FORM 6-K

FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549


Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934


For the month of May 2009

Commission File Number: 001-10306

The Royal Bank of Scotland Group plc

RBS, Gogarburn, PO Box 1000
Edinburgh EH12 1HQ

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F    X     Form 40-F        

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):_________

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):_________

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes           No    X  

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________



The following information was issued as Company announcements, in London, England and is furnished pursuant to General Instruction B to the General Instructions to Form 6-K: ________


1.  Interim Management Statement dated 08 May 2009 

 

 

The Royal Bank of Scotland Group plc

Interim Management Statement 

Q1 2009

Contents

 

Page

   

Forward-looking statements

2

   

First quarter 2009 update

3

   

Business and strategic update

7

   

Interim Management Statement 

9

   

Pro forma results

 
   

Summary consolidated income statement

14

   

Divisional performance

16

Global Markets

 

Global Banking & Markets

17

Global Transaction Services

20

Regional Markets

 

UK Retail & Commercial Banking

21

US Retail & Commercial Banking

26

Europe & Middle East Retail & Commercial Banking

28

Asia Retail & Commercial Banking

30

RBS Insurance

31

Group Manufacturing

33

Central items

33

   

Condensed consolidated balance sheet

34

   

Overview of condensed consolidated balance sheet

35

   

Statutory results

36

   

Condensed consolidated income statement

37

   

Condensed consolidated balance sheet

38

   

Other information

39

   

Contacts

39

   

Appendix 1 Reconciliations of pro forma to statutory income statements and balance sheets

40

   

Appendix 2 Credit market and related exposures - additional information

45



  Forward-looking statements

Certain statements made in this document constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. Forward looking statements can be identified by the use of words such as "may", "will", "expect", "intend", "estimate", "anticipate", "believe", "plan", "seek", "continue" or similar expressions. Such statements are based on current expectations and, by their nature, are subject to a number of risks and uncertainties that could cause actual results and performance to differ materially from any expected future results or performance, expressed or implied, by the forward-looking statements. Factors that might cause forward-looking statements to differ materially from actual results include but are not limited to: the ability of RBS to access sufficient funding to meet its liquidity needs; developments in the current crisis in the global financial markets, and their impact on the financial industry in general and RBS in particular; the full nationalisation of RBS; general economic conditions in the United Kingdom, countries in Europe and Asia in which RBS has business activities, and the United States; the financial stability of other financial institutions, and RBS's counterparties and borrowers; the value and effectiveness of any credit protection purchased by RBS; the extent of future write-downs and impairment charges caused by depressed asset valuations; RBS's ability to achieve revenue benefits and cost savings from the integration of certain of ABN AMRO's businesses and assets; the potential exposure of RBS to various types of market risks, such as interest rate risk, foreign exchange rate risk, and commodity and equity price risk; changes in RBS's credit ratings; RBS's participation in the APS and the effect of such scheme on RBS's financial and capital position; the monetary and interest rate policies of central banks, in particular the Bank of England, the European Central Bank, the Dutch Central Bank, the Board of Governors of the US Federal Reserve System and other G-7 central banks; limitations on, or additional requirements imposed on, RBS's activities as a result of HM Treasury's investment in RBS; changes in the pricing environment; the effects of competition and consolidation in the markets in which RBS operates; changes in applicable laws, regulations and taxes in jurisdictions in which RBS operates; the inability of RBS to hedge certain risks economically; and the success of RBS in managing the risks involved in the foregoing. These forward-looking statements speak only as of the date of this announcement. The information and opinions contained in this announcement are subject to change without notice and, subject to compliance with applicable law, RBS assumes no responsibility or obligation to update publicly or review any of the forward-looking statements contained herein.

  

First quarter 2009 update 

Highlights (1)

·     

Strong income growth, up 26% to £9,702 million. (2)


·     

Strong profit before impairment losses, up 42% to £4,079 million. (2)


·     

Value of GBM franchise and management efforts highlighted with headline revenues, up 97% to £4,269 million. (2)   This level of revenue is likely to be exceptional.  


·     

Impairment losses and credit market write-downs totalling £4,927 million.  (3)


·     

Pre-tax loss of £44 million. Attributable loss after tax and minority interests of £857 million.


·     

Pro forma core tier 1 ratio 6.7% (4)   before the favourable impact of the Asset Protection Scheme.


·     

Good progress made on detail behind the Strategic Plan and starting its implementation. Asset Protection Scheme subject to EGM approval over the summer months.


·     

Support for UK customers continuing.  Lending balances year on year to UK homeowners and SME customers up £11 billion and more than £20 billion of bond and equity raising for UK clients in Q1 alone.


·     

Strong growth in customer accounts (Q109 vs. Q108); 3% more UK current accounts, 15% more UK savings accounts and 5% more UK own-brand insurance policies.




Notes:

(1)   Comparisons given are to Q1 2008 and are presented on a pro forma basis.

(2)   Excluding credit market write-downs and one-off items.

(3)   Excluding trading asset write-downs of £755 million (see page 18). 

(4)   As at 31 March 2009, after adjusting for the £5 billion preference share conversion which completed on 14 April 2009 and £4.5 billion pre-tax gain recorded on capital instrument exchange and tender offers announced on 24 April 2009. 
 
 
 
 

Stephen Hester, Group Chief Executive, comments: 

"Today we have published our first quarterly trading statement which provides investors with more transparency on RBS' performance than ever before. This is an approach we mean to continue."

"The results demonstrate the challenging conditions we face and that we expect to continue. Our core customer franchises are facing the reality of a sharp recession following a year in which the credit markets crisis caused our worst ever performance. We have responded boldly to the crisis and its ongoing challenges. We are fundamentally changing both the shape of the business and the way that we do it."

First quarter 2009 update  (continued)

Stephen Hester, Group Chief Executive, comments (continued): 

"It is difficult to unclutter the results from a variety of one-off events and actions. However, two things in particular are pleasing. First our strong business franchises remain intact, customer flows are solid and our people are hard at work. Second we are making good progress in charting the path back to stand-alone strength and executing against those plans. This includes management change, where we have made further announcements this week, the progress that is being made towards reducing our cost base, fulfilling commitments to our customers and laying the foundations for future business success."

"No-one should be in any doubt that this is a process that will take years not months. We remain fully focused on the task in hand and recognise all the responsibilities we carry."

"RBS' first quarter results are reflective of two major and competing factors; the buoyancy of financial markets revenues within GBM, which are encouraging and are a credit to the strong market positions of our core franchise in this area; and the negative impact of lower interest rates and economic recession on our net interest margins and impairment losses, which have been building since last year across all businesses and sectors. We expect credit conditions to continue to deteriorate over the next few quarters consistent with these trends, and that there will be a slow-down in financial market activity compared with the very buoyant conditions seen in Q1. Some commentators are beginning to talk about economic recovery; we remain cautious and continue to plan and manage our businesses in the full expectation that both 2009 and 2010 will be very tough years for RBS."

"Overall, these results bear out my confidence that RBS has very strong franchises from which we can rebuild shareholder value over the next three to five years. They also confirm that the short-term outlook remains challenging."

 

   Results summary - pro forma

 

Q1 

2009 

Q1

2008

Change 

Full year

2008 

 

£m 

£m

£m 

         

Total income (1)

9,702 

7,722

26 

26,875 

Operating expenses (2)

4,657 

3,881

20 

16,085 

Operating profit before impairment losses (2)

4,079 

2,863

42 

6,873 

Impairment (3)

2,858 

656

7,428 

Underlying profit/(loss) (4)

1,968 

2,207

(11)

(89)

Credit market write-downs and one-off items

797 

1,412

(44)

5,641 

Purchased intangibles amortisation

85 

87

(2)

443 

Integration and restructuring costs

379 

74

1,357 

Share of shared assets

155

(97)

300 

(Loss)/profit before tax (5)

(44)

479

(8,296)

(Loss)/profit attributable to ordinary shareholders (5)

(857)

245

(8,024)

Write-down of goodwill and other intangible assets (less tax credit of £715 million)

-

16,196 

(Loss)/profit attributable to ordinary shareholders

(857)

245

(24,220)

Cost:income ratio (6)

48.0%

50.3%

 

59.9%



Reconciliations from statutory to pro forma data are provided in Appendix 1.

Notes:

(1)

excluding credit market write-downs and one-off items and share of shared assets.  

(2)

excluding one-off items, purchased intangibles amortisation, write-down of goodwill and other intangible assets, integration costs, restructuring costs and share of shared assets.

(3)

including impairment losses on all reclassified assets.

(4)

profit before tax, credit market write-downs and one-off items and impairment losses on reclassified assets, purchased intangibles amortisation, write-down of goodwill and other intangible assets, integration costs, restructuring costs and share of shared assets.

(5)

excluding write-down of goodwill and other intangible assets.

(6)

the cost:income ratio is based on total income and operating expenses as defined in (1) and (2) above.



Basis of preparation - pro forma results

Pro forma results have been prepared that include only those business units of ABN AMRO that will be retained by RBS and assuming that the acquisition of ABN AMRO was completed on 1 January 2008.  

Given the significant write-downs on the Group's credit market exposures, and in order to provide a basis for comparison of underlying performance, these write-downs and other one-off items are shown separately in the pro forma income statement.
 

Results summary - statutory, including those parts of ABN AMRO attributable to the Dutch State and Santander

 

Q1

2009 

Q1

2008

Change 

Full year 

2008 

  

£m 

£m

£m 

 

       

Total income 

10,388 

7,130

46 

25,868 

Operating expenses (1)

6,159 

4,894

26 

54,202 

Operating profit/(loss) before impairment losses

3,142 

1,110

183 

(32,764)

Impairment  

3,090 

723

8,072 

Profit/(loss) before tax

52 

387

(87)

(40,836)

(Loss)/profit attributable to ordinary shareholders

(902)

225

(24,306)




Note:

(1)

including purchased intangibles amortisation of £85 million (Q1 2008 - £87 million; full year 2008 - £443 million), write-down of goodwill and other intangible assets of nil (Q1 2008 - nil; full year 2008 - £32,581 million) and integration and restructuring costs of £379 million (Q1 2008 - £74 million; full year 2008 - £1,357 million).



Basis of preparation - statutory results

RFS Holdings is jointly owned by the Consortium Members. It is controlled by RBS and is therefore fully consolidated in its financial statements. Consequently, the statutory results of the RBS Group for the periods ended 31 March 2009, 31 December 2008 and 31 March 2008 include the results of ABN AMRO.  The interests of the State of the Netherlands and Santander in RFS Holdings are included in minority interests.

 

   Business and strategic update 

Strategic Plan

We have made good progress in the detailed planning and validation phase of the strategic plan which we outlined in February. We will present these results to the market in conjunction with our interim results on 7 August.  For each division and the Group we plan to set out actions and targets on a three to five year view that will enable the Group to achieve returns on equity of 15% or above, a balanced funding and liquidity profile, and a risk appetite consistent with our resources and our customer franchises.  The vital cost saving initiatives that form part of the plan have already started and are on track.  To date, cost savings of £312 million have been actioned towards our three year target of £2.5 billion of overall savings.

RBS announced this week a number of changes and new appointments to the Group's Executive Committee (Exco). Once these have taken effect, all 9 members of the Group's Exco will be new to their posts within the last 14 months, 7 since October of last year. This will complete the management restructuring at this level though further changes will continue elsewhere in the Group. These appointments complement the new strategic direction for RBS set out in February and, once bedded down, will help underpin its implementation.

Non-core Division and disposal programme

We have also made progress on our disposal programme. We disposed of our Bank of China stake in January 2009.  On 30 April 2009 we sold our 50% stake in Linea Directa to Bankinter for €426 million.  The sale process for our Asian Retail & Commercial businesses is continuing with encouraging interest so far.  However, the pace of asset reduction will be slowed by the duty to protect shareholder value until markets normalise and the workings of the APS that restrict sales of covered assets.  Nathan Bostock joins us on 1 June to head up the Non-core Division, which we will report separately from the half year.

Risk

We have undertaken a thorough review of our risk framework as part of our strategic review and a range of risk initiatives arising from this are now under way.  New limits and policies on country and single-name concentration risk are already being implemented. Our very strong corporate restructuring group has been extended to operate on a global basis, with a team of professionals now totalling around 500 tasked to identify potential credit problems at an earlier stage and, to work proactively to protect the Group's interests whilst supporting our customers.  New credit approval processes have also been implemented. These activities are, however, largely forward looking. Losses from existing risk exposures will continue, with the markets providing very limited opportunities to exit these at economic levels.

Asset Protection Scheme (APS)

The Group and the UK Government, represented by Her Majesty's Treasury, are making progress towards a legally binding agreement on the APS.  There are some difficult issues yet to resolve and sub-optimal aspects of the APS to consider.  Due to the complex nature of negotiations, the timing of the APS completion is not precise; however we continue to work with Her Majesty's Treasury towards successful execution.  Once agreement has been reached with Her Majesty's Treasury, the Group's participation in the APS will be put to a meeting of the Group's independent shareholders for approval. A circular giving more details of the assets and their credit metrics which are to be included within the scheme will be sent out ahead of the meeting. This will facilitate comparisons with the RBS assets which are not included in the APS.  On an indicative basis 75 to 85 percent of the impairments and write-downs reported in the first quarter are attributed to the portfolios we have submitted for APS coverage and we expect these to count towards the first loss tranche.

Business and strategic update (continued)

UK Lending Commitments

RBS has agreed to increase its lending to UK homeowners and businesses by a targeted £25 billion in 2009/10 as part of the commitments entered into in association with the APS. Credit demand across the UK economy has slowed, with many consumers and businesses quite properly seeking to reduce their borrowing.  Despite this, the Group has maintained the availability of credit at competitive prices and has achieved good lending volumes, with UK mortgage lending increasing by 10% to £82.7 billion and lending to SMEs up 5% to £68.2 billion over the last year. In the larger corporate segments, demand for new bank credit has been weak with many corporates seeking to reduce gearing and diversify their funding sources. RBS has, however, played a leading role in financing UK corporates, participating in more than £10 billion of equity issuance and more than £10 billion of bond issuance for its clients. 

Customer accounts

Customer accounts continue to rise. UK current accounts increased 3% to 12.5 million, and UK savings accounts increased 15% to 9.2 million year on year. Own brand motor insurance policies increased 6% to 7.1 million, and own brand non-motor insurance policies by 5% to 5.7 million. Customer accounts in European retail and commercial division, mainly Ulster Bank, increased by 10% to 1.5 million. Within US Retail & Commercial Banking, retail checking accounts were up 3% year on year, excluding disposals, to 3.5 million, and small business checking accounts were up 7% to 480,000 on the same basis due to the strength of our franchise. Within GBM, the first quarter performance confirms our franchise strengths, we have moved up from number five globally to number four in foreign exchange rankings for example.

 Interim Management Statement

 

This document constitutes RBS' Interim Management Statement ("IMS") for the period from 31 December 2008 to 8 May 2009. Comments relate primarily to pro forma unaudited results for the Group including the ABN AMRO businesses to be retained by RBS and cover the first quarter of 2009 compared with the equivalent quarter in 2008 unless otherwise stated.

RBS has, for the first time, published financial information to accompany its IMS in order to enhance transparency and disclosure to the market.

Profit

The loss before tax was £44 million compared with a profit of £479 million in the corresponding period last year. Profit before impairment losses and credit market write-downs and one-off items was £4,079 million, up 42%, reflecting a strong income performance within Global Banking and Markets ("GBM") across all its businesses, with the performance benefiting from particularly favourable conditions in rates, currencies and commodities. The operating performance of RBS has been resilient, but results overall continue to be affected by impairment losses due to the deteriorating economic conditions in our major markets and credit market write-downs, particularly further provisions taken against monoline exposures. Impairment losses (including reclassified assets) increased by £2,202 million to £2,858 million.

Losses from previously disclosed credit market exposures were £2,069 million, primarily reflecting a further deterioration in the outlook for monoline counterparties.  Other one-off items totalled a positive £1,272 million due to a reduction in the carrying value of own-debt of £1,031 million, and a gain on the Bank of China investment of £241 million (including amounts attributable to co-investors). Integration and restructuring costs totalled £379 million. 

Minority interests of £471 million include £359 million relating to our partners' share of the gain from the Bank of China investment.

After tax, minority interests and preference share dividends, the loss attributable to ordinary shareholders was £857 million, compared with a profit of £245 million in Q1 2008.

Income

Total income, excluding credit market write-downs and one-off revenue related items, was £9,702 million, an increase of 26%. On a constant currency basis, income was up 13%.  This was due to very strong growth in GBM income, up 97% at a headline level (65% at constant currency). Other divisions reported more subdued trends, primarily due to lower interest rates and their impact on net interest and investment income, as well as the weak economic environment.

   Interim management statement  (continued)

Net interest income 

Net interest income declined by 3% to £3,438 million. Average interest earning assets increased by 17%, driven largely by increased holdings of liquid assets and currency movements. Asset margins across the lending businesses were broadly stable, with improved front book pricing compensating for higher funding costs and the mix effect of a higher proportion of secured lending. Deposit margins decreased due to lower interest rates and increasing competition. As a result, net interest margins for the retail and commercial business have narrowed to 2.69% in Q1 2009 from 2.96% in 2008. 

 

Q1

Q1

Full year

 

2009

2008

2008

 

%

%

%

       
       

UK Retail and Commercial Banking

2.95

3.21

3.21

US Retail & Commercial Banking

2.42

2.64

2.73

Europe & Middle East Retail & Commercial Banking

1.88

2.04

2.02

Asia Retail & Commercial Banking

5.32

6.47

6.14

Global Banking & Markets

1.19

0.90

1.19

       


Overall Group margin declined from 2.10% in 2008 to 1.73% in the first quarter of 2009. Of the decline in Group margin approximately 10 b.p. is driven by the aforementioned narrowing in the retail and commercial businesess' margin, and a further 25 b.p. associated with the increased cost of term funding and a higher stock of liquid assets.

The outlook for the full year Group net interest margin is to be approximately 15 b.p. lower than the first quarter largely as a result of continuing measures to strengthen funding and liquidity coupled with a continuing squeeze on deposit margins.

Non-interest income

Non-interest income was up 51% to £6,264 million excluding credit market write-downs and one-off items, due to the very strong trading performance in GBM where non-interest income totalled £3,285 million, up 131%. Regional markets non-interest income was down 12% to £1,218 million (15% at constant currency and adjusting for disposals) due to the withdrawal of the single premium payment protection insurance product, reduced credit card activity levels in the UK and lower gains in the US, together with lower investment income across several divisions as a result of the decline in equity markets globally.

Operating expenses

At a constant exchange rate expenses rose by 8% to £4,657 million. Underlying expenses fell by 3% reflecting tight cost control as well as early benefits from our restructuring initiatives. Headline expenses grew by £776 million, of which £420 million was a function of currency movements with the balance of the growth in the quarter being a combination of the inclusion of Sempra for the first time, the phasing of performance related accruals within GBM, and the increased deposit protection levies in both the UK and the US.  The Group's cost:income ratio improved by 230 b.p. to 48.0%.

On a constant currency basis the outlook for expenses in 2009 is broadly stable compared to 2008, with the expected benefit of cost saving and restructuring initiatives offsetting the impact from performance related compensation and inflation.

  

Interim management statement  (continued)

Impairment losses

Credit impairment losses (including reclassified assets) increased to £2,858 million, compared with £656 million in 2008. The rise in impairment losses reported in the second half of 2008 continued into 2009, as financial distress spread.  Impairment losses in GBM rose to £1,376 million (2008 - £57 million) reflecting deterioration in a broad range of corporate sectors.  Retail and commercial impairment losses were £1,464 million (2008 - £596 million) reflecting economic weakness across all geographies and consumer sectors.

Impairment losses represented 1.33% of period end loans and advances (Q1 2008 - 0.43%), continuing the deteriorating trends seen in the second half of 2008 where the losses at the year end represented 0.91% of loans and advances. 

Non-performing and potential problem loans at 31 March 2009 represented 3.50% of loans and advances, excluding repos, compared with 1.38% a year earlier and 2.69% at 31 December 2008. Provision coverage was 46% compared with 50% at 31 December 2008. A greater proportion of NPLs have high levels of security cover compared to previous periods.

We expect credit impairment losses to continue to reflect very difficult economic conditions seen in the second half of 2008 and the first quarter of 2009, and the resultant increase in non-performing loans across all sectors.

Credit market losses

Losses in Q1 2009 relating to the Group’s previously identified credit market exposures, primarily to the monolines, totalled £2,069 million excluding impairment losses of £747 million on all assets reclassified out of the ‘held-for-trading’ category following the amendments to IAS 39 ‘Financial Instruments: Recognition and Measurement’ issued in October 2008.  These losses primarily relate to adverse movements in credit default swap spreads and our prudent reserving policy in respect of major monoline counterparties during Q1 leading to a charge of £1,636 million.  Other losses of £433 million relate primarily to further deterioration in our Asset-Backed CDO portfolios.  Further details of these exposures and movements are summarised in Appendix 2.

Other non-operating items

Integration costs of £244 million were incurred, primarily relating to the ABN AMRO acquisition. Restructuring costs amounted to £135 million. We have commenced our programme of cost saving initiatives announced at the full year results in February.  These initiatives have already delivered incremental cost savings of £312 million in the quarter, the majority relating to previous ABN AMRO integration initiatives, as we work towards realising £2.5 billion of savings over the next three years.  Amortisation of purchased intangibles and shared asset costs totalled £89 million in the quarter.

Interim management statement  (continued)

Capital ratios

Risk-weighted assets were £576 billion at 31 March 2009, slightly lower than the £578 billion at 31 December 2008.  A reduction in the GBM balance sheet has been partially offset by the continued adverse impact of pro-cyclicality.

On 24 April 2009 RBS completed an offer and exchange for certain capital instruments. The resultant gain of £4.0 billion after tax would add approximately 70 basis points to our Core Tier 1 ratios. On a pro forma basis, allowing for the £5 billion Preference Share conversion completed on 14 April 2009 and the aforementioned capital instruments transaction, the Group's Core Tier 1 ratio was 6.7% as at 31 March 2009, and 7.5% at 31 December 2008. On the same basis the Tier 1 ratio was 9.9% (31 December 2008 - 10.6%) and the total capital ratio was 13.9% (31 December 2008 - 14.9%). The impact of the APS would add approximately 5.5% to all of these ratios. These ratio calculations are consistent with the FSA definitions issued on 1 May 2009, where deductions are taken from Core Tier 1 capital. 

The key drivers of the quarterly movements are:

·     

The impact of the disposal of our stake in Bank of China including the loss of minority interest, 25 basis points.


·     

The attributable loss (after deducting the fair value gains on own debt), 25 basis points.


·     

An increase in regulatory deductions of 30 basis points relating mainly to securitisation positions and the excess of expected losses over provisions held.




Balance Sheet

Total assets of £2,060 billion at 31 March 2009 were down £158 billion, or 7% compared with 31 December 2008. Excluding derivatives, total assets fell by £35 billion, or 3%, from £1,227 billion to £1,192 billion, primarily reflecting continued GBM de-leveraging. 

Funding

Loans and advances to customers, excluding reverse repos, were £671 billion, a reduction of £21 billion compared with £692 billion at 31 December 2008.  Customer deposits, excluding repos, totalled £446 billion, a reduction of £14 billion compared with £460 billion at 31 December 2008 reflecting normal seasonal trends.  The loan:deposit ratio was stable at 150% at 31 March 2009.

Liquidity and term funding

Liquidity has slightly improved due to our own actions and reflecting more normal markets. We continue to successfully issue both unguaranteed and guaranteed funding in a variety of currencies, and will continue to look for opportunities to issue public unguaranteed term funding over the course of the next few months.

Recent events

On 24 April 2009, the Group announced a pre-tax gain of approximately £4.5 billion following the completion of the tender and exchange offers for certain of our Tier 1 and upper Tier 2 securities.  On 30 April 2009, the Group announced the disposal of its 50% stake in Linea Directa to Bankinter and expects to record a gain of just over £200 million.

Future disclosures and reporting

During the first half of 2009, the Group will be changing its segmental structure in line with the Strategic Review.  A non-core division, headed by Nathan Bostock, will be reported separately from the divisions within our core Group.  In addition, separate reporting of Group Manufacturing and Centre results will change, and most of these costs will be allocated to the customer-facing divisions and included in the measurement of the returns which they generate.  Prior period data will be restated and published ahead of the announcement of the Group's interim results on 7 August 2009 which will be on the basis of the new segments.

Interim management statement  (continued)

Analysts' conference call

Stephen Hester, Group Chief Executive, and Guy Whittaker, Group Finance Director will be hosting an analyst and investor conference call this morning:

8 May 2009 at 9.00am

Dial in Details:

International - +44 (0) 1452 565 124

UK Free Call - 0800 953 0810

USA Free Call - 1 866 789 2220

Summary consolidated income statement 

for the quarter ended 31 March 2009 - pro forma 

In the income statement set out below, credit market write-downs and one-off items, amortisation of purchased intangible assets, write-down of goodwill and other assets, integration and restructuring costs and share of shared assets are shown separately. In the statutory condensed consolidated income statement on page 37, these items are included in non-interest income, operating expenses and impairment, as appropriate.

 

Q1 

2009 

Q1 

2008 

Change 

Restated (1)  

full year 

2008 

 

£m 

£m 

£m 

         

Net interest income

3,438 

3,560 

(3)

15,939 

         

Non-interest income (excluding insurance net premium income)

4,908 

2,724 

80 

5,227 

Insurance net premium income

1,356 

1,438 

(6)

5,709 

         

Non-interest income excluding credit market write-downs 

  and one-off items

6,264 

4,162 

51 

10,936 

         

Total income before credit market write-downs and one-off items

9,702 

7,722 

26 

26,875 

Credit market write-downs and one-off items

(797)

(1,412)

(44)

(5,641)

         

Total income

8,905 

6,310 

41 

21,234 

Operating expenses

4,657 

3,881 

20 

16,085 

         

Profit before other operating charges

4,248 

2,429 

75 

5,149 

Insurance net claims

966 

978 

(1)

3,917 

         

Operating profit before impairment losses

3,282 

1,451 

126 

1,232 

Impairment losses 

2,858 

656 

7,428 

         

Group operating profit/(loss)*

424 

795 

(47)

(6,196)

Amortisation of purchased intangible assets

(85)

(87)

(2)

(443)

Integration and restructuring costs

(379)

(74)

(1,357)

Share of shared assets

(4)

(155)

(97)

(300)

         

(Loss)/profit before tax

(44)

479 

(8,296)

Tax

(228)

(131)

74 

1,280 

         

(Loss)/profit for the period

(272)

348 

(7,016)

Minority interests

471 

21 

412 

Preference share and other dividends

114 

82 

39 

596 

         

(Loss)/profit attributable to ordinary shareholders before write-down of goodwill and other intangible assets

(857)

245 

(8,024)

Write-down of goodwill and other intangible assets 

(16,196)

         

Loss/(profit) attributable to ordinary shareholders

(857)

245 

(24,220)

         

Underlying profit

       

Group operating profit/(loss)*

424 

795 

(47)

(6,196)

Credit market write-down and one-off items

797 

1,412 

(44)

5,641 

Impairment losses on reclassified assets

747 

466 

         
 

1,968 

2,207 

(11)

(89)

         


* Profit/(loss) before tax, purchased intangibles amortisation integration and restructuring costs, RBS share of Consortium shared assets, and write-down of goodwill and other intangible assets.

Note:

(1) Restated for the amendment to IFRS 2 'Share-based Payment'.

 

 

Summary consolidated income statement  (continued)  

for the quarter ended 31 March 2009 - pro forma 

 

Key metrics

Q1  

2009  

Q1  

2008  

Change 

Full Year 

2008 

 

 

 

 

 

Cost:income ratio

48.0% 

50.3%

230bp 

59.9%

Net interest margin

1.73% 

2.05%

(32bp)

2.10%

Risk-weighted assets

£575.7bn 

£549.0bn 

5% 

£577.8bn

Non-performing loans

£23.7bn

£8.2bn

189% 

£18.8bn

Provision balance as % of NPL/PPLs

46%

67%

 

50%



Credit market write-downs and one-off items

Q1 

2009 

£m 

Q1 

2008 

£m 

Full year 

2008 

£m 

       

Non-interest income:

     

Global Banking & Markets: 

     

  Credit market write-downs 

(2,069)

(2,020)

(7,315)

  Fair value of own debt

647 

410 

357 

       
 

(1,422)

(1,610)

(6,958)

       

Centre:

     

Fair value of own debt

384 

198 

875 

Gain on sale of investment in Bank of China

241 

Gain on sale of investment in Tesco Personal Finance

442 

       
 

625 

198 

1,317 

       

Total

(797)

(1,412)

(5,641)

       

Impairment losses on reclassified assets:

     

Global Banking & Markets 

(747)

(466)



   Divisional performance

The profit/(loss) of each division before credit market write-downs and one-off and reclassified items, amortisation of purchased intangible assets, write-down of goodwill and other assets, integration and restructuring costs, share of shared assets and after allocation of manufacturing costs where appropriate is shown below. The Group manages costs where they arise.  Customer-facing divisions control their direct expenses whilst Manufacturing is responsible for shared costs.  The Group does not currently allocate these shared costs between divisions in the day-to-day management of its businesses, and the way in which divisional results are presented reflects this.  However, in order to provide a basis for market comparison, the results below also include an allocation of Manufacturing costs to the customer-facing divisions on a basis management considers to be reasonable.

 

Q1 

2009 

Q1 

2008 

Change 

Full Year 

2008 

 

£m 

£m 

£m 

         

Operating profit/(loss) by division 

       
         

Global Banking & Markets

2,009 

1,018 

97 

(3,570)

Global Transaction Services

336 

327 

1,339 

UK Retail & Commercial Banking

       

- UK Retail Banking

172 

469 

(63)

1,764 

- UK Corporate & Commercial Banking

202 

399 

(49)

1,116 

- UK Wealth

82 

104 

(21)

403 

US Retail & Commercial Banking

(98)

167 

(159)

524 

Europe & Middle East Retail & Commercial Banking

(91)

108 

(184)

70 

Asia Retail & Commercial Banking

(75)

13 

(113)

RBS Insurance

101 

147 

(31)

780 

Central items (excluding one-off items)

(670)

(545)

23 

(2,402)

         

Profit before credit market write-downs and one-off items

1,968 

2,207 

(11)

(89)

Credit market write-downs, one-off and reclassified items 

(1,544)

(1,412)

(6,107)

         

Group operating profit/(loss)

424 

795 

(47)

(6,196)

         

Impairment losses by division 

       
         

Global Banking & Markets

629 

57 

3,177 

Global Transaction Services

13 

60 

UK Retail & Commercial Banking

       

- UK Retail Banking

447 

283 

58 

1,281 

- UK Corporate & Commercial Banking

228 

41 

671 

- UK Wealth

12 

US Retail & Commercial Banking

476 

199 

139 

1,041 

Europe & Middle East Retail & Commercial Banking

221 

41 

526 

Asia Retail & Commercial Banking

87 

31 

181 

171 

Other

23 

     

 

 

Impairment losses before reclassified asset impairments

2,111 

656 

6,962 

Reclassified asset impairments - Global Banking & Markets

747 

466 

         

Total impairment losses

2,858 

656 

7,428 



Risk-weighted assets by division 

£bn 

£bn 

£bn 

         

Global Banking & Markets

267.6 

259.0 

278.5 

Global Transaction Services

20.7 

17.7 

17 

19.6 

UK Retail & Commercial Banking

       

- UK Retail Banking

67.8 

63.6 

63.8 

- UK Corporate & Commercial Banking

83.1 

92.5 

(10)

80.7 

- UK Wealth

8.3 

7.3 

14 

8.0 

US Retail & Commercial Banking

77.5 

57.2 

35 

78.0 

Europe & Middle East Retail & Commercial Banking

32.4 

32.0 

30.9 

Asia Retail & Commercial Banking

5.5 

5.7 

(4)

6.4 

Other

12.8 

14.0 

(9)

11.9 

         

Total

575.7 

549.0 

577.8 



Global Markets

Global Banking & Markets

 

Q1 

2009 

Q1 

2008 

Change 

Full year 

2008 

 

£m 

£m 

£m 

         

Net interest income from banking activities

984 

752 

31 

4,034 

         

Net fees and commissions receivable

433 

307 

41 

1,562 

Income from trading activities

3,734 

1,361 

174 

4,043 

Other operating income (net of related funding costs)

(127)

287 

575 

Trading asset write-downs

(755)

(535)

41 

(5,776)

         

Non-interest income before credit market write-downs and  one-off items*

3,285 

1,420 

131 

404 

         

Total income before credit market write-downs and one-off items *

4,269 

2,172 

97 

4,438 

Credit market write-downs and one-off items*

(1,422)

(1,610)

(12)

(6,958)

         

Total income

2,847 

562 

407 

(2,520)

         

Direct expenses

1,507 

980 

54 

4,352 

Allocation of manufacturing costs

124 

117 

479 

         
 

1,631 

1,097 

49 

4,831 

         

Operating profit/(loss) before impairment losses

1,216 

(535)

(7,351)

Impairment losses

1,376 

57 

3,643 

         

Operating loss

(160)

(592)

(73)

(10,994)

         

Operating profit/(loss) before credit market write-downs, one-off items 

  and reclassified asset impairments

2,009 

1,018 

97 

(3,570)

         
         

Analysis of income by product:

       

Rates

1,984 

1,026 

93 

3,543 

Currencies

632 

384 

65 

1,697 

Commodities

223 

778 

Equities

360 

166 

117 

415 

Credit markets

1,309 

639 

105 

1,366 

Asset and portfolio management

516 

485 

2,415 

Total income before credit market write-downs, other one-off items and trading asset write-downs*

5,024 

2,707 

86 

10,214 

Credit market write-downs and one-off items*

(1,422)

(1,610)

(12)

(6,958)

Trading asset write-downs

(755)

(535)

41 

(5,776)

         

Total income

2,847 

562 

407 

(2,520)

         


Analysis of impairment by sector:

         

Manufacturing and infrastructure

 

318 

1,389 

Property and construction

 

67 

722 

Transport 

 

85 

45 

89 

12 

Telecommunications, media and technology

 

318 

55 

Banks and financial institutions

 

140 

1,055 

Other

 

448 

12 

410 

           

Total impairment

 

1,376 

57 

3,643 

           

Loan impairment charge as % of gross customer loans and advances - excluding reverse repurchase agreements

 

1.12%

0.09%

 

0.91%



*includes fair value of own debt but excludes reclassified asset impairments of £747 million for Q1 2009.

 

 

Global Markets

Global Banking & Markets  (continued)

 

Q1 

Q1 

 

Full year 

 

2009 

2008 

Change 

2008 

 

£bn 

£bn 

£bn 

         

Loans and advances (including banks)

330.3 

293.4 

13 

354.3 

Reverse repos

86.6 

294.3 

(71)

96.1 

Securities

156.1 

235.0 

(34)

163.2 

Cash and eligible bills

30.1 

27.7 

26.1 

Other assets

55.5 

66.0 

(16)

52.2 

         

Total third party assets (excluding derivatives mark to market)

658.6 

916.4 

(28)

691.9 

Net derivative assets (after netting)

123.8 

94.0 

32 

146.0 

Customer deposits (excluding repos)

93.4 

104.5 

(11)

105.0 

Non-performing loans

8.7 

1.8 

6.2 

         

Risk-weighted assets

267.6 

259.0 

278.5 



Global Banking & Markets (GBM) delivered a strong income performance across all business lines in the first quarter of 2009, most notably in rates, currencies and credit markets.  Operating loss fell from £592 million for the first quarter of 2008 to £160 million for the corresponding period of 2009.

GBM incurred £755 million of losses, write-downs or reserve movements largely on credit trading and counterparty risk (including CDPC's) due to the continued effects of the downturn. In addition, losses on previously identified credit market exposures were £2,816 million, including impairments of £747 million on all reclassified assets. The vast majority of activity relating to these asset categories has ceased and will not form part of GBM businesses going forward. The asset losses were partly offset by gains on the fair value of own debt of £647 million.

Total income before credit market write-downs and one-off items was £4,269 million, up 97% from the first quarter of 2008.  After these items, GBM recorded income of £2,847 million. Costs were up 49% and credit impairments rose sharply, resulting in a first quarter 2009 operating loss of £160 million.

Net interest income grew 31% to £984 million, with strong money markets income partly offset by increased funding and liquidity costs.

By business line, the rates business achieved a particularly strong performance in the first quarter of 2009, benefiting from increased market volatility and strong customer demand resulting in a 93% increase in income to £1,984 million.  Foreign exchange revenues were up 33% with a move from 5th up to 4th position globally in the Euromoney FX Poll helping to drive an overall 65% growth in currencies income to £632 million.  The Sempra Commodities joint venture, which began in April 2008, contributed income of £223 million for the quarter.

Equity derivatives performed well in an active market and core equities revenue grew, driven by a strong equity capital markets (ECM) performance. Together with reduced losses on illiquid trading positions, Equities saw an increase in income from £166 million in 2008 to £360 million.  RBS rose from 10th to 8th position in Non-US ECM from Q108 to Q109.   

Credit markets benefited from a more stable trading environment helped by various US Government schemes driving increased activity particularly in the US mortgage trading business.  Debt capital markets (DCM) revenues grew strongly from Q108 across both Corporate and FI client sectors. Credit markets income, excluding write-downs on previously disclosed credit market exposures, increased by 105% to £1,309 million.

Asset and portfolio management income remained resilient, despite some losses incurred on loan sales, and income increased by 6% to £516 million.

Global Markets

Global Banking & Markets  (continued)

While total income (before credit market write-downs and one-off items) grew by 97%, total expenses increased 49% to £1,631 million, as a result of currency movements, the inclusion of Sempra for the first time and the phasing of performance related accruals. The compensation ratio for the quarter was 39%, within the expected range for this ratio for the full year. Not withstanding adverse exchange rate movements, non-staff costs decreased by 5% primarily reflecting restructuring and efficiency benefits, and lower operating lease depreciation following the sale of Angel Trains.

Impairment losses (including available-for-sale assets) increased sharply to £1,376 million.  There were a small number of individual significant impairments totalling approximately £400 million in the first quarter.  Credit impairments in the last quarter of 2008 were £2,938 million.  Non-performing and potential problem loans as a percentage of loans & advances to customers increased from 0.7% for the first quarter of 2008 to 3.1% for the first quarter of 2009.

GBM's total third party assets excluding derivatives were reduced by £258 billion at 31 March 2009 to £659 billion, a reduction of 28% on a year earlier, or 37% at constant exchange rates. Within this, total loans and advances were £330 billion, a decrease of 2% at constant exchange rates. There were also significant reverse repos and securities holdings, both of which have been managed down over the course of the quarter.

Global Markets

Global Transaction Services

 

Q1

Q1

 

Full year

 

2009

2008

Change 

2008

 

£m

£m

£m

         

Net interest income

220

224

(2)

909

Non-interest income

409

360

14 

1,563

         

Total income

629

584

2,472

         

Direct expenses

156

137

14 

594

Allocation of manufacturing costs

124

117

479

         
 

280

254

10 

1,073

         

Operating profit before impairment losses

349

330

1,399

Impairment losses

13

3

60

         

Operating profit

336

327

1,339

         
         

Analysis of income by product:

       

Domestic cash management

195

188

761

International cash management

180

179

753

Trade finance

89

60

48 

264

Merchant acquiring

135

131

577

Commercial cards

30

26

15 

117

         

Total income

629

584

2,472

         
 

£bn

£bn

£bn

         

Total third party assets

22.9

22.1

24.0

Loans and advances 

18.5

21.1

(12)

18.6

Customer deposits

57.7

58.4

(1)

60.9

         

Risk-weighted assets

20.7

17.7

17 

19.6



Global Transaction Services grew income by 8% to £629 million and operating profit 3% to £336 million, in a low interest rate environment.

At constant exchange rates, income was down 6% reflecting subdued market volumes and the impact of lower margins in a low interest rate environment.  However, trade finance income grew by 48% to £89 million driven by improved penetration into the Asia-Pacific markets, coupled with an expansion of supply chain finance products in the second half of 2008.

Net interest income decreased 2% to £220 million due to deposit margin compression.  Non-interest income increased 14% to £409 million primarily as a result of the improved trade finance performance and increased pricing initiatives.

Direct expenses increased 14% to £156 million due to movements in exchange rates. Expenses at constant currency were flat reflecting strict cost control.

Impairment losses remained low at £13 million, reflecting a modest deterioration in the small business credit metrics.

Deposits at 31 March 2009 were slightly down on 31 December 2008, in line with seasonal trends, but broadly in line with the prior year. Loans and advances of £18.5 billion continued to decline, reflecting subdued customer demand.

 

 

Regional Markets
UK Retail & Commercial Banking

UK Retail Banking

 

Q1 

Q1 

 

Full year

   

2009 

2008 

Change 

2008

   

£m 

£m 

£m

           

Net interest income

 

1,039 

1,050 

(1)

4,390

           

Net fees and commissions - banking

 

431 

555 

(22)

2,186

Other non-interest income*

 

56 

68 

(18)

218

           

Non-interest income

 

487 

623 

(22)

2,404

           

Total income

 

1,526  

1,673 

(9)

6,794

           

Direct expenses

 

408 

455 

(10)

1,832

Allocation of manufacturing costs

 

499 

466 

1,917

           
   

907 

921 

(2)

3,749

           

Operating profit before impairment losses

 

619 

752 

(18)

3,045

Impairment losses

 

447 

283 

58 

1,281

           

Operating profit

 

172 

469 

(63)

1,764

           
           

Analysis of income by product:

         

Personal advances (excluding mortgages)

 

308 

329 

(6)

2,061

Mortgages

 

210 

123 

71 

505

Personal deposits

 

394 

481 

(18)

2,213

Small business advances

 

116 

144 

(19)

583

Small business deposits

 

146 

163 

(10)

706

Bancassurance

 

52 

61 

(15)

217

Tesco Personal Finance

 

69 

285

Other

 

300 

303 

(1)

224

           

Total income

 

1,526 

1,673 

(9)

6,794

           
           

Analysis of impairment by sector:

         

Mortgages

 

22 

33

Personal

 

210 

158 

33 

670

Cards

 

137 

86 

59 

420

Business banking

 

78 

33 

136 

158

           
   

447 

283 

58 

1,281

           

Loan impairment charge as % of gross customer loans and advances - excluding reverse repurchase agreements

 

1.52%

0.99%

 

1.09%



net of insurance claims

 

 

Regional Markets

UK Retail & Commercial Banking  (continued)

UK Retail Banking  (continued)

Q1

Q1

 

Full year

 

2009

2008

Change 

2008

 

£bn

£bn

£bn

         

Loans and advances to customers - gross

       

- mortgages

76.1

69.6

74.9

- personal 

15.8

17.3

(9)

16.2

- cards

6.0

7.8

(23)

6.4

- business

19.9

19.2

20.0

Customer deposits*

96.9

96.8

95.9

AUMs - excluding deposits

4.6

6.5

(29)

5.7

Non-performing loans

5.3

4.2

26 

4.8

         

Risk-weighted assets

67.8

63.6

63.8



excluding bancassurance 

UK Retail Banking income declined reflecting the sale of Tesco Personal Finance (TPF), reduced customer activity in some areas and historically low base rates. There has been a continued rise in impairment losses as the UK economy has deteriorated.  These factors have in part been mitigated by strong cost control.  As a result, operating profit declined to £172 million.

Income reduced 9% to £1,526 million.  Net interest income proved resilient, despite the significant increase in funding costs, decreasing by 1% to £1,039 million.  Excluding TPF, net interest income increased by 1%.  This was driven by good volume growth and improved margins on secured personal lending, offset by the narrowing of margins on savings due to deposit floors.  Non-interest income declined 22% to £487 million. Excluding TPF the decline was 14%, reflecting the withdrawal of the single premium payment protection insurance product, lower fees in line with reduced credit card activity levels, and the impact of FTSE performance on bancassurance.

Direct expenses decreased 10%.  Excluding the impact of TPF, the reduction was 5% reflecting lower staff compensation costs and some benefits of cost saving initiatives starting to come through.

Impairment losses increased 58% to £447 million, with an increase in all segments.  Impairment losses in the fourth quarter of 2008 were £376 million.  Delinquencies are still increasing reflecting the difficult economic conditions faced by our retail and small business customers.

Loans and advances to customers increased 3% with deposits flat year on year.  Retail mortgage balances grew by 9% and small business lending by 4% as we look to grow these important segments, while at the same time continuing to reduce exposure to unsecured lending.  Customer deposits in the first quarter were up slightly on December 2008 in a broadly flat market.

Customer numbers have increased. Personal current account customers increased by 3% both year on year and annualised in the first quarter to 12.5 million. Personal savings accounts increased 15% year on year to 9.2 million.

Regional Markets

UK Retail & Commercial Banking  (continued)

UK Corporate & Commercial Banking

Q1 

Q1 

 

Full year

 

2009 

2008 

Change 

2008

 

£m 

£m 

£m

         

Net interest income

509 

512 

(1)

2,130

         

Net fees and commissions

105 

99 

450

Other non-interest income

145 

158 

(8)

581

         

Non-interest income

250 

257 

(3)

1,031

         

Total income

759 

769 

(1)

3,161

         

Direct expenses

235 

242 

(3)

1,015

Allocation of manufacturing costs

94 

87 

359

         
 

329 

329 

1,374

         

Operating profit before impairment losses

430 

440 

(2)

1,787

Impairment losses

228 

41 

671

         

Operating profit

202 

399 

(49)

1,116

         
         

Analysis of income by product:

       

Corporate and commercial lending

582 

612 

(5)

1,751

Asset and invoice finance

133 

145 

(8)

565

Corporate deposits

120 

92 

30 

424

Other

(76)

(80)

(5)

421

   

 

   

Total income

759 

769 

(1)

3,161

         

Movements in income by product have been affected by changes in transfer pricing in respect of funding between the division and Group Treasury, reflecting higher funding costs.



Analysis of impairments by segment:

         

Commercial

 

78 

19 

 

206

Corporate

 

91 

 

303

Lombard

 

49 

11 

 

112

Other

 

10 

10 

 

50

           
   

228 

41 

 

671

           

Loan impairment charge as % of gross customer loans and advances - excluding reverse repurchase agreements

 

0.83%

0.16%

 

0.61%



2009 impairment loss of £228 million by sector as follows: construction £85 million, real estate

£14 million, manufacturing £19 million, other £110 million.

         
 

£bn

£bn

%

£bn

         

Loans and advances to customers - gross

109.2 

103.9 

110.4

Customer deposits

66.1 

67.9 

(3)

64.3

Non-performing loans

4.0 

1.1 

82 

3.0

         

Risk-weighted assets

83.1 

92.5 

(10)

80.7

Regional Markets

UK Retail & Commercial Banking  (continued)

UK Corporate & Commercial Banking  (continued)

Operating profit decreased 49% to £202 million reflecting increased impairment losses. Operating profit before impairment losses was stable at £430 million.

Total income decreased 1% to £759 million. Despite significant increases in funding costs, net interest income has proved resilient, declining by 1% to £509 million as the impact of competition for deposits was partially offset by increasing asset margins. Asset growth has been 5% year on year, although there has been a slow-down in the first quarter as our customers in many cases have looked to reduce their borrowings.  Non-interest income decreased by 3%. Net fees and commissions were up by 6% as a result of continued lending activity creating additional fee opportunities while other non-interest income was down 8% principally due to lower net rental asset income and reduced income from trading activities, reflecting lower levels of capital and debt markets activity among our client base.

Direct expenses decreased 3% to £235 million reflecting strong cost control and lower operating lease costs.

Impairment losses increased to £228 million reflecting the difficult economic conditions faced by our customers and were widely spread across all sectors.  Impairment losses in the fourth quarter were £430 million, where there were a number of larger individual cases than in the first quarter.

Loan balances are slightly down in the first quarter reflecting repayment of debt by some customers. Deposits are £1.8 billion higher in the first three months of 2009 reflecting our strong franchise and increased savings activity by our customers. We retain our number one position in the UK corporate and commercial markets and continue to improve our customer satisfaction scores reflecting consistent investment in the franchise over the past few years.

Regional Markets

UK Retail & Commercial Banking  (continued)

UK Wealth

Q1 

Q1 

 

Full year

 

2009 

2008 

Change 

2008

 

£m 

£m 

£m

         

Net interest income

124 

134 

(7)

570

         

Net fees and commissions 

54 

67 

(19)

250

Other non-interest income

10 

11 

39

         

Non-interest income

64 

76 

(16)

289

         

Total income

188 

210 

(10)

859

         

Direct expenses

70 

76 

(8)

324

Allocation of manufacturing costs

31 

29 

120

         
 

101 

105 

(4)

444

         

Operating profit before impairment losses

87 

105 

(17)

415

Impairment losses

12

         

Operating profit

82 

104 

(21)

403

         
         

Analysis of income:

       

Private Banking

162 

174 

(7)

726

Investments

26 

36 

(28)

133

         

Total income

188 

210 

(10)

859

         
         
 

£bn 

£bn 

£bn

         

Loans and advances to customers - gross

       

- mortgages

5.3 

4.5 

18 

5.2

- personal 

3.6 

3.2 

13 

3.7

- other 

1.4 

1.0 

40 

1.2

Customer deposits

26.2 

27.9 

(6)

25.9

AUMs - excluding deposits

15.1 

18.8 

(20)

16.8

         

Risk-weighted assets

8.3 

7.3 

14 

8.0



Operating profit declined by 21% to £82 million reflecting the impact of lower interest rates on deposit margins, and lower investment income due to equity market declines, partially mitigated by effective cost control.

Income reduced 10% to £188 million. Net interest income fell 7% to £124 million due to the impact of dramatically lower interest rates on deposit margins as well as client preferences to place deposits for shorter periods. Non-interest income, comprising fees and commissions declined 16% to £64 million primarily due to two factors: the significant fall in equity markets (FTSE 100 at end of Q1 2009 was 31% down on the end of Q1 2008 while S&P500 was down 40% for the same period) and client risk appetite remaining low, leading to reluctance to invest in more complex products and a preference to hold lower yield liquid investments and deposits. As a consequence, AUMs fell by 20% to £15.1 billion.

Direct expenses reduced 8% to £70 million reflecting effective cost control.

Customer accounts have increased 2% year on year. Lending volumes are strong, up 18%, particularly in mortgages and small business. The tightening of lending capacity in the wider market has contributed to an increase in attractive lending opportunities. Deposits have grown in the first quarter reflecting a more stable environment compared with the last quarter of 2008.

 

 

Regional Markets 

US Retail & Commercial Banking

 

Q1 

Q1

 

Full year

Q1 

Q1

 

Full year

 

2009 

2008

Change 

2008

2009 

2008

Change 

2008

 

£m 

£m

£m

$m 

$m

$m

                 

Net interest income

610 

470

30 

2,106

876 

930

(6)

3,902

                 

Net fees and commissions

196 

161

22 

705

282 

319

(12)

1,305

Other non-interest income

53 

61

(13)

199

76 

121

(37)

371

                 

Non-interest income

249 

222

12 

904

358 

440

(19)

1,676

                 

Total income

859 

692

24 

3,010

1,234 

1,370

(10)

5,578

                 

Direct expenses

387 

239

62 

1,086

556 

473

18 

2,012

Allocation of manufacturing costs

94 

87

359

135 

174

(22)

665

                 
 

481 

326

48 

1,445

691 

647

2,677

                 

Operating profit before impairment losses

378 

366

1,565

543 

723

25 

2,901

Impairment losses - core  

319 

87

722

460 

171

169 

1,337

Impairment losses - SBO

157 

112

40 

319

224 

223

592

                 

Operating (loss)/profit

(98)

167

(159)

524

(141)

329

(143)

972

                 

Average exchange rate - US$/£

1.436 

1.979

 

1.853

       
                 
                 

Analysis of income by product:

               

Mortgages and home equity

166 

112

48 

468

238 

221

868

Personal lending and 

  Credit and debit cards

158 

115

37 

497

228 

229

-

922

               

Retail deposits

224 

220

971

321 

434

(26)

1,799

Commercial lending

148 

103

44 

452

213 

203

837

Commercial deposits

116 

84

38 

409

166 

167

(1)

757

Other

47 

58

(19)

213

68 

116

(41)

395

                 

Total income

859 

692

24 

3,010

1,234 

1,370

(10)

5,578

                 
               

Analysis of impairment by sector:

             


                 

Home equity - SBO

156 

113

38 

320

224 

223

592

Home equity - other

30 

13

131 

69

43 

26

65 

128

Residential mortgages

26 

6

47

37 

11

87

Commercial real estate

52 

2

96

75 

3

177

Commercial & industrial

87 

10

114

125 

20

212

Other 

125 

55

127 

395

180 

111

62 

733

                 
 

476 

199

139 

1,041

684 

394

74 

1,929

                 
                 

Loan impairment charge as % of gross customer loans and advances - excluding reverse repurchase agreements

       

2.47%

1.39%

 

1.70%



Regional Markets

US Retail & Commercial Banking  (continued)

 

Q1 

Q1

 

Full year

Q1 

Q1

 

Full year

 

2009 

2008

Change 

2008

2009 

2008

Change 

2008

 

£bn

£bn

%

£bn

$bn

$bn

$bn

                 

Total assets

110.2

80.8

36

103.9

157.9

160.4

(2)

151.8

Loans and advances to customers (gross):

               

- mortgages

10.3

9.1

13

10.7

14.8

18.1

(18)

15.7

- home equity

23.8

17.8

34

23.8

34.1

35.3

(3)

34.8

- other consumer

14.6

11.1

32

14.6

20.9

22.0

(5)

21.3

- corporate and commercial

28.4

19.1

49

28.2

40.7

37.9

41.2

Customer deposits

68.1

50.7

34

64.6

97.6

100.6

(3)

94.3

Non-performing loans

               

- retail

0.5

0.2

-

0.4

0.8

0.4

0.6

- commercial

0.5

0.1

-

0.3

0.7

0.2

0.5

                 

Risk-weighted assets

77.5

57.2

35

78.0

111.0

113.6

(2)

113.9

                 

Spot exchange rate - US$/£

1.433

1.986

 

1.460

       


Total income declined 10% to $1,234 million reflecting lower interest rates and their impact on deposit margins, lower investment gains and subdued activity.  Net interest income was down 6% to $876 million with lower interest margins at 2.42% (Q1 2008 - 2.64%). Asset margins overall are stable with pricing improving, but we are experiencing increased prepayments on mortgages and treasury assets which are impacting overall asset yields. Non-interest income was down $82 million at $358 million primarily reflecting lower gains at $9 million (Q1 2008 - $67 million).  Activity in core retail banking was also subdued reflecting the difficult economic conditions. 

Direct expenses increased by $83 million to $556 million reflecting a number of items including; increased FDIC insurance costs ($35 million), mortgage servicing rights amortisation, higher pension costs and collection costs.

Impairment losses continue to rise and were $684 million compared with $394 million and $651 million in the first and last quarters of 2008 respectively.  Delinquencies were higher reflecting difficult economic conditions and were $2,825 million or 2.61% of loans compared with $2,430 million at the end of 2008.  

Loans and advances were slightly down at $110.5 billion reflecting subdued customer demand in some sectors. Deposit trends improved in the quarter with deposits up $3.3 billion at $97.6 billion compared with the end of 2008. Our consumer business is booking record volumes of mortgage applications currently due to low interest rates.

Citizens retail checking accounts were up 3% year on year excluding disposals to 3.5 million, and small business checking accounts were up 7% to 480,000 on the same basis due to the strength of our franchise.

Regional Markets

Europe & Middle East Retail & Commercial Banking

 

Q1 

Q1

 

Full year 

 

2009 

2008

Change 

2008 

 

£m 

£m

£m 

         

Net interest income

284 

282

1,152 

         

Net fees and commissions

62 

72

(14)

320 

Other non-interest income

12 

22

(45)

46 

         

Non-interest income

74 

94

(21)

366 

         

Total income

358 

376

(5)

1,518 

         

Direct expenses

134 

140

(4)

563 

Allocation of manufacturing costs

94 

87

359 

         
 

228 

227

922 

         

Operating profit before impairment losses

130 

149

(13)

596 

Impairment losses

221 

41

526 

         

Operating (loss)/profit

(91)

108

(184)

70 

         
         

Analysis of income by business:

       

Ulster corporate

196 

180

752 

Ulster retail

99 

95

416 

Other

63 

101

(38)

350 

         

Total income

358 

376

(5)

1,518 

         


Analysis of impairment by sector:

         

Mortgages

 

21 

8

163 

23 

Retail other

 

38 

24

58 

177 

Commercial investment and development

 

15 

1

10 

Residential investment and development

 

108 

7

265 

Corporate other

 

39 

1

51 

   

 

 

 

 
   

221 

41

526 

           

Loan impairment charge as % of gross customer loans and advances - excluding reverse repurchase agreements

 

1.48%

0.31%

 

0.85%



         
 

£bn 

£bn

£bn 

         

Total assets

61.8 

59.8

66.4 

Loans and advances to customers - gross

       

- mortgages

23.8 

20.1

18 

24.6 

- corporate

32.3 

29.2

11 

33.4 

- other

3.6 

3.5

3.7 

Customer deposits

20.2 

24.3

(17)

25.0 

Non-performing loans

       

- mortgages

0.5 

0.2

0.4 

- corporate

3.9 

0.4

2.8 

- other

0.2 

0.1

0.2 

         
         

Risk-weighted assets

32.4 

32.0

30.9 



Regional Markets

Europe & Middle East Retail & Commercial Banking  (continued)

Comments relate almost exclusively to Ulster Bank, representing over 80% of the division's income.

The significant deterioration in global and local economic conditions has impacted the Europe & Middle East division, which has recorded an operating loss of £91 million (2008 - £108 million profit).  The main driver of this performance was a £180 million increase in impairment losses primarily reflecting difficult conditions in Ireland.  2008 included the subsequently disposed European Consumer Finance business and former ABN AMRO retail businesses in Spain and Russia (full year 2008 - income £85 million, costs £54 million and operating loss £58 million).

Income fell by 5% to £358 million or 17% at constant currency, reflecting the impact of lower interest rates on deposit margins, and lower volumes in both retail and commercial franchises. Net interest income increased 1% reflecting higher average balances, but lower margins (-16 basis points). Asset margins were up slightly, counterbalanced by the impact of strong competition for deposits. Non-interest income declined £20 million due to lower customer activity in areas such as bancassurance.

Direct expenses fell by 4% to £134 million or 18% at constant currency reflecting strong cost control and the initial benefits of our restructuring programme.

Impairments rose by £180 million to £221 million reflecting the deterioration in the economic environment and outlook in Ireland.

Loans and advances were £2 billion lower in the first quarter, reflecting subdued demand. Deposits were £4.1 billion lower year on year primarily as a result of a reduction in wholesale deposits; retail deposits were broadly flat in a highly competitive market.

 

Regional Markets

Asia Retail & Commercial Banking

 

Q1 

Q1 

 

Full year 

 

2009 

2008 

Change 

2008 

 

£m 

£m 

£m 

         

Net interest income

97 

92 

379 

         

Net fees and commissions

71 

82 

(13)

309 

Other non-interest income

23 

30 

(23)

93 

         

Non-interest income

94 

112 

(16)

402 

         

Total income

191 

204 

(6)

781 

         

Direct expenses

116 

101 

15 

483 

Allocation of manufacturing costs

63 

59 

240 

         
 

179 

160 

12 

723 

         

Operating profit before impairment losses

12 

44 

(73)

58 

Impairment losses

87 

31 

181 

171 

         

Operating (loss)/profit

(75)

13 

(113)

         
         

Analysis of income:

       

Private banking

75 

74 

301 

Cards and consumer finance 

57 

56 

232 

Affluent banking (and general)

41 

53 

(23)

174 

Business & commercial banking

18 

21 

(14)

74 

         
 

191 

204 

(6)

781 

         
         
 

£bn 

£bn 

£bn 

         

Total assets

8.0 

6.4 

25 

8.3 

Loans and advances to customers - gross

5.3 

4.6 

15 

5.8 

AUMs - excluding deposits

19.8 

19.6 

21.2 

Customer deposits

15.5 

11.7 

32 

15.1 

Non-performing loans

0.1 

0.1 

0.3 

         

Risk-weighted assets

5.5 

5.7 

(4)

6.4 



Operating loss of £75 million reflected increased impairment losses and pressure on income.

Total income was down 6% at £191 million reflecting difficult economic conditions, and lower investment income.  RBS Coutts Private Banking performed resiliently in these conditions, but the Retail & Commercial businesses suffered from lower transactional levels on the back of poor investor sentiment. Net interest income increased 5% to £97 million due to increased average balances. Non-interest income declined due to lower investment income and fees due to subdued customer activity.

Direct expenses increased by 15% to £116 million, reflecting the impact of previous investment, but have been managed down to a level below the £154 million recorded in the fourth quarter of 2008. Significant cost reduction programmes are being implemented.

The increased impairment charge primarily reflects pressures in the Indian Consumer Finance book which recorded provisions of £44 million on a book of £1,079 million.

Loans declined £0.5 billion in the first quarter reflecting subdued activity. Deposits increased 32% year-on-year, further improving the divisions funding surplus.

 

 

RBS Insurance

 

Q1 

Q1 

 

Full year 

 

2009 

2008 

Change 

2008 

 

£m 

£m 

£m 

         

Earned premiums

1,356 

1,382 

(2)

5,520 

Reinsurers' share

(51)

(61)

(16)

(227)

         

Insurance premium income

1,305 

1,321 

(1)

5,293 

Net fees and commissions

(129)

(100)

29 

(401)

Other income

144 

169 

(15)

674 

         

Total income

1,320 

1,390 

(5)

5,566 

         

Direct expenses

181 

223 

(19)

771 

Allocation of manufacturing costs

63 

59 

240 

         
 

244 

282 

(13)

1,011 

         

Gross claims

981 

1,041 

(6)

3,857 

Reinsurers' share

(11)

(80)

(86)

(124)

         

Net claims

970 

961 

3,733 

         

Operating profit before impairment losses

106 

147 

(28)

822 

Impairment losses

-

42 

         

Operating profit

101 

147 

(31)

 780 

         
         

Analysis of income by product:

       

Motor own-brands

483 

485 

1,954 

Household and Life own-brands 

206 

205 

811 

Motor partnerships and broker

256 

334 

(23)

1,278 

Household and Life, Partnerships and broker

128 

148 

(14)

604 

Other (International, commercial and central)

247 

218 

13 

919 

         

Total income

1,320 

1,390 

(5)

5,566 

         
         

In-force policies (thousands)

       

- Own-brand motor

7,093 

6,705 

6,964 

- Own-brand non-motor (home, rescue, pet, HR24)

5,741 

3,846 

49 

5,642 

- Partnerships & broker (motor, home, rescue, SMEs, pet, HR24)

8,261 

9,168 

(10)

8,450 

         

General insurance reserves - total (£m)

8,072 

8,211 

(2)

8,159 



Operating profit was £101 million, a reduction of £46 million from a year earlier.  This reflects the impact of the disposal of Tesco Personal Finance (TPF) which reduced profits by £24 million, poorer weather and lower investment income, and masks a strong performance and good momentum from our core brands.

Insurance premium income was broadly flat at £1,305 million, with good growth of 5% in own-brand premium income as policy numbers continued to grow. In the UK motor market, the Churchill and Privilege brands continued to be successfully deployed on a limited number of aggregator web sites. Direct Line new business volumes increased by 20%  and Churchill and Privilege motor policy numbers increased by 14% and 18% respectively over the period. Our international businesses in Spain, Italy and Germany performed well, with underlying income up 1% and contribution up 27%. The Spanish joint venture has been sold to our joint venture partner Bankinter and completed in April. Over the last year own-brand motor policy numbers have increased by 6% to 7.1 million. 

RBS Insurance (continued)

In own-brand non-motor insurance we have continued to achieve good sales through RBS and NatWest, where home insurance policies in force have increased by 15% over the period. In addition, Direct Line home renewal volumes have increased by 2% across the same period and Privilege and Churchill have grown home policies by 165% and 20% respectively, mainly due to an increase in online business as a result of successful marketing campaigns. Overall own-brand non-motor policies in force have grown by 49% to 5.7 million benefiting from the addition of rescue cover to RBS and NatWest current account package customers. On a like for like basis own-brand non-motor policies in force have grown by 5%.

Partnership and broker business continued to fall in line with previous trends with premium income declining 9% as we focus on more profitable segments.

Other income fell 15% to £144 million reflecting lower investment income as interest rates fell in the UK.

Direct expenses fell by 19% to £181 million.  On an underlying basis, excluding the impact of the disposal of TPF, expenses fell 9% due to the timing of marketing expenditure and lower staff costs.  Expenses in the first quarter of 2008 included TPF profit-sharing payments of £24 million.

Net insurance claims rose by 1% to £970 million, reflecting the impacts of more severe weather conditions in January 2009 balanced by further efficiencies and an improvement in risk selection.

Impairment losses of £5 million reflect losses on the investment portfolio.

The UK combined operating ratio for Q1 2009, including manufacturing costs improved from 99.6% to 97.8% reflecting a higher loss ratio which was more than offset by the improved expense base.

Group Manufacturing

 

Q1 

Q1 

 

Full year 

 

2009 

2008 

Change

2008 

 

£m 

£m 

%

£m 

         

Staff costs

308 

285 

8

1,197 

Other costs

941 

883 

7

3,596 

 

 

     

Total manufacturing costs

1,249 

1,168 

7

4,793 

Allocated to divisions

(1,249)

(1,168)

7

(4,793)

         
 

         

Analysis of manufacturing costs:

       

Technology Services and support functions

445 

444 

-

1,757 

Group Property 

463 

399 

16

1,690 

Global Operations 

341 

325 

5

1,346 

         

Total manufacturing costs

1,249 

1,168 

7

4,793 




Group Manufacturing costs rose by 7% to £1,249 million.  On a constant currency basis, costs were down 1% due to improving productivity, and restructuring and integration savings.  Previously committed projects led to an increase of 16% in property costs (6% on a constant currency basis).

Central items

 

Q1

Q1 

 

Full year 

 

2009

2008 

Change

2008 

 

£m

£m 

%

£m 

         

Funding costs

393

361 

9

1,331 

Departmental costs

157

156 

1

665 

Other corporate costs

57

(32)

-

165 

         
 

607

485 

25

2,161 

Allocation of manufacturing costs

63

60 

5

241 

         

Total central items*

670

545 

23

2,402 



*excluding one-off items (see page 15).

Central costs increased by 23% to £670 million.

Funding costs rose by 9% to £393 million due to higher term and liquidity funding costs partially offset by IFRS volatility and foreign exchange movements.

Departmental costs were flat at £157 million.

Other costs were up due to increased Financial Services Compensation scheme levies of £38 million and a number of other smaller items.

 

Condensed consolidated balance sheet

at 31 March 2009 - pro forma 

 

31 March

31 December

 

2009

2008

 

£m

£m

Assets

   

Cash and balances at central banks

20,384

11,830

Net loans and advances to banks

60,169

70,637

Reverse repurchase agreements and stock borrowing

44,828

58,771

Loans and advances to banks

104,997

129,408

Net loans and advances to customers

671,008

691,876

Reverse repurchase agreements and stock borrowing

46,561

39,289

Loans and advances to customers

717,569

731,165

Debt securities

248,844

253,098

Equity shares

14,234

22,094

Settlement balances

24,446

17,812

Derivatives

868,657

991,493

Intangible assets

16,364

16,386

Property, plant and equipment

17,554

17,169

Deferred taxation

5,510

5,409

Prepayments, accrued income and other assets

19,558

20,715

Assets of disposal groups

48

67

     
 

2,058,165

2,216,646

Share of shared assets

2,323

2,047

     

Total assets

2,060,488

2,218,693

     

Liabilities 

   

Bank deposits

178,665

178,268

Repurchase agreements and stock lending

54,677

83,666

Deposits by banks

233,342

261,934

Customer deposits

446,331

460,318

Repurchase agreements and stock lending 

78,505

58,143

Customer accounts

524,836

518,461

Debt securities in issue

258,472

269,188

Settlement balances and short positions

63,281

54,264

Derivatives

836,655

969,396

Accruals, deferred income and other liabilities

27,042

23,453

Retirement benefit liabilities

1,518

1,547

Deferred taxation 

2,667

2,930

Insurance liabilities

7,400

7,480

Subordinated liabilities

43,511

43,678

     
 

1,998,724

2,152,331

Share of shared assets

2,323

2,047

     

Total liabilities

2,001,047

2,154,378

     

Equity:

   

Minority interests

3,428

5,436

Owners' equity*

56,013

58,879

     

Total equity

59,441

64,315

     

Total liabilities and equity

2,060,488

2,218,693

     

* Owners' equity attributable to:

   

Ordinary shareholders

42,659

45,525

Other equity owners

13,354

13,354

     
 

56,013

58,879



Overview of condensed consolidated balance sheet - pro forma 

Total assets of £2,060.5 billion at 31 March 2009 were down £158.2 billion, 7%, compared with 31 December 2008. 

Cash and balances at central banks were up £8.6 billion, 72% to £20.4 billion.

Loans and advances to banks decreased by £24.4 billion, 19%, to £105.0 billion reflecting lower reverse repurchase agreements and stock borrowing ("reverse repos"), down by £13.9 billion, 24% to £44.8 billion and reduced bank placings, down by £10.5 billion, 15%, to £60.2 billion.

Loans and advances to customers were down £13.6 billion, 2%, at £717.6 billion.  Within this, reverse repos increased by 19%, £7.3 billion to £46.6 billion. Excluding reverse repos, customer lending declined by £20.9 billion, 3% to £671.0 billion.

Equity shares decreased by £7.9 billion, 36%, to £14.2 billion principally due to changes in Global Banking & Markets.

Settlement balances rose by £6.6 billion, 37% to £24.4 billion as a result of increased activity.

Movements in the value of derivatives, assets and liabilities, primarily reflect changes in interest and exchange rates.

Prepayments, accrued income and other assets were down £1.2 billion, 6% to £19.6 billion.

Deposits by banks declined by £28.6 billion, 11% to £233.3 billion. This reflected decreased repurchase agreements and stock lending ("repos"), down £29.0 billion, 35% to £54.7 billion partly offset by increased inter-bank deposits, up £0.4 billion to £178.7 billion.

Customer accounts were up £6.4 billion, 1% to £524.8 billion. Within this, repos increased £20.4 billion, 35% to £78.5 billion. Excluding repos, deposits declined by £14.0 billion, 3%, to £446.3 billion.

Settlement balances and short positions were up £9.0 billion, 17%, to £63.3 billion reflecting increased activity.

Accruals, deferred income and other liabilities increased £3.6 billion, 15%, to £27.0 billion.

Subordinated liabilities were down £0.2 billion to £43.5 billion, primarily reflecting the redemption of £0.3 billion dated loan capital.  

Equity minority interests decreased by £2.0 billion, 37% to £3.4 billion. Equity withdrawals of £1.9 billion, reflecting the disposal of the investment in Bank of China attributable to minority shareholders, the recycling of related available-for-sale reserves to income, £0.4 billion, and dividends paid of £0.2 billion, were partially offset by attributable profits of £0.5 billion.

Owners' equity declined by £2.9 billion, 5% to £56.0 billion.  The attributable loss for the period of £0.8 billion, a £2.0 billion decrease in available-for-sale reserves, net of tax, the majority of which related to Global Banking & Markets, the payment of other owners dividends of £0.1 billion and exchange rate movements of £0.2 billion, were partly offset by an increase in the cash flow hedging reserve of £0.2 billion.  The £2.0 billion decrease in available-for-sale reserves reflects declines in the value of debt securities within our portfolios, together with £0.2 billion relating to Bank of China.

Statutory results

The condensed consolidated income statement and the condensed consolidated balance sheet presented on pages 37 and 38 respectively are on a statutory basis and include the results of ABN AMRO. The interests of the State of the Netherlands and Santander in RFS Holdings are included in minority interests.  

Condensed consolidated income statement - statutory

for the quarter ended 31 March 2009

In the income statement below, credit market write-downs and one-off items, amortisation of purchased intangible assets and integration costs are included in non-interest income and operating expenses, as appropriate.

 

Q1 

Q1 

 

Restated (1)  

full year 

 

2009 

2008 

Increase 

2008 

 

£m 

£m  

£m 

         

Net interest income

4,395 

3,980 

10 

18,675 

         

Fees and commissions receivable 

2,537 

2,345 

9,831 

Fees and commissions payable

(684)

(591)

16 

(2,386)

Other non-interest income

2,671 

(243)

(6,578)

Net insurance premium income

1,469 

1,639 

(10)

6,326 

         

Non-interest income

5,993 

3,150 

90 

7,193 

         

Total income

10,388 

7,130 

46 

25,868 

Operating expenses 

6,159 

4,894 

26 

54,202 

         

Profit/(loss) before other operating charges and impairment 

4,229 

2,236 

89 

(28,334)

Net insurance claims

1,087 

1,126 

(3)

4,430 

Impairment

3,090 

723 

8,072 

         

Group operating profit/(loss) before tax

52 

387 

(87)

(40,836)

Tax charge/(credit)

241 

90 

168 

(2,323)

         

(Loss)/profit after tax from continuing operations

(189)

297 

(38,513)

(Loss)/profit from discontinued operations, net of tax

(116)

89 

3,971 

         

(Loss)/profit for the period

(305)

386 

(34,542)

Minority interests 

483 

79 

(10,832)

Other owners' dividends

114 

82 

39 

596 

         

(Loss)/profit attributable to ordinary shareholders 

(902)

225 

(24,306)

 

       
         

*Operating expenses include:

       

Integration and restructuring costs:

       

- Administrative expenses

374 

60 

1,321 

- Depreciation and amortisation

14 

(64)

36 

         
 

379 

74 

1,357 

Amortisation of purchased intangible assets

85 

87 

(2)

443 

         
 

464 

161 

1,800 



Note:

(1) Restated for the amendment to IFRS 2 'Share-based Payment'.

 

 

Condensed consolidated balance sheet - statutory

at 31 March 2009

 

31 March

2009

31 December

2008

 

£m

£m

Assets

   

Cash and balances at central banks

20,930

12,400

Net loans and advances to banks

68,464

79,426

Reverse repurchase agreements and stock borrowing

44,828

58,771

Loans and advances to banks

113,292

138,197

Net loans and advances to customers

810,750

835,409

Reverse repurchase agreements and stock borrowing 

46,588

39,313

Loans and advances to customers

857,338

874,722

Debt securities

262,640

267,549

Equity shares

18,106

26,330

Settlement balances

24,460

17,832

Derivatives

869,637

992,559

Intangible assets

19,747

20,049

Property, plant and equipment 

19,307

18,949

Deferred taxation

7,910

7,082

Prepayments, accrued income and other assets

24,039

24,402

Assets of disposal groups

864

1,581

     

Total assets

2,238,270

2,401,652

     

Liabilities 

   

Bank deposits

172,377

174,378

Repurchase agreements and stock lending

54,677

83,666

Deposits by banks

227,054

258,044

Customer deposits

571,069

581,369

Repurchase agreements and stock lending

78,505

58,143

Customer accounts

649,574

639,512

Debt securities in issue

287,255

300,289

Settlement balances and short positions

63,308

54,277

Derivatives

838,533

971,364

Accruals, deferred income and other liabilities

32,925

31,482

Retirement benefit liabilities

1,989

2,032

Deferred taxation 

4,113

4,165

Insurance liabilities

9,840

9,976

Subordinated liabilities

48,515

49,154

Liabilities of disposal groups

417

859

     

Total liabilities

2,163,523

2,321,154

     

Equity:

   

Minority interests

18,734

21,619

Owners' equity*

   

  Called up share capital

9,898

9,898

  Reserves

46,115

48,981

     

Total equity

74,747

80,498

     

Total liabilities and equity

2,238,270

2,401,652

     
     

* Owners' equity attributable to:

   

Ordinary shareholders

42,659

45,525

Other equity owners

13,354

13,354

     
 

56,013

58,879



Other information

Statutory results

Financial information contained in this document does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006 ("the Act"). The statutory accounts for the year ended 31 December 2008 will be filed with the Registrar of Companies. The auditors have reported on these accounts: their report was unqualified and did not contain a statement under section 498(2) or (3) of the Act.

Contacts 

     

For analyst enquiries:

   
     

Richard O'Connor

Head of Investor Relations

+44 (0) 20 7672 1758

     

For media enquiries:

   
     

Andrew Wilson

Head of Group Corporate Affairs

+44 (0) 131 626 4022

   

+44 (0) 7810 636995

     

Neil Moorhouse

Media Relations

+44 (0) 7786 690029

   

+44 (0) 131 523 4414



8 May 2009
 
 

Appendix 1 Reconciliations of pro forma to statutory income statements and balance sheets
Income statement for the 3 months ended 31 March 2009

   

Adjustments

 
 

Pro forma  

RFS  

minority  

interest 

Share  

of shared  

assets 

Credit 

 market  

write-downs  

and one-off  items 

Amortisation  

of Intangibles,  

integration and  

restructuring  

costs  

Statutory 

 

£m  

£m 

£m 

£m 

£m  

£m 

             

Net interest income

3,438 

857 

16 

84 

4,395 

             

Non-interest income (excluding insurance net premium income)

4,908 

507 

(10)

(881)

4,524 

Insurance net premium income

1,356 

113 

1,469 

             

Non-interest income excluding credit market write-downs 

and one-off items

6,264 

620 

(10)

(881)

5,993 

             

Total income before credit market write-downs and one-off items

9,702 

1,477 

(797)

10,388 

Credit market write-downs and one-off items

(797)

797 

             

Total income

8,905 

1,477 

10,388 

Operating expenses

4,657 

1,028 

10 

464 

6,159 

             

Profit/(loss) before other operating charges

4,248 

449 

(4)

(464)

4,229 

Insurance net claims

966 

121 

1,087 

             

Operating profit/(loss) before impairment losses

3,282 

328 

(4)

(464)

3,142 

Impairment losses 

2,858 

232 

3,090 

             

Group operating profit/(loss)

424 

96 

(4)

(464)

52 

Amortisation of purchased intangible assets

85 

(85)

Integration and restructuring costs

379 

(379)

Share of shared assets

(4)

             

(Loss)/profit before tax

(44)

96 

52 

Tax

228 

13 

241 

             

(Loss)/profit from continuing operations

(272)

83 

(189)

 Loss from discontinued operations, net of tax

-  

(71)

(45)

(116)

             

(Loss)/profit for the period

(272) 

12 

(45)

(305)

Minority interests

471 

12 

483 

Preference dividends

114 

114 

             

Loss attributable to ordinary shareholders

(857)

(45)

(902)



Appendix 1 Reconciliations of pro forma to statutory income statements and balance sheets
Income statement for the 3 months ended 31 March 2008

   

Adjustments

 
 

Pro forma 

 

RFS 

minority 

interest 

 

Share of  

shared  

assets  

Credit  

market  

write-downs  

and  

one-off 

 items   

Amortisation 

of intangibles,  

integration and 

restructuring 

costs 

Restated Statutory

 

£m 

£m 

£m 

£m 

£m 

£m

             

Net interest income

3,560 

517 

(97)

3,980

             

Non-interest income (excluding insurance net premium income)

2,724 

232 

(33)

(1,412)

1,511

Insurance net premium income

1,438 

201 

1,639

             

Non-interest income excluding credit market write-downs and one-off items

4,162 

433 

(33)

(1,412)

3,150

             

Total income before credit market write-downs and one-off items

7,722 

950 

(130)

(1,412)

7,130

Credit market write-downs and one-off items 

(1,412)

1,412 

-

             

Total income

6,310 

950 

(130)

7,130

Operating expenses

3,881 

827 

25 

161 

4,894

             

Profit/(loss) before other operating charges

2,429 

123 

(155)

(161)

2,236

Insurance net claims

978 

148 

1,126

             

Operating profit/(loss) before impairment losses

1,451 

(25) 

(155)

(161) 

1,110

Impairment losses

656 

67 

723

             

Group operating profit/(loss)

795 

(92)

(155)

(161)

387

Amortisation of purchased intangible assets

87 

(87)

-

Integration costs

74 

(74)

-

Share of shared assets

155 

(155)

-

             

Profit/(loss) before tax

479 

(92)

387

Tax

131 

(41)

90

             

Profit/(loss) from continuing operations

348 

(51)

297

Profit/(loss) from discontinued operations, net of tax

109 

(20)

89

             

Profit/(loss) for the period

348 

58 

(20)

386

Minority interests

21 

58 

79

Preference dividends

82 

82

             

Profit/(loss) attributable to ordinary shareholders

245 

(20)

225

             


Appendix 1 Reconciliations of pro forma to statutory income statements and balance sheets
Income statement for the year ended 31 December 2008

   

Adjustments

 
 

Restated

pro forma 

RFS 

minority 

interest 

 

Share of  

shared  

assets  

Credit  

market  

write-downs  

and  

one-off 

 items   

Amortisation 

of intangibles,  

integration and 

restructuring 

costs 

Write-down of 

goodwill  

and other 

intangible 

assets 

Restated Statutory

 

£m 

£m 

£m 

£m 

£m

£m 

£m

               

Net interest income

15,939 

2,911 

(175)

-

18,675

               

Non-interest income (excluding insurance net premium income)

5,227 

1,299 

(18)

(5,641)

-

867

Insurance net premium income

5,709 

617 

-

6,326

               

Non-interest income excluding credit market write-downs and one-off items

10,936 

1,916 

(18)

(5,641)

-

7,193

               

Total income before credit market write-downs and one-off items

26,875 

4,827 

(193)

(5,641)

-

25,868

Credit market write-downs and one-off items 

(5,641)

5,641 

-

-

               

Total income

21,234 

4,827 

(193)

-

25,868

Operating expenses

16,085 

19,303 

103 

1,800 

16,911

54,202

               

Profit/(loss) before other operating charges

5,149 

(14,476)

(296)

(1,800)

(16,911)

(28,334)

Insurance net claims

3,917 

513 

-

4,430

               

Operating profit/(loss) before impairment losses

1,232 

(14,989)

(296)

(1,800) 

(16,911)

(32,764)

Impairment losses

7,428 

640 

-

-

8,072

               

Group operating loss

(6,196)

(15,629)

(300)

-

(1,800)

(16,911)

(40,836)

Amortisation of purchased intangible assets

443

-

-

-

(443)

-

-

Write down of goodwill and other intangible assets

16,911

-

-

-

-

(16,911)

-

Integration and restructuring costs

1,357

-

-

-

(1,357)

-

-

Share of shared assets

300

-

(300)

-

-

-

-

               

Loss before tax

(25,207)

(15,629)

-

-

-

-

(40,836)

Tax

(1,995)

(328)

-

-

-

-

(2,323)

               

Loss from continuing operations

(23,212)

(15,301)

-

-

-

-

(38,513)

Profit/(loss) from discontinued operations, net of tax

-

4,057 

(86)

-

-

-

3,971

               

Loss for the period

(23,212)

(11,244)

(86)

-

-

-

(34,542)

Minority interests

412

(11,244)

-

-

-

-

(10,832)

Preference dividends

596

-

-

-

-

-

596

               

Loss attributable to ordinary shareholders

(24,220)

-

(86)

-

-

-

(24,306)

               
               


Appendix 1 Reconciliations of pro forma to statutory income statements and balance sheets
Balance sheet at 31 March 2009

 

Pro forma

Transfers 

Shared  

assets 

Statutory

 

£m

£m 

£m 

£m

Assets

       

Cash and balances at central banks

20,384

546 

20,930

Net loans and advances to banks

60,169

8,206 

89 

68,464

Reverse repurchase agreements and stock borrowing

44,828

44,828

Loans and advances to banks

104,997

8,206 

89 

113,292

Net loans and advances to customers

671,008

139,673 

69 

810,750

Reverse repurchase agreements and stock borrowing

46,561

27 

46,588

Loans and advances to customers

717,569

139,700 

69 

857,338

Debt securities

248,844

13,736 

60 

262,640

Equity shares

14,234

3,825 

47 

18,106

Settlement balances

24,446

14 

24,460

Derivatives

868,657

980 

869,637

Intangible assets

16,364

3,376 

19,747

Property, plant and equipment

17,554

1,746 

19,307

Deferred taxation

5,510

1,612 

788 

7,910

Prepayments, accrued income and other assets

19,558

3,347 

1,134 

24,039

Assets of disposal groups

48

694 

122 

864

         
 

2,058,165

177,782 

2,323 

2,238,270

Share of shared assets

2,323

(2,323)

-

         

Total assets

2,060,488

177,782 

2,238,270

         
         

Liabilities 

       

Bank deposits

178,665

(7,048)

760 

172,377

Repurchase agreements and stock lending 

54,677

54,677

Deposits by banks

233,342

(7,048)

760 

227,054

Customer deposits

446,331

124,730 

571,069

Repurchase agreements and stock lending

78,505

78,505

Customer accounts

524,836

124,730 

649,574

Debt securities in issue

258,472

28,762 

21 

287,255

Settlement balances and short positions

63,281

27 

63,308

Derivatives

836,655

1,871 

838,533

Accruals, deferred income and other liabilities 

27,042

4,888 

995 

32,925

Retirement benefit liabilities

1,518

455

16

1,989

Deferred taxation 

2,667

945 

501 

4,113

Insurance liabilities

7,400

2,440 

9,840

Subordinated liabilities

43,511

5,004 

48,515

Liabilities of disposal groups

-

402 

15 

417

         
 

1,998,724

162,476 

2,323 

2,163,523

Share of shared assets

2,323

(2,323)

-

         

Total liabilities

2,001,047

162,476 

2,163,523

         

Equity:

       

Minority interests

3,428

15,306 

18,734

Owners' equity

56,013

56,013

         

Total equity

59,441

15,306 

74,747

         

Total liabilities and equity

2,060,488

177,782 

2,238,270

         


Appendix 1 Reconciliations of pro forma to statutory income statements and balance sheets
Balance sheet at 31 December 2008

 

Pro forma

Transfers 

Shared  

assets 

Statutory

 

£m

£m

£m 

£m

Assets

       

Cash and balances at central banks

11,830

570

12,400

Net loans and advances to banks

70,637

8,698

91 

79,426

Reverse repurchase agreements and stock borrowing

58,771

-

58,771

Loans and advances to banks

129,408

8,698

91 

138,197

Net loans and advances to customers

691,876

143,433

100 

835,409

Reverse repurchase agreements and stock borrowings

39,289

24

39,313

Loans and advances to customers

731,165

143,457

100 

874,722

Debt securities

253,098

14,390

61 

267,549

Equity shares

22,094

4,132

104 

26,330

Settlement balances

17,812

20

17,832

Derivatives

991,493

1,064

992,559

Intangible assets

16,386

3,634

29 

20,049

Property, plant and equipment

17,169

1,768

12 

18,949

Deferred taxation

5,409

1,296

377 

7,082

Prepayments, accrued income and other assets

20,715

2,829

858 

24,402

Assets of disposal groups

67

1,101

413 

1,581

         
 

2,216,646

182,959

2,047 

2,401,652

Share of shared assets

2,047

-

(2,047)

-

         

Total assets

2,218,693

182,959

2,401,652

         
         

Liabilities 

       

Bank deposits

178,268

(4,565)

675 

174,378

Repurchase agreements and stock lending 

83,666

-

83,666

Deposits by banks

261,934

(4,565)

675 

258,044

Customer deposits

460,318

121,051

581,369

Repurchase agreements and stock lending

58,143

-

58,143

Customer accounts

518,461

121,051

639,512

Debt securities in issue

269,188

30,831

270 

300,289

Settlement balances and short positions

54,264

13

54,277

Derivatives

969,396

1,955

13 

971,364

Accruals, deferred income and other liabilities

23,453

7,342

687

31,482

Retirement benefit liabilities

1,547

468

17

2,032

Deferred taxation 

2,930

988

247 

4,165

Insurance liabilities

7,480

2,496

9,976

Subordinated liabilities

43,678

5,476

49,154

Liabilities of disposal groups

-

721

138 

859

         
 

2,152,331

166,776

2,047 

2,321,154

Share of shared assets

2,047

-

(2,047)

-

         

Total liabilities

2,154,378

166,776

2,321,154

         

Equity:

       

Minority interests

5,436

16,183

21,619

Owners' equity

58,879

-

58,879

         

Total equity

64,315

16,183

-  

80,498

         

Total liabilities and equity

2,218,693

182,959

2,401,652

         


Appendix 2 Credit market and related exposures - additional information

Contents
 

     

Page

       

1

Explanatory note

46

       

2

Asset backed exposures

46

 

2.1

Significant risk concentrations

46

 

2.2

Residential mortgage-backed securities

46

 

2.3

Commercial mortgage-backed securities

46

 

2.4

Collateralised debt and loan obligations

46

 

2.5

Other asset-backed securities

47

       

3

Counterparty valuation adjustments

47

 

3.1

Credit valuation adjustment

47

 

3.2

Monoline insurers

47

 

3.3

Credit derivative product companies

48

       

4

Leveraged finance

49

       

5

Reclassification of financial instruments

49

       

6

Fair value hierarchy

50

       


Note: the following acronyms are used in this appendix

ABS

Asset-backed securities

CDO

Collateralised debt obligations

CDS

Credit default swap

CLO

Collateralised loan obligations

CMBS

Commercial mortgage-backed securities

Fannie Mae

Federal National Mortgage Association

Freddie Mac

Federal Home Loan Mortgage Corporation

Ginnie Mae

Government National Mortgage Association

GSE

Government Sponsored Entity

IASB

International Accounting Standards Board

RMBS

Residential mortgage-backed securities

TMT

Technology, media and telecommunications

US agencies

Ginnie Mae, Fannie Mae, Freddie Mac and similar entities



  Credit market and related exposures 
 

1. Explanatory note
 

These disclosures provide information for certain of the Group's business activities, the majority of which are within Global Banking and Markets (GBM), that continue to be affected by the unprecedented market events. The disclosures focus on GBM's credit markets activities, which have been particularly affected by the widespread market disruptions, as well as similar exposures in US Retail & Commercial and Group Treasury, and financial instruments where the valuation includes a higher level of subjectivity or complexity.

2. Asset-backed exposures
 

2.1     Significant risk concentrations

The tables below summarise the Group's net exposures(1)  to asset-backed securities at 31 March 2009 ('2009') and 31 December 2008 ('2008') by measurement classification.

 

Held-for-trading

Available-for-sale

Loans and receivables

Designated at fair value

Total

 

2009

2008

2009

2008

2009

2008

2009

2008

2009

2008

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

RMBS

22,978

24,462

41,922

44,450

2,601

2,578

153

182

67,654

71,672

CMBS

1,413

1,178

1,649

918

1,562

1,437

232

13

4,856

3,546

CDOs & CLOs

2,141

2,463

2,163

2,538

1,302

1,282

-

-

5,606

6,283

Other ABS

403

195

5,191

6,572

2,831

3,621

17

40

8,442

10,428

Total

26,935

28,298

50,925

54,478

8,296

8,918

402

235

86,558

91,929



Notes:

(1)

Net exposures represent carrying value after taking account of hedge protection purchased from monolines and other counterparties but exclude the effect of counterparty credit valuation adjustments. The hedges provide credit protection of principal and interest cash flows in the event of default by the counterparty. The value of the protection is based on the underlying instrument being protected.  



2.2      Residential mortgage-backed securities

Net exposures to RMBS by underlying asset type and geographical location of the property that the mortgage is secured against are analysed below.

 

31 March 2009

 

31 December 2008

 

Sub-prime

Non conforming (1)

Prime

Total

 

Sub-prime

Non conforming(1)

Prime

Total

   

Guaranteed (2)

Other (3)

       

Guaranteed (2)

Other (3)

 
 

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

United States

414

939

33,545

4,335

39,233

 

358

1,106

33,464

5,592

40,520

United Kingdom

431

2,397

293

3,462

6,583

 

408

2,906

296

3,693

7,303

Europe

422

-

16,134

4,773

21,329

 

380

-

17,682

5,212

23,274

Rest of the world

298

-

39

172

509

 

314

-

46

215

575

Total

1,565

3,336

50,011

12,742

67,654

 

1,460

4,012

51,488

14,712

71,672

Notes:

(1)

Non-conforming for US exposures are commonly referred to as Alt-A.

(2) 

Prime guaranteed exposures comprise those guaranteed or effectively guaranteed by various governments as well as European covered bonds and include:

 

(a)

£7.4 billion (2008 - £7.6 billion) available-for-sale exposures guaranteed by the Dutch government.

 

(b)

£6.4 billion (2008 - £5.7 billion) guaranteed by US government via Ginnie Mae of which £0.4 billion (2008 - £0.5 billion) are held-for-trading

 

(c)

£27.1 billion (2008 - £27.8 million) effectively guaranteed by the US government via its support for Freddie Mac and Fannie Mae of which £17.0 billon (2008 - £18.1 billion) are held-for-trading.

 

(d)

Covered mortgage bonds of £9.1 billion (2008 - £10.3 billion), principally European bonds.

(3)

Other prime RMBS include highly rated US, UK and European RMBS held in treasury liquidity portfolios as well as collateral for repurchase agreements; and held-for-trading portfolios.



2.3     Commercial mortgage-backed securities

Commercial mortgage-backed net exposures by geography comprised:

 

31 March 2009

 

31 December 2008

 
 

£m

 

£m

 

United States

2,583

 

1,147

 

United Kingdom

1,230

 

1,225

 

Europe

966

 

1,095

 

Rest of the world

77

 

79

 

Total

4,856

 

3,546

 


2.4     Collateralised debt and loan obligations

The Group's ABS CDO and CLO net exposures comprised:

 

31 March 2009

 

31 December 2008

 
 

£m

 

£m

 

Super senior ABS CDOs

754

 

1,182

 

Other CDOs

1,761

 

1,658

 

CLOs

3,091

 

3,443

 

Total

5,606

 

6,283

 


The Group's exposures to open super senior asset-backed CDOs are analysed in the tables below.

   

31 March 2009

 

31 December 2008  (2)

   

Net exposure  (1)

Write-downs before tax 

 

Average price

 

Net exposure  (1)

Average price 

   

£m

£m

 

%

 

£m

%

High grade 

 

703

352

 

20

 

1,089

29

Mezzanine 

 

51

34

 

4

 

93

6

   

754

386

(3)  

15

 

1,182

23



Notes:

(1)

Net of hedges and protection and includes portfolios carried at fair value only.

 

(2)

Exposures at 31 December 2008 have been restated to reflect transactions that have been liquidated and now represent long positions in asset-backed securities. 

 

(3)

Included within GBM credit market write-downs.

 


 

31 March 2009

 

31 December 2008

 

High grade 

Mezzanine 

Total 

 

High grade 

Mezzanine 

Total 

 

£m 

£m 

£m 

 

£m 

£m 

£m 

Gross exposure

7,194

2,905

10,099

 

7,104

2,884

9,988

Hedges and protection

(3,488)

(704)

(4,192)

 

(3,423)

(691)

(4,114)

Net open exposure

3,706

2,201

5,907

 

3,681

2,193

5,874

Write downs and amortisations 

(3,003)

(2,150)

(5,153)

 

(2,592)

(2,100)

(4,692)

Net exposure

703

51

754

 

1,089

93

1,182

               


2.5 Other asset-backed securities

Other asset-backed net exposures by geography comprised:

 

31 March 2009

 

31 December 2008

 
 

£m

 

£m

 

United States

3,194

 

3,507

 

United Kingdom

834

 

1,367

 

Europe

3,608

 

4,299

 

Rest of the world

806

 

1,255

 

Total

8,442

 

10,428

 
         


3. Counterparty valuation adjustments
 

3.1      Credit valuation adjustment

Credit valuation adjustments ('CVAs') represent an estimate of the adjustment to fair value that a market participant would make to incorporate the credit risk inherent in counterparty derivative exposures. During 2009, credit spreads have generally continued to widen and have contributed to the increase in CVA as set out below.

 

31 March 2009

 

31 December 2008

 

£m

 

£m

Monoline insurers

8,235

 

5,988

CDPCs

1,443

 

1,311

Other counterparties 

1,912

 

1,738

Total CVA adjustments

11,590

 

9,037



3.2      Monoline insurers

The table below analyses the Group's holdings of CDSs with monoline counterparties. 

 

31 March 2009

31 December 2008

 

£m

£m

Gross exposure to monolines (see below)

12,694

11,582

Hedges with bank counterparties

(601)

(790)

Credit valuation adjustment (see below)

(8,235)

(5,988)

Net exposure to monolines

3,858

4,804



  The change in CVA and related effects are analysed below.

 

£m

 

At 1 January 2009

5,988

 

Hedges and other movements

177

 

Net effect from reclassified debt securities

434

(1)

Net income statement effect

1,636 

(2)

At 31 March 2009

8,235

 
     


Notes:

(1)

Principally net unrealised losses recorded in available-for-sale reserves partially offset by impairments.

 

(2)

Included within GBM credit market write-downs.

 


The table below analyses the exposures to and related CVA against monoline insurers by credit rating at the reporting date.

 

31 March 2009

 

31 December 2008

 

Notional amount: protected assets

Fair value: protected assets

Gross exposure 

Credit valuation adjustment

 

Notional amount: protected assets

Fair value: protected assets

Gross exposure 

Credit valuation adjustment

 

£m

£m

£m

£m

 

£m

£m

£m

£m

AAA / AA rated

8,836

6,237

2,599

1,648

 

8,937

6,537

2,400

1,067

A / BBB rated

8,112

3,428

4,684

2,703

 

16,895

8.396

8,499

4,426

Sub-investment grade

10,479

5,068

5,411

3,884

 

2,189

1,506

683

495

Total

27,427

14,733

12,694

8,235

 

28,021

16,439

11,582

5,988

Of which:

                 

CDOs

5,845

1,068

4,777

2,924

 

5,779

1,395

4,384

2,201

RMBS

84

62

22

6

 

93

65

28

10

CMBS

4,746

1,636

3,110

2,210 

 

4,849

2,388

2,461

1,429

CLOs

12,365

9,204

3,161

2,088  

 

12,865

9,673

3,192

1,556

Other ABS

3,636

2,361

1,275

787

 

3,666

2,460

1,206

617

Other

751

402

349

220

 

769

458

311

175

Total

27,427

14,733

12,694

8,235

 

28,021

16,439

11,582

5,988



3.3      Credit derivative product companies

The table below analyses the Group's holdings of CDSs with credit derivative product companies. 

 

31 March 2009

31 December 2008

 

£m

£m

Gross exposure to CDPCs (see below)

4,248

4,776

Credit valuation adjustment

(1,443)

(1,311)

Net exposure to CDPCs

2,805

3,465



The change in the CDPC CVA is analysed below:

 

£m

 

At 1 January 2009

1,311

 

Counterparty hedges

(75)

 

Foreign currency movement

9

 

Net income statement effect

198

 

At 31 March 2009

1,443

 
     


The table below analyses the exposures to and related CVA against CDPCs by credit rating at the reporting date.

 

31 March 2009

 

31 December 2008

 

Notional amount: protected assets

Fair value: protected reference assets

Gross exposure 

Credit valuation adjustment

 

Notional amount: protected assets

Fair value: protected reference assets

Gross exposure 

Credit valuation adjustment

 

£m

£m

£m

£m

 

£m

£m

£m

£m

AAA / AA rated

16,167

13,555

2,612

896

 

19,092

15,466

3,626

908

A / BBB rated

6,170

5,184

986

417

 

6,147

4,997

1,150

403

Rating withdrawn

2,983

2,333

650

130

 

-

-

-

-

Total

25,320

21,072

4,248

1,443

 

25,239

20,463

4,776

1,311

                   


  4. Leveraged finance
 

The table below shows the Group's leveraged finance exposures by industry and geography, where the original intention was to syndicate the facilities.

 

31 March 2009

 

31 December 2008

 

Americas

UK

Europe

ROW

Total

 

Americas

UK

Europe

ROW

Total

 

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

TMT

1,372

560

109

42

2,083

 

1,681

628

402

45

2,756

Retail

9

309

561

19

898

 

166

550

707

21

1,444

Industrial

355

394

357

-

1,106

 

280

391

413

-

1,084

Other

12

510

136

16

674

 

11

552

141

35

739

Total

1,748

1,773

1,163

77

4,761

 

2,138

2,121

1,663

101

6,023

Of which:

                     

Held-for-trading

-

37

15

-

52

 

31

31

41

-

103

Loans and receivables

1,748

1,736

1,148

77

4,709

 

2,107

2,090

1,622

101

5,920

Total

1,748

1,773

1,163

77

4,761

 

2,138

2,121

1,663

101

6,023

Of which:

                     

Drawn

1,748

1,735

1,010

72

4,565

 

2,081

2,090

1,453

94

5,718

Undrawn

-

38

153

5

196

 

57

31

210

7

305

Total

1,748

1,773

1,163

77

4,761

 

2,138

2,121

1,663

101

6,023



In addition to the leveraged finance portfolio discussed above, the Group has £7.3 billion of portfolio positions, as set out below, that have been classified as loans and receivables at origination with the intention of holding these facilities to maturity. 
 

 

31 March 2009

 

31 December 2008

 

Americas

UK

Europe

ROW

Total

 

Americas

UK

Europe

ROW

Total

 

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

TMT

209

679

1,375

426

2,689

 

17

557

1,365

437

2,376

Retail

71

241

543

67

922

 

-

282

463

62

807

Industrial

227

792

1,017

148

2,184

 

188

681

1,038

149

2,056

Other

155

578

724

95

1,552

 

193

484

830

80

1,587

 

662

2,290

3,659

736

7,347

 

398

2,004

3,696

728

6,826



5. Reclassifications of financial instruments

In October 2008, the IASB issued an amendment to IAS 39 to allow the reclassification of financial assets out of the held-for-trading and available-for-sale categories. The amendment allows the transfer of a financial asset out of the held-for-trading category if the asset is no longer held for trading purposes. The Group took advantage of the amendment, reclassifying financial assets with effect from 1 July 2008 and in the last two months of 2008. Further reclassifications were undertaken in the first quarter of 2009.
 

 

Losses that would have been recognised in Q1 2009 if reclassifications had not occurred

 

Assets reclassified in Q1 2009

 

Total

Reclassified in Q1 2009

Reclassified in 2008

 

Carrying value

 

£m

£m

£m

 

£m

From held-for-trading to:

         

Available-for-sale

494

-

494

 

-

Loans and receivables

1,178

325

853

 

1,871

Total

1,672

325

1,347

 

1,871

           


Impairment losses of £747 million (available-for-sale assets: £355 million; loans and receivables: £392 million) were recorded against reclassified assets in Q1 2009.

  6. Fair value hierarchy
 

The table below shows the Group's financial instruments carried at fair value, by IAS 39 classifications and valuation method, at 31 March 2009 and 31 December 2008.

 

31 March 2009

 

31 December 2008

 

 Level 1(1)

Level 2(2)

Level 3(3)

Total

 

 Level 1(1)

Level 2(2)

Level 3(3)

Total

 

£bn

£bn

£bn

£bn

 

£bn

£bn

£bn

£bn

Assets

                 

Fair value through profit or loss

                 

Loans and advances to banks

-

40.7

-

40.7

 

-

56.2

-

56.2

Loans and advances to customers

-

66.9

1.4

68.3

 

-

50.5

3.1

53.6

Debt securities

61.2

57.5

2.5

121.2

 

52.8

65.1

3.8

121.7

Equity shares

8.9

5.3

0.6

14.8

 

10.6

7.8

0.8

19.2

Derivatives

1.3

857.8

10.5

869.6

 

3.9

978.4

10.3

992.6

 

71.4

1,028.2

15.0

1,114.6

 

67.3

1,158.0

18.0

1,243.3

Available-for-sale

                 

Debt securities

40.9

86.4

2.4

129.7

 

21.1

108.7

3.1

132.9

Equity shares

1.0

2.1

0.2

3.3

 

4.8

2.1

0.3

7.2

 

41.9

88.5

2.6

133.0

 

25.9

110.8

3.4

140.1

                   
 

113.3

1,116.7

17.6

1,247.6

 

93.2

1,268.8

21.4

1,383.4

Liabilities

                 

Fair value through profit or loss

                 

Deposits by banks and customers

-

148.4

-

148.4

 

-

144.8

0.3

145.1

Debt securities in issue

-

54.2

1.9

56.1

 

-

47.1

4.4

51.5

Short positions

30.9

7.5

-

38.4

 

36.0

6.5

-

42.5

Derivatives

0.8

833.8

3.9

838.5

 

3.6

963.7

4.0

971.3

Other financial liabilities

-

1.4

0.2

1.6

 

-

1.5

0.3

1.8

 

31.7

1,045.3

6.0

1,083.0

 

39.6

1,163.6

9.0

1,212.2

Notes

(1)

Valued using unadjusted quoted prices in active markets for identical financial instruments. This category includes listed equity shares, certain exchange-traded derivatives, G10 government securities and certain US agency securities.

(2) 

Valued using techniques based significantly on observable market data. Instruments in this category are valued using:

 

(a)

quoted prices for similar instruments or identical instruments in markets which are not considered to be active; or 

 

(b)

valuation techniques where all the inputs that have a significant effect on the valuation are directly or indirectly based on observable market data.  

 

The type of instruments that trade in markets that are not considered to be active, but are based on quoted market prices, broker dealer quotations, or alternative pricing sources with reasonable levels of price transparency and those instruments valued using techniques include most government agency securities, investment-grade corporate bonds, certain mortgage products, certain bank and bridge loans, repos and reverse repos, less liquid listed equities, state and municipal obligations, most physical commodities, investment contracts issued by the Group's life assurance businesses and certain money market securities and loan commitments and most OTC derivatives.  

(3)

Instruments in this category have been valued using a valuation technique where at least one input (which could have a significant effect on the instrument's valuation) is not based on observable market data. Where inputs can be observed from market data without undue cost and effort, the observed input is used. Otherwise, the Group determines a reasonable level for the input. 
 

Financial instruments included within level 3 of the fair value hierarchy primarily include cash instruments which trade infrequently, certain syndicated and commercial mortgage loans, unlisted equity shares, certain residual interests in securitisations, super senior tranches of high grade and mezzanine collateralised debt obligations (CDOs), and other mortgage-based products and less liquid debt securities, certain structured debt securities in issue and OTC derivatives where valuation depends upon unobservable inputs such as certain credit and exotic derivatives. No gain or loss is recognised on the initial recognition of a financial instrument valued using a technique incorporating significant unobservable data.

(4)

Other financial liabilities comprise subordinated liabilities and write downs relating to undrawn syndicated loan facilities.




 

 

Signatures



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Date: 13 May 2009

  THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)


  By: /s/ A N Taylor

  Name:
Title:
A N Taylor
Head of Group Secretariat