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 February 25, 2010

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 a Company announcement in London, England and is furnished pursuant to General Instruction B to the General Instructions to Form 6-K:


 

 

Statutory results

 

The condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of changes in equity, condensed consolidated cash flow statement and related notes presented on pages 173 to 209 inclusive are on a statutory basis and include the results and financial position of ABN AMRO.  The interests of the State of the Netherlands and Santander in RFS Holdings are included in minority interests. 

 

 

172



Condensed consolidated income statement

for the year ended 31 December 2009

 

In the income statement below, amortisation of purchased intangible assets and integration and restructuring costs are included in operating expenses.  Data for 2008 has been restated for the amendment to IFRS 2 'Share-based Payment'.

 

 

2009 

2008 

 

£m 

£m 

     

Interest receivable

33,836 

49,522 

Interest payable

(17,332)

(30,847)

     

Net interest income

16,504 

18,675 

     

Fees and commissions receivable

9,831 

9,831 

Fees and commissions payable

(2,822)

(2,386)

Income/(loss) from trading activities

3,881 

(8,477)

Gain on redemption of own debt

3,790 

Other operating income (excluding insurance premium income)

1,962 

1,899 

Insurance net premium income

5,544 

6,326 

     

Non-interest income

22,186 

7,193 

     

Total income

38,690 

25,868 

     

Staff costs

   

- excluding pension schemes curtailment gains

(11,783)

(10,410)

- pension schemes curtailment gains

2,148 

Premises and equipment

(3,087)

(2,593)

Other administrative expenses

(5,584)

(5,464)

Depreciation and amortisation

(2,809)

(3,154)

Write-down of goodwill and other intangible assets

(363)

(32,581)

     

Operating expenses*

(21,478)

(54,202)

     

Profit/(loss) before other operating charges and impairment losses

17,212 

(28,334)

Insurance net claims

(4,857)

(4,430)

Impairment losses

(14,950)

(8,072)

     

Operating loss before tax

(2,595)

(40,836)

Tax credit

371 

2,323 

     

Loss from continuing operations

(2,224)

(38,513)

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

(99)

3,971 

     

Loss for the year

(2,323)

(34,542)

Minority interests

(349)

10,832 

Preference shareholders

(878)

(536)

Paid-in equity holders

(57)

(60)

     

Loss attributable to ordinary and B shareholders

(3,607)

(24,306)

     
     

*Operating expenses include:

   
     

Integration and restructuring costs

   

- administrative expenses

1,268 

1,321 

- depreciation and amortisation

18 

36 

     
 

1,286 

1,357 

Amortisation of purchased intangible assets

272 

443 

     
 

1,558 

1,800 



173



Condensed consolidated statement of comprehensive income

for the year ended 31 December 2009

 

 

2009 

2008 

 

£m 

£m 

     

Loss for the year

(2,323)

(34,542)

     

Other comprehensive income:

   

Available-for-sale financial assets

2,016 

(7,406)

Cash flow hedges

684 

(1,456)

Currency translation

(3,300)

15,425 

Actuarial losses on defined benefit plans

(3,665)

(2,287)

Tax on other comprehensive income

430 

2,786 

     

Other comprehensive (loss)/income  for the year, net of tax

(3,835)

7,062 

     

Total comprehensive loss for the year

(6,158)

(27,480)

     

Attributable to:

   

Minority interests

(1,346)

(4,332)

Preference shareholders

878 

536 

Paid-in equity holders

57 

60 

Ordinary and B shareholders

(5,747)

(23,744)

     
 

(6,158)

(27,480)



174



 

Financial review

 

Operating loss

Operating loss before tax for the year was £2,595 million compared with a loss of £40,836 million in 2008.

 

Total income

Total income increased 50% to £38,690 million in 2009.

 

Net interest income decreased by 12% to £16,504 million.

 

Non-interest income increased to £22,186 million from £7,193 million in 2008. This included a gain on redemption of own debt of £3,790 million. Excluding the gain on redemption of own debt, non-interest income increased by £11,203 million primarily due to the increase in income from trading activities. 

 

Operating expenses

Operating expenses decreased from £54,202 million in 2008 to £21,478 million of which integration and restructuring costs were £1,286 million compared with £1,357 million in 2008. Write-down of goodwill and other intangible assets was £363 million compared with £32,581 million in 2008.

 

Net insurance claims

Bancassurance and general insurance claims, after reinsurance, increased by 10% to £4,857 million.

 

Impairment losses

Impairment losses were £14,950 million, compared with £8,072 million in 2008.

 

Taxation

The effective tax rate for 2009 was 14.3% compared with 5.7% in 2008.

 

Earnings

Basic earnings per ordinary and B share, including discontinued operations, improved from a loss of 146.7p to a loss of 6.4p.

 

Capital

Capital ratios at 31 December 2009 were 11.0% (Core Tier 1), 14.1% (Tier 1) and 16.1% (Total).

 

 

175

 



Condensed consolidated balance sheet

at 31 December 2009

 

 

2009 

2008 

 

£m 

£m 

     

Assets

   

Cash and balances at central banks

52,261 

12,400 

Net loans and advances to banks

56,656 

79,426 

Reverse repurchase agreements and stock borrowing

35,097 

58,771 

Loans and advances to banks

91,753 

138,197 

Net loans and advances to customers

687,353 

835,409 

Reverse repurchase agreements and stock borrowing

41,040 

39,313 

Loans and advances to customers

728,393 

874,722 

Debt securities

267,254 

267,549 

Equity shares

19,528 

26,330 

Settlement balances

12,033 

17,832 

Derivatives

441,454 

992,559 

Intangible assets

17,847 

20,049 

Property, plant and equipment

19,397 

18,949 

Deferred taxation

7,039 

7,082 

Prepayments, accrued income and other assets

20,985 

24,402 

Assets of disposal groups

18,542 

1,581 

     

Total assets

1,696,486 

2,401,652 

     

Liabilities

   

Bank deposits

104,138 

174,378 

Repurchase agreements and stock lending

38,006 

83,666 

Deposits by banks

142,144 

258,044 

Customer deposits

545,849 

581,369 

Repurchase agreements and stock lending

68,353 

58,143 

Customer accounts

614,202 

639,512 

Debt securities in issue

267,568 

300,289 

Settlement balances and short positions

50,876 

54,277 

Derivatives

424,141 

971,364 

Accruals, deferred income and other liabilities

30,327 

31,482 

Retirement benefit liabilities

2,963 

2,032 

Deferred taxation

2,811 

4,165 

Insurance liabilities

10,281 

9,976 

Subordinated liabilities

37,652 

49,154 

Liabilities of disposal groups

18,890 

859 

     

Total liabilities

1,601,855 

2,321,154 

     

Equity

   

Minority interests

16,895 

21,619 

Owners' equity*

   

  Called up share capital

14,630 

9,898 

  Reserves

63,106 

48,981 

     

Total equity

94,631 

80,498 

     

Total liabilities and equity

1,696,486 

2,401,652 

     
     

*Owners' equity attributable to:

   

Ordinary and B shareholders

69,890 

45,525 

Other equity owners

7,846 

13,354 

     
 

77,736 

58,879 



176

 

Commentary on condensed consolidated balance sheet 

 

Total assets of £1,696.5 billion at 31 December 2009 were down £705.2 billion, 29%, compared with 31 December 2008, principally reflecting substantial repayments of customer loans and advances as corporate customer demand fell and corporates looked to deleverage their balance sheets. Lending to banks also fell in line with significantly reduced wholesale funding activity. There were also significant falls in the value of derivative assets, with a corresponding fall in derivative liabilities.

 

Cash and balances at central banks were up £39.9 billion to £52.3 billion due to the placing of short-term cash surpluses, including the proceeds from the issue of B shares in December, with central banks.

 

Loans and advances to banks decreased by £46.4 billion, 34%, to £91.8 billion with reverse repurchase agreements and stock borrowing ('reverse repos') down by £23.7 billion, 40% to £35.1 billion and lower bank placings, down £22.7 billion, 29%, to £56.7 billion largely as a result of reduced wholesale funding activity in Global Banking & Markets.

 

Loans and advances to customers were down £146.3 billion, 17%, at £728.4 billion.  Within this, reverse repos increased by 4%, £1.7 billion to £41.0 billion.  Excluding reverse repos, lending decreased by £148.0 billion, 18%, to £687.4 billion or by £141.8 billion, 17%, before impairment provisions.  This reflected reductions in Global Banking & Markets of £71.4 billion, and planned reductions in Non-Core of £30.1 billion, including a £3.2 billion transfer to disposal groups in respect of RBS Sempra Commodities and the Asian and Latin American businesses. Reductions were also experienced in US Retail & Commercial, £7.4 billion; UK Corporate & Commercial, £5.4 billion; Ulster Bank, £1.8 billion; and the effect of exchange rate movements, £33.1 billion, following the strengthening of sterling during the year, partially offset by growth in UK Retail of £9.2 billion, and in Wealth of £1.4 billion.

 

Debt securities were flat at £267.3 billion and equity shares decreased by £6.8 billion, 26%, to £19.5 billion, principally due to the sale of the Bank of China investment and lower holdings in Global Banking & Markets and Non-Core, largely offset by growth in Group Treasury, in part reflecting an £18.0 billion increase in the gilt liquidity portfolio, and in the RFS Holdings minority interest.

 

Settlement balances were down £5.8 billion, 33%, at £12.0 billion as a result of lower customer activity.

 

Movements in the value of derivative assets, down £551.1 billion, 56%, to £441.5 billion, and liabilities, down £547.2 billion, 56%, to £424.1 billion, reflect the easing of market volatility, the strengthening of sterling and significant tightening in credit spreads in the continuing low interest rate environment.

 

Increases in assets and liabilities of disposal groups reflect the inclusion of the RBS Sempra Commodities business and the planned sale of a number of the Group's retail and commercial activities in Asia and Latin America.

 

Deposits by banks declined by £115.9 billion, 45%, to £142.1 billion due to a decrease in repurchase agreements and stock lending ('repos'), down £45.7 billion, 55%, to £38.0 billion and reduced inter-bank deposits, down £70.2 billion, 40% to £104.1 billion principally in Global Banking & Markets, reflecting reduced reliance on wholesale funding, and in the RFS Holdings minority interest.

 

 

177

 



 

Commentary on condensed consolidated balance sheet (continued)

 

Customer accounts were down £25.3 billion, 4%, to £614.2 billion. Within this, repos increased £10.2 billion, 18%, to £68.4 billion.  Excluding repos, deposits were down £35.5 billion, 6%, to £545.8 billion, primarily due to; reductions in Global Banking & Markets, down £43.6 billion; Non-Core, £13.0 billion; including the transfer of £8.9 billion to disposal groups; and Ulster Bank, £1.2 billion; together with exchange rate movements, £21.3 billion, offset in part by growth across all other divisions, up £23.0 billion, and in the RFS Holdings minority interest, up £20.6 billion.

 

Debt securities in issue were down £32.7 billion, 11% to £267.6 billion mainly as a result of movements in exchange rates, together with reductions in Global Banking & Markets, Non-Core and the RFS Holdings minority interest.
 

Retirement benefit liabilities increased by £0.9 billion, 46%, to £3.0 billion, with net actuarial losses of £3.7 billion, arising from lower discount rates and higher assumed inflation, partially offset by curtailment gains of £2.1 billion due to changes in prospective pension benefits.



Subordinated liabilities were down £11.5 billion, 23% to £37.7 billion, reflecting the redemption of £5.0 billion undated loan capital, £1.5 billion trust preferred securities and £2.7 billion dated loan capital, together with the effect of exchange rate movements and other adjustments, £2.9 billion, partly offset by the issue of £2.3 billion undated loan capital within the RFS Holdings minority interest.

 

Equity minority interests decreased by £4.7 billion, 22%, to £16.9 billion.  Equity withdrawals of £3.1 billion, due to the disposal of the investment in the Bank of China attributable to minority shareholders and the redemption, in part, of certain trust preferred securities, exchange rate movements of £1.4 billion, the recycling of related available-for-sale reserves to income, £0.5 billion, and dividends paid of £0.3 billion, were partially offset by attributable profits of £0.3 billion.

 

Owners' equity increased by £18.9 billion, 32% to £77.7 billion.  The issue of B shares to HM Treasury in December 2009 raised £25.1 billion, net of expenses, and was offset in part by the creation of a £1.2 billion reserve in respect of contingent capital B shares.  The placing and open offer in April 2009 raised £5.3 billion to fund the redemption of the £5.0 billion preference shares issued to HM Treasury in December 2008.  Actuarial losses, net of tax, of £2.7 billion; the attributable loss for the period, £2.7 billion; exchange rate movements of £1.9 billion; the payment of other owners dividends of £0.9 billion including £0.3 billion to HM Treasury on the redemption of preference shares, and partial redemption of paid-in equity  £0.3 billion were partly offset by increases in available-for-sale reserves, £1.8 billion; cash flow hedging reserves, £0.6 billion; and the equity owners gain on withdrawal of minority interests, net of tax, of £0.5 billion arising from the redemption of trust preferred securities. 

 

 

178

 



Condensed consolidated statement of changes in equity

for the year ended 31 December 2009

 

 

2009 

2008 

 

£m 

£m 

     

Called-up share capital

   

At beginning of year

9,898 

2,530 

Ordinary shares issued in respect of placing and open offers

4,227 

5,728 

Ordinary shares issued in respect of rights issue

1,531 

Ordinary shares issued in respect of capitalisation issue

101 

B shares issued

510 

Preference shares issued in respect of placing and open offer

Other shares issued during the year

Preference shares redeemed during the year

(5)

     

At end of year

14,630 

9,898 

     

Paid-in equity

   

At beginning of year

1,073 

1,073 

Securities redeemed during the year

(308)

Transfer to retained earnings

(200)

     

At end of year

565 

1,073 

     

Share premium account

   

At beginning of year

27,471 

17,322 

Ordinary shares issued in respect of placing and open offer,

  net of £95 million expenses

1,047 

Ordinary shares issued in respect of rights issue,

  net of £246 million expenses

10,469 

Ordinary shares issued in respect of capitalisation issue

(101)

Expenses of placing and open offer

(265)

Other shares issued during the year

46 

Preference shares redeemed during the year

(4,995)

     

At end of year

23,523 

27,471 

     

Merger reserve

   

At beginning of year

10,881 

10,881 

Issue of B shares, net of £399 million expenses

24,591 

Placing and open offer

14,273 

Transfer to retained earnings

(9,950)

(14,273)

     

At end of year

25,522 

10,881 

     

Available-for-sale reserves

   

At beginning of year

(3,561)

1,032 

Unrealised gains/(losses) in the year

1,202 

(6,808)

Realised losses in the year

981 

842 

Taxation

(377)

1,373 

     

At end of year

(1,755)

(3,561)

     

Cash flow hedging reserve

   

At beginning of year

(876)

(555)

Amount recognised in equity during the year

380 

(603)

Amount transferred from equity to earnings in the year

513 

198 

Taxation

(269)

84 

     

At end of year

(252)

(876)

 

179



Condensed consolidated statement of changes in equity

for the year ended 31 December 2009 (continued)

 

 

2009 

2008 

 

£m 

£m 

     

Foreign exchange reserve

   

At beginning of year

6,385 

(426)

Retranslation of net assets

(2,322)

11,970 

Foreign currency gains/(losses) on hedges of net assets

456 

(5,801)

Taxation

642 

     

At end of year

4,528 

6,385 

     

Capital redemption reserve

   

At beginning and end of year

170 

170 

     

Contingent capital reserve

   

At beginning of year

Contingent capital agreement - consideration payable  

(1,208)

     

At end of year

(1,208)

     

Retained earnings

   

At beginning of year

7,542 

21,072 

Loss attributable to ordinary and B shareholders and other equity owners

(2,672)

(23,710)

Ordinary dividends paid

(2,312)

Equity preference dividends paid

(878)

(536)

Paid-in equity dividends paid, net of tax

(57)

(60)

Transfer from paid-in equity

200 

Equity owners gain on withdrawal of minority interest

   

- gross

629 

- taxation

(176)

Transfer from merger reserve

9,950 

14,273 

Actuarial losses recognised in retirement benefit schemes

   

- gross

(3,756)

(1,807)

- taxation

1,043 

472 

Net cost of shares bought and used to satisfy share-based payments 

(16)

(19)

Share-based payments

   

- gross

325 

177 

- taxation

(8)

     

At end of year

12,134 

7,542 

     

Own shares held

   

At beginning of year

(104)

(61)

Shares purchased during the year

(33)

(64)

Shares issued under employee share schemes

16 

21 

     

At end of year

(121)

(104)

     

Owners' equity at end of year

77,736 

58,879 


180

 



Condensed consolidated statement of changes in equity

for the year ended 31 December 2009 (continued)

 

 

2009 

2008 

 

£m 

£m 

     

Minority interests

   

At beginning of year

21,619 

38,388 

Currency translation adjustments and other movements

(1,434)

9,256 

Acquisition of ABN AMRO

356 

Profit/(loss) attributable to minority interests

349 

(10,832)

Dividends paid

(313)

(285)

Movements in available-for-sale securities

   

- unrealised gains/(losses) in the year

299 

(1,288)

- realised gains in the year

(466)

(152)

- taxation

(36)

(7)

Movements in cash flow hedging reserves

   

- amount recognised in equity during the year

(209)

(1,015)

- amount transferred from equity to earnings in the year

(36)

- taxation

59 

220 

Actuarial gains/(losses) recognised in retirement benefit schemes

   

- gross

91 

(480)

- taxation

Equity raised

1,071 

Equity withdrawn and disposals

(2,445)

(13,579)

Transfer to retained earnings

(629)

     

At end of year

16,895 

21,619 

     

Total equity at end of year

94,631 

80,498 

     

Total comprehensive income recognised in the statement of changes in equity is attributable as follows:

   

Minority interests

(1,346)

(4,332)

Preference shareholders

878 

536 

Paid-in equity holders

57 

60 

Ordinary and B shareholders

(5,747)

(23,744)

     
 

(6,158)

(27,480)



181



Condensed consolidated cash flow statement

for the year ended 31 December 2009 

 

 

2009 

2008 

 

£m 

£m 

     

Operating activities

   

Operating loss before tax

(2,595)

(40,836)

Operating (loss)/profit before tax on discontinued operations

(101)

4,208 

Adjustments for non-cash items

18,387 

5,049 

 

   

Net cash inflow/(outflow) from trading activities

15,691 

(31,579)

Changes in operating assets and liabilities

(15,964)

(42,219)

     

Net cash flows from operating activities before tax

(273)

(73,798)

Income taxes paid

(719)

(1,540)

 

   

Net cash flows from operating activities

(992)

(75,338)

 

   

Net cash flows from investing activities

54 

16,997 

     

Net cash flows from financing activities

18,791 

15,102 

     

Effects of exchange rate changes on cash and cash equivalents

(8,592)

29,209 

     

Net increase/(decrease) in cash and cash equivalents

9,261 

(14,030)

Cash and cash equivalents at beginning of year

134,925 

148,955 

 

   

Cash and cash equivalents at end of year

144,186 

134,925 


 

182



 

Notes on statutory results

 

1. Basis of preparation

The directors have reviewed the Group's forecasts, projections and other relevant evidence. The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  Thus, the results for the year ended 31 December 2009 have been prepared on a going concern basis.

 

2. Accounting policies

The annual accounts of the Group are prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (together "IFRS") as adopted by the European Union ("EU").  It also complies with IFRS as issued by the IASB. 

 

The Group has implemented Vesting Conditions and Cancellation amendments to IFRS 2 Share-based Payment.  The amendments change the way the cancellation of share schemes by an employee are treated.  Previously, cancellations resulted in credits as the charge was trued up to reflect the reduction in the number of shares that vest.  Under the amendments, cancellations result in the amount that would otherwise have been recognised over the remainder of the vesting period being charged to profit or loss immediately. Implementation of these amendments has increased the charge for the Group's share schemes in 2009 by £325 million.  The Group's income statement, related notes and cash flow statement for the year ended 31 December 2008 has been restated increasing loss before tax by £169 million.  There is no effect on the Group's balance sheet at 31 December.

 

IAS 1 (Revised 2007) Presentation of Financial Statements has introduced a number of changes in the format and content of financial statements including a statement of changes in equity (showing the components of changes in equity for the period) as a primary financial statement and a statement of comprehensive income immediately following the income statement. 

 

The Group has adopted Improving Disclosures about Financial Instruments (Amendments to IFRS 7 Financial Instruments: Disclosures.  They expand disclosures required about fair value measurement and liquidity risk.

 

The Group has extended its accounting policy on derecognition to cover the redemption or settlement of issued debt:

 

On the redemption or settlement of debt securities (including subordinated liabilities) issued by the Group, the Group derecognises the debt instrument and records a gain or loss being the difference between the debt's carrying amount and the cost of redemption or settlement.  The same treatment applies where the debt is exchanged for a new debt issue that has terms substantially different from those of the existing debt.  The assessment of whether the terms of the new debt instrument are substantially different takes into account qualitative and quantitative characteristics including a comparison of the discounted present value of the cash flows under the new terms with the discounted present value of the remaining cash flows of the original debt issue. 

 

There are a number of other changes to IFRS that were effective from 1 January 2009.  They have had no material effect on the Group's financial statements.

 

 

183

 



 

Notes on statutory results(continued)

 

3. 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.  The Non-Core division is reported separately from the divisions which form the Core Group.  In addition, separate reporting of Business Services (formerly Group Manufacturing) and Centre results has changed and, with the exception of certain items of a one off nature, costs incurred are now allocated to the customer-facing divisions and included in the measurement of the returns which they generate.  The changes do not affect the Group's results.  Comparatives have been restated accordingly.

 

The statutory results for 2008 have been restated for the amendment to IFRS 2 'Share-based Payment'.  This has resulted in an increase in staff costs amounting to £169 million in 2008.

 

4. Goodwill

 

 

2009 

2008 

 

£m 

£m 

     

Amortisation and write-down of goodwill and other intangible assets

363 

32,581



 

The write-down of goodwill for the year ended 31 December 2009 principally relates to ABN AMRO and NatWest goodwill allocated to Non-Core businesses.

 

5. Pensions

 

 

2009 

2008 

Net pension deficit/(surplus)

£m 

£m 

     

At 1 January

1,996 

(115)

Currency translation and other adjustments

(114)

144 

Income statement

   

- Curtailment gains

(2,148)

- Pension cost

659 

490 

Net actuarial losses

3,665 

2,287 

Contributions by employer

(1,153)

(810)

     

At 31 December

2,905 

1,996 

     

Net assets of schemes in surplus

(58)

(36)

Net liabilities of schemes in deficit

2,963 

2,032 



 

Curtailment gains of £2,148 million have been recognised in 2009 arising from changes to pension benefits in the main UK scheme and certain other subsidiaries schemes due to the capping of future salary increases that will count for pension purposes to the lower of 2% or the rate of inflation in any year.

 

 

184



 

Notes on statutory results(continued)

 

5. Pensions (continued)

 

 

2009 

2008 

Pension costs (excluding curtailment gains)

£m 

£m 

     

Defined benefit schemes

659 

490 

Defined contribution schemes

126 

148 

     
 

785 

638 



 

Excluding curtailment gains, total pension costs for the year ended 31 December 2009 amounted to £785 million (2008 - £638 million). Defined benefit schemes charges are based on the actuarially determined pension cost rates at 31 December 2008.

 

At 31 December 2009, increased benefit obligations, reflecting lower discount rates and higher assumed inflation, have been partially offset by increased asset values. This has resulted in net actuarial losses for the year of £3,665 million (2008 - £2,287 million) and net defined benefit pension liabilities of £2,905 million at 31 December 2009 (2008 - £1,996 million).

 

The most recent funding valuation of the main UK scheme, as at 31 March 2007, showed a surplus of assets over liabilities of £0.7 billion.  The next valuation is due as at 31 March 2010 and the Group expects this valuation to show that liabilities exceed the value of the assets.  Following this valuation, the Group and scheme Trustees will agree the level of contributions to be paid to the scheme.  This could result in the amount of contributions payable in 2010 and subsequent years being materially different from the current rates based on the previous valuation.

 

 

185



 

Notes on statutory results(continued)

 

6. Loan impairment provisions

Operating loss is stated after charging loan impairment losses of £14,134 million (2008 - £7,091 million). The balance sheet loan impairment provisions increased in the year from £11,016 million to £17,283 million and the movements thereon were:

 

 

2009 

2008 

 

£m 

£m 

     

At beginning of year

11,016 

6,452 

Transfers to disposal groups

(324)

(767)

Currency translation and other adjustments

(530)

1,441 

Disposals

(65)

(178)

Amounts written-off

(6,939)

(3,148)

Recoveries of amounts previously written-off

399 

319 

Charge to income statement

14,134 

7,091 

Unwind of discount

(408)

(194)

     
 

17,283

11,016 



 

The provision at 31 December 2009 includes £157 million (2008 - £127 million) in respect of loans and advances to banks. The charge to the income statement in the table above excludes £816 million (2008 - £981 million) relating to available-for-sale securities.

 

7. Taxation

The credit for taxation differs from the tax credit computed by applying the standard UK corporation tax rate of 28% (2008 - 28.5%) as follows:

 

 

2009 

2008 

 

£m 

£m 

     

Loss before tax from continuing operations

(2,595)

(40,836)

     

Expected tax credit at 28% (2008 - 28.5%)

(727)

(11,638)

Non-deductible goodwill impairment

102 

8,292 

Unrecognised timing differences

(274)

274 

Other non-deductible items

508 

378 

Non-taxable items:

   

- gain on redemption of own debt

(693)

- other

(410)

(491)

Taxable foreign exchange movements

(1)

80 

Foreign profits taxed at other rates

320 

203 

Losses in year not recognised

780 

942 

Losses brought forward and utilised

(94)

(11)

Adjustments in respect of prior periods

118 

(352)

     

Actual tax credit

(371)

(2,323)



186



 

Notes on statutory results(continued)

 

8. Profit/(loss) attributable to minority interests

 

 

2009 

2008 

 

£m 

£m 

     

Trust preferred securities

39 

65 

Investment in Bank of China

359 

78 

Sempra

234 

164 

ABN AMRO

(295)

(11,153)

Other

12 

14 

     

Profit/(loss) attributable to minority interests

349 

(10,832)



 

9. Other owners' dividends

 

 

2009 

2008 

 

£m 

£m 

     

Preference shareholders

   

Non-cumulative preference shares of US$0.01

342 

293 

Non-cumulative preference shares of €0.01

201 

183 

Non-cumulative preference shares of £1

   

- issued to UK Financial Investments Limited (1)

274 

- other

61 

60 

     

Paid-in equity holders

   

Interest on securities classified as equity, net of tax

57 

60 

     
 

935 

596 



 

Note:

(1)

Includes £50 million redemption premium on repayment of preference shares.



187



 

Notes on statutory results(continued)

 

10. Earnings per ordinary and B share

Earnings per ordinary and B share have been calculated based on the following:

 

 

2009 

2008 

 

£m 

£m 

     

Earnings

   

Loss from continuing operations attributable  to ordinary and B shareholders

(3,535)

(24,220)

Gain on redemption of paid-in equity

200 

     

Adjusted loss from continuing operations attributable to ordinary and B shareholders

(3,335)

(24,220)

Add back finance on dilutive convertible securities

     

Diluted loss from continuing operations attributable to ordinary and B shareholders

(3,335)

(24,220)

     

Loss from discontinued operations  attributable to ordinary and B shareholders

(72)

(86)

     

Number of shares (millions)

   

Ordinary shares in issue during the year

51,494 

16,563 

B shares in issue during the year

1,397 

     

Weighted average number of ordinary and B shares in issue during the year

52,891 

16,563 

Effect of dilutive share options and convertible securities

438 

     

Diluted weighted average number of ordinary and B shares in issue during the year

53,329 

16,563 

     

Basic loss per ordinary and B share from continuing operations

(6.3p)

(146.2p)

     

Diluted loss per ordinary and B share from continuing operations

(6.3p)

(146.2p)

     

Basic loss per ordinary and B share from discontinued operations

(0.1p)

(0.5p)

     

Diluted loss per ordinary and B share from discontinued operations

(0.1p)

(0.5p)



 

11. Dividends

The Group has undertaken that, unless otherwise agreed with the European  Commission, neither the company nor any of its direct or indirect subsidiaries (excluding companies in the ABN AMRO Group) will pay external investors any dividends or coupons on existing hybrid capital instruments (including preference shares, B shares and upper and lower tier 2 instruments) from a date starting not later than 30 April 2010 and for a period of two years thereafter ("the Deferral period"), or exercise any call rights in relation to these capital instruments between 24 November 2009 and the end of the deferral period, unless there is a legal obligation to do so.  Hybrid capital instruments issued after 24 November 2009 will generally not be subject to the restriction on dividend or coupon payments or call options.

 

 

188

 



 

Notes on statutory results(continued)

 

12. Discontinued operations and assets and liabilities of disposal groups

 

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

 

2009 

2008 

 

 

£m 

£m 

 

     

 

Discontinued operations:

   

 

Total income

2,571 

 

Operating expenses

(1,407)

 

Impairment losses

(564)

 

Profit before tax

600 

 

Gain on disposal

3,859 

 

Operating profit before tax

4,459 

 

Tax on profit

(204)

 

Tax on gain on disposal

(33)

 

Profit after tax

4,222 

 

     

 

Business acquired exclusively with a view to disposal:

   

 

Loss after tax

(99)

(251)

 

     

 

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

(99)

3,971 

 



 

Discontinued operations for 2008 reflect the results of Banco Real sold to Santander on 24 July 2008.

 

Businesses acquired exclusively with a view to disposal comprise those ABN AMRO businesses, including Banca Antonveneta, Asset Management and Private Equity, classified as disposal groups on the acquisition of ABN AMRO on 17 October 2007. The Asset Management business was sold to Fortis on 3 April 2008. Banca Antonveneta, excluding its subsidiary Interbanca, was sold to Banca Monte dei Paschi de Siena S.p.A. on 30 May 2008.



189



 

Notes on statutory results(continued)

 

12. Discontinued operations and assets and liabilities of disposal groups (continued)

 

Assets and liabilities of disposal groups

 

2009

 
 

Sempra 

Other 

Total 

2008 

 

£m 

£m 

£m 

£m 

         

Assets of disposal groups

       

Cash and balances at central banks

129 

129 

Loans and advances to banks

314 

74 

388 

Loans and advances to customers

306 

2,910 

3,216 

Debt securities and equity shares

56 

848 

904 

Derivatives

6,361 

6,361 

Intangible assets

238 

238 

Settlement balances

1,579 

1,579 

Property, plant and equipment

92 

44 

136 

66 

Other assets

5,257 

160 

5,417 

         

Discontinued operations and other disposal groups

14,203 

4,165 

18,368 

66 

Assets acquired exclusively with a view to disposal

174 

174 

1,515 

         
 

14,203 

4,339 

18,542 

1,581 

         

Liabilities of disposal groups

       

Deposits by banks

560 

58 

618 

Customer accounts

1,961 

6,946 

8,907 

Derivatives

6,262 

421 

6,683 

Settlement balances

950 

950 

Subordinated liabilities

Other liabilities

1,260 

415 

1,675 

         

Discontinued operations and other disposal groups

10,993 

7,846 

18,839 

Liabilities acquired exclusively with a view  to disposal

51 

51 

859 

         
 

10,993 

7,897 

18,890 

859 



 

 At 31 December 2009, disposal groups comprise the assets and liabilities of:

 

·

RBS Sempra Commodities;

   

·

the Group's retail and commercial businesses across Asia and wholesale banking business in Vietnam, the Philippines, Taiwan and Pakistan;   

   

·

certain of the Group's commercial lending business in Latin America; and

   

·

the remaining ABN AMRO business, primarily Private Equity, classified as disposal groups on the acquisition of ABN AMRO.



 

At 31 December 2008, disposal groups related principally to the assets and liabilities of the remaining ABN AMRO business, primarily Private Equity, classified as disposal groups on the acquisition of ABN AMRO.

 

 

190

 



 

Notes on statutory results(continued)

 

13. Financial instruments

 

Classification

The following tables analyse the Group's financial assets and liabilities in accordance with the categories of financial instruments in IAS 39 'Financial Instruments: Recognition and Measurement'.  Assets and liabilities outside the scope of IAS 39 are shown separately.

 

 

Held-for

trading

Designated at fair value

through

 profit or loss

Available-for-sale

Loans and receivables

Other financial instruments (amortised cost)

Finance

leases

Non

financial

 assets/

liabilities

Total

2009

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

                 

Cash and balances at

  central banks

52,261 

52,261 

Loans and advances to

  banks

45,449 

46,304 

91,753 

Loans and advances to

  customers

42,277 

1,981 

671,037 

13,098 

728,393 

Debt securities

111,482 

2,603 

143,298 

9,871 

267,254 

Equity shares

14,443 

2,192 

2,893 

19,528 

Settlement balances

12,033 

12,033 

Derivatives (1)

441,454 

441,454 

Intangible assets

17,847 

17,847 

Property, plant and

  equipment

19,397 

19,397 

Deferred taxation

7,039 

7,039 

Prepayments, accrued

  income and other assets

1,421 

19,564 

20,985 

Assets of disposal groups

18,542 

18,542 

                 

Total assets

655,105 

6,776 

146,191 

792,927 

13,098 

82,389 

1,696,486 

                 

Deposits by banks

53,609 

88,535 

142,144 

Customer accounts

52,868 

8,580 

552,754 

614,202 

Debt securities in issue

3,925 

41,537 

222,106 

267,568 

Settlement balances and

  short positions

40,463 

10,413 

50,876 

Derivatives (1)

424,141 

424,141 

Accruals, deferred income

  and other liabilities

1,889 

467 

27,971 

30,327 

Retirement benefit liabilities

2,963 

2,963 

Deferred taxation

2,811 

2,811 

Insurance liabilities

10,281 

10,281 

Subordinated liabilities

1,277 

36,375 

37,652 

Liabilities of disposal

  groups

18,890 

18,890 

                 

Total liabilities

575,006 

51,394 

912,072 

467 

62,916 

1,601,855

1,601,829

                 

Equity

             

94,631 

                 
               

1,696,486



 

Note:

(1)

Held-for-trading derivatives include hedging derivatives.

 

191



 

Notes on statutory results(continued)

 

13. Financial instruments (continued)

 

Classification (continued)

 

 

 

Held-for-trading 

Designated  at fair value 

 through 

 profit or 

 loss 

Available-for-sale

Loans and 

receivables 

Other financial instruments (amortised cost)

Finance 

 leases 

Non 

financial 

 assets/ 

liabilities 

Total 

2008

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

                 

Cash and balances at

  central banks

12,400 

12,400 

Loans and advances to banks

56,234 

81,963 

138,197 

Loans and advances to

  customers

51,501 

2,141 

806,627 

14,453 

874,722 

Debt securities

116,280 

5,428 

132,856 

12,985 

267,549 

Equity shares

17,054 

2,101 

7,175 

26,330 

Settlement balances

17,832 

17,832 

Derivatives (1)

992,559 

992,559 

Intangible assets

-  

20,049 

20,049 

Property, plant and equipment

18,949 

18,949 

Deferred taxation

7,082 

7,082 

Prepayments, accrued income

  and other assets

1,326 

23,076 

24,402 

Assets of disposal groups

1,581 

1,581 

                 

Total assets

1,233,628 

9,670 

140,031 

933,133 

14,453 

70,737 

2,401,652 

                 

Deposits by banks

81,154 

176,890 

258,044 

Customer accounts

55,926 

8,054 

575,532 

639,512 

Debt securities in issue

3,992 

47,451 

248,846 

300,289 

Settlement balances and short

  positions

42,536 

11,741 

54,277 

Derivatives (1)

971,364 

971,364 

Accruals, deferred income and

  other liabilities

260 

1,619 

22 

29,581 

31,482 

Retirement benefit liabilities

2,032 

2,032 

Deferred taxation

4,165 

4,165 

Insurance liabilities

9,976 

9,976 

Subordinated liabilities

1,509 

47,645 

49,154 

Liabilities of disposal groups

859 

859 

                 

Total liabilities

1,155,232 

57,014 

1,062,273 

22 

46,613 

2,321,154 

                 

Equity

             

80,498 

                 
               

2,401,652 



 

Note:

(1)

Held-for-trading derivatives include hedging derivatives.

192



 

Notes on statutory results(continued)

 

13. Financial instruments (continued)

 

Valuation of financial instruments carried at fair value

Certain aspects relating to the valuation of financial instruments carried at fair value are discussed below.

 

Valuation reserves

When valuing financial instruments in the trading book, adjustments are made to mid-market valuations to cover bid-offer spread, liquidity, credit risk and future administrative costs.

 

Valuation reserves and adjustments comprise:

 

 

2009 

 

 2008 

 

£m 

£m 

     

Credit valuation adjustments:

   

Monoline insurers

3,796 

5,988 

CDPCs

499 

1,311 

Other counterparties

1,588 

1,738 

     
 

5,883 

9,037 

     

Bid-offer and liquidity reserves

2,814 

3,260 

     
 

8,697 

12,297 

Debit valuation adjustments:

   

Debt securities in issue

(2,331)

(2,373)

Derivatives

(467)

(450)

     

Total debit valuation adjustments

(2,798)

(2,823)

     

Total reserves

5,899 

9,474 



 

Credit valuation adjustments (CVA) represent an estimate of the adjustment to fair value that a market participant would make to incorporate the credit risk inherent in counterparty derivative exposures. The Group makes such credit adjustments to derivative exposures it has to counterparties, as well as debit valuation adjustments (DVA) to liabilities issued by the Group. CVA is discussed in Risk and capital management - Market turmoil - Credit valuation adjustments (page 157). Bid-offer, liquidity reserves and own credit are discussed below.

 

Bid-offer and liquidity reserves

Fair value positions are adjusted to bid or offer levels by marking individual cash based positions directly to bid or offer or by taking bid-offer reserves calculated on a portfolio basis for derivatives exposures.

 

Bid-offer and liquidity reserves reduced during the year, driven mainly by the tightening of spread across all asset classes in the first half of the year and risk reductions in the second half of the year, most notably in the interest rate trading business, partly off-set by additional reserves reflecting the implementation of a revised derivative discounting approach.

 

 

193



 

Notes on statutory results(continued)

 

13. Financial instruments (continued)

 

Own credit

In accordance with IFRS, when valuing financial liabilities recorded at fair value, the Group takes into account the effect of its own credit standing.  The categories of financial liabilities on which own credit spread adjustments are made are issued debt, including issued structured notes, and derivatives.  An own credit adjustment is applied to positions where it is believed that counterparties would consider the Group's creditworthiness when pricing trades. 

 

For issued debt and structured notes, this adjustment is based on independent quotes from market participants for the debt issuance spreads above average inter-bank rates, (at a range of tenors) which the market would demand when purchasing new senior or sub-debt issuances from the Group.  Where necessary, these quotes are interpolated using a curve shape derived from CDS prices. 

 

The reserve movement between periods will not equate to the reported profit or loss for own credit. The balance sheet reserves are stated by conversion of underlying currency balances at spot rates for each period, however the income statement includes intra-period foreign exchange sell-offs.

 

The table below shows the own credit spread adjustments on liabilities recorded during the year ended 31 December 2009.

 

 

Debt securities in issue

     
 

Held-for 

-trading (1) 

Designated at fair

 value through

 profit and loss 

Total 

 

Derivatives (2) 

Total 

 

£m 

£m 

£m 

 

£m 

£m 

             

Cumulative own credit adjustment:

           

2009

1,237 

1,094 

2,331 

 

467 

2,798 

             

2008

1,346 

1,027 

2,373 

 

450 

2,823 

             
             
 

£bn 

£bn 

£bn 

 

£bn 

£bn 

             

Book value of underlying liabilities:

           

2009

36.6 

13.3 

49.9 

 

16.8 

66.7 

             

2008

25.5 

16.9 

42.4 

 

43.5 

85.9 



 

Notes:

(1)

The held-for-trading portfolio consists of wholesale and retail note issuances.

(2)

The effect of changes in foreign exchange rates, new issues and redemptions are not captured separately.


 

194

 



 

Notes on statutory results(continued)

 

13. Financial instruments (continued)

 

Valuation hierarchy

The table below shows the financial instruments carried at fair value, by valuation method.

 

 

Total 

Level 1 

Level 2 

Level 3 

   

Level 3 sensitivity

2009

£bn 

£bn 

£bn 

£bn 

   

£m 

£m 

                 

Assets

               

Loans and advances:

               

- banks

45.4 

45.4 

   

- customers

44.3 

43.2 

1.1 

   

80 

(40)

                 

Debt securities

               

- government

146.8 

130.1 

16.7 

   

- RMBS

57.7 

57.2 

0.5 

   

30 

(10)

- CMBS

4.1 

4.0 

0.1 

   

30 

- CDOs

3.6 

2.6 

1.0 

   

130 

(80)

- CLOs

8.8 

8.0 

0.8 

   

80 

(50)

- other ABS

6.1 

5.2 

0.9 

   

120 

(40)

- corporate

11.4 

10.8 

0.6 

   

70 

(20)

- other (3)

18.9 

0.2 

18.5 

0.2 

   

10 

(30)

                 
 

257.4 

130.3 

123.0 

4.1 

   

470 

(230)

Equity shares

19.5 

15.4 

2.6 

1.5 

   

280 

(220)

Derivatives

               

- foreign exchange

69.4 

69.2 

0.2 

   

10 

- interest rate

323.6 

0.3 

321.8 

1.5 

   

80 

(100)

- equities

6.5 

0.4 

5.8 

0.3 

   

20 

(20)

- commodities

0.3 

0.3 

   

- credit - APS

1.4 

1.4 

   

1,370 

(1,540)

- credit - other

40.3 

0.1 

37.2 

3.0 

   

420 

(360)

                 
 

441.5 

0.8 

434.3 

6.4 

   

1,900 

(2,020)

                 
                 

Total assets

808.1 

146.5 

648.5 

13.1 

   

2,730 

(2,510)

                 

Liabilities

               

Deposits:

               

- banks

53.6 

53.6 

   

- customers

61.4 

61.3 

0.1 

   

(10)

Debt securities in issue

45.5 

43.2 

2.3 

   

50 

(10)

Short positions

40.5 

27.1 

13.2 

0.2 

   

10 

(20)

Derivatives

               

- foreign exchange

63.9 

63.9 

   

- interest rate

311.3 

0.1 

310.4 

0.8 

   

40 

(60)

- equities

9.5 

1.0 

8.3 

0.2 

   

20 

(70)

- commodities

0.2 

0.2 

   

- credit

39.2 

38.2 

1.0 

   

80 

(100)

                 
 

424.1 

1.1 

421.0 

2.0 

   

140 

(230)

Other financial liabilities (4)

1.3 

1.3 

   

                 
                 

Total liabilities

626.4 

28.2 

593.6 

4.6 

   

200 

(270)



195



 

Notes on statutory results(continued)

 

13. Financial instruments (continued)

 

Valuation hierarchy (continued)
 

 

Total 

Level 1 

Level 2 

Level 3 

   

Level 3 sensitivity

2008

£bn 

£bn 

£bn 

£bn 

   

£m 

£m 

                 

Assets

               

Loans and advances:

               

- banks

56.2 

56.2 

   

- customers

53.6 

50.5 

3.1 

   

70 

(50)

                 

Debt securities

               

- government

105.9 

68.7 

37.2 

   

- RMBS

72.8 

72.3 

0.5 

   

40 

(90)

- CMBS

3.9 

3.3 

0.6 

   

30 

(30)

- CDOs

8.6 

6.9 

1.7 

   

410 

(440)

- CLOs

8.7 

7.7 

1.0 

   

40 

(40)

- other ABS

8.1 

6.6 

1.5 

   

10 

(10)

- corporate

18.0 

0.9 

15.8 

1.3 

   

40 

(40)

- other (3)

28.5 

4.1 

24.1 

0.3 

   

                 
 

254.5 

73.7 

173.9 

6.9 

   

570 

(650)

Equity shares

26.4 

15.4 

9.9 

1.1 

   

80 

(160)

Derivatives

               

- foreign exchange

173.3 

2.2 

171.0 

0.1 

   

- interest rate

654.8 

0.4 

652.9 

1.5 

   

80 

(80)

- equities

9.2 

0.5 

8.6 

0.1 

   

(10)

- commodities: Sempra

11.6 

11.0 

0.6 

   

50 

(50)

- commodities : other

1.4 

1.4 

   

- credit

142.3 

0.8 

133.5 

8.0 

   

1,030 

(1,200)

                 
 

992.6 

3.9 

978.4 

10.3 

   

1,160 

(1,340)

                 
                 

Total assets

1,383.3 

93.0 

1,268.9 

21.4 

   

1,880 

(2,200)

                 

Liabilities

               

Deposits:

               

- banks

81.1 

81.1 

   

- customers

64.0 

63.7 

0.3 

   

Debt securities in issue

51.4 

47.0 

4.4 

   

190 

(170)

Short positions

42.5 

36.0 

6.5 

   

Derivatives

               

- foreign exchange

173.4 

2.2 

171.2 

   

- interest rate

641.0 

0.4 

639.7 

 0.9 

   

90 

(90)

- equities

12.2 

0.9 

11.2 

0.1 

   

- commodities: Sempra

10.9 

10.5 

0.4 

   

30 

(30)

- commodities: other

1.2 

1.2 

   

- credit

132.7 

0.1 

130.0 

2.6 

   

180 

(160)

                 
 

971.4 

3.6 

963.8 

4.0 

   

300 

(280)

Other financial liabilities (4)

1.8 

1.5 

0.3 

   

60 

(40)

                 
                 

Total liabilities

1,212.2 

39.6 

1,163.6 

9.0 

   

550 

(490)



196

 

Notes on statutory results(continued)

 

13. Financial instruments (continued)

 

Valuation hierarchy (continued)

 

Amounts classified as available-for-sale comprise:

 

 

Total 

Level 1 

Level 2 

Level 3 

 

Level 3 sensitivity

 

£bn 

£bn 

£bn 

£bn 

 

£m 

£m 

               

2009

             

Debt securities

143.3 

70.3 

71.7 

1.3 

 

90 

(50)

Equity shares

2.9 

0.5 

1.7 

0.7 

 

100 

(90)

               
 

146.2 

70.8 

73.4 

2.0 

 

190 

(140)

               

2008

             

Debt securities

132.8 

20.9 

108.9 

3.0 

 

90 

(120)

Equity shares

7.2 

4.8 

2.1 

0.3 

 

60 

(110)

               
 

140.0 

25.7 

111.0 

3.3 

 

150 

(230)



 

Notes:

(1)

Level 1: valued using quoted prices in active markets, examples include G10 government securities listed equity shares, certain exchange-traded derivatives, and certain US agency securities.

 

Level 2: most government agency securities, investment-grade corporate bonds, most traded loans, repos and reverse repos, less liquid listed equities, state and municipal obligations, certain MBS, including CDOs and CLOs, most physical commodities, investment contracts issued by the Group's life assurance businesses and certain money market securities and loan commitments and most OTC derivatives.

 

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

(2)

Sensitivity represents the reasonably possible favourable and unfavourable effect respectively on the income statement or the statement of comprehensive income due to reasonably possible changes to valuations using reasonably possible alternative inputs to the Group's valuation techniques or models. Totals for sensitivities are not indicative of the total potential effect on the income statement or the statement of comprehensive income.

(3)

Primarily includes debt securities issued by banks and building societies.

(4)

Comprise subordinated liabilities and write downs relating to undrawn syndicated loan facilities



197



 

Notes on statutory results (continued)

 

13. Financial instruments (continued)

 

Reclassification of financial instruments 

During 2008, as permitted by amended IAS 39, the Group reclassified financial assets from the held-for-trading and available-for-sale categories into the loans and receivables category and from the held-for-trading category into the available-for-sale category. There were further reclassifications from the held-for-trading category to the loans and receivables category during 2009. The following tables detail the effect of the reclassifications and the balance sheet values of the assets.

 

 

Reduction in profit or loss as a result of reclassifications for the year ended 2009

   
   

Reclassified in:

 

Total 

2009 

2008 

 

£m 

£m 

£m 

       

From held-for-trading to:

     

Available-for-sale

1,280 

1,280 

Loans and receivables

1,705 

37 

1,668 

       
 

2,985 

37 

2,948 



 

 

 Assets 

reclassified in 

 2009: 

 

 

2009

All reclassifications

 

 

2008

All reclassifications (1)

 

Carrying value 

 

Carrying value 

Fair value 

 

Carrying value 

Fair value 

 

£m 

 

£m 

£m 

 

£m 

£m 

               

From held-for-trading to:

             

Available-for-sale

 

7,629 

7,629 

 

12,047 

12,047 

Loans and receivables

1,995 

 

12,933 

10,644 

 

20,774 

16,628 

               
 

1,995 

 

20,562 

18,273 

 

32,821 

28,675 

               

From available-for-sale to:

             

Loans and receivables

 

869 

745 

 

1,016 

956 

               
 

1,995 

 

21,431 

19,018 

 

33,837 

29,631 



 

Note:

(1)

31 December 2008 amounts have been restated



 

During the year ended 31 December 2009, the balance sheet value of reclassified assets reduced by £12.4 billion.  This was primarily due to disposals and repayments of £12.1 billion across a range of asset backed securities and loans including disposals through restructures of £3.4 billion on real estate and leverage financed positions. Other movements include impairment charges of £1.7 billion, foreign exchange rate losses of £2.0 billion offset by gains taken to the available-for-sale reserve of £1.1 billion, and reclassifications of £2.0 billion in 2009.

 

For assets reclassified from held-for-trading to available-for-sale, net unrealised losses recorded in equity at 31 December 2009 were £0.6 billion (2008 - £2.2 billion).

 

 

198



 

Notes on statutory results(continued)

 

14. Debt securities

 

 

UK central 

 and local 

 government 

US central 

 and local 

 government 

Other central 

 and local 

 government 

Bank and 

 building 

 society 

Asset 

 backed 

 securities 

Corporate 

Other 

Total 

 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

                 

2009

               

Held-for-trading

8,128 

10,427 

50,219 

6,103 

28,820 

6,892 

893 

111,482 

Designated as at fair

  value through profit or

  loss

122 

402 

483 

394 

1,178 

21 

2,603 

Available-for-sale

19,071 

12,972 

45,512 

11,210 

51,044 

3,365 

124 

143,298 

Loans and receivables

7,924 

1,853 

93 

9,871 

                 
 

27,322 

23,402 

96,133 

17,796 

88,182 

13,288 

1,131 

267,254 

                 

2008

               

Held-for-trading

5,372 

9,859 

37,519 

11,021 

39,879 

11,057 

1,573 

116,280 

Designated as at fair

  value through profit or

  loss

2,085 

510 

472 

89 

236 

1,580 

456 

5,428 

Available-for-sale

11,330 

6,152 

32,480 

13,139 

62,067 

5,400 

2,288 

132,856 

Loans and receivables

114 

8,961 

3,749 

161 

12,985 

                 
 

18,787 

16,521 

70,471 

24,363 

111,143 

21,786 

4,478 

267,549 



 

15. Derivatives

 

 

2009

2008

 

Assets 

Liabilities 

Assets 

Liabilities 

 

£m 

£m 

£m 

£m 

         

Exchange rate contracts

       

Spot, forwards and futures

26,744 

24,898 

83,065 

83,568 

Currency swaps

25,883 

23,466 

53,398 

54,728 

Options purchased

16,656 

36,762 

Options written

15,555 

35,017 

         

Interest rate contracts

       

Interest rate swaps

265,528 

253,793 

548,040 

532,180 

Options purchased

55,976 

99,192 

Options written

55,589 

102,216 

Futures and forwards

2,088 

2,033 

7,600 

6,620 

         

Credit derivatives

41,748 

39,127 

142,366 

132,734 

         

Equity and commodity contracts

6,831 

9,680 

22,136 

24,301 

         
 

441,454 

424,141 

992,559 

971,364 



199



 

Notes on statutory results(continued)

 

15. Derivatives (continued)

The Group enters into master netting agreements in respect of its derivatives activities. These arrangements, which give the Group a legal right to set-off derivative assets and liabilities with the same counterparty, do not result in a net presentation in the Group's balance sheet for which IFRS requires an intention to settle net or to realise the asset and settle the liability simultaneously as well as a legally enforceable right to set off.  They are, however, effective in reducing the Group's credit exposure from derivative assets. The Group has executed master netting agreements with the majority of its derivative counterparties resulting in a significant reduction in its net exposure to derivative assets.  Of the £441 billion derivatives assets shown above, £359 billion (2008 - £834 billion) were subject to such agreements. Furthermore the Group holds substantial collateral against this net derivative asset exposure.

 

16. Available-for-sale reserves

Available-for-sale financial assets are initially recognised at fair value plus directly related transaction costs and subsequently measured at fair value with changes in fair value reported in shareholders' equity until disposal, at which stage the cumulative gain or loss is recognised in profit or loss.  When there is objective evidence that an available-for-sale financial asset is impaired, any decline in its fair value below original cost is removed from equity and recognised in profit or loss.

 

Impairment losses are recognised when there is objective evidence of impairment.  The Group reviews its portfolios of available-for-sale financial assets for such evidence which includes: default or delinquency in interest or principal payments; significant financial difficulty of the issuer or obligor; and it becoming probable that the issuer will enter bankruptcy or other financial reorganisation.  However, the disappearance of an active market because an entity's financial instruments are no longer publicly traded is not evidence of impairment.  Furthermore, a downgrade of an entity's credit rating is not, of itself, evidence of impairment, although it may be evidence of impairment when considered with other available information.  A decline in the fair value of a financial asset below its cost or amortised cost is not necessarily evidence of impairment.  Determining whether objective evidence of impairment exists requires the exercise of management judgment.  The unrecognised losses on the Group's available for sale debt securities are concentrated in its portfolios of mortgage-backed securities.  The losses reflect the widening of credit spreads as a result of the reduced market liquidity in these securities and the current uncertain macro-economic outlook in US and Europe.  The underlying securities remain unimpaired.

 

During 2009 impairment losses of £816 million (2008 - £981 million) were charged to profit or loss and net unrealised gains of £1,202 million (2008 - £6,808 million loss) were recognised directly in equity on available-for-sale financial assets. Available-for-sale reserves at 31 December 2009 amounted to net losses of £1,755 million (2008 - net losses £3,561 million). 

 

 

200

 



 

Notes on statutory results(continued)

 

17. Capital resources

The Group's regulatory capital resources at 31 December in accordance with Financial Services Authority (FSA) definitions were as follows:

 

 

2009 

2008 

Composition of regulatory capital

£m 

£m 

     

Tier 1

   

Ordinary and B shareholders' equity

69,890 

45,525 

Minority interests

16,895 

21,619 

Adjustments for:

   

Goodwill and other intangible assets - continuing

(17,847)

(20,049)

Goodwill and other intangible assets - discontinued business

(238)

Unrealised losses on available-for-sale debt securities

1,888 

3,687 

Reserves arising on revaluation of property and unrealised gains

  on available-for-sale equities

(207)

(984)

Reallocation of preference shares and innovative securities

(656)

(1,813)

Other regulatory adjustments

(1,184)

(362)

Less expected losses over provisions

(2,558)

(770)

Less securitisation positions

(1,353)

(663)

Less APS first loss

(5,106)

     

Core Tier 1 capital

59,524 

46,190 

Preference shares

11,265 

16,655 

Innovative Tier 1 securities

5,213 

7,383 

Tax on the excess of expected losses over provisions

1,020 

308 

Less deductions from Tier 1 capital

(601)

(689)

     

Total Tier 1 capital

76,421 

69,847 

     

Tier 2

   

Reserves arising on revaluation of property and unrealised gains

  on available-for-sale equities

207 

984 

Collective impairment allowances

796 

666 

Perpetual subordinated debt

4,950 

9,829 

Term subordinated debt

20,063 

23,162 

Minority and other interests in Tier 2 capital

11 

11 

Less deductions from Tier 2 capital

(5,532)

(2,429)

Less APS first loss

(5,106)

     

Total Tier 2 capital

15,389 

32,223 

     

Tier 3

260 

     

Supervisory deductions

   

Unconsolidated investments

(4,472)

(4,044)

Other deductions

(93)

(111)

     

Deductions from total capital

(4,565)

(4,155)

     

Total regulatory capital

87,245 

98,175 



201



 

Notes on statutory results(continued)

 

18. Analysis of contingent liabilities and commitments

 

 

2009 

2008 

 

£m 

£m 

     

Contingent liabilities

   

Guarantees and assets pledged as collateral security

40,008 

49,262 

Other contingent liabilities

14,012 

22,275 

     
 

54,020 

71,537 

     

Commitments

   

Undrawn formal standby facilities, credit lines and other commitments to lend

291,634 

352,398 

Other commitments

6,007 

9,326 

     
 

297,641 

361,724 

     

Total contingent liabilities and commitments

351,661 

433,261 



 

Additional contingent liabilities arise in the normal course of the Group's business.  It is not anticipated that any material loss will arise from these transactions.

 

19. Litigation

As a participant in the financial services industry, RBS Group operates in a legal and regulatory environment that exposes it to potentially significant litigation risks. As a result, RBS plc and other members of RBS Group are involved in various disputes and legal proceedings in the United Kingdom, the United States and other jurisdictions, including litigation. Such cases are subject to many uncertainties, and their outcome is often difficult to predict, particularly in the earlier stages of a case.
 
Other than as set out below in this section -"Litigation", so far as RBS Group is aware, neither RBS plc nor any member of RBS Group is or has been engaged in or has pending or threatened any governmental, legal or arbitration proceedings, which may have or have had in the recent past (covering the 12 months immediately preceding the date of this document) a significant effect on RBS Group's financial position or profitability.
 

Unarranged overdraft charges

In common with other banks in the United Kingdom, RBS plc and NatWest have received claims and complaints from a large number of customers in the United Kingdom seeking refunds of unarranged overdraft charges (the "Charges"). The vast majority of these claims and complaints have challenged the Charges on the basis that they contravene the Unfair Terms in Consumer Contracts Regulations 1999 (the "Regulations") or are unenforceable under the common law penalty doctrine (or both).

202



 

Notes on statutory results (continued)

 

19. Litigation (continued)

 

Unarranged overdraft charges (continued)
In July 2007, the Office of Fair Trading ("OFT") issued proceedings in a test case in the English High Court against the banks which was intended to determine certain issues concerning the legal status and enforceability of contractual terms relating to the Charges.  The test case concluded in November 2009 with a judgment of the Supreme Court in favour of the banks. As a result of the court rulings made in the test case, RBS Group expects substantially all of the customer claims and complaints it has received relating to the Charges to fail. RBS Group cannot at this stage predict with any certainty the final outcome of all customer claims and complaints. It is unable reliably to estimate any liability that may arise as a result of or in connection with these matters or its effect on RBS Group's consolidated net assets, operating results or cash flows in any particular period.
 

Shareholder litigation

RBS Group and a number of its subsidiaries and certain individual officers and directors have been named as defendants in a class action filed in the United States District Court for the Southern District of New York. The consolidated amended complaint alleges certain false and misleading statements and omissions in public filings and other communications during the period 1 March 2007 to 19 January 2009, and variously asserts claims under Sections 11, 12 and 15 of the Securities Act 1933, Sections 10 and 20 of the Securities Exchange Act 1934 and Rule 10b-5 thereunder.
 
The putative class is composed of (1) all persons who purchased or otherwise acquired RBS Group securities between 1 March 2007 and 19 January 2009; and/or (2) all persons who purchased or otherwise acquired RBS Series Q, R, S, T and/or U non-cumulative dollar preference shares issued pursuant or traceable to the 8 April 2005 SEC registration statement and were damaged thereby. Plaintiffs seek unquantified damages on behalf of the putative class.
 
RBS Group has also received notification of similar prospective claims in the United Kingdom and elsewhere but no court proceedings have been commenced in relation to these claims.
 
RBS Group considers that it has substantial and credible legal and factual defences to these claims and will defend them vigorously. RBS Group is unable reliably to estimate the liability, if any, that might arise or its effect on RBS Group's consolidated net assets, operating results or cash flows in any particular period.

 

203



 

Notes on statutory results (continued)

 

19. Litigation (continued)

 

Other securitisation and securities related litigation in the United States

RBS Group companies have been named as defendants in a number of purported class action and other lawsuits in the United States that relate to the securitisation and securities underwriting businesses. In general, the cases involve the issuance of mortgage backed securities, collateralised debt obligations, or public debt or equity where the plaintiffs have brought actions against the issuers and underwriters of such securities (including RBS Group companies) claiming that certain disclosures made in connection with the relevant offerings of such securities were false or misleading with respect to alleged "sub-prime" mortgage exposure. RBS Group considers that it has substantial and credible legal and factual defences to these claims and will continue to defend them vigorously. RBS Group cannot at this stage reliably estimate the liability, if any, that may arise as a result of or in connection with these lawsuits, individually or in the aggregate, or their effect on RBS Group's consolidated net assets, operating results or cash flows in any particular period.
 

World Online International NV.

In November 2009 the Supreme Court in the Netherlands gave a declaratory judgment against World Online International NV, Goldmans Sachs International and ABN AMRO Bank NV in relation to claims arising out of the World Online initial public offering of 2000.  It held that these Defendants had committed certain wrongful acts in connection with the initial public offering. The judgment does not establish liability or the amount of any loss. RBS Group does not believe that any final liability or loss will have a significant effect on RBS Group's financial position or profitability.

 

Summary of other disputes, legal proceedings and litigation

Members of RBS Group are engaged in other litigation in the United Kingdom and a number of overseas jurisdictions, including the United States, involving claims by and against them arising in the ordinary course of business. RBS Group has reviewed these other actual, threatened and known potential claims and proceedings and, after consulting with its legal advisers, does not expect that the outcome of these other claims and proceedings will have a material adverse effect on RBS Group's financial position or profitability in any particular period.
 

20. Investigations

RBS Group's businesses and financial condition can be affected by the fiscal or other policies and other actions of various governmental and regulatory authorities in the United Kingdom, the European Union, the United States and elsewhere. RBS Group has engaged, and will continue to engage, in discussions with relevant regulators, including in the United Kingdom and the United States, on an ongoing and regular basis informing them of operational, systems and control evaluations and issues as deemed appropriate or required. It is possible that any matters discussed or identified may result in investigatory actions by the regulators, increased costs being incurred by RBS Group, remediation of systems and controls, public or private censure or fines. Any of these events or circumstances could have a material adverse impact on RBS Group, its business, reputation, results of operations or the price of securities issued by it.

204



 

Notes on statutory results (continued)

 

 20. Investigations (continued)
In particular there is continuing political and regulatory scrutiny of the operation of the retail banking and consumer credit industries in the United Kingdom and elsewhere. The nature and impact of future changes in policies and regulatory action are not predictable and are beyond RBS Group's control but could have an adverse impact on RBS Group's businesses and earnings.

 

Retail banking

In the European Union, regulatory actions included an inquiry into retail banking initiated on 13 June 2005 in all of the then 25 member states by the European Commission's Directorate General for Competition. The inquiry examined retail banking in Europe generally. On 31 January 2007, the European Commission announced that barriers to competition in certain areas of retail banking, payment cards and payment systems in the European Union had been identified. The European Commission indicated that it will consider using its powers to address these barriers and will encourage national competition authorities to enforce European and national competition laws where appropriate.
 

Multilateral interchange fees

In 2007, the European Commission issued a decision that while interchange is not illegal per se, MasterCard's current multilateral interchange fee ("MIF") arrangement for cross border payment card transactions with MasterCard and Maestro branded consumer credit and debit cards in the European Union are in breach of competition law. MasterCard was required by the decision to withdraw the relevant cross-border MIFs (i.e. set these fees to zero) by 21 June 2008.
 
MasterCard appealed against the decision to the European Court of First Instance on 1 March 2008, and the Group has intervened in the appeal proceedings. In addition, in Summer 2008, MasterCard announced various changes to its scheme arrangements. The EC Commission was concerned that these changes might be used as a means of circumventing the requirements of the infringement decision. In April 2009 MasterCard agreed an interim settlement on the level of cross-border MIF with the European Commission pending the outcome of the appeal process and, as a result, the European Commission has advised it will no longer investigate the non-compliance issue (although MasterCard is continuing with its appeal).
 
Visa's cross-border MIFs were exempted in 2002 by the European Commission for a period of five years up to 31 December 2007 subject to certain conditions. On 26 March 2008, the European Commission opened a formal inquiry into Visa's current MIF arrangements for cross border payment card transactions with Visa branded debit and consumer credit cards in the European Union and on 6 April 2009 the European Commission announced that it had issued Visa with a formal Statement of Objections. At the same time Visa announced changes to its interchange levels and introduced some changes to enhance transparency. There is no deadline for the closure of the inquiry.

 

 

205

 



 

Notes on statutory results (continued)

 

20. Investigations (continued)

 

Multilateral interchange fees (continued)
In the UK, the OFT has carried out investigations into Visa and MasterCard domestic credit card interchange rates. The decision by the OFT in the MasterCard interchange case was set aside by the Competition Appeal Tribunal (the "CAT") in June 2006. The OFT's investigations in the Visa interchange case and a second MasterCard interchange case are ongoing. On 9 February 2007, the OFT announced that it was expanding its investigation into domestic interchange rates to include debit cards. In January 2010 the OFT advised that it did not anticipate issuing a Statement of Objections prior to the European Court's judgment, although it has reserved the right to do so if it considers it appropriate.
 
The outcome of these investigations is not known, but they may have an impact on the consumer credit industry in general and, therefore, on RBS Group's business in this sector.
 

Payment Protection Insurance

Having conducted a market study relating to Payment Protection Insurance ("PPI"), on 7 February 2007 the OFT referred the PPI market to the Competition Commission ("CC") for an in-depth inquiry. The CC published its final report on 29 January 2009 and announced its intention to order a range of remedies, including a prohibition on actively selling PPI at point of sale of the credit product (and for 7 days thereafter), a ban on single premium policies and other measures to increase transparency (in order to improve customers' ability to search and improve price competition). Barclays Bank PLC subsequently appealed certain CC findings to the Competition Appeal Tribunal ("CAT"). On 16 October 2009, the CAT handed down a judgment quashing the ban on selling PPI at the point of sale of credit products and remitted the matter back to the CC for review. The CC's current Administrative Timetable is to publish a supplementary report by Summer 2010 and give further consideration to its full range of recommended remedies and a draft order to implement them during Autumn 2010.
 
The FSA has been conducting a broad industry thematic review of PPI sales practices and in September 2008, the FSA announced that it intended to escalate its level of regulatory intervention. Substantial numbers of customer complaints alleging the mis-selling of PPI policies have been made to banks and to the FOS and many of these are being upheld by the FOS against the banks.
 
In September 2009, the FSA issued a consultation paper on guidance on the fair assessment of PPI mis-selling complaints and, where necessary, the provision of an appropriate level of redress. The consultation also covers proposed rules requiring firms to re-assess (against the new guidance) all PPI mis-selling complaints received and rejected since 14 January 2005. A policy statement containing final guidance and rules is expected in early 2010. Separately, discussions continue between the FSA and RBS Group in respect of concerns expressed by the FSA over certain categories of historical PPI sales. 
 

Personal current accounts

On 16 July 2008, the OFT published the results of its market study into personal current accounts in the United Kingdom. The OFT found evidence of competition and several positive features in the personal current account market but believes that the market as a whole is not working well for consumers and that the ability of the market to function well has become distorted.

 

 

206

 

 

Notes on statutory results (continued)

 

20. Investigations (continued)

 

Personal current accounts (continued)
On 7 October 2009, the OFT published a follow-up report summarising the initiatives agreed between the OFT and personal current account providers to address the OFT's concerns about transparency and switching, following its market study. Personal current account providers will take a number of steps to improve transparency, including providing customers with an annual summary of the cost of their account and making charges prominent on monthly statements. To improve the switching process, a number of steps are being introduced following work with BACS, the payment processor, including measures to reduce the impact on consumers of any problems with transferring direct debits.
 
On 22 December 2009, the OFT published a further report in which it stated that it continued to have significant concerns about the operation of the personal current account market in the United Kingdom, in particular in relation to unarranged overdrafts, and that it believed that fundamental changes are required for the market to work in the best interests of bank customers. The OFT stated that it would discuss these issues intensively with banks, consumer groups and other organisations, with the aim of reporting on progress by the end of March 2010.
 

US dollar clearing activities

In connection with a previously disclosed investigation of ABN AMRO's New York Branch by US regulatory authorities, ABN AMRO and members of ABN AMRO's management continue to provide information to the United States Department of Justice relating to ABN AMRO's dollar clearing activities, United States Department of Treasury compliance procedures and other Bank Secrecy Act of 1970 compliance matters.  ABN AMRO has reached an agreement in principle with the United States Department of Justice that would resolve all presently known aspects of the ongoing investigation, although no written agreement has yet been reached and negotiations continue. Under the terms of the agreement in principle, ABN AMRO and the United States would enter into a deferred prosecution agreement in which ABN AMRO would waive indictment and agree to the filing of information in the United States District Court charging it with certain violations of federal law based on information disclosed in an agreed factual statement. ABN AMRO would also agree to continue co-operating in the United States' ongoing investigation and to settle all known civil and criminal claims currently held by the United States for the sum of US$500 million. The precise terms of the deferred prosecution agreement are still under negotiation.

 

Securitisation and collateralised debt obligation business

The New York State Attorney General has issued subpoenas to a wide array of participants in the securitisation and securities industry, focusing on the information underwriters obtained as part of the due diligence process from the independent due diligence firms. RBS Securities Inc. has produced documents requested by the New York State Attorney General, principally related to loans that were pooled into one securitisation transaction and will continue to cooperate with the investigation. More recently, the Massachusetts Attorney General has issued a subpoena to RBS Securities Inc. seeking information related to residential mortgage lending practices and sales and securitisation of residential mortgage loans. These respective investigations are in the early stages and therefore it is difficult to predict the potential exposure from any such investigation. RBS Group and its subsidiaries are co-operating with these various investigations and requests.

207



 

Notes on statutory results(continued)

 

20. Investigations (continued)

 

Other investigations

In the UK, the OFT has been investigating RBS Group for alleged conduct in breach of Article 101 of the Treaty on the Functioning of the European Union and/or the Chapter 1 prohibition of the Competition Act 1998 relating to the provision of loan products to professional services firms. RBS Group is co-operating fully with the OFT's investigation.
 
In April 2009 the FSA notified RBS Group that it was commencing a supervisory review of the acquisition of ABN AMRO in 2007 and the 2008 capital raisings and an investigation into conduct, systems and controls within the Global Banking & Markets division of the Group. RBS Group and its subsidiaries are cooperating fully with this review and investigation.
 
In November 2009, the FSA informed RBS Group that it was commencing an investigation into certain aspects of the policies of, and training and controls within, certain of RBS Group's UK subsidiaries relating to compliance with UK money laundering regulations during the period from December 2007 to December 2008. RBS Group and its subsidiaries are cooperating fully with this investigation.
 
In January 2010, the FSA informed RBS Group that it intended to commence an investigation into certain aspects of the handling of customer complaints. The scope of the proposed investigation (including which businesses and subsidiaries are affected) is not yet clear. RBS Group and its subsidiaries intend to co-operate fully with this investigation.
 
In the United States, RBS Group and certain subsidiaries have received requests for information from various governmental agencies, self-regulatory organisations, and state governmental agencies including in connection with sub-prime mortgages and securitisations, collateralised debt obligations and synthetic products related to sub-prime mortgages. In particular, during March 2008, RBS Group was advised by the US Securities and Exchange Commission that it had commenced a non-public, formal investigation relating to RBS Group's United States sub-prime securities exposures and United States residential mortgage exposures. RBS Group and its subsidiaries are cooperating with these various requests for information and investigations.

 

 

208

 



 

Notes on statutory results(continued)

 

21. The Financial Services Compensation Scheme

The Financial Services Compensation Scheme (FSCS), the UK's statutory fund of last resort for customers of authorised financial services firms, pays compensation if a firm is unable to meet its obligations. The FSCS funds compensation for customers by raising management expenses levies and compensation levies on the industry. In relation to protected deposits, each deposit-taking institution contributes towards these levies in proportion to their share of total protected deposits on 31 December of the year preceding the scheme year (which runs from 1 April to 31 March), subject to annual maxima set by the Financial Services Authority (FSA). In addition, the FSCS has the power to raise levies ('exit levies') on firms who have ceased to participate in the scheme and are in the process of ceasing to be authorised for the amount that the firm would otherwise have been asked to pay during the relevant levy year.

 

FSCS has borrowed from HM Treasury to fund the compensation costs associated with Bradford & Bingley, Heritable Bank, Kaupthing Singer & Friedlander, Landsbanki 'Icesave' and London Scottish Bank plc. These borrowings are on an interest-only basis until September 2011. The annual limit on the FSCS management expenses levy for the three years from September 2008 in relation to these institutions has been capped at £1 billion per annum.

 

The FSCS will receive funds from asset sales, surplus cash flow, or other recoveries in relation to these institutions which will be used to reduce the principal amount of the FSCS's borrowings. Only after the interest only period, which is expected to end in September 2011, will a schedule for repayment of any remaining principal outstanding (after recoveries) on the borrowings be agreed between the FSCS and HM Treasury. It is expected that, from that point, the FSCS will begin to raise compensation levies (principal repayments). No provision has been made for these levies as the amount is not yet known and is unlikely to be determined before 2011.

 

22. Related party transactions

Full details of the Group's related party transactions for the year ended 31 December 2009 are included in the Group's 2009 Annual Report and Accounts.

 

23. Date of approval

This announcement was approved by the Board of directors on 24 February 2010.

 

24. Filings with the US Securities and Exchange Commission (SEC)

A report on Form 20-F will be filed with the Securities and Exchange Commission in the United States.

 

209



 

Average balance sheet - statutory 

 

 

2009

 

2008

 

Average 

     

Average 

   
 

Balance 

Interest 

Rate 

 

Balance 

Interest 

Rate 

 

£m 

£m 

 

£m 

£m 

               

Assets

             

Interest-earning assets - banking

  business

903,838 

33,902 

3.75 

 

887,194 

49,938 

5.63 

               

Trading business

291,092 

     

425,454 

   

Non-interest earning assets

828,550 

     

728,037 

   
               

Total assets

2,023,480 

     

2,040,685 

   
               

Liabilities

             

Interest-bearing liabilities - banking

  business

818,422 

17,682 

2.16 

 

832,350 

31,707 

3.81 

Trading business

331,380 

     

466,610 

   

Non-interest-bearing liabilities

             

- demand deposits

43,605 

     

37,421 

   

- other liabilities

772,770 

     

645,760 

   

Shareholders' equity

57,303 

     

58,544 

   
               

Total liabilities

2,023,480 

     

2,040,685 

   


 

 

 

2009 

2008 

Average yields, spreads and margins of the banking business

     

Gross yield on interest-earning assets of banking business

3.75 

5.63 

Cost of interest-bearing liabilities of banking business

(2.16)

(3.81)

     

Interest spread of banking business

1.59 

1.82 

Benefit from interest-free funds

0.20 

0.23 

     

Net interest margin of banking business

1.79 

2.05 



 

Notes:

(1)

Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities.

(2)

Interest-earning assets and interest-bearing liabilities exclude the Retail bancassurance long-term assets and liabilities, attributable to policyholders, in view of their distinct nature.  As a result, interest income has been increased by £20 million (2008 - £84 million).

(3)

Changes in the fair value of interest-bearing financial instruments designated as at fair value through profit or loss are recorded in other operating income in the consolidated income statement.  In the average balance sheet shown above, interest includes increased interest income and interest expense related to these instruments of £46 million (2008 - £332 million) and £350 million (2008 - £860 million) respectively and the average balances have been adjusted accordingly.

 

210



 

Analysis of non-interest income, expenses and impairment losses - statutory

 

 

2009 

2008 

 

£m 

£m 

     

Fees and commissions receivable

9,831 

9,831 

Fees and commissions payable

   

- banking

(2,456)

(1,985)

- insurance related

(366)

(401)

     

Net fees and commissions

7,009 

7,445 

     

Foreign exchange

2,465 

1,994 

Interest rate

3,875 

1,454 

Credit

(4,108)

(12,200)

Other

1,649 

275 

     

Income/(loss) from trading activities

3,881 

(8,477)

     

Gain on redemption of own debt

3,790 

     

Operating lease and other rental income

1,391 

1,525 

Changes in the fair value of own debt

51 

977 

Changes in the fair value of securities and other financial assets and liabilities

101 

(1,730)

Changes in the fair value of investment properties

(117)

(86)

Profit on sale of securities

294 

342 

Profit on sale of property, plant and equipment

43 

167 

(Loss)/profit on sale of subsidiaries and associates

(135)

943 

Life business profits/(losses)

156 

(52)

Dividend income

86 

281 

Share of profits less losses of associated entities

(195)

69 

Other income

287 

(537)

     

Other operating income

1,962 

1,899 

     

Non-interest income (excluding insurance premiums)

16,642 

867 

     

Insurance net premium income

5,544 

6,326 

     

Total non-interest income

22,186 

7,193 

     

Staff costs

   

- wages, salaries and other staff costs

10,063 

9,076 

- bonus tax

208 

- social security costs

727 

696 

- pension costs

   

   -  gains on pensions curtailment

(2,148)

   -  other

785 

638 

Premises and equipment

3,087 

2,593 

Other

5,584 

5,464 

     

Administrative expenses

18,306 

18,467 

Write-down of goodwill and other intangible assets

363 

32,581 

Depreciation and amortisation

2,809 

3,154 

     

Operating expenses

21,478 

54,202 

 

   

General insurance

4,223 

3,733 

Bancassurance

634 

697 

 

   

Insurance net claims

4,857 

4,430 

 

   

Loan impairment losses

14,134 

7,091 

Impairment of available-for-sale securities

816 

981 

 

   

Impairment losses

14,950 

8,072 

211



 

Capital resources and ratios - statutory

 

 

2009 

2008 

 

£m 

£m 

     

Capital base

   

Core Tier 1 capital

59,524 

46,190 

Preference shares and tax deductible securities

16,478 

24,038 

Deductions from Tier 1 capital net of tax credit on expected losses

419 

(381)

     

Tier 1 capital

76,421 

69,847 

Tier 2 capital

15,389 

32,223 

Tier 3 capital

260 

     
 

91,810 

102,330 

Less: Supervisory deductions 

(4,565)

(4,155)

     

Total regulatory capital

87,245 

98,175 

     

Risk-weighted assets

   

Credit risk

513,200 

551,300 

Counterparty risk

56,500 

61,100 

Market risk

65,000 

46,500 

Operational risk

33,900 

36,900 

     
 

668,600 

695,800 

APS relief

(127,600)

     
 

541,000 

695,800 

     

Risk asset ratio

   

Core Tier 1

11.0% 

6.6%

Tier 1

14.1% 

10.0%

Total

16.1% 

14.1%



 

212



 

Additional information

 

Other information

2009 

2008

 

   

Ordinary share price

£0.292 

£0.494

     

Number of ordinary shares in issue

56,366m

39,456m

     

Market capitalisation

£16.5bn

£19.5bn

     

Net asset value per ordinary share

£0.67 

£1.15

     

Employee numbers in continuing operations

   

(full time equivalents rounded to the nearest hundred)

   

UK Retail

25,500 

28,400

UK Corporate

12,300 

13,400

Wealth

4,600 

5,200

Global Banking & Markets

16,800 

16,500

Global Transaction Services

3,500 

3,900

Ulster Bank

4,500 

5,400

US Retail & Commercial

15,500 

16,200

RBS Insurance

13,900 

14,500

Group Centre

4,200 

4,300

     

Core

100,800 

107,800

Non-Core

15,100 

19,000

     
 

115,900 

126,800

Business services

44,200 

47,600

Integration

500 

900

RFS Holdings minority interest

23,100 

24,500

     

Group total

183,700 

199,800



 

 

Statutory results

Financial information contained in this document does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006 ('the Act').  The statutory accounts for the year ended 31 December 2009 will be filed with the Registrar of Companies following the company's Annual General Meeting.  The auditors have reported on these accounts: their report was unqualified and did not contain a statement under section 498(2) or (3) of the Act.

 

 

 

213

 


 




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: 25 February 2010

  THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)


  By: /s/ A N Taylor

  Name:
Title:
A N Taylor
Head of Group Secretariat