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 November 6, 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:

 
 
 
 
 
 
Third quarter 2009 results
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
Contents
 

Page 


Forward-looking statements
3


Presentation of information
4


Results summary - pro forma
5


Results summary - statutory
7


Business and strategic update
8


Pro forma results
13


Summary consolidated income statement
13


Condensed consolidated statement of comprehensive income
15


Summary consolidated balance sheet
15


Key metrics
16


Results summary
18


Divisional performance
26
UK Retail
28
UK Corporate
31
Wealth
34
Global Banking & Markets
36
Global Transaction Services
39
Ulster Bank
41
US Retail & Commercial
44
RBS Insurance
51
Central items
53
Non-Core
54


Allocation methodology for indirect costs
59


Condensed consolidated balance sheet
61


Commentary on condensed consolidated balance sheet
62


Notes
63
 
                                                                                                   


 
Contents
(continued)
 

Page 


Risk and capital management
76


Capital resources and ratios
76


Credit risk
78


Liquidity risk
83


Market risk
87


Market turmoil exposures
89


Statutory results
101


Condensed consolidated income statement
102


Condensed consolidated statement of comprehensive income
103


Financial review
104


Condensed consolidated balance sheet
105


Commentary on condensed consolidated balance sheet
106


Notes
107


Capital resources and ratios
114


Additional information
116


Statutory results
116


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



Appendix 2  Analysis by quarter
 


Appendix 3  Asset Protection Scheme



Appendix 4  Businesses outlined for disposal



Appendix 5  Revisions
 
 


 
Forward-looking statements
 
Certain sections in this document contain 'forward-looking statements' as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words 'expect', 'estimate', 'project', 'anticipate', 'should', 'intend', 'plan', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective', 'will', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on such expressions.

In particular, this document includes forward-looking statements relating, but not limited, to the Group's potential exposures to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity and equity price risk.  Such statements are subject to risks and uncertainties.  For example, certain of the market risk disclosures are dependent on choices about key model characteristics and assumptions and are subject to various limitations.  By their nature, certain of the market risk disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated.

Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to:
RBS obtaining the requisite approvals and agreeing the requisite documents to finalise its accession into the APS; the effect of the APS and State Aid remedies on RBS's financial and capital position; the continuation or further deepening of recessionary conditions; the ability of the Group to access sufficient funding to meet its liquidity needs; the developments in the current crisis in the global financial markets
, and their impact on the financial industry in general and the Group in particular; the effect on the Group's capital of write downs in respect of credit market exposures and impairments; general economic conditions in the UK and in other countries in which the Group has significant business activities or investments, including the United States; the monetary and interest rate policies of the Bank of England, the Board of Governors of the Federal Reserve System and other G-7 central banks; inflation; deflation; unanticipated turbulence in interest rates, foreign currency exchange rates, commodity prices and equity prices; changes in UK and foreign laws, regulations and taxes; changes in competition and pricing environments; natural and other disasters; the inability to hedge certain risks economically; the adequacy of loss reserves; acquisitions or restructurings; technological changes; changes in consumer spending and saving habits; the value and effectiveness of any credit protection purchased by RBS; and the success of the Group in managing the risks involved in the foregoing.

The forward-looking statements contained in this document speak only as of the date of this announcement, and the Group does not undertake to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
 
The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.


 
Presentation of information
 
Acquisition of ABN AMRO
On 17 October 2007, RFS Holdings B.V. ('RFS Holdings'), a company jointly owned by The Royal Bank of Scotland Group plc ('RBS'), Fortis Bank Nederland (Holding) N.V. ('Fortis') and Banco Santander S.A. ('Santander') (together, the 'Consortium Members'), completed the acquisition of ABN AMRO Holding N.V. ('ABN AMRO').
RFS Holdings is implementing an orderly separation of the business units of ABN AMRO with RBS retaining the following ABN AMRO business units:
•
Continuing businesses of Business Unit North America;
•
Business Unit Global Clients and wholesale clients in the Netherlands
  (including former Dutch wholesale clients) and Latin America (excluding Brazil);
•
Business Unit Asia (excluding Saudi Hollandi); and
•
Business Unit Europe (excluding Antonveneta).
Certain other assets will continue to be shared by the Consortium Members.
On 3 October 2008, the State of the Netherlands acquired Fortis Bank Nederland (Holding) N.V. including Fortis' participation in RFS Holdings that represents the acquired activities of ABN AMRO.
The separation of the main platform shared between RBS and its Dutch state-owned partner has been completed and the Group expects that, subject to legal process and regulatory approvals, the legal separation of the constituent parts of ABN AMRO will be complete in early 2010. From that point RBS will cease to consolidate the Dutch state's interest in RBS Group statutory accounts.
Pro forma results
Pro forma results have been prepared to include only those business units of ABN AMRO that will be retained by RBS.  The financial review and divisional performance and discussion of risk and capital management in this Interim Management Statement focus on the pro forma results.  The basis of preparation of the pro forma results is detailed on page 63.
Statutory results                       
RFS Holdings is jointly owned by the Consortium Members.  It is controlled by RBS and is therefore fully consolidated in its statutory financial statements.  The interests of the State of the Netherlands and Santander in RFS Holdings are included in minority interests.
Restatements
Divisional results for 2008 have been restated to reflect the Group's new organisational structure that includes a Non-Core division comprising individual assets, portfolios and lines of business that the Group intends to run off or dispose of.  The Non-Core division is reported separately from the divisions which form the Core Group.  In addition, separate reporting of Business Services (formerly Group Manufacturing) and Centre results has changed and, with the exception of certain items of a one off nature, costs incurred are now allocated to the customer-facing divisions and included in the measurement of the returns which they generate.  The changes do not affect the Group's results.  Comparatives have been restated accordingly.
The pro forma and statutory results for 2008 have been restated for the amendment to IFRS 2 'Share-based Payment'.  This has resulted in an increase in staff costs amounting to £37 million for the third quarter of 2008 and £72 million for the first nine months of 2008.
The pro forma and statutory results for 2008 have been restated for the finalisation of the ABN AMRO acquisition accounting.
 
Results summary - pro forma
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
 2009 
30 September 
2008 

£m 
£m 
£m 

£m 
£m 







Core






Total income (1)
7,154 
7,015 
7,529 

24,862 
21,699 
Operating expenses (2)
(3,729)
(3,638)
(3,531)

(11,474)
(10,742)
Insurance net claims
(1,019)
(788)
(764)

(2,596)
(2,353)
Operating profit before impairment losses (3)
2,406 
2,589 
3,234 

10,792 
8,604 
Impairment losses
(1,213)
(1,147)
(512)

(3,390)
(1,184)
Operating profit (3)
1,193 
1,442 
2,722 

7,402 
7,420 







Non-Core






Total income (1)
(60)
(894)
1,056 

(2,977)
(1,463)
Operating expenses (2)
(466)
(428)
(529)

(1,454)
(1,711)
Insurance net claims
(126)
(137)
(170)

(440)
(508)
Operating (loss)/profit before impairment
  losses (3)
(652)
(1,459)
357 

(4,871)
(3,682)
Impairment losses
(2,066)
(3,516)
(768)

(7,410)
(1,575)
Operating loss (3)
(2,718)
(4,975)
(411)

(12,281)
(5,257)







Total*






Total income (1)
7,094 
6,121 
8,585 

21,885 
20,236 
Operating expenses (2)
(4,195)
(4,066)
(4,060)

(12,928)
(12,453)
Insurance net claims
(1,145)
(925)
(934)

(3,036)
(2,861)
Operating profit before impairment losses (3)
1,754 
1,130 
3,591 

5,921 
4,922 
Impairment losses
(3,279)
(4,663)
(1,280)

(10,800)
(2,759)
Operating (loss)/profit (3)
(1,525)
(3,533)
2,311 

(4,879)
2,163 
(Loss)/profit before tax (4)
(2,077)
59 
1,903 

(2,062)
1,177 
(Loss)/profit attributable to ordinary
  shareholders
(1,800)
(140)
871 

(2,842)
44 







* Includes fair value of own debt impact
(483)
(960)
1,281 

(412)
2,093 







Performance ratios






Return on equity - annualised (5)
(11.2%)
(26.6%)
9.8%

(15.6%)
2.4%
Net interest margin**
1.75%
1.70%
2.05%

1.74% 
2.06%
Cost:income ratio (6)
59.1%
66.4%
47.3%

59.1% 
61.5%
Adjusted cost:income ratio (7)
70.5%
78.3%
53.1%

68.6% 
71.7%
Continuing operations:






Pre-impairment Core adjusted earnings per ordinary share (8)
2.5p 
2.6p 
11.5p

15.1p 
38.9p
Core adjusted earnings per ordinary share (9)
1.0p 
1.0p 
9.5p

9.7p 
33.0p
Basic earnings per ordinary share (10)
(3.2p)
(0.2p)
5.6p

(5.6p)
0.9p
 
For definitions of the notes see pages 16 and 17.
 
 
** Net interest margin for the quarter ended 30 June 2009 has been revised. See Appendix 5.


 
Results summary - pro forma
 
Capital and balance sheet
30 September 
2009 
30 June 
 2009
 
Change 

31 December 
 2008 
Change 







Total assets
£1,680.3bn
£1,644.4bn
2%

£2,218.7bn
(24%)
Funded balance sheet (11)
£1,127.8bn
£1,088.6bn
4%

£1,227.2bn
(8%)
Loan:deposit ratio (gross of provisions)
142.3%
144.5%
(220bp)

152.4%
(1,010bp)
Loan:deposit ratio (net of provisions)
138.8%
142.9%
(410bp)

150.3%
(1,150bp)
RWAs
£594.7bn
£547.3bn
9%

£577.8bn
3%
Total equity
£58.9bn
£57.8bn
2%

£64.3bn
(8%)
Core Tier 1 ratio
5.5%
6.4%
(90bp)

5.9%
(40bp)
Tier 1 ratio
8.0%
9.0%
(100bp)

9.9%
(190bp)
Tier 1 leverage ratio (12)
23.4x
21.7x
8%

21.2x
10%
Tangible equity leverage ratio (13)
3.0%
3.0%
- 

2.4%
60bp
Net tangible equity per share
59.4p
58.0p
2%

73.8p
(20%)
 
For definitions of the notes see pages 16 and 17.


 
Results summary - statutory
 
 
Highlights
·     
Income of £8,080 million.
 
·     
Pre-tax loss of £2,169 million for Q309.
 
·     
Core Tier 1 ratio 6.5%.
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008  

30 September 
2009 
30 September 
2008 

£m 
£m 
£m 

£m 
£m 







Total income
8,080 
11,453 
9,962 

29,921 
23,804 
Operating expenses
(5,552)
(5,732)
(5,321)

(17,443)
(16,040)
Operating profit before impairment losses
1,319 
4,674 
3,595 

9,135 
4,529 
Impairment
(3,488)
(4,970)
(1,397)

(11,548)
(3,058)
Operating (loss)/profit before tax
(2,169)
(296)
2,198 

(2,413)
1,471 
(Loss)/profit attributable to ordinary shareholders
(1,800)
(140)
871 

(2,842)
44 
 


 
Business and strategic update
 
 
Strategic plan
 
In August, RBS detailed its plans, first announced in February, for a radical restructuring of its businesses to set the Group on a path to sustainability, stability and customer focus. Businesses and portfolios that did not meet the Group's strategic criteria, including both stressed and non-stressed assets, were transferred to the Non-Core division. Within the Core Bank, comprehensive changes have been set in motion to improve the business and adapt to the future banking climate. The balance sheet and capital framework were also clearly set out, anticipating substantially increased regulatory pressures and much greater emphasis on liquidity. While updates to the Plan and related targets will be published in February, reflecting the new APS agreement and EU remedies, we currently expect the Plan's integrity and key aspirations to remain valid.
 
The Group's strategy has been embedded in five-year plans across divisions, and the more recent 2010 budgets provide encouraging support for these plans. There remain many uncertainties in the economic environment and the Group has made it clear that it expects the path to rebuilding standalone strength and shareholder value to be multi-year in duration.
 
Some encouraging progress has, nevertheless, been made in the third quarter towards some of the Group's intermediate goals:
 
·     
Despite intense competition for retail savings, customer deposits, excluding repos, grew in the quarter, up 2% or £8.5 billion compared with 2Q09, with encouraging deposit- gathering performances from all our retail divisions as well as from Global Transaction Services.
 
·     
Loans and advances to customers, excluding reverse repos, reduced by 1% compared with 2Q09 and by 15% compared with December 2008, with the bulk of the reduction  coming in Global Banking & Markets and Non-Core.
 
·     
The Group's loan to deposit ratio improved to 142% at the end of September, an improvement of 220 basis points from the end of June and of 1,010 basis points from the end of  December 2008. The Group's 2013 target is to achieve a ratio of approximately 100%.
 
·     
Risk-weighted assets, however, increased by 9% in the quarter, mainly due to the fall in credit ratings for monolines, the effect of procyclicality in Basel II models and foreign  exchange movements.
 
·     
Efforts to improve efficiency have continued to make headway, and the Group is on track for its three year cost saving targets. The Group cost:income ratio year to date improved  by 2 percentage points, compared with the same period of 2008.
 
·     
We issued £4.8 billion of unguaranteed term debt during the third quarter, taking the total issued to end September to £9.2 billion. In general, the picture on liquidity is rapidly improving, albeit from a poor starting point.
 
Return on equity remains negative. The Group's 2013 target is to achieve a sustainable return on equity in excess of 15%, powered by market-leading franchises in large, customer-driven markets.


 
Business and strategic update
 
(continued)
 
Non-Core division and disposal programme
 
The Non-Core Division is now fully operational and continues actively to reduce risk and manage the run-down and sale options for the £190.3 billion of RWAs for which it is now responsible. Finalising APS has been the greatest priority to date, in the knowledge that market conditions overall will take time to offer acceptable value and liquidity. Significant and encouraging market improvements are, nevertheless, visible. 
 
The disposal of the majority of our Retail & Commercial businesses in Asia, along with some of our Global Banking & Markets (GBM) businesses, continues to progress well and we remain in advanced stages of negotiations with bidders for the remaining markets. Elsewhere, in addition to normal amortisations, improved market conditions have enabled us to unwind legacy trades.  The current market rally has also significantly reduced monoline and CDPC exposures.
 
Our plan will continue to be affected by external factors such as economic conditions, risk appetite and liquidity in the market, as well as foreign exchange rates.
 
Risk
 
As part of its strategic review RBS has a clearly stated ambition to achieve a standalone AA category risk rating and risk management within the Group is now implementing revised risk appetite and controls in order to achieve this objective. 
 
While economic conditions and outlook have improved since the first half results, they remain fragile, with corporate failures and consequent unemployment not expected to peak until 2010.  The outlook for impairments has improved somewhat and these may now be plateauing at 1H09 levels although we are still seeing a modest increase in default rates.  Economic conditions in the UK and more so Ireland, two key markets for RBS, remain relatively weak.  Our impairments and write-downs remain concentrated in the Non-Core division with better quality credit metrics in most of our Core divisions.
 
The Group continues to reduce its exposure to country risk and a new country risk framework is now well embedded across the Group.  Total cross border exposure to countries in the emerging economies has declined since June 2008 by over 20% adjusted for currency movements.
 
Single Name Concentrations continue to receive a high level of attention and further refinements to the risk management framework will be implemented during the fourth quarter.  A programme to improve reporting is now well underway increasing transparency of risk exposures and improving the ability of management to take mitigating action as part of the process of reducing the risk in RBS's balance sheet.
 
Market risk as measured by Value at Risk (VaR) has increased materially, primarily reflecting the rise in Non-Core credit spread VaR resulting from the increased volatility in the most recent two years' of market data, as well as additional hedges against the risk of counterparty failure, which is not itself recorded in VaR. 
 


 
Business and strategic update
(continued)
 
 
Risk
(continued)
 
The potential for increased Operational Risk emanating from the implementation of the Strategic Plan is an issue which is being actively managed by each division and monitored by the independent risk function.  We also have an active programme of engagement with the very significant regulatory change agenda across prudential requirements, banking capital, bank licensing and supervision. The regulatory agenda is all-consuming of itself, with multiple initiatives to prepare for and react to significant uncertainties still to wash through for all banks.
 
UK Lending Commitments
In February, as a pre-requisite to its proposed participation in the APS, the Group agreed to make available an additional £25 billion of lending (£9 billion of mortgage lending and £16 billion of business lending) to creditworthy customers on commercial terms, and subject to market demand, over the ensuing 12 months, and a similar amount over the following year.
 
RBS is unambiguous in its view that these commitments are being met. However, as is normal in recessions, our customers are generally seeking to repair their balance sheets, not to increase borrowing. As a result, the demand for our lending is muted, especially from business customers. By comparison in the United States, where economic growth has already resumed, the fall in loan demand has been even greater. Increased borrowing is not the route to sustainable recovery.
 
Since entering into this commitment RBS has achieved strong results in the mortgage market:
·     
Gross lending year to date totals £13.9 billion, including over £2.3 billion of lending to first time buyers.  Gross lending during the quarter was 23% higher than in 2Q09 and at 30  September 2009, UK mortgage balances totalled £88.7 billion, 11% higher than at the end of 2008.
·     
The acceptance rate for mortgage lending, at 90%, remains high.  With net mortgage lending year to date totalling £8.6 billion, the Group is on target to surpass the £9 billion mortgage lending commitment.      
 
In business markets, RBS has achieved gross lending of £45.5 billion year to date.  Gross lending during 3Q09 was £15.2 billion, 2% lower than 2Q09.  After taking account of loan repayments and overdraft movements, RBS's business lending, including Ulster Bank, at 30 September 2009 totalled £154.3 billion, a decline of 6% since the end of 2008.
 
·     
In the SME segment, gross lending in the first nine months of 2009 was £28.5 billion.  Demand remains subdued, with credit applications down 26% by value 3Q09 compared  with 3Q08. The acceptance rate across all categories of SME credit remains stable at 85%.
 
·     
The average interest rate on new lending to SMEs has fallen to 3.4% in the third quarter, compared with 7.0% for 3Q08. In November 2008, we gave a promise not to increase  small business customers' overdraft pricing until the end of 2009 unless the risks associated with lending to them have increased. As a result, in the third quarter 94% of SME  customers had overdrafts renewed at the same margin or lower.
 


 
Business and strategic update
(continued)
 
 
UK Lending Commitments
(continued)
 
·     
SME repayments have accelerated as many business and commercial customers seek to deleverage (term loan repayments are up 37% in 2009 year to date).
 
·     
Overdraft utilisation rates across the SME and mid-corporate segments have remained low at 44%. SME and mid-corporate customers still have access to undrawn committed  facilities of more than £27 billion. Our SME Committed Overdraft promise ensures that customers' committed facilities remain in place for at least 12 months.
 
·     
Significant marketing activity to reiterate an 'Open for Business' message and the success of the Regional Funds programme has enabled balances to be held stable year to  date. We have also recently launched a new Business Hotline which offers businesses, whether they are customers or not, a second opinion in cases where their lending  proposition has been declined.
 
·     
Gross new lending to mid- and large corporates totalled £5.4 billion in the quarter, 13% lower than the 2Q09 total, and £17.0 billion year to date. 
 
·     
Many larger corporates are actively deleveraging to repair their balance sheets.  RBS has been a significant player in facilitating access to the debt and equity markets for its  larger clients.  RBS has been bookrunner for circa £5 billion of the £55 billion of bond issuance by UK corporates and has been actively involved in circa £25 billion of equity  issuance in the year to date.  Much of this finance raised has been used to repay bank borrowing.   
 
Notwithstanding the Group's willingness to lend to creditworthy customers and our clarity that the requisite funds are available, thereby fulfilling our commitments, indications remain that it is unlikely that RBS's net business lending will increase by the £16 billion that we are making available, in the light of the subdued demand we currently experience.       
 

30 September 
2008 
 31 December 
 2008 
Gross lending 
during 2009 
Net lending 
during 2009 
30 September 
2009 

£bn 
£bn 
£bn 
£bn 
£bn 






Mortgages
79.2 
80.1 
13.9 
8.6 
88.7 






Total Business
161.1 
163.4 
45.5 
(9.1)
154.3 
  SME
67.4 
68.0 
28.5 
(0.1)
67.9 
  Mid-corporate
48.5 
49.3 
11.2 
(3.7)
45.6 
  Large corporate
45.2 
46.1 
5.8 
(5.3)
40.8 






Total Lending
240.3 
243.5 
59.4 
(0.5)
243.0 
 
Note:
The above figures include Ulster Bank and Wealth lending and represent drawn balances, with the exception of Large Corporate numbers which are committed lending (as per RBS's Lending Commitments agreement).  Unsecured personal lending and non-UK lending are not included in the above data. 
 


 
Business and strategic update
(continued)
 
 
Customer Accounts
 
Crucial to the Group's prospects for future success and return to standalone health is the resilience of its customer franchises. Except for the activities earmarked for restructuring, run-off or exit, RBS has sustained its customer market positions during the third quarter, with customer numbers steady or growing in all the Group's major businesses.
 
·     
UK Retail added 139,000 current account customers during the third quarter, with current account numbers rising by 3% over the last year to 12.7 million at 30 September. Over 1 million savings accounts have been added over the last 12 months.
 
·     
UK Retail added 25,000 mortgage customers during the third quarter, taking mortgage customer numbers to 826,000, 8% up on 3Q08.
 
·     
Ulster Bank has held SME and corporate customer numbers stable over the last year and increased consumer accounts by 4%, compared with 3Q08.
 
·     
US Retail's consumer customer base held steady during the quarter at 4.0 million.
 
·     
RBS Insurance achieved strong growth in own brand policy numbers, both through direct brands and through the bank branch channel. Direct own brand policies were up 11% in motor and 13% in home, compared with 3Q08. Bank channel home policies have risen 13% from 3Q08. 
 


Summary consolidated income statement
for the quarter ended 30 September 2009 - pro forma (unaudited)
 
In the income statements set out below, amortisation of purchased intangible assets, gain on redemption of own debt, strategic disposals, write-down of goodwill and other intangible assets and integration and restructuring costs are shown separately.  In the statutory condensed consolidated income statement on page 102, these items are included in income and operating expenses as appropriate.  Data for 2008 have been restated for the amendment to IFRS 2 'Share-based Payment'. 
 

Quarter ended

Nine months ended

30 September 
2009 
*30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 

£m 
£m 
£m 

£m 
£m 







Core













Net interest income*
3,030 
3,111 
3,432 

9,357 
10,242 







Non-interest income (excluding insurance net premium income)*
2,996 
2,799 
2,940 

12,160 
7,924 
Insurance net premium income
1,128 
1,105 
1,157 

3,345 
3,533 







Non-interest income
4,124 
3,904 
4,097 

15,505 
11,457 







Total income (1)
7,154 
7,015 
7,529 

24,862 
21,699 
Operating expenses (2)
(3,729)
(3,638)
(3,531)

(11,474)
(10,742)







Profit before other operating charges
3,425 
3,377 
3,998 

13,388 
10,957 
Insurance net claims
(1,019)
(788)
(764)

(2,596)
(2,353)







Operating profit before impairment losses
2,406 
2,589 
3,234 

10,792 
8,604 
Impairment losses
(1,213)
(1,147)
(512)

(3,390)
(1,184)







Operating profit (3)
1,193 
1,442 
2,722 

7,402 
7,420 














Non-Core













Net interest income
231 
211 
404 

764 
1,095 







Non-interest income (excluding insurance net premium income)
(464)
(1,301)
400 

(4,354)
(3,295)
Insurance net premium income
173 
196 
252 

613 
737 







Non-interest income
(291)
(1,105)
652 

(3,741)
(2,558)







Total income (1)
(60)
(894)
1,056 

(2,977)
(1,463)
Operating expenses (2)
(466)
(428)
(529)

(1,454)
(1,711)







(Loss)/profit before other operating
  charges
(526)
(1,322)
527 

(4,431)
(3,174)
Insurance net claims
(126)
(137)
(170)

(440)
(508)







Operating (loss)/profit before impairment
  losses
(652)
(1,459)
357 

(4,871)
(3,682)
Impairment losses
(2,066)
(3,516)
(768)

(7,410)
(1,575)







Operating loss (3)
(2,718)
(4,975)
(411)

(12,281)
(5,257)
 
For definitions of the notes see pages 16 and 17.
* Certain income reported in other operating income in the interim results for the half year ended 30 June 2009 has been reclassified to net interest income. The reclassification amounted to £205 million and does not affect total income or operating profit. Further details are included in Appendix 5.
 
Su
mmary consolidated income statement
for the quarter ended 30 September 2009 - pro forma (unaudited)
(continued)
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 

£m 
£m 
£m 

£m 
£m 







Total













Net interest income
3,261 
3,322 
3,836 

10,121 
11,337 







Non-interest income (excluding insurance net
  premium income)
2,532 
1,498 
3,340 

7,806 
4,629 
Insurance net premium income
1,301 
1,301 
1,409 

3,958 
4,270 







Non-interest income
3,833 
2,799 
4,749 

11,764 
8,899 







Total income (1)
7,094 
6,121 
8,585 

21,885 
20,236 
Operating expenses (2)
(4,195)
(4,066)
(4,060)

(12,928)
(12,453)







Profit before other operating charges
2,899 
2,055 
4,525 

8,957 
7,783 
Insurance net claims
(1,145)
(925)
(934)

(3,036)
(2,861)







Operating profit before impairment losses (3)
1,754 
1,130 
3,591 

5,921 
4,922 
Impairment losses
(3,279)
(4,663)
(1,280)

(10,800)
(2,759)







Operating (loss)/profit (3)
(1,525)
(3,533)
2,311 

(4,879)
2,163 
Amortisation of purchased intangible assets
(73)
(55)
(119)

(213)
(381)
Integration and restructuring costs
(324)
(355)
(289)

(1,058)
(605)
Gain on redemption of own debt
- 
3,790 
- 

3,790 
- 
Strategic disposals
(155)
212 
- 

298 
- 







Operating (loss)/profit before tax (4)
(2,077)
59 
1,903 

(2,062)
1,177 
Tax
576 
640 
(724)

988 
(421)







(Loss)/profit from continuing operations
(1,501)
699 
1,179 

(1,074)
756 
Loss from discontinued operations, net of tax
(7)
(13)
(46)

(65)
(87)







(Loss)/profit for the period
(1,508)
686 
1,133 

(1,139)
669 
Minority interests
(47)
(83)
(43)

(601)
(191)
Preference share and other dividends
(245)
(432)
(219)

(791)
(434)







(Loss)/profit attributable to ordinary shareholders before write-down of goodwill and other intangible assets
(1,800)
171 
871 

(2,531)
44 
Write-down of goodwill and other intangible assets
-  
(311)
- 

(311)
- 







(Loss)/profit attributable to ordinary shareholders
(1,800)
(140)
871 

(2,842)
44 
 
For definitions of the notes see pages 16 and 17.


Condensed consolidated statement of comprehensive income
for the quarter ended 30 September 2009 (unaudited) - pro forma
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 

£m 
£m 
£m 

£m 
£m 







(Loss)/profit for the period
(1,508)
375 
1,133 

(1,450)
669 







Other comprehensive income:






Available-for-sale financial assets
2,861 
1,319 
(2,056)

1,228 
(3,671)
Cash flow hedges
155 
277 
(97)

676 
(220)
Currency translation
659 
(2,262)
1,691 

(1,788)
2,424 
Tax on other comprehensive income
(846)
(154)
498 

(438)
989 







Other comprehensive income for the period, net of tax
2,829 
(820)
36 

(322)
(478)







Total comprehensive income for the period
1,321 
(445)
1,169 

(1,772)
191 







Attributable to:






Equity shareholders
1,243 
(364)
1,135 

(1,903)
199 
Minority interests
78 
(81)
34 

131 
(8)








1,321 
(445)
1,169 

(1,772)
191 
 
 
 
 
Summary consolidated balance sheet
at 30 September 2009 (unaudited) - pro forma
 

30 September 
2009 
30 June 
2009 
31 December 
2008 

£m 
£m 
£m 




Loans and advances to banks
97,464 
83,700 
129,499 
Loans and advances to customers
631,459 
640,762 
731,265 
Debt securities and equity shares
268,111 
243,279 
275,357 
Derivatives and settlement balances
581,100 
579,134 
1,009,307 
Other assets
102,182 
97,570 
73,265 




Total assets
1,680,316 
1,644,445 
2,218,693 




Owners' equity
56,666 
55,666 
58,879 
Minority interests
2,185 
2,123 
5,436 
Subordinated liabilities
33,085 
32,106 
43,678 
Deposits by banks
178,400 
179,743 
262,609 
Customer accounts
493,234 
490,282 
518,461 
Derivatives, settlement balances and short positions
609,413 
594,914 
1,023,673 
Other liabilities
307,333 
289,611 
305,957 




Total liabilities and equity
1,680,316 
1,644,445 
2,218,693 


 
Key metrics
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 







Performance ratios






Return on equity - annualised (5)
(11.2%)
(26.6%)
9.8%

(15.6%)
2.4%
Net interest margin*
1.75%
1.70%
2.05%

1.74%
2.06%
Cost:income ratio (6)
59.1%
66.4%
47.3%

59.1%
61.5%
Adjusted cost:income ratio (7)
70.5%
78.3%
53.1%

68.6%
71.7%
Continuing operations:






Pre-impairment Core adjusted earnings per ordinary share (8)
2.5p 
2.6p 
11.5p 

15.1p 
38.9p 
Core adjusted earnings per ordinary share (9)
1.0p 
1.0p 
9.5p 

9.7p 
33.0p 
Basic earnings per ordinary share (10)
(3.2p)
(0.2p)
5.6p 

(5.6p)
0.9p 
 
* Net interest margin for the quarter ended 30 June 2009 has been revised. See Appendix 5.
 

30 September 
2009 
30 June 
 2009
 
Change 

31 December 
 2008
 
Change 







Capital and balance sheet






Funded balance sheet (11)
£1,127.8bn
£1,088.6bn
4%

£1,227.2bn
(8%)
Risk-weighted assets
£594.7bn
£547.3bn
9%

£577.8bn
3%
Core tier 1 ratio
5.5%
6.4%
(90bp)

5.9%
(40bp)
Tier 1 ratio
8.0%
9.0%
(100bp)

9.9%
(190bp)
Risk elements in lending (REIL)
£35.0bn
£30.7bn
14% 

£18.8bn
86%
Risk elements in lending as a % of loans and advances
5.74%
5.01%
73bp 

2.66%
308bp 
Provision balance as % of REIL/PPLs
43%
44%
(100bp)

50%
(700bp)
Loan:deposit ratio (gross of provisions)
142.3%
144.5%
(220bp)

152.4%
(1,010bp)
Loan:deposit ratio (net of provisions)
138.8%
142.9%
(410bp)

150.3%
(1,150bp)
Tier 1 leverage ratio (12)
23.4x
21.7x
8%

21.2x
10%
Tangible equity leverage ratio (13)
3.0%
3.0%
- 

2.4%
60bp
Net tangible equity per share
59.4p
58.0p
2%

73.8p
(20%)
 
Notes:
(1)
Excluding gain on redemption of own debt and strategic disposals.
(2)
Excluding purchased intangibles amortisation, write-down of goodwill and other intangible assets, integration and restructuring costs.
(3)
(Loss)/profit before tax, purchased intangibles amortisation, integration and restructuring costs, gain on redemption of own debt, strategic disposals and write-down of goodwill and other intangible assets.
(4)
Excluding write-down of goodwill and other intangible assets.
(5)
(Loss)/profit from continuing operations attributable to ordinary shareholders adjusted for purchased intangibles amortisation, integration and restructuring costs, gain on redemption of own debt, strategic disposals and write-down of goodwill and other intangible assets divided by average ordinary shareholders equity.
(6)
The cost:income ratio is based on total income and operating expenses as defined in (1) and (2) above.
(7)
The adjusted cost:income ratio is based on total income and operating expenses as defined in (1) and (2) above and after netting insurance claims against income.
(8)
(Loss)/profit from continuing operations attributable to ordinary shareholders adjusted for Non-Core operations, impairment losses, purchased intangibles amortisation, integration and restructuring costs, gain on redemption of own debt, strategic disposals and write-down of goodwill and other intangible assets divided by weighted average number of shares in issue.
 
 
 
 
 
Key metrics
(continued)
 
Notes (continued):
(9)
(Loss)/profit from continuing operations attributable to ordinary shareholders adjusted for Non-Core operations,  purchased intangibles amortisation, integration and restructuring costs, gain on redemption of own debt, strategic disposals and write-down of goodwill and other intangible assets divided by weighted average number of shares in issue.
(10)
(Loss)/profit from continuing operations attributable to ordinary shareholders divided by weighted average number of shares in issue.
(11)
Funded balance sheet is defined as total assets less derivatives.
(12)
The Tier 1 leverage ratio is based on total tangible assets (after netting derivatives) divided by Tier 1 capital.
(13)
The tangible equity leverage ratio is based on total tangible equity divided by total tangible assets (after netting derivatives).
 
 


 
Results summary
 

Quarter ended

Nine months ended

30 September 
 2009 
30 June 
 2009 
30 September 
 2008 

30 September 
 2009 
30 September 
 2008 
Net interest income
£m 
£m 
£m 

£m 
£m 







Net interest income
3,197 
3,276 
3,729 

9,943 
11,043 







Net interest margin - Group
1.75%
1.70%
2.05%

1.74%
2.06%







- Global Banking & Markets
1.08%
1.48%
1.24%

1.52%
1.07%
- Rest of Group
1.92%
1.77%
2.31%

1.80%
2.38%







Selected average balances:






Loans and advances to banks
56,984 
55,062 
29,386 

51,984 
44,132 
Loans and advances to customers
554,047 
585,925 
594,762 

586,173 
586,764 
Debt securities
118,791 
129,190 
102,449 

122,303 
82,623 
Interest earning assets
729,822 
770,177 
726,597 

760,460 
713,519 
Deposits by banks
119,317 
128,733 
141,728 

134,291 
135,688 
Customer accounts
350,298 
359,539 
373,805 

360,224 
386,955 
Subordinated liabilities
35,922 
33,813 
37,311 

36,130 
33,827 
Interest bearing liabilities
665,290 
688,432 
696,762 

680,612 
663,598 
Non-interest bearing deposits
35,464 
36,790 
32,020 

36,264 
31,658 







Selected average yields (%):






Loans and advances to banks
1.38 
1.85 
5.69 

1.74 
4.66 
Loans and advances to customers
3.35 
4.07 
6.03 

3.77 
6.00 
Debt securities
2.98 
2.96 
6.04 

3.45 
5.53 
Interest earning assets
3.13 
3.72 
4.51 

3.58 
5.86 
Deposits by banks
1.92 
2.23 
4.19 

2.33 
4.41 
Customer accounts
1.10 
1.49 
3.19 

1.37 
3.50 
Subordinated liabilities
3.11 
3.60 
5.23 

3.73 
5.36 
Interest bearing deposits
1.52 
2.26 
4.13 

2.05 
4.08 







Non-interest bearing deposits as a percentage of interest earning assets
4.86 
4.78 
4.41 

4.77 
4.44 
 
Key points
 
·    
Net interest margin increased by 5 basis points in 3Q09 and declined by 30 basis points compared with 3Q08.
 
·    
GBM net interest margin declined due to lower money market income, partially offset by higher margins on GBM banking assets.
 
·    
UK Retail margin declined in the quarter as increased mortgage margins only partially offset reduced deposit margins and adverse asset mix impacts. UK Corporate margins benefited from improved pricing on new loans, while the US Retail & Commercial margin increased slightly due to improved asset margins.
 
·    
For the near-term, margins are expected to be broadly stable as increased funding and liquidity costs offset further asset margin improvements. 


 
Results summary
(continued)
 

Quarter ended

Nine months ended

30 September 
 2009 
30 June 
 2009 
30 September 
 2008 

30 September 
 2009 
30 September 
 2008 
Non-interest income
£m 
£m 
£m 

£m 
£m 







Net fees and commissions
1,374 
1,530 
1,781 

4,489 
4,959 







Income from trading activities
1,051 
384 
1,274 

3,095 
(2,067)







Other operating income
107 
(416)
285 

222 
1,737 







Non-interest income (excluding insurance premiums)*
2,532 
1,498 
3,340 

7,806 
4,629 
Insurance net premium income
1,301 
1,301 
1,409 

3,958 
4,270 







Total non-interest income
3,833 
2,799 
4,749 

11,764 
8,899 







* Includes fair value of own debt impact
(483)
(960)
1,281 

(412)
2,093 
 
 
Key points
 
3Q09 versus 2Q09
 
·     
Net fees and commissions fell £156 million primarily due to declines in GBM (£71 million) due to lower credit and equity market activity, UK Retail (£18 million) driven by payment protection insurance and US Retail & Commercial (£50 million) due to lower mortgage activity.
 
·     
Income from trading activities rose in 3Q09 principally due to lower credit market losses reflecting improved valuations of super senior CDOs coupled with lower losses on CDS hedges.
 
·     
Insurance net premium income was stable principally reflecting the continuation of the good performance in the Group's own brand sales.
 
·     
Other operating income improved by £523 million primarily due to the movement in fair value of own debt.


 
Results summary
(continued)
 

Quarter ended

Nine months ended

30 September 
 2009 
30 June 
 2009 
30 September 
 2008 

30 September 
 2009 
30 September 
 2008 
Operating expenses
£m 
£m 
£m 

£m 
£m 







Staff costs
2,175 
2,150 
2,146 

6,835 
6,704 
Premises and equipment
619 
587 
652 

1,850 
1,533 
Other
943 
915 
787 

2,904 
2,907 







Administrative expenses
3,737 
3,652 
3,585 

11,589 
11,144 
Depreciation and amortisation
458 
414 
475 

1,339 
1,309 







Operating expenses
4,195 
4,066 
4,060 

12,928 
12,453 







General insurance
1,054 
895 
930 

2,919 
2,793 
Bancassurance
91 
30 
4 

117 
68 







Insurance net claims
1,145 
925 
934 

3,036 
2,861 







Total staff expense as a percentage of total income
30.7%
35.1%
25.0%

31.2%
33.1%
 
Key points
 
3Q09 versus 2Q09
 
·     
Staff costs were up £25 million, largely reflecting an increase in resourcing of the Non-Core division balanced by small reductions elsewhere as restructuring programmes start to take effect.
 
·     
Premises and equipment costs rose by £32 million due to the cost of new completed buildings coming on stream.
 
·     
Other expenses rose £28 million principally as a result of a one-off recovery of legal fees in 2Q09.
 
·     
General insurance claims rose by £159 million primarily because of higher estimated costs of bodily injury claims within our motor lines of business.
 
·     
Bancassurance claims rose by £61 million due to increased returns on investments being passed on to customers.
 
 
 
 
 


 
Results summary
(continued)
 

Quarter ended

Nine months ended

30 September 
 2009 
30 June 
 2009 
30 September 
 2008 

30 September 
 2009 
30 September 
 2008 
Impairment losses
£m 
£m 
£m 

£m 
£m 







Impairment losses by division






UK Retail
404 
470 
287 

1,228 
727 
UK Corporate
187 
450 
55 

737 
150 
Wealth
1 
16 
3 

23 
8 
Global Banking & Markets
272 
(31)
2 

510 
20 
Global Transaction Services
22 
4 
7 

35 
14 
Ulster Bank
144 
90 
17 

301 
35 
US Retail & Commercial
180 
146 
134 

549 
260 
RBS Insurance
2 
1 
- 

8 
- 
Central items
1 
1 
7 

(1)
(30)







Core
1,213 
1,147 
512 

3,390 
1,184 
Non-Core
2,066 
3,516 
768 

7,410 
1,575 








3,279 
4,663 
1,280 

10,800 
2,759 







Analysis of impairment losses by asset category






Loans and advances
3,262 
4,520 
1,023 

10,058 
2,429 
Available-for-sale securities
17 
143 
257 

742 
330 








3,279 
4,663 
1,280 

10,800 
2,759 
 
Loan impairment charge as % of gross loans and advances excluding reverse repurchase agreements
2.14%
2.98% 
0.64%

2.21%
0.51%
 
Key points
 
3Q09 versus 2Q09
 
·     
Impairment losses were £3,279 million compared to £4,663 million.  Impairment losses in the Core divisions increased by £66 million sequentially, while Non-Core losses declined by £1,450 million.
 
·     
In the Core businesses, the biggest increase relates to a sizeable individual loss in GBM.  Increases were also seen in Ulster Bank and US Retail & Commercial reflecting the difficult economic environment. Partially offsetting these increases were declines in UK Retail and UK Corporate as credit trends currently appear to be stabilising around 1H09 levels.
 
·     
Non-Core losses were lower in the quarter with reduced charges in UK corporate and GBM portfolios, which included a number of large, single name impairments in the second quarter. Ulster Bank's Non-Core impairments have increased materially as its market has continued to deteriorate.
 
·     
Impairment losses overall appear to be stabilising compared with the first half of 2009, although they are expected to remain at elevated levels for the next few quarters as non-performing loans have continued to rise, and economic recovery looks to be gradual.


 
Results summary
(continued)
 

Quarter ended

Nine months ended

30 September 
 2009 
30 June 
 2009 
30 September 
 2008 

30 September 
 2009 
30 September 
 2008 
Credit and other market losses*
£m 
£m 
£m 

£m 
£m 







Monoline exposures
106 
7 
109 

1,653 
2,229 
CDPCs
276 
371 
162 

846 
241 
Super senior CDOs
(148)
151 
- 

389 
1,892 
US mortgages
- 
- 
172 

- 
1,310 
Leveraged finance
- 
- 
36 

- 
899 
CLO's
1 
- 
69 

1 
182 
Other credit exotics
46 
(15)
(130)

588 
231 
Equities
12 
13 
132 

34 
168 
Other
55 
51 
(78)

97 
(142)








348 
578 
472 

3,608 
7,010 
CDS Hedging
426 
816 
(367)

1,465 
(568)








774 
1,394 
105 

5,073 
6,442 
 
*  Included in 'Income from trading activities' on page 19.
 
Key points
 
3Q09 versus 2Q09
 
·     
Credit and other market write-downs were substantially lower in the third quarter, down from £1,394 million to £774 million with the widening in monoline spreads more than offset by reduced losses on CDS hedging and CDPCs.
 
Further analysis of these credit market losses and exposures is contained in the Risk and Capital Management section, pages 76 to 100.


 
Results summary
(continued)
 

Quarter ended

Nine months ended

30 September 
 2009 
30 June 
 2009 
30 September 
 2008 

30 September 
 2009 
30 September 
 2008 
Other non-operating items
£m 
£m 
£m 

£m 
£m 







Amortisation of purchased intangible assets
(73)
(55)
(119)

(213)
(381)
Integration and restructuring costs
(324)
(355)
(289)

(1,058)
(605)
Gain on redemption of own debt
- 
3,790 
- 

3,790 
- 
Strategic disposals
(155)
212 
- 

298 
- 








(552)
3,592 
(408)

2,817 
(986)
 
Key points
 
3Q09 versus 2Q09
 
·     
Integration and restructuring costs totalled £324 million in 3Q09 (2Q09 - £355 million) with reduced ABN AMRO integration activity offset by increased restructuring activity as strategic plans are implemented. We expect an increase in 4Q09 as our restructuring plans move to a higher degree of implementation.
 
·     
In 2Q09 the Group posted a gain of £3,790 million on a liability management exercise to redeem a number of Tier 1 and upper Tier 2 securities. In 3Q09 the Group recorded a loss of £155 million from Non-Core disposals, primarily relating to our Retail and Commercial Asian businesses.
 
 
 
 
 


 
Results summary
(continued)
 
 
 
Capital resources and ratios
30 September
2009
30 June
 2009
31 December 2008








Core Tier 1
£33.0bn
£35.2bn
£34.0bn




Tier 1
£47.6bn
£49.4bn
£57.1bn




Total capital
£62.1bn
£64.0bn
£82.2bn




RWAs
£594.7bn
£547.3bn
£577.8bn




Core Tier 1 ratio
5.5%
6.4%
5.9%




Tier 1 ratio
8.0%
9.0%
9.9%




Total capital ratio
10.4%
11.7%
14.2%




Pro forma Core Tier 1 ratio
11.1%
12.5%

 
Key points
 
·     
The RWA increase relative to 2Q09 of £47.4 billion is principally due to the effect of procyclicality of £33 billion (of which £22.2 billion is due to lower credit ratings for Monolines), increase in market risk, £6 billion, and the effect of exchange rate movements, £9.3 billion.
 
·     
The RWA increase relative to 4Q08 of £16.9 billion stems primarily from the effect of procyclicality of £69 billion (of which £22 billion is due to lower credit ratings for Monolines), increase in market risk £16 billion offset by reductions due to de-leveraging of £47 billion and the effect of exchange rate movements, £19 billion.
 
·     
Core Tier 1 capital fell by £2.2 billion principally reflecting the attributable loss of £1.8 billion and increased deductions due to higher expected losses and other regulatory adjustments of £0.4 billion.
 
·     
As a consequence of the above factors, Core Tier 1 capital ratio fell by 0.9% to 5.5%, and Tier 1 capital ratio by 1% to 8%. Pro-forma for B share issuance and APS cover, these ratios would be 11.1% and 14.5%, respectively.
 
·     
In 2010, ABN AMRO will move from an adjusted Basel I methodology to Basel II, which is expected to result in an increase in RWAs.


 
Results summary
(continued)
 
 
 
Balance sheet
30 September
2009
30 June
 2009
31 December 2008




Total assets
£1,680.3bn
£1,644.4bn
£2,218.7bn




Loans and advances to customers
£631.5bn
£640.8bn
£731.3bn




Customer accounts
£493.2bn
£490.3bn
£518.5bn




Loan:deposit ratio (gross of provisions)
142.3%
144.5%
152.4%




Loan:deposit ratio (net of provisions)
138.8%
142.9%
150.3%




Total wholesale funding
£437.9bn
£416.4bn
£492.1bn
 
Key points
 
·     
Total assets and funded assets are up 2% and 4% respectively, primarily due to currency movements. On a constant currency basis, total assets were broadly flat. Continuing Non-Core asset reductions of £12 billion, at constant currency, were offset by small growth elsewhere.
 
·     
The loan:deposit ratio (gross of provisions) has improved by 220 basis points to 142.3%, due to deposits, excluding repos, increasing by £9 billion and loans, excluding reverse repos, falling by £5 billion.
 
A further analysis of our funding and liquidity positions is contained on pages 83 to 86 of the document.


 
Divisional performance
 
The operating profit/(loss) of each division before amortisation of purchased intangible assets, write-down of goodwill and other intangible assets, integration and restructuring costs, gain on redemption of own debt and strategic disposals is shown below.

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 

£m 
£m 
£m 

£m 
£m 







Operating profit before impairment losses by division






UK Retail
468 
490 
420 

1,329 
1,361 
UK Corporate
566 
535 
523 

1,522 
1,613 
Wealth
120 
134 
103 

354 
287 
Global Banking & Markets
647 
1,116 
616 

5,608 
1,699 
Global Transaction Services
275 
269 
275 

784 
771 
Ulster Bank
59 
78 
98 

208 
288 
US Retail & Commercial
137 
136 
236 

455 
653 
RBS Insurance
13 
142 
150 

236 
450 
Central items
121 
(311)
813 

296 
1,482 







Core
2,406 
2,589 
3,234 

10,792 
8,604 
Non-Core
(652)
(1,459)
357 

(4,871)
(3,682)







Group operating profit before impairment losses
1,754 
1,130 
3,591 

5,921 
4,922 







Included in the above are movements in fair value of own debt of:






Global Banking & Markets
(320)
(482)
648 

(155)
1,232 
Central items
(163)
(478)
633 

(257)
861 








(483)
(960)
1,281 

(412)
2,093 







Impairment losses by division






UK Retail
404 
470 
287 

1,228 
727 
UK Corporate
187 
450 
55 

737 
150 
Wealth
1 
16 
3 

23 
8 
Global Banking & Markets
272 
(31)
2 

510 
20 
Global Transaction Services
22 
4 
7 

35 
14 
Ulster Bank
144 
90 
17 

301 
35 
US Retail & Commercial
180 
146 
134 

549 
260 
RBS Insurance
2 
1 
- 

8 
- 
Central items
1 
1 
7 

(1)
(30)







Core
1,213 
1,147 
512 

3,390 
1,184 
Non-Core
2,066 
3,516 
768 

7,410 
1,575 







Group impairment losses
3,279 
4,663 
1,280 

10,800 
2,759 
 
Key point
Operating profit in the divisions before impairment losses, adjusted for movement in fair value of own debt was £2,237 million in 3Q09. This compares with £2,090 million in 2Q09 (increase of 7% sequentially) and £2,310 million in 3Q08 (down 3% year on year).


 
Divisional performance
 
(continued)
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 

£m 
£m 
£m 

£m 
£m 














Operating profit/(loss) by division






UK Retail
64 
20 
133 

101 
634 
UK Corporate
379 
85 
468 

785 
1,463 
Wealth
119 
118 
100 

331 
279 
Global Banking & Markets
375 
1,147 
614 

5,098 
1,679 
Global Transaction Services
253 
265 
268 

749 
757 
Ulster Bank
(85)
(12)
81 

(93)
253 
US Retail & Commercial
(43)
(10)
102 

(94)
393 
RBS Insurance
11 
141 
150 

228 
450 
Central items
120 
(312)
806 

297 
1,512 







Core
1,193 
1,442 
2,722 

7,402 
7,420 
Non-Core
(2,718)
(4,975)
(411)

(12,281)
(5,257)







Group operating (loss)/profit
(1,525)
(3,533)
2,311 

(4,879)
2,163 
 
 
 

30 September 
2009 
30 June 
 2009
 
Change 

31 December 
 2008
 
Change 

£bn 
£bn 
% 

£bn 
% 







Risk-weighted assets by division






UK Retail
51.6 
54.0 
(4)

45.7 
13 
UK Corporate
91.0 
89.5 
2 

85.7 
6 
Wealth
10.7 
10.3 
4 

10.8 
(1)
Global Banking & Markets
131.9 
122.4 
8 

162.4 
(19)
Global Transaction Services
18.9 
16.7 
13 

17.4 
9 
Ulster Bank
28.5 
26.2 
9 

24.5 
16 
US Retail & Commercial
62.8 
55.6 
13 

63.9 
(2)
Other
9.0 
8.5 
6 

7.1 
27 







Core
404.4 
383.2 
6 

417.5 
(3)
Non-Core
190.3 
164.1 
16 

160.3 
19 







Total
594.7 
547.3 
9 

577.8 
3 
 


 
UK Retail
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 
Income statement
£m 
£m 
£m 

£m 
£m 







Net interest income
848 
868 
821 

2,513 
2,331 







Net fees and commissions - banking
303 
321 
365 

961 
1,179 
Other non-interest income (net of insurance claims)
69 
69 
34 

191 
173 







Non-interest income
372 
390 
399 

1,152 
1,352 







Total income
1,220 
1,258 
1,220 

3,665 
3,683 







Direct expenses






- staff
(206)
(214)
(243)

(634)
(688)
- other
(99)
(102)
(109)

(316)
(320)
Indirect expenses
(447)
(452)
(448)

(1,386)
(1,314)








(752)
(768)
(800)

(2,336)
(2,322)







Operating profit before impairment losses
468 
490 
420 

1,329 
1,361 
Impairment losses
(404)
(470)
(287)

(1,228)
(727)







Operating profit
64 
20 
133 

101 
634 














Analysis of income by product:






Personal advances
303 
311 
310 

919 
948 
Personal deposits
319 
354 
557 

1,070 
1,567 
Mortgages
319 
273 
93 

799 
314 
Bancassurance
69 
69 
34 

190 
166 
Cards
225 
212 
205 

641 
623 
Other
(15)
39 
21 

46 
65 







Total income
1,220 
1,258 
1,220 

3,665 
3,683 














Analysis of impairment by sector:






Mortgages
26 
41 
9 

89 
22 
Personal
247 
299 
144 

741 
399 
Cards
131 
130 
134 

398 
306 







Total impairment
404 
470 
287 

1,228 
727 







Loan impairment charge as % of gross customer loans and advances by sector






Mortgages
0.13%
0.21%
0.05%

0.15%
0.04%
Personal
6.81%
8.31%
3.76%

6.81%
3.48%
Cards
8.59%
8.52%
8.25%

8.70%
6.28%








1.60%
1.94%
1.23%

1.62%
1.04%
 


 
UK Retail
 
(continued)
 
Key metrics

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
 2008 

30 September 
2009 
30 September 
2008 







Performance ratios






Return on equity (1)
4.6%
1.4%
9.4%

2.4%
15.0%
Net interest margin
3.47%
3.69%
3.62%

3.54%
3.52%
Cost:income ratio
57.4%
59.6%
65.4%

61.8%
61.9%
 
 

30 September 
2009 
30 June 
 2009
 
Change 

31 December 
 2008
 
Change 

£bn 
£bn 
% 

£bn 
% 







Capital and balance sheet






Loans and advances to customers - gross






- mortgages
80.3 
76.6 
5 

72.2 
11 
- personal
14.5 
14.4 
1 

15.3 
(5)
- cards
6.1 
6.1 
- 

6.3 
(3)
Customer deposits (excluding bancassurance)
85.6 
83.4 
3 

78.9 
8 
Assets under management - excluding deposits
5.0 
4.7 
6 

5.7 
(12)
Risk elements in lending
4.7 
4.5 
4 

3.8 
24 
Loan:deposit ratio (excluding repos)
117.8%
116.4%
139bp

119.0%
(120bp)
Risk-weighted assets
51.6 
54.0 
(4)

45.7 
13 
 
Note:
(1)        Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 7% of divisional risk-weighted assets, adjusted for capital deductions).
 
Key points
 
 
·     
Operating profit of £64 million in 3Q09 was up from the previous quarter, with lower income more than offset by reduced costs and impairment charges.
 
·     
Our focus in 2009 has been to grow secured lending to meet our Government commitments and at the same time to build customer deposits, reducing the Group's reliance on wholesale funding.
o 
Mortgage balances were up 5% sequentially or 11% compared with end December 2008, with good retention of existing customers and new business sourced predominantly from the existing customer base. Gross mortgage market share increased to 12.0% from 10.5% in 2Q09, and the Group is on track to deliver its commitments to the Government on net lending. Unsecured lending is flat compared with 2Q09 as the Group continued to focus on lower risk secured lending.
o 
Deposit growth remained strong, with balances up 3% on 2Q09 or 8% compared with end 2008. Savings balances were up 8% on end 2008, outperforming the market despite an increasingly competitive environment, while personal current account balances were up 10% over the same period, with a 2% growth in accounts.


 
UK Retail
 
(continued)
 
Key points
(continued)
 
·     
Net interest margin declined by 22 basis points in 3Q09 but remains stable year to date.
o 
At the product level lending margins widened further in the quarter, although the growth in mortgages and the reduction in unsecured balances led to a drop in the blended total asset margin.
o 
Liability margins decreased, as competition on savings accounts increased and as the interest rate hedges established in a higher rate environment began to roll off.
 
·     
Fee income fell by 5% from the previous quarter, reflecting a provision taken on payment protection insurance and weak activity levels in cards. Year to date, fees are down 15%.  As a result of the change in the structure of overdraft administration charges, an annual reduction in fee income of approximately £270 million is anticipated, which will impact results from October 2009.
 
·     
Expenses decreased a further 2% over 2Q09, and are now showing a 6% reduction against 3Q08. As the benefits of process re-engineering and technology investment start to flow through, headcount has been reduced by over 3%, with a cumulative reduction of 9% on prior year.  Year to date costs are up less than 1%, despite higher deposit insurance levies.
 
·     
RBS continues to progress towards a more convenient, lower cost operating model, with over 4 million active users of online banking and a record share of new sales achieved through direct channels. More than 2.4 million accounts have switched to paperless statements and over 218 branches now utilise automated cash deposit machines.
 
·     
Impairment losses were 14% lower than in 2Q09, which had recorded a sharp rise in provisions to reflect the reduction in expected cash recoveries.   We anticipate that the level of impairment charge will resume its upward trajectory, peaking in the middle of 2010.
o 
Mortgage impairments were £26 million on a total book of £80.3 billion. Arrears rates show little increase and remain well below the industry average, as reported by the Council of Mortgage Lenders. Repossessions have shown only a small increase in 3Q09 as we continue to support customers facing financial difficulty.
o 
Unsecured impairment charges amounted to £378 million in the quarter, on a book of £20.6 billion. Industry benchmarks for cards arrears indicate a flattening trend, with RBS continuing to perform better than the market.
 
·   
Risk-weighted assets declined by £2.4 billion in the quarter as the impacts of volume growth were offset by a reduction in through-the-cycle loss given default for
mortgages. RWAs grew by 13% compared with 31 December 2008.
 


 
UK Corporate
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 
 
 
30 September 
2009 
30 September 
2008 
Income statement
£m 
£m 
£m 

£m 
£m 







Net interest income
607 
560 
618 

1,666 
1,860 







Net fees and commissions
223 
219 
222 

636 
614 
Other non-interest income
106 
109 
114 

332 
353 







Non-interest income
329 
328 
336 

968 
967 







Total income
936 
888 
954 

2,634 
2,827 







Direct expenses






- staff
(174)
(182)
(206)

(541)
(591)
- other
(71)
(46)
(96)

(191)
(245)
Indirect expenses
(125)
(125)
(129)

(380)
(378)








(370)
(353)
(431)

(1,112)
(1,214)







Operating profit before impairment losses
566 
535 
523 

1,522 
1,613 
Impairment losses
(187)
(450)
(55)

(737)
(150)







Operating profit
379 
85 
468 

785 
1,463 














Analysis of income by business:






Corporate and commercial lending
616 
586 
542 

1,740 
1,637 
Asset and invoice finance
59 
57 
60 

164 
188 
Corporate deposits
241 
263 
342 

794 
928 
Other
20 
(18)
10 

(64)
74 







Total income
936 
888 
954 

2,634 
2,827 














Analysis of impairment by sector:






Manufacturing
7 
17 
5 

28 
15 
Housebuilding and construction
58 
55 
6 

119 
11 
Property
69 
149 
11 

229 
18 
Asset and invoice finance
4 
47 
24 

72 
61 
Other
49 
182 
9 

289 
45 







Total impairment
187 
450 
55 

737 
150 







Loan impairment charge as % of gross customer loans and advances (excluding reverse repurchase agreements) by sector:






Manufacturing
0.56%
1.36%
0.41%

0.75%
0.41%
Housebuilding and construction
4.64%
4.40%
0.41%

3.17%
0.25%
Property
0.92%
1.81%
0.15%

1.02%
0.08%
Asset and invoice finance
0.18%
2.09%
1.13%

1.07%
0.96%
Other
0.30%
1.20%
0.06%

0.59%
0.09%








0.66%
1.60%
0.19%

0.86%
0.18%
 
 
 


 
UK Corporate
(continued)
 
Key metrics

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
 2008 







Performance ratios






Return on equity (1)
13.7%
3.2%
18.6%

9.5%
19.4%
Net interest margin
2.38%
2.17%
2.40%

2.14%
2.47%
Cost:income ratio
39.5%
39.8%
45.2%

42.2%
42.9%
 

30 September 
2009 
30 June 
 2009
 
Change 

31 December 
 2008
 
Change 

£bn 
£bn 
% 

£bn 
% 







Capital and balance sheet






Total assets
117.3 
116.2 
1 

121.0 
(3)
Loans and advances to customers - gross






- Manufacturing
5.0 
5.0 
- 

5.4 
(7)
- Housebuilding and construction
5.0 
5.0 
- 

5.9 
(15)
- Property
30.0 
33.0 
(9)

30.5 
(2)
- Asset and invoice finance
9.0 
9.0 
- 

8.5 
6 
- Other
64.9 
60.6 
7 

66.6 
(3)
Customer deposits
86.7 
85.6 
1 

82.0 
6 
Risk elements in lending
2.5 
2.4 
4 

1.3 
92 
Loan:deposit ratio
131.4%
131.6%
(16bp)

142.7%
(1,130bp)
Risk-weighted assets
91.0 
89.5 
2 

85.7 
6 
 
Note:
(1)        Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 8% of divisional risk-weighted assets, adjusted for capital deductions).
 
Key points
 
·     
Net interest margin increased by 21 basis points from the second quarter of 2009, as lending rates have been repriced upwards to reflect the Group's increased cost of funding. NIM year to date remains 33 basis points lower than in the prior year, reflecting this increase in funding costs and the highly competitive market for deposits.
 
·     
Loans and advances to customers have increased by £1.3 billion from 2Q09, but demand for credit remains subdued and repayments have accelerated, leaving balances down 3% from year-end 2008.
 
·     
Deposits have grown steadily over the course of 2009 and increased by £1.1 billion during 3Q09 reflecting a range of initiatives undertaken to defend and grow the deposit base.
 
·     
Non-interest income has remained resilient despite a slightly lower level of cross-sales of GBM products in the quarter, benefiting from early repayment fees as customers seek to deleverage.


 
UK Corporate
(continued)
 
Key points
(continued)
 
·     
Costs reduced slightly in 3Q09, excluding the benefit of a £19 million legal fee recovery in the prior quarter. Year to date costs are down 8%, as initiatives within the Group-wide cost reduction programme continue to deliver savings on headcount and non-staff costs.
                          
·     
Impairments were reduced from 2Q09, which included a substantial increase in provisions to reflect deteriorating economic conditions. Year to date impairments remain substantially higher than in the same period of 2008, with the charge biased towards the house building, property and construction sectors.
 
·     
Risk-weighted assets increased by 2% compared with 2Q09, partly reflecting additional lending volumes, but also resulting from the effect of deteriorating economic conditions on risk weightings.


 
Wealth
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 
 
 
30 September 
2009 
30 September 
2008 
Income statement
£m 
£m 
£m 

£m 
£m 







Net interest income
168 
176 
153 

502 
418 







Net fees and commissions
92 
90 
98 

272 
309 
Other non-interest income
19 
21 
19 

61 
57 







Non-interest income
111 
111 
117 

333 
366 







Total income
279 
287 
270 

835 
784 







Direct expenses






- staff
(82)
(78)
(94)

(250)
(280)
- other
(35)
(34)
(34)

(102)
(105)
Indirect expenses
(42)
(41)
(39)

(129)
(112)








(159)
(153)
(167)

(481)
(497)







Operating profit before impairment losses
120 
134 
103 

354 
287 
Impairment losses
(1)
(16)
(3)

(23)
(8)







Operating profit
119 
118 
100 

331 
279 














Analysis of income:






Private Banking
232 
242 
211 

693 
598 
Investments
47 
45 
59 

142 
186 







Total income
279 
287 
270 

835 
784 


 
Wealth
(continued)
 
Key metrics

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 







Performance ratios






Net interest margin
4.34%
4.82%
4.68%

4.54%
4.50%
Cost:income ratio
57.0%
53.3%
61.9%

57.6%
63.4%
 
 

30 September 
2009 
30 June 
 2009
 
Change 

31 December 
 2008
 
Change 

£bn 
£bn 
% 

£bn 
% 







Capital and balance sheet






Loans and advances to customers - gross






- mortgages
6.1 
5.6 
9 

5.3 
15 
- personal
4.8 
4.7 
2 

5.0 
(4)
- other
2.5 
2.1 
19 

2.1 
19 
Customer deposits
36.3 
35.3 
3 

34.1 
6 
Assets under management - excluding deposits
31.7 
29.8 
6 

34.7 
(9)
Risk elements in lending
0.2 
0.2 
- 

0.1 
100 
Loan:deposit ratio
36.9%
35.2%
172bp

36.3%
60bp
Risk-weighted assets
10.7 
10.3 
4 

10.8 
(1)
 
 
Key points
 
 
·     
Deposits showed modest growth from 2Q09, mainly in the UK, and balances have now returned to the same level as at the end of 3Q08. Continued pressure on deposit margins, including a reduction in internal pricing applied to the Wealth deposit base, resulted in a decline in net interest income.  
·     
Assets under management rose 6% compared with 2Q09 reflecting improved market conditions, but
continuing lack of investor appetite to commit to longer term investments and a preference for lower return and more liquid assets
has left AUM 9% lower than at the end of 2008, with a resulting impact on fee income.
·     
Loans and advances increased by 8% compared with the prior quarter, and by 8% against 31 December 2008, with lending margins continuing to improve. Loan growth has come primarily in the UK, where Wealth remains on track to achieve its share of the Group's UK lending commitments.
·     
Expenses in 3Q09 were marginally higher than in 2Q09, which had benefited from changes to remuneration policy, including bonus deferral. 3Q09 expenses were slightly below the prior year quarter, benefiting from a 9% reduction in headcount versus a year ago.


 
Global Banking & Markets
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 
 
 
30 September 
2009 
30 September 
2008 
Income statement
£m 
£m 
£m 

£m 
£m 







Net interest income from banking activities
447 
660 
535 

1,919 
1,386 







Net fees and commissions receivable
338 
409 
405 

1,038 
1,030 
Income from trading activities
1,184 
1,338 
760 

6,851 
2,942 
Other operating income (net of related funding  costs)
(110)
(97)
(22)

(300)
(83)







Non-interest income
1,412 
1,650 
1,143 

7,589 
3,889 







Total income
1,859 
2,310 
1,678 

9,508 
5,275 







Direct expenses






-  staff
(760)
(762)
(618)

(2,523)
(2,204)
-  other
(261)
(231)
(284)

(792)
(911)
Indirect expenses
(191)
(201)
(160)

(585)
(461)








(1,212)
(1,194)
(1,062)

(3,900)
(3,576)







Operating profit before impairment losses
647 
1,116 
616 

5,608 
1,699 
Impairment losses
(272)
31 
(2)

(510)
(20)







Operating profit
375 
1,147 
614 

5,098 
1,679 














Analysis of income by product:






Rates - money markets
287 
466 
384 

1,606 
893 
Rates - flow
694 
536 
- 

2,527 
1,370 
Currencies
141 
384 
417 

1,083 
1,091 
Commodities
120 
239 
47 

587 
396 
Equities
282 
364 
21 

1,017 
582 
Credit markets
475 
690 
(105)

2,023 
(1,094)
Portfolio management and origination
180 
113 
266 

820 
805 
Fair value of own debt
(320)
(482)
648 

(155)
1,232 







Total income
1,859 
2,310 
1,678 

9,508 
5,275 














Analysis of impairment by sector:






Manufacturing and infrastructure
33 
23 
- 

72 
- 
Property and construction
- 
4 
- 

50 
12 
Transport
2 
1 
- 

3 
- 
Banks and financial institutions
237 
39 
- 

280 
(8)
Other
- 
(98)
2 

105 
16 







Total impairment
272 
(31)
2 

510 
20 














Loan impairment charge as % of gross customer loans and advances
(excluding reverse repurchase agreements)
0.60%
(0.11%)
- 

0.48%
0.02%
 


 
Global Banking & Markets
(continued)
 
 
Key metrics

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 







Performance ratios






Return on equity (1)
7.7%
25.1%
10.5%

35.0%
9.6%
Net interest margin
1.08%
1.48%
1.24%

1.52%
1.07%
Cost:income ratio
65.2%
51.7%
63.3%

41.0%
67.8%
 
 

30 September 
2009 
30 June 
 2009
 
Change 

31 December 
 2008
 
Change 

£bn 
£bn 
% 

£bn 
% 







Capital and balance sheet






Loans and advances (including banks)
157.0 
156.0 
1 

225.5 
(30)
Reverse repos
75.4 
75.2 
- 

88.8 
(15)
Securities
117.6 
115.5 
2 

127.5 
(8)
Cash and eligible bills
63.8 
51.5 
24 

20.2 
216 
Other
50.8 
46.2 
10 

42.9 
18 







Total third party assets (excluding derivatives mark to market)
464.6 
444.4 
5 

504.9 
(8)
Net derivative assets (after netting)
81.5 
70.7 
15 

113.0 
(28)
Customer deposits (excluding repos)
58.1 
65.0 
(11)

88.6 
(34)
Risk elements in lending
1.6 
1.1 
49 

0.7 
112 
Loan:deposit ratio
192.4%
182.7%
962bp

192.0%
40bp
Risk-weighted assets
131.9 
122.4 
8 

162.4 
(19)
 
Note:
(1)        Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 10% of divisional risk-weighted assets, adjusted for capital deductions).
 
Key points
 
 
·     
Income fell 20% from the strong second quarter, but year to date income is up 80% relative to the same period of 2008. Rates flow business remained very strong, benefiting from good client activity, with income up 29% versus 2Q09 and 84% year to date. Currencies income declined, with no repeat of the favourable market conditions of the first half. Commodities and equities were down on 2Q09 but remain well ahead of the previous year, with core equities growth driven by a strong equity capital markets performance.
 
·     
Credit markets income was down 31% versus the second quarter but remains strongly improved from the comparable period of 2008, with performance benefiting from greater liquidity and a more positive trading environment driving increased activity, particularly in the US liquid mortgage trading business.
 
·     
Expenses remain tightly controlled, with total expenses for the quarter up 2% on 2Q09 and staff costs flat. Year to date expenses are up 9% on prior year, reflecting the inclusion of Sempra for the full nine months in 2009 and the impact of adverse exchange rate movements, partly offset by restructuring and efficiency benefits.   


 
Global Banking & Markets
(continued)
 
 
Key points
 
(continued)
 
·     
Impairments of £272 million for the quarter included a large individual failure. Year to date impairments were £510 million, representing 0.48% of loans and advances to customers compared with 0.02% in the prior year.
 
·     
Losses of £320 million were incurred in the third quarter on the fair value of own debt, as the Group's credit spreads tightened further. In 3Q08 widening spreads led to a gain being booked.
 
·     
Total third party assets excluding derivatives (TPAs) were up 1% at constant exchange rates from 2Q09, with most of the growth in cash and liquid bills. Compared with 31 December 2008 TPAs have been reduced by 8%, as asset inventories have been run down. Risk-weighted assets increased by 8% during the quarter, or 5% at constant exchange rates, reflecting the roll-off of relief trades. RWAs at 30 September 2009 are 19% down from 31 December 2008, or 16% at constant exchange rates, reflecting the Group's focus on reducing its risk profile and balance sheet usage.
 
 


 
Global Transaction Services
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
 2008 
 
 
30 September 
2009 
30 September 
2008 
Income statement
£m 
£m 
£m 

£m 
£m 







Net interest income
234 
225 
244 

679 
688 
Non-interest income
388 
398 
375 

1,171 
1,087 







Total income
622 
623 
619 

1,850 
1,775 







Direct expenses






- staff
(87)
(87)
(91)

(269)
(269)
- other
(37)
(38)
(38)

(110)
(107)
Indirect expenses
(223)
(229)
(215)

(687)
(628)








(347)
(354)
(344)

(1,066)
(1,004)







Operating profit before impairment losses
275 
269 
275 

784 
771
Impairment losses
(22)
(4)
(7)

(35)
(14)







Operating profit
253 
265 
268 

749 
757 














Analysis of income by product:






Domestic cash management
202 
204 
203 

608 
585 
International cash management
183 
179 
179 

531 
522 
Trade finance
71 
77 
60 

223 
171 
Merchant acquiring
134 
131 
147 

394 
409 
Commercial cards
32 
32 
30 

94 
88 







Total income
622 
623 
619 

1,850 
1,775 


 
Global Transaction Services
(continued)
 
Key metrics

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 







Performance ratios






Net interest margin
9.63%
9.23%
8.54%

9.03%
8.35%
Cost:income ratio
55.8%
56.8%
55.6%

57.6%
56.6%
 

30 September 
2009 
30 June 
 2009
 
Change 

31 December 
 2008
 
Change 

£bn 
£bn 
% 

£bn 
% 







Capital and balance sheet






Total third party assets
21.4 
19.4 
10 

22.2 
(4)
Loans and advances
14.5 
13.5 
7 

14.8 
(2)
Customer deposits
58.6 
54.0 
9 

61.8 
(5)
Risk elements in lending
0.2 
0.1 
- 

0.1 
- 
Loan:deposit ratio
25.6%
25.9%
(29bp)

25.1%
50bp
Risk-weighted assets
18.9 
16.7 
13 

17.4 
9 
 
Key points
 
·     
Operating profit was resilient overall, declining by 5% or 2% at constant foreign exchange rates compared with 2Q09, as a result of modest impairments, offset by slightly improved income and costs. 
 
·     
Income increased 2% in the quarter at constant foreign exchange rates.  Liability margins remained compressed in the low interest rate environment and there was a reduction in trade finance volumes and pricing.
 
·     
Cash Management performance for the nine months to 30 September 2009 was robust, with deposits up 9% during the quarter supported by additional mandates from new and existing clients, offset by liability margin compression, although balances remained below year-end 2008 levels.
 
·     
Global Merchant Services saw improving transaction volumes and turnover, offset by reduced margins resulting in part from the continued customer migration from credit to debit cards.
 
·     
There was a reduction in Trade Finance volumes in 3Q09 and some softening of previous repricing to account for risk; however, income was up 11% year to date at constant foreign exchange rates.
 
·     
Expenses were tightly controlled and down 1% on 2Q09 at constant foreign exchange rates, with modest movements in transaction-related and indirect costs, and were flat year to date. 
 
·     
Modest impairment losses arose as a result of a small number of defaults in Trade Finance and Cash Management.  Overall impairments year to date remain small, at 0.3% of loans and advances.
 
 
 
 
 


 
Ulster Bank

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 
 
 
30 September 
2009 
30 September 
2008 
Income statement
£m 
£m 
£m 

£m 
£m 







Net interest income
176 
208 
207 

586 
599 







Net fees and commissions
45 
39 
69 

130 
178 
Other non-interest income
10 
12 
- 

33 
34 







Non-interest income
55 
51 
69 

163 
212 







Total income
231 
259 
276 

749 
811 







Direct expenses






- staff
(79)
(81)
(84)

(249)
(243)
- other
(20)
(25)
(23)

(67)
(69)
Indirect expenses
(73)
(75)
(71)

(225)
(211)








(172)
(181)
(178)

(541)
(523)







Operating profit before impairment losses
59 
78 
98 

208 
288 
Impairment losses
(144)
(90)
(17)

(301)
(35)







Operating (loss)/profit
(85)
(12)
81 

(93)
253 














Analysis of income by business:






Corporate
134 
138 
160 

434 
479 
Retail
104 
101 
107 

298 
304 
Other
(7)
20 
9 

17 
28 







Total income
231 
259 
276 

749 
811 














Analysis of impairment by sector:






Mortgages
30 
10 
5 

54 
13 
Corporate
87 
66 
3 

193 
1 
Other
27 
14 
9 

54 
21 







Total impairment
144 
90 
17 

301 
35 














Loan impairment charge as % of gross customer loans and advances (excluding reverse repurchase agreements) by sector:






Mortgages
0.72%
0.25%
0.13%

0.43%
0.11%
Corporate
1.59%
1.23%
0.06%

1.18%
0.01%
Other
5.40%
3.50%
1.61%

3.60%
1.27%








1.42%
0.92%
0.18%

0.99%
0.13%
 


 
Ulster Bank
 
(continued)
 
 
Key metrics

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 







Performance ratios






Return on equity (1)
(12.7%)
(2.0%)
17.3%

(4.6%)
18.0%
Net interest margin
1.74%
2.03%
2.04%

1.88%
1.96%
Cost:income ratio
74.5%
69.9%
64.5%

72.2%
64.5%
 

30 September 
2009 
30 June 
 2009 
Change 

31 December 
 2008 
Change 

£bn 
£bn 
% 

£bn 
% 







Capital and balance sheet






Loans and advances to customers - gross






- mortgages
16.7 
16.0 
4 

18.1 
(8)
- corporate
21.9 
21.2 
3 

23.8 
(8)
- other
2.0 
1.8 
11 

2.1 
(5)
Customer deposits
20.9 
18.9 
11 

24.3 
(14)
Risk elements in lending






- mortgages
0.5 
0.4 
25 

0.3 
67 
- corporate
1.3 
1.1 
18 

0.8 
63 
- other
0.2 
0.1 
100 

0.1 
100 
Loan:deposit ratio
194.0%
206.3%
(1,237bp)

181.1%
1,291bp
Risk-weighted assets
28.5 
26.2 
9 

24.5 
16 
 
Note:
(1)        Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 7% of divisional risk-weighted assets, adjusted for capital deductions).
 
Key points
 
 
·     
Deteriorating operating results largely reflect increased impairment losses and funding costs, against the backdrop of difficult economic conditions across the island of Ireland.
 
·     
Net interest margin was 29 basis points lower in the quarter and 8 basis points lower year to date. The benefits of asset repricing initiatives have been offset by the increased  cost of acquiring and retaining customer deposits. Year to date, net interest income declined by 12% in constant currency terms.
 
·     
At constant exchange rates, loans to customers declined by 2% compared with 2Q09 and by 4% compared with December 2008, reflecting a reduction in new business  demand, partially offset by lower redemption levels. Customer deposits rose by 5% in the quarter on a constant currency basis, reflecting the continued focus on improving the  Bank's funding profile, with balances 11% lower than December 2008, on the same basis, due to strong competition from institutions covered by the Irish Government guarantee  scheme.
 
·     
Year to date, non-interest income has fallen by 28% from the prior year at constant currency rates, driven by reduced activity levels across all business lines, most notably in  Bancassurance and Capital Markets.
 
Ulster Bank
 
(continued)
 
 
Key points
 
(continued)
 
·    
Ulster Bank continues to implement its restructuring programme, resulting in a 4% decrease in costs in constant currency terms compared with 2Q09, and this trend is expected to continue into 2010. The programme will encompass the merger of the First Active and Ulster Bank businesses and other cost management initiatives across the group.  Total costs year to date are down 2% versus prior year on a constant currency basis.
 
·    
Impairment charges increased to £144 million for the quarter, driven by the continued deterioration in the Irish economic environment and resultant impact on credit risk metrics, particularly in property-related lending. Year to date impairment charges of £301 million are significantly higher than the prior year.
 
·    
Customer account numbers increased by 3% compared with 3Q08, with growth fuelled by strong current account activity and new-to-bank savings customers.
 
 


 
US Retail & Commercial (£ Sterling)
 

Quarter ended

Nine months ended

30 September 
 2009 
30 June 
 2009
 
30 September 
2008 
 
 
30 September 
2009 
30 September 
2008 
Income statement
£m 
£m 
£m 

£m 
£m 







Net interest income
410 
448 
440 

1,352 
1,214 







Net fees and commissions
159 
209 
171 

566 
481 
Other non-interest income
65 
45 
29 

162 
113 







Non-interest income
224 
254 
200 

728 
594 







Total income
634 
702 
640 

2,080 
1,808 







Direct expenses






- staff
(174)
(184)
(159)

(576)
(470)
- other
(132)
(188)
(92)

(463)
(234)
Indirect expenses
(191)
(194)
(153)

(586)
(451)








(497)
(566)
(404)

(1,625)
(1,155)







Operating profit before impairment losses
137 
136 
236 

455 
653 
Impairment losses 
(180)
(146)
(134)

(549)
(260)







Operating (loss)/profit
(43)
(10)
102 

(94)
393 














Analysis of income by product:






Mortgages and home equity
112 
130 
88 

384 
263 
Personal lending and cards
116 
113 
86 

336 
243 
Retail deposits
200 
202 
256 

633 
721 
Commercial lending
127 
140 
98 

408 
277 
Commercial deposits
97 
89 
97 

290 
266 
Other
(18)
28 
15 

29 
38 







Total income
634 
702 
640 

2,080 
1,808 














Average exchange rate -   US$/£
1.640 
1.551 
1.892 

1.543 
1.948 


 
US Retail & Commercial (£ Sterling)
(continued)
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 

£m 
£m 
£m 

£m 
£m 
Analysis of impairment by sector:






Residential mortgages
29 
12 
16 

64 
28 
Home equity
82 
43 
20 

154 
45 
Corporate & Commercial
65 
61 
54 

234 
94 
Other consumer
4 
30 
44 

97 
93 







Total impairment
180 
146 
134 

549 
260 







Loan impairment charge as % of gross customer loans and advances (excluding reverse repurchase agreements) by sector:






Residential mortgages
1.68%
0.66%
0.74%

1.24%
0.43%
Home equity
2.05%
1.08%
0.53%

1.28%
0.40%
Corporate & Commercial
1.27%
1.19%
1.11%

1.53%
0.65%
Other consumer
0.20%
1.45%
2.17%

1.64%
1.53%








1.41%
1.12%
1.04%

1.43%
0.68%
 


 
US Retail & Commercial (£ Sterling)
(continued)
 
Key metrics

Quarter ended

Nine months ended

30 September 
 2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 
Performance ratios






Return on equity (1)
(2.5%)
(0.7%)
7.4%

(1.9%)
9.5%
Net interest margin
2.34% 
2.30% 
2.79%

2.32% 
2.67%
Cost:income ratio
78.4% 
80.6% 
63.1%

78.1% 
63.8%
 
 

30 September 
2009 
30 June 
 2009 
Change 

31 December 
 2008 
Change 

£bn 
£bn 
% 

£bn 
% 







Capital and balance sheet






Total assets
76.9 
75.6 
2 

87.5 
(12)
Loans and advances to customers (gross): 






- Residential mortgages
6.9 
7.3 
(5)

9.5 
(27)
- home equity
16.0 
15.9 
1 

18.7 
(14)
- corporate and commercial
20.5 
20.5 
- 

23.7 
(14)
- other consumer
7.8 
8.3 
(6)

9.8 
(20)
Customer deposits
62.1 
60.2 
3 

64.4 
(4)
Risk elements in lending






- retail
0.3 
0.3 
- 

0.2 
50 
- commercial
0.2 
0.1 
- 

0.2 
- 
Loan:deposit ratio
82.6%
86.7%
(410bp)

96.6%
(1,400bp)
Risk-weighted assets
62.8 
55.6 
13 

63.9 
(2)







Spot exchange rate - US$/£
1.599 
1.644 


1.460 

 
Note:
(1)        Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 7% of divisional risk-weighted assets, adjusted for capital deductions).
 
Key points
 
 
·    
Sterling has weakened over the course of the quarter, and the average exchange rate in 3Q09 reflects a 6% appreciation of the dollar. As a result, weak income and profit trends have been exacerbated in sterling terms.
 
·    
Variances are fully described in the US dollar based financials that follow.


 
US Retail & Commercial (US Dollar)
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 
Income statement
$m 
$m 
$m 

$m 
$m 







Net interest income
680 
696 
834 

2,087 
2,363 







Net fees and commissions
266 
324 
325 

874 
937 
Other non-interest income
104 
69 
52 

248 
220 







Non-interest income
370 
393 
377 

1,122 
1,157 







Total income
1,050 
1,089 
1,211 

3,209 
3,520 







Direct expenses






- staff
(289)
(287)
(302)

(889)
(916)
- other
(219)
(289)
(172)

(714)
(453)
Indirect expenses
(313)
(301)
(292)

(902)
(880)








(821)
(877)
(766)

(2,505)
(2,249)







Operating profit before impairment losses
229 
212 
445 

704 
1,271 
Impairment losses 
(296)
(231)
(258)

(847)
(507)







Operating (loss)/profit
(67)
(19)
187 

(143)
764 














Analysis of income by product:






Mortgages and home equity
186 
203 
166 

593 
512 
Personal lending and cards
190 
174 
164 

518 
474 
Retail deposits
329 
315 
483 

976 
1,402 
Commercial lending
210 
217 
186 

629 
540 
Commercial deposits
160 
138 
185 

448 
519 
Other
(25)
42 
27 

45 
73 







Total income
1,050 
1,089 
1,211 

3,209 
3,520 


 
US Retail & Commercial (US Dollar)
(continued)
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
 2009 
30 September 
 2008 

$m 
$m 
$m 

$m 
$m 
Analysis of impairment by sector:






Residential mortgages
47 
19 
30 

99 
54 
Home equity
131 
65 
37 

238 
87 
Corporate & Commercial
107 
99 
106 

360 
184 
Other consumer
11 
48 
85 

150 
182 







Total impairment
296 
231 
258 

847 
507 







Loan impairment charge as % of gross customer loans and advances (excluding reverse repurchase agreements) by sector:






Residential mortgages
1.69%
0.63%
0.77%

1.19%
0.46%
Home equity
2.05%
1.00%
0.55%

1.24%
0.43%
Corporate & Commercial
1.31%
1.18%
1.23%

1.47%
0.71%
Other consumer
0.34%
1.41%
2.36%

1.60%
1.69%








1.45%
1.08%
1.13%

1.38%
0.74%
 


 
US Retail & Commercial (US Dollar)
(continued)
 
Key metrics

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 
Performance ratios






Return on equity (1)
(2.5%)
(0.8%)
7.6%

(1.8%)
10.3%
Net interest margin
2.37%
2.32%
2.80%

2.34%
2.68%
Cost:income ratio
78.2%
80.5%
63.2%

78.1%
63.9%
 
 

30 September 
2009 
30 June 
 2009 
Change 

31 December 
 2008 
Change 

$bn 
$bn 
% 

$bn 
% 







Capital and balance sheet






Total assets
122.9 
124.4 
(1)

127.8 
(4)
Loans and advances to customers (gross): 






- Residential mortgages
11.0 
12.0 
(8)

13.9 
(21)
- home equity
25.6 
26.1 
(2)

27.2 
(6)
- corporate and commercial
32.7 
33.6 
(3)

34.7 
(6)
- other consumer
12.5 
13.7 
(9)

14.3 
(13)
Customer deposits
99.3 
99.0 
- 

94.0 
6 
Risk elements in lending






- retail
0.5 
0.4 
25 

0.3 
67 
- commercial
0.3 
0.3 
- 

0.2 
50 
Loan:deposit ratio
82.6%
86.7%
(410bp)

96.6%
(1,400bp)
Risk-weighted assets
100.4 
91.3 
10 

93.2 
8 
 
Note:
(1)        Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 7% of divisional risk-weighted assets, adjusted for capital deductions).
 
Key points
 
 
·     
Deteriorating operating loss in the quarter reflects continuing pressure on income lines and further rises in impairments, partially offset by reduced expenses.
 
·    
Net interest margin improved by 5 basis points compared with 2Q09, with wider lending margins as a result of strategic repricing, particularly on auto and home equity loans, as well as changes to deposit pricing and mix. However, net interest margin for the year to date is 34 basis points lower than in the same period of 2008, reflecting the decline in deposit margins in the low interest rate environment.
 
·    
Fee income has fallen as mortgage banking fee income dropped 30%, compared with 2Q09, reflecting a decline in refinancing applications from the record levels seen in the prior period.
 
·    
Consumer loans and advances were 4% lower compared with 2Q09, primarily driven by a decision to reduce activity in the student loan market. Compared with 3Q08, consumer lending is down 14%, with increased prepayments and sales of residential mortgages and reduced demand for auto loans. Commercial lending is down 3% compared with 2Q09 and 6% against 3Q08, reflecting a lack of credit demand.
 
 
US Retail & Commercial (US Dollar)
(continued)
 
Key points
(continued)
 
·    
Customer deposits have been maintained in the third quarter. Compared with 3Q08 overall deposit balances are flat, but the mix has altered, with non-interest bearing deposits up 14% and wholesale deposits reduced by $7 billion, or 90%.  The loan to deposit ratio has improved further to 82.6%.
 
·    
Increased impairments reflect challenging conditions in the home equity, residential mortgage and commercial real estate portfolios. Charge-offs remain in line with 2Q09, representing 0.75% of loans and advances, but were 22 basis points higher than in 3Q08. The provision balance increased by $134 million in 3Q09.


 
RBS Insurance
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 
 
 
30 September 
2009 
30 September 
2008 
Income statement
£m 
£m 
£m 

£m 
£m 







Earned premiums
1,145 
1,119 
1,128 

3,370 
3,391 
Reinsurers' share
(43)
(40)
(51)

(128)
(158)







Insurance net premium income
1,102 
1,079 
1,077 

3,242 
3,233 
Net fees and commissions
(95)
(95)
(102)

(282)
(303)
Other income
112 
104 
107 

324 
374 







Total income
1,119 
1,088 
1,082 

3,284 
3,304 







Direct expenses






- staff
(67)
(69)
(64)

(206)
(209)
- other
(47)
(54)
(44)

(168)
(171)
Indirect expenses
(64)
(65)
(65)

(195)
(189)








(178)
(188)
(173)

(569)
(569)







Gross claims
(941)
(776)
(777)

(2,515)
(2,348)
Reinsurers' share
13 
18 
18 

36 
63 







Net claims
(928)
(758)
(759)

(2,479)
(2,285)







Operating profit before impairment losses
13 
142 
150 

236 
450 
Impairment losses
(2)
(1)
- 

(8)
- 







Operating profit
11 
141 
150 

228 
450 







Analysis of income by product:






Motor own-brand
517
495 
492

1,489
1,451
Household and Life own-brands
214
210 
200

628
600
Motor partnerships and broker
141
145 
167

431
520
Household and Life, partnerships and broker
78
81 
88

242
269
Other (international, commercial and central)
169
157 
135

494
464







Total income
1,119 
1,088 
1,082  

3,284  
3,304  
 


 
RBS Insurance
(continued)
 
Key metrics

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 







In-force policies (thousands)






- Motor own-brand
4,894
4,789 
4,434

4,894
4,434
- Own-brand non-motor (home, rescue, pet, HR24)
6,150
5,890 
5,468

6,150
5,468
- Partnerships & broker (motor, home, rescue, pet, HR24)
5,371
5,609 
6,052

5,371
6,052
- Other (International, commercial and central)
1,212
1,210 
1,122

1,212
1,122







Gross written premium (£m)
1,186 
1,147 
1,159  

3,456  
3,382  







Performance ratios






Return on equity (1)
1.2%
17.7%
18.8%

8.6%
18.8%
Cost:income ratio
15.9%
17.3%
16.0%

17.3%
17.2%
Adjusted cost:income ratio (2)
93.2%
57.0%
53.6%

70.7%
55.8%







Balance sheet






General insurance reserves - total (£m)
6,839 
6,601 
6,661 

6,839 
6,661 
Notes:
(1)        Based on divisional operating profit after tax, divided by divisional notional equity (based on regulatory capital).
(2)       
Based on total income and operating expenses above and after netting insurance claims against income.
 
Key points
 
·    
Income grew by 3% compared with 2Q09, driven by the success of the Group's own brands, with the partnerships and broker segment remaining flat. Churchill and Privilege have benefited from deployment on selected price comparison websites, with motor policy numbers up 25% and 13% respectively, and home policies up 33% and 186% respectively, compared with 3Q08. Year to date own brand premium income is up 10% against the prior year.
·    
Investment income declined 10% in the quarter and is 41% lower year to date, reflecting lower interest rates earned on the division's conservatively invested portfolio.
·    
Expenses fell by 5% in the quarter, mainly reflecting the phasing of marketing activity and a reduction in industry levies. Year to date, costs were held flat at £569 million, with wage inflation offset by efficiency reductions in headcount and reduced marketing spend.
·    
Net claims were significantly higher than expected in the quarter, with an increase of 22% compared with 2Q09. This was largely due to greater claims being made against our drivers for bodily injury accidents, resulting in the need to strengthen both current and prior years' claims reserves by a total of £118 million above that projected for the quarter. Significant action has now been taken to mitigate this impact including motor price increases and refining our claims handling processes. Year to date net claims were up 8%, with the additional impact of increases in creditor claims and home claims from cold weather in 1Q09.
 
·    
The UK combined operating ratio, including statutory business services costs was 104.2%, compared with 91.3% in the second quarter, with the impact of the increase in reserves for bodily injury claims only partially mitigated by commission and expense ratio improvement. The year to date combined ratio rose to 98.3%. 


 
Central items
 
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 
 
 
30 September 
2009 
30 September 
2008 

£m 
£m 
£m 

£m 
£m 














Fair value of own debt
(163)
(478)
633 

(257)
861 
Other
283 
166 
173 

554 
651 







Central items not allocated
120 
(312)
806 

297 
1,512 
 
 
Key points
 
 
·    
Funding and operating costs have been allocated to operating divisions, based on direct service usage, requirement for market funding and other appropriate drivers where services span more than one division.
 
·    
Residual unallocated items relate to volatile corporate items that do not naturally reside within a division.
 
·    
Items not allocated in the quarter amounted to a net credit of £120 million and comprised an increase in the carrying value of own debt partially offset by a net credit on a number of other volatile items, including the impact of economic hedges that do not qualify for IFRS hedge accounting.
 
 

 
Non-Core
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 
 
 
30 September 
2009 
30 September 
2008 
Income statement
£m 
£m 
£m 

£m 
£m 







Net interest income from banking activities
287 
274 
479 

956 
1,391 







Net fees and commissions receivable
132 
82 
260 

392 
752 
(Loss)/income from trading activities
(735)
(1,390)
68 

(4,990)
(5,186)
Insurance net premium income
173 
196 
252 

613 
737 
Other operating income
83 
(56)
(3)

52 
843 







Non-interest income
(347)
(1,168)
577 

(3,933)
(2,854)







Total income
(60)
(894)
1,056 

(2,977)
(1,463)







Direct expenses






- staff
(111)
(71)
(141)

(370)
(552)
- other
(223)
(220)
(257)

(673)
(772)
Indirect expenses
(132)
(137)
(131)

(411)
(387)








(466)
(428)
(529)

(1,454)
(1,711)







Operating (loss)/profit before other operating charges and impairment losses
(526)
(1,322)
527 

(4,431)
(3,174)
Insurance net claims
(126)
(137)
(170)

(440)
(508)
Impairment losses
(2,066)
(3,516)
(768)

(7,410)
(1,575)







Operating loss
(2,718)
(4,975)
(411)

(12,281)
(5,257)














Analysis of income:






Banking & Portfolio
(92)
(772)
739 

(774)
2,015 
Retail, Commercial & Countries
537 
570 
773 

1,769 
2,291 
Trading
(505)
(692)
(456)

(3,972)
(5,769)








(60)
(894)
1,056 

(2,977)
(1,463)







Key metrics













Performance ratios






Net interest margin
0.55% 
0.45%
0.38%

0.54% 
0.67%
Cost:income ratio
(776.7%)
(47.9%)
50.1%

(48.8%)
(117.0%)















30 September 
2009 
30 June 
 2009
 
Change 

31 December 
2008 
Change 

£bn 
£bn 
% 

£bn 
% 







Capital and balance sheet
*






Total third party assets (including derivatives**)
220.2 
231.9 
(5)

325.1 
(32)
Loans and advances to customers - gross
158.7 
163.6 
(3)

190.6 
(17)
Customer deposits
14.7 
13.4 
10 

26.6 
(45)
Risk elements in lending
23.3 
20.5 
14 

11.2 
108 
Loan:deposit ratio
1,078.5%
1,282.2%
(16)

718.1%
50 
Risk-weighted assets
190.3 
164.1 
16 

160.3 
19 
 
* includes disposal groups.
**
Derivatives were £23.6 billion at 30 September 2009 (30 June 2009 - £30.5 billion; 31 December 2008 -  £73.4 billion)


 
Non-Core
(continued)
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 
 
 
30 September 
2009 
30 September 
2008 

£m 
£m 
£m 

£m 
£m 







Credit and other market write-downs:*






Monoline exposures
106 
7 
109 

1,653 
2,229 
CDPCs
277 
371 
162 

846 
242 
Super senior CDOs
(148)
151 
- 

389 
1,892 
Leveraged finance
- 
- 
36 

- 
899 
CLO's
1 
- 
69 

1 
182 
Other credit exotics
46 
(15)
(130)

588 
231 
Equities
12 
13 
132 

34 
168 
Other
55 
51 
(78)

97 
(142)








349 
578 
300 

3,608 
5,701 
CDS Hedging
386 
813 
(368)

1,382 
(516)








735 
1,391 
(68)

4,990 
5,185 







Impairment losses:






Banking & Portfolio
878 
1,619 
252 

3,320 
498 
Retail, Commercial & Countries
1,234 
1,638 
360 

3,592 
887 
Trading
(46)
259 
156 

498 
190 








2,066 
3,516 
768 

7,410 
1,575 







Loan impairment charge as % of gross customer loans and advances:






Banking & Portfolio
4.04% 
7.16%
(0.33%)

5.01% 
0.24%
Retail, Commercial & Countries
7.22% 
9.44%
1.95% 

7.00% 
1.61%
Trading
(31.73%)
42.09%
7.52% 

(9.19%)
3.24%







Total
5.37% 
8.39%
1.03% 

5.66% 
0.98%








£bn 
£bn 
£bn 

£bn 
£bn 







Gross customer loans and advances:






Banking & Portfolio
88.4 
93.1 
91.1 

88.4 
91.1 
Retail, Commercial & Countries
68.4 
69.4 
73.5 

68.4 
73.5 
Trading
1.9 
1.1 
7.5 

1.9 
7.5 








158.7 
163.6 
172.1 

158.7 
172.1 







Risk-weighted assets:






Banking & Portfolio
73.1 
61.8 
42.9 

73.1 
42.9 
Retail, Commercial & Countries
45.9 
48.3 
53.8 

45.9 
53.8 
Trading
71.3 
54.0 
34.0 

71.3 
34.0 








190.3 
164.1 
130.7 

190.3 
130.7 
 
* Included in income from trading activities.
 
 


 
Non-Core
(continued)
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
 2008 
 
 
30 September 
2009 
30 September 
 2008 

£m 
£m 
£m 

£m 
£m 







Loan impairment losses by donating division and sector













UK Retail






Mortgages
1 
2 
- 

4 
1 
Personal
11 
17 
12 

42 
31 
Other
- 
- 
16 

- 
43 







Total UK Retail
12 
19 
28 

46 
75 







UK Corporate






Manufacturing & Infrastructure
14 
13 
4 

48 
13 
Property and construction
163 
229 
45 

517 
72 
Transport
5 
2 
7 

8 
8 
Telecoms, media and technology
- 
- 
- 

- 
- 
Banks and financials
1 
99 
2 

102 
3 
Lombard
27 
- 
- 

109 
- 
Invoice finance
2 
- 
- 

2 
- 
Other
32 
544 
29 

551 
96 







Total UK Corporate
244 
887 
87 

1,337 
192 







Ulster Bank






Mortgages
7 
11 
2 

26 
3 
Commercial inv. & dev.
20 
19 
2 

47 
3 
Residential inv. & dev.
406 
240 
6 

749 
34 
Other
148 
25 
5 

184 
11 
Other EMEA
27 
34 
20 

86 
61 







Total Ulster Bank
608 
329 
35 

1,092 
112 







US Retail and Commercial






Auto & consumer
49 
32 
52 

110 
82 
Cards
33 
45 
18 

104 
42 
SBO/home equity
70 
142 
51 

360 
218 
Residential mortgages
20 
18 
2 

42 
3 
Commercial real estate
85 
65 
32 

177 
39 
Commercial and other
38 
19 
6 

76 
11 







Total US Retail and Commercial
295 
321 
161 

869 
395 







Global Banking & Markets
832 
1,878 
408 

3,818 
688 







Other
75 
82 
49 

248 
113 







Total impairment losses
2,066 
3,516 
768 

7,410 
1,575 


 
Non-Core
(continued)
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
 2008 
 
 
30 September 
2009 
30 September 
 2008 

£bn 
£bn 
£bn 

£bn 
£bn 







Gross loans and advances to customers by donating division and sector (excluding reverse repurchase agreements)













UK Retail






Mortgages
2.0 
2.0 
2.3 

2.0 
2.3 
Personal
0.7 
0.9 
1.2 
  
0.7 
1.2 
Other
- 
- 
1.9 

- 
1.9 







Total UK Retail
2.7 
2.9 
5.4 

2.7 
5.4 







UK Corporate






Manufacturing & Infrastructure
0.3 
0.6 
0.3 

0.3 
0.3 
Property and construction
13.0 
13.5 
13.1 

13.0 
13.1 
Other
22.2 
23.0 
22.3 

22.2 
22.3 







Total UK Corporate
35.5 
37.1 
35.7 

35.5 
35.7 







Ulster Bank






Mortgages
6.3 
5.8 
5.2 

6.3 
5.2 
Commercial inv. & dev.
2.8 
0.6 
1.4 

2.8 
1.4 
Residential inv. & dev.
5.9 
7.9 
3.9 

5.9 
3.9 
Other
1.1 
1.1 
3.5 

1.1 
3.5 
Other EMEA
1.1 
0.8 
1.1 

1.1 
1.1 







Total Ulster Bank
17.2 
16.2 
15.1 

17.2 
15.1 







US Retail and Commercial






Auto & consumer
3.4 
3.5 
3.7 

3.4 
3.7 
Cards
0.6 
0.6 
0.6 

0.6 
0.6 
SBO/home equity
3.9 
4.0 
4.3 

3.9 
4.3 
Residential mortgages
0.9 
0.9 
1.0 

0.9 
1.0 
Commercial real estate
2.1 
2.1 
2.4 

2.1 
2.4 
Commercial and other
1.0 
1.2 
1.0 

1.0 
1.0 







Total US Retail and Commercial
11.9 
12.3 
13.0 

11.9 
13.0 







Global Banking & Markets
87.4 
91.6 
92.0 
  
87.4 
92.0 







Other
1.1 
0.8 
4.3 

1.1 
4.3 







Total loans and advances to customers
155.8 
160.9 
165.5 

155.8 
165.5 
 


 
Non-Core
(continued)
 
Key points
 
 
·    
Credit and other market write-downs were substantially lower in the third quarter, down from £1,390 million to £735 million with the widening in monoline spreads more than offset by reduced losses on hedges and credit derivative product companies and a rally in asset-backed securities. 
 
·    
Impairment losses were £1,450 million lower than in 2Q09, with reduced charges in UK Corporate and GBM portfolios, which included a number of large, single name impairments in the second quarter. Ulster Bank's impairments have increased materially as the market has continued to deteriorate.
 
·    
Third party assets (including MTM derivatives) were down 5% compared with 2Q09, and have declined by 32% compared with December 2008, as assets have been run-off and written down. Risk-weighted assets, however, increased by 16% during the third quarter to £190.3 billion and are 19% higher than at end 2008, as continued deterioration in the corporate economic environment has pushed the impact of procyclicality higher, particularly in real estate and leverage finance portfolios and due to downgrades on monolines.
 
 


 
Allocation methodology for indirect costs
 
 
Business Services directly attributable costs have been allocated to the operating divisions, based on their service usage.  Where services span more than one division an appropriate measure is used to allocate the costs on a basis which management considers reasonable.  Business Services costs are fully allocated and there are no residual unallocated costs.
 
Group Centre directly attributable costs have been allocated to the operating divisions, based on their service usage.  Where services span more than one division, the costs are allocated on a basis management considers reasonable.  The residual unallocated costs remaining in the Group centre relate to volatile corporate items that do not naturally reside within a division. 
 
Treasury costs are allocated to operating divisions as follows: term funding costs are allocated or rewarded based on long term funding gap or surplus; liquidity buffer funding costs are allocated based on share of overall liquidity buffer derived from divisional stresses; and capital cost or benefit is allocated based on share of divisional risk-adjusted RWAs.
 

Quarter ended

Nine months ended

30 September 
 2009 
30 June 
 2009
 
30 September 
2008  
 
 
30 September 
2009 
30 September 
2008 

£m 
£m 
£m 

£m 
£m 







Business Services costs






Property
497 
492 
427 

1,457 
1,241 
Operations
370 
357 
358 

1,105 
1,075 
Technology services and support functions
389 
474 
456 

1,318 
1,331 








1,256 
1,323 
1,241 

3,880 
3,647 







Allocated to divisions:






UK Retail
(381)
(397)
(409)

(1,178)
(1,201)
UK Corporate
(106)
(109)
(112)

(325)
(330)
Wealth
(29)
(31)
(31)

(90)
(90)
Global Banking & Markets
(134)
(152)
(118)

(411)
(346)
Global Transaction Services
(207)
(215)
(203)

(638)
(595)
Ulster Bank
(63)
(66)
(63)

(195)
(187)
US Retail & Commercial
(173)
(179)
(139)

(533)
(410)
RBS Insurance
(54)
(57)
(57)

(167)
(167)
Non-Core
(109)
(117)
(109)

(343)
(321)








- 
- 
- 

- 
- 







Group centre costs
232 
196 
170 

704 
484 







Allocated to divisions:






UK Retail
(66)
(55)
(39)

(208)
(113)
UK Corporate
(19)
(16)
(17)

(55)
(48)
Wealth
(13)
(10)
(8)

(39)
(22)
Global Banking & Markets
(57)
(49)
(42)

(174)
(115)
Global Transaction Services
(16)
(14)
(12)

(49)
(33)
Ulster Bank
(10)
(9)
(8)

(30)
(24)
US Retail & Commercial
(18)
(15)
(14)

(53)
(41)
RBS Insurance
(10)
(8)
(8)

(28)
(22)
Non-Core
(23)
(20)
(22)

(68)
(66)








- 
- 
- 

- 
- 
 


 
Allocation methodology for indirect costs (continued)
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 
 
 
30 September 
2009 
30 September 
2008 

£m 
£m 
£m 

£m 
£m 







Treasury funding costs
334 
334 
270 

1,088 
977 







Allocated to divisions:






UK Retail
(66)
(29)
(37)

(144)
(142)
UK Corporate
(47)
(63)
(41)

(211)
(149)
Wealth
28 
30 
(17)

67 
(67)
Global Banking & Markets
24 
44 
(32)

218 
(79)
Global Transaction Services
48 
38 
32 

107 
69 
Ulster Bank
(23)
5 
(16)

(26)
(55)
US Retail & Commercial
(48)
(14)
(15)

(85)
(73)
RBS Insurance
(12)
(7)
(4)

(30)
(21)
Non-Core
(238)
(338)
(140)

(984)
(460)








- 
- 
- 

- 
- 
 
 

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: 06 November 2009

  THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)


  By: /s/ A N Taylor

  Name:
Title:		 A N Taylor
Head of Group Secretariat