 22,880 | 2,188 | nm | (20,692) |
| 394,801 | 414,871 | 95 | 20,070 | 392,590 | 417,669 | 94 | 25,079 | |
| Of which: Personal | 176,621 | 191,902 | 92 | 15,281 | 172,985 | 191,914 | 90 | 18,929 |
nm = not meaningful
(1) Excludes reverse repo agreements and net of impairment provisions.
(2) Excludes repo agreements.
Customer deposits insured through deposit guarantee schemes totalled £160 billion (31 December 2013 - £161 billion) the more material of them being Financial Services Compensation Scheme £112 billion; US Federal Deposit Insurance Corporation £37 billion and Republic of Ireland's Deposit Guarantee Scheme £7 billion.
RBS's encumbrance ratios are set out below.
| 31 December | 31 December | |
|---|---|---|
| 2014 | 2013 | |
| Encumbrance ratios | % | % |
| Total | 13 | 17 |
| Excluding balances relating to derivatives transactions | 14 | 19 |
| Excluding balances relating to derivative and securities financing transactions | 11 | 11 |
Notes:
| En | mb cu ere |
d a lat ets ss re |
ing to : |
En mb d cu ere |
Un mb d en cu ere |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| De bt riti se cu es |
in is su e |
Ot he r s |
d l ec ure |
iab ilit ies |
To tal |
ts as se as a |
Re ad ily rea |
(3 ) lis ab le |
||||
| Se riti tio cu sa ns |
Co red ve |
Se red cu |
mb d en cu ere |
% of rel d ate |
Liq uid ity |
Ot he r (4 ) |
Ca be ( ) ot nn 5 |
|||||
| d c du its an on |
bo nd s |
De riv ati ve s |
Re p os |
ba lan (1 ) ce s |
(2 ) ts as se |
ts as se |
fol io ort p |
Ot he r |
lis ab le rea |
mb d en cu ere |
To tal |
|
| 31 De mb 20 14 ce er |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
% | £b n |
£b n |
£b n |
£b n |
£b n |
| Ca sh d b ala l ba nks t c tra an nce s a en |
- | - | - | - | 2.4 | 2.4 | 3 | 66 .7 |
6.4 | - | - | 75 .5 |
| Lo nd ad s t o b ks an s a va nce an |
4.6 | 0.3 | 11 .5 |
- | 0.5 | 16 .9 |
68 | 1.7 | 2.1 | 4.1 | - | 24 .8 |
| Lo nd ad s t ust an s a va nce o c om ers |
||||||||||||
| UK sid tia l m ort re en ga ge s - |
12 .0 |
13 .4 |
- | - | - | 25 .4 |
22 | 69 .9 |
10 .2 |
7.7 | 0.1 | 11 3.3 |
| Iris h r ide ntia l m ort es ga ge s - |
8.6 | - | - | - | - | 8.6 | 62 | 0.9 | 4.3 | - | 0.1 | 13 .9 |
| US sid tia l m ort re en ga ge s - |
- | - | - | - | 11 .2 |
11 .2 |
53 | 2.2 | - | 0.7 | 7.0 | 21 .1 |
| UK ed it c ard cr s - |
2.7 | - | - | - | - | 2.7 | 52 | - | 2.3 | 0.2 | - | 5.2 |
| UK l lo pe rso na an s - |
- | - | - | - | - | - | - | - | 6.4 | 2.9 | - | 9.3 |
| oth er - |
6.0 | - | 21 .9 |
- | 1.3 | 29 .2 |
13 | 8.0 | 17 .2 |
11 0.3 |
67 .3 |
23 2.0 |
| Re rch ts ve rse re pu as e a gre em en |
||||||||||||
| nd sto ck bo win a rro g |
- | - | - | - | - | - | - | - | - | - | 64 .7 |
64 .7 |
| De bt ritie se cu s |
- | - | 5.9 | 25 .4 |
5.7 | 37 .0 |
36 | 24 .0 |
39 .7 |
1.2 | - | 10 1.9 |
| Eq uity sh are s |
- | - | 0.3 | 2.6 | - | 2.9 | 47 | - | 2.2 | 0.2 | 0.9 | 6.2 |
| Se ttle nt ba lan me ces |
- | - | - | - | - | - | - | - | - | - | 4.7 | 4.7 |
| De riva tive s |
- | - | - | - | - | - | - | - | - | - | 35 4.0 |
35 4.0 |
| Int ible set an g as s |
- | - | - | - | - | - | - | - | - | - | 8.4 | 8.4 |
| Pro rty lan t a nd uip nt pe , p eq me |
- | - | - | - | 0.4 | 0.4 | 6 | - | - | 4.2 | 2.1 | 6.7 |
| De fer red ta x |
- | - | - | - | - | - | - | - | - | - | 1.5 | 1.5 |
| Pre ts, ed in d o the ts pa ym en ac cru co me an r a sse |
- | - | - | - | - | - | - | - | - | - | 7.6 | 7.6 |
| 33 .9 |
13 .7 |
39 .6 |
28 .0 |
21 .5 |
13 6.7 |
17 3.4 |
90 .8 |
13 1.5 |
51 8.4 |
1 05 0.8 , |
||
| Se ritie eta ine d cu s r |
13 .6 |
|||||||||||
| fol To tal liqu idit ort io y p |
18 7.0 |
|||||||||||
| Lia bili tie d s s ec ure |
||||||||||||
| Int Gr nd liq uid ity ra- ou p - se co ary |
( 13 .1) |
- | - | - | - | ( 13 .1) |
||||||
| Int Gr he ot ra- ou p - r |
( 11 .6 ) |
- | - | - | - | ( 11 .6 ) |
||||||
| ( 6) Th ird rty -pa |
( ) 5.6 |
( ) 7.1 |
( ) 39 .6 |
( ) 64 .6 |
( ) 10 .5 |
( ) 12 7.4 |
||||||
| ( ) 30 .3 |
( ) 7.1 |
( ) 39 .6 |
( ) 64 .6 |
( ) 10 .5 |
( ) 15 2.1 |
For the notes to this table refer to page 22.
| En mb d a ts rel ati to: cu ere sse ng |
En mb d cu ere |
Un en |
mb d cu ere |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| De bt ritie se cu |
s in iss ue |
Ot he r s |
d l iab ec ure |
iliti es |
To tal |
ets ass as a |
Re ad ily rea |
lisa ble ( 3) |
||||
| Se ritis ati cu on s |
Co red ve |
Se red cu |
mb d en cu ere |
% of rel d ate |
Liq uid ity |
Ot he r ( 4) |
Ca be ( 5) ot nn |
|||||
| d c du its an on |
bo nd s |
De riva tive s |
Re po s |
ba lan ces |
ets ( 2) ass |
ets ass |
rtfo lio po |
Ot he r |
lisa ble rea |
mb d en cu ere |
To tal |
|
| 31 De mb 20 13 ce er |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
% | £b n |
£b n |
£b n |
£b n |
£b n |
| Ca sh d b ala l ba nks t c tra an nce s a en |
- | - | - | - | - | - | - | 74 .3 |
8.4 | - | - | 82 .7 |
| Lo nd ad s t o b ks an s a va nce an |
5.8 | 0.5 | 10 .3 |
- | - | 16 .6 |
60 | 0.1 | 10 .9 |
- | - | 27 .6 |
| Lo nd ad s t ust an s a va nce o c om ers |
||||||||||||
| UK sid tia l m ort re en ga ge s - |
14 .6 |
16 .2 |
- | - | - | 30 .8 |
28 | 60 .8 |
18 .6 |
- | - | 110 .2 |
| Iris h r ide ntia l m ort es ga ge s - |
9.3 | - | - | - | 1.2 | 10 .5 |
70 | 0.7 | 3.8 | - | 0.1 | 15 .1 |
| US sid tia l m ort re en ga ge s - |
- | - | - | - | 3.5 | 3.5 | 18 | 9.5 | 6.7 | - | - | 19 .7 |
| UK ed it c ard cr s - |
3.4 | - | - | - | - | 3.4 | 52 | - | 3.1 | - | - | 6.5 |
| UK l lo pe rso na an s - |
3.4 | - | - | - | - | 3.4 | 38 | - | 5.5 | - | - | 8.9 |
| oth er - |
13 .5 |
- | 18 .1 |
- | 0.8 | 32 .4 |
14 | 4.4 | 9.6 | 175 .6 |
10 .2 |
23 2.2 |
| Re rch ts ve rse re pu as e a gre em en |
||||||||||||
| nd sto ck bo win a rro g |
- | - | - | - | - | - | - | - | - | - | 76 .5 |
76 .5 |
| De bt ritie se cu s |
0.9 | - | 5.5 | 55 .6 |
2.7 | 64 .7 |
57 | 17 .0 |
31 .9 |
- | - | 113 .6 |
| Eq uity sh are s |
- | - | 0.5 | 5.3 | - | 5.8 | 66 | - | 3.0 | - | - | 8.8 |
| Se ttle nt ba lan me ces |
- | - | - | - | - | - | - | - | - | - | 5.5 | 5.5 |
| De riva tive s |
- | - | - | - | - | - | - | - | - | - | 28 8.0 |
28 8.0 |
| Int ible set an g as s |
- | - | - | - | - | - | - | - | - | - | 12 .4 |
12 .4 |
| Pro rty lan t a nd uip nt pe , p eq me |
- | - | - | - | 0.4 | 0.4 | 5 | - | - | 7.5 | - | 7.9 |
| De fer red ta x |
- | - | - | - | - | - | - | - | - | - | 3.5 | 3.5 |
| Pre ts, ed in d o the ts pa ym en ac cru co me an r a sse |
- | - | - | - | - | - | - | - | - | - | 8.6 | 8.6 |
| f d As set isp al g s o os rou ps |
- | - | - | - | - | - | - | - | - | - | 0.2 | 0.2 |
| 50 .9 |
16 .7 |
34 .4 |
60 .9 |
8.6 | 17 1.5 |
166 .8 |
10 1.5 |
183 .1 |
40 5.0 |
1 02 7.9 , |
||
| Se ritie eta ine d cu s r |
17 .4 |
|||||||||||
| To tal liqu idit ort fol io y p |
184 .2 |
|||||||||||
| Lia bili tie d s s ec ure |
||||||||||||
| Int Gr nd liq uid ity ra- ou p - se co ary |
( 19 .1) |
- | - | - | - | ( 19 .1) |
||||||
| Int Gr he ot ra- ou p - r |
( 18 .4) |
- | - | - | - | ( 18 .4) |
||||||
| Th ird rty ( 6) -pa |
( 7.8 ) |
( 9.0 ) |
( 42 .7) |
( 85 .1) |
( 6.0 ) |
( 150 .6) |
||||||
| ( 45 .3) |
( 9.0 ) |
( 42 .7) |
( 85 .1) |
( 6.0 ) |
( 188 .1) |
For the notes to this table refer to the following page.
Notes:
(b) Other readily realisable assets: including assets that have been enabled for use with central banks; and unencumbered debt securities.
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. For a description of the bank's credit risk framework, governance, policies and methodologies refer to the Risk and balance sheet management - Credit risk section - of the 2014 Annual Report and Accounts.
The table below analyses financial asset exposures, both gross and net of offset arrangements as well as credit mitigation and enhancement.
| Co | llat l era |
Ex t p os ure p os |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Gr os s |
S IFR |
Ca ing rry |
S No n-I FR |
Re al tat es |
nd ot he e a r |
Cr ed it |
dit itig ati cre m on |
|||
| ex p os ure |
off t ( 1) se |
lue ( 2) va |
off t ( 3 ) se |
Ca sh ( 4) |
Se riti ( 5 cu es |
) Re sid tia l ( 6 ) en |
Co ial ( 6 ) mm erc |
ha t ( 7) en nc em en |
d e nh nt an an ce me |
|
| 31 De mb 20 14 ce er |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
| Ca sh d b ala t c tra l ba nks an nce s a en |
75 .5 |
- | 75 .5 |
- | - | - | - | - | - | 75 .5 |
| Re ve rse re po s |
95 .5 |
( 30 .8 ) |
64 .7 |
( 5.0 ) |
- | ( 59 .7) |
- | - | - | - |
| Le nd ing |
42 3.4 |
( 3.8 ) |
41 9.6 |
( 40 .2) |
( 1.6 ) |
( 4.1 ) |
( 14 9.5 ) |
( 57 .7) |
( 5.8 ) |
16 0.7 |
| De bt ritie se cu s |
10 1.9 |
- | 10 1.9 |
- | - | - | - | - | ( 0.2 ) |
10 1.7 |
| Eq uity sh are s |
6.2 | - | 6.2 | - | - | - | - | - | - | 6.2 |
| De riva tive s |
59 9.4 |
( 24 5.4 ) |
35 4.0 |
( 29 5.3 ) |
( 33 .3 ) |
( 7.0 ) |
- | - | ( 14 .3 ) |
4.1 |
| Se ttle nt ba lan me ces |
6.7 | ( 2.0 ) |
4.7 | - | - | - | - | - | - | 4.7 |
| To tal |
1, 30 8.6 |
( 28 2.0 ) |
1, 02 6.6 |
( 34 0.5 ) |
( 34 .9 ) |
( 70 .8 ) |
( 14 9.5 ) |
( 57 .7) |
( 20 .3 ) |
35 2.9 |
| Sh ort siti po on s |
( 23 .0 ) |
- | ( 23 .0 ) |
- | - | - | - | - | - | ( 23 .0 ) |
| Ne t o f s ho rt p itio os ns |
1, 28 5.6 |
( 28 2.0 ) |
1, 00 3.6 |
( 34 0.5 ) |
( 34 .9 ) |
( 70 .8 ) |
( 14 9.5 ) |
( 57 .7) |
( 20 .3 ) |
32 9.9 |
For the notes to this table refer to the following page.
| Co | llat l era |
Ex st po su re po |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Gr os s |
S IFR |
Ca ing rry |
S No n-I FR |
Re al est ate |
d o the an r |
Cre dit |
dit mit iga tio cre n |
|||
| ex po su re |
off set ( 1) |
lue ( 2) va |
off set ( 3) |
Ca sh ( 4) |
Se ritie s ( 5) cu |
Re sid tia l ( 6) en |
Co ial ( 6) mm erc |
ha nt ( 7) en nce me |
d e nh nt an an ce me |
|
| 31 De mb 20 13 ce er |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
| Ca sh d b ala t c tra l ba nks an nce s a en |
82 .7 |
- | 82 .7 |
- | - | - | - | - | - | 82 .7 |
| Re ve rse re po s |
117 .2 |
( 40 .7) |
76 .5 |
( 11 .4) |
- | ( 65 .0) |
- | - | - | 0.1 |
| Le nd ing |
42 3.6 |
( 3.4 ) |
42 0.2 |
( 37 .2) |
( 1.6 ) |
( 2.7 ) |
( 145 .4) |
( 60 .0) |
( 3.9 ) |
169 .4 |
| De bt ritie se cu s |
113 .6 |
- | 113 .6 |
- | - | - | - | - | ( 1.3 ) |
112 .3 |
| Eq uity sh are s |
8.8 | - | 8.8 | - | - | - | - | - | - | 8.8 |
| De riva tive s |
55 3.7 |
( 26 5.7 ) |
28 8.0 |
( 24 1.3 ) |
( 24 .4) |
( 6.0 ) |
- | - | ( 7.3 ) |
9.0 |
| Se ttle nt ba lan me ces |
8.2 | ( 2.7 ) |
5.5 | ( 0.3 ) |
- | - | - | - | - | 5.2 |
| To tal |
1, 30 7.8 |
( 31 2.5 ) |
99 5.3 |
( 29 0.2 ) |
( 26 .0) |
( 73 .7) |
( 145 .4) |
( 60 .0) |
( 12 .5) |
38 7.5 |
| Sh ort siti po on s |
( 28 .0) |
- | ( 28 .0) |
- | - | - | - | - | - | ( 28 .0) |
| Ne t o f s ho rt p itio os ns |
1, 27 9.8 |
( 31 2.5 ) |
96 7.3 |
( 29 0.2 ) |
( 26 .0) |
( 73 .7) |
( 145 .4) |
( 60 .0) |
( 12 .5) |
35 9.5 |
Notes:
(1) Relates to offset arrangements that comply with IFRS criteria and transactions cleared through and novated to central clearing houses, primarily London Clearing House and US Government Securities Clearing Corporation.
(2) The carrying value on the balance sheet represents the exposure to credit risk by class of financial instrument.
(3) Balance sheet offset reflects the amounts by which RBS's credit risk is reduced through master netting and cash management pooling arrangements. Derivative master netting agreements include cash pledged with counterparties in respect of net derivative liability positions and are included in lending in the table above.
(4) Includes cash collateral pledged by counterparties based on daily mark-to-market movements of net derivative positions with the counterparty.
(5) Securities collateral represent the fair value of securities received from counterparties, mainly relating to reverse repo transactions as part of netting arrangements.
(6) Property valuations are capped at the loan value and reflect the application of haircuts in line with regulatory rules to indexed valuations. Commercial collateral includes ships and plant and equipment collateral.
(7) Credit enhancement comprises credit derivatives (bought protection) and guarantees and reflects notional amounts less fair value and notional amounts respectively.
The table below analyses financial assets, excluding debt securities, and contingent liabilities and commitments by internal asset quality (AQ) ratings. Debt securities are analysed by external ratings and are therefore excluded from the table below and are set out on page 34.
| Lo nd ad an s a va nc es |
|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Ca sh d an |
( Ba nk s |
1) | Cu sto |
me rs |
Se ttle nt me |
||||||||||
| ba lan ce s |
De riv ati ve |
De riv ati ve |
ba lan nd ce s a |
||||||||||||
| at ntr al ce |
Re ve rse |
sh ca |
Ba nk |
Re ve rse |
sh ca |
C tom us er |
oth fin cia l er an |
Co nti t ng en |
|||||||
| ba nk s |
rep os |
llat l co era |
loa ns |
To tal |
rep os |
llat l co era |
loa ns |
To tal |
ts as se |
De riv ati ve s |
Co itm ts mm en |
lia bil itie s |
To tal |
To tal |
|
| 31 De mb 20 14 ce er |
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | % |
| As lity t q se ua |
|||||||||||||||
| b d ( 2) an |
|||||||||||||||
| AQ 1 |
73 87 1 , |
2, 47 9 |
3, 76 5 |
5, 46 3 |
11 70 7 , |
27 00 7 , |
12 52 6 , |
33 91 3 , |
73 44 6 , |
1, 61 0 |
65 63 2 , |
53 24 6 , |
6, 36 4 |
28 5, 87 6 |
24 .7 |
| AQ 2 |
- | 4, 14 3 |
4, 62 5 |
81 8 |
9, 58 6 |
40 0 |
1, 60 2 |
18 07 7 , |
20 07 9 , |
14 6 |
10 0, 22 2 |
17 48 3 , |
3, 06 4 |
15 0, 58 0 |
13 .0 |
| AQ 3 |
1, 43 3 |
2, 53 8 |
1, 34 8 |
3, 04 7 |
6, 93 3 |
8, 66 4 |
4, 33 5 |
29 09 3 , |
42 09 2 , |
46 0 |
12 3, 88 2 |
29 76 8 , |
5, 94 6 |
21 0, 51 4 |
18 .1 |
| AQ 4 |
18 5 |
8, 33 6 |
1, 39 1 |
2, 89 1 |
12 61 8 , |
5, 12 4 |
2, 79 8 |
12 2, 34 9 |
13 0, 27 1 |
85 2 |
49 92 9 , |
56 12 2 , |
5, 82 1 |
25 5, 79 8 |
22 .1 |
| AQ 5 |
- | 2, 07 6 |
22 5 |
57 2 |
2, 87 3 |
1, 90 2 |
52 0 |
72 99 4 , |
75 41 6 , |
43 8 |
10 87 2 , |
35 62 2 , |
2, 50 5 |
12 72 6 7, |
11 .0 |
| AQ 6 |
- | 63 6 |
58 | 10 6 |
80 0 |
42 | 45 | 41 46 8 , |
41 55 5 , |
43 | 1, 11 8 |
13 26 8 , |
1, 22 3 |
58 00 7 , |
5.0 |
| AQ 7 |
- | 50 0 |
90 | 29 2 |
88 2 |
84 8 |
34 | 26 20 3 , |
27 08 5 , |
26 | 1, 14 6 |
6, 99 1 |
93 0 |
37 06 0 , |
3.2 |
| AQ 8 |
5 | - | 1 | 40 | 41 | - | 6 | 6, 38 6 |
6, 39 2 |
12 | 53 3 |
84 8 |
14 9 |
98 0 7, |
0.7 |
| AQ 9 |
- | - | 6 | 32 | 38 | - | 9 | 4, 72 7 |
4, 73 6 |
- | 17 3 |
40 4 |
24 5 |
5, 59 6 |
0.5 |
| AQ 10 |
- | - | - | - | - | - | - | 98 4 |
98 4 |
31 | 48 5 |
1, 13 2 |
55 | 2, 68 7 |
0.2 |
| Pa du st e |
- | - | - | - | - | - | - | 8, 19 6 |
8, 19 6 |
1, 04 9 |
- | - | - | 9, 24 5 |
0.8 |
| Im ire d pa |
- | - | - | 42 | 42 | - | - | 26 53 6 , |
26 53 6 , |
- | - | - | - | 26 57 8 , |
2.3 |
| Im irm isio t p pa en rov n |
- | - | - | ( ) 40 |
( ) 40 |
- | - | ( ) 18 00 0 , |
( ) 18 00 0 , |
- | - | - | - | ( ) 18 04 0 , |
( ) 1.6 |
| 75 49 4 , |
20 70 8 , |
50 11 9 , |
13 26 3 , |
45 48 0 , |
43 98 7 , |
5 21 87 , |
37 2, 92 6 |
43 8, 78 8 |
4, 66 7 |
35 3, 99 2 |
21 4, 88 4 |
26 30 2 1 , |
15 9, 60 7 , |
10 0 |
For the notes to this table refer to the following page.
| Lo nd an s a |
ad va nce s |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Ca sh d an |
Ba nks ( |
1) | Cu sto |
me rs |
Se ttle nt me |
||||||||||
| ba lan ces |
De riva tive |
De riva tive |
ba lan d ces an |
||||||||||||
| at ntr al ce |
Re ve rse |
h cas |
Ba nk |
Re ve rse |
h cas |
Cu sto me r |
oth fin cia l er an |
Co nti t ng en |
|||||||
| ba nks |
rep os |
llat l co era |
loa ns |
To tal |
rep os |
llat l co era |
loa ns |
To tal |
ets ass |
De riva tive s |
Co itm ts mm en |
liab iliti es |
To tal |
To tal |
|
| 31 De mb 20 13 ce er |
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | % |
| ( 2) As set alit ba nd qu y |
|||||||||||||||
| AQ 1 |
80 30 5 , |
5, 88 5 |
2, 04 3 |
6, 03 9 |
13 96 7 , |
30 23 3 , |
10 04 2 , |
34 39 5 , |
74 67 0 , |
2, 70 7 |
71 49 7 , |
64 45 3 , |
6, 73 9 |
31 4, 33 8 |
28 .2 |
| AQ 2 |
1 | 4, 74 4 |
4, 93 0 |
67 2 |
10 34 6 , |
99 6 |
1, 89 9 |
17 69 5 , |
20 59 0 , |
192 | 69 94 9 , |
28 71 7 , |
2, 94 0 |
132 73 5 , |
11 .9 |
| AQ 3 |
1, 87 3 |
2, 164 |
1, 50 2 |
2, 34 7 |
6, 01 3 |
1, 85 7 |
3, 79 6 |
29 36 4 , |
35 01 7 , |
74 6 |
94 67 8 , |
23 126 , |
7, 05 7 |
168 51 0 , |
15 .1 |
| AQ 4 |
47 9 |
9, 86 4 |
1, 45 1 |
7, 03 1 |
18 34 6 , |
10 64 2 , |
1, 89 4 |
99 25 8 , |
11 1, 79 4 |
47 0 |
39 157 , |
40 98 4 , |
4, 43 0 |
21 5, 66 0 |
19 .3 |
| AQ 5 |
- | 1, 77 6 |
41 6 |
66 2 |
2, 85 4 |
5, 40 3 |
29 7 |
77 04 5 , |
82 74 5 , |
71 7 |
8, 82 6 |
33 50 7 , |
2, 08 7 |
130 73 6 , |
11 .7 |
| AQ 6 |
- | 1, 82 3 |
1 | 157 | 1, 98 1 |
82 | 38 | 39 32 4 , |
39 44 4 , |
59 | 1, 48 7 |
14 138 , |
1, 42 6 |
58 53 5 , |
5.3 |
| AQ 7 |
- | 30 1 |
- | 23 7 |
53 8 |
68 4 |
50 | 30 27 9 , |
31 01 3 , |
22 | 97 8 |
7, 43 7 |
91 8 |
40 90 6 , |
3.7 |
| AQ 8 |
3 | - | - | 48 | 48 | - | 10 | 8, 48 2 |
8, 49 2 |
58 | 132 | 1, 183 |
119 | 10 03 5 , |
0.9 |
| AQ 9 |
- | - | - | 34 | 34 | - | 41 | 16 94 4 , |
16 98 5 , |
- | 64 1 |
1, 02 0 |
31 7 |
18 99 7 , |
1.7 |
| AQ 10 |
- | - | - | - | - | - | - | 73 0 |
73 0 |
- | 69 5 |
1, 27 4 |
137 | 2, 83 6 |
0.3 |
| Pa st du e |
- | - | - | - | - | - | - | 9, 06 8 |
9, 06 8 |
62 0 |
- | - | - | 9, 68 8 |
0.9 |
| Im ire d pa |
- | - | - | 70 | 70 | - | - | 37 10 1 , |
37 10 1 , |
- | - | - | - | 37 17 1 , |
3.3 |
| Im irm t p isio pa en rov n |
- | - | - | ( ) 63 |
( ) 63 |
- | - | ( ) 25 162 , |
( ) 25 162 , |
- | - | - | - | ( 5) 25 22 , |
( ) 2.3 |
| 82 66 1 , |
26 55 7 , |
10 34 3 , |
17 23 4 , |
54 134 , |
49 89 7 , |
18 06 7 , |
37 4, 52 3 |
44 2, 48 7 |
5, 59 1 |
28 8, 04 0 |
21 5, 83 9 |
26 170 1 , |
114 92 2 , , |
100 |
Notes:
(1) Excludes items in the course of collection from other banks of £995 million (31 December 2013 - £1,454 million).
(2) The following table details, for illustrative purposes only, the relationship between AQ bands, and external ratings published by S&P. This relationship is established by observing S&P's default study statistics, notably the one year default rates for each S&P rating grade. A degree of judgement is required to relate the PD ranges associated with the master grading scale to these default rates given that, for example, the S&P published default rates do not increase uniformly by grade and the historical default rate is nil for the highest rating categories.
| Ass ual ity ban d et q |
Pro bab ility of def aul t ra nge |
Ind icat ive S& P ra ting |
|
|---|---|---|---|
| AQ 1 |
0% - 0 .034 % |
AAA to A A |
|
| AQ 2 |
0.03 4% - 0 .048 % |
AA | |
| AQ 3 |
0.04 8% - 0 .095 % |
A+ to A |
|
| AQ 4 |
0.09 5% - 0 .38 1% |
A- t o B BB |
|
| AQ 5 |
0.38 1% - 1. 076 % |
BB+ to BB |
|
| AQ 6 |
1.07 6% - 2 .153 % |
BB | |
| AQ 7 |
2.1 53% - 6 .089 % |
B+ to B |
|
| AQ 8 |
9% 2% 6.08 - 1 7.22 |
o C CC B- t + |
|
| AQ 9 |
17.2 22% - 1 00% |
CC C to C |
|
| AQ 10 |
100 % |
D |
The mapping to the S&P ratings is used by RBS as one of several benchmarks for its wholesale portfolios, depending on customer type and the purpose of the benchmark. The mapping is based on all issuer types rated by S&P. It should therefore be considered illustrative and does not, for instance, indicate that exposures reported against S&P ratings either have been or would be assigned those ratings if assessed by S&P. In addition, the relationship is not relevant for retail portfolios, smaller corporate exposures or specialist corporate segments given that S&P does not typically assign ratings to such issuers.
The tables below analyse gross loans and advances (excluding reverse repos) and the related credit metrics by segment.
| Credit metrics | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| REIL as a % | Provisions | ||||||||
| of gross Provisions | as a % of | Impairment | |||||||
| Gross loans to | loans to | as a % | gross loans | charge/ | Amounts | ||||
| Banks | Customers | REIL Provisions | customers | of REIL | to customers | (releases) written-off | |||
| 31 December 2014 | £m | £m | £m | £m | % | % | % | £m | £m |
| UK PBB | 641 | 129,848 | 3,778 | 2,604 | 2.9 | 69 | 2.0 | 268 | 728 |
| Ulster Bank | 1,381 | 24,719 | 4,775 | 2,711 | 19.3 | 57 | 11.0 | (365) | 131 |
| PBB | 2,022 | 154,567 | 8,553 | 5,315 | 5.5 | 62 | 3.4 | (97) | 859 |
| Commercial Banking | 486 | 86,008 | 2,506 | 955 | 2.9 | 38 | 1.1 | 77 | 436 |
| Private Banking | 972 | 16,599 | 226 | 76 | 1.4 | 34 | 0.5 | (5) | 37 |
| CPB | 1,458 | 102,607 | 2,732 | 1,031 | 2.7 | 38 | 1.0 | 72 | 473 |
| CIB | 16,910 | 72,957 | 197 | 206 | 0.3 | 105 | 0.3 | (7) | - |
| Central items | 2,178 | 619 | 7 | 6 | 1.1 | 86 | 1.0 | (12) | 55 |
| CFG | 1,728 | 60,142 | 1,330 | 536 | 2.2 | 40 | 0.9 | 194 | 300 |
| RCR | 516 | 21,909 15,400 | 10,946 | 70.3 | 71 | 50.0 | (1,320) | 3,591 | |
| 24,812 | 412,801 28,219 | 18,040 | 6.8 | 64 | 4.4 | (1,170) | 5,278 | ||
| 31 December 2013 | |||||||||
| UK PBB | 760 | 127,781 | 4,663 | 2,957 | 3.6 | 63 | 2.3 | 497 | 967 |
| Ulster Bank | 591 | 31,446 | 8,466 | 5,378 | 26.9 | 64 | 17.1 | 1,774 | 277 |
| PBB | 1,351 | 159,227 13,129 | 8,335 | 8.2 | 63 | 5.2 | 2,271 | 1,244 | |
| Commercial Banking | 701 | 85,071 | 4,276 | 1,617 | 5.0 | 38 | 1.9 | 652 | 587 |
| Private Banking | 1,531 | 16,764 | 277 | 120 | 1.7 | 43 | 0.7 | 29 | 15 |
| CPB | 2,232 | 101,835 | 4,553 | 1,737 | 4.5 | 38 | 1.7 | 681 | 602 |
| CIB | 20,550 | 69,080 | 1,661 | 976 | 2.4 | 59 | 1.4 | 598 | 360 |
| Central items | 2,670 | 341 | 1 | 66 | 0.3 | nm | 19.4 | 65 | - |
| CFG | 406 | 50,551 | 1,034 | 272 | 2.0 | 26 | 0.5 | 151 | 284 |
| Non-Core | 431 | 36,718 19,014 | 13,839 | 51.8 | 73 | 37.7 | 4,646 | 1,856 | |
| 27,640 | 417,752 39,392 | 25,225 | 9.4 | 64 | 6.0 | 8,412 | 4,346 |
The table below analyses segment loan impairment losses/(releases) by new provisions (gross) and releases and provision by components.
| Impairment losses/(releases) for year ended 31 December 2014 | Impairment provision at 31 December 2014 |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Individual | Collective | Latent | Total | ||||||||
| Gross Releases | Gross Releases | Gross Releases | Gross Releases | Individual | Collective | Latent | |||||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| UK PBB | 13 | - | 330 | (133) | 77 | (19) | 420 | (152) | 14 | 2,319 | 271 |
| Ulster Bank | 8 | (18) | 221 | (251) | 103 | (428) | 332 | (697) | 42 | 2,355 | 314 |
| PBB | 21 | (18) | 551 | (384) | 180 | (447) | 752 | (849) | 56 | 4,674 | 585 |
| Commercial Banking | 224 | (85) | 124 | (103) | 3 | (86) | 351 | (274) | 493 | 366 | 96 |
| Private Banking | 8 | (10) | - | - | 1 | (4) | 9 | (14) | 69 | - | 7 |
| CPB | 232 | (95) | 124 | (103) | 4 | (90) | 360 | (288) | 562 | 366 | 103 |
| CIB | 88 | (63) | - | - | 1 | (33) | 89 | (96) | 110 | - | 96 |
| Central items | 11 | (23) | - | - | - | - | 11 | (23) | 1 | - | 5 |
| CFG | 36 | - | 142 | - | 16 | - | 194 | - | 83 | 157 | 296 |
| RCR | 761 | (1,760) | 220 | (235) | - | (306) | 981 | (2,301) | 10,565 | 150 | 231 |
| Total | 1,149 | (1,959) | 1,037 | (722) | 201 | (876) | 2,387 | (3,557) | 11,377 | 5,347 | 1,316 |
Within the business segments:
Risk elements in lending (REIL) comprise impaired loans and accruing loans past due 90 days or more as to principal or interest. Impaired loans are all loans (including loans subject to forbearance) for which an impairment provision has been established; for collectively assessed loans, impairment loss provisions are not allocated to individual loans and the entire portfolio is included in impaired loans. Accruing loans past due 90 days or more comprise loans past due 90 days where no impairment loss is expected.
| RBS | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| UK | Ulster Commercial | Private | Central | excluding | |||||||
| PBB | Bank | Banking Banking | CIB | items | CFG | RCR | RCR Non-Core | Total | |||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| At 31 December 2013 Non-Core dissolution |
4,663 | 8,466 | 4,276 | 277 | 1,661 | 1 1,034 | 20,378 | - | 19,014 | 39,392 | |
| and RCR creation | 137 | (3,547) | (560) | - | (1,421) | - | 289 | (5,102) 24,116 | (19,014) | - | |
| At 1 January 2014 | 4,800 | 4,919 | 3,716 | 277 | 240 | 1 1,323 | 15,276 24,116 | - | 39,392 | ||
| Currency translation | |||||||||||
| and other adjustments | - | (250) | - | (3) | 1 | 6 | 75 | (171) | (885) | - | (1,056) |
| Additions | 1,353 | 555 | 1,716 | 58 | 100 | - | 335 | 4,117 | 2,951 | - | 7,068 |
| Transfers (1) | (309) | - | 31 | (15) | 4 | - | - | (289) | 29 | - | (260) |
| Transfers to | |||||||||||
| performing book | (326) | (120) | (582) | (3) | (92) | - | - | (1,123) | (337) | - | (1,460) |
| Repayments | |||||||||||
| and disposals | (1,012) | (198) | (1,884) | (51) | (56) | - | (103) | (3,304) (6,883) | - (10,187) | ||
| Amounts written-off | (728) | (131) | (491) | (37) | - | - | (300) | (1,687) (3,591) | - | (5,278) | |
| At 31 December 2014 | 3,778 | 4,775 | 2,506 | 226 | 197 | 7 1,330 | 12,819 15,400 | - | 28,219 |
Note:
(1) Represents transfers between REIL and potential problem loans.
The movement in loan impairment provisions by segment is shown in the table below.
| UK Ulster Commercial | Private | Central | RBS excluding |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| PBB | Bank | Banking Banking | CIB | items | CFG | RCR | RCR Non-Core | Total | |||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| At 31 December 2013 Non-Core dissolution |
2,957 | 5,378 | 1,617 | 120 | 976 | 66 | 272 | 11,386 | - | 13,839 | 25,225 |
| and RCR creation (1) | 150 (1,985) | (306) | - | (766) | - | 246 | (2,661) 16,500 | (13,839) | - | ||
| At 1 January 2014 | 3,107 | 3,393 | 1,311 | 120 | 210 | 66 | 518 | 8,725 16,500 | - | 25,225 | |
| Currency translation | |||||||||||
| and other adjustments | - | (172) | 10 | (1) | 1 | 7 | 21 | (134) | (555) | - | (689) |
| Disposal of subsidiaries | - | - | - | - | - | - | - | - | (6) | - | (6) |
| Amounts written-off | (728) | (131) | (436) | (37) | - | (55) | (300) | (1,687) (3,591) | - | (5,278) | |
| Recoveries of amounts | |||||||||||
| previously written-off | 24 | 23 | 12 | 2 | 2 | - | 103 | 166 | 39 | - | 205 |
| Charged to income | |||||||||||
| statement | |||||||||||
| - continuing operations | 268 | (365) | 77 | (5) | (7) | (12) | - | (44) (1,320) | - | (1,364) | |
| - discontinued operations | - | - | - | - | - | - | 194 | 194 | - | - | 194 |
| Unwind of discount | (67) | (37) | (19) | (3) | - | - | - | (126) | (121) | - | (247) |
| At 31 December 2014 | 2,604 | 2,711 | 955 | 76 | 206 | 6 | 536 | 7,094 10,946 | - | 18,040 | |
| Individually assessed | |||||||||||
| - banks | - | - | - | - | 1 | - | - | 1 | 39 | - | 40 |
| - customers | 14 | 42 | 493 | 69 | 109 | 1 | 83 | 811 10,526 | - | 11,337 | |
| Collectively assessed | 2,319 | 2,355 | 366 | - | - | - | 157 | 5,197 | 150 | - | 5,347 |
| Latent | 271 | 314 | 96 | 7 | 96 | 5 | 296 | 1,085 | 231 | - | 1,316 |
| 2,604 | 2,711 | 955 | 76 | 206 | 6 | 536 | 7,094 10,946 | - | 18,040 |
Note:
(1) Transfers in Non-core dissolution and RCR creation includes amounts in relation to latent.
The tables below analyse gross loans and advances to banks and customers (excluding reverse repos) and related credit metrics by sector and geography (by location of lending office).
| Credit metrics | ||||||||
|---|---|---|---|---|---|---|---|---|
| REIL as a | Provisions | Provisions | Impairment | |||||
| Gross | % of gross | as a % | as a % of | charge/ | Amounts | |||
| 31 December 2014 | loans | REIL Provisions | loans | of REIL | gross loans | (release) | written-off | |
| £m | £m | £m | % | % | % | £m | £m | |
| Central and local government | 9,079 | 1 | 1 | - | 100 | - | (1) | - |
| Finance | 39,611 | 364 | 234 | 0.9 | 64 | 0.6 | (5) | 23 |
| Personal - mortgages | 150,572 | 5,634 | 1,521 | 3.7 | 27 | 1.0 | 36 | 236 |
| - unsecured | 29,155 | 1,964 | 1,585 | 6.7 | 81 | 5.4 | 401 | 737 |
| Property | 51,546 13,021 | 8,918 | 25.3 | 68 | 17.3 | (1,083) | 2,625 | |
| Construction | 5,657 | 971 | 612 | 17.2 | 63 | 10.8 | 76 | 202 |
| of which: CRE | 43,317 13,345 | 9,027 | 30.8 | 68 | 20.8 | (1,067) | 2,750 | |
| Manufacturing | 22,035 | 461 | 322 | 2.1 | 70 | 1.5 | (26) | 188 |
| Finance leases (1) | 14,030 | 156 | 113 | 1.1 | 72 | 0.8 | - | 75 |
| Retail, wholesale and repairs | 18,498 | 956 | 645 | 5.2 | 67 | 3.5 | 106 | 160 |
| Transport and storage | 14,299 | 1,146 | 500 | 8.0 | 44 | 3.5 | 37 | 211 |
| Health, education and leisure | 15,932 | 734 | 366 | 4.6 | 50 | 2.3 | 9 | 349 |
| Hotels and restaurants | 7,969 | 1,094 | 574 | 13.7 | 52 | 7.2 | (40) | 109 |
| Utilities | 4,825 | 156 | 85 | 3.2 | 54 | 1.8 | 16 | 5 |
| Other | 29,593 | 1,519 | 1,208 | 5.1 | 80 | 4.1 | (11) | 349 |
| Latent | - | - | 1,316 | - | - | - | (675) | n/a |
| 412,801 28,177 | 18,000 | 6.8 | 64 | 4.4 | (1,160) | 5,269 | ||
| Geographic regional analysis UK |
||||||||
| - residential mortgages | 113,521 | 1,394 | 191 | 1.2 | 14 | 0.2 | (23) | 76 |
| - personal lending | 15,923 | 1,674 | 1,452 | 10.5 | 87 | 9.1 | 290 | 546 |
| - property | 37,547 | 6,026 | 3,676 | 16.0 | 61 | 9.8 | (221) | 1,917 |
| - construction | 4,098 | 676 | 361 | 16.5 | 53 | 8.8 | (1) | 175 |
| - other | 113,782 | 3,287 | 2,467 | 2.9 | 75 | 2.2 | (146) | 847 |
| 284,871 13,057 | 8,147 | 4.6 | 62 | 2.9 | (101) | 3,561 | ||
| Europe | ||||||||
| - residential mortgages | 15,629 | 3,268 | 1,178 | 20.9 | 36 | 7.5 | (10) | 10 |
| - personal lending | 1,051 | 76 | 66 | 7.2 | 87 | 6.3 | 9 | 66 |
| - property | 8,021 | 6,907 | 5,197 | 86.1 | 75 | 64.8 | (862) | 699 |
| - construction | 1,055 | 289 | 245 | 27.4 | 85 | 23.2 | 78 | 24 |
| - other | 19,104 | 2,860 | 2,361 | 15.0 | 83 | 12.4 | (440) | 561 |
| 44,860 13,400 | 9,047 | 29.9 | 68 | 20.2 | (1,225) | 1,360 | ||
| US | ||||||||
| - residential mortgages | 21,203 | 957 | 150 | 4.5 | 16 | 0.7 | 69 | 150 |
| - personal lending | 11,164 | 195 | 49 | 1.7 | 25 | 0.4 | 102 | 125 |
| - property | 5,332 | 64 | 19 | 1.2 | 30 | 0.4 | 2 | 7 |
| - construction | 413 | 1 | 1 | 0.2 | 100 | 0.2 | - | 1 |
| - other | 31,338 | 200 | 342 | 0.6 | 171 | 1.1 | 1 | 39 |
| 69,450 | 1,417 | 561 | 2.0 | 40 | 0.8 | 174 | 322 | |
| RoW | ||||||||
| - residential mortgages | 219 | 15 | 2 | 6.8 | 13 | 0.9 | - | - |
| - personal lending | 1,017 | 19 | 18 | 1.9 | 95 | 1.8 | - | - |
| - property | 646 | 24 | 26 | 3.7 | 108 | 4.0 | (2) | 2 |
| - construction | 91 | 5 | 5 | 5.5 | 100 | 5.5 | (1) | 2 |
| - other | 11,647 | 240 | 194 | 2.1 | 81 | 1.7 | (5) | 22 |
| 13,620 | 303 | 245 | 2.2 | 81 | 1.8 | (8) | 26 | |
| Customers | 412,801 28,177 | 18,000 | 6.8 | 64 | 4.4 | (1,160) | 5,269 | |
| Banks | 24,812 | 42 | 40 | 0.2 | 95 | 0.2 | (10) | 9 |
| Credit metrics | ||||||||
|---|---|---|---|---|---|---|---|---|
| REIL as a | Provisions | Provisions | Impairment | |||||
| Gross | % of gross | as a % | as a % of | charge/ | Amounts | |||
| 31 December 2013 | loans | REIL | Provisions | loans | of REIL | gross loans | (release) | written-off |
| £m | £m | £m | % | % | % | £m | £m | |
| Central and local government | 8,643 | 2 | 2 | - | 100 | - | 2 | - |
| Finance | 35,948 | 593 | 292 | 1.6 | 49 | 0.8 | 4 | 72 |
| Personal - mortgages | 148,533 | 6,025 | 1,799 | 4.1 | 30 | 1.2 | 392 | 441 |
| - unsecured | 28,160 | 2,417 | 1,909 | 8.6 | 79 | 6.8 | 415 | 861 |
| Property | 62,292 | 20,283 | 13,189 | 32.6 | 65 | 21.2 | 5,130 | 1,642 |
| Construction | 6,331 | 1,334 | 774 | 21.1 | 58 | 12.2 | 291 | 160 |
| of which: CRE | 52,578 | 20,129 | 13,209 | 38.3 | 66 | 25.1 | 5,212 | 1,749 |
| Manufacturing | 21,377 | 742 | 559 | 3.5 | 75 | 2.6 | 195 | 104 |
| Finance leases (1) | 13,587 | 263 | 190 | 1.9 | 72 | 1.4 | 16 | 121 |
| Retail, wholesale and repairs | 19,574 | 1,187 | 783 | 6.1 | 66 | 4.0 | 268 | 128 |
| Transport and storage | 16,697 | 1,491 | 635 | 8.9 | 43 | 3.8 | 487 | 229 |
| Health, education and leisure | 16,084 | 1,324 | 756 | 8.2 | 57 | 4.7 | 359 | 119 |
| Hotels and restaurants | 6,942 | 1,427 | 812 | 20.6 | 57 | 11.7 | 281 | 194 |
| Utilities | 4,960 | 131 | 80 | 2.6 | 61 | 1.6 | 54 | 23 |
| Other | 28,624 | 2,103 | 1,370 | 7.3 | 65 | 4.8 | 489 | 212 |
| Latent | - | - | 2,012 | - | - | - | 44 | - |
| 417,752 | 39,322 | 25,162 | 9.4 | 64 | 6.0 | 8,427 | 4,306 | |
| Geographic regional analysis UK |
||||||||
| - residential mortgages | 110,515 | 1,900 | 319 | 1.7 | 17 | 0.3 | 39 | 180 |
| - personal lending | 17,098 | 2,052 | 1,718 | 12.0 | 84 | 10.0 | 264 | 681 |
| - property | 44,252 | 9,797 | 5,190 | 22.1 | 53 | 11.7 | 2,014 | 950 |
| - construction | 4,691 | 941 | 515 | 20.1 | 55 | 11.0 | 194 | 159 |
| - other | 110,466 | 4,684 | 3,202 | 4.2 | 68 | 2.9 | 1,091 | 537 |
| 287,022 | 19,374 | 10,944 | 6.8 | 56 | 3.8 | 3,602 | 2,507 | |
| Europe | ||||||||
| - residential mortgages | 17,540 | 3,155 | 1,303 | 18.0 | 41 | 7.4 | 195 | 26 |
| - personal lending - property |
1,267 13,177 |
141 10,372 |
129 7,951 |
11.1 78.7 |
91 77 |
10.2 60.3 |
19 3,131 |
26 659 |
| - construction | 979 | 351 | 227 | 35.9 | 65 | 23.2 | 72 | - |
| - other | 22,620 | 4,057 | 3,498 | 17.9 | 86 | 15.5 | 1,012 | 465 |
| 55,583 | 18,076 | 13,108 | 32.5 | 73 | 23.6 | 4,429 | 1,176 | |
| US | ||||||||
| - residential mortgages | 19,901 | 951 | 173 | 4.8 | 18 | 0.9 | 161 | 233 |
| - personal lending | 8,722 | 207 | 45 | 2.4 | 22 | 0.5 | 114 | 151 |
| - property | 4,279 | 85 | 19 | 2.0 | 22 | 0.4 | (11) | 25 |
| - construction | 313 | 34 | 24 | 10.9 | 71 | 7.7 | 25 | 1 |
| - other | 27,887 | 198 | 589 | 0.7 | 297 | 2.1 | 65 | 131 |
| 61,102 | 1,475 | 850 | 2.4 | 58 | 1.4 | 354 | 541 | |
| RoW | ||||||||
| - residential mortgages | 577 | 19 | 4 | 3.3 | 21 | 0.7 | (3) | 2 |
| - personal lending | 1,073 | 17 | 17 | 1.6 | 100 | 1.6 | 18 | 3 |
| - property | 584 | 29 | 29 | 5.0 | 100 | 5.0 | (4) | 8 |
| - construction | 348 | 8 | 8 | 2.3 | 100 | 2.3 | - | - |
| - other | 11,463 | 324 | 202 | 2.8 | 62 | 1.8 | 31 | 69 |
| 14,045 | 397 | 260 | 2.8 | 65 | 1.9 | 42 | 82 | |
| Customers | 417,752 | 39,322 | 25,162 | 9.4 | 64 | 6.0 | 8,427 | 4,306 |
| Banks | 27,640 | 70 | 63 | 0.3 | 90 | 0.2 | (15) | 40 |
Note:
(1) Includes instalment credit.
The table below analyses debt securities by issuer, IFRS measurement classifications and external rating. Ratings are based on the lowest of Standard and Poor's, Moody's and Fitch. US central and local government includes US federal agencies. Financial institutions category includes 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 | ||
| 31 December 2014 | £m | £m | £m | £m | £m | £m | £m | £m |
| Held-for-trading (HFT) | 6,218 | 7,709 | 24,451 | 1,499 | 7,372 | 1,977 | 49,226 | 3,559 |
| Designated as at fair value | - | - | 111 | 2 | 4 | - | 117 | - |
| Available-for-sale (AFS) | 4,747 | 11,011 | 11,058 | 3,404 | 14,585 | 161 | 44,966 | 18,884 |
| Loans and receivables | - | - | - | 185 | 2,774 | 137 | 3,096 | 2,734 |
| Held-to-maturity (HTM) | 4,537 | - | - | - | - | - | 4,537 | - |
| Long positions | 15,502 | 18,720 | 35,620 | 5,090 | 24,735 | 2,275 | 101,942 | 25,177 |
| AAA | - | 6 | 15,533 | 1,319 | 6,086 | 77 | 23,021 | 4,763 |
| AA to AA+ | 15,502 | 18,714 | 9,879 | 283 | 12,215 | 117 | 56,710 | 16,955 |
| A to AA- | - | - | 4,958 | 2,670 | 2,534 | 340 | 10,502 | 688 |
| BBB- to A- | - | - | 4,822 | 277 | 1,184 | 772 | 7,055 | 853 |
| Non-investment grade | - | - | 331 | 61 | 1,247 | 603 | 2,242 | 1,060 |
| Unrated | - | - | 97 | 480 | 1,469 | 366 | 2,412 | 858 |
| 15,502 | 18,720 | 35,620 | 5,090 | 24,735 | 2,275 | 101,942 | 25,177 | |
| Of which US agencies | - | 6,222 | - | - | 10,860 | - | 17,082 | 16,053 |
| Short positions (HFT) | (4,167) | (6,413) | (10,276) | (557) | (674) | (731) | (22,818) | - |
| Available-for-sale | ||||||||
| Gross unrealised gains | 451 | 210 | 541 | 8 | 361 | 6 | 1,577 | 389 |
| Gross unrealised losses | (1) | (117) | (3) | (1) | (158) | (2) | (282) | (257) |
| 31 December 2013 | ||||||||
| Held-for-trading | 6,764 | 10,951 | 22,818 | 1,720 | 12,406 | 1,947 | 56,606 | 10,674 |
| Designated as at fair value | - | - | 104 | - | 17 | 1 | 122 | 15 |
| Available-for-sale | 6,436 | 12,880 | 10,303 | 5,974 | 17,330 | 184 | 53,107 | 24,174 |
| Loans and receivables | 10 | 1 | - | 175 | 3,466 | 136 | 3,788 | 3,423 |
| Long positions | 13,210 | 23,832 | 33,225 | 7,869 | 33,219 | 2,268 | 113,623 | 38,286 |
| AAA | - | 18 | 13,106 | 1,434 | 8,155 | 162 | 22,875 | 6,796 |
| AA to AA+ | 13,210 | 23,812 | 7,847 | 446 | 16,825 | 138 | 62,278 | 21,054 |
| A to AA- | - | - | 4,200 | 1,657 | 1,521 | 290 | 7,668 | 1,470 |
| BBB- to A- | - | - | 7,572 | 3,761 | 2,627 | 854 | 14,814 | 4,941 |
| Non-investment grade | - | - | 494 | 341 | 2,444 | 427 | 3,706 | 2,571 |
| Unrated | - | 2 | 6 | 230 | 1,647 | 397 | 2,282 | 1,454 |
| 13,210 | 23,832 | 33,225 | 7,869 | 33,219 | 2,268 | 113,623 | 38,286 | |
| Of which US agencies | - | 5,599 | - | - | 13,132 | - | 18,731 | 18,048 |
| Short positions (HFT) | (1,784) | (6,790) | (16,087) | (889) | (1,387) | (826) | (27,763) | (36) |
| Available-for-sale | ||||||||
| Gross unrealised gains | 201 | 428 | 445 | 70 | 386 | 11 | 1,541 | 458 |
| Gross unrealised losses | (69) | (86) | (32) | (205) | (493) | (2) | (887) | (753) |
The table below analyses derivatives by type of contract. The master netting agreements and collateral shown below do not result in a net presentation on the balance sheet under IFRS.
| 31 December 2014 | 31 December 2013 | |||||
|---|---|---|---|---|---|---|
| Notional (1) | Assets | Liabilities | Notional (1) | Assets | Liabilities | |
| £bn | £m | £m | £bn | £m | £m | |
| Interest rate (2) | 27,331 | 269,912 | 259,971 | 35,589 | 218,041 | 208,698 |
| Exchange rate | 4,675 | 78,707 | 83,781 | 4,555 | 61,923 | 65,749 |
| Credit | 125 | 2,254 | 2,615 | 253 | 5,306 | 5,388 |
| Equity and commodity | 78 | 3,119 | 3,582 | 81 | 2,770 | 5,692 |
| 353,992 | 349,949 | 288,040 | 285,527 | |||
| Counterparty mark-to-market netting | (295,315) | (295,315) | (241,265) | (241,265) | ||
| Cash collateral | (33,272) | (30,203) | (24,423) | (25,302) | ||
| Securities collateral | (7,013) | (14,437) | (5,990) | (8,257) | ||
| Net exposure | 18,392 | 9,994 | 16,362 | 10,703 | ||
| Net exposure by sector | ||||||
| Banks | 1,875 | 1,534 | 1,524 | 1,574 | ||
| Other financial institutions | 4,035 | 3,721 | 4,619 | 4,484 | ||
| Corporate | 11,186 | 4,382 | 9,352 | 4,217 | ||
| Government | 1,296 | 357 | 868 | 428 | ||
| 18,392 | 9,994 | 16,362 | 10,703 | |||
| Net exposure by region of counterparty | ||||||
| UK | 9,037 | 3,233 | 8,937 | 3,681 | ||
| Europe | 5,628 | 3,521 | 4,497 | 3,717 | ||
| US | 1,544 | 1,280 | 1,441 | 1,806 | ||
| RoW | 2,183 | 1,960 | 1,487 | 1,498 | ||
| 18,392 | 9,994 | 16,362 | 10,703 |
Notes:
(1) Includes exchange traded contracts of £2,436 billion (31 December 2013 - £2,298 billion) principally interest rate. Trades are generally closed out daily hence carrying values were insignificant; assets £8 million (31 December 2013 - £69 million); liabilities £119 million (31 December 2013 - £299 million).
(2) Interest rate notional includes £18,452 billion (31 December 2013 - £22,563 billion) in respect of contracts with central clearing counterparties to the extent related assets and liabilities are offset.
The commercial real estate sector comprises exposures to entities involved in the development of, or investment in, commercial and residential properties (including house builders). The analysis of lending utilisations below is gross of impairment provisions and excludes rate risk management and contingent obligations.
| 31 December 2014 | 31 December 2013 | |||||
|---|---|---|---|---|---|---|
| Investment | Development | Total | Investment | Development | Total | |
| By segment | £m | £m | £m | £m | £m | £m |
| UK PBB | 3,757 | 501 | 4,258 | 3,931 | 510 | 4,441 |
| Ulster Bank | 952 | 336 | 1,288 | 3,419 | 718 | 4,137 |
| Personal & Business Banking | 4,709 | 837 | 5,546 | 7,350 | 1,228 | 8,578 |
| Commercial Banking | 15,145 | 2,775 | 17,920 | 16,616 | 2,957 | 19,573 |
| Private Banking | 1,051 | 244 | 1,295 | n/a | n/a | n/a |
| Commercial & Private Banking | 16,196 | 3,019 | 19,215 | 16,616 | 2,957 | 19,573 |
| Corporate & Institutional Banking | 721 | 255 | 976 | 898 | 183 | 1,081 |
| Citizens Financial Group | 5,017 | - | 5,017 | 4,018 | - | 4,018 |
| RCR | 6,169 | 6,394 | 12,563 | n/a | n/a | n/a |
| Non-Core | n/a | n/a | n/a | 11,624 | 7,704 | 19,328 |
| 32,812 | 10,505 | 43,317 | 40,506 | 12,072 | 52,578 |
| Investment | Development | ||||||
|---|---|---|---|---|---|---|---|
| Commercial | Residential | Total | Commercial | Residential | Total | Total | |
| By geography (1) | £m | £m | £m | £m | £m | £m | £m |
| 31 December 2014 | |||||||
| UK (excluding NI (2)) | 17,327 | 4,757 | 22,084 | 600 | 3,446 | 4,046 | 26,130 |
| Ireland (ROI and NI (2)) | 2,864 | 740 | 3,604 | 1,499 | 4,469 | 5,968 | 9,572 |
| Western Europe (other) | 1,222 | 53 | 1,275 | 189 | 24 | 213 | 1,488 |
| US | 4,063 | 1,358 | 5,421 | - | 59 | 59 | 5,480 |
| RoW (2) | 406 | 22 | 428 | 34 | 185 | 219 | 647 |
| 25,882 | 6,930 | 32,812 | 2,322 | 8,183 | 10,505 | 43,317 | |
| 31 December 2013 | |||||||
| UK (excluding NI (2)) | 20,861 | 5,008 | 25,869 | 678 | 3,733 | 4,411 | 30,280 |
| Ireland (ROI and NI (2)) | 4,405 | 1,028 | 5,433 | 1,919 | 5,532 | 7,451 | 12,884 |
| Western Europe (other) | 4,068 | 183 | 4,251 | 22 | 17 | 39 | 4,290 |
| US | 3,563 | 1,076 | 4,639 | - | 8 | 8 | 4,647 |
| RoW (2) | 314 | - | 314 | 30 | 133 | 163 | 477 |
| 33,211 | 7,295 | 40,506 | 2,649 | 9,423 | 12,072 | 52,578 |
For the notes to these tables refer to the following page.
| Ireland | Western | |||||
|---|---|---|---|---|---|---|
| UK | (ROI and | Europe | ||||
| (excl NI (2)) | NI (2)) | (other) | US | RoW (2) | Total | |
| By sub-sector (1) | £m | £m | £m | £m | £m | £m |
| 31 December 2014 | ||||||
| Residential | 8,203 | 5,209 | 78 | 1,417 | 206 | 15,113 |
| Office | 3,297 | 504 | 609 | 81 | 137 | 4,628 |
| Retail | 4,909 | 809 | 173 | 157 | 91 | 6,139 |
| Industrial | 2,588 | 367 | 32 | 2 | 29 | 3,018 |
| Mixed/other | 7,133 | 2,683 | 596 | 3,823 | 184 | 14,419 |
| 26,130 | 9,572 | 1,488 | 5,480 | 647 | 43,317 | |
| 31 December 2013 | ||||||
| Residential | 8,740 | 6,560 | 200 | 1,085 | 133 | 16,718 |
| Office | 4,557 | 813 | 1,439 | 32 | 121 | 6,962 |
| Retail | 6,979 | 1,501 | 967 | 84 | 73 | 9,604 |
| Industrial | 3,078 | 454 | 43 | 30 | 13 | 3,618 |
| Mixed/other | 6,926 | 3,556 | 1,641 | 3,416 | 137 | 15,676 |
| 30,280 | 12,884 | 4,290 | 4,647 | 477 | 52,578 |
Notes:
(1) Data at 31 December 2014 includes CRE lending from Private Banking in CPB of £1.3 billion that was excluded from the tables showing 2013 data. At 31 December 2013 CRE lending in Private Banking totalled £1.4 billion.
(2) ROI: Republic of Ireland; NI: Northern Ireland; RoW: Rest of World.
| RCR | Rest of RBS | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Non- | Non- | Non | |||||||
| Performing performing | Total | Performing performing | Total | Performing performing | Total | ||||
| LTV ratio by value | £m | £m | £m | £m | £m | £m | £m | £m | £m |
| 31 December 2014 | |||||||||
| <= 50% | 300 | 45 | 345 | 9,833 | 220 | 10,053 | 10,133 | 265 | 10,398 |
| > 50% and <= 70% | 602 | 173 | 775 | 8,750 | 301 | 9,051 | 9,352 | 474 | 9,826 |
| > 70% and <= 90% | 220 | 554 | 774 | 2,285 | 409 | 2,694 | 2,505 | 963 | 3,468 |
| > 90% and <= 100% | 41 | 116 | 157 | 343 | 134 | 477 | 384 | 250 | 634 |
| > 100% and <= 110% | 56 | 211 | 267 | 168 | 148 | 316 | 224 | 359 | 583 |
| > 110% and <= 130% | 49 | 438 | 487 | 326 | 201 | 527 | 375 | 639 | 1,014 |
| > 130% and <= 150% | 6 | 404 | 410 | 135 | 128 | 263 | 141 | 532 | 673 |
| > 150% | 65 | 4,160 | 4,225 | 305 | 495 | 800 | 370 | 4,655 | 5,025 |
| Total with LTVs | 1,339 | 6,101 | 7,440 | 22,145 | 2,036 | 24,181 | 23,484 | 8,137 | 31,621 |
| Minimal security (1) | - | 3,168 | 3,168 | 33 | 38 | 71 | 33 | 3,206 | 3,239 |
| Other | 34 | 1,921 | 1,955 | 5,956 | 546 | 6,502 | 5,990 | 2,467 | 8,457 |
| Total | 1,373 | 11,190 | 12,563 | 28,134 | 2,620 | 30,754 | 29,507 | 13,810 | 43,317 |
| Total portfolio | |||||||||
| average LTV (2) | 75% | 338% | 291% | 56% | 133% | 62% | 57% | 287% | 116% |
| Non-Core | Rest of RBS | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Non- | Non- | Non- | |||||||
| Performing | performing | Total | Performing | performing | Total | Performing | performing | Total | |
| 31 December 2013 | £m | £m | £m | £m | £m | £m | £m | £m | £m |
| <= 50% | 419 | 142 | 561 | 7,589 | 143 | 7,732 | 8,008 | 285 | 8,293 |
| > 50% and <= 70% | 867 | 299 | 1,166 | 9,366 | 338 | 9,704 | 10,233 | 637 | 10,870 |
| > 70% and <= 90% | 1,349 | 956 | 2,305 | 2,632 | 405 | 3,037 | 3,981 | 1,361 | 5,342 |
| > 90% and <= 100% | 155 | 227 | 382 | 796 | 295 | 1,091 | 951 | 522 | 1,473 |
| > 100% and <= 110% | 168 | 512 | 680 | 643 | 327 | 970 | 811 | 839 | 1,650 |
| > 110% and <= 130% | 127 | 1,195 | 1,322 | 444 | 505 | 949 | 571 | 1,700 | 2,271 |
| > 130% and <= 150% | 13 | 703 | 716 | 356 | 896 | 1,252 | 369 | 1,599 | 1,968 |
| > 150% | 69 | 7,503 | 7,572 | 400 | 1,864 | 2,264 | 469 | 9,367 | 9,836 |
| Total with LTVs | 3,167 | 11,537 | 14,704 | 22,226 | 4,773 | 26,999 | 25,393 | 16,310 | 41,703 |
| Minimal security (1) | 51 | 3,069 | 3,120 | 9 | 88 | 97 | 60 | 3,157 | 3,217 |
| Other | 108 | 1,396 | 1,504 | 5,266 | 888 | 6,154 | 5,374 | 2,284 | 7,658 |
| Total | 3,326 | 16,002 | 19,328 | 27,501 | 5,749 | 33,250 | 30,827 | 21,751 | 52,578 |
| Total portfolio | |||||||||
| average LTV (2) | 75% | 292% | 245% | 64% | 187% | 85% | 65% | 261% | 142% |
Notes:
(1) Total portfolio average LTV is quoted net of loans with minimal security given that the anticipated recovery rate is less than 10%. Provisions are marked against these loans where required to reflect the relevant asset quality and recovery profile.
(2) Weighted average by exposure.
| Total | RCR | Non-Core | |||
|---|---|---|---|---|---|
| 31 December | 31 December | 31 December | 31 December | ||
| 2014 | 2013 | 2014 | 2013 | ||
| Lending (gross) | £43,317m | £52,578m | £12,563m | £19,328m | |
| Of which REIL | £13,345m | £20,129m | £11,112m | £14,305m | |
| Provisions | £9,027m | £13,209m | £8,067m | £10,639m | |
| REIL as a % of gross loans to customers | 30.8% | 38.3% | 88.5% | 74.0% | |
| Provisions as a % of REIL | 68% | 66% | 73% | 74% |
Notes:
(1) Excludes property related lending to customers in other sectors managed by Real Estate Finance.
(2) Data at 31 December 2014 includes CRE lending from Private Banking in CPB of £1.3 billion that was excluded from the tables showing 2013 data. At 31 December 2013 CRE lending in Private Banking totalled £1.4 billion.
RBS has £10.7 billion of credit risk assets (CRA) (comprising lending, net derivatives and contingent obligations) in the oil and gas sector. Including committed but undrawn facilities, the exposure to the sector is £24.1 billion.
The price of crude oil is subject to global demand and supply factors and therefore determined globally. It has fallen by more than 50% since June 2014. This steep decline has been driven by excess supply fears resulting from a combination of factors. These include the growth in US shale production and OPEC maintaining current production levels, as well as weaker demand in Europe and slower growth in China.
The price of natural gas is determined regionally. US natural gas prices have been relatively stable compared with the recent price of crude oil. The price of natural gas is not highly correlated to oil prices.
Exposures to this sector continue to be closely managed through the sector concentration framework and through ongoing customer and sub-sector reviews including stress testing. Risk appetite to the overall oil and gas sector was reduced during 2014. Further action is ongoing to mitigate exposure where possible.
The table below provides a breakdown of oil and gas sector exposure on both a CRA basis and total exposure (including committed but undrawn exposure and contingent obligations) basis by business segment.
| 31 December 2014 | 31 December 2013 | |||||||
|---|---|---|---|---|---|---|---|---|
| CRA | Total | CRA | Total | |||||
| £m | % | £m | % | £m | % | £ | % | |
| Commercial Banking | 671 | 6 | 1,035 | 4 | 772 | 8 | 1,203 | 5 |
| Corporate and Institutional Banking | 8,297 | 78 | 20,278 | 84 | 8,264 | 82 | 20,924 | 88 |
| Citizens Financial Group | 1,251 | 12 | 2,134 | 9 | 819 | 8 | 1,284 | 5 |
| Others | 101 | 1 | 243 | 1 | 144 | 1 | 276 | 1 |
| RCR | 352 | 3 | 457 | 2 | 145 | 1 | 147 | 1 |
| 10,672 | 100 | 24,147 | 100 | 10,144 | 100 | 23,834 | 100 | |
| Of which: Lending exposure | 7,744 | 73 | 17,695 | 73 | 6,996 | 69 | 16,693 | 70 |
During 2014, CFG's exposure to this sector increased, partly due to the transfer of £0.4 billion (total exposure) of oil and gas exposures from CIB.
The committed lending exposure included legal commitments to syndicated bank facilities, with tenors up to five years. These committed facilities are for general corporate purposes including funding of operating needs and capital expenditures. These facilities are available as long as counterparties remain compliant with the terms of the credit agreement. Contingent obligations relate to guarantees, letters of credit and suretyships provided to customers.
RBS had no high-yield bond underwriting positions as at 31 December 2014; it had a simple sub investment grade loan underwriting of \$86 million in the Americas which, subsequent to the year end, had been syndicated.
At the year end, RBS's exposure to commodities financing was £1.0 billion, predominantly in relation to oil (£0.7 billion), metals (£0.2 billion) and coal (£0.1 billion).
The tables below provide a breakdown of CIB's oil and gas sector exposure which represents 84% of RBS's exposure to this sector (including committed but undrawn exposure) split by sub-sector and geography. The analysis is based on RBS's sector concentration framework.
| Western | |||||||
|---|---|---|---|---|---|---|---|
| Europe | North | Asia | Latin | ||||
| UK | (excl. UK) | America | America | Pacific | CEEMA(1) | Total | |
| 31 December 2014 | £m | £m | £m | £m | £m | £m | £m |
| Producers (incl. integrated oil companies) | 833 | 1,101 | 4,822 | 263 | 115 | 848 | 7,982 |
| Oilfield service providers | 153 | 675 | 1,007 | 742 | - | 535 | 3,112 |
| Other wholesale and trading activities | 295 | 794 | 683 | 907 | - | 122 | 2,801 |
| Refineries | 1 | 177 | 2,700 | 591 | 141 | 67 | 3,677 |
| Pipelines | 96 | 48 | 2,359 | 49 | 33 | 121 | 2,706 |
| 1,378 | 2,795 | 11,571 | 2,552 | 289 | 1,693 | 20,278 | |
| Including committed undrawn exposures | |||||||
| Of which: exploration and production (E&P) | 145 | 3 | 3,118 | 115 | 150 | 37 | 3,568 |
| 31 December 2013 | |||||||
| Producers (incl. integrated oil companies) | 748 | 1,065 | 5,333 | 459 | 5 | 748 | 8,358 |
| Oilfield service providers | 180 | 835 | 1,078 | 507 | 61 | 323 | 2,984 |
| Other wholesale and trading activities | 297 | 915 | 553 | 893 | - | 147 | 2,805 |
| Refineries | 1 | 135 | 2,203 | 993 | 131 | 231 | 3,694 |
Note:
(1) Includes exposures to Central and Eastern Europe as well as the Middle East and Africa.
The sub-sector within which a customer operates is a primary consideration for assessing the credit risk of a customer. Current areas of focus are towards customers involved in exploration and production principally in producers (E&P) and oilfield service providers (OFS). E&P customers represent approximately 18% of CIB's exposure to the oil and gas sector and OFS customers represent 15%.
Pipelines 188 95 2,563 41 - 196 3,083 1,414 3,045 11,730 2,893 197 1,645 20,924
E&P is most immediately exposed to the oil price decline and E&P companies are the primary customers for the service providers and are experiencing an adverse impact on their financial performance from a reduced level of contracts and lower contract rates as well as pressure to re-price existing services.
The other principal components of RBS's exposure to producers are Integrated Oil Companies (IOC) and National Oil Companies (NOC). IOC and NOC are less vulnerable to the oil price decline due to scale, diversification and in the case of NOC, explicit support from governments.
The table below provides a breakdown of the asset quality of CIB's oil and gas sector portfolios.
| 31 December 2014 | ||
|---|---|---|
| Asset quality - AQ band | £m | % |
| AQ1 | 3,948 | 20 |
| AQ2 | 1,999 | 10 |
| AQ3 | 3,455 | 17 |
| AQ4 | 7,521 | 37 |
| AQ5 | 2,035 | 10 |
| AQ6 | 1,025 | 5 |
| AQ7 | 293 | 1 |
| Other | 2 | - |
| 20,278 | 100 |
At the year end, 83% of the portfolio exposure was investment grade (AQ1-AQ4).
The impact of continuing low oil prices on the credit quality of the portfolio is subject to ongoing review, including stress testing. RBS is in regular contact with customers to understand the impacts on them of a sustained low oil price. This activity is backed up by a suite of early warning indicators used to identify customers who may be experiencing financial difficulty.
At the year end, the proportion of RBS's total oil and gas portfolio, excluding RCR, designated as Watchlist Red (performing customers who show signs of declining creditworthiness and so require active management) was 0.4%, of which 0.02% was managed by Restructuring.
RBS's exposure to the shipping sector, significantly all within RCR and CIB, declined 9% during the year, from £11.4 billion to £10.4 billion, as a result of scheduled loan repayments, secondary sales (RCR) and prepayments.
Of the total exposure to the shipping sector, £7.9 billion (31 December 2013 - £8.6 billion) related to asset backed ocean-going vessels. £5.7 billion of the asset-backed ocean-going vessel exposures were in CIB.
The main concentration risks were the bulk sector which represented 38% of the portfolio; tankers at 29% and containers at 17%. The remaining exposures comprised gas, including liquid petroleum gas (10%) and others (6%).
Conditions remained generally subdued during 2014. There has been a recent upturn in rates for tankers due to the fall in oil prices but difficulties remained for containers due to over supply. The majority of RBS's exposure is extended against security in vessels of recent build (average age across the portfolio of 6.4 years including RCR) with less than 3% of the CIB book being above 15 years of age. 87% of the portfolio was below 10 years.
A key protection for RBS is the minimum security covenant. The overall loan-to-value (LTV) on the portfolio was 77%. The LTV for the RCR portfolio was 92% and for the remaining portfolio 73%. In the CIB portfolio, approximately 20% of the portfolio had LTVs above 100%.
This section summaries personal portfolios by type, segment and related credit metrics.
| 31 December 2014 | 31 December 2013 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Ulster | Private | Ulster | Private | |||||||||
| UK PBB | Bank | Banking | CFG | Total | UK PBB | Bank | Banking | CFG | Total | |||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |||
| Mortgages (1) | 103,235 | 17,506 | 8,889 | 21,122 | 150,752 | 99,338 | 19,034 | 8,701 | 19,584 146,657 | |||
| of which: interest only | 24,287 | 1,263 | 6,357 | 9,929 | 41,836 | 25,439 | 2,069 | 5,968 | 9,272 | 42,748 | ||
| of which: buy-to-let | 11,602 | 2,091 | 1,388 | 147 | 15,228 | 9,073 | 2,242 | 1,024 | 241 | 12,580 | ||
| of which: forbearance | 4,873 | 3,880 | 100 | 409 | 9,262 | 5,446 | 2,782 | 127 | 373 | 8,728 | ||
| Other lending (2) | 12,335 | 591 | 5,186 | 10,924 | 29,036 | 13,760 | 740 | 5,353 | 8,302 | 28,155 | ||
| of which: credit cards | 4,951 | 192 | 124 | 952 | 6,219 | 5,766 | 212 | 129 | 945 | 7,052 | ||
| of which: loans | 5,020 | 322 | 4,298 | 1,933 | 11,573 | 5,357 | 421 | 4,656 | 1,712 | 12,146 | ||
| of which: overdrafts | 2,364 | 77 | 365 | 91 | 2,897 | 2,637 | 107 | 355 | 100 | 3,199 | ||
| of which: auto loans | - | - | - | 7,947 | 7,947 | - | - | - | 5,545 | 5,545 | ||
| Total | 115,570 | 18,097 | 14,075 | 32,046 | 179,788 | 113,098 | 19,774 | 14,054 | 27,886 174,812 | |||
| AQ10 % | 3.3% | 20.3% | 1.0% | 1.4% | 4.5% | 3.9% | 18.3% | 0.7% | 1.5% | 4.9% |
Notes:
(1) It is possible for a mortgage loan to appear in more than one category.
(2) There are other less material categories of personal lending not listed.
| 31 December 2014 | 31 December 2013 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Ulster | Private | Ulster | Private | |||||||
| UK PBB | Bank | Banking | CFG | UK PBB | Bank | Banking | CFG | |||
| Loan impairment charge as a | ||||||||||
| % of gross customer loans | ||||||||||
| and advances | ||||||||||
| Mortgages | - | (1.0%) | 0.1% | 0.2% | - | 1.2% | - | 0.5% | ||
| Other lending | 2.0% | 2.9% | (0.1%) | 0.8% | 1.8% | 2.2% | 0.6% | 1.0% | ||
| Loan impairment provisions (£m) | ||||||||||
| Mortgages | 217 | 1,413 | 27 | 146 | 259 | 1,726 | 33 | 123 | ||
| Other lending | 1,515 | 104 | 35 | 49 | 1,671 | 187 | 50 | 33 | ||
| Risk elements in lending (£m) | ||||||||||
| Mortgages | 1,218 | 3,362 | 95 | 949 | 1,702 | 3,235 | 116 | 761 | ||
| Other lending | 1,520 | 110 | 80 | 195 | 1,863 | 193 | 80 | 148 |
The most significant personal portfolio - residential mortgages is detailed below.
Total gross mortgage lending of £150.6 billion (31 December 2013 - £148.5 billion) represented 36% of gross customer lending of £412.8 billion (31 December 2013 - £417.8 billion). The table below shows LTVs for RBS's major residential mortgage portfolio totalling £150.8 billion (31 December 2013 - £146.7 billion) split between performing (AQ1-AQ9) and non-performing (AQ10) and also interest only (IOL), with the average LTV calculated on a weighted value basis. Loan balances are shown at the end of the year whereas property values are calculated using property index movements since the last formal valuation.
| UK | PB B |
Uls ter |
Ba nk |
Pr iva te |
Ba nk ing |
CF | ( 1) G |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| of wh ich : |
of wh ich : |
of wh ich : |
of wh ich : |
|||||||||||||
| AQ 1-9 |
AQ 10 |
To tal |
IO L |
AQ 1-9 |
AQ 10 |
To tal |
IO L |
AQ 1-9 |
AQ 10 |
To tal |
IO L |
AQ 1-9 |
AQ 10 |
To tal |
IO L |
|
| LT V r ati o b alu y v e |
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m |
| De mb 31 20 14 ce er |
||||||||||||||||
| % 50 <= |
34 88 9 , |
43 0 |
35 31 9 , |
7, 80 2 |
2, 52 9 |
18 8 |
2, 71 7 |
10 0 |
3, 49 3 |
14 | 3, 50 7 |
2, 72 7 |
4, 49 8 |
77 | 4, 57 5 |
1, 79 2 |
| 0% d < 0% > 5 = 7 an |
35 5 38 , |
78 3 |
39 13 8 , |
5 9, 93 |
2, 31 6 |
20 3 |
51 2, 9 |
11 8 |
3, 66 7 |
14 | 3, 68 1 |
2, 71 1 |
6, 60 1 |
5 10 |
6, 70 6 |
3, 43 6 |
| 0% 0% > 7 d < = 9 an |
23 66 0 , |
70 5 |
24 36 5 , |
4, 97 8 |
2, 85 6 |
27 6 |
3, 13 2 |
18 4 |
1, 37 9 |
24 | 1, 40 3 |
67 9 |
6, 35 0 |
14 1 |
6, 49 1 |
3, 37 2 |
| > 9 0% = 1 00 % d < an |
2, 83 7 |
18 7 |
3, 02 4 |
1, 07 1 |
1, 40 6 |
17 4 |
58 1, 0 |
10 1 |
64 | 9 | 73 | 44 | 25 1, 6 |
48 | 1, 30 4 |
62 4 |
| % % > 1 00 d < = 1 10 an |
60 9 |
73 | 68 2 |
41 3 |
1, 40 4 |
20 3 |
1, 60 7 |
12 7 |
33 | 5 | 38 | 35 | 67 2 |
24 | 69 6 |
31 1 |
| > 1 10 % = 1 30 % d < an |
14 3 |
29 | 17 2 |
10 4 |
2, 38 2 |
51 2 |
2, 89 4 |
5 29 |
15 | 9 | 24 | 22 | 51 6 |
17 | 53 3 |
19 1 |
| % % > 1 30 d < = 1 50 an |
27 | 2 | 29 | 4 | 1, 55 4 |
54 7 |
2, 10 1 |
21 8 |
12 | 1 | 13 | 12 | 11 9 |
4 | 12 3 |
32 |
| > 1 50 % |
- | - | - | - | 48 1 |
5 47 |
95 6 |
12 0 |
22 | 3 | 25 | 22 | 64 | 3 | 67 | 14 |
| To tal wit h L TV s |
10 0, 52 0 |
2, 20 9 |
10 2, 72 9 |
24 30 7 , |
14 92 8 , |
2, 57 8 |
17 50 6 , |
1, 26 3 |
8, 68 5 |
79 | 8, 76 4 |
6, 25 2 |
20 07 6 , |
41 9 |
20 49 5 , |
9, 77 2 |
| Ot r ( 2) he |
48 6 |
20 | 50 6 |
( ) 20 |
- | - | - | - | 12 4 |
1 | 12 5 |
10 5 |
62 4 |
3 | 62 7 |
15 7 |
| To tal |
10 1, 00 6 |
2, 22 9 |
10 3, 23 5 |
24 28 7 , |
14 92 8 , |
2, 57 8 |
17 50 6 , |
1, 26 3 |
8, 80 9 |
80 | 8, 88 9 |
6, 35 7 |
20 70 0 , |
42 2 |
21 12 2 , |
9, 92 9 |
| rtfo V ( 3) To tal lio LT po av era ge |
57 % |
67 % |
57 % |
88 % |
11 5% |
92 % |
51 % |
80 % |
51 % |
67 % |
73 % |
67 % |
||||
| Av LT V o era ge n n ew |
||||||||||||||||
| ( 3) rig ina tio du rin the o ns g ye ar |
71 % |
75 % |
48 % |
68 % |
For the notes to this table refer to the following page.
| UK PB B |
Uls ter |
Ba nk |
Pri te va |
Ba nk ing |
CF | G ( 1) |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Of wh ich : |
Of wh ich : |
Of wh ich : |
Of wh ich : |
|||||||||||||
| AQ 1-9 |
AQ 10 |
To tal |
IOL | AQ 1-9 |
AQ 10 |
To tal |
IOL | AQ 1-9 |
AQ 10 |
To tal |
IOL | AQ 1-9 |
AQ 10 |
To tal |
IOL | |
| LT V r ati o b alu y v e |
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m |
| 31 De mb 20 13 ce er |
||||||||||||||||
| 50 % <= |
26 39 2 , |
31 3 |
26 70 5 , |
5, 97 7 |
2, 02 5 |
170 | 2, 195 |
113 | 3, 40 0 |
16 | 3, 41 6 |
2, 56 1 |
4, 66 9 |
98 | 4, 76 7 |
2, 146 |
| > 5 0% d < = 7 0% an |
34 69 9 , |
59 1 |
35 29 0 , |
9, 28 0 |
1, 83 7 |
195 | 2, 03 2 |
118 | 3, 39 7 |
20 | 3, 41 7 |
2, 33 2 |
5, 52 9 |
89 | 5, 61 8 |
2, 92 9 |
| > 7 0% d < = 9 0% an |
28 92 0 , |
85 4 |
29 77 4 , |
6, 90 9 |
2, 32 6 |
28 8 |
2, 61 4 |
20 6 |
1, 33 7 |
44 | 1, 38 1 |
66 0 |
5, 55 3 |
110 | 5, 66 3 |
3, 01 9 |
| > 9 0% d < = 1 00 % an |
4, 05 7 |
31 5 |
4, 37 2 |
1, 84 6 |
1, 21 4 |
162 | 1, 37 6 |
122 | 87 | 7 | 94 | 65 | 1, 30 9 |
39 | 1, 34 8 |
52 5 |
| > 1 00 % d < = 1 10 % an |
1, 79 0 |
182 | 1, 97 2 |
1, 03 9 |
1, 30 2 |
182 | 1, 48 4 |
129 | 87 | 15 | 102 | 96 | 75 2 |
22 | 77 4 |
22 3 |
| > 1 10 % d < = 1 30 % an |
55 2 |
100 | 65 2 |
38 2 |
2, 50 9 |
46 1 |
2, 97 0 |
33 2 |
27 | 6 | 33 | 30 | 63 7 |
17 | 65 4 |
144 |
| > 1 30 % d < = 1 50 % an |
37 | 5 | 42 | 6 | 2, 20 2 |
54 9 |
2, 75 1 |
42 5 |
4 | 4 | 8 | 7 | 183 | 5 | 188 | 32 |
| > 1 50 % |
- | - | - | - | 2, 38 5 |
1, 22 7 |
3, 61 2 |
62 4 |
24 | 6 | 30 | 26 | 102 | 4 | 106 | 20 |
| To tal wit h L TV s |
96 44 7 , |
2, 36 0 |
98 80 7 , |
25 43 9 , |
15 80 0 , |
3, 23 4 |
19 03 4 , |
2, 06 9 |
8, 36 3 |
118 | 8, 48 1 |
5, 77 7 |
18 73 4 , |
38 4 |
19 118 , |
9, 03 8 |
| Ot he r ( 2) |
51 1 |
20 | 53 1 |
- | - | - | - | - | 21 5 |
5 | 22 0 |
19 1 |
46 3 |
3 | 46 6 |
23 4 |
| To tal |
96 95 8 , |
2, 38 0 |
99 33 8 , |
25 43 9 , |
15 80 0 , |
3, 23 4 |
19 03 4 , |
2, 06 9 |
8, 57 8 |
123 | 8, 70 1 |
5, 96 8 |
19 197 , |
38 7 |
19 58 4 , |
9, 27 2 |
| To tal rtfo lio LT V ( 3) po av era ge |
62 % |
75 % |
62 % |
103 % |
130 % |
108 % |
51 % |
77 % |
51 % |
67 % |
69 % |
67 % |
||||
| Av LT V o era ge n n ew ori ina tio g ns |
||||||||||||||||
| ( 3) d uri the ng ye ar |
% 67 |
% 73 |
% 52 |
% 68 |
Notes:
(1) Includes residential mortgages and home equity loans and lines.
(2) Where no indexed LTV is held.
(3) Average LTV weighted by value is calculated using the LTV on each individual mortgage and applying a weighting based on the value of each mortgage.
Market risk is the risk of losses arising from fluctuations in interest rates, credit spreads, foreign currency rates, equity prices, commodity prices and other factors, such as market volatilities, that may lead to a reduction in earnings, economic value or both. For a description of market risk framework, governance, policies and methodologies, refer to the Risk and balance sheet management - Market risk section in the 2013 Annual Report and Accounts. There were no material changes to market risk methodologies or models during the year ended 31 December 2014.
RBS's traded market risk profile decreased significantly, with market risk limits being reduced across all businesses, in some instances by 50-60%. These reductions resulted from:
Risk measurement improvements continued. Credit and funding valuation adjustments were included in the internal measure of RBS's value-at-risk. Previously, only associated hedges were included. The change in scope reflects a more comprehensive economic view of the risk.
RBS continued to manage its non-traded market risk exposures within risk limits throughout the year. Although the restructure of customer facing businesses in 2014 did not affect underlying non-traded market risk exposures, the planned divestment of CFG is expected to reduce structural interest rate and foreign exchange risk exposures.
Longer-term interest rates remained at historically low levels during 2014. RBS maintained its structural hedge of invested equity and rate-insensitive customer deposit portfolios. The aim of the hedge is to stabilise interest earnings. During the year, the duration profile of the hedge did not change materially but action was taken to match the hedge's currency profile more closely to underlying balance sheet exposures.
The tables below analyse the internal value-at-risk (VaR) for trading portfolios segregated by type of market risk exposure, and between CIB and RCR or Non-Core.
| Year ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 31 December 2014 | 31 December 2013 | ||||||||
| Average Period end | Maximum | Minimum | Average Period end | Maximum | Minimum | ||||
| Trading VaR (1-day 99%) | £m | £m | £m | £m | £m | £m | £m | £m | |
| Interest rate | 17.4 | 16.9 | 39.8 | 10.8 | 37.2 | 44.1 | 78.2 | 19.1 | |
| Credit spread | 23.1 | 14.2 | 42.8 | 13.4 | 60.0 | 37.3 | 86.8 | 33.3 | |
| Currency | 4.7 | 5.5 | 9.7 | 1.0 | 8.6 | 6.5 | 20.6 | 3.6 | |
| Equity | 3.0 | 3.7 | 6.5 | 1.2 | 5.8 | 4.1 | 12.8 | 3.2 | |
| Commodity | 0.6 | 0.4 | 2.5 | 0.3 | 0.9 | 0.5 | 3.7 | 0.3 | |
| Diversification (1) | (18.2) | (23.7) | |||||||
| Total | 27.8 | 22.5 | 58.2 | 17.1 | 79.3 | 68.8 | 118.8 | 42.1 | |
| CIB | 26.3 | 21.3 | 48.8 | 15.5 | 64.2 | 52.4 | 104.6 | 35.6 | |
| RCR | 4.5 | 3.0 | 16.2 | 2.6 | n/a | n/a | n/a | n/a | |
| Non-Core | n/a | n/a | n/a | n/a | 19.3 | 15.2 | 24.9 | 14.9 |
Note:
(1) The Group benefits from diversification as it reduces risk by allocating positions across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.
The total market risk minimum capital requirement calculated in accordance with CRR was £1,917 million at 31 December 2014 and represents 8% of the corresponding RWA amount, £24 billion. It comprises a number of regulatory capital requirements split into two categories: (i) the Pillar 1 model-based position risk requirement (PRR) of £1,458 million, which in turn comprises several modelled charges; and (ii) the standardised PRR of £459 million, which also has several components.
The contributors to the Pillar 1 model-based PRR are presented in the table below. Following the implementation of the CRR on 1 January 2014, credit hedges eligible for CVA are no longer included in the modelled market risk capital charges, namely VaR, stressed VaR and the incremental risk charge. Such hedges are now included in the CVA capital charge, which forms part of the capital calculation for counterparty credit risk.
| Basel 2.5 31 December 2013 |
|||||
|---|---|---|---|---|---|
| Year ended 31 December 2014 | Average £m |
CRR Maximum £m |
Minimum £m |
Period end £m |
Period end £m |
| Value-at-risk | 323 | 527 | 232 | 329 | 576 |
| Stressed VaR (SVaR) | 681 | 856 | 511 | 511 | 841 |
| Incremental risk charge (IRC) | 402 | 530 | 299 | 299 | 443 |
| All price risk | 2 | 6 | - | - | 8 |
| Risk not in VaR (RNIV) | 412 | 472 | 319 | 319 | 218 |
| 1,458 | 2,086 |
| 31 December | 31 December | |
|---|---|---|
| 2014 | 2013 | |
| Capital requirements relating to RNIV | £m | £m |
| Risks not in VaR | 57 | 30 |
| Risks not in SVaR | 79 | 39 |
| Stressed RNIV | 183 | 149 |
| 319 | 218 |
The average VaR for RBS's non-trading book, predominantly comprising available-for-sale portfolios, was £4.6 million during 2014 compared with £9.2 million during 2013. This was largely driven by a decline in the credit spread VaR in Q1, which partly reflected a decision to switch some of the securities held as collateral from floating-rate notes issued by financial institutions to government bonds during March, as part of RWA reduction. A further driver of the decline, which largely affected the last three quarters of the year, was the decision to reduce the US ABP business in line with the exit strategy. The period end VaR decreased from £5.0 million at 31 December 2013 to £3.8 million at 31 December 2014 for the reasons explained above.
The structured credit portfolio is measured on a notional and fair value basis because of its illiquid nature. Notional and fair value decreased to £0.4 billion and £0.3 billion respectively (31 December 2013 - £0.7 billion and £0.5 billion), reflecting the sale of underlying assets, primarily consumer ABS, RMBS and CLOs/CDOs, in line with RCR strategy.
Non-traded interest rate risk affects earnings arising from banking activities. This excludes positions in financial instruments which are classified as held-for-trading. The methodology relating to interest rate risk is detailed in the 2013 Annual Report and Accounts.
Non-traded interest rate risk VaR metrics are based on interest rate repricing gap reports as at the reporting date. These incorporate customer products and associated funding and hedging transactions as well as nonfinancial assets and liabilities such as property, plant and equipment, capital and reserves. Behavioural assumptions are applied as appropriate.
VaR does not provide a dynamic measurement of interest rate risk since static underlying repricing gap positions are assumed. Changes in customer behaviour under varying interest rate scenarios are captured by way of earnings at risk measures. VaR relating to non-traded interest rate risk for RBS's retail and commercial banking activities at a 99% confidence level and a currency analysis at the period end were as follows:
| Average £m |
Period end £m |
Maximum £m |
Minimum £m |
|
|---|---|---|---|---|
| 31 December 2014 | 50 | 23 | 79 | 23 |
| 31 December 2013 | 45 | 51 | 57 | 30 |
| 31 December 31 December | ||||
| 2014 | 2013 | |||
| £m | £m | |||
| Euro | 2 | 4 | ||
| Sterling | 12 | 19 | ||
| US dollar | 27 | 44 | ||
| Other | 3 | 2 |
Earnings sensitivity to rate movements is derived from a central forecast over a twelve month period. Market implied forward rates and new business volume, mix and pricing consistent with business assumptions are used to generate a base case earnings forecast.
The following table shows the sensitivity of net interest income, over the next twelve months, to an immediate upward or downward change of 100 basis points to all interest rates. In addition, the table includes the impact of a gradual 400 basis point steepening (bear steepener) and a gradual 300 basis point flattening (bull flattener) of the yield curve at tenors greater than a year.
The scenarios represent annualised interest rate stresses of a scale deemed sufficient to trigger a modification in customer behaviour. The asymmetry in the steepening and flattening scenarios reflects the difference in the expected behaviour of interest rates as they approach zero.
| 31 December 2014 | Euro £m |
Sterling £m |
US dollar £m |
Other £m |
Total £m |
Of which CFG US Dollars £m |
|---|---|---|---|---|---|---|
| + 100 basis point shift in yield curves – 100 basis point shift in yield curves |
(28) (34) |
347 (298) |
214 (87) |
(17) (12) |
516 (431) |
154 (85) |
| Bear steepener | 406 | 105 | ||||
| Bull flattener | (116) | (58) | ||||
| 31 December 2013 | ||||||
| + 100 basis point shift in yield curves | 59 | 416 | 175 | 31 | 681 | 183 |
| – 100 basis point shift in yield curves | (29) | (333) | (82) | (15) | (459) | (76) |
| Bear steepener | 403 | 122 | ||||
| Bull flattener | (273) | (88) |
Banks generally have the benefit of a significant pool of stable, non and low interest bearing liabilities, principally comprising equity and money transmission accounts. These balances are usually hedged, either by investing directly in longer-term fixed rate assets or by the use of interest rate swaps, in order to provide a consistent and predictable revenue stream.
RBS targets a weighted average life for these economic hedges. This is accomplished using a continuous rolling maturity programme, which is primarily managed by Treasury to achieve the desired profile. The maturity profile of the hedge aims to reduce the potential sensitivity of income to rate movements. The structural hedging programme is RBS-wide, capturing the position in the UK banking businesses and regulated subsidiaries in other jurisdictions.
Product structural hedges are used to minimise the volatility on earnings related to specific products, primarily customer deposits. The balances are primarily hedged with medium-term interest rate swaps, so that reported income is less sensitive to movements in short-term interest rates. The size and term of the hedge are based on the stability of the underlying portfolio.
The table below shows the impact on net interest income associated with product hedges managed by RBS Treasury. These relate to the main UK banking businesses except Private Banking. The figure shown represents the incremental contribution of the hedge relative to short-term wholesale cash rates.
| 31 December | 31 December | |
|---|---|---|
| 2014 | 2013 | |
| Net interest income | £m | £m |
| UK Personal & Business Banking | 393 | 387 |
| Commercial Banking | 180 | 121 |
| Corporate & Institutional Banking | 75 | 77 |
| Total product hedges | 648 | 585 |
Equity structural hedges are used to minimise the volatility on earnings arising from returns on equity. The hedges managed by Treasury relate mainly to the UK banking businesses and contributed £0.8 billion to these businesses in 2014 (31 December 2013 - £0.8 billion), which is an incremental benefit relative to shortterm wholesale cash rates. The size of the hedge increased from £39 billion in 2013 to £41 billion in 2014. The fall in yield mainly results from reinvestment of maturing hedges at lower rates.
The table below shows structural foreign currency exposures.
| Structural | |||||||
|---|---|---|---|---|---|---|---|
| Net assets | foreign currency | Residual | |||||
| Net assets | of overseas | Net | exposures | structural | |||
| of overseas | operations | investment | pre-economic | Economic | foreign currency | ||
| operations | NCI | excluding NCI | hedges | hedges | hedges (2) | exposures | |
| 31 December 2014 | £m | £m | £m | £m | £m | £m | £m |
| US dollar | 11,402 | (2,321) | 9,081 | (3,683) | 5,398 | (4,034) | 1,364 |
| Euro | 6,076 | (39) | 6,037 | (192) | 5,845 | (2,081) | 3,764 |
| Other non-sterling | 4,178 | (456) | 3,722 | (2,930) | 792 | - | 792 |
| 21,656 | (2,816) | 18,840 | (6,805) | 12,035 | (6,115) | 5,920 | |
| 31 December 2013 | |||||||
| US dollar | 16,176 | - | 16,176 | (1,581) | 14,595 | (3,808) | 10,787 |
| Euro | 6,606 | (9) | 6,597 | (190) | 6,407 | (2,226) | 4,181 |
| Other non-sterling | 4,233 | (372) | 3,861 | (3,185) | 676 | - | 676 |
| 27,015 | (381) | 26,634 | (4,956) | 21,678 | (6,034) | 15,644 |
Notes:
(1) NCI represents the structural foreign exchange exposure not attributable to owners equity, which consisted mainly of CFG in US dollar in 2014 (31 December 2013: mainly RFS MI in other non-sterling).
(2) Economic hedges mainly represent US dollar and euro preference shares in issue that are treated as equity under IFRS and do not qualify as hedges for accounting purposes.
Country risk is the risk of losses occurring as a result of either a country event or unfavourable country operating conditions. As country events may simultaneously affect all or many individual exposures to a country, country event risk is a concentration risk. Refer to the Annual Report and Accounts: Credit risk for other types of concentration risk such as product, sector or single-name concentration and Country risk for governance, monitoring, management and definitions.
The comments below relate to changes in country exposures in 2014 unless indicated otherwise.
The net positions for Greece and Cyprus were minimal. With the possible exception of Greece, risks of eurozone break-up (redenomination events) have materially receded since 2011-2012, owing to major improvements in liquidity conditions, driven by the availability of substantial new tools for the European Central Bank, the establishment of the European Stability Mechanism and member countries' progress on reducing imbalances.
| Ne t b ala he et nc e s ex p os ure |
An aly |
sis of t b ne |
ala he nc e s |
et ex p os ure |
s | Of f- |
CD S |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Ce al ntr |
Ot he r |
Ot he r |
Ne t |
De bt se |
riti cu es |
Ne t |
ba lan ce |
To tal |
tio l le no na ss |
Gr os |
s | ||||||
| Go vt |
ba nk s |
ba nk s |
FI | Co te rp ora |
Pe l rso na |
To tal |
len din g |
AF S /LA R |
HF T ( t) ne |
De riv ati ve s |
SF T |
sh t ee |
ex p os ure |
fai alu r v e |
De riv ati ve s |
SF T |
|
| 31 De mb 20 14 ce er |
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m |
| Eu roz on e |
|||||||||||||||||
| Ire lan d |
23 9 |
58 7 |
72 6 |
83 9 |
5, 65 3 |
14 59 3 , |
22 63 7 , |
21 17 6 , |
56 | 41 3 |
99 1 |
1 | 2, 92 2 |
25 55 9 , |
( 48 ) |
2, 33 0 |
1, 46 4 |
| Ita ly |
11 2 |
15 | 51 2, 9 |
36 8 |
1, 18 7 |
25 | 4, 22 6 |
5 1, 09 |
16 9 |
5 | 95 2, 7 |
- | 2, 03 1 |
25 6, 7 |
( 5 ) 62 |
9, 19 2 |
82 3 |
| Sp ain |
25 1 |
- | 58 3 |
16 4 |
2, 18 4 |
88 | 3, 27 0 |
2, 02 4 |
47 | 36 4 |
83 5 |
- | 1, 92 3 |
5, 19 3 |
( 31 2) |
3, 91 3 |
42 2 |
| Po l rtu ga |
11 1 |
- | 24 6 |
97 | 32 2 |
8 | 78 4 |
28 2 |
20 | 15 2 |
33 0 |
- | 22 2 |
1, 00 6 |
( 15 5 ) |
39 0 |
61 3 |
| Gr ee ce |
8 | - | 25 8 |
1 | 92 | 17 | 37 6 |
63 | - | 8 | 5 30 |
- | 23 | 39 9 |
( ) 8 |
41 6 |
- |
| Cy pru s |
- | - | - | - | 11 3 |
14 | 12 7 |
10 8 |
- | - | 19 | - | 16 | 14 3 |
- | 19 | - |
| Eu roz on e |
|||||||||||||||||
| eri he p p ry |
72 1 |
60 2 |
4, 33 2 |
1, 46 9 |
9, 55 1 |
14 74 5 , |
31 42 0 , |
24 74 8 , |
29 2 |
94 2 |
5, 43 7 |
1 | 7, 13 7 |
38 55 7 , |
( 1, 14 8 ) |
16 26 0 , |
3, 32 2 |
| Ge rm an y |
12 30 1 , |
2, 68 1 |
3, 94 0 |
5, 49 6 |
2, 08 3 |
86 | 2 6, 58 7 |
4, 60 1 |
7, 12 1 |
5, 65 3 |
8, 31 7 |
89 5 |
6, 09 0 |
32 67 7 , |
( ) 1, 74 9 |
- 39 27 5 , |
- 8, 70 4 |
| Fra nce |
5, 20 3 |
3 | 7, 08 9 |
1, 92 4 |
1, 77 4 |
81 | 1 6, 07 4 |
2, 93 1 |
95 1, 1 |
4, 03 4 |
6, 39 2 |
76 6 |
58 8, 6 |
24 66 0 , |
( ) 2, 40 6 |
41 13 2 , |
59 17 8 , |
| Ne the rla nd s |
72 | 92 6 |
5, 55 7 |
5, 98 1 |
2, 13 0 |
29 | 1 4, 69 5 |
3, 58 2 |
1, 69 0 |
2, 50 9 |
6, 83 0 |
84 | 9, 32 3 |
24 01 8 , |
( ) 81 5 |
20 98 6 , |
3, 57 3 |
| Be lg ium |
80 3 |
3 | 2, 33 0 |
93 | 39 6 |
21 | 3, 64 6 |
57 9 |
27 4 |
5 37 |
2, 33 4 |
84 | 85 8 |
50 4, 4 |
( ) 21 9 |
3, 37 4 |
93 2 |
| Lux bo em urg |
( 1) |
19 | 55 6 |
64 5 |
78 1 |
5 | 2, 00 5 |
96 8 |
32 9 |
70 | 46 1 |
17 7 |
1, 47 5 |
3, 48 0 |
( ) 53 |
70 1 |
2, 62 8 |
| Ot he r |
1, 68 9 |
19 | 76 2 |
13 2 |
53 3 |
16 | 15 3, 1 |
61 2 |
45 6 |
93 0 |
1, 14 8 |
5 | 1, 04 7 |
4, 19 8 |
( 56 2) |
4, 81 8 |
30 2 |
| To tal |
|||||||||||||||||
| e uro zo ne |
20 78 8 , |
4, 25 3 |
24 56 6 1 , |
5, 74 0 |
17 24 8 , |
14 98 3 , |
97 57 8 , |
38 02 1 , |
12 11 3 , |
14 51 3 , |
30 91 9 , |
2, 01 2 |
34 51 6 , |
13 2, 09 4 |
( 6, 95 2) |
12 6, 54 6 |
37 05 9 , |
| Ja pa n |
3, 25 7 |
1, 00 7 |
1, 92 7 |
51 4 |
32 5 |
33 | 06 3 7, |
1, 63 3 |
3 | 3, 04 3 |
2, 35 8 |
26 | 84 4 |
90 7, 7 |
( 25 ) |
10 12 9 , |
10 00 5 , |
| Ch ina |
32 9 |
13 0 |
1, 01 1 |
36 3 |
1, 67 4 |
41 | 3, 54 8 |
2, 88 6 |
24 3 |
62 | 24 3 |
11 4 |
53 1 |
4, 07 9 |
( 4) |
24 4 |
4, 0 77 |
| Ind ia |
52 6 |
85 | 13 3 |
15 6 |
1, 05 3 |
36 | 1, 98 9 |
1, 33 6 |
41 5 |
13 2 |
10 6 |
- | 63 9 |
2, 62 8 |
( 47 ) |
18 0 |
- |
| Ru ssi a |
39 | 14 | 71 1 |
10 1 |
91 5 |
50 | 1, 83 0 |
1, 67 3 |
39 | - | 11 8 |
- | 16 7 |
1, 99 7 |
( 16 6 ) |
20 2 |
- |
| So uth Ko rea |
31 9 |
6 | 50 7 |
10 8 |
39 7 |
3 | 1, 34 0 |
63 9 |
20 3 |
16 7 |
33 1 |
- | 45 0 |
1, 79 0 |
10 6 |
60 0 |
29 |
| Tu rke y |
90 | 71 | 21 7 |
10 3 |
71 6 |
19 | 1, 21 6 |
1, 16 0 |
44 | 5 | 7 | - | 13 0 |
1, 34 6 |
( 36 ) |
40 | 1, 20 9 |
These tables show RBS exposure at 31 December 2014 and 31 December 2013 by country of operation of the counterparty, except exposures to governments and individuals which are shown by country of residence. Balance sheet exposures are now shown net of loan impairment provisions and prior period data have been revised and presented on the same basis. Countries shown are those where the balance sheet exposure exceeded £1 billion and which had ratings of A+ or below from Standard and Poor's, Moody's or Fitch at 31 December 2014, 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). Refer to the 2013 Annual Report and Accounts for definitions, including securities financing transactions (SFT).
| Ne t B ala |
sh nce ee |
t e xp os ure |
of An aly sis t b ala sh ne nce ee |
t e xp os ure |
s | Off |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Ce ntr al |
Ot he r |
Ot he r |
Ne t |
De bt se |
ritie cu s |
Ne t |
ba lan ce |
To tal |
CD S n oti al on |
Gr os |
s | ||||||
| Go vt |
ba nks |
ba nks |
FI | Co rat rpo e |
Pe l rso na |
To tal |
len din g |
AF S/L AR |
HF T ( t) ne |
De riva tive s |
SF T |
sh t ee |
ex po su re |
les s f air lue va |
De riva tive s |
SF T |
|
| 31 De mb 20 13 ce er |
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m |
| Eu roz on e |
|||||||||||||||||
| Ire lan d |
188 | 116 | 68 8 |
56 1 |
8, 97 3 |
15 82 1 , |
26 34 7 , |
24 89 3 , |
23 3 |
24 8 |
90 0 |
73 | 2, 71 1 |
29 05 8 , |
( 166 ) |
2, 47 6 |
2, 32 9 |
| Ita ly |
1, 67 6 |
22 | 1, 32 9 |
89 1 |
1, 17 1 |
26 | 5, 115 |
1, 58 2 |
51 9 |
1, 24 0 |
1, 77 4 |
- | 1, 96 2 |
7, 07 7 |
( 73 4) |
7, 183 |
52 7 |
| Sp ain |
85 8 |
- | 3, 43 9 |
1, 40 5 |
3, 09 3 |
29 3 |
9, 08 8 |
3, 08 4 |
4, 162 |
85 3 |
98 9 |
- | 1, 98 1 |
11 06 9 , |
( 44 4) |
4, 128 |
2, 126 |
| Po rtu l ga |
35 | - | 31 0 |
114 | 31 2 |
6 | 77 7 |
29 0 |
93 | 43 | 35 1 |
- | 28 0 |
1, 05 7 |
( 163 ) |
41 8 |
61 4 |
| Gr ee ce |
- | 1 | 22 8 |
1 | 105 | 14 | 34 9 |
89 | - | - | 26 0 |
- | 38 | 38 7 |
( 12 ) |
45 5 |
- |
| Cy pru s |
2 | - | 1 | - | 144 | 10 | 157 | 139 | - | 2 | 16 | - | 18 | 175 | - | 16 | - |
| Eu roz on e |
|||||||||||||||||
| eri he p p ry |
2, 75 9 |
139 | 5, 99 5 |
2, 97 2 |
13 79 8 , |
16 170 , |
41 83 3 , |
30 07 7 , |
5, 00 7 |
2, 38 6 |
4, 29 0 |
73 | 6, 99 0 |
48 82 3 , |
( 1, 51 9) |
14 67 6 , |
5, 59 6 |
| Ge rm an y |
7, 21 5 |
3, 58 8 |
5, 04 4 |
4, 26 5 |
3, 52 0 |
90 | 23 72 2 , |
8, 01 3 |
5, 168 |
2, 52 4 |
7, 41 6 |
60 1 |
7, 189 |
30 91 1 , |
( 1, 34 0) |
35 52 9 , |
1, 128 |
| Fra nce |
2, 80 6 |
- | 6, 71 4 |
1, 83 2 |
2, 42 7 |
79 | 13 85 8 , |
4, 197 |
1, 69 2 |
1, 67 8 |
5, 66 0 |
63 1 |
9, 80 7 |
23 66 5 , |
( 1, 74 7) |
30 64 4 , |
7, 53 6 |
| Ne the rla nd s |
1, 50 9 |
1, 71 3 |
4, 60 4 |
5, 78 6 |
2, 30 3 |
21 | 15 93 6 , |
4, 65 2 |
4, 66 1 |
81 9 |
5, 69 7 |
107 | 9, 76 3 |
25 69 9 , |
( 35 6) |
15 38 8 , |
83 5 |
| Be lg ium |
106 | - | 1, 99 5 |
26 7 |
43 1 |
2 | 2, 80 1 |
71 3 |
44 3 |
( 48 0) |
2, 123 |
2 | 1, 170 |
3, 97 1 |
( 123 ) |
2, 96 6 |
59 4 |
| Lux bo em urg |
( 1) |
11 | 52 4 |
65 9 |
38 6 |
4 | 1, 58 3 |
74 1 |
75 | 98 | 58 1 |
88 | 1, 04 3 |
2, 62 6 |
( 58 ) |
1, 37 3 |
25 3 |
| Ot he r |
1, 07 5 |
22 | 65 4 |
160 | 78 3 |
18 | 2, 71 2 |
87 9 |
51 0 |
33 1 |
91 8 |
74 | 1, 20 2 |
3, 91 4 |
( 47 6) |
3, 55 4 |
62 2 |
| To tal |
|||||||||||||||||
| e uro zo ne |
15 46 9 , |
5, 47 3 |
25 53 0 , |
15 94 1 , |
23 64 8 , |
16 38 4 , |
102 44 5 , |
49 27 2 , |
17 55 6 , |
7, 35 6 |
26 68 5 , |
1, 57 6 |
37 164 , |
139 60 9 , |
( 5, 61 9) |
104 130 , |
16 56 4 , |
| Ja pa n |
( 129 ) |
1, 60 0 |
2, 24 0 |
83 0 |
68 7 |
34 | 5, 26 2 |
2, 79 5 |
72 | ( 172 ) |
2, 36 5 |
20 2 |
35 2 |
5, 61 4 |
4 | 9, 05 7 |
16 44 5 , |
| Ch ina |
34 5 |
20 0 |
2, 79 4 |
24 4 |
1, 51 8 |
33 | 5, 134 |
4, 58 4 |
166 | 13 | 37 0 |
1 | 1, 68 9 |
6, 82 3 |
( 14 ) |
37 2 |
83 0 |
| Ind ia |
53 6 |
70 | 94 9 |
91 | 2, 05 0 |
36 | 3, 73 2 |
2, 90 9 |
57 1 |
160 | 92 | - | 81 3 |
4, 54 5 |
( 21 ) |
190 | 45 |
| Ru ssi a |
152 | 37 | 75 4 |
6 | 94 9 |
53 | 1, 95 1 |
1, 78 1 |
149 | 2 | 19 | - | 36 4 |
2, 31 5 |
( 65 ) |
33 | 27 |
| So uth Ko rea |
23 8 |
4 | 75 5 |
133 | 57 6 |
2 | 1, 70 8 |
1, 125 |
179 | 154 | 25 0 |
- | 68 1 |
2, 38 9 |
176 | 54 1 |
50 |
| Tu rke y |
173 | 59 | 169 | 126 | 1, 06 4 |
24 | 1, 61 5 |
1, 40 4 |
50 | 67 | 94 | - | 32 4 |
1, 93 9 |
( 32 ) |
119 | 99 8 |
| Year ended 31 December 2014 |
|||||
|---|---|---|---|---|---|
| Non- | Reallocation of | Presentational | |||
| statutory | one-off items adjustments (1) | CFG (2) | Statutory | ||
| £m | £m | £m | £m | £m | |
| Interest receivable | 15,283 | - | - | (2,204) | 13,079 |
| Interest payable | (4,009) | (3) | - | 191 | (3,821) |
| Net interest income | 11,274 | (3) | - | (2,013) | 9,258 |
| Fees and commissions receivable | 5,148 | - | - | (734) | 4,414 |
| Fees and commissions payable | (900) | - | - | 25 | (875) |
| Income from trading activities | 1,422 | (40) | - | (97) | 1,285 |
| Gain on redemption of own debt | - | 20 | - | - | 20 |
| Other operating income | 1,253 | 67 | - | (272) | 1,048 |
| Non-interest income | 6,923 | 47 | - | (1,078) | 5,892 |
| Total income | 18,197 | 44 | - | (3,091) | 15,150 |
| Staff costs | (6,406) | - | (409) | 1,058 | (5,757) |
| Premises and equipment | (2,094) | - | (280) | 293 | (2,081) |
| Other administrative expenses | (2,635) | (3) | (2,512) | 582 | (4,568) |
| Depreciation and amortisation | (1,107) | - | (3) | 180 | (930) |
| Restructuring costs | (1,257) | - | 1,257 | - | - |
| Litigation and conduct costs | (2,194) | - | 2,194 | - | - |
| Write down of goodwill and other intangible assets | (156) | (130) | (247) | 10 | (523) |
| Operating expenses | (15,849) | (133) | - | 2,123 | (13,859) |
| Profit before impairment losses | 2,348 | (89) | - | (968) | 1,291 |
| Impairment releases | 1,155 | - | - | 197 | 1,352 |
| Operating profit | 3,503 | (89) | - | (771) | 2,643 |
| Own credit adjustments (3) | (146) | 146 | - | - | - |
| Gain on redemption of own debt | 20 | (20) | - | - | - |
| Write down of goodwill | (130) | 130 | - | - | - |
| Strategic disposals | 191 | (191) | - | - | - |
| Citizens discontinued operations | (771) | - | - | 771 | - |
| RFS Holdings minority interest | (24) | 24 | - | - | - |
| Profit before tax | 2,643 | - | - | - | 2,643 |
| Tax charge | (1,909) | - | - | - | (1,909) |
| Profit for continuing operations | 734 | - | - | - | 734 |
| Loss from discontinued operations, net of tax | |||||
| - Citizens | (3,486) | - | - | - | (3,486) |
| - Other | 41 | - | - | - | 41 |
| Loss from discontinued operations, net of tax | (3,445) | - | - | - | (3,445) |
| Loss for the period | (2,711) | - | - | - | (2,711) |
| Non-controlling interests | (60) | - | - | - | (60) |
| Preference share and other dividends | (699) | - | - | - | (699) |
| Loss attributable to ordinary and B shareholders | (3,470) | - | - | - | (3,470) |
For the notes to this table refer to page 5.
| Year ended | |||||
|---|---|---|---|---|---|
| 31 December 2013 | |||||
| Non- | Reallocation of | Presentational | |||
| statutory | one-off items adjustments (1) | CFG (2) | Statutory | ||
| £m | £m | £m | £m | £m | |
| Interest receivable | 16,740 | - | - | (2,252) | 14,488 |
| Interest payable | (5,748) | (11) | - | 288 | (5,471) |
| Net interest income | 10,992 | (11) | - | (1,964) | 9,017 |
| Fees and commissions receivable | 5,460 | - | - | (782) | 4,678 |
| Fees and commissions payable | (942) | - | - | 19 | (923) |
| Income from trading activities | 2,651 | 34 | - | (114) | 2,571 |
| Gain on redemption of own debt | - | 175 | - | - | 175 |
| Other operating income | 1,281 | 117 | - | (179) | 1,219 |
| Non-interest income | 8,450 | 326 | - | (1,056) | 7,720 |
| Total income | 19,442 | 315 | - | (3,020) | 16,737 |
| Staff costs | (6,882) | (1) | (280) | 1,077 | (6,086) |
| Premises and equipment | (2,233) | - | (115) | 310 | (2,038) |
| Other administrative expenses | (3,147) | 2 | (4,099) | 552 | (6,692) |
| Depreciation and amortisation | (1,404) | - | (6) | 163 | (1,247) |
| Restructuring costs | (656) | - | 656 | - | - |
| Litigation and conduct costs | (3,844) | - | 3,844 | - | - |
| Write down of goodwill and other intangible assets | (344) | (1,059) | - | - | (1,403) |
| Operating expenses | (18,510) | (1,058) | - | 2,102 | (17,466) |
| Profit/(loss) before impairment losses | 932 | (743) | - | (918) | (729) |
| Impairment losses | (8,432) | - | - | 312 | (8,120) |
| Operating loss | (7,500) | (743) | - | (606) | (8,849) |
| Own credit adjustments (3) | (120) | 120 | - | - | - |
| Gain on redemption of own debt | 175 | (175) | - | - | - |
| Write down of goodwill | (1,059) | 1,059 | - | - | - |
| Strategic disposals | 161 | (161) | - | - | - |
| Citizens discontinued operations | (606) | - | - | 606 | - |
| RFS Holdings minority interest | 100 | (100) | - | - | - |
| Loss before tax | (8,849) | - | - | - | (8,849) |
| Tax charge | (186) | - | - | - | (186) |
| Loss for continuing operations | (9,035) | - | - | - | (9,035) |
| Profit from discontinued operations, net of tax | |||||
| - Citizens | 410 | - | - | - | 410 |
| - Other | 148 | - | - | - | 148 |
| Profit from discontinued operations, net of tax | 558 | - | - | - | 558 |
| Loss for the period | (8,477) | - | - | - | (8,477) |
| Non-controlling interests | (120) | - | - | - | (120) |
| Preference share and other dividends | (398) | - | - | - | (398) |
| Loss attributable to ordinary and B shareholders | (8,995) | - | - | - | (8,995) |
For the notes to this table refer to page 5.
| Quarter ended 31 December 2014 |
|||||
|---|---|---|---|---|---|
| Non- | Reallocation of | Presentational | |||
| statutory | one-off items adjustments (1) | CFG (2) | Statutory | ||
| £m | £m | £m | £m | £m | |
| Interest receivable | 3,823 | - | - | (585) | 3,238 |
| Interest payable | (908) | - | - | 52 | (856) |
| Net interest income | 2,915 | - | - | (533) | 2,382 |
| Fees and commissions receivable | 1,247 | - | - | (192) | 1,055 |
| Fees and commissions payable | (211) | - | - | 7 | (204) |
| Income from trading activities | (295) | (84) | - | (24) | (403) |
| Gain on redemption of own debt | - | - | - | - | - |
| Other operating income | 204 | (47) | - | (22) | 135 |
| Non-interest income | 945 | (131) | - | (231) | 583 |
| Total income | 3,860 | (131) | - | (764) | 2,965 |
| Staff costs | (1,455) | - | (134) | 264 | (1,325) |
| Premises and equipment | (525) | - | (31) | 76 | (480) |
| Other administrative expenses | (827) | (2) | (1,315) | 145 | (1,999) |
| Depreciation and amortisation | (250) | - | - | 47 | (203) |
| Restructuring costs | (563) | - | 563 | - | - |
| Litigation and conduct costs | (1,164) | - | 1,164 | - | - |
| Write down of goodwill and other intangible assets | (74) | - | (247) | 10 | (311) |
| Operating expenses | (4,858) | (2) | - | 542 | (4,318) |
| Loss before impairment losses | (998) | (133) | - | (222) | (1,353) |
| Impairment releases | 623 | - | - | 47 | 670 |
| Operating loss | (375) | (133) | - | (175) | (683) |
| Own credit adjustments (3) | (144) | 144 | - | - | - |
| Gain on redemption of own debt | - | - | - | - | - |
| Write down of goodwill | - | - | - | - | - |
| Strategic disposals | - | - | - | - | - |
| Citizens discontinued operations | (175) | - | - | 175 | - |
| RFS Holdings minority interest | 11 | (11) | - | - | - |
| Loss before tax | (683) | - | - | - | (683) |
| Tax charge | (1,040) | - | - | - | (1,040) |
| Loss for continuing operations | (1,723) | - | - | - | (1,723) |
| Loss from discontinued operations, net of tax | |||||
| - Citizens | (3,885) | - | - | - | (3,885) |
| - Other | 3 | - | - | - | 3 |
| Loss from discontinued operations, net of tax | (3,882) | - | - | - | (3,882) |
| Loss for the period | (5,605) | - | - | - | (5,605) |
| Non-controlling interests | (71) | - | - | - | (71) |
| Preference share and other dividends | (115) | - | - | - | (115) |
| Loss attributable to ordinary and B shareholders | (5,791) | - | - | - | (5,791) |
For the notes to this table refer to page 5.
| Quarter ended | |||||
|---|---|---|---|---|---|
| 30 September 2014 | |||||
| Non- | Reallocation of | Presentational | |||
| statutory | one-off items adjustments (1) | CFG (2) | Statutory | ||
| £m | £m | £m | £m | £m | |
| Interest receivable | 3,839 | - | - | (542) | 3,297 |
| Interest payable | (976) | - | - | 49 | (927) |
| Net interest income | 2,863 | - | - | (493) | 2,370 |
| Fees and commissions receivable | 1,296 | - | - | (180) | 1,116 |
| Fees and commissions payable | (202) | - | - | 6 | (196) |
| Income from trading activities | 235 | 33 | - | (30) | 238 |
| Gain on redemption of own debt | - | - | - | - | - |
| Other operating income | 167 | (40) | - | (19) | 108 |
| Non-interest income | 1,496 | (7) | - | (223) | 1,266 |
| Total income | 4,359 | (7) | - | (716) | 3,636 |
| Staff costs | (1,611) | - | (79) | 255 | (1,435) |
| Premises and equipment | (490) | - | (53) | 68 | (475) |
| Other administrative expenses | (516) | - | (828) | 132 | (1,212) |
| Depreciation and amortisation | (306) | - | - | 45 | (261) |
| Restructuring costs | (180) | - | 180 | - | - |
| Litigation and conduct costs | (780) | - | 780 | - | - |
| Operating expenses | (3,883) | - | - | 500 | (3,383) |
| Profit before impairment losses | 476 | (7) | - | (216) | 253 |
| Impairment losses | 801 | - | - | 46 | 847 |
| Operating profit | 1,277 | (7) | - | (170) | 1,100 |
| Own credit adjustments (3) | 49 | (49) | - | - | - |
| Citizens discontinued operations | (170) | - | - | 170 | - |
| RFS Holdings minority interest | (56) | 56 | - | - | - |
| Profit before tax | 1,100 | - | - | - | 1,100 |
| Tax charge | (277) | - | - | - | (277) |
| Profit for continuing operations | 823 | - | - | - | 823 |
| Profit from discontinued operations, net of tax | |||||
| - Citizens | 114 | - | - | - | 114 |
| - Other | 3 | - | - | - | 3 |
| Profit from discontinued operations, net of tax | 117 | - | - | - | 117 |
| Profit for the period | 940 | - | - | - | 940 |
| Non-controlling interests | 53 | - | - | - | 53 |
| Preference share and other dividends | (97) | - | - | - | (97) |
| Profit attributable to ordinary and B shareholders | 896 | - | - | - | 896 |
For the notes to this table refer to the following page.
| Quarter ended 31 December 2013 |
|||||
|---|---|---|---|---|---|
| Non- | Reallocation of | Presentational | |||
| statutory | one-off items adjustments (1) | CFG (2) | Statutory | ||
| £m | £m | £m | £m | £m | |
| Interest receivable | 3,973 | - | - | (536) | 3,437 |
| Interest payable | (1,206) | (3) | - | 55 | (1,154) |
| Net interest income | 2,767 | (3) | - | (481) | 2,283 |
| Fees and commissions receivable | 1,370 | - | - | (187) | 1,183 |
| Fees and commissions payable | (244) | - | - | 4 | (240) |
| Income from trading activities | 162 | 15 | - | (2) | 175 |
| Gain on redemption of own debt | - | (29) | - | - | (29) |
| Other operating income | (115) | 146 | - | (38) | (7) |
| Non-interest income | 1,173 | 132 | - | (223) | 1,082 |
| Total income | 3,940 | 129 | - | (704) | 3,365 |
| Staff costs | (1,539) | (1) | (1) | 250 | (1,291) |
| Premises and equipment | (614) | - | (86) | 78 | (622) |
| Other administrative expenses | (985) | 1 | (2,976) | 175 | (3,785) |
| Depreciation and amortisation | (344) | - | 8 | 15 | (321) |
| Restructuring costs | (180) | - | 180 | - | - |
| Litigation and conduct costs | (2,875) | - | 2,875 | - | - |
| Write down of goodwill and other intangible assets | (344) | (1,059) | - | - | (1,403) |
| Operating expenses | (6,881) | (1,059) | - | 518 | (7,422) |
| Loss before impairment losses | (2,941) | (930) | - | (186) | (4,057) |
| Impairment losses | (5,112) | - | - | 82 | (5,030) |
| Operating loss | (8,053) | (930) | - | (104) | (9,087) |
| Gain on redemption of own debt | (29) | 29 | - | - | - |
| Write down of goodwill | (1,059) | 1,059 | - | - | - |
| Strategic disposals | 168 | (168) | - | - | - |
| Citizens discontinued operations | (104) | - | - | 104 | - |
| RFS Holdings minority interest | (10) | 10 | - | - | - |
| Loss before tax | (9,087) | - | - | - | (9,087) |
| Tax charge | 403 | - | - | - | 403 |
| Loss for continuing operations | (8,684) | - | - | - | (8,684) |
| Profit from discontinued operations, net of tax | |||||
| - Citizens | 78 | - | - | - | 78 |
| - Other | 15 | - | - | - | 15 |
| Profit from discontinued operations, net of tax | 93 | - | - | - | 93 |
| Loss for the period | (8,591) | - | - | - | (8,591) |
| Non-controlling interests | 3 | - | - | - | 3 |
| Preference share and other dividends | (114) | - | - | - | (114) |
| Loss attributable to ordinary and B shareholders | (8,702) | - | - | - | (8,702) |
Notes:
(1) Reallocation of restructuring costs and litigation and conduct costs into the statutory operating expense lines.
(2) The statutory results of Citizens Financial Group (CFG), which is classified as a discontinued operation.
(3) Reallocation of £40 million loss (FY 2013 - £35 million gain; Q4 2014 - £84 million loss; Q3 2014 - £33 million gain; Q4 2013 - £15 million gain) to income from trading activities and £106 million loss (FY 2013 - £155 million loss; Q4 2014 - £60 million loss; Q3 2014 - £16 million gain; Q4 2013 - £15 million loss) to other operating income.
In accordance with IFRS 5, assets and liabilities of disposal groups are presented as a single line on the face of the balance sheet. As allowed by IFRS, disposal groups are included within risk measures in the Capital and risk management Appendix.
| 31 December 2014 | 31 December 2013 | |||||
|---|---|---|---|---|---|---|
| Gross of | Gross of | |||||
| Balance | Disposal | disposal | Balance | Disposal | disposal | |
| sheet | groups (1) | groups | sheet | groups (2) | groups | |
| £m | £m | £m | £m | £m | £m | |
| Assets | ||||||
| Cash and balances at central banks | 74,872 | 622 | 75,494 | 82,659 | 2 | 82,661 |
| Net loans and advances to banks | 23,027 | 1,745 | 24,772 | 27,555 | 22 | 27,577 |
| Reverse repurchase agreements and stock borrowing | 20,708 | - | 20,708 | 26,516 | 41 | 26,557 |
| Loans and advances to banks | 43,735 | 1,745 | 45,480 | 54,071 | 63 | 54,134 |
| Net loans and advances to customers | 334,251 | 60,550 | 394,801 | 390,825 | 1,765 | 392,590 |
| Reverse repurchase agreements and stock borrowing | 43,987 | - | 43,987 | 49,897 | - | 49,897 |
| Loans and advances to customers | 378,238 | 60,550 | 438,788 | 440,722 | 1,765 | 442,487 |
| Debt securities | 86,649 | 15,293 | 101,942 | 113,599 | 24 | 113,623 |
| Equity shares | 5,635 | 572 | 6,207 | 8,811 | - | 8,811 |
| Settlement balances | 4,667 | - | 4,667 | 5,591 | - | 5,591 |
| Derivatives | 353,590 | 402 | 353,992 | 288,039 | 1 | 288,040 |
| Intangible assets | 7,781 | 583 | 8,364 | 12,368 | 30 | 12,398 |
| Property, plant and equipment | 6,167 | 503 | 6,670 | 7,909 | 32 | 7,941 |
| Deferred tax | 1,540 | - | 1,540 | 3,478 | 1 | 3,479 |
| Prepayments, accrued income and other assets | 5,878 | 1,741 | 7,619 | 7,614 | 936 | 8,550 |
| Assets of disposal groups | 82,011 | (82,011) | - | 3,017 | (2,854) | 163 |
| Total assets | 1,050,763 | - 1,050,763 | 1,027,878 | - 1,027,878 | ||
| Liabilities | ||||||
| Bank deposits | 35,806 | 5,128 | 40,934 | 35,329 | - | 35,329 |
| Repurchase agreements and stock lending | 24,859 | 1,666 | 26,525 | 28,650 | - | 28,650 |
| Deposits by banks | 60,665 | 6,794 | 67,459 | 63,979 | - | 63,979 |
| Customer deposits | 354,288 | 60,583 | 414,871 | 414,396 | 3,273 | 417,669 |
| Repurchase agreements and stock lending | 37,351 | 706 | 38,057 | 56,484 | - | 56,484 |
| Customer accounts | 391,639 | 61,289 | 452,928 | 470,880 | 3,273 | 474,153 |
| Debt securities in issue | 50,280 | 1,625 | 51,905 | 67,819 | - | 67,819 |
| Settlement balances | 4,503 | - | 4,503 | 5,313 | - | 5,313 |
| Short positions | 23,029 | - | 23,029 | 28,022 | - | 28,022 |
| Derivatives | 349,805 | 144 | 349,949 | 285,526 | 1 | 285,527 |
| Accruals, deferred income and other liabilities | 13,346 | 683 | 14,029 | 16,017 | 101 | 16,118 |
| Retirement benefit liabilities | 2,579 | 197 | 2,776 | 3,210 | 1 | 3,211 |
| Deferred tax | 500 | 362 | 862 | 507 | - | 507 |
| Subordinated liabilities | 22,905 | 226 | 23,131 | 24,012 | - | 24,012 |
| Liabilities of disposal groups | 71,320 | (71,320) | - | 3,378 | (3,376) | 2 |
| Total liabilities | 990,571 | - | 990,571 | 968,663 | - | 968,663 |
For the notes to this table refer to the following page.
| 31 December 2014 | 31 December 2013 | |||||
|---|---|---|---|---|---|---|
| Gross of | Gross of | |||||
| Balance | Disposal | disposal | Balance | Disposal | disposal | |
| sheet | groups (1) | groups | sheet groups (2) | groups | ||
| £m | £m | £m | £m | £m | £m | |
| Selected financial data | ||||||
| Gross loans and advances to customers | 351,711 | 61,090 | 412,801 | 415,978 | 1,774 | 417,752 |
| Customer loan impairment provisions | (17,460) | (540) | (18,000) | (25,153) | (9) | (25,162) |
| Net loans and advances to customers (4) | 334,251 | 60,550 | 394,801 | 390,825 | 1,765 | 392,590 |
| Gross loans and advances to banks | 23,067 | 1,745 | 24,812 | 27,618 | 22 | 27,640 |
| Bank loan impairment provisions | (40) | - | (40) | (63) | - | (63) |
| Net loans and advances to banks (4) | 23,027 | 1,745 | 24,772 | 27,555 | 22 | 27,577 |
| Total loan impairment provisions | 17,500 | 540 | 18,040 | (25,216) | (9) | (25,225) |
| Customer REIL | 26,842 | 1,335 | 28,177 | 39,322 | - | 39,322 |
| Bank REIL | 42 | - | 42 | 70 | - | 70 |
| REIL | 26,884 | 1,335 | 28,219 | 39,392 | - | 39,392 |
| Gross unrealised gains on debt securities | 1,316 | 261 | 1,566 | 1,541 | - | 1,541 |
| Gross unrealised losses on debt securities | (145) | (137) | (282) | (887) | - | (887) |
Notes:
(1) Primarily Citizens.
(2) Primarily investment in associate (Direct Line Group) and Illinois branches of RBS Citizens.
(3) Primarily Direct Line Group.
(4) Excludes reverse repos.
| Ye de d 3 1 D be r 2 01 3* ar en ec em |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| PB B |
CP B |
CIB | |||||||||
| Uls ter |
Co ial mm erc |
Pri te va |
Ce ntr al |
To tal |
|||||||
| UK PB B |
Ba nk |
To tal |
Ba nk ing |
Ba nk ing |
To tal |
( 1) ite ms |
CF G |
n-C No ore |
S RB |
||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| Inc tat t om e s em en |
|||||||||||
| Ne t in ter est in co me |
4, 49 0 |
61 9 |
5, 109 |
1, 96 2 |
65 8 |
2, 62 0 |
68 4 |
78 3 |
1, 89 2 |
( 96 ) |
10 99 2 , |
| No n-i nte t in res co me |
1, 32 3 |
24 0 |
1, 56 3 |
1, 195 |
41 9 |
1, 61 4 |
4, 32 4 |
126 | 1, 07 3 |
( 25 0) |
8, 45 0 |
| To tal inc om e |
5, 81 3 |
85 9 |
6, 67 2 |
3, 157 |
1, 07 7 |
4, 23 4 |
5, 00 8 |
90 9 |
2, 96 5 |
( 34 6) |
19 44 2 , |
| Dir ect ex pe nse s |
|||||||||||
| sta ff c ost s - |
( 92 8) |
( 23 9) |
( 1, 167 ) |
( 51 3) |
( 31 7) |
( 83 0) |
( 97 9) |
( 2, 62 5) |
( 1, 09 1) |
( 190 ) |
( 6, 88 2) |
| oth ts er cos - |
( 52 4) |
( 63 ) |
( 58 7) |
( 26 9) |
( 84 ) |
( 35 3) |
( 68 8) |
( 4, 31 2) |
( 98 6) |
( 20 2) |
( 7, 128 ) |
| Ind ire ct ex pe nse s |
( 1, 95 4) |
( 26 3) |
( 2, 21 7) |
( 89 1) |
( 47 5) |
( 1, 36 6) |
( 2, 90 0) |
6, 80 7 |
( 11 1) |
( 21 3) |
- |
| Re str uct uri ts ng cos |
|||||||||||
| dir ect - |
( 118 ) |
( 27 ) |
( 145 ) |
( 18 ) |
( 18 ) |
( 36 ) |
( 76 ) |
( 36 7) |
( 16 ) |
( 16 ) |
( 65 6) |
| ind ire ct - |
( 109 ) |
( 12 ) |
( 12 1) |
( 37 ) |
( 9) |
( 46 ) |
( 126 ) |
29 9 |
- | ( 6) |
- |
| Liti tio nd nd uct sts ga n a co co |
( 0) 86 |
( ) 90 |
( 0) 95 |
( 7) 24 |
( 6) 20 |
( 3) 45 |
( 1) 2, 44 |
- | - | - | ( 4) 3, 84 |
| Op tin era g e xp en se s |
( 4, 49 3) |
( 69 4) |
( 5, 187 ) |
( 1, 97 5) |
( 1, 109 ) |
( 3, 08 4) |
( 7, 21 0) |
( 198 ) |
( 2, 20 4) |
( 62 7) |
( 18 51 0) , |
| Pro fit/ ( los s) be for e i air los nt mp me se s |
1, 32 0 |
165 | 1, 48 5 |
1, 182 |
( 32 ) |
1, 150 |
( 2, 20 2) |
71 1 |
76 1 |
( 97 3) |
93 2 |
| Im irm t lo pa en sse s |
( 50 1) |
( 1, 4) 77 |
( 2, 27 5) |
( 65 2) |
( 29 ) |
( 68 1) |
( 68 0) |
( 64 ) |
( 156 ) |
( 4, 6) 57 |
( 8, 43 2) |
| Op tin rof it/( los s) era g p |
81 9 |
( 1, 60 9) |
( 79 0) |
53 0 |
( 61 ) |
46 9 |
( 2, 88 2) |
64 7 |
60 5 |
( 5, 54 9) |
( 7, 50 0) |
| Ad dit ion al inf ati orm on |
|||||||||||
| Op ( £m ) ( 2) tin ad jus ted era g e xp en se s - |
( 6) 3, 40 |
( 5) 56 |
( 1) 3, 97 |
( 3) 1, 67 |
( 6) 87 |
( 9) 2, 54 |
( 7) 4, 56 |
( ) 130 |
( ) 2, 188 |
( 5) 60 |
( 0) 14 01 , |
| Op tin rof it/( los s) dju ste d ( £m ) ( 2) era g p - a |
1, 90 6 |
( 1, 48 0) |
42 6 |
83 2 |
172 | 1, 00 4 |
( 23 9) |
71 5 |
62 1 |
( 5, 52 7) |
( 3, 00 0) |
| f R CR Im irm ts rta inin to the tio pa en pe g cr ea n o |
( 2) |
( 2) 89 |
( 4) 89 |
( ) 123 |
- | ( ) 123 |
( 5) 35 |
- | - | ( ) 3, 118 |
( 0) 4, 49 |
| Re tur ity ( 3) n o n e qu |
9.8 % |
( 33 .2% ) |
( 5.7 % ) |
4.9 % |
( 3.1 % ) |
3.7 % |
( 12 .9% ) |
nm | 5.7 % |
nm | ( 18 .7% ) |
| d ( 3) Re tur ity dju ste 2, n o n e qu - a |
.8% 22 |
( .6% ) 30 |
% 3.1 |
% 7.7 |
% 8.7 |
% 7.9 |
( % ) 1.1 |
nm | % 5.8 |
nm | ( .8% ) 11 |
| Co st: inc ati om e r o |
77 % |
81 % |
78 % |
63 % |
103 % |
73 % |
144 % |
nm | 74 % |
nm | 95 % |
| Co ( 2) st: inc ati ad jus ted om e r o - |
% 59 |
% 66 |
% 60 |
% 53 |
% 81 |
% 60 |
% 91 |
nm | % 74 |
nm | % 72 |
| Fu nd ed set s ( £b n) as |
132 .2 |
28 .0 |
160 .2 |
87 .9 |
21 .0 |
108 .9 |
26 8.6 |
102 .8 |
71 .3 |
28 .0 |
73 9.8 |
| ( £b n) To tal ets ass |
132 .2 |
28 .2 |
160 .4 |
87 .9 |
21 .2 |
109 .1 |
55 1.2 |
104 .3 |
71 .7 |
31 .2 |
1, 02 7.9 |
| Ris k-w eig hte d a ts ( £b n) sse |
51 .2 |
30 .7 |
81 .9 |
65 .8 |
12 .0 |
77 .8 |
120 .4 |
20 .1 |
56 .1 |
29 .2 |
38 5.5 |
| ( s) Em loy mb FT Es - t ho nd p ee nu ers usa |
26 .6 |
4.7 | 31 .3 |
7.3 | 3.5 | 10 .8 |
4.6 | 51 .8 |
18 .8 |
1.3 | 118 .6 |
| CR ( £b n) RW As nd int R b is a t 1 Ja 20 14 - e -po as nu ary |
49 .7 |
28 .2 |
77 .9 |
61 .5 |
12 .0 |
73 .5 |
147 .1 |
23 .3 |
60 .6 |
46 .7 |
42 9.1 |
nm = not meaningful
* Restated - refer to page 77 of the main announcement.
For the notes to this table refer to page 4.
| Qu art de d 3 0 S tem be r 2 01 4 er en ep |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| PB B |
CP B |
CIB | ||||||||||
| UK PB B |
Uls ter Ba nk |
To tal |
Co ial mm erc Ba nk ing |
Pri te va Ba nk ing |
To tal |
Ce ntr al ( 1) ite ms |
CF G |
RC R |
To tal S RB |
|||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||
| Inc tat t om e s em en |
||||||||||||
| Ne t in in ter est co me |
1, 198 |
163 | 1, 36 1 |
52 1 |
172 | 69 3 |
23 0 |
109 | 49 3 |
( 23 ) |
2, 86 3 |
|
| No n-i nte t in res co me |
34 5 |
51 | 39 6 |
29 0 |
98 | 38 8 |
60 1 |
( 9) 24 |
21 5 |
145 | 1, 49 6 |
|
| To tal inc om e |
1, 54 3 |
21 4 |
1, 75 7 |
81 1 |
27 0 |
1, 08 1 |
83 1 |
( ) 140 |
70 8 |
122 | 4, 35 9 |
|
| Dir ect ex pe nse s |
||||||||||||
| ff c sta ost s - |
( 22 3) |
( ) 57 |
( 28 0) |
( 124 ) |
( 79 ) |
( 20 3) |
( 179 ) |
( 65 7) |
( 25 5) |
( 37 ) |
( 1, 61 1) |
|
| oth ts er cos - |
( ) 78 |
( ) 20 |
( ) 98 |
( ) 54 |
( ) 19 |
( ) 73 |
( ) 50 |
( 6) 83 |
( 1) 23 |
( ) 24 |
( 2) 1, 31 |
|
| Ind ire ct ex pe nse s |
( 48 1) |
( 61 ) |
( 2) 54 |
( 196 ) |
( 105 ) |
( 30 1) |
( 59 3) |
1, 46 0 |
- | ( 24 ) |
- | |
| Re str uct uri ts ng cos |
||||||||||||
| dir ect - |
( 2) |
- | ( 2) |
- | - | - | ( 22 ) |
( 143 ) |
( 13 ) |
- | ( 180 ) |
|
| ind ire ct - |
( ) 63 |
( ) 12 |
( ) 75 |
( ) 18 |
( 7) |
( ) 25 |
6 | 98 | - | ( 4) |
- | |
| Liti tio nd nd uct sts ga n a co co |
( 118 ) |
- | ( 118 ) |
- | - | - | ( 56 2) |
( 100 ) |
- | - | ( 78 0) |
|
| Op tin era g e xp en se s |
( 96 5) |
( 150 ) |
( 1, 115 ) |
( 39 2) |
( 21 0) |
( 60 2) |
( 1, 40 0) |
( 178 ) |
( 49 9) |
( 89 ) |
( 3, 88 3) |
|
| fit/ ( s) for Pro los be e i air nt los mp me se s |
8 57 |
64 | 64 2 |
41 9 |
60 | 9 47 |
( 56 9) |
( 31 8) |
20 9 |
33 | 6 47 |
|
| t ( s) /re Im irm los lea pa en se se s |
( ) 79 |
31 8 |
23 9 |
( ) 12 |
4 | ( 8) |
12 | ( 1) |
( ) 46 |
60 5 |
80 1 |
|
| Op rof it/( s) tin los era g p |
49 9 |
38 2 |
88 1 |
40 7 |
64 | 47 1 |
( 7) 55 |
( 9) 31 |
163 | 63 8 |
1, 27 7 |
|
| dit ion inf ati Ad al orm on |
||||||||||||
| Op ( £m ) ( 2) tin ad jus ted era g e xp en se s - |
( 2) 78 |
( ) 138 |
( 0) 92 |
( 4) 37 |
( 3) 20 |
( 7) 57 |
( 2) 82 |
( ) 33 |
( 6) 48 |
( ) 85 |
( 3) 2, 92 |
|
| Op rof it/( s) d ( £m ) ( 2) tin los dju ste era g p - a |
68 2 |
39 4 |
1, 07 6 |
42 5 |
71 | 49 6 |
21 | ( ) 174 |
176 | 64 2 |
2, 23 7 |
|
| ( 3) Re tur ity n o n e qu |
.9% 26 |
.2% 42 |
.6% 30 |
.0% 16 |
.3% 13 |
.5% 15 |
( .0% ) 11 |
nm | % 5.6 |
nm | % 8.2 |
|
| d ( 3) Re tur ity dju ste 2, n o n e qu - a |
.8% 36 |
.5% 43 |
.4% 37 |
.7% 16 |
.8% 14 |
.4% 16 |
% 0.4 |
nm | % 6.1 |
nm | .0% 16 |
|
| Co st: inc ati om e r o |
% 63 |
% 70 |
% 63 |
% 48 |
% 78 |
% 56 |
% 168 |
nm | % 71 |
nm | % 89 |
|
| Co ( 2) st: inc ati ad jus ted om e r o - |
% 51 |
% 64 |
% 52 |
% 46 |
% 75 |
% 53 |
% 99 |
nm | % 69 |
nm | % 67 |
|
| s ( £b n) Fu nd ed set as |
134 .2 |
26 .3 |
160 .5 |
89 .7 |
21 .0 |
110 .7 |
27 4.9 |
87 .6 |
80 .5 |
17 .9 |
73 2.1 |
|
| ( £b n) To tal ets ass |
134 .2 |
26 .5 |
160 .7 |
89 .7 |
21 .1 |
110 .8 |
57 2.9 |
89 .5 |
80 .9 |
31 .3 |
1, 04 6.1 |
|
| ( £b n) Ris k-w eig hte d a ts sse |
44 .7 |
23 .9 |
68 .6 |
64 .9 |
12 .2 |
77 .1 |
123 .2 |
17 .8 |
64 .4 |
30 .6 |
38 1.7 |
|
| ( s) Em loy mb FT Es - t ho nd p ee nu ers usa |
25 .2 |
4.5 | 29 .7 |
6.8 | 3.5 | 10 .3 |
4.0 | 48 .5 |
17 .5 |
0.8 | 110 .8 |
For the notes to this table refer to page 4.
| Qu art de d 3 1 D be r 2 01 3* er en ec em |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| PB B |
CP B CIB |
||||||||||
| UK PB B £m |
Uls ter Ba nk £m |
To tal £m |
Co ial mm erc Ba nk ing £m |
Pri te va Ba nk ing £m |
To tal £m |
£m | Ce ntr al ( 1) ite ms £m |
CF G £m |
n-C No ore £m |
To tal S RB £m |
|
| Inc | |||||||||||
| tat t om e s em en Ne t in ter est in |
1, 149 |
164 | 1, 31 3 |
51 5 |
173 | 68 8 |
20 8 |
127 | 46 8 |
37 | 2, 76 7 |
| co me No n-i nte t in res co me |
34 5 |
38 | 38 3 |
30 1 |
103 | 40 4 |
84 0 |
( 138 ) |
24 0 |
( ) ( 55 6) |
1, 173 |
| To tal inc |
1, 49 4 |
20 2 |
1, 69 6 |
81 6 |
27 6 |
1, 09 2 |
1, 04 8 |
11 | 70 8 |
59 | 3, 94 0 |
| om e |
( ) |
( 3) |
|||||||||
| Dir ect ex pe nse s |
|||||||||||
| sta ff c ost s - |
( 23 0) |
( 51 ) |
( 28 1) |
( 132 ) |
( 63 ) |
( 195 ) |
( 138 ) |
( 64 1) |
( 24 9) |
( 35 ) |
( 1, 53 9) |
| oth ts er cos - |
( 20 3) |
( 21 ) |
( 22 4) |
( 68 ) |
( 33 ) |
( 10 1) |
( 26 7) |
( 1, 39 2) |
( 25 1) |
( 52 ) |
( 2, 28 7) |
| Ind ire ct ex pe nse s |
( 51 9) |
( ) 75 |
( 59 4) |
( 28 1) |
( 134 ) |
( 41 5) |
( 95 9) |
2, 05 1 |
( 31 ) |
( 52 ) |
- |
| Re str uct uri ts ng cos |
|||||||||||
| dir ect - |
( 27 ) |
( 9) |
( 36 ) |
( 1) |
( 14 ) |
( 15 ) |
( 25 ) |
( 95 ) |
( 11 ) |
2 | ( 180 ) |
| ind ire ct - |
( 41 ) |
( 3) |
( 44 ) |
( 14 ) |
( 3) |
( 17 ) |
35 | 28 | - | ( 2) |
- |
| Liti tio nd nd uct sts ga n a co co |
( 0) 45 |
( ) 65 |
( 5) 51 |
( 2) 22 |
( 6) 20 |
( 8) 42 |
( 2) 1, 93 |
- | - | - | ( 5) 2, 87 |
| Op tin era g e xp en se s |
( 1, 47 0) |
( 22 4) |
( 1, 69 4) |
( 71 8) |
( 45 3) |
( 1, 17 1) |
( 3, 28 6) |
( 49 ) |
( 54 2) |
( 139 ) |
( 6, 88 1) |
| Pro fit/ ( los s) be for e i air los nt mp me se s |
24 | ( 22 ) |
2 | 98 | ( 177 ) |
( 79 ) |
( 2, 23 8) |
( 60 ) |
166 | ( 73 2) |
( 2, 94 1) |
| Im irm t ( los s) /re lea pa en se se s |
( 107 ) |
( 1, 06 7) |
( 1, 174 ) |
( 27 7) |
( 21 ) |
( 29 8) |
( 42 9) |
( 1) |
( 46 ) |
( 3, 164 ) |
( 5, 112 ) |
| Op tin rof it/( los s) era g p |
( 83 ) |
( 1, 08 9) |
( 1, 172 ) |
( 179 ) |
( 198 ) |
( 37 7) |
( 2, 66 7) |
( 61 ) |
120 | ( 3, 89 6) |
( 8, 05 3) |
| Ad dit ion al inf ati orm on |
|||||||||||
| Op tin ad jus ted ( £m ) ( 2) era g e xp en se s - |
( 95 2) |
( 147 ) |
( 1, 09 9) |
( 48 1) |
( 23 0) |
( 71 1) |
( 1, 36 4) |
18 | ( 53 1) |
( 139 ) |
( 3, 82 6) |
| Op tin rof it/( los s) dju ste d ( £m ) ( 2) era g p - a |
43 5 |
( 1, 01 2) |
( 57 7) |
58 | 25 | 83 | ( 74 5) |
6 | 13 1 |
( 3, 89 6) |
( 4, 99 8) |
| f R CR Im irm ts rta inin to the tio pa en pe g cr ea n o |
( 2) |
( 2) 89 |
( 4) 89 |
( ) 123 |
- | ( ) 123 |
( 5) 35 |
- | - | ( ) 3, 118 |
( 0) 4, 49 |
| Re tur ity ( 3) n o n e qu |
( 4.0 % ) |
( 97 .8% ) |
( 35 .2% ) |
( 6.7 % ) |
( 41 .0% ) |
( 12 .0% ) |
( 53 .1% ) |
nm | 4.7 % |
nm | ( 76 .3% ) |
| Re ity dju d ( 2, 3) tur ste n o n e qu - a |
21 .1% |
( 90 .9% ) |
( 17 .3% ) |
2.1 % |
5.2 % |
2.6 % |
( 14 .9% ) |
nm | 5.1 % |
nm | ( .6% ) 57 |
| Co st: inc ati om e r o |
98 % |
11 1% |
100 % |
88 % |
164 % |
107 % |
31 4% |
nm | 77 % |
nm | 175 % |
| Co st: inc ati ad jus ted ( 2) om e r o - |
64 % |
73 % |
65 % |
59 % |
83 % |
65 % |
130 % |
nm | 75 % |
nm | 97 % |
| s ( £b n) Fu nd ed set as |
132 .2 |
28 .0 |
160 .2 |
87 .9 |
21 .0 |
108 .9 |
26 8.6 |
102 .8 |
71 .3 |
28 .0 |
73 9.8 |
| To tal ets ( £b n) ass |
132 .2 |
28 .2 |
160 .4 |
87 .9 |
21 .2 |
109 .1 |
55 1.2 |
104 .3 |
71 .7 |
31 .2 |
1, 02 7.9 |
| Ris k-w eig hte d a ( £b n) ( 4) ts sse |
51 .2 |
30 .7 |
81 .9 |
65 .8 |
12 .0 |
.8 77 |
120 .4 |
20 .1 |
56 .1 |
29 .2 |
38 5.5 |
| Em loy mb ( FT Es - t ho nd s) p ee nu ers usa |
26 .6 |
4.7 | 31 .3 |
7.3 | 3.5 | 10 .8 |
4.6 | 51 .8 |
18 .8 |
1.3 | 118 .6 |
| CR ( £b n) RW As nd int R b is a t 1 Ja 20 14 - e -po as nu ary |
49 .7 |
28 .2 |
77 .9 |
61 .5 |
12 .0 |
73 .5 |
147 .1 |
23 .3 |
60 .6 |
46 .7 |
42 9.1 |
*Restated - refer to page 77 of the main announcement.
For the notes to this table refer to the following page.
Notes:
RBS is committed to a leaner, less volatile business based around its core franchises of PBB and CPB. The following table shows the go-forward bank as well those elements from which RBS intends to exit. Significant progress towards those exits is expected in 2015.
| Go -fo ard bu sin rof ile ( for 20 14 ) rw es s p p ro- ma |
Ex it g iew ( for 20 14 ) rou p ov erv p ro- ma |
|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Int ati al ern on |
||||||||||||||||
| UK | Uls ter |
Co ial mm erc |
Pri te va |
CIB g o- |
Ot he r g o- |
To tal g o- |
CIB | Wi llia ms |
riv ate p |
Ot he r |
To tal |
To tal |
||||
| B ( 1) PB |
Ba nk |
ing Ba nk |
ing ( 2) Ba nk |
for rd wa |
for ( ) rd 3 wa |
for rd wa |
leg ac y |
n ( 4) & G ly |
ing ( ) ba nk 5 |
Cit ize ns |
RC R |
inv tm ts es en |
it g ex rou p |
S RB |
||
| £b n |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
£b n |
||
| To tal inc om e |
5.2 | 0.8 | 3.2 | 0.9 | 2.0 | - | 12 .1 |
1.9 | 0.9 | 0.2 | 3.1 | - | - | 6.1 | 18 .2 |
|
| To tal tin op era g e xp en se s |
||||||||||||||||
| adj ed ( 6) ust - |
( ) 2.9 |
( ) 0.6 |
( ) 1.6 |
( ) 0.6 |
( ) 1.8 |
( ) 0.1 |
( ) 7.6 |
( ) 1.8 |
( ) 0.4 |
( ) 0.2 |
( ) 2.0 |
( ) 0.4 |
- | ( ) 4.8 |
( .4) 12 |
|
| Im irm t lo s/( rel s) pa en sse ea se |
( ) 0.2 |
0.4 | ( ) 0.1 |
- | - | 0.1 | 0.2 | - | ( ) 0.1 |
- | ( ) 0.2 |
1.3 | - | 1.0 | 1.2 | |
| Op tin rof it - adj ed ( 6) ust era g p |
2.1 | 0.6 | 1.5 | 0.3 | 0.3 | ( ) 0.2 |
4.6 | 0.1 | 0.4 | - | 0.9 | 1.0 | - | 2.4 | 7.0 | |
| Fu nd ed set as s |
11 4 |
28 | 89 | 15 | 16 9 |
87 | 50 2 |
72 | 20 | 6 | 81 | 15 | 1 | 5 19 |
69 7 |
|
| Ris k-w eig hte d a ts sse |
32 | 24 | 64 | 10 | 46 | 10 | 18 6 |
61 | 11 | 2 | 68 | 22 | 6 | 17 0 |
35 6 |
|
| Re ity dju d ( % ) ( 6) tur ste n o n e qu - a |
36 % |
16 % |
15 % |
18 % |
nm | nm | 13 % |
nm | nm | ( 5% ) |
8% | nm | nm | 8% | 10 % |
Notes:
(1) Excludes Williams & Glyn.
(2) Excludes international private banking.
(3) Other go-forward is primarily centre, which includes the liquidity portfolio.
(4) Does not reflect the cost base, funding and capital profile of a standalone bank.
(5) Private banking and wealth management activities outside of the British Isles, broadly indicative of the businesses being exited.
(6) Segmental adjusted RoE excludes restructuring and conduct and litigation costs and is calculated using a 25% notional tax rate and equity equivalent to 12% of average segmental RWAs. Total RBS adjusted RoE excludes restructuring, conduct and litigation costs, own credit adjustments, gain on own debt, write down of goodwill, strategic disposals, discontinued operations and RFS minority interest but includes charges for preference dividends and a notional 25% tax rate. It is calculated using RBS tangible equity. PBB adjusted RoE - 28%; CPB adjusted RoE - 15%.
| C I B fu ha f he bu in tu t re s p e o s es s - |
31 De mb 20 14 ce er |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Cu CIB nt rre |
ard | No ic tra teg n-s |
||||||||
| RW As |
Inc om e |
RW As |
Inc om e |
RW As |
Inc om e |
|||||
| ion Re g |
£b n |
£m | £b n |
£m | £b n |
£m | ||||
| /Eu e ( 1) UK rop |
71 | 2, 48 8 |
34 | 1, 63 0 |
37 | 85 8 |
||||
| US ( 2) |
24 | 97 4 |
11 | 27 4 |
14 | 70 0 |
||||
| AC AP |
12 | 48 7 |
2 | 11 1 |
10 | 37 6 |
||||
| To tal |
10 7 |
3, 94 9 |
46 | 2, 01 5 |
61 | 1, 93 4 |
||||
| Ge hic al f tpr int (co trie s) og rap oo un |
38 | 13 | 25 |
Notes:
(1) EMEA.
(2) North America. (3) Based on 2014 financials.
Our product offering will reduce by over a half as will the number of products and desks in our Markets business.
Set out below are certain risk factors which could adversely affect the Group's future results, its financial condition and prospects and cause them to be materially different from what is expected. The factors discussed below and elsewhere in this report should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties facing the Group.
The Group's ability to achieve its capital targets will depend on the success of the Group's plans to further reduce the size of its business through the restructuring of its corporate and institutional banking business and make further divestments of certain of its portfolios and businesses including its remaining stake in Citizens Financial Group.
In response to the global economic and financial crisis that began in 2008 and the weak economic environment that followed, the Group engaged in a financial and core business restructuring focused on achieving appropriate risk-adjusted returns under these changed circumstances, reducing reliance on wholesale funding, lowering exposure to capital-intensive businesses and meeting new capital standard requirements. In November 2013, following HM Treasury's assessment of the merits of creating an external "bad bank" to hold certain assets of the Group, the Group committed to take a series of actions to further derisk its business and strengthen its capital position. In order to strengthen its capital position and CET1 ratio, the Group decided to accelerate the divestment of Citizens Financial Group (CFG), the Group's US banking subsidiary, by selling off 28.75% in an initial public offering in September 2014, and fully divesting its interest in CFG by the end of 2016; and to intensify management actions to reduce risk weighted assets (including through an accelerated divestment of certain of the non-core assets transferred to RBS Capital Resolution ("RCR")).
In the first quarter of 2015, the Group announced its intention to restructure its corporate and institutional banking ("CIB") business to focus on UK corporate and financial institutions with a targeted presence in selected western European customer segments. The future CIB model will:
Following the decision to refine the CIB business model, the Group has decided to lift its capital targets and move to a CET1 ratio of around 13% during the restructuring period (higher than the targets of 11% by 31 December 2015 and above 12% by the end of 2016 previously announced).
In addition, the Group is in the process of implementing the new divisional and functional structure put into place in 2014 and, as a result of the restructuring of its CIB business, is now taking further steps to implement a number of strategic initiatives which will result in a further reduction of the Group's balance sheet as well as the scope of its activities. Implementation by the Group of these initiatives will require significant restructuring of the Group at the same time that it will also be implementing structural changes to comply with regulatory changes including those introduced under the UK Financial Services (Banking Reform) Act 2013 (the "Banking Reform Act 2013"), including its ring-fencing requirements (the "ring-fence"). See also 'Implementation of the ring-fence in the UK which will begin in 2015 will result in material structural changes to the Group's business. These changes could have a material adverse effect on the Group'. There can be no assurance that the Group will be able to successfully implement this restructuring programme together with other changes required of the Group in the time frames contemplated or at all, and, as a result, the Group may not be able to meet its capital targets.
The Group's ability to dispose of businesses and certain portfolios, including the further disposal of its remaining stake in CFG and potential disposals associated with the restructuring of its CIB business, and the price achieved for such disposals will be dependent on prevailing economic and market conditions, which remain volatile. As a result there is no assurance that the Group will be able to sell or run down (as applicable) the businesses it is now planning 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. 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 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 strategic plan and achieve its capital targets and could have a material adverse effect on the Group's business, reputation, results of operations, financial condition and cash flows. There can also be no assurance that if the Group is able to execute its new strategic plan that the new strategy will ultimately be successful or beneficial to the Group.
Implementation of the ring-fence in the UK which will begin in 2015 will result in material structural changes to the Group's business. These changes could have a material adverse effect on the Group.
The UK Government's White Paper on Banking Reform published in September 2012 outlined material structural reforms in the UK banking industry. The measures were drawn in large part from the recommendations of the Independent Commission on Banking ("ICB"), which in its final report published in 2012, included the implementation of a ring-fence of retail banking operations. The implementation of the ring-fencing of retail banking operations was introduced under the Banking Reform Act 2013. The Banking Reform Act 2013 provided primary enabling legislation in the short term with a view to completing the legislative framework for the ring-fence of retail banking operations by May 2015, requiring compliance as soon as practicable thereafter and setting a final deadline for full implementation by 2019. In June 2014, HM Treasury published two statutory instruments, which were passed by Parliament in July 2014, setting out the detail of the ring-fencing regime, specifying which entities will be "ring-fenced banks" and the activities and services that ring-fenced banks can, and cannot, conduct which came into force on 1 January 2015. In October 2014, the PRA published its first consultation paper (CP19/14) on the PRA's ring-fencing rules, focusing on legal structure, governance and continuity of services and facilities. The PRA requested that all firms expected to be affected by ring-fencing, including the Group, submit a preliminary plan of their anticipated legal and operating structures to their supervisors by 6 January 2015, which the Group has done. The PRA will carry out further consultations during 2015 with the Group and other affected UK banks and is expected publish its final rules and supervisory statements during 2016.
Although final rules and supervisory statements will not be available until later in 2015 and early 2016, based on the proposals put forward by the Group to the PRA and the FCA to implement the ring-fence, the Group has identified a number of material risks associated with such implementation in addition to the uncertainty associated with starting to plan implementation before final rules and guidance are in place. These risks will be exacerbated by the Group's other ongoing restructuring efforts.
Implementation of the ring-fence proposals in the UK will result in major changes to the Group's corporate structure, to the delivery of its business activities conducted in the UK and other jurisdictions where the Group will operate, as well as changes to the Group's business model. The steps required to implement the ring-fence of its retail and certain other core banking activities in the UK from other activities of the Group as well as restructuring other operations within the Group in order to comply with the new rules and regulations are extraordinarily complex and will take an extended period of time to put into place. Implementation will be costly and there can be no assurance that the ring-fence of the RFB and the NRFB will be completed on time to meet the regulatory deadline in 2019. As a result, the implementation of the ring-fence could have a material adverse effect on the Group's reputation, results of operations, financial condition and prospects.
The Group continues to implement certain divestment and restructuring activities announced in 2013 and 2014 as part of its 2013/2014 Strategic Plan but will now enter a further period of major restructuring through the implementation of the regulatory regime relating to the ring-fence of financial institutions by 2019 and the restructuring of the Group's CIB business. Although the goals of this long period of restructuring are to emerge as a less complex and safer bank there can be no assurance that the final results will be successful and that the Group will be a viable, competitive, customer focused and profitable bank.
In the third quarter of 2013 and in 2014, the Group revised its strategic plan by implementing its new divisional and functional structure and embarked on a major investment program to upgrade the Group's operations and IT infrastructure (the "2013/2014 Strategic Plan"). The 2013/2014 Strategic Plan built on the core business restructuring implemented by the Group after the financial crisis which initially focused on reducing the size of the Group's balance sheet, disposing of the "higher risk and capital intensive assets" in RCR and strengthening the Group's capital position, including though the full divestment of the Group's interest in CFG. The 2013/2014 Strategic Plan was intended to reduce the size of the Group's business, mainly within the Markets division, and further strengthen its capital position in response to continuing regulatory change and simplifying the Group by replacing the previous divisional structure with three customer facing franchises focused on the UK and a smaller group of UK based customers. The 2013/2014 Strategic Plan, the restructuring of the Group's CIB business, the implementation of a ring-fence compliant structure and the IT and operational investment programme (as described below) hereinafter collectively referred to as the "Transformation Plan". With the implementation of the Transformation Plan, and in particular the restructuring of the Group's CIB business and implementation of the regulatory ring-fence regime coming into force in the UK, the Group is entering a further period of major restructuring, that will require significant resource and management attention over the next four years, with the intent to continue simplifying the Group's business, making the bank safer by narrowing its business focus, further strengthening its capital position and improving its customer offering.
Each aspect of the implementation of the Transformation Plan carries material risks. See also 'Implementation by the Group of the various initiatives and programmes which form part of the Group's Transformation Plan subjects the Group to increased and material execution risk'. In addition, although the goal is to emerge as a simpler, safer, customer focused and profitable bank, the aggregate business of the Group will be materially smaller and different than the institution that entered the financial crisis as one of the largest and most diverse financial institutions in the world. On completion of the Transformation Plan in 2019 the Group will be primarily a UK and Western Europe focused bank with a much less diverse group of businesses, products and services. It will service a much smaller group of customers, including large corporate and financial institutions, with its focus and its potential for profitability and growth largely dependent on its success with its retail and SME customers in the UK.
This smaller customer base and geographic concentration also carry material business risks. As a result, in addition to the execution risks associated with completion of the Transformation Plan there can be no assurance that even if the Group executes the Transformation Plan it will prove to be a successful strategy or that the Group, on completion of the Transformation Plan, will be a viable, competitive, customer focused and profitable bank. For a further description of the risks associated with the various initiatives comprised in the Transformation Plan, See 'The Group's ability to achieve its capital targets will depend on the success of the Group's plans to further reduce the size of its business through the restructuring of its corporate and institutional banking business and make further divestments of certain of its portfolios and businesses including its remaining stake in Citizens Financial Group', 'Implementation of the ring-fence in the UK which will begin in 2015 will result in material structural changes to the Group's business. These changes could have a material adverse effect on the Group', 'The Group is currently implementing a number of significant investment and rationalisation initiatives as part of the Group's IT and operational investment programme. Should such investment and rationalisation initiatives fail to achieve the expected results, it could have a material adverse impact on the Group's operations and its ability to retain or grow its customer business'. Failure of the Transformation Plan to result in a viable, competitive, customer focused and profitable bank would have a material adverse effect on the Group's business, results of operations and financial condition.
The Group is currently implementing a number of significant investment and rationalisation initiatives as part of the Group's IT and operational investment programme. Should such investment and rationalisation initiatives fail to achieve the expected results, it could have a material adverse impact on the Group's operations and its ability to retain or grow its customer business.
The intent of the 2013/2014 Strategic Plan and of the restructuring of the Group's CIB business is to further simplify and downsize the Group with an increased focus on service to its customers. Such initiatives are being combined and supplemented with significant investments in technology and more efficient support functions intended to contribute to delivering significant improvements in the Group's Return on Equity and costs: income ratio in the longer term as well as improve the resilience, accessibility and product offering of the Group.
The Group started implementing an investment programme of £750 million in 2013 expected to run through 2015 to materially upgrade its IT capability in the UK, to enhance the digital services provided to its bank customers and also improve the reliability and resilience of the IT systems following a number of system failures in the past couple of years. This investment in the Group's IT capability is intended to address the material increase in customer use of online and mobile technology for banking over the past few years as well as provide the capability to continue to grow such services in the future. Increasingly many of the products and services offered by the Group are, and will become, technology intensive and the Group's ability to develop such services has become increasingly important to retaining and growing the Group's customer business in the UK.
If the Group is unable to offer competitive, attractive and innovative products that are also profitable, it could lose market share, incur losses on some or all of its activities and lose opportunities for growth. In addition to upgrading its current IT infrastructure, the Group is also undertaking a major project to rationalise its legacy IT infrastructure, aiming to lower costs and improve resilience. With the implementation of the ring-fence regulatory regime there will be further need to manage the Group's IT infrastructure to comply with the regulatory requirements of such regime.
As with any project of comparable size and complexity, there can be no assurance that the Group will be able to implement all of the initiatives forming part of its investment plan, including the IT investment programme on time or at all, and it may experience unexpected cost increases and delays. Any failure by the Group to realise the benefits of this investment programme, whether on time or at all, could have a material adverse effect on the Group's business, results of operations and its ability to retain or grow its customer business.
The level of structural change intended to be implemented within the Group over the medium term as a result of the Transformation Plan, taken together with the overall scale of change to make the Group a smaller, more focused financial institution, will be disruptive and is likely to increase operational and people risks for the Group and to impact its revenues and business. As a result of the material restructuring plans that make up the Transformation Plan, the Group is subject to increased and material execution risk in many areas including:
● The Transformation Plan makes certain assumptions about future regulation including, but not limited to, the rules to be issued by PRA and FCA in connection with the ring-fence regime. Material differences between the rules ultimately adopted and the assumptions made in the plan proposed to implement the ring-fence could make it impossible to execute the ring-fence as currently envisaged. The Transformation Plan is also intended to improve the Group's control environment, particularly in its remaining CIB franchise. Due to material uncertainties, factors beyond the Group's control, and the increased operational risk described above, there can be no guarantee that such improvements will be achieved in the timescale envisaged or at any time or that it will not result in further regulatory scrutiny.
If any of the risks outlined above were to occur, singly or in the aggregate, they could have a material adverse effect on the Group's business, results of operations and financial condition.
The Group is subject to a number of legal, regulatory and governmental actions and investigations. Unfavourable outcomes in such actions and investigations could have a material adverse effect on the Group's operations, operating results, investor confidence and reputation
The Group's operations are diverse and complex, and it operates in legal and regulatory environments that expose it to potentially significant litigation, regulatory and governmental investigations and other regulatory risk. As a result, the Group has recently settled a number of legal and regulatory investigations and is, and may in the future be, involved in a number of legal and regulatory proceedings and investigations in the UK, the EU, the US and other jurisdictions.
The Group is involved in ongoing class action litigation, investigations into foreign exchange trading and rate setting activities, continuing LIBOR related litigation and investigations, securitisation and securities related litigation, and anti-money laundering, sanctions, mis-selling and compliance related investigations, in addition to a number of other matters. In November 2014, the Group announced that it had reached a settlement with the FCA in the United Kingdom and with the Commodity Futures Trading Commission (CFTC) in the US in relation to investigations into failings in RBS's foreign exchange business within its Corporate and Institutional Banking division. The Group agreed to pay penalties of £217 million to the FCA and \$290 million to the CFTC to resolve the investigations. The Group continues to cooperate with these and other governmental and regulatory authorities and remains in discussion with these authorities on these issues including settlement discussions regarding the criminal investigation being conducted by the anti-trust and criminal division of the US Department of Justice and certain other financial regulatory authorities. Settlements in relation to these ongoing investigations may result in additional financial, non-monetary penalties, and collateral consequences, which may be material, and may give rise to additional legal claims being asserted against the Group. The Group entered into a deferred prosecution agreement in 2013 in connection with the settlement of the charges relating to the LIBOR investigation (the "LIBOR DPA"). Findings of misconduct by the US Department of Justice relating to the Group, its subsidiaries or employees, may result in a breach of the terms of the LIBOR DPA which may lead to an extension of its terms or further prosecution.
Legal, governmental and regulatory proceedings and investigations are subject to many uncertainties, and their outcomes, including the timing and amount of fines or settlements, which may be material, are often difficult to predict, particularly in the early stages of a case or investigation. It is expected that the Group will continue to have a material exposure to legacy litigation and governmental and regulatory proceedings and investigations in the medium term. For more detail on certain of the Group's ongoing legal, governmental and regulatory proceedings, see Note 15 in the main announcement. Adverse regulatory, governmental or law enforcement proceedings or adverse judgements in litigation could result in restrictions or limitations on the Group's operations or have a significant effect on the Group's reputation, results of operations and capital position.
The Group may be required to make new or increase existing provisions in relation to legal proceedings, investigations and governmental and regulatory matters. In Q3 2014, the Group booked a provision of £400 million relating to penalties incurred in connection with the investigations and reviews relating to foreign exchange trading settled with the FCA and the CFTC and during 2014 the Group booked additional provisions of £650 million for Payment Protection Insurance (resulting in total provisions made for this matter of £3.7 billion, of which £2.9 billion had been utilised at 31 December 2014). The provision for interest rate hedging products redress and administration costs was also increased by £185 million in 2014, with total provisions relating to this matter totalling £1.4 billion, of which £1.1 billion had been utilised at 31 December 2014. Significant increases in provisions relating to ongoing investigations may have an adverse effect on the Group's reputation as well as its financial condition and results of operations.
The Group, like many other financial institutions, has come under greater regulatory scrutiny in recent years and expects heightened levels of regulatory supervision to continue for the foreseeable future, particularly as it relates to compliance with historical, new and existing corporate governance, employee compensation, conduct of business, consumer protection regimes, anti-money laundering and antiterrorism laws and regulations, as well as the provisions of applicable sanctions programmes. Past, current or future failures to comply with any one or more of these laws or regulations could have a material adverse effect on the Group's reputation, financial condition and results of operations.
Ahead of the upcoming UK election in May 2015, there is uncertainty around how the policies of the elected government may impact the Group, including a possible referendum on the UK's membership of the EU. The implementation of these policies, including the outcome of the EU referendum, could significantly impact the environment in which the Group operates and the fiscal, monetary, legal and regulatory requirements to which it is subject, and in turn could have a material adverse effect on its business, financial condition and results of operations.
Implementation of the Group's strategy and its future success depends on its ability to attract, retain and remunerate highly skilled and qualified personnel, including senior management (which include directors and other key employees), in a highly competitive labour market. This cannot be guaranteed, particularly in light of heightened regulatory oversight of banks and the increasing scrutiny of, and (in some cases) restrictions placed upon, employee compensation arrangements, in particular those of banks in receipt of Government support (such as the Group). Following the implementation in the UK of provisions of CRD IV relating to compensation in the financial sector and taking into account the views of UKFI, the Group is restricted from paying variable remuneration to individuals for a particular year in an amount higher than the level of his or her fixed remuneration which may place the Group at a competitive disadvantage.
The Group's directors as well as members of its executive committee and certain other senior managers and employees will also be subject to the new responsibility regime introduced under the Banking Reform Act 2013 which will impose greater responsibility on such individuals. The new rules include (i) a senior managers' regime which will require such senior managers to be pre-approved either by the PRA or FCA whilst the new rules themselves also introduce a "presumption of responsibility" for those approved as such where contraventions of a relevant regulatory requirement occur, the accountable senior manager will be presumed guilty of misconduct unless he or she shows to the satisfaction of the relevant regulator that he or she took all reasonable steps to prevent the contravention occurring (or continuing) , (ii) a certification regime which will require the Group to assess the fitness and propriety of certain of its employees (other than senior managers), who are considered to pose a risk of significant harm to the Group or its customers and (iii) a conduct rules regime (which as currently proposed would apply regulatory prescribed conduct rules to most employees of the Group with a UK nexus).
The rules implementing the new regime are still under consultation by the PRA and the FCA and there remains uncertainty as to the final scope of the new rules and any transitional arrangements. Final rules are expected to enter into force in late 2015 (and early 2016 for the new certification regime). The new regulatory regime may contribute to reduce the pool of candidates for key management and non-executive roles, including non-executive directors with the right skills, knowledge and experience, or increase the number of departures of existing employees, given concerns over the reverse burden of proof as well as the allocation of responsibilities introduced by the new rules.
In addition to the effects of such measures on the Group's ability to retain non-executive directors, senior management and other key employees, the market for skilled personnel is increasingly competitive, thereby raising the cost of hiring, training and retaining skilled personnel.
The Group's changing strategy, particularly as a result of the Group's 2013/2014 Strategic Plan, including the accelerated disposal of the Group's interest in CFG, led to the departure of many experienced and capable employees. The continuing restructuring of the Group, including as a result of the restructuring of the Group's CIB business and the implementation of the ring-fence regulatory regime, is expected to lead to the departure of additional experienced and capable employees. The lack of continuity of senior management and the loss of important personnel coordinating certain or several aspects of the Transformation Plan could have an adverse impact on the implementation of the Group's Transformation Plan and regulatory commitments. The failure to attract or retain a sufficient number of appropriately skilled personnel to manage the complex restructuring required to implement the Transformation Plan, and in particular the implementation of the ring-fence and the restructuring of the Group's CIB business could prevent the Group from successfully implementing its strategy. This could have a material adverse effect on the Group's business, financial condition and results of operations.
In addition, certain of the Group's employees in the UK, continental Europe and other jurisdictions in which the Group operates are represented by employee representative bodies, including trade unions. Engagement with its employees and such bodies is important to the Group and a breakdown of these relationships could adversely affect the Group's business, reputation and results.
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. The Group has complex and geographically diverse operations and operational risk and losses can result from internal and external fraud, errors by employees or third parties, failure to document transactions properly or to obtain proper authorisations, failure to comply with applicable regulatory requirements and conduct of business rules (including those arising out of anti-bribery, anti-money laundering and anti-terrorism legislation, as well as the provisions of applicable sanctions programmes), equipment failures, business continuity and data security system failures, natural disasters or the inadequacy or failure of systems and controls, including those of the Group's suppliers or counterparties. Operational risks will be heightened as a result of the Group's implementation of its Transformation Plan as described in more detail under " - Implementation by the Group of the various initiatives and programmes which form part of the Group's Transformation Plan subjects the Group to increased and material execution risk". Although the Group has implemented risk controls and loss mitigation actions and significant resources and planning have been devoted to plans to mitigate operational risk associated with the Group's activities as well as the implementation of the Group's Transformation Plan, such actions will be effective in controlling each of the operational risks faced by the Group. Ineffective management of operational risks, including the material operational risks that will arise in implementing the Transformation Plan, could have a material adverse effect on the Group's business, financial condition and results of operations.
The competitive landscape for banks and other financial institutions in the UK, the US and throughout the rest of Europe is changing rapidly. Recent regulatory and legal changes are likely to result in new market participants and changed competitive dynamics in certain key areas, such as in retail banking in the UK. The UK retail banking sector has been subjected to intense scrutiny by the UK competition authorities and by other bodies in recent years, including market reviews conducted by the Competition & Markets Authority (CMA) and its predecessor the Office of Fair Trading regarding SME banking and Personal Current Accounts (PCAs), the ICB, whose final report was published in 2012 and the Parliamentary Commission on Banking Standards whose report was published in 2013. These reviews raised significant concerns about the effectiveness of competition in the banking sector.
In 2014, the CMA published two market studies about SME banking and PCAs. On the basis of its findings and following consultation, the CMA made a market investigation reference (MIR) in relation to both SME banking and PCAs. An MIR can be made only if the CMA has reasonable grounds for suspecting that any feature, or combination of features, of a market in the UK for goods or services prevents, restricts or distorts competition. Such investigations typically last between 15-24 months and the CMA currently expects to publish provisional findings in September 2015. While it is too early to assess the potential impact on the Group of these reviews and investigations, the competitive landscape in which the Group operates may be significantly affected as a result and this impact will become more significant as the Group implements its Transformation Plan and its business is increasingly concentrated in the UK on retail activities.
The wholesale banking sector has also been the subject of recent scrutiny. In 2014, the FCA launched a review of competition in the wholesale sector (primarily relating to competition in wholesale securities and investment markets and related activities such as corporate banking) to identify areas which might merit indepth market study and in February 2015 announced that it would be launching a market study to investigate competition in investment and corporate banking services. Adverse findings resulting from this study may result in the imposition of fines or restrictions on mergers and consolidations within the UK financial sector and the FCA may also refer the matter further to the CMA, which has extensive powers to take measures to restore effective competition.
The competitive landscape in the UK is also likely to be affected by the UK Government's implementation of the ring-fence regime and other customer protection measures introduced by the Banking Reform Act 2013. Although final ring-fence rules will not be available until 2016, firms (including the Group) have submitted plans for their legal and operational structures to implement the new ring-fence regime to the PRA. The implementation of such plans may result in the consolidation of newly separated businesses or assets of certain financial institutions with those of other parties to realise new synergies or protect their competitive position. This consolidation, in combination with the introduction of new entrants into the markets in which the Group operates which is being actively encouraged by the UK Government is likely to increase competitive pressures on the Group.
In addition, certain competitors may have more efficient operations, including better IT systems allowing them to implement innovative technologies for delivering services to their customers, and may have access to lower cost funding and/or be able to attract deposits on more favourable terms than the Group. Furthermore, the Group's competitors may be better able to attract and retain clients and key employees, which may negatively impact the Group's relative performance and future prospects. In addition, recent and future disposals and restructurings by the Group in the context of its Transformation Plan as well as constraints imposed on the Group's compensation structure and its ability to compensate its employees at the same level as its competitors may also have an impact on its ability to compete effectively.
These and other changes to competition could have a material adverse effect on the Group's business, margins, profitability, financial condition and prospects.
On completion of the Group's Transformation Programme its business focus will be preponderantly in the UK. However, the Group's businesses and many of its customers are, and will be, affected by global economic conditions, perceptions of those conditions and future economic prospects. The outlook for the global economy over the near to medium-term is increasingly uncertain due to a number of factors including geopolitical risks, concerns around global growth and deflation. Risks to growth and stability stem mainly from continued imbalances in many countries in Europe and elsewhere, slowing growth in emerging markets and China and the potential consequences of continued sanctions and depressed oil prices on the Russian economy. Further instability may result from uncertainty as to how economies and counterparties will be affected, directly or indirectly, by lower oil prices and other commodity prices as well as to the impact of monetary policy measures adopted by the ECB, the US Federal Reserve and the Swiss Central Bank. There remains considerable uncertainty about when the Bank of England and the Federal Reserve will begin to raise policy interest rates. The Group's businesses and performance are also affected by financial market conditions. Although capital and credit markets around the world have been relatively stable since 2012, financial markets, in particular equity markets, experienced higher volatility in the last quarter of 2014 which has continued into 2015. This volatility is attributable to many of the factors noted above.
In addition, the Group is exposed to risks arising out of geopolitical events, such as trade barriers, exchange controls and other measures taken by sovereign governments that can hinder economic or financial activity levels. Furthermore, unfavourable political, military or diplomatic events, armed conflict, pandemics and terrorist acts and threats, and the responses to them by governments could also adversely affect economic activity and have an adverse effect upon the Group's business, financial condition and results of operations.
The challenging operating environment for the Group's businesses, created by uncertain economic and market conditions is characterised by:
Developments relating to current economic conditions and the risk of a return to a volatile financial environment, including those discussed above, could have a material adverse effect on the Group's business, financial condition, results of operations and prospects.
As the Group refocuses on its operations in the UK as a result of its Transformation Plan, and in particular the restructuring of the Group's CIB business, it is increasingly exposed to the UK economy. Although the prospects for the UK and the US remain the strongest among the G-7 and Ireland's economy continues to improve, actual or perceived difficult global economic conditions, failure to meet economic growth projections, particularly in the UK and the Group's key markets, the worsening of the scope and severity of the weak economic conditions currently experienced by a number of EU member states and elsewhere, potential volatility in the UK housing market and restrictions on mortgage lending as well as increased competition, particularly in the UK, would create challenging economic and market conditions and a difficult operating environment for the Group's businesses.
With few exceptions, countries in Europe have not yet recovered from the effects of the financial crisis. Consensus forecasts of growth in 2015 and 2016 for some of the largest European economies such as France and Italy are low. In addition, the possibility of a European sovereign default has risen due to the recent election in Greece and the outcome and impact of ongoing negotiations by the new Greek government with respect to its outstanding debt is uncertain. The risk that the effect of any sovereign default spreads by contagion to other EU economies and the UK economy remains. The euro could be abandoned as a currency by one or more countries, or in an extreme scenario, the abandonment of the euro could result in the dissolution of the European Economic and Monetary Union (EEMU). While the European Central Bank announced in January 2015 a €1.1 trillion quantitative easing programme designed to improve confidence in Eurozone equities and encourage more private bank lending, there remains considerable uncertainty as to whether such measures will be successful.
The effects on the UK, European and global economies of any potential dissolution of the EMU or exit of one or more EU member states from the EMU and the resulting redenomination of financial instruments from the euro to a different currency, are impossible to predict fully. However, if any such events were to occur they would likely:
The occurrence of any of these events would have a material adverse effect on the Group's business, financial condition, results of operations and prospects.
The Group obtained State Aid approval for the aid given to the Group by the UK Government as part of the placing and open offer undertaken by the Group in December 2008. RBS announced on 9 April 2014 that it had entered into an agreement ("DAS Retirement Agreement") with HM Treasury for the future retirement of the Dividend Access Share ("DAS"). The EC concluded that these new arrangements did not constitute new State aid and approved changes to RBS's restructuring plan in its State Aid Amendment Decision of 9 April 2014. RBSG also entered into a Revised State Aid Commitment Deed with HMT under which it undertook to do all acts and things necessary to ensure that HMT is able to comply with the revised State aid commitments made by HMT to the EC, which mainly relate to the deadline for the Group's divestment of the Williams & Glyn business and the divestment of the rest of the Group's interest in CFG.
Implementation of the State Aid restructuring plan exposes the Group to a number of risks. The most significant risks relate to required asset disposals, a number of which are now completed. The Group completed an initial public offering of CFG's common stock in September 2014. The divestment of Williams & Glyn continues to progress following the announcement of a pre-IPO investment by a consortium of investors in September 2013. The Group is required, pursuant to the terms of the State Aid Amendment Decision, to dispose of its remaining interest in CFG by the end of 2016 (with a possible 12 month extension) and must divest its interest in Williams & Glyn by way of an initial public offering by the end of 2016 with the disposal of the remainder of its interest by the end of 2017. Under the terms of the State Aid Amendment Decision, a divestiture trustee may be empowered to conduct these disposals, with the mandate to complete the disposal at no minimum price, if the Group fails to complete such required disposals within agreed or renegotiated time frames, which may result in the Group achieving less than the full value of its investment due to then prevailing market conditions. Furthermore, if the Group is unable to comply with the terms of the State Aid Amendment Decision, including the required divestments, it might constitute a misuse of aid which could have a material adverse impact on the Group.
The occurrence of any of the risks described above could have a material adverse effect on the Group's business, results of operations, financial condition, capital position and competitive position.
HM Treasury (or UK Financial Investments Limited (UKFI) on its behalf) may be able to exercise a significant degree of influence over the Group and any proposed offer or sale of its interests may affect the price of securities issued by the Group
The UK Government, through HM Treasury, currently holds 62.3% of the issued ordinary share capital of the Group. On 22 December 2009, the Group issued £25.5 billion of B Shares to the UK Government. The B Shares are convertible, at the option of the holder at any time, into ordinary shares. The UK Government has agreed that it shall not exercise the rights of conversion in respect of the B Shares if and to the extent that following any such conversion it would hold more than 75% of the total issued shares in the Group. Any breach of this agreement could result in the delisting of RBSG from the Official List of the UK Listing Authority and potentially other exchanges where its securities are currently listed and traded. HM Treasury (or the UKFI on its behalf) may sell all or a part of its holding of ordinary shares at any time. Any offers or sale of a substantial number of ordinary shares or securities convertible or exchangeable into ordinary shares by or on behalf of HM Treasury, or an expectation that it may undertake such an offer or sale, could negatively affect prevailing market prices for securities issued by the Group.
In addition, UKFI manages HM Treasury's shareholder relationship with the Group and, although HM Treasury has indicated that it intends to respect the commercial decisions of the Group and that the Group will continue to have its own independent board of directors and management team determining its own strategy, should HM Treasury's intentions change, its position as a majority shareholder (and UKFI's position as manager of this shareholding) means that HM Treasury or UKFI might be able to exercise a significant degree of influence over, among other things, the election of directors and appointment of senior management, dividend policy, remuneration policy, or limiting the Group's operations. The manner in which HM Treasury or UKFI exercises HM Treasury's rights as majority shareholder could give rise to conflict between the interests of HM Treasury and the interests of other shareholders. The Board has a duty to promote the success of the Group for the benefit of its members as a whole.
Effective management of the Group's capital is critical to its ability to operate its businesses, and to pursue its strategy of returning to standalone strength. The Group is required by regulators in the UK, the EU, the US and other jurisdictions in which it undertakes regulated activities to maintain adequate capital resources. Adequate capital also gives the Group financial flexibility in the face of continuing turbulence and uncertainty in the global economy and specifically in its core UK, US and European markets. From 2016, in accordance with the provisions of the Capital Requirements Regulation ("CRR"), a minimum level of capital adequacy will be required to meet new regulatory capital requirements allowing the Group to make certain discretionary payments relating to CET1 (dividends), variable remuneration and payments on additional tier 1 instruments.
The Basel Committee on Banking Supervision's package of reforms to the regulatory capital framework ("Basel III") raised the quantity and quality of capital required to be held by a financial institution with an emphasis on Common Equity Tier 1 (CET1) capital and introduces an additional requirement for both a capital conservation buffer and a countercyclical buffer to be met with CET1 capital. Global systemically important banks (GSIBs) will be subject to an additional CET1 capital requirement, depending on a bank's systemic importance. The Group has been identified by the Financial Stability Board (FSB) as a GSIB. The FSB list of GSIBs is updated annually, based on new data and changes to methodology. The November 2014 update placed the Group in the second from bottom category of GSIBs, subjecting it to more intensive oversight and supervision and requiring the Group to have additional loss absorption capacity of 1.5% in CET1, to be phased in from the beginning of 2016.
In addition, regulatory proposals relating to domestically systemically important banks (DSIBs) continue to be progressed and could impact the level of CET1 that is required to be held by the Group. The EBA published in December 2014 a quantitative methodology as to how European regulators could quantify which firms would qualify as DSIBs. In addition the Financial Policy Committee ("FPC") of the Bank of England intends to consult with firms in the UK on the UK framework.
Basel III has been implemented in the EU with a new Directive and Regulation (collectively known as "CRD IV") which became effective from 1 January 2014, subject to a number of transitional provisions and clarifications. A number of the requirements introduced under CRD IV have been and continue to be further supplemented through the Regulatory and Implementing Technical Standards ("RTSs"/"ITSs") produced by the European Banking Authority (EBA) and to be adopted by the European Commission which are not yet all finalised. The EU rules deviate from the Basel III rules in certain aspects, and provide national flexibility to apply more stringent prudential requirements than set out in the Basel framework.
Under CRD IV, the Group is required, on a consolidated basis, to hold a minimum amount of regulatory capital of 8% of risk weighted assets of which at least 4.5% must be CET1 capital and at least 6% must be tier 1 capital (together, the "Pillar 1 requirements"). In addition, national supervisory authorities may add extra capital requirements to cover risks they believe are not covered or insufficiently covered by the Pillar 1 requirements (the "Pillar 2A guidance"). The PRA requires that Pillar 2A risks should be met with at least 56% CET1 capital, no more than 44% additional tier 1 capital and at most 25% tier 2 capital. CRD IV also introduces five new capital buffers that are in addition to the Pillar 1 and Pillar 2A requirements and are to be met with CET1 capital: (i) the capital conservation buffer, (ii) the institution-specific counter-cyclical buffer, (iii) the global systemically important institutions buffer, (iv) the other systemically important institutions buffer and (v) the systemic risk buffer. Some or all of these buffers may be applicable to the Group as determined by the PRA.
The combination of the capital conservation buffer, the institution-specific counter-cyclical capital buffer and the higher of (depending on the institution), the systemic risk buffer, the global systemically important institutions buffer and the other systemically important institution buffer, in each case (as applicable to the institution) is referred to as the "combined buffer requirement". The PRA has also introduced a firm specific Pillar 2B buffer ("Pillar 2B buffer") which is based on various factors including firm-specific stress test results and is to be met with CET1. The PRA will assess the Pillar 2B buffer annually and UK Banks are required to meet the higher of the combined buffer requirement or Pillar 2B requirement. The PRA published a consultation in January 2015 suggesting certain changes to its Pillar 2A framework which will introduce new methodologies for determining Pillar 2A capital as well as the PRA's approach to operating the Pillar 2A buffer.
In addition, under the provisions of the CRR, which took effect from 1 January 2014, deferred tax assets that rely on future profitability (for example, deferred tax assets related to trade losses) and do not arise from temporary differences must be deducted in full from CET1 capital. Other deferred tax assets which rely on future profitability and arise from temporary differences are subject to a threshold test and only the amount in excess of the threshold is deducted from CET1 capital. The regulatory treatment of such deferred tax assets is dependent on there being no adverse changes to regulatory requirements.
Under Article 141 (Restrictions on distribution) of the CRD IV Directive, member states of the EU must require that institutions that fail to meet the "combined buffer requirement" will be subject to restricted "discretionary payments" (which are defined broadly by CRD IV as payments relating to CET1 (dividends), variable remuneration and payments on additional tier 1 instruments). The restrictions will be scaled according to the extent of the breach of the "combined buffer requirement" and calculated as a percentage of the profits of the institution since the last distribution of profits or "discretionary payment". Such calculation will result in a "maximum distributable amount" (or "MDA") in each relevant period. As an example, the scaling is such that in the bottom quartile of the "combined buffer requirement", no "discretionary distributions" will be permitted to be paid. In the event of a breach of the combined buffer requirement, the Group will be required to calculate its maximum distributable amount, and as a consequence it may be necessary for the Group to reduce discretionary payments.
In October 2014 the FPC published its recommendation on the overall leverage ratio framework for the UK banking system. The FPC recommended a minimum leverage ratio requirement of 3% (to be met 75% by CET1 and a maximum of 25% by additional tier 1 capital), a supplementary leverage buffer applied to G-SIBs equal to 35% of the corresponding risk weighted systemic risk buffer (to be met by CET1) and a countercyclical buffer equal to 35% of the risk weighted countercyclical capital buffer (also to be met by CET1). Transition timings have been aligned to those laid out in Basel III and the exposure measure will follow that laid out by the Basel Committee for Banking Supervision. The FPC explicitly ruled out a breach of the leverage ratio resulting in an automatic constraint to capital distributions via the "maximum distributable amount", preferring to leave this linked to risk weighted assets for the purposes of simplicity.
However, if a breach of the leverage buffers (both G-SIB and countercyclical) were to occur then a recovery plan would need to be discussed with the PRA. The current Group leverage ratio is 4.2% fully met through CET1 leaving it above the minimum requirement while the countercyclical buffer is close to zero.
In addition to the capital requirements under CRD IV, the bank resolution and recovery directive ("BRRD") introduces requirements for banks to maintain at all times a sufficient aggregate amount of own funds and "eligible liabilities" (that is, liabilities that may be bailed in using the bail-in tool), known as the minimum requirements for eligible liabilities ("MREL"). The aim is that the minimum amount should be proportionate and adapted for each category of bank on the basis of their risk or the composition of their sources of funding. The UK Government has transposed the BRRD's provisions into law with a requirement that the Bank of England implements further secondary legislation to implement MREL requirements by 2016 which will take into account the regulatory technical standards to be developed by the EBA specifying the assessment criteria that resolution authorities should use to determine the minimum requirement for own funds and eligible liabilities for individual firms. The EBA noted that the technical standards would be compatible with the proposed term sheet published by the FSB on total loss absorbing capacity ("TLAC") requirements for GSIBs but there remains a degree of uncertainty as to the extent to which MREL and TLAC requirements may differ. As the implementation of capital and loss absorption requirements under BRRD in the UK is subject to adoption of secondary legislation and subject to PRA supervisory discretion in places, and the implementation and scope of TLAC remains subject to significant uncertainty, the Group is currently unable to predict the impact such rules would have on its overall capital and loss absorption requirements or its ability to comply with applicable capital or loss absorbency requirements or to make certain discretionary distributions.
Building on changes made to requirements in relation to the quality and aggregate quantity of capital that banks must hold, the Basel Committee and other agencies are increasingly focussed on changes that will increase, or re-calibrate, measures of risk weighted assets as the key measure of the different categories of risk in the denominator of the risk-based capital ratio. There is no current global consensus regarding the key objectives of this further evolution of the international capital framework. One extreme position advocated by some regulators would materially deemphasise the role of a risk-based capital ratio. A more broadly held opinion among regulators seeks to retain the ratio but also reform it, in particular by addressing perceived excessive complexity and variability between banks and banking systems. In particular, the Basel Committee on Banking Supervision published a consultation paper in December 2014, in which it recommended reduced reliance on external credit ratings when assessing risk weighted assets and to replace such ratings with certain risk drivers based on the particular type of exposure of each asset. While they are at different stages of maturity, a number of initiatives across risk types and business lines are in progress that will impact RWAs at their conclusion. While the quantum of impacts is uncertain owing to lack of clarity of definition of the changes and the timing of their introduction, the likelihood of an impact resulting from each initiative is high and such impacts could result in higher levels of risk weighted assets.
The Basel Committee changes and other future changes to capital adequacy and loss absorbency and liquidity requirements in the European Union, the UK, the US and in other jurisdictions in which the Group operates, including the Group's ability to satisfy the increasingly stringent stress case scenarios imposed by regulators and the adoption of the MREL and TLAC proposals, may require the Group to issue Tier 1 capital (including CET1), Tier 2 capital and certain loss absorbing debt securities, and may result in existing Tier 1 and Tier 2 securities issued by the Group ceasing to count towards the Group's regulatory capital. The requirement to increase the Group's levels of CET1 and Tier 2 capital, or loss absorbing debt securities, which could be mandated by the Group's regulators, could have a number of negative consequences for the Group and its shareholders, including impairing the Group's ability to pay dividends on, or make other distributions in respect of, ordinary shares and diluting the ownership of existing shareholders of the Group. If the Group is unable to raise the requisite amount of Tier 1 and Tier 2 capital, or loss absorbing debt securities it may be required to reduce further the amount of its risk weighted assets or total assets and engage in the disposal of core and other non-core businesses, which may not occur on a timely basis or achieve prices which would otherwise be attractive to the Group.
On a fully loaded Basel III basis, the Group's CET1 ratio was 11.2% at December 31, 2014. The Group's Transformation Plan targets a fully loaded Basel III CET1 ratio of 13% over the restructuring period. The Group's ability to achieve such targets depends on a number of factors, including the implementation of the ring-fence, the execution of the restructuring of the Group's CIB business and the implementation of the 2013/2014 Strategic Plan, which includes plans for a further significant restructuring of the Group as well as further sales of its remaining stake in CFG in the U.S. See 'Forward looking Statements' and 'The Group's ability to achieve its capital targets will depend on the success of the Group's plans to further reduce the size of its business through the restructuring of its corporate and institutional banking business and make further divestments of certain of its portfolios and businesses including its remaining stake in Citizens Financial Group'.
Any change that limits the Group's ability to implement its capital plan, to access funding sources or to manage effectively its balance sheet and capital resources (including, for example, reductions in profits and retained earnings as a result of write-downs or otherwise, increases in risk-weighted assets, regulatory changes, actions by regulators, delays in the disposal of certain key assets or the inability to syndicate loans as a result of market conditions, a growth in unfunded pension exposures or otherwise) could have a material adverse effect on its business, financial condition and regulatory capital position.
The credit ratings of RBSG, RBS and other Group members directly affect the cost of, access to and sources of their financing and liquidity. A number of UK and other European financial institutions, including RBSG, the Royal Bank and other Group members, have been downgraded multiple times in recent years in connection with rating methodology changes, a review of systemic support assumptions incorporated into bank ratings and the likelihood, in the case of UK banks, that the UK Government is more likely in the future to make greater use of its resolution tools that allow burden sharing with debt holders. In 2014 credit ratings of RBSG, the Royal Bank and other Group members were downgraded in connection with the Group's creation of RCR, coupled with concerns about execution risks, litigation risk and the potential for conduct related fines. RBSG's long-term and short-term credit ratings were further downgraded by two notches in 2015 by Standard & Poor's Rating Services ("S&P") to reflect S&P's view that extraordinary government support would now be unlikely in the case of UK non-operating bank holding companies and is likely to become less predictable for bank operating companies in the UK under the newly enacted legislation implementing the bail-in provisions of the BRRD. Rating agencies continue to evaluate the rating methodologies applicable to UK and European financial institutions and any change in such rating agencies' methodologies could materially adversely affect the credit ratings of Group companies.
Any further reductions in the long-term or short-term credit ratings of RBSG or one of its principal subsidiaries (particularly the Royal Bank) would increase borrowing costs, require the Group to replace funding lost due to the downgrade, which may include the loss of customer deposits, and might also limit the Group's access to capital and money markets and trigger additional collateral requirements in derivatives contracts and other secured funding arrangements. At 31 December 2014, a simultaneous one notch longterm and associated short-term downgrade in the credit ratings of RBSG and the Royal Bank by the three main ratings agencies would have required the Group to post estimated additional collateral of £4.5 billion, without taking account of mitigating action by management.
Any downgrade in the UK Government's credit ratings could adversely affect the credit ratings of Group companies and may have the effects noted above. Credit ratings of RBSG, the Royal Bank, The Royal Bank of Scotland N.V. (RBS N.V.) and Ulster Bank Limited are also important to the Group when competing in certain markets, such as over-the-counter derivatives. As a result, any further reductions in RBSG's longterm or short-term credit ratings or those of its principal subsidiaries could adversely affect the Group's access to liquidity and its competitive position, increase its funding costs and have a material adverse impact on the Group's earnings, cash flow and financial condition.
Liquidity risk is the risk that a bank will be unable to meet its obligations, including funding commitments, as they fall due. This risk is inherent in banking operations and can be heightened by a number of factors, including an over reliance on a particular source of wholesale funding (including, for example, short-term and overnight funding), changes in credit ratings or market-wide phenomena such as market dislocation and major disasters. Credit markets worldwide, including interbank markets, have experienced severe reductions in liquidity and term-funding during prolonged periods in recent years. Although credit markets continued to improve during 2014 and such markets remain accommodating in the early part of 2015 (in part as a result of measures taken by central banks around the world, including the ECB), and the Group's overall liquidity position remained strong, certain European banks, in particular in the peripheral countries of Spain, Portugal, Greece, Italy and Ireland, remained reliant on central banks as one of their principal sources of liquidity. Although the measures taken by Central Banks have had a positive impact, the risk of volatility returning to the global credit markets remains.
The market view of bank credit risk has changed radically as a result of the financial crisis and banks perceived by the market to be riskier have had to issue debt at significant spreads. Any uncertainty relating to the credit risk of financial institutions may lead to reductions in levels of interbank lending and may restrict the Group's access to traditional sources of funding or increase the costs of accessing such funding. The ability of the Group's regulator to bail-in senior and subordinated debt under the provisions of BRRD implemented in the UK since January 2015 may also increase investors' perception of risk and hence affect the availability and cost of funding for the Group.
Management of the Group's liquidity and funding focuses, among other things, on maintaining a resilient funding strategy for its assets in line with the Group's wider strategic plan. Although conditions have improved, there have been recent periods where corporate and financial institution counterparties have reduced their credit exposures to banks and other financial institutions, limiting the availability of these sources of funding. Under certain circumstances, the Group may need to seek funds from alternative sources potentially at higher costs than has previously been the case, and/or with higher collateral or may be required to consider disposals of other assets not previously identified for disposal to reduce its funding commitments. The Group has, at times, been required to rely on shorter-term and overnight funding with a consequent reduction in overall liquidity, and to increase its recourse to liquidity schemes provided by central banks. Such schemes require assets to be pledged as collateral. Changes in asset values or eligibility criteria can reduce available assets and consequently available liquidity, particularly during periods of stress when access to the schemes may be needed most.
The Group relies on customer deposits to meet a considerable portion of its funding and it has targeted maintaining a loan to deposit ratio of around 100%. The level of deposits may fluctuate due to factors outside the Group's control, such as a loss of confidence, increasing competitive pressures for retail customer deposits or the repatriation of deposits by foreign wholesale or central bank depositors, which could result in a significant outflow of deposits within a short period of time. An inability to grow, or any material decrease in, the Group's deposits could, particularly if accompanied by one of the other factors described above, have a material adverse impact on the Group's ability to satisfy its liquidity needs.
The occurrence of any of the risks described above could have a material adverse impact on the Group's financial condition and results of operations.
The Group's businesses are subject to substantial regulation and oversight. Significant regulatory developments and increased scrutiny by the Group's key regulators has had and is likely to continue to increase compliance risks and could have a material adverse effect on how the Group conducts its business and on its results of operations and financial condition
The Group is subject to extensive financial services laws, regulations, corporate governance requirements, administrative actions and policies in each jurisdiction in which it operates. Many of these have changed recently and are subject to further material changes. Among others, the adoption of rules relating to ringfencing, prohibitions on proprietary trading, the entry into force of CRD IV and the BRRD and certain other measures in the UK, the EU and the US has considerably affected the regulatory landscape in which the Group operates and will operate in the future. Increasing regulatory focus in certain areas and ongoing and possible future changes in the financial services regulatory landscape (including requirements imposed by virtue of the Group's participation in government or regulator-led initiatives), have resulted in the Group facing greater regulation and scrutiny in the UK, the US and other countries in which it operates.
Although it is difficult to predict with certainty the effect that the recent regulatory changes, developments and heightened levels of public and regulatory scrutiny will have on the Group, the enactment of legislation and regulations in the UK and the EU, the other parts of Europe in which the Group operates and the US has resulted in increased capital, funding and liquidity requirements, changes in the competitive landscape, changes in other regulatory requirements and increased operating costs and has impacted, and will continue to impact, products offerings and business models. See also 'Implementation of the ring-fence in the UK which will begin in 2015 will result in material structural changes to the Group's business. These changes could have a material adverse effect on the Group'. Such changes may also result in an increased number of regulatory investigations and proceedings and have increased the risks relating to the Group's ability to comply with the applicable body of rules and regulations in the manner and within the timeframes required.
Any of these developments (including failures to comply with new rules and regulations) could have an impact on how the Group conducts its business, its authorisations and licences, the products and services it offers, its reputation, the value of its assets, and could have a material adverse effect on its business, funding costs and its results of operations and financial condition. See 'Implementation by the Group of the various initiatives and programmes which form part of the Group's Transformation Plan subjects the Group to increased and material execution risk'.
Areas in which, and examples of where, governmental policies, regulatory and accounting changes and increased public and regulatory scrutiny could have an adverse impact (some of which could be material) on the Group include those set out above as well as the following:
requirements to operate in a way that prioritises objectives other than shareholder value creation;
the imposition of restrictions on the Group's ability to compensate its senior management and other employees and increased responsibility and liability rules applicable to senior and key employees;
Changes in laws, rules or regulations, or in their interpretation or enforcement, or the implementation of new laws, rules or regulations, including contradictory laws, rules or regulations by key regulators in different jurisdictions, or failure by the Group to comply with such laws, rules and regulations, may have a material adverse effect on the Group's business, financial condition and results of operations. In addition, uncertainty and lack of international regulatory coordination as enhanced supervisory standards are developed and implemented may adversely affect the Group's ability to engage in effective business, capital and risk management planning.
In the EU, the UK and the US regulators have or are in the process of implementing resolution regimes to ensure the timely and orderly resolution of financial institutions and limit the systemic risks resulting from the failure of global and complex financial groups. In the EU and the UK, the BRRD which came into force on 1 January 2015, sets out a harmonised legal framework governing the tools and powers available to national authorities to address the failure of banks and certain other financial institutions. These tools and powers include preparatory and preventive measures, early supervisory intervention powers and resolution tools. In July 2014, the PRA published a paper on the implementation of the BRRD in the UK and in December 2014 HM Treasury published final versions of the statutory instruments transposing the BRRD which came into effect in January 2015. The PRA published its final rules and requirements implementing the BRRD in January 2015. The EBA also published final draft regulatory technical standards in December 2014 on the content of resolution plans and final guidelines on measures to reduce or remove impediments to resolvability. The implementation of the BRRD in the UK may also continue to evolve over time to ensure continued consistency with the FSB recommendations on resolution regimes and resolution planning for GSIBs, in particular with respect to TLAC requirements.
As a result of its status as a GSIB and in accordance with the PRA's resolution and recovery schemes then in place in the UK, the Group was required to meet certain resolution planning requirements by the end of 2012 and 2013. The Group's US businesses and CFG made their required submissions to the Federal Reserve and the FDIC by their July 1, 2014 due dates. The US supervisory agencies subsequently announced that, beginning in 2015, banks would be required to submit their annual resolution plans by 31 December of each year instead of by 1 July. Similar to other major financial institutions, both the Group and its key subsidiaries remain engaged in a constructive dialogue on resolution and recovery planning with key national regulators and other authorities.
In addition to the preventive measures set out above, the UK resolution authority now has available a wide range of powers to deal with failing financial institutions. As a result of the implementation of BRRD in the UK in January 2015, the provisions of the Banking Act 2009 have been substantially amended to enable the relevant authorities to deal with and stabilise certain deposit-taking UK incorporated institutions that are failing, or are likely to fail. In addition to the existing stabilisation options available under the Banking Act 2009 being (i) the transfer of all or part of the business of the relevant entity and/or the securities of the relevant entity to a private sector purchaser, (ii) the transfer of all or part of the business of the relevant entity to a 'bridge bank' wholly owned by the Bank of England and (iii) temporary public ownership (nationalisation) of the relevant entity, the resolution entity will now be able to rely on an asset separation tool which will enable the Bank of England to use property transfer powers to transfer assets, rights and liabilities of a failing bank to an asset management vehicle. In addition, the new rules have transposed the BRRD requirement that the government stabilisation options may only be used once there has been a contribution to loss absorption and recapitalisation of at least 8% of the total liabilities of the institution under resolution.
Among the changes introduced by the Banking Reform Act 2013, the Banking Act 2009 was amended to insert a bail-in option as part of the powers available to the UK resolution authority. The bail-in option was introduced as an additional power available to the Bank of England to enable it to recapitalise a failed institution by allocating losses to its shareholders and unsecured creditors in a manner that seeks to respect the hierarchy of claims in liquidation. The BRRD also includes a "bail-in" tool, which gives the relevant supervisory authorities the power to write down or write off claims (including debt securities issued by the Group and its subsidiaries) of certain unsecured creditors of a failing institution and/or to convert certain debt claims to equity or to other securities of the failing institution or to alter the terms of an existing liability. The UK Government amended the provisions of the Banking Act 2009, as amended by the Banking Reform Act 2013, to ensure the consistency of these provisions with the bail-in provisions under the BRRD which came into effect on 1 January 2015, subject to certain transition provisions effective for debt instruments as of 19 February 2015 and with the exception of provisions relating to MREL and Article 55 of the BRRD which relates to liabilities within the scope of the bail-in powers but governed by the law of a third country. Such bail-in mechanism, pursuant to which losses would be imposed on shareholders and, as appropriate, creditors (including senior creditors) of the Group (through write-down or conversion into equity of liabilities including debt securities) would be used to recapitalise and restore the Group to solvency. The bail-in regime adopted under the BRRD (and implemented in the UK) also provides that shareholders and creditors should not be left worse off as a result of the exercise of the stabilisation powers than they would have been had the bank not been resolved, but instead placed into insolvency. The exercise of the bail-in option will be determined by the resolution authority which will have discretion to determine whether the Group has reached a point of non-viability. Because of this inherent uncertainty, it will be difficult to predict when, if at all, the exercise of the bail-in power may occur.
The methods for implementation of any resolution and recovery scheme remain the subject of debate, particularly with respect to banking group companies and for GSIBs with complex cross border activities. Such debate includes whether the bail-in tool may be exercised through a single point of entry at the holding company or at various levels of the corporate structure of a GSIB.
The potential impact of these resolution and recovery powers may include the total loss of value of securities issued by the Group and, in addition for debt holders, the possible conversion into equity securities, and under certain circumstances the inability of the Group to perform its obligations under its securities. The possible application of bail-in to the Group's or certain of its subsidiaries' debt securities and additional Tier 1 and Tier 2 capital securities may also make it more difficult to issue such securities in the capital markets and the cost of raising such funds may be higher than has historically been the case.
The Group's operations are dependent on the ability to process a very large number of transactions efficiently and accurately while complying with applicable laws and regulations where it does business. The proper functioning of the Group's payment systems, financial and sanctions controls, risk management, credit analysis and reporting, accounting, customer service and other IT systems, as well as the communication networks between its branches and main data processing centres, are critical to the Group's operations. In June 2012, computer system failures prevented NatWest, RBS and Ulster Bank customers from accessing accounts in both the UK and Ireland. Ongoing issues relating to the failure continued for several months, requiring the Group to set aside a provision for compensation to customers who suffered losses as a result of the system failure. In addition, in November 2014, the Group reached a settlement with the FCA and the PRA in relation to this incident and agreed a penalty of £42 million with the FCA and £14 million with the PRA. Ulster Bank, one of the Group's subsidiaries, was also fined €3.5m by the Central Bank of Ireland in relation to the IT incident and IT governance failures which occurred in 2012. The vulnerabilities of the Group's IT systems are due to the complexity of the Group's IT infrastructure attributable in part to overlapping multiple legacy systems resulting from the Group's acquisitions and the consequential gaps in how the IT systems operate, and insufficient-investments in IT infrastructure in the past, creating challenges in recovering from system breakdowns. Critical system failure, any prolonged loss of service availability or any material breach of data security, particularly involving confidential customer data, could cause serious damage to the Group's ability to service its customers, could result in significant compensation costs, could breach regulations under which the Group operates and could cause long-term damage to the Group's reputation, business and brands. The Group is also currently implementing a significant IT investment programme which involves execution risks and may not be successful. See 'The Group is currently implementing a number of significant investment and rationalisation initiatives as part of the Group's IT and operational investment programme. Should such investment and rationalisation initiatives fail to achieve the expected results, it could have a material adverse impact on the Group's operations and its ability to retain or grow its customer business'.
In addition, the Group is subject to cyber-security threats which have targeted financial institutions as well as governments and other institutions and have increased in the recent years. Failure to protect the Group's operations from cyber-attacks could result in the loss of customer data or other sensitive information. During 2013, the Group experienced a number of IT failures following a series of deliberate attacks which temporarily prevented RBS, CFG and NatWest customers from accessing their accounts or making payments. The Bank of England, the FCA and HM Treasury have identified cyber security as a systemic risk to the UK financial sector and highlighted the need for financial institutions to improve resilience to cyberattacks and the Group expects greater regulatory engagement on cyber security in the future. Although the Group has been implementing remedial actions to improve its resilience to the increasing intensity and sophistication of cyber-attacks, the Group expects to be the target of continued attacks in the future and there can be no assurance that the Group will be able to prevent all threats.
Reputational risk, meaning the risk of brand damage and/or financial loss due to a failure to meet stakeholders' expectations of the Group's conduct and performance, is inherent in the Group's business. Stakeholders include customers, investors, rating agencies, employees, suppliers, government, politicians, regulators, special interest groups, consumer groups, media and the general public. Brand damage can be detrimental to the business of the Group in a number of ways, including its ability to build or sustain business relationships with customers, low staff morale, regulatory censure or reduced access to, or an increase in the cost of, funding. In particular, negative public opinion resulting from the actual or perceived manner in which the Group conducts its business activities, the Group's financial performance, ongoing investigations and proceedings and the settlement of any such investigations and proceedings, the level of direct and indirect government support or actual or perceived practices in the banking and financial industry may adversely affect the Group's ability to keep and attract customers and, in particular, corporate and retail depositors. Reputational risks may be increased as a result of the implementation of the Group's Transformation Plan. Modern technologies, in particular online social networks and other broadcast tools which facilitate communication with large audiences in short time frames and with minimal costs, may significantly enhance and accelerate the impact of damaging information and allegations. The Group cannot ensure that it will be successful in avoiding damage to its business from reputational risk, which could result in a material adverse effect on the Group's business, financial condition, results of operations and prospects.
The Group's businesses are exposed to risk from potential non-compliance with policies, regulatory rules, employee misconduct or negligence and fraud, which could result in regulatory sanctions and serious reputational or financial harm to the Group. In recent years, a number of multinational financial institutions, including the Group, have suffered material losses due to the actions of employees, including, for example, in connection with the LIBOR and foreign exchange investigations. It is not always possible to deter employee misconduct and the precautions the Group takes to prevent and detect this activity may not always be effective.
The Group's earnings and financial condition have been, and its future earnings and financial condition may continue to be, materially affected by depressed asset valuations resulting from poor market conditions In previous years, severe market events resulted in the Group recording large write-downs on its credit market exposures. Any deterioration in economic and financial market conditions or weak economic growth could lead to further impairment charges and write-downs. Moreover, market volatility and illiquidity (and the assumptions, judgements and estimates in relation to such matters that may change over time and may ultimately not turn out to be accurate) make it difficult to value certain of the Group's exposures. Valuations in future periods, reflecting, among other things, the then prevailing market conditions and changes in the credit ratings of certain of the Group's assets, may result in significant changes in the fair values of the Group's exposures, such as credit market exposures and the value ultimately realised by the Group may be materially different from the current or estimated fair value.
As part of the Group's previous restructuring and capital initiatives, including the 2013/2014 Strategic Plan, it has already materially reduced the size of its balance sheet mainly through the sale and run-off of non-core assets. The assets transferred to RCR (which included assets formerly part of the Group's Non-Core division together with additional assets identified as part of a HM Treasury review), became part of the Group's Capital Resolution Group ("CRG") as of 1 January 2014. In connection with the establishment of CRG, the Group indicated its aspiration to remove the vast majority, if not all of the assets comprising RCR within three years which resulted in increased impairments of £4.5 billion which were recognised in 2013. The value of the assets in RCR, excluding derivatives, was £14.9 billion at December 31, 2014 following significant reductions during 2014. Although the Group to date has successfully reduced the size of the RCR portfolio, the remaining assets in RCR may be difficult to sell and could be subject to further write-downs or, when sold, realised losses. The CRG also includes the Group's stake in the Williams & Glyn business as well as its remaining stake in CFG. In addition, as part of the restructuring of the Group's CIB business, the Group will be exiting or disposing of substantial parts of that business. The Group's interest in these businesses may be difficult to sell due to unfavourable market conditions for such assets or businesses. See also 'The Group's ability to achieve its capital targets will depend on the success of the Group's plans to further reduce the size of its business through the restructuring of its corporate and institutional banking business and make further divestments of certain of its portfolios and businesses including its remaining stake in Citizens Financial Group'. Any of these factors could require the Group to recognise further significant write-downs, realise increased impairment charges or goodwill impairments, all of which may have a material adverse effect on its financial condition, results of operations and capital ratios.
The Group maintains a number of defined benefit pension schemes for certain former and current employees. Pension risk is the risk that the assets of the Group's various defined benefit pension schemes do not fully match the timing and amount of the schemes' liabilities which are long-term in nature, and as a result of which, the Group is required or chooses to make additional contributions to the schemes. Pension scheme liabilities vary with changes to long-term interest rates, inflation, pensionable salaries and the longevity of scheme members as well as changes in applicable legislation. The funded schemes hold assets to meet projected liabilities to the scheme members. Risk arises from the schemes because the value of the asset portfolios, together with any additional future contributions to the schemes, may be less than expected and because there may be greater than expected increases in the estimated value of the schemes' liabilities.
In these circumstances, the Group could be obliged, or may choose, to make additional contributions to the schemes. Given the economic and financial market difficulties that arose out of the financial crisis and the risk that such conditions may occur again over the near and medium term, the Group has experienced and may continue to experience increasing pension deficits or be required or elect to make further contributions to its pension schemes. Such deficits and contributions could be significant and have an adverse impact on the Group's results of operations or financial condition. In May 2014, the triennial funding valuation of The Royal Bank of Scotland Group Pension Fund was agreed which showed that the value of the liabilities exceeded the value of assets by £5.6 billion at 31 March 2013,a ratio of 82%. To eliminate this deficit, RBS will pay annual contributions of £650 million from 2014 to 2016 and £450 million (indexed in line with inflation) from 2017 to 2023. These contributions are in addition to regular annual contributions of approximately £270 million in respect of the ongoing accrual of benefits as well as contributions to meet the expenses of running the scheme.
The Banking Reform Act 2013 requires banks to ring-fence specific activities (principally retail and small business deposits) from certain other activities. Ring-fencing will require changes to the structure of the Group's existing defined benefit pension schemes as ring-fenced banks may not be liable for debts to pension schemes that might arise as a result of the failure of another entity of the ring-fenced bank's group, which could affect assessments of the Group's schemes deficits. The draft Financial Services and Markets Act 2000 (Banking Reform Pensions) Regulations 2015 requires that ring-fence banks ensure that they cannot become liable for the pension schemes of the rest of their group, or anyone else after January 1, 2026. The Group is developing a strategy to meet the requirements of these regulations, which has been discussed with the PRA. The implementation of this strategy will require the agreement of pension scheme trustees. Discussions with the pension trustee will be influenced by the Group's overall ring-fence strategy and its pension funding and investment strategies. If agreement is not reached with the pension trustee, alternative options less favourable to the Group will need to be developed to meet the requirements of the pension regulations. The costs associated with the restructuring of the Group's existing defined benefit pension schemes could be material and could result in higher levels of additional contributions than those described above and currently agreed with the pension trustee.
The Group has exposure to many different industries and counterparties, and risks arising from actual or perceived changes in credit quality and the recoverability of monies due from borrowers and counterparties are inherent in a wide range of the Group's businesses. In particular, the Group has significant exposure to certain individual counterparties in weaker business sectors and geographic markets and also has concentrated country exposure in the UK, the US and across the rest of Europe (principally Germany, The Netherlands, Ireland and France) (at 31 December 2014 credit risk assets in the UK were £180.8 billion, in North America £81.8 billion and in Western Europe (excluding the UK) £76.3 billion); and within certain business sectors, namely personal finance, financial institutions, commercial real estate, shipping and the oil and gas sector (at 31 December 2014 personal finance lending amounted to £180.8 billion, lending to financial institutions was £91.5 billion, commercial real estate lending was £43.3 billion, lending to the oil and gas sector was £10.7 billion and lending against ocean going vessels was £10.4 billion). As the Group implements its new strategy and withdraws from many geographic markets and materially scales down its activities in the United States, the Group's relative exposure to the UK will increase significantly as its business becomes more concentrated in the UK.
The credit quality of the Group's borrowers and counterparties is impacted by prevailing economic and market conditions and by the legal and regulatory landscape in their respective markets.
Credit quality has improved in certain of the Group's core markets, in particular the UK and Ireland, as these economies have improved. However, a further deterioration in economic and market conditions or changes to legal or regulatory landscapes could worsen borrower and counterparty credit quality and also impact the Group's ability to enforce contractual security rights. In addition, the Group's credit risk is exacerbated when the collateral it holds cannot be realised or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure that is due to the Group, which is most likely to occur during periods of illiquidity and depressed asset valuations, such as those experienced in recent years. This has been particularly the case with respect to large parts of the Group's commercial real estate portfolio. Any such losses could have an adverse effect on the Group's results of operations and financial condition.
Concerns about, or a default by, one financial institution could lead to significant liquidity problems and losses or defaults by other financial institutions, as the commercial and financial soundness of many financial institutions may be closely related as a result of credit, trading, clearing and other relationships. Even the perceived lack of creditworthiness of, or questions about, a counterparty may lead to market-wide liquidity problems and losses for, or defaults by, the Group. This systemic risk may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges with which the Group interacts on a daily basis, all of which could have a material adverse effect on the Group's access to liquidity or could result in losses which could have a material adverse effect on the Group's financial condition, results of operations and prospects.
In certain jurisdictions in which the Group does business, particularly Ireland, additional constraints have been imposed in recent years on the ability of certain financial institutions to complete foreclosure proceedings in a timely manner (or at all), including as a result of interventions by certain states and local and national governments. These constraints have lengthened the time to complete foreclosures, increased the backlog of repossessed properties and, in certain cases, have resulted in the invalidation of purported foreclosures.
The EU, the ECB, the International Monetary Fund and various national authorities have proposed and implemented certain measures intended to address systemic financial stresses in the Eurozone, including the creation of a European Banking Union which, through a Single Resolution Mechanism (SRM) will apply the substantive rules of bank recovery and resolution set out in the BRRD. Current expectations are that the SRM will apply from 1 January 2016, subject to certain provisions which came into effect from 1 January 2015 relating to the cooperation between national resolution authorities and the financial stability board. The effectiveness of these and other actions proposed and implemented at both the EU and national level to address systemic stresses in the Eurozone is not assured.
The trends and risks affecting borrower and counterparty credit quality have caused, and in the future may cause, the Group to experience further and accelerated impairment charges, increased repurchase demands, higher costs, additional write-downs and losses for the Group and an inability to engage in routine funding transactions.
Changes in interest rates, foreign exchange rates, credit spreads, bond, equity and commodity prices, basis, volatility and correlation risks and other market factors have significantly affected and will continue to affect the Group's business and results of operations
Some of the most significant market risks the Group faces are interest rate, foreign exchange, credit spread, bond, equity and commodity prices and basis, volatility and correlation risks. Changes in interest rate levels (or extended periods of low interest rates such as experienced over the past several years), yield curves (which remain depressed) and spreads may affect the interest rate margin realised between lending and borrowing costs, the effect of which may be heightened during periods of liquidity stress. Changes in currency rates, particularly in the sterling-US dollar and sterling-euro exchange rates, affect the value of assets, liabilities, income and expenses denominated in foreign currencies and the reported earnings of the Group's non-UK subsidiaries and may affect the Group's reported consolidated financial condition or its income from foreign exchange dealing. Such changes may result from the decisions of Central Banks in Europe and of the Federal Reserve in the US and lead to sharp and sudden variations in foreign exchange rates. For accounting purposes, the Group carries some of its issued debt, such as debt securities, at the current market price on its balance sheet. Factors affecting the current market price for such debt, such as the credit spreads of the Group, may result in a change to the fair value of such debt, which is recognised in the income statement as a profit or loss.
The performance and volatility of financial markets affects bond and equity prices, has caused, and may in the future cause, changes in the value of the Group's investment and trading portfolios. Financial markets experienced significant volatility towards the end of 2014 and this trend has continued in early 2015, resulting in further short term changes in the valuation of certain of the Group's assets. In addition, during the last quarter of 2014, oil prices fell significantly against their historical levels and other commodity prices also decreased. The Group is exposed to oil prices though its exposure to counterparties in the energy sector and oil producing countries. Further or sustained decreases in oil prices could negatively impact counterparties and the value of the Group's trading portfolios. As part of its on-going derivatives operations, the Group also faces significant basis, volatility and correlation risks, the occurrence of which are also impacted by the factors noted above.
While the Group has implemented risk management methods to mitigate and control these and other market risks to which it is exposed, it is difficult to predict with accuracy changes in economic or market conditions and to anticipate the effects that such changes could have on the Group's financial performance and business operations.
The Group has credit exposure arising from over-the-counter derivative contracts, mainly credit default swaps (CDSs), and other credit derivatives, each of which are carried at fair value. The fair value of these CDSs, as well as the Group's exposure to the risk of default by the underlying counterparties, depends on the valuation and the perceived credit risk of the instrument against which protection has been bought. Many market counterparties have been adversely affected by their exposure to residential mortgage linked and corporate credit products, whether synthetic or otherwise, and their actual and perceived creditworthiness may deteriorate rapidly. If the financial condition of these counterparties or their actual or perceived creditworthiness deteriorates, the Group may record further credit valuation adjustments on the credit protection bought from these counterparties under the CDSs. The Group also recognises any fluctuations in the fair value of other credit derivatives. Any such adjustments or fair value changes may have a material adverse impact on the Group's financial condition and results of operations.
In the UK and in other jurisdictions, the Group is responsible for contributing to compensation schemes in respect of banks and other authorised financial services firms that are unable to meet their obligations to customers
In the UK, the Financial Services Compensation Scheme (FSCS) was established under the FSMA and is the UK's statutory fund of last resort for customers of authorised financial services firms. The FSCS can pay compensation to customers if a firm is unable, or likely to be unable, to pay claims against it and may be required to make payments either in connection with the exercise of a stabilisation power or in exercise of the bank insolvency procedures under the Banking Act 2009.
The FSCS is funded by levies on firms authorised by the FCA, including the Group. In the event that the FSCS raises funds from the authorised firms, raises those funds more frequently or significantly increases the levies to be paid by such firms, the associated costs to the Group may have an adverse impact on its results of operations and financial condition.
In addition, the BRRD requires Member States to establish financing arrangements for the purpose of ensuring the effective application by national resolution authorities of the resolution tools and powers, which will require national resolution funds to raise "ex ante" contributions on banks and investment firms in proportion to their liabilities and risk profiles as well as "ex post" funding contributions. Following the adoption of the European delegated regulation on "ex-ante" contributions, the UK government confirmed that it would implement the "ex post" funding requirements through the UK bank levy of the Finance Act 2011.
To the extent that other jurisdictions where the Group operates have introduced or plan to introduce similar compensation, contributory or reimbursement schemes (such as in the US with the Federal Deposit Insurance Corporation), the Group may make further provisions and may incur additional costs and liabilities, which may have an adverse impact on its financial condition and results of operations.
Under International Financial Reporting Standards (IFRS), the Group recognises at fair value: (i) financial instruments classified as held-for-trading or designated as at fair value through profit or loss; (ii) financial assets classified as available-for-sale; and (iii) derivatives.
Generally, to establish the fair value of these instruments, the Group relies on quoted market prices or, where the market for a financial instrument is not sufficiently active, internal valuation models that utilise observable market data. In certain circumstances, the data for individual financial instruments or classes of financial instruments utilised by such valuation models may not be available or may become unavailable due to prevailing market conditions. In such circumstances, the Group's internal valuation models require the Group to make assumptions, judgements and estimates to establish fair value, which are complex and often relate to matters that are inherently uncertain. These assumptions, judgements and estimates also need to be updated to reflect changing facts, trends and market conditions. The resulting change in the fair values of the financial instruments has had and could continue to have a material adverse effect on the Group's earnings, financial condition and capital position.
The Group relies on valuation, capital and stress test models to conduct its business and anticipate capital and funding requirements. Failure of these models to provide accurate results or accurately reflect changes in the micro and macro economic environment in which the Group operates could have a material adverse effect on the Group's business, capital and results.
Given the complexity of the Group's business, strategy and capital requirements, the Group relies on analytical models to assess the value of its assets and its risk exposure and anticipate capital and funding requirements. The Group's valuation, capital and stress test models and the parameters and assumptions on which they are based, need to be constantly updated to ensure their accuracy. Failure of these models to accurately reflect changes in the environment in which the Group operates or the failure to properly input any such changes could have an adverse impact on the modelled results or could fail to accurately capture the risk profile of the Group's financial instruments. Some of the analytical models used by the Group are predictive in nature. The use of predictive models has inherent risks and may incorrectly forecast future behavior, leading to flawed decision making and potential losses. The Group also uses valuation models that rely on market data inputs. If incorrect market data is input into a valuation model, it may result in incorrect valuations or valuations different to those which were predicted and used by the Group in its forecasts or decision making. Should such models prove to be incorrect or misleading, decisions made by the Group in reliance thereon could expose the Group to business, capital and funding risk.
The Group capitalises goodwill, which is calculated as the excess of the cost of an acquisition over the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Acquired goodwill is recognised initially at cost and subsequently at cost less any accumulated impairment losses. As required by IFRS, the Group tests goodwill for impairment annually, or more frequently when events or circumstances indicate that it might be impaired. An impairment test involves comparing the recoverable amount (the higher of the value in use and fair value less cost to sell) of an individual cash generating unit with its carrying value. At 31 December 2014, the Group carried goodwill of £6.3 billion on its balance sheet.
The value in use and fair value of the Group's cash generating units are affected by market conditions and the performance of the economies in which the Group operates. Where the Group is required to recognise a goodwill impairment, it is recorded in the Group's income statement, although it has no effect on the Group's regulatory capital position. Further impairments of the Group's goodwill could have an adverse effect on the Group's results and financial condition.
Any significant write-down of goodwill could have a material adverse effect on the Group's results of operations.
The recoverability of certain deferred tax assets recognised by the Group depends on the Group's ability to generate sufficient future taxable profits and may be affected by changes to tax legislation
In accordance with IFRS, the Group has recognised deferred tax assets on losses available to relieve future profits from tax only to the extent that it is probable that they will be recovered. The deferred tax assets are quantified on the basis of current tax legislation and accounting standards and are subject to change in respect of the future rates of tax or the rules for computing taxable profits and offsetting allowable losses. Failure to generate sufficient future taxable profits or changes in tax legislation (including rates of tax) or accounting standards may reduce the recoverable amount of the recognised deferred tax assets. At 31 December 2014, the value of the Group's deferred tax assets was £1.5 billion. In December 2014 the UK Government announced a proposed restriction on the use of certain brought forward tax losses of banking companies to 50% of relevant profits from 1 April 2015 which may also affect the recoverable amount of recognised deferred tax assets. In addition, the implementation of the rules relating to ring-fencing and the resulting restructuring of the Group may further restrict the Group's ability to recognise tax losses within the Group as deferred tax assets .
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